Foster v. Broas

• Decision Date: 18 April 1899
• Citation: 79 N.W. 696,120 Mich. 1
• Court: Michigan Supreme Court
• Parties: FOSTER v. BROAS ET AL. [1]

79 N.W. 696

120 Mich. 1

FOSTER v. BROAS ET AL. ^[1]

Supreme Court of Michigan

April 18, 1899

Appeal from circuit court, Ingham county; Rollin H. Person, Judge.

Suit by Seymour Foster, receiver of the People's Savings Bank against Charles Broas and others. There was a decree for complainant, and some of defendants appeal. Reversed in part.

E. C. Chapin, M. D. Chatterton, William A. Fraser and Bartlett Wiley, for appellants.

Russel C. Ostrander, for appellee.

LONG J.

Complainant is receiver of the People's Savings Bank. The defendants it is claimed, are stockholders in that bank. This suit, by bill in equity, is brought to enforce the statutory liability of stockholders for the benefit of the depositors of the bank. The suit was commenced against all the resident stockholders, and a decree entered against them in the court below. Only the six defendants here have appealed, and each relies upon some special defense not common to the whole body of stockholders. There are some questions raised, however, which go to the jurisdiction, and in which all the defendants have a common interest. It appears that the bank was organized June 29, 1885, with a capital stock of $25,000, and was permitted by its articles to do a savings business only. On July 5, 1889, amended articles were filed, adding a new clause, stating the bank to be both a commercial and savings bank. On January 23, 1892, the stockholders voted to increase the capital stock to $150,000. The bank failed, and ceased to do business on July 11, 1896. The reasons for such failure need not be set up here. The receiver took possession on July 15, 1896. He found on hand in the bank in cash $2,915.95. There was a balance at the Chase National Bank, New York, of $1,343.32. Excepting these two items, the bank had no cash. The total assets of the bank up to the time of the hearing of this case in the court below were $394,050.65, as shown by the books of the bank, and of which the receiver estimates (and his estimate is not disputed) $184,536.45 worthless and $88,305.04 doubtful, leaving $121,209.16 of good assets, which is about the amount of collateral pledged by the bank to secure the persons from whom it had borrowed money. He found the total liabilities of the bank, as shown from the books, exclusive of capital stock, to be $249,140.63, showing a deficit over liabilities and capital stock, after taking out all the good and one-half of the doubtful assets, of over $230,000. The claim of the receiver is that, having ascertained to his satisfaction that after exhausting all the assets of the bank the depositors would not be fully paid, and having also ascertained the amount of the deficiency, it was his duty to apply to the court by petition for an order judicially determining the necessity to proceed against the stockholders that the amount might be ascertained and an order obtained to enforce the liability. This proceeding was ex parte. The petition was filed, testimony taken, and the court found that it would require an assessment of 70 per cent. upon the stockholders to pay depositors and expenses of administration. The receiver was thereupon directed to proceed by bill in chancery to enforce the liability.

The theory of the receiver is that the bank was insolvent, and unable to pay its depositors in cash as their demands might be made upon it; that the liability of the stockholders of the bank to pay depositors is a contractual, and not a penal, liability or obligation; that this statutory liability creates and places at the disposal of the receiver an asset equal in amount to the capital stock, and which he can use, when necessary, to pay depositors; that the bank has depositors whose claims were due at any time upon presentation, and due, as matter of law, when the bank shut its doors; that the duty of the stockholders to furnish funds with which to pay depositors was immediate, and the liability under the statute was one to be immediately enforced by the receiver; that the receiver in this proceeding represents in no sense the bank as a corporation, but represents the depositors only; that, the necessity for the assessment being apparent, and the amount of the assessment being ascertained with reasonable certainty, and that assessment being less than the par value of the stock, the proceeding to enforce the liability should be in equity, and might be against all the stockholders, although the obligation on the part of the stockholders is a several, and not a joint, one. On the other hand, it is claimed by some of the stockholders that the liability is a collateral one, and can be enforced only after it has been ascertained that the assets of the bank are insufficient to pay depositors; that this requires that the receiver shall absolutely exhaust the assets of the bank before applying to the stockholders for contribution; that the necessity for an assessment could not be determined by the court ex parte, but should have been upon notice and hearing; and that the order made for the assessment, and for this suit to enforce the assessment, was without jurisdiction, and not binding upon any of the stockholders. Whether the court could proceed ex parte to make the order in this case is not now important. The petition made by the receiver gave the court jurisdiction to determine, at least, the necessity for the commencement of the proceeding against the stockholders to collect some amount, as it was made apparent that there was a deficiency. On the hearing on the bill in the present case, the receiver, without waiving reliance upon the ex parte order determining the amount of the deficiency and directing the necessity for the bringing of the suit, established by testimony the condition of the bank and the necessity for an assessment of at least 70 per cent., being the amount theretofore fixed by the court in the ex parte order. There was no testimony offered on the part of the stockholders to show that the bank was solvent, or that the receiver's estimates were not correct; and, in fact, there was no testimony offered by the stockholders showing that the condition of the bank was not as claimed by him, nor did they attempt to question the value fixed by him upon the assets. Counsel for the receiver, however, cites many cases supporting the procedure for the ex parte order here taken, though he concedes that a stockholder might show in the proceeding that the bank was not in fact insolvent, but had ample cash or other assets with which to pay its indebtedness; and some of the cases cited by counsel seem to hold that the facts upon which the circuit judge acted in making the ex parte order were untrue, or that there was collusion or fraud inducing the ordering of the assessment. But, as no such showing was made here, and the complainant did not rest upon the ex parte order, but introduced testimony showing the necessity and the amount, that question need not be discussed. We are satisfied that the court had jurisdiction, and that there was no error in directing the proceedings.

The liability may be enforced in law or equity. 3 How. Ann. St. � 3208e5, being section 46, Act No. 205, Pub. Acts 1887. This section provides: "The stockholders of every bank shall be individually liable, equally and ratably and not one for another, for the benefit of the depositors in said bank to the amount of their stock at the par value thereof, in addition to the said stock; but persons holding stock as executors, administrators, guardians or trustees and persons holding stock as collateral security, shall not be personally liable as stockholders, but the assets and funds in their hands constituting the trust shall be liable to the same extent as the testator, intestate, ward or person interested in such trust funds would be, if living or competent to act; and the person pledging such stock shall be deemed the stockholder and liable under this section. Such liability may be enforced in a suit at law or in equity by any such bank in process of liquidation or by any receiver or other officer succeeding to the legal rights of said bank." Section 55 of the act reads: "On becoming satisfied that any bank has refused to pay its deposits, *** the commissioner of the banking department may forthwith *** apply to a court of record *** for the appointment of a receiver, who, under the direction of the court, shall take possession of the books, *** and may, if necessary to pay the debts of such bank, enforce all individual liability of the stockholders." The national banking law contains a similar provision, the only difference being that the liability is imposed for the benefit of all the creditors of the bank, instead of for depositors only. Section 5151, Rev. St. U.S. Under this United States statute, it is held that, when the comptroller of the currency orders an assessment upon stockholders in national banks, the necessity for assessment and the amount of it are not open to question in a suit against stockholders. Bushnell v. Leland, 164 U.S. 684, 17 S.Ct. 209. The practice under out state banking law places the circuit judge in the position of the comptroller under the national banking act. Bank v. Judge, 98 Mich. 173, 57 N.W. 121. The petition for the appointment of the receiver is addressed to the circuit judge, and he makes the appointment. The receiver is an officer of that court. That court, by the terms of the statute, has jurisdiction to determine the necessity for making an assessment and the amount thereof. The contention of defendants cannot be sustained. The liability of the stockholders is fixed by statute. It is not a mere collateral undertaking. When the bank became insolvent, and closed its doors, the depositors were entitled to an immediate payment of their money; and, when...