Haberlach v. Tillamook County Bank

• Decision Date: 25 November 1930
• Parties: HABERLACH v. TILLAMOOK COUNTY BANK ET AL.
• Court: Oregon Supreme Court

293 P. 927

134 Or. 279

HABERLACH v. TILLAMOOK COUNTY BANK ET AL.

Supreme Court of Oregon

November 25, 1930

In Banc.

Appeal from Circuit Court, Tillamook County; George R. Bagley Judge.

Suit by Carl Haberlach against the Tillamook County Bank and another. Judgment sustaining a demurrer to the answer, and defendants appeal.

Affirmed.

Gus C. Moser and Richard Sleight, both of Portland for appellants.

H. T Botts, of Tillamook (Botts & Winslow, of Tillamook, on the brief), for respondent.

RAND J.

Prior to the amendment of section 3, article 11 of the Oregon Constitution, which amendment went into effect on November 29, 1912, the Tillamook County Bank was organized, and plaintiff subscribed for 37 shares of its capital stock and paid the par value thereof in cash. Under its articles of incorporation, the bank had an authorized capital stock of $75,000, divided into 750 shares, of the par value of $100. When the bank was organized and plaintiff became a stockholder thereof, section 3 of article 11 of the State Constitution provided that "the stockholders of all corporations and joint stock companies shall be liable for the indebtedness of said corporation to the amount of their stock subscribed and unpaid and no more."

The amendment added thereto the following words: "Excepting that the stockholders of corporations or joint stock companies conducting the business of banking shall be individually liable equally and ratably and not one for another, for the benefit of the depositors of said bank, to the amount of their stock, at the par value thereof, in addition to the par value of such shares." After the adoption of said amendment, and in 1915, with the approval of the superintendent of banks, the directors, under the authority of the stockholders, decreased the capital stock of the bank from $75,000 to $40,000 and caused a new corporation to be organized to take over and acquire title to the bank building which prior thereto the bank had owned, and thereupon plaintiff delivered up for cancellation his certificate for 37 shares and accepted in lieu thereof a certificate for 20 shares of the capital stock of the bank and 17 shares of the stock issued by the new corporation in payment for the building. On March 19, 1927, the bank became insolvent, and pursuant to statute, the superintendent of banks took possession of its assets and business, and thereafter, claiming to be authorized thereto by section 3 as amended and statutes passed subsequent to its adoption, levied an assessment of $100 per share against all the stockholders of the bank, including the 20 shares owned and held by plaintiff. Subsequently the superintendent of banks, pursuant to section 154, chapter 207, p. 375, Laws 1925, filed and caused to be recorded in the records of deeds of Tillamook county a certified copy of the notice of said assessment which would, if the assessment is valid, constitute a lien for $2,000 upon two lots in the city of Tillamook which plaintiff owned, and would entitle the superintendent of banks to have said property sold in satisfaction of said lien. Plaintiff, claiming the lien to be invalid because of his having paid the full par value of his stock before the adoption of the amendment, brought this suit seeking to have the lien declared invalid and to have his title to the lots quieted. The defendants answered, setting up the foregoing facts, and alleging that, by reason of the said acts of the stockholders and directors in reducing the amount of the capital stock and plaintiff's action in delivering up his original stock for cancellation and his acceptance, in lieu thereof, of 20 shares of the bank stock and 17 shares in the new corporation, he was subject to a stockholder's double liability, and prayed that the property be decreed subject to the lien and that the lots be sold in satisfaction thereof. The court sustained a demurrer to the answer, and defendants appealed.

The right of the stockholders and directors to reduce the amount of the capital stock of the bank and to sell and convey the bank building has never been questioned and is not questioned now.

It is admitted that the bank was then solvent and that no depositor or other creditor was prejudiced by the action then taken, nor is there any question made as to the necessity of the assessment in order to pay the depositors of the bank, or of the regularity of proceedings taken by the superintendent of banks, if plaintiff is subject to the double liability claimed. Hence the demurrer was properly sustained if plaintiff was not subject to such double liability.

It is settled law that, when a person subscribes for shares of stock in a corporation and his subscription is accepted by the corporation, the Constitution of the state and all valid laws then in force which limit the liability of a stockholder become a part of the subscription contract and are incorporated in it. Rasor v. West Coast Development Co., 98 Or. 581, 192 P. 631; Harrison v. Remington Paper Co., 140 F. 385, 72 C. C. A. 405, 3 L. R. A. (N. S.) 954, 5 Ann. Cas. 314. In such case, the stockholder agrees that, in consideration of the benefits he expects to derive from the stock ownership, he will perform all obligations that the law, at the time he enters into the contract, imposes upon a stockholder, and the corporation agrees that, in consideration of his purchase of the stock, it will not enforce as against him any obligation not imposed by law or promised at the time the subscription contract was made. Such a contract imposes mutual obligations upon the part of each which each is bound to perform according to the terms of the contract. As was said by the Supreme Court of Ohio in Ireland v. Palestine, etc., Turnpike Co., 19 Ohio St. 369: "* * * In a contract between the company and a stockholder, or in an action by the former, or its creditors, against the latter, the stockholder is to be regarded as an individual person, separate and distinct from the corporation. He becomes a stockholder by virtue of a contract with the company, and he has a right to stand upon the terms of that contract, interpreted and limited by the laws under which it was made. By his contract with this company Ireland agreed to pay a specified sum, and no more. This sum he has fully paid, and to require him to contribute an additional amount, would be to violate the contract between the parties."

The duty resulting therefrom upon the part of each to perform is the obligation of the contract in the sense in which these words are used in the State Constitution, which provides that "no * * * law, * * * impairing the obligations of contracts, shall ever be passed" (section 21, art. 1), and in the Federal Constitution, which provides that "no state shall * * * pass any * * * law impairing the obligation of contracts" (section 10, art. 1). As the court said in Curran v. Arkansas, 15 How, 304, 14 L.Ed. 705: "* * * The obligation of a contract, in the sense in which those words are used in the Constitution, is that duty of performing it, which is recognized and enforced by the laws."

The impairment of the obligation of a contract, which is forbidden by the Federal Constitution, applies to an amendment of the State Constitution as well as to the passage of a state law. Louisiana ex rel. Elliott v. Jumel, 107 U.S. 711, 2 S.Ct. 128, 27 L.Ed. 448. And whether the passage of a state law impairs the obligation of a contract is a federal question, in the determination of which the rulings of the state court are not binding upon the federal courts.

It is also well settled that the articles of incorporation of a corporation organized and incorporated under the general laws of a state create a contract between the state and the stockholders to the same extent as does a charter granted by the Legislature of the state. In either case, the contract arising therefrom is protected by the Federal Constitution and the contract thus created cannot be impaired by a subsequent act of the Legislature. This is settled by the Dartmouth College Case, 4 Wheat. (17 U. S.) 518, 4 L.Ed. 629. Thus, in referring to that case and other decisions of that court, the court, in the Binghamton Case, 3 Wall. 51, 18 L.Ed. 137, said: "* * * We have supposed, if anything was settled by an unbroken course of decisions in the Federal and State courts, it was, that an act of incorporation was a contract between the State and the stockholders. All courts at this day are estopped from questioning the doctrine. The security of property rests upon it, and every successful enterprise is undertaken in the * * * belief that it will never be forsaken. A departure from it now would involve dangers to society that cannot be foreseen, would shock the sense of justice of the country, unhinge its business interests, and weaken, if not destroy, that respect which has always been felt for the judicial department of the...