Henry v. Alexander

• Decision Date: 29 December 1937
• Docket Number: 14592.
• Citation: 194 S.E. 649,186 S.C. 17
• Parties: HENRY v. ALEXANDER et al.
• Court: South Carolina Supreme Court

194 S.E. 649

186 S.C. 17

HENRY v. ALEXANDER et al.

No. 14592.

Supreme Court of South Carolina

December 29, 1937

Appeal from Common Pleas Circuit Court of Laurens County; C. C Featherstone, Judge.

Action by H. D. Henry, conservator of the Commercial Bank, against H. L. Alexander and others, to enforce the collection of bank stockholders' statutory liability. From an adverse judgment, defendants appeal, and from an order disallowing plaintiff's proposed amendment to the case on appeal plaintiff appeals.

Affirmed on plaintiff's appeal, and reversed on defendants' appeal.

R. E Babb and R. T. Wilson, both of Laurens, W. E. Dillard, of Clinton, and Blythe & Bonham, of Greenville, for appellants.

R. W. Wade, of Clinton, for respondent.

FISHBURNE Justice.

This action was brought by the plaintiff, as conservator of the Commercial Bank of Clinton, against the defendants, to enforce the collection of the stockholders' statutory liability. We presume that the action was brought for the benefit of the depositors of this institution, although it is not so stated in the complaint.

On behalf of the defendants, demurrers were interposed, upon the grounds that the complaint failed to state facts sufficient to constitute a cause of action, in that, (a) It appears on the face of the complaint that the bank was not adjudged insolvent until August 17, 1936, and that the complaint contains no other allegation of insolvency; (b) the allegation of insolvency therein alleged was of a time after the repeal of the provisions of article 9, § 18, of the Constitution, and section 7868 of the Code of 1932, imposing liability for assessment on stockholders in insolvent banks.

The demurrers were overruled by the circuit judge, and the defendants have appealed.

On February 14, 1935, 39 St. at Large, p. 35, the General Assembly ratified an amendment to section 18 of article 9 of the State Constitution, relating to the liability of stockholders in banks to depositors, which eliminated from the Constitution the following provision: "Provided, That stockholders in banks or banking institutions shall be liable to depositors therein in a sum equal in amount to their stock over and above the face value of the same."

Following the ratification of the above amendment to the Constitution, the General Assembly, on February 21, 1935, 39 St. at Large, p. 46, repealed section 7868, 1932 Code, concerning the liability of stockholders in insolvent banks, but in section 2 of the act provided, "That this repeal shall not apply to or affect stockholders' liability in banks or banking institutions coming within the terms of the aforementioned section, which have heretofore been adjudged insolvent."

The appeal attacks the sufficiency of the allegations of the complaint with reference to the bank's insolvency, and hence the query as to the right of the conservator to enforce the statutory liability.

It appears from the allegations of the complaint that the bank was placed in liquidation on April 11, 1934, by orders of the State Board of Bank Control, and that the plaintiff, as conservator, acting under the authority of the Board of Bank Control, and the laws of the state, is liquidating said bank; that by resolution adopted July 22, 1936, the Board of Bank Control directed the plaintiff, as conservator, to levy the stockholders' assessment of 100 per cent against all stockholders of the bank, and that pursuant to this direction the plaintiff, as conservator, upon his petition to the circuit court, obtained an order authorizing and empowering him to levy and enforce the collection of the assessment by a suit.

A portion of the order of the lower court, which is dated August 17, 1936, is incorporated in the complaint, and it is therein adjudged, among other things, "That the said Commercial Bank of Clinton, S. C., be, and is hereby declared insolvent."

The complaint prays judgment against each of the defendants for the amount alleged to be due on their stockholders' liability.

The appellants contend that, if the bank was not insolvent until August 17, 1936 (the date of the circuit court order), that being the only allegation of insolvency in the complaint, then no cause of action is stated, because at that time there was no law in this state, either constitutional or statutory, imposing double liability on stockholders of banks for an assessment. The complaint is likewise challenged upon the ground that there is no allegation therein that the bank was "adjudged insolvent" prior to February 14, 1935, or prior to February 21, 1935, the dates respectively of the constitutional and statutory repeal.

It was held in the order overruling the demurrers that the complaint is broad enough in its scope, and that its allegations are sufficient to show that the bank became insolvent prior to 1935, before the adoption of the amendment to the Constitution and the repeal of the statutory provisions imposing the superadded liability on stockholders. Support for this holding is obviously referred to the allegations of the complaint that the bank was placed in liquidation on April 11, 1934, by orders of the State Board of Bank Control, and that the plaintiff, as conservator, is liquidating the affairs of the bank pursuant to and under the instructions contained in these orders.

In our opinion, these allegations cannot be considered as making an averment of insolvency; nor does the complaint, viewed in the most liberal light, supply the needed statement of fact. Even solvent banks may be liquidated, and it may be that banks which are considered insolvent may prove to be solvent when liquidated.

The term "liquidation," applied to a partnership or a corporation, is the act or operation of winding up the affairs of such firm or company by collecting the assets, settling with its debtors and creditors, and appropriating the amount of profit or loss. 37 C.J. 1265. And this definition embodies the general understanding. A business in process of liquidation, whether it be that of an individual, a partnership, or a banking corporation, may or may not be insolvent. The term does not necessarily carry with it the connotation of insolvency, nor, specifically, that the assets of a bank in process of liquidation are insufficient to pay its debts.

It was held in Ex Parte Berger, 81 S.C. 244, 62 S.E. 249, 252, 22 L.R.A.,N.S., 445, that "a bank is insolvent when, from the uncertainty of being able to realize on its assets, in a reasonable time, a sufficient amount to meet its liabilities, it becomes necessary for the control of its affairs to pass out of its hands."

Allegations in conformity with this rule are not found in the complaint.

The pleadings in actions to enforce the superadded liability of stockholders in a bank must conform to the rules of pleading applicable to other civil actions. The complaint should set forth all of the facts essential to the enforcement of liability against the person sued. It is requisite to the successful maintenance of such an action that the bank should be insolvent and unable...