Lynch v. Jacobsen

• Decision Date: 09 October 1919
• Docket Number: 3386
• Citation: 55 Utah 129,184 P. 929
• Court: Utah Supreme Court
• Parties: LYNCH v. JACOBSEN

184 P. 929

55 Utah 129

LYNCH v. JACOBSEN

No. 3386

Supreme Court of Utah

October 9, 1919

Appeal from District Court, Fifth District, Juab County; Geo Christenson, Judge.

Action by Stephen H. Lynch, as receiver, against A. P. Jacobsen. From a judgment for defendant, plaintiff appeals.

REVERSED and REMANDED, with directions.

Cheney Jensen & Holman, of Salt Lake City, for appellant.

Thos H. Burton, of Nephi, for respondent.

A. R. Barnes, James Ingebretson and M. E. Wilson, all of Salt Lake City, for other stockholders of Merchants' Bank not parties to this action.

FRICK, J. CORFMAN, C. J., and GIDEON, and THURMAN, JJ., concur. WEBER, J., being disqualified, did not participate.

OPINION

FRICK, J.

This action was commenced in the district court of Juab county by the plaintiff, as receiver of the Merchants' Bank of Salt Lake City, against the defendant as a stockholder of said bank, to recover from him the additional liability which is imposed under the provision of the Constitution of this state, to which reference will hereinafter be made. After the case had been submitted by the plaintiff and defendant, several attorneys, who represent other stockholders in actions now pending in the district court of Salt Lake county, applied for and were granted leave to file briefs and arguments in support of the contentions advanced by the defendant in this action. The briefs and arguments filed by those attorneys have been considered by the court in connection with the arguments presented by counsel who represent the parties in this case, and hereinafter we shall only refer to the objections urged by counsel without referring to the counsel making them.

The plaintiff, in his complaint, in substance, alleged: That in a certain proceeding he was, by the district court of Salt Lake county, duly appointed receiver of the Merchant's Bank. That said bank was organized pursuant to the laws of Utah about July 1, 1908, with a capital stock of $ 250,000, divided into 2,500 shares of the par value of $ 100 each, and that all of said stock was issued and outstanding, and that the defendant is the owner of five of said shares. That "at the time of the appointment of said receiver and prior thereto the said bank was hopelessly insolvent, and its assets were and are insufficient to pay its debts and liabilities, and in order to pay the same it is necessary to collect the full and entire amount of the statutory stockholders' liability provided by chapter 25, Session Laws of Utah 1911, and on or about the 2d day of December, 1918, in due course of administration and upon petition of said receiver duly made, served, and filed in the said receivership proceedings, and upon hearing thereon regularly noticed and had, and evidence duly presented, the said * * * district court, being fully advised in the premises and satisfied of the propriety and the necessity therefor, duly made and entered its order as follows: 'That the necessity for collecting the full amount of the statutory stockholders' liability fully appearing, Stephen H. Lynch, as receiver in the above-entitled cause, is hereby authorized and directed to notify the stockholders of the Merchants' Bank that the full amount of their statutory stockholders' liability is now due and payable to him as such receiver, and that,--unless same is paid within ten days after notice, suit will be instituted by said receiver to enforce collection of the same, and said receiver is further authorized and directed to institute and prosecute such suits pursuant to the terms of said notice as may be necessary and appropriate, whether in the state of Utah or elsewhere, and to incur such expense and employ such counsel as may be necessary and expedient.' That the plaintiff brings and prosecutes this action pursuant to the said order and authorization and in the discharge of his duties as receiver, as provided in chapter 25, Session Laws of Utah 1911." That the plaintiff had duly notified the defendant that the full amount of his additional liability was due and payable, etc. That the defendant had failed to pay, and that the whole amount of his additional liability, to wit, the sum of $ 500, is due, for which amount he prayed judgment.

To this complaint the defendant demurred: (1) That the facts stated do not constitute a cause of action against the defendant; (2) that the complaint is uncertain and ambiguous (stating various particulars wherein it is so); (3) that the plaintiff has not legal capacity to sue, for the reason, among others, that the right of action is in the creditors of the bank and not in plaintiff as receiver; (4) that there is a defect of parties, in that the other stockholders are necessary parties to the action and are not made so; and (5) that the act authorizing the receiver to maintain an action to enforce the stockholders' additional liability is unconstitutional and therefore void for the reasons stated in the demurrer, and which will hereinafter more specifically be referred to

The district court sustained the special demurrer, upon the sole ground, however, that the act authorizing the receiver to sue the stockholders and recover from them the additional liability is void because the stockholders are liable to the creditors of the bank only for the additional liability imposed by the Constitution.

The plaintiff elected to stand upon his complaint, and the district court entered judgment dismissing the action from which order plaintiff appeals, assigning the ruling of the court before referred to as erroneous upon various grounds.

We remark that, in view that the sufficiency of the complaint is attacked generally, and as counsel for both parties have requested it, we shall dispose of all the legal questions that are necessarily raised by the demurrer. We deem it more convenient, however, to consider the constitutional ground of the demurrer first.

Our Constitution, art. 12, section 18, provides:

"The stockholders in every corporation, and joint-stock association for banking purposes, in addition to the amount of capital stock subscribed and fully paid by them shall be individually responsible for an additional amount equal to the amount of their stock in such corporation for all its debts and liabilities of every kind."

The foregoing constitutional provision was incorporated into the Revised Statutes of 1898, as section 382 of that revision, in the exact language as it was adopted in the Constitution except that in the last line the word "its" is omitted from the statute. Section 382 was subsequently carried forward into Compiled Laws Utah 1907, in the precise language as it is copied into the Revised Statutes of 1898. In the Revised Statutes of 1898, in section 390, it was also provided:

"The secretary of state, upon becoming satisfied that any bank has become insolvent, or that its capital has become and is permitted to remain impaired, or that it has violated any provision of law, may, through the attorney general, apply to the district court, or a judge thereof, for the appointment of a receiver to take charge of and wind up the business of such bank."

That section was also carried forward into Compiled Laws Utah 1907.

It will be observed that nothing was said, either in the section as found in the Revised Statutes of 1898 or in Compiled Laws Utah, 1907, respecting the receiver's right to enforce the stockholders' additional liability.

The law remained in that condition until March, 1911, at which time the Legislature passed chapter 25, Laws Utah 1911, in which section 382 aforesaid is again copied in the language of the Constitution, with the exception of the word "its" as before stated. That act (section 34) also provides for the appointment of a receiver in case a bank becomes insolvent or in case its capital is so impaired that it cannot comply with the conditions imposed by the act. Section 34 aforesaid, among other things, provides:

"The receiver, if any be appointed, shall, under the direction of the court, take possession of the books, records and assets of every description of such bank, collect all debts, dues and claims belonging to it, sell or compound all bad or doubtful assets, and sell all the real and personal property of such bank, on such terms as the court shall direct, and may, if necessary to pay the debts of such bank, enforce all individual liabilities of the stockholders, and shall make a report to the bank commissioner of all his acts and proceedings." (Italics ours.)

The italicized portion is in the language of the federal act authorizing the Comptroller of the Currency to proceed to recover the stockholders' additional liability. The same language is also used in many of the laws of the different states to which reference is made in the cases hereinafter cited.

We remark that neither in the constitutional provision nor in anything that is said in the Revised Statutes of Utah of 1898, nor in Compiled Laws Utah 1907, nor in the act of 1911, is there any intimation whatever with respect to what the nature of the proceedings shall be. Indeed, until chapter 25, supra, was passed in 1911 nothing had been said in either the Constitution or the statutes as to who should enforce the stockholders' additional liability. In chapter 25 it is, however, expressly provided that the receiver may do so

Before proceeding to a consideration of the various contentions urged on behalf of the defendant, we here insert certain propositions which, in our judgment, are supported by the great weight of the more recent decisions emanating from both state and federal courts. Those propositions may, for convenience, be stated thus:

(a) A provision like the one in our Constitution is self-executing. Willis v. Mabon, 48 Minn. 140, 50 N.W 1110, 16...