Mitchell v. Banking Corporation of Montana
| Decision Date | 19 January 1929 |
| Docket Number | 6325. |
| Citation | 273 P. 1055,83 Mont. 581 |
| Parties | MITCHELL et al. v. BANKING CORPORATION OF MONTANA et al. |
| Court | Montana Supreme Court |
Rehearing Denied Feb. 6, 1929.
Appeal from District Court, Lewis and Clark County; W. H. Poorman Judge.
Suit by Grace Mitchell and others against the Banking Corporation of Montana and others. From a judgment of dismissal, plaintiffs appeal. Reversed and remanded, with direction.
C. E Pew, of Helena, for appellants.
E. C Day, Paul W. Smith, David R. Smith, Ulysses A. Gribble, Stewart & Brown, F. W. Mettler, Edward Horsky, George W. Padbury, Jr., H. S. Hepner, T. B. Weir, Harry P. Bennett, R. R. Purcell, Walsh & Nagle, W. D. Rankin, and J. Miller Smith, all of Helena, S. C. Ford, of Great Falls, Loble & Adair, of Helena, G. W. Pierson and Brown, Wiggenhorn & Davis, all of Billings, G. Y. Patten, Walter Aitken, H. M. Stewart, and H. A. Bolinger, all of Bozeman, Clark T. Brown, of Washington, D. C., Walter L. Pope, of Missoula, Clark Legal Department, of Butte, Jones & Jones, of Harlowton, John G. Skinner, of Red Lodge, Robert L. Clinton and Black & MacDonald, all of Shelby, Arnot & Doyle, of Conrad, Gilbert, Gilbert & McFadden, of Dillon, George W. Magee, of Choteau, S. P. Wilson and W. E. Keeley, both of Deer Lodge, Freeman, Thelen & Frary, of Great Falls, Roy E. Ayers, of Lewistown, J. A. McDonough, of Great Falls, O'Hara & Madeen and J. D. Taylor, all of Hamilton, Edmond J. Joomey, of Nelena, and M. M. Duncan, of Virginia City, for respondents.
On rehearing, the opinion herein, by Mr. Justice STARK, promulgated July 24, 1928 (unreported), is withdrawn and the following opinion substituted therefor.
On July 27, 1925, A. D. Mitchell, Grace Mitchell, and Martin Clancy commenced action to have declared invalid an attempted reduction of the capital stock of the defendant Banking Corporation (hereinafter called the bank) and to enforce the statutory liability of the stockholders of that institution after its insolvency, on the basis of the original capital stock, in order to create a fund to be applied toward the payment of the claims of plaintiffs, as creditors of the bank, and some 2,500 other creditors in like situation.
The complaint shows that the receiver enforced liability on the basis of the reduced capital stock and refused to join plaintiffs in this action, but was joined as a defendant by permission of the court having jurisdiction over the receivership.
All owners of stock, at the time of the attempted reduction and at the time of the bank's failure, were made defendants, and many of these demurred to the complaint; the demurrers were sustained, and, plaintiffs refusing to plead further, judgment of dismissal was entered. Plaintiffs attempted to appeal from the judgment, but the attempt was abortive and was dismissed in February, 1928 (Mitchell v. Banking Corporation, 81 Mont. 459, 264 P. 127), and thereafter, within the statutory time, this appeal was taken.
1. Defendants have interposed a motion to strike certain portions of the transcript on appeal on the ground that they are not parts of the judgment roll and were not made parts of the record by bill of exceptions. Without entering into a discussion of this motion, it is sustained as well taken.
2. Defendants have moved to dismiss the appeal on numerous grounds. This motion has been duly considered, but no good purpose would be served by recording our consideration herein; the motion is denied as being without substantial basis.
3. The demurrers were sustained chiefly upon the ground that the action was not timely, and it is now contended that this question cannot be raised by demurrer in the face of the provision that "the objection that the action was not commenced within the time limit can be taken only by answer." Section 9065, Rev. Codes 1921. This action, however, does not come within the provision quoted; it is an action to enforce a statutory liability by the exercise of a right granted by statute and which did not exist at common law. Pollard v. Bailey, 20 Wall. 520, 22 L.Ed. 376. In such a case the limit of time prescribed does not affect the remedy merely, but is of the essence of the right itself, and one who seeks to enforce such a right must show affirmatively that his action is timely. Dolenty v. Broadwater County, 45 Mont. 261, 122 P. 919. Allegations of fact showing that the action was commenced within time are, therefore, a necessary part of the complaint, and, if these allegations are insufficient in this regard, the defect may be challenged by demurrer.
4. Does the complaint show on its face that plaintiffs' right to enforce the stockholders' liability was exercised within the time prescribed by law?
The essential allegations on which this question must be determined, briefly stated, are as follows: The bank was incorporated, prior to 1914, with a capital stock of $500,000, evidenced by 5,000 shares of the par value of $100 each. During the period from 1914 to 1919 plaintiffs made time deposits in the bank aggregating more than $40,000, for which certificates of deposit were issued and thereafter renewed from time to time, the final renewal certificates being issued in March, 1922.
The deposits were never withdrawn and the bank never refused payment, but it did postpone payment subsequent to March, 1922, for its own convenience. On February 28, 1922, a resolution was duly passed at a called meeting of the stockholders for the reduction of the capital stock to $250,000, evidenced by 2,500 shares of the par value of $100, and a certificate therefor was filed in the office of the clerk and recorder of Lewis and Clark county, at which time the bank was indebted to plaintiffs for the full amount of their deposits, which condition continued unaltered until May 2, 1923, when the bank failed to open for business and, on appropriate proceedings instituted, it was declared insolvent and Claude C. Gray duly appointed its receiver. The receiver allowed claims for the full amount of plaintiffs' deposits but has no available assets for their payment, and no part thereof was paid except an amount equal to 15 per cent. of the claims, which was paid as a 15 per cent. dividend to all creditors in like situation, realized from funds received from the stockholders on the liability enforced on the basis of the reduced capital stock.
The right of both the receiver and the creditors to enforce payment of corporation debts by stockholders is found in section 6036, Revised Codes of 1921, chapter 9, Laws of 1923. The original section provides, in part, that: "The stockholders of every bank shall be severally and individually liable, equally and ratably, and not one for the other, for all contracts, debts, and engagements of such corporation, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares." The amendment of 1923 authorized a receiver, on liquidation of a bank by a court, to recover the amount of such liability by appropriate proceedings for the benefit of the creditors and distribute the amounts collected to the creditors "without diminution."
The provisions of the original statute were first adopted as a part of the "Banking Act" of 1915 (chapter 89, Laws of 1915), and it will be noted that they deal only with the stockholders of banks and that the act itself does not fix any time within which a creditor shall seek to enforce the liability, the time when the liability attaches, nor when any limitation of time shall begin to run in favor of the stockholders.
The liability imposed by the statute is, however, as noted above, purely the creature of the statute, and the statute, of necessity, grants a right of action to the creditors and against the stockholders for the enforcement of the liability, and in order to avail themselves of the remedy afforded creditors must bring themselves within the provisions of section 9061, Revised Codes of 1921, which existed as section 6471 of the Codes of 1907, at the time the Banking Act was passed. This act provides that the general limitations found in the Codes "do not affect actions against directors or stockholders of a corporation to recover a penalty or forfeiture imposed, or to enforce a liability created by law; but such actions must be brought within three years after the discovery by the aggrieved party of the facts upon which the penalty of [or] forfeiture attached or the liability was created." Rev. Codes 1921, § 9061. In such an action as this, section 9061 controls and the period begins at the time the liability "was created," without regard to "discovery" (Brown v. Roberts, 78 Mont. 301, 254 P. 419); but doubt as to when such an action must be commenced to enforce the liability imposed by section 6036 arises from the fact that the Legislature in enacting section 9061 departed from the familiar limitation of time "after the cause of action has accrued," and employed in lieu thereof the phrase "after * * * the liability was created." When was the liability here sought to be enforced "created"?
To "create" means to bring into being that which did not exist before (Webster), and, as stockholders are not liable for the debts of their corporations unless or until such a liability is imposed on them by the Legislature, this liability may, in a sense, be said to have been created by the statute which imposes it (Pollard v. Bailey, above; Hawkins v. Iron Valley Furnace Co., 40 Ohio St 507), but to construe the term in this sense would lead to the absurdity of declaring that section 6036 became a dead letter three years after it was enacted, and that, to have kept it alive, the Legislature should have re-enacted its provisions before the expiration of each...
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