Nettles v. Sottile

• Decision Date: 14 April 1937
• Docket Number: 14465.
• Citation: 191 S.E. 796,184 S.C. 1
• Parties: NETTLES v. SOTTILE et al.
• Court: South Carolina Supreme Court

191 S.E. 796

184 S.C. 1

NETTLES v. SOTTILE et al.

No. 14465.

Supreme Court of South Carolina

April 14, 1937

Appeal from Common Pleas Circuit Court of Charleston County; G Duncan Bellinger, Judge.

Action by Joseph L. Nettles, as receiver of the stockholders' liability of the Peoples State Bank of South Carolina against Albert Sottile and others. From a judgment for plaintiff, defendants appeal.

Judgment affirmed as modified by opinion, and case remanded.

The decree of the trial court, which was ordered to be reported follows:

This matter came before me by consent of counsel for the parties Judge Grimball, Resident Judge of the Ninth Circuit, being disqualified.

The cause was marked "heard" by me at the January (1936) term of the Florence court, and by agreement of counsel subsequently argued in full at Columbia.

The complaint, in substance, alleges that the Peoples State Bank of South Carolina closed its doors as an insolvent banking institution on January 2, 1932, with a capital of $2,000,000 that plaintiff, thereafter, in a suit brought by certain of its depositors, on behalf of themselves and others, in the court of common pleas of Richland county, against the stockholders of the bank to enforce their liability, was appointed receiver of the stockholders' liability; that among the defendants in that cause was a corporation, known as Palmetto Brokerage Company, which appeared upon the books of the bank as the owner of 900 shares of stock of the par value of $9,000; that judgment against said corporation on account thereof was duly entered in said cause and that execution upon the judgment was returned "nulla bona."

The complaint further alleges, in substance, that the aforesaid 900 shares were formerly the property of Albert Sottile, one of the defendants in this cause, and that in September, 1931, several months before the closing of the bank, he transferred them to Palmetto Brokerage Company, and that said shares of stock constituted its only asset; that the corporation known as Palmetto Brokerage Company was organized for the purpose of acting as a holding company for said stock, the intent and purpose being to secure freedom from the liability attaching or which would attach to the direct ownership of the stock upon the insolvency of the bank; that Mr. Sottile and his codefendants comprised the stockholders of the Palmetto Brokerage Company when the bank closed as an insolvent institution.

The complaint charges that the plan or design under which the corporation, Palmetto Brokerage Company, was used as a holding company for said bank stock was unlawful, was inequitable and unjust, and, if allowed to stand, would work a great wrong on the innocent depositors of the bank, represented by plaintiff in this action, and the court is asked to set aside the shield or fiction of said device, and hold the individual stockholders of the corporation responsible, as the true owners thereof, for the full sum attaching as the liability, constitutional and statutory, to the ownership of these bank shares.

The defendants, in their answer, have set up a number of defenses, which have been denominated by counsel as general and special.

Plaintiff filed a demurrer to the answer and to the special defenses therein contained; and the cause has come before the court upon the demurrer.

On the argument of the matter, no serious dispute was made of the charge in the complaint (paragraph sixth) that Palmetto Brokerage Company was a holding company of the bank shares in controversy.

The questions for determination, therefore, appear to be solely the legal issues presented by the special defenses of the answer.

The grounds of the demurrer may be grouped for the purposes of discussion and consideration.

To dispose of the simplest first.

Defendants charge (defendants' eleventh special defense) that plaintiff is not the proper party to bring this action, in that he is not a receiver appointed under section 7855, subsection (6), of the Code. As pointed out in the demurrer to this defense, plaintiff's right to act as receiver of the stockholders' liability of the Peoples State Bank of South Carolina and to enforce and collect the same has been determined by the Supreme Court in the case of Biltrite Building Company et al. v. Elliott et al., 166 S.C. 534, 165 S.E. 340. I so hold and sustain the demurrer to this special defense.

Grounds of Demurrer E, F, and H.

The fourth, fifth, and seventh special defenses of the answer, in substance, set up the defense of estoppel in pais against the maintenance of this suit by plaintiff, as receiver.

The gravamen of these defenses are, concisely stated: (1) As depositor-plaintiffs in the Biltrite Case sought and obtained judgment against the corporation as a defendant therein, such action constituted a recognition of the corporation as the true owner of the shares involved; (2) the right of action to enforce the liability attaching to the shares involved is single and cannot be split into separate suits against the corporation and its stockholders; (3) in the Biltrite Case the depositor-plaintiffs had the option of asserting the liability against the corporation or its stockholders, and elected to seek and recover judgment against the corporation.

By reason of any one, or all of the foregoing, defendants assert plaintiff is now estopped from suing them in the present action for the enforcement of the liability in question.

The demurrer to these special defenses challenges their sufficiency on two grounds, namely, "(a) because the instant suit, brought by order of Court, is merely ancillary to that in which said judgment was obtained, being in the nature of an equitable execution to enforce and collect said judgment which represents the unpaid liability which attached to the ownership of said bankshares; and (b) because there exists no such privity between Nettles, as Receiver, and the plaintiffs in the Biltrite action as would estop him from enforcing the liability in question."

In presenting these objections, defendants, I think, have overlooked certain fundamental principles involved in a suit of this kind.

The action in the instant case, because of the unusual circumstances governing the liquidation of the bank, was brought independently of the statute. Section 7855. It followed the old practice of a bill in equity by one or more depositors for the benefit of all against the stockholders to enforce their liability.

In the absence of statute, the usual action to enforce bank shareholders' liability is in equity. It is in the nature of a creditor's bill, brought by depositors on behalf of themselves and all others in like plight to recover the liability which the Constitution has attached to the ownership of bank stock. This liability constitutes the basis "of an individual, personal, joint right in the depositors." Branchville Motor Co. v. Adden, 158 S.C. 90, 155 S.E. 277, 278. The determination of that liability is a matter of equity jurisdiction. Bain v. Rogers, 158 S.C. 417, 155 S.E.

619; Fant v. Easley Loan & Trust Co., 170 S.C. 61, 169 S.E. 659, 665.

In the leading case of Parker v. Bank, 53 S.C. 583, 31 S.E. 673, 674, 69 Am.St. Rep. 888, it was said: "Unless there is something in the statute authorizing a different course, the natural and appropriate remedy is in equity, to realize and distribute this common fund."

All of the rights and remedies ordinarily available to a creditor, therefore, are available to the depositors in a suit in equity to enforce the shareholders' liability.

The depositor-plaintiffs in the Biltrite suit presumably named as defendants all who were carried on the books of the bank as the apparent owners of its stock. Stockholders of record are deemed to be the true owners of corporate stock until the contrary is shown.

The judgment was against the corporation as the apparent owner of the shares herein involved. The purpose of the instant suit is to discover the true owners of these shares and to collect the liability thereto attaching. Under the decisions it is the duty of the legal owner to respond to the liability attaching to them under the Constitution.

In case of doubt a bill may be maintained in equity against one in whose name stock stands on the corporate books, to discover who is the true owner of it, and, therefore, the proper party to the suit. 23 R.C.L. 119; Brown v. McDonald (C.C. A.) 133 F. 897, 68 L.R.A. 462.

The instant suit is in the nature of a judgment creditor's bill. It is in effect an equitable execution. Gaskins v. Bonfils (C. C.A.) 79 F. (2d) 352.

It is but supplementary or auxiliary to the original action. The receiver, as plaintiff in this cause, is proceeding under order of court in the main suit. The complainant specifically makes reference to the Biltrite action as plaintiff's source of authority. The right of a receiver to pursue third persons, not parties to the original suit, for the purpose of establishing liability or collecting assets justly due, is one commonly recognized by the courts. White v. Ewing, 159 U.S. 36, 15 S.Ct. 1018, 1019, 40 L.Ed. 67; Barfield v. Zenith Tire & Rubber Co. (D.C.) 9 F. (2d) 204.

In the very recent case of Montgomery & Crawford v. Arcadia Mills, 173 S.C. 464, 176 S.E. 589, at page 599, our Supreme Court said: "A court of equity may, very properly, in the interest of justice and for the protection of the judgment creditor, take steps to assist him in the collection of his obligation."

Ordinarily, a judgment creditor must exhaust his legal remedies, by showing a judgment and nulla bona return, before equity will assume jurisdiction. Holladay v. Hodge, 84 S.C. 109, 65 S.E. 1019; Perry v. Nixon, 1 Hill Eq. 335.

Were this rule applicable, it has been fully...