Pate v. Bank of Newton

Citation77 So. 601,116 Miss. 666
CourtUnited States State Supreme Court of Mississippi
Decision Date04 February 1918

October 1917

Division B

APPEAL from the chancery court of Hinds county, HON. O. B. TAYLOR Chancellor.

Suit by the Bank of Newton and others against W. T. Pate and others. From an order overruling a demurrer to the bill of complaint defendants appeal.

The facts are fully stated in the opinion of the court.

Judgment affirmed, and cause remanded

Robt. Powell, for appellant.

While insisting upon all of the grounds assigned under the demurrer, as associate counsel will discuss the other grounds, we shall confine ourselves in this brief to but one of the causes of demurrer, to-wit: That this cause was prematurely brought.

The court will see from the reading of the bill that the amount guaranteed under the law has not yet been ascertained since the bill alleges that suits are now pending to determine this amount.

The court will further see from a reading of the bill that the assets of the defunct bank have not yet been administered and that it will be impossible to ascertain the exact amount of the solvent assets unless this is done. It is true that the bill makes an estimate of what will probably be realized but that is simply a guess on the part of the appellee.

So we start out with the proposition that neither the guaranteed debts are yet known nor are the solvent assets of the bank yet ascertained. Section 59, Laws 1914, under which this suit is brought is as follows: Section 59, Liability of Stockholders. The stockholders of every bank shall be individually liable, actually and ratably and not for one another, for the benefit of the depositors in said bank to the amount of their stock at the par value thereof in addition to the said stock, etc.

The court will see readily from an inspection of this law that the stockholders were only guarantors and secondarily liable for the debts of the defunct bank. The act says that the stockholders should be ratably liable, which can only mean that they should be compelled to contribute in proportion as the amount of their stock bears to the debt remaining after the assets of the bank have been exhausted. Is it not a self-evident proposition then, that the ratable portion of a stockholder cannot be ascertained unless the amount of the debts are known and the assets with which to pay them has been ascertained; unless this is done, any suit brought against the stockholders under this act is prematurely brought.

Sidney L. McLaurin, for appellants.

The charter of the Bank of Newton was a contract between the state of Mississippi and the incorporators. Stone v. M. V. R. R. Co., 62 Miss. 607; Forsdick v. Miss. Levee Com., 76 Miss. 859; Miss. R. R. Com. v. G. & S. I. R. R. Co., 78 Miss. 750; Baldwin, et al. v. Payne et al. 12 Law Ed. 447; Planters Bank v. Sharp et al., 12 Law Ed. 447; Dartmouth College Case, 4 Wheat. 518; Piqua Branch of State Bank of Ohio v. Knoop, 16 How. 369; Dodge v. Woolsey, 59 U.S. 331.

It was also a contract between the shareholders themselves. Also a contract defining the rights of depositors. Baldwin v. Payne (U. S.), 12 Law Ed. 447.

The law in force as to non-liability of stockholders at the time the charter was granted, necessarily became a part of the contract in the same manner and to the same extent as if written in the charter. Assurance Co. v. Phelps, 77 Miss. 625; Sherman v. Smith, U. S. Law Ed. 163.

A charter under the general statute gives exactly the same rights, powers, privileges, whether articles of incorporation expressly embodied the statute or not. See Sherman v. Smith (U. S.), supra.

Legislative Question. All authorities cited by appellee in support of the proposition that the question of whether or not an injustice is done to stockholders is a legislative question, are decisions of state court. We cite in reply, Baldwin v. Payne, 12 Law Ed. 447; Planters Bank v. Sharp, 12 Law Ed. 447; Piqua Branch State Bank of Ohio v. Knoop, 16 How. 369; Dodge v. Woolsey, 59 U.S. 331 (How.) .

The last-named case treats the subject so exhaustively that a careful analysis of it will render consideration of the other unnecessary.

Injustice to Stockholders. The legislature, by express terms of the constitution, was prohibited from doing an injustice to stockholders. It might be said that an act of the legislature, making stockholders liable for the debts of a solvent corporation, would not be an injustice to the stockholders. However, an act of the legislature amending a charter so as to make the stockholders individually liable for the debts of an insolvent corporation, would certainly be an injustice to the stockholders. That the liability would apply only to the future debts of of the corporation does not alter the situation. The directors and officers would have the right to continue the operation of the bank over the protests of any individual stockholder.

Therefore, the bank officers would have the right to accept new depositors. Thus, the stockholder, without his consent, would have to take money out of his pocket to pay the bank's debts to new depositors.

The case of Sherman v. Smith, 17 Law Ed. 447, decided by the United States supreme court, cited by appellee, construed the New York statute wherein the unlimited right of amendment was reserved to the legislature. In that case when the articles of incorporation were made, it was a part of the contract that the legislature should be the sole judge as to making amendment, and any amendment made by the legislature was to become a part of the contract, not only between the state and the incorporators, but also between the corporators themselves.

In the instant case the legislative power is limited by the constitution so that all amendments must be without injustice to the stockholder. What is injustice, is to be determined in each case in its final analysis by the United States supreme court. Dodge v. Woolsey, supra.

Appellee (brief, page 17) contends that no injustice can be done unless the law confiscates the property of the corporation; in other words, the statute may take the stockholder's money, and that will not be an injustice. The true view is that the corporation property cannot be confiscated, because it would be confiscation of the stockholder's property.

Estoppel. Appellee contends that even though the section as to individual liability he held to be unconstitutional, the stockholders are estopped from denying liability on two grounds: 1. That the bank continued business after the banking act was passed; 2. That the appellants (stockholders) took advantage of the guaranty provision of the act by affirmative action.

To the first proposition we say that the officers of the bank had the right, even over the protest of the stockholders to continue to receive deposits, and such action on the part of the officers could not estop the stockholders from defending against an unconstitutional statute.

The officers and directors were agents of the stockholders to transact the ordinary business of the bank, but were not agents with authority to bind the stockholders under an unconstitutional statute.

To the second proposition, we say: 1. That corporations are created with equality of stockholders as to profits and liabilities and all must stand on the same footing, and therefore, anything that binds one must bind all, and as all the stockholders did not participate, none are thereby made liable. 2. The bank act (section 68) expressly provides that if any section, part or provision of the act be unconstitutional, the balance of the act shall nevertheless remain effective.

Therefore, the fact that section 59 was unconstitutional and did not render the stockholders liable did not prevent the bank from continuing business and entering the guaranty system.

Suit Premature. The authorities cited by appellee to show that suit can be brought before assets of corporation are exhausted, are cases under peculiar statutes. The great weight of authority is that the assets of a corporation must be exhausted. American & English Encyclopedia of Law (1 Ed.), book 23, page 885, and notes on page 886.

The statute now under consideration does not confer right on the stockholders to sue under any circumstances. The liability is not "to" the depositor, but "for his benefit."

The suit is to be brought by the bank or its receiver, and is in the nature of an assessment to make up the deficiency after the assets of the bank are exhausted.

Charter Provisions. Referring back to page 7 of appellee's brief, we call attention to the fact that the case of Payne v. Baldwin, 3 S. & M. 661, cited was appealed to the United States supreme court and reversed. Baldwin v. Payne, 12 Law Ed. 447; Planters Bank v. Sharp, 12 Law Ed. 447.

Watkins & Watkins, for appellees.

Section 59, chapter 124, of the Laws of 1914, became effective March 9, 1914, and is valid and enforceable as to banks in existence at the time of its passage, whether the liability was created before or after the passage of the act.

(A) The state did not contract that the liability of stockholders would not be changed. At the threshold of this argument, we desire to direct the attention of this court to the fact that the liability created by section 59, of the act did not depend upon the bank's becoming a guaranteed bank.

This section became effective March 9, 1914. In other words, from and after March 9, 1914, the stockholders of banks became and were liable to depositors. As to whether any bank became a guaranteed bank was optional up to and including May 15, 1915. See section 45.

(1) Section 59 needs no construction. It says the stockholders of every bank admitted into the guaranty system. The language is plain and...

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