Smathers v. Western Carolina Bank

• Decision Date: 17 May 1904
• Citation: 47 S.E. 893,135 N.C. 410
• Parties: SMATHERS et al. v. WESTERN CAROLINA BANK et al.
• Court: North Carolina Supreme Court

47 S.E. 893

135 N.C. 410

SMATHERS et al. v. WESTERN CAROLINA BANK et al.

Supreme Court of North Carolina

May 17, 1904

Appeal from Superior Court. Buncombe County; Long, Judge.

Action by George H. Smathers, receiver, and others, against the Western Carolina Bank and others. From a judgment overruling a demurrer to the complaint, defendants appeal. Affirmed.

Merrimon & Merrimon and Moore & Rollins, for appellants.

Jones & Jones, for appellees.

CONNOR J.

This action, in the nature of bill in equity, was brought by Geo H. Smathers, receiver of the Western Carolina Bank, in which a number of creditors, in behalf of themselves and all other creditors of said bank, joined, against the bank and certain stockholders thereof, for the purpose of enforcing the statutory liability imposed upon the stockholders for the indebtedness of the bank by chapter 298, p. 473, Pub. Laws 1897. The complaint sets forth the incorporation and organization of the bank, the names and number of shares held by each stockholder, and date of becoming such stockholder and the failure of the bank. It further sets forth the institution in the superior court of an action by certain creditors in the nature of a creditors' bill, and the appointment of the plaintiff as receiver. The order of the court is attached to, and made a part of, the complaint. It is in the usual form, and contains the following provision "It is further ordered that the said receivers take into their charge all the property and assets of the said defendant corporation, and that they shall proceed at once to the collection of all debts due to the said corporation defendant, and take all such necessary and legal steps for the purpose of such collection; hereby giving to the said receivers full power and authority, in their names as such, to institute and prosecute to final judgment all such suits and actions at law and equity as may be necessary for the purpose of reducing the choses in action and other evidences of debt into possession, and collecting the same," etc. The original order appointed two receivers. One of them resigned, leaving said Smathers sole receiver. Thereafter an order was made in said cause substituting W. W. Jones, Esq., receiver in place of said Smathers. He was made party plaintiff, and an amended complaint was filed, setting forth the order of substitution and adopting the original complaint. It is alleged that the total assets of the bank will not pay to exceed 50 per cent. of its indebtedness. The defendants demurred to the complaint, and assigned as grounds of demurrer (1) that the action should have been brought by the creditors of the bank in their own right, and that the receiver has no cause of action, etc.; (2) that the action should have been brought by the creditors against each individual stockholder; (3) that there is a misjoinder of plaintiffs and defendants; (4) that relief should have been sought in the original action; (5) that it does not appear upon the face of the complaint whether the defendants became stockholders before or after the passage of the act of 1897, p. 473, c. 298, nor when the alleged debts were created or contracted; (6) that it does not appear that the assets of the bank have been exhausted, or that any liability has arisen against the defendants under said act of 1897; (7) that the act is unconstitutional, for that it is ex post facto and retroactive, impairs the obligation of contracts, etc.; (8) that no power is conferred upon the receiver to bring the action. His honor overruled the demurrer, and allowed the defendants time to answer. Defendants appealed.

The act of 1897, by which it is sought to attach the liability of the defendants, was ratified March 6, 1897. It provides that the stockholders of every bank or banking association now operating by virtue of any charter or law of this state, or that may hereafter operate, "shall be held individually responsible equally and ratably and not one for another, for all contracts, debts and agreements of such association to the extent of the amounts of their stock therein at the par value thereof in addition to the amount invested in such share." By section 2, any exemption from personal liability contained in any charter is repealed. The Code (section 668) provides that, when any corporation is insolvent, the judge of the superior court having jurisdiction as fixed by the Code (chapter 10) may appoint a receiver to take charge of the estate and effects thereof, and to prosecute all such actions, either in his own name or the name of the corporation, as may be necessary or proper, etc. Whatever may have been the law in respect to the right of the receiver to prosecute actions for the recovery of the assets, debts, and property of the corporation prior to the change in our judicial system, blending the legal and equitable jurisdiction and power into one tribunal and form of action, it is well settled now, as said by Burwell, J., in Davis v. Mfg. Co., 114 N.C. 321, 19 S.E. 371, 23 L. R. A. 322: "In Gray v. Lewis, 94 N.C. 392, it was decided that, as well because of the change in the system of our courts as because of the Statute, the receiver might sue either in his own name or that of the corporation. In whichever name he may elect to bring the action, it is essentially a suit by the corporation, prosecuted by order of the court, for the collection of the assets. *** In it may be adjudicated all the rights of the bank, its creditors, and the defendant debtor, both legal and equitable, pertaining to the matters set out in the pleadings; and such judgment may be entered as will enforce the rights of the general creditors, and also protect any equities that the defendant may be entitled to," etc. The statute (Code, § 668) expressly extends the life of the corporation for three years after dissolution for the purpose of winding up its affairs. The doctrine that the capital stock of a corporation constitutes a trust fund has been accepted and acted upon by this court. Marshall Foundry Co. v. Killian, 99 N.C. 501, 6 S.E. 680, 6 Am. St. Rep. 539; Cotton Mills v. Cotton Mills, 115 N.C. 475, 20 S.E. 770; Bank v. Cotton Mills, 115 N.C. 507, 20 S.E. 765.

"It is a favorite doctrine of the American courts that the capital stock and other property of a corporation are to be deemed a trust fund for the payment of the debts of the corporation," etc. 10 Cyc. 553. The same authorities conclusively settle the doctrine that unpaid subscriptions to stock constitute a part of the assets of the corporations and are to be sued for and recovered in the same manner as other assets--certainly to the extent that they are necessary for the payment of its debts. Judge Thompson, in his very able and exhaustive article on "Corporations," vol. 10, Cyc., says that the remedy for the recovery of such unpaid subscriptions is, in the absence of any statutory provision, in equity; that when, for any reason, it becomes necessary to afford an effective remedy, a court of equity will direct suit to be brought by the directors or by "its own proper officers." Pages 655, 656. Does the liability of the stockholders imposed by the act of 1897 come within the same principle as unpaid subscriptions? It certainly does in respect to the purpose for which it is imposed, and to give the securities to creditors which it designs. ...