Van Tuyl v. Carpenter

• Decision Date: 08 August 1916
• Citation: 188 S.W. 234,135 Tenn. 629
• Parties: VAN TUYL ET AL. v. CARPENTER ET AL.
• Court: Tennessee Supreme Court

188 S.W. 234

135 Tenn. 629

VAN TUYL ET AL. v. CARPENTER ET AL.

Supreme Court of Tennessee.

August 8, 1916

Appeal from Chancery Court, Davidson County; John Allison Chancellor.

Bill by George C. Van Tuyl, Jr., and others against John H. Carpenter and others. From an order sustaining a demurrer and judgment dismissing the bill, complainants appeal. Affirmed.

Fancher Special Judge, dissenting.

Keeble & Seay and A. W. Stockell, Jr., all of Nashville, for appellants.

Vertrees & Vertrees, Pitts & McConnico, E. A. Price, C. C. Trabue Thos. J. Tyne, and Stokes & Stokes, all of Nashville, for appellees.

NEIL C.J.

The bill in the present case was filed in the chancery court of Davidson county, against Carpenter and others, stockholders of the Carnegie Trust Company, a New York banking concern, to recover on a stock assessment made by the complainant Van Tuyl, as superintendent of banks of the state of New York. There was a demurrer, which was sustained by the chancellor, and the complainants appealed to this court, and have assigned errors.

The bill alleges, in substance, that at the time defendants became stockholders there was a statute in New York which made stockholders liable for the debts of the corporation to the full face value, or amount, of their stock; that is, a double liability, the duty of paying in the first instance not only the full stock subscription, but in addition thereto an equal amount, if needed to pay the debts of the concern; that under the statute it was the duty of the complainant, as superintendent of banks to seize any bank in the state which he might believe to be in an unsafe condition, from misconduct of its officers, impairment of capital, or on numerous other grounds stated, and to administer its assets, pay its debts, and return the residue, if any, to such bank or its stockholders; that it was a part of his duty to assess the amount to be paid by stockholders, on the reserved liability mentioned, in the way of such percentage thereof, as he should deem necessary, or even to the whole sum; that the Carnegie Trust Company, by reason of its conduct, became amenable to the operation of the statute, and under the authority of the statute, he took charge of it, and proceeded to administer its affairs; that on an examination of its assets and liabilities he found that the latter far exceeded the former, so that the corporation was insolvent; that he thereupon proceeded to assess the stockholders to the full amount of the reserved liability; that after making this assessment, he notified the stockholders by mail, according to the statute, of the amount so assessed by him against each one, and demanded payment of them, but that the Tennessee stockholders now sued had failed to pay. Hence this action was brought against them.

It does not appear that the agency of any court in the state of New York was invoked to ascertain the fact of insolvency, and the necessity of assessing the stockholders, or that the statute contemplated or authorized such resort to court proceedings, all authority in the premises being conferred upon the superintendent, the only access to any court being a right accorded to the corporation assailed, within ten days after its seizure to apply for an injunction; this application to be heard by the court referred to, on pleadings and evidence offered, and an injunction to be granted restraining the superintendent from further interference, if the evidence offered should sustain the application, otherwise the application to be dismissed.

The act authorized the superintendent to sue the debtors of the bank, also provided for certain court action in the sale of noncollectible assets, and in the declaration of dividends.

This was the substance of the statute so far as necessary to be stated, at the time the original bill was filed in January, 1914. Later, an amended and supplemental bill was filed, bringing forward a New York statute passed after the filing of the original bill, giving the superintendent power to sue stockholders either jointly or severally. So much of this new act as we deem necessary to further specially refer to is set out infra in the body of this opinion in its logical relation to the questions discussed.

It appears from the bill that the shares subscribed were 15,000, and of those the defendants, aggregated, represent something over 2,000.

There were 10 grounds of demurrer filed, but we deem it necessary to refer to only one of them. This raises the point that the statute is arbitrary and oppressive, and should not be recognized here under principles of comity.

The New York statute under which the suit is brought authorizes the superintendent of banks to examine the bank, determine its assets, ascertain its indebtedness, and make the assessment on stockholders, without the aid of any court. In such a proceeding, and under such a power, the rights of stockholders are foreclosed without a hearing, and without their presence, either in person or by representation. The authorities hold that the corporation itself represents its stockholders in a proceeding brought in equity for its liquidation, in so far as concerns the ascertainment of the amount of assets, and debts, and the necessity of a call, leaving open to such alleged stockholder the question whether he was in fact a stockholder, and the amount of his stock, and crossclaims or credits against the corporation. Coe v. Armour Fertilizer Works, 237 U.S. 413, 423, 35 S.Ct. 625, and cases cited (59 L.Ed. 1031), and see on the general principle: Hartford L. Ins. Co. v. Ibs, 237 U.S. 662, 35 S.Ct. 692, 59 L.Ed. 1165, L. R. A. 1916A, 765; Supreme Council R. A. v. Green, 237 U.S. 531, 35 S.Ct. 724, 59 L.Ed. 1089, L. R. A. 1916A, 771. But no such representation is supported by the authorities where the call is made by a mere nonjudicial officer belonging to the executive department of a state government. Nor do we think any such decision can be properly made, since the power exercised is purely arbitrary. Furthermore, we do not think that the arbitrary character of the proceeding is countervailed by the leave which the statute gives to the corporation to go into a court within ten days after its seizure by the superintendent, and apply for an injunction. No such privilege is accorded to the stockholders as such, or to any stockholder, so that it results, if the board of directors does not choose to apply to the court, or in default thereof the majority of the stockholders, through or pursuant to a stockholders' meeting, within the ten days referred to, there is no possibility of relief for any stockholder against arbitrary action on the part of the superintendent of banks. Let it be conceded that if the directors should make such application, or if the corporation should be brought into action through a meeting of the stockholders, the whole body and each of the stockholders would be represented by the corporation. It remains that in the present case it does not appear that any such proceedings were instituted by the corporation, and therefore it does not appear that there was any representation. So that, to sustain the power exercised by the superintendent of banks, and to give effect to it against stockholders in Tennessee, we must be willing to adjudge, either that the power to represent is tantamount to actual representation, or that the possession of such power and the failure to exercise it would be binding by way of estoppel on the stockholders. The first supposition is, of course, absurd. The second is also unsound, because it is based on the presumption of an active duty resting on the corporation to apply for an injunction in every such case, or to consider the question and decide whether such application should be made. It is clear that the statute imposes no such active duty, but at most gives the corporation the privilege of making the application. In deciding whether it will avail itself of the privilege, the corporation does not represent the individual stockholders as to the reserved liability due creditors from them, under the statute. The statute does not in terms give it such power, and we cannot, by construction, hold that it was conferred. Beyond doubt a power of representation so farreaching ought to be conferred in unmistakable terms in the statute itself, so that subscribers to stock would know, when entering into the contract, the terms to which they were consenting. So it remains, as we think, that no means of relief are afforded stockholders against arbitrary action on the part of the superintendent, unless it be found in the amendment of the year 1914, which provides that in any action based on the assessment made by the superintendent--

"the written statement of the superintendent, under his hand and seal of office, reciting his determination to enforce the individual liability, or any part thereof, of such stockholders, and setting forth the value of the assets of such corporation, and the liabilities thereof, as determined by him after examination and investigation, shall be presumptive evidence of such facts as therein stated."

No state can impose upon any other state a rule of evidence for use in the courts of the latter. But if it be assumed that the contract between the parties might be such as to make it the duty of the court of the foreign state to adopt the rule in the particular case by way of estoppel on the parties to deny its force, there is nothing in the present contract to justify such course, since the amendment was adopted long after the contract of subscription was entered into, and indeed after the original bill in the present case was filed. So, the statutory rule quoted could be applied here only through comity. Should comity, a favor, be extended...