Weil v. Defenbach

• Decision Date: 09 January 1918
• Citation: 31 Idaho 258,170 P. 103
• Court: Idaho Supreme Court
• Parties: IGNATZ WEIL, Receiver of the Traders' State Bank, Appellant, v. B. S. DEFENBACH, RUFUS JACKSON, W. F. WHITAKER, E. DREISBACH, W. A. BERND, ROBERT GRIMES and R. N. JACKSON, Respondents

170 P. 103

31 Idaho 258

IGNATZ WEIL, Receiver of the Traders' State Bank, Appellant, v. B. S. DEFENBACH, RUFUS JACKSON, W. F. WHITAKER, E. DREISBACH, W. A. BERND, ROBERT GRIMES and R. N. JACKSON, Respondents

Supreme Court of Idaho

January 9, 1918

CORPORATIONS-INDIVIDUAL LIABILITY OF STOCKHOLDERS-ILLEGAL DISTRIBUTION OF ASSETS-RECEIVER-REMEDY OF JUDGMENT CREDITOR-STATUTE OF LIMITATIONS.

1. Where the creditor of a corporation seeks to enforce against a stockholder of such corporation an individual statutory liability, he must first exhaust his remedy against the corporation.

2. Under sec. 2732, Rev. Codes, as amended (Sess. Laws 1909, p 159), action of the directors and stockholders of a banking corporation in withdrawing and distributing among themselves the assets of the corporation is void as to existing creditors of the corporation.

3. The assets of a corporation constitute a trust fund for the payment of its debts, which cannot lawfully be divided up until the creditors of the corporation are paid.

4. Where the stockholders of a banking corporation have illegally withdrawn and distributed among themselves the assets of the corporation, the receiver of the corporation may maintain an action to compel the stockholders to refund to him on behalf of the corporation sufficient of the funds so withdrawn to satisfy a valid judgment against the corporation.

5. As between the stockholders of a corporation and a judgment creditor of such corporation, the statute of limitations does not begin to run against the judgment creditor until he has notice that the assets of the corporation are not sufficient to satisfy his debt.

6. Under sec. 2732, Rev. Codes, as amended (Sess. Laws 1909, p 159), the inhibition to the directors of a corporation against impairing the capital stock of the corporation extends also to the stockholders, who are prohibited from receiving the assets of the corporation disbursed in violation of sec. 2732, supra, and the liability for the violation of the provisions of this section is in the first instance to the corporation itself. As between the creditors of the corporation and the stockholders thereof, the liability of the latter is a secondary liability.

[As to liability of stockholders to the creditors of the corporation, see note in 3 Am.St. 806.

APPEAL from the District Court of the Eighth Judicial District, for Bonner County. Hon. R. N. Dunn, Judge.

Action by receiver to recover from stockholders assets unlawfully withdrawn and distributed. Judgment of nonsuit reversed.

Judgment reversed and a new trial granted. Costs awarded to appellant.

Ezra R Whitla, for Appellant.

It was clearly the intention of the legislature in framing sec. 2979, Rev. Codes, to provide in substance that where the assets of the bank are not sufficient to pay its indebtedness or to liquidate its affairs, that then, and not until then, does the right of action against the stockholder accrue. (Wilson v. Book, 13 Wash. 676, 43 P. 939; McLaughlin v. O'Neill, 7 Wyo. 187, 51 P. 243; 10 Cyc. 724, 728; Swan Land & Cattle Co. v. Frank, 39 F. 456.)

If our contention is correct that the stockholders' liability is secondary then no action could be maintained against the individual stockholders until the legal remedy against the corporation had been exhausted. Whether the transfer of its assets to its stockholders was intentionally fraudulent or not, the effect of dividing up all of its property worked a legal fraud upon its creditors. (Watkins v. Wilhoit, 4 Cal. Unrep. 450, 35 P. 646; Taylor v. Bowker, 111 U.S. 110, 4 S.Ct. 397, 28 L.Ed. 368; Rose v. Dunklee, 12 Colo. App. 403, 56 P. 342.)

The assets are a trust fund, and the corporation cannot divide the same up until after the creditors are paid. (10 Cyc. 654; Panhandle National Bank v. Emery, 78 Tex. 498, 15 S.W. 23; Chicago, M. & St. P. Ry. Co. v. Third National Bank of Chicago, 134 U.S. 276, 10 S.Ct. 550, 33 L.Ed. 900; Reid v. Eatonton Mfg. Co., 40 Ga. 98, 2 Am. Rep. 563; Curran v. State, 15 How. (U.S.) 304, 14 L.Ed. 705; Schley v. Dixon, 24 Ga. 273, 71 Am. Dec. 121; Chicago, R. I. & P. R. R. Co. v. Howard, 7 Wall. (U.S.) 410, 19 L.Ed. 117; Baltimore & O. Tel. Co. v. Interstate Tel. Co., 54 F. 50, 4 C. C. A. 184; Jahn v. Champagne Lbr. Co., 157 F. 407; Wood v. Dummer, 3 Mason, 308, F. Cas. No. 17,944; Crandall v. Lincoln, 52 Conn. 73, 52 Am. Rep. 560.)

The receiver in such a case is the proper party to sue. (Wilson v. Book, supra; McTamany v. Day, 23 Idaho 95, 128 P. 563; Foster v. Row (Broas), 120 Mich. 1, 79 N.W. 696; High on Receivers, 360; Brown v. Brink, 57 Neb. 606, 78 N.W. 280; Farmers' Loan & Trust Co. v. Funk, 49 Neb. 353, 68 N.W. 520; German National Bk. v. Farmers' & Mer. Bk., 54 Neb. 593, 74 N.W. 1086.)

E. W. Wheelan and G. H. Martin, for Respondents.

After the stock has been issued and paid for, all liability that can be imposed upon the stockholder as a stockholder has been satisfied. (Wall v. Basin Mining Co., 16 Idaho 313, 101 P. 733, 22 L. R. A., N. S., 1013; 2 Proceedings and Debates Idaho Const. Convention, 1107, 1111.)

"When a constitution makes stockholders liable for corporate debts and fixes the liability, the legislature has no power to exempt them from such liability or impose a different one." (Thompson on Corp., sec. 4760.)

The liability of the stockholder in any case is primary, and any action instituted by a creditor must be based upon the original consideration between the corporation and the creditor. (Redington v. Cornwell, 90 Cal. 49, 27 P. 40; Hunt v. Ward, 99 Cal. 612, 37 Am. St. 87, 34 P. 335; Knowles v. Sandercock, 107 Cal. 629, 40 P. 1047; Partridge v. Butler, 113 Cal. 326, 45 P. 678; Thompson on Corp., sec. 4802.)

"An action to enforce personal liability of stockholder for debts of corporation must be commenced within three years from date on which debt is created, whether cause of action has matured or not." (Greene v. Beckman, 59 Cal. 545; Mitchell v. Beckman, 64 Cal. 117, 28 P. 110; Hyman v. Coleman, 82 Cal. 650, 16 Am. St. 178, 23 P. 62; Wells v. Black, 117 Cal. 157, 59 Am. St. 162, 48 P. 1090, 37 L. R. A. 619; Goodall v. Jack, 127 Cal. 258, 59 P. 575; Ryland v. Commercial & Sav. Bank, 127 Cal. 525, 59 P. 989)

"In case of judgment against a corporation, the stockholder's liability accrues when debt or obligation was contracted, and not from date on which judgment was recovered, and from former date statute of limitation runs against action to enforce that liability." (Mokelumne Hill C. & M. Co. v. Woodbury, 14 Cal. 265; Davidson v. Rankin, 34 Cal. 503; Larrabee v. Baldwin, 35 Cal. 155; Young v. Rosenbaum, 39 Cal. 646; Stilphen v. Ware, 45 Cal. 110; Hyman v. Coleman, 82 Cal. 650, 16 Am. St. 178, 23 P. 62.)

BUDGE, C. J. Morgan and Rice, JJ., concur.

OPINION

BUDGE, C. J.

This action was brought by appellant as receiver of the Traders' State Bank against the respondents as stockholders. It appears that one Churchill obtained judgment against the bank on the 13th day of March, 1912, for $ 4,187.67. On the 18th of December, 1912, Churchill caused execution to be issued against the bank, which was returned January 7, 1913, with no property found. The judgment was assigned to one McCarthy. On March 1, 1913, application having been made therefor, appellant was appointed receiver with full power and authority to act in all matters necessary for the recovery from the officers, directors and stockholders of the bank of all of the assets and moneys received by them from the corporation as withdrawals and assets thereof, etc., sufficient to pay the judgment. On May 5, 1913, this action was instituted.

The complaint sets forth two causes of action. The first cause seeks to recover from the stockholders upon their alleged liability under Rev. Codes, sec. 2979, as re-enacted 1911 Sess. Laws, c. 124, sec. 35. The second cause of action is based upon the alleged withdrawal of the assets of the corporation and their distribution among the individual stockholders while the debt here in question was subsisting, outstanding and unpaid. At the close of the appellant's testimony the trial court entered a judgment of nonsuit upon the following grounds: As to the first cause of action, that Rev. Codes, sec. 2979, supra, is in violation of sec. 17, art. 11, of the constitution of the state of Idaho; that the second cause of action is barred by the statute of limitations. This appeal is from the judgment.

It should be borne in mind that while appellant seeks in his first cause of action to recover upon an alleged statutory liability, the allegations in this cause of action are such as to defeat his right, if any, to recover upon this theory. It is alleged therein that the stockholders withdrew all of the assets from the corporation and distributed them pro rata among themselves. It appears, according to these allegations, that there were 140 shares, the several owners of which, the respondents herein, partook of the assets to the extent of $ 125 per share. Taking the facts thus alleged as true, there are two legal propositions which, considered together, operate to defeat this cause of action. In the first place it may be stated as a general rule that where a creditor seeks to enforce against a stockholder an individual statutory liability, he must first exhaust his remedy against the corporation. (10 Cyc. 724, 728; Swan Land & Cattle Co. v. Frank, 39 F. 456.) In the second place, Rev Codes, sec. 2732, as amended Sess. Laws 1909, p. 159, makes such withdrawal and distribution of the assets unlawful. Such action of the stockholders and directors of the bank was void as to existing creditors. (Martin v. Zellerbach, 38 Cal. 300, 99 Am. Dec. 365.) The assets of the corporation constitute a trust fund for the payment of its debts, which...