Whitman v. Citizens' Bank of Reading

• Decision Date: 13 June 1901
• Docket Number: 111,93.,92
• Citation: 110 F. 503
• Parties: WHITMAN v. CITIZENS' BANK OF READING. SAME v. NORTON. SAME v. WATTS.
• Court: U.S. Court of Appeals — Second Circuit

110 F. 503

WHITMAN v. CITIZENS' BANK OF READING. SAME v. NORTON. SAME v. WATTS.

Nos. 92, 111, 93.

United States Court of Appeals, Second Circuit.

June 13, 1901

Wm. G Wilson and Wm. G. Clarke, for plaintiff in error.

Wm. B Hornblower, for defendants in error Citizens' Bank and Watts.

Charles E. Hughes, for defendant in error Norton.

The Citizens' Bank of Reading, a Pennsylvania corporation Kate A. Norton, a citizen of Kansas, and John Watts, as receiver of the American National Bank of Arkansas City, a national banking corporation established in the state of Kansas, each brought an action at law in the circuit court for the Southern district of New York against George L. Whitman, a citizen of the state of New York, resident in the city of New York, and stockholder in the Arkansas City Investment Company, an insolvent Kansas corporation, to recover the amount of debts due to the plaintiffs, respectively, by said corporation. The suits were brought under section 32, c. 23, Gen. St. That section and section 44 of the same chapter, which gave another remedy to the creditor of an insolvent corporation against a stockholder, and section 40 are as follows:

'Sec. 32. If any execution shall have been issued against the property or effects of a corporation, except a railway or a religious or a charitable corporation, and there cannot be found any property whereon to levy such execution, then execution may be issued against any of the stockholders to an extent equal in amount to the amount of stock by him or her owned, together with any amount unpaid thereon, but no execution shall issue against any stockholder, except upon an order of the court in which the action, suit or other proceeding shall have been brought or instituted, made upon motion in open court, after reasonable notice in writing to the person or persons sought to be charged; and, upon such motion, such court may order execution to issue accordingly; or the plaintiff in the execution may proceed by action to charge the stockholders with the amount of his judgment.'

'Sec. 44. If any corporation, created under this or any general statute of this state, except railway or charitable or religious corporations, be dissolved, leaving debts unpaid, suits may be brought against any person or persons who were stockholders at the time of such dissolution, without joining the corporation in such suit; and if judgment be rendered, and execution satisfied, the defendant or defendants may sue all who were stockholders at the time of dissolution, for the recovery of the portion of such debt for which they were liable, and the execution upon the judgment shall direct the collection to be made from property of each stockholder, respectively; and if any number of stockholders (defendants in the case) shall not have property enough to satisfy his or their portion of the execution, then the amount of deficiency shall be divided equally among all the remaining stockholders and collections made accordingly, deducting from the amount a sum in proportion to the amount of stock owned by the plaintiff at the time the company dissolved.'

'Sec. 40. A corporation is dissolved, first, by the expiration of the time limited in its charter; second, by a judgment of dissolution rendered by a court of competent jurisdiction; but any such corporation shall be deemed to be dissolved for the purpose of enabling any creditors of such corporation to prosecute suits against the stockholders thereof to enforce their individual liability, if it be shown that such corporation has suspended business for more than one year.'

In the circuit court, a verdict in each case was directed for the plaintiff, and to review the respective judgments entered upon those verdicts, each defendant brought a writ of error. The facts which are applicable to each case are that the Arkansas City Bank was formed in September, 1886, for the purpose of receiving money on deposit, and conducting a general banking, loaning, and investment business. The name was changed by vote of the stockholders on May 25, 1889, to Arkansas City Investment Company. A voluntary assignment of all its property for the benefit of its creditors was made on December 15, 1890, to Charles A. Scruton. The defendant was, at the organization of the bank, and still is, a stockholder therein to the amount of 1,000 shares.

Before SHIPMAN, circuit Judge, and WHEELER and COXE, District Judges.

SHIPMAN Circuit Judge, after stating the foregoing facts,, as follows:

The Citizens' Bank of Reading Case.

A judgment in favor of the plaintiff for $4,997.50 upon suit brought on December 14, 1894, in the proper state court in Kansas, was recovered against the corporation on April 16, 1895. Execution was issued thereon on April 30, 1895, and was returned unsatisfied. The complaint also set forth the notes upon which the judgment was rendered. No defense arising upon a statute of limitations was pleaded. Retzer v. Wood, 109 U.S. 185; 3 Sup.Ct. 164, 27 L.Ed. 900. The answer denied the allegations in regard to the judgment, but made no averment of defects 'which required extrinsic evidence to make them apparent. ' The fact of the record showed an acceptance of service of process by Huey as cashier and manager, and the appearance of an attorney for the defendant, and proof was not permissible, under the averments of the answer, that he acted without authority. Hill v. Mendenhall, 21 Wall. 453, 22 L.Ed. 616. It is said that the record shows upon its face that the Kansas court was without jurisdiction because the acceptance of service was made by Huey as cashier and managing officer, and the employment of an attorney was also made by him, four years after the general assignment for the benefit of creditors, and therefore after his authority and duties as cashier had ceased, and after the dissolution of the corporation. This position is not sustained by the Kansas decisions upon the construction of the statutes now in question, or of the statutes which regulate the service of process upon corporations. It is true that a Kansas corporation is, under section 40, heretofore quoted, deemed to be dissolved for the purpose of enabling any creditors of such corporation to prosecute suits against the stockholders to enforce their individual liability without a judgment against the corporation, if it be shown that such corporation had suspended business for more than a year; but this dissolution is merely for that specified purpose. 'The cessation of business does not operate as a legal or complete dissolution of the corporation, but it is deemed to be dissolved but for a single purpose,-- that of enabling creditors to enforce the individual liability of stockholders. For all other purposes, the bank continued to be a corporation in the eye of the law, and creditors had a right to sue the bank in its corporate capacity. ' Sleeper v. Norris, 59 Kan. 555, 53 P. 757. The remedies under sections 32 and 44 are distinct, and a creditor can adopt either, unless prevented by the statute of limitations. Cottrell v. Manlove, 58 Kan. 405, 49 P. 519.

In the absence of the president of a corporation from the county wherein the corporation is located, service upon the cashier, secretary, or managing agent is, by the statutes of Kansas, valid service upon the corporation. The waiver of the service of summons by the president of a Kansas corporation, and his voluntary entering of appearance more than a year after it ceased to do business, was held to be sufficient authority for a court to render a valid judgment against the corporation, which was a sufficient foundation for an action against a stockholder; the execution having been unsatisfied. Bank v. Prescott, 60 Kan. 490, 57 P. 121. The president of the investment company was a nonresident of Kansas. Huey was its cashier, secretary, and the only managing officer, and if it is of any importance, he was also a director. Valid service could be made upon him, and his acceptance of service was also valid.

The next question is the one, which, having been presented to this court in Whitman v. Bank, 28 C.C.A. 404, 83 F. 288, came before the supreme court in the same case by certiorari (176 U.S. 559, 20 Sup.Ct. 477, 44 L.Ed. 587), and was whether an action upon the stockholders liability, as prescribed in section 32, was transitory, and could be maintained in the courts of competent jurisdiction, either federal or state, in states other than Kansas. The supreme court decided the question in the affirmative, and held that the constitution of Kansas had cast a definite liability upon each stockholder of a banking corporation; that, to the extent of declaring the liability, the constitution was self-executing; that, by section 32, the legislature had prescribed the mode of enforcing the liability; and that 'the liability, which by the constitution and the statutes is thus declared to rest upon the stockholder, though statutory in its origin, is contractual in its nature,' and that the statute was not penal in its character.

It is now urged by the defendant, and the argument was pressed in each of the three cases, that, inasmuch as a few days after the decision in the Bank of Oxford Case, the supreme court of Kansas, in Woodworth v. Bowles, 61 Kan. 569, 60 P 331, had declared that the constitutional provision was not self-executing, the decision of the highest court of a state in regard to its constitution in controlling, and that the supreme court of the United States will adopt the view of the Kansas court. Fairfield v. Gallatin Co., 100 U.S. 47, 25 L.Ed. 544. It in incumbent upon this court to regard the expressed opinion of the supreme court of the United States as controlling until changed by itself, and, furthermore, it is not apparent...