Woodworth v. Bowles

Decision Date10 March 1900
Docket Number11,482
PartiesR. J. WOODWORTH et al. v. THOMAS BOWLES et al
CourtKansas Supreme Court

Decided January, 1900.

Error from Anderson district court; S. A. RIGGS, judge.

Judgment reversed.

Kirk & Bronson, Oscar Foust, and Snoddy & Snoddy, for plaintiffs in error.

W. A Johnson, J. G. Johnson, and N. L. Bowman, for defendants in error.

OPINION

DOSTER, C. J.:

This was a proceeding in equity be gun by Thomas Bowles in behalf of himself and others as creditors of an insolvent banking institution, against R. J. Woodworth and others as stockholders in the bank, to compel the payment by them of the amounts due on their statutory liability as stockholders and for a distribution of such amounts among the several creditors of the bank, and to restrain certain of its creditors from the prosecution of actions begun by them against the stockholders to enforce for themselves and in their several interests the statutory liability of the latter. Judgment in accordance with the prayer of the petition was rendered in the court below. From that judgment proceedings in error have been prosecuted to this court, and the principal question is, Can an equitable action be maintained for the purpose stated in the plaintiffs' petition?

In 1895 the Bank of Garnett became insolvent. It was taken in charge by the bank commissioner under the authority of the statute then in force. As required by that statute, a receiver was appointed, who entered upon the labor of converting the assets of the bank into money and distributing it among the creditors. In 1897 the legislature revised the act for the regulation and supervision of banks in their insolvent, as well as in their active and solvent, condition. (Laws 1897, ch. 47; Gen. Stat. 1897, ch. 18, §§ 1-67; Gen. Stat. 1899; §§ 407-470.) By section 55 of that act. it was made the duty of receivers of insolvent banks to prosecute actions for recovery on the statutory liability of stockholders. That duty had not been theretofore imposed upon the receivers of such banks, but before the taking effect of the statute mentioned the liability of stockholders of banks, as well as of other incorporated institutions, was enforceable only by individual creditors against individual stockholders unless, as the defendants in error claim, it was enforceable in equity, by the creditors collectively. In June, 1897, the action stated was commenced. This was after the taking effect of the law of 1897, which made it the duty of the receiver to institute the proceedings, but, for reasons hereinafter given, the question was not embarrassed by any conflict of right between the creditors to prosecute the action for themselves, and the receiver to prosecute it under the statute in their behalf. Therefore, for the present, the case will be viewed without regard to the statute imposing upon the receiver the obligation to begin and maintain the suit.

After the occurrence of the bank's insolvency, but before the institution of the proceeding in equity, and also before the taking effect of the act of 1897, a large number of the bank's creditors instituted actions under the statute against certain of its stockholders to enforce their individual liability for the payment of its debts. These creditors were made parties defendant to the action in equity before mentioned, and are the plaintiffs in error in this court.

The provisions of law respecting the liability of stockholders of a corporation to pay its debts are both constitutional and statutory. The constitution declares: "Dues from corporations shall be secured by individual liability of the stockholders to an additional amount equal to the stock owned by each stockholder, and such other means as shall be provided by law." (Art. 12, § 2.) Prior to the act of 1897 before referred to, the statutory remedies for the enforcement of the liability ordained by this constitutional provision were those provided by sections 49 and 50, chapter 66, General Statutes of 1897. By section 49, an action in the form of a petition and summons by the creditor against the stockholder was authorized in the event of a dissolution of the corporation; and by section 50, a proceeding in the form of a motion by the creditor for leave to issue execution against the stockholder was authorized in the event of a previous judgment and unsatisfied execution against the corporation. (Cottrell v. Manlove, 58 Kan. 405, 49 P. 519.)

These sections did not provide a remedy by the creditors collectively against the stockholders collectively; but in each of them provision was made for a single proceeding by a single creditor against a single stockholder. This was expressly so declared in Abbey v. Dry Goods Co., 44 Kan. 415, 24 P. 426, as to the liability of the stockholders to the creditors. In that case it was ruled: "The liability of stockholders to the creditors of a corporation is several not joint, and each must be sued separately." By much the stronger reason should it be held, we think, that the right of action of creditors under these statutes is several and not joint. Each one has his own demand, and because of the lack of community of interest with other creditors he cannot join with them in the institution and maintenance of a proceeding to secure their several claims.

However, back of these statutory provisions which thus mark out the remedies to be adopted by the creditors of a corporation for the recovery of their demands against its stockholders, lies the constitutional provision before quoted, which, independently of all legislation upon the subject, must be allowed such self-operative force as the terms employed indicate the framers of the organic law intended it should have. If the legislative enactments are not up to the requirements of the constitution, and if the constitution be self-operative to the ends sought to be reached, this court must carry out the mandate of the organic instrument. It is evident that, if the constitutional provision be self-executing, it operates in favor of creditors as a class and collectively, and against stockholders as a class and collectively. If the constitution itself secures dues from corporations through the individual liability of stockholders, it secures them in the interest of all the creditors alike. In such event the provision, being declarative of a rule of general right and of general liability, would of necessity assert itself through the legal forms adapted to its ends. Those ends, being equality of right and equality of liability, could be reached only through the equity procedure of the courts. Although the legislature might rightfully devise a mode of procedure adapted to the end in view, yet, in the lack of such legislative enactment, the constitution, through its self-operative force, would seize upon and appropriate to its purposes such general forms of action as had been already provided for similar cases, and, in such event, the petition of the plaintiffs in the court below might be maintained.

But we are constrained to hold that the constitutional provision in question is not self-operative. It does not execute its own commands and can only be regarded as a direction to the legislature. As a rule, constitutional provisions, unless expressed in negative form or possessed of a negative meaning, are not self-assertive. They usually assume the form of a command to the legislature, and legislative action becomes necessary to give them effect. The one under consideration is an instance of the latter kind. The constitution does not ordain in terms of the present tense the individual liability of stockholders for the debts of corporations, but it ordains it in terms of the future tense. It declares that "dues from corporations shall be secured," etc., not that "dues from corporations are secured." When the constitution declares that a right shall be secured or a thing shall be done, it means that it shall be secured, or shall be done, by the legislature. In such case, the constitution places upon the legislature the obligation to carry out its ordinances by appropriate enactment.

There are constitutional provisions in other states looking to the same end as the one of our own in question, but which, by reason of the difference in language used, have been given a different interpretation from that which ours bears. For example, the constitution of Nebraska declares: "Every stockholder in a banking corporation or institution shall be individually responsible and liable to its creditors over and above the amount of stock by him held to an amount equal to the respective stock or shares so held, for all its liabilities occurring while he remains such stockholder." In the case of Farmers' Loan & Trust Co. v. Funk, 49 Neb. 353, 68 N.W. 520, the supreme court of that state, in an ably-reasoned opinion, held the provision quoted to be enforceable without supplementary statutory enactment. It will be observed that the liability ordained in that provision was declared in terms of the present tense. It was not declared, as in the case of our own constitution, that "dues from corporations shall be secured," but that "stockholders in corporations shall be responsible," etc. Such terms import a rule of present liability, and, as determined by that court, they do not require legislation to give them general effect.

The courts of our own state have never been called upon to examine our own constitutional provision with a view to determining the question involved. It has been, however given consideration by the courts of some of the other states, and also by the federal courts. Suits have been instituted in the courts of other states against citizens of such states owning stock in corporations of this state to recover...

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