Zang v. Wyant

• Decision Date: 19 December 1898
• Citation: 56 P. 565,25 Colo. 551
• Parties: ZANG et al. v. WYANT et al.
• Court: Colorado Supreme Court

56 P. 565

25 Colo. 551

ZANG et al. v. WYANT et al.

Supreme Court of Colorado

December 19, 1898

Appeal from district court, Arapahoe county.

Action by George W. Wyant and others against Adolph J. Zang and others. Judgment for plaintiffs. Defendants appeal. Modified.

This is an equitable action brought by appellees, as creditors of the North Denver Bank, in behalf of themselves and such other creditors as may join them, against appellants, as stockholders in said bank, to enforce the statutory liability, under the following statute: 'Section 1. Shareholders in banks, savings banks, trust, deposit, and security associations, shall be held individually responsible for debts, contracts and engagements of said associations, in double the amount of the par value of the stock owned by them respectively.' Sess. Laws 1885, p. 264; Mills' Ann St. § 533. The bank was duly incorporated under the laws of the state of Colorado August 15, 1889, and did a general banking business until July 18, 1893, when it made a voluntary assignment of all its assets to one Amos H. Root who thereupon gave bonds, and duly qualified, and was acting as such assignee at the time of the institution of this suit. The case was tried to the court, and judgment rendered against appellants for double the amount of the par value of the stock owned by each, respectively. From these judgments appellants prosecute this appeal.

Muller & Weil, Lucius Weinschenk, Bartels & Blood S. S. Sherman, T. E. Watters, and James H. Brown, for appellants.

Philo B. Tolles and Thomas D. Cobbey, for appellees.

GODDARD J. (after stating the facts).

The specifications of error are voluminous, and, in addition to the questions they raise as to the admissibility and sufficiency of certain testimony, challenge the right of appellees to maintain the action, and also the construction that the court below gave to the statute under which the recovery is sought. In their printed argument, for the first time, counsel question the validity of the act itself, upon the ground that it was never constitutionally passed. Under former decisions of this court and the court of appeals, this question is not properly before us for consideration. Marean v. Stanley, 21 Colo. 43, 39 P. 1086; Rice v. Carmichael, 4 Colo.App. 84, 34 P. 1010.

Counsel for appellants insist that the assignee was alone entitled to maintain the action, and that the creditors themselves cannot invoke the interposition of a court of equity to enforce the liability of stockholders, under this statute. Upon whom the right to enforce the remedy devolves, and the mode of procedure that should be adopted, have been in controversy in many of the courts of last resort, and have been variously decided; some holding that the liability is primary, and enforceable in an action at law by an individual creditor against one or more of the stockholders, while in others, and by far the greater number, it is held that the fund created by the statute is in the nature of a security for the common benefit of all the creditors, and that a suit in equity affords the most effectual and convenient remedy for its enforcement; that since the fund is exclusively for the benefit of the creditors, and forms no part of the assets of the corporation, the right of action accrues to the creditors themselves, and, in the absence of a statute conferring the right, neither the assignee nor the receiver of an insolvent corporation can maintain the action. Terry v. Little, 101 U.S. 216; Pollard v. Bailey, 20 Wall. 520; Hornor v. Henning, 93 U.S. 228; Farnsworth v. Wood, 91 N.Y. 308; Pfohl v. Simpson, 74 N.Y. 137; Mathez v. Neidig, 72 N.Y. 100; Griffith v. Mangam, 73 N.Y. 611; Wincock v. Turpin, 96 Ill. 133; Dutcher v. Bank, 12 Blatchf. 435, Fed. Cas. No. 4,203; Jacobson v. Allen, 20 Blatchf. 525, 12 F. 454; Minneapolis Paper Co. v. Swinburne Printing Co., 66 Minn. 378, 69 N.W. 144; Umsted v. Buskirk, 17 Ohio St. 113; Wright v. McCormack, Id. 86; Crease v. Babcock, 10 Metc. (Mass.) 525; Association v. Watkins, 70 Mo. 13; Runner v. Dwiggins (Ind. Sup.) 46 N.E. 580; Cook, Stocks & S. § 280; Thomp. Corp. § 3560; Mor. Priv. Corp. § 869. In Terry v. Little, supra, Chief Justice Waite, in discussing the procedure that should be adopted for the enforcement of a liability provided in the charter of the Merchants' Bank of South Carolina, in language substantially the same as that used in our statute, said: 'Undoubtedly, the object was to furnish additional security to creditors, and to have the payments, when made, apply to the liquidation of debts. So, too, it is clear that the obligation is one that may be enforced by the creditors; but, as it is to or for all creditors, it must be enforced by or for all. The form of the action, therefore, should be one adapted to the protection of all.' In Pfohl v. Simpson, supra, it is said: 'A suit in equity, laying hold of all the stockholders in like category, and promoted for the benefit of all creditors having like interest, is peculiarly adapted to work out exactly just and equable results. * * * The object and effect is only to bring to one forum the determination of rights, which must, if prosecuted separately, more or less conflict to mutual harm. Before that one forum, in one suit, the respective rights and the respective liabilities can be ascertained and determined, and each get his own, and be subjected to his own, and not another's. And the equities between the respective stockholders can also be adjusted and settled.' In the recent case of Runner v. Dwiggins, the question as to the right of the assignee of an insolvent corporation to maintain the action was involved; and upon the authority of a large number of the adjudged cases, and the rule as generally laid down in the text-books, his right to maintain the action was denied. Jordan, C.J., speaking for the court, said: 'Certainly, it cannot be asserted with any reasonable support that this peculiar liability imposed by the statutes upon those who become shareholders of a banking association organized under the existing law is in any sense an asset, right, or interest of the bank, which it, as an insolvent debtor, can, by its deed of assignment, pass to its assignee, or in any manner vest the enforcement thereof in him. In the absence of some statutory provision conferring the right, neither the corporation, nor its assignee nor receiver, can enforce such a liability as that in question.' We have carefully examined the cases cited and relied upon by counsel for appellants as sustaining their contention. It is true that these cases, while holding that the fund can be reached only by a proceeding in equity, sustain the right of the receiver to enforce the remedy. We are, however, satisfied that the foregoing cases announce the generally accepted rule, and that, both upon reason and authority, the additional liability of stockholders imposed by our statute constitutes a fund for the benefit of all the creditors, which may be pursued in equity, for their common benefit, by or for all; and an assignee, whose trust relates only to the corporate assets, acquires no right to enforce this statutory obligation.

The right to maintain the present action is also challenged because it is prematurely brought. It is argued that if, as we have seen, the fund provided by the statute is in the nature of an additional security for the creditors, the liability of the stockholders is secondary, and not enforceable until the assets of the corporation have been exhausted. It is undoubtedly true that this fund does not constitute the primary or regular fund for the payment of the corporate liabilities, and that the corporate funds are the primary resource to which creditors must look for the payment of their debts and the discharge of the corporate obligations. But a well-recognized exception to this rule exists when, by reason of dissolution or insolvency, an action against the corporation would be unavailing. 1 Cook, Stock, Stockh. & Corp. Law, § 200; Terry v. Tubman, 92 U.S. 158; Hodges v. Mining Co., 9 Or. 200. We think the facts averred in the complaint and disclosed by the evidence bring this case within this exception. It appears that the North Denver Bank on July 18, 1893, was insolvent, and made an assignment of all its assets; that the appellees filed their claims with the assignee, and the same were allowed, and there has been paid only 20 per cent. of the original amounts. No further sum having been realized during the length of time that has elapsed, it is evident that the remaining assets, if any, consist of worthless or doubtful claims. Under these circumstances, the creditors ought not to be compelled to await their collection, or delay the enforcement of the statutory liability against the stockholders; but justice requires that the stockholders themselves should be compelled to pay their claims, and look to the assignee for whatever may be realized from the remaining assets. Moses v. Bank, 1 Lea, 398; Starke v. Burke, 9 La. Ann. 341. As was said in the former case: 'They [creditors] will not be required to wait the collection of doubtful claims, or claims in litigation. The stockholders must pay promptly, and take upon themselves the onus of delay and risk as to all such claims.' For these reasons, we think the foregoing objections to the maintenance of this action by appellees were properly overruled.

It is further contended that the court below erred in its conclusion as to the extent of the liability imposed by the statute, and in rendering judgment against each of the stockholders in double the amount of the par value of the stock owned by them, respectively. The language of the statute is: 'Shareholders in banks * * * shall be held individually responsible for debts * *...