Davis v. Johnson

Christianson, J.

This is an action brought by the plaintiff as receiver of the Farmers & Merchants State Bank of.Denhoff, an insolvent banking corporation, against the defendant as a stockholder in said bank, to enforce the liability created by § 5168, Compiled Laws 1913, which provides that the shareholders of every banking association organized under the laws of this state “shall be individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such association made or entered into to the extent of the amount of his stock therein at the par value thereof, in addition to the amount invested in and due on such shares. Such individual liability shall continue for one year after any transfer or sale of stock by any stockholder or stockholders.” The action was tried to the court without a jury and resulted in a judgment in favor of the plaintiff. Defendant appeals from the judgment.

The material facts are not in controversy, and may be summarized as follows: The defendant Johnson was the’owner of ten shares of the capital stock of the Farmers & Merchants State Bank of Denhoff. On January 22d, 1913, he made a deal with one Hosick whereby the stock was assigned to Hosick, and it was on the same day transferred to Hosick on the books of the bank. It is conceded that Hosick at the time of the transfer was, and ever since has been, insolvent. On April 28th, 1913, the state examiner declared the bank to be insolvent and closed it and took charge of its assets. An action was subsequently commenced by the attorney general under the provisions of article 3, of chapter 27 of Code of Civil Procedure, to dissolve the corporation; sequestrate its property, and distribute its assets among those lawfully entitled thereto. The plaintiff was duly appointed receiver in such action, and thereafter duly qualified and entered upon the discharge of his duties as such receiver. The receiver caused notice to the creditors of the said insolvent bank to be duly published, notifying all of the creditors to present their claims against the corporation for allowance by the court, and thereafter, in June, 1916, plaintiff presented a veri *89 fied application to the district court, showing the assets and the claims filed and approved against the bant, and averring that there wonld be a deficiency requiring the enforcement of the full amount of the additional stockholders’ liability, provided by § 5168, Compiled Laws 1913. The court entered an order assessing each and every stockholder of the bank, shown by the records and books of the bank to be such stockholders on April 29th 1913, 100 per cent of the amount of stock held by such stockholders.

As already stated, it is conceded that Hosick, the transferee of the defendant’s stock, is insolvent. It is also conceded that he has removed and is a resident of Canada, and that any assessment made on the Hosick stock would eventually have to be paid by the defendant, Johnson. It also appears that both Hosick and Johnson were notified of the assessment and demand made for the payment of the amount thereof.

The action was commenced in October, 1915. But the case was tried upon the issues framed by an amended complaint served in August, 1916, and an answer thereto served in September, 1916. On this appeal defendant contends that the judgment is erroneous and should be reversed for the reasons: (1) That the receiver of an insolvent bank has no interest in or right to enforce the statutory liability imposed upon stockholders by § 5168, Compiled Laws 1913, but that such "liability is enforceable only in an action brought by a creditor or creditors; and (2) that the assessment made by the court in the case at bar is void for want of-notice to the defendant. We will consider these propositions in the order stated.

1. Whether the receiver of an insolvent corporation may, in the absence of express statutory authority, enforce a statutory added liability of holders of corporate stock, is a question upon which the authorities have differed. The question is an interesting one, but in our opinion it is not involved in' this case. For in this state the legislature has expressly provided that the receiver of an insolvent bank shall “enforce the individual liability of stockholders.” Laws 1915, chap. 63. It is true this statute was enacted after the plaintiff had been appointed receiver, but it was in full force and effect at the time the instant case was commenced and the assessment laid against the defendant. The statute did not affect any right, but related merely to a remedy. The *90 liability of stockholders fixed by § 5168, Compiled Laws 1913, has not been changed in the least. Neither has the right oi.any creditor to receive the benefits provided by such statute been affected.

It will be noted that § 5168, Compiled Laws 1913, says nothing as to the means to be utilized in enforcing the liability provided therein. The section'merely prescribes the right; it makes no reference to the remedy.

While this court has never passed upon the question, it appears to have been the practice of the banking department and of the district courts in this state to permit the receiver to enforce the superadded liability and distribute the moneys received through the receivership, proceedings. And so far as we can ascertain the provision contained in chapter 53, Laws of 1915, constituted rather a legislative recognition of an existing method of enforcement than the creation of a new method of enforcement. But even though the enforcement by the receiver be deemed the addition of a new, cumulative remedy for the enforcement of the statutory liability, it might, and in our opinion would, still apply to the instant case. For it is well settled that the legislature may, within certain limits, alter, modify, or extend remedies, or add a new remedy for the enforcement of an existing right. See 12 C. J. 1088; Cooley, Const. Lim. 5th ed. pp. 348-357, 443; 6 R. C. L. p. 363; Orvik v. Casselman, 15 N. D. 34 , 105 N. W. 1105 ; Scott v. District Ct. 15 N. D. 259 , 107 N. W. 61 ; Terry v. Anderson, 95 U. S. 628 , 24 L. ed. 365. The right provided by § 5168 is for the benefit of the creditors. The action brought by the receiver in this case is brought for the benefit of the creditors. And it appears that all creditors have appeared and filed claims with the receiver, and no creditor has objected to the receiver enforcing the statutory liability of the stockholders. The enforcement of the added liability by the receiver is manifestly the most desirable method and the one most in harmony with the scheme and spirit of our laws. It will better tend to protect and secure the rights of the different creditors of an insolvent bank than to require a creditor or creditors to enforce the added statutory liability against the different stockholders. All approved creditors of equal rank are placed upon an equal basis and will ipso facto receive the same proportionate shares. All questions of priority among creditors, predicated *91 lipón tbe time in which, suit is brought, are eliminated. Needless litigation and expense is avoided. The entire affairs of the corporation, including the adjustment of the liability of its stockholders, are subject to the control of and disposition by the court in a single action, and unnecessary delay and expense avoided.

2. There is no contention that the defendant, Johnson, was not a stockholder in the insolvent bank at the time the indebtedness due by the bank to the different creditors was incurred. Nor is there any contention that any of the claims allowed are fraudulent or that they do not constitute legal claims against the bank. It is true all the assets have not been applied in payment of the claims of the different creditors, although the greater portion has been so applied. From the very nature of the proceeding it is necessary for the court, in an action to dissolve an insolvent corporation and sequestrate its property and distribute its assets among the persons lawfully entitled thereto, to determine the liabilities and assets of the corporation. The primary purpose of the appointment of a receiver in such action is to enable the court to take possession of and distribute the property of the corporation among its lawful creditors. To carry out this purpose it must necessarily determine the validity and amount of the claims of the respective creditors; and, when it applies the assets under its control to the satisfaction of such claims, the amount of the deficiency is ipso facto determined. It does not necessarily follow, however, that an action may not be maintained to enforce the added statutory liability before all of the assets have actually been applied to the satisfaction of the claims of the creditors. “The exigencies of the matter before the court when administering upon an insolvent estate require it to exercise a wide discretion. Justice to the creditors demands that they should have the secondary as well as the primary assets made ■available for the satisfaction of their claims, and justice to the stockholders demands that the primary assets should not be sacrificed by their too hasty conversion into money. The court is thus confronted with two distinct, conflicting interests, each of which it is its duty- to protect :So far as lies within its power. It should not delay the settlement to such an extent as to render the secondary liability of no.avail to vthe creditors, nor should it act with such haste as to unnecessarily in *92 crease the burden of the stockholders; and if, in its attempt to harmonize these conflicting duties, it finds the amount of the difference between the liabilities and the assets by determining the amount of the one and the value of the other, rather than by the process of conversion and application, its order in that respect will not be held void in a collateral proceeding on the mere suggestion of irregularity, even if it would be so held on a direct appeal from the order.” Shuey v. Adair, 24 Wash. 378 , 64 Pac. 538 .

It should be noted, however, that the statute under consideration does not require an assessment as a condition precedent to the maintenance of an action to enforce the added statutory liability. See Bennett v. Thorne, 36 Wash. 253 , 68 L.R.A. 113 , 78 Pac. 942 . And it has been said that in such action “the plaintiff must make proof of the value of the assets and of the extent of the liability of the corporation.” Van Tuyl v. Schwab, 172 App. Div. 670 , 158 N. Y. Supp. 426 .

The instant case was tried on that theory. There was no contention that the order levying the assessment was conclusive. But the questions upon which the defendant’s liability depended were presented by the pleadings and determined by the court without regard to such order. Evidence was offered upon the question of the assets and liabilities and the extent to which the stockholders’ liability ought to be enforced. And the defendant was afforded every opportunity to show that the added statutory liability ought not to be enforced against him either in whole or in part. The evidence and the-findings clearly justified the judgment ordered in the case. The judgment appealed from must be affirmed. It is so ordered.

Grace, J. I concur in result.