Case ID: ohio-np-ns_17/html/0236-01.html
Source: Caselaw Access Project
Author: {"author": "Kyle, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

ENFORCEMENT OF INDIVIDUAL LIABILITY OF STOCKHOLDERS IN A STATE BANK.
    Common Pleas Court of Greene County.
    State, ex rel Emery Lattanner, v. The Osborn Bank et al.
    Decided, December 30, 1914.
    
      Banks and Banking — Self-Evecuting Provision as to Double Liability of Stockholders — Enforcement of, by the Superintendent of Banks.
    
    1. The superintendent of banks is a proper party to enforce the individual liability of stockholders in any state bank taken possession of by him for liquidation.
    2. The provisions of the Constitution adopted in 1912 providing for . a double liability of - the stockholders in banking companies are self-executing and do not require any legislation to make them effective.
    3. The stockholders -of a state bank organized in 1889 are liable to a double assessment for debts now existing which were made prior to November 23, 1903, and subsequent to January 14, 1913, but not for debts created and accruing between November 23, 1903, and January 1, 1913, when there was no constitutional provision for such liability.
   Kyle, J.

This case is submitted upon demurrers by the several defendants to the petition.

The petition is an action by Emery Lattanner, as superintendent of banks, to enforce the double liability for the benefit of creditors.

The first ground for the demurrer suggested was that Emery Lattanner, as superintendent of banks, was not the proper party plaintiff to enforce this liability under the provisions of the law; that the closing up of the affairs of the bank are vested in a receiver duly appointed by the superintendent of banks, and that such receiver, or a creditor, should have been the plaintiff.

The method of conducting and winding up of the affairs of banks is purely statutory, and Section 742-2 prescribes the manner when they are taken possession of by the superintendent of banks, and provides that such superintendent “may, if necessary to pay the debts of such corporation, company, society or association, enforce the individual liability, if any, of the stockholders. ”

A special deputy superintendent may be appointed to close up any bank, and such appointee is not a receiver of such bfmk, but merely the agent of the superintendent of banks to aid in its liquidation and distribution. G. C., 742-2; O. L. 103, p. 530.

The superintendent of banks under G. C., 742-2 has clearly the right to enforce the double liability, and this suit is properly brought in the name of and on the relation of Emery Lattanner as superintendent of banks.

Another question presented and argued by counsel involves the effect, or effects, of the several constitutional amendments abolishing and providing for a double liability.

Without discussing the question I think that the provisions of the Constitution in that respect are self-executing and do not require any legislation to make them effective. Willis v. Mahon, 48 Min., 140; Law et al v. People, 87 Ill., 385; Sheets Co. v. Neer Co., 4 N.P.(N.S.), 201; Farmers Loan Co. v. Funk, 49 Neb., 353.

It is contended by the plaintiffs that the constitutional amendment of 1912, effective on January 1st, 1913, being self-executing on that date, became effective and applied to existing corporations as well as those that might be subsequently incorporated or created.

The petition in this case alleges that the Osborn Bank was incorporated in 1889. At that time under the Constitution there was a double liability. 'In 1903 the Constitution was changed making a single liability, and the amendment of 1912 created a double liability as to banking companies.

The defendants claim they are not liable for any assessment as to debts created prior to January 1st, 1913, the date that the new amendment became effective, and they further claim that the petition does not on its face show that any of the alleged indebtedness accrued subsequent to January 1st, 1913, and therefore it states no cause of action against them.

The plaintiff claims that the amendment creating a double liability was self-executing on January 1st, 1913, and became effective as to existing banks and those that might be subsequently incorporated, and that as to existing banks such amendment was effective and created a double liability as to all indebtedness then outstanding regardless of the time the same was created or accrued.

In support of that contention plaintiff relies upon the case In the Matter of Oliver Lee & Company’s Bank, 21 N. Y. Reports, Court of Appeals, page 9, the first syllabus of which holds that:

“Article VIII, Section 7 of the Constitution of 1846 subjecting the stockholders of banks to personal liability applies as well to banking corporations then existing as to those afterwards created. ’ ’

A careful examination of this case does not support the contention of the plaintiff. In this case the corporation was formed in 1844, under the general banking act of 1838, which provided that the shareholders should not be individually liable for any contract of the association.

The amendment to the Constitution subjecting the stockholders to a personal liability was enacted in 1846, and became effective January 1st, 1850. The debt for which it was sought to enforce personal liability was created subsequent to January 1st, 1850, after the going into effect of the new provision of the Constitution.

In the opinion the court say, page 13:

“There is enough on the face of the provision to show that it was intended to apply to all banks of issue which should be in existence three years after the Constitution should take effect, without regard to the time when they were created. The individual responsibility was applied only to banks which should issue bank notes, or some kind of paper credits to circulate as money, after the first day of January, 1850, and only to such debts of those banks as should be contracted after that day. The delay was apparently afforded in order to enable the proprietors of existing banking institutions to determine whether they would remain banks of issue and assume the burden of individual liability, or avoid that consequence by winding up their affairs or confining themselves to other branches of banking.”

In Barnes v. Arnold, 23 Misc., 208 (51 N. Y. Supplement, 1109), it was held that the banking act imposing a personal liability on stockholders in banking corporations had a prospective operation only.

Tn order to be consistent, if it is held that the constitutional amendment of 1912 imposes a double liability on the stockholders for all debts regardless of when they were contracted, it would have to be held that the amendment of 1903 discharged all double liability for all debts upon all corporations then existing.

I do not think the decisions of this state support such a contention. If it is conceded that the amendment of 1912, when it became effective, applied to existing corporations, it does not necessarily follow that it affected existing debts. Whether or not it might have applied to the stockholders of the Osborn Bank, if it- had been incorporated after November 23, 1903, and during the period when there was no double liability, is not here determined. Ireland v. Palestine, 19 O. S., page 369.

Since the Osborn Bank was incorporated in 1889 at a time when there was a double liability I think the state had the power to legislate by amending the Constitution and relieve such liability as to debts thereafter incurred, and again re-enact and establish such liability. But such re-establishment of liability would not affect or give any right as to debts incurred while there was not any law in force providing for a double liability.

The assumption of liability is created at the time of the purchase of the stock and is a contractual liability. Kulp v. Flemming, 65 O. S., page 321.

The rights of a creditor as against the corporation and its stockholders are determined by the law at the time he creates the debt, and if there was no double liability at that time it could not be enlarged by subsequent legislation.

Kulp v. Flemming, 65 O. S., page 321, syllabus 2:

"The law of the state where a contract is executed and is to be performed enters into and becomes a part of the contract in the sense that its construction, validity and obligatory effect are to be controlled by that law.”

If the amendment of 1903 took away the right of double liability the amendment of 1912 would undoubtedly have the effect of restoring that double liability as to banks existing prior to 1903.

Therefore, I am of the opinion that the stockholders of the Osborn Bank are liable to a double assessment for debts now existing which were made prior to November 23, 1903, and subsequent to January 1st, 3913, but not for debts created and accruing between November 23, 1903, and January 1st, 1913.

"With that view of the law, does the petition as against a demurrer sufficiently set forth indebtedness during the periods for which the stockholders might be liable in this action?

The petition alleges:

"That said bank was grossly insolvent upon the 18th day of June, 1913, and for several years prior thereto, the date being unknown to the plaintiff, during which period of insolvency the amount of the obligation of the creditors of this bank, for whose benefit this action is brought, accrued.”

Now, it could not be said that on the face of the petition that some of that indebtedness did not accrue between January 1st, and June 18th, 1913. The presumption would rather be that that was a part of the period during which a large sum of the obligations accrued, and that being the case on that ground the demurrers should not be sustained.

The defendants’ procedure would rather be by way of motion to make more definite and certain. .Hence, I am of the opinion that the demurrers, respectively, in this case should be overruled.