Case Name: MARKUS v. AUSTIN, Commissioner of Banking
Court: Texas Courts of Civil Appeals
Jurisdiction: Texas
Decision Date: 1926-04-09
Citations: 284 S.W. 326
Docket Number: No. 1344
Parties: MARKUS v. AUSTIN, Commissioner of Banking.
Judges: 
Reporter: South Western Reporter
Volume: 284
Pages: 326–330

Head Matter:
MARKUS v. AUSTIN, Commissioner of Banking.
(No. 1344.)
(Court of Civil Appeals of Texas. Beaumont.
April 9, 1926.
Rehearing Denied May 19, 1926.)
Mantooth & Denman, of Dufkin, for appellant.
Fairchild & Redditt, of Lufkin, for appel-lee.

Opinion:
O'QUINN, J.
Charles O. Austin, commissioner of banking of the state of Texas, brought this suit against Jake Markus to recover the sum of $1,500, alleged to be due by said Markus to said Austin, as'commissioner of banking, by virtue of an assessment alleged to have been made on January 10, 1925, against the stockholders of the Citizens' Guaranty State Bank of Lufkin, Tex.; it being alleged that Markus was, at the time said assessment was made, the owner of 15 shares of the capital stock of said Citizens' Guaranty State Bank, of the alleged value of $100 per share.
Markus answered by general demurrer, special exceptions, and general denial. He also further and specially alleged, in substance:
(1) That at the time the commissioner of banking determined that the Citizens' Guaranty State Bank of Lufkin, Tex., was insolvent, and 'at the time he closed its doors and took over its affairs, said bank was not insolvent, but was possessed of sufficient moneys, property, and assets to discharge all of its obligations, and that there was no necessity for. an assessment against its stockholders, all of which was well known to the said Banking Commissioner, but that, notwithstanding, he arbitrarily and fraudulently and with intent to deprive appellant of his property rights, unlawfully and fraudulently and without any necessity levied said assessment.
(2) That on March 26, 1924, the commissioner of banking, acting by and through one of his duly authorized and acting bank examiners,' made an examination and audit of the books of said bank, and determined that the capital stock of said bank was impaired, and through his said agent and representative, said bank examiner, called a meeting of the board of directors of said bank, and advised said board, of which appellant was a member, and present at said meeting, that said bank would be closed immediately by the department of banking unless the directors paid into said bank the sum of $25,000, to be'used by said bank as. a part of its assets to replenish the impairment of the capital stock, .and said commissioner of banking, through his agent, said bank examiner, stated to said directors that the said sum of $25,000 would be repaid to them in the event the earnings of the bank thereafter accumulated in a sufficient amount to do so. That appellant, at said date, owned 10 shares of the capital stock of said bank, and he paid into said bank the sum of $1,-666.66, which, together with a like sum paid by each and every other director, made up the $25,000 which the banking department required of said directors. That said payment was made by appellant involuntarily and under business compulsion and by reason of the coercion of the commissioner of banking, and by reason of his threats to immediately close said bank, and for the further reason that ap-pellee,-through his agent, said bank examiner, stated to appellant and the other directors present that, upon the payment of said $25,-000, the assets of said bank would be sufficient to put said banking institution in a perfectly solvent condition, and thereby eliminate the impairment of the capital stock, and place said bank on a sound financial basis, and said agent further assured and promised appellant and the other directors that they would not be required to pay any further assessments exacted from them, and it was by this assurance and by virtue 'of the promises, made by appellee, through his said agent, and for the further reason that said agent stated that said bank would be closed immediately, that appellant paid said sum of money into said bank, and that said sum paid any and all assessments for which appellant was legally liable under the law, and the sum of $166.66 in ^xcess thereof. That from the time of the payment of said $25,000 into the bank until the closing of said bank on January 10, 1925, there were no changes made in the status of said bank, in that the board of directors remained the same, no new or additional loans were made, no new or additional sums were borrowed by said bank, and, in fact, no material change was made with respect to the financial condition of said bank. That the depositors' relations to said bank were not' changed, the bank's customers entered into no new obligations, no new obligations were incurred, or any depositors obtained, but that from the 26th day of March, 1924, being the date on which the involuntary payment of said sum of $25,000 was made into said bank, until the closing of said bank on January 10, 1925, the status of said bank was not changed in any manner, and the same debts and liabilities which said bank owed on March 26,1924, were due and owing on January 10, 1925, to the same individuals and concerns and creditors and depositors as on the 26th day of March, 1924, and that the §aid sum of $25,000 paid into the assets of said bank by appellant and the other directors of said bank was used and is being used by appellee to pay the same identical obligations of said bank that were owing by it on the 26th day of March, 1924, and that the said involuntary payment made by appellant is being used to pay and has paid the same debts and no others that would be paid by the assessment herein sought to be enforced against appellant, and appellant says that the said sum of $1,666.66 so paid by him should be applied as a credit and offset against the amount sued for herein, and that he is entitled to recover the excess of $166.66.
(3) Appellant further answered and pleaded as an offset against the assessment against him the said sum of $1,666.66 paid by, him as in repairment of impaired capital and by cross-action sought to recover the difference between said sum and said assessment, being $166.66.
Appellee filed and urged a general demurrer to the defendant's special answer, setting up fraud and duress on the part of appellee, and as against such portions of said answer as alleged the involuntary payment and the agreements and promises of appellee by virtue of which said payment was made to ap-pellee, and to the matters alleged as to the condition of the said bank at the time of the payment of said assessment and at the time of £he closing of said bank, and the making of said assessment, and á general demurrer to the cross-action of the defendant herein for the sum of $166.66.
' The court sustained the general demurrer of appellee to appellant's answer and cross-action. The case was tried to the court without a jury, and upon the conclusion of the evidence the court rendered judgment for appel-lee in the sum of $1,500, with interest thereon at the rate of 6 per cent, from the date of judgment.
Appellant presents two assignments, both asserting fundamental error. The first insists that the court erred in sustaining appel-lee's general demurrer to his answer, insisting that same showed a meritorious and legal defense to appellee's cause of action. The second urges that the court erred in sustaining appellee's general demurrer to his plea of set-off and in rendering judgment against him on his cross-action.
After a most painstaking and careful con sideration of the defenses pleaded, the facts shown, and the questions involved, we have concluded that the judgment must be affirmed.
We think that beyond question the Citizens' Guaranty State Bank was insolvent at the time it was taken over by the commissioner of banking. The law is unquestioned that the commissioner of banking was authorized to make such assessment against the stockholders, as he deemed necessary to pay the indebtedness of the bank. The action of. the commissioner of banking in determining the insolvency of a bank, and in making an assessment of the stockholders for the purpose of paying its indebtedness, and the amount of such assessment, is final, and not subject to judicial review. This is the well-settled rule in both state and federal jurisdictions. Collier v. Smith (Tex. Civ. App.) 169 S. W. 1108 (writ refused); Brooks v. Austin (Tex. Civ. App.) 206 S. W. 723 (writ refused); Knollenberg v. Chapman (Tex. Civ. App.) 258 S. W. 547 (writ refused); Houston National Exchange Bank v. Chapman (Tex. Civ. App.) 263 S. W. 929 (writ refused); Chapman v. Denton (Tex. Civ. App.) 268 S. W. 259; Chapman v. Pettus (Tex. Civ. App.) 269 S. W. 268 (writ refused); Austin v. Duffer (Tex. Civ. App.) 279 S. W. 318 (writ refused); Kennedy v. Gibson, 75 U. S. (8 Wall.) 505, 19 L. Ed. 476; Casey v. Galli, 94 U. S. 673, 24 L. Ed. 168; Korbly v. Springfield, 245 U. S. 333, 38 S. Ct. 8S, 62 L. Ed. 331; Harris v. Briggs (C. C. A.) 264 F. 726; Bank v. Murray, 212 F. 140, 128 C. C. A. 652; Thomas v. Gilbert, 55 Or. 14,101 P. 393, 395, 104 P. 888, Ann. Cas. 1912A, 516.
But appellant insists that the court erred in sustaining appellee's general demurrer and in rendering judgment against him, because his payment of the sum of $1,666.66 assessed or required by appellee to restore the impaired capital should have been set off against the stock assessment here in controversy, and his cross-action for $166.66 sustained.
We are of the opinion that appellant is not entitled to offset against his liability to pay the assessment due on his stock, the $1,-666.66 paid by him on the $25,000 assessed by the commissioner of banking to make good the bank's impaired capital. Article 365, Revised Civil Statutes 1925 (article 523, Complete Tex. St. 1920; or Vernon's Sayles' Ann. Civ. St. 1914), provides that, whenever the commissioner of banking shall have reason to believe that the capital stock of any bank subject to the banking laws of the state is reduced by impairment or otherwise below the amount required by law or its certificates of articles of association, he shall require such bank to make good such deficiency. The record discloses that on March 26, 1924, before the bank was closed January 10, 1925, the commissioner of banking was insisting that the capital stock of the Citizens' Guaranty State Bank was impaired by reason of certain losses and other contingent liabilities to the extent of $25,000, and that same should be made good at once by an assessment of the stockholders, which was made known to the officers of said bank, and a meeting of the board of directors of said bank was duly called and held, at which meeting the following proceedings were had:
"Minutes of a Meeting of the Board of Directors of the Citizens' Guaranty State Bank, Held March 26, 1924:
"The meeting was called to order by the president, C. B. Collins, and the following directors were present and took part in the meeting: C. B. Collins, J. O. Crumpler, Jake Markus, Louis Markus, Harry Abram, J. E. Heavy, W. R.' Fuller, G. R. Thompson, R. C.. Jordan, T. L. Wilson, Mrs. W. D. Holloway, W. F. Powell, and Coke Murphy.
"At this meeting of the board of directors of this bank, at which a majority of the members were present, it was considered by the board that the commissioner of banking for Texas was then insisting that the capital stock of the bank was impaired by reason of certain losses and other contingent liabilities and should be restored at once by an assessment of the stockholders or some other method, and the same commissioner had suggested that the paying into the capital stock of the bank of the sum of $25,000 cash would adequately take care of said impairment, and it not being considered good policy to disturb the stockholders at this time and give any undue publicity to the condition of the bank.
"It was therefore moved by W. F. Powell and seconded by W. R. Fuller that the fifteen directors of the bank assess themselves the sum of $25,000 by each paying into the bank the sum of $1,666.66% each in cash within ten days from this date to adequately provide for said impairment of the capital of the bank, and that each of the directors so paying in said amount of money be hereafter reimbursed for same out of the profits and surplus of the bank, together with interest on the amount so paid in from date same was paid in until refunded to said directors at the rate of 8 per cent, per annum, and that no dividends be paid by the bank until all of said sums and interest thereon are, repaid to. said directors. Said motion was duly presented to the board of directors by the president and was in all things duly carried, and thereupon and in pursuance thereof the directors all signed an agreement which read in words and figures as follows:
"Whereas, at a meeting held by the directors of the Citizens' Guaranty State Bank of Luf-kin, Texas, on this the 26th day of March, 1924, a resolution was passed by the board of directors that each of them would pay into said bank the sum of $1,666.66% each as an assessment as said directors to relieve the impaired capital stock of said bank, and each of the undersigned, being one of said directors, hereby agrees and binds himself (or herself)' to pay into said bank within' ten days from this date 'the said sum of money shown opposite his-, or her, name herein and hereto subscribed, said sum to be paid in cash, and it is further understood that each of the undersigned are to be hereafter reimbursed for said money so paid in by them to said bank, the same to be reim bursed to them by said banfc out of and from the surplus and undivided profits of said bank from time to time as the same are earned by said bank, together with interest on the amount so paid on by each of the undersigned from date it was paid in until paid back to said directors at the rate of 8 per cent, per annum, and it being further understood that no dividends are to be paid by said bank to the stockholders thereof until all the amounts named herein are paid by the undersigned with all interest thereon has been repaid to said directors:
Chester B. Collins. $1,666 66
T. L. wilson. 1,666 66
Mrs. W. D. Holloway. 1,666 66
Coke Murphy . 1,666 66
Jake Markus. 1,666 66
R. C. Jordan. 1,666 66
W. R. Fuller. 1,666 66
Louis Markus..'. 1,666 66
J. E. Peavy..»••'•. 1,666 66
J. 0. Crumpler.. 1,666 66
Harry Abram . 1,666 66
W. F. Powell. 1,666 66
G. R. Thompson. 1,666 66
D. H. Adams. 1,666 66
R. W. Swank. 1,666 66"
By reason of the premises, the above-named persons, stockholders, and directors of said bank, the sum of $25,000 was paid into the assets of said bank; the appellant here paying the sum of $1,666.66, as above shown, and as by him pleaded in his answer herein. In calling upon the officers and stockholders of the bank to make good the impairment of its capital, the commissioner was only doing that which the law made it his duty to do, in which act there was not and could not be any legal duress in the sense pleaded by appellant. The constitutional liability of stockholders in banking corporations was designed wholly for the benefit of creditors, and constitutes a fund available only when the bank is insolvent and unable to meet its obligations in full. The purpose of 'the assessment of $25,000-was not to benefit' creditors, because the bank was then a going concern, but was only for the purpose of repairing its impaired capital, and was a benefit to the corporation and to the stockholders only. The creditors of the bank had no right to participate in the proceeds of this assessment. It was to enable the bank to continue in business for the benefit of the stockholders, which it did until January 10,1925. It appears that the assessment of the $25,000 by the directors upon themselves was voluntary for the purpose of restoring their impaired capital, or lost capital, as a consideration for the privilege of continuing in business, and to avoid liquidation, and therefore is not the assessment contemplated in article 535, Revised Civil Statutes 1925 (552), by which every stockholder is made -personally liable for all debts of the bank to an amount double the par value of his stock. The payment of said sum of $25,000 was not compulsory. The stockholders could have refused and let the bank have gone into liquidation. Its payment was therefore voluntary, and paid into the general funds of the bank as a further investment in the capital stock of the bank, and to be disposed of by the officers of the ,bank in the ordinary course of .business. We think the law is .well settled that payments made for the purpose of restoring the impaired capital of a bank cannot be offset against an assessment of the stockholders of an insólvent bank, for the purpose of discharging its indebtedness in the course of liquidation. Chapman v. Hopper (Tex. Civ. App.) 261 S. W. 166; Delano v. Butler, 118 U. S. 634, 7 S. Ct. 39, 30 B. Ed. 260; Blackert v. Lankford, 74 Okl. 61, 176 P. 532; Trust Co. v. Bradbury, 117 Minn. 83, 134 N. W. 513, Ann. 1913D, 69; Duke v. Force, 120 Wash. 599, 208 P. 67, 23 A. L. R. 1354; Richards v. Schwab, 101 Misc. Rep. 128, 167 N. Y. S. 535; Golden v. Cervenka, 278 Ill. 409, 116 N. E. 273, 287; 3 R. C. L. 397. If appellant's claim were allowed as an offset against his stock assessment, it would follow that in every case pasr-ments made by stockholders for the purpose of restoring impaired capital would be considered as credits upon the ultimate individual liability of stockholders, and the whole efficiency of article 535 (552) for the protection of creditors of the bank at the time of liquidation would be destroyed. The obligations of stockholders, under articles 365 (523) and 535 (552), are entirely diverse, and payments made under the first cannot be applied to the satisfaction of individual responsibility secured by the latter.
The matters pleaded by appellant amounted in law to no defense against appellee's cause of action, and therefore the count did not err in sustaining the general demurrer thereto.
The judgment of the trial court should be affirmed, and it is so ordered.
Affirmed.