Case Name: MITCHELL et al., Respondents, v. BANKING CORPORATION OF MONTANA et al., Defendants; PAUL et al., Executors, Appellants
Court: Montana Supreme Court
Jurisdiction: Montana
Decision Date: 1933-04-21
Citations: 94 Mont. 165
Docket Number: No. 7,015
Parties: MITCHELL et al., Respondents, v. BANKING CORPORATION OF MONTANA et al., Defendants; PAUL et al., Executors, Appellants.
Judges: Associate Justices Matthews and Anderson concur.
Reporter: Montana Reports
Volume: 94
Pages: 165–183

Head Matter:
MITCHELL et al., Respondents, v. BANKING CORPORATION OF MONTANA et al., Defendants; PAUL et al., Executors, Appellants.
(No. 7,015.)
(Submitted March 14, 1933.
Decided April 21, 1933.)
[22 Pac. (2d) 175.]
Mr. W. J. Paul and Mr. Edward Uorsky, for Appellants, submitted a brief and argued the cause orally.
Mr. C. F. Pew, for Eespondents, submitted a brief and argued the cause orally.

Opinion:
MR. JUSTICE ANGSTMAN
delivered the opinion of the court.
This action was commenced on February 27, 1925, on behalf of plaintiffs and all other creditors of the Banking Corporation of Montana, insolvent and in the hands of a receiver, to enforce the stockholders' liability. All stockholders were joined as defendants. Among the original defendants was John W. Blair. He filed a demurrer to the complaint on July 31, 1925. On September 23, 1926, Blair died. Thereafter his will was admitted to probate and W. J. Paul; E. Mittelstaedt and Thomas Geary were appointed and qualified as executors.
Thereafter the death of John W. Blair was suggested to the court (but just when, the record does not disclose), and the executors were substituted as parties defendant in the place of John W. Blair. On July 19, 1929, the executors filed their answer. The answer alleges as an affirmative defense the death of John W. Blair, the appointment and qualification of the executors, the due publication of notice to creditors requiring claims against the estate to be presented within ten months after October 28, 1926, and the failure of plaintiffs to present the claim sued upon, or any claim, to the executors. These allegations were admitted by the reply and were found by the court to be true, but notwithstanding the court entered judgment for the plaintiffs and against the executors for the sum of $5,000, the amount demanded, together with interest at eight per cent, per annum from the date of filing the complaint. Defendants have appealed from the judgment.
The first question presented by the appeal of the executors is whether the failure to present the claim to them for approval or rejection bars action thereon. Our statutes relating to the question of presenting claims provide in part:
"All claims arising upon contracts, whether the same be due, not due, or contingent, must be presented within the time limited in the notice, and any claim not so presented is barred forever." (Sec. 10173, Rev. Codes 1921.)
"No holder of any claim against an estate shall maintain any action thereon, unless the claim is first presented to the executor or administrator, except in the following case [not material here]." (See. 10180, Id.)
"If an action is pending against the decedent at the time of his death, the plaintiff must in like manner present his claim to the executor or administrator for allowance or rejection, authenticated as required in other cases,- and no recovery shall be had in the action, unless proof be made of the presentations required." (Sec. 10183, Id.)
The bank closed its doors on May 2, 1923. The liability of the stockholders arose by reason of section 6036, Revised Codes 1921, as amended by Chapter 9, Laws of 1923, which provides: "The stockholders of every bank shall be severally and individually liable, equally and ratably, and not one for the other, for all contracts, debts, and engagements of such corporation, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares. No person holding stock as executor, administrator, guardian, or trustee, and no person holding such stock as a pledge or collateral security, shall be personally subject to any liability as stockholder in such corporation; but the person pledging such stock shall be considered as holding the same, and shall be liable as a stockholder accordingly, and the estate and funds in the hands of such executor, administrator, guardian, or trustee, shall be liable in like manner and to the same extent as the testator, intestate, ward, or the person interested in such trust fund would have been liable if he had been living or competent to act and hold the stock in his own name."
The authorities are not in accord on the question of the necessity of presenting such a claim to the executor or administrator. If the claim does not arise until after the time has expired for presenting claims, none need be presented. (Zimmerman v. Carpenter, (C. C.) 84 Fed. 747; Ebert v. Whitney, 170 Minn. 102, 212 N. W. 29, 51 A. L. R. 771; In re Macdonald's Estate, 29 Wash. 422, 69 Pac. 1111; Farmers' State Bank of Kingman v. Callahan, 123 Kan. 638, 256 Pac. 961.)
And if the claim does not arise until after the death of the stockholder, no claim need be presented to the executor or administrator. (Tierney v. Shakespeare, 34 N. M. 501, 284 Pac. 1019; Hirning v. Kurle, 54 S. D. 334, 223 N. W. 212; Drain v. Stough, (C. C. A.) 61 Fed. (2d) 668; Baird v. McMillan, 53 N. D. 257, 205 N. W. 682, 41 A. L. R. 177; Miller v. Katz, 10 Cal. App. 576, 102 Pac. 946.)
When the claim accrues against the decedent during his lifetime, the authorities are in conflict regarding the necessity of presenting the claim to the executor or administrator. The following, and perhaps other cases, hold that the claim under such circumstances must be presented: Mann v. Kleisdorff, (C. C. A.) 16 Fed. (2d) 997; Board of Bank Examiners v. Grenada Bank, 135 Miss. 242, 99 So. 903; Sanders v. Merchants' State Bank of Centralia, 349 Ill. 547, 182 N. E. 897; Barto v. Stewart, 21 Wash. 605, 59 Pac. 480. The following case holds that such a claim need not be presented under any circumstances: Wanz v. Park Hotel Co., 1 Ohio C. C. 105.
But whatever the rule may be in other jurisdictions, the question is settled in this state by the case of Springhorn v. Dirks, 72 Mont. 121, 231 Pac. 912, 913. In that case this court, following the case of Zimmerman v. Carpenter, (C. C.) 84 Fed. 747, held that the presentation of a claim to the executor or administrator was unnecessary. The opinion in that case does not set out the facts as clearly as it might have. But we see from the opinion that the bank "failed to open for business, on December 3, 1921. All the defendants, except those appearing as administrators, were on that date stockholders." On June 7, 1923, the court levied the assessment. Reference to the transcript in the Springhorn Case discloses that Hagenson died on June 17, 1922. The complaint which was filed on July 26, 1923, named the administrator as a defendant. Notice to creditors was first published on August 19, 1922, requiring claims to be presented in ten months (or before June 19, 1923). This was twelve days after the assessment was made. Hence the court pointed out in the opinion that although no claim was presented "there had been time within which it might have been." Hagenson was a stockholder and living at the time the bank closed its doors. It was at that time when the claim of the creditors accrued. (Mitchell v. Banking Corporation of Montana, 83 Mont. 581, 273 Pac. 1055.) Hence the claim involved in that case accrued during the lifetime of Hagenson and makes the case one on all-fours with this one, with the exception that here the action was commenced against Blair, the stockholder, before his death. But this fact does not distinguish the two cases, for section 10183, which requires the presentation of a claim to the executor or administrator if an action is pending against decedent, applies only to such claims as would require presentation if no action had been commenced against the decedent during his lifetime. (Millar v. Millar, 51 Cal. App. 718, 197 Pac. 811; Hibernia etc. Society v. Wackenreuder, 99 Cal. 503, 34 Pac. 219; Thompson v. Byers, 116 Cal. App. 214, 2 Pac. (2d) 496.)
The Springhorn Case was decided in December, 1924. Since then we have had five sessions of the legislative assembly, and that body has not seen fit to make any change in the law with respect to the matter of presenting such claims. That case is determinative of this question in favor of plaintiffs. The holding in the Springhorn Case we think is correct.
In the absence of some special legislation on the subject, the plaintiffs' claims for the amounts of their several deposits in the defunct Banking Corporation would fall within the provision of section 10173, that "all claims arising upon contracts due, not due, or contingent, must be presented." Whether "due, not due, or contingent" would depend upon the condition of the debtor bank at the time of the death of a stockholder. It could readily be seen, at the time the statute imposing the double liability was enacted, that, owing to the peculiar nature of the contract which the stockholders were forced to assume, the requirement of the general law governing estate matters would lead to embarrassing and impossible situations. For example: The claim of the creditors does not become fixed until the bank fails and is therefore said to be then "created," within the meaning of the statute of limitations (Mitchell v. Banking Corporation, supra, yet, while a bank is a solvent going concern, the liability is "contingent," for it is "dependent upon something that may or may not occur" (Webster's Dictionary), the future insolvency of the bank. Each depositor is a creditor of the bank (In re Williams' Estate, 55 Mont. 63, 173 Pac. 790, 1 A. L. R. 1639), and consequently has a contingent claim, arising on contract, against each stockholder in the bank. Suppose, then, a stockholder died while the bank is solvent and operating on a large scale, with no hint of disaster; must each of its thousands of depositors file his "contingent" claim against the estate of the deceased stockholder, and must each of these claims be allowed by the executor or administrator and the court, or must the estate suffer a thousand suits, or a creditors' action, against the estate, to establish the multitude of claims?
On the other hand, if the bank continues open during the period for the presentation of claims, and no claim is presented by each of the thousand creditors and thereafter the bank closes its doors, the liability having attached, is it possible that a claim should be presented even though the time therefor has expired ? Is the estate to be freed from liability and either the remaining stockholders be saddled with the additional burden, or the creditors lose a part of their remedy?
Opinions that such claims must be presented or they are lost are undoubtedly correct under the general law; had the legislature intended that the general law should control, it needed only to remain silent. However, the legislature in its wisdom, realizing that such a situation as above, and many others, might arise unless the law was changed, wrote into the liability statute the provision found in Chapter 9, Laws of 1923, that on the death of a stockholder, the estate funds shall be liable, exactly as though the stockholder were living. That chapter makes the funds and estate in the hands of the executor or administrator liable "in like manner and to the same extent as the testator, intestate, ward, or the person interested in such trust fund would have been liable if he had been living."
The "manner" of doing a thing has reference to the method of procedure. (Melsheimer v. McKnight, 92 Miss. 386, 46 So. 827; Bankers' Life Ins. Co. v. Robbins, 59 Neb. 170, 80 N. W. 484; Livesley v. Litchfield, 47 Or. 248, 83 Pac. 142, 114 Am. St. Rep. 920.) It means something different than the word "extent." (Adams v. Terrell, 101 Tex. 331, 107 S. W. 537.) And so when the statute says "in like manner and to the same exent," the word "manner" has relation to the procedure in effecting enforcement of the liability.
It is significant that the statute does not state that the estate shall be liable in the same manner as for other claims against the estate. Nor does it state that the estate shall be liable in the same manner as for other claims against a dead person, but expressly states that the liability shall be in the same manner as' if the testator were living. This wording of the statute was commented upon in the case of Zimmerman v. Carpenter, supra, which formed the basis of the holding in the Springkorn Case. The effect of Chapter 9 is to make the action against the representative of the estate in the nature of an action in rem. The practical difficulty of presenting a claim and the impossibility of the executor acting on it intelligently in some cases is sufficient reason for the legislature dispensing with the necessity of presenting it. To know the amount of the claim against the stockholder would involve a knowledge of the entire liabilities of the bank and its entire available assets. In many cases the executor could not safely pass upon these questions were a claim presented, and hence its presentation would be an idle ceremony.
The failure to present the claim against the executors did not bar the right of plaintiffs to proceed against them.
Appellants assign error on the part of the court in awarding interest from the commencement of this action on the stockholders' liability. From the record it appears that on July 26, 1923, the district court made an order directing the receiver to collect the stockholders' liability to the extent of the stock of each stockholder at the par value thereof, in addition to the amount invested in the shares. From this order there was no appeal taken and hence it became final. (Springkorn v. Dirks, supra; Skarie v. Marron, 78 Mont. 295, 253 Pac. 895.) It fixed the amount of the liability of each stockholder at the par value of the stock.
Acting pursuant to this order, the receiver addressed a written demand to each stockholder wherein he recited that:
"There is due to creditors of the Banking Corporation, debts and engagements of said corporation in an amount much in excess of the stock of each stockholder therein at a par value thereof in addition to the amount invested in such shares.
"There is. a question whether I should collect the capital stock liability of $500,000 or capital stock liability of $250,000, and I asked the court's direction on this question. The court has ordered the collection of the full capital stock liability.
"There can be no question about the right to 'collect the capital stock liability of $250,000 and that is the amount and the basis of this demand. Yon should pay this promptly and accept my receipt on account for payment of the same. I will then bring a test suit to determine whether the additional liability of $250,000, based on the capital stock of $500,000 should be collected. If you pay promptly the demand for your proportionate liability on the basis of $250,000 capital, no further demand will be made until the court has decided the question of liability on the basis of $500,000."
No test suit was ever brought by the receiver so far as the record discloses.
The court found in this action "that plaintiffs prior to instituting this action made demand upon Claude O. Gray, as receiver, that he join herein as one of the plaintiffs, he having been authorized by the above order of July 26, 1923; that he refused to join herein and his consent could not be obtained by plaintiffs and for that reason and by leave of court first had he was joined as a defendant herein."
The record discloses that Blair, pursuant to the call made upon him, paid $5,000 on his liability, which was the amount due on the assumption that the total capital stock was the sum of $250,000, rather than $500,000.
The general rule with respect to interest is that "where stockholders refuse to pay a demand and cause a creditor delay in enforcing his claim, it seems that interest should be included in the stockholders' liability." (6 Thompson on Corporations, sec. 4860, and cases there cited.) Other cases to the same effect are: Adams v. Johnson, 107 U. S. 251, 2 Sup. Ct. 246, 27 L. Ed. 386; Pyles v. Carney, 85 W. Va. 159, 101 S. E. 174; Gund v. Ballard, 80 Neb. 385, 114 N. W. 420; Handy v. Draper, 89 N. Y. 334; Maxwell v. Thompson, 195 App. Div. 616, 186 N. Y. Supp. 208; Boak v. Robie, (C. C. A.) 16 Fed. (2d) 33; Weatherwax v. Johnson, 161 Wash. 80, 296 Pac. 182; State ex rel. Shull v. Hamblin, 132 Okl. 266, 270 Pac. 327; Wheatley v. Glover, 125 Ga. 710, 54 S. E. 626.
The supreme court of the United States, in Casey v. Galli, 94 U. S. 673, 677, 24 L. Ed. 168, in speaking of this, said: "The sum being liquidated and due and payable when the comptroller's order was made, it follows that the amount bears interest from the date of the order. Otherwise there would be no motive to pay promptly, and no equality between those who should pay then and those who should pay at the end of a protracted litigation."
Counsel for appellants contend that if interest is allowable, there is the limitation that the whole, amount of the stockholder's liability cannot exceed the liability fixed by the statute. There is some authority in support of this view, but the decided weight of authority is otherwise. In 6 Thompson on Corporations, section 4860, it is said: "The stockholder is liable for interest from the time of the commencement of the suit to enforce such liability, though the interest may increase his liability beyond the amount fixed by law." Cases supporting this statement are the following: Millisack v. Moore, 76 Mo. App. 528; Mason v. Alexander, 44 Ohio St. 318, 7 N. E. 435; Burr v. Wilcox, 22 N. Y. 551; Fischer v. Chisholm, 159 S. C. 395, 157 S. E. 139.
Appellants rely upon the case of Richmond v. Irons, 121 U. S. 27, 7 Sup. Ct. 788, 805, 30 L. Ed. 876. But that case does not support their contention. The court there said: "Three other questions raised upon the record remain to be disposed of. The first is whether interest upon the debts of the bank should be allowed as against the stockholders from the date of the suspension. As the liability of the shareholder is for the contracts, debts, and engagements of the bank, we see no reason to deny to the creditor, as against the shareholder, the same right to recover interest which, according to the nature of the contract or debt, would exist as against the bank itself; of course, not in excess 'of the maximum liability as fixed by the statute. The act of going into liquidation dispenses with the necessity of any demand on the part of the creditors; and it follows that interest should be computed upon the amounts then due as against the shareholders to the time of payment."
The effect of the holding in the Irons Case is that interest on the original debt of the bank may be taken into account in fixing the extent of the liability of the stockholders, subject to the limitation that it may not bring the liability in excess of that fixed by statute. But when that liability is fixed within the limits of the statute, it draws interest the same as any other demand until paid, even though the interest on the demand, added to the principal, exceeds the amount of the statutory liability. The interest comes in the nature of a penalty for delay in the prompt payment of the statutory liability on demand. Nor is it of any importance that there was an undetermined controversy as to whether the attempted reduction of the capital stock was valid. When demand was made for the payment of the liability, based upon the full capital stock of $500,000, plaintiff's right thereto became fixed. The stockholders had the right, of course, to embark upon litigation to determine the validity of the attempted reduction. But they did so at their peril, so far as plaintiff's right to interest was concerned.
The amount of the liability was fixed by the court by its order of July 26, 1923. The institution of this action was a sufficient demand for its payment. (Hefferlin v. Karlman, 29 Mont. 139, 74 Pac. 201.) The right of plaintiffs to interest on the claim follows, the same as on any other demand due at a particular time, as provided in section 8662, Revised Codes 1921. The court properly allowed interest from the time of the commencement of the action.
Complaint is made of the form of the judgment. Appellants contend that it should be modified so as to make the amount due payable in due course of administration of the estate. In view of Chapter 9, Laws of 1923, we think the form of the judgment is not objectionable.
The judgment is accordingly affirmed.
Associate Justices Matthews and Anderson concur.
Mr. Justice Stewart, being disqualified, did not hear the argument and takes no part in the foregoing decision.