Court Opinion

ID: 7963554
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:48:30.862583+00
Date Added: 2024-06-11T16:34:34.439923
License: Public Domain

Cornell, J.
The demurrer to the complaint admits that ever since the first day of January, 1876, the Marine Bank *550of St. Paul has been a banking corporation duly created and organized under the laws of the state relating to banking corporations, to wit, Gen. St. c. 33, concerning banks and banking, and that the defendant during all that time has been and still is a stockholder therein. The action is sought to be maintained upon section 21 of that chapter, which, among other things, provides “that the stockholders in each bank” formed pursuant to its provisions “shall be individually liable in an amount equal to double the amount of stock owned by them, for all the debts of such bank, and such individual liability shall continue for one year after any transfer or sale of stock by any stockholder or stockholders.
It is claimed by defendant that the bank in question was. not a bank of issue, and upon this assumption it is contended that the statutory liability imposed by the foregoing section has no application to the ease, and, if it has, it is void, as-being in excess of legislative authority under the constitution. Prior to the amendment of the chapter in 1869 (Laws 1869, c. 85) it may be that the section in question applied only to stockholders in banks of issue; but there can be no. doubt that it was within the intention of the legislature, bj these amendatory enactments, to embrace within its provisions all banks since incorporated under that chapter, and to make the stockholders therein individually liable, as provided by that section.
The objection that no statutory liability of this character can be created by the legislature in respect to stockholders in a bank not of issue, is rested upon the proposition that this power has been impliedly taken from the legislature by the constitution. This implication is sought to be founded upon the provisions of that instrument contained in the third subdivision of section 13, article 9, and section 3, article 10, of the constitution, the contention being that it was the intention to provide by these clauses for all cases of individual liability for corporate indebtedness authorized by the constitution, and that none other thau that therein provided for can be created *551by tbe legislature. Neither of these clauses contains any grant of power, nor can they be construed in restraint of legislative authority to any greater extent than is necessary to give them full effect according- to the obvious import of the language employed. The restriction contained in the third .subdivision of section 13, of article 9, is confined in terms to the case of “stockholders in any corporation and joint association for banking purposes, issuing bank-notes,” and there is.nothing in the section indicating any intention to extend its provisions beyond such a case. Section 3, article 10, is expressly limited in its application, by, section 1 of the article, to stockholders in corporations not having or embracing banking privileges. Conceding, however, without deciding the point, that the provisions of this article can by any fair construction be held to include incorporated banks not of issue, the claim of defendant is not helped, for section 3 of this article, neither in terms nor by any necessary implication, forbids the imposition upon stockholders of a -greater liability than what is therein specified. The language of the section is, “Bach stockholder in any corporation shall be liable to the amount of the stock held or owned by him. ” It is neither within the purport nor object of the provision to define the extent of legislative power, or the rights of stockholders, upon the subject of individual liability. It simply declares the creation of a liability to the extent named, in the cases referred to; but it does not prohibit its creation in other cases, nor place any limitations upon the power of the legislature to increase the amount of the liability in any case, according as its views of public policy may require. Its only restrictive effect is to prevent legislative action relieving against the constitutional liability, or decreasing it in amount. The demurrer cannot be sustained on the ground of any want of authority in the legislature to enact the statutory provision relied upon to support this action, and to make it applicable to a case like the one before us.
The objection of a defect of parties, which is raised by the *552demurrer, seems, however, to be well taken. The complaint shows that the Marine Bank derives its corporate existence from the provisions of Gen. St. c. 33; that it was insolvent when this action was commenced, having theretofore made a general assignment for the benefit of creditors, and that there were other stockholders beside the defendant, who were also individually liable, under the statute, for the corporate debts and demands in suit. The demurrer, therefore, distinctly presents, and for the first time in this court, the question whether a creditor of an insolvent bank, upon such a state of facts, and against an objection of this kind, can enforce his claims against one of the stockholders, without joining the rest, and also all other parties having any interest in the subject of the controversy, in order that their respective interests may be fully and finally adjudicated and settled in the action. The right determination of this question depends upon the nature of the liability, and the policy of the law in respect to its enforcement, as indicated by the statutes relating to the subject.
The liability declared on is purely a statutory one. It arose out of no contract between the parties, other than that implied by the statute, and is for no debt personally contracted by the defendant, either as principal or' surety; it exists wholly by force of the provisions of the statute which created it, and which alone determines its characteristics and incidents. That statute enacts in terms, and in the words of the constitution as applied to banks of issue, that “the stockholders in each bank shall be individually liable in an amount equal to double the amount of stock owned by them, for all the debts of such bank; and such individual liability shall continue for one year after any transfer or sale of stock by any stockholder or stockholders.” Gen. St. c. 33, § 21. The language of this section, that “the stockholders * * shall be individually liable * * . * for all the debts of the bank,” fairly imports a liability in their individual or private capacities, of all the stockholders to all the creditors of such bank. *553; Each and every creditor has the right to look to the individual responsibility of each and every stockholder as a security for his claim. The extent of this liability, however, is limited in .the case of each stockholder, to double the amount of his stock, though within this- limit it is an absolute and uncon- ■ ditional one, which attaches immediately upon the creation of the corporate debt, for which he is answerable to the ■ creditor as upon an original indebtedness. Being created for the benefit of all the creditors, they all have an equal right to - enforce their respective claims against each and every stockholder, and, if the bank is insolvent, with few or no assets, ■ to participate equally in whatever proceeds may be realized out of the total liabilities, in proportion to the amount of such ■ their respective claims. As between the bank and its stockholders, the former stands in the position of the principal • debtor, primarily responsible for the corporate debts, and liable to reimburse the latter for any payments made by them •upon account of its obligations. As between the stockholders, ■themselves, the equitable right of contribution exists, and . arises in case either pays more than his just and proportion•ate share of the corporate indebtedness, and thereby to that ■ extent relieves the others from responsibility on account of their individual obligations in respect thereto.
It is obvious that these respective rights and obligations can be adequately protected and enforced only through an exer•cise of the equity powers of the court, and in an action wherein . all the parties in interest are present and. represented. And fit is equally clear, in case the bank, as in this instance, is ■utterly insolvent, with outstanding liabilities largely in excess ■ of its assets, that the prosecution to judgment and execution •of the separate demands of one of its creditors against the individual liability of one of the stockholders, without join"ing the other parties in interest, must necessarily affect the •equal claims and rights of the other creditors, and may result in entirely depriving them of any benefits under the statute; .a result at variance with its policy and the obvious intention *554of the legislature in its enactment, which was to protect ancl secure against loss, equally, all parties dealing with the corporation and having debts against it. The evils and mischiefs - likely to result from such a practice are manifold, and very fully stated by the court in Harris v. First Parish in Dorchester, 23 Pick. 112, 114, as follows: “If actions at. law will lie, suits may be multiplied to an indefinite extent. Each bill-holder or other creditor must have his separate suit, and each stockholder must be sued separately. Again, suits between stockholders to adjust their contributions would be interminable. If a creditor’s demand be larger than the-amount of stock owned by any one, he must have several suits against several individuals on the same cause of action, or lose a part of his just demand. If any one stockholder owned more stock than was needed to meet any one claim made upon him, he would be liable to several suits.” If the bank owes largely in excess of its capital and assets, “there must either be a pro-rata division among the creditors of what may be recovered, which would be impracticable in suits at-law, or those who sue first must recover the whole of their debts, leaving others totally remediless, which would be palpably unjust. The evils and inconveniences of attempting to enforce this section by suits at common law, would be incalculable, and such remedy would be inadequate, vexatious • and mischievous.”
In view of these considerations alone, it may well be claimed that the legislature never intended to allow one of several creditors of an insolvent banking corporation to maintain a separate action in his own behalf against one of several stockholders upon the individual liability created by this statute, without joining in the same action all the other-parties shown to have any interest therein.
The correctness of this claim, however, does not rest alone upon these considerations. The very next section to the one creating this liability of the stockholders, provides that “in the event of the insolvency of any bank established under the *555provisions of this chapter, the bill-holders thereof shall he entitled to preference in payment over all other creditors of' such bank.” The total individual liabilities of all the stockholders constitute the principal fund for the payment of the debts of an insolvent bank, and if any creditor can obtain a preference in respect to such fund by the commencement of one or more suits against its stockholders, it is obvious that this clause in favor of the bill-holders might be rendered of no avail, and its purpose wholly defeated. The fact suggested, that there are no bill-holders in this case, is of no moment as affecting the question under consideration, for no-distinction is made as respects the remedy for enforcing the liability, whether the bank is one of issue or not.
As further indicating the legislative intention upon this subject, the General Statutes of 1866, which contain the statutory provisions upon banking and the individual liability of stockholders, also provide a special and adequate remedy for enforcing the liability, closing up the affairs of the bank in ease of insolvency, and for the final adjustment of the rights-of all the parties having any interest in the matter. Gen. St. c. 76. This chapter applies to all corporations and associations having any corporate rights. It provides in terms that “whenever any creditor of a corporation seeks to charge its stockholders on account of any liability created by law, he may file his complaint for that purpose in any district court which possesses jurisdiction, to enforce such liability.” Authority is given in such action, whenever necessary, to take-an account of the property and debts due to and from the-corporation, to appoint one or more receivers to collect and convert into money the corporate demands and property, and make just and fair distribution of the proceeds among its creditors, and in case its assets prove insufficient to satisfy its debts, the respective liabilities of the stockholders are to be-ascertained, and the amount payable from each is to be adjudged, and its payment enforced as in other cases. Provision is also made for giving notice to all the creditors of the *556■corporation by publication, requiring them to exhibit their claims and become parties to the action within a reasonable time, not less than six months, or to be precluded from any benefits in the distribution which may be made under the judgment in the action. Gen. St. c. 76, §§ 17 — 23.
It is reasonable to suppose that the legislature intended by these sections to provide an efficient and sole remedy for enforcing payment of the debts of an insolvent corporation out of the individual liability of its stockholders, for the rule is well settled that when a statute which creates a right also prescribes an adequate remedy, the latter is to be taken as the exclusive one. City of Faribault v. Misener, 20 Minn. 396; Sedgwick Const. Law (2d ed.) 344. The chapter which .gives this remedy forms a part of the General Statutes, which were adopted in 1866, and which contain the enactment that creates the statutory liability, and therefore the rule referred to is fairly applicable.
It is obvious, from an examination of these sections of ■chapter 76, that the remedy they provide contemplates a single action, in which all persons having or claiming any interest in the subject of the action shall be joined or properly represented, and their respective rights, equities and liabilities finally settled and determined. This accords with the general policy of the law as it has existed in this state since 1853, when the old system of a separate and distinct jurisdiction and practice in law and in chancery was abrogated for that of the code. Since then, there has been no distinction between actions at law and suits in equity, there being but ■one form of action for the enforcement and protection of private rights, whether of a legal or equitable nature. It is now ■competent for the same court, in the same action, to take cognizance of and adjudicate both the legal rights and the ■equities of the parties in respect to the subject in controversy, and also to bring in'all who may have any interest therein to be affected by the result, in order that their rights and equities may likewise be finally settled and adjudicated. *557In this way vexatious litigation is discouraged, and a multiplicity of suits is often avoided, and this was the main purpose sought to be effected by the change from the old system.
It is worth noting, in this connection, that the Revised Statutes of 1851 contained two distinct chapters regulating suits and proceedings affecting corporations, one of which related to actions at law, and the other to suits and proceedings in chancery. Rev. St. 1851, c. 76, c. 77. In the revision of 1866, both these chapters were consolidated into one, (Gen. St. c. 76,) entitled, “Actions respecting corporations,” with such modification of their provisions as had become necessary by reason of the change from the old to the new system of practice. Section 23 of the present chapter is nearly identical with Rev. St. (1851,) a. 77, § 25, the provisions of which latter section related solely to proceedings in suits in equity. The only difference consists in the omission from the present section of a clause which the former contained, giving to the-court authority, upon the application of either party to the suit in equity, to grant an injunction restraining all proceedings at law by any creditor. This omission is significant of the legislative understanding that such a clause was no longer necessary, for the reason that no creditor of an insolvent bank can now maintain a separate action for his own exclusive benefit, upon a claim against the individual liability of any stockholder, when it appears that there are other stockholders equally liable under the statute, and other creditors equally entitled to participate in the benefits of the liability. Upon a careful consideration of’the case, we are satisfied that the demurrer was rightly sustained by the court below, upon this ground.
Ordered accordingly.