Court Opinion

ID: 7107981
Source: CourtListenerOpinion
Date Created: 2022-07-24 12:23:04.715986+00
Date Added: 2024-06-11T16:13:38.419712
License: Public Domain

Gtkang-ek, J.

1

*5522 *551I. The question is first presented whether the court, in an ex parte proceeding, can make a valid assessment on the stockholders. Much depends on the effect to be given to the assessment when made. If it is to have .a conclusive effect, — that is, if it is to have the effect of an adjudication so as to preclude an inquiry thereafter into its correctness in any essential particular, — we think it cannot be done. But, if such an assessment is only intended for, and to have the effect of, an ascertainment by the court of probable conditions, with the right of a stockholder to take issue and have his liability judicially determined whenever there is an attempt to enforce the assessment, then we think such an assessment can properly be made. This is no more than to say that the court may, from the record, aided by other information, determine prima facie the extent of the fund necessary to discharge the liability of the stockholders under the *552act, and, upon such a determination, authorize the collection of the same, when, in a suit to enforce such payment, the stockholders may contest his liability unaffected by such determination. We regard the assessment in this case no more than such a determination, and with no other legal effect than as we have stated. Of this determination or assessment appellant was no tified. She thus had the opportunity to investigate and know of her liability, and make payment without cost, if she thought herself liable, or, if not, to contest her liability without prejudice from the assessment made. Such a procedure seems to be in accord with good business judgment, and without a disadvantage in the preservation of legal rights. In a quite recent case in Washington, to be hereafter cited, speaking of such liabilities under the laws of the different states, in considering a method of procedure under a laV similar to ours, it is said that some statutes “provide the mode of enforcing the right; others leave it for the judiciary to work out the method,” — and the case adopts a method designed to give effect to the spirit of the law in that state, as no method of procedure is prescribed. The same is true of our law. It is also to be said that preliminary assessments, varying in form and method, are of general observance, where liabilities of such a nature are to be enforced. Our statute creating the liability is section 1, chapter 208, Acts Eighteenth General Assembly, as follows:' “That all stockholders or Shareholders in associations or corporations organized under said chapter one aforesaid, for the purpose of transacting a banking business, buying or selling exchange, receiving deposits of .money, or discounting notes, shall be individually and ,- severally liable to the creditors of such association or corporation of-which they are stockholders or shareholders, over,and, above;the. amount of stock by them *553held therein, to an amount equal to their respective shares so held for all its liabilities accruing while they remained such stockholders; and should any such association or corporation become insolvent, and its assets be found insufficient to pay its debts and liabilities, its stockholders may be compelled to pay such deficiency in proportion to the amount of stock owned by each, not to exceed the extent of the additional liability hereby created.” The case of Le Mars Ins. Co. v. Hildreth, 55 Iowa, 248, may seem not to be in harmony with our conclusion in this case. An assessment was held in that case to be an adjudication, and void, where the stockholder was not made a party. An examination of that case shows a purpose in making the assessment, because of a form of notice, and the character of the assessment made, to fix the liability of the stockholder by the assessment. The action was to recover on the assessment as fixing the liability of the stockholder. It is therein stated that “the plaintiff claims in his petition that the defendant is bound by the assessment made against him.” With our construction of the order of assessment in this case, that case is clearly distinguishable, for, in an action to recover, the assessment will serve only as a guide to the amount of recovery.
3 II. There is also a claim that, before the stockholders can be made liable under the act in question, the assets of the bank must be exhausted; that is, as we understand, all the assets in the hands of the receiver must be applied, and the. liability is for the deficiency. We have no doubt that the deficiency measures the extent of the liability of stockholders under the act; but we do not concur in the claim that the assets must first be applied, so that the receiver has no part of them on hand. It is likely true that, pending *554the collection, conversion, and application of the assets, the precise deficiency cannot be known, and if the thought is that the only right of the creditors of the bank is to have the exact liability of each stockholder first determined, and that amount, and that only, collected, we cannot concur in it. Section 2 of the act is important in this connection. It is as follows: “Should the whole amount for which the stockholders- are made individually responsible as provided by section 1 of this act be found in any case to be inadequate to the payment of all the debts of any such association or corporation, after the application of its assets to the payment of such debts, then the amount due from such stockholders on account of their individual liability created by this act, as such, shall be distributed equally among all the creditors of such corporation in proportion to the amount -due to -each.” It will be seen that the law contemplates the collection and distribution of a fund, the distribution to be after the application of the assets, if we follow the letter of the law. But the liability for the payment, to create the fund, is not made to depend on the application of the assets, but on the fact of the insolvency of the bank. The first section of the act fixes the conditions as to liability for payment, and- the second section fixes the conditions under which the payment, when made, shall be applied. It will be noticed, and it is important, that the first section simply deals with the facts that create and limit the liability of the stockholders. The second section •deals only with the facts to govern the application of the money when collected. Now, our thought is, conceding for the present the right of a receiver, in such a case, to collect and distribute the fund, that the liability of the stockholder for payment does not depend on conditions that accurately fix the extent of his liability, but on the facts of the insolvency of the bank and a *555liability of the stockholder, because such when the debts accrued. 'With the facts established to fix a liability to the fund, we think it is, primarily, for the full amount contemplated by the act, subject to such an interest in the fund, when created, as will entitle him to his proportion of any balance unexpended upon final settlement. If the conditions are such that the court or receiver shall attempt to collect less than the full amount, of course it is nothing of which the stockholder can complain, and we are not saying that more should be collected or demanded than the conditions seem to justify. But it can be readily seen that accuracy, as to amount, is impracticable, if not impossible, because the expenses of collection and distribution cannot be known beforehand, and, if the assets of the bank were previously exhausted, there would be no other fund from which to- pay such expenses. We think, in such cases, the time for collection, and amount to be collected, can best be left to the sound discretion of the court; for we deal now only with cases where the bank estate is in process of liquidation, by a proceeding in court, by direction of the auditor of state. It is a case in which the state has in charge the settlement of the bank affairs. See Code, sections 1571, 1572.
4 III. It is claimed that chapter 208, Acts Eighteenth General Assembly, being the act under which the liability of stockholders is created, is unconstitutional because not submitted to a vote of the people, under the provisions of article 8, section 5, of the constitution of the state, as follows: “No act of the general assembly authorizing or creating corporations or associations with banking powers, nor amendments thereto, shall take effect, or in any manner be in force, until the same shall have been submitted, separately, to the people, at a general or special election, as provided by law, to be held not less than *556three months after the passage of the act, and shall have been approved by a majority of all the electors voting for and against it at such election.” This article of the constitution received construction in Allen v. Clayton, 63 Iowa, 11, and it was there held that section 5, with other sections, had reference only to banks of issue. Chapter 208 is amendatory of the general incorporation act, being chapter 1, title 9, Code. Neither the act amended, nor the amendment, creates or authorizes a corporation or association with banking powers as intended by the constitutional provision. The acts do not authorize banks of issue.
5 IY. Another claim against the validity of the assessment is that the liability of stockholders under the act is not an asset of the bank, so that it is a matter within the power or authority of a receiver, and hence that the liability of the stockholder is directly to the creditors of the bank after the bank assets are exhausted. In this respect reliance is placed on many authorities which hold that such liabilities, or the money received therefrom, are not assets of the bank, and that a receiver has no authority to collect or apply them. That may be stated as the general rule. The rule, however, is not without its exceptions, caused sometimes by statutory enactments, and at others by judicial construction. The general rule, as stated, has usually been announced in eases of voluntary assignments or receiverships, at the instance of creditors, with ho statutory limitation or direction -as to the application of the money when collected. Mr. Thompson, in his Commentaries on the Law of Corporations (volume 3, section 3561), having stated the general rule, says the rule has been changed by statute. The text is supported by a citation to Story v. Furman, 25 N. Y. 214. That case deals quite elaborately with the right of a receiver to collect and distribute money due from stockholders *557under such an act. It is said in the case that “this stockholders’ liability constituted a fund for the payment of all the corporate debts after its assets were exhausted, and, if it was insufficient to pay all the debts, it must be distributed among the creditors upon equitable principles,” etc. That is 'the law of this state. In that case, after a full discussion of the facts and law to justify a recovery by the receiver, it is said: “Independently of these views, which relate chiefly to the arguments addressed to us on the hearing, I should be prepared to reverse the judgment of the court below, and affirm the judgment of the referee, upon another distinct ground. I do not see why the order appointing the plaintiff receiver did not vest him with ample authority to enforce the stockholders’ liability under the statute, Such liability is clearly a fund in equity for the payment of 'the debts of the corporation. The receiver was appointed in a suit instituted by creditors, and in behalf of all the creditors of the corporation. He was expressly authorized, by the order of the supreme court, to commence an action against each and all of the stockholders of said corporation who are solvent, for the recovery of such a contributory sum from each solvent stockholder, not exceeding the whole amount of stock owned by them, as will be necessary to satisfy any deficiency that might exist in the payment of the debts of the said corporation.” It is further said in the opinion: “I do not see why this order was not entirely within the authority and jurisdiction of the supreme court as a court of equity as an original equity power at common law. The appointment of a receiver was the only appropriate mode to reach and collect this equitable fund, the personal statute liability of the stockholders, for distribution among the creditors.” This extended quotation is justified because of the importance of the rule announced. It will be seen that, after *558■the conclusion that a fund is to be collected for distribution among creditors, it announces a broad common law rule, that is an exception to the general rule, that a court of equity possesses an inherent common law jurisdiction to appoint a receiver with authority to collect and distribute the fund. This case is frequently cited in the books, and is nowhere criticised. In High on Receivers (section 317a), the exception to the general rule is noticed, and it is there said: “But under a statute making .all persons composing the corporation liable to the extent of their respective shares of stock, for all debts due at the time of the dissolution of the corporation, a receiver, appointed in an action brought in behalf of all the creditors to wind up the corporation, may enforce the liability against the shareholders.” This text is also supported by a reference to Story v. Furman, supra. In the authorities cited as sustaining the right of a receiver to collect and distribute this fund, it is stated that the rule obtains where all the stockholders are liable for all the debts of the corporation. Our law provides that stockholders shall only be liable for debts accruing while they remained stockholders, and it is thought by some that this provision operates against the authority of the receiver. While this language is included, with the other language, in announcing the rule, it nowhere appears that it is regarded as a controlling fact, or one essential to the application of the rule. Without exception, we think, where the law contemplates a fund for distribution, it must be done by a receiver, assignee, trustee, or some such officer of the court. If it be in an equitable proceeding by a creditor, wherein all persons interested are made parties, the fund must be collected and distributed under the direction of the court, and this must be done, of course, by some person selected for that purpose. It is difficult to understand why the court, with the receiver as its agent, *559may not as equitably deal with, the situation to arise from this provision of our statute as it could in the same kind of an action, at the instance of a creditor, with ■some person appointed to make a distribution. In both cases the entire matter is under the control and direction of the court. This provision of the statute does not, of course, operate to defeat the provision as to fro rata distribution, and, wherever that is to 'be done by the court, it is one of equitable cognizance. It may be said that, so far as we have observed, our statute is unlike any under which the general rule, above stated, has been announced. It is also to be said that chapter 208, giving rise to this liability of stockholders, is made, by. its terms, a part of the general incorporation law under which the defendant bank was organized. That law contains the provisions under which the state, on the relation of the attorney general, is to commence such suits to wind up such corporations, and all its provisions are to be construed together. It would seem like a strange and uncalled for state of affairs for the suit, at the instance of the state, to nroceed until the assets of the bank were exhausted, and then subject the creditors to delays, and the annoyance of another like suit, at their own instance, to collect and distribute this fund. See, for a case in point and quite fully considered, Wilson v. Booh, 13 Wash. 676 (43 Pac. Rep. 939). See, also, Watterson v. Masterson, 15 Wash. 511 (46 Pac. Rep. 1041). We reach the conclusion that the assessment is not invalid because of a want of authority for a receiver, in case of a valid assessment, to collect and distribute the fund under orders of the court. From these considerations it follows that the judgment of the district court must be aeeibmed.