Court Opinion

ID: 6697513
Source: CourtListenerOpinion
Date Created: 2022-07-20 21:57:47.741134+00
Date Added: 2024-06-11T16:01:17.887734
License: Public Domain

Clarkson, J.
The questions in this case are: (1) whether or not a stockholder in a bank who has been induced to purchase the stock from the bank through the fraud of its president can set up such fraud as a defense against the statutory liability for an assessment after the insolvency of the bank, under the North Carolina statute, amendment 1927, on the subject, the stockholder being guilty of no laches. (2) Could this be done prior to the amendment of 1927? We think so.
N. C. Code of 1931 (Anno.), Micbie, C. S., 218(c), 13(d), is as follows: “All sums collected under tbe levy shall become immediately available as general assets of tbe bank for distribution as other assets. Provided, however, that whenever tbe expenses of liquidation have been paid and all of tbe liabilities to depositors, and other creditors shall have been discharged, the money then remaining in the hands of the commissioner of hanks shall he applied pro rata to the repayment of the amounts paid in hy the stockholders.” (Italics ours.) Public Laws 1927, chap. 113, sec. 13(d).
In tracing this provision of tbe banking laws, in reference to tbe subject, we find, in Public Laws, 1911, chap. 25, part sec. 2: “All indebtedness due from such shareholders, or any of them, their representatives or estates, shall be payable to tbe said receiver as corporate assets, and tbe title thereto shall be vested in such receiver, to be by him applied for tbe equal benefit of all persons entitled to share in tbe distribution of tbe fund and disbursed ratably under tbe orders of tbe court.” C. S., 240.
Public Laws 1921, chap. 4, part sec. 17, is as follows: “All expenses on account of any receivership and all wages or salaries due officers or *626employees shall be paid out of the assets of such bank before distribution of the proceeds thereof; and such receiver may, on order of the court, make a ratable dividend of the money in his hands on all such claims as may have been proved to his satisfaction or adjudication in a court of competent jurisdiction, and as the proceeds of the assets of such bank are paid to the receiver, he shall on like orders make any further dividends, upon all claims previously proved or adjudicated, and the remainder of the proceeds, if any, shall be paid to the stockholders of such bank, or their legal representatives, in proportion to the stock respectively held by them.” 3 C. S., part sec. 218(c).
The decision in Hill v. Smathers, 173 N. C., 642, is to the effect that the statutory liability of the stockholders is created exclusively for the benefit of corporate creditors. It is not to be numbered among the assets of the corporation, and the corporation has no right or interest in it. Corporation Commission v. Bank, 193 N. C., 113. This is not so under the amended statute of 1927. When the bank stock was purchased the present statute in relation to the subject, entered into and formed a part of the contract. Bateman v. Sterrett, 201 N. C., at p. 62; Hamilton v. R. R., ante, at p. 472.
Michie, supra, 218(c), 13, provides an easy method of assessment of stock liability which, in part, is as follows: “After the expiration of thirty days from the date of the filing of the notice of the taking possession of any bank, in the office of the clerk of the Superior Court, the Commissioner of Banks may levy an assessment equal to the stock liability of each stockholder in the bank, and shall file a copy of such levy in the office of the clerk of the Superior Court, which shall be recorded and indexed as judgments, and shall have the force and effect of a judgment of the Superior Courts of this State; and the same shall become due and payable immediately,” etc. Public Laws 1927, chap. 113, sec. 13, 1931, chaps. 243, 385, 405. This statute was held constitutional in Corporation Commission v. Murphey, 197 N. C., 42.
Under the amended statute of 1927, supra, we have a new provision “the money then remaining in the hands of the Commissioner of Banks shall be applied pro rata to the repayment of the amounts paid in by the stockholders
Ordinarily fraud will vitiate any contract, but it has been frequently asserted that fraud cannot be precisely defined as its ramifications are so hydra-like. It is axiomatic that one who perpetrates a fraud and is enriched thereby cannot retain the fruits of his wrongdoing. So by analogy the very officer, W. B. Davis, president of the bank, who perpetrated the fraud, could, as depositor or creditor, and finally as stock-*627bolder, upon tbe payment of tbis assessment, be entitled to profit by bis own wrong. Tbis is tbe egg wbieb spoils tbe omelet. It is not possible to separate tbe good from tbe bad.
In Lee and others v. Pearce, 68 N. C., at p. 78, quoting from Adams Eq., 176, we find: “Tbe innocence of a party wbo bas profited by a fraud will not entitle bim to retain tbe fruit of another man’s misconduct, or exempt bim from tbe duty of restitution.”
“Tbe beautiful character, pervading excellence, if one may say so, of Equity Jurisprudence,” says Story, J., “is that it varies its adjustments and proportions so as to meet tbe very form and posture of each case in all its complex hibitudes.” Massey v. Alston, 173 N. C., at p. 223.
Tbe contrariety of tbe decisions are mainly premised on tbe language of tbe different acts, but prior to tbe bank act, supra; in regard to ordinary corporations tbis jurisdiction bas settled tbe law contrary to plaintiff’s contention.
In Chamberlain v. Trogden, 148 N. C., at p. 140-1 (1908), citing numerous authorities, speaking to the subject, the following is said: “There is some conflict of authority as to the right of a subscriber to rescind bis subscription or maintain a defense to bis obligation therefor on the ground of fraud after the corporation bas become insolvent and its affairs have passed into the possession and control of a receiver of the bankruptcy court, or other method of general adjustment, primarily for the benefit of creditors. Tbe English cases and some courts in tbis country have held that, under conditions indicated, it is no longer open to the subscriber to maintain such a defense. These English decisions, however, are said to be based to some extent on the construction given to certain legislation on the subject, and the weight of authority in tbis country seems to establish that, under exceptional circumstances, the subscriber may avail himself of the position suggested even after insolvency.” The Chamberlain case, supra, was cited and approved in Corporation Commission v. Bank, 193 N. C., 113.
Even if it be conceded that the amendment to the Banking Act of 1927 undertook to deal solely and exclusively with the method of distribution of special funds arising from stockholder assessments, nevertheless the Trogden case, supra, recognizes and sanctions the right of a stockholder to repudiate bis stock subscription procured through the fraud of bis own corporation, even after insolvency, or bankruptcy. Tbe fact that a bank stockholder may be assessed in the event of insolvency does not alter bis essential rights or obligations as a stockholder. That is to say, a bank stockholder stands upon the same footing as *628stockholders in other ordinary business corporations except that the statute hangs a liability around his neck if his bank fails.
In Commissioner of Banks v. Cosmopolitan Trust Co., 41 A. L. R., 658, a Massachusetts case (253 Mass., 205, 143 N. E., 609), takes the view: “One subscribing to an increase of stock of a trust company cannot avoid his statutory liability to stockholders when the company becomes insolvent, because he was induced by fraud to make his subscription.” In the annotation, at p. 689, citing a wealth of authorities, speaking to the subject, is the following: “The great majority of the American cases either hold directly that insolvency of the corporation does not, in and of itself, cut off the right of a defrauded stockholder to escape his liabilities as such, or else impliedly support the same rule by basing the stockholder’s loss of his right to rescind for fraud upon laches or some other element of estoppel in combination with the insolvency of the corporation.” People v. Cal. Safe Dep. & Trust Co. (rehearing denied) (Cal.), 126 Pac. Rep., 516; Gress v. Knight, 31 L. R. A. (N. S.), p. 900, and the note there referred to; Smith v. Jones, L. R. A., 1917C., 890, 191 S. W., 500; Shufflebaum v. DeLashmutt, 83 Fed., p. 449; Newton Nat. Bank v. Newbigin, 74 Fed., p. 137; Fla. Land & Improvement Co. v. Merrill, 52 Fed., 77.
Under the majority rule, the Chamberlain case, supra, is cited. In State Bank of Portland v. Gotshall, 51 A. L. R., 1200, (Oregon case, 254 Pac., 800), the Oregon Court holds: “Fraud inducing one to purchase bank stock cannot be urged as a defense in an action under a double liability statute against the stockholders by the state superintendent of banks, upon the insolvency of the bank, since the purpose of the statute is to protect depositors and creditors.” (Italics ours.) See Miehie on Banks and Banking, Vol. 2, sec. 42(i), p. 124.
It is well settled that the injured party to rescind must act promptly and within a reasonable time after the discovery of the fraud or after he should have discovered same by due diligence. Willis v. Willis, ante, 517.
It will be observed that the question of laches, a differentiating feature in most of the cases, plays no part in the present decision. The court below found no laches on the part of defendant. The authorities on the subject are collated in a valuable annotation reported in 41 A. L. R., 674. In Commissioner of Banks v. Carrier, 202 N. C., 850, there were laches — “She should have acted with promptness and diligence.”
The case of Corporation Commission v. McLean, 202 N. C., p. 77, is not decisive of this case. In the McLean case the stock sold to McLean upon which the assessment was levied was not sold him by the *629bank, and the bank received no part of the proceeds of the purchase price. McLean bought the stock from individuals, and the fact that they happened to be officers of the bank should certainly in no way render the bank liable for the fraud which they perpetrated upon him, if any.
The court below by agreement found the facts (1) all the necessary elements that constitute fraud and deceit were practiced on the defendant to obtain the stock subscription; (2) that defendant was not guilty of laches. The record discloses that “while the defendant received certain sums as dividends on the stock referred to, he has offered to return such dividends and still stands ready to do so.”
Under the amendment of 1927, if the defrauding officer be a depositor or creditor, he would participate in the distribution of the general assets, and the amendment makes specific provision for pro rata repayment to stockholders of the residue of their assessments after the payment of expenses and creditors. Hence the collection of the present assessment would swell the refund, in case of any, to the defrauding officer. This was not the intent of the Legislature. Nor was the statute amended idly or to no purpose.
The fraud perpetrated by W. B. Davis, president of the bank, on defendant under the present statute would indirectly enure to his own benefit. The Commissioner of Banks cannot recover, for by so doing it would be enriched by the perfidy of the president of the bank, it being the liquidating agent of the bank, and it would thus allow the president to take advantage of his nefarious conduct. The defendant is entitled, under the facts and circumstances of this case, to recover the $6,000, less dividends received. The judgment of the court below is
Eeversed.