Miners & Merchants Bank v. Snyder ( 1904 )

On September 5th, 1903, the appellant, as a creditor of The City Trust and Banking Company, sued the appellee at law to enforce his statutory liability as a stockholder of that company for its debts. The defendant pleaded the general issue and a number of special pleas to which the plaintiff demurred. At the hearing of the demurrer the Court, looking to the first error in the pleadings, held that since the passage of ch. 337 of the Acts of 1904, the case disclosed by the declaration could no longer be maintained and sustained the demurrer as to that pleading. A judgment of dismissal was thereupon entered in the case and from that the appeal was taken. The defenses set up by the special pleas were not passed upon by the Court below nor is it necessary for us, in view of the conclusion which we have reached to notice them here.

The Act of 1904 took away the right theretofore existing in every creditor of a trust company to bring a separate action at law against any of its stockholders to enforce his statutory liability for its debts, and substituted for such action the exclusive remedy of a bill in equity on behalf of all the creditors against all of the stockholders residing in this State, with the privilege to non-resident stockholders to come into the case and by so doing secure protection from suits against them in other jurisdictions. The Act by its terms was to become operative as of January 1st, 1903, and to cause the abatement of all pending actions at law instituted since that date against stockholders to enforce such statutory liability; but the plaintiffs costs in the abated actions were to become part of the costs taxable in the equity proceeding provided for by the Act, if within sixty days after its passage such plaintiffs came into that proceeding.

This appeal brings up the issue of the validity of that portion of the Act in question which relates to actions at law against stockholders instituted before its passage. The appellant contends that that portion of the Act is invalid, because it attempts to impair the obligation of contracts in violation of Art. 1, § 10 of the Federal Constitution. It is admitted that the Act does not operate directly upon the liability itself of the stockholder or attempt to change the persons to whom it is due, but it is insisted that the alteration made in the form of remedy for its enforcement is such as to substantially impair the value of his liability to the creditor for the corporate debts.

It was held by the Supreme Court of the United States inHawthorne v. Calef, 69 U.S. 10, that a State Act, attempting to repeal a clause in the charter of a bank making its stockholders liable to the extent of the par value of their stock to its creditors, was void as to debts of the bank contracted before the date of its passage because as to such debts it impaired the obligation of the contract with the creditors within the meaning of the Federal Constitution. On the other hand it was said by the same high tribunal in Tennessee v. Sneed,96 U.S. 69: "Our own reports and those of the States are full of cases holding that the Legislature may alter and modify the remedy to enforce a contract without impairing its obligation * * * If a particular form of proceeding is prohibited and another is left or provided which affords an effective and reasonable mode of enforcing the right the contract is not impaired." Again inFourth Natl. Bank v. Francklyn, 120 U.S. 747, the same Court, in construing a statute of Rhode Island modifying the remedy to be employed by the creditors of a corporation in enforcing an existing statutory liability of its stockholders for its debts, said. "As it (the statute) does not undertake to annul theliability of the stockholders for the debts of the corporation, but only modifies the form of remedy and the rules of evidence it is not doubted that it is a constitutional exercise of the power of the Legislature even as applied to debts contracted by the corporation before its enactment. Hawthorne v. Calef,69 U.S. 10; Penniman's case, 103 U.S. 714; Ogden v. Saunders,25 U.S. 213, 262, 349; Webb v. Den, 58 U.S. 576; Curtis v.Whitney, 80 U.S. 68; Tennessee v. Sneed, 96 U.S. 69."Oshkosh Water Works case, 187 U.S. 439.

The statute construed in Fourth Natl. Bank v. Francklyn,supra, was entitled "An Act defining and limiting the mode of enforcing the liability of stockholders for the debts of corporations;" and it provided that no person should be imprisoned or continued in prison or his property attached upon a judgment against a corporation of which he was a stockholder. It further required an action of debt to be brought against the stockholder on the judgment against the corporation and allowed him to make the same defenses to that action that the corporation could have made to the suit against it in which the judgment was obtained. Prior to the passage of that Act the Rhode Island law permitted the person and property of the stockholder who was liable for the corporate debt to be taken on execution or attachment issued against the corporation for the debt.

The power of a State to modify or change the method of procedure in its own Courts for the enforcement of an existing contractual obligation so long as it does not thereby impair the substantial rights secured by the contract has frequently been upheld by this Court. State, use of Isaac v. Jones,21 Md. 432; Madigan v. Workingmen's Building Assn., 73 Md. 317;Wilson v. Simon, 91 Md. 1. In Madigan's case, it was held that such an Act would embrace within its operation actions pending at the date of its passage.

We will now consider, in the light of the principles thus announced, whether the Act of 1904, ch. 337, so affects the appellant's contractual rights as to fall within the constitutional inhibition.

Chapter 109 of the Acts of 1892, now sec. 85L of Art. 23 of the Code of Public General Laws, provides, in reference to trust companies, that "Each stockholder shall be liable to the depositors and creditors of any such corporation for double the amount of stock at the par value held by such stockholder in such corporation" but the Act is silent as to the form of remedy to be used or the tribunal to be resorted to for the enforcement of the liability. Section 14 of the Act of 1896, ch. 344, by which the appellant was incorporated, provides that "the said corporation shall be subject at all times to the provisions of the Act of 1892, ch. 109 and of ch. 279." Assuming but not now deciding because not necessary to this case that this clause in the appellant's charter imposed upon the holders of its stock the same liability to its creditors and depositors that the general law imposed upon holders of the stock of trust companies organized under its provisions, let us see in what attitude the appellant stood toward the stockholders of the City Trust and Banking Company at the date of the passage of the Act of 1904. The question here reserved of the true effect of sec. 14 of ch. 344 of the Act of 1896 has been argued and will be decided in the case of Murphy v. Wheatley, hereinafter referred to.

The Act of 1892, ch. 109, which was then in force created the liability of the stockholders of a trust company for its debts. That particular Act has not heretofore been the subject of consideration by us but we have several times had occasion to construe provisions of the Code and special charters imposing a liability of like nature upon stockholders in manufacturing and other corporations. In those cases we determined that such liability does not constitute a corporate asset enforceable by a receiver of the corporation but it is a debt due directly by the stockholder to those persons who became creditors of the corporation while he held its stock. We further held that any such creditor could enforce the liability by a separate action against any stockholder from whom it was due and recover the debt from him to the extent of double the par value of the stock held by him at the time it was contracted. It was thus made possible for the creditor by the exercise of superior skill and diligence to secure payment in full of his debt from the stockholder sued by him to the exclusion of the other creditors. Albert v.Matthews, 24 Md. 535; Norris v. Wrenschall, 34 Md. 501;Hammond v. Strauss, 53 Md. 10; Attrill v. Huntington,70 Md. 197; Colton v. Mayer, 90 Md. 717 and cases there cited.

It thus appears that prior to the passage of the Act of 1904, the appellant and all others, who became creditors of the City Trust and Banking Company while the appellee was one of its stockholders, had a right to recover their debts from him to the extent of $3,000, that being double the par value of his stock, but it was entirely problematical which creditor would succeed in enforcing that right for his own benefit or what share of it if any the appellant would be able to realize for himself. It is true that before the passage of the Act, the appellant had in the assertion of the right under consideration brought his suit at law against the appellee but he had obtained no judgment and was entitled to no lien nor had he any assurance that some other creditor would not, by securing an earlier trial of his case or by inducing the appellee to confess judgment, exhaust the liability of the latter and render the appellant's suit fruitless. "The bringing of a suit vests in a party no right to a particular decision and his case must be determined on the law as it stands not when the suit was brought but when the judgment was rendered." Madigan v. The Building Assn.,73 Md. 321; Cooley on Const. Lim., 468. Nor has any one a vested right in any particular remedy or form of proceeding. Cyc., vol. 1, p. 705 and notes. Wilson v. Simon, supra.

The Act of 1904 left the appellee liable, in respect to the debts of the Trust Company, to the same extent and to the same persons that he was liable before its passage. The only change it made was to require those persons instead of suing him separately at law to unite with the other creditors of the trust company in a suit against all of its stockholders in a Court of equity where the rights of the several creditors and the liabilities of the several stockholders might be ascertained and enforced at the same time. We are unable to see how any substantial injury is inflicted upon the appellant's contractual rights by insisting upon their enforcement by means of a creditor's bill in a Court of equity which is a tribunal regulated by principles and furnished with agencies well suited to the complete and fair adjustment of conflicting rights and varied interests instead of leaving them to the uncertain results of a struggle between competing creditors in the pursuit of separate actions at law.

The adjustment and enforcement, in any tribunal and under any form of proceedings, of the rights of creditors as against stockholders in a case like this, where certain stockholders are liable to certain creditors and not to others, is a difficult and complex undertaking but the rights of the creditors in such a case are not materially lessened or impaired by a statute conferring upon Courts of equity the exclusive jurisdiction to ascertain and enforce their respective rights against the several stockholders in a single proceeding. We withhold the expression of any opinion as to whether such a proceeding in equity, combining in one suit different plaintiffs of whom some have claims against certain of the defendants and others have claims against different defendants, would have been multifarious without the aid of the statute now under consideration. That question is directly put in issue in the case of Murphy v.Wheatley tried at the present term of this Court and it will be disposed of by the opinion to be filed in that case.

The appellant in support of its contention has quoted in its brief from a number of decisions of the Supreme Court of the United States strong assertions in varied forms of expression of the conceded doctrine of the invalidity of legislation attempting to so change the remedy for an existing contractual right as to substantially impair the value of the right itself. An examination of those cases will show that none of them present a state of facts so closely resembling those at bar as to furnish a controlling precedent for the determination of the present case. As was truly said, in Von Hoffman v. Quincey, 4 Wall. 535, "No attempt has been made to fix definitely the line between alterations of remedy which are deemed to be legitimate and those which under the form of modifying the remedy impair substantial rights. Every case, must be determined upon its own circumstances."

The other cases of Woodworth v. Bowles, 61 Kan. 569;Dexter v. Edmands, 89 F.R. 467; Western Natl. Bank v.Reckless, 96 F.R. 70; Evans v. Nellis, 101 F.R. 920, andWebster v. Bowers, 104 F.R. 627, which were much relied on by the appellant all related to statutes changing the remedy for the enforcement of stockholders liability for corporate debts, but they are all quite distinguishable from the one now under consideration. Although those cases arose in different jurisdictions every one of them was a controversy between the creditors and stockholders of a Kansas corporation and it was admitted in each case that the issue was to be determined by the laws of that State regulating the remedies of the creditors of a domestic corporation against its stockholders.

The statute law of Kansas in force prior to 1897 made each stockholder of a banking corporation liable for its debts to an additional amount equal to the stock owned by him and as the law then stood any creditor of the corporation could enforce this liability against any stockholder by suit at law or if he had already secured a judgment for the debt against the corporation, he could by leave of Court issue execution thereon against the stockholder. Section 55 of the Act of 1897 of the State of Kansas provided that at the expiration of a year from the closing of any banking corporation the receiver thereof should "institute proceedings in the name of the bank for the collection of the liability of the stockholders of such bank" and that the sums so collected should "become a part of the assets of the bank and be distributed pro rata to the creditors thereof in the same manner as other funds." The same Act prohibited direct proceedings by any creditor against the stockholder to enforce the liability of the latter unless it should appear to the satisfaction of the Court that the receiver had failed to bring suit as required by the Act.

In Woodworth v. Bowles, 61 Kan. 569, the Supreme Court of Kansas was called upon to determine the operation of the law of 1897, upon suits pending when it went into force which had been instituted by creditors of an insolvent banking company against its stockholders to enforce their statutory liability for the debts of the corporation. The Court in an exhaustive opinion held that the right of the creditors who had brought suit against the stockholders was a contractual one and the Act of 1897 could not be given a retroactive force so as to destroy or impair their right to maintain their pending suits. The reasons stated in the opinion in that case for the Court's conclusion were that to give the Act a retroactive operation would impair the contractual rights of the creditors who had already brought suit because it would suspend for a year the pursuit by them of the special remedy afforded by the laws in existence at the time of the making of their contracts, and because secondly, if the receiver instituted proceedings at the end of the year the creditors having brought suit were altogether deprived of their remedy and the fund collected by the receiver would be distributed among all of the creditors pro rata and the substantive right of the suing creditor would be thereby affected. It was further pointed out in the opinion that under the old law a creditor by the exercise of diligence and vigilance might secure payment in full of his debt, whereas if he were compelled to await the result of the institution of the suit at the end of a year by the receiver he might fare much worse.

In the other four of the cases to which we have last referred the Courts of other jurisdictions adopted and enforced the same construction of the Kansas law. In Dexter v. Edmands, andWestern Natl. Bank v. Reckless, the Court rather broadly declared that a law forbidding the maintenance of a suit at law by the individual creditor against the individual stockholder and requiring in lieu thereof an action in equity on behalf of all of the creditors against all of the stockholders practically destroyed the substantial right of action of the creditor. It must, however, be remembered that the subject then under consideration was the effect of the Kansas Act of 1897, and the expressions used by the Courts must be understood as referring to its operation and not as applicable to other laws which produced no such results as that one did.

The Kansas law absolutely deprived the creditor of any remedy at all for an entire year, and when the remedy provided by the statute was put in operation for his benefit its prosecution was under the control of the receiver and its results were subject to the expenses of the receivership and the net sum realized from all of the stockholders was to be divided pro rata among all of the creditors. It was the probability of results of that character to which we referred in the case of Colton v. Mayer,supra, in denying to the receivers of the corporation then before us the right to file a bill to enforce the statutory liability of the stockholders for the corporate debts on behalf of the creditors to whom the liability was held to be due.

No such results will follow the use of the remedy provided by the Act of 1904, ch. 337. Although all parties interested will be brought into one suit in equity it will be the suit of the creditors themselves and will be under their control and the funds recovered from each stockholder will be apportioned according to equitable principles to those creditors only to whom he is indebted and the creditor will be protected from the risk of losing his debt involved in the competitive rush of individual creditors and the possible willingness of the debtor to benefit a particular creditor by confessing judgment in his favor. A further commendable feature of the proceeding in equity provided by the present law is that it affords to the stockholders an opportunity to adjust their relative rights of contribution and thus holds out to such of them as are non-residents an inducement to come into the case and submit themselves to the jurisdiction of the Maryland Court and meet their obligation to its citizens.

We are of opinion that the Court below committed no error in sustaining the demurrer as to the declaration and dismissing the suit, and we will affirm the judgment of dismissal.

Judgment affirmed with costs.

(Decided November 30th, 1904.)