Pate v. Bank of Newton , 116 Miss. 666 ( 1917 )

Ethridge, J.,

delivered the opinion of the court.

The.Bank of Newton was incorporated under the laws of the state of Mississippi in 1898, with a capital stock of fifty thousand dollars. In 1910 it procured a charter amendment under the laws of the state, increasing its capital stock to seventy-five thousand dollars. In 1914 the state of Mississippi passed an act regulating and guaranteeing the deposits of the banks to depositors whose claims were secured, and in the said act (chapter 124, Laws of 1914) it was provided in section 59 that the stockholders of banks shall be liable, in addition to their stock, to the amount of the par value of the stock held by such stockholder. After the passage of this act the Bank of Newton was examined by one of the bank- examiners provided for in said law, who reported the bank to be solvent and in good condition. Thereupon the stockholders of the bank passed a resolution authorizing and directing the directors to take the necessary steps to come under the guaranty features of the Banking Act referred to. The provisions were complied with, and in January, 1915, the said bank became a guaranteed bank, with the approval of the bank examiners, and continued to do business until February, 1916, when one of the bank examiners found the bank to be insolvent, and proceeded to liquidate the bank according to the provisions of the act.

The bill of complaint set out the names of the stockholders of the bank and the amounts of stock held by each, and also set out the resolutions of the directors and stockholders adopting and electing to come under the Banking Act referred to. It is alleged -that the assets of the bank would not pay the depositors, and that, after applying all the assets, there would be left a balance due the depositors in excess of the amount of capital stock. It is alleged that all the deposits were contracted subsequent to the passage of the Banking Act and subsequent to the resolution 'of the stockholders to become a guaranteed bank and to take the benefits of the Banking Act. It was also alleged in the bill that the bank was liquidated under the direction of the chancery court of Newton county, and that the chancellor of that district had directed the bringing of the suits against the stockholders, under section 59 of the act. Also, the bill alleged that, while the bank was examined by the bank examiner and reported by him to be in good condition, in fact the assets of the bank were not’ equal to its liabilities when the Banking Act was passed, and also when the bank became a guaranteed bank under the provisions of the resolution of the stockholders and the statute applicable in such cases. It appears from the allegations of the bill that all the assets of the bank liad not been exhausted, but it was alleged that the assets left would not pay the depositors, and there would be a difference, after exhausting the assets at a fair value, of more than the capital stock of the bank due the depositors. After the bank examiner took charge of the bank under the provisions of the act, it is alleged, the directors appointed a representative' upon whom process might be served, and also granted authority to the liquidator of the bank to sell the real estate and other property in the administration and liquidation of the bank. It appears in the allegations of the bill that some of the stockholders had recognized their liability and had paid to the liquidators of the bank the amount equal to the par value of their stock and had been settled with.

The defendants demurred to the bill of complaint on several grounds, viz: that there was no equity on the face of the bill; that the bill did not charge that the bank was solvent at the time of the approval of the act of 1914 by the Governor, nor at any time thereafter; that the bill .admits that the bank was insolvent at the time of the approval of the act of 1914; that the bank was incorporated under the laws of the state prior to the passage and approval of chapter 124 of the Laws of 1914, and that the bank had not since amended its charter, and that all the capital stock was subscribed for and paid in prior to the passage of said act; that the charter of the bank constituted a contract which could not be impaired without the consent of the stockholders so as to impose personal liability on the stockholders, and that to do so would be to do an injustice to the stockholders, because of section 178 of the Mississippi Constitution of 1890, providing that charters of private corporations may be repealed or amended, ‘ ‘ provided that no injustice be done to the stockholders ; ’ ’ that the bill shows that the assets had not been exhausted, and that suit for the personal liability of the stockholders could not be brought until the assets had been first exhausted. The chancellor overruled the demurrer and granted an appeal to settle the principles of the case.

This demurrer presents two questions for decision: First, was the suit prematurely brought? and, second, can the liability imposed by section 59 of the Banking Act be imposed upon stockholders of corporations already incorporated at the time of the passage of the act? Section 59 of chapter 124 of the Laws of 1914 is as follows:

“Liability of Stockholders. The stockholders of every bank shall be individually liable, actually and ratably, and not for one another, for the benefit of the depositors in said bank to the amount of their stock at the par value thereof, in addition to the said stock; but persons holding stock as executors, administrators, guardians, or trustees, and persons holding stock as collateral security, shall not be personally liable as stockholders, but the assets and funds in their hands constituting the trust shall be liable to the same extent as the testator, intestate, ward or person interested in such trust fund would be, if living or competent to act; and the person pledging such stock shall be deemed the stockholder and liable under this section. Such liability may be enforced in a suit at law or in equity by any such bank in process of liquidation, or by any receiver, or other officer succeeding to the legal rights of said bank.

The first question presented for decision turns Upon the further question of whether this liability is a primary or secondary one. A careful reading of the whole act convinces us that it is a primary liability.

The purpose of the act, that is to say, its leading and controlling purpose, is to make the claims of depositors safe, and to provide for their payment as promptly as is consistent with justice to the bank and. to its stockholders. The concluding sentence of section 59, providing for the enforcement of this liability says:

“Such liability may be enforced in a suit at law or in equity by any such bank in process of liquidation, or by any receiver, or other officer succeeding to the legal rights of said bank. ”

This is the only provision we have noted that provides the time of the bringing of the suit, and that is, while the bank is in process of liquidation. There is no requirement to await a collection and application of the debts and property of the bank before bringing this suit against the stockholders. In many cases it would- require a considerable period of time to collect the debts and dispose of all the personal and real estate belonging to a bank, even though it might be perfectly manifest that when this is done there would still be a large deficit due to the depositors. If the bank or its liquidators were required to await until the debts had been collected and the assets converted into cash, nlany of the stockholders might escape liability by becoming insolvent or moving out of .the jurisdiction of the court. When the stockholders pay this liability into the bank and it is applied to the satisfaction of the depositors’ claims, and after the debts of the bank are paid, if there were any funds left the stockholder would naturally secure this remainder as a stockholder of the bank; and, of course, a stockholder who had paid the liability would first be repaid before any stockholder who had not paid such liability would be entitled to any dividend from the proceeds of the bank. We therefore think that the suit can be maintained whenever it is reasonably apparent that the assets of the bank will not pay the depositors.

As to the second proposition: The bank was chartered under the general laws of the state at a time when the Constitution expressly provided that all such charters could be repealed or amended by the legislature when-even in the judgment of the legislature it was for the public interest to do so, provided no injustice be done to the stockholders. It is not necessary in this suit to define what might or might not constitute an injustice to the stockholders, nor, whether this provision of the Constitutioxi presents a legislative or a judicial question. It certainly could not be said that an injustice was done to the stockholders under an amendment whereby the corporation, after such amendment, could do business under more favorable terms than a person or a partnership could do. Under the present banking’ law, even with a stockholder’s liability equal to the par value of the stock, the stockholders of a corporation have the advantage of an individual doing such business. An individual, or a partnership, doing a banking business would be under a liability, not only equal to the capital of the bank, but an unlimited liability upon each person in the partnership doing such business, which liability could be kept alive and in force all the time during the life of such person and against his estate in case of death. It is well settled by the authorities that the legislature may impose reasonable conditions upon the rights of either individuals or corporations as to their future contracts.

We think the liability of the stockholder, as to a deposit, accrues with the making of the deposit, and not of the date of granting a charter to do business. At the time the charter of the Bank of Newton was granted, the general law provided that the liability of a stockholder extended only to the amount of his stock, except where otherwise provided hy statute. Sections, 909, 922, 924, Code of 1906, sections 4081, 4096, 4097, and 4098, respectively, Hemingway’s Code. A different question would be presented if a deposit made prior to the passage of the banking law was sought to be imposed as a liability upon the stockholder in excess of his stock. In the case of Bank of Oxford v. Love, 111 Miss. 699, 72 So. 133, the general features of the Banking Act were upheld by this court.

• The United States Supreme Court has specifically upheld the power of a legislature, in eases of this kind, to change the liability of stockholders with reference to future contracts, even against charter stipulations, where the power to amend or repeal was reserved. Sherman v. Smith, 1 Black, 589, 17 L. Ed. 173. Iu that case the articles iu the charter of the New York Banking Association declare:

“The shareholders of this association shall not be liable in their individual capacity on any contract, debt or engagement of the association.”

A section of the Banking Act of New York reserved to the legislature the power to alter or repeal the act, and the court held that by necessary construction this .provision reserved the power to alter or repeal all or any one of these terms and conditions or rales prescribed by the act. In 3 R. C. L., tit. “ Banks,” par. 26, p. 397, the following language is used:

“Where the power to alter or amend a charter of a banking corporation is reserved to the legislature, it may change the law in regard to liability of stockholders without violating the provision of' the federal Constitution forbidding the impairment of the obligation of contracts. The constitutional • provision that the legislature shall grant no charter for banking purposes except upon condition that the stockholders shall be liable for the debts of the bank to the extent of their stock does not preclude the legislature ¿rom imposing a greater liability. ’ ’

See also, 10 Cyc. 699.

There are many decisions of the several states to the same effect, all holding that, as to future contracts, the legislature may impose additional liability whenever there is a reservation of power in the charter to alter, repeal, or amend the same. In the present case, however the stockholders of the bank expressly authorized and directed the directors to take the necessary steps to come under and secure the., benefits of the banking act. This was one,- and the bank examiners gave the bank a certificate o¿ guaranty, certifying that the depositors’ deposits would be guaranteed by the state under the Banking Act. ' All this was done by the stockholders and directors before the time provided in the act in which it would be necessary for a bank to qualify, according to the act, to do a banking business. Under this arrangement, the bill alleges, the bank received all its deposits involved in this suit, and the depositors had a right to assume that their deposits would be guaranteed, not only by the b;ank and the state banking funds, but also by the security afforded by the stockholders’ liability under the terms of the act; and the stockholders,having held out this inducement, in order to secure the deposits, are in a poor position to now claim exemption from the effect of what they voluntarily did. ?

We are óf, opinion that section 59 imposes the liability upon the stockholders of banks whether incorporated before or after the Banking Act was passed, but that this liability does not extend to deposits which were actually made before the passage of the act. As to deposits made prior to the passage of the act, the stockholders’ liability will be measured by the law in force at the time of the making of the deposits which constitutes the contract between the bank and the depositor.

The judgment of the chancellor is affirmed, and the cause is remanded.

Affirmed and remanded,.