Bodie v. Pollock , 110 Neb. 844 ( 1923 )

Per Curiam.

Plaintiff was receiver of the Bank of Cass County, which was insolvent. Before the assets of the bank were exhausted and without any judicial determination that said assets were' insufficient to pay the creditors, he brought an action against the defendant Pollock, a stockholder, for a sum equal to the face value of the latter’s stock, alleging in his petition that it was necessary to enforce the double liability of the stockholders in order to pay out. The defendant demurred to the petition upon the ground that it did not state facts sufficient to. constitute a cause of action, and because it showed on its face that the action was prematurely brought. The demurrer was sustained and plaintiff brings the case here for review.

It is conceded in the briefs and upon argument that the petition was sufficient except that it was -mot alleged therein that the bank assets had been exhausted and that the proper judicial determination as to the amount due had been made. The question is, therefore, may a receiver bring his action against the stockholders when the bank is adjudged insolvent, as the appellant receiver contends, or must he wait until the assets are exhausted and a judicial determination has been made of the exact amount justly due, as the trial court found?

The law of double liability is found in section 7, art. XII of the Constitution, and is as follows:

“Every stockholder in a banking corporation or institution shall be individually responsible and liable to its creditors over and above the amount of stock by him held to an amount equal to his respective stock or shares so held, for all its liabilities accruing while he remains such stockholder.”

It is the contention of the appellant that this provision is not self-executing and must be construed in connection with the legislative enactment of 1919 to give it effect. The following is the legislative enactment in question, found in section 8015, Comp. St. 1922:

“Every stockholder in a banking corporation shall be individually liable to its creditors, over and above the amount of stock by him held, to an amount equal to his respective stock or shares so held, for all its liabilities accruing while he remains such stockholder. In case any stockholder shall sell, transfer or dispose of such stock, knowing that such bank is insolvent, he shall be deemed the owner of such stock, and liable thereon the same as if such stock had not been sold, transferred or disposed of; and such liability may be enforced whenever such banking corporation shall be adjudged insolvent without regard to the probability of the assets of such

insolvent bank being sufficient to pay, all of its liabilities.”

But, though the doctrine so contended for — that the constitutional provision is not self-executing — is. supported in a way by much respectable authority, this court has held to the contrary. In a case involving the liability of a stockholder in a banking corporation, it was expressly declared that the provisions of said section 7 of the Constitution are enforceable without supplementary statutory enactments. Farmers Loan & Trust Co. v. Funk, 49 Neb. 353. It is true that the provision standing alone may lack the completeness necessary' to make it self-operating. This is' the point upon which a number of courts have held somewhat similar .constitutional provisions inoperative of themselves. But construing the section with another section of the Constitution, section 4 of -the same article, any lack of this kind is supplied and the section becomes of .itself fully operative in so far as to. provide for the enforcement of the double liability referred to therein. The language of ¡said section 4 is :

“In all cases of claims against corporations and joint-stock associations, the exact amount justly- due shall be first ascertained, and after the corporate property shall have 'been exhausted the original subscribers thereof shall be individually liable to the extent of their unpaid subscription, and the liability for the unpaid subscription shall follow the stock.”

By this it will be seen that the time and conditions of the enforcement of the liability are made sufficiently definite:

Prior to 1897 the legislature passed a law (Laws 1895, ch. 8, sec. 35) expressly providing that, whenever any bank receiver should report to the. court that in his opinion the assets of the bank would not be sufficient to pay out within a reasonable time, the court might direct him to at once collect from the stockholders. Proceeding under this statute, the receiver of the German Savings Bank made such a report to the court and prayed the court for an order permitting and directing him to sue the stockholders on their double liability. The stockholders, or one of them, intervened and opposed the application. Their objections were overruled, and the order made. This order was reviewed upon the merits in this court in the case of State v. German Savings Bank, 50 Neb. 734, and the doctrine announced by the court in that case has become the settled law of the state through a long course of years and by a line of cases in which said doctrine has been consistently upheld. The case referred to was considered with unusual care because of the legislative enactment referred to, which, it will be observed, is similar in language and purpose to the enactment of 1919 hereinbefore quoted. In other words, the legislature in that case, as in this, had attempted to supplement the Constitution by providing that the stockholders might be sued before the assets were exhausted. The opinion in that case completely answers the contention of the appellant receiver in this. And the reasons for sustaining the objections of the stockholders in that case apply with equal force to sustaining the decision of the district court in this. It was there again announced that the two constitutional provisions, sections 4 and 7, art. XII, were to be construed together, and that, so construed, they were completely self-operating and self-executing, to the effect that the double liability existed, 'but that it could not be enforced until the assets were exhausted and until the court judicially determined the exact amount to be recovered. It was there declared that no matter of expediency or of policy ought to be permitted to avoid or to change the express provision and direction of the fundamental law, and that the legislature could not be permitted to provide by legislative enactment a different or a better rule for enforcing the liability against the stockholder, even if experience seemed to show that it would be beneficial. To be sure, the Constitution could be changed, but in this connection what the recent (Constitutional convention did affords only an additional reason why the rule so long ago announced and so uniformly adhered to should now stand. Not only did the late constitutional convention not change the constitutional provisions in question, but it reenacted them. These constitutional provisions had received a construction which had become the settled law of the state and that construction had been read into and become a part of the said provisions. It is well settled in many, if not most, of the jurisdictions of the country that, .where a construction of constitutional provisions has been adopted and a constitutional convention thereafter reenacts such provisions, it reenacts not only the language of the provisions but the construction which has attached to the same.

Probably no better exposition and declaration of .the law with respect to the question now before the court can be found than appears in the opinion written in the casé of the State v. German Savings Bank, supra. In the interest of clear and comprehensive statenunt excerpts from that opinion are here quoted:

“It will ■ be observed at once that the general effect of these two provisions is to establish a liability, free from interference by the legislature, on stockholders of all corporations, subject to certain conditions, for their unpaid subscriptions; and in the case of banking corporations, an additional liability for a further amount equal to the amount of stock held by any person for the purpose of paying debts incurred while such person is a stockholder. The conditions attached to the enforcement of the first liability are that its enforcement must be in cases of claims against corporations; that the amount of such claims shall be first ascertained, and that the corporate property shall have been exhausted.

“Does the banking act, in so far as it attempts to confer authority upon the court to authorize the receiver of a bank, merely upon a report that in his opinion the assets of the bank are insufficient to pay its liabilities within a reasonable time, to collect this unpaid subscription, conflict with section 4 as we have quoted it? * * * A large portion of the argument in support of the statute has been addressed to three points: In the first place, a consideration of the policy of the statute, which is manifestly to afford a speedy and somewhat summary remedy for creditors of insolvent banks, and to enable the receiver, for their benefit, to promptly enforce all liabilities of stockholders. Secondly, the justness of this policy, the danger attending upon any process requiring securities to be immediately sold, often on a falling market and at a sacrifice, or, if that danger be avoided, the still greater danger of delaying resort to proceedings against stockholders until such a time that by their death or insolvency the remedies become ineffectual. Thirdly, an appeal to the general principle that the corporation, while it was a going concern, had the right to make calls for unpaid subscriptions regardless of the sufficiency of its assets to pay existing liabilities, and that this right passed to the receiver, so that the receiver, in collecting unpaid subscriptions, is acting merely as he does in collecting other assets, We freely grant the correctness of the last statement as ,the statement of a general principle of' law, and we further concede the correctness of the contention of the appellee as to the policy of the statute. We may further, for the purposes of this case, acquiesce in the position of counsel that for the effective winding up of insolvent banks and the protection of depositors a remedy against stockholders should be permitted in some cases, before, by a slow process of liquidation, other assets shall have been exhausted. But all these are matters not particularly pertinent to the question under consideration. We are not free to declare the law as we believe it ought to be. In a doubtfui case of construction it may be proper to throw the balance in favor of that side where we conceive the natural justice and policy to lie; but this only for the reason that in such doubtful cases it is rather to be presumed, that the intention of the lawmakers was on the side of manifest justice and policy. Where, after resort to established canons of construction, no doubt is left, we must construe the law as written, and not in accordance merely with our own notions of abstract or substantial justice. Furthermore, in interpreting the written law the prevailing doctrine of other jurisdictions is of assistance only for- the purpose of ascertaining upon what information the lawmakers acted in adopting their language, and such general doctrine cannot be permitted to prevail as against a written Constitution or statute plainly implying an intention to change the rule. * * * The. Constitution must be interpreted according to the facts which its framers and the people in adopting it had then in ,mind. * * * We are entirely clear that the. general purpose of the constitutional provision was as already indicated, and that it was the deliberate intention of the framers of the Constitution to render the liability for unpaid stock subscriptions, in one sense at least, secondary, to be enforced only after a consummation of the conditions precedent mentioned, and it is no answer to this conclusion to assert that the corporation itself, while it was a going coucern, might by call, if necessary, followed by suit, have enforced that liability as primary. The conditions are different. The corporation in making calls acts for the stockholders. Directors or other officers authorized to make the call are representatives of the stockholders, by them selected for that and other purposes, and the object in making the call is to provide the corporation with means of proceeding with the business for which it was created. When, however, the corporation suspends its functions as a going concern, the only purpose of resorting to the capital is to discharge debts. It was perfectly competent for the Constitution to provide that upon this contingency a liability which might theretofore have been enforced unconditionally by the representatives of the corporation should thereafter be enforced only as a secondary liability and so far as necessary to accomplish its purpose. This the Constitution did, and in such clear terms as to be almost unmistakable. * * * The new feature was affixing terms and conditions upon which, and upon which only, the liability could be enforced, and it was beyond the power of the legislature to provide a remedy whereby such liability could be enforced in violation of the terms impressed by the Constitution.

“We conclude that the portion of the banking act under which the order complained of was made is in conflict with section 4 of article XII of the Constitution relating, to miscellaneous corporations, and is void. The report of the receiver showing affirmatively that the corporate property had not been exhausted, but only that it was in his opinion probably insufficient within a reasonable time to pay the liabilities of the bank, the court haid no authority at that time to direct actions to be brought for the unpaid subscriptions.”

Following this decision are Hastings v. Barnd, 55 Neb. 93; State v. German Savings Bank, 65 Neb. 416; Hamilton Nat. Bank v. American Loan & Trust Co., 66 Neb. 67; Holcomb v. Tierney, 79 Neb. 660. Nor does the holding so announced lack approval in federal jurisdictions. In Goss v. Carter, 156 Fed. 746, the circuit court of appeals for the fifth district declare that the provisions in question are self-executing, and state in substance that by the mandate of the Nebraska Constitution the liability of bank stockholders cannot be imposed till the indebtedness of the corporation is judicially ascertained and the assets of the corporation exhausted.

The law being as it is, the ruling of the district judge was right, and should stand. For, “while a practical interpretation of the Constitution by the legislature will not be, lightly disregarded in doubtful cases, yet, when the language of the Constitution is free from ambiguity, an interpretation thereof by the legislative department. cannot be invoked to nullify the fundamental law.” State v. Cornell, 60 Neb. 276.

Affirmed.