Fralick v. Guyer

DUNN, J.

This action was brought by appellant as Commissioner of Finance to recover from respondent a sum equal to the par value of respondent’s stock in the Bellevue Bank and Trust Company, said stock having been fully paid up.

Respondent demurred to the complaint on the ground that the facts stated did not constitute a cause of action. The demurrer was sustained, appellant declined to plead further and judgment of dismissal was thereupon entered, from which this appeal was taken.

C. S., sec. 5274, upon which the action is founded, reads in part as follows: “The stockholders of every incorporated bank or trust company doing a banking business shall be liable to the creditors of such bank or trust company to the amount of their stock at the par value thereof, in addition to the stock held by them. ’ ’

Respondent defends the action on the ground that the portion of said section above quoted, in attempting to impose a double liability on a stockholder of a bank or trust company doing a banking business, is unconstitutional because of conflict with see. 17 of art. 11 of the constitution of this state, which reads as follows: “Dues from private corporations shall be secured by such means as may be prescribed by law, but in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him.”

This provision (sec. 17) was undoubtedly taken from the Missouri state constitution, and its adoption here came many years after the supreme court of that state had construed the very clause now in dispute. The constitution of Missouri adopted in 1865 contained the following provision: “Dues from private corporations shall be secured by such means as may be prescribed by law; but in all cases each stockholder shall be individually liable over and above the stock by him or her owned, and any amount unpaid thereon, in a further sum at least equal in amount to such stock.”

In 1870 the foregoing section was amended so as to read as follows: “Dues from private corporations shall be secured by such means as may be prescribed by law, but in no case shall any stockholder be individually liable in any amount over and above the amount of the stock owned by him or her.”

In Schricker v. Ridings, 65 Mo. 208, at page 215, in discussing the contention made there just as it is now made here, namely: that the expression, “the amount of the stock owned by him,” means an amount equal to and in addition to his stock, the supreme court of that state said: “The language of the amendment should be construed with reference to the language of the section which it superseded, and when so considered all doubt as to its true construction will vanish. The individual liability created by the original provision was expressed to be a liability to an amount named ‘over and above the stock owned, and any amount unpaid thereon.’ Now, the phrase ‘over and above the stock owned’ as there used, clearly meant in addition to the stock owned. The prohibition contained in the amendment was ‘in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him or her’; that is, in addition to the amount owned by him or her.”

"While sec. 17 of art. 11, supra, is an original provision of our constitution and not one superseding a former affirmative provision clearly imposing a double liability, as in the Missouri case, no reason is seen in this fact for giving it a meaning different from that given by the supreme court of Missouri. The same meaning was in fact given it in the debates in our constitutional convention, and there is no record of dissent from that meaning by any one of the members of that convention. These debates would not be competent to change the plain meaning of a constitutional provision, but in this instance, if it be admitted that the provision in question is ambiguous, they would be most convincing as to what the members of that convention intended when they wrote into our state constitution as a part of sec. 17, art. 11, that “in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him:”

In discussing the meaning of sec. 17 and the liability of an investor if that section were put into our constitution, Mr. Poe said: “If it stands there, whoever may appropriate or lend his money to an enterprise of whatever nature it may •be, or enter into a company that is incorporated, he knows when he puts that capital in there that he will only be liable to lose the amount that he subscribes in stock. To that extent his liability goes, no farther.”

To this was added this statement of Mr. John T. Morgan, afterwards a distinguished member of this court: “I think, Mr. Chairman, the section ought not to be stricken out. If we 'go to the east to raise capital for the purpose of. building railroads in this territory or in this state, a man worth a million dollars might be willing to take $50,000 of stock in this company if he knew what his liability was; but if he knew that he was liable to lose millions, he would not invest a single dollar. This is why-I think it should be retained. He knows his liability; he may be willing to lose $50,000 because he can stand it, but he may not be willing to jeopardize his whole fortune.”

The meaning manifestly intended by the convention would be the meaning presumed to have been intended by the people in adopting this provision if such meaning is clearly indicated by the words used, as we think it is. ■

The view herein expressed was laid down by this court in an opinion by the late Justice Stewart. (Wall v. Basin Mining Co., 16 Ida. 313, 101 Pac. 733, 22 L. R. A., N. S., 1013.) Whether or not that holding of the court on the point in controversy here was dictum, as contended by appellant, it is not necessary here to decide. In either view it was an able discussion and a correct decision of the question involved in the case at bar.

There are numerous constitutional and statutory provisions to the effect that stockholders in corporations shall be liable “to the amount of their stock,” or “to the extent of their stock,” which have been interpreted by other courts as imposing a double liability on the stockholder, but it is unnecessary to discuss them in detail. Such provisions, whether constitutional or statutory, are affirmative in form and drawn for the purpose of imposing on the stockholder a personal liability equal to the amount of his stock in addition to his liability to pay to the corporation the unpaid balance, if any, on his stock subscription. Whatever may be said as to the correct interpretation of such provisions, it seems to us the reasoning is not applicable to our sec. 17 of art. 11. It is not sufficient to say, as was said in one case in reply to the argument against double liability: ‘ ‘ This would give the public no security, beyond what they had under existing laws; for the assets of the corporation, and any unpaid subscriptions to its stock, were always liable to its creditors. This is the ordinary liability of the corporation. The constitution adds the individual responsibility of the stockholders; and the measure of that liability is the amount, or as it would be better expressed, a sum equal to the amount of their respective shares of stock.” (Matter of the Empire City Bank, 18 N. Y. 199.)

This reasoning .is applicable to a provision whose manifest purpose is to create an additional individual liability, but not to one whose purpose is to prevent the imposition of additional liability.

Counsel for appellant cite the case of Willis v. St. Paul Sanitation Co., 48 Minn. 140, 31 Am. St. 626, 50 N. W. 1110, 16 L. R. A. 281, involving the construction of art. 10, see. 3, of the .Minnesota constitution, which provides that “Each stockholder in any corporation (excepting those organized for the purpose of carrying on any kind of manufacturing or mechanical business) shall be liable to the amount of stock held or owned by him.” In holding that this provision imposes a double liability on the stockholders the court used this language:

“This is the meaning which has been invariably attached to this provision of our constitution. It is the one attributed to it by this court in numerous cases, although never in the form of a direct and authoritative decision ■ and we. do not believe that the construction now sought to be placed upon it ever occurred to, or was ever advanced by any one until suggested by counsel in the present case. Any such construction would render the provision meaningless and useless for all that would be accomplished by it was already fully covered by the law. If a person had subscribed for stock and had not paid for it the amount agreed of course he was liable to the corporation and through it to its creditors; and if the stock had been issued to him as paid-up stock when not in fact paid for under such circumstances as to operate as a fraud upon creditors he was upon well-settled principles liable to them as for unpaid stock subscriptions. The construction contended for would give the public no security beyond what they already had under the existing law. Its absurdity is rendered apparent when considered in connection with the amendment of November 5, 1872, inclosed in parentheses; for then the whole section would mean that, while the stockholders in all other corporations should be liable to pay once for their stock at its face amount, yet stockholders in manufacturing corporations need not be required to do so. The obvious intention of the provision was to add to the ordinary liability of a corporation for its debts the individual liability of the stockholders to a limited amount, and that the measure of that liability should be a sum .equal to the amount of stock owned or held by them. This stock is not the subject of the liability, but the measure of it; in other words, the stockholders are liable, not for the stock, but, in addition thereto, for a sum measured, by the amount of the stock.”

If we hold in mind the purpose of the Minnesota constitutional provision above quoted and other similar constitutional and statutory provisions, and the purpose of our constitutional provision, it will be clear that our provision cannot involve a double liability. In the Minnesota case it is true that the “amount of stock” was used as the measure of the stockholder’s liability and it was clear that by the language used it was intended to impose a liability measured by the “amount of stock” in addition to the common-law liability to pay the unpaid portion, if any, of the par value of the stock.

But in the ease of our constitutional provision the purpose was not to impose a liability. It was to deny to the legislature the power to place upon the stockholder any individual liability beyond the “amount of stock” owned by him. In our constitutional provision the “amount of stock” is not used as a measure of liability, because the provision in question is not creating a liability, as in the Minnesota case, but is establishing a limit beyond which the legislature may not go, which limit is the common-law liability to pay up any unpaid portion of the par value of the stock.

Let us suppose that sec. 17 of art. 11 of our constitution read as follows: “Dues from private corporations shall be secured by such means as may be prescribed by law, but in every case a stockholder shall be individually liable in a sum equal to the amount of his stock over and above the amount of stock owned by him.”

Without question we think such a provision would impose on the stockholder the double liability contended for by appellant, but nothing more. Can it be possible that a provision so worded would impose upon the stockholder no individual liability greater than that which says, “but in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him!” We think not, but if the construction of sec. 17, art. 11, of our constitution contended for by appellant is correct, then the supposed section set out above would have no meaning different from sec. 17 of art. 11 of our constitution.

The language used in this section is simple and we think the meaning is clear. The expression, “the amount of stock,” has reference to and means the stock itself. At common law the stockholder was liable to the corporation, if necessary for the payment of its debts, for any unpaid balance of the par value of his stock. (Feehan v. Kendrick, 32 Ida. 220, 179 Pac. 507; 7 R. C. L. 356.) The provision that “in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him” means that when the face value of the stock has been paid to the corporation there can be added thereto no personal liability of the stockholder in any amount.

Additional weight is given to the view herein expressed when we consider the action taken by the first state legislature of Idaho. At the time of framing and adopting the constitutional provision in question, sec. 2609 of the Revised Statutes of Idaho provided that “Each stockholder of a corporation is individually and personally liable for such portions of its debts and liabilities as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock or shares of the corporation, and for a like proportion only, of each debt or claim against the corporation. ’ ’

At the first session of the state legislature after the adoption of the constitution said section of the territorial law was amended by an act entitled “An Act to amend section two thousand six hundred and nine, of the Revised Statutes, as to the personal liability of stockholders of corporations, and to conform the same to section seventeen, of article eleven of the Constitution,” Session Laws, 1891, p. 172, so that it read in part as follows:

“Sec. 2609. Each stockholder of a corporation is individually and personally liable for its debts and liabilities to the full amount unpaid upon the par or face value of the stock or shares owned by him .... and nothing in this title must be construed to render any stockholder individually or personally liable, as such stockholder, for debts or liabilities of the corporation, either at the suit of a creditor or for assessments or calls, to an amount exceeding the balance unpaid upon his stock or the difference between the amount that has been actually paid upon his stock and the par or face value thereof except when so liable on the ground of fraud or misrepresentation, or concealment, or for neglect or misconduct as an officer, agent, stockholder, or member of the corporation; .... ”

While this legislative interpretation of the constitutional provision is not decisive, it is entitled to consideration in determining the question here involved.

We concede the desirability of giving ‘the public greater security by way of individual liability of the stockholders for tbe debts of a banking corporation in an amount at least equal to the stock they hold over and above the amount of such stock, but neither the legislature nor the courts can give the public this particular kind of security in the face of the limitation imposed by said section 17 of art. 11 of our state constitution.

The judgment is affirmed, with costs to respondent.

William E. Lee, J., and T. Bailey Lee, Dist. J., concur.