Woodbine Savings Bank v. Shriver

On May 6, 1891, the plaintiff-appellee was incorporated as a savings bank under the laws of Iowa. Thereafter, at the expiration of the charter thus granted, the appellee was re-incorporated May 11, 1911. The capital stock of the appellee bank was increased in February, 1920, from $30,000 to $50,000. At that time the defendant-appellant owned 26 shares of this stock.

Appellant's stock was obtained upon three different occasions as follows: 10 shares on May 18, 1891; 10 shares on April 16, 1906; and 6 1/6 shares on February 14, 1917. For some reason there was later a reissuance of the certificate for the 6 1/6 shares, and the amount reduced to 6 shares. Later the appellee bank's capital stock became impaired to the extent of 100 per cent, and, on February 15, 1927, the state banking superintendent ordered an assessment to restore the stock's value. Consequently the proper proceedings were taken and the assessment duly made. Then, according to law, appellant's stock was sold November 17, 1927, for the sum of one dollar per share, or a total of $26.00. This action was brought for the purpose of recovering from the appellant the deficiency, due under the assessment against him, after applying the said $26.00. In other words, the amount demanded from the appellant by the appellee is $2,574. After a hearing the District Court found against the appellant and gave appellee judgment for the amount claimed.

There is no question raised concerning the non-liability of appellant for the assessment to restore the value of the bank's stock. But it is claimed by appellant that his liability ceased when his stock was sold; that is to say, appellant contends that he, under the state and federal constitutions, cannot be made liable personally for the deficiency above-named. The basis for appellant's argument in this regard is that under the Iowa statutes, in existence when the stock was purchased, there was no personal liability for the assessment; while now, under the amended statutes there is a personal liability. It is the personal liability that appellee seeks to enforce here. Therefore, appellant maintains that his contract will be impaired if the personal liability is enforced against him. An impairment of contract is not permitted under the state and federal constitutions, and the primary question for determination here is whether or not the personal liability sought to be enforced is an impairment of appellant's contract under the constitutional provisions.

Apparently this legislation first appeared in Chapter 29, Acts of the Twenty-Fifth General Assembly, which became effective May 5 or 6, 1894. Such legislation was later codified and became Sections 1878, 1879, and 1880 of the 1897 Code. These sections of the 1897 Code are now substantially embodied in Sections 9246 to and including 9250 of the 1927 Code. For convenience, the foregoing provisions of the 1927 Code are here set forth:

"9246. Should the capital stock of any state or savings bank become impaired by losses or otherwise, the superintendent of banking may require an assessment upon the stockholders, and shall address an order to the several members of the board of directors of such bank, fixing the amount of assessment required."

"9247. The board of directors shall, within thirty days after the receipt of such order, cause such deficiency to be made good by a ratable assessment upon the stockholders for the amount of stock held by them, by giving such stockholders notice in writing, signed by the president or vice president, attested by the cashier or secretary of the bank, under its seal, if it have one, and deposited in the post office, addressed to the last known residence of the stockholders, proof thereof to be made by the affidavit of the person so making the deposit, which notice shall state the entire sum to be raised, and the amount due from the addressed stockholder."

"9248. Should any stockholder neglect or refuse to pay his assessment within ninety days from the date of mailing notice thereof, the board of directors shall cause a sufficient amount of the capital stock held by such stockholder to be sold at public auction to make good the deficiency, after giving ten days' notice thereof by personal service or by posting the same in the bank, and publishing it in some newspaper of the county in which the bank is located, which notice shall recite the assessment made, the amount due thereunder from the stockholder, and the time and place of sale; proof of all which may be made in the manner provided in the preceding section."

About the foregoing statutory provisions the appellant makes no complaint, but he does attack Section 9248-a1 of the 1927 Code, which reads as follows:

"Should the proceeds of a sale under the preceding section of all of the stock of any stockholder be insufficient to satisfy his entire assessment liability he shall be personally liable for the deficiency, which may be collected by suit brought in the name of the bank against such stockholder."

Said last-named statute was enacted March 13, 1925, by the Forty-First General Assembly, as shown by Chapter 181 of the acts thereof. Because Section 9248-a1, aforesaid, was not in existence when appellant purchased his stock in the appellee bank, he argues that his contract with the state and with the bank's other stockholders cannot be controlled by the new legislation. Under the contract arising through the old statutory provisions, appellant says that his stock could be appropriated for the purpose of paying the assessment, but that he was not personally liable therefor. See Leach v. Arthur Savings Bank, 203 Iowa 1052. Hence, because the new statute authorizes a personal liability, appellant contends that his contract aforesaid is changed and thereby impaired. Such impairment, appellant insists, is not avoided under the reserve power of the Iowa Constitution and the statutes enacted in connection therewith. That reserve power is set forth in Section 12, Article 8, of the Iowa Constitution, as follows:

"Subject to the provisions of this article, the General Assembly shall have power to amend or repeal all laws for the organization or creation of corporations, or granting of special or exclusive privileges or immunities, by a vote of two thirds of each branch of the General Assembly; and no exclusive privileges, except as in this article provided, shall ever be granted."

Thereunder, the legislature of this state adopted the following statute, set forth as Section 1619 of the 1897 Code:

"The articles of incorporation, by-laws, rules and regulations of corporations hereafter organized under the provisions of this title, or whose organization may be adopted or amended hereunder, shall at all times be subject to legislative control, and may be at any time altered, abridged or set aside by law, and every franchise obtained, used or enjoyed by such corporation may be regulated, withheld, or be subject to conditions imposed upon the enjoyment thereof, whenever the general assembly shall deem necessary for the public good."

Those provisions contained in Section 1619 of the 1897 Code are substantially the same as the ones embodied in Section 1090 of the 1873 Code. So, when the appellee bank was incorporated, the foregoing constitutional and statutory provisions were operative. The principles announced in the well-known Dartmouth College Case, therefore, are not applicable to Iowa corporations within the realm of the foregoing reserve power. Appellant, however, attempts to avoid the reserve power doctrine by arguing that the assessment liability created by Section 9248-a1 is not within such reservation. To illustrate, appellant claims that there is a distinction between the assessment in question and an assessment imposed for liquidation purposes. A line of demarcation appears, appellant urges, because, on the one hand, the state granted the stockholder freedom from the corporate debts to the extent only of the assessment for liquidation purposes, while, on the other, the state granted the stockholder nothing, but imposed upon him a liability for the purpose of restoring the value of impaired stock. See Garey v. St. Joe Mining Company (Utah), 91 P. 369; Yoncalla State Bank v. Gemmill, 159 N.W. 798 (Minn.); County of San Mateo v. Southern Pacific, 13 Fed. 722; Central Pacific R.R. Co. v. Gallatin,99 U.S. 700, 727.

Because the state granted a concession to the stockholder when it freed him from liability for the corporate debts, appellant concedes that such grant may be entirely withdrawn and the stockholder compelled to bear a greater liability for the debts. See Williams v. Nall (Ky.), 55 S.W. 706; Walsh v. Shanklin (Ky.), 31 L.R.A. (N.S.) 365, 102 S.W. 295; Whitman v. National Bank, 176 U.S. 559; Sherman v. Smith, 1 Black (U.S.), 587; Smathers v. Western Carolina Bank (N.C.),47 S.E. 893; Sleeper v. Goodwin (Wis.), 31 N.W. 335; State v. Brown Sharpe Mfg. Co. (R.I.), 25 A. 246; Pate v. Bank of Newton (Miss.), 77 So. 601; Enterprise Ditch Co. v. Moffit, 79 N.W. 560 (Nebr.); Norris Safe Lock Co. v. Weaver (Ore.), 160 P. 807; Coffin v. Rich (Me.), 71 Am. Dec. 559.

Yet, because Section 9248-a1 of the 1927 Code does not withdraw a grant, but rather extends a liability, appellant maintains that the same is not within the reserve power above mentioned, and therefore falls within the principles announced in the famous Dartmouth College case. As to whether appellant is right about this, we do not now decide. His contention in this regard can in any event find support only in the proposition that before Section 9248-a1 of the 1927 Code was adopted, the stockholders' contract denied a personal liability for the assessment after his stock was applied thereon. Assuming, without deciding, that we determined that contention in accordance with appellant's claim in Leach v. Arthur Savings Bank, (203 Iowa 1052), supra, nevertheless appellant has not thereby shown that Section 9248-a1, above named, is unconstitutional and void.

Returning again to Section 9246 of the 1927 Code, it is found that the legislative provision there is:

"Should the capital stock of any state or savings bank become impaired by losses or otherwise, the superintendent of banking may require an assessment upon the stockholders" (the italics are ours).

The assessment plainly is not upon the stock, as such, but rather upon the stockholder personally. If, under Section 9246 above quoted, the assessment is upon appellant individually, then Section 9248-a1 in no way changes such individual liability. Originally, under the old statute, the assessment was against the stockholder and not against the stock. Likewise, under the amendment the assessment is still against the stockholder. According to the original statute, the stockholder was personally and primarily liable for the assessment, and Section 9248 and its predecessors had to do only with the remedy and nothing else. Then, assuming that the only remedy originally made for the collection of the assessment was to confiscate the stockholder's stock, nevertheless, so far as the remedy was sufficient, the stockholder was personally liable for the assessment. This burden was cast upon the stockholder himself, even though the only remedy to enforce the obligation was by the sale of the stock. Consequently, appellant's obligation in the premises has not been increased. He was always obligated to pay the assessment. Of course, if he did not pay, the only remedy under the statute was to sell his stock; yet the obligation to pay was there just the same. Now, under the new legislation, the stockholder's liability has not been increased, but rather the remedy for enforcing that obligation has been changed. Were the remedy a part of appellant's contract, a change thereof would amount to an impairment. Barnitz v. Beverly, 163 U.S. 118; Conley v. Barton,260 U.S. 677.

Obviously in the case at bar, however, we are not confronted with a case where the remedy became a part of the contractual obligation. There is not a syllable in the statutory contract which in any way indicates that the remedy is a part of the agreement. It was not said by the legislature that there could be no other or different remedy. Hence it was perfectly proper for the law-making body to adopt Section 9248-a1 of the 1927 Code, because such amendatory legislation pertained to the remedy only. The purpose of this legislative enactment was to afford a more appropriate remedy for an obligation already existing against appellant. Ever since becoming a stockholder of the appellee bank, he was obligated to pay any legal assessment made for the purpose of repairing the capital stock. This new legislation simply recognized that obligation and afforded a more complete remedy to enforce the same. No new obligation was created by the amendment, but rather the old was recognized and a better way to enforce it provided. Such action of the legislature in no way impairs the obligation of the contract. Conley v. Barton (260 U.S. 677), supra; Johnson v. Libby, 88 A. 647 (Me.); Brotherhood of American Yeomen v. Manz, 206 P. 403 (Ariz.); Barton v. Conley, 112 A. 670 (Me.); Perkins v. Coffin,79 A. 1070 (Conn.); Waggoner v. Flack, 188 U.S. 595; Henley v. Myers,215 U.S. 373; Hill v. Merchants' Mutual Insurance Co.,134 U.S. 515; Bernheimer v. Converse, 206 U.S. 516; Lynch v. Jacobsen, 184 P. 929 (Utah). See Barnitz v. Beverly (163 U.S. 118), supra. A few brief quotations from some of the foregoing cases will elucidate the thought.

It was said in Bernheimer v. Converse, (206 U.S. 516), supra:

"There is a broad distinction between laws impairing the obligation of contracts and those which simply undertake to give a more efficient remedy to enforce a contract already made."

Again in Henley v. Myers (215 U.S. 373), supra, it is declared:

"Equally without merit is the contention that the statute of 1899 impaired the obligations of the stockholder's contract, in that it substituted for individual actions against them a suit in equity by a receiver appointed after judgment against the corporation. In becoming stockholders, the defendants did not acquire a vested right in any particular mode of procedure adopted for the purpose of enforcing their liability as stockholders. It is a well-established doctrine that mere methods of procedure in actions on contract, that do not affect the substantial rights of parties, are always within the control of the state. It is to be assumed that parties make their contracts with reference to the existence of such power in the state."

Likewise in Waggoner v. Flack, (188 U.S. 595), supra, similar language is used as follows:

"There was no promise or contract expressed in the statute thatthe state would not enlarge the remedy or grant another onaccount of the purchaser's violation of his contract, and wethink no such contract is to be implied. (The italics are ours). A purchaser of lands at the time Phillips purchased had no right to assume that the state would not alter the law in the future so far as to give it another and better or a quicker remedy for a violation of his contract by the purchaser than existed at the time the purchase was made. To enact laws providing remedies for a violation of contracts, to alter or enlarge those remedies from time to time as to the legislature may seem appropriate, is an exercise of sovereignty, and it cannot be supposed that the state in a case like this, contracts, in a public act of its legislature, to limit its power in the future, even if it could do so, with or without consideration, unless the language of the act is so absolutely plain and unambiguous as to leave no room for doubt that its true meaning amounts to a contract by it to part with its power to increase the effectiveness of existing remedies as against those who purchase lands while the act remains alive. No such language is to be found in the act in question, and none ought to be implied."

Also the Arizona Court, in Brotherhood of American Yeomen v. Manz (206 P. 403), supra, reading on page 405, laid down a similar doctrine in the following language:

"We understand the rule to be that parties have no vested right in particular remedies or modes of procedure, and that legislatures may change existing remedies or prescribe new modes of procedure without impairing the obligation of contracts, provided an efficacious remedy remains for its enforcement."

To the same effect is the following pronouncement in Johnson v. Libby (88 A. 647), supra, reading on page 649:

"Its (the amendment to a statute) only purpose and effect was to provide a different remedy, a different course of procedure, by which the shareholders' liability could be enforced. The legislature has power to modify or change a remedy, provided no substantial right is thereby impaired. And a shareholder in acorporation has no vested right in a particular remedy by whichhis liability as such may be enforced against him. (The italics are ours). A change of remedy, whereby no substantial right is affected, is not obnoxious to the fundamental law which forbids the impairment of contracts."

Thus it appears that the Supreme Court of the United States on many occasions has emphatically declared that a stockholder in a corporation ordinarily has no vested right in a remedy and therefore such remedy may be changed without impairing the obligation of contract. Not only has that doctrine been announced by the Supreme Court of the United States, but likewise it has been declared by practically every state in the union. As before seen, appellant's contract in the case at bar did not give him a vested right in any particular remedy. There is no language in the statutes under consideration which indicates in any way that the remedy should not be changed. According to the statute, the assessment in question is against the stockholder himself. That is so because of the express language used by the law-making power, as will be seen by referring to the statutes above-quoted.

Conceding, without deciding, that under the original statute, the remedy was limited to the confiscation of the stock, yet that remedy, such as it was, arose for the purpose of enforcing a personal liability against the stockholder. Resultantly the new legislation also increases the remedy for the purpose of enforcing the same personal liability against the stockholder. Therefore, Section 9248-a1 of the 1927 Code is not unconstitutional and void for it does not impair the obligation of a contract under the state and federal constitution.

The judgment and decree of the district court should be, and hereby is, affirmed. — Affirmed.

FAVILLE, C.J., STEVENS, MORLING, and WAGNER, JJ., concur.