Ulsh v. State, Ex Rel. Fulton

The suit which this proceeding in error involves originated in the Court of Common Pleas of Wood county, by a petition of the Superintendent of Banks to recover the full superadded, also called double, liability, by reason of the claimed ownership of shares of stock in a banking company organized and existing under the laws of the state of Ohio, located in said Wood county.

Judgment was entered in favor of plaintiff for the alleged liability.

Facts will be stated only to the extent necessary to an understanding of the points relied upon by plaintiff in error for reversal of the judgment; and the assignments of error unsubstantial in character, and questions definitely settled by reported decisions, will not be alluded to.

The important question is whether an equitable owner of stock in such a corporation is obligated for the superadded constitutional liability as determined by the Superintendent of Banks, at a time when such equitable owner was not the holder of record, he having theretofore transferred his certificates of stock to a trustee in trust for himself, and also whether such liability exists as to shares of stock transferred to the trustee solely for voting purposes, prior to the time of such determination by the Superintendent of Banks, new certificates of stock having been issued in both instances prior to such determination and registered in the name of the transferee trustee whose ownership of record of the legal title thereto was never terminated.

The liability sought to be enforced against the defendants, plaintiffs in error here, was imposed by Section 3 of ArticleXIII of the Constitution of Ohio, 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 otherwise than for the unpaid stock owned by him or her; except that stockholders of corporations authorized to receive money on deposit shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such corporations, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares. No corporation not organized under the laws of this state, or of the United States, or person, partnership or association shall use the word `bank', `banker', or `banking', or words of similar meaning in any foreign language, as a designation or name under which business may be conducted in this state unless such corporation, person, partnership or association shall submit to inspection, examination and regulation as may hereafter be provided by the laws of this state."

The Supreme Court has decided that this provision is self-executing, which, plainly speaking, means that the liability is absolute, and cannot be either lessened or enlarged by legislative act, though it is within legislative power to provide procedure for enforcement of the liability. Snider v. UnitedBanking Trust Co., 124 Ohio St. 375, 178 N.E. 840.

The decision of the substantial question in this case therefore turns on the meaning of the word "stockholder."

We would emphasize that we are dealing with a case in which the recovery is sought from persons who were in fact stockholders when the superadded liability accrued by determination of the Superintendent of Banks, that is, they were equitable owners, and not owners in a case where the shares were not in any sense actually owned by those from whom recovery is sought at the time the liability accrued, whose stock had prior to the accruing of the liability been transferred to another, which transfer was evidenced by the records of the banking corporation, the transferor retaining no interest legal or equitable in the shares.

When Section 3, Article XIII, became effective, the word "stockholder", with which the word "shareholder" has always been synonymous, had a definite meaning by reason of numerous reported decisions of the courts of Ohio, and also by the terms of Section 8689, General Code, which had existed many decades, as follows:

"The term `stockholder' as used in the three next preceding sections, shall apply not only to persons who appear by the books of the corporation to be such, but also to an equitable owner of stock, although on the books it appears in the name of another."

That section was repealed in 1927, 112 Ohio Laws, 9, and Section 8623-2, General Code, was enacted, reading in part as follows:

"The term `shareholder' means `holder of record of shares' or `shareholder of record' and shall include a subscriber to shares unless the context otherwise requires."

Thus it is seen that when Section 3, Article XIII, took effect, "an equitable owner of stock, although the stock appeared on the books in the name of another," was liable for the superadded liability by reason of Section 8689, General Code, that is to say it must have been in contemplation of the framers of the constitutional provision, and by the electors who adopted it, that an equitable owner would be liable as though he were an owner of record.

Certainly no one would claim that a cestui que trust was not an equitable owner; nor would it be claimed that one who permitted another to become owner of record of stock solely for voting purposes had parted with his equitable ownership of the shares.

In the numerous decisions of the courts of Ohio there is no discord on the point that stockholders of record could not escape superadded liability in any instance, because such holding fixes the liability absolutely for the purpose of enforcing it; in other words, no explanation could be made of such ownership, the corporate record evidence thereof being conclusive, regardless of the purpose of the record ownership.

So, the remaining point for decision is whether after the adoption of the constitutional provision it was within the power of the Legislature to alter the meaning of the term "stockholder", as used in the constitutional provision, so that persons within the definition of stockholders at the time, as declared by statute and in the reported decisions of the courts in Ohio, namely beneficial owners, would be exempted from the liability.

This point must be decided adversely to plaintiffs in error, because to hold with them on it would be to decide that the Legislature could re-define the term "stockholder," to the end that the constitutional provision making equitable owners liable would be of no force and effect. If the Legislature had that power, it could also, by re-definition, wholly destroy the liability created by the Constitution. Such a situation is so palpably imponderable as to need no further comment.

The judgment will therefore be affirmed.

Judgment affirmed.

RICHARDS, J., concurs.

CROW, J., of the Third District, sitting by designation, not voting.