Opinion
(Decided 25 April, 1899.)
Stock Note — Set-off.
1. Where a bank is in course of liquidation, and a stockholder is indebted to the bank by note secured by pledge of stock, his supposed share in the assets is not available as a set-off, legal or equitable, in a suit upon the note.
2. Stock pledged as collateral must be released by payment or sale before it is entitled to prorate in the assets of a bank winding up its business. The general rule is, in such cases, that the net balance must be distributed pro rata among the beneficiaries.
3. DOUGLAS, J. (concurring in the judgment, but not in the opinion, of the Court), expresses as his view of the case (concurred in by MONTGOMERY, J.), that it does not involve any equitable principles, but simply a question of legal set-off or counterclaim, and as defendant's share was not demandable at the bringing of the action or at any time before judgment, it was not the subject of set-off or counterclaim; creditors having been settled with, if a partial dividend payable out of remaining assets on hand had been declared, it would have been available as a set-off in this action.
ACTION upon a promissory note for $1,300, payable to the bank, and past due, secured by pledge of ten shares of the capital stock lodged as collateral security, tried before Allen, J., at February Term, 1899, of FORSYTH.
Watson, Buxton Watson and Jones Patterson for plaintiff.
No counsel for defendant.
The relief asked was judgment on the note and order of sale of the stock, unless the judgment was paid in some reasonable time. The defendant set up a counterclaim of $800, alleging that when the debts due the bank are collected and its property reduced to money, his distributive share in the assets would amount to at least that sum. Judgment was rendered in favor of plaintiff for $1,300 and (535) interest. After judgment, the defendant moved the court for the appointment of a receiver, a referee to take and state all accounts, and ascertain the amount to be credited on the judgment, and an order of restraint in the meanwhile — all of which motions were refused by the court, and defendant excepted and appealed.
The plaintiff, the First National Bank, is in liquidation, and a committee duly appointed has charge of its property, to collect the assets and pay its debts, and distribute the balance among the stockholders. The defendant is a stockholder in plaintiff bank, and is indebted to it for his stock, which was deposited as collateral security, and this action is brought to collect the amount due on said stock, and to sell the stock in payment, or part payment, of the amount found to be due.
The defendant alleges that upon a final settlement of the bank's affairs he will be entitled to $800, as his distributive share of the assets, and demands a credit on his debt for that amount. This allegation and this right are denied, and it does not appear what will be his distributive share. In cases of insolvency, private or corporate, the general rule is that the net balance must be distributed pro rata among the beneficiaries.
Under the National Banking Act, when an assessment is made, each stockholder is required to pay his part in full, regardless of (536) whether he is a debtor or creditor of the bank, and when the collections are made, and all debts and expenses are discharged, an equitable distribution of the assets is made. The same rule applies in the settlement of insolvent estates by executors and administrators. And so it is in winding up the business of insolvent building and loan associations, as was held by this Court in Meares v. Duncan, 123 N.C. 203, and cases cited.
If the defendant's contention was allowed he would get the full value of his stock, at least pro tanto, and thus the net amount for the other stockholders would be reduced, and the principle of an equitable settlement would be disturbed, as the liability of the stockholder would be diminished, and that of the other stockholders increased, which would be a result not contemplated in law or equity. As a stockholder, he is liable to an amount equal to his stock, or to a just proportion if all is not required; but as a creditor, he is entitled only to a dividend in proportion to other creditors. His liability as a contributor for the benefit of creditors must be distinguished from his character as a simple contract debtor to the bank upon ordinary business transactions. The money arising from unpaid shares is a trust fund for all the creditors, and cannot be affected by any individual transactions of the stockholder, to the prejudice of the other stockholders. Hobart v. Gould, 8 Fed., 57; Morse Banks, p. 500.
Besides, the distributive share of the defendant is unknown, and it seems it would be impracticable to ascertain it with any certainty.
The above authorities do not stand upon facts on all fours with the present case, but they all enunciate a principle plainly applicable to the present case; and that principle is so manifestly just that we have no hesitation in adopting it. We think, therefore, that the (537) defendant cannot set off what he supposes to be his distributive share against his individual indebtedness to the bank.
NO ERROR.