Summary
In Snider v. United Banking Trust Co., 124 Ohio St. 375, 178 N.E. 840, this court held that "The provisions of Sections 710-75, 710-89 and 710-95, General Code, are regulatory and procedural, and neither augment nor diminish the constitutional rights of creditors."
Summary of this case from Squire, Supt. v. SolinskiOpinion
No. 22982
Decided December 9, 1931.
Banks and banking — Stockholders' constitutional double liability, complete and self-executing — Section 3, Article XIII, Constitution — Creditors' constitutional rights not augmented or diminished by statute — Sections 710-75, 710-89 and 710-95, General Code — Superintendent of banks may enforce individual liability only when liquidating bank.
1. Section 3 of Article XIII of the Ohio Constitution creates an additional liability against stockholders of corporations authorized to receive money on deposit, for all contracts, debts and engagements of such corporations. The liability thus created is complete and self-executing.
2. The provisions of Sections 710-75, 710-89 and 710-95, General Code, are regulatory and procedural, and neither augment nor diminish the constitutional rights of creditors.
3. The right of the superintendent of banks to enforce such individual liability only applies where he has taken charge of the property and business of the corporation for the purposes of liquidation.
ERROR to the Court of Appeals of Cuyahoga county.
This case originated in the common pleas court of Cuyahoga county as a suit by the United Banking Trust Company against all the stockholders of the Ohio Trust Company, to enforce the individual liability of the stockholders in payment of the debts of the Ohio Trust Company, under and by virtue of Section 3 of Article XIII of the Ohio Constitution.
On November 8, 1926, the Lake Erie Trust Company purchased all of the assets of the Ohio Trust Company and assumed all its liabilities. The agreement of purchase and sale and assumption of liabilities was executed in great detail, and provided that after the application of the assets of the Ohio Trust Company to the payment of its liabilities any deficit should be paid by the Lake Erie Trust Company, and that such deficit should thereupon become an indebtedness from the Ohio Company to the Lake Erie Company. Such deficit was to be determined as of a date two years after the purchase and sale, to wit, on November 8, 1928, and at that time it had been determined that the deficit amounted to $312,354.53. The entire capital stock of the Ohio Trust Company was only $300,000, and each stockholder was therefore liable for an amount equal to the face value of the stock held by him.
The original agreement of November 8, 1926, was inquired into and approved by the state superintendent of banks. This suit might have been filed at any time after November 8, 1928, but was in fact filed on November 16, 1929. The suit was begun by the United Banking Trust Company, successor to the Lake Erie Trust Company, the original purchaser.
A demurrer to the petition was filed by Monroe F. Snider, one of the stockholders, and the sole question argued in support of that demurrer was the right of a creditor of the Ohio Trust Company to maintain a suit against the stockholders to enforce the individual liability, and whether by virtue of the provisions of the Banking Code, namely, Sections 710-75 and 710-95, General Code, the right to maintain such an action is exclusive in the state superintendent of banks.
The demurrer was overruled by the court of common pleas, and said defendant not desiring to further plead judgment was entered in the sum of $300, the full amount claimed against said defendant. Thereupon error was prosecuted to the Court of Appeals and the judgment was affirmed by that court. The cause was admitted to this court upon allowance of motion to certify the record.
Messrs. Bernon, Mulligan, Keeley LeFever, for plaintiff in error.
Messrs. McGowan, Foote, Bushnell Burgess, for defendants in error.
The demurrer admits all the well-pleaded allegations of the petition. It sufficiently appears therefore that the United Banking Trust Company has become the sole creditor of the Ohio Trust Company. By virtue of the constitutional provision, any creditor of a corporation authorized to receive money on deposit has a valid claim against any stockholder of such corporation to the extent of the amount of the stock of such stockholder. It has been held by this court in Lang v. Osborn Bank, 100 Ohio St. 51, 125 N.E. 105, and Allen v. Scott, Supt. of Banks, 104 Ohio St. 436, 135 N.E. 683, that this constitutional provision is self-executing and does not require the aid of legislation to make it enforceable. True, it is perfectly competent for the Legislature to provide the machinery for such enforcement, and such machinery has in fact been provided. This legislation is found in Sections 710-1 to 710-189 of the General Code, commonly referred to as the Banking Code.
The issue of law in the instant case is that it is asserted by the stockholder that the provisions of Sections 710-75 and 710-95, General Code, giving to the superintendent of banks the right to enforce the individual liability of stockholders, are exclusive; while on the other hand it is asserted by the creditor that the superintendent of banks is, by virtue of those sections, only made an additional party, with authority to enforce such individual liability.
Except for statutory provision, no one except a creditor could maintain the suit, because of not being a party in interest. The requirement that a suit must be maintained by a party in interest is legislative, and it is therefore competent for the Legislature to create exceptions to that provision of the Civil Code. We need not inquire at this time whether it would be competent for the Legislature to exclude individual creditors from maintaining such an action and to repose that function entirely in the superintendent of banks. It is sufficient to say, in the present state of legislation, that the right of the superintendent of banks has not been made absolutely, and in terms, exclusive.
Section 75 of the Banking Code (Section 710-75, General Code) contains the following provision: "At any time after taking possession of a bank for the purpose of liquidation when the superintendent of banks ascertains that the assets of such bank will be insufficient to pay its debts and liabilities he may enforce the individual liability of the stockholders."
Section 95 of the Banking Code (Section 710-95, General Code) provides: "Upon taking possession of the property and business of such bank, the superintendent of banks * * * may, if necessary to pay the debts of such bank, enforce the individual liability of the stockholders."
It will be seen that this right only accrues to him after taking possession of the bank, its property and business, for purposes of liquidation.
By the provisions of Section 710-89, it is provided that the superintendent of banks may forthwith take possession of the business and property of any bank to which this act is applicable, whenever it shall appear that such bank has been guilty of the violation of any one of the nine requirements imposed by that section. Those requirements for the most part relate to sound banking practices, and the remainder of them relate to the condition of insolvency.
It is contended by the stockholder that the word "may" should be interpreted as "must," and that the duty of the superintendent of banks is in all three sections mandatory. An examination of the several paragraphs of Section 710-89 will convince that the superintendent of banks should not in each and every instance of violation of those conditions forthwith take possession of the business and property of the bank. For instance, paragraph 7 provides: "Has neglected or refused to comply with the terms of a duly issued order of the superintendent of banks." Surely it will not be contended that for every slight neglect or refusal the business of the bank should be closed and liquidated. It must therefore be held that the provision authorizing the superintendent of banks to take possession for purposes of liquidation is permissive and not mandatory.
The provisions of the Banking Code are procedural, not substantive, in nature. They create no rights in favor of either the corporation, its stockholders, or creditors. It is the purpose of that Code to merely regulate. Every bank, however strong, must submit to inspection, and must conform to the requirements of sound banking required by the Code; but, on the other hand, any solvent bank, however weak, which submits to the requirements of the Code, is beyond the reach of the superintendent of banks.
The functions of the superintendent are designed to safeguard depositors and other creditors. Such persons are usually numerous, and their individual claims are generally small in amount. The right to impose such regulations arises out of the quasi public character of banking business, and to inspire confidence in the individual depositors in banking institutions.
In the instant case, there is nothing which calls for action on the part of the superintendent. The Ohio Trust Company had ceased to do business more than three years before this suit was brought. It may be assumed that its depositors and other creditors have long since either been paid in full or have accepted new obligations of the Lake Erie Trust Company, or its successor, the United Banking Trust Company. Manifestly, there is no demand for further regulation. The transaction whereby the Lake Erie Trust Company acquired the assets and assumed the liabilities of the Ohio Trust Company was at the time approved by the superintendent of banks. It may be presumed that that approval was given only after he was satisfied that the rights of the depositors and other creditors of the Ohio Trust Company had been fully protected. Subsequent events have justified that approval. More than five years have elapsed since that agreement was made. If any depositors or other creditors have not been paid, they have not intervened in this action. By the approval of November 8, 1926, the regulation of the Ohio Trust Company fully terminated. On the theory that it is one of the functions of the superintendent to protect creditors, and see to their ultimate payment, that function was discharged when he made inquiry into the original purchase and sale and approved it. The present obligation of the Ohio Trust Company to the United Banking Trust Company was not then in existence. It came into being by the payment of the obligations of the Ohio Trust Company by virtue of that clause of the agreement which required reimbursement of any deficit remaining after application of the assets so transferred.
In November, 1929, when this suit was instituted against the stockholders, there were no assets or property upon which the administration of the superintendent of banks could operate. His possession for purposes of liquidation being a condition precedent to his maintaining a suit against the stockholders, the conclusion is inevitable that the superintendent of banks is not even a proper party to maintain this action.
It follows that the judgment of the Court of Appeals must be affirmed.
Judgment affirmed.
JONES, DAY, ALLEN, KINKADE and ROBINSON, JJ., concur.