Opinion
Decided April 20, 1934.
Banks and banking — Liquidation — Stockholders' double liability primary — Superintendent of Banks to determine enforcement of liability — Such determination cannot be controverted in action to enforce liability — Proceeding an action at law — Parties — Stockholders properly joined in same action, when — Summons may issue to another county, when — Not necessary to join all stockholders — Pleading — Not necessary to separately state and number causes of action, when — Not necessary to plead data determinative of enforcing double liability — Acts by Superintendent of Banks imply determination on satisfactory data — Stockholders liable regardless of when debts contracted — Fraudulent inducement to acquire stock, not defense to double liability.
1. Stockholders' liability under Section 3, Article XIII of the Constitution, providing for the double or superadded liability of stockholders, is primary.
2. Under the provisions of Section 710-75, General Code, and cognate sections, the taking possession of the property and business of a bank by the Superintendent of Banks for the purpose of liquidation fixes the right of the superintendent to proceed with the liquidation, and as incidental to such liquidation to ascertain whether the assets of the bank will be sufficient to pay its debts and liabilities, and to enforce the double liability of stockholders.
3. Neither the bank nor its stockholders can contest the authority or discretion of the Superintendent of Banks to proceed with the liquidation and to ascertain the necessity of enforcing double liability and determining the amount thereof other than by the exclusive remedy provided in Section 710-100, General Code.
4. When the superintendent has determined upon and made an assessment of 100 per centum of the liability, the proceeding must be at law.
5. Stockholders against whom several judgments are sought are properly joined as defendants in the same action.
6. Service of summons may be made on a stockholder-defendant in a county other than the one in which such action is brought. (Sections 710-14, 11255 and 11282, General Code.)
7. Where the liability assessed against the stockholders is 100 per centum, the superintendent is not required to join all stockholders as parties defendant, or to make any allegation with reference to the amounts due from stockholders who are not joined as parties defendant.
8. Inasmuch as the only purpose in separately stating and numbering causes of action is to advise the defendant of the nature of the claim against him, and as the defendants in such an action are fully advised by language that cannot be misunderstood, it is not necessary to separately state and number the causes of action.
9. A petition, alleging demand of payment from stockholders, together with the filing of suit for same, necessarily implies without further averment that the superintendent had decided upon data satisfactory to him that it was necessary to enforce the full amount of the liability, and consequently such a petition is not defective for failure to state a cause of action.
10. The taking possession of the property and business of the bank for the purpose of liquidation on August 17, 1931, and his considering the depreciation of all assets in the bank in the way of securities, the superintendent's determination that the assets would be insufficient to pay the liabilities, and the levying of the assessment on December 15, 1931, all of which are undisputed facts, necessarily imply a decision on his part on data satisfactory to him that a 100 per centum assessment was necessary, and consequently substantiate the allegations of the petition.
11. The stockholders of a bank are liable on their superadded liability for all the debts and obligations of the bank no matter when contracted. Sections 2 and 3, Article XIII, Constitution.
12. Fraud on the part of the bank in inducing a person to acquire stock in and become a stockholder in such bank is not available as a defense to such person in an action to enforce the double liability of stockholders.
ERROR: Court of Appeals for Lucas county.
Messrs. Mulholland Hartmann, for plaintiffs in error.
Mr. John W. Bricker, attorney general, Mr. Maurice J. Meyer and Messrs. Boggs Chase, for defendant in error.
This case comes into this court on error proceedings from the finding and judgment of the Common Pleas Court of Lucas county, in favor of the plaintiff below, State, ex rel. Fulton, Superintendent of Banks, in an action to recover stockholders' double liability assessed against plaintiffs in error by the Superintendent of Banks.
The trial court held that this cause, being an action to recover money judgment, was triable to a jury, and all defendants having waived a jury, the cause was submitted to the court for determination.
It is alleged in the petition that I.J. Fulton is now, and was at the times hereinafter mentioned, the duly appointed, qualified and acting Superintendent of Banks of the state of Ohio, and that the Ohio Savings Bank Trust Company of Toledo, Ohio, on the 17th day of August, 1931, and for some time prior thereto, was a corporation duly organized and existing under and by virtue of the laws of the state of Ohio, authorized under said laws to receive money on deposit and to conduct and carry on a general banking and trust business, with its principal offices at Toledo, Lucas county, Ohio, and that said bank did in fact receive money on deposit and conduct a general banking and trust business for some years on and prior to August 17, 1931.
It is further alleged that on said 17th day of August, 1931, said bank had an authorized capital of 30,000 shares of a par value of $100 each, of which authorized capital 30,000 shares of the total par value of $3,000,000 were issued and outstanding, and that on said date, it appearing that said bank was in an unsound and unsafe condition to transact and carry on its business, the property and assets of said bank were turned over to and taken possession of by said Fulton, as Superintendent of Banks aforesaid, for the purpose of liquidation, pursuant to the laws of the state of Ohio; and that said Fulton is still in possession of said assets, except such parts as have heretofore been disposed of, as provided by law, in the process of liquidation.
It is further alleged that the holders of such outstanding capital stock of said bank, including the several stockholders mentioned in the petition, under and by virtue of Article XIII, Section 3, of the Constitution of the state of Ohio, and by virtue of Section 710-75 of the General Code of Ohio, are held responsible and liable individually, equally and ratably, but not one for another, for all contracts, debts and engagements of said bank, to the extent of the amount of the par value of the stock owned by them, in addition to the amount invested in said stock; and that on or about the 15th day of December, 1931, said Fulton, as such Superintendent of Banks, ascertained and found that the assets of said bank were and would be insufficient to pay the debts and liabilities of said bank, and said Fulton demanded payment of said superadded and double liability from the defendants and all other stockholders of said bank, payable on or before the 15th day of January, 1932; and that the defendant stockholders in the petition named have not complied with said demand and paid said liability.
It is further alleged that certain of the stockholders of said bank have paid, or secured to be paid, said double or superadded liability imposed upon them by law, pursuant to said demand of said Fulton.
The petition further sets forth a list of the defendant stockholders of said bank, together with the number of shares held by each, and the par value of such shares, together with the amount of double liability paid, if any, and the balance of said superadded or double liability still due from each of such stockholders as have not paid said liability in full, or secured the same to be paid.
The prayer of the plaintiff is for judgment for the benefit of the depositors and creditors of said bank, against each of said defendant stockholders of said bank named in the petition, for the amount of such superadded or double liability, the amounts of which are separately set forth, with interest at the rate of 6 per cent. per annum on said respective amounts of superadded or double liability, from the 15th day of January, 1932, together with costs and other relief.
To this petition certain motions and pleadings were filed by certain of the defendants, which will be hereafter referred to.
It appears from the admissions contained in the pleadings, and the stipulations of counsel appearing in the record, that the Ohio Savings Bank Trust Company was an Ohio corporation duly authorized and engaged in the general banking and trust business in the city of Toledo on and prior to August 17, 1931; that on the night of Saturday, August 15, 1931, the board of directors, by resolution, turned over and surrendered all of the property and assets of said bank to the Superintendent of Banks of the state of Ohio for the purpose of liquidation; and that on Monday morning, August 17, 1931, the superintendent took over said property and assets for the purpose of liquidation and has been in possession thereof and liquidating the same since that date.
The undisputed facts in the record further show that the Ohio Savings Bank Trust Company, at the time the Superintendent of Banks took charge thereof for the purpose of liquidation, had an authorized capital of $3,000,000, consisting of 30,000 shares of $100 each par value, all of which was issued and outstanding.
The record further shows that in September, 1928, the stockholders of the Ohio Savings Bank Trust Company, including the plaintiffs in error, voted to amend the articles of incorporation of said bank by increasing its authorized capital from $1,000,000 to $3,000,000, and the total number of its shares from 10,000 to 30,000; that shortly after this amendment was made authorizing said increase in capital and increase in the number of shares in said bank, the board of directors of said bank declared a 100 per cent. stock dividend on the $1,000,000 of stock outstanding prior to said amendment; that said stock dividend of 100 per cent. was issued to all the stockholders of record prior to the date of said amendment, and was received by them; that plaintiffs in error received their proportionate share of said stock dividend; that upon said increase in capital stock being made all of the original shares of stock of said bank were called in and exchanged for new certificates, which were printed, showing the increase in the capital stock of the bank and the increase in the total number of shares; and that these plaintiffs in error and all other stockholders surrendered their old certificates of stock and received new certificates therefor, dated in 1928.
It is undisputed from the pleadings, and the stipulations of counsel on behalf of plaintiffs in error, that Ira J. Fulton is the duly appointed, qualified and acting Superintendent of Banks; that he took charge and possession of the assets of the Ohio Savings Bank Trust Company on or about August 17, 1931, and that on or about December 15, 1931, he levied an assessment of 100 per cent. stock liability on all the outstanding stock of said bank, which consisted of its total authorized capital of $3,000,000.
The testimony of Ira J. Fulton with reference to the assessment of stock liability appears on pages 7, 8 and 9 of the bill of exceptions, and is as follows:
"Q. Mr. Fulton, what, if anything, did you do after August 17, 1931, while in possession and control of The Ohio Savings Bank Trust Company? A. Assessment was placed on the stock, as I remember it, around December 15, 1931; I don't know the exact date.
"Q. And who made that assessment of stock liability? A. I did, as Superintendent of Banks.
"Q. And for what amount was that assessment made by you, Mr. Fulton? A. Full 100 per cent. double liability.
"Q. You may state, Mr. Fulton, what, if anything, was done when you made the assessment regarding sending notice of the assessment to the stockholders and demanding payment? A. Notice was sent immediately upon the filing of the assessment to all stockholders of record as of the closing date of the bank, which I think was the 17th of August. * * *
"Q. Mr. Fulton, prior to sending out this notice of stockholders' assessment against the stockholders of The Ohio Savings Bank Trust Company, which you stated you made on or about December 15, 1931, what, if anything, was done by you in determining the necessity of making this assessment?
"(Objection.)
"The Court: I suppose in view of the provision of the statute it is perfectly proper to ascertain if he had ascertained that the assets of the bank were insufficient to pay its debts and liabilities.
"Mr. Mulholland: The objection is based upon this proposition and this only, if it is necessary to prove it it is necessary to plead it, and there are no such allegations contained anywhere in this petition.
"Mr. Boggs: Oh yes, there are. The court will find on the second page of the petition that it is alleged. That clearly covers the object and purpose of this question.
"The Court: Read the question.
"(Question read.)
"(Objection; overruled; exceptions by all defendants.)
"A. During these few months after the closing of the bank a considerable time was spent on the assets of all the banks in liquidation in Toledo, and on account of the depressed conditions and also the real estate market, and taking into account that in the Ohio particularly a large percent of their assets were based on real estate values —
"Mr. Mulholland: I ask that the answer so far be stricken from the record, particularly with reference to all the banks in Toledo.
"Mr. Boggs: That part may go out.
"A. (Continuing) and also taking into consideration the depreciation of all assets in the bank in the way of securities, I finally determined that the assets would not be sufficient to pay the liabilities and the assessment was then levied."
From the stipulations of counsel and the undisputed evidence in the record, it appears that on or about December 15, 1931, Fulton, as such Superintendent of Banks in charge of the liquidation of said bank, caused written notices of the levying of such assessment to be mailed to all persons appearing on the books and records of the bank as holders and owners of stock of said bank, calling on such stockholders to pay such assessment on or before January 15, 1932; and that the plaintiffs in error did not pay such assessment.
The original action on which the proceeding in error is predicated was filed in July, 1932, being entitled State, ex rel. Fulton, v. Anna C. Adams et al. The petition was challenged by motions filed by plaintiffs in error, defendants below, to require the Superintendent of Banks to separately state and number the causes of action against each of the several defendants; also by motions to require the petition to be made more definite and certain by stating the names of all the stockholders and the amount of their liability, together with the amounts to be paid or secured to be paid thereon; and also to require the plaintiff below to make the petition more definite and certain by stating the facts upon which the Superintendent of Banks ascertained and found the assets of the bank to be insufficient to pay its debts and liabilities. Motions were also filed by certain of plaintiffs in error who are residents of counties other than Lucas — for whom summons was issued in the Court of Common Pleas of Lucas county for service upon them, and which were served upon them in the counties of their residence — to set aside and quash the service of summons for the reason, as stated in their respective motions, that the cause is not one in which summons may be issued to another county. All of these motions were overruled by the court. Demurrers to the petition were then filed by certain of the defendants, which were overruled.
Answers were then filed by the various plaintiffs in error, defendants below, and replies to some of the answers were filed by the plaintiff.
During the trial exceptions were taken by the various defendants to rulings of the court on the admission and rejection of evidence, and to the action of the court in overruling motion to dismiss the petition at the close of plaintiff's evidence.
The following questions are raised by the pleadings, motions, the record and the error proceeding:
1. Is stockholders' liability in Ohio a primary or secondary liability?
2. Has the state of Ohio, under the Banking Act, and particularly Sections 710-75 and 710-95 of the General Code, conferred on or delegated to the Superintendent of Banks the power and duty of determining the necessity for and the amount of stockholders' assessment, and, if so, is his determination of these facts conclusive and final and not to be controverted in an action brought to recover stockholders' liability?
3. When the superintendent has determined upon and made an assessment of 100 per cent. of the liability, is an action to recover the same an action at law or an action in equity?
4. May stockholders against whom separate judgments are sought be joined as parties defendant in such an action?
5. May service of summons in such an action be made on a stockholder defendant in a county other than the county in which such action is brought?
6. Is it necessary in such an action to join all stockholders as parties defendant?
7. In the petition in such an action is it necessary to separately state and number the causes of action?
8. In such an action does a petition containing the allegations hereinbefore set forth state a cause of action?
9. Are the facts hereinbefore set forth sufficient to sustain the allegations of the petition?
10. Are the stockholders of a bank liable on their superadded liability for the debts of the bank contracted prior to January 1, 1913, the effective date of the amendment to the constitution?
11. Are stockholders who acquired some of their stock holdings in a bank prior to January 1, 1913, the effective date of the constitutional amendment imposing double liability, who have since exchanged their certificates of such stock for certificates of a date subsequent to said date, and received stock dividends thereon, liable in any respect for any of the debts or obligations of the bank at the time it closed on August 17, 1931?
12. Is fraud in a bank in inducing a person to acquire stock in and become a stockholder in such bank available as a defense to such person in an action to enforce the double liability of stockholders?
The answers to some of these questions will necessarily reflect on the answers to others. The questions will be considered in the order mentioned.
1. Is stockholders' liability in Ohio a primary or secondary liability?
The history of double liability of stockholders in Ohio dates back to the Constitution of 1851. In that Constitution there appeared what was known as Section 3 of Article XIII, the pertinent provisions of which are as follows: "Dues from corporations shall be secured by such individual liability of the stockholders, and other means, as may be prescribed by law; but, in all cases, each stockholder shall be liable, over and above the stock by him or her owned, and any amount unpaid thereon, to a further sum, at least equal in amount to such stock."
The constitutional provision affected stockholders of all corporations, including banks; and was in effect from 1851 to 1903 in substantially the same form as originally enacted.
In 1903 the above section was amended 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 otherwise than for the unpaid stock owned by him or her."
From 1903, until January 1, 1913, there was no double liability on stockholders of any corporation in Ohio.
In the year 1912, a constitutional convention was held in Ohio, and as a result an amendment was adopted to the Constitution which became effective on January 1, 1913, and which is known as Section 3 of Article XIII of the Constitution, the pertinent part of which is 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."
This constitutional provision is the one under which double liability is sought to be enforced in this action.
All that part of the first paragraph of the present Section 3 of Article XIII of our Constitution, following the semicolon in such paragraph, is patterned after the National Bank Act, Section 5151 of the Revised Statutes of the United States, also known as Section 63 of Title XII, U.S. Code, the title on Banks and Banking.
That part of said section of the National Banking Act which relates to stockholders' liability is as follows: "The shareholders of every national banking association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares * * *."
By comparison it will be observed that almost the identical language is used in the amendment adopted to the Ohio Constitution in 1912 as is used in the National Banking Act.
The old constitutional provision, Section 3, Article XIII of the Constitution of 1851, was not self-executing, while the present Section 3, Article XIII of the amendment adopted in 1912, has been held to be self-executing by the Supreme Court, in the case of Lang v. Osborn Bank, 100 Ohio St. 51, 125 N.E. 105.
Following the adoption of the Constitution of 1851 the Legislature passed an act to provide for the imposition of double liability and to make it effective. This act was passed May 1, 1852, and amended April 17, 1854 (52 Ohio Laws, 44), and provides as follows: "All stockholders of any railroad, turnpike, or plank-road, magnetic telegraph or bridge company, or any joint stock company organized under the provisions of this act, shall be deemed and held liable to an amount equal to their stock subscribed in addition to said stock, for the purpose of securing the creditors of such company, and the trustees or directors of every society or association incorporated under the provisions of the sixty-sixth section of this act, shall be deemed and held individually liable for all debts contracted by them for their respective societies or associations." 1 S. C. Stat., 310; 4 Curwen's Stat., 2582.
It will be observed that under the terms of the constitutional provision in effect prior to 1903, the liability was to be determined by legislative enactment, and under the provisions of the act passed May 1, 1852, and amended April 17, 1854, putting this constitutional provision into effect, the stockholders were held liable to an amount equal to their stock for the purpose of securing the creditors of such company.
The courts of Ohio, under the Constitution of 1851 and the laws passed thereunder, held that stockholders were only secondarily liable. The language of the law fixing the liability makes it a secondary liability, and under this law it was held that the creditors' right to pursue the stockholders accrued only when the remedies against the corporation were exhausted either by process or by the corporation's insolvency. Morgan v. Lewis, 46 Ohio St. 1, 17 N.E. 558; Barrick v. Gifford, 47 Ohio St. 180, 24 N.E. 259, 21 Am. St. Rep., 798; Younglove v. Lime Co., 49 Ohio St. 663, 33 N.E. 234; Bronson v. Schneider, 49 Ohio St. 438, 33 N.E. 233.
This remained the law of Ohio until 1903, when double liability was abolished.
The wording of that part of the constitutional amendment of 1912, adopted from the National Banking Act, is also incorporated in the provisions of Section 710-75 of the General Code. And, in addition, the provisions of Section 64 of the National Banking Act are also incorporated in said section.
The federal courts, prior to the adoption of the constitutional amendment in 1912, had uniformly held that the clause "the shareholders of every national banking association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares," appearing in Section 63 of the National Banking Act, imposed a primary liability on stockholders. Included in the cases in which this holding was made are Kennedy v. Gibson, 8 Wall. (75 U.S.), 498, 19 L. Ed., 476; Casey v. Galli, 94 U.S. 673, 24 L. Ed., 168; Germania National Bank v. Case, 99 U.S. 628, 25 L. Ed., 448; Bushnell v. Leland, 164 U.S. 684, 17 S. Ct., 209, 41 L. Ed., 598.
The reasons for this holding are set forth in the opinion in the case of Kennedy v. Gibson, supra, at page 505, in the following language: "It would be attended with injurious consequences to forbid action against the stockholders until the precise amount necessary to be collected shall be formally ascertained. This would greatly protract the final settlement, and might be attended with large losses by insolvency and otherwise in the intervening time. The amount must depend in part upon the solvency of the debtors and the validity of the claims. Time will be consumed in the application of these tests, and the results in many cases cannot be foreseen. The same remarks apply to the enforced collections from the stockholders. A speedy adjustment is necessary to the efficiency and utility of the law; the interests of the creditors require it, and it was the obvious policy and purpose of Congress to give it. If too much be collected, it is provided by the statute, that any surplus which may remain after satisfying all demands against the association, shall be paid over to the stockholders. It is better they should pay more than may prove to be needed than that the evils of delay should be encountered."
This holding has been either directly or inferentially followed and adopted by the courts of many of the states where a similar provision has been incorporated in the Constitution and/or laws of the state. Among these cases are State Bank of Portland v. Gotshall, 121 Or. 92, 254 P. 800, 51 A.L.R., 1200; Hansen v. Harris (Or.), 28 P.(2d), 649; Thompson v. State, ex rel. Bank Commissioner, 119 Okl., 166, 248 P. 1110; Davis, Bank Commr., v. Moore, 130 Ark. 128, 197 S.W. 295; Houston National Exchange Bank v. Chapman, Commr. of Banking (Tex.Civ.App.), 263 S.W. 929; Commr. of Banks v. Cosmopolitan Trust Company, 247 Mass. 334, 142 N.E. 100; Chavous v. Gornto, Recr., 89 Fla. 12, 102 So. 754.
It has long been a well-settled rule in Ohio that where a statute has been adopted from another state, where it has received a settled construction, the presumption is that such construction is also adopted and that the terms of the statute are used in the same sense. This rule was first stated in Gale v. Priddy, 66 Ohio St. 400, 64 N.E. 437, and has been cited and followed by the Supreme Court of Ohio in many later cases, and is definitely established as the law of this state.
In view of the fact that all that part of the first paragraph of the amendment of the Constitution, following the semicolon, is adopted from the National Banking Act, which has received a settled construction by the federal courts, as well as by the courts of other states, the rule above stated applies, and such construction is the construction to be adopted by the courts of this state in construing such provision, and the liability established by such clause in the amendment to the Constitution is primary and not secondary.
It is contended by the plaintiffs in error that the court in construing the provision of present Section 3 of Article XIII of the Constitution should follow the construction placed on Section 3 of Article XIII of the Constitution of 1851, and the laws enacted pursuant thereto, hereinbefore referred to, because of the similarity of the language used in the first part of the first paragraphs of both sections, in that Section 3 of Article XIII of the Constitution of 1851 provides that: "Dues from corporations shall be secured by such individual liability of the stockholders, and other means, as may be prescribed by law", while Section 3 of Article XIII of the present Constitution provides that: "Dues from private corporations shall be secured by such means as may be prescribed by law." But a comparison of the two provisions reveals that the provisions of Section 3 of Article XIII of the Constitution of 1851 applied without differentiation to liability for unpaid stock and superadded or double liability in any corporation, while the provisions of Section 3 of Article XIII of the present Constitution differentiate between liability for unpaid stock and superadded or double liability, all that part of said section preceding the semicolon in the first paragraph applying to liability for unpaid stock in any corporation, and all that part following the semicolon in the first paragraph applying to superadded or double liability of stockholders of corporations authorized to receive money on deposit.
The fact that there is a change in the wording of the present section from the wording in the section in the Constitution of 1851 would of itself tend to show a change in the policy of the state with reference to stockholders' liability, and this fact, taken in connection with the fact that the subject-matter of the second clause of the first paragraph of the present section is different from the subject-matter of the first clause of said paragraph, clearly indicates that the second clause is not dependent upon or modified by the first clause, and that the incorporation of the clause patterned after the provisions of the National Banking Act in the first paragraph of the present section, following the semicolon, was intended to be and was an adoption of the federal rule with reference to the superadded or double liability of stockholders of banking corporations.
This holding that under the present Section 3 of Article XIII the double or superadded liability of stockholders of banking corporations is primary is also supported by the following cases: State, ex rel. Fulton, v. Weinberger, 44 Ohio App. 264, 185 N.E. 432; State, ex rel. Fulton, v. Cole, 14 Ohio Law Abs., 464.
2. Has the state of Ohio, under the Banking Act, and particularly under Sections 710-75 and 710-95, General Code, conferred on or delegated to the Superintendent of Banks the power and duty of determining the necessity for and the amount of stockholders' assessments, and, if so, is his determination of these facts conclusive and final and not to be controverted in an action brought to recover stockholders' liability?
Section 192 of Title 12, Banks and Banking, of the United States Code, provides for the enforcement of the individual liability of stockholders in national banking associations; the part of such section relating to such enforcement being as follows: "On becoming satisfied, as specified in sections 131 and 132, that any association has refused to pay its circulating notes as therein mentioned, and is in default, the Comptroller of the Currency may forthwith appoint a receiver, and require of him such bond and security as he deems proper. Such receiver, under the direction of the comptroller, shall take possession of the books, records, and assets of every description of such association, collect all debts, dues, and claims belonging to it, and, upon the order of a court of record of competent jurisdiction, may sell or compound all bad or doubtful debts, and, on a like order, may sell all the real and personal property of such association, on such terms as the court shall direct; and may, if necessary to pay the debts of such association, enforce the individual liability of the stockholders." (Italics ours.)
The provisions of the state banking act with reference to the enforcement of the superadded liability of stockholders are contained in Sections 710-75 and 710-95, General Code. The pertinent parts of said sections read as follows:
"Sec. 710-75. Stockholders of banks shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such bank, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares. * * * 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."
"Sec. 710-95. Upon taking possession of the property and business of such bank, the superintendent of banks is authorized to collect money due to such bank, and to do such other acts as are necessary to preserve its assets and business, and shall proceed to liquidate the affairs thereof, as hereinafter provided * * * and may, if necessary to pay the debts of such bank, enforce the individual liability of the stockholders."
It will be noted that the last clause of Section 710-95 of the General Code is in practically the same language as the last clause of that part of Section 192, Title 12 of the United States Code, above quoted, and that the last sentence of Section 710-75 fixes the time for the enforcement of such liability.
The above-quoted portion of Section 192 of the National Banking Act is in practically the same form as it was at the time of the decision in the case of Kennedy v. Gibson, supra, and in applying the said provisions of said section it was held in that case that: "It is for the comptroller to decide when it is necessary to institute proceedings against the stockholders to enforce their personal liability, and, * * * how much, shall be collected. * * * His determination is conclusive. The stockholders cannot controvert it. It is not to be questioned in the litigation that may ensue."
This holding was followed and applied in the federal cases and in the cases from other states, hereinbefore referred to, as well as in many other federal and state cases.
In the opinion of the court in the case of Kennedy v. Gibson, supra, the following language is used:
"The receiver is the instrument of the comptroller. He is appointed by the comptroller and the power of appointment carries with it the power of removal. It is for the comptroller to decide when it is necessary to institute proceedings against the stockholders to enforce their personal liability, and whether the whole or a part, and if only a part, how much, shall be collected. These questions are referred to his judgment and discretion, and his determination is conclusive. The stockholders cannot controvert it. It is not to be questioned in the litigation that may ensue. He may make it at such time as he may deem proper, and upon such data as shall be satisfactory to him. This action on his part is indispensable, whenever the personal liability of the stockholders is sought to be enforced, and must precede the institution of suit by the receiver. The fact must be distinctly averred in all such cases, and if put in issue must be proved."
Applying the rule of construction set forth in the case of Gale v. Priddy, supra, it is clear that by the amendment of the Constitution of 1912, above referred to, and the Banking Act, providing the procedural steps in enforcing the liability provided in the Constitution, power is conferred upon and delegated to the Superintendent of Banks at any time after taking possession of the bank for the purpose of liquidation to ascertain upon such data as shall be satisfactory to him that the assets of such bank will be insufficient to pay its debts and liabilities, and, upon such ascertainment being made, to enforce the individual liability of stockholders, and it is for him to decide upon such data as shall be satisfactory to him when it is necessary to institute proceedings against the stockholders to enforce their personal liability, and how much shall be collected, and his ascertainment and decision are conclusive and the stockholders cannot question them in the litigation that may ensue.
It was held in the case of Bushnell v. Leland, supra, that Sections 5151 and 5234, U.S. Revised Statutes [Title 12, Sections 63 and 192, U.S. Code], empowering the comptroller to appoint receivers for insolvent national banks and to make ratable assessments upon the stockholders, did not vest in him a judicial power, in violation of the Constitution.
The provisions of the Constitution of this state, and of the Constitution of the United States, with reference to the vesting and exercise of judicial power, are similar, and the holding of the Supreme Court that the power conferred on the comptroller to make ratable assessments on the stockholders does not vest in him a judicial power in violation of the federal Constitution is by analogy applicable to the power vested in the Superintendent of Banks under the provisions of the Ohio Constitution and Banking Act.
Furthermore, as the business of banking under the Constitution and laws of Ohio is of a quasi public character, Snider v. Banking Trust Co., 124 Ohio St. 375, 178 N.E. 840, the determination and orders of the Superintendent of Banks as an official of the state, under the supervisory and regulatory power over corporations reserved in the state and to its officers under Section 2, Article XIII of the Constitution, are of an executive rather than a judicial character and do not come within the inhibition of the Constitution.
Under the provisions of Section 710-75 and cognate sections of the General Code, the taking possession of the property and business of a bank by the Superintendent of Banks for the purpose of liquidation fixes the right of the superintendent to proceed with the liquidation, and as incidental to such liquidation to ascertain that the assets of the bank will be insufficient to pay its debts and liabilities, and enforce the double liability of stockholders.
Section 710-89, General Code, in effect at the time the superintendent took possession of the property and business of the Ohio Bank, prescribes nine separate and independent grounds upon the apparent existence of any one of which the superintendent is authorized to take possession of the property and business of a bank for the purpose of liquidation.
Section 710-100, General Code, provides: "Whenever any such bank of whose property and business the superintendent of banks has taken possession, as aforesaid, deems itself aggrieved thereby, it may at any time within thirty days after taking such possession apply to the common pleas court of the county in which the office of such bank was located, to enjoin further proceedings in liquidation, and said court, after citing the superintendent of banks to show cause why further proceedings should not be enjoined and hearing the allegation and proofs of the parties and determining the facts, may dismiss such application or enjoin the superintendent of banks from further proceedings, and direct him to surrender such business and property to such person, partnership, corporation, company, society or association."
While by this section the authority to bring such action is conferred on the bank, under the laws of Ohio a stockholder would, in the event such bank refused to bring such proceeding upon demand by him, have the right to bring an action on behalf of the corporation under such section. So that any stockholder, under said section, where the Superintendent of Banks has taken possession of the property and business of the bank for the purpose of liquidation, has a complete and adequate remedy to enjoin further proceedings in liquidation, which necessarily includes the proceedings of the superintendent in ascertaining the necessity of and enforcing double liability, and determining the amount thereof, in case the facts do not warrant the taking of possession and the Superintendent of Banks has been guilty of an abuse of discretion or fraud in taking possession of the property and business of the bank for the purpose of liquidation.
The remedy under this section is exclusive, and when the Superintendent of Banks has taken possession of a bank for the purpose of liquidation, neither the bank nor its stockholders can otherwise contest the authority or discretion of the Superintendent of Banks to proceed with the liquidation, and, as incidental thereto, to ascertain the necessity of enforcing double liability and determining the amount thereof.
For the reasons hereinbefore mentioned, the rulings of the trial court in rejecting evidence offered on behalf of the plaintiffs in error on the trial of this cause, tending to show that the assets of the bank at the time assessment was made were sufficient to pay its debts and liabilities, and that the superintendent had abused his discretion in making such assessment, were correct.
The cases of State, ex rel., v. Melaragno, 31 O.L.R., 627, Anderson v. State, ex rel. Gray, 12 Ohio Law Abs., 161, State, ex rel., v. Weinberger, supra, and State, ex rel., v. Cole, supra, are cited by the defendants as authority for their contention that the decision of the superintendent is not conclusive, but may be contested by stockholders.
The only question in the Melaragno case was whether the statute of limitations had run against the superintendent who had taken possession of the bank in 1921 and did not make his finding and determination of the necessity to collect the double liability until 1925. The court recognized the fact that the liability rested upon the determination and finding by the superintendent of the necessity to enforce such liability. No question of the conclusiveness of his finding and determination was raised in the case.
In the Anderson case the only question involved was one of pleading. The superintendent had alleged insolvency of the bank in his petition, and the answer of the stockholders had denied this fact. A demurrer was filed to the answer, and of course the answer having denied an allegation of fact alleged in the petition, to wit, insolvency, the court held there was an issue of fact alleged in the petition and denied by the answer, and that the sustaining of the demurrer was erroneous. The question of conclusiveness of the finding and determination of the necessity to enforce double liability was not presented or decided by this case.
In the Weinberger case, supra, the judges of the Court of Appeals of Cuyahoga county held that the stockholders' liability in Ohio was a primary liability, and expressly stated in the opinion that they were not deciding the question of whether the superintendent could determine the amount of liability, as that question was not before the court.
In the Cole case, supra, decided by the Court of Appeals of Summit county, the only question presented to the court was whether or not it was necessary for the Superintendent of Banks to make a written record of his finding and determination of the necessity to enforce stock liability. The question of the conclusiveness of the finding and determination of necessity to enforce liability was not presented in the case.
3. When the superintendent has determined upon and made an assessment of 100 per cent. of the liability, is an action to recover the same an action at law or an action in equity?
In the case of Kennedy v. Gibson, supra, it was held that where the whole amount is sought to be recovered the proceeding must be at law. This holding has been uniformly followed in the federal courts, and also in the courts of other states, and we approve it as applying to an action to recover the double liability of stockholders, under the Constitution and the Ohio Banking Act.
4. May stockholders against whom several judgments are sought be joined as parties defendant in such an action?
In the case of Ach v. State, ex rel. (unreported), the Superintendent of Banks filed a suit against the stockholders of the Security Savings Bank, of Akron, alleging the amount of outstanding capital stock, the number of shares in which it was divided, and the par value, stating that it would be necessary to collect the full amount of the double liability, and then setting forth a list of stockholders, with a statement of the stock held by each and the amount due from each, and an allegation of a demand made on each of the stockholders for the amount of their liability, and praying judgment against each of the defendants for the amount set opposite their respective names.
Demurrer was filed to the petition on the following grounds: First, misjoinder of parties defendant; second, that several causes of action were improperly joined; third, that several causes of action against several defendants were improperly joined. The Common Pleas Court overruled the demurrer and entered judgment against the defendant Ach. On error, the Court of Appeals affirmed the judgment of the Common Pleas Court. The defendant Ach then filed a motion to certify the record to the Supreme Court, which motion was overruled by the Supreme Court on October 13, 1932 (case No. 23669).
Following this decision we hold that stockholders against whom separate judgments are sought are properly joined as defendants in the same action. If separate actions were required to be brought against each stockholder the expenses and costs of both the superintendent and the defendants would be greatly increased, the records of the court incumbered with duplicate pleadings, the time of recovery would be delayed, and no useful purpose whatever served; and, even if the joining of defendants was erroneous, it was not in any way prejudicial to any of them.
5. May service of summons be made on a stockholder defendant in a county other than the county in which such action is brought?
Section 11255, General Code, provides that any person may be made a defendant who has or claims an interest in the controversy adverse to the plaintiff, or who is a necessary party to a complete determination or settlement of the question involved.
Section 11282, General Code, provides that when an action is rightly brought in any county according to the provisions of the next preceding chapter, a summons may be issued to any other county against one or more defendants, at the plaintiff's request.
Section 710-14, General Code, expressly confers power upon the Superintendent of Banks to prosecute actions under the Banking Act in the Court of Common Pleas of Franklin county, or in any other county in which the defendant or one or more of the defendants reside or may be found, and that in all such suits and proceedings the writ may be sent by mail to the sheriff of any county, and returned by him in like manner.
As the stockholders against whom several judgments were sought were properly joined as parties defendant, and the action was rightly brought in Lucas county, under the sections mentioned, service of summons was properly made in other counties.
6. Is it necessary to join all stockholders as parties defendant in such an action?
As the liability assessed against stockholders is 100 per cent. the amount of recovery against any stockholder would not be increased or decreased by the amount of the recovery against any other stockholder, and consequently a defendant stockholder could not be prejudiced in any way by the failure of the superintendent to make all stockholders parties defendant to an action or to set forth the amounts due from stockholders who are not parties to the action, and in such an action the superintendent is not required to join all stockholders as parties defendant, or to make any allegations with reference to the amounts due from stockholders who are not joined as parties defendant.
7. In the petition in such an action is it necessary to separately state and number the causes of action?
The only purpose in separately stating and numbering causes of action is to advise the defendant of the nature of the claim against him. The petition in this case fully advises each defendant of the nature of the claim against him in language that cannot be misunderstood, and separately stating and numbering the causes of action would not serve any useful purpose, but on the contrary would cause the records of the courts to be incumbered with repetitious allegations, greatly increasing the costs in the action. We therefore hold that it is not necessary to separately state and number the causes of action.
8. Does a petition in such an action, containing the allegations hereinbefore set forth, state a cause of action?
It is contended by the plaintiffs in error that in addition to the claimed defects in the petition, which are hereinbefore treated, the petition is defective in that it fails to allege the data upon which Fulton as such Superintendent of Banks ascertained and found that it would be necessary in order to pay the debts of the bank to enforce individual liability of the stockholders, and the amount of such liability to be enforced. We have already shown that the superintendent may make such decision on data which is satisfactory to him, and that his decision is final and cannot be controverted, so that this contention is without merit.
The plaintiffs in error further contend that there is no allegation that the superintendent determined that it was necessary to enforce the liability to pay the debts, or ascertained the amount of the assessment necessary for such purpose. This contention is apparently based on the holding of the Supreme Court of the United States in the case of Kennedy v. Gibson, supra: "It is for the comptroller to decide when it is necessary to institute proceedings against the stockholders to enforce their personal liability, and * * * how much, shall be collected. * * * This action on his part is indispensable, * * * and * * * must be distinctly averred in all such cases."
Under the National Banking Act the receiver acts as agent for the comptroller in bringing the action, and consequently it is necessary for him to aver in the petition the determination of the comptroller that it is necessary to institute proceedings against the stockholders, to enforce their personal liability, and how much shall be collected. Under the Ohio Banking Act the Superintendent of Banks exercises authority in his own right similar to the authority exercised by the comptroller under the National Banking Act.
The allegation in the petition in the case at bar is to the effect that Fulton as Superintendent of Banks ascertained and found that the assets of said bank were and would be insufficient to pay the debts and liabilities of said bank, which is a proper pleading of the condition precedent to the enforcement of the liability under the provisions of Section 710-75 of the General Code.
The petition further alleges that said Fulton demanded from the defendants payment of the superadded or double liability provided in the Constitution and laws of the state, and further alleges the amount due from each of them on such liability.
The allegation of the demand for such payment, together with the filing of suit for same, necessarily implies without further averment that he had decided upon data satisfactory to him that it was necessary to enforce the full amount of the liability, and consequently the petition is not defective in the respect mentioned.
9. Are the facts heretofore set forth sufficient to sustain the allegations of the petition?
The undisputed facts from the pleadings, stipulations, and the evidence, are that on August 17, 1931, Fulton as Superintendent of Banks took possession of the property and business of the bank for the purpose of liquidation, and that prior to making an assessment against stockholders for their superadded liability on December 15, 1931, he finally determined that taking into consideration the depreciation of all assets in the bank in the way of securities the assets would not be sufficient to pay the liabilities, and the assessment was then levied, which was for full 100 per cent. double liability. This necessarily implies a decision on his part on data satisfactory to him that a 100 per cent. assessment was necessary to pay the debts.
In the case of Bowden v. Johnson, 107 U.S. 251, 2 S. Ct., 246, 27 L. Ed., 386, it was held that a letter addressed to the receiver of a national bank and signed by the Comptroller of the Currency, directing the receiver to institute legal proceedings to enforce against every stockholder of the bank owning stock at the time the bank suspended his or her personal liability as such stockholder under the statute, is sufficient evidence that the comptroller decided, before the suit was brought, that it was necessary to enforce personal liability of the stockholders; and in this case a 100 per cent. assessment was sustained by the court on the evidence mentioned.
The evidence in this case, both as to the decision of the Superintendent of Banks and the amount of the assessment required to be made, is much clearer than in the case cited, and is sufficient to sustain the judgment rendered.
10. Are the stockholders of a bank liable on their superadded liability for the debts of the bank contracted prior to January 1, 1913, the effective date of the amendment to the Constitution?
Under the provisions of Section 2 of Article XIII of the Constitution, reserving power in the state to alter or repeal laws relating to corporations, the imposing of double liability on stockholders of banking corporations under the provisions of Section 3 of Article XIII had the effect of imposing liability on such stockholders for all the debts and obligations of the bank no matter when contracted.
11. Are stockholders who acquired some of their stock holdings in a bank prior to January 1, 1913, the effective date of the constitutional amendment imposing double liability, and who have since exchanged their certificates of such stock for certificates of a date subsequent to said date, and received stock dividends thereon, liable in any respect for any of the debts or obligations of the bank at the time it closed on August 17, 1931?
The answer to the preceding question answers this question. Furthermore, the stockholders who exchanged their certificates and received stock dividends thereon subsequent to January 1, 1913, by their own actions subjected themselves to the provision of Section 3, Article XIII of the Constitution, and, having received the benefits, are estopped to deny the burdens.
12. Is fraud in a bank in inducing a person to acquire stock in and become a stockholder in such bank, available as a defense to such person in an action to enforce the double liability of stockholders?
In the case of Wehby v. Spurway, 30 Ariz. 274, 246 P. 759, certiorari denied, 273 U.S. 722, 47 S. Ct., 112, 71 L. Ed., 858, it was held that one whose name appears with his consent on stock book of national bank as a stockholder within sixty days prior to the failure of bank is liable to creditors for assessment, though stock purchase was induced by fraud.
Other cases in point will be found in volume 12, U.S. Code, Annotated, at page 141.
Following this decision, we hold that such fraud is no defense in an action to enforce double liability.
Finding no error in the finding and judgment of the lower court, the judgment will be affirmed.
Judgment affirmed.
CROW, P.J., and KLINGER, J., concur.
CROW, KLINGER and GUERNSEY, JJ., of the Third Appellate District, sitting by designation in place of RICHARDS, WILLIAMS and LLOYD, JJ., of the Sixth Appellate District.