Opinion
14042
April 12, 1935.
Before DENNIS, J., Spartanburg, March, 1934. Affirmed.
Suit by John A. Law, Jr., as Receiver of the Merchants' Farmers' Bank of Spartanburg, S.C. against R.D. Blowers and others. From an order sustaining Master's finding against defendant T.P. Sims, such defendant appeals.
The Master's report and order of the Circuit Judge directed to be reported are as follows:
MASTER'S REPORTThis is a suit instituted by the Receiver of the Merchants' Farmers' Bank of Spartanburg, S.C. to recover, pursuant to the Constitution and statute laws of this State, the stockholders' liability due by certain stockholders of the insolvent Merchants' Farmers' Bank of Spartanburg, S.C. After the institution of the action and after issue had been joined by certain of the defendants, the cause was referred to me to take the testimony and report my conclusions of law and fact as to the issues joined with all convenient speed to this Court. In accordance with that order, I proceeded to take the testimony in the cause and beg leave to make the following report:
It appears that the Merchants' Farmers' Bank of Spartanburg, S.C. was a banking corporation, organized and chartered as such under and pursuant to the laws of the State of South Carolina; and until October 3, 1931, it was engaged in the general banking business in the City of Spartanburg. Its capital was $100,000.00, divided into 1,000 shares of the par value of $100.00 each. On October 3, 1931, it became insolvent and was forced to suspend its business and close its doors as an active banking institution. Thereafter, under due and proper proceedings had, a Receiver was appointed for said bank; and, following such appointment, the Receiver made an appraisal of the assets of the Merchants' Farmers' Bank of Spartanburg, S.C. and determined upon the necessity for a demand upon the stockholders of such bank to pay their stock liability. It accordingly made demand upon all stockholders of record for the payment of their stock liability on or before December 1, 1931; and, upon the failure of the defendants in this action to pay such stock liability on or before December 1, 1931, this action was instituted. Only three of the defendants in the cause have filed answers, or set up any form of defense to the liability asserted. We shall consider these three defendants and their defenses, as set up, separately.
(a) T.P. Sims.
The defendant T.P. Sims, who held fourteen shares of stock in the Merchants' Farmers' Bank of Spartanburg, S.C. at the time of its suspension in his own name and 24 shares in the name of "T.P. Sims, Trustee," sets up two defenses.
With respect to the liability on the fourteen shares of stock standing in his own name, he asserts that the plaintiff is without the legal authority to institute this action, and that in any event interest is not recoverable upon the liability as asserted.
From a review of the authorities, it seems clear that neither of these positions is tenable, and the defendant T.P. Sims is liable upon such 14 shares of stock standing in his name upon the books of the Merchants' Farmers' Bank at the time of its suspension, together with interest thereon at the rate of 7 per cent. per annum from December 1, 1931, demand having been made upon the defendant T.P. Sims previous to that date to pay such liability on or before that time. Fischer v. Chisholm (1931), 159 S.C. 395, 157 S.E., 139.
In addition to the 14 shares of stock above referred to, the defendant, T.P. Sims, under the title "T.P. Sims, Trustee," appears, upon the books of the Merchants' Farmers' Bank of Spartanburg, S.C. as the owner of 24 shares of the capital stock of said bank.
It is the premise of the defendant that the addition of the word "trustee" after his name fixed his ownership of the stock as fiduciary and insulated him against any personal liability by reason of the stockholders' liability upon the same. On the other hand, the plaintiff argues that the term "trustee," inserted after the defendant's name, is merely descriptio personae, and is to be disregarded, and that, accordingly, the defendant appearing upon the books of the bank as a stockholder, he "is estopped from denying that he is a stockholder" and cannot assert that he held this stock in a fiduciary capacity. Moss v. Johnson (1892), 36 S.C. 551; 15 S.E., 709, 710, appears conclusive against the defendant. In the cited case, the defendant signed a note and mortgage. "R.A. Johnson, trustee." When sued individually upon these obligations, the defendant argued that he was not liable individually by reason of the manner of his signature to the obligations, which determined his character as fiduciary. In overruling this contention, Mr. Chief Justice McIver said: "The fact that the defendant saw fit to append to his signature to these papers the word 'trustee' certainly could not have the effect of making him trustee for any one, but must be regarded simply as descriptio personae."
In the course of the opinion in the above case, the Court very clearly intimates that, in order to protect one who signs an obligation in a fiduciary capacity from a personal liability thereon, such person must obligate himself "as trustee," Mr. Chief Justice McIver putting it: "See, also, Henshall v. Roberts, 5 East, 150, as to the necessity for the use of the word `as,' and also 17 Am. Eng. Enc. Law, 494, 495, and the cases there cited."
In 17 American English Encyclopedia of Law, 494, 495, that text expresses the general rule thus: "The character of the party, whether acting individually or in a representative character, must appear. The words `administrator,' `agent,' etc., appended to a party's name are merely descriptive unless the word `as' or its equivalent is used to show that the party is a party in a representative capacity."
The importance of the talismanic word "as" in this connection is emphasized in Porter v. Jefferies (1893), 40 S.C. 92, 18 S.E., 229, 231, which was an action upon a warranty signed "John R. Jefferies (L.S.) Eber C. Allen (L.S.), executors of W. Allen, deceased." From the decree sustaining the personal liability of the signers of the warranty thereon, appeal was taken. In sustaining the lower Court, it is stated: "The seventh ground of appeal, which imputes error to the Circuit Judge in holding that the covenant of warranty in the mortgage was the personal covenant of the defendants, and binding upon them as individuals, need scarcely be considered, for it is admitted by counsel for defendants that the authorities sustain the view taken by the Circuit Judge; and we need not go further back than the cases of McDowall v. Reed, 28 S.C. 466, 6 S.E., 300, and Moss v. Johnson, 36 S.C. 551, 15 S.E., 709, to show that such admission was amply justified."
Again in Wallace v. Langston (1898), 52 S.C. 133, 153, 29 S.E., 552, 562, our Court stated that "the addition of the word `trustees,' not the words `as trustees,' amounts to nothing more than mere descriptio personae."
In Neely v. Love (1928), 144 S.C. 271, 282, 142 S.E., 623, 626, the question involved centered about a note payable to "J.S. Brice, Attorney." This note was subsequently transferred by J.S. Brice individually, and the issue hinged upon the power of J.S. Brice individually so to transfer. In sustaining such power, the learned referee, whose report was confirmed and adopted by the Supreme Court, tersely sums up the matter in these words: "I believe the general doctrine, and that of our own state to be, that such a suffix to the name of the payee of a note or other obligation, without more, is merely descriptio personae."
Flynn v. American Banking Trust Co. (1908), 104 Me., 141, 69 A., 771, 777, 129 Am. St. Rep., 378, 19 L.R.A. (N.S.), 428, is in direct point. There, upon the stock register of the insolvent bank, the word "Trustee" appeared after the name of one of the shareholders against whom an assessment had been made. The stockholders, whose position is in all particulars analogous to that of the defendant, Sims, asserted that he was thus absolved of personal liability to the stockholders' assessment upon such stock. The Court disposed of this contention with these words: "So far as appeared, he purchased the shares, became the legal owner, and entitled himself to the dividends on them, as well as to represent them in corporation meetings. He thereby assumed the statutory liability attached to them. The addition of the word `trustee' was only descriptio personae."
The general rule in this connection, culled from all the cases, is thus tersely set forth in the annotation in 57 A.L. R., 772: "It appears to be the general rule that, where shares of stock appear on the books of the corporation to be held in the name of one as trustee or in some other fiduciary capacity for another, without giving the nature of the trust or other capacity, such description does not confer notice of the relationship, and the holder is liable personally as stockholder on the subscription, or for the statutory liability to creditors for debts of the corporation."
A recent decision from a sister state goes so far as to state that, "unless the said record or the stock certificate issued to him shows that he holds the said stock as trustee for a cestui que trust named on the record or in the certificate," one who holds stock under the designation of trustee is personally liable to the stockholders' liability thereon. American Trust Co. v. Jenkins (1927), 193 N.C. 761, 138 S.E., 139, 142.
Recognizing, then, that the addition of the word "trustee" after the defendant's name is mere surplusage, and that accordingly the defendant appears upon the books of the bank individually as a stockholder, it seems too well settled to admit of cavil that he "is estopped from denying that he is a shareholder" to the extent of such shares, so far as stockholders' liability is concerned. Man v. Boykin (1908), 79 S.C. 1, 6, 60 S.E., 17, 128 Am. St. Rep., 830. The reasoning behind this principle of estoppel is that, by allowing the stock to appear in his name on the records of the bank, he thereby leads the creditors and all other persons to believe that he is the real owner of the stock. He thus holds himself out to the public as a shareholder, and persons dealing with the bank have no means of knowing the nature of the contract under which he holds the stock and have a right to presume and are thereby led to believe that he is the absolute owner of it and it is but fair to presume that they deal with the bank upon the faith and credit of the parties thus appearing as stockholders. White v. Commercial Bank (1903), 66 S.C. 491, 492, 45 S.E., 94, 97 Am. St. Rep., 803; Lewis v. Switz (C.C. Neb., 1896), 74 F., 381; Magruder v. Colston (1876), 44 Md., 349, 22 Am. Rep., 47; Tierney v. Ledden (1909), 143 Iowa, 286, 121 N.W., 1050, 21 Ann. Cas., 105.
As is cogently observed in Kerr v. Urie (1897), 86 Md., 72, 37 A., 789, 791, 38 L.R.A., 119, 63 Am. St. Rep., 493: "If persons were allowed to subscribe for stock in a national bank or in any other corporation where a personal liability attaches, either as attorney for an unnamed principal, as self-appointed trustee for some unnamed cestui que trust or as attorney for an unnamed infant of tender years, and, when called upon to pay the debts of the bank to the extent of the stock so subscribed, could escape [liability] by simply declaring that they represented in some capacity those who are legally or otherwise incapacitated, the law would be a dead letter, and the creditors of these associations, which are found in great numbers in every state, would be deprived of the only certain means provided by law for the payment of their claims."
In Davis v. First Baptist Soc. (1877), 44 Conn., 582, Fed. Cas. No. 3,633, it is said: "Creditors have a right to know who have pledged their individual liability. If trusteeship does not appear upon the books of the bank, they have a right to infer that the stockholder is personally liable. If a trustee wishes to disclose his trusteeship, there is no difficulty in giving notice upon the books of the bank. If he does not disclose his trusteeship, he is guilty of laches, for which others should not suffer. The settlement of the affairs of an insolvent bank would be rendered a matter of great labor, expense and delay, if persons who appeared upon the books of the bank as individual stockholders were permitted to relieve themselves by proving that they held the stock as executors or guardians, or trustees."
Seaboard A.L. Ry. Co. v. Jones (1926), 134 S.C. 305, 309, 131 S.E., 434, 436, is peculiarly apposite. In that case our Court stated: "The defendant has offered testimony to show that in making the contract in question he acted merely as a trustee for third party. This is irrelevant, as the written contract sued on created a personal obligation on the part of the defendant ( Porter v. Jefferies, 40 S.C. [92], 100, 18 S.E., 229; McDowall v. Reed, 28 S.C. 466, 6 S.E., 300; Moss v. Johnson, 36 S.C. 551, 15 S.E., 709), and I exclude such testimony and evidence from consideration."
To sum up, the defendant appears as a stockholder personally upon the records of the bank as a shareholder. The mere addition of the word "trustee" is "descriptio personae," and he is now estopped to assert that he is not a shareholder.
I, therefore, recommend that the plaintiff recover judgment against the defendant T.P. Sims for the sum of $3,800.00, together with interest thereon from December 1, 1931, at the rate of 7 per cent. per annum."
ORDER OF JUDGE DENNISThis matter comes before me upon exceptions filed by the defendant T.P. Sims to the Master's report, made herein, by which report the Master recommended judgment against such excepting defendant for the stockholder's liability imposed against 38 shares of the capital stock of the insolvent Merchants' Farmers' Bank of Spartanburg, S.C.
Of the bank stock, against which the liability was asserted, 14 shares thereof were registered upon the books of the bank in the name of the excepting defendant, and the remaining thereof were registered "T.P. Sims, Trustee." So far as the stock registered in the name of the defendant is concerned, counsel for the appellant frankly conceded liability and did not argue against the conclusion reached by the Master. He very strenuously, though, argued that the excepting defendant was immune from liability personally upon the stock registered in the name of "T.P. Sims, Trustee."
The Master based his conclusion that the excepting defendant was liable personally for the stockholders' liability asserted against the stock registered "T.P. Sims, Trustee," upon the premise that the term "trustee," added to the defendant's name upon both the stock certificate itself and the stock certificate stub, was mere descriptio personae, and that accordingly the excepting defendant, appearing upon the books of the bank as a stockholder at his own instance, was estopped from denying that he was individually a stockholder to the extent of the stock registered "T.P. Sims, Trustee." The authorities set forth in his report clearly sustain the Master in this conclusion.
Andrew v. City-Commercial Savings Bank, 205 Iowa, 42, 217 N.W., 431, 57 A.L.R., 767, however, is cited by the appellant as militating against this conclusion of the Master. It is true that the cited case did hold that the addition of the word "trustee" to the name of one taking title to bank stock was sufficient to exonerate him personally from any subsequent stockholders' liability. This holding, though, was predicated upon that principle of Iowa law, as applied to actions upon promissory notes and mortgages, that the mere addition of the word "trustee" after one's name is not descriptio personae but represents "plain and actual notice of the existence of a trust." Contrary to the Iowa rule, the law of this State, as settled by repeated decisions, is conclusive to the point that the addition of the word "trustee" after one's name is mere descriptio personae. Wallace v. Langston, 52 S.C. 133, 153, 29 S.E., 552; Neely v. Love, 144 S.C. 271, 283, 142 S.E., 623. Following this principle, it has often been held that one who signs a note "John Doe, Trustee" is personally liable thereon. Moss v. Johnson, 36 S.C. 551, 15 S.E., 709; Porter v. Jefferies, 40 S.C. 92, 18 S.E., 229. And so the very reason upon which the Iowa decision, relied on by the appellant, is bottomed is contrary to the rule of this State, and it is a familiar legal maxim, "Ratio legis est anima legis; mutata legis ratione, mutatur et lex." For that reason, I cannot follow the conclusion of the Iowa Court, based as that conclusion is upon a principle of law which our own Court has consistently refused to adopt.
And it seems well also to observe that the Andrew case is at variance with the general rule, as is evidenced by the annotation which follows that case in 57 A.L.R., 772. Thus, the annotation there states the general rule in this language: "It appears to be the general rule that, where shares of stock appear on the books of the corporation to be held in the name of one as trustee or in some other fiduciary capacity for another, without giving the nature of the trust or other capacity, such description does not confer notice of the relationship, and the holder is liable personally as stockholder on the subscription, or for the statutory liability to creditors for debts of the corporation." After citing numerous authorities as sustaining this proposition, the annotator refers to the Andrew case as the only authority for a contrariwise conclusion.
There is still an added reason why the conclusion of the Master must be sustained. In the Andrew case, the defendant proved conclusively the existence of a valid trust. In this case, however, the excepting defendant failed to adduce any legal proof whatsoever establishing a trust. Neither the settler nor the cestui que trust of the alleged trust, both of whom are living, testified to the trust. The defendant sought to establish it by the hearsay testimony of his grandson who of necessity could have had no personal knowledge of any putative trust. And so, even under the Andrew case, upon which the appellant bases his exceptions, the defendant would not be entitled to be exonerated of the stockholders' liability accruing upon the stock standing in his name with the addition of the word "trustee" thereafter.
It is, therefore, ordered, adjudged, and decreed, that the Master's report herein, in so far as the same recommends judgment against the defendant in the sum of $3,800.00, together with interest thereon at the rate of 7 per cent. per annum from December 1, 1931, and for costs, be confirmed, and that John A. Law, Jr., as receiver of the Merchants' Farmers' Bank of Spartanburg, S.C. do have judgment against the defendant T.P. Sims in the sum of $3,800.00, together with interest thereon at the rate of 7 per cent. per annum from December 1, 1931, and together with costs.
Mr. D.W. Galloway, for appellant, cites: Stockholders' liability: 138 S.E., 139; 217 N.W., 431; 57 A.L.R., 767.
Mr. Donald Russell, for respondent, cites: Questions considered on appeal: 105 S.C. 100; 89 S.E., 657; 110 S.C. 163; 96 S.E., 250; 58 S.C. 551; 36 S.E., 917; 168 S.C. 395; 167 S.E., 659; 26 R.C.L., 1203; 170 S.C. 373; 170 S.E., 429; 32 S.C. 595. Trust: 153 S.C. 146; 150 S.E., 655; 66 A.L.R., 703; 22 C.J., 121; 105 Va., 51; 8 Ann. Cas., 623; 31 So., 164. As to testimony: 156 S.C. 181; 153 S.E., 133; 69 A.L.R., 443; 34 S.C. 259; 13 S.E., 447; 173 S.C. 81; 174 S.E., 911. Stockholders' liability: 79 S.C. 1; 60 S.E., 17; 128 A.S.R., 830; 38 L.R.A., 119; 66 S.C. 491; 45 S.E., 94; 159 S.C. 395; 157 S.E., 139; 144 S.C. 271; 142 S.E., 623.
April 12, 1935.
The opinion of the Court was delivered by
This suit, instituted in the Court of Common Pleas for Spartanburg County by the receiver of the Merchants' Farmers' Bank of Spartanburg, S.C. against the defendants R.D. Blowers and T.P. Sims et al., is an action to recover, pursuant to the Constitution and statutory laws of this State, the stockholders' liability alleged to be due by certain of the stockholders of the said Merchants' Farmers' Bank of Spartanburg, insolvent institution. Briefly stated, the facts and history of the case necessary for an understanding of the questions involved, according to the agreed statement of counsel, are as follows:
The Merchants' Farmers' Bank of Spartanburg, S.C. was a banking corporation organized and chartered under the banking laws of the State of South Carolina and ceased to do business as such on or about October 3, 1931. The capital stock of the bank was $100,000.00, divided into 1,000 shares of the par value of $100.00 each. The bank was closed on October 3, 1931, and the First National Bank of Spartanburg, S.C. was appointed its receiver and remained as such receiver until John A. Law, Jr., was appointed the receiver by a proper order of the Court on June 29, 1932. The First National Bank of Spartanburg, S.C. brought suit for the stockholders' liability on or about February 19, 1932, asking for judgment against the stockholders on their respective stock in the Merchants' Farmers' Bank, with interest thereon from December 1, 1931.
It was alleged in the complaint that T.P. Sims was the owner of 38 shares of stock, and judgment was asked against him for the sum of $3,800.00, together with interest thereon from the 1st day of December, 1931, at the rate of 7 per cent. per annum. T.P. Sims filed his answer setting forth among other things that he was the owner of 14 shares of stock of the par value of $100.00 each, and that 24 shares of stock was held by him as trustee for his sister. The matter was referred to the Master of Spartanburg County, who decided all issues against the said T.P. Sims and found that he was liable on all four of the certificates of stock which amounted to 38 shares. Upon the hearing, the presiding Judge, after hearing the testimony read and after hearing arguments, held the cause open in order to allow the appellant to adduce any further proof of an alleged trust, but the appellant did not adduce any, and thereupon the presiding Judge filed his order, sustaining the Master's finding. From that order, the appellant appeals to this Court.
Counsel representing the litigants in the case agree that the only question involved in the case before this Court is as to the liability of the defendant T.P. Sims on 24 shares of stock which were issued to him in the name of "T.P. Sims, Trustee." As above stated, the case was referred to the Master of Spartanburg County to take the testimony and report his conclusions of law and fact. In his report the Master decided the above-stated issue against Mr. Sims' position, and held that he was liable for the stock in his own right. Thereafter, the case was heard by his Honor, Judge E.C. Dennis, on appeal from the Master's report, who, after due consideration of the record in the case, agreed with the Master's finding, conclusion, and recommendations, and issued an order to that effect.
We are satisfied with the decree of the Circuit Judge, and for the reasons appearing therein the exceptions must be overruled, and the judgment is, therefore, affirmed.
MR. CHIEF JUSTICE STABLER, MR. JUSTICE BONHAM and MESSRS. ACTING ASSOCIATE JUSTICES WM. H. GRIMBALL and G.B. GREENE concur.