Opinion
No. 27049.
October 1, 1928. Suggestion of Error Overruled November 12, 1928.
1. LIMITATION OF ACTIONS. Limitation of six years did not begin to run as to note payable on demand after date until actual demand was made ( Hemingway's Code 1927, section 2635).
Limitations under Hemingway's Code 1927, section 2635 (Hemingway's Code 1917, section 2461; Code 1906, section 3097), requiring all actions for which no other period of limitation is prescribed to be commenced within six years after accrual of cause of action, did not begin to run as to note payable on demand after date until actual demand has been made; such demand being necessary to mature note.
2. BILLS AND NOTES. Corporate stockholder, under plea of recoupment alleging stock was held as collateral, must show value thereof by proving corporate assets exceeded liabilities.
Where defendant in action on note under plea of recoupment alleged that corporate stock was held as collateral, it was incumbent upon him, in order to maintain his plea, to show that collateral was of some value by proof that assets actually exceeded liabilities of corporation.
APPEAL from circuit court of Lauderdale county, HON. J.D. FATHEREE, Judge.
Victor W. Gilbert and Jacobson Brooks, for appellant.
We respectfully submit that when it affirmatively appeared from the testimony of the plaintiff that no demand was made for payment of the note within six years of its date, the note was barred by the statute and the defendant should have been given a peremptory instruction. The leading case on the question is Palmer v. Palmer, 36 Mich. 487, 24 Am. Rep. 605. See, also, Freeman v. Ingerson, 106 N.W. 278; Wrigley v. Bank, 108 N.W. 132; Boyd v. Buchanan, 162 S.W. 1075; Landis v. Saxon, 105 Mo. 486, 16 S.W. 912, 24 A.S.R. 403; Little v. Blunt, 9 Pick. 491; Campbell v. Whorisky, 170 Mass. 67, 48 N.E. 1070; High v. Board of Com., 92 Ind. 580; Keithler v. Foster, 22 Ohio St. 27; Railroad v. Burlingame, 36 Kan. 624, 14 P. 271; Codman v. Rogers, 10 Pick. (Mass.), 119; Hitchcock v. Cosper, 73 N.E. 264. Turning to the cases of our own state the earliest of these is Miller v. Board of Supervisors, 68 Miss. 88, 8 So. 269; Mitts v. Price, 129 Miss. 554, 92 So. 163; Butt v. Railroad Co., 63 Miss. 462; Shapleigh Hardware Company v. Spiro, 141 Miss. 38, 106 So. 209; Wilson v. Stark, 146 Miss. 498, 112 So. 390; Minor v. McDowell, 113 So. 576; Sec. 2665, Hem. Code, 1927.
From the inspection of the note, and as shown by the pleadings and proof, all the certificates of the capital stock issued by the Spiro Hardware Company, except perhaps one or two shares, was pledged to the Shapleigh Hardware Company as collateral security of the note. The pledging of these stock certificates conveyed at least an equitable title thereto to the Shapleigh Hardware Company. 22 A. E. Ency. of Law (2 Ed.), 907; 32 Am. St. Rep. 715; Jones on Collateral Securities (3 Ed.), 719.
In effect the testimony of Shapleigh Hardware Company demonstrates that even wasting away the stock as they did through their agents and employees, and selling it at a lump sum it did in that way bring enough money, with the accounts payable collected, to pay them a dividend of sixty-four and twenty-five hundredths per cent, and this was the dividend paid to all creditors, very near paying them in whole, but under this arrangement of the Shapleigh Hardware Company, through their negligence, left this note unpaid. "So, though nothing has been realized from the collateral, yet, if the failure to realize has arisen from such want of diligence that the holder is answerable for the face value of the collateral, or to any other extent, he can recover on the principal debt only so much thereof as remains unpaid after charging him with the amount of the collateral for which he has become answerable through his negligence or want of diligence." Reeves v. Plough, 41 Ind. 204, 32 Am. St. Rep. 727. The plaintiff has the right to recoup this loss, if a jury decides that he sustained such loss. Hoover Chemical Co. v. Humphrey, 107 Miss. 810, 66 So. 214; Amory Telephone Co. v. Cox, 103 Miss. 514, 66 So. 641; Hayes v. Liquor Co., 99 Miss. 583, 55 So. 356; Fowler v. Payne, 2 Miss. 210.
George B. Neville, for appellee.
The appellant now contends for the first time, after the case has been tried in the circuit court and once in this court, that this cause of action is barred by the six-year statute of limitations because the proof does not show that a demand was made on the appellant by appellee for the payment of the note within six years from its date.
There are several answers to this contention:
1. That no plea filed presented any such issue, but on the contrary plea filed by appellant alleged that demand was made more than six years before suit was brought and less than one year after the date of the note.
2. That if it be true, as now contended by appellant, that demand should be made within a period of the statute of limitations, that the statute of limitations of Missouri where the note was payable, should govern, and not the statute of Mississippi.
3. If the rule be as announced by some of the cases cited in appellant's brief that demand must be made within a reasonable time under the circumstances, then I submit that what is a reasonable time is a question of law for the court and that the facts in this case clearly demonstrate that in view of the conduct of the makers of the note in paying semi-annual interest up to and including September, 1916, and in view of other circumstances connected with the giving of the note in controversy, that demand was made within a reasonable time.
4. I next contend that the testimony shows that a demand that satisfies the law was made in 1918 when the Birmingham attorneys wrote to appellant and demanded payment of the note and instituted suit against him.
5. I next contend that under the statute of limitations of Mississippi, and under the former decision of this court in this case, that the statute of limitations did not begin to run until the cause of action accrued, and that the cause of action did not accrue until demand was made on appellant. It is stated in appellant's brief that the leading case in support of its proposition is the case of Palmer v. Palmer, 36 Mich. 487. The supreme court of Michigan held in this case that the statute of limitations began to run thirty days after the date of the note. The note was payable thirty days after demand. The court held that no demand was necessary. The suit was brought more than six years and thirty days after the date of the note.
The authorities cited in the opinion show that the English courts and many of the American courts hold that where a demand is necessary, as this court has held in the case at bar, that the statute of limitations does not begin to run until after demand, it matters not how long demand was delayed; and now let it be noted carefully that no demand was necessary.
Appellant relies on sec. 2665, Hem. Code 1927. The complete reply to their question with reference to this section is that there is no effort here to change the statute of limitations by contract. I now refer the court to some of the cases holding that the statute of limitations does not begin to run until actual demand is made. Vickery v. Maier, 129 P. 273; Dougherty v. Wheeler, 25 N.E. 542; Longhofer v. Herbel, 111 P. 483. There is a very illuminating note beginning on page 486 of 32 L.R.A. (N.S.) ___. See, also, 8 C.J. 104, par. 181; New England Fire Insurance Company v. Haynes, 71 Vt. 306, 76 A.S.R. 771.
If the Shapleigh Hardware Company did injure the Spiro Hardware Company, suit would have to be brought against it by the Spiro Hardware Company, and whatever the corporation recovered would first be used to pay the debts of the Spiro Hardware Company and what was left would go to the stockholders. Under the law, if a corporation has a cause of action, before a stockholder can bring a suit in his own name against the party who is indebted to the corporation, he must first demand of the corporation that it bring suit, and if it then refuses to bring suit, he must join the corporation as a party defendant. 14 C.J. 924, sec. 1444.
This court held in the case of Williams v. Neville, 53 So. 594, that stockholders of an insolvent corporation in suing directors for ultra-vires acts must allege that there will be something left for the stockholders after paying all the creditors of the corporation. As stated before, the testimony utterly failed to show the amount of debts owed by the corporation at the time the assignment was made.
From a judgment on a note for ten thousand dollars in favor of Shapleigh Hardware Company, Jonas Spiro appeals here. The court gave a peremptory instruction on the issue raised by appellant by his plea of recoupment. The case was submitted to the jury on the plea of six years' statute of limitations as to whether demand had been made by appellee more than six years before suit filed. On this issue, the verdict of the jury was for the appellee, and judgment of the court was entered accordingly against Spiro for the amount of his note and interest.
This is the second appearance of this case in this court, the former appeal being reported in Shapleigh, Hardware Co. v. Spiro, 141 Miss. 38, 106 So. 209, 44 A.L.R. 393.
The note sued on is set forth in the former report, together with other facts not necessary to be restated here. Besides the question of the statute of limitations again raised on this appeal, it is now urged that the court erred in not submitting for the defendant, Jonas Spiro, the question of recoupment set up by the pleadings and proof. The essential facts of the recoupment are as follows: That the note for ten thousand dollars executed by the defendant, Jonas Spiro, in favor of the Shapleigh Hardware Company, dated March 27, 1914, was given for money advanced by said Shapleigh Hardware Company to purchase stock in the Spiro Hardware Company, a majority of which was held by one Simon Spiro, and to put said Jonas Spiro, Beasley, and Gilbert, in control of the Spiro Hardware Company; this being suggested by the Shapleigh Hardware Company, who advanced the money therefor, taking the stock, and certain insurance policies, as collateral for said loan. That said Shapleigh Hardware Company afterwards demanded that Jonas Spiro cease to draw a salary, and he, thereupon, retired from business and removed from Birmingham, Alabama, to Meridian, Mississippi. Thereafter, in March, 1927, the Spiro Hardware Company being largely indebted to the Shapleigh Hardware Company and unable to make settlement when called upon to do so, upon demand of the Shapleigh Hardware Company, executed an assignment of the stock of goods and assets of the Spiro Hardware Company, which assignment was executed by the president and secretary without any meeting of the stockholders; the assets amounting to something like forty thousand dollars. That one Stevens was named as assignee, and this assignee was merely the tool of his employer, Shapleigh Hardware Company. That he became sick, and one Reed, also an employee of Shapleigh Hardware Company, by virtue of "power of attorney" from Stevens, continued in charge of the business. That Shapleigh Hardware Company procured this assignment for the purpose of dissipating the assets of the Spiro Hardware Company, and, finally, in August, 1917, sold the entire stock in a lump sum, although the assignment stipulated that the stock of goods was to be sold in due course of business. Spiro alleged in the plea of recoupment that there were enough assets to pay all indebtedness of the Spiro Hardware Company and also the note sued on.
The proof tended to show, by witnesses estimating the value of the stock of goods, that in January, 1917, before the execution of the assignment in March, 1917, the assets of the Spiro Hardware Company were estimated to be worth thirty-eight thousand or forty thousand dollars. The value of the assets was controverted by appellee's evidence. The testimony further showed that the Shapleigh Hardware Company only received on its indebtedness about sixty-four and one-fourth per cent. thereof.
Two propositions are submitted to this court on this appeal:
First, even though demand was necessary, in order to set in operation the statute of limitations, yet, if no demand is made within a reasonable time, that the courts will apply the period for the running of the statute of limitations as a "reasonable time," and demand not being made within such reasonable time, the suit cannot be maintained, and, for that reason, the note was barred; and
Second, that the question of whether or not the assets of the Spiro Hardware Company had been unlawfully converted and dissipated by the Shapleigh Hardware Company, and that there were sufficient assets to have paid all debts of the corporation, and this ten thousand dollar debt of Jonas Spiro should have been submitted to the jury on conflicting evidence as to the value of the assets of the Spiro Hardware Company.
On the plea of the statute of limitations, section 2635, Hemingway's 1927 Code, section 2461, Hemingway's 1917 Code, section 3097, Code of 1906, the statute invoked here, reads as follows:
" Actions to be brought in six years. — All actions for which no other period of limitation is prescribed shall be commenced within six years next after the cause of such action accrued, and not after."
Waiving all questions of pleading, this precise question was settled by the former decision in Shapleigh Hardware Co. v. Spiro, 141 Miss. 38, 106 So. 209, 44 A.L.R. 393, in which this court held that, in order to accrue and mature this cause of action, demand was required, and to set the statute in motion the note must be matured by demand. Judge ANDERSON, as the organ of the court, there said:
"Viewing the contract as a whole, we are of opinion that the terms, `on demand after date,' `from date,' `from maturity,' and `semiannually,' were used advisedly by the parties, and that they intended thereby to convey the meaning that it was necessary, in order to mature the note, that actual demand be made by the payee; and, until that was done, that the note should bear interest at the rate of six per cent per annum, payable semiannually, and that after actual demand, or maturity, it should bear interest at the same rate, payable annually. This construction makes the instrument mean what it says."
This construction placed upon this note by this court forecloses any debate or analysis of decisions, which counsel for appellant here urges upon this court. It is true, counsel cites some authorities which would seem to hold to the doctrine that demand not having been made within a reasonable time, which is held to be the period fixed by the statute of limitations, the action could not thereafter be maintained; but the weight of authority is not in line with that view.
A cause of action does not accrue on a note until it matures, and this court has already held that, in order to mature this note, actual demand must be made.
Counsel for appellant sought to prove that actual demand was made more than six years next before the bringing of the suit, but he concedes that the question was submitted to the jury and determined against him.
The parties to the contract had the right to execute this character of note, and there is no good reason, either in law or otherwise, why the contract should not be binding on them. No actual demand was made until just about the time of bringing this action. Therefore there was no accrual of the cause of action until demand was made, and the court correctly gave a peremptory instruction on this question.
Second. As to the recoupment, there is no evidence in this case by which the jury could determine what the indebtedness of the Spiro Hardware Company was, nor was there any proof as to the total collections made by the assignee. Even if it be conceded that the Shapleigh Hardware Company could be held in an action at law for the dissipation and unlawful conversion of the assets of the Spiro Hardware Company, there is no showing here as to what the indebtedness of the Spiro Hardware Company was; neither is there any showing as to what was the total paid out on the indebtedness. It was necessary for Spiro, who was undertaking to recoup against an individual debt this claim of unlawful conversion, to show that all the debts of the corporation should have been paid, and likewise all of his debt.
In the case of Williams v. Neville, 98 Miss. 268, 53 So. 594, this court said:
"The assets of a corporation go first to the creditors, and the remainder, if any, to the stockholders."
There is no effort, as we view the record, to render any intelligent statement as to the indebtedness of the Spiro corporation. In other words, it was incumbent upon Spiro, suing as a stockholder, in order to maintain his plea, to show that the collateral was worth something. If the assets of Spiro Hardware Company did not actually exceed the liabilities of the corporation, then the stock held as collateral by the Shapleigh Hardware Company was worthless. It was incumbent on him, under this plea of recoupment, to show that there would be a surplus, creating a value in the stock, before this plea of recoupment would be efficient to have the jury pass upon the question of whether or not there was any harmful conversion thereof.
Affirmed.