Opinion
Decided July 27, 1938.
Banks and banking — Stockholders' double liability — A continuing obligation, when — Liability collateral and conditional — Statute of limitation begins to run, when — Effect of repeal of constitutional provision — Liability of person who has ceased to be stockholder — Building and loan associations — Right of superintendent to withhold dividends duel shareholders or prior shareholders — Section 687-15, General Code — "Shareholder" construed — Section 687-10, General Code.
1. Under Section 3 of Article XIII of the Constitution of Ohio of 1851 and the amendment of 1912, the superadded liability of stockholders in the corporations named is a continuing obligation incurred at the time the person becomes a shareholder and remains even after the person has ceased to be a stockholder. Under the constitutional amendment of 1903, such liability is complete and self-executing.
2. The liability is not a primary resource for the payment of debts, but is collateral and conditional, and is to be resorted to by creditors only in case of insolvency or where the payment can not be enforced by ordinary process.
3. The six-year statute of limitation runs in favor of the stockholders, beginning at the time of the insolvency, but, quaere, whether the taking over of the association by the superintendent starts the running of the statute or whether it is delayed until the superintendent has ascertained that the assets will be insufficient to pay the debts.
4. The repeal of the constitutional provision for double liability against the stockholders in financial institutions, effective July 1, 1937, does not deprive the creditor of the right to bring an action based on stocks held while the constitutional provision was in force.
5. Where one was a stockholder but has ceased to be such, he is liable only to those who were creditors at the time he was a stockholder and are still creditors and to them only after the assets of the corporation, the assessment of the present stockholders and of all solvent stockholders subsequent to the time he was a stockholder have been exhausted and applied to the debt.
6. The case of Brown v. Hitchcock, 36 Ohio St. 667, followed. The principle there announced is not modified by either Squire, Supt. of Banks, v. Murfey, Blossom Co., 131 Ohio St. 289, or Squire, Supt. of Banks, v. Solinski, 132 Ohio St. 180.
7. The "shareholder" in Section 687-10, paragraph 9, General Code, and in Section 687-15, General Code, refers to present shareholders and not to those who were formerly shareholders but have ceased to be such before the institution was taken over by the superintendent.
8. The superintendent has no authority under Section 687-15 to withhold dividends due to those who are not shareholders at the time he took control.
APPEAL: Court of Appeals for Franklin county.
Mr. Paul L. Selby and Mr. Joseph Donovan, for appellee.
Mr. Herbert S. Duffy, attorney general, Mr. Henderson Estes, Mr. Kenneth Johnston and Mr. Edward L. Coyle, for appellant.
On September 27, 1937, a petition was filed in the Common Pleas Court by the plaintiff, Arthur E. Everard, wherein it is alleged that William H. Kroeger is the Superintendent of Building and Loan Associations; that The Columbian Building Loan Company is a corporation with authority to carry on business as a building and loan company; that on the twenty-fifth day of March, 1933, the superintendent took possession of the property of that company pursuant to Section 687 et seq., General Code, and since that date has been and is now in charge of the liquidation of such company.
Plaintiff further states that on January 2, 1931, he deposited in the company the sum of $4,000, evidenced by a certificate of deposit issued by the company; that no interest or any part of the $4,000 has been paid since June 30, 1932; that plaintiff filed proof of claim on such deposit claim which the superintendent allowed and the same has been finally allowed as a deposit creditor's claim, for which plaintiff holds certificate of claim; and that in the course of liquidation of the company the superintendent has declared and, by order of the court, has been authorized to pay to the holders of creditors' claims certain dividends aggregating 50 per cent, but the superintendent refuses to pay such dividends to this plaintiff and has abused his power and discretion with respect to this plaintiff's claim in so failing to pay dividends, to plaintiff's irreparable loss and damage.
Plaintiff prays that the court grant a mandatory injunction ordering the superintendent to pay the dividends, now and hereafter declared, to plaintiff on his claim.
To this petition an amended answer was filed by William H. Kroeger, superintendent in charge of liquidation of said company, in which he makes certain admissions, among them being that he has declared and, by the approval of the court, has been authorized to pay to holders of approved creditors' claims five separate dividends, aggregating 50 per cent.
It is further alleged that the plaintiff subscribed for capital stock of the company, for which a certificate was issued; and that by reason of the subscription the plaintiff became a stockholder subject to liabilities as such.
Defendant sets up certain provisions of the constitution of the company and says that the stock certificates issued to the plaintiff were, on January 2, 1931, surrendered and cancelled and the proceeds withdrawn and transferred to a deposit, for which certificates were issued which were allowed as a deposit creditor's claim, and that a certificate of claim No. 28661 has been issued by the defendant.
It is further averred that Section 3, Article XIII, of the Constitution of Ohio, which was in full force until July 1, 1937, provided for double liability of stockholders, and that Section 687-15, General Code, provides that dividends due to shareholders on claims as depositors to the extent of the individual liability of such shareholders shall be withheld by the superintendent until it is determined that it will not be necessary to enforce their individual stock liability.
That defendant is required by Section 687-10, paragraph 9, General Code, to enforce such individual liability if he ascertains that the assets of the association will be insufficient to pay its debts and liabilities; that it will be necessary for him to exercise his rights and liens upon all claims and dividends due, or which may be claimed by plaintiff, for the satisfaction of superadded liability.
It is further alleged that by instructions given by the Court of Common Pleas he was directed to "allow claims, * * * subject to the retention by the superintendent of the dividends on such claims as an offset to payments of dividends on the claim of the plaintiff, which has been allowed.
The defendant further alleges that according to the instructions there is now no more due and payable to the plaintiff, and that he is lawfully withholding the payments of dividends on the said claim of the plaintiff, which has been allowed.
To this answer a demurrer is filed by the plaintiff on the grounds, in substance:
(1) That the allegations are insufficient to constitute a defense.
(2) That it appears on the face of the answer that the plaintiff has not been a stockholder in such company for more than six years next prior to the filing of the action herein.
(3) That the defendant is without authority to levy or enforce stockholders' superadded liability in connection with the company under existing provisions of the Constitution.
Elaborate briefs were filed and extensive arguments were presented to the Court of Common Pleas, which court, on March 11, 1938, found that the amended answer of the defendant did not state a defense to the plaintiff's petition, and that the demurrer was well taken and was sustained. The appellant assigns appropriate errors. The claims of appellant may be summarized, as follows:
(1) It is claimed by the appellant that under the law of Ohio the superadded liability of building and loan shareholders is a continuing obligation incurred at the time the person becomes a shareholder, and that the liability thus incurred remains even after the person has ceased to be a shareholder and has terminated the share-holding relationship.
(2) That irrespective of what is the law of Ohio with reference to the liability of the shareholder, the superintendent was before the Court of Common Pleas in the Herman case, and in that case received instructions as to the status of former shareholders and is obeying such instructions.
(3) That the court below misconstrued the law and the holdings of the Supreme Court in cases alluded to, and that the inferences he draws therefrom are unwarranted.
To sustain his position the appellant has filed elaborate briefs.
The appellee claims:
(1) That the stockholder's status (plaintiff's below) ceased on January 2, 1931, when, in good faith he made a settlement of his stockholder's relationship with the corporation.
(2) That no superadded liability under the Constitution had attached or accrued against the plaintiff with respect to his stock at the time of his withdrawal and the cancellation thereof on January 2, 1931, and that thereafter no superadded liability could be asserted as against plaintiff by a creditor or by the defendant.
(3) That if any claim could have been asserted it must have arisen out of the stock ownership prior to termination of that relationship on January 2, 1931, and that any claim with respect thereto must have been instituted within six years from the termination of the stockholder's status or be barred by the statute of limitations.
(4) That since the repeal of the constitutional superadded liability provision of the Constitution of Ohio, effective July 1, 1937, there is no authority for the assessment or collection of the superadded liability by the defendant, and the withholding of plaintiff's dividends is unauthorized.
(5) That the superintendent's position is untenable and an abuse of discretion, so as to warrant and make necessary the order of the court below.
Luther L. Boger and J. Maxwell Maher, on application, were granted leave to file briefs, amici curiae.
The carefully considered opinion of the court below should receive our closest consideration. The court gave the questions before it extended consideration, which led it to definite conclusions of the highest importance.
After reviewing the constitutional provisions under examination the lower court concludes:
"The meaning of this constitutional provision seems to us is clearly expressed and that is the stockholders or owners of the stock are liable when the liability is incurred, that is, when the affairs of the corporation are wound up. To hold that this claim due the plaintiff as a creditor is to be subjected to the double liability because the plaintiff some two years prior to the takeover had been a stockholder seems to us to do violence both to the letter and the spirit of the constitutional provision."
The court bases its conclusion on its interpretation of State, ex rel. Squire, Supt. of Banks, v. Murfey, Blossom Co., 131 Ohio St. 289, 2 N.E.2d 866, and on Squire, Supt. of Banks, v. Solinski, 132 Ohio St. 180, 5 N.E.2d 479. The court, speaking of Squire v. Murfey, Blossom Co., says:
"This decision, it seems to us, rejects the theory of liability laid down by the majority decision in the case of Brown v. Hitchcock, 36 Ohio St. 667."
The court takes the position that the separate dissenting opinion of Judges McIlvaine and Johnson in the case of Brown v. Hitchcock, supra, more correctly states the law as presently interpreted by the Supreme Court than does the majority opinion.
The provision in the Constitution of 1851, Section 3, Article XIII, as to double liability, was as follows:
"* * * 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."
On November 3, 1903, the double liability of stockholders of all private corporations, as fixed by the Constitution of 1851, was amended by the provision:
"* * * but in no case shall any stockholder be individually liable otherwise than for the unpaid stock owned by him or her."
On September 3, 1912, the above provision was amended by the addition of the following words:
"* * * 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."
The above amendment became effective January 1, 1913. In November, 1936, this section was amended so as 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."
The pertinent statutory provisions in reference to these constitutional provisions, which may enable us to more clearly interpret the decisions, are as follows:
The Corporation Act of May 1, 1852, was the first act passed after the adoption of the Constitution and is the act involved in the case of Brown v. Hitchcock, supra. It provided in substance that all stockholders of any joint stock company organized under the provisions of the act should be deemed and held liable to an amount equal to their stock subscribed in addition to their stock, for the purpose of securing the creditors of such company.
Section 687-15, General Code, effective June 29, 1934, provides in substance that the Superintendent of Building and Loan Associations shall, out of the funds remaining in his hands after the payment of expenses, declare one or more dividends on the claims presented and allowed; and that:
"Dividends due to shareholders on claims as depositors or otherwise, to the extent of the individual liability of such shareholders, shall be withheld by the superintendent until it is ascertained that it will not be necessary to enforce their individual stock liability."
In view of the opinion of the court below that stockholders' liability as formerly declared by Ohio courts of last resort has been modified by more recent decisions, we are impelled to make a rather detailed examination of the former decisions, confining ourselves to the Ohio cases.
In Wright v. McCormack, 17 Ohio St. 87, the court interpreted a statute imposing double liability upon a stockholder. It was there held in substance that the liability imposed by the statute in question on stockholders is a security provided for the exclusive benefit of creditors over which corporate authorities have no control; that the liability is not a primary resource for the payment of debts but is collateral and conditional to the principal obligation which rests on the corporation, and is to be resorted to by creditors only in case of insolvency of the corporation, or where payment cannot be enforced by ordinary process. This case being based upon a statute without reference to the Constitution is only of value as indicating the genesis of constitutional liability.
The case of Brown v. Hitchcock, supra, is of interest and importance although it seems to be confined to the correct interpretation of statutory liability as distinguished from constitutional liability. It is there held in substance that the individual liability of stockholders under the acts of 1852 and 1861 attaches in favor of creditors at the time the debt is contracted or the liability incurred by the corporation; after such liability attaches it is not discharged by the subsequent assignment or transfer of the stock, but the successive holders impliedly undertake to discharge the assignor from the liability attached to him as a stockholder while he held the stock; in a suit by creditors the existing stockholders are severally chargeable with the payment of such liability. The fourth paragraph of the syllabus in the Brown case, supra, announces the important principle:
"If, by reason of insolvency, the amount due from any stockholder is not collectible, the assignors of his stock up to the time the liability attached may be charged with the deficiency."
After quoting the Constitution and the act first passed after the adoption of the Constitution, the court states at page 678:
"Under these provisions, it seems to us that the security furnished by the stockholders' liability, in addition to that of the corporation, attaches in favor of the creditors at the time the debt is contracted or the liability incurred by the corporation."
Judge White states that the next question is whether, after the liability attaches to a stockholder, it is discharged by the subsequent assignment or transfer of the stock. He then states on page 680:
"We think it is not. The liability, it is true, attaches to him in respect to his stock, but after it has attached in favor of creditors it becomes as obligatory upon him personally as an express agreement. * * * Each successive owner stands in his shoes as respects the stock and the liabilities growing out of it."
On page 681, Judge White further states:
"If, by reason of insolvency, the amount due from any stockholder is not collectible, the assignors of his stock successively, up to the time the liability attached, may be charged with the deficiency."
McIlvaine, J., dissented. In his dissenting opinion he elaborates upon the view taken by him, and Judge Johnson also dissented for reasons that are forcefully presented.
The majority holds that the liability attaches to one owning stock at the time of the inception of the debt. The minority, on the other hand, takes the position that the liability does not attach until steps are taken to enforce it, and that one who is not a stockholder at that time is not subject to the constitutional liability.
In the case of Mason v. Alexander, 44 Ohio St. 318, 7 N.E. 435, a suit to enforce liability of stockholders under a special statute, it was held:
"(5) If, in such case, by reason of insolvency or residence without the jurisdiction, the amount due from any stockholder is not collectible, the assignor of the stock up to the time the liability attached, may be charged with the deficiency. Brown v. Hitchcock, 36 Ohio St. 667, followed."
Harpold v. Stobart, 46 Ohio St. 397, 21 N.E. 637, 15 Am. St. Rep., 618, holds:
"(3) A stockholder who, in good faith, sells and transfers his stock to one who afterwards becomes insolvent, is liable to creditors of the corporation, for such portion only of the debts existing while he held the stock, and remaining due, (not in excess of the amount of stock assigned) as will be equal to the proportion which the capital stock assigned by him bears to the entire capital stock held by solvent stockholders within the jurisdiction, liable in respect of the same debts, to be ascertained at the time judgment is rendered."
In Boice v. Hodge, 51 Ohio St. 236, 37 N.E. 265, 46 Am., St. Rep., 569, it is held:
"A holder of stock in an Ohio corporation, who transfers his stock after a corporate debt has been created, is not relieved from his statutory liability for such debt, by an agreement for an extension of the time for its payment; although such agreement be made by the corporation and creditor after such transfer, and without the knowledge or consent of the transferer."
In the case of Peter v. Union Mfg. Co., 56 Ohio St. 181, 46 N.E. 894, Judge Bradbury, delivering the opinion of the court, says on page 204:
"He could not by the sale and transfer defeat the ultimate right of existing creditors to proceed against him on account of these shares, if a resort to that liability became necessary for their protection. His ultimate liability to them was fixed by the circumstance that he owned these shares at the time their claims were contracted. Brown v. Hitchcock, 36 Ohio St. 667."
Wick Natl. Bank v. Union Natl. Bank, 62 Ohio St. 446, 57 N.E. 320, 78 Am. St. Rep., 734, approves and follows Brown v. Hitchcock, supra. Poston v. Hull, 75 Ohio St. 502, 80 N.E. 11, holds:
"One who has been a holder of the stock of an insolvent corporation but has disposed of his stock in good faith prior to such insolvency and prior to the commencement of an action to enforce the statutory liability, cannot be held liable for a debt of the corporation before the full one hundred per cent liability of the existing solvent stockholders within the jurisdiction has been exhausted, although the debt of the creditor against the corporation was incurred before the assignment and the assignee of the stock is insolvent."
The court in that case recognizes Brown v. Hitchcock, supra.
Liability to creditors follows the stock and those who were owners at the commencement of the suit are primarily liable, and such liability must first be exhausted before recourse can be had against the former owner of the stock who has in good faith transferred his stock, and the liability is to the extent only of the residue remaining unpaid of the corporate debt owing at the time of the assignment.
In the case of Swift Co. v. Youngstown Baking Co. (1905), 6 C.C. (N.S.), 89, 17 C.D., 253, it is held that a statute attempting to limit the liability of stockholders as determined in the case of Brown v. Hitchcock, supra, was unconstitutional as violative of the provisions of Section 3, Article XIII of the Ohio Constitution. See also: Scofield v. Excelsior Oil Co., 6 C.C. (N.S.), 169, 17 C.D., 347.
It may be observed that in the cases we have heretofore examined it frequently appears that they involve the construction of a statute rather than the Constitution of 1851. This may arise from the fact that that Constitution provided:
"Dues from corporations shall be secured, by such individual liability of the stockholders, and other means, as may be prescribed by law * * *."
As to the Constitution of 1912 we have the holding of the Supreme Court that the provision thereof pertaining to "corporations authorized to receive money on deposit" is self-executing. Lang v. Osborn Bank, 100 Ohio St. 51, 125 N.E. 105. Judge Wanamaker, in this case points out:
"Here, in the amendment of 1912, the constitution makers exercise such power, and in the clearest and most convincing language forever fix that liability free from interference of the General Assembly, during the life of such controlling amendment."
In Snider v. United Banking Trust Co., 124 Ohio St. 375, 178 N.E. 840, it was held:
"1. Section 3 of Article XIII of the Ohio Constitution creates an additional liability against stockholders of corporations authorized to receive money on deposit, for all contracts, debts and engagements of such corporations. The liability thus created is complete and self-executing." See also: Allen v. Scott, Supt. of Banks, 104 Ohio St. 436, 135 N.E. 683.
The case of Vance, Exr., v. Warner et al., Recrs., 129 Ohio St. 357, 195 N.E. 704, held:
"1. Section 3 of Article XIII of the Constitution of Ohio is self-executing insofar as it fixes the responsibility of stockholders of a corporation authorized by the laws of Ohio to receive money on deposit. * * *
"3. Since a building and loan association of Ohio is authorized to receive money on deposit, it comes within the purview of Section 3 of Article XIII of the Constitution of Ohio * * *."
It is asserted by counsel for plaintiff and inferred by the court below that the cases of State, ex rel. Squire, Supt. of Banks, v. Murfey, Blossom Co., 131 Ohio St. 289, 2 N.E.2d 866, and Squire, Supt. of Banks, v. Solinski, 132 Ohio St. 180, 5 N.E.2d 479, establish a different measure of liability from that asserted by the former cases.
We have examined these two cases at length because of the insistence that they have changed the entire course of judicial decision in interpreting the law of Ohio. The strong statement in Squire, Supt. of Banks, v. Solinski, supra, that the statute does not make any change in stockholders' liability and the re-statement, with approval, of the law as enunciated in Brown v. Hitchcock, supra, emphasize the fact that there was no purpose in the court to do other than to interpret a section of the statute bearing upon the ownership of stock.
We can not concur in the claim asserted by the appellee that the Supreme Court recognized that after an effective transfer a bank stockholder is no longer subject to double liability. Nor do we agree that by these two cases the Supreme Court has now established the doctrine that those who are not stockholders at the time of the liquidation are not subject to superadded liability.
We are driven to the conclusion that under the law of Ohio in force at the time of the transaction here in question, there is a continuing liability on one who has been a stockholder at the time the obligation was incurred and that this liability can not be avoided by the transfer of such stock to another who can not respond to the obligation he assumes when he purchases the stock, and when the assessments against the present stockholders do not produce sufficient funds to completely discharge the obligation to a creditor becoming such during the time the stock was held by such former stockholder.
The question is raised by appellee that the six-year statute of limitation has barred the right of action against him, the superintendent having taken over the association on the twenty-fifth day of March, 1933. Barrick v. Gifford, 47 Ohio St. 180, 24 N.E. 259, 21 Am. St. Rep., 798, holds that where a corporation, possessed of property subject to levy though not sufficient to pay all its debts, continues to transact its business, the right of a creditor to enforce statutory liability of its stockholders does not accrue until an execution has been returned unsatisfied for want of goods; that where, however, a company has become insolvent and made an assignment of all its property for the benefit of its creditors, the right of the creditor or any of them then accrues to commence suit against the stockholders on their liability under the statute, without any prior proceedings against the company, and the statute of limitation begins to run from that time against the right of action.
We note that Judge Scarlett held that in his judgment the company in the instant case was insolvent in July, 1931, but how long before, only expert examinations or a general appraisement or check on the real estate would reveal. We are of the opinion that the potential insolvency of the company at that date as revealed by Judge Scarlett fails to start the running of the statute of limitation. Another theory is advanced that the statute began to run when the superintendent took charge of the affairs of the corporation for the reason that such act upon his part precluded creditors from bringing an action or would render such action ineffective. However, we do not definitely pass upon this point.
Another statement of the rule is found in Bronson v. Schneider, 49 Ohio St. 438, 33 N.E. 233.
We think the provisions of Section 687-10, paragraph 9, General Code, do not necessarily set the date at which the statute of limitation shall begin to run.
Section 687-3, General Code, certainly has provisions as stringent, both against the association and the creditors, as any imposed by the appointment of a receiver which has been held to authorize a stockholder's suit and to start the running of the statute of limitation.
Section 3, Article XIII, Constitution, effective July 1, 1937, now reads:
"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."
It is asserted by counsel for appellee that the whole theory and policy of double liability as against stockholders has been abrogated by the amendment, and the superintendent is wholly without authority to proceed to assess superadded liability against stockholders.
It was held in an early federal case, Hawthorne v. Calef, 69 U.S. 10, 17 L. Ed., 776, that:
"A state statute repealing a former statute, which made the stock of stockholders in a chartered company liable to the corporation's debts, is, as respects creditors of the corporation existing at the time of the repeal, a law impairing the obligation of contracts, and void * * *."
In the case of Coombes v. Getz, 285 U.S. 434, 76 L. Ed., 866, 52 Sup. Ct., 435, the California Constitution provided that directors should be liable to creditors for money embezzled. Another section of the Constitution reserved power to alter or repeal all existing or future laws concerning corporations. While creditors who contracted with a corporation when these provisions were in force, were suing to enforce their rights against a director, the section making the director liable was repealed. It was held at page 434:
"(1) The right to enforce the liability was part of the creditors' contracts, perfected and fully vested before the repeal, and was protected by the contract clause of the Constitution and by the due process clause of the Fourteenth Amendment. * * *
"(3) The so-called reserved power of a state over corporations and their shareholders can not be used to destroy the vested rights of third persons or to impair the obligations of their contracts."
This is a very interesting case and it seems to us determinative.
In the case of Little v. Aultman, Miller Co., 15 O.D. (N.P.), 355, it was held in reference to the amendment of the Constitution effective November 23, 1903, repealing the double liability clause as to all corporations:
"The amendment of Section 3, Article XIII of the state Constitution * * * is prospective in its operation, and does not affect prior obligations, contracts, liabilities or vested rights existing between the stockholders and creditors of private corporations."
In the case of Poston v. Hull, supra, decided February 5, 1907, the judge delivering the opinion of the court stated in the last paragraph of his opinion:
"To avoid possible misunderstanding it may be added that this controversy, having arisen before the recent amendment to the Constitution of the state, which abolishes the double liability of stockholders, is not affected by that amendment."
The statement in the Poston case, together with the fact that courts have never discussed the possibility of deciding these other cases on the naked proposition that there was no constitutional provision covering the matter, leads us to the conclusion that in Ohio we are committed to the proposition that the repeal of a constitutional provision such as that in question, which made the stockholders liable ex contractu to the creditors of the bank, does not in itself deprive the creditor of the right to enforce a liability on a debt incurred before the repeal.
Baumgardner v. State, ex rel. Fulton, Supt. of Banks, 48 Ohio App. 5, 192 N.E. 349, is a very well considered case involving many questions in relation to insolvent banks and was decided on April 20, 1934, after Section 3 of Article XIII had been amended in reference to banks. It holds:
"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."
We believe these cases definitely sustain our view that the repeal of the constitutional liability, effective July 1, 1937, does not deprive the court of power to enforce constitutional liability on account of obligations which arose prior to the date of repeal.
Counsel for appellee have kept constantly before the court that there is now no outstanding stock held by those to whom the plaintiffs had transferred their stock and that consequently no liability could attach to the former stockholders through the intervention of a stockholder who was insolvent, and whose insolvency imposed the obligation upon the former stockholder to discharge the obligation he had originally assumed when the corporation became indebted. At first blush there seems to be much in this position, but after examining the cases we are of the opinion that the surrender of the stock to the corporation, whereby in effect the corporation purchased its own stock, does not make a different case than that which would have arisen, had the stock been sold by the former stockholder to purchasers who could not respond by reason of insolvency. If it were otherwise an easy way would develop to escape stockholders' liability by simply surrendering the stock, either as a gift or as a sale, either for cash or on credit. The stock having been issued and having been held by the stockholder and a debt having been incurred, the stockholders' obligation arose and is not discharged until the debt is paid under the principles heretofore pointed out.
Amici curiae are insistent upon the proposition that the appellee in this case occupies a different position than the ordinary creditor in that he was a former stockholder and sold his stock to the corporation and that the debt of the corporation due him as such former stockholder could not be discharged until all other creditors were satisfied. Counsel devotes many pages to this proposition. In our judgment the answer is that it is admitted by the superintendent that the appellee is a creditor and that his claim has been allowed as such. We can not go behind this and hold that his claim is different from the claim of any other creditor.
We have examined at length the decisions of Ohio and have arrived at and have announced our conclusion in reference to the liability of the plaintiff who was once a stockholder but has not been such since 1931, and we must now approach the question as to whether the superintendent, under the statute, has a right to withhold from him his dividend on his allowed claim to cover his possible stockholders' liability. The defendant states in the amended answer that by virture of Section 687-10, paragraph 9, General Code, he is required to enforce the individual liability of each shareholder as it may exist, if he ascertains that the assets of the association will be insufficient to pay its debts and it is also stated that the defendant believes that the assets probably will be insufficient to pay the debts and that he will therefore be required to enforce the individual or superadded liability of the stockholders.
The plaintiff, on January 2, 1931, became a creditor and on that day ceased to be a stockholder. Seven years have elapsed since the surrender of his stock and during that time there has been much activity in this association. New stockholders have come and gone. Old creditors have been paid and new creditors have arisen. This plaintiff is not liable to anyone who was a creditor at the time he held his stock, but who has since been paid at any time or in any manner.
He is not liable to anyone who has become a creditor since January 2, 1931. He is not liable to anyone who was a creditor on January 2, 1931, and is still a creditor until the assessment against all present solvent stockholders has been applied to the payment of such creditor, and there is yet an amount due.
He is only liable in proportion to the stock held by him at the time he was a stockholder to those who were then creditors, less what may have been since paid them and then only after those creditors have had applied to their claims all the funds that can be collected from the present stockholders.
The rule is stated in Poston v. Hull, supra.
See Harpold v. Stobart, supra; Peters v. Mfg. Co., supra.
We have made close search to ascertain the source of the alleged authority of the superintendent to withhold dividends. The defendant has been in charge of this corporation since March 25, 1933, and has not yet determined that there is any stockholders' liability necessary and he should be required to show clear statutory authority for withholding all dividends to which the plaintiff is entitled and which now have been paid to other creditors to the extent of 50 per cent. The defendant's powers and limitations as to building and loan associations, in the condition of the one under examination, are prescribed in Sections 687 to 687-21, General Code. We have carefully read all these sections and detect generally, power not greatly different from that bestowed upon a receiver in winding up an insolvent corporation, although there are many sections specifically relating to building and loan associations.
Section 687-10 enumerates certain powers and authority of the superintendent and paragraph 9 of such subsection provides:
"If he ascertains that the assets of such association will be insufficient to pay its debts and liabilities, to enforce such individual liability of each shareholder as may exist. * * *"
Section 687-15, General Code, directs the payment of dividends and provides:
"* * * Dividends due to shareholders on claims as depositors or otherwise, to the extent of the individual liability of such shareholders, shall be withheld by the superintendent until it is ascertained that it will not be necessary to enforce their individual stock liability. * * *."
No final dividend shall be paid until after the final disposition of all claims.
Paragraph 9 of Section 687-10 gives the superintendent power to enforce such individual liability of each shareholder as may exist. What is the meaning of "each shareholder"? Does it mean those who are shareholders at the time when the superintendent took control and asserted that the assets would be insufficient, or does it mean former shareholders who have long since ceased to be such but who may be contingently liable after the present assets have been applied to creditors and the present stockholders exhausted? The same question arises when we read the part of Section 687-15, General Code, which provides "dividend due to shareholders." Does the statute limit the dividends that may be withheld from present shareholders to the extent of the individual liability of such present shareholders, or does it include dividends that are due to former shareholders who are not now such?
When we consider that the entire purpose of the act is to take possession of, manage, control, rehabilitate, reorganize or liquidate the association, we cannot escape the conclusion that, unless one comes clearly within the provisions of the statute, it was not intended to determine remote and complicated questions before the main purpose of the statute is accomplished.
The appellee in this case, but for the statute, would clearly have a right to an equal distribution with other creditors who already have received 50 per cent of their claims. The provision is in derogation of such right and should be strictly construed. In both sections alluded to and in other sections the word "shareholder" is used without qualification or amplification. It does not describe or allude to a former shareholder, no longer such. The plaintiff in this case is not a shareholder. His liability is remote and contingent, and to extend the power to the superintendent to hold up his dividend, an unusual proceeding in itself, seems to us beyond the purpose of the statute. The superintendent has the same right to secure the payment of his claim before and after it has been reduced to judgment as has any other creditor against any other debtor and these he may exercise in the same way.
We are of the opinion that the court below committed no error in finding that the amended answer does not state a defense, that the demurrer is well taken and that the appellee is entitled to the relief prayed for and to have distributed to him liquidation dividends to the same extent as have been or may be ordered paid to the holder of allowed deposit creditors I claims, and that a mandatory injunction should issue for the payment of such claims. Of course we do not base our judgment on the same reasoning as the court below, but that does not render the final order of the court erroneous.
We are also of the opinion that the order made by the Court of Common Pleas to withhold dividends does not and can not properly refer to the dividend due to this appellee.
Judgment accordingly.
BARNES, P.J., and HORNBECK, J., concur.