Opinion
Decided May 29, 1933.
Banks and banking — Stockholders' double liability enforceable by superintendent of banks, when — Individual stockholders' liability not enforceable by bank creditor — Section 3, Article XIII, Constitution, and Section 710-75, General Code.
1. Double liability of stockholders in banks is enforceable by legal proceedings at suit of superintendent of banks, but only after liquidation is determined upon and only for benefit of creditors (Article XIII, Section 3, Constitution; Section 710-75, General Code).
2. Individual liability of stockholders of bank being liquidated by superintendent of banks could be enforced only by him, and not by creditor of bank unless such superintendent wrongfully fail or refuse to bring such action (Article XIII, Section 3, Constitution; Section 710-75, General Code).
ERROR: Court of Appeals for Cuyahoga county.
Mr. Baruch A. Feldman, for plaintiff in error.
Mr. John W. Bricker, attorney general, Mr. M.P. Mooney and Messrs. Stanley, Horwitz Kiefer, for defendants in error.
The original action was commenced in the court of common pleas on December 21, 1931, by Baruch A. Feldman, for the purpose of subjecting the stockholders of the Standard Trust Bank to double liability, and for an accounting and the appointment of a receiver. Ten of the stockholders are named as defendants, and it is averred that many others are liable as such, whose names are unknown to the plaintiff.
The plaintiff avers that he is a creditor of the Standard Trust Bank of Cleveland in the amount of $5.29, and that he brings the action in behalf of himself and all other creditors and depositors of the bank. He avers that he is informed, and therefore alleges it to be a fact, that the Standard Trust Bank of Cleveland is insolvent, and its assets, at a fair valuation, insufficient to pay its debts in the regular course of business. It appears from the averments of the petition that the superintendent of banks of the state of Ohio duly took possession of the Standard Trust Bank of Cleveland on December 21, 1931, for purposes of liquidation, and that the action of the plaintiff to enforce the double liability of stockholders was commenced later on the same day. The superintendent of banks on application to the court was made a party defendant, and filed a demurrer to the petition on the ground that it does not state facts sufficient to constitute a cause of action, and that plaintiff does not have legal capacity to begin the action. In the court of common pleas the demurrer to the petition was sustained, and, the plaintiff not desiring to plead further, his action was dismissed by the court.
Article XIII, Section 3, of the Ohio Constitution, as amended in 1912, makes stockholders of corporations authorized to receive money on deposit individually responsible equally and ratably, and not one for another, for the contracts of the bank to the amount of their stock therein, and a similar statutory provision exists in the General Code of Ohio, Section 710-75, which is a part of the present banking code of the state; and this liability is imposed upon the stockholders of a bank for the benefit of the creditors of the bank. The general banking act contemplates that the state superintendent of banks, when he takes possession of the bank by reason of its insolvency, shall use all means which may be necessary or proper for the purpose of collecting all of the assets of the bank and distributing the same among the creditors according to their respective rights. The act provides a complete and comprehensive scheme for the purpose of liquidating insolvent banks, and among the duties imposed upon the superintendent of banks is that of enforcing the double liability of stockholders when he shall have ascertained that the assets of the bank will be insufficient to pay its liabilities. That duty is imposed in the concluding portion of the section just cited, namely, Section 710-75, General Code, and is in the following language: "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." Similar provision is made in Section 710-95, General Code.
As was said by the Supreme Court in Andrews v. State, ex rel. Blair, Supt. of Banks, 124 Ohio St. 348, 178 N.E. 581, 83 A.L.R., 141, the double liability is enforceable by legal proceedings at the suit of the superintendent of banks, but only after liquidation has been determined upon, and only for the benefit of creditors. See, also, Snider v. United Banking Trust Co., 124 Ohio St. 375, 178 N.E. 840.
In view of the comprehensive plan for liquidating state banks provided by the general banking act and the wide powers bestowed upon the state superintendent of banks, it seems apparent that the primary duty of enforcing double liability is vested in that official. While no statute, at the time the action was brought, gave the state superintendent of banks the exclusive right to enforce the individual liability of stockholders, that exclusive right must necessarily be implied where he is proceeding in good faith in the liquidation of the affairs of the bank. It could not have been within the contemplation of the Legislature that there should be a double administration and liquidation, one by the superintendent of banks and another by a receiver appointed in an action brought by a creditor or stockholder to enforce double liability. The superintendent himself cannot bring the action until he has first ascertained that the assets of the bank will be insufficient to pay its debts and liabilities. If the present action could be maintained, brought as it was on the same day that the superintendent of banks took possession, and before any opportunity existed to ascertain the financial condition of the bank, then in any case any creditor or stockholder could maintain such action and the whole plan and scope of the banking act would be nullified. True, no explicit language existed in any statute giving that official exclusive authority, but is not that right necessarily implied by the language of the banking act? When the superintendent of banks is in good faith proceeding with the liquidation of the affairs of a bank, the situation is quite similar to that existing in State, ex rel. Bettman, v. Court of Common Pleas, 124 Ohio St. 269, 178 N.E. 258, 78 A.L.R., 1079, where it was held that the method prescribed by the Legislature in case of the liquidation of building and loan companies was specific, adequate, complete, and exclusive, and that no authority existed to appoint a receiver to perform such functions. While the statute relating to the powers of the superintendent of banks provides that he may enforce individual liability, it is nevertheless true that when his investigations determine the necessity of such action, the duty rests upon him to take appropriate proceedings for that purpose, as circumstances may require.
The Court of Appeals of Cuyahoga county, in State, ex rel., v. Melaragno, 31 O.L.R., 627, had the question before it and resolved it in favor of the superintendent of banks. The question was before the Court of Appeals in New York, and after full consideration that court determined under provisions similar to those existing in Ohio that the statutory power of the superintendent of banks impliedly precludes a stockholder or creditor from instituting an action on behalf of the bank until he shows he is injured by the superintendent's failure to remedy the alleged wrong. Isaac v. Marcus, 258 N.Y. 257, 179 N.E. 487.
It is true that the action in that case, which was brought by a stockholder of the bank of the United States, was to compel directors of the bank to account for alleged wrongful acts; but the situation as to the implied exclusive power of the superintendent of banks was the same as in the case at bar. In the course of the opinion the court used the following language: "It is evident that when the Legislature vested in the Superintendent of Banks authority to institute and maintain against the corporate directors `any action or proceeding which is vested in such corporation or in the stockholders or creditors thereof,' it intended that the Superintendent of Banks should have the duty to bring such an action whenever in his opinion it would be to the advantage of the corporation. No less evident is the legislative intention that he should not be hampered in the exercise of that power and the performance of his duty by hasty or ill-considered action on the part of any stockholder."
Counsel for plaintiff relies largely on the case of Gaiser v. Buck, 203 Ind. 9, 179 N.E. 1, 82 A.L.R., 1348, a case arising in Indiana, but it is manifest that the statutory provisions in Indiana are not similar to the ones existing in Ohio. The provisions of the Indiana statute (Burns' Ann. Stats. 1926, Section 4952) authorize an action by "any receiver or trustee in bankruptcy or in assignment under the insolvency laws." Section 3965, Burns' Ann. Stats., Indiana 1926, merely provides that upon discovery of insolvency of a bank, the bank commissioner shall make application for the appointment of a receiver for such bank.
Since the present action was instituted, the Legislature of Ohio has by explicit provision given the superintendent of banks exclusive authority to bring and maintain such an action, but that statute only removes any possible doubt that may have existed as to the implied exclusive authority theretofore existing. The enactment of that statute naturally raises the question of the right of the plaintiff to bring into this action the remaining stockholders. That question is not, however, before this court.
Judgment affirmed.
WILLIAMS and LLOYD, JJ., concur.
Judges of the Sixth Appellate District, sitting by designation in the Eighth Appellate District.