Opinion
Decided January 9, 1935.
Banks and banking — Liquidation — Discharge in bankruptcy of bank stockholder — Claim for superadded liability not discharged, when — Order by bankruptcy referee that stock be transferred to bank — Stockholder subject to superadded liability, when.
1. A discharge in bankruptcy of a bank stockholder does not operate as a discharge of a claim against him for superadded liability where, at the time of the bankruptcy proceedings, such superadded liability was contingent, unfixed and unliquidated, there being no authority for fixing such liability until the Superintendent of Banks takes possession of the bank for the purpose of liquidation.
2. One whose name appears on the books of a banking corporation as a stockholder, at the time superadded liability is fixed, is liable therefor regardless of a bankruptcy referee's prior order directing that the stock be transferred to the bank in full liquidation of a promissory note given by the stockholder to the bank, which debt had been secured by the deposit with the bank of such stock as collateral, and further ordering that the bank's claim for the amount due it on such stock as superadded liability be withdrawn as a claim against the bankrupt's estate.
ERROR: Court of Appeals for Putnam county.
Mr. John W. Bricker, attorney general, and Mr. Albert H. Straman, for plaintiff in error.
Mr. L.E. Ludwig, for defendant in error.
The plaintiff in error, State, ex rel. Fulton, was plaintiff, and the defendant in error, J.C. Cruikshank, was one of the defendants in the lower court, and they will be hereafter referred to in the relation they appeared in that court.
This is an action brought by the state of Ohio on the relation of I.J. Fulton, superintendent of banks of the state of Ohio, as successor to O.C. Gray, superintendent of banks of the state of Ohio, in possession of the property and assets of The Citizens State Bank of Leipsic, Ohio, for the purposes of liquidation, against certain persons, including the defendant J.C. Cruikshank, as stockholders of said bank, to recover an assessment of 100 per cent superadded liability, it being alleged that said Cruikshank was a stockholder of said bank holding ten shares of stock of the par value of $100 per share, and that there was a balance of $1,000 due from him for said full double liability. The case was submitted to the trial court on an agreed statement of facts, and that court entered final judgment dismissing the petition of the plaintiff as to said J.C. Cruikshank. This proceeding in error is brought to reverse that judgment.
The agreed statement of facts discloses that at the time the bank closed, on June 3, 1930, said J.C. Cruikshank was listed on the books and records of said bank as being the holder of ten shares of the capital stock of said bank, of the par value of $100 per share; that the bank was closed by order of the banking department of the state of Ohio and was taken over for liquidation by O.C. Gray, superintendent of banks, on the third day of June, 1930; that there were not sufficient assets on June 3, 1930, to pay all depositors, and that the financial condition of said bank was such that it was necessary to, and the Superintendent of Banks did, on October 29, 1930, make an assessment on the stockholders thereof for 100 per cent. superadded liability pursuant to Section 710-75 of the General Code; and, further, that notice of the fact that the records disclosed that he was the holder of ten shares of stock of said bank, for which certificate had been issued to him, and that he had been assessed as a stockholder of said bank $1,000 as superadded liability pursuant to the provisions of Section 710-75 of the General Code, was duly sent to the said J.C. Cruikshank, which notice provided and requested him to pay said assessment at once, and advised him that interest would be charged on said assessment if not paid by October 1, 1930.
The agreed statement further advises that on or about the third day of June, 1929, said J.C. Cruikshank filed his petition in voluntary bankruptcy in the United States District Court for the Northern District of Ohio, Western Division, and that on the same day he was adjudicated a bankrupt by said court; that, thereafter, Albert H. Straman of Ottawa, Ohio, was elected trustee in bankruptcy of the estate of said J.C. Cruikshank, bankrupt; that said estate was administered by said trustee in bankruptcy, and that on the twenty-sixth day of October, 1929, the said J.C. Cruikshank was discharged in bankruptcy; that at the time said J.C. Cruikshank filed his voluntary petition in bankruptcy, and was adjudicated a bankrupt, he was the owner of ten shares of stock in said bank, of the par value of $1,000, and at the same time he was indebted to said bank in the sum of $774.50; that said bank filed its claim with the referee in bankruptcy in said sum, the claim being based on a promissory note given by said Cruikshank to said bank; and that said ten shares of stock at the time of the execution of said promissory note, or thereafter, and prior to the filing of said voluntary petition in bankruptcy, had been placed by said Cruikshank with said bank as collateral for the payment to the bank of said note.
Further, the agreed statement of fact advises:
That Cruikshank listed said ten shares of stock in said bank, in the schedules filed with his voluntary petition in bankruptcy, as an asset of his estate as of the value of $1,500; that on the twenty-ninth day of April, 1930, being prior to the time of the closing of said bank, an order was duly made and entered by H.D. Grindle, referee in bankruptcy in such proceeding, upon the application of said trustee for an order authorizing him to forfeit said stock to the bank in full liquidation of its lien thereon, and authorizing and directing said Albert H. Straman as such trustee of said bankrupt's estate to transfer said stock to said bank in full liquidation of said lien of said bank thereon, and providing that when said stock is transferred to said bank the claim of said bank for the amount due it on said stock be withdrawn as a claim against said estate.
From the foregoing agreed facts the liability of Cruikshank as a stockholder of said bank for such superadded liability is established, unless, as contended by the defendant in error, he cannot be charged with such liability for the following reasons:
First. That his discharge in bankruptcy operated as a discharge of any claim against him for such superadded liability.
Second. That the order directing said trustee in bankruptcy to transfer said stock to said bank in full liquidation of the lien of the bank thereon, ordering the claim of said bank for the amount due it on said stock withdrawn as a claim against said estate, vested the title to said stock in said bank and rendered such trustee not liable for the assessment for superadded liability subsequently made thereon.
We will discuss the contentions of the defendant in error in the order mentioned.
In 62 A.L.R., at page 995, the following general rule is stated:
"Where a stockholder's liability is contingent, unfixed, or unliquidated at the time of his bankruptcy, the same is not discharged by his discharge in bankruptcy."
Among other cases cited in support of this rule is the case of Garrett v. Sayles (1880), 1 F., 371 (affirmed in 1884), 110 U.S. 288, 4 S. Ct., 90, 28 L. Ed., 149.
The case of John A. Roebling Sons Co. v. Shawnee Valley Coal Iron Co., 4 N.P. (N.S.), 113, 17 O.D. (N.P.), 8, affirmed in 78 Ohio St. 408, also supports the rule mentioned. In the latter case the court quotes with approval from the decision of the United States District Court, Northern District, Eastern Division, before Harold Remington, referee, In the Matter of Benjamin L. Rouse, Bankrupt, 40 W.L.B., 220, 226; 1 American Bankruptcy Rep., 393. See, also, Seskin v. Trice, 10 Ohio Law Abs., 595.
In the case at bar the petition in bankruptcy was filed June 3, 1929, a year before the bank was taken possession of by the Superintendent of Banks for the purpose of liquidation, and the discharge was granted on October 26, 1929, and related to all debts and claims, made provable by the acts of Congress relating to bankruptcy, against the estate of John Clarence Cruikshank, existing on June 3, 1929. At the time the petition was filed and at the time the discharge was granted no state of facts existed authorizing the assessment of the superadded liability of stockholders, and no proceeding had been had, or action brought, to fix and/or liquidate such liability, and the liability of the stockholders was contingent, unfixed and unliquidated and was therefore not a provable claim against the bankrupt's estate, and consequently was not discharged by his discharge in bankruptcy.
It further appears from the decision in the case of Fulton, Supt. of Banks, v. Wetzel, 47 Ohio App. 72, 190 N.E. 776, petition in error dismissed, 128 Ohio St. 109, 190 N.E. 579, appeal dismissed by the Supreme Court of the United States, 293 U.S. 531, 55 S. Ct., 207, 79 L. Ed., 222, that the exclusive power to assess superadded liability of stockholders of Ohio banks is vested in the Superintendent of Banks upon taking possession of the bank for the purpose of liquidation, and until the action taken by the superintendent, which was almost two years after the discharge in bankruptcy, there was no authority for fixing such liability.
Such being the state of the law the discharge of Cruikshank in bankruptcy did not have the effect of barring suit to recover superadded liability on said stock.
With reference to the second contention, we turn to 10 Ohio Jurisprudence, 608, Section 450. It is there stated:
"If one selling stock desired to relieve himself from the assessment for the payment of debts thereafter incurred, it was his duty to see that such transfer appeared on the books of the company."
And the cases of Herrick v. Wardwell, 58 Ohio St. 294, 50 N.E. 903, and W.C. Biles Co. v. Charles S. Looker Co., 17 C.C., 538, 9 C.D., 685, affirmed in 63 Ohio St. 561, are cited in support of this proposition.
The third subdivision of the syllabus in the Herrick case reads as follows:
"The stockholders of a corporation whose names appear on the stock book, or in the absence of such book, on stubs of stock certificates, as holders of stock, are subject to a stockholder's liability for debts incurred by the corporation while such names are allowed to so remain. To avoid such liability, it must appear on the stock book in the one case, or on the stub of the stock certificate in the other that the stock has been transferred to some one else."
This rule is approved and followed in the Biles case, supra.
Applying this rule to the facts in the instant case it appears that no transfer was made on the books of the banking corporation of the stock ordered transferred by the referee in bankruptcy, and as such stock appears on the books of the banking corporation in the name of Cruikshank he is liable for the superadded liability assessed thereon.
Holding these views, the judgment of the lower court will be reversed and final judgment entered here for plaintiff below for the amount of said superadded liability, to wit, the sum of $1,000, with interest from October 1, 1930, at costs of defendant in error Cruikshank.
Judgment reversed.
CROW, P.J., and KLINGER, J., concur.