Opinion
No. 25054
Decided May 1, 1935.
Corporations — Stockholders' double liability — Section 3, Article XIII, Constitution, self-executing — Corporations authorized to receive money on deposit — Building and loan associations — Section 9648, General Code — Capital stockholders individually responsible for double liability.
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.
2. Building and loan associations of Ohio are authorized by Section 9648, General Code, 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, and its capital stockholders are individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such corporation to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares.
ERROR to the Court of Appeals of Knox county.
On October 6, 1933, Dwight M. Warner and J.S. McDevitt, receivers of The Centerburg Building and Loan Association Company of Centerburg, Ohio, filed their petition in the Court of Common Pleas of Knox county, Ohio, against Ed H. Vance, executor of the last will and testament of Sarah E. Debolt, deceased, plaintiff in error herein, and others; which petition we quote, omitting names of parties and amounts:
"Plaintiffs say that they are the duly appointed, qualified and acting receivers of The Centerburg Building and Loan Association Company, of Centerburg, Ohio, having been appointed and qualified as such by the Court of Common Pleas of Knox County, Ohio.
"Plaintiffs say that they were appointed such receivers, as aforesaid, to take over and administer the assets and property of said The Centerburg Building and Loan Association Company, of Centerburg, Ohio, and to do any and all things incidental and necessary to the proper administration of said trust. That from the day of their appointment and ever since, they, as such receivers aforesaid, have been vested with full title to and possession of the property and assets of said company.
"Plaintiffs say that the said The Centerburg Building and Loan Association Company, of Centerburg, Ohio, was and is a corporation organized and existing under and by virtue of the laws of the state of Ohio, for many years prior to the fifteenth day of August, A.D. 1931, and did a general building and loan business in different parts of the state of Ohio, until the said fifteenth day of August, A.D. 1931, when it was adjudged to be in an unsafe and unsound condition for the transaction of its business.
"Plaintiffs say that their careful analysis and examination of the assets and property of said company has disclosed that they are wholly inadequate and insufficient to pay the debts and liabilities of said company; that said company is hopelessly insolvent, and that it is necessary to collect the full amount of the super-added double liability from the owners and holders of the capital stock of said The Centerburg Building and Loan Association Company, in order to pay the debts and liabilities of said company.
"Plaintiffs further say that the said The Centerburg Building and Loan Association Company had an outstanding capital stock issue amounting to the sum of forty-five thousand six hundred dollars, divided into four hundred fifty-six shares of the par value of one hundred dollars each.
"Plaintiffs further say that the assets of said company coming into the hands and possession of said receivers, as aforesaid, exclusive of the amount which may be realized by reason of the double liability of the stockholders in said company will not be sufficient to pay its debts and liabilities, and that it is necessary to collect the full amount of the super-added double liability on said shares of stock to apply upon the payment of said liabilities to the creditors and depositors of said company.
"Plaintiffs further say that certain of said stockholders have paid, or secured to be paid, said double-liability assessment, and the following is a list of stockholders of said company, the number of shares held by each, the amount of said stock, the amount paid upon such liability by each, if any, and the balance due from each of said stockholders who have not fully paid or secured to be paid, said assessment on account of said double-liability. * * *
"Plaintiffs further say that they, as such receivers aforesaid, in the month of August, A.D. 1933, made demand on each of the above named defendants for payment of the amount of said double-liability as listed in the above amounts of balance due.
"Plaintiffs further say that the said The Centerburg Building and Loan Association Company, of Centerburg, Ohio, was a corporation authorized to receive money on deposit, and that said company did actually receive money on deposit during its operation as a going concern in an amount which far exceeds the assets of said company, including the collection in full of the double-liability of said shareholders, as aforesaid.
"Plaintiffs further say that said company has been found insolvent by the court, and that they, as such receivers aforesaid, have been authorized and directed to institute legal proceedings against the stockholders of the capital stock of said company, to collect from them the full double-liability assessment.
"Wherefore, Dwight M. Warner and Jay S. McDevitt, as receivers of The Centerburg Building and Loan Association Company, of Centerburg, Ohio, plaintiffs herein, pray judgment for the benefit of the depositors and creditors of said company, against each of the several defendants herein, for the amounts set opposite their respective names, viz: * * * with interest on said respective amounts from the fifteenth day of August, A.D. 1931, together with costs, and for all such other and further relief, as they, as such receivers aforesaid, may be entitled to in the premises."
To this petition Ed H. Vance, as executor, filed a general demurrer, which demurrer was overruled by the Court of Common Pleas. Vance, not desiring to plead further, submitted to final judgment and prosecuted error thereto to the Court of Appeals of Knox county, which court, one judge dissenting, affirmed the judgment of the Court of Common Pleas, and error is prosecuted here to reverse the judgment of the Court of Appeals.
Mr. James R. Fitzgibbon, Mr. Walter G. Harris and Mr. L.C. Stillwell, for plaintiff in error.
Mr. L. Tate Cromley and Mr. J.S. McDevitt, for defendants in error.
Stripped to its operative facts, the petition filed in the Court of Common Pleas states that plaintiffs therein are the duly appointed, qualified and acting receivers of the Centerburg Building and Loan Association Company of Centerburg, Ohio; that such company was a corporation authorized to receive money on deposit and did receive money on deposit in the progress of its business, which deposits in the aggregate far exceed the assets of such company, including the collection in full of the double liability of all shareholders; that such company has been adjudged insolvent by a court of competent jurisdiction and such receivers have been authorized and directed by such court to institute legal proceedings against the stockholders of the capital stock of such company, to collect from them the full double liability assessment; that the estate of Sarah E. Debolt, deceased, was the owner and holder of twelve and one-half shares of the capital stock of such company, of the face value of $100 per share; that Ed H. Vance is the executor of the last will and testament of Sarah E. Debolt, deceased, and judgment is asked against the estate in the sum of $1,250 for the benefit of the creditors and depositors of such company.
For the purposes of the demurrer, each and all these facts are admitted.
It is the real contention of plaintiff in error that the laws of Ohio do not subject stockholders in a building and loan association, authorized to receive money on deposit, to what is commonly called the "double liability".
We are impressed that the law of this case is determined by Article XIII, Section 3, of the Constitution of Ohio, namely:
"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; 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. * * *"
Section 9648, General Code, provides in very clear terms that building and loan companies shall have power and authority to receive money on deposit.
Section 710-2, General Code, provides as follows:
"The term 'bank' shall include any person, firm, association, or corporation soliciting, receiving or accepting money, or its equivalent, on deposit as a business, whether such deposit is made subject to check or is evidenced by a certificate of deposit, a pass-book, a note, a receipt, or other writing, and unless the context otherwise requires as used in this act includes commercial banks, savings banks, trust companies and unincorporated banks; provided that nothing herein shall apply to or include money left with an agent pending investment in real estate or securities for or on account of his principal; nor to building and loan associations or title guarantee and trust companies incorporated under the laws of this state.
"All banks, including the trust department of any bank, organized and existing under laws of the United States, shall be subject to inspection, examination and regulation as provided by law."
Counsel insist that Section 710-75, General Code, bears on the question herein involved. The only applicability that we can discern is the probability that the General Assembly may have had doubt as to whether Section 3, Article XIII, of the Constitution of Ohio was self-executing. Section 710-75, General Code, reads as follows:
"Stockholders of banks shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such bank, 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 stockholders in any bank who shall have transferred their shares or registered the transfer thereof within sixty days next before the failure of such bank to meet its obligations, or with knowledge of such impending failure, shall be liable to the same extent as if they had made no such transfer, to the extent that the subsequent transferee fails to meet such liability; but this provision shall not be construed to affect in any way recourse which such stockholders might otherwise have against those in whose names such shares are registered at the time of such failure. In determining the said period of sixty days, the period or periods when any bank is in the possession of the superintendent of banks or is operating under any restriction upon the withdrawal of deposits or the payment of liabilities shall be excluded. 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."
Defendants in error insist that it was the intention of the delegates to the Constitutional Convention of 1912 to subject stockholders in building and loan associations to the so-called double liability.
The proceedings of that convention, as recorded at pages 1165 to 1187 of Volume 2 of the Proceedings and Debates of that convention, prove beyond question that it was the intent of that convention that stockholders in building and loan associations authorized to receive money on deposit were included within the provisions of Section 3 of Article XIII. In fact the proposal to exempt building and loan associations was placed before the convention and was voted down.
We agree with the learned Court of Appeals that that section of the Constitution is self-executing insofar as it fixes the responsibility of stockholders of a corporation which is authorized to receive money on deposit, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares.
We cannot subscribe to the contention that it never was the intention of the people of Ohio to attach double liability to holders of stock in building and loan associations that were authorized to receive money on deposit.
We do agree that it was not the original purpose or intent of the law that building and loan associations should accept money on deposit. The original purpose of building and loan associations was to finance the acquisition of homes by loaning money to home builders, usually limited by the by-laws of the association to two-thirds of the value of the property and secured by a first mortgage on the property.
If these institutions had confined their activities along this line, they would have been happier and healthier. They insisted upon engaging in the business of accepting deposits. It was but logical and natural that money deposited in a building and loan association should be surrounded with the same safeguards as were required of a bank of deposit.
We are fully aware that many persons, natural and artificial, will suffer from the imposition of the double liability — but, they imposed it upon themselves when they ratified the work of their delegates to the Constitutional Convention of 1912, and, while the penalty may be severe, there was much wisdom in the provision.
The judgment of the Court of Appeals is affirmed.
Judgment affirmed.
WEYGANDT, C.J., WILLIAMS, JONES, MATTHIAS, DAY and ZIMMERMAN, JJ., concur.