Sargent v. Waterbury

Mr. Justice Benson delivered the opinion of the court. 1. At the outset it is observed that the only purpose of the allegation of . fraud in the complaint is to meet the provision of Section 6696, L. O. L., relating to the conclusiveness of the valuation by directors of property taken in payment of stock subscriptions, and, therefore, the legal principles applicable to the case are not in any manner to be distinguished from those applicable in any other case where the' individual liability of stockholders is sought to be enforced. The question to be considered is the sufficiency of the complaint as against a general demurrer. Defendants contend that the demurrer should be sustained for three reasons: (1) That the complaint fails to allege that the defendants were stockholders at the time the suit was commenced; (2) that all stockholders having unpaid stock are indispensable parties; (3) that it is incumbent upon the plaintiff to allege facts showing an accounting of the debts of the insolvent corporation, and an assessment of the amount necessary to be collected upon such share of unpaid stock to pay such debts. 2,3. Considering these contentions in the order named, we first note the fact that while the complaint — 168 — alleges that the defendants subscribed for stock and that it was issued to them on December 31, 1906, and that they afterward participated in the business of the corporation, it is not alleged that they were stockholders when the suit was commenced in August, 1911. Since it appears from the complaint that this proceeding is avowedly for the sole purpose of enforcing the individual liability of stockholders, because of the lack of other assets to pay the debts, the authority of the superintendent to prosecute it is derived from the statute and is found in Section 4586, L. O. L., as amended, Laws of 1911, page 244, which says: “And may, if necessary to pay the debts of such bank, enforce the individual liability, if any, of the stockholders.” Thus it is seen that the plaintiff’s right to sue in this instance is limited to stockholders. Plaintiff insists that the complaint is effectually aided by the legal assumption, “that a thing once proved to exist continues as long as is usual with things of that nature” (Section 799, L. O. L., subd. 33), and cites a number of authorities to the effgct that facts which the law presumes need not be pleaded. We have carefully examined all these authorities and are unable to discover where they aid the complaint in the present ease. Bliss on Code Pleading (3 ed.), Sections 175 and 175a, states the doctrine thus: “ ‘When the law presumes a fact, it should not be stated ’; thus, the law presumes every man innocent of crime or of fraud, that he is of good character, that he has capacity to contract, that he is free, that he is not indebted or a bankrupt, that he has not been negligent in the performance of a duty, that his business has been transacted legally. The plaintiff should not state the facts thus presumed; but if to be put in issue, the contrary averment must come from the other side, — 169 — although in actions for injuries to character, some of the old common law precedents violate the rule by unnecessarily alleging the good character of the plaintiff. The law also presumes the fact of consideration in contracts evidenced by sealed instruments, or by negotiable promissory notes or bills of exchange. Their execution and delivery import consideration; hence it need not be alleged. Some of the states have extended the scope of this presumption to most, or all, written promises; and, as to them, a want of consideration is but matter of defense: Section 175. “These presumptions should not be confounded with inferences — presumptions often called — arising from probative facts, the facts inferred, or presumed, and not those going to establish it. Thus the presumption that the stronger of two drowning persons will survive, if it exist at all, is, at common law, one of fact, and, in a given case, the pleader should allege that, on, etc., A. B. — the weaker person — died, leaving his only child, C. D. — the stronger person- — as • his heir at law. Whether C. D. in fact survived, or whether both perished together is matter of inference from all the facts. So the presumption of negligence which is sometimes drawn from the fact of the injury is an argumentative one, is an inference, and not a presumption proper, and the pleader should allege the negligence. Nor does the rule embrace conclusive presumptions”: Section 175a. Counsel for plaintiff are confounding the inference that because the defendants were stockholders in December, 1906, they were stockholders in 1911, with a presumption of a fixed fact, such as those suggested by Mr. Bliss in Section 175, supra. In 31 Cyc. 49, we read: ‘ ‘ But it is not sufficient that a fact may be inferable from the facts pleaded, where it is not necessarily implied. And it has indeed been said that under the codes a fact must be pleaded unless the law raises a conclusive presumption of its existence from the facts stated. In many cases, under a rule of liberal construe — 170 — tion, courts have held pleadings sufficient which only inferentially and by reasonable presumption contained material averments, but such inference or presumption does not take the place of a positive averment for all purposes, and if objection to such pleadings is made seasonably and properly it will be sustained.” In Malone v. Craig, 22 Tex. 608, it is said that: “A petition should state the plaintiff’s cause of action by distinct averments and not leave it to the court to deduce the existence of one fact from the statement of another.” It cannot be overlooked that the relation of the defendants as stockholders is a vital element in plaintiff’s right to maintain the suit; that it is just as important as the allegation in an action in replevin, that plaintiff is entitled to the immediate possession of the property. In Affierbach v. McGovern, 79 Cal. 268 (21 Pac. 837), it is said that: “A complaint to be good must show a cause of action in favor of the plaintiff and against the defendant existing at the time the action is commenced. This complaint does not show this, but if it states a cause of action at all, shows that it existed more than four years before the commencement of the suit, and for that reason the complaint is clearly bad.” The vice of such a pleading is strikingly apparent in the case at bar in the fact disclosed by the evidence that of the eight defendants, only three were actually stockholders when this suit was commenced, and that at that time their combined holdings aggregated only 30 out of the 850 shares upon which the suit is based. 4. Plaintiff insists that the surrender of their stock to the corporation was a violation of Section 4569, L. O. L., and void, and that therefore they are still the owners of the stock so surrendered. There might be some merit in this contention if the bank had per — 171 — manently retired such stock upon its surrender, but the record discloses that it was subsequently reissued, being sold to other persons and that the very directors who turned the bank and its assets over to the superintendent of banks held their office and acted as stockholders by virtue of their subsequent holding of some of this very stock. We come then, to a discussion of the second and third points which are so related as to be better considered together. The complaint does not plead the taking of an account and determination of the total unpaid debts of the bank, nor does it allege that there has been any computation or determination of the amount ratably necessary to be collected upon each share of unpaid stock to raise an amount sufficient to pay such debts. In Bush v. Cartwright, 7 Or. 329, we note the following: “But upon the other hand, we find that there are many cases in which it has been held that the remedy is in equity, where the rights of the corporation, the stockholders. and creditors can all be adjusted in one suit upon the principles of equality and justice. And as the views presented in these cases recommend themselves to our consideration as the most reasonable and appropriate we have concluded to adopt them.” In Harris v. The First Parish in Dorchester, 23 Pick. (Mass.) 112, which is cited with approval in Bush v. Cartwright, supra, is found the following language: “If actions at law will lie, * * suits may be multiplied to an indefinite extent. Bach bill holder or other creditor must have his separate suit, and each stockholder must be sued separately. Again, suits between stockholders to adjust their contributions, would be interminable. If .a creditor’s demand be larger than the amount of stock owned by any one, he must have — 172 — several suits against several individuals on the same cause of action, or lose a part of his just demand. If any one stockholder owned more stock than was needed to meet any one claim made upon him, he would be liable to several suits.” In Hodges & Wilson v. Silver Hill Mining Co., 9 Or. 200, this court speaking by Mr. Chief Justice Lord says: “To the extent of the stock subscribed and unpaid, each stockholder is liable for the indebtedness of the corporation. It is a several, distinct and limited liability, as to which each stockholder stands alone, irrespective of the amount for which others are liable, except that if he pay more than his proportion of such debts, he may, as in other cases, have contribution from his co-shareholders. In the absence of any legislation providing for the enforcement of this liability, the implication of law is that the common law would supply a remedy. “Our predecessors, however, conceived 'that the remedy in equity, where the rights of the corporation, the stockholders and creditors, could all be adjusted in one suit, upon principles of equality and justice, would be more appropriate, adopted the remedy in equity for the enforcement of such liabilities. Bush v. Cartwright, 7 Or. 329, * * The amount of stock subscribed and unpaid of each stockholder is more than sufficient, many times, to liquidate the amount of the judgment against the corporation. That fact, however, would not make it less oppressive in principle to select some one of the number of defendant stockholders, and compel him to liquidate the judgment, because the amount of such judgment did not exceed the amount of his stock subscribed and not paid in, as claimed in the argument. It seems to us such a theory would frustrate some of "the principal objects for which the remedy in equity was adopted; among which was that to enable the court to order such contribution amongst such stockholders as would be equitable, to raise the money to pay such claim. This — 173 — mode secures the payment of the indebtedness ratably, fixes, according to the liability, the burdens of such payment, and avoids the necessity of a multiplicity of suits.” In Brundage v. Monumental G. & S. M. Co., 12 Or. 322, 324 (7 Pac. 314, 315), the same eminent jurist says: “The constitution provides that ‘the stockholders of all corporations and joint stock companies shall be liable for the indebtedness of said corporation to the amount of their stock subscribed and unpaid, and no more. ’ By this section the liability of stockholders of a corporation is limited to the amount of their stock subscribed and unpaid; and the remedy to enforce this liability, it has been held, is in equity, where the rights of the corporation, the stockholders, and all the creditors can be adjusted in one suit. (Ladd v. Cartwright, 7 Or. 329; Hodges v. Silver Hill M. Co., 9 Or. 200.) # # The liability, therefore, of the stockholders upon their unpaid subscription to the capital stock being a trust fund in equity for the payment of the debts of the corporation, all the creditors are entitled to share in it. As a result of this doctrine, the general proposition is well sustained by the authorities that a judgment creditor of the corporation, who has exhausted his remedy at law, may maintain a suit in equity in his own behalf, and in behalf of such other creditors of the corporation as may unite to become parties with him, against the corporation and its delinquent stockholders, and have a decree that an account of the assets and debts of the corporation be taken, and that the stockholders pay in and account for so much as may be due from them respectively to the corporation on account of their capital stock as will be sufficient to pay the debts represented by the plaintiff and such other creditors as.may join. * * When the object of the bill is to settle or wind up the affairs of the corporation which is insolvent, and it becomes necessary to ascertain the whole amount of the indebtedness and to whom due, and also who are liable — 174 — to contribute upon their unpaid stock subscriptions, the necessity of bringing the suit in the name and for the benefit of all the creditors of the corporation, and against all the stockholders found within the jurisdiction, is conceded.” 5. Referring to the opinion just quoted, plaintiff insists that this is not a winding up suit but simply a proceeding to collect a debt due to the corporation. We cannot agree with this position, for it appears from the allegations of the complaint that the debts of the bank are nearly $100,000; that its entire assets do not exceed $10,000; and that it is necessary, in order to pay the debts of the bank, to enforce the individual liability of the stockholders. In addition to these conditions, the allegations of paragraph 4 of the complaint are as follows: “That on or about the 18th day of December, 1911, plaintiff, upon examination of said American Bank & Trust Company, in his capacity as superintendent of banks of the State of Oregon, found the same to be insolvent, and thereupon, on said day, said bank placed its business and assets under the control of plaintiff to be liquidated, by posting a notice on its door as follows: ‘This bank is in the hands of the Superintendent of Banks,’ and the board of directors of said bank in writing requested said plaintiff to take charge of the same, and immediately an executive officer of said bank notified plaintiff of such action, personally and in person and delivered to plaintiff the said written request of said board of directors; and upon said action of said bank and the written request of its board of directors, plaintiff took possession of all of the assets, property and affairs of said banking corporation, and ever since said day has been and now is in possession of said banking corporation and of all of its property and assets of every kind for the purpose of liquidating and settling up its business, and is proceeding with said liquidation and settlement, and in the collection of all money and of all credits due, and — 175 — to become due to the said corporation, and paying its liabilities so far as funds are realized therefor.” It follows that this proceeding is merely a step in the process of winding up the affairs of the corporation, and does not bear any likeness to the case of a creditor seeking to recover his claim against a delinquent stockholder. In Lane’s Appeal, 105 Pa. St. 49 (51 Am. Rep. 166), which appears to be a leading case upon this question, we find the doctrine expressed thus: “Now it is manifest upon" the plainest principles, that in the case of an insolvent corporation, all of whose assets are exhausted except its unpaid capital stock, there can be no recovery against a delinquent stockholder until a call or assessment has been made upon him fixing the amount he is required to pay. Prior to insolvency this might be done by the corporation if it is not disabled by the special terms of the subscription contract. But when insolvency and exhaustion of assets exist, the unpaid capital is not available to any one creditor in satisfaction of his debt, because then the whole amount of the unpaid capital is a trust fund which does not belong to the corporation, but to the whole body of its creditors. Hence, whether the proceeding originates in the name of one, or of several, or of all the creditors, the result is the same in each. The capital, when recovered, inures to the benefit of all, and must be distributed among all ratably. Before any recovery can be had in such proceedings, no matter of what particular form, there must be an assessment made by a competent authority. The necessity for an assessment arises from the consideration that only so much of the unpaid capital can be called in as is required for the payment of the unsatisfied debts. If the whole unpaid capital is not required the whole cannot be called. In order to ascertain how much is required there must be an account of debts, assets and unpaid capital taken, and then a decree for an assessment of the amount due by — 176 — each stockholder. Thus in Mann v. Pentz, 3 N. Y. 423, the court said: ‘This liability (for unpaid capital) is only incurred when the capital paid in is not sufficient to satisfy the debts against the corporation, and then only to an amount sufficient to satisfy such debts. It is therefore necessary that an account of the assets and of the debts should be taken, of the amount of capital remaining unpaid upon the shares, and the amount unpaid by each stockholder, in order that they may be made equally liable.’ ” In Myers v. Seeley, 10 Nat. Bank. Reg. 411 (Fed. Cas. No. 9994), it is said: “Bills by creditors who have judgments against a corporation have been sustained against the corporation and its stockholders. Said bills being framed in the name of the judgment creditors and of all others who may choose to come in and be made parties thereto. In such cases the decree has been for an account to be taken of the debts and assets of the corporation, for the appointment of a receiver, to whom the stockholders and officers are ordered to pay and account respectively for so much of - the assets and capital stock as are necessary to pay the debts due to the creditors; the assets thus collected and received to be applied by the receiver in discharge, of the debts. The reason of that rule is that the unpaid subscriptions are assets applicable to the payment of corporate debts which the corporate authorities may call in for corporate purposes. If there are adequate assets other than said calls, then the creditor has no legal or equitable right to insist upon such calls. Primarily, the amount due on subscriptions is a debt to the corporation which it alone can enforce and unless the corporation is without other assets to meet its obligations, and fails to make the needed calls, creditors cannot interpose. When the facts justify their interposition, an account of assets and debts should be taken in order that it may be known what, if any, calls should be made. No further call should be made than what is sufficient, together with the other assets, to — 177 — meet all debts; for the bill by creditors, cannot reach beyond the satisfaction of their demands. They have no other equity.” These authorities not only represent the doctrine upheld, as we think, by the weight of authority, but are supported by sound reason and the fundamental principles of equity. The allegations of the complaint disclose a corporation in a condition of hopeless insolvency. For this reason it was voluntarily turned over to the superintendent of banks and every proceeding which he institutes is a step in the process of winding up its affairs. He cannot proceed in the manner undertaken here. If he could, he might secure judgments far in excess of the demands of the creditors in whose behalf he sues, and to which no rules of equity or justice entitle him. Much was said in the argument as to the case of Sargent v. American Bank & Trust Co. et al., 80 Or. 16 (154 Pac. 759), as having a controlling influence upon the conclusions to be reached in this case, but the history of the two is so widely different as to render the former of practically no value in the determination of the questions here considered. The suit is therefore dismissed without prejudice to any further proceeding not inconsistent with the views herein expressed. Dismissed. Mb. Chief Justice Moore, Mr. Justice Burnett and Mr. Justice Harris concur.