The defendants, residents of the State of New York, have been since January 31, 1931, the owners and holders of 100 shares of the capital stock of the Page Trust Company, a banking corporation organized and doing business under the laws of the State of North Carolina. The rights and obligations of the *Page 31 stockholders of a corporation arise from and are defined by the charter, constitution and by-laws of the corporation; and the laws of the State which creates the corporation are "integrally and necessarily the criterion to be resorted to for the purpose of ascertaining the significance of the constitution and by-laws." (Supreme Council of Royal Arcanum v. Green,237 U.S. 531, 542.) The statutes of North Carolina provide that: "The stockholders of every bank organized under the laws of North Carolina, whether under the general law or by special act, shall be 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 stocks therein at par value thereof, in addition to the amount invested in such shares, except as otherwise provided. * * *." (No. Car. Code; Consolidated Laws, N.C., ch. 5, art. 4, § 219-a.) This action is brought to enforce that liability.
"It may be regarded as settled that upon acquiring stock the stockholder incurred an obligation arising from the [statutory] provision, contractual in its nature and, as such, capable of being enforced in the courts not only of that State, but of another State and of the United States (Whitman, etc., v.Bank, 176 U.S. 559), although the obligation is not entirely contractual and springs primarily from the law creating the obligation. (Christopher v. Norvell, 201 U.S. 216.)" (Bernheimer v. Converse, 206 U.S. 516, 529.) The defendants do not dispute the existence of the obligation or that it may be enforced in the courts of this State. They appeal to this court from the judgment rendered against them on the ground that liability upon that obligation has not been properly established.
The statutes of North Carolina not only create the obligation but provide a remedy for the enforcement of the obligation. That remedy constitutes a part of the statutory method for the liquidation of banks. (No. Car. *Page 32 Code; Cons. Laws, § 218-c.) That section confers upon the Commissioner of Banks of the State power to take possession of any bank which he shall find "in an insolvent, unsafe or unsound condition * * * to continue its business," or which neglects or fails to obey certain requirements of the Commissioner of Banks, or which has voluntarily placed its assets and business under the control of the Commissioner of Banks; or which "shall suspend operations for any length of time." (Subds. 1 and 2.) It requires the Commissioner of Banks, within forty-eight hours after taking possession of a bank, to file "with the clerk of the Superior Court in the county where said bank is located, a notice of his action which shall state the reason therefor." (Subd. 3.) "Within thirty days after the filing of the notice of the taking possession of any bank in the office of the clerk of the Superior Court, the commissioner of banks, or the duly appointed agent, shall make and state an inventory of the assets and liabilities of the said bank, and shall file one copy thereof with the Clerk of the Superior Court in the pending action and shall keep one copy on file in the said bank." (Subd. 9.) "After the expiration of thirty days from the date of the filing of the notice of the taking possession of any bank, in the office of the Clerk of the Superior Court, the commissioner of banks may levy an assessment equal to the stock liability of each stockholder in the bank, and shall file a copy of such levy in the office of the clerk of the Superior Court, which shall be recorded and indexed as judgments, and shall have the force and effect of a judgment of the Superior Courts of this State; and the same shall become due and payable immediately, * * * and actions on said assessment may be instituted against any non-resident stockholders in the same manner as other actions against non-residents of the State. Any stockholder may appeal to the Superior Court from the levy of the assessment; the issue raised by the appeal may be determined as other actions in the Superior Court * * *. All sums collected under the levy shall become *Page 33 immediately available as general assets of the bank for distribution as other assets; Provided, however, that whenever the expenses of liquidation have been paid and all of the liabilities to depositors and other creditors shall have been discharged, the money then remaining in the hands of the commissioner of banks shall be applied pro rata to the repayment of the amounts paid in by the stockholders" (Subd. 13).
The Commissioner of Banks has, at least in form, complied with all these provisions of the statute. On May 20, 1933, he took possession of the bank after the bank was closed for business by the directors who, by formal resolution, placed its assets under his control for liquidation. He filed the required notice of possession on May 22. The bank might then have opposed his action, if for any reason it was invalid. When it failed to do so, the action of the Commissioner became conclusive upon the bank and all its stockholders. "In such case it has been frequently held that the representation which a stockholder has by virtue of his membership in the corporation is all that he is entitled to." (Bernheimer v. Converse, supra, p. 532.) It must be remembered, however, that though no stockholder can thereafter, in another proceeding, collaterally attack the right of the Commissioner of Banks to liquidate the bank for the reasons stated in the notice, yet these reasons do not include insolvency of the bank, and liquidation of the bank would be in accordance with the statutory powers of the Commissioner even if the bank was not insolvent.
In order to enforce the statutory obligation of the stockholders in such liquidation, there must be necessity for such enforcement, and such necessity must be determined by the Commissioner of Banks before liability arises. The liability imposed by the obligation is a separate liability and each stockholder is responsible only for his proportion of the debts of the bank. The Federal statutes for a long time imposed an obligation upon the *Page 34 stockholders of national banks in identical language. In construing that statute it has been said that the words of the statute do not "mean that the stockholder promises the creditor as surety for the debts of the corporation, but merely impose a liability on him as secondary to those debts, which debts remain distinct, and to which the stockholder is not a party. The liability is a consequence of the breach by the corporation of its contract to pay, and is collateral and statutory." It is conditional and enforceable only according to the statute "independent of which the cause of action does not exist." (McClaine v. Rankin, 197 U.S. 154, 161, 162.) "In the process to be pursued to fix the amount of the separate liability of each of the shareholders, it is necessary to ascertain, (1), the whole amount of the par value of all the stock held by all theshareholders; (2), the amount of the deficit to be paid after exhausting all the assets of the bank; (3), then to apply the rule that each shareholder shall contribute such sum as will bear the same proportion to the whole amount of the deficit as his stock bears to the whole amount of the capital stock of the bank at its par value." (United States v. Knox, 102 U.S. 422,425.) At the trial of this action no evidence was given to establish the amount of the deficit, if any, to be paid after exhausting the assets of the bank. The plaintiff showed only that the Commissioner of Banks on June 5, 1933, mailed to stockholders a notice "that on the 22nd day of June, 1933, the Commissioner of Banks under and by virtue of the provisions of Paragraph 13, Chapter 113, Public Laws of 1927, as amended by Chapter 243, Public Laws of 1931, will levy an assessment against thestockholders of the above named bank, and will, on the said 22dday of June, 1933, docket said assessment in the office of the Clerk of Superior Court of Moore County," and that on June 22d he did docket an order of assessment stating: "it appearing to the Commissioner of Banks that an assessment against the stockholders of the Page Trust Company * * * is necessary, * * * the Commissioner of *Page 35 Banks of the State of North Carolina hereby levies an assessment," etc. The plaintiff maintains, and the Appellate Division has held, that under the statute the determination of the Commissioner of Banks that an assessment is necessary is conclusive and may not be attacked in an action brought in this State against a non-resident to enforce the assessment.
The statute of North Carolina does not in terms provide that the determination of the Commissioner of Banks shall be conclusive. It is said, however, that such provision is there by fair implication. The power of the State to intrust to the Commissioner of Banks the function of determining whether in the course of his administration of an insolvent bank he should enforce the statutory liability of stockholders is not open to challenge. (Kennedy v. Gibson, 8 Wall. [U.S.] 498; Casey v.Galli, 94 U.S. 673.) His determination of the necessity and the amount of the assessment to be made may, if the statute so provides, be conclusive in a statutory action thereafter brought to enforce such liability. Even then, it must appear that the statute authorized such determination, and that the Commissioner of Banks did not exceed the jurisdiction confided in him. Here there is grave question whether the statute was intended to provide that the assessment made by the Commissioner of Banks should be in any respect conclusive, even in statutory proceedings in North Carolina. The statute provides, it is true, that an assessment made by the Commissioner shall have the force and effect of a judgment of the Superior Court, yet it is clear that the determination of an administrative officer, like the judgment of a court, cannot be given conclusive effect outside of the administrative field, unless there has been notice and opportunity to be heard before the determination is made. Certainly the determination of an administrative officer cannot be given conclusive effect where enforcement of the judgment of a court would violate constitutional safeguards. *Page 36
Probably to meet such objection, the statute further provides that "any stockholder may appeal to the Superior Court from the levy of the assessment; the issue raised by the appeal may be determined as other actions in the Superior Court" (Subd. 13). What issue may be raised in such an action? Certainly the question of whether the Commissioner has under the statute any power to levy an assessment; for that question concerns the jurisdiction of the Commissioner and the jurisdiction of an administrative officer may always be challenged. If that challenge be successfully met, then the question of the effect of the determination by the Commissioner is primarily a question of statutory construction and secondarily of constitutional power.
The Supreme Court of the State of North Carolina, construing the statute in Corporation Commission v. Murphey (197 N.C. 42), said: "When a banking corporation is adjudged insolvent, because its assets, available for the payment of its liabilities, are not sufficient for the payment of the same, each stockholder has notice that he is liable to an assessment on account of his individual, statutory liability. He is interested then only in the amount or amounts for which he may be assessed on account of such liability. Under the procedure prescribed by the statute, he has notice that the corporation has been adjudged insolvent; he also has notice of the amount of the assessment made against him. He may appeal from the assessment to the Superior Court of the county in which the proceeding for the liquidation of the corporation is pending; on his appeal, all issues raised by him,whether of law or of fact, involving his liability on theassessment, will be determined, in accordance with the procedure for the trial of actions brought and prosecuted in the Superior Court" (p. 45). (Italics are mine.) For that reason the State court upheld the constitutionality of the statute and its decision was affirmed by the Supreme Court of the United States (280 U.S. 534) in a memorandum decision: "Judgment affirmed.Coffin Brothers Co. v. Bennett, 277 U.S. 29; MissouriPacific R. Co. v. *Page 37 Nebraska, 164 U.S. 403, 414; Knights of Pythias v. Meyer,265 U.S. 30, 32-33."
The respondent Commissioner of Banks relies upon that decision as authority for his contentions here. An analysis of that decision shows that it barely touches the questions raised by the appellant here. In the earlier case, as the Supreme Court of North Carolina pointed out, the bank had been adjudicated insolvent. That adjudication was binding upon all the stockholders of the bank because there the stockholders were represented by the bank and it established conclusively that each stockholder was "liable to an assessment on account of his individual * * * liability" and the stockholder was "interested then only in the amount or amounts for which he may be assessed on account of such liability." The procedure prescribed by the statute, as construed by the court, provided for notice and opportunity to be heard upon every issue of law or fact as to the validity of the assessment, and certainly that must include theonly issue in which the stockholder was then interested. Thus construed, the statute provided "`a mode only of commencing against [the stockholders] suits to enforce their statutory liability to depositors.'" (Coffin Bros. Co. v. Bennett,277 U.S. 29, 31.)
In the case now under consideration, there has been no adjudication that the bank is insolvent. On the contrary, the power of the Commissioner to liquidate the bank is derived from the voluntary act of the directors of the bank in closing its doors and placing its assets under his control, and it appears that the directors of the bank took such action for the purpose of making effective a proposed plan of reorganization which included an assessment of one hundred per cent upon the stockholders' liability. It is true that this plan of reorganization has been long since abandoned and the Commissioner of Banks does not now contend that an assessment for the purpose of carrying out the plan of reorganization would be valid. *Page 38 His contention now is that in spite of the fact that there has been no prior adjudication of insolvency, where there is actual insolvency he may levy an assessment upon stockholders for the purpose of enforcing their statutory liability. He unquestionably has that power under the North Carolina statute as construed inMatter of Independence Trust Co. v. Keesler (206 N.C. 12), but only if in truth the bank is actually insolvent, and a stockholder, before his property can be used for the satisfaction of his statutory liability, must have opportunity to contest the validity of the assessment and its amount.
If the procedure authorized by the statute is only "`a mode * * * of commencing against [stockholders] suits to enforce their statutory liability to depositors'" (Coffin Bros. Co. v.Bennett, supra), then it would seem that the State could not compel non-residents of that State to go to the State in response to notice not served upon them within the State. Here it must be remembered that in Corporation Commission v. Murphey (supra) the defendant was a resident of the State. No court has yet held that in an action brought in another State against stockholders resident there, the assessment of the Commissioner of Banks in North Carolina is conclusive, unless previously challenged by resort to the courts of that State.
In Bernheimer v. Converse (206 U.S. 516); Converse v.Hamilton (224 U.S. 243); Selig v. Hamilton (234 U.S. 652);Marin v. Augedahl (247 U.S. 142), cited by Judge FINCH as authority for that proposition, the court held only that a judgment in a proceeding against the corporation would be conclusive as an adjudication in rem establishing the status of the corporation, in subsequent proceedings in personam against a stockholder of the corporation. There, as pointed out above, the stockholder was represented by the corporation. These cases might be applicable if these defendants challenged the right of the Commissioner of Banks to liquidate the bank; for there the corporation would represent the shareholders. *Page 39 Here the defendants challenge the determination of the Commissioner made in the course of liquidation to enforce the shareholders' statutory liability, and according to the construction which the Supreme Court of the State of North Carolina has placed upon the statute, there is no such liability unless the corporation is insolvent. Insolvency has not been adjudicated in any proceeding in rem against the corporation or in any other proceeding in which the defendants appeared or were represented. Indeed no issue as to the validity of the assessment which the appellant seeks to raise in this action has ever been adjudicated in any court.
It is said, however, that under the provisions of the statute, those issues may be adjudicated only in the statutory proceedings in the Superior Courts of North Carolina. The State could so provide in the case of resident stockholders. It is at least doubtful whether the statute intends that non-residents must resort to the courts of the State of North Carolina in order to challenge the validity of an assessment; for the statute provides as to them that after an assessment has been levied "actions on said assessment may be instituted against any non-resident stockholder in the same manner as other actions against non-residents of the state" (Subd. 13). That provision seems to indicate that the Legislature intended to make a distinction between resident stockholders and non-resident stockholders in regard to the procedure for the enforcement of an assessment. Against resident stockholders the assessment should have "the force and effect of a judgment" subject, however, by attack through "appeal" (Subd. 13). Against non-resident stockholders judgment should be entered only in an action brought, like "other actions against non-residents of the state," i.e., an action in which the court would obtain jurisdiction of the person of the non-resident stockholder. It seems to me difficult to give this provision any other construction, but question of construction is unimportant, for the Legislature would have no power to provide otherwise. *Page 40
The State could not provide that without personal service within the State a personal judgment could be entered against a non-resident stockholder. (Pennoyer v. Neff, 95 U.S. 714.) True stockholders of a bank or other corporation may be bound by an adjudication against the corporation where by express or implied agreement of the stockholders the corporation has power to represent the stockholders. Outside that field the State may not deprive a stockholder of his right to litigate, in accordance with the requirements of due process, all matters affecting his rights. (Pope v. Heckscher, 266 N.Y. 114, 118.) In the cases there cited, the issue left undecided by prior adjudication where the stockholder was represented by the corporation, was only "the fact of his status as stockholder and defenses personal to him." Here no prior adjudication has been made of any issue affecting the validity of the assessment except the right of the Commissioner of Banks to liquidate the bank for reasons other than insolvency. Under the statute as construed in CorporationCommission v. Murphey (supra), all such issues could be raised in judicial proceedings in the State of North Carolina. The State cannot, by notice, compel a non-resident stockholder to resort to the courts of the State to present his defense; yet to sustain the action brought in New York against a stockholder resident here, it is said that the assessment becomes conclusive, because the New York stockholder has not, in obedience to notice, challenged the assessment by judicial proceedings in North Carolina. Thus the courts of this State are asked to give judgment upon a statutory liability without proof that the liability exists, except the fiat of an administrative officer, and without right by the defendant to challenge that fiat. Such procedure might be a convenient method of enforcing liability, but disregard of the requirements of due process cannot be justified on the ground of administrative convenience.
Finally it is argued that the judgment against these defendants may be sustained on the ground that even though the assessment is not a judgment entitled to full *Page 41 faith and credit, yet that the administrative act of the Commissioner establishes, either presumptively or conclusively, that the assessment is necessary. Analogy is found in decisions of the Supreme Court of the United States which construed the Federal statutes in regard to the statutory liability of national banks, as intended to make the determination of the Commissioner conclusive. In those cases the insolvency of the bank was not challenged; nor was there any other challenge relating to the jurisdiction of the administrative officer. (Kennedy v.Gibson, 8 Wall. [U.S.] 498; Casey v. Galli, 94 U.S. 673;Bushnell v. Leland, 164 U.S. 684.) Moreover it was pointed out in United States v. Knox (102 U.S. 422, 425) that although assessments made by the Comptroller are conclusive in a statutory action, yet if the Comptroller's determination were unjust "it cannot be doubted that a court of equity, if its aid were invoked, would promptly restrain him by injunction." Those cases have no application here, where the statute does not provide that in North Carolina the determination of the Commissioner shall be conclusive, and more important perhaps, where the jurisdiction of the administrative officer is challenged and the determination of the administrative officer is sought to be enforced, not in a statutory action, but in an action in another State to enforce the quasi contractual statutory liability of the stockholders. There, it seems clear, that the court may require proof which will enable it to fix the amount of such liability in the manner set forth in UnitedStates v. Knox (supra).
Nor can the judgment be sustained on the ground that there is a presumption that the Commissioner acted properly and within the scope of his powers and that, therefore, his determination that the levy was necessary establishes a prima facie case. The trial court did not so find and its judgment has been reversed on the law. Even assuming, though that assumption may be doubtful, that in some cases such a presumption might supply the place of evidence, no such presumption could possibly apply here. The Commissioner took control of the bank *Page 42 for reasons other than insolvency. He was required by statute to make an inventory of the assets and liabilities of the bank within thirty days after he took possession. Only after the expiration of the thirty days could he levy an assessment. It is clear that until that time the Commissioner of Banks could not determine whether the bank was insolvent, or the amount of the assessment which should be levied, yet it appears that on June 5th, seventeen days before the expiration of the time to make and state the inventory, he sent the stockholders "notice that on the 22nd day of June, 1933, the Commissioner of Banks * * * will levy an assessment against the stockholders of the above named bank." Now, though the directors closed the bank for the purpose of reorganizing it, though the Commissioner gave this notice long before the date at which the necessity for a levy was to be determined, and though the Commissioner never expressly found that the bank was insolvent, it is said that as matter of law the courts of this State, at least in the absence of evidence to the contrary, must find that the Commissioner properly determined that the bank was insolvent, as a prerequisite to the assessment. Moreover, even then each stockholder would be interested in the amount of the assessment, and the Commissioner was required to determine that (Corporation Commission v. Murphey, supra); yet here it is undisputed that he never made such determination, but always levied a one hundred per cent assessment. (Cf. UnitedStates v. Knox, supra.) Under these circumstances the courts of this State may not grant judgment enforcing the stockholders' statutory liability without proof that the occasion for enforcing such liability in the amount demanded had arisen.
The judgment of the Appellate Division should be reversed and judgment of Trial Term affirmed.
O'BRIEN and LOUGHRAN, JJ., concur with FINCH, J.; CRANE, Ch. J., concurs in result in separate opinion; LEHMAN, J., dissents in opinion in which HUBBS, J., concurs; CROUCH, J., not sitting.
Judgment affirmed. *Page 43