Fralick v. Guyer

WILLIAM A. LEE, J.,

Dissenting. — I am unable to concur in the conclusion of the majority opinion that G. S., sec. 5247, which 'makes the stockholders in every incorporated bank or trust company of this state liable to its creditors to the amount of their stock, at par value, in addition to the stock held by them, is in contravention of sec, 17, art. 11, of the constitution, and therefore void.

If it was the purpose of this section, as the majority opinion seems to hold, to declare that stockholders in a corporation shall be liable for their unpaid subscriptions to the capital stock, then it is meaningless, for that liability has always existed. It is a fundamental principle of the law of contracts that one who purchases a thing of value is liable for the payment of the purchase price.

If it was the purpose of the learned men who composed the constitutional convention, some of whom were among the foremost lawyers of the country, to place a limitation upon the power of the legislature to make a stockholder of a corporation liable only to the extent of his unpaid subscription to its capital stock, it is quite inexplicable that they should have resorted to this ambiguous and uncertain manner of stating such limitation, instead of declaring that: “Stockholders in a corporation shall not be personally liable to its creditors beyond their unpaid subscriptions.”

Much stress.is placed upon casual remarks of two or three members of the convention relative to the meaning and effect that should be given this section, but I do not think from the brevity of these remarks and their general tenor that *660they afford any guide as to the meaning the convention intended this provision to have. It is a cardinal rule of construction, which is given even more force with reference to a constitutional provision than to a legislative act, that the debates of the body formulating such provision may be referred to only when the language used is so ambiguous and uncertain that its meaning cannot otherwise be definitely determined. But it has always been held that such remarks cannot control against the plain intent of the language used, and in any event, it is highly improbable that those who formulated this provision, or the majority of the convention which adopted it, or the people who afterward ratified it, gave it such a construction as it is now being given.

As early as 1905, when the legislature passed the first general banking law, it gave this provision the construction that the state is now contending for, and passed the liability clause which is now C. S., see. 5247. Since then, this liability provision has been quite generally regarded as valid, to such an extent that it has become a rule of property, under which stockholders in insolvent banks and trust companies have been required to pay large sums of money to the creditors of such defunct institutions. In view of all of these considerations, and now after the lapse of more than thirty-three years since this provision was incorporated into the organic law, I think it should not now be given this construction without the clearest and most compelling reasons for so doing, which I do not think exist.

It may well be that as to the ordinary private corporation not engaged in a business which creates a fiduciary relationship between it and those transacting business with such corporation, the personal or individual liability of a stockholder should be limited to his contribution to its capital stock. The legislature, in creating this increased liability as to stockholders of banks and trust companies, recognized a rule of universal application, that is, that the business of banks and trust companies stands in.a class by itself; that these institutions are necessary to the economic welfare and prosperity of all other classes of business; that other private cor*661porations operate upon their own capitalization and such credit .as their capitalization and business methods secure for them, but that banks and trust companies, because of the very nature of their business, must in a very large measure depend for their successful operation upon the contributions of capital by their depositors and patrons; and for these reasons the law has wisely provided that banks and trust companies hold these funds in a fiduciary capacity. In all civilized countries, laws governing this class of institutions have been especially enacted for the purpose of giving the greatest protection to depositors who intrust banks and trust companies with vast sums of money, which constitute the greater portion of their working capital, as well as the circulating medium of the country. The severity of the laws governing banking institutions, with the rigid supervision exercised over them and the severe penalties that follow infractions of these laws, could not be tolei’ated with regard to the business of other private corporations, and if attempted, would result in their destruction. But they are found necessary with regard to banks and trust companies because of the trust relationship that exists, and are acquiesced in by the banks and trust companies themselves and regarded as in a large measure essential to their welfare and successful operation. It is a matter of common knowledge, of world-wide application, that every impairment of confidence in the banking institutions of a country is followed by most disastrous consequences, and results in widespread distress to all classes of people.

It is insisted that because the supreme court of Missouri in Schricker v. Ridings, 65 Mo. 208, gave this construction to a like clause in that state’s constitution, it should be presumed that Idaho adopted the provision from that state, with the construction there given it, a rule frequently followed with regard to statutes taken from other jurisdictions. With due regard for this rule of construction and for the decision of the Missouri court, it is not probable that the people of Idaho adopted this provision with any such view in mind. The only difference between the provision as it appears in *662the Idaho and Missouri constitutions and those of many other of the states is that the inhibition placed upqn the legislature as to how far it can make the stockholders of a corporation individually liable is stated negatively in Idaho and Missouri, while in the other constitutions it is stated affirmatively.

Sec. 17 of art. 11 in part reads: “ .... But in no case shall any stockholder be individually liable in any amount over or above the amount of stock owned by him,” clearly meaning that his individual liability shall not exceed an amount measured by the stock he owns. The phrase “the amount of stock owned by him” does not mean that the stock is the subject of the liability, but the measure of it. (6 Fletcher on Corporations, sec. 4154.)

The Minnesota constitution reads that the stockholder shall be liable to “the amount of stock held or owned by him,” and it has always been held that his additional liability cannot exceed the amount of his stock. (Willis v. Mabon (Willis v. St. Paul Sanitation Co.), 48 Minn. 140, 31 Am. St. 626, 50 N. W. 1110, 16 L. R. A. 281; Bernheimer v. Converse, 206 U. S. 516, 27 Sup. Ct. 755, 51 L. ed. 1163.)

The Alabama constitution is the same, and has been in like manner construed. (Central Agricultural & Mechanical Assn. v. Alabama Gold Life Ins. Co., 70 Ala. 120; McDonnell v. Alabama Gold Life Ins. Co., 85 Ala. 401, 5 So. 120.)

The New York constitution is “to the amount of their respective share or shares,” and is held in Re Empire City Bank, 18 N. Y. 218, to limit the stockholder’s liability over and above their stock to a like amount. (Bank of Poughkeepsie v. Ibbotson, 24 Wend. (N. Y.) 473.)

The Pennsylvania statute reads “to the amount of stock held by each of them,” and in Lane’s Appeal, 105 Pa. St. 49, 51 Am.’ Rep. 166, is held to mean a personal liability equivalent to the amount of stock he owns.

See, also, Root v. Sinnock, 120 Ill. 350, 60 Am. Rep. 558, 11 N. E. 339.

In some states, notably Colorado, the provision reads “in double the amount of the stock owned by them respectively.” *663(Zang v. Wyant, 25 Colo. 551, 71 Am. St. 145, 56 Pac. 565.) See, also, Driesbach v. Price (Parrish’s Appeal), 133 Pa. St. 560, 19 Atl. 569; Murphy v. Wheatley, 102 Md. 501, 63 Atl. 62; Pettibone v. McGraw, 6 Mich. 441; Morawetz on Private Corporations, secs. 881, 882; Thompson on Liability of Stockholders, sec. 37.)

From the foregoing authorities and others of like effect-that might be cited, I think the majority opinion is against the weight of authority and is without support in reason, for as said in Heydenfeldt v. Daney G. & S. M. Co., 93 U. S. 634, 23 L. ed. 995, if an interpretation of a law leads to an absurd result, and is contrary to the evident meaning of the act taken as a whole, it should be rejected; and there is no better way of discovering the true meaning of a law than by considering the necessity for it and the cause which induced its adoption.

In view of the present state of the public mind caused by disturbed business conditions, which are the inevitable incident of the destructive war, the legislative policy with regard to the law relating to banks and trust companies, which has been a part of the law for many years, 'should not be changed by judicial construction except for the most impelling reasons, which I do not think exist in the instant case. I am therefore unable to concur in the majority opinion.

I am authorized to say that Mr. Justice McCarthy concurs in the conclusion reached in this dissenting opinion.