Flint v. A. B. Culbertson, Receiver for Fraternal Bank & Trust Co.

Mr. Justice Smith,

joined by Justice Norvell, dissenting.

I respectfully dissent. The majority proceeds upon the erroneous theory (1) that it was not the intention of the Legislature when it used the term “any and all of the stockholders or members in Article 6137” Vernon’s Annotated Statutes of Texas, to broaden a statute by implication so as to render the petitioner, a married woman, liable to the creditors of the insolvent unincorporated joint stock association, and (2) upon the erroneous theory that “we deal here not with equitable principles, but with a rule of law.” Under theory Number One, the majority says that a married woman cannot become a partner, at least in the ordinary partnership venture. Cases are cited wherein it has been properly held that a married woman can contract only in the manner and under the conditions prescribed by law.

*250The majority seems to think that the case of Harris v. Prince, 132 Texas 231, 121 S.W. 2d 983, 984, is controlling. I disagree. The purpose of that suit was to divest Mrs. Harris, a married woman, of all title to the shares of stock in the Mineral Wells Building & Loan Association. Prior to the suit, Mrs. Harris had, without the joinder of her husband, signed Articles of Association of what was known as “Lloyds of Texas.” As a condition precedent to becoming a subscriber to the Association, Mrs. Harris agreed to contribute in cash, bonds, stocks, or other securities, to be approved by the attorney in fact, to the surplus of the Association, a sum not less than 15 per cent in cash and 25 per cent in securities of the amount of her total subscription to surplus. Further, in that connection, it was agreed that the subscription to surplus “shall be evidenced by a non-negotiable subscription note signed by the subscriber and delivered to the attorney in fact * * Pursuant to such agreement, Mrs. Harris made a subscription of $1000.00 to the surplus of the Association. She paid in cash $150.00. She executed and delivered to the attorney in fact a non-negotiable note in the sum of $600.00. As representing the remaining 25 per cent ($250.00), she endorsed, without the joinder of her husband, a certificate of paid-up shares in the Mineral Wells Building & Loan Association of the par value of $1000.00, and delivered same to the attorney in fact. All of this was done to provide a surplus or reserve fund for the payment of losses. The court held that in the light of the pertinent statutes (Article 6137, supra, was not one of them), the liability of Mrs. Harris, if any, came into existence solely by reason of signing the Articles of Association, which prescribed the extent of her liability and the conditions under which it should arise. The court went on to hold that Mrs. Harris was not a stockholder; that she was an individual underwriter. The court simply held, and correctly so, that “There is no provision of law which permits a married woman to execute contracts of insurance and thereby bind herself or her separate estate * * The court rejected the contention of the Receiver that Mrs. Harris bcame a stockholder in Lloyds of Texas. The court further held that she was only an individual underwriter, and that the use of the word “Lloyds” was sufficient to advise the public that policies of insurance were being issued under the Lloyds’ plan, which merely contemplated individual liability of the several underwriters, and that the public was put upon inquiry, both as to the financial responsibility of each underwriter and of the authority of each to engage in such an enterprise. Clearly, the obligation of Mrs. Harris, flowed from a contractual obligation illegally created, and, therefore, her plea of coverture was properly sustained.

*251That case has no application in the instant case. In our case no effort is being made to enforce the contract of Mrs. Flint. This suit is being prosecuted by a Receiver in behalf of the creditors of the defunct Fraternal Bank & Trust Company. The suit is being presented against the stockholders in accordance with Article 6137 ,supra. The contractual obligations, the basis for the action against Mrs. Flint, were the result of the contracts of the joint stock company and not those of Mrs. Flint or any other stockholder. The majority admits that a joint stock company is distinguishable from the ordinary commercial partnership. As pointed out, its management, control, term, existence, and method of operation depend upon the Articles of Association adopted. All of its business is carried on by and through its Board of Directors. The joint stock company continues on as an entity and is not dissolved upon the death of one of the stockholder members of the Association. While it is true that joint stock companies are treated by some of the text writers as a type of partnership, yet, we must recognize that this alone does not determine the issue in this case. A stockholder in The Fraternal Bank & Trust Company (unincorporated) enjoys no different status, so far as suits of this character are concerned, than the stockholders of a national or state bank. The case of Witters v. Sowles, 35 Fed. 640, 641, decided by Circuit Court D, of Vermont, is directly in point, and I quote it as follows:

“This suit is brought to recover an assessment equal to the par value on 400 shares of $100 each in the First National Bank of St. Albans, of which the plaintiff is receiver, held by the feme defendant. The defendants have demurred to the declaration, and the cause has been heard on that demurrer. The plaintiff first brought a bill in equity against these defendants to enforce this liability. The defendants demurred to the bill on the ground that a married woman could not be holden for such an assessment; and that, if she could, the remedy in that case would be at law, and not in equity. The question of her liability was then examined, and held to exist, but the nature of it was found to be such that there was no jurisdiction in equity to enforce it, and the bill was dismissed for that reason. 32 Fed. Rep. 767. The defendants insist again, here, that this liability rests upon contract; that the contracts of married women, in Vermont, at the time when the liability accrued, if at all, were wholly void, and that therefore no liability was created. Some books and cases not referred to before have been produced now, and the subject has been re-examined. That the liability for such an assessment rests upon contract, and not upon any incurring of a penalty or tort, is true, (Richmond v. Irons, 121 U.S. 27, 7 Sup. Ct. Rep. *252788;) [30 L. Ed. 864] and that married women could not at that time by their mere contracts bind themselves to the payment of money, in Vermont, is also true. But the contracts sought to be enforced are the contracts of the bank, and not those of this feme, or any other shareholder. Without the statute she would not be liable in this direction at all. That makes the shareholders of every national banking association responsible “for all contracts, debts, and engagements of such association to the extent of the amount of their stock therein.’ Rev. St. U.S., Section 5151, [12 U.S.C.A. Section 63]. The contract is the contract of the bank; the shareholders have nothing- whatever to do about making it. The law annexes their obligations by its own force; no act or capacity to act on their part is required. The declaration well sets forth that the feme defendant was the shareholder of these shares, and that proper proceedings were taken to fix this liability. These facts are admitted by the demurrer. The declaration, therefore, sets forth a good cause of action, if married women are included by the general words of the statute. That they are included is shown by the case of The Reciprocity Bank, 22 N.Y. 9; Sayles v. Bates, 5 Atl. Rep. 497; and Hobart v. Johnson, 19 Blatchf. 359, 8 Fed. Rep. 493. By taking the position of a shareholder she placed herself within reach of the statutory obligation. She could become a shareholder in various ways: by subscribing for the stock; by purchasing it; or by accepting it as a gift or bequest. The mode of acquisition would make no difference. Assent, at least, is required to becoming a stockholder in any manner; and that is sometimes referred to in connection with this liability. This reference is not, however, understood to signify that the assent or contract involved in becoming a shareholder is of any materiality beyond accomplishing that relation. No agreement to become liable, or protest against liability, would add to or take from the statutory obligation, and no contract or assent is involved beyond what is necessary to acquire the stock. Consequently no capacity would be required outside of what would be sufficient for that. This liability is an incident to holding the shares, like that to pay taxes on them. The coverture does not appear to afford any exception from either. Many cases have been referred to in argument bearing upon the manner in which married women and their property may become bound, and how they may be proceeded against; but as this case is not understood to rest upon any contract of the feme defendant, they do not appear to have any important part in determining the questions involved, and are not further referred to. The relation of shareholder, admitted by the demurrer, appears to carry with it the liability of the defendants. The demurrers must therefore be overruled. On motion *253of the defendants, however, leave to withdraw the demurrer and replead is granted. Demurrers overruled, with leave to defendants to withdraw them and replead by August 10th next.”

It is true, a married woman accepting the provisions of Article 4626, Vernon’s Annotated Statutes of Texas, may thereafter be held bound and coverture would be no defense in actions on contracts executed after the removal of disability of coverture, but it is equally true that there is no law that prevents her from becoming the owner of stock either by purchase, gift, or bequest. If such a statute were enacted, in my opinion, it would be unconstitutional.

In the case of Robinson v. Turrentine et al., 59 Fed. 554, 558, this question was discussed. There the question was as in the instant case. There the court held that there being no state statute prohibiting a married woman from being the owner of the bank stock in question, and there being no law of the state exempting married women from an assessment, the married woman stockholder was liable.

In the Robinson case, supra, the court held that the purchase of stock by a married woman was not a contract within the term of the statutes of North Carolina which provided that no woman during coverture shall be capable of making any contract to effect her real or personal estate without the written consent of her husband. In that case the court said that if the feme defendant was the owner of the stock, she would be liable for the assessment under the statute imposing individual responsibility upon all stockholders alike without exceptions. In the instant case, the provisions of Article 6137 supra, render it clear that the Legislature did not exempt married women stockholders from the provisions of the Act, but to the contrary, it expressly provided that a judgment shall be equally binding upon the individual property of the stockholders. To hold otherwise would defeat the very purpose of the Legislature in permitting the organization of joint stock companies such as we have here, and would defeat the manifest intention of the Legislature, when it enacted Article 6137, supra, to protect the creditors of such joint stock companies. If the acquisition of the stock by bequest gave Mrs. Flint the ownership of such stock, then judgment should be given against her. Certainly, it was the intention of Legislature to make the stockholder liable.

In the Robinson case, supra, the court said:

*254“The liability of a married woman for an assessment upon national bank stock, while it in no wise grows out of contract, is one of a class of liabilities which may be enforced in an action in form ex contractu; and this fact is one which has often, in analogous cases, caused confusion in minds accustomed only to the ideas of the common law. The liability of an infant or an insane person for necessaries has often been called a liability arising ex contractu, solely by reason of the form of the action to enforce it. So of a suit for statutory penalty. An action against a married woman, who happened to own a mill site and tract of land, obligated to keep up a bridge over the runway of a mill stream at a public road crossing, would be in form ex contractu. I do not suppose the position would be taken that under the act of 1871 the married woman could own the land without being liable both to the obligation and its enforcement, or that the act in question has the effect to prevent her acquisition of the mill property without the written consent of her husband. Obligations of this class are called by the civilians ‘quasi contracts,’ or, to use the more proper vocabulary of our own law, they arise from ‘constructive contracts,’ which Sir Henry Maine distinguishes from ‘implied contracts’ in his Ancient Law, Page 373. He says:

“ ‘It has been unusual for English critics to identify quasi contracts with implied contracts; but this is an error, for implied contracts are true contracts, which quasi contracts are not. In implied contracts, acts and circumstances are the symbols of the same ingredients which are symbolized in express contracts by words; and whether a man employs one set of symbols or the other must be a matter of indifference, as far as concerns the theory of agreement. But a quasi contract is not a contract at all.’
“This distinction between ‘contract’ and ‘constructive contract’ is very well elaborated in an article by Mr. Keener in the May (1893) number of the Harvard Law Review. Inattention to it has caused the difficulty sometimes felt in discussing the liabilities of infants and lunatics, and particularly of reconciling the proposition, universally admitted, that a lunatic cannot contract, with his liability to an action on a contract.
“The liability of the defendant in this action is quasi contractual; is treated, for certain purposes growing out of the limitations of ancient forms of action, as contractual; but it does not arise from a contract, and is not affetced by the act of 1871-72, supra. No state statute prohibited Mrs. Turrentine *255from being the owner of the bank stock in question as being a married woman. Could such a statute be found, it would perhaps conflict with the rights given married women by the state constitution, (article 10, Section 6). No law of the state, as I construe the state statutes, exempts married women from this assessment. If it did, such law would violate the organic law of the United States, unless it at the same time forbade her ownership of the stock. No objection is taken to the form of the suit, nor do I see that such objection, if taken, could be sustained.”

In the case of In Re Reciprocity Bank, 22 N.Y. 9, the court held that a married woman was capable of becoming a stockholder, and such being true, she becomes subject to the liability by force of the statute, not by contract, when she becomes a stockholder.

It must be concluded that in the instant case there is no legal obstacle to prevent a married woman from becoming a stockholder in a joint stock company, such as we have involved here. This being true, it necessarily follows that in the absence of an exemption of married women from the force of the statute, Mrs. Flint is liable.

The question in a sense involves a question of statutory interpretation. What was the intention of the Legislature? Did it intend to create classes of stockholders? Or, rather, did the Legislature contemplate at the time it enacted Article 6137, supra, that all classes, including married women, would or could become stockholders either by purchase, gift, or bequest? Undoubtedly it knew that married women could acquire ownership of stock. With all this in mind, the Legislature adopted an all inclusive statute. That is to say, the stockholder as used in the statute is to be construed as used in its ordinary legal signification, and, therefore, it intended to describe a class of persons who occupy the status and relation of members toward the joint stock company, and of contributors toward creditors. There being no exception of married womn from this class, this Court is without authority to engraft an exception in favor of Mrs. Flint. See DeLeon v. Owen, 3 Texas 153. To do so would be unfair to the remaining stockholders. It would not amount to a uniform distribution of the liability to creditors among all the stockholders as contemplated by the statute. In my opinion, married women are included and come under this statute whenever by law, they have become such stockholders. It is immaterial how that status comes about.

*256At this point, I call attention to the majority opinion wherein it holds that we are not dealing here with equitable principles. With this statement I do not agree. While I stand by the principles above discussed, I think it is recognized that equity interposes in certain circumstances to prevent an advantage by one party over another. In the instant case, to permit Mrs. Flint to escape liability would be unfair and would be giving her an unconscionable advantage over not only the creditors but the other stockholders as well. Equity recognizes equitable contracts by representations and acts. It takes cognizance of special rights grounded in conscience which are not noticed at law. Pomeroy’s Equity Jurisprudence (5th Ed.), Sections 1293, 1294, 1295.

In the case of Bendler v. Bendler, 3 N.J.L. 161, 69 Atl. 2d 302, 306, the Supreme Court of New Jersey announced some principles of law which were, perhaps, pure dicta in that case, but in my opinion the reasoning in the majority opinion is entirely appropriate and applicable here.

In that case it was stated:

“* =j: _Anc[ it is the rule that, while a married woman is incapable of binding herself personally in equity to the same extent as at law, her contracts relating to or made in view of her separate estate are so far valid and effectual as to be enforceable against her separate estate. Equity has never clothed married women with the capacity to bind themselves personally by contract. Their contracts, when void at law, are deemed in equity contracts sub modo only. The liability in such cases is not legal, but equitable only, enforceable against the wife’s separate estate according to the dictates of equity and good conscience. * * * The correlative equitable rights and duties which arise out of the transaction constitute the subject of equitable cognizance. Ireland v. Ireland, 43 N.J. Eq. 311, 12 A. 184 (Ch. 1888); Garwood v. Garwood, 56 N.J. Eq., 265, 38 A. 954 (Ch. 1897). * * * The reason of the rule was thus stated by Lord Justice James in Jones v. Grissell, L.R. 12 Ch. Div. 484 (1879) :

‘In equity the liability is to have her separate estate taken from her for the benefit of a person with whom she had contracted on the faith of it. That was a special equitable remedy arising out of a special equitable right.’ * * * And in Owens v. Dickenson, Craig & P. H. 48, 53, Lord Cottenham said that ‘the separate property of a married woman being a creature of equity, it follows that, if she has a power to deal with it, she has the other power incident to property in general; namely, *257the power of contracting debts to be paid out of it; and inasmuch as her creditors have not the means at law of compelling payment of those debts, a Court of Equity takes upon itself to give effect to them, not as personal liabilities, but by laying hold of the separate property as the only means by which they can be satisfied.’ See, also, Sims v. Rickets, 35 Ind. 181, 9 Am. Rep. 679 (1871).” Emphasis added.

In Meares v. Duncan, 123 N.C. 203, 31 S.E. 476, 477, principles of equity were applied. In that case a married woman attempted to avoid statutory liability just as the petitioner has in the instant case. Demand was made of her to contribute her share of the deficiency for payment of creditors of a building and loan association. The Supreme Court of North Carolina held her liable, and, in part, said:

“As the defendant feme covert is entitled to her part of the profits if any has been made, equity says that she must bear her part of the losses as other stockholders have to do. Were she not so liable, the whole equitable settlement of the concern would be destroyed. She got in the same boat with the other stockholders, and, as it sank, she has to take her chances of escape with the others, though she is a married woman. This is the equitable solution of the matter.”

Fraternal Bank & Trust Company of Texas (unincorporated) was organized on December 31, 1911. W. M. McDonald was one of the signers of the original Articles of Association of the company. He died on July 4, 1950, and, by bequest, petitioner (the widow of W. M. McDonald) became the owner of 102 shares of stock of the company. She remained a widow until November 6, 1950, when she married petitioner, C. W. Flint, Jr. After becoming a stockholder she served as a member of the Board of Directors from January 9, 1951 through March 21, 1957. She was compensated for her services as a Director, and received dividends paid upon the shares of stock she owned in the joint stock company. The death of Mr. McDonald did not bring about a dissolution of the association. Under all the facts and circumstances, Mrs. Flint should not be permitted to reap the benefits, and refuse to pay the obligations placed upon her by the express terms of Article 6137, supra.

I would affirm the judgment of the Court of Civil Appeals.

Opinion delivered June 25, 1958.

*258Rehearing overruled December 10, 1958.