SQUIRE SUPERINTENDENT OF BANKS OF OHIO v. MERRIAM

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District Court of Appeal, Second District, Division 1, California.

SQUIRE, SUPERINTENDENT OF BANKS OF OHIO, v. MERRIAM.

Civ. 12710.

Decided: January 15, 1942

Hill, Morgan & Bledsoe, of Los Angeles and Charles O. Parker, of Chicago, Ill., for appellant. Mathes & Sheppard and Emrys Davis, all of Los Angeles, Thomas J. Herbert, Atty. Gen. of Ohio, E. S. Lindemann and A. O. Husband, Sp. Counsel to Atty. Gen., both of Cleveland, Ohio, and Gordon F. Hampton, of Los Angeles, for respondent.

The plaintiff brings this action, as Superintendent of Banks of the State of Ohio, to recover alleged stockholders' liability of the defendants. This is the familiar double liability of bank stockholders included in the National Bank Act, 12 U.S.C.A. § 21 et seq., and many state statutes patterned after it. No testimony was taken in the superior court, and the case was decided on an agreed statement of facts. Respondent concedes that these facts are substantially correct as set forth in appellant's opening brief. The defendant, Merriam, and a decedent, now represented by an administrator, were stockholders in a bank corporation existing under Ohio law. Judgment was for the plaintiff and against the defendant Merriam, and against the plaintiff and for the defendant administrator.

February 27, 1933, this bank failed and became insolvent. On that date the bank refused to pay on demand any greater amount than one per centum of any demand deposit or other matured obligation. No general deposits were received and no obligations which affected the liability of its stockholders were incurred after that date.

April 8, 1933, the Ohio superintendent of banks appointed a conservator for the bank.

June 15, 1933, the bank superintendent took possession of the bank for the purpose of liquidation.

July 11, 1933, the bank superintendent formally declared the bank to be insolvent, and determined to enforce the individual liability of the stockholders in the amount of one hundred per centum of the par value of the bank's stock.

July 30, 1934, the superintendent of banks determined it was necessary to levy a one hundred per cent assessment on all stockholders.

August 1, 1934, the superintendent of banks notified stockholders thereof and demanded payment.

July 28, 1937, the bank superintendent filed his complaint in California.

This case has been consolidated for appeal with S. H. Squire, etc., v. Merriam et al., 121 P.2d 538. It is stated in respondent's brief, and not challenged by appellant, that the facts are parallel and the questions of law are identical. We have examined the agreed statement of facts in both cases and do not find mentioned therein the 1934 dates just referred to. The agreed facts recite also an agreement between the parties, which tolled the statute of limitations, so that, if it were essential, the date of filing the complaint would have to be deemed to have been June 15, 1936. Not being essential, we will in this opinion refer to the date the complaint was actually filed, July 28, 1937.

The sole question presented to the lower court for determination, and to this court for review, is whether or not the plaintiff's cause of action is barred by section 359 of our Code of Civil Procedure.

This action having been brought in California, section 359 of our Code of Civil Procedure is the controlling section.

“* * * limitation runs in three years after ‘the liability was created’.” 6a Cal.Jur. 1026, and note 17, cases cited.

“It should be noted that the statute of limitations here involved is different from the ordinary statute of limitations in that it runs from the date ‘upon which * * * the liability was created’ instead of from the date upon which a cause of action to enforce that liability accrued to the appellant. Hunt v. Ward, 99 Cal. 612, 34 P. 335, 37 Am.St.Rep. 87. The Supreme Court in that case held that the statute had run, even though the plaintiff's cause of action to enforce the liability had accrued within three years, since the liability itself had been created more than three years before suit was filed. To the same effect are Wells v. Black, 117 Cal. 157, 163, 48 P. 1090, 37 L.R.A. 619, 59 Am.St.Rep. 162; Bank of San Luis Obispo v. Pacific Coast Steamship Co., 103 Cal. 594, 596, 37 P. 499; Chambers v. Farnham, 182 Cal. 191, 194 [196], 187 P. 732; Gardiner v. Royer, 167 Cal. 238, 139 P. 75; Coombes v. Getz, 217 Cal. 320, 18 P.2d 939; Royal Trust Co. v. MacBean [[[[168 Cal. 642, 144 P. 139], supra; Coulter Dry Goods Co. v. Wentworth, 171 Cal. 500, 153 P. 939.

“We then must look to the laws of Maryland to determine the nature of respondent's obligation and the time when the stockholder's liability was created. People v. Goddard, 84 Cal.App. 382, 386, 258 P. 447. The rule is that the construction given by the courts of a foreign state to its statutes will be recognized and given full effect in the courts of the forum. Smith v. Shepler, 8 Cal.App.2d 717, 720, 48 P.2d 999; McManus v. Red Salmon Canning Co., 37 Cal.App. 133, 137, 173 P. 1112; 5 Cal.Jur., pp. 429, 430.” Hospelhorn v. Van Dusen, 40 Cal.App.2d 257, 258, 104 P.2d 888, 889.

In the Hospelhorn case just cited, the superior court applied the law of the State of Maryland to the law of California as to limitation of the action, and held the cause of action was barred by section 359, Code of Civil Procedure. This judgment was affirmed by the District Court of Appeal.

In Royal Trust Co. v. MacBean, 168 Cal. 642, 144 P. 139, our Supreme Court determined the nature of the obligation by reference to the law of Canada, then applied our California statute of limitations and found that the cause of action was barred by the same Code section.

In Richardson v. Craig, 11 Cal.2d 131, 77 P.2d 1077, the provisions of the California Bank Act were applied by our Supreme Court to the same section, and the court again determined that the cause of action was barred by the statute.

In Broderick v. Kunde, 23 Cal.App.2d 587, 74 P.2d 333, the bank law of the State of New York was applied; the superior court determined that the cause of action was not barred, which was affirmed by the District Court of Appeal.

Therefore, in order to solve the problem now presented to us, we must look to the law of the State of Ohio to see whether or not the cause of action is barred by our statute of limitations. This determination must rest upon when the liability was created, using the word “created” in the technical sense defined in the California cases to which we have referred. And in so doing, we must take into consideration the statutes and the construction thereof which the courts of Ohio have given to them. Hospelhorn v. Van Dusen, supra, and cases there cited.

The law of the State of Ohio is as follows: “* * * 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.” Constitution of Ohio, Art. XIII, Sec. 3, Page's Ohio General Code, Vol. 11, p. 299.

“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.” Page's Ohio General Code, Sec. 710–75, Vol. 1, p. 421.

By amendment, effective March 31, 1933, of the so–called Banking Code of Ohio, the superintendent of banks was given exclusive authority to bring and maintain the action. Fulton v. Wetzel, 47 Ohio App. 72, 190 N.E. 776. This amendment became effective after the failure of the bank in which the defendant in this case was a stockholder.

It is apparent that the essential inquiry which we must now make is whether or not, at the time of the failure of the bank, the law of the State of Ohio gave to its superintendent of banks exclusive power to collect the liability imposed upon bank stockholders by the Constitution and general laws of that state. And it is apparent that the answer to this inquiry is determinative of this case.

If, at the time in question, the power to sue for the double liability of bank stockholders was lodged exclusively in the Ohio Superintendent of Banks, as it is lodged in the California Superintendent of Banks by the California Bank Act, St.1931, p. 338, then the rule established by our Supreme Court in the case of Richardson v. Craig, supra, would apply. In that event, the liability was created when the Ohio Bank Superintendent levied the assessment. The date of the levy being July 30, 1934, and the date of filing the complaint in this action being July 28, 1937, there was an elapsed period of less than three years, and the cause of action is not barred.

But if, under the law of Ohio, creditors had the right to bring the action when the bank failed, then the liability was created at that time. See Royal Trust Co. v. MacBean, supra, 168 Cal. 642, 144 P. 139.

These critical dates are July 28, 1937, when the complaint was filed, and February 27, 1933, when the bank failed; an elapsed period of more than three years, and the cause of action is barred.

Applicable to this determinative point, we are cited the case of Snider v. United Banking & Trust Co., 124 Ohio St. 375, 178 N.E. 840, decided by the Ohio Supreme Court, December 9, 1931.

In this Ohio case a creditor brought suit against a stockholder of a defunct Ohio bank to enforce the double liability we are here considering. A demurrer was filed to the complaint on the ground that Ohio general laws gave to the superintendent of banks the exclusive right to maintain an action to enforce this double liability. The demurrer was overruled by the trial court and judgment entered against the defendant. This judgment was sustained by the Court of Appeal and the Supreme Court of the State of Ohio.

“Syllabus by the Court.

“1. Section 3 of article XIII of the Ohio Constitution creates an additional liability against stockholders of corporations authorized to receive money on deposit, for all contracts, debts, and engagements of such corporations. The liability thus created is complete and self–executing.

“2. The provisions of sections 710–75, 710–89, and 710–95, General Code, are regulatory and procedural, and neither augment nor diminish the constitutional rights of creditors.

“3. The right of the superintendent of banks to enforce such individual liability only applies where he has taken charge of the property and business of the corporation for the purposes of liquidation.” Snider v. United Banking & Trust Co., supra.

In the course of that opinion the court says: “It is sufficient to say, in the present state of legislation, that the right of the superintendent of banks has not been made absolutely, and in terms, exclusive.”

In an endeavor to avoid the rule in the Snider case, counsel for respondent have cited and have argued at length, from Feldman v. Standard Trust Bank of Cleveland, 1933, 46 Ohio App. 67, 187 N.E. 743, and Fulton v. Wetzel, 1934, 47 Ohio App. 72, 190 N.E. 776.

In analyzing these authorities, we must bear in mind that we are not now trying to determine what the present law of the State of Ohio may or may not be. What we are concerned to determine is what it was when this liability was created, having in view our California statute of limitations, and what we must remember is that if anyone had a right to sue on the liability when the bank failed, the liability was created at that time.

With this criterion in mind, we have examined these cases, and we think it may fairly be said that they do not necessarily overrule or reverse the decision in the Snider case. Both cases hold that the Ohio Superintendent of Banks has the right to bring the action to enforce the double liability of bank stockholders as against a creditor, both parties appealing to the court for authority so to do. Neither case holds that at the time we now have under consideration, i. e., when the bank failed, a creditor did not have the right to sue in the Ohio courts to enforce his stockholders' liability. And if either case held the bank superintendent at the precise time here under review had the exclusive right to bring the action, being a decision of the Ohio District Court of Appeal, we think it would not change the law of Ohio as stated in the Snider case by the Supreme Court, the court of last resort of that state.

We are convinced that at the time this liability was created the law of Ohio was that an action therefor might be brought by a creditor; that this liability of necessity became fixed, or “created,” as our Code and our courts say, on the date when the bank failed and refused to pay its depositors. This date being February 27, 1933, and the action in California having been filed July 28, 1937, a period of more than three years elapsed before the commencement of the action. Therefore, under the terms of section 359 of our Code of Civil Procedure, the cause of action was barred, and the judgment of the lower court should have been for the defendant.

Some part of the briefs on appeal has been devoted to a contention on the part of respondent that to hold this cause of action barred by the California statute of limitations would be to deny rights secured to him by the full faith and credit clause of our Federal Constitution, art 4, § 1. There is no merit to this contention. It has been too well settled in every jurisdiction in which the matter has come before the courts to require any citation of authority to the effect that the law as to limitations of actions of the state in which the action is brought applies in cases of this kind. This is the effect of the California cases to which we have referred in this opinion; and we do not think the cases cited by respondent change the rule in any respect.

The judgment is reversed.

DRAPEAU, Justice pro tem.

YORK, P. J., and DORAN, J., concurred.