Sanders v. Merchants State Bank , 349 Ill. 547 ( 1932 )

We concur in the holdings of the majority of the court that the appellants, the twelve stockholders aforesaid, are all liable, under the evidence in this record, to an amount equal to the par value of their stock, the amounts adjudged against them by the court. We also concur in the decision of the court that every stockholder of the bank, including all the stockholders who are purchasers of stock from other holders of stock, became and are liable, under the provisions of the constitution, for all liabilities of the bank that accrued during the time they were holders of such stock, and that such liability continued, and will continue, until the same is fully discharged. We do not, however, concur with many of the reasons upon which the decision is based. The provisions of the constitution of 1870 under which the stockholders' liability was imposed are in the following language: "Every stockholder in a banking corporation or institution shall be individually responsible and liable to its creditors, over and above the amount of stock by him or her held, to an amount equal to his or her respective shares so held, for all its liabilities accruing while he or she remains such stockholder." The liability or obligation of the stockholder imposed by said provisions of the constitution is not an absolute liability or obligation imposed upon such stockholder, in the sense that it can be invoked or enforced by the creditors or obligees of the bank upon demand made upon the stockholder by such creditor or obligee when the bank is a going concern and is paying all its debts or liabilities promptly when they become due. We hold the liability of a stockholder becomes an absolute liability to the creditors of the bank when the bank refuses or neglects to pay its liability or obligation at the time and place where it is obligated to do so, or has suspended business, and is unable to pay its liability and obligations by reason of its insolvency or for any other reason. We think the majority of the court have virtually conceded that the obligation of the stockholder to the creditors and obligees of the bank are as we have indicated, and that they are not the same in character and cannot be enforced at any time until the bank has failed to discharge its obligation to such creditors or obligees. It is stated in the decision of the court that no action can be maintained against the stockholder until demand has been made upon the bank for payment. We all agree, however, that the liability of all the stockholders in this case became absolute to the creditors and obligees of the bank on December 8, 1930, because of the fact that on that date the bank suspended business and closed its doors. We dissent from the holding of the court that the other appellant, Mrs. Barron, is not liable in any sum to the creditors or obligees of the bank and that the judgment of the lower court should be reversed for that reason. We hold that at the time of the death of her husband the creditors and obligees of the bank had no claim against the deceased's estate which they were required to present to the county court within one year after administration was begun upon his estate. We further hold that such creditors and obligees were guilty of no negligence in failing to file their claims in the probate court against said estate, and that if they had done so the administrator could have successfully resisted the allowance of said claims on the ground that the liability of the stockholders was a contingent liability. Such claims were contingent liabilities because at no time during the year in which the estate was administered and its assets distributed could it be definitely known or determined that such claims could create or impose an absolute liability on the stockholders. The record shows the bank was a going concern, and it was paying all of its liabilities and obligations during the entire period in which the Barron estate was administered. No one could then safely foretell that the bank would not continue indefinitely as a solvent going concern and until all of the liabilities of the bank or obligations existing at that time were fully and completely paid.

Martha Barron was never the owner of stock in the bank, but her liability, as found by the decree, is predicated upon the following facts: Robert Barron was the owner of twenty shares of stock of the bank from the date of its first organization in May, 1900, to January 28, 1925, and was the owner of another twenty shares of the stock from February 19, 1914, to January 28, 1925. The liabilities of the bank accruing while Barron was such stockholder and unpaid at the time the bank closed was shown by the record to be $30,341.04. Barron died September 3, 1927, leaving a will, by which he bequeathed and devised all of his property, both real and personal, to Martha Barron, his widow. He left personal property valued at $5500 and real estate valued at $11,000. The will was admitted to probate on October 5, 1927, and an executrix was appointed who duly administered upon the estate. The administration of the estate was closed, the property of the estate was delivered to Martha Barron, and the executrix was discharged on October 23, 1928.

Whether the decree against Martha Barron is correct depends upon whether or not the creditors of the bank had a claim against the estate of Robert Barron that might have been presented and allowed during the administration of that estate. When a claim against a deceased person remains contingent during the whole period allowed by law for presenting claims against an estate and does not ripen into an absolute liability until the estate has been distributed to the heirs or legatees and devisees, the claimant, after an absolute liability has arisen, may by bill in equity against the heirs or legatees and devisees reach the property of the estate received by them. (Union Trust Co. v. Shoemaker, 258 Ill. 564; Chicago Title andTrust Co. v. Fine Arts Building, 288 id. 142.) It was held by this court in the case against Shoemaker, that section 67 of the Administration act, which provides that a claim not due may be presented and allowed with a proper rebate of interest, has reference only to claims upon which there is an absolute liability although time of payment is postponed, and does not refer to claims dependent upon a contingency which may or may not ripen into a liability. It is stated as the law that if a claim against a deceased person remains contingent for the whole period fixed by the statute for presenting claims against his estate, the claimant cannot afterwards participate in the distribution of assets by the personal representative unless he finds estate of the deceased not inventoried or accounted for. Such a claimant may, however, maintain a bill in equity against such legatees to reach the property of the estate received by them. Similar holdings were made by this court in Chicago Titleand Trust Co. v. Fine Arts Building, supra. Under the holdings in these cases no claims of the creditors or obligees of the bank could have been allowed against the estate of Robert Barron, but a bill in equity can be maintained against Mrs. Barron to reach the property of the estate received by her under the provisions of his will.

In no case in this State, so far as we have been able to find, has it ever been decided that the liability of a stockholder in a bank is not a contingent liability so long as the bank is open, doing business, meeting its obligations and paying its depositors on demand or on their order when such demand or order is required. The stockholder's liability under the constitution is for the bank's liability. In Home Ins. Co. v. Peoria and Pekin Union Railway Co. 178 Ill. 64, this court, in defining the meaning of the word "liable" as used in a policy of insurance, said: "The contention the word 'liable' * * * means an absolute legal and fixed liability is not tenable. * * * The word as used in the policy does not signify a perfected or fixed legal liability but rather a condition out of which a legal liability may arise. The word as most frequently used does not necessarily exclude the idea of a contingency." In Stone v. Clarke's Admrs. 40 Ill. 411, andUnion Trust Co. v. Shoemaker, supra, the liability on a bond was held to be a contingent liability until there was a breach of the condition of the bond; and in Mackin v. Haven, 187 Ill. 480, and Chicago Title and Trust Co. v. Fine Arts Building,supra, liability of a lessee for rentals to be paid in the future was held to be a contingent liability, because the lease, on the happening of certain events, might be terminated before such rentals became due and payable. In Mortimer v.Potter, 213 Ill. 178, it was held that there was no absolute liability on stock in a national bank on which a claim could be allowed against the estate of a deceased stockholder until failure of the bank, and in that case a bill in equity was held properly filed to subject assets of the estate of a deceased stockholder to liability on the stock where the bank failure occurred twenty years after the expiration of the time for filing claims against the estate. Decisions to the same effect were made in Dent v.Matteson, 70 Minn. 519, 73 N.W. 416, and Wickham v. Hull,102 Iowa, 469, 71 N.W. 352. In Riggin v. Maguire, 15 Wall. 549, the Supreme Court of the United States, in a decision involving the determination of whether a claim was a contingent one within the meaning of the Bankruptcy act, said: "But the better opinion is, that as long as it remains wholly uncertain whether a contract or engagement would ever give rise to an actual duty or liability, and there was no means of removing the uncertainty by calculation, such contract or engagement was not provable." In South Milwaukee Co. v. Murphy, 112 Wis. 614,88 N.W. 583, it was held that liability upon a subscription for capital stock in a corporation was a contingent liability, on which a claim was not barred because not presented to the probate court for allowance within the time limited for filing claims against a decedent's estate. The court held that if a liability exists but it is uncertain whether it will ever be absolute in the sense of being enforceable it is contingent, using this language: "The terms 'debt,' 'liability' and 'absolute liability' are used in the authorities in a way to confuse and lead to wrong deductions if one does not keep in mind that the essential element of a contingent claim is uncertainty as to whether it will ever be enforceable. True, so long as a debt is absolute it is not contingent, but it is not absolute if its enforceability is dependent upon a contingency that may never happen."

The liability of Robert Barron during his lifetime, and of his estate during the whole time of the administration thereon, to creditors of the bank was not an absolute liability or fixed legal obligation but was a contingent liability. The bank during all of that time was open, meeting its obligations and paying all demands of depositors. Neither Barron nor his estate owed any debt to the creditors of the bank until the bank suspended business and closed its doors on December 8, 1930.

In the opinion of the majority of the court it is said that the creditors of the bank were not prevented from exhibiting their claims against Barron's estate and having them allowed because the liability of Barron as a stockholder, and of his estate after his death, was contingent. It is further stated in the opinion that the creditors could have demanded payment of the bank at any time and the payment would have been made or refused; that it was their own laches which prevented them from obtaining the allowance of their claims against Barron's estate, and that there was no obstacle, except their own will, in the way of their making a demand on the bank. This remarkable statement of the court is concluded in these words: "It would be most inequitable to permit creditors who could with a breath remove the supposed obstacle to the prosecution of their claims, to remain inactive, to refuse even to demand payment of the bank, and by their neglect to pass on a liability to future generations."

The first twenty shares of stock that Robert Barron acquired were subscribed for by him in May, 1900, the day the bank was first organized, and his second twenty shares of stock, of the value of $2000, were purchased by him on February 19, 1914, and he continued to own all the shares of stock so purchased by him until January 28, 1925, at which latter date he sold all his stock. In the decree of the court it is found that the total liabilities of the bank to its creditors, whose number is 9674, unpaid and unsatisfied, are $740,000, and which has been proved. There is no showing in the record of the number of creditors there are who had claims against the bank for which Barron was liable on the $2000 of stock acquired by him in May, 1900, or how many creditors there are who acquired claims against the bank during the time he owned his second $2000 of stock. It is apparent, however, that there would be a very great number of all of such creditors. Nevertheless it is said with great confidence in the decision of the court that all of those creditors whose claims accrued while Barron was a stockholder would be required to make demand on the bank for the satisfaction of their claims before they would have any right to maintain a claim against him or his estate and that if they did not do so they would be guilty of negligence. We undertake to say that the court has not fully contemplated and measured the consequences that would happen both to the bank and Mrs. Barron if the creditors had really done what the court says was their duty to do to save their rights against Barron's estate. We assert with absolute confidence that if creditors of a going bank would do what the court has decided should be done by them to protect their claims against a deceased stockholder's estate that action would result in inevitable ruin and failure of the bank.

It is our opinion that the decision of the court is unsound, and that if the creditors of a bank, in order to enforce the liability of a deceased stockholder, should make demand on the bank for the payment of their deposits the result would be a run on a bank, with the effect of its having to close its doors and suspend payment every time a responsible stockholder dies and an administration on his estate is started. Such a result would be a great loss to the community and a greater loss to the creditors of the bank than would be the loss of their claims against the deceased stockholder and would not relieve the estate of the deceased stockholder from the stockholder's liability. It seems unsound to us to hold that creditors of a bank, in order not to lose their rights against a stockholder, should be required to pursue a course that would result in forcing the bank to close its doors and suspend business.

Under section 11 of the Banking act no demand or right of action against stockholders accrued until December 8, 1930. No demand could have been maintained against a living stockholder or the representative of a dead one until that time. Hence the provision of section 70 of the Administration act could not relieve the Barron estate from liability or be interposed by Martha Barron as a defense in this proceeding.