Noble v. Martin , 191 Wash. 39 ( 1937 )

In determining the applicability of the statute of limitations, the nature of the right sued upon, rather than the form of the action, is controlling. Union Tool Co. v. Farmers Merchants Nat. Bank, 192 Cal. 40, 218 P. 424, 28 A.L.R. 1417. And where a complaint discloses both a cause of action arising out of implied contract and in tort, the plaintiff will be permitted to recover on the implied contract, even though the remedy in tort is barred by the statute of limitations. Cockrillv. Cooper, 86 Fed. 7; Ivey's Adm'r v. Owens, 28 Ala. 641. See also: Holmquist v. Gilbert, 41 Colo. 113, 92 P. 232, 14 L.R.A. (N.S.) 479; Falk v. Fulton, 124 Kan. 745, 262 P. 1025. When there is any doubt as to which of two statutes of limitation is applicable, the longer period will be applied. Matthys v.Donelson, 179 Iowa 1111, 160 N.W. 944; St. Louis etc. R. Co. v.Sweet, 63 Ark. 563, 40 S.W. 463; Multnomah County v. Kelly,37 Ore. 1, 60 P. 202; Hughes v. Reed, 46 F.2d 435; CrawfordCounty Trust Sav. Bank v. Crawford County, 66 F.2d 971. See also: Holmquist v. Gilbert, supra. And this court, in Hein v.Forney, 164 Wash. 309, 2 P.2d 741, 78 A.L.R. 631, said:

"The statute of limitations, although not an unconscionable defense, is not such a meritorious defense that either the law or the fact should be strained in aid of it." (Citing Paul v.Kohler Chase, 82 Wash. 257, 144 P. 64.)

Applying these rules to the cause of action here set up, it seems clear to me that the case falls within the three-year statute of limitations. Rem. Rev. Stat., § 159.

While the cause of action set up in the complaint is predicated wholly upon the constitutional liability imposed by § 12, Art. XII, of the state constitution, it is held, by the clear weight of authority, that the obligation of the directors, under statutes to the same purport, arises ex contractu. Union MarketNat. Bank v. Gardiner, 276 Mass. 490, 177 N.E. 682, 79 A.L.R. 1512; Orth v. Mehlhouse, 36 F.2d 367; Benton v. Deininger,21 F.2d 659; Curtis v. Phelps, 208 Fed. 577; Boyd v.Schneider, 131 Fed. 223; Bates v. Dresser, 229 Fed. 772. The question in these cases was whether the liability imposed by statutes imposing personal liability survived after death of the director. In the case last cited, the rule was summed up in the following language:

"The ground upon which these cases seem to proceed is that the directors of a national bank, in entering upon their duties as such officers, impliedly agree to properly and faithfully perform them, and if by misconduct or negligence they fail in this respect, and damage ensues, a cause of action arises . . . that the cause of action is ex contractu, rather than ex delicto, and, because of this, survives."

And in Boyd v. Schneider, supra, Judge Grosscup, speaking for the seventh circuit court of appeals, said:

"And the suit survives against the representatives of deceased directors, because it is a suit on contract, and not in tort."

Since, under the rule of these decisions, this case is "an action upon a contract or liability, express or implied," it clearly falls within Rem. Rev. Stat., § 159, subd. 3, fixing the period of limitation at three years. If the liability arises out of a written agreement, a view for which, as we shall see, there is some authority, then the six-year statute (Rem. Rev. Stat., § 157) is applicable. Hughes v. Reed, 46 F.2d 435; Union Market Nat.Bank v. Gardiner, supra. In the case last cited, Chief Justice Rugg, construing a statute imposing personal liability upon officers for debts of the corporation, said:

"With respect to a claim of this character it was held inNickerson v. Wheeler, 118 Mass. 295, that the liability was imposed by statute and should be construed with reference to the statute, that officers of a corporation by accepting their positions impliedly agreed to conform to the requirements of the statutes in making returns and that provisions for the benefit of creditors for failure in this respect have been construed as remedial; and it was said at pages 298 — 299: `The mode provided by law for the enforcement of the liability of the officers is in the nature of a suit upon a contract. . . . In substance, the remedy provided is also in contract. The officers are not held to compensate a creditor only for the injury which he has sustained, which would be their liability in an action of tort. They are treated as assuming the responsibility of the contract made by him with the corporation. . . .' . . . The statute oflimitations as to contracts applies to liability of thisnature." (Italics mine.)

And with this rule, our own case of Bennett v. Thorne,36 Wash. 253, 78 P. 936, 68 L.R.A. 113, is in perfect harmony. To my mind, by analogy, that case is controlling authority for decision of the instant case, both as to the character of the cause of action and as to the applicable statute of limitations. The only difference between the two cases is that in theBennett case it was sought to hold the stockholders for superadded liability imposed by § 11, Art. XII, of the state constitution, while in the case at bar it is sought to hold the directors for liability imposed by § 12 of that article. The basis of liability is exactly the same in both cases. In theBennett case, the court said:

"The action against the stockholders accrued when the bank became insolvent, and should have been enforced within sixyears thereafter." (Italics mine.)

The whole argument from which that conclusion was reached was predicated on the theory that the liability arose ex contractu. The authority of the Bennett case, however, is swept aside by the majority, with the observation:

"It follows that the court must also have regarded thataction as brought on the subscription contract, or some otheragreement in writing." (Italics mine.)

I find nothing in the opinion that warrants such assumption. On the other hand, I find in the complaint in that case allegations which directly refute it:

"That by the constitution and laws of the state of Washington, the stockholders of said banking corporation are held individually responsible . . . for all contracts, debts and engagements of said corporation, accruing while they remain suchstockholders to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares . . .

"WHEREFORE, . . . petitioner prays that the court . . . determine the amount of the individual statutory liability ofthe stockholders . . ., such amount to be fixed and determined in accordance with the constitution and laws of the state of Washington; that the court thereupon make an order, assessing the stockholders . . . upon the individual and statutory liability in accordance with said constitution and laws . . . for all contracts, debts and engagements of said corporation, accruing while they have remained such stockholders . . ."

The decree entered levied an assessment against the stockholders "who were such at the time the debts . . . accrued .. . on their statutory liability as such stockholders." Nowhere in the record is it suggested that the liability was predicated on subscription agreement, or any other writing than that imposed by § 11, Art. XII, of the constitution.

Plainly, the liability imposed by § 11, Art. XII, is not based upon any subscription agreement. The section itself makes this clear:

"Each stockholder . . . shall be . . . liable . . . for all contracts, debts and engagements . . . accruing while theyremain such stockholders, . . ." (Italics mine.)

In other words, liability attaches to any stockholder who comes within the terms of the provision, without regard to the signing of a subscription agreement. Shuey v. Holmes, 21 Wash. 223,57 P. 818; Shuey v. Adair, 24 Wash. 378, 64 P. 536. So it may well be argued that the Bennett case is authority for holding that the case at bar falls within the six-year statute of limitations (Rem. Rev. Stat., § 157) as a "liability express or implied arising out of a written agreement" — the directors' oath constituting the written agreement out of which the liability imposed by the constitution arises. See Hughes v. Reed, supra. But it is unnecessary to go to that length, for, in any event, the action was timely brought under the three-year statute of limitations. Rem. Rev. Stat., § 159.

Furthermore, the assumption that the holding in the Bennett case was predicated on a subscription agreement, coupled with the decision in the instant case, presents a situation with respect to the constitutional liability of stockholders that is utterly untenable. For, as to the liability of stockholders who signed a subscription agreement, the six-year statute of limitations would apply under the rule of the Bennett case, while as to the liability of stockholders who did not sign a subscription agreement, the two-year statute of limitations would apply under the rule laid down in the instant case.

I am of the view that, notwithstanding appellant's cause is predicated on § 12, Art. XII, of the constitution, the action sounds in contract, and, as remarked in Union Market Nat. Bankv. Gardiner, supra, "the statute of limitations as to contracts applies to liabilities of this nature."

I dissent.

MAIN and MILLARD, JJ., concur with BLAKE, J.