author: Williams, J.

text:
    King et al. v. Armstrong, Rec’r.

      Equitable set-off—Insolvent debtor can not defeat by assignment of his claim—Stockholders in National Banks—Rights and liabilities of.

    1. When a person entitled to share in the distribution of a trust fund, is also indebted to the fund, and is insolvent, his indebtedness may, in equity, be set off against his distributive share; and the right of set-off will not be defeated by the assignment of his claim, though made before the amount of his indebtedness or distributive share is ascertained.
    2. Bach shareholder of a national banking association is individually liable for its debts, to the extent of the amount of his stock, at its par value, in addition to the amount invested in the shares held by him; and a receiver appointed to wind up the affairs of such an association that has become insolvent, is authorized, untier the direction of the comptroller of the currency, to enforce the liability of its stockholders, and collect from each of them the necessary amount, up to the extent of his liability, for the payment of the creditors.
    3. The indebtedness of the stockholders on their individual liability, together with the other assets of the insolvent bank, constitute a trust fund for the benefit of its creditors; and in equity, such indebtedness of a stockholder who is insolvent, may be set off against a dividend, payable out of the trust fund, on a balance due him on his deposit account with the bank at the time of its failure.
    4. An assignment by the-stockholder of his claim against the bank, before the direction of the comptroller to enforce his liability, but after the insolvency of the bank, does not affect the right to set off his liability against the dividend due on his claim; nor, does the fact that the comptroller, at the time of the assignment, had not determined the amount necessary to be collected from the stockholders for the payment of the creditors; it is sufficient that such direction has been given, and amount so determined, when the set-off is made.
    (Decided April 25, 1893.)
    Error to the Superior Court of Cincinnati.
    The case is stated in the opinion.

      Bateman & Harper, for plaintiffs in error.
    1. If any right of set-off exists in this cause, it must be the right to set off Brownell’s liability against the balance due upon his bank account. The application of such a set-. off would extinguish the whole right of action on the bank account, and leave Brownell indebted only for the excess of his liability over his bank account. So, on the other hand, the effect would be to pay the bank account in full to Brownell or his assignee, giving him thereby an advantage over other creditors in the application of a fund intended for the equal benefit of all. Sawyer v. Hoag, 17 Wall., 610.

      2. The fact that the receiver of a bank becomes authorized also to enforce the liability of the stockholders, does not change the relation of the debts. He becomes a trustee in two trusts; the one is held for the joint benefit of the bank, the creditors aud the stockholders; all have an interest in the assets through him as receiver of the bank. He is authorized to enforce the liability of stockholders; his trust 'is for the benefit of the creditors alone. The bank has no interest in it; it cannot be enforced for the benefit of these stockholders. He holds one claim in a single right; the other in a triple one. It would be just as illegal to allow a creditor to set off .his liability as a stockholder against his claim as a creditor, whether the stockholders’ liability is asserted in the name of the creditors or the name of the receiver. The set off at law is of causes of action presently due, between the parties litigant, in the same right. Revised Statutes, section 5075, 5077. Granger Adm. v. Granger, 6 Ohio, 85, 42; McDonald v. Black, Adm., 20 Ohio, 185, 195; Fuller v. Steiglitz, 27 Ohio St., 356; Receiver v. McVey, 31 Ohio St., 231; Ross v. Johnson, 1 Handy, 388.
    3. The right of action upon the stockholders’ liability did not accrue until after the assignment of the bank account to the plaintiffs. Indeed, the idea of its set off never seems to have occurred to any party in the case until long after suit was begun. The answer setting it up was filed nine months after the petition and eight months after the first answer. The Comptroller of the Currency did not determine that any enforcement of the liability of the stockholders was necessary, until four months after the answer claiming it as aforesaid was filed, and after the first judgment has been entered in the cause; The claim was assigned by Brownell to plaintiffs on July 30, 1888, nearly eight months before action was taken by the Comptroller. The obligation to pay, on part of the stockholders, did not accrue until the accounting bj^ the receiver made the necessity apparent, and that was ascertained by the Comptroller. This court, in Barrick v. Gifford, 47 Ohio St., 180, held that mere alleged insolvency is not sufficient to constitute a right of action.
    But the laws of the United States prescribe how and by whom this insolvency shall be ascertained, and the necessitj' of resorting to the stockholders’ liability shall be determined Kennedy v. Gibson, 8 Wall., 498, 505.

      It is therefore manifest that no obligation of a stockholder ' to pay and no right to demand payment of him existed at the time the answer was Sled making a set off, nor at the time the account was transferred to plaintiffs. The claim against him was not due until the Comptroller ascertained and declared it necessary for the payment of the debts of the bank. The statute of limitation would not begin to run until that time. The receiver had no right to take any steps toward its collection or to assert any right concerning it until that time. One of the conditions of a set off is that both debts should be due and payable.
    4. The set off made in the judgment is against the dividend, and not against the claim upon which the dividend is made. In fact the decree finds that the claim belongs to the plaintiffs, and they had and still hold the right of action thereon. It is against the dividend the right of set off is asserted. How can this be? If there is no right of set off against the bank account, how can there be one against the dividend? A dividend is merely a partial payment of the debt. If jrnu have no claim on the debt, you can not interfere with its payment. The right to demand payment inheres in the ownership of the debt, and is inseparable from it. Both the judgment of court and the certificate of the receiver declared and established the title of the plaintiffs. The dividend was made in their name and the check of the Comptroller therefor was payable to their order. Brownell never had any interest in the dividend, and there is no rule in the law of set off that will justify its appropriation for the payment of his debt.
    But the court held that after a dividend had been declared and ordered to be prepared by Comptroller, and a check issued to receiver therefor, the difficulty in the way of set off was removed. It then ceases to be an undivided interest in trust property, but becomes a several right to the payment of money which is a debt, and can then be set off against the several stock liability of Brownell. But there is difficulty in this proposition. The right of set off did not accrue confessedly until the dividend was made, viz.: February 18, 1889. Previous to that time the right to transfer the bank account as against any subsequent set off, is clear. Fuller v. Steiglitz, 27 Ohio St., 355. Both demands must be not only in existence, but due, before a right of set off accrues. The bank account was assigned for a valid consideration, on July 30, 1887, to plaintiff. On September 15, 1887, the receiver certifies that “legal and satisfactory proof” was made to him, and he issued to them his certificate thereof, as creditors of the bank, upon the account. This assignment and the receiver’s certificate was. made more than eighteen months. before the dividend was-declared and the alleged right of set off accrued.
    The nature of this proceeding and the relation Armstrong bears to his trust is to be determined by the provisions of the Federal Statutes providing for his appointment and duties. Sections 5234, 5235. 52:;6.
    But even if there had been no assignment, the attempt to-set off statutory liability against dividend does not escape-the rule in Sawyer v. Hoag, supra. The claims would be held in different rights; the one would be held for the sole use of Brownell and the other is owned for the benefit of all creditors, the plaintiff included. Unless special equities exist, authorizing it, a partnership claim can not be set off against an individual claim of one of the partners. Second National Bank v. Hemingray, 35 Ohio St., 381.
    There is no claim that any special equities exist in this-case. It is to be governed by the general law of set-off and the technical rules that govern its application.
    5. The effect of this proceeding, therefore, if permitted, will not be that of a set-off but that of a creditor’s bill or other proceeding in the nature of execution. The assignment of the claim has been made by Brownell to plaintiffs; that assignment has been recognized and certified by the receiver upon due proof; it has been found and established by the court in the judgment in this case, placing the plaintiffs in the situation of one of the creditors of the bank entitled to a dividend. Their right has further been recognized by the comptroller, who has made dividend to them and a check therefor payable to their order has been forwarded to the receiver, who holds the same for delivery. The effect of this proceeding is to subject that check, belonging to plaintiffs, for the payment of another person's debt. There exists no situation of set-off in the case, the action being to ■compel the receiver to perform his duty by the delivery of ■the check. If it were an action upon the check, such situation might exist, but that is not the case.
    Is there anything in the circumstances of this case, any ■consideration of equity that requires that the court should ■take this money from the plaintiffs and give it to persons who are total strangers to the transaction out of which it -arises and to the contract upon which it is ordered to be paid? Creditors and stockholders alike, of this bank, have been overwhelmed with the consequences of a crime for which none of them are responsible, and no circumstances •are shown that <authorizes, in the way of equity, the misfortune of many to be relieved by taking the property that properly belongs to the few.
    Herron, Gatch & Herron, for defendant in error.
    1. The first claim that we make in this case is, that the ■defendant in error is not in any way liable in the present action. The receiver of a National Bank neither makes nor pays the dividends to the • creditors. Section 5236 of the Revised Statutes of the United States. The receiver deposits in the treasury of the United States all moneys collected by him, and has neither the possession of nor control ■over that money after such deposits are made.
    2. We claim next, that the deposit account in this case •cannot be assigned so as to prevent the dividends upon it being retained as credits on the claim against Brownell for his indebtedness as .a stockholder of the bank. Brownell was a stockholder in the Fidelity National Bank, to the extent of fifty shares; and he was liable on that stock in the sum of five, thousand dollars. This liability is fixed by the statutes of the United States, section 5151, Revised Statutes of the United States.
    Charles A. Brownell was, therefore, at the date of the failure of the Fidelity National Bank, responsible for the ■debts and habilites of that bank to the extent of five thousand dollars. Irons v. Manufacturers' National Bank, 21 Fed. Rep., 188; Bailey v. The First National Bank of Duluth, 9 Chicago Regal News, page 191; Hobart, Receiver v. Johnson, 8 Fed. Rep.,.498; Bowden v. Johnson, 107 U. S. 252; Winters v. Sowles, 32 Fed. Rep., 137; Brown v. Hitchcock, 36 Ohio St., 667.
    Upon the failure of the Fidelity National Bank, this liability of Charles A. Brownell to the extent of five thousand dollars became absolute. The bank at that date became unable to discharge its indebtedness, and the contingency on which the shareholders’ liability might cease to exist was removed. At that date Brownell was indebted in the sum of five thousand dollars to the creditors of the bank. This indebtedness had become fixed as of that date by the insolvency of the bank. It was a liability as principal, the same as if he had given his note for that amount to the creditors; and it was due and collectible at that time. Nor does the decision in the case of Kennedy v. Gibson, etal., 8 Wall., 498, controvert this position. Barrick, v. Gifford, et al., 47 Ohio St., 180.
    3. Judge Blodgett, in Hobart, Receiver, v. Johnson, before cited, defines this indebtedness of the shareholders as “an asset of the bank.” Section 5234 of the Revised Statutes provides: “Such receiver, under the direction of the comptroller, shall take possession of the books, records and assets of every description” etc.
    This applies to the collection of the indebtedness of the stockholders on their liability under consideration, as well as to bills receivable and other paper discounted by the bank.
    Section 5242 of the Revised Statutes prohibits transfers of its assets, etc., except in certain contingencies.
    It has been over and over decided by the courts of the United States that the object and intent of these sections is to secure an equal distribution of the assets of the bank of every description among its general creditors, and that every act done, whatever form it may assume, intended or calculated to defeat such equal distribution, is covered by the statute and null and void. National Bank v. Colby, 21 Wall., 613; Pacific National Bank v. Mixter, 124 U. S., 725; Ve

      nango Bank v. Taylor, 52 Penn. St., 16; Stephens, Receiver, v. Shuman, 32 Mo. Ap., 333.
    4. But are these- liabilities mutual or in different rights? The liability of the stockholders is a trust for the benefit of the general creditors. The receiver, through the comptroller becomes a trustee of that trust, and, therefore, he holds this asset as trustee for the benefit' of the general creditors. The liability of the depositor, as attempted to be enforced in this case, is against the receiver in the same capacity. It is not like the case of Sawyer v. Hoag, in 18 Wallace, 610, cited by counsel on the other side.
    In the present case the liability of the receiver as trustee for the creditors, is on the one side, and the liability to the receiver, as trustee for the creditors, is on the other side. They affect the same fund, and are mutual. The true application of the principles governing this class of cases is clearly stated by Morse on Banking, section 334.
    In the present case both claims in fact affect the same fund, and, therefore, properly come within the rules laid down in this authority.
    But it is claimed that the receiver of the bank, as to the ordinary assets, is trustee for the stockholders and creditors both; but as to the indebtedness of the stockholders on their stock, he is trustee for the creditors only. This difference is altogether formal and without substance.
    5. Upon another well settled principle of equity, the claim of the defendant in error in this case should be allowed. Brownell is wholly insolvent. On the same day that this deposit account was assigned to the plaintffs in error, he made a general assignment of all his property for the benefit of his creditors; and no dividend under this assignment has ever been declared by the assignee. Insolvency authorizes a set-off in many cases when otherwise it would not be allowed. Brownell was insolvent at the time when his assignment of the deposit account was made, and the assertion by the receiver of his right to proceed against him upon his liabilities to the bank, was the occasion and excuse of his making this assignment, and of the plaintiffs in error demanding it.

      6. A further defense in this case, founded upon the special character of this action, leads to the same result as that already considered. This is an action against Armstrong as the receiver of the bank, for the amount of a check sent to him by the comptroller of the currency. It is not an action to compel him to allow the claim founded upon the bank deposit. Such an action could have been brought at any time after the rejection of that claim by the receiver or the comptroller, the claim having been properly authenticated. But the claim was allowed by the receiver and by the comptroller, and, therefore, no such action could have been brought. This action, therefore, is not for the claim, nor for its allowance, but for dividends declared upon the claim.
    7. One other question is raised in this case. It is said that the receiver issued a certificate in the name of the assignees, the plaintiffs in error, and that, therefore, he cannot dispute their right to the dividend. This certificate gave no new cause of action. It simply certified to a settlement of the account, and to the amount that appears by the books of the bank to be due upon it. The receiver has no power to incur a liability by any act of his, nor in the present case did he attempt to incur any such liability. Had the plaintiffs in error been placed in any different position from that previously occupied by them, in consequence of this certificate having been issued in their name, or had they given any new consideration for the issuing of this certificate, it might estop the receiver from attempting to correct the form of the paper which he signed, if he had power to execute such paper at all. But no claim of this kind is made. No new consideration did pass. No change in the position of the parties took place. Under the circumstances, then, of the present case, any error committed may be corrected.
   Williams, J.

The Fidelity National Bank of Cincinnati, a banking association organized under the national bank act, became confessedly insolvent, and suspended business, on the 21st day of June, 1887; and, on the 27th day of that month, the defendant, David Armstrong, was appointed by the comptroller of the currency, receiver to wind up its affairs. The franchises of the bank were adjudged forfeited, and the association dissolved, by a decree of the Circuit Court of the United States, at Cincinnati, on the 12th day of July, 1887. When the bank failed, it was indebted to Charles A. Brownell in the sum of $3,330.52, that being the balance then standing to his credit on his deposit account; which balance, on the 30th day of July, 1887, he assigned to the plaintiffs, Joseph King, M. Schroder, and Charles E. Brownell, as a security for, or payment on, a pre-existing debt which he owed them. The plaintiffs, soon afterward, presented their claim to the receiver, and on the 15th day of September, 1887, obtained from him a certificate .stating they had made satisfactory proof of the assignment, and that they were creditors oY the bank to the amount of the balance due Charles A. Brownell on the deposit account. On the 1st day of November, 1887, the comptroller of the currency declared a dividend of twenty-five per cent, on the claims of the creditors, and issued to the receiver checks for the amount of the dividend due each creditor, payable to the creditor; among them was a check for $832.63; the dividend on the claim assigned to the plaintiffs. The defendant refused to pay that dividend to the plaintiffs, who, thereupon, brought the action below, to recover it.

At the time of the failure of the Fidelity Bank, Charles A. Brownell was the owner of fifty shares of its capital stock, of the par value of one hundred dollars each, on which, under the provisions of the national bank act, he was liable for the indebtedness of the bank, to the amount of his stock, in addition to the sum invested in the stock held by him. That act provides, that “the shareholders of every national banking association shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares.” U. S. Revised Statutes, Section 5151.

When the bank failed, as well as when Brownell assigned the balance due on his deposit account to the plaintiffs, he was, and still is insolvent; and immediately after the transfer to the plaintiffs, of the balance due him from the bank, he made a general assignment for the benefit of his creditors. At the time the plaintiffs obtained from the receiver the certificate alluded to, he was not aware of the liability of Brownell as a stockholder of the bank, but became aware of it before the checks for the dividend, on the claims of creditors, were received; and, they were received with instructions from the comptroller to withhold them from all stockholders, and others in any way indebted to the bank. Afterward, the comptroller decided that it was necessary to enforce the stockholders liability to the full extent of one hundred dollars on each share, in order to pay the indebtedness of the bank, and made his order accordingly, declaring such necessity, and directing the defendant to collect, by suit or otherwise, from each stockholder, including Charles A. Brownell, the full amount of his liability. On the liability of Brownell, which amounts to five thousand dollars, nothing has been paid; and the receiver sought, in the action below, to have it set off against the dividend in his hands, upon the claim assigned by Brownell to the plaintiffs. The Superior Court allowed the set-off; and it is of that, the plaintiffs are here complaining.

The question in the case, therefore, is whether, upon the facts stated, the receiver is entitled to retain the amount of the dividend due on the debt which the bank owed Chas. A. Brownell at the time of its failure, and apply it on his liability as a stockholder of the bank. His right to do so, is controverted by the plaintiffs, chiefly on the ground that the cross-demands are not due to and from the parties respectively, in the same right; or. more definitely stated, that the stockholder’s liability is for the exclusive and equal benefit of the creditors, and is not a debt due the bank, or an asset of the bank; while the balance due on Brownell’s deposit account, is a debt of the bank, payable out of its assets, which he could not set off against his stockholder’s liability, and consequently, the receiver, it is claimed, cannot set off the liabitity against the debt, or dividend due upon it.

There is a noticeable difference, of some importance, between the administration .of the effects of an insolvent Ohio corporation, and those of a National Banking Association. With respect to the former, the stockholder’s liability does not pass to the assignee, or receiver, as assets for administration, and no right of action can accrue thereon in his favor. It can be enforced only at the suit of the creditors; and hence, the assignee may not, lawfully, withhold from a creditor of such corporation, a dividend due him from its assets, on the ground that he is liable as a stockholder, and the creditors, on account of his insolvency, might not otherwise be able to enforce the collection of any part of his liability. The creditors, in such case, undoubtedly could, by appropriate action, reach the dividend, and compel its application to the payment of the indebtedness of the stockholder; but ,as between a stockholder and the assignee, the latter would not have the legal right to set off the former’s liability against a dividend due him as a creditor, because the assignee is wholly without authority to collect or receive any part of the amount owing by the stockholder. It is different with a receiver of a national bank, By the provisions of the national bank act, the comptroller of the currency may appoint a receiver of such banking association, whenever he is satisfied that it is in default in the payment of its circulating notes, or has become insolvent; and the receiver is required, under the direction of the comptroller, to “take possession of the books, records, and assets of every description of such association, collect all debts, dues, and claims belonging to it, * * * and may, if necessary to pay the debts of such association, enforce the individual liability of the stockholders.” Revised Statutes of the United States, Section 5234, act of June 30,1876, Supp. U. S. Revised Statutes, 107. The receiver is authorized to collect from each stockholder, the necessary amount, up to the full extent of his liability, to meet the demand» of the creditors, and appears to be charged with that duty. The amount due from the stockholders becomes assets to be administered by him, as the other assets of the hank in his hands; and all of the assets, including the individual liability of the stockholders, constitute a trust fund for the benefit of all creditors having valid claims against the bank. It therefore becomes the duty of the receiver, under the direction of the comptroller, to so administer the fund as to secure to each beneficiary his just proportion of it. In his trust capacity, he is the representative of all the creditors, and of all the stockholders, both in the collection of the assets, and their proper distribution; and the fund collected from the stockholders goes into that arising from the other assets, and is distributed in the same way to the creditors, without separation or distinction on account of the source from which it is derived. It altogether constitutes one common fund, for the equal benefit of all the creditors, according to their respective rights; so that, whatever is due from Charles A. Brownell, on his individual liability as a stockholder, is due the receiver in the same relation in which he owes the dividend on the claim of Brownell against the bank. If Brownell were solvent, so that the amount of his liability could be collected, the fund for the creditors would be increased five thousand dollars by its collection; and by the payment of the dividend to him, or his assignees, the plaintiffs, it would be reduced $832.63. If the dividend were paid to Charles A. Brownell, and not placed beyond the reach of legal process, it might be immediately subjected by the receiver, to the payment of his indebtedness on his stockholder’s liability. But, if it is required to be paid to the plaintiffs, the creditors’ fund will be permanently diminished to that amount, which, at the same time, will loose 'the amount due it from Brownell, because, on account of his insolvency nothing can be collected from him, unless the receiver is allowed' to retain the dividend now in his hands, and have Brownell’s indebtedness set off against it. While the relation of Brownell to the receiver may not, strictly speaking, be that of debtor or creditor, in the sense essential to the right of set-off at law, he was, before he assigned his claim to the plaintiffs, both a debtor to, and creditor of the fund which the receiver represents.

Equity will enforce the set-off, or compensation of cross-demands, so far as they equal each other, when necessary to prevent one of the parties from losing his demand on account of the insolvency of the other. Upon the same principle, when a person entitled to share in the distribution of a trust fund is also indebted to thfe fund, and is insolvent, his indebtedness may, in equity, be set off against his distributive share; and, as a general rule, the right of set-off will not be defeated by the assignment of his claim, though made before the amount of his indebtedness, or of his distributive share, is ascertained. That application of the principle is not in conflict with the case of Sawyer v. Hoag, 17 Wall. 610, which is relied on by counsel for plaintiffs. Sawyer was indebted to the Eumbermans’ Insurance Company of Chicago, in the sum of $4,250, on his stock subscription, and after the company became insolvent by reason of its losses in the great fire in that city, bought up, for a small sum, a certificate of an adjusted loss of $5,000, against the company, and sought to have it set off against his stock liability, after the company had been adjudged a bankrupt. The court held, that the stock subscription was a trust fund for the equal benefit of all the creditors of the company, and Sawyer was not entitled to the set-off he was demanding, because, to allow it would give him an undue proportion of the fund, and deprive other creditors of their just share. It was contended in behalf of Sawyer, that the right to the set off was given by the bankrupt act, which provided that, “in all cases of mutual debts or credits between the parties, the accounts between them shall be stated, and one debt set off against the other, and the balance only shall be allowed or paid.” That provision of the bankrupt law it was held, was not intended to enlarge the doctrine of set-off; and in speaking of the right of set-off under it, Mr. Justice Mirrer said: “The debts must be mutual; must be in the same right. The case before us is not of that character. The debt which the plaintiff owed for his stock was a trust fund, devoted to the payment of all the creditors of the company. As soon as the company became insolvent and this fact became known to the plaintiff, the right of set off for an ordinary debt to its full amount ceased. It became a fund belonging equally, in equity', to all the creditors and could not be appropriated by the debtor to the exclusive payment of his own claim.”

The case is essentially different. from the one we have before us. The debt which Sawyer owed the insurance company was due to a trust fund, in which all the creditors were entitled to share equally; the debt which the company owed him was one which was only entitled to receive its proportion of the fund, and not entitled to payment out of it, in full. He could not, therefore, set off the whole amount of the debt due him, against that which he owed the fund, for that would result in an unequal distribution of the fund, and enable him to obtain more of it, proportionately, than the other creditors, and more than his proper share. That was the reason for denying the set-off which he sought to have made. The reason is wholly ■wanting in the present case. Here, the set off allowed by the court below, was not of the entire claim which the bank owed Brownell, against his obligation to contribute to the trust fund on his stockholders liability, but only of his proper share and proportion of that fund, payable on his claim against the bank, as ascertained by dividend duly made and declared. The allowance of the set-off took nothing fprom the other creditors to which they were entitled, and gave nothing more to the claim of Brownell than it was justly entitled to receive—its proper share of the trust fund. It in no way interferes with the equal rights and equities of the other creditors, but on the contrary, preserves and protects their rights, and inures to their benefit, by increasing the fund. We see no valid objection to the set-off adjudged by the court below, unless the right was defeated by the assignment of Brownell’s claim against the bank, to the plaintiffs; and we think it was not. It is contended by counsel for the plaintiffs, that the liability' of Brownell as a stockholder had not accrued when the assignment to them was made, and therefore, could not be set off against the dividend due on the claim. The position of counsel is, that the liability was not complete, and so not due, until the comptroller of the currency directed the receiver to enforce it, which was subsequent to the assignment. In support of this position, Kennedy v. Gibson, 8 Wall. 498, 505, is cited, in which it is said: “It is for the comptroller to decide when it is necessary to institute proceedings against the stockholders to enforce their personal liability', and whether the whole or a part, and if a part, how much, shall be collected. These questions are referred to his judgment and discretion, and his determination is conclusive. * * He may make it at such time as he may deem proper, and upon such data as shall be satisfactory to him. This action on his part is indispensible whenever the personal liability of the stockholders is sought to be enforced, and must precede the institution of suit by the receiver. The fact must be distinctly averred in all such cases, and if put in issue, must be proved.”

The power appears to be vested in the comptroller, to determine when it is necessary to collect from the stockholders, and the amount to be collected; but not to establish the liability, or determine when it accrues. The liability is complete, and subject to proceedings for its enforcement when the banking association becomes insolvent and suspends business; the comptroller simply directs at what time, and to what extent, the liability shall be enforced. It may require an investigation of the condition of the bank, its assets and liabilities, in order to determine whether resort to the stockholders is necessary, and for what amount; and while that duty is devolved upon the comptroller, and no proceeding can be instituted against the stockholders until directed by him, the maturity of the liability is not postponed until such direction is given; the proceeding only, is so postponed. By the provisions of the national bank act already quoted, the receiver is required, “under the direction of the comptroller, to collect all debts,”, etc., belonging to the banking association; and it could, with as much propriety be said, that, inasmuch as the receiver could only collect the debts due the bank, under the direction of the comptroller, a matured note held by the bank at the time of its failure, does not become due until the comptroller has directed it to be sued, as, that the liability of stockholders-does not mature, until instructions are received from the comptroller to institute proceedings for its enforcement. Receivers generally institute suits under the direction of the courts by which they are appointed; and, though the order of the court authorizing the suit may be essential to its maintainance, it does not follow that the claim sued on,' matured only upon the order being made. The receiver of an insolvent national bank obtains his appointment from the comptroller of the currency, and acts under his directions and orders, which are analagous to an order of court to a receiver appointed by it.

It is well settled, that the statutory liability'- of stockholders of Ohio corporations is complete, so as to set the statute of limitations running in their favor, when the corporate property has been placed in the hands of an assignee in bankruptcy or insolvency, or of a receiver to-wind up its affairs. The exact amount of the liability of each stockholder may not then be known, and can only be ascertained in the progress of the action; yet the court may retain control of the cause and parties until the amount is-definitely fixed, and the ultimate rights of the parties are adjusted. Younglove v. Lime Co., 49 Ohio St., 663.

The liability of Charles A. Brownell as a stockholder of the Fidelity Bank, was due, we think, in every sense essential to the set-off, when the bank failed; and the assignment of his claim against it to the plaintiffs, therefore, presented no obstacle to the allowance of the set-off. Nor, did the certificate which the plaintiffs obtained from the receiver. That, gave them no new right, and amounted to nothing more than an acknowledgment of the correctness of the-claim, and its assignment to them. Their position was in no way changed on account of it.

We are of opinion the court committed no error in retaining the cause until the amount of Brownell’s liability was determined, and then setting it off against the dividend due on his claim against the bank.

The judgment is affirmed.


source: Caselaw Access Project

author: Minsharr, J.

license: Public Domain

text:
    State ex rel. v. Railroad Company et al.

      Qtio warranto—Object of, against a corporation—Statute of limitations.

      3. The object of a proceeding in quo warranto against a corporation, is to determine its right to the exercise of any or all of the franchises it may claim the right to use and possess, not to divest it of the ownership of property unless acquired by a usurpation of the proprietary rights of the state.
    2 A prayer that the defendant, a corporation, be ousted from the right to use the lands of the relator for a private purpose, is, in effect, a prayer that the company be ousted from the possession of the lands, and not within the purpose of a proceeding in quo warranto.

    3. The ouster of a company from the right to be a corporation, for the misuse of a franchise, is limited to five years from the commission of the offense. § 6789 Revised Statutes; State ex rel. v. Standard Oil Co. 49 Ohio St., 137.
    (Decided April 25, 1893.)
    Error to tbe Circuit Court of Mahoning county.
    The action below was a proceeding in quo warranto, commenced in Mahoning county by the prosecuting attorney, on the relation of Alexander F. C. Waddell, against The Pittsburgh, Youngstown & Ashtabula Railroad Company .and The Pennsylvania Company, asking that, upon the facts stated in the petition, the defendants “be ousted from the exercise of the corporate rights, franchises and privileges of using the private property of the relator and the relator’s wife, Caroline N. Waddell, and others.” Issues of fact having been made by the pleadings, were tried to the court, which, at the request of the plaintiff, found its conclusions of law and fact separately—the finding of facts being substantially the averments of the petition, and is as follows:
    “On the 1st day of July, A. D. 1872, articles of incorporation were filed with the secretar}' of state of Ohio, and a corporation formed to be known as The Youngstown & Canfield Railroad Compaq*-, for the purpose of locating, constructing and operating a public- railroad. The names of the places of termini of which, and the county through and in which said railroad should pass, were as follows, to-wit: Said railroad was to begin in the township of Youngstown, county of Mahoning and state of Ohio, at a point on the south side of the Mahoning river near Haselton, connecting with the Cleveland & Mahoning railroad, or the Eawrence railroad, and was to be located or constructed from thence westerly and south-westerly by the most advantageous route to the Niles & New Eisbon railroad at or near the village of Canfield, a distance of about twelve miles, all in said Mahoning county. The amount of capital stock of said railroad company was two hundred thousand dollars, in shares of fifty dollars each. That the said The Youngstown & Canfield Railroad Company, beginning at a point on the Eawrence railroad on the south side of the Mahoning river near Haselton, being the eastern terminus of the proposed railroad, entered upon the locating and constructing of the Youngstown & Canfield railroad, and by proceedings in the probate court of Ma-honing county, condemned and appropriated private lands upon which to build, and did build a part of said railroad, and exercised other powers and privileges and franchises which were granted to it as a public railroad company by the state of Ohio. That afterwards, to-wit: On the 26th day of May, A. D. 1873, The Eawrence Railroad Company and The Youngstown & Canfield Railroad Company were consolidated under the laws of the state of Ohio, forming one company to be known as The Eawrence Railroad Company. That the said The Eawrence Railroad Company immediately thereafter entered upon the location and construction of the Youngstown & Canfield railroad, and during the year 1874 completed the construction of said railroad from the western end of the part already built as far westerly and south-westerly as the Foster coal bank, a distance of about four miles from the place of beginning, or eastern terminus thereof, on the Eawrence railroad, and operated the same in the manner hereafter stated. That afterwards, to-wit: On the 2nd day of June, A. D. 1887, The New Brighton & New Castle Railroad Company, a corporation of the state of Pennsylvania, and said The Eawrence Railroad Company were consolidated under the laws of Ohio, under the name of The Youngstown, Eawrence & Pittsburgh Railroad Company; that afterwards, to-wit: On the 22nd day of July, A. D. 1887, The Ashtabula, Niles & Youngstown Railroad Company, a corporation organized under the laws of Ohio, was consolidated with The Youngstown, Eawrence & Pittsburgh Railroad Company, thereby forming a corporation of the state of Ohio, to be known as The Pittsburgh, Youngstown & Ashtabula Railroad Company, with its principal office in the city of Youngstown, Ohio; that about the first of the year, 1890, and more than two years after the coal had all been removed from the Kyle and Foster coal mines, the defendants herein pulled up the track, ties, bridges and bridge abutments of the Youngstown & Canfield railroad from the western end thereof (as constructed) at Foster coal bank, and removed the same back as far as the west line of lands owned by the relator, Alexander F. C. Waddell in said township, and has not since used the road bed and right of way of said Youngstown & Canfield railroad, except one mile and a third thereof, which the defendants retained and used, and are still retaining and using, substantially as a switch over which to reach the works of The American Tube & Iron Company, and The Smith Brick Works, with its cars and engines. That for at least two years prior to the time of the taking up of said track, ties, bridges and bridge abutments, no business was done or offered to said company over the portion of the road thus taken up, nor was any in prospect.
    “That said ties, bridges and abutments had been condemned by the engineers of the company operating the road, and they and the rails were insufficient to safely carry the engines and loaded cars then in ordinary use on the division of which this road is a part. That said track and structures were taken up at the instance and request of the superintendent of the said division, for the purpose of having the available material used elsewhere. That said Youngstown & Canfield railroad was never constructed to Canfield, and never connected with the Niles & New Eisbon railroad at or near Canfield or anywhere else. That no passenger cars were ever put upon said railroad, and no depots or freight houses were ever built bjr either of said companies, or any person or persons on or along the line of said railroad. That the Youngstown & Canfield railroad was never constructed further than said Foster coal bank by either of said companies into whose hands it came. And said original company, .and neither of the companies with which said original company was consolidated, ever intended to build said Youngstown and Canfield railroad to Canfield, and connect the same with the Niles & New Eisbon railroad. That the object and intention of said original company and the said The EawrenceRailroad Companj"-, was to secure the right of wajq locate and construct, and maintain a private railroad to the Kyle and Foster coal mines, for the purpose of transporting coal from mines of which the stockholders of said original company and said consolidations were the owners, to Haselton and elsewhere to market, and which object and intention were known to the said subsequent consolidating companies and acquiesced in and continued by them. That The Pittsburgh, Youngstown & Ashtabula Railroad Company is now occupying land that was appropriated by proceedings had in the probate court of Mahoning county, Ohio, as a part of the right of way of said Youngstown & Canfield railroad» the fee in which land belongs to this relator and this relator's wife and others, and has been and is now maintaining said railroad over the same for the purpose of running its cars and engines to and from the works of The American Tube & Iron Company and said Brick Company and for no other purpose.
    “CONCLUSIONS OP LAW.
    “.Upon the facts above found, the court holds the law to be: ‘That the cause of action herein is founded upon the facts that said railroad companies did not intend to and did not build a public railroad, but did intend to and did build a private railroad for the private benefit of the stockholding mine owners, and the facts that no passenger cars were put upon said road, and no passenger or freight houses built, and that the operating company took up the rails, ties, bridges, and bridge abutments, as found by the court, are evidential facts tending to prove said cause of action, and do not in and of themselves constitute any ground for independent separate relief herein, and that said cause of action is barred by the five year limitation contained and provided for in section 6789, of the Revised Statutes of Ohio, and that the-plaintiff is not entitled to any relief in this action.’ To> which conclusions of fact found from the evidence and to which conclusions of law plaintiff then and there excepted. And it appearing to the court that The Pittsburgh, Youngstown & Ashtabula Railroad Company did not in its original answer plead said limitations contained in said section of the Revised Statutes of Ohio, said defendants upon this application made during the hearing of the cause are granted leave to file an amendment to their said original answer and therein plead said limitation, and said plaintiff excepts thereto. The court grants leave to the plaintiff to reply instanter to said amendment, which is accordingiy done.
    “It is therefore ordered, adjudged and decreed by the court that this action be and the same is hereby dismissed, and that said defendants go hence without a day and that they recover their costs of said plaintiff, and that said plaintiff pay its own costs to be taxed at $-. To all of which holdings, judgment, order and decree said plaintiff excepts.”

      George F. Arrel and W. T. Gibson, for plaintiff in error.
    I. Under the former holdings of this court there was created, by direct grant from the legislature of Ohio, a new corporation, whose existence began on the 22nd day of July, A. D. 1887, with power to construct and operate a public railroad from a point on the south side of the Mahoning River, near Haselton, connecting with the Cleveland & Mahoning railroad or the Eawrence railroad, to the Niles & New Eisbon railroad, at or near the village of Canfield.
      The State of Ohio v. Sherman et al, 22 Ohio St., 411; Shields v. The State, 26 Ohio St., 86. This action was commenced in the court below in August, 1890, and hence within five years of the incorporation - and organization of The Pittsburgh, Youngstown & Ashtabula Railroad Company. The same case was before the Supreme Court of the United States. Shields v. Ohio, 95 U. S., 319.
    The doctrine of the cases cited above clearly is that, by the consolidation of railroad companies under the statutes of Ohio, there is formed a new corporation which .takes and enjoys its franchises,' powers and privileges, by grant directly from the legislature, and that the individual charters of the constituent companies are surrendered and relinquished. If such be the law,'then the-question is, whether or not, where one of the constituent companies has usurped, and for a period of more than five but less than twenty years, has, in fraud of the law, exercised the privileges of operating a purely private railroad, and for purely private purposes, the consolidated company can, in perpetuity, continue such usurpation and the exercise of such privilege. It is submitted that to ask such a question is to answer it.
    The right to become a corporation was obtained by false pretenses and fraud on the part of the stockholders of said original company. The right to exercise valuable privileges and franchises was continued and enforced by the false pretenses and fraud of the subsequent consolidating companies, into whose possession and control said railroad came.
    In the case of The State v. The Haselton & Leetonia Railway Co., 40 Ohio St., 504, the court found that there had been not only a non-user of the powers, privileges and franchises conferred, but there had been a palpable misuser of them. In that case the court reversed the decision of the district court, and remanded the case back without a decree. But, judging from the language used by the court in the opinion, if there had been a decree it would have been one of ouster, under Section 6761, Revised Statutes. On the 2nd day of July, 1877, there had been a misuser and non-user for five years, and an action could have been maintained then to oust The Eawrence Railroad Co., and under their holding it would have been the duty of the court to enter judgment of ouster therein. Revised Statutes of Ohio, sec. 6780. Did the misuser and non-user of the rights, privileges and franchises granted to The Youngstown & Can-field Railroad Company, cease at the end of five years from the date of incorporation? If it did, then at the end of five years more, if the five 3>-ears limitation is applicable, the time within which the action could be brought, would have expired. But the consolidated companies did not cease to exercise the rights, privileges and franchises at the end of five years, and they are still exercising them.
    Was not the laying of the last tie and the running of the last engine over this railroad as plain a misuse as the laying of the first tie or the running of the first engine over it ? Was not the operation and maintenance of this railroad for four miles, and no more, as plain a non-user of the rights, privileges and franchises granted to the Youngstown & Canfield railroad in 1888, as the failure to use the same from 1872 to 1877? In other words, the five years limitation begins to run from the time the act complained of was done or committed. Revised Statutes, sec. 6789. The acts complained of in this case were done and commited up to the time the railroad was abandoned in 1890. And as the defendants are still occupying and using about one mile of this railroad as a switch, under and by virtue of their articles of incorporation, there is still a non-user and active misuser of the rights, previleges and franchises granted. At the time of the commencement of this action these defendants were, aud they now are, operating and maintaining a private railroad over private lands; that is, they are occupying lands obtained by the exercise of the right of eminent domain in 1872. Can it be that the legislature intended that the words done or committed, in Section 6789, Revised Statutes of Ohio, should refer to the first acts of misuser or non-user only ? And that after a corporation has continually misused and failed to use the rights, privileges and franchises granted to it as a corporation for five years, it has a right to do so?
    II. The object and intention of The Youngstown & Can-field Railroad Company, and The Lawrence Railroad Company, was to secure the right of way, locate, construct and maintain a private railroad to the coal mines, for the purpose of taking coal from these mines to Haselton and elsewhere to market. The stockholders of the original companies, and of the consolidations were the owners of these mines. And this original object and intention was known to all of these companies, and continued by them. The principal defendant in error is occupying and using land which belongs to the relator, and the relator’s wife and others, and which was appropriated by The Youngstown & Canfield Railroad Company, by proceedings in Probate Court of Mahoning county had lor that purpose, and it is now maintaining a railroad over these lands for the purpose of running its cars and engines to and from the works of The American Tube & Iron Co. and The Smith Brick Co., and for no other purpose. All of these things the principal defendant in error claims to have done and to be doing under and by virtue of its charter. Indeed, no other claim can be made in its behalf. It clearly claims and holds, and has exercised and is exercis. ing, a franchise, privilege or'right, in contravention of lawr within the meaning of paragraph 4 of sec. 6761, Revised Statutes of Ohio. Its right to do these things cannot be secured to it under Section 6789, Revised Statutes of Ohio, until the lapse of twenty years. The power or' franchises must have been used and exercised under its charter for the full period of twenty years before the action below was barred. Even if time began to run in its favor on the 1st day of July, 1872, when The Youngstown & Canfield Railroad Co. was incorporated, and which was fifteen years and twenty two days before The Pittsburgh, Youngstown & Ashtabula Railroad Co. was born, the action was not barred. Ohio ex rel. the Attorney General v. The Standard Oil Co., 49 Ohio St., 137.

      J. R. Carey, W. C. Boyle and A. W. Jones, for defendant in error.
    Brief of A. W. Jones.

    The circuit court found, that while the paper road was apparently a public road, that the company never had any other intention than to build a private road four miles in length for the accommodation of certain stockholders who were owners of the mines, to enable them to take their coal to market.
    If this was true, as found by the circuit court, there can be little doubt but that at one time it would have authorized a proceeding to oust the defendant of its rights to be a corporation. Revised Statutes, sec. 6761; Ohio v. P. & O Canal Co., 23 Ohio St., 126, 127; States. Railway Co., 40 Ohio St., 504; State v. People's Association, 42 Ohio St., 579.
    All that was ever done by way of construction was completed in the year 1874, so that the offense against the law of its creation occurred in that year. Waddell’s land was appropriated December 17, 1872, for the sum of $2,985.00. This action was not commenced until August 16, 1890; therefore, by leave of the circuit court, defendants interposed the bar of the statute of limitations. Revised Statutes, 6789.
    Judge Eaubie in delivering the opinion of the court has more ably discussed the question presented than we are able to do, and we therefore adopt his opinion as our argument upon the subject.
    Counsel for plaintiff in error in their brief, seem to admit the force of the bar, unless they can avoid it in one of the ways pointed out by them.
    They say that by the consolidation of the several corporations into the one, there is formed a new corporation, which takes and enjoys its purchases by grant directly from the legislature, and that the individual charters of the constituent companies are surrendered and relinquished.
    While they do not in words say it, the inference they desire the court to draw is, that although The Youngstown & Canfield R. R. Co., or The Lawrence R. R. Co., had they remained unconsolidated, might have pleaded the bar of the statute; still, by force of the consolidation, The P., Y. & A. R. R. Co. is precluded from so doing. The argument proves too much, because, if by the consolidation -the atonement was wiped out, the sins of the deceased ought to be wiped out also, and not charged against the new creation. If the court will examine the evidence it will be found that all the acts of offense charged or proven were done by these old companies. The same argument would apply if the company had been in adverse possession of depot grounds, claiming title for twenty-one years; the consolidation would dispose of the bar and defeat the title. Indeed, if the claim is well founded, Waddell could easily have obtained his land by an ordinary action of ejectment. Sec. 3384, Revised Statutes.
    One of these rights, so transferred, was the right to plead this statute of repose. In other words, all the property, rights, privileges, franchises, and every thing else, under whatever name it may be known, goes to the new company, in the same manner, and under the same conditions,Noth as. to rights and liability, as though the old company'had continued to remain.
    If what Judge Arrel is pleased to term a “usurpation’’, had ripened into a right in the old company, either by virtue of the bar of the statute or otherwise, before the consolidation, it would remain a right in the new company unaffected by the consolidation. Neither would a consolidation have the effect to stop the running of the statute; if half the time had run while the old company was in existence and the other half accrued under the new, we submit that the bar would be complete.
    A proceeding in quo warranto to forfeit a charter must, under sec. ,6789, be commenced within five years after the act complained of was done, whether commenced by the state on relation of the attorney-general or otherwise. Ohio ex rel. v. Standard Oil Co., 49 Ohio St., 137.
   Minsharr, J.

The original action was brought in the circuit court of Mahoning county against the defendants, in August, 1890, by the prosecuting attorney on the relation of a private person, Alexander F. C. WaddeJl, for the purpose, as appears from the prayer of the petition, of ousting The Pittsburgh, Youngstown & Ashtabula Railroad Company from the right, franchise and privilege “of using and occupying the private property of the relator” and his wife. The Pennsylvania Company being simply the lessee of the road of that company. The company named acquired its right to the use of the land in question as a right of way, through a series of consolidations—the condemnation having been made in 1872, by The Youngstown & Canfield Railroad Company, incorporated under the laws of this state in that year. Subsequently this company and its road were merged in and became a part of The Lawrence Railroad Company, formed by proceedings in consolidation completed August 26, 1873, between it and another company; by like proceedings this company was merged in and became part -of The Youngstown, Lawrence & Pittsburgh Railroad Companj1- formed June 2, 1887; and then this company was merged in and became a part of the defendant, The Pittsburgh, Youngstown & Ashtabula Railroad Company formed by proceedings in consolidation, completed July 22, 1887.

The court finds in substance that the road from Haselton to Canfield never was constructed, nor was intended to be, by any of the companies; and that the object and intention of the original company and of The Lawrence Railroad Company, was to secure the right of way, locate and construct a private road to certain coal mines about four miles from Haselton, in which the stockholders of these companies were interested, and to which the road was constructed and operated in shipping coal from the mines for private purposes and none other, until in 1890, and sometime after all the coal had been removed from the same mines, when the track was torn up and abandoned back to the west line of the relator’s land, something over a mile from Haselton, from which point the remainder of the road is used as a switch to The American Tube & Iron Company and The ■Smith Brick Works.

The question now arises whether upon the facts as found by the court, the relator has a right to the relief prayed for. It may well be conceded, that the condemnation of private property for a private use, and its use for such purpose only, constitutes a flagrant abuse of the power of eminent domain, and that a company guilty of such abuse of its powers should be deprived of its corporate franchises and be dissolved. The State v. Railway Company, 40 Ohio St. 504. But our statutes limit the time in which this drastic remedy may be applied by the courts to an offending company, to five years from the commission of the offense. § 6789, Revised Statutes. Whether it was wise in the legislature to prescribe such a limitation, is not open to question here; nor can we say that the court erred in permitting the defendants to plead the statute after the parties had gone to trial; and it follows that the court was right in holding that, as a matter of law, no judgment ousting the company from its corporate rights and dissolving it, could be entered in the case. And, indeed, it should be observed that the present compan}'- committed none of these offenses. The property for the roadway was condemned by the original company in 1872, and the road was constructed over the way as condemned, by The Eawrence Railroad Company in 1873 and 1874. All the present company has done, has been to take up the track, bridges and so forth, and abandon the road to the west line of the relator, and continue the use of the remainder as a switch to certain private industries. So that there remains only the question whether any relief can, in this proceeding, be given the relator as against the present consolidated company. We say the relator, for it has been shown that none can be given the state, by reason of the statute of limitations, for any abuse of the power of eminent domain. The present company has, as a matter of fact, been guilty of no such abuse. It, so far as appears, has condemned no property for any purpose; and if it could be punished for what was done by some one or more of the companies now merged in it, certainly it could not be after the offense had been condoned by lapse of time in favor of the offending company. The only claim that can now be asserted against it is, that without any authority of law and against his consent, it is wrongfully occupying the property of the relator. Is it within the jurisdiction conferred on the courts in a proceeding in quo warranto 'to afford relief of any kind in such a case? We think not. Except where the proceeding is brought to try title to an office, in which the defendant may be ousted and the claimant inducted, or where it is brought to determine the title of a corporation to property claimed by the state, it is always limited to a determination of the right of a corporation to the exercise of certain powers and franchises which can only be derived from the grant of the state. It is not a remedy to determine disputes between it and private persons as to the ownership of property. Where the power, of eminent domain has been conferred on a corporation by the state, it is not a matter to be determined in quo warranto, whether the corporation in the exercise of the power has perpetrated a fraud, and wrongfully or unjustly acquired the property of a private person, and if found guilty to oust it therefrom. Other and more appropriate civil remedies are provided the citizen for the assertion and protection of his rights of property in such cases. He may adopt any of the remedies he would have under like circumstances against a natural person. A corporation enjoys no immunity in this regard. It can no more wrongfully take and occupy the property of another, than can a natural person; and it is subject to the same remedies in such cases. If the facts found constitute an adandonment of the way through the relator’s land, he could certainly recover it in an action for the possession; or, if it was fraudulently acquired and used for a private purpose, I am unable to see why the owner, if without knowledge of the fraud at the time of the appropriation, might not, on discovering the fraud and returning or offering to return the money received as compensation and damages, cause the appropriation to be set aside, as any other judgment obtained by fraud, and have a writ of possession awarded.

To sum up, the object of a proceeding in quo warranto against a corporation, is to determine by what right it exercises a certain franchise—a franchise as here understood, being, as defined by Kent, a particular privilege conferred by the grant of the government and vested in individuals; or, as defined by Blackstone, a branch of the king’s prerogative subsisting in the hands of a subject. 3 Kent, 458; 2 Bla. Com. 37. Or it may be to oust it from the right to be a corporation for an abuse or non-user of franchises granted. Hence it is, that the state must always be the plaintiff, as it alone can complain of such usurpation of its authority, or abuse of privileges granted. It is not then a suit for the vindication of the proprietary rights of the individual as against the claims of a corporation; the remedies of the individual against a corporation for the recovery of property being the same as against a natural person.

Judgment affirmed.