In Mellott v. Love, 152 Miss. 860, 866, 119 So. 913, 64 A.L.R. 968, it was held by this court that the statute imposing additional liability on bank stockholders must be strictly construed, and that so construed the liability existed only as to actual or real owners, not as to apparent or ostensible owners.Summary of this case from Thompson v. Person
January 21, 1929.
1. INFANTS. Except for necessaries and in some special cases of fraud, contracts of infants impose no liability which is not voidable at their election.
Contracts of infants impose no liability on them which is not voidable at their election, except those for necessaries, and in some special cases of actual and active fraud.
2. INFANTS. Infant's right to avoid contract is not affected because rights of third parties have supervened.
Right to avoid a contract by infant because of his infancy is not affected by the fact that the rights of third parties have supervened.
3. INFANTS. Disaffirmance of contract made by infant nullifies it and renders it void ab initio.
Disaffirmance of a contract made by an infant nullifies it and renders it void ab initio, and all parties are thereby restored to the status in which they would have been if the contract had never been made.
4. BANKS AND BANKING. Minor stockholder disaffirming purchase after bank's insolvency was not subject to statutory liability ( Hemingway's Code 1917, section 3619).
Where infant owning share of stock in bank disaffirmed his purchase thereof after bank's insolvency, he was not subject to statutory liability, under Hemingway's Code 1917, section 3619, by reason of the ostensible stock ownership, in absence of fraud or conduct equivalent thereto.
5. BANKS AND BANKING. Law imposing liability on stockholders of insolvent bank must be strictly construed ( Hemingway's Code 1917, section 3619).
Hemingway's Code 1917, section 3619, imposing liability on stockholders of insolvent bank, must be strictly construed in that it creates an additional liability on part of stockholders in derogation of common law.
APPEAL from chancery court of Bolivar county, Second district, HON. HARVEY McGEHEE, Chancellor.
W.B. Alexander, Jr., for appellant.
Defendants seem to base their defense mainly upon the proposition that the double liability is purely statutory, and not contractual or quasi-contractual. But see Saussy v. Leggett, 75 Fla. 412, 78 So. 334; McNeill v. Pace, 69 Fla. 349, 68 So. 177; Gibbs v. Davis, 27 Fla. 531, 8 So. 633; Howarth v. Lambard, 56 N.E. 888; Wilson v. Book, 13 Wn., 676, 43 P. 939; Hencke v. Twoney, 58 Minn. 550, 60 N.W. 667; Weitzel v. Brown (Mass.), 112 N.E. 945. The liability is contractual and not statutory. Carroll v. Green, 92 U.S. 509, 23 L.Ed. 738; Howarth v. Angle (N.Y.), 56 N.E. 489; Converse v. Ayer (Mass.), 84 N.E. 98; Anglo-American Land Co. v. Dyer (Mass.), 64 N.E. 416; Pulsifer v. Greene (Me.), 52 A. 932; Olson v. Cook (Minn.), 59 N.W. 635; First Nat'l Bank v. Winona Blow Works (Minn.), 59 N.W. 997; Whitman v. Oxford Nat'l Bank, 176 U.S. 559, 20 Sup. Ct. 477, 44 L.Ed. 587; Bernheimer v. Converse, 206 U.S. 516, 27 Sup. Ct. 755, 51 L.Ed. 1163. In a very able and interesting opinion, the United States circuit court of appeals (9th Dist.) held the double liability of a shareholder in a National Bank to be contractual in Aldriche v. McLaine, 106 Fed. 791.
I presume that it is true that the legislature could, if it chose, legislate that a minor's contract for purchase of bank stock is valid and enforceable, and that the minor is good for his double liability. But to do so since that would be in derogation of the common law, it would have to do so in clear and explicit language and not be implication. To maintain that the legislature did so legislate in this case from the mere fact that the rights of minors are not specifically reserved in the statute seems untenable. If that were true, then a minor, and every other person, whatsoever would be liable for almost every species of contract or liability set out in the code. For instance no specific reservation of Minor's rights is made in the Negotiable Instruments Act. If the minor's stock liability is statutory, from the mere fact that his rights are not specifically reserved, then he would be liable for every liability depending in part on some similar statute. The minor's note, given for a Cadillac Automobile, would be enforceable against him under the Negotiable Instruments Law, for instance, if this were the law. The common-law rules cannot be changed by implication in a statute, but the statute must be express and specific in its language to alter the common law. On the general proposition of a minor's liability for the double assessment as a shareholder, see 7 C.J., p. 770, par. 611.
F.W. Bradshaw and Flowers, Brown Hester, for appellee.
The question for decision here is whether or not a minor owning stock in a failed state bank is liable for the double stock liability provided by sec. 59 of the Banking Act of 1914. There are three well-recognized guides to be followed in the construction of a statute:
First: The cause or reason for its enactment. It is plainly evident that the reason for the enactment of this statute was to place our banks upon a sound basis and to afford our people protection for their money and their credit. Banks are for the use and benefit of the public and unless the public is afforded legislative protection, the practice of dealing with banks becomes a public danger rather than a public good.
Second: The remedy that the statute affords. It was intended by the legislature that those who undertake to establish and draw a remunerative interest from banks shall be liable to those who place their money with them. It is an equitable protection. Pate v. Bank of Newton, 116 Miss. 666, 77 So. 601.
Third: The intention of the legislature as embodied in the statute. It is evident from a study of the statute that it was the intention of the legislature that everyone owning bank stock should be personally liable under the statute with the exception of "executors, administrators, guardians, or trustees" and the addition of "but the assets and funds in their hands, constituting the trust shall be held to the same extent that the testator, intestate, ward or person interested in such trust fund, would be if living or competent to act," was not added to exempt insane persons and minors from liability but to qualify the exemption of those fiduciary classes mentioned therein, making them liable in their fiduciary capacity and not personally. The appellant contends that this clause implies exemption to minors and insane persons, when it is clear that such is not the intention. It merely explains in what capacity these fiduciaries are liable. Keyser v. Hitz, 133 U.S. 151, 33 L.Ed. 538.
Appellant states that by implication the statute recognizes that insane persons and minors are two classes that do not have capacity to act or hold stock in their own name. In other words he infers that these two classes are exempt under the statute by implication. Then he states that the legislature could hold a minor liable if it chose but not by implication. It seems to us that the more reasonable view to be taken of a statute of this kind which is intended to be a great "catch-all" of liability on a matter of so great importance to public credit is that the exemptions would have to be explicit, as they are in our statute (executors, administrators, guardians or trustees and persons holding stock as collateral security) and that all those who are not so exempt must be held to be liable.
The appellant further contends that the liability depends upon a prior lawful and valid contract of purchase of the stock. We do not believe that this is the correct rule. The liability is a statutory liability that attaches to the ownership of the stock no matter how it is acquired nor by whom. Love v. Lewis, 141 Miss. 120, 106 So. 348; Crippen, Lawrence Co. v. Laighton, 46 L.R.A. 467; Rice v. Merrimac Hosiery Co., 56 N.E. 114; Terry v. Little, 25 L.Ed. 864; New Haven Horse Nail Co. v. Linden Spring Co., 142 Mass. 349, 7 N.E. 773; Brown v. Eastern Slate Co., 134 Mass. 590; Libby v. Tobey, 82 Me. 397, 19 A. 904; Wing v. Slater, 19 R.I. 597, 33 L.R.A. 566; 35 A. 302; Saules v. Bates. 15 R.I. 342, 5 A. 497. See Bryan et al. v. Bullock (Fla.), 93 So. 182; Robinette v. Sterling, 72 Miss. 652, 18 So. 421; Vick v. La Rochelle, 57 Miss. 602. We think that the correct view is that the obligation arises by reason of the statute and not by virtue of a contract and that therefore a minor stockholder is liable in spite of the disability of minority. We think that the Kent v. Love, 141 Miss. 523, 106 So. 772, clearly puts this court on record with those holding this to be true.
Some time during the year 1918 the appellant, a minor, being then about 7 years of age, purchased a share of stock of the par value of one hundred, dollars in the Farmers' Bank of Boyle. In 1921 the bank became insolvent, and the appellee took charge of it for the purpose of its liquidation, as required by the banking laws. At the time the bank was closed the appellant had on deposit in said bank the sum of six hundred forty-nine dollars and fifty-one cents, and when the appellee in due course issued the state depositor's guaranty certificate there was deducted the sum of one hundred dollars, the amount of the stockholder's statutory liability which the appellee claimed should be debited, under section 3619, Hemingway's 1917 Code, by reason of the ostensible stock ownership of the appellant at the time in that amount so that the certificate issued to appellant was for five hundred forty-nine dollars and fifty-one cents instead of six hundred forty-nine dollars and fifty-one cents. The appellant, disaffirming his purchase of said stock, petitioned the chancery court to require the appellee to issue to him an additional certificate for the one hundred dollars withheld. Answer was made to the petition admitting all the material facts, and upon hearing the chancellor denied the petition and dismissed it.
Except for necessaries and in some special cases of actual and active fraud, it has long been settled (1) that the contracts of infants impose no liability upon them which is not voidable at their election, Ferguson v. Bobo, 54 Miss. 121; Edmunds v. Mister, 58 Miss. 765; (2) that the right to avoid a contract by the infant, because of his infancy, is not affected by the fact that the rights of third parties have supervened, Upshaw v. Gibson, 53 Miss. 341: and (3) that the disaffirmance of a contract made by an infant nullifies it and renders it void ab initio, and all parties are thereby restored to the status in which they would have been if the contract had never been made, 31 C.J., p. 1072; 14 R.C.L., p. 242; French v. McAndrew, 61 Miss. at page 192. Giving full operation to the principles stated, it becomes at once an obvious conclusion that there can be no stockholder's liability against the infant here if the situation involves anything whatever of contract, because, upon the disaffirmance, the whole transaction became void ab initio, and as empty of effect as if it had never taken place.
This conclusion seems to be recognized by appellee, and he accordingly takes the position that the liability imposed is a wholly independent, naked, statutory liability requiring for its effect not a single element of contract, either express or implied — that it is a liability created solely by the force of the statute, enacted to promote the interest of a sound public policy in the establishment and maintenance of a dependable banking system for the general welfare. And in this connection it may be noted that appellee insists that a liberal and inclusive interpretation should be given the statute in order to subserve the evident public policy mentioned. But the authorities do not warrant that insistence:
"Inasmuch as all statutes creating an additional liability on the part of stockholders are in derogation of the common law, they are to be strictly construed. They are a wide departure from established rules, and, though supposed to be founded on considerations of public policy and general convenience, are not to be extended beyond the plain intent of the words of the statute." 1 Cook on Corporations (8 Ed.), section 214.
The liability pronounced by the statute is upon stockholders; and in the plain, ordinary, and commonly accepted sense of that term, we understand it to mean those who own stock. But what kind of ownership was meant? Does it include not only real owners, but also ostensible owners; and does it include equitable owners, conditional owners, and every variety of ownership, qualified as well as absolute? And can it be made to mean that an inflexible, naked, statutory liability is imposed upon those in whose names the stock certificates have been last issued and who stand on the books as owners, without more? Let us look at a practical, or certainly not impossible, illustration:
Suppose John Doe is absent in a far distant country, months removed from any ready means of communication, and in his absence, without any previous intimation or present knowledge or means of knowledge on his part, Richard Roe transfers to him, say, one thousand shares of stock in a bank with which the absentee has no connection and of which he has never heard, and the transferor has the new stock certificates mailed to the usual domicile or post office address of the ostensible transferee, and suppose the bank should fail before the return of John Doe and before he has had any knowledge of, or had the slightest reason to suspect, the transfer to him, would it be contended that he has become a stockholder within the meaning of this statute? And what difference, in contemplation of law, is there between an adult, wholly without knowledge or suspicion ten thousand miles away, as compared with an infant who, although present, is utterly without capacity to assume a legal position to his disadvantage, and which he may not later utterly disaffirm? Possible instances may be multiplied in illustration of the anomalies that could result from applying the statutory liability to stockholders without distinction as to whether actual, ostensible, tentative, equitable, legal, or what not, only so long as the apparent ownership is attached to a person named. To hold that the liability is purely statutory without any foundation whatever in contract, express or implied, would be to abandon the safe and conservative course, and would lead, by a radical departure from ancient principles, into paths of danger, seen and unforeseen.
But going no further than the case now before us, we think the lability cannot be imposed on a minor who has disaffirmed, there being no fraud or conduct equivalent thereto charged against the minor, after he has arrived at a sufficient age to be subject to such charges. We are strengthened in our conclusion by the fact that, although the briefs by both sides show accuracy of conception as to the applicable principles and exceptionable industry in presenting to the court the whole field of decided cases, there has been found no case wherein it has been directly held that a minor is amenable to the statutory liability here sought to be imposed. In addition to the wealth of authorities cited in the briefs of counsel, we make reference to the latest and most comprehensive treatise on this and related subjects, Thompson on Corporations (3 Ed.), vol. 6, wherein on this identical question, at section 4895, the black letter line states the general proposition that "Infants are not subject to statutory liabilities," and thereupon the text proceeds to show how and under what circumstances the liability will attach; namely, upon, and not before, competent ratification of the contract by the infant. The case K ent v. Love, 141 Miss. 523, 106 So. 772, so strongly relied on by appellee, is readily distinguishable, for in that case the conduct of Kent was equivalent to assent.
Reversed, and decree here for appellant.