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State v. Steck

Supreme Court of Ohio
Jan 13, 1937
5 N.E.2d 919 (Ohio 1937)


No. 26066

Decided January 13, 1937.

Banks and banking — Object of Ohio Banking Act — Liquidation of all types of insolvent banks by Superintendent of Banks — Sections 710-1 and 710-95, General Code — Unincorporated copartnership bank — Superintendent of Banks may enforce owners' liability to depositors.

1. One of the principal objects of the Ohio Banking Act (Sections 710-1 to 714, General Code) is to provide for the complete liquidation of all types of banks enumerated therein, upon insolvency, under the exclusive supervision and control of the Superintendent of Banks.

2. Sections 710-1 and 710-95, General Code, taken together, sufficiently empower the Superintendent of Banks in charge of the liquidation of an insolvent, unincorporated bank to institute and maintain an action against the owners thereof to enforce their personal liability to the creditors thereof.

APPEAL from the Court of Appeals of Medina county.

On March 18, 1911, by written agreement, a number of persons formed a co-partnership association for the purpose of engaging in the business of general banking in the village of Valley City, Medina county, Ohio, under the style or firm name of Farmers Bank, which arrangement was then lawful.

Such agreement provided: "All real estate and other property owned by said co-partnership shall be held and owned by said co-partnership in shares corresponding with the shares which each partner may have in the capital stock of the co-partnership."

The "Farmers Bank" operated thereafter with a paid-in capital of $10,000 until October 7, 1932, when it was taken over for liquidation by the then Superintendent of Banks of the state of Ohio, pursuant to Section 710-89, General Code, and a liquidating agent placed in charge.

This action was invited by the bank upon a resolution reading as follows:

"October 6, 1932.

"Special meeting called at 4:00 p. m.

"Directors present were F.W. Weidner, O.B. Arnold, W.F. Steck, Fred Baisch and B.S. Stebel.

"Motion made by W.F. Steck and seconded by O.B. Arnold that the affairs and business of the Farmers Bank be turned over to the superintendent of banks of the state of Ohio for liquidation in accordance with Section 710-89, General Code.

"Motion carried.

"B.S. Stebel, "Secretary."

On April 2, 1934. the superintendent filed his petition in the Court of Common Pleas of Medina county against the owner's of such bank for $50,000, alleging among other things that "The assets of said bank coming into the hands of said Superintendent of Banks will be insufficient to pay its debts and liabilities in the sum of and to the extent and amount of fifty thousand dollars ($50,000.00); that on the twenty-ninth day of March, 1934, the said * * * Superintendent of Banks, made his finding that the loss will amount to fifty thousand dollars ($50,000.00).

"The said owners of said bank, defendants herein, are responsible and liable, both individually and collectively, to plaintiff to the full extent of and amount of fifty thousand dollars ($50,000.00)."

Demurrers to the petition were overruled, and thereupon the defendants filed separate and identical answers admitting "that the plaintiff is the duly qualified and acting Superintendent of Banks of the state of Ohio in charge of the liquidation of The Farmers Bank, Valley City, Ohio; that on or about the seventh day of October, 1932, said bank was taken over for liquidation and that said bank was unincorporated," denying generally the other allegations of the petition, and setting up the defense "that the plaintiff herein has no legal capacity to sue this defendant in this cause for the reason that said bank was unincorporated."

A jury being waived, the cause came on for hearing before the court. Prior to the presentation of evidence, defendants separately demurred to the introduction of any evidence on the grounds that the court had no jurisdiction over their persons, or of the subject of the action, and that the petition stated no facts showing a cause of action.

The court reserved its rulings on such demurrers, over objections and exceptions, and proceeded to hear the evidence. In its journal entries the court overruled the demurrers, found for the Superintendent of Banks and against the defendant owners of the bank in the sum of $50,000, and rendered judgment accordingly, together with costs.

Error proceedings were perfected to the Court of Appeals, where the judgment below was reversed, the petition dismissed, and final judgment entered for the complaining parties, on the basis that the statutes of Ohio do not authorize the superintendent to institute and maintain this kind of action, and that he was without legal capacity to do so.

The case is now in this court pursuant to the allowance of the motion to certify, with the Superintendent of Banks as appellant and the owners of the Farmers Bank as appellees.

Mr. John W. Bricker, attorney general, Mr. J. Roth Crabbe and Mr. Raymond B. Bennett, for appellant.

Mr. John A. Weber and Messrs. Van Epp Porter, for appellees.

As we view the matter, the only question now properly before this court is whether the statutes of Ohio sufficiently empower the Superintendent of Banks in charge of the liquidation of a partnership bank to maintain this character of action against the partner-owners of such an association.

It is conceded by the appellees that the superintendent had ample authority in 1932 to take over a partnership bank in failing circumstances for liquidation by virtue of Sections 710-2 and 710-89, General Code, as then in force. However, they insist that the scope of his activities in such respect was and is strictly confined to dealing with the assets and liabilities of the bank alone, so that if on the completion of such undertaking there are creditors whose claims have not been met through this limited operation, the latter are relegated to suits against the partners of the bank to collect their unpaid debts.

On the other hand, appellant contends that Sections 710-1 and 710-95(7), General Code, taken together, clothe him with authority to commence and prosecute an action of the sort engaging our attention.

Let us examine these statutes. Section 710-1 defines terms used in the Banking Act and reads, in part:

"The term 'unincorporated bank' shall include every unincorporated person, firm or association transacting banking business in this state; and the term 'board of directors' shall include the owner or owners of such banks."

The pertinent portion of Section 710-95 provides:

"The superintendent of banks, upon taking possession of the business and property of any bank, shall have, exercise and discharge the following powers, authority and duties, without notice or approval of court, but subject to the provisions of this chapter, to wit:

"1. To collect all money due to such bank.

"2. To perform all such acts as are desirable or expedient in his discretion to preserve and conserve the assets and property thereof. * * *

"7. To institute and maintain against the directors, officers or employes of such bank, or any of them, any suit or action which such bank, its shareholders or creditors might institute and maintain. * * *

"10. For the purpose of executing and performing any of the powers and duties hereby conferred upon him, in his name as superintendent of banks in charge of the liquidation of such bank, to institute, prosecute and defend any and all actions or proceedings within or without this state * * *."

Keeping in mind the comprehensive objects and purposes of the Banking Act, inclusive of unincorporated banks, and giving the quoted statutes the broad interpretation to which we think them entitled, sufficient foundation is afforded to sustain appellant's contention.

Such interpretation is in furtherance of sound public policy, placing the entire business in the hands of the superintendent where it belongs. It allows the superintendent to wind up completely the affairs of an insolvent unincorporated bank, instead of compelling him to leave the job half finished. It avoids the undesirable complications of a multiplicity of suits against individual owners or partners by the unsatisfied creditors of the bank, and it has the desirable tendency of placing the depositors in such a bank more on a par with the depositors in an incorporated bank.

The general proposition is well settled that every partner is personally liable for partnership debts and that such liability is unlimited. Recognition of this principle is suggested by Section 710-77, General Code, requiring every unincorporated bank to file a sworn statement with the Superintendent of Banks as to "the responsibility and the net worth of the individual members of such unincorporated bank."

But it is urged by appellees that firm creditors must first resort to firm assets to satisfy their claims, and if these prove insufficient they may not move against the partners and their non-partnership property, until the individual creditors of the individual partners have first obtained satisfaction of their claims. The leading case of Rodgers, Assignee, v. Meranda, Assignee, 7 Ohio St. 179, is cited to sustain the point.

Granting the correctness of this equitable rule, it is modified as to the depositors in and owners of unincorporated banks by the provisions of Section 710-80, General Code, reading:

"The depositors in any unincorporated bank shall have first lien on the assets of such bank, in case it is wound up, to the amount of their several deposits, and for any balance remaining unpaid, such depositors shall share in the general assets of the owner or owners alike with the general creditors."

In other words, the depositors in an unincorporated bank are placed on an equality with the personal creditors of the individual owner's of such bank. And it appears from the record in the instant case that the bank's creditors are for the most part its depositors, if not entirely so.

Is the procedure adopted by the appellant to enforce the individual liability of the bank partners open to valid complaint or criticism? A better or more practical method has not been brought to our attention. The liquidating agent, representing the superintendent, dealt with the assets and liabilities of the Farmers Bank nearly a year and a half, distributed a fifty per cent dividend, and made an estimate of the additional outside amount it would take to pay creditors and other expenses. Approval of such calculations by the superintendent is clear, for he instituted and sponsored the action against the individual partners.

Inquiry as to whether the sum of $50,000 demanded by the superintendent, and for which judgment was awarded by the trial court, is too large and included improper items, raises issues of both fact and law not yet considered by the Court of Appeals, and therefore not before this court at this time. Wheeling Lake Erie Ry. Co. v. Richter, 131 Ohio St. 433, 3 N.E.2d 408.

If a judgment for the appellant and against the appellees should finally be approved, its collection has to do with problems foreign to the controversy in its present stage, although this feature has been argued by counsel. As a passing comment, we assume that personal creditors of the partners who should deem their rights prejudiced by the enforcement of the judgment could invoke judicial protection. And the partners themselves could take steps, if necessary, to insure an equitable distribution of their separate property among their creditors. Then, if the superintendent should collect from one or more partners a greater proportion of the judgment than they ought fairly to pay, measured by their interests in the partnership, they might have contribution from the other partners in another action. Lastly, if the amount collected by the superintendent should prove more than adequate to pay the obligations for which it was obtained, the partners would be entitled to a ratable return of the excess.

In some respects the position of the Superintendent of Banks acting as liquidator of a defunct bank is similar to that of a receiver. While not strictly analogous to the instant case, we have found several cases upholding the right of a receiver of an insolvent partnership bank to enforce the individual liability of the partners after determination that the bank's assets were insufficient to meet its obligations. See First National Bank Trust Co. v. Storms, 265 Mich. 453, 251 N.W. 576, with which compare Bierma v. Ellis, 212 Iowa 366, 236 N.W. 402; Wilson v. Book, 13 Wn. 676, 43 P. 939; Watterson v. Masterson, 15 Wn. 511, 46 P. 1041.

In appraising this decision and its effect it is important to remember that Section 710-95, General Code, expressly authorizes the superintendent, in a representative capacity, to institute and maintain against the, "directors" (which term we have held to be inclusive of "owners") any suit or action which the "creditors " of the bank might institute and maintain. Our interpretation allows the superintendent to act for the creditor class against the owners of unincorporated banks to accomplish the same result which might be accomplished by the individual members of that class through separate suits against the same owners.

The judgment of the Court of Appeals is reversed and the case remanded to that court to pass on the assignments of error not disposed of in this opinion.

Judgment reversed.


MYERS, J., not participating.

Summaries of

State v. Steck

Supreme Court of Ohio
Jan 13, 1937
5 N.E.2d 919 (Ohio 1937)
Case details for

State v. Steck

Case Details


Court:Supreme Court of Ohio

Date published: Jan 13, 1937


5 N.E.2d 919 (Ohio 1937)
5 N.E.2d 919

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