STATE OF OHIO ex rel. S. H. SQUIRE, Superintendent of Banks, etc., Respondent, v. CLARENCE H. PORTER, Appellant, 21 Cal. 2d 45

SHENK, J. — The State of Ohio, on the relation of S. H. Squire, Superintendent of Banks in charge of liquidation of The Union Trust Company of Cleveland, commenced this action on May 26, 1936, in Los Angeles County, to enforce an alleged stockholders’ liability against the defendant. In his answer the defendant raised the point that the cause of action was barred by the provisions of

section 359 of the California Code of Civil Procedure. The case ivas tried on stipulated facts, judgment was for plaintiff, and the defendant appealed. The Union Trust Company was a banking corporation. It was organized and existed under the corporation and banking laws of the State of Ohio. On February 27, 1933, and for some time prior thereto, the defendant was a stockholder owning 560 shares of capital stock of the company, having a par value of $25 per share. On the morning of that day, the company was unable to meet its obligations in the regular course of business.

Pursuant to a resolution of its board of directors, but without statutory authority, it operated all that day on a so-called restricted basis in that it refused to pay out on demand more than 5 per cent of any demand deposit on other matured obligation. On the evening of that day, the Ohio Legislature enacted a law, effective immediately, authorizing the Superintendent of Banks to place any banking institution on a restricted basis and to segregate all deposits thereafter received. Accordingly, the superintendent made such an order applicable to The Union Trust Company.

On April 8, 1933, the superintendent appointed a conservator to take possession of the business and property of the bank. The conservator was in possession and control from that date until June 15, 1933, when the superintendent declared and determined that the company was in an unsound and unsafe condition. He thereupon took possession for the purpose of liquidation. On July 30, 1934, the superintendent, after auditing the affairs of the bank, found that the liabilities exceeded the assets in an amount greater than the stockholders’ so-called superadded or double liability.

On August 1, 1934, the superintendent caused notices to be mailed to the stockholders, advising them that the assets were insufficient to discharge the liabilities and that he intended to enforce the individual liability of the stockholders. He advised each stockholder of the amount (100 per cent assessment) and demanded payment on or before November 1, 1934. It is well settled that the statute of limitations of the forum governs the time for the commencement of an action arising in another state. (McElmoyle v. Cohen, 13 Pet. 312 [10 L.Ed. 177]; Great Western Telegraph Co. v.

Purdy, 162 U.S. 329 [16 S.Ct. 810, 40 L.Ed. 986]; Royal Trust Co. v. MacBean, 168 Cal. 642 [144 P. 139].) As applied to the present controversy,

section 359 of the California Code of Civil Procedure provides that an action against a stockholder to enforce a liability created by law "must be brought within three years after . . . the liability was created.” The stockholder’s liability for his proportionate share of the corporate indebtedness is a "liability created by law” within the meaning of this section. (Hunt v. Ward, 99 Cal. 612 [34 P. 335, 37 Am.St.Rep. 87]; Richardson v. Craig, 11 Cal.2d 131 [77 P.2d 1077].) The time when the liability was created must be differentiated from the time when the cause of action accrued.

To determine when the liability was created the full faith and credit clause of the United States Constitution (art. IV, § 1) requires recourse to the applicable constitutional provisions, statutes and decisions of Ohio. (Converse v. Hamilton, 224 U.S. 234 [32 S.Ct. 415, 56 L.Ed. 749].) The stockholders’ superadded or double liability was imposed by

article XIII,

section 3 of the Ohio Constitution, which provided that "stockholders of corporations authorized to receive money on deposit shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such corporations, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares. ’ ’ The liability was direct and self-executing, did not need legislation to make it effective, and created a primary obligation against the stockholder by operation of law. (Squire v.

Standen, 135 Ohio St. 1 [18 N.E.2d 608, 120 A.L.R 952]; State v. Bremer, 130 Ohio St. 227 [198 N.E. 874]; Snider v. United Banking & Trust Company, 124 Ohio St. 375 [178 N.E. 840] ; Lang v. Osborn Bank, 100 Ohio St. 51 [125 N.E. 105].) However, the Ohio Legislature saw fit to enact

section 710-75 of the General Code of that state. On February 27, 1933, when The Union Trust Company suspended business, said

section provided as follows: “Stockholders of banks shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such bank, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares.

The stockholders in any bank who shall have- transferred their shares or registered the transfer thereof within sixty days next before the failure of such bank to meet its obligations, or with knowledge of such impending failure, shall be liable to the same extent as if they had made no such transfer, to the extent that the transferee fails to meet such liability; ...

At any time after taking possession of a bank for the purpose of liquidation, when the superintendent of banks ascertains that the assets of such bank will be insufficient to pay its debts and liabilities he may enforce the individual liability of the stockholders.” And on March 31, 1933,

section 710-95 of the Ohio General Code was amended to read as follows: “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: . . . “9. If he ascertains that the assets of such bank will be insufficient to pay its debts and liabilities, to enforce the individual liability of each shareholder thereof as provided in

section 710-75 of the General Code. Until an order to declare and pay a final dividend shall be entered in the liquidation proceedings the right to enforce such liability is hereby vested exclusively in the superintendent of banks.” The obvious effect of this amendment was to lodge in the superintendent of banks the exclusive authority to enforce the stockholders’ liability in cases where he had taken possession of a bank for the purpose of liquidation. (Fulton v. Wetzel, 47 Ohio App. 72 [190 N.E. 776]; Feldman v.

Standard Trust Bank, 46 Ohio App. 67 [187 N.E. 743].) And under its provisions the superintendent could not bring an action to enforce the stockholders’ liability until he had taken possession for the purpose of liquidation. (Snider v. United Banking and Trust Co., supra.) It is the law of Ohio that when the superintendent of banks sues to enforce the stockholders’ liability he represents the creditors (Feldman v.

Standard Trust Bank, supra), and that any statute of limitations which would bar an action by the creditor would likewise bar an action brought by the superintendent of banks to enforce the superadded liability. (State v. Bremer, supra.) February 27, 1933, the day the bank failed to meet its obligations in the ordinary course of business and limited its payments to 5 per cent of any demand deposit or matured obligation, marked the beginning of voluntary liquidation. A cause of action was immediately created and accrued to the creditors.

At that time the superintendent of banks had not taken possession for the purpose of liquidation, and his action in that respect was the all-important condition precedent to the enforcement of the stockholders’ liability. (Snider v. United Banking & Trust Company, supra.) He did not take possession until June 15, 1933. During the period from February 27 to June 15, 1933, the creditors could have enforced the stockholders’ liability. (Snider v.

United Banking & Trust Company, supra.) Inasmuch as the right of the creditors to enforce that liability had accrued as early as February 27, 1933, the liability upon which the present action was based certainly was created at least as early as the date the cause of action accrued. When on June 15, 1933, the superintendent took possession of the bank for the purpose of liquidation, the provisions of

section 710-95 giving the superintendent the exclusive right to enforce the liability became operative and automatically abated any right theretofore possessed by the creditors to enforce such liability, including actions pending when the amendment to

section 710-95 became effective. (Fulton v. Wetzel, 47 Ohio App. 72 [190 N. E. 776].) The statute giving the superintendent of banks the exclusive authority after taking possession to enforce the stockholders’ liability did not substitute a new or different liability from that already existing, that is, it did not “uncreate” an already created liability. The statute merely substituted the superintendent of banks in place of the creditors in the enforcement of the stockholders’ liability.

It is the settled law of Ohio that the provisions of the General Code sections in this respect were procedural and not substantive. (Snider v. United Banking & Trust Company, supra; Squire v. Borton & Borton (Solinski), 132 Ohio St. 180 [5 N.E.2d 479].) Furthermore, the primary, direct and self-executing stockholders ’ liability declared in the Ohio Constitution could not be ■changed by a procedural provision relating to the method of its enforcement.

Additional support is found in the decisions of Ohio for the conclusion that the stockholders’ liability was created the day the bank failed, namely, on February 27, 1933. In Squire v. Harris, 135 Ohio St. 449 [21 N.E.2d 463], a transferee of bank stock was held not subject to the superadded liability where the transfer in question took place on the same day but after the bank had ceased to receive money on general deposit. Also, it has been held that the 60-day period preceding failure, prescribed in Ohio General Code,

section 710-75, during which a transferor of bank stock remained liable as surety for the transferee’s liability, related back from the day the bank failed, and not from the day the superintendent of banks took possession. (Bailey v. State, Court of Appeals, Ohio, Cuyahoga County, (Ohio App.) 32 N.E.2d 453.) The plaintiff contends that the suit is on the “assessment”; that the “assessment” is a “public act” within the scope of

article IV,

section 1 of the federal Constitution and must be accorded full faith and credit by the courts of California; that since the Ohio law and the National Bank Act (U.S.C.A., title 12, § 21 et seq.) are similar, the decisions involving the National Bank Act to the effect that the suit is on the “assessment” are controlling; that such result is in accord with Richardson v. Craig, 11 Cal.2d 131 [77 P.2d 1077], which holds that the liability is created at the time of the assessment; and that to give a different

interpretation of the Ohio law would be to violate

article IV,

section 2 of the United States Constitution, providing that the citizens of each state shall be entitled to all privileges and immunities of citizens in the several states. The case of State v. Melaragno, 31 O.L.R. 627 (Court of Appeals for Cuyahoga County, 1930), does not support the plaintiff’s position that the present action must be deemed to be on the assessment. In that case the court was applying a statute of limitations which prescribed a period commencing from the time the cause of action accrued, as distinguished from the time the liability was created.

Furthermore, the reasoning of that decision to the effect that the liability did not accrue until the assets of the bank were liquidated is contrary to the established and admitted holding of the Ohio Supreme Court that the stockholders’ liability is direct, primary and self-executing. It may be noted that it is not necessary in an action by the superintendent of banks in Ohio to enforce the stockholders’ liability that he even allege that he has declared an assessment. Other cases cited by the plaintiff do not support his position. They include: Squire v. Standen, supra; State v.

Murfey, Blossom & Co., 131 Ohio St. 289 [2 N.E.2d 866]; Vance v. Warner, 129 Ohio St. 357 [195 N.E. 704]; State v. Cruikshank, 51 Ohio App. 61 [199 N.E. 611]; Baumgardner v. State, 48 Ohio App. 5 [192 N.E. 349]. In those cases the courts of Ohio recognized that the liability which was enforced by an assessment was the direct and primary stockholders’ liability, even though the necessity therefor and the amount thereof be determined exclusively and finally by the fact and the amount of the assessment.

The plaintiff’s citation of numerous authorities construing the National Bank Act and other acts similar to the Ohio statute is unavailing for the reason that we are here bound by the Ohio court’s

interpretation of the provisions of the Constitution and statutes of that state. In the case of Richardson v. Craig, 11 Cal.2d 131 [77 P.2d 1077], this court held that the liability under the California Bank Stockholders’ Liability Act (Deering’s Gen. Laws, Act 652a) was “created” when the assessment was made. This holding could be considered only in the absence of construction by the courts of Ohio of its own fundamental and statutory laws.. As we have seen, the Ohio courts have denominated the stockholders’ liability direct, primary and self-executing, as distinguished from the indirect and secondary stockholders’ liability involved in the California decision. Although the limitation of

section 359 of the California Code of Civil Procedure is applied in the same sense in both the Richardson case and the present case, namely, from the time the liability was created, the different conclusions result from the all-important differences in substantive law creating the rights upon which suit was brought. In the Richardson case it was recognized that if the stockholders’ liability was direct and primary, as under the earlier California law, the liability would have been created at the time the obligation was incurred, and not at the time the assessment was levied.

To give proper effect to the Ohio law in this ease obviously is not a violation of the privileges and immunities clause of the United States Constitution. The time limitation of said

section 359 is applied uniformly to compute the applicable period of limitation for the commencement of the action from the time the liability was created. We therefore conclude that under the law of Ohio the stockholders’ liability here sought to be enforced was created on the 27th day of February, 1933, and that as the action was not brought within three years after that date it is barred by

section 359 of our Code of Civil Procedure. The judgment is reversed. Gibson, C. J., Curtis, J., Edmonds, J., and Carter, J., concurred.