Hood v. Guaranty Trust Co.

200 N.E. 55, 270 N.Y. 17, 1936 N.Y. LEXIS 1507

• Court: New York Court of Appeals
• Decided: January 28, 1936
• Status: Published

Opinions

Finch, J.

This is an action brought by the Commissioner of Banks of the State of North Carolina, to collect an assessment on stock of the Page Trust Company, a banking corporation of North Carolina, held by the defendants, as trustees under the will of Theodore Roosevelt.

The complaint alleges that on May 20, 1933, the Page Trust Company voluntarily closed its doors and by formal resolution passed by a majority of its board of directors placed its assets and business under the control of the plaintiff for liquidation. Thereupon, on the 22d of May, the plaintiff duly filed in the Superior Court of North Carolina notice of possession and on the 22d of June levied a one hundred per cent assessment on all stock of the trust company, and duly filed a copy of such levy in the Superior Court. It is further alleged that on the date the plaintiff took possession the defendants were the owners and holders of 100 shares of the capital stock, and that under the provisions of the statutes of North Carolina they became liable for an assessment at the hand of the Commissioner of Banks of that State. It is alleged also that pursuant to statute the filing of the notice of levy of assessment is docketed as a judgment against the various stockholders. The plaintiff sues both upon the judgment and the assessment.

The defendant trustees by answer admit the stock ownership but set up as defenses:

First. That they are non-resident -and that personal service has not been made upon them and that they have never appeared or submitted themselves to the jurisdiction of the court of North Carolina;

Secondly. That the Commissioner of Banks was not authorized to prosecute suits for the collection of assessments outside of the State of North Carolina, and

Thirdly. That the Commissioner levied this assessment, not for the purpose of liquidation, but for the purpose of reorganization.

At the trial it appeared without contradiction that the bank had voluntarily closed its doors on May 20, 1933, and that the board of directors by formal resolution had placed it in the hands of the plaintiff for liquidation. Since then the liquidation has proceeded. At the trial therejwas also testimony as to the law of North Carolina. The plaintiff then rested andjso also did the .defendants since the latter had presented their case by the introduction of exhibits during the cross-examination of the plaintiff’s witness. These exhibits consisted of a copy of the resolution of the board of directors placing the trust company in the hands of the Commissioner and a proposed plan of reorganization together with a notice of the reorganization sent to the stockholders, depositors and creditors accompanied by a statement of the Commissioner announcing his approval of the proposed reorganization. The plan of reorganization provided for liquidation of the trust company by selling its good assets to a new bank and levying a one hundred per cent assessment against the stockholders of the trust company with which to supply new cash for the new bank. In addition each depositor and creditor was to receive a portion of his presently due claim in a time certificate. The record contains a formal abandonment of the proposed reorganization.

Motions for judgment by the plaintiff and to dismiss the complaint by the defendants were made. Both parties stipulated that findings of fact and conclusions of law be waived and a verdict directed as though a jury were present. The court at Trial Term dismissed the complaint upon the ground that the defendants were non-residents and had never been served with process within the State of North Carolina. The Appellate Division reversed and granted judgment for the plaintiff.

The question presented for decision, in brief, is — To what extent did these defendants, by acquiring stock of the Page Trust Company, make themselves hable to the assessments levied against their stock in North Carolina pursuant to statutory authority and sued upon here by the Commissioner of Banks of North Carolina?

It may be taken as settled that when these defendants acquired stock they impliedly agreed that the Page Trust Company in the State of North Carolina should represent them therein in any action to enforce stock liability, except as to their status as stockholders and such other defenses as may be deemed personal to them. In Marin v. Augedahl (247 U. S. 142, 150), when a receiver of an insolvent corporation in Minnesota sued in North Dakota to enforce an assessment against a stockholder, a nonresident of Minnesota, pursuant to an order of the Minnesota court, it was said: “ Whether the stockholder against whom the order is here sought to be enforced was personally a party to the suit in which it was made does not appear; nor is it material. Under the rule in Minnesota, as also the general rule, he was sufficiently represented by the corporation to be bound by the order insofar as it determined the character and insolvency of the corporation and other matters affecting the propriety of a general assessment such as was made.”

Likewise in Bernheimer v. Converse (206 U. S. 516, 529) it was said: “ It may be regarded as settled that upon acquiring stock the stockholder incurred an obligation arising from the [statutory] provision, contractual in its nature and, as such, capable of being enforced in the courts not only of that state, but of another state and of the United States * * *.”

We are thus brought to a consideration of the pertinent statute of North Carolina. If there has been compliance with this statute the defendants are bound by the order in so far as it determined the insolvency of the bank and the necessity for an assessment and they are only entitled to set up personal defenses.

The statute provides that “ Whenever any bank for any reason shall suspend operations for any length of time, said bank shall, immediately upon such suspension of operations, be deemed in the possession of the commissioner of banks and subject to liquidation hereunder.” (North Carolina Code; Cons. Stat., N. C., ch. 5, art. 3, § 218 [c], subd. 2.)

The statutes further require the Commissioner of Banks within forty-eight hours after talcing possession of a bank to file a notice of his action with his reasons therefor in the office of the Clerk of the Superior Court. (Subd. 3.) Within thirty days from the filing of the notice of taking possession the Commissioner of Banks must make and state an inventory of the assets and liabilities of the bank and he may levy an assessment on each stockholder and file a notice of this levy with the court, which levy shall be indexed as- judgments and shall have the force and effect of a judgment of the Superior Court. (Subds. 9, 13.) It is further provided that “ any stockholder may appeal to the Superior Court from the levy of assessment; the issue raised by the appeal may be determined as other actions in the Superior Court.” (Subd. 13.) Any surplus remaining in the hands of the Commissioner of Banks after the payment of all liabilities to depositors and other creditors is to be repaid pro rata to stockholders who have paid the assessment. (Subd. 13.)

From the facts as stated it is clear that the Commissioner has complied with all the provisions of the statute. It cannot be held that the Commissioner failed to comply with the statute because the Commissioner gave notice on June 5 that an assessment would be levied on June 22. His action was in accordance with the statute which provides that an assessment may be levied thirty days after the filing of the notice of taking possession. The date of levy was thirty days after notice of taking possession and an earlier giving of notice of intention to levy does not violate the statutory requirement.

The argument is raised, however, that the statutory liability of stockholders cannot be enforced unless there is a necessity for such enforcement and that no such necessity exists unless the bank is found to be insolvent. Turning to the order of levy of assessment we note that it contains a finding by the Commissioner that an assessment “ is necessary in order to discharge the liability to general creditors of the said Page Trust Company.” Slight effort was necessary to determine the hopeless insolvency of- this trust company. Insolvency had been implicit in its every act for a number of months. Even previous to the bank holiday declared by the President’s order the officers of the Page Trust Company had requested the Commissioner of Banks to issue an order restricting the withdrawals of deposits. Pursuant to this request such an order had been issued. At the close of the bank holiday the trust company made application for a license to reopen without restrictions, but, after an examination of its assets, the license to reopen without restrictions was denied. From then, until it finally closed its doors on May 20th, the Page Trust Company limped along and continued business only under restrictions. Subsequently the board of directors attempted to reorganize in accordance with a statute (No. Car. Code; Cons. Stat., N. C., ch. 5, art. 2, § 217 [m] 1) which is applicable when a bank’s “ aggregate property * * * shall not be sufficient in amount to pay its debts or which * * * may be unable to pay its debts in the ordinary course of business as they mature ” or which is in the process of liquidation or is without authority to conduct an unrestricted banking business. The proposed plan of reorganization emphasized the insolvent condition of this company. Even if the attempted reorganization had been successful each depositor and creditor would still have had to take a portion of his claim in time certificates. Moreover, in the case of a voluntary liquidation where a bank has closed its doors, generally there would be no need for the Commissioner to make a determination of the necessity for an assessment because it is obvious that insolvency supplied the reason for the closing. That apparently was the picture in the mind of the North Carolina court when it said in one case that ordinarily only personal defenses would be litigated in such a case. (Corporation Commission v. McLean, 202 N. C. 77.)

It having been found that the assessment was necessary in order to discharge the liability to the general creditors there can be no doubt that the bank was insolvent. It has been held in numerous cases that a bank is insolvent if it is unable to pay its debts in the ordinary course of business. (Federal Reserve Bank v. Idaho Grimm Alfalfa Seed Growers’ Assn., 8 Fed. Rep. [2d] 922; writ of certiorari denied, 270 U. S. 646; Cronkleton v. Ebmeier, 38 Fed. Rep. [2d] 748; Ferry v. Bank of Central New York, 15 How. Pr. 445; Matter of Empire State Bank, 10 How. Pr. 498; Babka Plastering Co. v. City State Bank, 264 Ill. App. 142; Steele v. Commissioner of Banks, 240 Mass. 394; Commonwealth ex rel. Bell v. Tradesmen’s Trust Co., 237 Penn. St. 316. Cf. Sterrett v. Third Nat. Bank, 46 Hun, 22; affd., 122 N. Y. 659.)

It is urged that the action of the Commissioner in determining the need for an assessment is conclusive. The statutes of North Carolina do not so provide. In the recent case of Matter of Independence Trust Co. v. Keesler (206 N. C. 12) the questions of insolvency and necessity for assessment were raised and these questions and others were fully tried out. Indeed the statutes of North Carolina have been held constitutional on the very-ground that a full opportunity is offered to try out every issue raised whether of law or of fact involved in an assessment in accordance with the procedure provided for the trial of actions brought in the Superior Court. (Corporation Commission v. Murphey, 197 N. C. 42; affd., 280 U. S. 534.) Similar statutes of other States also have been declared valid. (Coffin Bros. & Co. v. Bennett, 277 U. S. 29; Butler v. Mobley, 170 Ga. 265; Davis v. Moore, 130 Ark. 128.) So long as a State preserves an opportunity to raise and try in court every possible defense, as was done in North Carolina, the guaranty of due process of law is complied with and no constitutional objection' remains to any power short of arbitrary which may be intrusted to a Commissioner of Banks by a State. (Coffin Bros. & Co. v. Bennett, supra.) That is a matter confined solely to the policy of the particular State. Within that orbit the State’s interpretation of its own statutes is elsewhere controlling. (Marin v. Augedahl, supra. Cf. Supreme Council of Royal Arcanum v. Green, 237 U. S. 531; Modern Woodmen of America v. Mixer, 267 U. S. 544; Southworth v. Morgan, 205 N. Y. 293; 2 Beale on Conflict of Laws, p. 866.)

Whether the defenses to a levy of assessment may be raised at one time or another, so long as they may be raised at some time before the stockholder is compelled to pay, is a mere matter of State procedure, and the Fourteenth Amendment to the Constitution of the United States is not concerned with the mere matter of State procedure. (Coffin Bros. & Co. v. Bennett, supra.) The North Carolina law does not differ in substance from the Minnesota law upheld in Bernheimer v. Converse (supra). The differences are only in procedure. The Minnesota law provided, first, for a determination of insolvency by a court, then, a levy of assessment. The North Carolina law provides, first, for a determination for assessment or insolvency by an administrative official, followed by a levy of assessment, and then an opportunity to come into court and contest the determination or necessity for assessment. The sequence of steps differs but the statutes are alike in their essentials. Under either statute the corporation or its stockholders could contest the findings or allegations of insolvency or necessity for assessment in the State where the corporation is domiciled. Where such finding or allegation is contested by a corporation and then the finding is upheld it is clear that the determination is an adjudication of insolvency and necessity for assessment and “ These questions cannot be reopened in another court when the receiver sues to collect the amount of the assessment.” (Selig v. Hamilton, 234 U. S. 652, 662.) There is no reason for not reaching the same result, where the corporation, although it has the opportunity to contest the allegation or finding, fails to do so because it is obvious that the corporation is so hopelessly insolvent that such contest would be futile. The corporation represents its stockholders whether it challenges the findings of an administrative official or bows to the obvious. This conclusion is implicit in the cases upholding the Federal statute which makes the determination of the Comptroller conclusive. (Kennedy v. Gibson, 8 Wall. [U. S.] 498; Casey v. Galli, 94 U. S. 673; Bushnell v. Leland, 164 U. S. 684.)

Nothing in this opinion is to be construed as holding that without personal service within the State personal judgment could be entered against a non-resident stockholder. The rule of Pennoyer v. Neff (95 U. S. 714), recently reiterated by this court in Pope v. Heckscher (266 N. Y. 114), in no way conflicts with the conclusion herein reached. We merely hold that the stockholders, having implicitly agreed that the corporation represent them, are bound by a finding of the necessity for an assessment and the amount of the assessment. In the words of Justice, now Chief Justice, Hughes, in Selig v. Hamilton (supra, p. 662): “ It follows that if the court, thus having jurisdiction and acting upon the evidence before it in the statutory proceeding, assessed former stockholders for the purpose of providing for debts incurred while they held their stock, its determination with respect to the amount of the assessment and the necessity therefor must be deemed conclusive. These questions cannot be reopened in another court when the receiver sues to collect the amount of the assessment. The stockholder in such a suit is free to urge his personal defenses but this does not mean that he may resist the receiver’s demand upon the ground that the assessment was not needed. The marshalling of the amounts recovered from stockholders is also the appropriate subject for the consideration of the court which under the statute collects and distributes the fund. It is quite obvious that another court, in an action by the receiver against the stockholder, could not undertake to fix the amount required to pay the debts for which the stockholder is hable unless it virtually assumed the duty imposed by the statute of determining what a ratable assessment should be and thus denied due credit to the determination already made in a court of competent jurisdiction.”

The assessment in North Carolina is not and cannot be treated as a conclusive judgment against the defendants. In an action brought on such assessment in New York it is only conclusive as to the necessity for and the amount of the assessment. Personal defenses may still be set up and if found valid will prevent the Commissioner of Banks from obtaining judgment.

At the trial the deféndants could have raised defenses personal to themselves. They not only did not raise such defenses but instead conceded their status as stockholders and attempted only to defend by seeking to compel the reiitigation of the question of the necessity for and the amount of the assessment. This they could not do.

This court has already affirmed a judgment enforcing an assessment made by a Bank Superintendent of another State under a statute strikingly similar. (Maxwell v. Thompson, 232 N. Y. 619, affg. 195 App. Div. 616.) The same result has been reached elsewhere. (Gile v. Duke, 5 Fed. Rep. [2d] 952; Hanson v. Soderberg, 105 Wash. 255.)

Even if the determination of the necessity for an assessment and the amount thereof were open to challenge in the courts of this State, the plaintiff would still be entitled to judgment in the case at bar. The validity of the assessment depends upon the Commissioner having complied with the requirements specified in the statutes of North Carolina. The complaint alleges that the levy was made in compliance with law by an order stating that the assessment was necessary. The presumption lies that the Commissioner of Banks, being a public official, acted in compliance with law. (Hamilton v. Erie R. R. Co., 219 N. Y. 343.) (See Matter of Marcellus, 165 N. Y. 70, 77; United States v. Chemical Foundation, Inc., 272 U. S. 1, 14, 15.) The record thus shows a prima facie case of such compliance. At the trial no evidence was offered by the defendants in contradiction of this prima facie case. No attempt was made to show that the assessment was unnecessary or to point out any particular in which the necessary procedure was not followed by the Commissioner of Banks, and, therefore, judgment must go against them.

The conclusions above reached preclude the practical harm which would result from requiring the Commissioner of Banks to try the question of the necessity and amount of the assessment in each action brought, with perhaps varying results in each State, so that non-residents in one State might be absolved by a finding of fact in their favor, while in another State others not so fortunate would be held. Such practical harm has been recognized by the courts. In Broderick v. American General Corp. (71 Fed. Rep. [2d] 864, at p. 870), a case‘very similar to the case at bar, the court said:

“ Surely it was not contemplated by the legislature that in each suit the Court should wade through all the facts and figures involved in the bank’s assets and liabilities to make the determination which the legislature had already authorized the Superintendent himself to make, with possibility of conflict between the decisions of different courts in different cases affecting stockholders of the same bank.”

“ It would be attended with injurious consequences to forbid action against the stockholders until the precise amount necessary to be collected shall be formally ascertained. This would greatly protract the final settlement, and might be attended with large losses by insolvency and otherwise in the intervening time. The amount must depend in part upon the solvency of the debtors and the validity of the claims. Time will be consumed in the application of these tests, and the results in many cases cannot be foreseen. The same remarks apply to the enforced collections from the stockholders. A speedy adjustment is necessary to the efficiency and utility of the law; the interests of the creditors require it, and it was the obvious policy and purpose of Congress to give it. If too much be collected, it is provided by the statute, that any surplus which may remain after satisfying all demands against the association, shall be paid over to the stockholders. It is better they should pay more than may prove to be needed than that the evils of delay should be encountered.” (Kennedy v. Gibson, 8 Wall. [U. S.] 498, at p. 505.)

It follows that the judgment appealed from should be affirmed, with costs.