In re Manufacturers' Nat. Bank

16 F. Cas. 665, 5 Biss. 499, 6 Chi. Leg. News 118, 19 Int. Rev. Rec. 20, 1 Cent. Law J. 19, 1873 U.S. Dist. LEXIS 172

Opinion

BLODGETT, District Judge.

On the 15th day of November last Messrs. K. J. Smith & Co. filed in this court their petition setting forth that they are creditors of the Manufacturers’ National Bank, of this city, for money deposited with said bank in due course of business, and alleging that the said bank liad suspended payment on its commercial paoer for over fourteen days, and had, when insolvent, made preferential payments, for which acts they prayed that the bank be adjudged bankrupt.

Being aware that grave doubts had been expressed by many lawyers and business men as to the application of the bankrupt law to national banks, I directed notice of the application for a rule to show cause to be served on the officers of the bank, and have heard arguments for and against the application.

The law now in force for the organization and government of national banks was enacted on the 3d of June, 1864 (13 Stat. 99), and has been amended by the act of February 4, 1868 (15 Stat. 34), the act of February 19, 1869 (Id. 270). the act of July 12, 1S70 (10 Stat. 251), and the act of March 3, 1S73 (17 Stat. 603). Embodied in the original act, are very full and ample provisions for winding up and settling the affairs of these banking associations, mainly through the federal courts. The fundamental purpose of the act and its amendments was to provide a national currency and insure its prompt redemption, and, incidentally, to provide banking or fiscal agencies through which the ordinary financial business of the country could be safely transacted.

The leading features of the system were: 1. The security of the circulating notes of those banks by the pledge of government bonds in the hands of the treasurer of the United States, and .in ease of the failure of tlie bank to redeem its notes, then redemption of those notes by the government, for which it is to be reimbursed by the proceeds of the bonds deposited and a first lien on all the assets of the bank. 2. The responsibility of the stockholders of the bank to the extent of the par value of the stock held by them respectively, in addition to the amount invested in their shares. 3. The whole system to be under the surveillance of the comptroller of the currency, with full powers to examine into the affairs of each bank, and in cases of non compliance with the provisions of the law, to appoint a receiver to administer and wind up their affairs.

On the 2d day of March, 1867, congress passed an act to establish a uniform system of bankruptcy throughout the United States; and by the thirty-seventh section of said act it is declared “that the provisions of this act shall apply to all moneyed, business, or commercial corporations and joint-stock companies,” and by the third clause of the same section it is declared that “all payments, conveyances, and assignments declared fraudulent and void by this act, when made by a debtor, shall in like manner and to the like extent and with like remedies be fraudulent and void when made by a corporation or company."

The forty-eighth section declares that the word “person” when used in this act, shall be held to include and mean “corporation,” and by the ninth clause of the thirty-nimh section it is made an act of bankruptcy for any “banker” to suspend payment of his commercial paper for fourteen days. The bankrupt law is the latest expression of the legislative will, and its general terms and provisions must be held to repeal all previous statutes necessarily incompatible with it. The question then is, does the bankrupt law repeal and supersede the provisions in the currency act for winding up the affairs of insolvent national banks? or can its provisions be applied to those corporations and leave intact the provisions of the currency act on the same subject? There is no doubt of the soundness of the general rule of interpretation cited by the counsel for the respondent: That a statute, although so general in its terms that its letter would comprehend all classes of persons and things to which it can relate, will nevertheless be construed by the courts as not applying to a particular class which has been specially provided for and regulated by another statute relating solely to such class, if there is no language in the general statute, repealing the former statute or in any manner referring to it. Hume v. Gossett, 43 Ill. 297; People v. Miner, 46 Ill. 384.

A thing which is in the letter of a statute is not within the statute, unless it be within the intention of the makers. Bac. Abr. tit. “Statutes,” 3S5. “Where the intention of the legislature is not apparent to that purpose, the general words of another and later statute shall not repeal the particular provisions-of a former one.” Dwarris, St. 117, quoted from Coke. The rule is thus stated in Sedg-wick on the Construction of Statutory and Constitutional Law (page 97; 2d Ed.): “In regard to the mode in which laws may be repealed by subsequent legislation, it is laid down as a rule, that a general statute without negative words will not repeal the particular provisions of a former one, unless the two acts are irreconcilably inconsistent. * * * * The reason and philosophy of the rule is, that when the mind of the legislator has been turned to the details of a subject, and he has acted upon it, a subsequent statute in general terms, or treating the subject in a general manner, and not expressly contradicting the original act, shall not be considered as intended to affect the more particular or positive previous provisions, unless it is absolutely necessary to give the later act such a construction, in order that its words shall have any meaning at all.”

The currency act provides for the appointment of a receiver to wind up the affairs of a national bank in the following cases: 1. For not keeping good a surplus — 12th section. 2. For not keeping stock at minimum — loth section. 3. For not keeping good its reserve— 31st section. 4. For not selecting a place for the redemption of its notes — 32d section. 5. For holding its own stock over six months— 35th section. 6. For non-payment of its circulating notes — 50th section. 7. For improperly certifying a check — section 1, act March 3,1869. 8. For failure to pay up capital stock, and for allowing same to become and remain impaired by losses — section 1, act March 3, 1873.

Upon the happening of either of these contingencies the comptroller may appoint a receiver to take possession of all the books, records and assets of the corporation, who shall proceed to convert the assets into money under the direction of a court of competent jurisdiction. And the money so realized shall be paid over to the treasury of the United States, subject to the order of the comptroller, who, after deducting in full whatever amount shall be due to the United States, shall distribute the balance ratably among the creditors of the bank: the claims of creditors to be proven before the comptroller, or adjudicated in a court of competent jurisdiction.

By the 52d section the “application of its assets in the manner prescribed by this act, with a view to the preference of one creditor to another, except in payment of its circulating notes, shall be utterly null and void.” And by the 4Sth section it is made unlawful for any such bank, after suffering a protest of its circulating notes, and after notice from the comptroller, to in any manner prosecute the business of banking, except to receive and safely keep its money and deliver special deposits. And by the 53d section, any violation of the provisions of the currency act, done knowingly, by either a bank, or its officers or agents, works a forfeiture of all its rights and franchises, to be adjudged by a federal court at the suit of the comptroller. The 8th section provides that said corporations, i. e., national banks, may sue and be sued, complain and defend, in any court of law and equity as fully as natural persons. And by the 57th section it is declared, that “suits, actions and proceedings against any association under this act may be had in any circuit, district or territorial court of the United States, held within the district in which such association may be established, or in any state, county, or municipal court in the county or city in which such association is located, having jurisdiction in similar cases.” And by the amendment to this section, made by the act of March 8, 1878, it is further provided that “no attachment, injunction or execution shall be issued against such association or its property before final judgment.”

I am not aware that any adjudication has yet been made, determining what is an “act of insolvency” within the intent and meaning of the 52d section, but it seems to me to be an act which shows the bank to be insolvent; such as non-payment of its circulating notes, bills of exchange, or certificates of deposit; failure to make good the impairment of capital, or to keep good its surplus or reserve; in fact, any act which shows that the bank is unable to meet its liabilities as they mature, or to perform those duties which the law imposes for the purpose of sustaining its credit.

It will thus be seen that while the currency act does not specify in detail, and provide for all the specific acts of bankruptcy enumerated in the bankrupt law, it yet does furnish, through the functions of an important public officer — the comptroller of the currency — a very complete and detailed scheme or plan for administering the affairs of an insolvent national bank. It is true there is no provision for an individual creditor’s putting this machinery in motion. But the presumption is that congress deemed it wiser to leave this duty to an impartial public officer rather than entrust it to the hasty, inconsiderate, and perhaps selfish action of one or more creditors. It was probably thought that the necessity of maintaining the public confidence in the system was such as would compel the comptroller to act in all cases when a bank had become derelict or discredited, and that this consideration, together with the clear obligations of duty, thrown upon the officer, would be sufficient to insure his action in all eases where he acquired the right to do so. At all events, the law as it was enacted contained ample and specific provisions for creating and managing these corporations, and for administering their affairs when they became unable or refused to perform their public functions.

The system has been in operation nearly ten years. Over two thousand banks have been organized under it Of these, twenty-one have been wound up through the agency of the comptroller and a receiver — the great part of them since the enactment of .the bankrupt law. All the legislation of congress has looked toward the perfecting and perpetuation of the system, and ought we now to say that congress, by the enactment of the general bankrupt law, intended to place these corporations under the provisions of that law, and to repeal the elaborate plan which it had specially furnished for winding up their affairs when they became insolvent or incapable of transacting banking business?

That it did not intend to repeal them, is conclusively evidenced by the fact that in two of the important amendatory acts, those of March 3, 1869 (15 Stat 326), and March 3, 1873, especial reference is made to those winding-up provisions of the original act, and they are treated as being in full force. So, too, in several cases which have been before the supreme court since the enactment of the bankrupt law, reference has been made to these winding-up powers as still in force.

It being clear, then, that congress did not intend to repeal the winding-up clauses of the currency act, the question arises, did it intend that the two remedies, that is, the one given by the currency act and the one given by the bankrupt act, should exist as co-ordinate or concurrent remedies, and the affairs of an insolvent national bank be administered by that tribunal which first acquired control.

This construction might be admitted if the two were entirely compatible with each other, or if each was equally as complete as the other, — that is, if each could reach and administer upon all the assets of the debtor bank so as to leave nothing to be done by the other.

But we find upon examination that the important duty of paying the holders of circulating notes, and distributing the proceeds of the bonds deposited to secure them or the surplus of those bonds, and of enforcing the liability of stock-holders, is left with the comptroller, and can only be enforced by or through him. This latter point was fully discussed and decided by the supreme court, Kennedy v. Gibson, 8 Wall. [75 U. S.] 49S, where it was expressly held that the comptroller alone could enforce the personal liability clause. The court says: “The receiver is the instrument of the comptroller. He is appointed by the comptroller, and the power of appointment carries with it the power of removal. It is for the comptroller to decide when it is necessary to institute proceedings against stock-holders 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. The stockholders can not controvert it.

“It is not to be questioned in the litigation that may ensue. He may make it at such times as he shall deem proper, and upon such data as shall be satisfactory to him. This action on his part is indispensable, when the personal liability of the stockholders is sought to be enforced, and must precede the institution of a suit by a receiver. * * * The claims of creditors may be proved before the comptroller or established by suit against the association. Creditors must seek their remedy through the comptroller in the manner prescribed by statute.”

Much stress was laid by the attorneys for petitioners upon the inadequacy of the security for creditors under the currency act, mainly because creditors could not of their own motion initiate winding-up proceedings, but how much more inadequate would the bankrupt court be to the same end if it cannot reach or distribute assets and perhaps must pay what it gets over to a government officer for distribution.

I do not say that an assignee would be obliged to pay over to the treasurer, but that there is grave ground for a claim that he should do so, and that collision might grow out of such claim. The relief which could be afforded to the creditors of a national bank, then, being so incomplete, I cannot think it was the intention of congress to clothe bankrupt courts with jurisdiction over this class of corporations. I have already cited the evidence which shows to my mind that congress did not intend to repeal the winding-up provisions of the currency act by the passage of the bankrupt law, and a comparison of the provisions of the two acts shows with equal clearness to my mind that it did not intend to inject the provisions of the bankrupt act into the currency act, so that creditors could apply the remedies of the bankrupt act, and the comptroller the remedies of the currency act; because such a construction would inevitably produce collisions and conflicts of jurisdiction, and the remedies given by the bankrupt act would be so far unavailing in regard to important assets as to make it evident that there was no intention to apply such a remedy. Suppose this court were to adjudge this respondent bankrupt to-day, and send its messenger and as-signee to take possession of the assets, the officer of the court could in no event enforce the personal liability clause, or obtain possession of the government bonds deposited to secure the circulation, or any surplus of those bonds after fully redeeming the circulation. Those assets are beyond the reach of this court or its officers, and can only be approached by the way of the comptroller and his receiver. Then why should this court take cognizance of a case that it cannot administer?

Why not, rather, say that congress has acted upon the subject matter of insolvent national banks and made specific provisions for administering their affairs, and, inasmuch as the general bankrupt law has not expressly repealed these specific provisions nor necessarily suspended them, the courts will presume it was the intention of congress to except this class of corporations from the operation of the later statute? Such conclusion seems to me consistent with authority, and is, in fact, the only conclusion that will not lead to inextricable complication and conflict.

But it is urged that the currency act makes these corporations liable to all suits and actions which might be brought against natural persons, and that they can therefore be proceeded against in- bankruptcy. A sufficient answer to this might be found in the fact that when the currency act was passed there was no bankrupt law in force, and therefore the general language must be held subject to this limitation. But I take it there is no doubt that the legislative power which creates an artificial person or corporation can also prescribe what remedies shall be had against it, and that such remedies would be held to be exclusive, and that the provisions of the general bankrupt law would not be held to apply to corporations at all but for the express terms of the act. Should they, then, be held to apply to a class of corporations which have, as it seems, a bank-nipt law of their own ingrained into their own constitution and part of their organic-law, by the same authority which enacted the bankrupt law? I think not. Nor does it seem to me that there is any necessary hardship in denying the remedies of the bankrupt law to the creditors of this corporation. There is no evidence that either this petitioning creditor, or any other creditor, has applied to the comptroller to take possession and administer the assets. Additional force is also given to this consideration from the fact that in the very latest amendment to the currency act it is expressly provided that no attachment, injunction, or execution, shall issue against a bank until judgment is obtained.

It is well known that in many of the states proceedings by attachment may be taken by a creditor in the first instance, and as a matter of course, and in nearly or quite all the states, attachments can issue upon affidavits showing the existence of certain facts, while: injunctions are almost universally issued before judgment or decree in equity cases when a case is made for one. And yet these corporations are, probably for reasons of pub-' lie policy, exempted from liability to all this class of summary proceedings. Here we have a restriction upon the powers of the bankrupt court, almost, if not wholly, incompatible with the jurisdiction. For of what use would it be to proceed in bankruptcy against a debtor, in a large number of cases, unless he could be enjoined and his property seized by process of the court. Before adjudication or judgment could be obtained, tbe property of the debtor might be wasted or spirited away, so that the adjudication would be barren of results.

I do not say that the prohibition to enjoin, or attach property necessarily implies want of jurisdiction, but only that it goes far to show that it was never the intention of congress to clothe a bankrupt court with jurisdiction as against these corporations. I am therefore of the opinion that the rule to show cause should be denied, and the petition dismissed for want of jurisdiction.