National Pahquioque Bank v. First National Bank

4 Am. Rep. 80, 36 Conn. 325

• Court: Supreme Court of Connecticut
• Decided: February 15, 1870
• Status: Published

Opinion

Butler, J.

This case comes before us on a finding of facts by the court below, and a reservation of the questions arising thereon for our advice, pursuant to the provisions of our statute.

The first question reserved is whether the case ought to be dismissed for the want of jurisdiction.

It appears from the facts found that prior to the commencement of this suit the defendant bank had failed to redeem its notes, and that the Comptroller of the currency, proceeding in accordance with sections 46 to 50 of the currency act, had found it to be in default, had declared the bonds deposited with the government to secure the circulation forfeited, had appointed a receiver who had taken possession of its assets, and that its affairs were being wound up. It further appears that the plaintiff bank presented its claims to the receiver, who denied their validity and disallowed them, and thereupon the plaintiffs brought suit to determine their validity. The suit is defended by the receiver, by direction of the Comptroller of the treasury, in the name of the defendants for the benefit of the stockholders and creditors. They set up in their notice, and urge in argument, a want of jurisdiction in the court, because the proceedings of the Comptroller in the premises, pursuant to sections 46 to 50, produced a forfeiture of the franchises and a dissolution of the -defendant corporation, and therefore no suit can lie against it, even to determine the validity of a demand by a creditor. We think that this claim is opposed to the well-settled principles and analogies of the common law, without support in any of the provisions of the act and contrary to its express provisions.

1. By the principles of the common law an absolute and unqualified dissolution of a corporation by a decree of forfeiture or legislative repeal, extinguishes all debts due to or from it, and puts an end to all its fights of action and property, and it can no longer sue or be sued or do any lawful act. To prevent a harsh operation of this rule, it is also a well-settled principle that a dissolution by forfeiture can only be effected by judicial proceedings against the corporation taken for that pux-pose, a hearing or an opportunity for a hearing had, and a judgment of forfeiture x’endered thereon. For the px’otection of creditors it is also a well-settled rule that a dissolution of a corporation by winding up, or other act of its stockholders, or by limitation, or in any mode except legislative repeal or judicial decree, does not affect the rights of creditors; and that as to them, and their right to enforce their claims, or determine their validity, by suit or otherwise, the corporation will be deemed to continue in existence.

With these principles in mind we listened attentively during the argument of counsel, and have since carefully examined their extended brief, to discover the modus operandi by which the absolute dissolution claimed was or could be effected by the winding up proceedings pursued in this case. On this vital point of the claim their ideas do not seem to be clear or consistent. In the opening paragraph of the brief it is said: “ Its franchises and every corporate capacity had been taken away.” How taken, is not there stated. In the next paragraph it is said that “ the refused to redeem its bills constituted a forfeiture of its franchises, which, acted upon by the Comptroller, produced a dissolution of the corporation.” The action of the Comptroller was confined to the winding up prescribed in sections 46 to 50, commencing with the appointment of an agent to examine into the default, and will end with the final order for the distribution of assets. At what particular point of time in his proceedings, and by what particular act the dissolution was produced, is not stated, and cannot be surmised. In another place it is said: “ The action of the Comptroller under sections 46 to 50, unless he is enjoined by a district, circuit or territorial court of the United States, operates to divest the association of every corporate franchise or capacity which it originally possessed, including suits by and against it; it divests the corporation of its assets by transfer to the receiver for the use of creditors after satisfying the United States to the extent of its claims proved to the satisfaction of the Comptroller, and a distribution of any surplus to the-shareholders and their representatives, and not to the corporation. The result of these provisions is a dissolution of the corporation. They are as effectual for this purpose as an express declaration that thei’eupon the corporation should be dissolved.” From this quotation it would seem to be the idea of the counsel that dissolution was the result of completed action by the Comptroller, which has not been had in this case. In conformity to this claim, it is said in another place : “ These sections authorize the Comptroller under certain circumstances to close up the business of an association, which winding up, closing up, involves a dissolution of the corporation.” That the winding up of the affairs of a corporation produces practically the death of it, may be conceded ; but it is not that absolute and technical dissolution which the law recognizes as extinguishing all its rights and its existence, so that it cannot be sued by a creditor. In another place the idea is advanced that the association and its assets are “ seized by the Comptroller,” which seems to imply that the franchise is taken by him, and in still another place “ that a corporation cannot exist which has been legally divested of every corporate franchise, and of every asset, by the transfer thereof to another, in pursuance of the statute under which it-was incorporated.” This idea of the transfer of the franchise to the receiver with the assets is an intelligible one, and would doubtless put an end to the corporation as an implied legislative repeal if clearly authorized; but there is nothing in the act which justifies that claim. It is doubtful even whether the receiver has a legal title to the assets, for he cannot dispose of them without an order from a federal court, and the avails are to be paid immediately to the Treasurer of the United States. But however that may be', the act merely directs him to take possession of the assets, and the franchise of the corporation is not included in that term. "We are unable to discover therefore from anything that has been urged, by what mode of operation known in the law the proceedings in question can produce that absolute and technical dissolution of a corporation which is produced by a judgment of forfeiture or by a legislative repeal, and bars a suit by a creditor.

2. This claim of the defendants finds no support in any of the provisions of the act.

There arc three special cases in which the Comptroller is authorized to appoint a receiver and wind up the affairs of associations for defaults of duty, and one authorizing him to compel an institution to wind up its affairs, besides the provision in question. The first is found in section 12th, and relates to a deficiency in the surplus. The second is in section 15th, and relates to a deficiency of capital. The third is in the 31st section, and relates to the keeping up of the required reserve. The fourth is .in section 32d, and relates to a failure to name and keep a place of redemption. These are all cases of default merely. In no one of them, nor in that relating to a redemption of the bills, nor anywhere in the act, is there the slightest intimation that these defaults shall he considered causes of forfeiture and effect ;a dissolution.

The fundamental and essential principles of the common law alluded to were well understood by the then Secretary of the Treasury and the jurists upon the committees of Congress who assisted in framing the act, and they are recognized upon its face. The act was a most important and far-reaching one. It was intended to provide a substitute system of banking and currency for the whole country, and a new substitute body of banking associations, all of which were to become connected and blended in the most intimate manner with all its business operations and trade. They did not intend to leave anything to implication, and the act is remarkably clear and specific in all its provisions, and it is quite too much to ask that we should hold that they intended that the winding up of the affairs of a corporation by the intervention of a receiver should operate to produce a dissolution per se, with all the consequences attending a dissolution by judgment of forfeiture. If such had been their intention they would undoubtedly have expressed it.

3. And that such was not their intention clearly appears from express pi’ovisions in the act.

It has ever been the policy of the people of this country to afford to every man full and ample opportunity for the determination and enforcement of all his personal rights, and rights of action and of property. This policy is recognized in every state constitution, and in the seventh amendment of the constitution of the United States. Important rights are never, except in cases of special necessity, submitted to the conclusive decision of one man, or of a board of men, -without a right of appeal to some judicial tribunal, or other opportunity to review the decision. It would therefore have been extraordinary indeed, if in framing and adopting so important a measure, the power of conclusively determining the rights of creditors against insolvent associations, whatever their intricacy or amount, should have been given to a single officer of the government, who, under our system, is quite as likely to be a mere politician as a jurist, without any remedy against interest, relationship, bias or caprice. On looking at the act we find, as might have been expected, that such power is not given to the Comptroller, as has been claimed in the argument. He is authorized to give notice to all persons to present their claims and to make legal proof thereof, but he is not authorized to determine their validity, so as to conclusively bind the parties. On the contrary, the common law right of every man to have his claim investigated and determined in a court of justice, is recognized and provided for. The Comptroller is to pay a dividend on all such claims as may have been proved to his satisfaction, or “ adjudicated in a court of competent jurisdiction,” and also to make further dividend as aforesaid, on all claims “ previously proved or adjudicated.’’ It is perfectly apparent from these provisions, and from the absence of express authority to the Comptroller to make a conclusive decision, that it was the intention of Congress to leave the right of the creditor to a judicial determination of the validity of his claim, at his election, or upon disallowance, in full force and unimpaired.

But there are other express provisions which are conclusive upon this point.' It is provided in the 8th section of the act, that every association formed under it “ shall have succession by the name designated in its organization certificate, for the period of twenty years from its organization, unless sooner dissolved, according to the provisions of its articles of association, or by the act of its shareholders owning two-thirds of its stock, or unless the franchise shall be forfeited by a violation of this act.” The 53d section provides that “if any of the directors shall knowingly violate, or permit its agents to violate, any of the provisions of the act, all the rights, privileges and franchises derived from it shall be thereby forfeited.” And it further provides that such violations shall be determined by a federal court, at the suit of the Comptroller, before the association shall be declared dissolved. The defendant corporation has not been dissolved by lapse of time, or any provision of its articles of association, or action of its shareholders, or any judgment of forfeiture. "Why then is it not an existing corporation within the spirit and comprehensive terms of the act ? The failure to redeem, its notes has been claimed in the argument to have been a “ cause of forfeiture.” Whether it was so or not we need not decide. If it was not the argument falls. If it was, then in order to dissolve the corporation there must be proceedings instituted for that purpose by the Comptroller, and a judgment of forfeiture obtained. This has not been done, and by the express provisions of the 8th section the corporation exists.

The point has been made upon the brief and in the argument, that the presentation of claims to the receiver and their disallowance by him was conclusive in respect to their validity. In regal'd to this it is sufficient to say, that we find nothing in the act which expressly or by necessary implication authorized that officer to adjudicate conclusively, or at all, upon the claims of the creditors.

For these reasons we are of opinion that the court below had jurisdiction and that the case ought not to have been dismissed.

We come now to the merits of the case as presented by the finding.

It appears from the finding of the court that the plaintiffs’ claim was for “ notes, drafts and checks sent by the plaintiff bank to the cashier of the defendant bank for collection, of which the plaintiff bank was a holder for collection, but for which notes, drafts and checks the plaintiff had paid to other banks or individuals from whom the same were received by the plaintiffs, the full amount thereof.” It further appears that the cashier of the plaintiff bank had given notice to the cashier of the defendant bank, requesting the latter to protest all such notes and checks as were not paid, and return them, but that notes, drafts and checks of one Nathan Seeley, which were the notes, drafts and checks charged in the plaintiffs’ account, were received by the defendant bank, and although not paid by Seeley, were not protested or returned, or any express notice of their non-payment given to the plaintiff bank. The notes, drafts and checks so sent to the cashier of the defendant bank, were charged to the cashier and posted in the account against the defendant bank and the indebtedness was admitted by the cashier of the latter. These facts present a prima facie case in favor of the plaintiff bank against the defendant bank; and as the notes, drafts and checks were all sent to be collected of the drawer of them, and the plaintiffs were entitled, after a reasonable time elapsed without notice of non-payment or return to charge them up as collected, in account, we are of opinion that the plaintiffs can recover on the'common counts and on the facts for an account stated.

But other facts were proved, which the defendants claim were sufficient to absolve them from liability. On the 28th day of February, 1865, there was due from the defendants to the plaintiffs on account of notes, drafts and checks sent by the plaintiff bank to the defendant bank for collection, a balance of 125,083.17, to provide for the payment of which the cashier of the defendant bank gave to the plaintiffs sundry drafts, made by third persons, the avails of which as collected were credited to the defendants upon the books of •the plaintiffs. These drafts were endorsed by the cashier of the defendant bank, and the sum of 17,475.65 remains unpaid thereon, and that amount the defendants claim should be applied in extinguishment of so much of the plaintiffs’ account. This claim is not founded upon any agreement that the drafts should be received in payment, for it is expressly found that there was no such agreement. But on the ground that the balance of the 28th of February, 1865, was .made up of the said notes, drafts and checks of Nathan Seeley, sent by the plaintiff bank to the defendant bank for collection ;■ that by collusion of the cashier of the defendant bank with Seeley in fraud of his bank, these notes, drafts and checks were not paid, nor entered upon the books of the defendant bank, or their existence brought to the knowledge of its directors ; and that the drafts of third persons furnished to the plaintiff bank to provide for the payment of the balance of February 28th, 1865, were • furnished by Nathan Seeley through Judd, the defendants’ cashier, and were never the property of the defendant bank.

We do not think it material to inquire whether the bank was liable for Judd’s endorsement upon the drafts, or into the extent of the authority given by the by-laws of the bank to Judd, the cashier, for the transaction of its business. It is perfectly apparent that the cashier of the defendant bank received the notes, drafts and checks sent by the plaintiffs for collection; that he had ostensibly the powers usually given to the cashier of such an association; that it was his duty to collect them or to pretest and return them; and that, by retaining them without collection, protest or notice, he made the defendant bank liable to the plaintiffs for their amount. The finding shows gross fraud on.his part, by colluding with Seeley to permit his paper to accumulate in the bank unpaid; by failing to enter the paper upon the books of the bank, and to inform the directors of its possession and non-payment; and in permitting the accounts of the plaintiffs to accumulate in such an unusual manner and to such an unusual extent, without informing them of it. It also shows gross negligence in the officers of the defendant bank,' in entrusting its entire management to Judd. But these facts do not constitute a defence, unless knowledge of them can be brought home to the plaintiffs.

The transactions were loose, and looking to the amount of the defendants’ capital unusual, and it would seem that suspicion at least must have arisen in the minds of the officers of the plaintiff bank; but the court below has not found knowledge or even suspicion, and there are no facts found which will justify us in inferring such knowledge as matter of law.

We are not able therefore to perceive in this finding any legal defence against the claims of the plaintiffs. There is nothing found in relation to the reception, collection or continued retention of the drafts furnished in 1865 which can be said to have extinguished the original indebtedness of February 28th, 1865, or bar the plaintiffs from the recovery of the balance of that indebtedness. Nor is there anything in the subsequent conduct of the business between the two banks, although very unusual in its character, which would justify us in holding, as matter of law, that the plaintiffs should be barred from recovering the balance of account which subsequently accrued and was admitted by the defendants’ cashier from time to time. It is not our province to find facts and we must decide the questions of law presented to us by the finding as it stands.

For these reasons we advise judgment for the plaintiffs.

In this opinion the other judges concurred.