Attorney-General v. President, Directors & Co. of the Bank of Columbia

1 Paige Ch. 511 | New York Court of Chancery | 1829

The Chancellor :—By the act of April, 1825, (Sess. Laws of 1825, ch. 325, sec. 17,) it is made the duty of the attorney-general, whenever any incorporated bank is insolvent and unable to pay its debts, to apply to this court for an injunction, restraining the officers of the institution from exercising any of the privileges and franchises granted by their charter, and from collecting or receiving any debts, and from paying out or in any way transferring any of the moneys or effects of such company; and to appoint a receiver of its property, moneys and effects, and to distribute the same among its fair and honest creditors. About the 20th of May last, this bank stopped payment. This was a matter of public notoriety. It was also notorious that a large amount of its bills were in circulation; and the institution was reputed to be insolvent. It was therefore the imperative duty of the attorney-general to proceed in the manner directed by the statute.

On the 13th of June last, he filed the information in this case, setting forth the above facts, anti also that the state was a large stockholder in the institution. The informatian was *verified by his oath, and that of the comptroller; and they also stated their belief that the bank -was insolvent and unable to pay its debts; and thereupon an injunction was granted which still remains in full force. The attorney-general also caused a copy of the information and affidavits to be served on the officers of the bank, with a notice requiring them to show cause, if any they had, why a receiver should not be appointed. In the meantime similar infdrmation had been communicated to the court by the oath of certain creditors of the institution, who had applied and obtained injunctions in the city of Eew York. At the time assigned the parties appeared: but no cause was shown to induce the court to believe that the bank was able to pay its debts; and no information was given in re-lotion to its concerns, the probable amount of its debts, or its means of payment. The attorney-general had done all that could be done by him in any case, to satisfy the court that the bank was insolvent. No person could swear positively as to the insolvency of the institution, except its officers, against whom the proceedings were instituted; and the statement of the above facts was all that could reasonably be called for under this part of the statute. A violation of several provisions of the act of incorporation subjects the institution to similar proceedings. In those cases the particular violations of the charter complained of can and ought to be stated. These undoubtedly are the particular facts and circumstances, which by the statute are required to be stated in proceedings against the bank. Where a party cannot be presumed to have positive knowledge of a fact, it is the constant practice «of this, and of all other courts, to permit him to swear to his information and belief; and give the adverse party, who alone can swear positively on the subject, an opportunity to deny it on oath. If he does not deny it, or furnish some explanation to induce the court to think otherwise, the belief of the other party is to be taken as the fact. That the bank had stopped payment was not of itself conclusive evidence of its inability to pay its debts; but it was at least prima facie evidence of such inability or insolvency. And the evidence to explain the transaction and rebut that presumption should have been ^furnished by the officers of the institution. They could have shown the fact, if any thing but the insolvency of the corporation had induced or compelled them to adopt a measure which in its consequences produced so much individual suffering and distress. These were the reasons which made it the duty of the court to order a receiver to be appointed. The fact of insolvency being established, the court had no discretion on the subject.

Another important question presented to the court at that time was whether one of the officers of the insolvent institutian should, be appointed to investigate and close its concerns. Under the circumstances I thought there could be no rooin to doubt the decision which ought to take place on that question. The officers of the institution had made no expose of their concerns to the public. When called upon to show cause why a receiver should not be appointed, they produced no account, nor gave any information to the court as to the amount of their debts or their means of payment. They did not even state when, or by what means, their capital of one hundred and sixty-nine thousand dollars had been lost; so as to enable the court to form an opinion whether it would be right or proper to entrust the interest of their numerous creditors to the care or management of one of their number. It was impossible to ascertain, without a long and tedious examination of some weeks, and perhaps months, whether it might not be the duty of the receiver to institute proceedings against every officer of the corporation, under some of the provisions of the statute of 1825. If the property of the institution had been assigned by them to pay favored creditors, in contemplation of insolvency, or after they had stopped payment, it would be the duty of the receiver to prosecute them for the purpose of obtaining the amount for the benefit of the creditors generally. If they were indebted to the institution, it might be necessary to enforce the collection of such demands by suit. And if there had been fraud or mismanagement on the part of the officers of the institution, by which they had made themselves personally liable to the creditors, it would be the duty of the receiver to investigate the subject, and expose the fraud if any existed. *These remarks are not intended to apply personally to any of the officers of this institution except so far as relates to indebtedness. It was admitted by the gentleman proposed as receiver that he was a debtor; but whether to a large or small amount the court was not informed. Although the Chancellor, from a knowledge of the character of the gentleman who had controlled the affairs of this institution, was satisfied no fraud had been committed, yet he still had a duty to perform as regarded the public. Those creditors who had been stripped of their property by the failure of the bank, had a right to claim from the court the appointment of a receiver upon whose impartial investigations they might rely, and who could have no interest in opposition to theirs. So far as respected myself, I did not believe any thing improper had been done in that institution for many years past, to produce this calamity. I am induced to give credit to the suggestion of the counsel, that the death-blow was given to the institution long since, and that it has been sustained for many years only by a pledge of the personal responsibility of a majority of the directors. I was aware, from the report of certain proceedings made to the legislature in 1820, that as early as 1813, the officers of the bank had found it necessary to make provisions for a permanent loan of $150,000, from another institution; and for which a majority of the directors gave their own personal bonds, from year to year, as collateral security; and that the stipulated time of 15 years, for the continuance of that loan, had recently expired. It was to that circumstance I attributed the failure of the institution at this time, and not to any recent mismanagement of its concerns by any of the directors. The rule adopted in this case was the same which was adopted in the case of the Franklin Bank. I decided that it would be improper to appoint one of the officers of the institution receiver, and I referred it to a master for the purpose of enabling every person interested in the institution to name such person for that purpose, as he might think proper. The rule of exclusion adopted, I considered as based upon sound principles of public policy; and upon what I considered *the spirit and intent of the act under which these proceedings were instituted. If the law will not entrust the concerns of an insolvent institution in the hands of its directors jointly, as trustees for the creditors, certainly the court ought not to entrust them to a part only as receivers. Public policy requires that the directors shall understand distinctly that if they so manage the concerns of the institution as to produce insolvency, the property and effects of the institution will be taken from them entirely; and be placed in the hands of those who will investigate their conduct fearlessly and impartially.

The corporation appealed from the decision, both as to the appointment of a receiver, and as to the right of its officers to have the appointment if one is to be made. This objection is now interposed to prevent any further proceedings in this matter pending that appeal. It is undoubtedly correct, as suggested by the counsel who made this objection, that ordinarily, in this court, an appeal suspends, in the first instance, all further proceedings on the decree or order complained of. It may be doubtful whether this is a case where an appeal from the order directing a receiver to be appointed would prevent the court from proceeding so far as to designate the person to be appointed, that he might be prepared to act when the Court of Errors had disposed of the appeal. And'if there was in the mean time any danger to the fund, the court might, on a proper application, direct him to do everything necessary to protect the interest of all concerned, pending the appeal. But in this case a principle is involved in one part of the decision, which makes it proper for this court to forbear naming a receiver until the court of dernier resort have determined whether the officers of a bank which has become insolvent under their management, are proper persons to investigate the manner in which they have discharged their trust, and to close up the concern. If the interest of stockholders was to be consulted primarily, it would be proper to give to those indebted to the bank, and in doubtful circumstances, sufficient time to buy" up the bills from honest creditors, at a great discount, and thus restore the broken institution to a state of solvency. But in that *case the real creditors would lose the greatest part of their debts, although the stockholders in the end might save something on their stock. It is therefore necessary and proper, in every case of this kind, for the protection of the creditors, who have the first claim upon the property of the institution, to turn its effects into cash with the least delay which is consistent with their interest; so that a distribution may be made before their necessities or fears compel them to sacrifice their demands to speculators. As the Court of Errors will be in session very shortly, when this question can be disposed of, I do not think there will be such an injury resulting from the delay in this case as should induce the court to take any further steps in the matter until that time.

The attorney-general has furnished no evidence that the funds of the bank are unsafe in the hands of the present officers; and there is nothing before me to show that they have so far involved themselves in this concern as to make their own solvency depend upon that of the institution. I shall, therefore, suspend the appointment of a receiver until the meeting of the Court of Errors, unless some person interested in the institution brings the case again before me, upon a suggestion that something further is necessary to be done for the safety of the fund. If that should be the case, it may be necessary to proceed in the appointment, as no authority for that purpose can be given to the directors, pending this appeal.