161 Misc. 820 | N.Y. Sup. Ct. | 1937
This is a motion for summary judgment in an action brought by the Superintendent of Banks to recover the sum of $4,500 assessed against the defendant as the holder of forty-five shares of stock of Globe Bank and Trust Company of the par value of $100 each.
The answer contains various defenses, most of which may be briefly disposed of. The first defense alleges that at the time the Superintendent of Banks took possession of the property and business of Globe Bank and Trust Company it had sufficient assets to pay its creditors in full and that it has enough assets at the present time, “ if properly liquidated,” to satisfy the claims of its creditors. Accordingly, the defendant charges that the closing of the bank and the levy of the assessment by the plaintiff was the result of a gross abuse of discretion on his part. In so far as this defense is based upon the claim that the Superintendent of Banks improperly took possession of the bank, it is clearly insufficient to
The second defense alleges that if there be any necessity for an assessment, the same is due to the manner in which the Superintendent of Banks conducted and managed the liquidation. This defense "is insufficient. (See opinion of this court in Broderick v. Betco Corp., 149 Misc. 245, at p. 250; affd., 244 App. Div. 710; affd., 269 N. Y. 642; see, also, Broderick v. Adamson, 148 Misc. 353, at p. 373.)
The third defense sets forth the pendency of numerous actions and proceedings for the collection of debts due to the bank and alleges that this action is prematurely brought, in view of the impossibility of determining at this time the amount which will ultimately be collected in said actions and proceedings. . It is well settled, however, that it is no defense to an action of this character that the liquidation has not been completed and that assets still remain to be collected. (Broderick v. Betco Corp., supra, p. 247; Broderick v. Adamson, supra, pp. 372, 373.) In Broderick v. Adamson (146 Misc. 456) Mr. Justice Dore, now a member of the Appellate Division in this department, said (p. 457): “ Section 80 of the Banking Law clearly authorizes enforcement of the assessment by the Superintendent when he determines that the reasonable value of the assets of the bank is not sufficient to pay its creditors in full and' the right to enforce is not conditioned by the statute upon prior reduction of the assets to cash.”
The fifth defense will be considered presently. The sixth defense alleges that the plaintiff unlawfully permitted the Manufacturers Trust Company to liquidate the assets of the bank, pursuant to a contract of sale, and that he failed to properly supervise the liquidation and permitted assets to be disposed of at less than their real market value. A similar contract between the Superintendent and the Manufacturers Trust Company entered into in connection with the liquidation of Bank of Europe Trust Company was, however, upheld by this court in Broderick v. Betco Corp. (supra), where the claim that the liquidation had been improperly conducted by the Superintendent was likewise held to constitute no defense to an action of the present character.
We turn now to the fifth defense, which alleges that under the Banking Law each stockholder is hable only for such proportion of any deficit as the number of shares of stock held by him bears to the total number of shares- outstanding. It further sets forth that it appears from the face of the complaint that the full amount of the outstanding stock need not be collected in order to satisfy the claims of creditors and that the assessment is, therefore, excessive. Although, as previously stated, the Superintendent’s determination of the necessity of an assessment is ordinarily conclusive, it may be attacked for fraud, bad faith or error of law. In United States v. Knox (102 U. S. 422) the United States Supreme Court held that a stockholder of a national bank, under the Federal statute, was liable only for (p. 425) “ such sum as will bear the same proportion to the whole amount of the deficit as his stock bears to the whole amount of the capital stock of the bank at its par value,” in no event, however, to exceed the par value of his stock. Although the Comptroller’s assessments upon stockholders of national banks are conclusive as to the necessity therefor, the court declared that any attempt to assess the stockholders on the theory that solvent stockholders could be made to pay more than their proportion of the deficit, because of the insolvency of others, would be enjoined as legally erroneous. The court said (at p. 425): “ Although, assessments made by the Comptroller, under the circumstances of the first assessment in this case, and all other assessments, successive or otherwise, not exceeding the par value of all the stock
If, under the law of this State, the Superintendent of Banks may enforce the liability of stockholders only to the extent of their proportionate shares of the deficit, the defendant is entitled to resist any attempt on the part of the plaintiff to collect from him an assessment based upon the theory that stockholders are liable, up to the par value of their shares, for unpaid claims of creditors, solvent stockholders being obliged to pay to the extent that others fail to do so. It appears to be fairly clear from the allegations of the complaint that the plaintiff is seeking to hold the defendant for more than the latter’s proportionate share of the deficit. Although the pleading does not state the amount of the deficit, the total liabilities, admitted and disputed, appear therefrom to be substantially less than the par value of the outstanding stock, without giving any credit for the value of assets which concededly remain in the Superintendent’s possession. The moving affidavit in support of the motion for summary judgment has annexed to it a certificate of the Superintendent stating that the deficit as of June 6, 1932, was determined by him to be $366,222.96, which is less than twenty-five per cent of the par value of the outstanding stock. Although it is stated that the deficit has been increased by reason of the fact that actual recoveries since June 6, 1932, have been about $143,000 less than originally estimated, no effort is made in the affidavits submitted by the plaintiff to show the existence of a deficit for an amount even approaching the total par value of the bank’s stock. That the Superintendent is attempting to hold stockholders for considerably more than their respective proportions of the deficit is confirmed by the fact that the briefs submitted by him definitely and frankly proceed upon the theory -' that each stockholder is liable for the debts of the bank up to the par value of his stock, and not merely for his proportionate share of the deficit. It is, therefore, necessary to consider the extent of liability of stockholders of banks under the law of this State.
Prior to January 1, 1936, section 7 of article VIII of our State Constitution
If the rights of the defendant in the present action are governed by the provisions of section 120 of the Banking Law, it seems to be clear that his liability is merely for a proportionate share of any deficit, without regard to the insolvency or financial condition of other stockholders. The words “ equally and ratably, and not one for another ” permit of no other interpretation. In United States v. Knox (supra) the Federal statute there under consideration was worded in almost identical language, containing the words “ equally and ratably, and not one for another.” The United States Supreme Court held that the liability of each stockholder was limited to his proportionate part of the deficit, and that “ the insolvency of one stockholder, or his being beyond the jurisdiction of the court, does not in any wise affect the liability of another ” (p. 425). A similar holding was made by our Court of Appeals in Matter of Hollister Bank (27 N. Y. 393), under the act of 1849, although it did not contain the words “ and not one for another.” The court pointed out (pp. 398, 399) that the words “ equally and ratably ” had the effect of making each stockholder “ liable for his equal ratable proportion of the debt,” the proportion having “ reference to the amount of stock held by each, as compared with the whole stock and the debts.” The court’s conclusion, it is true, was based, in part, upon the provision of section 16 of the act of 1849, that the unpaid debts were to be apportioned among the stockholders “ ratably in proportion to their stock, according to the principles in this act declared.” Although the present statute contains no language similar to that found in section 16 of the 1849
The plaintiff points out, however, that section 7 of article VIII of the Constitution does not use the words “ equally and ratably, and not one for another,” and imposes an unqualified liability upon each stockholder for the unpaid debts of a bank up to the par value of the stock held by him. He accordingly contends that if section 120 of the Banking law is interpreted as limiting the liability of stockholders to their porportionate shares of the total deficit, the statute is unconstitutional as an unauthorized and unwarranted legislative limitation upon a liability imposed in the Constitution. Although the variance between Constitution and statute has persisted since the year 1849, a period of almost ninety years, there appears to be only one case in this State in which any reference to this conflict has been made, viz., Matter of Hollister Bank (supra), decided in 1863 under the act of 1849. The 1849 statute provided for the appointment of a receiver in case of the insolvency of a banking corporation, for the appointment of a referee to apportion the debts among the stockholders “ ratably in proportion to their stock,” and for the entry of judgment against the stockholders for the amounts assessed against them upon the confirmation of the referee’s report. In the case cited an apportionment upon all the stockholders had been made and confirmed and judgment entered. The receiver then applied for a second apportionment, basing his application partly upon the fact that certain stockholders assessed under the former apportionment had failed to make payment. The Court of Appeals declared that the act of 1849 imposed a liability upon each stockholder for only his proportionate share of the deficit and made no provision whatsoever for “ the contingency of the failure, or inability of a portion of the stockholders to respond to the assessment, although it could hardly have escaped the consideration of the Legislature” (p. 397). The court accordingly held that only one apportionment was contemplated by the statute
For reasons which will presently appear, this court is of the opinion that Matter of Hollister Bank (supra) is not controlling here. However, before distinguishing the case, it is necessary to consider whether the provisions of section 7 of article VIII of the Constitution are self-operative, that is, whether they impose the liability therein referred to upon each stockholder without the enactment of legislation in execution or enforcement of the constitutional liability. This question was expressly left open in Matter of Hollister Bank (supra, p. 395): “ Whether, however, the constitutional provision of itself creates a liability upon which an action might have been maintained against any or all the stockholders of such an association, if the Legislature had passed no act to carry out that provision, or whether such liability exists, notwithstanding or independent of the act passed to enforce the responsibility of stockholders in these associations, are questions with which we are not at present concerned.”
The question whether a constitutional provision imposing liabilities is self-executing is to be determined primarily by ascertaining its intention as disclosed by the language used. “ Constitutional provisions are self-executing when there is' a manifest intention that they should go into immediate effect, and no ancillary legislation is necessary to the enjoyment of a right given, or the enforcement of a duty imposed.” (12 C. J. 729.) In Bernheimer v. Converse (206 U. S. 516) the United States Supreme Court adopted the view of the Minnesota courts that a provision in the Constitution of that State that “ each stockholder * * * shall be liable to the amount of stock held or owned by him ” was self-executing, and (p. 529) that “ a remedy might have been worked out in the courts of equity in the State.” In Converse v. Hamilton (224 U. S. 243) the Supreme Court said of the same constitutional provision (p. 253): “ The provision is self-executing, and under it each stockholder becomes liable for the debts of the corporation in an amount measured by the par value of his stock.” Various Minnesota decisions are cited for this proposition, a reference to one of which will suffice. In Willis v. Mabon, St. Paul Sanitation Co. (48 Minn. 140; 50 N. W. 1110) the court declared (p. 150): “ A Constitution is but a higher form of statutory law, and it is entirely competent for the people, if they so desire, to incorporate into it self-executing enactments. These are much more common than formerly, the object being to put it beyond the power of the Legislature to render them nugatory by refusing to enact
In Western Pacific Railway Co. v. Godfrey (166 Cal. 346; 136 P. 284) a provision in the Constitution of that State that “ each stockholder * * * shall be individually and personally liable ” for his proportion of the debts was likewise held to be self-executing. In Dupee v. Swigert (127 Ill. 494; 21 N. E. 622) the language of the Illinois Constitution that “ Every stockholder * * * shall be individually responsible and liable to its creditors * * * to an amount equal to his or her respective shares ” was held to be (p. 505) “ a self-executing provision ” which “ needs no legislation to enforce it.” Other cases to the same effect are Jones v. Jarman (34 Ark. 323); Union National Bank of Omaha v. Halley (19 S. D. 474; 104 N. W. 213); Eau Claire National Bank v. Benson (106 Wis. 624; 82 N. W. 604).
It does not necessarily follow, however, from the fact that our constitutional provision is self-executing, that the right to enforce it is vested in the Superintendent of Banks. In the absence of a constitutional or statutory provision conferring the right of enforcement upon the latter, the right would seem to belong to the creditors, to be exercised by them in a representative action. Prior to 1892 the right to enforce the liability of bank stockholders had been conferred by the Legislature upon receivers appointed for insolvent banks. Between 1892 and 1897 there was no express provision authorizing any particular individual to enforce the liability (Hirshfeld v. Bopp, 145 N. Y. 84, 92; Barnes v. Arnold, 23 Misc. 197, 202; affd., 45 App. Div. 314), and it was accordingly held that the liability could be enforced only by creditors in a representative action. (Hirshfeld v. Fitzgerald, 157 N. Y. 166, 178, 179, 184, 185.) In Willis v. Mabon (supra) the language of the court (p. 154) indicates .that, in the absence of legislation, the right of enforcement would belong to creditors of the corporation, for whose benefit the constitutional provision was adopted. Similarly, in Converse v. Hamilton (supra, at p. 253), the United States Supreme Court said that the self-executing liability “ is not to the corporation but to the
It is, therefore, necessary for the Superintendent of Banks, in order to enforce the liability imposed upon bank stockholders in the Constitution, to point to a statute which expressly gives him that right. Section 120 of the Banking Law is of no avail to him since the liability thereby imposed is, as previously pointed out, much narrower than that declared in the Constitution and he may not rely on that part of the section which gives him the right to sue and, at the same time, disregard the measure of recovery set forth in the very same section. (Matter of Hollister Bank, supra.) However, the Superintendent’s right to enforce the liability of stockholders is not dependent upon section 120. The Banking Law contains a separate section which, in this court’s opinion, .gives to the Superintendent the right to enforce the liability of bank stockholders imposed in the Constitution. Section 80 provides that: “ Whenever a liability of stockholders for the amount of their respective shares of any such corporation exists, and the Superintendent has duly taken possession of the property and business of such corporation, * ' * * he may enforce the individual liability of such stockholders in whole or in part. * * * In case any such stockholder shall fail or neglect to pay such assessment wdthin the time fixed in said notice, the Superintendent shall have a cause of action, in his own name as Superintendent of Banks, against such stockholder * * * either severally or jointly with other stockholders of such corporation, for the amount of said unpaid assessment or assessments.” (Italics the court’s.) It is to be noted that the right of enforcement thus conferred upon the Superintendent may be exercised by him “ whenever a liability of stockholders for the amount of their respective shares of any such corporation exists.” (Italics the court’s.) This language would seem to refer to the constitutional liability, rather than to the statutory liability, imposed by section 120, which is limited to the stockholders’ proportionate share of the unpaid debts and does not extend necessarily to the full amount of their respective shares of stock. No reference to section 120 or to the limited liability therein imposed is to be found in section 80. The language referred to is at least as applicable to the liability declared in the Constitution as it is to that specified in section 120.
It may, perhaps, be argued that the language of another portion of section 80 indicates, however, that said section confines the Superintendent’s right of enforcement to the limited liability imposed by section 120. The language in question requires the
It is to be noted that section 80 is complete within itself. It makes no reference to section 120 or to any other section of the Banldng Law, and it contains no language to indicate that the reference therein to an assessment for each stockholder’s “ equal and pro rata share ” was intended to reduce the stockholders’ liability below that imposed in the Constitution. Such an attempt would clearly be invalid for “ the Constitution permits no legislative limitation upon the individual responsibility of stockholders ” (Broderick v. Aaron [Kornberg], 268 N. Y. 260, 263; see, also, Broderick v. Adamson [Gordon], 270 id. 228, 232), and it is well established that every presumption is in favor of the validity of a statute, and that every effort will be made to give its language such a meaning that the act may stand without conflict with the fundamental law.
The situation would be anomalous, indeed, if the view were taken that the constitutional liability, though self-executing, could be enforced only by the bank’s creditors in a representative action. The result would be that the Superintendent of Banks would be the only person authorized to enforce the statutory liability imposed
For the reasons indicated the court reaches the conclusion that section 80 of the Banking Law authorizes the Superintendent to enforce the self-executing provision as to stockholders’ liability contained in the Constitution. The decision in Matter of Hollister Bank (supra) does not apply, for in that case the attempt to obtain a second apportionment was predicated upon the very statute which limited the constitutional liability. Here the Superintendent may proceed under a statute (§ 80) which does not attempt to reduce that liability and he may disregard section 120 which does fix a narrower measure of recovery.
In concluding, it may be well to refer briefly to the defendant’s contention that the action has been improperly brought at law, instead of in equity. There appears to be no good reason for requiring the plaintiff to sue in equity. He may obtain adequate relief in a court of law. The statute itself, in its amended form, permits suits to be brought against stockholders “ either severally or jointly with other stockholders.” (Banking Law, § 80.) In Broderick v. Betco Corp. (supra) this court held that the action had been properly brought at law and that no resort to equity was necessary. This holding was affirmed by the Appellate Division (244 App.
As the answering affidavits on the present motion raise no triable issue, the plaintiff is entitled to summary judgment for the amount of the assessment, less the dividends withheld from the defendant as a creditor of the bank. Settle order.
Repealed by xote of people Nov. 5, 1935.