Case ID: ny-super-ct_20/html/0115-01.html
Source: Caselaw Access Project
Author: {"author": "By the Court. Bosworth, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

James B. Dayton, Receiver, &c., of the American Exchange Bank, Plaintiff and Respondent v. John B. Borst, Defendant and Appellant.
    1. Where the Court of Chancery, of New Jersey, in proceedings against a' bank, created under the hanking laws of that State, to appoint a receiver of its property and effects, on the ground of its insolvency, adjudges it to be insolvent and appoints a receiver, the validity of the appointment cannot be questioned collaterally, provided enough 'was alleged and done on initiating the proceeding to give that court jurisdiction of the matter.
    2. The order is not void, merely because no officer of the hank had notice of " the application, it having been proved to the satisfaction of the court, before making it, that no such officer could be found within that State.
    3. The provision of the statute requiring a receiver to take a prescribed oath and file it, is directory, and the omission to take and file it, until after the receiver, as such, has brought a suit, is not sufficient cause for dismissing the suit.
    
      4. A subscriber to the certificate, filed to organize a hank, is liable to pay for the number of shares therein stated to have been subscribed by him, and payment can be enforced at the suit of a receiver, appointed on its becoming insolvent, to satisfy the just demands of creditors of the bank.
    5. In a suit by such receiver, against an original subscriber, a judgment in favor of a third person against the bank, in a court of record, in an action in which the hank appeared and defended, is prima facie evidence that the bank owes the sum recovered.
    6. The fact that a subscriber assigns all his interest in the bank does not discharge his liability upon his subscription, and it can he enforced for the benefit of one who subsequently becomes a creditor of the hank.
    (Before Boswortk, Ch. J., and Monoriee and Pierreeost, J. J.)
    Heard March 8,
    decided June 30, 1860.
    Appeal, by the defendant, from a judgment against him, rendered April 20, 1859, on a trial had at special term, before Mr. Justice Slosson, without a jury.
    The action is brought by James B. Dayton, as receiver of the property and effects of the American "Exchange Bank, at Cape May court house, in the county of Cape May, State of New Jersey, a bank organized under the laws of that State, ag'ainst the defendant Borst, as a subscriber to the stock of the bank, to enforce payment of his subscription, or of sufficient thereof to pay the debts of the bank.
    The certificate of the organization of the bank is signed by the defendant and six others; states the capital to be $50,000, and the number of shares 2,000; Borst to be a subscriber for 1,990 shares, Tappen Townsend for five, and F. Brant, F. F. Cary, E. Cooke, J. 0. Morgan and J. Hand for one share each. It was duly acknowledged and filed of record December 5, 1851. On the 1st of November, 1853, Edward J. Tinkham, in the Supreme Court of the State of New Jersey, recovered a judgment against said bank for $5,641.94, on a draft dated September 14, 1852, drawn by R. Eaton for $5,243.55 on said bank, and payable to said Eaton’s order and by him endorsed, and accepted by Edward Cook, the president of the hank, and as such president. The bank appeared in that action.
    This judgment is wholly unpaid, and the record of it was read in evidence, and the draft on which it was recovered was produced on the trial of this action.
    The plaintiff was appointed receiver by the Court of Chancery of New Jersey, by order dated July 6, 1854, with power to sue for, collect, &c., all the goo.ds, rights and credits of that bank.
    The eighth section of the act of April 15, 1846, part of the banking laws of New Jersey, declares that “before any receiver shall be capable of acting,” he shall comply with the terms of the order appointing him, and he shall take an oath or affirmation (the form of which is prescribed,) which shall be filed in the office of the clerk in chancery within ten days after the taking thereof. The order of July 6, 1854, did not require such oath to be taken, and it was not taken until after this suit was commenced.
    The plaintiff was appointed receiver in a suit commenced by bill in said Court of Chancery, June 2, 1854, by said Tinkham against said bank, to obtain payment of said judgment, enjoin it from disposing of its assets, and to obtain the appointment of a receiver to receive and convert its assets and apply them to pay its debts. It was insolvent and had no assets. The record of that suit and of the proceedings therein, was read in evidence.
    In the month of September, 1852, defendant transferred all his interest in the bank to Patmore 4r Jones, who assumed the entire charge and control of the bank, and verbally,
    ■ but not otherwise, assumed all the stock subscriptions. After that the defendant had no connection with the bank, and did not interfere with its management. .
    The banking laws of New Jersey, the proceedings against said bank in the State of New Jersey, resulting in the . plaintiffs appointment as receiver,, and the evidence given on the trial of this action, essential to an understanding of the points decided, aré sufficiently stated in the opinion of the court.
    The defendant insisted that the plaintiffs appointment was void, for grounds stated in the following opinion: That the acceptance in question did not bind the bank; that the defendant was not liable to pay the sum named in his subscription ; and that as he ceased .to have any connection with the bank, before the draft in question was issued or accepted, he was not liable for its payment.
    The judge found in favor of the plaintiff, and held as conclusions of law: 1st. The validity of the receiver’s appointment; 2d. That such appointment was prima facie evidence of the insolvency of the Bank; 3d. That the judgment in favor of Tinkham was presumptive evidence of the existence of the debt, and that it was unpaid; 4th. And was conclusive evidence, until impeached, of the bank’s indebtedness to him; 5th. That the defendant was precluded from impeaching the consideration of the bill, or Cooke’s power to accept; 6th. That Borst’s subscription imposed a legal obligation to pay the sum subscribed; 7th. That the plaintiff was entitled to enforce such obligation; 8th. That defendant’s disconnection from the bank did not impair that obligation; and 9th. That plaintiff recover the amount of Tinkham’s said judgment, with interest and costs.
    Exceptions were duly taken to each of the conclusions of law, and from the judgment entered the defendant appealed to the general term.
    
      J. E. Burrill, Jr., for Appellant.
    
      J. L. Jernegan, for Respondent.
   By the Court. Bosworth, Ch. J.

—The plaintiff was appointed receiver in a suit commenced in the Court of Chancery of the State of New Jersey, by the filing of a bill by Edward J. Tinkham, as complainant, against the American Exchange Bank, as defendant. The bill was filed on the 2d of June, 1854. A subpoena ad respondendum was issued, returnable on the 20th of that month, and the sheriff of Cape May, the county in which said bank was located, made affidavit that he had diligently inquired for said bank and the officers thereof, and had been credibly informed, and believed, that there was no such bank or office, or officer thereof, in that county, whereon to serve»' said writ. He also formally returned the said writ, not served, and that said bank, or any officer thereof, could not be found. The Court of Chancery, on the 6th of July, 1854, made an order appointing the plaintiff receiver of said bank.

The order is not void. The fact that no officer of the bank could be fourfd, on whom service of notice of a motion for the appointment of a receiver could be served, left the Court of Chancery at liberty, in its discretion, to appoint a receiver, without notice to the bank. (The People v. Norton, et al., 1 Paige, 17.)

There was sufficient proof before the court, of the bank’s insolvency, to authorize it to act; and, the order made, declares that the court was satisfied, by the evidence produced, of the fact of actual insolvency.

An injunction had been previously granted against the bank, upon service on the bank of the papers on which it was granted; and that injunction was continuing when the order appointing a receiver was made.

These facts are all" that need exist, to make it competent for that court to appoint a receiver. (§-l of act of April 15, 1846.) By § 5 of that act, the application may be by bill of complaint, and the Chancellor, in his discretion, is at liberty to entertain the motion, though no notice of it had been given to the bank.

It was no part of the terms of the order, that the receiver should take the oath of office, in order to perfect his appointment. The statute requiring such oath to be taken and filed, is directory; and the omission to take it before this suit was commenced, does not so incapacitate him to sue, that the complaint should, for that cause, be dismissed. (2 Barb. 320.)

I think it quite clear that the complaint should not have been dismissed upon any grounds affecting the validity of the receiver’s appointment, or his competency, as such, to bring this suit.

The judgment in the suit of Tinkham v. The American Exchange Bank, is conclusive of the liability of the bank, as between it and the receiver. It establishes the liability of the bank as a debtor of Tinkham, and the receiver’s right to maintain a suit against any one liable upon any contract made by himself, so far as that right depends upon the mere fact that there are creditors of the bank whose ' claims are unsatisfied.

The question, whether the bank was indebted to Tinkham, having been litigated in a suit between them, and decided against the bank, the record of that recovery was at least prima facie evidence of that fact in the present suit,' in which the defendant is to be charged, if at all, on the ground that he is the debtor of the bank, and not on the ground that he is a statutory guarantor of the payment of any debt which the bank may owe.

The decision upon admitting that record was, merely, that it was prima facie evidence of the indebtedness of the bank to Tinkham, on the cause of action therein set forth. During the trial, the acceptance of the bill on which that judgment was recovered, was produced, and it was proved that Cook, the president of the bank, accepted it.

Whether the judge was right or wrong in his fourth and fifth conclusions of law, I regard as quite immaterial. No evidence offered to impeach the validity of the acceptance was excluded; and none was given which tended to establish its invalidity, as against these plaintiffs.

The acceptance was purchased in good faith, without knowlege of any fact amounting to notice that it was not accepted for value, and upon full authority to the officer accepting, to accept as such officer. (The Bridgeport City Bank v. The Empire Stone Dressing Co., 19 How. Pr. R. 51; Goodman v. Simonds, 20 How. U. S. R. 343.)

The fifth finding of fact, viz : that there is due from the bank to Tinkham $5,64'7.94 and’ interest from November 1, 1853, which is whólly unpaid—is, therefore, fully sustained by the evidence.

The only question of practical importance is this: Is the defendant, as a signer of the certificate of association, liable as a subscriber for the stock of the bank, so 'that the receiver may coerce him to pay such part thereof as the bank justly owes to persons who have dealt with it as a bank?

The statute of New Jersey declares, “ that the persons so associating shall, under their hands and seals, make a certificate, by the terms of which such association shall be bound, which shall specify, * * * the names and residences of the shareholders, and the number of shares held by each of them respectively,” &c.

The certificate of association filed (and which was signed by the defendant), specifies that' he held 1,990 shares of the capital stock of said bank, amounting to $49,l750.

It is found as a fact that he never paid any part of said stock subscription. The evidence shows that he was the bank, and that its officers were his employees and acted according to his wishes, until he disposed of-his interest to others, upon an expectation or promise that his vendees would protect him against liabilities.

The certificate of association, and the statute under which it was filed, estop the defendant from denying that he was a subscriber for 1,990 shares of the capital stock of this bank; and he is liable, equally as he would be, if an actual subscriber in form for a like number of shares, to. a subscription paper, containing an express promise to pay the amount so subscribed. (Sagory v. Dubois, 3 Sand. Ch. R. 466 and 492, 493; Buffalo and N. Y. City R. R. v. Dudley, 14 N. Y. R. 336.)

The certificate of association must be read in connection with the statute under which it is made. The two, read together, declare that “ the amount of capital stock of such association ” is to be $50,000; that it is “ divided ” into 2,000 shares; that the defendant is a “ shareholder,” and, as such, holds 1,990 of said shares.

These facts he is not at liberty to deny, and having taken this number of shares, he must pay for them to the plaintiff, as the representative of creditors of the association, until their just claims are satisfied. (16 N. Y. R. 451.)

The defendant cannot claim exemption from liability as a shareholder, merely because the associates never chose a board of directors, nor succeeded in obtaining deposits, nor did other business than issue circulating notes and accept bills of exchange. On filing the certificate of association, the associates became a corporation (§§ 16 and 1Y of the N. J. banking act), and could issue circulating notes, (§§ 3 and 4, Id.) The statute contemplates that such an association might become liable as surety. 30, sub. Y.)

Although the association never attempted to carry on “ the business of banking,” as described and provided for by the eighteenth section of the statute, yet, from the moment of its incorporation, it could create valid obligations, when acting in a mode not prohibited by the statute.

As between the bank and Tinkham, the evidence is con-elusive that the bank became his debtor. Tinkham has a right to the intervention of the receiver to collect from those indebted to the' association, the means to pay the amount due to him.

The defendant stands in the position of a debtor for its capital stock, which he received, and for which he has not paid, and the judgment appealed from should be affirmed.

Judgment affirmed.