Case ID: ky_58/html/0106-01.html
Source: Caselaw Access Project
Author: {"author": "JUDGE STITES", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

CASE 22.
    JUNE 25.
    Sanford, &c., vs. Kentucky Trust Co. Bank, &c.
    ATPEAL FROM KENTON CIRCUIT COURT.
    The assets of the Kentucky Trust Company Bank were, after its failure, placed in the hands of a commissioner to close up its affairs, by order of the chancellor made in a proceeding in chancery for that purpose. Notes upon the bank were presented to the commissioner, and reported by him for a dividend with other debts. The holders of the notes claimed, in addition to the amount of the notes, 12 per cent, per annum damages thereon, from the time they were presented to the commissioner and protested for non-payment. The claim to damages was set up under the third section of the bank charter. (Sess. Acts, 1851-2, p. 14.) Held — That the order of the chancellor, placing the books, papers, and assets of the bank in the hands of a commissioner, to wind up its affairs, operated to suspend the corporate functions of the bank, (16 B. Mon., 354,) and deprive it of the means of payment, and that therefore the 12 per cent, per annum damages were not recoverable after the order was made; especially in behalf of parties who had acquiesced therein by claiming the pro ralurn of its effects on the same demands upon which the damages were claimed, and which were acquired by them after the order was made.
    The facts appear in the opinion of the court.
    Stevensok and Kinkead for appellants—
    The corporation is not dissolved until a forfeiture is judicially declared by a proper proceeding for that purpose. (9 Wend., 231; Bank of Niagara vs. Johnson, 8 lb., 645.) This has not been done. The forfeiture of a charter can only be enforced by a court of law, (Angelí and Ames on Corporations, sec. 777; and the Civil Code (sec. 530, 531) provides that the action to ,. repeal or vacate a charter shall be in the name of the Commonwealth, and brought and prosecuted by the attorney general, &c. The corporation not having been dissolved, nor its charter vacated or annulled, it is bound to pay damages, by the provisions of the charter, to appellants. As the contest is not between creditors of the bank, butbetween creditors and stockholders, there is no obstacle, legal or equitable, to the enforcement of the claim for damages as against the stockholders.
    The objection to the form of the proceeding is altogether technical. It is an action in the sense of the Code. (Civil Code, see. 3.)
    The lack of a demand of the officers of the bank, who had closed their doors and gone off, cannot defeat a recovery of the damages. The case of the Bank of Kentucky vs. Thornsberry (3 B. Mon., 524) is not applicable. All statutes are to be construed with a view to carry out the intention of the legislature. (Rev. Stat., 190.) A corporation cannot escape responsibility by barring its doors against its creditors.
    The claim to damages has not been impaired by the fact that the chancellor has taken possession of the assets of the bank. (Ringo vs. Trustees of Real Estate Bank, 13 Ark., 563.)
    Menzies and Pryor for appellees—
    If this forfeiture could be enforced at all, it could only be done in a court of law, upon appropriate pleadings, against the bank, and not by action against the commissioner either at law or in equity.
    As the appellants were not the holders of the notes when the bank suspended, nor when the court ordered its affairs into the hands of commissioners, the right to damages accrued, if at all, to those who held the notes when the bank suspended.
    The notes were not presented for payment at the banking house in regular banking hours. After the action of the court there was no longer a bank in active operation, no officers, no banking house, and no regular banking hours. If the holders neglected to present their notes for payment before the action of the court, they lost the right to damages given them by the charter.
    
      Cited Finnell vs. Sanford, (17 B. Mon., 748,) and 7 Georgia Rep., 79.
    Benton and Nixon on same side—
    The presentation of the notes to the commissioner appointed by the court, and demand of payment of him, was not such a demand as the charter required in order to enforce the penalty. No demand was made of the bank in banking hours. Moreover, the court had taken from the bank all its means, and the right to use them. Demanding payment of the commissioner was nothing more than demanding it of the court. Such a demand was neither a literal nor substantial compliance with the terms of the charter.
    The appellants could not make the demand. They had no interest in the notes when the court took possession of its effects. Those only who held the notes at the time of the suspension, if any claim or right to damages exists, are entitled to them. Such claim is not assignable; but if so, the original holders are necessary parties.
    The charter provides that the court shall apply the effects of • the bank to the demand of its creditors joro rata. The decision will not affect the interests of the stockholders only, but those of the creditors also.
   JUDGE STITES

delivered the opinion of the court:

In October, 1854, the Kentucky Trust Company Bank failed, and in November following, a bill in chancery having been filed for that purpose, an order was made by the court placing its books, papers, and assets in charge of a commissioner, who was directed to close up its affairs.

In March, 1857, the commissioner reported that he would be prepared at the next term of the court to make a dividend among the creditors, and thereupon the court required the creditors to present their demands on or before a given day to the commissioner, who was ordered to report the same for a dividend.

The appellants, who were holders of bills to a large amount, presented their demands, and the 'same, together with other debts, were reported. They claimed, in addition to the amount of their bills, twelve per cent, per annum, damages, from the time they had presented their bills and the same had been protested ; and this claim having been disallowed by the court, they have appealed.

By agreement of parties, the only question to be decided is, whether they were entitled to the twelve per cent, as claimed.

It appears that the appellants each obtained the notes at a heavy discount, after the suspension of the bank, and after its affairs had been committed to the charge of the commissioner. And further, that they had been presented for payment at the office of the commissioner, which had been theretofore occupied by the bank, and payment refused. It seems also that the commissioner was confident that the assets of the bank were sufficient to pay all the liabilities of the bank except the capital stock.

The provision of the charter, under which appellants claim, is in these words :

“ That if said bank shall at any time fail or refuse to redeem any of such notes when so presented, or unreasonably delay the payment of the same, said bank shall forfeit and pay to the holder of such, note or notes damages at the rate of twelve per cent, per annum for the delay occasioned, to be recovered by action in any court of justice within this Commonwealth having jurisdiction thereof; and for any such refusal or delay it shall be lawful for the circuit court for the county in which said bank is situated, upon petition filed and sworn to by any citizen of this State, to appoint a commissioner to take possession of all the papers, money, and other property of said bank, and close its affairs under such order and judgment as may by said court be rendered in the premises, and apply all and singular the effects of said bank to the demand of its creditors, pro rata, according to their several demands.”

It is said for appellants, that the charter of the bank had not been forfeited by direct proceedings for that purpose, and was still in force both for and against the corporation, and as the contest here was not between creditors of the bank, but between creditors and stockholders, that there was no obstacle legal or equitable to the enforcement of the claim for damages as against the stockholders.

It is true that no formal or technical forfeiture of the charter has been had,' and it may be, that, for some purposes, it is still in force — a point however not now necessary to be decided— for be that as it may, there was, in our opinion, a sufficient ground for denying the damages.

The provision of the charter relied on by appellants, when properly construed, itself repels the idea that damages are recoverable for a failure or refusal to pay after the corporation has been committed to the charge of an officer of the court to wind up its affairs.

It is apparent from its terms that the penalty denounced against the bank for failing to pay, was not intended to be confined to the payment of the twelve per cent, damages. This was only a part of the penalty, for the section, supra, in the very next sentence following that which declares that for refusing to pay the bank shall pay twelve per cent., &c., proceeds to say, “ and for any such refusal or delay, the circuit court for the county in which the bank is situated may, upon petition, &c.,” take possession of the property of the bank and require a distribution of its effects among its creditors pro rata.

One of the consequences of its refusal to pay, was, in this case, the action of the circuit court depriving it for the time being of the control of its effects, and ordering their distribution, &c., among its creditors.

It had, then, for purposes of payment or for the creation of new liabilities, no existence. The action of the court, as was said by this court in Finnell vs. Nesbitt, (16 B. Mon., 354,) in effect suspended its corporate capacity; and nothing could be done with its property or estate except with the assent of the court.

It was undergoing the punishment denounced against it for failing to pay its debts, and in a legal sense was in the custody and under the control of the court — deprived, not only of all means of payment, but also of the power of volition in the matter.

Would it not then have been somewhat anomalous for the court which had made the order prohibiting in effect the corporation from exercising its corporate functions, to have inflicted upon it a penalty for obeying its own order, and especially in behalf of parties who had acquiesced therein by claiming a pro ratum of its effects upon the very demands on which the claim for damages was based, and which were acquired after the order had been made ?

It is only necessary to state the proposition, to show what injustice would result to the corporation from an allowance of the claim.

The section of the charter, supra, never was intended to authorize the infliction of the penalty for refusing to do that which, if done, would have thwarted the effect of one of its own provisions, if it would not have violated it.

Such, however, would have been the consequence had the chancellor allowed the damages. The order of the circuit court, as we have seen, was directly in pursuance of the act, and the officers of the corporation were bound to regard it, and had no right to touch or dispose of the effects of the corporation without permission of the court. And yet, for refusing to violate this order, made in pursuance of the charter, or, in other words, to exercise control over the effects of the bank, the appellants insist that, by the provisions of the charter, they are liable to its penalties..

We are unwilling to admit that such consequences can result from the act, and are of opinion that the circuit court properly rejected the claim for damages.

Judgment affirmed.