Case Name: In re UNION BANK OF BROOKLYN
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1911-12-08
Citations: 133 N.Y.S. 62
Docket Number: 
Parties: In re UNION BANK OF BROOKLYN.
Judges: 
Reporter: West's New York Supplement
Volume: 133
Pages: 62–84

Head Matter:
(147 App. Div. 593.)
In re UNION BANK OF BROOKLYN.
(Supreme Court, Appellate Division, Second Department.
December 8, 1911.)
1. Banks and Banking (§ 17 )—Superintendent of Banks—Status of Delinquent Bank.
Where the Superintendent of Banks has taken possession of a bank, its property, and business, as provided in Banking Law (Consol. Laws 1909, e. 2) § 19, and its assets have not been finally distributed or its affairs liquidated, and it has not been judicially dissolved or its charter annulled, it is still a bank, although for the time being prohibited from transacting business.
[Ed. Note.—For other cases, see Banks and Banking, Dec. Dig. § 17.*]
2. Banks and Banking (§ 17*)—Authority of Superintendent of Banks— Issuance of Subpoena.
Banking Law (Consol. Laws 1909, c. 2) § 8, provides for the inspection of banks by the Superintendent of Banks and authorizes him to examine every bank, at least twice a year, and on every such examination to inquire as to its conditions and resources, mode of conducting and managing its affairs, the action of its directors, investment of its funds, and whether requirements of its charter and of law have been complied with, and such other matters as the superintendent may prescribe. It also authorizes the superintendent, in a like manner, to examine every such corporation, whenever in his judgment its condition is such as to render an examination of its affairs necessary. Section 19 provides that, upon taking possession of the property, the superintendent may do such acts as are necessary to conserve its business and shall proceed to liquidate its affairs. Held, that section 8 applies both to active and delinquent banks, and the superintendent is authorized to examine a bank whenever he deems it necessary and upon taking possession to issue a subpoena for the examination of its officers.
[Ed. Note.—For other cases, see Banks and Banking, Dec. Dig. § 17.*]
3. Statutes (§ 224*)—Construction—Prior Legislation.
Where the language of a statute construed as new legislation is clear, resort may not be had to prior legislation in order to construe such statute, as prior acts may be construed to solve, but not to create ambiguity.
[Ed. Note.—For other cases, see Statutes, Cent. Dig. §§ 300, 302; Dec. Dig. § 224. ]
4. Banks and Banking (§ 17*)—Superintendent of. Banks—Power to Examine Bank Officers.
Where the Superintendent of Banks has taken possession of a bank and subpoenaed an officer of the bank to appear before him for examination, his authority to examine the officer must be limited to those matters upon which information will be of assistance to him in his official duties, beyond which the witness may decline to answer.
[Ed. Note.—For other cases, see Banks and Banking, Cent. Dig. §§ 21, 22; Dec. Dig. § 17.*]
5. Banks and Banking (§ 17*)—Superintendent of Banks—Power to Issue Subpoena.
The Superintendent of Banks, after taking possession of a bank, may subpoena an officer of the bank to appear before the superintendent for examination, without disclosing his motive therefor.
[Ed. Note.—For other eases, see Banks and Banking, Cent. Dig. §§ 21, 22; Dec. Dig. § 17.*]
6. Constitutional Law (§ 255*)—Due Process of Law—Deprivation of Liberty.
Code Civ. Proc. § 855, provides that, if a person subpoenaed fails to attend, the person issuing the subpoena, if a judge of a court of record, or, if not a judge of such court, then any judge of such court, upon proof by affidavit of failure to attend, must issue a warrant to the sheriff of the county demanding him to bring the defaulting witness before the officer, person, or body, before whom his attendance was required. Held, that the statute does not authorize the commitment of the person subpoenaed to any place of confinement, nor any greater interference with his liberty than the temporary restraint necessary to compel his production before the person authorized to require his attendance, so that the statute was not unconstitutional as depriving a person of his liberty without due process of law.
[Ed. Note.—For other cases, see Constitutional Law, Cent. Dig. § 744; Dec. Dig. § 255.*]
Woodward and Rich, JJ., dissenting.
Appeal from Special Term, Kings County.
In the matter of the examination of the Union Bank of Brooklyn. Reargument of appeal from an order denying a motion to vacate a warrant issued by a justice of the Supreme Court upon affidavits of failure of the president of the Union Bank to appear before the Superintendent of Banks in obedience to a subpoena.
Order affirmed.
See, also, 132 N. Y. Supp. 90S.
Argued before HIRSCHBERG, BURR, THOMAS, WOODWARD, and RICH, JJ.
Martin W. Littleton (Frank R. Greene and F. Sidney Williams, on the brief), for appellant.
Wilber W. Chambers, Deputy Atty. Gen., for respondent.
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & RepT Indexes
For other cases see same topic & § number in Dee. & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
BURR, J.
On and prior to April 5, 1910, a corporation known as the "Union Bank of Brooklyn" was transacting business in that borough. It was a moneyed corporation and within the statutory definition of a "bank." Banking Law (Consolidated Laws, c. 2; Laws of 1909, c. 10) § 2. Edward M. Grout was the president thereof. Upon that date the Superintendent of Banks took possession of its property and business, as provided in section 19 of the banking law. That he was authorized to and lawfully took possession of the same is not questioned. Since then it has transacted no business. Its assets have not yet been finally distributed or its affairs finally liquidated, nor has it been judicially dissolved or its charter annulled. It is still a bank (Lafayette Trust Co. v. Higginbotham, 136 App. Div. 747, 121 N. Y. Supp. 489), although for- the time being prohibited from transacting business as such. Eolio wing the nomenclature of the banking law, it may be termed a "delinquent bank." On July 17, 1911, the Superintendent of Banks began an examination into the condition and management of said bank, and on the 22d of August a subpoena was issued under his hand and seal, requiring Mr. Grout to appear on the 25th day of August and testify and give evidence upon, such examination. Upon proof by affidavit of his failure to appear, on September 16th a justice of the Supreme Court of the state of New York issued a warrant to the sheriff of Kings county, requiring him to apprehend said Grout and bring him before the Superintendent of Banks on the 18th day of September at the hearing fixed for that day. Thereupon a motion was made upon notice to the Superintendent of Banks at a Special Term of the Supreme Court to vacate and set aside said warrant. From an order denying such motion, this appeal is taken.
The first question presented is one of authority to issue the. subpoena. If no such authority exists, it follows that all proceedings to compel obedience to its provisions must fail. The banking law provides (section 8) as follows:
"Every corporation specified in section two of this chapter shall be subject to the inspection and supervision of the superintendent of banks. He shall, either personally or by some competent person or persons to be appointed by him, to be known as examiners, visit and examine every bank at least twice in each year. On every such examination inquiry shall be made as to the condition and resources of the corporation, the mode of conducting and managing its affairs, the action of its directors, the investment of its funds, the safety and prudence of its management, the security afforded to those by whom its engagements are held, and whether the requirements of its charter and of law have been complied with in the administration of its affairs, and as to such other matters as the superintendent may prescribe. He shall have power in like manner to examine every corporation specified in section two, whenever, in his judgment, its condition and management is such as to render an examination of its affairs necessary and expedient."
Appellant contends that section 8 applies only to banks which are still transacting business, and not to delinquent banks. Upon the argument of this appeal much discussion was had as to the meaning of the word "liquidate," and whether upon the facts disclosed by the motion papers it will be possible for the Union Bank to resume business. Such discussion seems to us wholly irrelevant. The section either limits the power of the superintendent to those banks of which he has not taken possession, as provided in section 19 of the banking law, or it applies to all banks, delinquent or otherwise, so long as they have legal existence. The statute makes no distinction in express terms between active and delinquent corporations. It applies to them equally. Nor is the power of the superintendent to conduct an examination limited to active banks by necessary implication arising from the declared purpose for which examinations should be held. The statute first provides for examinations of banks, to be held at least twice a year. Upon "such examination" the general scope of the inquiry is indicated. We regard these words of the statute as suggestive rather than conclusive. But if we assume for the sake of the argument that they limit the scope of such inquiry to the matters specified in the statute, and that the words "as to such other matters as the superintendent may prescribe" under the rule of ejusdem generis are to be limited to subjects of a similar nature, and if we assume for the sake of the .argument that these inquiries are from their nature more applicable to a "going" than a "delinquent" bank, still appellant's contention fails.
In addition to the examinations just referred to, the Superintendent of Banks "shall have power in like manner to examine every corporation whenever, in his judgment, its condition and management is.such as to render an examination of its affairs necessary and expedient." This clause of the statute cannot be intended to give authority to conduct more frequent examinations of a similar character to those above referred to. The words "at least twice a year" simply fix the minimum number of such examinations. Beyond that, their number is always in the reasonable discretion of the superintendent. The words "in like manner" in the clause under consideration cannot, for the same reason, refer to those earlier provisions thereof indicating .the scope of the examination. Thus construed, they would add nothing to the superintendent's previously existing power. These words must therefore refer to the method of conducting the examination, which shall be either personally or by some competent person appointed by the Superintendent of Banks. If, therefore, it is reasonably shown to be "necessary and expedient" to examine into the affairs of a bank, whether active or delinquent, in order to enable the Superintendent of Banks properly to discharge the duties devolved upon him by the statute, such examination is authorized. Referring again to section 19 of the banking law, we find that, in the case of a delinquent bank:
"Upon taking possession of the property and business of such corporation * <= * the superintendent is authorized to collect moneys due to such corporation and do such other acts as are necessary to conserve its assets and business, and shall proceed to liquidate the affairs thereof as hereinafter provided. The superintendent shall collect all debts due and claims belonging to it, and upon the order of the supreme court may sell or compound all bad or doubtful debts, and on like order may sell all the real and personal property of such corporation on such terms as the court may direct."
It is quite apparent that in such case it may be not only expedient,' but necessary, for the superintendent to examine the officers of the bank, and perhaps other persons, in order to be able to reach a just conclusion as to the validity of apparent debts and claims due to the bank, the value of doubtful claims, whether it is wise to sell or compound the same, or to apply to the court for authority to do so, the validity of claims against it, and with regard to many other matters in connection with the liquidation of its affairs, respecting which a mere inspection of the books of the bank might give meager and imperfect information.
The appellant contends that the history of legislation respecting the power of the superintendent militates against this construction of the statute. The authority to liquidate the affairs of a delinquent bank was for the first time conferred upon the Superintendent of Banks by an amendment to section 19 of the banking law, which was adopted in 1908 (Laws of 1908, c. 143). At that time the provisions of section 8 of said act relative to examinations were substantially in the same form in which they now appear. General Laws (Laws of 1892, c. 689) § 37. But if the language of section 8 construed as new legislation is clear, resort may not be had to this rule of construction. Prior acts may be considered to solve, but not to create, ambiguity. Hamilton v. Rathbone, 175 U. S. 414, 20 Sup. Ct. 155, 44 L. Ed. 219. When the Legislature in 1908 by amendment of section 19 imposed new duties upon the Superintendent of Banks, in the proper performance of which examinations of its officers or other persons might be necessary and expedient, if the existing provisions of section 8 were clearly sufficient to authorize such examinations if the entire legislation had then been adopted for the first time, it does not follow that, because no amendment was then made to section 8, the scope of such section was not at that tithe extended to cover these new conditions. No amendment in this respect was made to section 8 at that time, because none was needed.
In thus deciding, we wish to make it perfectly clear that we do not assume to pass upon the character of the questions which may be properly addressed to Mr. Grout, further than to say that of necessity they must be limited to those matters upon which information will be of assistance to the superintendent in performing the official duties devolved upon him. If attempt is made to extend the scope of the examination beyond this, the witness has perfect protection in declining to make answer, and would be justified in so doing. Nor are we at present concerned with the remedy available to the Superintendent of Banks, if the witness declined to answer any questions. Criticism is made upon the motive of said superintendent in instituting the examination, and in his method of conducting the same in public rather than in private. It is asserted that he has at least been lacking in courtesy in refusing Mr. Grout's request to examine the books and papers of the bank in his possession, that he might thus refresh his recollection respecting the subjects of the inquiry. The ethics of the situation belong to him.
The statute seems to confer upon him the right to issue a .subpoena to compel a witness' attendance without disclosing his motives. In this respect there is a difference between the power to issue a subpoena, and a subpoena duces tecum, as we have previously pointed out. In re Phillips, 143 App. Div. 522, 128 N. Y. Supp. 482. In the latter case it is essential to show that the case is a proper one. In re Foster, 139 App. Div, 769, 124 N. Y. Supp. 667. In the case of an ordinary subpoena, there is ample power in the courts to protect a witness against an abuse of the authority conferred by the statute.
It is further contended that, if the power to issue the subpoena exists, the act providing for the enforcement thereof (Code of Civil Procedure, § 855) is unconstitutional, for the reason that the statute does not require notice to be given to the person named in the warrant before the issuing thereof, and it results that he is thereby deprived of his liberty without due process of law (Const, art'. 1, § 6). The section in question provides:
"A person who is duly subpoenaed, as prescribed in the last section, must obey the subpoena. If he fails to attend the person issuing the subpoena, if he is a judge of a court of record or not of record, or if not, then any judge of such a court, upon proof by affidavit of the failure to attend, must issue a warrant to the sheriff of the county commanding him to apprehend the defaulting witness, and bring him before the officer, person, or body, before whom or which his attendance was required."
Under its provisions, no one assumes to finally determine the rights of the person subpoenaed, nor to provide punishment for his disobedience thereof. The statute does not authorize his commitment to any place of confinement, nor any further interference with his liberty than the temporary restraint necessary to compel his production before the person authorized to require his attendance. In this respect the section is clearly distinguishable from the succeeding section of the Code of Civil Procedure, construed in the case of Matter of Grout, 105 App. Div. 98, 93 N. Y. Supp. 711, relied upon by appellant. The right to issue such attachment as was here issued was asserted by this court in the case of Matter of Superintendent of Poor, 6 App. Div. 144, 39 N. Y. Supp. 878. In Matter of Searls, 155 N. Y. 333, 49 N. E. 938, the Court of Appeals, construing the provisions of a somewhat similar section of the Code (Code of Civil Procedure, § 915), intimate that there is power to enforce obedience to the subpoena by compelling attendance of the witness before the person named therein. It is true that in each of these cases the decision did not necessarily involve this question, but we think that the opinions clearly indicate the views of the judges thereon. The issuing of a summary attachment without notice to compel the attendance of a witness who has disobeyed a subpoena has long been exercised, and the right to do so seems not to have been questioned. ' There is a distinction between' the temporary restraint necessary to bring a party before one authorized to conduct an examination, and the restraint which follows a final adjudication upon his rights. We think, therefore, that the statute authorized the issuing of this subpoena, and that the further provision authorizing the issuing of a warrant to compel the appearance of a witness duly subpoenaed before the officer issuing such subpoena is valid.
It follows, therefore, that the order appealed from must be affirmed on re-argument, with $10 costs and disbursements.
HIRSCHBERG, J., concurs. THOMAS, J., concurs in separate memorandum. WOODWARD, J., reads for reversal. RICH, J., concurs in result reached by WOODWARD, J.
THOMAS, J.
The Superintendent of Banks has been in possession of the 'property and business of the Union Bank of Brooklyn since April 5, 1910. The present question is whether he is empowered to examine its president pursuant to a subpoena served upon him in August, 1911; that is; does the power to issue the subpoena survive -the management of its concerns by the banker and accompany the possession, control, and disposition of its property by the superintendent? The bank is subject to the control and visitation of the state. The agencies and means of control, and the purposes thereof, are found in the banking law. Thereby the superintendent is charged with the execution of the laws relating to banks. Section 3. For this purpose there is delegated to him and his examiners the power to visit those to whom the banking privileges have been afforded. Visitation involves inspection and examination by the superintendent, aided, if there be need, by explanation by the banker, and from the knowledge so obtained the superintendent (Banking Law, § 8) subjects bankers and their business to his inspection and supervision. The section commands that the superintendent or his examiners shall visit every bank, trust conipany, and individual banker, at least twice in each year, savings banks at least once in two years, and- other corporations under the law at least once in each year. What he shall do on such examination in the case of incorporated banks is then stated, and thereupon it is added that:
"He shall have power in like manner to examine every corporation and individual hanker specified in section two, whenever, in his judgment, its condition and management is such as to render an examination of its affairs necessary and expedient."
The words "in like manner" .refer to the • sentence preceding it, where the trend and scope of the examination is indicated, it provides that:
"On every such examination inquiry shall 'be made as to the condition and resources of the corporation, the mode of conducting and managing its af.fairs, the action of its directors, the investment of its funds, the safety and prudence of its management, the security afforded to those by whom its engagements are held, and whether the requirements of its charter and of law have been complied with in the administration of its affairs, and as to such other matters as the superintendent may prescribe."
In aid of such examination the superintendent or his examiner is empowered "to administer an oath to any person whose testimony may be required and to compel the appearance and attendance of any such person for the purpose of any such examination." What shall be done with the information required? An examiner shall report to the superintendent the result of such examination. Section 11. Then follow, among other things, statutory directions relating. to the commencement of the business, specified duties and prohibitions laid upon the banker, and what steps shall or may be taken by the superintendent and others in case of the banker's default. Over the whole scheme is placed the supervisor. The state grants powers the exercise of which is encompassed with safeguards, intended to secure sound conduct of the business. Is the grantee furnishing the safeguards? • Is it using requisite methods? Such matters fall under the superintendent's care. In case of violations he must demand amends. If they are not provided, or the business is beyond restoration, all of which he learns from his examinations, he may take over the management. The superintendent's supervision of the banker, as distinguished from the business itself, may coincide with the latter's management. But the examination of the undertaking does not cease. There is occasion to continue the examination for at least two purposes: (1) To gain a thorough and detailed knowledge of the affairs of the bank for the purposes of administering the assets; (2) to enable the superintendent, or other authority, to conclude whether the banker should be allowed to resume business, and this may involve inquiry as to the banker's and the directors' violations of laws.
Then the question arises whether the statute contemplates the procurement of evidence for such purposes or any of them. It is not enough that it appears in good reason that the evidence would be useful therefor. It must also appear that the statute intends to give him such aid. So the whole statute must be read in its letter and spirit with due consideration of the nature of the visitorial power. The object of visitation is, first-in time and importance, to determine whether the grantee of banking privileges is so duly using the grant as to make him worthy to continue such use, or whether his conduct is so illegal and injurious as to demand that amendment be made, either with or without the suspension of operation, or final withdrawal of the banking right, if such amendment be impracticable or impossible. The beneficiaries of such examination are the bank, its patrons, its creditors, stockholders, and the public. Section 8, empowering visits at least twice each year, does indeed contemplate that the banker doing business shall be visited. If 'he has ceased to do business because the superintendent has taken possession of the business, it is evident that the banker cannot be visited. Then the banker becomes a mere naked corporation, or an individual bereft for the time not only of his right to do business, but also of all property and facilities for doing it. One object of visitation has been attained,'viz., knowledge of his default and unworthiness, and deprivation therefor of his privilege. The banker, whether a corporation or individual, lives on; but the franchise to engage in banking dependent upon the conditions prescribed by the statute has been taken away or suspended so far as the particular enterprise is concerned. The examination by this time has so far forth revealed the corporation's condition and resources, or the mode of. conducting and managing its affairs, the action of its directors or the investment of its funds, the safety and prudence of its management, the security afforded by its engagements, or the compliance with its charter, as to demand that it be stripped of its management and property pending the administration of its estate.
If, then, the examination is solely to determine whether it shall be left in the management of its business, the power to examine ceases with such management. But it should be noticed that the superintendent is not compelled to make a complete examination in all the particulars mentioned in section 8 before depriving, temporarily or permanently, the bank of its management of its business. By section 18, if from any examination or report the superintendent shall conclude that "such corporation is in an unsound or unsafe condition to transact the business for which it is organized, or that it is unsafe and inexpedient for it to continue business," and shall communicate the facts to the Attorney General, an action to dissolve such corporation may be maintained. But there is an alternative procedure, for by section 19, when it shall appear to the superintendent that the banker (1) has violated its charter or any law of the state, or (2) is conducting its business in an unsafe or unauthorized manner, or (3) if its capital is impaired, or (4) if the banker shall refuse to submit its books, papers, and concerns to the inspection of an examiner, or if any officer thereof shall refuse to be examined upon oath touching its concerns,'or (5) if the banker shall suspend payment of its obligations, or (6) from any examination or report the superintendent shall have reason to conclude that the banker is in an unsound or unsafe condition, or that it is unsafe and inexpedient for it to continue business, ór '(7) if the banker shall neglect or refuse to observe an order of the superinténdent specified in section 17, in any one of such instances the superintendent may take and retain possession of the property and business until such banker shall resume. business, or its affairs be finally liquidated. There follow provisions for a resumption of business by the banker, either by the consent of the corporation or by virtue of an order of court ousting the superintendent; but the superintendent, if his possession continues, shall marshal the assets, ascertain the claims of creditors, pay the same, and distribute the surplus to the stockholders, or turn it over to a liquidator chosen by the stockholders.
Hence it appears that" in any one of seven conditions enumerated in section 19, the superintendent may assume the management for liquidation or restoration of control to the banker. But if the superintendent takes possession upon a single ascertainment, does his power or duty to examine as to the remaining matters cease ? Assume, for instance, that the banker Has neglected to observe a legal order of the superintendent, and consequently the superintendent takes possession. Shall not the superintendent in that case inquire as to the banker's condition and resources, as to its mode of conducting and managing its affairs, as to the action of the directors, as to the investment of its funds, as to the safety and prudence of its directors, and as to all matters relevant to the question of resumption of its business by the banker, or the liquidation of the business? Such examination for one purpose or another, or for all purposes, is necessary. If the examination is not made, then the requirements of section 8 are not met. Moreover, the superintendent could not make any rational administration of the affairs. Therefore in the very nature of the case the examination provided in section 8 should be made, and in some of the events, whereupon the superintendent's possession is permissible or demanded, must be made after his possession begins. Assume that the banker fails to make the report required by law, then the statute (section 22) directs that the superintendent shall immediately cause the books, papers, and affairs of the banker "to be examined as directed by section eight"; but this is a violation of law that authorizes the superintendent to take possession under section 19, and it is not conceivable that such possession terminates the power to examine further under section 8. Assume that the banker suspends payment, and for that reason the superintendent takes possession. Does then the application of section 8 cease? A very vital exigency for its use is presented. The superintendent must take instant possession. But his power to examine is not vitiated. Examination is the primary condition of administrating the business. To deny this is to permit the banker by his fault or misfortune to escape examination and withhold aid in the administration of the business. The failure in such view would cripple the attempt to avert or modify its consequences. But examination of witnesses is associated with examination of the business and its past conduct. It is one means of examination provided by the statute. It coexists with such power of examination.
It may be that in the case at bar the banker will not ask to resume business. But that does not affect the abstract inquiry whether the power to examine the banker's affairs by means of witnesses exists. The question is: What power does the statute give? Does it cease with the banker's control ? Is it defeated by the banker's misconduct whereby the state through its officer assumes control? Must the superintendent examine all witnesses before he takes control? Must he take control for any one reason at the peril of losing the benefit of all explanation by witnesses—those who have intimate knowledge of affairs ? Must the superintendent determine whether he will permit resumption by the banker without the aid of the evidence of the banker and others as to the propriety of such resumption? The conditions compel a negative answer. It is the intention of the state that its examination may preclude failure and loss, will prevent unsound banking and illegal conduct; that, if by design or misfortune an impairment of the enterprise has come, it may be cured; that, if the enterprise has passed the limit of safe continuance, those concerned shall have just distribution of the property. But for any of these purposes examination is the essential upon which are based all subsequent actions, and it would leave the statute very imperfect if section 8, read in association with other sections, especially section 19, authorized no examination by the state after its assumption of the undertaking. I cannot attribute to the statute such deficiency, and thereby leave the superintendent disabled in the performance of his imposed duties.
I concur in the opinion of Mr. Justice BURR, and add the views here stated.