Court Opinion

ID: 3596826
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:43:59.776393+00
Date Added: 2024-06-11T12:42:09.358211
License: Public Domain

The only question which I shall examine in this case is, whether a justice of the Supreme Court has power to direct an apportionment of the debts and liabilities of an insolvent bank among the stockholders, before the assets of the bank are exhausted. The other questions in the case are, in my judgment, properly disposed of in the foregoing opinion of Judge COMSTOCK.
Section 12 of chapter 226 (Laws of 1849, p. 344), is as follows:
"Under the direction of the Comptroller, all securities deposited with him belonging to such corporation or association, shall be converted into cash by the receiver with the least possible delay, and the receiver shall also convert into cash the effects and demands of such corporation or association, and for that purpose may sell at auction any of the said demands, which any justice of the Supreme Court shall authorize to be sold; and within ninety days from the time of his appointment, unless such time be enlarged by a justice of the Supreme Court, which may be done for a period not exceeding ninety days, such receiver shall declare a dividend of the cash in his hands among the creditors of such corporation or association."
This section requires that within one hundred and eighty days from the appointment of the receiver, he shall make one *Page 25 
dividend. The direction is positive and unequivocal. There is no provision for an extension of time beyond that period. The dividend is to be made of the money which the receiver shall realize from the securities in the hands of the Comptroller (if there be such, as must always be the case with respect to banks organized under the general law), and also from the other effects and demands of the failing bank.
With respect to securities in the hands of the Comptroller, the receiver is to convert them "with the least possible delay." He is also required to convert the "effects and demands" of the bank into cash. He is not required to do this "with the least possible delay," as in the case of securities deposited with the Comptroller, but he is simply required to convert the effects and demands of the corporation or association into cash. By these is clearly intended the effects and demands not deposited with the Comptroller.
The reason for the discrimination made by the legislature between securities in the Comptroller's hands and the other assets of the bank, arises out of the two classes of assets. The securities deposited with the Comptroller, if made and taken in accordance with the requirements of the law, being either State stocks or stocks of the United States, or mortgages upon improved productive unincumbered lands within this State, worth, independently of any buildings thereon, at least double the amount for which they are mortgaged, may be at once converted.
The ordinary "effects and demands" of a bank may have an indefinite and uncertain value; and much time may be required for investigating and ascertaining their true value; and hence the forcing them to a speedy sale is properly left to judicial discretion.
If we are confined in our examination of this question to section 12 of the act referred to, I think it clear, that while the legislature absolutely directed receivers to convert deposited securities without delay, it contemplated the contingency of a dividend before the final conversion of the other assets of the corporation. The "effects and demands" can only be converted *Page 26 
in three modes, viz.: By the voluntary action of the debtors, or by process of law, in respect to "demands," or as to both demands and effects by a sale thereof. A sale, other than at auction, may be entirely out of the question, and the certainty of voluntary payments by the debtor may be equally improbable. One hundred and eighty days, however industriously employed, are entirely inadequate to secure the result by legal coercion. The only mode left, then, by which a conversion of the "effects and demands" within the time limited may be effected, is through a sale by auction; and this the receiver cannot resort to, unless authorized by a justice of the Supreme Court. This authority may be given or withheld, in the discretion of the justice. No one will contend that the time for declaring the dividend is made to depend upon the manner this discretion may be exercised by the justice.
From a careful analysis of section 12, it is apparent that the receiver may be required to declare a dividend before it is possible for him in any of the modes contemplated, or within the range of his powers and authority, to convert the "effects and demands" of the bank into cash.
If the view thus taken of the proper reading and meaning of section 12 be the true one, any further consideration of the question would seem to be unnecessary; for we find by section 14 of the act, that the receiver is required within thirty days after the declaration of the first dividend, among other things, to render to a justice of the Supreme Court a particular account of the debts and liabilities remaining unsatisfied; and that by section 16, the justice is directed "thereupon" to refer the same to a referee, who is required to apportion said debts and liabilities among the stockholders, and report his proceedings to the justice. The time within which the receiver is required to make the first dividend is absolutely restricted to one hundred and eighty days. No court or officer has power to extend it beyond that time. He is required to declare this dividend within ninety days from the time of his appointment, unless such time be enlarged by a justice of the Supreme Court, which the act allows to be done for a period *Page 27 
not exceeding ninety days. If the justice refuses to extend the time, the receiver is bound to make a dividend within the first ninety days. That was the time fixed by the legislature as the general rule on the subject; but as it was foreseen that cases might arise which would require a longer time for the receiver to get ready to make the first dividend, authority was given to the justice to extend it, but not exceeding ninety days. Within the hundred and eighty days, then, the dividend is to be declared. The receiver does declare it in that time, and finds that it falls short of satisfying the debts, and liabilities of the corporation, for which the stockholders are liable. What is next to be done? The 14th section answers the question. He shall within thirty days after the declaration of the first dividend, and without waiting for the actual payment of the sums divided, render the account as required by that section, to a justice of the Supreme Court. The 15th section requires him at the same time of rendering such account, to report and submit to the justice a list and statement of stockholders as provided in that section. Upon such account being rendered and such report being submitted to the justice, he is required, by the 16th section, to refer the said report and list of stockholders to a referee to be appointed by him, with directions, after giving notice to all persons concerned, to apportion the debts and liabilities of the corporation contracted after January 1st, 1850, and remaining unsatisfied, among the stockholders, and report his proceedings to the justice or some other justice of the Supreme Court of the same district. Sections 17 and 18 direct how the referee shall proceed in executing the order of reference. By section 19, on the final completion of the apportionment, the same shall be reported at a special term of the Supreme Court, when the justice holding such term shall examine such report, and hear the allegations of the parties and persons interested and may modify or amend the same, or may refer the same back to the same or another referee for further proof or examination, or may confirm the same. By section 20, when the report of the referee is confirmed at a special term, the same, together with the order of reference, *Page 28 
shall be filed in such county clerk's office as shall be directed by the justice holding the special term, and unless an appeal be taken therefrom, the order of confirmation shall be final as a judgment against each stockholder, c., upon which executions may be issued, c.
All the directions of the statute have, in the case before us, been, in form at least, complied with. When the receiver rendered his account and submitted his report in pursuance of the 14th and 15th sections, the justice had no alternative but to order the reference to apportion the debts upon the stockholders. The 16th section is imperative upon him. He "shall thereupon refer the said report and list of stockholders to a referee," c.
The report of the receiver, upon which the order of reference to apportion the debts and liabilities of the Reciprocity Bank upon the stockholders was made, bears date September 21st, 1858. It contained, pursuant to the directions of the 14th section, a particular account of such debts and liabilities, which remained unsatisfied, with a preliminary account of all his proceedings, setting forth the amount of the cash realized by him, the expenses and allowances claimed by him, the payments the receiver had made, the amount on hand to be divided, and the dividend declared by him. The report shows that at the time the dividend was declared, which was on the 1st day of September, 1858, the receiver had realized in cash from the assets of the bank, the sum of $145,294.52, and that the total cash disbursements of the receiver up to that time, was $136,202.58, leaving a balance in his hands of $9,091.94. It was of this last amount that the dividend was made. A large portion of the moneys received after his appointment and before the dividend was declared, was paid by the receiver in order to exonerate the property of the corporation from pledges and specific liens, in pursuance of section 13 of the act. The dividend amounted to fifteen per cent of the amount of circulating notes of the bank which had been presented to the receiver for redemption, up to the time the dividend was declared, and was made in favor of the persons presenting such notes. The *Page 29 
report further shows a large amount of debts and demands, owing to the bank by a large number of persons in various amounts respectively, a considerable portion of which was not due when the report was made. The report also shows quite a large amount of real estate, which belonged to the corporation at the time the receiver was appointed, a part of which has been sold and the proceeds realized in money by him, which he has charged himself with in his account of moneys received. The receiver states in the report as follows: "A considerable portion of the debts due the said corporation, are considered good and collectible. The undersigned believes that the interests of the creditors of the said corporation will be promoted by further efforts to collect the debts due the corporation rather than by offering them for sale, and in consequence of the depression in the price of real estate, he has not felt that he would be doing justice to the creditors of the said corporation by exposing the real estate in said schedule for sale at public auction." These facts are referred to for the purpose of showing that the dividend was not merely nominal, but substantial and the best that the receiver could make. He undoubtedly refrained from making an application to a justice of the Supreme Court for an order to sell the demands against the debtors of the bank, for the same reason that induced him to omit selling the real estate at auction. If any creditor or stockholder desired such application to be made, it was entirely competent for them to cause it to be done. If such application had been made at any time before the dividend was declared, the justice, I think, would have hesitated long before granting it, in view of the great commercial crisis of 1857 and 1858, the effects of which were co-extensive with the commercial world. And if the conduct of the receiver was in any respect objectionable, if he neglected to sell the real estate or to press collections of demands due to the bank, he was an officer appointed by the court, under its control and liable to be acted upon and moved or removed from his position on the petition of any person or persons interested. But none of these considerations are to delay the dividend beyond the period provided in the *Page 30 
statute. When the first dividend is declared, the time has come to proceed against the stockholders.
These considerations are, to my mind, conclusive to show that the legislature did not intend, in any or all of the provisions of the statute referred to, that the creditors of the failing bank should be required to wait until the assets should all be fully converted and realized in money by the receiver, before they were at liberty to call on the stockholders. The Constitution (§ 7, art. 8) declares the absolute, unconditional personal liability of the stockholders for the debts and liabilities of the bank contracted after the 1st day of January, 1850, and the act of the legislature under which these proceedings were had, was passed to enforce and carry into effect the principle thus declared by the fundamental law. There is not to be found in the statute a single word looking to a full conversion of the assets, or of any portion or class of them, as a condition precedent to an apportionment of the debts upon or amongst the stockholders. All that is required is, that a single dividend should be declared before resort could be had to the stockholders.
By requiring one dividend to be made before the stockholders should be called upon, both they and the creditors would derive a benefit. The creditors would have the benefit of such ready cash funds as should come into the hands of the receiver upon his appointment, together with such as he might realize from sales of property and collections of debts due the bank before he was required by law to declare the dividend. And by the same process the amount to be assessed upon the stockholders would be reduced. But to say that in all cases the assets of a bank, whether of large or small capital and business, or that the Reciprocity Bank, with its capital and business as we find by the papers in this case they were, could be converted within the utmost limit allowed for making the first dividend, without ruinous sacrifices to all concerned, by forced sales of the debts due the bank, under an order of a justice to that effect, if one could be obtained, is to my mind nothing less than preposterous. The act has left the way open for an *Page 31 
indefinite number of dividends, as circumstances may require. The 31st section provides for creditors who have neglected to present their demands to the receiver before the first or subsequent dividend, and who shall present the same before the second or any other subsequent dividend.
The question is, simply, which of the two classes of persons, the creditors or stockholders, shall be compelled to wait the process of conversion of the effects and demands of the corporation.
That is all it amounts to. If the stockholders are compelled to pay the creditors, they will be entitled to be reimbursed from the effects and demands in the hands of the receiver, so far as they will go, when converted or realized in cash. They will have no more to pay in one event than the other, and to them it is only a question of time. The Constitution makes them the debtors by declaring their personal liability to pay, and in my judgment it results from the whole spirit and tenor of the Constitution, and the several provisions of the enforcing statute which I have considered, that the stockholders must pay the creditors what remains due them after the first dividend is declared, to the amount of their stock, and look to the assets of the corporation for their indemnity, as far as they will go.
In my opinion, the judgment of the general term of the Supreme Court, affirming that of the special term, should be affirmed.
Order of reference to apportion liability of stockholders, and all subsequent proceedings, reversed. *Page 32