Matter of Murray Hill Bank

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 201

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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 203 [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 205 [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 207 The Appellate Division based its determination upon the ground that the proceeding for a voluntary dissolution of the Murray Hill Bank, instituted by its directors, abated upon the entry of a judgment dissolving said corporation in the action brought by the attorney-general. We think this is a sound conclusion, and that it is so well supported by the reasoning of the learned justice who prepared the prevailing opinion as to make further discussion of the subject unnecessary. (14 App. Div. 318.) We should affirm the order now before us for review upon that opinion, but for the fact that it recognizes as settled law the doctrine that, after the superintendent of banks has taken possession of the assets of an insolvent banking corporation with the intention of having an action brought by the attorney-general to dissolve the same, the directors may anticipate such action on the part of the state, by instituting a proceeding for voluntary dissolution, and that both the action and the proceeding, although each has the same end in view, may be carried on together. (People v. Seneca Lake Grape Wine Co., 52 Hun, 174; Matter of Murray Hill Bank, 9 App. Div. 546.) The attorney-general attacks this position with great earnestness, and as the question was fully argued before us, and as, after due consideration, we have reached a different conclusion from that announced by the Supreme *Page 208 Court upon the subject, it is proper that we should briefly state our reasons therefor.

Title eleven of chapter seventeen of the Code of Civil Procedure, embracing sections 2419 to 2432, provides for the voluntary dissolution of a corporation upon the petition of a majority of the directors, not only when it has become insolvent, but also when, "for any reason, they deem it beneficial to the interest of the stockholders that" it "should be dissolved." (§ 2419.) Upon the presentation of the petition, duly verified, with schedules showing the financial condition of the corporation, the names of its creditors and the like, the Supreme Court, at any Special Term held in the judicial district where the principal office of the corporation is located, may issue an order requiring all persons interested to show cause, not less than three months thereafter, why it should not be dissolved. A temporary receiver may be appointed at any stage of the proceeding, on notice to the attorney-general and satisfactory evidence that the corporation is insolvent. Due provision is made for notice to creditors and stockholders, and upon the return day of the order to show cause the proofs and allegations of the parties are heard by the court or by a referee appointed for the purpose, and, if it appears that the corporation is insolvent, or that "for any reason a dissolution of the corporation will be beneficial to the interests of the stockholders" and "not injurious to the public interests, the court must make a final order dissolving the corporation and appointing one or more receivers of its property." This part of the Code took effect on the first day of September, 1880, and apparently applies to all corporations, except library societies, religious corporations, educational institutions and "municipal or other political" corporations, which are expressly excepted. (§§ 2431, 3356.) The proceeding now before us was instituted and carried on under this statute.

The Banking Law, now in force in this state, is a part of the general revision of the statutes, and was passed in 1892. (L. 1892, ch. 689.) It provides for the incorporation, prescribes the powers and regulates the management of banks of *Page 209 discount, savings banks, trust companies, building and mutual loan corporations, co-operative loan associations, mortgage, loan and investment corporations and safe deposit companies. It makes all these corporations, as well as individual bankers, subject to the inspection and supervision of an officer known as the superintendent of banks, who is appointed by the governor and confirmed by the senate. He is required, either personally or through examiners appointed by him, to "visit and examine every such corporation and individual banker * * * at least once in each year," except that the visitation of savings banks need be but once in two years, and he has power to make an examination of any bank whenever in his judgment it is necessary and expedient. For the purpose of such examination he and his examiners are empowered to administer oaths and compel the attendance as a witness of any person whose testimony may be required. (§ 8.) Whenever he has "reason to believe" that the capital stock of any banking corporation or individual banker has become impaired the statute commands him to require the deficiency to be made good, and, unless his direction is obeyed by the directors and stockholders within sixty days, he is to report the fact to the attorney-general, who is thereupon charged with the duty of taking such action as is authorized in the case of insolvent corporations. It is further provided that, "if, from any such examination or report, the superintendent shall have reason to conclude that any such bank or individual banker is in an unsound or unsafe condition to do banking business, he may forthwith take possession of such bank or individual banker's property and business and retain such possession until the termination of the action or proceeding instituted by the attorney-general." (§ 17.) The next section makes it the duty of the attorney-general, upon receipt of notice from the bank superintendent that it is unsafe and inexpedient for the corporation to continue business, to "institute such proceedings against the corporation or banker as are authorized in the case of insolvent corporations, or such other proceedings as the nature of the case may require." *Page 210

The power of the attorney-general in the premises, after such notice, is regulated by the Code of Civil Procedure, which authorizes him to commence an action in the name of the People to dissolve corporations generally under certain circumstances, and if the corporation "has banking powers" to commence such an action whenever "it becomes insolvent or unable to pay its debts, or has violated any provision of the act by or under which it was incorporated, or any other act binding upon it." (§§ 1785, 1786.) Provision is made for the appointment of temporary and permanent receivers with the usual powers. (§ 1788.) The final judgment rendered in such an action not only dissolves the corporation and forfeits its corporate rights, privileges and franchises, but also, when the stockholders and directors are parties, adjudges that each shall pay into court any sum for which he may be liable by law or so much thereof as is necessary to satisfy the debts of the corporation. (§§ 1785, 1793, 1795.)

The action of the bank superintendent in taking possession of "the property and business" of the Murray Hill Bank, and of the attorney-general in commencing a suit to dissolve the same, was founded upon the Banking Act and said provisions of the Code relating to the involuntary dissolution of corporations.

Thus it appears that the special proceeding, commenced by the directors to dissolve the bank, was based upon a general act passed in 1880, applying to substantially all corporations, while the action commenced by the attorney-general, although regulated by the Code, was based upon a special act, applying to banking and kindred corporations only, passed in 1892. (L. 1880, ch. 178; L. 1892, ch. 689.) The precise question presented for decision is whether the action, although begun after the special proceeding, took priority thereto owing to the possession taken by the bank superintendent of "the property and business" of the bank, with authority to retain possession thereof until the termination of the action brought by the attorney-general in the name of the People.

So far as the special and later statute is necessarily inconsistent *Page 211 with the general and earlier statute, the provisions of the former are paramount. (Townsend v. Little, 109 U.S. 504;Titcomb v. Union, c., Ins. Co., 8 Mass. 326; Isham v.Bennington Iron Co., 19 Vt. 230; Crane v. Reeder, 22 Mich. 322;The State ex rel. Fosdick v. Perrysburg, 14 Ohio St. 472;London, C. D.R. Co. v. Wandsworth Board of Works, L.R. [8 C.P.] 185; Dwarris on Statutes, 513, 668.)

In order to avoid a repeal by implication, which is not favored by the courts, the later act, or the particular provision is regarded as an exception to the earlier statute or the general provision. Thus, a learned author says, that the later statute "is regarded as modifying the earlier in some particular respect, or taking certain things out of its operation." (Endlich's Interpretation of Statutes, § 215.) "If there are two acts," he continues, "or two provisions in the same act, of which one is special and particular and clearly includes the matter in controversy, whilst the other is general and would, if standing alone, include it also, and if, reading the general provision side by side with the particular one, the inclusion of that matter in the former would produce a conflict between it and the special provision — it must be taken that the latter was designed as an exception to the general provision, as where an incorporation law contains provisions regulating the bringing of actions against corporations created under it, at variance with earlier provisions upon the subject of suits against corporations generally." (Id. § 216.)

As the statutes under consideration are not co-extensive and do not both cover the same subject-matter, there can be no such pervading inconsistency between them as to indicate an intention to repeal. One is a general practice act regulating the voluntary dissolution of corporations generally and authorizing the appointment of a receiver to take possession of the property. The other authorizes the incorporation of a particular kind of corporation, places them under the supervision of a special officer and permits him, under certain circumstances, to take possession of the property and hold it until another officer institutes legal proceedings to dissolve the corporation *Page 212 and distribute its assets. The inconsistency between the statutes is confined to the possession of the property, for the custodian of the state and the receiver appointed at the instance of the directors, cannot both be in possession at the same time. One, therefore, must yield possession to the other. The right of the superintendent must be superior to that of the receiver, or viceversa. According to the authorities cited, it seems clear that the later and special provision must control the earlier and general provision, to the extent of excepting the former from the operation of the latter. This, we think, was the purpose of the legislature. By the Banking Law it confided summary power to the superintendent of banks to temporarily sequester the property of the bank and take it into his possession for the protection of the public, in anticipation of action by the attorney-general through the courts for its sale and distribution. The command was that when a bank, upon due examination, should be found in an unsound or unsafe condition to do banking business, the superintendent might not only take possession of its property, but he could also retain such possession during the continuance of the action commenced by the attorney-general. The object of this unusual power is to preserve the property for the purpose of administration under the Banking Law and the provisions of the Code. The superintendent is made the statutory custodian until either the capital is restored by the voluntary action of the directors and stockholders, or proceedings in invitum are taken by the attorney-general. It is unreasonable to suppose that the legislature, after committing possession of the property to its special officer and pointing out the way, through the suit of the attorney-general, for that possession to ripen into a complete settlement of the affairs of the bank, intended to allow him to be deprived of that possession, and to permit the bank to be wound up through a proceeding instituted by those presumptively responsible for its downfall, and who, apparently, failed to discover its insolvency, bad as it was, until the superintendent had closed its doors.

The action is a continuation or supplement to the seizure *Page 213 by the superintendent, and is a part of a comprehensive plan devised by the legislature to close up the bank. The superintendent cannot retain possession, except for a limited period, without notifying the attorney-general to proceed, and upon receiving such notice it is the duty of that officer to commence the usual proceedings for involuntary dissolution. The stockholders and directors may be made parties to the action and judgment may be recovered therein against them for any sum they are under obligation, for any reason, to pay the bank. (Code Civ. Pro. §§ 1793, 1795.)

The course of the directors in instituting proceedings for voluntary dissolution, when the property of the bank was in the actual custody of the state, whether dictated by selfish interests or not, was certainly in contravention of the general purpose and policy of the Banking Act, because the effect was to deprive a state officer of the possession of the assets which, by command of the statute, were in his hands and which it was his duty to retain. It is of the highest importance that conflicts of jurisdiction in respect to questions arising under the Banking Act should not be permitted, and that the statutes should be so construed as to prevent unseemly struggles for the possession of assets, such as took place in the case of the Murray Hill Bank.

It is urged that if the superintendent of banks cannot be deprived of possession by a temporary receiver appointed in voluntary proceedings he cannot be dislodged by a temporary receiver appointed in involuntary proceedings. We appreciate the difficulty suggested, but the question is not now before us and it may never become of practical importance. If it ever arises for decision, it may be that the word "termination," when construed in connection with those sections of the Code which authorize the attorney-general to proceed against insolvent corporations, may not be held to refer to a final judgment. However that may be, we think that the command to retain possession deprives even the courts of power to disturb that possession through a receiver appointed in a proceeding independent of that instituted by the attorney-general. *Page 214

Our conclusion is that the reasonable and proper construction of the Banking Law, in connection with those provisions of the Code which relate to the dissolution of corporations, gives priority to the proceedings of the attorney-general, and that the action of the Special Term in appointing receivers in the proceeding commenced by the directors was unauthorized and void.

The order appealed from should be affirmed, with costs.

All concur.

Order affirmed.