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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 12 This court has recently determined in the matter of Oliver Lee Company's Bank (21 N.Y., 9), that the free banking associations in this State, created before as well as after the Constitution of 1846 was adopted, are within the personal liability clause of that instrument and also within the act of April 6th, 1849, which was enacted to provide the means of enforcing such liability. In the same case it was held that neither the constitutional provision nor the statute, construed as they were retrospectively, conflicted with the clause in the Constitution of the United States, which secures the inviolability of contracts. These are among the questions brought up by the appeal in the case now before us, but they were disposed of adversely to the appellants in the decision referred to.
That decision embraced the class of institutions to which Oliver Lee Company's Bank belonged, in other words the associations organized under the general law of 1838. In this case the bank was specially chartered in 1834. It belonged to the class of institutions for the redemption of whose notes the "Safety Fund" was established. This class of banks, it is said, is not included in the constitutional provision or in the act of the legislature. But we are clearly of opinion that no such distinction can be made. The language of the Constitution (art. 8, § 7), is that "the stockholders in every corporation and joint stock association for banking purposes issuing bank notes," c., "after the first day of January, one thousand eight hundred and fifty, shall be individually responsible," c. This language is both too comprehensive and too precise to admit of any doubt. All the specially chartered banks in the State were corporations for banking purposes. It being more or less doubtful whether the so called free banks were also corporations, *Page 13 they were referred to under the further designation of "joint stock associations," thus leaving no doubt that both classes of institutions were intended to be embraced. The legislature, in the act of 1849, spoke in terms equally explicit.
Another provision in the Constitution was referred to on the argument as exempting the safety fund banks from the personal liability clause. Article 1, section 18, declares that nothing contained in the Constitution shall affect grants or charters made by the State or under its authority since 1775. It is true that when the Constitution of 1846 was framed and adopted, the Reciprocity Bank held a charter from the State which was embraced in the provision here referred to. But it was a part of that charter that the legislature might "at any time alter, modify or repeal the same." (Laws of 1834, 361, § 37.) Within the power here reserved the legislature would have had the right to pass the statute of 1849, and to impose the very liability now in question, even if the Constitution of 1846 had never been adopted. This proposition was necessarily involved and was determined in the case of Oliver Lee Company's Bank. In holding that a personal liability could be lawfully imposed upon the shareholders in that bank, the decision was placed upon the reserved right to alter or repeal the general act under which it was organized. In the present case, as well as in that, the exercise by the legislature of the power in question is certainly none the less effectual because it has the superadded sanction of a constitutional provision. Nor can a constitutional provision declaratory of a change in the principles of a corporate organization be said to affect or impair a charter which in its own terms admits of the very change declared. If the legislature in pursuance of a right reserved may alter or repeal the charter of a corporation without violating the obligation of a contract, the same thing, I apprehend, may be done by the People when they establish the fundamental law of the State. But without pursuing this inquiry further, the objection we are considering is sufficiently answered when we refer to the act of 1849, as the authority for charging stockholders with the debts of banking corporations. *Page 14
The Constitution of 1821, in force when this bank was chartered, required the assent of two-thirds of the members in each branch of the legislature to pass an act "creating, altering, continuing or renewing any body politic or corporate." The charter of this bank, as we have seen, reserved to the legislature the right at "any time to alter, modify or repeal the act." The Constitution of 1846 does not require a two-thirds vote in enacting laws of this character, and the statute of 1849, imposing the liability in question upon stockholders, was not passed by such a vote. It is now urged that the provision referred to in the Constitution of 1821 entered into the compact between the State and the corporators in this institution, and therefore, that no act of the legislature can be passed affecting their rights as such, without the assent of two-thirds of the members elected to each branch. To this doctrine we cannot assent. Regarding the reserved power to alter, modify or repeal, as a part of the compact, its literal and obvious interpretation is, that the franchises and privileges granted were at all times subject to abrogation or change by the legislative power of the State. The fundamental law might be changed either in respect to the constitution of the legislative body, the mode of its action, or the majorities by which it could act in reference to this or any other subject. The power reserved in this charter was one to be exercised at any time by the existing legislative authority, however constituted, and in any mode conforming to the organic law of the State for the time being. The charter of the bank did not say that the legislature, by a vote of two-thirds, might alter, c., but that the "legislature" might at any time alter, modify or repeal the act. We are clearly of opinion that the statute of 1849 was a valid exercise of the right thus reserved, because it was an act of the supreme legislative authority not in conflict with any existing constitutional restraints.
Proceeding now to such questions as affect the separate or particular interests of some of the appellants and not others, it appears that Mrs. Lansing, in 1840, while a feme sole, became *Page 15 the owner of some shares of the stock. She was married to Mr. Lansing in 1841, but the stock has stood in her name to the present time, and she has received the dividends thereon. It is insisted that she is not liable to be assessed in respect to this stock to pay the creditors of the bank. The question may not be entirely free from doubt, but our conclusion is, that the assessment upon her was lawfully made. The rule of the common law was, that choses in action, including shares of stock, by reason of their resemblance to that description of property, owned by a woman at the time of her marriage, continued to be her property after marriage until reduced to possession by her husband. The statute of 1848, for the protection of the rights of married women, it seems, did not and could not, constitutionally, take from the husband this right of reducing to possession, where the right became vested by marriage prior to the passage of the act. (Westervelt v. Gregg, 2 Kern., 202.) But Mr. Lansing never exercised the right in respect to the shares in question. They remained, therefore, her property, after marriage as before. She continued to be a stockholder, and as such was liable to assessment, by the terms of the statute under which these proceedings were had. (Vide § 1.) The legislature, if it had thought proper to do so, might have made an exception in favor of married women, but no such exception was made. It is said that Mrs. Lansing, being under the disabilities of coverture, could not make a transfer of her shares and so avoid this liability, if she had wished to do so. This is a circumstance which might have been properly addressed to the legislative discretion, if, indeed, the legislature had any discretion under the injunction of the Constitution; but it does not authorize the courts to allow an exemption where neither the Constitution nor the law has declared any. It is also said, that femes covert are not liable to suit or judgment at the common law, and, in general, this is true. It is also true, that the apportionment of liability amongst stockholders in banks, when duly confirmed, becomes a judgment against each stockholder, to be enforced by execution, as in other cases. But it was competent for the legislature to *Page 16 depart from the rules and analogies of the common law, and to make married women and their estates liable in this proceeding, as other shareholders in banks are made liable. This, we think, has been done, and it seems to us proper to add, that we see no reason why it ought not to be done, in order to effectuate the policy in which the constitutional provision and the statute are founded. It might go far to defeat that policy, if married women could take and hold stock without liability to the creditors.
Mrs. Dann was also a married woman, and she was assessed in respect to 263 shares of the stock which stood in her name, until the day before the bank suspended payment. It appears very clearly, that she had separate property, derived from the estate of her father, which was vested in trustees. That property was surrendered to her by the trustees after the statutes of 1848 and 1849, concerning the rights of married women, were passed, and from that time it was managed by her husband. Some portion of the fund was invested by him in those shares of stock. It also appears, that the day before the failure of the bank, she transferred the shares to her husband. This transfer seems to have been without any consideration, and the referee found that it was made with intent to evade the liability of Mrs. Dann as a stockholder to the creditors of the institution. We think, therefore, that she was properly included in the assessment.
Mr. Alexander, and some other parties, were assessed in respect to certain shares of the stock which they purchased from the bank in January, 1856. It appears that some time previous to that date the bank had taken a surrender of a considerable amount of its own stock in payment of debts which the holders owed to the institution, and which it seems they were otherwise unable to pay. It was supposed that dividends could not be made until this stock was disposed of and re-issued. For that reason it was offered for sale, and portions of it were sold to Alexander and other persons, who have appealed from the proceedings by which they were assessed. They bought at 90 per cent on the par value of the stock, and gave their notes for the price, it being the understanding that the scrip *Page 17 should be left in the bank as collateral to the notes, and that they might afterwards re-transfer the stock and take up the notes. They were credited with the shares on the stock books, and except as to Mr. Alexander, the shares stood in their names until the failure of the bank. Mr. Alexander made a re-transfer on the 6th of March, 1857. The failure of the bank was on the 27th of August following.
The objection to the apportionment of liability urged by this class of appellants as peculiar to themselves, is, that the bank could not, in the manner stated, legally become the purchaser or owner of its own stock, and therefore, that these persons could not and did not acquire a derivative title from the bank. In support of this objection the statutes have been referred to, which impose restraints upon the specially chartered banks in this State, in respect to dealing in their own stock. (1 R.S., 589.) We think it unnecessary to inquire whether the purchase by this bank of shares of stock under the circumstances above mentioned, falls within those restraints. Assuming that the bank owned the stock, the directors caused it, or a portion of it, to be sold to Alexander and others. They became actually the purchasers, and they voluntarily suffered their names to appear as stockholders on the books. They cannot, in this proceeding, impeach their own title. The statute of 1849, imposing the personal liability, declares that the term "stockholder" shall apply not only to such persons as appear by the books of the corporation or association to be such, but also to every equitable owner. (§ 2.) No doubt a person may show in exoneration of himself, that his name has been placed in the books without his consent. But if a party makes an actual purchase of shares, whether from the bank or an individual holder, and voluntarily allows himself in this manner to be represented to the world as a stockholder, he must take the responsibilities of that situation. He comes within the terms and the policy of the act. His title may be imperfect. Equities may exist between him and other parties; the shares may be in dispute; they may be claimed by some one else in hostility to his own right. The statute has no regard to such questions. *Page 18 The person who has caused or allowed his title to be registered on the books cannot deny the truth of that representation and disavow the ownership when it ceases to be a benefit and comes to be a burden.
In respect to Mr. Alexander, the peculiarity attending his case is, that his stock purchased from the bank was re-transferred a few months before the institution suffered a default in the payment of its debts. He was, therefore, assessed by the referee only for his own proportion of the debts and liabilities remaining unsatisfied, which were contracted before the re-transfer was made. This was correct according to the 3d section of the act. That section provides that the holder of stock, when a debt is contracted, may exonerate himself from responsibility therefor, if, before default in the payment of such debt, he makes a bona fide transfer of his stock on the books to any resident of this State of full age; and the section then further declares that every assignee of stock so transferred before default shall be liable in the same manner as if he had been the owner at the time the debt was contracted. We think it quite evident that a transfer or surrender to the institution itself which issued the stock does not exonerate the person making the transfer. The purchaser from him must be one who succeeds to a personal liability distinct from and in addition to the liability of the bank. The bank cannot be such a purchaser.
So far, therefore, we see no error in the decision of the court below. A question remains which presents greater difficulty. It appears from the proceedings returned on this appeal, that when the order of reference was made to apportion the debts amongst the stockholders, the receiver had in his hands assets of the bank which nominally amounted to much more than all the liabilities. These assets consisted of choses in action and judgments recovered, and there were also various parcels of real estate. In the receiver's report to the justice of the Supreme Court on which the order of reference was founded, the only reason stated for not having converted the real estate was that prices were depresssed. In regard to the very large *Page 19 amount of debts due to the bank, he reported that a considerable portion were deemed good and collectable. No reason was stated for not having converted the assets of that nature, except that the receiver believed that the interests of the creditors would be promoted by further efforts, to collect the debts rather than by offering them for sale. It was not in any manner shown to the justice that the assets on hand convertible without litigation, were not sufficient to pay all the debts of the corporation, although such was very probably the fact.
The question then seems to be whether a receiver appointed under the statute of 1849, can immediately or as soon as he pleases, make a small or nominal dividend in favor of creditors without attempting to convert the general assets of the bank in his hands, so that upon his report of such a dividend being made a further proceeding must be taken to compel the stockholders to satisfy all the debts and liabilities of the corporation. The statute is imperative that he shall, within thirty days after declaring the dividend, make his report including a list of the stockholders, and upon that report being made, that a reference shall be ordered to apportion the debts and liabilities amongst the holders of the stock. If the course of proceeding in this case was lawful, there is no power to control the discretion or caprice of the receiver. He can take the initiatory step towards compelling the stockholders to pay the creditors by declaring a dividend at any time and of any sum however small, and that step being taken the others are distinctly pointed out, and there is no discretion in regard to them. (Vide §§ 12-16.) Upon an attentive examination of the act, which is certainly somewhat obscure in this respect, I have come to the conclusion that the receiver is clothed with no such discretion, and I think, moreover, that no good reason can be assigned for giving him a power so extensive and so capable of being very improperly exercised.
The 1st section of the act declares, in general terms, that when banks are in default for not paying debts or liabilities contracted after January 1, 1850, the stockholders shall be individually responsible, equally and ratably; such responsibility *Page 20 to be enforced as thereinafter provided, and in no other manner. Passing over the intermediate sections which are not material to the present inquiry, the 12th section provides that, under the direction of the Comptroller, all securities deposited with him belonging to the corporation or association shall be converted into cash by the receiver with the least possible delay; that the receiver shall also convert into cash the effects and demands (meaning evidently the other effects and demands) of such corporation or association, and for that purpose may sell at auction any demands which a justice of the Supreme Court shall authorize to be sold; and that within ninety days from his appointment, which may be enlarged to ninety days longer by a justice of the Supreme Court, he shall declare a dividend of the cash in his hand amongst the creditors. The 13th section declares that before making the dividend, he shall deduct expenses and also the sums paid to exonerate the property which was in his hands from any pledge, specific lien or levy. The 14th and 15th sections require him, if any debts remain unsatisfied within thirty days after declaring such dividend which is called the first dividend, to render an account of his proceedings, including a report of the names of the stockholders. Upon this report being made, the 16th section requires the justice to direct a reference for the apportionment of the unsatisfied debts amongst the stockholders. The 17th, 18th, 19th and 20th sections, relate to the proceedings of the referee, and the confirmation of his report, which when confirmed becomes a judgment against the various stockholders for the sums charged upon them respectively. The 21st section requires the money collected from them to be divided amongst the creditors in the same manner as provided in relation to the first dividend. Thus the statute evidently contemplates one dividend, called the first, to be made by the receiver out of the assets which went into his hands, and then a second one, in full, to be made from the moneys to be collected from the stockholders. The 23d section declares that neither the dividends nor the apportionment of debts shall be delayed by the pendency of any litigation respecting any demand by or against *Page 21 the bank, unless directed by a justice of the Supreme Court, nor in any case to exceed one year. If the controverted demand is against the bank, the receiver is to retain in his hands a fund to provide for it, or to be distributed in some future dividend to creditors or stockholders. The 24th section provides that if after paying the debts there shall remain or come to the hands of the receiver any other assets, the same shall be converted and paid to the stockholders amongst whom the liabilities have been apportioned. The 31st section allows creditors who have failed to present their demands before the first or any subsequent dividend, to come in before any second or subsequent dividend is made, and receive their due share before distribution is made to other creditors.
Notwithstanding the want of greater clearness of expression, it seems to me the intention of the legislature was to devise a plan, first for the administration of the assets of a defaulting bank, and then, if creditors are unpaid, for compelling stockholders to make up the deficiency. It is very clear that a dividend is first to be made from the effects of the institution. According to one construction this dividend may be of a single mill on the dollar, and may be declared for the mere purpose of reaching the stockholders. According to the only other construction — which I think the better one — the convertible assets in the hands of the receiver are to be actually converted, and go into the first dividend before resorting to the personal liability. If this was not the intention, it is not easy to see a good reason for requiring that any dividend at all should be first made. In providing that a dividend must be made, it is reasonable to conclude that the legislature did not mean a merely nominal one, as a condition precedent to the enforcement of the stockholder's liability, but one based on the convertible and cash value of the assets of the bank.
The leading and controlling section of the statute is the 12th. In that, the duties of the receiver are prescribed in a certain order. He is to convert the securities lodged with the Comptroller into cash as soon as possible. He is then commanded to make a like conversion of all other effects in his *Page 22 hands, and to that end he may sell at auction, under the direction of a judge. These duties being first enjoined, he is then required to declare a dividend within a specified time after his appointment. That time is given to him, as I think, to effect the conversion of the assets, and if it is too short, he may apply to the judge and have it enlarged ninety days longer. Then, if any unsatisfied debts remain, the receiver is to make a report (§ 14) which becomes the foundation of the further proceedings to charge the stockholders, and this report is to be made within thirty days from the time of declaring the dividend and of the converted assets. The legislature evidently thought that six months was a sufficient time within which to realize the cash from the convertible estate in the receiver's hands, and they accordingly required him to make his dividend within that time. Within that period it was certainly practicable to make a sale for cash of all estate not involved in litigation or controversy, and the legislature proposed no delay for hard times or depression in prices. The design was to wind up any insolvent bank within a definite time, and then to resort to the stockholders to make good the deficiency, so that creditors might be speedily paid. Nevertheless, I think the provisions in regard to time are merely directory, in such a sense that the proceedings would not be void or erroneous if the dividend should be declared and the report made after a delay which the terms of the statute do not allow. But I do not think it would be a sound construction to hold that the receiver may, without any attempt to convert the estate, proceed whenever and as soon as he pleases to declare a sham dividend, so that the stockholders may be proceeded against, leaving him to deal with the primary fund at his leisure or convenience. I am satisfied the legislature had no such intention.
The 23d section of the act is not in conflict with these views. That section is a provision for a special case. A litigation or controversy might be pending which would either increase or diminish the assets according to the result and the nature of the disputed claim. In a case of that kind, if the demand be in favor of the corporation, the statute seems to regard it as *Page 23 inconvertible until the litigation is closed; but none of the proceedings are to be delayed for that reason without the direction of a justice of the Supreme Court, and in no event can the delay exceed one year. If the demand is realized afterwards, the proceeds must go to creditors, if they are not in the meantime fully paid, and if they are, then to the stockholders. It seems to me that such a provision for a particular case strengthens, rather than weakens, the conclusion that the known and admitted assets, about which there is no controversy, must be converted and applied before the receiver can initiate the proceedings to charge the stockholders. The 24th section provides for the case when assets remain or come to the receiver's hands after the debts are all paid. These are to be converted into cash and paid to the stockholders who have been personally charged. This provision is also in harmony with the general scheme. After the receiver has converted and applied the assets at large, some demand, supposed to be worthless, may be collected, or some real estate discovered or controverted claim be established. In this way, something may remain in his hands or come to his hands after all the proceedings have been closed and the creditors are paid. In such a case, the stockholders are plainly entitled to whatever there is, in proportion to the sums they have been compelled to pay. The propriety of just such a provision as is here made will not be doubted, even if my construction of the act be admitted. Nor do I see anything in the 31st section which materially supports a different construction. A creditor who has neglected to present his claim before the first or any subsequent dividend, but presents it before a second or subsequent dividend, is entitled to be placed on an equal footing with other creditors before they can receive any further distribution. The possibility of more than one and even of more than two dividends is here indicated. But this does not conflict with the idea that the first one, which is the foundation of all future proceedings, is to be based upon a general conversion into cash of the property of the bank. Another, as appears from the 23d section, may be made from the proceeds of demands which are involved in *Page 24 dispute or litigation, and another from the moneys to be collected from the stockholders. The general language of the 24th section may therefore be referred to those dividends, and thus understood it does not conflict with what I consider to be the general scope and policy of the statute.
It follows, from these views, that the order of reference to apportion the debts and liabilities of the bank amongst the stockholders, and all subsequent proceedings based thereon, were erroneous. The judgment of the Supreme Court must, therefore, be reversed, and that court will proceed to give judgment in accordance with this conclusion.
All the judges concurred except DENIO, J., who took no part in the decision, and WELLES, J.