Lafayette Trust Co. v. . Beggs

Hogan, J. The facts submitted by the respective parties, briefly stated, were: “ That on the 30th day of November, 1908, the superintendent of banks took possession of the property, business and assets of the plaintiff, pursuant to section 19 of the Banking Law, and since said date the superintendent of banks has continued in possession of the plaintiff as aforesaid for the purpose of liquidating its affairs in accordance with section 19 of the Banking Law.” That on the 30th day of November, 1908, plaintiff was the owner of a certain parcel of land in the borough of Brooklyn. On December 6th, 1912, the superintendent of banks in the name of the plaintiff, entered into an instrument in writing with the defendant in and by the terms of which plaintiff agreed to sell to the defendant the property referred to, free from incumbrances, and the defendant contracted to purchase the property subject to the approval of the contract by the Supreme Court, to be evidenced by an order of the court to be obtained upon application by the superintendent of banks. Such order was obtained by the superintendent of banks on the 10th day of January, 1913, wherein the contract of sale was approved and the superintendent of banks was directed to execute and deliver on behalf of the plaintiff a conveyance of the premises. Subsequent to the taking possession of the property and business of the plaintiff by the superintendent of banks, *282 and prior to the third day of February, 1913, certain judgments for the payment of money were recovered against the plaintiff and docketed in the county of Kings, in which the property contracted to be conveyed is situated. On the 3rd day of February, 1913, the superintendent of banks tendered to the defendant a deed of the premises in accordance with the terms of the contract and the order of the court approving the same, which the defendant refused to accept, and the question of law presented upon the controversy was whether or not the deed tendered would convey a marketable title to the premises free from all incumbrances. • Section 19 of the Banking Law is extremely voluminous. So far as material to be considered here it authorized the superintendent of banks to take possession of the property and business of the plaintiff whenever it appeared to that officer that the corporation (1) had violated its charter or any law of the state, or (2) was conducting its business in an unsafe or unauthorized manner, or (3) if the capital of such corporation was impaired, or (4) if such corporation refused to submit its books, papers and affairs to the inspection of any examiner, or (5) if any officer thereof should refuse to be examined upon oath touching the concerns of the corporation, or (6) if such corporation had suspended payment of its obligations, or (7) if from any examination or report made the superintendent should conclude that the corporation was in an unsound or unsafe condition to transact business, or (8) that it was unsafe and inexpedient for the corporation to continue business, or (9) if the corporation refused to observe an order of the superintendent made under section 17 of the Banking Law to make good a deficiency in the capital stock within the time therein referred to. The superintendent was authorized to retain such possession until the corporation should resume business or its affairs be finally liquidated as provided in said section. The section made provision with reference to the *283 i-esumption of business by the corporation, providing, first, such resumption might be made upon such conditions as may be approved by the superintendent; secondly, after the superintendent had taken possession, if the corporation deemed itself aggrieved thereby, it might at any time within ten days apply to the Supreme Court to enjoin further proceedings by the superintendent, and said court after citing the superintendent to show cause why further proceedings should not be enjoined, and hearing the allegations and proofs of the parties, and determining the facts, was authorized upon the merits to dismiss the application or to enjoin the superintendent from further proceedings and direct him to surrender the business and property to the corporation. Provision was also made with reference to liquidation after payment of all claims; such final liquidation was to be. by the stockholders if they should so determine. The fact that the superintendent of banks in November, 1908, took possession of the property and business of the plaintiff, pursuant to this section of the Banking Law, since which time he has continued in possession of the same for the purpose of liquidating its affairs, negatives a consent by the superintendent to a resumption of business by the plaintiff; or the grant of an order of the court permitting the plaintiff to resume its corporate business. The word “ liquidation ” is susceptible of but one meaning when construed in connection with the language of the Banking Law, and the circumstances to which it was intended to apply. The agreement of the parties that the superintendent took charge of the affairs of the corporation for the purpose of “liquidating ” its affairs, necessarily excludes his possession for any other purpose. The word “liquidation ” is synonymous with “winding up or settlement with creditors.” In its general sense it means “ the act or operation of winding up the affairs of a firm or company by getting in the assets, settling with *284 its debtors and creditors, and appropriating the amount of profit or loss.” (Matter of Silkman, 121 App. Div. 202, 206, 207; affirmed, 190 N. Y. 560; Assets Realization Company v. Howard, 70 Misc. Rep. 651; affirmed, 152 App. Div. 900; 211 N. Y. 430.) Immediately when the superintendent took possession of the property and business of the trust company under the Banking Law and commenced a liquidation of its business on ¡November 30th, 1908, the right of plaintiff to exercise the incidental powers necessary to carry on the business of the trust company was superseded. The superintendent of banks, having been continuously engaged in liquidating the business of plaintiff, it could not, since his possession, receive or pay out moneys or .prosecute the business for which it was organized. As a legal entity it continued to exist, but it could not exercise its powers as a corporation. It was deprived of the possession of its property as effectively as though a receiver of the same had been appointed by the court and title to its property was vested in the officer designated in the statute, to wit, the superintendent of banks, for the purposes of liquidation and an equitable and ratable distribution of assets among creditors. That the superintendent of banks is clothed with all of the powers and duties of a. receiver is apparent from an examination of the statute. It provides that on taking possession of the property and business notice of such fact is to be given by the superintendent to any and all banks, trust companies, associations and individuals, holding or in possession of any assets of the corporation, and no bank, trust company, association or individual so notified or knowing of such taking possession shall have a lien or charge for any payment, advance or clearance thereafter made or liability thereafter incurred against any of the assets of the corporation in the possession of the superintendent. The superintendent is authorized to collect moneys due to the corporation, to do all acts necessary to *285 conserve its assets and business, to collect all claims belonging to it; upon order of the court to sell or compound bad or doubtful claims and on like order to sell real estate. If necessary to pay the debts of the corporation, the superintendent is authorized to enforce the individual liability of stockholders; to employ such assistants as may be necessary in the liquidation and distribution of the assets of the corporation; to retain officers or employees of the corporation as he may deem necessary; to cause notice to be given by advertisement for three consecutive months requiring all persons having claims against the corporation to present the same to him and make legal proof thereof within a time specified, and in addition to notify all persons whose names appear as creditors upon the books of the corporation to present claims. In case the superintendent shall doubt the justice or validity of any claim, he is authorized to reject the same and serve notice thereof. An action upon a claim so rejected must be commenced within six months after service of such notice of rejection. The superintendent is required to make an inventory of the assets of the corporation and at a specified time a full and complete list of the claims presented, including and specifying such claims as have been rejected, such lists to be filed as provided in said section. The moneys ■ collected by the superintendent are to be deposited in state banks of deposit, savings banks or trust companies, and in case of suspension or insolvency of the depositary such deposits are made preferred claims. The superintendent is authorized to declare dividends, and a final dividend to be paid to such persons and in such amounts and upon such notice as may be directed by the Supreme Court, and the court is authorized to make proper provision for unproved or unclaimed deposits. In Matter of Union Bank of Brooklyn (204 N. Y. 313, 316) this court, Judge Werner writing, having under consideration a construction of this section of the Banking Law. said: *286 “ The events which led to its enactment are familiar history, of which we may take judicial notice. The financial depression of 1907, and the resulting embarrassment of many banks, culminated in a series of receiver-ships in which the demands for commissions and counsel fees were so extravagant as to arouse an instant popular demand for reform. To that end the superintendent of banks was by statute invested with the powers which had previously been exercised by receivers appointed by the courts. * * * The statutory enumeration of the superintendent’s duties * *■ * indicates the legislative intent to transfer to the superintendent the general duties and functions which had theretofore been exercised by receivers.” In Van Tuyl v. Scharmann (208 N. Y. 53, 63) this court, having under consideration the same section of the Banking Law, quoted the language of Judge Werner, and added: “ The scheme of the statute was to provide a procedure for the liquidation of delinquent corporations through a department of the state for the benefit of creditors, which would be economic and speedy.” When the superintendent of banks took possession and control of the assets of the plaintiff, the property of the trust company was “in eustpclia legis,” and any interference with such property by plaintiff or any person would be a contempt punishable as such, for the rule is applicable to any receiver, sequestrator, committee or custodian of any name or nature. (Noe v. Gibson, 7 Paige’s Chancery, 513; Walling v. Miller, 108 N. Y. 173.) This conclusion is justified by a consideration of the duties imposed upon the superintendent by the provisions . of the Banking Law to which reference has been made. The statute contemplated in cases of liquidation an equitable and ratable distribution of the assets of the bank amongst its creditors through the order of the court, to be paid in the nature of dividends “ to such persons and in such amounts and upon such notice as may be directed *287 by the court.” An examination of the section clearly determines who are the “ persons ” referred to, viz., all persons appearing as creditors on the books of the bank, and persons who file claims pursuant to the notice published by the superintendent. The amount of the dividend to be paid must be fixed by the court from to time as the funds collected and applicable thereto will permit. The section of the Banking Law provided for the payment of preferred claims in so far as funds deposited in the trust company to the credit of the superintendent as liquidator of any other bank or company subject to the Banking Law. In all other cases where funds or property in possession of the company had not been obtained by fraud, the creditors of the company would share equally in the assets. The case of Pringle v. Woolworth (90 N. Y. 502) does not hold to the contrary. Appellant urges that the judgments obtained against the plaintiff subsequent to the taking possession of the property and business by the superintendent are preserved as hens upon the real property of plaintiff by section 1251 of the Civil Code. Section 1251 of the Code of Civil Procedure, so far as material, is as follows: “ * * * A judgment, hereafter rendered, which is docketed in a county clerk’s office, as prescribed in this article, binds, and is a charge upon, for ten years after filing the judgment roll, and no longer, the real property and chattels real, in that county, which the judgment debtor has at the time of so docketing it, or which he acquires at any time afterwards, and within the ten years. * * * ” When the superintendent of banks assumed possession and control of the property and business of the plaintiff he became in equity the owner of the real estate then held by it. The only title which remained in the trust company was merely formal and was held in trust for the superintendent. (Matter of Attorney-General v. Atlantic Mutual Life Ins. Co., 100 N. Y. 279; Matter of *288 Attorney-General v. Continental Life Ins. Co., 28 Hun, 360; affirmed, 93 N. Y. 630; Crane v. O’Connor, 4 Edwards Ch. 409; Lounsbury v. Purdy, 18 N. Y. 515; Matter of Superintendent of Banks, 207 N. Y. 11, 15.) The equitable title to the real estate of the plaintiff having vested in the superintendent of banks at the time that he took possession of the property of the plaintiff, which antedated the recovery of any judgments against the plaintiff now sought to be established as liens upon its real estate, the title in the superintendent was superior to the judgments, which were not liens upon said property under section 1251 of the Code, as the liens therein specified are confined to the real property and chattels real which the judgment debtor has at the time of docketing the judgment. The judgment should be affirmed, with costs.