Comm'r of Banks v. Cosmopolitan Trust Co.

• Decision Date: 02 July 1925
• Citation: 148 N.E. 609,253 Mass. 205
• Parties: COMMISSIONER OF BANKS v. COSMOPOLITAN TRUST CO. et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

253 Mass. 205

148 N.E. 609

COMMISSIONER OF BANKS

v.COSMOPOLITAN TRUST CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

July 2, 1925.

Case Reserved from Supreme Judicial Court, Suffolk County.

Suit in equity by the Commissioner of Banks of the Commonwealth of Massachusetts against the Cosmopolitan Trust Company and others, to charge individual defendants as stockholders with liability to amount of par value of their shares. Case reserved for full bench on pleadings, master's original and supplemental reports, and exceptions thereto. Reports confirmed, exceptions sustained in part only, and decree entered for plaintiff in conformity with opinion.D. L. Smith, R. W. Nason, and H. O. Cushman, all of Boston, for Com'r of Banks.

H. Williams, Jr., and F. O. White, both of Boston, for S. T. bittenbender.

P. A. Atherton, of Boston, for defendants H. Ulin and others.

A. M. Beale, of Boston, for defendants Vorenberg.

S. L. Bailen, of Boston, for defendants Dana and others.

J. A. Sullivan and J. M. Maloney, both of Boston, for defendants Keliher and others.

M. M. Horblit and J. Wasserman, both of Boston, for defendants Anthony and others.

H. A. Wilson, of Boston, for defendant Whitney.

J. Nelson, of Boston, for defendants Grandberg and others.

J. R. Murphy, of Boston, for defendant O'Riordan.

Hurwitz & Hurwitz, of Boston, for defendants Holzman and others.

Lourie & Lourie, of Boston, for defendants Cohen and others, submitted the case without argument upon the arguments and briefs of the other parties.

Elisha Greenhood and L. A. Mayberry, both of Boston, amici curiae.

RUGG, C. J.

This is a suit in equity by the commissioner of banks in possession of the property and business of the Cosmopolitan Trust Company seeking to charge the individual defendants as stockholders of the trust company with liability to the amount of the par value of their shares under G. L. c. 172, § 24. Commissioner of Banks v. Prudential Trust Co., 242 Mass. 78, 136 N. E. 410;Commissioner of Banks v. Cosmopolitan Trust Co., 247 Mass. 334, 142 N. E. 100. The case was referred to a master, whose report deals at length with the issues raised.

Undisputed facts are that the trust company was organized under the laws of this commonwealth on January 15, [253 Mass. 210]1912, with a capital stock of $200,000. It conducted a general banking business with a savings department until September 25, 1920, when the commissioner of banks took possession of its business and property and has since retained such possession and is liquidating its affairs. G. L. c. 167, § 22. It is hopelessly insolvent.

[1] The preliminary steps prerequisite to the enforcement of the liability of stockholders appear to have been taken. Cosmopolitan Trust Co. v. Cohen, 244 Mass. 128, 138 N. E. 711;Nichols v. Taunton Safe Deposit & Trust Co., 203 Mass. 551, 89 N. E. 1035. The only point seriously argued in this connection is that there was no proper demand on the execution issued upon the judgment recovered against the trust company. G. L. c. 158, § 46. It is provided by G. L. c. 223, § 37, that service of process upon a domestic corporation ‘shall be made upon the clerk, cashier, secretary, agent or other officer in charge of its business. * * *’ Demand on the execution was made, according to the return of the officer, on May 3, 1922, on one ‘Goldie, its assistant secretary and officer in charge of its business.’ It appears that the by-laws of the trust company made no provision for the office of assistant secretary, but that the directors had elected such an officer, established the salary and prescribed important executive duties of the office, and that the person so elected acted as private secretary to the president of the trust company in March, 1922. In view of these facts and the further consideration that the trust company had been in the hands of the commissioner of banks for liquidation for more than twenty months, it cannot be said that the demand was not sufficient. Harriman v. Reading & Lowell Street Railway, 173 Mass. 28, 38, 53 N. E. 156.

No question is made concerning the original issue of stock or the liability of its holders under G. L. c. 172, § 24. The validity of the so-called second issue of capital stock is contested. That issue of stock was, as alleged, an increase of capital stock of $400,000, from $200,000 to $600,000. The trust company was authorized by the statute to increase its capital stock ‘by the vote of a majority of all its stock.’ St. 1916, c. 37; see now G. L. c. 172, § 18, c. 156, § 41. The relevant facts as to that increase of capital stock are that a special meeting of the stockholders was held on June 16, 1919, to take action with reference to increasing the capital stock of the company. The master found that the notices for this meeting were duly mailed to all the stockholders. The subsidiary facts reported justify this finding. Prudential Trust Co. v. Hayes, 247 Mass. 311, 142 N. E. 73. The special meeting appears to have been legally called and held.

The records of that stockholders meeting show that 866 shares of capital stock were represented by named individuals. Then occurs this sentence: ‘Proxies of 41 stockholders representing 360 shares were held but not used.’ The records also show that a motion to increase the capital stock, subject to the approval of the bank commissioner, ‘from $200,000 to $600,000-by the addition of 4,000 shares of stock of a par value of $100 each--,’ was ‘voted unanimously.’ Other motions were adopted authorizing the directors, after approval of the increase of capital stock by the bank commissioner, to sell the additional shares, empowering the officers of the trust company to take all necessary steps to carry out the votes as to increase of capital stock, and directing the officers of the trust company to prepare and file the certificate required by law as to increase of capital stock, all of which were ‘voted unanimously.’ The records do not show and the master reports no facts tending to indicate that a stock vote was taken on the motion to increase the capital stock or on any of the other motions. With respect to the proxies and their use for voting, the master reports.

‘I find as a fact that notices of the meeting of June 16, 1919, were sent out after June 6, 1919. Each notice had attached a blank proxy in the form shown in paragraph 7 of the report. Some time between June 6th and the date of the meeting, Frank G. Howard, secretary, received forty-one (41) signed proxies. He testified, and I so find, that upon receipt of the forty-one (41) proxies he examined them to see that they were signed, and verified same with the stock ledger of the company, which was in evidence before me; that he marked on each proxy the number of shares held by the person by whom the proxy purported to be signed, and that he tied them in a bundle and gave them to Max Mitchell. I find that the secretary was present throughout the meeting and kept a record of the same on a sheet of paper. At the close of the meeting he put the sheet of paper, together with the alleged proxies, in his compartment in the safe at the bank. The following day, or the day thereafter, he made up the minutes of the meeting mentioned in the report.

‘I find as a fact that the commissioner of banks, his agents and employees, made diligent search among the bank's effects for any proxies for the meeting of June 16 and found none. No evidence was introduced as to the identity of the persons who signed any of the alleged proxies, nor was any evidence introduced by the plaintiff to show whether any person or persons were designated as authorized to vote the alleged proxies, nor was any evidence introduced to show when said alleged proxies were delivered by said stockholders and to whom, except as above stated. I further find that the proxies were not checked at the meeting to ascertain whether the signers were present and voting in person, nor were they examined nor discussed in any way.

‘I find that the stockholders' records subsequent to June 16, 1919, do not disclose that the minutes of the meeting of June 16, 1919, were read and approved, and I therefore find that these records were never read and approved.’

‘From the records it is clear that those present at the meeting, with the exception of Adolf Leve, who was not a stockholder at the time, owned eight hundred and sixty-six (866) shares and that the proxies of forty-one stockholders, representing three hundred and sixty shares, were not used.

‘There was no evidence that the proxies authorized any person who was present at the meeting to vote such proxies, nor that any of the proxies were executed within six months of the meeting. No proxies were produced before me in evidence, nor was there any evidence that United States Internal Revenue stamps required by law had been affixed to the same and canceled prior to the date of said meeting. There was evidence, however, that the proxies were filed with the secretary some time prior to the meeting, that at the opening of the meeting they were handed by the secretary to the president, and that they remained on the desk in front of the president throughout the meeting.

‘Considering that Leve probably represented his wife, Claudine, and the fact that the president was informed by Mr. Friedman [a member of the bar and formerly counsel for and a director of the trust company] that a majority vote of the stockholders was necessary, and that the words ‘voted unanimously’ appeared before each vote, and finally, that the commissioner of banks approved the issue, as above indicated, I infer, if I have a right so to do from the above evidence, that the proxies were probably used, and that the president voted on the proxies and had the right to do so. I cannot state positively from the records and the evidence before me that there was any affirmative proof from which I could find definitely that a majority voted except from the inference above made by...