Commissioner of Banks v. Prudential Trust Company

• Decision Date: 28 June 1922
• Citation: 242 Mass. 78
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: COMMISSIONER OF BANKS v. PRUDENTIAL TRUST COMPANY & others.

242 Mass. 78

COMMISSIONER OF BANKS v. PRUDENTIAL TRUST COMPANY & others.

Supreme Judicial Court of Massachusetts, Suffolk.

June 28, 1922

March 7, 15, 1922.

Present: RUGG, C.

J., BRALEY, DE COURCY, & CARROLL, JJ.

Trust Company Stockholders' liability, In liquidation. Commissioner of Banks. Constitutional Law, Police power, Banking laws. Statute, Construction.

The commissioner of banks, when, pursuant to the provisions of G.L.c. 167, he takes and retains possession of the property and business of a trust company for the purposes of liquidation according to law, carries out a legislative policy and not a judicial direction and, while clothed with some of the powers of a receiver and in many respeets subject to the direction of the court, he is not a receiver, but is an executive or administrative and not a judicial officer.

It is an established rule that the adjudged interpretation of the words of a statute by the courts of the jurisdiction where it was enacted is intended to be adopted when afterwards the same statute is passed by the

Legislature of another State or country.

A bill in equity by the commissioner of banks against the stockbolders of a trust company contained allegations that he was in possession of the property and business of the trust company under G.L.c 167, that a creditor had obtained a judgment against the company, that execution had issued thereon, that demand for payment was refused by the company, that for thirty days thereafter the company had refused and neglected to exhibit to the officer any property subject to be taken on execution that the execution bad been returned unsatisfied, that the commissioner by a decree of court in appropriate proceedings had been authorized to enforce the liability of stockholders in accordance with the provisions of law, that it was necessary, in order to pay the debts of the company, to enforce the individual liability of the stockholders to the extent of $100 per share and that the commissioner had so determined. The prayers of the bill were "that the liability of the stockholders be determined," and "that the stockholders be ordered to pay the amount for which they may be found liable to the plaintiff to the extent of $100 per share."

Held, that the suit was based on G.L.c. 167, Section 24, and not on G.L.c. 172 Section 25.

A suit in equity by the commissioner of banks against the stockholders of a trust company of the property and business of which he is in possession under the provisions of G.L.c. 167, to enforee under Section 24 of the statute to the amount of $100 per share the stockholders' liability arising under G.L.c 172, Section 24, may be maintained on the determination of the commissioner of banks alone that an assessment of one hundred per cent on the shares of stock is necessary to pay the creditors of the company, and the stockholders are not entitled, before such suit is brought, to a hearing with full examination of the assets and liabilities of the company and a determination by the court of the necessity and amount of the assessment. Following Kennedy v. Gibson, 8

Wall. 498.

G.L.c. 167, Section 24, violates no provision of art. 14 of the Amendments to the Federal Constitution.

The liability of a stockholder to be responsible for debts of a trust company is a part of the contract by which the trust company assents to come into existence, and each person when he assumes the relation of a shareholder, whether at the organization or later, consents to this condition and becomes a party to its terms: this obligation, even though created by statute, is contractual in its nature and a stockholder cannot successfully assail the constitutionality of such an obligation assumed by his own free will.

The business of banking is of such general public interest as to be under the control of the Legislature within rational limits.

The determination by the commissioner of banks, in the circumstances above described, to collect an assessment of one hundred per cent from the shareholders of the trust company was not the exercise of a judicial function: it was a practieal business question to decide whether in the economical and expeditious settlement of an insolvent trust company the entire amount collectible should be demanded at once and the balance, if any, after paying the debts, be returned, or whether, in the general interest of all concerned, a less amount should be assessed.

No right secured by arts. 10, 11, 12 or 30 of the Declaration of Rights is violated by G.L.c. 167, Section 24.

BILL IN EQUITY, filed in the Supreme Judicial Court on April 22, 1921, and afterwards amended, by the commissioner of banks in possession of the property and business of the Prudential Trust Company against the Prudential Trust Company and seventy-two stockholders, praying "that the liability of the stockholders be determined," and "that the stockholders be ordered to pay the amount for which they may be found liable to the plaintiff to the extent of $100 per share."

The suit was heard by Crosby, J., upon the bill and the answers of certain defendants. It appeared that no issue was raised except under a paragraph of the bill in which it was alleged that it was "necessary to pay the debts of said Prudential Trust Company to enforce the individual liability of the stockholders to the extent of $100 per share" and that the commissioner had so determined. The only evidence of the necessity to enforce the individual liability of the stockholders was the determination by the commissioner of banks that an assessment of one hundred per cent on the holdings of the stockholders was necessary to pay the creditors of the Prudential Trust Company. The single justice found that, if he had "the power to so determine, unsupported by any report of assets or claims of the Prudential Trust Company. . . . the commissioner has so determined. The single justice ruled that the commissioner had the povnr so to determine," and reported for determination by the full court the question, whether or not a decree should be entered in this proceeding against stockholders of the Prudential Trust Company for an assessment of one hundred per cent upon the capital stock owned and held by them, upon such determination by the commissioner alone, if he had the right so to determine. "If the full court is of opinion that such decree can be made upon evidence only of such determination by the commissioner (if he has the power so to determine), then a decree is to be entered for the plaintiff requiring each defendant to pay the sum of $100 for each share of stock in the Prudential Trust Company owned by him. If the court is of the opinion that such decree cannot be made upon such evidence only, and that stockholders are entitled to a full examination of the assets and liabilities of the Prudential Trust Company, so that the court may determine what, if any, assessment is necessary, then the case is to be referred to a single justice or master for such further action as may be necessary."

G.L.c. 172, Section 24, reads as follows: "The stockholders of such corporation shall be personally liable, equally and ratably and not one for another, for all contracts, debts and engagements of the corporation, to the amount of their stock therein at the par value thereof, in addition to the amount invested in such shares. Sections forty-six, forty-seven and forty-nine to fifty-four inclusive, of chapter one hundred and fifty-eight shall apply to and regulate the enforcement of such liability, and receivers of insolvent trust companies may, with the approval of the Supreme Judicial Court, enforce such liability."

G.L.c. 167, Section 24, reads as follows: "Upon taking possession of the property and business of such bank, the commissioner may collect moneys due to the bank, and do all acts necessary to conserve its assets and business, and shall proceed to liquidate its affairs as hereinafter provided. He shall collect all debts due and claims belonging to it, and upon the order or decree of the Supreme Judicial Court, or any justice thereof, may sell or compound all bad or doubtful debts, and on like order or decree may sell all, or any part of, the real and personal property of the bank on such terms as the court shall direct; and he may, if necessary to pay the debts of any such trust company, enforce the individual liability of the stockholders."

G.L.c. 172, Section 25, reads as follows: "Any such corporation whose stockholders are liable under the preceding section and whose capital stock has, in the opinion of the commissioner, become impaired by losses or otherwise, shall, within three months after receiving notice from the commissioner, pay the deficiency in the capital stock by assessment upon the stockholders pro rata to the shares held by each. If such corporation shall fail to pay such deficiency in its capital stock for three months after receiving such notice, the commissioner may apply to the Supreme Judicial Court for an injunction; and if a stockholder of such corporation neglects or refuses, after three months' notice, to pay the assessment as provided in this section, the board of directors shall cause an amount of his stock sufficient to make good his assessment to be sold by public auction, after thirty days' notice given by posting such notice in the office of the corporation and by publishing it in a newspaper of the city or town where the corporation is located or in a newspaper published nearest thereto; and the balance, if any shall be returned to such delinquent stockholder. This section shall not take away the right of creditors to enforce the liability of stockholders in such corporations, as provided in the preceding section, nor increase the general liability of...