Ex parte Tennessee Valley Bank

• Decision Date: 16 January 1936
• Docket Number: 8 Div. 670
• Parties: Ex parte TENNESSEE VALLEY BANK.
• Court: Alabama Supreme Court

166 So. 1

231 Ala. 545

Ex parte TENNESSEE VALLEY BANK.

8 Div. 670

Supreme Court of Alabama

January 16, 1936

Rehearing Denied March 5, 1936

Original proceeding on the petition of the Tennessee Valley Bank for mandamus to W.W. Callahan, as judge of the Circuit Court of Morgan County. On demurrer to the petition.

Demurrer overruled.

Bradley Baldwin, All & White, of Birmingham, and S.A. Lynne, of Decatur, for petitioner.

L.E Birdzell and John W. Lapsley, both of Washington, D.C., amici curiae for Federal Deposit Ins. Corporation.

Julian Harris, Norman Harris, and A.J. Harris, all of Decatur, for respondent.

GARDNER Justice.

Petition for mandamus to require that a certain action instituted by Mary Vellisarian against the Tennessee Valley Bank be transferred from the law side of the circuit court of Morgan county to the equity docket, and to grant defendant's (in said law case) motion filed in the circuit court for that purpose.

For a proper review of the questions, petitioner has pursued the appropriate remedy. Smith v. Grayson, 214 Ala. 197 107 So. 448; Ex parte Louisville & Nashville R.R. Co., 211 Ala. 531, 100 So. 843; Jones v. Wright, 220 Ala. 406, 125 So. 645.

In the motion for a transfer, specific reference is made to the cause pending on the equity docket of said court to which the motion was directed. Cogburn v. Callier, 213 Ala. 38, 104 So. 328. It was not therefore necessary that copies of these proceedings be made a part of the motion, as the court took judicial knowledge thereof. Louisville & Nashville R.R. Co. v. Shikle, 206 Ala. 494, 90 So. 900; Moon v. Hines, 205 Ala. 355, 87 So. 603, 13 A.L.R. 1020.

The petition here properly contained these pleadings that this court may be sufficiently informed for appropriate action in the premises.

Respondent's motion to dismiss is not well taken.

Considered upon its merits, we conclude the demurrer to the petition is likewise due to be overruled.

The Tennessee Valley Bank was a corporation with banking powers, and with its principal place of business at Decatur, Ala. Under its charter, however, the bank conducted a banking business at numerous localities in North Alabama, a privilege considered of much value, particularly in view of the present inhibitions contained in section 6354, Code 1923, and a matter of importance in consideration of the question of a reopening of the bank upon reorganization.

In common with all other banks in the state, the bank was closed on proclamation of the Governor on February 28, 1933, and so far as general transaction of business was concerned, remained closed until the date of its reopening as a reorganized bank in October, 1934. On March 22, 1934, the property and business of the bank was surrendered by its board of directors for liquidation to the superintendent of banks (section 6300, Code 1923), and notice to creditors duly published. Section 6310, Code 1923.

To the time of such surrender the business of the bank was limited to the receipt and disbursement of special deposits as authorized by the statute (Gen.Acts 1933, Ex.Sess., p. 39), and no withdrawal of deposits made prior to March 1, 1933, was permitted, with the exception of withdrawals of 5 per cent. of the net balance of depositors on March 2d, 3d and 4th, authorized by the state banking board. The special deposits received were protected as trust funds by segregated assets. They are not here involved, and may be laid to one side.

The superintendent of banks appraised the assets of the bank, and found it to be insolvent. And upon the hearing of the petition of the superintendent, the circuit court of Morgan county, sitting in equity (the court exercising jurisdiction in the premises--section 6307, as amended by Gen.Acts 1931, p. 244; sections 6312, 6315, 6317, Code 1923), found that the bank had no surplus or undivided profits, and that its capital stock was without value. In his petition the superintendent recommended as in the best interest of the creditors and in the public interest generally that there be a reorganization of the bank. In addition to its deposit liability, the bank was largely indebted on account of loans secured by pledge of valuable assets.

A loan must therefore be obtained in order to effect a sound reorganization, the stockholders being unable to furnish sufficient funds to place the bank in a solvent condition. The only source for the loan appeared to be the Reconstruction Finance Corporation, commonly referred to as the "R.F.C."

In recommending the bank's reorganization, the superintendent was but co-operating with the depositors and common creditors, as authorized by statute (Gen.Acts 1932, Ex.Sess., p. 11), of whom more than three-fourths in value of deposits and common claims had executed an agency agreement wherein five named individuals were given broad powers to effectuate such purpose. In pursuance of such authority, these agents presented a comprehensive plan made an exhibit to the petition filed by the superintendent in the circuit court. The agency agreement recited as its purpose not only the protection of the interest of the depositors, but also the resumption of the "unrestricted operation of this banking institution throughout the Tennessee Valley."

The plan submitted looked to a like end, and expressly provided that the bank, as reorganized, be discharged from all liability to existing creditors and depositors (exception not important), who must look only to the assets in the hands of the agents, and whose claims are to be enforceable only in the manner therein provided, that is, in "the court in the cause pending therein with reference to the liquidation of the bank."

The plan of reorganization recognized that its consummation was dependent, not only upon the ability of the superintendent to borrow funds from R.F.C. or other lenders, but also upon the security of an agreement on the part of the lender "that neither the reorganized bank nor any of its assets or property shall be liable or stand as security for the payment of any part of such loan."

And the superintendent in his petition likewise stated such exemption from liability was essential, and he would not approve any plan without such release from liability. The plan authorized the superintendent to proceed with a negotiation for a loan, and subject to the approval of the court to furnish security therefor.

There are many details unnecessary here to enumerate. Suffice it to say that upon the hearing of the petition of the superintendent, and after due notice given as provided by law (Gen.Acts 1932, Ex.Sess., p. 11), the plan of reorganization was approved by the court in its decree of April 16, 1934, and in accord with the statute (Gen.Acts 1932, Ex.Sess., p. 11), it was decreed that "all the depositors and common creditors are hereby required to accept said plan." The court further decreed that the superintendent and the named agents were authorized to proceed with the execution of said plan, and were directed from time to time to report their acts in respect thereto, and for further decree of the court. Jurisdiction for all further orders and decrees was expressly reserved.

We have previously noted the value of the privilege of engaging in branch banking authorized by the charter of the bank, and the desire for a continuance thereof, to the end that these various localities might be accorded banking accommodations as theretofore, and the difficulty in the way by reason of the present prohibition against branch banking under our statute (section 6354, Code 1923). There was necessity, therefore, from a practical standpoint, that the corporate entity be retained, and for successful operation following a reopening it was also essential that the bank, as reorganized, be released, not only from its depositors and common creditors, but also free from any liability on account of any loan made, to secure capital funds for reopening, without which funds no reopening could be had. The superintendent was given ample authority under the statute (Gen.Acts 1932, Ex.Sess., p. 21) to borrow money and pledge assets of the bank therefor, but any note executed therefor was to be treated as the obligation of the bank.

It developed, in the negotiation for a loan by the superintendent, as authorized by the court's decree, that while the R.F.C. was willing to make the loan to the superintendent, yet was unwilling to release it from liability for any deficiency. In order, therefore, to effectuate the purpose of reorganization and place the bank upon a sound basis when reopened, some change of procedure was necessary. In this change R.F.C. co-operated, and a corporation was organized under the laws of Alabama, known as the Valley Mortgage Company, with capital funds furnished by individuals. The assets upon the security of which R.F.C. had agreed to make the loan were sold to this new corporation, which was to obtain the loan from R.F.C., and pay over to the superintendent the proceeds of such loan for application towards the expenses of liquidation and distribution to depositors and creditors. That there might arise a necessity for a loan to be made in this manner, rather than directly by the superintendent, was contemplated by the plan which had been approved by the court in its decree of April 16, 1934. Broad authority was conferred upon the agents in the agency agreement to transfer or cause to be transferred to themselves the assets of the bank, to borrow money, to pledge any or all of the assets, and to create a body corporate to serve in carrying out the purposes therein set forth, and the plan itself contains similar provisions.

There were many details necessitated by the changed plan unnecessary here to note, all of which were set out in the petition...