In re Union Bank of Brooklyn

• Decision Date: 02 February 1912
• Citation: 97 N.E. 737,204 N.Y. 313
• Parties: In re UNION BANK OF BROOKLYN.
• Court: New York Court of Appeals Court of Appeals

204 N.Y. 313

97 N.E. 737

In re UNION BANK OF BROOKLYN.

Court of Appeals of New York.

Feb. 2, 1912.

Appeal from Supreme Court, Appellate Division, Second Department.

In the matter of the examination of the Union Bank of Brooklyn . From an order of the Second Appellate Division (133 N. Y. Supp. 62) affirming an order refusing to vacate a warrant of attachment against Edward M. Grout, he appeals adversely to George C. Van Tuyl, Jr., Superintendent of Banks. Reversed, and motion to vacate granted.

See, also, 133 N. Y. Supp. 1147.

Martin W. Littleton, for appellant.

Thomas Carmody, Atty. Gen. (Wilber W. Chambers, of counsel), for respondent.

WERNER, J.

[1][2] On the 5th day of April, 1910, the state superintendent of banks took possession of the Union Bank of Brooklyn for the purpose of liquidating its affairs. The only authority for that act is to be found in section 19 of the banking law (Cons. Laws 1909, c. 2). That section was enacted in 1908 (chapter 143, § 3), and it provides: ‘Whenever it shall appear to the superintendent that any corporation or individual banker to which this chapter is applicable has violated its charter or any law of the state, or is conducting its business in an unsafe or unauthorized manner, or if the capital of any such corporation of individual banker is impaired, or if any such corporation or individual banker shall refuse to submit its books, papers and concerns to the inspection of any examiner, or if any officer thereof shall refuse to be examined upon oath touching the concerns of any such corporation or individual banker, or if any such corporation or individual banker shall suspend payment of its obligations, or if from any examination or report provided for by this chapter the superintendent shall have reason to conclude that such corporation or individual banker is in an unsound or unsafe condition to transact the business for which it is organized, or that it is unsafe and inexpedient for it to continue business, or if any such corporation or individual banker shall neglect or refuse to observe an order of the superintendent specified in section seventeen of this chapter, the superintendent may forthwith take possession of the property, and business of such corporation or individual banker, and retain such possession until such corporation or individual banker shall resume business, or its affairs be finally liquidated as herein provided.’ The section continues at great length and in minute detail to specify what the superintendent shall do after he has taken possession of a bank pursuant to its provisions.

The most conspicuous feature of that part of the section which we have quoted is the particularity with which it enumerates the various things which must happen or exist before the superintendent has any right to take possession of a bank. One or more or all of the conditions specified must exist and must ‘appear to the superintendent’ before he is authorized to exercise this drastic power. As we read the statute, it charges the superintendent with the duty of investigation for the purpose of deciding whether it is his duty to take possession; but it gives him no power to take possession for the purpose of conducting a post mortem investigation. The title of the section, ‘proceedings against and liquidation of delinquent corporations and individual bankers,’ the context of that part which we have quoted, the provisions which follow the quotation, and the conditions which brought about its enactment, all conspire to stamp this as a statute under which the superintendent is empowered to take possession of a bank, not as a public inquisitor, but as a receiver and conservator of its assets. 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 receivershipsin 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. That this was and is the nature and extent of the power conferred upon the superintendent by section 19 is clearly evidenced by its context. ‘Whenever it shall appear to the superintendent that any corporation or individual banker’ is doing business under the conditions forbidden by the statute, and which prior to 1908 would have authorized the appointment of a receiver, ‘the superintendent may forthwith take possession,’ and retain it until there is a resumption of the business or a final liquidation. The statutory enumeration of the superintendent's duties which follow upon the taking of such possession very clearly indicates the legislative intent to transfer to the superintendent the general duties and functions which had theretofore been exercised by receivers. The closest scrutiny of this section 19 fails to disclose a single word or sentence giving to the superintendent any power to supplement his receivership by a public investigation. The plain theory of the statute is that the superintendent shall not take possession of a bank for purposes of liquidation until after he has made an examination from which it appears that the conditions warrant the exercise of the power.

This construction of section 19 is sustained by the provisions of section 8 of the banking law. The latter section was in force when the former was enacted. The earlier section (8) was not amended by the enactment of 1908 (19), and its provisions very clearly define the general powers of the superintendent of banks in the examination of corporate and individual banks. The opening sentence of the section (8) declares that the banks and bankers specified in the act ‘shall be subject to the inspection and supervision of the superintendent of banks.’ This broad statement is then followed by directions which prescribe the limitations and conditions under which such inspection and supervision shall be conducted. Either in person, or through competent examiners, the superintendent shall visit such banks at least twice a year, and ‘on every such examination inquiry shall be made as to the condition and resources of the corporation, the mode of conducting and managing its affairs, the action of its directors, the investment of its funds, the safety and prudence of its management, the security afforded to those by whom its engagements are held, and whether the requirements of its charter and of law have been complied with in the administration of its affairs, and as to such other matters as the superintendent may prescribe.’ These directions of section 8 very plainly relate to the periodical examinations which the superintendent or his examiners are required to make at least twice in each year; and it is interesting to note that the language of this section has been very closely followed in the affidavits used on behalf of the superintendent to maintain his right to the examination now in progress. We are at a loss to know in what portion of the above quoted part of this section there is to be found any authority for any examinations except such as are made periodically for the purpose of enabling the superintendent to determine whether a going bank is properly conducting its business, safely investing its funds, prudently managing its affairs, adequately securing those by whom its engagements are held, and in every other way complying with the provisions of its charter and of law. Every...