Koch v. Morsemere Trust Co.

• Decision Date: 03 February 1931
• Citation: 153 A. 498
• Parties: KOCH et al. v. MORSEMERE TRUST CO.
• Court: New Jersey Court of Chancery

153 A. 498

KOCH et al.

v. MORSEMERE TRUST CO.

Court of Chancery of New Jersey.

Feb. 3, 1931.

Syllabus by the Court.

Section 22 of "An act concerning trust companies (Revision of 1899)," as amended by chapter 171 of the Laws of 1913 (2 Comp. St. Supp. 1924, p. 3750, § 221—22), authorizes the commissioner of banking and insurance, under certain circumstances therein mentioned, to take possession virtute officii of a trust company's property and business, and retain such possession until such company shall resume business, or its affairs be finally liquidated as therein provided, and empowers him to prosecute and defend suits and other legal proceedings in the name of the trust company.

Syllabus by the Court.

Section 24 of said act, as amended (2 Comp. St. Supp. 1924, p. 3754, § 221—24) provides that, whenever any trust company shall become insolvent, or shall suspend its ordinary business for want of funds to carry on the same, the Attorney General, or any creditor or stockholder, may, by petition or bill of complaint setting forth the facts and circumstances of the case, apply to the Court of Chancery for a writ of injunction and the appointment of a receiver or receivers or trustees, and the court, being satisfied by affidavit or otherwise of the sufficiency of the application, and of the truth of the allegations contained in the petition or bill, and upon such notice, if any, as the court by order may direct, may proceed in a summary way to hear the affidavits, proofs, and allegations which may be offered on behalf of the parties, and, if upon such inquiry it shall appear to the court that the trust company has become insolvent, and is not about to resume its business in a short time thereafter, with safety to the public and advantage to the stockholders, it may issue an injunction to restrain such company and its officers and agents from exercising any of its privileges or franchises.

Syllabus by the Court.

Section "25 of said act (2 Comp. St. 1910, p. 5964) provides inter alia for the ap pointment of a receiver or receivers or trustees for the creditors and stockholders of the trust company, with full power and authority to demand, sue for, collect, receive, and take possession of all the property of the corporation, and to institute suits at law or in equity for the recovery of any estate, property, damages, or demands existing in favor of the corporation, and to compound and settle with any debtor or creditor of the corporation, or with persons having possession of its property or in any way responsible at law or in equity to the corporation at the time of its insolvency or suspension of business, or at the time of the appointment of a receiver, or afterwards, and, in case of mutual dealings between the corporation and any person, to allow just set-offs in favor of such person in all cases in which the same ought to be allowed according to law and equity.

Syllabus by the Court.

Two schemes are provided for the winding up of a trust company—one by the commissioner of banking and insurance as a statutory agent and the other by a receiver in insolvency proceedings.

Syllabus by the Court.

The winding up of an insolvent trust company, a proceeding essentially judicial in its nature, is confided to the Court of Chancery, while, for corporate acts not in and of themselves amounting to insolvency, the commissioner of banking and insurance by section 22 of the Trust Company Act, as amended, is authorized to take possession of the company's property and business and liquidate its affairs. Syllabus by the Court.

The activities of the commissioner of banking and insurance under section 22 of the Trust Company Act, as amended, are limited to instances where the assets of the trust company, after. payment of expenses of liquidation, will suffice to pay to all of its depositors and creditors (not including stockholders) the full amount of their claims.

Syllabus by the Court.

The appointment of a receiver is not a matter of absolute legal right. Sound discretion should be exercised by the court before any such appointment is made.

Syllabus by the Court.

The extraordinary powers conferred by sections 24 and 25 of the Trust Company Act, as amended (similar in many respects to the powers conferred by sections 65 and 66 of the General Corporation Act [2 Comp. St. 1910, pp. 1640, 1643]), should be cautiously exercised, and only when the circumstances of the case and the ends of justice require should the court take the affairs of a trust company out of the possession of the commissioner of banking and insurance and turn same over to a receiver or receivers or trustees.

Suit by George Koch and others against the Morsemere Trust Company. On order to show cause why the defendant corporation should not be declared insolvent and restrained from exercising its privileges or franchises and why a receiver should not be appointed.

Bill of complaint retained, and order to show cause discharged without prejudice to renewed application.

Wright, VanderBurgh & McCarthy, of Hackensack, for complainant.

John P. Maloney, of New York City, for intervening depositors.

Walter L. Hetfield, Jr., of Plainfield, for commissioner of banking and insurance.

FALLON, Vice Chancellor.

This matter is before the court on the return of an order to show cause why the defendant should not be declared insolvent, why an injunction should not issue to restrain the defendant and its officers and agents from exercising any of its privileges or franchises, and why a receiver should not be appointed for the defendant. No appearance or defense is made by the defendant. Although the commissioner of banking and insurance is not a party defendant herein, nevertheless, because of the fact that he virtute officii is in possession of the defendant trust company, a copy of the order to show cause was served upon him, and he and his counsel appeared in response thereto, and were offorded an opportunity to be heard with respect to the matter sub judice. The complainants' bill and affidavits show that said commissioner has recently taken possession of the defendant trust company. His authority therefor is based upon section 22 of "An act concerning trust companies (Revision of 1899)," P. L. p. 463, as amended by chapter 171, p. 282, of the Laws of 1913 (2 Comp. St. Supp. 1924, § 221-22, p. 3750), which provides inter alia that, whenever it shall appear to said commissioner that a trust company has violated its charter or any law of this state, or is conducting its business in an unsafe or unauthorized manner, or if from any examination or report provided for by said act he shall have reason to conclude that such company is in an unsound or unsafe condition to transact business, or that it is unsafe or inexpedient for it to continue business, he may forthwith take possession of the property and business of such trust company, and retain such possession until such company shall resume business or its affairs be finally liquidated as therein mentioned, and empowers him to prosecute and defend suits and other legal proceedings in the name of the trust company.

Complainants' suit is based upon sections 24 and 25 of the aforesaid act, as amended. Section 24 (as amended [2 Comp. St. Supp. 1924, p. 3754, § 221-24]) provides that, whenever any trust company shall become insolvent, or shall suspend its ordinary business for want of funds to carry on the same, the Attorney General, or any creditor or stockholder, may, by petition or bill of complaint setting forth the facts and circumstances of the case, apply to the Court of Chancery...