McMurray v. Security Bank of Lynnwood

• Decision Date: 02 July 1964
• Docket Number: No. 37280,37280
• Citation: 393 P.2d 960,64 Wn.2d 708
• Court: Washington Supreme Court
• Parties: Joseph C. McMURRAY, Supervisor, Division of Banking, Department of General Administration, Respondent. v. SECURITY BANK OF LYNNWOOD, Washington, a corporation, Appellant.

Page 708

64 Wn.2d 708

393 P.2d 960

Joseph C. McMURRAY, Supervisor, Division of Banking Department of General Administration, Respondent. v. SECURITY BANK OF LYNNWOOD, Washington, a corporation, Appellant.

No. 37280.

Supreme Court of Washington, En Banc.

July 2, 1964.

Rehearing Denied Sept. 16, 1964.

Michelson, Kershner & Rutter Lynnwood, Ivan Merrick, Jr., Everett, for appellant.

John J. O'Connell, Atty. Gen., and Herbert Gelman, Gary Sullivan, Asst. Attys. Gen., Olympia, for respondent.

Clarence J. Coleman, Coleman & Coleman, Everett, amicus curiae.

OTT, Chief Justice.

The legislature, in 1959, amended the state banking laws relative to the organization and powers of a state bank by adding subd. (7) to RCW 30.08.020, as follows:

'Persons desiring to incorporate a bank or trust company shall execute articles of incorporation in quadruplicate, which shall be submitted for examination to the supervisor at his office in Olympia.

'Articles of incorporation shall state:

'* * *

'(7) That for a stated number of years, which shall be not less than ten nor more than twenty years from the date of approval of the articles (a) no voting share of the corporation shall, without the prior written approval of the supervisor, be affirmatively voted for any proposal which would have the effect of sale, conversion, merger, or consolidation to or with, any other banking entity or affiliated financial interest, whether through transfer of stock ownership, sale of assets, or otherwise, (b) the corporation shall take no action to consummate any sale, conversion, merger, or consolidation in violation of this subdivision, (c) this provision of the articles shall not be revoked, altered, or amended by the shareholders without the prior written approval of the supervisor, and (d) all stock issued by the corporation shall be subject to this subdivision and a copy hereof shall be placed upon all certificates of stock issued by the corporation.'

The following statutes relating to organization and powers were not amended in 1959.

RCW 30.08.030 provides:

'When articles of incorporation complying with the foregoing requirements have been received by the supervisor, together with the fees required by law, he shall ascertain RCW 30.08.040 provides for appeal from the supervisor's decision, in the event he should refuse to approve the articles of incorporation.

from the best source of information at his command * * * whether the resources in the neighborhood of such place and in the surrounding country afford a reasonable promise of adequate support for the proposed bank and whether the proposed bank or trust company is being formed for other than the legitimate objects covered by this title.'

RCW 30.08.050 provides in part:

'In case of approval the supervisor shall forthwith give notice thereof to the proposed incorporators and file one of the quadruplicate articles of incorporation in his own office, and shall transmit another quadruplicate to the county auditor of the county in which such bank or trust company is located, and another quadruplicate to the secretary of state, and the fourth quadruplicate to the incorporators. * * *'

Pursuant to these statutory mandates, the incorporators of the Security Bank of Lynnwood sought approval of the supervisor of banking of the articles of incorporation, and authority to engage in business as a state bank in Lynnwood, Washington.

Article 7 of the proposed articles of incorporation provided:

'That for a period of not less than ten (10) years from the date of approval of these Articles, without the prior written approval of the Supervisor of Banking,

'(a) No voting share of the corporation shall be affirmatively voted for any proposal which would have the effect of sale, conversion, merger, or consolidation to or with, any other banking entity or affiliated financial interest, whether through transfer of stock ownership, sale of assets, or otherwise.

'(b) The corporation shall take no action to consummate any sale, conversion, merger, or consolidation in violation of this subdivision.

'(c) This provision of the Articles shall not be revoked, altered, or amended by the shareholders.

'(d) All stock issued by the corporation shall be subject to this subdivision and a copy hereof shall be placed upon all certificates of stock issued by the corporation.'

The articles of incorporation being in conformity with the mandate of the legislature, the supervisor, following the required investigation, granted the incorporators authority, on April 12, 1961, to incorporate and do business at Lynnwood, Washington, as a state bank. The corporation will hereafter be referred to as the Security Bank.

April 16, 1963, the Security Bank sought to convert its status from a state to a national bank without seeking the written approval of the supervisor of banking, in violation of Article 7 of its articles of incorporation.

The supervisor of banking commenced this action in the Superior Court for Snohomish County to prevent the Security Bank from converting to a national bank without his written approval. A temporary restraining order was granted.

The Security Bank answered the complaint and sought a declaratory judgment that approval of the supervisor was not required, by virtue of RCW 30.49.020 (enacted in 1955), which provides in part:

'Nothing in the law of this state shall restrict the right of a state bank to merge with or convert into a resulting national bank. * * *'

From the judgment requiring the written approval of the supervisor of banking, the Security Bank has appealed.

Article 7 of Security Bank's articles of incorporation is a statutory prerequisite to its right to exist. RCW 30.08.020(7). It is an article which, by its terms, cannot be 'revoked, altered, or amended by the shareholders' without the 'prior written approval of the Supervisor of Banking.' The articles of incorporation constitute a part of its contract with the state which chartered it. State ex rel. Swanson v. Perham, 30 Wash.2d 368, 375, 191 P.2d 689 (1948); Opdyke v. Security Savings & Loan Co., 157 Ohio St. 121, 105 N.E.2d 9 (1952). Article 7 requires that the supervisor of banking approve any proposal which has the effect of a

'* * * sale, conversion, merger, or consolidation to or with, any other banking entity or affiliated financial interest We are here concerned with a conversion from a state-chartered bank to a resulting national bank. Such conversion is accomplished by surrendering the stock in the state bank for stock in the resulting national bank, which is a transfer of stock ownership to another banking entity.

whether through transfer of stock ownership, sale of assets, or otherwise.' (Italics ours.)

Assuming, arguendo, that this is not a transfer of stock ownership, such as contemplated by the statute, and that it is not a sale of assets, the words 'or otherwise' would include this method of accomplishing the conversion. The proposed conversion by the Security Bank to a resulting national bank is governed by RCW 30.08.020 and by its articles of incorporation.

The Security Bank, in justification of its position that the consent of the supervisor of banking is not necessary to its conversion to a resulting national bank contends (1) that the resulting national bank would not be another banking entity, and (2) that, since the means of accomplishing the conversion is not a transfer of stock ownership or a sale of assets, the words 'or otherwise' are limited to something in the nature of such a transfer or sale, under the rule of ejusdem generis.

The first hypothesis--that the resulting national bank is not another banking entity--is based upon RCW 30.49.080, which provides in part:

'A resulting state or national bank shall be the same business and corporate entity as each merging state or national bank or as the converting state or national bank with all property, rights, powers and duties of each merging state or national bank or the converting state or national bank, except as affected by the state law in the case of a resulting state bank or the federal law in the case of a resulting national bank, and by the charter and bylaws of the resulting state or national bank.'

As pointed out in First Trust Co. of St. Paul v. United States, D.C., 15 F.Supp. 634 (1936), the purpose of such a provision is to secure to the new or resulting corporation succession to those properties and trade relations which are In discussing this 'same entity' concept, courts have generally dealt with issues among shareholders, creditors, and other private parties who have contracted with the original bank.

not transferable from one corporation to another without enabling legislation.

We cannot believe that the legislature had such a concept in mind in requiring that Article 7 be made a part of the articles of incorporation of all state banks. It is inescapable that, in its relation to the state, a state-chartered bank which converts to a resulting national bank does, by that process, become another 'banking entity.' In support of this conclusion, RCW 30.49.020 provides in part:

'Upon the completion of the merger or conversion, the franchise of any merging or converting state bank shall automatically terminate.'

As stated in Opdyke v. Security Savings & Loan Co., Ohio Com.Pl., 9 N.E.2d 435 (1950):

'* * * Conversion, on the other hand, imports a change or transformation into another and entirely new entity with all of its assets giving the life blood to the new corporation in the furtherance of the same business as originally undertaken by the corporation, however under a new name and under new laws and regulations.' (This case was affirmed by the Court of Appeals, Cuyahoga County, 99 N.E.2d 84 (1951), and by the Supreme Court of Ohio, 157 Ohio St. 121, 105 N.E.2d 9 (1952).)

We conclude that the 'same entity' concept of RCW 30.49.080 has no application to the restrictions which the legislature required be...