Milner v. Gibson

• Decision Date: 06 June 1933
• Citation: 249 Ky. 594,61 S.W.2d 273
• Parties: MILNER et al. v. GIBSON et al.
• Court: Kentucky Court of Appeals

61 S.W.2d 273

249 Ky. 594

MILNER et al. v. GIBSON et al.

Court of Appeals of Kentucky

June 6, 1933

Appeal from Circuit Court, Breckinridge County.

Proceedings by J. B. Gibson and others opposed by Mrs. William L. Milner and others for the approval of a plan for reorganizing and reopening the Farmers' Bank & Trust Company of Hardinsburg. The circuit court, after the Banking and Securities Commissioner disapproved the plan, approved the plan of reorganization, and the opponents appeal.

Judgment affirmed.

J. R Eskridge, Moorman & Beard, and David C. Walls, all of Hardinsburg, Sandidge & Sandidge, of Owensboro, and Bailey P Wootton, Atty. Gen., and Overton S. Hogan, Asst. Atty. Gen for appellants.

P. M. Basham, of Hardinsburg, and John P. Haswell, of Louisville, for appellees.

R. Miller Holland, Richard H. Slack, and Cary, Miller & Kirk, all of Owensboro, and W. S. Ball, of Hardinsburg, amici curiae.

RICHARDSON Justice.

The major question presented by this appeal is the constitutionality of an Act of the General Assembly, chapter 19 of the Acts of 1932, page 116. It directs the banking and securities commissioner, during the period of liquidation of any bank or trust company or combined bank and trust company, organized under the laws of this commonwealth, to permit the depositors to perfect a plan and articles of agreement, outlining, in general, a proposed plan of consolidation or reopening of such bank, trust company, or combined bank and trust company, and confers authority on him to approve or veto such plan and reopening of the institution.

On the 15th day of January, 1932, prior to its enactment, the Farmers' Bank & Trust Company, engaged in the business of a combined bank and trust company at Hardinsburg, Breckinridge county, Ky. closed its doors and placed all of its assets and property of whatever nature in the possession of the banking and securities commissioner as provided by section 165a-17, Ky. Statutes. Since that time, the banking and securities commissioner, by one of his deputies, has been continuously in charge of the bank and trust company as authorized by section 165a-17, Ky. Statutes, exercising the authority conferred on him by section 165a-1 et seq. One portion of section 165a-17 reads:

"The banking commissioner shall cause notice to be given by advertisement in such newspapers as such bank's semi-annual reports are published, weekly for three consecutive months, calling on all persons who may have claims against such insolvent bank to present the same to the banking commissioner, and make legal proof thereof, at a place and within a time not more than six months after the last date of publication, to be therein specified. He shall mail a copy of such notice to all persons whose names appear as creditors upon the books of such bank. *** Claims presented after the notification of the time fixed in the notice to creditors, shall be entitled to share ratably in the distribution to the extent of the assets in the hands of the banking commissioner, equitably applicable thereto.

The assets of any bank in liquidation under this act shall be applied (a) to the payments of costs and charges of liquidation, and preferred claims; (b) to satisfaction of secured claims to the extent of such security; (c) to the satisfaction of all other debts, including unsatisfied balances of secured claims, ratably and without preference to the amount allowed at the time of distribution, and (d) the residue, after all liabilities are paid shall be distributed for the benefit of the stockholders ratably, or may, on their request, be turned over to them or their agent for settlement."

The same section provides that within thirty days after the commissioner takes charge of any bank, or combined bank and trust company, under the provisions thereof, he shall file in the office of the clerk of the circuit court in the county in which it is located a detailed statement of the form prescribed in section 165a-10, including the amount of assets and liabilities of the bank or bank and trust company, and thereafter on the first day of each succeeding session of the circuit court, or sixty days in counties having courts of continuous session, he shall file a report of his acts and doings in the administration of such bank or bank and trust company, since the last report. It also provides that any person, firm, or corporation may, by petition addressed to the circuit court, have any act of such commissioner reviewed by the court in the same manner and by the same rights and powers as would have attached had such commissioner been regularly appointed by the court.

A casual reading of the act of 1932 shows that it deals with and relates to the reorganization of suspended or closed banks and trust companies, and that its purpose is to confer on the depositors, subject to the approval or veto of the banking and securities commissioner and circuit court of the county in which it is located, privileges not accorded them by chapter 9b, or section 165a-1 to, and including section 165a-22, Ky. Statutes. It is plain that the act of 1932 merely provides a plan of reorganization and reopening of the institution then in process of liquidation. It provides that not less than 25 per cent. of the depositors, with deposits in excess of $25 each, may notify, in writing, the banking and securities commissioner that they desire to attempt to reorganize or otherwise reopen or consolidate such bank or trust company or combined bank and trust company, then it shall be his duty to suspend the process of liquidation and preserve the assets of the institution and permit the depositors, within a reasonable time, to perfect a plan and articles of agreement, outlining, in general, the proposed plan, and to procure the signatures of depositors representing 75 per cent. of all debts, exclusive of deposits of less than $25.

The required number of depositors of the Farmers' Bank & Trust Company originated a plan of reorganization and reopening of the bank and trust company, procured the signatures of more than 75 per cent. of the depositors as required by the act of 1932, presented it to the banking and securities commissioner for his approval or veto. On his declining to do so, they presented their petition as authorized by section 165a-17, addressed to the circuit court of the county in which the bank was located, and in which the proceeding was pending for the liquidation of the bank and trust company, and sought the intervention of the court to adjudge their rights to the reorganization.

Certain questions of practice and procedure were presented in the circuit court, which we shall hereafter consider. The court, after considering the pleadings and the evidence adduced, decreed that the petitioning depositors were entitled to reorganize and reopen the bank in accordance with the plan set forth in the order of court. Certain of the depositors, the banking and securities commissioner and his deputy, are here challenging the validity of the act of 1932, insisting that the relations of debtor and creditor existed between the depositors and the bank prior to, and at the time of, the enactment of the 1932 act, and that it destroys such relations and deprives them of the benefits of section 165a-17, Ky. Statutes; that it requires a surrender, forfeiture, or cancellation of a part of their claims against the bank, and the right to look to the double liability of the stockholders as well as a right of action against the officers and directors of the bank for their malfeasance in office.

It is also insisted that the act of 1932 is within the inhibition of the due process clause of the Constitution of the United States (Amendment 14). The ultimate purpose of both the act of 1912 and of 1932 is remedial, to enable the depositors of an insolvent bank or insolvent bank and trust company, to retrieve the assets, and avoid a loss of their claims against it, by and through the instrumentality of the banking and securities commissioner.

Under the act of 1912, when an insolvent bank, or combined bank and trust company, was placed, by the board of directors as provided by section 165a-18 thereof, in charge of the banking and securities commissioner, and after he assumed charge of it and of the possession of all of its assets and property of whatever nature, then all rights of whatever nature vested in the banking and securities commissioner and the only remaining right of the depositors was the right to verify present their claims, grieve, and hope to receive their ratable share in the distribution of the assets by the commissioner, or his deputy, in the manner and within the time required, in his discretion, subject to the supervision of the courts. Also under the act of 1912, the banking and securities commissioner, in the exercise of a sound discretion, may compromise or settle any claim in favor of, or against, the corporation, retain and collect the notes, bills, choses in action, or securities owned by the institution, which make up a part of its assets, or if, in the exercise of his discretion, he deems it best, he may sell the same, including the real estate owned by it, without the consent and approval of the depositors or other creditors. Cumberland State Bank v. White, 222 Ky. 126, 300 S.W. 339; Cartmell v. Commercial Bank & Trust Company, 153 Ky. 798, 156 S.W. 1048; Ex parte Smith, 160 Ky. 83, 169 S.W. 582; American Southern National Bank v. Smith, 170 Ky. 512, 186 S.W. 482, Ann. Cas. 1918B, 959; Jennings v. Fidelity & Columbia Trust Company, 240 Ky. 24, 41 S.W.(2d) 537; Fletcher's Cyclopedia of Corporations, chap. 61, § 4840; Dorman v. Dell, 245 Ky. 34, 52 S.W.(2d) 892. The act of 1932 does not lessen his power. A reorganization under it does not...