Paine v. Fox

• Decision Date: 18 January 1938
• Citation: 112 S.W.2d 1,172 Tenn. 290
• Parties: PAINE v. FOX et al. STATE ex rel. ROBERTSON, Superintendent of Banks, v. BANK OF SEVIERVILLE.
• Court: Tennessee Supreme Court

112 S.W.2d 1

172 Tenn. 290

PAINE v. FOX et al.

STATE ex rel. ROBERTSON, Superintendent of Banks, v. BANK OF SEVIERVILLE.

Supreme Court of Tennessee.

January 18, 1938

Appeal from Chancery Court, Sevier County; Geo. F. McCanless Chancellor.

Suit by A. M. Paine, guardian of Ellen Snapp, an incompetent, against Taylor Fox and others, seeking permission to trench on the corpus of the incompetent's estate, and seeking recovery against the Bank of Sevierville and another upon certificates of deposit issued to Ellen Snapp, which suit was consolidated with the suit by the State, on the relation of D. D Robertson, Superintendent of Banks, against the Bank of Sevierville, to wind up the bank as an insolvent institution. From a decree, the guardian appeals.

Affirmed.

GREEN Chief Justice.

The first of these cases was a suit brought by the guardian of Ellen Snapp, a person of unsound mind, seeking permission of the court to trench on the corpus of her estate. The bill further sought a recovery against the Bank of Sevierville and against Roy Marshall as trustee of certain funds of the Bank of Sevierville upon certificates of deposit issued by that bank to Ellen Snapp. Later this case was consolidated with the case of State ex rel. D.D. Robertson, Superintendent, v Bank of Sevierville. The last-named case was the ordinary suit by the superintendent of the banks for winding up the Bank of Sevierville as an insolvent institution.

Two amendments and supplemental bills were filed by Paine, guardian, attacking as void and irregular a certain reorganization plan approved by the chancellor in which the Bank of Sevierville was permitted to reopen upon conditions hereafter appearing. The chancellor dismissed the bill in Paine, Guardian, v. Fox et al., in so far as that bill involved the reorganization of the Bank of Sevierville, and from the decree in this aspect Paine, guardian, has appealed. The decrees of the chancellor in so far as they involved the handling of the ward's estate--trenching on the estate and like matters--are not brought before this court. The appeal was taken directly to this court on account of certain constitutional questions involved.

In January, 1933, the superintendent of banks filed his bill, under the statute, to administer the affairs of the Bank of Sevierville as an insolvent institution. The superintendent was appointed receiver and proceeded with the liquidation of the institution.

In September, 1933, a plan of reorganization for the closed bank was presented to the chancellor, approved by three-fourths of the creditors in amount, two-thirds of the stockholders of the bank, and also approved by the superintendent of banks. Upon consideration of this plan the chancellor approved it and directed that the Bank of Sevierville be reopened after fifteen days' advertisement as required by statute. These proceedings were had under authority of chapter 107 of the Public Acts of 1933 carried into Williams' Annotated Code at section 6055.13 et seq.

The plan of reorganization proposed to the chancellor and adopted by his decree was as follows:

"The total deposits of the Bank of Sevierville as of July 31, 1933, amount to $338,884.65. The deposits of $25.00 or less amount to $9,161.53, which leaves a balance of $329,723.12 of deposits over $25.00 sixty percent of which amount to $197,833.87.

"The present capital stock outstanding is $50,000.00, being 500 shares of the par value of $100.00 per share. By reducing the par value of the present outstanding shares from $100.00 to $10.00 by charter amendment the liabilities of the Bank of Sevierville are reduced $45,000.00; by similar amendment 2500 new shares of stock at $10.00 per share will bring the capital stock of the Bank of Sevierville back to $30,000.00, thereby making 3000 shares of capital stock of $10.00 par value outstanding. The present stockholders will be given the opportunity of buying the 2500 new shares to be issued by giving checks drawn upon their deposits in the Bank of Sevierville, which checks will be accepted in payment thereof.

"All of the depositors of the Bank of Sevierville whose balances are $25.00 and less, amounting as set out above to $9,161.55, will receive from the reorganized and reopened bank payment of their deposits in full upon the reopening. Depositors and creditors whose deposits amount to more than $25.00 will be asked, and it is understood that they have already agreed in writing, to contribute 40% of their deposits and/or claims and receive after the reopening of said bank Certificates of Deposit issued by the reopened and reorganized bank for the remaining 60% payable in equal installments on or before twelve, eighteen, twenty-four and thirty months from date of issuance, without interest, said Certificates of Deposit to be issued within ten days after the reorganization and reopening of said Bank.

"There is approximately $7,000.00 in undivided profits of the Bank of Sevierville. It is agreed and understood that in order that the bank may be on a sound basis that said undivided profits may be charged off to take care of losses and doubtful items which have been and will be charged off. The 40% of deposits in excess of $25.00 amounts to $131,800.25 and said sum, together with the $45,000.00 represented by the reduction of the par value of the old capital stock, will stand also as a fund against which will be charged doubtful items and assets which will be taken from the investment accounts of the old Bank.

"It is agreed that said doubtful items and assets will thereupon be placed in the hands of Trustees to be appointed by the Chancery Court of Sevier County, Tennessee, whose duty it shall be to liquidate said doubtful items and assets and apply the proceeds therefrom to the repayment of depositors whose claims are reduced 40%, and if said depositors shall be paid in full the excess shall go pro rata to holders of the old capital stock which has been reduced from $100.00 to $10.00 par value per share, provided that at the discretion of the Chancery Court for Sevier County, Tennessee, said assets in the hands of the said Trustees shall be used for the purpose of reimbursing the reorganized and reopened bank for any loss it may sustain by reason of the assets turned over to it upon the reopening having become worthless at any time before the maturity of any of the Certificates of Deposits issued upon the reopening to the old depositors."

Chapter 107 of the Public Acts of 1933 is attacked as unconstitutional upon several grounds which will be noticed. The act provides that any banking corporation that may be in the hands of the superintendent of banks for liquidation may be reorganized and reopened upon prescribed conditions. These conditions are to be approved by the superintendent of banks as being in the public interest and as being fair and equitable to creditors and stockholders. The proposed plan of reorganization, in addition to the approval of the superintendent of banks, must be approved by the chancellor having cognizance of any cause in which the affairs of the bank are involved. The plan must be approved by creditors representing at least 75 per cent. in amount of the bank's liabilities and by stockholders owning at least two-thirds of its outstanding capital stock, "such approval and consent to be evidenced in writing." The claims of creditors entitled to payment in full are not to be included among the liabilities of the bank in determining the 75 per cent. thereof.

Section 3 of chapter 107 of the Public Acts of 1933 is as follows:

"Whenever any proposed plan for reorganization or reopening shall have become effective, as provided herein, all depositors and other creditors and stockholders of such banking corporation whether or not they shall have consented to such plan of reorganization or reopening, shall be fully and in all respects subject to and bound by its provisions, and claims of all depositors and other creditors shall be treated as if they had consented to such a plan of reorganization."

The act of 1933 contains certain other provisions not necessary to be mentioned in this connection. This act became effective on April 20, 1933, after the bank had closed and had been taken in charge by the superintendent of banks as receiver in January, 1933.

It is insisted that the act of 1933 violates the provisions of article 1, § 10, of the Federal Constitution, and the like provisions of article 1, § 20, of the Constitution of the State of Tennessee, prohibiting laws impairing the obligations of contracts and prohibiting retrospective laws. It is further insisted that the act violates section 1 of the Fourteenth Amendment to the Federal Constitution and section 8 of article 1 of the Constitution of Tennessee prohibiting the taking of property without due process of law and contrary to the law of the land, etc.

These questions raised by the guardian are no longer open for debate. Statutes similar to chapter 107 of the Public Acts of 1933 have been upheld in many of the states. A statute of Mississippi, of like import with the act of 1933, was sustained in the Supreme Court of the United States against the identical assaults made upon the act before us and just above indicated. Doty v. Love, 295 U.S. 64, 55 S.Ct. 558, 561, 79 L.Ed. 1303, 96 A.L.R. 1438.

Inasmuch as the Supreme Court of the United States is...