Reconstruction Finance Corporation v. Gossett

• Decision Date: 12 January 1938
• Docket Number: No. 7302.,7302.
• Citation: 111 S.W.2d 1066
• Parties: RECONSTRUCTION FINANCE CORPORATION v. GOSSETT, Banking Commissioner, et al.
• Court: Texas Supreme Court

111 S.W.2d 1066

RECONSTRUCTION FINANCE CORPORATION v. GOSSETT, Banking Commissioner, et al.

No. 7302.

Supreme Court of Texas.

January 12, 1938.

Mandamus proceeding by the Reconstruction Finance Corporation against Z. Gossett, Banking Commissioner of Texas, and others, to compel the Banking Commissioner to pay a certain sum to the relator to be applied on an indebtedness as evidenced by a proof of claim filed with and approved by the Banking Commissioner.

Writ granted.

Andrews, Kelley, Kurth & Campbell, of Houston, Birkhead, Beckmann, Stanard & Vance, of San Antonio, Turney, Burges, Culwell & Pollard, of El Paso, and Aldredge, Shults & Madden, of Dallas, for relator.

Ocie Speer and William McCraw, Attys. Gen., and Scott Gaines, Asst. Atty. Gen., for respondents.

SHARP, Justice.

This proceeding involves construction of a certain income debenture issued by the Guaranty Bond State Bank, of Miles, Tex., to the Reconstruction Finance Corporation.

Relator, Reconstruction Finance Corporation, seeks a writ of mandamus against respondent, Z. Gossett, in his capacity as Banking Commissioner and as statutory receiver for the Guaranty Bond State Bank, of Miles, Tex., to compel the Banking Commissioner to pay the sum of $13,253.75 to the relator, to be applied on its indebtedness evidenced by the proof of claim filed with and approved by the respondent. The record consists of relator's sworn petition and respondent's sworn answer, which disclose that the facts are undisputed, and only questions of law are presented to this court for determination.

During the late depression the federal government greatly enlarged its field of activity in extending financial aid to certain business interests. The Reconstruction Finance Corporation was one of the governmental agencies created for that purpose. This form of debenture was part of the program originated by the federal government, through this corporation, to assist banks and avoid, if possible, the disastrous results of a widespread depression. The debenture is quite lengthy, and frequently refers to the various sections thereof, and, in order to get the intention of the parties expressed in such instrument, it is necessary to set out verbatim most of the sections contained therein. As to the others, we shall merely summarize their contents.

The Guaranty Bond State Bank will be designated as bank, Reconstruction Finance Corporation as relator, and Z. Gossett as respondent.

This debenture is dated January 23, 1934, and begins with the statement that the bank "hereby promises to pay to Reconstruction Finance Corporation, or registered assigns, on August 1, 1953, at the principal office of the Bank in the city of Miles, Texas, the principal amount of Fifty Thousand dollars ($50,000), and to pay to the registered holder hereof interest on said principal amount, but only in accordance with the provisions set forth below, payable semi-annually at said office on each February 1 and August 1, from the date of this Debenture at the rate of five per cent per annum and no more."

Section 1 treats of the authority of the bank to issue such $50,000 debenture, and to incur other indebtedness under the restrictions contained therein.

We quote from the debenture the following sections:

"2. Current interest due only if earned. — Until the Debentures shall become and be due and payable, whether at maturity or by declaration or call for redemption, or otherwise, no interest shall become or be due and payable upon the Debentures unless and except to the extent that, as provided in section 5 hereof, the net profits of the Bank accruing after the date of the Debentures shall suffice for such payment: Provided, however, That nothing herein contained shall be deemed to prevent payments of or on account of such interest from any funds of the Bank, if the Board of Directors of the Bank so determines, provided that the sum of —

"(a) The aggregate principal amount of the Debentures at the time outstanding,

"(b) The aggregate principal amount of all indebtedness of the Bank at the time outstanding, if any, subordinated to the Debentures as to payment of principal and interest, and

"(c) The then unimpaired capital, surplus, and undivided profits of the Bank exceeds $105,000 by an amount at least equal to the interest proposed to be paid.

"3. Determination of net profits. — The net profits (or net loss) of the Bank shall be determined for each six months' period ending on December 31 or June 30, by deducting from the gross earnings from all sources for such period —

"(a) All expenses for such period;

"(b) All interest accrued during such period except interest on the Debentures and on indebtedness, if any, subordinated to the Debentures as to payment of principal and interest;

"(c) All losses realized during such period, and such charge-offs and write-downs of assets for the period and such transfers for the period to reserves (whether from income, undivided profits, or surplus) as in each case may be reasonably necessary to make proper provision for doubtful assets, depreciation, and unrealized losses, including all charge-offs, write-downs, and transfers to reserves requested during the period by the State authority exercising supervision over the Bank;

"(d) Provision for all taxes for such period, including taxes measured by income and taxes based on the ownership of stock in the Bank paid or payable by the Bank for the account of its shareholders, without prejudice to such right as the Bank may have to recover the same;

"(e) Such transfers for such period to surplus as may be required by law; and

"(f) The net loss, if any, determined in accordance with the provisions of this section 3, accrued since the date of the Debentures, accumulated to and existing at the beginning of such period.

"All recoveries over net-book value on assets previously charged off or written down or against which reserves have been set up, and all transfers from reserves to surplus or undivided profits (other than transfers made to reflect recoveries already treated as gross earnings), shall be considered gross earnings for the respective periods during which such recoveries or transfers are effected. Upon the request (contained in one or more instruments of substantially similar tenor) of the registered holders of at least twenty-five per cent in aggregate principal amount of the Debentures at the time outstanding, the Bank will permit the duly authorized representatives of such holders to examine all records of the Bank for the purpose of verifying the determination of the net profits (or net loss) of the Bank for any such period.

"4. Unpaid interest to accrue. — Interest on the Debentures shall accrue from the date thereof, so that, if and to the extent that interest on any Debenture from such date at the full rate specified above, whether or not due and payable under the provisions of section 5 hereof, shall not have been paid (interest so unpaid to any given date, accrued from day to day, being herein termed `accrued and unpaid interest'), such accrued and unpaid interest shall in any event become and be due and payable on such Debenture (or any portion of the principal amount thereof) whenever such Debenture (or such portion) shall become or be due and payable, whether at maturity, or by declaration or call for redemption, or otherwise.

"5. Application of net profits and payment of interest. — As long as any of the Debentures are outstanding, the Bank on each February 1 and August 1 shall apply its net profits for the six-months' period ending on the next preceding December 31 or June 30, as the case may be, to the following purposes and in the following order of priority, and not otherwise:

"First: To the payment of accrued and unpaid interest on the Debentures to and including such February 1 or August 1, as the case may be;

"Second: To the payment into the sinking fund for the retirement of the Debentures (referred to in section 7 hereof) of a sum equal to forty per cent of the remainder, if any, of such net profits: Provided, however, That the aggregate sum so paid into such sinking fund in any one year need not exceed five per cent of the maximum aggregate amount of Debentures at any time outstanding, whether or not any such Debentures shall have been subsequently retired, or the aggregate amount thereof reduced in any manner whatsoever: Provided, further, however, That unless otherwise elected, from time to time, by the Bank, by action of its Board of Directors, it shall not be required to make such payment into the sinking fund for the retirement of Debentures except from such net profits as may accrue and be earned from and after December 31, 1935; and,

"Third: To such other purposes as may be determined by the Board of Directors of the Bank, subject, however, to the provisions of sections 6, 9, and 10 hereof.

"Whenever on any February 1 or August 1, as the case may be, net profits are applicable, in accordance with the foregoing provisions of this section 5, to the payment of interest on the Debentures, interest on the Debentures at the time outstanding shall thereupon become and be due and payable, ratably, in an aggregate amount equal (in order to facilitate the calculation of the interest payments due on the respective Debentures) to the largest multiple of a sum equivalent to one fourth of one per cent of the principal amount of the Debentures at the time outstanding which does not exceed the net profits applicable to the payment of such interest as aforesaid. Any fractional amount of net profits applicable to the payment of interest on the Debentures, but not becoming due and payable, by reason of the foregoing calculation, on any interest payment date, shall be carried forward and added to that portion of the net profits which is applicable to the payment of such interest on succeeding interest payment dates.

"6. Limitations on retirement of debentures. — No Debentures (or...