Stears v. Culp (In re Burger's Estate)

• Decision Date: 17 June 1936
• Docket Number: No. 47.,47.
• Parties: In re BURGER'S ESTATE. STEARS et al. v. CULP et al.
• Court: Michigan Supreme Court

276 Mich. 485

267 N.W. 887

In re BURGER'S ESTATE.

STEARS et al.

v.CULP et al.

No. 47.

Supreme Court of Michigan.

June 17, 1936.

Proceeding in the matter of the estate of Charles M. Burger, deceased. Suit by Charles T. Stears, E. S. Hotchin, and Lewis Hutton, trustees of the First Commercial Savings Bank of Constantine, against Arthur N. Culp and August Nyberg, executors of the estate of Charles M. Burger, deceased. From a judgmet for plaintiffs, defendants appeal.

Affirmed.

BUSHNELL, J., dissenting.Appeal from Circuit Court, St. Joseph County; Theo T. Jacobs, judge.

Argued before the Entire Bench.

L. W. Beardsley and N. A. Cobb, both of Battle Creek, for appellants.

Howard, Howard & Howard, of Kalamazoo, for appellees.

David H. Crowley, Atty. Gen., and Edmund E. Shepherd, Raymond W. Fox, and Leslie D. Harrop, Asst. Attys. Gen., for the Attorney General.

FEAD, Justice.

The appeal is from allowance of an assessment on bank stock as a claim against the estate of Charles M. Burger, deceased, less credit on account of available deposits.

The First Commercial Savings Bank of Constantine, capital $60,000, closed February 11, 1933, in pursuance of the Governor's proclamation of a state banking holiday, and did not reopen at the end of the succeeding general banking holiday. E. L. Estes was appointed conservator of the bank March 27th.

June 6th the commissioner of the state banking department levied an assessment of 100 per cent. against the stockholders. July 18th a reorganization plan was proposed. August 28th a trust agreement covering segregated assets was executed. September 5th the bank reopened with subscribed capital of $51,000 (afterward all paid in). The conservator was not discharged until August 8, 1934. April 27, 1934, he gave Burger final notice to pay the assessment against him; Burger owning 10 shares of stock. May 28th he gave Burger notice of an order, made by the banking commissioner, canceling Burger's stock but specifically providing that cancellation did not relieve him of liability for the assessment. Burger had knowledge of the various proceedings and took no action in objection. He died November 23, 1934.

Many questions are raised, and the outline of facts will be filled in as occasion demands.

Character and Time of Assessment.

The General Banking Law, Act No. 66, Pub.Acts 1929, 3 Comp.Laws 1929, § 11898 et seq., a codification and revision of the original Banking Law of 1887, provides for two kinds of assessments. Section 44 (Comp.Laws 1929, § 11941) authorizes the banking commissioner to require a bank to make good an impairment of its capital, and thereupon the directors levy an assessment on the stock to cover the deficiency. The assessment is not a personal liability of the stockholder, but the penalty for nonpayment is sale of his shares, issue of new certificate to the purchaser, and cancellationof the original certificate. First Nat. Bank-Detroit v. Tennant, 270 Mich. 653, 259 N.W. 351.

Section 48 (Comp.Laws 1929, § 11945) provides for a different and unrelated assessment. Payment of assessment made under section 44 has no effect to discharge any part of an assessment levied under section 48. Reichert v. Peoples' State Trust & Sav. Bank, 267 Mich. 543, 255 N.W. 301. Section 48 (with provisions deleted as to stock held by executors, administrators, guardians, trustees and pledgees) reads: ‘The stockholders of every bank shall be individually liable, equally and ratably, and not one (1) for another, to satisfy the obligations of said bank to the amount of their stock at the par value thereof, in addition to the said stock. * * * Such liability may be enforced in a suit at law or in equity by any such bank in process of liquidation, or by any receiver, or other officer succeeding to the legal rights of said bank.’

Counsel for the estate attempt to fix the assessment as under section 44 by differentiating between the terms ‘stock’ and ‘statutory’ or ‘individual’ liability as used in decisions, statutes, and elsewhere. They also point to language in the reorganization papers, as that in the plan of reorganization proposed July 18th it was provided that the banking commissioner and Governor ‘shall immediately levy and proceed to collect to the fullest extent a 100% stock assessment against the stockholders of said Bank’; in the trust instrument it was said that ‘an assessment on all of the capital stock of said Bank equal to 100% of the par value of such stock has been levied’; and in the order of cancellation of Burger's stock was the recital that the banking commissioner ‘did on the 18th day of July, A. D., 1933, levy and assess an 100% stock assessment against the stockholders.’

Obviously the time and character of the assessment must be determined upon the thing done, not from the name given it nor the misrecital of dates.

The only levy of assessment in this case was on June 6, 1933. It recited that, from examination, it appeared that the ‘assets' (not capital) of the bank had been impaired so it could not pay its debts and it was necessary to levy an assessment on the stockholders. The order of levy was unequivocal and unambiguous, employing the language of section 48, and was not made in the terms or method of section 44. Moreover, it was levied while the bank was in charge of a conservator, under section 4, Act No. 32, Pub.Acts 1933, and the power to levy it was conferred by section 5, as amended by Act No. 95, Pub.Acts 1933, which gave authority to levy an assessment only ‘within the meaning of section forty-eight’ and did not refer to section 44.

We proceed, therefore, upon the basis that the assessment in suit was levied June 6, 1933, under section 48.

Background.

Consideration of other issues may be aided by a brief statement of pertinent legislation.

Under the General Banking Law of 1929, two methods of liquidation, other than that incidental to consolidation of banks, are provided, the one voluntary and upon vote of stockholders (section 11953), and the other through a receiver appointed by a court of chancery on petition of the banking commissioner (section 11959).

The law (section 11960) provides for reorganization of a bank in receivership if and when it can arrange to pay all its creditors, make good imparirment of capital, and pay the expense of receivership. Reorganization under this section was resorted to in some cases after 1929, by means of a moratorium agreement on the part of depositors, but it was unsatisfactory because nonassenting creditors were entitled to immediate payment in full. Shekell v. Ypsilanti Sav. Bank, 267 Mich. 114, 255 N.W. 172.

As bank failures increased new remedies became necessary. Accordingly, by Act No. 8, Pub. Acts 1932, 1st Ex.Sess. effective April 22, 1932, the Legislature added three sections to the General Banking Law as ordinary, not emergency, legislation.

Section 65a provides for reorganization of a bank in receivership, or establishment of a new bank, upon plan approved by the banking commissioner and by depositors representing 85 per cent. of the deposit liability and upon order of court. If the plan provides for assessment of stockholders and the court shall deem it necessary to satisfy the debts of the bank, it may order an assessment. Fors v. Thoman, 267 Mich. 148, 255 N.W. 297.

Section 65b authorizes reorganization of a bank on agreement of depositors representing 85 per cent. of the deposit liability without the necessity of prior receivership. If the conditions authorize applicationfor appointment of a receiver, the banking commissioner may apply to a court for appointment of a custodian, pending reopening. The court may order assessment in case the plan provides for it.

Section 65c authorizes the state and municipalities to agree to reorganization.

The outstanding features of the act of 1932 are that reorganization is permitted without the necessity of prior receivership, and that the court is authorized to determine the interests of nonassenting depositors and segregate and provide for liquidation of assets for their benefit as may be just.

When the banking holiday of 1933 was proclaimed at an end, a large number of banks were not permitted to reopen. the continuance of the financial debacle of 1929 not only had seriously impaired the worth of securities of general market, such as bonds, but it had destroyed, wholly or substantially, possibility of sale or immediate collection of other securities fundamentally sound, while the then value of commercial paper was largely speculative. Present liquidation would have been suicidal to depositors and stockholders alike. There was probability, if not surety, of large recoveries in time. The Legislature was in session, and was confronted by the necessity of providing machinery to protect depositors and creditors of banks and also to continue banking facilities to the public. Accordingly, it enacted an emergency Banking Law, Act No. 32, Pub. Acts 1933, effective March 21, 1933, as amended by Act No. 95, Pub. Acts 1933, effective May 26th, supplemental to the General Banking Law, and expiring by its own terms on June 1, 1935. The proceedings at bar are governed by such law. Its outstanding feature is that it transferred jurisdiction over banks, including appointment of receivers, from the courts to the banking commissioner, acting with approval of the Governor-evidently in the interests of speedy administration and reconstruction of the banking structure. The number of banks reorganized under the law in not before us in this case, but 97 are referred to in Robinson v. People's Bank of Leslie, 266 Mich. 178, 253 N.W. 259, 92 A.L.R. 1251.

To avoid repetition, it may be said that all powers to be exercised by the banking commissioner under the acts were subject to approval by the Governor.

Section 2 (Act No. 32) empowered the banking commissioner to prescribe rules and regulations for the conduct of banks. Section 4 permitted him, on violation of such rules or on being...