Sterling v. Victor Cushwa & Sons, Inc.

• Decision Date: 20 February 1936
• Docket Number: 45-48.
• Citation: 183 A. 593,170 Md. 226
• Parties: STERLING, STATE BANK COM'R, v. VICTOR CUSHWA & SONS, INC., AND THREE OTHER CASES.
• Court: Maryland Court of Appeals

183 A. 593

170 Md. 226

STERLING, STATE BANK COM'R, v. VICTOR CUSHWA & SONS, INC., AND THREE OTHER CASES.

Nos. 45-48.

Court of Appeals of Maryland

February 20, 1936

Dissenting Opinion March 13, 1936.

Appeals from Circuit Court, Washington County; Frank G. Wagaman and David A. Robb, Judges.

Actions by Warren F. Sterling, State Bank Commissioner, receiver for the Hagerstown Bank & Trust Company, against Victor Cushwa & Sons, Incorporated, and against Susan F. Cushwa, and against Jane Wilson Byron, and against John E. Stonebraker. From adverse judgments, the plaintiff appeals.

Judgments reversed, and cases remanded.

PARKE J., dissenting.

Argued before BOND, C.J., and URNER, OFFUTT, PARKE, SLOAN, MITCHELL SHEHAN, and JOHNSON, JJ.

Albert A. Doub, of Cumberland, and Omer T. Kaylor, of Hagerstown for appellant.

Robert H. McCauley and Charles F. Wagaman, both of Hagerstown (Levin Stonebraker and John Wagaman, both of Hagerstown, on the brief), for appellees.

URNER Judge.

The declaration in each of these four cases, which were argued together, alleges that the defendant signed and sealed an agreement in the following form:

"Whereas, it is deemed necessary that the sum of Seven Hundred Fifty Thousand ($750,000.00) Dollars must be made available as a Guaranty Fund for The Hagerstown Bank and Trust Company under the terms and conditions hereinafter set forth, and to take the place of and in substitution for the Guaranty Fund heretofore raised.

(1) The undersigned, each in consideration of the agreement of the others, do hereby subscribe to The Hagerstown Bank and Trust Company Guaranty Fund in the amounts set opposite their respective names and agree to pay or secure to be paid, such subscriptions to The Hagerstown Bank and Trust Company not later than the 10th day of June, 1932. The payments of such subscriptions, as shall not be paid in cash, shall be evidenced by promissory notes secured to the satisfaction of the Committee hereinafter named and payable upon the demand of The Hagerstown Bank and Trust Company.

(2) Said Subscriptions shall be repaid within a time or times fixed by the Committee hereinafter named, in cash and/or in shares of stock of a corporation now existing or to be hereafter formed; such shares of stock to have such par value and to be accepted by the subscribers at such value as shall be determined as well as all other matters by said Committee, except that each subscriber at the time or times so fixed by said Committee shall have and exercise the option of receiving cash or such shares of stock for his or her subscription. The stockholders of The Hagerstown Bank and Trust Company shall have the right to subscribe to such new stock in proportion to their holdings, on a date to be hereafter fixed on the same basis as such stock not taken by said stockholders shall be received by the undersigned. (3) Until the repayment of said subscriptions as aforesaid, said subscriptions shall constitute a guaranty fund for the protection of the depositors and creditors of The Hagerstown Bank and Trust Company and to prevent an impairment of the capital of said institution, and shall rank prior to the stockholders and shall be subordinate to all other creditors and depositors of The Hagerstown Bank and Trust Company.

(4) The obligations of the undersigned shall be several and not joint and no one shall be liable for the obligations of any other.

(5) This agreement shall not be binding unless (a) The aggregate of such subscriptions shall be not less than Seven Hundred Fifty Thousand ($750,000.00) Dollars.

(6) Any subscriber hereto, who shall have subscribed to the other Subscription Agreement to The Hagerstown Bank and Trust Company Guaranty Fund in the Fall of 1931, shall, when this Agreement becomes binding as herein provided, and to the amount of his subscription hereto be released from the obligation of his subscription to said other agreement.

(7) The Committee shall consist of Thomas W. Pangborn--M. P. Moller--J. Frank Ridenour--Harry E. Bester--Wm. P. Lane, Jr., and a majority of said Committee is authorized to exercise all the powers of said Committee, and its powers may be exercised without a meeting by writing signed by a majority of such Committee. The Committee shall have full authority to determine all matters relating to the subject matter of this Agreement and its powers, except as herein otherwise specifically set forth, shall be as extensive as if said Committee were sole subscriber in the aggregate of such subscriptions and shall no liability, however, except for the exercise of individual good faith. In the event of any vacancy in said Committee, occurring by death, resignation, disability or refusal to act, the remaining surviving members of the Committee shall promptly call a meeting of all subscribers to be duly warned by five days' written notice and at such meeting, a majority in amount of the subscribers, present in person, or by proxy, shall select a successor to fill said vacancy.

This Agreement may be signed in any number of counterparts, all of which will constitute one agreement. May 26th, 1932."

Each of the declarations included averments to the following effect: That the Hagerstown Bank & Trust Company was the largest banking institution in Washington county, with more than eight thousand depositors, and conducted its banking business for many years continuously until February 25, 1933, when it was closed together with all other state banks by reason of the "Bank Holiday," and was not allowed to reopen after the expiration of that period.

That for a long time prior to May 26, 1932, many of the banks in Washington county and other parts of Maryland, including the Hagerstown Bank & Trust Company, by reason of the general depression then existing, suffered great depreciation in the market value of their securities, and just prior to that time several large banking institutions in Maryland were forced to close because of depreciation in the value of their assets and the general fear and loss of confidence on the part of their depositors, and for these reasons the state bank commissioner, and the directors and stockholders of the Hagerstown Bank & Trust Company, as well as the subscribers to the agreement quoted in the declaration, were in dread of a "run" on the bank, which might have resulted in its being involuntarily and permanently closed, to the great loss of the depositors, creditors, and stockholders, and of the people of Washington county generally, including all the subscribers to the agreement referred to, and were further in fear that such closing of the bank would bring ruin to other banks in Washington county, destroy the credit agencies, depreciate further the value of securities and other property, and cause the closing of factories, mills, and other agencies in the county for the employment of labor and capital; and that on or before the date mentioned (May 26, 1932) the actual market value of the bank's resources had been reduced below the requirements of the law, and for a long time there had been heavy withdrawals of deposits from the bank, causing a depletion of its assets, and there was fear on the part of the bank commissioner and among the directors, stockholders, and many depositors, that the capital of the bank would become impaired.

That during the month of April and the early part of May, 1932, the directors of the bank were advised by the bank commissioner that in order to keep the bank open as a going concern it was necessary that the capital structure be fortified, and that steps be taken to that end without delay.

That in order to restore confidence in the bank and protect its depositors and creditors, and in order to comply with the demands of the bank commissioner and keep the bank open and prevent the impairment of its capital, a committee was designated to secure subscriptions to a fund of not less than $750,000 to be paid into the bank on or before June 10, 1932, or to be evidenced by promissory notes to be secured to the satisfaction of the committee and payable on demand of the bank, and thereupon numerous persons, including the defendant, executed the agreement which the declaration proceeded to quote in its entirety.

That the bank and the state bank commissioner, relying upon the agreement so executed by the defendant and others, and depending upon the payment by the subscribers of the amounts of their respective subscriptions, allowed the bank to remain open to receive deposits and to carry on its business in the usual way continuously from May 26, 1932, until it was closed on February 25, 1933, by reason of the "Bank Holiday," when the bank was found to be insolvent, and therefore was not allowed to reopen, but was in possession of a conservator for the state bank commissioner from March, 1933, until December, 1934, when the bank commissioner was appointed receiver of the bank by the circuit court for Washington county, with authority to take charge and possession of its books, papers, property, and effects of every kind, and to collect the outstanding debts due to the institution.

That by orders of the circuit court for Washington county, the receiver was authorized to bring suit upon any promissory notes or any choses in action which had come into his possession, and was provided with special counsel to advise and represent him in all matters relating to the agreement set forth in the declaration, including the collection of any subscriptions to the guaranty fund to which the agreement referred.

That the bank was allowed to remain open for the usual transaction of business after May 26, 1932, by virtue of the quoted agreement, and the bank accepted substantial deposits and permitted withdrawals of large amounts in...