ORION H. CHENEY, as Superintendent of Banks of the State of New York, Respondent,
AUGUST C. SCHARMANN, Appellant.
APPEAL by the defendant, August C. Scharmann, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of Kings on the 23d day of January, 1911, upon the decision of the court, rendered after a trial before the court without a jury, at the Kings County Trial Term.
Almet Reed Latson [Ward W. Pickard with him on the brief], for the appellant.
Alfred A. Wheat [Beno B. Gattell and Mark M. Salomon with him on the brief], for the respondent.
The Lafayette Trust Company was a corporation organized and existing under and by virtue of article 5 (former article 4) of the Banking Law of the State of New York, engaged in the conduct of the business of a trust company.
On the 30th day of November, 1908, the plaintiff, as Superintendent of Banks, took possession of the property and business of said company, in accordance with the authority conferred upon him by section 18 of the Banking Law (Gen. Laws, chap. 37 [Laws of 1892, chap. 689], as amd. by Laws of 1908, chap. 143), which is now section 19 of the Banking Law (Consol. Laws, chap. 2 [Laws of 1909, chap. 10], as amd. by Laws of 1910, chap. 452), for the purpose of liquidating its business and affairs.
The trust company had a capital stock of $500,000, consisting of 5,000 shares of $100 each, and the defendant was the owner and holder of 300 shares of such stock.
On the 21st of March, 1910, the plaintiff determined that, in order to pay the liabilities of the Lafayette Trust Company it was necessary to enforce the individual liability of the stockholders thereof, and thereupon made a requisition upon said stockholders demanding that they pay on or before the 20th day of May, 1910, $100 upon every share of the capital stock held by each. Upon the refusal of the defendant to pay, this action was brought to recover the amount demanded.
The complaint in this action briefly sets forth the foregoing facts. Upon the trial of this action these facts were proven, and practically nothing more. The plaintiff testified that on the 14th of March, 1910, he considered the question of whether or not it was necessary to enforce the individual liability of stockholders, and determined that the liability should be enforced; that on that day he sent to the special deputy in charge of the Lafayette Trust Company a letter instructing him to make written demand on the stockholders of the company, prescribing the form of circular letter to be sent to each stockholder. He directed the bringing of suits to enforce the demand. This comprised the entire proof given by the plaintiff.
There was no evidence given as to the financial condition of the trust company, no evidence of the amount of the assets or liabilities of the company, or what deficiency existed or would exist after all the assets had been marshaled and converted. All that can be found in the record touching the condition of the trust company, or the necessity or propriety of resorting to or enforcing the individual liability of stockholders, is the proof that the Superintendent of Banks considered it necessary, and instructed suits to be brought. What considerations or facts warranted or supported such a conclusion on the part of the Superintendent of Banks do not appear, and were not offered to be shown by evidence on the trial. So far as this record is concerned, the right to maintain this action rests solely and entirely on the fact that the Superintendent of Banks had taken possession of the Lafayette Trust Company, and concluded
in his mind it was advisable to enforce the constitutional and statutory individual liability of the stockholders of this company.
The trial court rendered judgment against the defendant for an amount equal to the par value of the stock held by him, and from that judgment an appeal is taken to this court.
We are of the opinion that this judgment cannot be sustained.
Article 8, section 7, of the State Constitution provides: 'The stockholders of every corporation and joint stock association for banking purposes, shall be individually responsible to the amount of their respective share or shares of stock in any such corporation or association, for all its debts and liabilities of every kind.'
Section 196 of the Banking Law, which re-enacted section 162 of the former Banking Law, governing trust companies, provides: 'If default shall be made in the payment of any debt or liability contracted by any such corporation, the stockholders thereof shall be individually responsible, equally and ratably, for the then existing debts of the corporation, but no stockholder shall be liable for the debts of the corporation to an amount exceeding the par value of the respective shares of stock by him held in such corporation at the time of such default.'
Section 19 of the Banking Law (as amd. by Laws of 1910, chap. 452), as it existed at the date of the commencement of this action, provides that: 'Whenever it shall appear to the superintendent that any corporation or individual banker to which this chapter is applicable has violated its charter or any law of the State, or is conducting its business in an unsafe or unauthorized manner, or if the capital of any such corporation or individual banker is impaired, or if any such corporation or individual banker shall refuse to submit its books, papers and concerns to the inspection of any examiner, or if any officer thereof shall refuse to be examined upon oath touching the concerns of any such corporation or individual banker, or if any such corporation or individual banker shall suspend payment of its obligations, or if from any examination or report provided for by this chapter the superintendent shall have reason to conclude that such corporation or individual banker is in an unsound or unsafe condition to transact
the business for which it is organized, or that it is unsafe and inexpedient for it to continue business, or if any such corporation or individual banker shall neglect or refuse to observe an order of the superintendent specified in section seventeen of this chapter, the superintendent may forthwith take possession of the property and business of such corporation or individual banker, and retain such possession until such corporation or individual banker shall resume business, or its affairs be finally liquidated as herein provided. * * * Such corporation or individual banker may, with the consent of the superintendent, resume business upon such conditions as may be approved by him. Upon taking possession of the property and business of such corporation or individual banker the superintendent is authorized to collect moneys due to such corporation or individual banker, and do such other acts as are necessary to conserve its assets and business, and shall proceed to liquidate the affairs thereof as hereinafter provided. The superintendent shall collect all debts due and claims belonging to it, and upon the order of the Supreme Court may sell or compound all bad or doubtful debts, and on like order may sell all the real and personal property of such corporation or individual banker on such terms as the court shall direct; and may, if necessary to pay the debts of such corporation, enforce the individual liability of the stockholders.'
It is by virtue of this clause of the section in question, providing the Bank Superintendent 'may, if necessary to pay the debts of such corporation, enforce the individual liability of the stockholders,' that ...