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In re Union Bank of Brooklyn

Supreme Court of New York, Appellate Division

December 8, 1911

In the Matter of the Examination of UNION BANK OF BROOKLYN. (Appeal No. 2.) GEORGE C. VAN TUYL, JR., Superintendent of Banks of the State of New York, Respondent; EDWARD M. GROUT, Appellant.

REARGUMENT of an appeal by Edward M. Grout from an order of the Supreme Court, made at the Kings County Special Term and entered in the office of the clerk of the county of

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Kings on the 16th day of September, 1911, denying the appellant's motion to vacate a warrant theretofore issued to the sheriff of Kings county requiring him to produce the said appellant before the respondent at a hearing in the above-entitled matter.

COUNSEL

Martin W. Littleton [Frank R. Greene and F. Sidney Williams with him on the brief], for the appellant.

Wilber W. Chambers, Deputy Attorney-General [Thomas Carmody, Attorney-General, with him on the brief], for the respondent.

BURR, J.:

On and prior to April 5, 1910, a corporation known as the Union Bank of Brooklyn was transacting business in that borough. It was a moneyed corporation and within the statutory definition of a bank. (Banking Law [Consol. Laws, chap. 2; Laws of 1909, chap. 10], § 2.) Edward M. Grout was the president thereof. Upon that date the Superintendent of Banks took possession of its property and business, as provided in section 19 of the Banking Law. That he was authorized to and lawfully took possession of the same is not questioned. Since then it has transacted no business. Its assets have not yet been finally distributed or its affairs finally liquidated, nor has it been judicially dissolved or its charter annulled. It is still a bank (Lafayette Trust Co. v. Higginbotham, 136 A.D. 747), although for the time being prohibited from transacting business as such. Following the nomenclature of the Banking Law, it may be termed a delinquent bank. On July 17, 1911, the Superintendent of Banks began an examination into the condition and management of said bank, and on the twenty-second of August a subpoena was issued under his hand and seal, requiring Mr. Grout to appear on the twenty-fifth day of August and testify and give evidence upon such examination. Upon proof by affidavit of his failure to appear, on September sixteenth a justice of the Supreme Court of the State of New York issued a warrant to the sheriff of Kings county, requiring him to apprehend said Grout and bring him before the Superintendent of Banks on the eighteenth day of

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September at the hearing fixed for that day. Thereupon a motion was made upon notice to the Superintendent of Banks at a Special Term of the Supreme Court to vacate and set aside said warrant. From an order denying such motion this appeal is taken.

The first question presented is one of authority to issue the subpoena. If no such authority exists, it follows that all proceedings to compel obedience to its provisions must fall. The Banking Law provides (§ 8) as follows: 'Every corporation * * * specified in section two of this chapter shall be subject to the inspection and supervision of the Superintendent of Banks. He shall, either personally or by some competent person or persons to be appointed by him, to be known as examiners, visit and examine every bank * * * at least twice in each year. * * * On every such examination inquiry shall be made as to the condition and resources of the corporation, the mode of conducting and managing its affairs, the action of its directors, the investment of its funds, the safety and prudence of its management, the security afforded to those by whom its engagements are held, and whether the requirements of its charter and of law have been complied with in the administration of its affairs, and as to such other matters as the Superintendent may prescribe. He shall have power in like manner to examine every corporation * * * specified in section two, whenever, in his judgment, its condition and management is such as to render an examination of its affairs necessary and expedient.'

Appellant contends that section 8 applies only to banks which are still transacting business, and not to delinquent banks. Upon the argument of this appeal much discussion was had as to the meaning of the word 'liquidate,' and whether upon the facts disclosed by the motion papers it will be possible for the Union Bank to resume business. Such discussion seems to us wholly irrelevant. The section either limits the power of the Superintendent to those banks of which he has not taken possession as provided in section 19 of the Banking Law, or it applies to all banks, delinquent or otherwise, so long as they have legal existence. The statute makes no distinction in express terms between active and

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delinquent corporations. It applies to them equally. Nor is the power of the Superintendent to conduct an examination limited to active banks by necessary implication arising from the declared purpose for which examinations should be held. The statute first provides for examinations of banks, to be held at least twice a year. Upon 'such examination' the general scope of the inquiry is indicated. We regard these words of the statute as suggestive rather than exclusive. But if we assume for the sake of the argument that they limit the scope of such inquiry to the matters specified in the statute, and that the words 'as to such other matters as the Superintendent may prescribe' under the rule of ejusdem generis are to be limited to subjects of a similar nature, and if we assume for the sake of the argument that these inquiries are from their nature more applicable to a 'going' than a 'delinquent' bank, still appellant's contention fails. In addition to the examinations just referred to, the Superintendent of Banks 'shall have power in like manner to examine every corporation * * * whenever, in his judgment, its condition and management is such as to render an examination of its affairsnecessary and expedient.' This clause of the statute cannot be intended to give authority to conduct more frequent examinations of a similar character to those above referred to. The words 'at least twice in each year' simply fix the minimum number of such examinations. Beyond that, their number is always in the reasonable discretion of the Superintendent. The words 'in like manner' in the clause under consideration cannot, for the same reason, refer to those earlier provisions thereof indicating the scope of the examination. Thus construed, they would add nothing to the Superintendent's previously existing power. These words must, therefore, refer to the method of conducting the examination, which shall be either personally or by some competent person appointed by the Superintendent of Banks. If, therefore, it is reasonably shown to be 'necessary and expedient' to examine into the affairs of a bank, whether active or delinquent, in order to enable the Superintendent of Banks properly to discharge the duties devolved upon him by the statute, such examination is authorized. Referring again to section 19

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of the Banking Law, we find that in the case of a delinquent bank, 'Upon taking possession of the property and business of such corporation * * * the Superintendent is authorized to collect moneys due to such corporation * * * 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 * * * on such terms as the court shall direct.' It is quite apparent that in such case it may be not only expedient but necessary for the Superintendent to examine the officers of the bank and perhaps other persons, in order to be able to reach a just conclusion as to the validity of apparent debts and claims due to the bank, the value of doubtful claims, whether it is wise to sell or compound the same, or to apply to the court for authority to do so, the validity of claims against it and with regard to many other matters in connection with the liquidation of its affairs, respecting which a mere inspection of the books of the bank might give meagre and imperfect information.

The appellant contends that the history of legislation respecting the power of the Superintendent militates against this construction of the statute. The authority to liquidate the affairs of a delinquent bank was for the first time conferred upon the Superintendent of Banks by an amendment to section 18 of the former Banking Law, which was adopted in 1908 (Laws of 1908, chap. 143), and which was re-enacted in section 19 of the present Banking Law. At that time the provisions of section 8 of the former Banking Law relative to examinations were substantially in the same form in which they now appear. (Gen. Laws, chap. 37; Laws of 1892, chap. 689.) [a1] But if the language of section 8 construed as new legislation is clear, resort may not be had to this rule of construction. Prior acts may be considered to solve but not to create ambiguity. ( Hamilton v. Rathbone, 175 U.S. 414.)

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When the Legislature in 1908 by amendment of section 18 (now section 19) imposed new duties upon the Superintendent of Banks, in the proper performance of which examinations of its officers or other persons might be necessary and expedient, if the existing provisions of section 8 were clearly sufficient to authorize such examinations if the entire legislation had then been adopted for the first time, it does not follow that, because no amendment was then made to section 8, the scope of such section was not at that time extended to cover these new conditions. No amendment in this respect was made to section 8 at that time, because none was needed. In thus deciding, we wish to make it perfectly clear that we do not assume to pass upon the character of the questions which may properly be addressed to Mr. Grout, further than to say that of necessity they must be limited to those matters upon which information will be of assistance to the Superintendent in performing the official duties devolved upon him. If attempt is made to extend the scope of the examination beyond this, the witness has perfect protection in declining to make answer, and would be justified in so doing. Nor are we at present concerned with the remedy available to the Superintendent of Banks, if the witness declined to answer any questions. Criticism is made upon the motive of said Superintendent in instituting the examination, and in his method of conducting the same in public rather than in private. It is asserted that he has at least been lacking in courtesy in refusing Mr. Grout's request to examine the books and papers of the bank in his possession, that he might thus refresh his recollection respecting the subjects of the inquiry. The ethics of the situation belong to him. The statute seems to confer upon him the right to issue a subpoena to compel a witness' attendance without disclosing his motives. In this respect there is a difference between the power to issue a subpoena and a subpoena duces tecum, as we have previously pointed out (Matter of Phillips, 143 A.D. 522). In the latter case, it is essential to show that the case is a proper one (Matter of Foster, 139 A.D. 769). In the case of an ordinary subpoena, there is ample power in the courts to protect a witness against an abuse of the authority conferred by the statute.

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It is further contended that, if the power to issue the subpoena exists, the act providing for the enforcement thereof (Code Civ. Proc. § 855) is unconstitutional, for the reason that the statute does not require notice to be given to the person named in the warrant before the issuing thereof, and it results that he is thereby deprived of his liberty without due process of law. (Const. art. 1, § 6.) The section in question provides: 'A person who is duly subpoenaed, as prescribed in the last section, must obey the subpoena. * * * If he fails to attend the person issuing the subpoena, if he is a judge of a court of record or not of record, or if not, then any judge of such a court, upon proof by affidavit of the failure to attend, must issue a warrant to the sheriff of the county commanding him to apprehend the defaulting witness, and bring him before the officer, person, or body, before whom or which his attendance was required.' Under its provisions no one assumes to finally determine the rights of the person subpoenaed, nor to provide punishment for his disobedience thereof. The statute does not authorize his commitment to any place of confinement, nor any further interference with his liberty than the temporary restraint necessary to compel his production before the person authorized to require his attendance. In this respect the section is clearly distinguishable from the succeeding section of the Code of Civil Procedure, construed in the case of Matter of Grout (105 A.D. 98), relied upon by appellant. The right to issue such attachment as was here issued was asserted by this court in the case of Matter of Superintendent of Poor (6 A.D. 144). In Matter of Searls (155 N.Y. 333) the Court of Appeals, construing the provisions of a somewhat similar section of the Code (Code Civ. Proc. § 915), intimate that there is power to enforce obedience to the subpoena by compelling attendance of the witness before the person named therein. It is true that in each of these cases the decision did not necessarily involve this question, but we think that the opinions clearly indicate the views of the judges thereon. The issuing of a summary attachment without notice to compel the attendance of a witness who has disobeyed a subpoena has long been exercised, and the right to do so seems not to have been questioned. There is a distinction between the temporary restraint necessary

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to bring a party before one authorized to conduct an examination and the restraint which follows a final adjudication upon his rights. We think, therefore, that the statute authorized the issuing of this subpoena, and that the further provision authorizing the issuing of a warrant to compel the appearance of a witness duly subpoenaed before the officer issuing such subpoena is valid.

It follows, therefore, that the order appealed from must be affirmed.

HIRSCHBERG, J., concurred; THOMAS, J., concurred, in separate memorandum; WOODWARD, J., read for reversal; RICH, J., concurred in result reached by WOODWARD, J.

THOMAS, J. (concurring):

The Superintendent of Banks has been in possession of the property and business of the Union Bank of Brooklyn since April 5, 1910. The present question is whether he is empowered to examine its president pursuant to a subpoena served upon him in August, 1911; that is, does the power to issue the subpoena survive the management of its concerns by the banker and accompany the possession, control and disposition of its property by the Superintendent? The bank is subject to the control and visitation of the State. The agencies and means of control, and the purposes thereof, are found in the Banking Law. Thereby the Superintendent is charged with the execution of the laws relating to banks (§ 3). For this purpose there is delegated to him and his examiners the power to visit those to whom the banking privileges have been afforded. Visitation involves inspection and examination by the Superintendent, aided, if there be need, by explanation by the banker, and from the knowledge so obtained the Superintendent (Banking Law, § 8) subjects bankers and their business to his inspection and supervision. The section commands that the Superintendent or his examiners shall visit every ...


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