the charter liability of the stock- ers upon the application of the

holder is expressly made an asset bank's directors and for the pur-

of the corporation, to be recovered poses hereinbefore indicated. With-

by the assignee, receiver, or other out regard to the character of the

person having the legal right to attack upon the authority and jur-

enforce the same. To the date of isdiction of the court, it must be

the filing of the suit against the held that the objection now comes

stockholders, under the order thus too late."



1242 LAW OF RECEIVERS.

special provisions do not exclude any rights given to
private individuals under that general statute (section
2903). We think it is entirely clear that courts of equity
have jurisdiction to appoint receivers of corporations,
partnerships and individuals upon the petition of any
person showing himself entitled to such relief."

In a recent case,^ it has been held that the fact that the
post office department had issued what is commonly
known as a "fraud order" against a banking institution
doing a considerable part of its business through the
mails, whereby the bank was forbidden the use of the
mails, is not of itself evidence of fraudulent practices on
the part of the bank which would warrant a court in ap-
pointing a receiver over it at the instance of the state in
the absence of complaint by stockholders or creditors.
Such a ''fraud order" is not the adjudication of a court
requiring full faith and credit to be accorded to it. The
remedy in cases of that sort should be sought by the
creditors of the bank and not solely by the state under
its visatorial powers.

c. Nature and Effect of Special Statutory Regulations.

§ 438. General Character of Statutes Relating to Banks.

It is, of course, impractical to set forth the various
statutes relating to the manner of conducting banking
operations and protecting the rights of those doing busi-
ness with such institutions. All that can properly be
done in a work of this character is to refer to the classes
of such statutes and their general purposes.

Where the powers exercised are based upon statutory
provisions, they must be confined to those enumerated by
the statute since the measure of the powers of the court
under such circumstances is the statute itself. The fact

6 state ex rel. Hadley v. People's United States Bank, 197 Mo. 574,
94 S. W. 953.



BANKS AND BANKING MATTERS. 1243

tliat the court is one of general jurisdiction does not give
it the power to appoint a receiver without any authority
from the statute under which it is acting. The fact that
it had the power to appoint a receiver in proceedings that
might be instituted, under the discretion of the court, by
the bank commissioners against the bank, as might be
decided upon by its creditors, does not authorize it to
appoint a receiver in the proceedings instituted by the
Attorney General in behalf of the people to enjoin the in-
solvent bank from the further transaction of any busi-
ness.^

Statutes of the character we are considering generally
provide for an official to supervise banks under various
names such as superintendent of banks, bank commis-
sioner, and the like. Such an official is of the nature of
a statutory receiver,- and his appointment of a receiver
or exercise of the right to act in respect to a particular
bank under the provisions of the statute is not a judicial
act which must be performed by a court.^ The general
nature of the status of such a state official when acting

1 Murray v. American Surety The superintendent of banks

Co., 70 Fed. 341, 17 C. C. A. 138. under the New York banking laws

See, also, Cartmell v. Commer- ^^^ no power to take possession

cial Bank & Trust Co., 153 Ky. 798, ^^ ^ ^^""^ ^o^' ^^^ purpose of con-

156 S W 1048 ducting a post mortem quasi-
judicial investigation as to whether

The word "may," as used in the ^^^ ^^^^ ^^^ complied with the

statutes, providing that the bank banking laws in conducting its

commissioner may apply for re- affairs. Matter of Union Bank,

ceiver of insolvent bank, has been £04 N Y 313 97 N E 737

construed to mean -'must." State ., walker v.' J. B. McCrary Co ,

V. American Surety Co., 26 Ida. 652, jg^ ^j^ ggg^ 73 g^ ^^^. Rj^hards

Ann. Cas. 1916E, 209, 145 Pac. 1097. ^ ^^^^-^^ ^.g ^pp ^i^ 335^ ^gg

Whether certain provisions of a N. Y. Supp. 780;
banking act allowing a receiver to The superintendent of banks has

enforce personal liability against been classed as a mere statutory

stockholders apply to trust com- receiver and denied judicial pow-

panies is dependent upon the ers. Matter of Union Bank, 204

terms of the act. Cheney v. Schar- N. Y. 313, 97 N. E. 737.
mann, 145 App. Div. 456, 129 N. Y. a Jeffries v. Bacastow (Brown),

Supp. 993. 90 Kan. 495, 135 Pac. 582.



1244 LAW OF RECEIVERS.

under the authority of the statute and exercising the
powers of a receiver were set forth by the Supreme Court
of Kansas in a case^ arising under a form of statute
Avhich is of general application. The court in that case
said ;

"The bank commissioner is an executive officer having
broad and tlioroughgoing supervisory power over the
conduct of the banking business of the state. Banks are
required to make stated reports to him of the condition
and conduct of their affairs. He is authorized, by him-
self and by deputy, to make examinations of banks, and
to that end to administer oaths and examine under oath
bank owners, officers, agents, and emplo^'ces. The Legis-
lature itself has defined the term 'insolvency' as applied
to banks, has fixed the maximum liability which a single
individual, corporation, or firm may be permitted to incur,
and has made directors personally liable to the bank for
overdrafts. Section 487 of the General Statutes of 1909
reads as follows : ' If, upon examination by the state bank
commissioner or his deputy, or from any report made to
the bank commissioner, it shall appear that any bank is
insolvent, or has wilfully violated any requirement of the
act to which this is amendatory, it shall be the duty of
the bank commissioner to inmiediately take charge of
such bank and all property and effects thereof. The bank
commissioner may appoint a special deputy bank com-
missioner to take charge of the affairs of an insolvent

4 Jeffries v. Bacastow (Brown), Under the Kansas statute it is

supra. necessary for the bank commis-

The legal principles involved in sioner to take actual charge of

the text are discussed in the cases the property and business of an

of Schaake v. Dolley, 85 Kan. 598, insolvent bank, before the attor

Ann. Cas. 1913A, 254, 37 L. R. A. ney general is authorized to com-

(N. S.) 598, 118 Pac. 80, and Balch mence an action for the appouit-

V. Glenn, 85 Kan. 735, Ann. Cas. ment of a receiver. Dodson v.

1913A, 406, 43 L. R. A. (N. S.) 1080, Wightman, 6 Kan. App, 835, 49

119 Pac. 67, and in the authorities Pac. 790.
there cited.



BANKS AND BANKING MATTERS. 1245

bank temporarily until a receiver is appointed; such
deputy shall qualify, give bond and receive compensation
the same as the regular deputy ; such compensation to be
paid by such bank or allowed by the court as costs in case
of the appointment of a receiver: Provided, that in no
case shall any bank continue in charge of such special
deputy for a longer period than ninety days. Upon
taking charge of any bank, the bank commissioner shall,
as soon as possible, ascertain by a thorough examination
into its affairs, its actual condition ; and whenever he shall
become satisfied that such bank can not resume business
or liquidate its indebtedness to the satisfaction of all its
creditors, he shall forthwith appoint a receiver and re-
quire of him such bond and security and allow him such
reasonable compensation as he deems proper; such com-
pensation to be subject to the approval of the district
court of the county in which such bank is located, upon the
application of any party in interest. Such receiver, who
shall be a resident of the county in which such bank is
located, under the direction of the bank commissioner,
shall take charge of such bank and its assets, and wind
up the affairs and business thereof for the benefit of its
depositors, creditors, and stockholders.'

*'The defendants take the position that this law is un-
constitutional. The argument is that the appointment
of a receiver is a judicial act to be performed by a court
of equity, and that it can not be performed by an execu-
tive officer, like the bank commissioner, under a govern-
ment framed like ours upon the theory of a separation of
powers. This argiiment is built entirely upon a name.
The person spoken of as 'receiver' might just as well
have been called a special deputy bank commissioner.
Before insolvency the management of a bank is placed by
law in the hands of a body of men, created by statute,
desinated a board of directors, who act under the super-
vision and in many respects under the control of the bank



1246 LjVW op receivers.

commissioner. After insolvency, and in certain other
contingencies, this management is exercised by a single
official chosen by the bank commissioner, who is called,
for convenience and by analogy, a receiver.

' * The state in the exercise of its police power controls
the business of banking in the interest of the public wel-
fare, and interferes, now to a less and now to a greater
extent, as conditions may warrant. By investigation or
by other means the bank commissioner discovers certain
things which constitute insolvency or other ground for
winding up the affairs of the bank. His finding of fact
is no more adjudication than the conclusion he reaches
that available funds are below the lawful reserve, which
must be made good, that an excessive loan must be re-
duced, or that capital stock has been impaired. The fact
of insolvency having been discovered, the statute directs
the bank commissioner's course, and the designation by
him of a person to wind up the affairs of the bank is no
more a judicial act than his order to the board of direc-
tors to remove a dishonest cashier. His powers are
purely administrative, and in no way infringe upon the
ancient authority of courts to determine rights of person
and property in specific controversies pending before
them. ' '

Sometimes, however, the appointment of the receiver
is, under the provisions of the statute, made a matter for
the court after certain preliminary proceedings by the
state officials. Under such circumstances the receiver-
ship is subject to the general principles of equity law.^

Where a bank is in the hands of a bank commissioner,
not as receiver appointed by a court, but as a public officer
although with many of the powers of a receiver and
subject in many respects to the direction of the court to
carry out a legislative policy for liquidation purposes,

5 Gates V. Smith, 176 Ala. 39, 57 ance Trust Co., 196 Ala. 154, 71
So. 438; Walker v. Mutual Alii- So. 697.



BANKS AND BANKING MATTERS. 1247

such a possession does not necessarily contemplate a
winding up of the corporate existence since lie is in pos-
session "until the bank shall resume business or until its
affairs shall finally be liquidated." The bank commis-
sioner does not avail himself of the powers conferred by
the act of incorporation as does a receiver of a private
corporation or of a public utility corporation. Although
the corporate entity remains, all of the other substantial
rights and privileges are in suspension. Under these
circumstances the corporation will not be liable for a
statutory tax on bank deposits since it has no right or
power to exercise its franchise and its franchise is not
in fact exercised by any one in its behalf.^

Proceedings to dissolve banking corporations are
usually regulated by statutory provisions. If, however,
the statute prescribes no method of procedure then the
general method prescribed for corporations generally is
followed.'^ A statute may authorize the winding up of a
banking corporation and the receivership consequent to
such winding up process, to be instituted in any specified
courts of the state, such as its district courts or the
Supreme Court, and under the provisions of such a
statute, the Supreme Court will assume original jurisdic-
tion of such a proceeding.^

A very frequent course mapped out by the statutes is
for an action to be brought by the Attorney General of
the state at the instance of the State Bank Commissioner
for the purpose of having a bank adjudged insolvent and
restraining it from doing business except for the purpose
of liquidation.''

Under a Minnesota statute the Attorney General on
behalf of the state as a creditor commenced proceedings

6 Greenfield Sav. Bk. v. Common- 9 Bank of Mendocino v. Brown,

wealth, 211 Mass. 207, 97 N. E. 927. 8 Cal. App. 566, 97 Pac. 533. See,

^ Herron v. Vance, 17 Ind. 595. also, People v. Bank of San Luis

8 State V. Commercial State Obispo, 154 Cal. 194, 97 Pac. 306.

Bank, 28 Neb. 677, 44 N. W. 998.



1248 LAW OF RECEIVERS,

against an alleged insolvent bank requiring it to show
canse why a receiver should not be appointed. The
statute provided a mere skeleton of procedure for the
action authorized by it. The court held that under the
statute the right to have a receiver appointed under the
statute was not discretionary where a showing of the
facts required by the statute w^as made. It would be an
abuse of discretion to refuse to appoint a receiver to take
charge of and preserve the property until the court shall
order its distribution where a case is made out under
the statute.i^

In Missouri a statute placed a duty upon the Secretary
of State to investigate and keep in touch with the affairs
of banks and their manner of doing business, and to keep
the Attorney General informed as to any need for state
control of the bank by way of having a receiver appointed.
The statute provided for corrective measures by means
of having banking institutions conducted by experienced
men and not having the capital impaired. In a case aris-
ing under this statute the court refused to decide whether
cases might not arise where the court would, under the
statute, take the affairs of a bank which was not insolvent
from out of the hands of its directors and place them in
the hands of a receiver for preservation until provi-
sions were made for good banking methods. It, how-
ever, held that a showing that the promoter of a bank
had made promises that the bank to be organized would
be conducted by experienced banking men and that it
would not loan its money to corporations controlled by
him was not a cause for dissolution by the appointment
of a receiver where neither its stockholders nor creditors
were complaining of the failure of the bank to live up to
his promises. ^^

10 state V. Bank of New Eng- United States Bank, 197 Mo. 574,
land, 55 Minn. 139, 56 N. \V. 575. 94 S. W. 953.

11 State ex rel. Hadley v. People's



BANKS AND BANKING MATTERS. 1249

Under a banking law of New York, the superintendent
of banks was authorized to take control of a bank under
certain specified conditions. It was held that the superin-
tendent of banks, in taking charge of a banking institu-
tion, does so by virtue of his authority as such superin-
tendent under the statute and not as a result of any
proceeding in court. His authority was stated to be some-
what analogous to that of a receiver of a national bank
appointed by the Comptroller of the Currency. Although
in taking -such possession the superintendent is not acting
strictly as an officer of a court, nevertheless his general
administration of the trust is subject to the supervision
and control of the court in most respects.^- Under
statutes of this character, it is necessary for the state
officials charged with the duty of investigating the affairs
of banks and of instituting proceedings ending with a
winding up receivership, to make a show^ing of the delin-
quencies mentioned in the statute as cause for their inter-
position in the bank's affairs. Thus where the defendant,
a banking corporation, closed its doors pursuant to a
resolution of the board of directors, and requested the
State Superintendent of Banks to take charge of its
affairs, which he did, and subsequently advised the At-
torney General that he had taken possession of its assets
and reported to him that it was unsafe and inexpedient
for it to continue business. The bank, however, was not
insolvent and the bank entered into negotiations to bor-
row money with which to resume business and obtained
an agreement with another financial institution that it
would advance it the necessary funds. This agreement
was approved of by the superintendent of banks, but the
Attorney General did not give it his approval and started
proceedings to dissolve the corporation on the ground
that it was insolvent and that it was unsafe for it to con-
is In re Bologh, 185 Fed. 825. lurk Realty Corporation, 72 Misc.
See, also, Union Bank v. Kan- Rep. 96, 129 N. Y. Supp. 635.

II Rec— 79



1250 LAW OF RECEIVERS;

tinue to do business. Upon the complaint alone, witliout
any supporting affidavit, tlie court ex parte appointed
temporary receivers. On the following day the bank,
with the consent of more than 90 per cent of its depositors
and more than 70 per cent of its stockholders, applied for
an order requiring the Attorney General to show cause
why the order appointing the temporary receivers should
not be set aside. The court vacated the order appointing
them, which order was affirmed on appeal. The report
of the bank examiners showed a surplus over debts of
nearly $1,250,000, and that of public accountants of nearly
$1,500,000. The appellate court held that the bank had
been entitled to notice and that no showing of insolvency
was made. Neither the report of the Superintendent of
Banks nor of the Attorney General to the effect that it
was unsafe or inexpedient to allow the bank to do busi-
ness, it was held, showed a cause of action for a judgment
dissolving the bank and distributing its assets through
a receiver.^^

Under a statute which required the state treasurer to
examine and report respecting the condition of banks
and to institute proceedings to wind the bank up and have
a receiver appointed in case he finds it insolvent, he may
file his application in the courts of the jurisdiction
wherein the bank is situated.^*

Sometimes under statutory provisions instead of a re-
ceiver a trustee or liquidator is appointed with powders
similar to those of a receiver.^^ But such liquidators may

13 People V. Oriental Bank, 124 stockholders hold no official posi-
App. Div. 741, 109 N. Y. Supp. 509. tion and act independently of judi-

14 Worth V. Piedmont Bank, 121 cial sanction, Leidigh-Dalton Lum-
N. C. 343, 28 S. E. 488. ber Co. v. Houck, 138 La. 159, 70

15 People V. Ridgley, 21 111. 65; So. 72.

Dreifus v. Colonial, etc.. Trust Co., See, also, In re Eckhardt Mfg.

123 La. 61, 48 So. 649. Co., 114 La. 119, 38 So. 78, to the

Liquidators appointed by the same effect.



BANKS AND BANKING MATTERS. 1251

be supplanted by receivers appointed by tbe court under
proper circumstances.^^

Before a court is justified in appointing a receiver for
a bank under the conditions specified by the statute, the
facts upon which the relief is to be granted must be
proved by competent legal evidence. Such a require-
ment is not met by a verified complaint alone, although
its allegations are positively made.^'^

Under some statutes the bank may, pending a petition
for the appointment of a receiver over it, furnish a bond
conditioned for the payment of its obligations and thereby
retain its property.^^

§ 439. Effect of Changes in Banking Law Pending Proceed-
ings,

Where, under a banking act, a judgment declaring a
bank insolvent, ordering it into involuntary liquidation,
enjoining it from doing any further business and appoint-
ing a receiver for the purpose of winding up its affairs,
has been affirmed on a direct appeal therefrom and thus
become final, the subsequent repeal of the banking act
by the enactment of a new banking act, pending an ap-
peal from an order refusing a new trial of the action in
which the judgment was rendered, but without any provi-
sion in the new act continuing in force any pending pro-
ceedings or litigation under the repealed act, does not
have the effect to destroy the judgment, nor to prevent

16 Leidigh-Dalton Lumber Co. v. ment allowing the state bank
Houck, 138 La. 159, 70 So. 72. examiner in charge of the bank to

17 People V. Oriental Bank, 124 retain money out of its assets suf-
App. Div. 741, 109 N. Y. Supp. 509. ^^^^^^ ^o pay the indebtedness

due the state, it is not subject to
the objection that there is no



Where the original petition in



equity filed by the attorney gen- ^^^^^^ ^^^ ^^^ ^^^^ judgment or

eral on behalf of the state prayed relief. Booth v. State, 131 Ga. 750,

for a receiver to take charge 63 S. E. 502.

of and wind up the affairs of an I'-Rawson v. Taylor, 69 Neb.

insolvent bank, and for a judg- 473, 95 X. W. 1033.



1252 LAW OP RECEIVERS.

the receiver from prosecuting to judgment actions com-
menced before his appointment to recover money due the
insolvent bank.^

§ 410. Impairment of Capital and Insolvency Under Statutory
Provisions.

Many of the statutes providing for regulatory meas-
ures prior to the appointment of a receiver contain
cautionary provisions giving the banking institution an
opportunity to restore an impairment of its capital, upon
being notified to do so by the bank supervising officials.

Such statutes generally contain a provision that in
the event that the impairment of capital is not restored
prior to a definite time, proceedings will be instituted for
the winding up of the affairs of the bank and generally
for the appointment of a receiver for that purpose.^ The
statutes on this subject are naturally variant as to their
terms and conditions and sometimes immediate action
may be taken without notice to restore the impaired
capital within a definite time. Where, in the judgment of
the supervising officer, such delay would be of no value to
the bank, the provisions of the instant statutes must be
complied with in order to obtain the proper jurisdiction.^

1 Crittenden v. Superior Court, State Banlv, 230 111. 505, 82 N. E.

166 Cal. 340, 136 Pac. 287. 853.

1 The secretary of state, with In the above case the bank had
the approval of the attorney gen- closed its doors. Its president had
eral, when the capital has become not only misappropriated large
impaired or insolvent, may apply sums of money, but had absconded,
for a receiver to take possession its cashier knowing the facts had
of its assets and collect its debts made false reports.

and sell its property. The petition The statute permitted the state

is notice to the bank. Imperial auditor to give notice to the pres-

Bank v. Commonwealth, 140 Ky. ident of the bank to make good the

210, 130 S. W. 1074. impaired capital of a bank or file

But see Cartmell v. Commercial a bill for the appointment of a

Bank & Trust Co., 153 Ky. 798, receiver for the winding up of the

156 S. W. 1048. affairs of the bank, but the court

2 People V. Milwaukee Ave. held that the discretion of the



BANKS AND BANKING MATTERS. 1253

The statutes also generally make insolvency of tlie bank
a cause for starting the administrative or legal processes
which result in a receivership. Sometimes the statute
itself defines what particular acts show a condition of
insolvency on the part of the bank^ while in other in-
stances the question of what constitutes such a condition
is left to be determined as a general fact.

Where the statute makes the appointment of a receiver
dependent upon an adjudication of insolvency in some
proceeding had for that purpose, all that is needed as a
basis for the appointment is such an adjudication with-
out any other showing of necessity therefor. Thus in a
case** arising under such a statute, the court said :

* ' It is claimed that the appointment of a receiver with-
out any issue made by the pleadings in that behalf, and
without any prayer for such relief, and without notice,
was erroneous. As we have seen, the act in terms pro-
vide that the court in such an action, brought 'to enjoin
and prohibit them from the transaction of any further
business,' if it finds that the corporation is insolvent,
'shall order the commissioners to surrender the prop-
erty ... to a receiver' appointed by the court
for the purpose of liquidation in such proceeding, etc.