Commissioners of the Exchange & Banking Co. v. Mudge

This suit is brought to recover $6500, being the amount of two months’ rent of the property known under the name of the St. Charles Hotel, which the defendants occupy under a lease from the Exchange and Banking Company, bearing date the 20th of April, 1840. By this lease, which is for the term of five years, the defendants bind themselves to pay rent at the rate of $26,000 per annum, payable in eight monthly instalments, commencing on the 10th day of November, and ending on the 10th day of July in each year. The rent sued 'for is alleged to have accrued between the 10th of January, and the 10th of March, 1843. The defence is, that at the time the rent claimed became due, the defendants were, and still are the holders and owners of certain notes or obligations in writing of the Exchange and Banking Company, commonly called bank notes, issued by the said Bank under and by virtue of its charter, and which did, and now form a part of its circulation, to an amount equal to the rent demanded, which notes the defendants annex to their answer, and plead in compensation to the claim of the petitioners, to whom the said notes were tendered in payment, and who refused to receive them. There was below a judgment in favor of the plaintiffs, from which this appeal has been taken.

The plea of compensation set up by the defendants is resisted on the ground of the presumed insolvency of the Bank from the fact of its having been placed iri liquidation, on the 15th of March, 1842, by virtue of a decree of the District Court of the First District. This presumption seems to be drawn from the different clauses of the act providing for the liquidation of banks, which in many respects assimilate the powers, duties and liabilities of the commissioners to be appointed, to those conferred or imposed on syndics of insolvent estates, and prescribe the same proceedings as those provided by the acts relative to the voluntary surrender of property. From the provisions of the act of 1842, it does not follow, that a bank which goes voluntarily, or is forced into liquidation, is, as a matter of course, to be considered insolvent. It may forfeit its charter by violating some of its provisions, without being in a state of legal insolvency, i. e., without being unable to pay its debts. Were the insolvency of a bank to be presumed in all cases of voluntary or forced liquidation, *395the presumption, in many instances, would be contrary to the true state of the case. Two of our real estate banks have forfeited their charters and been forced into liquidation, for having suspended specie payments, or otherwise violated their charters. Although in winding up their affairs the stockholders may sustain heavy loses, it cannot be said that these banks are insolvent; and there are but few who doubt their ultimate ability to pay all their debts. In the present case, the record does not inform us whether the stockholders of the Exchange and Banking Company have paid up the full amounts of their subscriptions. It is only when the whole amount of the capital stock of a bank, together with its assets, is insufficient to meet its liabilities, that a bank can be said to be insolvent. However this may be, there is no evidence whatever before us of the insolvency of the Exchange and Banking Company, save the presumption relied on by the petitioners, but which, in our opinion, does not necessarily result from the mere fact of its having been put in liquidation. In no part of the law of 1842, is the insolvency of a bank contemplated as a cause for the forfeiture of its charter, or for placing it in forced liquidation.

The first section of that act declares, “ that whenever any bank of this State, located in the city of New Orleans, by any act, omission, or violation of law, shall have incurred the forfeiture of its charter,” &c., referring generally to any violation of its charter, which may take place although the bank have ample means of meeting ultimately all its liabilities. The 26th section provides, that “ as soon as the commissioners shall have paid off all the debts of the corporation committed to their charge, they shall distribute any balance that may remain in their hands among the stockholders thereof, rateably, according to the number of shares held by each,” &c. The above and other provisions of the law of 1842, show, that it was not contemplated by the Legislature that the banks placed in liquidation would, in all cases, be insolvent, and that they should be treated as such. The fact of insolvency may or may not exist when a bank forfeits its charter, and is, in consequence thereof, placed in a state of liquidation. Until such insolvency is shown, there can be no good reason why all debts due to such a corporation should *396not be compensated with, and extinguished by its obligations, or notes, held by its debtors. It was probably to obviate all difficulty on this subject, that the same Legislature which passed the law took occasion to provide, in an act passed at the same session, (Acts of 1842, page 454,) “ that nothing contained in the act to provide for the liquidation of banks, or other laws of the State, shall be so construed as to deny to any persons having notes to pay in banks in liquidation, the right of paying said notes in the bank notes of said liquidating banks.” From this provision .it might be inferred that the Legislature did not consider the banks put in liquidation in the light of declared and actual insolvents, otherwise they would have created a privileged class of creditors, by giving to persons holding their notes, the right of paying with them at par. Although this law speaks only of notes, into which form almost all the debts to banks are thrown, a liberal and fair construction should extend it to all debts due to the banks not evidenced by notes. If, in the present case, the Exchange Bank had taken the defendants’ notes for the several instalments of the lease, as we understand is frequently done, the right of the latter to pay them in the notes of the Bank could not be questioned. The accident of no notes having been required by the Bank, should not, perhaps, deprive the defendants of this right. But whatever doubts may have been entertained in consequence of the words of this proviso, they have been removed by the Legislature by inserting in a law of the 5th of April, 1843, a provision which may be considered as declaratory of their former intention. This provision is to be found in the second section of the last mentioned act, and is in the following terms : “ It shall be the duty of each of the banks of the State, at all times, to receive in offset, or part offset of debts due to it, its own debts when liquidated or past due, whether for circulation, deposites, or arising from any other source whatever, and whether such banks be or be not in liquida~ tion, and without reference to the date at which the debtor offering such tender may have acquired the claim by him offered in offset.” The terms of this law are general, and apply to all the banks of the state, whether in liquidation or not, to those which still retain their charters, as well as to those which have lost theirs, and are in a train of liquidation. These provisions of law, while *397they protect and uphold the circulation of the liquidating banks, which was in some degree a duty on the part of the State under whose sanction it had become a part of the currency of the country, tend greatly to facilitate their liquidation, and to produce ultimate solvency, by inducing many to pay debts which would otherwise perhaps have been lost to the banks. The plea of compensation should, we think, have prevailed.

It is, therefore, ordered that the judgment of the District Court be avoided and reversed; and proceeding to render such judgment as, in our opinion, should have been given below, it is further ordered and decreed that compensation be, and it is hereby allowed, to the amount of the rent claimed, on a surrender being made to the petitioners, of the bank notes tendered to them by the defendants. The costs of both courts to be paid by the plaintiffs and appellees.

Same Case — -On a Re-hearing.

A re-hearing was granted in this case, and we have attentively considered the arguments urged against the opinion first pronounced by this court, allowing the compensation.

It is said that the Bank was insolvent, and that the insolvency is abundantly shown by the record, and is, indeed, notorious ; and *398that the administration of the liquidating banks is to be conducted in the same way as in cases of ordinary insolvency.

To this we may answer, that no law of this State existed previously to the year 1842, which defined the insolvency of a corporation, or provided for either its voluntary or forced liquidation. We are not informed by any law what shall constitute the insolvency of a bank or other joint stock incorporated company ; and no mode of liquidating corporations was established by law previous to the acts of 1842 and 1843, which apply alike to solvent and insolvent banks, and whether the liquidation be forced or voluntary. We are, therefore, to look to those acts, and to them alone, for the mode of proceeding, and for the powers and duties of the commissioners. They are special laws, for special purposes, and are all to be taken and construed together, as laws in pari materia.

The 24th section of the act of 1842, entitled “ an act to provide for the liquidation of banks,” declares, “ that in all matters not herein specially provided for, the powers, duties and liabilities of the commissioners shall be the same as those conferred or imposed on syndics of insolvent estates, and the proceedings the same as those provided by the acts now in force relative to the voluntary surrender of property.”

Now the act approved March 26th, 1842, entitled, “ an act to amend an act entitled an act relative to the banks of this State,” &c., contains a remarkable exception to the rule which governs the administration of insolvent estates. It provides that nothing contained in the act to provide for the liquidation of banks, or other laws of the State, shall be so construed as to deny to the persons having notes to pay in banks in liquidation, the right of paying said notes in the bank notes of said liquidating banks, except when said notes may have been transferred to the other banks as security for receiving the circulation.”

The second section of the act of 1843, (approved April 5th,) entitled an act to facilitate the liquidation of the property banks, &c., extends this exception still further, and makes it the duty of each of the banks of the State, at all times, to receive in offset or part offset of debts due to it, its own debts when liquidated and past due, whether for circulation, deposites, or arising from any *399other source whatever, aud whether such banks be or be not in liquidation, and without reference to the date at which the debtor offering such tender may have acquired the claim by him offered in offset.

These actions contain other exceptions to the rule which prevails in the administration of insolvent estates. The 18th section, for example, provides that whenever a distribution is to be made by the commissioners, they shall make a reservation of funds equal to one-third of the amount of the outstanding notes in circulation for at least one year after the filing of the tableau, exclusive of the notes held by banks bound to take up a part of the notes of the liquidating banks.

It appears to us, therefore, clear, that the Legislature intended to make special provision for the bill holders, and to make the circulation, of the bank always a good offset to debts due to the liquidating banks. The justice or policy of particular laws does not concern the judicial department; but it would appear but just, that those who had received bank notes as money, under the sanction of the Legislature, should be particularly favored.

The objection that the law is retroactive, would have more force, perhaps, if urged by other creditors of the bank. As it relates to the -commissioners, it is enough to say, that the statutes make it their duty to allow the offset, and that they violate no vested right, and do not appear to us to impair the obligation of contracts.

The judgment rendered remains undisturbed.