Dunn v. Love

The People's Bank Trust Company of Tupelo, having become insolvent, closed its doors on December 24, 1930, and went into the hands of appellee as statutory liquidator. The bank remained in liquidation in the chancery court until May 15, 1933. At the time the bank closed, it owed two hundred thousand dollars of public deposits and four hundred fifty-seven thousand dollars to correspondent banks, which debts to correspondent banks were secured by approximately seven hundred thousand dollars in collateral. Thus the claims aforesaid had to be paid in full before anything was available to depositors and other common creditors; and, by collections made under the liquidation, all of said preferred claims, except a small amount in suspense, were paid and liquidated prior to May 4, 1933.

In the meantime the depositors had held meetings and had appointed a committee from among their number to represent them in considering and determining what was best to be done. The bank having been in liquidation for more than two years, and the assets which were the more readily collectible having been realized upon, and devoted to the payment of the preference and secured claims aforesaid, it was apprehended and appreciated that the time had arrived and the situation was such that thenceforth the most prudent, patient, and sympathetic attention was constantly necessary to realize upon the remaining assets of the bank, much of which was in real estate, not then, nor soon to be, salable except at a ruinous sacrifice. It was the conclusion of the committee, in collaboration with representatives of appellee who were on the ground, that the best method to pursue, and that by which most could be obtained for the depositors, was to reorganize the bank to the end that the remaining assets could be administered by an active banking concern, thereby eliminating the continued large expense of liquidation in ordinary course, as well as the inevitable waste and loss incurred, according to common experience, in liquidation.

A plan of reorganization was finally agreed upon, and the plan was presented by petition to the chancery court in the pending liquidation proceedings on May 4, 1933, under chapter 251, Laws 1932, commonly known as the seventy-five per cent law. Upon the filing of the petition the chancellor fixed the date for the hearing thereof for May 15, 1933, and selected fifteen persons from among the five thousand depositors upon whom notice of the hearing should be served personally, and ordered that further notice be given by publication in a newspaper published in the county. The citations were served and the publication was made as ordered.

Upon the date appointed for the hearing a few objectors filed elaborate objections. The court upon the hearing found that the petition conformed to the law, was presented by more than seventy-five per cent. of the depositors in amount, was supported by the evidence, and that the proposed plan of reorganization would yield by its operation more for the depositors than could be realized by continuing the bank in the ordinary course of liquidation, and an elaborate decree was entered covering the plan and its proposals in every necessary detail.

We do not restate here the details of the plan, or the numerous objections made thereto: First, because it is not practically possible to do so in the admissible length of a written opinion. Second, because many banks have been reorganized in the state under the statute, and the differences in location, in assets and liabilities, and in the various problems to be met, make it improbable that exactly the same plan has been followed in any great number of them. And, third, because any particular plan is to be viewed as a whole, constituent details as to which objection might seem to be well taken if standing alone, may be found to be overbalanced or offset by the advantages of other constituent details, so that at last the plan as a whole may be available and reasonably sound. We deem it sufficient to say that, except as to the stockholders' liability hereafter to be mentioned, the plan here adopted specifically preserved every item of the remaining assets of the bank for the ultimate benefit of the depositors, surrendering none of these assets. And, finally, the decree contained suitable provisions that the whole of the administration of these assets by the reorganized bank should be under the continued direction and control of the court, reports thereof to be made to the court from time to time.

At the threshold we are met with the objection that the hearing and the reorganization decree made at the hearing were without authority for want of proper legal notice to the parties in interest. It seems to be contended that a summons to all parties would have to be issued and served as if in the institution of a new suit. But the entire matter and all the parties in interest were already in court and had been for more than two years, or since the original institution of the liquidation proceedings, the notice then given as required by statute being all that was necessary to the presence of the parties and their continued presence until the liquidation proceedings were concluded. The liquidation proceeding was a quasi receivership; the petition for the reorganization was filed in and was a part of the liquidation matter, and no original process by way of summons was necessary.

In receivership and in liquidations, such as this, the court acts in all ordinary administration matters upon ex parte petition or motion and without formal notice to the parties in interest. This is a rule of necessity, because usually in these matters there are numerous parties in interest widely scattered, and to require notice of every step to be taken would hinder and embarrass the administration and entangle it in unbearable expense. In matters of great importance, however, vitally affecting the body of the estate, notice by citation ought to be given, and in some jurisdictions the citation is regarded as essential to the validity of the decree in these more important steps in the administration. In Milner v. Gibson, 249 Ky. 594,61 S.W.2d 273, it was held, however, that notice was not essential under a reorganization petition in bank liquidation proceedings; and in Christensen v. Marine Bank (Miss.), 150 So. 375, which was in effect a reorganization proceeding, no notice was given. But whether citation under our reorganization statute is required, we are not called on here to decide, because proper citation was in fact ordered and served in the present case; it being necessary to add only that a citation is not required to be served either with the same formality or for the same length of time as a summons. The requirement in respect to a citation is that it be served in a reasonable manner, and for a reasonable length of time, all the circumstances considered, and that requirement was well enough observed in the matter now before us.

The entire bank reorganization statute, chapter 251, Laws 1932, has been attacked by appellants as being in violation of specific sections of the state and Federal Constitutions. This statute, remedial in its nature and operation, as one among a number of legislative acts devised in the attempt to meet, so far as practicable, the unusual conditions brought about by the present economic depression, the most serious within the present generation, and in the effort to salvage something in the general wreck of things. In considering legislative and administrative efforts at salvage and rehabilitation, in the distressing situation with which the country has been and is yet confronted, we must not permit ourselves to be maneuvered into positions which would view the Federal and state Constitutions as sculptured idols, frowning with changeless features upon a changing world; for the true view, as was said by this court in City of Jackson v. Deposit Bank,160 Miss. 752, 768, 133 So. 195, 198, is that "the interpretation of constitutional principles must not be too literal. We must remember that the machinery of government would not work if it were not allowed a little play in its joints," an expression taken from an opinion of the Supreme Court of the United States in Bain Co. v. Pinson, 282 U.S. 449, 51 S. Ct. 228, 75 L. Ed. 482. When examined in the light of this principle of constitutional interpretation, we can find nothing in the general purpose and scope of the statute which is prohibited either by the state or the Federal Constitution, in which connection we may observe that similar statutes have been under review in other states, and their Supreme Courts have upheld them in every case which has been brought to our attention. As typical of these cases, we may cite McConville v. Fort Pierce Bank, 101 Fla. 727, 135 So. 392, and Milner v. Gibson, 249 Ky. 594, 61 S.W.2d 273.

Particular complaint is made, however, of that portion of section 2 of the act which directs that proper provision must be made in the reorganization plan for the payment of correspondent banks on terms acceptable to them. It is said that this will enable these correspondent banks to enforce preferential payments to them, although unsecured, and thereby to produce an inequitable discrimination as against other unsecured creditors and depositors. There might be more than one answer to this contention, but it is sufficient to say here that, as heretofore stated, the correspondent banks in this case were all secured by ample collateral, and had been paid in full before this petition for reorganization was presented. The stated provision is, therefore, not involved in this case; and it is elemental that a constitutional complaint cannot be considered by the court when there are no facts in the particular case which would make the complaint other than an academic discussion.

The only serious difficulty in considering the plan of reorganization adopted here is as to that portion of it dealing with the stockholders' liability. The bank had been capitalized at two hundred thousand dollars. During the more than two years that the bank had been in liquidation, appellee had been able to collect only about twenty-seven thousand five hundred dollars, and the evidence shows that it was doubtful whether more than fifty-five thousand dollars could ever be collected on this liability, and this over a period of from two to six years. It was proposed, and the plan embraced the proposal, that those of the old stockholders who could do so, would pay in fifty per cent. of their old stock, and up to the sum of fifty-five thousand dollars in new money, this to constitute the capital stock of the reorganized bank, and that those so paying should be released of the remainder of their stock liability except, of course, they would, as to that fifty per cent, be again liable for that amount on their new stock. The plan embraced the further feature that the ninety thousand dollars of old stock not participating in furnishing the required new capital would remain liable as if no reorganization had been effected.

The first and preliminary question upon this issue is one of fact, whether to accept this arrangement and the assurance which it furnished, surrendering the nominal stock liability of one hundred ten thousand dollars represented by the stockholders who raised the new capital, would be more advantageous in ultimate returns to the depositors and creditors than to refuse the plan and let the whole matter be worked out in the ordinary course of liquidation. The witnesses estimated that from ten to twenty per cent more would probably be realized from the one million five hundred thousand dollars, approximately, in remaining assets by the proposed reorganization than by a continuance in ordinary liquidation, and this testimony was undisputed. And thus the second and final question is presented whether any plan of reorganization of an insolvent bank can be availed of which releases any class of stockholders in the original bank of any part of their stockholders' liability, whatever may be the consideration therefor. Appellants contend that this cannot be permitted, for so to do would be to impair the obligation of contracts.

That the Legislature in enacting the reorganization statute contemplated that the court should have power to allow an adjustment or readjustment of the stockholders' liability upon a fair and reasonable basis under all the circumstances of each particular case must be accepted as an inescapable conclusion. The Legislature knew in enacting the reorganization statute that it would be next to impossible to reorganize an old bank with entirely new stockholders, and with those having no connection as such with the old bank. Such new stockholders with new capital would, in all probability, organize instead an entirely new bank, disconnected from the wreckage of the old; and the Legislature knew that old stockholders, as a rule, would not be interested in putting the entire amount of their stockholders' liability in cash in new stock in the old bank, and thereby become liable again for the same amount in a new stockholders' liability, in an effort to salvage the wreckage for the principal benefit of depositors. It must have been contemplated, therefore, that reorganization in nearly all cases would have to depend on old stockholders, and that those old stockholders, many of whom would not be coercible by judgment, would, in making the new effort, do so only upon opportunity, by some reasonable arrangement, to work out their own salvation, as well as that of depositors.

It is to be admitted that a stockholder in taking stock in a bank, at the time here involved, thereby became bound in contract to the statutory stockholders' liability in favor of depositors. At the same time the depositor, when becoming such creditor, knew that this contract was one made not only as a part of the existing laws providing for the administration of that liability in favor of all depositors, and ratably among them by state agencies designated by law for that purpose, but also that the contract so made and the liability so incurred was one subject to subsequent laws reasonably enacted or to be enacted under the sovereign power of the state to legislate and to administer in the vital interest of the general welfare. Milner v. Gibson,249 Ky. 594, 61 S.W.2d 273; Christensen v. Merchants' Bank (Miss.), 150 So. 375; Love v. Mangum, 160 Miss. 590, 597,135 So. 223; Home Bldg. Assn. v. Blaisdell, 290 U.S. 398, 54 S. Ct. 231, 78 L. Ed. 413, 88 A.L.R. 1481. And to say that, so long as a minority, however small, objects, no arrangement may be made by which the stockholders' statutory liability may be transmuted into another form of substantial assurance, given upon fair and reasonable consideration furnished in the arrangement by the particular stockholders immediately concerned, and producing greater benefits to the depositors, and that no law can so contemplate or authorize, although passed in the vital interest of the public welfare and for the distinct good of the greater number of those in immediate beneficial interest, would be to deny the right of the state to legislate in a reasonable and practical manner in respect to matters even of a public nature, and of a distinctly public concern, because there may be a formal intrusion thereby upon the literal terms of the constitutional provisions in reference to the impairment of contracts. That we have now passed beyond that era when such literal and rigidly technical objections may be sustained, in matters of the nature here before us, and when, in ultimate results, beneficial rights have been substantially preserved, is disclosed and demonstrated by modern cases, as, for instance, the recent decision in Home Bldg. Ass'n v. Blaisdell, 290 U.S. 398, 54 S. Ct. 231, 78 L. Ed. 413, 88 A.L.R. 1481, commonly referred to as the Minnesota case, and the cases cited in that opinion. In considering the constitutional guaranty against impairment of contract, courts now definitely look to substance rather than to form, realization upon the value or worth of the contract is the concern of the guaranty, not that any particular method for that realization shall be observed or preserved. As bearing directly upon the question of stockholders' liability, see In re Farmers' Exch. Bank, 55 S.D. 190, 225 N.W. 307; Nagel v. Ghingher (Md.),171 A. 65; Milner v. Gibson, supra; and compare Andrew v. Farmers' Merchants' Bank, 205 Iowa, 712, 218 N.W. 520; Christensen v. Merchants' Marine Bank (Miss.), 150 So. 375.

We say finally, therefore, of the discussion upon the question of stockholders' liability, and we may have likewise so answered as to the entire of this controversy upon the merits without any elaboration of discussion, that unless the complaining depositor can show that he has been substantially injured in ultimate results, has in fact been actually hurt by the reorganization and the plan thereof, he has no right to complain whether upon constitutional or statutory or administrative grounds.

It is fundamental in all our laws of chancery procedure that before any person may complain or sue in any equity court, he must set up a cause of action of which an essential element is that he must show that he has been injured, that what has been done results in actual harm to him, Federal Land Bank v. Miss. P. L. Co., 157 Miss. 737, 128 So. 98; and the like rule applies to all those who object to what has been done in any given situation, whether in the chancery court or on appeal. This elemental rule fully applies also upon constitutional contentions, as was expressly recognized by this court in New Orleans, M. C.R. Co. v. State, 110 Miss. 290, 305, 70 So. 355, 360, the court there having under consideration a constitutional question, and wherein having stated the general rule, as above mentioned, the court summarized it in the terse expression that, "one must be hurt before he complains." The petition in the case now before us showed, the evidence established, and the court adjudged, that the plan and its execution would result in a substantially greater benefit to the five thousand depositors, of whom only two are the appellants here, than had the plan not been adopted. And the case being, therefore, that the appellants are not hurt or injured in any substantial way, it follows that they are not in a position to complain.

Affirmed.

Anderson, J., disqualified, takes no part.