Burke v. Fidelity Trust Company

Henderson, J., delivered the opinion of the Court. This appeal is from an order dismissing a bill of complaint filed by certain stockholders of Calvert Bank, who dissented from its merger with the Fidelity Trust Company, to have the fair value of their stock determined by a proceeding in the equity court. The facts are not ¹⁸¹ in dispute. The appellants hold 88 of the 12,000 outstanding shares of stock of Calvert Bank.

Under the terms of the merger, effective February 1, 1952 and duly approved by the Bank Commissioner of Maryland, two shares of Fidelity stock were to be exchanged for one share of Calvert stock. The appellants received due notice of the proposed merger, and on January 25, 1952, each filed with Calvert Bank an objection in writing. They did not attend the stockholders’ meeting called for and held on January 29, 1952, and did not vote for or against the proposed merger. On February 8, 1952, they served upon the surviving corporation a written demand for payment for their stock of the Calvert Bank.

They did not surrender their stock certificates. Section 113, Article 11 of the 1951 Code, as enacted by Section 107E, Chapter 20, Acts of 1951, provides in part: “(b) The notice of the meeting of stockholders shall state that dissenting stockholders will be entitled to payment of the value of only those shares which are voted against approval of the plan. “(c) The owner of shares which were voted against the approval of the merger shall be entitled to receive their value in cash, if and when the merger becomes effective, upon written demand, made to the resulting state bank at any time within thirty days after the effective date of the merger, accompanied by the surrender of the stock certificates. The value of such shares shall be determined as of the date of shareholders’ meeting approving the merger by three appraisers, one to be selected by the owners of two-thirds of the shares involved, one by the board of directors of the resulting state bank, and the third by the two so chosen, but, if the value so fixed shall not be satisfactory to any dissenting shareholder who has requested payment as provided herein, such shareholder may within five days after being notified of the appraised value of his shares appeal to the Bank Commissioner, who shall cause a reappraisal to be made, which shall be final and binding as to the value of the shares of the appellant. The ¹⁸² valuation agreed upon by any two appraisers shall govern.

If the appraisal is not completed within ninety days after the merger becomes effective the Bank Commissioner shall cause an appraisal to be made.” Subsection (d) requires the resulting state bank to pay the expenses of appraisal. Sub-section (e) authorizes it to “fix an amount which it considers to be not more than the fair market value of the shares of a constituent bank”, and offer the same in cash to dissenters. If the offer is accepted, the right to an appraisal is barred. “The amount due under such accepted offer or under the appraisal shall constitute a debt of the resulting state bank.” Chapter 20 was enacted as an emergency measure and approved February 21, 1951. It repealed Section 76 of Article 11, relating to bank mergers, and adopted a new subtitle “Mergers”, covering the whole subject.

It contained a separability clause applicable not only to sections but to any “subsection, sentence, clause or other provision”. The appellants concede that both in the notice of stockholders’ meeting and in the merger agreement they were notified of their rights under this Act. The notice specifically referred to the condition of voting against the approval of the merger. They do not challenge the validity or effectiveness of the merger.

They concede that if Section 113 is applicable and valid, they have not complied with its provisions and are not entitled to an appraisal. They contend, however, that Section 113 is invalid and unconstitutional and that their rights are governed by Section 69, Article 23 of the 1951 Code, as enacted by Chapter 135, Acts of 1951, effective June 1, 1951 and applicable to corporations generally. Section 69 provides that in case of merger an objecting stockholder of the non-surviving corporation is entitled to “payment of an amount equal to the fair value of his stock”, if he files objection in writing to the proposed action submitted and does not vote in favor of it. If unwilling to accept any “written offer to pay for his stock ¹⁸³ a price deemed by the successor to be the fair value of such stock”, the objector may petition a court of equity to “determine the fair value of such stock” as of the date of the stockholders’ meeting.

The court is directed to appoint three disinterested appraisers, to consider their report and to hold hearings if exceptions are filed thereto, to “enter an order confirming, modifying or rejecting the same”, and enter judgment thereon including interest from the date of the stockholders’ meeting. The judgment shall have the same effect as a decree in equity, with a right of appeal to this court. Section 1(e) of Article 23 provides that “In the event of any inconsistency between any of the provisions of this Article or any other Article of the Annotated Code of Maryland, relating to particular classes of corporations and the provisions of this Article which are of general applicability, the former shall prevail to the extent of such inconsistency; * * Obviously, this saving clause forecloses any argument of implied repeal of Section 113, Article 11, or the other sections relating to bank mergers. The appellants rest their case upon the constitutional invalidity of Section 113.

The appellee contends, and the Chancellor held, that even assuming that the appraisal provisions of Section 113 are invalid, the appellants have no standing to sue because they did not vote against the proposed merger. The argument is that this prerequisite to an appraisal, though omitted from Section 69, Article 23, would survive, under the severability clause, even though the rest of Section 113 should be stricken down. We think, however, that such a prerequisite is so intimately related to and integrated with the method of appraisal set up in Section 113 that it could not survive. A severability clause is merely an aid to interpretation and not an inexorable command.

The test is whether it can be reasonably supposed that the legislature would have been satisfied to adopt the valid portion, with the invalid portions eliminated. Bell v. Prince George’s Co., 195 Md. 21, 32 , 72 A. 2d 746 ; Baltimore v. O’Conor, 147 Md. 639 , ¹⁸⁴ 653, 128 A. 759 , 40 A. L. R. 1058. The requirement of voting against the merger is a perfectly proper one. Roselle Park Trust Co. v. Ward Baking Corporation, 177 Md. 212, 221 , 9 A. 2d 228 .

But we think the legislature would hardly have imposed this restriction upon bank stockholders as a class, if all the rest of the appraisal procedure was to be governed by Article 23. If Section 113, Article 11, is invalid in its entirety, the provisions of the repealed section 76 would come into play, and the dissenters’ rights would be “the same as the rights of a dissenting stockholder of an ordinary business corporation of this State”. Curiously enough, until the adoption of Section 69, Article 23, by Chapter 135, Acts of 1951, the general corporation law contained a requirement of voting against a merger, in Section 37, Article 23 of the Code of 1939 and Section 37A, added by Chapter 452, Acts of 1949. However, it is not contended that the appellants would be remitted to the remedy existing prior to the adoption of Chapter 135, Acts of 1951.

Since we cannot find that the appellants lack standing to sue if their premise is assumed, it is necessary to consider the constitutional validity of Section 113. The appellants contend that Section 113 is a special law passed to cover a situation “for which provision has been made by an existing general law”, as forbidden by Section 33, Article III of the Maryland Constitution. We do not agree. Banks have always been dealt with as a separate class of corporations; indeed the Maryland constitution, Section 48, Article III, authorizing the formation of corporations under general laws, contains a proviso that “nothing herein contained shall be construed to extend to banks or the incorporation thereof”.

That the business' of banking bears such a relation to the economic security of the public as to be a legitimate subject of regulation by the State in the exercise of its police power, .and of separate treatment, by classification not plainly unreasonable or arbitrary, needs no elaboration. Weer v. Page, 155 Md. 86, 91 , ¹⁸⁵ 92, 141 A. 518 . Moreover, it is inaccurate to state that prior to the enactment of Chapter 20 of the Acts of 1951 the rights of dissenting stockholders in bank mergers were provided for by