Anderson v. Baskin & Wilbourn

(specially concurring in the dissenting opinion). I believe that the foregoing dissenting opinion prepared by Brother Ethridge correctly interprets the purposes of the guaranty banking law. To give effect to the entire act it is very clear to my mind that the common depositors, . as defined by the act, are necessarily preferred creditors. In other words, that class of creditors are first paid in full out of the *110guaranty fund, but if the guaranty fund is not sufficient, entire assets of the bankrupt bank are impounded to pay the balance due to. the common depositors. If the majority of the court are right section 34 of the act means nothing at all.

I fear that the court has written a statute, rather than enforced a statute already written. The history of banking just preceding the enactment of this statute explains and gives life to the thought reflected in the act. The money lenders, whether they were other banks or men who knew what they wanted, always absorbed the assets of insolvent banks, while the less capable depositors were left with the bag to hold, and financial ruin followed in the community affected by the failure of the bank. It is my opinion that the act in question reflects two dominant purposes, to wit: (1) The supervision and control of banking; (2) the protection of unsecured depositors.

The first purpose was to prevent wild-cat banking, while the second purpose was to pay the depositors in case there was. a disaster.

delivered the opinion of the court.

(After stating the facts as above). The only question for decision is whether the liquidator, in administering upon and winding up the estate of an insolvent banking establishment under the supervision of the chancery court should ditribute the assets pro rata to depositors and general creditors, or should he give priority to the guaranteed depositors. The answer to this question is determined by the provisions of the Bank Guaranty Act. The issue here raised is occasioned by different interpretions of the act itself. The statute we are now called upon to construe is lengthy, and is divided into 69 sections. About the only sections which shed any light upon this controversy are sections 23, 24, 36, 38, 59, and 60. By sections 23 and 24 a fund is created from assessments levied upon all state banks to guarantee all deposits not otherwise secured, or, to state differently, to indemnify simple or primary depositors. Section 38 defines the beneficiaries of the guaranty fund. Sections 36 and 60 provide for the distribution of the assets and the procedure for liquidating the bank’s affairs. By *95section 59 double liability is imposed upon the stockholders in favor of depositors. A reading of this statute will show that depositors who are not otherwise secured are made safe in their deposits in two ways: First, by section 59 the stockholders are individually liable “for the benefit of the depositors in said bank to the amount of their stock at the par value thereof, in addition to the said stock. . . . Such liability may be enforced in a suit at law or in equity by any such bank in process of liquidation, or by any receiver, or other officer succeeding to the legal rights of said bank.” Secondly, by section 38 “all deposits not otherwise secured shall be guaranteed by this act.” Under the procedure outlined by sections 36 and 60 tbe bank examiner, on finding a bank to be insolvent, is charged with the duty of taking charge of the institution and of winding up its affairs. In so doing the act provides that he shall issue to each depositor a certificate, evidencing the depositor’s claim, bearing six per cent, interest per annum, and that in the insolvency proceedings dividends shall be declared upon these interest-bearing certificates. He is further charged with the duty of causing “notice to be given by advertisement in such newspaper as he may direct weekly, once a week for six consecutive weeks, calling on all persons who may have claims, but not 'including deposits shown by the books of the bank which shall prima facie be a proven claim against the bank, against such corporation, to present the same to the bank examiner and make legal proof thereof, at a place and within a time to be specified in this notice, not less than ninety days from the date of the first publication of the notice. ’ ’ Also, ‘ ‘ shall mail a similar notice to all persons whose names appear as creditors upon the books of the corporation.” He is charged with the duty of auditing, allowing, or rejecting the claims of each and every “claimant or depositor.” One sentence in section sixty declares that:

*96‘ ‘ Claims presented and allowed after the expiration of the time fixed in the notice to creditors shall he entitled to share in the distribution only to the extent of.the assets in the hands of the bank examiner at the time claims are filed, without allowance for previous distribution. ’ ’

He is required to make in duplicate “a full and complete list of the claims,” and his “inventory and list of claims shall be open at all reasonable times to inspection.” The act then expressly provides:

“At any time after the expiration of the date fixed for the presentation of claims, the bank examiner may, out of the funds remaining in his hands after the payment of expenses declare and pay one or more dividends to creditors, and as soon as practicable thereafter, he shall declare and pay a final dividend. . . .Objections to any claims or deposits . . . may be made by any party interested. . . .• Whenever the bank examiner shall have paid to each and every depositor and creditor of such corporation whose claim or claims as such creditor or depositor shall have been duly proven and allowed, the full amount of such claims, . . . the bank examiner shall call a meeting of the stockholders.” etc.

We have underscored words indicating that simple creditors are to be paid along with depositors. At the stockholders’ meeting called by the examiner an agent or agents are to be selected to wind up the affairs of the corporation, and provision is made that if there are dividends or unclaimed deposits remaining unpaid in the hands of the examiner for six months after the order for final distribution, the same shall be deposited in one or more of the state depositories to the credit of the bank examiner “in trust for the several depositors in and creditors of the liquidated bank.” Any interest earned by the money held by him in trust may be applied toward defraying the expense incurred in distributing unclaimed deposits or dividends “to the *97depositors and creditors entitled to receive the same.” We quote so freely from the act itself for the purpose of directing attention to the fact that the legislature used the word “creditor's” advisedly. There would rarely be occasion for taking charge of any bank which is not insolvent. The main purpose accomplished by the guaranty feature is to indemnify simple depositors against loss brought about by insolvency. If then, the contention of appellant is sound, it would follow that in most instances the assets of insolvent banks would be consumed in first paying the guaranteed depositors, and the general creditors would get nothing. We .do not believe the legislature intended to produce such a result. The act expressly declares that the guaranty provided does not apply to bills rediscounted, to bills payable, to money borrowed from its correspondents or others, or to deposits bearing a greater rate of interest than four per cent, per annum. The construction insisted upon by appellant would result practically in outlawing these large and honest obligations of the bank. If a bank in failing circumstances borrows large amounts from its correspondent to avert insolvency proceedings, these generous lenders and benefactors of the bank, in event of a crash, could receive no dividends until the depositors are paid in full. Even a judgment against the bank would avail nothing until the depositors are satisfied. It is a matter of common knowledge that a going banking establishment owes many legitimate obligations other than its liabiliay to simple depositors. The point contended for would violate thp time-honored principle of equity that if two creditors, one secured and the other unsecured, proceed against a certain fund or property of the joint debtor' insufficient in value to pay both claims, and the secured creditor has a lien on other and different property of the common debtor, the unsecured creditor may generally compel the other first to exhaust his security. We do not say that the legislature might not provide that the depositors should " *98first be paid' out of tbe bank’s assets, or that tbe state guaranty fund should first pay the depositors and then be given a first lien upon the bank’s assets. Our view is that the legislature has not so provided, and did not so intend to provide.

The only authority in support of appellant’s contention is certain language employed in the latter part of seition 34 and the decision of the Oklahoma supreme court in Lankford v. Oklahoma Engraving Co., 35 Okl. 404, 130 Pac. 278, and Lankford v. Schroeder, 147 Pac. 1049. L. R. A. 1915F, 623. There appears some difference between the Oklahoma and the Mississippi statutes. The opinion in the Oklahoma court in the first-named ease says:

“Section 323, Comp. Laws 1909, provides that the state - shall have, for the benefit of the depositors’ guaranty fund, a first lien upon the assets of any defunct bank or trust company, and all liabilities against the stockholders, officers, or directors thereof, and against all other persons, corporations, or firms; and that such liabilities may be enforced by the state for the benefit of the depositors’ guaranty fund. The effect of this statute is to make the state a preferred creditor until any deficiency in the guaranty fund, created by the payment therefrom of the depositors of an insolvent bank, is made up. After that, any remaining assets of the bank become available for the purpose of being prorated and distributed among the general creditors of the bank.”

The Oklahoma plan is for the depositor to be paid in ’cash out of the state guaranty • fund or to have issuel interest-bearing treasurer’s certificates, and after the depositors are paid, the state officials take over the assets of the bank for the purpose of restoring to the treasury the money advanced in paying depositors or of liquidating the treasurer’s certificates. Under the Mississippi plan the officers in charge of the bank must first realize upon the assets of the bank and exhaust the *99double liability . of the stockholders, and after he “shall have paid all funds so collected in dividends to the creditors, he shall- certify all balances due on guaranteed deposits (if any exists) to the board of bank examiners, who shall then upon his approval of such certificates, draw checks upon the state treasury, to be countersigned by the auditor of state, payable out of the bank depositors’ guaranty fund in favor of each depositor for the balance due On such proof of claim.” By this plan the “balance due” is certified to and paid out of the guaranty fund, and the amount of this balance is not attempted to be ascertained, and cannot be ascertained until the assets of the bank have been realized upon and all creditors paid pro rata as far as the assets go. This is a simple but thoroughly equitable plan. By this plan the depositors are safe. They first have a right to share in the common assets'. They are next given the right to proceed against the stockholders for the double liability provided by the statute, and -then, if they are not made whole, any balance due is guaranteed by the state fund if there is any delay, their certificates are bearing interest at six per cent., the lawful rate. They ultimately get every dime of their deposits, with legal interest. There is then a difference in the Oklahoma and the Mississippi statutes, and a difference in the procedure outlined. The fact that the chancery court is given jurisdiction to administer the insolvent estate and to allow or disallow claims of all creditors manifests a legislative intent to distribute as far as it will go the assets of the bank amongst all beneficiaries; first to do exact justice by and between all creditors. If it then develops that the depositors are .not paid in full, they are given relief. against the shareholders of the bank and the right to participate in the guaranty fund. This is consistent with the idea that the guaranty fund is security only.

There is one sentence ’in the latter part of section ’34 that would appear to support appellants’ contention. *100This, however, is a general statement, and if construed as giving the guaranteed depositor priority, it would be in direct conflict with other more specific language of the act, detailing the manner of liquidating the bank, paying creditors, and certifying the “balance due” to the state officials. There would be little use in making the stockholders liable to depositors, and there would be little meaning in this provision of the statute, if the construction contended for by appellant is to prevail. This construction in its practical operation would simply mean that the state would first pay the depositors and then claim a first lien upon the assets of the bank. In doing this the state would certainly have no right of action against the stockholders. Section 59 does not undertake to make the stockholders liable to the state. The provisions of the statute whereby depositors receive interest-bearing certificates would mean little if the depositors have a right forthwith to demand and receive payment out of the guaranty fund. Such is not the scheme outlined by the statute itself.

Affirmed.

(dissenting). I cannot concur in the conclusion reached by the majority in this case, nor in the reasoning which they employ to reach this conclusion. I think the facts are fairly stated in the majority opinion, and I accept that statement for the purposes of this opinion.

Looking at the act as a whole, and each of its several parts, I think it mainfest that the purpose of the legislate was to make a favored class of the common depositors who were not receiving interest on their deposits, and it was not the purpose of the act to place all the creditors of the bank on a parity in the distribution of the assets of the bank. The majority opinion practically, reads out of the act the concluding portion of section 34 of the act which reads as follows:

*101“The fund provided for in sections 33 and 34 of this act shall he for the purpose of paying at once, and under the direction and control of the hoard of bank examiners of the depositors of banks that are declared insolvent by the board of bank examiners, or banks that shall fail. Said payments to be made in the manner provided by the said board of bank examiners. All payments made to the depositors of banks under the provisions of this act shall be repaid out of the assets of any bank whose derositors are paid out of this fund, and shall be a first lien on said assets.”

In my opinion this paragraph is to be borne in mind on reading each of the sections referred to in the majority opinion as fully as if written at large into the said sections at the appropriate place therein. Under the statutory rules of construction all parts of the law are tó be considered together, and each part is to be given effect, and it is not necessary for the Legislature to rewrite a provision contained in one section into the other sections of the act. I think this portion of law has been disregarded and read out of the act by the majority opinion. In my opinion, it is the leading thought of the act, the keynote and corner stone of the entire act. What does it mean when it says that:

“All payments made to the depositors of banks under the provisions of this act shall be repaid out of the assets of any bank whose depositors are paid out' of this fund, and shall be a first lien on said assets”?

It clearly means that the bank examiners are to pay the common depositors, whose claims appear free from suspicion, in full out of the guaranty .fund and then to impress a first lien, that is to say, a lien superior to all other liens, upon the assets of the bank for the repayment of the fund taken from the depositors’ guaranty fund. Surely my brethren do not believe, and do not mean to say, that lien creditors of the bank are placed on an equal footing as to the assets of the bank with *102those who have no liens and who would, in the absence of this act, be postponed until the lien creditors were first satisfied. If the act was so construed by the legislature passing it, they fail to express it in appropriate language, and I cannot think that it so intended. The only cases I have found bearing on the question are the Oklahoma cases construing the Oklahoma banking act, which support the view that I contend for in this case. See Lankford v. Oklahoma Engraving & Printing Co., 35 Okl. 404, 130 Pac. 278; Columbia, etc., Co. v. U. S. F. & G. Co., 33 Okl. 535, 126 Pac. 556, and Lankford v. Schroeder, 147 Pac. 1049, L. R. A. 1915F, 623, in which cases the supreme court of Oklahoma, construing the Oklahoma statute, held that a state was a preferred creditor and that the claims of depositors must be paid in full before the common creditors of the bank were paid anything. The Oklahoma statute (Oklahoma Session Laws 1907-1908, p. 141, section 6) reads as follows:

“In the event that the bank commissioner shall take possession of any bank or trust company which is subject to the provisions of this act, the depositors of said bank or trust company shall be paid in full, and when the cash available or that can be made immediately available of said bank or trust company is sufficient to discharge its obligations to depositors, the said banking board shall draw from the depositors’ guaranty fund and from additional assessments, if required, as provided in section two, the amount necessary to make up the deficiency, and the state shall have for the benefit of the depositors’ guaranty fund a first lien upon the assets of said bank or trust company, and all liabilities against the stockholders, officers and directors of said bank or trust company and against all other persons, corporations or firms. Such liabilities may be enforced by the'state for the benefit of the depositors’ guaranty fund. ’ ’

*103In my opinion, the Oklahoma statute, while somewhat more specific than our own statute, does not go any further in impressing upon the tank asset claims of the depositors and of the estate where the moneys are paid out of the state guaranty fund. An attentive examination of the clause of our law just quoted in connection with the quoted act of Oklahoma will carry the convictioh. in my opinion, that my construction is correct. Chapter 124, section 33, Laws of 1914, p. 123, reads as follows:

“Any bank doing business in this state under the general banking laws of Mississippi and any bank subject to the provisions of this act which may, after the passage of this act be authorized to do business in this state, is hereby authorized and empowered to participate in the assessments and benefits and to he governed by the regulations of the bank depositors ’ guaranty fund of the state of Mississippi hereinafter provided for. Before any bank shall become a guaranteed bank within the meaning of this act a resolution of its board of directors, authorized by its stockholders, duly. certified by its president and secretary, asking therefor, in form to be provided by the board of bank examiners shall be filed with said board; who shall upon the filing of such resolution, authorize one of the examiners to make a rigid examination of the affairs of such bank, and if it is fund to be solvent, to be properly managed and conducting its business in strict accordance with the banking law, such examiner shall after the bank shall have deposited with the státe treasurer bonds or money hereinafter provided issue to such bank a certificate stating in substance that said bank has complied with the provisions of this act, and that its depositors are guaranteed by the bank depositors’ guaranty fund of the state of Mississippi, as herein provided.”

Section 34 provides that before receiving such certificate according to section 33 of the act the bank shall, in good faith, deposit and at all times maintain with the state treasurer, subject to the order of the bank exam*104iners, certain bonds to the amount of five hundred dollars for every one hundred thousand or fraction thereof of the average deposits eligible to guaranty under the act, provided that each bank shall deposit not less than five hundred dollars and then provides that in addition each bank shall pay in cash an amount equal to onetwentiefh of one per cent, of the average deposits eligible to guaranty, less its capital and surplus, and the same shall be credited to the depositors’ guaranty fund with the state treasurer, subject to the order of the bank examiners, and providing that the minimum in each case shall be not less than twenty dollars. Then follows the clause as quoted in the concluding part of section 34.

Section 35 requires the bank examiners to make assessments during January of each year of one-twentieth of one per cent, of the average guaranteed deposits less capital and surplus, the minimum in each case to be twenty dollars until the total fund placed to the credit of the bank depositors’ guaranty fund shail be approximately five hundred thousand dollars over and above the cash deposited in lieu of bonds. When said amount is reached, the assessments to be discontinued, but if it shall become depleated, new assessments shall be made until the amount is restored, and concludes:

“The treasurer of the state shall hold this fund in the state depository banks as provided by law governing these funds .subject to the order of the board of banlc examiners to be countersigned (by the auditor of state for the payment of depositors of failed guaranteed banks as hereinafter provided. The stale treasurer shall credit this fund quarterly with its proportionate share of interest received from state funds computed at the minimum rate of interest provided by law, upon the average daily balance of said fund. ’ ’

All the funds provided in the above portions of the act are funds for the guaranty of hank deposits.

*105Section 38 of the act provides what class of deposits are guaranteed under the act, and provides that:

“All deposits not otherwise secured shall be guaranteed by this act. The guaranty as provided for in this act shall not apply to a bank’s obligation as indorser upon bills rediscounted, nor to bills payable, nor to money borrowed from its correspondents or others, nor to deposits bearing a greater rate of interest than four per cent, per annum. Each guaranteed bank shall certify under oath to the board of bank examiners at the date of each called statement the amount of money it has on deposit not eligible to guaranty under the provisions of this act, and in assessing such bank this amount shall be deducted from the total deposits.”

It will be seen from this act that secured deposits and general creditors of the bank are not guaranteed, and it does not apply to deposits that bear a greater rate of interest than four per cent, per annum.

Section 59 of the act creates an additional liability against the stockholders above the value of their stock. The section in full reads as follows:

“The stockholders of every b'ank shall be individually liable, actually and ratably, and not for one another, for the benefit of the depositors in said bank to the amount of their stock at the par value thereof in addition to the said stock; but persons holding stock as executors, administrators, guardians, or trustees, and persons- holding stock as collateral security, shall not be personally liable as stockholders, but the assets and funds in their hands constituting the trust shall be liable to the same extent as the testator, intestate, ward or person interested in such- trust fund would be, if living or competent to act; and the person pledging such stock shall be deemed the stockholder and liable under this section. Such liability may be enforced in a suit at law or in equity by any such bank in process of liquidation, or by any receiver, or other officer succeeding to the legal rights of said bank.”

*106No creditor except the depositor has any right to participate in the funds collected under this section, and this, in my opinion, is a strong argument against the right of the general creditors to participate in the assets of the bank until the depositors have first been paid. It was not the purpose of the legislature to impose this double liability for the protection of depositors on the stockholders until the assets of the bank had been exhausted in the payment of guaranteed deposits.

Section 36 of the act deals' with the liquidation of the bank by the bank examiners without court proceedings. Of course, in considering this section, we must Consider that if the assets are ample to pay the guaranteed deposits and the other depositors, and then to pay, either in whole or in part, the other creditors, the bank examiners are to pay those claims, but it does not, in my opinion, warrant the construction that the general creditors share alike with the depositors out of the assets of the bank. On the contrary, I think the concluding portion of the section supports my contention. I quote as follows:

“Provided, however, that whenever the board of bank examiners shall have paid any dividend of the depositors of any failed bank out of the bank depositors’ guaranty fund, then all claims and rights of action of such depositors so paid shall revert to the board of bank examiners for the benefit of said bank depositors’ guaranty fund, until such fund shall have been fully reimbursed for payments made on account of such failed bank, with interest thereon at three per cent, per annum. ’ ’

Of course, the legislature in dealing with the liquidation of the bank must deal *with the situation that might easily arise at some critical period of the state where the depositors’ guaranty fund would not at once pay off the depositors. If a large number of banks should become insolvent within a short time of each other and owed the depositors large sums, the guaranteed fund *107would not he adequate to pay these in full, and the depositors would have to wait liquidation of the assets of the bank, and would not, by reason of this fact, surrender any of their rights to have their claims first paid out of this fund.

Section 60 of the act is a lengthy section, but seems to provide for the liquidation of banks under the supervision of courts, and, in substance, is not materially different from section 36. None of the provisions (referred to in the majority opinion), of section 60, in my judgment, warrants the conclusion that the common creditors have equal rights with the depositors and with the secured creditors. Of course, a depositor is a creditor and the word “creditor” may have-a different application in its use in different provisions of the statute. Both section 36 and section 60 recognize the fact that the common secured creditors have rights , against the assets of the bank, and the only difference in my opinion and the majority opinion on this is as to whether such rights ar'e coextensive with the rights of depositors or whether they are postponed until the depositors are. first paid. A significant feature of section 60 is that in requiring the bank to give notice to creditors to present claims that such notice is not required to include depositors shown by the books of the bank, which depositors so shown are prima facie correct. The scheme is elaborate, and provides for a contest of claims both of deposits and other claims, necessarily this must be so; otherwise a fictitious depositor, appearing on the books of the bank, would absorb the assets of the bank to the deteriment of the other depositors and other creditors of the bank. The act also recognizes that there would be cases in which the depositors would not promptly present the claims and draw them from the fund, and provided that in such case, if they were not drawn within a certain period of time, they should cease to draw interest which was manifestly just, considering the rights of other creditors of the bank-. Of course, *108where it was manifest to the hank examiner in administering the hank’s affairs that the funds in his hands and the assets of the hank would pay, not only the deposits, but also the creditors, either in whole or in part, then dividends could be paid as common creditors in such situations. If the act is looked at from this angle, many of the provisions which seem to convince the majority that the secured general creditors are to share in the dividends can he explained.

There is another observation I desire to make, and that is that the act in question imposes burdens on innocent banks in no wise responsible for the failure of the hank that becomes insolvent and fails. Each hank in the state is required to contribute whatever amount called for by the hank examiners, to be paid into the guaranty fund up to. the required amount. In my opinion, the legislature did not intend to impose this burden on other banks unless the assets of the hank would not pay the depositors of the bank in full. The construction put upon the act in the majority opinion materially and largely increases this obligation of other innocent hanks to assume and pay the debts of other hanks over which it had no control or supervisory power. Such a requirement would be manifestly unjust, in my opinion. The object of the bank guaranty fund was to preserve the public credit and the financial stability of the banking interest, because it is well known that if a hank failure occurred where it has large deposits, it carries financial ruin to many other innocent business interests of the community. Prior to the passage of the banking act there had been many failures of many banks in this state, and people who had placed their funds in the banks not for the purpose of making a profit on the funds hut for the convenience of carrying on their own business were swept into tim vortex of ruin. The conditions found on investigation were such-that it was shown that many banks had been doing a banking business practically on no capital at *109all, and as long as financial conditions were prosperous in the state this was not made manifest, and was not known to the public generally. With the advent of the cotton pest, the boll weevil, came a stringency in financial and business circles that brought these insolvent banking institutions to an untimely end, and left many people who supposed that they had means deposited in the bank insolvent and unable to meet business demands. It was this situation that prompted the legislature to provide for the guaranty of deposits and to make of depositors a favored class. It was not the purpose of the legislature, in my opinion, to guarantee the general creditors who did business with the bank with the view of making profit from such business dealings. Many restrictions are found in the act on the banking business as applied to deposits, but few restrictions as applied to general business dealings with others than depositors. For instance no depositor can receive more than four per cent, interest without losing his right as a guaranteed depositor and taking his place with the common creditors, while the common creditors may receive, if the bank will pay, as high as our highest legal rate, to wit, eight per cent. Under the construction adopted, these heavy obligations bearing high interest rates may be, in practical effect, imposed upon solvent and responsible banks of the state who, perhaps, would not, but for this compulsion, pay anything like six or eight per cent. I am therefore of the opinion that the court below erred in allowing the claim presented.