#### The State of Iowa, ex rel., B. F. Carroll, Auditor of State, v. Corning State Savings Bank, C. F. Andrews, Receiver, Appellee, and The Iowa National Bank, The Des Moines National Bank, and W. O. Curtiss, Appellants.

Insolvent banks: preferred creditors : distribution of assets. On the insolvency of a bank and appointment of a receiver under Code, section 1877, depositors are preferred creditors and entitled to be first paid in full, after deducting costs and expenses, from the general assets of the bank, and in case the assets of the bank are insufficient for that purpose they are also entitled to ratably share with all creditors in the distribution of proceeds arising from a statutory assessment of the stockholders. •

*Appeal from Adams District Court*— Hon. *W.*E. Miller, Judge.

Wednesday, April 5, 1905.

*199The opinion states tbe *case.*

Affirmed.

*O. W. Johnston,*for appellants Iowa Nat. Bank and W. 0. Curtiss.

*0. L.*Powell, for appellant Des Moines Nat. Bank.

*Maxwell &*Maxwell, for appellee C. P. Andrews, receiver.

Weavee, *J.*

Tbe Corning State Bbnk became insolvent, and was placed in tbe bands of a receiver for a settlement of its business. Having reduced tbe assets of tbe bank in part to money, tbe receiver applied to tbe district court for instructions as to bis powers and duties in making a dividend or partial payment to tbe creditors. In'tbis application tbe receiver showed to tbe court that from tbe general assets of tbe bank there would be realized not to exceed about forty to fifty per cent, of tbe indebtedness owing to depositors, or twenty to thirty per cent, of tbe total indebtedness to creditors of all classes. Tbe estimate thus made does not include tbe amount likely to be realized ‘ from the statutory assessment upon stockholders. Tbe creditors presenting claims for allowance are classified by tbe receiver as follows:

> (a) Claims of various persons who bad current checking and deposit accounts with said bank, (b) Persons who were depositors in said bank in what is known as “ savings accounts.” (c) Persons who were depositors, in said bank upon certificates of deposit, (d) Persons, who have become creditors of said bank by making loans to the same, many of which loans were evidenced either by promissory notes of said bank, or certificates of deposit issued to evidence such loan, (e) Persons to whom said bank bad discounted commercial paper, and become liable for tbe same, either by guaranty or other form of indorsement, (f) Persons to whom said bank became liable by the issuance to them of its checks or sight drafts on its correspondent banks, which checks or sight drafts were protested and never paid.

*200XJpon the showing thus made, the receiver states that he finds himself in doubt as to the construction of the statute governing the distribution of the assets of the bank to its creditors, and asks for instructions as follows:

> First. Whether or not the first three classes herein-before named, and which are generally designated as “ depositors,” are entitled to receive, as preferred claimants, all of the proceeds of the assets of said bank which were on hand at the time your petitioner was appointed, before any portion of the same can be distributed or paid to the claimants designated as *“*general creditors,” or whether all of the creditors, both depositors and general creditors, are entitled to participate equally in said assets. S'econd. If the court should hold that the proceeds of all of said assets are to be paid to the creditors designated as *“*depositors,” in preference to the general creditors, then shall the funds realized from the assessment of stockholders be distributed equally to all of the creditors, both depositors and general creditors, equally, computing the claims of depositors on the basis.of the amount originally allowed, or should the same be computed upon tiie basis of the remainder of their respective claims which is unpaid after the proceeds of the original assets are credited? And your petitioner further prays the court for such other order and direction in and about the classification and payment of claims as the court may think necessary and proper in the premises.

On the hearing of this application, the Iowa National Bank, W. O. Curtiss, and the Des Moines National Bank appeared, presenting claims on alleged rediscounts, overdrafts, certificates of deposit, and protested checks in varying sums, and each of said claimants objected to any order giving preference to any one class of creditors over others. The court overruled the objections by the creditors named, and decided that under the statute the depositors in the insolvent bank are preferred creditors, who, after payment of costs and expenses, are entitled to be first paid in full from the assets in the hands of the receiver, exclusive of the sum or amount realized from the statutory assessment upon the stockholders, and that the proceeds of such ’assessment be ratably *201distributed to all creditors, including depositors. In its ruling the court defined the terms “ depositors ” and “ general creditors ” as follows:

> The following claims which have been filed and allowed herein shall be classed as depositors, to-wit: (a) All the claims of persons whose claims are based upon the balance due them, as depositors, in their respective general checking deposit accounts with said bank, (b) All persons whose claims are based upon sums due them, as depositors, upon certificates of deposit issued by said bank, as such, for deposits of money in the usual course of business, (c) All persons whose claims have been established and allowed by this court, and expressly designated as “ depositors ” or “ general depositors ” in the judgments and orders hereto■fore entered in'this cause. And the court further finds that the claims of all other creditors which have been allowed and established against said bank, which are not included in the above, are general creditors.

From the ruling and judgment as above stated the creditors hereinbefore named have appealed.

I. The record presents but one question for our consideration: Does the. statute require that depositors be first paid in full before other creditors are entitled to share in the general assets of the insolvent bank? The statute provides thát whenever the Auditor of State becomes satisfied of the insolvency of a bank, or believes that the interests of creditors require that it be closed, he may by proper proceedings in the district court procure the appointment of a “ receiver for such bank and its affairs shall be wound up under the direction of the court, and the assets thereof ratably distributed among the creditors thereof giving preference in payment to depositors.” Code, section 1877. In case a deficiency still remains, a ratable assessment may be made upon the stockholders not to exceed an amount equal to their respective holdings of shares, and the sum so realized shall be, distributed equally among,all the creditors in proportion to the several sums due them. Code, sections 1878-1883.

*202We regard it as very clear that the statute will admit of no other construction than the one placed upon it by the trial court. Counsel for appellant have with much thoroughness digested the history of bank legislation in this State and the development of the statutory provisions now in force, and therefrom draw the conclusion that the controlling idea of the Legislature in the chapter now under discussion was to secure ratable equality to all creditors in the distribution of the assets of an insolvent bank. It is frankly conceded that from the standpoint of counsel the provision for “ giving preference in payment to depositors ” is not easy of interpretation, and to avoid its apparent effect two theories are presented.

It is. said that the clause in question is so repugnant to other provisions, and so out of harmony with the general spirit and purpose of the statute, we are at liberty to disregard it as surplusage and void; or we may allow it force and effect for giving depositors preference in time of payment, while preserving ratable equality among all creditors in the final settlement. Nor the court to adopt the first suggestion and read out of the statute the provision giving preference to depositors, or deprive it of any force or meaning in directing the settlement of the affairs of an insolvent bank, would be radical judicial legislation and an .unwarranted assumption of power. That the Legislature has power to provide for preferences in the settlement of insolvent estates has been too long and too well settled to admit of question or to call for citation of authorities. The alternative suggestion that the preference given by the statute has reference only to the *time*of payment is ingenious, but not convincing. Such a preference would be an idle ceremony. Before any dividend or distribution can be made, the receiver must have money on hand applicable to that purpose, and, if ratable equality to all creditors is the rule, preference in time of payment would affect nothing more than the order in which the creditors may approach the receiver’s desk and receive their *203respective dividends. Counsel’s suggestion that the court may make payments to depositors from time to time and thereafter equalize the distribution with other creditors upon the final settlement, is impracticable. No court or receiver who is bound by law to make an equal and ratable distribution to all creditors can safely or properly apply the funds on hand to the payment of a part of the creditors, and depend on the future and its developments for other funds with which to satisfy the lawful claims of others who are entitled to equal consideration. Nor is there anything in the language of the statute itself which requires us to give it such a forced and unnatural interpretation.

It may be conceded that, standing alone, the provision for ratable distribution among the creditors of the bank would require that- all creditors be placed upon an equality, each receiving as much as the other, in proportion to the amount of his approved claim. But a “ ratable distribution of the assets among creditors, giving preference in payment to depositors,” is an altogether different proposition. Under the unqualified provision first mentioned, all creditors are placed in a single class-; but under the statute as it stands they are separated into two classes, one of which is given preference over the other in the distribution of the assets. The distribution is still “ ratable,” although the classes may participate only in a stated order of priority. A ratable distribution is one which is made at proportionate rates (see “ratable,” Webster’s International Dictionary), and, if each creditor received his due proportion of the funds applicable to the claims of his class, the letter and spirit of the statute are observed. In other words, if the creditors of a bank are by law separated into, classes, a proportionate distribution made to the members of the several classes in the order of their established priority until the funds applicable thereto are exhausted, or all claims are fully met, is, in a just and appropriate sense, “ ratable,” and such, we think, is the *204manifest legislative meaning and intent in tbe statute under consideration.

Nor can we admit the justice of counsel’s contention tbat tbe preference bere recognized is opposed to tbe principles of justice or of sóund public policy. Banks serve as a means by wbicb tbe comparatively small individual earnings and savings of tbe people generally are drawn and massed together in large aggregate sums or amounts which we call “ deposits.” Upon these deposits not only tbe banks themselves, but business enterprises of every kind, are largely dependent for success. Anything wbicb tends to strengthen public confidence in tbe banks and assures the depositors of tbe safety of their money is a matter of general public benefit, while anything wbicb engenders distrust or alarm and causes a withholding or withdrawal of deposits is a public injury. It is therefore entirely fitting that in authorizing the organization of banks the law should at once provide for the protection of depositors, and for the protection of public interests, by giving preference to the claims of those without whose co-operation modern banking would be impossible.

We have not thought it necessary to go into any discussion of the authorities. The ¿question is one of the construction of a statute of our own State, the terms of which are not' in the least uncertain or ambiguous. We are satisfied that the ruling appealed from gives force and validity to the act in accordance with the legislative intent.

No objection is made by either party to the order of the trial court for distribution of the moneys derived from assessments made upon stockholders, and we may therefore assume its correctness. Counsel have to some extent argued the question whether all holders of certificates of deposit are entitled to be classified as *“*depositors ” within the meaning of the provision giving preference to such creditors. The tidal court does not seem to have made- any ruling in this *205respect, and it would be improper for us to attempt to pass upon it.

Finding no error in tbe record, tbe judgment appealed from is *affirmed.*