#### LYON COUNTY BANK Et Al. *v.*LYON COUNTY BANK Et Al.

No. 3135

June 16, 1936.

58 P. (2d) 803.

*43
      *John Davidson*and *William M. Kearney,*for Appellants :

*A. L. Haight*and *F. H. Koehler,*for Respondent Lyon *44County Bank Mortgage Corporation; *Gray Mashburn,*Attorney-General, *W. T. Mathews*and *W. Howard Gray,*Deputy Attorneys-General, for Respondents Lyon County Bank and E. J. Seaborn:

OPINION

By the Court,

Coleman, J.:

The complaint in this case alleges that the plaintiff is a corporation organized and existing under the laws *45of Nevada; that it brings this suit for the benefit of the bondholders of the Nevada Copper Belt Railroad Company, a corporation, which exists pursuant to the laws of the State of Maine; that plaintiff corporation is the duly and regularly appointed, qualified, and acting trustee of said railroad company, as provided in a certain deed of trust, pursuant to which plaintiff did institute proceedings to foreclose said trust deed and procure the appointment of a receiver for said railroad company; that under the terms of said trust deed plaintiff bank was and is empowered to collect, receive, hold, and disburse certain funds in trust for the bondholders of said railroad company.

The complaint further alleges that until February 16, 1932, it was engaged in the banking business, and that on or about said day the defendant E. J. Seaborn, in his capacity as state bank examiner, took charge of said Lyon County Bank pursuant to the banking laws of the state; that thereafter the office of bank examiner was discontinued and the' office of state superintendent of banks was created, and the said Seaborn, as such superintendent, took charge of said Lyon County Bank ancl its assets and affairs, pursuant to the Banking Act of 1933 (Laws 1933, c. 190 [N. C. L. sec. 747 et seq.]) ; that from about the month of March 1933, the said Seaborn, as such superintendent of banks, has continued in charge of the assets of said bank until on or about October 23, 1933, when the court directed that the assets of said bank be turned over to the defendant Lyon County Bank Mortgage Corporation, by judgment duly and regularly entered in pursuance of the banking act of 1933.

It is further alleged that by the judgment aforesaid certain funds claimed to be trust funds and preferred claims against the Lyon County Bank were ordered held by the defendant Seaborn, as superintendent of banks, and are now in the hands of said Seaborn, as such superintendent, pursuant to the requirement óf said act of 1933, and that the funds herein involved are now in *46the hands of said superintendent of banks, pursuant to statute.

It is further alleged that on July 1, 1932, said Sea-born, as such bank examiner, gave notice to all persons having claims against plaintiff bank, requiring them to file their claims with him as such bank examiner on or before September 2, 1932; that the plaintiff bank, as trustee, filed with said Seaborn, as state bank examiner, its proof of preferred claim, which was thereafter rejected and disallowed; that said preferred claim arises by virtue of the fact that there was in the hands of the said Lyon County Bank, on the date said Seaborn, as bank examiner, took charge of said bank, the sum of $18,789.30, by virtue of the deed of trust aforesaid. Plaintiff bank further avers that there are no offsets against said trust fund.

The defendants demurred to the complaint upon the following grounds: That the complaint does not state a cause of action; that it appears that the plaintiff as trustee has not legal capacity to bring this suit; that there is a defect or misjoinder of parties defendant; that it cannot be ascertained from the face of plaintiff’s complaint what interest the Lyon County Bank, a corporation, has in this suit; that it cannot be ascertained from the face of plaintiff’s complaint what interest E. J. Seaborn, as superintendent of banks, has in this suit; that the complaint is ambiguous; that the complaint is unintelligible; that the complaint is uncertain — all of which are grounds of demurrer under section 8596 Ñ. C. L.

The learned trial court sustained the demurrer upon the ground that the plaintiff had not legal capacity to sue. The theory upon which he reached this conclusion was that the same person cannot control both the prosecution and defense of an action. The authorities relied upon to sustain the conclusion are: Buckeye Refining Co. v. Kelly, 163 Cal. 8, 124 P. 536, Ann. Cas. 1913E, 840; Brown v. Mann, 71 Cal. 192, 12 P. 51; Byrne et al. v. Byrne, 94 Cal. 576, 29 P. 1115, 30 P. 196; Globe & *47Rutgers Fire Ins. Co. v. Hines (C. C. A.) 273 F. 774; Hagood v. Goff, 208 Ala. 642, 95 So. 21; Swope v. Swope, 173 Ala. 157, 55 So. 418, Ann. Cas. 1914a, 937; Barber v. Barber, 32 R. I. 266, 79 A. 482; In re Divelbess’ Estate, 216 Iowa, 1296, 249 N. W. 260; Langford v. Johnson, 46 Ga. App. 444, 167 S. E. 779.

Let us first determine what is meant by the ground of demurrer “that the plaintiff has not legal capacity to sue,” as that term is used in section 8596 N. C. L.

David Dudley Field, a leading lawyer of New York, was instrumental in having a code regulating pleading adopted in that state about 1858. It became so popular that the code of New York, with slight changes, has been adopted in many states. That code contained the provision under consideration here, and the courts of New York have frequently referred to it. In 1859 the court of final resort in New York was called upon to interpret this provision, in the case of Bank of Havana v. Magee, 20 N. Y. 355, in which the court said: “Certain persons, as infants, idiots, lunatics and married women, cannot sue except by guardians, next friends, committees, or in the case of married women, by joining their husband in certain cases. This, I think, was what the provision refers to.”

Such has been the consistent holding of that court. Ward v. Petrie, 157 N. Y. 301, 51 N. E. 1002, 68 Am. St. Rep. 790. Such, we think, is the uniform construction. Jackson v. Dines, 13 Colo. 90, 21 P. 918; Los Angeles Ry. Co. v. Davis, 146 Cal. 179, 79 P. 865, 106 Am. St. Rep. 20; Debolt v. Carter, 31 Ind. 355; 21 R. C. L. p. 526, sec. 87; Pomeroy’s Code Rem. (4th ed.) sec. 125.

While the lower court adopted the wrong theory in sustaining the demurrer, in justice to it we may say the point above considered was not suggested by counsel in this court, and consequently we assume was not called to the attention of the lower court.

But it is said that, since the judgment is right, it should not be reversed.

*48One of the theories upon which that contention is based is that upon which the lower court sustained the demurrer. While we do not find it necessary to decide this question, our investigation leads us to assume that the rule is based upon the idea that the plaintiff controls both the prosecution and the defense in the case. If we can judge from the vigor with which the defense in this matter is urged, no such condition prevails in the instant matter. Furthermore, it is questionable if such a serious point can safely be disposed of on demurrer. The various phases of this question are considered in the decisions above referred to, and in the cases cited in 1 C. J. pp. 983 and 984, and in 1 C. J. S. p. 1074.

It appears from the allegations in the complaint in this matter that respondent Seaborn “took charge of said Lyon County Bank pursuant to the banking laws of the State of Nevada.”

Sections 53 and 54 of the banking act of 1911 (sections 702 and 703 N. C. L.) read in part as follows:

> “§ 53. Whenever it shall appear to the examiner that any bank to which this act is applicable has violated its charter or any law of the state, or is conducting its business in an unsafe and unauthorized manner, or its capital is impaired, or it shall refuse to make the reports herein provided for, or refuse to permit its affairs to be examined by the examiner or his deputies or agents, or shall refuse to comply with any lawful requests or orders of the examiner or the state banking board; or shall suspend payment of its obligations; or if from any examination or report provided for in this act, the examiner shall have reason to conclude that such bank is in an unsafe or unsound condition to transact the business of banking, or that it is unsafe and inexpedient for such bank to continue in business, the examiner may forthwith take possession of the property and business of such bank and retain such possession until such bank shall resume business or its affairs be finally liquidated as herein provided. * * *

> “§ 54. Upon taking possession of the property and *49business of such bank, the examiner is authorized to collect moneys due to such bank and do such other acts as are necessary to conserve its assets and business, and shall proceed to liquidate the affairs thereof as hereinafter provided. The examiner shall collect all debts and claims and enforce all liabilities and rights of action accrued to or belonging to such bank, and may institute and prosecute all proper and necessary actions for that purpose, and may sell or compound all bad or doubtful debts, and upon the order of the district court for the* county where the bank carried on business, may sell all the real and personal property of such bank on such terms as the court shall direct; and may, if necessary to pay the debts of such bank, if a corporation, enforce the individual liability of its stockholders.”

In view of the allegation in the complaint, which we have quoted, we must conclusively assume that the state bank examiner had good and sufficient reasons, under the statute, to take possession of the property and business of the plaintiff bank and to administer the affairs thereof. So far as we can say, the plaintiff bank, at the time the bank examiner took charge, was conducting its affairs in such an unsafe and unauthorized manner as to jeopardize the trust imposed in it. When such a condition admittedly existed, it was the imperative duty, under the statute, of the bank examiner to take charge of the business and assets of the plaintiff. Power et al. v. Amos, 94 Fla. 411, 114 So. 364; 3 Michie on Banks, p. 47. Stepping into the shoes of the plaintiff, as trustee, he assumed all of the responsibilities of the trustee. The question of the administering of the trust is not involved in this matter, however.

The lower court took the view that the complaint could not be amended, and ordered a dismissal of the action. It is urged that this was error necessitating a reversal. We do not think the order was prejudicial. It affirmatively appears from the allegations of the complaint that the bank examiner took possession of the bank pursuant to the banking laws of the state. This *50allegation is admitted by the general demurrer. In this situation we- do not see how there can be an amendment.

September 14, 1936.

60 P. (2d.) 610.

*W. M. Kearney,*for Appellants.

*A. L. Haight,*for Respondent Lyon County Bank Mortgage Corporation.

The judgment and order are affirmed.

On Petition for Rehearing

OPINION

By the Court,

Coleman, J.:

Plaintiff has filed a lengthy petition for a rehearing.

The respondents in their original brief filed in this case state: “It is our position briefly that it was the statutory duty of the state bank examiner to take over all of the property and business, including trust funds, if any, of the bank under the conditions which existed on February 16, 1932, and that, if any trust funds thereby came into the possession of the state bank examiner, the same should be disbursed among the respective cestue que trustent upon the presentation and establishment of proper claims therefor; that all such funds, *51after biaving passed into the possession of the state bank examiner, are in the custody of the law and that the state bank examiner (now superintendent of banks) is the officer charged with all the responsibilities of a trustee for the benefit of the cestue que trustent; that the corporate organization of the defunct bank is not authorized to interfere with the bank examiner’s possession and is precluded by law from so doing, and that no court has jurisdiction to appoint another person as trustee to interfere with the possession or duties of the state bank examiner in that behalf * *

Plaintiff, in the closing brief, said: -“We are in accord on the proposition that the superintendent of banks had the legal right to take what he found after closing the doors of the bank to the public, but such taking does not pass title to trust funds to him.”

This was the identical point upon which we based our opinion.

The plaintiff is a creature of the banking act, from which we quoted in our former opinion. It is subject to all the provisions of that act. We quoted section 53 of it (Comp. Laws, sec. 702), at length. That section provides that if the bank examiner shall have reasons to conclude that a bank is in an unsafe or unsound condition he shall forthwith take possession of the property and business thereof and retain such possession until such bank shall resume business or its affairs be finally liquidated, as provided.

The complaint alleges that on February 16, 1932, the defendant Seaborn, in his capacity as state bank examiner, took charge of said bank pursuant to the banking laws of the state, and that thereafter, as superintendent of banks, he took charge of said bank and its assets and affairs, pursuant to the banking act of 1933, and has continued in charge thereof.

The demurrer admitted these allegations, hence we were and are of the opinion that the superintendent of banks lawfully came into possession of the trust fund in question.

*52Upon what theory can it be said that a bank which is in the business of acting as a trustee, and as such comes into possession of funds, should, in the face of our statute, be permitted to administer the same when it (bank) becomes unsafe or unsound? We think it was clearly the legislative intent that when such a trustee became unsafe or unsound, the superintendent of banks should step in and protect the cestui que trust.

As we pointed out in the former opinion, the superintendent of banks, in such a situation, assumes all of the responsibilities of the trust.

The petition is denied.

*65April 30, 1937.