Court Opinion

ID: 3548023
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:00:39.089812+00
Date Added: 2024-06-11T14:22:27.199415
License: Public Domain

OPINION
1. Appellant contends that sec. 684 N.C.L. 1929, even when construed independently of other sections of the bank act of 1911, indicates the intent of the legislature to protect depositors and creditors against only fraudulent and improper acts of the bank officials during the insolvency of a bank, which acts would result in the preferment of special friends of said officers among the depositors. To go further, argues appellant, is to add something that the legislature did not say, and did not intend. Putting it in another way, the language, says appellant, must be warped and strained if the interpretation put upon said section by this court is to be upheld. We think what was said in our original opinion is a sufficient answer to the aforesaid contention. It is true that the section in question does protect depositors and creditors against fraudulent and improper acts of bank officials, which would result in the preferment of special friends of such officials. But *Page 397 
we are satisfied that the purpose of sec. 684 goes much further, and that its chief purpose is to protect depositors and creditors against the giving of preferences by bank officials, whether their conduct be accompanied by actual fraud on the one hand, or only constructive fraud on the other. First National Bank  Trust Co. v. Manning, 116 Conn. 335, 164 A. 881. This view is supported by a large number of authorities, including statements in the opinions in two cases cited by appellant; Hadlock v. Callister,85 Utah 510, 39 P.2d 1082; Citizens State Bank of Chautauqua v. First National Bank of Sedan, 98 Kan. 109, 157 P. 392, L.R.A. 1917A. 696. We quoted from Citizens' State Bank v. First National Bank, supra, in our former opinion. We now quote from the opinion in Hadlock v. Callister, supra, 39 P.2d 1085: "In the conduct of a banking business, other peoples' moneys are solicited and received by the bank to be used and invested by it for the benefit and profit of its stockholders. The confidence and integrity of a bank and its ability to properly safeguard the money thus intrusted to it is a necessary asset to its continued existence. Such confidence only can be sustained by adopting and practicing the policy of equity of treatment between depositors with preferences to none. Any practice which tends to destroy that confidence should not be permitted. * * * The policy of the law is to provide a maximum of protection and equality of treatment to all depositors."
2. Appellant, in its petition, renews its contention that when sec. 684 N.C.L. 1929 is construed in relation to secs. 672 and 705 N.C.L. 1929 (quoted in our original opinion), it is even more evident that it was not the intent of the legislature to prohibit the acquisition of a preferential position by a wholly adversary proceeding during the insolvency of the bank, but before it has formally closed pursuant to law. Appellant apparently considers if an established rule, under such statutes as ours, that a depositor or other creditor of *Page 398 
a bank may sue and attach its assets or levy execution against such assets at any time prior to the occurrence of either of two events: (1) The voluntary closing and posting a notice on the front door by the bank, (2) the taking possession of the bank by the bank examiner. While we do not consider it necessary to decide this question in the instant case, we do say that, in our opinion, it is not an established rule of law, even under such statutes as said secs. 672 and 705 N.C.L. 1929, that, in a situation such as that presented in this case, the depositor or her assignee could successfully sue and attach the assets of the bank. In so saying, we have in mind the case of Crane v. Pacific Bank, 106 Cal. 64, 39 P. 215, 27 L.R.A. 562. This case was cited in the original briefs on appeal herein, but was dismissed by appellant with the statement that it "held invalid an attachment against a bank after the bank, in accordance with the order of the state banking commissioners, had closed its doors and gone into liquidation."
In the California reports the first paragraph of the syllabi reads as follows: "The assets of an insolvent bank are to be administered exclusively under the Bank Commissioners' Act for the benefit of all the depositors and creditors of the bank, as well as its stockholders; and where a commercial bank has suspended and closed its doors, owing to insolvency in fact, the right of attachment by a depositor or creditor of the bank does not exist, and such an attachment will be dissolved although levied before the machinery of the Bank Commissioners' Act was put in motion by the commencement of an action by the people."106 Cal. 64, 39 P. 215, 27 L.R.A. 562.
From the opinion we learn the following facts: The bank "closed its doors for business, and wholly suspended payment of its debts, dues, and liabilities, on the 23d day of June, 1893, and has not since resumed payment; that on said last-mentioned day said bank held in trust for persons, partnerships, and corporations *Page 399 
an aggregate fund amounting to about $1,868,041.45; that, prior to the said last-mentioned day, said bank commissioners examined said bank, and found that it had been guilty of a violation of law in conducting business contrary to its articles of incorporation in an unsafe manner, and so as to seriously jeopardize the capital, property, and business of the bank, and thereupon directed it, by an order addressed to it, to discontinue such illegal and unsafe practices, and to conform to the requirements of its charter, but that the bank refused and neglected to comply with said order; that on said 23d day of June, 1893, the indebtedness of said bank was largely in excess of the reasonable and actual value of its assets; that the entire capital stock, together with the surplus, had become completely exhausted, and that the directors and stockholders neglected and refused to pay in said depleted stock, or any part of it, and `that on said 23d day of June, 1893, said Pacific Bank was wholly insolvent and remains so insolvent'; that the commissioners reported the condition of the bank to the attorney general, as required by law; that said attorney general commenced an action in the superior court on the 14th day of October, 1893, entitled, `The People of the State of California v. The Pacific Bank, a Corporation, et al.,' in which action it was decreed on November 3, 1893, that said bank was insolvent, etc., and enjoining it and its officers from transacting any further business."
In the course of its opinion the supreme court of California said in part: "It needs no argument to show that the exercise of the sovereign power of the state over such corporations in the manner above indicated is intended for the protection, not only of the stock-holders, but especially for the protection of depositors and all others transacting business with or through the bank. * * * If the bank commissioners' act operates to take banks out of the operation of the insolvency act, the proceedings under which, though summary and *Page 400 
expensive, result in the equal distribution of its assets among its creditors, it is equally clear that it was not intended that the moment a bank closed its doors its assets should be the prey of the first creditors who should secure the issuance of attachments, and thus permit its assets to be converted into money by a still more expensive process, and that the proceeds should be applied to the payment in full of these attachments, leaving other creditors, who, by reason of distance or otherwise, should not be informed of the bank's condition, or be able to secure the prompt issuance of an attachment, wholly without a right to share in its assets. * * * Appellant contends, however, that the right of attachment is a positive statutory right, and that the bank commissioners' act makes no provision for dissolving attachments levied before the machinery of the act was put in motion by the commencement of the action by the people. But, before the attachment was levied, the bank had suspended and closed its doors. The affidavits in support of the motion not only state that fact, but also that it was in fact insolvent, and these facts are not denied. Under these circumstances, the right of attachment did not exist. * * * It requires no argument to show that the right of attachment under the provisions of the Code of Civil Procedure is inconsistent with the machinery of the bank commissioners' act, as well as with its obvious purpose and intent. The state never intended that after the continued exercise of its high prerogative powers for the safety of all depositors and creditors, as well as stockholders, its purpose should be thwarted by the seizure of the assets of the bank by one or more creditors * * *."
Crane v. Pacific Bank, supra, was an appeal from an order dissolving an attachment. The motion was made in the superior court on November 17, 1893. On the hearing of the motion, the movant offered in evidence the records and papers in People v. Pacific Bank, the *Page 401 
case commenced by the attorney-general in the superior court on October 14, 1893, and in which said court decreed on November 3, 1893, that the bank was insolvent and enjoined it from transacting any further business. On the hearing of the motion to dissolve the attachment, the plaintiff excepted to the action of the lower court in receiving the complaint, answer and decree in said case of People v. Pacific Bank. On appeal to the supreme court from the order dissolving the attachment, the latter court ruled that said papers were properly in evidence on the hearing of the motion to dissolve in the lower court. In connection with this ruling, the court made this significant statement (Crane v. Pacific Bank, supra, 106 Cal. 64, at page 72, 39 P. 215, at page 218, 27 L.R.A. 562): "If it were otherwise, since the affidavit of Mr. Gerberding that the bank was in fact insolvent on June 23d, and ever since remained so, was not controverted, the order dissolving the attachment might have been properly sustained without the evidence excepted to, and, if so, appellant was not prejudiced by its admission."
The rule announced in Crane v. Pacific Bank, supra, is adopted in the first two sentences of the text of sec. 187, 4 Cal. Jur. 307. In the case of Dodson v. Wightman, 6 Kan. App. 835,49 P. 790, cited by appellant in the instant case, the court did not question the rule laid down in Crane v. Pacific Bank, supra, but expressed the opinion that the Crane case was not applicable, as will be seen by the following language in the opinion in the Kansas case [page 792]: "It will be proper to bear in mind that this bank was not authorized to do business, and that any general doctrine as to public policy in respect to authorized banks would not be applicable to the bank in question. Hence we think the decision of the supreme court of California in Crane v. Pacific Bank [106 Cal. 64], 39 P. 215 [27 L.R.A. 562], which is cited by the attorney general, is not applicable to this case." *Page 402
3. Appellant takes the position that Mrs. Biltz could have commenced action and attached the assets of the bank to compel the bank to allow her to withdraw her deposit, and that, therefore, it cannot properly be said that, in assigning her deposit to appellant, she was attempting to transfer greater rights than she herself had. But it is this court's opinion that if the bank had allowed Mrs. Biltz to withdraw her deposit after October 29, 1932, it would have been giving her a preference within the meaning of sec. 684 N.C.L. 1929. 7. Am. Jur. 519, sec. 717, nn. 12 and 13. Likewise it would have been giving a preference to appellant had the bank allowed it to offset the deposit assigned to it by Mrs. Biltz against its indebtedness to the bank.
It must be borne in mind that, in the instant case, the main question is whether the bank would have violated the provisions of sec. 684 N.C.L. 1929, if it had allowed the set-off demanded by appellant. At the time the set-off was demanded, the bank was insolvent in fact, had closed its doors, was not a going concern, was not paying checks, allowing withdrawals, or otherwise engaging in any of the usual transactions in the course of a regular banking business. In determining whether the allowance of the set-off would have constituted the giving of a preference, the foregoing facts, and the further fact that they were known to all parties concerned at the time of the assignment, are of more compelling and controlling force than the facts that no notice had been posted on the front door of the bank, the bank examiner had not taken possession, and no receiver had been appointed at the time of the assignment. We cannot, in the face of sec. 684 N.C.L. 1929, subscribe to a doctrine which, in a situation such as that presented by the facts and circumstances in this case, would allow a bank to give an unfair advantage to one general depositor or creditor simply because a bank examiner failed in his duty to take over the assets when he should have done so, or because the bank officials failed in their duty *Page 403 
to post a notice on the front door of the bank when it ceased doing a regular banking business.
When appellant requested or demanded the allowance of the set-off, the bank knew that it was insolvent and that it could not pay all its depositors and creditors in full; it thus knew that compliance with appellant's demand would give it a preference over other depositors and creditors, because appellant would in effect receive the full amount of its assigned deposit, whereas other general depositors and creditors, and particularly those not so situated as to be able to know the facts or take speedy action, would receive only their ratable proportion of what was left. The bank officials could not, therefore, have allowed the set-off without intentionally giving appellant an unfair advantage over other general depositors and creditors. Roberts v. Hill C.C. 24 F. 571; Hadlock v. Callister, supra; Singac Trust Co. v. Totowa Lumber  Supply Co., 112 N.J.L. 99,169 A. 673; Annotation, 74 A.L.R., page 941; 9 C.J.S. Banks and Banking, page 948, 949, sec. 487, n. 55; Tiffany on Banks and Banking, secs. 87-88.
The petition for rehearing is denied. *Page 404