Court Opinion

ID: 6907764
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:03:23.682496+00
Date Added: 2024-06-11T16:06:25.678345
License: Public Domain

On Petition for Rehearing.
McCOURT, J.
J. Leroy Smith and four other attorneys of this court, designating themselves amici curiae, but who represent a number of the commercial depositors of the insolvent bank, have presented a petition requesting reconsideration of the decision of this court, holding that the savings depositors are preferred creditors in the distribution of the savings assets of the insolvent state bank, and share ratably with commercial depositors in the distribution of all other assets and resources of the bank: 209 Pac. 100.
As all of the commercial depositors have a direct and substantial interest in the subject matter of the litigation, careful consideration has been given to their petition. They contend: (a) That the title of the act regulating state banks (Chap. 138, Laws of 1907), contains more than one subject, and that the *619subject embraced in tlie act respecting preferences or liens in favor of savings depositors in ease of insolvency was not expressed in the title; this they say invalidated the act and the subsequent acts amending the same, or at least rendered void, the matter not expressed in the title; (b) That the statute construed to favor savings depositors, as above stated, authorized the taking of the property of commercial depositors without due process of law, in violation of the fifth and fourteenth amendments to the federal Constitution; and (c) That subdivisions (e) and (h) of Section 6220, Or. L., are repugnant to each other, and that therefore under the established rules of construction, the former must give way to the latter, with the result that all of the assets of the insolvent bank, including savings assets, must be distributed equitably and ratably among the depositors.
All of the details contained in the title of the act (Chap. 138, Laws of 1907), relate to the same subject, and together constitute but one general subject, viz.: regulation of state banks.
The provision of the acts amending that statute, granting to savings depositors a preference in the distribution of the assets of an insolvent state bank, are germane to the subject expressed in the title of the act. The act conforms to constitutional requirements.
A legislative enactment having a substantial basis for the classification made therein, which gives preference to one class of creditors over another in the distribution of the assets of an insolvent debtor, is not opposed to any provision of the federal Constitution, No irreconcilable repugnancy exists between subdivisions (e) and (h) of Section 6220, Or. L.; hence a ease is not presented for the application of the rule of interpretation of statutes to the *620effect that where -different parts of the same statute are antagonistic and irreconcilable, the former must give way and the latter prevail.
The foregoing conclusions are so obvious that they do not require extended discussion or citation of precedents for their support. The petition' for rehearing is therefore denied. Other matters treated in the brief of the above-named petitioners will be considered in discussing questions raised by the petition of defendant.
Defendant has filed a petition in which he points out that administration of the assets of the insolvent bank, in accordance with the conclusions expressed in our former opinion, brings up for decision a number of questions of vital administrative importance not touched upon in the opinion. Defendant requests an expression of the court upon those questions.
The first inquiry presented by defendant’s petition concerns the right of setoff. It is suggested that a limitation (not recognized in the original opinion) is placed upon the exercise of the equitable right of setoff by subdivision (c) of Section 6220, Or. L., which commands, among other things, that all of the assets of the savings department—
“ * * shall be held solely for the repayment of the depositors in said department, and shall not be * * used to pay any other obligation or liability of the bank, until after the payment in full of all of the depositors of said savings department.”
Mr. Frank G-. Dick, an attorney of The Dalles, as amicus curiae, has filed a petition devoted to the proposition that the right of setoff of the mutual debts of depositors and the insolvent bank in suit, applies without limitation or modification, as held in the well-considered case of Williams v. Johnson, 50 Mont. 7 (144 Pac. 768, Ann. Cas. 1916D, 595). We *621will consider together the above-mentioned suggestion of defendant and the opposing contention of Mr. Dick.
The authorities cited in our former opinion establish the general rule that in the liquidation of insolvent banks, a demand of the bank against a depositor is regarded as a valuable asset in the hands of the liquidating officer only in so far as it is not offset by the debt of the bank to the depositor. The rule is well stated in the case of Yardley v. Clothier, 51 Fed. 506 (17 L. R. A. 462, 2 C. C. A. 349). The court in that case said:
“The rule of setoff is well understood to be that in all cases of mutual credit only the balance that shall appear to be due upon an adjudication of the mutual accounts should be paid, and it is that balance only which is the debt and is recoverable; that mutual obligations for the payment of money cancel each other; and that the death or insolvency of either party will make no difference in the adjustment of their mutual accounts. This rule may be modified by exceptional circumstances, or by statute, but is generally applied as here stated. The allowance of setoff has been frequently objected to in the distribution of insolvents’ assets and in the settlement of decedents’ estates for the reason that it would create preferences among creditors, but the controlling weight of authority has established the doctrine that, in the absence of express statutory prohibition, a setoff of a debt owing to the defendant will be allowed if it was due when the creditor’s rights attached, whether the debt sued on wás due at the same time or matured subsequently.”
The right of equitable setoff may be modified, restricted or prohibited by statute (Yardley v. Clothier, supra; Lippitt v. Thames Loan & Trust Co., 88 Conn. 185, 195 (90 Atl. 369), and in the absence of statute, *622may be denied in exceptional cases, as where its allowance in favor of a party would work an injustice to others having equal equities: Nashville Trust Co. v. Nashville Fourth Nat. Bank, 91 Tenn. 336 (18 S. W. 822, 15 L. R. A. 710).
The case of Williams v. Johnson, above referred to, involved a bank which was organized and incorporated under the statutes of Montana. The decision of the court in that case clearly establishes that upon the insolvency of a state bank, which prior to insolvency had been conducting a savings department, mutual debts between the bank and the savings depositors are subject to the rules governing the right of setoff. But the Montana statute does not impose any special duty or restriction upon a bank in respect to savings deposits and assets, a fact not taken into account in our former opinion.
Section 6230, Or. L., enjoins upon a bank maim taining a savings department, the duty to keep all savings deposits received by it, and all securities in which the same are invested, separate and apart from all other moneys and funds of the bank. The investment of savings deposits is expressly restricted to specifically described securities of recognized financial soundness and readily convertible into money.
The statute further imposes the strict obligation to hold all such investments, funds and assets solely for the repayment of savings depositors, and expressly prohibits the use of the same to pay any other obligation or liability of the bank, until after the payment in full of all savings depositors. It would be difficult to select more positive and definite terms for preserving the savings assets of a bank conducting a savings department exclusively for the repayment of savings depositors. The obligations of the depository bank, created by the statute, were carried into. *623and became a part of, every contract of deposit in the savings department, and attached to all of the funds, investments and securities in which such savings deposits were invested.
In Tagg v. Bowman, 108 Pa. St. 273 (56 Am. Rep. 204), the court said:
‘ ‘ The receipt of money by one person from another, to be applied to a specific purpose, implies an agreement on the part of the former not to apply it to any other use, and of course not to his own by pleading a setoff.”
Defendant received the savings assets of the insolvent bank subject to all of the liabilities and obligations of the trust impressed thereon by the terms of the statute.
Every borrower from the savings department of the bank was charged with notice that he was borrowing funds received by the bank under a special statutory contract, and that the obligation of the borrower, together with the securities furnished by him in compliance with the statute, would be included in, and become a part of, assets that the bank is commanded by statute to hold and administer solely for the repayment of savings depositors.
To allow a depositor in the commercial department of the bank to setoff his deposit against his debt to the savings department would have the effect of diverting funds and assets held solely for the special purpose of repaying savings depositors, and using them to pay the liability and obligation of the bank to a commercial depositor. This, we think, is prohibited by the statute, and in such cases, the right of setoff cannot be allowed, and to that extent the general rules of equitable setoff are limited by the statute.
Diversion of saving’s assets to a prohibited use or purpose does not result where a savings deposit is *624offset by a debt to the savings department or to the commercial department, or where a commercial deposit is offset by a debt to the commercial department, and in those cases the right of setoff is not affected by the statute. 1
Defendant’s next request relates to the manner in which the expenses of liquidation shall be charged. The statute directs that the expenses of liquidation shall be a valid charge upon, and be paid out of, the property in the hands of the superintendent of banks, and that such expenses shall be paid first in the order of priority. The direction of the statute includes savings assets and they are chargeable with a just and equitable part of the expenses of liquidating the insolvent bank.
Defendant also requests an expression of the court as to the basis of distribution to savings depositors from general assets. It is conceded that the savings assets will be insufficient to pay the claims of savings depositors in full.
The claim is made in plaintiff’s brief that distribution to the savings depositors from such assets should be based upon the full amount of the respective claims of such depositors until the dividends declared and distributed on such basis, together with those declared and distributed from savings assets, shall pay savings depositors in full. Plaintiffs rely upon the cases of Kellogg v. Miller, 22 Or. 406 (30 Pac. 229, 29 Am. St. Rep. 618), and Rockwell v. Portland Sav. Bank, 39 Or. 241 (64 Pac. 388), which hold in accordance with the great preponderance of authority, that where a creditor holds collateral security for the payment of his debt, and his debtor becomes insolvent, such creditor has a right to prove his entire debt against the insolvent estate and receive dividends *625thereon, irrespective of collateral security held by him.
Defendant insists that the rule contended for by plaintiff would give to savings depositors an inequitable advantage over commercial depositors, and one not contemplated by, or authorized by, the statute.
Defendant further insists that the rule that equality is equity will be more nearly approximated if distribution to savings depositors from general assets is based upon the unpaid balances of savings deposits remaining after the savings assets have been distributed.
The rule for which defendant contends was adopted in the cases of Lippitt v. Thames Loan & Trust Co., 88 Conn. 185 (90 Atl. 369), and Peters v. Union Trust Co., 131 Mich. 322 (91 N. W. 273), under statutes similar to the Oregon statute.
In the case of a creditor holding collateral security, the court, in Kellogg v. Miller, supra, said:
“ * * that by the contract between the debtor and creditor, the creditor secures a personal right against the debtor, and also a right to proceed against the security in case the debt is not paid. The debt or personal right is the principal thing; the security being regarded as something collateral, which does not reduce the debt, but only secures the creditor pro tanto in case the debt is not paid in full by the debtor or his estate. In the absence of the intervention of positive or statutory law, this contract is not varied or changed by the insolvency of the debtor or his assignment, and the courts will not interfere with the rights and remedies which a creditor secures to himself by contract. Hence he may prove against the estate for the entire amount due him, and receive his dividend accordingly.”
If the trust fund which secures savings depositors, might be regarded in the light of collateral security *626for the payment of a debt, the statute has intervened and provided a basis for the distribution of the savings assets of a state bank that has become insolvent different from that which prevails where a, creditor of an insolvent estate holds collateral security.
The statute declares that the savings assets of a state bank maintaining a savings department, shall be held solely for the repayment of the savings depositors, and shall not be liable for, pledged as security for, or used to pay any other obligation or liability of the bank, until after the payment in full of all depositors of said savings department, and that upon the insolvency or liquidation of any such bank, the savings depositors shall have an exclusive prior lien upon all the assets, including cash, of such savings department, which shall first be paid in full.
It was manifestly the design of the statute to constitute the savings assets a primary fund, to which the savings depositors should resort for repayment, of their deposits, with the right, in case the savings assets proved insufficient to pay the savings depositors in full, of sharing ratably with other depositors in the general assets, upon the basis of their unpaid balances after distribution of savings assets.
The savings assets are created entirely from savings deposits, and if administered as the statute directs, the former will always equal the latter. When the savings depositors accept the fund provided by statute for the repayment of their claims, or so much thereof as remains on insolvency, and secure the application of the proceeds thereof to the payment of their claims, the measure of liability of the bank to savings depositors that the latter are entitled to assert against the general assets, is the amount of the unpaid balances of the deposits.
*627In. the instant case the savings depositors have laid claim to, and will recover, all of the trust fund which remained upon the insolvency of the bank. That fund is now being administered with a view to a ratable distribution among the savings depositors, and a 40 per cent dividend from savings assets has been distributed to them. Savings depositors whose claims have been reduced by dividends from the savings assets are depositors, and entitled to share in the distribution of the general assets within the meaning of subdivision (h), Section 6220, Or. L., to the extent only of their unpaid balances remaining after their claims have been reduced by the application of savings assets to the payment thereof.
Plaintiff has petitioned the court to remand the Steelhammer suit for further proceedings, in the course of which plaintiff may be permitted to show that the litigation instituted by plaintiff was necessary to preserve a fund administered by the court, and also the reasonable value of the services rendered in that connection. The facts alleged in plaintiff’s petition do not appear in the record, but in a proper case, the representations made by plaintiff might be sufficient reason for remanding the suit.
In all the cases cited in support of the authority of a court to allow attorney’s fees and costs out of a fund being administered by the court, that authority was exercised where the services had added to, preserved or increased the amount being administered: See Attorney General v. North American Life Ins. Co., 91 N. Y. 57 (43 Am. Rep. 648).
The Steelhammer suit was commenced to establish the right of plaintiff and others similarly situated, to establish their right to participate with commercial depositors in the distribution of a fund, the *628whole of which was already in court and in process of administration.
No authority is found in the decided cases empowering a court, which is administering a fund under its control, to allow costs and attorney’s fees, payable out of the fund, for services performed by one creditor in establishing that he and all other creditors of a certain class, are entitled to share in the distribution of that fund.
In 6 C. J. 784, the rule as established by the authorities, is stated thus:
“After the fund or property has been brought in and made available by the decree of the court, and nothing remains but its proper administration and distribution, contests which may arise between claimants, in respect to priorities or the right to share in the fund, are individual matters involving antagonistic interests, and the counsel fees of those conducting such contests cannot therefore be made a charge on the fund or on the property, but must be paid by the parties themselves.”
In view of the foregoing rule, no case could be established by plaintiff, entitling her to an award of costs and attorney’s fees out of the fund in the hands of the court. As to plaintiff and others who may be benefited by the litigation commenced and prosecuted by plaintiff, the court has no greater right to determine and allow attorney’s fees and make the same a charge upon the subject of the litigation, than it has in the ordinary case of a contest between parties involving property rights. It appears, therefore, that no purpose would be served by remanding the cause, and accordingly the motion to remand is denied.
*629The several petitions for rehearing are overruled, and the former opinion is modified and extended in .conformity to the views herein expressed.
Rehearing Denied and Former Opinion Modified.