GREVA v. RAINEY

Reset A A Font size: Print

District Court of Appeal, First District, Division 2, California.

GREVA et al. v. RAINEY, Superintendent of Banks.a1

Civ. 9336.

Decided: May 25, 1934

Dockweiler, Dockweiler & Finch, Walter E. Burke and Stanley & Lewis, all of Los Angeles, for appellants. Robbins & Van Fleet and Devlin & Devlin & Diepenbrock, all of San Francisco, amici curiæ on behalf of appellants. Charles Dell Rubin, of Los Angeles, and Colladay, McGarraghy, Colladay & Wallace, of Washington, D. C., amici curiæ for Pacific States Corporation. Mathes & Sheppard, of Los Angeles, amici curiæ for American Surety Co. of New York. Sullivan, Roche, Johnson & Barry, of San Francisco, for respondent.

The plaintiffs, as depositors in the savings department of the Pan American Bank, in liquidation, brought suit to obtain a decree of declaratory relief. From the judgment in favor of the defendant, plaintiffs have appealed.

In the first count it is alleged that the Pan American Bank of California was formerly engaged in transacting business at Los Angeles; that it transacted its business in three several departments–a trust department, a commercial department, and a savings department; and that it so continued until the 19th day of July, 1929. On that date the Superintendent of Banks entered and took charge of the bank. Thereafter proceedings in liquidation were had. It is then alleged: “That in the process of liquidation the liquidating officer has continued to keep separate and segregated moneys collected from the assets in each department, and that he has now paid all of the legally allowed claims of the depositors and creditors of the trust department of said bank; that there are no claims of any kind or character against the trust department of said bank; that he has heretofore paid all of the claims of the depositors and creditors of the commercial department of said bank, except certain creditors whose claims are in liquidation, and that he is holding impounded in reserve a sufficient sum of money to pay such disallowed claims now in litigation if the determination of the litigation should be adverse to him. That in addition thereto he has a large sum of money, to-wit, in excess of $65,000 in said commercial department now being impounded by him for the purpose of paying interest at the rate of 7 per cent per annum from the date of the failure of said bank until the time of payment of said depositors and creditors of said commercial department. That he has heretofore paid to the depositors and creditors of the savings department of said bank 85 per cent of the legally allowed claims against the savings department, and has impounded money sufficient to protect him against disallowed claims now in litigation and in addition thereto a small sum on hand in said savings department available for dividend purposes the exact amount being unknown to these plaintiffs.” It is further alleged that to pay the remaining 15 per cent. to the savings depositors will require the expenditure of $140,000. From the reporter's transcript it appears that the Pan American Bank has abundant assets to pay the costs of administration and the principal sums due the depositors and creditors of the several departments. Other appropriate facts are alleged as stating a cause of action asking for declaratory relief, that is, a decree that under the facts the defendant should or should not pay the depositors and creditors of the commercial department interest.

The defendant quotes the twelfth paragraph of section 136 of the Bank Act (1 Deering's Gen. Laws, Act 652, pp. 215, 302) as follows: “Whenever the superintendent of banks shall have paid to each and every depositor and creditor of such bank whose claim or claims as such creditor or depositor shall have been duly proved and allowed, the full amount of such claims, and shall have made proper provision for unclaimed and unpaid deposits or dividends, and shall have paid all the expenses of the liquidation, the superintendent of banks shall call a meeting of the stockholders of such bank giving notice thereof for thirty days in one or more newspapers published in the county where the principal office of such bank is located. * * *” Then stressing the expression “the full amount of such claims * * *,” he argues that the expression means both principal and interest. The argument is not convincing. The meaning of the expression contained in the statute is the same whether the particular bank was hopelessly insolvent, or, like the Pan American Bank, temporarily embarrassed, but having assets more than sufficient to pay on the claims the amount of the principal. But, as shown by the decisions cited in Leach v. Sanborn State Bank, 210 Iowa, 613, 231 N. W. 497, 69 A. L. R. 1206, in the former instance no interest would be payable.

Still claiming that the statutes authorize him to pay interest to the depositors in the commercial department, he points to the fact that each department is to be considered as a separate bank (section 23) and, as shown by the facts, in the commercial department there are moneys sufficient to pay the interest. Continuing, he cites the provisions of sections 25, 26, and 27, as showing that in liquidation the funds in each department shall be held solely for the depositors and other claimants of such department. Until such claimants have been paid the principal sum coming to them it will hardly be disputed but that the contention of the defendant is correct. However, he quotes no word or words showing that such requirements of the statute are to the effect that interest is to be paid to such depositors and claimants of any one department to the exclusion of the creditors of the other departments.

The provisions of the statute quoted by the defendant are clearly to the effect that the depositors in any one department, to the extent of their principal, are preferred claimants to the funds and assets of that department. However, merely because certain claimants hold preferred claims does not under the general law entitle them to demand interest before the other creditors have received payment of the principal sums payable to them. People v. American Loan & Trust Co., 172 N. Y. 371, 65 N. E. 200. One who makes a special deposit has a preferred claim, but he is not therefore entitled to interest. Bank of America Nat. T. & S. Ass'n v. California S. & C. Bank, 218 Cal. 261, 22 P.(2d) 704, 712. Furthermore, if we carry defendant's contention to its logical end, it would follow that as soon as the defendant had received in the commercial department more money than necessary to pay the depositors and creditors of that department their principal and interest, it was his duty to pay such sums and terminate the liquidation of that department; and so with each department; and thus have three liquidations instead of one. To so hold is to interpolate many matters not even hinted at in the statute.

It is not claimed that at any place in the Bank Act an express provision is inserted authorizing the payment of interest. However, the defendant relies on the provisions of the Usury Act (2 Deering's Gen. Laws, 1931, Act 3757). Closely connected with the last point is another. The plaintiffs contend that the Bank Act is to be construed as being inclusive and exclusive of the law applicable to this case. We think that contention is sound. Formerly the banking laws of this state were contained in many different statutes. In 1909 they were revised by chapter 76 of the statutes of that year. Since then the latter act has been amended from time to time and at the present the amended revised statute is a very full and complete statute (1 Deering's Gen. Laws, p. 215, Act 652). In the early case entitled State v. Conkling, 19 Cal. 501, at page 513, the court said: “We do not consider that the rule applicable here is, that this is a repeal by implication as that rule is usually applied; but the principle is, that when the Legislature makes a revision of particular statutes, and frames a general statute upon the subject-matter, and from the framework of the act it is apparent that the Legislature designed a complete scheme for this matter, this is a legislative declaration that whatever is embraced in the new law shall prevail, and whatever is excluded is ignored.” That doctrine has since been reiterated many times. Mack v. Jastro, 126 Cal. 130, 133, 58 P. 372; Sponogle v. Curnow, 136 Cal. 580, 584, 69 P. 255; Wood v. Roach, 125 Cal. App. 631, 638, 14 P.(2d) 170; Carter v. Stevens, 208 Cal. 649, 284 P. 217. The fact that the Bank Act was enacted in 1909 and that the Usury Act was enacted in 1919 did not result in an amendment of the Bank Act. In the case entitled In re Washer, 200 Cal. 598, at page 606, 254 P. 951, 954, Mr. Justice Preston noted the enactment of the Bank Act and several others. Then speaking of the effect thereon of the enactment of the Usury Act he said: “These, and perhaps many other statutes, are the result of the best wisdom of our state and involve some of its most important and most cherished functions, and it is not for a moment to be held that this system of beneficent laws was to be set awry by a poorly drafted act meant only to protect the individual necessitous borrower from the rapacity of the more fortunate lender.”

We have (1) insolvent estates arising under state insolvent acts; (2) insolvent estates arising under federal bankruptcy acts; and (3) insolvent estates of many different organizations the administration of which is governed by special statutes, such as the Bank Act, Insurance Act, Building and Loan Act, etc. In different jurisdictions the bank acts are similar in some respects, but so far as the writer has observed they are different in other respects. All of the parties in the instant action assert that our Bank Act was copied from the National Bank Act. Generally speaking, that assertion is correct. However, it differs in certain material respects. So do the bank acts in other jurisdictions. Under the National Bank Act the Secretary of the Treasury, the Comptroller of the Currency, and their assistants, are given broad powers. When a national bank becomes insolvent the Comptroller is authorized to take over the bank and proceed with the liquidation thereof. (12 USCA § 192.) That same rule obtains in Massachusetts and obtains in California. While the statute of Iowa is slightly different, nevertheless it has been construed by the Supreme Court of Iowa as being substantially similar to the National Bank Act. Leach v. Exchange State Bank, 200 Iowa, 185, 203 N. W. 31. At an early date Mr. Justice Field, writing the opinion of the court in Cook County Nat. Bank v. United States, 107 U. S. 445, at page 448, 2 S. Ct. 561, 564, 27 L. Ed. 537, stated as follows: “We consider that act as constituting by itself a complete system for the establishment and government of national banks, prescribing the manner in which they may be formed, the amount of circulating notes they may issue, the security to be furnished for the redemption of those in circulation, their obligations as depositaries of public moneys, and as such to furnish security for the deposits, and designating the consequences of their failure to redeem their notes, their liability to be placed in the hands of a receiver, and the manner, in such event, in which their affairs shall be wound up, their circulating notes redeemed, and other debts paid, or their property applied towards such payment. Everything essential to the formation of the banks, the issue, security, and redemption of their notes, the winding up of the institutions, and the distribution of their effects, are fully provided for, as in a separate code by itself, neither limited nor enlarged by other statutory provisions with respect to the settlement of demands against insolvents or their estates.” Where that rule obtains it is manifest that the liquidating officer is an administrative government officer of the federal government, or of the state government under which he was appointed, and that his powers and duties are those prescribed in the bank statute and not otherwise. Port Newark Nat. Bank of Newark v. Waldron (C. C. A.) 46 F.(2d) 296. The rule in Cook County Nat. Bank v. United States, supra, which we have set forth, was adopted and followed by the Supreme Court of Massachusetts in Commonwealth v. Allen, 240 Mass. 244, 133 N. E. 625. In Tennessee when a bank becomes insolvent the Superintendent of Banks must apply to a court of equity to be appointed receiver and as such be clothed with the powers of a receiver. Code 1932, § 5969. Receivers appointed under such a statute ordinarily have the powers directly conferred by the statute and additional powers as the arm of the court of equity appointing them. State of Tennessee ex rel. McConnell v. Park Bank & T. Co., 151 Tenn. 195, 268 S. W. 638, 39 A. L. R. 449, therefore, is not controlling in the instant case. In this connection it may be noted that the Bank Act of California, as amended (St. 1903, p. 368), was similar to the Tennessee statute in so far as it provided for the appointment of a receiver. Thereafter, the California Safe Deposit & Trust Company became insolvent and a receiver was appointed. Thereafter George S. Smith obtained permission and brought an action against the bank in liquidation on a written contract containing a promise to pay money. The decision in that case, People v. California, etc., Trust Co., 34 Cal. App. 269, 167 P. 181, is in point as to the powers of a court, but is not controlling in the instant case as to the powers of this defendant. Furthermore, that case rested on section 1917 of the Civil Code; but that section has been repealed.

Before proceeding further it should be noted that the National Bank Act differs from our Bank Act in another material respect. Under the former statute the claimants are given permisison to choose one of two methods of proving their claims. They may either (1) prove their claims before the comptroller of banks or (2) institute actions at law. For this reason various decisions under the National Bank Act regarding the payment of interest on claims proved before the courts are not controlling on the question of interest. Cosmopolitan Trust Co. v. Suffolk Knitting Mills, 247 Mass. 530, 143 N. E. 138, 140. See, also, White v. Knox, 111 U. S. 784, 4 S. Ct. 686, 28 L. Ed. 603.

As stated above, the question before us is, What are the powers and duties of the defendant as Superintendent of Banks in so far as the payment of interest is concerned? The Bank Act is silent on the subject. However, as that act covers the entire field, previous provisions of either the common or statutory law in conflict therewith become no longer operative. Cook County Nat. Bank v. United States, supra; Commonwealth v. Allen, 240 Mass. 244, 133 N. E. 625, 627-628. In this connection the plaintiffs cite and rely on In re Prudential Trust Co., 244 Mass. 64, 138 N. E. 702. The defendant criticizes that case because the court does not therein cite its authorities. The criticism is not well founded. The interpretation of the Bank Act of Massachusetts had been the subject-matter of numerous decisions by the Supreme Court of that state. Commonwealth v. Allen, supra, and cases cited; Cosmopolitan Trust Co. v. Mitchell, 242 Mass. 95, 136 N. E. 403, and cases cited. As stated above, that court had already adopted the rule stated in Cook County Nat. Bank v. United States, supra. Then in the case entitled In re Prudential Trust Co., 244 Mass. 64, 138 N. E. 702, it applied the rule as to the question of interest. Three different trust companies had become insolvent and the commissioner of banks applied to the court to be instructed as to what were his powers–not the powers of courts of equity. The banks involved were departmental institutions. Chapter 172 of General Laws of Massachusetts (Ter. Ed.) provides that trust companies may be formed to transact both a trust business and a savings bank business. Sections 61, 62, and 63 are quite similar to sections 23, 25, 26 and 27 of our Bank Act. Chapter 167 provides for liquidation of banks by the commissioner of banking. Section 34 thereof is practically identical with paragraph 12, section 136, of our Bank Act. As to one of the banks the record showed that the depositors in the savings department had been paid 100 per cent. of the amounts due them when the commissioner took possession, and there were surplus moneys left in that department. Having discussed each section of its Bank Act pertinent to the case before it and although in Massachusetts they have a statute on the subject of interest on judgments (chapter 235, Gen. Laws) in writing its opinion, 138 N. E. 702, at page 706, the court said:

“4. The fourth question is: When are depositors in the savings department paid in full? This question arises on the petition respecting the Hanover Trust Company.

“The pertinent facts are that 100 per cent. has been paid to the depositors in the savings department of that company, a part of sums collected from stockholders' liabilities having been used for that purpose, and that since the payment of such dividend there has been realized from the assets of the savings department a considerable sum, and that there still remain assets of the savings department which appear to be good to a considerable amount, so that there is an excess of assets of the savings department above what is needed to pay to its depositors 100 per cent. of their claims as of the date when the commissioner took possession.

“The depositors in the savings department are entitled only to receive 100 per cent. on the amount of their claims on the date when the commissioner took possession of the company, with all interest or dividends due at that time but without interest since that date. * * *

“It follows that, upon the facts here disclosed, depositors in the savings department are paid in full when they have received 100 per cent. of their deposits on the date when the commissioner took possession, and when so paid have no further claim upon the assets of the savings department or upon the general assets of the company or upon sums received from stockholders' liabilities, and that funds in the savings department in excess of what is necessary to pay depositors in that department in full are to be used to satisfy the claims of commercial depositors.”

The defendant cites and relies on In re People, by Stoddard, Superintendent of Insurance, 249 N. Y. 139, 163 N. E. 129. The facts before the New York court were that a Norwegian insurance company was granted permission to transact business in this country on the condition that certain securities for the general benefit of policyholders in the United States should be deposited with the insurance department of New York. Thereafter the company was thrown into bankruptcy. The assets in this country were more than sufficient to pay the claims, both principal and interest, due citizens of the United States, but the total assets of the company were insufficient to pay all of the claimants both in the United States and elsewhere. The court held that the insurance commissioner was bound to pay the American claimants, both principal and interest, and thereafter transfer the balance, if any, to the bankruptcy court in Norway. We think it is apparent that the case is not controlling in the instant case.

Basing our conclusion on the authorities mentioned above, we think it is clear that the defendant under the statute is not entitled to pay interest to the depositors in, and creditors of, the commercial department. Furthermore, in enacting the statute in those terms we think it is clear that the Legislature did not act inadvertently. As will be seen from some of the authorities cited above in some jurisdictions after the liquidating officer has completed his stewardship, a court of equity has entertained an action against the bank to determine the rights of claimants to be paid interest. In such actions all of the interested persons can be made parties. It can also be determined whether any law authorizes the payment of interest; and if so, on what claims. As the claims may fall in different classes the equities of each may be exactly ascertained. As the fund may be limited the rate of interest can be apportioned accordingly. As all claimants will have been paid 100 per cent. of the amount due when the superintendent took charge, the court will be in a position to enter a judgment that will do equity to each separate class. To do these things the statute has not cast on this defendant the duty, nor has it furnished him with the judicial machinery. In addition to questions heretofore intimated many others will arise. Claims in favor of beneficiaries under trusts assumed by the trust department will present one set of questions. Claims of depositors in the savings department under a written form of contract governing rates of interest on such deposits will present other questions. Claims of depositors in the commercial department will present others. And numerous other claims of creditors but not depositors will present yet other questions. 53 C. J. 244, 265, 293, 296, and 312.

As to the second count the findings were in favor of the defendant. The plaintiffs assert that the trial court was in error when in substance it made a finding of fact that it was for the best interests of the depositors and creditors for the continuance of this liquidation by the Superintendent of Banks as liquidating officer of the court. The defendant states that he is a statutory liquidator or receiver of any bank of which he takes possession under the provisions of section 136 of the Bank Act; that that section specifies the manner in which the Superintendent of Banks must liquidate a closed bank; that he has no right or power to carry on this liquidation in any other manner; and that he is under the duty of continuing the liquidation until all of the depositors and creditors have received the full amount of their claims and thereupon it will become his duty to call a meeting of the stockholders and allow them to determine whether he shall be continued as liquidator or whether the stockholders shall carry on the further liquidation themselves. Continuing, he states that he has no power to change the procedure delineated in section 136 of the Bank Act, and respectfully adds that the courts have no such power. The answer is manifestly sound and complete. Under certain circumstances and within a limited period resort may be had to the courts. Section 136, par. 2; section 136a. But there is no claim that such steps were taken.

Closely connected with the last point is the request of the plaintiffs that the defendant be, by the terms of the judgment, directed to transfer any moneys or assets now in the commercial department to the savings department. But, as to that request, we understand the defendant's reply to be that he understands the law to be that he must first pay interest to the commercial depositors and, if he is mistaken, then he desires to receive the directions of the court with which he is ready to comply. So understanding the defendant's position, we have so framed the judgment as to give the defendant the benefit of the opinion of this court on the subject.

Our attention has not been directed to any conflict in the evidence. All issues of fact were covered by the findings. The errors are contained in the conclusions of law which were carried into the judgment. As shown above, the judgment was in part correct and in part it was erroneous, but it can be so modified as to eliminate all errors. It is therefore ordered that all of the judgment commencing with the words “Now, therefore,” in the second paragraph, and ending with the words “* * * dates of payment of said respective claimants,” at the end of the last paragraph, be stricken out and that there be inserted in the place of the portion so stricken out the following:

Now, therefore, it is hereby ordered, adjudged, and decreed as follows:

(1) That plaintiffs are entitled to a judgment and decree ordering and directing defendant, as such superintendent and liquidating agent, to transfer any moneys or assets now in the commercial department of said Pan American Bank of California, in liquidation, and any moneys or assets hereafter collected in said commercial department, to the savings department of said bank in liquidation for the purpose of paying claims against said savings department.

(2) It is further ordered, adjudged, and decreed that the defendant has no authority to pay to the depositors and claimants of the commercial department of said bank in liquidation, interest at the rate of 7 per cent. per annum from July 19, 1929, upon the principal amounts of their respective claims against said department of said bank on said date.

(3) That plaintiffs are not entitled to a judgment or decree of this court ordering or directing defendant to forthwith, or at all, sell all or any of the assets of said bank in liquidation now in his possession as liquidating agent thereof.

As so modified, the judgment is affirmed. The plaintiffs will recover their costs on this appeal.

I dissent. In my opinion the trial court correctly determined the questions before it, and the judgment should be affirmed for the reasons stated in the dissenting opinion on the companion appeal. Wood v. Rainey (Cal. App.) 33 P. (2d) 702.

STURTEVANT, Justice.

I concur: NOURSE, P.J.

Copied to clipboard