180 S.W.2d 72 | Ky. Ct. App. | 1943
Reversing.
The question is whether the Federal Deposit Insurance Corporation is entitled to interest on money it made available to depositors of a closed bank until it was reimbursed that sum from the assets, there remaining a relatively small amount after all the bank's creditors had been paid.
The Federal Deposit Insurance Corporation, which, following the practice of the day, we may call the FDIC, had insured the deposits of the Carter County Commercial Bank of Olive Hill, Kentucky, which suspended operations on October 30, 1937, and was taken over for liquidation by the Banking, and Securities Commissioner of Kentucky. The Commissioner and a special deputy constituted statutory receivers. Sec. 165a-16 et seq., Kentucky Statutes, now KRS
The act of Congress governing the operation of the Federal Deposit Insurance Corporation (
When an insured bank shall have been closed on account of inability to meet the demands of its depositors, the FDIC makes available to each of them a transferred deposit in another bank which is subject to withdrawal upon demand, or pays them in some manner as may be prescribed by the directors of the corporation.
"For the purpose of subrogating the Federal Deposit Insurance Corporation to all of claimant's rights against said closed insured bank arising out of the insured deposit in the amount shown above, claimant hereby assigns, transfers and sets over unto said Corporation all claims against said closed bank and its stockholders arising out of said insured deposit, together with all evidences of such indebtedness held by claimant."
The statutes and this assignment constitute the entire contract and basis for the claim and cause of action *343 so far as this record reveals. If there was any instrument executed by the Corporation and Bank to evidence their reciprocal agreements and obligations it is not here.
We look first to the few cases in which the question at bar has been considered.
In Bates v. Farmers Savings Bank of Ankeny,
The FDIC made similar claim for interest against the assets of a Missouri state bank. Missouri has a statute like Iowa's, providing for the payment of interest on open accounts "after they become due and demand of payment is made." Section 3226, R. S. Missouri 1939, Mo. R. S. A. Sec. 3226. The courts of that state, in accordance with the weight of authority, hold that depositors in a closed banking institution are entitled to interest where there is a sufficiency of assets after satisfaction of other debts in preference to the claims of stockholders. The District Court of the United States for the Western District of Missouri held that the FDIC would have been entitled to collect interest in subrogation of the depositors whom it had satisfied if its claim therefor had been seasonably made, but that not having been done it was limited to interest from the date the statutory receiver had formally approved the claim for reimbursement of the principal. Federal Deposit Insurance Corporation v. Citizens State Bank of Niangua,
"We regard this as a strained and unreasonable construction. The expression 'to the extent of such payment' is equivalent here to the term 'pro tanto,' or to the words 'as to the portion of the deposit paid.' The language of the statute in no way restricts the scope of the Corporation's pro tanto subrogation rights, but, on the contrary, it expressly provided that, to the extent of the payment made, or as to the portion of the deposit paid, the Corporation shall be entitled to 'all rights of the depositor against the closed bank.' This obviously includes the usual and inherent incident of interest for the period that the bank's obligation for the deposit remains unsatisfied as against the Corporation, if a surplus is available for that purpose. It must accordingly be declared and held that the Federal Deposit Insurance Corporation Act does not prohibit the Corporation from receiving interest upon its claim against a closed bank for the portion of the deposits which it has paid, but contemplates that the Corporation shall be entitled to collect, as part of its subrogation rights, such interest as is properly and ordinarily incident to the payment of claims of depositors in a bank liquidation, where there is a surplus available for this purpose."
It, therefore, appears that the Circuit Court of Appeals decided only that the phrase authorizing subrogation "to the extent of such payment" did not prohibit the Insurance Corporation from receiving interest. It made no reference to the Missouri statute requiring it. So it would seem that the court relegated the question and the right to recover to the affirmative State law.
In Federal Deposit Insurance Corporation v. Leggett,
In all three of the cases the obligation to pay interest when money was due and demand refused was embraced in State statutes, which under familiar law, constituted parts of all contracts. We do not have a similar statute in Kentucky. But this court has held that demand depositors are entitled to interest from the time a bank suspended business. The decision is rested upon the proposition that an ordinary deposit subject to check is in the nature of a loan to the bank, with an implied contract to pay the depositor upon demand, and that the suspension of business is in effect a breach of the contract and the equivalent of a refusal to pay. Dorman v. Adams,
In Federal Deposit Ins. Corp. v. Department of Financial Institutions, Ind. App.,
In a footnote to Federal Deposit Insurance Corporation v. Citizens State Bank of Niangua 8, Cir.,
The Corporation committed itself to pay the depositors and when it did so, the Bank's obligation to them was discharged and only its obligation to the Corporation remained. The question is resolved into one of construction of the contract of indemnifying insurance, particularly as to the meaning and extent of the word "subrogated," to be found in the terms of the federal act, measured by the rules established by the decisions of this court.
A point is made by the appellees that the Federal Act provides that the board of directors of the corporation by regulation shall prohibit the payment of interest on demand deposits in insured bank and shall limit the rate of interest on time and savings deposits.
The reasons for the prohibition of paying interest on demand deposits in the ordinary course of business was for the benefit of the general depositors and Insurance Corporation by preventing competition among banks for deposits which might prove embarrassing or dangerous. We do not think the statute or regulation applicable where there was a definite breach of the contract. *347
It seems to us that the language of the statutes and the assignments from the depositors that the FDIC "shall be subrogated to all rights of the depositor" whom it has paid "to the extent of such payment," and that such subrogation "shall include the right on the part of the Corporation to receive the same dividends from the proceeds of the assets of such closed bank and recoveries on account of stockholders' liability as would have been payable to the depositor on a claim for the insured deposit" (the Federal Statute, 12 U.S.C.A. See. 264(1) (7), and "to all rights * * * to the extent of the payment" (the State Statute, KRS
It is true that the equitable doctrine of subrogation is enforced solely for the purpose of accomplishing the ends of substantial justice and that there is no inexorable rule by which the right is to be measured. So a court of equity may cut down or lessen rights of the subrogee, as by denying interest, or may even bar subrogation altogether. However, generally the subrogee is placed in the shoes or in the precise position of one to whose rights he is subrogated and is entitled to all legal rights and remedies available to the creditor. 25 Rawle C. L. 1377. So where one obligated to do so pays a debt bearing interest he is entitled to receive both principal and interest until he shall be satisfied and may enforce any lien securing the debt to that extent. 25 Rawle C. L. 1389. Here the subrogation is accomplished by express statutes and definite writings of assignment. These define the terms, conditions and extent of the subrogation, which is, as we have reasoned, complete or entire. In such a case a court of equity will determine the rights of the parties by the contract, enforce the agreement and give the second or substituted creditor what he has contracted for. 25 Rawle C. L. 1339; In re Liquidation of Anchor State Bank, supra; Withers v. D'Auria Bank Trust Company, supra; Bates v. Farmers Savings Bank of Ankeny,
The Insurance Corporation, therefore, is entitled to recover interest to the amount of the undistributed assets of the closed bank unless it is estopped to claim priority over the claims of the directors for money placed in the capital account of the bank, as the Circuit Court ruled.
Sometime in 1927, because of the defalcation of the cashier of the Carter County Commercial Bank, its capital was much impaired and the Banking Commissioner of the state required that it be restored to the legal reserve or amount. A.J. Stamper and his brother, *349 G.W. Stamper, who together owned 253 shares of stock, which constituted a large majority of it, voluntarily placed $25,300 to the surplus account to augment its assets and keep it from closing. They were the president and vice president of the bank, respectively, as well as directors and stockholders. The Banking Commissioner was authorized by statute, Sec. 165a-15, to require stockholders to make good any impairment of the capital stock as a condition to remaining open. At that time the Kentucky Statutes, Sec. 595, imposed double liability upon the stockholders of a bank to prevent loss to its creditors. In February, 1929, a resolution was adopted by the board of directors, of which entry was then made on their minute book, reciting the payment by the Stampers and declaring that they should be repaid by the bank, "with the approval of the State Banking examiners."
Several years later, a banking examiner having disallowed certain notes as proper assets, A.J. Stamper paid the amounts to the bank, "with the knowledge, consent and direction of the stockholders," and accepted personal assignment of the notes, which were never paid. His estate claimed the right to recover $2,160 on this account from the assets of the closed bank.
No objection to the allowance of these claims was made by any one except the Federal Deposit Insurance Corporation. The trial court was of opinion that they were valid claims and that by reason of the entry on the minute book of the bank's directors revealing the indebtedness of $25,300 to the Stampers, made three years before the FDIC examined the bank and elected to insure the deposits, it was estopped to question the claims as prior liabilities. The court thought that since the Corporation could have declined to insure the deposits but elected to do so for a valuable consideration without demanding as a condition or prerequisite that the claim should be abandoned or cancelled, it can not now claim any priority over those creditors.
The restoration of deficient capital of a bank by those interested in its continuance is in the nature of a reinvestment in the stock for the purpose of strengthening or replacing the impairment. It is incident to the operation of a going concern and is distinguishable from superadded liability imposed by a statute because that becomes effective only after liquidation has begun. Whitfield *350
v. Dorman,
The Principle of these decisions is in accord with other authorities. 7 Am. Jur., Banks, Sec. 784; Annotations, 55 A.L.R. 794; 88 A.L.R. 996. Upon that principle, if the execution of notes to aid a bank be no defense to a cause of action upon them for the use and *351
benefit of depositors, a fortiori, a claim based upon a contribution made for that purpose 10 years before and permitted to remain in the assets without a corresponding liability appearing on the books cannot be regarded as prior or even equal in dignity to the claims of depositors and other creditors. We have held so specifically in Wood v. Wilhoit, Banking Securities Com'r,
We do not think the Insurance Corporation can be said to be estopped to rely upon this principle because of the entry on the minute book of the directors. The amount was not shown on the account books of the bank. If the presumption should be indulged that the Corporation knew of this minute, or if it should be held chargeable with knowledge of it, yet the record was nothing more than the recognition of an obligation which should be paid when the bank should become solvent without the amount appearing as an asset, or when it was not actually needed for that purpose. That condition never occurred. The countervailing presumption is that the Corporation realized the nature and character of the potential claim, namely, that it was at all times inferior to the rights of the depositors. Having reached the conclusion that the FDIC stands in the shoes of the depositors whom it paid, it necessarily follows that it is not estopped to assert its prior claim.
The judgment is reversed.
Whole Court sitting.