24 S.E.2d 911 | W. Va. | 1943
Lead Opinion
John H. Hoffman, as receiver of the Bank of Morgan County, an insolvent state banking corporation of the State of West Virginia, instituted in the circuit court of said county a suit pursuant to Code, 31-8-32, for the purpose of liquidating said bank. Joseph W. Unger and A. R. Dawson, stockholders who have paid in full their statutory liability as stockholders, appeal from the decree of the Circuit Court of Morgan County, which provided that $3,639.18, being the balance remaining after the payment of the principal indebtedness of the bank and costs and expenses of receivership, should be distributed by the receiver "to the depositors on claims proven in said bank".
Thus the sole question presented on this appeal is whether the balance remaining in the hands of the receiver of an insolvent bank after the payment of the principal indebtedness of the bank and all costs and expenses of the receivership, shall be distributed by the receiver to the depositors who have proved their claims, or to the stockholders who have paid all or part of their stockholders' liability.
The Bank of Morgan County was declared to be an insolvent institution by the Commissioner of Banking on October 3, 1931, and a receiver therefor was appointed. The outstanding capital stock of the bank consisted of two hundred and fifty shares of stock of the par value of one hundred dollars each. At the time of the closing of said *503 bank for liquidation A. R. Dawson was the owner and holder of eight shares and Joseph W. Unger, the owner and holder of five shares. The bill alleges that "the former receivers of the bank * * * have heretofore collected by suits and otherwise the statutory liability of the stockholders of said bank from whom collections could be made", and the decree complained of, as above noted, relates that Unger and Dawson "have paid their statutory liability in full". According to the bill all of the depositors of the bank have been paid "the principal of their respective deposits in full, but have been paid no interest thereon since the closing of said bank for liquidation".
At the outset it is appropriate to note the assessment of double liability which appellants, Dawson and Unger, paid was pursuant to a requirement of the Constitution of West Virginia, Article XI, Section 6, and Code, 31-4-16, to the effect that stockholders of any bank authorized by the laws of this State shall be personally liable to the creditors thereof over and above the amount of stock held by them respectively to an amount equal to their respective shares so held, for all liabilities of the bank "accruing while they are stockholders * * *". Where it appears that the assets of an insolvent bank are insufficient to pay in full all of its creditors and depositors, payment of such double liability, without awaiting the administration of such bank's assets, is a requirement of Code, 31-8-32. See Bank of Marlinton v. King,
"If the assets of any such institution or other corporation, including any sums collected from the stockholders, shall more than suffice to pay all of the creditors of such institution or other corporation who have presented and proved, or caused to be allowed, their several demands, the surplus shall be disbursed as follows: First, in the case of a banking institution, to the stockholders, *504 who have paid in any sums upon their extraordinary liability as stockholders, pro rata up to the respective amounts paid by each of them. Second, if anything shall remain thereafter it shall be paid to the stockholders of the institution or other corporation, in proportion to the number of shares owned by them respectively."
The rule that the appointment of a receiver of a closed bank by the banking commissioner will not destroy its corporate entity and its directors are not removed from office thereby, was pronounced in Gall, Receiver v. Cowell,
Our next inquiry, therefore, is what are the debts of the defunct institution? Does the term include interest?
Courts and text writers alike state that, as a general *505
rule, interest on a claim against an insolvent bank is calculated only to the date of suspension of the bank and a receiver's taking charge of its assets, unless there are surplus assets after paying in full the claims of depositors and creditors. Michie, Banks and Banking, Vol. 3, Section 219; Clark on Receivers, 2nd Ed., Section 660; Graver, Liquidation of Financial Institutions, Section 811; Fletcher Cyc. Corporations (Permanent Ed.), Vol. 16, 1942, Revised Vol. Section 7937; 7 Am. Jur., Subject Banks Section 744;Reichert v. Metropolitan Trust Co.,
"Those cases declared that the statement that interest will not be computed from the date of insolvency became the general rule, not because the claims were considered to have lost their interest-bearing quality, but because in the great majority of cases the assets were insufficient to pay both the principal and the interest which would otherwise become due."
It is stated in Zollman, Banks Banking, Section 1781, that "where a bank is so badly insolvent that the entire superadded liability of the stockholders when collected is insufficient to pay the principal of its debts, no question can arise whether its creditors are to receive interest, any computation of such interest would be a useless effort".
It was decided in this jurisdiction in an early case (Parkersburg National Bank v. Als,
It does not appear affirmatively here that the existing surplus arises solely through payment of the double assessments. May then interest be paid to depositors out of such surplus? An affirmative answer finds ample and sound precedent. Richmond v. Irons,
"Every stockholder in a banking corporation or institution shall be individually responsible and liable to its creditors, over and above the amount of stock by him or her held, to an amount equal to his or her liabilities accruing while he or she remains such stockholder."
According to the decision of the majority of the court "in contemplation of law the claims against the bank were interest-bearing at all times, and payment of interest depended only upon there being a surplus". It predicated its conclusion upon the postulate that "Equity allows or *507 withholds interest in accordance with what is equitable and just in view of all the circumstances in the case". See alsoReichert v. Metropolitan Trust Co., supra, which adopted the equitable principle as "the most compelling reason" assigned for allowance of interest to depositors, but it is noted that no double liability was involved. The dissenting opinion in theBarrett case argues that a defunct bank in the hands of a receiver "can make no contracts and incur no liabilities for which it or its stockholders may be held responsible". The rationale of the dissent is expressed in the following language:
"The rights and liabilities of creditors and debtors of an insolvent corporation are fixed and determined as of the time of the appointment of a receiver * * *. Whatever charges and expenses are incurred after that time are not obligations of the bank but are debts of the receivership".
The reasoning employed in the dissenting opinion is, according to our view, not sound, for, as we have noted above, the appointment of a receiver does not destroy the corporate entity nor the status of the stockholders as such, and the item of interest which accrues during the receivership is not a liability which the statutory receiver creates but arises by virtue of the relationship existent when the receivership is effected. In Stein v. Delano,
We have concluded that interest upon deposits is a part of the liabilities for which the double liability assessment *508
of a stockholder of a closed bank must stand responsible because of principles of law, but equity, too, requires it, for it is not a sufficient answer to say that because a depositor has recovered the principal of his deposit, he may not seek interest because the occasioned delay is the act of the law. To deny depositors the surplus because of the law's delay is to impose upon them the responsibility both of the institution's faulty financial condition and the insolvency itself. Moreover, unlike the stockholder, a depositor has no means of ascertaining the financial status of a banking institution whose invitation for deposits should be an avowal of solvency. See Bates, Supt. of Banking v. Farmers Saving Bank, etc.,
One contention argued against the payment of interest to the depositors is that since it is asserted that the principal of the various claims has been paid and accepted, the right of depositors to interest may not now be asserted. In support thereof, we are directed to Bennett v. Coal Coke Co.,
"But where the contract does not so specifically provide for payment of interest, but the right thereto is by an implication, interest is considered as damages, and not as forming the basis of the action, and is recoverable only along with the principal sum and as an incident thereto, and if the principal sum be accepted in settlement the right to damages is lost and no separate subsequent action can be maintained therefor."
The distinguishing factor between that case and the instant one is that in the latter the creditor has no choice in the matter of acceptance. He has no option of compromise as was true in the Bennett case.
"Even if it be conceded that the dividends are principal it should not follow that the obligation *509 for interest is thereby extinguished. The rationale of the general rule in this regard is that when the creditor voluntarily accepts the principal as such, he ought to be regarded as having waived the interest. In the insolvency cases there is no voluntary acceptance of principal, because the creditor is precluded from rejecting the dividends and demanding payment of principal and interest in full."
Article, "Effect of Insolvency Proceedings on Creditor's Right to Interest", Hanson, 32 Michigan Law Review 1069, 1085. We do not agree with counsel that this result is an extension of the rule in the Bennett case. That case dealt with an agreement of settlement between two parties dealing at arm's length where the creditor voluntarily accepted the principal which was a smaller amount than he claimed. The situation here is factually dissimilar. A depositor of a closed bank does not necessarily regard the dividends he receives as payment on principal. Until the assets are administered, he knows not what his rights are as to interest. We may not say that the receiver's allegation in the bill of complaint, that principal has been paid in full, charges a depositor with acceptance of dividends, aggregating the principal sum of his indebtedness, as an agreement that such amount is a settlement of his claim in full in the absence of an actual and existing agreement to that effect.
For the reasons assigned the decree complained of is affirmed.
Affirmed.
Concurrence Opinion
The plaintiff, in his bill of complaint clearly and unequivocally alleges that "all of said depositors have been paid the principal of their respective deposits in full but have been paid no interest thereon." (Italics supplied.) No pleading or evidence in the case in any degree contradicts this statement. The court clearly accepted and acted *510 upon it, since the final decree provides that the receiver "do pay said sum of $3,639.18, or a dividend of 2.2%interest to the depositors on claims proven in said bank". (Italics supplied.) It is, therefore, absolutely clear that the principals of all deposits were found by the court to have been paid in full and that the decree gives these depositors by this suit, interest only. This, I understand, cannot be done except where there was an express agreement to pay interest on the debt.
The rule of law applicable to these facts seems to be undisputed. Where interest is recoverable, not by virtue of an agreement therefor, but wholly as damages for the retention of the principal debt, acceptance of the payment of the principal in full, makes recovery of interest thereafter impossible. Interest in such a case is regarded legally as a mere incident to the principal and when there remains no principal or part of the principal to be recovered there is nothing to which the interest can be incident. This principle is expressly accepted in Bennett v. Federal Coal Coke Co.,
It is true that in the Bennett case there is also the element of a settlement which barred recovery. But the decision did not pretend to narrow the rule to cases where a settlement was present. From the opinion it clearly appears that either the settlement or the payment of the principal in full was regarded as sufficient to bar recovery of the interest sued for.
This rule of law would of itself require a reversal of the decree appealed from were it not that I think we may take judicial notice of the fact that banks in general have some deposits, which by special agreement do bear interest. We may, therefore, assume in the absence of any showing to the contrary, that such was true in the Bank of Morgan County. Hence, the balance now in the receiver's hands *512 should have been applied to the discharge of the contract interest (not legal interest) on time deposits and savings accounts. As this balance is small, it would in all probability be exhausted by these payments, so that we cannot see that the stockholders would receive any part thereof. The only persons who would benefit by a reversal are the depositors whose deposits bear interest by contract, and they are not complaining. I, therefore, also, would affirm.
These views are to be understood as applying only to cases where the payment in full has been actually applied to the principal. If the payments are general and to be applied to the debt as a whole a different conclusion would probably be necessary although it might be difficult to explain how a series of many payments in odd dollars and cents which aggregate the exact amount of the principal, could be considered as other than the payment of the principal itself.