Barnett v. Board of Education of City of Frederick

• Decision Date: 02 March 1937
• Docket Number: 26255.
• Citation: Barnett v. Board of Education of City of Frederick, 65 P.2d 983, 179 Okla. 288, 1937 OK 136 (Okla. 1937)
• Parties: BARNETT, State Bank Com'r, et al. v. BOARD OF EDUCATION OF CITY OF FREDERICK.
• Court: Oklahoma Supreme Court

65 P.2d 983

179 Okla. 288, 1937 OK 136

BARNETT, State Bank Com'r, et al. v. BOARD OF EDUCATION OF CITY OF FREDERICK.

No. 26255.

Supreme Court of Oklahoma

March 2, 1937

Syllabus by the Court.

A secured creditor of an insolvent state bank has the right to have its claim approved for the full amount of the bank's indebtedness to it, without deducting therefrom the amount realized from the securities held by it on the value thereof and to recover dividends thereon, provided it shall not realize more from the sale of the securities and in dividends than the full amount of such claim.

Appeal from District Court, Tillman County; Frank Mathews, Judge.

Action by Board of Education of the City of Frederick, Oklahoma against W. J. Barnett, Bank Commissioner, and Clyde Faught Liquidating Agent of the Security State Bank of Frederick. Judgment for plaintiff, and defendants appeal.

Affirmed.

CORN J., dissenting.

M. B. Cope, of Oklahoma City, for plaintiffs in error.

Tomerlin, Chandler & Shelton, of Oklahoma City, Wilson & Roe, of Frederick, and Richard W. Fowler and John W. Swinford, both of Oklahoma City, for defendant in error.

HURST Justice.

This case was tried on an agreed statement of facts, in substance as follows: The State Bank Commissioner took over the Security State Bank of Frederick as an insolvent corporation, for the purpose of liquidation. At that time the Board of Education of the City of Frederick had on deposit in said bank the sum of $15,589.05, and as security for said deposit held assets of said bank of the face value of $14,682.68. The Board of Education filed with the Bank Commissioner its claim for $15,639.29, which included interest on its average daily deposits up to the time the bank was taken over by the Bank Commissioner. The claim was disallowed. After the claim was filed, the Board of Education realized $14,868.20 on the assets so held as security for the deposit, leaving a balance due the Board of $771.09. This action was filed to establish a claim for the full amount due. Before judgment was rendered, dividends aggregating 25 per cent. were paid on all claims, except the claim of plaintiff, and enough was reserved to pay it. The dividends so reserved were more than enough to pay in full the balance of said claim.

The trial court entered judgment for the plaintiff establishing its claim for the full amount due, and directing the Bank Commissioner to pay plaintiff the full amount of $771.09. From said judgment this appeal was taken. It is agreed that the sole question for decision is whether a secured creditor of an insolvent bank is entitled to have its claim allowed in the full amount of the bank's indebtedness to it, without deducting therefrom the amount realized from its securities, and receive dividends thereon until the dividends plus the amount realized from the securities equals the full amount of the indebtedness, or whether the creditor should exhaust its securities and file claim and receive dividends on the balance of the debt.

We have no statute dealing with the question involved, nor has this court determined the question. There is a sharp division among the authorities from other jurisdictions. In fact, there are four distinct lines of authority, as follows: (1) The English Chancery rule; (2) the Bankruptcy rule; (3) the Maryland rule; and (4) the Montana rule.

The English Chancery rule is the one followed by the trial court. This is the rule followed by more of the state courts and by the federal courts, except in bankruptcy matters. The argument used in support of this rule is that the creditor having contracted that the security taken shall secure the entire debt, it would violate his contract right to hold that it secures only that portion of his debt that equals the value of his security, leaving the residue of his debt unsecured, and depriving him of part of the fruits of his diligence in exacting security. This rule was adopted in an early opinion by the late Chief Justice Taft, then a member of the Circuit Court of Appeals in Chemical National Bank v. Armstrong (1893) 59 F. 372, 28 L.R.A. 231, and was later adopted by the Supreme Court of the United States in Merrill v. National Bank (1899)...