Garrett v. Tunnicliffe

• Decision Date: 15 December 1932
• Citation: 145 So. 213,107 Fla. 393
• Parties: GARRETT v. TUNNICLIFFE.
• Court: Florida Supreme Court

145 So. 213

107 Fla. 393

GARRETT v. TUNNICLIFFE.

Florida Supreme Court, Division B.

December 15, 1932

Rehearing Denied Jan. 2, 1933.

Action by G. P. Garrett against W. H. Tunnicliffe, as liquidator of the State Bank of Orlando & Trust Company, of Orlando. From an adverse judgment, plaintiff appeals.

Affirmed.

ELLIS J., dissenting. Appeal from Circuit Court, Orange County; Frank A. Smith, judge.

COUNSEL

George Palmer Garrett, of Orlando, for appellant.

H. M Voorhis, of Orlando, for appellee.

OPINION

TERRELL J.

On July 15, 1929, appellant deposited $3,436.16 with the State Bank of Orlando & Trust Company, which amount remained in and was held by said bank at the time it was taken in hand by the comptroller for liquidation August 5 1929. Bill of complaint was filed in this cause July 31, 1931, praying that the said deposit be decreed to be a preferred claim and paid in full with interest thereon. A motion to dismiss the bill was overruled, answer was filed, testimony was taken, and, on final hearing, the relief prayed for was denied. This appeal is from that final decree.

The sole question raised by the pleadings and brought here for our determination is whether or not the State Bank of Orlando & Trust Company was 'hopelessly and irretrievably insolvent' on July 15, 1929, when the deposit brought in question was made.

Appellant contends that the check representing the deposit shows on its face that it was a special deposit, that, while the officers of the State Bank of Orlando & Trust Company, at the time it was accepted, represented the bank must be solvent, the facts as later developed showed conclusively that it was then hopelessly and irretrievably insolvent, and that this condition was known to its officers and directors.

To support his contention, appellant relies on the following: (1) Affidavit of the state bank examiner made August 12, 1929, to the effect that the State Bank of Orlando & Trust Company was insolvent; (2) that the officers of said bank had very small deposits at the time it closed; (3) that on July 18, 1929, the Bank of Apopka attempted to withdraw its deposit of $110,000 from said bank, and that, while this withdrawal in cash was refused, it was permitted to withdraw $45,000 in cash, and the balance of $65,000 was paid it in Orlando warrants; (4) that on July 18, 1929, the bank invoked the requirement of sixty days' notice to depositors to withdraw savings accounts; (5) that, though more than three years have elapsed since it closed, no dividend has been declared or paid to common creditors; (6) that on July 11, 1929, the vice president in charge of the bank made arrangements to borrow $600,000 to carry it through the summer, than $1,539,107 in collateral was placed to secure this loan, and that $400,000 of said loan was advanced a few days after the arrangements for it were made; (7) that on July, 27, 1929, the vice president testified that conditions with the bank were real bad; (8) that the cash reserve at the time the bank closed was far below the amount required by section 4140, Revised General Statutes of 1920 (section 6071, Compiled General Laws of 1927); (9) that the total assets of the bank dropped more than $1,000,000 from June 29, 1929, to August 5, 1929; and (10) that the amount of the bills payable on the last named date was far in excess of that allowed by section 4142, Revised General Statutes of 1920 (section 6073, Compiled General Laws of 1927).

The record supports appellant's reliance, but, if true in toto, is it sufficient to establish hopeless and irretrievable insolvency on July 15, 1929? A bank is solvent so long as it possesses sufficient assets to pay, within a reasonable time, all its liabilities through its own agencies. Federal Reserve Bank of San Francisco v. Idaho Grimm Alfalfa Seed Growers' Ass'n (C. C. A.) 8 F. (2d) 922, certiorari denied 270 U.S. 646, 46 S.Ct. 347, 70 L.Ed. 778. A bank is insolvent when the capital stock and all its assets are insufficient to meet its liabilities, or when it is unable to meet current obligations as they mature, though its assets may greatly exceed its liabilities, or when capital stock, surplus, and undivided profits are exhausted by losses with no immediate prospect of replacing them, or when its condition is such that it cannot in a reasonable time realize on its assets an amount sufficient to take care of its liabilities. Florida Bank & Trust Co. v. Yaffey (Fla.) 136 So. 399; Youmans v. State, 7 Ga.App. 101, 66 S.E. 383; Fremont County v. Fremont County Bank, 145 Iowa, 8, 123 N.W. 782, Ann. Cas. 1912A, 1220; Marr v. Bank of West Tennessee, 44 Tenn. (4 Cold.) 471; Livingstain v. Columbia Banking & Trust Co., 81 S.C. 244, 62 S.E. 249, 22 L. R. A. (N. S.) 445; Michie on Banks and Banking, vol. 3, p. 93. Our statute does not define insolvency, but the test as applied in the National Bankruptcy Act (11 USCA) and other tests have been applied and approved. Owens v. American National Bank of Austin, 36 Tex.Civ.App. 490, 81 S.W. 988.

In Steele v. Commissioner of Banks, 240 Mass. 394, 134 N.E. 401, 20 A. L. R. 1203, Judge Rugg distinguished the terms 'simple' and 'hopeless insolvency.' Discussing the former, he said that a trader or a bank is commonly insolvent when not in condition to pay its debts in the ordinary course as persons carrying on trade or banking usually do, while the test of 'hopeless insolvency,' he said, was the fact that the bank accepted the deposit knowing through its officers that it would not and could not pay the money when demanded by the depositor; taking deposits under such circumstances being a preconceived purpose not to pay and is fraudulent. This rule was also followed in Forsythe v. First State Bank of Mentor, 185 Minn. 255, 241 N.W. 66.

The controlling test of the solvency of a bank is the payment of depositors and creditors in the usual and ordinary course of business, Cronkleton v. Ebmeier (C. C. A.) 39 F. (2d) 748, or the excess of assets over liabilities as applied in Akin v. Hull, 222 Mo.App. 1022, 9 S.W.2d 688. In Dunlap v. Seattle Nat. Bank, 93 Wash. 568, 161 P. 364, it was held that a bank was not insolvent if its assets were sufficient to meet its obligations within a reasonable time, although it did not have cash sufficient for its daily needs.

The rule is that, when a bank accepts deposits, the law implies solvency, but, if the bank is, as a matter of fact, insolvent at the time a deposit is received, and such fact is not actually known to its officers, and the circumstances are not such as to charge them with constructive notice thereof, the receipt of a deposit does not work a fraud, and the depositor cannot reclaim the deposit, but must stand with the other depositors. Every preferred claim allowed lessens the security of the common creditors, and should not be done, unless clearly within the rule.

It is therefore settled that, if a bank be hopelessly insolvent to its own knowledge and receives deposits, it is the equivalent of a preconceived purpose not to pay, and is a fraudulent act. On the contrary, simple insolvency under circumstances wherein the officers of the bank have reasonable cause to know, and should know, of the insolvency, does not warrant a rescission of the deposit, if there is genuine and reasonable hope, expectation, and intention on the part of the officers of the bank to carry on its business and to recover sound financial standing. Steele v. Commissioner of Banks, supra; Brennan v. Tillinghast, 201 F. 609, 120 C. C. A. 37; Forsythe v. First State Bank of Mentor, supra, citing many cases.

A bank was held not hopelessly and irretrievably insolvent to the knowledge of its officers, so as to make receipt of a deposit on the eve of failure a fraud, allowing the depositor to reclaim it, where the officers then had a reasonable hope and expectation that a plan of consolidation with other banks would be consummated. Washington Shoe Mfg. Co. v. Duke, 126 Wash. 510, 218 P. 232, 37 A. L. R. 611. This rule should apply with equal force to the instant case; the bank having made arrangements with other banks to secure funds to carry it over the summer and save it from insolvency.

It may be admitted that it is rarely possible to establish with scientific exactness the instant at which a banking institution becomes hopelessly insolvent, but in the interest...