In re Provo Commercial & Savings Bank

• Decision Date: 26 July 1938
• Docket Number: 5951
• Citation: 95 Utah 366,81 P.2d 644
• Parties: In re PROVO COMMERCIAL & SAVINGS BANK. In re C. E. LOOSE CORPORATION'S TRUST ESTATE et al. CHAFFIN et al. v. STARLEY, Bank Com'r, et al
• Court: Utah Supreme Court

81 P.2d 644

95 Utah 366

In re PROVO COMMERCIAL & SAVINGS BANK.

In re C. E. LOOSE CORPORATION'S TRUST ESTATE et al. CHAFFIN et al. v. STARLEY, Bank Com'r, et al

No. 5951

Supreme Court of Utah

July 26, 1938

Appeal from District Court, Fourth District, Utah County, M. M Larson, Judge.

Proceeding in the matter of the liquidation of the Provo Commercial &amp Savings Bank, and in the matter of the trust estate of the C E. Loose Corporation and the C. E. Loose Estate, and others wherein George H. Chaffin and others protested against the approval of a compromise offer of certain debtors of the bank recommended for approval by Rulon F. Starley, State Bank Commissioner, and others, From an order approving the compromise offer, the protestants appeal.

REVERSED WITH INSTRUCTIONS.

A. V. Watkins, I. E. Brockbank, and M. R. Straw, all of Provo, for appellants.

Dan B. Shields, of Salt Lake City, and Geo. W. Worthen, of Provo, for respondents.

WOLFE, Justice. FOLLAND, C. J., HANSON, and MOFFAT, JJ., and H. D. HAYES, District Judge, concur. LARSON, J., being disqualified, did not participate.

OPINION

WOLFE, Justice.

This case comes to the writer on reassignment. The Depositors' Committee of the defunct Provo Commercial & Savings Bank appeals from an order approving a compromise offer of certain debtors of the bank. The Bank Commissioner recommended approval of the offer and joined the application for approval filed May 21st, 1936. Orders overruling protestants' (Depositors' Committee) demurrers and approving the offer of compromise are assigned as errors.

The Provo Commercial & Savings Bank failed to reopen at the end of the national banking holiday proclaimed on March, 1933. The State Banking Department immediately took over the Bank for preservation and liquidation of its assets as provided in R. S. Utah, 1933, 7-2-1, then Laws of Utah, 1921, p. 79, Sec. 1, as amended. At that time the C. E. Loose Corporation, the estate of Charles Edwin Loose, Erma Loose Peterson, Clarence Charles Loose, W. Dean Loose, Fay Loose Gordon, and Preston G. Peterson all owed substantial sums to the bank and they were also subject to stockholder's liability as later assessed in full.

All of these debtors except Preston G. Peterson, on June 27, 1933, conveyed certain real and personal property to E. H. Street, Deputy Examiner of the State Banking Department in charge of liquidation of this bank and Preston G. Peterson, in trust--

"* * * in order * * * to expedite the payment and discharge of the outstanding indebtedness of said Grantors, and to prevent costly litigation, foreclosures, and receivership proceedings * * * to bring about the early payment and discharge of the obligations of said Grantors to their creditors, who are the principal beneficiaries under the terms of this trust."

Herbert Taylor succeeded E. H. Street as Deputy Examiner and was lawfully appointed trustee in his stead by the court. This property was encumbered to others than the bank to the extent of about $ 78,000 prior to the bank's claims. The alleged indebtedness of these trustors and Preston G. Peterson was $ 153,708.44 (so far as this petition for compromise is concerned that amount is not disputed by the petitioners). The court designated representatives of the bank and the depositors' committee upon whom service could be made.

The petition, after alleging the facts of insolvency, indebtedness and creation of the trust as above indicated, and that "efforts have been made to liquidate the obligations of the above-named trustors to said Provo Commercial & Savings Bank," contains allegations of the offer in compromise by the trustors and Preston G. Peterson of all of their indebtedness to the bank and requests the court to approve the offer of $ 50,000 in cash. It is then alleged that the Bank Commissioner "has carefully considered the foregoing offer, that he has discussed the same with many of the members of the depositors' committee and that he is of the opinion that if said $ 50,000.00 in cash be received * * * the best interests of all parties concerned, including the depositors and creditors of said Provo Commercial & Savings Bank, will be served, and he therefore recommends the acceptance of such offer to this court."

To this petition the protestants, in behalf of the depositors, interposed a general demurrer that the "petition does not set forth facts which would entitle petitioner to relief sought for" and a special demurrer specifying, inter alia: "That said petition does not allege any facts on which the said petitioner bases his opinion that it would be to the best interests of the depositors and creditors of said Bank to accept said compromise offer, nor can it be ascertained from said petition any of the facts, circumstances and reasons upon which said opinion of said petitioner is based." These demurrers were overruled, which rulings are assigned as error. The correctness of such rulings are the first questions necessarily to be decided by this court.

Section 7-2-12 of the Laws of Utah, 1935, Chapter 9, provides:

"* * * He [the Bank Commissioner] shall collect all debts due and claims belonging to it, and upon the order of the court may compound all bad or doubtful debts. * * *" (Italics supplied.)

The Bank Commissioner in this state derives his authority not from the court but from the legislature, under R. S. Utah, 1933, Title 7, amended by Laws of Utah, 1935, Chap. 9. He is a statutory officer and not an officer of the court as are ordinary receivers. His powers are defined by statute and the judicial department can neither limit nor expand such powers as are validly conferred.

"He is a mere executive creature of the statute, not of the court, and can exercise only such powers as the statute has given him; and no order of the court applied for can be broader than the statute. In other words, he is a public agent or officer of the state and derives his powers from the statute." Riches v. Hadlock, 80 Utah 265, 15 P.2d 283, 287.

The Bank Commissioner, even with the approval of the court, can compromise only bad or doubtful debts. Doubtful debts include those doubtful as to validity or as to collectibility. The petition contains no allegations that these debts were not legally provable or that they were doubtful debts in the sense of not being collectible; there are no allegations of the individual indebtedness of the debtors offering compromise nor of their ability or lack of it to pay. The basis of the petition and the reason advanced therein for requesting the court's approval, is that the Bank Commissioner, after careful consideration, has concluded that the best interests of all concerned, including the depositors, will be thereby served. Does this constitute a petition for compromise of liabilities owing an insolvent bank good against the demurrers interposed by these protestants? We think it better that the petition state facts from which is may be concluded that the best interests will be served rather than to let the case rest on the bare conclusion of the pleader. Some facts should be alleged to show that the debts are doubtful. By implication from the facts of this case there seems to be no doubt as to the validity of the debts. But no facts are alleged to show that they are of doubtful collectibility. The court has to make inquiry and exercise judgment in determining whether it shall approve or reject the offered compromise. The petition, however, is not governed by the stricter rules of pleading that require a cause of action to be stated. The petition is to start the inquisitorial machinery of the court into action. If it states enough to put the court on notice of what compromise it is asked to approve, and if it serves to open up the necessary inquiry and all parties interested are given their day in court and free inquiry is permitted by all parties, we would not reverse because the petition was deficient in the allegation of some facts which might well be there as a basis for the exercise of the court's discretion.

The main question, therefore, is: Was the evidence sufficient to support the decree approving the compromise? Even in the case where the court has the duty of approving compensation of employees, under Section 7-2-14, R. S. Utah 1933, reading:

"Compensation of counsel, deputies, assistants, clerks and examiners in the liquidation of any such institution shall be fixed by the bank commissioner subject to the approval of the court on notice to such institution."

He is not a mere factotum. Malia v. State Bank of Beaver County, 83 Utah 471, 30 P.2d 217; Hadlock v. State Bank of Millard County, 84 Utah 147, 30 P.2d 211. In the latter case, at pages 155 and 156 of 84 Utah, at page 214 of 30 P.2d, the court said:

"Still in approving or disapproving the compensation or expenses as fixed by the commissioner, the court is required to do something more than merely put his rubber stamp' on the report approving or disapproving it. * * * The court likewise may hear evidence concerning the character, quality, extent, value, and necessity of the services rendered and expenses...