Oates v. Smith

• Court: Alabama Supreme Court
• Writing for the Court: SOMERVILLE, J.
• Citation: Oates v. Smith, 176 Ala. 39, 57 So. 438 (Ala. 1912)
• Decision Date: 09 January 1912
• Parties: OATES v. SMITH.

57 So. 438

176 Ala. 39

OATES v. SMITH.

Supreme Court of Alabama

January 9, 1912

Appeal from Chancery Court, Jefferson County; A. H. Benners Chancellor.

Proceedings by the Attorney General against the Guarantee Bank & Trust Company, in which E. D. Smith was appointed receiver of the defendant. On petition John B. Oates against the receiver. From a decree sustaining a demurrer to the petition, the petitioner appeals. Affirmed.

Henry Upson Sims, for appellant.

J. B Garber and Garber & Garber, for appellee.

SOMERVILLE J.

Section 3560 of the Code of 1907 (section 16 of the state banking act of October 2, 1903) is as follows: "Whenever the treasurer finds that a bank or corporation chartered by the laws of this state and doing a banking business, is not in a solvent condition, he shall immediately report the condition of the bank to the Governor, and the Governor shall direct the Attorney General to institute proceedings in a court having jurisdiction in the county where the bank or parent bank is located, to put the bank in the hands of some competent person, who shall give bond in an amount to be fixed by the judge for the faithful discharge of his duties and said person so appointed shall immediately take charge of the business of said bank, collecting its assets and paying off its liabilities under the law and rules of such court."

Proceeding in accordance with this statute, the Attorney General filed his bill in the Jefferson chancery court against the Guarantee Bank & Trust Company, alleging that the State Treasurer had certified to the Governor that the respondent bank was not in a solvent condition, and praying for the appointment of some competent person as receiver to immediately take charge of the business and property of said bank, to collect its assets, and hold them subject to the orders of the court. The court thereupon appointed the appellee, E. D. Smith, as such receiver, who took charge of the bank, and proceeded to collect its assets. The receiver soon afterwards filed his report showing that the bank was hopelessly insolvent, and on November 8, 1910, the court ordered that all creditors should file their claims against the bank on or before January 10, 1911; and on December 17, 1910, further ordered that the receiver should allow set-offs only in those cases where debtors held or owned certificates of deposit of said bank, general or interest-bearing, at the time of the commencement of the receivership. On Januuary 10, 1911, the appellant, John B. Oates, filed in the court his sworn petition, showing that he was indebted to said insolvent bank in the sum of $1,404 by his promissory note of July 2, 1910, due and payable on July 2, 1911, to which was attached certain collateral securities the property of petitioner; that this note was among the assets of said bank, and in the possession of said receiver; that, before the institution of this cause, said bank for value received had issued an interest-bearing certificate of deposit in the sum of $1,750 to the Interstate Fire Insurance Company, payable on July 2, 1911; and that petitioner had become the owner and purchaser of said certificate by indorsement, and for a valuable consideration. The prayer of the petition was in substance and effect that this certificate of deposit should be allowed as a set-off against petitioner's said debt to the bank, that his said note be canceled and his collateral returned to him, and that any balance found due on the certificate be allowed to him as a claim against the bank. The receiver demurred to the petition on various grounds, among others, that it did not show that the certificate of deposit was transferred to petitioner before the appointment of the receiver. The demurrer was sustained by the chancellor, and, petitioner declining to amend, a decree was entered dismissing the petition. The controlling question raised by the appeal is, therefore, whether a claim acquired by the debtor of an insolvent banking corporation in the hands of a receiver, after the appointment of the receiver, is available as a set-off against his debt previously existing.

The effect of section 3560 of the Code is to create a statutory receivership, subject, of course, to the general principles which govern that branch of equity law, and subject specifically to section 3509 of the Code, which provides that "the assets of insolvent corporations constitute a trust fund for the payment of the creditors of such corporations, which may be marshaled and administered in courts of equity in this state." These two statutes are, of course, parts of a single system, and co-operate in the clearly defined purpose of the Legislature to promptly sequester the assets of insolvent state banks, to the end that such assets may be impartially administered in favor of all the creditors.

Upon the filing of a bill of complaint, appropriate in form and substance, a court of equity is authorized to appoint a receiver for the purposes stated, and the decree of appointment operates ipso facto as a potential adjudication of insolvency, fixing the status of corporate assets, and qualifying the rights of corporate creditors. Whether, for our present purposes, this status relates back to the filing of the bill, or to the State Treasurer's report of insolvency, or to the date of actual insolvency, we need not consider. See the various rulings collected in case note to Stone v. Dodge (Mich.) 21 L. R. A. 280.

In ordinary cases of receivership, it is very generally held that the appointment of the receiver does not vest in him any title to the property involved, but only the right and duty of possession. Sullivan Timber Co. v. Black, 159 Ala. 587, 48 So. 870; Talladega Merc. Co. v. Jenifer Iron Co., 102 Ala. 259, 14 So. 743; South. Granite Co. v. Wadsworth, 115 Ala. 570, 22 So. 157; High on Receivers, § 5; 23 Am. & Eng. Ency. Law, 1042.

But this question is of no importance in the present case, for the trust...