Smith, Sp. Dp. Bank. Com., v. Spicer's Gdn. and Com.

• Decision Date: 10 May 1932
• Citation: 244 Ky. 68
• Parties: Smith, Special Deputy Banking Commissioner, v. Spicer's Guardian and Committee.
• Court: United States State Supreme Court — District of Kentucky

Page 68

244 Ky. 68

Smith, Special Deputy Banking Commissioner, v. Spicer's Guardian and Committee.

Court of Appeals of Kentucky.

Decided May 10, 1932.

1. Banks and Banking. — Veteran's compensation and war risk insurance, deposited by guardian in bank, held not entitled to priority against bank becoming insolvent.

2. Guardian and Ward. — Payment to guardian discharges debt due ward (Ky. Stats., sec. 2030).

3. Banks and Banking. — Payment of compensation and war risk insurance to veteran's guardian discharged government's liability to veteran, precluding assertion of preferred claim for such fund deposited in bank which became insolvent, on theory that bank owed government (31 USCA, sec. 191).

Appeal from Breathitt Circuit Court.

W.L. KASH for appellant.

O.H. POLLARD for appellee.

OPINION OF THE COURT BY CREAL, COMMISSIONER.

Reversing.

Sam Spicer, as guardian and committee for Letcher Spicer, recovered judgment in the Breathitt circuit court against J. Bryan Smith, special deputy banking commissioner and liquidating agent of the Hargis Bank & Trust Company, for the sum of $6,070.80, and his claim was adjudged to be preferred, prior, and superior to all other claims against the bank. From that judgment the latter has appealed.

By undisputed allegations of the petition it is made to appear that in 1918, while in the military service of the United States in the World War, Letcher Spicer, by reason of mental derangement, became, and has since been, totally disabled and incompetent to manage his estate. Under orders of the Breathitt county court, Sam Spicer is the duly appointed, qualified, and acting guardian and committee for the incompetent soldier.

For many years prior to May 5, 1930, the Hargis Bank & Trust Company conducted a general banking business at Jackson in Breathitt county, but, because of insolvency [Commonwealth ex rel., Etc., v. Hargis Bank & Trust Company, 233 Ky. 801, 26 S.W. (2d) 1045], it was on that date taken over by the state banking department and placed in charge of J. Bryan Smith, special deputy banking commissioner, for the purpose of liquidation. At the time the bank closed and ceased to transact business, Sam Spicer, as guardian and committee, had on deposit the sum of $6,070.80, which had been paid to him by the United States as compensation and war risk insurance due his ward, Letcher Spicer. The war risk insurance had been paid in monthly installments of $57.50 under the permanent disability provision.

The answer controverted only that part of the petition alleging that the claim of plaintiff was preferred, but attempted to set up certain affirmative defenses which it is unnecessary to enumerate since they are not material to a proper decision of this appeal. The chancellor sustained a demurrer to the answer, but overruled a demurrer to the petition, and, defendants declining to further plead, entered judgment for plaintiff as above indicated.

At the outset it may be noted that appellee does not cite any statute of this state or any decision of its courts as sustaining his position or supporting the chancellor's finding, and, in fact, none can be found. On the other hand, it has been held by this court that a guardian or other fiduciary who deposits trust funds in a bank upon interest becomes merely a creditor of the bank, and is not entitled to priority or preference as against general creditors in the distribution of its assets when it becomes insolvent. Fidelity & Casualty Co. of N.Y. v. Farmers' & Merchants' Bank, 223 Ky. 32, 2 S.W. (2d) 1048; New Farmers' Bank Trustee v. Cockrell, Receiver, 106 Ky. 578, 51 S.W. 2, 21 Ky. Law Rep. 177. It follows therefore that, if authority for giving preference to claims of this or like character is to be found, it must be in federal statutes or in cases from other jurisdictions.

A careful examination of the statutes of the United States fails to reveal any express provision authorizing the preference given to this claim, and none has been pointed out, although the brief prepared by eminent counsel for appellee discloses extensive research and study of authorities. Furthermore, we find nothing in the acts of Congress relating to adjusted compensation and war risk insurance from which to draw a reasonable inference that such preference is warranted or was intended. There are, however, a number of cases from courts of other states that are in agreement with the chancellor's finding. See State ex rel., Etc., v. Security Bank of Creighton, 121 Neb. 521, 237 N.W. 620; State ex rel., Etc., v. First State Bank of Pawnee, 121 Neb. 515 237 N.W. 623; Butler v. Cantley, Comr. of Finance (Mo. App.), 47 S.W. (2d) 258, and authorities cited in those cases. Some of those cases are cited in brief for appellee, and no doubt were relied on and had a determining effect in the court below. But in none of them is it claimed that either the adjusted compensation or war risk insurance acts expressly gives preference or priority to funds held by fiduciaries for incompetent soldiers. Apparently they are premised on the theory that funds derived under these acts are moneys of the United States until they actually reach the hands of the soldier himself, and, when deposited to the credit of a guardian or committee in a bank which proves to be insolvent, are entitled to preference under section 3466, Revised Statutes of the United States (31 USCA, sec. 191), which reads:

"Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor, in the hands of the executors or administrators, is insufficient to pay all...