State v. Smith

• Citation: 206 N.W. 233,49 S.D. 106
• Decision Date: 09 December 1925
• Docket Number: 5995. [*]
• Parties: STATE ex rel. DRISCOLL, State Treasurer, et al. v. SMITH et al.
• Court: Supreme Court of South Dakota

206 N.W. 233

49 S.D. 106

STATE ex rel. DRISCOLL, State Treasurer, et al. v. SMITH et al.

No. 5995. ^[*]

Supreme Court of South Dakota

December 9, 1925

Appeal from Circuit Court, Hughes County; John F. Hughes, Judge.

Mandamus by the State of South Dakota, on the relation of J. L Driscoll, State Treasurer, and others, against Fred R. Smith and others, as members of the Depositor's Guaranty Fund Commission, and others. From a judgment for plaintiffs, and from an order denying a new trial, defendants appeal. Reversed.

Buell F. Jones, Atty. Gen., C. O. Bailey, of Sioux Falls, H. E Hitchcock, of Mitchell, and A. B. Fairbank, of Sioux Falls for appellants.

F. W Lambert, State's Atty., of Ft. Pierre, and Stephens, McNamee, O'Keeffe & Stephens, and Martens & Goldsmith, all of Pierre, for respondents.

GATES J.

This is a mandamus proceeding brought on April 14, 1925, by the state of South Dakota, Stanley county, Frank R. Strain, and Ralph B. Eldridge, as holders of certificates of indebtedness issued by the depositors' guaranty fund commission to the depositors and exchange holders of the insolvent Stock Growers' Bank of Ft. Pierre, to compel the payment of said certificates out of the funds in the hands of the depositors' guaranty fund commission. The trial court on May 14, 1925, made the alternative writ permanent and directed the payment of the certificates. The court found that the bank suspended on March 17, 1923; that there were then not sufficient funds in hands of the guaranty commission to pay the depositors and exchange holders; that certificates aggregating $507,993.01 were issued by the commission payable March 1, 1924, with 5 per cent. interest from March 17, 1923; that on or about July 1, 1924, 50 per cent. of the face of said certificates was paid; that at the time of the trial the commission had on hand in excess of $500,000, being more than sufficient to pay the remaining principal of said claims in full, together with interest. The court also found that 141 other banks whose deposits were protected by the guaranty fund had failed subsequently to the failure of the Ft. Pierre bank and that guaranty fund certificates had been issued to the depositors and exchange holders thereof. From the judgment and an order denying new trial the defendants appeal.

The contention of the plaintiffs is that, inasmuch as the Ft. Pierre bank was the first bank to fail after there ceased to be money enough in the guaranty fund to pay claims, the certificates issued to the depositors and exchange holders of said bank are entitled to precedence in the order of payment.

It is the contention of defendants that chapter 100, Laws 1925, governs, and that all depositors and exchange holders of all suspended state banks should share pro rata in the funds in the hands of the commission.

The basis of plaintiff's claim is section 9020, Rev. Code 1919, as amended by chapter 134, Laws 1921, which reads as follows:

"When any bank doing business under the provisions of this chapter suspends or becomes insolvent, the superintendent of banks shall forthwith proceed to determine the amount necessary to pay the unsecured depositors and holders of exchange in good faith, in full, and cause the same to be certified to the depositors' guaranty fund commission, which shall thereupon draw against the depositors' guaranty fund on deposit in the several banks in the amount thus certified, and the treasurer of such commission shall immediately transmit the amount to the superintendent of banks, to be applied in payment of the deposits and outstanding exchange due such depositors and holders of exchange in good faith; provided, that if there should not be sufficient funds in the depositors' guaranty fund to pay such claims, such commission shall issue a certificate of indebtedness, negotiable in form, against the depositors' guaranty fund, and in favor of such bank, drawing interest at the rate of not to exceed seven per cent. per annum, which certificate of indebtedness shall become due and payable on the first day of March next succeeding the date of issue thereof and shall be paid out of the first money accruing to the depositors' guaranty fund. Such certificates of indebtedness may be sold or assigned at not less than their face value by the superintendent of banks and the proceeds used by him for the purpose of paying the deposits of such bank which are legitimate claims against the depositors' guaranty fund. Such certificates may, however, in the discretion of the guaranty fund commission, be issued payable to the depositors of such bank for the amounts of their approved claims, drawing interest at a rate of five per cent. per annum. Such drafts against the depositors' guaranty fund shall be prorated, as nearly as may be, among the several solvent banks wherein such fund is kept and maintained, in accordance with the amounts thereof held by such banks respectively."

Down to and including said amendment of 1921, there has been no substantial change from the first enactment of the guaranty fund law in regard to any question of priority of payment as between certificate holders. Section 16, art. 3, c. 102, Laws 1915; section 1, c. 143, Laws 1917; Rev. Code 1919, § 9020. The third and second sentences from the end of said act of 1921 appear for the first time in that act; those being the sentences giving to the superintendent of banks the power to negotiate the certificate and to the Commission the right to issue certificates to the depositors and exchange holders instead of one certificate to the bank.

On August 8, 1923, pursuant to request for advice, the Attorney General advised the superintendent of banks as follows (A. G. Op. 1924, p. 49):

"When, after a bank suspends or becomes insolvent, the superintendent of banks ascertains the amount necessary to pay the unsecured depositors and holders of exchange, and the commission, in accordance with the superintendent's certified statement, issues the certificate or certificates of indebtedness above referred to, such certificate or certificates become a fixed charge against the depositors' guaranty fund to be 'paid out of the first money accruing' to that fund. It is apparent, therefore, that such certificate or certificates should be paid before the payment of any certificate or certificates of a later issue. Pro rata payments on all outstanding certificates regardless of the dates of issues would therefore be improper."

In our opinion such advice was clearly wrong. The Legislature evidently intended to provide for an annual cut-off as of March 1, of each year, so that, for instance, all certificates issued on or after March 1, 1923, and before March 1, 1924, should be payable March 1, 1924...