U.S. Fidelity & Guaranty Co. v. Montgomery

• Decision Date: 26 January 1933
• Docket Number: 7 Div. 150.
• Parties: UNITED STATES FIDELITY & GUARANTY CO. v. MONTGOMERY, Superintendent of Banks.
• Court: Alabama Supreme Court

146 So. 528

226 Ala. 298

UNITED STATES FIDELITY & GUARANTY CO. v. MONTGOMERY, Superintendent of Banks.

7 Div. 150.

Supreme Court of Alabama

January 26, 1933

Rehearing Denied March 16, 1933.

Appeal from Circuit Court, Clay County; E. P. Gay, Judge.

Petition for preference of payment by the United States Fidelity &amp Guaranty Company against H. H. Montgomery, as Superintendent of Banks in charge of the affairs of the Farmers' State Bank in liquidation. From a decree sustaining a demurrer to the bill, petitioner appeals.

Affirmed.

Coleman Spain, Stewart & Davies, of Birmingham, for appellant.

Young &amp Longshore, of Anniston, for appellee.

THOMAS Justice.

The question of subrogation and preference as to funds in a state bank in the process of liquidation is presented by this bill in equity.

It is averred that R. F. Grizzle was theretofore duly appointed and qualified as the guardian of John W. Grizzle, a non compos mentis; that on January 6, 1931, "the said R. F. Grizzle as guardian of John W. Grizzle * * * had on deposit the sum of $2,776.74"; that said "ward was a World War veteran," and that "said R. F. Grizzle, as guardian of said John W. Grizzle, a non compos mentis, when the liquidation of said bank was commenced, had on deposit to his credit as guardian of said John W. Grizzle, a non compos mentis, the sum of $2,776.74, all of which sum had been turned over and delivered to the said guardian by the United States of America to be held and used by said guardian for the use and benefit of said John W. Grizzle, all of said sum having been received from the United States of America by the said guardian as disability allowance and compensation paid by the United States of America for the benefit of said veteran, now a non compos mentis; * * * that said deposit as aforesaid was delivered by the United States of America for the benefit of said veteran under the provisions of the act of Congress relating to 'Pensions, Bonuses, and Veterans' Relief' as found in title 38 USCA, as amended July 2, 1926, May 29, 1928, and July 3, 1930; and said deposit, at the time the liquidation of said bank was commenced, was held by said bank subject to all beneficial rights and limitations upon the disposition of said funds and moneys as fixed and determined by the acts of Congress aforesaid; and your orator states that said funds and moneys in the amount of $2,776.74 aforesaid, which were held by the Farmers' State Bank at the date of its liquidation was commenced as aforesaid, were subject to all the rights and priorities of the United States of America, and the rights and priorities of the surety on the guardianship bond hereinafter noted as fixed and determined by the acts of Congress as found in 31 USCA § 191 and § 193."

The surety on the guardianship bond avers, in part, that "after the liquidation of said bank was commenced, the said R. F. Grizzle as guardian was removed from the position as guardian of the said John W. Grizzle, a non compos mentis, and one O. D. Sparks was appointed by the Probate Court of Clay County, Alabama, as guardian of the said John W. Grizzle, a non compos mentis; and after the appointment and qualification of the said O. D. Sparks as guardian of the said John W. Grizzle, a non compos mentis, your orator was required to pay and did pay to the said O. D. Sparks as guardian of the said John W. Grizzle, a non compos mentis, the said sum of $2,776.74, said payment being made in discharge of your orator's obligation on said bond of guardianship aforesaid. Your orator further states that at the time of said payment, an assignment was made by the said O. D. Sparks as guardian of John W. Grizzle, a non compos mentis, vesting your orator with all the rights of said guardian and said ward in and to said fund; and your orator further states that in virtue of said assignment, and in virtue of its payment to the said O. D. Sparks as guardian of the said John W. Grizzle, a non compos mentis, your orator became vested with and is now vested with all the rights of the said ward, and all the right, title, interest and claim and priority of the United States of America in and to said deposit in the said Farmers' State Bank, in the amount aforesaid."

The right of subrogation is asserted and claimed; the demand made on the superintendent of banks for the payment of said sum as a preferential claim was denied.

The prayer for process against H. H. Montgomery, as superintendent of banks of Alabama, prays, inter alia: "That it be ordered and adjudged, that the said moneys on deposit to the credit of the said R. F. Grizzle as guardian of John W. Grizzle, a non compos mentis, at the time the liquidation of said bank was commenced, were received from the United States of America and delivered to the guardian under the provisions of the acts of Congress relating to 'Pensions, Bonuses, and Veterans' Relief,' and as such were funds of the United States of America in such sort as to make applicable the statutes of the United States of America as found in 31 USCA § 191, and were such funds as to give the United States of America, or your orator, under the facts set out in this bill of complaint, a preferential and prior right and claim against said Farmers' State Bank, superior to the rights and claims of all other persons having claims against said Farmers' State Bank."

Many grounds of demurrer were assigned. Among others are: That there is no equity in the bill; that the facts stated in the bill show on their face that the United States of America had, prior to the 6th day of January, 1931, lost control or supervision over R. F. Grizzle as guardian of John W. Grizzle; that legal and equitable title to said money had passed out of the United States of America prior to the 6th day of January, 1931. The demurrer was sustained and time given for amendment, if complainant was so advised and desired. Appeal was from this ruling on demurrer.

The primary question is whether the claim under consideration was entitled to a priority of payment out of the assets of the insolvent bank. The answer depends upon a proper construction of the federal statutes [World War Veterans' Act, 1924, c. 320, § 21 as amended by act July 3, 1930, and § 22, 43 Stat. 613; USCA title 38, § 421, 450, 454, as amended] as applied to the facts averred. That is, the bill is filed for fixing a preferential claim on the part of the surety on the assets of the bank. Such right of subrogation under the provisions of the statute is asserted in 31 USCA §§ 191, 193; U.S. Rev. St. §§ 3466, 3468.

The state superintendent of banks is a statutory receiver of the properties of a state bank in liquidation. Blythe v. Enslen, 219 Ala. 638, 123 So. 71; Green, Supt. of Banks v. Smith, 221 Ala. 484, 129 So. 92; Rainer Lumber Co. v. Hicks, 224 Ala. 138, 138 So. 830.

The construction giving a priority to the government in matters in reference to the public good [such as the Indian and pension funds] has been liberal, to the end that it may protect the government's claims or interests, under different statutes from those here obtaining. Bramwell v. United States Fidelity & Guaranty Co., 269 U.S. 483, 46 S.Ct. 176, 70 L.Ed. 368; Beaston v. Farmers' Bank of Delaware, 12 Pet. 102, 9 L.Ed. 1017; United States v. State Bank of North Carolina, 6 Pet. 29, 8 L.Ed. 308; United States v. Hall, 98 U.S. 343, 25 L.Ed. 180.

In Giles v. Woods, 212 Ala. 522, 103 So. 561, 562, the holding was that the delivery of the allotments to the defendant having the custody of her soldier brother's minor child "was in legal effect a delivery to the child, whereafter no element of a bailment existed." This was our first construction of the War Risk Insurance Act, § 201, as added by Act Oct. 6, 1917, § 2, 40 Stat. 402, amended by Act June 25, 1918, § 4, 40 Stat. 610. In the recent case of McKee et al. v. Jordan (Ala. Sup.) 144 So. 575, the claim of exemptions was allowed to the widow of the beneficiary out of funds paid from such source; and in State v. Wright, 224 Ala. 357, 140 So. 584, the holding was that land purchased for the use of a World War veteran, non compos mentis, with money received under the World War Adjusted Compensation Act, is subject to state and county taxation.

An important and well-considered decision is Shippee, Bank Com'r v. Commercial Trust Co. (In re Callery), 115 Conn. 326, 161 A. 775, where the conservator of an estate of a mentally incompetent war veteran, in receiving compensation and disability benefits, held not an agent of the federal government, and such moneys in his hands are not the funds of the United States; that certificates therefor-certificates of deposit covering funds-are not entitled to priority of payment upon insolvency of the depository bank. In that case from time to time (as was the fact in the instant case), payments of compensation and disability were made by the government to such guardian or conservator, and such funds were invested in certificates of deposit issued by the trust company subsequently placed in the hands of a receiver; such claim held not entitled to priority over other creditors of that bank or trust company. The court said: "A conservator is appointed by the probate court for one who is incapable of managing his affairs, and his duty is to manage the estate of his ward and to apply it to his support and that of his family. Gen. Stat. §§ 4815, 4819. The care and management of the ward's estate is primarily entrusted to the probate court, and the conservator is in many respects but the arm or agent of the court in performance of the trust and duty imposed upon it. Johnson's Appeal, 71 Conn. 590, 598, 42 A. 662. The World War Veterans' Act recognizes this status of the conservator in the provision that, when he has been derelict in the...