Riches v. Hadlock, Bank Com'r. , 80 Utah 265 ( 1932 )

I am not able to agree to the conclusion reached by the majority. We are dealing here with a new question. It is not the usual case of a receiver's power to borrow money to be expended in expenses of administration. Borrowing money for that purpose is of doubtful expediency in most cases, and so subject to abuse that the courts, although not denying the power, have hedged it about with restrictions and limitations. But here the situation is wholly different. The national government, as a measure of relief to the creditors of suspended banks, through the Reconstruction Finance Corporation, offers to lend money to be distributed to creditors for the avowed purpose of relieving them, so that the time for liquidation of the assets of the insolvent may be extended and the losses consequent upon a forced disposition of assets in time of financial depression be avoided. The scheme is designed for the exclusive benefit of the creditors. Its benefit to them is not doubtful. The money to be lent does not go for expenses of administration, nor does it increase liabilities. It is a case of where the beneficiaries of the bank have everything to gain and nothing to lose. It is a measure of unselfish relief, offered by the national government, at great cost to itself. There are no grounds for disparaging its wisdom or usefulness. In dealing with the question of the legal power of the liquidating agents of the bank to avail themselves of the advantage offered, the nature of the proceeding and its effect upon the rights of interested parties are of paramount importance. The only reason for the legal limitations referred to in the books which circumscribe the ordinary power of receivers to borrow money is because the money borrowed is for expenses of operation and results in creating an additional liability prior in rank to the claims of creditors, and subjects the beneficiaries to the danger of having the estate dissipated or consumed in costs and charges of administration. But there are no such factors in the proposed transaction. The decisions of courts and rules laid down in textbooks concerning the power to borrow money for expenses of operation and maintenance have no application here.

The power and duty to liquidate and wind up the affairs of insolvent banks in this state is vested by law in the bank commissioner under the supervision, in all essential matters, of the district court. The legislation concerning the matter is mainly directed towards avoiding the appointment of receivers by the courts, and confining the management of all such instiutions uniformly to the bank commissioner, who is a public officer and supposedly skilled in the banking business. There is nowhere evident in the statute any intention whatever to limit or restrict the manner of administering the affairs of a closed bank. When the whole of the statute is considered in the light of the law and practice of courts before its enactment, it seems clear that the Legislature intended only to take from the courts the power to appoint the person to act as receiver or liquidating agent. This is apparent from the definition of the powers enumerated in the statute. The independent authority granted to the bank commissioner relates only to those preliminary and routine matters usually exercised by an equity receiver without formal orders from the court, such as taking possession, filing inventories, giving notice to creditors, collecting debts, etc. In all essential matters, such as fixing the compensation of attorneys and assistants, the allowance of disputed claims, the sale or compounding of bad or doubt-debts, the sale of property and the payment of dividends to creditors, the approval of the district court is required. Upon final liquidation, the books, papers, and records of the bank must be deposited with the clerk of the court and held subject to the order of the district court. The least that can be said is that the management and supervision of such banks is vested by law jointly in the bank commissioner and the district court. For the purposes of this case, it is not necessary to make any fine distinctions as to the respective powers of each. This much is certain that the property and assets of an insolvent bank when taken over by the bank commissioner passes into the custody of the law, and its affairs are to be liquidated by the bank commissioner under the supervision, in all important matters, of the district court. Nat. Surety Co. v. Pixton, 60 Utah, 289,208 P. 878, 24 A.L.R. 1487; Hanson v. Sogn, 50 S.D. 44,208 N.W. 228; Breese v. Bramwell, 110 Or. 105, 223 P. 239; VanMeter v. State ex rel. Mothersead, 132 Okla. 230, 270 P. 41;Mothersead v. Harris, 148 Okla. 285, 298 P. 602; Frederick v. McRae, 157 Minn. 366, 196 N.W. 270.

This being an application for a writ of prohibition, our inquiry is limited to whether the liquidating authorities have the legal power or authority to make the loan in question from the Federal Reconstruction Finance Corporation.

If, as seems conceded, a chancery receiver with the approval of the court appointing him would have such authority and power, why is it to be denied the bank commissioner in the present case, who has the approval of the district court? To merely say that he is not strictly a chancery receiver is not a sufficient answer. For, besides being in substance the same legal character as a receiver appointed by a court of equity, he is invested by the statute with general powers. He is authorized "to collect money due to such bank, and to do such other acts as are necessary to preserve its assets and business." It is suggested that he would have this general power inherently by virtue of his position and duty, but the legislature has made it certain by express words.U.S. Bank of St. Louis v. Pritchard (Mo.App.)20 S.W.2d 939.

It must be remembered that depositors in banks are not ordinary creditors. They have not lent their surplus money to a borrower. They have deposited their funds, depending upon withdrawing them at any time without notice for daily use. Many of them rely upon such funds for the conduct of their business enterprises, others for their daily bread. When a bank suspends payment, the community it serves is financially paralyzed. The demands of its depositors are urgent and often desperate. This fact cannot be ignored by the courts, nor by liquidating agents. It is imperative to accumulate funds as rapidly as possible to relieve the distress of creditors. On the other hand, there are always assets in a bank denominated "frozen"; that is to say, assets which cannot be readily converted into money, but require time to liquidate. To dispose of them quickly means great sacrifice and loss.

To meet just such a predicament the national Congress has set up the Reconstruction Finance Corporation and authorized it to make loans upon most generous terms to suspended banks in process of liquidation. In view of the urgent need of depositors for payments on account of their claims at any cost, and the certainty of sacrifice and loss if the frozen assets of the bank are immediately foreclosed or sold, is it not a preservation of the assets and business of the bank to borrow money on its assets and save to its creditors the prospect of realizing the fair value of the frozen assets? And what is the peril of such a transaction? The money is borrowed, at a low rate of interest, and it goes at once to the creditors. It is not a case of money being borrowed for management or operation of the business. The liabilities are not increased because the sum borrowed goes immediately in reduction of liabilities. The assets pledged go to a magnanimous and friendly lender, whom there is every reason to believe will carefully and faithfully convert them into money to the best advantage of the borrower. But with the wisdom of the scheme we have nothing to do. The decision of that question is vested in others. We have only to deal with the legal power of the liquidating agents if they deem the plain expedient.

Even treating the matter as the exercise of power by a public officer, independent of judicial control, the authority of the bank commission to make the loan proposed should be sustained. The grant of power to him by the Legislature is remedial in its nature and ought to be liberally interpreted to accomplish the purposes intended by the law. Ex parte Smith, 160 Ky. 83,169 S.W. 582. There is no warrant in principal or precedent for a narrow and strict construction of his powers. But here the bank commissioner has applied to and received the approval of the district court for his proposed relief. Under the requirement of the statute that he may sell property only upon the order of the district court, it was appropriate to have such order, as the contemplated pledge is analogous to a sale.

A review of the sufficiency of the grounds alleged and proved by the bank commissioner for the order of the district court and the procedure there followed are not within the scope of this proceeding. This is not an appeal or writ of error. In determining whether or not a writ of prohibition will be issued, we are limited to the question of the legal power of the liquidating authorities to make the proposed loan. There is no requirement of law for notice other than was given or any particular form of application or hearing as essential to the power of the court to make the order in question. The fact that writ of review in aid of the writ of prohibition was issued does not enlarge our inquiry. Even a writ of review is limited to questions of jurisdiction and power. Besides this, there is nothing in the pleadings, briefs, or arguments challenging the power in question on account of legal errors in the procedure or the sufficiency of the showing for the order of the district court. The matter was submitted upon the proposition that the liquidating agent had not the power asserted in any case. There is no valid reason why this court should interpose a bar to a proceeding calculated to highly benefit the unfortunate creditors of the bank involved. It is only by a narrow and strict interpretation of statutes and a consideration of mere legal errors not going to jurisdiction that grounds may be found for judicial intervention.

The writ should be denied.