In the Matter of the Estate of the PRESCOTT STATE BANK, an Arizona Banking Corporation, Insolvent. MIT SIMMS, Treasurer of the State of Arizona, Appellant,
JAMES B. BUTTON, Superintendent of Banks and Receiver of the Prescott State Bank, Insolvent, Appellee
APPEAL from a judgment of the Superior Court of the County of Yavapai. Richard Lamson, Judge. Reversed, with directions.
Mr. K. Berry Peterson, Attorney General, and Mr. Arthur T. LaPrade and Mr. Riney B. Salmon, Assistant Attorneys General (Messrs. Baker & Whitney and Mr. Lawrence L. Howe, of Counsel), for Appellant.
Mr. R. B. Westervelt, for Appellee.
[39 Ariz. 33] ROSS, J.
This proceeding is to determine the equitable rule of distribution of the assets of an insolvent state bank as between secured and unsecured creditors.
The Prescott State Bank being in the course of liquidation through the superintendent of banks, the treasurer of the state of Arizona presented to him the state's claim for $158,093.91 against the insolvent bank, with proof thereof. The bank was a state depository, and, in pursuance of law, had deposited with the state treasurer, as security for any deposits made therein, United States government bonds in the sum of $128,000, and executed a surety bond with the Hartford Accident & Indemnity Company as surety. Some time before June 6, 1926, and before the claim had been approved, the treasurer sold enough of the United States bonds, so held by him as collateral, to realize $113,420.49. This fact coming to the attention of the superintendent of banks, the latter credited said sum upon the state's claim. This left a balance due on the state's claim of $44,673.42, and in the hands of the treasurer as collateral United States bonds in the sum of $14,000. Between June 7, 1926, and December 31, 1928, the receiver paid six dividends totaling 50 per cent. of the balance of $44,673.42, or $22,336.70. The receiver, thereafter concluding that the $14,000 in United States bonds should have been credited on the balance of $44,673.42 and the dividends of 50 per cent. allowed on the balance of $30,006.27, or a dividend of $15,003.13, filed his petition in the superior court of Yavapai county asking for an order directing the treasurer to repay him the difference between the dividends paid and the [39 Ariz. 34] dividend he should have paid as he contends, or the sum of $7,333.57.
The reason the treasurer did not convert the $14,000 in United States bonds into cash for application upon the state's claim was that a suit had been brought against him by third parties claiming said bonds, and he was holding them pending the determination of such suit.
Subsequent to the treasurer's receiving the 50 per cent. dividend, the litigation over the title and ownership of the $14,000 in United States bonds was determined in his favor, and he thereupon sold the said bonds realizing therefrom $14,667.15. He has therefore realized on collateral $128,087.64, and in dividends $22,336.70, or, all told, $150,424.34.
After hearing the parties, the court entered an order directing the treasurer to pay back to the receiver the said sum of $7,333.57 as an overpayment of dividends. The treasurer appealed from such order. He claims the right to share in dividends upon the full amount of the state's claim as of the date of the insolvency or receivership, without deduction or offset on account of collateral held by him. He claims this right to receive dividends on the full amount of the state's claim, and in addition thereto of receiving on account of the state's claim, such proceeds of such collateral as may be realized until the full amount of the state's debt has been paid, following which he admits that he is liable to make delivery to the superintendent of banks of the balance of any collateral, or any excess amount which he may have received from dividends and collateral over the full amount of the state's claim.
The superintendent of banks contends that the treasurer should have applied all the collateral he held upon the state's claim and filed a demand for the balance, and that the dividends from the general [39 Ariz. 35] assets of the insolvent should have been paid only on such basis.
The courts are not at all in accord on this question. There are four principal rules that have found judicial favor in this country, and these are stated very plainly and concisely by Mr. Justice BOULDIN, of the Supreme Court of Alabama, in First National Bank of Birmingham v. Green, Superintendent of Banks, 221 Ala. 201, 128 So. 394, and we take the liberty of quoting in extenso such rules, and the citations thereunder, from that opinion:
"In the distribution of the estates of insolvents through trustees of all kinds, the rules for fixing the dividends to be allowed secured and unsecured creditors from the trust fund may be broadly ranged in four classes:
"(1) The rule in bankruptcy, wherein the secured creditor receives dividends only on the excess over the securities held by him. States following this rule in distribution of estates of insolvents through trustees include: Georgia (Citizens' & Southern Bank v. Alexander,147 Ga. 74, 92 S.E. 868, L.R.A. 1918B 1021); Massachusetts (Amory v. Francis,16 Mass. 308); Kansas (American National Bank v. Branch,57 Kan. 27, 45 P. 88); Mississippi (Union & Planters' Bank v. Duncan,84 Miss. 467, ...