IN RE TRUST CO, N.C., Judgment, Law, casemine.com

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Attorney(S)

Alfred S. Barnard for petitioner. Johnson, Smathers, Rollins Uzzell and C.I. Taylor for respondent.

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Smart Summary

Factual and Procedural Background

The First National Bank and Trust Company, as receiver and trustee of the Central Securities Company of Asheville, petitioned the Superior Court to direct the Commissioner of Banks (liquidating the assets of the Central Bank and Trust Company of Asheville) to pay declared and future dividends on the principal amount of its judgment claim with interest at 4 1/4% per annum from 30 September 1930 to the dividend dates. The Commission had paid prior dividends of 20% and 10% on claims allowed or adjudged preferred. The judgment underlying the petition (for $117,500 with interest at 4 1/4% from 30 September 1930) arose from the wrongful conversion of Liberty Bonds and had been affirmed by the Supreme Court (Bank v. Hood, 204 N.C. 351, 168 S.E. 528). The Superior Court ordered the Commissioner to pay dividends on interest accruing after 19 November 1930 (the date the Commissioner took possession) and to compute future dividends by adding interest from 30 September 1930 to each dividend date to principal. The Commissioner excepted, gave notice of appeal (with the court's approval that specified the case on appeal), and appealed to the Supreme Court.

Legal Issues Presented

Whether the statutory receiver (the Commissioner of Banks) had the right to appeal the Superior Court's order without separate approval of the appointing court.
How interest on a preferred claim against an insolvent bank should be computed for purposes of declaring dividends—specifically whether interest accruing after the statutory receiver's possession should be included.

Arguments of the Parties

Appellee's Arguments

The Commissioner of Banks had no interest affected by the order and therefore was not a person aggrieved and had no right to appeal; relying on the principle that a receiver has no right to appeal without authority from the court appointing him (citing authority).

Appellant's Position (as reflected in the record)

The appeal was taken after exception and notice and, with the court's approval, the parties agreed the notice of appeal, petition, answer, and order would constitute the case on appeal; an appeal bond was fixed at $50.00.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bank v. Hood, 204 N.C. 351, 168 S.E. 528	Reference to the prior judgment affirmed by this Court relied on by the petitioner as the basis of its claim.	Used to identify the petitioner's underlying judgment (for $117,500 with interest at 4 1/4%) that formed the preferred claim against the insolvent bank.
Blades v. Hood, 203 N.C. 56, 164 S.E. 828	To show that the Commissioner of Banks is a statutory receiver of insolvent State banks.	Cited to indicate the Commissioner's statutory status; the court nonetheless found the receiver-appeal principle inapplicable on the facts of this case.
Buncombe County v. Hood, 202 N.C. 792, 164 S.E. 370	To show that the Commissioner of Banks is a statutory receiver of insolvent State banks.	Cited for the Commissioner's statutory status; court concluded the authority-to-appeal issue was resolved by the record showing court approval.
Bank v. Bank, 127 N.C. 432, 37 S.E. 461	Recognition of the principle that a receiver, as an officer of the court, has no right to appeal without authority from the appointing court.	The court acknowledged the principle but held it inapplicable because the record showed the appeal was taken with the court's approval (or at least with implied authority).
Strauss v. Loan Association, 118 N.C. 556, 24 S.E. 116	Recognition of the same principle limiting a receiver's right to appeal absent court authority.	Again acknowledged by the court but found not to bar the appeal here due to the court-approved appeal procedure reflected in the record.

Court's Reasoning and Analysis

The Court first addressed the appealability issue. The record showed the Commissioner excepted to the Superior Court order, gave notice of appeal, and, with the court's approval, agreed that the notice of appeal, the petition, the answer, and the order (containing findings of fact) would constitute the case on appeal; an appeal bond of $50 was fixed. Although appellee relied on the principle that a receiver cannot appeal without authority from the appointing court (as recognized in Bank v. Bank and Strauss v. Loan Association), the Court found that principle inapplicable here because the record justified the inference that the Superior Court had given at least implied authority for the appeal. The Court further analyzed the Commissioner's role, stating his powers derive from statute (Chapter 113, Public Laws of 1929, as amended by chapter 243, Public Laws of 1931) and that in proper cases it is his right and duty to appeal to preserve the rights of those in interest. On the interest issue, the Court invoked the generally approved rule (citing 32 C.J.) that interest on claims against an insolvent estate is computed to the time of institution of insolvency proceedings (or receiver's possession). The Commissioner had applied that rule; the Superior Court's order directing the Commissioner to disregard that rule (by computing dividends to include interest after the receiver's possession) was erroneous. The Court noted the petitioner might have been entitled to 6% interest but had not excepted to the judgment allowing only 4 1/4%, and thus the judgment's rate was conclusive.

Holding and Implications

REVERSED

Holding: The Superior Court order was reversed. The Supreme Court held (1) the Commissioner of Banks, as statutory receiver, could appeal the Superior Court's order where the record showed the appeal was taken with the court's approval (or at least with implied authority), and (2) the proper rule for computing interest on preferred claims for dividend purposes is to compute interest to the time of the receiver's possession/ institution of insolvency proceedings; interest accruing after the receiver's possession should not be included in calculating dividends. Consequences: The Commissioner may proceed with the appeal and was correct in applying the rule computing interest only to the date of receivership; the Superior Court's directive to include interest after possession in dividend computation was erroneous. The judgment's allowance of interest at 4 1/4% was conclusive because no exception was taken to that rate.

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IN RE CENTRAL BANK AND TRUST COMPANY OF ASHEVILLE, NORTH CAROLINA.

1. Appeal and Error A f: Banks and Banking H c — Held: court gave implied authority to receiver of insolvent bank to appeal.

Objection that the statutory receiver of an insolvent State bank has no right of appeal to the Supreme Court from an adverse judgment of the Superior Court without the approval of the court is untenable when it appears that the Superior Court judge gave at least implied authority for appeal by approving the agreement of the parties as to what should constitute the case on appeal after notice of appeal by the receiver. C.S., 632.

2. Same — The statutory receiver of an insolvent bank may appeal from an adverse judgment without approval of the court.

The authority and duties of the statutory receiver of an insolvent State bank to defend and prosecute actions involving the management and distribution of the bank's assets in course of liquidation are derived under the statute itself, and it is devolved upon the receiver to take such action as will preserve the rights of those in interest as may be proper, by appeal from an adverse ruling of the Superior Court or otherwise.

3. Banks and Banking H e — Interest may not be allowed on preferred claim subsequent to statutory receiver's possession of assets of bank.

Where there is a judgment that the statutory receiver of an insolvent bank allow plaintiff's claim as a preference with other preferred claims against the insolvent bank, such claimant is entitled to dividends, when declared, calculated upon the principal sum due together with interest from the date of the bank's wrongful conversion of the fund to the date the receiver took possession of the bank's assets, but claimant is not entitled to have interest on the fund after the receiver's possession included in calculating the amount of his dividend. In this case claimant did not except to the provision of the judgment that the same rate of interest should be allowed on the claim as claimant was receiving on the bonds converted, and semble otherwise 6 per cent interest might have been allowed.

The above entitled cause was heard on the petition of the First National Bank and Trust Company, as receiver and trustee of the Central Securities Company of Asheville, Incorporated, for an order directing the Commissioner of Banks, who is now liquidating the assets of the Central Bank and Trust Company of Asheville, N.C. to pay dividends which have been or shall be declared by him on the principal amount of its claim with interest at 4 1/4 per cent per annum, from 30 September, 1930, to the dates of such dividends.

The Commissioner of Banks has heretofore paid two dividends — one of 20 per cent and the other of 10 per cent — on claims against the Central Bank and Trust Company, which have been allowed by him or adjudged by the court as preferred claims. The assets of the Central Bank and Trust Company are not sufficient in amount for the payment in full of all the preferred claims against the Central Bank and Trust Company. No assets are now or will be available for the payment of any dividend on claims which are not entitled to preference. All the assets will be exhausted in the payment of dividends on preferred claims.

The Commissioner of Banks has paid, and unless ordered by the court, will continue to pay dividends on the principal amount of petitioner's claim, with interest at 4 1/4 per cent per annum, from 30 September, 1930, to 19 November, 1930, the latter being the date on which the Commissioner of Banks took possession of the Central Bank and Trust Company, because of its insolvency. The petitioner's claim is founded on a judgment which it recovered against the Commissioner of Banks, in the Superior Court of Buncombe County, and which was affirmed, on defendant's appeal, by the Supreme Court. See Bank v. Hood, 204 N.C. 351, 168 S.E. 528. This judgment is for $117,500, with interest at 4 1/4 per cent per annum from 30 September, 1930. The judgment was rendered on a cause of action which arose out of the wrongful and unlawful conversion by the Central Bank and Trust Company, on or about 30 September, 1930, of United States Liberty Bonds of the par value of $117,500, bearing interest at 4 1/4 per cent per annum. The said bonds were owned by the Central Securities Company of Asheville, Incorporated, and were held in trust for said Securities Company by the Central Bank and Trust Company. The claim of the petitioner for damages resulting from the wrongful and unlawful conversion of said bonds was adjudged a preferred claim against the Central Bank and Trust Company, and was ordered paid by the Commissioner of Banks, out of the assets of the Central Bank and Trust Company which had or should come into his hands, as such. The claim has no priority over other preferred claims against the Central Bank and Trust Company.

On the facts found by the court, to which there were no exceptions, it was ordered that the respondent Commissioner of Banks be and he was directed to pay to the petitioner dividends of 20 per cent and of 10 per cent on the amount which was due as interest on the principal of petitioner's claim from 19 November, 1930, to the dates of the dividends theretofore paid by him, respectively. It was further ordered that for the purpose of determining the amount of petitioner's claim on which future dividends shall be paid, the Commissioner of Banks shall compute interest at the rate of 4 1/4 per cent per annum on the principal of said claim from 30 September, 1930, to the date of each dividend, and add the amount of such interest to the said principal. From this order, the Commissioner of Banks appealed to the Supreme Court.

CONNOR, J.

The record in this proceeding shows that the respondent Commissioner of Banks duly excepted to the order of the court, and gave due notice of his appeal from said order to this Court; that, with the approval of the court, it was agreed that the notice of appeal, the petition of the petitioner and the answer of the respondent, and the order of the court, containing its findings of fact, should constitute the case on appeal for this Court; and that it was adjudged by the court that an appeal bond in the sum of $50.00 was sufficient.

In this Court, the appellee contends that the appellant Commissioner of Banks had no interest which was affected by the order of the court, and was therefore not a person aggrieved by the order. For this reason, it is argued that the Commissioner of Banks had no right to appeal from the order, and that his appeal should be dismissed. C.S., 632. The appellee relies on the principle that a receiver, being an officer of the court, has no right, in the absence of authority from the court by which he was appointed, to appeal from an order instructing him with respect to the performance of his duties as a receiver, 23 R.C.L., 133. This principle has been recognized by this Court in Bank v. Bank, 127 N.C. 432, 37 S.E. 461, and in Strauss v. Loan Association, 118 N.C. 556, 24 S.E. 116. If the principle is applicable at all to the Commissioner of Banks, who is a statutory receiver of insolvent banks doing business in this State ( Blades v. Hood, 203 N.C. 56, 164 S.E. 828, Buncombe County v. Hood, 202 N.C. 792, 164 S.E. 370), it is not applicable in the instant case, for the reason that the record shows that the exception to the order was noted, and the appeal was taken, with the approval of the court. The appeal entries in the record justify the inference that the appeal was authorized by the court, if its authority was required.

The Commissioner of Banks, when engaged in the liquidation of the assets of an insolvent bank, as authorized by statute, does not derive his power or his authority from the court. His power and authority, both to take possession of an insolvent bank, and to liquidate its assets for distribution among its creditors according to their respective rights, are derived from the statute. Chapter 113, Public Laws of 1929, as amended by chapter 243, Public Laws of 1931. In a proper case, it is both his right and his duty to appeal from the order or the judgment in an action or proceeding to which he is a party. The contention of the appellee in the instant case, that the Commissioner of Banks has no right to prosecute his appeal in this Court is not sustained. The purpose of the statute is to secure an equitable distribution of the assets of an insolvent bank among its creditors in accordance with their respective rights. An order or judgment which defeats this purpose is erroneous and will be reversed by this Court in the exercise of its appellate jurisdiction.

The rule approved generally by the courts, with respect to the computation of interest on claims against an insolvent person or corporation which are to be paid out of the assets of such person or corporation, is that "in the distribution of the estate of an insolvent, interest should be computed to the time of the institution of insolvency proceedings upon all debts drawing interest either by agreement of the parties, or as legal damages for nonpayment." 32 C.J., 884.

This is the rule which was applied by the Commissioner of Banks in the instant case, and is, we think, not only a practical but a just rule. There was error in the order directing the Commissioner of Banks to disregard this rule in the instant case. It may be that the petitioner would have been entitled to interest on the amount of his damages for the wrongful and unlawful conversion of the Liberty Bonds at 6 per cent per annum. It did not, however, except to the judgment by which interest at only 4 1/4 per cent was allowed. The judgment is therefore conclusive in all respects on both the petitioner and the respondent. The order is

Reversed.

IN RE TRUST CO