This is an original proceeding commenced in this court by the state, on the relation of the Attorney General, against John Norman, judge of the district court of the Twenty-Second judicial district, for the purpose of procuring a writ of prohibition. It appears from the record before us that the Bank of Commerce of Okmulgee, Okla., through its board of directors, voluntarily placed said bank, together with all of its assets, in the hands of the State Bank Commissioner; that subsequently the Bank Commissioner, after an examination into the affairs and condition of said bank, found and so declared it to be insolvent, and proceeded to take possession thereof, together with all its assets, for the purpose of winding up its affairs and to enforce the personal liability of its stockholders, officers, and directors. In pursuance of this purpose, the Bank Commissioner, through the Attorney General, instituted approximately 100 suits against the stockholders and debtors of said bank, for the purpose of reducing their liabilities to cash, and paying the unsecured depositors as provided by law; that in one of these actions, styled The State of Oklahoma ex rel. Attorney General v. W.J. Harmon, the defendant, who was sued as a stockholder to recover the double liability prescribed by statute, filed an application for the appointment of a receiver upon various grounds; that subsequently the plaintiff filed its motion to strike the application for the appointment of a receiver from the files, and also filed a demurrer to the petition for a receiver which motion and demurrer were overruled by the court. That thereupon the district court appointed two receivers for the Bank of Commerce and issued an order requiring the Bank Commissioner forthwith to deliver all of the books, records, moneys, and assets of the failed bank to the receivers thus appointed and restraining the Bank Commissioner from further proceeding in the matter of winding up the affairs of the bank. Thereafter, upon application of the Attorney General setting up these facts in detail, this court issued an alternative writ prohibiting the district court from further proceedings under the petition and application for the appointment of receivers, and ordered that a return and answer to such alternative writ be filed on a day certain.
The cause now comes on for hearing upon the application of the Attorney General to make the alternative writ permanent and the petition filed by the plaintiff and the return thereto filed by the defendant.
In the brief filed by the Attorney General in this particular proceeding two or three preliminary questions of practice and procedure are presented for consideration, which it will not be necessary to notice, for the reason that the power of the district court to appoint a receiver is now directly presented for review by a proper proceeding in error in the case in which the original order was made. This proceeding in error is No. 13038, entitled State of Oklahoma ex rel. Attorney General v. W.J. Harmon, and it is stipulated that this proceeding in error shall be submitted for consideration with this original proceeding.
In these circumstances there is but one question presented for our consideration, which is succinctly stated by the Attorney General in his brief as follows: "Is the jurisdiction of the Bank Commissioner and the Banking Board in the liquidation of an insolvent bank under the Constitution and laws of this state, original, sole, and exclusive, or can their jurisdiction be interfered with and superseded by a court of equity, in the appointment of receivers to liquidate insolvent banks?"
While counsel for the defendant in their application for the appointment of receivers in the district and in their return to the alternative writ in this court charge various state officers, and particularly the Bank Commissioner, with many acts of maladministration in office in the matter of executing the banking laws of the state, and further allege that the Bank Commissioner arbitrarily threatens to misapply the proceeds from the assets of the failed bank coming into his hands, we do not apprehend that they entertain the view, that this would warrant the district court in discharging these constitutional and statutory state officers and replacing them with receivers appointed by the court, if, as the Attorney General contends, the jurisdiction of the Bank Commissioner and the Banking Board over the liquidation of insolvent banks is, by the Constitution and statute laws of the state, made sole and exclusive.
While it is true, as counsel say, that fraud cuts down everything, even judgments of courts, and renders it void, and that the exercise of unauthorized arbitrary power by public officers is pernicious and should be restrained by the courts, yet we are unable to find any authority for holding that the mere maladministration of a public office or the unauthorized exercise of arbitrary *Page 39 power by a public officer warrants the judicial branch of the government in repealing or rendering inoperative a positive enactment of constitutional or statutory law. Indeed, in justice to counselor, we may say that while their application for a receiver and their return to the alternative writ are replete with various charges of maladministration, dishonesty, and corruption in office, in their brief, which was prepared more soberly after mature reflection, they do not seriously rely on these charges.
So, as we view the case, if we find that the legislative department has granted the exclusive power and authority to the Banking Board and the Bank Commissioner to wind up the affairs of insolvent banks and these laws do not violate any constitutional rights of the banks' creditors, this disposes of all the questions properly involved in the controversy.
The matter of the regulation and control of state banks has been a matter of grave public concern in this jurisdiction ever since the enactment and adoption of the first Constitution, by which it was erected into a sovereign state. Section 1, art. 14, Williams' Constitution, provides:
"General laws shall be enacted by the Legislature providing for the creation of a banking department to be under the control of a Bank Commissioner, who shall be appointed by the Governor for a term of four Year, by and with the consent of the Senate, with sufficient power and authority to regulate and control all state banks, loan, trust and guaranty companies, under laws which shall provide for the protection of depositors and individual stockholders."
This constitutional provision is the keystone of the body of laws relating to banks and banking subsequently enacted by the Legislature pursuant to its mandate. This section charges the Legislature with the duty of enacting general laws embodying the two central and closely related ideas made prominent in the section, to wit: First, control and regulation of state banks by a Banking Board under the control of a Bank Commissioner; and, second, protection of depositors and individual stockholders.
The very first session of the Legislature convening after statehood sought to vitalize this provision of the Constitution by enacting chapter 6, Session Laws 1907-1908. This chapter contains an elaborate system of laws relating to banks and banking which, among other things provides, as directed for the creation of a banking department to be under the control of a Bank Commissioner with sufficient power and authority to regulate and control all state banks, and also provides for the establishment of a depositors' guaranty fund for the protection of depositors and individual stockholders.
While this system of laws has been amended from time to time, it has remained substantially the same; the part thereof having the most direct bearing on the questions we now have under consideration, as they now exist, being found in sections 276, 298, 299, 300, 302 and 304, Rev. Laws 1910, and certain provisions of the Session Laws of 1913 and the Session Laws 1915.
These sections prescribe generally the circumstances in which the Bank Commissioner may take charge of failed bank; for a depositors' guaranty fund and the manner of its operation; for levying assessments and emergency assessments; general directions to the commissioner in winding up the affairs of failed banks, etc. We will not undertake to quote these various sections of the statute in full, except where we find it necessary to the discussion of some phase of the main question now under consideration.
These acts of the Legislature being passed in pursuance of the direct mandate of the Constitution to carry out specific objects, they must be liberally construed to put into effect the constitutional mandate. Section 276, supra, provides in substance: That any state bank may place its affairs and assets under the control of the Bank Commissioner by posting a notice on its front door as follows: "This bank is in the hands of the State Bank Commissioner." The posting of such notice, or the taking possession of said bank by the Bank Commissioner, shall be sufficient to place all of its assets and property of whatever nature in the possession of the Bank Commissioner, and shall operate as a bar to any attachment proceedings.
This is the section under which the bank in this case placed its affairs and assets under the control of the Bank Commissioner, and the authority for so doing seems too clear for any serious controversy to arise over its proper exercise. Section 302, supra, provides in substance: Whenever any bank shall voluntarily place itself in the hands of a Bank Commissioner, or whenever the Bank Commissioner shall become satisfied of the insolvency of any such bank, he may, after due examination of its affairs, take possession of said bank and its assets, and proceed to wind up its affairs and enforce the personal liability of the stockholders, officers, and directors. *Page 40
All this has been done by the Bank Commissioner as directed. He has made the required examination of the affairs of the bank, found the same to be insolvent, and he was proceeding to wind up its affairs when interfered with by the district court. Section 304, supra, provides:
"The Bank Commissioner shall take possession of the books, records, and assets of every description of such bank, * * * collect debts, dues and claims belonging to it, and upon order of the district court, or judge thereof, may sell or compound all bad or doubtful debts, and on like order may sell all the real or personal property of such bank * * * upon such terms as the court or judge may direct, and may, if necessary, pay the debts of such bank, * * * and enforce the liabilities of the stockholders, officers, and directors; Provided, however, that bad or doubtful debts as used in this section shall not include the liability of stockholders, officers or directors."
The Bank Commissioner was seeking to enforce the liability of a stockholder in the action in which the receiver was appointed. It seems to us that in performing the various acts hereinbefore set out, the Bank Commissioner was but performing his plain, constitutional and statutory duties. The mandate of the Constitution, as we have seen, is that general laws shall be enacted providing for the creation of a banking department to be under the control of a Bank Commissioner with sufficient power and authority to regulate and control all state banks. This mandate, we think, has been thoroughly and completely carried out by the various Legislatures dealing with this subject.
The system of laws vitalizing the constitutional mandate being special acts applying only to banks and trust companies, they supersede the provisions of the general laws relating to the dissolution and winding up of the affairs of other corporations. Authorities supporting this conclusion are numerous. The following are a few of those cited by the Attorney General in his brief: In re Murray Hill Bank (N Y App.) 47 N.E. 298; McDavid v. Bank of Bay Minette (Ala.) 69 So. 452; Cartmell et al. v. Commercial Bank Trust Co. et al. (Ky.) 156 S.W. 1048; State ex rel. Lofthus, State Bank Examiner, et al. v. Langer, Attorney General (N.D.) 177 N.W. 408. It is quite true that none of the acts construed in the foregoing cases contain provisions for the protection of depositors by the creation of a bank guaranty fund, and counsel for defendant seek to make some point on this distinction. They say in substance that our banking system is built around the one central idea of immediately paying the depositors of failed banks in full, and any right which the state may by statute acquire in the assets of a failed bank is acquired by reason of, and in consideration for, such payment. From this, they argue that, inasmuch as it appears that by reason of depletion of the bank guaranty fund it is impossible to immediately pay depositors in full, as contemplated by section 303, supra, the bank guaranty law fails to function, with the result that the Bank Commissioner loses control over the assets of the failed bank. They further say in effect: Indeed, we do not believe that it was ever the intention of the Legislature that the Bank Commissioner should have anything to do with administering the assets of a failed bank further than to reimburse the depositors' guaranty fund where the depositors are or may be paid in full therefrom.
We are unable to agree with this view of the law. In the first place, the banking laws, as hereinbefore pointed out, are built around the two central but closely related ideas contained in section 1, art. 14, Williams' Constitution, to wit: Control and regulation of state banks by state officers; and, second, protection of depositors. But the fundamental weakness of this argument is that it is based upon the unsound premise that the bank guaranty Law fails to function whenever the bank guaranty fund becomes depleted to the extent that it is impossible to immediately pay depositors in full. This, we think, is an erroneous view of the law. Clearly, that a contingency might arise where it would be impossible to immediately pay the depositors in full was foreseen by the Legislature and provided against by the enactment of section 300, supra, which provides in part as follows:
"Whenever the depositors' guaranty fund shall become impaired or be reduced below said five per cent. by reason of payments to depositors of banks which have failed, the State Banking Board shall have the power, and it shall be their duty, to levy emergency assessments against the capital stock of each bank * * * doing business in this state sufficient to restore said impairment or reduction below five per cent.; but the aggregate of such emergency assessments shall not in any one calendar year exceed two per cent. of the average daily deposits of all state banks. * * * If the amount realized from such emergency assessments shall be insufficient to pay off the depositors of all banks which have failed, having valid claims against said depositors' guaranty fund, the State Banking Board shall issue and deliver to each depositor having any such unpaid deposit, a certificate of indebtedness for the amount of his unpaid deposit, bearing six per cent. interest. Such certificates *Page 41 shall be consecutively numbered and shall be payable upon the call of the State Banking Board, in like manner as state warrants are paid by the State Treasurer, in the order of their issue out of the emergency levy thereafter made; and the State Banking Board shall from year to year levy emergency assessments as hereinbefore provided against the capital stock of all banking corporations * * * doing business in this state until all such certificates of indebtedness with the accrued interest thereon shall have been fully paid. As rapidly as the assets of banks which have failed are liquidated and realized upon by the Bank Commissioner, the same shall be applied first after the payment of the expense of liquidation to the repayment to the depositors' guaranty fund of all moneys paid out of said fund to the depositors of such bank, and shall be applied by the State Banking Board towards refunding any emergency assessment levied by reason of the failure of such liquidated bank. * * *"
Now, from a casual consideration of this and the various other sections of the guaranty law referred to, it is reasonably clear that it was the intention of the Legislature that the bank guaranty law shall function in two ways, to wit: First, by immediately paying the depositors of the insolvent bank in full where the cash available or which can be made immediately available from the assets of the bank, together with the money on hand in the guaranty fund, is sufficient for that purpose; and, second, where such funds are not sufficient for that purpose, by issuing certificates of indebtedness payable from year to year as money comes into the guaranty fund from the assessments and emergency assessments against solvent banks as provided for by law. But that the law is functioning under the one mode or the other furnishes no warrant whatever to the district court to interrupt the commissioner by the appointment of receivers, when he is proceeding as directed by sections 302 and 304, supra, to wind up the affairs of a failed bank and enforce the personal liability of the stockholders, officers, and directors. This work must go on, and it is just as necessary for the protection of depositors that it be performed by the Bank Commissioner in cases like this, where the guaranty fund is depleted, as in cases where the depositors have been immediately paid in full. The guaranty law, as we have seen, was created for the protection of depositors and individual stockholders of failed banks in accordance with the direct mandate of the constitutional provisions hereinbefore referred to, and it has protected such depositors to the extent not only of the many million dollars actually paid to them out of the guaranty fund, since its organization immediately after statehood, but by winding up the affairs of insolvent state banks by expert state officers at a nominal expense to the depositors and other creditors.
Heretofore the commissioner has been able to protect depositors by immediately paying them in full out of the cash and assets of the bank immediately available and money on hand in the guaranty fund. Now, on account, in part at least, of the widespread financial depression, common not only to this state, but to the country at large, and to the world, the guaranty fund has become so depleted that it is necessary to resort to the second means of protection. But this, as we have seen, does not mean that the bank guaranty law has broken down or has failed to function. On the contrary, it means that, owing to the foresight of the Legislature, the financial conditions now prevailing have been apprehended and provided against, and that the bank guaranty law is functioning, not so satisfactorily to depositors as formerly perhaps, but still functioning as it was intended to function under existing conditions. In these circumstances, are we not justified in assuming with confidence that the bank guaranty law in the future as in the past will continue to function, and that the depositors of this failed bank will finally be paid in full with interest out of the assessments and emergency assessments which will continue to come into the guaranty fund from year to year?
There is some apprehension expressed by counsel that where the affairs of an insolvent bank are wound up under the existing circumstances; that is, where the bank guaranty fund is depleted to the extent that it is impossible to immediately pay depositors in full, the proceeds derived from the sale of the assets of insolvent bank must under the law be used to replenish the bank guaranty fund generally, and not for the purpose of paying depositors and other creditors of the particular bank to which the assets belong. To this extent, they say, the guaranty law is unconstitutional and void because in violation of the 14th Amendment to the Constitution of the United States and section 23, art. 2, of Williams' Oklahoma Constitution, both of which provide, in substance, that no private property shall be taken or damaged for private use without compensation.
While a ruling on the question thus raised may not be necessary to the disposition of the case at bar, and we see very little room for any reasonable apprehension on this score, in view of the importance of the question *Page 42 under existing circumstances we will briefly notice it. The bank guaranty law, as we have seen, was enacted pursuant to the express mandate of the Constitution primarily for the protection of depositors in failed banks, and it must be liberally construed so as to carry out this purpose. Obviously it was not intended to take from this class of creditors any of the rights to which they were formerly entitled as such depositors, but to add to and increase such rights.
The guaranty fund is not created by using the proceeds derived from the assets of insolvent banks, but by assessments and emergency assessments levied against solvent state banks. That a reasonable taking from solvent banks to protect the depositors of insolvent banks, is within the proper exercise of the police power of the state is no longer an open question in this jurisdiction. Noble State Bank v. Haskell et al.,22 Okla. 48, 97 P. 590, 219 U.S. 104, 55 L.Ed. 112. So we see that whatever taking there is, is always from solvent banks, and that the giving is always to the depositors of insolvent banks. We have heretofore pointed out the two ways in which the bank guaranty law functions. If the law is functioning under the first mode and the depositors are immediately paid in full, then, of course, they have no further interest in the matter, and the affairs of the bank are wound up for the benefit of the bank guaranty fund, out of which the depositors have been paid, and the other creditors; the state, for the benefit of the depositors' guaranty fund, having a first lien upon the assets of the bank. The affairs of insolvent banks have been wound up many times in these circumstances and the process is familiar. In the case at bar, the affairs of the failed bank are being wound up under the second plan, and the question arises: What shall be done with the proceeds derived from the assets of failed banks under these circumstances? The general answer to this question may be found in sections 302 and 304, in substance as follows; The Bank Commissioner shall take possession of the books, records, and assets of such bank, collect debts, dues, and claims belonging to it, and proceed to wind up its affairs and enforce the personal liability of the stockholders, officers, and directors. These are very broad and comprehensive directions, and, unless they are limited by some other provisions of the banking law, they empower the Bank Commissioner to do everything necessary to wind up the affairs of an insolvent bank, including the sale of the assets and the distribution of the proceeds among the creditors. The term "wind up," when construed in connection with the context of the section in which it is found and in connection with the broad terms of section 304, supra, undoubtedly embraces the entire process of settling the accounts and liquidating the assets of failed banks for the purpose of making distribution and dissolving the corporation. Counsel for defendant claim that language is found in part of section 300, supra, which requires the Bank Commissioner to turn the proceeds from the sale of the assets into the guaranty fund generally instead of paying it to the creditors. The part of section 300 relied upon reads as follows:
"As rapidly as the assets of banks which have failed are liquidated and realized upon by the Bank Commissioner, the same shall be applied first after the payment of the expense of the liquidation to the repayment to the depositors' guaranty fund of all moneys paid out of said fund to the depositors of such bank."
Counsel say: "This is the sole statutory direction to the Bank Commissioner as to his duty with reference to money derived from the liquidation of bank assets, and is wholly incompatible with the idea that he is acting as a receiver." We are unable to agree with this conclusion of counsel. As we view it, this excerpt merely constitutes a limitation upon the broad general power conferred upon the Bank Commissioner by sections 302 and 304, hereinbefore referred to in certain specific particulars and circumstances, that is, it provides for the order in which two of the ordinary items of expense incident to winding up the affairs of an insolvent bank under our system of laws must be met out of the proceeds of the assets of the bank, that is, first, the expense of liquidation must be paid, and, second, there must be "repayment to the guaranty fund of all moneys paid out of said fund to the depositors of such bank."
Obviously this part of the section is directed to the Bank Commissioner where there have been moneys paid out of the guaranty fund to the depositors of the particular bank to which the assets belong, and does not apply to a case like this, where no money has been paid out of the fund to such depositors. If no money has been paid out of the fund to the depositors of such bank, then the assets of the failed bank cannot be used to repay the depositors' guaranty fund for the simple reason that the bank owes it nothing.
The guaranty fund is created by assessments and replenished by emergency assessments levied against solvent banks, and *Page 43 speaking of it as a legal entity, it becomes a preferred creditor of an insolvent bank by paying the depositors of such bank, and in that event it stands just like any other creditor, except the state has a first lien upon the assets of the bank to insure repayment to the guaranty fund of the sum of money it has paid out to depositors. If the guaranty fund does not become a creditor of the failed bank; that is, if there are no moneys paid out of the said fund to depositors of such failed bank, obivously the proceeds of the assets are distributed among the other creditors in the process of winding up the affairs of such bank pursuant to the general directions to the Bank Commissioner contained in the general statutes hereinbefore referred to. As thus administered it is quite clear that the guaranty feature of the banking law can never result in the taking of anything of value from the depositors or the creditors of a failed bank, and therefore is impervious to the charge of unconstitutionality made against it in the last assignment of error.
For the reason stated, we think the temporary writ of prohibition hereinbefore granted should be made permanent.
HARRISON, C. J., PITCHFORD, V. C. J., and JOHNSON, McNEILL, and NICHOLSON, JJ., concur. MILLER, ELTING, and KENNAMER, JJ., dissent.