# State Ex Rel. Strain v. Wells

> Supreme Court of Oklahoma · November 27, 1923 · 98 Okla. 169

URL: https://www.frixlaw.com/law-library/cases/3817230

## Case

- **Full name:** STATE Ex Rel. STRAIN, Bank Commissioner, v. WELLS, District Judge, Et Al.
- **Court:** Supreme Court of Oklahoma
- **Decided:** November 27, 1923
- **Citations:** 98 Okla. 169; 224 P. 694; 1923 OK 1054; 1923 Okla. LEXIS 946
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Ruth
- **Judges:** Ruth
- **Cited by:** 10 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/3817230

## Opinion text

Opinion by
RUTH, 0.
This is an original application for a writ of prohibition filed by complainants against the respondents by which it is sought to prevent the district court for the Sixteenth judicial district from appointing a receiver to take charge of and collect rents of a certain building in the city of Walters, Cotton county, Okla., a portion of which building has heretofore been occupied by the Oklahoma State Bank of Walters, Okla.
The petition of the complainants alleges substantially as follows:
That one J. A. Wiley filed his petition in the above-named district court against J. A. Bonds and Eugenie Bonds, his wife, Joe Strain, .successor in office to Roy Walcott as state bank commissioner of the state of Oklahoma, Oklahoma State Bank of Walters. Okla., a corporation organized under the laws of the state of Oklahoma, for profit, B. S. Coleman, Ida B. Coleman, his wife, R. Peoples, Libbie Gordon, W. L. Brooks, and Joe Strain, alleging that J. A. Bonds executed certain promissory notes aggregating $55,000 to B. S. Coleman, and as security for the payment thereof Bonds executed at the same time a certain mortgage on lands and the building thereon, as set out in the petition; that the mortgage was in the usual form with the usual defeasance clause, and provides;
“In case of default iu any of the covenants hereof, the rents and profits of said premises are pledged to the holder hereof, [the notes] as additional collateral security for the payment of the money's herein mentioned, and the holder is entitled to the possession thereof by receiver or otherwise.”
The petition further alleges the mortgage provides for payment of taxes, insurance, and interest, but that no insurance is being carried; that taxes and interest are iu default; that the mortgage was assigned to Wiley; that defendants have taken possession of the premises, and are collecting rents, approximating $600 per month, and are paying no rent for the banking room used by them.
Plaintiff further alleges that Joe Strain, bank commissioner of the state of Oklahoma, is denying the right of the plaintiff to foreclose his mortgage, on the pretense that the mortgaged property is assets -positors’ guaranty fund and from additional assessments, if required, as provided in section 300, the amount necessary to make up the deficiency; and the state shall have, for the benefit of the depositors’ guaranty fund, a first lien upon the assets of said bank or trust company, and all liabilities against the stockholders, officers and directors of said bank ór trust company and against all other persons, corporations or firms. Such liabilities may be enforced by the state for the. benefit of the depositors’ guaranty fund.
“Sec. 304. Assets Collected, etc. The hank commissioner shall take possession of the books, records and assets of every description of such bank or trust company,’
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collect debts, dues and claims belonging tg it, and upon order of tbe district court, or judge thereof, may sell or compound all bad or doubtful debts, and on like order may sell all tbe real or personal property of such bank or trust company upon such terms as the court or judge thereof may direct, and may, if necessary, pay the debts of such Dank or trust company, and enforce the liabilities of the stockholders, officers aud directors : • Provided, however, that bad or doubtful debts as used in this section shall not include the liability of 'stockholders, officers or directors.”
There is no suggestion in the pleadings that the bank commissioner drew from the depositors’ guaranty fund any money to make up any deficiency, and this section gives to the state a first lien upon the assets of the bank to the extent of the deficiency so made up, for the benefit of that fund. The question of the state’s right to control the assets of an insolvent bank, when no prior claim or lien exists, is no longer an open question.
“That the bank commissioner and the banking board are a part of the executive branch of the state government, and a suit in mandamus, seeking to compel said officers in their official capacity to allow and pay said claim out of the depositors’ guaranty fund, is a 'suit in effect against the state, and cannot be maintained without the consent of the state.” Lovett et al., Creek Co. Com’rs, v. Lankford et al., 47 Okla. 12 . 145 Pac. 767 .
"A suit against the state bank commissioner to compel him to pay a debt against a failed bank out of the state guaranty fund or out of the assets of such bank in his hands as such officer under the banking law is, in effect, a suit against the state and cannot be maintained without the state’s consent.” Lankford v. Schroeder, 47 Okla. 279 , 147 Pac. 1049 , L. R. A. 1915F, 623.
“The title of such depositors’ guaranty fund vests in the state just as much so as the common school lands, or the proceeds of the sale of the same, and the taxes levied and collected for the maintenance and support of said schools, all of which are held in trust by the state for a specific purpose.” State ex rel. Taylor v. Cockrell, 27 Okla. 630 , 112 Pac. 1001 ; Lankford, Bank Com’r, v. Platte Iron Works Co.. 235 U. S. 461 , 35 Sup. Ct. 173, 59 L Ed. 316.
These cases are, however, clearly distinguishable from the case at bar, for the reason, these were attempts to compel payment out of the depositors’ guaranty fund, or to compel the bank commissioner to Issue certificates payable out of such fund, and in State ex rel. Short v. Norman, 86 Okla. 36 .
2 06 Pac. 522 , an attempt was made to appoint receivers for the State Bank of Commerce of Okmulgee and to require the bank commissioner to deliver all records, books, money and assets of the insolvent bank to the receivers, and restraining the bank commissioner from further proceeding in the matter of winding up the affairs of the bank; and, while the depositors’ guaranty fund is not specifically mentioned, this court held;
“That the law Is functioning under the one mode or the other, furnishes no warrant whatever to the district court to interfere with the bank commissioner * * * whe.-e he is proceeding as directed by sections 302 and 304. Rev. Laws 1910, to wind up tbe affairs of a failed bank and to enforce, the personal liability of the stockholders, officers, aud directors.”
In the instant case, there is no effi rt made to oust the jurisdiction of the bank commissioner from winding up tbe affairs of the insolvent bank, but solely to protect a prior claimant or lien holder against real property now alleged to be held by the bank. The lands and building in which the bank transacted business had been pledged by the owner thereof Bonds, for the payment of a certain sum evidenced by notes, secured by a mortgage executed at a time when the hank had no interest in the land, and, having been so pledged, the holders of the notes and mortgage have a claim superior to the bank or the bank commissioner.
“The bank commissioner, by virtue of section 303, Rev. Laws 1910, has no lien superior to that of a pledgee upon that portion of the notes of an insolvent bank placed with such pledgee as collateral to an actual loan, necessary to liquidate the indebtedness for which the said collateral was so pledged.” Commerce Trust Co. v. State, 59 Okla. 14 . 157 Pac. 717 .
Such holding by this court is within rhe letter and spirit of section 10, art. 1, Constitution of the United States:
“No state shall * * * pass any * * * law * 4 * impairing the obligation of cVi tracts," and section 15, art. 2. of the Constitution of this state, which provides:
“No 4 * * law * * * impairing the obligation of contracts, shall ever be passed.”
The complainant bases his case upon sections 303 and 304, Rev. Laws 1910, providing for the taking over of the assets of an' insolvent hank, and giving the state a first lien upon such assets for' the benefit of the depositors’ guaranty fund, while respondents rely upon the sections of the Constitution above referred to. as well as the Fourteenth
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amendment to tlie Constitution of the United States, which provides:
“Nor shall any state deprive any person of life, liberty, or property, without due process of law; nor deny to, any person within its .jurisdiction the equal protection of the laws.”
It will not be contended that, when a statute under which an officer claims to be acting is violative of the constitutional provisions hereinbefore -set forth, such a statute takes precedence over the Constitution.
“These provisions for the security of the rights of the citizen stand in the Constitu-t.on in the same connection and upon the same ground as they regard his liberty and his property. It cannot be denied that both were intended to be enforced by the judiciary as one of the departments of the government established by that Constitution. As we have already said, the writ of habeas corpus has been often used to defend the liberty of the citizen, and even his life, against the assertion of unlawful authority on the part of the executive and the legislative branches of the government. See Ex parte Milligan, 4 Wall. (71 U. S.) 2, 18 L. Ed. 281 , and the case of Kilbourn, discharged from the custody of the 'Sergeant at Arms of the House of Representatives. Kilbourn v. Thompson, 103 U. S. 168 , 26 L. Ed. 377 .”
It necessarily follows that, where an officer attempts to act under a statute which in effect deprives the citizen of these rights, the statute must give way to the Constitution. It is not sufficient that the officer suggest that he act under authority of the state, but we must determine whether the authority is lawfully assumed.
In U. S. v. Lee, 106 U. S. 196 , 1 Sup. Ct. 240, 27 L. Ed. 171 , it is said:
“If this constitutional provision is a sufficient authority for the court to interfere to rescue a prisoner from the hands of those holding him under the asserted authority of the government, what reason is there that the same courts shall not give remedy to the citizen whose property has been seized without due process of law ? * * * Looking at the question upon principle, and apart from the authority of adjudged cases, we think it still clearer that this branch of the defense cannot be maintained. It seems to be opposed to all the principles upon which the rights of the citizen, when brought in collision with the acts of the government, must be determined. In such cases there is no safety for the citizen, except in the protection of the judicial tribunals, for rights which have been invaded by the officers of the government, professing to act in its name. There remains to him but the alternative of resistance, which may amount to crime.”
The court, in U. S. v. Lee, supra, used the following forceful language:
“No man in this country is so high that he is above the law. No officer of the law may set that law at defiance with impunity. All the officers of the government from the highest to the lowest, are creatures of the law and are bound to obey it. Courts of justice are established, not only to decide upon the controverted tights of the citizens as against each other, bull also lights in controversy between them -and the goverpment; and the docket of this cc urt is crowded with controversies of the latter class. Shall it be said in¡| the face of all this, and of the acknowledged right of the judiciary to decide in proper cases statutes which have been passed by both branches of Congress and approved by the President to be unconstitutional, that the courts cannot give a remedy when the citizen has been deprived of his property by force, his estate seized and converted to the use of the government without lawful authority, without any process of law, and without compensation, because the President has ordered it and his officers are in possession? If such be the law of this country, it sanctions a tyranny which has no existence in the monarchies of Europe, nor in any other government which has a just claim to well-regulated liberty and the protection of personal rights.”
Ex parte Edward T. Young, 209 U. S. 123 , 28 Sup. Ct. 441, 52 L. Ed. 714 , 13 L. R. A. (N. S.) 932, 14 Ann. Cas. 764, was heard on application for a writ of habeas corpus to secure the release of Young, Attorney General of the state of Minnesota, who has been c< mmitted 'by the. Circuit Court of the United States for the District of Minnesota for -alleged contempt for disobeying an order enjoining him from instituting certain criminal proceedings under a state statute. Mr. Justice Peckham, delivering the opinion, in denying the writ said:
“A federal court may enjoin the Attorney General of a state, whose general duty is to enforce the state statutes, from proceeding to enforce, against persons affected, a state statute which violates the federal Constitution, such proceeding being not prohibited by the provision of the federal Constitution forbidding the maintenance of actions against a state.”
Complainants in their brief have favored us with but one citation from the United States Supreme Court, and, as set forth in the brief, it might be conceded that such opinion gave color to the complainants’ claim of immunity from suit.
Complainants’ brief advises us as follows:
“We quote from Pennoyer v. McConnaughy, 140 U. S. 1 , 11 Sup. Ct. 699, 35 L.
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Ed. 363, as follows: ‘The principle stated by Chief Justice Marshall,’ etc.”
Then follows what purports to he the opinion of the learned Chief Justice; but an examination of these cases in the original reports discloses the fact that a portion of this language was used by Marshall, C. J., in Osborn v. Bank of U. S., reported in 22 U. S. (9 Wheat.) 738 , 6 L. Ed. 204 , the opinion beings delivered during the Eebruary, 1824, term, and a portion of the language ascribed by complainant to Marshall, O. J., was employed by Mr. Justice Bradley in Bd. of Liquidation v. McComb, 92 U. S. 531 , 23 L. Ed. 623 , at the October, 1875, term of the United States Supreme Court, or 51 years thereafter; but. as set forth in the complainants’ brief, it is made to appear that the. language was employed in the < ne case by Chief Justice Marshall, and is therefore misleading. Be that as it may in all of those cases, and numer< us others, the writ prayed for on behalf of the citizen and against the government, was granted. In Pennoyer v. McConnaughy, supra, an injunction was prayed against the Governor, Secretary of State, and State Treasurer of Oregon, comprising the board of land commissioners of Oregon, to prevent them from selling lands claimed by the plaintiff.' ou title derived from one Owen. Mr. Justice Lamar in his opinion says:
“This case cannot be distinguished in principle from Osborn v. Bank of United States, Davis v. Gray, Board of Liquidation v. McComb, and Allen v. Baltimore & Ohio Railroad Co. * * * On the faith of a construction thus adopted, rights of property grow up which ought not to be ruthlessly swept aside, unless some great public measure, benefit or right is involved, or unless the construction itself is manifestly incorrect. * * *
"Does the statute of 1887 * * * impair such a contract? We think it 'does, beyond all doubt. It, in so many words, authorizes the board of commissioners to cancel the certificates of sale where the twenty per centum of the purchase price of the land had not been paid prior to January 17, 1879, and treats the land embraced in such certificates as reverted to the state. That legislation surely impaired the obligation of the contract Owen had with the state, for its effect was to destroy valuable property, rights and privileges belonging to him. If "was, therefore, violative of the Constitution of the United States, art. 1, § 10.”
In Ex parte Young, Petitioner, 209 U. S. 123 , 28 Sup. Ct. 411, 52 L. Ed. 714 , 13 L. R. A. (N. S.) 932, 14 Ann. Cas. 764, Mr. Justice Peckham says:
“ ‘But the general doctrine of Osborn v. Bank of U. S. * * * has never been departed from.’ The same principle is decided in Scott v. Donald. 165 U. S 58-67, 41 L. Ed. 632, 633 , 17 Sup. Ct. Rep. 365. And see Missouri, K. & T. R. Co. v. Missouri R & Warehouse Com’rs,
* * *
183 U. S. 53 , 46 L. Ed. 78 , 22 Sup. Ct. Rep. 18.”
In Smythe v. Ames, 169 U. S. 466 , 18 Sup. Ct. 418, 41 L. Ed. 819 , the court said
“It is the settled doctrine of this court that .a. suit against individuals for the purpose of preventing them as officers of the state from enforcing an unconstitutional enactment to the injury of the rights of the plaintiff, is not a suit against the state within the meaning of the amendment.”
Multiplication of cases to the same effect would serve no good purpose, as they may he found cited and collated in the cases herein cited.
The complainants in this case have seized a building in which an insolvent bank was housed, and against which respondents hold a valid and subsisting mortgage executed by W. A. Bonds prior to the taking over of the bank by the bank commissioner. Complainants hold the property, collect the rents; refuse to pay taxes or carry insurance on the building as a protection to the property rights of the respondents, and claim to so hold the property under sections 303 and 304, Rev. Laws 1910, regardless of the opinion of this court in Bailey v. State, supra, that the commissioner takes possession of an insolvent state bank "subject to all claims and defenses that might have been interposed against the bank, bad it continued under its corporate management.” This being the settled law of this state, it cannot be said that respondents would not be entitled to the relief prayed for, had the bank continued under its corporate management, and the property is subject to such prior-claims as the bank would have been. To hold otherwise would destroy the very foundation of our financial system. All legitimate values are based upon or grow out of the land; capital is necessary for the development of agriculture and industrial wealth, and this capital is not obtainable when the security offered for its investment cannot rest upon the solid foundation of our Constitution. The laws of our state (section 4150, Comp. Stat. 1921) provide that a bank may hold real estate (except such as is necessary for the convenient transaction of its business) for a period of five years, and it is not conceivable that capital for development of the state would seek investment where it were possible that a state officer might seize the real estate of an insolvent bank, and retain it for a long period of time, collecting the rents and profits therefrom, refusing to pay taxes, interest, or insurance premiums,
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and thus destroy the security pledged for its repayment and destroying the property rights of those holding valid prior claims against the same. To hold that this could be dene by the bank commissioner would impair the obligation of a contract, in violation of section 10, art. 1, Oonstitution of the United States, and section 15, art. 2, Constitution' of Oklahoma.
The respondent had, so far as the petition of the complainants discloses, and as embodied in the stipulation herein filed, which stipulation was filed only for the purposes of this action, made and entered into a valid and binding contract with the owner of the real property involved, and was justified in believing those rights would be protected under the Oonstitution of the United States and this state, and no law enacted by the Legislature or interpreted by an officer of the state might impair the obligation of that contract.
For the reasons herein stated, the writ of prohibition prayed for should be denied.
By the Court: It is so ordered.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/3817230. Public record. Not legal advice.