Alabama Constitution Section 250 Preference of certain creditors in case of insolvency of bank
Alabama Constitution – Section 250
Title:
Preference of certain creditors in case of insolvency of bank
Full Text of Section 250:
"In the event of the insolvency of any bank or banking institution in this state, the billholders thereof shall be entitled to preference of payment over all other creditors of such bank or banking institution."
Explanation:
Section 250 provides legal protection for billholders (i.e., individuals or entities holding bank-issued notes or currency) in the event a bank becomes insolvent (unable to pay its debts).
Key Provision:
If a bank fails, billholders get priority over other creditors when the bank's remaining assets are distributed.
This means people who hold the bank’s notes or bills will be paid before other types of creditors (like bondholders, suppliers, or shareholders).
Purpose:
This section was created to:
Promote trust in paper money issued by banks.
Protect the public who rely on banks for holding and issuing value.
Encourage stability and confidence in the banking system.
Modern Relevance:
While this was especially important in the era of private bank-issued currency, most modern currency is now issued and insured by the federal government (e.g., Federal Reserve notes).
However, the principle of creditor priority in insolvency still plays a role in bankruptcy and liquidation law.
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