174 A. 326 | Conn. | 1934
This is an appeal from a judgment of the Superior Court answering certain questions propounded in a motion for advice filed by the receiver of the defendant bank. The facts out of which arose the situation leading to the filing of the motion, as they are stated in the finding of the trial court, are briefly as follows: The defendant is a bank organized under the law of this State and located at Bridgeport. It is a commercial bank having a savings department. In January, 1932, there was general difficulty in Bridgeport concerning withdrawals from the savings departments of banks. There was a heavy demand for withdrawals from the savings department of the defendant bank; the principal assets of that department were mortgages which were not easily saleable or collectible; and if the bank had not been able, by a loan, to secure funds it would have had difficulty in meeting these demands and would have had to close its doors. On January 4th, 1932, because of these facts, it invoked a rule requiring a ninety-day notice of withdrawals from its savings department. During January and February notices of withdrawal of sums amounting to something over $260,000 were filed. The bank had already borrowed from the Irving Trust Company of New York $150,000 for the sole purpose of meeting withdrawals in its savings department, and secured this loan by collateral of that department and the proceeds of the loan were used solely to pay depositors in that department.
On March 14th, 1932, the bank applied to the Reconstruction Finance Corporation for a loan and submitted a list of collateral by which it offered to secure it. As amended, this application stated that the collateral offered consisted entirely of investments of deposits in its savings department and should not be used by the corporation as security for any loan of the *119 bank for the benefit of any other of its departments until after the payment of all depositors in the savings department, but upon such payment it should be security for any and all other indebtedness of the bank to the corporation. The application was approved for a loan of $500,000. The bank issued to the corporation its note in that amount, payable to the order of the corporation, and as security executed and delivered assignments of mortgage notes and of the mortgages securing them. The assignments were absolute in form and were never recorded upon the land records. By the terms of the note all funds received by the bank on it were to be applied by it solely to the payment of the depositors in its savings department or for the payment of the note, and no part of the loan was to be used in any way for the benefit of any other department of the bank; and the collateral pledged as security was not to be used by the payee as security for any loan to the bank for the benefit of any other department until after the payment of all depositors in the savings department, but thereafter it was to stand as collateral to secure any other indebtedness of the bank to the corporation. The $500,000 loaned to the bank was deposited in the savings department of the Irving Trust Company of New York and from it the loan previously made by that company was paid. Upon securing the loan the bank withdrew the requirement for a ninety-day notice of withdrawals and between March 19th, 1932, and May 20th, 1932, depositors in the savings department withdrew more than $259,000, these withdrawals being largely met from the proceeds of the loan; and all the money received from the corporation except that used to pay the loan by the Irving Trust Company, was used exclusively for the payment of depositors in the savings department. *120
On May 20th, 1932, the bank applied to the Reconstruction Finance Corporation for a further loan not to exceed $300,000, to be secured by collateral consisting of notes and mortgages which were assets of its savings department and had an aggregate face value of about $357,000. This application was approved on June 23d 1932, for a loan of $200,000, which sum was placed to the credit of the savings department of the bank in the Chase National Bank in New York City. As security for the loan, the bank executed two notes dated May 20th, 1932, payable to the order of the corporation, aggregating $200,000, and executed and delivered assignments of certain mortgage notes, and of the mortgages securing the same, assets of its savings department. The assignments were absolute in form and were never recorded. The terms of the application for this loan and of the notes given for it were substantially the same as those contained in the first application and the note then given. Between May 20th, 1932, and August 20th, 1932, depositors in the savings department withdrew more than $970,000, these withdrawals being principally met from the proceeds of the loans made by the corporation and all of the funds received from the corporation were used exclusively in the payment of savings depositors. The sums received from the corporation under both loans were not allocated, paid out and distributed pro rata to all the depositors in the savings department, although none of them at any time waived any rights which they might have under § 3908 of the General Statutes.
On August 29th, 1933, the bank commissioner issued an order restraining the bank from paying out funds or receiving deposits, and on September 15th, 1933, upon his application, a receiver of the bank was appointed, and the appointment thereafter confirmed. *121 Previous to the appointment of the receiver, the bank had collected interest and principal on account of the mortgages pledged to the corporation and remitted the same to it, these remittances being credited on the principal and interest account of the loan. After the receiver was appointed the court authorized him to continue to collect principal and interest due on the mortgages and remit the sums collected to the corporation, such action to be without prejudice to the respective rights and obligations of the corporation, the bank or its receiver, and the depositors, creditors and stockholders of the bank, pending a final determination of their rights in and to the pledged assets.
On April 4th, 1934, the receiver filed a motion for advice, briefly stating the facts above detailed and alleging that the corporation, having possession of the notes and mortgages pledged to it, claimed to hold such securities and the proceeds thereof as collateral for the loans made by it under rights superior to those of the depositors in the savings department to such assets, whereas various depositors in the savings department had asserted rights in and to those assets which were in conflict with the claims of the corporation. In this motion the receiver asked the advice of the court with reference to two questions: Did the bank have the power to pledge the segregated assets of its savings department for the purposes for which they were pledged, and if it had such power, did the corporation obtain rights in those assets superior to the rights of the depositors in the savings department of the bank. The trial court answered both questions in the affirmative, and certain depositors have appealed.
In this court the plaintiff in this action, the bank commissioner of the State, moved that the appeal be erased from the docket for the reason that the record *122
discloses that the Reconstruction Finance Corporation is a necessary party to the determination of the questions involved in the motion, and that it was not a party of record and did not participate in the proceedings. It is of course true that no decision made in this case could be binding upon the Reconstruction Finance Corporation unless it was a party to the action. That by no means precluded the Superior Court from giving such advice to the receiver as was necessary to enable him properly to perform his functions. If the receiver is advised that he is entitled to have delivered to him, absolutely or conditionally, the assets pledged by the bank to the corporation, he can obviously enforce that right only by an action brought to a court having jurisdiction over the subject-matter involved and over the Reconstruction Finance Corporation as a party. Strictly, the advice to which, in such a situation as that presented in this case, the receiver was entitled, was such as would inform him as to his duty in the premises, whether he ought to take steps to attempt to secure by action or otherwise, the delivery by the corporation to him of the assets pledged by the bank to it. The answers given by the trial court to the questions propounded in the motion, in a sense went beyond the extent to which the receiver was entitled to advice, but if the trial court was right in its conclusions that the pledge of the assets by the bank was lawful and that it gave to the corporation rights to those assets superior to those of the depositors in the bank, it necessarily followed that the receiver would not be justified in taking steps to secure delivery of those assets to him by action or otherwise. We approach the questions raised by the appeal from this standpoint. It is true that in Lippitt v. ThamesLoan Trust Co.,
There is no provision in the General Statutes expressly giving to banks the power to borrow money and pledge their assets to secure loans, although there is a recognition of such a practice in § 3868, wherein the bank commissioner is given power to order institutions under his surveillance to keep their securities within the State "except when such securities are held as collateral." That it has been the practice of Connecticut banks to borrow money when necessary is evident from the reports of the bank commissioner of the State, and as is said in Texas Pacific Ry. Co. v.Pottorff,
Their contention is, however, that a savings bank, and particularly the savings department of a commercial bank, has not the power to pledge its assets to secure a loan obtained by it for use in the discharge of its obligations. They argue that to permit a savings bank or a savings department to borrow money and pledge its assets to secure the loan and to use the money so secured to pay depositors, would be, should insolvency occur, to produce an inequality in the amounts received by depositors. The business of carrying on a savings bank or department necessarily involves the receipt by the bank of deposits made from time to time and the repayment to depositors of the amounts so received, in whole or in part, as they may see fit to make demand for them. As long as the bank is a going concern it must necessarily pay to any depositor who demands it, the whole or a part of his deposit, and any depositor who in good faith and without knowledge that the bank is insolvent, receives money upon such a withdrawal is legally entitled to hold it. First National Bank Trust Co. v. Manning,
The appellants, however, particularly rely upon the provisions of § 3908 of the General Statutes. These require that all banks and trust companies maintaining a savings department shall invest deposits received according to the requirements of the statutes concerning investment of deposits in savings banks, and that such investments shall be segregated and set apart and not mingled with other assets of the bank or trust company, but be for the exclusive protection of the depositors in the savings department, not to be used to pay any other obligation or liability of a bank or trust company until after the payment of all the depositors in that department. We have held that the effect of this statute is to require that the investments of deposits in the savings department of a bank must be kept segregated from the other investments and funds of the bank for the protection of depositors in that department, that the title to such investments is in the bank and that any return by way of interest or dividends received from them belongs to the bank, and that after all depositors in the savings department have been paid in full, any remaining assets in that department likewise belong to the bank.Lippitt v. Thames Loan Trust Co.,
The appellants call attention to the statement we *126
made in Lippitt v. Thames Loan Trust Co.,
In strict accuracy, the relationship between the depositors in the savings department of a commercial bank and the assets of that department does not fall within the common-law conception of a lien, equitable ownership or a trust. The depositor does not, strictly speaking, have a lien, because it is inherent in the conception of a lien that it apply to a definite res; Bassett
v. City Bank Trust Co.,
In S. O. C. Co. v. Ansonia Water Co.,
We have approached the question from the standpoint of the implied powers of a savings bank or of any bank with reference to its savings department, because, if such a power exists, there can be no question that the defendant bank possessed it. Its charter authorized it to hold, sell, lease, mortgage, pledge and *130 convey its assets. 15 Special Laws, 812. While this broad power would undoubtedly be subject to limitations growing out of the nature of the business in which the bank was engaged, necessary for the protection of its depositors, and having their basis in statutory provisions or rules of the common law, the situation here presented furnishes no basis upon which a limitation might rest which would forbid the exercise of the power as regards the assets of its savings department.
The cases cited by the appellants wherein the pledging of its assets by a bank have been held to be beyond its powers, are cases where the assets were pledged to secure a deposit; they deal with a very different problem than the one before us and several of them expressly distinguish the two, recognizing the right of a bank to pledge its assets to secure loans it has obtained;Farmers Merchants State Bank v. ConsolidatedSchool District No. 3,
Our conclusion is, therefore, that the defendant bank had the power to secure the loans from the Reconstruction Finance Corporation and to pledge the assets of the savings department to secure them. No contention is made that there are particular circumstances involved in the situation which would make *131 the exercise of the power in the instances we are considering so improper as in any way to invalidate the transactions. It necessarily follows that the trial court was correct in answering in the affirmative the question whether the bank had the power to pledge the segregated assets of its savings department for the purposes stated in the applications, and the result of that conclusion is that the receiver would not be justified in seeking to secure the delivery to him by the corporation of those assets except in accordance with the terms upon which the loans were made.
There is no error.
In this opinion the other judges concurred.