Ticonic Nat Bank v. Sprague

• Decision Date: 07 March 1938
• Docket Number: No. 374,374
• Citation: 303 U.S. 406,58 S.Ct. 612,82 L.Ed. 926
• Parties: TICONIC NAT. BANK et al. v. SPRAGUE et al
• Court: U.S. Supreme Court

303 U.S. 406

58 S.Ct. 612

82 L.Ed. 926

TICONIC NAT. BANK et al.

v SPRAGUE et al.

No. 374.

Argued Feb. 2, 3, 1938.

Decided March 7, 1938.

Mr. George P. Barse, of Washington, D.C., for petitioners.

Mr. Harvey D. Eaton, of Waterville, Me., for respondents.

Mr. Justice REED delivered the opinion of the Court.

The question for decision is whether or not a secured creditor of a national bank, holding a non-interest bearing claim, is entitled to interest for any period subsequent to the insolvency of the bank, when the assets on which he has a lien are sufficient to pay the principal and interest but the total assets of the bank are not sufficient to pay in full all creditors' claims as of the date of insolvency.

On March 28, 1931, respondent Lottie F. Sprague delivered $5,022.18 to the trust department of the Ticonic National Bank of Waterville, Maine, in trust, under an agreement which authorized the trustee to invest in bonds or securities and to deposit at least $1,000 in its savings department at usual rates of interest; required specified monthly payments subject to certain conditions, to Margaret Sprague, also a respondent here; and reserved to the grantor the right to revoke the trust and resume possession of the trust funds.

The Ticonic Bank had been authorized by the Federal Reserve Board to act in a trust capacity, as provided in Section 11(k) of the Federal Reserve Act, as amended, 12 U.S.C. § 248(k), 12 U.S.C.A. § 248(k). That Act provides that funds held in trust awaiting investment 'shall not be used by the bank in the conduct of its business unless it shall first set aside in the trust department United States bonds or other securities' approved by the Board of Governors of the Federal Reserve System, and further provides that, 'In the event of the failure of such bank the owners of the funds held in trust for investment shall have a lien on the bonds or other securities so set apart in addition to their claim against the estate of the bank.'

Pending investment of funds under the Sprague trust, and pursuant to its resolution implementing the statutory provision just quoted, the Ticonic Bank placed the funds of this trust, along with other trust funds awaiting investment or distribution, as a deposit in its commercial checking department to the credit of its trust department, and secured the total amount of such funds by setting aside in the trust department bonds, including $20,000 Kingdom of Denmark 6's, 1942, at least equal in value to the total amount of such deposits.

On July 29, 1935, respondents, the settlor and beneficiary, brought this suit in the District Court for Maine to have the bonds held as security with respect to the trust. It appears that on August 3, 1931, Ticonic Bank sold its assets (including the Denmark bonds) to the Peoples National Bank (later called Peoples-Ticonic National Bank) in consideration of its agreement to 'assume or pay all the indebtedness of said Ticonic Bank to its depositors'; that Ticonic Bank then went into voluntary liquidation; that on March 4, 1933, the Peoples-Ticonic Bank was closed; that Arthur Picher was appointed receiver for Peoples-Ticonic Bank on November 6, 1933, and subsequently, on June 28, 1934, for the Ti- conic Bank, which had been continuing its voluntary liquidation.

The lower courts treated the suit, brought against both banks and against Picher as receiver, as one to assert and enforce the lien protecting the uninvested funds. They held that, in view of section 11(k) of the Federal Reserve Act, as amended, respondents had acquired a lien upon the bonds set apart by the Ticonic Bank to secure the deposit of the trust department; and that this lien had never been discharged or divested and so extended to the proceeds of the Denmark bonds, which had been sold by the receiver for $20,722.66. We do not pause to state the conclusions of fact and of law by means of which the lower courts arrived at this result, for in the grant of the writ of certiorari this Court declined to review the ruling that a statutory lien for the protection of the owners of the funds held for investment extended to the proceeds of the Denmark bonds, the lower courts having predicated their decision in large part on the facts of this particular case.

The decrees below did not end with the matters just stated. The District Court, finding that the proceeds of the bonds exceeded the trust funds on deposit,¹ held the respondents entitled to payment in full of $3,649.65, the amount to which the Sprague trust account had been reduced, with interest from the date of the filing of the bill of complaint. At first the Circuit Court of Appeals reversed that part of the decree allowing interest, but on rehearing it affirmed the decree in toto, approving the allowance of interest out of the proceeds of the Denmark bonds, which it assumed were sufficient to meet with in- terest the amount of all trust deposits. It ruled that although the requirement of ratable distribution precludes the recovery of interest against the general funds of an insolvent national bank, the general creditors have no rights in the trust funds here involved until after the secured claims are paid.

The attention of this Court was called to the fact that the ruling conflicted with decisions in other circuits, where secured creditors were held not entitled to any interest after the suspension of the national bank,² and for this reason certiorari was granted, limited to this question of interest. 302 U.S. 675, 58 S.Ct. 55, 82 L.Ed. —-.

As an incident to the right to recover an unexpended balance in a deposit, a depositor is entitled to interest as damages for the failure to pay that balance upon demand.³ Compare Stewart v. Barnes, 153 U.S. 456, 462, 14 S.Ct. 849, 38 L.Ed. 781; United States v. North Carolina, 136 U.S. 211, 216, 10 S.Ct. 920, 34 L.Ed. 336.

The bank's obligation to pay interest as damages for the detention of the debt is not cut off by suspension of its business and receivership. The principle has been established, and claimants held entitled to such interest, in cases where the principal amount of each of the claims was paid in full from the assets of the bank (National Bank of Commonwealth v. Mechanics' National Bank, 94 U.S. 437, 24 L.Ed. 176), including if necessary the double liability of the shareholders. Richmond v. Irons, 121 U.S. 27, 64, 7 S.Ct. 788, 30 L.Ed. 864.

It is true that in the liquidation of national banks, dividends from the general funds on unsecured claims are made pro rata upon the amount of each claim as of the date of the insolvency, White v. Knox, 111 U.S. 784, 4 S.Ct. 686, 28 L.Ed. 603. This method of distribution gives a proportional part of the available funds to each creditor, in accordance with the statute requiring a 'ratable dividend.' Rev.St. § 5236, 12 U.S.C.A. § 194. Whether the reason for this method of determining dividends is to avoid prejudice from the inevitable delay of court proceedings for liquidation (In re Humber Ironworks and Shipbuilding Company, IV Ch. App. Cas. 643, 646; American Iron & Steel Manufacturing Co. v. Seaboard Air Line Ry., 233 U.S. 261, 266, 34 S.Ct. 502, 58 L.Ed. 949; cf. People v. American Loan & Trust Company, 172 N.Y. 371, 379, 65 N.E. 200); to facilitate administration (Sexton v. Dreyfus, 219 U.S. 339, 344, 31 S.Ct. 256, 55 L.Ed. 244; Chemical National Bank v. Armstrong, 6 Cir., 59 F. 372, 387, 28 L.R.A. 231); or because on that date the creditors acquire a right in rem against the assets in the hands of the receiver (Chemical National Bank v. Armstrong, supra, 59 F. 372, 379, 28 L.R.A. 231; Merrill v. National Bank of Jacksonville, 173 U.S. 131, 140, 19 S.Ct. 360, 43 L.Ed. 640; Sexton v. Dreyfus, supra, 219 U.S. 339, 345, 31 S.Ct. 256, 55 L.Ed. 244) is immaterial. Dividends are paid on that basis. It is in order to assure equality among creditors as of the date of...