Bassett v. Merchants' Trust Co.

• Decision Date: 09 August 1932
• Citation: 161 A. 789,115 Conn. 530
• Parties: BASSETT, Bank Com'r. v. MERCHANTS' Trust Co.
• Court: Connecticut Supreme Court

161 A. 789

115 Conn. 530

BASSETT, Bank Com'r. v. MERCHANTS' Trust Co.

Supreme Court of Errors of Connecticut.

August 9, 1932

Case Reserved from Superior Court, New Haven County; Newell Jennings, Judge.

Proceedings by George J. Bassett, Bank Commissioner, for the appointment of a receiver for the Merchants' Trust Company, wherein the Citizens' & Manufacturers' National Bank of Waterbury was appointed receiver. Application by the receiver for advice as to whether it should make application to the Reconstruction Finance Corporation for a loan to pay dividends to the depositors in savings department, made to the superior court and reserved by that court for the advice of the Supreme Court of Errors.

Decision in accordance with opinion.

Francis T. Reeves, of Waterbury, for Citizens &amp Manufacturers' Nat. Bank, receiver of the defendant trust company.

Frederick H. Wiggin and Huntington T. Day, both of New Haven, for Reconstruction Finance Corporation.

BANKS J.

On December 23, 1931, the bank commissioner, issued an order restraining the Merchants' Trust Company for the continued exercise of its corporate franchise, and on December 24, 1931, the Citizens' & Manufacturers' National Bank of Waterbury was appointed temporary receiver of the defendant, was thereafter appointed permanent receiver, and has duly qualified as such and is now acting in that capacity. The Congress of the United States has passed an act (15 USCA § § 601-617), under the terms of which there has been organized a corporation entitled " Reconstruction Finance Corporation" for the purpose of providing credit to banks and other organizations coming within the purview of its corporate organization. The receiver herein is one of the persons entitled to apply for a loan from that corporation. Upon the suspension of the defendant it had deposits in its savings department to the sum of $3,649,433.58, and segregated assets for the security of the depositors in that department consisting of securities, mortgage loans, collateral loans and bills discounted equal to amount at book value to the face amount of such savings deposits, and appraised by the appraisers at $3,054,304.06; $1,900,000 of the book value of these assets consists of first mortgage loans on real estate, the appraised value of which is $1,884,500. The segregated assets are not readily reducible to cash, and this is particularly true of the mortgage loans. In order to make any distribution to the depositors in the savings department, it is necessary that the assets be reduced to case, or that they be used as the basis of a loan so that an early payment may be made to such depositors. If such loan were made by the Reconstruction Finance Corporation, it could run for not to exceed three years, which time might be extended for a period of not more than five years from the date of the original loan. The loan would have to be secured by agreed portions of the segregated assets as collateral, and the cost of the loan would probably not exceed the income which the receiver would obtain from the securities deposited as collateral.

In the stipulation for reservation it is stated that such loan could be utilized either to pay an immediate dividend to depositors of the savings department or to facilitate the reorganization of the defendant. We are informed by counsel that a reorganization of the company is not now contemplated, and that the amount to be borrowed, which has been reduced from $1,000,000 to $300,000, will be devoted to the payment of dividends to depositors in the savings department.

The questions upon which our advice is now desired are in substance:

1. Has the superior court jurisdiction and power to authorize the receiver to borrow money from the Reconstruction Finance Corporation to pay a dividend to the savings depositors of the trust company, and pledge segregated assets of its savings department as collateral for the loan?

2. If such loan is made, will it be repayable as part of the charges and expenses of settings the affairs of the trust company and chargeable solely against the assets of its savings department and in preference to any payment to be made to depositors of all classes?

The superior court is a court of general equitable jurisdiction and as such has power to appoint receivers and make such orders in the receivership proceedings as the exigencies of the case may require. This includes the power, frequently exercised in ordinary receiverships, to authorize receivers to borrow money to carry on the business of the corporation. A receiver of a bank or trust company may be appointed, as in the present case, in an action brought by the bank commissioner under Gen. States. § 3869, upon an application by the Attorney General under Gen. Stats. § 3873, or upon petition by stock holders under Gen. Stats § 3920. Section 3922 defines the general duties of such receivers and provides that they may apply to the court for advice, and that the court may of its own motion or on compliant of any interested party " make all necessary and proper orders as to the proceedings of such receivers." We find nothing in our statutes regarding receivership proceedings in the case of banks and trust companies which limits the general equity powers of the court in receivership cases, and the statutory provision governing receiverships in general are applied in practice, so far as appropriate, to bank receiver ships. It being within the general equity powers of the court to authorize a receiver to borrow money, the superior court has jurisdiction and power to authorize the receiver of the Merchants' Trust Company to borrow money from the Reconstruction Finance Corporation.

The receiver proposes to borrow this money for the purpose of paying a dividend to the depositors in the savings department of the trust company. Ordinarily a court would not feel justified in authorizing the receiver of an insolvent corporation to borrow money with which to pay dividends to creditors. Sound business policy would dictate that ordinarily the assets of an insolvent bank should not be further incumbered but should be liquidated as speedily as possible. But this is not...