Cooper v. Fid. Trust Co.

• Decision Date: 07 September 1935
• Citation: 180 A. 794
• Parties: COOPER, State Bank Com'r v. FIDELITY TRUST CO. Petition of BRAUN.
• Court: Maine Supreme Court

180 A. 794

COOPER, State Bank Com'r

v. FIDELITY TRUST CO.

Petition of BRAUN.

Supreme Judicial Court of Maine.

Sept. 7, 1935.

Report from Supreme Judicial Court, Cumberland County, in Equity.

Suit in equity by Thomas A. Cooper, State Bank Commissioner, against the Fidelity Trust Company, in which Robert Braun, conservator of the Fidelity Trust Company, filed petition for instructions concerning certificates of deposit.

Order in accordance with opinion.

See, also, 132 Me. 260, 170 A. 726.

Argued before PATTANGALL, C. J., and DUNN, STURGIS, BARNES, THAXTER, and HUDSON, JJ.

Cook, Hutchinson, Pierce & Connell, of Portland, for Robert Braun.

Verrill, Hale, Booth & Ives, of Portland, for Portland Co. and Chapman Electric Neutralizer Co.

William B. Skelton, of Portland, for Portland Morris Plan Bank.

Grover Welch, of Westbrook, for City of Westbrook.

Francis W. Sullivan, of Portland, for John H. Simonds Co.

Charles J. Nichols, of Portland, for Charles C. Bickford.

Philip W. Buchanan, of New York City, for New York Trust Co. and General Electric Co.

Carroll S. Chaplin, of Portland, special master, pro se.

Harry L. Cram and William B. Mahoney, both of Portland, for savings depositors.

STURGIS, Justice.

In this petition in equity, the conservator of the Fidelity Trust Company of Portland, now in liquidation under chapter 93 of the Public Laws of 1933, applies for instructions as to whether the holders of certain certificates of deposit issued by the bank before it closed are entitled to share in the distribution of its assets on a parity with general creditors and depositors, or, as they make claim, may share equally with others entitled thereto in assets segregated as security for savings deposits. Notice to all holders of certificates of deposit and parties of record was ordered and proved. Special counsel for savings depositors were appointed. Upon hearing, the matter was reported to the law court.

Trust companies doing both a savings and commercial bank business in this state are required by Revised Statutes, c. 57, §§ 89-91, to protect their savings deposits by segregating and holding assets of at least equal value as security for their payment. The essential provisions of the law read:

"Sec. 89. Every trust company soliciting or receiving savings deposits which may be withdrawn only on presentation of the passbook or other similar form of receipt which permits successive deposits or withdrawals to be entered thereon; or which at the option of the trust company may be withdrawn only at the expiration of a stated period after notice of intention to withdraw has been given; or in any other way which might lead the public to believe that such deposits are received or invested in the same manner as deposits in savings banks; or which advertises or holds itself out as maintaining a savings department, or uses the term 'savings' in connection with any part of its business, shall segregate and set apart and at all times keep on hand so segregated and set apart, assets at least equal to the aggregate amount of such deposits, and in the case of any trust company which also acts as surety upon any bonds or other obligations the amount of its assets so segregated and set apart shall be at least fifteen per cent in excess of the aggregate amount of such deposits. The bank commissioner may require all such assets as appear to him to be carried in excess of their true value to be charged down to such value.

"Sec. 90. Such assets so segregated and set apart shall be held in trust for the security and payment of such deposits, and shall not be mingled with the other assets of the company, or be liable for the debts or other obligations thereof until after such deposits shall have been paid in full. All other assets of the company, including the liability of the stockholders, shall be held equally and ratably for the payment of all claims, including any balance due such savings depositors after applying to their payment the assets so segregated and set apart."

The mandates of the statute are clear and explicit. It is the only authority a trust company has for segregating its assets for the benefit of any of its creditors. Its scope cannot be enlarged nor its limitations abridged by any act or agreement of the officials of the bank or by the fiat ofthe banking department of the state. They are bound by its provisions as is the conservator on liquidation under the "Emergency Banking Act" (Pub. Laws 1933, c. 21).

The case reported shows that the Fidelity Trust Company, in carrying on its general banking business in Portland, maintained a savings department in which it accepted savings deposits and segregated assets as security therefor as required by the statute. It kept a separate book entitled "Record of Assets Segregated to secure Savings Deposits," in which in former years appeared the amount of typical savings deposits represented by savings passbooks, followed by a descriptive list of the assets segregated. Beginning with December 5, 1927, being directed by the bank commissioner of the state to include as savings deposits all deposits evidenced by certificates of deposit and increase its segregation of assets accordingly, its record was supplemented by each day adding to the total of savings deposits all outstanding time and demand certificates of deposit, but the total book value of segregated assets listed remaining at all times substantially in excess of the total of the savings deposits proper and the additions made thereto, although withdrawals, substitutions, and additions were made, there was no change in the total amount of the segregation. On the general ledger of the bank, with respect to such segregated assets, the notation was made "Segregated to secure Savings Deposits." This system was followed until some time in January, 1933, when, in accordance with further directions of the bank commissioner, demand certificates of deposit were dropped from the list of savings deposits; the segregation in fact and of record otherwise remaining the same and continuing so until the bank ceased doing business. Holders of certificates who made inquiry were informed of the segregation made as security for their deposits, but no general notice was given to the public.

The holders of thirty-three certificates of deposit issued by the Fidelity Trust Company and outstanding when it closed have filed their proofs before the special master appointed in the liquidation proceedings and demand classification of their deposits as savings deposits. The certificates are all substantially similar in form. Some arc payable on demand, some on certain notice, and others at a fixed future time. All bear interest, but at varying rates. The holders of all the certificates claim the benefit of the segregation of assets originally made under the directions of the bank commissioner. The owners of typical savings deposits evidenced by passbooks oppose these claims.

The certificates of deposit presented here are in the usual form issued by banks, and are each framed as a written acknowledgment by the Fidelity Trust Company or one of its branches of the deposit of a sum of money payable to the depositor or his order. In their essential elements, they resemble negotiable promissory notes, and in general have that legal effect. 3 Daniel on Negotiable Instruments (7th Ed.) § 2019; 5 Michie on Banks and Banking, 598; 1 Morse on Banks and Banking (6th Ed.) § 51,297; 3 R. C. L. 570; note, 75 Am. St. Rep. 43; 7 Corpus Juris, 647, and cases cited. See Hatch v. First National Bank, 94 Me. 348, 47 A. 908, 80 Am. St. Rep. 401. They each purport on their face, however, to represent a deposit in the bank by which they were issued, and the verity of this recital is not refuted. So far as appears in the reported case, the transactions out of which they arose were deposits, as that term is known and accepted in the banking business and the law by which it is governed. The word "deposit," in its broad and comprehensive sense, includes deposits for which certificates, whether interest-bearing or not, are issued payable on demand or on certain notice or at a fixed future time. Lamar v. Taylor, 141 Ga. 227, 239, 80 S. E. 1085; McCormick v. Hopkins, 287 Ill. 66, 122 N. E. 151; People v. Belt, 271 Ill. 342, 348, 111 N. E. 93; State v. Savings Bank, 136 Iowa, 79, 113 N. W. 500; State v. Cadwell, 79 Iowa, 432, 437, 44 N. W. 700; Goldband v. Commissioner of Banks, 245 Mass. 143, 139 N. E. 834; Southern Surety Co. v. Ruark, 97 Okl. 268, 223 P. 622; Wilkes & Co. v. Arthur, 91 S. C. 163, 74 S. E. 361; State v. Shove, 96 Wis. 1, 70 N. W. 312, 37 L. R. A. 142, 65 Am. St. Rep. 17.

The nature of a deposit, however, is fixed by the contract of the depositor and the bank. The relation of banker and depositor is voluntarily assumed as a matter of contract. 5 Michie on Banks and Banking, 38. The contract need not be in any particular form, being governed, like all other contracts, by the mutual intention and understanding of the parties. Fogg v. Tyler, 109 Me. 109, 82 A. 1008, 39 L. R. A. (N. S.) 847, Ann. Cas. 1913E, 41. This rule applies to trust companies doing a banking business in this state. They are authorized to receive and accept deposits without limitation as to kind or amount. Rev. St. c. 57, § 61 et seq. Subject to statutory regulations which do not affect the questions raised here, they have the inherent power vested generally in banks to fix the terms and conditions upon which they will accept deposits and enter into agreements therefor with their depositors, and this power extends to both savings and commercial deposits. Although the right to issue certificates of deposit is not expressly granted nor are controlling regulations found in the statutes, it is well-settled law that banking corporations authorized to receive deposits and exercise the usual powers incidental to the business of banking, unless there is a constitutional or statutory...