Fulton v. Lloyds Casualty Co.

• Decision Date: 06 February 1935
• Docket Number: No. 6551-6556.,6551-6556.
• Citation: 75 F.2d 295
• Parties: FULTON, Superintendent of Banks of Ohio, v. LLOYDS CASUALTY CO. et al., and five other cases.
• Court: U.S. Court of Appeals — Sixth Circuit

75 F.2d 295 (1935)

FULTON, Superintendent of Banks of Ohio, v. LLOYDS CASUALTY CO. et al., and five other cases.^*

Nos. 6551-6556.

Circuit Court of Appeals, Sixth Circuit.

February 6, 1935.

M. P. Mooney, of Cleveland, Ohio (John W. Bricker, of Columbus, Ohio, on the brief), for Ira J. Fulton.

C. H. Royon, of Cleveland, Ohio (Stearns, Chamberlain & Royon, of Cleveland, Ohio, on the brief), for Lloyds Casualty Co. and Detroit Fidelity Co.

Marc J. Grossman and Alfred Clum, both of Cleveland, Ohio (Ezra Z. Shapiro and John A. Smith, both of Cleveland, Ohio, on

the brief), for City of Cleveland and Board of Education.

Before MOORMAN, HICKS, and SIMONS, Circuit Judges.

MOORMAN, Circuit Judge.

The Standard Trust Bank of Cleveland, a state bank organized under the laws of Ohio, made separate pledges to the Lloyds Casualty Company and the Detroit Fidelity & Surety Company of notes and mortgages owned by it to secure them against losses on depository bonds which they individually executed to the board of education of Cleveland, the city of Cleveland, the county of Cuyahoga, Ohio, the city of East Cleveland, the United States, and the town of Franklin, N. C. Thereafter, in December of 1931, the bank was taken over for liquidation by Ira J. Fulton, Superintendent of Banks of Ohio. The depositors not having been paid by Fulton, each of the surety companies brought suit against him asking that the notes and mortgages pledged to it be sold and the proceeds applied to the obligations due on the depository bonds which it had executed. The Guardian Casualty Company intervened in both cases, alleging that it was also a surety for the bank to the city of Cleveland, and that the pledges given to the other surety companies were held for its benefit as a cosurety. It asked that a part of the proceeds of the sale of the notes and mortgages be applied to its obligation to the city of Cleveland. Fulton filed answers alleging that the pledges were invalid as beyond the power of the bank to make. The cases were consolidated and heard together. The court directed a sale of the pledged securities and the application of the proceeds to the obligations of the depository bonds, decreeing that the Guardian Casualty Company was a cosurety with the Lloyds Casualty Company and the Detroit Fidelity & Surety Company upon the indebtedness due the city of Cleveland and entitled to an application of a part of the proceeds to its obligation to the city. These appeals followed.

The first question for decision is one of the power of the bank to pledge its assets to obtain a bond to indemnify depositors against losses on their deposits. It is conceded that the bank's power in this respect is measured by statutory authority. There is no statute in Ohio giving specific authorization. The surety companies contend that the power is conferred by section 710-47 (e) of the Ohio General Code. That statute gives a state bank authority "to do all needful acts, to carry into effect the objects for which it was created." It has never been construed by the highest court of Ohio with respect to a bank's right to pledge its assets to secure deposits. A statute of the United States (12 USCA § 24, Seventh), giving to a national bank the power "necessary to carry on the business of banking," has been construed by the Supreme Court of the United States as not authorizing a national bank to pledge its assets to secure a deposit of public funds. City of Marion v. Sneeden, 291 U. S. 262, 268, 54 S. Ct. 421, 78 L. Ed. 787. The language of the two statutes is substantially the same, and in the absence of an authoritative Ohio decision to the contrary, we think the Ohio statute should be given a construction similar to that given the federal act by the Supreme Court. There are statutes in Ohio, however, which authorize the custodian of state funds (General Code, 330-3), county funds (General Code, §§ 2722, 2726, 2732), city funds (General Code, § 4295 et seq.), and funds of a board of education of the state (General Code, §§ 7605, 7607), to protect the deposit of such funds in state banks by taking pledges or surety bonds therefor. See, also, General Code, § 2288-1. The statutes also provide in some instances that the custodian of the fund shall deposit it in bank. In our opinion these statutes authorizing a depositor of funds of the state and its subdivisions to take security therefor are to be treated as authorizing a state bank to pledge its assets to secure such deposits. Compare Pixton v. Perry, 72 Utah, 129, 269 P. 144; First Am. Bank & Trust Co. v. Palm Beach, 96 Fla. 247, 117 So. 900, 65 A. L. R. 1398; Commercial Banking & Trust Co. v. Citizens' T. & G. Co., 153 Ky. 566, 575, 156 S. W. 160, 45 L. R. A. (N. S.) 950, Ann. Cas. 1915C, 166. In this view we think the pledges were authorized in so far as they were given to protect the surety companies against losses on their depository bonds executed to the board of education of Cleveland, the city of Cleveland, the county of Cuyahoga, and the city of East Cleveland. In Snider v. Fulton, 44 Ohio App. 238, 184 N. E. 839, a state bank failed and was placed in the hands of Fulton as liquidating agent. Fulton...