Gardiner Trust Co. v. Augusta Trust Co.

• Decision Date: 06 March 1936
• Parties: GARDINER TRUST CO. v. AUGUSTA TRUST CO. (R. P. HAZZARD CO. et al., Interveners).
• Court: Maine Supreme Court

182 A. 685

GARDINER TRUST CO.

v. AUGUSTA TRUST CO. (R. P. HAZZARD CO. et al., Interveners).

Supreme Judicial Court of Maine.

March 6, 1936.

Appeal from Supreme Judicial Court, Kennebec County, in Equity.

Bill by the receiver of the Gardiner Trust Company against the receivers of the Augusta Trust Company, wherein the R. P. Hazzard Company and another intervened as parties plaintiff. From an adverse decree, the defendants appeal.

Appeal sustained, and case remanded for decree in accordance with opinion.

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

John E. Nelson and James B. Perkins, both of Augusta, and Amos K. Butler, of Skowhegan, for appellants.

Lee M. Friedman, of Boston, Mass, Will C. Atkins, of Gardiner, and Carlton W. Spencer and Friedman, Atherton, King & Turner, all of Boston, Mass, for appellee.

THAXTER, Justice.

This case involves a controversy between the receivers of two closed banks, the Gardiner Trust Company and the Augusta Trust Company, formerly known as the Augusta Safe Deposit & Trust Company. It has been brought before the court by a bill in equity filed by the conservator, now the receiver of the Gardiner Trust Company, who seeks to subordinate in favor of the depositors of his bank a claim of the Augusta Trust Company of $236,500, represented by certificates of deposit of the Gardiner Trust Company. The plaintiff bank claims that there was a guaranty of its deposits by the defendant, and asks that it be permitted to apply the deposit of the defendant in so far as necessary to satisfy in full the claims of its own depositors. Norman H. Trafton and R. P. Hazzard Company, depositors in the Gardiner Trust Company, were granted leave to intervene. Several amendments to the bill were allowed; a demurrer to the amended bill was overruled; and an exception was taken by the defendant. The court then proceeded to a hearing, during the course of which a number of exceptions were noted to rulings of the sitting justice, who finally entered a decree sustaining the bill and directing that the defendant's deposit be applied in so far as might be necessary to pay in full the depositors of the plaintiff bank. From this decree an appeal was entered by the receivers of the Augusta Trust Company. It is unnecessary in this opinion to consider the exceptions for the fundamental issue is raised by the appeal.

The two banks were located in nearby cities, the Augusta Trust Company being much the larger. In the fall of 1930, the Gardiner Trust Company was in financial difficulties. An audit made on October 16. 1930, showed that its capital, surplus, and undivided profits had been wiped out and that it would be unable to meet the demands of its depositors and other creditors in an amount of at least $60,000. Its deposits at this time were approximately $760,000 and its other indebtedness about $190,000 more. Hurried conferences were held, and on October 21, 1930, the R. P. Hazzard Company, a large depositor in the bank, and the Augusta Trust Company entered into a contract under the terms of which it was provided that, conditional upon not less than 900 shares of the total capital stock of 1,000 shares of the Gardiner Trust Company being transferred to the Augusta Trust Company not later than October 25th following, all the officers and directors of the Gardiner Trust Company were to resign; all stockholders so transferring shares to the Augusta Trust Company were to be relieved of statutory liability for assessment by reason of stock ownership; the Augusta Trust Company would pay an assessment of $53 per share to the Gardiner Trust Company on the shares acquired; "in consideration of the foregoing agreements on the part of said Augusta Trust Company and the deposit of said shares by said stockholders the said H. P. Hazzard Company agrees that it will, to the extent of $28,000. and no more, assist the Augusta Trust Company in caring for the liabilities of said Gardiner Trust Company and to make it possible for all depositors in said Gardiner Trust Company to draw on their accounts."

Pursuant to this agreement 967 shares of the capital stock were transferred into the name of the Augusta Trust Company, or its nominees. The officers and directors of the Gardiner Trust Company resigned, and the vacancies were filled by the Augusta Trust Company electing its nominees, several of whom were its own officials. Its own treasurer became president.

The Augusta Trust Company paid to the Gardiner Trust Company the assessment of $53 per share on the stock which it had taken over, and R. P. Hazzard Company, in accordance with the contract, paid to the Augusta Trust Company the sum of $28,000. On October 25, 1930. the Augusta Trust Company caused the following advertisement to be inserted in the Kennebec Journal, a newspaper which had a large circulation in and around Gardiner:

Announcement Augusta Trust Co.

has taken over control and management of Gardiner Trust Co.

and is fully responsible for both its checking and savings deposits Augusta Trust Company Hiram L. Pishon, Pres.

Milton S. Kimball, Treas.

A similar pronouncement was posted in the banking rooms of the Gardiner Trust Company and displayed in its windows.

Depositors, however, continued to demand their money, and these withdrawals were met by loans of credit and by advances from the Augusta Trust Company, both of which finally took form in the obligation of $236,500 which is in issue in this case. The Gardiner Trust Company closed its doors June 28, 1933, and the Augusta Trust Company followed with similar action five days later.

The sitting justice found that the acts of the Augusta Trust Company constituted a standing offer to each and every depositor, who continued his deposit in the Gardiner Trust Company, or made a new one, to be responsible that the same would be repaid, and that this offer ripened into a contract with each and every depositor as he accepted it by continuing his deposit or by making a new one. He also ruled that, irrespective of the application of the law of contracts, the principle of estoppel held the Augusta Trust Company to a guaranty of the deposits of the Gardiner Trust Company.

By the defendant's appeal, three issues are now presented to this court—First: Was the contract entered into by the Augusta Trust Company properly construed as a guaranty of the deposits of the Gardiner Trust Company? Second: If so, did the Augusta Trust Company have power to make such a contract? Third: If it was without such power, does an estoppel prevent it from now asserting its want of authority? These quesitons will be considered in their order.

Was the contract of October 16, 1930, intended as a guaranty of the deposits of the Gardiner Trust Company?

Nothingis said specifically about a guaranty, but one was clearly intended. The manifest purpose of the whole scheme was to keep the Gardiner Trust Company open by giving assurance to its depositors that their claims would be met in full. There would have been no point at all to the plan, if it had not been the intention of the Augusta Trust Company to stand as sponsor for the other bank. The shares of stock were certainly not taken over as an investment. It was an arrangement devised during conditions of storm and stress to prevent the closing of a bank with resultant repercussions on other banks and evil effects on the community in general. The so-called advertisement is compelling evidence that the officials of the Augusta Trust Company regarded the agreement as a guaranty, and for a period of nearly three years they supplied from their bank the necessary cash to meet all withdrawals from the other. The finding of the sitting justice that the arrangement entered into by the Augusta Trust Company was intended to be a guaranty of the deposits of the Gardiner Trust Company seems fully justified.

Did the Augusta Trust Company have the power to make such a guaranty?

The Augusta Trust Company was incorporated in 1893 by special legislative act. Priv.&Sp.Laws 1893, c. 410, as amended by Priv.&Sp.Laws 1899, c. 138. The powers granted to it are contained in the first three sections of the enactment as amended, which read as follows:

"Section 1. J. Manchester Haynes, Orville D. Baker, George E. Macomber, J. F. Hill, Ira H. Randall, H. R. Sturgis, C. H. White, or such of them as may by vote accept this charter, with their associates, successors and assigns, are hereby made a body corporate and politic, to be known as the Augusta Safe Deposit and Trust Company, and as such shall be possessed of all the powers, privileges and immunities, and subject to all the duties and obligations conferred on corporations by law, except as otherwise provided herein.

"Section 2. The corporation hereby created shall be located at Augusta, Kennebec County, Maine.

"Section 3. The purposes of said corporation and the business which it may perform, are: first, to receive on deposit, money, coin, bank notes, evidences of debt, accounts of individuals, companies, corporations, municipalities and states, allowing interest thereon, if agreed, or as the by-laws of said corporation may provide; second, to borrow money, to loan money on credits or real estate or personal security, and to negotiate loans and sales for others, to guarantee the payment of the principal and interest of all obligations secured by mortgages of real estate running to said Augusta Safe Deposit and Trust Company, to issue its own bonds or obligations based upon real or personal property conveyed to it in trust, to secure the payment of such bonds or obligations and the interest thereon; third, to hold for safe keeping all kinds of personal or mixed property, and to act as agents for the owners thereof, and of real estate for the collection of income on the same, and for the sale of the same, and to act as agent for issuing, registering and countersigning certificates, bonds, stocks and all evidences of debt...