In re Petitions of Allen

• Decision Date: 19 May 1922
• Citation: 136 N.E. 269,241 Mass. 346
• Parties: Petitions of ALLEN, Com'r of Banks. In re COSMOPOLITAN TRUST CO. In re HANOVER TRUST CO. In re PRUDENTIAL TRUST CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

241 Mass. 346

136 N.E. 269

Petitions of ALLEN, Com'r of Banks. In re COSMOPOLITAN TRUST CO. In re HANOVER TRUST CO. In re PRUDENTIAL TRUST CO.

Supreme Judicial Court of Massachusetts, Suffolk.

May 19, 1922.

Case Reserved from Supreme Judicial Court, Suffolk County.

Petitions by Joseph C. Allen, Commissioner of Banks, in possession of the property and business of the Cosmopolitan Trust Company for authority to pay dividends to general creditors and to savings department depositors out of commercial department funds, and for authority to pay a savings department dividend to depositors whose claims were not proved until after the order for the payment of such dividends; by Joseph C. Allen, Commissioner of Banks, in possession of the property and business of the Hanover Trust Company, for leave to pay dividends to savings department depositors out of commercial assets; and by Joseph C. Allen, Commissioner of Banks, in possession of the property and business of the Prudential Trust Company, for authority to pay certain dividends. Reserved by single justices for the full court. Decrees granting the petitions in part, and denying them in part.

The petitions in the Cosmopolitan Trust Company Case were reserved on the pleadings. The petition in the Hanover Trust Company Case was reserved on the petition, answer, and statement of agreed facts. In the Prudential Trust Company Case, the petition was reserved on the question of whether as a matter of law dividends out of the general assets or out of the assets of the commercial department might be paid to depositors or creditors of the savings department on amounts due them at the time of the closing of the trust company, provided they had not been paid in full, until paid in equal measure with the creditors of the commercial department who had proved their claims. Answers were filed in each case, denying the authority of the commissioner to pay a dividend to savings department depositors out of commercial assets, or alleging that the petition was premature, because the assets of the savings departments had not been fully liquidated, etc.

1. Banks and banking k315(1)-Nature of trust company stated.

Trust companies are primarily commercial banks of deposit, and are owned by the stockholders and managed ultimately for profit.

2. Banks and banking k289-Funds and investments of savings banks held exclusively for benefit of depositors.

All funds and investments of savings banks are held exclusively for the benefit and security of the depositors, and the corporation is a mere agency for managing the moneys of the depositors.

3. Banks and banking k315(3)-Relation between trust company and savings depositors in part fiduciary and in part that of debtor and creditor.

While in some aspects the depositors of the savings department of a trust company are cestuis que trust and the trust company is trustee, in other aspects the relation is that of debtor and creditor.

4. Banks and banking k317-Depositors in trust company's savings department only entitled to share in commercial assets for balance of claims after deducting special security.

Under G. L. c. 172, ss 60-64, particularly section 63, providing that the capital stock of trust companies with the liabilities of stockholders thereunder shall be security for the payment of savings depositors, and that such depositors shall have an equal claim with other creditors on the capital and other property of the corporation, in addition to the security provided for by other sections, savings depositors can only share with general creditors in the commercial assets of the trust company for the balance of their claims after deducting assets, properties, and rights specially appropriated for their security.

5. Banks and banking k317-Dividend should be paid claimants not proving claims within time limited, when no rights have intervened and no delay caused.

Where no rights of third persons have intervened, and the ultimate settlement of the estate has not been delayed, depositors in the savings department of an insolvent trust company not presenting their claims within the time limited in the notice given, or prior to the authorization of a dividend on claims seasonably proved, are entitled to the same dividend previously ordered paid to other depositors.

Henry O. Cushman, Daniel L. Smith, Fitz-Henry Smith, Jr., and John E. Hannigan, all of Boston, for petitioner.

Fred T. Field, Samuel Hoar, and George K. Gardner, all of Boston, for Equitable Trust Co. of New York, American Express Co., and American State Bank of Detroit.

Francis J. Carney, of Boston, for all savings depositors.

Joseph F., James E. & Daniel T. O'Connell, of Boston, for J. E. Doherty Co. et al.

Edward F. McClennen and William E. Fuller, both of Boston, for Commonwealth Trust Co.

Harold Williams, Jr., and William T. Snow, both of Boston (Barker, White & Williams, of Boston, of counsel), for Old Corner Book Store.

William R. Sears and James A. Lowell, both of Boston, for trustees of Charles Ponzi.

Frank O. White, Harold Williams, Jr., and David J. Donahue, all of Boston (Barker, White & Williams, of Boston, of counsel), for John J. Hagerty.

RUGG, C. J.

1. The main question presented for decision in these cases is whether a dividend ought to be paid to the depositors in the savings departments in insolvent trust companies ‘which are being liquidated by the commissioner of banks under St. 1910, c. 399, as amended, now G. L. c. 167, §§ 21 to 36,’ on the face of their several claims, without deduction for dividends already paid and for the value of special security set apart by law, but not yet realized for the benefit of depositors in the savings departments, or whether such dividend ought to be paid only on the balance due on such several claims after the deduction of dividends paid and the value of the special security sequestered by law for the benefit of depositors in the savings departments.

The pertinent clauses of the statute are St. 1908, c. 520, §§ 1 to 4, as amended by St. 1920, c. 563 (see now G. L. c. 172, §§ 60 to 64). By section 1 of the original act every trust company conducting a savings department is required to transact all business relating thereto in a separate and distinct department. By section 2 of said chapter 520, all saving deposits are special deposits, and all loans and investments thereof must be made in accordance with the law governing the investments of deposits in savings banks. By section 3 of said chapter 520, savings deposits and the investments and loans thereof are appropriated solely to the security and payment of such deposits, cannot be commingled with other investments, money or property controlled by the trust company, nor be liable for its other debts until after the savings deposits have been paid in full. The accounts and transactions of the savings department must be kept separate and distinct from its other business. The words of section 4 of said chapter 520, are:

‘The capital stock of such corporation with the liabilities of the stockholders thereunder shall be held as security for the payment of such deposits, and the persons making such deposits or entitled thereto shall have an equal claim with other creditors upon the capital and other property of the corporation in addition to the security provided for by’ this act.

The facts are that part payment has been made on the claims of the savings depositors and that now there are funds in hand from which a dividend may be paid to commercial depositors, and the commissioner of banks asks authority to pay out of commercial assets a dividend of equal percentage on the face of the claims of the depositors in the savings departments, it being contended that they are so entitled under the statute.

There is no explicit provision in the statute governing the rights of parties upon these precise facts. The cases at bar must be decided upon the general terms of the statute in the light of relevant legal principles.

[1][2][3] Trust companies are primarily comercial banks of deposit and discount. They are owned by stockholders and are managed ultimately for profit. Their main reliance to this end is and of necessity must be commercial deposits. In this respect they differ radically from savings banks, the fundamental idea of which under our statutes has never been departed from, that all funds and investments are held exclusively for the benefit and security of the depositors. There are no stockholders or corporation with purpose or possibility of profit, ‘independently of the depositors; but the latter are to share whatever profit may be made in just proportion among themselves. The corporation is a mere agency for managing the moneys of the depositors.’ Lewis v. Lynn Institution for Savings, 148 Mass. 235, 243, 244, 19 N. E. 365, 367 (1 L. R. A. 785, 12 Am. St. Rep. 535). The promise of the savings bank is not an absolute promise to pay in full at all events. The relation of savings bank and depositors is one of management of a common fund for the mutual benefit of all depositors. Without pausing to trace the history of savings departments of trust companies, it may be said that trust companies were authorized as commercial banking institutions long before the savings departments were recognized by law. Such departments now are afforded some of the guaranties established for depositors of savings banks, chiefly in respect of investments. But the profits in excess of stipulated interest belong to the corporation for the benefit of its stockholders, and not to the depositors. The investments of the savings department...