In re Prudential Trust Co.
| Decision Date | 02 March 1923 |
| Parties | In re PRUDENTIAL TRUST CO. In re COSMOPOLITAN TRUST CO. In re HANOVER TRUST CO. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Cases Reserved from Supreme Judicial Court, Suffolk County.
Three petitions by Joseph C. Allen, Commissioner of Banks, in charge of the Prudential Trust Company, of the Cosmopolitan Trust Company, and of the Hanover Trust Company, for instructions as to his duties in certain respects in distributing the assets of such companies. Reserved by single justices for the determination of full court. Ordered in accordance with the opinion.
Commissioner of banks may properly bring bills for instructions essential to right distribution of the assets of trust companies, the property and business of which are in his possession for liquidation, under G. L. c. 167, s 22.
Under G. L. c. 172, ss 62, 63, moneys derived from liability of stockholders of insolvent trust companies under chapter 172, s 24, must be applied first to the payment of savings department depositors, and the excess only appropriated to the payment of commercial depositors.
Depositors in savings department of insolvent trust companies occupy the relation, in different aspects, both of creditors and cestuis que trust.
G. L. c. 172, s 63, providing that capital stock of trust companies and liabilities of stockholders shall be held as security for payment of savings depositors, cannot be presumed vain or meaningless, but must be deemed intended to produce some effective result.
Under G. L. c. 172, s 63, providing that capital stock of trust companies shall be security for payment of savings deposits, and that such depositors shall have equal claim with other creditors on the capital and other property, the ‘capital stock’ is the money paid by original stockholders for subscriptions to shares and the ‘capital,’ the general assets, including investments and surplus.
[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Capital; Capital Stock.]
G. L. c. 172, s 63, providing that capital stock of trust companies and stockholders' liabilities shall be security for payment of savings deposits must be interpreted to accomplish the purpose to give protection to such depositors against risks of commercial banking and misappropriation of securities.
Money collected from directors of trust companies for negligence or other mismanagement becomes part of the general assets and savings depositors have no preferential right thereto.
Directors of trust company occupy fiduciary relation to the company.
Trust company having savings department is a single entity, and title to all property is in that entity, and the directors are the officers of that one corporation.
Under G. L. c. 172, ss 60-63, and chapter 167, s 30, assets of savings department of insolvent trust company, so far as needed to pay savings depositors in full, are not liable for any part of general expenses of liquidation by commissioner of banks.
Incidental expenses necessary for particular conservation of ascertained assets of savings department of insolvent trust company, and disconnected with general management of company's affairs, may be charged to the specific property concerned, and thus to the savings department.
Expenses of recovering, for savings department of trust company in process of liquidation, assets wrongfuly appropriated by the commercial department and of enforcing stockholders' liabilities and similar expenses, must be paid from general funds.
Depositors in both commercial and savings departments of trust company must be presumed to have assumed that relationship with knowledge of all preferences established for the benefit of the savings depositors.
Depositors in savings department of trust company liquidated by commissioner of banks are entitled only to amount of their claims on the date the commissioner took possession, with interest and dividends then due, but without interest thereafter.
Under G. L. c. 172, s 24, 62, when savings depositors in trust company liquidated by commissioner of banks, are paid their deposits in full, they have no further claim on assets of savings department or moneys collected from stockholders, and they become part of the general assets.
Trust company, even in its savings department, is not a mutual institution.
Under G. L. c. 167, ss 28, 31, 35, commissioner of banks, in liquidating trust company having savings department must reserve an amount for payment of unclaimed deposits, wholly or partly, according as other depositors are paid in full or not.
Under G. L. c. 167, s 28, barring actions on claims rejected by commissioner of banks in liquidating trust company, unless brought within a limited time, the commissioner need reserve no money to meet rejected claims on which action has not been brought within such time.
Henry O. Cushman and Daniel L. Smith, both of Boston, for petitioner in Cosmopolitan Trust Co. Case.
William R. Sears and Stanley B. Hall, both of Boston, for intervener Thurston
Fitz-Henry Smith, Jr., of Boston, for petitioner in Hanover Trust Co. Case.
John E. Hannigan, of Boston, for petitioner in Prudential Trust Co. Case.
Fred T. Field, Samuel Hoar, and George K. Gardner, all of Boston, for American Express Co. and others.
[1] These are petitions by the commissioner of banks in possession under G. L. c. 167, § 22, of the property and business for purposes of liquidation of three Boston trust companies for instructions essential to right distribution of their assets. The bills are properly brought. Commissioner of Banks v. Cosmopolitan Trust Co., 240 Mass. 254, 257, 133 N. E. 630; Commissioner of Banks, Petitioner, in re Prudential Trust Co., 240 Mass. 478, 134 N. E. 253; Commissioner of Banks in re Cosmopolitan Trust Co., 241 Mass. 346, 136 N. E. 269.
Numerous questions presented, although not the same in all the cases, have been classified for convenience of discussion. They are considered on the footing of certain facts common to all the cases, viz.: (1) That no one of these trust companies maintained a trust department under G. L. c. 172, §§ 49-59; (2) that each maintained a savings department; partment; and (3) that the assets of each of said trust companies are insufficient to pay to its depositors in both the commercial and the savings departments 100 per cent. of the amounts due them on the date when the commissioner took possession, although the assets of the savings department of the Hanover Trust Company are sufficient to pay that amount to its depositors in that department.
1. The first question is this: What disposition shall be made of moneys collected on stockholders' liability, as between depositors in the savings departments and depositors in the commercial departments?
[2][3][4] The stockholders' liability arises under G. L. c. 172, § 24, whereby stockholders are made liable personally, equally, ratably and not one for another, for all contracts, debts and engagements of the corporation to the amount of the par value of their stock. Commissioner of Banks v. Prudential Trust Co., 242 Mass. 78, 136 N. E. 410. It was provided by St. 1908, c. 520, § 4, in force when the commissioner took possession of these trust companies (see now G. L. c. 172, § 63), that the capital stock ‘with the liabilities of the stockholders thereunder shall be held as security for the payment’ of deposits in the savings department of a trust company, and that such depositors ‘shall have an equal claim with other creditors upon the capital and other property of the corporation in addition to the security provided by this act.’ To interpret these words simply as giving to savings department depositors a claim on capital stock and stockholders' liability on the same basis as depositors in the commercial department would attribute to them no substantial meaning. Stockholders by section 24 are made liable for all debts of the trust...
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