People ex rel. Nelson v. Wiersema State Bank

• Decision Date: 02 October 1935
• Docket Number: No. 22673.,22673.
• Citation: 361 Ill. 75,197 N.E. 537
• Parties: PEOPLE ex rel. NELSON, Auditor of Public Accounts, v. WIERSEMA STATE BANK.
• Court: Illinois Supreme Court

361 Ill. 75

197 N.E. 537

PEOPLE ex rel. NELSON, Auditor of Public Accounts,

v.WIERSEMA STATE BANK.

No. 22673.

Supreme Court of Illinois.

June 14, 1935.

Rehearing Denied Oct. 2, 1935.

Suit by the People, on the relation of Oscar Nelson, Auditor of Public Accounts, against the Wiersema State Bank, in which Adolph S. Helmquist was appointed receiver and filed a petition to declare invalid a pledge of the bank's assets to secure a deposit by the Fernwood Park District. A decree holding the pledge void and ordering the pledged securities returned to the receiver, was affirmed by the Appellate Court (267 Ill. App. 21), and the Park District appeals.

Affirmed.Appeal from Third Branch, Appellate Court, First District, on Appeal from Superior Court, Cook County; Robert E. Jentzel, Judge.

Harris, Reinhardt & Bebb, of Chicago (Herbert Bebb, of Chicago, and Edward Barry, of Bloomington, of counsel), for appellant.

McFarland, Morgan & McFarland, of Chicago (Leonard W. Stearns, of Chicago, of counsel), for appellee.

Carter Pietsch and Morrissey & Morrissey, all of Bloomington, amici curiae.

Thomas S. Weldon and Barry & Barry, all of Bloomington, amici curiae.

JONES, Justice.

Adolph S. Helmquist was appointed receiver of the closed Wiersema State Bank. He filed a petition in the superior court of Cook county to declare invalid a pledge made by the bank of certain assets to secure the deposit of the Fernwood Park District and for an order to return to petitioner the securities deposited in escrow with the Chicago Title & Trust Company. The contracts for the pledge and escrow were executed prior to the closing of the bank. The petition alleges that the president and cashier of the bank were without power to enter into the arrangement, and it was therefore ultra vires and void, and that it effected a preference not sanctioned by statute, which would work great injustice and inflict financial loss upon the unsecured creditors and enable large depositors to absorb the assets. The park district filed an answer and cross-petition denying the invalidity of the transaction and praying for an order entitling it to the possession of the securities. The cause was submitted on the pleadings. The trial court held the pledge ultra vires and void and ordered the securities to be turned over to appellee. Upon an appeal to the Appellate Court for the First District the decree was affirmed. The cause is before this court on a certificate of importance and appeal granted by the Appellate Court.

Appellant claims that this court is committed to the doctrine that state banks have the power to pledge assets to secure deposits, and in support of that proposition relies upon Ward v. Johnson, 95 Ill. 215. In that case the bank was organized under a charter which expressly authorized it to make special regulations in reference to deposits as well as to trust funds and savings accounts. Pursuant to that authority the bank set up an ‘investment department’ which issued ‘investment certificates' in the denomination of $100, bearing interest and redeemable either in cash or in substituted certificates. The bank transferred to a trustee, for the benefit of the investors, certain promissory notes secured by real estate mortgages. Afterwards the bank failed, and the receiver brought suit to compel the trustee to deliver to him those securities so that they might be used for all the creditors of the bank. This court held that the bank had created an investment department as one of its agencies and by its charter was authorized to agree upon terms with persons desiring to make deposits or loan money and give for the sums its notes or certificates secured by pledge. It was also held that the general creditors not thus secured were not entitled to share in the proceeds of the securities until the investors had been paid. The case was decided at the May term, 1880, of this court, prior to the enactment of the first general law regulating banks. It is ruged that the Legislature, in enacting the Banking Act of 1887, intended to adopt the construction given the prior special charter in the Ward Case.

[1] The general rule is, that where terms used in the statute have acquired a settled meaning through judicial construction and are retained in subsequent amendments or re-enactments of the statute, they are to be understood and interpreted in the same sense theretofore attributed to them by the court unless a contrary intention of the Legislature is made clear. The judicial construction becomes a part of the law, and it is presumed that the Legislature in passing the law knew such construction of the words in the prior enactment. Village of Glencoe v. Hurford, 317 Ill. 203, 148 N. E. 69;People v. Illinois Central Railroad Co., 314 Ill. 373, 145 N. E. 731. But the judicial construction placed upon a specific provision of a statute prior to the enactment of a general law upon the same subject is not controlling where the two acts are essentially dissimilar. Manns v. Marinette & Menominee Paper Co., 205 Wis. 349, 235 N. W. 426,238 N. W. 624; 59 Corpus Juris, § 625, p. 1061. The bank's special charter in the Ward Case specifically authorized the making of special regulations in reference to trust funds, deposits, or savings. For that reason it was held that the bank was authorized to contract and agree with persons desiring to make deposits or loan money as to the terms, which in that case included the pledge of securities. No such specific power is embraced in the general Banking Act. The judicial construction applied to the special power in the bank's charter is not to be interpreted as being a part of the later general law, which omitted such special power, although both acts contained several other provisions which are substantially alike.

There is another reason why the Ward Case is not applicable to the facts in this case. After enumerating the express charter powers, which included the power to receive deposits, to loan money, and to make special regulations in reference to trust funds, deposits or savings, we said: ‘In addition to these express powers there can be no doubt that such corporations possess, also, the implied power to borrow money. * * * It will not, therefore, be important to determine whether the certificate holders, claiming under the trust deed, are to be regarded as having made deposits or loans for which their certificates were obtained, for in the one case the requisite power is expressly given to the corporation by its charter, and in the other case it possesses the power by necessary implication. Nor can the right of the corporation to assign or mortgage negotiable instruments which it is authorized to take be questioned. * * * The corporation was authorized to contract and agree with persons desiring to make deposits or loan money as to the terms. It might execute its bond, note or certificate as evidence of the indebtedness, and secure the same by pledge or chattel mortgage, or note, securities, etc., or by real estate mortgage or trust deed, just as should be mutually agreed. * * * The business is simply that of the bank obtaining money, and so far as the public was concerned, presumably needed in its business, and securing it by a trust deed upon terms mutually satisfactory to the respective parties in interest. The name is not of the slightest consequence. The transaction itself, individually considered, is neither unusual nor extraordinary.’ Although certain expressions in the language quoted lend color to the contention that it sanctioned the pledge of assets to secure deposits, such expressions are not to be isolated and considered as establishing a general rule not germane to the issue presented. At the outset of the opinion it is stated that the principal issue was whether or not the bank had power to borrow money and issue investment certificates therefor secured by trust deed. The transactions were not treated as deposits but as loans to the bank, and the opinion was based upon that state of facts.

Appellant claims that the enactment of the Banking Act of 1919 (Laws 1919, p. 224) and the act relating to deposits by the state treasurer at the same session of the Legislature (Laws 1919, p. 954) shows an intent that the Banking Act should confer the power in controversy, and that subsequent legislation consistently recognizes that intention. A consideration of the provisions and the history and effect of the several statutes upon the subject becomes important to the inquiry.

Prior to the passage of the first general Banking Act in the year 1887 (Laws 1887, p. 89) there were but few statutes that pertained in any way to the banking business. As late as 1874 the only statute safeguarding the interests of those depositing money in a bank was section 76 of the Criminal Code (Smith-Hurd Ann. St. c. 38, § 209) by the terms of which fraudulent conversion of a deposit was declared to be larceny. The need of protecting depositors became increasingly apparent, and in 1879 another statute was enacted embracing a practically identical provision (Smith-Hurd Ann. St. c. 38, § 62). It further classes the receiving of deposits while knowingly insolvent as embezzlement, prohibits a savings bank from loaning a deposit or trust fund to any of its officers, and prohibits banks or individuals receiving savings deposits or trust funds from guaranteeing any bond, note, or other evidence of indebtedness of another person or corporation. At the same session of the Legislature a statute regulating the duties of receivers and assigness was enacted, but it had no effect upon the functions of going banks or their officers.

The general Banking Act enacted in 1887 provided that it shall be lawful to form banks and banking associations for the purpose of discount and deposit, and to buy and sell, exchange and do a general banking business, excepting the issuing of bills to circulate as money, with power to loan money on personal and real estate...