Pixton v. Perry

• Decision Date: 29 June 1928
• Docket Number: 4672
• Court: Utah Supreme Court
• Parties: PIXTON, STATE BANK COMMISSIONER v. PERRY, COUNTY TREASURER

269 P. 144

72 Utah 129

PIXTON, STATE BANK COMMISSIONER v. PERRY, COUNTY TREASURER

No. 4672

Supreme Court of Utah

June 29, 1928

Appeal from District Court, First District, Box Elder County; M. C Harris, Judge.

Action by Seth Pixton, State Bank Commissioner, against Heber W Perry, personally and as County Treasurer of Box Elder County, Utah. Judgment for defendant, and plaintiff appeals.

AFFIRMED.

William E. Davis, of Brigham City, for appellant.

LeRoy B. Young and J. W. Horsley, both of Brigham City, for respondent.

STRAUP J. THURMAN, C. J., and CHERRY, HANSEN, and GIDEON, JJ., concur.

OPINION

STRAUP, J.

Seth Pixton, as state bank commissioner, brought this action against Heber W. Perry, personally and as county treasurer of Box Elder county, to recover from him certain bonds and stock certificates alleged to be assets of the Bank of Garland and to have been delivered to him by the bank without authority. The case was tried to the court, who made findings in favor of the defendant and rendered judgment accordingly, from which the commissioner appeals.

The appeal is on the judgment roll. The complaint made is that on the findings as made the commissioner was entitled to a judgment requiring the defendant to deliver up the securities. The court found that in 1919 the cashier of the bank, pursuant to authority of its board of directors, transferred and delivered to John W. Ward, the then treasurer of the county, the bonds and certificates, assets of the bank, and of the value of about $ 11,550, to be held by him as collateral security for public funds deposited and to be deposited in the future by the county treasurer with the bank, which securities for such purpose were so held by each succeeding county treasurer, including the defendant, who was the treasurer at the commencement of the action; that in January, 1927, because of impairment of the capital of the bank and of its financial condition, the commissioner, pursuant to the laws of this state, suspended the operation of the bank and took over the control and management of its affairs; that at that time and at the commencement of action there was on deposit with the bank public funds of the county amounting to $ 12,889.71 theretofore deposited with it by the treasurer of the county and which were secured by the bonds and certificates in the hands of and held by the treasurer.

It is the contention of the commissioner that, in the absence of a statute expressly authorizing it, a bank has no authority or power to pledge its assets, or any part thereof, as collateral security for deposits received by it from its customers, whether from private persons or private or public corporations, and regardless of whether the deposits are private or public funds, and that there is no statute of this state giving a bank power or authority to so pledge its assets. To support the contention of the commissioner he cites and relies chiefly on the cases of Divide County v. Baird, 55 N.D. 45, 212 N.W. 236, 51 A.L.R. 296, and Commercial Bank & T. Co. v. Citizens' Tr. & G. Co., 153 Ky. 566, 156 S.W. 160, 45 L.R.A. (N.S.) 950, Ann. Cas. 1915C, 166. Such cases, in the main, support the commissioner's contention. They proceed on the theory that a deposit is not a loan; that there is a material legal difference between a loan and a deposit; that while as an incident to the business, or within its implied powers, a bank may borrow money and give its assets, or a part thereof, as collateral security for its payment, yet it may not so secure deposits by pledging its assets unless expressly authorized by statute; that public policy will not tolerate a practice which may sooner or later, in the event of financial trouble with the bank, enable it to pay and protect a favored few at the expense of an equally deserving many; that it is a fraud and an ultra vires act on the part of a bank to procure or receive deposits and pledge its assets in payment of some of them and not of others whether the deposit consists of funds of a private person or corporation or of a municipal or other public corporation or body; and as its act is ultra vires, no agreement, consent, or conduct on the part of the bank or of its officers can ratify or validate it or estop the bank or its assignee or representative from making the claim of invalidity.

On the other hand, it is the contention of the respondent that, unless a statute forbids it, a bank is authorized and has power to pledge its assets to secure deposits as well as money borrowed; that a deposit in legal effect is but a loan, the relation of that of debtor and creditor, and that the one as much as the other is a necessary incident to banking business and within the implied powers of a bank; that though the bank was not authorized to give the collateral security, yet it could not, whether solvent or insolvent, demand and recover back the securities, pledged as they were when the bank was solvent, without returning the funds or deposits received by it; that the commissioner, standing in its shoes and winding up and administering its affairs, has no greater right or power in the premises than had the bank in such respect, nor may he claim or do more than the bank itself could have done; and that in all events the treasurer had the right to offset against the securities the amount of the unreturned deposits which exceeded either the par or actual value of the securities. In support thereof the respondent cites and relies on Ward v. Johnson, 95 Ill. 215; Richards v. Osceola Bank, 79 Iowa 707, 45 N.W. 294; Citizens' State Bank, v. First National Bank, 98 Kan. 109, 157 P. 392, L.R.A. 1917A, 696; Maryland Casualty Co. v. Board, 128 Okla. 58, 260 P. 1112; McFerson v. National Surety Co., 72 Colo. 482, 212 P. 489; Williams v. Hall (Ariz.) 30 Ariz. 581, 249 P. 755; Andrew v. Odebolt Savings Bank, 203 Iowa 1335, 214 N.W. 559; Interstate National Bank v. Ferguson, 48 Kan. 732, 30 P. 237; State v. First Nat. Bank (C. C.) 88 F. 947; Ahl v. Rhoads, 84 Pa. 319; Page Trust Co. v. Rose, 192 N.C. 673, 135 S.E. 795; Salt Lake County v. American Surety Co., 63 Utah 98, 222 P. 600; National Surety Co. v. Jenkins, Receiver (C.C.A.) 5 F.2d 34; 7 C. J. 538, 592. Each of the cases on one or more grounds stated by respondent supports his contention. Undoubtedly most of the cases cited and relied on by appellant are in discord with those cited and relied on by respondent. Because of further views to be noted we find it unnecessary to determine which line of cases in our opinion states the better rule or which is better grounded on legal principles.

Both parties in effect assert that the situation, at least to a great extent, is controlled by our statute. The statute referred to as bearing on the question is Comp. Laws Utah 1917, §§ 1006, 4500, in force when the deposits were made and the collateral securities transferred and delivered by the bank to the treasurer in 1919.

Section 1006 was adopted in 1911. It is:

" * * * No bank or bank officer shall give preference to any depositor or creditor by pledging the assets of the bank as collateral security; provided, that commercial banks may borrow money for temporary purposes and may pledge assets of the bank not exceeding 50 per cent in excess of the amount borrowed as collateral security therefor; except that such bank or bank officer may qualify as depositary for United States deposits or postal savings funds by the deposit of the securities required by law and not otherwise; provided further, that whenever it shall appear that a bank is borrowing habitually for the purpose of reloaning, the bank commissioner may require such bank to pay off such borrowed money. * * *"

Section 4500 was adopted in 1913. It is:

"Title 88. Public Funds. Collection of Interest Required on Deposits of Public Funds. Any public officer having public funds in...