Schornick v. Butler
| Decision Date | 28 March 1933 |
| Docket Number | No. 25277.,25277. |
| Citation | 185 N.E. 111,205 Ind. 304 |
| Court | Indiana Supreme Court |
| Parties | SCHORNICK v. BUTLER et al. |
OPINION TEXT STARTS HERE
Appeal from Bartholomew Circuit Court; Julian Sharpnack, Judge.
Action by Frank B. Butler and others against Frank L. Schornick, as receiver of the Crothersville State Bank. From an adverse judgment, plaintiff appeals.
Affirmed.
Superseding opinion in 172 N. E. 181.
Affirmed.
Montgomery & Montgomery and Seba A. Barnes, all of Seymour, for appellant.
Jos. H. Shea, M. B. Hottel, and G. D. Yaeger, all of Indianapolis, for appellees.
In December, 1922, the appellees were directors and stockholders of the Crothersville State Bank for which the appellant is now receiver. During that month the directors of said bank made an arrangement for the bank by which the appellees became personal sureties for public funds to be deposited with the bank under the public depository law (section 12621 et seq., Burns' 1926).
In consideration of the agreement of appellees to sign the bond as personal surety, it was agreed by the directors for the bank that good and valid notes out of the assets of said bank in the amount of $30,000 face value, should be turned over and set aside as a collateral pledge to insure appellees against loss by reason of having signed the bond of the bank as sureties. There was a provision that notes might be substituted from time to time, and that all collections on the notes in question should be held as the property of the appellees for the purpose of the agreement.
A committee selected by the sureties met with the president of the bank, who informed the committee that he was authorized to indorse the notes to be selected by the committee, the notes were selected and indorsed and put in an envelope upon which was written “Notes indemnifying signers of bonds for public funds,” and the envelope was placed in the hands of the president of the bank for safe–keeping, and so that he might have access to the notes for the purpose of receiving payments of principal and interest.
It was found by the trial court that the bank was “in fact” insolvent at the time this agreement was made. It was, however, still operating. The above agreement was in all things carried out, and public funds were deposited with the bank upon security of the bond.
On September 12, 1923, the state banking department took possession of the assets of the bank, and on the same day the Union State Bank of Crothersville was appointed receiver therefor, and afterwards appellant succeeded it as receiver.
An action was brought against appellees on the bond in question, and they demanded that the indemnifying notes and the proceeds thereof be turned over to them, which appellant refused to do. This action is to secure possession thereof.
There were special findings of fact which amount to an elaboration of the above statement, and conclusions of law upon which there was a judgment that appellees should have the pledged paper and the proceeds thereof and that they account to the receiver for any of the proceeds in excess of an amount necessary to reimburse them.
Exceptions to the conclusions of law present the question, May a bank organized under the laws of the state of Indiana pledge its assets, consisting of promissory notes taken and held in the regular course of business, to protect personal sureties on its depository bond?
The appellees were directors and stockholders of the bank, but, since fraud is not alleged and since they received no personal benefit from the transaction, the fact is immaterial.
The appellees were not creditors of the bank and they did not take the assignment of the notes as creditors. The municipality to whom the bond was given was not a creditor of the bank nor would it have become a creditor unless the bond was given. No question of preferring creditors is involved.
Under the depository statute the bank might have pledged eligible bonds directly to the municipality as security for its deposits. The transaction here is no different in effect. The securities were pledged to the appellees, who, in turn, pledged themselves to secure the deposits. In either case the pledged securities were only liable to the extent of the cash actually deposited. The bank parted with an interest in the securities equal to the deposit subject to the condition that, to the extent to which it repaid the cash, it would reclaim the securities. It amounts to no more than a sale of securities at their actual value for cash. The general creditors of the bank lost nothing by the transaction, and, if they are affected at all, they are benefited since the bank is more liquid by reason of having the cash rather than the securities. The appellees gained nothing. The public deposit or its proceeds was used, or will be used, for the payment of general creditors of the bank. No more than an equal amount of the pledged notes will be withheld.
The action sounds in equity. The general creditors of the bank or the appellant, their representative, cannot be heard to say that the pledging of the securities was illegal while they retained the benefits of the transaction. Melaven v. Hunker et al., 35 N. M. 408, 299 P. 1075.
It would be unconscionable to permit the general creditors to profit where they had no loss, at the expense of the appellees, who have profited nothing and have done no wrong. It must not be permitted unless there is some insuperable rule of law which requires it.
“Justice alone can be considered in a court of chancery, and technicalities never be tolerated except to obtain and not to destroy it.” Isgrigg, Executor, v. Schooley et al., 125 Ind. 94, 25 N. E. 151, 153.
Our banking law (see Burns' Ann. St. 1926, § 3844 et seq.) gives banks “all the powers incidental and proper, or which may be necessary and usual in carrying on the business of banking.” The right of a bank to borrow money and pledge its assets for the payment thereof is beyond serious question. It is urged, however, that a deposit is not a loan and that banks have no power to pledge their assets to secure deposits. There is no reason for the distinction. In either case the relation...
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