United States National Bank in Johnstown v. Campbell

• Citation: 354 Pa. 483,47 A.2d 697
• Decision Date: 25 June 1946
• Docket Number: 3795
• Parties: United States National Bank in Johnstown, Appellant, v. Campbell et al
• Court: United States State Supreme Court of Pennsylvania

47 A.2d 697

354 Pa. 483

United States National Bank in Johnstown, Appellant, v. Campbell et al

No. 3795

Supreme Court of Pennsylvania

June 25, 1946

Argued May 29, 1946

Appeals, Nos. 55 and 56, March T., 1946, from decree of C.P Cambria Co., Sept. T., 1942, Nos. 12 and 13, respectively, in case of United States National Bank in Johnstown v. William W. Campbell et al., Liquidating Trustees. Decree affirmed.

Equity proceeding for accounting of proceeds of life insurance held as collateral security. Before McCANN, P.J.

Decree entered distributing balance pro rata between plaintiff and defendants after certain deductions. Plaintiff appealed.

Decree of the court below affirmed.

The costs shall be paid by appellant.

John E. Erans, Sr., with him Evans, Evans & Spinelli Roman C. Widmann and Harry Doerr, for appellant.

Morton Meyers, with him Graham, Yost, Meyers & Graham, for appellees.

Before MAXEY, C.J., DREW, LINN, STERN, PATTERSON, STEARNE and JONES JJ.

OPINION

PER CURIAM

Our review of this record discloses no reversible error. The decrees are affirmed on the following quoted portions of the adjudication filed by the chancellor in the court below.

"In 1929, examinations of The United States Trust Company of Johnstown and The United States Savings & Trust Company of Conemangh by the State Banking Department showed impairments of $37,877.19 at the former and $94,454.32 at the latter. The Secretary of Banking required the impairments to be made good by a gift of cash or marketable securities. The closing of these banks would have affected other banks in the neighborhood, particularly The United States National Bank of Johnstown, a large bank which controlled the impaired institutions through direct or indirect stock ownership. The important officers of the three institutions were the same and key directors of The United States National Bank of Johnstown, long active in its affairs, were also directors of the two impaired institutions. The beneficial interest in the stock of all these banks was in the stockholders of The United States National Bank. That bank controlled the affairs and the policies of her two subsidiary trust companies. The United States National Bank supplied the money to make good the impairments, but did not turn the money over directly to these institutions. It acted through another subsidiary, The United States Mortgage & Realty Company. This corporation, organized for the purpose of buying, selling and leasing real estate, was the real estate holding company of The United States National Bank, and held title to the bank building. All its stock except qualifying shares for directors was owned by The United States National Bank. The bank made two loans to the Mortgage & Realty Company, one of $37,877.19, the other of $94,454.32, and took back notes of the Mortgage & Realty Company for these amounts. The Mortgage & Realty Company then turned the money over to the impaired institutions. The payments thus made cared the impairments, and the impaired institutions notified the Secretary of Banking that the impairments had been made good by the deposit of cash. On its minutes the Mortgage & Realty Company stated that it borrowed the two sums from The United States National Bank of Johnstown for the purpose of purchasing 'real estate equities' from the impaired institutions.

"At the time the impairments were cured in 1929, agreements in identical language were entered into between the two impaired institutions and The United States Mortgage & Realty Company. Each institution assigned to the Mortgage & Realty Company 'all its right, title and interest of, in and to' certain notes and bonds principally of Cook and Cooney. All these notes and bonds were admittedly worthless. The agreements contain the following further provision: 'together with such real estate equities as are represented in, collateral to, and accompany said securities, as well as the death values of certain life insurance policies, when, as and if sold, or if paid at maturity, the said assignee to participate therein with the assignor, as their respective interests may appear.' The impaired institutions held these life insurance policies as security for the obligations of Cooney and Cook.

"It is now admitted that there were no real estate equities, whatever this term means. The controversy concerns the proceeds of the insurance on the lives of Cook and Cooney that was held by the impaired institutions as collateral security for their indebtedness...

"The plaintiff contends that the money put up in 1929 to cure the impairments was a loan and that it is therefore entitled to payment in full from the proceeds of the insurance before the defendants get anything. We are unable to so construe the assignments. They are exactly what they purport to be, viz: assignments of certain obligations with a pro rata interest in collateral. They contain no promise to pay. The impaired trust companies 'sell, assign, transfer and set over unto The United States Mortgage & Realty Company -- all (their) right, title and interest of, in and to' certain obligations together with an interest in life insurance, both parties to participate in the insurance when paid 'as their respective interests may appear.' Such an instrument is an assignment, not a loan, and the parties share in the proceeds of the collateral pro rata. The assignments themselves plainly provide that the parties are to participate (i.e. take a part) as their respective interests may appear. The United States National Bank does not seek to participate as its interests may appear; it asks for payment in full before the defendants get anything. We are satisfied that this is not the proper construction of the assignments. Nothing in the assignments shows an intention on the part of the assigning trust companies to guarantee payment of the obligations assigned or to give the assignee any priority, and the surrounding circumstances negative such intention. Therefore, the principle of North City Trust Company Case, 327 Pa. 356, cited by the plaintiff, does not apply. The trust companies were insolvent at the time the assignments were made and the payments by the Mortgage & Realty Company were made to cure impairments. Loans would not have cured the impairments, nor would the impairments have been cured if the assigning trust companies had guaranteed payment of these worthless obligations...

"At the time of the assignments the two trust companies had paid large sums as premiums on the policies. The defendants claim the right to deduct such payments from the fund. In our opinion, the payments are a proper charge against the fund... We are satisfied that such was the intention of the parties under the assignments. What was assigned to the Mortgage & Realty Company was a portion of the debts of Cook and Cooney with a corresponding interest in the collateral. It purchased notes and bonds. The impaired institutions retained the balance of the debts. Anything applicable to the debts must be divided between the parties 'as their respective interests may appear.' But before anything is applied to the debt, the expenses with interest must first come out. The Mortgage & Realty Company purchased no interest in these prior charges. It purchased only an interest in what would be applied on the debt. Therefore, the trust companies are entitled to deduct premiums paid by them prior to the assignments, with interest, which are a prior charge on the proceeds derived from the securities, before anything is applied on the debts of Cook and Cooney.

"Consideration of the surrounding circumstances at the time the assignments were made bears out this construction. It is always proper to consider the surrounding circumstances. Bubb v. Parker & Edwards Oil Co., 252 Pa. 26, 29; Restatement, Contracts, section 235, p. 324. The payments by the Mortgage Company to the impaired institutions were made to cure impairments and had to be gifts 'without restriction, reservation or expectation of return.' The trust companies could not turn over assets of value or the impairments would not be corrected. Hillcrest Foundation Inc. v. McFeaters, 332 Pa. 497. The premium payments made by the trust companies were prior charges on the policies and created value in them. The impaired institutions could not turn over this asset of value in their impaired condition. They assigned to the Mortgage & Realty Company only a pro rata interest in...