Reichert v. Farmers', Etc., Sav. Bank , 257 Mich. 500 ( 1932 )

For the reasons hereinafter indicated I am not in accord with some phases of Chief Justice CLARK's opinion.

While the statutory law of this State permits a single corporation to conduct a commercial banking business, a savings banking business, and also a trust business, the certified questions submitted concern only matters pertaining to its banking departments. Certain phases of the trust business of such a corporation as related to its banking business are considered in Reichert v. Fidelity Bank Trust Co., post, 535. Here we are primarily concerned with the proper distribution of the assets of the commercial banking department and the savings banking department of the corporation when in the hands of a receiver. The most serious difficulty arises from a seeming conflict between section 11928 and section 11962, 3 Comp. Laws 1929. The former provides a preference for savings depositors in the event of the liquidation of the corporation, while the latter requires the receiver to "make ratable dividends" on all proven claims. The material portions of the respective sections read:

Section 11928. "Any bank combining the business of a commercial bank and a savings bank, and operating an industrial loan department shall keep separate books of account for each kind of business: * * * Provided further, That all theinvestments relating to the savings department shall be keptentirely separate and apart from the other business of thebank, and that the reserve required by the provisions of thisact to be kept on the savings deposits, shall be kept separateand distinct on the books of the bank from the reserve requiredon the commercial deposits, and that such portion of saidsavings deposits as are on hand unloaned or deposited withother banks or reserve agents and the investments made with thefunds deposited by savings depositors shall be held solely forthe payment of depositors of said funds:"

Section 11962: "From time to time under the direction of the commissioner of the banking department, the receiver shall make ratable dividends of the moneys realized or collected by him on all such claims as may have been proved to his satisfaction or adjudicated in a court of competent jurisdiction."

Ratable dividends. This provision was in the banking statute of this State as passed in 1887, Act No. 205. (See 3 How. Stat. § 3208-f6.) It has continued therein unchanged to the present day. It was a part of the statute before the act contained any provision for the separation of savings assets from commercial assets. So obviously "ratable dividends," as the statute then stood, were to be paid in case of liquidation indiscriminately from all the assets of the bank to all of its depositors and other creditors. So far as consistent with proper statutory construction, this provision should be held to have the same meaning now as when first embodied in the statutory law.

In 1893 by amendment of the banking act the provisions above italicized in section 11928 requiring separation of the assets of the savings department from those of the commercial department and giving savings depositors a preference in certain assets were added. This amendment sought to accomplish only one thing, and that was to give the savings depositors a preference in that portion of their deposits held by the bank in cash or on deposit in other banks and the investments made out of savings deposits. Some confusion seems to have arisen from the assertion in certain adjudicated cases that the relation of the savings depositor is that of a cestui quetrust, while the commercial depositor is said to be only an ordinary creditor of the bank. In a limited sense there is a trust relation between the bank and each of its depositors, commercial or savings. But under our statute the relation of the bank to both its commercial and savings depositors is fundamentally that of debtor and creditor. The only difference is that to the extent provided in section 11928, 3 Comp. Laws 1929, a preference is given to those creditors who are such by reason of their savings deposits. They simply have a first call on certain assets of the bank, a lien enforceable in the event of liquidation; but this does not result in a trust relation any more than does the giving of a mortgage create a trust relation between the mortgagor and mortgagee. In each case the creditor has a preference as against certain assets of his debtor.

If there is no special trust relation, then, subject to the statutory preference, the assets of the bank in the receiver's hands should be "ratably" distributed to all its depositors and other creditors exactly the same as under the earlier statutory provisions. This means at the close of the receivership each depositor, whether in the commercial department or in the savings department, should have been repaid an equal proportion of his deposit, subject only to the savings depositors' statutory preference. This will be accomplished if after paying savings depositors such liquidation dividends as are assured them by their statutory preference, no further payments are made to them until the commercial depositors and other general creditors have been paid from other assets of the bank an equal percentage. When this is done, a point of "ratable" distribution will have been reached, if such a result is possible in view of the statutory preference given savings depositors; and also there will have been full compliance with the provision of the statute which gives savings depositors a limited preference. Thereafter the remaining assets should be ratably distributed among all creditors of the corporation.

Thus construed, there is no material conflict between the two statutory provisions. Each, as far as it is possible, is given full force and effect. The savings depositors will obtain their statutory preference, and "ratable" distribution of the assets of the bank, if possible of accomplishment under the statute, will result; and, it would seem, the closing up of the affairs of the bank by the receiver will be greatly expedited. The specific question under consideration was not presented to or passed upon by the court in Peters v. Union Trust Co.,131 Mich. 322, nor does it seem to have been adjudicated by any other decision in this State. Set-off. In the manner and subject to the qualifications pointed out by Mr. Justice FEAD in Reichert v. Fidelity Bank Trust Co., supra, set-off should be allowed regardless of the fact that the customer's obligation may be held by one department and the deposit which he seeks to set off is in the other department of the bank. However, the question of the right of a stockholder to set off his deposit in the insolvent bank against his statutory stockholder's liability (3 Comp. Laws 1929, § 11945) is not within the scope of the FidelityBank Trust Co. Case. This is noted in Justice FEAD'S statement:

"The profession will appreciate that only mutual credits and debits, not impressed with a special contract or status, are under consideration."

As pointed out in Wingate v. Orchard, 21 C.C.A. 315 (75 Fed. 241), and in many of the authorities hereinafter noted, the funds obtained by the enforcement of stockholders' liability have a special status "to make good all contracts, debts, and engagements of such association equally and without any preference;" hence the stockholder depositor is not allowed to pay himself in full by setting off his deposit against his liability; and to hold otherwise "would be, in effect, to make him a preferred creditor.

For brevity we cite, without quoting, authorities to the point that (1) the stockholders' liability is primarily statutory rather than contractual; and (2) the stockholder's deposit in an insolvent bank cannot be set off against his statutory liability. Most Federal decisions are under the stockholders' liability section of the National banking act (R. S. § 5151 [12 USCA, § 63]), which in this particular is quite identical with the Michigan statutory provision.

(1) The stockholder's liability is primarily statutory rather than contractual. Platt v. Wilmot, 193 U.S. 602 (24 Sup. Ct. 542); Christopher v. Norvell, 201 U.S. 216 (26 Sup. Ct. 502);First Nat. Bank of Concord v. Hawkins, 24 C.C.A. 444 (79 Fed. 51); Scott v. Latimer, 33 C.C.A. 1 (89 Fed. 843); Magee on Banks Banking (2d Ed.), p. 83.

(2) Because the stockholder's double liability is primarily statutory, and because of lack of mutuality, and also because of the preference he would otherwise obtain, he cannot set off his deposit in an insolvent bank against his statutory liability. Wingate v. Orchard, supra, citing, on the principle involved, Delano v. Butler, 118 U.S. 634 (7 Sup. Ct. 39);Mechanics' Savings Bank v. Federal Ins. Trust S.D. Co., 87 Fed. 113; Lantry v. Wallace, 38 C.C.A. 510 (97 Fed. 865); Williams v. Rose, 218 Fed. 898; Wehby v. Spurway,30 Ariz. 274 (246 P. 759); McDonald v. McFerson, 80 Colo. 4 (249 P. 496); Ball Electric Light Co. v. Child, 68 Conn. 522 (37 A. 391); Buchanan v. Meisser, 105 Ill. 638; Hughes v. Marvin,Banking Com., 216 Ky. 190 (287 S.W. 561); Matthews v. Albert,24 Md. 527; Shickle v. Watts, 94 Mo. 410 (7 S.W. 274);Barth v. Pock, 51 Mont. 418 (155 P. 282); Matter of EmpireCity Bank, 18 N.Y. 199; Parker v. Carolina Savings Bank,53 S.C. 583 (31 S.E. 673, 69 Am. St. Rep. 888); 1 Bolles, Modern Law of Banking, p. 170; 1 Morse on Banks Banking (6th Ed.), p. 788; 3 Michie, Banks Banking, p. 175.

Neither Scott v. Armstrong, 146 U.S. 499 (13 Sup. Ct. 148), nor Thompson v. Union Trust Co., 130 Mich. 508 (97 Am. St. Rep. 494), cited by Mr. Justice POTTER, involves the right of set-off of a stockholder's deposit against his statutory liability. On this ground the inapplicability of the Scott Case is emphasized inWingate v. Orchard, supra.

In view of our statutory provision (3 Comp. Laws 1929, § 11945), it must be held that a stockholder in an insolvent bank cannot minimize his statutory liability by setting off the amount of his deposit.

Savings investments. In the briefs filed herein it is pointed out that there is difficulty in determining whether certain assets are investments of savings deposits. The bank officers have the authority to transfer assets from one department to the other as long as they are lawfully in that department. In the absence of fraud or irregularity, the assets shown upon the books as savings assets at the time the bank closed belong to that department. If they are there by proper action of the officers no further tracing back to the fund is necessary. Section 49 of the banking act (3 Comp. Laws 1929, § 11946) covers the matter of improper and fraudulent transfer of assets from one department to the other by declaring such transfer void. Aside from the assets properly appearing on the books as belonging to the savings department, none can be included in the statutory preference given savings depositors except such as can be clearly traced and identified as assets directly or indirectly resulting from investments of savings deposits for which the savings department has not been reimbursed. The preference of the savings depositors goes only to the amount of savings assets represented by savings deposits and does not cover investments from capital stock.

Without further enlargement upon the matter of proper statutory construction, the submitted special questions may be answered as follows:

First Question: "Under section 11928, 3 Comp. Laws 1929, must the investments of the savings department of a State bank be held solely for the benefit of savings depositors?"

Answer: Yes.

Second Question: "Where a portion of the investments of the savings department of a bank are so involved in litigation that it will be impossible to ascertain what amount will be ultimately available from the savings investments of the bank, is the receiver justified in paying any liquidation dividends to other than savings depositors?"

Answer: Yes, provided the receiver retains sufficient assets to insure the payment of a percentage of savings depositors' claims equal to that paid on claims of commercial depositors.

Third Question: "Under section 11962, 3 Comp. Laws 1929, is the receiver justified in paying any dividends to other than savings depositors until it has been finally determined what assets are available?"

Answer: Yes, providing the receiver retains sufficient assets to insure payments on savings depositors' claims ratable with those paid other depositors.

Fourth Question: "If there be insufficient proceeds from the liquidation of investments of the savings department to pay the savings depositors in full, are the savings depositors entitled to share in the balance of the assets of the bank with other claimants, and if so in what ratio?"

Answer: Yes, provided the assets other than those in which savings depositors have a statutory preference are sufficient to insure payments to commercial depositors ratable with those paid to savings depositors. Distribution should be ratable on the basis of proven claims. Fifth Question: "Where loans are made by a bank and securities which belong to the savings department are pledged as collateral security for the repayment of such loans, must such loans be paid from the general assets of the bank and such pledged securities held solely for the benefit of savings depositors?"

Answer: Yes, except in so far as the savings department has been reimbursed.

Sixth Question: "Under section 11928, 3 Comp. Laws 1929, providing for the keeping of investments relating to savings department entirely separate and apart, is the receiver justified in permitting a set-off of a savings deposit against a commercial obligation?"

Answer: Yes.

Seventh Question: "From what source should the expenses of administration of the receivership be taken and should the savings investments be charged with any portion of such expense?"

Answer: Expenses of administration are a first charge against assets in the hands of the receiver, and ordinarily should be paid from general assets; but the whole or any just proportion of expenses incident to special services in conserving or liquidating savings assets may be made a charge against such assets.

Eighth Question: "Can the proceeds of stock assessments under the statutory double liability be paid out by way of liquidation dividends before it is actually determined that there will be insufficient assets with which to meet the obligations of the bank?"

Answer: Yes. This liability is fixed by statute, and if any portion of the assessment is not required to pay creditors or expenses of administration it will be returned to the assessed stockholders. Petty v. Bay City Bank,243 Mich. 362.

Ninth Question: "How should the general assets of the bank which are carried as combined account assets and which do not relate specifically to either savings investments or commercial investments be apportioned among the claimants of the bank?"

Answer: Subject to the limitations in the answer to the fourth question, such general assets should be distributed ratably to all creditors. This answer does not apply to items nominally carried as combined account assets, but which are readily traceable and identified as savings department assets.

Tenth Question: "If it be determined that the savings depositors are entitled to share in the balance of the assets of the bank after the savings department assets are exhausted, shall the ratio of division be determined by the proportion of savings claimants to commercial claimants as of the date of the closing of the bank or on the basis of claims actually filed?"

Answer: On the basis of claims filed and accepted or proven. But see also answer to fourth question.

Eleventh Question: "Can a deposit in the bank be set off where the depositor's debt to the bank is secured by collateral?"

Answer: Yes.

Twelfth Question: "Can a deposit in the bank in case the bank becomes insolvent be set off against a stockholder's statutory liability?"

Answer: No.

The foregoing answers are framed on the basis of the record in the instant case and are in the nature of general rules which of necessity will be subject to such modifications or qualifications as may be compelled in the just disposition of any particular case. The answers to the certified questions will be transmitted to the circuit court and disposition of the case made in accordance therewith.

SHARPE, FEAD, and BUTZEL, JJ., concurred with NORTH, J.