Trust Co. v. Bank , 119 W. Va. 449 ( 1937 )

The opinion in this case prepared by Judge Riley and concurred in by Judge Maxwell, when translated into an order, will operate to affirm the decree of the court below. Judge Hatcher and myself are unable to concur therein, and this note of dissent is filed in order that our views with respect to the questions arising herein may be made a matter of record.

The controlling issue is whether or not the plaintiff (hereinafter called the Trust Company) loaned to the Doddridge County Bank (hereinafter called the Bank) the sum of $39,082.88, when on the 21st day of October, 1931, it deposited that amount with said bank. We attach little importance to the question of the authority of the person who secured the deposit. It may be that when the Bank accepted the deposit, or loan, it cannot now question the agency through which it was obtained. We think the case is controlled by the legal effect of what was done by the agencies through which the transaction between the two banking institutions was arranged. Nor do we contend that too much stress should be laid upon the form of the transaction, the technical words used, or the manner in which the account was carried on the books of the two banks, except as the same may bear upon the effect thereof upon the rights of depositors in both institutions, created by their reliance upon the published reports of the two banks reflecting the manner in which the transaction was carried.

With this explanation, we come to the real question in the case. Fortunately, there is little dispute as to the facts. The record, as we understand and interpret it, shows: That in October, 1931, L. R. Charter, Jr., then Commissioner of Banking of the State of West Virginia, and who before assuming that office had been President of the Bank, approached Reese Blizzard, then President of the Trust Company, and inquired of him if his company would be interested in a deposit from C. E. Lawhead, then receiver for a number of closed banks, and upon being answered in the affirmative, then asked the further question: "If he (referring to Lawhead) would make a good sized deposit with you, how would you feel towards making a corresponding deposit in size with the Doddridge County Bank?" and then stated "that the Doddridge County Bank had a good sized deposit from Mr. Lawhead and because he was Banking Commissioner he would rather that this, or at least a part of the deposit would be in some other bank." Blizzard then invited him to his office where the matter was discussed. Inquiry was made by Blizzard as to the financial condition of the Bank, and was assured that it was first class, and its most recent statement of condition was probably exhibited. Blizzard then submitted the proposal to the Board of Directors and the cashier of the Trust Company and secured their approval thereof. No interest was to be paid by either bank on the deposits to be made under this arrangement; the agreement was only to continue for a brief and indefinite period; it was agreed that Lawhead would not draw on his deposit with the Trust Company, and that it would not draw on its deposit or loan with the Bank; and the Trust Company was to hold the Lawhead deposit until the money deposited by it in the Bank was repaid. Following this arrangement, Lawhead, receiver, drew two checks on his account with the Bank, one for $24,542.79 and the other for $14,540.09, both payable to the Trust Company, aggregating the sum of $39,082.88. These checks were delivered to the Trust Company, one by mail and the other by Miss Charter, a sister of L. R. Charter, Jr., and were immediately endorsed by the Trust Company, and turned over to Miss Charter, who returned them to the Bank. The Trust Company credited the aggregate of these checks to the account of Lawhead, receiver, as an ordinary deposit; and on its general ledger charged the same amount to the Bank and carried the same as a part of its reserve as money due from banks. The Bank credited the two Lawhead, receiver, checks to the account of the Trust Company, as an ordinary deposit. This manner of handling the transaction on the books of the two banks continued to the date of the institution of this suit. Later on Lawhead made withdrawals from his account and made deposits. Objection was made to these withdrawals as not being in keeping with the agreement outlined above. The Trust Company evidently became concerned over the situation. Lawhead, as receiver, was asking it to furnish a bond to cover his account, and matters proceeded to the point where the Trust Company requested the Bank to secure its deposit, and this was done on the 31st of January, 1933, by the execution of a bond by said bank in the penalty of $39,082.88, and the deposit of notes of the face value of $40,001.50, to secure the obligation thereof. The bond and the notes deposited as collateral therewith were delivered to the Trust Company, and the notes were by it returned to the Bank for renewal and collection and to be accounted for by it as the property of the Trust Company. In the bond so executed, prepared by the President of the Trust Company, the sum attempted to be secured thereby is three times described as a "deposit" and in the correspondence appearing in the record, emanating from the Trust Company, the word "deposit" is invariably used with respect to the money held by the Bank. During all this period, and up to the closing of the Bank, in the statement of condition of the two banks furnished the Department of Banking and published as required by law, the Trust Company treated its money held by the Bank as a part of its reserves as money due from banks, and the Bank reported the same money as a deposit subject to check. At no time does it appear, from anything in the record, that the money deposited with the Bank was treated or considered as a loan until after the Bank was closed in July, 1933.

As we appraise the transaction, thus attempted to be outlined, it amounted to nothing more than a shifting of deposits. It must, of course, be interpreted as of the date of the arrangement entered into in October, 1931. If the monies shifted from one bank to the other, under this arrangement, were in fact deposits in 1931, they remained so until the closing of the Bank. If the money held by that bank was a deposit, the effort made in January, 1933, to secure the same by a bond and collateral was illegal and ineffectual. (Code, 31-4-9.) The reasons for our contention that the Trust Company occupies the position of a depositor are based primarily upon the testimony of its President, and the manner in which the transaction was handled from the beginning. The only matter discussed between Blizzard and Charter was that of shifting deposits. Charter thought the Bank had too much receivership money on deposit. He wanted to hold the deposit for said bank but he wanted to divide it between Lawhead, receiver, and the Trust Company. According to Blizzard, Charter frankly stated what he wanted to do and his reasons therefor. Apparently, Charter wanted to avoid the criticism which might have resulted from too large a deposit of a fund under his control in a bank of which he was formerly the active head. The Trust Company, when this proposal was made, and after inquiring as to the condition of the Bank and being satisfied on that point, agreed thereto. It was understood to be a temporary arrangement. No definite time was fixed as to how long it was to continue; no interest was to be paid; no suggestion of a note or other writing or of any security; just an ordinary transaction in which two friendly institutions were attempting to accommodate each other.

We are unable to see any particular advantage to either bank in what was done. If there were advantages, they were mutual. The Bank secured the reduction of one deposit and a new account to offset the reduction; the Trust Company secured a new account which, presumably, it considered desirable, and no doubt in the hope that it would be continued after its arrangement with the Bank should be terminated. The agreement as to the withdrawal of the Lawhead deposit was illegal as held by this court in Commercial Banking Trust Company v. Doddridge County Bank et al., 118 W. Va. 37,188 S.E. 663. Under the ruling in that case, Lawhead always had the right to withdraw his deposit, and under the agreement relied on, the Trust Company would have then been free to withdraw its deposit from the Bank. From whatever angle we approach the question, the facts, as we understand and interpret them, drive us to the conclusion that the money standing on the books of the Bank to the credit of the Trust Company was, at the time it was placed there, and thereafter continued to be, a general deposit and not a loan.

We have no quarrel with the authorities cited in the controlling opinion, which attempt to make a distinction between a deposit and a loan; nor with the holding of the cases cited which are considered as supporting the conclusion reached thereon. As we interpret the facts in the case at bar, they do not approach a parallel with the facts on which the cases cited were decided. We are unable to see anything in this record to support the theory that a loan was ever contemplated or made. There are certain general characteristics of a loan, well known to the business world and practiced therein, all of which, as we view the facts, are absent. Loans are usually made for a fixed period; compensation in the way of a discount or interest charge ordinarily is paid or provided for; customarily, especially in transactions between banks, a loan is evidenced by a note and secured by collateral of the character in which banks deal; and almost universally loans are designated on the books of banks as such, and so designated in reports required to be made and published for the benefit of the public. None of these customary elements of a loan is here present. As indicated above, the substance and not the form should be regarded, but in following this salutary rule, we should not give to the transaction in question an intent and purpose not indicated by anything the parties said or did at the time the arrangement was originally made, or their actions thereunder.

Even if the evidence and circumstances justified the holding that a loan was made, we are still of the opinion that the Trust Company is barred from recovery in this case on grounds of public policy. Not every contract is enforceable. That undefinable something called public policy often steps in to prevent the enforcement of agreements which, as between parties, are clearly established, when such enforcement would be prejudicial to the interest of the public as a whole, or contravene positive law. We think this is a case when the doctrine should be applied. Banking is a quasi-public business, regulated by both state and national governments, and subject to the most minute examination by governmental authorities. Frequent reports on the condition of banks are required in this state. These reports are made to the Department of Banking and condensed reports are required to be published in newspapers in the county where their business is conducted. From these published reports, the public — depositors, actual and prospective — obtain the information on which they base their judgment of banks with which they may desire to do business. These published statements should be made to speak the truth, and no banking institution should ever be permitted, for its own purposes, to set up a different state of facts from that appearing in its report to the Department of Banking or to the public. We think the published statements made by the Trust Company and the Bank did speak the truth. When the Trust Company reported and published that it had a stated reserve, a part of which was money in bank, and included in that reserve the money it had on deposit in the Bank, the public had the right to rely upon that report of its condition, the state of a bank's reserve being often vital to its safety; and when it permitted its money to be held by the Bank as an ordinary deposit and reported as such to the public, it permitted a situation to arise whereby the depositors of said bank were lulled into a sense of security which they might not have felt had the showing been that said bank was borrowing money. In matters of this kind, the public has an interest which the law should and will protect. If transactions of this character, affecting the business of a bank, can be upheld, there is nothing to prevent the secret preferring of depositors in any bank now being operated in this state. Banks have the power and right to borrow money, but when they do so, it must be an open transaction and carried on its records and reported to the public as a loan and not a deposit. Without any intention to reflect upon the good faith of the Trust Company, we are of the opinion that it is estopped, as against the depositors of the Bank, from asserting any status for its claim other than that of a general depositor.

We concur in that part of the controlling opinion which holds the evidence insufficient to show that the bank was insolvent at the time the Trust Company deposit was made. Therefore, we would reverse the decree of the Circuit Court and dismiss the bill.