Case ID: ohio-app_60/html/0207-01.html
Source: Caselaw Access Project
Author: {"author": "Guernsey, P. J. Crow, J.,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Reilly, Appellant, v. Squire, Supt. of Banks, et al., Appellees.
    (Decided April 15, 1938.)
    
      Messrs. Beneseh, Hirsch & Fishman, for appellant.
    
      Mr. Herbert S. Duffy, attorney general, Messrs. Ulmer, Berne é Gordon, Messrs. Klein & Diehm and Mr. Samuel Katz, for appellees.
   Guernsey, P. J.

This is an appeal on questions of law from an order of the Common Pleas Court of Cuyahoga county sustaining motions made by the several defendants to arrest the testimony from the jury and for judgment for defendants upon the pleadings and the trial statements of plaintiff, and overruling motion of plaintiff for a new trial. The order was made in an action pending in that court, wherein the appellant, James R. Reilly, was plaintiff, and the appellees, Samuel H. Squire, Superintendent of Banks of Ohio, in charge of the liquidation of The Guardian Trust Company of Cleveland, Ohio, The Guardian Trust Company, a corporation, George Q. Keeley, and Euclid-Y Corporation were defendants.

The action was brought in the Common Pleas Court by J ames R. Reilly, a depositor in The Guardian Trust Company to the' extent of $33, as such creditor' and depositor of the trust company for and on behalf of and for the benefit of each and all other creditors and depositors of the trust company who have similar claims against the defendants. The action was brought for cancellation of a land trust created by agreement and declaration of trust made by The Guardian Trust Company, of which it was designated trustee, and for an accounting, injunction, appointment of receiver and other equitable relief.

The petition and trial statement of plaintiff are based upon the theory that the subject of the trust, two parcels of real estate now held by George Q. Keeley, as successor trustee to The Guardian Trust Company, trustee, on behalf of the trust certificate holders as beneficiaries of the trust, actually was the property of The Guardian Trust Company. Therefore, it is contended, that the creation of the trust was ultra vires and illegal.

With reference to the possession by George Q. Keeley of the corpus of the trust, it is alleged in the petition that after the Superintendent of Banks took possession of The Guardian Trust Company for the purpose of liquidation he continued the administration of the purported trust until, on December 31, 1934, upon the petition of David J. Garson in Cause No. 416857 on the docket of the Court of Common Pleas of Cuyahoga county, and the answer thereto filed by the superintendent, the defendant George Q. Keeley was appointed successor trustee under the “agreement and declaration of trust” and the latter defendant is now engaged in administering the trust as such successor; and that, under the order of the Common Pleas Court in such action, title, control and possession of the trust estate were given to the defendant, George Q. Keeley, as. successor trustee, and since this transfer this defendant has been and now is in control of and exercising dominion over the trust estate and is continuing further to administer the same.

Neither the petition nor plaintiff’s trial statement charges fraud or collusion on the part of either of the parties to the Garson case, supra, in the procuring of the order and judgment.

"With reference to the Euclid-Y Corporation, it is alleged in the petition that, at the time of the attempted creation of the trust of the property hereinbefore mentioned, The Guardian Trust Company leased the property to the Euclid-Y Improvement Company, an Ohio corporation, for the term of ninety-nine years beginning December 1, 1926, and renewable for like terms of ninety-nine years; that the indenture of lease was duly recorded; that subsequently the leasehold estate was transferred and assigned by the Euclid-Y Improvement Company to the Euclid-Y Corporation; and that the assignment was duly recorded. It is further alleged that the defendant, Euclid-Y Corporation, is still continuing to collect the rentals from tenants and sub-tenants in actual possession of the premises described.

Both the defendants, Samuel H. Squire, Superintendent of Banks of the state of Ohio, in charge of the liquidation of The Guardian Trust Company, and George Q. Keeley, in their separate answers to the petition, among other defenses, plead that the validity of the trust referred to in plaintiff’s petition was determined and adjudicated in the case of Garson v. Guardian Trust Company, No. 416857 in the Common Pleas Court of Cuyahoga county, mentioned in the petition; that the property comprising the trust was directed to be transferred to George Q. Keeley as successor trustee; and that the validity of the trust and all rights of the plaintiff thereunder were adjudicated and determined in the former action.

While the trial court based its rulings and judgment from which this appeal is taken on a number of different grounds, we will limit our discussion of the cause to one ground, as a consideration of this ground disposes of the entire case.

The ground referred to is that the cause of action, if any,, set forth in plaintiff’s petition, as limited by his trial statement, is res judicata, having been fully determined in favor of the appellee, George Q. Keeley, as successor trustee, representing the land trust certificate holders in the case of Garson v. Guardian Trust Company, No. 416857 in the Common Pleas Court of Cuyahoga county, Ohio, above referred to.

With reference to the Garson case, above mentioned, it is admitted in plaintiff’s trial statement that Daniel J. Garson, one of the certificate holders of the land-trust described in the petition, filed his action against The Guardian Trust Company and I. J. Fulton, Superintendent of Banks of the state of Ohio, in charge of the liquidation of The Guardian Trust Company, as defendants, for the appointment of a successor trustee to defendant The Guardian Trust Company. It is also admitted that it was alleged in the petition in that cause that the trust was in existence and validly created, and that this was admitted by the superintendent in his pleadings and in court, and the superintendent took issue only with respect to the right of the court at the instance of Garson, the plaintiff, to appoint a successor trustee.

It does not appear from the pleadings or trial statement whether the plaintiff, Garson, in that action acted on behalf of himself as a certificate holder or on behalf of himself and other certificate holders, but in either event Keeley, as successor trustee appointed in that action, acquired under the judgment therein such rights and interests in the trust and corpus-thereof as he represents as a party defendant to this action. As none of the certificate holders, either individually or as a class, are made parties defendant to this action, it is only such rights and interests of Keeley, as successor trustee thus acquired, that are subject to adjudication herein.

“The judgment or decree of a court of competent jurisdiction upon the merits concludes the parties and privies to the litigation and constitutes a bar to a new action or suit involving the same cause of action either before the same or any other tribunal.” 34 Corpus Juris, 743, Section 1154.

“Where a former judgment on the same cause of action is pleaded in bar, it is no objection to its operation as an estoppel that the former action included some parties who are not joined in the second action, or that additional parties are joined in the second action, provided the judgment was rendered on the merits, and the party against whom the estoppel is set up was actually a party to the former litigation.” 34 Corpus Juris, 757, Section 1166.

As any rights and interests Keeley, as the successor trustee, had in the premises are derived from such action and judgment, he, as a privy to the plaintiff in such action, was entitled, under the rules mentioned, to plead such judgment as a bar or estoppel to the claim of the plaintiff in this action in the same manner and to the same extent that the plaintiff in the Gar son case would have been entitled to plead the same had he been made a party defendant herein. The judgment in that action having been rendered on the merits the estoppel thereof is operative against the Superintendent of Banks, notwithstanding the fact that additional parties are joined in this action.

In 34 Corpus Juris, 923, et seq., Section 1331, referring generally to the subject of res judicata and particularly to the adjudication of matters essential to the judgment and issues necessarily involved, it is stated:

“Matters which follow by necessary and inevitable inference from the judgment — findings or determinations of the court in relation to the subject matter of the suit which are necessarily implied from its final decision, as being determinations which it must have made in order to justify the judgment as rendered— are equally covered by the estoppel as if they were specifically found in so many words * * *. This is so, although the matter necessarily determined was not in issue under the pleadings * * #. In other words, it is allowable to reason back from the judgment to the basis on which it stands, and, regarding the judgment as a conclusion, and finding it to be one which could have been drawn only from certain premises, the premises are equally res judicata with the conclusion itself. As an application of this rule a judgment authorizing a recovery on a written instrument necessarily involves an adjudication of its validity and due execution. And so of a judgment foreclosing a mortgage.”

In 34 Corpus Juris, 944, Section 1345, it is further stated:

“When the existence and validity of a deed or other contract is adjudicated, either by being put in issue and tried, or in the sense of being necessarily determined by a judgment enforcing the contract, or refusing to set it aside, the question is conclusively settled by the judgment for the purposes of all further litigation between the same parties; and this rule applies, even though that issue was not raised in the action, since in that case the judgment necessarily implies a finding that the cause of action was valid and enforceable * * *.”

The court in which the Garson case, supra, was brought had general jurisdiction in equity and it was necessarily determined in the action that the trust was valid as it is only upon such determination that the court could have based its order and judgment appointing a successor trustee and ordering the transfer of the corpus of the trust to such successor trustee.

Under the authorities mentioned, the validity of the trust, being by necessary and inevitable inference determined by the judgment, is conclusively settled by the judgment for the purposes of all further litigation between the same parties and their privies and consequently the Superintendent of Banks is estopped from further litigating the validity of such trust as against Keeley as successor trustee, privy of the plaintiff in that action.

No depositor or creditor or class of depositors or creditors of the trust company were made parties defendant to the G-arson action, which leaves for determination the questions:

Did depositors or other creditors of the trust company have any such rights or interests in the liquidation of the trust company as would make them necessary parties defendant to an action between the Superintendent of Banks and the holder of a land trust certificate, either acting on behalf of himself or on behalf of himself and other certificate holders similarly situated, under agreement and declaration of trust in land, made by the trust company, to determine the validity of the trust and appoint a successor trustee thereof and order the transfer of the corpus of the trust to the successor trustee, in order to preclude them from asserting such rights and interests? If not, have such depositors and creditors any right to require the adjudication therein to be set aside because of the failure of the Superintendent of Banks, not induced by fraud or collusion, to plead as a defense to such action the invalidity of a trust?

These questions’ necessarily involve a consideration of the authority and duty of the Superintendent of Banks in the liquidation of a hank, as well as the legal rights and remedies of a depositor or other creditor of such bank in such liquidation.

Under the provisions of Section 710-89 et seq., General Code, general plenary power is. conferred and the duty imposed on the Superintendent of Banks, upon the existence of any of the various conditions mentioned in that section, to forthwith take possession of the business and property of any bank to which the act is applicable, to administer the same for the purpose of converting it into money and distributing such money among the persons entitled thereto. Among other powers specifically conferred and other duties specifically imposed upon the Superintendent of Banks under these sections are the following:

Section 710-91. ’ “Immediately upon the posting of notice on the door or doors of a bank by the Superintendent of Banks, as provided in Section 710-90 of the General Code, the possession of all assets and property of such bank of every' kind and nature, wheresoever situated, shall be deemed to be transferred from such bank to, and assumed by the Superintendent of Banks; and such posting shall of itself, and without the execution or delivery of any instruments of conveyance, assignment, transfer, or endorsement, vest the title to all such assets and property in the Superintendent of Banks. * * *”

Section 710-95. “The Superintendent of Banks, upon taking possession of the business and property of any bank, shall have, exercise and discharge the following powers, authority and duties, without notice or approval of court, but subject to the provisions of this chapter, to wit: * * *

“3. To exercise all the rights and powers of such bank under or by virtue of any mortgage, collateral, note, contract, judgment, decree or other instrument. # * #
“10. For the purpose of executing and performing any of the powers and duties hereby conferred upon him, in his name as Superintendent of Banks in charge of the liquidation of such bank, to institute, prosecute and defend any and all actions or proceedings within or without this state, and to execute, acknowledge and deliver any and all deeds, leases, assignments, releases, contracts and other instruments necessary or proper. # * *”

The Superintendent of Banks, by virtue of these statutory provisions, at the times of the commencement, pendency and adjudication of the Garson case, had the possession and title to all the assets and property of The Guardian Trust Company, including the corpus of the trust, and was authorized and empowered to execute all the rights and powers of the trust company under and by virtue of any contract or other instrument, including the agreement and declaration of trust, and was further authorized, for- the purpose of executing or performing any of the powers and duties conferred upon him, including the powers under the agreement and declaration of trust, in his name as Superintendent of Banks in charge of the liquidation of such trust company, to institute, prosecute and defend any and all actions and proceedings, including actions of the character of the Garson case, within or without the state. This gave him plenary power in the premises.

Except for the provision of Section 710-95, General Code, giving to persons aggrieved the right, by leave of court, to bring an independent suit to restrain action by the Superintendent of Banks upon an order made by the Common Pleas Court in which the proceedings for the liquidation of such bank are pending upon the application of the Superintendent of Banks, with regard to the exercise of certain additional powers by the superintendent, which has no application to the case at bar, and provisions of other sections giving depositors and other creditors the right to bring suits on their own behalf against the Superintendent of Banks to secure the allowance of their individual claims rejected by the Superintendent of Banks, there is no statutory provision either permitting or requiring depositors or other creditors of a bank in charge of the Superintendent of Banks for liquidation, to institute, prosecute or defend actions or proceedings with reference to the rights, powers, property or assets of the bank, or in any way participate, except by way of receipt of dividends on their respective claims, in the administration of such assets or property, or to litigate the claims of others against the property and assets, the bank or Superintendent of Banks, on behalf of themselves or others similarly situated. Therefore, whatever rights or remedies depositors, or other creditors of the bank may have in the premises must arise from the general rules of law or equity.

Under the general rules of law and equity, depositors and other creditors of a bank in charge of the Superintendent of Banks for liquidation unquestionably have vested, contractual rights for the protection and enforcement of which they are entitled to certain remedies. This, however, does not mean that by reason of their vested, contractual rights they have such rights and interests in the corpus of the property and assets being administered by the Superintendent of Banks, or in the administration thereof, as to require them to be parties to an adjudication such as in the Gars on case in order to preclude them from asserting such rights and interests.

The remedies to which they are entitled are not those applicable to liquidation proceedings through the process of the courts but those applicable to liquidation proceedings by an administrative officer of the state, for the Superintendent of Banks is an administrative officer of the state whose powers and duties are defined by statute, and in the exercise of such powers and in the performance of such duties he acts in his official capacity. In the institution, prosecution and defense of any and all actions the duties performed by him are discretionary in their nature and involve the exercise of judgment.

The Superintendent of Banks in the defense of the action was, by statute, clothed with plenary power and authority and, as the duties performed by him in the premises were discretionary in their nature and involved the exercise of judgment, depositors and other creditors of the bank had and have only such remedies for the protection or enforcement of their vested, contractual rights therein as under similar circumstances they would have had against any other state administrative officer in the performance of his official duties.

“The rule is firmly established that the courts will not interfere with executive officers or boards in the performance of duties which are discretionary in their nature or involve the exercise of judgment, unless the action is such as to amount to fraud, bad faith, or a gross abuse of the judicial discretion conferred upon such officer or board.” 32 Ohio Jurisprudence, 930,* Section 73.

It is also firmly established that, independent and irrespective of statute, by reason of .certain provisions of our state and federal Constitutions, persons having vested, contractual rights which may be detrimentally affected by an administrative officer of the state exceeding or abusing his power and discretion may, in a suit in equity in which it is alleged and proved that such officer has exceeded or abused his power and discretion, secure an order from the court directing or restraining such officer in the exercise of such power.

By providing in Section 710-95, General Code, that the Superintendent of Banks “shall not be directed or restrained in the exercise of his powers or discretion otherwise than in a suit in equity in which it shall be alleged^ and proved that he has exceeded or abused such powers and discretion,” the Legislature has made it clear that the superintendent, in the performance of his duties, is subject only to such restraint and direction. Depositors and other creditors have no other remedy in the premises.

It is also apparent from other provisions of the statutes relating to liquidation of banks that it was the purpose and intent of the Legislature to confer plenary power on the Superintendent of Banks in charge of a bank for liquidation, to administer the assets and property of the bank, and institute, prosecute and defend actions with reference thereto without interference from depositors and other creditors, and to withhold from depositors and other creditors the rights and remedies they would have if the liquidation was carried on by a person other than a public officer under order and process of the courts, so that the liquidation might be completed with a minimum of litigation, delay and expense. It also appears that it is the intent of the Legislature to limit the rights and remedies of depositors and other creditors of the bank in such liquidation proceeding to the right, by an action in equity, to direct or restrain the superintendent from exceeding his authority or abusing his discretion in the premises.

For the reasons above mentioned the depositors and other creditors of the trust company had no such rights or interests in the subject-matter of the Garson case as would make it necessary to make them parties defendant thereto in order to preclude them from asserting such rights and interests. Their only right, so far as that action was concerned, was the right, before judgment therein, to bring a suit in equity against the Superintendent of Banks for an order directing the Superintendent of Banks to defend the action on the ground that the trust was invalid.

The plaintiff and other depositors and creditors of the trust company failed to avail themselves of this remedy. They can not now avail themselves of it. The validity of the trust has been adjudicated and the superintendent precluded by the adjudication from making such defense. The superintendent being thus precluded, depositors and creditors are likewise precluded, as they can act only by court mandate through him. If the failure of the superintendent, without collusion or fraud, to defend tbn Garson case on the ground that the trust was invalid constitutes an abuse of discretion, such abuse, neither in law nor in equity, constitutes a ground for the setting aside of such adjudication.

As neither fraud nor collusion in the securing of the Garson judgment is charged, it is unnecessary for us to consider, and we do not consider, what the rights of depositors and creditors of the bank would have been in either of such events.

The petition and trial statement of the plaintiff, therefore, showed that the plaintiff was precluded from any relief in the case at bar by reason of the adjudication in the Garson case. For this reason the judgment of the Common Pleas Court will be affirmed at costs of appellant.

Judgment affirmed.

Klinger, J., concurs.

Crow, J.,

dissenting. The judgment attacked by this appeal should, in my opinion, be reversed, and on the undisputed facts established by the pleadings, and the admissions of counsel shown by the bill of exceptions, judgment should be entered for plaintiff to the extent of “directing,” by mandatory injunction, the defendant, Superintendent of Banks, to prosecute a suit against the holders of the land trust certificates, to set aside the trust, making the trustee of the trust a party also, although the petition does not specifically so pray, and contains much surplusage.

I do agree with the majority in its assertion that, “as none of the certificate holders, either individually or as a class, are made parties defendant to this action, it is only such rights and interests of Keeley, as successor trustee thus acquired, that are subject to adjudication herein.” Discussion might well stop with that sentence,because he, the successor trustee, could not possibly have any “rights or interests,” other than those within the execution of the trust, unless the Superintendent of Banks was, in virtue of law, the certificate holders and the depositors and other creditors by representation.

If he was not such, the certificate holders, other than possibly Garson, were in no manner affected and as to them that case fell to nothingness because of their absence as actual parties.

I would also decide that the record here fails to show that the depositors, the plaintiff and those he represents, ever have had a day in court concerning the validity of the trust and certificates thereof either by the Garson case or otherwise, inasmuch as the very essence of plaintiff’s purpose in that case, namely, the appointment of a successor trustee, was utterly repellent to even a suggestion that the trust was not valid, and the attitude of defendant, Superintendent of Banks, shown by the record, cannot possibly be construed otherwise than as an attempt on his part to ratify the trust and the certificates, if the trust was then and there open to successful attack. Otherwise stated, none of the parties to the Garson case in any manner whatsoever evinced a litigious disposition, but on the contrary complete accord existed and all semblance of contest was absent. Thus all of them excluded foundation for the application of the principle of implied or presumed adjudication which is the basis of the decision of the majority.

What might be the situation if the Superintendent of Banks had litigated the issue of the trust’s validity, instead of having joined in its exclusion, need not be inquired into, for if under the guise of litigation he could ratify the trust, there is no reason why he could not have attained the same result outside of the case.

What other recourse, if any, plaintiff and those he represents in the instant case would have were it not for a portion of Section 710-95, General Code, is foreign, and we now quote that portion as the majority opinion does.

“In ease of doubt or difficulty, the superintendent may ask the instructions of such court, or a judge thereof, as to the manner in which he should exercise his powers and discretion. He shall not be directed or restrained in the exercise of his powers or discretion otherwise than in a suit in equity in which it shall be alleged and proved that he has exceeded or abused such powers and discretion.”

The present case, not relating to instructions ask-able by the superintendent, does not call for a designation of the court which would have jurisdiction thereof but the court is. plainly described wherein the Superintendent of Banks is to be directed or restrained, that is, enjoined mandatorily or prohibitorily, as one “in equity.”

When is the latter type of a case to be brought, that is, a case like the one plaintiff is seeking to prosecute? The majority says it must be when there is about to be an exceeding or an abuse of the powers and discretion by the Superintendent of Banks; but tbe statute says that in the suit “it shall be alleged and proved that he [superintendent] has exceeded or abused such powers and discretion.” (Italics ours.)

While liquidating a bank the superintendent necessarily encounters many matters involving the exercise of discretion, the pendency of which matters cannot be actually or constructively known to the depositors and other creditors.

Whether, since depositors have contractual rights in the assets of a liquidating bank, by reason of its unlawful diversion of its assets in the form of trusts, the superintendent in charge of the liquidation of such bank, has any power or discretion at all affecting such rights, is, to say the least, extremely doubtful in view of the constitutional inhibition of statutory impairment.

Webster’s New International Dictionary defines “abuse” as “improper treatment or use,” and “discretion” as “power of free decision.”

Tested by that definition the conclusion is inescapable that the Superintendent of Banks did abuse his discretion, for although the Garson case was' disposed of prior to the decision in Ulmer v. Fulton, Supt. of Banks, 129 Ohio St., 323, 195 N. E., 557, the judgment in the latter ease, as well as in several other subsequent cases in lower courts of Ohio, only reflects the unquestioned law as it had universally and long existed, making void such transactions as the attempted creation of the trust and certificates thereof in issue in the present case.

The paragraph immediately preceding presupposes that the Superintendent of Banks had some discretion to exercise in the Garson case.

A trust certificate holder may himself bring a suit as was done in Haggerty v. Squire, Supt. of Banks, 26 Ohio Law Abs., 40, to set the trust aside and cancel the certificates, or the Superintendent of Banks can bring a suit, for the like purpose as in State, ex rel. Squire, Supt. of Banks, v. National City Bank of Cleveland, 56 Ohio App., 401, 11 N. E. (2d), 93, wherein an unusually fine and comprehensive opinion by Judge Matthews was filed, admirably covering the principal point in the instant case, namely, that though large, undefined discretion is vested in the superintendent when liquidating insolvent banks, the statutory provision twice quoted furnishes a remedy to aggrieved persons having contractual rights, one class of whom would be depositors questioning the validity of unlawful trusts created by the banks.

Guernsey, P. J., Crow and Klinger, JJ., of the Third Appellate District, sitting by designation in the Eighth Appellate District.