Court Opinion

ID: 6870014
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:59:41.323666+00
Date Added: 2024-06-11T16:05:23.282282
License: Public Domain

SIBLEY, Circuit Judge
(dissenting).
That the trust department of the national bank was a separate entity from the commercial department, so that the bank as executor could bindingly contract with itself as banker to the advantage of the bank as against its trust, is not, I think, a sound proposition. That part of the Federal Banking Laws, 12 U.S.C.A. § 248 (k), which authorizes the Federal Reserve Board “to grant by special permit to national banks applying therefor * * * the right to act as trustee, executor, administrator * * * or in any other fiduciary capacity in which State banks, trust companies, or other corporations which come into competition with national banks are permitted to act under the laws of the State in which the national bank is located,” does not authorize the Board to create any new entity, but only to give the bank another right. The bank continues to have the same stockholders, who are represented by the same directors. If a trust officer is chosen, he is a creature of the directors, responsible to them as the cashier or any other agent of the bank is. The provisions of the law about segregating the assets held by the bank in a fiduciary capacity are only a recognition that those assets do not belong to the bank and ought not to be commingled with the bank’s own assets, just as an individual who is a trustee ought not to mingle the funds of his trust with his own funds. The bank can use trust funds in its hands only by putting in their place United States bonds or other securities approved, not by the bank, but by the Federal Reserve Board. Separate books are kept, but only as a convenience in keeping up with this peculiar business of the bank, and to facilitate the state authorities in examining into this business without examining the commercial banking books. It is provided specially that, if the bank should fail, the owners of the fiduciary funds may claim them, and shall have a lien on bonds or other securities set apart for them “in addition to their claim against the estate of the bank.” That is to say, any shortage in the trust accounts is a claim against the general assets of the bank like that of any other creditor of the bank. The law does not create any separate entity inside the bank, but merely allows the bank to successfully compete by doing what state banks are allowed to do. It is probable that Congress has no authority to create a separate entity to act as trustee or executor in the states. That no such thing was done I understand to be the basis of the decision in First National Bank of Bay City v. Fellows ex rel. Union Trust Co., 244 U. S. 416, 37 S.Ct. 734, 61 L.Ed. 1233, L.R.A. 1918C, 283, Ann.Cas.l918D, 1169, upholding this new function of a national bank.
There being but one bank, one set of interested stockholders, represented by one board of directors who control all the agents and officers of the bank, it is clear that the bank as executor cannot contract with nor be sued by itself as bank, any more than an individual executor having agents could sue or contract with himself. Every principle of trust relationships is against it. The executor of Booth’s estate was not the trust officer but the bank itself. If any money was to be made or lost by reason of the trust, the bank, not he, made or lost it. In borrowing from itself money for the use of the estate, giving negotiable notes for it, and promising to pay the highest conventional rate of interest, 10 per cent., to be compounded by renewal in three months, and promising to pay 10 per cent, attorney's fees in case of default in payment and placing the note in the hands of an attorney, “or if collected through the Probate Court,” this executor did a thing on its face wrong, even if legally possible. If this be a valid contract, the executor, instead of advancing money as an executor may do when money is needed, bringing the advances into his accounts in the probate court and asking the legal rate of interest, which in Texas is 6 per cent., has so fixed matters that it can make 10 per cent, interest quarterly compounded and then by not paying itself can add 10 per cent, attorney’s fees even if no more is done than to bring the debt before the probate court for allowance. The law does not sustain transactions which thus oppose interest to fiduciary duty. These notes as between the parties and their privies are only memoranda of transactions. Probably no limitation runs so long as the trust continues, for the very reason that an executor cannot sue himself. Glover v. Patten, 165 U. S. 394, at page 405, 17 S.Ct. 411, 41 L.Ed. *327760. But in any case the promises by the trustee to pay himself an exaggerated interest and attorney’s fees on an unfair basis are not enforceable at all. Inquiry into these advances ought to be made only in connection with the general settlement of the executor’s business which was pending in the District Court through removal from the probate court. It may turn out that the bank as executor owes the trust, in which case this judgment for 10 per cent, interest and attorney’s fees would be fantastic. The judgment which is affirmed is not consistent with the theory of separate entities on which it was rendered, for it is made subject to set-off by any judgment rendered against the bank in the general settlement, thus conceding that the commercial department which is suing here is the same as the trust department which is defending there. The set-off, however, would not cure the injustice of the interest and attorney’s fees adjudicated here. The suit ought to have been dismissed.