Court Opinion

ID: 4939446
Source: CourtListenerOpinion
Date Created: 2021-09-24 01:23:28.965764+00
Date Added: 2024-06-11T08:14:49.451861
License: Public Domain

Morrill, J.
Dissenting. I concur with all the conclusions of the opinion, except on the main question of an actual segregation of assets, as claimed by the receivers, for the security of the savings deposits. After a careful study of the case I cannot escape the conclusion that the officers of Lincoln County Trust Company never legally made such segregation. As all my associates think otherwise I should hesitate to express my views except by a mere statement of non-concurrence, did I not think that the case shows not only no segregation, but a persistent disregard of the provisions of law enacted for the protection of both savings and commercial depositors in trust companies, which should not be permitted to pass unnoticed.
I think that we agree that a mere vote to segregate is not sufficient; that the securities must be actually set aside for the purpose indicated, and must not thereafter “be mingled with the other assets of the company,” while such segregation continues; they should be kept in a class by themselves and accounted for as other trusts. I do *282not see how there can be such actual legal segregation unless the securities are designated, or a definite, permanent record is made, as plainly directed by statute.
The use of the rubber stamp, once a week, by a clerk in transferring the ledger balances from one leaf of the trial balance loose leaf ledger to the leaf for the following week, lacks all the elements of a permanent record. ■ The five items of assets alleged to be segregated were printed on the trial balance sheet consecutively in the following order, “Stocks and Bonds,” “U. S. Bonds,” “Loans on Collateral and Chattels,” “Loans on Mortgages of R. E.,” “Other Loans”; and were numbered 1, 2, 4, 5, 6; between the items “U. S. Bonds” and “Loans on Collateral and Chattels” a blank line numbered 3 appears. Upon at least two copies of the case furnished, the court the fac simile of the trial balance sheet, showing the method of using the rubber stamp, shows that the stamped bracket does not include the item, “Other Loans,” and that the stamp used was not long enough to include that item; if used so as to include “Other Loans,” the item “Stocks and Bonds” could not be included.
The description of the results shown on the books by the use of the rubber stamp indicates the loose, inexcusable banking methods adopted.
■ An analysis of the condition of the bank on March 14, 1923, when it closed its doors, shows: Savings Deposits $366,955.13
Other Liabilities
Certificates of deposits...................................... $ 300.00
Demand deposits..........................................'...... 79,764.60
Bills payable...................................................... 10,000,00
$90,064.60
Assets claimed to be segregated:
Stocks and bonds....................................... $304,043.31
Loans, coll, and chattels.................... 10,515.00
Loans on mortages of R. E............................. 53,165.88
$367,724.19
Other loans.......................................................... 116,262.88
$483,987.07
*283Other assets:
Banking house.................................................... 124,000.00
Other real estate................................................ 7,231.50
Cash on deposit............................................... 2,305.45
Cash on hand..................................................... 2,653.19
~ $3fbÍ90O4
It will be observed that the items of Stocks and Bonds, Loans on Collateral and Chattels, and Loans on Mortgages of Real Estate exceed by $769.06 the amount of Savings Deposits, an entirely reasonable amount; add the item “Other Loans,” and the total exceeds the savings deposits by $117,031.94. Sec. 90 of Chap. 52 of the R. S. does not fix any maximum amount of assets to be segregated; it provides that they shall be “at least equal to the aggregate amount of such deposits.” In the absence of such statutory maximum the court perhaps cannot say as a matter of law that an overlay in value of nearly 33|% of the savings deposits, although apparently excessive, is unlawful.
In my opinion, however, the law does not contemplate any such segregation in bulk of different classes of assets, or, as here, of the entire invested assets of the bank except the real estate; in the instant case the only remaining assets are the banking house, other real estate, cash on deposit and cash on hand. To such a proceeding the provision that the “assets so segregated .... shall not be mingled with the other assets of the company” (R. S., Chap. 52, Sec. 91) has no application. It is safe to say that the Legislature never intended to authorize the directors to give the savings depositors a prior lien upon all the invested quick assets of the company, leaving the equity to the commercial depositors.
The following section (Section 92) to my mind makes this clear; it provides:—“All notes, certificates of stocks, bonds and other securities representing such assets shall be plainly stamped ‘Savings Department’; provided, however, that in lieu thereof it shall be lawful to record in the investment book a description of assets so held sufficient to identify them.” The first method of identification was not followed. The opinion seems to proceed on the theory that the use of the rubber stamp may be considered equivalent to the second method. This is the first time, I think, that a daily trial balance sheet, showing mere balances of the various ledger accounts *284making up the total assets and liabilities of the bank, was ever regarded, as an “investment book,” in which could be recorded a description of segregated assets: The statute clearly indicates that each item, each bond, or mortgage, or note, so segregated, shall either be stamped or so recorded in the investment book which necessarily lists each investment.
It may be said that this construction of the statute is too strict, that it unduly clings to the letter of the law and disregards its spirit; that a construction should be adopted, if possible, which will render the statute effective in the present case for the security of the savings depositors. Upon this ground, as I understand the opinion, it sanctions, but does not approve, the procedure of the bank.
With such loose banking methods shown, nothing should be presumed, or receive sanction, upon liquidation of the bank, which will favor one class of depositors as against another. While the law as to segregation should receive a liberal construction in the interest of the savings depositors for whose security it was passed and who are not responsible for the bank's loose methods as the opinion well says, its administration should be just towards the commercial depositors,, who likewise are not responsible for the bank's loose methods, and who equally with the other depositors may have been misled.
To demonstrate the position in which the commercial depositors will be placed' if this alleged segregation of assets is recognized, it is only necessary to refer to the bank’s report.of January 6, 1923, presumably verified by an official examination of the bank. In that statement no mention is made of segregated assets. If the alleged segregation had been given effect, assets carried on the books at $507,137.53 would be regarded as held as security for the payment of savings deposits of $370,206.16; and for the immediate payment of $50,000 borrowed money and $88,469.92 commercial deposits, there remained only cash on deposit, on hand, and overdrafts, amounting to $28,432.45, a bank building carried at $24,000, and other real estate carried at $7,251.50, a total of $59,683.95.
On March 14, 1923 the bank closed its doors; but in the meantime it had reduced its bills payable to $10,000 in part at least by applying to the payment thereof assets, which it is now maintained were segregated, from which it realized more than $20,000. I refer to this latter fact merely to show that so far as the bank was concerned *285this alleged segregation was colorable only and a mere evasion of the law. If the alleged segregation is given effect, assets carried on the books at §483,987.07 must be first applied to the payment of savings deposits of §366,955.13; and there will remain cash on hand and on deposit (§4,958.64) a banking house carried at $24,000, and other real estate carried at §7,231.50 (total $36,190.14) available for payment of borrowed money $10,000, and commercial deposits of §80,064.60. It is true that the above figures show an equity above the amount of savings deposits; but how much of that equity will remain upon sale of the securities, it is impossible to tell without an inspection of a list of the securities; the shrinkage may, and probably will be large.
I have said that the action of the bank was a mere evasion of the law. I ought to add that so far as the official statements of the bank’s condition show, the Banking Department has not recognized or approved the action of the bank. The various reports of the condition of the trust company at the annual examinations are not made a part of the case; but I have examined them for any light which they may throw on the question. These reports do not disclose any item of assets segregated for the security of savings depositors; they make no mention of segregated assets. That such items, if they existed, should so appear, is obvious; it is as important for the information of stockholders and depositors as other items which usually appear, such as “Trust Department” and “Trust Investments,” “Sinking Funds for Corporations” and “Sinking Fund Investments.” These reports are for publication. Sections 85, 87. The only inference to be drawn from this state of facts' is that the Banking Department having supervision of segregated assets and authority to order the reduction of the figure at which they are carried on the books (Section 90), either knew nothing of the alleged segregation or did not recognize it as complying with the law. The commercial depositors under these circumstances could have no means of knowledge of any such segregation as is now claimed, and the savings depositors were not deceived, or lulled into a false belief that assets had been segregated for their security.
I am, therefore, of the opinion that upon this proceeding for the equitable distribution of the "assets, all depositors should share proportionately in all assets, subject to the principles of set-off declared in the opinion, so far as applicable.