Court Opinion

ID: 3425130
Source: CourtListenerOpinion
Date Created: 2016-07-05 19:53:01.519384+00
Date Added: 2024-06-11T14:03:34.330538
License: Public Domain

DISSENTING OPINION
The opinion of a majority of the court herein sets forth the factual situation involved in this appeal. A summarization of the main provisions of the contract of March 5, 1930, between the Farmers Trust Company and the Citizens Trust Company, discloses the following:
In the preamble it is stated that the Farmers Trust Company desired to sell, assign, and set over to the Citizens Trust Company, all and singular, its assets, and to discontinue its banking business, and under the conditions thereinafter stipulated the Citizens Trust *Page 707 
Company was willing to purchase the same. These conditions of sale and purchase as specified therein were as follows:
(a) The Citizens Trust Company was to pay or cause to be paid deposit accounts of various kinds, due depositors, as the same appeared of record on the books of the Farmers Trust Company on the date of transfer.
(b) The Citizens Trust Company was to pay, or cause to be paid, the bills payable of the Farmers Trust Company as the same appeared of record.
(c) The Farmers Trust Company by its president and secretary and a majority of its board of directors, was to execute a promissory note or notes in the full amount of the deposits and bills payable that were assumed by the Citizens Trust Company, and the same was to be secured as collateral by all and singular the assets of the Farmers Trust Company as the same appeared of record on the date of transfer.
(d) The Citizens Trust Company was to pay three (3) per cent on certain deposits in the Farmers Trust Company at the time of transfer for good will, in three equal installments, six, twelve and eighteen months from the date of transfer of such deposits.
(e) The Farmers Trust Company, in consideration of the foregoing and the covenants of the Citizens Trust Company, agreed that it would at the closing time determined by such contract, grant, bargain, sell, assign, pay, transfer, and deliver unto the Citizens Trust Company as its sole and absolute property, such portion of the notes, securities, and other assets owned by the Farmers Trust Company as should be selected by the Citizens Trust Company and as should equal in value the amount of liabilities of the Farmers Trust *Page 708 
Company that were assumed by the Citizens Trust Company.
(f) The Farmers Trust Company warranted its right, power, and authority to grant, bargain, sell, assign, transfer, and deliver all the property and assets that were granted, bargained, sold, assigned, and delivered to the Citizens Trust Company in accordance with the terms of such agreement, and agreed to warrant and defend the title to such property and assets unto the Citizens Trust Company, its successors and assigns against the lawful claims and demands of any person, firm or corporation.
(g) It was further agreed that if for any reason the Citizens Trust Company was dissatisfied with any notes, securities, or other assets acquired by it under the provisions of such agreement, that it might at any time or times on or before September 1, 1931, return the note, security, or asset so acquired to the Farmers Trust Company, and the Farmers Trust Company agreed to pay the Citizens Trust Company in cash, an amount equal to the value of the notes, securities, or other assets so returned.
(h) The Citizens Trust Company was given the right to renew or extend from time to time any note, security, or asset acquired by it under the terms of the agreement, and to take such renewal at its discretion so that it would be payable to it instead of the Farmers Trust Company.
(i) The Farmers Trust Company, to secure the performance of its agreement, agreed to pledge and deposit with the Citizens Trust Company all its remaining assets that were not granted, bargained, sold, assigned, and delivered to the Citizens Trust Company under the provisions of the agreement that are heretofore set forth. *Page 709 
(j) The Farmers Trust Company agreed to execute, at the request of the Citizens Trust Company, such instruments of assignment, transfer, conveyance, or endorsement as would be legally sufficient to vest in the Citizens Trust Company full, complete and absolute legal or equitable title in and to all the notes, securities and other assets granted, bargained, sold, transferred, and delivered under the provisions of the agreement, and also notes, securities and other assets held as collateral security thereto.
(k) It was further agreed that all officers, directors and stockholders should cooperate with the Citizens Trust Company and in good faith maintain the value of the consolidation of the business and assets of the Farmers Trust Company with the Citizens Trust Company. All transfer of stock of the Farmers Trust Company were subject to the approval of the Citizens Trust Company and the Farmers Trust Company was to deliver to the Citizens Trust Company all its books and records of all kinds, including correspondence, and all of the books, records, and correspondence that related to the accounts of depositors and other liabilities assumed by the Citizens Trust Company, or that related to notes, accounts, or assets acquired by Citizens Trust Company which remained the sole and absolute property of the Citizens Trust Company.
While the above does not include all the terms of the agreement between the two banks it does disclose the essential features thereof. After the making of such agreement the Farmers Trust Company ceased to engage in a general banking business. Its president, vice president and secretary, and many of its employees became officers or employees of the Citizens Trust Company. Immediately following such agreement all of the movable assets, other than furniture and fixtures, were *Page 710 
moved to the banking house of the Citizens Trust Company, and the secretary of the Farmers Trust Company, as an employee of Citizens Trust Company, was placed in charge thereof. An advertisement appeared in a Fort Wayne newspaper, on behalf of the Citizens Trust Company, advising the general public that the Citizens Trust Company had acquired the assets and assumed the deposit liabilities of the Farmers Trust Company, and that the business of the two institutions would be consolidated. This was on March 6, 1930, after the foregoing agreement had been signed on March 5.
The actual transfer of the assets of the Farmers Trust Company to the Citizens Trust Company was made as of the hour of the closing of business on March 10, 1930. In addition to the notes, securities, bonds, and accounts that were transferred under such agreement, there was a large amount of real estate owned by the Farmers Trust Company and also certain contracts executed by it for the sale of real estate, that the parties treated as transferred.
I agree with the majority of the court that a determination of the proper construction, validity, and legal effect of this agreement is one of the basic questions involved in this appeal, but I do not agree with the construction thereof as set forth in the opinion of the court.
In construing contracts the leading purpose is to ascertain the intent of the parties. In ascertaining this intent, the court will, if necessary, consider the contract in the light of the position and surroundings of the parties attending its execution.Ransdel v. Moore (1899), 153 Ind. 393, 401, 53 N.E. 767, 53 L.R.A. 753; Howard v. Adkins (1906), 167 Ind. 184, *Page 711 78 N.E. 665; Warrum v. White (1909), 171 Ind. 574, 577, 86 N.E. 959.
If the language of a contract is at all uncertain or ambiguous, and the parties by their acts and conduct have given it a certain construction, the courts will give great, if not controlling influence to such interpretation in arriving at the true intent of the parties. Hook Drug Co. v. Kandis Bros. (1930),91 Ind. App. 472, 477, 169 N.E. 596; Kann v. Brooks (1913),54 Ind. App. 625, 101 N.E. 513.
A banking corporation comes severely within the rule that all acts not authorized by its charter, and the law under which it was incorporated are ultra vires. The very nature of its business requires a strict enforcement of the law, that its stockholders may not become liable and that the earnings and savings of its depositors may be safely preserved. Magee, Banks and Banking, 2d Ed., p. 21; 7 Am. Jur., Banks, § 160, p. 123; 9 C.J.S., Banks and Banking, § 157, p. 334.
It has been held that the directors have no authority, directly or indirectly, to use any of the funds or property of the bank, for purposes other than those properly belonging to the legitimate business of banking. They can make no gifts of the corporate property, unless duly authorized by all the stockholders. They cannot in any manner appropriate any portion of the property of the corporation for any purpose other than that duly authorized by law. Magee, Banks and Banking, 2d Ed., pp. 92, 94; Board, etc. v. Citizens, etc., Bank (1920),73 Ind. App. 76, 85, 86, 123 N.E. 130.
I do not believe that the Citizens Trust Company had any legal right to make a loan of $1,181,359.75 to the Farmers Trust Company.
Among the items of undisputed evidence was the daily statement of the Citizens Trust Company, as *Page 712 
taken from its general ledger, showing its resources and liabilities on March 6, 1930, with the debits and credits to the various items upon such date. The statement of such date showed commercial or checking deposits in the amount of $805,992.47 and total cash on hand and in bank of $337,382.57. The condition as to commercial deposits and cash on hand and in bank was not materially different on the previous day of March 5, 1930.
Under the provisions of the Acts of 1917, ch. 78, p. 189 (Burns' Anno. Ind. Statutes 1926, § 3865), both of these banks, at the time this agreement was made and carried out, was required to maintain a cash reserve in an amount equal to at least twelve and one-half per cent (12 1/2%) of the aggregate amount of their commercial deposits. This would require the Citizens Trust Company on March 6 to maintain a cash reserve of $106,515.89 which could neither be loaned or invested, and since its total cash on hand and in bank was less than $340,000, it could not possibly make a legal loan of its cash in the amount of $1,181,359.75.
A loan by a bank, like any other loan, is the furnishing or delivery of anything, usually money in case of a bank, on the condition or agreement, express or implied, that the thing loaned or its equivalent in kind shall be returned or repaid. Zurich,etc., Ins. Co. v. Safe-T-Kros Drug Co. (1930),91 Ind. App. 130, 170 N.E. 351. From this definition it is apparent that it is ordinarily essential to the existence of a loan that there be both an actual delivery of something to another, and a promise of repayment. If these elements are not present the transaction is not a loan no matter how it may be labeled or what it may be called by the parties. The intention of the recipient to make repayment distinguishes a loan from a sale, and it is the *Page 713 
intention that the repayment may be made either in specie or by an equivalent, rather than in specie only, that distinguishes a loan from a bailment, since in a loan, property in the subject-matter passes to the borrower. 9 C.J.S., Banks and Banking, § 383, p. 797, and cases cited.
So if the Citizens Trust Company loaned the Farmers Trust Company $1,181,359.75, then property in that much cash would have to pass from the lender to the borrower. Nor does the evidence justify a conclusion that there was any expectation, on the part of either party to the contract, that the Farmers Trust Company should ever receive or repay this amount. Following the making of this contract the expectation of both parties was that the Farmers Trust Company cease the transaction of all banking business.
Nor do I believe that this transaction, whether considered as a loan or a sale, would be valid as against the rights of creditors having unpaid claims against the Farmers Trust Company at the time the transaction took place. At that time both of these banks were subject to the provisions of ch. 8, § 14 of the Acts of 1873, p. 21 (Burns' Anno. Ind. Statutes 1926, § 3866), which declared void all transfers of notes, bonds, bills of exchange, deposits to its credit, or other assets therein named, after the commission of an act of insolvency or in contemplation thereof, with a view to prevent the application of its assets to the proper payment of its just liabilities, or with a view to the preference of one creditor to another. In the case of Brighton
v. White (1891), 128 Ind. 320, 322, 27 N.E. 620, the Supreme Court, in construing this particular statute, says:
    "The statute is strong and its object plain. It means that there shall be no preference of creditors, *Page 714 
and that all transfers for the purpose of creating a preference shall be absolutely ineffective. No title can pass. A creditor taking an assignment in violation of the terms of the statute gets no shadow of title. The statute operates upon the creditor as well as upon the bank; it fetters both, the one can not transfer nor the other accept."
By the weight of authority in civil cases involving the meaning of the term "insolvency" as applied to banks, it is held that a bank is insolvent if it is unable to pay its debts in the ordinary and usual course of business. 7 Am. Jur., Banks, § 711, p. 514; Annotation: 85 A.L.R. 812.
If it should be argued that the Farmers Trust Company was not insolvent at the time this agreement was made, and that the agreement was not made in contemplation of insolvency, then it should be noted that the agreement provides for the giving of additional security to the Citizens Trust Company in the future. If the Citizens Trust Company was dissatisfied with any of the securities it claimed were pledged to it, it could return the same and receive additional security or cash, and this could be done whether the Farmers Trust Company remained solvent or became insolvent.
Under the National Banking Act there is a provision concerning the creation of preferences that is quite similar to § 14 of Acts 1873, p. 21. It has been held thereunder that a resolution of the directors of a national bank to suspend its operation constituted an act of insolvency within the meaning of such act. Hirning v.Federal Reserve Bank (1931), 52 F.2d 382, 82 A.L.R. 297.
A bank is in contemplation of insolvency when it is reasonably apparent to its officers that it will presently be unable to meet its obligations and will be obliged *Page 715 
to suspend its ordinary operations. Armstrong v. Chemical Nat.Bank, 41 F. 234, 6 L.R.A. 226.
As is so convincingly set forth by the appellee in his brief, the Farmers Trust Company at the time this agreement was made, "was a distressed bank and a major portion of its assets frozen." On March 6, 1930, its demand deposits were $312,843.69 and it was required to maintain a cash reserve of $39,105.45. Its total cash on hand as of such day was only $43,176.82 so that it was in no condition whatever to stand a bank run. A resolution had been adopted by its board of directors authorizing its officers to borrow $300,000 from three other banks in the city of Fort Wayne, but there is no evidence that they could obtain the money. In fact, appellee admits in his brief that the evidence shows that it was necessary for the Farmers Trust Company to make this particular agreement, or to take some steps, for the protection of its depositors.
I feel that the evidence is conclusive to the effect that this particular agreement was made either after the Farmers Trust Company had become insolvent, or in contemplation of insolvency, and if it can be construed, as it was construed by the court below, and as it was construed by a majority of this court, as giving a preference to the Citizens Trust Company over the Federal Land Bank of Louisville, which had a valid, outstanding, unpaid and undisputed claim at the time the agreement was made, then the agreement was invalid as creating a preference under the provisions of the statute. Nor do I believe that that portion of the agreement which permitted the Citizens Trust Company to return on or before September 1, 1931, any notes, securities, or other assets, and receive cash therefor, was valid.
By the great weight of authority, with or without *Page 716 
the aid of a controlling statute, a bank whether national or state, has been denied the power to agree to repurchase mortgages, or other securities sold by it, on the ground that such agreement is ultra vires and against public policy. SeeRothschild v. Manufacturers Trust Co. (1939), 279 N.Y. 355,18 N.E.2d 527, and annotation in 120 A.L.R. p. 485.
Following the same principle, a bank could not sell all of its assets and agree to repurchase any portion thereof with which the transferee was dissatisfied. An agreement valid and enforceable if made by an ordinary corporation, may, by reason of public policy, be void and unenforceable against a banking corporation. If a bank can sell its assets under a contingent agreement that it will repurchase the same if the buyer is dissatisfied, then there is no way that the exact liabilities of the bank can be determined. Neither the depositors, creditors or public officials could determine its actual condition. Such a contract would be inimical to sound banking and perilous to the interest of depositors and the public. Awotin v. Atlas Nat. Bank ofChicago, 295 U.S. 209, 211, 55 S.Ct. 674, 676, 79 L.Ed. 1393.
Although it was not discussed in the opinion of the court, I think the main question involved herein, as far as the Federal Land Bank of Louisville, Kentucky, is concerned, is whether its general claim, which existed long prior to these transactions on March 5, 1930, had preference over the claim of the receiver of the Citizens Trust Company. The latter claim was based upon a renewal of the original note that was executed under the agreement of March 5, 1930. Whether the transaction of March 5, 1930, was called a loan or a sale, the evident purpose thereof was to pass all of the assets of the Farmers Trust Company to the Citizens Trust Company, and for the Farmers Trust Company *Page 717 
to cease the transaction of all banking business. There seems to me no valid reason to give to the Citizens Trust Company, as the result of this transaction, a preference over the claim of other existing creditors. Whatever the transaction is called, the Citizens Trust Company had as full control over the assets of the Farmers Trust Company as it could acquire by purchase.
It is a fair construction of this contract that one of the purposes thereof was to create a situation where the Citizens Trust Company could acquire all of the assets of the Farmers Trust Company as owner, in the event banking conditions improved and the assets increased in value, but as lender in the event they continued to deteriorate and the amount of the liabilities exceeded the value of the assets.
I feel that the judgment of the lower court should be reversed and a new trial granted.
NOTE. — Reported in 45 N.E.2d 10.