Opinion
1946-01-10
FIDELITY & CASUALTY CO. OF NEW YORK v. NILES BANK CO. et al.
Howell, Roberts & Duncan, of Cleveland, for plaintiff. W. F. MacQueen, and Paul Z. Hodge, both of Niles, for defendants Niles Bank Co. and Niles Holding Co.
See 71 N.E.2d 742.
Action by the Fidelity & Casualty Company of New York against the Niles Bank Company of Niles, Ohio, and others.
Judgment for defendants in accordance with opinion.Howell, Roberts & Duncan, of Cleveland, for plaintiff. W. F. MacQueen, and Paul Z. Hodge, both of Niles, for defendants Niles Bank Co. and Niles Holding Co.
W. P. Barnum, of Youngstown, for defendant Mahoning Valley Sanitary Dist.
GRIFFITH, Judge.
A timely request was made for this Court to make separate findings of fact and conclusions of law. These findings should respond to the questions of fact, and to all the issues raised in the case; and, for that reason, may be somewhat lengthy in order to cover all the material issues presented for determination.
Finding of Facts.
The plaintiff, The Fidelity & Casualty Company of New York, is a corporation engaged in the business of writing surety bonds, and authorized to write casualty insurance generally.
The defendant, The Niles Bank Company, is an Ohio bank doing a general banking business in Niles, Ohio; and is the successor to The Niles Trust Company.
The defendant, The Mahoning Valley Sanitary District, is an Ohio corporation, operating a sanitary water district in Trumbull and Mahoning Counties, Ohio.
The Niles Holding Company is an Ohio corporation, formed for holding and liquidating certain assets of the former The Niles Trust Company.
On Fabruary 17, 1926, The Mahoning Valley Sanitary District passed a resolution, designating The Niles Trust Company as one of the depositories of its funds; and at no time did it ever designate The Niles Trust Company as temporary, or assistant treasurer of the District.
The plaintiff bonding company, on December 15, 1930, at the request of The Niles Trust Company, executed a $50,000.00 bond; guaranteeing to The Mahoning Valley Sanitary District the payment of the District deposit; which bond is number 1302341, and was in force from December 15, 1930, to December 15, 1931.
The Niles Trust Company, in its application for the bond, represented that it was the legal depository of The Mahoning Valley Sanitary District funds; and, in reliance upon this representation, the plaintiff executed the bond.
On September 28, 1931, the superintendent of banks of Ohio took possession of The Niles Trust Company for liquidation, because of its insolvent financial condition.
On this date of the closing of the bank, the district had on deposit with the bank $435,379.07; and the district held collateral of the face value of $376,600.49, but of actual value of $310,160.48, and additional collateral of $77,400.00 in mortgages.
The district made demand on plaintiff for payment of the full amount of the bond; and, on January 12, 1932, the plaintiff paid the district $50,000.00; and the district thereupon assigned to the bonding company an undivided interest in said deposit in The Niles Trust Company in the amount of $50,000.00, thereby subrogating the bonding company to the extent of $50,000.00 to all of its rights of recovery against the bank.
The bank was reorganized under the name of The Niles Bank Company, opening for business on June 15, 1933.
While in the progress of reorganizing, on November 11, 1932, the reorganizing committee, as a part of the program leading to the reopening of the bank, offered to settle the claim of the plaintiff at forty-two cents on the dollar; which offer the plaintiff rejected: and, after further negotiation, the committed offered to pay the plaintiff 50% of the face amount of the plaintiff's claim of $50,000.00; which offer plaintiff agreed to accept, in full settlement of its claim of a common creditor, as shown by contract marked plaintiff's exhibit 7.
It was the belief of all parties concerned that the claim was that of a common creditor, and this belief continued for over one year thereafter.
Application was made in case No. 36222 to the Common Pleas Court of Trumbull County, by The Niles Trust Company, for authority to resume business; and after the proper legal proceedings were had the name of The Niles Trust Company was changed to that of The Niles Bank Company; and the court, upon final hearing, made an order and findings as set forth in the journal entry in this case marked Bank Defendant's Exhibit 2.
On June 15, 1933, the day of the opening of the bank, The Niles Bank Company paid to plaintiff $25,000.00; and the plaintiff executed and delivered a receipt which is in evidence, plaintiff's exhibit 8.
On September 22, 1934, The Niles Bank Company paid to the district § 147,610.98, being the entire balance owing from the bank to the district; and the district turned back to the bank all the collateral and securities it then held.
On December 30, 1934, the attorney general of Ohio, upon the application of William P. Gibbons, treasurer of the Mahoning Valley Sanitary District, rendered an opinion to the effect that the district claim was not a common or general claim, but was a preferred claim; by reason of the fact that the bank had received deposits without having been made a legal depository, and, therefore, held said funds in trust for the district.
On the 17th day of February, 1928, and for a long period of time thereafter, Jacob D. Waddell was one of the directors and president of the Mahoning Valley Sanitary District; and also was president and director of The Niles Trust Company until it was closed, and thereafter was the first president of The Niles Bank Company until his death August 4, 1939.
Conclusions of Law.
The deposits by the district with The Niles Trust Company were not made in the manner required by G.C. § 6602-79, in that the bank was never selected as a temporary or assistant treasurer; nor did the bank give a good and sufficient bond as temporary or assistant treasurer. A $50,000.00 bond is not a good and sufficient bond for a half million dollar deposit.
While this deposit, had it been made in a legal manner, would have required the bank to pay not less than 2 nor more than 4% interest, and while the bank actually did pay interest on the funds, that does not change the nature of the deposit. The deposit was illegally made, and, therefore, the bank should not have paid any interest thereon; and, being illegally made, the bank never became the owner of the funds, no title passed, no relation of debtor and creditor was established, and the funds so deposited constituted a preferred claim when the superintendent of banks took over the bank for liquidation.
The bank was trustee for the funds deposited, during the years the bank was functioning; and when the bank was found to be insolvent by the banking department, and closed, and taken over by the superintendent of banks, the funds on deposit had a preference over general or common creditors. The plaintiff became subrogated both by written assignment as well as by operation of law, to the extent of $50,000.00; which it paid to the district on January 12, 1932.
The ultimate question in this lawsuit is: Whether this preferred claim was released by the plaintiff.
Admittedly the bank, the district and the bonding company dealt with this claim as a common claim throughout, and until after the settlement.
So far as the evidence descloses, none of the parties or the liquidator knew of the true nature of the deposits until months after the settlement was had; but that lack of knowledge on the part of all did not alter the nature of the deposit.
So, when the bank went into liquidation, it is the finding of the court that the claim of the owner on the deposit was a preferred claim.
There is no evidence of fraud or sharp practices on the part of any of the parties to this suit.
In determining the question of settlement we may consider several elements, in seeking to ascertain just what was intended by the parties at the time:
1. The written contract of November 11, 1932;
2. The plaintiff's written receipt of June 15, 1933;
3. Correspondence of plaintiff's agents with the home office, prior to the settlement;
4. Testimony of various witnesses, and the conduct of the parties, and the surrounding facts and circumstances; for the purpose of giving effect to the language of the contract and receipt.
When the district filed its claim with the liquidator, it didn't ask for preference but filed as a common creditor; and didn't seek to perfect any claim as a preferred creditor.
The court heard the matter, and ordered a re-opening of the bank. The plaintiff was in court on its claim as a common creditor, and its claim, whatever its nature, common or preferred, existed at the time of the hearing in court on the bank's application.
At the time when the bank paid over the $25,000.00 to the plaintiff, on June 15, 1933, on the morning of the opening of the bank, the district had not been paid in full its deposit or claim; and, therefore, the plaintiff had no present, existing, enforceable claim against the bank by right of subrogation. Its claim was contingent upon the district being paid in full at some future date; and, had the district never been paid in full, the plaintiff never would have had any enforceable claim.
Before the agreement of settlement was made, the bank was not obligated to pay the plaintiff any amount of money.
Prior to the settlement, the plaintiff had met with the reorganizing committee; for the purpose of reaching a settlement, each party desiring a settlement.
The plan of the reorganizing committee, for the re-opening of the bank, was submitted to the plaintiff; and the plaintiff had before it detailed financial statements of the condition of the proposed bank if opened. The plaintiff had before it, at the time of settlement, the industrial and economic conditions of the community in which the proposed bank would function; its population, and the ability of the people to meet their mortgages to the bank. The plaintiff having no control over the speed of the liquidation, and with full knowledge of all the circumstances then existing, entered into the agreement of November 11, and executed the receipt of June 15.
The re-opening of the closed bank was only a possibility on November 11, 1932; and was contingent upon the settlement of various claims, among them the claim of the plaintiff; and so the plaintiff agreed to liquidate its claim, and accept in full settlement of its claim a sum equivalent to 50% of such claim: ‘It is the desire of the parties to fully liquidate the claim of said surety company against said bank,’.
The whereas clause of this agreement sets out the statement that the plaintiff has become a common creditor of the bank; and it was the intention of the parties to fully liquidate any and all claims that it may have against the bank.
Relying upon this written agreement, The Niles Trust Company proceeded to petition the court for a re-opening of the bank; and the order issued authorizing the re-opening of the bank, on June 15, 1933; on the morning of the opening the bank paid the plaintiff $25,000.00 immediately, and the plaintiff delivered to the bank the receipt for same, which receipt recites that it is the intention of this receipt to release The Niles Bank Company from any and all liabilities of whatever kind or nature growing out of the said Surety Company having paid to various political subdivisions having deposits of public funds in The Niles Trust Company previous to its closing.
The plaintiff has availed itself of some of the benefits of the plan of re-organization of the bank which this court approved, and now asks the court to treat as invalid the contract of settlement made by it and the re-organizing committee of the bank; and seeks to recover against the re-opened bank with its additional assets because the plaintiff, the bank, the district and this court didn't, at the time, know that the claim as presented to the liquidator, as honored by him, as represented to the court was in truth a preferred claim.
This release was not the release of a gilt-edged enforceable claim, it was a compromise of a liability of uncertain value; and the plaintiff considered it beneficial to itself to enter into it. True it is that the true nature of the claim was not then known to the plaintiff; but that was merely error of judgment on the part of the plaintiff at the time of the execution of the compromise settlement.
The re-organization decree ordered the bank to pay all trust funds in full. The district's deposits were in truth trust funds, but they were set up in the petition, and had been presented as common creditor funds; and the court order referred to, and covered only the trust funds as the pleadings and the evidence disclosed at the hearing; and it was the finding of the court at the time that the plaintiff was a common creditor, and the plaintiff submitted to that finding and is bound thereby. The plaintiff released its rights in the trust funds by making the settlement with the bank, as well as its rights as a common creditor. Mr. Duncan and Mr. Caverly's testimony showed that the plaintiff, at the time of settlement, regarded its deposits as of a common creditor. The bonding company released the bank ‘from any and all liabilities of whatsoever kind or nature growing out of’ its having paid the district for its deposits with the closed bank.
This language is broad enough to cover all demands or possible causes of action, whether or not the plaintiff knew the true nature of the claim.
Mr. Wilder's testimony showed that it was his understanding that the settlement entered into was to be a full and complete settlement of all claims of the plaintiff, regardless of their nature.
Mr. MacQueen's testimony showed that it was his understanding that the $25,000.00 paid to the bonding company by the bank purchased ‘a full, complete and final discharge of any and all claims, real and imaginary, and fictitious, either then existing or in the future.’
Construing the agreement of November 11, 1932, together with the receipt of January 15, 1933, with all the surrounding circumstances in mind, it is the conclusion of this court that the plaintiff released all its claims against the bank.
The bank being released, it follows that the other two defendants were released.
The decision of this court is that the plaintiff must be denied relief; and the petition of the plaintiff is, therefore, denied and dismissed.