Opinion
No. 23580
Decided June 8, 1932.
Banks and banking — State bank may deposit trust funds in commercial department, when — Section 710-165, General Code — Trust funds may be used in general bank business, when — Liquidation — Trust funds, in commercial department, not preferred, when.
1. The provisions of Section 710-165, General Code, authorize a bank organized under the laws of this state, with powers of a trust company, to make a general deposit of money received by it as trustee and held temporarily pending investment or distribution, in the commercial or other department of such bank, unless otherwise expressly provided by the trust agreement creating and controlling such trust.
2. As to such funds the relation of the bank and trustee is as debtor and creditor, and funds thus deposited may be used by the bank in its general business as other assets.
3. The rights of the trustee, with reference to the funds so deposited, are no greater than or different from those of other general depositors, and upon liquidation of the bank they all share proportionately in the distribution of the assets.
Error to the Court of Appeals of Carroll county.
This action was instituted in the court of common pleas of Carroll county by the state superintendent of banks to secure the instruction of the court relative to his duties in the liquidation of the Cummings Trust Company, which was incorporated under the laws of Ohio and authorized to and did in fact conduct business as a combination commercial bank, savings bank and trust company.
Robert E. McDonald, as administrator de bonis non of the estate of Emma C. Rumpf, successor to the Cummings Trust Company as such administrator, filed an intervening petition alleging that funds of the estate in the amount of $719.26 had been deposited by said bank as administrator with its commercial department. He asserted a claim for preference in payment over general deposits and asked that his claim be paid in full by the superintendent of banks.
Upon trial of the issues the common pleas court decided that the assets of the bank were impressed with a trust for the total amount of the trust funds which had been deposited by the trust department in the commercial department, including the claim of the intervening petitioner, and ordered the payment of such trust deposits as preferred claims out of the general assets of the bank. After hearing upon appeal, the Court of Appeals announced a contrary conclusion and directed that the claims arising from the general deposit of trust funds in the commercial department of the bank were not preferred and should be paid ratably with the claims of other general depositors of the bank. Upon motion the record was ordered certified to this court.
The facts essential to a disposition of the questions of law presented may be briefly stated. The trust department of the bank had been duly designated and appointed trustee under various trust instruments, and in the performance of its duties in its trust capacity had deposited income from trusts awaiting distribution in the commercial department of the bank. In the same way funds of the various trusts pending investment were deposited. The account between the trust department and the commercial department of the bank described these funds as deposits of money held by the bank pending distribution or investment. The record shows that on May 8, 1931, the date the bank closed, the account between the trust department and the commercial department was divided as follows:
Commercial account ............................... $5,093.02 Savings account .................................. 36.46 Interest due thereon ............................. .52 Certificates of deposit ........................... 2,794.10 Interest due thereon .............................. 62.15 ---------- $7,986.25
On the same day the cash on hand and in the vaults of the bank amounted to $6,070.56. The total amount of other asserted preferential claims involved in the issue presented for decision amounted to $8,448.71. The funds in question being treated as all other funds of the bank received by way of general deposits were treated, that is, commingled with the bank's assets in the general business of the bank, it therefore became impossible to identify any particular assets as funds which had been originally received by the trust department. The deposits of the trust department in the commercial department on the day the bank closed exceeded the cash on hand and in the vaults of the bank, and the total of all claims filed as preferred exceeded the cash on hand and in the vaults of the bank at the date it closed by more than $10,000.
Mr. Robert E. McDonald, Mr. James M. Hengst and Mr. Joseph S. Graydon, for plaintiff in error.
Mr. Gilbert Bettman, attorney general, Mr. L.F. Laylin and Mr. Raymond S. Powers, for defendant in error.
The oral argument and briefs of counsel have covered a wide scope, but a consideration of the statutes applicable to the facts presented by the record accomplishes a complete disposition of the issues involved.
Section 710-165, General Code, provides as follows: "No property or securities received or held by any trust company in trust shall be mingled with the investments of the capital stock or other properties belonging to such trust company or be liable for its debts or obligations. Moneys pending distribution or investment may be treated as a deposit in the trust department, or may be deposited in any other department of the bank, subject in other respects to the provisions of law relating to deposit of trust funds by trustees and others."
We are primarily concerned with the last sentence of this section. It is dealing with the subject of moneys held by any trust company in trust, that is, as a trustee, and in language that is clear and concise authorizes it to deposit money pending distribution or investment in the commercial or other department of the bank. We need give attention to the first part of the section only for the purpose of observing the express distinction made between property and securities, on the one hand, and money, on the other. The former are to be segregated and kept so. They shall not be mingled with investments of the capital stock or other property of the trust company. Other provisions of the statute, particularly of Section 710-164, General Code, show the expressed legislative intent to distinguish between money and property.
In our opinion these provisions are clear. They need no interpretation. The only way their meaning can be as well stated is by repeating the same language. If we look to the history of the legislation we will observe there the material change in the powers conferred upon trust companies with reference to funds, while making no material change in regard to the mingling of property and securities with the trust company's capital stock or other property. The very purpose of the legislative action would be thwarted if effect be not given to the statutory amendment. County Board of Education of Hancock County v. Boehm, 102 Ohio St. 292, 131 N.E. 812.
The powers and duties of fiduciaries are further clearly set out in Section 10506-45, General Code (114 Ohio Laws, 374, effective January 1, 1932), which is as follows: "Immediately after his appointment and throughout the administration of the trust, every fiduciary shall be required to deposit all funds received by him, in his name as such fiduciary in one or more depositories. Each depository must be a national bank, or a state bank or building and loan association located within and organized under the laws of the State of Ohio. The deposit shall be in such class of account as will be most advantageous to the trust and each depository shall pay interest at the highest rate customarily paid to its patrons on deposits in accounts of the same class. A corporate fiduciary authorized by law to receive deposits of fiduciaries, shall have authority to be the depository of funds held by it as such fiduciary."
It is to be observed that deposit in an interest-bearing account is directed, which of course contemplates use of the fund by the bank, and the fiduciary therefore becomes a general creditor by the very force of the statute governing his action. It has been well pointed out that if, notwithstanding the provisions of Section 10506-45, General Code, the deposit of a trust company is held to be a special deposit, and entitled to a preferred claim, it would be given a favored position over individuals in obtaining appointment as trustee, and otherwise.
The deposit made by the trustee in this case was a general deposit. It was authorized by the statute, and the power was not denied the trustee by any trust instrument. We have here no question of a wrongful deposit, and cases cited involving that question have no application.
It appearing then that the relationship established under statutory authority was that of debtor and creditor, the rights of the trustee with reference to the funds so deposited are no greater than or different from those of other general depositors, and upon liquidation of the bank they share proportionately in the distribution of the assets.
Judgment affirmed.
JONES, DAY, ALLEN, KINKADE and STEPHENSON, JJ., concur.