The State Bank of Deckerville closed its doors and ceased to do business on January 5, 1927. On February 11th, the circuit court for the county of Sanilac, in chancery, appointed a receiver for said bank. The defendant Leon O. Wentworth is now acting as such. The plaintiff was treasurer of the township of Marion, in that county, in 1926 and 1927. During the latter part of December, 1926, and on January 3 and 4, 1927, he made deposits in the said bank to the amount of about $5,000. It is his claim that the officers of the bank, at the time his deposits were accepted, knew that it was insolvent, and in the bill of complaint here filed on December 3, 1928, he seeks to have these moneys declared to be held in trust and to be a preferred claim in the disbursements of the receiver. *Page 533
The proofs were taken in open court, after which a decree was entered dismissing the bill. Plaintiff has appealed.
The acceptance of deposits by a bank is a representation of its solvency. Its customers have the right to expect that their checks will be honored when presented for payment. But, in order to do business, the bank must make loans of the moneys so deposited at an interest rate which will insure it a profit over and above its operating expenses. Applications for loans and the security offered therefor must be passed upon by its officials. There is a limitation on the amount of such loans by the reserve which the law requires to be maintained to meet withdrawals. That the reserve may fall below the requirement is not in itself proof of insolvency. The duty then devolves upon its officials to secure funds by the collection of the loans made, or from other sources, to meet the deficiency. If unable to do so, the bank is insolvent and may be closed by the State banking commissioner. But before such action is taken, in order that a general deposit shall be treated as a trust fund, it must appear that the officers had no reasonable hope or expectation that their efforts to place the bank on a sound financial standing would prove successful. It must also appear to them that it is reasonably apparent that the bank will be unable to meet its obligations as they mature, and that suspension of its business is inevitable; in other words, that it is hopelessly insolvent. Our attention has not been called to any decision of this court, nor have we been able to find one, in which the identical question here presented was considered, although the opinions in Perley v. County ofMuskegon, 32 Mich. 132 (20 Am. Rep. 637), Stone v. Jenison,111 Mich. 592 (36 L.R.A. 675), *Page 534 and Commissioner of Banking v. Chelsea Savings Bank, 161 Mich. 691, may be read with profit. The rule stated is, we think, a general one and supported by the great weight of authority. See the cases reported in Steele v. Commissioner of Banks,240 Mass. 394 (134 N.E. 401, 20 A.L.R. 1203), Raynor v.Scandinavian-American Bank, 122 Wn. 150 (210 P. 499, 25 A.L.R. 716), and Washington Shoe Manfg. Co. v. Duke, 126 Wn. 510 (218 P. 232, 37 A.L.R. 611), and the annotations appended thereto.
The question here presented is, as stated by plaintiff's counsel: "Was the State Bank of Deckerville, to the knowledge of its officers, hopelessly insolvent" at the time these deposits were made by plaintiff?
The trial court found that this bank had been reorganized in 1925 "and many thousands of dollars contributed to its capital." He also found that at the time it closed "its assets, as shown by its records, amounted to about $100,000 more than its liabilities." In the opinion filed he said:
"After the reorganization of the bank, the officers were of the opinion that the financial status of the bank was sound and that it would be able to carry on successfully, but, being a country bank, it had considerable money tied up in real estate and real estate mortgages. Real estate values were depreciating rapidly in the vicinity about that time; this was especially true of farm lands. It was difficult for the bank to realize upon its mortgages and the farmers, being in a financial slump, could not meet their obligations on notes to the bank. Notwithstanding these handicaps, the bank successfully met this condition and paid its obligations in the face of a steady withdrawal of its deposits until the very hour it closed its doors. The officers and men in charge fully expected to be able to meet the unusual *Page 535 run on this bank, until word was received on the afternoon of January 5, 1927, that the officers of the bank were unable to realize on their assets to meet the emergency."
While the assets as shown were more than the liabilities, the withdrawals were such as to keep the reserve below the legal requirements. This condition existed for some little time before the bank closed, during which the officers were making earnest endeavors to dispose of securities. Fred J. Kemp, who had been cashier from September 1, 1925, until the bank closed, testified at length as to the efforts made to prevent a failure. On Monday, January 3d, he succeeded in getting a meeting of several of the bankers in Sanilac, Huron, and St. Clair counties, at Port Huron, to consider the situation. His purpose was to induce them to pay cash for certain of the securities of the Deckerville bank, and thus bring its reserve up to the requirement. He testified that most of the bankers present agreed to do so, but their agreement was contingent upon the action of certain parties in Detroit. He was able to dispose of about $25,000 of liberty bonds, and increased the reserve to that amount. He remained in Port Huron the next day, and on the 5th, when he got to the bank, he found that there had been a "gradual withdrawal" of deposits during his absence, but all checks presented were cashed until after the noon hour, when he received a telephone call from Detroit informing him that they would not receive the aid they expected from that source. Soon thereafter the doors of the bank were closed and the State banking department notified. Its suspension was in no way due to any unlawful act of its officers or board of directors. The evidence, considered *Page 536 as a whole, we think justified the following statement by the trial court:
"Under the state of facts as shown by the evidence in this case, it would appear to this court that where a bank continued to accept deposits and pay out deposits, even during a severe run on the bank, while the officers were fully expecting to meet the emergency, there cannot be said to be fraud in accepting deposits in the usual course of business before discovering the emergency could not be met by the bank."
We cannot but conclude that until noon of January 5th the officers were hopeful, in fact had much confidence, that the bank would receive such assistance from other banks and men of means that its reserve would be increased to the requisite amount and that the withdrawals would not necessitate the closing of the bank.
It follows that the deposits made by the plaintiff, not being special (Perley v. County of Muskegon, supra), were not received by the bank under such circumstances as to constitute a trust fund and give the plaintiff a preference over the other creditors of the bank as to them.
The decree is affirmed, with costs to appellee.
BUTZEL, C.J., and WIEST, CLARK, McDONALD, POTTER, NORTH, and FEAD, JJ., concurred. *Page 537