I am unable to agree with the majority in these cases. Because I do not and for the further reason that I have been compelled to dissent in quite a number of these bank cases during the last year, I am impelled to briefly state in writing my reasons therefor. Many of these cases vary in their facts but the same principles control. *Page 288
It has seemed to me in the hearing of preference cases that very often counsel consider the issues as matters in controversy with the bank. The trend of their argument takes the form of an attack upon the bank or a charge of neglect or misconduct on the part of its officers. They seem to ignore and forget that whenever the superintendent takes charge of an insolvent bank, the bank as such is non-existent for purposes of liquidation. The primary and outstanding task then becomes one of balancing equities between creditors. A preference case is a contest between one creditor and all other creditors. It is not a contest with the bank as such. The right of one creditor to be paid in full and thereby preferred to the prejudice and exclusion of other creditors presents the issue.
The calamity that befell the many banks and banking institutions in this state, resulting from a financial depression for the most part, caused much distress and financial loss to depositors and stockholders and precipitated a volume of litigation. This litigation has resulted in many reported decisions of the Supreme Court and the Appellate Courts of Ohio. The consideration and decision of preference cases require resort to decisions of other states in rare instances. The decisions of the Supreme Court are clear-cut and easily reconcilable. Likewise, the decisions of the intermediate courts with few exceptions.
My study of the Supreme Court decisions to date has led me to the positive conclusion that as soon as the superintendent takes charge the creditors and their interests through the superintendent become paramount.
These decisions have established as law that the superintendent takes charge and liquidates the bank with strict regard to the condition in which he finds it at the moment he takes control and as the books and records then disclose its condition to be, except for errors and omissions. *Page 289
Further, all persons having money on deposit, whether in savings or commercial account, are general claimants. If the money is on deposit at the moment he takes charge, the deposit remains the property of the depositor regardless of his commitments. It is immaterial that the depositor has checks outstanding, or that an unpresented certified check was theretofore issued, or that an unpresented draft had been purchased, or that the deposit is committed in an uncompleted real estate deal escrowed with the bank, or that money was deposited in escrow to be distributed upon the happening of certain future events or conditions if at the time distribution had not been made. The superintendent is a liquidator for the benefit of creditors of the assets of the bank as disclosed by the books and records as of the moment he assumes charge. He does not as liquidator honor or recognize prior incompleted or unconsummated commitments of depositors. It is not his duty to close real estate deals and kindred incompleted trustee deals. This rule does equity to the many. A contrary rule would favor the few and work injustice to the many.
Coming to the case at bar, The Guardian Trust Company was trustee of the "Trustee Construction Account" for payment of estimates on the erection of The Higbee Building. The Lundorff-Bicknell Company was general contractor for the owner, The Cleveland Terminals Building Company. Late in 1932 the general contractor and a subcontractor, E.B. Kaiser Company, differed as to the amount due, but finally agreed upon $30,500 to be deposited with The Guardian and distributed when and as prescribed conditions were complied with.
A letter signed by the owner and general contractor dated December 8th, 1932, was delivered to The Guardian depositing the above sum "to be disbursed to or upon the order of E.B. Kaiser, a partnership, under the conditions herein set forth." Upon the *Page 290 performance of nine different acts by Kaiser, $14,000 shall be paid to him. The balance shall be held in escrow and disbursed as and when Kaiser shall deposit waivers of lien and release of eight enumerated subcontractors of Kaiser, among which number these two plaintiffs were included. These conditions and prerequisites to distribution were not performed nor complied with prior to the date the liquidator took the bank over for liquidation, and no distribution was therefore made.
Upon receipt of this letter The Guardian transferred said amount from the construction account by check to an escrow account and then deposited same in the bank. This letter contains no reference to segregation nor to commingling of assets. No additional assets came into the bank. It was a bookkeeping transaction to show an escrow ledger account with the funds in the commercial branch in the bank. The trust department was fully authorized by Section 710-165, General Code, as then in force, to make this deposit pending distribution. The relation established was debtor and creditor. McDonald v. Fulton, 125 Ohio St. 507,182 N.E. 504.
So that when the superintendent took over the bank for liquidation there was in the trust department a record of this deposit and in the commercial department the funds to be paid to Kaiser if, as and when he complied with conditions. He doubtless found many other deposits of similar character that were not demand deposits the owners of which he considered general creditors of the bank as he was warranted in doing by virtue of the statute.
Under these facts the plaintiffs claim they are entitled to a preference. They deny that the bank was a trustee and say it was only a custodian or a stakeholder and never acquired title. With these contentions I cannot agree.
The weight of authority sustains the view that an escrow agent, or by whatever name you may denominate *Page 291 the bank, is a trustee of an express trust. Call his relation to and with each party in caring for their respective interests one of agency or of a custodian or stakeholder, if either title is preferred, nevertheless the escrow fund was a trust fund pending distribution. The transaction determines and not the name given to the one entrusted with the funds.
This conditional deposit in the escrow department to the credit of E.B. Kaiser was made December 6th, 1932. The bank closed months later. He could withdraw it when he furnished proof that he had paid his sub-contractors. He did not do so. The money was there on deposit when the bank closed. No sound reason why this account should be preferred to the prejudice of other creditors has been adduced. Especially, when preference is denied to other depositors with commitments outstanding, probably likewise issued to pay their debts, of one kind or another above enumerated.
As I understand the holdings, all depositors are general creditors unless the books and records of the bank, or proof produced at the trial, show that the bank and the depositor had a contract express or implied that the deposit would be segregated and not commingled with the funds of the bank to be used by the bank. Busher, Clerk of Courts, v. Fulton, Supt.,128 Ohio St. 485. This letter making the deposit is silent in these respects. No such contract or thought of such a contract can be implied from any language in the letter, and in the absence thereof the escrow arrangement is deemed to have been made with knowledge of the then existing and empowering statute. Section 710-165, General Code. This clerk (Busher) deposited public funds and was denied a preference. Likewise as to public funds deposited by a sheriff. An administrator who deposited money of the estate he was administering was denied a preference. There are many *Page 292 more considerations of equity to the contrary in such cases than presented in the case at bar.
Counsel seemed to get some comfort from the language of the second paragraph of the syllabus of the case of Fulton v. PaperCompany, 129 Ohio St. 90, 193 N.E. 758, probably on the theory that the Supreme Court has modified the rule of the Busher case,supra. The court did not declare a modification. The language, "2. In determining whether title to funds deposited has passed to the depositary bank, regard must be had to the agreement under which the deposit is made, and to all the conditions and circumstances of the arrangement", is clearly reconcilable with and referable to the kind of contract express or implied specifically defined in the Busher case. The law remains that unless a special deposit is established, the depositor is a general creditor.
Something especially sacred and exceptional seems to be claimed for escrows that lacks convincing force. Because a depositor has his account entangled in an executory escrow agreement at the time the bank closes before distribution thereof presents no persuasive reason why it should be given a preferential status. The money was on hand when the bank closed in the same position as the moneys of other depositors with analogous commitments outstanding. All these unfortunate creditors should be treated alike sharing equally and proportionately losses and benefits.
The foregoing expresses briefly the law of Ohio as I understand it from the reported decisions, and expresses the basis upon which I dissent in these cases, as I did in other cases that I believed controlled by these considerations. *Page 293