Bassett v. City Bank & Trust Co.

The third of the four questions propounded to us upon this reservation is denominated "C" and is stated as follows: "The defendant corporation acting as executor, as administrator, as guardian, as conservator or as trustee of particular estates or trust funds had prior to the closing of the defendant corporation deposited cash funds of such estates or trusts in the savings department of the defendant *Page 24 corporation and in other cases the estates or trust funds at the time of the appointment and qualification of the defendant corporation as such fiduciary included deposits in the savings department of the defendant corporation, which deposits at the date of the closing of the defendant corporation were held by the defendant corporation as such fiduciary. In some of these cases the defendant corporation is still acting as such fiduciary and in others the funds of the estate or trust have been transferred to a successor trustee or to the beneficiaries or owners. Question: Should the amounts of such deposit accounts in the savings department or any of them be paid by the receiver to the respective trustees and/or the beneficiaries or owners from the funds of the savings department in his hands in preference to general depositors in the savings department?" In the following discussion we shall refer to the defendant corporation as the "bank," and in its capacity as trustee, executor, etc., as the "bank-fiduciary."

The bank was authorized by its charter and by statute to act as fiduciary in the various capacities indicated in the stipulation. Special Laws, 1889, p. 842, § 9; Special Laws, 1917, p. 1127, § 2; General Statutes, § 3885.

A preliminary question relates to the right of the bank-fiduciary to deposit its trust funds in its own savings department. Our statute law prescribes how funds shall be invested by a fiduciary, "unless otherwise provided in the instrument creating the trust." General Statutes, § 4836. Among other investments therein prescribed are "bonds, stocks or other securities in which the savings banks in this State may be authorized by law to invest, or [the funds] may be deposited in savings banks incorporated by this State." We do not think the legislature intended by the words *Page 25 "savings banks" as here used, to exclude "savings departments" in trust companies in this State. As we said in Lippitt v. Thames Loan Trust Co., 88 Conn. 185,193, 90 A. 369, the corporation "was in reality operating a savings bank." The same solicitude has been shown by the legislature to protect depositors in the latter as in the former, and the statute provides that its deposits must be invested as savings-bank funds are invested. "All banks and trust companies maintaining a savings department, or soliciting or receiving deposits as savings, shall invest all such deposits so received, according to the requirements of the statutes concerning the investment of deposits in savings banks; and such investments shall be segregated and set apart and not mingled with other assets of such banks or trust companies, and shall be for the exclusive protection of the depositors in such savings department and shall not be liable for or used to pay any other obligation or liability of such bank or trust company until after the payment of all of the depositors in such savings department. The reserve fund required by section 3898 in the case of state banks and trust companies shall not apply to savings deposits under this section. This section shall in no way limit the right of any trust company to receive deposits and invest its funds upon such terms and conditions as are provided for in its charter, except as to deposits in its savings department as provided for in this section." General Statutes, § 3908. We have held that it was not improper or unlawful for an executor, a trust company authorized to receive deposits of trust funds, to deposit the funds of the estate in its own bank, if acting in good faith and with due regard to the protection of the funds. Hayward v. Plant, 98 Conn. 374,391, 119 A. 341. This precise question has been decided in the affirmative in the State of New Hampshire, *Page 26 and we are in accord with that view. Tucker v.New Hampshire Trust Co., 69 N. H. 187, 44 A. 927.

The stipulated facts present a second question, viz.: whether we must differentiate those deposits which were already in the savings department when the bank became fiduciary and which it allowed to remain there, from those funds which it deposited there afterward.

The funds already deposited were within the provisions of our statute which permits a fiduciary to continue the investment as it came to him unless otherwise ordered by the Court of Probate or by the instrument creating the trust. General Statutes, § 4837. But this right must be exercised with prudence and the trustee will not be allowed to escape the responsibilities attaching to trustees generally for the safety of trust funds in his control. Clark v. Beers,61 Conn. 87, 88, 23 A. 717; Beardsley v. BridgeportProtestant Orphan Asylum, 76 Conn. 560, 564,57 A. 165. The good faith and prudence of the depositor are not questioned upon this reservation. Both classes of deposits were kept with the savings department therefore at the discretion and upon the responsibility of the bank-fiduciary, its obligation to safeguard and account for both funds was the same, and for the purposes of our present inquiry they stand on the same footing.

In considering whether these deposits of trust funds are entitled to a preference over other deposits in the savings department, we should note the change of ownership which took place when these moneys were deposited. The money became at once the property of the savings department and was thereafter held by it not as the money of the bank-fiduciary but as its own. The funds, after deposit, did not remain impressed with the same trust which attached to them while in the hands of the bank-fiduciary, since it does *Page 27 not appear from the stipulation that they were either wrongfully deposited or deposited under any special agreement that they should remain the specific property of the bank-fiduciary as such, and so claim a preference. 8 Thompson, Corporations (3d Ed.) p. 341, § 6211; 3 Michie, Banks Banking (1931 Ed.) p. 270-273; 37 A. L. R. p. 120; 53 id. p. 564; Shute v.Hinman, 34 Or. 578, 583, 56 P. 412, 58 id. 882, 47 L.R.A. 265. In the investment of these moneys by it, the savings department must conform, however, to the same requirements as savings banks, and these funds so invested are then held for the exclusive protection of the savings department depositors. It will thus be seen that while the depositors in the savings department have special rights in the fund, they are not the owners of it, the title being in the bank as such. Herein is a distinction between the rights of savings department depositors and depositors in our mutual savings banks wherein the banks act only as the agent and representative of the depositors and the assets of the banks are actually owned jointly by the depositors in proportion to their deposits. Alexiou v.Bridgeport-Peoples' Savings Bank, 110 Conn. 397, 400,148 A. 374, and cases cited. These deposits by the bank-fiduciary were invested funds, and it is in relation to these funds that the present questions are asked. Any other "cash or funds temporarily uninvested," in the hands of the bank-fiduciary, are beyond the scope of this reservation, and are the subject of other statutory provisions. General Statutes, Cum. Sup. 1931, § 517a.

The defendant bank is a unit and all departments thereof are operated by it for its own profit, and all profits from all departments go to swell its general assets. The purpose of the law requiring the segregated investments in the savings department "was to *Page 28 add to the protection of the savings department depositor and not to diminish that which he already had. He had, by the charter, a prior lien upon all the assets of the company. He had the right to share ratably in the avails in the hands of the receiver in a certain order. Neither privilege was taken from him by this statute. Another protectory privilege was added to these. If the investments in the savings department should not suffice to pay the savings department depositor in full, the unpaid balance of his deposit was placed on a parity with all other deposits, and entitled, on distribution, to share ratably in the order prescribed by § 3482 [Rev. 1902]. . . . His deposit stood in precisely the position of other deposits in its right to share in the distribution of the avails. It follows from what we have said that all depositors in the several savings departments are on a parity; that the said assets `set aside for savings depositors' are to be applied to the payment ratably of all deposits in the several savings departments after paying the expenses of administration and taxes; that the avails remaining in the hands of the receiver are to be appropriated ratably to the payment of the balance of the savings department deposits and all other deposits; that the balance, if any, is to be distributed in accordance with § 3482 [Rev. 1902]." Lippitt v. Thames Loan Trust Co.,88 Conn. 185, 192, 193, 90 A. 369. This statute now reads as follows: "The avails of the property of any bank or trust company in the hands of a receiver or receivers shall be appropriated ratably to the payment of: (1) The charges and expenses of settling its affairs; (2) the circulating notes, if any; (3) all deposits; (4) all sums which have been subscribed and paid in for its stock by the state or the school fund; (5) all other liabilities; and the surplus shall be distributed *Page 29 among the stockholders." General Statutes, § 3935.

Save by some special arrangement, not present in the instant case, or because wrongfully made, deposits such as those which are the subject of the present reference, are on an equal footing in their relation to the savings department, and the depositors are entitled to have the segregated funds in that department applied ratably in proportion to the deposits. This right is founded upon the statute and is prior to "any other obligation or liability" whatever. Being statutory and in terms for the benefit of all the depositors without distinction, the rights of no one depositor can be discriminated against by giving a particular deposit a preference over the others. Tucker v. New HampshireTrust Co., supra; Bank Commissioners v. SecurityTrust Co., 70 N. H. 536, 544, 49 A. 113; 3 Michie, Banks Banking (Ed. 1931) pp. 272, 275; 1 Morse, Banks Banking (6th Ed.) p. 508-510, § 186; 56 A. L. R. p. 807. After this fund is exhausted, any balance of such deposits which has not been paid, becomes a general claim on all the assets of the bank and payable as the third item in the statute, § 3935, above quoted.

It is in this sense that effect is given to the charter amendment which provides that "all the capital stock, property, and estate of every kind belonging to said corporation shall constitute the security hereinbefore referred to, and shall be and stand charged with the fulfilment of any trusts, duties, and agreements authorized by this act of incorporation and the payment of deposits and trust funds as the first and prior lien thereon in case of any default by or the failure of said corporation, and they shall be taken and considered as sufficient and the only security to be required for *Page 30 the faithful performance of its duties." Special Laws, 1889, Chap. 83, § 12, p. 842.

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