In December, 1922, the appellees were directors and stockholders of the Crothersville State Bank, for which the appellant is now receiver. During that month the directors of said bank made an arrangement *Page 306 for the bank by which the appellees became personal sureties for public funds to be deposited with the bank under the public depository law. (§ 12621, et seq., Burns 1926.)
In consideration of the agreement of appellees to sign the bond as personal surety, it was agreed by the directors for the bank that good and valid notes out of the assets of said bank in the amount of $30,000.00 face value, should be turned over and set aside as a collateral pledge to insure appellees against loss by reason of having signed the bond of the bank as sureties. There was a provision that notes might be substituted from time to time, and that all collections on the notes in question should be held as the property of the appellees for the purpose of the agreement.
A committee selected by the sureties met with the president of the bank, who informed the committee that he was authorized to endorse the notes to be selected by the committee, the notes were selected and endorsed and put in an envelope upon which was written "Notes indemnifying signers of bonds for public funds," and the envelope was placed in the hands of the president of the bank for safe keeping, and so that he might have access to the notes for the purpose of receiving payments of principal and interest.
It was found by the trial court that the bank was "in fact" insolvent at the time this agreement was made. It was, however, still operating. The above agreement was in all things carried out, and public funds were deposited with the bank upon security of the bond.
On September 12, 1923, the state banking department took possession of the assets of the bank, and on the same day The Union State Bank of Crothersville was appointed receiver therefor, and afterwards appellant succeeded it as receiver.
An action was brought against appellees on the bond *Page 307 in question, and they demanded that the indemnifying notes and the proceeds thereof be turned over to them, which appellant refused to do. This action is to secure possession thereof.
There were special findings of fact which amount to an elaboration of the above statement, and conclusions of law upon which there was a judgment that appellees should have the pledged paper and the proceeds thereof and that they account to the receiver for any of the proceeds in excess of an amount necessary to reimburse them.
Exceptions to the conclusions of law present the question — may a bank organized under the laws of the State of Indiana pledge its assets, consisting of promissory notes taken and held 1. in the regular course of business, to protect personal sureties on its depository bond?
The appellees were directors and stockholders of the bank, but, since fraud is not alleged and since they received no personal benefit from the transaction, the fact is immaterial.
The appellees were not creditors of the bank and they did not take the assignment of the notes as creditors. The municipality to whom the bond was given was not a creditor of the bank nor would it have become a creditor unless the bond was given. No question of preferring creditors is involved.
Under the depository statute the bank might have pledged eligible bonds directly to the municipality as security for its deposits. The transaction here is no different in effect. The securities were pledged to the appellees, who, in turn, pledged themselves to secure the deposits. In either case the pledged securities were only liable to the extent of the cash actually deposited. The bank parted with an interest in the securities equal to the deposit subject to the condition that, to the extent *Page 308 to which it repaid the cash, it would reclaim the securities. It amounts to no more than a sale of securities at their actual value for cash. The general creditors of the bank lost nothing by the transaction, and, if they are affected at all, they are benefited since the bank is more liquid by reason of having the cash rather than the securities. The appellees gained nothing. The public deposit or its proceeds was used, or will be used, for the payment of general creditors of the bank. No more than an equal amount of the pledged notes will be withheld.
The action sounds in equity. The general creditors of the bank or the appellant, their representative, can not be heard to say that the pledging of the securities was illegal while they 2. retained the benefits of the transaction. Melaven v. Hunker et al. (1931), 35 N.M. 408, 299 P. 1075.
It would be unconscionable to permit the general creditors to profit where they had no loss, at the expense of the appellees, who have profited nothing and have done no wrong. It must not be permitted unless there is some insuperable rule of law which requires it.
"Justice alone can be considered in a court of chancery, and technicalities never be tolerated except to obtain and not to destroy it." Isgrigg, Executor v. Schooley et al. (1890), 125 Ind. 94, 25 N.E. 151.
Our banking law gives banks "all the powers incidental and proper, or which may be necessary and usual, in carrying on the business of banking." The right of a bank to borrow money and pledge its assets for the payment thereof is beyond serious question. It is urged, however, that a deposit is not a loan and that banks have no power to pledge their assets to secure deposits. There is no reason for the distinction. In either case the relation of debtor and creditor is created. *Page 309 It has been expressly held by this court that an agreement to assign collateral as security for a certificate of deposit will be enforced, as in answer to the contention that transaction constituted an ordinary deposit and not a loan, the court said:
"As to how it should be regarded in this respect, whether as a loan or a deposit, is not material under the facts in this case, for if it be considered as an ordinary deposit its effect would be to create the relation of debtor and creditor between appellee and appellant's bank." Harris et al. v. Randolph County Bank (1901), 157 Ind. 120, 60 N.E. 1025.
Under this decision, standing unquestioned for more than thirty years, the principle of stare decisis might well be invoked were it necessary.
Generally a loan differs from the ordinary deposit in bank only in the evidence of the promise, the time of payment and the interest rate. The relation created is the same. It is a well recognized fact that banks in some instances pay various rates of interest upon ordinary checking accounts as well as upon time deposits against which certificates are issued, payable on demand after a certain date, and that they also on occasion borrow money at varying interest rates upon their promissory notes payable upon a date certain. The basic contractual obligation to pay is the same and, if when the money is received the bank assigns collateral as a guaranty of its repayment, we know no rule or reason which would permit the collateral to be retained in one case and not in another.
The legislature recognized the right of a bank to pledge collateral to secure the payment of ordinary deposits when it enacted the depository law. An examination of the title and body of that act clearly discloses that it was not intended to affect the powers of banks. It merely fixed the terms and conditions upon which public officers may make deposits in banks. *Page 310
The great weight of recent authority supports our conclusion.Bliss v. Mason (1931), 121 Neb. 484, 237 N.W. 581.
It is urged that it is bad policy for banks to give security for money deposited; that unless security is given for all deposits unsecured depositors will withdraw their funds and thus destroy the business of the bank. This is a question of business policy with which we are not concerned, but it is well known that banks do pay interest on some types of deposit and not on others.
It is urged that it is against public policy to permit 3. banks to pledge assets to secure the payment of deposits.
Constitutional and statutory enactments, practices of officials and judicial decisions may be looked to for a disclosure of the public policy of a state. Legislative enactments are the safest guides and the fairest in that they operate prospectively and as a guide to future negotiations. Decisions of courts of last resort operate in the same manner after their pronouncement, but in the first instance may have the effect of destroying the contract made before the public policy is announced.
"Without minimizing the importance of the doctrine that contracts should not be enforced if they contravene public policy, many courts have cautioned against recklessness in condemning contracts as being in violation of public policy. Public policy, some courts have said, is a term of vague and uncertain meaning, which it pertains to the law-making power to define, and courts are apt to encroach upon the domain of that branch of the government if they characterize a transaction as invalid because it is contrary to public policy, unless the transaction contravenes some positive statute or some well established rule of law. Other courts have approved the remark of an English judge that public policy is an unruly horse astride of which one may be carried into unknown paths. *Page 311 Considerations such as these have led to the statement that the power of the courts to declare a contract void for being in contravention of sound public policy is a very delicate and undefined power, and, like the power to declare a statute unconstitutional, should be exercised only in cases free from doubt." Hogston v. Bell (1916), 185 Ind. 536, 544 112 N.E. 883.
We find no constitutional or statutory enactments, no practices of officials or judicial decisions in this state indicating that the pledging of collateral to secure deposits is against public policy. There is nothing inherently wrong or immoral in such a transaction. The only decision of this court upon the subject that we have found upholding such an agreement denies such a policy.
Judgment affirmed.