People v. Ulster County Savings Institution

The following opinion was delivered at Special Term:

The defendant was incorporated as a savings institution by act of the legislature, passed April 12, 1851. (Laws of 1851, chap. 152.)

It has accumulated up to the commencement of this action deposits to an amount exceeding two millions of dollars. Its business affairs

This application is made upon petitions on the part of all the •trustees of the bank, and of the receiver, and by depositors representing upwards of $900,000 of deposits.

The petitions show that the total number of depositors is in the neighborhood of 6,000, and that of those who are not petitioners a large number of depositors, representing small amounts, are widely scattered over Ulster county, some reside in other counties, and also in other States, and that deposits to the amount ■of upwards of $150,000 are represented by persons whose residence •■and address cannot be ascertained. The petitions also show that, ¡so far as can be learned, it is the universal desire of the depositors fhat the business of the bank shall be resumed, and it is asserted by counsel, and remains undisputed, that no depositor has expressed any unwillingness.

It has been the policy of this State for a long series of years to-permit savings institutions, whose assets from any cause have shrunk below their liabilities, to resume business wherever it could be done upon a solvent basis, and this course has been uniformly, so far as I have been able to ascertain, recommended by the banking department. In 1819 this course was taken by Bank Superintendent Henry L. Lamb in the case of the Oswego City Savings Bank, and the Supreme Court permitted that institution, under like circumstances,'to scale down its liabilities to depositors ten per cent, and thereupon to resume business. Since that time the bank has been prosperous, and its deposits have steadily increased. In 1883 Bank Superintendent A. B. Hepburn, in his annual report to the legislature, approved the policy thus pursued by Superintendent Lamb. In that report he says : “ No one can make a study of the failed savings banks without perceiving how much better it would have been for depositors in many instances had the deposits been scaled so as to render the bank solvent, and they have been allowed to continue business. This department and the courts now have by law sufficient power over the tenure of office of savings bank managers to secure the removal of incompetent or unfaithful men. With the funds still in the hands of trustees, under the direction of the court

Referring to the Oswego City Savings Bank, he adds: “ The eminent success attending the scaling process in the only instance in which it has been tried in this State is a strong, practical argument in favor of providing by statute for carrying out what seems to be a law already.”

In 1885 Superintendent "Willis S. Paine expressed his approval to the legislature as follows: “ In the single instance in the history of the savings banks of this State in which the scaling process has been resorted to as a possible means of saving depositors from ultimate loss, the experiment has met with such marked success it is probable that in the future this remedy will be applied in preference to placing the affairs of temporarily embarrassed banks in the hands of receivers for liquidation.”

It will thus be seen that the opinion of those most familiar with the savings banks of the State, and whose duty it has been to exercise a supervision over their affairs, so far as the same has been expressed,, indicates the propriety of permitting savings institutions to resume business wherever it can be done upon a solvent basis.

The remaining question is one of power.' The statute, which authorizes the institution of actions like the present, provides that “ the court before which such proceedings shall be instituted shall have power to grant such orders, and in its discretion, from time to time, to modify or revoke the same, and to grant such relief and render such judgment as the facts or evidence in the case and the situation of the parties and the interests involved shall seem to require.” (R. S. [8th ed.], p. 1573, § 278.)

The power thus conferred seems to be sufficient to enable the court to make such orders and such disposition of the institution and its affairs as may appear to be for the best interests of the institution, its creditors and depositors. Savings banks are quite unlike

In the case of The People v. The Mechanics and Traders' Savings Institution ( 92 N. Y., 7 ), the action was brought by a creditor (other

In the case of Huntington v. Savings Bank (96 U. S. Sup. Ct. R., 388), speaking of savings banks, the court says: “ It is not a commercial partnership, nor is it an artificial being the members of which have property interests in it, nor is it strictly eleemosynary. Its purpose is rather to furnish a safe depositary for the money of those members of the community disposed to intrust their property to its keeping. It is somewhat of the nature of such corporations as church wardens for the conservation of the goods of a parish, the College of Surgeons for the promotion of medical science, or the Society of Antiquaries for the advancement of the study of antiquities. Its purpose is a public advantage without any interest in its members.”

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“ It is, like many other savings institutions incorporated in England and in this country during the last sixty years, intended only for provident investment, in which the management and supervision are entirely out of the hands of the parties whose money is at stake, and which are quasi benevolent, and most useful because they hold out no encouragement to speculative dealing or commercial trading.”

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“ Yery many such exist in this country. Among the earliest are some in Massachusetts, organized under a general law passed in 1834, which contained a provision that the income or profit of all deposits shall be divided among the depositors with just.deduction of reasonable expenses. They exist also in New York, Pennsylvania, Maine, Connecticut and other States. Indeed, until recently, the primary idea of a savings bank has been that it is an institution in the hands of disinterested persons, the profits of which, after

Courts of equity in other States have exercised the power here sought. In the case of Matter of Newark Savings Institution (28 N. J. Eq. R., 552), the power to scale down deposits and authorize the resumption of business by savings institutions was distinctly declared and exercised. The chancellor says: “This court has jurisdiction over all trusts, as well where the trust is held by a corporation as where the trustee is an individual. A savings institution, such as the petitioner, is a mere trustee. It has no stock. It receives the money of depositors for investment and invests it on securities, taken for the general benefit of the depositors. It is merely a large incorporated agency for receiving and loaning money on account; of those to whom the money belongs. The interest received upon investments is to be ratably divided among the depositors. * * * The depositors (in the absence of fraud on the part of the managers,, from which personal liability would arise), have no recourse whatever for repayment of their principal or interest to anything, except the general investments of the institution. The institution now before me was incorporated for the sole purpose of receiving and investing deposits. The design of the legislature in granting the charter was to promote industry and frugality, and preserve and husband the fruits of honest toil. It contemplated no benefit to the managers, but looked only to the security and advantage of the depositors. The trust thus created is a general or public trust. No depositor has, under the charter or in equity, any right to any particular security in the hands of the institution for his deposit more than any other depositor. All the assets, after deducting necessary expenses, are held as a common fund for the security of all the depositors. It follows that no depositor has any reason for complaint if he is not permitted to receive his deposit in full, if there be even any uncertainty as to whether there will be assets enough to pay all the others in full. It 'follows, also, that the institution ought not, under such circumstances, to be permitted to exhaust such of its securities as are immediately convertible into cash without loss in the payment in full of clamorous or alert depositors, and leave for those who are less vigilant, or who may be less informed

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“ The course now taken in regard to this institution is not without precedent in this court. In the case of the Hoboken Bank for Savings (1874) like measures were taken by me under similar circumstances with salutary effect and most beneficial results to the depositors.”

In 1871 a similar proceeding for scaling down the deposits of a savings bank was taken in Connecticut. In that case a sum equal to twenty-four per cent of the deposits then in the bank was scaled by the trustees themselves, and a joint resolution was subsequently passed by the legislature ratifying their action. Afterwards an action was brought by one of the depositors to recover the difference between his deposit and the amount to which it Avas scaled, and the Supreme Court, without giving any effect to the resolution of the legislature, held that the action of the trustees in thus scaling down the deposits was lawful and proper, and that the depositor could not recover. Like proceedings have been had in New Hampshire, where there is a statute authorizing them. In Massachusetts, in the case of Lewis v. Lynn Institution for Savings ( 148 Mass., 235 ), the rule laid down in the Connecticut case was approved and applied. At page 244 the court says : “ But to the depositors themselves the undertaking of the corporation is that it will receive and combine the deposits, and manage and use them to the best practicable advantage according to the judgment of the trustees, and give to the depositors in just proportion among themselves the benefit of the result of such management. There is no absolute promise to repay to any depositor the full amount of his deposit at all events. Such