Rosenback v. Manufacturers' & Builders' Bank ( 1877 )

The statute under which the receiver of the savings bank claims a preference over the other creditors of the Manufacturers' and Traders' Bank, does not undertake to secure the debts of every character which may be due from a bank or banking association to a savings institution in preference to debts due individuals or other corporations, but only such as are due for money deposited in the usual course of business and subject to the drafts of the depositor to an amount not exceeding that authorized to be deposited by section twenty-seven of the act. (Laws of 1875, chap. 371, § 48.)

Loans, whether on time or payable on call, are not deposits within the act entitled to a preference. If the money sought to be recovered by this proceeding was a loan, it cannot be changed into a deposit by reason of any want of authority in the managers of the savings bank to make the loan, or for the reason that it may have been made in violation of law. The court cannot make a contract which the two corporations did not make or intend to make which would essentially vary their rights and obligations, and seriously affect third persons, whose interests would be prejudiced by changing the relation of the banks and the character of the obligation of the debtor bank. Officers of savings banks may not always be mindful of the general laws of the State or the by-laws of the corporation; but if they violate either, or are guilty of a breach of trust, the remedy is against them, and not by the substitution of a contract which would have been legal if made, for an illegal contract actually made. Other creditors of the insolvent bank have rights which forbid it.

Was then the $40,000, the subject of the present controversy, a deposit in the ordinary course of business to the general account of the savings bank as authorized by law, or was it a "call loan," secured by collaterals and to be repaid with interest at seven per cent. on call or demand? On the morning of the 16th of September, 1875, the savings bank had on deposit with the banking corporation a balance of nearly $50,000; the bank was overdrawn at the Chatham Bank, its correspondent in the lower part of the city, was in urgent want of $40,000, to prevent immediate insolvency, and applied to the savings bank for a loan on call of that amount upon securities for its repayment, and for the payment of the general deposit account. The loan was agreed upon, a formal agreement was prepared, and securities delivered. The president of the savings bank, upon its own securities, borrowed $65,000, $40,000 of which was deposited in the Chatham Bank to the credit of the Manufacturers' and Traders' Bank, and thus made the loan which it had agreed to make, and the transaction had none of the features of a deposit by the savings bank. The books of the two institutions, as might be expected, were not kept in a way very distinctly to show the dealings between them, but it does appear very satisfactorily that this $40,000 was loaned in the way stated, on, and bore interest from the 16th of September. The loan was consummated on that day. It appears in the cash book of the savings bank on that day as ______ a "deposit." It was not entered in the journal until October 4, and then it was entered as a call loan from the 16th day of September, and $5,000, paid that day, is entered as paid on account of the loan. In all the entries so far as appears after the first brief entry in the cash book, it was designated as "the call loan," or "call loan of September 16th." The officers of the savings bank were, on the 16th of September, unwilling to increase their deposits, and for the very good reason that the banking corporation was on the eve of failure, in great trouble and bad credit, and the application and negotiation were for a loan on security. In the books of the debtor corporation the amount was placed to the credit of the call loan account of the savings bank. The savings bank had no money to deposit on the 16th of September, and borrowed this sum to enable the banking corporation to pass safely through the clearing house for that day, and this tends to confirm the statement of the cashier of the banking corporation that it was a call loan, and to confirm the entries in the books of the savings bank. Why the check was drawn on the fourth of October, and the two entries made in the cash book of the savings bank balancing each other, does not appear. It is very evident there was no negotiation for a loan, nor any real transaction, either deposit or loan of money on that day. The actual transaction, the loan of the money to the bank, was on the sixteenth of September, and the subsequent entries in the book by which the balances were not changed, and the formal drawing of a check without purpose or results, do not affect the substance of the transaction. The statement of Mr. Morgan, in his affidavit, made to oppose the application, is corrected and explained in his evidence before the referee, and by all the circumstances and evidence in the case.

The Supreme Court rightly determined the fact that the $40,000 was advanced as a loan on the sixteenth day of September, and was not, at any time, deposited to the general account of the savings institution, and the order must be affirmed.

All concur.

Order affirmed.