Conley v. Johnson

This is an appeal from a judgment of the district court of Powell county. Larabie Brothers Bankers, Inc., was a banking institution and did business at Deer Lodge for a considerable number of years previous to March 22, 1933. On the last-named date the bank was closed and taken over by the Superintendent of Banks of the State of Montana for liquidation in conformity with the Banking Code of Montana. (Chap. 89, Laws 1927.) At some time prior to July, 1928, W.A. Clark, Jr., then a resident of Butte, Montana, delivered to the bank the sum of $25,000. At that time an agreement was entered into between Clark and the bank, and Don Larabie and Frank Conley. Later Don Larabie died, and on July 1, 1928, a new agreement, presumably a copy of the first one, was entered into between the parties. It is this new agreement that constitutes the basis for controversy in the present action. It reads as follows:

"This memorandum witnesseth: That W.A. Clark, Jr., of Butte, Montana, has given in trust to the Corporation, Larabie Brothers, a banking institution of Deer Lodge, Montana, the sum of $25,000 to the end that such corporation shall pay semi-annual interest on said sum at the rate of 4% per annum, and shall pay said semi-annual interest January 1 and July 1 to Frank Conley and C.E. Larabie, of Deer Lodge, Montana, jointly also in trust, to the end that said Conley and said Larabie may apply such interest moneys as the same may be paid to the repairing of or the replenishing of or to the supplying of musical instruments to the band of the state prison at Deer Lodge, Montana, as the said trustees Conley and Larabie may be advised, so long as said prison shall have and maintain a band therein and thereat. The interest-bearing period of the aforesaid sum of $25,000 shall begin July 1, 1928.

"Upon the death or resignation of said Conley or said Larabie the said W.A. Clark reserves the right to nominate any successor or successors to the trust.

"In the event such State Prison shall dispense with its band for any reason, then in that event the corpus of the trust and any interest accrued thereon shall instantly revert to the said W.A. Clark, Jr., or to his heirs.

"In acknowledgment of the receipt of the trust fund of $25,000 and in acknowledgment of the trust itself, Larabie Brothers has hereunto set its hand and seal (in duplicate) at Deer Lodge, Montana, on this first day of July, A.D. 1928. * * *

"We the undersigned, Frank Conley and C.E. Larabie, both of Deer Lodge, Montana, do hereby declare that we will act as trustees to effectuate the trust expressed in the above and foregoing memorandum, will so act without any compensation for our services to be rendered in such behalf.

"Witness our hand in duplicate at Deer Lodge, Montana, this 1st day of July, A.D. 1928.

"FRANK CONLEY. "C.E. LARABIE."

The money was never drawn out of the bank, and Conley and Larabie continued to draw the agreed income or interest thereon. On November 29, 1933, after the bank had closed, and during the time for the presentation of claims, Clark presented a claim to the superintendent of banks in the following form:

"W.A. Clark, Jr., being first duly sworn, deposes and says that Larabie Brothers Bankers, Inc., is justly indebted in the sum of twenty-five thousand dollars ($25,000.00), besides interest, upon the following claim, to-wit:

"Deposit by the affiant on or about July 1, 1928, made in trust under written declaration (a copy of which is hereto annexed) for the benefit of the prison band at the state prison at Deer Lodge, Montana. Liability No. 891, $25,000.00.

"This liability is for funds held by said bank in trust, and is a preferred claim, entitled under the decisions of the Montana Supreme Court and under section 134 of Chapter 89, Montana Session Laws of 1927, to be paid next after expenses of liquidation, in the second order of priority as defined in said section 134, and before liabilities mentioned in said section 134 as of lower orders of priority — and demand is now made for allowance in full as such preferred claim with such priority.

"All of which is due and payable to such trustee as may be lawfully appointed in place of said Larabie Brothers Bankers, and affiant makes this claim because he is the declarant of the trust set forth in said Declaration, is the person entitled to reversion thereunder, and has a beneficial interest in the due execution of said trust; affiant further says that neither he nor anyone else, to his knowledge, has given any endorsement or assignment of the same or any part thereof, and that he knows of no set-off or equitable defense to said claim or any part thereof, and that the facts set forth in said claim are each and all thereof true.

"[Signed] W.A. CLARK, Jr., "Residence, Butte, Montana."

The claim was duly verified and acknowledged, and to it was attached a copy of the trust memorandum.

It will be observed that the claim contained a demand that the amount thereof be allowed as a preferred claim, on the theory that the money was delivered to the bank in trust. The superintendent of banks denied the preference right, but allowed the claim as a general one. Thereafter Conley and Larabie instituted this action against Johnson, as superintendent of banks, and against the liquidating agent acting under him.

No question of parties was raised in the lower court or in[1] this court, except the following statement contained in defendants' brief: "It will be noted that although Clark made the deposit, was the creator of the trust as to the interest on the deposit, and made the claim to the superintendent of banks, this action is brought by and in the name of Frank Conley and C.E. Larabie, as trustees." Reference to the language of the claim discloses the fact that Clark did not present the claim strictly in his own behalf. The claim recites that "Larabie Brothers is justly indebted in the sum of $25,000 besides interest," but instead of saying that the bank was indebted to Clark, it in effect recites that the indebtedness is due under the terms of the memorandum agreement which was attached to the claim. This memorandum speaks for itself as to who is entitled to the money and to whom the debt would be due when allowed. Significant, also, is the language of the claim which says: "All of which is due and payable to such trustee as may be lawfully appointed in place of said Larabie Brothers Bankers." It is obvious that the claim, therefore, was not presented by Clark in his own behalf alone, but was presented in behalf of all parties interested under the memorandum agreement. Conley and Larabie, as trustees of the income or interest, were claimants. They, as trustees, were interested in the perpetuation of the fund that it might provide revenue for their trust. The law under which the suit was instituted, section 132 of Chapter. 89, Laws of 1927, provides that the action of the superintendent of banks when taken upon a claim shall be final unless an action be brought by the claimant against the bank, etc. This section also provides that an appeal from the superintendent's allowance, either as to priority or amount, may also be taken to the district court of the proper county by any party in interest. Conley and Larabie, as trustees, were certainly parties in interest. The record does not disclose that there was ever any question raised and argued either in the district court or in this court on appeal relative to the right of Conley and Larabie to maintain the action except the quoted suggestion from appellants' brief. In any event it is plain that the only controversy involved here may be completely determined without the presence of other parties. The district court had only the question of the legal status of the $25,000 before it, and that is all we have here. That question may be properly and fully settled in the action as presented. (See State ex rel. Valley Center DrainDistrict v. Board of County Commissioners, 100 Mont. 581,51 P.2d 635, and authorities cited.)

The cause came to trial before the court without a jury. Thereafter the court made and entered findings of fact and conclusions of law. The findings of fact were to the effect that Larabie Brothers Bankers, Inc., was a bank doing a general banking business at Deer Lodge prior to March 22, 1933; that on the last-named date it was taken over by the state superintendent of banks, and at the time of the trial was in his charge and in process of liquidation; that on or about July 1, 1928, W.A. Clark, Jr., delivered to the bank the sum of $25,000 under and subject to the provisions of the written memorandum; that the same became and was a trust fund by the terms of the contract, and that Frank Conley and C.E. Larabie became trustees thereof; that at all times after the delivery to the bank it retained its character as a trust fund, and was such at the time of the closing of the bank, and was a proper subject of a preferred claim against the assets of the bank; that a claim was filed in due form setting forth the nature of the trust and asking that it be allowed as a preference claim; that the superintendent of banks in his official capacity did on the thirtieth day of June, 1934, reject the claim as a preference claim, but allowed it as a general claim, and issued a certificate of such allowance; and, finally, that the claim so filed was entitled to be allowed as a preference claim.

From the findings of fact the court entered conclusions of law: (1) That the sum of $25,000 was and continued to be a trust fund and not a general deposit; and (2) that it was entitled to be allowed as a preferred claim under the laws of Montana. Judgment was entered accordingly, directing the allowance of the claim as a preferred claim under the liquidation sections of the Banking Act of Montana. Thereafter this appeal was perfected.

The specifications of error state the grounds for appeal in several different ways, but the very able, comprehensive and carefully prepared brief of appellants tenders the issue in the following manner: "As the pleadings show, the only issue on the trial of the action was whether there was a preferred claim against the assets of the Larabie bank for the $25,000 deposit." The record discloses that no other questions were raised or presented either in the district court or here. It is therefore unnecessary to restate the specifications of error.

At the outset of the discussion it must be borne in mind that the general principles involved in a trust relation are statutory. Section 7879, Revised Codes 1921, provides that "a voluntary trust is an obligation arising out of a personal confidence reposed in, and voluntarily accepted by, one for the benefit of another." Section 7884 provides that "a voluntary trust is created, as to the trustor and beneficiary, by any words or acts of the trustor, indicating with reasonable certainty: 1. An intention on the part of the trustor to create a trust; and, 2. The subject, purpose and beneficiary of the trust."

The "trust memorandum" here involved must be considered in the light of the foregoing provisions. It seems obvious that Clark, being possessed of the sum of $25,000, was desirous of contributing to the continued support of the prison band; that he had personal confidence in the Larabie bank; and that the bank voluntarily accepted the money as a trust and assumed the responsibilities imposed by the express terms of the memorandum contract. It is equally plain that the fund was created for the benefit of another — the prison band. Everyone, upon whom any obligation rested under the contract, accepted the burdens and responsibilities imposed thereby. Clark performed his part of it by giving the money over to the bank, thereby parting with it absolutely for "so long as the prison shall have and maintain a band." The bank accepted the obligation imposed upon it, and Conley and Larabie likewise accepted the obligations imposed upon them. Clark's obligation was completely met by the delivery of the money. The obligations of the bank, designated as trustee of the principal sum, were to be continuing, as were also the obligations of Conley and Larabie.

Appellants say: "It is clear beyond doubt that W.A. Clark,[2] Jr., intended some kind of trust to be created. But it seems clear beyond doubt that he did not intend by this instrument, the so-called trust memorandum, to create two trusts. It seems his clear intention that the only trust which he wished to create was as to the 4 per cent. interest — the income — from the $25,000 deposit." We cannot agree with that statement. It seems obvious to us that the language of the memorandum does contemplate two trusts. The sum of $25,000 was given in trust to the bank in very plain and explicit terms, and then the interest was directed to be paid to Conley and Larabie "also in trust," for the use of the band. So we say that by the terms and provisions of the writing two trusts were actually created and two trustees designated: One, the bank for the principal sum; and the other Conley and Larabie as administrators of the interest or income funds. However, the only question presented for solution here is, as stated by appellants in their brief, "whether from the terms of the trust agreement there is a preferred claim to the $25,000."

It seems to us to be unnecessary to devote much time or space[3] to the interpretation of the language of the contract. That matter is controlled by law. Section 10519, Revised Codes 1921, provides that in the construction of an instrument, the office of the court is simply to ascertain and declare what is in terms or in substance contained therein. (See, also, SquareButte State Bank v. Ballard, 64 Mont. 554, 210 P. 889;Maki v. Anaconda Copper Min. Co., 87 Mont. 314, 287 P. 170;Montana Beer Retailers' Protective Assn. v. State Board ofEqualization, 95 Mont. 30, 25 P.2d 128.)

Appellants contend that because the trust memorandum — the contract between the parties — contained a provision to the effect that interest at 4 per cent. per annum should be paid to Conley and Larabie for the use of the band, the designation of the principal sum as a trust was without effect and futile; that the transaction perforce only amounted to a deposit of the money with the bank; and that thereby there was created between Clark and the bank the relation of debtor and creditor — a very different relation from that described by the words of the contract. This contention is based on the further claim that the funds were never kept[4] separate and apart, but were mingled with other funds of the bank. There is no merit in the latter contention. The mingling of the funds did not destroy the effect of the trust feature, if indeed a trust ever existed, so long as the trust funds could be traced in the hands of the bank. (HawaiianPineapple Co. v. Browne, 69 Mont. 140, 220 P. 1114;McDonald v. American Bank Trust Co., 79 Mont. 233,255 P. 733; Montana-Wyoming Assn. v. Commercial Nat. Bank, 80 Mont. 174,259 P. 1060; Powell Building Loan Assn. v. LarabieBrothers Bankers, Inc., 100 Mont. 183, 46 P.2d 697.)

The proposition that the transaction between Clark and the bank did not create a trust relation, but rather created the relation of debtor and creditor, or, to put it in another way, that Clark merely became a depositor in the bank, is worthy of consideration. This court has said, in Montana-Dakota Power Co. v. Johnson, 95 Mont. 16, 23 P.2d 956, 958: "If a deposit is authorized, it must be either general or special, for there is no other kind of deposit; a special deposit becomes such by specific direction or agreement, or through circumstances sufficient to create a trust; otherwise the deposit is general and the bank merely becomes a debtor of the depositor." The court then proceeded to say that in the absence of contract or special circumstances, a deposit would be deemed a general deposit. (See, also, sec. 52, Chap. 89, Laws 1927.)

The conditions existing here do not bring the transaction within the meaning of a deposit, either general or special, unless it can be said that the bank had no power or authority to accept the money with the interest obligation imposed, in any other manner than as a deposit. To express it otherwise, it is the apparent theory of appellants that the bank received the money under such circumstances, including the conditions of the contract, that the transaction was actually a deposit and automatically created the relation of debtor and creditor rather than the trust relation. This contention is only tenable, in the face of the plain provisions of the contract, on the theory that the parties had no right to contract for the acceptance of a trust fund with a fixed rate of interest to be paid thereon. It will at once become obvious that this contention must necessarily involve the power and authority of the bank to accept the fund with the interest provision in effect. Numerous authorities are cited and relied on by appellants to show that in the absence of contract such a transaction does actually create the relation of debtor and creditor. The force of these authorities, however, must be dissipated by the existence of the contract with specific provisions. Here there can be no doubt but what it was the intention of the parties, as expressed in the contract, that the possession of the $25,000 was to be in trust. Neither can there be doubt about the interest provision. Interest at a fixed rate was to be, and was actually, paid by the bank to Conley and Larabie. These provisions were certain and emphatic; and unless the bank was without power to so contract with relation to a trust fund, they were legal and binding.

The general rule of law is that there is a presumption that[5] the acts of a corporation are not ultra vires. (McMahon v. Cooney, 95 Mont. 138, 25 P.2d 131.) In the case of Heinz v. National Bank of Commerce, 237 Fed. 942, 952, the Circuit Court of Appeals of the Eighth Circuit announced the rule that the same presumption of legality which attends the acts of a natural person attends the acts of a corporation, unless they are plainly and upon their face outside the powers of the corporation. The court there quoted from 2 Thompson on Corporations, section 2120, as follows: "A person who questions such transactions cannot assume either that the corporation had no power to act, or that in the given transaction the corporation exceeded its power, and that hence it must show that the transaction was within the scope of its powers. Precisely the opposite rule obtains. The maxim, ``Omnia acta rite esse praesumuntur,' applies to the transactions of corporations as well as to individuals." The court then indulged in the following language, which is very pertinent here: "The tests in regard to all such matters are: Is the act or transaction prohibited by the charter or other law? Is the act or transaction reasonably suitable and necessary for the carrying on of the business for which the corporation was created and organized? Is the act or transaction performed in good faith, or as a mere cloak to some illegal or fraudulent act?"

Volume 6 of the work entitled Fletcher's Cyclopedia Corporations (1931 ed.), section 2505, contains a pertinent discussion. There it is said: "The powers of a corporation are ordinarily matters of allegation and proof. In ascertaining such powers, however, the court will take judicial notice of the general laws of the state under which the corporation was formed, or of a domestic corporation's charter. The same presumption of legality which attends the acts of a natural person attends the acts of a corporation, unless they are plainly and upon their face outside the powers of the corporation. There is no presumption of abuse or excess of corporate power. On the contrary, there is, in the absence of evidence to the contrary, a presumption that the corporation's acts and contracts were within its express or implied powers."

Here no question was raised as to the corporate existence of the bank. However, we must take judicial notice of the fact that it was a state bank chartered under the laws of Montana, or, otherwise, under the provisions of our laws the superintendent of banks would not be in charge of the assets and would not be liquidating the bank. Neither was there any question actually raised at any stage of the proceedings as to the powers of the corporation in the respect indicated; but the contention that the interest provision of the contract destroys the trust feature and absolutely nullifies the plain terms of the contract must bring us to a consideration of the powers of the corporation in that respect. To us the contract seems so plain, so unambiguous, and so certain that if the corporation had a right to enter into it, its provisions are bound to be unescapable.

Of course, as we have said, we have a right to take judicial[6, 7] notice of the statutes of Montana. The so-called Banking Code (Chap. 89, Laws 1927) enumerates and defines the powers of a trust company. (Subd. 1, subsec. (c), sec. 4.) That provision reads: "To receive moneys in trust, and to accumulate the same at such rates of interest as may be obtained or agreed upon, or to allow such interest thereon as may be agreed upon." Thus it will be seen that a corporation, a bank, exercising the powers of a trust company, has specific authority to receive moneys in trust, and may allow an agreed rate of interest thereon. The bank here designated as Larabie Brothers Bankers, Inc., is referred to in the memorandum contract as "Larabie Brothers, a banking institution," and as a corporation. It is shown by the record that Larabie Brothers was an incorporated banking corporation and that the corporation was in process of liquidation by the Superintendent of Banks of Montana under the provisions of the Montana Banking Code, supra. Therefore it was unquestionably admitted by all concerned that the bank was a Montana corporation.

While we do not think it necessary in this particular instance to take judicial notice of the charter of this domestic corporation or to avail ourselves of the authority already adverted to in that regard, nevertheless it is interesting to observe that the articles of incorporation which constituted its charter in this state, and which are on file in the office of the Secretary of State, disclose the fact that within the enumerated powers thereof there is included the exact language of the section of the Montana Act already quoted. (Subd. 1, subsec. c, sec. 4, Chap. 89, Laws 1927.) It is not necessary in this instance to rely on the articles of incorporation or to go further than to announce the rule laid down by the Montana case of McMahon v. Cooney, supra, where it was said that the general rule of law is that there is a presumption that the acts of a corporation are not ultra vires. We must hold that there was a presumption that the corporation had either direct or implied authority to enter into the contract. Nothing has been cited to the contrary. We have merely mentioned the additional considerations with relation to the affirmative provisions of the statute and the charter of the corporation to emphasize not only the fact that there was a failure to show that there was a lack of such power, but the fact that an attempt to do so would have resulted in demonstrating the fact that both statutory and charter powers existed.

In our opinion, the district court correctly found that the $25,000 fund constituted a trust fund. We are further of the opinion that that finding should be sustained. However, it will be obvious that the finding of the court that Conley and Larabie became the trustees of the $25,000 was not warranted and is erroneous. The memorandum contract never did assume to make Conley and Larabie trustees of anything more than the interest. The bank was designated as the trustee of the principal fund. The trust, however, will not fail for the want of a trustee.

The fund of $25,000 cannot, of course, be paid to or delivered[8] to Clark's representatives until the prison band, the real beneficiary of the trust, is no longer in existence. If the band is never discontinued, the Clark people will never be entitled to any part of the fund, either principal or interest. So that in reality, while Clark had a sufficient interest to justify his filing a claim, the possibility of any of the fund ever reverting to him or his successors is very remote indeed. The controversy is not between the Clark people and the depositors. That is made plain by the claim. Clark did not therein assert any present right to the funds, but his claim upon its face seeks to continue the possession thereof in the hands of some trustee for the original purpose described in the memorandum contract.

It is, however, manifest that the bank, having quit business and being in process of liquidation, is not in a position to continue the trust and discharge the obligations of the contract. There is a vacancy in the trusteeship. Section 7925, Revised Codes 1921, provides that the district court may appoint a trustee whenever there is a vacancy, and the declaration of trust does not provide a practicable method of appointment. (See, also,Stagg v. Stagg, 90 Mont. 180, 300 P. 539.) The failure of the bank did not terminate the trust, but did actually create a vacancy in the trusteeship. The finding of the court in the last-mentioned particular must be amended. The obligation rests upon the court to proceed in accordance with the section of the statute indicated. (See, also, Chap. 180, p. 385, Laws of 1935.)

The cause is remanded, with direction to amend the findings and judgment in conformity with this opinion; when so amended, the judgment will stand affirmed. Each party shall pay its own costs on this appeal.

ASSOCIATE JUSTICES MATTHEWS, STEWART, ANDERSON and MORRIS concurring.