Opinion
Nos. 27980 and 27981
Decided July 24, 1940.
Banks and banking — Liquidation — Breach of trust by insolvent trustee — Superintendent of Banks not compelled by action for equitable accounting — To account to successor trustee for acts of trustee being liquidated.
APPEALS from the Court of Appeals of Cuyahoga county.
Each of these cases has the same plaintiff and the same defendants. The plaintiff is The National City Bank of Cleveland, successor trustee under agreement with William C. Scott, and the defendants are The Guardian Trust Company of Cleveland and S.H. Squire, Superintendent of Banks of the state of Ohio, in charge of the liquidation of the business and property of The Guardian Trust Company of Cleveland.
Case No. 27980 originated in the Court of Common Pleas of Cuyahoga county, when the plaintiff, on May 26, 1937, filed a petition, seeking an accounting and other relief from the defendants. The Guardian Trust Company of Cleveland had acted as trustee of the William C. Scott trust until June 15, 1933, on which date the Superintendent of Banks of the state of Ohio took charge of the liquidation of that bank. By decree of the Common Pleas Court, on February 5, 1934, The Guardian Trust Company was removed as trustee of the William C. Scott trust and The National City Bank of Cleveland was substituted as successor trustee.
The petition of the plaintiff alleges that losses have been caused to the trust by breaches of trust committed by The Guardian Trust Company, the extent of which the plaintiff does not know, but that these breaches consist of dealing with itself privately while acting as trustee; making secret personal profits from dealing with the trust; selling to the trust its own private property and securities, in the sale of which it had a private interest; and in failing to dispose of investments which it had a duty to dispose of. The petition then alleges that information concerning these breaches during the administration of The Guardian Trust Company is contained in papers, documents and records of the trust company, which came into the possession and control of the Superintendent of Banks when he took possession of the company for liquidation and are now in his possession; and that on or about May 10, 1937, the plaintiff, as successor trustee, served a written demand upon the defendants that they render to the plaintiff as such successor trustee an accounting of the administration of the trust by the trust company, that they disclose to the plaintiff instances in which these breaches of trust affected the administration of the trust, and that on May 13, 1937, these demands were refused. Plaintiff therefore prayed for a complete and general accounting of The Guardian Trust Company's administration of the trust; that the court determine the amount of loss suffered by the trust because of the acts of the defendants, and the total claim, plus interest thereon, of the trust arising from The Guardian Trust Company's breach of trust, and for judgment in that amount; and that that judgment be decreed a valid general claim against the assets of the trust company in the possesion of the Superintendent of Banks of Ohio, as liquidator, and entitled to participate in the fund deposited by The Guardian Trust Company according to law with the Treasurer of State to secure the faithful discharge of the company's trust duties.
A demurrer was filed to this petition on behalf of the defendant Squire, on the grounds that the court did not have jurisdiction of the subject-matter of the action and that the petition did not state a cause of action. This demurrer was sustained on November 15, 1938, and judgment rendered against the plaintiff for costs. An appeal was thereupon taken to the Court of Appeals of Cuyahoga county, which court, on December 7, 1939, affirmed the judgment of the Court of Common Pleas.
The petition in case No. 27981 was filed October 5, 1938, in the Court of Common Pleas of Cuyahoga county. This petition contained practically the same allegations of breach of trust in the administration of the William C. Scott trust by The Guardian Trust Company as were contained in the petition in case No. 27980, but included, in addition thereto, an allegation that on July 16, 1937, plaintiff had filed with the Superintendent of Banks a written proof of claim embodying the claims set forth in the petition, which included a claim for the amount of loss which the estate had sustained when The Guardian Trust Company purchased certificates of participation in The Guardian Trust Company Mortgage Participation Trust Fund and for the compensation paid to the trust company, and a demand for an accounting. Incorporated in the petition were the same claims again for a full, complete and general accounting of the Scott trust and a prayer that the amount of loss to the estate disclosed by this accounting be adjudged a valid claim against the assets of the trust company in the hands of the Superintendent of Banks.
To this petition, the defendant Squire filed a motion to strike parts thereof and moved that the allegations which claimed losses caused by breach of trust, other than that for which a definite claim had been made, be stricken from the petition, thus leaving the petition with only the cause of action based upon the claim filed with the Superintendent of Banks for loss by reason of the purchase of the participation certificates. This motion to strike was sustained by the Court of Common Pleas on May 22, 1939, and leave was given to the plaintiff to amend, but, the plaintiff not desiring to plead further, the court dismissed the petition. An appeal was thereupon prosecuted to the Court of Appeals of Cuyahoga county, and that court, on December 7, 1939, sustained the judgment of the Court of Common Pleas.
Both cases are before this court upon the granting of motions for orders requiring the Court of Appeals to certify its records.
Messrs. Mooney, Hahn, Loeser, Keough Freedheim, for appellant.
Mr. Thomas J. Herbert, attorney general, Mr. A.O. Husband, Messrs. Carr Hanna and Mr. Norman L. Dungan, for appellees.
The question presented is whether the Superintendent of Banks can be compelled, by an action for an equitable accounting, to account to a successor trustee for the acts of a trust company which is in his charge for purposes of liquidation.
The office of Superintendent of Banks is of statutory creation and the powers and duties of the incumbent thereof must likewise be statutory or they do not exist. Sullivan v. Kuolt, Commr. of Banking, 156 Wis. 72, 145 N.W. 210.
Section 710-89 et seq., General Code, prescribe the procedure for the adjustment of claims of creditors and for the liquidation of banks by the Superintendent of Banks. There is no authority in our statutes for the Superintendent of Banks, as liquidator, to assume the office of trustee, or to account for the acts of the insolvent trustee. He does not become the alter ego of the banking institution. He assumes none of the functions, performs none of the duties, and exercises none of the powers of the bank as a trustee of the trusts which the institution was handling. On the contrary, with respect to the corpus of the trusts handled by such institution, the Superintendent of Banks is merely a custodian, pending the appointment of a successor trustee.
Upon insolvency of a banking and trust company and the appointment of the Superintendent of Banks as liquidator thereof, the fiduciary office of trustee of express trusts does not descend upon the liquidator, but becomes and remains vacant until a successor trustee is duly appointed and qualified. See In re Strasser, 220 Ia., 194, 262 N.W. 137, 102 A. L. R., 117; Pouncey v. Fidelity Natl. Bank Trust Co., 85 F.2d 486; Young, Commr., v. Bankers' Trust Co.'s Recr., 250 Ky. 1, 61 S.W.2d 904; and Sullivan v. Kuolt, Commr. of Banking, supra.
As to cause No. 27980, the decision of the Court of Common Pleas sustaining the demurrer was proper, as was likewise the action of the Court of Common Pleas in case No. 27981 in striking out the allegations of the petition, upon which an action for accounting was based.
The claim filed with the Superintendent of Banks in case No. 27981, based upon the loss sustained from the purchase of the participation certificates, is not in issue here. Consequently, we do not pass upon that point in this opinion.
The judgment of the Court of Appeals in each case is therefore affirmed.
Judgments affirmed.
WEYGANDT, C.J., DAY, ZIMMERMAN and HART, JJ., concur.
WILLIAMS, J., dissents.
MATTHIAS, J., not participating.