County Commissioners v. Page

⁶²² Offutt, J., delivered the opinion of the Court. The Central Trust Company of Maryland, herein for convenience called the trust company, a banking and trust company having its main office in Frederick City, and operating extensively throughout central and western Maryland, on September 2nd, 1931, adopted a resolution placing its affairs in the hands of George W. Page, bank commissioner of Maryland, and he, on that day, pursuant to that action, posted on the front doors of its main office and of each of its branches a notice that “This institution is in the hands of the Bank Commissioner.” On the following day he filed in the Circuit Court for Frederick County, in equity, a bill of complaint reciting these facts and praying that he be appointed a receiver to take charge of and administer the affairs of the Central Trust Company, the defendant. That company on the same day, in its answer, admitted the allegations of the bill and consented to the relief , prayed, and upon that record the court, on September 3rd, 1931, appointed the complainant receiver as prayed. On October 10th, 1931, the County Commissioners of Frederick County, herein for convenience spoken of in the plural .as commissioners, filed in that proceeding a petition in which they alleged that they had, on August 22nd, 1931, entered into a trust agreement with the Central Trust Company of Maryland, under which $186,000, being the proceeds of bonds -•sold to redeem other bonds, “was paid” to the trust company '“as trustee,” for the purpose of being “held in trust” to .■apply (a) to deposit $150,000 on October 30th, 1931, in the 'Citizens’ Rational Bank of Frederick, Md., to redeem certain coupon bonds which had been called for redemption payable at that bank, and (h) to deposit on the same date $36,000 in the Fredericktown Savings Institution, of Frederick, Md,, to redeem certain other bonds which had been called for redemption, payable at that institution.

They further alleged that the “said trust fund” was a preferred claim under Code, art. 11, sec. 48; that the assets of the trust company exceeded all “trust department liabilities,” and they prayed the court to direct the receiver to pay on October 30th, 1932, ⁶²³ to the Citizens’ National Bank of Frederick, $150,000', and to tile Frederiektown Savings Institution, $36,000. There was hied with that petition a copy of the trust agreement which, after reciting that “the County Commissioners of Frederick County have deposited in said Bank, the proceeds of sale of the Refunding Bonds of 1931, in the amount of $186,000” and the origin and purpose of said fund, provided: That “the Central Trust Company of Maryland, does by these presents agree to hold the said sum of one hundred eighty-six thousand ($186,000.00) dollars, in trust and apply the same as follows: “(1) To deposit the sum of one hundred fifty thousand ($150,000.00) dollars, on October 30th, 1931, in the Citizens’ Rational Bank of Frederick, Maryland, for the purpose of redeeming the coupon bonds of Frederick County issued in pursuance of Chapter 125 of the Acts of 1910, in the amount of seventy-five thousand ($75,000.00) dollars, and the coupon bonds of Frederick County issued in pursuance of Chapter 404 of the Acts of 1912, in the total amount of seventy-five thousand ($75,000.00) dollars, and “(2) To deposit on October 30, 1931, the sum of thirty-six thousand ($36,000.00) dollars, in the Frederiektown Savings Institution, of Frederick, Maryland, for the purpose-of redeeming the coupon bonds of Frederick County, issued: in pursuance of Chapter 359 of the Acts of 1914, in the amount of thirty-six tliousand ($36,000.00) dollars. “Said fund of one hundred eighty-six thousand ($186,-000.00) dollars, shall be held by the Central Trust .Company of Maryland, in trust and applied at the time and places hereinabove mentioned, and for no other purpose.” On March 17th, 1932, the receiver filed an answer to that petition hi which he admitted the allegations of the petition as to the origin and nature of the fund, the execution of the trust agreement, and the deposit of the fund with the trust company. He further alleged : “That on the 25th day of May, 1931, there was deposited in the Central Trust Company of Maryland (in an interest account, ⁶²⁴ under a contract providing that the deposits shall be subject to withdrawal upon thirty days’ notice), to the credit of 'County Commissioners of Frederick County, Maryland 4% refunding bond issue of 1931,’ a cheek in the amount of. .$ 4,092.00 “And that on June 1st, 1931, there was deposited to the credit of said account a draft in the sum of.................. 189,259.97 “Making a total deposit of...............$193,351.97 “And that on June 10 th, 1931, there i was withdrawn from said deposit the sum of...................$400.00 “And on June 12th, 1931, there was withdrawn the sum of......... 332.40 “And that on the same day there was also withdrawn the sum of.. 195.00 “And that on June 23rd, 1931, there was withdrawn the sum of.... 50.00 “Making a total of withdrawals of........ 977.40 “Leaving a balance of...................$192,374.57 “And that on July 1st, 1931, said account was credited with interest to the amount of................................. 643.52 “Making a total deposit at that time......$193,018.09 ■“And that on August 31st, 1931, there was charged against said account..........$186,000.00 “Being a check for said amount dated August 22, 1931, payable to 'Central Trust Company of Maryland, Trustee,’ presented to said Trust Company after the close of its books on Saturday, August 29th, 1931, and charged against said account on August 31st, 1931, as aforesaid.” He denied that the petitioner’s claim was entitled to a preference under Code, art. 11, sec. 48, and asked leave to ⁶²⁵ reargue the question, which appears to hare been considered by the court in some other branch of the proceedings, as to whether that provision affected any other than judicial trusts. Testimony wras taken upon the issues presented by those pleadings, and, after a hearing, the court, on March 29th, 1932, dismissed the petition.

The first appeal is from that -order. On April 4th, 1932, the county commissioners filed a second petition, in -which they asked for a further hearing and leave to introduce additional evidence in connection with the following propositions: “(a) That deposit of public funds in violation of the statute, in a trust company knowing them to be public funds, creates a trust. “(b) That a trust relation being established the claim of the public officers becomes a preferred claim by virtue of section 48 of article 11 of the Annotated Code of Maryland. “(c) That the trust relation being established the claim of the public officers, independently of section 48 of article 11 of the Annotated Code of Maryland, are entitled to priority in the distribution of the assets of the trust company, if the deposits can be traced.” On April 11th, 1932, the commissioners filed in the case a third petition in which they alleged that there were deposited in the trust company in the name of the County Commissioners of Frederick County “In trust for Self and Joint Owners, subject to the order of either, the balance at the death of either to belong to the survivor,” funds dedicated to the accumulation of sinking funds and the payment of interest on past issues of authorized bonds issued by Frederick County, aggregating $144,837.07. They further alleged that by virtue of article 11, sec. 807, P. L. L. of Md. (1930) “all monies due said county from any source whatever, shall be paid to the County Treasurer,” but that the county commissioners, under a “custom” followed for many years, instead of paying funds such as those described which came into their hands to the county treasurer, had deposited them in the name of the board. ⁶²⁶ Additional evidence was taken, a further hearing was had, and on April 23rd, 1932, the court ordered that “the claims of the County Commissioners of Frederick County are hereby allowed preference to the extent indicated in the aforegoing opinion with respect to the distribution of the funds, amounting to $133,912.70, of the Central Trust Company,. which came into the hands of the Receiver as of the time of his appointment.” The preference “indicated in the aforegoing opinion” is that “Subject to revision as to details, our conclusion is that the County Commissioners, in regard to the $186,000 and $82,531.32 accounts, are entitled to preference as to $1,000 of the receivership funds, and in regard to the accounts having balances to the total amount of $55,287.63 they have the right to be preferred, ratably with claims for uninvested balances of ordinary trust funds, in the distribution of $132,912.70 of the funds belonging to the Trust Company at the beginning of the receivership. There is no proof identifying the deposits of the County Commissioners with any assets of the Trust Company other than its cash balances.” The second appeal is from that order.

Without further proceedings, on June 18th, 1932, that order was modified by a further order which provided that “in modification of the order filed April 23, 1932, that the claims of the County Commissioners of Frederick County, in regard to their deposits aggregating $323,878.95, with the Central Trust Company, are hereby allowed preference, rat-ably with claims for uninvested balances of ordinary trust funds, in the distribution of the funds, amounting to $133,-912.70, of the Trust Company, which came into the hands of the Receiver as of the time of his appointment.” The third appeal is from that order. From this statement it appears that, while there were three orders, the order of April 25th, 1932, modified and superseded the order of March 29th, 1932, and the order of June 18th, 1932, modified and superseded the order of April 25th, 1932, so that the only question cognizable by this court growing out of the three appeals are those arising out of the passage of the order of June 18th, 1932, and the first two ⁶²⁷ appeals must be dismissed, since the orders from which they were taken were superseded and rescinded by the third and final order of June 18th, 1932. And, while the last order was passed at a time when an appeal from the first order was pending, in the state of the record it will be assumed that the case was reinstated by consent in the trial court subsequent to that appeal, and that the trial court had jurisdiction to decide the matters involved in that order. The questions presented by the appeal are: (1) Did the agreement between the commissioners and the trust company of August 22nd, 1931, create a valid express trust?

(2) If not, did the trust company hold the fund described in that agreement, and other public funds of Frederick County deposited with it in the name of the County Commissioners of Frederick County, as a trustee ex maleficio? (3) Were public funds of Frederick County held by it (a) under a valid express trust, or (b) as trustee ex maleficio, entitled under Code, art. 11, sec. 48, to a preference in the distribution of its assets ? (4) If not, are the commissioners entitled to a preference as to public funds held by the trust company for them under either a voluntary or a constructive trust, when such funds can be identified, (a) over the uninvested balances of other trust funds held under valid voluntary or judicial trusts, or (b) over general creditors of the trust company? (5) If they are entitled to such preference, does the principle, which assumes that any cash balance, in the possession of a trustee with whose general assets the trust fund has become fused, includes the trust fund, extend to and include a specific identified part of the trust fund which the trustee has deposited to its credit in another separate and independent institution ?

The facts of the case are not disputed, and may be thus stated: For a number of years prior to 1931, the commissioners had been accustomed to deposit in the trust company in their name the proceeds of bonds issued and sold by them, and also moneys collected by them to accumulate for the payment of the principal of such bonds. In September, 1931, when ⁶²⁸ the trust company closed its doors, there were eight such deposit accounts, with balances aggregating $144,837.07, and extending over a period running from October 28th, 1924, to September, 1931. By chapter 216 of the Acts of 1931, the commissioners were authorized to issue and sell $186,-000 of refunding bonds to redeem bonds of a like amount issued and sold under prior acts. They did issue and sell such bonds, and received from the purchaser, the First National Securities Corporation, two checks, one for $4,092 dated May 25th, 1932, and one dated June 1st, 1932, for $189,259.97, which they deposited as received with the trust company.

Both of those checks were deposited with the First National Bank of Baltimore to the credit of the trust company, and the county commissioners credited on the books of the trust company with the amount of the checks. Article 11, section 807, Code Pub. Loc. Laws of Md., in part provides that the county treasurer is “to receive all money which shall be due and payable to said county from any source whatsoever. * * * During the continuance of his office as treasurer, he shall collect all taxes levied by the County Commissioners and shall receive all moneys due to said county from any source whatever, including interest paid on such taxes as are in arrear, and deposit the same in some bank or banks, or trust company or companies of Frederick City, Maryland, bidding the highest rate of interest upon daily balance of such deposits and being ready and willing to furnish a depository bond satisfactory to the County Commissioners; and shall disburse the said moneys deposited under the provisions of law and the order of the County Commissioners, and pay over as the County Commissioners may direct all moneys received for said county, that may at any time be in his custody, charge or control, belonging to said county.” As early as April, 1931, Clinton McSherry, counsel to the commissioners, had suggested to them that under that statute all county deposits should be protected by corporate depository bonds, but, notwithstanding that suggestion, the deposits last referred to were made as other deposits had been ⁶²⁹ made theretofore, in the name of the commissioners and without requiring a depository bond.

About the first of the following August, a conference between the commissioners,, their counsel, and hlr. Emory L. Coblentz, president of the trust company, was called to consider the date at which the bonds to be redeemed from the fund of $186,000 were to be called for redemption. Coblentz was interested because his company had to have the money ready to redeem the bonds, and he suggested the first of the following January, 3Jc-Sherry suggested that thejr be redeemed at the time of the coupon dates, in September, October, and November, and, as the result of a “compromise,” November 1st, 1931, was fixed as the redemption date for all the bonds. At that time there was some discussion of a depositary bond, but apparently nothing came of it then.

But during the period of these negotiations some attention had been given not only to that question, but also to that provision of the statute which referred to the receipt of county funds by the county treasurer, and on August 15th, 1931, in answer to a request, their counsel advised the commissioners that “This law very plainly requires the Commissioners to deliver to the County Treasurer all funds of every description and requires the County Treasurer to deposit the same in such bank or banks as will pay the highest rate of interest on daily balances and furnish a depository bond satisfactory to the County Commissioners.” On August 17th a letter was sent by the commissioners to their several depositaries, notifying them that all bids for deposits must provide for depositary bonds, but no1 bond was required of the trust company, for the reason that the commissioners had agreed to accept in lieu of a bond the trust agreement, to which we have referred, as to the $186,000 deposit. That agreement was drawn and executed apparently on August 22nd, and on August 31st, 1931, by a check presented after the close of the books of the trust company on August 29th, drawn by the coixnty commissioners on the trust company, trustee, the $186,000 deposit was withdrawn, and, it may be inferred, transferred to the account of the Central Trust Company, trustee. ⁶³⁰ On May 26th, 1931, there was deposited with the trust company a check for $2,200, and on June 1st a check for $102,118.67, both drawn to the order of the commissioners by the purchasers of an issue of $100,000 of serial four per cent, bonds. Those checks were sent to the First National Bank of Baltimore, which credited the trust company with the amounts for which they were drawn, and it in turn credited the commissioners with a like amount. The balance due the commissioners on that account, on September 2nd, 1932, was $82,531.32.

On May 29th, 1931, the account of the trust company with the First National Bank showed a credit of $2,739.86, on July 10th a credit balance of $2,381.22, and on July 30th a debit balance or overdraft of $831.32. Prior to that overdraft $1,000 was transferred from the First National Bank to the trust company. At the time the receiver was appointed, the total cash in the hands of the trust company, in its main office and branch offices, was $106,171.69, and the receiver later received in addition to that sum, in cash balances from correspondent banks, $27,741.01. It also' appeared, from an exhibit filed March 21st, 1932, and marked “Trust Deposits,” -that, under the caption “Trust Department Corpus deposited in Savings Account, Central Trust Company of Maryland,” there were “one hundred fifteen accounts at four per cent, interest totaling $192,-434.88, and twenty-one accounts at no interest totaling $195,-810.13, which includes $186,000.00 trust deposit of the County Commissioners of Frederick County, Maryland.” In connection with these facts, it will be noted that the order from which this appeal was taken limits the operation of the preference allowed the appellant to the funds, amounting to $133,912.70, which came actually into the hands of the receiver at the time of his appointment, or were received as credit balances from correspondent banks.

The appellant apparently contends (1) that it is entitled to a preference in respect to the fund of $186,000 as to all assets of the trust company, on the theory that it was held under a valid express trust, and protected by Code, art. 11, sec. 48; ⁶³¹ and (2) that, if the express trust is found to be invalid, nevertheless the fund of $186,000 and all other funds of the appellant deposited with the trust company were held by it under a constructive trust, and as such were entitled to the protection of that statute; and (3) that, even if not protected by the statute, the “beneficial owner” of the funds deposited with the trust company by the appellant is, as to- such funds, entitled to a preference over general creditors, in the distribution of all assets of the trust company. The appellee, while not stating it in so many words, appears to submit the contention that the order awarded the appellant more than it was entitled to receive, because (1) it was not entitled to the protection afforded by Code, art. 11, sec. 48; and (2) that, independent of statutory authority, it “can only recover deposits which can be traced,” and that its funds deposited with the First Rational Bank cannot be traced, except possibly the sum of $1,000, and that its other deposits cannot be traced further than into the sum of $106,171.69, which the trust company had in its hands in cash when the receiver was appointed. But, inasmuch as there was no cross-appeal, the order cannot be reversed even if under it the appellant took more than in law or in fact he was entitled to receive (Gordon v. Miller, 14 Md. 204 ; Lanahan v. Latrobe, 7 Md. 268 ; 4 C. J. 697), so that the sole question is whether the appellant was injured by the order. 1. In respect to the question first stated, the learned chancellors who heard the case below said: “The -County Commissioners are a governing body with limited powers.

They can exercise only the authority with which they have been expressly, or as a reasonable implication, invested by law. Peter v. Prettyman, 62 Md. 566, 571 ; Tasker v. Garrett County Commrs., 82 Md. 150, 153 , 33 A. 407 .