Haughney v. Gifford

BUFFINGTON, Circuit Judge, In this case the receivers of a nation. aJ bank invoked the aid and jurisdiction of the District Court in determini whether ^ funds -n the trust department should be paid tQ thg bondllolders of the Lawrence Hotel Company or be distributed among the unsecured creditors of the bank. The facts are thus stated in the opinion of the COUf t I “We find the facts to be as so stipulated. Briefly stated, this stipulation discloses that the Lawrence Hotel Company executed and delivered to The Second National Bank of Erie, as'Trustee, a mortgage deed of trust of its properties at Erie to secure certain bonds. “This deed of trust provided that the Hotel Company should deposit with the Bank as trustee on the 25th day of each month. (1) an amount equal t0 one_sixth of the next maturing interest on the mort_ gage bonds; and (2) an amount equal t0 one.twelfth of the principal of the'next maturing bonds issued under said mort. trust deed ’ "Under these provisions the Hotel Company had deposited with the Trust Department of the bank $4,041.83 as sinking funds moneys, and $21,480 for the payment of interest coupons to fall due March 1, 1933. The payments to these two accounts were made by the Hotel Company by checks payable tQ The Second National Bank (Trúst Department),’ or ‘Second National Bank (Trustee Account),’ which were credited by the Commercial Department of the Bank in a ledger of that Department designated as Trust Account, Second National Bank No. 2’, and were al — 81 — so entered by the Trust Department upon a deposit sheet designated ‘Trust Department, Second National Bank, No. 2 Account.’ “At the time these deposits were made, the Commercial Department of the Bank had on deposit with the Trust Department, United States bonds or other securities approved by the Federal Reserve Board, having a market value equal to the amount of the said deposits, plus all other amounts deposited by the Trust Department with the Commercial Department of the Bank. These deposits were made pursuant to the provisions of the Federal Reserve Act and of Subsection (b) of Section VIII of Regulation F, Series of 1930, of the Federal Reserve Board. “The Receiver, since the institution of this suit, had paid to, or for the benefit of, the bondholders, $7,143.79, leaving a balance in the account of $18,427.94. “The question presented is, whether this balance is a protected or prior claim, or whether it is only a general claim against the Bank. The bondholders contend that these deposits are protected by the bonds deposited by the Commercial Department of the Bank with its Trust Department. The Receiver contends that these deposits a,re not so protected, but merely are general claims against the Bank. * * * “Our conclusion is that these deposits arc protected deposits, and as the collaterals held by the Trust Department of the Bank to secure them are ample for that purpose, they should be paid in full. “The principal of these deposits was turned over to the Trustee for the Mortgage Sinking Fund, and to pay interest on the mortgage bonds. It was a special trust deposit. The fact that the Bank agreed to pay interest to the Hotel Company did not change the trust character of the deposit, which was for the benefit of the bondholders who would derive no benefit from the interest payments by the Bank to the Hotel Company.” After consideration, and finding ourselves in accord with the holding of the court below, its decree is affirmed.