Opinion
No. 60513
Decided January 14, 1967.
Banks — Mutual savings society — Dissolution — Surplus fund — Distribution — Depositors under Depository Act — Secured deposits — Insufficient ground for denial of participation — Additional factors considered — Interest rates — Withdrawal privileges — Security of deposits — Deposits not subject to society regulations.
1. The fact that funds deposited with a mutual savings society under the Uniform Depository Act, Chapter 135, Revised Code, are secured by government bonds is alone not sufficient to deny their owners participation in the distribution of the surplus fund upon dissolution of the society.
2. When the evidence, of both the statutory and the contract rights of a city and a county which deposited funds under the Uniform Depository Act in a mutual savings society, shows that such deposits established a relationship of the subdivision with the society which was different from that of the normal depositor in that such public depositors were granted substantial economic advantages over the normal depositor, including that the former were not bound by the rules and regulations of the society, such subdivisions were creditors of the society rather than being among its beneficial owners.
3. Elements of the deposit of funds under the Uniform Depository Act which indicated that their owners, when the deposits are in a mutual savings society, neither assume the risks of an ordinary depositor nor should be considered among the beneficial owners of the society include: interest rates may not be changed, time of permitted withdrawal is more liberal than ordinary certificate, higher interest, different times of payment of interest, special contracts resulted from competitive bidding, withdrawal on thirty days notice regardless of original term, government bonds pledged as security for repayment, funds could be invested by society only in short-term obligations, the deposits were not governed by rules or regulations of the society, and these several advantages were regularly utilized by the depositors.
Mr. Fred M. Cole and Messrs. Dunbar, Kienzle Murphey, for the bank.
Mr. Charles E. Carter, for city of Springfield.
Mr. James A. Berry, prosecuting attorney, for Board of Commissoners of Clark County.
This cause was before the court on an action brought by the petitioner, the Springfield Savings Society of Clark County, Ohio, hereinafter referred to as the "Bank," praying for judicial supervision of proceedings in dissolution and for a determination of the beneficial owners of a surplus fund in possession of the bank resulting from the sale of its assets. Hearings were held, testimony taken, arguments heard, and briefs submitted, following which this court approved a plan of distribution and made a determination of those depositors entitled to participate in such cash surplus fund.
The city of Springfield and the Board of Commissioners of Clark County, Ohio, were among those asserting a right to participate in the distribution of this fund. Each of these governmental authorities had substantial deposits in the bank at the time and dates set forth in the approved plan. However, this court held that neither of them was entitled to participate in the distribution of the surplus fund. In its decision the court noted that their deposits had been made pursuant to the provisions of the Uniform Depository Act of Ohio as set forth in Chapter 135 of the Revised Code of Ohio, which required such deposits to be secured by pledges of government bonds or other eligible securities. Thus, each of these depositors enjoyed a preferred position with respect to its deposits since, by reason of the foregoing requirement, they did not bear any of the risks or hazards assumed by other depositors. This court therefore ruled that they were not among the beneficial owners of the surplus fund and were not entitled to participate in the distribution that was ordered.
The city of Springfield appealed from this ruling which denied it the right to participate in the distribution of the fund. The Court of Appeals was of the opinion that this court erred in its ruling, and stated in substance that the grounds of such denial, to-wit, the mere fact that the deposits were secured as required by the Uniform Depository Act of the state of Ohio, would not of itself be sufficient cause to deny the city of Springfield the right to participate in the distribution of the fund. The decision of this court in that respect was thereupon reversed, but the cause was remanded back to this court for further proceedings according to law. ( 12 Ohio App.2d 120. )
Pursuant to the mandate of the Court of Appeals, further proceedings were had. New and additional oral testimony was taken, exhibits offered and received in evidence, and, by stipulation of the parties, certain affidavits were made a part of the record in this cause, and the city of Springfield, joined by the Board of County Commissioners, again asserted a right to participate in the fund, and by further stipulation of the parties the matter was submitted to this court for its decision upon the entire record thus made.
An examination of the record as now made up establishes the following as facts concerning the various classes of deposits and depositors whose rights to share in the surplus fund need now be determined, which this court believes are significant and relevant to the issue before it and warrant and require the conclusions arrived at in this decision:
(1) In the case of ordinary passbook depositors, interest rates could be changed at any time, notices of withdrawal could be required, and each of such depositors upon opening his account agreed that changes in the rules and regulations of the bank concerning the deposit could be made. (See Exhibit 1.) (All emphasis in this decision by the court.)
(2) Nongovernmental holders of time certificates of deposit agreed to leave their deposits for a stipulated period of time; they received higher rates of interest; they received interest payments at times other than those specified for regular passbook depositors. However, such depositors were otherwise expressly subject to the rules and regulations governing passbook holders. (See Exhibit 2.) On the other hand, public or governmental depositors, such as the claimants in the instant case, were not and could not be made subject to these rules.
(3) Governmental deposits of the kind now under review were received subject to the Uniform Depository Act, which required, among other things, application and bids by banks for said deposits, with the deposits allocated to the bank or banks offering the highest rate of interest. These arrangements were to be incorporated in written agreements and certificates. (See Exhibits 3, 4, and 5.) In this connection it ought also be noted that under the Uniform Depository Act such governmental depositors could withdraw their funds on thirty days' notice notwithstanding longer and later maturity dates. (See Section 135.14, Revised Code.) On the other hand, private certificate holders had no right to withdraw their funds prior to maturity date. Furthermore, and as noted in the original decision of this court, securities were required to be pledged by the bank in an amount equal to funds deposited in the case of governmental deposits, a practice not required with nongovernmental certificate holders or private depositors.
(4) In order to comply with the requirement for pledging securities, it was necessary for the bank to apply or purchase United States bonds or other eligible securities. (See 135.16, Revised Code.) These securities in turn bore a substantially lower interest rate than that which could be earned as a result of other investments made by the bank. Furthermore, because of the requirement to allow withdrawal of governmental deposits on thirty days' notice as required by statute, as above noted, the bank was restricted in the investments it could make of such deposits, and was required to use them for less profitable short-term investments in order to be in a postion to pay off in the event that the thirty-day call was made. On the other hand, deposits received from private holders of certificates of deposit became available to the bank for more profitable and for long-term mortgages and investments because withdrawal of those funds could not be made as a matter of right prior to maturity date. (See testimony of Ray Lange.)
(5) Governmental depositors such as the city of Springfield and the Board of County Commissioners earned and received interest on a daily basis and received such interest up to the very day of withdrawal. This was a privilege and a benefit not available to nongovernmental holders of certificates nor to deposits of holders of passbooks. (See affidavit of Lange and record of his testimony.)
(6) A different and higher rate of interest was actually paid on certain of their deposits to governmental depositors than to private holders of certificates of deposit. (See affidavit of Ray Lange.)
(7) The governmental depositors in this case actually took advantage of and availed themselves of their preferred positions and did in fact withdraw their funds within short periods of time — in one instance within thirty days — and in each and every such instance the interest paid was actually computed and paid on a daily basis, and in certain instances at a higher rate of interest than that paid to private holders of certificates of deposit. (See affidavit of Ray Lange.)
Upon a consideration of the significance and relevance of the above-noted facts, this court is of the opinion, and now finds, that they clearly and overwhelmingly establish that the terms and conditions attending the deposits by both the city of Springfield and the Board of Commissioners of Clark County, Ohio, placed them each in a preferred, privileged, and completely different category than that enjoyed by private holders of certificates of deposit and passbook depositors, both of which categories had previously been held entitled to participate in the surplus fund. The city and county were spared not only the risks and hazards assumed by other depositors because of the pledge of securities to protect their deposits as already noted, so that in any possible event their deposits would have had to be paid in full whereas other depositors were not assured of such payment, but, in addition thereto, by reason of contract and statute, they each enjoyed the many special benefits and rewards above noted that were not available to any of the other depositors, including nongovernmental holders of certificates of deposit.
This court is compelled to the conclusion therefore that, by reason of the foregoing, the relationship created between the bank and the governmental depositors in this case was simply and exclusively only that of creditor and debtor, whose relationship and rights and responsibilities with respect to their deposits differed substantially and significantly from those of other depositors who were subject to the rules and regulations of the bank, from which both the city of Springfield and the Board of County Commissioners were exempt. Thus, once the deposits were withdrawn or paid, the relationship terminated and ceased.
Upon further consideration of the entire record, this court concludes and now holds that, by reason of these distinctions and the special nature of these deposits, both the city of Springfield and the Board of County Commissioners enjoyed and received special benefits far beyond their contribution to the surplus fund to be distributed, and that by reason thereof and for the reasons above noted, they can not be considered as among the beneficial owners of such fund and should not and are not entitled to participate in its distribution.
Finally, attention is called to the closing paragraph of an affidavit filed on behalf of the city of Springfield in which for the first time it is now urged that, since the charter of the city of Springfield does not require in so many words that the city comply with the Uniform Depository law of the state of Ohio, the terms and conditions of this law insofar as they are relevant to the transactions and issues now under consideration do not bind the city, even though in said affidavit it contends and urges that the depository — in this case the bank — is so bound. In this connection it should be noted that section 2 of the Charter of the city of Springfield, Ohio, expressly vests all the power of the city, except as otherwise therein provided for, in the city commission, and the charter further provides that, except as otherwise prescribed therein or by the Constitution of the state of Ohio, the city commission may by ordinance or resolution prescribe the manner in which any power of the city shall be exercised. This section further provides that, in the absence of such provision as to any power, such power shall be exercised in the manner now or hereafter prescribed by the general laws of the state applicable to municipalities.
This court finds that Chapter 135 of the Revised Code of Ohio, to-wit, the Uniform Depository Act, is part of the general laws of the state of Ohio applicable to municipalities, and this court further notes that its attention has not been directed to any ordinances or other action otherwise taken by the city commission governing the deposit of city funds which would in any way affect, supplant, or prevent the application of the general laws of the state applicable to municipalities, and particularly Chapter 135 of the Revised Code. Accordingly, the court finds that the Charter of the city of Springfield, Ohio, does not prevent the application of the Uniform Depository Act insofar as such act is relevant to the transactions now under review, nor does it have any relevance to the issues under consideration.
For all of the reasons above cited, the court finds that neither the city of Springfield nor the Board of Commissioners of Clark County is entitled to share in the distribution of the surplus fund of the bank.
An entry in accordance with this ruling may be drawn and submitted.