People v. Mechanics & Traders' Savings Institution

The primary relation of a depositor in a savings bank to the corporation is that of creditor. Upon insolvency of the corporation, the depositors stand as other creditors, having no greater, but equal rights to be paid ratably out of the insolvent estate. Accordingly held, where a creditor of a savings bank obtained a judgment against a receiver thereof in an action brought against the bank before the appointment of the receiver, in which action the receiver was substituted as defendant, that the plaintiff was not entitled to a preference over depositors in the payment of his judgment.

Appeal by William J. Best, receiver of The Mechanics and Traders’ Savings Institution, from so much of an order of the General Term of the Supreme Court, in the third judicial department, as reversed a portion of order of Special Term, and directed William J. Best, the receiver of said institution, to pay in full certain judgments rendered against him in favor of William H. Sistare. (Reported below, 28 Hun, 375.) This institution was incorporated as a savings bank by chapter 368, Laws of 1852. Mr. Sistare was a New York broker, and in 1872, the savings institution employed him as such broker to sell certain stock. The result of the transaction was that on the 5th° day of April, 1872, the savings institution became liable to him for a large sum. For this Mr. Sistare commenced an action against it in November, 1875. The action was pending on the 26th day of December, 1877, when an order- was entered in the matter above entitled, dissolving the corporation and appointing Mr. Best receiver. On the 29th of April, 1878, an order was made substituting Mr. Best as receiver in place of the corporation in the action brought by Mr. Sistare, and judgment was thereafter rendered therein in favor of plaintiff. It was appealed to the Court of Appeals where judgment was affirmed, and judgments for costs were perfected. Mr. Sistare applied to the court at Special Term that his judgments be paid in preference to the claims of depositors. This motion was granted as to his costs and disbursements, but denied as to his claim. The General Term, on appeal, held that he was entitled to a preference for the full amount of his judgments, with interest, and directed the receiver to pay the same out of the funds in his hands. The legislature intended to place the creditors and depositors of savings banks on the same footing. (Laws of 1852, chap. 368, § 13; Laws of 1875, chap. 371, § 476; Laws of 1879, chap. 422, § 473; 2 R. S. [Edm. ed.] 471, 492; 3 R. S. [7th ed.] 2401.) The depositors in a savings bank are simply creditors of the institution. (Macin v. Savings Institution, 23 Me. 350; Lund v. Seaman’s Savings B’k, 37 Barb. 129; Van Dyck v. McQuade, 86 N. Y. 39, 52.) Where a stock corporation is dissolved, its creditors must be paid before its stockholders, because the money paid for the stock constitutes the capital which the stockholders invest and risk in the business, and they, being entitled to the profits, must suffer the loss. (Huntington v. Savings Bank, 96 U. S. 388.) A savings bank is a corporate trustee, and in the management of its trust, the bank, through its board of directora, is authorized to incur reasonable expenses. (Hun v. Cary, 82 N. Y. 65-67 ; 2 Perry on Trusts [3d ed.], §§ 907, 908; New v. Nicoll, 73 N.Y. 131; Stockton v. M. and T. Savings Bank, 32 N. J. Eq. 163; 22 Alb. L. J. 157-8; Osborn v Byrne, 21 Am. Rep. 641; Hannon v. Williams, 38 id. 383; Hyde v. Lynde, 4 N. Y. 391; Mann v. Rentz, 3 Comst. 423; M. Savings Bank v. Bastin, Penn. Sup. Ct., March, 1881.) A receiver takes merely the same rights which the corporation had and subject to the same equities. (Lincoln v. Fitch, 42 Me. 456; Robinson v. Howes, 20 N. Y. 84; Smith v. Felton, 43 id. 419.) The defendant is not bound to await the administration of the fund as a general creditor to share with others pro rata, but is entitled to an immediate order for the payment of his costs in full. (Columbia Ins. Co. v. Stevens, 37 N. Y. 536.)