At a special meeting of the board of directors of the United States Trust Company, held on the night of November 21, a resolution was unanimously adopted requesting the Munsey Trust Company to advance to the United States Trust Company sufficient cash to meet the emergency growing out of the run upon the latter company by its depositors and to guarantee the payment of the deposit liabilities of the company in full.
In consideration of compliance with this request by the Munsey Trust Company the United States Trust Company agreed to forthwith assign and transfer to the Munsey Trust Company all of its assets, including cash, securities, real estate and property of every kind and nature as security for such advances and guarantee, with full authority to hold and to realize upon the same until reimbursed in full, including cost and expenses, for moneys advanced and satisfactorily indemnified for its guarantee of the company's deposit liabilities.
It was further agreed by resolution of the directors of the United States Trust Company that an effort would be made to obtain the approval of the stockholders of the company to a resolution authorizing the Munsey Trust Company to take over and liquidate all of the assets of the United States Trust Company of every kind and description. All moneys realized from the assets over and above the liabilities of the company, plus the expenses of liquidation and administration, exclusive of the services of the Munsey Trust Company, to be paid to the stockholders of the United States Trust Company in stock of the Munsey Trust Company at its then book value, plus interest, or in cash at the stockholder's option.
During the early morning hours of November 22 the officers of the national banks of Washington were hurriedly called together and informed by a representative of the Secretary of the Treasury that the Treasury Department would advance $1,000,000 to the national banks for use in meeting the demands of the depositors in the United States Trust Company if each national bank would assume liability for its proportionate share of the deposit.
This money could not lawfully be deposited in the Munsey Trust Company as the law permitted such deposits to be made in national banks only. But upon the written guaranty of the Munsey Trust Company to indemnify them against loss and a deposit by the company of collateral with the Treasurer of the United States, consisting of selected assets of the United States Trust Company, the national banks assumed their proportionate share of the liability to the Treasury Department for this loan, and the money was deposited directly with the Munsey Trust Company.
All deposits in the United States Trust Company were paid in full on demand by the Munsey Trust Company, except such as were voluntarily transferred to and continued with the latter company.
After reimbursing the company from the assets of the United States Trust Company for the amount of the claims paid and retaining sufficient assets to cover the remaining liabilities assumed, the Munsey Trust Company turned over to the receiver of the United States Trust Company, appointed by the court, the remainder of the assets.
In the meantime the stockholders of the United States Trust Company adopted a resolution placing the company in voluntary liquidation and named the Commercial National Bank of Washington as liquidating agent.
The legality of this action was not recognized by the Munsey Trust Company and was questioned by the Comptroller of the Currency. The Act of Congress under which the United States Trust Company was organized contained no provision for liquidation, consequently the company had to be liquidated under the laws of the District of Columbia covering such cases, which required a receiver to be appointed by the court. A receiver was then applied for and appointed by the court, to whom these assets were turned over to be liquidated for the benefit of the stockholders of the United States Trust Company.
While the face value of these assets amounted to about $800,000, their actual value was problematical, as they consisted largely of slow, doubtful and worthless paper, the ultimate liquidation of which would no doubt sustain the examiner's original estimate of losses thereon sufficient to have impaired the capital of the company at least seventy-five per cent.
The whole transaction in connection with the deposit in the Munsey Trust Company of a million dollars of public moneys taken from the Treasury of the United States may be briefly summed up as follows:
There was no authority of law whatever for the deposit of this money in the Munsey Trust Company.
The money was not deposited in the banks and by the banks loaned to the trust company, but the banks guaranteed the liability of the trust company to the Treasury Department by assuming responsibility for the loan and in doing so committed an ultra vires act, as the courts had held time and again that it was beyond the power of a national bank to guarantee the obligations of another party.
The money was deposited in the Munsey Trust Company on the security of the assets of the United States Trust Company and not upon security owned and deposited by the banks, but the liability was assumed by the banks and was taken upon their books constructively as crop-moving funds.
The Munsey Trust Company paid the loan to the Treasury Department in full by installments as the assets of the United States Trust Company were liquidated.
Immediately following the subsidence of the excitement over the failure of the United States Trust Company Assistant Secretary Williams wrote a letter to the Acting Comptroller of the Currency, stating that there was still quite a little comment in Washington on the action of the Acting Comptroller in calling a meeting of the presidents of some of the national banks and trust companies and discussing with them the condition of the United States Trust Company before the matter was taken up with the directors or executive committee of the trust company, and requesting to be advised of the exact sequence of occurrences which led up to the failure of the company.