Satterwhite v. Harriman Nat. Bank & Trust Co.

• Decision Date: 02 December 1935
• Citation: 13 F. Supp. 493
• Parties: SATTERWHITE v. HARRIMAN NAT. BANK & TRUST CO. OF CITY OF NEW YORK et al.
• Court: U.S. District Court — Southern District of New York

13 F. Supp. 493

SATTERWHITE v. HARRIMAN NAT. BANK & TRUST CO. OF CITY OF NEW YORK et al.

District Court, S. D. New York.

December 2, 1935.

Gleason, McLanahan, Merritt & Ingraham, of New York City (Burgess Osterhout, of New York City, of counsel), for plaintiff.

O'Brien, Boardman, Hewitt, Memhard & Early, of New York City (David Asch, of New York City, of counsel), for defendants Harriman National Bank & Trust Co. and Frederick V. Goess, as receiver.

WOOLSEY, District Judge.

The exceptions of the plaintiff and of the defendants are hereby overruled. The special master's report is in all respects confirmed and approved, and is hereby adopted as the opinion of the court in this aspect of the cause.

I. This opinion by the special master, Edward W. Bourne, Esq., rendered October 15, 1935, is as follows:

On April 26, 1932, the plaintiff borrowed $300,000 from the defendant the Harriman National Bank & Trust Company of the city of New York, hereinafter referred to simply as the bank, and delivered to the bank 15,000 shares of the capital stock of the Standard Oil Company of New Jersey, certain stock of 960 Fifth Avenue Corporation, and a bill of sale of certain personal property, intending that all should be held by the bank as collateral for the loan of $300,000. The 15,000 shares of stock of the Standard Oil Company of New Jersey were not treated by the bank as collateral for the loan. Ten thousand of the shares were retained in the physical custody of the bank, but the bank purported to hold them as collateral for a loan made to a corporation beneficially owned by J. W. Harriman. Five thousand were delivered to G. M.-P. Murphy & Co. as collateral to secure a personal brokerage account of the defendant Joseph W. Harriman, and, when Mr. Harriman's account with G. M.-P. Murphy & Co. was transferred to E. B. Smith & Co., were transferred to the latter.

The plaintiff did not discover what had been done with the 15,000 shares of Standard Oil Company of New Jersey stock until December 2, 1932, at which time 10,000 shares were still in the custody of the bank and 5,000 were in the custody of E. B. Smith & Co. On March 3, 1933, the latter sold 3,840 of the 5,000 shares, liquidating the debit balance in Joseph W. Harriman's personal brokerage account, and on or about March 3, 1933, E. B. Smith & Co., with the prior consent of the bank, delivered the remaining 1,160 shares and $38.60 in cash to the plaintiff, who accepted the same.

Since April 26, 1932, there have been a number of dividends on the stock of Standard Oil Company of New Jersey, including one dividend in stock of the Mission Corporation.

The plaintiff having brought this action against the defendants above named, the court has found that the 15,000 shares of stock of the Standard Oil Company of New Jersey were obtained by the fraud of the defendant Joseph W. Harriman; that such fraud is imputable to the defendant bank; that the plaintiff is entitled to a rescission of the loan agreement of April 26, 1932, and to the return of the 10,000 shares of stock of the Standard Oil Company of New Jersey, of the stock of 960 Fifth Avenue Corporation, and of the personal property, all of which are still in the possession of the bank; but that, as a condition, the plaintiff must pay to the defendant Frederick V. Goess, as receiver of the bank: "* * * The amount of said loan of $300,000 with interest thereon, less any and all dividends by way of cash or stock, which have been received by or for the account of defendant Goess as Receiver of defendant Bank, or defendant Bank, or defendant Joseph W. Harriman, in connection with any of said 15,000 shares of Standard Oil stock, and less the amount of such damages as is found that the plaintiff has suffered, by reason of the fraud perpetrated on him, as shown by the record herein."

The undersigned was appointed special master pursuant to the interlocutory decree, and an order amending the decree, "* * * to take the testimony and evidence as to the amount of the damages suffered by plaintiff by reason of the fraud perpetrated on him, as shown by the record herein, and to make all needed computations as to the amount of such damages and fully to hear the facts in respect thereto, and to report to the Court his findings of fact and conclusions of law, together with the evidence, for the advisement of the Court."

The complaint was dismissed as against the defendant Austin. The plaintiff was awarded judgment against three defendants; the bank, the receiver of the bank, and Harriman. There is no difference which is material here between the positions of those three defendants.

Notice of a hearing before the special master to be held on July 19, 1935, was duly given to all of the parties. At the hearing only the plaintiff and the defendants bank and Frederick V. Goess, as receiver, were represented. Voluminous briefs and reply briefs were submitted on behalf of the parties attending at the hearing, and the questions at issue were argued orally on August 5, 1935.

It appeared from the briefs and argument that there were three major issues on which the positions of the parties represented at the hearing were irreconcilable: (1) What amount should be awarded or credited to the plaintiff on account of the 3,840 shares of stock of Standard Oil Company of New Jersey which have not been, and are not to be, returned to the plaintiff; (2) whether any amount should be awarded to the plaintiff on account of the 1,160 shares of stock of the Standard Oil Company of New Jersey which were returned to the plaintiff on or about March 3, 1933; and (3) whether interest should be allowed to the plaintiff after March 3, 1933, the date of the closing of the bank, on the deductions to be made from the amount payable by him, which amount, by the terms of the interlocutory decree itself, bears interest.

It also appeared that there was a large number of other items requiring consideration before the net amount payable by the plaintiff as a condition precedent to the return of the stock and other property referred to in the interlocutory decree could be determined. These other items included: (1) Deposits by the plaintiff in his deposit account; (2) a withdrawal from the deposit account; (3) dividends paid on the Standard Oil stock prior to March 3, 1933; (4) various interest charges and credits prior to March 3, 1933; and (5) a dividend on the stock of the Standard Oil Company of New Jersey paid in 1935 in stock of the Mission Corporation. As to all of these items, with the exception of the stock of the Mission Corporation (as to which it was agreed that the decree should provide that the Mission Corporation stock received on account of the 10,000 shares of stock of the Standard Oil Company of New Jersey should be returned to the plaintiff with the latter), the parties disagreed as to the proper method of treatment thereof. A considerable part of the voluminous briefs and reply briefs originally submitted dealt with these items, but an analysis of them warranted two conclusions: First, that it would make little difference in dollars and cents whether all of the theories advanced by one of the parties or all those advanced by the other were adopted; and, second, that the principal reason for the disagreements was the desire of counsel to treat these minor items in a manner believed by them to be consistent with the theories advanced by them with respect to the major items, which do involve substantial amounts.

It also developed that there was a substantial difference of opinion as to the scope of the matters with regard to which the special master could take testimony and report, in view of the question whether the word "damages" in the interlocutory decree covered some of the miscellaneous items referred to above.

The master therefore asked counsel to attempt to agree upon the method in which the minor items should be treated in the decree, leaving for his consideration only the three major issues referred to above. After a number of conferences a stipulation dated September 12, 1935, was signed by counsel represented at the hearing, and is filed with the master's report. At the conclusion of this memorandum the master will summarize the provisions of the interlocutory decree, the stipulation of September 12, 1935, and the master's report. The three major issues will first be disposed of:

(1) The award to be made to the plaintiff in respect of the 3,840 shares of stock of the Standard Oil Company of New Jersey.

The plaintiff's demand for a judgment in his original complaint, on which the defendant has placed particular emphasis, reads in part as follows:

"1. That said loan and agreement between the defendant Bank and the plaintiff, and any and all papers, instruments, and agreements executed in connection therewith be rescinded and in all respects annulled, cancelled, and set aside.

"2. That upon the payment by the plaintiff to the defendant Bank of said sum of $300,000, with interest, the defendants deliver to the plaintiff said note for $300,000. executed about October 26, 1932, certificates covering said 15,000 shares of the common stock of the Standard Oil Company of New Jersey, certificates covering said 4500 shares of 960 Fifth Avenue Corporation, and said bill of sale of contents of the apartment at 960 Fifth Avenue, and all other papers and documents executed by the plaintiff in connection with said loan.

"3. In the event that the defendants shall have parted with possession of said securities of the plaintiff, or in the event, for any reason, it is impossible to return them to the plaintiff, that the defendants return to the plaintiff the identical monies received by them for said securities or that the plaintiff have judgment against the defendants and each of them for the value of the securities not returned, together with any and all dividends, profits, and income received by the defendants or any of them, in connection with...