Smith v. Baltimore & OR Co.

• Decision Date: 05 March 1931
• Docket Number: No. 2493.,2493.
• Citation: 48 F.2d 861
• Parties: SMITH v. BALTIMORE & O. R. CO. et al.
• Court: U.S. District Court — Western District of Pennsylvania

48 F.2d 861 (1931)

SMITH v. BALTIMORE & O. R. CO. et al.

No. 2493.

District Court, W. D. Pennsylvania.

March 5, 1931.

Shelby, Hackney & Ray, of Uniontown, Pa., for plaintiff.

Smith Buchanan, Scott & Gordon, of Pittsburgh, Pa., for defendant Baltimore & O. R. Co.

William A. Wilson and C. Roscoe Hoffman, both of Pittsburgh, Pa., for defendant Bank of Pittsburgh, Nat. Ass'n.

McVICAR, District Judge.

The bill of plaintiff, receiver of a national bank, prays the court to decree an agreement illegal and void between the bank and the Baltimore & Ohio Railroad Company (wherein were pledged certain assets of the bank as security for a deposit of the railroad company); that the securities be delivered to plaintiff; and for an injunction. It is alleged therein that the bank was without power to make the agreement. The answers of the defendants deny that the agreement was ultra vires, illegal, and void, and aver that plaintiff was without power to disaffirm the contract even if ultra vires, as he had not returned, or offered to return, the deposit received.

From the written stipulation of facts of the parties, the following findings of fact are made:

Findings of Fact.

1. On and prior to the 23d day of February, 1928, the Baltimore & Ohio Railroad Company, a corporation organized and doing business under the laws of the state of Maryland (hereinafter called "Railroad"), carried certain of its funds on deposit with the First National Bank of Connellsville, a banking association organized under the banking laws of the United States and having its principal place of business in the city of Connellsville, county of Fayette, and state of Pennsylvania (hereinafter called the "First Bank").

2. On or about February 11, 1928, the Railroad wrote the First Bank requesting that its balances on deposit from time to time be protected either by a deposit of bonds or a bond with acceptable corporate security thereon. A copy of said letter of February 11, 1928, is attached to the bill and by reference is made a part hereof.

3. Thereafter, in compliance with the request of the Railroad and to prevent the threatened withdrawal of the Railroad Company's funds on deposit, a written agreement, dated the 23d day of February, 1928 (but actually signed by the First Bank on the 24th day of February, 1928, and by the Railroad on the 7th day of March, 1928), was entered into between the First Bank and the Railroad, whereby it was agreed, in substance, that the First Bank, as security for the deposits already made or which might thereafter be made by the Railroad, would deliver to the Bank of Pittsburgh, N. A., as trustee, certain bonds and securities, listed in an exhibit attached to said agreement, of the aggregate par value of $54,000, and whereby, on the failure of the First Bank to pay any check drawn upon it by the Railroad, provided the Railroad should have on deposit sufficient funds for the payment thereof, the trustee should sell at the market price such amount of said securities as would be sufficient for the payment of said check; three days' notice of such sale to be given to the First Bank. A copy of said agreement is attached to the bill and by reference is made a part hereof.

4. This agreement was signed on behalf of the First Bank by Robert Norris, president, and attested under the corporate seal by H. C. Norton, cashier, they being the duly elected and qualified officers of the First Bank. The execution of the said agreement was authorized and approved by the board of directors of the First Bank at a meeting of said board, attended by all of the members of the board, duly convened on the 23d day of February, 1928, at which time the following preambles and resolution were unanimously adopted:

"Whereas the Baltimore & Ohio Railroad Company has on deposit in this institution this day and the sum of thirty thousand five hundred ninety-three and 39/100 ($30,593.39) dollars and has demanded security for the payment of said deposit, and for such other sums as may be deposited from time to time; and

"Whereas, this institution has agreed to deposit with the Bank of Pittsburgh, N. A., the bonds and securities hereinafter listed, of the par value of fifty four thousand ($54,000.00) dollars, under the terms and conditions of an agreement between this institution and the Baltimore & Ohio Railroad Company, submitted and read at length at this meeting;

"Now be it Resolved, that the President and Cashier be, and they hereby are authorized, empowered and directed to execute and deliver the said agreement, and to deposit the said bonds and securities under the terms thereof, with the Bank of Pittsburgh, N. A., as provided therein."

5. Notice of the action of the directors was sent by the First Bank to the Railroad by means of the following letter, dated February 24, 1928:

"At a meeting of the Board of Directors last evening it was resolved to pledge securities of the par value of $54,000.00 to secure your deposit. Our attorneys thought there should be an agreement covering this and accordingly prepared a form; we are enclosing two copies thereof, each signed by the bank. If satisfactory to you, sign them and return one to us. If not in satisfactory form suggest changes you desire. We are taking the securities together with a copy of this agreement to the Bank of Pittsburgh, N. A., today.

"Hoping that this is satisfactory to you, we are,"

6. In pursuance of the terms of said agreement, the First Bank delivered, on or about the 24th day of February, 1928, to the Bank of Pittsburgh, N. A., the bonds and securities listed in Exhibit A attached to the agreement, Exhibit 2, of the aggregate par value of $54,000, together with a copy of said agreement, Exhibit 2 (not at that time executed by the Railroad), since which time until the present time said bonds have remained on deposit with the Bank of Pittsburgh, N. A.

7. The Bank of Pittsburgh, N. A., accepted the trust contemplated in said agreement, as appears by letter dated February 24, 1928, from the Bank of Pittsburgh, N. A., to the First National Bank of Connellsville, a copy of which is attached to the bill and by reference is made a part hereof.

8. Shortly after February 24, 1928, the said agreement, Exhibit 2, was executed by the Railroad Company. An original executed copy of said agreement of February 23, 1928, remained from that time until March 28, 1928, in the possession of the First Bank, and, from March 28, 1928, in the possession of the Citizens' National Bank of Connellsville, a banking association organized under the banking laws of the United States. The Railroad has likewise had in its possession since the execution by it of same, an original executed copy of said agreement, Exhibit 2.

9. The balances on deposit to the credit of the Railroad with the First Bank fluctuated between the dates of February 23, 1928, and March 10, 1928, having been as follows at the close of business on said respective days:

February 23, $30,593.39. February 24, $38,900.22. February 25, $42,637.87. February 27, $19,087.69. February 28, $9,111.84. February 29, $3,950.03. March 1, $10,461.20. March 2, $19,668.82. March 3, $16,608.82. March 5, $22,636.52. March 6, $34,388.97. March 7, $39,574.72. March 8, $46,064.02. March 9, $40,000. March 10, $40,000.

On March 10, 1928, the balance on deposit as aforesaid was $40,000, and that balance remained on deposit thereafter until the closing of the Citizens' Bank as hereinafter mentioned.

10. Deposits were made by the Railroad almost daily after March 10, 1928, but on each day deposits were made, the First Bank (until March 28, 1928) and the Citizens' Bank (after March 28, 1928), pursuant to instructions from the Railroad, would remit the amount of such deposit to the Railroad by drawing a draft on a correspondent bank, mailed to the Bank of Pittsburgh, National Association, with instructions to place the amount thereof to the credit of the Railroad.

11. On March 28, 1928, the First Bank and the Citizens' Bank entered into a written agreement whereby the First Bank assigned and transferred to the Citizens' Bank all of its assets (with certain exceptions, not material to the present suit), including the securities pledged under Exhibit 2 hereof, and the Citizens' Bank assumed and agreed to pay and discharge all of the liabilities and obligations of the First Bank. A true and correct copy of said agreement (with the exception of the schedules attached thereto) of March 28, 1928, is attached to the bill and by reference is made a part hereof.

12. The said securities as aforesaid were later absorbed by the Citizens' Bank and credited by the Citizens' Bank to the "First National Bank Asset Account," as provided for in the eighth and subsequent paragraphs of said agreement of March 28, 1928, so that the Citizens' Bank has succeeded to all the rights and obligations of the First Bank under said agreement of February 23, 1928.

13. On the morning of July 30, 1930, the amount on deposit with the Citizens' Bank to the credit of the Railroad was the sum of $40,000. On the same day, a deposit of $2,915.83 was made by the Railroad for credit to the same account. Later, on the same day, pursuant to a long-standing previous arrangement between the Citizens' Bank and the Railroad, the Citizens' Bank drew its draft No. 11839 on First National Bank of Pittsburgh, Pa., a correspondent bank, in the amount of $2,915.83, to the order of the Bank of Pittsburgh, and mailed the said draft to the Bank of Pittsburgh, with instructions to place it to the credit of the Railroad. The said deposit balance of the Railroad as shown by the books of the Citizens' Bank was thereupon reduced by the amount of the said draft, leaving the balance on deposit in the said account, as shown by the books of the Citizens' Bank at $40,000. At the same time, the amount of the said draft was deducted from the balance due to the Citizens' Bank from the First National Bank of Pittsburgh,...