American Bank & Trust Co. v. Lebanon Bank & Trust Co.

• Decision Date: 25 August 1945
• Citation: 192 S.W.2d 245,28 Tenn.App. 618
• Parties: AMERICAN BANK & TRUST CO. v. LEBANON BANK & TRUST CO.
• Court: Tennessee Court of Appeals

192 S.W.2d 245

28 Tenn.App. 618

AMERICAN BANK & TRUST CO. v. LEBANON BANK & TRUST CO.

Court of Appeals of Tennessee, Middle Section.

August 25, 1945

Certiorari Denied by Supreme Court Jan. 19, 1946.

Appeal from Chancery Court, Wilson County; S. A. Marable Chancellor.

Suit by the American Bank & Trust Company against the Lebanon Bank & Trust Company to settle rights in regard to items of disputed accounting. Decree for defendant and complainant appeals.

Affirmed.

Louis Chambers and Allison B. Humphreys, Jr. both of Lebanon, for appellant.

Albert Williams and Bass, Berry & Sims, all of Nashville, and L. H Walker, of Lebanon, for appellee.

HICKERSON Judge.

American Bank & Trust Company of Lebanon, Tennessee, brought this suit against Lebanon Bank & Trust Company of Lebanon, Tennessee, to surcharge and falsify a report or accounting which defendant made concerning certain assets which complainant alleged it had transferred to defendant in trust. Several items of the account were in dispute in the chancery court. Only one item is involved on the appeal, the others having been settled by decree of the chancellor.

The pleadings make this issue on the item before this Court: From cash received by liquidating the assets in question defendant was directed to pay to the party which advanced $166,974.24, the sum of $86,974.24. This claim of $86,974.24 was assigned to defendant. If the assignment is valid, complainant owed defendant a balance of $61,929.37 as of July 29, 1942, and is entitled to apply any further cash realized from these assets to the payment of this balance. If the assignment is invalid, defendant owed complainant the sum of $25,044.87 as of July 29, 1942. Complainant contends the assignment is invalid because it was made to defendant individually for the nominal consideration of $1 while defendant was trustee of the assets out of which this claim should be paid; by the acceptance of this gift defendant made a personal profit from the handling of the trust estate; and that it is precluded from making this personal profit under rules of law and equity governing such transactions.

To the contrary, defendant contends that it had a right to accept the gift under the circumstances of this case, and so the issue was made.

The chancellor decided the issue in defendant's favor, and dismissed complainant's bill at its cost. Complainant appealed.

Four questions are made by the assignments of error which we state affirmatively:

1. Defendant was allowed credit for the claim of $86,974.24 which American National Bank, the original owner, had assigned to defendant, the trustee.

2. Complainant's bill should have been sustained under the relief granted.

3. Defendant should have been required to reduce to cash all assets which it had received from complainant and to account for same.

4. The costs were decreed against complainant.

These questions will be determined in the order stated.

(1) Was defendant entitled to credit for the claim of $86,974.24 which American National Bank, the original owner, assigned to it?

The material facts are these: A financial crisis occurred in this country in 1929. For many months business firms failed. Caldwell & Company, a large investment corporation located at Nashville, Tennessee, was among them. Fourth & First National Bank of Nashville and American National Bank of Nashville were large banking institutions located in Nashville, Tennessee, at that time. The failure of Caldwell & Company weakened Fourth & First National Bank to the extent that it was deemed advisable to effect a merger between that bank and American National Bank. Substantially, the plan of merger was that American National Bank would take over all the assets of Fourth & First National Bank, and assume all its liabilities. This merger became effective November 26, 1930.

Prior to this merger Fourth & First National Bank owned or controlled a majority of the capital stock of American Bank & Trust Company of Lebanon, Tennessee; and American National Bank owned or controlled a majority of the capital stock of Lebanon Bank & Trust Company of Lebanon, Tennessee. The merger of the Nashville banks put the control of both the Lebanon banks in American National Bank.

An audit of the complainant bank, about that time, showed that it was insolvent. In order to save it from failure and liquidation through court proceedings, a plan was devised whereby a merger of complainant and defendant would be made. The contract between the banks under which the merger was effected was:

'Contract

'This agreement made this 2nd day of March 1931 between American Bank & Trust Company of Lebanon, Tennessee, hereinafter for convenience called 'Company', and Lebanon Bank & Trust Company of Lebanon, Tennessee, hereinafter for convenience called 'Bank' both corporations organized under the laws of the State of Tennessee, and doing business in Lebanon, Tennessee,

'Witnesseth:

'1. The Bank agrees to take over certain of the assets of the Company and assume certain of its liabilities as the same are shown on the books of the Company on the 14th day of March 1931, upon the following conditions, to-wit;

'(1) The assets to be conveyed by the Company to the bank are set out in a paper hereto attached marked Exhibit 'A', and the liabilities to be assumed are set out in a paper hereto attached marked Exhibit 'B.' Proper changes may be made in sad two exhibits for business transacted by the Company between this date and March 14th.

'(2) On the date of conveyance, to-wit: March 14th, 1931, in addition to the assets set out in Exhibit 'A', the Company agrees to pay or cause to be paid, to the Bank the sum of $166,974.24 in cash.

'(3) All assets of the Company not to be conveyed to the Bank are set out in a paper hereto attached marked Exhibit 'C.'

'Items on Exhibit 'C' are to be transferred to a Trustee or Trustees, selected by the parties hereto, which Trustee may be the Bank, and said items on said Exhibit 'C' are in any event to be delivered to the Bank, either as Trustee, or Agent, and the Bank agrees to use all reasonable and proper means to collect said items and reduce same to cash. The Bank shall have the right to employ attorneys and other Agents to assist in collecting said items and reducing same to cash, and to pay the reasonable costs and expenses of collections out of the proceeds thereof as a first charge. From the net amount received the Bank is to deduct the sum of 7% for its services in handling said items.

'There is next to be paid out of said proceeds, an amount in cash sufficient to enable the Bank to add the sum of $23,000.00 to its surplus and undivided profits over a period of three years after paying dividends amounting to 8% per annum upon its capital stock of $75,000.00 (which is the amount of capital stock presently to be issued).

'In taking over and valuing the assets to be conveyed the sum of $23,000.00 has been considered as good will of the Company, and the Bank expects to earn this amount in three years after paying the aforesaid dividend, and should its earnings computed on a fair basis be less than sufficient to add said amount of $23,000.00 to its capital and surplus after paying dividends as aforesaid, the Bank shall be entitled to pay itself the difference between the sum actually paid to capital and surplus during said period of three years and $23,000.00. No payment shall be made to the Bank until said period of three years shall have elapsed, but it shall be entitled to withhold and not distribute the amount of $23,000.00 during such period, 3% per annum. No interest is to be paid on other amounts collected but same are to be distributed at reasonable intervals as hereinafter provided. Next after the foregoing, the party or parties advancing the said sum of $166,974.24 are to receive the sum of $86,974.24, and no more, and the balance, if any, is to be divided pro rata among the stockholders of the company as their interests may appear. Any part or all of the $23,000.00 not necessary to reimburse the Bank as hereinabove provided shall be treated as surplus and be distributed first to the parties advancing money, and next to the stockholders as herein provided, just as other monies.

'(4) It is agreed that the stockholders of the Company are not to be assessed now or hereafter for any liabilities of the company.

'(5) The Company agrees through its proper officers to execute all deeds, bills of sale, conveyances, endorsements or assignments necessary or proper to convey the assets mentioned in 'Exhibit A' to the bank, all of which conveyances shall contain warranties of title usual in Tennessee.

'(6) The Bank agrees that proper corporate action will be immediately taken to increase its capital stock from $25,000.00, as at present, to $75,000.00, and to sell the amount of said increased capital, to-wit: $50,000.00 at the price of $130.00 per share, and to have said amount paid to it in cash on or before April 14th, 1931.

'(7) This contract is entered into pursuant to authority of the Board of Directors of the Company and of the Bank, and is only to become binding when ratified and approved by the stockholders of each at meetings to be called for the purpose as soon hereafter as practicable, and is further executed upon condition that it shall only become binding when approved by the Superintendent of Banks of the State of Tennessee.

'In witness whereof, the parties hereto have caused their corporate names to be subscribed by their duly authorized officers, on this the 2nd day of March, 1931.

'American Bank & Trust Company

'By (J. H. Grissim) President.

'Attest:

'W. D. Ferrell Cashier

'(Seal)

'Lebanon Bank & Trust Company

'By (A. A.

...