Clapp v. Associated Depositors
| Decision Date | 26 June 1940 |
| Docket Number | No. 1603.,1603. |
| Citation | 33 F. Supp. 686 |
| Parties | CLAPP v. ASSOCIATED DEPOSITORS, Inc., TOLEDO, OHIO, et al. |
| Court | U.S. District Court — Northern District of Ohio |
Henry A. Middleton and Edwin Williams, both of Toledo, Ohio, for plaintiff.
Donald F. Melhorn and Lehr Fess, both of Toledo, Ohio, for defendants.
This is an action by the widow and executrix of Charles R. Clapp against the various defendants asking for an accounting and other relief with respect to certain collateral pledged by Charles R. Clapp during his lifetime to secure a loan made to him by the defendant, The Commerce Guardian Trust & Savings Bank. Plaintiff asks specifically that defendants be enjoined from selling or otherwise disposing of any of the collateral or proceeds thereof now in their respective hands; that they be required to render a full and complete accounting of the pledgor's indebtedness; that any and all sales of collateral be declared void: that the defendants be required to restore said collateral and that a sufficient amount thereof be sold to pay such indebtedness remaining and the balance paid over to the plaintiff; and that such other and further relief be granted as shall be just and proper in the premises.
The defendants are The Commerce Guardian Trust & Savings Bank, hereinafter referred to as the Old Bank, which made the original loan to Charles R. Clapp and to which the latter pledged the collateral in question; The Commerce Guardian Bank, hereinafter referred to as the New Bank, to which was conveyed the corpus of one of the trusts involved herein; Associated Depositors, Inc., which was formed to liquidate the assets of The Commerce Guardian Trust & Savings Bank, and which now holds most of the security or proceeds thereof; and S. H. Squire. Superintendent of Banks of the State of Ohio, hereinafter referred to as the Superintendent, who had charge of the liquidation of The Commerce Guardian Trust & Savings Bank and the administration of its trust agreements.
It appears that during the year 1931 Charles R. Clapp became indebted to the Old Bank in the sum of $56,500. The note evidencing this indebtedness is now in the possession of Associated Depositors, Inc., through purchase. The indebtedness was originally secured by the following collateral: 700 shares of common stock of the National Supply Company; 60 shares of the common stock of the Second Mortgage Securities Company; 15 shares of common stock of Fifty Associates Company; and an assignment by the debtor of his beneficial interest in two real estate trusts, the Old Bank being the trustee. These trusts were entered in the books of the Old Bank as Trust No. 1069, consisting of a parcel of real estate located at Laskey Road and Tremainsville Road, Toledo, Ohio, hereinafter referred to as the Tremainsville property, and Trust No. 1094, consisting of a piece of property known as Lot 3, Revere Place, Sylvania Avenue. Toledo, Ohio, hereinafter referred to as the Sylvania property. On March 28, 1932, at the request of the Superintendent for more collateral to secure the debt, a piece of real estate located at No. 108 East State Street, Savannah, Georgia, hereinafter referred to as the Savannah property, was added to Trust No. 1094. At the time these various parcels of real estate were deeded to the Old Bank as trustee, the Sylvania property was encumbered with a first mortgage of $17,500, and the Savannah property was subject to a first mortgage on which approximately $10,000 remained unpaid.
On March 20, 1935, the Old Bank resigned as trustee and Mr. Clapp appointed the New Bank as successor trustee. The legal title to both parcels of real estate in Trust No. 1094 was conveyed to the New Bank as trustee, and said trust became known as Trust No. P-444 on the books of the New Bank.
On August 31, 1931, after the original loan and pledge had been made, the Superintendent took possession of all the assets of the Old Bank for the purpose of liquidation and assumed the administration of all the trust estates of said bank.
Charles R. Clapp died in April, 1935. Various payments on the above indebtedness were made during his lifetime. None have been made since his death. His estate was insolvent. Both Mrs. Clapp, the executrix of his estate, and her attorney notified the Superintendent and his representatives that the estate was insolvent and that the collateral would have to be looked to for whatever satisfaction it would bring. On November 21, 1935, plaintiff acknowledged receipt of, and consented to the sale mentioned in a letter addressed to her by the Superintendent. This letter reads in part as follows: "This will advise you that unless said note, together with all interest thereon is paid not later than December 2nd, 1935, the undersigned will, on said date, pursuant to the terms and provisions of said note, offer at public sale at the main office of the Commerce Guardian Bank, 320 Madison Avenue, Toledo, Ohio, all collateral pledged for the repayment of the above note."
Nothing was paid on the note by December 2nd, 1935, and the collateral was sold on that date. The sale was held at 10 A. M. in the hall at the east end of the second floor of the Commerce Guardian Building, Toledo, Ohio. No effort was made at any time to sell the property to third persons, or to interest prospective bidders in the sale. No announcements were made and no notices given to the public of the time and place of sale, either through posting or through advertisement. Only four persons were present at the sale and all were employees or representatives of the Superintendent. One offered the property for sale and another purchased it for the Superintendent. The amounts for which the collateral was sold were fixed by the Superintendent, but there is no indication that these did not represent the fair market value of the property. The proceeds of the sale were credited on the note and the property turned over to the Superintendent. The itemized account of the sale and proceeds thereof is as follows:
700 shares National Supply Company
stock ............................ $13,002.50
Savannah property .................. 12,000.00
Tremainsville property ............. 4,000.00
60 shares Second Mortgage Securities
stock ............................ 300.00
15 shares Fifty Associates stock 45.00
Sylvania property .................. No Equity
__________
$29,347.50
Thereafter the Superintendent notified plaintiff that the collateral had been sold and sent her itemized statements of the indebtedness showing the deduction on account of the proceeds of the sale of the collateral.
The property thus acquired by the Superintendent was later disposed of by him at private sale as property of the Old Bank. 200 shares of the National Supply Company stock were sold on July 24, 1936, for $10,016.60, and the remaining 500 shares were sold on July 27, 1936, for $25,135.72. The 60 shares of Second Mortgage Securities Company stock were sold on July 24, 1936, for $300. The 15 shares of The Fifty Associates Company stock were sold on July 26, 1936, for $74.40. The Tremainsville property was sold on November 30, 1936, for $5,950. The Sylvania property was sold October 5, 1939, for $20,000, the purchaser assuming the $17,500 mortgage thereon. The $10,000 remaining on the Savannah property mortgage was taken up by the Superintendent. Later it was turned over to Associated Depositors, Inc., the successor in liquidation, along with all the other assets of the Old Bank. This mortgage was then foreclosed by Associated Depositors, Inc., and the property purchased by it for $7,500. Associated Depositors, Inc., still has title to this property.
Altogether the property thus disposed of by the Superintendent brought in over $25,000 more than he had paid for it at the December 2, 1935, sale. There is no evidence that the amounts received at these subsequent sales did not represent the then fair market value, while there is substantial evidence that the fair market value was received.
Plaintiff, through her attorneys, learned of all the facts surrounding the above sales during the summer of 1937, and on August 28, 1937, made a demand for all the collateral, claiming that the December 2, 1935, sale and the subsequent sales were invalid, and asked for the restoration of all the collateral or the market value as of the date of demand. This was refused and the instant suit was filed on November 2, 1937. The National Supply Company stock had increased in value considerably at this time, so that its value alone was equivalent to more than the entire indebtedness. Since that time there has been some decrease in market value.
Plaintiff contends (1) that the December 2, 1935, sale was void because the Superintendent had notified plaintiff that it would be a public sale, whereas in fact it was not; (2) that the subsequent private sales were invalid because (a) it was the duty of the Superintendent to notify plaintiff of all the facts surrounding the first sale and give her a chance a redeem the collateral before any subsequent sale, and (b) they were made by the Superintendent or his successors as his own property and therefore amounted to a conversion; and (3) that the plaintiff has the right to elect between treating the subsequent sales as conversions or demanding a restoration of the collateral at the time of discovering the conversions, and in either case the measure of damages is the highest value of the property between the time of the demand and the date of filing suit, so long as the intervening time is a reasonable time.
First. Was the December 2, 1935, sale invalid? The pertinent provisions of the pledge agreement in the instant case are as follows:
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