COMMERCIAL NAT. BANK IN SHREVEPORT v. Parsons

• Court: U.S. Court of Appeals — Fifth Circuit
• Writing for the Court: HOLMES, McCORD, and WALLER, Circuit
• Citation: COMMERCIAL NAT. BANK IN SHREVEPORT v. Parsons, 144 F.2d 231 (5th Cir. 1944)
• Decision Date: 28 October 1944
• Docket Number: No. 10669.,10669.
• Parties: COMMERCIAL NAT. BANK IN SHREVEPORT v. PARSONS.

144 F.2d 231 (1944)

COMMERCIAL NAT. BANK IN SHREVEPORT v. PARSONS.

No. 10669.

Circuit Court of Appeals, Fifth Circuit.

July 27, 1944.

Rehearing Denied October 28, 1944.

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Sidney L. Herold and Sidney M. Cook, both of Shreveport, La., for appellant.

Monte M. Lemann, of New Orleans, La., Pike Hall, of Shreveport, La., and J. D. Barksdale, of Ruston, La., for appellee.

Robert H. Wimberly, of Arcadia, La., for amicus curiæ.

Otis W. Bullock, of Shreveport, La., for intervener, Randle T. Moore.

Before HOLMES, McCORD, and WALLER, Circuit Judges.

Rehearing Denied October 28, 1944. See 145 F.2d 191.

HOLMES, Circuit Judge.

This is an action for an accounting under a contract that was made in Louisiana and was to be performed there. It involves a controversy between two national banks, but its correct decision upon all issues depends upon the law of Louisiana. For a statement of the case, including a verbatim quotation of the contract between the parties, see the opinions of the court below in Leslie v. Commercial National Bank, D.C., 28 F.Supp. 927, and Rawlings v. Commercial National Bank in Shreveport, D.C., 44 F.Supp. 5.

A final judgment for $509,114.49, with interest, in favor of appellee was entered on April 14, 1943, four years after suit was filed and nearly two years after the taking of oral testimony began. The new bank appealed from this judgment in its entirety.

Under the contract, the appellant assumed all of the obligations of the old bank, with two exceptions, and in consideration of such assumption the old bank transferred all of its assets to appellant to secure and indemnify it for the liabilities thus assumed. Thereupon, the old bank was immediately placed in liquidation, but it had no assets to administer except its right to the residue of the assets transferred to appellant after the latter had been paid an amount sufficient to indemnify it for the liability assumed. This should have rendered unnecessary the appointment of a receiver for the old bank.

Although the contract recited that the old bank had sold, conveyed, transferred, and delivered all of its assets of every kind to the new bank, including cash, the facts and circumstances surrounding the parties and their subsequent conduct show beyond cavil that the transaction was not a sale but a pledge.¹ Under the Louisiana law, it was a pledge of a dual nature, known as the pawn and the antichresis.²

Under the contract, the two banks sustained toward each other the relations of debtor and creditor, principal and guarantor, pledgor and pledgee, liquidator and cestui que trust; but the relation of debtor and creditor was only potential prior to the time that appellant earned fees, incurred expenses, paid some of the liabilities assumed, or lent money to the old bank, under the contract. The debts involved in this accounting arose out of the contract, and relate to fees, interest, expenses, profit on taxes, and money advanced by the new bank for the old in payment of the latter's obligations. The relation between debtor and creditor or principal and guarantor is not necessarily one of trust and confidence, but that between pledgor and pledgee or liquidator and cestui que trust is inherently one of a fiduciary character.

The dominant officers of the new bank were the directors of the old, and they were doubly bound to treat the latter fairly. They were in control of the liquidating corporate agent that held in pawn and antichresis not only every tangible and intangible asset of the old bank, but a million-dollar note given for the sole purpose of keeping alive the million-dollar statutory liability of its stockholders if a balance of indebtedness of the old bank remained after all of its assets were exhausted.

As creditor, the appellant has the right to require payment of all money due it, but must prove what sums were advanced by it. In the absence of proof, the presumption is that the debts assumed were paid by the new bank as liquidator of the old, since the obligation of the new bank as guarantor was a collateral one, essentially in the alternative, to pay the debts if the old bank's liquidator did not pay them. As pledgee, both title and possession of the res were transferred to appellant, but its position cannot be described as simply that of a trustee, because it held the res primarily for its own benefit. As liquidator, it was the appellant's duty to pay, to settle, gradually to adjust, and extinguish, all indebtedness of the old bank. The duty of absolute fidelity to the trust estate rested upon appellant, and prohibited it from creating any unnecessary conflict of interests between itself and its trust. The liquidator may not take or retain personally any fruit or revenue derived from the use of the trust property.³

It was the appellant's duty as pledgee and liquidator to pay taxes on the trust estate, and the amount so paid was properly charged to the old bank; but appellant had no right to deduct from the assessed value of its own capital stock the value of such real estate as was shown on its published statements, because it was not the owner thereof within the meaning of the statute authorizing such deductions. The credit thus obtained by the new bank was a profit derived from the trust property as effectively as if it had been paid that much in cash. This was a profit of $191,778.55, which over a series of years was obtained by appellant from the use and possession of, and record title to, trust property. It clearly does not belong to the trustee or to its stockholders. What shall be done with it in an accounting between the trustee and the cestui que trust?

The authorities are unanimous that appellant may not profit from the trust estate, or permit any one else to do so, in any manner other than as provided in the contract. The only sources of profit to the new bank named in the contract were reasonable fees for services rendered the old bank and a stipulated interest on daily balances of an account called Class B Assets. A saving of ad valorem taxes on its capital stock by appellant's use of the trust estate does not fall within the ambit of either fees or interest, and was not within the contemplation of the parties at the time the contract was made. It is immaterial that appellant was acting as agent of its shareholders in assessing its capital stock and that they were, or would be, the ultimate beneficiaries. The new bank made the assessment and paid the taxes on its own capital stock as it was required by law to do; it may or may not have debited its shareholders with the taxes paid or credited them with the profit obtained; the law does not regulate bookkeeping entries of this kind. We concur in the opinion of the court below that the items in controversy should have been credited to the cestui que trust, and refer to the authorities therein cited.⁴ These items should have been credited as of the respective dates on which the new bank paid the taxes on its capital stock.

The other points raised by appellant relate to the denial of its claims for compensation and expenses in administering Class C assets and to the award of interest to appellee. The correct decision of the issues presented upon said claims for compensation, expenses, and the award of interest to appellee, depends upon the proper construction of the contract as amended, and involves the meanings of the words fee, interest, and expenses as used in paragraphs V and VI thereof. This necessitates a determination of the legal principles that should have governed the court below in the accounting, because interest and reasonable compensation are the only sources from which appellant is entitled to retain a profit under the contract.⁵ We must not confuse the words fee, interest, and expenses, as used in the contract. Each of these words has its distinct legal meaning; and the parties, by contract and conduct, have clearly evidenced their intention to distinguish between the items from these three sources. Therefore, we think the court below erred in denying appellant compensation for its services as liquidator on the ground that any additional charge above the interest collected was unjustified.⁶ It may be that appellant breached its contract and is not entitled to any compensation. The liquidator may have forfeited its compensation and become liable in damages ex contractu if it violated its fiduciary duty and thereby unnecessarily caused the appointment of a receiver; but each of these claims must be determined separately on its merits, not offset roughly one against another. The exaction of excessive interest is not necessarily corrected by the denial of a reasonable fee.

Interest is the compensation allowed by law or fixed by the parties to a contract for the use or detention of money.⁷ The word fee under the contract means a reward or recompense for services rendered by the bank or its officers. Expenses are allowed as an indemnification for money laid out or expended by the bank for the care, maintenance, or preservation of the trust property. No gain or profit upon expenses, except interest thereon, may be claimed by any fiduciary. Therefore, under paragraph V, appellant is entitled to no profit on salaries of its officers and employees, but only to reimbursement of a fair portion of reasonable salaries actually paid them for their services in collecting and administering Class C assets.

The stipulation for interest on daily balances of Class B assets is an anomalous one. This provision attempts to make it possible for the appellant to demand and charge interest on money borrowed from the new bank by the old at rates violative of the usury laws of Louisiana.⁸ It is stated in the opinion of the court below that at the beginning of this contract the new bank collected interest at the rate of six per cent per annum on approximately three-fourths of assets of...