COMMERCIAL NAT. BANK IN SHREVEPORT v. Connolly

• Decision Date: 16 November 1949
• Docket Number: No. 12329.,12329.
• Parties: COMMERCIAL NAT. BANK IN SHREVEPORT v. CONNOLLY et al.
• Court: U.S. Court of Appeals — Fifth Circuit

176 F.2d 1004 (1949)

COMMERCIAL NAT. BANK IN SHREVEPORT v. CONNOLLY et al.

No. 12329.

United States Court of Appeals Fifth Circuit.

September 6, 1949.

Rehearing Denied November 16, 1949.

Sidney L. Herold, Shreveport, La., Sidney M. Cook, Shreveport, La., E. B. Stroud, Dallas, Texas, for appellant and cross-appellee.

Monte M. Lemann, New Orleans, La., Otis W. Bullock, Shreveport, La., S. W. Plauche, Sr., Lake Charles, La., S. W. Plauche, Jr., Lake Charles, La., Marion K. Smith, Shreveport, La., Byron D. Bullock, Shreveport, La., for appellee and cross-appellants.

Before HUTCHESON, SIBLEY, HOLMES, McCORD, and WALLER, en banc.

Rehearing Denied November 16, 1949. See 177 F.2d 514.

WALLER, Circuit Judge.

The several opinions¹ heretofore written render it unnecessary to restate the legal and factual issues involved or to engage in extended discussion. Consequently this opinion will merely undertake to set forth the following conclusions of the majority of the Court, en banc:²

A. The doctrine of the law of the case usually raises a disinclination on the part of an appellate court to re-examine its own prior legal pronouncements in a case, but the doctrine does not destroy its power to do so.³ Five judges of this Court, sitting en banc, have the power, and a majority has the inclination, under the special circumstances of this case, to re-examine questions decided on a former appeal by a divided three-judge panel where several issues and much evidence appear in the second appeal that were not directly presented in the first.

B. The contract of December 3, 1932,⁴ between the Old Bank and the New was legal and binding in all of its aspects.

C. The provision in the contract whereby the New Bank assumed all the liabilities of the Old in consideration of the transfer to the New Bank of an equal amount of Class A and B assets and the execution and delivery of a note for $1,000,000, together with the right to receive six per cent on the daily balances of Class B assets after the reduction of such liabilities by the application of the cash assets as collected, was binding on the parties and their privies.

D. The Class A assets were accepted as cash and were immediately applied in reduction of the amount of the assumed liabilities so that throughout the period in which six per cent interest was charged on the daily balances of the Class B assets the liabilities assumed were in the exact amount of the Class B assets, and as Class B assets were collected or transmuted into cash, the liabilities assumed were reduced accordingly so that the daily balances of Class B assets were constantly the exact equivalent of the daily balances of the liabilities assumed and outstanding. There was, therefore, no financial difference in computing six per cent on the daily balance of Class B assets and in computing six per cent on the daily balance of assumed liabilities, and since equity should look at substance rather than form, the majority holds that the term "interest" as used in the contract was intended to be a charge of six per cent on the amount of the assumed and outstanding liabilities as compensation for assuming such liabilities, for servicing said accounts, for keeping the records, and for collecting and paying over to the Old Bank⁵ the rents, interest, and other revenue derived from the principal of the Class B securities, but that same, whether viewed as interest on debts assumed or as a service charge or as compensation, was not usurious.

In a consideration of this question it will at once appear obvious that since the New Bank was required to collect and pay to the Old Bank the interest drawn by the Class B securities, it was essential that some arrangement be made in order for the New Bank to pay expenses and to operate without loss since over $9,000,000 of its assets were in Class B securities yielding to it no interest whatsoever other than the charge or discount of six per cent provided by the contract, and it should not be inferred, in view of the language of the contract and the construction placed on it by the parties, that the New Bank would have assumed the liability, risk, and expense attendant upon fulfilling the contract without the right to retain the interest and revenue produced by the Class B securities, and with no interest or compensation whatsoever. Such a profitless operation would have impaired the New Bank's capital very promptly, because the expense of serving thousands of depositors and their accounts totalling in excess of $9,000,000 the collection of notes, the paying of rent, taxes, and the like, cannot be met out of the fine asset of good will alone. No capable banker or sensible business man would assume $9,000,000 of liabilities payable mainly on demand for the sole consideration of the transfer of $9,000,000 of noninterest bearing, slow-moving, unliquid securities. We take it that no security is liquid which cannot yield interest to the transferee.

The admission of counsel for the receiver in the first hearing and the final decree of the lower Court on its first hearing to the effect that there were no legal grounds for denying the New Bank the right to receive six per cent on the daily balances of the B assets were correct.

E. The majority of the Court now sitting in the case is of the opinion that the A assets and the principal or body of the B assets, including the note of the Old Bank for $1,000,000 — totalling the exact amount of the liabilities of the Old Bank assumed by the New — were transferred to, and became the property of, the New Bank, subject to Paragraph VI of the contract as to any B assets remaining on hand after the assumed liabilities had been paid, and coupled with a right of substitution by the New Bank of any B asset for any C asset. This conclusion is the result of the following considerations:

(1) The idea of the New Bank merely becoming a gratuitous surety or guarantor for the Old Bank, whose capital was then impaired and which was then about to go into liquidation, seems entirely inconsistent with reason and sound banking practices; (2) the universal requisite for a bank to be solvent that it must own assets in an amount at least equal to its liabilities; (3) that the New Bank could not have opened for business with an assumed liability of some $14,000,000 unless it also owned assets of at least an equal value; (4) that it could not have continued in the business of handling for another so large a portfolio of assets and liabilities without interest or compensation; (5) the plain wording of the contract; (6) the letters from the Chairman of the liquidating committee to the stockholders of the Old Bank; (7) reports to Comptroller of the Currency; (8) the resolution of the stockholders and directors of the Old Bank; (9) the testimony of the officials in the office of the Comptroller of the Currency; (10) the absence of any requirement in the contract that the New Bank should be required to report to the liquidators of the Old Bank as to collections made of the B assets; (11) the interpretations by the parties themselves; (12) the provision of the contract that Class A and B assets were to be carried on the general ledger where only assets owned by a bank outright are ever carried; (13) and finally, the absence of any requirement for the New Bank to return Class A and B assets to the Old Bank except as this obligation was imposed by Par. VI of the contract on the New Bank, if unused.

These factors demonstrate conclusively that the considerations for the assumption of the liabilities of the Old Bank by the New Bank were the transfer of the title to the Class A assets (which were the equivalent of cash) and the Class B assets, with six per cent thereon but less the interest collected on the Class B securities, and that the transaction insofar as Class A and B assets were concerned was not merely a pledge of such assets. It was a transfer of a title absolute and unconditional as to Class A assets and defeasible under Par. VI of the contract as to any of the B assets not consumed in discharging the liabilities the New Bank had assumed.

F. Having reached the conclusion that the New Bank acquired the legal as well as the equitable title to Class A and Class B assets, together with the right of substitution of Class B assets for Class C, the New Bank was authorized and legally entitled to include in its capital stock tax return to the State of Louisiana, and to take as deductions, the value of any real estate formerly belonging to the Old Bank that was included in, or substituted into a Class B asset, and rightfully carried on the general ledger account of the New Bank, and to the benefit of any savings that accrued by virtue of inclusion of said real estate, but, for the reasons set out in Paragraph G below, it was not entitled to such savings on real estate in Class C held by it, and the New Bank should account to the receiver of the Old Bank for all such savings as accrued to it from the inclusion of any Class C real estate in its capital stock tax return.

G. The New Bank did not acquire, and could not acquire, under the contract, the equitable title to Class C assets except by the substitution of Class B assets therefor as above mentioned. The contract expressly provided that these assets should not be carried on the general ledger of the New Bank. The equitable title to the Class C assets, together with the interest stipulated in the Class B and C securities, remained in the Old Bank, to which the stockholders of the Old Bank had to look for any recovery. From this it follows that Class A assets, the principal of Class B assets, and the $1,000,000 note, so long as it was a Class B asset or, that is, prior to such time as it became a Class C asset,⁶ were acquired by, and became the property of, the New Bank, as to which properties the contract was one of acquisition and sale as distinguished from the agreement as to Class C assets, which was an...