Commercial & Sav. Bank v. Robert H. Jenks Lumber Co.

• Decision Date: 21 December 1911
• Docket Number: 8,123.
• Citation: 194 F. 732
• Parties: COMMERCIAL & SAVINGS BANK v. ROBERT H. JENKS LUMBER CO.
• Court: U.S. District Court — Northern District of Ohio

194 F. 732

COMMERCIAL & SAVINGS BANK v. ROBERT H. JENKS LUMBER CO.

No. 8,123.

United States Circuit Court, N.D. Ohio, Eastern Division.

December 21, 1911

W. H Marlatt, for Union Nat. Bank.

Frederick L. Taft, for other banks.

Holding Masten, Duncan & Leckie, for receiver of Robert H. Jenks Lumber Co.

DAY District Judge.

The receiver of the Robert H. Jenks Lumber Company asks instructions of the court upon the following state of facts:

That in January, 1910, the Lumber Company was indebted to the Union National Bank of Cleveland, Ohio, in the sum of about $42,500. That at said time the Lumber Company borrowed from the bank the further sum of $20,000, and then and there made and delivered to the bank its promissory note in the amount of $20,000, and at the same time delivered to the bank certificates for 304 shares of the capital stock of the Cuyahoga Lumber Company. That in said note it was stated that said shares of stock were delivered to said bank as collateral security 'for the payment of this and for other liabilities of the undersigned to said bank, direct or contingent, due or to become due, or which may hereafter be contracted or exist.'

That the aforesaid note of $20,000 was, from time to time, renewed by other notes containing the same provision made by said Lumber Company and delivered to said bank, the last renewal note being dated January 30, 1911, and during all of which time the bank retained possession of the certificates of said shares of stock. That the aforesaid 304 shares of the capital stock of the Cuyahoga Lumber Company was of a market value in excess of $30,000, and that as receiver he is willing to pay the aforesaid $20,000 with accrued interest thereon, in consideration of the surrender to him by the bank of said note and said certificates for said 304 shares, but that the bank is unwilling so to do and claims that said certificates were delivered to it as collateral security for the payment of all indebtedness of the Robert H. Jenks Lumber Company to it, and that by virtue of the provisions of said note it is entitled to retain possession of said certificates until the full value of said shares of stock has been paid to it, and upon failure to pay said full value it has full right to exercise its lawful rights as pledgee, in accordance with the provision in said note contained, and to sell and dispose of the shares of stock and to apply the full amount realized from such sale toward the liquidation of the aforesaid indebtedness to it, which the bank claims was $63,508.55, and the bank asks that its claim be allowed in full without first applying the collateral or the proceeds thereof in payment of the indebtedness.

A copy of the note referred to in this petition of the receiver, is as follows:

'$20,000.00.

Cleveland, Ohio, Jan. 30th, 1911.

'Sixty days after date, for value received, we promise to pay to the order of the Union National Bank of Cleveland, Ohio, at its office twenty thousand dollars, together with interest at the rate of six per cent. per annum after maturity until paid; the undersigned having herewith deposited as collateral security for the payment of this and every other liability of the undersigned to said bank, direct or contingent, due or to become due, or which may hereafter be contracted or existing, the following property, namely:

304 shares the Cuyahoga Lumber Co. stock

Ctfs #176 to 186 inc. 25 shares each

Ctfs #187 to 186 inc. 29 shares

together with all other securities in the possession of said bank belonging to the undersigned or in which the undersigned has an interest, hereby agreeing to deliver to said bank additional securities to its satisfaction upon demand of said bank, also hereby giving to said bank a lien for the amount of all said liabilities of the undersigned to said bank upon all property or securities which now are or may hereafter be pledged as collateral with said bank by the undersigned, or in the possession of said bank in which the undersigned has any interest, and, also upon any balance of the deposit account of the undersigned with said bank. On the nonperformance of this promise, or upon the nonpayment of any liability above mentioned, or upon failure of the undersigned forthwith to furnish satisfactory additional securities on demand, at the option of said bank or of its president or cashier, this obligation shall become immediately due and payable less a proper rebate of interest, and then and in every such case full power and authority are hereby given to said bank to sell, assign and deliver the whole of said securities or any part thereof or any substitutes therefor or any addition thereto through the stock exchange or broker or at private sale, without either advertisement or notice, the same being hereby expressly waived; or said bank, at its option, may sell the whole or any part of said securities or property at public sale upon ten days notice, published in any newspaper printed in the city of Cleveland, at which public sale said bank itself may purchase the same or any part thereof free from any right of redemption on the part of the undersigned, which is hereby expressly waived and released. In case of sale for any cause, after deducting all costs and expenses of every kind, said bank may apply the residue of the proceeds of such sale as it shall deem proper, toward the payment of any one or more or all of the liabilities of the undersigned to said bank, whether due or not due, returning the overplus, if any, to the undersigned, who agree to be and remain liable to said bank for any and every deficiency after application as aforesaid, upon this and all other of said liabilities; the undersigned hereby authorizing the transfer or assignment of said securities and property to the purchaser thereof.

'The Robert H. Jenks Lumber Co. 'A. B. Lambert, Treas.'

It is the claim of the Union National Bank that it has a right to hold the 304 shares of the capital stock of the Cuyahoga Lumber Company as collateral, not only for the $20,000 set forth in the note, but also for the other indebtedness of the Jenks Lumber Company to the bank at the time of the loaning of the $20,000 mentioned in this note. It is also contended by the bank that it is entitled to file its full claim with the receiver and share pro rata with the unsecured creditors in the general distribution.

Two questions then arise: First, was this collateral given to secure the payment of the $20,000 note alone, or was it given to secure the payment of this note and the other indebtedness of the Lumber Company to the bank? Second, can the Union National Bank share pro rata with the unsecured creditors in the general distribution upon its entire debt, or must it first exhaust its collateral and prove up its claim for the remaining balance?

In my opinion, after a careful consideration of the entire situation presented by the petition of the receiver and the briefs filed, the parties intended that this collateral was given to secure not only the $20,000 note, but also to secure the other indebtedness of the Lumber Company to the bank. The words used in the note appear to be plain and unambiguous, for in the note it is stated:

'The undersigned having herewith deposited as collateral security for the payment of this and every other liability of the undersigned to said bank, direct or contingent, due or to become due, or which may hereafter be contracted or existing.'

Then the collateral is specifically described.

Considering the fact that this Lumber Company was a large borrower of the bank, and considering this plain and precise language, which could not be any plainer, there seems but little doubt but that the Union National Bank has a right to hold these 304 shares of capital stock of the Cuyahoga Lumber Company as collateral, not only for the $20,000 set forth in the specific note above referred to, but also for the indebtedness of every kind of the Robert H. Jenks Lumber Company to the bank. Language not as comprehensive nor as specific as that employed in this note in question has been held by several of the highest courts of the states to mean that the collateral was not given for the specific indebtedness of the note alone, but for all of the indebtedness. Buchanan v. National Bank, 78 Ill. 500; Selma Bridge Company v. Harris, 132 Ala. 179, 31 So. 508; Merchants' National Bank of Savannah v. Demere, 92 Ga. 736, 19 S.E. 38; Stanley v. Chicago Trust & Savings Bank, 165 Ill. 295, 46 N.E. 273; Boardman v. Holmes, 124 Mass. 438; Leonard v. Administrator of Kebler, 50 Ohio St. 444, 34 N.E. 659.

That this was the understanding of the parties is perhaps made plainer when it is understood that, at the time of this borrowing, Robert H. Jenks was a director of the bank.

The second contention of the bank is that it shall be allowed to file its entire claim and share pro rata with the unsecured creditors in the general distribution. This presents a very interesting question which has been most ably discussed by the respective counsel in this case and in their briefs filed with me. This same question was considered by the Circuit Court of Appeals for this circuit in the case of the Chemical National Bank v. Armstrong, 59 F. 372,...