Dixon v. Gage

• Citation: 18 F. Supp. 895
• Decision Date: 09 April 1937
• Docket Number: 837.,836,No. 581,581
• Parties: DIXON v. GAGE et al., and five other cases.
• Court: United States District Courts. 4th Circuit. United States District Court of South Carolina

18 F. Supp. 895

DIXON v. GAGE et al., and five other cases.

Nos. 581, 836, 837.

District Court, E. D. South Carolina.

April 9, 1937.

R. Beverley Sloan, of Columbia, S. C., for petitioner Dixon.

Donald Russell, of Spartanburg, S. C., for petitioner Conyers.

Chas. W. McTeer, of Chester, S. C., and Nichols & Russell, of Spartanburg, S. C., for petitioner Leonard.

Benet, Shand & McGowan, of Columbia, S. C., for respondent receivers.

MYERS, District Judge.

These are petitions, filed by the petitioning receivers of insolvent national banks in process of liquidation, to have the court require the respondent receivers of Peoples State Bank of South Carolina to pay over to them the proceeds of sale of certain securities pledged by officers of the several national banks to secure deposits made by said respondent receivers, acting under order of this court directing them to require security for all deposits made by them as such receivers in the process of liquidation of the said Peoples State Bank of South Carolina.

Petitioners allege that the officers of the said several national banking institutions were without authority to pledge securities to secure deposits, and that they are entitled to recover, specifically under the authority of Texas & Pacific R. Co. v. Pottorff, 291 U.S. 245, 54 S.Ct. 416, 78 L.Ed. 777.

The opinion of Mr. Justice Brandeis in the Pottorff Case would appear to be conclusive on the lack of authority of a national bank to pledge securities for private deposits; to assert the duty of a receiver of a national bank in liquidation to seek recovery of securities so pledged by the officers of the bank in the regular course of business; and to eliminate any question of the right in an action involving private deposits to restitution of the deposits as a requisite to recovery of the securities. The court says, 291 U.S. 245, on page 252, 54 S.Ct. 416, 78 L.Ed. 777:

"The railway contends that the bank had power to make the pledge; that even if the bank did not have such power, the receiver is not in a position to question the validity of the pledge; and that even if he is not estopped from doing so, he may not disaffirm it without returning the consideration therefor received by the bank. We are of opinion that none of these contentions is sound. * * *

"National banks lack power to pledge their assets to secure a private deposit. The measure of their powers is the statutory grant; and powers not conferred by Congress are denied," citing Smith v. Baltimore & O. R. Co. (D.C.) 48 F.(2d) 861; Baltimore & O. R. Co. v. Smith (C.C.A.) 56 F.(2d) 799; Illinois Central R. Co. v. Rawlings (C.C.A.) 66 F.(2d) 146.

Respondent receivers of Peoples State Bank of South Carolina seek to differentiate this from the Pottorff Case, and the case of Marion v. Sneeden, 291 U.S. 262, 54 S.Ct. 421, 78 L.Ed. 787, decided by Mr. Justice Brandeis on the same date, under several specific defenses set out in their answer. In connection with consideration of these several defenses, a statement of the essential facts is necessary.

Peoples State Bank of South Carolina, a banking corporation under the laws of the state of South Carolina, with principal offices in the city of Charleston, and having some forty branches throughout the state, failed to reopen for business on the 2nd day of January, 1932. This court assumed jurisdiction on bill filed by a nonresident; appointed receivers, of whom the two named defendants continue now in office; and an order was entered by Hon. J. Lyles Glenn, United States District Judge, on the 4th day of February, 1932, with the following provision:

"That all of the funds coming into their hands as receivers shall be deposited in banks located in South Carolina, so far as may be practicable and advisable in their opinion, national or state, in such proportions as they shall see fit. With the exception of a revolving and operating fund of $75,000 dealt with more specifically in a further paragraph of this order, such receivers shall require security for the funds deposited. In taking this security for these deposits, the receivers shall require security within the following classes:"

Pursuant to said order, the respondent receivers entered into agreement with the national banking institutions now represented by the petitioning receivers; as a result of which, securities within the approved classes were turned over to a trustee and deposits made; the agreements in each instance provided for the sale of the said securities by the trustee, upon the approval or direction of the respondent receivers, in whole or in part, without notice, and without responsibility for prices obtained, and to return to the pledger bank any surplus of the proceeds of sale after respondent receivers should have been indemnified for any and all loss on account of said deposit or deposits.

After the closing of the said national banking institutions, and with full notice to the liquidating agents in charge of the several national banks, the trustee disposed of the said pledged securities and applied the proceeds in liquidation of the balance due to respondent receivers, in conformity with the pledge agreement.

At the time of the failure of the Peoples State Bank, the United States Treasury Department asserted a statutory lien on all of the assets of the bank in the hands of the receivers not otherwise specifically pledged, in the amount of $1,849,546.35, and this deposit was held by order of this court to have preference over unsecured depositors and general creditors. This order was filed December 1, 1932.

The Comptroller of the Currency being advised of the situation with reference to the war loan deposit and the order of the court as to depositories, was asked by respondent receivers for a ruling on their right to have their deposits in national banks secured as required by order of this court. On December 7, 1932, the Comptroller wrote to the receivers as follows:

"Although we are of the opinion that a Federal Court Receiver, as such, is not in that capacity alone entitled to obtain collateral security for his deposits with a National Bank, and we would not approve any such general practice by National Banks of securing such deposits, yet under the circumstances of this individual case, inasmuch as in the final analysis the protection of the interests of the Government of the United States is involved, and further having in mind the fact that a National Bank has been considered as an agency of the Government created in the furtherance of the Government's financial interests, we believe that as a matter of policy the power of such National Bank to secure these deposits under the circumstances should not be questioned, and this office will not disapprove this particular pledge."

Respondent receivers thereafter maintained the several secured deposits for the accumulation of funds to be disbursed under the orders and rulings of this court, and the lien on their funds of the war loan deposit account was finally liquidated and discharged about September 1, 1933. Thereafter, loans with New York banks and with the National Credit Corporation to Peoples State Bank were paid, and the collateral security held for said loans was returned to respondent receivers, who have since paid dividends of 30 per cent. to general creditors.

The sale by the trustee of the securities pledged to respondent receivers followed the insolvency of the pledging banks and was reported to the Comptroller, who thereupon advised the several liquidating agents that no objection would be made to the disposition of the bonds, and to the application of the proceeds in conformity with the existing agreement; and said liquidating agents were directed by the Comptroller to make appropriate entries on their books to show that the pledged bonds had been sold and the several accounts closed.

In their return to the rule, the respondent receivers first contend that the funds so deposited under said agreement and as a result of said security were public moneys held by them as trustees for the payment of the preferred war loan deposit, and, as such, funds for which a national bank could give security.

Standing alone, this asserted bar to the recovery sought by petitioners would seem to be conclusively and effectively in conflict with the Pottorff decision:

"National banks lack power to pledge their assets to secure a private deposit. The measure of their powers is the statutory grant; and powers not conferred by Congress are denied. For the act Act of June 3, 1864, c. 106, Sec. 8, 13 Stat. 101; R.S. 5136; 12 U.S.C. Sec. 24, Seventh (12 U.S.C.A. § 24, Seventh) under which national banks are organized constitutes a complete system for their government. Cook County National Bank v. U. S., 107 U.S. 445, 448, 2 S.Ct. 561, 27 L.Ed. 537; California Bank v. Kennedy, 167 U. S. 362, 366, 17 S.Ct. 831, 42 L.Ed. 198; First National Bank v. Missouri, 263 U.S. 640, 44 S.Ct. 213, 68 L.Ed. 486. Confessedly the power to pledge assets to secure a private deposit was not granted in specific terms."

The court also holds that officers of a national bank may pledge securities only to the Secretary of the Treasury upon demand for...