First Nat. Bank v. Harry E. Chapman Co.
| Decision Date | 09 December 1929 |
| Citation | 22 S.W.2d 245,160 Tenn. 72 |
| Parties | FIRST NAT. BANK OF CHATTANOOGA et al. v. HARRY E. CHAPMAN CO. et al. |
| Court | Tennessee Supreme Court |
Appeal from Chancery Court, Hamilton County; W. B. Garvin Chancellor.
Proceedings under the Declaratory Judgment Statute between the First National Bank of Chattanooga and others and the Harry E Chapman Company and others. Appeal from the decree. Affirmed.
Williams & Frierson, of Chattanooga, for complainants.
J. L Foust, of Chattanooga, for defendants.
This proceeding was brought under the Declaratory Judgments Statute (Pub. Acts 1923, c. 29), and the question presented is whether a national bank with which a state bank has been consolidated succeeds, by virtue of the consolidation, to the rights and title of the state bank as trustee under a trust deed conveying real estate to secure the payment of certain notes, with power of sale in case of default.
The Chattanooga Savings Bank & Trust Company was a Tennessee corporation engaged in the banking business with power to act as trustee and in other fiduciary capacities. On January 29 1929, this institution consolidated with the First National Bank under the provisions of an Act of Congress passed February 25, 1927, adding a new section, 3, as an amendment to the Act of Congress November 7, 1918 (12 USCA § 34a). All assets of the state bank were turned over to the national bank, and the former bank ceased the transaction of business.
Previous to this consolidation, W. R. Smith and wife conveyed to the Chattanooga Savings Bank & Trust Company, as trustee, described real estate in Chattanooga to secure the payment of a series of notes in favor of Harry E. Chapman Company, aggregating $3,529.13. The trustee was authorized upon default, after due advertisement, to offer the land for sale for the satisfaction of the indebtedness secured. Smith and wife are now in default in the payment of their notes, and the First National Bank is proposing to advertise and sell the land according to the terms of the trust deed, claiming to have succeeded to the rights, title, and powers of the trustee named in the instrument aforesaid.
Section 3 above mentioned provides that any bank, including a trust company, incorporated under the laws of any state, may be consolidated with a national banking association, located in the same county, under the charter of any such national banking association or under such terms and conditions as may be lawfully agreed upon in the manner specified; and that all the rights, franchises, and interests of such state bank
Referring to the last sentence of the section just quoted, it may be observed that the consolidation, as it is termed by Congress, of a state bank with a national bank, is not in contravention of the laws of Tennessee. Section 23 of chapter 20 of the Acts of 1913 authorizes a consolidation or merger of banks incorporated under the laws of this state with other banks, upon the observance of prescribed procedure and permission of the superintendent of banks. This section of the Act of 1913 has been construed to authorize the consolidation or merger of banks chartered under the laws of this state with national banking associations by the superintendent of banks, and we have no disposition to question this construction.
In Casey v. Galli, 94 U.S. 673, 24 L.Ed. 168, the Supreme Court sustained the power of Congress to authorize the transmutation of a state bank into a national bank, although there was no authority in the charter of the former bank or in the laws of the state of its incorporation so to change its organization. Doubtless, therefore, it is within the power of Congress to authorize the consolidation of a state bank with a national bank in the absence of any state legislation to the contrary. Petition of Worcester County National Bank, 263 Mass. 444, 162 N.E. 217.
As just seen, the laws of Tennessee appear to sanction, rather than forbid, such consolidation, or remain silent.
The consolidation of the two corporations, generally speaking, being valid, the question remains as to the validity and effect of that provision of section 3 undertaking to make the consolidation, ipso facto, transfer to the national bank "the right of succession as trustee, executor, or in any other fiduciary capacity."
The maker of this trust deed entered into a binding contract whereby the Chattanooga Savings Bank & Trust Company was made trustee under the trust deed, with a right of foreclosure and sale in case of default, and the proceeds of the sale were to be applied "first to paying the costs and expenses of this trust and its execution," and the remainder of the proceeds to the indebtedness and any balance turned over to the makers of the instrument. A property right was thus lawfully conferred upon the Chattanooga Savings Bank & Trust Company. It was a valuable right. Since institutions like this one have been empowered to act as trustees and in other fiduciary capacities, a large part of their business is of this nature, and much of their income is derived from such sources.
Upon a review of the authorities, this court has said that, when a valid consolidation or merger of corporations is made with "transfer of rights and properties, and assumption of liabilities between the old and new companies are effected, the new company stands in the stead of the old companies, and may enforce the rights of the old companies, and be subjected to their liabilities." Miller v. Lancaster, 5 Cold. 514. Approved in Memphis Water Co. v. Magens & Co., 15 Lea, 37.
The law is elsewhere declared to the same effect.
"Generally by express provision of the statute or agreement of consolidation, and by implication in the absence of a provision to the contrary, the consolidated corporation succeeds to and may enforce the rights of the consolidating corporations under contracts made by them before the consolidation." Clark and Marshall on Corporations, § 355b.
See, also, 14a C.J. 1069 and cases referred to in Petition of Worcester County National Bank, supra.
We are not able to take the right to administer a trust of this nature out of the rule governing the contract or property rights generally of a corporation consolidating with another corporation.
The reason ordinarily forbidding the transfer or delegation of the office or duties of trustee to another is that "the performance of the trust is a matter of personal confidence, which it is a breach of trust in the trustee to make over to a stranger; and the original trustee will continue responsible for all the acts of the person so substituted." Colyar v. Taylor, 1 Cold. 372.
Such consideration cannot reasonably influence the appointment of a corporate trustee. Personal confidence cannot be the basis of such a selection. The stockholders, the officers, the entire management of a corporation may be expected to change from time to time. These things are sanctioned by law and constitute, on the part of the corporation, no breach of its duty as trustee. So the law sanctions the consolidation of one corporation with another corporation organized for like purposes, and those appointing a corporate trustee do so with knowledge that such a union may take place carrying all the rights and properties of both entities into combined organization. Such consolidation, authorized by law, is no more a breach of trust than a change in corporate officers and directors.
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First Minneapolis Trust Co. v. Lancaster Corporation
... ... Bank" ... and banking -- consolidation -- statute constitutional ... \xC2" ... a trustee. This contention is grounded on Worcester County ... Nat. Bank, Petitioner, 263 Mass. 444, 162 N.E. 217, reviewed ... in 279 U.S ... 138, 275 P. 453; ... First Nat. Bank v. Harry E. Chapman Co. 160 Tenn ... 72, 22 S.W.2d 245; First Wisconsin Trust ... ...