Fourth Nat. Bank of Nashville v. Stahlman

• Decision Date: 06 July 1915
• Citation: 178 S.W. 942,132 Tenn. 367
• Parties: FOURTH NAT. BANK OF NASHVILLE v. STAHLMAN ET UX. [d1] FOURTH NAT. BANK OF NASHVILLE v. NASHVILLE BANNER PUB. CO. ET AL.
• Court: Tennessee Supreme Court

178 S.W. 942

132 Tenn. 367

FOURTH NAT. BANK OF NASHVILLE v. STAHLMAN ET UX. ^[d1]

FOURTH NAT. BANK OF NASHVILLE v. NASHVILLE BANNER PUB. CO. ET AL.

Supreme Court of Tennessee.

July 6, 1915

Appeal from Chancery Court, Davidson County; Jno. Allison Chanceller.

Separate suits by the Fourth National Bank of Nashville against E. B Stahlman and wife and against the Nashville Banner Publishing Company and others. From a decree for petitioner, defendant Stahlman appeals. Affirmed and remanded.

Williams J., dissenting.

FANCHER J.

These two suits were tried together upon the same facts and involving the following questions:

The Fourth National Bank of Nashville, Tenn., was a highly prosperous and growing concern. It owned its own banking house, situated upon Third Avenue North in the city of Nashville, and a short distance south of Union street, but this house was not adequate to the increasing demands made upon it for banking facilities. This location was in the center of the financial district of the city, and was considered a very desirable location, but there was another lot on the corner of Third avenue and Union street, owned by the defendant E. B. Stahlman, which was considered a better location for a banking business than that owned by the bank. This corner lot was an old banking site which had been used for such purposes since before the Civil War. The Fourth National Bank at first had in view the construction of a banking building upon its own lot, and appointed a committee as early as 1902 to consider the question of remodeling the old building, or the construction of a new building in order to secure a larger banking room and more commodious quarters. This committee visited a number of cities in the North and East and examined up-to-date banking buildings. The bank considered the question of purchasing adjacent lots of land in order to give it additional room for a larger building. These matters were considered by the committee and the officers of the bank, and postponed from time to time until in the year 1905.

In that year, Maj. E. B. Stahlman approached the bank on the subject of acquiring the adjacent real estate belonging to the Fourth National Bank and other adjacent lands to his corner lot on Union street and Third avenue, and suggested tearing down the old buildings and erecting a modern 12-story office building on the corner, with large and elegant banking room immediately on the corner, on the first floor of the building, with vaults and other necessary rooms to be occupied by the bank under a long lease. He offered to promote a corporation for this purpose, and suggested that the bank convey its lands to the corporation at the price of $58,000 to be paid for in the preferred stock of the building corporation, and that the bank would also loan $45,000 for the purpose of assisting in the construction of the building upon long-time notes. He desired this $45,000 to be secured by the stock in the corporation. The bank refused to make the loan upon the terms desired, because it was not according to its custom of business. Maj. Stahlman next proposed that the bank subscribe for this $45,000 of stock, and he would buy the stock back from it at stated intervals, and in order to guarantee that he would carry out the contract, he would give security other than the stock itself.

The building contemplated a total investment of about $875,000, and it was suggested that the preferred stock should amount to $400,000, and that common stock would be issued to an amount to be agreed upon later. On April 12, 1905, these suggestions were embodied in a contract signed and executed by Maj. Stahlman, as promoter, and the bank, and the agreement was that the stock to be taken by the bank should be preferred, and providing a guaranteed cumulative dividend of 6 per cent. per annum, the dividends to begin when the deed was made for the real estate, as to the stock for the purchase of the lots, and to begin when the money should be paid by the bank, as to the $45,000 of subscription stock. It was provided that the bank should have certain desirable quarters on the first floor and in the basement at a rental of $12,000 per annum, for a period of 10 years and renewable at that price for another 10 years. For other periods extending the whole time of the right to lease to 50 years, the bank should have the option and the terms to be agreed upon or fixed by arbitration.

The promoter agreed that he would bring out a corporation for these purposes, and that it would expend not less than $40,000, nor more than $45,000 for vaults, railings, counters, desks, marble fixtures, decorations of ceiling and walls, etc., according to plans to be selected by the bank. The banking room was not to be less than 4,500 square feet in the clear, and also in connection with the banking room there would be constructed and furnished 3,000 square feet in the basement, to be arranged, subdivided, and equipped to the best needs and convenience of the bank.

It was further stipulated that the bank should have the right to transfer and assign its lease and renewals thereof, but that the said building corporation to be brought out should not rent any space in the building to any other bank, person, firm or corporation doing a banking business, and giving the Fourth National Bank exclusive banking quarters. A time limit within which these things should be done was agreed upon. This time limit was further extended on July 20, 1905, and further stipulations concerning the contract were then entered into. On April 5, 1906, the final agreement was concluded, reciting these former agreements, making it the final contract between the parties.

Mollie T. Stahlman, the wife of E. B. Stahlman, joined in this final contract, and it was provided that, in consideration of the payment of the subscription of the Fourth National Bank of said $45,000 of capital stock, the said Stahlman and wife would buy from the bank, and the bank agreed to sell to the said Stahlman and wife the said $45,000 of capital stock at par or face value thereof, to be taken and paid for at intervals from December 1, 1909, to December 1, 1912, and provided, further, that if any dividends upon said stock remained unpaid at the time of said purchases, Stahlman and wife were to pay the accumulated dividends, which were to be at the rate of 6 per cent per annum, or one-half per cent. per month. Said E. B. Stahlman and wife were to have the right at any time to take up and pay for the stock at the price stipulated, and they deposited with the bank insurance policies on the life of E. B. Stahlman, legally assigned to the bank, to an amount equal to $45,000.

This building corporation had, in the meantime, been organized as the Mecklenburg Real Estate Company, a conveyance had been executed by the bank prior to this final agreement, conveying the real estate to the Mecklenburg Company, and the building was then in process of erection.

The bank reserved the option to sell and dispose of the $45,000 of stock subscribed for by it at any time to any persons, but it was agreed that Stahlman and wife, or either of them, should have the option to buy said stock at par and accumulated dividends at any time or times before the bank sells it to others, and in order that this might be done, at least 30 days notice of the desire of the bank to sell the stock or any part thereof shall be given Stahlman and wife before the bank shall have the right to sell to others.

Is the contract of Stahlman and wife of April 5, 1906, under the circumstances of this case, to buy from the bank this $45,000 of stock for which the bank had subscribed, enforceable? This is the leading issue in the litigation. It is insisted by the defendants that a national bank cannot take stock in another corporation because it is against public policy, ultra vires the powers of the bank, and the contract, still being executory, cannot be enforced; also that the contract for the purchase of the stock by Stahlman is unenforceable for want of a valuable consideration; that the so-called agreement to purchase was a mere option, with no corresponding obligation on the part of the bank to sell to Stahlman; and if enforceable at all, accumulated unpaid dividends, or interest, cannot be recovered as upon a loan, as the bank contends; that upon any construction of the rights and obligations of the parties, the provisions in the contract for security are exclusive, and that collaterals held by the bank on other loans cannot be retained to cover this liability.

Maj. Stahlman owed the bank a number of loans made to him and the Banner Publishing Company, and others for whom he was security, and on one of these notes of $24,400, the bank held as collateral security a block of 100 shares of stock in the Banner Publishing Company said to be very valuable. These various notes held by the bank contained general printed stipulations that the pledged securities--

"shall be applicable in like manner to secure the payment of any other obligations of the undersigned, whether past or future, held by the holder of this obligation. All such securities in their hands shall stand as one general continuing security for the whole of such obligations so that the deficiency on any one shall be made good from the collateral from the rest."

The position of the defendant is that this collateral security agreement will not be construed as applying to secure contracts or obligations different in nature from those for which they were placed, but only those of like kind; that is, on promissory notes or purely banking obligations.

The suits originally involved a number of questions, many of which are now eliminated. A short time before the suits were brought the bank made a...