Leonard v. Gage

• Decision Date: 04 January 1938
• Docket Number: No. 4219.,4219.
• Citation: 94 F.2d 19
• Parties: LEONARD et al. v. GAGE et al. KRUPNICK v. PEOPLES STATE BANK OF SOUTH CAROLINA et al.
• Court: U.S. Court of Appeals — Fourth Circuit

94 F.2d 19 (1938)

LEONARD et al. v. GAGE et al.^*

KRUPNICK v. PEOPLES STATE BANK OF SOUTH CAROLINA et al.

No. 4219.

Circuit Court of Appeals, Fourth Circuit.

January 4, 1938.

COPYRIGHT MATERIAL OMITTED

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

Donald Russell, of Spartanburg, S. C. (R. Beverley Sloan, of Columbia, S. C., and C. W. McTeer, of Chester, S. C., on the brief), for appellants.

Christie Benet and E. W. Mullins, both of Columbia, S. C. (Benet, Shand & McGowan, W. M. Shand, and Nelson, Mullins & Grier, all of Columbia, S. C., on the brief), for appellees.

PARKER, Circuit Judge.

This is an appeal in three consolidated causes in which the receivers of insolvent national banks are seeking to recover from the receivers of the insolvent Peoples State Bank of South Carolina the proceeds of bonds and other securities pledged by the national banks to secure deposits made with them by the receivers of the state bank. The facts are that the receivers appointed by the court below for the state bank deposited funds during the year 1932 in each of the national banks under an order of court directing that the receivers in making the deposits should require security within certain specified classes. Securities of the classes specified were pledged by each of the national banks, and, at the time of their respective closings in 1933, were held by the receivers of the state bank as security for the deposits. Shortly after the failure of the national banks the pledged securities were sold by the state bank receivers with the consent of the national bank receivers and the Comptroller of the Currency; and the proceeds of the sales were applied in liquidation of the deposit accounts, a small excess in the case of one of the banks being returned to its receiver.

Between July 25 and October 21, 1935, three proceedings were instituted in the court below by the several national bank receivers by the filing of petitions wherein they asked that the state bank receivers account to them for the proceeds of the collateral pledged as security for deposit accounts and sold as above set out, less the dividends to which the state bank receivers would be entitled as unsecured creditors on their claims for deposits. These petitions were resisted by the state bank receivers, who contended that the United States, at the time of the failure of the state bank, had a first lien on the assets of that bank to secure a war loan deposit of something like $1,800,000; that their attorneys had called the attention of the Comptroller of the Currency to this fact in October, 1932, and asked a ruling from him as to whether the receivers of a closed national bank would contest a pledge of assets as security for deposits made by them in these circumstances; and that, in response to this inquiry, their attorneys received a letter from the Deputy Comptroller of the Currency in which he stated that, while he was of the opinion that a federal court receiver was not in that capacity alone entitled to obtain collateral security for his deposits with a national bank, he believed that as a matter of policy the power of national banks to secure deposits under the circumstances should not be questioned, and that the Comptroller's office would "not disapprove this particular pledge." The state bank receivers relied also upon the fact, already adverted to, that the collateral pledged had been sold and the deposit accounts had been liquidated with the approval of the receivers of the national banks and of the Comptroller of the Currency. A further ground of defense was the delay on the part of the national bank receivers in instituting proceedings for the recovery of the proceeds of the collateral.

In connection with these defenses, it appears that the claim of the United States was paid off in full by the receivers in 1933, and that, notwithstanding the delay in the filing of claims and institution of proceedings in behalf of the national bank receivers, there are ample funds in the hands of the state bank receivers for their payment without disturbance of the orderly administration of the receivership. This delay is explained in the testimony as having been due to the pressure of work in the office of the Comptroller of the Currency; and there is no showing that it has resulted to the disadvantage of any one.

The learned judge below held that the deposits by the state bank receivers were not deposits of public moneys, that the national bank receivers were not estopped from claiming the proceeds of the collateral sold by any of the circumstances relied on, and that the prosecution of their claims was not barred by laches. He denied their petitions, however, on the ground that the deposits constituted constructive trusts "based on special circumstances of misconduct," grounding this conclusion on the fact that the national banks through their proper officers had knowledge of the contents of the order requiring the state bank receivers to obtain security for the deposits. He gave considerable weight, apparently, to the fact appearing in evidence that funds of the bank to the amount of the deposits were used to purchase the securities pledged. The receivers of the national banks have appealed from this decree; and the state bank receivers ask affirmance, not only for the reasons given in the opinion of the court below, but also on the grounds of laches and estoppel there urged. Three questions, therefore, are presented by the appeal: (1) Whether the pledges relied on by the state bank receivers were valid; (2) whether the national bank receivers are precluded from seeking relief, either by the correspondence had between the Comptroller's office and the state bank receivers, or by acquiescence in the sale of the securities and the application of the proceeds to the liquidation of the deposit accounts; and (3) whether the national bank receivers are barred by laches from seeking the relief prayed. We think that all three questions must be answered in the negative.

It is perfectly clear that, under the doctrine of Texas & Pacific Ry. v. Pottorff, 291 U.S. 245, 54 S.Ct. 416, 78 L.Ed. 777, and City of Marion v. Sneeden, 291 U.S. 262, 54 S.Ct. 421, 78 L.Ed. 787, the pledges of securities by the national banks to secure the deposit accounts of the state bank receivers were ultra vires and for that reason invalid. The precise question was before us in Griffin v. Royall, 4 Cir., 70 F.2d 103, wherein we said, referring to the decisions just cited: "Those decisions definitely establish that a national bank is without power to pledge its assets to secure a private deposit and that, except as to certain federal funds covered by specific statutes, it has power to make such pledge to secure deposits of public funds only as allowed by the Act of June 25, 1930, c. 604, 46 Stat. 809 (12 U.S.C.A. § 90) and to the extent permitted by that act. That act provides: `Any association may, upon the deposit with it of public money of a State or any political subdivision thereof, give security for the safe-keeping and prompt payment of the money so deposited, of the same kind as is authorized by the law of the State in which such association is located in the case of other banking institutions in the State.' Clearly, the deposit of the receiver of the state bank was not the deposit of `public money of a State or any political subdivision thereof.' A deposit of the funds of an insolvent bank is a deposit of private funds. See note 11 to opinion in the case of Texas & Pac. R. Co. v. Pottorff 291 U.S. 245, 54 S.Ct. 416, at page 419, 78 L.Ed. 777. The pledge in question, then, is condemned by the general rule laid down by the Supreme Court; and it cannot be brought within the exception created by the statute of 1930."

Circumstances relied on to distinguish the pledges here involved from that under consideration in Griffin v. Royall, supra, fail, in our opinion, to establish any valid ground of distinction. The fact that funds of the United States had been deposited in the failed state bank did not make the moneys in the hands of the state bank receivers public funds of the United States. Cf. United States v. MacMillan, 253 U.S. 195, 40 S.Ct. 540, 64 L. Ed. 857. And there is nothing in the fact that the United States had a lien upon the assets of that bank to secure its claim which would authorize the pledge of securities by the national banks to secure deposits by its receivers; for it is only in the specific cases provided for by federal statutes that pledge of securities to secure deposits is warranted. City of Marion v. Sneeden, supra, 291 U.S. 262, 268, 54 S. Ct. 421, 422, 78 L.Ed. 787; O'Connor v. Rhodes, 65 App.D.C. 21, 79 F.2d 146, 149, 150. Since, as pointed out in the Pottorff Case, supra, neither the bank nor the receiver can be held estopped to deny the validity of the pledge because of its ultra vires character, it is immaterial that the pledge preceded the deposits or that funds of the bank to the amount of the deposits were used to purchase the securities pledged. See Granzow v. Village of Lyons, 7 Cir., 89 F.2d 83. And it is perfectly clear that the powers of the national banks under the act of Congress creating them could not be enlarged, either by the order of the District Judge specifying the kinds of security which the receivers might accept for deposits, or by the letter of the Deputy Comptroller of the Currency to the effect that the Comptroller's office would not disapprove pledges which it was beyond the statutory powers of the banks to make. Granzow v. Village of Lyons, supra.

And we see nothing in the case to justify a finding that there were any circumstances of misconduct which would give rise to constructive trusts with respect to the deposits. This would be a matter for consideration with respect to the rights of the state bank receivers in the funds in the hands of the receivers of the national banks, not with respect to the rights of the...