Pierce v. National Bank of Commerce

• Decision Date: 27 May 1926
• Docket Number: No. 6822,6823.,6822
• Citation: 13 F.2d 40
• Parties: PIERCE v. NATIONAL BANK OF COMMERCE IN ST. LOUIS. NATIONAL BANK OF COMMERCE IN ST. LOUIS v. PIERCE.
• Court: U.S. Court of Appeals — Eighth Circuit

13 F.2d 40 (1926)

PIERCE v. NATIONAL BANK OF COMMERCE IN ST. LOUIS.^*

NATIONAL BANK OF COMMERCE IN ST. LOUIS v. PIERCE.

Nos. 6822, 6823.

Circuit Court of Appeals, Eighth Circuit.

May 27, 1926.

H. S. Priest and John F. Green, both of St. Louis, Mo., for plaintiff.

George L. Edwards, of Kansas City, Mo., and William T. Jones, of St. Louis, Mo. (Edward J. White and Carter, Nortoni & Jones, all of St. Louis, Mo., on the brief), for defendant.

Before LEWIS and BOOTH, Circuit Judges, and PHILLIPS, District Judge.

PHILLIPS, District Judge.

This is an appeal and a cross-appeal from a decree in a suit brought by Henry Clay Pierce against the National Bank of Commerce in St. Louis, for an accounting for certain collaterals held by the bank, wherein the bank filed a cross-bill to foreclose the lien of an alleged pledge of collaterals and for a deficiency judgment against Pierce.

In 1901, Jere Baxter and certain associates and J. C. Van Blarcom and certain associates formulated a plan for the acquisition, extension and consolidation of certain railroads in the states of Tennessee and Kentucky, so as to make a line of railroad extending from Emery Gap near Harriman, Tenn., as its eastern terminus, to Hopkinsville, Ky., as its western terminus, to be owned and operated by the Tennessee Central Railroad Company (hereinafter called Railroad Company). The plan also contemplated the construction of certain terminal facilities at Nashville, to be owned by the Nashville Terminal Company (hereinafter called Terminal Company) and to be operated by the Railroad Company under lease from the Terminal Company.

In February, 1901, Van Blarcom, Baxter, and N. C. Chapman incorporated, under the laws of the state of Missouri, the Tennessee Construction Company (hereinafter called Construction Company).

On September 17, 1901, the Nashville & Clarksville Railroad Company, the Nashville & Knoxville Railroad Company, the Tennessee Central Railway, and the Terminal Company entered into a contract, whereby they agreed that the corporate name of the Nashville & Clarksville Railroad Company should be changed to the Tennessee Central Railroad Company, that the Railroad Company should enter into a 99-year lease of the terminal facilities and properties of the Terminal Company, and that the Railroad Company should purchase and acquire all franchises and properties of the Nashville & Knoxville Railroad Company and the Tennessee Central Railway.

Thereafter the Construction Company entered into a contract with the Railroad Company, whereby it was agreed that the Construction Company should construct certain extensions of the railroads acquired and owned by the Railroad Company and certain betterments and additions thereto, and receive in payment therefor part of the capital stock and first mortgage bonds of the Railroad Company. The Construction Company also entered into a contract with the Terminal Company, whereby it was agreed that the Construction Company should construct certain terminal facilities for the Terminal Company at Nashville, Tenn., and receive in payment therefor the entire capital stock and first mortgage bonds of the Terminal Company.

In 1902, the Construction Company borrowed $700,000 from the bank, and to evidence the same executed and delivered to the bank three promissory notes payable on demand, one dated July 1, 1902, for $352,000, one dated July 9, 1902, for $148,000, and one dated October 15, 1902, for $200,000. To secure this loan (hereinafter referred to as the $700,000 loan), the Construction Company pledged to the bank first mortgage bonds of the Railroad Company (later changed to general mortgage bonds) of the face value of $750,000, first mortgage bonds of the Terminal Company of the face value of $250,000, and 10,000 shares of the capital stock of the Terminal Company of the par value of $1,000,000. The bonds were pledged at or about the time the loan was made. The stock was pledged July 27, 1905, as determined by a judgment rendered July 12, 1916, in a suit brought by the bank against Pierce in the circuit court of the city of St. Louis, Mo., which was affirmed on appeal by the Supreme Court of Missouri. See National Bank of Commerce in St. Louis v. Pierce, 280 Mo. 614, 219 S. W. 578. This case will hereafter be referred to as the state case.

On November 17, 1908, the Construction Company executed and delivered to Pierce its collateral note for $600,000, by which it pledged to Pierce, subject to the prior pledge to the bank, the said general mortgage bonds of the Railroad Company of the face value of $750,000 and the said first mortgage bonds of the Terminal Company of the face value of $250,000. It also pledged to Pierce, without any recital of the prior pledge to the bank, said 10,000 shares of the stock of the Terminal Company. Notice of this note and pledge to Pierce was given to the bank in November, 1908. In January, 1913, Pierce foreclosed upon these collaterals, purchased them at the foreclosure sale on January 3, 1913, and has ever since been the owner thereof, subject to the pledge of them to the bank. Notice of the foreclosure and purchase thereunder by Pierce was given to the bank prior to November 14, 1919.

On July 16, 1903, Van Blarcom, who was then vice president of the bank and vice president of the Construction Company, signed in the following form, "W. H. Thompson, per V. B. Atty.," a note for $200,000, payable on demand to the order of B. F. Edwards, cashier, and delivered the same to the bank. At that time, Edwards was cashier, and Thompson was president of the bank. On July 17, 1903, the Construction Company executed and delivered to Van Blarcom its demand note for 200,000 and Van Blarcom indorsed and delivered the same to the bank as collateral to the $200,000 note dated July 16, 1903. Thompson died December 6, 1905, and his estate was administered in the probate court of the city of St. Louis. The bank filed a claim against the Thompson estate, based on the note signed "W. H. Thompson, per V. B. Atty." It was allowed without contest by the probate court July 5, 1914, for the sum of $305,166.67. From this allowance, the executor appealed to the circuit court of the city of St. Louis, Mo. Pending such appeal, a compromise of this claim was effected, by which the bank accepted in settlement thereof $100,000 in cash, first mortgage bonds of the Terminal Company of the face value of $50,000, two unsecured notes of the Construction Company, dated November 14, 1902, each for the sum of $100,000, both payable on demand to the order of the Construction Company and indorsed by it, and the note of the Construction Company for $200,000, dated July 17, 1903.

The contract by which the stock and bonds above mentioned were pledged to secure the $700,000 loan was not in writing. The bank claimed that, continuously from 1902 down to the date of the trial below, a custom prevailed under which collaterals given to secure an indebtedness to the bank by a borrower were also pledged to secure any and all subsequent indebtedness of the borrower to the bank. From and after the date of the settlement between the bank and the Thompson estate which took place on April 9, 1914, the bank, under such alleged custom, claimed that the $750,000 general mortgage bonds, $250,000 Terminal Company bonds, and 10,000 shares of Terminal Company stock were pledged to the bank to secure the notes of the Construction Company accepted by the bank in the settlement of its claim against the Thompson estate.

Van Blarcom died October 24, 1908. While holding the $200,000 note of the Construction Company of July 17, 1903, as pledgee from Van Blarcom, the bank proved it as a claim against the Van Blarcom estate, based upon Van Blarcom's indorsement, and secured an allowance thereof on September 22, 1909, in the sum of $253,773.30. It collected dividends thereon as follows: July 31, 1917, $31,678.59; July 22, 1922, $7,151.72.

Pierce and Van Blarcom jointly executed two writings, one dated June 28, 1905, and one dated July 2, 1907, by which they guaranteed the payment of the interest on the $700,000 loan. The recited consideration of the first guaranty was that the bank should not demand payment of the loan prior to June 1, 1907. The recited consideration of the second guaranty was that the bank should continue to forbear requiring payment of the loan, but it fixed no definite period for such forbearance. Between January 2, 1913, and September 14, 1918, Pierce paid to the bank, under these guaranties, interest amounting in the aggregate to $182,792. The balance of the interest during that period was paid from interest collections made by the bank upon Terminal Company bonds held by it as collateral to the $700,000 loan. Interest at the rate of 6 per cent. per annum upon the amounts paid by Pierce from the dates of the respective payments to September 14, 1918, amounts in the aggregate to $31,739.08.

Van Blarcom guaranteed the payment of the $700,000 loan by several written guaranties. One was dated October 15, 1902, another October 19, 1905, and another June 28, 1907. Based on these guaranties of Van Blarcom, the bank filed its claim against the latter's estate, and the claim was duly allowed. On June 22, 1917, the bank entered into a written agreement with the executors and certain creditors of the Van Blarcom estate to the effect that, if it succeeded in collecting the $700,000 loan from the Pierce judgment or from the collaterals held by it to secure the loan, it would then distribute the dividends received by it on such claim pro rata among the general creditors of the estate including itself. On July 13, 1917, the bank received a dividend on this claim from the estate in the sum of $64,147.96. On July 22, 1922, the executors of the Van Blarcom estate paid a second dividend of 2.626 per cent. on the claims allowed against that estate. This, on the bank's claim based on the $700,000 loan, would have amounted to $18,640.34....