Rawlings v. Commercial Nat. Bank in Shreveport, 83.

• Court: U.S. District Court — Western District of Louisiana
• Writing for the Court: DAWKINS
• Citation: Rawlings v. Commercial Nat. Bank in Shreveport, 44 F.Supp. 5 (W.D. La. 1942)
• Decision Date: 12 February 1942
• Docket Number: No. 83.,83.
• Parties: RAWLINGS v. COMMERCIAL NAT. BANK IN SHREVEPORT (MOORE et al., Intervenors).

44 F. Supp. 5

RAWLINGS v. COMMERCIAL NAT. BANK IN SHREVEPORT (MOORE et al., Intervenors).

No. 83.

District Court, W. D. Louisiana. Shreveport Division.

February 12, 1942.

Monroe & Lemann, of New Orleans, La., and Foster, Hall & Smith, of Shreveport, La., for plaintiff.

Lee & Lee, Cook, Cook & Egan and Herold, Cousin & Herold, all of Shreveport, La., for defendant.

Joseph Barksdale, of Shreveport, La., for intervenors.

DAWKINS, District Judge.

Plaintiff is the receiver of the old Commercial National Bank of Shreveport, while defendant is the new Commercial National Bank in Shreveport, and they will be referred to as the old and new banks. The demand is for an accounting under a contract dated December 3, 1932, the terms of which will be hereafter referred to. Some of the stockholders of the old bank have by intervention joined the receiver in his claim for relief.

The principal bases of the complaint are these:

1. The alleged wrongful charging to the old bank by the new of $150,000 with interest as State ad valorem taxes upon real estate transferred to the latter, which used it to save its stockholders some $194,187.35 taxes upon the stock of the new bank;

2. A charge by the new bank against the old of interest upon a note of $1,000,000 at the rate of six per cent per annum, bearing the same date as the contract;

3. Interest charged upon the assets of the old bank; and

4. Expenses of administration, fees, etc., which the plaintiff claims are unconscionable and should not be allowed under the contract.

Defendant contends that all of these charges were proper and reasonable.

The contract was quoted in full in the opinion of this court rendered on a motion to strike the claim with respect to taxes upon the real estate. See Leslie v. Commercial Nat. Bank, D.C., 28 F.Supp. 927.

The claims will be taken up in the order indicated.

The proof, I think, sustains the plaintiff's contention that the charge for taxes paid upon real estate should be disallowed. Defendant and its stockholders were relieved of taxes upon its capital stock in the sum of $194,187.35, and for the reason stated in the former opinion, neither it nor they can be permitted to profit at the expense of the estate for which it acted as a fiduciary or trustee beyond the stipulated benefits of the contract.

The contract itself reflects the conditions under which it was made. It recites that a National Bank Examiner had found the old bank in a precarious condition with its capital and surplus seriously impaired, which impelled the course agreed upon. As part of this arrangement, the note in question was executed and transferred to the new bank along with all other assets, except the right to assess stockholders of the old bank for the benefit of creditors under the National Bank Law, 12 U.S.C.A. §§ 62, 63.

In consideration of the transfer of assets, the new bank assumed all indebtedness of the old bank, including that to depositors, commercial accounts, etc., but excluded the claims of the old stockholders for their investments. The amount of this indebtedness thus assumed, as of December 3, 1932, according to an audit of a national bank examiner was as follows:

General Deposits               $12,124,466.49
                Rediscounts to the
                Federal Reserve Bank               212,000.00
                Circulation                      1,000,000.00
                Special Deposits                   143,144.04
                Less Class A Assets
                Taken at Par     3,435,799.54
                                               --------------
                Balance of Liabilities
                Assumed                        $10,043,810.99
                

The contract was signed by all the officers and directors of both banks. It gave the new bank full power and authority to "collect, renew, extend, sell, trade, compromise and otherwise handle and adjust" the assets and accounts, without responsibility for "errors in judgment, but only for fraud". The only limitations were that no real estate should be sold without notice to the old bank, and allowing it a period of thirty days in which to take or redeem the property at the price of the "proposed sale". A similar provision was made with respect to compromising or selling any note, debt or personal property, except that the notice was limited to seven days. The old bank was to be represented by its own committee of three members, who were to have access to the assets of the old bank during business hours and in the presence of a representative of the new bank. The new bank "as soon as practicable" was to divide the assets into three classes as follows:

"IV. Party of the Second Part shall, as soon as practicable after the execution hereof, divide into `Class A', `Class B' and `Class C' all of the assets hereby transferred.

"(a) `Class A' assets shall include all cash on hand and may include balances due from correspondents and such other assets as Party of the Second Part may select; and `Class A' assets shall not be entitled to the privilege of substitution and exchange as provided below for `Class B' and `Class C' assets.

"(b) `Class B' assets shall be selected in an amount which, when added to `Class A' assets above described, shall equal the total liabilities herein assumed by Party of the Second Part, and for the purpose of this classification the One Million Dollar ($1,000,000) note above referred to shall be considered a `Class B' asset; and shall be set up on the general ledger of Party of the Second Part in an account or accounts to be called `Class B' assets; and suitable subsidiary records of `Class B' assets shall be kept in detail.

"(c) `Class C' assets are those now believed to have a problematical and indeterminate value, and all assets of Party of the First Part, both ledger and nonledger, not included in `Class A' or `Class B' shall be considered `Class C' assets, but the record of `Class C' assets shall not appear on the general ledger of Party of the Second Part but Party of the Second Part shall keep suitable subsidiary records of `Class C' assets in detail; and all unknown assets shall be a part of `Class C' assets.

"Party of the Second Part shall have the right and power of substitution and exchange between `Class B' and `Class C' assets so that if any of the assets now in `Class B' are hereafter found to be unacceptable to Party of the Second Part then Party of the Second Part shall have the right to take from `Class C' assets any item or items or portions thereof, or cash derived therefrom, placing the same in `Class B' assets substituting therefor the unacceptable item or items now or at any time hereafter in `Class B' assets and the right of substitution and exchange may be exercised at any time and from time to time, it being the intention and purpose of Party of the First Part to fully protect and indemnify Party of the Second Part for the liability herein and hereby assumed and this contract shall be liberally interpreted to that end."

Items placed in Class A were to be final, but the new bank was given unlimited powers of exchange or substitution as to Classes B and C. All collections from the "corpus" or principal of Class C and all interest or revenue received from both Classes B and C assets were to be credited to an account to be known as "Class C Assets Account". This account was to be charged with "reasonable salaries of officers and employees (of the new bank) in collecting and administering" Class B and C assets, together with "legal fees and other expenses properly chargeable" to Classes B and C. This account was also to be charged with interest at six per cent per annum computed on "daily balances on the account or accounts carried on the general ledger and called Class B assets." It was further provided that "in addition to interest and expenses as provided herein, Party of the Second Part (new bank) shall charge to `Class C Assets' or to `Class C Assets Account' reasonable fees for its services in administering Class B and Class C assets * * *".

Article VI of the agreement was as follows: "If and when Party of the Second Part shall have collected from all of the assets herein transferred including the One Million Dollar note as above provided, an amount sufficient to indemnify itself for the liability herein and hereby assumed, including expenses and a reasonable fee as hereinabove provided, the residue of such assets, including cash derived therefrom, if any on hand, may be reconveyed and delivered to the Stockholders Committee or may, at the request of the said Committee, be retained and liquidated for the account...