State of Arkansas v. Pufahl

• Decision Date: 27 August 1931
• Docket Number: No. 9099.,9099.
• Citation: 52 F.2d 116
• Parties: STATE OF ARKANSAS et al. v. PUFAHL.
• Court: U.S. Court of Appeals — Eighth Circuit

52 F.2d 116 (1931)

STATE OF ARKANSAS et al. v. PUFAHL.

No. 9099.

Circuit Court of Appeals, Eighth Circuit.

August 27, 1931.

Samuel Frauenthal, of Little Rock, Ark. (John A. Sherrill and Ector R. Johnson, both of Little Rock, Ark., on the brief), for appellants.

Jesse Reynolds, of Clarksville, Ark., for appellee.

Before KENYON and BOOTH, Circuit Judges, and DEWEY, District Judge.

DEWEY, District Judge.

This case is brought to determine whether the state of Arkansas or its assignee is entitled to dividends from the receiver of the First National Bank at Clarksville, Ark., on the aggregate of three separate deposits in said bank; one of such deposits being secured by government bonds and the others by surety companies.

The First National Bank of Clarksville, Ark., was designated by the state treasurer under the laws of the state as a state depository on May 18, 1929. On that date a written contract covering the terms of the deposit was entered into between the bank and the state treasurer providing for a deposit in the sum of $25,000. As security for said deposit, the bank transferred to the state four Liberty Loan bonds of the face value of $25,000. On May 20, 1929, a second contract was entered into providing for a deposit of $15,000, and such deposit was secured by a corporate surety bond executed by the United States Fidelity & Guaranty Company. On June 4, 1929, a third contract providing for a deposit in the sum of $10,000 was entered into, and as security therefor a bond in the sum of $10,000 was executed by the ?tna Casualty & Surety Company as surety. Deposits were made in accordance with these contracts, and none of the funds so deposited were ever withdrawn by the state, and said bonds and contracts were in force and the government bonds still held by the state of Arkansas when the bank was closed by the Comptroller of the Currency on November 14, 1929, and M. J. Pufahl was appointed receiver on November 30, 1929.

On March 8, 1930, the treasurer on behalf of the state filed a claim with the receiver for a balance due on account as per three contracts thereto attached, with interest, amounting to $50,529.22. With the claim was a letter in which the treasurer claimed that the state was entitled to a dividend upon the face of its claim as it stood at the time of the declaration of insolvency, subject, of course, to the ceasing of dividends when the claim had been paid in full with such dividends and the proceeds of collaterals, which he proposed to sell at the market price. The receiver refused to file this claim, and advised the treasurer that he would be required to sell the bonds and apply the proceeds in accordance with the provisions of the $25,000 contract of deposit and could then file his claim for the balance. On March 10, 1930, the claim of the state of Arkansas against the bank was assigned to J. A. Sherrill, as trustee for the two surety companies, and on the same afternoon, but subsequent to the execution of the assignment, the state treasurer sold the government bonds, which he held as security, for $26,349.82, crediting the bank with the principal and interest due on the $25,000 indebtedness and turned over the balance of $1,078.86 to the receiver. Also, on March 8, 1930, the treasurer collected $15,160 from the United States Fidelity & Guaranty Company and $10,106.63 from the ?tna Casualty & Surety Company, which paid the claim of the state of Arkansas against the First National Bank of Clarksville in full. Neither the bonds nor the proceeds thereof were at any time turned over to the trustee, J. A. Sherrill. The trustee requested the treasurer to pay all surplus from the sale of the Liberty bonds to him, but this was refused because the receiver had asked for the surplus, and it was a part of the agreement under which the assignment was made that the state was to retain and sell the Liberty bonds and apply the proceeds to the indebtedness of the First National Bank of Clarksville.

On June 6, 1930, J. A. Sherrill, as trustee, joining with him the state of Arkansas, filed their bill of complaint in the District Court of the United States for the Western District of Arkansas against M. J. Pufahl, as receiver, with claims similar to those made on this appeal, and praying that said receiver be ordered and directed to return to plaintiffs $1,078.86 now held by him as the balance of the sale price of the Liberty bonds pledged as security to the state of Arkansas, and further ordered and directed to accept the proof of claim tendered and make distribution of dividends upon said claim until the plaintiffs have received from said dividends and the sale of the Liberty bonds the full amount of their claim of $50,529.22 with interest.

The decree of the trial court provided that the receiver be directed to receive and allow the claim of the plaintiffs for the sum of $15,000 with accrued interest on the contract dated May 20, 1929, and an additional claim of $10,000 with accrued interest on the contract dated June 4, 1929, and that he pay dividends to the plaintiff J. A. Sherrill, trustee, upon said claims when so allowed, that the plaintiffs were not entitled to an allowance of a single claim for $50,000 with interest, and the prayer for an allowance of a claim in this amount against the receiver was disallowed.

It is held in the case of Merrill v. Nat. Bank of Jacksonville, 173 U. S. 131, 19 S. Ct. 360, 366, 43 L. Ed. 640, that a secured creditor of an insolvent national bank may prove and receive dividends upon the face of his claim as it stood at the time of the declaration of insolvency without crediting either his collaterals or collections made therefor after such declaration, subject always to the proviso that dividends must cease when from them and from collaterals realized the claim has been paid in full. And "the secured creditor cannot be charged with the estimated value of the collateral, or be compelled to exhaust it before enforcing his direct remedies against the debtor, or to surrender it as a condition thereto, though the receiver may redeem or be subrogated as circumstances may require." And this rule has been followed by the federal courts. Aldrich v. Chemical Nat. Bank, 176 U. S. 618, 638, 20 S. Ct. 498, 44 L. Ed. 611; Washington-Alaska Bank v. Dexter Horton Nat. Bank (C. C. A.) 263 F. 304, 311; Mechanics & Metals Nat. Bank v. Smith (D. C.) 21 F.(2d) 128, 134. But the Merrill Case does not hold that the collateral was security for both the note which it was given to secure and a debt due on "sundry drafts." The court in stating that the collateral is security for the whole debt had reference to the debt secured by the collateral. The decree of the Circuit Court of Appeals (78 F. 208) provided that the receiver should pay the dividends to the Palatka bank on the $10,093.34, the amount of the note secured, and also on the indebtedness created by the sundry drafts "provided the dividends theretofore paid and thereafter to be paid on the sum of $10,093.34, together with the amounts theretofore and thereafter received on the collaterals securing that indebtedness, should not exceed 100 cents on the dollar of the principal and interest of said debt;" and it was this decree which was affirmed by the Supreme Court.

Where securities are pledged to a creditor to secure the payment of a particular loan or debt, the creditor cannot hold such collateral to secure the payment of any other claim or indebtedness than the one for which they were specifically pledged. It is a special deposit or pledge for a special purpose, and, when that purpose is accomplished, the lien ceases to exist. A general...