Union Trust Co. of Maryland v. Townshend

Decision Date23 February 1939
Docket Number4386.,No. 4370,4370
Citation101 F.2d 903
CourtU.S. Court of Appeals — Fourth Circuit


Walter H. Buck, of Baltimore, Md. (Frank Lively, of Charleston, W. Va., on the brief), for appellant.

Selden S. McNeer, of Huntington, W. Va. (Campbell & McNeer, of Huntington, W. Va., on the brief), for appellee.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

This is an appeal in a controversy arising in the bankruptcy proceedings of R. R. Smith, who was adjudged a bankrupt December 23, 1931, on an involuntary petition filed November 30, 1931. The controversy relates to bonds of the Columbia Gas and Electric Company of the par value of $72,000, received by one C. M. Gohen on November 25, 1931, from the sale of Smith's one-third interest in gas properties in Kentucky and West Virginia owned by him jointly with the estate of T. E. Houston.

For some time prior to March 4, 1931, Smith and his co-owner had been attempting to sell these gas properties. They had been offered $2,000,000 for them at one time, but had rejected the offer. Smith's interest was subject to mortgages aggregating approximately $300,000 in favor of the First Huntington National Bank and the Union Bank and Trust Company of Huntington, West Virginia; and Gohen, the president of the first named bank, was representing him in attempting to secure a sale of the properties. On November 18, 1930, Smith and his co-owner had executed a power of attorney to Gohen and one Julius Frieberg of Cincinnati authorizing them to sell and convey the properties, Frieberg being named in the power of attorney because he was representing the Houston interests and Gohen because he was representing Smith.

Smith was indebted at this time to the Farmers & Merchants National Bank of Baltimore, Maryland, later merged with the Union Trust Company of that city, in the sum of $72,000, secured by the pledge of 1600 shares of the capital stock of the First Huntington National Bank. This stock was worth at the time more than the amount of the debt. The debt was past due and the bank was pressing for payment; but Smith, although unable to pay, was unwilling for the stock to be sold, and Gohen did not wish so large a block of it to be thrown on the market. They accordingly secured from the Baltimore bank an extension of time for the payment of the indebtedness, by an agreement on the part of Smith that the debt of the bank should be paid from the proceeds of the sale of his interest in the gas properties, and on the part of Gohen that he would pay the debt of the bank from such proceeds when same should come into his hands. The agreement of Smith was contained in a letter addressed by him to Gohen, mistakenly bearing date of February 4, 1931, but in reality written March 4, 1931. It is as follows:

"You have a power of attorney to represent me in the sale of the Houston-Smith gas properties in Kentucky and West Virginia and your Bank, the First Huntington National, and the Union Bank & Trust Company hold mortgages against my undivided one-third interest in this property for approximately $300,000.00 as evidenced by my note as maker, and endorser on other notes in the two banks. I am due the Farmers and Merchants National Bank of Baltimore, Maryland, $72,000.00, evidenced by my note with collateral attached of 1600 shares of First Huntington National Bank stock.

"I want to pay this note out of the sale of the gas property, rather than to be forced at this time to have a sale made of this bank stock. I am hereby authorizing you to pay this note, if acceptable to the Farmers and Merchants National Bank, from the moneys received from the sale of this gas property, and authorize you to provide in the sale of the property that the total amount of $372,000.00, which covers the amount due your bank, the Union, and this $72,000.00 note, be paid direct to the First Huntington National Bank for the purpose of discharging the indebtedness above set out."

This letter was sent by Gohen to Gideon, an officer of the Baltimore bank, agreeing to pay over to that bank the money "if and when" it came into his hands. The letter of Gohen is as follows:

"In accordance with our telephone conversation this morning, I am enclosing you herewith the letter from R. R. Smith, addressed to me, dated today, in which Captain Smith agrees to pay your note for $72,000 out of the sale of the Houston-Smith gas properties when and if such properties be sold.

"For your information, the prospect of selling the property seems more hopeful than it has been for sometime. The value placed on the property about one year ago by Ralph E. Davis, a reputable engineer, was $1,940,000, and based upon this engineer's report a cash offer was made by the United Fuel Gas Company of $2,000,000, which was refused by the Houstons and Smith — their idea of the value being around $3,000,000. Subsequently, the property was offered in all of the markets of the country and became somewhat discredited as a result.

"Several months ago, Smith gave the writer an absolute power of attorney to represent his one-third interest in any negotiation for the sale, and I purposely had the property withdrawn from the market until the situation caused by the frantic efforts of Smith to sell at an exorbitant price had cleared away. On February 28, I gave some people in New York in whom I have confidence until the 15th of March to handle the proposition, at a price which should make it attractive to the purchaser. I feel confident that some sort of a proposition will be acceptable to the Houstons and myself will result from this move.

"Smith would like to renew the note which he has with you for thirty days, and I believe that if a sale of the gas properties is effected within that time, you will shortly thereafter receive your money. The times are certainly not propitious for the block of bank stock which you hold to be placed upon the market. It can, of course, be sold at a price, but I believe it would be much more to your interest, as well as that of Captain Smith, to renew the paper for thirty days and see how matters work along on the sale of the gas property.

"If it is agreeable to you to renew the paper for thirty days, you may send me one of your collateral forms and I will have it executed by Captain Smith and returned to you with the interest. You may also return to me the enclosed letter and I will accept the same and agree to pay to you the money if and when it comes into my hands." (Italics supplied.)

Relying upon the promises contained in these letters, the Baltimore bank extended the time of payment on the debt represented by Smith's note from time to time and refrained from forcing collection until the bank stock pledged as collateral had so declined in value as not to be worth the amount of the debt.

On April 16, 1931, Smith executed an instrument revoking the power of attorney granted Gohen and Frieberg, but no notice was given the Baltimore bank of the revocation and Gohen continued to assist Smith in attempting to procure a sale of the property and had frequent communication with the bank as to the prospect of selling it. Not only was no notice given the bank of the revocation of the power of attorney, but letters were written from time to time advising the bank of the progress being made towards consummating a sale. Thus on August 4th, Smith wrote the bank as follows:

"I had a statement sometime back of the interest due you on my note, which I have not remitted for the reason that I have been so hard up I could hardly get my breath.

"The sale of our gas property has been agreed upon and it's now only a matter of working out details, which should be completed in the next few days, at which time I will have you send my note, with the collateral and the order I gave you to Mr. Gohen on the funds to be derived from the sale of the gas property in payment of this note.

"I hope this will be satisfactory and that you can clearly see your way to let this matter ride until this sale is completed. Mr. Gohen will verify my letter to you in regard to this."

On August 6th, Gohen wrote the bank as follows:

"I have just returned from a two week's vacation. Prior to my leaving Mr. Short, of the Houston interests, went to Charleston and had a very satisfactory interview with Mr. Wallace of the United Fuel Gas Company, and as a result of their negotiations during my absence a proposition was made by Wallace to buy the property for $1,500,000 and to pay for it with Columbia Gas & Electric Company 5% Gold Debenture Bonds of April 15, 1952, the bonds to be accepted by the owners at par. Letters to this effect were exchanged between the United Fuel Gas Company, the Houston interests and Captain Smith, and the deal is unquestionably made, subject, of course, to the approval of the legal department of the United Fuel Company.

"The attorneys are busily engaged in abstracting and checking the leases and this work should be completed early next week; it will then be submitted to Judge Ritz, Chief Counsel for the United Fuel Gas Company, and as we anticipate no trouble as to titles, etc., the transaction should be closed within the next week or ten days.

"Smith, meanwhile, is arranging to turn into cash the $500,000 of bonds which will be coming to him. After the payment of the mortgages, amounting to approximately $300,000, the first mortgage being held by our bank and a second by the Union Bank and Trust Company, this city, and the payment of the Houstons of a preferred claim of approximately $75,000, Smith will have around $125,000 out of which he has authorized me (provided I am disbursing agent) to pay your note with interest.

"I sent for Smith today and talked the matter over with him, and he has authorized me to wire you just as soon as I can ascertain the date upon which the deal will be closed to forward to us...

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