US SUPREME COURT DECISIONS

The State National Bank of Vernon, Texas, having become insolvent, Robinson was appointed receiver, and the Comptroller made an assessment upon the stock and its owners. This action was brought to recover such assessment from the Southern National Bank. One hundred and eighty shares of the stock so assessed were the property of one Curtis. His certificates were deposited with the Southern Bank as collateral, but the stock remained in his name, and so continued till the commencement of this suit. Held that the case was not one in which the bank was estopped by having assumed an apparent ownership of the stock.

By the mere act of bidding in this stock at a nominal price, the Southern National Bank is not to be regarded as having subjected itself to liability as the real owner thereof.

As between the Southern National Bank and Curtis and Thomas, the bank is under no legal or equitable obligation to assume or answer for the assessment made by the Comptroller on the stock.

California Bank v. Kennedy, 167 U. S. 362, and Concord Bank v. Hawking, 174 U. S. 364, followed, but this Court is not disposed at present to push the principle of these cases so far as to exempt such banks from liability as other shareholders when they have accepted and hold stock of other chanrobles.com-red

Page 180 U. S. 296

corporations as collateral security for money advanced (which is not decided).

There is a presumption in such cases against any intention on the part of the lending bank to become an owner of the collateral shares.

This was an action brought in the Circuit Court of the United States for the Southern District of New York by Robinson, as receiver of the State National Bank of Vernon, Texas, a national banking association, against the Southern National Bank of New York, likewise a national banking association, to recover the amount of an assessment made by the Comptroller of the Currency upon the stock of the State National Bank, of which the defendant bank was alleged to be the owner of one hundred and eighty shares.

The principal facts out of which the controversy arose were as follows:

On January 20, 1893, one W. G. Curtis was the owner of one hundred and eighty shares of the capital stock of the State National Bank, of the par value of $100 each, and which stood in his name on the books of the bank, and for which he held the usual certificates. On that day, one A. U. Thomas and the said Curtis borrowed from the Southern National Bank the sum of $15,000, for which they gave their promissory note, payable four months after date. The note recited that the makers of the note had

"deposited with said bank as collateral security for the payment of this or any other liability or liabilities of ours to said bank now due or to become due, or that may be hereafter contracted, the following property, viz., one hundred and eighty shares of the capital stock of the State National Bank of Vernon, as evidenced by certificate No. 97, 150 shares; certificate No. 98, 30 shares -- the market value of which is now $18,000."

The note contained the usual powers to sell, in case of default in payment, the securities at public or private sale, with the right on the part of the bank to become the purchaser thereof at such sale.

The note was not paid when due, and on August 1, 1893, the defendant bank notified Curtis and Thomas by telegraph that the stock would be sold on the 8th day of August, 1893. On chanrobles.com-red

Page 180 U. S. 297

August 7, 1893, it advertised in the New York papers that the stock would be sold at noon of August 8 at the public exchange in New York. The sale took place at public auction, and the stock was struck off to the defendant for the sum of $20, the defendant being the highest bidder. The defendant then paid the auctioneer the said sum of $20, and afterwards received back from him that sum less his fees. That was the place where and the way in which sales of collateral to such notes were then made in New York.

The certificates of stock at that time remained in possession of the defendant bank, but the stock was not transferred to the defendant bank upon the books of the State National Bank, but continued to stand in the name of Curtis. The defendant bank never voted upon the stock, nor received any dividends thereon.

The State National Bank suspended payment on or before July 21, 1893, and was in possession of the United States bank examiner until September, 1893, when it resumed and continued business as usual, until August 18, 1894, when it finally closed, and the plaintiff Robinson was subsequently appointed receiver.

On August 10, 1893, the Southern National Bank of New York brought an action in the District Court of Wilbarger County, Texas, against Curtis and Thomas, in which the complaint recited the fact of the sale of the collateral securities and that the proceeds of the sale, to-wit, $20, had been applied as a credit on said note, and demanded judgment for the balance of the note remaining unpaid, with interest and costs.

Subsequently, Curtis and Thomas answered, and, among other things, claimed that the Southern National Bank had taken the stock that had been placed with it as collateral by purchasing the same at the sale, that the said stock was worth the sum of $18,000 at the date of said sale, and the same so taken as said sale was in full satisfaction for said note.

They likewise filed a cross-petition in which they alleged that the sale by the Southern National Bank of the collateral stock was made improperly and in fraud of the defendants, and was a conversion of said stock to the use of said bank which operated not merely to discharge the said note, but to give the defendants Curtis and Thomas a right to be compensated to chanrobles.com-red

Page 180 U. S. 298

the extent of the difference between the amount due on the note and the amount of the value of the stock, which they averred to be $18,000.

In an amended petition, the Southern National Bank traversed the allegations of the cross-petition, denied that they had, in effect or by operation of law, taken said collateral stock in full satisfaction of said note, and alleged that said stock had always been in its possession as collateral, that it had always been ready and willing, and was ready and willing, to return to said Curtis the said stock upon payment of said note, and thereupon tendered to said defendants the said stock upon payment of said note.

Subsequently, and while these proceedings were pending, the defendants Curtis and Thomas proposed to the Southern National Bank that, if the bank would credit them with the value of the stock at the rate of sixty cents on the dollar, they would confess judgment for the balance, some $5,000. This offer was made on August 7, 1894, and on August 9, 1894, the Southern National Bank, by letter and telegram, stated that this proposition would be accepted. Nine days thereafter, the State National Bank of Vernon failed, and thereupon the Southern National Bank declined to stand by the proposal of the defendants to confess a judgment if credited with the stock at the rate of sixty cents on the dollar.

Whereupon the defendants Curtis and Thomas filed a further plea, or statement by way of cross-petition, setting up said proposition and acceptance as an accord and satisfaction, and tendering judgment accordingly for amount sued for upon credit of $10,800 being given them, and they prayed that said agreement should be carried out, and for general relief.

The case then came on for trial, and was submitted, on all questions of law, as well as of fact, to the court without the intervention of a jury. The court found that the Southern National Bank was entitled to recover on said note the sum of $16,200, principal and interest on the note sued on up to August 9, 1894, the time the agreement of compromise was entered into by and between the plaintiff and defendants; that, under said agreement said defendants chanrobles.com-red

Page 180 U. S. 299

were entitled to a credit of $10,800, and that the plaintiff was entitled to recover from the defendants the sum of $5,751, with interest thereon from date, and decreed accordingly.

The plaintiff, the Southern National Bank, was thereupon allowed an appeal to the Court of Civil Appeals of the Second Supreme Judicial District of Texas.

In that court, the judgment of the trial court was reversed, and in the opinion, the following statement was made:

"Did the compromise agreement prevent the further prosecution of the suit? Its terms were quite brief."

"August 7, 1894, one M.J. Tompkins wired appellant: 'Thomas says will confess judgment if you will allow sixty cents for stock,' to which appellant replied by letter and telegram on August 9, 1894, among other things, requesting Tompkins to say to Thomas that his proposition would be accepted. Nine days thereafter, the State National Bank of Vernon failed. Then it was that appellant, soon after learning of the failure, declined to stand to the agreement, and, through other counsel, employed about that time, sought to avoid it. When the agreement was made, the court at Vernon, though not in open session, had not adjourned for the term, and the cause was continued to the next term without any confession of judgment. When it finally came to trial, the court held appellant to the agreement, and, upon the offer of Curtis and Thomas to comply with its terms, rendered judgment accordingly, deducting $10,800 from the sum due on the note, and giving judgment for the rest."

"It is clear that there had been no conversion of the stock, as alleged by Thomas and Curtis. The sale thereof was regular, and in accordance with the terms of the contract of hypothecation, and the court so held. Besides, appellant tendered the stock in court for Thomas and Curtis, thereby waiving its right as purchaser thereof. We then have the case of an agreement on the part of a creditor to accept a judgment by confession for a less sum than is due, which agreement the creditor withdraws, and takes steps to avoid, before it had been in any respect performed or acted on by the debtor. Upon the sole

Page 180 U. S. 300

ground of such agreement on the part of the creditor and the tender of performance by the debtor, judgment for the full amount of the debt is denied. We cannot distinguish this from an ordinary case of accord without satisfaction. Tender of performance in such a case will not defeat the recovery claimed. It is manifest that the agreement was not intended to be taken in lieu of the note sued on, or any part thereof. It was the confession of judgment thereon that was to entitle Thomas and Curtis to the reduction, and not their agreement to confess judgment. It is not the case of a compromise entered into by which a pending suit is to go off the docket, and the parties look to the terms of the compromise as a substitute for the original contract and preexisting status. . . . We therefore adopt the trial court's conclusions of fact insofar as they are not in conflict with the conclusions stated above, and reverse, and here render judgment in favor of appellant against Thomas and Curtis for the full amount claimed, decreeing the bank stock to them as tendered."

In the case in the circuit court of the United States, the plaintiff, having offered in evidence the record of the case in the state courts, also offered in evidence a certificate from the Clerk of the District Court of Wilbarger County, Texas, in the following terms:

"I, W. B. Townsend, Clerk of the District Court of Wilbarger County, Texas, do hereby certify that, in the case of the Southern National Bank of New York against W. G. Curtis and W. U. Thomas, No. 688 on the docket of the said district court, the plaintiff, on the trial of said cause, tendered into court and to the said defendants the certificates of stock issued by the State National Bank of Vernon to W. G. Curtis, numbered 97 and 98 respectively, the first being for one hundred and fifty shares of the capital stock of said bank and the other for thirty shares of the capital stock of said bank, which certificates of stock were filed by the clerk of said court on the 8th day of August, 1895, and have ever since remained on file in said cause in said court, and are on file at this time; that they have never been taken away by said Curtis and Thomas, or either of them, and that Curtis and Thomas, nor any one acting for them or

Page 180 U. S. 301

either of them, have not taken said stock away, . . . and that said stock now remains on file in said District Court of Wilbarger County, Texas, as appears of record in said cause."

The plaintiff having rested, the defendant put in evidence a certified copy of the decree rendered by the court of civil appeals containing, among other things, the following:

"It is the order of this Court that the appellant, the Southern National Bank of New York do have and recover of and from the appellees, W. G. Curtis and A. W. Thomas, the sum of $15,000, with six percent interest thereon from the 20th day of January, 1893, together with all their costs in this behalf expended. And it further appearing to this Court that the said W. G. Curtis and A. W. Thomas delivered to the appellant the Southern National Bank of New York one hundred and eighty shares of the capital stock of the State National Bank of Vernon as collateral security for the note sued hereon, it is further ordered that said one hundred and eighty shares of capital stock be turned over to them upon payment of this judgment as per the tender of the appellant, and that, in default of such payment, said stock be sold as under execution, and the proceeds applied to the payment of this judgment."

The defendant bank further put in evidence two letters, dated respectively February 15 and September 27, 1894, written by the cashier of the Southern National Bank to A. W. Thomas and to R. P. Elliot attorney for Curtis and Thomas, in the following terms:

"Feb. 15th, 1894"

"A. U. Thomas, Esq."

"210 1/2 Main Street, Houston, Texas"

"Dear Sir:"

"I beg to acknowledge the receipt of your letter of Feb. 8th, and to inform you that a copy of it will be forwarded to our counsel, Mr. H. C. Thompson, with the request that he will make known to us the proposition submitted to him by you. You can rest assured that, when this is received, it will have our closest attention."

"We never had any disposition to oppress you. All that we wanted and now want is the money owed us by Mr. Curtis and

Page 180 U. S. 302

yourself. When that is paid under the terms of your note, the collaterals will be surrendered by us. We manifested in every proper way a disposition to help you, and it was only when you failed to meet us that we were forced to resort to legal measures. If you will furnish a purchaser for the stock at seventy-five or eighty cents on the dollar, the price suggested by you in a former letter, and will carry out the rest of your proposition, I should be willing to recommend to our board to accept it. The litigation must necessarily be tedious, and loss must certainly come to both of us by reason of counsel fees, costs, etc."

"I shall be glad to hear further from you."

"Respectfully yours,"

"(Signed) J. D. Abrahams, Cashier"

"New York, Sept. 27th, 1894"

"R. P. Elliot Esq."

"Attorney at Law, Vernon, Texas"

"Dear Sir: I have seen our counsel and shown him your letter of the 14th. He agrees that we ought to have a copy of the amended answer setting up an alleged compromise. As soon as that comes I will show it to him and get his opinion then."

"At present, I may say in reply to your question 'What do you want with the stock?' that we do not want the stock, and never have wanted it. We attempted to sell the stock here after default of payment of the note, as the terms of the note permitted us to do, but we virtually bid in the stock ourselves, and retained possession of it. We informed our former attorney at Vernon, and tried to impress it upon him, that we did not wish the stock, and would give the debtors every benefit from it notwithstanding the attempted sale. If we could have held the stock against the debtors, we would not have done so, and we testified to that effect in the depositions now on file in your courts. If the sale was not valid, we still held the stock under the original terms of the note, and we were from the beginning perfectly willing for our former attorney at Vernon to take that course in the courts. If the stock turned out to be worth anything, we would get the benefit of it to the extent of our claim, and any balance would belong to the debtor. "

Page 180 U. S. 303

"The fact is, our counsel here thought the attempted sale did not amount to a sale for the reason that no officer of the bank was present with the auctioneer, and that we simply hold the stock as collateral, as we did before the attempted sale. We were perfectly willing that the matter should so stand in the court at Vernon. Our attorney there seemed desirous of having the stock sent on there to be foreclosed notwithstanding the attempted sale here. We saw no use in that procedure, for if the sale here was not a sale, we had full power under the terms of the note to make such a sale here as would be absolutely valid. We got our counsel here to prepare a brief on the subject, a copy of which was sent to out former attorney at Vernon. We have since sent a copy of it to you. You will see by the authorities there cited that we have ability to make a perfect sale of the property here without going to the expense of selling it under foreclosure proceedings in Texas. Moreover, our counsel advises us that he sees no use in making any sale of the stock at all. We are in just as good position in holding the stock as collateral as we would be by holding it by legal title. Upon reflection, you will doubtless agree with us and our counsel here. We have not considered that we hold the stock under the alleged compromise, for no compromise was perfected."

"We would like to have you tell us what you think of that defense when you send us the amended answer containing it. We will then get our counsel here to give us his opinion."

"We knew nothing of the fact stated by you that Tompkins stood in with Thomas all the time. Do you think there was a conspiracy between Thomas and Tompkins to effect a compromise with us?"

"As to whether the stock will be assessed, [it] will depend upon the action taken by the Comptroller of the Currency. If the bank resumes, perhaps he will permit it to do so by reduction of capital without assessment. Nobody can form any opinion as to the probability of an assessment until it is known what action the Comptroller will take and whether the directors of the bank will be able to meet his terms."

"Very truly yours,"

"(Signed) J. D. Abrahams, Cashier "

Page 180 U. S. 304

The defendant bank then called as a witness Jesse D. Abrahams, who testified that he was cashier of the Southern National Bank of New York during the years 1893 and 1894; that he was familiar with the transactions connected with the loan to Curtis and Thomas upon the State National Bank of Vernon, Texas; that the stock was put up and sold at auction for the nominal sum of $20 and bid in by the bank; that it was never transferred on the books of the State National Bank, and, under objection and exception by the plaintiff's counsel, the witness further testified that, at the time of the sale of the collateral security and its nominal purchase by the defendant bank, it was not the intention of the officers of the bank to take title adversely to the pledgeors, but that the purpose of the sale was to make it the introduction to the suit for the amount due on the note.

The plaintiff then asked the court to direct a verdict for the plaintiff, which the court refused to do, and plaintiff excepted. The plaintiff then asked to go to the jury upon the issue as to whether the defendant was the real owner of the stock described in the complaint, which the court refused, and plaintiff excepted. The plaintiff then asked to go to the jury on the issues in the action, which the court refused, and plaintiff excepted.

In obedience to the direction of the court, the jury then rendered a verdict for the defendant, and plaintiff excepted.

The case was then taken to the United States Circuit Court of Appeals for the Second Circuit, and the judgment of the circuit court was affirmed. 94 F.9d 4. A writ of error by the direction of the Comptroller of the Currency was then allowed, and the case brought to this Court.