Case Name: THOMAS v. GILBERT
Court: Oregon Supreme Court
Jurisdiction: Oregon
Decision Date: 1909-04-30
Citations: 55 Or. 14
Docket Number: 
Parties: THOMAS v. GILBERT.
Judges: Mr. Justice Slater, being one of the petitioners, did not sit in this case nor take any part in its decision.
Reporter: Oregon Reports
Volume: 55
Pages: 14–37

Head Matter:
Argued March 23,
decided April 30,
rehearing denied November 15, 1909.
THOMAS v. GILBERT.
[101 Pac. 393; 104 Pac. 888.]
Pledges—Sale op Pledged Securities—Purchase by Pledgee.
1. Where a pledgee of property purchases it at a sale made by him, by his authority or under his direction without the pledgor’s consent, the sale is voidable, and the pledgee may be required to account for the property and deliver it on payment of the debt. The incapacity of the pledgee to purchase at his own sale applies to a general partner of a firm holding the property in pledge.
Pledges—Sale op Pledge—Paramount Lien—Purchase by Pledgee —Validity.
2. Purchase of pledged property by the pledgee at a public auction under a paramount lien is only voidable and may be ratified by the pledgor’s accepting the proceeds of the sale as a credit on the indebtedness with full knowledge of the facts.
Banks and Banking—National Banks—Impairment op Capital— Decision op the Comptroller.
3. The decision of the Comptroller of the Currency that the capital stock of a national bank is impaired is conclusive on the stockholders of the bank and on the courts; the bank having no alternative but to make good the impairment or liquidate.
Pledges—Sale of Pledged Securities—Purchase by Pledgee—Ratifi- . cation—Rights op Creditors—-Laches.
4. When a receiver was appointed for an insolvent, certain Rational bank stock belonging to him was pledged for an indebtedness. The capital of the bank had been impaired, and the Comptroller had ordered its restoration requiring an assessment of 60 per cent., or that the bank close. An assessment was levied, which was a paramount lien on the stock, whereupon the pledgor’s receiver applied for instructions as to whether he should pay the assessment, and was directed not to do so. The stock was thereupon sold for nonpayment of the assessment and purchased individually by one of the general partners of the pledgee firm, who thereupon successfully managed the bank until within five years the stock became worth $150 a share. The pledgees the next year after the sale offered to pay the receiver $600 for a transfer of all the pledgor’s equity in the pledged securities, which offer the receiver at the court’s-direction accepted, and four years thereafter the insolvent’s general creditors applied to compel the purchaser to transfer the stock to the receiver on the ground that the sale was void. Held; that the creditors having made no attempt to repudiate the transaction for five years, and the receiver representing the pledgor and creditors having acquiesced therein, there being no fraud in the sale, it was not subject to vacation.
Banks and Banking—National Banks—Assessment to Restore Impaired Capital—Requisites.
5. Rev. St. U. S. § 5205 (U. S. Comp. St. 1901, p. 3495), requiring every national banking association whose capital is impaired to pay, within three months after notice from the Comptroller of the Currency, the deficiency in the capital by assessment on the shareholders, and providing that, if any shareholder neglects to pay after three months’ notice, his stock shall be sold after 30 days’ notice, etc., gives the shareholders three months in which to pay an assessment to restore impaired capital, and the three months’ time must elapse, accompanied by a neglect to pay, before a sale of the stock can be legally ordered. (Per Mr. Justice King, dissenting.)
Banks and Banking—National Banks—Assessment to Restore I mpaired Capital—Re quis ites .
6. The three months’ time prescribed by Rev. St. IX. S. § 5205 (IX. S. Comp. St. 1901, p. 3495), before the making of an order for the sale of national bank stock for nonpayment of an assessment to restore impaired capital, is a jurisdictional prerequisite, and a sale made pusuant to an order made before the expiration of the three months’ time is absolutely void, and the inadequacy of the notice of assessment is not a mere irregularity, which may be waived, or to which laches may apply. (Per Mr. Justice King, dissenting.)
Courts—Jurisdiction of Person.
7. The time required to give jurisdiction of a nonresident and sale of attached property under judgment procured thereby, or to give a right to any officer or tribunal to make an order for a sale under either of these circumstances, is a jurisdictional matter. (Per Mr. Justice King, dissenting. )
Banks and Banking—National Bank Stock—Assessments—Sales for Nonpayment—Validity.
8. Where a sale of national bank stock for nonpayment of an assessment is void because of the insufficiency of the notice of the assess ment essential under Rev. St. U. S. § 5205 (IT. S. Comp. St. 1901, p. 3495), to the jurisdiction to order the sale, no title passes at the sale, and nothing on which laches may operate or cure, and nothing in which to acquiesce or ratify. (Per Mr. Justice King, dissenting.)
Banks and Banking—National Bank Stock—Assessment—Sales for Nonpayment—Validity.
9. Where a sale to the pledgee of national bank stock for nonpayment of an assessment to restore impaired capital was void, because of the inadequacy of the notice of assessment, laches in instituting a suit to avoid the sale by the receiver of the insolvent pledgor or his creditors could not begin to run until after the claim of the pledgee had been satisfied in “full. (Per Mr. Justice King, dissenting.)
Banks and Banking—National Bank Stock—Assessment—Sales for Nonpayment—Validity.
10. In 1901 pledged national bank stock was sold to the pledgee for nonpayment of an assessment to restore impaired capital. The sale was void because of the inadequacy of the notice of the assessment. The pledgor was insolvent, and in 1902 the pledgee presented to the pledgor’s receiver a verified claim for the balance due. 'The claim recited that the stock had been sold and that the pledgee had received nothing therefor. The pledgee’s claim was satisfied in full in 1905. Seven months thereafter a petition was filed to avoid the sale. There was nothing to show that the pledgee claimed to own the stock in his individual right by reason of his purchase, or that he claimed it at all except as collateral. The pledgee incurred no additional expense by reason of the purchase. Held, that the petition to avoid the sale was maintainable against the objection of waiver, laches, or ratification of the sale of the stock, or aequisence in the sale. (Per Mr. Justice King, dissenting.)
From Marion: William Galloway, Judge.
Statement by Mr. Justice Bean.
This is a suit by Eoscoe C. Thomas, substituted executor of the will of William Cosper, deceased, against A. T. Gilbert and others. On petition of the Schaeffer Piano Company and others for a decree requiring the defendants, Ladd & Bush, to transfer to Claud Gatch, receiver of A. T. Gilbert, certain stock previously owned by Gilbert in the First National Bank of Moscow, Idaho, a decree was rendered as prayed for and Ladd & Bush appeal.'
In April, 1901, A. T. Gilbert, doing business at Salem in this state as a banker, failed, and, in a suit brought against him by plaintiff, Claud Gatch was duly appointed receiver of his property and estate. At the time of his failure, Gilbert was indebted, in a large amount, to A. Bush and A. N. Bush, partners, doing business as bankers, under the firm name of “Ladd & Bush,” for which they held, as security, certain notes and collaterals, including 105 shares of stock owned by Gilbert in the First National Bank of Moscow, Idaho. The Moscow Bank was incorporated under the national banking act, with a capital of $50,000, divided into 500 shares of $100 each. One hundred and sixty-five of these shares stood, on the books of the bank, in the name of Gilbert, 168 were owned by the individual members of the firm of Ladd & Bush, and the remainder by other parties. The bank had, until a short time before Gilbert’s failure, been managed by himself and his brother, and when he failed a run was made on it by the depositors, whereupon the cashier telephoned to Ladd & Bush that he would be unable to keep the doors open without assistance, and Ladd & Bush furnished money and credits with which to satisfy the depositors, and the run ceased. The capital stock of the bank, however, had been very much impaired, and on the 6th of May it received notice, from the Comptroller of the Currency, that its capital stock was impaired to the extent of $30,000, and that it would be required to make up such deficiency within three months, or a receiver would be appointed to close , its affairs. In pursuance of this notice the board of directors called a meeting of the stockholders for June 15 for the purpose of levying an assessment of 60 per cent on each share of stock, or placing the bank in liquidation. The stockholders were notified of this meeting, and on the day named it was held, 473 shares being represented, either in person or by proxy, at which time it was voted that an assessment of 60 per cent be levied on the shares. Notice of this assessment was duly given to the stockholders, including the receiver; but he neglected to pay the assessment on the stock held by him, and on August 2, 1901, the board of directors of the bank ordered such stock sold at a public auction to satisfy such assessment. The sale was advertised for the 14th of the following September, and on the 11th of the month the receiver presented a petition to the court- appointing him, reciting the fact of such assessment and prospective sale, that the shares were held by Ladd & Bush as collateral security, and asking for instruction as to whether he should pay the assessment from the assets on hand belonging to the Gilbert estate or should permit them to be sold.
The oral testimony shows that, after a hearing, the court directed the receiver not to make such payment, although no entry of that kind was made of record. On the 14th the stock was sold at public auction and purchased by Mr. Bush, for the amount of the assessment, that being the highest and best bid offered therefor. The stock held by Ladd & Bush as collateral security was subsequently surrendered to the bank, and new stock issued to Mb. Bush in lieu thereof. Mr. Bush thereupon assumed active control and management of the bank, and its credit and standing were soon restored, and it has paid a dividend, for several years, on the capital stock, and such stock was, at the time of taking the testimony in this proceeding, worth about $150 per share. On the 12th of September, 1902, Ladd & Bush presented to the receiver of Gilbert a verified claim for $12,509.17, the balance then due on their claim against Gilbert, in which it is stated that the stock in the Moscow Bank, which had been pledged to them as collateral security, had been sold for an assessment levied against it, and that Ladd & Bush had received nothing therefor. Dividends were subsequently declared in the Gilbert estate and paid to Ladd & Bush, as well as other creditors, until the 9th of November, 1905, when Ladd & Bush made an offer to the receiver to receipt in full, for the balance due on their claim against the estate, and pay to the receiver $600 for the equities of the estate in the collateral then held by them, to secure the payment of such claim. The receiver reported this offer to the court and was directed by it to accept the same, and, upon the payment of $600 in money, and a receipt from Ladd & Bush in full for their claim, to sell, assign, and transfer to them all the equities of the estate in and to such collateral, which was done accordingly. Thereafter and on the 20th of June, 1906, certain of the creditors of Gilbert filed a petition, in the receivership proceedings, for a decree requiring Ladd & Bush to assign and transfer to the receiver the stock purchased by Mr. Bush at the sale made by the Moscow Bank and to pay to him the dividends received thereon. The court below rendered a decree as prayed for, and Ladd & Bush appeals.
Reversed.
For appellants there was a brief with oral arguments by Mr. George G. Bingham and Mr. William P. Lord.
For respondent there was a brief over the names of Mr. Tilmon Ford and Mr. William M. Kaiser, with oral arguments by Mr. Kaiser and Mr. Wirt Minor.

Opinion:
Mr. Justice Bean
delivered the opinion of the court.
1. The petitioners claim that the purchase of the stock by Mr. Bush, at the sale made by the Moscow Bank, was void as to the receiver and the creditors of Gilbert, because Ladd & Bush, of which firm he was a member, was, at the time, pledgee of such stock, and therefore neither the firm nor any of its members could purchase the same, and that the sale was invalid on account of irregularities in the proceedings under which it was attempted to be made; but, assuming both of these positions to be sound, we do not think that, under the facts as presented by this record, plaintiffs are entitled to the relief demanded. There is no charge of fraud or unfair dealing by Mr. Bush, or the firm of which he was a member, in the matter of the sale or purchase of the stock. The petitioners rely on the rule of law that prohibits a pledgee of property from purchasing the pledged property without the consent of the pledgor. Where the pledgee of property purchases the same at a sale made by him,-or by his authority, or under his direction, and without the consent of the pledgor, it is void, or at least voidable. It is generally held that nothing passes by such a sale, and that the pledgee still holds the property under his original lien. The title is still in him, and he is liable to account for the property and deliver it upon payment of the debt, and this inability applies to a general partner of a firm holding property in pledge: Jones, Pledges & Collateral Securities, § 635, 636; Bryson v. Rayner, 25 Md. 242 (90 Am. Dec. 69) ; Bank of Old Dominion v. Railroad Co. 8 Iowa 277 (74 Am. Dec. 302).
2. There is a real or apparent conflict in the authorities as to whether the pledgee of property can purchase the same at a sale made under a paramount lien; but, in any event, if such sale is at a public auction, after notice, it is not void, but only voidable. It may be ratified by the pledgee, and such ratification will be implied from circumstances, as where the pledgor, with full knowledge of the facts, accepts the proceeds of the sale as a credit on the indebtedness, or when the sale is made with his consent and acquiescence: Jones, Pled. & Coll. § 638; Guinzburg v. Downs Co. 165 Mass. 467 (43 N. E. 195: 52 Am. St. Rep. 525) ; Downer v. Whittier, 144 Mass. 448 (11 N. E. 585), or where conditions of the pledge or the increase in value of the pledged property have so changed since the sale as to render it inequitable or unjust for the pledgor to be permitted to disaffirm it. And an unreasonable delay after notice of the sale in redeeming the property will be regarded as an affirmance thereof: 22 Ency, 89 note; Jones, Pled. & Coll. § 637, 637b; Cook, Stock, §479; Colebrooke, Coll. § 343; Carroll v. Mullanphy Sav. Bank, 8 Mo. App. 249; Swann v. Baxter, 36 Misc. Rep. 233 (73 N. Y. Supp. 336). What constitutes such a delay will, of course, depend upon the circumstances of each case. Thus, on the sale of pledged mining stock, a delay of two months after being notified of the sale, and until the stock had largely increased in value, was held, in Hill v. Finigan, 77 Cal. 267 (19 Pac. 494: 11 Am. St. Rep. 279) to be an unreasonable delay as a matter of law, and in Hayward v. National Bank, 96 U. S. 611 (24 L. Ed. 855) four years was considered to be unreasonable.
3. Now in this case the sale and purchase was not only made with the knowledge and acquiescence of the receiver, who represented the pledgor and his creditors; but there was a delay of almost five years before an attempt was made to repudiate or disaffirm it. In the meantime the stock, which was practically worthless at the time of the sale, had largely increased in value, so that it seems to us it would be inequitable and unjust to permit it now to be disaffirmed or repudiated. The decision of the Comptroller of the Currency, as to the impairment of the capital stock of the Moscow Bank, was conclusive and final on the stockholders and the courts: Aldrich v. Yates [C. C.] 95 Fed. 80; Kennedy v. Gibson, 8 Wall. 505 (19 L. Ed. 476) ; Casey v. Galli, 94 U. S. 677 (24 L. Ed. 168), and it left no alternative to the bank but to make up the deficiency or go into liquidation. The, assessment on the stock was levied by the bank to meet the requirements of the Comptroller. Ladd & Bush, as pledgee, was under no duty to protect the stock from forfeiture or sale for nonpayment of the assessment, but as between them and the pledgor it was the duty of the latter or his representative, the receiver, to pay such assessment: 3 Clark & Marshall, Corp. § 623b, p. 1892. Fraud cannot therefore be fairly imputed to Ladd & Bush because they failed to pay such assessment.
4. The sale of the stock was made in 1901, at public auction, after due notice and with knowledge and acquiescence of the receiver of the pledgor, and of the court appointing him. At that time the Moscow bank was in a precarious condition, and the stock was not regarded of sufficient value, either by the receiver or the court, to justify the receiver in paying the assessment thereon from the funds belonging to the estate, thus reducing the-amount which would be for distribution among the creditors. The fact that the sale had been made was reported to the court by Ladd & Bush in September, 1902, and no steps were taken by the pledgor or his receiver or any of the creditors to redeem the pledged property or repudiate or disaffirm the sale. On the contrary, almost four years thereafter the receiver was authorized and directed by the court appointing him to settle and compromise the claim of Ladd & Bush against the estate, and to assign and transfer to them the equities of the estate in the collateral on the delivery to him by Ladd & Bush of a receipt in full for their claim and the payment of $600 in money. It is true the stock was not specificially included in this settlement, but it was made with full knowledge that the stock had been purchased by Mr. Bush and without asserting any claim thereto, thus substantially ratifying and affirming the purchase and, surrendering all right the estate had against Ladd & Bush on account of such stock. It was not until after this settlement, and after the stock had, under the management of Mr. Bush and his associates, largely increased in value, that an attempt was made by any one to assert any claim thereto or contend that the sale was not valid. It may be true that all the creditors of the Gilbert estate did not have notice or knowledge of the purchase of the stock by Mr. Bush, or the circumstances under which such purchase was made; but the receiver, who represented the pledgor, as well as his creditors, and the court appointing him, were advised in the premises, and their act in acquiescing in and, in effect, ratifying and affirming the sale by subsequently settling with Ladd & Bush, is binding and conclusive upon all parties interested in the estate.
Decided November 15,1909.
[104 Pac. 888.]
It follows from these views that the decree of the lower court should be reversed, and the petition dismissed. Reversed.
Mr. Justice Slater, being one of the petitioners, did not sit in this case nor take any part in its decision.