Court Opinion

ID: 6889189
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:37:05.505946+00
Date Added: 2024-06-11T16:05:47.964573
License: Public Domain

WALLER, Circuit Judge
(dissenting).
The final decree held:
1. That there was in the possession of the new bank to the credit of the receiver of the old bank the sum of $274,707.83.
2. That the receiver of the old bank was entitled to recover from the new bank the tax savings in the sum of $191,778.55, plus interest of $22,931.47, totaling $214,710.02.
3. That the receiver was entitled to recover from the new bank as a reversal of interest charges the sum of $19,696.64.
4. The receiver was entitled to recover interest at five percent on certain sums from certain dates until paid.
The appeal was by the new bank from the final judgment making the above awards. There is before us no appeal from any previous order or decree and no cross appeal by receiver or intervenors.
The only issues involved, or that were argued orally or on brief, were:
1. Whether or not the new bank was liable to the receiver of the old bank for the savings in capital stock assessments of the new bank accruing because of the assessment of the real estate of the old bank to the new bank, the assessed value of which was deducted from the assessed value of the capital stock of the new bank.
2. Whether or not the new bank was entitled to (a) compensation and (b) prorata of expenses in administering “Class C” assets.
3. Whether, if the lower Court was in error in allowing the receiver for the old bank to recover the tax savings in the sum of $191,778.55, the decree of the lower Court was not erroneous in allowing recovery of interest on said sum.
In the absence of a cross appeal the foregoing three issues are all that remain in this case, and the following holdings in the majority opinion are without authority:
1. That the appointment of a receiver was unnecessary.
2. That “the liquidator may have forfeited its compensation and become liable in damages ex contractu if it violated its fiduciary duty and thereby unnecessarily caused the appointment of a receiver.”
3. That the Court below erred in permitting any interest at all to be computed on accounts showing assets.
4. That it was usurious and illegal for the new bank to charge interest on assets as distinguished from money loaned.
5. That the use of the word “interest” in the contract can mean only rent for the use of money, and could not include service charges for services rendered in collecting, administering, and accounting for the assets of the old bank.
*2436. That the new bank is not entitled to any fee, premium, or compensation for assuming the obligations of the old bank, but that the only consideration that the new bank received under the contract was the good will of the old bank.
7. That no charge could be made for administering “Class B” assets.
8. That the new bank was only entitled to interest on monies which it actually advanced for the payment of the liabilities of the old bank.
9. That no interest or service charge should be allowed on the $1,000,000.00 note.
None of these nine matters are properly before this Court for consideration. In the absence of a cross appeal we have no jurisdiction to pass upon any questions other than those three invoked by an appeal.
In the case of Arkansas Fuel Oil Company v. Leisk, 5 Cir., 133 F.2d 79, 81, on rehearing, this Court, speaking through Judge Holmes, said;
“Pursuant to the opinion filed herein on January 4, 1943, this court modified the judgment appealed from by increasing the amount thereof in the sum of $400. Upon petition for rehearing we are reminded that the appellee did not file a cross-appeal, for which reason the amount of the judgment should not have been increased.
“In appeals in bankruptcy, this court has appellate jurisdiction to review, affirm, revise, or reverse the judgment appealed from, both as to matters of law and fact, hut the jurisdiction thus conferred must be invoked before it may be exercised. In the absence of a cross-appeal, appellee may not attempt either to enlarge his rights under the judgment appealed from or to lessen the rights of his adversary. (Citing authorities.)” (Emphasis supplied.)1
The receiver not only did not cross *244appeal, but neither in oral argument nor in his brief has he argued anything except the issues raised on the appeal of the new bank. Neither in the final decree nor in the findings of fact and conclusions of law was there any finding of usury nor any finding that the new bank was not entitled to charge interest pursuant to the contract on the $1,000,000.00 note. It did not undertake to reform, but to enforce, the contract between the parties. The observations in the majority opinion dealing with any rulings other- than those assigned and discussed as error, and particularly when they were: (a) not based upon facts found by the Court below; (b) not appealed from; (c) not assigned as error; and (d) not discussed in the brief nor in oral argument, are beyond the call of duty and the power of this Court. It has no-jurisdiction to pass upon these questions and any observations thereon are but empty dicta.
Were the question before us, and if the Court below had found that the six per cent interest provided for in Paragraph V of the contract had been charged against this $1,000,000.00 note in addition to the interest called for by the note, I would certainly join in the holding that no further interest or charge should be allowed on this note as a “Class B” asset of the old bank. In the first place the note was (a) conditional, (b) payable to the new bank, and (c) taken to preserve the statutory liability to stockholders for which there never developed any use nor necessity. I would not know how to escape the payment of the interest called for by the terms of the note and the 'contract, particularly in view of the fact that according to the stipulation of the parties (Exhibit B, R. pages 352-3) the old bank apparently was also credited with interest on this note as a “Class B” asset. Were the question before us, I would be inclined to the view that the six per cent interest or service charge on “Class B” assets, or whatever it may be called, is in reality in the nature of a rediscount, with recourse, for the handling, renewing, collecting, bookkeeping,. and accounting for the assets of the old bank. At the same time the new bank was receiving $1,311,346.64 as interest, rediscount, and service charges, the old bank received $1,-031,692.61, as interest. (See Exhibit B, R. pages 351-355.) The discrepancy is certainly not shocking in view of the results obtained over a nine-year period. Doubtless, the receiver for the old bank realized that the issues on the question of usury were properly determined by the lower Court and did not cross appeal. At any rate, this question is not'before us.
Did I deem the question before us on appeal, I would be forced to take issue with the majority in its holding that the amendment of Paragraph V of the contract relieved the old bank from paying any charge whatsoever for the administration of “Class B” assets. This paragraph originally provided that: “* * * Party of the Second Part shall charge * * * a reasonable fee for its services in administering ‘Class B’ and ‘Class C’ assets; * *
The amendment provided that the “* * * Second Party shall charge to ‘Class C assets’ or ‘Class C assets account’ a reasonable fee for its services in administering ‘Class C’ assets only, and that the cost of administering ‘Class B’ assets falls entirely on the Party of the Second Part.”
The foregoing provisions of the contract, as originally written and as amended, referred to “a reasonable fee”, and that part of the original contract which had reference to a reasonable fee for the administering of “Class B” assets was the only part of the contract that was amended. The amendment did not change that part of the contract which provided for a charge of six per cent per annum on the “Class B” assets. In consequence, all that the amendment did was to strike out the provision that the new bank should have a reasonable fee for administering “Class B” assets, leaving the six per cent provision intact. The contract, as amended, provided that the new bank should have six per cent for administering “Class B” assets and a reasonable fee for administering “Class C” assets, and the amendment was not designed, either in words or purpose, to require the new bank to administer the “Class B” assets gratuitously.
I shall not. discuss further any matters other than those raised by the appeal, because I entertain the view that none of those nine or more matters, discussed in the majority opinion, are properly before the Court. The remainder of this discussion will be devoted to issues considered as *245properly raised by the appeal, the first and foremost of which is whether or not the lower Court was in error in decreeing that the old bank was entitled to recover $191,-778.55, with interest thereon, which principal sum the new bank saved in its capital stock taxes by virtue of the fact that it helcl the legal title to the real estate of the old bank, although it held it only as indemnity for the liability of the old bank which it had assumed.
The new bank took the real estate and other assets of the old bank as indemnification, and the new bank was merely a pledgee or trustee of the legal title; nevertheless, in the assessment of taxes on its capital stock it deducted the value of the old bank’s real estate from the book value of its own capital stock with the result that its capital stock taxes were reduced, over a period of nine years, in the total sum of $191,778.55. The lower Court found, and the majority has agreed, that this sum was in the nature of a profit or fruit derived by the new bank from the real estate of the old, and that as pledgee or as trustee the new bank should be required to account to its pledgor, the old bank, for this so-called fruit or profit from the old bank’s real estate. The premise is false and consequently the conclusion is likewise. Unquestionably, if the new bank under such circumstances had received rents, crops, or fruits from the land of the old bank it would, of course, be required to account to the owner therefor, but in the present case the savings in taxes came about as a result of a legal conclusion from an assumed fact and not from any fruit or profit from the old bank’s realty. As a result of the shrewdness of the new bank, plus the stupidity, or cupidity, of the taxing authorities, the new bank was allowed to take a deduction in its capital stock assessment to the same extent as if it had been the real owner of the old bank’s real estate. The old bank’s real estate did no smart thinking or acting and was not responsible for the stupidity, or cupidity, of the taxing authorities. The situation is not dissimilar from one where a person was able to establish a line of credit with a bank on the assumption that he was the owner of real estate of which he was merely the trustee of the naked legal title. If one, by virtue of the establishment of a line of credit on the foregoing assumption, uses the credit thus made available to make a business .profit without in any wise using the land or jeopardizing the title of the equitable owner, it is difficult to see by what process of reasoning such a profit could be considered a fruit or profit from the land, or that it should accrue to the real owner. In the present case the new -bank did not jeopardize the title to the land of which it was the naked legal trustee. It took nothing from the land. It made no actual use of the land. The transaction left the old bank,no worse off. It was injured not in the least by the transaction, but this much cannot be said for the State of Louisiana. It, and it alone, suffered, but the fact that the pledgee or trustee of the legal title evades or avoids his taxes on his own property through an erroneous assumption of fact as to an undeserved deduction does not give rise to any right in another to claim and have that which the trustee has by his shrewdness evaded and avoided in connection with his own business.
All parties seem to have proceeded on the theory that it was all right to gyp the State of Louisiana but some think it wrong to gyp the old bank.
But even if the savings were lawful, they were the result of shrewd thinking and acting on the part of the new bank, and the taking advantage of an assumed fact rather than taking fruit or profit from real estate. Fruits or profits from land arise out of tilling, grazing, leasing, or selling.
The old bank and the new entered into a written contract which the plaintiffs do not seek to avoid but to enforce. The parties were dealing at arm’s length. It is true that the new bank was the trustee of the legal title of the old bank to its real and personal property. This required the new bank: (1) to keep the property safe; (2) to keep proper records relating to this property; (3) to account for this property at the proper time; (4) to use all reasonable diligence to collect debts due the old bank; and (5) to pay its obligations. But the new bank could not compromise any claims or sell or dispose of any of the assets of the old bank without notice to the liquidating committee of the old bank. The banks agreed on all of these things. The powers of the new bank were covered by the contract. Whatever there was of trusteeship was an incident to the relationship of debtor and creditor, obligor and obligee, or principal and guarantor. Taking possession and management of the collateral and *246real property of the debtor was but an incident to the contract and the trust relationship extended only to the duty to hold the property of the old bank, collect up its debts, and pay its obligations, and thus protect itself from liability and the stockholders. of the old bank from stock assessments. These things the new bank did. The debts were paid. The stockholders of the old bank were held harmless. True it is that the new bank drove a hard bargain with the old, and that it made a profit out of the old, but the Court below found nothing wrong with this profit and no appeal was taken from his order in reference theréto. The contract contemplated that the new bank would not act gratuitously but that it should reap a profit.
The majority opinion recognizes and states that the old bank was in failing circumstances. It had lost a half million dollars in deposits in the last thirty days and in a few months prior thereto deposits had dropped several million dollars. The bank examiner had reported that its capital was impaired, and all the officers and stockholders knew this. At the time the contract was entered into the old bank was headed for destruction, and all connected with the old bank recognized that fact. Nevertheless, the majority holds that the new bank agreed to become liable for all the deposits and other obligations of the old bank for no other consideration than the good will of a failing bank and the pledge of every asset it possessed. Notwithstanding the contract provision for the payment of 6%, the majority, interpreting the contract, says: “Appellant did not stipulate for and is not entitled to any fee, premium, or commission for assuming the obligations of the old bank. This was the consideration moving from appellant to the old bank for the good will of its business and the pledge of every asset it possessed. This was the only consideration that the old bank and its stockholders received under the new contract. Fees, interest, and expenses for the new bank were repeatedly mentioned in the contract, but these items were subordinate to the great main considerations moving the parties to its execution: the old bank obtained an absolute guarantor of its obligations; the new bank obtained an established banking-business with millions of deposits, and was given security for every debt it assumed.”
The term “six per cent interest on ‘Class B’ assets” is, of course, inapt. Certainly interest is rental paid, or to be paid, for the use of money, but the contract here on its face shows that it is not interest for the use of money, but that it is in the nature of a rediscount and a banking service charge for collecting, renewal, bookkeeping, supervision, and overhead necessary to handle these assets for the old bank. The fact should also not be overlooked that the organizers of the new bank took a tremendous risk. It is a matter of common knowledge that banks were falling like leaves in Autumn at about this time, and I can find no support in the contract, in the evidence, nor in reason, for the majority view that the good will of a failing bank, with rapidly dwindling deposits, $4,000,000.00 of which were withdrawn during the first few weeks after the change, was all the consideration that was to flow to the new bank for handling these “Class B” assets over a period of nine years, during which the interest collected and paid to the old bank was within $33,000.00 of the total charges made against it in the handling of these assets.
Counsel for the appellee make no such contention in regard to the 6% charge. On page 5 of their brief is found this statement: “At the trial of the case counsel for plaintiff stated to the court that, while still of the opinion that the charges for so-called interest were grossly excessive, they could find no adequate legal basis for relief from the express provisions of the contract with respect thereto. While, as noted above, the lower court described the contract as a harsh one, it directed no change in the accounting with respect to the compensation already received by the new bank. No cross appeal has been filed.”
The majority puts the lower Court in error for not doing that which counsel stated frankly they advised the lower Court there was no legal basis for doing. Again, on page 32 of the brief of counsel for the old bank, it is admitted that the contract provided for six per cent to be paid on the “Class B” assets. Counsel for the old bank say: “It is difficult to see how any contention in support of that claim could' be made because (a) the contract as amended (R. 25) expressly prohibited any additional charge for the liquidation of Class B‘. assets beyond the extremely liberal compensation already provided for through the operation of a so-called interest charge of 6% per annum on Class B assets, * *
*247Again, on page 37 of the brief of counsel for the old bank, is found this language in recognition of the right of the bank to charge the six per cent: “Under paragraph V of the agreement of December 3, 1932, the new bank was entitled to make a so-called interest charge of 6% per annum on daily balances on all Class B assets, and was also to be entitled to ‘a reasonable fee for its services in administering Class B and Qass C assets’ (R. 18, 19). Following a meeting of the stockholders of the old bank held on January 10, 1933, these provisions of the original contract were amended so as to provide that the new bank should be entitled to charge only a reasonable fee for administering Class C assets and that the cost of administering Class B assets should fall entirely on the new bank (R. 25). This change was obviously made because it was recognized that the so-called interest charge of 6% per annum on Class B assets would constitute full compensation for all services in liquidating such assets. While this charge was denominated in the contract as an interest charge, in effect it was a liquidation charge.” (Emphasis added.)
Of course the old bank did not cross appeal because of the allowance by the lower Court of that which counsel for the old bank admitted was proper under the contract when they, referring to the 6% service charge, stated to the lower Court at the beginning that “they could find no legal basis for relief from the express provisions of the contract in respect thereto.” It is a universal rule that the lower Court will not be put in error when the errors complained of were not seasonably called to the lower Court’s attention, but here the majority is putting the lower Court in error not for alleged errors that were called to the Court’s attention but for something over which all parties below were in accord, and which had the express approval of the appellee. Counsel for the appellees, being lawyers of outstanding ability and integrity, have not here urged that which the majority seeks to force them to accept, but they have with great circumspection realized that they took no cross appeal, and that, in fact, a cross appeal from a ruling made with their consent and advice would ordinarily meet only rebuke.
There are only three issues on this appeal, and they are stated on page 7 of the appellant’s brief, to-wit:
“1. The claim that the defendant bank is liable for what is asserted to constitute profits growing out of the operation of the assessment of real estate of the old bank to the new bank;
“2. The denial to the new bank of charges against ‘Class C’ assets
(a) for services in administering them;
(b) for a prorata share of expense in administering them;
“3. The matter of interest.”
Since I believe that Issue No. 1 relating to the profits out of taxes should not be resolved in favor of appellee, it necessarily follows that Issue No. 3, relating to interest on such saving, should likewise not be allowed to appellee. I think that Issue No. 2 was correctly decided by the lower Court except that the new bank was entitled, perhaps, to the nominal compensation of $1.00, or the like, for administering “Class C” assets.
(1) The new bank took all the risks of loss in assuming the liability of a failing bank. (2) The security it took was only the assets of a failing bank, the capital of which was impaired. (3) The new bank, while taking the 6% charge in the amount of $1,311,000.00, paid to the old bank interest in a sum only $33,000.00 less. (4) By virtue of the assets being administered by a going bank an actual profit was realized to the old bank, and the million dollar note which the old bank put up to balance assets with liabilities, by reason of improved business conditions and good management, was not required to be paid. Assets were made to exceed liabilities.
It is true the new bank appealed from the judgment, but it did not appeal from any judgment that held that the 6% was usury or ordered the restoration of that 6% to the plaintiff, and such question is not now before this Court. We may concede that there was an element of trust in the obligation of the old bank to the new and still the old bank would not be entitled to recover the taxes which the new bank had saved when in doing so it had in nowise invested, jeopardized, or actually used any of the assets of the old bank. Conceding that a relation of trust existed, the duty thereunder did not require the new bank to chisel the State of Louisiana out of its taxes for the benefit of the old bank.
But even if we assume, as has heretofore been assumed by all concerned, that *248the arrangement for the saving on the capital stock tax of the new bank was lawful, and if we assume another fact which is not true, that the saving was the product or fruit of the land of the old bank, it would still be difficult to determine why the old bank would be entitled to all of the so-called profit or fruit.
The assessed value of the capital stock of the new bank and the assessed value of the real estate of the old bank, like Siamese twins, were inseparably, though artificially, bound together, even though their separate growths were in inverse ratio, since the greater the value of the assessed real estate the less would be the assessed value of the capital stock. It was the bringing of the real estate of the old bank and the capital stock of the new into juxtaposition in an assumed relationship, together with the shrewdness of the new bank, that brought about the savings. The real estate standing alone could never have had any connection, or relation, to these savings except in the identical situation where the combining of two properties into an assumed composite whole resulted in a tax saving. By a partnership of property, as it were, or an association of properties, or a compounding of elements, benefit accrued. Neither by law nor by contract is it provided that the entire benefit should go to one as against the other, nor that one might be treated inequitably or prejudicially. The Court will not project into the arrangement a result neither intended by the parties, implied by law, nor justified by equity. Whether the $191,778.55 be considered as a profit or a saving, it arose out of the conjunction of separate properties in their taxable relation to each other, and if the old bank has any right whatsoever in such savings, which I hold it did not have, it should have a right only to have the savings prorated in each of the years in the proportion that the value placed on the real estate and the value placed on the capital stock bore to the valuation that the capital stock in the new bank’s return would have had had there been no deduction of the value of the old bank’s real estate.
Under the contract the new bank was entitled to at least nominal compensation for administration of “Class C” assets, but in view of the large profits which it has received I am of the view that its compensation should have been only nominal.
On the record here it does not clearly appear that the lower Court was in error in refusing to allow defendants to recover a pro-rata share of the expenses in the administration of “Class C” assets.
That part of the order of the lower Court allowing the receiver to recover the tax savings of $191,778.55, together with interest in the sum of $22,931.47, should be reversed and set aside. That part of the Court’s order refusing to allow compensation for the administration of “Class C” assets should be set aside and nominal compensation awarded. In all other respects the decree of the lower Court should be affirmed.

 The holding in this case is supported by decisions of this Court in Moller v. Herring, 5 Cir., 255 F. 670, 3 A.L.R. 624; Building & Loan Association of Dakota v. Logan, 5 Cir., 66 F. 827; Pauly Building & Manufacturing Co. v. Hemphill County, 5 Cir., 62 F. 698. It is sustained by the decisions of the Supreme Court of the United States in United States v. Black Feather, 155 U.S. 180, 15 S.Ct. 64, 39 L.Ed. 114; The Stephen Morgan, 94 U.S. 599, 24 L.Ed. 266; New Orleans Mail Company v. Elanders, 12 Wall. 130, 79 U.S. 130, 20 L.Ed. 249; Alexander, Collector of Internal Revenue v. Cosden Pipe Line Company, 290 U.S. 484, 54 S.Ct. 292, 78 L.Ed. 452, and numerous eases cited.
In Cochran et al. v. M. & M. Transport Co., 1 Cir., 110 F.2d 519, 523, it was held that in a case where the judgment grants a litigant only part of the relief sought and denies the rest, the aggrieved party may appeal or cross appeal, but that if he fails to do so he can be heard only in support of the judgment as rendered, stating: “Such judgment becomes res adjudicata as to issues decided against him.”
In Morley Const. Co. v. Maryland Casualty Co., 300 U.S. 185, 191, 192, 57 S.Ct. 325, 327, 81 L.Ed. 593, the court said: “Without a cross-appeal, an appellee may ‘urge in support of a decree any matter appearing in the record, although his argument may involve an attack upon the reasoning of the lower court or an insistence upon matter overlooked or ignored by it.' United States v. American Railway Express Co., 265 U.S. 425, 435, 44 S. Ct. 560, 564, 68 L.Ed. 1087. What he may not do in the absence of a cross-appeal is to ‘attack the decree with a view either to enlarging his own rights thereunder or of lessening the rights of his adversary, whether what he seeks is to correct an error or to supplement the decree with respect to a matter not dealt with below.’ Ibid. The rule is inveterate and certain. Canter v. American Insurance Co., 3 Pet. 307, 318, 7 L.Ed. 688; Chittenden v. Brewster, 2 Wall. 191, 196, 17 L.Ed. 839; The Maria Martin, 12 Wall. 31, 40, 41, 20 L.Ed. 251; Field v. Barber Asphalt Co., 194 U.S. 618, 621, 24 S.Ct. 784, 48 L.Ed. 1142; Landram v. Jordan, 203 U.S. 56, 62, 27 S.Ct. 17, 51 L.Ed. 88; Union Tool Co. v. Wilson, 259 U.S. 107, 111, 42 S.Ct. 427, 428, 66 L.Ed. 848; Peoria & Pekin Union Ry. Co. v. United States, 263 U.S. 528, 536, 44 S.Ct. 194, 197, 68 L.Ed. 427; Langnes v. Green, 282 U.S. 531, 538, 51 S.Ct. 243, 246, 75 L.Ed. 520; Alexander v. Cosden Co., 290 U.S. 484, 487, 54 S.Ct. 292, 293, 78 L.Ed. 452. Findings may be revised at the instance of an appellant, if they are against the weight of evidence, where the case is one in equity. This does not mean that they are subject to like revision in behalf of appellees, at all events in circumstances where a revision of the findings carries with it as an incident a revision of the judgment. There is no need at this time to fix the limits of the rule more sharply. ‘Where each party appeals each may assign error, but where only one party appeals the other is bound by the decree in the court below, and he *244cannot assign error in the appellate court, nor can he be heard if the proceedings in the appeal are correct, except in support of the decree from which the appeal of the other party is taken.’ The Maria Martin, supra.”