Court Opinion

ID: 8301235
Source: CourtListenerOpinion
Date Created: 2022-10-17 11:13:05.888193+00
Date Added: 2024-06-11T16:44:20.234827
License: Public Domain

Mr. Justice "Williams
delivered a dissenting opinion as follows:
Unable to agree with the majority of the court in its ruling as to the construction of the language of the $24,400 note in relation to the indebtedness secured by certificates of stock pledged immediately as collateral thereto, the grounds of dissent shall be expressed as briefly as practicable.
This court is committed by the case of Bank v. Wood, 125 Tenn., 16, 140 S. W., 31, to the view, now generally held, that this language must receive a construction in favor of the pledgor if there be room for construction.
The identical language of the pledge for construction, or its equivalent in substance, is in comon use by the bankers of all the States of the Union, and the effect to be given to it is far-reaching.
It is the contention of the bank that the phrase in the note executed by E. B. Stahlman, “the securities hereby pledged, including additions and substitutions, shall be applicable in like manner to secure the payment of any other obligations of the undersigned whether past or future, held by the holder of this obligation,” is effective to secure a previous obligation of E. B. Stahlman and wife to take over from the bank $45,000 of the preferred capital stock of a real estate corporation; which contract ran for the long period of seven years and which further provided for its own *414security collaterals — insurance policies on tlie life of E. B. Stahlman pledged therewith..
In my view the authorities cited in the opinion of the majority amply demonstrate that the certificates of stock in the Banner Publishing Company, hypothe-cated with the $24,400 note, may not be held to await the maturity of or to secure this earlier obligation. Only two of those cases at all militate against this view, Hallowell v. Blackstone Nat. Bank, 154 Mass., 359, 28 N. E., 281, 13 L. R. A., 315, and Wilson v. Carothers (Ky.), 43 S. W., 684, and of these it may be remarked that the first was by a divided court, and is directly contrary to the later cases, and the second never reached the dignity of being officially reported.
The other cases either are colorless on the real point here in contest or plainly sustain the pledgor’s position in the instant case. The rule to be extracted from them is that the words, “other obligations held hy the holder of this obligation,” refer to obligations of like character as to makership, and as to the channel in which the paper runs — in the pending case the reference being to other obligations incurred “in the course of commercial banking” (First Nat. Bank of Omaha v. Illinois Trust & Savings Bank [C. C.], 84 Fed., 34), or obligations of a customer'to a bank in the ordinary- course of banking business (Gillet v. Bank of America, 160 N. Y., 549, 55 N. E., 292, cited'with approval by this court in Bank v. Wood, and the rulé of which is adopted as sound by Mr. Jones in his standard work on Collateral Securities [3d Ed.], sec. 361b).
*415Passing without farther comment the fact that the earlier obligation was that of Stahlman and wife and the later one that of Stahlman alone, it seems clear that the former was in no sense an obligation incurred by Stahlman as a customer in the ordinary course of commercial banking. Indeed, it is to be observed that the court in this case has itself treated the stock purchase transaction as one not free from serious question as to its being wholly nonbanking in character • — ultra vires the bank. Certainly it cannot be said to fall within the class of ordinary commercial banking transactions, and as certainly that it was not executed by Stahlman as a customer of the bank. He dealt in a distinct capacity.
It is to be noted in this connection that that contract was one that ran for a term of years, as was the case in First Nat. Bank of Omaha v. Illinois Trust & Savings Bank, supra. Let it be assumed that the $24,400 bank note had been executed in 1906, early in the life of the stock purchase contract. The holding of the majority can but mean that the hypothecated shares of stock of the'pledgor in the Banner Company would continue to be held in pledge until the end of that long term, despite the full payment to the bank of the note and a demand for their surrender. Is it a sound policy that would admit of this, for the security of a non-banking obligation? Corporate stock, which is subject to rapid fluctuations in value, should be kept as liquid as possible. It is not to the advantage of the commercial interests of a commonwealth that shares be *416tied up for years by a construction of the note contract, especially when that is not sustainable on authority.
Another angle may be presented by another assumption for test purposes: That, as is not infrequently the case, a note with similar provisions respecting collaterals has also a surety or indorser, and that at maturity the surety or indorser is compelled to pay the note. Is it fair lines for a court to read the surety that he must be denied subrogation and possession of the pledged shares after payment and until such a land stock contract has matured? It may be fair to impute to such a surety knowledge that the pledgor principal has or may have other obligations, executed by him in the course of banking as customer, outstanding to the pledgee, which are secured in priority to any right of his to subrogation; but it is going too far to hold that the surety must have had in contemplation as a part of his risk such a long-time, optional contract of purchase of shares in a real estate corporation.
It is fairly evident that the majority was not unappreciative of the hardship that would be thus involved, and they attempt an escape from it by false reasoning. It is argued in the prevailing opinion that “such right of subrogation could not be defeated by the application of the collateral on any other debts to the bank, the collaterals being pledged primarily, as we have seen, for the payment of the $24,400 note.” It is submitted that neither on reason nor by authority *417may the hypothetication he deemed to he primarily for the payment of the note as contradistinguished from the land stock contract, if the security of the latter be granted. In terms the pledged shares would he “applicable in like manner” to secure the latter and the former. Had such terms been unexpressed, the authorities are uniform to the effect that there is no such primacy or priority as between the indebtednesses or obligations so secured. Mr. Jones says on the point:
“Thus, where one was indebted to a bank for several loans made at different times, and at the times when two of the loans were obtained he pledged certain notes as collateral security under an agreement declaring, 'that for the punctual payment of this or any other sum which I have obtained, or may hereafter obtain, on loan or discount from said bank, these notes are hereby pledged and made liable, ’ ... it was held that the bank was under no obligation first to apply the security to the payment of the loan obtained when the security was given, that the language of the contract could not be construed as giving a preference or priority to any particular debt, and that the creditor had a right to apply the proceeds of the security as he saw fit.” Collateral Securities (3d Ed.), sec. 355b; Richardson v. Washington Bank, 3 Metc. (Mass.), 536, Fall River Nat. Bank v. Slade, 153 Mass., 415, 26 N. E., 843, 12 L. R. A., 131.
And the right of the surety is in such case postponed until he has paid or tendered “the whole amount of the debts for which the security was given.” Same *418authorities; Titcomb v. McAllister, 81 Me., 399, 17 Atl., 315.
At first blush the ruling in favor of the appellee on this point may be thought to be altogether favorable to banks, but it is not improbable that practical bankers may entertain a contrary view, as they bring under consideration the fact that a pledgor, who is under a long-time non-banking obligation to a bank as was appellant Stahlman cannot afford to borrow on short-time notes collateral in form from that institution, without experiencing the embarrassment of having the securities hypothecated tied.up. The tendency of the precedent will be to cause such an one to go to some other bank for his current accommodations which, as bankers know, may well mean the weaning away of the customer to the other bank. A ruling that has such a tendency, in my view, is not based upon sound policy, and as has - been seen it runs counter to the precedents.