Interstate Trust & Banking Co. v. Laplace

ST. PAUL, J.

On April 25, 1910, the directors of the late People’s Bank & Trust Company, acting individually but in the interest of said bank, entered into an agreement in the form of a letter addressed to, and accepted by, plaintiff, as follows:

We, the undersigned, request you to protect the stock of the People’s Bank & Trust Company by purchasing as many shares thereof as may be necessary not to exceed 1,000 shares, at a price not above par; and in consideration therefor we obligate ourselves to pay you a commission, of two and one-half per cent, per share, par value, and to pay interest on your investment at the rate of six per cent, per annum; said commission and interest to be prorated in proportion to the number of shares to be pledged as hereinafter provided; and, in order to indemnify you against any loss on account of said purchase, we severally obligate ourselves to pledge to you the number of shares in said company set opposite our several names, or a proportionate number thereof necessary to make the number of shares pledged equal fifty per cent, of the number of shares purchased by you, said shares to. be delivered indorsed in blank at your request.*

“[Sianed] Albert Laplace........69 shares

“[Signed] Sundry Other Directors

..................442 shares”

We have italicized portions of said letter, so as to emphasize the two distinct agreements which it contains; the one to pay a commission on purchases and interest on the investment, the other to pledge certain shares of stock to indemnify plaintiff against loss on such investment.

I.

The 511 shares of stock were thereupon duly delivered; and between’April 27th and May 6th plaintiff bought 664 shares of People’s Bank Stock (par value $100) at various prices ranging from 95 to 101. On May 16th plaintiff bought 32 shares at 101, and sold 10 shares at the same figure. Between May 19th and July 8th plaintiff bought 258 shares at 101. On July 25th the market dropped to 90, at which price plaintiff purchased 10 shares. Up to that date plaintiff had purchased in all 964 shares for a total of $95,161.50, of which it had sold 10 shares for $1,010.

Thus, on July 25, 1910, after which plaintiff ceased buying, it had in hand 954 shares, for which it had paid $94,151.50, and average of $98.70 per share.

Thus, also plaintiff’s purchases had kept the market for said stock steadily one point above par from May 16th to July 8th.

As the directors of the People’s Bank kept in touch with its affairs, and as they themselves were interested in the stock thereof to the extent of at least 511 shares, it is no violent presumption to assume that they were fully aware that plaintiff was purchasing the stock at 101, and doubtless quite well satisfied that plaintiff should do so ; said stock having thus been advanced 6 points above the 95 at which it stood on April 27th, when plaintiff began purchasing.

It is therefore now too late to claim .that the limit “not above par” was to apply to each several purchase and not to the average price for the whole. R. G. C. 1956.

II.

On the other,' since the object of the agreement was to protect the stock of the bank, and prices are kept up by demand and not by supply, it follows that the obligation to pay commissions and interest could apply only to such shares as plaintiff purchased and Mid. For, had the plaintiff purchased and sold, 1,000 shares, its presence in the market would have had no effect thereon; since the increased demand would have been fully offset by the increased supply. Nor was plaintiff authorized by the agreement to purchase and sell; and the reason is obvious. For the intent was that plaintiff should acquire, and especially that it should hold, 1.000 shares of stock; since there was to be an “investment,” on which the directors were to .pay interest, which of course meant an outlay of capital; and, further, it was surely not contemplated by the directors that they should nay commissions on an indefinite number of shares to be purchased, out of which 1.000 were to be held.

We therefore think that the agreement covered only the 954 shares purchased and held by plaintiff at a cost, as aforesaid, of $94,-151.50.

III.

From this certain consequences flow: The first, that the commission due by the directors was $2.50 per share (2% per cent, par value) on 954 shares, say $2,385; and, secondly, that plaintiff was entitled to hold in pledge only 477 shares (one-half of 954) out of the total of 511 shares delivered — since the directors bound themselves to pledge to plaintiff only such “proportionate number of shares (set opposite their several names, as might be) necessary to make the number of shares pledged equal 50 per cent, of the number of shares purchased (and held).” And as this defendant’s proportion of said 477 shares was as 69 to 511, it follows that plaintiff’s pledge covered only 64 shares belonging to him, being 5 shares less than the 69 which he delivered. And, accordingly, since out of the liquidation of the People’s Bank plaintiff received $12.70 per share, it follows that it collected from that source (out of defendant’s shares) $63.50 in excess of its pledge.

And since the agreement clearly shows that the directors did not bind themselves personally to indemnify plaintiff for any loss -on said shares (“on account of said purchase”), and no such claim is herein made, it follows that this defendant is entitled to credit for said amount against any sum herein otherwise found to be due by him.

,As to the commissions on purchases (and interest on investment), the agreement provides that these shall be prorated among the directors “in proportion to the number of shares to he pledged”; so that defendant’s proportion thereof is as 64 to 477. And we fix that share at $320.

IY.

As to the personal liability of the directors for the commissions and interest on investment, the agreement seems sufficiently clear to require no other need for interpretation than a reading thereof. But at all events, since the directors wanted the bank stock protected and this could not be done by selling their shares, it follows that the commission and interest were to come from some other source, and the only visible source was the personal responsibility therefor of the directors themselves.

V.

These details disposed of, we come now to the two serious and difficult questions involved. The first is, for how long were the directors obligated to pay interest on plaintiff’s outlay? The second is, do they owe interest on said interest? For plaintiff prays for such interest from judicial demand.

As the object or purpose of the contract was to protect the stock by keeping it at or near par, through purchases to be made as aforesaid, and as the parties presumably meant to bind themselves not only reasonably but also validly, it follows that they must have had in contemplation that this was something which, “by the nature of the thing” itself, was at least possible at the time the undertaking was gone into. R. O. O. 1891, 1892, 2031. But as plaintiff did not bind itself at all events to keep said stock at par, but only to purchase {and hold) ,as many shares as might be necessary to • do so, not however exceeding 1,000 shares, it follows that the possibility of keeping the stock at par was the condition on which the obligation to buy and hold depended.

This was certainly plaintiff’s interpretation of the agreement, when it ceased further buying after July 25th, the stock having then fallen to 90.

'On the other hand, the directors seem not to have complained that plaintiff did not then and there seek shelter, by throwing .upon the market all its holdings (including both purchases and pledged stock).

And our conclusion is that all parties were at that time well satisfied to let the matter stand in statu quo and await developments.

But on March 20, 1911, plaintiff purchased the portfolio of the People’s Bank and assumed liability for all its deposits; whereupon the bank necessarily ceased to be a going concern.

Then and there it became evident that the object of the agreement had failed absolutely, and each party knew that it faced an inevitable loss.

Now, an obligation to pay interest perpetually is, in effect, an obligation to pay eventually the capital sum on which that interest is based; since there is no way of avoiding further payment of interest than by paying said capital sum. See, also, R. O. O. 2796.

But since, as aforesaid, the directors assumed no personal liability as to the outlay which plaintiff was to make, it follows necessarily that they did not bind themselves for the equivalent thereof, to wit, the payment of interest thereon perpetually. Hence their liability for interest must cease at some time; and our conclusion is that it should cease, at the latest, when the directors ceased to have any further interest in the stock; which was precisely when the bank ceased to be a going concern and there could be no further hope of rehabilitating the stock.

We say it should cease then at the latest; because plaintiff, being under no obligation to suffer a loss upon its purchases beyond what might be covered by the pledged stock, was no longer under obligation even to hold the stock when it fell to 65.80 on the market; for at that figure the whole 1,431 shares (954 purchased, plus 477 held in pledge) just sufficed to cover its outlay of $94,151.50 as aforesaid; in other words, the margin was then exhausted. See, also, R. O. O. 2055. And since plaintiff had the right to get out of the market then, and (in theory at least) might have done so without loss to itself, we think the obligation of the directors to pay interest ceased at that point. But, as we said before, the parties were evidently all content to drag along, on the principle perhaps that whilst there is life there is hope, and we conclude that in all equity the directors should pay interest - to the date of the final crash, to wit, when the bank ceased to be a going concern as aforesaid.

VI.

All parties agree that the trial judge stopped the interest at that time; and it is evident from the judgment he rendered that he fixed the quantum of the interest due at that time by all the directors at $4,895.71. Taking a bird’s-eye view of this calculation, it cannot be far wrong; and it is not. challenged by either side. But we have not undertaken to verify the long calculations by which that figure must have been reached, No court is required to investigate for itself long and intricate accounts, much less an appellate court. Code of Practice, art. 443, and authorities noted in Rochl’s Edition thereof. Hence if we thought there was any serious error in the calculations, we would appoint experts to report thereon, as we have a right to do. Wilcox v. Henderson, 9 La. Ann. 347, 348; Bass v. Chambliss, 9 La. Ann. 376, 389, 390; Sigur v. Crenshaw, 10 La. Ann. 297, 298. But we will not do so in this case unless requested by the parties.

As this defendant’s proportion of this $4,-895.71 is as 64 to 477, it amounts to $656.64.

Thus defendant’s total liability is as follows :

Proportion of interest...........................$656 64

Proportion of commissions..................... 320 00

Total ...................................$976 64

Less refund on 5 shares........................ 63 50

Net amount due by this defendant.........$913 14

VII.

For the rest, plaintiff is entitled to interest'on $320 due for commissions (at least) from judicial demand as prayed for. R. C. C. 1935, 1938, 1940.

But our conclusion is, after mature consideration, that under R. C. C. 1934, interest cannot be recovered upon a sum due for interest, in the absence of an express conti'act therefor. Under what circumstances such express contract may be validly made, it is not necessary to consider now, since there was no contract to that effect made here.

VIII.

The trial judge allowed plaintiff $997.90, which under the answer to the appeal must be reduced to $913.14 as above. On the other hand, he failed to allow interest on the commissions ; which we think due.

Decree.

The judgment appealed from is therefore amended so as to reduce the amount awarded plaintiff to $913.14, and allow legal interest on $320 thereof, from judicial demand; and as thus amended the judgment is affirmed, at defendant’s cost in both courts.