Awotin v. Atlas Exchange Nat Bank of Chicago

• Citation: 55 S.Ct. 674,79 L.Ed. 1393,295 U.S. 209
• Decision Date: 29 April 1935
• Docket Number: No. 661,661
• Parties: AWOTIN v. ATLAS EXCHANGE NAT. BANK OF CHICAGO
• Court: United States Supreme Court

295 U.S. 209

55 S.Ct. 674

79 L.Ed. 1393

AWOTIN

v ATLAS EXCHANGE NAT. BANK OF CHICAGO.

No. 661.

Argued April 10, 1935.

Decided April 29, 1935.

Messrs. Edward C. Higgins and Samuel A. Ettelson, both of Chicago, Ill., for petitioner.

Mr. Daniel M. Healy, of Chicago, Ill., for respondent.

Mr. Justice STONE delivered the opinion of the Court.

This case comes here on certiorari, 294 U.S. 703, 55 S.Ct. 545, 79 L.Ed. —-, to review a determination of the Appellate Court, First District, of the state of Illinois, that respondent, a national banking association, has incurred no liability in consequence of the failure to perform its contract with the petitioner, declared by the court to be invalid because in violation of R.S. § 5136, as amended February 25, 1927, c. 191, § 2, 44 Stat. 1224, 1226 (see 12 USCA § 24).

On November 1, 1929, petitioner purchased of respondent at par thirty-five $1,000 mortgage bonds of the First National Company Collateral Trust. Contemporaneously with the purchase, and as an inducement and part consideration for it, respondent agreed in writing at petitioner's option to repurchase the bonds at maturity, at par and accrued interest. Petitioner's declaration in several counts set up, in special assumpsit, respondent's breach of the express contract to repurchase the bonds, and, in general assumpsit, the obligation of respondent to return the sum received for the bonds. Judgment of the trial court for petitioner on the pleadings, overruling the defense that the contract was ultra vires and void, was reversed by the Appellate Court, 275 Ill.App. 530, and the Supreme Court of the state denied leave to appeal.

Revised Statutes, § 5136, authorizes national banks to carry on a banking business and defines their powers. By the amendment of February 25, 1927, a proviso was added to paragraph (7), reading:

'Provided, That the business of buying and selling investment securities shall hereafter be limited to buying and selling without recourse marketable obligations evidencing indebtedness of any person * * * or corporation, in the form of bonds, notes and/or debentures, commonly known as investment securities. * * *'

It is the contention of petitioner that respondent's contract to repurchase the bonds was incidental to its authority to do a banking business and was not forbidden by the proviso, that in any case respondent is estopped to set up its invalidity, and that, even if the contract is held to be invalid, respondent is bound to make restitution of the purchase price.

1. Petitioner insists that the words of the statute, 'without recourse,' must be taken to have only the technical legal significance in which they are used to limit the liability of an indorser of negotiable paper, as meaning without liability as an indorser or guarantor of the obligation of a third party, and that respondent did not assume that form of liability by agreeing to repurchase the bonds. But when the words are read in their context, and in the light of the evident purpose of the proviso, it is apparent that they were intended to have a broader meaning and one more consonant with all the different forms of business to which the proviso relates.

The evil aimed at is concededly a consequence of either an indorsement or guaranty by the bank of the paper which it sells. Both are forms of contingent liability inimical to sound banking and perilous to the interest of depositors and the public. But the liability is the same, in point of substance and of consequences, whether it ensues from technical indorsements of negotiable paper which the bank has sold or from any other form of con- tract by which the bank assumes the risk of loss which would otherwise fall on the buyer of securities, or undertakes to insure to the seller the benefit of an increase in value of securities which would otherwise accrue to the bank. See Logan County National Bank v. Townsend, 139 U.S. 67, 11 S.Ct. 496, 35 L.Ed. 107.

The proviso was the first express recognition of the authority of national banks to engage in the business of dealing in securities (see H.R. Report No. 83, p. 3; Sen. Report No. 473, p. 7, 69th Cong. 1st Sess), and subjected the business to the limitation that it must be conducted without recourse. The limitation is expressly made applicable both to buying and selling 'marketable obligations evidencing indebtedness in the form of bonds, notes or debentures.' The words, if restricted in their meaning to the indorsement or guaranty of negotiable paper, could have no application to the purchase of such obligations, and normally would have none to the sale of bonds and debentures, which are usually negotiated without indorsement. A meaning is to be preferred, if reasonably admissible, which would permit their application, as the statute prescribes, to both forms of transactions and to all the specified classes of securities. Both the form and purpose of the statute impel the conclusion that the words were used in a broad and nontechnical sense, as precluding, at least, any form of arrangement or agreement in consequence of which the bank is obligated to save the purchaser harmless from loss incurred by reason of his purchase. See Knass v. Madison & Kedzie State Bank, 354 Ill. 554, 188 N.E. 836; Hoffman v. Sears Community State Bank, 356 Ill. 598, 191 N.E. 280; Lyons v. Fitzpatrick, 52 La.Ann. 697, 699, 27 So. 110; Greene v. First National Bank, 172 Minn. 310, 215 N.W. 213, 60 A.L.R. 814.

Respondent, by agreeing to...