Cassatt v. First Nat. Bank of W. N.Y.

• Decision Date: 16 October 1933
• Docket Number: No. 87.,87.
• Citation: 168 A. 585
• Parties: CASSATT et al. v. FIRST NAT. BANK OF WEST NEW YORK.
• Court: New Jersey Supreme Court

168 A. 585

CASSATT et al.

v. FIRST NAT. BANK OF WEST NEW YORK.

No. 87.

Court of Errors and Appeals of New Jersey.

Oct. 16, 1933.

Syllabus by the Court.

1. A national bank is without power to purchase stock in another corporation either for speculation or investment.

2. A contract or engagement of such a character attempted to be entered into is ultra vires.

3. State courts follow the construction of federal statutes as laid down by the federal courts.

4. The bank is not estopped and can successfully rely upon a plea of ultra vires, whether the contract is executory or executed.

5. There was no error in directing the judgment of nonsuit nor in the rulings upon evidence.

Appeal from Supreme Court.

Action by Robert K. Cassatt and others against the First National Bank of West New York. Judgment for defendant, and plaintiffs appeal.

Affirmed.

See, also, 9 N. J. Misc. 222, 153 A. 377; 9 N. J. Misc. 848, 156 A. 278.

G. W. C. McCarter, of Newark, for appellants.

Hirschberg & Nashel, of West New York (C. W. Tooke, of New York City, on the brief), for respondent.

The opinion of the Court was delivered by

CAMPBELL, Chancellor.

This is an appeal from a judgment of nonsuit in an action where the plaintiffs below, stockbrokers, sought to recover from the defendant, a national bank, the purchase price and their commissions, in a transaction involving the purchase by the plaintiffs of 100 shares of the common stock of the Baldwin Locomotive Works, when, as, and if issued, and 200 shares of the common stock of the Crocker-Wheeler Company, when, as, and if issued.

The complaint declares three distinct causes of action under six counts: (1) That the bank ordered the purchase of said stock for its own account; (2) that the bank ordered the purchase for an undisclosed principal; (3) that the bank is indebted to plaintiffs for stock sold and delivered and is likewise indebted to them for moneys laid out and expended for the purchase of such stock.

The answer was a general denial with separate defenses of the Statute of Frauds (2 Comp. St. 1910, p. 2610, § 1 et seq.), and that the transaction was ultra vires and therefore void.

The plaintiffs produced as a witness one Seaver, who, at the time of the transactions in question, was the manager of their Newark office.

He, at first, testified as to the Baldwin Locomotive Works stock transaction that he received the order for the purchase from Daniel Daume, the assistant cashier of the defendant bank, and that such order was to buy the stock for the bank's account. Later he said that in a subsequent conversation with Daniel Daume he was told by the latter that the Baldwin stock was for him. On cross-examination he testified that he knew that Daniel Daume had a personal account with the plaintiffs, but that when the order to purchase was given he had not directed that such purchase should be made for him and upon his account, although, said this witness, "I might have known that the stock was for him at the time of purchase." "This particular conversation was to buy one hundred shares of Baldwin Locomotive. My question is, 'Into whose name or into whose account shall I put the slock?' in other words, on the ticket that I write out, I have to put the name of an account. * * * And he said, 'The First National Bank of West New York,' * * * I believe I asked him, 'Is it for you?' and he said 'Yes.'" The witness further said that he did not look to Mr. Daume for payment, although he knew that the purchase was being made for him.

It is apparent to us, therefore, giving to this proof full credence, and it was all the proof that there was, that although the original order for this stock purchase was for the account of the bank, it was known to plaintiffs' office manager before the purchase of the stock was actually made that the order was for Daume, who has a personal trading account with the plaintiffs.

As to the Crocker-Wheeler stock purchase this same witness, upon direct examination, testified that such business was transacted with a Mr. Deyerberg, the cashier of the defendant bank, that such transaction was by telephone, and although it does not definitely appear exactly what that order was it was one to buy at a price good until canceled; that such order was held for some days and then canceled "and there was no order existing for a number of days"; that at a later date, not fixed, there was a conversation between the witness and Charles Daume, a brother of Daniel Daume, assistant cashier of the bank, and that following this the witness was given instructions by the cashier, Deyerberg, to execute the order to purchase, and the witness testified that, at some time, not fixed, Deyerberg had told him that 100 shares of this stock was for him, and the remaining 100 shares for a customer of the bank, Charles Daume. On cross-examination the witness testified that at the time the original order for purchase was made he did not know that 100 shares was for Deyerberg, but that he understood that some of the stock was for Charles Daume, and this he knew at the time of the purchase of the stock and subsequent to such purchase that 100 shares was for Deyerberg. He further testified that he could not recollect "whether the name on the original order was the First National Bank or Mr. Charles Daume." Still later he testified that either at the time of receiving the order or at the time of purchase he "knew that Mr. Charles Daume was to get one hundred shares and that Mr. Deyerberg was to get the other one hundred shares." And then immediately, upon redirect examination, he testified that upon receiving the order to purchase he was directed by Mr. Deyerberg "to put the two hundred shares of Crocker-Wheeler stock into the bank's account."

Here again it appears to us that giving this proof full credit the situation was that the plaintiffs' manager knew that the purchase was for Charles Daume and Herman T. Deyerberg, although the latter directed the transaction to be made through the bank's account.

The nonsuit seems to have been granted upon the ground, generally, that the transaction as portrayed by the proofs was ultra vires the respondent bank.

Appellants set down three grounds for reversal of the judgment, arguing them under three general points.

We will direct our attention to point three, first. Under subdivision A of this point appellant urges that, aside from the question of ultra vires, the proofs were such as to make for a contract binding upon the respondent bank, in that the order for the Baldwin stock was by Daume, the assistant cashier, approved and ratified, subsequently, by the cashier, by Exhibit P5, and that the order for the Crocker-Wheeler stock was by the cashier, Deyerberg, who by section 21 of the bank's by-laws (Ex. P6—p. 114) had authority to make and execute contracts for the bank.

This seems to be neither denied nor attacked, and, unless the contracts as established were ultra vires, would have presented sufficient proof to have overcome the motion for nonsuit.

Under subdivision B, dealing directly with the question of ultra vires, counsel for appellants, in his brief, says: "This is the great point in the case."

1. It is, beyond question, the important and controlling question.

Appellants' counsel concedes by the following: "We will commence by conceding that it is well established in law that a national bank is without power to buy stock in another corporation either for speculation or investment. National Banks are not expressly prohibited from so-doing. Merely it is the fact that such power is not conferred upon them. This has been clearly recognized and laid down by the Supreme Court of the United States in many opinions. * * *"

This admission is acquiesced in by the respondent and, in fact, must be, because such is the unquestionable holding of the federal courts.

2. But, urge the appellants, it is not in every case that it is ultra vires for a national bank "to buy stock in another corporation or to own such stock," citing the act of Congress conferring corporate powers upon such banks; title 12, U. S. Code, § 24, as amended, February 25, 1927, c. 191, § 2, 44 Statutes at Large, 1226 (12 USCA § 24).

But an examination of this act will show that the power of national banks to deal in securities is expressly limited "to buying and selling without recourse marketable obligations evidencing indebtedness of any person, copartnership, association, or corporation, in the form of bonds, notes and/or debentures, commonly known as investment securities, under such further definition of the term 'investment securities' as may by regulation be prescribed by the Comptroller of the Currency. * * *"

Appellants leave us without information as to what "definition of the term investment securities" the Comptroller has given, if any.

We assume that such definition, if any did not include highly speculative stock such as we are here concerned with. In this connection appellants cite California Bank v. Kennedy, 167 U. S. 362, 17 S. Ct. 831, 42 L. Ed. 198, to which we shall hereafter refer, but upon the point here urged we conclude it has no applicability, under the proofs in the case before us.

3. Appellants further insist that a national bank, "as an incident to its ordinary banking business, has the power to buy stocks * * * where it buys them for a customer," citing Dyer v. Broadway Central Bank, 252 N. Y. 430, 169 N. E. 635, and Block v. Pennsylvania Exchange Bank, 253 N. Y. 227, 170 N. E. 900, 901.

We think that an analysis and respectful consideration of both of these cases will demonstrate that they have no authoritative application to the question before us.

Appellants urge that these cases, supra, are controlling because under the proofs in the present case it is disclosed that the actual purchasers of the stock were Daniel Daume, assistant cashier of the respondent; Deyerberg, its cashier, who, although its officers, must be considered as...