Dyer v. Broadway Cent. Bank

• Decision Date: 07 January 1930
• Citation: 169 N.E. 635,252 N.Y. 430
• Parties: DYER et al. v. BROADWAY CENTRAL BANK.
• Court: New York Court of Appeals Court of Appeals

252 N.Y. 430

169 N.E. 635

DYER et al.

v.BROADWAY CENTRAL BANK.

Court of Appeals of New York.

Jan. 7, 1930.

Action by George R. Dyer and others against the Broadway Central Bank. From a judgment (226 App. Div. 881, 235 N. Y. S. 795) of the Appellate Division, First Department, which affirmed a judgment and order of Special Term dismissing the complaint on the ground that it did not state facts sufficient to constitute cause of action, plaintiffs appeal.

Reversed, and motion to dismiss complaint denied.

Appeal from Supreme Court, Appellate Division, First department.

Nathan L. Miller, John Godfrey Saxe, and H. Bartow Farr, all of New York City, for appellants.

Joseph J. Corn, of New York City, for respondent.

HUBBS, J.

The plaintiffs are stockbrokers, engaged in business in the city of New York. The defendant is a banking corporation organized under the laws of this state. The plaintiffs purchased certain stocks for the defendant upon its order. The original complaint alleged that the purchases were made ‘for and on account of the defendant.’ The defendant moved to dismiss the complaint for insufficiency. The motion was denied. The Appellate Division reversed the order and dismissed the complaint, but granted to plaintiffs permission to amend, 130 Misc. Rep. 842, 225 N. Y. S. 525; 225 App. Div. 366, 233 N. Y. S. 96. Thereafter the complaint was amended so as to read that ‘the plaintiffs, as brokers, at the request of the defendant, and on its promise to pay therefor immediately on delivery,’ purchased the stocks ordered, that thereafter the plaintiffs delivered part of the stocks and the defendant paid therefor, and that the defendant refused to accept and pay for the balance of the stocks. This action is to recover the loss sustained by the plaintiffs because of the defendant's breach of contract. The amended complaint was dismissed at Special Term upon motion before answer, and the order was affirmed by the Appellate Division. The basis of the decision, as stated by the Appellate Division, upon the first appeal, was that the complaint upon its face stated an illegal and void transaction.

The question for determination in this court, as stated by the learned counsel for the appellant, is, ‘May a bank in this state ever, under any circumstances, order the purchase of common stock from a stock exchange house, rendering itself liable as principal to its brokers for the purchase price?’

Upon a motion to dismiss a complaint upon the ground that it does not state facts sufficient to constitute a cause of action, ‘every intendment and fair inference is in favor of the pleading.’ Madole v. Gavin, 215 App. Div. 299, 213 N. Y. S. 529, 530;Marie v. Garrison, 83 N. Y. 14, 23. If in any aspect upon the facts stated the plaintiff is entitled to a recovery, the motion should be denied.

The position of the respondent is that the complaint herein discloses absolutely and undisputably that the transaction is not only ultra vires but illegal and void, in contravention of public policy and the statutes of the state governing banking corporations.

It is well known that many depositors in banks deal directly with their banks in making purchases of stocks on the stock exchange. In fact, it is a matter of common knowledge, and has been so recognized by this court. Central Nat. Bank of City of New York v. White, 139 N. Y. 631, 34 N. E. 1065;Le Marchant v. Moore, 150 N. Y. 209, 215,44 N. E. 770. So far as we are advised, the superintendent of banks in this state has never raised any objection to that extensive practice. In determining this case, we should not close our minds to the well-known fact that the banking business in this country has developed rapidly during the last few years to meet the ever-growing demands of business. Banks ex necessitate have been required to extend their functions and perform services formerly foreign to the banking business. Courts have taken cognizance of that fact in passing upon cases involving questions of banking law. American Surety Co. v. Philippine Nat. Bank, 245 N. Y. 116, 127, 156 N. E. 634. We are not called upon to decide whether a state bank can legally for its own account purchase and hold common stocks as a permanent investment of its capital. That question is not present on this appeal. Undoubtedly there is no express provision of the statute authorizing a state bank to purchase certificates of stock except the particular stocks specified in the statutes. Banking Law, § 106, subds. 3, 4, and 5 (Consol. Laws, c. 2).

The position of the respondent is that the enumeration in the statute of specified powers prohibits the exercise of all other powers and functions, and that a contract involving the exercise of any power or function not expressly conferred upon a bank by statute is necessarily illegal and unenforceable. The public policy of the state, expressed in statutes and judicial decisions, has treated banking as a business involving elements of trust and confidence. The state has limited the field of activities of banks and prescribed limitations upon the nature of their investments in an endeavor to make them and keep them financially safe and sound. Courts should be zealous to maintain the standards of safety which have been demonstrated to be essential for the continued safety of such institutions. On the other hand, care should be exercised not to cripple them and break down their usefulness by a narrow and unreasonable construction of the statutes which will result in unwisely limiting their usefulness in the transaction of business under modern conditions. Whiting v. Hudson Trust Co., 234 N. Y. 394, 406, 138 N. E. 33, 25 A. L. R. 1470.

Section 106 of the Banking Law defines the general powers of banks, which are ‘in addition to the powers conferred by the general and stock corporation laws.’ Subdivision 1 grants to banks the power of loaning ‘money on real or personal security’; also ‘all such incidental powers as shall be necessary to carry on the business of banking.’ Subdivision 7 grants the power ‘to receive * * * upon deposit for safe-keepiing * * * stocks' and other valuable securities. Section 13, subd. 1, of the General Corporation Law (Consol. Laws, c. 23) provides: ‘A corporation shall not possess or exercise any powers unless given by law, or necessary to the powers so given.’ Under the express...