Hiatt v. United States

• Decision Date: 13 February 1925
• Docket Number: No. 3440.,3440.
• Citation: 4 F.2d 374
• Parties: HIATT v. UNITED STATES.
• Court: U.S. Court of Appeals — Seventh Circuit

4 F.2d 374 (1924)

HIATT v. UNITED STATES.^*

No. 3440.

Circuit Court of Appeals, Seventh Circuit.

December 18, 1924.

Rehearing Denied February 13, 1925.

James W. Noel, of Indianapolis, Ind., for plaintiff in error.

John Rabb Emison, of Vincennes, Ind., for the United States.

Before ALSCHULER, EVANS, and PAGE, Circuit Judges.

PAGE, Circuit Judge.

This is a writ of error to reverse a judgment of conviction before a jury in the District Court upon all of the 17 counts of an indictment, except the first. The offenses charged were committed while plaintiff in error was president of the Dickinson Trust Company, an Indiana corporation, and while, as charged, the trust company was a member of the Federal Reserve System.

In 1918, the Dickinson Trust Company, through the action of its board of directors, made application to purchase stock and to become a member in the Federal Reserve Bank of Chicago. The stock was received and paid for, and the trust company received the dividends thereon. While it appears that there was, in 1918, no special authority empowering the Dickinson Trust Company to become a member of the Federal Reserve System, yet, during all the time until September, 1922, neither the state of Indiana, the Dickinson Trust Company, nor any one else raised any question as to the relation.

In May, 1921, the state of Indiana bestowed upon trust companies the right to exercise the power and to possess the privileges conferred upon banks by the laws of Indiana, and all power properly incidental thereto or which might be necessary or usual in carrying on the business of banking, and also directly authorized such trust companies to become member banks in the Federal Reserve System. After the passage of the enabling act (Laws 1921, c. 20, ß 3, subd. 9) there was no change in the relations between the Dickinson Trust Company and the Federal Reserve System; the trust company continuing to function as a member bank as it had theretofore. All of the acts upon which the conviction was had were committed after the passage of the enabling act.

1. It is urged that the Dickinson Trust Company never became a member of the Federal Reserve System, because (a) under its charter, it had no power to join; (b) it had no power to purchase stock in another corporation. One of the cases most strongly relied upon by plaintiff in error is Concord Bank v. Hawkins, 174 U. S. 364, 19 S. Ct. 739, 43 L. Ed. 1007. That transaction had to do with the purchase of stock in one bank by another. The court, quoting from California Bank v. Kennedy, 167 U. S. 362, 17 S. Ct. 831, 42 L. Ed. 198, said:

"No express power to acquire the stock of another corporation is conferred upon a national bank, but it has been held that, as incidental to the power to loan money on personal security, a bank may in the usual course of doing such business accept stock of another corporation as collateral, and by the enforcement of its rights as pledgee it may become the owner of the collateral and be subject to liability as other stockholders. * * * So, also, a national bank may be conceded to possess the incidental power of accepting in good faith stock of another corporation as security for a previous indebtedness."

And such was the holding, notwithstanding the conclusion of the court in that case that there was no power in a national bank to deal in the stock of another national bank.

Subdivision sixth, par. 10, ß 4953 (5009), p. 850, Burns' Ann. Indiana Statutes (Revision of 1914), under which the trust company was organized, provided that "the directors of any such corporation shall have discretionary power to invest all moneys received by it on deposit or in trust in any such personal securities as are not hereinafter expressly prohibited." "Personal securities" means security of a personal character, as distinguished from real estate. See California Bank v. Kennedy, 167 U. S. 362, 17 S. Ct. 831, 42 L. Ed. 198, supra; Concord Bank v. Hawkins, 174 U. S. 364, 19 S. Ct. 739, 43 L. Ed 1007, supra; 6 Words and Phrases, p. 5362.

The above statutory provision directly authorizes investment in personal securities, and that right is recognized by the Indiana Supreme Court in Indiana Trust Co. Guardian v. Griffith, 176 Ind. 643, 95 N. E. 573, 44 L. R. A. (N. S.) 896, Ann. Cas. 1914A, 1023, where the suit was to compel the guardian to take out of the Griffith estate the bonds and stocks named. A demurrer was sustained to the answer, and a judgment was awarded against the guardian for $93,997.32. It appeared by the answer that there was $1,300 of the capital stock of the Indiana National Bank, $9,500 preferred stock of the Atlas Engine Works, and $3,000 of the preferred stock of Brown-Ketcham Iron Works, involved in the account. The right to invest in stocks and bonds, as such, was not questioned. The guardian was held liable, not because it had purchased stocks and bonds, but because it failed to have its purchases approved by order of the court, as provided in the statute authorizing the purchase of personal securities. We are of opinion that, so far as investment in stock of the Federal Reserve Bank is concerned, it was such a personal security as the Dickinson Trust Company had the legal right and power to invest in under the provisions of the Indiana statute.

2. The matter of affiliation between the Dickinson Trust Company and the Federal Reserve Bank, aside from the investment in stock, seems to present merely a business arrangement between the Federal Reserve Bank and the trust company, which was not made under compulsion, and was doubtless regarded as advantageous by both concerns. It was simply an arrangement made for the advancement and in the interests of the business for which the trust company was chartered. Whether there ever was a time when that arrangement might have been brought in question by the state of Indiana, it was not such an ultra vires act as made the transaction absolutely void, so that the question could be raised collaterally. Whether there might have been a time when the state of Indiana might have raised the question of the right of the trust company to become a member of the Federal Reserve System seems now a moot question, because on May 31, 1921, prior to the happening of the matters charged in the indictment, the Indiana Legislature passed the enabling act, viz.:

"Such corporations shall exercise the powers and possess the privileges conferred on banks by the laws of this state and all powers properly incidental thereto or which may be necessary or usual in carrying on the general business of banking, subject to the restrictions imposed by the laws of this state relative to a general banking business; and shall have the power and authority to purchase and hold, for the purpose of becoming a member of a Federal Reserve Bank, so much of the capital stock thereof as will qualify it for membership in such reserve bank, pursuant to an act of Congress, approved December 23, 1913, entitled the `Federal Reserve Act'; to become a member of such Federal Reserve Bank, and to have and exercise all powers, not in conflict with the laws of this state, which are conferred upon any such member by the Federal Reserve Act." Section 3, subd. 9.

The trust company thereafter continued to function as a member of the Federal Reserve Bank the same as before, carrying the stock, collecting dividends thereon, and receiving the benefits accruing from the affiliation. It was not within the power of the state, the trust company, or any one else, after the enabling act, to raise the question here presented. The enabling act was not, as urged, an amendment of the charter powers of the trust company; it was, at most, an extension of its right to enter into a relation incident to its business, the right to do which was possibly considered doubtful.

3. It is urged that there was no proof of the incorporation of the Federal Reserve Bank of Chicago or that it was one of the Federal Reserve Banks created by the act. This court, in Hill v. United States, 275 F. 187, 189, said:

"In view of the act of Congress creating the Federal Reserve Bank (38 Stat. 251), we think the court was justified in taking judicial notice of the fact that the Federal Reserve Bank of St. Louis is an association engaged in a banking business. Matter of Dunn, 212 U. S. 374, 29 S. Ct. 299, 53 L. Ed. 558; Beck v. Johnson (C. C.) 169 F. 154; Leonard v. Lennox, 181 F. 760, 104 C. C. A. 296."

In United States v. Williams, 28 Fed. Cas. 635, No. 16706, it was held that, in an indictment for the felonious possession of a forged national bank note, it is not necessary that the indictment should aver that...