Chemical Bank v. City Bank of Portage - 160 U.S. 646 (1896)
U.S. Supreme Court
Chemical Bank v. City Bank of Portage, 160 U.S. 646 (1896)
Chemical Bank v. City Bank of Portage
Submitted January 7, 1896
Decided January 27, 1896
160 U.S. 646
By authority of the directors of a national bank in Chicago, which had acquired some of its own stock, the individual note of its cashier, secured by a pledge of that stock was, through a broker in Portage, sold to a bank there. The note not being paid at maturity, the Portage Bank sued the Chicago Bank in assumpsit, declaring specially on the note, which it alleged was made by the bank in the cashier's name, and also setting out the common counts. The bank set up that the purchase of its own stock was illegal and that money borrowed to pay a debt contracted
for that purpose was equally forbidden by Rev.Stat. § 5201. The trial court was requested by the Chicago Bank to rule several propositions of law, and declined to do so. Judgment was then entered for the Portage Bank. The Supreme Court of the State of Illinois held that the Portage Bank was entitled to recover under the common counts, and that it was not necessary to consider whether the trial court had ruled correctly on the propositions of law submitted to it. Held, that that court, in rendering such judgment, denied no title, right, privilege, or immunity specially set up or claimed under the laws of the United States, and that the writ of error must be dismissed.
This was an action of assumpsit brought by the City Bank of Portage against the Chemical National Bank of Chicago in the Superior Court of Cook County, Illinois. The declaration contained a special count upon a note signed by C. E. Braden, which it was alleged was made by defendant in that name; and the common counts. The defendant pleaded the general issue and a plea denying the execution of the note described in the special count. A jury was waived and the cause submitted to the court for trial.
Under the Practice Act of Illinois, where a trial is by the court, either party may
"submit to the court written propositions to be held as law in the decision of the case, upon which the court shall write 'refused' or 'held,' as he shall be of opinion is the law, or modify the same, to which either party may except as to other opinions of the court."
Rev.Stat.Ill. c. 110, § 42; 2 Starr & Curt. 1808.
Defendant requested the court to hold as law in the decision of the case the eight propositions given in the margin. *
Of these the court refused to hold propositions numbered one, two, three, four, six, and eight, and also proposition numbered six "if it appears that the bank, its officers knowing the facts, used the money;" and defendant excepted. The court held propositions numbered five and seven. The issues were found in favor of plaintiff and judgment entered on the finding, and, the case having been taken to the Appellate Court for the First District of Illinois, the judgment of the superior court was affirmed. 55 Ill. App. 251. And this judgment of the appellate court was affirmed by the supreme court of the state on appeal. 156 Illinois, 149. Thereupon a writ of error from this Court was sued out.
There was evidence tending to show that in 1893, the Chemical National Bank had taken some of its own stock in payment
of a debt, that Hopkins, assistant cashier, had given to a firm of brokers his note payable on call, secured by part of this stock as collateral; that the brokers procured the money on the note and paid it to the bank, the assistant cashier not getting any of it, and that after the note had run fifteen days, the holders called it in, and it was paid out of the moneys of the bank. It was then agreed between Curry, president, Braden, cashier, and Hopkins, assistant cashier, that the bank should raise five thousand dollars through a broker in Minneapolis by giving a note in Braden's name, payable to the broker and with the stock as collateral, and that, as the bank was to have the money, the note should be the bank's obligation and be paid by it. In carrying out this arrangement, the note in suit was given, being signed by Braden in his own name, and not as cashier, and made
payable to the Minneapolis broker; and fifty shares of the stock held by the bank were issued in Braden's name and attached to the note as collateral. Braden did not own this stock; received none of the money; and had no personal interest in the transaction. The note was sent to the broker at Minneapolis, who endorsed it without recourse, procured the money from the City Bank of Portage, and sent it to the Chemical National Bank. He advanced no money on the note either to Braden or the bank, did not owe Braden anything, and the note was given by Braden to him purely as a means of raising money for the bank. There was also evidence that the board of directors of the Chemical National Bank, at a meeting thereof, had authorized the president to buy stock of the bank when offered for sale at par up to $100,000, agreeing to take it as soon as they could, but that no entry of this authority was made on the bank's records; that the money obtained on Hopkins' note was used in making such a purchase; and that the stock which was annexed to the Hopkins note and to that in suit was a part of the stock purchased under these circumstances, and not part of that taken by the bank upon a debt, of all which the City Bank of Portage had no notice.
The defense was that the purchase by the bank of its own stock was illegal; that it was equally illegal for tile bank to borrow money to replace money paid out in making such a purchase; that that was what this transaction amounted to; and that plaintiff could not recover because the money was obtained and used for a purpose forbidden by section 5201 of the Revised Statutes of the United States, which is as follows:
"No association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith, and stock so purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale or, in default thereof, a receiver may be appointed to close up the business of the
association, according to section fifty-two hundred and thirty-four."
The supreme court held that the plaintiff was entitled to recover under the common counts; that it was unimportant to consider whether the superior court ruled correctly on the propositions of law requested on behalf of defendant, since they all related to the right of recovery on the note; and the court said:
"Curry, president of the Chemical National Bank, was called as a witness, and it may be inferred from his evidence, although he does not state the fact, that the bank stock procured by the bank was not taken in on a debt, but was purchased. Conceding that the Chemical National bank purchased fifty shares of its own stock, contrary to the provisions of the National Banking Act, does that unlawful act so pollute the transaction between plaintiff and defendant under which plaintiff loaned its money that the defendant may keep the money and the plaintiff bear the loss? If the facts were as claimed by counsel, they would not defeat a recovery on the part of plaintiff. The purchase of the stock and the borrowing of the money from plaintiff were two distinct transactions. In the purchase of the stock, the money used by the defendant in payment was raised on the note of Hopkins, assistant cashier. Afterwards the bank paid the Hopkins note with its own funds, and this ended the transaction so far as the purchase of stock was concerned. After this transaction was ended, the bank applied to the plaintiff for a loan of money and obtained it, placing the bank stock previously obtained in the hands of plaintiff as collateral. The plaintiff did not know where, of whom, or in what manner the Chemical National Bank had acquired the bank stock turned over as collateral, nor did it know what use that bank would make of the money loaned. Moreover, this money was not loaned by plaintiff to pay for bank stock, and, so far as appears, it was never used for that purpose. So far as appears from the evidence, there was nothing illegal in the transaction between plaintiff and defendant which resulted in the loan of $5,000. "