How an action brought in the state court shall be denominated is
for the state court to determine.
Although the common law action of deceit does not lie against
directors of a national bank for making a false statement, and the
measure of their responsibility is laid down in the National
Banking Act,
Yates v. Jones National Bank, 206 U.
S. 158, an action may be maintained in the state court
regardless of the form of pleading if the pleading itself satisfies
the rule of responsibility declared by that act.
There is, in effect, an intentional violation of a statute when
one deliberately refuses to examine that which it is his duty to
examine.
The fact that a statement of the condition of a national bank is
not made voluntarily, but under order of the Comptroller of the
Currency, does not relieve the directors from liability for false
statements knowingly made therein.
Notice from the Comptroller of the Currency to directors of a
national bank to collect or charge off certain assets is a warning
that those assets are doubtful, and to disregard such a notice and
represent the assets in a statement to be good is a violation of
the law and renders the directors making the statement liable for
damages to one deceived thereby.
The objection that an action for deceit against directors of a
national
Page 224 U. S. 74
hank was not declared in the trial court to be based on the
federal statute, and therefore defendants did not introduce
evidence applicable to such a suit but which could be omitted in a
common law action, should be raised in the lower courts; such an
objection is without merit where it appears that the issues
actually raised were broad enough to allow and require the
introduction of such evidence. A judgment cannot be reversed on the
mere suggestion that, upon some other theory than that on which the
case was tried, evidence might have been introduced which might
have changed the result.
195 N.Y. 590 affirmed.
The facts, which involve the liability of directors of a
national bank for damages caused by a false statement of the
condition of the bank, are stated in the opinion.
Page 224 U. S. 77
MR. JUSTICE McKENNA delivered the opinion of the Court.
Action against plaintiffs in error for attesting as directors a
false report, as it is alleged, of the condition of the Citizens'
National Bank of Saratoga Springs, New York, whereby the plaintiff
in the action (defendant in error)
Page 224 U. S. 78
was deceived and induced to purchase thirty shares of the stock
of the bank for the sum of $160 per share, which would have been
worth that sum had the report been true, but, on account of its
being false, he was compelled to pay 100 percent assessment on his
shares, which was required to be made by the Comptroller of the
Currency. Damages were laid in the sum of $4,800, for which, with
interest, judgment was prayed.
The action was framed in deceit under the common law, the trial
court stating that
"the defendant claims, and the plaintiff concedes, that this is
not an action to recover upon any liability stated in the National
Banking Act against a director or officer of a national bank."
And this was the ground of judgment, the trial court rejecting
the contention of defendants (plaintiffs in error) that the only
action, if any, available to the plaintiff (defendant in error) was
under the National Bank Act. The court said:
"But here the liability set forth in the complaint is not
created by statute; the action is not a statutory action. It is the
common law action to recover damages for deceit affecting the
plaintiff only, not the bank or the stockholders generally, and
must be considered as such. In the complaint, the plaintiff has set
forth a cause of action for deceit, and not a cause of action under
the statute."
The court was also of the view that there was nothing in the
statutes of the United States "that destroys the common law action
for deceit practiced by the directors of a national bank," and said
further that if the plaintiff were attempting to enforce a
liability under the statute against the directors of a national
bank, there would be a different case. Considering that the
evidence established all the elements necessary for the recovery in
an action for deceit, the court rendered judgment against
defendants (plaintiffs in error) for the sum of $4,800 and
interest.
The appellate division, where the case was carried by
defendants, and also the Court of Appeals, gave a broader
Page 224 U. S. 79
effect to the action, and decided that its requirements under
the common law of the state coincided with the requirements of the
statutes of the United States, and satisfied the measure of
responsibility of those statutes as expressed in
Yates v. Jones
National Bank, 206 U. S. 158.
"The case," the court said, "both as to pleadings and proofs, meets
the statutory requirements."
The court, however, decided that, by the realization of $97,000
of the assets condemned by the Comptroller, defendant in error's
stock was not a total loss, as found by the trial court, but had a
value of nearly $2,000, and required him to stipulate to deduct
from the judgment the sum of $2,000 and interest, in which case the
judgment so reduced was to be affirmed. The stipulation was
filed.
The judgment was affirmed by the Court of Appeals "on opinion of
Cochrane, J., in the appellate division." We shall refer to the
opinion as that of the appellate division, although it was adopted
by the Court of Appeals.
A consideration of the pleadings need not detain us long. How
the action should be denominated or regarded was for the appellate
division and the Court of Appeals to decide, and those courts,
considering the laws of the state, decided that it was the facts
pleaded, and not the technical designation of the action, which
constituted grounds of recovery, and we accept their decision.
There is nothing in the national banking laws which precludes such
view. Those laws are not concerned with the form of pleadings. They
only require that the rule of responsibility declared by them shall
be satisfied.
The attack made by the plaintiffs in error is as much directed
against the evidence as against the ruling of the court, and it is
well to consider the facts. They are stated in a general way in the
opinion of the appellate division as follows:
Page 224 U. S. 80
"The defendants [plaintiffs in error here] are directors of the
Citizens' National Bank, organized under the national bank law, and
doing business in the village of Saratoga Springs, New York. Prior
to March 1, 1904, the Comptroller of the Currency informed the
directors of the bank by letter that certain specified assets,
amounting to $194,107.02, must be regarded as doubtful, and that
immediate steps should be taken for their collection or removal
from the bank. Of such letter the defendants had knowledge. On
April 8, 1904, pursuant to a call of the Comptroller, a report of
the condition of the bank at the close of business on March 28th,
1904, made in regular form, verified by the cashier of the bank,
and attested to be correct by each of the defendants, was published
as required by law. In such report were included as a part of the
resources of the bank the doubtful assets to which the attention of
the defendants had been called by the Comptroller. The report also
stated that the capital stock of the bank was $100,000; that there
was a surplus of $50,000, and that there were undivided profits of
$13,456.75. This published report was not seen by plaintiff, but
its contents were communicated to him, and, relying on the same, he
purchased, in the early part of June, 1904, thirty shares of the
stock of said bank for the sum of $4,800. On June 27th, 1904, the
bank received notice from the Comptroller that its capital had
become totally impaired, and that the same must be supplied by
assessment upon the stockholders. Immediately thereafter such
assessment was ordered, and the plaintiff paid $3,000 on account of
the stock he had recently purchased."
All through the argument of plaintiffs in error runs the
insistence that the common law action of deceit does not lie
against the directors of a national bank, and that the only measure
of their responsibility is laid down in the national banking laws.
This is admitted. It was conceded by the appellate division as
having been established
Page 224 U. S. 81
by
Yates v. Jones National Bank, supra, and the
question in the case comes to the simple one whether the appellate
division rightly decided that the findings in the case at bar
satisfied the test of liability declared in the
Yates
case.
In that case, a broad consideration of the national banking laws
was given, and it was deduced from them that the report which ยง
5211 of the Revised Statutes required must contain a "true"
statement of the condition of the bank, and that "the making and
publishing of a false report is prohibited." These, however, it was
said, were implications, but that the liability of the directors
was fixed by the express provisions of the laws, and its extent was
measured "by the promise not to
knowingly violate, or willingly
permit to be violated, any of the provisions of'" the title
relating to national banks.
This test is the foundation of the action. The complaint charges
plaintiffs in error with actual knowledge. The allegation is with
actual knowledge. The allegation is that, when plaintiffs in error
attested the report,
"they knew the same was not correct, and was false, and said
statement was thus attested by them with the intention of deceiving
the public, and, among others, the plaintiff"
(defendant in error). And the appellate division says "[t]hat
the report was false, and known to the defendants to be false, they
do not deny, nor do they attempt to explain their conduct." This
would seem like a finding of fact of knowledge of the falsity of
the report on the part of plaintiffs in error. Indeed, in
distinguishing the case from the
Yates case, the court did
so on the ground that, in that case, "there had been a recovery
against directors without proof of
scienter, which proof
the statute requires," and added: "Such proof has been supplied in
the present case."
But, not insisting on this, let us consider the argument of
plaintiffs in error. It is that the statement was not voluntary,
having been made under the command of the
Page 224 U. S. 82
National Banking Act, and therefore an element of the action of
deceit is wanting, and that such act requires "proof of something
more than mere negligence and recklessness; nothing short of an
intentional violation will suffice."
Yates v. Jones National
Bank and other cases are cited to support the contention. The
contention goes beyond what was said in
Yates v. Jones National
Bank. The language there is
"that, where by law a responsibility is made to arise from the
violation of a statute knowingly, proof of something more than
negligence is required -- that is, that the violation must in
effect be intentional."
Not, therefore, that, as a condition of liability, there should
be proof of something more than recklessness -- not that there
should be an intentional violation -- but a violation "in effect"
intentional. There is "in effect" an intentional violation of a
statute when one deliberately refuses to examine that which it is
his duty to examine. And such was the conduct of plaintiffs in
error in this case. They had notice from the Comptroller of the
Currency that $194,000 of the items counted as assets of the bank
were doubtful and should be collected or charged off. This "was a
direct warning to them," as the trial court said, "by the bank
examiner and Comptroller, that assets to nearly twice the amount of
the capital stock were considered doubtful." They, notwithstanding,
represented the assets to be good. Such disregard of the direction
of the officers appointed by the law to examine the affairs of the
bank is a violation of the law. Their directions must be observed.
Their function and authority cannot be preserved otherwise and be
exercised to save the banks from disaster and the public who deal
with them and support them from deception.
It is further urged that it is unjust to sustain against
plaintiffs in error the view of the action entertained by the
appellate division, because they say that their defense in the
trial court was addressed and adapted to the case made
Page 224 U. S. 83
against them. "Had the action," they say,
"been considered as based upon a federal statute, there were
many matters of defense which they could have interposed to such a
charge, but which they had a right to omit, and were justified in
omitting at the time."
In specialization of this, it is said that they might have shown
their relation to the bank and the confidence they had and were
justified in having in the statements of certain of its officers,
the cashier being instanced as one upon whom they might have relied
"to prepare and correct a legal statement." And they contend that,
by such showing, they would have been acquitted of having
"knowingly violated the statute."
This contention does not seem to have been urged in any of the
courts below. It is stated in the opinion of the appellate division
that "there is no pretense by defendants that they have been
prejudiced by the theory followed in the court below." It is
somewhat late now to urge it, but, however, we think it is without
merit. There was an issue of knowledge tendered by the pleadings,
and, to sustain their side of the issue, plaintiffs in error
offered testimony of the correctness of the books, and to show that
the report was a true copy of them, as it was alleged in their
answer to be. No attempt was or is made to show why the notice from
the Comptroller was disregarded (we have seen it was known to
plaintiffs in error prior to the attesting of the report), except
that they point to the fact that $97,000 of the items mentioned by
the Comptroller were subsequently collected, and that they should
have been given time to collect the other assets. But the fact of
the false representation remains, and the assessment of 100 percent
upon the stock purchased by defendant in error, which increased the
cost of his stock $3,000.
The plaintiffs in error, indeed, are quite at pains to show that
a representation, to be actionable for deceit,
Page 224 U. S. 84
must not only be false, but must be known to be false. In other
words, to quote from their brief, "To sustain an action for deceit,
not only falsity, but knowledge of falsity of representation, must
be shown," and for this New York cases are cited. In another part
of their argument, they say actual knowledge is not necessary, but
that the action may be supported if reckless inattention has made
the injury possible.
It is manifest, therefore, that plaintiffs in error did not
refrain from showing want of knowledge because of the theory upon
which the case was tried, and such showing was obviously relevant
to support that theory and the defense that the requirement of the
national banking act had not been violated, which was their
explicit contention.
Besides, judgment cannot be reversed upon the mere suggestion
that, upon some other theory than that upon which the case was
tried, evidence might have been introduced which might have changed
the result. But we are extending the discussion unnecessarily. The
courts of New York have decided that the requirements of the local
law of deceit are identical with what we have decided are the
requirements of the National Banking Act.
Judgment affirmed.