Metropolitan Trust Co. v. McKinnon

HAND; District Judge (after stating the facts as above). Only two questions arise in this case: First, whether the bank had the immediate right of possession to 1,000 shares of stock; and, second, whether it has estopped itself as against the trust company. As the learned judge at trial directed a verdict, the plaintiff in error is entitled to the most favorable construction possible of all the testimony. There appears to be no basis in the bill of exceptions for the statement in the brief of the defendant in error that both sides requested the direction of a verdict. Of the 1,000 shares pledged with the trust company, Heinze undoubtedly owned one half, subject to the pledge, and either Morse or the bank owned' the other half. The question, then, is, in whom legal title to that other half was vested, Morse or the bank? All the purchase price came from the bank’s treasury, although it is true that, in order to preserve the color of legality for the transaction, notes of equal amount were exchanged between the Van Norden Company and the bank; which were subsequently canceled without payment; but title at law.depends upon intention, not equity and it does not fol [849] low that Morse did not hold title to the shares, even if it were subject to a resulting trust. However, there was no question of fact before the court as to the character of Morse’s holding, because, before the purchase, he had announced that he would make it on behalf of the bank, and subsequently he informed the other directors that he had purchased it for the bank. Rater he turned over HO shares to the bank, and gave it a letter authorizing it to receive the rest of the stock, together with Heinze’s. Upon the trial he acknowledged that he had meant to turn over the stock to the bank upon the payment of Heinze’s note. Morse’s possession of the certificates was therefore clearly intended, when he took them, to be as agent for the bank, and the title to the 500 shares of stock vested in the bank, whatever Morse may now claim. Morse, however, pledged these certificates with the trust company along with Heinze’s shares, for $150,000, and the question then arises whether, upon tender, the bank could demand, not only its own shares, but Heinze’s shares. Concededly the bank had no interest in Heinze’s shares, except that it would not obtain its own without tender of the principal and interest of the whole loan, since the trust company had the right to retain possession of all the shares until the loan was paid. Must it, then, having paid the loan, leave with the bank Heinze’s shares for the bank to turn over to Heinze? Or could it subrogate itself to the pledge of the bank as against Ileinze’s shares, in order to release its own? I think there can be no doubt that it could. In paying the loan the bank was not a mere intermeddler. It was protecting its own property, and that it could not do, except by releasing Heinze’s shares. Being wrongfully put in this position by one of its own agents, it was not a volunteer, and it might demand of the trust company Heinze’s shares, and hold them under the same pledge as the trust company itself enjoyed. If this be true, then, upon tender of the full amount it was entitled to the possession of all of the collateral; one half as owner, and the other as substituted pledgee. The plaintiff in error makes two objections: First, that the purchase of National Bank shares by the bank was ultra vires; the second, that the bank is estopped. It is undoubtedly true that the purchase by the bank was ultra vires (California Bank v. Kennedy, 167 U. S. 362. 17 Sup. Ct. 831, 12 L. Ed. 198; Concord First National Bank v. Hawkins, 174 U. S. 364, 19 Sup. Ct. 739, 43 L. Ed. 1007; First National Bank v. Converse, 200 U. S. 425, 26 Sup. Ct. 306, 50 L. Ed. 537); and it is also true that the obligation of an ultra vires contract is void, whether executed or executory (De La Vergne v. German Savings Institution, 175 U. S. 40, 20 Sup. Ct. 20, 44 L. Ed. 65). So there is no question but that, if the bank had sued the sellers or Gilbert for the shares of stock, even after the payment by Morse, it could not have recovered on the obligation; but in this case the bank did not need to avail itself of any obligation whatsoever. When Morse got the certificates, he took them as agent only, as 1 have said, and his intention was that the title pass from Gilbert directly to the bank, for whom he merely received custody. To succeed, the plaintiff in error must assert that, because the bank’s title arose from the per [850] formance of an ultra vires contract, therefore it never got title. This is wrong, for two reasons: First, because an ultra vires contract is not forbidden by law, but simply not authorized; second, because it makes no difference, anyway, to the passage of title, whether or not the parties are engaged in an illegal enterprise, provided they intend title to pass and perform the requisite formalities. While the law will not compel by its sanctions the performance of acts promised by contract, but forbidden by law, it does not change the effect of the civil acts of persons merely because they are engaged in violating the law. These acts continue to have the usual consequences. So much for the first objection. As to the second, the trust company does not show that it acted upon the bank’s repudiation of the transaction by the letter of November 27, 1907. If so, there was no estoppel in pais, and the bank might repent of its repudiation and subsequently make a tender, which it did. There was therefore no question for the jury, and the judgment should be affirmed.