Brown v. Ohio National Bank , 18 App. D.C. 598 ( 1901 )

Mr. Justice Shepard

delivered the opinion:

1. Rule 73, enacted by the Supreme Court of the District under power conferred by statute, provides that where the plaintiff has accompanied his declaration with the required affidavit, the defendant, in order to prevent judgment on motion, must file, “ along with his plea, if in bar, an affidavit of defense denying the right of the plaintiff as to the whole or some specified part of his claim, and specifically stating also, in precise and distinct terms, the grounds of his defense, which must be such, as would, if true, be sufficient to defeat the plaintiff’s claim in whole or in part.”

Many cases have been determined by us on appeal, involving in one form and another the application of this rule; and, whilst the facts and circumstances of particular cases differ so that the decision of one cannot afford a certain rule for the determination of another, yet some principles have been well settled that have general application in all. Some of these may be appropriately stated, preliminary to the consideration of the several points of defense that are claimed to appear in the appellant’s affidavit, and are presented as grounds for the reversal of the judgment.

The rule deprives a party of his ordinary right of jury trial and should be strictly interpreted as regards to the affidavit of the plaintiff, and broadly and liberally construed as regards the counter affidavit of the defendant. Lawrence v. Hammond, 4 App. D. C. 467; Gleason v. Hoeke, 5 App. D. C. 1, 5.

The affidavit of defense is not the substitute for a special plea, and need not be drawn with such precision as to meet technical objections that might be urged; but, at the same time, it must allege facts indicating with reasonable distinctness and precision a substantial legal defense, and sufficient to satisfy the court of the good faith of the defendant. Cropley v. Vogeler, 2 App. D. C. 28, 32; Bailey v. District of Columbia, 4 App. D. C. 356, 370; Gleason v. Hoeke, 5 App. D. C. 1, 7; Strauss v. Hensey, 7 App. D. C. 289; Pumphrey v. Bogan, 6 App. D. C. 449, 451.

“ If there be nothing in the general statement of the facts of the defense to indicate or suggest evasion or studied uncertainty of allegation or denial in matters susceptible of clear and precise statement; and if it appear by any reasonable or fair construction that the facts so generally stated would constitute a defense to the plaintiffs action, in whole or in some part, the constitutional right of trial by jury must be accorded.” St. Clair v. Conlon, 12 App. D. C. 161, 163. See also Magruder v. Schley, 17 App. D. C. 227, 231.

1. The first proposition in support of the sufficiency of the affidavit is, that the note represents a loan of money by a national bank upon the security of its capital stock, in violation of the express prohibition of Section 5201, R. S. U. S., which reads 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 the 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 5234.”

We do not find that the statement of the transaction shows a loan of money by the plaintiff upon the security of shares of its capital stock owned and held by the defendant. On the contrary, it appears that the defendant purchased the stock from the bank, chiefly upon credit, and executed his note for the purchase money, leaving the stock in the possession of the bank as security for the payment of the note. The affidavit states that the bank had, in some way, come into possession and ownership of shares of its own stock of the face value of $20,000, which it undertook to resell.

;In the absence of proof to the contrary, even if the same would be admissible, this ownership was presumably acquired under the permission of the foregoing section, and having been so acquired it was the duty of the bank to resell the same within six months at public or private sale. There is nothing -in the law that would prevent, or punish, a private sale upon credit with the retention of the stock as collateral security, provided the transaction be, in good faith, what it purports to be.

In this view of the substantial effect of the allegation of the affidavit of defense, it becomes unnecessary to discuss the interesting arguments, or review the various decisions relating to the effect of section 5201 upon loans made in violation of its terms.

3. The next ground of defense is the failure of consideration of the note, and must be determined by the following facts which appear substantially in the affidavit.

The bank had been organized under the laws of the United States and was a “going concern” on December 29, 1896, when defendant purchased ten regular shares of its capital stock, paying $90 in cash and executing his note for the remainder due in ninety days. This note was renewed from time to time until October 28, 1897, the date of the note in suit. The bank went into liquidation December 31, 1897, and “has since paid all of its obligations to its depositors and other creditors, but no final settlement of its affairs have been made so far as the shareholders are concerned, although various efforts have been made on the part of the shareholders to obtain a final settlement of the bank’s affairs.”

The motive of the purchase was the representation to defendant by an unnamed “ agent of the plaintiff ” who, he says, “ represented to me that it was the desire of those in charge of the affairs of said bank, namely, certain officers of said bank, who owmed or controlled a majority of its capital stock, to make certain changes in its board of directors by-electing certain residents of the District of Columbia as members of the board in place of certain nonresidents, it being believed it would be to the interests of the bank to do so. It was also represented to me that I would be elected a member of said board of directors if I would purchase ten shares of the capital stock of the bank.”

The remaining relevant statement under this point is:. “ I also aver on information and belief and expect to prove at the trial that at the time I was induced to purchase the said shares of stock in question in the manner aforesaid, the said shares were of no money value (although I was ignorant of that fact), and have been of no value since.” The remaining allegations of the affidavit, as will appear in the-statement, add no weight to the foregoing, but either repeat them or have relation to the allegations of fraudulent representations.

Viewed apart from the defense of fraud hereafter to be considered, Ave cannot regard the affidavit as indicating a substantial defense of failure of consideration.

It is plain that the stock had been legally issued, had come into the OAvnership of the corporation, and had been regularly transferred to the defendant in accordance Avith the terms of his contract of purchase. That the shares had some-nominal value, at least, Avken purchased, was not, and apparently could not, be denied. Aside from their validity as part of the capital stock, the existence of some actual value,, however small, is apparent in the fact that the bank remained in business for a year longer, during which the defendant voluntarily ■ renewed his note once, and probably twice, and that, since going into voluntary liquidation, it has satisfied the demands of all depositors and other creditors.

It is plain that the defendant actually received all that he bargained for, notwithstanding the subsequent failure to realize his expectations of profit or advantage.

It seems to be thoroughly w.ell-settled law, that failure of' consideration must be total to constitute a good defense to an. action upon the promise. Greenleaf v. Cook, 2 Wheat. 13, 16.

If there be any consideration at all the courts will not inquire into its adequacy, or attempt to weigh the extent of it. Nash v. Lull, 102 Mass. 60, 62; C. & A. RR. Co. v. Derkes, 103 Ind. 520, 524; Price v. Jones, 105 Ind. 543, 545; Johnston v. Smith, 86 N. C. 498, 501; Van Norman v. Barbeon, 54 Minn. 388, 393; Gore v. Mason, 18 Me. 84, 86; Lambert v. Heath, 15 M. & W. 486; Cheale v. Kenward, 3 DeG. & J. 27, 31; Benjamin on Sales (Corbin’s ed.), p. 542; Pollock on Cr. P. P. 172, 174.

Benjamin, where cited, states the following as his conclusion : “ But there is not a failure of consideration when the buyer lias received that which he really intended to buy, although the thing bought should turn out to be worthless.”

And Pollock concludes a discussion of the point thus: “ The principle of the cases may be summed up in the statement made in so many words by the judges in more than one of them, that the promisor has got all that he bargained for.” See also 6 A. & E. Ency. of Law, 780.

The expectation of defendant that he would be elected a director of the bank, the qualification for which, by law, is the ownership of at least ten shares of stock, is of no consequence. He could not have become a director save by election of his fellow shareholders, nor could he qualify without discharging all liens upon his stock. B. S., Sec. 5147.

Passing by the question Avhether such expectation could form a part of .the contract of purchase, it does not appear from the facts alleged, that it actually entered into the agreement of the parties. Philpot v. Gruninger, 14 Wall. 570, 577. The folloAving language of Mr. Justice Strong, in that case, is quite applicable here: “ It is not to be doubted that there is a clear distinction sometimes betAveen the motiA'e that may induce to entering into a contract and the consideration of the contract. Nothing is consideration that is not regarded as such by both parties. It is the price Aoluntarily paid for a promisor’s undertaking. An expectation of results often leads to the formation of a contract, but neither the expectation nor the result is, ‘ the cause or meritorious occasion requiring a mutual recompense in fact .or in law.’ ”

The decisions cited in support of the appellant’s contention do not, upon the facte of their foundation, maintain a contrary doctrine to that enounced.

In Williams v. Nichols, 10 Gray, 83, there was a total failure of consideration. The widow of an intestate gave her note to his creditor upon the assumption that assets subject to the debts of intestate had, or would, come into her possession. It transpired that there were no such assets. As was said by the court, it was clear that the widow derived no benefit from the transaction and the creditor sustained no damage.

The facts of Schroeder v. Fink, 60 Md. 436, are substantially the same. In Clemshire v. Bank, 53 Ark. 512, the note sued on was given in purchase of a telephone equipment, etc., which could not be operated without infringing an outstanding patent.

The doctrine of that case is the same as in the numerous cases which hold that a note given for an interest in or under a void patent is without consideration, as in Harlow v. Putnam, 124 Mass. 553, and others that might be cited. But there is an established distinction between such a promise and one given in exchange for a right under a valid patent which, however, proves to be without value, as in Nash v. Lull, 102 Mass. 60, 62, and others before cited.

4. The last question in the case is whether the affidavit states a defense of fraud in procuring the purchase of the , .stock and the execution of the note.

Before proceeding to its determination, it is proper to observe, that whilst courts will not inquire into the adequacy of the consideration alone, its inadequacy may, in connection with other things, become of importance as a circumstance tending to establish fraud where the validity of the contract is in dispute upon that ground.

The only specific charge of fraud is in the paragraph following those that have been mentioned before, as follows: “ I further aver that I was never made a director of said bank, nor was such a position ever offered or tendered me, and I expect to show at the trial hereof that it was never the intention of the said bank or those in charge thereof to offer or tender me such position, but that I was induced by such fraudulent representations to enter into the arrangement above set forth.” Whilst defendant may have believed that the stock was worth the sum of about ninety-three dollars per share, which he contracted to pay for it, yet there is no charge of fraudulent misrepresentation of its value, or of the actual financial condition of the bank at the time. Apparently without inquiry into this condition, he was induced to purchase the stock by means of the promised election lo membership of the board of directors. Assuming that these representations and promises were made on behalf of, and in the interest of the bank, defendant was bound to know the inability of the bank to authorize such promises or to execute them when made. The representations were not of facts upon which he had any right to rely, but related to matters controlled by the provisions of the National Banking Act. Directors are not chosen by the bank, but for the bank, by the holders of the capital stock at the time of election; and, as we have seen, the defendant, to be eligible, was required to own unincumbered stock. Having no such stock he could not have become a director even if otherwise regularly elected.

There remains, therefore, no ground of defense to the action, but that of inadequacy of consideration, which, as we have seen, is not sufficient.

The court did not err in granting the motion for judgment, notwithstanding the affidavit of defendant, and it will be affirmed, with costs.

Affirmed.