On appeal from the Supreme Court.
For the defendant-appellant, Ward J. Herbert and Robert H. McCarter.
For the plaintiffs-respondents, Scammell, Knight & Reese (Lyle Evans Mahan and Scott Scammell.)
The opinion of the court was delivered by
BODINE, J. The plaintiff succeeded to the rights of a prior existing firm of stock brokers trading under the same name. The complaint alleges the purchase by the old firm, at the defendant's request, of one thousand shares of Crocker-Wheeler Electric Manufacturing Company "when issued stock." It also alleges the refusal by the defendant to take delivery thereof when tendered. Damages were sought for the differences between the price paid and the price received when the stock was sold after notice at the defendant's risk. Included therein were commissions earned and taxes paid upon the purchase and resale. The defendant left the plaintiffs to their proofs but offered two special defenses: (1) That the transaction was ultra vires; (2) it was illegal within the meaning of the "act to prevent gaming."
The former firm of E. W. Clucas & Company employed Horace I. Poole as salesman. His duties were to stimulate business. While canvassing the banks of North Jersey, he met James S. Hume, assistant vice-president of the Bank of Montclair, among whose duties were meeting bond salesmen. Sometimes he made purchases and reported to the senior officer; other times he consulted the president before placing commitments. Poole was assiduous in his calls and Hume was an attentive listener. Finally, the plaintiff secured, through Poole, orders from Hume and confirmations were sent to the Bank of Montclair and the usual correspondence ensued between the brokers and the bank. In some instances stocks purchased on order by Hume were sold on his order and the proceeds remitted to the bank. In at least one instance stocks purchased on Hume's order were paid for by the bank. During July, August, September and October, orders were given for a number of purchases and sales of stock. Transactions between the parties occurred nearly every week and were handled in the same manner. The bank also maintained a private wire to another New York brokerage house.
The market price of Crocker-Wheeler Electric Manufacturing Company was very high, when the orders were given.
The board of directors had called a meeting of the stockholders to vote on a proposition to issue ten new shares of stock for each old share. The vote was to be taken October 10th, 1929. After the meeting was called, the stock was traded in on the New York Curb Exchange on a when issued basis. The rules of the exchange contemplate dealings in "when issued stock." The orders for the stock, giving rise to the present action, were placed by Hume, purporting to act for the Bank of Montclair. The receipts for the contracts covering the purchases were acknowledged as follows: "Bank of Montclair, Montclair, N.J., J. S. Hume, Asst. Vice-Pres."
The trial court held as a matter of law that the transactions were not beyond the defendant's corporate powers, and that they were not illegal. The jury must have found that the brokers, and their agent Poole, dealt with Hume in good faith and in reliance upon his apparent authority, evidenced by the acts of the bank. Our examination of the record leads us to the conclusion that the issues of fact required the submission of the case to the jury.
The Bank of Montclair was organized under "An act to authorize and regulate the business of banking." Revision approved April 9th, 1875; Revision of New Jersey, 1877, page 58. The Revision of 1899 (Pamph. L., p. 431), somewhat enlarged the banking powers of existing banks, but by Pamph. L. 1927, p. 37, a supplement to the act of 1899, banks were authorized to purchase, invest in and sell stocks of corporations. It is argued that the Revision of 1899 and the supplement of 1927 are inapplicable to the Bank of Montclair. We think not. Section 36 of the Revision of 1899, page 449, is in part as follows: "The powers and privileges conferred and imposed upon any bank, banking company or domestic corporation authorized to do a banking business, other than a trust company or a savings bank, existing and doing business under the laws of this state, are hereby abridged, enlarged or modified, as each particular case may require, to conform to the provision of this act and to such amendments as may be made hereto." This language indicates to us a legislative purpose to enlarge the banking powers of banks organized
under prior acts in order to conform with a new and general act and changes thereafter to be made therein. We cannot attribute to the legislature an intention to enlarge the powers by amendment to the act but not by supplement thereto.
"When issued stock" is not a subscription to stock to be issued. It is treated on the exchanges as an existing property. However, written contracts are required in addition to the usual exchange of tickets. Meyer, The Law of Stockbrokers, 189. "When issued stock" is not an elusive but a definite thing. The bank by its purchase became obligated to pay for a definite number of shares of stock, provided the corporation completed the step necessary to issue ten new shares for each old share then in existence. ...