Summary
referring to the "equitable principle of restitution and unjust enrichment"
Summary of this case from Peterson v. Crown Financial Corp.Opinion
Argued March 21, 1951
Decided May 21, 1951
Banks and banking — Directors' contributions — Repayment with approval of Comptroller of the Currency — Restitution.
1. Where it appeared that during the national emergency and bank holiday of 1933 the Comptroller of the Currency required that contributions be made in a specified total sum to the undivided profits of a national bank before it could be reopened for regular business; that each of the directors agreed to advance a pro rata share of the additional capital; that plaintiff advanced the amount of his share and a large portion of the share of another director; and that in 1947 the Comptroller approved refunding the contributions advanced; it was Held, in the circumstances, that (1) plaintiff was entitled to return of his contributions on the theory that otherwise the defendant bank would be unjustly enriched; (2) the obligation of the bank to return these contributions ripened into an enforceable right only after the Comptroller had approved the repayment of the contributions, and the statute of limitations had not run on plaintiff's claim; and (3) plaintiff was entitled to a return not only of the amount of the contribution made on his own behalf but also the amount of the contribution made on behalf of the other director, without set-off of a disputed claim against the estate of the other director. [360-73]
2. Restatement, Restitution, §§ 1 and 139. [372]
Before DREW, C. J., STERN, STEARNE, JONES, BELL, LADNER and CHIDSEY, JJ.
Appeal, No. 107, March T., 1950, from judgment of Court of Common Pleas of Washington County, Nov. T., 1947, No. 98, in case of David H. Binns v. The First National Bank of California, Pennsylvania. Judgment affirmed.
Assumpsit.
The facts are stated in the opinion, by CARSON, J., of the court below, GIBSON, P. J. and CARSON, J., as follows:
Thomas L. Anderson, with him J. Olan Yarnall, for appellant.
D. M. Anderson, Jr., with him J. K. Spurgeon and Anderson Anderson, for appellee.
The plaintiff, David H. Binns, brought suit in assumpsit against the First National Bank of California, Pennsylvania, the defendant, to recover $3267.44, with interest. The facts are unusual and complicated. Three complaints, two sets of preliminary objections, two demurrers, two rules for more specific complaint, two motions for judgment, two motions for judgment on demurrer, two motions to strike off, the answer of the defendant, and the answer of the plaintiff to new matter, have required the consideration of the Court. After two opinions on the preliminary objections, the case was tried before a jury, which returned a verdict for the full amount of the claim, with interest. The defendant has filed motions for judgment n.o.v. and for a new trial. Only sufficient facts will be reviewed to understand the present dispute.
Motion for Judgment Non Obstante Veredicto.
On March 4, 1933, the plaintiff was one of the nine directors of the defendant bank. He continued on the board of directors for about one year thereafter. W. H. Binns, father of the plaintiff, an aged and ill man, was also a board member at that time, but died soon thereafter in his eighty-sixth year. The plaintiff, at the time, owned 28 shares and W. H. Binns owned 65 shares of the 1000 shares of capital stock of the defendant bank then outstanding.
Due to a nation-wide panic, a national emergency and bank holiday was proclaimed by the President of the United States and the Governor of Pennsylvania on March 4, 1933. Before the defendant bank could reopen for regular business, the Comptroller of the Currency required that its strength be bolstered by increasing the undivided profits by $32,000.00.
Each of the directors (excluding W. H. Binns) agreed to each advance one-ninth of the required capital, i.e., $3555.55. W. H. Binns advanced $288.11, and the plaintiff, with knowledge of the other seven directors, contributed, in addition to his own share, the balance of the father's share, to wit: $3267.44.
All of the plaintiff's contribution was taken from the proceeds of the sale of stocks owned solely by the plaintiff, delivered by him to the bank's officials, and, later, sold by the bank in the open market. The surplus over and above the contribution of the plaintiff was credited by the bank to the account of the plaintiff. W. H. Binns had nothing to do with the delivery nor the sale of these stocks, and, insofar as the record shows, he had no knowledge of this transaction.
While the Comptroller of the Currency had required that the contributions be made unconditionally, there was an unauthorized understanding among the contributors that the money so advanced should and would be repaid to the directors when the bank was in condition so to do.
The plaintiff testified that there had been no discussion or agreement between him and the bank whereby the bank would apply his contribution upon his father's alleged guarantee of the Miller note. Mr. Grimes had said that if and when the bank was able, they would repay the money to the contributors in the same relation in which it had been contributed. It is not reasonable to think that on March 3, 1933, when all banks were closed and the strongest banks in the United States could not secure cash, and the values on the stock market had dropped to a mere fraction of their former values, that the directors of this small bank willingly donated from their cash and best securities the sum of $32,000.00 to be added to the bank's profit and loss account, without any thought or discussion of getting it back.
When the maze of pleadings, objections, rulings, points, and testimony are analyzed, the facts and issues become better understood. The defendant bank was in good financial condition previous to and at the time of the bank holiday. However, in the judgment of the Comptroller of the Currency, its capital was weakened due to the then severe drop in the market value of its securities, and his approval had to be secured to re-open the bank. The value of securities was greatly enhanced within a few days. The securities which David H. Binns deposited for sale increased in market value from $6823.00 to $10,575.24 before they were sold by the bank on May 9, 1933.
The bank having prospered and being in good condition in 1947, its officials applied to the Comptroller of the Currency for approval to refund the money so advanced. At that time, W. H. Binns was dead, and A. B. Ward and David H. Binns were no longer directors. Such approval was sought and obtained through a resolution passed by the board of directors, asking permission, inter alia, to repay the amount due A. B. Ward by crediting it upon account of his indebtedness to the bank, and to credit upon a note 'allegedly' guaranteed by W. H. Binns $3267.44 of the money which had been contributed by David H. Binns.
If the bank considered that W. H. Binns was indebted to it upon a legal claim, the query arises: Why had this claim not been presented during the decedent's lifetime, or presented to his personal representative during the settlement of his estate? The W. H. Binns Estate denied liability upon this note, and offered to prove that, when the bank presented its claim upon this note against the W. H. Binns Estate in the Orphans' Court of Fayette County, the Court adjudicated the note not to be a valid claim. The record from the Orphans' Court of Fayette County relating thereto was not admitted into evidence due to objection by counsel for the bank.
Since the plaintiff was not a member of the board of directors when the resolution was adopted asking the permission of the Comptroller, he is not estopped from asserting that the bank is unjustly enriched to his loss. In justice and fairness, the plaintiff had the same right as the other directors to have his contribution refunded. If he does not get it back, he alone will be denied restitution, and the stockholders will be enriched by the amount of his loss. As a stockholder with 28 of the 1000 shares outstanding, the return to him of only $3555.55 of his contribution of $6823.00 would reimburse him only to the extent of 52%, while the remaining directors received 100% of their respective contributions.
We are satisfied that, if the bank had not repaid the advancement to each of the other directors, the plaintiff would not have any valid claim to restitution.
The plaintiff seeks to recover the balance of his contribution, with interest from January 29, 1947, the date when the defendant bank applied the plaintiff's $3267.44 upon the account of the alleged liability of his father.
The question as to whether the defendant had been unjustly enriched was left to the jury, and they decided in favor of the plaintiff and against the defendant.
In considering the motion for judgment n.o.v., the Court is required to view the evidence and the inferences properly deductible therefrom in the light most favorable to the plaintiff: Vetter v. Great A. P. Tea Co., 322 Pa. 449. Viewing the evidence in this light, there is ample evidence from which the jury could find that the plaintiff was entitled to the verdict returned.
For the reasons before outlined, as well as hereinafter stated, the defendant's motion for judgment n.o.v. is refused.
Motion For New Trial
The defendant assigns as error that the case submitted to the jury was at complete variance with the claim set out in the pleadings. Counsel for the defendant contends that the parties did not enter into any binding contract which obligated the defendant to repay any of the monies advanced by the directors in 1933, and that, if the law implies a contract, that the statute of limitations has run, and the contract is no longer enforceable. The defendant further argues that when the Comptroller of the Currency authorized full restitution to the other contributing directors but restricted restitution to the plaintiff to $3555.55, that such authorization did not include the $3267.44, which the plaintiff contributed to meet the share apportioned by the remaining directors to his father. Grimes, defendant's cashier, testified that the Comptroller of the Currency had no information concerning the minutes of the meetings of the board of directors, nor of the stockholders, other than the information prepared and sent to him by the board of directors. The source of the $32,000.00 contributed was immaterial to the Comptroller of the Currency. The contributions were voluntary. Neither W. H. Binns, the plaintiff, nor any of the other directors were required to contribute.
These donations or contributions were placed in a reserve account where they remained until they were refunded. The defendant's counsel summarize their argument as follows: "In the eyes of the law, the return of the contributions out of funds of the bank constituted mere gifts, like the contributions themselves."
The defendant ridiculed the basis upon which the plaintiff rests his claim, i. e., the principle of "restitution" and "unjust enrichment". Notwithstanding the defendant's present strenuous argument that the charge of the Court was largely erroneous, misconceived and misleading, the defendant quotes with approval almost all of that part of the charge wherein the trial judge attempted to explain the law relating to "restitution" and "unjust enrichment". Evidently at the close of the charge the able counsel for the defendant were then satisfied with the charge, for, when given an opportunity to point out errors or omissions in the charge, counsel took only a general exception.
In the original complaint, after setting forth at length the conditions which brought about the closing of the bank and the condition of its re-opening, the details as to how the remaining directors had agreed to each advance $3555.55 in cash or in securities to the surplus of the bank, and how David H. Binns and W. H. Binns had advanced $7011.11, making in all $3,200.00, the plaintiff had plead that his claim was not based upon a writing, but was based upon the principles of "unjust enrichment" and "restitution". After the defendant filed preliminary objections to such allegations, the plaintiff filed a second amended complaint, and omitted therefrom all reference to such details, and limited his averments to delivery of his securities to the bank for sale and their sale by the bank, and the return by the bank of all of the net proceeds except $3267.44. The second amended complaint is not entirely consistent and is in the alternative, however, under the Pennsylvania Rules of Civil Procedure, such pleading is permitted.
The defendant recognized that the basis of the plaintiff's action was "restitution and unjust enrichment", because the defendant specifically plead in paragraph 13 of his answer, that the plaintiff's allegation that the defendant was unjustily enriched was an erroneous conclusion of law and it was not required to answer, but, nevertheless, answered that, "it is not unjust enrichment in the sum of $3267.44."
The plaintiff averred that his claim is not based upon a written contract but upon an "oral contract". That the complaint was sufficient notice to the defendant that the plaintiff's claim was based upon the equitable principle of "restitution" and "unjust enrichment" was shown by the nature of the defendant's answer. In its answer it avers in detail the same facts upon which the plaintiff now bases his claim to restitution, all of which had been averred in the original and amended complaints: 5 Stand. Pa. Practice, 558. Inasmuch as the defendant plead and relied upon these averments as its defense, it cannot plead surprise when the plaintiff offered testimony admitting such facts. The obvious purpose of the defendant in pleading such facts was to be in position to contend that the money, once donated, became the property of the defendant bank, and to claim that it could thereafter keep it or apply it upon the disputed indebtedness of W. H. Binns.
There was a question of procedure at trial, i.e., whether it would be more orderly to restrain the introduction of this evidence until rebuttal. The trial judge, considering that the defendant averred these very facts in its answer, decided that it would better enable the jury to understand the issues in the case if such testimony were immediately introduced. Since the defendant in its answer had denied that the plaintiff owned and contributed these stocks, and averred, on the contrary, that they were contributed by W. H. Binns, it would appear less confusing to the jury to have a full statement of the transaction revealed in the beginning. The Court en banc concurs in the opinion of the trial judge.
The issues in the case were confused by the following averments, inter alia, in the defendant's answer: In paragraph 5, that "W. H. Binns . . . agreed . . . to and did make a voluntary and unconditional donation of cash, securities, or cash and securities . . . that W. H. Binns and David H. Binns delivered to said defendant bank . . . securities and cash in excess of . . . $7111.13, it being understood that the excess amount . . . would be returned to them and that the bank so acted with said excess in accordance with said understanding"; and in paragraph 14, where the defendant avers that the said securities were donated by W. H. Binns; and in paragraph 15, that it "received from the sale of the securities of W. H. Binns, father of the plaintiff, the sum of . . . $3267.44, . . . which is the money for which plaintiff now sues and which it has no legal obligation or authority to repay on account of the contraobligation hereinbefore recited and as a matter of law."
Since the defendant in its answer discloses fully the transaction between the parties, the plaintiff could not safely stop short of showing the entire transaction. He might have been barred from showing all of the facts in rebuttal, and this case should not be decided upon the niceties of technical pleading. The plaintiff, in his first and second complaints, had anticipated the defense and had set forth the entire transaction, but the defendant's objection thereto was sustained by the Court. Whereupon, the plaintiff, in his second amended complaint, eliminated that part of his complaint and averred merely that the plaintiff's securities had been given to the defendant for sale, that the defendant had sold them, and received the net sum of $10,630.33, that the defendant had immediately returned $3807.31, and in 1947 had returned an additional $3555.55, but still retains $3267.44 of the monies so advanced by the plaintiff.
How can the defendant be surprised when it plead these facts? The purpose of the rule of evidence upon which the defendant relies is to protect a defendant from surprise, but when there is no surprise, there is no need for the application of the rule. The plaintiff has not stated a new cause of action. The trial Court cannot be charged with error for submitting the case to the jury on the very issue raised by the defendant in its answer and which was considered fully in the trial of the action: Tarentum Lumber Co. v. Marvin, 61 Pa. Superior Court 294, 297; Penna. R. R. v. Pittsburgh, 335 Pa., 449; Hastings v. Speer, 34 Pa. Superior Court 478, 486, "Having both in his pleadings and in his evidence proceeded thus far in bringing out the facts essential to a determination of the meritorious question in dispute, the defendant has no just cause to complain that the plaintiff was permitted to go into the same matters in rebuttal, and to more fully develop the relevant facts."
The defendant claims that the stocks deposited by the plaintiff constituted a gift to the defendant, and that the defendant was not required to account for any of them. The defendant's officers admit that they felt obligated to return to the plaintiff, first $3807.31, and, later, $3555.55, the defendant thereby recognized that the principle of restitution and unjust enrichment was applicable to this transaction. In paragraph 5 of its answer the defendant averred . . . "it being understood that the excess amount over and above $7111.13 would be returned to them and that the bank so acted with said excess in accordance with said understanding."
That the bank considered the stocks deposited as the property of David H. Binns is shown by the fact that the stocks themselves were carried on the books as assets of the bank, not at their full value but at the amount of the contribution to be made therefrom by David H. Binns. When the stocks were sold the brokerage and other expenses incident to the sale were charged to David H. Binns and deducted from the proceeds of the sale. The bank also deducted from the proceeds of the sale of the stock, interest at the rate of 6 percent per annum on the contribution from the date on which the contribution should have been made, i.e., March 20, 1933. The defendant bank gave to the plaintiff a deposit slip, Exhibit G, showing the sale of the stocks left by David H. Binns, listing the stocks, their sale price, and the deductions therefrom. The circumstances are clarified by the cross examination of the plaintiff: "Q. So your deposit of your certificates was not for a straight sale, it was to meet the specific purpose of bolstering the financial structure of the First National Bank of California? A. They were to be sold for cash. Q. When? A. When it was agreed upon by the bank and myself that they should be sold. Q. The market was low at the time you put these securities up? A. That's right."
The defendant, by this cross examination of the plaintiff, has shown that there was an agreement between the defendant bank and the plaintiff, whereby the stocks were to remain unsold until the sale was approved and authorized by the plaintiff.
That the defendant was anxious at the trial to use the testimony produced by the plaintiff under objection, is shown by the full and complete cross examination conducted by the defendant. Such cross examination was so broad and so far beyond the scope of the direct examination that the defendant waived its technical objection, and gave the plaintiff the right to fully develop the testimony brought out by the defendant.
The defendant has assigned nine reasons for the granting of a new trial: There was nothing in the record to support any of the first five reasons assigned for a new trial, and they are overruled without further discussion.
The sixth reason assigned, that it was error to permit David H. Binns and James Binns to testify to matters not set forth in the second amended complaint, have been discussed sufficiently. The matters testified to had been plead in previous complaints, and, after objection, were omitted from the second amended statement, but all of these matters were fully set forth in the defendant's answer. The defendant could not have been surprised. The admission of the testimony was not an abuse of judicial discretion and the objection is overruled.
The seventh and eighth reasons, that the Court refused to affirm defendant's second and third points, are overruled. To affirm these points was to disregard the plaintiff's theories of restitution. These reasons erroneously assume that the plaintiff relied upon a contract.
The ninth reason, that the statute of limitations has run and bars the plaintiff's claim, is not sustained. This point is based on the defendant's theory that the plaintiff's claim depends upon a contract entered into in 1933. The plaintiff does not rely upon such a contract, but relies upon the equitable principle of restitution. The statute did not begin to run on the plaintiff's claim until January, 1947, the date when the duty to pay arose, which time is within the statutory period.
We have read the many cases cited by the defendant in the two briefs filed. We have no disagreement with the law laid down therein, but we have accepted the plaintiff's theory of his case, and the cases cited are not applicable to restitution. There was no legal obligation on the part of the bank to repay the contributions of the members of the board of directors. The obligation of the bank to return these contributions only ripened into an enforceable right after the bank became restored to a good financial condition, and the Comptroller of the Currency approved the withdrawal of the contributions from the reserve account and the repayment of the contributions. These conditions were sufficiently met in 1947, when actual restitution was made to all except for the sum due the plaintiff.
A search of the authorities, in Pennsylvania and elsewhere, by the Court and by counsel, has not revealed any analogous cases. There are numerous cases relating to contributions by stockholders where banks failed. In these cases the courts have held, as to contributions made by stockholders, that they were made for the benefit of depositors, and that the claims of the depositors must have priority. In the case of State v. Trimble, 300 S.W., 475 at 477, arising in Missouri, the Court held: "The cases cited by respondents undoubtedly support the general proposition that 'where stockholders voluntarily assessed themselves to relieve the corporation from pecuniary embarrassment, or for the betterment of their stock, such advancements are not debts, but assets of the corporation'. But it does not follow that every payment of money to a financially embarrassed corporation by one or all of its stockholders or directors is paid to it without any agreement for its repayment, or that a stockholder cannot make a payment under such an agreement which may be recovered."
Restitution, although not used as frequently as other forms of action, and still somewhat new in the Courts, has grown in usage until the America Law Institute in 1936 deemed it of sufficient importance to publish a volume of 1003 pages relating to "Restitution", to which has been added a supplement of 207 pages.
The principle of restitution has been frequently used in our Court. In Pulaski v. Provident Trust Co., 338 Pa. 198, the Supreme Court upheld a restitution action based upon Sections 1 and 139, of the Restatement, Restitution. Section 1 of "Restitution" provides: "A person who has been unjustly enriched at the expense of another is required to make restitution to the other." Section 139 under "Restitution" provides that, "Incapacity to enter into a contract . . . is not in itself a defense in an action for restitution."
Where some shareholders had contributed a greater proportion that others to aid a bank which was later liquidated, the Court held that the restitution should not be made in proportion to contributions, but that those who contributed an excess over and above the others should first be paid their excess. See First National Bank of Arthur, 100 F.2d 623. On this basis the plaintiff should have been first refunded his excess contribution of $3267.44.
Restitution has been recognized in the Pennsylvania Courts in many other cases, including Gladowski v. Felczak, 346 Pa. 660 at 664; Lauffer v. Vial, 153 Pa. Super. 342 at 346; Greek Catholic Congregation v. Plummer, 347 Pa., 351.
In the opinion of this Court, the pleadings in this case, particularly the second amended complaint, the answer, and the reply to new matter, bring the issue squarely within the equitable principle of restitution and unjust enrichment.
Defendant appealed.
The court below has correctly disposed of all the questions raised on this appeal. We therefore affirm the judgment on the opinion of Judge Carson refusing defendant's motions for judgment n.o.v. and for a new trial.
Judgment affirmed.