Prepared By Ana Paulina
"Those who cannot remember
the past, are condemned to repeat it" - George
Santayana
Government Suit to Collect
on 1932 Guarantee of Deposits Dismissed by Shientag.
‘CONTRACT’ HELD
INVALID
Power of Executives to
Bind Institutions Without Assent of Directors is
Denied.
SETTLEMENT BY 11
STANDS
$3,592,943 Paid by
Others in Clearing House is Viewed as Legally
Required.
A government suit in equity to recover $2,842,616 from nine member
banks of the New York Clearing House to complete the payment of depositors in
the closed Harriman National Bank was dismissed here yesterday in the State
Supreme Court by Justice Bernard L. Shientag.In a 12,000-word decision, he found the government had proved its case at every point except one.
“All the essentials of a valid contract were present,” he found reviewing the informal guaranty of $16,000,000 Harriman deposits given to the government in 1932 by the Clearing House Committee to keep
The then insolvent bank open lest a failure at that critical time affect the whole banking structure.
The one element that defeated recovery for the Harriman depositors, Justice Shientag decided, was the failure of the bank presidents who negotiated the guaranty to submit it to their boards of directors.
Bank Presidents Criticized
In a long and emphatic section of his opinion he then criticized bank presidents for forgetting that the directors are really the bank, while the president legally is only a person of small authority who often forgets that “assumed power is a dangerous base for important dealings.”
“There is a tendency on the part of the executive officers of large banking institutions to exercise an attitude of proprietorship with respect to the banks they represent,” Justice Shientag wrote. “That is not a practice to which the court should lend its sanction, particularly in an unusual situation such as is here presented.
The conception of ‘nominal director’ has been rejected by the courts. It would be inconsistent to hold directors to this measure of responsibility and at the same time permit executive officers of the institution, acting without express or implied authority, to enter into engagements of the character we are here considering.
“Probably no one who participated in these transactions can now indulge in comfortable reflections on what took place. Many things were done in a loose, casual, un-orderly fashion. This court is called upon to determine the issues in accordance with established legal principles.
“Perhaps the correct interpretation of what occurred is that indicated by Buckner (Mortimer N. Buckner, chairman of the New York Trust Company and then president of the Clearing House), whose sincerity is evident, who said: “There are a number of us who recognize a moral commitment and the question is now whether we will stay by our pro rata share of the loss and let those who don’t want to recognize it stay out.”
Government Appeal Expected: Justice Shientag’s decision relieving the nine banks of the $2,842,616.
