17 Barb. 309 | N.Y. Sup. Ct. | 1853
Lead Opinion
The North American Trust and Banking Company, although possessed of several millions in bonds and mortgages, having soon after its formation become embarrassed for want of sufficient cash capital, resorted to various expedients —some, at least, of a questionable character—to obtain relief.
The primary object of the receiver’s bill is to invalidate the two mortgages—for that I conceive to be the true character of those instruments—executed by the company to Blatchford and others, as trustees, and designated in the case as The Million and First Half Million Trusts. Various grounds of invalidity are urged as well against the trust mortgages as against the bonds referred to in, and which, it is presumed, have little value without, them. Among the objections most relied on are alleged violations of the statute of frauds; of the statute of usury; of the statute regulating corporations; of the statute authorizing the formation of banldng associations or free banks ; and of the statute prohibiting the issue by the free banks of bills or no,tes .on time or interest.
The two chief matters in controversy in respect to this question of fraud, are the million and first half million trust mortgages, (for that, as already observed, I consider to be the true character of the assignments,) executed by the company in the early part of the year 1840, and bearing date on the 1st February of that year, and the bonds, fifteen hundred in number, each for £250 sterling, payable in London, executed simultaneously with, and purporting to be secured by, the mortgages respectively. These securities—and the fact, it seems to me. is of controlling importance—as alleged on one side, and conceded on the other, were created by the company, for the purpose of “ raising a temporary cash capital.” Instead of making 1500 separate mortgages for each separate bond—a plan which, if not entirely impracticable, would have been intolerably troublesome and ex
Where, as observed by Mr. Justice Edmonds in the court of appeals, in the late case of Nicholson v. Leavitt, the hindrance and delay (of the general creditors) is the necessary consequence of an act, otherwise lawful of itself, that circumstance will not vitiate the deed ; but when the intent and object are to hinder and delay the final payment, the deed framed with that view will be void. “ The legislature,” says Mr. Justice Gardiner in the same case, “have conferred upon the debtor the right to create a trust of his property for certain purposes. He may also prefer one creditor to another. Of course, the delay necessarily resulting from a fair exercise of these rights is not prohibited by any statute.” “ Where it becomes the principal motive,” the case is different. Ho such motive or intent is imputed to the Palmers or to the company, except as it is to be inferred from the instruments themselves) and any such inference, it appears to me, is clearly rebutted by the obvious scope of the instruments, the circumstances of the transaction, and the whole history of the case. The fraud, if any, was not by, but upon the Palmers; and the preference, if that were a circumstance to be considered,
Again, it is objected, that the company had ho authority to issue bills or notes on time ; that the instruments^ called bonds, which the assignments were made to secure, being merely stamped, and not impressed on wax or wafer, were not sealed instruments within the meaning of the law, but post bills or notes, and therefore unlawful; and that as a consequence, the assignments collateral to them are, on that ground, null and void. The Statute of May, 1840, which went into operation on the 3d of June in that year, prohibited every “ banking association” from issuing or putting in circulation, “ any bill or note of said association, unless made payable on demand and without interest and subjected the officer or member violating the law to the charge of misdemeanor and to fine and imprisonment. Negotiable securities, it is conceded, and not sealed instruments,
We consider these bonds, therefore, as sealed instruments. At all events, it being perfectly incontrovertible that they were so intended, and that the omission, if it be one, of wax and wafer, was a mere oversight, the defect, as in the case of the indenture not indented, can now be supplied by the application by the court of a small quantity of wax, or according to the established rule in equity, by treating that as already done, which it is so manifest was intended, and if necessary, in justice and fair dealing, ought to be done. The whole discussion on this point, every sensible man must admit, were it not for some unfortunate dicta in the books, would look very much like childish trifling. Independently, however, of what we consider the conclusive answer, already given to the objection, the paper in question does not, in our judgment, come at all within the spirit or scope of the prohibition. The evil intended to be remedied by the legislature was the adulteration of the practical, if not
Again, it is said, .that banking associations, formed under the free banking act, havq no power to borrow, and, of consequence, none to give bonds for the repayment of money. Suppose a sud.
Construing the statute's; then, on this subject, in the manner above indicated, the question again recurs, were the bonds issued to the Palmers; using that name as designating all the foreign creditors, unlawful bills or notes; fraudulently intended for circulation in this state as money ? We think it quite palpable they were not. First. They were not bills Or notes, but sealed bonds. Second. If bills or notes, they were in the nature of bills of exchange which the company might lawfully sell. Third. At all events they were not adapted or designed for circulation as money, either in this state or in. Great Britain. Fourth. The legislature of this state did not intend to enact or regulate a policy for foreign countries.
As to a large number of the bonds, it is further insisted, that having been sold at 90 per cent instead of par, they are void for usury; and that the associate stockholders, while holding on to the proceeds of the sale, have a right to repudiate its obligation; The receiver, Mr; Leavitt, took the same grotind in the case of BeLauny & Co;,' the-particulars of which I shall presently advert to; and affcef Seyetal years of various fortune was finally defeated in the court of last resort. (4 Comstock, 363.) There is no pretence, or if there be, it is wholly unsupported, that these bonds, by whatever name they may be called, were got up or employed as a cover for usury ; if usurious at all, the transaction is so per se on its own naked merits. Bivested then.of the mere formalities of written instruments, what, in substance, só far as this point is concerned, was the actual transaction between the parties ? A pound sterling is a foreign gold coin; commonly denominated a. sovereign-. ' The banking c'ompany in question Were invested with the express power of “buying and selling foreign coins and bills of exchange.” They sold accordingly from time to time, a certain number of English Sovereigns, deliverable at periods agreed to by the purchasers, and in London where the purchasers lived. As usual in such cases, they sold
Now the trust mortgages, under which the Palmers claim, instead of being executed with the intent of giving them a preference, were designed emphatically and palpably, (and that alone would dispose of the argument,) for the purpose of extracting from their unfortunate confidence further advances and larger indulgence; and instead of being made by the institution when insolvent, or in contemplation of insolvency, were as palpably and emphatically devised under the full conviction, that by turning dead securities into living cash, they were to operate as a panacea to infuse life and vigor into the feverish institution and insure it immortality. Nor was the institution supposed to be, nor, under the evidence, was it, in fact, insolvent. Embarrassment may exist without insolvency. The owner of a million, in real estate, may, at times, it has been said, be embarrassed for a meal. To say, however, that a laAvyer, for instance, with a perfectly good professional business, and with surplus earnings, well invested, to the amount of $100,000, is insolvent because from inadvertence or carelessness, he may not have in ready cash at the moment, enough to pay a fifty-dollar tailor’s bill, would seem an absurd perversion of language. In the framing of technical bankrupt laws, it is, perhaps, found necessary, or, at all events, is sometimes deemed politic, to declare that want of punctuality shall be deemed want of honesty. Hence, under such a law, men have been declared bankrupt, with means sufficient to pay forty shillings in the pound. The statute in question, however, is not a bankrupt law. It uses the term insolvency, without any special definition; and, therefore, in its ordinary acceptation, that is, as meaning a want of sufficient property,
It is said again, that, being transfers of assets of the company to the value of more than $1000 each, the assignments were also a violation of the 8th section of the regulations referred to, which prohibits such transfers, unless “ authorized by a previous resolution of its board of directors.” On this point, as matter, of fact, we think there is sufficient evidence of authorization or ratification; but at all events, the instruments- on their face being signed by the proper officers, and purporting to be regular, cannot be impeached “ in the hands of a purchaser for a valuable consideration and without notice.’^ Such is the express exception in the section, and such, as we conceive, is the precise position of these securities. On this point, too, and on another of the same character made by the receiver, it may be proper to observe that the objection .comes with a bad grace from stockholders (or any. one in their behalf) who had deliberately and irrevocably in their public articles of association “ delegated” not only to the directors, but to such officers and agents as the directors should appoint, “all the power, rights and privileges of each and all the associates.”
Ho directors, moreover, and no boards of any kind are required by the general banking law, either- expressly or by implication. The terms are no where used in any of its' provisions;
Much of the litigation which has grown, and still threatens to grow out of these associations, may be traced to what I conceive to be a false issue. The question is not, do these partnerships, by their members more or less numerous, possess the essential powers of a corporation; but are they corporations within the intent and meaning of the restriction in
Much severity of criticism, and perhaps very justly, has been bestowed upon the officers and agents of the association in question. But did not the shareholders appoint them? Did not the shareholders place all power in their hands ? Did not the shareholders so declare expressly, and we may add very unnecessarily, in their published articles of copartnership ? As between the agents and their injured principals, if the ■ latter really were injured, (volenti non Jit injuria,) these criticisms might perhaps be allowable; but what application have they to a case of injury done by those agents to third parties, through the very faith and confidence which their principals had so prodigally solicited? Is denunciation, however well deserved, of the agents, to be deemed a satisfaction of the debt of their principals ? If the agents have been guilty of improvident, or even, if you please,-of fraudulent acts, who should take the consequences ; they who held them forth as vested with “ all power, rights and privileges,” or they who trusted them on the faith of such credentials ? Did not the shareholders, moreover, know— indeed, was not that the leading object of forming" the association— that their dead securities, in the form of mortgages or unavailable real estate estimated at more than forty per cent beyond its convertible value, (see the receiver’s summary,) were, somehow or other, to be transmuted into the precious metals ? And did they not select the agents, whose jproeeedings they now denounce, with an express view to their known, or at least reputed, abilities in that branch of art ? How else was their cash capital, if any, to be raised? The association, in its inc'eption, as appears by its articles of copartnership, consisted of twenty members, with one thousand shares' each, of one hundred dollars, making an aggregate of two millions of nominal capital, and which it was provided “ might be paid in any of the securities in which the directors were authorized to invest their capital stockin other words, in bonds and mortgages. Borrowing and not lending, therefore, at least in the outset, was' palpably the object of the associates; and as that object, at the time,
But, although not necessary to the argument, it may also be contended, and very justly, that to grant the power of carrying on the business of banking upon a mere mortgage capital, carries with it, by necessary implication, without reference to the power of receiving deposits, the right of borrowing money. How else, with such a capital, were they to discount notes, or buy bills of ' exchange, or foreign coin or bullion, all expressly allowed to them, and confessedly within the range of a banker’s business 1 They might, it is true, make such purchases on credit; but what, for the purposes of this question, is a purchase on credit, but, in effect, a borrowing of the amount of the price agreed on for the period stipulated in the credit 1 That they can buy on credit was decided by the court of appeals in the recent case of He Launy, already referred to; which was the purchase of a sixty day bill, to be paid for in two or (more properly speaking) in four months; or, in other words, the company borrowed of DeLauny a certain number of francs deliverable in two months, on á promise to return a like amount, with interest and commission added, in two months thereafter. This contract was adjudged to be valid, and also the written instruments', on both sides, which evidenced the "obligation.
We have seen, then, that the "association, "both in express terms, and by necessary implication, authorized its officers, whenever they should deem it necessary, to raise money, either on a simple promise to repay, or on a pledge of securities. We have also seen that the general banking law, in like manner, gave the
Chancellor Walworth, in the case of the Ontario Bank v. Schermerhorn, (10 Paige, 109,) gives the answer to this question. The provision-was intended, he says', “to prevent the banks from issuing post notes, or post bills of exchange, which might pass from hand to hand as part of the circulating medium of the country.” As the paper, in that case,- was a-'draft
Does any man then suppose, however much he may denounce, and perhaps justly, the general conduct of the officers and managers of the North American Trust and Banking Company, that were they brought to trial criminally on a charge of issuing a promissory note in London for £1000 sterling, payable, with interest, in sixty days, any jury could be found to convict them of a misdemeanor, or any judge to sentence them to fine and imprisonment 1 Even the learned justice of the court of appeals, who delivered the opinion of that court on the occasion referred to, and who is now one of the learned counsel of the receiver, would hardly go that length. And yet, unless the act was a misdemeanor, and a misdemeanor of a criminal character, it was not void; for it is the prohibition by statute which alone makes it void; and it is the same prohibition which makes it a misdemeanor. It may be that, to test this question, a criminal prosecution is now pending, and that the accused, waiving the statute of limitations, puts himself upon what he is advised and believes to be the fair and just interpretation of the language and of the intent and meaning of the legislature; if so, what judge will be found, to charge the jury that making a bill for £1000, payable in England at sixty days sight, and sending it bona fide to London to be sold for cash, is prohibited by the section already so often cited; that the mere note itself, in spite of all evidence to the contrary, is conclusive proof of an intention to issue and put in circulation a spurious currency, within the meaning of the law; and that the accused must of consequence be found guilty of a misdemeanor, and be punished accordingly.
Admitting, however, such a result, improbable as it may be, we are driven then to the mere letter of the law, and to assume, contrary to the general rule, that the legislature intended to prohibit words, not things. On that assumption, the prohibition must be confined, for they are the only words used, to bills and notes. Literally and strictly, and in some respects (such as the right of offset) even substantially, a bond is not a bill or
One thing cannot fail to strike every thinking mind with astonishment in looking at this cause, and that is, that a charge of criminal misdemeanor should be extracted from a law thus differently interpreted by the ablest courts and the ablest counsel, and that, too, under a system .of jurisprudence which inculcates, as fundamental, the principle that pains and penalties are to be clearly prescribed in advance, and not to be extended by ex post facto implications. It may be urged, perhaps, that in the case of DeLauny, and in the case of the Merchants’ Exchange Company, the time feature was not adverted to by bar or bench. And can it bo contended that in two strongly contested cases, involving, one of them fifty thousand dollars and Upwards, and the other more than one million; a circumstance, fully in the view of both bar and bench, should be treated by both as innocent and legal, and yet be a misdemeanor subject to fine and imprisonment ? • Where court and counsel are blind, a confiding community, especially of strangers, may be pardoned for not seeing. Indeed in the case of the Merchants’ Bank v. Spalding, decided only a few days .since, the court of appeals expressly held “ that citizens of' another state, making contracts in that state to be performed there, are not chargeable with a knowledge of our laws.” That was a case of a circulation of foreign bank bills of a less denomination than five dollars, which the statute prohibits: and yet the charge of the judge, that the plaintiffs, in the absence of proof of any actual knowledge of the prohibition, were entitled to recover on the note discounted, was sustained by the court above.
Admitting the bonds issued by the company, and the trust mortgages created to secure them to be otherwise valid, it is contended that the debts or considerations, which they were given to pay or secure, had an unlawful origin, and that the securities for that reason cannot be enforced. The question of invalidity on the supposed ground of usury, incident to some of the bonds, (those sold at 90 per cent,) has already been considered. A sale of foreign coin, or a purchase of foreign coin, or an ex
Another ground of invalidity is supposed to arise out of the dealings of the company in public stocks. The company, it is said, trafficked in stocks, and the moneys, or a portion of them, advanced by the Palmers, were applied to that purpose, with
The case of'the Philadelphia banks, as distinguished from that' of the Palmers, has one feature peculiar to itself; Their claim is attacked, not only on the ground of the alleged illegality of the bonds and certificates of deposit held by them, and which were confessedly (that is the certificates) issued after June 3d, 1840; but also on the ground that these securities were expressly given as collateral to a loan, nominally of $250,000, but really of only $241,250, the difference being, it is said, a usurious premium, and rendering the whole contract void. It is not denied that the contract arose out of “ an application for a loan.” It stands, therefore, in. that as well as other respects, on a different footing from the case of DeLauny: The application; however, for the loan, was made, not in this state; but in Pennsylvania ; and although the subsequent negotiations were conducted principally in blew-York, they had reference to; and were not complete, till ratified in Philadelphia; By the agreément for the loan, as its terms were finally settled, the $250,000 were to be advanced in Philadelphia currency, then at a discount in New-York of from three to five per cent, and to be repaid in
It may conduce to greater clearness, laying out of view the
All these objections, it will be seen, have already been considered, partially at least, in connection with the claims of the English creditors. The only difference not considered—although even that, perhaps, is not a difference in principle—arises out of the form of the Philadelphia certificates of deposit, and their being expressed in dollars instead of pounds sterling. But, on the other hand, the greater magnitude of the amounts in the Philadelphia case, and their fractional character, negatives, if possible, still more strongly, the idea of their being used as a currency. A promissory note of $20,833.33, in the form of a certificate of deposit, payable in Philadelphia in twelve months, with interest, it would seem, could hardly require the intervention of the legislature of the state of Sew-York, to prevent its
The substance of the views above expressed, with slight additions, may be summed up as follows:
First. Joint stock associations, formed by articles of co-partnership, entered into and registered according to the free banking law, although possessed like other special partnerships, of certain corporate attributes, are not corporations within the meaning of that provision of the late constitution of the state, which prohibited the legislature from “ creating any body politic or corporate,” without a two-third vote in each particular case.
Second. Although legislative enactments of an ordinary remedial or directory character, in reference to corporations, as such, may, perhaps, notwithstanding be applicable to such ■ “ associations,” provisions creating misdemeanors and imposing penalties and forfeitures, cannot be so extended by implication, without violating a fundamental rule in the interpretation of statutes, and virtually enacting an ex post facto law by judicial legislation.
Third. The act of May, 1840, which extended one of the previous penal regulations for the government of moneyed corporations to the free banks, making it a misdemeanor for them to issue bills or notes on time or interest, was in effect a legislative assertion, binding on the judiciary, that such regulations did not previously apply—and that none, except the particular one so expressly selected should, thereafter, apply—to the free
.Fourth. The North American Trust and Banking Company had power to borrow money to the extent of its actual and lawfully authorized capital, as a necessary incident of banking, and as resulting, by necessary implication, from the express power, unrestricted, to receive deposits, to sell exchange, to buy gold and silver coin, and to issue and redeem a circulating medium, payable on demand, while the funds specially appropriated for its security, were by law placed beyond the control of the institution issuing it. Hence, the- bonds and other obligations of the company, given as evidences of such loans, and the trust mortgages collateral to them, (unless thóy can be otherwise successfully impeached,) are valid instruments.
Fifth. The statute of 1830, prohibiting corporations when insolvent or in contemplation of insolvency, from making assignments, with the- intent of giving preferences to particular creditors, and declaring every violation of such prohibition to be a misdemeanor, has no application to this association; and as a matter of fact, this association was not insolvent at the time in question, nor did it make the assignments in contemplation of insolvency, and the trust deeds or mortgages in question were not executed with the intent of creating a preference, but to obtain further indulgence and larger advances, and to enable the company by cash means to pay all its debts, and to transact a business more profitable to its stockholders.
Sixth. The statute which declares that conveyances and assignments of personal property, “ made in trust for the usé of the person making the same,” shall be void as against creditors, has no application to trust mortgages made bona fide to raise money to pay creditors. Although the surplus in such cases, after satisfying the mortgagé debts, may, by way of resulting trust, or by express stipulation, be for the use of the mortgagor, that is not the motive for creating the trust, nor the purpose intended to be eifected by it.” The statute relates, and purports by its title to relate, solely to fraudulent conveyances and contracts,” whose object is to cover up the debtor’s
Seventh. The provision, in the same statute, which declares that every assignment of “goods and chattels,” by way of mortgage, unless accompanied by an immediate delivery, and followed by an actual and continued change of possession of the things mortgaged or assigned,” shall be presumed to be fraudulent, applies only to goods and other things of which possession can properly be predicated, and not to what the law denominates things in action, as contradistinguished from things in possession.
Eighth. As matter of fact, obvious from the whole evidence in the case, and so the court find, these assignments or mortgages were not made “ with the intent to delay, hinder, of defraud creditors.” Every mortgage, in some sense, delays and hinders creditors; but not in the sense of the statute of frauds. Delay and hindrance are the incidents and not the motive of the deed. Its object, when honest, is to secure the lender, and not, except incidentally, to benefit the borrower. Such an object being lawful, and a trust mortgage being a lawful instrument to effect it, “ delay to creditors necessarily resulting from a fair exercise of these rights (in the language of Mr. Justice Gardiner) is not prohibited by any statute.”
Ninth. As no “board of directors,” nor any board analogous to a board of directors, was required “ by law ” for the free banks, the provisions of the revised statutes forbidding the making of certain transfers by any moneyed corporation without the sanction of a previous resolution of its board of directors or manager, is, for that reason, inapplicable; even admitting the association to be, in other respects, a corporation, within the meaning of the statute.
The act intended that these associations, like other partnerships, should be governed by themselves, and not by “ persons having by law (for such is the definition of directors in the revised statutes, vol. 1 p. 559, § 53,) the direction or management of the affairs of any such corporation.”
Tenth. The trust mortgages, if necessary, were sufficiently
Eleventh. The bonds issued upon, and secured by, the trust mortgages, were sufficiently sealed ; at all events, they wore not “bills or notes” within either the letter or the meaning of the act of 1840. The court of appeals in the case of DeLauny, having held that it was lawful for the trust company, even after the act of 1840, to give a promissory agreement, not under seal, for the future payment or delivery of foreign coin, have in effect qualified, if not tacitly overruled, their previous expression of opinion and that of the supreme court, in the case of Palmer v. Leavitt.
Twelfth. The true construction, as we conceive, (independently of authority,) of the act of 1840, is that the “ issue and circulation” thereby intended to be prohibited, was that of bank notes proper; or of notes which were likely to enter into, and being on time or interest, to affect injuriously the circulating medium of the state. It was an extension of the policy of the act of May 7th, 1839, which made it unlawful for any “incorporated banking institution,” or any “association authorized” by the general banking law, “ to receive, pay out, give, or offer in payment as money, or to circulate or attempt to circulate as money, any bill, note, &c., issued by a foreign bank or banker; and made redeémable in this state, to the like issuing and putting into circulation as money of all notes of domestic bankers; as such, made payable on time or with interest. It denounced as unlawful,, not the giving or receiving of such notes, but-the giving or receiving of them as money. The notes, therefore, which come within the prohibition, must not only be on time or interest, but as the act of Í839 expresses it, “ in the similitude of bank notes,” or adapted for circulation as money. The English creditors in the present case, and the same may be said of the Pennsylvanians, did not know in point of fact, nor had they, as the evidence shows, the least suspicion, that they were violating, or aiding in the violation of, any law of the state of líew-York;
Thirteenth. All the bonds, we find, as matter of fact—for such is the weight of evidence—were executed and delivered, and took effect, before the statute prohibiting time notes as a currency went into operation; and were exempt, therefore, from its provisions, even if otherwise applicable to such securities.
Fourteenth. The certificates of deposit for $20,833.33, each payable with interest in Philadelphia, were not “ bills or notes issued or put into circulation” within the meaning of the act of 1840, to regulate the currency of the state of Uew-York. They were not issued as money, nor adapted to circulate as money, in this state or out of it.
Fifteenth. The six per cent bonds sold under par in England, they being payable in England and in English coin, were not usurious. Under the written agreement set forth in the case, the transaction was, in effect, an exchange of credits, or a sale of foreign coin or foreign exchange, payable or deliverable at a more distant, for a less amount of the same coin payable or deliverable at a less distant date ; or, more properly speaking, an exchange of the chances of a future rise or fall in the gold market.
Sixteenth. At all events, the English claimants under the trusts, having made boom fide advances, at the request of the company, to pay their sterling exchange and sterling certificates, (another name for the same thing,) have valid debts against the company for such advances, and valid claims upon the securities pledged to the trustees for their benefit, to the extent of such advances. Where a party pays the debt of another, at his request, although the debt be void for usury or any like cause, it is no defense against the claim of the party making the advance, to be refunded.
Seventeenth. The loan, made bona fide by the Philadelphia banks on suspended bank notes, returnable by tacit understanding in the like currency, although the borrower immediately sold the notes for specie at a discount, is not usurious; and the
Eighteenth. lío receiver of any corporation or of any freo banking association, since the act of 1850, can plead, or set up, or prove, or in any manner “ interpose” the defense of usury. And the act, being in the nature of a repeal of penalties and forfeitures, and containing no reservation, express or implied, operates as well on existing as on subsequent suits; extinguishing, not only the right of pleading such defense thereafter, but of urging or maintaining the plea, although previously jiut in, if not already allowed and established.
Nineteenth. The general banking law, in its provision for the deposit, from time to time, with the comptroller, of state stocks to an unlimited amount, assumes, and, therefore, in legal intendment, declares that the associations to be formed under it, and who were to make such deposits, had, and were intended to have, authority, in virtue either of the specific or of the incidental banking powers expressly conferred upon them, to acquire and hold such stocks in the same manner, and for the like purpose, as other individuals, whether singly or in partnership, carrying on business as private bankers. The Palmers, at all events, had no knowledge, in fact, nor, being foreigners in a foreign country, are they chargeable with any knowledge in law, that the moneys advanced by them for the company, although used in part, directly or indirectly, in payment for public stocks, were so used in contravention of any statutory prohibition, if such there be, existing in the state of New-York; and especially are they not so chargeable, if the alleged prohibition be the result, not of express language, but of judicial interpretation, and would, if applied, involve a penalty or a forfeiture of the debt.
Twentieth. The claims of the trustees for compensation, for their services and responsibilities, one of them having been a director and ofiicer of the company, ought not to be adjusted by the agreement alleged to have been made, but should be submitted to a referee, to inquire and report what amount, under all the circumstances, would be reasonable and just.
Twenty-first. The receiver having, acted under the advice of
A draft decree should be prepared, in conformity with the foregoing directions, and submitted for the approval of the court.
The act of 1850, (ch. 172,) is that “ no corporation shall hereafter interpose the defense of usury in any action.” The second section makes the act include all associations having any of the powers and privileges of corporations, not possessed by individuals or partnerships ; and so includes the free banking companies. The act is, not that they shall not plead the defense of usury, but that they shall not interpose it; that is, by plea, or at the trial or hearing. These corporations and associations are the creatures of the legislature, and' hold their charters subject to the right of the legislature to repeal, alter, or modify them. The legislature, therefore, may impose this restriction upon defenses, even as to contracts previously made; especially as it has always been deemed a principle of equity that the one receiving money on an usurious contract should refund the amount with legal interest. For this, and other reasons, the defense of usury is not made out in this case; it is not pleaded with such exactness as is required to admit the defense.
The certificates of deposit and bonds issued by the company were not issued for the purpose of loaning them, or putting them in circulation as money ; and so are not within the prohibition of 1 R. S. 712, § 7. The bills and notes referred to in § 35 of the safety fund act, {Laws of 1829, p. 178,) are bills or notes issued for circulation as money. The instruments issued under the assignments (if not bonds) are not notes or bills, and were not issued for the purposes of circulation. • They were to be issued, principally, in England, and as bonds. The sterling bonds were to be used in England, and, therefore, were not within the prohibition of the restraining act. (1 R. S. 713, § 9, [10].)
The act of 1840, (ch. 363, § 4,) prohibits the free banks from “ issuing or putting in circulation, any bill or note of the associ
The assignments were not against the spirit or policy of the general banking law. They were made to procure funds to carry on banking, and to pay debts. Nothing, on the face of the bonds or certificates, shows that they were issued against law. A bona fide holder would, therefore, be protected if the company could lawfully issue them. (Safford v. Wyckoff, 4 Hill, 442.)
The company is not shown to have been insolvent in fact, when the assignments were made. The insolvency mentioned in the article of the revised statutes as to proceedings against corporations in equity. (2 R. S. 463,) and also in the article as to moneyed corporations, does not mean a mere inability of the company to pay its debts, but an inability, which is acknowledged by its directors or managers, or manifested by some public or overt act. In the article as to moneyed corporations, (1 R. S.591, §9,) the words “ when insolvent,” are coupled with the words “ or in contemplation of insolvency.” The last expression, evidently, is intended of the contemplation, not merely of an inability to pay its debts, but of the consequent suspension of its business. The last use of the words explains the meaning of the first. At the time of these assignments, the company not only did not contemplate insolvency, or execute them with a view to give a preference to creditors, but believed that the effect of the assignments would be to furnish immediate means to pay all the debts of the company without any preference, and to enable the company to raise a cash capital, with which it would do a business profitable to its stockholders, as well as safe to its creditors. Section 9 of 1 R. S. 591, therefore, does not affect the assignments. The assignments were, in fact, authorized by those officers, of the association to whom their articles intrusted
The assignment is also valid, “ in the hands of a purchaser, for valuable consideration, and without notice,” (1 R. S. 591, § 8,) although there be no previous resolution of the board of directors. This protects every purchaser, or lender, who receives, or becomes interested in a deed, assignment or other conveyance, executed with the usual formalities of deeds by corporations, viz :• under the seal of the company, and signed by its president and cashier, or other proper officer; and, whenever the purchaser or lender advances his money without knowledge that the instrument was executed without the previous resolution of the directors. The saving clause makes no exception as to the character of the purchaser, whether he purchase directly from the company, or from a grantee of the company, A different rule would embarrass ah titles derived from companies, and be incompatible with the safe and expeditious transaction of business.
The company had the power to borrow money, as incident to its general powers, and to give certificates acknowledging the loan.
The Palmers did nothing to aid the company to purchase or traffic in state stocks. The payment, at the request of the company, of debts already contracted by the company for such purchases, gave the Palmers a right of action for the money thus paid at the request of the. company.
The assignments in this case were not made to defraud creditors, but to transform certain securities less available into cash for the purpose of paying all the creditors of the company, and using the surplus in the business of the company; which they were authorized to carry on. They were not within the meaning of 2 R. S. 185, § 1, in trust for the use of the person making the same. The safest construction of that statute would be to hold that it made void the conveyance, only so far as it violated the statute. Then the valid trusts would be saved, and the legal estate in the residue of the assigned property would remain undisposed of, and as much within the reach of the
Those who advanced moneys on the credit of the assignment should be protected. A deed to a daughter may be voidable at the suit of the creditors of the grantor, but will be sustained in favor of one who marries the daughter with knowledge of the deed being executed to her. A mortgage to secure future advances is valid to the extent of such advances as are made before notice is given of. other rights ; an ante-nuptial settlement in trust for the grantor until marriage, then in trust for his wife for life, and to her issue, in fee, and on her death without issue, surviving in trust for the grantor and his heirs, has always been deemed valid to the wife and her issuer If the wife', and her issue, are deemed creditors or purchasers on the faith of the settlement, so are those who, in this case, lent money, or' parted with value, or bought the certificates on the faith of the assignments.
The amounts to be recovered should be only the amounts paid to or for the company by the person receiving the security, or due to him by the company, with interest. The costs of all parties should be paid out of the fund, with reasonable counsel fees to be certified by a referee, on notice to all parties.
Concurrence Opinion
I. The provision contained in the trust deeds, that the trustees should hold the securities assigned to them, in trust for the company, until default should be made in the payment of its bonds, was not in contravention of the provision of the revised statutes, which declares, that all deeds of gift, assignments; &c. made in trust for the use of the person making the same, shall be void as against the creditors, existing or subsequent, of such person. (2 R. S. 135.) (1.) It presents a different case from that which the statute was intended to provide against. (2.) The creation of a trust in its favor was not the principal object which induced the company to execute the trust deeds ; it was not even one of the objects. It was rather one of the incidental consequences of a transaction which, in itself, was legal. The bonds were not to be transferred until after the execution of the trust deeds ; and, until such transfer, the company must have had a resulting interest in the securities assigned. (3:) As soon as the bonds were transferred, the holder of them acquired an interest under the trust deeds, and the trustees became bound to hold the assigned property for the benefit of such holders, until the payment of the bonds. Before that event occurred, the trustees could not re-transfer the securities to the company. (4.) The object of the statute was to prevent the creation of a ndminal title in the grantee, where the
II. The trust deeds were not made with the intent to hinder, delay or defraud creditors, and are not void under the provisions of section one, title three, chapter eight, part two of the revised statutes. (2 R. S. 137.) The evident object and intent of the company was to enable itself to raise money to pay its debts ; and neither the assignor, nor the trustees, nor the cestuis que trust intended to hinder, delay or defraud the creditors of the company. The mere reservation of an interest in the securities assigned until default should be made in the payment of the bonds, does not, either by itself, or in connection with the facts of the case, show a fraudulent intent.
III. The trust deeds are not fraudulent and void under section four, title two, chapter seven, part second of the revised statutes. (2 R. S. 136.)
IY. At the time of the execution of the trust deeds the company was not insolvent within the meaning of the provisions of section nine, article one, title two, chapter eighteen, part one of the revised statutes. (1 R. S. 591.) (1.) The rule as to what constitutes insolvency under this statute, must, in some measure^ be governed by the circumstances of the particular case. The party making the assignments, irf this case, was a voluntary banking association. It had commenced its business upon a new system, with a very small and inadequate cash capital, tinder these circumstances it became necessary to obtain cash funds to enable itself to carry on a banking business. In order to do this, it resorted to means which its officers supposed would remedy the defects inherent in its organization, but which, as the result shows, proved ineffectual. Whenever its debts became due it was obliged to resort to loans, or other similar means, for the purpose of meeting them. This was the case from the
Y. Assuming, as I think we are bound to do since the decision in the case of Gillet v. Moody, (3 Comst. 487,) that the provisions of the revised statutes in reference to assignments by moneyed corporations (1 JR. 8. 591, § 8) apply to banking associations, then the question arises whether the assignments called the million and first half million trusts were duly authorized by a previous resolution of the company. (1.) The resolution of the 6th January, 1840, was a sufficient authority for the execution of the million trust. (2.) After the passage of this resolution, it was deemed advisable, for good reasons, to make a change in the trustees, and to add the London trustees. This change was not inconsistent with the end and purpose of the original -resolution ;■ and, having been acquiesced in by all persons ■ interested in the company, and third persons having parted with their property upon the faith thereof, the receiver of the company should not be permitted to repudiate the acts of the trustees, and much less, to avoid the trust deed. (3.) The securities to be assigned were, by the resolution of the 6tli of
VI. The first half million trust was also duly authorized by the resolution of the 30th July, 1840, and became operative and valid from that date.
VIL The bonds of the company were not issued for the purpose of being loaned, or put in circulation as money, and are not within the prohibition of 1 R. 18. 719, § 7.
VIII. The act of 1840, (ch. 363, § 4,) which prohibits banking associations from issuing or putting in circulation any bill or note of the association unless the same be made payable on demand, and without interest, does not apply to the bonds which were negotiated in this case.
IX. The company had the right to borrow money, and to secure its payment, by giving its bonds in the manner that it did, secured by a pledge of its assets.
X. The company had the right to transfer its funds to Palmers & Go., in the manner that it did. (1.) The resolution under which the bonds were issued states that “ it is expedient, and the company are hereby authorized to issue nine hundred bonds,” <fcc. Xothing is. said about negotiating them ; and the recital in the trust deeds, that it was intended that they should be negotiated, did not require the company to negotiate them
XI. The bonds ought not to be declared void on the ground of usury.
XII. There was a sufficient compliance with that provision of the statute which requires that a contract made by a banking association shall be signed by the president and cashier, in their signing the bonds without signing the indorsements.
XIII. The debts, for the security and payment of which the bonds were given, were valid. (1.) The fact that the money loaned by Palmers & Co. had .been secured by state stocks illegally purchased, or had been used to pay for such stocks, did not render their debt illegal. (2.) Neither the consent signed by Palmers & Co., nor the order made by the chancellor, precludes this court from inquiring into the validity of the debts of Palmer & Co.
XIV. The debts of the Philadelphia banks are valid.
XV. The million and first half million trust deeds, and the bonds mentioned in the original bill of complaint, are valid. The title and claim of the plaintiffs in the original bill in and to the mortgages and other property assigned to them by the said trust deeds, and to the avails and proceeds thereof, are valid. The holders of the bonds mentioned in the original bills.
Edwards, Mitchell and Roosevelt, Justices.]