Bank Commissioners v. St. Lawrence Bank et al.

Bank Commissioners v. St. Lawrence Bank et al. Banhmg powers. — Pod-notes. Post-notes, bearing interest, given by a banking association, upon a purchase of state stocks, for the purpose of raising money to redeem its circulating notes, are void, in the hands of an accommodation indorser, by whom they have been paid; the latter being chargeable with notice of the illegality of the transaction. Bank Commissioners v. St. Lawrence Bank, 8 Barb. 436, reversed. Appeal from the general term of the Supreme Court, in the fourth district, where a decree made upon the report of a referee, to whom had been referred the accounts of the receiver of the St. Lawrence Bank, an insolvent banking association, had been affirmed. (Reported below, 8 Barb. 436.) The St. Lawrence Bank having become insolvent, its property was put into the hands of a receiver, and after a conversion of the same into money, a referee was appointed to ascertain, among other things, who were the creditors of the bank, the amounts due to them, respectively, and what sum each was entitled to receive out of the assets in the hands of the receiver. On the 1st November 1848, the referee reported that the assets for distribution amounted to $23,617.16, and the debts to $149,321.96; that among the debts owing by the bank was one of $49,413.20 to the Farmers’ Loan and Trust Company, and one of $76,680.32 to Henry Van Rensselaer. The Farmers’ Loan and Trust Company objected to the allowance of the latter claim, which arose under the following circumstances: In April 1841, the bank being embarrassed, the directors, by resolution, authorized Henry Van Rensselaer, the president, and Egbert N. Fairchild, the cashier, to raise money to redeem its outstanding circulating notes. Under this resolution, the president and cashier purchased of the Albany City Bank, $50,000 of state stocks, * 514 1 **n Par* Payment f°r which they gave fifteen -* notes of the St. Lawrence Bank, for different sums, and payable at different times, amounting in the aggregate to $38,069.77, in the following form: “St. Lawrence Bank of Ogdensburgh, April 21st, 1841. $3000. Ten months after date, the St. Lawrence Bank promises to pay to the order of George W. Shepard, at the Albany City Bank, three thousand dollars, with interest, value received. H. Van Rensselaer, President. E. N. Fairchild, Cashier.” These notes were indorsed by the payee, and, among others, by Henry Van Rensselaer. They were protested for non-payment, and were presented to the receiver as a claim against the estate, by the Albany City Bank. Van Rensselaer subsequently paid the notes, as indorser, and they were transferred to him. The referee allowed the claim, and reported a dividend in favor of Van Rensselaer, of $12,127; to which the Farmers’ Loan and Trust Company excepted. The proceeds of the stocks purchased had been applied to the redemption of the notes of the bank. On a hearing of the case, at special term, upon the report and exceptions, before Willard, J., the exception was disallowed, with costs, and the report confirmed; and his decision having been affirmed, at general term, the Farmers’ Loan and Trust Company took this appeal. Myers, for the appellant. Perkins, for the respondent. [MAJORITY — *Ga.rdiner, J. Per Curiam.] *Ga.rdiner, J. The claim of Mr. Van Rensselaer, as I understand it, is upon the fifteen notes made by him as president of the Bank of St. Lawrence, and indorsed by him and others individually. These notes were subsequently paid by Mr. Van Rensselaer, as appears by the letter of the cashier of the Albany City Bank. They were originally given for stock purchased of the City Bank, and afterwards sold to the American Exchange Bank — the. purchase being made under a resolution of the St. Lawrence Bank authorizing the president and cashier to raise money to redeem the circulating notes of that institution. The question is, whether the bank was liable upon the notes, as maker. And, first, the notes were made in violation of the statute, which provides that no banking association shall issue or put in circulation any bill or note of said association, unless the same shall be made payable on demand, and without interest. (Statutes of 1840, p. 306, § 4.) These notes were on time, varying from four to twelve months, and upon interest; they were consequently void. (3 N. Y. and cases cited.) No action could have been maintained against the association upon them, on behalf of the original payees, and certainly not, on behalf of the indorser, who himself was president and aided in the violation of the law. Should it be admitted, that the City Bank could have recovered against Van Rensselaer, it would not aid him in this proceeding. I do not see how an assumpsit can be implied in favor of the president, from a transaction which the law declares to be a misdemeanor on the part of that officer. *The resolution of the directors authorized the f president and cashier to raise money to redeem *- the circulating notes, but this object we are bound to presume was to be effected in a legal manner. It is enough, that the corporation could be bound in no other way, either by the financial officers or the directors of the bank. II. The purchase of the stock for the purpose of pledging or selling it as a means of raising money, is not within the powers conferred upon the association by the 18th section of the statute to authorize the business of banking. Such an operation would be evidence, of itself, that the institution was seriously embarrassed, if not insolvent, and cannot with any propriety be deemed a necessary incident to the power of banking. Since this cause was argued, the case of the State of Ohio v. Leavitt (ante 328), in this court, has been decided, and the question as to the power of banking associations to purchase stock for the purpose of traffic, or with a view to a sale to sustain their credit, has been decided in the negative. The judgment in that case is decisive of the point now under consideration. (Dickerson v. Valpy, 10 Barn. & Cress. 128.) As the association was authorized to purchase stocks for a special purpose (Law of 1838, § 2) the court would imply, in the absence of proof, that they were lawfully acquired. But here the evidence is explicit, that the purchase was made under a resolution to raise money, and for that object alone. The City Bank, who were the vendors, might have been ignorant of the use to be made of their property, but the president who conducted the negotiation in behalf of the vendees is to be charged with full knowledge that he was acting without authority to bind the association. It is said, that the money realized by the sale of the stock, and which was appropriated to the payment of the circulating notes, was money paid for the use of the corporation. There is no evidence what amount was thus realized. The claim preferred is on the notes, or for money paid by Van Rensselaer in taking them up. It is the sum agreed to be paid for the bank, and not what was received by the association from the sale of the stock, *which was allowed by the referee, _ and is the .subject of the exception. I think, the exception well taken, and that the decree should be reversed. Per Curiam. Ordered, that the judgments of the supreme court, at the special and general terms, be reversed, and the exception of the Farmers’ Loan and Trust Company to the report of the referee be allowed; and that the cause be remitted to the supreme court t<? be proceeded in accordingly. Judgment accordingly.