Appleton v. Citizens' Central National Bank

Cullen, Ch. J. This action is brought by the plaintiff as receiver_of_a dissolved bank against the defendant, who is the successor of the Central National Bank of the city of New York. The complaint which thus far has been held not to state a good cause of action alleges that on the 4th day of January, 1904, the bank which the plaintiff represents loaned and advanced to one Mikael Samuels the sum of $12,000 on the written agreement of said Samuels to repay, said siun on or before four months after date with interest, the repayment of which said loan the Central National Bank guaranteed by the following instrument: “ For and in consideration of one dollar and other good and valuable considerations, the Cen" tral National Bank of the City of New York hereby guarantees to the Cooper Exchange Bank the payment at maturity of a loan of twelve thousand dollars, made this day to Mikael Samuels A Co., by the Cooper Exchange Bank; ” that at the time of said loan said Samuels was indebted to said Central Bank in the sum of $10,000; that said loan was obtained by said Samuels and guaranteed by said Central Bank for the purpose and upon the agreement that the said Central Bank should receive out of said loan the sum of said $10,000, which Samuels owed to it, which said sum said Central Bank did receive from Samuels; that Samuels failed to pay said loan except the sum of $1,000. Judgment is demanded for the remaining sum of $11,000 and interest. The Appellate Division decided the case by a divided court on the authority of a decision on a previous appeal. The complaint now before ns is an amended one and the record does not contain the original complaint, consequently we are not informed as to what difference exists between the allegations of the two pleadings. The plaintiff has been defeated on the theory that the exe *420 cution of tito ^guaranty by the defendant bank was ultra vires and jiot binding upon it, and upon this ground the judgments belovrsre sought to be sustained. Had the guaranty been limited to the amount which the bank, under its agreement with Samuels, Avas to receive out of the loan, Ave should be entirely clear that it Avas within the legitimate powers of the bank under the decisions of the Supreme Court of the United States in People's Bank v. National Bank (101 U. S. 181) and Cochrane v. United States (157 U. S. 286). It was there held that a contract of guaranty of paper held by it Avas Avithin the implied powers of a national bank, and this though, as in the later of the cases cited, the note was not made to the guaranteeing bank, but directly to the order of another bank to Avhiclx the guaranty was made. We think, however, that the defendant’s power to guarantee Avas limited by the extent of its interest in the subject-matter of the guaranty. To allow a bank to guarantee the payment by one of its debtors of a larger sum in order that the bank might receive or retrieve a lesser sum would be to permit it to enter upon very hazardous speculation and authorize very wild and unsafe banking. Táte^Jearned counsel for the,? appellant frankly conceded on the argument that a recovery should be limited to the amount received by the defendant. It is insisted, hoAvever, that the contract of guaranty must be deemed either good or bad as an entirety, and cannot be upheld in part and rejected in part. I am not Ayilling to concede this claim, but it is unnecessary to discuss it, for its determination is ~not necessary to the decision of the case. We may assume that the contract Avas ultra, vires. We may further assume that in transactions by national banks_we should adopt the law of ultra vires as it..„pre-vaiJs-_in the Federal courts, and not the local laAv onJlie-subject. Yet the (defendant, in our opinion, became plainly liable for tlie amount Avhich it received under the ultra^ «m^con tract. The law Avhich obtains in this state and in several other jurisdictions is that where one party has received the full benefit of an ultra vires contract it cannot plead the invalidity of *421 the contract to defeat an action upon it by the other party, (Bath Gas Light Co. v. Claffy, 151 N. Y. 24). A contrary-rule obtains in the Supreme Court of the United States. There it is held that the execution of an ultra vires contract by one party cannot confer upon it validity' or authorize the other party to sue on its’ obligations (Central Transportation Company v. Pullman Palace Car Co., 139 U. S. 24), but at the same time it is also held that a party cannot retain money or property received by it under an ultra vires contract when it refuses to perform that contract. (Logan County Bank v. Townsend, 139 U. S. 67.) It was there said by Judge Harlan : “ The bank, in this case, insisting that it obtained the bonds of the plaintiff in violation of the act of Congress, is bound, upon being made whole, to return them to him. No exemption or immunity from this principle of right and duty is given by the national banking act. ‘ The obligation to do justice,’ this court said in Marsh v. Fulton County (10 Wall. 676, 684), rests upon all persons, natural and artificial, and if a county obtains the money or property of others without authority, the law, independently of any statute, will compel restitution or compensation.’ ” In a great many cases the difference between the law prevailing in the Federal courts and that in our own would lead to great difference in results. In this case, however, as the plaintiff disclaims any right to recover bey'ond the amount actually received by the defendant, the result is exactly the same whether we adopt one rule or the other. Whatever the difference of view there may be as to the effect of ultra vires on corporate contracts, in no jurisdiction can a party retain what it has received under such a contract and refuse to perform the contract. It is urged by the counsel for the respondent that payment by its debtor of the claim it held against him constituted no consideration for the guaranty, for the debtor was bound to perform his obligation. There is no force in this suggestion. The money the defendant received was not that of Samuels, but the plaintiff’s, and Samuels was merely the conduit through *422 which it was paid to the defendant. It is not a question of consideration between Samuels and the plaintiff, but of consideration between the plaintiff and the defendant. The plaintiff parted with its money solely on the guaranty of the defendant. Whoever heard that the loan of money to the principal was not sufficient consideration for the obligation of the surety? In this case it was the surety who got the money. Nor is there any force injdie. suggestion- that this action is not brought in disaffirmance of the contract for money had and received hut on the contract of guaranty. All the facts are set forth in the complaint, and if these facts entitle the plaintiff to relief on any theory, then the complaint states a good cause of action. The judgments of the Appellate Division and Special Term should be reversed and judgment rendered for plaintiff on demurrer, with costs in all the courts, with leave, however, to the defendant, within twenty days, to withdraw demurrer and serve answer upon the j>ayment of such costs. Gray, Haight, Werner, Willard Bartlett and His-cock, JJ., concur; Edward T. Bartlett, J., taking no part. Judgment accordingly.