New York Firemen Insurance v. Sturges

[Woodworth, J. I do not understand the plaintiffs’ counsel as contending for the general power of discount. Most clearly that cannot be sustained.] — 670 — Wells. The case of the Utica Insurance Company v. Scott, was a much stronger case for the plaintiffs than the present. What possible difference is there from a mere bank discount ? In substance it will be found the same. 2. The note is void within the restraining act. This posi tion was also examined in-the Utica Insurance Company v. Scott. There, as here, the funds of the company were applied to the discount of notes. The argument on the other side would authorize any and every corporate body to discount, without regard to the original object of the institution. It is not necessary, in order to bring thém within the operation of the restraining statute, that the company should issue bills. The act is in the alternative. They are not to associate for the purpose of issuing notes or receiving deposits, or making discounts. The going contrary to either alternative will work the same effect as a total-violation. The object was to prevent the use of moneyed capital, in all the various modes which the banks had adopted. Nothing short of this could, completely protect the charters of these companies, many of whom had paid heavy considerations for their franchise. Here, we find money employed in one of the essential operations of banking. Nor would the action lie upon the money counts, as was hinted in the Utica Insurance Company v. Scott. It is brought against the endorser. • Our reasoning will not, as supposed, operate in restraint of individuals, though carried on openly and avowedly.(i) T. A. Emmet, (same side.) The intention of the restraining statute is to deny all excuse for discounting, whether generally or in particular instances, and does not apply itself to the intent with which the act is done. If the company discount at all, they have a fund for the purpose, within the 2d section. Otherwise, what number of discounts shall settle the point—ten, twenty, thirty, or what other number 1 The intention is to restrain banking operations to bodies incorporated for that purpose; and no shift or evasion should be re — 671 — ceived to justify an act of violation, however úinocent the intention. But this transaction was not a mere extension of credit. The note is entirely distinct, and disconnected with the premium consideration. The parties are different—the amount more. It is not the continuation of a debt. The original premium note is set off, and the balance paid, thus performing a distinct banking operation, and usurping .the franchise of incorporated companies. This is not an incidental power; for if so, why does the 3d section of the act of 1818, prescribe the mode of taking security ? It is to be by bottomry, respondentia, or mortgage of real'estate or chattels real, &c.— not by notes or bills. Were not the powers to loan on mortgage equal! y incidental 1 It isplain, therefore, that an incorporated company has not the same powers, even in relation to securing debts, as an individual. This was ruled in the Utica Insurance Company v. Scott and is abundantly settled in the English cases cited by my associate. 'A corporation have a right to sue, and to secure their debts in the particular manner pointed out by the act, but in no other. They cannot, even in this respect, exercise under their general powers the same rights as a natural person. Here are several acts of discounting. For the purpose of deposits, they use another bank, on which a check is given, in order to pay the balance. They thus derive all the substantial benefits of deposit as well as discount. Had the old company pursued this course, would it not have been pronounced a plain evasion of the law ? Would they have been allowed to call it a benevolent extension of credit to an individual, or for the plain purpose of profit to themselves ? We have seen that the plaintiffs are still farther restrained. They are made trustees, and are limited to a discharge of their trusts in a particular manner, and are restrained in terms, by the 3d section, from the exercise of banking powers. In discounting, therefore, they have not only violated their duty as trustees, but transcended their powers as corporators. S. Jones, in reply. I shall void, a discussion of the powers of this corporation, so much talked of on the other side, — 672 — to carry on the business of discount, because they can have no application to the case. The corporation not only ceased to exist a number of years since, but here was no act resembling a discount, properly so called. Two debts were due on notes, to the old company, for' premiums of insurance. Butler was also-indebted to the plaintiffs in another sum of about 400 dollars, which, by legal intendment, was properly contracted. The notes lay over and were past due. The debtors applied to the plaintiffs and offered a note of $1000, covering all the demands, and asked them to take it, and pay back the balance: they comply, and this latter act is relied on as vitiating the transaction. But what were they to do ? The debts are bad; the original notes are protested; there is no previous agreement that the $1000 note should be procured in the market- for the purpose of discount. A rejection might have resulted in a loss of the debts. The witness’ calling this transaction a discount, does not make it so. The note was taken expressly in payment, and to condemn it on this ground, would be a sacrifice of sense to sound. The note was continued down in the same way, by the trustees, under the new act. The argument on the other side presupposes a state of facts and a course of conduct which does not exist. If the origin of the debt was fair, and the note valid, could not the trustees receive payment, or, what is the same thing, a new note as a substitute ? The original note being due, in conscience, if paid, could never be recovered back, and it is conceded to us, that the original debt may be due, though it is contended that the note is void and the endorser not liable. It is said that a corporation can exercise no powers, except those expressly delegated or necessarily incidental: Granted. Here is an insurance company having funds. Now is there no way of employing these fonds, by investing and making them, yield a profit? and as incidental to that right, may they not be invested in any way "not prohibited by the statute ? It does not follow, that because the statute authorizes an investment in mortgages, respondentia bonds, stock, &c.; that this delegation of power precludes the exercise of all others. This clause is in the shape of a limita! — 673 — tion; not for the purpose of conferring power. Without it, the company might have swelled, their real estate to a dangerous extent. Accordingly, the 3d section goes on conferring certain rights, but provides, in- the last clause, that the company shall not exercise banking powers. These clauses imply, that without the specific restriction, their rights, would have been much more extensive. Suppose, then, the company, instead of taking mortgages, had invested all their funds in notes, renewing them from time to time, as they have done here ; would this have been to violate the object of the institution? The securities should be such as to enable the company often and suddenly to command. their funds. They are liable to great and unexpected losses. Such a company ought".always to have their funds forthcoming at three ar four months; and there is no way so.effectual for this purpose, as an investment in notes, which always rank next to money. This transaction was a mere continuance of such an investment. Besides, the principle contended for on the other side, would drive the company to a course of prosecutions and judgments, instead of taking securities, unless the power to secure their debts should be expressly conferred by the charter of incorporation. Such a clause was, I believe, never thought of. As to the language of. the restraining act; when we define general terms used in a statute, we must be careful not to make our definition too extensive. That of banking powers, used in this statute, if we take the definition of the other side, would restrain discounting and lending money on notes, in all cases, as well in respect to individuals as corporations. The statute avoids all promissory notes issued contrary to its provisions, but it never was intended to restrain individuals from issuing them. The real question is whether this be a continued employment; whether it be one regular branch of business with individuals or corporations. It is this alone, which the statute, was intended to reach. They must employ the fund mentioned by the statute solely or principally to this purpose, or it .is not violated. A single individual was excepted by the act or rather not reached by it; and this was the ground taken in Bristol v. Barker, (14 John. 205,) but after the decision of that case came — 674 — the statute of the 21st of April, 1818, extending the same prohibition of the general restraining act to every individual in the state, whether acting alone or jointly with others. -yye are tben warranted in saying, that the principle contended for, would reach individuals engaged in business. It takes in the whole commercial world. There is hardly a commercial house in the city of New York, which does not perform banking operations, if this may be called so. It is asked where is the limit? I answer, you must show the operation followed up for banking purposes. This is a fact to be proved on the trial. Suppose an action for the penalty imposed by the act for banking: would a single act of discounting, sustain it in evidence ? No. The jury could not find the defendant guilty until this should be shown to be his regular business. Indeed, if I understand the cases of The Utica Insurance Company, they are placed on this ground, viz; that they had set themselves up as a banking institution. The plea in the last case sets forth that fact, and had the company been able to traverse this, or that the note was not issued in the course of such a business, they would have recovered. They could not do it, and’1 he plea was holden good. It lies with the party seeking to avoid the note, to show this general object. Again ; the new act impliedly gives power to negotiate in this manner, to the new company. • These have a distinct duty to perform as trustees, from that which they have a right to exercise as a company. In relation to these trusts, they act as individuals. Their character, as it stood under the old or new corporation, does not attach to them. Years must elapse before the business of the old company can be finished, and their concerns settled upon open policies and other matters. Must these trustees, during all that time, confine themselves to a dead deposit ? Can they not place their funds out at a profit ? and this either on bond or note ? Nor does it lie with the debtor to object that here is a breach of trust. Such an objection can be made only by the cestuy que trust in the event of a loss, The excess of interest depends merely on the mode oí dividing the year into aliquot parts, without any intention oí — 675 — usury. It is like taking 365 days for a year, when perchance it is leap year, and contains 366 days. Woodworth, J. It was decided in the case of the Manhattan Company v. Osgood, (15 John. 162,) that discounting a note at seven per cent, and taking interest in advance, was not usury. By the act of incorporation, no power is given to discount notes. It was created for the sole purpose of insurance. The company have no rights, except such as are specially granted, and those that are necessary to carry into effect the powers so granted. (15 John. 383.) The act of 27th Feb. 1818, authorizes the directors to close and wind up the business and concerns of the company. The original note was discounted in 1817, to pay a demand against Ogden & Harrison, and another against Thomas C. Butler ; it. exceeded these demands $20. The excess was paid over to Peters & Harrison, the drawers. I have no doubt that the plaintiffs might lawfully take notes for pre-existing debts for insurance, and renew them, but the charter gave them no right to discount on the funds or moneys in their hands. . If the charter does not give them banking powers, so far as they travel out of their grant, they act as a company of private persons, and become a mere association, doing business without any express authority by law. (15 John. 381.) The restraining act, 2 vol. R. L. 234, applies to an association, institution or company, for the purpose of issuing notes, receiving deposits, making discounts, or transacting any other business, which incorporated banks may do, and declares that all notes given to any such association, institution or company, shall be null and void. It appears to me that this case does not fall within the words or intent of the statute, for there is no evidence that the plaintiffs associated for the purpose of carrying on, or actually transacted any business prohibited by the act, unless the insulated fact of discounting a note, which exceeded the amount of the debt due — 676 — the plaintiffs, $20, was unlawful. This circumstance I presume was accidental, and most probably has arisen from •> want of knowledge of the precise sum due for insurance^ when the note was drawn. The small amount urged as a discount on the funds of the institution, forbids the conclusion, that it was a business transaction of lending and borrowing. The benefit to be derived by either party, was too trifling to suppose for a moment, that the note was intentionally drawn to obtain a discount of $20. I infer from the facts, that Peters & Harrison, intending to assume the ’ notes held against Ogden & Harrison, and Butler, drew the note in question, for $1000, about equal to "the debt to be assumed; it turned out, on calculation, that they were entitled to the return of a few dollars, which the plaintiffs advanced. The restraining act does not apply to such a casé, consequently the note is not void. I am of opinion that the plaintiffs are entitled to judgment. Sutherland, J. In this case the note is shown to have - originated in a debt due to the plaintiffs fo.r premiums of insurance. The case states, that on the 30th August, 1817, the plaintiffs were the holders of certain promissory notes, drawn by Ogden <fc Harrison, and endorsed by Thomas C. Butler, amounting to about $500, for premiums of insurance ; that, at the same time, Thomas O. Butler was indebted to the plaintiffs in another sum "of upwards of $400; that" Butler offered the plaintiffs a note for $1000, drawn by Peters & Harrison, for discount, the proceeds to be applied to be applied to the note of Ogden & Harrison, and the debt of Thomas C. Butler. It was discounted, the proceeds so applied, and the balance, about $20, paid to Butler. The note on which the suit is brought, is a continuation of the note drawn by Peters <fc Harrison. It is not expressly stated in the case, that Butler’s debt was for premiums due to the company; but from" the manner in which it is stated, it may be fairly, inferred. In the absence of all proof to the contrary, we should intend that it was a debt of that description. The plaintiffs had a right to give credit for their premiums; and to continue the credit by a renewal or discount of notes. — 677 — The parties to the notes being changed on some of the renewals, does not alter the character of the transaction. It was still a debt due for premiums. Nor does the fact, that the1 noté first discounted exceeded the debt due to the company to a small amount, and that the excess was paid to Butler, vary the case. It was evidently the intention of the parties that the note should be for the amount due only ; but upon stating the account, and casting the interest, there was found to be a trifling difference of $20. This fact will not warrant the inference, that' the object of the parties was a loan, and not an extension of crédit upon a pre-e.xisting debt. The discounting of the note in question was not affected by the restraining act ;(j) nor was the taking the interest in advance usurious. The note in this case was payable in four months. The question which was discussed in the case of these plaintiffs, against Ely & Parsons,(k) as to the principle upon which the interest ought to be calculated, cannot arrise here, except in relation to the days of grace; and there being no evidence in the case to show upon what principle the interest was calculated, even if there should appear to be a tri • fling excess, we are authorized, and, I think, bound to presume, that the error was the result of mistake, and not' the adoption of an erroneous principle of calculation. I am, therefore, of opinion, that in this case the plaintiffs are entitled to judgment. Savage, Ch. J. concurred. Judgment for the plaintiff. Footnotes [(i)] Bristol v. Barker, 14 John. Rep. 205. [(j)] Vid. the opinion of Sutherland, J upon this point, in the next case. [(k)] The next case.