Rockwell v. Elkhorn Bank

By the Court, DixoN, C. J. It is a universally accepted principle, that corporations authorized generally to engage in a particular business, have, as an incident to such authority, the power to contract debts in the legitimate transaction of such business, unless they are restrained by their charters, or by statute, from doing so. It is likewise an equally well acknowledged rule, that the right to contract debts carries with it the power to give negotiable notes or bills in payment or security for such debts, unless the corporations are in like manner prohibited. These positions are abundantly sustained by the authorities cited by the respondent’s counsel. That our banking associations are corporations possessing general powers in relation to the business which they are authorized to transact, is not questioned. The powers usually exercised by such institutions are expressly conferred by the 4th section, and in addition it is declared that they may exercise “such incidental powers as may be necessary to carry on such business.” It is not contended that the act contains any express words by which they are prohibited from giving negotiable notes or bills, but on the authority of Safford vs. Wyckoff, 1 Hill, 11, and Smith vs. Strong, 2 Hill, 241, it is insisted that they are restrained by the general frame and scope of the statute, and the policy which led to its enactment. It is said that if they are allowed to issue negotiable paper independently of the agents of the state, such paper will take the place of the currency which they are authorized to issue, and be circulated as money, and that thus the' supervision of the state officers and the security of the bill holders will be entirely thrown away. These cases, however, were expressly overruled by [656] in Safford vs. Wyckoff, 4 Hill, 442, and decision has since received the unqualified sanction 0f the court of appeals. 15 N. Y., 9; 19 N. Y., 152. 'Without entering into any discussion of matters which are there so fully examined, we may say that the reasoning of the chancellor and senator Hopkins in the court' of errors, is far more conclusive ^nd satisfactory to our minds than that of the supreme court. It clearly appears to us, that like other corporations, these banking associations must, in the absence of express prohibition, be held to have the power to give negotiable notes and bills, by a necessary implication from their power to contract debts in the regular course of their business. No one denies their power in the last respect. They may make agreements for the purchase or hire of their banking houses, for the payment of rent and the salaries of officers and employees, and for many other purposes necessarily connected with the lawful transaction of their business. And if they do so, we perceive no reason which would prevent them giving negotiable notes and bills in security or payment of debts thus contracted, which would not operate with equal force to prevent other corporations and private individuals from doing the same thing, unless it should appear that the notes or bills were given under such circumstances and in such form as to make it evident that they were designed as an evasion of the 10th section of the act, in which case they would of course be void. If executed in the ordinary form of such instruments and for legitimate purposes, we can perceive no possible detriment or wrong which is to result to the public from their use. Certainly there is no person so ignorant or stupid as to mistake them for the legitimate currency of the bank. If they are transferred, they pass, like other negotiable paper, upon the responsibility of the makers and indorsers, if they have any. No one would take them, believing them to be secured by a pledge of public stocks, and consequently no one would be deceived or imposed upon. Neither would they impair the protection afforded by the law to the holder of bills issued pursuant to its authority. Their security consists in the stocks deposited with the state treasurer, which cannot be reached [657] except by the redemption of the circulation, of the bank. We think, therefore, that such- associations may give tiable notes and bills in the ordinary course of their business, and that such notes and bills are valid. By the 10th section of the act, the legislature manifestly intended to prescribe the form and tenor of bills or notes which are intended be put in circulation as money. Such bills and notes mnst be payable at the office where the business of the association is conducted. They must be payable on demand and without interest. If not so made they are declared to be unlawful. But this section is, by express words, confined in its operation to notes or bills issued for that purpose, and was not intended to affect or govern the execution of negotiable notes or bills of the ordinary character. These are left to such regulations as to time and place of payment and rate of interest, as the wishes and convenience of the parties may dictate, subject to the general laws which govern such matters. In the case before us it is not pretended that the note was given for any unlawful purpose, or in the transaction of any business which the bank might not lawfully do. It was given to secure to the respondent a balance due for moneys deposited, and for his salary as one of the officers of the association. The debt was honest and fair, and the law would have enforced its payment. How then were the interests of the public, or of third persons, affected by the mere change of its form ? Clearly not at all. Neither is it claimed that the note was given for the purpose of being circulated as money. The good faith and honesty of the parties, both in giving and receiving it, are not called in question. It is therefore a valid security, unless the objection that it is not executed in the manner required by section seven is well taken. There can be no question as to the power of the legisla] ture to prescribe the manner in which corporations shall contract ; and when it has so done, the mode, prescribed must be strictly pursued or the contract will be invalid. The seventh section declares that contracts made by such associations, and all notes and bills by them issued and put in circulation as [658] money, shall he signed by the president, or vice president, and cashier. A like provision in tbe banking law of New York bas given rise to mucb debate and some contradictory decisions in that state. It is discussed in tbe three cases in Hill, in tbe last of wbicb it was beld to apply only to agreements where both parties became obligated, and to notes and bills issued for circulation as money. This decision was reaffirmed by tbe court of appeals in Barnes vs. Ontario Bank, 19 N. Y., 152, though not without reluctance on the part of some of the members of the court, and it is now the settled law of that state that negotiable bills, notes, drafts and other instruments of that nature, are good if executed by the cashier or other agent properly designated and authorized by the associates for that purpose. The reasoning in support of this restricted application of the word “ contracts” is, that if the legislature had intended to apply it to all agreements, according to its general sense, then notes and bills issued and put in circulation as money would not have been specifically named. The express mention of notes and bills of a particular kind shows that they were not embraced in the general term “ contracts,” and by implication that no other were intended so to be; and hence, that as to all others, the bank is at liberty to adopt such methods and appoint such agents for their execution as it may see fit. Those who oppose this construction understand the word “ contracts” in its general sense. We have concluded to adopt the construction which was finally sanctioned by the courts and has become the settled law of New York, and shall therefore hold that the note was properly executed by the cashier alone. Judgment affirmed.