Bank of Newberry v. Stegall

Ellett, J., delivered the opinion of the court. This action is founded on a penal bond, given by Joseph Brown, as principal, and the other defendants vas his sureties, dated July 24, 1857, in 'the penalty of $40,000, with the following condition: “ Whereas the above bounden Joseph Brown, having been duly appointed agent of the said bank at Smith-ville, Monroe county, and State of Mississippi, is, by the condition of his appointment, to give good and sufficient security for his conduct: Now the condition of this obligation is such, that if the above bounden Joseph Brown shall and do well and faithfully discharge the duties of the said appointment during all the time that he may continue therein; and shall well and faithfully account for all the moneys, goods, and choses in action belonging to the said bank, or which it may be accountable for, which shall conle to the hands or care of the said Joseph Brown, agent; and shall, whenever required, faithfully account for, pay over, and deliver unto the said bank, their certain attorney, agent, or order, the said moneys, goods, and so forth; and shall indemnify and hold harmless the said bank from all damages and loss which the said bank may incur or become liable to pay, by reason of any act, error, or neglect of said Joseph Brown; and shall fulfil all the trust that shall from time to time be reposed in him as such agent, then this obligation to stand void, or else remain in full force and virtue.” — 181 — The declaration alleges that Brown had been appointed to the agency, and had given bond to the like effect in the year 1855, and had received from the bank, as sneh agent, large sums of money to be invested by him, as agent, in bills of exchange, checks, and other commercial securities, for and on account of the bank; and being desirous of receiving further sums for the same purpose, and of continuing the agency, he executed, on the requirement of the bank, the bond now sued on, as additional and cumulative security; and that he was entitled to certain fees, rewards, and pecuniary emoluments for his services. It is averred also, that it was the duty of said Brown, as such agent, under said appointment, to take charge of all moneys, bank-notes, credits, and evidences of debt, to be sent to him, or placed subject to his control or order, and with the same purchase for said bank, good, solvent, and available bills of exchange, promissory notes, and other negotiable commercial securities, in which banks, bankers, and exchange brokers usually deal; and to send the same and account therefor to said bank, or to its order or credit, as desired; and to return and properly account for all moneys, bank-notes, credits and evidences of debt that might remain uninvested; and to indemnify and save harmless the bank from all loss or damage by any act, error, or neglect of said Brown, as agent. The declaration further alleges that after the execution of the bond sued on, the bank placed in the hands of said Brown or subject to his order or control, as such agent, large sums of money, bank-notes, checks, credits, and other evidences of debt, and commercial securities, to the value of $600,000, to be used and invested by-said Brown, as such agent, in the discounting and purchasing for and on account of said bank, of good, solvent and available bills of exchange, promissory notes, checks, and other commercial securities and evidences of debt, such as banks, bankers, and exchange brokers usually deal in; and assigns four breaches of the condition, to wit: 1. Failure to pay over, or account for, the money and securities in his hands. — 182 — 2. Failure to invest in good securities, and purchasing such as were insolvent and unavailable. 3. Refusal to deliver to plaintiff such good, solvent and available securities as were discounted and purchased by him, or to account for the same. 4. Failure 'to indemnify the plaintiff against certain bills of exchange discounted by him as agent, and which were protested, and taken up by plaintiff; and failure to indemnify against the expenses, of such protests. To this declaration the defendants pleaded twenty-nine pleas, many of which are utterly frivolous, and only calculated to confuse, embarrass and delay the cause, and to obstruct a fair examination of its merits. The whole defence relied op could have been made under the plea of non est factum, or might have been presented in a single special plea. Indeed the defence was finally made by extending back the demurrer of the plaintiff to his own declaration, without any serious effort to support the great mass of the pleas. The tenth, eleventh, twelfth, and thirteenth pleas set forth, with slight variations, that the agency of Brown was created, in violation of the laws of Mississippi on the subject of banking, for the purpose of employing part of the effects of said bank in making discounts of paper, and carrying on the business of banking in this State; of issuing in this State, and putting in circulation here, its notes ; and of keeping an office in tins State, for the issuing of its notes for circulation as money; and that all these things were done by Brown, as agent, under said appointment, and that the bond was required from Brown to secure the performance of these acts, all which it is insisted were illegal. These four pleas wei’e among those demurred to, and ujDon the facts therein stated the material question in the cause arises. Notwithstanding the apparent effort to cover up and conceal the true character of the proceeding, by the use of general and indefinite phraseology in the condition of the bond, the declaration itself sufficiently shows that the object of the plaintiff was to establish an agency, and to open an office, in this State, for — 183 — the purpose of carrying on the business of banking, by discounting notes, loaning money, and buying and selling checks and bills of exchange. The averments of these pleas put the matter beyond the possibility of doubt, and show further what was inferable from the declaration, that the issuance within this State of the notes of the bank, and putting them in circulation here, was also a part of the arrangement. In effect, the transaction disclosed by the pleadings is, the creation, by a chartered bank of the State of South Carolina, of a branch bank in the State of Mississippi, and the transfer, hither of a large portion of its capital, to be here employed by it in the business of banking ; the inducements being the evasion of the restrictions of its charter on the subject of interest, and-the putting out of its circulation at a point remote' from the parent institution, where there would be no obligation to redeem it, and where time and expense would be required in order to present the notes to the bank for payment. The bond sued on, given to secure the faithful performance, by the agent, of all the duties involved in the execution of this scheme, was not valid unless the object of the appointment was itself lawful. It is not necessary to inquire whether it was valid by the laws of South Carolina. It is sufficient that, if given in the prosecution of a purpose to violate the policy or law of this State, and to secure the plaintiff against loss by the conduct of his agent in such unlawful pursuit, it must be held to be totally void. The question then is, whether it was lawful, at the date of this obligation, for a foreign banking corporation to create such an agency in this State, and by such means to employ its capital here in the business of banking. It is not necessary to,speak of policy where the subject is regulated by positive statute law; but it would not be difficult, irrespective of the particular statute, to show that such a transaction was in violation of the settled public policy of this State. The policy of the State of Mississippi in relation to the exercise of the franchise of banking within its linjits, is clearly defined and established. Since the year 1831, no bank has — 184 — been incorporated in tbis State, and all such institutions, existing or authorized at that date, have been put out of existence. The disasters brought upon the people of the State, about that period, by their excessive multiplication, and the enormous expansion of the currency by means of their issues, led to the adoption of the most vigorous measures for their extermination. In 1810 the most stringent provisions were enacted for restraining the operations of the banks then in existence within proper and prudent limits, and for compelling'the redemption of their notes in specie. In 1813 an act was passed directing informations in the. nature of a quo warramto, to be filed, against all that had not complied with this act, or that had in any manner violated their charters; and, under its operation, all the banks in the State were speedily dispossessed of their franchises, by judgments of forfeiture and ouster. This legislation is a true exponent of the policy of the State, and shows that since 1810, at least, the almost unanimous sentiment of the people has been adverse to allowing the banking system to obtain a foothold in our limits. During all this time the legislature has steadfastly resisted all efforts to induce a departure from this policy. The single exception found in the legislation of 1862, was indulged under very peculiar and pressing circumstances, as a supposed measure of relief, in an unprecedented condition of affairs; and on the first opportunity it was obliterated from the statute book, and a return made to the policy that had been firmly persisted in for more than twenty years. The final evidence of this policy is to be found in the provisions of the act of Feb. 15, 1840 (Hutch. Code, §28), “ to prevent unauthorized banking,” passed expressly to enforce it. The first section of this act provides that “ no person, unauthorized by law, shall subscribe to, or become a member of, or be in any way interested in any association, institution,'or company, formed or to be formed, for the purpose of receiving deposits, making discounts, or issuing notes or other evidences of debt, to be loaned or put in circulation as money ; nor shall any person, unauthorized by law, subscribe to, or become interested in any bank or fund, created or to be created, for the like — 185 — purposes, or either of them.” The third section enacts that “ no incorporated company, without being authorized by law, shall employ any part of its effects, or be in any way interested in any fund that shall be employed for the purpose of receiving deposits, making discounts, or issuing notes or other evidences of debt, to be loaned or put in circulation as money.” The, sixth section provides that “ no person, association of persons, or body corporate, except such bodies corporate as are expressly authorized by law, shall keep any office for the purpose of receiving deposits, or discounting notes or bills, or issuing any evidence of debt to be loaned or put in circulation as money, nor shall they issue any bills or promissory notes, or other evidences of debt, as private bankers, for the purpose of loaning them or putting them in circulation as money, unless thereto expressly authorized by law.” The second, fourth and seventh sections impose appropriate penalties for any violation of these provisions; and the fifth declares all notes, or other securities, discounted, or given for moneyToaned in violation of the first and third sections, to be void. This act was continued in force from the period of its adoption until the first of November, 1857, when it was superseded by the Revised Code, which contains sfibstantially the same provisions. . • Banks are of three kinds, to wit: banks of deposit, of discount, and of circulation. An institution may be restricted to one, or may combine any two, dr all, of these functions. So far as it was possible, the State of Mississippi has put the seal of her disapprobation upon the entire system. As long as neighboring states chartered banks, and allowed the manufacture and use of paper money, it was impossible absolutely to prohibit its circulation in this State without the most serious inconvenience. Accordingly the circulation of bank-notes, issued in other States, has not been prohibited; the eighth section of the act of 1840, being directed against a particular species of currencj', known as “ sliinplasters,” the character of which is well understood from that designation; but the-whole businesss of banking in this State, except by such banks as then existed, or might — 186 — thereafter be created, was absolutely prohibited. The interdiction was intended to operate in this State upon all persons, natural or artificial, wherever residing or domiciled. The exception created by the use of the words, “ unauthorized by law,” is only in favor of such institutions already existing as possessed these powers by virtue of charters granted by the legislature of this State. The establishment of the agency or branch at Smithville, by the Bank of Newberry, was a palpable violation of the three sections above quoted from the act of 1840. 1. The bank did not merely subscribe to, and become interested in, an association, company, or fund, formed or created for the purposes condemned by the first section, but it constituted the company itself, and contributed the whole fund to be employed. 2. It employed its effects, and was interested in the fund used for the purposes prohibited by the third section. 3. And it kept an office for the purposes forbidden by the sixth section. The bank was the guilty agent in the whole transaction. The appointment of an agent to execute these illegal purposes, was itself illegal. The bond sued on arises directly from, and is immediately connected with, the unlawful transaction. It was contemporaneous with the renewal of the appointment, and it was taken with a view to bind the agent to perform the unlawful acts, and to secure to the bank the profits arising from it. The proposed violation of the law of this State was therefore the only consideration on which it was founded, and the consideration being unlawful the bond cannot be supported. It is argued for the plaintiff that inasmuch as in 1857 the legislature laid a tax of “ two per centum on bank paper of any other State, sent or brought into this State, by any corporation or individual issuing the same, for the purpose of being loaned, or put in circulation by way of loan or brokerage, or in the purchase of bonds, notes or bills of exchange,” therefore it must be understood that the act of 1840 was not intended to prohibit the establishment of such agencies as that disclosed in this case. That the act did import such a prohibition, we have already shown. Repeals by implication are never favored, and — 187 — it does not at all follow, because the business was taxed, that it was intended to repeal the prohibition and legalize the proceeding. In fact, we think, the tax was resorted to only as a means of more effectually enforcing the prohibition. The enormous amount of it, with the consequent liability to county taxation likewise, shows that revenue could not have been expected to arise from it, and that prohibition must have been intended. It might as well be argued that the tax of one hundred per cent, levied on “ unauthorized issues of paper money,” by the act of January 3, 1863, was designed to take off the penalties against shinplasters, and to legalize their issuance. It is also contended that that part of the bond, at least, which requires Brown to account to the bank for the money he received, was good, and that if one part is good, and can be separated from the bad, the whole will not be held void. But to bring the case within the rule invoked, the good matter must be entirely independent of the bad; for if the part that is good depends upon that which is bad, the whole instrument is void; and so if the good and the void consideration be so mixed, or the contract so entire, that there can be no apportionment. 2 Kent, 468. In this case there was but one consideration, and that was unlawful. The money and property sought to be recovered were placed in the hands of the agent for an unlawful purpose, and were used by him, in pursuance of his employment, in an unlawful pursuit; and to say that the bank can now recover, at law, the fruits and profits of the illicit venture, or the balance remaining in the. hands of the agent at its close, would be to cover the whole proceeding with a legal sanction. This we cannot do. The judgment of the court Below carries out the views we take of the merits of the case, -and will therefore be affirmed.