Case Name: John P. Reznor and others v. Hatch & Langdon
Court: Supreme Court of Ohio
Jurisdiction: Ohio
Decision Date: 1857-12
Citations: 7 Ohio St. 224
Docket Number: 
Parties: John P. Reznor and others v. Hatch & Langdon.
Judges: Swan, Brinkerhoee, and Sutliee, JJ., concurred.
Reporter: Ohio State Reports, New Service
Volume: 7
Pages: 224–232

Head Matter:
John P. Reznor and others v. Hatch & Langdon.
The discounting of a bill of exchange by the Kentucky Trust Company Bank, at Covington, in the State of Kentucky, and the loan of its notes of f, circulation thereon, with' the understanding that said notes should be paid out in the northern part of the State of Ohio, in the purchase of produce, are not acts which fall within the prohibition, or contravene the policy of the act of February 24, 1848, “ to amend the act supplementary to the act to prevent unauthorized banking, and the circulation of unauthorized bank-paper.”
In error to the Superior Court of Cincinnati, at general term.
An action was brought by Hatch & Langdon, in the Superior Court of Cincinnati, upon a bill of exchange for $2,500, drawn by John Gr. Camp, in favor pf C. T. Sherman, upon J. P. Reznor, %nd accepted by him, dated at Sandusky City, September 10, 1854, and payable in New York in ninety days after date. The bill was indorsed in blank by C. T. Sherman, the payee, and H. P. Lang-moor, cashier of the Kentucky Trust Company Bank, to Hatch & Langdon; who, after causing it to be protested at maturity, and giving proper notice of non-payment to charge the parties, brought their action, as indorsees and holders of the bill, against Camp, the drawer, Sherman, the first indorser, and Reznor, the acceptor.
The cause was tried by the court at special term, without the intervention of a jury, and judgment rendered against all the defendants for the amount of thé bill and interest. Defendants then submitted a motion for a new trial, which was overruled ; and thereupon a bill of exceptions was taken, detailing all the evidence; and the case was brought by petition in error before the same court at general term, where the judgment was affirmed at the October term, 1855. The object of the present proceeding is to reverse this judgment of affirmance.
The defendants, by their answers in the court below, set up substantially the following matters as a defense to the action:
That the bill sued upon was discounted at Cincinnati by the Kentucky Trust Company Bank, a foreign corporation, through the intervention of its agent and president, B. F. Sandford, and was paid for in notes of that bank, upon an agreement and understanding that the defendant, Reznor, would endeavor to put the same into circulation in the northern part of Ohio; that this was the chief inducement which led to the discounting of the bill; that said notes-not being issued by any bank of the State of Ohio, were paid out by said bank, within this state, for the purpose of being put in circulation therein, contrary to the act of February 24, 1848, “to amend' the act supplementary to the act to prevent unauthorized banking, and the circulation of unauthorized bank paper,” by reason of which the bill is utterly void; that about a week after the discounting of said bill, and while said notes were still in the possession of Reznor, the Kentucky Trust Company Bank ceased to redeem its notes, and discontinued business; that it thereupon became impossible for *Reznor to put the notes in circulation; that immediately after hearing of the suspension of said bank, he called at the bank and informed the cashier that he still had the-notes on hand, and left a written notice that he would insist upon-paying the bill with said notes at its maturity; that he was then informed that the bill had been transferred to the plaintiffs, whom he thereupon forthwith notified of the facts, and tendered payment, of the bill to them with the notes in his possession, which they refused to accept; and that he is still ready and willing thus to make-payment; also, that said bill was assigned to the plaintiffs by the bank as collateral security for a pre-existing debt of much smaller amount due them from the bank; and that the bill thus discounted, being utterly void by the statute in the hands of the bank, no action can be maintained upon it by the plaintiffs to whom it had been-assigned.
It appears from the evidence of Benjamin F. Sanford, embodied, in the bill of exceptions, that at the date of this bill of exchange-he was president of the Kentucky Trust Company Bank, an institution doing business at Covington, in the State of Kentucky, and that as such president he was authorized, by a resolution of the-board of directors, to discount bills; that he had five transactions-with the defendant, Reznor; that Reznor usually made his application to him in Cincinnati, and if it looked well he encouraged said Reznor that the bank would do his paper. He knew that Reznor intended to use said notes in buying wool in Ohio; that he saw Reznor in the Savings Bank, or on the street, in Cincinnati, in regard to discounting this particular bill; that he was inclined to-favor the application, the circulation of notes on the former bills-having been good; that he took the bill over to the bank and looked into the accounts and state of the funds of the bank, and passed the bill to the credit of Reznor on the books of the bank; did not recollect distinctly whether he brought the notes over to Cincinnati and handed them to said Reznor or not; that he frequently did bring the notes over to accommodate him.
Ho also testified that on the 17th of October, 1854, he handed to plaintiffs, to secure the indebtedness of the Trust Company Bank to them, bills and assets to the amount of twenty thousand eight ^hundred and seventy-one dollars; that there was due to the plaintiffs from said bank the sum of seventeen thousand six hundred and fifteen dollars; that said bank suspended on the 18th day of October, 1854; that when he handed the plaintiffs said assets as collateral security he did not anticipate that said bank would be compelled to suspend; that he gave the plaintiffs said security because they, as bankers, had been friendly to the circulation of said bank, and he felt under obligations to them. He also testified that though he was a stockholder, he was not an officer in the Savings Bank, and had no office for the transaction of business in Cincinnati.
It also appears in proof, that the plaintiffs have collected, on the securities assigned to them by the bank, nine thousand five hundred dollars, leaving still due them from the bank eight or nine thousand dollars; and that they received the bill in question, in good faith, and without knowledge of the defendants’ alleged equities.
The defendant, Reznor, testified, that he made an arrangement with Sanford for the discounting of this bill, on the 10th October, 1854, about 10 o’clock a. m., at the Savings Bank in Cincinnati; that Mr. Sanford agreed to discount the bill, and to go over the river, to the Kentucky Trust Company Bank, and get the notes of said bank, and hand them to him at the Savings Bank, in the afternoon ; that he, Reznor, then perfected said bill of exchange, by writing his acceptance across its face, and gave it to said Sanford; and that he received the notes from Sanford, in a package, about three o’clock in the afternoon, when the parties casually met each other on Third street. That said bill was discounted at the rate of six per cent.; that it was the agreement that Reznor should take said notes, and circulate them in the northern part of the State of Ohio; and give them a good circulation, so as to prevent them from being returned to' the bank for redemption, as long as possible. That upon examining the package of notes received, he found a defi ciency of five hundred dollars; and that he called at the Trust Company Bank, in Covington, next day, in the absence of Sanford, and obtained from the bank officers a correction of the mistake. That he sent said *notes to Ashland, Ohio, to be paid out in the purchase of wool, but that such use of them was prevented by the suspension of the bank; and that he immediately offered to return the notes, first to the bank, and then to the plaintiffs, in discharge of the bill, as stated in his answer. That he dealt with said Sanford, as the president of the Kentucky Trust Company Bank; that he had had four other bills discounted by said Sanford, within a few weeks prior to the discount of said bill of exchange held by plaintiffs; that the negotiations of said discounts were had with said Sanford in Cincinnati, and the money paid to him in said city; and that he understood all these transactions to be with the Kentucky Trust Company Bank; and that the arrangement was, in each case, to give the notes of said bank a good circulation in northern Ohio.
The statute of February 2é, 1818, referred to in defendants’ answers, provides as follows, in the first and fourth sections :
“ Seo. 1. That it shall be unlawful for any bank, or incorporated company doing a banking business, or dealing in money as a business, or exchange broker, money broker, or private banker, or other person or .persons who shall receive money on deposit, or buy and sell bills of exchange, or loan money, or exchange one kind of bank-bills or money for another, with a view to profit, to issue, pay out, or give in exchange for other money, so as to go into circulation in this state, any circulating notes or bills, except the notes or bills of the banks of this state, issued according to law.”
“ Sec. 4. Every note, bond, bill of exchange, draft, check, or other evidence of debt, discounted, bought, or otherwise obtained by any bank, corporation, private company, or individual, described in the first section of this act, and paid for in the whole or in part, in banknotes described in the first section, contrary to the true intent and moaning of this act, shall be held and adjudged null and void ; and no suit or 'action for the recovery thereof shall be sustained by any court in this state; and all contracts, promises, and agreements, founded in whole or in part on the payment, exchange, or putting forth of such bank-notes, contrary to the provisions of this act, shall be held and adjudged null and void.” Swan’s Stat. 112, 113.
Cor wine, Kayes & Rodgers, for plaintiffs in error,
insisted that the court below erred, because:
1. This bill of exchange, by the terms of the above-quoted sections of the statute, was utterly “ null and void ” in its origin. The contract was made at Cincinnati. It was an Ohio transaction, complete and entire.
*The contract was made to secure a circulation of this paper in Ohio, in direct violation, and in open defiance of our law, and this is a suit to enforce that contract. If such a contract were made in Kentucky, and it was sought to enforce it in Ohio, we do not believe our courts would allow it to be done. It would be a deliberate attempt to perpetrate a fraud upon our people, and to evade our well-settled law. No state is bound to recognize or enforceany contracts which are in fraud, evasion, or contravention of its own laws.
2. This being null and void in its origin, could not be rendered valid by the circumstance that the defendants in error received it without special notice of the fact. Root v. Goddard, 3 McLean, 103; Wiggins v. Bush, 12 Johns. 310; Bowyer v. Bampter, Strange, 1155; Lawe v. Waller, Doug. 736, 744; Shillito v. Theed, 7 Bing. 405; Bayley v. Taber, 5 Mass. 291; Vallette v. Parker, 6 Wend. 622; Unger v. Boas, 1 Harris, Penn. St. 602; Story on Bills, sec. 189; Morgan v. Tipton, 3 McLean, 346; Chitty on Bills, ch. 3, 115, 116; Lloyd v. Scott, 4 Peters, 228, 229; Lucas v. Waul, 12 Smedes & Marsh. 157; Ackland v. Pearce, 2 Camp. 599.
3. The defendants in error received the paper as collateral, to secure a pre-existing debt, and are not therefore bona fide holders without notice.
Tilden, Mairden & Chirwen, for defendants in error:
1. A pre-existing debt is a good consideration for the transfer of negotiable paper; and such transfer, in good faith, entitles the holder to be protected against a claim founded upon the equities existing between the original parties. Carlisle v. Wishart, 11 Ohio 172.
2. The transaction is legally unobjectionable, even if considered as having taken place at Cincinnati. The act of February, 24, 1848, being highly penal, will not be extended by construction. It seems to be part of a system of legislation, having for its object the regulation of the business of banks and bankers, established in our own state, and not the prohibition of occasional transac tions *by a foreign bank, or by an individual not engaged in the business of banking in this state.
3. The contract was clearly a Kentucky .contract. This conclusion is fully supported by the authorities. Story on Contracts, •sec. 654; Story on Conflict of Laws, sec. 252; Davis v. Coleman, 11 Ired. 303; Whiston v. The Syndics, 1 Cond. La. 621.
Considering Covington as the place of the contract, little is left of the case for discussion. There was no evidence whatever that such a contract was prohibited by the laws of Kentucky, and it «an not be necessary to argue that our statute was not operative there. Certainly, if the lender of the money, aware of the provisions of our law, had made a stipulation to circulate Kentucky bank-notes in this state, in violation of our law, a part of the contract of loan, our courts would decline to afford him a remedy to ■enforce the contract. Such a contract would be deemed contrary to our local policy, and this consideration would prevail over that ef comity. But the evidence fails to establish any such agreement ■or stipulation.

Opinion:
Scott, J.
There can be no doubt, from the evidence in this case, that the party by whom the bill in question was discounted, was the Kentucky Trust Company Bank. This bank is located in Covington, in the State of Kentucky, and whether the contract for the discounting of the bill is to be regarded, in the light of the evidence, as made in Cincinnati, through the agency of the president of the bank, or at the bank in Covington, is, pex*haps, not very clear.
On this point, the statements of the parties to the negotiation are somewhat in conflict; and the record does not show the finding of the court upon this question of fact.
From the evidence of Mr. Sanford, the court may have found Covington to be the place of the contract; that Sanford was merely the medium of communication between Reznor and the bank; that the proposition for the discount of the bill was made to him in Cincinnati, but accepted by the bank in Covington, and that the contract was not closed until the bank signified its «acceptanee of the proposition, by entering the proceeds of the bill to the credit of Reznor upon its books. When this was done the bill was discounted, no matter when, or where, or how the proceeds were received by Reznor.
Believing such a finding to be warranted by the evidence, we should not be disposed to disturb it, even had we the power to make it the subject of review.
We do not think that the questions arising in-this case are affected by the fact that the suit was brought by the indorsees of the bank, and not by the bank itself. Por if, as is claimed by the defense, the bill is made utterly void by statute, it will remain void even in the hands of a bona fide indorsee.
And being voluntarily transferred, as collateral security, merely,, for a pre-existing debt, without any new consideration, the plaintiffs-must hold it subject to any defense or equity existing at the time of the transfer. Roxborough v. Messick et al., 6 Ohio St. 448.
The principal question in the case arises, therefore, as to the validity of the contract between Reznor and the bank, under the-statute before referred to.
Regarding Covington as the place of the contract, its validity must -depend on the laws of Kentucky. Ohio statutes could have, no direct operation there, and it is not claimed that any law of Kentucky prohibited the transaction. Still, the contract will not be enforced in the courts of Ohio, if it clearly contemplated and expressly stipulated for a violation of Ohio policy. We can not be asked, from considerations of comity, to afford redress for the-breach of a contract designed to contravene our own state policy.
It is questionable whether the evidence establishes anything more than a knowledge on the part of the bank, of the use and purpose to which Reznor intended to apply the notes received on the discount of the bill. But assuming that it was stipulated, by the-agreement of the parties, that the notes should be paid out in the northern part of Ohio, in the purchase of wool, would such a stipulation contravene the policy of the act of February 24, 1848 ?
*What is the policy of this act? What was the intention of the legislature in its enactment? What were the evils to be-remedied, and the means provided for their correction ?
The act is highly penal in its character; but its prohibitions and its penalties are all directed against a particular class of persons — that is, against persons or corporations engaged in dealing in money as a business; banks, bankers, brokers, persons who receive money on deposit, or buy and sell bills of exchange, or loan money, or exchange one kind of bank bills for another with a view to-profit — all this class of persons (and no one else) are prohibited from issuing, paying out, or giving in exchange for other money, so as to go into circulation in this state, any circulating notes or bills, except the notes or bills of the banks of this state, issued according to law. The design could not have been entirely to prohibit the circulation of foreign bank bills withimthis state, else the prohibition would have been general.
The act does not propose to affect the demand for, and market price of, the products of the state, by prohibiting the produce dealer from paying for them in foreign bank paper. Nor is there any restriction imposed upon the vendor as to the kind of currency to be received by him in payment.
There is no indication of'an intention to prohibit a manufacturer in Massachusetts from borrowing of banks in his own neighborhood, where he would be best known, their notes of circulation, and using the funds thus obtained, in the purchase of wool, in Ohio. The policy of such a prohibition may have been deemed questionable. But the statute would seem to have been intended, not only negatively to prohibit all persons engaged in dealing in money as a business within this state from becoming agents for the circulation of foreign bank bills, but also, positively to make use of this class of persons as an agency for collecting and returningto foreign banks their notes, which, in the ordinary transactions of business, would enter into the currency of the state; and this latter purpose it seeks to accomplish by prohibiting them from 'reissuing such notes within the state. It might reasonably be supposed that, in the course of business, the greater portion of this species of currency would soon reach the *hands of these capitalists, whose interest would lead them promptly to return it for redemption, or dispose of it elsewhere, if it could not be used in their business operations at home.
A salutary check would thus be interposed against the undue issue and circulation, within the state, of foreign paper; and the domestic currency would be left to be furnished mainly by our own banks, subject to Ohio legislative control.
The terms of the statute furnish no intimation of any further policy which it contemplates. And unless we are mistaken in this, the loan by the Kentucky Trust Company Bank,' of its notes to Reznor, to be paid out in the purchase of wool in northern Ohio, was not in contravention, evasion, or fraud of its spirit or policy.
As the plaintiffs below took the bill in question subject to the equities of the defendants, we do not doubt the right of the latter to have made payment in the circulating notes of the bank. But the record does not show that the tender set up in the answer was maintained; nor that any evidence was offered on the trial tending to show the continued possession of the notes by Reznor.
Judgment affirmed.
Swan, Brinkerhoee, and Sutliee, JJ., concurred.
Bartley, C. J., did not sit in this case.