Case Name: Ketchum, and others v. Stevens, President of the Bank of Commerce of New York
Court: New York Superior Court
Jurisdiction: New York
Decision Date: 1857-02-28
Citations: 6 Duer 463
Docket Number: 
Parties: Ketchum, and others v. Stevens, President of the Bank of Commerce of New York.
Judges: 
Reporter: Reports of cases argued and determined in the Superior Court of the city of New York
Volume: 13
Pages: 463–492

Head Matter:
Ketchum, and others v. Stevens, President of the Bank of Commerce of New York.
On the 29th of June, 1864, the plaintiffs held a check for $10,000, drawn by the Schuylers on the defendants, which the latter refused to pay, there being, at the time of the last refusal to pay, money deposited with them to the credit of the Schuylers, sufficient to pay the check.
At that time the Schuylers owed the defendants $25,000 and interest, evidenced by two stock notes, payable on demand, which notes, by their terms, pledged 370 shares ofNew York and New Haven Railroad stock for the payment thereof, with authority to sell the stocks, at public or private sale, without notice, on the Schuylers’ failing to pay as they had promised. On the 1st of July, 1864, the defendants surrendered the certificates of stock to the railroad company, and had a transfer of the shares made on the books of the company to themselves ; and obtained a certificate of their being entitled to that amount of stock in the usual form.
On the day of, and after such transfer, the plaintiffs had two interviews with the defendants; inquiry was made of the latter why the check, which had again been presented for payment on that day, was not paid. The answer was, “ because the bank had a loan demand on the drawers, which would absorb the whole amount of the credit of the firm. The question was put if the bank had not security, and the information was finally given that they held 370 shares of the stock, which, at 70, would cover the loan. At a subsequent interview, the inquiry was made by Mr. Bement,” (one of the plaintiffs), “ whether an assignment of the securities would be made and the check paid, upon discharging the loan?” The cashier and president of the bank replied that they could do nothing without the consent or order of the Schuylers. The terms of an arrangement being understood, subject to this condition, Bement obtained from the Schuylers this order:
“ New York, July 1, 1854.
“ Please deliver to Rogers, Ketchum & Bement, 370 shares of New Haven Railroad stock, upon their paying our notes for which said shares are pledged.
“ To Cashier, Bank of Commerce. “ R. &. G. L. Schuylek.”
This order was exhibited to the defendants by the plaintiffs, who at the same time paid them the $25,000 and interest, and received from the defendants the certificate for the 370 shares of stock which had been so issued to the bank, with a power of attorney authorizing its transfer, and their cashier’s receipt that he had received payment of the Schuyler notes of Ketohum, Rogers & Bernent, and delivered them the securities,” and the defendants then paid to the plaintiffs the check for $10,000. On what arrangement the plaintiifs got such order from the Schuylers was not shown. The certificate did not represent genuine or actual stock, and was worthless. Of that fact the plaintiffs and defendants were alike ignorant, and the defendants acted in good faith throughout. On these facts, held,
1. The plaintiffs paid, for the Schuylers, to the defendants, the amount which the Schuylers owed to the latter.
2. Such payment was made pursuant to an arrangement between the plaintiffs and the Schuylers, as the principals and the sole contracting parties.
3. The delivery to the plaintiffs, by the defendants, of the securities called stocks, was in consequence of and in obedience to the order of the Schuylers, and by authority of it, and was not in execution of any contract of the defendants to sell and deliver to the plaintiffs 370 shares of stock.
4. The defendants were paid no more, as a condition of delivering the stock, than it was their right to demand, before they could have been compelled, by the Schuylers or any other person, to surrender it.
5. If the plaintiffs paid this money for a consideration which has failed, or by reason of the suppression by the Schuylers of the information that the stock was false and spurious, their only remedy is against the Schuylers, on'whose account it was paid. (Woodruff, J., dissented.)
A check, before acceptance, does not operate as an assignment of funds deposited by the drawer to his general credit with the drawee, nor create any lien thereon. When the drawees, at the time the check is drawn and presented, hold a note made by the drawer, payable on demand, such note may he off-set against the claim of such drawer to recover the amount due for money so deposited, although actual payment of the note has not been demanded. No actual demand before suit brought is essential to the right to maintain an action on such a note, and of course it can be set up, as a set-off, without, a previous demand. Stock pledged as security for the payment of such a note, with power to sell the stock on default of the maker to perform his promise to pay, cannot rightfully be sold until after payment has been demanded; but such a note may he sued upon, or set-off, at a time when, by reason of no demand of payment having been made, the stock, pledged for its payment, could not be lawfully sold.
(Before Duer, Bosworth and Woodruff, J.J.)
December 17, 1856 ;
February 28, 1857.
This action comes before the General Term on an appeal by the plaintiifs from a judgment dismissing their complaint. It was tried before Mr. Justice Hoffman, without a jury, in October, 1854.
It was brought for the purpose of rescinding a contract alleged to have been made between the plaintiffs and the defendant.
The alleged contract was, that the plaintiffs should pay to the defendants two loans which they had made to the Schuylers, amounting in all to $25,000 and interest, in consideration of which, the defendants should pay to the plaintiffs a check for $10,000, held by the latter, and drawn by the Schuylers on the defendants, and should transfer "to the plaintiffs notes given by the Schuylers for the amount of said loans, and three hundred and seventy shares of the stock of ,the New York and New Haven Railroad Co., held by the defendants as collateral security for the payment of such notes and the said loans,
The plaintiffs, having paid the $25,000 and interest, and received payment of said check, claimed to rescind the alleged contract on the ground of fraudulent misrepresentations made by the defendants, that the security they held was stock, when, in fact and in law, they held no stock, and, at the same time, to retain the $10,000 paid to them on the check, on the ground that the defendants, irrespective of the alleged contract, ought to have paid the check as a matter of legal duty.
The said Justice found, as matter of fact and conclusion of law, as follows:
“ That on the 29th day of June, 1854, a check was drawn by the firm of R. & Gr. L. Schuyler, of which Robert Schuyler was a member, upon the Bank of Commerce in New York, for the sum of $10,000, in favor of the plaintiffs, acting under the firm of Ketehum, Rogers, & Bement. This check was given for a loan made by the plaintiffs to the firm of R. & Gr. L. Schuyler.
- “On the 29th day of June, and about one o’clock, the check was presented to the teller of the bank, and payment refused; also,
“ That on the same day a deposit was made to the credit of the firm of R. & Gr. L. Schuyler of about $9,000, which, with the sum already to their credit, made an amount sufficient to meet the pheck. This sum of $9,000 was handed to a clerk about six minutes before three o’clock, to be deposited.
“ This check was, on -the next day, namely, the 30th of June, and shortly after ten o’clock, deposited in the City Bank by the plaintiffs. It was sent from that bank with the receipts of that day, and went to the Clearing House about a quarter before ten of the 1st of July. It was sent back to the City Bank by the Bank of Commerce about eleven o’clock of that day as not being good. The teller of the City Bank shortly after returned it to the plaintiffs.
“ On the 30th of June the Schuylers failed. On that day there was a note of the firm which had been discounted at 'the Bank of Commerce for a third party. About half-past two o’clock the cashier was informed that such note was unpaid. Inquiries were then made by him at the office of the firm. Heither of the members was present; and he was there informed that the firm had failed. After this, the cashier, Mr. Vail, directed the teller of the bank not to pay any checks of the firm which might be presented.
“ That the tellers of the bank had been instructed sixty days before not to pay the checks of the firm unless funds were in the bank, nor to take checks from them on other banks on deposit unless certified; and in the latter case checks had been frequently rejected when not certified.
“ Some time before the 29th of June, the bank had loaned to the firm the sum of $30,000, in two loans, at different times, for which the stock notes hereafter mentioned were taken. These were, as usual, payable on demand, with the customary statement of a deposit of stock. Five thousand dollars had been paid before the 29th of June.
“At the time when the check of $10,000 was presented, on the 29th of June, there were not sufficient funds in the bank to pay it.
“ One of the notes held by the Bank of Commerce was payable at such bank. On this $10,000 and interest was payable. The cashier called on the 30th in relation to a note discounted at the bank on behalf of a third person, and which it was supposed would not be paid, and was not paid. Heither of the firm was to be found. Again, he is shown to have called to make a demand at the office, but did not find either of the partners, and was informed by a clerk of the failure; and on the morning of the 1st of July an order was obtained from one of the firm, sanctioning the transfer of the collaterals and notes, on payment of the debt.”
“ I further find as matters of fact,
“ That, on the 10th of February, 1854, a certificate was entered in the certificate book of the Hew York and Hew Haven Railroad Company, numbered 4353, for two hundred shares of its stock, in the name of R. & Gr. L. Schuyler. Ho transfer was made on that day of such shares on the transfer-book, or stockdedger,
“ On the 4th of March, 1854, another certificate was entered in the certificate-book of the company, in the name of the firm, but no transfer from the firm was made on that day upon the transfer-boob or ledger.
“ On the 6th of May, 1854, the firm of R. & G. L. Schuyler borrowed from the Bank of Commerce the sum of $15,000, and thereupon executed to them a note, usually called a stock note, payable on demand, stating that they had 'deposited with the bank, as collateral security, with authority, to sell the same at the brokers’ board or at public or private sale, or otherwise, at their option, on the non-performance of the promise, and without notice, two hundred shares of the capital stock of the New York and New Haven Railroad Company, as per certificate 4353 annexed. The certificate thus annexed had the usual power attached in favor of H. F. Yail, (the cashier of the bank,) to make a transfer.
“ On the 6th of April, 1854, the firm borrowed of the bank the sum of $15,000, for which they executed another stock note in the same form, with the variation of authorizing the president or cashier, as well as the bank, to sell in case of default. For this loan, one hundred and seventy shares of the stock were pledged. The power annexed to the certificate was 4409, and was dated 4th of March.
“ Each of these certificates was signed ' Robert Schuyler, Transfer Agent;’ and it seems that No. 4409 was made use of before 4353. One of those in question is as follows:
“‘New York and New Haven Railroad Company No. 4409.
Capital, $3,000,000. New York office.
Shares $100 each.
“ ‘ Be it known that R. & G. L. Schuyler, of New York, are entitled to one hundred and seventy (170) shares of the capital stock of the New York and New Haven Railroad Company, transferable on the books of the company at its office in the city of New York, by the said R. & G. L. Schuyler, or their attorney, on the surrender of this certificate.
“ ‘ Robert Schuyler, Transfer Agent.’
“ ‘ Know all men bj these presents that, for value received,
have bargained, sold, assigned, and transferred, and by these presents do bargain, sell, assign, and transfer unto
of shares in the capital stock
of the Hew York and Hew Haven Railroad Company, standing in name on the books Of said company, and transferred only at its office in the city of Hew York. And do hereby constitute and appoint H. F. Yail, our true and lawful attorney, irrevocable for and in name and stead, but to use, to sell, assign, transfer, and set over, all or any part. of the said stock, and for that purpose to make and execute all necessary acts of assignment and transfer, and one or more persons to substitute with-like full power, hereby ratifying and confirming all that said attorney, or substitute or substitutes shall lawfully do by virtue hereof.
‘“In witness whereof, we hereunto set our hand and seal, the fourth day of March, one thousand eight hundred and fifty-four.
“ ‘R. & Gr. L. Schuyler.
■ “ ‘Sealed and delivered in the presence of
“ ‘A. J. Yandevehter.’
“ Heither on the 6th of April, nor the 6th of May, was there any transfer entered from the firm to Mr. Yail.
“ On the 30th of June, upon ascertaining the failure of the firm, Mr. Yail called at the office to effect a transfer of the three hundred and seventy shares, but' it being after the usual hours of business, and the books being locked up, the transfer was not effected. On the morning of the 1st of July, Mr. Yail went to the office about a quarter before eleven, and transferred the stock from the name of the Schuylers to that of John A. Stevens, president. He was promised a certificate, which he received about half-past twelve. On making this transfer, the certificates of two hundred and one hundred and seventy shares, numbered 4353 and 4409 were surrendered, and a new certificate of three hundred and seventy shares (Ho. 4897) was issued, dated July 1st, 1854, signed by W. E. Worthen, transfer agent. A blank power of attorney was annexed. Mr. Stevens was the president of the bank. After this transfer, and on the morning of the 1st of July, as before stated, the check of the firm for $10,000 had been finally pre-j sented, and rejected. It came back to the plaintiffs from the City Bank probably about eleven o’clock. A series of interviews then took place between Mr. Bement, one of the plaintiffs, and Mr. Vail, the cashier of the Bank of Commerce. The first was after eleven, the two next between one and two o’clock. The inquiry was made why the check was dishonored ? and the answer was given, because the bank had a loan demand on the drawers which would absorb the whole amount of the credit of the firm. The question was put, if the bank had not security, and the information was given, that they held three hundred and seventy shares of the stock, which at seventy would cover the loan. At a subsequent interview, the inquiry was made by Mr. Bement, whether an assignment of the securities would be made, and the check paid upon discharging the loan. This was between one and two o’clock of the 1st of July.
“ It was insisted upon by the cashier, and confirmed by the president, that they could do nothing without the consent or order of the Messrs. Schuylers. The terms of an arrangement being understood, subject to this condition, an order was obtained by Mr. Bement, signed by Geo. L. Schuyler, in the name of the firm, as follows:
‘“Please deliver to Rogers, Ketchum & Bement three hundred and seventy shares of New Haven R. R. stock, upon their paying our notes, for which said shares are pledged.
“‘R. & G. L. Schuyler.
“ ‘New York, July 1,1853.
“ ‘ To cashier Bank of Commerce, New York.’
“ At about two o’clock the last interview took place. The order was exhibited; Mr. Bement produced a certified check for $25,000, and another in blank, which was filled up with the interest due. The certificate for three hundred and seventy shares in favor of Mr. Stevens, with a power in blank signed by him. was delivered, and the check for $10,000 was then paid by the bank. No transfer was made on the books of the company from Mr. Stevens to the plaintiffs, although the cashier had requested that it should be done forthwith.
“ The form of the transfer used by the company may be useful, and that made by Mr. Vail, as attorney, to Mr. Stevens, is subjoined.
“ ‘Capital $3,000,000. Ko. 9,904.
. “ ‘Shares $100 each.
“‘For value received, we hereby transfer unto John A. Stevens, president, all our right, title, and interest in three hundred and seventy shares in the capital of the Kew York and Kew Haven Railroad Company. “ ‘R. &. Gr. L. Schuyler,
“ ‘By attorney, H. F. Vail.’
“ On the 5th of July, a letter of Robert Schuyler, resigning his office as president and transfer agent, and calling attention to the stock ledger, was read at the board, and the transfer books yrere directed to be closed.
“ And on the 10th day of July, the plaintiffs addressed a letter to the president of the bank, stating that neither the bank nor any one else was entitled, on the 1st of July, to the three hundred and seventy shares of the stock which they possessed, and held out to hold, and upon the faith of which the plaintiffs had advanced the sum of $25,00(1 They then demanded re-payment of that sum, upon which they would return what falsely purported to be a certificate and assignment for three hundred and seventy shares of stock of the company.”
“I further find, as matter of fact,
“ That on the 17th of October, 1853, the firm of R. & Gr. L. Schuyler had to their credit, on the books of the company, four shares of stock. That an entry as of that date appears on the stock ledger, carrying to the credit of the firm, as from ‘ Robert Schuyler, transfer agent,’ five thousand shares.
“ This entry was made in April, 1854, and was effected by erasing the entry before made on the line, and writing over it. That erased entry was a credit of one hundred shares of stock by E. W. C., D. & Co., which was dated Kovember 9, 1853, and was subsequently interlined between entries of the 29th of Kovember, and the 1st of December, 1853.
“ After certain other entries to the credit of the firm, and under date of the 3d of February, 1854, another entry to their credit of five thousand shares is made, as from Robert Schuyler, transfer agent. This entry was also made in April, 1854, at the same time as the previous one, and was written on an erasure of an entry of one hundred shares to their credit,- and that entry was tons ferred to a line after an entry of April 14th. These two entries were fabrications of credits.
“ Between the 17th of October 1853, and the 19th of June, 1854, the firm appears to have transferred by debits on the stock ledger, fourteen thousand six hundred and fifty-two (14,652) shares, and between the same dates to have transferred to them three thousand five hundred and eighty-one (3581) shares; leaving a balance of excess of transfers of eleven thousand and seventy-one (11,071) shares.
“After the 19th of June, the firm did not receive any transfers, and their own issues, down to the 3d of July, inclusive, amounted to six thousand four hundred and twenty (6420) shares. That the whole excess was seventeen thousand four hundred and ninety-one (17,491) shares, and the excess, had the ten thousand been genuine, would have been seven thousand four hundred and ninety-one.
“ That if these credits had been genuine, the firm would have been entitled, on the 1st of February, 1854, to five hundred and ninety (590) shares, and the balance against them, on the 8th of June, would have been four hundred and eighty-one (481) shares, and which gradually increásed to the seven thousand four hundred and ninety-one, on the 3d of July.
“ The undoubted genuine stock, which was acquired by the firm, among the transfers to them from October 17,1853, to June 19, 1844, was about one thousand shares.
“ The certificate No. 4353, for two hundred shares, with the power to H. F. Vail, was dated the 10th of February, 1854, and the certificate No. 4409, for one hundred and seventy shares, the 4th of March of the same year. Neither of these certificates were accompanied with a transfer at their respective dates to Mr. Vail, or any one élse, on the transfer book, nor, of course, on the stock ledger. They do not so appear at all, except as consolidated in the certificate issued, and the transfer made, on the 1st of July, to John A. Stevens, of three hundred and seventy shares.
“And I find that the Bank of Commerce did not acquire genuine stock under and by virtue of the certificates issued on the 10th of February and 4th of March, respectively, nor under the certificates of the 1st of July, for 370 shares, and consequently plaintiffs did not receive genuine stock under the transfer to them.
“ And I further find, as matter of'fact, that
“ The first section of the charter passed 1st of May, 1844, constituted Joseph E. Sheffield, and others, naming them, with such other persons as shall associate with them for that purpose, a body politic and corporate, by the name of the Hew York and Hew Haven Railroad Company.
“ The second section provides, that the capital stock shall be $2,000,000, with the privilege of increasing the same to $3,000,000, and to be divided into shares of $100 each, which shares shall be deemed personal property, and shall be transferred in such manner and at such places as the by-laws of the company shall direct.
“By the third section, the parties who were authorized to receive subscriptions might make 20,000 shares subscribed the capital stock of the company. But if the subscription exceeded 30,000, the same were to be reduced, and apportioned in such manner as should be deemed most beneficial to the corporation.
“That, under the fourth section, the immediate government and direction of the affairs of the company were vested in a board of nine directors, to- be chosen by the stockholders. Four of such directors formed a quorum for the transaction of business.
“By the seventh section, the directors were vested with the power to make by-laws, and regulations touching the disposition and management of the stock, property and estate of the company, not contrary to the charter, or the laws of the state, or of the United States—the transfer of the shares—the duties and conduct of their officers and their servants, and all matters whatsoever which may appertain to the concerns of such company.
“■By the twentieth section, the act might be amended, altered, or repealed, at the pleasure of the general assembly.
“ That in the exercise of the powers conferred by the charter, a resolution was adopted by the stockholders to the following effect. (Book of Records, Hos. 20 and 21.)
“ ' Transfer and Certificate of Stock.
“' The. principal transfer office shall be in the city of Hew Haven, but transfer agencies may be established in the cities of Hew York and Boston, by resolution of the board of directors; and all transfers of stock, at any office- shall be made- under and in compliance with such rules and regulations, and by such instruments of assignment and transfer (which need not be under seal) as may from time to time be made, ordered and appointed by the board of directors.
“ ‘ Certificates of stock, shall be in such form, and issued under such rules as the board of directors may from time to time appoint and direct.’
“ That the directors adopted the form of transfers, certificates, and blank powers of transfers, and ordered their general use.
“ On the 3d of February, 1847, the following resolution was adopted by the directors: ' The receipts and certificates of stock on the books at New Haven to be signed by J. E. Sheffield, as transfer agent; at Boston, to be signed by J. E. Thayer & Brother, as transfer agents; at New York, to be signed by Robert Schuyler, as transfer agent.’
“ That upon the evidence before me, if the shares thus fraudulently issued are admitted, the shares of the stock of such company would be increased to the number of 47,497, and the nominal value of each share would be about $63.80, and that upon such estimate the 370 shares transferred to the plaintiffs would be worth the sum of $23,039.60.
“ From all which facts thus found, being material facts in the case, I have concluded as matter of law:—
“ 1. That the Bank of Commerce, and the defendant as its president, had a right to retain the amount standing to the credit of the firm of R. & Gr. L. Schuyler, on the 30th day of June in the year 1854, in part discharge, and satisfaction of the sum made payable by the stock notes, or one of them given by such firm for moneys loaned to them by such bank.
“ 2. That the claim of the plaintiffs against the defendants, if the same could in any way be sustained, would be restricted to a claim to recover the sum of $15,000 with interest, they being-bound to restore or allow to the Bank of Commerce, the sum of $10,000 held by them on the said 30th day of June, and the 1st day of July, 1854, and paid out to the plaintiffs upon the check of R. & Gr. L. Schuyler on the latter day.
“ 3. That the plaintiffs would have a right to recover such sum of $15,000 with interest, had it been duly established in this case that the certificate for stock of the New York and New Haven Eailroad Company, for 370 shares, delivered to them with a power of attorney to transfer the same, was wholly valueless, illegal, and void, and conferred no right or interest whatever in or against such company, its property, or franchises.
“ 4. That the plaintiffs did, in and by the possession of such certificate and power of transfer, acquire and became entitled to a right to be admitted as stockholders of such corporation, called the Hew York and Hew Haven Eailroad Company, in common' with all the other stockholders thereof, whose rights are admitted or shall be established; and that their right is in proportion to the whole number of such stockholders allotted and divided upon a capital of $3,000,000; and that thereby such plaintiffs received what upon the evidence appears a full consideration for what they advanced to or could in any view demand of the Bank of Commerce upon the transaction in question.
“ 5. That there is no ground to make the plaintiffs responsible, or vary their rights or position by reason of any knowledge of the fraudulent issue and employment of the stock in question.
“Therefore it is ordered and adjudged that the plaintiffs’ complaint be dismissed with costs to the defendants.
“ To the opinion of the court and order dismissing plaintiffs’ complaint, the plaintiffs excepted; judgment having been entered on the decision, the plaintiffs appealed from it to the General Term.”
H. Ketchum and H. Ketchum, Jr., for the plaintiffs,
made and argued the following points:—
I. Plaintiffs have a right to retain the $10,000, because they were entitled to it when the check was presented previous to the completion of the contract. Because,
1st. Defendants held the money as trustees for plaintiffs. The money was specially deposited by Schuylers to pay the plaintiffs. They had constructive knowledge, at the time the money was deposited, by law and by the usage of bankers, of the use for which it was intended. (Bailey on Bills, 331; Chitty on Contracts, 5 Am. ed., 19, 20; Church v. Clark, 21 Pick. 310; Beckwith v. Union Bank, 4 Sand. S. C. 604; Whittaker v. Bank of England, 1 Crompton, M. & R. 753. They had notice previous to the deposit that the Schuylers intended and had promised to pay, through them, $10,000 to plaintiffs. On the same day money was deposited enough to pay $10,000, without directions not to apply it to any other use. In this state of things by law and the usage of bankers, they are presumed to have knowledge that the deposit was made for the express purpose of paying it to plaintiffs.
2d. Defendants had no lien on the funds of Schuylers in their hands, and were, therefore, bound to pay them over upon their order. 1. The notes were not due, and without this defendants had no lien. (Cross on Lien, 43 marg.) (a) Ho demand of payment of them had been made. This was necessary to render the notes due. (Wilson v. Little, 1 Sand. Law R. 351; 2 Comst. 443; 2 Kent’s Com. 745 and 746, 7th edition; Stearns v. Marsh and another, 4th Denio, 227.) (b) If they could be rendered due without demand, and by a simple operation in the mind of the holder, defendants’ acts must have been such as to show that this operation had taken place. Their acts show the contrary to this. 1. By not indorsing the balance in "the bank upon the back of one of the notes, as they had been in the habit of doing with other part payments. 2. By not selling the stock at public or private sale, as they were authorized to do on non-payment of the notes. 3. By requiring the consent of the Schuylers before transferring the securities.
3d. They waived their lien by taking a special security for the payment of the loan. (16 Vesey, pp. 278 and 279; 6 id. 759; Hewison v. Guthrie, Bing. New Cases, 759; Story on Agency, §§ 354, 362; 1 Stephens, 914.)
If either of the above propositions is correct, then plaintiffs were entitled to receive the money upon the first presentation of the check, and are entitled to retain it, now it is in their possession.
II. The contract ought to be rescinded, because,—
1st. It had its origin in an attempt to get possession of funds wrongfully detained from plaintiffs by defendants, as shown in point I.
2d. It was made upon a misrepresentation of the defendants that the notes were due. This was one of the main incentives to the contract, because (a) plaintiffs would not have entered into the contract but to obtain possession of the $10,000. Had they
known that the notes were not due, they would have enforced payment of the money which was their right, without giving a consideration for it. (b) Plaintiffs, being bankers, would not have make the arrangement, had they not supposed they could have recovered their money when they pleased, by selling the stock without notice. This they could not have done if the notes were not due.
3d. It was made upon a misrepresentation that they'held stock in the New York and New Haven Railroad Company at seventy, when, in fact, they held no such stock, but merely a fabricated certificate which represented no stock. (See Mechanics’ Bank v. New York and New Haven Railroad Co.
H. Lord and B. D. Silliman, for the defendants,
made and argued the points following:—
I. 1. On the 30th June, 1854, when R. and Gr. L. Schuyler failed, they were indebted to the Bank of Commerce in the balance of $25,000 of principal, on the two notes of April 6 and May 6, of which the latter was for $15,000, payable on demand at the bank.
2. Demand, especially applicable to the latter, was in fact made on the 80th of June, for payment of these notes. (3 Kent’s Com. 98, and note; Story on Prom. Notes, § 29; Newman v. Mohawk Ins. Co., 13 Wend. 268; Cornell v. Moulton, 3 Denio, 13; Bailey on Bills, ch. 9, p. 201, Boston edition, 1836; Field v. Nickerson, 13 Mass. 131; U. S. Bank v. Smith, 11 Wheat. 171; U. S. Bank v. Carneal, 2 Peters, 543; Saunderson v. Judge, 2 H. Blackstone, 509; Ogden v. Dobbin, 2 Hall, 112.). The other note was duly demanded.
3. The defendants, having this claim against R. & 0. L. Schuyler, had a right to apply the cash to their credit, on the 30th June, to this note.
4. The check for $10,000, held by plaintiffs, would form no assignment of the fund on which it was drawn, until it had been accepted or paid. (Chapman v. White, 2 Selden, 412.)
5. On the presentment of the check at 1 o’clock on 29th June, the drawers had not funds to meet it, and it was refused payment.
The check was not left with defendants as a warrant to retain moneys which R. & Gr. L. Schuyler might deposit, but was taken and kept by the plaintiffs; on, which they could have sued the drawers as on a dishonored check.
6. When the check was presented next, on the 1st July, the defendants had, by right, appropriated the cash of the drawers, R. & Gr. L. Schuyler, to the claim on the notes.
7. The note for $15,000, payable on demand at the bank, was a legal ground on which to claim the application of the cash funds of R. & Gr. L. Schuyler, without any actual demand. (2 Kent, 640, note C, 641; Cross on Lien, 316, Law Lib. v. 18; Davis v. Bowsher, 5 D & E, 488; Jourdain v. Lefevre, 1 Esp. 66 ; Bent v. Puller, 5 D & E. 494; Chapman v. White, 2 Selden, 412.)
II. 1. The defendants were mere bailees of the certificates of stock, taking it bona fide to secure advances. They so held it subject to the order of R. & Gr. L. Schuyler, the proprietors; and this relation of the defendants to the certificates was known to the plaintiffs.
2. The defendants refused all negotiation in relation to the certificates of stock, except to have their debt paid and the pledge redeemed by R. & G. L. Schuyler, the declared principals.
3. The defendants did no more than submit to a payment, creating a redemption, procured by the plaintiffs on an order of R. & G. L. Schuyler, as known owners; and the amount the defendants received was payment of a debt and not the price of a sale or transfer. (2 Kent, 577-579; Story’s Bailment, 197; 2 Ld. Raymond, 915-17.)
4. The payment was received bona fide and without any warranty, deceit, or misrepresentation on part of the defendants; it cannot be recalled on part of the plaintiffs, in consequence of any transactions between them and R. & G. L. Schuyler.
5. Even had this been a sale by the defendants of the pledge, no warranty would have been implied. (Morley v. Attenborough, Welsby, Hurlston, and Gordon, 3 Ex. Rep. 499; Chapman v. Speller, Queen’s Bench, Feb. 26, 1850; Law Jour., Cases at Com. Law, N. S., vol. xix. part 2, p. 239; McCoy v. Artcher, 3 Barb. S. C. R. 323.)
HI. The certificates of stock received by the plaintiffs were binding upon the Hew York and Hew Haven Railroad Company, and gave the plaintiffs a right against them to so much stock or the value thereof for security of their transaction—in substance therefore there was no failure of consideration.
1. The plaintiffs, if they succeeded to the title of the defendants, were bona fide purchasers without notice.
2. The certificates in defendants’ hands were signed by the officer appointed. by the company to sign such certificates; and these were in the form always used by the railroad company since its organization.
3. The certificates were intended to be assurances to all dealers to whom they should be delivered on good consideration, and bound the company. (See the printed assignments forming part of the certificates.
4. The stock was recognized by a transfer on the books of the company, to the defendants.
5. The plaintiffs have a valid claim against the company to the extent of the value of the stock, for their advances. (Davis v. Bank of England, 2 Bing. 393; 9 E. C. L. R. 44.)
IY. The plaintiffs have not proved the certificates of stock in question not to be true certificates of actual stock.
1. There was a parcel of 550 shares proved by plaintiffs to be valid, placed to R. & Gr. L. Schuyler’s credit on the 1st of February, 1854.
2. The same witness proves that this parcel was the supply for the first transfers afterwards.
3. Prior to 10th of February, the date of defendants’ certificate for 200 shares, there was no other transfer, so that the defendants’ certificate of this date was true—and prior to 4th of March, the date of defendants’ certificate for 170 shares, the transfers were (110+15 + 65=) 190 shares, which, added to the 200 of defendants’, made but 390 out of 550 shares.
4. The stock certificate for 170 shares to plaintiffs of March 4, is not shown to have been issued before that of defendants’ of same date.
And if this certificate had been issued before that of the same date of defendants’, still it created only a deficiency of 10 shares.
5. The plaintiffs’ evidence as to the falseness of the certificates is wholly insufficient. 1st. It rests on the stock ledger account alone, and this takes no notice of certificates issued not returned on transfers on the books, although outstanding and transferred by the indorsed form of assignment. 2d. The plaintiffs cannot claim that the transfer of undeniable stock shall be applied to the balance of over transfers; for, if they deny the validity of such over transfers against the railroad company, the latter have no claim on any such balance; or, if they admit such validity, then the stock the plaintiffs received from the defendants is valid.
V. Plaintiffs claim that to enable them to procure payment of their $10,000 check, they were induced to advance the amount which they did, and take up the note and receive the stock. They thus paid........$25,334 66
The market price of the stock when the transfer was made by defendants to plaintiffs was 81 cents. Thus, if plaintiff received but 360 (instead of 370) shares, the same would amount to..... 29,160 00
Leaving a surplus to plaintiffs of . . . . $3825 34
VI. The plaintiffs have not shown that the railroad company disclaim the stock in question. They have shown no demand on the company to recognize it, or any refusal by the company so to do. The action is, therefore, premature. The plaintiffs are not at liberty to volunteer a repudiation of the stock which the company may not see fit to make.
VII. As between the plaintiffs and defendants, the former had better knowledge than the latter as to the genuineness of the stock. Mr. Ketchum (one of the plaintiffs) being a director and officer of the railroad company, and as such being bound and presumed to know the state of its affairs. His knowledge charges his partners with like knowledge. (Angel on Corporations, 306; Verplanck v. Merch. Ins. Co., 1 Edwards, 87; Scott v. Depeyster, 1 Edwards, 513; Bayless v. Orme, 1 Fearne Miss. R. 175; Collyer on Partnership, § 443; Fulton Bank v. N. Y. and Sharon Canal Co., 4 Paige, 128; Lord Worthington, 2d Eden. 303.)

Opinion:
By the Court. Bosworth, J.
We do not understand that the plaintiffs claim the right to-have a new trial, on the ground that the facts, specially found by the Judge, before whom this action was tried, are not warranted by the evidence. The practical question presented by the appeal is this: Do the facts, found by the Judge, and admitted by the pleadings, warrant the judgment appealed from?
The check of the 29th of June, 1854, drawn by R. & Gr. L. Schuyler, on the defendants, was presented for payment about one o'clock, p. M., of the day of its date, and payment of it was refused. The refusal was j ustified by the fact, that the drawers had not then sufficient funds in bank to pay it. According to the facts found, the check was next, and again presented to the defendants for payment, on the 1st of July, before eleven o'clock, A. M., and about that hour it was returned to the City Bank, from which it had then come to the defendants, and was returned as not being good.
In the mean time the drawers had failed. The defendants knew of such failure on the 30th of June, and on that day instructed their teller not to pay any checks of the Messrs. Schuyler, which might be presented.
On the 29th of June, about six minutes before three, P. M., a deposit was made with the defendants by the Schuylers, to their credit, of $9,000. This deposit, with the previous balance to their credit, made an amount a little more than sufficient to pay the $10,000 check. Unless these facts created a right in favor of the plaintiffs, to have enough of the deposit applied to pay the check, when it was last presented, and a right of action against the defendants, after such refusal to pay, for the amount of the check, the plaintiffs do not show that they had a cause of action against the defendants at any time, unless one accrued from the subsequent transactions had on the 1st of July, between the plaintiffs, the defendants and the Schuylers.
We shall consider this latter question first. As we read the facts found, the defendants did not represent that payment of the stock notes had been demanded, nor that they were due. In answer to the inquiry, why the check was dishonored ? the defendants' cashier, replied, " because the bank had a loan demand on the drawers, which would absorb the whole amount of the credit; of the firm."
If it would be a material matter, in determining a party, to take a transfer of these stock notes, and the collaterals deposited to secure the payment of the money named in them, that a de mand of the payment of them had, or had not been made, there was no misrepresentation with respect to this point. So, too, if it be conceded, that as matter of law, they would not become due, so as to justify a sale of the stock, until a demand of payment and refusal to pay them, there was no misrepresentation on that point. Whether payment had, or had not been demanded, does not seem to be very important, regarding it merely as an operative inducement to such a transaction as occurred. The Schuylers had failed. This was known to the plaintiffs as well as to the defendants, and payment could have been demanded at any moment, as they resided in this city. The plaintiffs knew that the collateral security held by the defendants was something which the Schuylers had pledged. They undoubtedly supposed the defendants held actual stock, or perfect evidence of a right to it. The defendants as fully believed the same thing. But the defendants did not propose, or accede to any proposition to sell to the plaintiffs any stock, or the stock-notes. When asked " whether an assignment of the securities would be made, and the check paid, upon the discharging the loan?" the reply made by the officer of the bank was, "that they could do nothing without the consent or order of Messrs. Schuylers."
The plaintiffs then obtained a written order from the Schuylers, upon the defendants, to deliver to the plaintiffs three hundred and seventy "shares of New Haven Railroad Company" stock, upon their paying our notes, for which said shares are pledged." By what arrangement between the plaintiffs and the Schuylers this order was given, the case does not disclose. Whether the plaintiffs bought the stock absolutely of the Schuylers for $25,000, or agreed with them to take up the notes, on receiving a transfer of the pledged stock, does not appear. But whatever the agreement between those parties was, it was an agreement relating to the stock pledged by the Schuylers to the defendants; of its terms the defendants knew nothing, except what Schuylers' order of the first of July imports.
All the defendants wished, or could lawfully claim, was payment of the $25,000 loan. That being paid, they were willing and could be compelled to deliver the notes, and the stock pledged as security for their payment, to any person the Schuylers might designate.
The amount due to the defendants was paid by the plaintiffs by virtue of an arrangement between them and the Schuylers. The defendants did not sell to the plaintiffs the notes or the stock. By the terms of the Schuylers' order, the defendants were not authorized to deliver the stock to the plaintiffs, except upon the condition of the plaintiffs paying the notes, and on compliance with that condition they were required to deliver it. If the plaintiffs paid the notes, then the defendants were to deliver the stock which the Schuylers had pledged to secure the notes.
The plaintiffs brought this order, and paid the amount due on the two notes, and then the defendants delivered, and were bound, and could have been compelled, to deliver this stock to the plaintiffs. The defendants made all the delivery of which the subject matter was susceptible. They delivered the evidence of a right to the stock, which was all the delivery contemplated, or which, in the nature of things, could be made.
The notes were delivered to the plaintiffs, with a written indorsement on them, to the effect that the defendants had "received payment of Ketchum, Rogers & Bement, and delivered them the securities."
Under such circumstances, we do not see why the defendants should be required to reimburse the $25,000 to the plaintiffs. If this stock, or evidence of right to it, had never been in possession of the defendants, but had passed directly from the Schuylers to the plaintiffs, upon payment, by the latter, to the defendants, of the $25,000, we think no such claim would be urged. We do not see how the defendants' liability is varied by the fact that the defendants, pursuant to an order from, the Schuylers, which it was their duty to obey, delivered the stock to the plaintiffs, upon their doing what they had agreed with the Schuylers they would do, as a consideration and condition of such delivery. The plaintiffs and defendants severally acted in good faith. The defendants had a right to retain the stock until the $25,000 was paid, but they had no right to insist upon retaining it after such payment was made. Whether the defendants, on the facts then existing, could have retained the $10,000 on deposit, as against the plaintiffs, we may assume to be a debatable question, but the defendants, clearly, would have no such right after the $25,000 was paid. In our opinion, the conclusions of law, as to this branch of the case, upon the facts found, are:—
1st. The plaintiffs paid for the Schuylers, to the defendants, the amount which the Schuylers owed to the latter.
2d. Such payment was made pursuant to an arrangement between the plaintiffs and the Schuylers, as the principals and sole contracting parties.
3d. The delivery to the plaintiffs, by the defendants, of the securities, called stock, was in consequence of and in obedience to the order of the Schuylers, and by authority of it, and was not in execution of any-contract of the defendants, to sell and deliver to the plaintiffs three hundred and seventy shares of stock.
4th. The defendants were paid no more, as a condition of delivering the stock, than it was his right to demand, before they could have been compelled, by the Schuylers or any other person, to surrender it.
5th. If the plaintiffs paid this money for a consideration which has failed, or by reason of the suppression by the Schuylers of the information that the stock was false and spurious, their only remedy is against the Schuylers, on whose account it was paid.
If these views are sound, the inquiry whether an action could have been maintained by the plaintiffs against the defendants to recover the amount of the check, after it had been presented for payment on the first of July, and the refusal at that time to pay it, becomes unimportant to the proper determination of this appeal. The check has been paid by the defendants; but, unless a discrimination can be made between this case and Chapman v. White (2 Seld. Rep. 412), no right of action arose in favor of the plaintiffs against the defendants by reason of the presentment of the check and the refusal to pay it. The instruments, ordering the parties to whom they were directed, to pay the sums named in them, are in the same form in both cases. Both were drawn on a bank. The drawer, in each case, had moneys to his credit in the bank on which the check or bill was drawn; but in neither case was the deposit a special one. The moneys deposited in each case, from the time of the deposit, were the property of the depositary. Although lost, stolen, or burned, without any fault of the depositary, the latter would continue liable to the depositor for the amount. The right of the depositor was a mere chose in action. We do not see why Chapman v. White is not controlling on this question. If it is, the plaintiffs had no right of action against the defendants for the $10,000 at the time the $25,000 loan was paid, and the securities pledged for the payment were surrendered. Whether, if an assignment had been made by the Schuylers to the plaintiffs, on the first of July, of all claims of the former against the defendants, by reason of the deposits made by the Schuylers with the defendants, and the plaintiffs as such assignees had brought an action to recover the sums deposited, the defendants could have offset the notes, is a question which does not arise. No such assignment was made, and the check itself did not operate as an assignment, or create a lien on the amount standing to the credit of the Schuylers, until the check was accepted or paid.
But it by no means follows, that although no such demand of payment of the stock notes had been made, as would have authorized a sale of the pledged stock, that an action would not have lain, at the suit of the defendants against the Schuylers, upon the notes, nor that, if the Schuylers had sued the defendants on the first of July, to recover the balance standing to their credit, that the stock notes might not have been set-off. Notes payable " on demand" are due at their date; interest accrues, .and the statute of limitations begins to run from that day. They may be sued without a previous actual demand. It is not apparent why the Bank of Commerce, if the Schuylers had assigned their claim, by reason of their deposits, to the plaintiffs, on the first of July, and the latter had thereupon brought an action against the bank, might not have set-off the stock notes. The Schuylers had failed on the 30th June. The bank knew of it, and on that day sought the Schuylers, and, failing to find them, directed its teller to pay no more checks drawn by the Schuylers. The defendants have done enough to show their purpose, to insist on the right to apply the amount of Schuylers' credit to satisfy pro tanto these notes. We do not think the Schuylers could have made an assignment of their claim, by reason of their deposits after that date, which would preclude the defendants from setting-off the notes.
But although a note is by its terms due, yet property pledged for its payment cannot be sold until after payment has been actually demanded and a reasonable time to pay has elapsed. If the makers cannot be found, so that a demand of payment can be made of them, a resort to judicial proceedings must be had to authorize a sale. (Stearns v. Marsh, 4 Denio Rep. 227, 230, and 231; Wilson v. Little, 2 Comstock R. 443.)
Upon the facts as found, we think the conclusion of law is, that no such demand had been made as would authorize a sale, on the 1st of July, of the pledged property. If the defendants had sold it that day, the sale would have been unauthorized.
This view strengthens the conclusions before stated, that the transactions, which resulted in payment of the loan and surrender of the stock, were, so far as they related to such payment and surrender, matters as to which the plaintiffs and the Schuylers were the contracting parties.
The defendants having received no more than was their strict right, and having received that as a payment in behalf of their debtor, and being guilty of no fraud, the judgment appealed from should be affirmed, but not for the reasons assigned in support of it by the learned Judge by whom it was rendered.