Court Opinion

ID: 6121395
Source: CourtListenerOpinion
Date Created: 2022-02-04 18:48:26.898198+00
Date Added: 2024-06-11T08:23:28.144796
License: Public Domain

Tapp an, J.
(dissenting):
I cannot concur in the opinion of the majority of the court in this case.
The plaintiff is a banking association, organized under the act of Congress of the' United States, entitled “An act to provide a national currency, secured by pledge of United States stocks, and to provide for the circulation and redemption thereof,” approved February 25th, 1863, and June 3d, 1864, and the several acts amendatory thereof, substantially re-enacted in title 62, page 992, Revised Statutes of the United States.
The evidence tended to prove, and the referee expressly found, that when the defendants Burr opened an account with the plaintiff the latter, by its cashier, agreed that the bank would discount for them to the extent of four or five times their average deposits; and if they should require discounts in excess of such amount, he would procure their paper to be discounted for them for a commission of five per cent, per annum for his services. Under such arrangement several notes made by the defendants Burr, and' indorsed by the defendant "Wells, and afterwards indorsed by James M. Wood as cashier of the plaintiff, were forwarded to other banks, and by such other banks discounted at legal rates, the avails received by plaintiff, and the balance, after deducting five per cent, credited to said defendants Burr.
In reference to the note in suit, the referee made the following special findings:
Seventh. That on or about the 9th day of August, 1875, the defendants Burr made their certain other promissory note, described in the complaint and upon which this action is brought, whereby they promised to pay in two months from the date *59thereof, to the order of defendant, John E. Wells, at the Metropolitan National Bank, New York, the sum of twenty-four hundred dollars, which note'was indorsed by the defendant, John E. Wells, for the accommodation of the makers.
Eighth. That said note so indorsed was, on or about the 11th day of August, 1875, delivered by the defendants Burr to the plaintiff’s cashier, for the purpose of having it discounted, and raising money thereon with which to pay the aforesaid note of $1,995.45, and another note made by the defendants Burr of the amount of $300, both of which were then hold and owned by the plaintiff.
Ninth. That said note of $2,400, being the note described in the complaint, was thereupon indorsed by the said cashier of the plaintiff, and sent by him to the Eirst National Bank of Albany, to be by it discounted, and said bank received such note and discounted the same at the rate of seven per centum per annum for the time it had to run until the maturity thereof, as interest, and deducting such interest, remitted the said residue of the amomit of such note to the plaintiff on or about the 16th day of August, 1875. * * * # * * * *
Eleventh. That the plaintiff demanded and received from the defendants Burr out of the residue of the proceeds of such note, as a compensation for procuring the discount thereof, and for the loan of its credit by indorsing the same, the sum of $14.67.
The note of $2,400 was put in evidence as plaintiff’s exhibit “ A ” upon the trial, from which it appears that the indorsement by Wood was as follows :
“ Pay A. Van Allen, cashier, or order.
“ J. M. WOOD, Cashier.”
The referee has found that this note was not delivered to the plaintiff or its cashier as evidence of, security for, or under an agreement for a loan, made or to be made, by plaintiff or its cashier. The note became due on the 12th day of October, 1875. Payment was then demanded at the Metropolitan Bank; and not being made, it was duly protested at that bank, and by it returned to the Eirst National Bank of Albany, and by the latter bank it was returned, with notice of protest, on the 14th or 15th of Octo*60her, 1875, to tbe plaintiff, which thereupon took up the note, and brought this action thereon.
Upon the trial the defendants requested the referee to find: “ That the plaintiff has no right or power as a corporation or banking association, under the law by which it is created, to soil or loan its credit by indorsement, or becoming surety for the accommodation of others, for a consideration or otherwise.”
The referee declined to find upon the question, upon the ground that it was not involved in the decision, and defendants excepted.
The agreement made by Wood with the defendants Burr appears to have been made by him as cashier for plaintiff; the indorsement of the note in suit was by W ood as cashier of plaintiff; and Wood says, in reference to the compensation taken for procuring the discount for the note in suit, and for-the loan of its credit by indorsing the same, that he took nothing, that the bank took the $14.67; and the referee, as appears by the eleventh finding above cited, reaches the same conclusion.
By the above exception the defendants raise the question whether the plaintiff, a national banking association, is authorized by law to receive paper, made to be indorsed by such association, to be discounted by another bank, for a compensation to be paid to it therefor. It is well-settled law that corporations created by statute must depend for their powers, and the mode of exercising them, upon the true construction of the statute itself. (Bank of the U. S. v. Dandridge, 12 Wheat., 68; Head & Amory v. The Providence Insurance Co., 2 Cranch, 127.)
By subdivision 7, § 5136, R. S. of U. S., it is provided that these associations, after filing articles of association and an organization certificate, shall have power to exercise, by their board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin and bullion; by loaning money on personal security, and by obtaining, issuing and circulating notes, according to the provisions of .the act.
By section 5197, the rate of interest that these corporations are entitled to receive is prescribed, and by the next section a *61penalty for taking usurious interest is provided. (R. S. of U. S., 1011.)
The court of last resort in Maryland has determined that selling railroad bonds upon commission, is not within the corporate powers of a national bank. (Weckler v. First National Bank of Hagerstown, 42 Md., 581; S. C., 20 Am. R., 95.)
In First National Bank of Rochester v. Pierson, decided by the Supreme Court of Minnesota, September, 1877 (16 Albany Law Journal, 319), it ivas held that the purchase of a promissory note by a national bank, for the purpose of speculation, is ultra vires, and the bank acquires no title to and cannot recover on a note so purchased.
As was said in Weckler v. National Bank of Hagerstown (20 Am. R. [opinion], 102), these associations, when organized in their corporate name, are allowed to make contracts, sue and be sued, to elect directors and other officers, “ and exercise under this act all such incidental powers as shall be necessary to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debt; by receiving deposits, by buying and selling exchange, coin and bullion; by loaning money on personal security and by obtaining, using and circulating’ notes, according to the provisions of this act.”
“By it the associations are not simply incorporated as banks, and the scope of their corporate business left wholly to implication; but the kind of banking which they may conduct is limited and defined.”
As wTe read the language of subdivision 7 of section 5,136, it authorizes the association to carry on banking “ by discounting and negotiating promissory notes,” etc.; and to exercise 1 all such incidental powers' as shall be necessary to conduct that business. The mode in which the incidental powers shall be executed, is not defined; but all incidental powers which they can exercise, must be necessary or incidental to the business of banking thus defined.
Under the act in question, the rate of interest allowed to be chai’ged for loan axxcl disco'uixts is defined. The plain ixxtexxt of Congress by this act, was to secure to the pxxblic loans and accom*62modations at reasonable rates of interest, and to protect the shareholders of the banks and the banks against the risk of loss from engaging in enterprises not incidental to the business of banking as defined in the act.
If one of these associations can lawfully make an agreement with a customer to obtain his note to be discounted by another association, at the rate of interest allowed by law, and receive for indorsing and obtaining such discount five per cent per annum additional; can the spirit of the act to protect the public from extortion and usurious rates of interest for accommodation be enforced? If it is lawful for one of these associations to make such an agreement, and receive the fruits of it, would it ordinarily have money to loan to its customers for their accommodation?
If such a transaction is lawful, the temptation that the officers of these associations would be subjected to, would tend to prevent discounting paper in a legitimate way by the bank applied to for such an accommodation, and tend to stimulate reciprocity among these associations in making discounts for each other, to secure a brokerage for procuring the discount and the loan of its credit by indorsing the note sent to the association applied to for discount.
If the First National Bank of Albany discounted the note in suit upon the indorsement of the plaintiff, by its cashier, without knowledge of this agreement, its officers might lawfully presume that plaintiff lawfully acquired the note; and plaintiff would be hable to it upon the indorsement. Would it tend to protect the capital of the bank and the shares of the stockholders to decide, that under this act one of these associations could pledge the credit of the bank, to enable it to obtain a brokerage for loaning its credit by indorsing customers’ notes ?
I am satisfied that Congress never intended to grant to these associations any such power. I agree with the Supreme Court of Minnesota in its construction of the meaning of the word “negotiate,” as used in this statute; that it is used to indicate, not an act of purchase, but one of transfer, whereby the negotiated paper is passed by the owner or holder, and put into circulation. (First National Bank of Rochester v. Pierson, 16 A. L. J., 319; Weckler v. First National Panic of Hagerstown, 20 Am. R. [opinion], 102.)
*63Webster defines “ negotiate, ” to soli; to pass; to transfer for a valuable consideration; as, to negotiate a bill of exchange.
There is no just reason why these associations should not be allowed to sell and transfer notes discounted by them in the ordinary transactions of their legitimate business, and the law intended to allow such sales and transfers, but does not admit of a construction that such language allows such associations to obtain a note by purchase for speculation, nor to engage in the business of indorsing notes to be discounted by other banks for a compensation. The First National Bank of Albany could have recovered upon .the note as a bona fide holder without knowledge .of the unlawful agreement to obtain plaintiff’s indorsement. Plaintiff took up the note as indorser with full knowledge of the agreement, and therefore derived no additional rights from the title thus obtained.
For these reasons I am of the opinion that the plaintiff, having no corporate capacity to make the contract by which it obtained the note in suit, never acquired any title to it, or to recover the money paid for it; that said contract and the several acts of the plaintiff under it, were strictly ultra vires, and conferred no rights whatever.
The judgment, entered upon the report of the referee, should be reversed, the order of reference vacated, and a new trial granted, costs to abide the event.
Present — Learned, P. J., Boardman and Tapp an. JJ.
Judgment affirmed, with costs.