Jacobs v. Monaton Realty Investing Corp.

to possess the power of carrying on the business of discounting bills, notes or other evidences of debt, of receiving deposits, of buying and selling bills of exchange, or of issuing bills, notes or other evidences of debt for circulation as money,” etc.

The Banking L,aw, in defining mortgage loan or investment corporations, provides:

“The term ‘mortgage loan or investment corporation,’ when used in this chapter means- any corporation other than an insurance corporation formed under the laws of this state or of any other state, and doing business in this state for the purpose of selling, or offering for sale, or negotiating bonds or notes secured by deed of trust or mortgages on real property, or choses in action owned, issued, negotiated or guaranteed by it, or for the purpose of receiving any money or property, either from its own members or from other persons, and entering into any contract, engagement or undertaking with them for the withdrawal of such money or property at any time with any increase thereof, or for the payment to them or to any person of any sum of money at any time, either fixed or uncertain; and when applied to any foreign corporation doing business in this state shall include,” etc.

In the case at bar the contract between the parties is evidenced by the alleged certificate, which constitutes their agreement. This provides that, in consideration of the payment of $107.36 annually, or, at his option, the sum of $9.20 each month, in advance, during the period of 10 years from date, the defendant promises to pay to plaintiff or the recorded owner of the certificate, at the expiration of the said period, upon presentation and surrender of the certificate, the sum of •$1,500, “and in addition thereto such portion of the profits as the directors of the company may consider just and equitable.” The certificate also contained a clause to the effect that it was subject to the ■‘‘privileges and provisions” indorsed on the back. It was there stated that:

“The payments on within certificate being accepted by the company for investment in business, not for deposit, the owner has the following privileges,” etc.

These are briefly the right to apply the certificate, at any time, with accrued interest, on the purchase of any real estate which the company may choose to sell to the holder of the certificate, a right to transfer the certificate, a right to get a paid-up certificate payable at the original maturity date, or payable in cash on 60 days’ notice, according to a schedule annexed, and, in the event of the owner’s death, the company agreed to pay to his representatives the total amount of the premiums paid, with 4 per cent, interest to the date of death, or the holder’s legal representatives might continue the certificate to maturity by making the payments as above stated; also providing that, if any installment remains unpaid for six months, the certificate shall be nonforfeitable for five years from the date of default. A right was reserved to the company to terminate the certificate after the tenth or any later anniversary of its date, by paying up its amount with accrued interest, “together with such portion of the profits as may be apportioned thereto by the directors of the company.” The certificate contains the further clause:

“In addition to the face value of this certificate at its maturity, it shall be entitled to, and the owner shall receive, such portion of the profits of the company as shall be apportioned thereto by the directors thereof.”

There is no question whatever in my mind but that this company is violating the provisions of the Banking Law and is transacting business as a mortgage loan or investment corporation, as that form of company is defined in the Banking Law. In the case of Chapman v. Lynch, 156 N. Y. 551 , 51 N. E. 275 , the American Dairy Salt Company, Limited, issued to plaintiff a pass book in which was entered: “Frank D. Chapman, in Special Account with the American Dairy Salt Company, Limited.” Under the credit column was entered: “February 11, 1882. Cash, $10,880.90."

And semiannually thereafter interest was credited at the rate of 6 per cent. It was there held that the corporation, in accepting the funds of the plaintiff in special account upon deposit, exceeded its corporate power and engaged in a business in which it was not authorized; that its contract was ultra vires, and therefore plaintiff’s right of action for the moneys delivered to the corporation accrued at once.

These provisions of the Banking Law were enacted to restrain illegitimate and improper banking. I am convinced that the complaint shows that the defendant here is engaged in the business-of illegitimate and improper banking, and that the order and judgment appealed from should be affirmed.

Order and judgment affirmed, with $10 costs and disbursements, with leave to defendant to plead over within five days after service of a copy of the order entered herewith, with notice of entry thereof, upon payment of costs in this court and in the court below, with leave to defendant to appeal to the Appellate Division, First Department.

GUY, J., concurs.

(dissenting). I dissent. The defendant is a stock corporation, and as such has the power—

“to borrow money and contract debts, when necessary for the transaction of its business, or for the exercise of its corporate rights, privileges or franchises, or for any other lawful purpose of its incorporation; and it may issue and dispose of its obligations for any amount so borrowed.” Stock Corporation Law (Laws 1909, c. 61) § 6.

The company is incorporated for the purpose of buying and selling and dealing in real estate. To obtain money with which to carry on

In my opinion there is nothing in the transaction to distinguish it from the ordinary case of a loan secured by a debenture. The money is loaned to the company by the holder of the certificate in small installments for use in its legitimate real estate business, and at the termination of the agreement the sum total of all the installments, loaned is repaid, with interest. Unless it be said, therefore, that every •corporation not incorporated, under the banking laws, that borrows money and issues an obligation for its repayment, is guilty of an ultra vires act, some fact must appear to remove this case from the accepted rule.

The result reached by Mr. Justice GERARD seems to be predicated upon a conclusion that the payment of this money to the company by the plaintiff, and receipt by him of the certificates, was equivalent to a receiving of “deposits” within the meaning of section 22 of the Gen•eral Corporation Law, as amended by Laws 1911, c. 771, which provides that:

“No corporation, domestic or foreign, other than a corporation formed under ■or subject to the banking laws of this state, * * * shall by any implication or construction be deemed to possess the power * * * of receiving ■deposits.’’

It is stated in the certificate issued by the defendant:

“The payments on within certificate being accepted by the company for investment in business, not for deposit, the owner has the following privileges. * * * ”

While I agree that this statement in itself would have no effect, did it appear clearly that the contract between the parties and their relations with each other showed a mere deposit, t am of the opinion that' there is nothing in the contract or the known relations of these parties which, in the face of an express declaration to the contrary, can .convert the transaction from an ordinary loan for the purpose of investing in defendant’s business to a bank deposit, and make it an ultra vires act.

The distinction between a loan and a deposit of money to be used by the depositary is not a broad one,, but is sufficiently so that the law recognizes certain rules as applicable to each. By a loan of money is

The distinctions between the two, therefore, are: (1) That the loan is for the benefit of the person who receives the money, while the deposit is for the benefit of the person who delivers the money. (2) The loan is payable without demand; the deposit only on demand. (3) As to the loan the statute of limitations begins to run from the due date, and, if there is no due date expressed, then immediately; while on a deposit the statute- of limitations does not begin to run until there has been a demand.

Therefore, when we consider a transaction wherein money is delivered to a corporation, to determine whether the money was a loan, and hence within its general corporate powers, or a deposit, and without its corporate powers, unless it is a banking corporation, we must consider the purpose of the delivery and the primary object of the corporation in receiving it. If we find that, in a given case, the use to which the money is devoted is merely incidental, and that the primary object of the corporation is receiving, collecting, and dealing, in money, it may safely be said that a banking business, within the definition of the Banking Law, is being transacted, and the act of the corporation is ultra vires, unless it has a banking charter. If, on the other hand, it appears that the corporation is regularly engaged in some business or trade, and is obtaining loans of money as a means of conducting its business and merely incidental thereto, the transaction is authorized by section 6 of the Stock Corporation Law, quoted above, and must be held to be a valid one.

Upon the facts of the case at bar, as disclosed by the record, I am unable to say as a matter of law that the defendant is engaged in receiving deposits in violation of the statute, and am of the opinion that upon this demurrer it must be regarded as a legitimate real estate company, borrowing money for the purposes of its business:

It has been said that the defendant company comes within the definition of a mortgage loan or investment corporation, contained in section 2 of the Banking Law, as follows:

“Any corporation other than an insurance corporation formed * * * for the purpose of selling, offering for sale or negotiating bonds or notes secured by a deed of trust or mortgages on real property or choses in action owned, negotiated or guaranteed by it, or for the the purpose of receiving any

money or property either from its own members or from other persons, and entering into any contract engagement or undertaking with them for the withdrawal of such money or property at any time with any increase thereof, or for-the payment to them or to any person of any sum of money at any time, either fixed or uncertain. * * * ”

It would be absurd to suggest, however, that any corporation incidentally “entering into any contract * * * for the payment to any person of any sum of money at any time, either fixed or uncertain,” is engaging in the banking business, for such an interpretation would nullify section 6 of the Stock Corporation Law, and would disrupt half of the business of this city and state. The distinction must here be drawn again between a corporation incidentally engaging in such transactions, in order to raise money for their own use, and those “formed for the purpose” of doing so, and dealing in such transactions as their principal business.

The cases of Chapman v. Lynch, 156 N. Y. 551 , 51 N. E. 275 , and Chapman v. Comstock, 134 N. Y. 509 , 31 N. E. 876 , relied upon by the respondent, merely hold that, where a person deposited a sum of money with a business corporation, not as a loan, but for safe-keeping and for the convenience of the depositor, subject to withdrawal upon demand, and for which he received a regular pass book, like those issued by a bank, in which interest was credited at regular intervals, the transaction was a “deposit,” and was ultra vires. The cases contain no discussion of the distinguishing elements of loans and deposits) but, tested by the rules above discussed, the transaction was clearly a deposit. They are of no value in determining, this case.

I am of the opinion that the complaint fails to state a cause of action against the defendant, as no facts are alleged therein which, without further allegations as to the nature of the defendant’s business, are sufficient to show that the transactions set forth are ultra vires.

The judgment and order should be reversed, and the demurrer sustained.