Utica Insurance v. Pardow — 2 N.Y. Super. Ct. 515

Majority

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The Utica Ins. Co. versus George Pardow.

Headnote

The plaintifis loaned to J. L. 500 dollars, upon his check for the same sum, collaterally secured by the deposit of a promissory note, endorsed by the defendant. The sum advanced to L. consisted of small checks, drawn by the plaintiffs on the Tradesmen’s Bank, having the general appearance of bank notes, and being intended to circulate as such. They were not redeemed at the bank on which they were drawn, but by the plaintiffs themselves at their own office. L. having failed to repay the loan, the plaintiffs brought an action on the note, to which the endorsers set up the illegality of the transaction, under the restraining act, as a defence. Held, that the giving of the checks under the circumstances of the case, was not a banking transaction, nor against the restraining act, and that the plaintifis were entitled to recover.

Assumpsit upon a promissory note for 500 dollars, bearing date the 31st of March, 1828, drawn by one John F. Gannon, in favor of Joseph D. Palmer, and endorsed by him and the defendant.

The cause was tried before the Chief Justice; and, at the trial, the plaintiffs proved by one Totten that the note in question came into their possession about three weeks before its maturity, having been deposited with them by James Lynch as collateral security for check of the like amount, drawn by him on the Manhattan Company. That the plaintiffs advanced to Lynch 500 dollars upon said check and note, in their own checks, on the Tradesmen’s Bank. These checks, the witness also testified, were drawn for such amounts as are usual in the ordinary emissions of bank notes; they were printed on bank note paper, had the general appearance of banknotes, and were intended to pass, and usually did pass as such. At the time of the loan to Lynch, and for some months previously thereto, these checks were not redeemed at the Tradesmen’s Bank, (from which the plaintiffs had withdrawn their funds,) although payable there, but were redeemed by the plaintiffs themselves, on presentment at their own office in Wall-street, according to a notice for that purpose given to the public.

Lynch being called as a witness for the defendant, testified, that the note in question, was given in renewal of a previous one discount

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ed by himself out of his private funds, and that the plaintiffs originally had no interest in it. It appeared also, by his testimony, and that of Totten, that the plaintiffs had been in the habit of employing Gannon to circulate their checks, that it was not their custom to discount notes, but they often loaned money on collateral security, and usually paid their losses in checks bearing a general resemblance to bank notes. At the time this note was discounted, Lynch was President of the Utica Insurance Company, and there was some evidence (found chiefly in the testimony of Gannon) from which an inference might be drawn that the note was discounted for the plaintiffs.

The Chief Justice charged the jury, that if the original note was discounted by the plaintiffs, or if the advance to Lynch was in fact a discount for him, then, that their verdict should*be for the defendant; but that, if Lynch himself discounted the original note; and afterwards borrowed 500 dollars of the plaintiffs, and deposited the note as mere collateral security for his own debt,—then, that their verdict ought to be for the plaintiffs.

The counsel for the defendants contended, that the facts of the case disclosed an exercise on the part of the plaintiffs of banking powers, and that they could not, therefore, recover on the present note. But the Chief Justice, without expressing any decided opinion upon any of the questions of law, declined charging the jury to this effect, and the counsel for the defendant took excep- - tions to his opinion and charge.

The jury having found a verdict for the plaintiffs, the defendant how moved for a new trial.

Mr. C. O’Connor, for the defendant, contended,

that the loan to Lynch, on the security of his check and the note, was a banking operation. That the contrivance of issuing “ checks’> upon a bank in which the plaintiffs had no funds, was a palpable evasion of the statute. The Chief Justice, (he said,) treated this case upon the trial, as if there was but one proceeding by which the restraining act could be violated, and that is by a discount. The statute, in enumerating the prohibited operations places “ issuing notes” in the fore ground. [2 N. Y. R. L. p. 234. sec. 2.]

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There was no dispute about the facts. They came out from the plaintiffs’ own witnesses, and the Chief J nstice should have charged the jury that the loan to Lynch, on his check and this note, was a banking operation, in violation of the restraining act.

II. The discount made by Lynch, for Gannon, being made with the notes of the company, Lynch being at the time President of it, if not strictly and directly a company operation, was indirectly so. It was connected with their unlawful trade of issuing prohibited checks. It was one of the modes by which their officers got their checks into circulation, and was so clearly an act in furtherance of their views in the issuing of the checks, that justice must be blind if she cannot see through the veil. The restraining act was violated by the loan to Lynch from the company, and also in the loan by Lynch to Gannon.

Mr. J. L. Graham, contra, for the plaintiffs.

The jury having decided that the original note was discounted by Lynch, and not by the plaintiffs, and that the transaction by which he passed the note in question to the plaintiffs, did not amount to a discount of it, it is difficult to see what question remains.

It is said by the defendant’s counsel, that the Chief Justice ought to have charged the jury that the loan to Lynch on his check, and this note was a banking operation. From this remark, it would seem that he has not adverted to the case of this company against Kipp, [8 Cowen’s R. 20,] and against Scott, [8 Cowen’s R. 717,] where it is settled that the plaintiffs have a right to lend money on personal security; nor to the case against Hewitt, [1 Wendall's R. 56,] where it was distinctly stated in the plea, that the plaintiffs were engaged in banking business, and that the note declared upon was created with intent to have it discounted by the plaintiffs, and that the plaintiffs, with a knowledge of that fact, did discount it in the usual course of their banking operations.

If the defendant in this cause, had proved, (which by the by he did not,) that the plaintiffs were engaged in banking business, still, as they had a right to lend them money on a personal security,

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the only hope he could have of a verdict, was to show that the was not taken on a loan but on a strict bank discount, and this question the Chief Justice put to the jury, though there was scarcely evidence enough on the part of the defendant to warrant the raising of it.

It is probably unnecessary to allude to the charge requested by the defendant’s counsel, and delivered by the court, and the question reserved upon it—for if this note was not taken by the plaintiffs by the way of a discount, then it was rightfully taken by them, unless indeed giving three checks, having the appearance of bank notes, instead of one for a sum of money, makes a man a banker.

This was an action on a promissory note, dated March 31st, 1828, drawn by one Gannon, and endorsed by the defendant. The defence relied upon is, that the note in question was discounted by the plaintiffs, in violation of the provisions of the act restraining private banking associations, and is therefore void. According to the testimony of Lynch, the note in question was a renewal of a former note, which was discounted by him out of his private funds, the plaintiffs having no interest, directly or indirectly, in the original discount of it. It also appeared that the note in question, shortly before it fell due, was deposited withthe plaintiffs by Lynch, as collateral security for the pay merit of a check, drawn by him on the Manhattan Bank, dated the 22d of May, 1828. The amount of the check was advanced to Lynch, by the plaintiffs, in their own checks on the Tradesmen’s Bank. The Judge charged the jury, that if the advance of the money to Lynch, was a loan on the deposit of the note as a pledge or collateral security, the plaintiffs had a right to recover ; but if it was a discount of the note by the plaintiffs, the action could not be sustained, and he submitted that question to them, on the testimony of Lynch, and,the other proofs in the case. The jury found for the plaintiffs.

The charge of the Judge was in conformity to the decision in the case of the same plaintiffs v. Scott. [8 Cowen’s R. 717.] The

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Court of Errors there held, that the company was authorized by its charter, to loan money upon notes or bonds; and Lynch’s statement of the transaction (which was adopted by the jury) shows, that in the present case, there was no discounting of the note in the ordinary way of banking, but a mere loan on the deposit of the note, which had been previously discounted, with his private funds.

It is, however, insisted by the defendant, that the advance made by the plaintiffs to Lynch, in their own checks, under the circumstances, was an exercise of banking privileges. The checks in question, were printed on bank note paper, were drawn for small sums, as is usual with bank notes, had the appearance of bank notes, and were issued by the plaintiffs for the purpose of passing) and usually did pass as such. It appears also, that the checks in question, though made payable at the Tradesmen’s Bank, were not paid there, but at the office of the plaintiffs, and that the plaintiffs had no funds at the Tradesmen’s Bank. The statute [2 R. L. 234,] makes void all notes or securities given to any company, which, without authority of law, shall issue notes, receive deposits, make discounts, or transact any other business, which incorporated banks may or do transact, by virtue of their corporate powers. It has been decided, that the Utica Insurance Co. has no right, by its charter to carry on banking business, and with the exception of the power of loaning money by way of investment of its capital, it falls within the restrictions of the act. The question then is, whether the issuing of these checks, is, in truth, an issuing of notes, within the fair construction of the restraining act. That act must be’construed strictly, where it is to work a forfeiture, although the objects of the legislature, so far as they are disclosed, are to be carried into effect. The transaction in this case, cannot fairly be considered as a carrying on of banking business. The plaintiffs made no discount of paper, but merely a loan to Lynch; and the money was to be obtained by a presentment of their checks, the amount of which they were bound to pay. It does not appear, that they gained any thing by the transaction, either interest, or any other benefit. It would be too strict, to declare their security for the

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loan as utterly void; and, after some hesitation, we have come to the conclusion, that the plaintiffs are entitled to recover.

Motion for a new trial denied.

[J. L. Graham, Att'y for the plff.