Ontario Bank v. Schermerhorn — 10 Paige Ch. 109

Majority

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The Ontario Bank vs. Schermerhorn and others.

Headnote

The provision of the revised statutes directing that mistakes in stating any day, month, or year in any pleading or record, which could be amended by the court after verdict, in any cause, shall be disregarded upon the trial, unless the mistake or variance be calculated to surprise or mislead the adverse party and to prevent his preparation for a full answer on the merits, applies to a mistake in setting out the date of the deed or instrument which is the foundation of the suit.

The principle of this provision is applicable to the court of chancery; and in that court, if the adverse party could not have been misled by a mistake in a date, the complainant’s bill should not bo dismissed or the defendant’s defence rejected by reason of a mere clerical- mistake of this kind, where upon the face of the record the variance will not render the complainant’s claim to relief, or the defendant’s defence, bad in substance.

But at the request of the adverse party, and to remove all danger of his being made liable a second time, the original pleading on file will, at the hearing, be amended by conforming it to the true date.

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1843. February 21.

The taking a compensation for the difference in exchange, where a loan ,. made in a draft on a distant place, which draft is wanted for the pur. pose of being actually used there and not as a mere cover for usury, is not illegal.

Notes and drafts not negotiable, and which therefore cannot be used and circulated as money, although made payable after date and with interest, may be issued by banks and banking associations, in the course of their business, either as evidences of indebtedness to particular individuals, or for other legitimate purposes; such notes and drafts not being within the mischiefs intended to be guarded against by the statutory provisions prohibiting the issuing of post notes by banks and banking associations.

This was an appeal, by the defendant Schermerhom, from a decree of the vice chancellor of the eighth circuit in a foreclosure suit. The complainant’s solicitor, in the copy of the bill served on the defendant’s solicitor, made a mistake in stating the month in which the obligation and mortgage bore date; by substituting April for August. The defendant therefore denied the execution of the note and mortgage stated in the complainant’s bill; but he admitted the execution of a similar note and mortgage, which were dated in August, 1837, and not in April of that year as stated in the bill. He also, in his answer, set up as a defence to the note and mortgage stated therein, that they were void for usury. The defendant also set up as a defence to the suit, that a part of the consideration of the bond and mortgage was a note which had been discounted by the bank some time previous, and which was due and unpaid at the time of giving the note and mortgage in controversy in this suit; and that upon the discounting of such previous note, it was corruptly and unlawfully agreed between him and the bank that he should receive the proceeds therof in a draft on Albany or New-York, payable in thirty days, and should also allow a premium on such draft. The defendant further alleged that pursuant to such agreement, he received a draft from the bank, payable in New-York or Albany thirty days after date, and that he paid a premium on such draft in addition to the legal discount on the note. But the date and amount of the draft, the persons on whom it was drawn, and the place where it was made payable, were not stated in the

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answer. Nor was it stated whether it was a negotiable draft, or whether the defendant had or had not actually received the money thereon previous to the giving of the mortgage and note to obtain satisfaction of which this suit was brought. The defendant in his answer insisted, however, that the draft received by him, upon the discounting of that note, was issued contrary to the provisions of the safety fund act of April 2d, 1829, and that the note thus discounted and the loan for which it was given were wholly void. But the defendant failed in proving the case as stated in his answer. For the cashier of the bank, the only witness called by him, testified that the defendant Schermerhorn applied for a loan to pay a debt in the city of New-York/and was offered a draft at sight at one per cent premium, which was the actual difference in exchange between Canandaigua and New-York at that time, or a draft at thirty days at par, and that he finally received a draft at forty-five days at a discount of about $29, instead of being charged a premium.

L. H. Sandford, for the appellant.

Azor Taber, for the respondent.

The objection, that the date of the note and mortgage are not correctly stated in the copy of the bill served on the defendants, is merely technical; although for the purpose of this appeal, the court must presume the bill served was a copy of the original bill on file. The legislature has provided, by statute, that mistakes in stating any day, month, or year, in any pleading or record, which according to law could be amended by the court after verdict rendered in any cause, shall be disregarded upon the trial; unless such mistake or variance be calculated to surprise or mislead the adverse party, and to prevent his making due preparation for a full answer on the merits to the matter concerning which such mistake shall have been made. (2 R. S. 407, § 79.) In the case of Morris v.

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Wadsworth, ( 17 Wend. Rep. 103 ,) the supreme court decided that this statutory provision was applicable to a mistake in setting but the date of the deed or instrument which was the foundation of the suit. And upon a re-examination of that case in the court for the correction of errors, in December, 1838,1 arrived at the conclusion that the supreme court had given the correct construction to this provision of the revised statutes. Such also must have been the opinion of a majority of the members of that court; as the judgment was affirmed by a tie vote, although I voted for a reversal upon the ground that the circuit judge who tried the cause had erred upon another point.

This statute does not in terms extend to this court, and was only intended to regulate the practice upon the trial of issues in fact before the jury. But the decisions upon which this statutory provision was based show that the principle is applicable to this court as well as to courts of law; and that in .a case where it is perfectly evident that the adverse party could not have been misled by a mistake in a date, the complainant’s bill should not be dismissed, or the defendant’s defence rejected, by reason of a clerical mistake of this kind, when upon the face of the record the variance will not render the complainant’s claim to relief, or the defendant’s defence, bad in substance. (See Rees v. Overbagh, 4 Cowen’s Rep. 124. Daly v. Atwood, 7 Idem, 483. Kimball v. Huntington, 7 Wend. 472 .) If the appellant apprehends there is danger that he may be made liable a second time for the note or mortgage, on account of this clerical mistake, he may have the original bill on file which is to constitute a part of the enrolled decree amended, so as to conform to the true date, if it is not already right in that respect. And that would have been allowed by the vice chancellor as a matter of course, at the hearing, if the defendant or his counsel had asked for it. It therefore forms no ground for reversing the decree upon this appeal. For the answer showed that the defendant could not have been misled by the clerical mistake in substituting the word April for August.

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There Is no pretence of usury in this case upon the proof produced by the defendant. The witness swears that the defendant, when he applied for the loan in the spring of 1837, stated that he wanted it to pay a debt in New-York. And the defendant’s letter shows that he asked for a draft for $10,000 j the difference in exchange between New-York and Canandaigua being then one per cent in favor of the former place. The draft was payable at forty-five days; which if taken at par would still have been something less than three-fourths of the actual difference in exchange, estimating the interest on the draft, for the forty-five days, at the rate of seven per cent per annum. But the testimony shows that the defendant received a compensation for fifteen days’ interest on the draft; so that he was in fact charged one half of one per cent for the difference in exchange between the two places, or something less than that. And it is well settled that the taking of a compensation for the difference in exchange, where a loan is made in a draft on a distant place, and which is wanted for the purpose of being actually used there and not as a mere cover for usury, is not illegal.

The proof in relation to the agreement to discount the $10,000 note, of April, 1837, and as to the nature and terms of the draft which was received by the defendant as the proceeds of such note, is so materially variant from the case as stated in the answer, as to render it doubtful whether I ought to consider the question as to the right of the bank to give a draft on time. But as that objection to the validity of one of the notes, which constituted a part of the consideration of the mortgage, was urged upon the court with considerable confidence by the appellant’s counsel I will proceed to examine it. The prohibition in the safety-fund law of 1829 is general, that no monied corporation subject to the provisions of that act shall issue any bill or note of the said corporation unless the same shall be made payable on demand and without interest. (1 R. S. 2d ed. 612, § 35.) The object of the legislature, in the adoption of this provision, undoubtedly was to prevent the banks

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from issuing post notes or post bills of exchange which might pass from hand to hand as a part of the circulating medium of the country. And experience has often shown that the negotiable securities of banking institutions, in whatever form and for whatever purposes they may have been issued, will pass from hand to hand as a substitute for money so long as the banks which issued them continues to be in good credit. The only safe course, therefore, in construing this restrictive clause of the safety fund act, so as to guard against the mischief intended to be remedied thereby, and thus to carry into effect the intention of the legislature, is to give it a literal construction so far as relates to negotiable bills and notes of every kind and description. And the corresponding provision in the amendment of 1840 to the general banking law, (Sess. Laws of 1840, p. 306, § 4,) should receive the same literal construction ; to remedy the mischiefs against which that provision was directed.

But notes and drafts not negotiable, and which for that reason cannot be used or circulated as a substitute for money, when issued by banks in the course of their business, either as evidences of indebtedness to particular individuals or for other legitimate purposes, are clearly not within the mischiefs which the legislature intended to guard against by these prohibitory provisions ; although the language used by the legislature is broad enough to cover that kind of securities also, where they assume the character of promissory notes or bills of exchange. In the case under consideration it is not stated in the defendant’s answer, nor does it appear by the proofs, that the draft on New-York which the defendant received, upon the discounting of the note of April, 1837, was negotiable. And in the absence of proof that it was issued in such a form as to violate the spirit and intent of the statute the court is bound to presume the contrary was the fact. It is unnecessary, therefore, to express an opinion upon the question whether the taking of a new security for the repayment of money which had been received by the defendant upon an

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illegal draft would not of itself bar the defence which might have been set up to a note which formed a part of such an illegal agreement originally.

The decree appealed from must be affirmed with costs.

Cases cited

Kimball v. Huntinton 7 Wend. 472 N.Y. Sup. Ct. 1831-11-17 p. 112

Statutes and regulations cited

Banking Law p. 114