Davenport v. City Bank of Buffalo — 9 Paige Ch. 12

Majority

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Davenport & Kingman vs. The City Bank of Buffalo & Marcy, receiver, &c.

Headnote

Where the complainants loaned their note to the City Bank of Buffalo, to bo discounted in New-York for the benefit of the bank, and, to secure or indemnify the complainants, the cashier of the bank sealed up a package of its bills and left them in its vault, endorsing thereon that the package was intended as such security, but no entry of the transaction was made in the books of the bank, nor were the bills contained in the package charged as a part of the circulation of the institution ; Held, that the package con tinued under the absolute control of the officers of the bank, and that the complainants were not entitled to the bills, and had no lien thereon either legal or equitable. Held, however, that the bank was primarily liable for the payment of the note of the complainants, which had been discounted for its benefit, and that if they should be compelled to pay the same, they would have a valid claim against the funds of the bank, in the hands of the receiver, as creditors of the institution.

Where the bills of a bank are legally pledged or hypothecated to secure a debt or demand, so as to authorize the pledgee to use such bills for his security or indemnity in case such debt or demand shall not be paid, such bills constitute a part of the bills of the bank issued and in circulation, within the intent and meaning of the statute limiting the amount of the issues of banks subject to the provisions of the safety fund acts.

Where a receiver of a corporation has been appointed, under the provisions of the revised statutes relative to proceedings against corporations in equity, and its property and effects have thus become vested in him for the benefi t of the creditors and stockholders of the institution, the answer of the corporation cannot affect the property in the hands of such receiver, nor have any effect whatever in determining the right to the same.

March 2.

The bill in this cause wras filed for the purpose of obtaining a decree, against the receiver of the City Bank of Buffalo, to deliver to the. complainants a package of $6000 of the bills of the bank, under the following circumstances. In August, 1839, the cashier of the city bank applied to

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Kingman, one of the complainants, who were doing business under the name or firm of George Davenport & Co., and informed him that the bank had made an arrangement with the Bank of the State of New-York for a loan, upon the discount of business notes belonging to the City Bank payble at New-York, and requested the loan of the note of the complainants to the City Bank, to be discounted by the Bank of the State of New-York under such an arrangement. It was then agreed between Kingman and the cashier that the former should make -a note in the name of the firm of the complainants, for the sum of $5,500, payable to the order of Kingman, at the city of New-York, three months after date; which note should be endorsed by the payee and loaned to the City Bank to be thus discounted for its use. The note was made by the complainants, and endorsed by Kingman accordingly, and delivered to the cashier. He thereupon sealed up the package of $6000 in the bills of the City Bank, and left them in its vaults with the other bills of the bank which -were not issued and in circulation ; and the teller endorsed upon the package a memorandum, to the effect, that such package was intended to protect the complainants against any loss on their note of $5,500. But no entry was made of the transaction in the books of the bank; nor were the $6000 enclosed in the package entered on the books as a part of its bills which were then issued or in circulation. The note of the complainants was endorsed by the cashier and discounted by the Bank of the State of New-York for the use of the City Bank. When it became due it was duly protested for non payment; and it still remained unpaid in the Bank of the State of New-York as a valid claim against the City Bank as an endorser.

S. Fitch Smith,,f'or the complainants.

W. L. Morey, the receiver, in pro. per.

If the object of the parties to this transaction was to commit a fraud upon the Bank of the State of New-York, by imposing upon the officers of that institution as business paper, to be discounted under the previous agreement, the mere accommodation notes of other persons which had been made and loaned to the City Bank, to enable its managers to raise the wind and keep up a false credit in the community, the complainants have no right to ask the aid of this court to relieve them from the consequences of such an act. (Bateman v. Ramsay, Sausse & Scully’s Rep. 459.) And the bill in this case distinctly states that Stringham the cashier, informed Kingman that the arrangement with the Bank of the State New-York was to discount business paper payable in the city of New-York, and that he wanted to borrow this accommodation note because the City Bank had not such business paper as was required by the terms of that arrangement.

Again 5 the arrangement of the cashier of the City Bank, by which the circulating notes of that institution were attempted to be hypothecated or pledged, for the security of the loan of this accommodation note, in such a manner that they should not appear upon the books of the bank, to be bills issued, or in circulation, was evidently made for the purpose of evading the statutory regulation limiting the amount of bills which the safety fund banks were authorized to issue and put in circulation. (See Laws of 1837, p. 515, § 3.) Where the bills of a bank are legally pledged, for the security of a debt or demand due to any other person or institution, so as to entitle the pledgee to hold and use such bills for his indemnity in case the debt is not paid, such bills .must be considered as issued and in circulation within the true intent and meaning of the statute limiting such issues ; as such bills are no longer under the control of the bank. Here, however, there was merely an attempt to evade the law, by making a mere fictitious hypothecation of the bills of the bank contained in this package, while the same . still remained under the absolute control of the institution, in its own vaults. And

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the complainants by such nominal hypothecation obtained neither a legal or equitable lien upon the bills contained in the package : even if the arrangement under which they were thus sealed up was made with the sanction of the directors of the bank, which is not pretended in this case.

The answer of the corporation, under its corporate seal, and after all its property and assets had been legally vested in the receiver, cannot effect, the decision of the question in this case. This is a controversy between the complainants and the receiver alonej the corporation being virtually dissolved by the appointment of such receiver, under the statute which substitutes him in the place of the corporation as to all the corporate property and effects.

It appears, however, in this case, that the City Bank has actually received the proceeds of the note of the complainants, which was discounted by and is now held by the Bank of the State of New-York as a valid claim against the asests of the City Bank in the hands of the receiver; as well as against the complainants, as the accommodation makers of such note. This, therefore, is a debt which in equity as well as at law, ought to have been paid by the City Bank, and which must be allowed as a valid claim upon the fund in the hands of the receiver, in favor of the institution which now holds the note, in settling the amount which is still due on account of the discounted notes. Instead, therefore, of dismissing the complainants’ bill, I shall direct an order to be entered thereon authorizing and requiring the receiver to deliver up that note to the complainants, when the balance for which it is now held shall he paid to the Bank of the State of New-York out of the fund in the hands of the receiver, or out of the safety fund; and if the complainants have paid the note pending this suit, or if they shall pay it before the final liquidation and settlement of the debts due from the City Bank, that he allow the amount of the principal and interest, thus paid, as a debt in their favor against the institution.

Such an order would have been made of course, upon a petition showing these facts. But as the complainants

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have filed their bill making a further claim upon this package of bills, upon which they had no valid claim either at ^aw or equity, they cannot be allowed their _costs in this Suit,