N. Y. Court of Appeals.-Leavitt v. Blatchford and others.

consent of Palmers & Co., in the Court of Chancery, in the suit of George Manning Tracy v. Thomas G. Talmage, President of the North American Trust and Banking Company, (the suit in which the Receiver was appointed, and in which the claims of all creditors are proved and established upon references to a master, or to referees, under the statute,) it had been agreed and ordered, that the question as to the claims of Palmers & Co., as general creditors of the bank, should be adjudicated in the said Tracy suit.

The counsel of the Receiver and the counsel of Palmers & Co., discussed on the hearing of this case, before the Court of Appeals, the question as to the validity of that part of the claim of Palmers & Co., founded on their acceptance and payment of the Davis bills, referred to in the recitals of the trust deed; but as the court reserved that question to be determined in the Tracy suit, it is not necessary to allude to the numerous and important points, raised and discussed by the counsel of the respective parties, founded upon the alleged illegality of the purchase of the 5000 shares, and the raising of the money to pay for them, by means of the Davis bills under the credit granted by the bank.

We propose to state only those points argued by the respective counsel which relate to the deed and the notes or certificates.

Samuel Beardsley and John Cleaveland for David Leavitt, Receiver, contended:

I. That it was illegal for this corporation to issue securities of any kind or description, to be loaned, or put in circulation as money, except such as were countersigned and registered by the comptroller, as required by the general bank law; nor was this corporation in fact authorized to issue any bill or note, unless the same was made "payable on demand, and without interest." Hence the issue of bills of exchange, post notes and certificates of deposit, payable at a future day, was unauthorized. Safford v. Wyckoff, (1 Hill, 11; S. C, 4 Hill, 442;) Smith v. Strong, (2 Hill, 241 ;) Ontario Bank v. Schemerhorn, (10 Paige, 109;) Att'y Gen. v. Life and Fire Ins. Co., (9 Paige, 476.)

II. The issue of the securities referred to in the point last above, was forbidden by the safety fund act; by the Revised Statutes it was a penal offence and by the act of 1840, the issue by such a corporation as this, of any bill or note, not payable on demand, and without interest, is declared to be a misdemeanor.

III. The issue of certificates of deposit, payable with interest, at a future day, is as much within the statutes referred to, as post-notes or bills of exchange would have been. Bank of Orleans v. Merrill, (2 Hill, 295;) Swift v. Beers, (3 Denio, 70 ;) Hayden v. Davis, 3 McLean, 276;) Root v. Goddard, (3 McLean, 102;) Craig v. State of Missouri, (4 Peters, 433;) Southern Loan Co. v. Morris, (2 Barr. Penn. R. 175;) Booth v. Bank of England, 4 Bing. N. C. 415;) Bank of England v. Anderson, (3 Bing. N. C. 489.)

N. Y. Court of Appeals.-Leavitt v Blatchford and others.

IV. The post notes issued in the name of this corporation, on the 30th of November, 1840, for the amount claimed by the Palmers, were illegal and void.

1. They were not issued by the authority of the corporation. 2. The consideration was illegal.

3. They were themselves illegal, being payable at a future day, with interest.

4. Had certificates of deposit, payable on time, with interest, been isused in lieu of post-notes, as was intended, they would have been equally illegal and void.

V. The trust deed of November 30th, 1840, was illegal and void. 1. In terms, it was to secure certificates of deposit, to be paid with interest, at a future time-but which were never issued-if they had been, they would have been illegal and void.

2. The deed had no reference to the post-notes issued, but as they were illegal, the deed could not be upheld by them.

3. According to its terms, this deed was made to effect an illegal object; that is, to secure the payment of certificates of deposit, payable with interest, at a future time; it was therefore wholly void.

VI. If it were conceded, that this corporation was honestly indebted to the Palmers, in the full amount of the post-notes issued, still a COURT of EQUITY could not extend and uphold this deed, so as thereby to secure the amount of such bona fide indebtedness-for it could not change what had been agreed upon between the parties, so as thereby to make a new and different security. Hunt v. Rousmauriere, (2 Mason, 342; S. C. Wheat, 174; S. C. 3 Mason, 294; S. C. 8, 1 Peters, 1.)

Charles O'Conor, Benjamin F. Butler and William Kent, for the Palmers, insisted :

I. The company having agreed, with Palmers, Mackillop, Dent & Co., for a new and valuable consideration, to pledge to them the securities in question; and having actually assigned and delivered the securities, equity will reform any defects arising from mistake or accident in the written instruments. 1 Story Equi. Juris. §§. 115, 136, 152, 158, 159, 160, 165; ld. §§ 94, 170, 172, 99, 6, 4th ed; Watkins v. Maule, (2 Jac. & Walk. 242.)

1. The granting further time to the company, and the release of T. E. Davis, guarantor of the credit, are sufficient considerations to uphold this equity, Wilmot v. Corp of Coventry, (1 Y. & Collier Exchequer, 522;) Mestaer v. Gillespie, (11 Vesey, 620 ;) Pye v. Dumbuz, (3 Bro. P. C. 596.)

2. There is nothing in the terms of the original agreement, or in the language of the trust deed, importing that the certificates are to be negotiable, and ut res magis valeat quam pereat, the court will not infer an unlawful intention. 2 Barr. Pa. Rep. 175, 177; 10 Paige, 114; 1 Hill, 292.

II. Palmers, Mackillop, Dent & Co., have a right to stand upon

N. Y. Court of Appeals.--Leavitt v. Blatchford and others.

the separate transfers and assignments of the securities; referring to the original agreement for a declaration of the purposes; and at least in a Court of Equity, may sustain their lien either upon the separate assignments, or upon the trust deed, without producing the certificates of deposit-especially as it is admitted in the pleadings, that though agreed for and intended, such certificates were never delivered by reason of some accident or inadvertance. Edgell v. Stanford, (3 Vermont, R. 205.) Bates v. Bank of Alabama, (2 Alabama, N. G. 487, 488.) United States v. Bradley, (10 Peters 344.)

III. The 48 notes or bills are not void by the act of May 14th, 1840, § 4. But on the contrary, are valid and effectual obligations against the company.

1. That section applies only to the bills and notes countersigned by the comptroller-or at least, is limited to instruments capable of circulating as money, within this State. 1 R. S. 612, 2 Ed., 10 Paige 114. Bouvier's Dict. Titles. "Bill," " "Bill," "Simplex," "Single."

2. The 48 bills or notes were not intended to circulate as money, nor are they capable of such circulation.

3. If the 48 bills or notes are prohibited by the Statute, they are not on that account void-especially, as they were to be delivered to an English creditor-as security for an English debt-and were made payable in England. 3 Wilson & Shaw, 4 Hill 460, 464, 3 Metc. 581, 15 Wend. 415, and cases cited. Ferguson v. Norman, 5 Bing. N. C. 76.

BRONSON, J.-I shall assume, but without intending to express any opinion on the subject, that the purchase of the five thousand shares of the capital stock of the bank, and all the acts of the bank, its officers and agents relating to that transaction, down to the time of executing the trust deed and the accompanying securities, were legal in their nature, and within the legitimate powers of the corporation. The case then, so far as it will come under consideration, and speaking of it from the face of the papers, is shortly this: the bank on the second of March, 1840, gave Thomas E. Davis a letter of credit on Messrs. Palmers, Mackillop, Dent & Co., of London, [of whom, for the sake of brevity, I shall hereafter speak as the Palmers, or Palmers & Co.] for forty-six thousand eight hundred and seventy-five pounds sterling; for which sum Davis was to draw bills on the Palmers at ninety days' sight, which were to be covered by him at maturity, with the right of renewal in a certain event. Davis drew the bills, and they were accepted by the Palmers; they were twice renewed, and the third set was running at the time the trust deed was executed. The bank was not then a debtor to Palmers & Co., on account of this transaction, but was under a contingent liability which would make it a debtor, in case the bills should not be provided for by Davis, at maturity. In this state of things, the bank on the thirtieth day of November, 1840, made forty-eight negotiable promissory notes, amounting in the aggregate to forty-nine thousand five hundred and seventyfive pounds sterling, payable twelve months after date with interest,

N. Y. Court of Appeals.-Leavitt v. Blatchford and others.

to the order of William R. Cook, a teller in the bank, who endorsed the notes, and they were then delivered to the Palmers on account of the liability which has been mentioned. The bank at the same time, and as part of the same transaction, executed the trust deed, and assigned the stocks, bonds and mortgages mentioned in the schedule to the deed, for the purpose of securing the payment of the forty-eight promissory notes. These undertakings and securities the complainant seeks to set aside as illegal and void.

The first question which I shall consider, is upon the validity of the notes; and I feel no difficulty in agreeing with the Supreme Court, that the notes are illegal and void. They were issued in direct violation of a statute, which provides, that "no banking association" "shall issue or put in circulation any bill or note of said association," "unless the same shall be made payable on demand, and without interest;" and every violation of the section by any officer or member of a banking association, is made a misdemeanor, punishable by fine or imprisonment, or both, in the discretion of the court. (Statutes of 1840, p. 306, § 4.) The notes were not made payable "on demand" nor "without interest;" but had a year to run, and were then payable with interest. It is said on the part of the defendants, that the prohibition only applies to bills and notes which are capable of circulating as money. But the statute contains no such qualification. In terms, it extends alike to all bills and notes issued by a banking association; and there is no reason to suppose that the legislature intended it should have a more restricted application. And besides, negotiable promissory notes and bills of exchange, payable at a future day, when issued by a bank in good credit, may perform to a great extent, the office of a circulating medium. This has never been doubted by those who have considered the subject. (Safford v. Wyckoff,1 Hill, 11; Smith v. Strong, 2 id. 241; Bank of Orleans v. Merrill, id. 295; Att'y Gen'l v. Life and Fire Ins. Co., 9 Paige, 470; Ontario Bank v. Schermerhorn, 10 id. 109; Bank of England v. Anderson, 3 Bing. N. C. 589; Booth v. Bank of England, 6 id. 415.) Indeed, the fact that such paper may enter into the currency of the country is matter of history. Witness the post notes of the late Bank of the United States, and the negotiable notes and bills of some of our own banks, which followed, though on a more humble scale, both the frauds and the bankruptcy of the national institution. The issuing of such paper belongs to mercantile and commercial transactions: and not to the business of banking. Experience has shown that the banks which engage in such enterprise are rotten, and sooner or later will end in defrauding the community. In addition to the North American Trust and Banking Company, several others of the general law banks had been engaged in issuing such paper before the act of 1840 was passed; and such of those institutions as had not already failed, were soon afterwards in a state of bankruptcy. Great frauds upon the public had been committed. The legislature saw the evil; and evidently intended to cover the whole ground, by using the most general and comprehensive terms:-" no banking association shall

N. Y. Court of Appeals.-Leavitt v. Blatchford and others.

issue or put in circulation any bill or note," unless," &c. There had long been a similar statute in relation to the safety fund banks; (Statute 1829, p, 178, § 35 ;) and the act of 1840 was passed to extend the express prohibition to the general law banks, which had come into existence at a latter period. That these statutes extend to negotiable promissory notes and bills of exchange payable at a future day has been decided both here and elsewhere. (Swift v. Beers, 3 Denio, 70; Tylee v. Yates, 3 Barb. 222; Root v. Godard, 3 McLean, 102; Hayden v. Davis, id. 276; and see Ontario Bank v. Schermerhorn, 10 Paige, 113.) No judge has, I think, ever expressed a different opinion. Although the judgment of the Supreme Court in the case of Safford v. Wyckoff, (1 Hill, 11,) which was upon a bill of exchange drawn in 1839, and. was reversed by the Court of Errors, no one seems to have doubted that the future issue of such paper was prohibited by the act of 1840. (4 Hill, 442, 454, 460, 461.) And it probably never would have been doubted, had it not been for the bold and reckless manner in which the officers of the North American Trust and Banking Company continued to issue such paper after the statute was passed, and the impunity which they have since enjoyed. As the issuing of the notes was expressly prohibited by law, it is impossible to maintain that they are valid securities. To hold that they can be enforced against the bank, would be going very far towards defeating the end which the legislature had in view. That they are void, has been adjudged in several of the cases already cited'; and I am not aware of any authority to the contrary. The legal liability, on account of which, the notes were issued, still remains; but the notes themselves are void.

The trust deed does not speak of promissory notes eo nomine; but recites that the company had on that day executed and delivered to Palmers & Co., their certificates of deposit payable in twelve months from date, with interest. Such instruments, whatever names the parties may give them, are promissory notes. They are engagements to pay certain sums of money to the persons therein named, at a specified time, and at all events. A promissory note imports a consideration, and none need be mentioned. But though a consideration be mentioned in a written promise to pay money, whether it be done in general terms, as by the words "for value received," or by specifying the kind of value, as a deposit of money, it is still a promissory note. And if certificates of deposit, payable to the Palmers at a future day, had been issued in lieu of the notes which were actually delivered, they would have been promissory notes, coming equally within the prohibition of the statute, and being equally void. (Bank of Orleans v. Merrill, 2 Hill, 295; Southern Loan Co. v. Morris, 2 Barr. 175; and see Craig v. State of Missouri, 4 Peters, 433.) Indeed, I did not understand the defendants' counsel to deny, that certificates of deposit, payable at a future day, are promissory notes: but it was said not to appear, that the certificates were to be made negotiable. I will not stop to inquire whether the statute extends to notes which are not negotiable; (see Ontario Bank v. Schermerhorn, 10