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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 29 [EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 31 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 *Page 32 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 seventy-five pounds sterling, payable twelve months after date, with interest, to the order of William R. Cooke, a teller in the bank, who indorsed 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 *Page 33 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 General 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 enterprises 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 *Page 34 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 shallissue or put in circulation any bill or note," unless, c. There had long been a similar statute in relation to the safety fund banks; (Stat. 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 later 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, 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 N.A. Trust 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, *Page 35 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 LoanCo. v. Morris, 2 Barr. 175. And see Craig v. State ofMissouri, 4 Pet. 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, 10Paige, 113, 114;) for I think it quite evident that the certificates were to be negotiable. The notes actually issued with the trust deed were negotiable; and the statement at the foot of the notes that they were issued in pursuance of a trust deed, and that the payment of them was guarantied by the assigned securities, shows that it was intended they should pass beyond the hands of the Palmers. And although the fact does not expressly appear, it is plainly inferable that all the various written engagements to pay money which the bank had before made and sent abroad for sale in foreign markets were in a form to pass from hand to hand by mere delivery. In a letter of the president of the bank to the Palmers, dated the 22d of October, 1838, he speaks of the certificates of deposit issued by the company as a part of its "course of banking" — as "representatives of money" issued "upon the credit of the company:" and several of those instruments, amounting in the aggregate to £ 22,500 sterling, were sent to the Palmers, with the letter, "to be *Page 36 sold" to other persons than the payees named in them, with an assurance that the capital of the bank would "afford an abundant indemnity to the holders." There are many other things in the case going to show, that all of the engagements of bank to pay money which were sent abroad were in a negotiable form. But without looking into other transactions, it sufficiently appears from the trust deed, that the obligations which were to accompany it, by whatever name they might be called, were to be made negotiable. The trust was not created for the security of the Palmers alone, to whom the certificates were to be executed and delivered; but after a default in payment, the trustees were to stand possessed of the assigned securities in trust for the "holders" of the certificates; and were to proceed to the realization of the securities, by sale or otherwise, and pay over the moneys "unto the said Palmers, Mackillop, Dent Co., or anyother parties who may then be the holders of said certificates, until the amount owing to the holders of the said certificates of deposit shall be fully paid." A subsequent clause in the deed is in nearly the same words; and other parts of the instrument show that the certificates were to pass beyond the hands of the payees. It is impossible not to see that the parties intended the certificates should be negotiable instruments. If, therefore, certificates of deposit, instead of post notes, had been issued, they would, as negotiable promissory notes, have been open to the same objection which overturns the instruments which were actually issued.
The next question is upon the validity of the trust deed; and I am unable to separate that instrument from the fate of the notes or certificates of deposit. Both were executed at the same time, and as parts of one and the same transaction. The deed was made to give the greater credit and circulation, and secure the ultimate payment of the illegal notes or certificates of deposit; and I do not see how the deed can stand, when the other instruments must fall. It is true that both had a good consideration, in the existing liability of the bank to indemnify the Palmers against the bills which had been drawn and accepted under the letter of credit. But neither a prior debt, nor any *Page 37 other good consideration, will support a new contract which is in itself contrary to the provisions of law. And although it is true in this case that the payment of the notes would have the effect of discharging the prior liability of the bank to the Palmers, yet the deed was made to secure the performance of the new contract. The recitals in the deed show an intention to indemnify the Palmers, as acceptors, against the bills which Davis had drawn under the credit: but the parties intended to effect the object in an illegal manner; to wit, by issuing prohibited certificates of deposit, and assigning certain property to secure the payment of the certificates. A legal purpose must be carried into effect by legal means. When we get beyond the recitals, and come to the covenants and stipulations in the deed, there is not a single word about the prior liability of the bank; but the whole is about the certificates of deposit. The trustees are to hold the assigned securities until the certificates of deposit shall be paid: to hold the securities in trust for the bank until default shall be made in the payment of the certificates of deposit; and after default, in trust for the holders of the certificates of deposit. And the trustees are thereupon to proceed to the realization of the assigned securities, and to pay over the moneys to Palmers Co., or to the other holders of the certificates of deposit. And so the parties proceed to the end of the instrument, at every step making stipulations concerning the certificates of deposit, without any covenant, grant, or even allusion to or concerning any other liability on the part of the bank. The transaction amounted to this — neither more nor less — there was a promise, which, though founded on a good consideration, was forbidden by law, and therefore void; and an assignment of property in trust to secure the performance of the illegal promise. Such a trust cannot be supported.
It is undoubtedly true, that where a deed or other contract contains distinct undertakings, some of which are legal, and some illegal, the former will in certain cases be upheld, though the latter are void: and if there had been an additional provision in this deed, that the assigned property should be held as a security for the original liability of the bank, that part of the *Page 38 deed might be allowed to stand, though the trust for the payment of the certificates should fail. But there is no agreement or stipulation in the deed for securing the original liability of the bank — nothing of the kind.
Again; although it appears from the recitals in the deed, that one object of the arrangement of the 30th of November, 1840, was to secure the performance of the original undertaking of the bank, it was, as I have already remarked, to be done in an illegal manner; to wit, by issuing prohibited notes or certificates, and assigning property to secure the performance of the new and vicious contract. A legal end can not be attained by illegal means.
The ground on which the counsel for the defendants seemed mainly to rely was, that the deed should be reformed, so as to make it a security for the original liability of the bank. His printed point touching the question is as follows — "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." There are several difficulties standing in the way of this argument. So far as relates to the notes or certificates of deposit, it was of no practical importance, as we have already seen, which should be issued; for both would be alike void. As to reforming the deed, there is no bill or application for that purpose: not even an allegation in the answers, that there was any mistake or accident in preparing the instrument, or that it does not express the real intention of the parties. If we could see that there had been a mistake in drawing up the deed, it could not be reformed without filing a bill for that purpose; nor could we read and enforce the instrument as though it had been properly drawn. We should be obliged to follow the deed as it is. But what is, if possible, still more conclusive, there is not a particle of evidence to show that there was any mistake or accident in preparing the deed, or that it is not just what the parties intended it should be; and it could not be reformed in equity, if a bill had been filed for *Page 39 that purpose. It is true that the parties intended to secure the original liability of the bank; but so far as appears, they intended to do it in the very way it has been done; and that way is illegal. If they mistook the law, we can not grant relief by making a new contract for them. This question was very fully considered in the case of Hunt v. Rousmaniere, (2 Mason, 342, 8 Wheat. 174, 3 Mason, 294, 1 Pet. 1; and see 1Story's Eq. §§ 114, 115;) which underwent a great deal of discussion, and is directly in point.
There were separate assignments of the several securities mentioned in the schedule to the trust deed; but they were all made to Blatchford and Murray as trustees; were executed and delivered simultaneously with the execution and delivery of the deed; and were made for the purposes expressed in that instrument. Those purposes were to secure the payment of the certificates of deposit. The reason for making separate assignments probably was, greater convenience in recording in the proper counties, and in making subsequent transfers and discharges. But however that may be, the assignments are but a part of one entire act; and can not be separated from the fate of the deed and promissory notes which were executed at the same time, and as parts of the same transaction.
I have purposely avoided the expression of any opinion on the several important questions which were so ably discussed at the bar, touching the purchase of the five thousand shares of the capital stock of the bank, and the means which were used to raise the necessary funds for that purpose. I have done so, because in the view which has been taken of the case, it was not necessary to consider those questions: and for the further reason, that after this bill was filed, an order of the court of chancery was made, by the consent of these parties, in the suit of Tracy against the bank, referring it to a master to take proofs, and report upon the claim of the Palmers to be creditors of the bank. The master was also to ascertain what part of their claims, if any, was secured by trusts, and what preferences they claimed under the trusts; but he was not to report on the validity of the trusts, or the right to a preference under them. *Page 40 Those questions were to be settled in other suits then pending. This is one of those suits; and the view which has been taken of the case, disposes of this trust, and the preference claimed by Palmers Co. Under it. If it has not already been done, it will be settled in the Tracy suit, whether the Palmers are creditors of the bank; and if they are, they will come in with other creditors, and share in a ratable distribution of the assets of the bank; or will receive the whole of their debt, if the assets are sufficient to satisfy all of the creditors. The opinion which I have expressed does not, in its consequences, go beyond denying to Palmers Co. the preference which they claim over other creditors.
I am of opinion that so much of the decree of the supreme court as declares the forty-eight notes illegal and void, and directs them to be delivered up to be cancelled, should be affirmed, and that the residue of the decree [— unless the clauses which relate to the special receivers, John J. Palmer and Fisher Howe should be excepted —] should be reversed; and that a decree should be made declaring the trust deed, the further agreement following the deed, and the several separate assignments of the securities mentioned in the schedule to the deed, illegal and void, and requiring them to be delivered up to be cancelled. The trustees must assign and deliver to the receiver all the securities which yet remain in their hands; and render an account, and pay over to the receiver all the moneys and other things which have come to their hands under the trust, except what they may have paid over to the Palmers. If any thing has been received by the Palmers under the trust, they must account, and pay over the same to the receiver.
The decree must be so drawn up as not in any manner to affect the question whether Palmers Co. are creditors of the bank.
Such are my views of the case, and such is the judgment of the court.
Ordered accordingly. *Page 41