text:
    Hosack & Blunt, executors, &c. vs. Rogers and others.
    Where a trustee is entitled to costs and there is a fund under the control of the court, he may be allowed his costs as between solicitor and client to be paid out of such fund.
    But as the allowance of such costs to a trustee rests in the discretion of the court, a master in taking an account in anticipation of a decree, and before the question of costs has been disposed of by the court, is not authorized to credit the trustee with costs as between solicitor and client unless directed to do so in the order of reference.
    Where an executor unsuccessfully resists an application to the surrogate to compel him to give security and to account, if the surrogate does not allow him the costs of opposing such application, he cannot be allowed his costs against the estate of his testator.
    An executor, under the old doctrine of retainer for a debt due to himself, cannot make a rest on the day he took out letters testamentary, so as to entitle him to interest upon the interest which was then due to him. But if such executor is prevented from receiving his interest by reason of an injunction, which was improperly obtained, he will be allowed interest upon the interest due at the timé of the service of the injunction, and which such injunction prevented him from receiving.

      An executor should be allowed, as against the estate, his costs and expenses incurred in suits brought or defended by him, in good faith, for the benefit of the estate and not merely to enforce or defend his own rights.
    An executor cannot make periodical rests in his accounts, in order to entitle himself to full commissions at such rests, where annual rests are not directed to be made for the purpose of compelling him to pay interest upon periodical balances which ought to have been invested by him.
    Where an executor or trustee, who has a claim against the estate and is entitled to a preference in payment, receives and applies monies to a large amount in part payment of the debt due to himself, it is proper for him to deduct his commissions on the amount so applied, in order to entitle him to interest, upon the balance of the principal of his debt which remains after deducting the commissions, from the time of the partial payment; but where this is done, the subsequent allowance of commissions must be computed in such a manner that the aggregate amount of the whole commissions shall not exceed the statute allowance upon his whole receipts and disbursements.
    As a general rule, an executor or trustee, during the pendency of a suit for an account and distribution of the fund in his hands over and above his just claims thereon, should ask for leave to pay such fund into court, or for authority to invest it under the direction and sanction of the court; and if he invests it without the sanction of the court, on insufficient security, he will be charged with the amount thus invested, as a misapplication of so much of the fund.
    March 15.
    This case came before the chancellor upon exceptions by both parties, that is of the complainants and of Nehemiah Rogers, one of the defendants, to the report of the master made in this cause under the decretal order of the 22d of April, 1840. The facts upon which the questions of law arose are stated in the opinion of the court.

      J. Blunt, for the complainants.

      A. G. Rogers, for N. Rogers.
   The Chancellor.

The first exception on the part of the complainant relates to the allowance of different items of counsel fees paid by N. Rogers to his counsel, for various services in this cause, amounting in the whole to $3350. Most of these charges would be properly allowed to the executor upon a final decree directing him to be allowed his costs as between solicitor and client. But as the question whether the executor is or is not to have his costs in this cause, and whether he is to have the mere taxable costs, as between party and party, or his necessary disbursements as between solicitor and client, had not been disposed of by the court, the master was not authorized to make the allowances embraced in this exception in anticipation of the judgment of the court. Where a trustee is entitled to costs, and there is a fund under the control of the court, he may be allowed his costs as between solicitor and client out of such fund. (Mohun v. Mohun, 1 Swans. 203. Edenborough v. The Archbishop of Canterbury, 2 Russ. Rep. 112.) But as this is a matter resting in the discretion of the court, the master, in taking an account in anticipation of a decree, and before the question of costs has been disposed of by the court, is not authorized to credit the trustee with fees paid to his counsel in that particular suit, unless he is directed to do so in the order of reference. This exception to the master’s report must therefore be allowed; but without prejudice to the right of the defendant Nehemiah Rogers, upon the hearing of the cause upon the equity reserved, to claim his reasonable counsel fees, upon motions and proceedings in the cause in which he has succeeded or shall succeed, as-a part of his costs as between solicitor and client; if he obtains a decree for costs to be paid out of the fund in his hands as executor of A. Gracie, deceased.

The 2d exception of the complainants, to the report, is for the allowance to the executor of $790,76, for his costs in the court for the correction of errors upon the appeal. The court upon that appeal having directed the costs of Nehemiah Rogers to be paid out of the fund in his hands as executor, it was a matter of course to allow them on this accounting before the master. This exception must therefore be overruled.

The 3d exception of the complainants is for the allowance of three items, amounting to $204,75, for the costs and counsel fees in resisting a successful application to the surrogate to compel the executor to give security ; and two items, amounting to #119,75, for resisting an application, by King, to the surrogate, to compel the executor to account, which application was granted, and was affirmed with costs by this court on appeal. (See 8 Paige’s Rep. 210.) In the first case the allowance of costs to the executor was in the discretion of the surrogate. He not having allowed costs for resisting the successful application, the executor was not entitled to charge them against the estate. And this court, as well as the surrogate, having decided that the executor was wrong in his objections to the jurisdiction of the surrogate to call him to an account, and he having been personally charged with the costs of the appeal upon that ground, the master was wrong in charging the estate with the costs of that unsuccessful resistance of a legal right; especially in a case where charging the costs upon the fund must necessarily throw them exclusively upon the other creditors.

The 4th exception embraces several objections to the allowance of interest. The objection that the master allowed interest upon the balance due on the 2d of November, 1824, when a dividend was received from the assignees, is not well taken. It was proper to apply the dividend received at that time to the extinguishment of the interest, and to charge interest from that time on the whole amount of the principal debt remaining unpaid, according to the ordinary mode of computing interest where partial payments are made. But the objection is well taken that the executor had no right to make a rest on the 27th April, 1829, when he took out letters testamentary; for the purpose of charging interest on the ten thousand dollars of interest which had then accrued. It is true, as the law then stood, other creditors might have brought suits and obtained judgments to be paid out of the future assets, so as to draw interest on interest from the date of such judgments, which the executor could not do. But the law had given him more than an equivalent for this incapacity to sue himself, by making his debt payable in preference to other debts of the same class. I cannot, therefore, adopt a new principle in the computation of interest, in this case, for the purpose of giving him a still greater portion of the fund of this insolvent estate than the inequitable rule of the old law entitles him to. That part of the exception must therefore be allowed, and the interest must be computed without making a rest in April, 1829.

The last branch of this exception relates to the allowance of interest on the interest which would have been received by the executor, in part payment of his debt, had not the complainants, by the injunction, prevented his receiving it. In Pultney v. Warren, (6 Ves. 92,) Lord Eldon says, if there be a principle upon which courts of justice ought to act without scruple, it is this ; to relieve parties against injustice which is occasioned by its own acts, or oversights, at the instance of the party against whom the relief is sought. And I rather think in every instance of an application for an injunction, it is the duty of the court to consider whether the party ought not to have the benefit of his judgment 5 and if the court decides wrong, I should be sorry if the court had not the means of reinstating him. So also in the case of O’Donell v. Browne, (1 Ball & Beat. 262,) Lord Manners allowed interest on a demand which would not ordinarily carry interest, because the party entitled to receive the debt had been delayed in receiving it, by an injunction. (See also Grant v. Grant, 3 Russ. Rep. 598; Duvall v. Terry, Show. P. Cases, 15.) The principle of these cases appears to be just and equitable; and in accordance with that principle the executor is entitled to the interest which he lost by the improper tying up of his funds, by the injunction, when he was entitled to receive them in satisfaction of the interest and a part of the principal then due. The first and the last branches of this exception must therefore be overruled so far as to allow' interest on the balance due in November, 1824, and the interest on the interest which the executor lost in consequence of the injunction and other erroneous proceedings of the complainants.

The 5th exception of the complainants is for not charging the executor with the monies received by Samuel Rogers on account of the ship America and the monies received by him under the Spanish treaty. This claim I did not deem the testimony sufficient to support, when the case was before me on a former occasion ; but the complainants were permitted to introduce further proofs, before the master, if they had any, to sustain it. I do not find, however, that any proof has been introduced which varies the case. It is evident that Gracie intended to assign these demands to S. Rogers, for his own individual benefitj and his copartners had no right to the proceeds thereof, to be applied in satisfaction of the debt due from Gracie to them. Nor do I see any way in which, upon the facts in the case, the executor of Gracie could recover such proceeds of him. If the assignment by A. Gracie to Samuel Rogers was a fraud upon the complainants, and other creditors, their remedy, if any, appears to be by a direct suit against Samuel Rogers, as a fraudulent assignee, to reach the money in his hands. This exception is therefore disallowed.

The 1st exception of the executor is for the disallowance of $50 paid to chancellor Kent, and $100 to A, C. Paige as counsel fees in this suit. These charges depend on the same principles as those which are embraced in the complainants’ first exception, and must be disposed of in the same manner. So much of the exception as relates to those two items must, therefore, be dissallowed. But as the charges themselves appear to be reasonable and proper as between the party and his counsel, the disallowance at this time must be without prejudice to the right of the executor to claim them hereafter, if he should upon the final hearing obtain a decree for costs to be paid out of the fund as between solicitor and client.

The other item embraced in this exception is for a retaining fee paid to counsel in a suit brought by the executor against the representatives of the deceased executrix, to recover monies alleged to be due from her to the estate of her deceased husband, at the time she died. If this suit was brought in good faith, and I see nothing in the case to induce me to suppose it was not, it was for the benefit of the other creditors of A. Grade, who are interested in the fund after the payment of the preferred debt of Nehemiah Rogers which he was entitled to retain. Upon the general principle, therefore, that the executor is entitled to all costs and just allowances in suits brought or defended by him for the benefit of the fund, añd not merely to enforce or defend his own rights, I do not see on what principle the master rejected this charge for the counsel fee in that suit ; which E. N. Rogers swears was actually paid. That part of the executor’s first exception must therefore be allowed.

The 2d exception relates to a deduction from the amount of counsel fees allowed by the master in this cause. For the reasons stated in reference to the complainants’ first exception, this exception of the executor must be disallowed, but without prejudice to his future claims, asthere directed, if the taxing officer upon the evidence which was before the master shall think the whole amount charged was reasonable and proper.

The 3d exception is for not allowing the executor commissions upon the periodical rests in the accounts, so as to give him full commissions at such rests. This exception must be disallowed, as the master could not properly have allowed full commissions each time the balance in the account was struck ; it not being a case coming within the decisions of the court in those cases where the trustee is required to make periodical statements of his account, or where annual rests are made for the purpose of compelling him to pay interest upon periodical balances which ought to have been invested by him. The master has, however, made a mistake in favor of the executor, in the computation of commissions, by allowing him two and a half per cent on $5000 instead of $4000. The provision in the statute is that for receiving and paying out, the executor is to receive on all sums not exceeding $1000, five per cent; for sums exceeding one thousand and not amounting to five thousand, two and a half per cent; and for all sums above $5000, one per cent: that is, five per cent on the first thousand—two and a half per cent on the next $4000, and one per cent on all sums above that. (See ex parte Roberts, 3 John. Ch. Rep. 44, and revisers note to 2 R. S. 93, § 58.)

The 4th exception, is for not deducting the commissions on the 15th of April, 1837, when the executor received and applied a part of the French fund towards his debt against the estate, under the order of the court. I believe the practice generally has been to compute and deduct the commissions at the time of settlement of the account, except in those cases where periodical settlements or rests are directed to be made. And as the order of this court referred to in this exception was appealed from, so that the executor did not receive the whole amount of his debt, under that order, until after the decision of the court for the correction of errors, there appears to be nothing to take the case out of the general rule previous to that time. I see nothing, however, in the manner in which the master has stated the account which is objectionable in principle. For where an executor or trustee who has a large claim against the estate and is entitled to a preference, receives and applies monies in part payment of principal and interest, if the amount so paid is large it appears to be equitable that his commissions on the amount so applied should be first deducted ; so as to give him the interest on the balance of the principal of his debt from that time, after deducting the commission on such partial payment. But where that is done, the subsequent commissions should be computed in such a manner that the aggregate amount of the whole commissions allowed will not exceed the statute allowance upon all his receipts and disbursements. This exception to the report is overruled.

The 5th and 6th exceptions relate to the $10,000 of the fund in the hands of the executor which he has loaned to his son, pendente lite, on insufficient security and without the sanction of the court. As a general rule, an executor or other trustee during the pendency of a suit for an account, and a distribution of the fund in his hands, over and above his own just claims thereon, should either ask for leave to pay the balance into court, to abide the event of the suit, or to invest it under the direction and sanction of the court. And if the court for the correction of errors had not adopted an anomalous principle in this case, that part of the fund would have remained in court and been invested under its direction. The whole difficulty arises out of that decision ; which I suppose has been virtually overruled by the same court on a subsequent appeal, from an order afterwards made in this cause, decided in December last. The ancient rule of this court may therefore be considered as restored as to future cases. The only question then is what was the effect of the first decision of that court upon the question arising on this exception. The substance of the last decision is that I ought to have directed the executor to bring the money into court; although the first decree of that high tribunal had decided that he was entitled to retain it, pendente lite, unless this court, upon a new state of facts, should consider it unsafe in his hands, and in consequence thereof should give further directions as to the custody of the fund not inconsistent with the principles of that decree. Upon examining the first decree of the court of errors, however, I do not find any express authority given to the executor to use, or even to invest that part of the fund which did not belong to himself, without the previous sanction of this court. He, therefore, must be taken to have made the investment in a loan to a member of his family, on his own account, or at his own individual risk, when he made it without the sanction of the court. The master was therefore right in charging him with the amount of that loan, upon insufficient security and without authority, as a misapplication of so much of the fund which he had succeeded in getting back into his hands under the decree of the court of dernier resort. The fifth and sixth exceptions of the executor must therefore be overruled.

The case must be referred back to the master to restate the account upon the principles of this decision. And no costs are to be allowed to either party on these exceptions as against the other ; nor is the executor to be allowed his costs on the exceptions as against the fund belonging to the other creditors of A. Gracie. But the costs of the complainants on the exceptions, as against that part of the fund in the hands of the executor which belongs to them in common with the other creditors, except N. Rogers, are to abide the further order of the court; and must be disposed of upon the final hearing upon the equity reserved, on the coming in of the master’s amended report.


source: Caselaw Access Project

author: The Chancellor.

license: Public Domain

text:
    Attorney General vs. The Life and Fire Insurance Company.
    Where an incorporated company, not having banking powers, issued and put in circulation as money the negotiable bonds of the company, not under seal, payable to the order of one of its clerks and endorsed in blank, in the form of the ordinary post notes of banking institutions, and printed upon an engraved plate, with a vignette and other devices which are usual upon bank notes that are issued as a circulating medium: Held, that such bonds being issued and put in circulation in violation of the restraining laws, were void in the hands of those who had actual or constructive notice of the purpose for which such bonds were issued; and that the form of the bonds was such as to be constructive notice to those who received them that they were intended to be put in circulation as money, and were not given for any legitimate purpose for which the corporation was authorized to give a negotiable security.
    A corporation which is not prohibited by law from doing so, and without any express power in its charter for that purpose, may make a negotiable promissory note, payable either at a future day or upon demand, where such note is in fact made or given for any of the legitimate purposes for which the company was incorporated.
    But where such notes have been issued and put in circulation in violation of the restraining law, it seems the holder is bound to show that he received them in the ordinary course of business and paid a valuable consideration therefor, without notice of the illegal object for which they were issued, to entitle him to recover thereon as a bona fide holder.
    March 15.
    This case came before the court upon the exceptions of some of the bond holders of the Life and Fire Insurance Company, to the report of referees. The corporation became insolvent, and upon the application of the attorney general, M. Hoffman and J. L. Lawrence were appointed receivers of its property and effects, under the provisions of the article of the revised statutes relative to proceedings against corporations in equity. The Mercantile Insurance Company, Josiah Barker, and many other persons who had presented claims to the receivers against the company, arising out of what were usually called the Life and Fire bonds, agreed to a reference, under the provisions of the revised statutes on the subject; and an order of the court was entered appointing G. W. Strong, Abraham Ogden, and John Bolton referees to determine the controversy relative to the validity of the claims. The form of these bonds was that of ordinary post notes of banking institutions, printed upon an engraved plate, with a vignette and other devices which are usual upon bank notes issued as a circulating medium ; the number, date, amount, payee, and time of payment being left blank in the engraved plate, and filled up in writing, signed by the president of the corporation and countersigned by the secretary thereof, as follows : c< The Life and Fire Insurance Company promise to pay, six months after date, to H. Kingsland, or his order, at their office, one thousand dollars with interest at the rate of six per cent per annum from the date thereof, interest payable quarterly. For the payment whereof the company bind themselves and their successors, and have hereunto caused their president and secretary to subscribe their names. New-York, 10 April, 1824.
    H. Eckford, President.
    M. L. Davis, Secretary.”
    And these notes were made payable either to H. Kings-land or to some other of the clerks of the company, and endorsed in blank' by them; their names being used for mere convenience to facilitate the operations of the corporation in issuing and putting these bonds in circulation. The objects for which the company was incorporated, originally, were to insure lives, to grant annuities, to open, find out, discover, work, purchase, explore and use mines and beds of coal, and to transport, sell, and dispose of the coal, &c. And by two amendments of its charter, one in 1823, when the name of the corporation was changed, and another in November, 1824, the corporation was authorized to insure buildings and other property against fire, and to receive and execute trusts, as the Farmers’ Fire Insurance and Loan Company was authorized to do. But the evidence before the referees satisfactorily established the fact that the bonds or negotiable securities in question were not given to the payees thereof for any of the purposes specified in the act of incorporation, or in the acts authorizing it to insure against loss or damage by fire or to receive and execute trusts. Nor were they issued, to those who actually received them from the officers of the company, for any of those purposes ; nor for any debts contracted on account of the business for which the company was chartered. The referees arrived at the conclusion, upon the facts produced in evidence before them, that all the bonds belonging to the claimants were illegal and void. They therefore decided and reported that none of the claims of the parties to that reference were lawful or just claims or demands against the effects of the company in the hands of the receivers. They also delivered to the parties a written opinion stating the grounds of their decision ; so much of which opinion as related to the claims of the parties who filed exceptions to their report was as follows :

      “ In an early stage of the reference in this cause we decided, upon a preliminary objection which was fully argued, that the securities produced and proved, commonly called life and fire bonds, were prima facie evidence of debt against the defendants ; and that the burthen of proof rested upon those "who sought to impeach them. In making this decision we adopted the general and well established principle that a corporation cannot transcend the powers delegated to it by its charter ; and that it can lawfully do no acts except such as are expressly authorized, or fairly implied, to enable it to fulfil the ends and purposes for which it was created. But that inasmuch as the corporation was expressly empowered to insure lives, grant annuities, work, explore, and purchase coal mines, purchase real estate for the transaction of its business, and execute trusts, we were of the opinion that we were bound to presume that the securities were issued for some of these enumerated purposes, until the contrary appeared.
    Testimony was then adduced in order to impeach the securities. And from the uncontroverted evidence of the secretary of the company, who acted as such during the whole time it was in operation, it satisfactorily appeared that the bonds in question were not issued for any of the purposes above specified ; nor for the payment of office rent, clerk hire, or any of the current or contingent expenses of the company. This testimony we considered sufficient to rebut the prima facie presumption in favor of the validity of the bonds, and to throw the burthen of proof upon the opposite party. The bond holders then attempted to sustain their claims, upon the clause of the original charter which authorized the company to make loans of its capital stock, funds or monies, upon bonds and mortgages. Evidence was produced that in some instances the company did issue its bonds as the consideration of or in exchange for the bonds and mortgages of the borrowers, and that life insurances were connected with and formed a part of the transaction ; and in particular that a heavy negotiation of this character took place between the company and Kenner & Co. of New-Orleans. And on the argument it was strongly insisted that we were bound to presume that all the securities were issued under similar circumstances. But we conceive we are not warranted in making any such presumption—■ that it is negatived by the testimony produced before us. And that if any securities were sustained on this ground alone, it would constitute an exception to the invalidity of bonds which were issued under other circumstances. And that it would be incumbent on these bond holders to bring themselves within that exception, by showing satisfactorily, in each instance, that the bonds were issued for the purpose of a loan to be secured by the bond and mortgage of the borrower. Independent, however, of this view of the subject, we cannot consider these bonds as either the capital stock, funds or monies of the company. They amount to nothing more than a pledge of its credit and responsibility, and do not necessarily imply the existence of any funds or monies whatever. The transactions were in effect only an exchange of securities between the company and the parties dealing with it; furnishing directly no funds to either, but supplying both with the means of raising them. In this point of view the company was precisely as much a borrower as it was a lender. And it would be utterly preposterous to call such a transaction a bona fide investment of the capital stock, funds, or monies, on bond and mortgage ; which the charter alone contemplates. But it is said life insurances were coupled with these transactions, and that the company was authorized to make such insurances. Admitting this to be so, it by no means follows that the bonds of the company which were the consideration of the bonds and mortgages of the dealers were valid. There is no necessary connection between the insurance and the loan, unless it can be shown that a lawful contract will give validity to an unlawful one, when both are made between the same parties at the same time. But the rule of law in such a case is, that where the considerations of the different contracts are so blended that they cannot be separated the invalidity of the one will of itself vitiate the other.
    We infer from the evidence before us that the principal business of this company was to get its bonds and securities into circulation, with a view to raise funds; and that this was usually done either through the medium of an exchange of securities with the dealers, or by a direct sale of the bonds, in the market, to purchasers, for cash. We consider this practice to have been in direct violation of the charter, wherein the company was prohibited from employing any part of its stock, funds or monies in the purchasing or discounting of any bill, bond, note, or obligation whatever, or in any other banking operations. If the business of banking consists essentially in issuing notes, making discounts,, and receiving deposits, the operations of .this company, in our opinion, bear so close a resemblance to It as to come within the prohibition of the legislature, not only as expressed in the charter of the corporation, but as contained in the general restraining act.
    It was urged before us, on behalf of the bond holders, that if the securities were void, still they were competent evidence of money had and received by the company to the use of those holders. This proposition we cannot admit.
    If the dealings in question were prohibited by the charter of the company and by the general restraining act, or by either of them, both the express and the implied contracts are alike null and void. To establish that the latter is valid while the former is void, would be opening a door to evade the force and policy of the law. The correct rule on the subject, and which is established by a great variety of cases, as we apprehend, is that all dealings and contracts in contravention of the spirit and policy of a statute are prohibited. We are therefore of the opinion that all the securities proved before us, commonly called life and fire bonds, are null and void, and furnish no evidence of any valid debt against the company.
    We are aware that the views which we have adopted as to the invalidity of these bonds must operate with severity upon many innocent holders. But the decisive answer is, that dealers with the company, or in its securities, were bound to look to its authority to issue them; and that in legal contemplation they did know, or were at least bound to know, that the company was transgressing its legitimate powers, and that its securities were liable to be set aside. Be this as it may, we feel ourselves imperatively bound to decide according to our convictions as to the law without regard to the hardships which it may produce in individual cases.”
    The Mercantile Insurance Company and Josiah Barker excepted to the report of the referees. But it was confirmed as to the other claimants; none of them having filed exceptions to the same within the eight days limited by the order nisi.

      D. Selim, for Barker and the Insurance Company.

      Murray Hoffman, for the receivers.
   The Chancellor.

The Tradesmen’s Bank filed no ex-ceptioñs to the report of the referees, and it is therefore not necessary that I should examine the particular circumstances of the transaction by which that institution became the holders of some of the bonds of the Life and Fire Insurance Company, a few days before it stopped payment. I am satisfied however that the referees came to the correct conclusion that the bonds were not discounted by the bank for the benefit of the company, and that the money never was applied to its use ; but was appropriated, by Davis, to the fraudulent purchase of the Tradesmen’s Bank, with the assent of the officers of that institution who authorized the discount of his notes. And that if the company or its effects were ever legally holden for the payment of these bonds, wrhich I think was not the case, the liability was discharged by the release of Davis the principal debtor.

The referees have followed the decisions of the supreme court in holding that a corporation, without any express or implied power in its charter for that purpose, may make a negotiable promissory note, payable either at a future time, or upon demand, when not prohibited by law from doing so j provided such note is in fact made or given for any of the legitimate purposes for which the company was incorporated. But they are right in supposing that the evidence before them was sufficient to establish the fact that the whole operations of the company in these bonds were for purposes not authorized by its charter, and in violation of the restraining acts of April, 1813, and of 1818. (2 R. L. of 1813, p. 234. Laws of 1818, p. 242.) It was an attempt on the part of those who had the control of the affairs of this company to carry on banking business, instead of the business for which they professedly obtained their charter. They in fact carried on the business of discounting notes, bonds and mortgages, and other securities for money, giving in exchange therefor these bills or bonds, endorsed in blank by their own clerks and others, as negotiable securities, which were intended to be and actually

were put in circulation as money ; in the same manner as , „. , . . • , _ .

, „. the post notes of incorporated banks were issued and circulated as money before the issuing of such notes was prohibited by law. If the bonds or bills of a corporation thus issued and put in circulation are not absolutely void, in the hands of every person who may receive them, whatever may be their form, upon which question I express no opinion, there was sufficient on the face of these bonds to show that they were intended as a circulating medium, and were not given by the company to the payees thereof for an actual indebtedness in the course of the legitimate business of the company. At least there was sufficient to put those who received them upon enquiry as to the fact whether they were really given for any purpose within the authority of the corporation, and not in violation of the laws of the state. It may be proper also to say that although the fact was satisfactorily established that this company was for one or two years before its failure, in the summer of 1826, openly carrying on the business of issuing these bonds in violation of the provisions of its charter and contrary to law, the parties who have excepted to the report of the referees introduced no evidence to show that they received the bonds presented by them at their nominal amount, and for a bona fide consideration. And for aught that appears to the contrary, those parties may have received them from some of the officers or agents of the company, for purposes not authorized by its charter or by the laws of the state.

The report of the referees must therefore be confirmed, and the claims upon the bonds by the parties to the reference must be rejected by the receivers, in the distribution of the effects of the company among its creditors and stockholders.


text:
    Thomas vs. Fish and others.
    Where a party applied for a loan of money, which was agreed to be loaned to him upon usury, and he agreed to obtain his brother’s bond and mortgage to secure the loan and the usurious premium, and the borrower thereupon forged a bond and mortgage upon his brother for the amount, and transferred it to the lender and received the money thereon, deducting the usurious premium; Held, that the lender could not recover back the money lent upon usury by reason of such fraud; and that the brother, whose name had been forged, was not liable for a part of the money which had been applied to pay off an incumbrance upon his property, he not being privy to the forgery.
    Where a security is not valid as between the parties, but is made for the mere purpose of being sold at a discount of more than legal interest, it is not valid in the hands of the purchaser who buys it for less than the amount; although he is ignorant of the object for which it was made, and supposes it is a valid security in the hands of the person from whom he receives it at a discount. But the party who obtains the money, upon the false representation that the security is valid and justly due, will be liable to refund the money thus fraudulently obtained. And he will also be liable to a criminal prosecution for obtaining the money by false pretences, and with an intent to defraud.
    Where the purchaser of a chose in action parts with his money upon an agreement which he knows to be illegal and usurious, he cannot recover back the money from the borrower on the ground that the latter has palmed upon him a forged security.
    April 5.
    This was an appeal from a decree of the vice chancellor of the eighth circuit. The facts in the case, as presented by the pleadings and proofs, were substantially as follows : E. C. Fish applied to the complainant for a loan of money, and told him he could obtain from his brother H. A. Fish a mortgage on his farm, for $2000, which he would transfer to the complainant for whatever sum he would pay or advance for a bond and mortgage of that amount. It was finally agreed between them that the complainant should advance him $1700, for such a bond and mortgage, payable in five years with annual interest; of which sum the complainant paid to Lent $1050, to take up a previous mortgage upon the same premises which Lent then held, and the residue of the $1700 was paid to E. C. Fish upon his producing and assigning to the complainant a bond and mortgage, for the $2000, purporting to have been executed by H. A. Fish and wife to the assignor and payable in five years with annual interest as agreed upon. The complainant afterwards found that this bond and mortgage, as well as the certificate of acknowledgment endorsed thereon, had been forged by E. C. Fish; and that instead of obtaining an extra premium of $300 for the amount advanced on these securities, he was in danger of losing the whole amount. He thereupon filed his bill in this cause, stating these facts, and charging that the previous mortgage, which was genuine, was paid off with the monies thus advanced upon these forged securities, with the knowledge, consent, and advice of the defendant H. A. Fish, and with a full knowledge of all the circumstances. He, therefore, prayed that the discharge of the previous mortgage might be delivered up and cancelled and that he might have the benefit of that mortgage as a security for the amount which was advanced by him towards the payment of the same to Lent. The defendant H. A. Fish put in his answer, denying all collusion with his brother in obtaining satisfaction of the previous mortgage, or that he knew any thing of the forgeries or the obtaining of the money from the complainant upon the forged securities, until he was informed thereof, by a letter from his brother, about a year afterwards. He also stated in his answer that the first bond and mortgage was made and loaned to his brother for the sole purpose of enabling him to raise money thereon, for his own benefit, and that he promised to pay and discharge the same, so as to save him harmless. The cause was heard upon pleadings and proofs as to the defendants H. A. Fish and wife. And the vice chancellor decided that, as the complainant had been imposed upon by a forged bond and mortgage, the agreement upon which the money had been advanced was not usurious. He, therefore, declared and decreed that the complainant was to be considered as the owner of the $1000 bond and mortgage, and that the discharge thereof and the record of such discharge be cancel-led and declared void. From this decree H. A. Fish and Avife appealed.

      S. Stevens, for the appellant.

      R. J. Hilton, for the respondent.
   The Chancellor.

If the respondent in this case had advanced his money upon the purchase of a forged bond and mortgage, under an agreement which would have been valid if the securities had been genuine, I should have no difficulty in affirming the vice chancellor’s decree; although I think he erred in supposing that the answer was not evidence in favor of the appellants, to establish the fact that the $1000 mortgage was loaned to E. C. Fish, and that he was in equity bound to see it paid. The bill called for an answer on oath in relation to the giving of that mortgage ¡ and charged that the payment to Lent was known to H. A. Fish at the time it was made, and was for his benefit. And it also contained a special interrogatory requiring the defendants to answer when, where, how and upon what terms and conditions the same was given. The answer, therefore, was directly responsive to this interrogatory, in stating how and upon what terms and conditions that mortgage was given.

The decree, however, is based upon the ground that the mortgage was in fact paid off for the benefit of the appellants, and with monies which had been feloniously obtained from the respondent; and that the latter is, therefore, in equity entitled to be substituted in the place of Lent, in relation to the securities which he gave up to the felon upon the receipt of the money. There is nothing in the case from which it can be inferred that E. C. Fish had any other means of paying the $1000 mortgage, or that it would have been paid by him if the money obtained from Thomas had not been so applied. That money was, therefore, in fact appropriated for the benefit of the appellants, to discharge an incumbrance for which their property was legally holden ; although the brother was, as between himself and them, equitably bound to pay off and discharge the same. If the vice chancellor was right then in supposing that this money was not advanced by Thomas upon an usurious agreement, but had been obtained from him under circumstances which would authorize him to follow it into the hands of any person who had not received it bona fide and upon a valuable consideration, in the same manner as if the same had been stolen from him by E. C. Fish, the decree is undoubtedly right. It therefore becomes necessary to inquire whether the statute of usury altered the rights of the respondent in this respect.

It is perfectly well settled that the owner of a bond and mortgage, or any other evidence of debt, which is a valid and available security in his hands, may sell it at a discount, or below its actual value, in the same manner he can sell any other property, if such sale is not intended by the parties as a mere cover for an usurious loan. On the other hand, if such evidence of debt was void for usury in its inception, or was made for the purpose of being sold at an usurious discount, it will not be a valid security in the hands of a purchaser thereof although he is ignorant of the illegal purpose for which it was made. But as the purchaser cannot be guilty of making an usurious bargain where he is deceived by the seller as to,the facts which are necessary to constitute the usury, there are some cases where such purchaser may recover back the money paid to the vendor on such sale, upon the ground that he has been . actually defrauded in the sale of an invalid security. And in such a case the seller, who has obtained money from the purchaser upon a false and fraudulent representation that the evidence of debt thus sold was a good and available security, and was not tainted with usury, nor made for the purpose of being sold at an usurious discount, would be guilty of a felony in obtaining the money by these false and fraudulent pretences, and upon a security which was of no value to the purchaser. Where money or other property is thus fraudulently and feloniously obtained from

the purchaser of a chose in action, although he purchased at a discount, the title to his money or property is not changed until it gets into the hands of some one who has received it without notice of the fraud, and for a valuable consideration.

But where the purchaser of a chose in action parts with his money upon an agreement which he knows to be usurious and void, and in violation of the laws of the state, he cannot legally be said to be defrauded, so as to entitle him to recover back his money from the borrower upon usury who has in fact palmed off upon him a forged security. Here the complainant shows, in his bill, that he knew perfectly well that the bond and mortgage upon which he was about to advance his money were not good and available securities in the hands of the nominal vendor, but were made to be sold at an usurious discount; and for the express purpose of carrying into effect this contract to advance $1700 for a bond and mortgage for $2000 and interest, to be made by the appellants, and to be lent to the person who was to receive the money on this usurious contract. He was, therefore, bound to know that securities thus made and transferred, even if made by the appellants, would be as absolutely void in his hands as the forged bond and mortgage in fact were. For in neither case could he recover any thing upon those securities, if the appellants should think proper to make a defence. The money, therefore, having been advanced under an illegal and usurious agreement, I conclude that the appellants, who had no knowledge of or participation in the forgery, or in the usurious contract which induced E. C. Fish to perpetrate it, cannot be compelled to refund that money to the usurer, although it has been appropriated to their benefit, without their agency.

The decree appealed from must, therefore, be rev ersed; and the bill, as to the appellants, must be dismissed with

costs.


text:
    Anderson vs. Rapelye.
    Where a bond and mortgage for $3000 and interest, were sold and assigned at a. discount of four hundred dollars, for the purpose of raising money thereon, and it was agreed between the vendor and vendee that the former should execute an assignment reciting that he had in consideration of the $3000 paid to him, assigned the same to the vendee, and should covenant that the whole amount was actually due and owing on such bond and mortgage, and should also give to the vendee a bond with surety, conditioned that the whole amount of the bond and mortgage, with interest thereon, should be paid to him upon the day when such bond and mortgage by its terms was due and payable; Held, that the transaction was usurious, and was a mere device to obtain more than" legal interest for an advance or loan of money.
    Upon a bill filed to set aside a contract on the ground of usury, where the contract was made with the defendant personally, if any of the facts stated in the bill as constituting the usurious agreement are not denied in the answer, they will' upon the hearing of the cause be considered as true, under the provisions of the 17th rule of the court of chancery.
    April 5.
    This was an appeal from a decree of the assistant vice chancellor of the first circuit. The object of the complainant’s bill was to set aside an assignment of a bond and mortgage from him to the defendant, and to have another bond, given by him and his father-in-law to the defendant, guaranteeing the payment of such bond and mortgage by the mortgagor delivered up and cancelled, on the ground of usury. The facts of the case were substantially as follows : The complainant held a bond and mortgage against John Anderson, given on the 8th of December, 1836, conditioned for the payment of $3000, in one year, with interest at the rate of seven per cent per annum, payable half yearly. Being in want of money, and understanding that Rapelye was in the habit of purchasing bonds and mortgages at a discount, for cash, the complainant applied to him to purchase the bond and mortgage in question, in June, 1837. Rapelye agreed to purchase the bond and mortgage at a discount of $400, in addition to the interest then due thereon ; provided the complainant would procure his father-in-law, A. A. Remsen, to give a bond, as security to Rapelye, the purchaser, that the whole amount of the bond and mortgage and the interest thereon should be paid to him on the day when, by the terms of such bond and mortgage, they were to become due and payable. The assignment, and the bond of the complainant and of his father-in-law, were given to the defendant accordingly; which assignment stated the consideration paid by the defendant to be $3000, and which sum the complainant covenanted was still due and owing on such bond and mortgage. But the real consideration of the assignment, and of the bond of the complainant and his father-in-law, was the $2600, which by the private agreement between the assignor and assignee was to be paid therefor. The assistant vice chancellor considering this case as not distinguishable from Cram v. Hendricks, (7 Wend. Rep. 569,) and Mazuzan v. Mead, (21 Idem, 285,) dismissed the bill. And from this decree the complainant appealed. The following opinion was delivered by the assistant vice chancellor. '
    Hoffman, A. V. C. The evidence of Remsen- cannot be admitted. No objection was taken before the examiner to his competency, and the 85th rule entirely precludes me from regarding the deposition. The question is to be decided upon the documentary evidence.
    The complainant was in the month of June, 1837, the holder of a bond and mortgage given by one John Anderson to him, dated the 8th day of December, 1836, for securing the payment of $3000, and falling due the 8th of December, 1837, payable with lawful interest. On the 26th of June, 1837, the complainant assigned this bond and mortgage to the defendant by an assignment in the usual form, with a covenant that there was due upon the securities the sum of $3000. This assignment was acknowledged on the 27th of June. On the same 26th of June, a bond or obligation was executed by the complainant with one Abraham A. Remsen of which the following is a copy. This was acknowledged also on the 27th of June^ and both it and the assignment were attested by Valentine, the commissioner, as the subscribing witness. “ Know all men by these presents that we, Abraham A. Remsen of the city of Brooklyn and Robert Anderson of the same place, are held and bound unto George Rapelye of the city of New-York, in the sum of six thousand dollars lawful money of the United States, for which payment well and truly to be made, we bind ourselves jointly and severally, and our joint and several heirs, executors, administrators and assigns firmly by these presents. Sealed with our seals and dated this 26th day of June, 1837. Whereas the said Robert Anderson hath, by deed of assignment, bearing even date with these presents, assigned and conveyed to the said George Rapelye a certain bond bearing date the eighth day of December, one thousand eight hundred and thirty-six, made to the said Robert Anderson by John Anderson of the city of New-York, stone cutter, to secure the payment of three thousand dollars on the eighth day of December, one thousand eight hundred and thirty seven, with interest thereon at the rate of seven per cent per annum, payable half yearly on the 8th day of June and December, which said bond is secured by a mortgage executed by the said John Anderson and Matilda his wife upon a certain lot of land situate in Henry-street in the city of New-York, and which said mortgage is recorded in the register’s office of the city and county of New-York, in liber 206 of mortgages, page 354, December 22d, 1836 ; and whereas the said George Rapelye hath accepted the assignment of the said bond and mortgage and paid the consideration therefor contemporaneously with the execution of these presents at the special instance and request of the said Robert Anderson and the said Abraham A. Remsen: JVbio therefore, the condition of this obligation is such, that if the said John Anderson, his heirs, executors and administrators, shall, well and truly pay unto the said George Rapelye, his heirs, executors, administrators and assigns, the said sum of three thousand dollars in the said bond and mortgage mentioned, on the said eighth day of December, one thousand eight hundred and thirty-seven, together with the interest that shall accrue thereon, at the times and in the manner therein specified without default or delay, then this obligation to be void, otherwise to remain in full force and virtue.”
    It is not contested that these several instruments are to be deemed as forming one contract. The sum received by the complainant on the transaction was $2600. The period which the bond had to run before the whole $3000 was due, was short of six months, and legal interest was also payable. The agreement of Remsen and the complainant in their bond is this—that if John Anderson does not pay $3000 and interest at the time specified, their bond is to be forfeited, that is, the penalty becomes due in form. The sum to be secured would be exactly what John Anderson was bound and failed to pay, that is, the $3000 and interest. Then the whole contract is precisely and summarily this : John Anderson is bound to pay three thousand dollars to the defendant at a given time with interest j and if he fails to do so, Remsen and the complainant agree to pay that amount and interest. In order to get this claim against John, and the property mortgaged in the first place, and against the other parties in the second place, the defendant has paid $2600.
    Now all this shows that the bond of Remsen and the complainant is, on its face and according to the plain meaning, a naked simple guaranty of the payment of $3000 by John Anderson ; and thus the question is merely whether the transfer of a valid security for $3000 bearing interest guaranteed by the assignor,is a usurious transaction because $2600 only was received by such assignor.
    While the state of New-York, so late as the year 1837, carried the usury laws to an extent before unheard of in this country, bringing within them bona fide holders of negotiable paper, the great commercial nation of Europe, in the year 1839, abolished them entirely as far as they affected mercantile paper running for a period not. exceeding twelve months. (Statute 2 S? 3, Victoria, cap. 37.) But that act contains a provision that it shall not extend to any loans or advances on real estate or on any interest therein.
    The case before me must be determined upon the force to be given to the decision in Cram v. Hendricks, (7 Wendell 572,) and the subsequent case of Mazuzan v. Jilead, (21 Wendell, 285.) In the former, the transfer of a business note, legal in its inception, upon a discount exceeding the legal rate of interest, was held valid and not usurious, although the party transfering it endorsed it in blank. The legal construction of such an endorsement was held to be that it guaranteed only the payment of the sum actually advanced upon the transfer of the note with interest.
    In Mazuzan v. Mead, however, a note for $210 perfectly valid in its creation was transferred upon a discount, usurious if the note had then been made, and the party wrote upon it that u in consideration of $200 paid to him, he assigned the note to the plaintiff and guaranteed the payment thereof.” The language here used as plainly contains an engagement to pay the face of the note upon the default of the principal, as any thing can amount to short of express terms, such as “ the sum of $210.” It seems impossible to give a more explicit meaning to the contract in the case before me than in this case to cover the whole demand. The one is, that if the obligor does not pay $3000 at the time, he will be subject nominally to $6000, from which by law, if the contract is binding, he can only be relieved by paying $3000. The other is that he guaranteed the payment of the note of $210.
    Indeed, a strict criticism would make the present case more analogous to the blank endorsement than the other, because the express contract is notoriously not to be enforced. Relief on equitable terms of payment is necessarily to be given upon a bond with a penalty. I confess I do not see how the reasoning of the chancellor in Cram v. Hendricks was avoided. And the argument of the counsel for the complainant in this cause was to my mind at the time, conclusive. But after the best consideration, I cannot find a way to distinguish this case from that of Mazu

      zan v'. Mead. It struck me at first that such a distinction might exist on the ground of the favor to commercial paper which was put prominently forward in Cram v. Hendricks; but I see no ground for such a distinction in the statute.

      M. S. Bidwell <§r S. F. Clarkson, for the appellant.
    The assignment of John Anderson’s bond and mortgage by the appellant, and the bond executed by him and his father-in-law, Iterasen, constitute one agreement, and are to receive the same construction as if they had been contained in one instrument. (Jackson ex dem. Trowbridge v. Dunsbach, 1 John. Ca. 91. Snow v. Tifft, 15 John. R. 463. Brown v. Dean et al., 3 Wend. R. 208. Van Horne v. Crain, 1 Paige’s Rep. 458. White v. Wright, 3 Barn. & Cress. 273 ; 5 D.& R. 110, S. C.) The substance of this agreement was, that Rapelye should advance to R. Anderson the sum of $2600, in consideration of which Rapelye was to receive, at a stipulated time, being within six months thereafter, $3000 and interest. To carry this arrangement into effect, R. Anderson assigned a mortgage, and executed with a surety a bond to Rapelye. This was a loan of money at an usurious rate of interest. It was not a mere sale of securities. It had the distinguishing features of a loan. The stipulation for the ultimate payment was an essential part of the agreement, and was made an express and indispensable condition of it by Rapelye. The whole object and intention of the parties evidently was, to secure to Rayelye the payment of $3000, with interest, in less than six months, in consideration of his advancing $2600 • and to secure this payment, absolutely and unconditionally, without any risk on his part of the money advanced by him, or even of the usurious interest. The agreement comes most plainly within both the letter and spirit of the law against usury, which courts will apply according to the substance of the transaction, without regard to its form. (Lowe et al. v. Waller, 2 Dougl. Rep. 736.) According to the condition of the bond of the respondent and Rem-sen, payment of $3000 and interest, and not merely of $2600, was secured to the appellant.] for, if $2600 (the amount advanced by him) had been paid to him by the mortgagor, the bond would, nevertheless, have been forfeited, unless the remainder of the amount secured by the mortgage ($3000 and interest) had also been paid to him. This case, therefore, does not come within the principle established in Cram v. Hendricks, (7 Wend. R. 569,) in which it was held, as the express ground of the decision both in the supreme court and the court of errors, that according to the true construction of the contract of endorsement, the endorsee could recover from the endorser only the amount actually advanced by the endorsee. See Mazuzan v. Mead, (21 Wend. R. 285,) which was decided upon a similar principle. The false consideration mentioned in the assignment, is evidence of a design to evade the law against usury, (Fereday v. Wightwick. 1 Russ. & Myln. Rep. 50. Williams v. Hance, 7 Paige, 582. Watkins v. Taylor, 2 Mumf. Rep. 430.) But if there had been no such fraudulent design, the case would still be within the operation of the usury laws, upon the principle that parties must be held to intend the necessary effects of their own deliberate acts. (Havre v. Wilson, 9 Barn. & Cress. 643. Mackie v. Cairns, 5 Cow. Rep. 573.) Rapelye intended for an advance of his money to get an interest or compensation of more than seven per cent per annum, and to get this, absolutely, without any contingency of principal or interest. This was an intent to violate the law against usury ; it was an intent to do an act that was in violation of that law. (Marsh v. Martindale, 3 Bos. & Pul. Rep. 154.) The law deems usury a great public evil, and the provisions made by the legislature to put an end to this evil, ought to receive a liberal construction and to be honestly and fully supported and enforced by courts of justice with exemplary obedience, so as to effectuate the intentions of the law-makers, and to encourage and promote a spirit and a habit of subordination to the laws.
      (Dunham v. Gould, 16 John. Rep. 375. Livingston v. Harris, 11 Wend. Rep. 336, 337.)
    J. JF. Gerard, for the respondent.
    The assignment was an absolute sale of the bond and mortgage, without any right of redemption by the seller, and not a loan of money. It had no attribute of a loan. An existing bond and mortgage can be sold and transferred at any rate of discount whatever, exceeding seven per cent, and the sale and transfer cannot be rendered usurious. In every respect it is governed by the same rules as are applicable to a sale by discount of a business promissory note. (Mazuzan v. Mead, 21 Wend. 285. Cram v, Hendricks, 7 Id. 569. Braman v. Hess, 13 John. R. 52. Munn v. Commission Co. 15 Id. 44. Oakley v. Boorman, 21 Wend. 597. 1 Esp. N. P. R. 261.)
    If the condition of Remsen’s and Robert Anderson’s bond of guaranty had been, that in case John Anderson did not pay the amount of his bond and mortgage, $3000, that they would, it would no more have been usurious than was the endorsement of Cram on the note he transferred to Hendricks, in the case of Cram v. Hendricks decided by this court in 7 Wend. 569, where the note was sold by Cram, with his endorsement at a greater discount than seven per cent, as the endorsement was a guaranty of the amount payable by the face of the note. In fact it is the very case of Cram and Hendricks, and a casus decisis in this court. Still stronger is the case of Mazuzan v. Mead, (21 Wend. 285,) where a note of $210 was sold for $200 (a greater rate of discount than legal interest) and the seller guaranteed in express terms to pay, not merely the $200 and interest, but the amount payable by the face of the note. But the condition of this bond of guaranty is not that the guarantors would pay the $3000 if the mortgagor did not, but is, that if the mortgagor, John Anderson, did pay that sum, then the bond was to be void, otherwise to remain in full force and virtue. Upon this bond judgment would be entered for the penalty, but the execution could only go for the sum equitably due ; the sum actually paid for the bond and mortgage and interest. The consideration of $3000 being expressed in the assignment by the person who drew it up instead of $2600, cannot affect the legal construction of the bond. An instrument is never vitiated by a false consideration. Usury can never depend upon the ease or difficuly of proving the facts in'any given case. The facts of a transaction render it usurious or valid—not the ease or difficulty with which they can be proved. But nothing is more common than to insert in assignments of choses in action, when bought for a less sum than their face, the full amount for which they are payable. Very often the consideration expressed is one dollar. The great principle of the decisions of Cram v. Hendricks and Mazuzan v. Mead, is, that usury is not predicable of an existing valid obligation to pay money on its sale and transfer, and that the law will so regulate the damage to be recovered on any guarantee for the payment given by the seller, that he shall never be called upon to pay more than the sum he received with legal interest.
   The Chancellor.

As this suit was commenced subsequently to the adoption of the 17th rule as amended in May, 1839, whatever is stated in the bill as the act or deed of the defendant, or as a fact within his personal knowledge, and which is not denied in the answer, is considered as admitted for all the purposes of this suit. And the answer of the defendant could not be excepted to for insufficiency in that respect, so as to compel a further discovery as incidental to the relief sought by the bill. (Clute & Mead v. Bool, 8 Paige’s Rep. 88.) The evidence of Rem-sen, therefore, appears to be of little consequence, except to show that the real agreement, upon which the assignment was made and his guaranty of the whole debt was executed, was not stated in his presence. For all the other facts of which he had any knowledge are either expressly admitted in the answer, or impliedly admitted under the provisions of the rule to which I have referred. The de- . fendant produced a copy of the bond executed by the complainant and Remsen ; which bond upon its face shows that it was executed at the same time with the assignment to him of the other securities for the $3000, and as a part of the same transaction. The effect of that bond, unless it could be impeached for usury, was to render the complainant, and his father in law as his surety, liable for the payment of the whole amount of the $3000 bond and mortgage, and the interest thereon, if it was not paid by the mortgagor on the day it was to become due and payable. For it recites that the assignment, which it will be recollected stated the consideration to be $3000 and not the real sum advanced by the defendant, has been accepted by Rapelye and the consideration therefor paid by him at the special instance and request of the complainant and Remsen the obligors, and simultaneously with the execution of that bond j. and it then contains a condition for the absolute payment of the $3000 and interest, by the mortgagor or his assigns, on the 8th of December, 1837.

The question then arises whether this transaction was in fact an ordinany sale of a chose in action, or was in effect a loan or advance of money on these securities, and to enable the nominal purchaser of the complainant’s bond and mortgage to obtain a premium of more than $500, including back interest, for the use of $2600 a little more than five months, in addition to the legal interest which was to accrue upon the $3000 in the mean time.

This certainly is not the way in which sales of property-are usually made. For if a man sells to his neighbor a house, it is not usual to give to the purchaser a collateral agreement, with security, that if such purchaser shall not he able to sell the house at the end of five months at twenty-five or fifty per cent advance upon the amount of the purchase money, in addition to the use of the house in the mean time, the vendor or his surety will take back the property and pay such purchaser the stipulated advance upon the purchase money. Yet such was precisely the effect of the transaction in this case, except that by inserting a false consideration in the assignment, and making a secret bargain when no other persons were present, the defendant had put it out of the power of the complainant, without the aid of this court, to show that the whole amount specified in the assignment as the consideration thereof had not been in fact paid. And in the case of Yankey v. Lockhart & Burton, (4 J. J. Marsh. 276,) the court of appeals in Kentucky declared such a transaction as this to be usurious, although the consideration of the assignment was truly stated therein. In that case the owner of a note, of $275, sold and assigned it for the sum of $200. But the purchaser not being willing to part with his money upon the assignment alone, he required the vendor to give him security to pay the whole $275, if the maker of the note should become insolvent so that it could not be collected of him when it became due. And the vendor thereupon procured a third person to join with him in an obligation to pay the $275, to the purchaser, if the maker of the note should become insolvent. By an early statute of Kentucky, all bonds, bills and promissory notes for the payment of money or property are assignable, and may be sued in the name of the assignee. And the construction which has been put upon assignments under that statute is, that there is an implied obligation on the part of the assignor to refund the consideration if the assignee cannot by due diligence recover the debt, in consequence of the debtor’s insolvency. (See 1 Morehead & Brown’s Dig. of Kent. Stat. 153, and cases there collected.) This it will be perceived is what has been considered by the courts of this state as the effect of a general endorsement of a negotiable security which is sold at a discount. And in reference to that principle, the court of appeals, in the case of Yankey v. Lockhart & Burton, say: “If Yankey had taken his recourse against the assignor, Lockhart, the recovery would have been limited to the $200, the consideration actually paid, the interest thereon, and the amount of costs expended. Can Yankey, by a separate contract, independent of the assignment, enlarge Lockhart’s legal responsibility, and thereby secure to himself more than legal interest on the money advanced ? We are of opinion he cannot. To tolerate it would tend to destroy the efficacy of the statute against usury, by encouraging shifts and contrivances to evade its salutary provisions. If Lockhart and Burton had unconditionally agreed to pay Yanlcey $275, on the 10th of June, 1820, for the $200 advanced it would have been a plain case of usury. Their agreement to pay it on condition that Yankey did not cannot alter the case in principle. It is only obtaining by indirection what cannot be done directly. The law delights in doing things by a straight forward, open conduct, and sets its face against circuity and management. There is nothing immoral or improper in a contract made between assignor and assignee to secure the latter against loss in consequence of the insolvency of the assignor and obligor both ; but such contracts violate the statute against usury where they attempt to impose a burden beyond the legal liability resulting from the assignment.” The decree of the court below granting relief against the usury was therefore affirmed.

In the case now under consideration, it is impossible for any one to wink so hard as not to see that the object of Rapelye, whatever the parties might choose to call this transaction between themselves, was to get more than seven per cent for the advance of his money upon the assignment of this bond and mortgage; and without any risk, even of the loss of the extra sum, of more than five hundred dollars, which he would of course receive if the mortgagor paid the bond and mortgage and interest. Had he stipulated with the assignor simply for the refunding of the money advanced, with lawful interest thereon, in case the same could not be collected of the mortgagor, or by a foreclosure and sale of the mortgaged premises, it might have come within the principle of the decision of the court for the correction of errors in the case of Cram v. Hendricks; though not within the decision itself, as that was a case of the assignment of commercial paper. In the recent case of Mazuzan v. Mead, (21 Wend. Rep. 285,) the decision of the supreme court, which followed that of the court of dernier resort, was also upon a negotiable note, and was in fact an endorsement thereof. And as it appeared in the guaranty itself that it had been assigned for but $200, the court very properly said it could not be distinguished in principle from the case of Cram v. Hendricks, on the ground that it appeared upon the face of the instrument that the consideration of the endorsement alone was legally due and payable upon the guaranty.

But in the case under consideration the $3000 secured by the bond and mortgage assigned, with the interest thereon, would be the amount prima facie recoverable against the complainant and his surety upon the guaranty, if the mortgagor should not pay his bond and mortgage when they became due and payable. And even if the assignment itself was referred to for the purpose of limiting such recovery to the real sum advanced upon such assignment, the insertion of the false consideration of $3000 therein would still enable the assignee to recover the whole amount thereof with interest, unless the complainant and his surety should be able in that suit to defeat the recovery altogether, by showing the usurious nature of the transaction.

It is no answer, in a case of this kind, to say that a court of equity will not permit the party who has taken such a bond to recover any thing more than the amount actually advanced, and the legal interest thereon, when the real riature of -the transaction is established by evidence dehors the contract. For that is an answer which applied to all cases of usurious contracts, even before the statutes which allowed the party, from whom such a contract had been obtained, to come into this court for discovery or relief without paying or offering to pay the amount equitably due. And the usurer will always run the risk of the loss of his extra premium, by a bill for the disocovery of the real nature of the transaction, if he is permitted to make his contract in such a form as to secure the amount of the money advanced and the legal interest thereon at all events; with the chance of recovering the usurious premium also, unless the needy borrower, or the more unfortunate surety who has become responsible for such premium, shall think proper to subject himself to the expense of a suit here to get rid of the usurious premium merely.

The agreement for the assignment of the bond and mortgage, referred to in the pleadings in this case, and for the giving of the bond guaranteeing the payment thereof, being usurious, the decree of the assistant vice chancellor dismissing the complainant’s bill must be reversed. And in conformity with the directions contained in the fifth section of the act of 1837 to prevent usury, (Laws of 1837, p. 487,) a decree must be entered declaring that assignment, and the bond executed simultaneously therewith, inoperative and void, and ordering the same to be delivered up to the complainant and cancelled; and granting a perpetual injunction against any suit commenced, or hereafter to be commenced, upon such assignment or bond,

         The decision of the chancellor in this case was reversed, upon appeal to the court for the correction of errors, in December, 1842. (See 4 Hill’s Reports.)


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    The American Insurance Company vs. Oakley and others.
    As a general rule, when a suit is commenced or defended by a solicitor of the court, or any other proceeding had therein, the court does not enquire into his authority to appear for his supposed client.
    But where the party for whom the Solicitor appears denies his authority, and applies to the court for relief before the adverse party has acquired any rights or suffered any prejudice in consequence of the acts of such solicitor, the court may correct the proceeding, and compel the solicitor to pay the costs, to which the parties have been subjected in consequence of his improper in. terference.
    If the adverse party however has acquired rights, or been subjected to costs, by proceedings in the name of a party who denies the authority of the attorney or solicitor who commenced such proceedings, and the attorney or solicitor is solvent and responsible, the court usually allows the proceedings to stand; and leaves the party injured to his remedy against such attorney or solicitor, by a summary application to the court or otherwise.
    A corporation may be bound by the acts of its agents, although such acts have not been authorized by a deed or power in writing under its corporate seal, or even by a written instrument not under seal, except in cases where by the statute of frauds or otherwise the contract, if made by a natural person, must be reduced to writing to be valid.
    The acts and assent of corporations, like those of individuals, may be inferred from other facts and circumstances although such acts or assent are not evidenced by writing.
    Where the president of a corporation authorizes an attorney or solicitor to prosecute or defend a suit, or to commence any legal proceeding in which the corporation is interested, the attorney or solicitor will be authorized to appear for the corporation, and such corporation will be bound by his acts as their attorney or solicitor. And if the president exceed his authority in retaining such attorney or solicitor, the corporation must look to him for any damages sustained in consequence of such unauthorized act.
    Where a purchaser at a master's sale has been prevented from completing his purchase, and has been kept out of the possession of the premises and out of the receipt of the rents and profits thereof, by an appeal from an order denying a motion for a resale, the appellant, upon the reversal of the order, will be required to fulfil his offer to give an increased price on a resale; so that the former purchaser may be enabled to obtain the interest of his purchase money which has been lying idle in the meantime.
    An appeal from an order refusing a resale of the premises will not of itself prevent the purchaser from completing his purchase. And the appellant is not entitled to an order staying the purchaser from completing his purchase, and taking possession of the property without giving security for the payment of the rents and profits of the premises in the meantime, and that no waste shall be committed.
    April 5.
    This was an application on the part of the Seneca County Bank to set aside an order made upon the appeal in this cause, upon the ground that the original application to the vice chancellor for a resale, and the appeal from his decision, had both been made in the name of the corporation without its authority or consent. And a cross application was made on the part of the purchaser at the master’s sale to amend the order made upon the appeal, which had been settled ex parte, and by mistake was entitled in the name of a different corporation from that which was the complainant in this suit. Notice of the application to set aside the proceedings upon the appeal as unauthorized, was directed to be given to W. S. Sears, the solicitor whose name was subscribed to the petition to the vice chancellor and to the notice of appeal j and also to Dodge who had signed and sworn to the petition as attorney in fact for the bank.

      S, Stevens, for the Seneca County Bank.
    0. Allen, for Rosevelt, the purchaser.

      J. Rhoades, for the complainants in the suit.

      J. Edwards, for Sears, the solicitor of the petitioners.
   The Chancellor.

The decree upon the appeal being wrongly entitled, it is a matter of course to amend it in that respect. But as it appears to have been settled ex parte, without giving the solicitor for the appellants an opportunity to propose amendments to the same, if it is wrong-in any other respect it must be corrected, so as to render it conformable to the decision of the court upon the appeal. In other words, to make it such a decree as the appellants and respondents were entitled to upon the facts of the case, consistently with the principles of that decision. Before settling the form of the decree, however, it will be necessary to dispose of the application to set aside the whole proceedings as unauthorized, which have been carried on in the name of the bank.

As a general rule, when a suit is commenced or defended, or any other proceeding is had therein, by one of the regularly licensed solicitors, it is not the practice of the court to enquire into his authority to appear for his supposed client. But if the party for whom such solicitor appears, or assumes to act, denies his authority, and applies to the court for relief before the adverse party has acquired any rights or suffered any prejudice in consequence of the acts of the solicitor, the court may correct the proceeding; and may compel the solicitor who has assumed to act without authority to pay the costs to which the parties have been subjected in consequence of his improper interference. (Wright v. Castle, 3 Mer. Rep. 12. French v. French, 4 Law Rec. N. S. 123. Lord v. Kellett, 2 Myl. & Keen's Rep. 1.) In cases, however, where the adverse party has acquired rights, or been subjected to costs, by proceedings in the name of a party who afterwards denies the authority of the attorney or solicitor who has thus proceeded, the courts are in the habit of permitting the proceedings to stand, where the solicitor or attorney is a responsible man; and leaving the party injured by such unauthorized proceedings in his name to seek his redress against such solicitor or attorney, by a summary application to the court, or otherwise. (Dundas v. Dutens, 1 Ves. Jun. 196. Denton v. Noyes, 6 John. Rep. 297. Cox v. Nicholls, 2 Yeates' Rep. 547. Ex parte Stuckey, 2 Cox’s Ca. 283.)

In the present case there is no pretence that the solicitor, who acted for the appellants in presenting the petition to the vice chancellor for a resale of the mortgaged premises, and who brought the appeal to this court and obtained a decision in their favor, is not perfectly able to respond in damages to them if he has acted without authority. It is not necessary therefore for the protection of their rights that the proceedings which have been carried on in the name of the corporation should be set aside as unauthorized, even if the want of authority on the part of the solicitor was fully established._

Upon a full examination of all the facts in the case, I have also arrived at the conclusion that the solicitor had such an authority from the officers of the bank as not only to make his acts in this matter binding upon the corporation, but also to protect him from any claim for damages on account of these proceedings which have been instituted and carried on in its name and for its apparent benefit. There is no ground for believing that the solicitor has not acted in perfect good faith in this matter, not only in presenting the petition to the vice chancellor, but in prosecuting a successful appeal to this court from his decision against the application for a resale of the mortgaged premises. Although subsequent events have rendered it doubtful whether the mortgaged premises would be worth more to the bank than the amount of Rosevelt’s bid, together with the interest and costs, &c. it is very evident that when the petition was presented to the vice chancellor, and at the time of the appeal, all parties believed the premises had been struck off to Rosevelt for several thousand dollars below their fair value. And as the bank had recently redeemed the premises from the sale under an intermediate incumbrance, for the purpose of protecting their interest in the equity of redemption, it was apparently for the interest of the corporation to have a resale, that they might obtain the benefit of the surplus moneys which it was supposed such a resale would produce. Under these circumstances Dodge, who appears to have had some interest in the question, wrote to the president of the bank for authority to institute proceedings before the vice chancellor for a resale. In answer to which letter he received the written power, signed by Fellows as such president, authorizing Dodge to present a petition in behalf of the bank for a resale, and to offer an advance of $5000 upon the former bid, and do every other act in the premises which he might deem necessary, &c. Upon the faith of this power Dodge presented the petition to the vice chancellor, as the attorney in fact for the bank, in its corporate name, swearing that he was authorized to present the same as such attorney. And Sears, as solicitor for the petitioners, countersigned the petition and signed the notice of appeal. It also appears that a few days after, Clark, one of the directors of the bank, was at the office of Mr. Sears, with Dodge, and was informed of what had been done ; and concurred in the propriety of appealing from the decision of the vice chancellor, without waiting to send to Seneca county for the purpose of obtaining further directions from the officers of the bank on the subject.

By the ancient common law, corporations aggregate were considered incapable of making contracts, or of appointing agents or attorneys to do any binding acts, except by a deed or power in writing under their corporate seal. But the existing law on the subject is, that a corporation may be bound by the acts of its agents although not under its corporate seal, and even where they are not reduced to writing ; except in those cases where by the provisions of the statute of frauds or otherwise a contract must be in writing to render it valid, if made by a private person. And the acts and assent of corporations, like those of individuals, when not reduced to writing, may be inferred from other facts and circumstances without a violation of any known rule of evidence. In the case of Perkins v. The Washington Insurance Company, (4 Cowen’s Rep. 645,) the president of the corporation in communicating instructions to an agent, authorizing him to receive premiums and agree to make insurances, was considered as acting by the authority of the corporation until the contrary was shown. So in this case the written power, signed by the president, authorizing Dodge to take the necessary steps to obtain an order for a resale of the mortgaged premises, to protect the interest of the bank in such property, was sufficient to authorize Dodge to present the petition, and to enter the appeal, and to employ Mr. Sears to conduct the proceedings as the solicitor and counsel for the corporation. And if the president exceeded his authority, in giving such power, the corporation should look to him for any damage it may have sustained by this act of his.

It is a matter of every day’s occurrence for the presidents or other head officers of corporations to employ and retain attorneys and counsel to prosecute or defend suits, or to assist in legal proceedings in which the corporation is interested. And I doubt whether it is usual for members of the bar to take the precaution to inquire, when they are thus retained, whether there has been a formal resolution of the board of directors authorizing his retainer in the suit. I am also satisfied in this case that the directors, as well as the president of the bank, must have been aware of the fact that an application for a resale was to be made, or had been made, long before there was any attempt to repudiate the authority of the agent who had employed Mr.

Sears to conduct the proceedings. And if the scarcity of money, and the consequent depression in the value of the property, had not rendered it inexpedient for the hank to assume the payment of the increased amount offered upon the resale, I think no one would have questioned the authority given by the written power, of the 2d of June, 1841, in this matter. The application of the corporation, so far as Sears is concerned, must be dismissed with his costs of attending to oppose the same.

The only remaining question is as to the settlement of the decree in conformity with the decision upon the appeal. By referring to the opinion which was delivered upon reversing the decision of the vice chancellor, I see that I took it for granted that the actual value of the property exceed* ed the amount of the bid to such an extent that the appellants would still be willing to make the advance they had originally offered, and that the purchaser would be anxious to keep the property at the amount which he had agreed to pay for it. It appears, however, that both parties have altered their opinions as to the real value of the property, and that its value has in fact depreciated since the decision of the court upon the appeal. For the counsel of the purchaser, at that time, was still anxious to sustain the decision of the vice chancellor refusing a resale. If the respondent was right in supposing that he had been prevented from completing his purchase, and had been kept out of the possession of the property and the receipt of the rents and profits thereof by the appeal, I am inclined to think it would be the duty of the court to compel the appellants to make good their offer of an increased price upon a resale of the property, in order that the former purchaser might be enabled to obtain a remuneration for his loss of the interest of his purchase money, which is supposed to have been lying idle in the meantime.

But I cannot find any thing in the papers to show that the purchaser was prevented by any order of the court from paying the balance of the purchase money and taking the master’s deed pending the appeal, and entering into the possession of the property. For an appeal from am order refusing a resale would not of itself have the effect to prevent the purchaser from completing his purchase. The appeal only stayed the proceedings upon the order appealed from. And the appellants were not entitled to an order staying the purchaser from completing his purchase, and taking possession of the property in the meantime, without giving security for the rents and profits of the premises and that no waste thereof should be committed pending the appeal. After the appeal was determined against the purchaser he could not indeed have been permitted to go on and complete his purchase during the twenty days allowed to the appellants for complying with the condition upon which the resale was granted. But if the respondent was then anxious to keep the property, there was gross negligence in not drawing up the order immediately and serving it upon the solicitor of the appellants; so as to deprive them of the benefit of the decision in their favor if they did not comply with the terms of the order within the time limited for that purpose. There has been also great negligence in suffering the insolvent mortgagor to retain possession of the property, and to receive the rents and profits pending this litigation, if he has been permitted to do so ; instead of having a receiver appointed to receive the income of the premises until the question in controversy between the purchaser and the bank should be settled. I see no grounds, therefore, which can justify me in settling the decree different from the terms of the decision as contained in the written opinion delivered upon the appeal, with the addition of a clause that if the appellants do not deposit the $5000 within the twenty days, the appeal be dismissed, with costs to be paid by the appellants to the purchaser and also to the complainants’ solicitor ; including likewise the taxable costs of both those parties upon the application to set aside the proceedings on the appeal.


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    The Village of Seneca Falls vs. Matthews.
    Where the complainant gives notice to the adverse party of an application to the court for a preliminary injunction, or where the defendant is required to show cause why such injunction should not be granted, whether a temporary injunction is or is not allowed in the meantime, the defendant may introduce affidavits in opposition to the application for the injunction.
    Under the act of 1817, incorporating the village of Seneca Falls, the street commissioners of the several wards are the proper persons to superintend the building of bridges ordered by the trustees to be built therein; and to make contracts for materials and labor, subject to the ratification of the-trustees.
    Where the street commissioner neglects his duty, by refusing to superintend' the improvement or to cause it to be made in the manner directed by the ordinance of the trustees, or where he neglects to make contracts for labor or materials and to submit such contracts to the trustees for their approval, their remedy is to proceed by indictment for such neglect of dutya or by an application to the supreme court for a mandamus.
    It is no ground for an injunction to restrain the street commissioner from making an improvement, ordered to be made in his ward, that his contracts for labor and materials have not been ratified by the trustees. For if the contracts are invalid, for that reason, the inhabitants of the village will not be liable for the expense of the improvement.
    April 5.
    This was an appeal from an order of the vice chancellor of the seventh circuit. The bill was filed to determine the right of the defendant, as street commissioner of the second ward of the village of Seneca Falls, to superintend the building of a bridge in the said ward, and to contract for the work and materials necessary for the same. The vice chancellor made an ex parte order to show cause why an injunction should not be granted according to the prayer of the bill, and allowed a temporary injunction in the meantime. And upon hearing of the parties he ordered the injunction to be continued until the further order of the court, and that the defendant pay twenty dollars costs of opposing the application. From this order the defendant appealed.

      D. Cady S¡- D. Wright, for the appellant.
    Jlf. T. Reynolds cf- W. Ji. Saclcett, for the respondents.
   The Chancellor.

The vice-chancellor erred in refusing to permit the defendant to read affidavits in opposition to the application for the injunction. Where a preliminary injunction is granted absolutely in the first instance, and the defendant asks to have it dissolved upon the ground that the whole equity of the bill is denied by the answer, it is not the practice to allow him to read affidavits in support of his answer, except in those cases where the answer itself is not conclusive, under the last clause of the 37th rule. But where the complainant is directed to give notice of his application for an injunction, or where the defendant is required to show cause why a preliminary injunction should not be granted, whether a temporary injunction is or is not allowed in the meantime, the defendant has a perfect right to introduce his own or any other affidavits for the purpose of showing that the injunction should not be granted as asked for. And he may use such affidavits, in a case of that kind, although he has put in his answer denying the whole equity of the complainant’s bill; or has neglected to answer the bill fully, so that his answer is liable to exceptions for insufficiency. For upon an order to show cause why an injunction should not be granted, the answer, if put in, is only used as a sworn statement or affidavit, on the part of the defendant, in opposition to the complainant’s application.

Whether this is a proper case for the interference of this court by injunction, even if the complainants are right in their construction of the village charter, is a question which it is not necessary now to determine. For I am satisfied, from an examination of the provisions of the statute, that the street commissioner of the second ward was the proper officer to superintend the building of the bridge, and to make contracts for the work and materials therefor, subject, however, to the ratification of the trustees. This power is expressly given to him by the 30th section of the village charter. (Laws of 1837, p. 240.) The 39th section, which gives to the trustees the general power of commissioners of highways, ftiakes such powers subject to the provisions of that act. Their powers, therefore, are subject to the provisions of the 30th section, which section gives to the street commissioner of each ward the superintendence of all public improvements ordered by the trustees in his ward, and the right to contract for labor and materials therefor subject to the ratification of the board. Having the general powers of commissioners of highways, the trustees are unquestionably authorized, in ordinary cases, to direct what improvements shall be made, the form and manner of the improvement, and the nature of the materials to be used in making the same ; subject to the special provisions of the 41st section of the village charter in relation to improvements made by an assessment upon a particular ward. But after they have done so it is the duty of the street commissioner of the ward in which such improvement is ordered to be made, to superintend the making thereof in conformity with such determination of the trustees. All his contracts for labor and materials, however, .in order to be binding upon the corporation, and to enable the persons with whom he contracts to obtain compensation therefor out of any funds in the hands or under the control of the trustees, must be ratified by the board of trustees. And if he thinks proper to make contracts for labor and materials upon his own authority exclusively, or to expend his own money in making the improvement, or in paying the contractors, without the previous sanction of the board of trustees, he must of course bear the loss.

Where the street commissioner neglects his duty, however, by refusing to superintend the improvement, and to make it in the manner previously directed by the trustees, or neglects to make contracts for the labor and materials and to lay them before the board of trustees for their approval, the remedy is by an indictment, for a neglect of his duty in this respect, or by an application to the supreme court for a mandamus to compel him to do his duty. But the trustees have no right to restrain him by injunction from making the improvement at his own expense, and without any valid contracts for labor or materials, if he is unwise enough to do so.

Being satisfied that the claim of the trustees to contract for the work and materials and to assume the exclusive control of the building of this bridge themselves, cannot be sustained, and that there were no sufficient grounds for the interference of this court by injunction, the order appealed from must be reversed. And the order to show cause must be dismissed with costs to be taxed, including the costs on this appeal; and the temporary injunction must be dissolved.