text:
    Augustus Laurent versus The Chatham Fire Insurance Company of the City of New-York.
    August Term 1828.
    A building erected upon a lot of land in the City of New-York, by the plaintiff, who had leased the same for a term which was to expire on the first of September, 1827, was insured by the defendants to the amount of $800. The lessee had the power;of renewing the lease on its expiration, or of removing the building from the premises at his option. The building, if suffered to remain, was worth about $1000, but if removed not more than $200. It was destroyed by fire, on the 15 of August, 1827, at which time the lessee had given the lessor no notice of any intention to renew the lease. Held, nevertheless, as the building at the time of its destruction was worth $1000, as it stood upon the premises, that the plaintiff was entitled to recover the full amount of Ms insurance upon it.
    This was an action of assumpsit on a policy of insurance against fire, upon a certain building in the City of New-York, upon which the defendants had underwritten to the amount of eight hundred dollars.
    The defendants pleaded the general issue ; and the cause was tried before Mr. Justice Hoffman on the 11th day of July, 1828.
    At the trial the execution of the policy, and the delivery of the preliminary proofs to the defendants, on the 26th day of September, 1827, were severally admitted, and the plaintiff then proved that the premises insured were destroyed by fire on the 15th day of August of the same year. He also proved, that the-building insured was erected by himself atan expense of $1100 and upwards, and that it was actually worth at the time of its destruction, more than the sum insured upon it. The building was erected for, and used as a cow-house or stable, with a grocery store at one end of it, and had no foundation fixed in the ground.

    The plaintiff having here rested his cause, the defendants proved that the said building was erected on a lot of ground which was the property of Mr. John R» Livingston, who had demised the same to the plaintiff for a term which expired on the first day of September, 1827, by a regular written lease, contain» ing a covenant for its renewal. Mr. Livingston being examiued as a witness, testified that the plaintiff had not given notice 0f ¿esire to renew the lease under the covenant, and that the lease had not been renewed. He also stated, that he had , , , . „ , . . ,, t agents who attended to the management of his property m that part of the city where these premises were situated, and he could not say what arrangement had been made between his agent and the plaintiff relative to the lease. He also testified, that he had no interest in the building destroyed, and had so informed the attorney of the defendant when called upon by him after the fire.
    The plaintiff then called a witness as to the value of the premises, who testified that the building insured was worth about $1000, but that it probably cost more than that sum. If, however, it were necessary to remove the building, the witness said he would not give more than $200 for it.
    Upon this state of facts, the counsel for the defendants submitted to the presiding judge, that, in as much as the plaintiff had no interest in the lot on which the building was erected, except during a term of which only fifteen days remained at the time of the fire, and in as much as the value of the building if removed was only $200, the plaintiff could not be entitled to recover $800, as an indemnity for his loss.
    But the judge ruled, that as it had been proved that the building had cost the plaintiff upwards of $1100, and was worth at •the time of its destruction, according to the testimony of all the witnesses, at least $1000, and as there were several vacant lots in the immediate vicinity upon which it might have been placed, even if the plaintiff had not renewed his lease under the covenant; and in as much also, as the defendants must be presumed to have made the insurance in question with a knowledge of all the circumstances, the plaintiff was entitled to recover the full amount insured, together with interest on that sum. To this opinion the counsel for the defendants excepted.
    The jury returned a verdict for $#00 in favor of the plaintiff The defendants now moved for a new trial, and Mr. Jay, in support of the motion contended, that the question, as to the loss* ought to have been submitted to the jury. The contract, he insisted, was a contract of indemnity merely, and if the plaintiff’s property was not worth to him at the time of its destruction more than two hundred dollars, he could not recover beyond that sum, even if the building were intrinsically worth eight hundred dollars when suffered to remain upon its foundation.
    The true question was, as to the value of the building to the plaintiff under all the circumstances of the case % It was erected upon leased premises, and if removed, three-fourths of its value would be destroyed. The lease, it was true, contained a covenant thereby it might have been renewed upon certain terms, but there was no proof of any agreement or arrangement for its renewal. The case stood then as if the plaintiff were obliged to remove his building at the expiration of his lease; and in that event it was clearly proved that the property would not have been worth more than $200. The jury having, therefore, found toy large a sum by their verdict, there ought to be a new trial t,o rectify their mistake.

      Mr. Charles Graham, for the plaintiff contra, contended,
    1. That the policy was to be considered as a valued policy, and the insurance being for a limited time, a loss of the interest of the assured within that period, constituted, under the circumstances of the case, a total loss.
    He admitted that the policy was a contract of indemnity, and that it ought to be construed liberally, so as to meet the intentions of the parties. [2 Con. Mar. 788.] But here the jury actually passed upon the damages sustained by the plaintiff, and their verdict ought not to be disturbed. The defendants fixed the amount which they were willing to underwrite upon the building, and they could not now be permitted to controvert it, by proof which was merely speculative upon its value.
    The building was intrinsically worth more than the sum insured, and the defendants could not assume that within a given period, the plaintiff would have been compelled to incur expenses, in relation to it. It is enough, that the building was worth the amount of the verdict, and that is the measure of the plaintiff’s loss. It is a common practice in New-York to insure buildings erected on property leased for a limited term, and by analogy to marine policies the defendants were bound to pay the whole value of the building. [9 Mass. Rep. 85. Phillips on In. 162. 11 J. R. 358. 1 J. Cas. 141. 2 Atk. 554.]
   Jones, Chief Justice,

delivered the opinion of the court.

This was an action, upon a policy of insurance in the usual form, against loss and damage by fire.

The policy and preliminary proofs were admitted, audit was proved that the building covered by the policy was destroyed by fire, within the term for which the same was insured, and the question turned upon the amount which the assured was entitled to recover.

It appeared in evidence that the building stood upon a lot of ground in the City of New-York, which belonged to J. R. Livingston, who had leased the same to the "plaintiff fora term, which expired on the first day of September 1827, and that the lease contained a clause, entitling the lessee to a renewal upon the terms expressed therein.

The lessor, who was called as a witness, testified that the lease had not been renewed, and that the plaintiff had not given any notice of his desire to renew the same ; but he further stated, that the management of the property was under the charge of agents, and he could not say • what arrangements might have been made in relation to the renewal of the lease. The premises consisted of a cow-house or stable, which stood on the surface of the lot, without any foundation sunk or fixed in the ground, and in one end of which there was a grocery. The building was erected by the assured himself. It cost about $1100, and was at the time of its destruction by the fire worth more than the sum insured upon it. The testimony was, that as it stood upon its location at the time of the fire, the value of it was about $1009 ; but one witness for the defendants stated, that if it had been ne- ' cessary to remove it from the lot, he would not have given more than $200 for it.

Upon this testimony the question was, whether the assured was entitled to recover the whole amount of the sum insured, the same falling short of the intrinsic value of the tenement, or whether he was to be restricted'to the $200, as the value of it under the circumstance of its being to be removed from the premises. The judge held him entitled to recover the full amount of his insurance, and we are now to decide upon the soundness of that opinion.

The claim is by the lessee, upon a contract for insurance against loss and damage by fire, to a building erected by him upon the leasehold premises; a total loss has happened by fire during the term for which the premises were leased ; the value of the building at the time of the loss exceeded the sum insured upon it, and the assured is therefore entitled to the full amount of the insurance towards his indemnity, unless the objection of the defendants is to prevail. The defendants object that the term was about to expire, and no notice had been given of an intention to renew the lease, that the building whs therefore to be removed, and that the value of it subject to removal is the measure of the loss, and the amount to be recovered as an indemnity.

It is certainly true, as a general rule, that the policy of insurance is a contract of indemnity, and that the actual loss upon an open policy is the measure of the indemnity to which the assured is entitled. But will that rule, if applied to this case, sustain the defence 1 The plaintiff insists that this is not an open policy ; and if he is correct in that opinion, and the contract is to be deemed a valued policy, there could be no longer any question of his right to recover to the full amount of his insurance. But I cannot accede to that opinion. The cases to which we are referred for the support of it, so far from sustaining the proposition, are decisive against it, and proceed upon the basis that insurances against loss by fire are open policies upon interest, and protect the assured to the extent only of his insurance on his interest in the premises.

In the two leading cases [Lynch and another v. Dayrell, and another, 3 Bro. Parl. Ca. 497. and the Sadlers’ Com. v. Badcock and others, 2 Atk. 554.] it is held, that policies against fire are not insurances of the specific things mentioned to be insured, and which attach to the realty or pass with the same as incident thereto by assignment, but that they are special agreements with persons insured, against such loss or damage- as they may sustain by the destruction or partial damage of the thing upon the insurance is predicated ; and it follows, that the party for whom the insurance is made must have an interest in the premises at the time of the insurance, and at the time of the loss, or he can sustain no loss against which the contract will entitle him. to indemnity: but it does not follow as a consequence of that attribute of the contract that the policy must be a valued policy; or, in other words, that the sum in which the owner is insured is the sum which he will, in case of a total loss, be entitled to recover. The reverse would be the more natural inference, that the recovery of the assured must be regulated by the value of the property: for if the policy be a personal agreement to indemnify him against loss or damage, -his claim will be satisfied by the reimbursement to him of the actual value of the property at the time, which is the true amount of his loss by the peril, and such I understand to be the doctrine of those cases. In both of them the policy is held to be a contract to make good the loss which the contracting party himself should sustain; but no intimation is given of the right of the assured to the specific sum mentioned in the policy in the case of a total loss, as liquidated damages, or an agreed indemnity. On the contrary that sum is treated as the extent of the insurer’s liability, and not as the measure of the assured’s claim. The same language is spoken by the policy before us. The assured is, by the terms of the contract, insured against loss or damage by fire to the amount of $800, on the building described in the policy. ! The insurance is against the .loss or damage which the party interested in the premises may sustain, whatever the loss or damage may be, provided that it does not exceed $800, to which the indemnity ¡is limited. It is not a ■ contract to pay that sum in case of ■loss, nor .a stipulation that the value of the premises shall, in SUch case, he estimated at that sum. The undertaking is to pay the amount of the actual loss or damage, but with the restriction of the amount of the payment to the sum mentioned in the policy. This intention of the parties is not left to the construction of the terms in which the premises are expressed to b.e insured. The specific agreement of the company which immediately follows in the next clause of the policy fully explains the sense in which the previous terms are used. By that agreement the company promise and agree to make good to the insured, or his personal representatives, all such loss or damage, not exceeding in amount the sum insured, as shall happen by fire to the property specified in the policy during the continuance of the insurance, the loss or damage to be estimated according to the true and actual value of the property at the time the fire shall happen. These stipulations are general, and apply equally to every species of loss or damage, totajas well as partial, fand exclude all pretension to the claim of the sum mentioned fiicy in anease as a valuation of the subject of the insurance, or as liquidated 'damages recoverable by the insured. The printed conditions annexed to the policy, and declare dio be explanatory of the meaning thereof requiring the persons 'sustaining loss or damage by fire, to give notice thereof to the company, and to deliver in a particular account of such loss or damage, signed and verified by oath, and supported, if required, by the books or proper vouchers, conclusively show the contract to be understood by the parties as an open policy, and conclude the assured from claiming satisfaction beyond the actual value of the property he loses by the fire at the time of the loss.

The same principles apply to marine insurances. The policy is a personal contract, and when made on the assured’s own account, the terms of it are that the assured causes himself to be insured, and makes insurance in a given sum, for a specific voyage, or term of time upon the ship or the goods on board of her, against the perils of the sea, and other enumerated risks. And the policy in this form, thus clearly resembling that of the fire policy now before us, is always understood, and held to be an open policy, and to entitle the insured in case of loss, whether total or partial, to an indemnity and recompense to the amount of his actual loss by the perils from which the contract professes to protect him. There may be insurable interests, such as profits in the case of Mumford v. Hallet, [1 Johns. Rep. 433.] for example, which must of necessity be regarded as valued at the amount insured upon them.. And in such cases the policy must be considered a valued, and not an open policy ; but there are ex-to the rule. To make the contract a valued policy, and substitute an agreed valuation of the ship or goods insured for the actual rvalue of them, to be ascertained by proof, as the rule of damages, or measure of the indemnity in case of loss, a special agreement of the parties is as a general rule, required; and a clause is in such cases inserted in the policy, expressing the agreement that the subject insured shall be valued at the sum insured, or a specific sum specially mentioned. And assuming that the principle of valuation may, by the mutual agreement of the parties, be applied to an insurance against loss or damage to property by fire, still the policy must be specially adapted to the case, and must express on the face of it the assent of the parties to the valuation agreed upon between them.

This policy contains no such agreement or valuation, and has no feature of a valued policy. The assured cannot recover any greater satisfaction for his loss than the actual value of the building which was destroyed by the fire at the time of its destruction. But his contract would entitle him to recover the full value of that building at the time of the loss, if the full amount was covered by the policy. And if the actual value exceeds the sum insured, he will of course be entitled to the whole amount of the insurance towards his indemnity. This general proposition, as applicable to open policies, is admitted by bdth parties. They differ upon the rule, or principle of valuation; the insured insisting upon the full intrinsic value of the building as the standard, but the company contending for the relative value of it to the owner, subject to removal from its location at the time of the fire, as the just measure of the indemnity to which he is entitled.

The judge ruled that the intrinsic value of the building at the time was the true measure of the loss within the meaning of the contract of indemnity, and we concur with him in that opinion. The actual value of the premises insured is the standard which the policy obviously contemplated for settling the loss, and adjusting the indemnity. .The agreement is to make good the loss or damage to the property by the fire, and the estimate of that loss or damage is to be according to the value of the property a¡t the time the loss occurs; and the conditions annexed, to which the policy refers for the explanation of its meaning, are too clear to admit of any other interpretation. A particular account of the loss or damage is to be given in ; and the value of the property, if in question, is to be ascertained by the books of account and vouchers of the claimant, which are to come in aid of the estimate of the value of the property at the time of the loss.

But it is said that the policy is a contract of indemnity, and that the principle of indemnity which pervades the insurance must controul the construction of the policy; aúd upon that principle it is insisted, that the value of the property to the assured at the time of the loss, circumstanced as it may then be, in reference to his use and enjoyment of it, is the loss he sustains by the destruction of it, and must he the measure of his indemnity for the loss. It will at once be seen, that if this principle of indemnity is to be admitted, the extent and value of the recovery will in every case vary with the special and peculiar circumstances of the insured, and the local advantages or disadvantages of the building, and the uses to which it is applied; and the intrinsic value of the building, will form no criterion of the loss of the proprietor in case of its destruction. A building, for example, which the necessities of the owner compel him to offer at public sale, for ready money, will be worth to him no more than what it will produce at such a sale, and a building for which there happens to be great competition, will command a much larger price than its true value. Are these incidental and collateral circumstances to enter into the estimate of value under the contract of insurance, and give the rulé of indemnity to the proprietor for the loss of the building 1 Two houses, of equal value may, from their local situation, be very unequal in the revenues they produce to the proprietors; would the loss of them, if destroyed by fire, entitle the proprietors to different indemnities in proportion to the rents, or revenues of the tenants % Would the insurers be compelled to pay double the amount of the cost of the profitable stand, because the location of the tenement made it of that value to the owner, and yet be compellable to pay for the loss of the other tenement, the one half only of its actual cost, because from its unfavourable location, or from some popular prejudice it would sell for no more than one half of its value 1 It is the tenement upon which the insurance is made; and the actual value of it as a building, is the loss of the insured in case of its destruction by fire. To that measure of indemnity the proprietor is entitled, however unproductive the property may be, and he is entitled to no more, whatever revenue he may have derived from the tenement.

The obligation of the contract, then, is to pay the insured the actual value of the tenement as a building, or a proportion of its value, equal to the sum insured upon it in case of the destruction of it by fire within the term for which the policy protects it, for his indemnity for his loss. The policy in terms, refers to the true and actual value of the property at the time of the loss, and makes that value the standard by which to estimate the loss or damage which the insurer is hound to satisfy, and the insured is entitled to claim. This agreement cannot be otherwise understood than as binding the parties to the intrinsic value of the property at the time of its destruction, as the rule by which the indemnity is to be measured, without reference or regard to any special and adventitious circumstances which may enhance or diminish the relative value or importance of it to the insured. It is the true and actual value of the tenement itself at the time, independently of its location, or the insecurity of the title, or ■ terms by which it is held that the insurers agree to make good to the present proprietor in case the loss or damage by fire happens during the continuance of his ownership, and within the term of the insurance. It is of no importance, whether the tenement stands upon freehold, or upon leasehold ground, or whether the lease is about expiring, or has the full time to run when the fire occurs, or whether it is renewable or not. The condition of the policy is satisfied if the title and ownership are in the insured at the time of the insurance, and at the time of the loss, and the measure of his indemnity is the atnount of his interest in the tenement when destroyed by the fire, notwithstanding that the whole interest would have expired the very next day, of soon after the loss occured. But whether there may not be incidents, and special circumstances so intimately connected with the premises, or so permanently attached to them as to affect their intrinsic value, or the insurable interest of the party, who effects the insurance upon them, I am not prepared to say; and it is not material to the decision of the question before us to inquire, for this clearly is not such a case. In this case the tenement belonged exclusively to the insured, and the lease of the lot upon which it stood had 15 days to run, and was moreover renewable. The true and actual value of it exceeded the sum insured upon it, and the loss of it by the fire was absolute and total, and took place within the term for which it was insured. The sole ground of objection to the right to recover the full amount of the insurance is, that the lease was about expiring, and had not been renewed, and it did not appear that the notice required by the lease to entitle the holder to a renewal had been given; and on these grounds the recovery is sought to be limited to the value of the building as a tentment to be removed from the premises. But if that contingency could in any supposable case be brought into the calculation, and suffered to reduce the insurable interest, or the claim to indemnity for the actual loss of the budding by the fire, (which if I am right in my conclusions on the point, would be wholly inadmissible,) still it would not follow that in this case such deduction could be made, for it is not reduced to a certainty that the lease would not have been renewed. Application may have been made to the agents for renewal; or if the time limited for the renewal as a matter of right had been suffered to elapse, the lessee might within the remaining fifteen days of the subsisting term have made an arrangement with the landlord for the continuance of the lease, or he might have sold the tenement to his successor or to the landlord; or, the tenement, which from its construction, not having any foundation or fixture attaching it to the sod was capable of removal, might have been removed to one of the vacant lots in its immediate vicinity of which it appears in proof there were several. In any one of these contingencies the tenement which is found to have been worth upwards of $1000, might well have produced to the owner of it the sum of $800 insured upon it by the defendants. The plaintiff, by the total destruction of it by the fire, lost the means of availing himself of the sale, or the removal 0f it, and may have been compelled by the loss of the building to relinquish the right reserved to him to renew and continue the lease. Besides, if it had been reduced to a certainity that the lease was not to be renewed, and that the building was to be sold or removed, what proof is there that the avails of it if sold, or the value of it if removed to a contiguous lot, would not have been equal to.the sum insured upon it 1 only one witness has been examined to the point, and he simply testifies that he would not have given more than $200 for the building, if it had been necessary to remove it; but to give his testimony decisive weight, he should have stated, what the probable expense would have been to remove it to the adjoining lot, and what its value in such new location would have been; because, if offered for sale, the owner of the contiguous vacant lot might have competed for the purchase of it for that purpose. But witnesses testifying to the point under the most favourable circumstances could only speak from opinion, and the value they would put upon a tenement so circumstanced could be no more than estimates, which would vary with the opinions and views of the witnesses. The value of the building to Dodge, the witness who was examined, for example, would be much less than it would be to the new tenant, who should succeed the plaintiff or the landlord who owned the lot on which it stood, or to the owners of the vacant lots in its immediate vicinity. Are such estimates then a just criterion for the measure of the indemnity of the insured for his loss 1 He was clearly entitled, even upon the principle the defendants would apply to his case, to the price his building would have sold for. What sum it would have produced on a sale of it cannot now be known; but as the fair value of it to himself, if he had continued in the tenure of the premises, or to the tenant who might succeed him, or to the landlord, exceeded the amount of the insurance, he has a just claim upon that principle to a full recovery.

In another view of it, the rule contended for by the insurers would he unequal and' unjust in its operation. The insured pays the premium upon the whole sum, and he insures for the entire risk of the property to that amount, during the whole term of the policy. He has a right, therefore, to claim the amount he thus insures, if he loses property of that value by the peril, during the continuance of the risk : but if other considerations are to . . . enter into the calculations of value, and he is to be paid at a reduced rate, because in certain contingencies the property might fail to produce to him the full value of it as it stood at the time of the loss, he will not have the full benefit of his insurance6 for which he has paid the full premium.

These views of the practical results of a speculative calculation of damages on the principles for which the defendants contend, present to us powerful considerations for preferring the true and actual value of the building as the standard of indemnity.

The intrinsic value of the tenement, as a building at the time of the loss, is not a matter of mere Estimate, but is susceptible of proof. The 9th condition attached to the policy prescribes the form and substance of the proofs required of the claimant to entitle 'him to payment, and the true and actual value of the property at the time of the fire, is the rule by which the amount-of the loss or damage is to be estimated and settled. The rule is uniform and rational; it is in accordance with the letter and spirit of the contract, and administers equal justice to the parties. It was in my judgment rightly applied to this case, and accordingly the motion for a new trial must be denied.

[C. Graham, atty for plff. J. Anthon, atty for defts.]


source: Caselaw Access Project

author: Per Curiam.

license: Public Domain

text:
    Solomon Allen & Moses Allen versus Jeremiah Thompson.
    August Term 1828.
    A default regularly entered will never be set aside without an affidavit of merits. The plaintiffs filed a declaration containing both special and common counts. The defendant pleaded specially to the special counts, but omitted the general issue to the common counts. The plaintiffs caused the special pleas to be stricken out as sham pleas,and entered a nolle prosequi on the special counts, and a default for want of a plea to the common counts. The default was held to be regulm', but the court gave the defendant the opportunity of setting it aside by paying costs, and filing an affidavit of merits.

      Mr. C. Walker, for the defendant moved to set aside a default upon a special affidavit, but, which contained no averment of merits. The suit was an action on several promissory notes, and the declaration contained special counts on the several notes, together with the usual common counts. The defendant pleaded specially to the counts on the notes, but omitted the general issue entirely. Whereupon the plaintiffs caused the special pleas to be stricken out as sham pleas, by applying to a Judge at Chambers, and entered a nolle prosequi as to the special counts, and a rule for a default for want of a plea to the common counts. The defendant then pleaded the general issue which the plaintiffs disregarded. Mr. Walker, now moved to set aside the default as being irregular, and contended, that the defendant was entitled to time to plead de novo, after the special pleas had been stricken out.

      A. Dey, contra.

   Per Curiam.

The default was regularly entered, and the motion to set it aside must be denied. As the defendant, however may have a defence, the default may be set aside upon the defendant’s paying costs to the plaintiffs, and filing an affidavit of merits, instanter.

[A. Dey, atty for plffs. C. Walker, atty for deft.]


text:
    Israel Fearing versus Horatio N. Clawson.
    August Term 1828.
    If an infant defendant who is arrested, does not appear to the action, nor take any notice of the arrest; upon motion of the plaintiff, and on notice to the infant, the court will appoint a nominal guardian, ad litem, for him in order to prevent the proceedings from being afterwards set aside.

      Mr. W. Price, in behalf of the plaintiff in this case, made an application for the appointment of a guardian ad litem to the defendant, an infant, who had been arrested, but had not appeared, nor taken any notice [of the arrest. He read an affidavit setting forth, that the action was brought for necessaries furnished to the infant.
    The plaintiff, he said, could not safely take a default against the defendant, because, as laches cannot be imputed to an infant, he might, after the default, cause the same to be set aside; on the application of his guardian. From the books of practice, and the decisions of our courts, it appears, that the guardian named need not be a real person to appear and make defence; but a rule may be entered for the appointment of a nominal guardian merely. [2 Sell. Prac. 68. 2 Arch. Prac. 145. 6 Cowen's R. 50. ]
   Per Curiam.

Were it not for the authorities cited, we should incline to the opinion, that in bailable actions, the guardian to be appointed should be some real person to appear and protect the rights of the infant. But it seems from the books, that a mere nominal guardian may be named in cases where the infant neglects to appear. The rule does not seem to be well founded, and this court will hereafter establish some general regulation to establish its practice upon the subject.

In the present instance, let a rule be entered for the appointment of a nominal guardian ad litem, for the infant ¡defendant, upon the plaintiff’s giving him due notice of the rule, that he may have an apportunity to come in and name a guardian for himself.

[ W. S. Sears atty. for plff.]


author: Jones, C. J., Oakley, J., Hoffman, J.,

text:
    Edward Cromwell & Daniel Wing versus George Lovett.
    August Term 1828.
    Where a check on a bank ia given, in the 'ordinary course of business, it is not presumed to be received in absolute payment of a debt, even if the drawer have ibnds in the bank, but as the means whereby the holder may procure the money. The holder becomes the agent of the drawer to collect the money : and if guilty of no negligence in presenting the check for payment, whereby an actual injury ia sustained by the drawer, he will not be answerable, if from any peculiar circumstances attending the Bank, the check be not paid; but in a suit against the drawer for the consideration of the check, the holder may treat it as a nullity, and resort to his original cause of action.
    The plaintiffs sold the defendant a quantity of timber, and having presented their account for the same to the defendant, on the 28th day of May, 1828, at 5 o’clock, P. M., received his check on the Franklin Bank of the City of New-York, for §1000.—At half past ten o’clock A. M. the next day, the Bank was prohibited from making any payments, by an Injunction out of Chancery; and the Check was, consequently, never presented.—Held, in an action brought by the holders against the drawer of the check, under these circumstances, that the plaintiffs might waive the check altogether, and recover the value of the timber, in an action of indebitatus assumpsit.

    This was an action of assumpsit, tried before Mr. Justice Oakley, on the 8th day of October 1828.
    The declaration contained three counts upon a check for $1000, bearing date the 28th day of May 1828, drawn by the defendant, on the Franklin Bank of the City of New-York, made payable to D. W. Wing, or bearer, and delivered by him to the plaintiffs.
    The first count was in the usual form, and averred a presentment of the check, to the Cashier of the Franklin Bank for payment, on the 29th day of May 1828, his refusal to pay the same, and .notice to the defendant on the same day.
    The second count, in addition to the ordinary averments, set forth, “ that after the making of the said draft or order, and be- “ fore the payment thereof, to wit, on the 2.9th day of May, in the “ year aforesaid, between the hours of ten and twelve o’clock “in the forenoon of that day,” “the said Franklin Bank,” stopped payment, and from thenceforth entirely suspended its ordinary and accustomed business as a bank, and from thenceforth ceased to pay the drafts or checks of depositors or dealers with said bank.” “ By reason whereof the said defendant” “ became liable to pay to the plaintiffs the sum of money in the said draft or order specified,” &c.
    The third count was exactly like the first, except that it alleged" a demand, refusal and notice on the 4th day of June, 1828.
    The declaration also contained the usual money counts, and a count on an insimul computassent.

    At the trial the plaintiffs proved, that in the month of May, 1828, they sold and delivered to the defendant a quantity of timber. That on. the 28th day of the same month, the parties made a settlement for the timber at the hour of 5 o’clock P. M., and that on the settlement, the defendant gave one of the plaintiffs his check on the Franklin Bank for one thousand dollars. The plaintiffs then read the check in evidence, and presented an account of the timber stated by the defendant himself exhibiting a balance of $1,046 10 cts. due from him to the plaintiffs.
    A teller of the Franklin Bank was then called as a witness by the plaintiffs, who testified that on the 29th of May, 1828, that bank stopped payment in consequence of a writ of injunction, issued out of the Court of Chancery, and served on the bank on that day; that he received orders from the cashier at half past 10 o’clock of the same day not to pay any checks or drafts ; that from that time the bank entirely ceased to do business, and that no checks or drafts were paid by it afterwards.
    The witness also testified that at the time the bank stopped payment, the defendant had sufficient funds therein to pay said check, and that it would have been paid, if it had been presented before the bank stopped payment. He further testified, that checks were paid as usual at the bank on the 29th of May, from the opening of the bank until the injunction was sewed.
    The plaintiffs offered no evidence to support the averment of demand and notice set forth in the first and third counts of then-declaration: and the foregoing wa:s aj,l the testimony m the cause.

      A verdict was taken for the plaintiffs subject to the opinion of the court upon a case to be made, and either party had leave to turn the case into a bill of exceptions.. If the court should be of opinion that the plaintiffs were not entitled to judgment, then a nonsuit was to be entered.
    The cause was argued by Mr. P. A. Cowdrey and Mr. J. Anthon, for the defendant, and by Mr. D. B. Tallmadge for the plaintiffs.
    For the defendant it was contended,,
    I. That as the defendant at the time of drawing the check had • ample funds in the bank, the plaintiffs ought to have presented the same for payment; and if payment had been refused, notice should have been given to the drawer.
    A check is tó be considered as an inland bill of exchange, and subject to the same rules. [7 T. R. 430. Chitty on0 Bills, 17. Cruger v. Armstrong, 3 J. C. 5.] The contract ón the part of the holder of a check is, that it shall be presented at the bank for payment: and in case of non-payment, that notice shall be given to the drawer. And the general rule is, that the check is not due from the drawer, until payitient has been demanded of the drawee, and refused. [Murray v. Judah, 6 Cowen, 484.] If the holder of the check be guilty of any laches in making-demand, damage to the drawer will be presumed. [Chit, on Bills, 258.]
    The only excuse for omitting to make demand and give notice to the drawer, is the want of effects in the hands of the drawee ; [Chit. on Bills, 258. Dennis v. Morrice, 3 Esp. R. 158.] The necessity. of notice is not dispensed with by the bankruptcy, insolvency, or death of the acceptor of a bill, or maker of a note. [Russell v. Langstaff, Doug. 515. Warrington v. Furbor, 8 East, 245. Esdaile v. Sowerby, ,11 East, 117. Howe v. Bowes, 16 East, 113.
    II. The check was an assignment of the defendant’s funds pro tanto, and the injunction staying the payment was at the risk of the plaintiffs.
    ■ Whether the plaintiffs claim under the counts upon the check, or upon, tbQins'mxd computassent, the defendant is equally entitled to a presentment of the check at the bank for payment, and to notice of its dishonour. If a bill of exchange or promissory note be taken in satisfaction of a precedent debt, the creditor camiot proceed in an action for such debt without showing, that he has used due diligence to obtain acceptance or payment; and also showing, if the defendant was a party thereto, that he had due notice of the dishonour. [Smith v. Wilson, Andr. R. 187. Bridges v. Berry, 3 Taunt. 130. 3 M. & S. 362. Chitty on Bills, 125, 126.]
    If notice,of non-payment be not given, the parties are not only discharged from liability on the bill, but from the original consideration of it. [Rucker v. Hiller, 16 East, 43. Bayley on Bills, 167. Chitty on Bills, 256. Master v. Miller, 4 D. & E. 343.]
    In this case there never was a demand of payment, and notice of the facts have never been communicated to the defendant. If due diligence in making presentment had been used, the check would have been paid; for the drawer had sufficient funds to cover his draft. The bank was not insolvent, and the plaintiffs cannot excuse the want of demand and notice. The defendant therefore is exonerated from all liability on the check; the funds in the bank, to the amount of the check, were at the risk of the plaintiffs, and they cannot recover the consideration, which has tieen lost by their default.

      Mr. Tallmadge, for the plaintiffs.
    I. The balance due to the plaintiffs has been struck by the parties, and the plaintiffs are entitled to recover on the count on the insimul computassent unless they have been paid. The check was not received as payment; and it will not be considered as such in law, unless expressly proved to have been given for that purpose. [1 Cowen, 376. 2. Camp, 515.]
    The original debt is still subsisting ; and as the check- was received merely as collateral thereto, the inquiry is, whether the plaintiffs have been guilty of such laches as will make them liable for the amount of the check. They were the mere agents of the defendant to collect the money, and can only be liable for such negligence as would charge an agent or attorney.

      If the plaintiffs had waited beyond what might be deemed a reasonable time before they presented the check, and if the bank had stopped payment after that period, whereby the defendant had lost.his funds, then the plaintiffs might have been chargeable with the loss." But here the bank stopped'payment, before even a reasonable time for presentment had elapsed ; and therefore no laches can be imputed to the plaintiffs.
    II. The bank having stopped payment under an injunction, this case, differs from that of an insolvent or bankrupt drawee, and the plaintiffs were not .bound to present the check.
    A check differs from a bill of exchange, in various respects ; and the stoppage of the bank by injunction will excuse the want of presentment and notice even in a suit upon the check.
    It is generally said that the obligations and liabilities of a drawer of a bill, and those of the.endorser of a note .are alike. But there is.a differencé in the- cases; for no excuse will dispense With demand and notice, where an endorser is to be charged, either on a note or a bill; while want of effects in the hands of the drawee, in some instances, will excuse demand and notice, where a drawer is to be charged. [ Chitty on Bills, 274. (n.) 13 East, 189 ]
    But if the rules which apply" to endorsers of notes are equally applicable to drawers of bills, still the defendant in this case has no right to claim to be dischargedfrom his obligations upon the check, because he received the immediate consideration for it. Where the,money raised upon anote is received by an endorser who is ultimately to pay it, notice of non-payment may not be necessary [11 J. R. 181.]
    The true principal is, .that a demand and notice are not necessary in a suit against the person who is liable in the last resort. [4 Cranch, 146.] If, then, the drawer or endorser receives the Consideration for the bill, he dispenses with notice.
    But bank checks have often been treated as differing from bills of exchange. [2 Camp. 515. 3 J. C. 5.] . In this last case Radcliff, J., plainly intimates, that a check might be presented to (he bank, even after a lapse of four years, and the foundation for a suit laid; if the defendant could not show some injury arising from the delay. In 7 Cowen, 176., Judge Woodworth intimates a doubt whether a demand in the case of a check is necessary at all; thus showing that he did not consider drawérs of bills and endorsers of notes as standing in the same situation.
    III. But if this check is to be. considered as completely, a'ssimiIated to a bill of exchange, the situation of the bank dispensed with a demand and notice.
    The rule is, that when the drawer has no funds in the hands of the drawee at the maturity of the bill, (although there might have been effects at the time when the bill was drawn) then notice is dispensed with. Is there any difference in principle, whether the funds are actually withdrawn, or whether they are locked up by an injunction 1

    In the ordinary cases of insolvency on thepartof the drawee, ademand and notice are not dispensed with, because the bill maybe paid by other means; asby the assistance of friends, oraspecial appropriation. In this case the reason cannot operate; for a payment of the check would have been a violation of the injunction, .and would have subjected the party to punishment. The defendant then has had no effects in the bank at any period within a reaspnable time for presenting the check, which could have been applied to Iris draft.- He has not been injured by a want of demand and notice; because such demand would have been totally unavailing, unless made at the earliest possible moment after the check was drawn. This extraordinary promptness is not required of the plaintiffs, and they were merely bound to use ordinary diligence, or to avoid all neglect. No laches in this case can be imputed to them, and they are entitled to recover, either upon the second count, or on the insimul computassenU

   Jones, C. J.,

after stating the facts of the case, observed, that the questions arising upon the facts were, first, whether proof of the presentment and demand of the check and notice of,its dishonour were, under the circumstances of the case, indispensable prerequisites to a recovery on the check l and secondly, whether the balance, for which (he check appeared to have been given, was recoverable on the count, upon an account stated or not.

• These questions were considered by him at large upon the general principles of law applicable to the case ; but his opinion upon i they involve, is omitted, and that portion of his observations Alone given, which relates to the legal effect and .operation of the injunction upon the right of the parties; and which branch of the subject was considered by him only. After expressing his opinion on the other question in the cause, the' Chief’ Justice proceeded as follows :

But if the general rules of law or the.usage of merchants required the presentment.of the check and the demand of the money, as prerequisites to the right of action against the drawer; and if the insolvency of the bank, or the temporary suspension of its payments, would not excuse the neglect of demand of payment and notice of dishonour, and if even proof of the due observance of these formalities should be held necessary to entitle these plaintiffs in other circumstances to sustain an action upon the antecedent debt, for which the check was given, yet this case would not, in my view of it, come within the rule. This case does, not stand upon the insolvency of the bank, or its suspension of payment solely. . . ,

The stronger ground is, that the bank was under a legal restraint, and disabled by process of law from applying the deposits of the drawer to the payment of the check : and if such was the •case, a demand could not have been of any possible avail to the drawer, and the reason given for requiring a demand upon a bankrupt fails ; since the officers of the bank could not be expected under such circumstances to interpose with their own moneys to pay the drafts of the dealers. • How far a mere temporary restraint by an injunction at the "suit of a party, praying for it as a precautionary measure, and which is liable to be dissolved or modified, would excuse the necessity of a demand, may perhaps be questionable: for in such case the deposits of the drawer, on which he values remain entire, and it may be, that the obstacle to their application to the payment of the check will be speedily removed. But was this such an injunction, or was it not the remedial process authorised by the act of-the 21st of April, 1825. “ to prevent fraudulent bankruptcies by incorporated companies, and to facilitate proceedings against them, and for other purposes ?”

By the 17th section of that act, the court of Chancery is authorised and required,—upon the application of the attorney general, or a creditor of any incorporated bank or company, and upon proof that such company is insolvent, or that it has violated , any of the provisions of the act incorporating it, or of any other act, which shall be binding upon it,—to issue an injunction restraining such company and its officers from exercising any of the privileges or franchises granted by the act incorporating such company,or by any other act, from the collecting or receiving any debts, and from paying out or in any way transferring any of the monies or effects of such company, until such court shall otherwise order; and the act provides, that it shall be lawful for such court to appoint a receiver of the monies, property and effects of such company, and to distribute the same amongthe fair and honest creditors thereof. The legal effect of this proceeding is to dispossess the officers of the bank of all power and control over the -money of the bank, and to make it unlawful for them to pay any order or checks upon them. And when the process of injunction is accompanied with or followed by the appointment of a receiver, the effect upon the depositors is to divest them of the right to withdraw their deposits, and it effectually operates as a statute-countermand of their checks.

The terms of the act are peremptory, that the monies, property and effects of the company shall be distributed among the fair and honest creditors of the institution; and the depositors and bill-holders are equally creditors of the corporation, and the deposits make part of the monies of the bank distributable amongst the creditors generally.

The money which a dealer deposits is not kept distinct and separate in the vaults, for the use of the depositor to be specifically returned to him upon demand; but-it is intermingled with the other monies of the institution, and makes part of its general fund for the common benefit, and only entitles the depositor to a credit upon the bank to the amount of his deposit: giving him a right to draw upon the bank to that amount at pleasure, in. checks payable upon presentation.

When therefore the bank subjects itself to the provisions of the statuté, and the injunction issues and a receiver is appointed, all right of every creditor to payment, other than by the ultimate receipt of the distributive share of the'assets wholly ceases. The depositors and the bill-holders are alike deferred to the final settlement of the affairs of the bank for their dividend. The fund for the payment of checks is abstracted by the force of the statute, and the check can no longer be paid by the cashier, however great his desire may be to pay it. Can a demand be necessary .under such circumstances 1 or must not the entire change in the state of things absolve the holder of the check from the obligation of presenting it for payment to drawers, who would incur a contempt by paying it, and moreover act in their own wrong, perhaps, and render themselves liable for the whole amount of the money to the creditors. Is not the transfer of the fund, upon which the check was drawn, from the officers of the bank to the receiver by the operation.of law, equivalent to the withdrawal of the money, by the drawer of the check, and must it not equally dispense with the necessity of a presentment, or the formal demand of the money ? The Supreme Court of the State of Massachusetts in the case of Hale v. Burr, [12 Mass. R. 86,] decided that no demand of payment upon the personal representatives of a deceased promissor, or notice of nonpayment "was necessary, under the laws of that state, to charge the indorsers; because an administrator is not obliged to pay any debt of the deceased, except such as are privileged until the lapse of a year from his appointment, and because, in case of a deficiency of assets to pay the debts, a general distribution takes place among all the creditors, with the exception only of those'who fall within the privileged classes. A demand therefore upon the administrator would be nugatory, and a mere troublesome'formality, and it would be-idle to require it. The court in that case admit the rale to he otherwise in England; but they take the distinction tjiat in England the executor or administrator is at liberty to pay any debt he pleases, in preference to others of the same degree, and to the total exclusion of all others of the same class, provided the residue of the assets are sufficient to discharge those of a higher grade, and that he may in such case discharge himself, by showing that he has fully administered. In England, therefore, the administrator may pay the bill when called upon; and the other parties upon it have a right to the chance that he will. But in the state of Massachusetts, where the estate is insolvent, there is no reason to presume, or to suppose, that a demand would be effectual. This distinction appears to me to rest upon a solid foundation ; and considerations equally powerful apply to the case of a bank, whose operations are arrested by these peculiar statute-provisions existing in our state, and whose affairs are to be wound up and settled by a receiver. Such a case must form an exception to the general rule. No principal of law, nor any mercantile usage, can require so vain a ceremony, as a formal demand of payment upon a party, who is by a public statute divested of the means and the authority to pay.

If, therefore, it sufficiently appears that the injunction in this case did issue under that statute, no demand of the check could be necessary, nor any notice of non-payment. The case is deficient in clearness on this point, and it will be difficult to collect the character of the injunction from the fact it discloses. But the nature of the proceeding against the bank is a matter of notoriety. We cannot shut our eyes to the fact. The bank was a public institution located in this city. The injunction, which suspended its operations, emanated from one of the highest judicial tribunals in the state, and was openly and publicly announced at the bank. It was accompanied, or promptly followed by the appointment of a receiver, who immediately entered upon the duties of his office, and displaced the officers of the bank; and whose appointment, with the powers vested in him thereby, were published in the gazettes of the city. Acts so public, and proceedings so decisive in their character, and so open and efficient in their operation, were calculated to attract the attention of the citizens generally $ and the debtors and creditors of the bank, in Ctimmon with its officers and dealers of every description, were not only chargeable with notice of them, but must have been conusant of them. If therefore the case had been wholly silent on the subject, and had merely stated the fact, that the bank had discontinued its operations, and suspended its payments, the court might perhaps have judicially noticed the cause of the suspension. But the injunction is expressly declared to be the cause ; and the case refers to the process and its general effect upon the institution as matters of public notoriety, which it was not necessary further to describe or explain. An injunction issued out of the court of chancery arresting all the operations of the bank, and causing it to discontinue the payment of all drafts and checks upon it, and which was continued in force from the month of May, to the time of the trial of this cause, in the month of October following, cannot be regarded as a mere temporary measure, nor properly referred to the ordinary powers of the court, but must be ascribed to the summary jurisdiction conferred upon the Chancellor by the statute.

It is difficult to conceive a case in which that court, in the exercise of its ordinary jurisdiction, could discreetly award to a suitor seeking equitable relief by bill, as a mere cautionary measure, a process at once arresting the whole movements of a public bank in full operation, and deranging all the calculations of its numerous dealers, and shaking the public confidence in its solidity. Such a measure, unless speedily removed, must prostrate any monied institution. It is a remedy for extreme cases only ; and its general application to ordinary cases could not be tolerated. Before the statute, it was unknown ; and under the statute it is applied in those cases only, where the object and intent is to break up the institution, and distribute its funds among its creditors and stockholders; and with the supplementary provision of a receiver to wind up its Concerns, and the settlement and distribution of its property under the direction of the court, it becomes an efficacious and salutary remedy, for the the extreme cases, to which it was intended to be applied. When, therefore, it is predicated of a public banking institution, operating under an act of incorporation) that its payments have been suspended, and its operation ceased, in consequence of an in injunction issued out of the Court of Chancery, we must necessarily intend, that the injunction issued under the statute, and makes a part of the summary remedy provided for the cases specified in the act.

The injunction, then, to which this case refers, must be the summary process given' by the statute, and, from its long continuance, must have been accompanied by the appointment of a receiver. But let it be conceded for a moment, that we are not at liberty to act upon the knowledge of matters, which we derive from public records and judicial acts and proceedings of general notoriety, and that the case does not sufficiently disclose the nature of the injunction, to enable us judicially to refer it to the statute ;—the consequence then would be, that we must grant a non-suit, and turn the plaintiff round to another suit, or we must award a new trial for the sole purpose of introducing that evidence into the cause. Cm, Bono 1 The facts are notorious, and the certain results of another trial, if my conclusions from these facts are correct, must be a verdict for the plaintiffs. But I am satisfied, that upon the case as it stands, I may,, and ought to take the injunction, which stopped the operations of this bank, to be the statute process issued under the act of the 21st of April, 1825, to prevent fraudulent bankruptcies, &c. I feel myself bound, therefore, to look to the peculiar character and legal effects of this statute-injunction; and the brief view I have taken of them, satisfies me that they render this case an exception to the general rule, and that no previous presentment of the check to the bank for payment was necessary to sustain the shit. 1 am accordingly of opinion, that the verdict is right, and that the motion for a non-suit must- be denied.

Oakley, J.,

after stating the facts of the case.

I think, upon this state of the case, that the plaintiff has a right to recover, upon the count in his declaration, on an insimul comput,assent.

It is well settled, that the giving of the check in- question was no payment of the debt arising from the sale of the timber. [Porter v. Talcott, 1 Cowen, 359. Everett v. Collins, 2 Camp. 515.] If the check was unproductive, without any fault or negligence on the part of the plaintiffs, they may resort to the original indebtedness>as ^ie 8"vov,nd of the action. Not having received the check in payment of the account for the timber, they were merely agents of the defendant in drawing the money from the bank, for the purpose of applying it to the satisfaction of the debt; and if they were not guilty of any negligence in the transaction, whereby the defendant has sustained an injury, they may. return,, or cancel the check, and sue on the original consideration.

It is clear, that there was no negligence on the part of the plaintiffs, in not presenting the check at the bank, before it stopped payment. The bank was open but half an hour after giving the check, and the rule appears to be settled, that no laches can be imputed to the holder, if the check is presented at any time during the day after that on which it was given. [Chitty on Bills, 274. 5.]

It does not appear, in the case, that any notice was given to the defendant that the bank had stopped, or that the check had not been paid. Before the defendant could avail himself of the want of any such notice, it was incumbent on him to show that he had been injured by it. The nature and origin of the injunction served on the bank do not appear. But as the.effect of it is stated to have been an entire suspension of the business of the bank, we may take judicial notice, that it must have been issued in pursuance of the 17th section of the “ Jlct to prevent fraudulent bankruptcies by incorporated companies,” [7 L. N. Y. 453.] and the legal inference therefore is, that the bank ivas insolvent. The effect of the injunction was, to divest it of all its funds, and fender it-unable to pay any of its debts; all its. property being thereafter subject to general distribution among its creditors, under the direction of the Court of Chancery.

In the absence of any proof on the subject, we must infer, that the defendant sustained no injury by the want of notice, that his check had not been paid, as he could have-taken no steps to withdraw his funds from the bank. -

The whole case seems to resolve itself into this: the defendant has purchased the property of the plaintiffs; has given his check on a bank, not in payment of the debt, but to enable the plaintiffs to procure the money to satisfy it; and the check has proved unproductive, by reason of circumstances, beyond the control of the plaintiffs, and without any negligence on their part, which has been the source of injury to the defendant. The defendant, then, must still remain liable for the property, and there being an appropriate count in the declaration, the plaintiffs are entitled to judgment.

This view of the subject renders it unnecessary to consider whether, under the peculiar circumstances of this case, the plaintiffs were bound to prove a presentment of the check, and notice of its non-payment, as if they had sued on the check alone: and I do not mean to give anj opinion on that point.

Hoffman, J.,

concurred in this opinion.

Judgment for the plaintiffs.

[E. Curtis, Att'y for the plffs. P. A. Cowdrey, Att’y for the deft.]

Note.—This cause was afterwards carried by the defendant into the Supreme Court, where the judgment of this court was affirmed.

      L. N. Y. 1828. 48th Sess. c. 325.


author: Oakley, J.

text:
    The President, Directors and Company of the City Bank of New-York versus Hezekiah Barnard and Wm. W. Macy.
    August Term, 1828.
    Certain Directors of the City Bank, for the purpose of controlling the election of its officers, entered into an arrangement for the purchase, upon the account of the bank, of a large amount of its stock, (tiren held by a certain individual,) at a p. emium of seven per .cent, above its par value;
    To effect this object, they paid for.the stock with the fiends of the bank, 'to the amount of its par value, and transferred the same, in trust for the bank. For the purpose of paying the amount of the'premimn, each director borrowed $3500 of the bank, by causing his own promissory note, regularly endorsed, to be discounted at the bank.
    In an action brought by the bank upon one of these notes against the defendants, who were endorsers, they were not allowed to set- up the illegality of the original transaction, as a defence against the note.
    Illegality of consideration, (except in particular cases arising Under the provisions of certain statutes,) does not avoid a note in the hands of a bona fide holder, without notice; and in this instance, the bank was considered as an innocent third party.
    This was an application for a new trial, on the part of the defendants. The cause, upon which the application was founded, was tried at the July term of this court, before Mr. Justice Hoffman. At the trial, the presiding judge rejected all the evidence offered by the defendants to sustain their defence, and the plaintiffs obtained a verdict. Exceptions to his opinion were taken by the' counsel for the defendants, and a motion for a new .trial was now made, founded upon the supposed error in rejecting the testimony. The evidence itself, thus offered, and the facts of the case, together with the points of defence relied on by counsel, being fully stated in the opinion given by Mr. Justice Oakley, it is not deemed necessary tp recapitulate them here.
    The cause was argued by Mr. W. S. Johnson, for the defendants, and Mr. J. Anthon for the plaintiff.
   Oakley, J.

This action is brought on a'note, dated the 12th of Nov. 1827, drawn by Jethro Mitchell & Co. payable to the defendants, and endorsed by them to the plaintiffs. On the trial the defendants offered to prove, in substance, that in the year 1825, Charles Lawton, in concert with certain persons, a majority of whom, at the next election, became Directors of the City Bank, purchased a large quantity of the stock of the said bank, for the purpose of obtaining the control of the election of its officers. That by means thereof, Lawton and his friends were made directors ; and Lawton was chosen Vice President. That soon afterwards, to prevent Lawton from selling said stock to other persons, who would change the directors and officers of the bank, and in order to keep themselves in office, the said board of directors purchased Lawton’s stock, and the same was transferred tq the bank, or to the cashier in trust for the bank. That the bank agreed to pay Lawton the par value of the stock,- and seven per cent, premium; and Lawton agreed to leave the said bank, and. resign his seat as a director. That it was then further agreed by the persons composing said board of directors, as individuals, and not as a board of directors, and as a part of this arrangement, that they, with the cashier and certain other persons to be made directors, would each give an endorsed note for the sum of three thousand five hundred dollars, to make up the premium on Lawton’s stock : which notes were to be dated on the first of Nov. 1825, and made payable ¿t six months, and were to be discounted by the bank, and the avails applied to the payment of the said premium. That it* was further agreed, that each director, who should give his note, should retain his seat as long as he thought proper; and if he retired, should have the right to name his successor. And further, that if the said stock should be sold, at an advance on its par value, any person, who should so give his note, should receive his share of such advance; but should not be prejudiced by any fall of the stock below its par value.

The defendants further offered to prove, that Jethro Mitchell was one of the directors of the said bank, at the time of the said arrangement, and in pursuance of the same-, gave his note, en*dorsed by one Merrick for the sum of $3500, dated on the first of November aforesaid. That the same was discounted by the plaintiffs, and the avails applied as aforesaid. That when it became due, it was renewed by Mitchell, and indorsed by the defendants: that it was reduced, by sundry payments made by Mitchell, to the amount of the note in question, which was given and indorsed without any new consideration. That the note in question, with all the preceding ones, had always remained in the hands of the plaintiffs as holders, and that they fully knew all the circumstances under which the same had been given. And they further offered to prove, that, at the first or second election of directors, after the giving of the said note, Mitchell was left out of the board, without his consent.

The plaintiffs’ counsel objected to the evidence thus offered, as being insufficient to constitute a defence to the action; and the Judge, being of that opinion, rejected it. To this opinion the defendants’ counsel excepted.

It is now contended, on the part of the defendants, that the facts offered to be proved show, that there was no valid consideration for the note in question, and that the' same is void in the hands of the plaintiffs.

The transaction, out of which the original note (of which the present is a renewal or continuation) took its origin, is supposed to be a violation of the 2d section of the act of the 21st of April, 1825, [sess. 48. ch. 325.] by which it is provided, that it shall not be lawful for the directors of any bank “ to divide, with- “ draw, or in any way pajsJo the stockholders, or any of them, “ any part of the capital stock, or to reduce the same without the “ consent of the Legislatureand that in case of any violation of the provisions of the said section, the directors concerned therein shall be individually liable “ to the said corporation,” “ and to the creditors thereof in the event of its dissolution,” to the amount of the capital stock, so withdrawn or reduced, &c.

Assuming that the purchase of the stock of Lawton was a violation of this act, it does not, in my judgment, follow, that this note is void. The act does not declare void, any note or security given under the circumstances prohibited bv it. The directors may be personally liable to the extent provided by the act: but the transaction may still be valid, as to all third parties. The corporation, which is the plaintiff in this case, is clearly to be dist.inguished from the directors, when acting as individuals, or acting in violation of their duty. And under the provisions of the act in question, the distinction is particularly to be observed. The directors are made personally responsible to the corporate body, for their violations of this law. If, therefore, they should be considered as representing, in the purchase of the Lawton stock, the bank itself; and the corporation should thus be made the real actor in the transaction, the legislature would appear to have been guilty of the absurdity of indemnifying the corporate body, by the responsibility of the directors, against the consequences of its own acts.

It is manifest, that the object of the legislature was to protect the corporation; or in other words, the whole body of the stockholders against the acts of the directors. The plaintiffs, therefore, are justly to be considered, in the purchase of the stock in question, as a third party, unconnected with the transaction, and innocent of any violation of law. In this view, they are bona fide holders of the note, on which the suit is founded, having discounted it in the regular course of business, and for a full consideration actually advanced.

It is a well-settled principle, that illegality of consideration, (except in certain cases, arising under the provisions of certain statutes) does not avoid a note in the hands of a bona fide holder without notice. [Chit. on Bills 89.] And it would be doing violence to the justice and good sense of the case, to consider the knowledge of the maker of the note, or of the other directors, of the circumstances attending its inception, as notice to the corporative body, so as to charge it with the consequences of an act, which was in violation of its own rights and interests.

It seems to be quite clear, that the maker of this note could not he permitted, to interpose the present defence to an action against him. He, as one of the directors, in violation of his duty to the corporation, discounted his own note. . He can never be permitted to allege his own illegal act to avoid it. He stood in this transaction in relation to the plaintiffs, in the situation of a trustee. If he violated his duty as such, it would outrage the pr¡nc¡pies 0f common honesty, to permit him to set up that very violation, as the ground of avoiding his own contracts with his cestuy que trust.

Butin truth, in the purchase of the stock from Lawton, the maker of this note did not act merely as a director of the bank. As far as the premium to be paid to Lawton was concerned, (and for a portion of that, the note in question was given,) the directors acted expressly as individuals. Each was to become individually bound for his share of the premium. And although the stock was to be transferred to the bank, or in trust for it, each director had an individual interest in it. If it could be sold for an advance above its par value, such advance was to be divided among the directors, who should pay their proportions of the premium; and such advance might have exceeded the seven per cent, allowed to Lawton.

The directors seem to have proceeded on the.idea, that they had a right to purchase the stock at its par value, on account of the bank; but that they could not appropriate the funds of the bank to pay the premium on it. They therefore agreed to pay that premium themselves, and to rely for an indemnity on the advance of the stock in the market. It is true, that among other objects, they sought to secure themselves in the direction of the bank. Their purpose in this respect was not only illegal, but would have proved nugatory. Upon the principles established by the Supreme Court in the case ex parte Holmes [5 Cowen 434.] the stock in question could not have been voted upon, in any election of directors. But this illegal contract certainly ought not to enable the directors to withhold payment of the money, borrowed by themselves of the bank, with the view of effectuating that intent.

If the note in question is a valid one, as between the plaintiffs and the maker, the defendants having endorsed it, for the accommodation of the maker, are bound by it. In the case of such notes, no consideration ever passes between the endorser and the, maker. And the endorser can never inquire into the consideration, as between the maker and holder, unless the circumstances be such as to make the note void against the maker himself, as in the case of usury.

I am of opinion, therefore, that the judge at the trial .was right in rejecting the evidence offered by the defendants, and that the motion for a new trial must be denied.

Motion for. a new trial denied.

[B. Clark, Atty. for Plffs. W. S. Johnson, Atty. for Defts.]


author: The Court,

text:
    Newell Bracket versus Joseph Simonds.
    August Term, 1828.
    Iri this Court,-no copy of a declaration or other pleading can be served upon the opposite party, until after the original has been filed with the clerk, ’ and an ap- • propriate rule entered in the rule book.

      Mr. Hawes, in behalf of the plaintiff, moved to set aside a default, which had been entered against him for not declaring, pursuant to a rule duly entered for that purpose, in the book of common rules.
    It appeared, that the plaintiff’s attorney had delayed the drawing of his declaration until the last day limited by the rule; , that on the evening of that day, he served a copy of the declaration upon the defendant’s attorney, at Ms own house, but did hot file the declaration, nor enter the rule to plead, until the succeeding day. On the day after the service of a copy of the declaration, the defendant’s attorney went to the clerk’s office, and there ascertained, that, at the time when the copy of the declaration was served upon him, the declaration itself had not been filed. He thereupon entered a default against the plaintiff, for not declaring in due season.
    The -motion now was, -to set aside this default. And it was contended, in behalf of the plaintiff that by the settled practice of the Supreme Court, a service of a copy of any pleading upon the opposite party, is conclusive evidence as to him, that the original has been duly filed. [ Smith v. Wells, 6 Johns. Rep. 286.]
   The Court,

in accordance with the practice of the Supreme Court, set aside" the default in this case without costs, but observed, that in the city of New-York, there could be no good reason, why the pleading should not in all cases be filed, before a ■copy is served upon the opposite party.' In the country, where many attorneys reside ata distance from"’the clerk’s office, it might be productive of inconvenience, to compel the attorney to put the original paper on file in all cases, before the copy is served. And hence the reasonableness of the practice of the Supreme Court. But no" such inconvenience can arise with respect to this court. They therefore directed the following rule to be entered by the reporter.

Regula generalis.

“No copy of a declaration or other pleading shall be served “ upon the opposite party, until after the original shall have been “ regularly filed with the clerk of this court, and the appropriate “ rule entered in the rule book.”


text:
    Morris Franklin and J. T. S. Smith versus Abraham B. Vanderpool.
    August Term, 1828.
    If the maker of a bank check has no funds in the bank upon which it is drawn, at the date of the check, it is not necessary for the holder to present such check at bank for payment, in order to enable him to sustain an action upon it against the maker.
    The drawing of a check under such circumstances is, when unexplained, a fraud, which deprives the maker of all right to require presentment and demand of payment.
    ' Assumpsit upon a bank check, drawn by the.defendant on the Franklin Bank of the City of New-York,' made payable to cash or bearer, and delivered to the plaintiffs by the defendant., ,
    The declaration contained- a count upon the check, together with the common money-counts. •
    The cause was tried before Mr. Justice Hoffman, on the 12th day of July* 1828.On the trial, the plaintiffs produced and prov-r ed the check and read the same in evidence. . They also proved, that the defendant had no funds in the Franklin Bank, either on the day of the date of the check, or at any time afterwards; and that for a year previous, he had not kept any account in that bank. The plaintiffs then rested their cause.
    Upon this state of facts, the counsel for the defendant contended, that the plaintiffs were not entitled to a verdict They insisted, that a presentment of the check at the bank, must also be proved; and that .demand of payment and refusal were pre-requisite to any. right of recovery, That the want'of funds, at most, could only excuse the neglect to give notice of non-payment to the defendant, but could not dispense with the want of presentment.,, •
    This objection was overruled by the presiding judge: but the defendant was permitted to reserve the point' for the consideration of the whole court; and the jury returned a verdict for the plaintiffs, . '

      Mr. Daniel B. Tallmadge, for the defendant, now contended,
    I. That no action could be sustained on a check or bill of exchange against the drawer, until after presentment.
    A check is nothing less nor more than an inland bill of exchange, and is governed by the same rules which govern inland bills. With regard to these, nothing will excuse the want of presentment. Notice to the drawer will indeed be dispensed with, where he has no funds in the hands of the drawee, [3 J. C. 5. 5 John. Rep. 376. 6 Cowen, 484.] But want of funds is no excuse for a neglect to make presentment.
    II. But it is said, that the drawing of a bill or the making of a check, where the drawer or maker has no funds in the hands of his drawee or banker, is a fraud. That, however, must always depend upon the circumstances of each particular case. Fraud is odious: it cannot be presumed, but must always be strictly proved. Whether the making of the check, in the principle case, was a fraud or not, should have been submitted to the jury. But the question was not raised at the trial; and the mere fact of a want of funds in bank, at the time of making the . check, can never be considered as a fraud per se.

      Mr. J. Anthon, for the plaintiffs contra, contended:
    I. That the drawing on a bank, where the party had no funds, was a legal fraud. [Bickerdike v. Bollman, 1 D. & E. 408. 1 Esp. R. 4.]
    II. As soon as the fact, of the want of funds was ascertained, the plaintiffs had a right to waive the check, and resort to the original demand: they may therefore recover upon the common counts. The check itself was evidence of money had and received. [12 John. R. 90. Chitty on Bills, 471.]
    III. Presentment, under the circumstances of this case, was not necessary, and the drawer had no right to insist upon it; for the demand would have been unavailing and notice to the maker useless. [5 Mass. R. 172. Chitty on Bills, 318. Ibid 258.]
    IV. Presentment is only necessary, where the action is brought against an endorser.

   Oakley, J.

This was an action of assumpsit on a check, .drawn by the defendant on the Franklin Bank, dated March the 11th, 1828, and payable to bearer.

The declaration contained a count on the check and the common money counts. The check was given in evidence, and the plaintiffs proved, that the defendant had no funds in the bank, either at the date of the check or at any time since, and has kept no account in the bank for the last year.

The defendant contended, that a presentment of the check at the bank for payment must be proved. The judge ruled that it was not necessary, and a verdict was taken for the plaintiffs. The defendant now moves for a new trial.

It seems to be settled, that a bank check is generally to be considered as an inland bill of exchange, and subject to the same rules. The contract created by a bill of exchange, between the drawer and payee is, that the bill shall be presented to the drawee, and payment demanded; and incase of non-payment, that notice thereof shall be given to the drawer. And the general role undoubtedly is, that the payee cannot call upon the drawer, until he has demanded payment of the drawee. [ Cruger v. Armstrong, 3 John. C. 5.] It has however, very often been decided, that if the drawer of a bill, at the time of drawing, has no funds in the hands of the drawee, the payee is not bound to give notice of the dishonour of the bill.

These decisions appear to rest on two grounds : 1. That the drawer cannot be injured, by the want of notice of non-payment of the bill, and therefore is not within the reason of the rule, which requires notice. And secondly, that the drawing of a bill without funds is a fraud; and that a person guilty of such a fraud, shall not claim the protection of those rules, which were introduced, for the benefit of drawers acting bona fide.” [Bickerdike v. Bollman, 1 D. & E. 408. Clegg v. Cotton 3 Bos. & Pul. 242.] The rule as thus laid down, is subject to qualification. The mere drawing without funds cannot, under all circumstances, be evidence of a fraudulent intent. And in many cases, the drawer would be exposed to serious injury by the want of notice, although he has no funds at the time of drawing. Bills are often drawn and excepted, on the faith of funds, which are afterwards to come to the hands of the drawee, or in pursuance of a previous agreement of the drawee to accept.

The true rule is that laid down by Chief Justice Marshall in French v. The Bank of Columbia [4 Cranch, 141.] If the drawer, at the time of drawing, has a right to expect, that his bill will be honoured (or in other words, if the bill be drawn in good faith) he is entitled to strict notice of its dishonour.

This qualification of the rule has been also made in several eases in the English Courts : [Legg v. Thorpe, 12 East, 170. Cory v. Scott 3 Barn, & Ald. 619. Brown, v. Maffey, 15 East, 221. Claridge v. Dalton 4, Mau. & Sel. 226.] And its correctness has been fully recognized by the Supreme Court of this state, [Robinson v. Ames, 20 J. R. 150.]

This seems to be admitted to be the rule as to the want of notice of non-acceptance or non-payment; but it is said not to be applicable to the omission of a demand of payment. It is not perceived, on what ground any distinction between the two cases can be raised. It is as much a part of the contract created by a bill of exchange, that the payee shall give notice of its dishonour, as that he shall present it for acceptance. And every reason, which upholds the rule, that the want of funds of the drawer in the hands of the drawee, or the drawing in bad faith, will dispense with the performance of one part of the contract, applies equally to the other. When a drawer has no reason to expect, that his bill will be accepted, it is an idle ceremony to require it to be presented ; nor can the drawer be injured by the omission to do so.

Chitty in his treatise on Bills [248.] lays down the rule, that “ the neglect to make a proper presentment, may, so far as respects the drawer’s liability be excused, by the drawee’s not having had effects of the drawer in his hands, from the time of draw- “ ing the bill to the time when it became due.”

In Legge v. Thorpe, [12 East, 170.] it was decided, that a protest for non-acceptancp of a foreign bill, need not be made- or proved in an action agajnst the drawer, if it appear, that he had rio effects in the hands of the drawee, or no reason to ex» peel, that his bill would be accepted." In the case of foreign bills, it is a part of the contract arising from the Law Merchant, that a protest for non acceptance must be made. It is indispensably necessary, and cannot be supplied by any other proof. [Chit 316. Gale v. Walsh, 5 T. R. 239. Rogers v. Stephens, 2 T. R. 713.] The protest is a formal declaration, that the bill has been presented and acceptance refused: and it is the usual, and indeed, the only evidence of the presentment of the bill, either for acceptance or payment. [1. Phil. Ev. 321. note. 2 Phil. Ev. 36. 6 Wheat. 574.] If then, in the case of a foreign bill, drawn under the circumstances before mentioned, a protest may be omitted, it would seem clearly to follow, that the presentment to the drawee (of which the protest is the only legal evidence) may also be omitted. The result of this reasoning is directly applicable to inland bills; for although no protest is necessary as to them, and they in that respect differ from foreign bills, as to the mode of proving a presentment, there is no difference between them, as to the necessity of making a presentment.

The rule, as thus derived from the English authorities, has received the express sanction of Chief Justice Parsons, in Bond v. Farnham, [5 Mass. 174.] In that case, that very learned Judge lays it down clearly, that when the drawer has no effects in the hands of the drawee, he, cannot insist on a demand upon the drawee: for, says he, “ he could not expect “ an acceptance, and suffers no injury by the want of it.”

I am of opinion from this view of the subject, that there is no, ground for any distinction, in the present case, between an omission to give notice of the non-payment of the check, and an omission to present it to the bank. Upon principal and upon authority they stand upon the same footing.

It has -been suggested, that if the want of funds in bank, at the time of drawing the check, is to be considered only as evidence, that if was drawn fraudulently or in bad faith, it ought to have been left to the jury to pass upon the fact of fraud. If the defendant had offered any proof to rebut the inference of fraud, arising from the circumstances of the case,' as they were in evidence, it would, no doubt, have been received. None such was offered. The defendant insisted, that upon the evidence, as it stood, the plaintiffs were bound to prove a presentment of the check, at the bank ; and he now insists, that he was entitled to the verdict of the jury. The Judge was clearly right in holding, that it was not necessary, as the proof stood, to show a presentment of the check. And there being no question as to the facts of the case, the jury would have been bound to find, that the check was drawn in bad faith. It is not important, therefore, to consider in what form the matter was left to the jury. The motion for a new trial must be denied.

Motion for a new trial denied.

[E. Curtis, atty. for deft. B. Clark, atty. for plffs.]