Click image to open full size in new tab
Article Text
BANKING OPERATIONS- THE EIGHTH AVENUE BANK.
Edward P. Cowles, Receiver of the Eighth Avenue Bank, us.
John V. Gridley.--ROOSEVELT J.-The making and endorse-
ment of the note sued on are admitted; but it is said that
no value was received; that by a arrangement among
the directors of the bank, of when the defendant was one,
the instrument was never intended to be considered as a
"valid promissory note," "in the hands of any person or
for any purpose whatever." On this statement of the de-
fence an inquiry natursty arises, for what purpose was
the note given, if, in, every event, the promise or obli-
gation was to be of no validity? The case shows
that the defendant was one of the original twelve sub-
scribers to the Eighth Avenue Bank, of which the
capital was $30,000, and his proportion, as ex-
pressed in the articles of association, $10,000. He, too,
with his eleven associates, were the first directors. As
soon as $44,000 was paid up, the bank organized and com-
mer.ord burtiness. Their purchase of securities to deposit
with the Banking Department, to the amount of $100,000,
must, to a great extent, therefore, have been directly or
Indirectly on credit, and of course on the credit of supposed
bona fice paid up or secured capital. Instead, however, of
paying up, the original associates and directors gave their
A
for the deficiency, each for $3,650, dated January 1,
1854, payable in six months, with interest, to some other
director, and "interchangeably endorsed by the payees."
At the same time, also, a certificate of the cor-
responding number of shares of stock was filled up
and signed by the President and Cashier in favor of
each director, although not actually cut out from the
certificate book. The notes were not only delivered to the
cashier but formally discounted on the books of the bank,
and the proceeds carried to the respective credit of the
makers; who thereupon drew their checks, which were
received as cash in payment of the stock an i carried into
the stock ledger and transfer book, "showing that each of
the directors beld such shares." When these notes fell
due, which was of course six months afterwards, they
were renewed for another six months by the direc-
tors, as a board, for themselves individually, "omit-
ting the endorsers," but paying the first six months inte-
rest. In three months the bank exploded, a receiver wa
appointed, and suits were brought by him, of which
the present is one, on the several notes so given.
And the defence now is, not as against other
slockholders merely, but as against bona fide
creditors, for the Receiver represents both, that by
an understanding among the directors themselves, all
this was to be mere form-more properiv speaking, mere
sham "that no rights should be acquired by the bank in
the notes unless the directors should elect to pay their
notes and take certificates of the stock," and that the stock
having become worthless, probably by the very acts of
the directors themselves, they have a right to reject, or
rather to return it, and with it to repudiate the written
engagements of which it is said to have formed the consi-
deration. Can such a defence, either in law or morals, be
listened to? Can a director, in other words, be permitted
to say that he agreed with a board of trustees-
himself being one-that if there should be a gain
on the stock he an 1 his colleagues should
receive it, and if loss, the creditors and
general stockholders should bear it? It will be said, per-
haps, that such was not the agreement. In words it was
not; but what, I would ask, was the distinction in sub-
stance? The whole board gave to each of its component
members the right of "election" for six six months, and then
again for six months more, to take or not to take the stock,
and to pay or not to pay the note. What moneyed man,
with such an option, would choose a loss or refuse a gain?
To illustrate the position more strongly, take the case of
two guardians of the estate of a minor. They
agree, each on his own account, with both as
trustees, to speculate in cotton with the funds
of their ward, giving notes for the respective
amounts, after the fashion of the arrangement alleged to
have been made in this instance, purporting on their face
to be for value received, but with a verbal understanding
that if the speculation turned out a bad one they were to
be allowed to "elect" not to pay. Would it be any answer,
in a suit by the substituted successor of these faithless
guardians, to say that they had "elected" to nullify their
written obligation? Whatever may be the force of these
analogies, one thing is clear-that there was a considera-
tion for the note which the defendant gave. It atfected a
compliance with the law and enabled the defendant and
his eleven associates officially to report, under oath, that
the whole amount of their "certified stock was paid in or
invested," (section 8 of act of 1840) and to take the
chance of a profit on their shares without the
risk of loss. Eut this is not all: the printed case states
that when the defendant, Gridley, paid the interest on the
original note at its maturity, he did so on the assurance of
the cashier "that it would come back to him on the mak-
ing of a dividend to the stockholders." Here, then, when
the second note was given was a determination by that
very act of the defendant's election to take the stock and
to become absolutely bound for the amount. The direc-
tors, it is further contended, had no right to discount their
own notes in payment of their subscriptions. The answer
is that the provision referred to (1 R. S. 589) had no re-
ference to the free banks, which were expressly authorized
to commence business on securities instead of cash, and,
unlike the old chartered institutions, were required, before
issuing or even obtaining any circulation, to protect the in-
voluntary holders of their bills by a proper deposit with
the Bank Department of the State of public stocks or pri-
vate mortgages. And even if the taking of the note had
been prohibited, would it be a legitimate satisfaction to the
law to deny recovery upon it, and thus, instead of punish-
ing, to reward the wrong doer, and that at the expense of
the innocent and injured creditor? The true principle on
this subject is expressed in that section of the statute of
moneyed "corporations," which, while prohibiting dis-
counts to directors beyond a certain amount, very proper-
ly adds the proviso that no securition taken for any such
loan or discount shall be held invalid.". (1 R. S. 590.)
Judgment for plaintiff affirmed, with costs.
as
