Attorney General vs. The Life and Fire Insurance Company, 9 Paige Ch. 470

The Chancellor. The Tradesmen’s Bank filed no ex-ceptioñs to the report of the referees, and it is therefore not necessary that I should examine the particular circumstances of the transaction by which that institution became the holders of some of the bonds of the Life and Fire Insurance Company, a few days before it stopped payment.

I am satisfied however that the referees came to the correct conclusion that the bonds were not discounted by the bank for the benefit of the company, and that the money never was applied to its use ; but was appropriated, by Davis, to the fraudulent purchase of the Tradesmen’s Bank, with the assent of the officers of that institution who authorized the discount of his notes. And that if the company or its effects were ever legally holden for the payment of these bonds, wrhich I think was not the case, the liability was discharged by the release of Davis the principal debtor.

The referees have followed the decisions of the supreme court in holding that a corporation, without any express or implied power in its charter for that purpose, may make a negotiable promissory note, payable either at a future time, or upon demand, when not prohibited by law from doing so j provided such note is in fact made or given for any of the legitimate purposes for which the company was incorporated.

But they are right in supposing that the evidence before them was sufficient to establish the fact that the whole operations of the company in these bonds were for purposes not authorized by its charter, and in violation of the restraining acts of April, 1813, and of 1818. (2 R. L. of 1813, p. 234. Laws of 1818, p. 242.) It was an attempt on the part of those who had the control of the affairs of this company to carry on banking business, instead of the business for which they professedly obtained their charter.

They in fact carried on the business of discounting notes, bonds and mortgages, and other securities for money, giving in exchange therefor these bills or bonds, endorsed in blank by their own clerks and others, as negotiable securities, which were intended to be and actually were put in circulation as money ; in the same manner as , „. , . . • , _ . , „. the post notes of incorporated banks were issued and circulated as money before the issuing of such notes was prohibited by law.

If the bonds or bills of a corporation thus issued and put in circulation are not absolutely void, in the hands of every person who may receive them, whatever may be their form, upon which question I express no opinion, there was sufficient on the face of these bonds to show that they were intended as a circulating medium, and were not given by the company to the payees thereof for an actual indebtedness in the course of the legitimate business of the company.

At least there was sufficient to put those who received them upon enquiry as to the fact whether they were really given for any purpose within the authority of the corporation, and not in violation of the laws of the state.

It may be proper also to say that although the fact was satisfactorily established that this company was for one or two years before its failure, in the summer of 1826, openly carrying on the business of issuing these bonds in violation of the provisions of its charter and contrary to law, the parties who have excepted to the report of the referees introduced no evidence to show that they received the bonds presented by them at their nominal amount, and for a bona fide consideration.

And for aught that appears to the contrary, those parties may have received them from some of the officers or agents of the company, for purposes not authorized by its charter or by the laws of the state. The report of the referees must therefore be confirmed, and the claims upon the bonds by the parties to the reference must be rejected by the receivers, in the distribution of the effects of the company among its creditors and stockholders.