Columbus Insurance & Banking Co. v. First National Bank

• Decision Date: 23 April 1894
• Citation: 73 Miss. 96,15 So. 138
• Parties: COLUMBUS INSURANCE & BANKING CO. v. FIRST NATIONAL BANK ET AL., AND SWEETZER, PEMBROKE & CO. v. FIRST NATIONAL BANK ET AL
• Court: Mississippi Supreme Court

15 So. 138

73 Miss. 96

COLUMBUS INSURANCE & BANKING CO. v. FIRST NATIONAL BANK ET AL., AND SWEETZER, PEMBROKE & CO. v. FIRST NATIONAL BANK ET AL

Supreme Court of Mississippi

April 23, 1894

October 1895

FROM the chancery court of Lowndes county, HON. T. B. GRAHAM Chancellor.

In November, 1892, N. Gross & Co., a firm composed of Dora Gross and J. Hirshman, made, or attempted to make, an assignment for the benefit of creditors, preferring therein the Columbus Banking & Insurance Co. for a debt of $ 13,833. The assignee took possession of the assets, and proceeded to administer the same in the chancery court, under chapter 8 of the code of 1892. The First National Bank of Columbus at once filed its cross petition, attacking the validity of the assignment on several grounds, and praying that the claim held by it against N. Gross & Co. be charged as a lien upon and paid out of said assets. This claim consisted of an acceptance of N Gross & Co., of a draft on them for $ 3,400, drawn by F. M Leigh & Co., payable to their own order, and by them duly indorse and delivered to the bank. Two days after the assignment, the Columbus Banking & Insurance Co. filed its cross petition, also assailing the assignment, and praying that its claim be also made a lien upon and paid out of the assets. This petition denied the validity of the claim of the First National Bank, on the ground that the acceptance mentioned was accommodation paper accepted in the firm name by J. Hirshman without the knowledge of his partner, Mrs Gross, and, therefore, not an obligation of the firm of N. Gross & Co. Afterwards, other creditors filed cross petitions assailing the assignment, and also attacking the validity of the claim of the First National Bank, on the ground already stated, and also that of the Columbus Banking & Insurance Co., because a large part of it was composed of interest taken out of the notes it held, in advance, at the rate of ten per cent. per annum. The First National Bank answered, denying the invalidity of its claim, and so, also, did the Columbus Banking & Insurance Co. The latter admitted that it charged ten per cent. interest in advance, but claimed that it had the right, under its charter granted by act of the state legislature in 1867, to charge ten per cent. taken out of the notes in advance or "ten per cent. discount off," as the authorized limit is expressed in the charter. (Acts 1867, p. 284.)

The opinion of the court sets out the facts disclosed by the evidence. The court below, on final hearing, held that so much of the charter of the Columbus Banking & Insurance Co. as permitted it to charge interest at the rate of "ten per cent. discount off," was repealed by the act of March 13, 1886 (Acts, p. 35), and that such charge was usurious, and disallowed the same. It also held that the acceptance of N. Gross & Co., held by the First National Bank, was a valid debt of that firm, and entitled to priority of payment out of the assets in the hands of the assignee. From the final decree so holding, this appeal was prosecuted.

Decree affirmed. Suggestion overruled.

Houston & Reynolds, for appellants.

1. The circumstances attending the transaction were sufficient to put the First National Bank on inquiry as to the consideration of the acceptance. Citizens' Mut. Ins. Co. v. Ligon, 59 Miss. 305; 17 Am. & Eng. Enc. L., pp. 1154, 1170; Bates on Part., § 354; New York Fire Ins. Co. v. Bennett, 13 Am. Dec., 109; Roth v. Colvin, 32 Vt. 125; Parker v. Foy, 43 Miss. 260; McLeod v. Bank, 42 Miss. 99; Scott v. Tupper et al., 8 Smed. & M., 290; Mayson v. Beasley, 27 Miss. 112; Bank et al. v. Baugh, 9 Smed. & M., 302; 7 Am. & Eng. Enc. L., p. 30; Garland v. Jacomb, L. R., 8 Ex., 216; 1 Lindley on Part., 329.

2. The charter of the Columbus Banking & Insurance Co., which was granted by the legislature at a time when the general law prohibited a greater rate of interest than ten per cent. per annum, provides that it might charge such rate of interest as might be mutually agreed upon by the company and the borrower, "not exceeding ten per cent. discount off." The existence of the charter is limited to fifty years, but is no invasion of the police power of the state, and during that time constitutes a contract between the state and the company that accepted and organized under it, that cannot be impaired by subsequent legislative action. That it is a contract within the meaning of the prohibitory clauses of the state and federal constitutions, is clear upon authority. 8 Am. & Eng. Enc. L., p. 620; 4 Ib., pp. 209, 298; Railroad Co. v. Harris, 27 Miss. 517; Moore v. State, 48 Miss. 160; Stone v. Railroad Co., 62 Miss. 643; Hazen v. Union Bank, 1 Sneed (Tenn.), 115; Morawetz on Pri. Corp., §§ 1050, 1056, 1057; 6 Cranch, 136; 3 Wall., 51; 4 Wheat., 657; 13 Wall., 266; 94 U.S. 161; 21 Am. Rep., 401; 3 Story's Com. on Const., §§ 1371 to 1379; 21 Am. Rep., 401; Tishomingo Savings Inst. v. Buchanan, 60 Miss. 496.

E. T. Sykes, on the same side.

1. The facts of the transaction disclosed by the evidence were such as to put the First National Bank on inquiry as to the accommodation character of the acceptance. And especially does that result attend the bank's knowledge that the draft came to its hands from the payees, who were likewise the drawers, with the acceptance of the drawees upon it, which was out of the usual course of business. Bloom v. Helm, 53 Miss. 22.

2. The indorsement by F. M. Leigh, in the name of F. M. Leigh & Co., of the renewal of the Allen Motley note for $ 5,400, as also the drawing and indorsing by F. M. Leigh, in the firm name of F. M. Leigh & Co., of the acceptances of N. Gross & Co., of December, 1889, 1890 and 1891, respectively, were all done after the death of E. Gross, who, at the time of his death, in December, 1888, together with F. M. Leigh, constituted the firm of F. M. Leigh & Co., and were inoperative to bind the partner or the estate of the partner, who did not sign, or to convey title to the bank. Tiedeman on Com. Paper, § 107, and notes. If this be true, then it follows that only F. M. Leigh, of the firm of F. M. Leigh & Co., and J. Hirshman, of the firm of N. Gross & Co., are liable to the bank on the paper. And it also follows that the partnershicreditors of N. Gross & Co. are to be first paid out of the assets of that firm, and only his interest in the surplus can be reached by the creditors of J. Hirshman. Then, as the appellant is a creditor of N. Gross & Co., and the First National Bank is a creditor of J. Hirshman simply, it results that it is entitled to priority of payment out of the firm assets. Williams v. Gage, 49 Miss. 777; Bass v. Estill, 50 Miss. 300.

3. The appellant, the Columbus Insurance & Banking Co., was authorized by its charter, as amended by the act of February 16, 1867, to discount notes of hand, bills of exchange, or other evidences of debt, and at such rate of interest as might be mutually agreed upon by it and the borrower, not exceeding ten per cent. discount off. Acts 1867, p. 284. This charter is in legal contemplation a contract between said appellant and the state, and the act of March 13, 1886, is, as regards the rights in question, a violation of section 10 of article 1 of the constitution of the United States prohibiting the states of the union from passing any law impairing the obligation of contracts, and also of the similar provision in all of the constitutions of the state. Const. 1832, sec. 19, art. 1; const. 1869, sec. 9, art. 1; const. 1890, sec. 16, art. 3; Tishomingo Savings Inst. v. Buchanan, 60 Miss. 496; Com. Bank of Natchez v. State, 6 Smed. & M., 599; Payne v. Baldwin, 3 Smed. & M., 661; Hazen v. Union Bank., 1 Sneed (Tenn.), 115; 1 Morse on Banks & Banking, § 6, n.; Stone v. Y. & M. V. R. R. Co., 62 Miss. 607; Ill. Cent. R. R. Co. v. Illinois, 146 U.S. 474; Dartmouth College v. Woodward, 4 Wheat., 518; Miss Society of Arts, etc. v. Musgrove, 44 Miss. 820.

4. It nowhere appears in the record that a greater rate of interest than ten per cent. was at any time charged N. Gross & Co. by said appellant; and, further, it is shown by the record that there was no intentional violation of the statute on usury, and that, if a greater rate than the prepayment of ten per cent. could be shown, said appellant stood ready to refund the same. Inadvertent overcharge is not usury. Smythe v. Allen, 67 Miss. 146. There must be an intention to violate the statute on usury. Planters' Bank v. Snodgrass, 4 How., 573.

There is no evidence to sustain any attack, nor is there any attack upon the transaction for usury, except on the ground that interest on the drafts of N. Gross & Co. was charged by appellant at the rate of ten per cent. discount off, as authorized by its charter. A bank is no more exempt than an individual from the operation of the usury laws, unless expressly exempted therefrom. In the case of a mercantile discount, however, it may receive the amount of interest in advance. Discounting, or loaning money with a deduction of the interest in advance, is a part of the general business of banking, and may be done by a bank, even without specific authority conferred by its charter. Law of Corp. (Boone), § 21; 2 Am. & Eng. Enc. L., pp. 92, 93; Bank for Savings v. Collector, 3 Wall., 495; Fleckner v. Bank of United States, 8 Wheat., 338.

William Baldwin, for appellees.

1. It is not claimed that the First National Bank knew the accommodation character of the paper, and the evidence shows that the course of dealing between the parties was such as to indicate the contrary. Mrs. Gross has never objected to the payment of the draft drawn by her partner, Hirshman, and acquiesced in the assignment of the firm assets, in which transfer the paper is recognized as a partnership...