Meserole Sec. Co. v. Cosman

• Citation: 253 N.Y. 130,170 N.E. 519
• Parties: MESEROLE SECURITIES CO., Inc., v. COSMAN et al.
• Decision Date: 11 February 1930
• Court: New York Court of Appeals

253 N.Y. 130

170 N.E. 519

MESEROLE SECURITIES CO., Inc.,

v.COSMAN et al.

Court of Appeals of New York.

Feb. 11, 1930.

Action by the Meserole Securities Company, Incorporated, against Jack T. Cosman and others. From a judgment of the Appellate Division (226 App. Div. 21, 234 N. Y. S. 260) reversing as a matter of law a judgment of Trial Term (131 Misc. Rep. 361, 226 N. Y. S. 667) entered upon a verdict directed by the court in favor of defendants upon the merits and ordering a new trial, defendants National Evans Motion Picture Film Laboratories, Incorporated, and others appeal.

Affirmed, and judgment for plaintiff ordered.

Kellogg and Crane, JJ., dissenting.

Appeal from Supreme Court, Appellate Division, First Department.

Louis J. Rosett and Solomon C. Stember, both of New York City, for appellants.

Louis Rosenberg, of New York City, for respondent.

LEHMAN, J.

The plaintiff is a corporation organized under the Business Corporations Law of the State of New York (Consol. Laws, c. 4). Its certificate of incorporation purports to authorize it ‘to loan money secured by personal property or real estate, to purchase, hold, own, sell, assign, deal in, pledge and otherwise dispose of shares of capital stock, bonds, mortgage debentures, notes and other securities, obligations, contracts and evidences of indebtedness of corporations of the State of New York or any other State of the Union.’ The defendant National Evans Motion Picture Film Laboratories delivered to the plaintiff before maturity the two notes in suit. Each note is for the sum of $4,400 payable six months after date with interest from date at the rate of six per cent. per annum. They are made by ‘Bischoff, Incorporated,’ to the order of J. T. Cosman, and at the time of delivery to the plaintiff the said notes were indorsed by all the defendants. At that time the plaintiff paid to said defendant National Evans Motion Picture Film Laboratories the sum of $4,000 on each note. The plaintiff, according to the stipulation of the parties, ‘engaged among other of its transactions in numerous transactions of the same nature and of the same legal effect as the transaction at bar.’

There is nothing in the record to show that these notes did not have a legal inception before they were delivered to the plaintiff. If the plaintiff were not a corporation, then unquestionably the defendant-appellants would be liable in this action as indorsers. They deny liability on the ground that the plaintiff is a corporation and is not authorized by the law of the state of New York to discount notes, and that under section 140 of the Banking Law (Consol. Laws, c. 2) it is prohibited from ‘making discounts' and all notes made or given to a corporation, other than a bank, for discount are void.

Doubtless the policy of the state of New York embodied in its statutes restricts corporations not organized under the Banking Law and not subject to the supervision of the banking department from engaging in any form of banking. In section 2 of the Banking Law it has defined banks to mean ‘any domestic moneyed corporation, other than a trust company, authorized to discount and negotiate promissory notes, drafts, bills of exchange and other evidences of debt; to receive deposits of money and commercial paper; to lend money on real or personal security; and to buy and sell gold and silver bullion, foreign coins or bills of exchange.’ Banks possess the totality of these powers. Other corporations may possess some of them, and the Banking Law provides for the incorporation of moneyed corporations which are not banks though they may possess some banking powers and engage in some forms of banking.

It does not follow from the fact that banks possess these enumerated powers that every exercise of such powers is a form of banking. Business corporations at times lend money on real and personal security without in any form conducting a banking business. So, too, the negotiation of bills of exchange, the purchase of foreign coins or bills of exchange, may be an incident of a commercial business. The Legislature has, of course, not attempted to forbid business corporations from exercising any of these powers occasionally and incidentally to a commercial business, but it has provided that no corporation shall by any implication or construction be deemed to possess the power to carry on a business which constitutes a form of banking business (General Corporation Law, § 22, now § 18; Consol. Laws, c. 23), and it has fortified the effect of the restriction contained in that statute by express prohibition against certain banking operations. Banking Law, § 140.

The language of section 22 (now section 18 of the General Corporation Law) is significant. ‘Prohibition of banking powers. No corporation, domestic or foreign, other than a corporation formed under or subject to the banking laws of this state or of the United States, and except as therein provided shall by any implication or construction be deemed to possess the power of carrying on the business of discounting bills, notes or other evidences of debt, of receiving deposits, of buying and selling bills of exchange, or of issuing bills, notes or other evidences of debt for circulation as money, or of engaging in any other form of banking.’

In our search for the legislative intent, we may not disregard either the similarities or the differences between the powers which banks are authorized to exercise under section 2 of the Banking Law, and the powers denied to other corporations, except as expressly permitted by that law. Not only the totality of banking powers is denied to corporations organized under other laws, but no such corporation is authorized to carry on the business of exercising any of these powers and which constitutes any form of banking. Discounting bills, notes, or other evidences of debt is a form of banking carried on by banks of discount. Issuing bills, notes, or other evidences of debt; receiving deposits, buying and selling bills of exchange; issuing bills, notes, or other evidences of debt for circulation as money-are other forms of banking. Business corporations are not authorized to encroach upon the field of banking operation in any form. Specific enumeration of particular forms of banking is supplemented by a restriction against engaging in any other form of banking.

The general restriction against any other form of banking not only amplifies but characterizes the specific restrictions. It forms a guidepost to the legislative intent, made more conspicuous by the title of the section ‘Prohibition of banking powers.’ The powers conferred upon banks are, of course, banking powers when exercised in a banking operation; they may be ordinary business powers when exercised in connection with a business operation of other nature. Business corporations are not authorized to exercise banking powers, but the legislative restrictions must be read in their context and construed in their natural sense, and may not by forced construction be given an application broader than their purpose.

It is argued that obviously a corporation ‘other than a corporation formed under or subject to the banking laws of this State’ illegally engages in a ‘form of banking’ when it habitually exerts a power confided to a bank organized under the Banking Law. That can be true only if the power has been confided solely to banks and its exercise constitutes a banking operation. See Chase & Baker Co. v. National Trust & Credit Co. (D. C.) 215 F. 633. Under section 2 and section 106 of the Banking Law some powers are conferred upon banks which, in some form, individuals and corporations customarily exercise in operations which clearly are not banking operations. We may cite an extreme example: Banks receive deposits of money payable on demand. That undoubtedly constitutes a form of banking. Dry goods stores at times receive deposits of money, similarly payable on demand. The purpose of the store may be to enable customers to charge purchases against these accounts, yet the operation of receiving moneys on deposit by a dry goods store is so closely analogous to the business of receiving deposits by a bank that it may reasonably be said to constitute a banking operation. On the other hand, some dry goods stores customarily demand and receive deposits of money from customers to be applied on purchases where either delivery or payment is postponed. Sometimes, indeed, merchants customarily receive deposits as evidence of good faith before a contract or sale is made. Certainly in such cases it may hardly be said that even habitual receiving of deposits of money constitutes a form of banking.

At times business corporations even ‘discount’ commercial paper of their customers as a regular and customary part of a commercial business. Factors, as part of their business of selling on commission goods consigned to them, customarily agree to make advances of moneys to the consignors before the goods are sold and paid for in cash. At times such agreements require the advances to be made by ‘discount’ of notes or drafts either made by the consignor or received in payment of goods. Certainly the commercial world would be somewhat astonished to learn that such ordinary commercial practices are prohibited and that the discounted notes are void because the factor in advancing moneys to a consignee by ‘discount’ of commercial paper engaged in a prohibited form of banking.

Perhaps we may find in the variations of language in the descriptions of powers confided to banks under the Banking Law and the description of the powers withheld from other corporations under the General Corporation Law further evidence that the Legislature did not intend that in all cases the habitual exercise of a power confided to a bank shall constitute illegally engaging in a form of banking. Section 2 of the Banking Law authorizes banks to loan money on real and personal property. Certainly this...