Nat'l Bank of RePub. of N.Y. v. Young

• Decision Date: 30 June 1886
• Citation: 7 A. 488,41 N.J.E. 531
• Parties: NATIONAL BANK OF REPUBLIC OF NEW YORK v. YOUNG, Receiver, etc.
• Court: New Jersey Supreme Court

7 A. 488

41 N.J.E. 531

NATIONAL BANK OF REPUBLIC OF NEW YORK

v. YOUNG, Receiver, etc.

Court of Errors and Appeals of New Jersey.

June Term, 1886.

(Syllabus by the Court.)

On appeal from chancery.

William Talcott and Thomas H. Rodman, for appellant, National Bank of Republic.

J. D. Bedle, for respondent, Young, Receiver, etc.

DEPUE, J. The Joseph Dixon Crucible Company was incorporated by an act of the legislature of this state, passed March 11, 1868, (P. L. 1868, p. 360.) It became insolvent, and passed into the bands of a receiver, January 3, 1881. The company was engaged in the business of manufacturing, buying, selling, and dealing in plumbago, crucibles, pencils, stove polish, etc. The firm of Fowler, Crampton & Co., doing business in New York city, were importers of black lead, clay, chemicals, and other articles used by the crucible company in its manufacturing business. The dealings between Fowler, Crampton & Co. and the crucible company, in the sale and purchase of merchandise, were very large. In these transactions Fowler, Crampton & Co. received from the crucible company its promissory notes, which were business paper. Besides these regular business transactions, the parties were in the habit of exchanging paper for accommodation. The paper of the crucible company, which Fowler, Crampton & Co. received, either as regular business paper or for accommodation, that firm was accustomed to have discounted by banks in New York city, mainly by the Niatonal Bank of Bepublic. The account between the firm and the crucible company was kept as a running account, and no distinction was made between the regular business paper and accommodation paper. When notes were received, they were credited; and, when merchandise was delivered, it was charged all in the same account. On the third of January, 1881, when the crucible company went into the hands of a receiver, there was of this paper made by the crucible company outstanding $614,000, of which about 10 per cent. was business paper. Fowler, Crampton & Co. failed about the time of the failure of the crucible company, and made an assignment for the benefit of their creditors.

The crucible company, as a corporation engaged in business, had implied power to make negotiable paper for use within the scope of its business; but it had no power, express or implied, to become a party to bills or notes for the accommodation of others, and such paper is valid and enforceable only in the hands of a holder taking the same before maturity, bona fide, and without notice. 1 Daniel, Neg. Inst. §§ 382, 386; Green's Brice, Ultra Vires, 255, 272. The general doctrine of the law is that where a corporation has power, under any circumstances, to issue negotiable paper, a bona fide holder has a right to presume that it was issued under the circumstances which give the requisite authority, and such paper is no more liable to be impeached for any infirmity in the hands of such a holder than any other commercial paper. Gelpcke v. City of Dubuque, 1 Wall. 175, 203; Supervisors v. Schenck, 5 Wall. 772, 784; Hackensack Water Co. v. De Kay, 36 N. J. Eq. 548. This doctrine is applied to commercial paper made by a corporation for the accommodation of a third person when in the hands of a bona fide holder, who has discounted it before maturity on the faith of its being business paper. Mechanics' Banking Ass'n v. White Lead Co., 35 N. Y. 505; Bird v. Daggett, 97 Mass. 494; Monument Nat. Bank v. Olobe Works, 101 Mass. 57.

At the time of the failure of the crucible company, the National Bank of Republic had under discount three promissory notes made by the crucible company, amounting to $19,655.57, which had been regularly discounted, before maturity, for the benefit of Fowler, Crampton & Co., and also held 14 other notes made by the crucible company, aggregating $90,751.13, as collateral security for the unpaid balance of $86,280.43, due on notes of Fowler, Crampton & Co., discounted for that firm by the bank. All of the notes above mentioned having been discounted or taken as collateral security before maturity, and without notice of any infirmity in the consideration, the vice-chancellor recognized them as valid in the hands of the bank for the amounts above named.

On the thirty-first of December, 1880, the bank loaned to Fowler, Crampton & Co. $31,100, taking as collateral therefor merchandise, from which has been realized $18,718.66, and also the 14 notes of the crucible company which had previously been pledged to the bank for the antecedent loans above mentioned. The aggregate amount of these 14 notes exceeds the indebtedness of Fowler, Crampton & Co. to the bank prior to December 31, 1880, in the amount of $4,470.70; and the question is whether the bank shall be allowed the sum of $4,470.70 in the adjustment of its claim against the estate of the crucible company in the hands of the receiver. The vice-chancellor disallowed this part of the bank's claim, on the ground that before the loan to Fowler, Crampton & Co. of December 31, 1880, the bank had such information with respect to the character of the paper as that, in accepting it as collateral security for the loan of that date, it became in that respect a holder mala fides. The transaction upon which this conclusion was based was as follows: By the testimony of Buckley, who was the vice-president of the bank, and personally acted for the bank in...