Union Trust Co. v. Preston Nat. Bank

• Decision Date: 26 April 1904
• Citation: 99 N.W. 399,136 Mich. 460
• Court: Michigan Supreme Court
• Parties: UNION TRUST CO. v. PRESTON NAT. BANK OF DETROIT.

99 N.W. 399

136 Mich. 460

UNION TRUST CO. v. PRESTON NAT. BANK OF DETROIT.

Supreme Court of Michigan

April 26, 1904

Error to Circuit Court, Wayne County; Joseph W. Donovan, Judge.

Action by the Union Trust Company, receiver of the City Savings Bank, against the Preston National Bank of Detroit. Judgment for plaintiff, and defendant brings error. Reversed.

Geer, Williams & Halpin and H. R. Martin, for appellant.

Bowen Douglas, Whiting & Murfin (John C. Donnelly and Frederick W Whiting, of counsel), for appellee.

Walker & Spalding, for City Savings Bank.

CARPENTER J.

Plaintiff brought this suit to recover a conceded balance of $21,581.11 owing by defendant to the City Savings Bank at the time plaintiff was appointed receiver. Defendant sought to set off against this indebtedness the sum of $100,000, represented by a check drawn on said City Savings Bank January 24, 1902, by F. C. Andrews, payable to defendant's order, and certified in due form by the teller of the insolvent bank. It appeared that, at the time this check was certified, its maker, Andrews, instead of having funds to his credit in said bank, had overdrawn his account, as shown by the bank's books, 'to the amount of $405,000.' The defendant offered to prove that it received said check, after certification, on the day it was drawn, in the usual course of business, and paid to said Andrews, the maker, full value therefor, and at that time had no notice or knowledge of any infirmity in said check, or of the fact that the account of said Andrews was overdrawn. This evidence was excluded, on the ground that said check was invalid in the hands of a bona fide holder, and a verdict directed for the plaintiff for the amount of the deposit in defendant's hands. The sole question presented by this record relates to the correctness of this holding.

It is authoritatively settled and conceded that at common law the fact that the maker of a certified check had no funds in the bank affords no defense, if the check negotiable in form, as in this case, has passed into the hands of a bona fide holder. See Merchants Bank v. State Bank, 10 Wall. 604, 19 L.Ed. 1008; Farmers' &amp Mechanics' Bank v. Butchers' & Drovers' Bank, 16 N.Y. 125, 69 Am. Dec. 678. This case is not, however, to be determined solely by common-law principles. The correctness of the holding of the trial court depends upon the proper construction of certain statutory provisions in our banking act relative to the certification of checks. Section 6108, Comp. Laws 1897, being section 19 of the general banking act, reads: 'It shall not be lawful for any officer, clerk, agent or employ� of a bank to certify a check, unless the amount thereof actually stands to the credit of the drawer upon the books of the bank, or to resort to any device, or receive any fictitious obligations, direct or collateral, in order to avoid the provisions of this prohibition; and any officer, clerk, agent or employ� who shall attempt any such evasion shall, upon conviction thereof, be deemed guilty of a misdemeanor, and punished as provided in section fourteen of this act.' Other sections of the banking act, viz., section 14 (section 6103, Comp. Laws 1897), section 18 (section 6107, Comp. Laws 1897), and section 58 (section 6147, Comp. Laws 1897), make the violation of section 19 a crime.

In construing this act, we have not the benefit of decisions of other courts construing a precisely similar act, for, with the exception of the national banking act, which will be hereafter referred to, there is no similar act.

It will thus be seen that the certification in question was forbidden by law, and punishable as a crime. The statute does not, however, expressly declare that the check so certified shall be void in the hands of a bona fide holder. Indeed, it does not expressly declare that it shall be void in the hands of one who is not a bona fide holder. The fact, however, that the certification is forbidden and made a crime, compels the inference that the Legislature intended to avoid such certification between the original parties (see Heffron v. Daly, 95 N.W. 714); and this, it is almost unnecessary to say, avoids it in the hands of every one not a bona fide holder. It by no means follows, however, because a contract made in violation of law--common or statutory--is void between the original parties, that, if given the form of negotiable paper, it is void in the hands of a bona fide holder. Indeed, it is the distinguishing characteristic of the law of negotiable paper that when a contract takes that form it is not, in the hands of a bona fide holder, subject to the defense which avoided it in the hands of the original parties. Negotiable paper in the hands of a bona fide holder is not open to the defense that the contract from which it arose was illegal or forbidden by the principles of the common law. A note given to compound a felony is good in the hands of a bona fide holder. Clark v. Ricker, 14 N.H. 44; Wentworth v. Blaisdell, 17 N.H. 275. Nothing less than a statutory enactment will subject negotiable paper in the hands of a bona fide holder to the defense of illegality in its inception. What, then, is the effect of a statute which merely prohibits the making of a particular contract, and punishes its making as a crime? How shall we determine what consequences the Legislature intended should follow a violation of this law? Manifestly by applying in its construction the principles of the common law. 'Statutes are not, and cannot be, framed to express in words their entire meaning. They are framed, like other compositions, to be interpreted by the common learning of those to whom they are addressed--especially by the common law, in which they become at once enveloped, and which interprets their implications and defines their incidental consequences. That which is implied in a statute is as much a part of it as what is expressed.' Sutherland on Statutory Construction, � 334.

In accordance with these principles, we would assume, and, as heretofore stated, we do assume, that the Legislature intended to make such contract void between the parties; and we would likewise assume that it did not intend if the contract took the form of negotiable paper, to affect its validity in the hands of a bona fide holder. But plaintiff's counsel contends that it is settled by authority that, when a contract is prohibited and made a crime by statute, such a contract, if it takes the form of negotiable paper, is void in the hands of a bona fide holder; and he relies upon the following authorities: Clark & Marshall on Corporations, � 225; Endlich on Interpretation of Statutes, � 449; Sutherland on Statutory Construction, � 336; Anson on Contracts, 172; Heffron v. Daly (Mich.) 95 N.W. 714; State Life Ins. Co. v. Strong, 127 Mich. 346, 86 N.W. 825; Loranger v. Jardine, 56 Mich. 518, 23 N.W. 203; Bowditch v. New England Life Ins. Co., 141 Mass., at page 293, 4 N.E. 798, 55 Am. Rep. 474; Union Nat. Bank of Chicago v. Railway Co., 145 Ill. 208, 34 N.E. 135; Cincinnati Mutual Health Ins. Co. v. Rosenthal, 55 Ill. 85, 8 Am. Rep. 626; Milford v. Milford Water Co. (Pa.) 17 A. 185, 3 L. R. A. 122; Edgerly v. Hale, 71 N.H. 138, 51 A. 679; Woods v. Armstrong, 54 Ala. 152, 25 Am. Rep. 671; McConnell v. Kitchens, 20 S.C. 430, 47 Am. Rep. 845; Texarkana & Ft. Scott Ry. Co. v. Bemis Land Co., 67 Ark. 542, 55 S.W. 944; Snoddy v. Bank, 88 Tenn. 573, 13 S.W. 127, 7 L. R. A. 705, 17 Am. St. Rep. 918. None of these authorities, except Texarkana & Ft. Scott Ry. Co. v. Bemis Land Co. and Snoddy v. Bank, which will receive attention later in this opinion, related to a case of negotiable paper in the hands of a bona fide holder. All that can justly be claimed for these authorities, with the exceptions above referred to, is that they hold that, when the making of a contract is prohibited and made a crime by statute, it is void as between the original parties, or--what is the same thing--as between parties who do not stand in the attitude of a bona fide holder of negotiable paper arising therefrom. It is true that many of these decisions say that such a contract is void, and one of them (see Milford v. Milford Water Co.) says that it 'is utterly void, and there is no power that can breathe life into such a dead thing.' This language must, however, in accordance with every just principle of construction, be understood as applying to the case before the court. It may not be improper to describe the particular contracts under consideration as void, and as utterly void. But it by no means follows that negotiable paper issued on such contract would be void in the hands of a bona fide holder for value. These authorities cannot be regarded as authority for the proposition for which plaintiff's counsel cites them. They are not inconsistent with the rule (which we deem it our duty to undertake to show is well settled by authority) that, though a contract is prohibited and made a crime by statute, that contract, if it takes the form of negotiable paper, is valid and enforceable in the hands of a bona fide holder. Says Mr. Daniels, in his work on Negotiable Instruments, � 197: 'The bona fide holder for value, who has received the paper in the usual course of business, is unaffected by the fact that it originated in an illegal consideration, without any distinction between cases of illegality founded in moral crime or turpitude, which are termed 'mala in se,' and those founded in positivie statutory prohibition, which are termed 'mala prohibita.' The law extends this peculiar protection to negotiable instruments, because it would seriously embarrass mercantile transactions to expose the trader to the consequences of having the bill or note passed to him impeached for some covert...