Fleckner v. President Directors and Company of the Bank of the United States

ERROR to the District Court for the District of Louisiana. This was a suit brought by the defendants in error against the plaintiff in error, in the Court below, upon a promissory note drawn by him, dated the 26th of March, 1818, for the sum of 10,000 dollars, payable to the order of one John Nelder, on the first of March, 1820. The plaintiffs below, in their petition, made title to the note through several mesne endorsements, the last of which was, that of the President, &c. of the Planters' Bank of New-Orleans, through their cashier, as agent. The answer of the defendant below set up several grounds of defence: (1.) That the Bank of the United States purchased the note in question from the Planters' Bank, which was a trading within the prohibitions of the charter of the Bank of the United States. (2.) That the transfer was usurious, it having been made in consideration of a loan or discount to the Planters' Bank, upon which more than at the rate of six per centum per annum was taken by the Bank of the United States. (3.) That the cashier of the Planters' Bank had no authority to make the transfer. (4.) That the making the promissory note by the defendant below was not a mercantile transaction, or governed by mercantile usages or laws, because it was given as the part consideration of the purchase by him of a plantation and slaves, from the said Nelder, and that the notary, before whom the contract of sale was executed and recorded, wrote on the note the words 'ne varietur,' by which every holder of the note might know it was not a mercantile transaction, and could obtain knowledge of the circumstances under which it was given. And the answer proceeded to state, that Nelder had no title to a part of the plantation and slaves, and that the note ought not to be paid until the title was made good; and prayed, that the matters thus alleged and put in issue, might be inquired of by a jury.

The issue was joined, and it appeared in evidence on the trial, that the note in question was discounted for the Planters' Bank, by the Bank of the United States, and, after deducting for the time the note was to run a sum equal to the rate of six per cent. per annum, the residue was carried to the credit of the Planters' Bank, which was at that time indebted to the Bank of the United States in a large sum of money. The counsel for the defendant below moved the Court to instruct the jury, upon this evidence, 'that the receiving the transfer of the said promissory note, and the payment of the amount in account, as stated in the evidence, was a dealing in notes, and such dealing was contrary to the provisions of the act incorporating the said bank.' The Court refused to give the instruction prayed for, but did instruct the jury, 'that the acceptance of an endorsed note, in payment of a debt due, is not a trading in things prohibited by the act.'

The Court also instructed the jury, that the discount taken by the Bank of the United States was not usurious, and would not defeat their right to recover the amount of the note.

It also appeared in evidence, that the Board of Directors of the Planters' Bank, on the 21st of October, 1818, passed a resolution, 'That the president and cashier be authorized to adopt the most effectual measures to liquidate, the soonest possible, the balance due to the office of discount and deposit in this city, [New-Orleans,] as well as all others presently due, and which may in the future become due to any banks of the city.' The endorsement of the note was made to the Bank of the United States, on the 5th of September, 1819; and before the commencement of the present suit, to wit, on the 27th of June, 1820, the Board of Directors of the Planters' Bank passed another resolution, to which the corporate seal was annexed, declaring that the two notes of the defendant below, (of which the note now in question was one,) 'were endorsed by the late cashier of the Planters' Bank, by authority of the president and directors, and delivered to the office of discount and deposit of the Bank of the United States, and the amount passed to the credit of the Planters' Bank;' and that 'the said board of directors do hereby ratify and confirm the said act of their said cashier, as the act of the President, Directors, and Company of the Planters' Bank.' Upon this evidence, the Court instructed the jury, that the cashier had authority to endorse the note, and that his endorsement operated a valid transfer.

It further appeared in evidence, that the said note was originally given as a part consideration for the purchase money of a plantation and slaves, purchased by the defendant below, of Nelder, with a covenant to warrant and defend. The contract of sale was drawn up, executed, and recorded, before a notary, according to the laws and usages of the State of Louisiana. The notary, upon the giving of this note, and other notes, for the purchase money, by the defendant below, wrote on each note the words 'ne varietur.' The Court instructed the jury, that the writing of these words did not affect the negotiability of the note.

The defendant below excepted to these several instructions, and the jury found a verdict for the plaintiffs, on which judgment was rendered by the Court below; and the cause was brought by writ of error to this Court.

Feb. 20th.

Mr. Harper, for the plaintiff in error, argued, (1.) That the purchase of the note in question, by the Bank of the United States, from the Planters' Bank, was a dealing or trading within the 9th rule of the fundamental articles of the charter of the Bank of the United States, which provides, 'that the said corporation shall not directly or indirectly deal or trade in any thing, except bills of exchange, gold or silver bullion, or in the sale of goods, really and truly pledged for money lent, and not redeemed in due time, or goods which shall be the proceeds of its lands.' (2.) He insisted that the transfer of the note was usurious, as it was made in consideration of a discount, on which the interest was deducted at the time of making the discount, contrary to the provision of the same 9th rule, which declares, that the Bank shall not 'take more than at the rate of 6 per centum per annum, for or upon its loans or discounts.' He admitted that this practice of deducting the interest from the sum advanced, at the time the discount was made, was according to the general usage of banks and private bankers. But he denied that this usage was lawful, since it was plain, that by this means more than at the rate of 6 per cent. per annum was received by the bank upon the sums actually advanced. (3.) The cashier of the Planters' Bank had no authority to transfer the note. The transfer must have been made by the corporation, either under its common seal, which is the appropriate legal mode in which these artificial persons are to act; or under the resolution of the 21st of October, 1818, which was supposed to constitute a special authority to the cashier to make the transfer. Upon this resolution there were two questions: 1st. Whether it empowered the cashier to transfer the note by endorsement; and, if not, 2dly. Whether the vote of the 27th of June, 1820, ratified the act so as to give it validity. Upon the first question, it should be observed, that the power, whatever its extent might be, was joint to the president and cashier, and could not be exercised by either of these officers separately. But the power itself was merely to liquidate the debts due to the bank, which imports no more than an authority to ascertain and settle the amount of the debts. As to the supposed ratification; that which is void in its inception, cannot be made good by a subsequent act. If an attorney, not duly appointed, exceeds his authority, his acts cannot receive validity from a subsequent confirmation. The confirmation cannot relate back to, and connect itself with, an act absolutely void. The Planters' Bank could make no contract respecting its corporate property but under its corporate seal, or through the instrumentality of an agent or attorney appointed under that seal. And a contract otherwise made, cannot be confirmed by a subsequent act, which is itself not under seal. (4.) The note, in its inception, was not a commercial transaction; it was given for the purchase of real property, and connected by the form of the contract, as executed before the notary, with the sale itself. So that its negotiability was partially restrained by this circumstance, and the title of the vendor to the property, having failed, that fact affords a sufficient defence to the maker of the note, into whose hands soever it may have come. And the inscription made by the notary upon the note itself, was intended to give notice to all the world, of the origin and nature of the transaction, by which its negotiability was restrained.

Mr. Cheves, and Mr. Sergeant, contra, contended, (1.) That this note was either discounted for the Planters' Bank, or taken as security for, or in payment of a debt, deducting the discount, which is the same thing. The Bank of the United States is not prohibited from buying notes, nor from taking any thing whatever in payment, or as security for debts bona fide due. And the great object of the trade of banking, as it is carried on by the private bankers and incorporated companies, is to discount bills and notes. (2.) Even if the transfer were usurious, it would not follow that the contract was void. If usurious between the endorser and endorsee, it would not avoid the contract of the drawer, or any previous endorser. The State law, whatever it may be, does not affect the Bank of the United States, or its contracts, which are to be governed by the act of Congress alone. That expressly authorizes the taking discounts on loans, and does not avoid the securities given even for usury. Nor is this contract usurious by the State law, by which the legal rate of interest is 8 per cent., where the parties have not contracted for a greater rate. Not only is it the universal practice of the commercial world, to take discount in advance, but the law has constantly sanctioned this practice, both in England and in this country. (3.) As to the endorsement by the cashier, it was within the scope of his general authority. A written or parol authority is sufficient to authorize a person to make a simple contract, as agent or attorney, and to bind his principal to the performance of it, without a formal letter of attorney under seal. So, the authority may be implied from certain relations proved to exist between the person who acts as agent, and the party for whom he undertakes; and it may sometimes be inferred from the subsequent ratification or acquiescence of the party who is to be charged by the writing. But, even supposing the general official character and authority of the cashier were not sufficient, the resolution of the 21st of October, 1818, delegated a sufficient special authority, and was fully ratified and confirmed by the subsequent resolution. The notion that such acts of commercial corporations must be under seal, is exploded in this Court. (4.) The note being negotiable on the face of it, some circumstance must be shown to restrain its negotiability. The character of the instrument does not depend upon the particular transaction out of which it arises, but upon the general nature of the instrument itself. If that be in itself a negotiable paper, it is equally so in whatever service it may be employed; and if connected with a sale of lands, has all the same incidents as if given upon a purchase of a ship or goods. One of these incidents is, to pass freely by endorsement, transferring the legal and equitable right; and another is, that the endorsee, without notice, takes it free from every equity. But here the circumstances relied on would not constitute a legal defence even in a suit brought by the payee. Here was a mere covenant to warrant and defend, and no actual eviction. Where the purchaser has a covenant in his deed, equity will not relieve him from the payment of a bond given for the purchase money, there being no eviction, but will leave him to his remedy at law upon the covenant. And, at law, the damages will be according to the injury actually sustained. 7 ''Johns. Rep.'' 358. 2 ''Wheat. Rep.'' 62. note c. note c. There was, therefore, no defence, either at law or in equity. And if the covenant were actually broken, the recovery would be in damages, which could not be settled in an action on the note. Consequently, the breach of covenant, as to part, at all events, would be no defence. So, if there be a partial failure of consideration, it will not constitute a defence. The words 'ne varietur,' inscribed by the notary, were merely intended to identify the notes, as being those given on the contract of sale.

Feb. 28th.

Mr. Justice STORY delivered the opinion of the Court.