Thompson v. Saint Nicholas Nat'l Bank, 146 U.S. 240 (1892)
U.S. Supreme CourtThompson v. Saint Nicholas Nat'l Bank, 146 U.S. 240 (1892)
Thompson v. Saint Nicholas National Bank
Argued November 17-18, 1892
Decided November 28, 1892
146 U.S. 240
Where T. deposited with C., his broker, coupon railroad mortgage bonds, as margin for purchases of stocks, and C. pledged the bonds to a national bank in 1874, as its customer, as collateral security for any indebtedness he might owe to the bank, and afterwards the bank paid and advanced for C. money on the faith of the bonds, and on like faith certified checks drawn on it by C., when C. had not on deposit in the bank moneys equal in amount to the checks: held, under the Act of March 3, 1869, c. 135, 15 Stat. 335, now § 5208 of the Revised Statutes, that although the certifications were unlawful, the checks certified were good and valid obligations against the bank.
The pledge of the bonds with the bank by C. was a valid contract, and entirely aside from the certifications, and the title of the bank to the bonds was not impaired by the certifications.
Where the provisions of the National Banking Act prohibit certain acts by banks or their officers without imposing any penalty or forfeiture applicable to particular transactions which have been executed, their validity can be questioned only by the United States, and not by private parties.
This is an action brought by John B. Thompson, in the supreme court of the State of New York against the Saint Nicholas National Bank of New York, a national banking association. The complaint alleged that on the 18th of April, 1874, the plaintiff was the owner of 73 mortgage bonds of $1,000 each, of the Jefferson, Madison and Indianapolis Railroad Company, and 20 mortgage bonds of $1,000 each, of the Indianapolis, Bloomington and Western Railroad Company, of the value of $150,000; that on or about that date, the defendant became wrongfully and illegally possessed of the bonds, and that before the suit was brought, the plaintiff demanded from the defendant the possession of them, but the defendant refused to deliver up any portion thereof.
The answer of the defendant set up that at the time named in the complaint, and for a long time before, Capron & Merriam, bankers and brokers in the City of New York, were
customers of, and regular depositors with, the defendant, and kept a large account in its bank; that it was the custom of Capron & Merriam to procure call loans, advances, and discounts from the defendant, for the benefit of themselves and also of their customers, and they pledged to the defendant, as collateral security for such loans, advances, and discounts, various bonds, stocks, and commercial paper, under an agreement on their part that in case they should be at any time indebted to the defendant for money lent or paid to them, or for their use, in any sum, the defendant might then sell, in its discretion at the brokers' board, public auction, or private sale, without advertising and without notice, any and all collateral securities and property held by the defendant for securing the payment of such debt, and apply the proceeds to that object; that the bonds specified in the complaint were a part of the securities so pledged by Capron & Merriam to the defendant; that the defendant at the time of such transactions did not have any knowledge in respect to any person interested in such loans or in said securities except Capron & Merriam, and, the latter having failed to pay such loans on proper demand, the defendant proceeded to sell and dispose of said securities pursuant to such agreement, and gave to Capron & Merriam credit for the net proceeds thereof, and that there still remained due to the defendant on account of such loans and advances, after such credit, a large balance.
The plaintiff having died, and his executors having been substituted as plaintiffs, the case was tried at a circuit of the supreme court before a jury, which, under the direction of the court, found a verdict for the defendant. The exceptions of the plaintiffs, taken at the trial, were heard in the first instance at the general term of the supreme court, on a case made by the plaintiffs, containing the exceptions. A motion for a new trial was made thereon before the general term, and was denied, with an order that the defendant have judgment against the plaintiffs upon the verdict, with costs. Such judgment was entered, the principal portion of the opinion of the general term being reported in 47 Hun. 621. The plaintiffs then appealed to the Court of Appeals, which affirmed the
judgment, and remitted its own judgment to the supreme court, where a final judgment was entered against the plaintiffs. The opinion of the Court of Appeals is reported in 113 N.Y. 325. The plaintiffs have brought a writ of error.
The 93 bonds in question were all coupon bonds, payable to bearer. The testator of the plaintiffs delivered them to Capron & Merriam, who were his brokers, as margin for purchases of stock by them for his account. Capron & Merriam pledged the bonds to the defendant, they being its customers, as collateral security for the repayment of any indebtedness which might exist at any time to it on their part. That pledge was made under a written agreement, dated December 2, 1873, and signed by Capron & Merriam, which read as follows:
"We hereby agree with the St. Nicholas National Bank of New York, in the City of New York, that in case we shall become or be at any time indebted to said bank for money lent or paid to us or for our account or use, or for any overdraft, in any sum or amount then due and payable, the said bank may, in its discretion, sell at the brokers' board or at public auction or private sale, without advertising the same and without notice to us, all, any, and every collateral securities, things in action, and property held by said bank for securing the payment of such debt, and apply the proceeds to the payment of such indebtedness, the interest thereon, and the expenses of the sale, holding ourselves responsible and liable for the payment of any deficiency that shall remain unpaid after such application."
Afterwards the defendant paid and advanced for Capron & Merriam large sums of money on the faith of the bonds and of such other securities as it held for their account. They failed in business on April 20, 1874, owing the defendant $71,920.17, for checks certified by it and outstanding, and for money paid by it up to the close of business on April 18, 1874. On April 20, 1874, before the defendant heard of such failure, it paid $210 more, making a total debt of $72,130.17, which remained unpaid. No notice or claim as to the ownership of the 93 bonds by the testator of the plaintiffs came to the defendant until May 5, 1874. The bonds came into the possession of the defendant before it made the
certifications of checks for the account of Capron & Merriam, which were made on April 18, 1874, and the certifications were made on the faith of the deposit of the bonds and of the other securities which the defendant held for the account of Capron & Merriam. The defendant used its best efforts to procure as large a price as possible for all the securities which had been pledged to it by Capron & Merriam, including the 93 bonds, but after crediting to Capron & Merriam the entire proceeds of sales, there was a deficiency on their debt to the defendant of about $1,800. No payment on account of such deficiency, and no tender or offer of any kind in respect to said bonds, was ever made to the defendant by the testator of the plaintiffs. This action was not commenced until April 18, 1880, six years after the bonds came into the possession of the defendant.
At the trial, the plaintiffs asked the court to direct a verdict for them on the ground that the contract of certification of the checks by the defendant was void because it was unlawful, being a certification of checks drawn by Capron & Merriam when they had no money on deposit to their credit with the defendant, and the defendant could not hold the 93 bonds as against such unlawful certification, and on the further ground that the defendant did not take the bonds in the ordinary course of business.