New-York Firemen Insurance Co. v. Ely

Hosmer, Ch. J.

In the opinion now to be expressed, a recurrence to the questions of usury, (b) and the law of New-York, denominated "the restraining act,” is unnecessary.

I have come, most satisfactorily, to the result, that the note in question is void, for deficiency of right in the plaintiffs, as well as in the former corporation, to loan money on the discount of notes.

The plaintiffs are a corporation, created by the legislature of New-York. As early as the year 1810, a number of persons were incorporated as an insurance company; and afterwards, in the year 1818, their charter was surrendered, and a new one was granted to the plaintiffs, comprising the powers of the first incorporation, with the addition of certain other powers specified. At present, I state the facts in this general manner; as I shall have occasion to examine the provisions of both charters, particularly, so far as they bear on the question now to be discussed.

To the maintenance of the present action the defendants object, that the plaintiffs were not empowered to loan money on the discount of notes; and that the note in suit was for a loan of this description. The fact is admitted; but by the plaintiffs it is insisted, that they had a legal right to lend money, and take the note in payment.

The note in suit was discounted after the acceptance of the new charter, in part payment of an antecedent note received on discount for the loan of money, by the first corporation.

Whether the plaintiffs had right, by their charter, to discount the note in suit, is the specific question to be determined. They have acted in the capacity of a corporation ; and the validity of their act must be tested, by the powers, which the incorporation conferred.

It has been claimed, that every thing not prohibited by the charter of incorporation, is left free ; and that concerning the disposition of its funds, a corporation, as if it were an individual, may loan money, and take any security, except so far as it is expressly limited and restrained. The analogy supposed does not exist ; and the capacity of the corporation has been entirely misconceived.

*568 An individual has an absolute right freely to use, enjoy and dispose of all his acquisitions, without any controul or domination, save only by the laws of the land. But the civil rights of corporation (for it has no natural rights) are widely different. The law of its nature, or its birth-right, in the most comprehensive sense, is such, and such only, as its charter confers. These principles were advanced, by Chief Justice Marshall, with his usual precision, in the case of Head and Amory v. The Providence Insurance Company, 2 Crunch 127. “It is a general rule,” said that learned jurist, (p. 166.) “that a corporation can act only in the manner prescribed by law.” “ An individual has an original capacity to contract, and bind himself in such manner as he pleases.” P. 168. “ The act of incorporation is to them (i. e. the corporation) an enabling act; it gives them all the power they possess ; it enables them to contract ; and when it prescribes to them a mode of contracting, they must observe that mode, or the instrument no more creates a contract than if the body had never been incorporated.” P. 169. If a corporate body is thus limited to the mode of contracting, which is often unessential, a fortiori is it restrained to the subject matter, as to the sphere within which it is to move. In the case of The People v. The Utica Insurance Company, 15 Johns. Rep. 383., when speaking of a corporation for a specific object, it was said, by Chief Justice Thompson, that “ such an incorporated company have no rights, except such as are specially granted, and those that are necessary to carry into effect the powers so granted.” The principle has often been recognized. Broughton v. Manchester Water-Works Company, 3 Barn. & Ald. 1. Slark v. Highgate Archway Company, 5 Taun 792. It results as an unquestionable corollary from the principles before stated.

By the test of this rule, I will examine the charter, under which the plaintiffs derive their capacity, and shall endeavour to maintain the following propositions. 1, The right of loaning money on the discount of notes, was not expressly granted, to the old or new corporation ; nor was it necessary to carry into effect any delegated power. 2. The power of loaning money on discount, was, by the charter, impliedly prohibited. 3. The power in question was prohibited expressly.

I am fully aware, that these several propositions concentrate in one, viz. that the plaintiffs had no right to loan money on discount ; but these distinct modes of discussion, if I am not *569 mistaken, will, with additional clearness, conduct the mind to the correct result.

1. The right of loaning money on the discount of notes, was not expressly or impliedly granted. The charter of 1810 commences with a recital, that certain persons had associated themselves as a company for the laudable and beneficial purpose of insuring buildings and personal property from loss or damage by fire, and also for marine insurance ; and that they had petitioned to be incorporated “ the better to enable them to carry into effect the salutary purpose of their association.” The object of the company is here fully displayed ; and although the preamble of a law does not controul the enacting clause, expressed in clear and unambiguous terms, yet if any doubt arises, it may be resorted to, for the purpose of explanation, and to shew the legislative intent. The unequivocal object, then, of the application for a charter, and of the legislature in granting it, was insurance.

After having incorporated the applicants, the legislature proceed, in the second section, to define the powers of the corporation. They declare, that it is created for the sole purpose of making contracts of insurance. This is explicitly asserted to have been the object of the grant ; and to effectuate this object exclusively, the most plain and unequivocal words are employed. It will not be pretended, that the power of loaning money on discount, is granted in the section reviewed; or that it is necessary to effectuate the business of insurance. If, then, the right of loaning money exists, it must be found in some subsequent section of the act.

By the sixth section, the company is enabled to hold real estate, to receive mortgages and pledges to secure the payment of the shares in the capital stock, and likewise of any oilier debt due to the corporation. They, also, are empowered to purchase, on sales made by virtue of a judgment at law, or decree or order of a court of equity, or otherwise to receive and take any real estate, in payment of any of their debts.

By the sixteenth section, the corporation is empowered to purchase stock of the United States, for the purpose of investing therein its capital, or any part thereof, and to receive transfers of such stock as security for the payment of shares subscribed, or for any debts due to them, after they shall have commenced the business of insurance.

These are all the powers conferred by the first charter, *570 which can be considered as bearing, even in the slightest degree, on the subject of discussion.

In February, 1818, the capital stock being greatly reduced by losses, the stockholders ceased making any further assurance, and determined to close and wind up their business. They likewise consented, that a new subscription should be opened, and that the stockholders thereof should only choose directors, who should have the power of adjusting and settling the concerns of the original subscription, and dividing among the holders of the stock the balance remaining after all its engagements should be paid. Conformably to this agreement, a new subscription was had; and the legislature, by act of the 27th of February, 1818, having recited the doings of the old stockholders, incorporated the subscribers of the new stock under the former corporate name. They likewise declared, that the first corporation, so far as related to the original stock and stockholders, should be closed and discontinued ; and that the funds, estate and effects thereof, after the extinguishment of all claims against it, should be discontinued among the stockholders. It was farther enacted, that the stockholders of the first corporation, in respect to its operations and concerns, since the 1st of January, 1818, should cease to be such, unless they should become stockholders of the new capital stock.

By the third section of the act, the new corporation was empowered to make contracts of insurance against fire, and of marine insurance, and to loan money on bottomry, respondentia or mortgage of real estate and chattels real; and, likewise, to exercise all the powers and authorities vested in the first corporation. To this section the legislature, out of abundant caution, subjoined a provision, “ that nothing in this act contained should, in any way, be construed to grant banking powers.”

The fifth section of the act provides, that the directors of the last corporation shall have the charge, management, liquidation and settlement of the business and concerns of the original stockholders and stock of the corporation, and shall keep separate accounts thereof ; and after the payment and extinguishment of all the debts and engagements of the corporation out of the estate and funds belonging thereto, that the residue shall be distributed among the original stockholders. And by the sixth section, the new corporation is invested with all the powers conferred on the former, except so far as they are inconsistent with the provisions of the law of 1818.

Having thus referred particularly to all the powers of con *571 tracting contained in both charters, I now enquire, whether the right of loaning money on discount of notes, was expressly granted by either ? No person has pretended it; no one will hazard the assertion. Both the charters are profoundly silent on this subject.

I next enquire, whether loans on discount of notes were necessary to carry into effect either of the powers granted ? If there be any pretence of this, let the power be specified. The powers granted I will particularize. They are—to make marine insurances and insurances against fire ; to hold real estate for the use of the corporation ; to receive mortgages and pledges for security of the capital stock, and of debts due the corporation ; to purchase on sales, made by virtue of a judgment at law, or a decree or order of a court of equity, and to take any real estate in payment of their debts ; to purchase stock of the United States, for the purpose of investing therein the capital of the company, and to receive transfers of such stock as security for the payment of shares subscribed, or for any debts due to them; to loan money on bottomry, respondentia or mortgage of real estate and chattels real ; and to have the liquidation and settlement of the business and concerns of the original stockholders and stock, and after the extinguishment of all claims, to distribute the residue to such stockholders. Having thus concentrated all the contracting powers of both corporations, and brought them within a single glance of the eye, I repeat the enquiry, which of them, for its effectuation, required the power of loaning money on discount of notes ? Every mind, possessing no more perspicacity than mine, will promptly answer, none.

In the case of The People v. The Utica Insurance Company, 15 Johns. Rep. 358. it was adjudged, that the surplus funds of the corporation might be loaned; but betwen that case and this there is no analogy. The Utica Insurance Company, by their charter, were permitted to loan money, by authority given to them to make investment of their funds, which the business of insurance might not actively employ, except so far as they were prohibited; and no total prohibition of this nature existed.

It is not questioned, that the corporation was empowered, by charter, to secure, by mortgage, debts due to them in any manner whatever; but this remark is inapplicable to the present case. The object of the authorized security, is debts ; and the mode of security is, by mortgage. Here there was no debt *572 to be secured; and no mortgage, but merely a promisory note.

The directors under the act of 1818, it has been said, were made trustees of the old corporation, with unlimited power. A more gratuitous assertion could not be made. It is in hostility both with the words and the object of the section alluded to. Their power was defined and specific. They were to liquidate and settle the business and concerns of the first corporation, and after the extinguishment of all the demands against them, to pay the balance to the original stockholders. They had no authority, expressly or by implication, to continue the business of the first corporation a moment. The sole object of the power was to terminate, in the shortest time possible, the concerns of the old corporation, which had ceased to exist. Their authority may, strictly, be compared to that of administrators. They were to settle the estate of the deceased, and pay over the surplus.

It has been contended, that the corporation was authorized to invest its funds, in any way not prohibited by the charter. This is an inversion of the unquestionable principle, that such an incorporated company has no rights, except such as are specifically granted, or necessarily implied ; and directly contravenes the undeniable position, that the act of incorporation is an enabling act ; the law of its nature ; giving it all the powers it possesses.

In conclusion on this head of argument, I am clear, that the plaintiffs had no right to loan money on discount of the note in question.

2. The loaning of money on the discount of notes, was, by the charter, impliedly prohibited.

In addition to the power of insurance, the great object of the incorporation, a number of distinct powers were conferred, embracing every subject supposed to be connected with the interest of the company.

It is a sound principle, that the specific grant of certain powers, is an implied prohibition of other and distinct powers 15 Johns. Rep. 383. 2 Cowen's Rep. 699. It is never to be assumed, that unnecessary provisions were made; and hence they are enacted, because the corporation otherwise would not have been invested with the powers granted. The construction of a charter, on this ground, is necessarily confined to the general and specific powers clearly conferred.

In the case under discussion, when recurrence is had to the *573 specific powers, they, in their nature, forbid the exercise of the power claimed by the plaintiffs.

The expression in the second section of the first charter, that the incorporation was for the sole purpose of making insurance, clearly implies, that it was not for the loan of money, unless such power should be specifically imparted.

By the sixteenth section, the express delegation of power to invest the capital in stock of the United States, is attended with the necessary implication, that the corporation had not this power, by the general grant to make insurance. But the power would have existed, on the same principle, that the corporation had the right of loaning money, not specially imparted.

The third section of the charter supplies the most irrefutable presumption against the right asserted. The corporation was expressly authorized, by this section, to loan money on bottomry, respondentia or mortgage of real estate. Had they this power antecedently? If so, why was it specifically conferred? It is unquestionable, that the power just mentioned did not exist, and would not have existed, unless it were specially granted. But if the right to loan was vested in the corporation, then the delegated power was unnecessary, and even noxious, in contributing to impart a construction to the charter. But it was not antecedently granted. The special power was not restrictive of a prior right, but the delegation of authority not before existing.

Lastly, the loaning of the funds of the corporation, except so far as it is authorized, is expressly prohibited.

In the sixteenth section of the first charter, it is declared, that the corporation shall not be concerned in trade or other business, except the insurance of property ; provided that stock may be purchased for the investment of their capital. Is the loaning of money on discount a business ? Who can doubt it ? Then it is expressly prohibited.

Immediately after conferring the power to loan money on bottomry, respondentia and mortgage, by the third section, it is provided, that nothing in this act contained, shall, in any way, be construed to grant banking powers. The discount of money on a note, is, peculiarly, of this description; and though not the only, yet it is the most important power of a bank. 15 Johns. Rep. 390. 9 Mass. Rep. 54. 2 Cowen's Rep. 710. Then it is forbidden expressly, and precisely in a connexion, which demonstrates the solicitude of the legislature on this subject. The power of loaning on certain prescribed security, having been *574 granted, it, not improbably, was apprehended, that this would be a pretext for loaning money on discount. Hence the provision inhibiting the constructive grant of a banking power, and meeting, in direct opposition, the proceeding of the plaintiffs now in question. The prohibition is total and exclusive. It did not intend merely to forbid the ordinary and habitual loan of the corporate fund; but, on the salutary principle, obsta principiis, to prohibit the exercise of any banking power. A construction of the charter short of this, would defeat its object, and, by permitting the use of the banking powers separately, which, from their nature, cannot be employed conjunctly would nullify the entire provision.

It matters not whether the disposition of the funds, in a certain manner, would, or would not, be profitable to the corporation. The test of power, in this case, is not, what would be useful, but what is the grant.

On the best attention I have been able to bestow on this subject, I am clearly and irresistibly led to the conclusion, that the plaintiffs had not the power to loan money on the discount of notes; and that the note in suit is utterly void.

I would, therefore, in this case, grant a new trial.

The other Judges, viz. Peters, Chapman, Brainard and Bristol, Js. were of the same opinion.

New trial to be granted.

In consultation, Peters, Chapman, and Bristol, Js. expressed a clear opinion, that the note in suit was not usurious. Hosmer, Ch. J. was decidedly of opinion that it was usurious; to which Brainard, J. assented. As it ultimately became unnecessary to decide this point, in order to a final disposition of the case, neither of the Judges expressed any opinion upon it in public.