Bank of Kentucky v. Wister, 27 U.S. 318 (1829)

U.S. Supreme Court

Bank of Kentucky v. Wister, 27 U.S. 2 Pet. 318 318 (1829) Bank of Kentucky v. Wister

27 U.S. (2 Pet.) 318

ERROR TO THE CIRCUIT COURT OF

THE DISTRICT OF KENTUCKY

Syllabus

In an action for money had and received for the recovery of the amount of a deposit made in the Bank of the Commonwealth of Kentucky, acting under an act of incorporation passed by the legislature of that state, the defendant pleaded to the jurisdiction on the ground that the State of Kentucky alone was the proprietor of the stock of the bank, for which reason it was insisted that the suit was virtually against a sovereign state.

The Court is of opinion that the question is no longer open here. The case of United States Bank v. Planters Bank of Georgia, 9 Wheat. 904, was a much stronger case for the plaintiffs in error than the present, for there the State of Georgia was not only a proprietor, but a corporator. Here the state is not a corporator, since by the terms of the act incorporating this bank, "the president and directors" alone constitute the body corporate, the metaphysical person liable to suit. Hence, by the law of the state itself, it is excluded from the character of a party in the sense of this law when speaking of a corporation.

It may be added to the reasons which influenced the Court in its opinion in the case of Bank of the United States v. Planters Bank of Georgia that if a state did exercise the powers in and over a bank or impart to it its sovereign attributes, it would be hardly possible to distinguish the issue of the paper of such a bank from a direct issue of bills of credit, which violation of the Constitution no doubt the state here intended to avoid.

The act of incorporating the Bank of the Commonwealth of Kentucky contains a provision by which it is enacted that the bank shall receive money on deposit without being required to give an obligation under seal to repay it. This enactment must be construed with regard to the practice of banking and the general understanding of mankind, and must create a liability to the depositor by the simple act of depositing -- that is, an assumpsit in law implied from an act in pais.

Upon the deposit's being made in the Bank of the Commonwealth of Kentucky, the cashier gave under his hand a certificate that there had been "deposited to the credit of the plaintiffs below, $7,730.81, which is subject to their order on presentation of this certificate." The deposit was made in the notes of the bank, and when the same were deposited and when demand of payment was made, the notes were passing at one-half their nominal value. When the certificate was presented to the bank, the cashier offered to pay the amount in the notes of the bank, but they refused to receive payment in anything but gold or silver.

The language of the certificate is expressive of a general, not a specific, deposit, and the act of incorporation is express that the bank shall pay and redeem its bills in gold or silver. The transaction, then, was equivalent to receiving and depositing the gold or silver; if the bank did not so understand it, it might have refused to receive it, and the plaintiffs would certainly have recovered the gold and silver to the amount upon the face of the bills.

Page 27 U. S. 319

The bank having offered to pay the amount of the certificate in its bills, it put its own construction on the same, and it cannot afterwards say that the plaintiffs below should have accompanied the certificate with a check.

The bills of the bank were payable to an individual or bearer, and in the action upon the bills there was no averment of the citizenship of the person to whom the bills are payable, and they might therefore have been payable in the first instance to a party not competent to sue in the courts of the United States. This Court has uniformly held that a note payable to bearer is payable to anybody, and is not affected by the disabilities of the nominal payee.

On 31 October, 1824, the agent of the defendants in error, John T. Drake, deposited in the Bank of the Commonwealth of Kentucky, in the notes of that bank, the sum of $7,730.81, and received from the cashier the following memorandum in writing, usually denominated a certificate of deposit.

"Frankford, 31 October, 1824 -- John T. Drake this day deposited to the credit of John Wister, John M. Price, and Charles J. Wister, $7,730.81, which is subject to their order upon presentation of this certificate. Signed, C. G. Waggoner, cashier -- $7,730.81."

On 6 November, 1824, Mr. Drake presented the certificate to the bank and demanded payment of the sum mentioned in it in gold or silver, which was refused by the cashier, who at the same time offered the amount in notes on the bank, which were rejected by Mr. Drake. At the time the deposit was made, the notes of the bank were of the value of and current in the country at half their nominal amount.

The payment of the amount of the deposit in gold or silver having been thus refused, Wister, Price & Wister brought their action in the Circuit Court of the United States for the District of Kentucky. The declaration contained two counts, the first for money had and received, the second a special count upon the certificate of deposit.

At November term, 1826, the defendants appeared by attorney, and afterwards filed a plea to the jurisdiction of the court under the corporate seal of the bank. The plea states

"That the court ought not to have or take cognizance of this

Page 27 U. S. 320

action, because the defendant is a body corporate and politic, created and established by an act of assembly of the Commonwealth of Kentucky and constituted by the name and style of 'The President and Directors of the Bank of the Commonwealth of Kentucky,' and that the whole capital stock of the said corporation is exclusively and solely the property of the Commonwealth of Kentucky, and that the State of Kentucky, in her political sovereign capacity, as a state, is the sole, exclusive, and only member of the said corporation."

To this plea the plaintiffs below demurred, and the circuit court having sustained the same, the defendants were ordered to answer over.

Upon the trial of the cause, the plaintiffs proved the facts as stated, and the defendants moved the court to instruct the jury that the plaintiffs had not made out a good cause of action, and that the plaintiffs were not entitled to the nominal amount of the deposit, but to the value of the notes at the time of the demand.

The court overruled these motions and instructed the jury that the plaintiffs were entitled to the full sum as expressed in the certificate, with interest thereon, from the date of the demand in lawful money of the United States. The defendants excepted to the opinion of the court upon all the matters submitted to it, and the case came before this Court upon the bill of exceptions. The facts of the case were not controverted.

For the plaintiffs in error, Mr. Nicholas maintained,

1. That the circuit court had no jurisdiction over the cause.

2. The declaration was insufficient.

3. The court erred in the instructions given to the jury.

He argued that upon the decisions of this Court the jurisdiction could not exist in the case. The courts of the United States take jurisdiction 1st, according to the subject matter; 2d, the character of the parties; 3d, in cases arising under treaties, &c.

In this case, the jurisdiction cannot be assumed, as those principles upon which the courts of the United States

Page 27 U. S. 321

would have jurisdiction from the character of the parties, forbid the same. This Court will look behind the act of incorporation to ascertain who are the corporators, and if they find they are not such parties as can sue or be sued in the circuit court, they will refuse to acknowledge that the court could exercise jurisdiction. Cited, Bank of the United States v. Planters Bank of Georgia, 9 Wheat. 904.

In this case, the State of Kentucky is the only stockholder of the bank, and this appearing, the state is the party, and cannot be sued. It is a sole corporation, using the money of the state, and by its obligations binding the state. The interests of the state are alone involved in the suit, and the judgment of the court will operate upon the state directly.

2. The declaration is insufficient, because, as the real party defendant is the State of Kentucky, this action should have been so brought and can only be so sustained.

This Court has decided that a corporation can bind itself by a provision, without seal. In other states of the Union, the same principle has been acknowledged, but it is otherwise in Kentucky. In the supreme court of that state it has been adjudged that unless this obligation or promise of a corporation is under seal, it is not binding. 1 Marshall's Kentucky Reports 1. This has now become a part of the municipal law of the state, and it will be regarded in this Court in cases where the decision applies. The certificate of deposit given by the bank was not, therefore, legal evidence of the promise.

3. In this Court it has been held that bank notes are not money, and this action, which is for money had and received, cannot be sustained, as the notes of the bank only were received.

It may also be urged that as the notes are payable to J. T. Pendleton or bearer, there should have been an averment that he was a citizen of Kentucky. The action cannot be supported unless the citizenship was stated, this Court not having jurisdiction unless J. T. Pendleton was a citizen of Kentucky and averred so to be in the pleadings.

Page 27 U. S. 323

MR. JUSTICE JOHNSON delivered the opinion of the Court.

The defendants here were plaintiffs in the court below in an action for money had and received instituted to recover the amount of a deposit made in the Bank of the Commonwealth of Kentucky.

The defendants pleaded to the jurisdiction on the ground that the State of Kentucky was sole proprietor of the stock of the bank, for which reason it was insisted that the suit was virtually against a sovereign state. To this plea the plaintiffs demurred, and the Circuit Court of Kentucky having decided in favor of its jurisdiction, that decision is made the first ground of error in the present suit.

But this Court is of opinion that the question is no longer open here. The case of United States Bank v. Planters Bank of Georgia, 9 Wheat. 904, was a much stronger case for the defendants than the present, for there the State of Georgia was not only a proprietor, but a corporator. Here, the state is not a corporator, since by the terms of the act incorporating this bank, Kentucky Acts of 1820, page 55, sec. 2, "the president and directors" alone constitute the body corporate, the metaphysical person liable to suit. Hence, by the laws of the state itself, it is excluded from the character of a party in the sense of the law when speaking of a body corporate.

On the subject of an interest in the stock of a bank, the language of this Court, in the case cited, is this.

"It is, we think, a sound principle that when a government becomes a partner in any trading company, it divests itself, so far as concerns the transactions of that company, of its sovereign character, and takes that of a private citizen. Instead of communicating to the company its privileges and its prerogatives, it descends to a level with those with whom it associates itself, and takes the character which belongs to its associates, and to the business which is to be transacted. Thus, many states of the union which have an interest in banks are not suable even in their own courts, yet they never exempt the corporation from being sued. The State of Georgia, by giving to the bank the capacity to sue and be sued, voluntarily strips itself of its sovereign character so

Page 27 U. S. 324

far as respects the transactions of the bank, and waives all privileges of that character. As a member of a corporation, a government never exercises its sovereignty. It acts merely as a corporator, and exercises no other power in the management of the affairs of the corporation than are expressly given by the incorporating act."

To which it may be added that if a state did exercise any other power in or over a bank or impart to it its sovereign attributes, it would be hardly possible to distinguish the issue of the paper of such banks from a direct issue of bills of credit, which violation of the Constitution no doubt the state here intended to avoid.

The next question in the cause is on the sufficiency of the declaration, and on this point it is insisted that in Kentucky a corporation can only assume under seal, whereas the assumpsit here laid, is general and without seal. On this subject, the counsel admitted that every other court in the United States had decided otherwise, but that it had been so ruled in the courts of Kentucky, and was there held as an established law.

It cannot be denied that the case of Frankfort Bank v. Anderson, 3 Marshall's 1, fully sustains him in his position, but this Court declares it unnecessary at this time to enter into the inquiry how far its decisions and those of other states upon a question of a general, not a local, case or character are to be controlled by those of any particular state, since they are of opinion that the act by which the Bank of the Commonwealth of Kentucky is incorporated, contains a provision which is conclusive upon this question. We mean the 8th section, by which it is enacted that the bank shall receive money on deposit without requiring them to give an obligation under seal to repay it. This enactment must be construed with regard to the practice of banking, and the general understanding of mankind, and must create a liability to the depositor by the simple act of depositing; that is an assumpsit in law implied from an act in pais.

The two remaining questions arose upon a bill of exceptions, the material facts on which were these.

Page 27 U. S. 325

The deposit was proved by an instrument of writing in these words:

"J. T. Drake this day deposited to the credit of J. Wister, J. M. Price, and C. J. Wister, the plaintiffs, $7,730.81 cents, which is subject to their order on presentation of the certificate. Signed, O. G. Waggoner, cashier."

It was admitted that the deposit was made in bills of the commonwealth bank, that bills of that bank were then and at the time of demand passing current at half their nominal value, and that on presentation of the certificate, the cashier offered bills of the bank to that amount, but the agent of the defendants refused to receive payment in anything but gold or silver.

In behalf of the bank it was moved that the court instruct the jury that the plaintiffs below had not made out a good cause of action, and were not entitled to the nominal amount deposited, but only to the value of the notes. The court overruled the motion and instructed the jury that the plaintiffs below were entitled to receive the full sum as expressed in the certificate, with interest from the date of the demand in lawful money of the United States. In this instruction it is now insisted that the court below erred.

1. Because nothing but a receipt of money can prove the basis of a recovery for money had and received.

2. Because, if entitled to recover at all, the plaintiffs below could recover no more than the value of the thing deposited.

On both these points we are of opinion that the form of the certificate, and the act of incorporation furnish a conclusive answer.

The language of the certificate is expressive of a general, not a special, deposit, and the act of incorporation, section 17, is express that the bills of the bank "shall be payable and redeemable in gold or silver."

The transaction then was equivalent to receiving and depositing the gold or silver; if the bank did not so understand it, nothing would have been easier than to refuse to take the money as a formal deposit, and the holder of their bills would then have been put to his action upon the bills

Page 27 U. S. 326

themselves, in which case he would certainly have received the gold or silver to the amount upon the face of the bills.

There are two other points which the cause has been supposed to present, and which the court notices to avoid the imputation of letting them escape their attention.

The first is that the refusal of the bank to pay on the presentation of the cashier's certificate, may be imputed to the failure to accompany it with a check from the principals. But on this subject, the majority of the Court is of opinion that the bank put its own construction on the sufficiency of the demand and the meaning of its cashier's certificate, when it tendered, upon its presentation, all that it admitted to be due upon it.

The other point has relation to the form of the bills, which are made payable to individuals or bearer, concerning which individuals there is no averment of citizenship and which therefore may have been payable, in the first instance, to parties not competent to sue in the courts of the United States.

But this also is a question which has been considered and disposed of in our previous decisions. This Court has uniformly held that a note payable to bearer is payable to any body, and not affected by the disabilities of the nominal payee. The judgment is

Affirmed with costs.

This cause came on to be heard on a transcript of the record from the Circuit Court of the United States for the District of Kentucky, and was argued by counsel; on consideration whereof, it is considered, ordered and adjudged by this Court that the judgment of the said circuit court in this cause be and is hereby affirmed with costs.