
    Commonwealth v. Horner.
    December, 1840.
    Criminal Law — Unchartered Banking — -Case at Bar.— "What acts of an incorporated savings institution will amount to an illegal issuing and circulating of securities for the payment of money, in a county other than that wherein the institution is located, so that a member of the institution may be prosecuted in such other county, as for a mis-demeanour, under the statute of February 24, 1816, 2 Rev. Code, ch. 208, § 1.
    Case adjourned from the circuit superior court of Harrison county.
    On the 13th of May 1840, the grand jury impanneled in the said court presented, that certain individuals, citizens of Harrison and Monongalia counties, among whom were James Y. Horner and thirteen others (naming them) of Harrison county, on the 11th of April 1840, at the county of Harrison aforesaid, associated themselves together under the name and style of the Middletown savings bank in the county of Monongalia, and that the said James Y. Horner and the other persons named, with their associates (whose names were not all known to the jury), not having a charter incorporating "them with authority to deal or trade as a bank, and to discount notes, bills or other securities for the payment of money, in the name, on account or for the benefit of said association, did nevertheless, on the day aforesaid and on divers other days since, at the county of Harrison, unlawfully issue and put into circulation in the said county of Harrison many thousand papers of the tenor following—
    “5. Middletown, Va. April 10, 1840. S Chartered by the legislature of Virginia.
    S. Five A. No. 183. Five S
    “D. D. Wilson hath deposited in the savings bank of Middletown five dollars, which will be paid on presentation of this certificate, in current notes, six months after date.
    “Attest J. O. Watson, cash’r. C. C. Vanzandt, pres’t, ” and that the said Horner and others as aforesaid, and their associates, under the name of the Middle-town savings bank in the county of Mo-nongalia, as aforesaid, have from time to time, and on divers daj's and times since the said 11th of April 1840, at the county aforesaid, traded and carried on business as a bank, by discounting notes, bills and other securities for the payment of money., in the name, on account and for the benefit of the said association: “that the said Horner and others, and their said associates, issue the said certificates and pay them to individuals who have their notes and bills discounted by the said association, and in this way such certificates are put into circulation, and the same are passed by delivery in the community as money, and are used in payment of debts as bank notes are used: that the said Horner and others as aforesaid, and their associates, claim the right to put into circulation the said certificates, under the provisions of two acts of assembly, one passed the 24th day of March 1838, and the other the 25th day of March 1839: that finder the latter act the said Horner and "others as aforesaid, and their associates, have associated themselves together under the name and style of the Middletown savings bank in the county of Monongalia, and under that style and name they transact and carry on the business of a bank, by discounting notes and bills, and putting into circulation the said certificates as aforesaid, contrary to the acts of assembly in such .case made and provided.”
    The attorney for the commonwealth having moved the cuurt for a rule upon the parties presented, to shew cause why an information should not be filed against them for the offence alleged in the presentment, the defendant James Y. Horner appeared by his counsel, to shew such cause: and at a subsequent day of the term, the following evidence was submitted to the court, by agreement of the said defendant and the attorney for the commonwealth.
    I. An act of the general assembly, passed the 25th of March 1839, incorporating certain individuals named, and such other persons as were then or might thereafter become associated with them, by the name and style of the Middletown savings bank in the county of Mo-nongalia; investing them with all the rights, powers and privileges conferred, and subjecting them to all the rules, regulations and restrictions imposed, by the act prescribing general regulations for the'incorporation of savings institutions, societies or banks, passed March 24, 1838. See Acts of 1839, ch. 193, p. 140, and Acts of 1838 ch. 108, p. 83.
    II. The constitution and by-laws of the Middletown savings bank, purporting to be adopted in pursuance of the aforesaid act of incorporation ; and the paper containing the subscriptions for stock of the bank. All the parties named in the presentment appear as subscribers for stock, and as signers of the constitution and by-laws, the first article of which requires that the stockholders “shall subscribe to the constitution and by-laws *in person, thereby testifying that they bind themselves, their heirs, administrators and assigns, to be governed and bound by the articles of association herein contained.” Both sets of' signatures were proved to be genuine.
    By the constitution and by-laws- it is provided (inter alia) that every stockholder shall pay five dollars for every hundred dollars he may subscribe, at the time of subscribing, or at such time as the board of directors may fix, and shall secure such part of the subscription as may not be paid in hand, by a lien on real estate: that depositors for ninety days shall be entitled to receive three per cent, after the first ten days, and for one hundred and eighty days, four per cent. : that the bank shall not be considered bound to pay any deposits, unless the certificates for such deposits are surrendered when payment is demanded: that the funds of the bank shall be applied to the discount of notes, drafts and other negotiable securities; but that no paper shall be discounted, having a longer time to run than four months: and that the board of directors shall have authority to prescribe the form of stock certificates, and the different kinds of certificates of deposit.
    III. Certain deeds, certified as duly recorded in the counties of Harrison and Monongalia, by which the defendant Horner and the other parties named in the presentment, reciting their subscriptions for stock of the Middletown savings bank, severally convey different parcels of land to a trustee, for the purpose of securing the payment of the instalments to become due on account of their said subscriptions.
    IV. Certain proceedings of the board of directors of the Middletown savings bank, commencing the 17th of February 1840 and terminating the 3d of April 1840, whereby it appeared that on the 21st of February, the six original directors (being the six persons named in the act of incorporation) elected the defendant Horner *as the seventh director; and that on the same day, C. C. Vanzandt, one of the directors, was by the board elected president, and James O. Watson appointed cashier. The qualification of the six original directors and of the cashier was proved by the testimony of a justice of the peace of Monongalia county, who admininstered to them the oath of office; and as to the defendant Horner, the minute shewing his election as a director, states that he appeared and was sworn according to the bylaws. His appointment and qualification as a director were also proved by other evidence. In the minutes of the 3d of April 1840, there appears the following entry: ‘ ‘It is agreed by the board, that they issue no certificates, only on the actual deposits of money.” All these proceedings of the board are signed, from day to day, with the name of C. C. Vanzandt.
    V. The testimony of James O. Watson, cashier of the savings bank. This witness proved, that he has been acting as the cashier, and C. C. Vanzandt as the president of the institution, ever since they were respectively appointed. That the bank commenced operations on the 26th of March 1840, by receiving deposits. That the said bank is located at Middletown in the county of Monongalia, where all the books and papers belonging to the institution have at all times been kept by the witness, and where all its businses operations, of which he has any knowledge, have .been transacted. That from the time the bank commenced operations, up to the 27th of May 1840, it has received on deposit, in specie and bank notes, 6580 dollars 87 cents, exclusive of sums loaned to and deposited by borrowers from the bank; and the total amount of certificates of deposit issued within that period is 17540 dollars; the difference between the amount of certificates issued and the amount deposited by others than borrowers, having been issued upon deposits made by borrowers from the institution, or by persons in whose favour the borrowers *drew checks. That the total amount of loans made by the bank within the period aforesaid is 16719 dollars 81 cents. That the loans made by the bank are sometimes on notes under seal, payable to the bank, executed by not less than two obligors, and at other times on negotiable notes payable at other banks. That the loans are generally at sixty and ninety days. That it is not the practice of all the borrowers to deposit the amount loaned to them by the bank, and take certificates of deposit for the same; but a majority of them have done so ; it is left to their discretion to do so or not. That it is the practice, when a loan is made, to retain the interest upon the sum loaned, for the time that the borrower’s note has to run, and to pay out to the borrower the amount of his note except the sum so retained for interest. That when a borrower deposits the money borrowed, it is the practice to give him certificates for only the exact amount so deposited, not including interest on the deposit for the time the certificate has to run before it is payable : though, by the by-laws, depositors are entitled to interest, the rate of which depends upon the time for which the deposit is made. That a note of the defendant Horner for 500 dollars was discounted by the directors on the 3d of April 1840, but the money was not paid over to him until the 10th, on which day he was paid the sum of 492 dollars 17 cents ; and on the same day he deposited 495 dollars, and took certificates therefor; a portion of which deposit, the witness presumes, was the same money that he had received upon the discount of his note. That the only deposits ever made by the said Horner, besides the one above stated, were 10 dollars deposited the 27th of March 1840, and 50 dollars paid on his subscription for stock. That since the bank commenced operations, J. S. Chisler has deposited 7552 dollars 37 cents, a portion of which was the proceeds of checks given to him by other persons for notes discounted. That these checks were paid to the said Chisler in bank notes and specie ; of which the witness presumes that a portion, but not the whole, was deposited by him. That certificates of deposit were issued in favour of the said Chisler to the amount of about 6965 dollars ; for the residue of his deposits, no certificates were issued, but the same was placed to his credit on the books of the bank. That all the certificates of deposit issued by the bank have been for sums of five, ten, and twenty dollars, payable in current notes, and all of them at six months, except an amount of about 120 dollars, which were intended to be made payable at six months, but by mistake were not. That all the said certificates were with copperplate or other engravings, partly printed and partly written, each being filled up by the officers of the bank. That the bank never paid out its certificates of deposit as money. That borrowers always receive in money, by themselves or their agents, the proceeds of their notes discounted, which they sometimes take away without making any deposit ; at other times they deposit the whole or a portion of the money, or a sum greater than the whole proceeds of the discounted note; and at the time of' making the deposit, or at some subsequent time, they receive certificates for such portion of the sum deposited as they require, which are made payable to the depositors, and delivered to them, their order, or their agents. That the sum of 1368 dollars 50 cents has been paid in by the stockholders on their subscriptions, which is included in the estimate of deposits made by others than borrowers; but upon sums so paid in by stockholders, no certificates of deposit were ever issued. That on the 10th of April, the bank discounted a note *of 300 dollars for W. Everett, who had not previously deposited any money ; the proceeds of which note were paid in bank notes and specie, to D. D. Wilson, to whom Everett had given a check for the same : and on the 11th of April, Wilson deposited 170 dollars in Everett’s name, and received certificates of deposit therefor, payable to Everett. That on the same 11th of April, Wilson deposited 600 dollars in the name of A. T. Smith, and 640 dollars in the name of Elias Smith, and took certificates of deposit in their names respectively, for corresponding amounts ; and the witness presumes .that the balance of the proceeds of Everett’s note was a part of the money deposited in the name of said Smiths. That on the 10th of April, the bank discounted for the said A. T. Smith a note of 500 dollars, and for the said Elias Smith a note of like amount; the proceeds of which notes were paid, on the 11th of April, to the said Wilson, upon the checks of the said Smiths. Witness believes that Wilson deposited in the bank, on the 11th of April, the same money he received from it on that day. Neither of the Smiths had, previous to the 11th of April, made any deposit in the bank, except of moneys paid on their subscriptions for stock, for which they received no certificates of deposit. That on the 10th of April, the bank discounted for J. P. Wilson a note of 1000 dollars: that Wilson had not previously made any deposit : but on that day he deposited 1500 dollars, and certificates of deposit were issued to him for that amount. Witness is satisfied in his own mind, that the said J. P. Wilson’s deposit of 1500 dollars on the 10th of April, consisted in part of the money which the bank paid to him on discounting his said note. — Being asked whether the depositors who were not borrowers received certificates of deposit for the precise amount of the sums deposited, or were in any way compensated by the bank for the interest upon the certificates of deposit for the time such certificates had to run? witness ^answered, that they only received certificates for the actual amount deposited; and that, for about 2092 dollars of such deposits, no certificates at all had been issued.
    VI. The testimony of Jesse Elowers ; who proved, that the defendant Horner, in a conversation with the witness, stated that he believed it to be common for the borrowers from the bank to deposit the money borrowed, and take certificates of deposit for the same ; that the bank did not loan certificates of deposit; and that it was discretionary with the borrowers to deposit the money they received, or not. Witness thinks he has seen as much as 100 dollars of such certificates in circulation in Harrison county; and they circulate as currency.
    The 1st section of the act of February 24, 1816 enacts, “that it shall not be lawful for any association or company not having a ^charter incorporating such association or company with authority to deal or trade as a bank, now formed or in being, or which hereafter may be formed within the limits of this commonwealth, for the purpose of discounting notes, bills or other securities for the payment of money or other valuable thing, and issuing notes, drafts or bills, whether payable to order or bearer, or any other securities for the payment of money or other valuable thing, in the name, or on account, or for the benefit of any such association or company, or otherwise for the purpose of dealing, trading or carrying on business as a bank, to commence or continue the discounting of any notes or bills, or other securities for the payment of money or any other valuable thing, or the issuing of any notes, drafts or bills, or other securities for the payment of money or other valuable thing, or such dealing, trading or carrying on business as a bank : and every member, officer or agent of any such company or association that may so commence or continue such discounting or issuing of notes, drafts, bills or other securities, or the dealing, trading or carrying on business as a bank, shall be held and taken to be guilty of a misdemeanour, and upon conviction thereof on indictment, information or presentment, shall be liable to be fined at the discretion of the jury, in a sum not less than one hundred nor exceeding five hundred dollars. And if any such company or association, or any president, manager, cashier, or other officer or agent of such company or association, shall pay out, deliver, put in circulation, or issue any note, draft, bill or other security for the payment of money or other valuable thing, purporting to promise, order, request or stipulate the payment of money or other valuable thing, or that money or other valuable thing is payable, by or on behalf of such company or association, or any person or persons as agent or agents thereof, each member, officer and agent thereof shall be in like manner liable to the same penalty.” 2Rev. Code, ch. 208, p. 111.
    By an act passed the 20th of March 1832 (Acts of 1831-2, ch. 79, p. 69; Suppl. to Rev. Code, ch. 315, p. 385,) it is enacted, “that nothing in the aforesaid act passed on the 24th of February 1816 shall be so construed as to prevent, limit or in any manner control the savings institution of Richmond, and the Franklin savings institution of said city, and other institutions of like character and purpose within the commonwealth, from receiving money on deposit, granting certificates for the same, discounting notes or other paper at legal interest, or drawing for their own funds on any bank or other place in which the same may have been deposited ; provided, that nothing herein contained shall be so construed as to allow the institutions aforesaid the power of emitting or circulating any notes, drafts or bills, whether payable to order or bearer, or *any other security for the payment of money or other valuable thing, in the name or on account or for the benefit of the said institution, or to do any other act in virture hereof, except such as are before herein named.”
    
      VII. The testimony of Walter Fverett; who proved, that having enquired of the defendant Horner how loans were to be obtained from the Middletown bank. Horner informed him that the bank loaned nothing but real money, but if a borrower wished to be friendly to the institution, he could deposit the money so borrowed with the cashier, and take certificates of deposit for the same; that it was optional with the borrówer to take the money away or deposit it. Witness, having executed a note for 300 dollars, with W. Johnson his surety, payable to the savings bank at Middletown in 90 days after date, went with the note to Middletown from his residence in Harrison county, on the 10th of April 1840 ; and being informed by mr. Watson the cashier, that he could not be accommodated that evening, as the bank had just got its paper, and had not filled it up, and others were to be accommodated before him, he left his note in the bank, and gave to the cashier a check in favor of D. D. Wilson for the proceeds of the note in case it should be discounted, requesting said Wilson to attend to his business for him. Witness left Middletown that day, and returned to his residence in *Harrison county. Two or three days afterwards, he called upon Wilson (who also lives in Harrison), when Wilson paid him, in certificates of deposit issued by the said bank, 290 dollars ; giving him, for the balance of the proceeds of his note, his (Wilson’s) own memorandum. The certificates of deposit which witness received, he paid away as money. Part of these certificates were issued in witness’s name, and part in the names of others.
    VIII. The defendant Horner admitted, that he passed and put in circulation in the county of Harrison, certificates of deposit issued by the said Middletown savings bank in favour, amounting to about 60 dollars.
    And the foregoing was all the evidence in the cause.
    Whereupon the circuit court, with the consent of the defendant Horner, adjourned to the general court the following questions : 1. Will the evidence taken in this cause in support of the presentment of the grand jury, authorize the filing an information under the provisions of the first section of the act of the assembly, entitled “an act more effectually to prevent the circulation of notes emitted by unchartered banks,” passed February 24, 1816 ? 2. What order ought the court to make in the premises ?
    The cause was argued in the general court, by the attorney general for the commonwealth, and G. H. Tee for the defendant.
    
      
       See monographic note on “Banks and Banking-” appended to Bank v. Marshall, 25 Gratt. 378.
    
   The general court responded as follows : “ This court is unanimously of opinion and doth decide, that the evidence taken in this cause is sufficient to authorize the filing an information against the defendant James Y. Horner.”

By the 3d section of the act prescribing- general regulations for the incorporation of savings institutions, societies or banks, passed March 24, 1838 (Acts of 1838, ch. 108, p. 83,) it is declared that the board of directors “shall have power to regulate the manner of making and receiving deposits, the form of certificates of deposit, and the manner of transferring the same.” By the 4th section, “any savings institution, society or bank shall be capable of receiving from any person or persons any deposit or deposits of money, and all moneys so received shall be invested in stocks or other securities at the discretion of the directors, and in the manner deemed most safe and beneficial.” By the 5th section, “it shall not be lawful for any savings institution, society or bank to purchase or discount any debt or claim to become due, at a rate of discount or interest exceeding the rate of one half of one per centum for thirty days ; and all contracts which may be made contrary to the foregoing provision shall be utterly null and void.” — Note in Original Edition.  