USA > Alabama > Reminiscences of public men in Alabama : for thirty years, with an appendix > Part 27
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Extract from the Minutes.
E. F. COMEGYS, Cashier.
The transaction which connected Mr. Bates with the Bank, and which was the basis of the suit against him and Bryan Hines, his second indorser, who were both sued in the Circuit Court of Greene county, is thus described in the record:
BANK OF THE STATE OF ALABAMA, TUSKALOOSA, May 1, 1839.
The President and Directors of the Bank of the State of Alabama have advanced John M. Bates, of Greene county, seventy-nine thousand six hundred and thirty- two dollars and seventy-five cents, on one thousand and twenty-two bales of cot- ton, agreeable to the regulations adopted at a meeting of the Board of Directors on the 29th August, 1838; which cotton is to be shipped to Messrs. Fontaine & Prince, of Liverpool, who are the agents of this Bank. Said cotton is to be sold for the benefit of said John M. Bates, and the proceeds are to be placed to the credit of this Bank, in Liverpool, England.
MAJOR COOK, Agent.
To secure the amount advanced, Mr. Bates executed fifteen bills of exchange for $5,000 each, and one for $4,632 75, amounting in all to $79,632 75, indorsed by Frederick C. Ellis, since deceased, and by Bryan Hines, and delivered said bills of exchange to the said Major Cook, Agent, in the city of Mobile, who delivered the same to the plaintiff.
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The plea filed by the defendants in the Court below, by their counsel, Messrs. Peck & Clark, and Vandegraff & Steele & Met- calf, is very elaborate, and intended to show that the Bank had violated the 20th section of the act of incorporation which says: "The said Bank shall not deal in articles of goods, wares, or mer- chandize, in any manner, whatever, unless it be to secure a debt due the said Bank, incurred by the regular transactions of the same, as is provided for in this act."
By the 40th section of the charter of the Bank, it is declared: "It shall not be lawful for the President and Directors of. said Bank to purchase or discount any draft or bill of exchange for a larger sum than five thousand dollars, and on every draft or bill of exchange purchased or discounted by the said Bank, there shall be at least two responsible indorsers, each of which shall be con- sidered good for the amount of such draft or bill: Privided," etc.
On this latter point Judge Ormond says :
It is very clear that the directions contained in this section can not be evaded by the Directors of the Bank, by splitting up a large loan of money into frag- ments, and taking several bills from the same parties for the whole amount. Con- sidering this transaction, for the present, as a loan of money, secured by bills of exchange, we are very clear that if it is not within the letter, it is within the spirit of the prohibition. It cannot be disguised that the loan of money, though divided into small sums, is a single transaction, and is, in effect, a loan to the same individual, of the enormous sum of near eighty thousand dollars; thus pro- ducing the very result which it was the design of this change to guard against. This being the character of the transaction, what are the legal consequences attending it ?
The counsel for the plaintiff in error maintains that the contract is void, in consequence of this violation of the charter, and that no recovery can be had on either of the bills of exchange.
The Judge then proceeds to the citation of authorities showing that this and similar clauses, by established rules of construction, "are merely directory to the officers of the corporation, and their observance not necessary to the validity of contracts made in ref- erence to them."
He adds :
It was doubtless expected by the Legislature, that its commands would be obeyed by its agents; but it is impossible to suppose that it was contemplated as the result of a regulation intended to protect the public against loss, that if, by collusion with the Directors-or, as was doubtless the fact in this case, by an honest mistake on the part of the Directors-an individual could succeed in getting, on a bill of exchange, a larger sum than the charter allowed, that the same regulation would protect him against paying it. Whatever may be the liability of the Directors in such a case, nothing can be clearer to our minds than that the borrower must refund the money. Any other construction would place the entire capital of the Bank at the mercy of a venal directory and profligate borrowers.
We might advert to other portions of the charter which are also directory to the officers of the Bank, and having the same object in view, the protection of the capital of the Bank; but among them all none is more clearly directory than this, or more unequivocal in its character.
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The Court is, therefore, unanimous in the opinion that this clause of the charter is directory merely; and that, if it be disregarded, no one, a party to its violation, can take advantage of it.
The main question was then taken up, in reference to the trans- action, whether it was a dealing by the Bank in "articles of goods, wares, or merchandise," within the prohibition of the 20th funda- mental law of the Bank. Of this the Judge says:
The design of the Legislature in the prohibitions we are considering, was pos- sibly to protect the State from improvident contracts, by dealing in merchandise for which such an institution could not be well qualified, when brought in contact with the shrewdness and sagacity which characterizes individual enterprise. But the main and evident design was to protect the citizen against the overwhelming influence of such a large capital coming into contact with the citizen in the ordi- nary pursuits of trade and commerce, and to prevent the fluctuations and convul- sions to which trade and commerce would be subjected, by the employment of such a large capital in the usual pursuits of our enterprizing population.
This being the design, the phrase to deal in evidently means to buy and sell for the purpose of gain; or it might, without any strained construction, be construed tó mean the taking or receiving of goods, wares or merchandise, to be sold for the owner for a profit or commission. The interdict of the clause would therefore embrace not only the mercantile. pursuit of buying and selling goods, wares and merchandise for gain, but would also include the sale of merchandise for and on account of the owner-or what is commonly called a brokerage or commission business. There can be no doubt that cotton is merchandise, within the meaning of the prohibition, and that all chattels which may be subjects of commerce are also included.
In another place he says:
It now remains to inquire, What is the nature of the transaction recited in the plea? Is it a purchase of cotton, for the purpose of sale? Or, is it a receipt of cotton by the Bank, to sell on commission, for and on account of the owner? Or, was it a loan or advance of money for which the borrower was undoubtedly re- sponsible, with an authority to sell the cotton for the payment of the debt ?
These inquiries are to be answered by an examination of the " Rules and Reg- ulations of the Bank," recited in the plea. These constitute, in fact, the contract between the parties. They are propositions made by the Bank, and promulgated, of the terms on which it was willing to lend its money, which, when acceded to, and executed by a compliance with its terms, became obligatory on both parties.
The opinion of Judge Ormond covers fourteen pages of Mr. Bates' pamphlet, from which it would be instructive to quote more liberally, as explaining the whole case; but the concluding portion must suffice :
We have been admonished by the counsel for the plaintiff in error, that, not- withstanding the State is the party interested as defendant, on this record, the true interest of the people will be promoted by declaring the contract void.
It required no admonition to impress us with the conviction that the high trust reposed in us by the people, imperiously demanded of us to preserve pure the fountains of justice. Nor will we profess an insensibility which we do not feel to the approbation of the enlightened and virtuous; although all experience shows that such is not always the meed of upright conduct. Our station imposes on us the necessity of deciding the cases brought before us according to our opinion of the law; it is a duty which we can not avoid. If left to our own choice, it is not probable we would have selected this questson for adjudication; and as, in our
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judgment, the law is for the State, such must be our decision, be the consequences to us what they may, and although the judgment may subject us to the imputation of the bias which the argument of counsel supposes.
Something was said in the argument of the morality of this defense. On the one hand, the defendants were considered as public benefactors, resisting an un- lawful claim, and, on the other as setting up an unjust defense.
How far the defendants may be bound, in honor or conscience, to refund money received by them on a contract which they have voluntarily entered into, and of which they have had the benefit, is a question which they have the right to settle for themselves. Such considerations can exert no influence on this Court.
It remains but to add, that there is no error in the judgment of the Court be- low, and it is, therefore, affirmed.
The separate opinion of Chief Justice COLLIER is then given in the pamphlet, extending to 16 pages. It concurs in the judg- ment pronounced by his Associate Ormond, but assigns at considera- ble length, and with the support of many authorities, the reasons which influenced his decision. The act to establish the State Bank was passed in 1823, the preamble recites: "Whereas it is deemed highly important for the safe and profitable investment of such public funds as may now, or hereafter, be in the possession of the State, and to secure to the community the benefits, as far as may be, of an extended and undepreciating currency. Be it therefore enacted," etc. One passage from the opinion is selected for its historical value in relation to the Bank charters:
If a solicitude, in 1823, to prevent the Bank from enhancing the products and other property of the country, induced the insertion of the 20th section, it is won- derful to contemplate the change the public mind underwent in 1832, when the first Bank was established, and during the intervening period up to 1835, when the last Bank charter was enacted. Even up to the latter period, when the coun- try had become pressed down by debt, incurred in consequence of the facility with which money was obtained upon loan, the demand was loud for an increase of banking capital. It was said, that such was the disproportion between the issues of the banks and the staple of the country, that the planter could not sell his cotton at home for a price which the foreign market justified. The fashion- able expression was, "our banking capital should be increased, that the resources of the State may be developed !" I mention these things merely to show that the legislation of this State in regard to Banks has never been directed with a view to depress prices, or to check the most active speculation in the products of the soil.
The opinion of Judge Goldthwaite, in which he gives his reasons for dissenting from the majority of the Court, takes up four pages, in which he maintains that, by the contract, the cotton was so fully placed under the control of the Bank that if Mr. Bates had paid the bills at maturity, he would not have had the power, if the con- tract was legal, to withdraw the cotton. Hence it results that if cotton is a commodity, or article of merchandise, there was such a dealing by the Bank as came within the prohibition of the charter, and rendered the contract void as to the cotton itself, but not so as to discharge the liabilities of the borrowers, either at the suit of the State, or of the Bank, in another form of action, for the money
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advanced. The distinction seems to have afforded no substantial relief to Mr. Bates and his indorser; yet the pamphlet was the consequence-arraigning the majority of the Court for oppression, injustice, and partiality. Judge Goldthwaite intimates another remedy to prevent loss to the State. He says:
So long as they, [the Directors] confine their action, with regard to the funds of the Bank and its proper business, a discretion is confided to them; but there are certain directions and prohibitions to which, as agents, they are bound to con- form their action; and, if they overstep the boundary of their powers, and ille- gally dispose of the funds committed to their care, they are doubtless liable for any losses which may occur in consequence of their violation of the charter.
In justice to the Directors, however, a preceding paragraph from the opinion of Judge Goldtwaite will close the quotation :
In common with the other members of this court, I entertain not the least doubt but that the Directors of the Bank, who sanctioned this transaction, were influ- enced by a most earnest desire to advance the true interests of the institution and the State at large; but the purity of intention can not legalize an act which the charter expressly prohibits.
Then follows the "review," prepared by Mr. Bates, embracing twenty-six pages of the pamphlet, with a severity which is per- haps without a parallel in the history of judicial administrations. He claims that this assault on the integrity, or the intellect, or the intelligence of a majority of the Court, is justified by the analysis which he has given of the whole case, as shown by the pleadings and the record. As he has exhibited facts outside of the record which induced him to engage in speculation, through the aid of the Bank, and which relate to the disastrous results to cotton shippers in 1839, the following extract from the statement is sub- mitted for the information it contains, applicable to a noted period of commercial revulsion in the United States and in Europe. Mr. Bates says:
I would have preferred to postpone a public statement of the facts connected with this cotton transaction until the termination of all the suits; but as the Judges have questioned my honor, and arraigned my conscience, I will, in self-justi- fication, then, say something relating to these cotton operations.
The growth of cotton in the United States, in the year 1838, was about 500,000 bales short of the preceding year. The prosperity of the manufacturing interests in Europe up to the beginning of the year 1839, was unprecedented. So great was the demand for the raw material, that it rose in value, from the 1st of Decem- ber, 1838, to the 1st of March, 1839, 1} to lad, or about 3 cents, per pound, and that rise in price was effected at the close of the receipts of the largest crop of cotton that had ever been grown in America, and without any certainty that the succeeding crop would be materially deficient. At this time, it was known here, that the crop just coming forward would be greatly deficient.
These were the facts that would in their nature produce speculation in this country. We have at this moment the same speculative mania as regards flour, in anticipation of short crops of grain in England, and some parts of the conti- nent. Flour has gone up in this country forty per cent. within six weeks, owing to the above-mentioned cause. As we who live in the cotton region arrive first,
18
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with some accuracy, at the amount of cotton raised, and as it was known in Janu- ary, February, and March, in this country, that the crop would be far short of the preceding, that circumstance, together with the unexampled prosperity of the manufacturing interests in Europe, induced persons who were in the habit of dealing in that article, to extend their operations. I, with a multitude of others as honest as these Judges, was, at the time, induced by the foregoing reasons, to embark in the business to an extent (whether prudent or not, should be a matter of no concern to them) which proved disastrous, as events turned out. In ship- ping cotton, under the expectation of a rise from the circumstance of a deficiency in the supply, the person who takes the venture always selects a shipper who will agree, and is supposed to be able, to hold it in the market the longest.
In the month of March, 1839, the agent of the Bank found me in the city of Mobile, or, as Judge Collier supposes, I found the agent. He, referring to the printed rules of the Bank, agrees to hold the cotton shipped by her four months after arrival in a foreign port, equal to six months from the date of the contract, if the cotton is shipped to Liverpool, giving two weeks to load the vessel, and six weeks to sail. This would be an advantage of six weeks in time over those per- sons who made a business of shipping for others. This induced me to embrace the opportunity of shipping through the agency of the Bank.
Some weeks after I had closed my shipments, an unprecedented state of de- pression upon the mercantile interest of England, and especially the manufactur- ing interests, took place. Many manufactories stopped entirely, while all of them stopped partially, their operations. The price of cotton consequently began to give way, until it receded from 93d (19 cents) to 6d (12 cents) for fair cottons. It became manifest before any cotton was sold that there must be a heavy loss to the shippers; therefore, in the month of August, or early in September, (before, how- ever, we had received any account of sales) I proposed to the Bank to make them perfectly safe in the sum of $30,000, which would about cover my estate, provided they would give me a reasonable time to pay it, and release me from liabilities as to others with whom I had shipped jointly. The Bank refused this proposition, and I had to await events. In the meantime, believing that my only chance for safety was in holding up the cotton the time specified in the contract, no steamer crossed the Atlantic without a communication from me requiring the cotton to be held. By and by, I received a letter from the Bank agent, stating that part of my cotton was sold, and portions of all shipments had shared the same fate, although the four months had not elapsed by many weeks; although the Bank agent did not directly inform me that the sales were forced to meet the necessities of the Bank, yet I inferred it from the fact that he had sold the cotton in the teeth of my repeated and urgent entreaties to hold it the time specified by her agree- ment. My obligation to the Bank, which I had previously felt, and which I had attempted to arrange by mortgaging my entire estate, was very much weakened.
I then began, for the first time, to examine whether the Bank was able to hold the cotton, as stipulated; and the more I examined, the stronger I was con- vinced, that the Bank had used deception towards those persons for whom she had shipped, and, in order to maintain an early resumption of specie payments, had thrown us shippers in the breach. I therefore felt absolved from all moral or legal obligation to pay them; and I so informed a distinguished member of the Board, long before suits were brought. The said member took no pains to unde- ceive me, if I was deceived as to the cotton being sold too soon; but doubted whether it would avail me in law, unless I could establish the fact that cotton rose in price subsequent to the sale, and before the end of the four months.
The Bank at last brings suits upon the bills-all the bills-without giving me any credit for the sum the cotton brought. What course, then, should my counsel have pursued in defending my rights? In the suit decided by the Supreme Court I had shipped 1,022 bags of cotton, and the Bank had advanced me $79,000 upon it, and I had given them sixteen bills of exchange. Now, the cotton sold for something, and they have given me no credit for it, but have sued me upon all the sixteen bills. My attorney states in the plea that these bills were given to secure reclamations, should there be any, after the cotton was sold. But the Bank sues me, and holds me bound, giving me no credit for the cotton. I ask these Judges
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to show the immorality or impropriety of the plea, after the Bank attempts to hold me responsible for all the bills-giving me no credit for the cotton-especially when the credits were in her possession, and not in mine. Can I get a fair trial under these circumstances? Should a cotton shipper, after receiving account of sales for one of his customers, find that he had advanced more money than the cotton sold for in a foreign port, sue his customer for the entire amount of money advanced, it would be precisely what the State Bank has done to me.
I am willing, and always have been, to go before a jury of impartial and intel- ligent men, upon the contract, the merits of the case; and if such jury, after exam- ining all the circumstances of the breach of the contract on the part of the Bank, would say that I was, either legally or morally, bound to pay the Bank, I will spend the balance of my life in working to pay them. But the Bank has no inten- tion, if they can prevent it, that I shall have a fair trial on the contract. I must have sixteen suits brought against me, although eight or ten of the bills are con- fessedly paid by the proceeds of the cotton. I must be sued on all the bills, and keep the contract, as well as the cotton, out of sight; and the Supreme Court must be invoked to run into every degree of absurdity, to sustain the people's Bank.
I have felt it incumbent on me to make this statement, because the Judges have traveled out of their way, to impugn my honor and talk about my conscience.
Believing that this case, from the record, and from the facts out- side of the record-the large financial operations involved, the earnestness of the argument, and, above all, the extraordinary treatment of a majority of the Court-would interest the public, these copious extracts have been made. Without imputing to Mr. Bates any unfair design by the omission, the fact may be supplied here, well known to the legal profession, that in declaring on a promissory note or bill of exchange in the Courts, it is not usual to notice the credits or partial payments which are even indorsed upon the instrument. These are not necessary to appear from the plaintiff. In the defense, these credits and payments, and all other matters admissible in law, are given in evidence on the trial before the jury, to prevent, or to reduce the recovery. The system of special pleading adopted in Alabama produced certain issues in law, which the Court below decided against Mr. Bates, and on writ of error to the Supreme Court that judgment was affirmed, which disposed of the case before it reached a proper status for the jury. If all the bills were run into judgments, and executions issued, it is a mere nominal advantage to the Bank which it would not presume to enforce. No doubt an arrangement of this whole matter has since been made, at a great sacrifice by the Bank; for it is stated in the report of the Commissioners to examine the State Bank, in 1845, that the sum of $71,339 was then due the Bank, which was partially secured by a mortgage on land and slaves in Greene county, supposed to be worth about $20,000. This is the debt in question, and is, perhaps, the very best that Messrs. Bates and Hines, under the circumstances, were able to make for the Bank. Let no imputation be cast on the integrity of any one in this whole proceeding. It is here noticed as an item of commer- cial history in a past generation, with a lesson to be remembered,
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From the report of the Bank Commissioners referred to, it is ascertained that the State Bank, under the rules and regulations which it published in 1838, made-
Total advances on cotton. $589,403 45
Proceeds applied by the Bank 319,033 07
Balance due on cotton account. $270,370 38
It is believed that this balance has not been materially dimin- ished, owing to the insolvency of parties, and that it may be in- cluded among the losses sustained by the Bank on a mistaken policy.
The appeal of Mr. Bates to the public was an elaborate perform- ance. He selected certain expressions of the Judges, and by con- trasting them with the facts and with other expressions, turned them into nonsense, or absurdity, as it suited his purpose. While this attack on the majority of the Court, and all other attacks on high judicial magistrates, can receive no favor from impartial minds, the closing portion of Mr. Bates' pamphlet is subjoined, as a specimen of indignity which it is hoped will never be again offered to a tribunal so deeply established in the public confidence, and so entitled to veneration and respect as the Supreme Court of Alabama. Feeling himself injured, perhaps ruined, by the decis- ion of the Court, allowance should be made for the temper of Mr. Bates, when he says:
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