Dana v. Bank of the United States , 5 Watts & Serg. 223 ( 1843 )

The opinion of the Court was delivered by

Kennedy, J.

The Bank of the United States having become largely indebted, even beyond its means of making payment, as is believed, to the holders of its notes and others upon engagements of a different nature, among whom were the other banks of the city and county of Philadelphia, in the aggregate sum of $5,078, 444.94, being the amount of sundry post-notes held by the latter against the former, the President, Directors and Company of the Bank of the United States, for the purpose of securing the payment thereof, with the interest due and to become due thereon, to said banks respectively, on the 1st day of May 1841 executed a deed, conveying to James Dundas, Mordecai D. Lewis, Samuel W. Jones, Robert L. Pitfield and Robert Howell, certain lands, tenements and hereditaments, goods, chattels, moneys, rights, eredits, effects, belonging to the Bank of the United States, in trust, to sell, dispose of and convey the same, and to apply the same or the proceeds thereof towards the payment of the said post-notes, as directed by the deed, which is set out in the statement of the case, to which I refer. The great, and indeed the only matters in contest between the parties, are the validity and effect of this deed. The objections to it present two principal questions: 1. Had the board of directors sufficient power and capacity to execute it? And, 2. Has it been executed and authenticated in such manner and form as to render it operative and effectual, and, at the same time, to entitle it to be received in evidence ? \

In regard to the first question it may be observed, that, accord-1 ing to the principles of the common law, every corporation has, by being duly created, tacitly annexed to it, without any express provision, the same power and capacity of suing and being sued, impleading and being impleaded, granting and receiving by its corporate name, and of doing all other acts, that a natural person has. And this power or capacity has been said to be necessarily and inseparably annexed to it. 1 Kyd on Corp. 69. But that it has, at least, every capacity that is necessary to carry into effect the purposes for which it was established, cannot well be questioned. It is also capable, by the general rule of the common law, of taking any I grant of property, privileges and franchises, in the same manner' as a private person. 1 Kyd on Cor. 74; Lit. Rep. 49, 112, 114. And this capacity extends alike to real and personal property. 1 Kyd on Cor. 76. In regard, however, to real estate, restraints are frequently imposed by statute, though not often as to personal. Id. 78. So corporations, unless expressly restrained by the Act which establishes them, or some other Act, have and always have had an unlimited power over their respective properties, and may alienate and dispose of the same as fúlly as any individual may do in respect to his own property. 1 Id. 108; 1 Sid. 162. That the President, Directors and Company of the Bank of the United States were capable of acquiring and holding the property described in and intended to be assigned by the deed and the schedules thereto annexed, is not denied; nor can it be, for, independent of the rule of the common law on the subject, they are, by the second section' of the Act creating them, a corporation not only “ made capable in law to have, purchase and recover, possess, enjoy and retain to -them and their successors, lands, rents, tenements, hereditaments, goods, chattels and effects, of whatsoever kind, nature and quality, but likewise to sell, grant, demise, alien or dispose of the same, to sue and be sued, to use a common seal, and the same to alter and renew, and to make such by-laws and ordinances as they shall deem necessary, not being contrary to that Act, the constitution of the United States, or to the constitution and laws of this Commonwealth; and also to prescribe rules for the transfer of the stock of the said corporation, and generally to do all the acts which to them it shall or may appertain to do, and to enjoy the same privileges and authority given by law to any bank within this Commonwealth, subject to the rules and restrictions therein-after prescribed.” And by the third section of the Act it is further enacted, that “ for the management of the affairs of the said corporation, there shall be annually elected, at the banking-house in the city of Philadelphia, on the first Monday in January in each year, by a plurality of votes, which shall be given by the qualified stockholders of the said bank, in person or by proxy, .twenty directors, who shall be capable of serving for one year, and who shall, at the first meeting after their election, in each year, proceed to elect one of their directors to be president of the corporation, who shall hold the said office during the same period for which the electors are elected.” But the bank being insolvent at the time, it is alleged, it is therefore argued that it could not assign its property, or any part thereof, so as to give a preference to a portion of its creditors in receiving payment of their claims against it; or at least, if it could, it was not competent for the president and directors of the bank to do it, without the previous consent and authority of the stockholders. The ground of this position is, that the assignment in this case is unjust, because it gives a preference to one set of creditors over another equally meritorious; and, consequently, as no power to execute a deed, bestowing such a preference, is given, either expressly or by necessary implication, to the board of directors, by the Act establishing the bank, it is not competent for them to exercise it.

Although it may be true generally, in the abstract, that the creditors of a person or corporation are equally meritorious, yet, owing to the peculiar circumstances under which debts may be occasionally created, such a predicate cannot be considered altogether correct; and the debtor may not only be under a moral, but a legal obligation, if unable to meet the payment of all his debts, to give a preference. For instance, one debt may arise from the creditor’s having supplied the debtor with necessaries for himself and his family, at a time when, from adversity and misfortunes, he was deprived of the means of procuring them, and found himself even without credit adequate to the end, excepting with the individual who supplied him, upon his express engagement to pay the debt so created before all others which he owed at the time, and created while he was in affluent circumstances, by his becoming surety for some of his friends, who were also at the time in good circumstances, from which he derived no benefit whatever. Now it cannot be questioned that his sense of gratitude in such case, as well as a sense of justice, would lead him to pay the first-mentioned debt in preference to the second, if unable to pay all. Indeed, it is impossible to believe that the universal sense of mankind would not unite in declaring that, a preference, in such case, would be perfectly just and right, without any promise having been made to give a preference. So, if a debtor, at the time of creating a debt, agrees to give subsequently, in case he fails to pay it on a particular day fixed for that purpose, a lien on, or to-make an assignment of either a part or the whole of his property, it cannot be doubted that he is both morally and legally bound to do so if he fails to make payment agreeably to his promise, notwithstanding it may have the effect of enabling the creditor, in such case, to obtain payment of the whole of his claim, when, by reason thereof, the other creditors of the debtor are excluded from receiving any or the greater part of their claims. Although a bank cannot readily become a debtor as in the first case suggested, yet it may become such in the second as readily as an individual; and in many others that might be mentioned, where the reason for giving a preference would be equally strong. In the second case, it is very apparent that a bank or a corporation would be as clearly and as strongly bound to give the preference, by executing the assignment in fulfilment of its previous promise, as an individual would be, unless it could be shown that it was restrained from doing so by the Act creating it. But in this case, although there are some restrictions placed on the bank by the Act establishing it, yet it cannot be pretended, or at most cannot be shown, that the bank, or its president and directors, are either expressly or impliedly restrained from giving, directly or indirectly, preferences to some of its creditors over others. And, not being restrained in this respect by this or any other Act, it must be deemed to have the same power to make a distinction between its creditors, and to give preferences to some of them over others, that any natural person has. That the latter has such power is not denied, but admitted, by the counsel for the plaintiff.

But, supposing the bank to have such power, it seems to be objected, that it cannot be exercised by the board of directors without their having some direction or advice from the stockholders, showing at least that they are willing-it should be exerted. This, however, does not appear to be necessary from the tenor, or any particular provision contained in the Act establishing the bank. It is true that general meetings of the stockholders, for purposes relative to the bank, are contemplated and provided for by the fourth article of the charter, without, however, giving to them, at such meetings, any specific power or control to be exercised over the affairs of the bank. And in the same article it is directed that there shall be a general meeting of the stockholders on the first Monday of January every year, at which time the directors are required to lay before such meeting a general and particular statement of the affairs of the bank.

Notwithstanding, however, such general meetings are to be held “ for purposes relative to the institution,” without specifying these purposes, yet it does not necessarily follow, that the stockholders, at such meetings, may exercise any immediate and direct control or authority over the affair’s of the bank, or over the board of directors in the management of the same. It may frequently be very desirable to the directors, and indeed conducive to the advancement of the interest and prosperity of the institution, that they should have an opportunity afforded of consulting with and receiving from the stockholders their opinion and advice in relation to the affairs of the bank, and as to what ought to be done under existing circumstances, in respect to the management thereof; or it may happen that the stockholders or some portion of them may be desirous, from many and various causes, to have a general meeting, in order to inquire and consult with each other, in regard to the affairs of the bank, and the management of the same by the directors, so that if they, or at least a majority of them, should come to the conclusion that the state and condition of the bank may be improved by any change in the management of its affairs, then they may advise the directors thereof, who, if they approve of the change suggested, may conduct themselves accordingly. T^iis I take to be the utmost that the stockholders can do, according to’ the tehorTñffTEe^gff^fl^'Actruhd'er which they must all act, until an election of the directors shall come around, when the former, if dissatisfied wlffTthie conduct of the latter in managing the affairs of the bank, may turn any one or more or the whole of them out of the direction, and place it in other hands, which they may think will be more likely to conform to their wishes in conducting and carrying on the business of the institution. This seems not only to be sufficient to satisfy all that was intended by the Act, in providing for general meetings of the stockholders to be held, but likewise quite as much as can be useful, or in any way rendered practicable. Indeed it would be utterly impossible for the stockholders, personally, to carry on- and conduct the business of such an institution, which requires daily attention and action; and hence, of necessity, it must be committed to the discretion and management of agents, appointed generally by the stockholders, which seems to be the most that they can do, towards influencing or directing the management of its concerns. To extend the power or authority of the stockholders beyond this, would also be incompatible with the third section of the Act of their incorporation, which expressly directs that a board of directors shall be elected and organized “for the management of the affairs of the said corporation.” And the president and directors, though elected by the stockholders, are constituted the agents of the corporation, not of the stockholders, and derive all their authority from the Act or charter. Per Marshall, C. J., in The Bank of the United States v. Dandridge, (12 Wheat. 113). The management and direction of the affairs of the institution are committed to them by the express terms of the Act of incorporation. They are thereby made the representatives of it, and they alone have the power to manage its concerns, and are left, without control, to exercise their own best discretion in doing so. The stockholders, therefore, have no absolute right to interfere directly with, and to exercise any immediate control over the directors in the manágement of its affairs. See Commonwealth v. The Trustees of St. Mary’s Church, (6 Serg. & Rawle 508). But still, it must be understood, that being but agents, at most, of the corporation, the directors cannot exceed the authority granted to them by the Act of incorporation, or if they do, their principal will not be bound thereby. Salem Bank v. Gloster Bank, (17 Mass. 29, 30); Lincoln and Kennebec Bridge v. Richardson, (1 Greenleaf 81). Here, however, no excess of authority appears in anything that has been done, unless it be that the insolvency of the bank, the instant that it took place, converted all the property and effects belonging to it into a trust fund, for the use and benefit of its creditors generally, and thus devested the board of directors of the power of giving preferences by assigning the same, or any portion thereof, to a part of their creditors, for the purpose of securing to them the payment of their claims.

This doctrine, however, was repudiated by the Court of Errors in the State of Connecticut, in the case of Catlin v. The Eagle Bank, (6 Conn. 233). There it was. held by the court, that the board of directors of the Eagle Bank, though the bank was insolvent at the time, had full power, not only to assign the property of the bank in order to secure the payment of its debts generally, but to give a preference by mortgaging the real estate of the bank, and assigning sundry promissory notes of the same, to the Savings Bank, as security for the payment of a debt owing by the former to the latter. Chief Justice Hosmer, in delivering the opinion of the court, says: “ It is difficult for me to conceive, where no restraint is interposed in a charter of incorporation, on what ground the general authority delegated ean be subjected to exceptions, or fettered by restrictions, from which an individual and a mercantile company aré free,” page 142. In accordance with the same principle, the Court of Appeals of the State of Maryland decided, in The Union Bank of Tennessee v. Ellicott, (6 Gill & Johns. 363), that the president and directors of the Bank of Maryland had full power to provide for the payment of the debts of the institution, by executing a deed conveying all the property of the bank in trust for that purpose. And in the State of Maryland v. The President and Directors of the Bank of Maryland, and Ellicott and others, (Ibid 206), the same court held the opinion, that an individual debtor, in failing circumstances, might prefer one creditor to another by a transfer of his property made in good faith; and that a corporation or bank might do the same. Chief Justice Buchanan, in delivering the opinion of the court, observes: “ No satisfactory reason has been advanced, and none is perceived why a corporation, in failing circumstances, unless restrained by some express provision in the charter of incorporation, which is not the case here, may not assign its property to trustees, for the benefit of either preferred creditors, or all its creditors equally, as well as an individual in insolvent circumstances. . The same relation of debtor and creditor subsists in the one case as in the other.” All that is said here, in respect to what a corporation may do, is peculiarly applicable to a corporation created for the purposes of trading and banking, where the business consists chiefly of buying and selling bills of exchange, and drafts or checks, and in discounting bills and notes, by means whereof it either becomes a creditor or debtor, which makes it necessary for it to attend to the payment and receipt of all debts created, in the course of such dealing, as they shall fall due. It is easy to perceive that the success of its business must depend entirely upon the punctuality and promptitude with which it mee-ts all its engagements. Hence the very object and design for-which such a corporation is established, renders it indispensably necessary that it should have as complete and absolute a right, at all times, to dispose of and transfer its property and effects for the purpose of paying or securing the payment of its debts, or of giving, as has been done in this instance, a part of its property and effects to secure the payment of certain debts only as any individual or mercantile company has or have. Hence also the Bank of the United States in this case, if it had not had any express power granted to it, by the Act of its incorporation, to dispose of and assign its property for the purpose of securing and making payment of its debts, either in part or in whole, as the occasion might seem to require in the judgment of the board of directors, would have had such power by necessary implication, from the very nature of its business, unless it were expressly restrained by its Act of incorporation, which is not alleged or even pretended. Seeing then that the Bank of the United States was invested with full power to do all that was done, or intended to be done, in this case, and that it necessarily appertained to the management of the affairs of the bank, it follows as an inevitable consequence, as has been clearly shown above, that it belonged to the president and directors and to them alone to do it, as also to determine on the propriety of its being done.

Having shown that the board of directors had capacity and full power to execute the deed in question, it remains to notice some objections of a minor character, which have been taken and are involved in the second question mentioned in the outset. The first is, that the deed contains a reference to two schedules, making them constituent parts thereof, as bearing even' date with the deed, whereas the schedules annexed to the deed •are without date. It is therefore objected that they cannot be the same referred to in the deed; and without the proper schedules the deed is imperfect and can be of no avail. And even if in point of fact the schedules be the same that were intended to be referred to in the deed for the purpose of making them parts thereof, no evidence exists to establish the fact, except that of parol, which cannot be received, as is alleged, without entrenching upon the statute against frauds. We do not concur in the view taken, nor yet in the inference drawn by the learned counsel for the plaintiff, of and from the circumstance of there being no date actually written on each or either of the schedules, that they are therefore necessarily to be taken as different from the schedules intended to be annexed fo the deed or parts of it. It is certainly wholly unnecessary that any daté should be written on a schedule in such case; and without its being done, it will be taken to be of the same date with the deed to which it is annexed, so far as the date may be of any importance. And where the schedule, in every other respect, appears to meet the requisition and description contained of it in the deed, and to have been annexed to the deed at the time of its execution, it would not, perhaps, be straining the matter too far to say that the words “ bearing even date herewith,” were inserted for the purpose of making it known that the schedule was made of the same date with the deed. But as it is not usual to place a date upon a schedule, in such case, and in no case requisite, the most natural conjecture would seem to be, that, though called for by the deed, it was omitted from, inadvertance merely, unless something more were shown tending to raise a contrary conclusion. ' Besides, if it were necessary to show by evidence aliunde, that the schedules, in this case, were the same that were intended to be attached to the deed at the time of- its execution, so as to become parts of it, parol evidence, it is conceived, would be admissible for such purpose. To receive it would not militate against the statute of frauds; because it would not add to, alter, or diminish, in the slightest degree, anything that had been written, or be supplying anything that ought to have been reduced to writing between the parties, in order to give efficacy and effect to their intention and design.

The second objection is against the- probate of the deed, because not signed by the subscribing witness to the deed, who appeared before the mayor of the city of Philadelphia, and upon his oath made proof of the execution of it, without subscribing his name to the probate so made, which is certified by the mayor under his hand and the seal of his office, to have been made by the trustees. A signing by the witness is not required by the Acts of Assembly authorizing the probate of the execution of such deeds to be made, before certain officers; neither is it the universal practice so to do. And where the execution of deeds, instead of being proved, is acknowledged by the grantors before a proper officer, the acknowledgment is never signed by such grantors. A certificate of its having been done, from the officer' under his hand and the seal of his office, if he has one, is, and always has been deemed sufficient. Indeed, I am not aware that a certificate of the acknowledgment of a deed ever was excepted to, because not signed by the party who made the deed and the acknowledgment of its execution. We are of opinion the objection is not, and cannot be sustained.

A third objection is, that the deed contains an express reservation of the surplus to the bank, which may remain after paying the debts, for the payment of which the assignment was made. If no provision of the kind had been inserted in the deed, the law, by its operation, would have given and secured to the bank any such surplus. It would therefore be singularly strange, that an express provision, in exact accordance with what the law would have done without it, should be made a fatal objection to the validity of the deed. It is admitted by the counsel for the plaintiff, that this objection would be unavailing against the deed of assignment executed for a like purpose by an individual. But it is contended, that in the case of a banking corporation, in failing circumstances, as here, where the property assigned appears, according to the estimate made of it by the corporation itself, to exceed the amount of the debts to be paid by means of it fifty pet' cent., and upwards, it would, in effect, as is alleged, if such an assignment were permitted to avail, be locking up upwards of two and a half millions of property belonging to the bank in the hands of the trustees, named in the deed, from the other creditors of the bank, instead of permitting the other creditors to come on it in the hands of the trustees without delay. But, according to the terms of the deed of assignment, the property passed thereby must be considered as pledged merely for the payment of the debts, or post-notes, mentioned in the deed, accompanied with a power to the trustees to convert it as soon as practicable into money, and therewith pay the holders of said notes, unless the assignors shall redeem it before this can be done, by paying the notes for which it was pledged. The property assigned appearing thus to be a pledge, connected with a power given to the trustees to sell it, if not redeemed, was placed, at all times, within the reach of the other creditors, who could, if they had thought there was anything to be made out of it, towards paying their debts, have redeemed it, by paying the debts for which it was pledged, and have had it taken in execution and sold, and after reimbursing themselves the money paid for its redemption, out of that arising from the sale, have applied the surplus to the payment of their own debts. 1 Bro. Abr., tit. Pledges, pl. 24. But admitting, as it .has been, that a similar deed, executed for the like purpose by an individual, would be valid, seems to be giving up the objection; for no satisfactory reason has been, and, as it appears to me, none can be advanced for making a distinction between the two cases.

A fourth objection made to the validity of the deed is, that it contains a proviso “ that the trusts therein and thereby created shall, if practicable, be settled and closed within two years from its date; and if it shall so happen that at the expiration of the said period the same shall not be settled and closed, and any portion of the said post-notes shall remain unpaid, then the said party of the second part (the trustees) or the survivors of them, or the heirs, executors or administrators of the survivor shall, within six months, proceed to sell all the remaining estate, effects, rights and credits belonging to the trust, or so much thereof as may be necessary to complete the payment of the said post-notes, principal and interest, unless dispensed therefrom by the express authority in writing of the said party of the first part, their successors or assigns, and a majority, in number, of the banks thereinbefore mentionedand that' this provision is repugnant to the Acts of Assembly made in this behalf, and to the decision of this court, made in the case of Sheerer v. Lautzerheizer, (6 Watts 543). In that case the deed of trust was made on the 11th of December 1832, and the trustee, by its terms, was not required or directed to pay anything out of the trust fund towards discharging the debts until the 1st day of January 1834; so that, by the terms of the deed, he was not liable to be called on to pay over, or to distribute any moneys that might be in his hands, arising from a sale made of the trust property, for more than a year after the date or execution of the deed. This was considered contrary to the Acts of Assembly on the subject, which authorize the courts, at any time after a year from the date of the assignment, upon the application of any one interested, to cite the trustee to settle and close his trust account, if he has not done so, or otherwise show good cause why it cannot be done. But, in the case before us, it is manifest that the two years, or two years and six months, were not introduced for the purpose of favouring the trustees, or putting off their liability to account and pay over moneys received by them from the trust property, to the holders of the post-notes, for any length of time after a sufficient sum shall have been received by them, to make a dividend of it among those entitled to receive it. This is demonstrated by another clause in the deed, which expressly requires the trustees, “ from time to time, as often as they shall have moneys in hand of sufficient amount for a dividend, to divide and distribute the same rateably and equally in and towards the payment of the said post-notes, whether the same be due or not due, and the interest accrued thereon, so that all and each may participate rateably and alike in every such dividend, until the same post-notes and interest shall be fully paid off and discharged.” It is clear, therefore, from the whole of the deed taken together, that it is the duty of the trustees to convert the trust property into money, or at least so much of it as may be necessary to take up the post-notes as soon as practicable, and from time to time, as they shall receive money for that purpose, to pay it over without delay; so that there is nothing in the deed to protect them from being cited, at any time after the lapse of a year from the date of it, to appear before the proper court to settle their trust account. The fourth' objection, therefore, is not sustained.

A fifth objection, which is the last that remains to be noticed, is, that the deed was executed on the 1st of May 1841, in order to evade the provisions of two Acts of Assembly, which were then about being passed, and were actually passed afterwards on the 4th and 5th days of the same month. It certainly cannot be pretended that an Act of the Legislature is to be regarded as a rule by which men or corporations shall' be bound or governed in their intercourse and transactions with one another, before it has come into existence. It would be most singularly strange, as also unjust, if it did, unless men were to be gifted with the faculty of diving into futurity, and thus made acquainted with what is to come, as well as that which has past. Otherwise they would be liable to be punished for transgressing laws of which it was absolutely impossible that they could have any knowledge, as they were not in being. A man may have reason to believe that a certain law will be enacted by the Legislature, but until it has passed through and received the approbation and sanction of its several branches, he, or any other person, is not bound to regard it as a law or rule by which he is obliged to govern himself; nor is he bound to forbear or abstain from doing that which it is lawful for him to do as the law then is, merely because he has reason to believe that the Legislature are about to enact a law that will make it unlawful for him to do it or the like thing after the enactment has taken place. It is impossible, in the nature of things, that an act can be pronounced unlawful, and therefore void, if not done in violation of any law in force at the time. This objection is, therefore, without even the shadow of a foundation to support it.

Motion for judgment against the garnishees denied.