Construction of a bond executed by the President and Directors
of the Bank of Somerset to the United States for the performance of
an agreement made by them with the United States for the payment of
a debt due to the United States from deposits made in the bank for
the account of the United States.
The facts, including those stated in the opinion of the court,
were the following.
In the circuit court, at January term, 1828, the United States
instituted an action of debt on a bond executed on 15 July, 1820,
by Thomas Robertson, Levin Ballard, Arnold E. Jones, Mathias
Deshiell, Charles Jones, Marcey Maddux, William Done, George W.
Jackson, and John H. Bell, of Somerset County, in the State of
Maryland, in the penal sum of $100,000. The bond and the condition
are stated in the opinion of the Court.
The plaintiffs gave in evidence a statement of the condition of
the Bank of Somerset on 11 May, 1820, by which it appeared that the
assets of the bank consisted of notes discounted, $106,995, real
estate, $5,000, debts due by the Bank of Columbia and the
Merchants' Bank of Alexandria, $1,607, and that its debts were,
capital unredeemed, $4,250, notes in circulation, $15,000,
deposits, including the United States, without interest, $115,426,
making a deficit of $20,074. The plaintiffs also proved that from
15 July, 1820, to 15 July, 1825, the president and directors of the
Bank of Somerset received in good current money from the debtors of
the bank and from sales of their real estate a large sum of money.
That they received in payment of debts due to the bank, and as the
proceeds of the real estate of their debtors, a large sum of money
in the bank notes of
Page 30 U. S. 642
the corporation and in certificates of deposits of bank notes of
the same. A certificate of those receipts was exhibited and
admitted in evidence, by which it appeared that the receipts, in
the period stated, were $11,000 in good money in payment of debts
due the bank and for the proceeds of real estate; $15,500 in bank
notes of the corporation, in payment of debts due to the bank or
the proceeds of the real estate of the debtors to the bank; $15,000
of such notes; that the payments were $10,000 for extinguishing
prior lines on an estate conveyed to the bank by L. D. Teackle, a
debtor to the bank; $1,000 for clerk and sheriff's fees in suits
brought by the bank, $1,000 attorney's fees and commissions, $1,000
paid to William Done as agent for the bank, $500 for taxes on real
estate and small charges. This statement contains an allegation by
the corporation that the losses, by insolvencies of its debtors,
amount to $60,000.
It was further given in evidence by the plaintiffs that Charles
Jones, one of the obligors in the bond, was Sheriff of Somerset
County from October, 1821, to October, 1824, and as such, received,
under executions placed in his hands, in favor of the bank,
$8,255.77 in notes and certificates of the bank and in good money,
no part of which was proved to have been paid by him to the
bank.
It was admitted that before 15 July, 1820, the notes of the
Somerset Bank had largely depreciated, and were not current as
paper as a circulating medium; that they have continued to
depreciate, and are now worth nothing. No part of the debt due to
the United States has been paid.
The defendants gave evidence of the payments made by the bank
for the extinguishment of the liens on the estate of L. D. Teackle;
for clerks and sheriff's fees on suits brought by the bank against
the debtors to the bank; for attorney's fees and commissions, which
were asserted to have been actually due and lawfully chargeable;
for the lawful and reasonable commissions to William Done, as the
agent of the bank; and for taxes on real estate and for small
charges. All these payments were in good money, and were paid
between 15 July, 1820, and 15 July, 1825.
Page 30 U. S. 643
The evidence given by the defendants, as to the taxes on the
real estate of the debtors to the bank, and the lawfulness of the
fees, cost and commissions, was opposed by evidence on the part of
the United States. Evidence was also given which was intended to
deny that the taxes, fees, &c., were due, or that they were
reasonable.
The plaintiffs also gave in evidence that attachment suits were
issued against the same debtors of the Bank of Somerset in the
district court of the United States in the years 1818 and 1819
against whom suits were instituted and prosecuted by the president
and directors in the County Court of Somerset, some of which suits
were instituted prior and some subsequent to the instituting of the
attachment suits in the district court of the United States, and
all of which suits were actually proceeded in after the attachment
suits, and in the prosecution of which Somerset County suits the
principal fees, commissions, and costs were incurred.
The defendant further offered evidence that sometime after the
execution of the bond upon which this suit was instituted, a
contest arose between the Bank of Somerset and several of its
debtors in consequence of the bank's having refused to receive its
certificates of deposit, which the debtors tendered in payment of
debts due by them to the bank, and that the right of a debtor to
use such certificates in payment of a debt due by him to the bank
was judicially brought before the Somerset County Court in an
action instituted therein by the bank for the recovery of a claim
which the debtor had refused to pay, except in said certificates;
that the county court at its November term, in the year 1821,
decided that the tender of the certificates of deposit by the said
debtors to the bank, in payment of the debt due by them to the
bank, was a satisfaction of the claim; and that the bank notes and
certificates of the Bank of Somerset were a legal tender to the
bank, and should be received in payments of judgments obtained in
that court in favor of the bank, from the date of the Act of
Assembly of the session of 1818, chap. 177, and that in conformity
with the opinion, a verdict was entered for the debtor with a
judgment for his costs. And the defendant also proved that the bank
notes and certificates, received by the president and directors of
the said bank as stated, were received by them subsequent to the
said decision.
Page 30 U. S. 644
The defendant also gave in evidence that among the judgments in
favor of the bank were several against Littleton D. Teackle, upon
whose property there were prior liens, and that all the money paid
away by the corporation for liens was in discharge of such liens,
and that the bank, under their own executions, bought the property
of said Teackle subject to such liens, and that the property so
taken was and is worth more than such liens, and that the property
was delivered by the bank to the United States, and has been and is
now in the hands and possession of the United States or its
authorized agents.
The plaintiffs then gave in evidence that the property last
referred to was never otherwise in the hands or possession of the
United States than as taken in execution under a writ of
fieri
facias, issued against the property of the bank, since 15
July, 1825, and further, that the property is not worth so much as
the amount of the said prior liens.
The defendant offered at the trial to deliver to the plaintiffs
the notes and certificates of the bank received in payment of debts
due to the bank and for real estate, but the plaintiffs declined to
receive them.
The defendant further offered in evidence, that the president
and directors of the Bank of Somerset, during the five years from
15 July, 1820, to 15 July, 1825, used due and reasonable diligence
in recovering and securing the property and estate of the said
bank, for the benefit of the United States, and that they, on 15
July, 1825, offered to deliver over to the United States all the
property and estate which had been received by them (except what
had been paid for liens, commissions, fees, costs and taxes, as
hereinbefore set forth); which the United States refused to accept,
and that the president and directors have continued to hold, and
now hold the same for the benefit of the United States, and always
have been and are now ready to deliver the same to the United
States.
The plaintiffs then offered in evidence that the president and
directors did not, during the five years, from 15 July, 1820, to 15
July, 1825, use due and reasonable diligence in recovering and
securing the property and estate of the bank for the benefit of the
United States, and that they did not on 15 July, 1825, or at any
time since, offer to deliver up any property or estate whatsoever,
and that they do
Page 30 U. S. 645
not now hold any part of such property or estate, by them
received, for the benefit of the United States, and that they have
heretofore neglected and refused to deliver up any property or
proceeds of property of the bank to the United States.
The defendant further offered evidence that the bank, from 15
July, 1820, to 15 July, 1825, sustained losses to the amount of
$60,000 by insolvencies of its debtors, for which the said
corporation was not responsible. And thereupon the plaintiffs
offered evidence, that the said supposed insolvencies, or the
principal part thereof, happened by the negligence and misconduct
of the said president and directors.
Certain proceedings of the corporation relative to the
management and transactions of its business were given in
evidence.
At a meeting of the board of directors of the bank on 16 June,
1818,
Ordered, that all persons indebted to this bank may discharge
the same by transfers of its stock at the rate of ninety percentum
for the amount of capital actually paid in.
By a resolution of the president and directors of the bank
passed June 13, 1820, William Done, one of the directors,
"is hereby appointed agent for the Bank of Somerset to adjust
and settle the claim of the United States, and he is requested
immediately to repair to the seat of government and there submit to
the proper officer the propositions made by the former committee on
the United States claim, and endeavor to procure the acceptance of
either of them by the government, in substance as the same now
stands. And whereas this board has been informed that it has been
represented at the seat of the general government that the last
election for directors was illegally conducted and would be
contested, the cashier is requested to furnish the said William
Done with such extracts and statements from the proceedings of the
board of directors of April 12 last as he may think necessary and
sufficient to satisfy the officers of government that the said
election was conducted and closed according to all antecedent usage
in this bank, and, as far as we know, in every other similar
institution. "
Page 30 U. S. 646
At a meeting of the president and directors of the bank on 15
July, 1820, the agent, appointed at the former meeting of the board
to proceed to the seat of government for the purpose of effecting a
compromise with the Treasury Department relative to the claim of
the United States against the bank, reported that he had waited
accordingly on the Secretary and Comptroller of the Treasury, and
that he had entered into a compromise upon the basis of the second
proposition made by the committee on the United States claim, with
a modification made by the Treasury as follows,
viz., the
directors will pledge to the government the whole estate of the
corporation as a security for the payment of the original principal
of the claim on or before the expiration of the term of five years
from the date of the compromise, and for the fulfillment of this
engagement they will bind themselves individually to the United
States in a sum equal to the amount of the debt.
The board then resolved
"That the board accept the said proposition as thus modified,
provided the United States will agree to assign to those
individuals who shall enter into the bond the whole claim as it now
stands and all interest which have or shall accrue on the same. And
for the better security of those who shall enter into said bond,
and as an indemnification for any loss they might sustain and a
compensation for their extraordinary trouble and responsibility, it
is hereby distinctly declared and understood by this board that all
advantages and privileges now held by the United States shall be
transferred to said individuals, and that they shall be entitled to
all interest, profit, and costs which have or shall accumulate on
the said claim until the same shall be finally settled."
On 26 June, 1821, the board of directors ordered
"That William Done proceed as soon as convenient to the seat of
government for the purpose of finally settling the arrangement
entered into with the Treasury Department, and he is also requested
to ascertain the state of the suit or suits brought by the United
States against the bank and its garnishees in the District Court of
Maryland."
"That Charles Jones shall attend all sales of property under
execution, shall receive all moneys offered to him in payment of
any execution or judgment, and shall pay over the same, at the
expiration of each month, to the chairman. "
Page 30 U. S. 647
Evidence was given that Charles Jones was solvent during the
whole period of his shrievalty, and that he has since died, leaving
his estate insolvent.
And further testimony was given that the stockholders generally
availed themselves of the provision of the resolution of 16 June,
1818; that where the stockholders were debtors, the transfer of
their stock was made to cancel their debts
pro tanto, and
other debtors purchased from other stockholders stock for the like
purpose; that some of the persons who were directors on 16 June,
1818, and who acted under the said resolution, were obligors on the
bond in question, and that other obligors thereon subsequently
availed themselves of the same resolution.
Upon the statements, admissions, and evidence the plaintiffs by
their counsel prayed the court for its opinion and direction, as is
stated in the opinion of this Court.
The defendant also submitted certain prayers to the court which
are also stated in the opinion of this Court.
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the
Court.
This suit was brought in the Court of the United States for the
Fourth Circuit and District of Maryland, on the following bond:
Know all men by these presents, that we, Thomas Robertson, Levin
Ballard, Arnold E. Jones, Mathias Dashiell, Charles Jones, Marcey
Maddux, William Done, George W. Jackson and John H. Bell, all of
Somerset County and State of Maryland, are held and firmly bound
unto the United States of America, in the sum of $100,000, current
money of the United States, to be paid to the said United States,
their certain attorney or attorneys, to the which payment well and
truly to be made and done, we hereby bind ourselves, our heirs,
executors and administrators, jointly and severally, firmly by
these presents, as witness our hands and seals this 15 July, in the
year 1820.
Whereas, on the first day of August, 1817, the Bank of
Page 30 U. S. 648
Somerset became indebted to the United States for the sum of
$69,079.62, deposited in said bank, by George Brown, collector, and
others, for the final payment of which sum, and the better security
of the United States, an agreement has this day been entered into
between the United States on the one part, and the president and
directors of the said Bank of Somerset, on the other part, in the
words following,
viz.,
"The directors agree to pledge to the government of the United
States, the entire estate of the corporation as a security for the
payment of the original principal of the claim on or before the
expiration of the term of five years, from the date of the
compromise, and for the fulfillment of this engagement they will
bind themselves individually to the United States in a sum equal to
the amount of the debt, and in order that no misunderstanding may
hereafter arise respecting the true intent and meaning of the
phrase, 'the entire estate of the corporation,' and the nature and
extent of the individual obligation, it is hereby declared to be
distinctly understood by both parties that the entire estate of the
corporation means not only all the real estate of the said Bank of
Somerset, but also all the debts of every description which are now
due and owing unto the said bank, or to which the said bank may
have any legal or equitable right whatever, and it is also
understood by both parties that the bond of individuals is not
intended as a contract for the absolute payment of the said sum of
money from their private estates, but as a guarantee that the said
president and directors and their successors will fulfill their
agreement to preserve entire the estate of the corporation, until
the United States are paid and satisfied the said original
principal of their claim, and to give a preference to the United
States over any other creditor of the bank. The United States
agrees, upon receiving the bond of individuals, to assign the
direction and management of the suit which has been instituted in
the District Court of Maryland against the bank, to the individuals
who thus enter into bond, and at the expiration of the said term of
five years, upon the payment of the sum of $69,079.62 on or before
the day of payment, the United States will give a full and free
acquittal to the said corporation for the whole claim. "
Page 30 U. S. 649
"Now the condition of the foregoing obligation is such that if
the said president and directors and their successors shall on
their part well and faithfully perform the said contract and shall,
in preference to any other claim against the said bank, pay into
the Treasury of the United States the said sum of $69,079.62 on or
before the 15th of July 1825, then the foregoing obligation to be
void, otherwise to remain in full force and virtue in law."
"Signed and sealed by Thomas Robertson, Levin Ballard, Jr.,
Arnold E. Jones, Mathias Dashiell, Charles Jones, Marcey Maddux,
William Done, and George W. Jackson."
"John H. Anderson, witness."
The issues joined on several special pleas filed by the
defendant were withdrawn by consent and
nil debet pleaded
under an agreement that the parties might give any matter in
evidence which might have been given under any form of
pleadings.
It will be perceived from the condition of the bond that the
Bank of Somerset had become indebted to the United States in a
large sum of money on account of deposits made by a collector, and
that a suit had been instituted against the bank in the Court of
the United States for the District of Maryland. On 15 July, 1820,
an agreement was entered into between the United States and the
president and directors of the Bank of Somerset which is recited in
the condition of the bond. The principal object of this agreement
was to secure the whole estate and property of the bank of every
description for the payment of the principal debt on or before the
expiration of five years from the date of the agreement. For the
performance of this engagement the directors agree to bind
themselves individually in a sum equal to the amount of the debt,
but this bond of individuals is not to be understood as a contract
for the absolute payment of the said sum of money, but as a
guarantee that the president and directors, and their successors
will fulfill their agreement to preserve the entire estate of the
corporation until the United States are satisfied with the
principal and to give a preference to the United States over any
other creditor of the bank. The United States, on
Page 30 U. S. 650
its part, agrees, on receiving this bond, to assign the
direction and management of the suit to the obligors.
The construction of this bond has been discussed at the bar as a
preliminary question to the several points made in the cause. The
United States contends that the agreement recited in the condition
of the bond is made by the then president and directors of the Bank
of Somerset, in their individual as well as corporate character,
and that the defendant is bound individually not merely to the
extent of the obligation created by the bond, but also as far as he
would have been bound had he signed the agreement in his private
character.
The defendant contends that the agreement was made by the
president and directors for the bank as its legitimate agents, and
is to be treated as an engagement made in their corporate
character, and that the bond is an undertaking by the obligors, in
pursuance of that agreement, by which they become sureties for the
bank, that the president, directors and their successors will
perform their engagements with good faith.
In pursuing this inquiry, the form of the instrument and the
nature of the transaction must be considered.
The agreement between the United States and the bank is not
spread on the record otherwise than as it is recited in the
condition of the bond. It does not appear to have been signed by
the president and directors individually. This could not have been
omitted had they intended to bind themselves individually by that
agreement. As an official act, it was sufficient that it be entered
on their journals; as an undertaking of individuals, it ought to be
signed by them. It is referred to in the recital of the condition
in these words:
"And whereas an agreement has this day been entered into between
the United States, on the one part, and the president and directors
of the said Bank of Somerset of the other part, in these
words,"
&c. This language indicates, we think, an agreement by the
president and directors in the corporate character, in which they
are mentioned, rather than in their individual characters, in which
they are not mentioned. If the president and directors are bound in
their private character, is every member of the board bound,
whether he was present and assented to the agreement or not? The
incorporating act declares that the affairs of the bank shall be
managed by a president and ten
Page 30 U. S. 651
directors. Are they all bound by this agreement? If not, who of
them are? The paper itself, as recited, does not inform us. If we
look out of the condition of the bond to the journals of the
corporation for instruction, we are informed that at a meeting of
the board on 15 July, 1820, the president and six directors
attended. If it be contended that this record fixes the members
present, one of them, George Jones, who was a party to the
agreement, did not sign the bond. Is he bound? If we are permitted
to travel out of the bond and search the journals of the bank for
information on this subject, the same record informs us that this
whole business was transacted by the board in their corporate
character, as acting for the bank.
The great object of the agreement was to pledge the estate of
the bank to secure, as far as it would secure, the payment of the
debt due to the United States. None could give this pledge but
those whose official duty it was to manage that property, and they
could only give it in the character in which they were entrusted
with its management. They alone, in their political character, and
their successors, could redeem this pledge, for only those who
retained the management of the affairs of the bank during the five
years given for the payment of the debt could keep the estate
together and apply it exclusively to the use of the United
States.
To what purpose should the United States require that the
directors should bind themselves individually if they were already
bound individually by the agreement itself? This stipulation, being
for the benefit of the United States, must be considered as
introduced at their instance, and if we may look at the proceedings
of the board on 15 July, 1820, we are informed that the agent of
the board, who carried propositions to the Secretary of the
Treasury, reported that he had made a compromise on the basis of
the second proposition, with this modification made by the
Treasury. But without going out of the bond, this stipulation must
be considered as being made on the part of the United States. For
what purpose, we repeat, was it made? If the individual members of
the board were bound by the agreement, why require a bond from the
same persons as sureties for themselves? They could be sued upon
the original agreement as well as upon the bond.
Page 30 U. S. 652
Why this complex proceeding? Upon the hypothesis of individual
obligation under the agreement, it is inexplicable. Upon the
hypothesis that the original agreement was a mere corporate act,
the whole transaction is accounted for. The agreement being a
corporate act, could not affect the members of the board in their
private characters; it was a mere pledge of the faith of the
corporation, for the violation of which the corporate funds would
alone be responsible, and would add nothing to the security of the
government, because the liability of those funds was already as
complete as any corporate act could make it. The obligation of
individuals therefore was required who should be sureties that the
corporate body would faithfully observe its contract. This is
expressly declared to be the effect of the bond and the purpose for
which it was given. The words are:
"And it is also understood by both parties that the bond of
individuals is not intended as a contract for the absolute payment
of the said sum of money from their private estates, but as a
guarantee that the said president and directors, and their
successors [not their heirs and executors] will fulfill their
agreement to preserve entire the estate of the corporation,"
&c.
The words which follow the recital of the condition serve still
further to show the understanding of the parties. They are
"Now the condition of the foregoing obligation is such that if
the said president and directors and their successors shall on
their part well and faithfully perform the said contract,"
&c., then the foregoing obligation to be void, &c.,
obviously referring to a contract made by the corporate body and to
be performed by the corporate body.
An argument against this construction of the instrument has been
founded on the following clause.
"The United States agrees, upon receiving the bond of
individuals, to assign the direction and management of the suit
which has been instituted in the District Court of Maryland to the
individuals who thus enter into bond, and at the expiration of the
said term of five years, upon the payment of the sum of $69,079.62
on or before the day of payment, the United States will give a full
and free acquittal to the said corporation for the whole
claim."
The Court does not allow to this clause that influence over
Page 30 U. S. 653
the agreement for which the counsel for the United States
contends. Being a stipulation to assign the management of the suit,
not the judgment which should be obtained, the power might have
been conferred on the president and directors and their successors
without releasing the debt. If, as we suppose, it was intended as
an inducement to incur personal responsibility by affording
security to those who should incur it, the clause rather furnishes
an argument in favor of that construction for which the defendant
contends.
We are of opinion that the agreement recited in the condition of
the bond on which this suit is instituted is in fact made and was
understood by the parties to be made by the United States with the
Bank of Somerset acting by its lawful agents, the president and
directors of that bank, and that the obligors bound themselves, as
sureties, that the bank would faithfully perform its
engagements.
At the trial of the cause, the following points were made at the
bar by the counsel for the United States, and the opinion of the
court was asked upon them.
1. That, by the bond on which this suit is brought, the
defendant has undertaken that the estate of the bank, including its
debts, shall be applied in the first instance to extinguish the
debt due to the United States in five years if that estate was
sufficient to extinguish it, and if the jury shall be of the
opinion that the estate, at the date of the bond, was sufficient
and might, by the use of proper means on the part of the defendant
and his co-obligors, have been rendered available to that purpose
within the time limited by the bond, the defendant is answerable
for any portion of the debt ascertained upon the face of the bond
which remained due to the United States at the expiration of the
five years given by that bond and which still remains due.
2. That it being admitted the statement of the condition of the
bank on 11 May, 1820, which has been offered in evidence proceeded
from the obligors in the bond and has been furnished by them, it is
an admission on their part that the estate of the bank was at that
time sufficient to have paid the debt due to the United States, and
throws the burden of proof on the defendant to show how it
afterwards became insufficient, and, in the absence of satisfactory
proof on this
Page 30 U. S. 654
point, the estate of the bank is to be held sufficient to have
paid the debt due to the United States within the five years given
by the bond, and the defendant is answerable for any portion of
that debt which remains unpaid to the United States.
3. That among the duties imposed on the defendant by the bond
was that of calling in the debts due to the bank in the most
expeditious and effectual manner, and if the jury shall believe
that a resort to attachment against the bank debtors in the name of
the United States, on the judgment which had been obtained by the
United States against the bank, was the most expeditious and
effectual manner, and that the obligors in the bond have not
resorted to this mode of proceeding, they have been guilty of a
breach of their undertaking in the bond, and are answerable for the
full value of any debt which might have been secured by that mode
of proceeding.
4. That by the bond on which this suit is brought, the obligors
were bound to use diligence in enforcing the collection of the
outstanding debts due to the Bank of Somerset at the date of the
bond, and that if they have failed to employ the best means which
the law placed in their power to enforce such collection, they are
responsible for all losses proceeding from their neglect to use
those means, &c.
5. That having been authorized to proceed against the debtors of
the bank on the judgment which had been obtained by the United
States against the Bank of Somerset, and to enforce the proceedings
against those debtors as garnishees, which had already been
instituted in that suit, as well as to take out new attachments
against other debtors in the name of the United States, the
plaintiffs in that judgment, if, instead of resorting to these
proceedings, they brought new actions against their debtors in the
state courts, and by the adoption of this latter course, debts have
been lost which might have been saved by resorting to the process
of attachment against those debtors under the judgment before
mentioned, the defendants are liable for all such losses.
6. That if the jury shall be satisfied that the statement of the
condition of the bank on 11 May, 1820, was its true condition at
that time, and that no proof has been offered by the defendants to
show that this condition was variant at the date of the bond, the
defendants can repel the inference of the
Page 30 U. S. 655
solvency of the bank in no other way than by showing to the
satisfaction of the jury that the debtors, whose debts compose the
aggregate of $106,995 presented on the statement, were wholly or
partially insolvent, and that the defendant was unable to collect
the debts, either by reason of such insolvency or by some legal
impediment which they could not control, and that in the absence of
such proof, the legal presumption will be that such debtors were
solvent and that those debts might have been collected by the use
of due diligence, and if they have not been collected and paid over
to the United States, that the defendant is liable for the amount
of the debt acknowledged in the bond to be due to the United States
or for whatever balance of that amount remains unpaid to the United
States.
7. That attachments at the suit of the United States which had
been laid in the hands of the debtors to the Bank of Somerset,
prior to the date of the bond, fixed the debts in the hands of such
debtors, and that such debts could be discharged only by the
payment of good and lawful money equal in value to the amount of
such debts, and that if the obligors in the bond on which this suit
is brought did afterwards receive such debts from the debtors in
depreciated notes of the Bank of Somerset or any other depreciated
paper, the defendant is liable to the United States in good and
lawful money for the amount of debts so received in depreciated
paper if there be no proof that such debtors were in circumstances
so insolvent as that they could not have paid their debts in good
and lawful money.
8. That by virtue of the agreement recited in the bond on which
this suit is brought and of the bond itself, the debts due to the
bank were so pledged to the United States that the obligors in the
bond had no right to receive these debts in the depreciated notes
of the Bank of Somerset, and that if after the date of the bond
they did so receive them, they are liable to the United States in
good and lawful money for the amount so received if there be no
proof that the debtors from whom they were so received were in
circumstances so insolvent that they could not have paid these
debts in good and lawful money.
9. That by virtue of the bond and the agreement therein
Page 30 U. S. 656
recited, the defendant was bound to see that the estate of the
bank, as described in the agreement and bond, should be applied in
the first instance to the payment of the debt due to the United
States before any payment made to any other creditor, and that if
any portion of that estate has been paid to the holders of
certificates of deposit which were outstanding at the date of the
bond, or if these certificates have been received in payment of
debts due by the holders to the bank, the defendant is liable for
all sums so paid to the holders of such certificates and for the
amount of all debts for which such certificates have been received
in payment if there be no proof that the debtors from whom they
were so received were in circumstances so insolvent that they could
not have paid those debts in good and lawful money.
10. That in all cases where, after the date of the bond, moneys
have been shown to have been paid under executions at the suit of
the bank, placed in the hands of Charles Jones, the sheriff of the
county, who is admitted to have been one of the obligors in the
bond, the defendant is liable for all such amounts so received by
the said Charles Jones.
11. That the defendant had no authority to pay away any part of
the estate of the bank, as described in the bond, to the purpose of
relieving liens on the estates of the debtors to the bank; but
their duty was to have collected the debts due to the bank out of
the estate of such debtors, which they will be presumed to have
been capable of doing until the contrary is proved, and in the
absence of such proof, they are liable to all sums paid away for
such liens.
12. That as it was in the power of the obligors to have
proceeded by attachment against the debtors of the bank under the
judgment which had been obtained in the district court of the
United States, the institution of new suits against such debtors in
the County Court of Somerset was unnecessary until it shall be
proved that they could not have so proceeded, and that the costs
and expenses attending these suits were incurred by the obligors in
their own wrong, and must fall upon them, and the defendant is
entitled to no credit on account of such costs and expenses, but
must answer for the value of these debts clear of any other costs
and expenses, than would have arisen from his proceeding by
attachment in the courts of the United States.
Page 30 U. S. 657
13. That the defendant was not authorized to diminish the amount
of the estate of the bank by the payment of a commission for
collection to William Done, one of the obligors.
14. That if the resolution of the board of directors of date 16
June, 1818, authorizing the stockholders to assign their stock at
$90 in discharge of their debts was made for the purpose of
shielding the stockholders from the judgment of the United States
and the process of attachment against the debtors of the bank which
the United States was authorized to sue out against these debtors,
such transfers of stock were fraudulent and void, and it was the
duty of the obligors to have reasserted these debts as they stood
prior to such transfer of stock and to have proceeded to recover
them by the legal process of attachment in the name of the United
States, and that if they failed to do so, such failure was a breach
of their duty under the said bond and contract, and if such debts
might have been so recovered by the use of due diligence, the
defendant is liable for the amount.
15. That if process of attachment, at the suit of the United
States, had been served on these stockholders prior to such
transfer in payment of their debts, such debts became fixed thereby
to the United States, and the subsequent transfer of stock in
extinguishment of them was a void act, and these debts constituted
a part of the estate of the bank, which the defendant was bound to
apply to the payment of the debt of the United States, and not
having done so, he is liable for those amounts.
And the counsel for the defendants made he following points:
1. That by the true construction of the bond, the obligors
undertook for the acts of the corporation only, and not for their
own conduct as individuals, or the conduct of any other
individuals, not being the agents of the corporation.
2. That payment made to the sheriff is no payment made to the
bank, and that the defendant is not liable for any money received
by the aforesaid Charles Jones as sheriff unless the same was paid
over to the bank or to the agents of the bank lawfully authorized
to receive the same.
3. That the bank is not liable for any depreciation in the
Page 30 U. S. 658
money, which the bank was compelled to receive by the judgment
of the Maryland courts.
4. That the corporation had not the right to use the attachments
which had issued from the district or circuit court, nor to order
any process connected with the suit or judgment of the United
States against the Bank of Somerset, and cannot therefore have been
guilty of negligence or misconduct by reason of not attempting to
use the said attachments or to issue process on said judgment.
5. That the defendant is not liable for any depreciation in the
money which the bank was compelled to receive by the judgment of
the Maryland courts unless the jury find that the bank was guilty
of culpable negligence or misconduct in prosecuting their claims in
the courts of Maryland instead of using the attachments issued from
the district or circuit court of the United States.
6. That if the jury believe that the property, from which the
liens were removed, by payments of the Bank of Somerset, as stated
in the evidence, has come to the hands and possession of the
plaintiffs, and is worth more than such liens, and that the payment
of such liens was made with an honest intention and view, for the
benefit of the United States, then the plaintiffs are not entitled
to recover the amount so paid for such liens, as stated in the
evidence.
7. That if the jury finds from the evidence that the taxes,
officers' fees, counsel fees, and commissions paid by the bank were
actually due and that the said taxes were lawfully chargeable on
the said property when in the hands of the bank as the agent of the
United States, and that the said officers' fees and counsel fees
and commissions became due on account of suits instituted by the
bank as the agent of the United States under the contract upon
which this suit is brought, and that the said fees and commissions
were lawful and reasonable, that then the plaintiffs are not
entitled to recover the amount so paid by the bank of taxes,
officers' fees, counsel fees, and commissions unless the jury find
that in instituting the said suits, the said bank from negligence
and misconduct violated its duty to the United States.
Upon these points too the instructions of the court to the jury
were requested.
Page 30 U. S. 659
The record states that, the judges being opposed in opinion on
each of these questions, ordered them on motion of the counsel for
the plaintiffs to be certified to this Court for its decision, and
discharged the jury.
Some general propositions have been stated in argument which
bear upon all the points and which will be considered before we
proceed to apply them to the several specific questions which have
been certified by the circuit court.
The counsel for the United States insists that by the act of
1818, the United States was empowered to enforce payment of the
judgment they might obtain against the bank in specie by summoning
the debtors of the corporation as garnishees and obtaining
judgments against them. The act provides that in any suit
thereafter instituted by the United States against any corporate
body for the recovery of money upon any bill, note, or other
security, it shall be lawful to summon as garnishees the debtors of
such corporation, who are required to state on oath the amount in
which they stand indebted, at the time of serving the summons, for
which amount judgment shall be entered in favor of the United
States in the same manner as if it had been due and owing to the
United States.
This act operates a transfer from the bank to the United States
of those debts which might be due from the persons who should be
summoned as garnishees. They become by the service of the summons
the debtors of the United States, and cease to be the debtors of
the bank. But they owe to the United States precisely what they
owed to the bank, and no more. On 9 February, 1819, the Legislature
of Maryland passed an act declaring that in payment of any debt due
to or judgment obtained by any bank within that state the note of
such bank should be received. This act, so far as respects debts on
which judgments have not been obtained, embodies the general and
just principles respecting offsets which are of common application.
Every debtor may pay his creditor with the notes of that creditor.
They are an equitable and legal tender. So far as these notes were
in possession of the debtor at the time he was summoned as a
garnishee, they form a counterclaim, which diminishes th debt due
to the bank to the extent of that counterclaim. But the residue
becomes a
Page 30 U. S. 660
debt to the United States, for which judgment is to be rendered.
May this judgment be discharged by the paper of the bank?
On this question, the Court is divided. Three judges are of
opinion that by the nature of the contract and by the operation of
the act of Maryland upon it, an original right existed to discharge
the debt in the notes of the bank, which original right remains in
full force against the United States, which comes in as assignees
in law, not in fact, and which must therefore stand in the place of
the bank.
Three other judges are of opinion that the right to pay the debt
in the notes of the bank does not enter into the contract. A note
given to pay money generally is a note to pay in legal currency,
and the right to discharge it with a particular paper, is an
extrinsic circumstance depending on its being due to the person or
body corporate responsible for that paper, which right is
terminated by a transfer of the debt.
The counsel for the United States also contend that the obligors
are responsible in this suit for the act of any individual who has
signed the bond by which any portion of the estate of the bank may
have been lost, and for the omission of the obligors to perform any
act within their power which might have enabled the corporate body
to collect its debts in money of more value than its own notes.
We do not think so. Whatever obligations a sense of right might
have imposed upon them as members of the corporation, the
obligation imposed by the bond itself is measured by its terms.
They do not undertake for their general conduct as individuals.
They do not undertake for each other as to any matter not expressed
in the bond. They undertake that the bank shall perform the
contract recited in the condition, and for nothing more.
The bond does not stipulate that the obligors will do anything
which may facilitate the operations of the bank in collecting its
debts and performing its contract with the United States.
It has been urged that they might have used the power to direct
and manage the suit, so as to compel the debtors to the bank, by
summoning them as garnishees, to discharge their debts in specie.
The United States has not required them to make
Page 30 U. S. 661
any use of the power to manage and direct the suit. Nothing is
specified, nor is anything either demanded or undertaken on this
subject. Were this Court to insert it, we should add a new term to
the bond, and create an obligation which the parties have not
imposed upon themselves. We should do something more than construe
and enforce the contract.
In the state in which the record now appears, this question does
not regularly arise. If the obligors were bound to use their power
to direct and manage the suit in the manner most advantageous to
the United States; if we could suppose that the power was given not
for the benefit of the obligors who obtained it, but for the
benefit of the United States, who agreed to surrender it
unconditionally for something else stipulated in the bond; still
this obligation so to use the power could not commence until the
power was given. This we think is not shown by the record.
The bond was executed to the United States, and this action is a
proof that it was accepted. So far as respects the liability of the
obligors as sureties for the bank, the acceptance has relation to
the date, but so far as respects the liability to be created by a
subsequent act of the obligee, this relation cannot be sustained.
The actual time of acceptance becomes a subject of inquiry.
The record furnishes reason for the opinion that the bond was
not accepted at its date, on 15 July, 1830. The acceptance being a
fact
in pais, we may look out of the bond for proof of
it.
The directors agree to bind themselves individually for the
performance of the contract recited in the condition. This was
required by the Treasury Department in terms implying that all the
directors should so bind themselves. The act incorporating the Bank
of Somerset makes the board to consist of a president and ten
directors; the bond is executed by the president and seven
directors. It remained some time for the signature of others, and
was incomplete at its date. It might, without the slightest breach
of faith, have been rejected by the Secretary of the Treasury, and,
as it did not conform to his original proposition, remained as an
escrow until approved by him. The record furnishes some evidence
that it was not immediately approved.
On 26 June, 1821, the board of directors ordered
Page 30 U. S. 662
"that William Done proceed as soon as convenient to the seat of
government, for the purpose of finally settling the arrangement
entered into with the Treasury Department, and he is also requested
to ascertain the state of the suit or suits brought by the United
States against the bank and its garnishees, in the District Court
of Maryland."
If then the power claimed for the obligees, to direct and manage
the suit of the United States, was conferred by the mere operation
of the bond; it could not be conferred until the bond was actually
accepted, and the time of acceptance ought, for this particular
purpose, to be shown. But this power is not conferred by the mere
operation of the bond. It requires a distinct and independent act
on the part of the government.
"The United States agrees, upon receiving the bond of
individuals, to assign the direction and management of the suit
which has been instituted in the District Court of Maryland against
the bank, to the individuals who thus enter into bond."
Till this authority was actually given, the attorney for the
United States would have disregarded, and ought to have disregarded
any orders received from the obligors in the bond.
Suits were instituted by the bank against its debtors in the
courts of the state, by whose judgment the bank was compelled to
receive not only its own notes, but the certificates of deposit
held by its debtors. The counsel for the United States insists that
the bank is responsible for the sums so received, in violation of
its agreement to give a preference to the United States over other
creditors. So far as this act was voluntary on the part of the
bank, it is a violation of the contract, for which its sureties are
liable. But how far was it voluntary? The bank possessed no other
means of collecting its debts than through the medium of the state
courts. It might therefore be necessary to resort to those courts
in order to avoid a total loss. The act of limitations, independent
of those casual insolvencies which might occur, would have formed a
serious deduction from that estate, which it was their duty to
preserve entire for the United States. The bank perhaps might have
made, and sound morality required that they should have endeavored
to make new arrangements with the United States. It is not certain
that any arrangements which would remove
Page 30 U. S. 663
difficulties with which the whole transaction was embarrassed,
were practicable. But be this as it may, we perceive no other
course which was prescribed by duty and by contract, with respect
to their debts generally, than to sue in the state courts. With
respect to those debts which were attached by the United States,
the same division of opinion exists as with respect to their
payment in the notes of the bank.
We will now apply these principles to the particular points on
which the judges of the circuit court were divided.
On the first question propounded by the counsel for the United
States, and also on the first question propounded by the counsel
for the defendant, this Court is of opinion that the obligors
undertook for the faithful performance by the president and
directors, of the contract recited in the condition of the bond, on
which the suit is instituted, and not for their own conduct as
individuals, and that they are responsible for any failure on the
part of the bank to perform that engagement.
On the second and sixth questions propounded by the plaintiffs,
this Court is of opinion that the statement of the condition of the
bank of 11 May, 1820, which appears in the record, is evidence to
be submitted to the jury, who are to judge on the whole testimony
how far the estate of the bank was at that time sufficient to pay
the debt due to the United States, and if any part of that estate
has been wasted or misapplied by the corporate body or their
agents, or has been appropriated unnecessarily to any purpose other
than towards the debt of the United States, or is otherwise
unaccounted for; the defendant is responsible for such
misapplication or waste, and for any sum not accounted for.
On the third and fourth questions propounded by the plaintiffs,
this Court is of opinion that the obligors did not undertake by
their bond to call in the debts due to the bank. That duty was to
be performed by the president and directors of the bank, for whose
faithful performance of it the obligors are responsible.
The court does not perceive the application of the fifth
question on the part of the plaintiffs to the cause, unless the
president and directors of the bank be considered as the obligors,
which idea is negatived in the answer to the first question.
Page 30 U. S. 664
The obligors had no power to bring actions against the debtors
of the bank in the state courts.
On the seventh question propounded by the plaintiffs, this Court
is of opinion that the attachments at the suit of the United States
which had been laid in the hands of the debtors to the Bank of
Somerset, prior to the date of the bond, fixed the debts in the
hands of such debtors, as to the sum remaining due after deducting
the legal offsets against the bank then in the hands of such
debtors. This Court gives no opinion as to the money or paper in
which the sum so remaining due was demandable.
The eighth instruction required by the plaintiffs ought not to
be given as asked.
The ninth question is answered in the opinions given by this
Court on the preceding inquiries.
On the tenth question propounded by the plaintiffs and the
second propounded by the defendant, this Court is of opinion that
the bank is liable for the money received by Charles Jones, as
their collector, and the defendant is liable therefor as their
surety, but that the bank is not liable for the money which came to
his hands as sheriff, unless the president and directors were
guilty of negligence in using the appropriate means to draw it out
of his hands in reasonable time.
On the eleventh question propounded by the plaintiffs and the
sixth propounded by the defendant, this Court is of opinion that it
was the duty of the president and directors to collect the debts
due to the bank. In the performance of this duty it might be
necessary to purchase property pledged to the bank which was
subject to prior liens, and to relieve such property from its prior
encumbrances in order to avoid a total loss of the debt. This may
have been advantageous or may have been disadvantageous to the
United States.
We think the transaction, with all its circumstances, ought to
be submitted to the jury, and that the liability of the defendant
can in no event exceed the actual loss sustained by the United
States, in consequence of the bank having taken the property, by
discharging the prior encumbrances instead of suing the debtor in
the state court.
On the twelfth question propounded by the plaintiffs and
Page 30 U. S. 665
the seventh, propounded by the defendant, this Court is of
opinion that the president and directors of the Bank of Somerset
had no power over the judgment of the United States. They could
therefore proceed only in the state courts, and were entitled to
credit for such necessary expenses, as were incurred in such suits
as it was prudent to bring.
On the thirteenth question propounded by the plaintiffs, this
Court is of opinion that the propriety of allowing the commissions
paid to William Done depends on their reasonableness.
On the fourteenth and fifteenth questions propounded by the
counsel for the plaintiffs, this Court is of opinion that the
instructions ought to have been given as asked, except so much of
the fourteenth as states it to have been the duty of the obligors,
instead of the president and directors, to reassert these debts and
so much as supposes a power to proceed by the legal process of
attachment in the name of the United States, and except so much of
the fifteenth as supposes a power in the defendant to apply the
funds of the bank.
The Court is of opinion that the third, fourth, and fifth
instructions moved by the counsel for the defendants ought to be
given as asked, except so much of the fifth as submits to the jury
the question on the power of the bank to use the attachments issued
from the district Court of the United States.
All which is to be certified to the circuit court, for the
fourth circuit and district of Maryland.
MR. JUSTICE BALDWIN dissenting.
I consider the directors of a bank as its chartered agents, and
the bank as bound by their acts, when they are within the powers,
and are exercised on the subjects, and in the manner authorized by
the charter.
25 U. S. 12
Wheat. 52-53,
25 U. S. 58,
25 U. S. 83,
25 U. S. 87.
Shankland v. Corporation of Washington, decided at this
term. If a corporation is authorized to raise money by a lottery,
its agents cannot sell it;
25 U. S. 12 Wheat. 55; if to raise a specific sum they
cannot raise a quarter.
Lee v. Manchester Canal, 11 East.
645, 654. Every act of fraud, departure from their duty, or any
other illegal act committed by the directors of a bank or the
cashier by their connivance and permission; however,
Page 30 U. S. 666
sanctioned by the uniform usage of the board; is an excess of
power and void from illegality.
26 U. S. 1 Pet.
71-72. The directors are liable individually, but the bank cannot
be bound by their doing that, which they had no lawful power to do,
or which was a violation of some duty enjoined by the charter, or
resulting from the nature and objects of the incorporation; for the
directors are not then their agents. A corporation is strictly
limited to the exercise of those powers which are specifically
conferred on it.
29 U. S. 4 Pet.
168. 2 Dows.P.C. 521, &c. The directors own none of the
property or funds of the bank. They are trustees for the
stockholders and creditors. Their control over the effects is
entirely fiduciary, and responsible, deriving their power over them
by the act of incorporation, they must execute it according to its
provisions and directions, which are in their nature creative, and
not merely restrictive, inherent powers. If the act of
incorporation is their only authority, they must act within its
precise terms. 2 Dow.P.C. 523. By section thirteenth, of the
charter, they may manage the funds in the common course of banking,
for the use and benefit of the stockholders; but for any fraud are
liable to an indictment, a suit by the bank for damages sustained,
or forfeiture of their stock.
If they manage them in any other way, they do it on their own
individual responsibility, not on that of the bank, as its
authorized agents; if misapplied funds of the corporation come to
the hands of innocent third persons, they cannot be recovered back.
But if the directors make a contract which contains stipulations
exceeding their authority, it cannot be enforced against the bank
by the party contracting with them. By the act of contracting with
the agents and trustees of a corporation, the party is presumed and
bound to know the nature, extent, and the legitimate objects of
their authority, according to the terms of the charter, and
necessarily contract subject to them.
The twelfth section of the law of Maryland, ch. 32. December
1813, chartering the Bank of Somerset, enacts that
"No member of said company shall be answerable in his personal,
or individual property, for any contract or engagement of said
bank, or for any losses, deficiencies of failures thereof, of the
capital stock thereof, but all the capital stock, together
Page 30 U. S. 667
with all its property, rights, and credits of the said
institution shall at all times be answerable for demands against
said bank."
At or as near the date of the bond as could as could be
ascertained, according to the statement given in evidence by the
plaintiffs, the bank owed the creditors $130,000, whereof there was
due to the holders of notes, $15,000 to individual depositors,
$46,000, and to the United States, $69,000. The whole property and
effects of the bank, amounted to $113,000, of which $60,000 appear
to be lost by insolvencies, the state of the bank, in May 1820,
shows on its face a deficit of $21,000, short of the debts. With
this law and statement of the bank before them, the plaintiffs and
the directors entered into the agreement of 15 July, 1820, by which
the entire estate of the corporation was pledged to the United
States for the payment of their debt of $69,000, and they were to
have a preference over every other creditor of the bank. They were
entitled to no such preference by law, and unless the agreement of
the directors gave it to them, under their authority as agents of
the bank, they cannot enforce it. The power and right of an
individual to prefer one creditor to another, is undoubted, not
because any law confers that right upon him, but being the owner,
and having full power of disposing of it as he pleases among his
creditors, or to sell it for money, the distribution or payment of
it at his pleasure among them, results from his ownership, and no
law has prohibited, or restrained him. But to my mind an agent or
trustee of a banking corporation is in a different situation; he
has no rights of individual ownership; his control over the effect
is solely derived from the law; regulated and controlled by it, in
any application he may make of it. The moment he exceeds his
chartered powers, or violates his duty as prescribed by law, all
privity between him and the bank ceases; he is no longer their
agent, and his acts are no longer theirs. Conceding the rule to be
that in a contest between creditors at the counter of a bank, the
note or check first presented, may be first paid, by the cashier;
it cannot, in my opinion, apply to real estate, or unavailable
effects; which require time and legal process for their collection,
and which
Page 30 U. S. 668
the charter declares, shall be at all times answerable for
demands against the bank. Directors have no inherent right in the
property or control over it; resulting from ownership which gives
them the power of individual debtors to give creditors a
preference. The charter gives them none. Their authority must then
be implied either from the general scope and objects of the
incorporation or be incident to the agents and trustees of all
monied and other corporations, in a case of known and ascertained
deficiency to pay its corporate debts. If there is in the statute
or common law of Maryland or any state in this union such a
principle, it is wholly unknown to me. If instead of declaring a
preexisting rule, a new one is adopted from reasons of supposed
analogy, justice or inconvenience; I cannot withhold my dissent to
its adoption, for I can perceive no reason which permits
preferences by individuals, which do not instead of authorizing,
forbid the application of the rule to the trustees of the
corporation; nor can I perceive the justice of preferring one note
holder, or one depositor to another. It would seem to me a justice
unknown to the common law, to apply all the effects of an insolvent
corporation to the debt of the government, and strip individuals.
In such a case, the rule that equality is equity would seem a very
appropriate one. An equal distribution of all the effects among all
the creditors would certainly not operate unjustly. I can apply no
other rule to this case in the absence of any provision in the
charter or present at common law authority to the contrary.
An agreement like the present, made by an executor or trustee
under a deed or will by an administrator or guardian, would be an
excess or abuse of power. Creditors excluded by the agreement would
have their remedy on the fund. Yet in all these cases the trustee
has an interest in and control over the property entrusted to him
at least equal to that of the bank directors in and over the
effects of the corporation. If the giving a preference to one and
excluding all other creditors would not be deemed a fair execution
of the powers of the former classes of trustees, it is difficult to
assign the reasons which on settled principles of law would confer
on the trustees of a corporation an extent of authority unknown to
any private trustees. A power given by will, deed, or
assignment
Page 30 U. S. 669
to a trustee to sell property to pay the debts of the party
executing it would not be well executed by such an agreement and
bond as this, nor can it be a compliance with the clear direction
of the twelfth section of the charter; the express words of it
import a different meaning. The whole capital stock, property,
rights, and credits of the bank are answerable for demands upon it.
They are thus pledged alike to all. While the demand is
unsatisfied, the pledge is unredeemed and directly violated if the
whole fund is appropriated to the demand of a favorite. It cannot
be pretended that the appropriation of the whole fund to the United
States exonerates the bank from its obligation to pay the $60,000
due to individuals; their demands are not extinguished thereby, but
remain in full force after all the corporate effects are disposed
of. And this becomes the situation of the parties: the private
creditors have just and legal demands against the bank, arising
from a deposit of their money; the United States has a demand of
the same kind; the bank is bound to pay both, if its property and
effects are sufficient, but its effective means fall short of
either debt. The thirteenth section expressly releases the members
of the company, exempts their persons and property from all
liability for the contracts and engagements of the bank or losses,
deficiencies, and failure of the capital stock, thus making the
capital stock the only fund for payment. Two creditors then, having
debts contracted in the same way, have by law a pledge of the whole
estate and effects for their security. The trustees of the fund
apply the whole to one creditor; the other receives nothing. All
the losses are thrown on him; he has a right to a judgment against
the bank as his debtor, but can take neither their property nor
effects, and the law prohibits him from resorting to any individual
member of the company. I cannot consider this as anything short of
a palpable perversion of the corporate powers of the directors by
depriving innocent individuals of every possible remedy for the
clearest possible right.
If it is said that the directors are answerable individually to
the injured creditors, that could only be on the legal result of
the acts done by them, for if they act within their chartered
authority, they are mere agents of the bank, and as such expressly
exempted from all personal responsibility. It is only
Page 30 U. S. 670
by an excess or abuse of their authority that they cease to be
agents and act at their individual peril, and it follows
necessarily that in so doing their acts are void as to the bank,
and cannot operate as a corporate transfer of corporate property,
to one, who is a party to an unauthorized transaction.
If the charter gives power to apply the corporate effects to one
creditor only, when it is unable to pay all, the directors have the
same power to prefer one stockholder, after the debts are paid; and
in either case might prefer themselves. Stockholders, debtors to
the bank, might apply their notes to the reimbursement of their
capital paid in; throw all the losses on those stockholders who had
borrowed no money, and on whose funds the operations of the bank
had been carried on. The directors themselves and the preferred
debtors of the corporation would thus receive back their whole
stock, where the creditor stockholders lose all theirs.
When the debts of a bank, due to the holders of their paper or
their customers, are paid, stockholders, being creditors, are
entitled to payments of their demands. The thirteenth section
directs the directors to manage the funds, "for the use and benefit
of the stockholders," and the twelfth pledges them for all demands
upon the bank. After the out of doors debts are paid, the claims of
stockholders are as sacred as those of depositors were before
payment, and any acts of the directors not strictly authorized by
these sections of the charter are inoperative and void as well
against the bank as against those who are creditors by holding
their notes or depositors or stockholders.
The charter of any corporation is the only source of its powers,
and the only authority by which any can be exercised; it is opposed
to all sound rules of construction, to consider that which confers,
as merely restraining and controlling powers, incident to the
incorporation, and therefore to be construed strictly as a
limitation or exception to powers which preexisted, or necessarily
resulted from it, as is the power to make by-laws to sue and be
sued, &c. The power to manage, control, and dispose of the
corporate property is a special authority given by the charter.
None can be exercised which is not explicitly granted, and it can
only be exercised on the precise subjects over which it is given,
and within the
Page 30 U. S. 671
limits definitively assigned. No charter ever gave a right of
preference of one creditor of the corporation to the exclusion of
all others; none ever authorized a transfer of all its property, as
this assignment does, and those who claim a right under it are
bound to show affirmatively the authority of the directors to do so
by the terms of the charter. The injured creditors are not bound to
show a negative of the power by any restrictions or prohibitions.
It is an universal principle that he who claims under a special
authority must show its existence and lawful exercise, to throw the
burden of proof on the party whose rights will be destroyed by its
abuse, would be the utter reversal of every rule which governs the
execution of powers. The charter expressly pledges the whole
property of the bank to the payment of the demands upon it. The
creditor who claims the whole, by the act of the directors, the
agents of the bank, and the trustees for all creditors and
stockholders must, especially when plaintiff, clearly make out
their power to give him the preference. The absence of a
restriction is no evidence of the grant of the power. The general
pledge for all demands can only be dispensed with by express power
to transfer that pledge to the satisfaction of one, by withdrawing
it from all others. This rule clearly results from the cases before
cited, and is clearly established in those which follow. An act of
Parliament authorized the directors of an incorporated company, in
order to raise money by loan and secure its repayment, to give a
mortgage of its tolls; it was held not to empower them to mortgage
its toll houses, and it are not estopped by its deed from denying
their power. 2 D. & E. 171. Where a mortgage was given pursuant
to a similar act of Parliament in order to secure its loans to one
creditor of the company, contrary to the provisions of the act
prohibiting a preference, it was declared that he was a bailee for
all others who loaned their money under the authority of the act,
that it should receive its due proportion.
Banks v. Booth,
2 Bos. & Pull. 222. Where tolls were granted to a company to
reimburse it for money subscribed to a canal, it cannot diminish
its rate or make its rate unequal by giving a preference to one
person using it for transportation over
Page 30 U. S. 672
another.
Lees v. Manchester Canal, 11 East 656, or
reduce tolls at one gate and not at all.
King v. Bury, 4
Barn. & Cress. 361.
The principle of these cases applies to this; the second is much
stronger. The thing mortgaged was only the profits; the property
from which they were to accrue remained in fee to the company
subject to the payment of the loan.
The preference given by a mortgage to one lender was only as to
the time of payment, and did not diminish the security of the
lenders. Both cases show the great strictness in which the powers
of a corporation must be exercised. The case of canal tolls seems
conclusive, so far as any decision of the Court of King's Bench can
be, to show that an agreement to give a customer a preference in a
reduced rate of toll is void, as an excess of the corporate powers
of the directors. An agreement to transfer the whole property of
the corporation to one creditor or stockholder would not have been
enforced in Westminster Hall.
"No argument drawn from convenience can enlarge the powers of a
corporation."
29 U. S. 4 Pet.
169.
"A general authority in the charter, that the directors shall
have power to do whatever shall appear to them necessary and proper
to be done, for the well ordering of the interest of the
proprietors, not contrary to the laws of the state;"
was not intended to give unlimited power, but the exercise of a
discretion, within the scope of the authority conferred.
29 U. S. 4 Pet.
171. Such words are restricted by the other provisions of the
charter.
29 U. S. 4 Pet.
171.
Construing the one to the Bank of Somerset, by rules so well
settled, I cannot consider the agreement in question to be within
the legitimate powers of the directors. In the case of
She v.
Bloom, 19 Johns. 456, 477, the court of errors decided, with
only one senator dissenting, that a resolution of the board of
directors of a manufacturing company, giving the stockholders the
privilege of forfeiting their shares on paying thirty percent, "was
utterly inoperative against the fundamental principles of law and
equity, legally fraudulent, and therefore void and inoperative,"
because a debt due to an only creditor would have been only
partially paid, by depriving him of his only means of satisfaction
by a resort to the stockholders
Page 30 U. S. 673
ratably until his debt was paid. The agreement in this case
produced a worse effect, as it cut off a class of creditors to the
amount of $60,000 from the hope of a dividend.
If the directors have his power of preference among the holders
of their notes, depositors, and stockholders, it must be as
incidental, not only to all banking, but other insolvent
corporations; if incidental to corporate trustees, it must be
applied to those who act under individual authority to hold the
trust fund answerable for demands or debts due by the person giving
the directions to manage and dispose of it, for his use and
benefit. I must dissent from the adoption of these principles,
which my judgment tells me forms no part of the common law.
If this was the case of a bank, solvent but embarrassed,
requiring only time to wind up their concerns, and the preference
given to the United States was only as to time, the question would
assume but little importance, but in this case the insolvency was
apparent on the statement of the general account of the bank. There
could have been no possible hope of retrieving its affairs, with
debts to the amount of $130,000, with not one dollar in their
vaults, and an admitted deficit of $21,000. It is evident that the
continuance of their corporate functions after May, 1820, was not
to carry on banking operations, for they had no means whatever to
do it. The only possible object was to collect from the wreck what
could be saved. The preference therefore given to the United
States, could operate in no other manner than as a final extinction
of all hope to the private depositors and note holders, by throwing
on them alone the loss arising from the deficiency of the funds.
This, I think, was wholly unauthorized by the charter and directly
opposed to its spirit and meaning; that it was an abuse of their
trust, which a court of law would not enforce, and equity would
restrain. Whenever a court of chancery interferes in cases of
trusts, they make no discrimination between individuals and a
corporation; "a corporation being a trustee, is in this Court the
same as an individual." 2 Ves.Jr. 46, 47; 14 Ves. 252, 253. If they
misapply trust revenues, and by misbehavior are unable to pay
moneys due by them, chancery will take the estate out of their
hands. 7 Brown's P.Cas.
Page 30 U. S. 674
235,
Coventry Case. So if they misspend or misapply
trust money, 2 Durn. & East 200, 204, or as trustees, having
the management of a productive fund abuse their trust, 14 Ves.Jr.
252, 253; pledge corporate property for purposes not corporate, 1
Ves. & Beam. 242; deprive by a bylaw one member of the company
of his share of the profits, 1 Ves.Jr. 316, 322 (where the
chancellor examines fully the jurisdiction of the court over
corporate trusts), or if the twelve jurymen of a manor court should
make a bylaw, that the next year's profits should be divided among
themselves exclusively, 17 Ves.Jr. 321.
Thus believing that where property is devised or assigned to
trustees to pay debts, the law of all courts is perfectly well
settled that the trustee has no power to pay one in exclusion of
another creditor, where the fund is not sufficient to pay all,
finding that by the best established principles of courts of
chancery, corporate trusts are within their jurisdiction, and to be
exercised by the same rules which control the execution of
individual trusts, seeing no authority in the charter for the
directors of this bank to make the agreement which is the subject
of this suit, and utterly unable to discriminate between the powers
and duties of a private or corporate trustee. I must, though
standing alone, record my decided dissent from the doctrine settled
by the decision of the court in this case.
Though this point has not been made by counsel nor noticed in
the opinion of the court, it necessarily arises on the record; it
enters into the very vitals of the cause; its merits cannot be
settled without a direct decision upon it, and thinking that the
affirmance of the agreement to appropriate the whole effects of the
bank exclusively to the United States, establishes, by the high
authority of this Court, a general principle, applicable to all
corporations, all trustees, private or corporate, extending to
creditors and stockholders, equally novel and alarming; it is my
duty to notice and examine the question with the deliberation and
research peculiarly necessary from its intrinsic importance, and
the circumstances under which it arose and was considered; it is
equally my duty to express the results of my judgment.