Bank of Maryland v. Ruff , 7 G. & J. 448 ( 1836 )

Buchanan, Ch. Judge,

delivered the opinion of the court.

The Bank of Maryland has proved a fruitful source of litigation, which for the good of all concerned cannot be too soon put an end to.

The several deeds of trust mentioned in these proceedings are now for the third, and the claim of the debtors of the Bank, to pay and discharge their debts to the Bank in the notes and certificates of deposite issued by said Bank, at their par, or nominal value, or amount, the second time brought before us.

In the case of the Union Bank of Tennessee vs. these same trustees, Ellicott, Morris and Gill, 6 Gill and Johns. 363, the application was for an injunction, to prohibit the trustees from receiving the notes and certificates of deposite of the Bank of Maryland, in payment of debts due to that Bank. And the then sitting members of this court, being unanimously of opinion that the deed of trust of the 5th of April, 1834, was a valid and effectual deed, for the purposes therein expressed; and that the trustees, Ellicott, Morris and Gill, were not only authorized but bound, by the provisions of the acts of 1818, ch. 177, and 1824, ch. 199, to receive the notes and certificates of deposite issued by the Bank, in payment of debts due to the Bank, at their par, or nominal amount or value, whether obtained before or after the execution of the deed, by the debtor or debtors of the Bank, offering them in payment, an order directing an injunction to be awarded was refused.

In the case of the State of Maryland vs. The Bank of Maryland and these trustees, Ellicott, Morris and Gill, 6 Gill and Johns. 205, in which the State claimed to be paid fifty odd thousand dollars, due from the Bank on deposite, out of the funds in the hands of the trustees, in preference to the other creditors, it was held by this court for the reasons there assigned, that the deed of trust of the 5th of April, 1834, was valid and effectual to transfer all the property of the Bank to the trustees, and that the preference which the State had in the payment of its claim, so long as the title to the property remained in the Bank, was defeated by the deed of trust. And it was only on the ground that the deed of trust was good and valid, to pass the title of the Bank to the property covered by it to the trustees, that the preference claimed by the State was lost.

The State’s right of priority in the disposition of the funds sought to be affected in the hands of the trustees, depended upon the question, whether the title of the Bank had been transferred and vested in the trustees for the general and equal benefit of the creditors, before the assertion of the right or attempt to enforce it by the State. And but for the operation of that deed, (being anterior in date to the institution of proceedings by the State,) which was ruled to be valid and effectual to vest the title in the trustees, the claim of the State to be preferred to other creditors would have prevailed, and upwards of $50,000 been withdrawn from an equal distribution among the general creditors. And now, the validity of that very deed and the right of the debtors to the Bank of Maryland, to pay their debts to the Bank, in the notes and certificates of deposite, issued by that institution, at their par or nominal value, and the authority of the trustees so to receive them, are again called in question by a portion of the creditors of the Bank.

In this case the insolvency of the Bank of Maryland is expressly charged, and the complainants seek to have the deeds of trust annulled, the appointment of Receivers, and an injunction prohibiting the trustees from receiving in payment of debts due to the Bank, any notes of, or certificates ■of deposite by, or other claim, &c. against the Bank,

In the case of the State vs. The Bank of Maryland, and these trustees, the Bank was also charged and admitted to be insolvent; and in the case of the Union Bank of Tennessee vs. these trustees, although the insolvency of the Bank, is not expressly charged in terms ; yet it is alleged in the bill, and not denied that there would be a large deficiency of assets of the Bank; and the Bank was considered and treated, both by counsel on both sides in argument, and by the judges of this court, as an institution in insolvent circumstances; and so expressed to be in the two first deeds, which are recited in that of the 5th of April, 1834, under which these trustees have acted.

It was in that view of the condition of the Bank, that the decision was made in each of those cases, and no reason is now perceived for departing from the opinion expressed in either. The resolutions of the 23d of March, 1834, and of the 5th of April, 1834, passed at special meetings of the directors, professing to give to the debtors of the institution the privilege to pay their debts in notes of the Bank, or' in certificates of deposite or open account due by the Bank, were then, and are now considered of no importance; the same right and privilege being held to be given and secured to the debtors by the acts of 1818, ch. 177, and 1824, ch. 199, which right and privilege so conferred, we think it was not in the power of the Bank to deprive them of, and that they were not extinguished or lost to them, by operation of the deeds or either of them, though they should be considered as standing alone, independent of, and not controlled by those resolutions, but remained and still remain unimpaired.

With respect to the question, whether the acts of 1818, ch. 177, and 1824, ch. 199, giving to the debtors of banks the privilege to pay their debts in the notes and certificates of deposite of such banks, relate to solvent banks or to such as are insolvent, or not in a condition to meet their engagements ; it seems to us, taking the two acts and their different provisions together, that if the legislature had in view one condition of a bank more than another, they looked to banks in insolvent circumstances, or to banks not in a condition to meet their engagements.

The first section of the act of 1818, ch. 177, gives to “ any person having a claim, or holding a note of any bank in this State, under fifty dollars, after demand of payment of such claim or note at the Bank, and refusal or neglect to pay, the right to recover judgment for the same before a single justice of the peace.” The 4th section authorizes “ any county court in the State on application, supported by affidavit, that a Bank located in the county refuses to pay specie for its notes, &c. to issue a scire facias directed to such Bank, to show cause why its charter shall not be declared forfeited by the judgment of the court.’-’ The 5th section authorizes the court, “ after a full investigation of the concerns and situation of such bank, if in their judgment and opinion, the public interest shall require it, to declare and adjudge the charter of the bank to be forfeited.”

The 6th section directs, “ that the court declaring, and adjudging the forfeiture of the charter of any bank, (if in their opinion, the interest of the creditors shall require it,) shall .appoint three commissioners to settle and close the concerns of the bank.” And the 13 th section provides, “ that in payment of any debt due to, or judgment obtained by a bank or banks, in this state, or by the commissioners which may be appointed under the provisions of this act, the note or notes of the bank, to which the debt is due, or by, or for which the judgment has been obtained, shall be received at .the full value contained in the promise made by such note or notes.”

The 1st section of the act of 1824, ch. 199, provides, cc that any certificate or certificates of deposite issued by, and with the authority of any banking institution in this state, shall be, and is hereby declared to be a good and sufficient tender in law, and set off by, and on the part of the holder of said certificate or certificates, for the full value thereof, against the bank or banks, which shall have caused the said certificate or certificates to have been issued —and the 2d section declares, “ that each and every of the said institutions shall be, and they are hereby required to receive the respective certificates of money deposited in their respective banks, in payment of debts due to the said banks, &c.”

Now it seems difficult to suppose, that the Legislature in authorizing and requiring of the courts, to adjudge the charters of banks to be forfeited, if after a full investigation of their concerns and situation, in their judgment and opinion, the public interest shall require it; and in making it the duty of the court adjudging the forfeiture of the charter of any bank, if in their opinion the interest of the creditors shall require it, to appoint commissioners to settle and close the concerns of such bank, as they have done by the 5th and 6th sections of the act of 1818, ch. 177, intended that those provisions should only be applied to banks, found upon a full investigation of their affairs to be solvent, and capable of managing their own concerns, and the forfeiture of whose charters could seldom be required, either by the public interest, or the interests of their creditors, and not to insolvent banks, or banks found upon a full investigation of their concerns and situation, to be unable to meet their engagements, and incapable of managing their affairs, and the forfeiture of whose charters may be required, both, by the public interest, and that of their creditors.

It is no ground for adjudging the charter of a bank to be-forfeited, that it is in a flourishing and stable condition, either as regards the interests of the public, or of its creditors. And the circumstance that the court is required, before adjudging the charter of a bank to be forfeited, to be satisfied from a full investigation of its concerns and situation, that the public interests demand it, and on so adjudging, to appoint commissioners to settle and close its concerns, shows that those provisions are applicable at least, if not exclusively so, to-insolvent banks ; unless it can be supposed, that the Legislature intended to put down banks, that should on investiga - tion be found to be solvent, and useful, and to protect, and continue in operation such as should prove to be insolvent. A supposition that we do not feel ourselves authorized to indulge in. And the 13th section authorizing the payment of a debt due to a bank, in the notes of such bank, also authorizes similar payments in discharge of judgments obtained by commissioners appointed to settle and close the concerns of banks, whose charters rnay be adjudged to be forfeited; which shows the intention of the legislature to have been to extend the privilege to the debtors of insolvent banks, and not to confine it to the debtors of solvent institutions, alone.

But it is believed that the legislature intended to confine it to the debtors and notes of neither description of banks, but to extend the privilege to the debtors of all banks, whether solvent or insolvent. The language of the 13th section, “ that in payment of any debt due to, or judgment obtained by a bank or banks in this State (that is, any bank or banks, &c.) the note or notes of the bank to which the debt is due, or by which judgment is obtained, shall be received, &c.” is too broad and comprehensive to admit of any other construction. To confine it to the case of a solvent bank, would, it is conceived, be to pervert the obvious meaning of the terms used, and to defeat the intention of the legislature, which was to extend a benefit to those who may be indebted to banking institutions, and particularly insolvent banks. For if confined to the case of a solvent bank, the privilege would seldom be enjoyed; as a debtor to avail himself of it, would have the difficult task imposed upon him of showing the solvent condition of the institution. And when established, if he could succeed in doing it, the privilege of paying his debt in the notes of such a bank, more than of any other, would be of but little value to him. Whereas it may often be a very great relief and benefit to a debtor, of an insolvent bank, to have the privilege of paying his debt in the notes of that bank. And by gratifying the terms of the law, in applying it to the case of all banks, whether solvent or insolvent, that privilege and benefit will be secured to him without inquiry into the condition of the bank.

The same observations will apply with equal and greater force, to the act of 1824, ch. 199, the title of which is, “ an act relating to the banks of this State.” That is, all the banks of the State. And the words of the 1st section, “ any certificate or certificates of deposite, issued by any banking institution in this State, &c.” and on the 2nd section, that each and every of the said institutions, shall be, and they are hereby required to receive the respective certificates of money deposited in their respective banks, in payment of debts due to the said banks,” are too explicit to admit of argument. “ Any certificate of deposite, issued by any banking institution in this State,” and “ each and every of the said institutions,” must embrace every bank in the State, solvent or insolvent, and the certificates of deposite issued by any of them. Besides, of what benefit would it be to debtors if confined to the case of a solvent bank ? For who doubts, that independent of the act of assembly, any debtor to a solvent bank may set off against the debt, the certificates of deposite of such bank ? If any doubt should be entertained as to the constitutionality of these laws, it is enough to say, that, that question has been decided affirmatively by the Supreme Court of the United States.

The charge in the bill, “that the several deeds of trust and resolutions (under which the deeds were made) were executed and passed fraudulently, and against the rights of the complainants and the other creditors of the bank,” is we think, in nowise sustained. The object of the resolutions was to confer no new privilege upon debtors ; but to extend to them only rights, which had antecedently been created and secured to them by the laws of the State, and of which it was not in the power of the bank to withhold or deprive them. There could therefore be no fraud or prejudice to creditors, in admitting or providing for the enjoyment by debtors of a privilege already bestowed upon them by law. And we perceive as little objection to the deeds which we hold to be good and valid. Indeed it is not understood that they are called in question, except so far only, as the resolutions in favour of debtors may be deemed and taken to be a part of them, or as regulating the administration of the trust» With respect to the resolution of the 5th of April, 1834, under the authority of which, the deed of trust to these trustees was executed, it appears that it was passed at a meeting of seven directors of the bank including the president; and the president being by the charter, declared to be, “ entitled to all the powers and privileges of a director, we think that the provision of the charter requiring seven directors to make a board was gratified by a meeting of the president and six others; and that so assembled they constituted a sufficient board for the transaction of the business of the bank.

As to the deed of trust to these trustees, it was made under circumstances of a peculiar and imposing character; and it is sufficient to remark in addition to what has been heretofore said and done, in relation to the same subject, that subsequent to the appointment of Thomas Ellicott, as a sole trustee, (being a very extensive and complicated trust, and almost too difficult and important to be confided to, or managed by any one person) there was a large meeting of the creditors of the Bank of Maryland, including some of these complainants, and presidents, and cashiers of other creditor banks in Baltimore, convened in pursuance of public notice : at which a committee of creditors was appointed for the purpose of promoting the general interest of the creditors, of which one of these complainants was a member and acted as such. That committee determined that there ought to be other trustees associated with Thomas Ellicott, and appointed a sub-committee, (two of whom represented two of the creditor banks) to confer with the then sole trustee, Thomas Ellicott, on the subject, who agreed that the committee of creditors should nominate one co-trustee, and that another should be nominated by Judges Archer and Dorsey. The committee nominated John B. Morris, and the judges named Richard W. Gill, which nomination being approved by the committee, the resolution of the 5th of April, 1834, and the deed of trust of that date to Thomas Ellicott, and John B. Morris, and Richard W. Gill, as adjunct trustees was passed and executed. So that it appears that Morris and Gill were nominated to, and appointed by the bank as associate trustees, after notice to and consultation with a large body of the creditors, and with their consent and approbation, and the consent of Thomas Ellicott, and with a view to the proper administration of the affairs of the bank. There does not appear to have been any fraud, surprise, secrecy or improper contrivance, in the procurement of this deed; nor any design to injure the creditors or any of them. On the contrary, the whole proceeding seems to have been fair, open, and in good faith, and to have had for its object, the interest and equal benefit of all the creditors.

If .the same creditors, (the trust being of such great magnitude and involving many, and extensive interests) instead of proceeding as they did, to procure a deed of trust to be executed by the bank, appointing associate trustees with Thomas Ellicott, had applied to the court of Chancery, with the knowledge and consent of Ellicott, and of the bank, to effect their object, it is not doubted that the Chancellor would have decreed the same thing to be done. And sitting as a court of Chancery, and acting upon an acknowledged principle of that court, we cannot condemn or disturb that, when bona fide done, which upon application, Chancery would have directed to be done; but must regard and treat it just as if it had been done by the order or authority of that court.

Looking to this case, as it is presented to us upon the bills, answers and exhibits, we can perceive no fraud or malpractice on the part of these trustees; nor any improper negligence or partiality in the execution of their trust, or other violation of the duties imposed upon, or confidence reposed in them, to entitle the complainants to the injunction prayed, or to require or authorize the appointment of receivers.

Having received their appointment at the instance of a large number of creditors, whose confidence they enjoyed without being required to give bond, for the faithful discharge of their trust, and having done nothing to forfeit that confidence, they too being creditors of the Bank of Maryland, and Morris, at the time also the president of a' creditor bank; and no unfavourable change in their condition or circumstances, appearing to have taken place since their appoint-ment, nor cause to apprehend any, their not having given bond furnishes no ground for the interposition of Chancery.

If they have done wrong in receiving in payment of debts due to the bank, the notes and certificates of deposite issued by that institution, they were misled by the decision in the case of the Union Bank of Tennessee, and the error was ours ; but we have seen nothing to render us dissatisfied with that decision.

orders reversed and injunctions dissolved.