Mechanics' Bank v. Heard

Harris, J.

The various grounds occupied in argument by plaintiff’s counsel, are so numerous as to forbid a notice of all of them in this opinion. Were we under a necessity to discuss every matter drawn into the arguments, to which we have listened most patiently, it would impose on us the labor of writing a treatise on corporations; for this, we have neither time nor inclination. Confined,- as it will be, to such points as we deem most material, we- will accompany their notice with such observations as we think will give an effectual answer to the strongest portions of the argument made in support of their position.

That position briefly is :. That a Banking corporation may under the Code of this State, section 4th, paragraph 1685, by a voluntary surrender of its franchises, dissolve itself at its will; that to the resolutions of the corporators surrendering their franchises no subsequent legislative assent is necessary — that in effect an acceptance of such surrender has been given in advance.

This is certainly startling; called upon for the first time to interpret the several clauses of the Code touching the dissolution of corporations, we have felt bound by a high sense of duty to consider carefully the position, assumed and to weigh well the consequences which, if we were to accede to it, it would induce upon the interests and business of the State. Our profound and undoubted conviction is that it is unsupported by law and on principle untenable.

In no branch of the Common Law are the great and leading principles which control it more distinctly stated and illustrated than those touching the creation and dissolution of corporations. Elementary treatise after treatise has issued from the press, on both sides of the Atlantic, by Kyd and Grant, Angell and Ames, on Corporations. Besides these there are some valuable chapters on the same subject in Kent’s Commentaries and very many decisions, which will enable any one who is patient in investigation to solve without difficulty the questions made by the record. Our task is the application of established principles to the plea of Mr. Metcalf.

It cannot be denied that all Banking corporations in America are the creatures of legislative will, and .that no power to create such corporations belongs to either of the other departments of the State government. Ror can it be denied that every act of the Legislature creating, a Banking corporation upon its acceptance becomes an executed contract between the State and corporation. This principle, decided in Dartmouth College vs. Woodard, 4 Wheaton, places plaintiff in error, within the protection of the Constitution of the United States. Under such protection it follows that the act creating the Mechanics’ Bank as a corporation cannot be modified or repealed by the. Legislature of Georgia without the free assent of the corporators, and then only when such alteration or repeal does not effect the rights of its creditors. It may be safely asserted that the Legislature, its creator, has no power of its will merely to dissolve it. As long as it performs its engagement by the Act creating it, it has a corporate existence within the limit of time fixed by the Act which can not be shortened.

This brings us to consider the grounds on which corporations (private) could be dissolved at Common Law.

They are : 1. Death of the corporators. 2. Surrender of charter accepted and enrolled. 3. Forfeiture. Section 3, Burrows, Repts. 1866.

But counsel for plaintiff in error have gravely, and with seeming earnestness, asserted a dissolution of a corporation by a voluntary surrender, was unknown to the Common Law, that such a privilege was the creation of our Code, and upon this assumption rests the plaintiff’s case. Let us see if it can stand the test of examination. It is said of corporations created by letters patent from the crown, that the King could not ex mero motu alter or resume his grant. It could be dissolved upon the free consent of the corporators surrendering their franchises under the seal of the corporation.

Grant on corporations, p. 303. Rex vs. Lanier, Salk 168. 8, Meeson and Welsby, 1.

Here then we find that surrender was a mode whereby a corporation might be dissolved. It was voluntary, for it proceeded from the free consent of the corporators. The franchise could not be resumed unless the grantees concurred. Ibid. Thus we have the definition of surrender ; its characteristic is that it is voluntary, springing from the free consent of the corporators. Can more be necessary to satisfy the enquirer that a voluntary surrender was a mode whereby a dissolution of a corporation might be effected according to the Common Law ? To make it complete, sucli surrender required the assent or acceptance of the creator of the corporation, duly enrolled and of record. The English authorities cited establish these doctrines.

Our Code, in enumerating the grounds whereby corporations are dissolved, but repeats those existing at Common Law. “Surrender” is one of them. In a subsequent clause, voluntary surrender is defined, thus clearly showing that in the minds of the codifyers they were one and the same mode.

An identity is thus shown between “surrender” at Common Law, and the surrender or voluntary surrender of the Code, proceeding alike from the free will of the corporators. *Tis this which distinguishes them from another mode of dissolution by forfeiture; this last is the result solely of coercion, compulsion by the judgment of a court. In England the surrender was required to be made to the creator of the corporation. In Georgia, the Code requires it to be made to the State, by which the Legislature, as the creator by law of Ranking corporations, must necessarily be understood.

It should be kept in mind that the codifyers were commissioned to embody the principles of the Common Law in force in Georgia; they had no authority to originate new matter for legislative sanction. It therefore is incumbent on those who assert that they weut beyond their commission, and especially in reference to the subject of dissolution of corporations to prove it. It has been assumed in argument by plaintiff in error, that familiar as they were with the difficulties which had hitherto existed in the dissolution of Ranking corporations, they intended, and did actually, by section 1685, allow of voluntary surrender, so as to remove the restraints which had existed at common law to dissolution, by not requiring either assent to, or acceptance of such surrender by the creator.

There can be no greater misapprehension of what was done or intended, both by the codifyers and the legislative committee, which revised the Code and recommended its adoption, than to impute to them an intention to release any existing restraints on this class of corporations. Why should they ? A strong, and I might add, an ineradicable hostility to them, pervaded the public mind. Bank corporators had been for years, stigmatized, in the cant of low demagogues, seeking popularity in their assumed guardianship of the rights of the people, as aristocrats rolling in wealth, privileged usurers, monopolists of the rights of the poor, etc., etc. And these misrepresentations and falsehoods had become the orthodox and intolerant creed of the masses. Poisoned, as public sentiment had been, and then was, it would have been utterly impracticable to have made such a change. A further, and to my mind a conclusive refutation of such conjecture, is to be found in the significant fact, that so far from tolerating a disolution at the mere will of the corp^rátion, the Legislature, in a previous paragraph in the same section, reserved to itself, in reference to all Banking corporations, to be thereafter created, the unusual and extraordinary power of withdrawing at its pleasure, the franchises which it had granted, unless otherwise stipulated in the charter. A power thus retained, co-extensive with the power of the British Parliament in theory, a power wdiich if exerted, (and who doubts that it will not be) which virtually divests the Judiciary of the duty of dissolving these corporations by judgment of forfeiture for an abuse of their charters, with or without grounds, summarily, and perhaps capriciously, resuming the Banking franchises, which it had granted, surely furnishes no argument in support of the assertion of counsel.

Nor will it be an easy task to reconcile the conjecture asserted with the other fact in the Code, of the special reservation, to the Legislature solely, of the right to create Banking and Insurance corporations — whilst to the Courts the power of creating nearly all other kinds of corporations is assigned. Do either of these reservations of power indicate relaxation of restraint? They indicate, most clearly, increased rigor. The assertion then made, finds no support in facts which cannot be reasoned out of existence. ■

Still another idea is advanced in support of the assertion that a change was intended, and made by the Code, of such apparent plausibility as to require notice. It is that upon a voluntary surrender of the Banking franchise, the liability of the officers and members is preserved to the creditors, notwithstanding the dissolution, and .this being so, there could be no sound reason why a dissolution should not take place at the will of the corporators alone. Is not a corporation, when dissolved, extinct ? Its powers, privileges, vitality, and name are lost by its death. These consequences may or not ensue, all, however, are not dependent on the existing legislation. Thus, where a corporation is dissolved by judgment of forfeiture — by statute, the use of the corporate name is retained, with a view to collect in the debts due to the extinct corporation — but no power of suit against the dissolved corporation in behalf of its creditors is given, presenting the anomaly of an extinct corporation capable of suing, but incapable of being sued. But under the Code, where a Banking corporation is dissolved by a voluntary surrender of its franchises to the State, and an acceptance thereof, the use of the name of such dissolved corporation has not been retained for any purpose.

The result of this will be, that a bill-holder of such Banking corporation, if he has omitted to sue and obtain judgment against it before its dissolution, is thereafter precluded from suing it and obtaining judgment. Without judgment, he can have no execution; without execution, there can be no return of nulla bona; without such a return, the insolvency of such banking corporation is not ascertained with- such certainty as to enable the bill-holder to prosecute his action against the stockholders, under what is termed the liability clause, found in most of the Bank charters. Viewed, as the stockholder has been under that clause, as a guarantor for the corporation under the repeated decisions of this Court, it must be apparent that the successive steps indicated above must be taken before the unpaid bill-holder can reach the guarantor.

May it not be asked in what consists the effectual protection of the interests of the general creditors of the Banking corporations dissolving by voluntary surrender at their own pleasure ?

The fact is undeniable that no suit can be maintained, as the law now stands, against the corporation when dissolved.

Suppose the dissolving Bank appoints an assignee; the assignee does not so stand in the place of the corporation, as to authorize the corporation to be bound generally by . any judgment against such assignee. If a judgment could be had at the instance of the bill-holders against the assignee, and a return of nulla bona was made on the execution issued thereon, such return would not furnish, of itself, satisfactory evidence of the insolvency of the corporation so as to allow the bill-holder to prosecute the guarantor. At most, such judgment against the assignee and return upon the execution, would prove that there were no assets of the Bank in the hands of the assignee. The insolvency of the Bank, and the want of assets in the hands of the assignee, are not convertible terms.

Where is the boasted protection afforded bill-holders after dissolution by surrender ? True, the Code continues alive the liability, but how are the corporators ever to be reached as guarantors, when the corporation has been permitted to commit suicide, escaping from existence, the law having provided no mode whatever of enforcing, in such a case, the ultimate liability of the stockholder? This, in truth, is “ holding the word of promise to the ear and breaking it to the hope.”

So much in answer to the position taken in argument by counsel. That they have been forced to occupy this line, is the result of the fact in the record ; there was no other mode by which they could, with any plausibility, evade the call made on them, to exhibit the assent of the Legislature to the surrender set up in the plea of Mr. Metcalf, the last elected President of the Mechanics’ Bank.

The plea exhibits the resolution of the corporators to surrender their Banking franchise, and that such resolution was communicated to the Governor of Georgia, but it contains no allegation of assent to such surrender by the Legislature, or even by the Governor, nor exhibits any resolution, ordinance or Act of the Legislature from which an acceptance might be inferred.

Counsel have throughout confounded the resolution to make a surrender, with an actual dissolution of a corporation. These things are entirely distinct, proceeding from different parties. A surrender is not a dissolution; it is but a mode, a way, a mean to an end. The corporators consent to surrender their franchise, tender it back to the Legislature, and ask to be dissolved as a corporation. This is their free act, and proceeds from one party to the contract. If the surrender is formal under the seal of the corporation, and the Legislature, the other party to the contract, in behalf of the State, accepts it, by an Act or ordinance in some authoritative form, and that is authenticated as law and ordinances usually are, then, and not till then, is the dissolution of the corporation upon surrender and the evidence of it complete.

Carrying throughout the idea of the Act creating this Banking corporation being a contract, and the general law of contracts that they cannot be dissolved, but upon the consent of both parties, and through similar forms to those used in making the contract, our astonishment is, that a procedure so simple does not at once suggest itself to the common sense of intelligent men as the appropriate and natural mode of effecting by a surrender, the dissolution of a corporation. This mode is in accordance with the principles and invariable course of the Common Law, and is pursued in most of the States'of the American Union. Our Code, whilst it but repeated the grounds whereby dissolutions of corporations Avere effected at Common LaAAr, has omitted to prescribe any forms to be pursued. This is not surprising, as in condensing the leading principles of the Common Law the codifyers Avere constrained to exclude details necessarily inferential, without specification. Adopting the grounds of dissolution at Common Law, the Code could have but contemplated that those grounds should be executed in the forms of the Common Law.

. Now corporations in Great Britain were created either by virtue of the Royal prerogatives, or by Act of Parliament; if by the Crown, by letters patent under its seal and duly enrolled; if by Parliament, by an Act of the three estates duly enrolled and with the great seal attached.

In the case of Crown grants, when dissolved upon surrender by the grantees, the acceptance of the King of such surrender was required to be enrolled and of record. 3 Burr. Repts., 1866. 1 Woodesson’s Lectures, 500. 1 Salk Rep., 191. Parliamentary could only be dissolved by Act of Parliament. See Grant on Corporations.

The foregoing are familiar principles regulating the creation and dissolution of corporations, and they are in accordance with a maxim prevading the Common Law in other departments. Nihil tam conveniens est naturali cequitati quarn unum quoque dissolet eo ligamine quo ligatum est.

Again, “a corporation aggregate, may surrender and in that way dissolve itself, but then the surrender must be accepted by government, and be made by some solemn act to render it complete.” 2 Kent’s Com. 209.

An act of the Legislature repealing the act of incorporation passed with the assent of the corporators, would, undoubtedly be sufficient to effect a dissolution. Revere vs. Boston Copper Co., 15, Pick. R., 351.

The surrender must be by a formal act of the corporation under seal; and it cannot avail but by an acceptance of such surrender by an enrolled act or law. There must be the same agreement to dissolve as to malee. The power in a corporation to dissolve by its oton Act, is too dangerous to be supposed to exist. See Boston Glass Co. vs. Langdon. 24 Pickering Repts., 49.

In this country, where corporations are usually created by Act of the Legislature, no mode of surrender is pointed out bv the books as necessary to be pursued, differing from that in England, where corporations are usually created by charter from the Crown. It is said a surrender, if accepted, will be sufficient. Angel and Ames on corporations, 638. 2 Kent. Com., 250. 15 Pick. R., 351.

As the identity of surrender at Common Law, as a mode of dissolution of a corporation, with the surrender defined by. the Code, cannot but be conceded by every lawyer, who will' take the trouble of investigating the subject, and no mode or form is prescribed by the Code, as necessary to be pursued in order to make it effectual, there seems to me no escape from the necessity of alleging, and in support of such allegation exhibiting, some Actor ordinance of the Legislature, approved by the Governor, assenting to or accepting the proposed surrender of their franchise by the Mechanics’ Bank.

A dissolution, at the will of corporators, would leave no evidence of the surrender but the entry of the resolution of the corporators on the minutes of the Bank, and when thus dissolved, who can say where will be the depository of the minutes ?

In fine, the proposition of plaintiff in error involves, besides what has been said in reference to it, this striking inequality, that a law containing a contract of the highest importance between the corporation and the State, may be set aside and annulled at the will of the corporators, by a mere resolution, notice of 'which is given to the Governor, whilst the State cannot alter or repeal that law, or resume the franchises granted, or compel their delivery up, or cause a dissolution of that corporation, but upon some ground of forfeiture judicially established and the judgment thereon of a competent Court. Such inequality between the rights of contracting parties as flows from the position of plaintiff’s counsel, demonstrates the absurdity of such position..

Faulty as is doubtless much of the legislation of the State, it will be no light task to demonstrate, from the Code, such want of foresight touching the dissolution of Banking corporations as the argument of plaintiff’s counsel, throughout, imputes.

The plea of Mr. Metcalf being shown to be defective in several allegations necessary to be made, and not being supported by any proof whatever of the assent of the Legislature to the proposed surrender of its franchise by the Mechanics’ Bank, cannot be sustained.

"We are, therefore, brought to the conclusion that the Mechanics’ Bank was not dissolved by the resolution of its corporators, and that' when the suit of the plaintiff below was instituted it was an existing Banldng corporation, and that service was rightfully made on Thomas Metcalf, its last President. This decision carries along with it the other pleas in the record.

Judgment affirmed.