United Society v. President of Eagle Bank of New-Haven

Where an ecclesiastical society had subscribed for shares in the Eagle BanJc, by virtue of the provision for such subscription in the charter of the bank ; the bank afterwards became insolvent; and such society thereupon gave due notice of its intention to withdraw the shares so subscribed; it was held, that such society, by virtue of its subscription, became a stockholder in the bank, and part of the corporation, and consequently, after the insolvency of the bank, was incapable of withdrawing its shares, or of recovering the amount as a debt against the bank.

Tins was an action of assumpsit, in two counts ; the first, general, for money had and received for the plaintiffs’ use ; the second, special, for the amount of 72 shares of stock, subscribed by the plaintiffs, and demanded of the defendants, after six months notice of their intention to withdraw them. The plaintiffs are, and for more than twenty years past, have been, an ecclesiastical society, duly incorporated, and located in Neiv-Haven in this state. In pursuance of the provisions in the charter of the Eagle Bank, authorizing subscriptions from the funds of any ecclesiastical society in this state, and oti the terms therein prescribed, the plaintiffs, at the several times specified in the second count of their declaration, subscribed, and paid from their funds, for seventy-two shares, at the rate of 100 dollars for each share ; which subscriptions and payments were received by the defendants. The plaintiffs afterwards received the dividends, semi-annually declared, by the defendants, on these shares, at the rate of six per cent, per annum and upwards, until the 20th of September, 1825 ; when the plaintiffs gave notice to the directors of the Eagle Bank, that they should withdraw their shares and the money paid thereon, at the expiration of six months from that time. At the expiration of said six months, the plaintiffs demanded payment Of said shares, at the rate at which they had been received ; and the defendants, then, and have at all times since, refused payment. Previous to the 20th of September, 1825, the defendants became, and have ever since been, insolvent, and wholly unable to pay their bills and the deposites in the bank. At the session of the General Assembly of this state, in October, 1811, the defendants were constituted a body politic and corporate. By the 1st section oft he charter of incorporation, it was enacted : “ That it shall be lawful to establish a bank at New-Haven, the capital stock whereof shall be divided into shares of one hundred dollars each, which shall be transferable according to such rules as may be established by the directors; and the subscribers to the same, their successors and. assigns, shall be, and are hereby constituted a body politic and cbrporate, by the name of The President,, Directors and ComPamJ °f ^ie Eagle Bank at New-Haven.” The 2nd article of 2d section contained the following provision : “ All stockholders shall be entitled to vote at any general meetiilg, in person or by proxy; and one vote shall be allowed for each share; but no transfer shall be allowed of any share until the expiration of six months from the time of subscription.” By the 6th article of the 2nd section, it was declared, that bills or notes of the. corporation “ shall be obligatory on the corporation, according to the tenor thereof.” By the 3rd section, it was provided : “ That the capital stock of said bank shall consist of five thousand shares ; and the stockholders, at a general meeting, may authorize the directors to open new subscriptions, for such amount as they may deem expedient, not exceeding two thousand five hundred shares.” By the 6th section, it was provided : “That in addition to the subscription before authorized, the state of Connecticut shall have a right, at any time, to subscribe to the said bank, at the rate of one hundred dollars for each share ; and whenever the state shall have subscribed five hundred shares, and paid for the same, they shall have a right of appointing two additional directors of said bank.” And by the 7th section, it was enacted: “ That in further addition to the subscriptions before authorized, the said bank shall, at all times, be open for subscriptions, at the rate of one hundred dollars for each share, from the school fund of of this state, or from the funds of any collége, ecclesiastical society, school or corporation for charitable purposes within this state. Provided, nevertheless, that shares so subscribed shall not be transferable, but may, at any time, be withdrawn, on six months notice to the directors.” The 8th and last section provided: “ That no share or shares shall give to any stockholder a right to vote, unless the same shall have stood in his name, on the books of the bank, at least three calendar months previous to the time of voting, (a) A case embracing the facts above stated, in connexion with the charter of the Eagle Bank, was made and reserved for the consideration of this Court. after remarking that the case must be decided with reference to the original charter of the Eagle Bank, which, though reduced in form, at the revision of 1821, for the mere purpose of saving letter-press and paper, was not varied in substance, contended, 1. whatever the relation of ecclesiastical societies to th& Eagle Bank may be, they constitute no part of the corporation. By the 1st section, the holders of the transferable stock are constituted the members of the corporation ; and to these stockholders all the general powers of a corporation are given. By the 2nd article of the 2nd section, the power of voting is limited to the holders of transferable stock. The provisions of the 3rd, 6th, 7th and 8th sections tend to confirm the proposition, that the holders of transferable stock constitute the body politic. On them exclusively are bestowed all the powers, rights, privileges and immunities, which are necessary and proper for a bank. The charter confers on ecclesiastical societies no one corporate function ; but simply gives them the privilege of making subscriptions at pleasure, and withdrawing them on six months notice. This privilege was not thought to be an unreasonable one. A bank managing its business prudently, and acting up to the intent of its creation, would always preserve its capital entire. Its stock would not be materially diminished by losses, because its loans would be well secured ; nor would it be augmented, because its profits would be regularly divided among its stockholders. This being the case, the share withdrawn is of precisely the same value as the share subscribed. The legislature, not foreseeing or suspecting the catastrophe, which has since taken place, did not deem it necessary to make any provision in relation to it. The expression “ shares may be withdrawn,” is slightly figurative, the representative being put for the thing represented. Hence the phrases in the charters of the several bank's in this state, allowing societies, &c. to “ withdraw the shares so subscribed” — “ the money so subscribed” — * their moneys so subscribed” — “ moneys for such shares” — “moneys subscribed and paid in” &c.- — are convertible terms, and import the same thing. These bank charters, in reference to the provision which they make for investing the funds of religious, literary and charitable institutions, have all one common purpose in view, the advancement of the public interest, by promoting the objects of those institutions. The various charters, therefore, quoad this privilege, are literally and technically in pari materia. Bex v. Loxdale & al. 1 Burr 447. Doug. 30. 1- Term Rep. 53; 3 Term Rep. 135. 1 Swift’s Dig. II. ^le withdrawing of the funds of these privileged institutions has always been understood to import a withdrawing of the money invested. Such invariably has been the practical construction. All the banks have adopted and been guided by it. The rule on this subject, has, in practice been a uniform one, regardless of the variations of phraseology in the several charters. It is a decisive objection to the construction claimed by the defendants, that it is utterly impracticable. If a holder of one of the transferable shares could lawfully withdraw his share, it would break up the institution as a bank. It would be necessary to ascertain the precise condition of the bank; as the withdrawing stockholder would take only a proportionable part of the effects of the 'bank after its debts were paid. This would render it necessary to sell the real estate ; to collect the credits ; and in short, to convert the whole property of the bank into cash. This might be required every day in the year. Besides, the societies having no voice in the corporation, no right of access to its books, and no right to transfer their shares, if they could not withdraw the amount of their subsciiptions, would be continually exposed to the rapacity of dishonest men, without possibility of redress. The only practicable and consistent interpretation of the charter, is that which considers the societies as enabled to lend, and the corporation as obliged to borrow their funds, and in lieu of interest, to pay them such dividends as the stockholders receive, and to repay the principal at any time, on six months’ notice. This confers a favour on the societies, and onerates the bank with such a burden ns was deemed, by the legislature that granted, and the corporation that accepted the charter, a reasonable bonus for the monopoly simultaneously given. 2. That the giving of notice to the bank of an intention to withdraw, from that time converts the original investment into a legal debt. It then becomes money had and received for the use of the institution that invested it. Other creditors of the bank cannot complain ; for they dealt with it, knowing all the provisions of the charter. 3. That if the plaintiffs are creditors of the bank, and not stockholders merely, they are entitled to recover the par value of the shares, without reference to the condition of the bank This results from the nature of the claim. It is a right, of taking back what had been put in. Such too has been the practical construction. This point will hardly be contested. contended, That the plaintiffs having subscribed for shares in the Eagle Bank, pursuant to the charter, such shares constituted a part of the capital stock, and the owners became members of the corporation, and not its creditors. At cpmmon law, they remarked, an association of men who are entitled to share the profits of any business, are partners, and jointly liable to all the creditors of the concern. They may make such rules as they please, in regard to the division of their common stock, as between each other ; but no one of them, by their mutual compact, can be elevated to the rank or privileges of a creditor, bu t all must contribute to the payment of debts. Such, consequently, would be the condition of all the proprietors of the stock of this bank, associated on the very terms they now are, were they unincorporated. This rule of law is founded in natural justice: Quvsentit commodu?n,sentire debet et onus. Nothing could be more unjust, than that one individual-of a joint concern should enjoy the chance of gain, without sustaining the hazard of loss ; — that he should receive the profits, and not contribute to the losses of a common trade. As all charters, containing provisions of doubtful construction, are to be interpreted according to the* common law in analogous cases; the rule of interpretation must be adopted here, if the terms of the charter are, in this respect, of equivocal import. That the shares taken by virtue of the provision in the 9th section of the charter,(b) constitute a part of the capital stock of the bank, is expressly declared in the 2d section, which enacts, “ that the capital stock shall consist of five thousand shares of 100 dollars each, which shall be transferable, according to such rules as shall be established by the directors ; together with such shares as have been or shall be subscribed by the state of Connecticut, the school fund, any ecclesiastical society, college,” &c. Thus, by the express language of the statute, this class of subscribers own shares of the capital stock. That they are stockholders, then, is not an inference, but a / . .'. ’ ’ identical proposition, lhey compose a component part 0f corporation. This is settled by the first section of the act, which prescribes “ that the stockholders of the Eagle Bank, their succes-cors and assigns, shall be and remain a body politic,” &c. It being thus unequivocally settled, by the charter, that those societies, &c. equally with other stockholders, are a component part of the corporation, we should reasonably expect some very explicit provision to exempt their stock from the common liability for debts due from the bank, if any such exemption were intended by the legislature. Without some provision to that effect, it wall be admitted, that no such exemption can exist. But we find no such ; nor, so far as we can discern, any which will warrant the slightest implication of the kind. On the contrary, it is expressly enacted in the 6th section, “ that bills or notes of the corporation, signed by the president, &c. shall be obligatory on the corporation by which the body politic, as such, wholly and equally, without any distinction in favour of a class of stockholders, is subjected to the debts there specified. But it has been said, that the right of societies to withdraw their “ shares,” on giving six months notice, is evidence of an intent in the legislature, that they should sustain no loss ; for they are clearly entitled to withdraw their whole shares. Had the provision been, that they might withdraw all the money paid in upon their subscriptions, it would admit of no doubt. But what is a “ share ?” It is such a proportion of the real capital of the bank, as one hundred dollars bears to the whole nominal capital. The precision of this definition would not be denied, if the subscribers for the 500,000 dollars were the only stockholders. To say that the word shares has a different definition, when applied to the particular class of stockholders now in question, is to assume the point in controversy, unless some other part of the act is shown to warrant the distinction. This resort to other parts of the act, would admit, that this section does not contain evidence of an intent, which it has been adduced to prove. But this provision, taken by itself, and without the strong corroborations which other parts of the statute furnish, aptly limits and establishes the rights reserved to these societies, to withdraw their proportion of the real capital for the time being. If that has been augmented 10 per cent., they will be entitled to withdraw 110 dollars for each share ; — if diminished 50 per cent., 50 dollars only to a share can be reclaimed. The right of a stockholder to withdraw a “share” is, ex vi termini, a right to withdraw his proportion of the real capital, and nothing more or less. If the charter were revoked, all the stockholders might withdraw their “ shares” of the capital stock, which, if one half were lost, would be equal to 50 dollars each. The privileged stockholders may do, at any time, precisely what the rest may do at the revocation of the charter. But it has been said, that it would be difficult, if not impossible,to determine the amount of the shares of such corporations as might give notice to withdraw, as it would require an ascertainment of the state of the bank. The capital might in part consist of doubtful debts, or forfeited mortgages, or other property of uncertain value. But the statute assumes, that the state of the bank may be ascertained, and is, in fact, understood, by those who manage its concerns, at all times. This is evident from the provision in the 7th section, that “ dividends of such parts of the profits as the directors may judge proper, shall be made semi-annually,” By profits must be understood, the surplus of the property of the bank above its nominal capital. .When the real capital is below the nominal, no dividend can be lawfully made ; and when the real capital exceeds the nominal, the amount of that excess must be ascertained, to determine how much may be divided. It is evident, therefore, that the legislature did not consider the difficulty of coming at this fact, as insurmountable. In the common concerns of society, similar instances are of daily occurrence. In the distribution of estates, and innumerable other cases, the amount of shares paid in money, is ascertained, by the valuation of property and of credits ; and where no board is vested with the power of deciding the point, it must, if the parties cannot agree, be settled, as in other cases, by a court of justice. It is as practicable to decide how much must be paid, by the bank, to a stockholder withdrawing his share, by an estimate of all its funds, as to ascertain the semiannual amount of dividends ; for the data are the same in both cases. The directors are expressly bound, at the end of every half year, to possess all the knowledge of the state of the bank,for the object specified, which is requisite for this, and which would enable them, without further enquiry, to apart to any stockholder, the proportion in cash of the capital stock to which he is entitled. Jt has been said, that the legislature intended to favour these societies ; and hence it has been inferred, that they are not to be subjected to the responsibilities of stockholders. That the legislature intended to favour them, cannot be doubted ; but to what extent can only be known by the terms of the charter. The bestowment of the common rights of stockholders would, of itself, be sufficient evidence of such an intent; for it is well known, with what eagerness those rights have been contended for, in applications for grants and in the distribution of stock. The obligations on banks to receive such subscriptions, has been considered as a sort of bonus; and the original stockholders have justly deemed it a great burthen on their charter, to be compelled to submit to the doubling of their capital, by such subscriptions. But from the general intent to favour these societies, we can no more conclude, that they were to be preferred to other stockholders, than that they were to be preferred to all other creditors. To infer a specific right, from a general intent to promote their interest, would be to make a conclusion so loose and indefinite, that it might be extended to supersede the rights of bill-holders and depositors, as well as those of other stockholders. The legislature intended to confer advantages on all the stockholders ; but our knowledge of this intent will not save us the necessity of resorting to the charter to ascertain the nature and extent of those advantages. It has been further said, that these societies, are denied the privilege of voting, which other stockholders possess. Were it so, it would be well for them to consider it duly before investing their money in the bank. But the conclusion would not follow, that they were to be creditors, and not stockholders. Suppose, as is the fact in some corporations, that a certain number of shares were necessary to entitle a stockholder to vote ; we could not infer, that the proprietor of a less number, would be entitled to any preference in the division of the capital stock ; much less, that he would have the rights of a creditor of the corporation. But, although no inference can be made from this consideration either way, we would remark, that it has never been decided, that these societies have not the right to vote. Such a right would not be inconsistent with their character as corporations ; and if they were original stockholders, would not be questioned. It has already been shown, that they are stockholders; and no clause in the charter prohibits them. On the contrary, it is expressly enacted in in the 1st section, that “all stockholders shall be allowed to vote in general meeting, in person or by proxy, and one vote shall be allowed for each share.” If, in some respects, they aiein a worse condition than other stockholders,in others,they are in a better. If, on the one hand, to prevent the abuse of their privilege of taking stock at all times at par, they are prohibited selling it, in order to prevent unjust speculation — they have the right, on the other, even when the value, of stock is under par, to withdraw their shares, and, if the bank is sound, receive the nominal amount. However great the current dividends, or excessive the premium, they may take the stock, ad libitum, till they have doubled the capital of the bank, without paying any premium at all. The mass of stockholders are not apprized of the declining state of a bank, until it becomes a fact of general notoriety. In that case, such is the impression on the public mind, that the stock will generally fall below its just value ; and it is better to withdraw than to sell. While the original stockholders must either sell at a great sacrifice upon the real worth of their stock, or “ patiently witness the destruction of their property,” this privileged class of subscribers, unless the decline be so rapid as to forbid all hope, may attain better justice, by availing themselves of their exclusive right to withdraw. On justly counterbalancing the advantages and disadvantages of this description of stockholders, the result will be greatly in their favour, and we shall not be obliged to make them creditors, in order to shew that some benefit was conferred, as well as intended. From these considerations, however, nothing is to be inferred relative to the present question. Each provision in the charter distinguishing these societies from other stockholders, like that which prohibits alienation, is founded on some obvious reasons peculiar to their circumstances, and will afford no criterion by which to ascertain the amount they are entitled to withdraw. The express provisions which have made them stockholders, and as such acthorized them to withdraw their shares, are the only touchstone by which to test the nature and relative value of their rights. It has been said or intimated, that the charter of 1811 defines the rights of subscribers differently from that of 1821, to which we have hitherto alluded. We will not reply to this objection to the foregoing remarks, by saying, that if this difference does ex¡st, tjje iasf act must jjg 0f paranaount authority; for no such difference in the charters can be discerned. The rights of the favoured corporations are placed on the same ground in the original charter as in that of 1821. This is evident from many of its provisions. In the latter part of section 2. article 6., it is enacted, “ that the debts of the corporation, whether by bill, bond, or note, shall not, at any time, exceed 50 per cent, over and above the total amount of its capital stock actually paid in, and of the moneys deposited in the bank for safe-keeping.” It will not be denied, that if the subscriptions of the state and of corporations should equal the residue of the bank, as by this charter they may, so that the whole would amount toone million, it would be lawful to contract debts to the amount of one million and a half; and it will not be contended, that the sums paid on such subscriptions are “ moneys deposited for safe-keeping.” In this clause, therefore, they are denominated “ capital stock,” and their owners are, consequently, stockholders, in the view of the legislature, or, in other words, members of the corporation, and subject, for the reasons before assigned, to all its liabilities'. In the original charter, the word “shares” is used in its appropriate sense, as well as in that of 1821, and signifies such a proportion of the real capital of the bank, for the time being, as 100 dollars bears to the whole nominal amount. It has the same import in the seventh section, when applied to the interests of charitable and religious corporations, as in the first section, relating to the original stockholders. The enactment in the third section, “ that the capital stock shall consist of jive thousand shares,” means, that it shall at present consist of that number at least; and not that the twenty-five hundred authorized in the same section, or those mentioned in the seventh, are not equally to be deemed part of the capital stock, whenever they shall be subscribed. If these privileged subscribers, instead of paying the debts of the bank, are permitted to come in as creditors, and increase their amount, the legislature are not only chargeable with having authorized a violation of the fundamental principles of the common law adopted in all analogous cases, but must have intended particular and gross injustice. If their subscriptions had augmented the trading capital to a million, and the bank had lawfully contracted debts to the amount of fifteen hundred thousand; — if its debtors had then failed to the amount of more than a million, as in this case they actually have, these subscribers might retire with half the capital, and leave innocent _ creditors to sustain the loss of more than half a million, contracted on the credit of this capital, and for the emolument of those by whom it is withdrawn. They may first receive interest on bills issued, and then withdraw the capital on which they are issued, and which is pledged for their redemption. This injustice is aggravated by the consideration, that the mere bill-holder has no dealings with the bank. He is not like one who- contracts to build a banking-house, but he receives the paper as he receives specie — as current money, of intrinsic value. Having no contract with the bank, he is not presumed to know its charter, which is not a public, but a private act. He should be guarded from all the hazards assumed by every contracting party, who reposes a voluntary confidence in the solvency of his debtor. The public faith in establishing such an institution is of peculiar sacredness. But upon the principle assumed by the plaintiffs, the legislature might as well authorize the withdrawment of all the capital as a part, and leave bill-holders, in all cases, to the mere courtesy of the corporation, without any legal power.to enforce their demands. But it has been insisted, that the first section of the original charter of 1811, has, in terms, constituted those individuals a body politic, who are proprietors of the kind of shares there specified, viz. transferable shares ; — has made them “ The President, Directors and Company of the Eagle Bank,” and conferred on them, their successors and assigns only, all the corporate powers specified in the act. Hence, it is inferred, that they only are the stockholders of the corporation, or proprietors of that portion of the capital of the bank, which is liable for debts. It is readily admitted, that all corporate powers are, by the first section, conferred on the proprietors of transferable stock alone. It must, indeed, be farther admitted, that when the first 5000 shares are distributed, by the commissioners, among subscribers, those subscribers alone become vested with all the powers of the corporation. But it is denied, that this leads to the conclusion, that proprietors of other shares, admitted pursuant to subsequent provisions in the charter, will not, when those provisions are complied with, become members of the same corporation and stockholders therein. Because the subscribers for the first 50U0 shares aré invested with all corporate powers, and their stock liable to every demand upon the bank, before any other stock is added, does it follow, that the proprietors of the 2500 transferable shares, mentioned in the third section, will not, when the powers given in that section are executed, become stockholders too, and partake, equally with the first, of the powers and liabilities of the body politic 1 Such a consequence will not be contended for, by the plaintiffs. . No difference, however, is perceived, between the new stockholders to be admitted by the third section, and those entitled by the seventh. Because the former may cease to be' stockholders, by the transfer, and the latter, by the withdrawment of their shares, it would-not seem to follow', that the latter wére not stockholders, while they held their stock, nor members of the corporation before they withdrew. Reference has been had to the charters of the other banks in this state ; and it has been insisted, as all bank charters are parts of the banking system, and the provisions made in all for religious and charitable corporations are parts of the same system of legislative beneficence towards those institutions, that these acts are in pari materia ; and that the language in all is to be considered in ascertaining the intent of each, as if they were but one act. To this it may be replied, first, that they are not public, but private acts, establishing distinct private corporations, and, therefore, do not admit this principle of interpretation, any more than a contract between A. and E., may be interpreted by another contract, made at another time, between .á. and C. But, secondly, if we resort to the other charters, we shall find, that these societies take shares in them as well as in this, and are stockholders in them all. The expression in some of the charters, that they may withdraw “ their money,” implies no more than we admit, and does not define how much their money is. That is left to be ascertained by the state of the bank. Should a charter expire or be revoked, every stockholder might withdraw “ his money but if the trade of the bank had been unfortunate, its amount would be proportionally reduced.,