Ahl v. Rhoads

• Decision Date: 01 October 1877
• Citation: 84 Pa. 319
• Parties: Ahl <I>versus</I> Rhoads <I>et al.</I>
• Court: Pennsylvania Supreme Court

Page 319

84 Pa. 319

Ahl versus Rhoads et al.

Supreme Court of Pennsylvania.

May 17, 1877.

October 1, 1877.

May 17th 1877.

Before AGNEW, C. J., SHARSWOOD, MERCUR, PAXSON, GORDON, WOODWARD and STERRETT, JJ.

Error to the Court of Common Pleas of Cumberland county: Of May Term 1877, No. 167.

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W. Trickett, for plaintiff in error.—The mortgage was authorized by law: Ardesco Oil Co. v. N. A. Mining and Oil Co., 16 P. F. Smith 382; Dana v. Bank of United States, 5 W. & S. 243, and without concurrence of stockholders: Bank of Pittsburgh v. Whitehead et al., 10 Watts 402; Dana v. Bank, supra; Ardesco Oil Co. v. N. A. Mining and Oil Co., supra. Bank had power to assign whole estate for creditors: Dana v. Bank, supra. The charter of the bank empowers it to mortgage its real estate, and this power is lodged with the directors: Leggett v. N. J. Manufacturing and Banking Co., Saxton's Chan. 552.

The provisions of the new constitution were not intended to affect corporations in existence when the constitution went into operation unless they accepted the benefits of new legislation: Hays v. Commonwealth ex rel. McCutcheon, 1 Norris 518. The bank did not increase its indebtedness in giving the new mortgage to Ahl, it simply changed its form, and it is not within the letter or spirit of the constitutional inhibition. The new security was only the recognition and continuity of that which preceded it: Burnhisel v. Firman, 22 Wallace 178.

A claim recoverable only by action of account render or bill in equity cannot be set off at law: Russell v. Miller, 4 P. F. Smith 164; Klase v. Bright, 21 Id. 192; Hains v. Rapp, 2 Weekly Notes 595. The liability of bank directors and the methods for its enforcement are defined by the Acts of 16th April 1850, Pamph. L. 492, and of the 12th of April 1867, Pamph. L. 71, and the procedure prescribed is not at law, but in equity, and under the provisions of the Act of 1806, the remedy therein provided must be pursued. A jury then, either in an action brought to enforce the liability of directors, or in a set-off to a claim sued before it, has no jurisdiction over alleged torts or misfeasances of directors of banks. Kisterbock's Appeal, 1 P. F. Smith 483, is plainly distinguishable from this case.

L. Todd, W. H. Miller, and W. F. Sadler, for defendants in error.—The borrowing of money by the mortgaging of the real estate of a bank, is not a part of the business of a bank. It could not be otherwise than hurtful to credit of the corporation and most detrimental to the interests of the stockholders. Besides it being unusual for banks to make loans in this manner, the permanent character of the loan, one secured by a mortgage, is also an additional reason why the acquiescence of stockholders in its creation should be had, and makes it the more probable that it is the sort of indebtedness forbidden by the constitution. No reasonable interpretation can be given to the seventh section of article 16 of the constitution, except that it was intended to inhibit the creation of forms and amounts of indebtedness not necessary, and incidental to, and inseparable from, the carrying on the business of the corporation, without the assent of those holding a majority of its stock.

The debt due by Ahl, for neglect and misfeasance as a director, was fixed or was capable of ascertainment. It did not depend upon the caprice of juries, but the records of the bank. Its books and papers gave the basis from which the liability of Ahl to the bank could be precisely ascertained. It was a mere matter of computation from data about which there could be no dispute. The demand from Ahl could have been collected in action of debt, at least in so far as to many of the acts of omission and misfeasance charged against him in the bill in equity. There was no need of proceeding in trespass or trespass on the case to enforce Ahl's liability. Steigleman v. Jeffries, 1 S. & R. 479; Nickle v. Baldwin, 4 W. & S. 290, and Franklin Ins. Co. v. Ellmaker, 6 Id. 439, are authorities which sustain this view of the right to set-off under our defalcation act.

Mr. Justice WOODWARD delivered the opinion of the court, October 1st 1877.

On the 6th of October 1874, when the mortgage which the Farmers' and Mechanics' Bank of Shippensburg held against T. P. Blair was assigned to John A. Ahl, the legal plaintiff here, an indebtedness to him had accrued and was existing amounting to $15,659.25. For this indebtedness the mortgage was designed to be a collateral security. It consisted of deposits subject to check, made from time to time in the usual course of business. The arrangement was made, according to the terms of the case stated, "as an inducement to Ahl to keep a large balance in his favor in his deposit account." The balance due was payable on demand, and was subject to no lien and no right of retention in favor of the bank. The mortgage of Blair was a security which the corporation at the time could legally hold and was competent to transfer. It was found expedient afterwards to sell the land bound by it, under a judgment for the mortgage-debt that had been recovered, and on the 8th of January 1875 the bank became the purchaser. Ahl's interest under the assignment was relinquished, upon the agreement of the bank to execute, within a reasonable time after the acquisition of the title, a new mortgage of the same land to him. This was done on the 29th of January 1873, when the deposit balance had grown to the sum of $17,631.59. It was then agreed that the account should be subject no longer to immediate call, but should be payable one year thereafter. Except as to amounts, the relative positions the parties occupied when the Blair mortgage was assigned remained unaltered when the new mortgage was executed. Ahl was the creditor of the bank, with the right to require instant payment. Unless it could be held that the entire business of the corporation was stricken down, and that the power of its officers to receive deposits at all was utterly withdrawn by the seventh section of the sixteenth article of the constitution and the Act of the 18th of April 1874, passed to carry its provisions into effect, there was nothing in these transactions that could properly be described as the creation or increase of a debt. Their object was to provide a collateral security for an indebtedness that had already legitimately accrued. Under his assignment, the sheriff's sale could have been prevented by or made subject to the control of Ahl. When he received the new mortgage he acquired a security exactly equivalent to that which he had surrendered. The same land was bound, the same remedies were reserved, and the same indebtedness remained. The power belongs to a corporation as to an individual, unless restrained by its charter or by other statutes, to assign its property or effects to pay preferred creditors, without the authority or consent of its stockholders: Dana v. The Bank of the United States, 5 W. & S. 233. The power of this bank to secure its debt to the plaintiff in the mode adopted here, has not been destroyed or impaired by the constitutional provision and the legislation under it, which the defendants have invoked.

Even if the adjustment which these parties made had been of a character to which the inhibition of the constitution of 1873 would, in its terms, apply, still, upon this branch of this controversy, the rule settled in Hays v. The Commonwealth, 1 Norris 518, would be decisive. It was there distinctly held that "charters of private corporations are left exactly as the new constitution found them, and so they must remain until the companies holding them shall enter into a new contract with the state by accepting the benefit of some future legislation." The corporate powers and privileges of this bank were created and defined by the act of incorporation passed on the 11th of April 1862, and the general legislation then in force. From the review of the authorities made in The Commonwealth v. The Pittsburgh and Connellsville Railroad Company, 8 P. F. Smith 26, it appears to be settled that a charter confers contract rights which can be withdrawn or modified only when found to be "injurious to the citizens of the Commonwealth," and when, in a proper proceeding in which the corporation exercising those rights is a party, the fact of the injury is judicially ascertained.

John A. Ahl was a director of the bank from the 2d of November 1863, until the 1st of November 1874, except for the period intervening between the 3d of November 1868 and the 1st of November 1869. On the 3d of May 1875, the bank made an assignment to the present defendants in pursuance of the provisions of the Act of the 16th of April 1850. Auditors appointed under the...