Marr v. Bank of W. Tenn.

• Decision Date: 30 November 1867
• Citation: 44 Tenn. 471
• Parties: Thomas S. Marr v. The Bank of West Tennessee et als.
• Court: Tennessee Supreme Court

44 Tenn. 471

Thomas S. Marr

v.The Bank of West Tennessee et als.

Supreme Court of Tennessee.

November Term, 1867.

FROM MEMPHIS.

There was a decree in this cause, pronounced in favor of complainant; from which the respondents have appealed. Chancellor W. M. SMITH, presiding.

HASKELL, SCOTT & HASKELL, for the Complainant.

ESTIS and JACKSON, for Respondents.

MILLIGAN, J., delivered the opinion of the Court.

The prominent facts of this record are agreed; and it is necessary to notice only a few of them, to raise the questions insisted on in argument, and upon which the case must turn. The Bank of West Tennessee possessed the ordinary franchises of banking associations in this State, among which was the power to issue and circulate its notes as money. Its organization was authorized upon the subscription of $450,000 in stock, divided into shares of $100 each. The necessary amount of stock was subscribed, and the corporation organized, and the bank put into successful operation, in the city of Memphis, in 1860, and continued in operation, under its charter, until a short time before the city was occupied by the military forces of the United States, in 1862, when its assets were removed, “by duress,” further South, under the military orders of the Confederate officers commanding at Memphis.” After the war terminated, the assets of the bank were brought back, and the old officers of the bank now have the custody and control of its assets; but they do not assume to exercise any of the franchises of the corporation, for the ordinary banking purposes.

The complainant held and owned a considerable amount of the notes or bills of the bank, upon which, at different times, he obtained judgments at law, amounting, in the aggregate, to the sum of $27,321. Upon these several judgments, executions, at different periods, were issued, which were, respectively, returned, indorsed “ nulla bona;” and this bill was then brought against the corporation and certain stockholders, alleging the indebtedness of the latter to the corporation on their original subscription to the capital stock, and the existence of other assets, which could not be reached at law, and praying for a discovery, and the application of the assets, both legal and equitable, to the satisfaction of the complainant's judgments at law.

The defendants failed to answer; but the parties, by consent, in writing, mutually admitted a state of facts, which, by agreement, were to be treated as a cross-bill, and the legal questions thus presented, determined, as if a cross-bill had been regularly filed by the officers or agents of the corporation.

In addition to the facts already stated, it appears, from the agreement of the parties, that the bank embraced within the provisions of the Act of the Legislature, passed the 6th of February, 1860, ch. 27, commonly known as the ““Bank Code,” and that its action has been in conformity to the provisions of that Statute, from the date of its organization, up to the time its assets were removed South, in May, 1862.

It is further admitted and agreed, that there are, in the hands of the old President and Cashier of the bank, assets, out of which the sum of $25,000 can be realized; and that the bank is now insolvent, and its insolvency was complete at, and prior to, the time the complainant instituted proceedings against it, to enforce the payment of its notes in his hands; and, as such, unable to redeem, or otherwise pay and satisfy its notes heretofore issued and put in circulation, and still outstanding, and in the hands of other holders unknown to the parties.

The corporation, under our Statute, (Code, 3431,) is not, by virtue of its insolvency, formally dissolved; but, as it is alleged in the bill, and admitted in the agreement, it is not using its franchises further than to wind up its old business, and apply its assets. No fraud, by the agreed facts, or misapplication of the funds, on the part of the officers of the bank, seems to be imputed to them. The ruin that has overtaken the institution, is perhaps, due alone to the unhappy effects of the war, and the arbitrary removal, by the military, of its assets South. But, from whatever cause its misfortunes occurred, the record clearly establishes the fact, that it is hopelessly insolvent, and that a just and ratable application of its entire available means to its creditors, will not redeem its outstanding circulation. It follows, therefore, that the controlling question in the record, is, whether or not, the remaining assets of the corporation, shall be distributed pro rata, under our Statutes, among all the note holders, or applied, exclusively, to the satisfaction of the complainant's judgments?

This question is somewhat novel in this State, and, by no means, free from difficulty. But, we have been greatly aided in its investigation by the unusual research and ability with which it has been argued on both sides. Counsel have spared no pains in their examination of authorities, nor have they been wanting in ability to present their respective views of this question, in the strongest and clearest light of which it is susceptible. For the complainant, it is contended, with great force and ingenuity, that he has acquired a lien on the assets of the bank, under the provisions of the Code, embraced in sections 4282, 4283, 4284, 4285, and 4286, which can not be displaced by any subsequent action, either of the corporation or its creditors. And, on the other hand, the defendants insist, with equal zeal and ability, that the assets of an insolvent corporation, under our law, constitute a pledge, or trust fund, in the hands of the officers of the bank, for the equal benefit and security of all the note holders of the bank; and that no diligence, on the part of one or more of the note holders, can defeat the right of the others to a pro rata distribution of the fund.

Since the passage, by Congress, of the late Bankrupt Law, the practical benefit resulting from a solution of this question, will not, perhaps, be of much value to the people of the State; but it is, certainly, of great interest to the parties, and ought to be determined with the same care, as if it were to become the governing rule in all similar cases.

The laws seems to be well settled, that, whenever property is devoted, by private contract, or by operation of law, to special purposes, to be held for the use, benefit, or security of a particular person, or class, it thereby becomes impressed with a trust character, and it is held in trust, to answer the ends to which it was appropriated. This general doctrine, under certain circumstances, has been applied to banks and other monied corporations. Mr. Adams, in his excellent work on Equity, p. 229, 3d American edition, says: “Where corporation property is directed to be applied first to certain specific purposes, etc., a trust attaches on the property, giving jurisdiction, in equity, to control any improper dealing by the corporation.”

The same principle is recognized, in, perhaps, stronger and more direct terms, by Chancellor Kent, in the 2d volume of his Commentaries, marginal page 307, note A, where it is said: “The rule of the common law, has, in fact, become obsolete and odious. It never has been applied to insolvent or dissolved monied corporations in England. The sound doctrine now is, as shown by Statutes and judicial decisions, that the capital and debts of banking and other monied corporations, constitute a trust fund and pledge for the payment of creditors and stockholders; and a Court of Equity will lay hold of the fund, and see that it be duly collected and applied.” See, also, 2 Story's Eq. Jp., sec. 1252; Vase vs. Grant, 15 Mass. R., 505; Wood vs. Dummer, 3 Mason R., 308; Spear vs. Grant, 16 Mass. R., 9; Brigg vs. Penniman, 8 Cowan, 391; Branner vs. Harbeck, 5 Selden's N. Y. R., 692; Guy vs. Tide Water Canal Co., 24 Howard, 257; Ohio Life Ins. Co. vs. Merchant's Ins. Co., 11 Hum., 31.

The reasons upon which this doctrine rests, are so forcibly given by Judge Story, in delivering his opinion, in the case of Wood vs. Dummer, 3 Mason, 308, that we take the liberty of extracting from it the following paragraphs:

“It appears to me very clear, upon general principles, as well as the Legislative intention, that the capital stock of banks, is to be deemed a pledge or trust fund, for the payment of the debts contracted by the bank. The public, as well as the Legislature, have always supposed this to be a fund appropriated for such purposes. The individual stockholders are not liable for the debts of the bank, in their private capacities. The charter relieves them from personal responsibility, and substitutes the capital stock in its stead. Credit is universally given to this fund by the public, as the only means of payment. During the existence of the corporation, it is the sole property of the corporation, and can be applied only according to its charter-- that is, as a fund for the payment of its debts, upon the security of which it may discount and circulate notes. Why, otherwise, is any other capital stock required by our charters? If the stock may, the next day after it is paid in, be withdrawn by the stockholders, without payment of the debts of the corporation, why is the amount so studiously provided for, and its payment by the stockholders so diligently required? To me, this point appears so clear, upon principles of law, as well as common sense, that I can not be brought into any doubt, that the charters of our banks, make the capital stock a trust fund for the payment of all the debts of the corporation. The bill holders, and other creditors, have the first claim upon it; and the stockholders have no right, until all the other creditors are satisfied. They have the full benefit of all the profits made by the establishment, and can not take any portion of the fund, until all the other claims on it are extinguished. Their rights are not to the...