Attorney General v. Bank of Michigan

1 Harr. Ch. 315

• Court: Michigan Court of Chancery
• Decided: July 1, 1841
• Status: Published

Opinion

The Chancellor.

Before proceeding to the examination of the facts disclosed by the pleadings in this cause, it will be necessary to examine "the statutory provisions which have a bearing upon the question presented. The jurisdiction of this court in this class of cases.is based upon and controlled by the statutes. It has no such jurisdiction at common law. The Attorney General vs. the Utica Ins. Co. 2 J. C. R. 371; Same vs. Bank of Niagara, 1 Hop. 354; Verplanck vs. Mercantile Ins. Co., 1 Edw. 87. in the last mentioned case the Chancellor says : “ After such repeated decisions expressly disclaiming all jurisdiction over corporate bodies for the purpose of restraining their operations or of winding up their concerns under the general equity powers of the court, the complainants must not expect any interference, except it be under special authority of existing statutes, and when the case is fairly brought within their SC0Pe and object.” The proceedings in this case are based upon the provisions of the act of June 21st, 1837. (1) This imposes upon the court the duty of enquiring how far the powers and duties- of this court are controlled by subsequent legislation. By the first section of the act of April 12th, 1841, (2) it is enacted that every provision of law in force requiring or authorizing proceedings against the Bank of Michigan and the Farmers’ and Mechanics’ Bank of Michigan and their branches, with a view to forfeit their charters or wind up their concerns, or which requires them to suspend their operations, and proceedings in consequence of a refusal to pay .their notes or evidences of debt in specie is hereby suspended. Section three, requires the Bank of Michigan to lessen its liabilities at the rate of $20,000 quarter yearly. Section four, prohibits any bank from dividing or paying to its stockholders or to any person for them any dividends, profit, or interest, until after it shall have resumed paying its debts and liabilities in specie, and shall have continued to do so in good faith for three months. Section five inhibits the banks and their officers from selling specie or bullion at a premium, and from purchasing its notes at a discount; and provides that “every violation of this section shall be a forfeiture of its charter.” Section six is, “ that every such bank or branch shall transmit a statement under oath of the president, cashier, and a majority of the directors, of its true condition, once in every three months, viz : On the first day of January, April, July and October, to the Secretary of State, who shall cause the same to be published in the state paper; and the expense of such publication shall be paid by the banks respectively.” Section seven is as follows : “ It shall be the duty of the Secretary of State, on the receipt of each quarterly statement provided for in the sixth section of this act, to transmit as soon as practicable to the Governor, Lieutenant Governor, Auditor General and Treasurer of this state, each, a certified copy of such statement; and if on examination of the same, it shall appear to any one of said officers, including the Secretary of State, that any bank availing itself of the provisions of this act, is, or has been so conducting its business, as in their opinion to endanger the interests or security of the public ; or those holding its notes or other evidences of debt, or in any way improperly to abuse the privileges by this act granted ; or if from any other cause any such officer shall have good reason to believe that any such bank has so improperly conducted, then it shall be the duty of such officer with the advice and consent of one or more of his associates above named, forthwith to cause an examination to be made of the conduct and affairs of such bank; and in case it shall thereupon appear to the satisfaction of three or more of said officers, that such bank is, or has been conducting its business improperly as aforesaid, it is hereby made their duty forthwith to report such fact to the Attorney General, who is hereby required to proceed against such bank as directed in the tenth section of this act.” Section eight provides, that the Bank of Marshall, the Bank of Adrian, the Merchants’ Bank of Jackson County, the Bank of Constantine, and the Erie and Kalamazoo Rail Road Bank, may avail themselves of the provisions of this act, by conforming to its requirements, upon obtaining the certificate of the Auditor General, State Treasurer, and Secretary o'f State, that their business has been honestly managed, and that they are in a sound condition. Section nine provides, that the Auditor General, State Treasurer, and Secretary of State, before they proceed to examine such banks as may apply to them for that purpose, shall make oath before any person authorized to administer the same, that they will not grant a certificate to any bank unless they shall be perfectly satisfied that the resources of such bank are, and will be adequate to the ultimate payment of its circulation, and all other liabilities permitted by this act. Section ten, authorizes the Attorney General to proceed against any bank availing itself of the provisions of this act, and which shall directly or indirectly violate the same, by injunction, quo warranto ox otherwise, in the same manner as if this section (probably a misprint for act) had not passed. The act of April 12, 1S41, in its material provisions is a literal copy from the suspension law of New York of May 16, 1837. The first section is identical except that the names of the Bank of Michigan, and the Farmers’ and Mechanics’ Bank, are introduced. Of the construction of the New York statute there is no doubt. In respect to a portion of the banks in that state, the law requires that a bank which shall suspend specie- payments-- shall on °* forfeiture of its charter, “-wholly discontinue and close their banking operations.” What was intended by' the- provision of the ninth section of the suspension law of New York, placing the banks under the supervision of the bank commissioners, and authorizing them to institute proceedings against any bank in'dangerous or insolvent circumstances? It could not have intended an inability to pay their liabilities at the time, as the very object of the law-was, to-relieve the banks from the penalties they incurred by reason of such inability. It must have contemplated ultimate insolvency. By our statute the officers who are constituted special commissioners for this purpose, may if they are satisfied any bank is so conducting, itsáffairs as to endanger the security of 'the public or those holding its. notes, institute an examination, and upon the concurrence of three of them, proceedings may be instituted, under the provisions of the act. There can be no doubt that the construction of the'first section of the New York statute is, that every provision of law requiring or authorizing proceedings against banks with a view to forfeit their charters or wind up their concerns, and that every provision of law which requires them to suspend operations and proceedings in consequence of a refusal to pay their notes and evidences of debt, in specie is suspended. I do not well see what other construction can be given to this section either in the New York act or our own. The words “ or which” must refer to the provisions of law which were intended to be suspended. Where one part of the act is equivocal, other portions of the act maybe resorted to as a guide. “The occasion and the reason of the enactment (which, is the same thing with the old law and the mischief,) the letter of the act (whether words.be used in their proper or technical sense,) the context, the spirit of the act, (whether statutes be in their nature remedial or penal,) the subject matter and the provisions of the act, have,all to be considered. Again the intent of the legislature is not 'to be cpllected from any particular expression, but from a general view of the. whole of the act.” Per. Best. C. 3. 3 Bingham 196; Dwarris on Statutes 48. The ninth section of the law of New York places the suspended banks under the special supervision of the bank commissioners. The sixth section of our law requires the suspended banks to transmit a statement of their condition once in three months to the Secretary of State. Section seven contemplates that the officers therein mentioned and to whom a copy of each statement is to be transmitted, and each of them, shall exercise a supervision over those suspended hanks, and if in the opinion of either of them, any bank is, or has been so conducting its business as to endanger the interests or security of the public or those holding its notes or other evidences of debt, any such officer with the advice and consent of one or more of his associates may institute an' examination of its affairs.— It has been shown that in the construction of statutes which may admit of doubt, we must resort to the object and intent of the legislature ; the mischief to be obviated, and the remedy contemplated. It appears from the pleadings in this cause that the legislature had instituted a careful investigation of the affairs of this bank. The condition of its assets was not then materially variant from the present. Its liabilities have since that time been diminished some $120,000, and it appears that for many years no part of their assets have been used otherwise than for the payment of its 'liabilities. .The legislature must have been aware of the inability -of the bank to pay off its liabilities immediately, though they seem to have entertained no doubt of its ultimatejsolvency. Can it byany possibility be inferred that the legislature contemplated or intended by this legislation that this bank should be wound up on the ground of insolvency under the state of facts here presented? The insolvency is again and again denied in every form by the president and directors, who must be deemed better able to form an opinion than strangers unacquainted with its concerns, and this too after a full, careful, and detailed investigation of all their assets and liabilities. Not only is insolvency denied, but it is alleged that there will remain a large surplus after the payment of all their debts and liabilities. Did the legislature intend to treat the several banks which, should become subject to the suspension act unequally? This cannot be supposed. The ninth section provides, that the banks which are named in the eighth section shall satisfy the Auditor General, State Treasurer and Secretary of State, “ that the resources of such bank as shall apply to them for that purpose, are, and will be adequate to the ultimate payment of its circulation and all other liabilities permitted by this act.” This is in harmony with the supervision vested in those officers by the seventh section. Under that section, if they or any throe of them should become satisfied that from the conduct of the bank or the condition of its affairs, legal proceedings were necessary to effect an equality of distribution or a proper application of its means, it would then be competent for them to direct proceedings to be instituted under the provisions of that act. For the purposes of this motion it should be remarked that this bank must be considered as under the provisions of the suspension act. It was placed expressly under it in terms, from and after the passage of the act. If it has forfeited its rights under it by misfeasance or nonfeasance, such forfeiture must be shown. No allusion is made in the pleadings to any act of omission or commission by which such forfeiture has been incurred. It is not to be presumed. The legal presumption is otherwise. It has been held that grants beneficial to corporations may be presumed to have been accepted, and an express acceptance is not necessary. Charles River Bridge vs. Warren Bridge 7 Pickering 344 ; Dart. Col. vs. Woodward 4 Wheaton 688; U. S. Bank vs. Dandridge 12 Wheaton 71. But admitting that the operation of the first section of the suspension act should be limited to the failure to pay its notes or evidences of debt in specie, which from a careful examination I think it cannot, would the result be varied? The legislature could not have intended to apply one rule to the banks specially named in the first section of the act, and which were undoubtedly the principal objects intended to be benefited by it, and another to the other banks named in the act.— We have seen that those banks were required only to satisfy the officers before named of their ability ultimately to pay their liabilities. We have seen this ability in the case under consideration asserted and reasserted in the broadest and most comprehensive form by those best acquainted with its condition. The answer for the purpose of the present motion must be taken as true. Under either construction of the act then, the motion must be denied. Some misapprehension seems to have been entertained upon the effect of the refusal of any bank not protected by statute to pay its debts or liabilities in specie. The rule adopted here is the same as in New York. In the case of the Attorney General vs. the Bank of Columbia 1 Paige 511; the Chancellor says, that the fact that the bank has stopped payment is not of itself conclusive evidence of its inability to its debts, but is prima facie evidence of inability or insolvency. In the case of Stuart vs. Mechanics’ Bank, 19 Johnson’s Rep. 497; it is said “ a bank may be quite solvent notwithstanding it fails to redeem its bills. This we know to have happened in several instances where the ability and solvency of the banks have been afterwards fully established.” The rule adopted here has been not to grant an injunction in the first instance upon this allegation alone, but to grant a rule to show cause, and require notice to be given to the defendants. If not explained or excused in cases where the banks are not protected from a forfeiture of their charters by reason of a failure to pay specie, the court would be authorized to grant an injunction and appoint a receiver. (3) But where banks are authorized to suspend specie payments, it is not prima facie evidence of insolvency. It may be proper to say that the result, to which I feel myself compelled by the provisions of law bearing upon this case, to arrive, in my opinion will be better for the interest of the bill holders and creditors of the bank than would be the usually disastrous measure of appointing receivers. It must be apparent that in the present condition of the country such a measure must result in great losses, and that heavy expenses must be incurred, and if by such means the resources of the bank should be found insufficient to pay its liabilities, the loss must fall upon its creditors. The entire resources of the bank have been thus far applied to the payment and security of its debts and the officers of the bank in their answers state their intention to continue so to do. The aggregate amount of the indebtedness of the directors is small. No part of the resources of the bank have been diverted to pay dividends, and I can perceive nothing in the case as presented before me, to lead to the belief that the affairs of this institution have not been honestly and in good faith administered. But these remarks which would apply properly in a case for the exercise of discretion in the appointment of a receiver, are perhaps unnecessary in the present case ; as from the view 1 have taken of the law bearing upon it and from which I cannot escape, there is no room for the exercise of this discretion in the case. The law being positive, the rights of the defendants are fixed, and the duty imposed upon the court imperative. A question has been ineidentally raised as to the construction of the sixth section of the suspension act, (4) but as it is not necessary to the decision of the case, I have had some doubt as to the propriety or necessity of expressing an opinion upon it. The facts do not appear as to when this bank filed its statement of the condition of its affairs. The question is, are the banks compelled to transmit a statement of their condition on the first days of January, April, July and October, or are they to transmit a statement of the condition they were in on those days as soon as thesame can thereafter be made out and stated! It would of course be impossible to ascertain their condition on a particular day and make and transmit a statement on the same day. If the statement is to be transmitted on those days, it must be of their condition on some previous day, and each bank must be left to select its own day. This would certainly open the door for transfers from one to the other, and might lead to inconveniences which the legislature intended to guard against by requiring a simultaneous statement of the condition of all the banks on the same day. Some of the banks contemplated by the terms of the act are situate some one hundred and fifty miles distant from the office of the Secretary of State. Are those banks required to file on that day a statement of their condition, or on some indefinite previous day of their own election, or must they “ transmit” by mailing their statement on that day, or was it the intention of the legislature that they should transmit a statement of their condition on the particular days indicated by the act! The statute requires that the statement of the condition of the banks shall be made under oath of the president, cashier and a majority of the directors. Should this be impossible from the absence or sickness of the president or cashier, or a portion of the directors, must the statement be actually transmitted on this particular day under pain of a forfeiture ! The language and object of the act, the security intended to be afforded to the public, the inconvenience if not impossibility of otherwise conforming to its terms, all concur in leading to the construction that the statements shall show the condition of all the banks under the suspension law at one and the same period of time ; and that their statements shall be filed as soon as they can properly be prepared and examined by the different officers required to make oath to the truth of the statements of their condition on those days. Where no time is prescribed in which an act is to be done, it must be done in a reasonable time, and this must be determined by the tribunal before which the question may be made.— 9 Pickering 404; Coke Litt. 208. But if the construction should be otherwise, 1 do not perceive how a failure to conform to this section on the particular days mentioned can be held ipso facto to work a forfeiture. The rights and immunities conferred upon this bank by the first section of the suspension act are positive and unconditional. The fifth section provides, that a failure to conform to the provisions of that section shall work a forfeiture. The sixth section is directory and imposes no penalty or forfeiture. The consequence of a failure to conform to the requirements contained in that section, therefore would subject the delinquent bank to be pioceeded against under the provisions of the tenth section of the act, and the failure to conform to the provisions of the act must be averred and shown.— The bill as before stated contains no such averment, and as the question is not necessarily involved in the decision of this motion, I should not have deemed it necessary to express an opinion upon it, but from the consideration that the views I have taken of the law must be conclusive upon the principal object of the bill, the complainant, if any doubt is entertained of the correctness of the conclusion arrived at, may be disposed to take an appeal to the Supreme Court; and in tha case it will be desirable that this question as well as the others should be presented and settled in the appellate court.

Having now said all that can be material to a decision of the question presented, it would have been certainly gratifying if consistent with my views of duty here to pause. But with the hope that it may not be without its utility hereafter, I think it my duty to refer to the unusual and extraordinary course which has been pursued during the pendency of this controversy, having a tendency to create excitement and preoccupy public opinion. Minatory articles have from time to time appeared in the public papers. The consequences of failing to yield to this artificial excitement have been shadowed forth. Various interests and considerations very far from being properly connected with any question of legal right involved in the cause, have been enlisted. A detailed recital of the circumstances referred to, is not deemed necessary and would afford no pleasure. It would have been easy to have acquired cheap temporary applause by yielding to the current. But the court has a higher duty to perform. It is bound to declare the law as it is, and to vouchsafe to every one his rights under the law without regard to consequences. Whenever the rights of litigant parties shall be surrendered to any such extraneous influences there is an end of all security and of all confidence.

This is the first time I have had occasion to recur to improprieties of this character. It is painful to do so now, I trust it may never again be necessary.

The result is, that the motion for the appointment of receivers must be denied. A motion was submitted at the same time for a modification of the injunction, but as the Attorney General expresses his election that if the motion for the appointment of receivers is denied, that the injunction should be dissolved, and as from the views expressed, such must be the final result; the order will be entered accordingly, except so far as relates to the assigned assets. That presents a distinct question which has not been considered, and the injunction will be so far retained until the further order of the court.

Note, (1.) See “ An act to provide for proceedings in Chancery against corporations, and for other purposes.” Approved June 21, 1837. Laws of 1837, page 306.

(2.) See act No. 58 entitled “ An act suspending certain provisions of law and for other purposes, ” approved April 12, 1841. Laws of 1841, page 141.

(3.) See Sec Barnum vs. the Bank of Pontiac, ante 116. January 17, 1842, the act entitled An act to repeal the suspension act, passed April 42, 1841 and for other purposes, ” was passed and is as follows:

An Act to repeal the Suspension Act, passed April 12, 1841, and for other purposes.

Section 1. Be it enacted by the Senate and House of Representatives of the State of Michigan, That the act entitled “ an act suspending certain provisions of law, and for other purposes, passed April 12, 1841,” be and the same is hereby repealed. ,

Sec. 2. All banking institutions of this state shall, immediately after the passage of this act, and at all times thereafter, pay specie for their bills obligatory and of credit, and all bills and notes issued by said banks, on presentation and demand of the same at their counters, during the usual banking hours ; and every failure or refusal so to da shall be deemed conclusive evidence of insolvency.

Sec. 3. Any of the banks of this state that shall fail, to resume and continue to make specie payments, immediately after the passage of this act, for all their liabilities on demand, shall be deemed insolvents and their charters and all their corporate privileges shall be forfeited ; and if any such bank shall sell, or in any manner dispose of any of its specie or other property of any description whatever, such act shall be deemed fraudulent and void, and the President, Cashier, or other officer, aiding in, or assenting to such sale or other disposition of said money or property shall be deemed guilty of felony, and shall-be punished by imprisonment for not less than one nor more than five years, at the discretion of the court.

Sec, 4. Any bank or banks resuming specie payments in pursuance of the foregoing provisions shall continue to pay specie for all their bills and liabilities for six months before any dividends of the profits of such institutions shall be made ; nor shall the officers of said banks, nor any of them, dispose of any of their specie for any other property, except for legitimate banking purposes, and any person or persons so offending shall be deemed guilty of a felony, and may, upon conviction thereof before any cohrt of competent jurisdiction, be sentenced to imprisonment in the State Prison for a term not exceeding five years, or in the county jail not more than one year, at the discretion of the court; and the Prosecuting Attorney of any county where any bank may be situated whose officer shall violate the foregoing provisions shall cause the offenders to be prosecuted for such offence, and every and all such dividends or disposals shall be deemed fraudulent and void.

Sec. 5. In all cases where suits have been, or may hereafter he instituted by any bank or monied corporation for the collection of any debt, which may be due to said bank or corporation, in whatever name such suit was instituted, or'suits may be instituted, it shall be competent for the defendant to set off the notes of such bank or corporation in discharge of the liability for which said suit was instituted.

Sec. 6. This act shall take effect and be in force from and after its passage.

Approved January 17, 1842.

Note 4.—

Sec. 6. Every such bank or branch, shall transmit a statement, under oath of its president, cashier, and a majority, of the directors, of its true condition, once to every three months, viz : On the first day of January, April, July and October, to the Secretary of State, who shall cause the same to he published in the state paper, and the expense of such publication shall be paid by the banks respectively.