Savings Institution v. Makin

On June 7, 1845, the opinion of the majority of the Court, Whitman C. .1. dissenting, was delivered by Sheri,by' J. This is a bill in equity filed by eight persons describing themselves as the board of trustees of the institution for savings for the town of Portland and its vicinity. It alleges, that the institution received from its depositors an amount of money exceeding one hundred thousand dollars; that it invested the greater portion of it in the stocks of incorporated banks of good credit; that those banks have since that time — 362 — sustained losses, and that the stocks purchased by the institution are not worth, upon an average, more than fifty per cent, of their cost; that a smaller portion of the money was loaned to individuals upon personal security, then esteemed to be good, from which nothing has been obtained;. that the parties to that paper have become insolvent; that twenty per cent, of the principal has been paid out to the depositors; that all the property and assets of the institution at their market value are not sufficient to pay fifty per cent, of the whole sum still standing on the books of the institution to the credit of the depositors; that certain of the depositors named have caused suits to be commenced against the institution and its property to be attached, with the design to obtain the full amount due to them to the injury of the other depositors; that the institution is a trustee for each and all of the depositors; that each depositor ought to bear his just proportion of the losses; that the trustees are desirous of making a just and equitable distribution of the assets among all the depositors; and that such a distribution cannot be made without the interposition of this Court. There is a prayer in the bill, that the assets of the institution may be sequestered ; that a just and equal distribution of them may be made among the depositors; and that those depositors, who have commenced suits at law against the institution, may be enjoined from the further prosecution of them. The only persons who have entered their appearance after notice to all persons interested, are James Makin, in his own right, and as administrator of the estate of Luke Makin deceased, and Jane Gardner. The answer of Makin states, that he had commenced a suit against the institution and obtained a verdict, and another suit as the administrator of the estate of Luke Makin, in which a default had been entered, before the passage of the act of March 18, 1842, c. 32. It craves the benefit of the proviso contained in the fourth section of that act. Jane Gardner demurs to the bill; and her counsel has signified, that no further defence will be desired, if her demurrer should be overruled. — 363 — The counsel for the trustees insist upon their right to maintain this suit, and to obtain a decree for an equitable distribution of the assets of the corporation, without reference to the provisions of the act of March 18, 1842. The trustees or managers of the corporation are in this bill the parties plaintiff. The corporation does not thereby become a party to it. It has not been made a party. The Court cannot properly act upon its rights and property independently of that act, sequester the property, and deprive the corporation of its use, without affording it an opportunity to be heard. Verplanck v. Mer. Ins. Co. 2 Paige, 449. But waiving the consideration of a defect of parties for such a purpose, the question arises, whether the equity powers of this Court would authorize it to make such a decree before the passage of that act. It had power to hear and determine all cases of trust. To ascertain the extent of its power over this corporation by virtue of its. jurisdiction in cases of trust, it will be necessary to notice the character of the corporation, and its relation to its depositors. The institution for savings is a body corporate, created by an act of the legislature of Massachusetts, approved June 11, 1819. Twenty-five persons named in the act, with such other persons as they might associate with them, were incorporated into a society by a corporate name. The corporate body was to be continued and perpetuated by the members named by the election of other persons from time to time as their associates. The act provides, “ that they and such others as may be duly elected members of said corporation, as in this act is provided, shall be and remain a body politic and corporate forever.” The fourth section of the act is in these words. “Beit further enacted, that the said society and corporation shall at their first and their annual meetings in July, have power to elect by ballot any person or persons as members of this society.” There is no provision in the act requiring, that the members of the corporation should be depositors of money or have the least interest in the funds of the corporation. Neither the charter nor the by-laws make any provision, that those, who should deposit money, should thereby become — 364 — members of the corporation or have any right to vote or act in any manner in the choice of its officers or in the conduct of its affairs. It was not the design, that they should become members. Poor and improvident persons, females, and minors, were the persons to be especially benefitted. They would be ill qualified to be the managers of their savings, and equally ill qualified to select others for that purpose. The corporators were not designed to be, and there is no proof that any of them were, in fact, the persons, who were interested in the funds held by the corporation. In this respect the organization and character of the corporation differs entirely from banking, manufacturing, and other corporations, created for the transaction of business for the benefit of the corporators. In such corporations persons by a purchase and transfer of shares become members of the corporation without election. The cor-porators or members are the persons beneficially interested. Not so in this corporation. The persons beneficially interested are not members of the corporation, and cannot interfere with or control any of its proceedings. The corporation and its corporators are wholly independent of the depositors. The only connexion between them is to be found in the stipulations, to which they have mutually agreed. In all of them the depositor is one party, and the corporation another and different party, as well in essence as in name. Any attempt therefore to show, that the regulations prescribed by the corporation were in effect the regulations of the depositors in any other manner, than by their assenting to them; and that the depositors were in effect both promisors and promisees in their contracts, made with the corporation, must utterly fail. Such an idea could only arise out of a misapprehension of the organization and character of the corporation by erroneously supposing the depositors to be members of the corporate body, and as such able to elect its officers and regulate its affairs. A corporation may, if its charter permit, assume a trust, apd act in the character of a trustee for persons other than its - stockholders and creditors. Eleemosynary corporations hold their funds in trust to accomplish certain charitable purposes; — 365 — and their managers may be compelled in different modes by visitors and legal tribunals to execute such trusts; and to apply the funds according to their prescribed rules. The Lord Chancellor in England has, as such, a peculiar jurisdiction or power over them. While the jurisdiction of the Court of Chancery is limited to the control of the managers of the revenues or funds, to prevent abuse or misapplication of them, and to compel them to execute the trust. Att. Gen. v. The governors of the foundling Hospital, 2 Ves. jr. 47; Same v. Dixie, 13 Ves. 533; The mayor and commonalty of Colchester v. Lowten, 1 V. & B. 245; The Berkhamstead free school, ex parte, 2 V. & B. 138; Att. Gen. v. Utica his. Co. 2 Johns. Ch. R. 389. If this bill had been filed by a party beneficially interested, and had alleged, that the trustees had mismanaged or misappropriated the funds, of the corporation, it might have presented a case within the power of the Court. But the trustees claim to have faithfully executed and performed all their duties; and they ask the assistance of the Court, not to enable them to continue to perform their duties, and execute the trust according to the charter, by-laws and regulations, but to enable them to make a disposition of the funds destructive of the further execution of the trust, and not authorized, except upon a contingency, which has not happened. The twenty-second by-law would have authorized them to divide the whole of the property among the depositors in proportion to their respective interests therein, upon giving three months’ notice thereof. This course might have been pursued, and the present object have been accomplished without the aid of the Court. As there has been no action under that by-law, it remains wholly inoperative for the present purpose. The Court can derive no power from it. While the Court may compel trustees to execute the trust assumed by a corporation according to the scheme prescribed, it has no power, unless specially conferred by statute, to sequester the funds of a corporation, and deprive it of them, and dispose of them, as it may judge to be equitable and just, among those beneficially interested. Corp. of Salop v. Att. Gen. 3 Bro. — 366 — P. C. 241; Taylor v. Dulwick Hospital, 1 P. Wms. 655; Att. Gen. v. The Bank of Niagara, Hopk. R. 354; Same v. The Bank of Chenango, idem, 598; Verplanck v. Mer. Ins. Co. 1 Edw. 84; Robinson v. Smith, 3 Paige, 222. The Court may, however, in case of gross abuse, deprive a corporation or other trustee of the funds, and commit the administration of them to other hands. Att. Gen. v. The Earl of Clarendon, 17 Ves. 499. But this power does not authorize the Court to annihilate the charity by a distribution of the funds; or to appropriate them in any manner not in accordance with the scheme prescribed for the administration of the charity. The cases already referred to show, that the relation of trustee and cestuis que trust, does not ordinarily exist between a corporation and its corporators. While it does exist between the trustees or managers of the corporation and those interested in its funds. But such a relation no more authorizes a court of equity, than a court of law, to take possession of the funds and appropriate them according to its own arbitrary sense of what would be just and equal. Equity is not the chancellor’s sense of moral right, or his sense of what is just and equal. It is a complex system of established law. Mr. Justice Story appropriately iemarked, in the case of Greene v. Darling, 5 Mason, 215; “if by an equity is meant a mere dictate of natural justice in a general sense, it is not worth while to discuss it, because this Court is not called upon to administer a system of mere universal principles.” The maxim, that equality is equity, can only be applied according to established rules. It cannot be applied even in the marshaling of assets so as to make .an equal distribution of them, w'ithout some rule of law authorizing it, unless they are equitable assets. ' 1 Story’s Eq. § 60. The plan of the institution, in the case of Pearce v. Piper, 17 Ves. 1, was found to be defective. It operated as a felo-de-se. It was arranged by articles of agreement. There was no corporation. The Court may deal very differently with the property of individuals, whose respective rights to it are secured by contract, from what it can with the property of a — 367 — corporation, the charter of which controls the disposition of the property. That case furnishes no authority for the Court to interpose, as it is desired to do in this case. If the inability of a corporation to fulfil all its contracts had authorized a court of equity, without any statute provision for that purpose, to take possession of its property, close up its affairs, and distribute its assets among its creditors and shareholders, upon the application of its managers, there would doubtless have been found many reported cases showing the exercise of such a power. Yet no such case has been presented ; while there are cases, in which the power has been distinctly denied. The case of Bryant v. Russel, 23 Pick. 534, authorizes no such proceeding. So far as it can be applicable to this case, it only decides, when a trust fund is subject to the disposal of the Court, and is found to be insufficient to pay all the claims upon it in full, that payment is to be made pro rata to the parties legally entitled to be paid. It is contended, that this corporation assumed no other or greater responsibilities, than those incurred by' a common trustee, and that it is only obliged according to.its charter, by-laws and regulations to deliver to the depositors the funds, which remain in its possession. The character of the corporation and the contract made with each depositor, have been the subjects for consideration and decision in a case at law between Makin and the corporation, recently decided, ante 350; and it is unnecessary to do more than refer to the opinion in that case for the reasons of the conclusion, that the institution assumed responsibilities greater and more onerous than those, which attach to a common trustee. To the argument, that the law regulating the rights of partners might authorize the Court to dispose of the assets among the depositors, a like answer may be given. It was considered in the case at law, and the conclusion was, that the relation of partners could not be considered as existing between the parties. The next inquiry is, whether the Court is legally authorized by the act of March 18, 1842, c. 32, to sequester the assets and make the decree prayed for in the bill. The first section — 368 — of that act not only confers the power in the most ample manner, but it requires the Court to exercise it, when properly called upon by a suitable process to do so. It authorizes the trustees to file the bill. It authorizes a general notice to all interested, that they may appear and show cause against it. The corporation might have appeared upon that notice, but has not. Its rights therefore must be considered as submitted for decision. The counsel for Jane Gardner resists the exercise of such a power on the ground, that the act is unconstitutional and void, among other. reasons, because it impairs the obligation of the contract between her and the corporation. The act, however, does not operate upon the contract or attempt to impair or alter its effect. It still remains valid and subsisting. There is nothing in the act to prevent a recovery of judgment against the institution for any balance, that may be due to her, after she has received her dividend under the provisions of the act. Such a judgment, it is true, might not be of any value, because the corporation would have no property, from which satisfaction could be obtained. It was doubtless this consideration, that induced the legislature to declare, that a decree of sequestration should operate as a stay or supersedeas of an execution on a judgment recovered. But this provision, as well as that which dissolves attachments, acts only upon the remedy. The effect of the act is to afford to the depositors a new and different remedy for the recovery of the amount due to them, instead of the remedy before provided by the laws for that purpose. It is in principle the same as the statute c. 77, authorizing this Court in certain cases to appoint receivers to take possession of the assets of banking corporations, and cause them to be distributed among those legally entitled to them. Enactments involving the same principles have for a long time existed in the State of New York; and her Courts have exercised the powers thus conferred upon them. Matter of Niagara Ins. Co. 1 Paige, 258; Ward v. Sea Ins. Co. 7 Paige, 294. The demurrer of Jane Gardner is overruled. Her defence fails; and she must be regarded as submitting to a proper decree. — 369 — The effect of the proviso in the fourth section of the act of March 18, 1842, will next be considered. That proviso is in the following words. “'Provided that this act shall not interfere with or apply to the suit of any depositor, which shall have been defaulted, or upon which a verdict shall have been rendered for the plaintiff, prior lo the passage of the same.” The suit commenced by Makin in his own right, and that commenced by him as the administrator of Luke Makin, are saved from the operation of the act by the proviso. It is said, that the proviso is inoperative, because it is repugnant to the enactments, which require that there should be a just and equitable distribution of the assets among the several depositors in proportion to their respective claims. It has not been an unfrequent mode of legislation to frame an act containing general language in the enacting clause, and to restrict its operation by a proviso. It would often be found difficult to limit the language in the enacting clause, so as to admit every exception or limitation designed to be introduced into the section in its finished state. If such limitations are to be adjudged void for repugnance, a great number of statutes must receive such a construction, as will impair or destroy the title to a very great amount of property, as well as a very great number of valuable and important rights. The mischief would be incalculable. Take for example a recent act of legislation establishing a uniform system oí bankruptcy throughout the United States. The enactments in the five first sections are restricted by one, two, or three, limitations of each section in the form of a proviso. The household furniture, wearing apparel, and other necessaries for the bankrupt, were saved from the operation of the general language of the enacting clause of the third sectiou by a proviso. And there can be no doubt, that the language of the proviso is repugnant to the general language of the enacting clause. So the rights of married women and minors, and liens, mortgages, and securities on property, were saved from the operation of the general language of the act by the third proviso of the second section. All such saving clauses in the form of a proviso have been — 370 — considered by judicial tribunals to be valid -and effectual. No case will be found, which decides otherwise. It is the misapplication of a principle to insist,, that such saving clauses in the form of a proviso are void, because their language is repugnant to that contained in the enacting clauses. No such doctrine will be found in Plowden, 565. The case there referred to by Chancellor Kent in his commentaries (I Kent, 461) was this. The act of 38 H. 8, for the attainder of the Duke of Norfolk, was declared by the act of 1 Mary to be no act, but utterly void. In the latter act there was a‘ proviso, that it should not extend to take from the patentees 'of the king any lands of the duke held by them. The proviso was decided to be inoperative to save the rights of the patentees, not because it was repugnant to the enacting clause of the act in which it was found, but because the act of attainder having been declared to be void, no title could be derived under it, and the proviso would not give title. But the text of Kent only authorizes the conclusion, that a saving clause would be void, when it could not stand “ without rendering the act inconsistent and destructive of itself.” Not when the saving clause only excepts certain rights from the operation of the act, leaving it to accomplish its principal object. This is shown by his reference to Alton Wood’s case, 1 Co. 47, (a) as an illustration of the rule. There can be no possible doubt, that it was the intention of the legislature to except the suits -of depositors, in which verdicts had been obtained for the plaintiff, and in which defaults had been entered, before the passage of that act, from its operation. .It is declared in language too explicit for elucidation. No ingenuity of reasoning can make such intention appear to be doubtful, or obscurely exhibited. The result is, that this Court may by virtue of the power conferred upon it by the act of March 18, 1842, c. 32, make a decree to sequester and dispose of the assets of the institution for savings according to the provisions of that act. The case calls for its interposition, and the Court decrees, that all the assets and funds of the institution, which remain after pay — 371 — ment of the sums due to James Makin in his individual and representative character, be sequestered; and that a receiver and commissioners be appointed, who are to proceed, under the direction of the Court, according to the provisions of that act. A decree is to be drawn up accordingly.