Heironimus v. Sweeney

Bryan, J., delivered the opinion of the Court. By order of the Circuit Court for Washington County, in Equity, receivers were appointed for the Washington County Savings Institution, a corporation. The questions in the present appeal arise on the distribution of the assets. By the by-laws there were three classes of depositors ; weekly depositors, special depositors, and dime or irregular depositors. Weekly depositors were those who agreed to make deposits not less than twenty-five cents, each and every week. Each of such depositors was furnished with a book containing a duplicate of his account and a copy of the bylaws of the institution. They were liable for fines if they failed to make their deposits at the proper time ; and they were entitled to such semi-annual dividends as the earnings of the institution should justify ; these dividends were to be declared by the president and directors. They were also members of the corporation, and entitled to vote at any election for directors. These provisions were made by the first, seventh, tenth and twelfth sections of the by-laws. The seventh section also declares as follows : “ All persons who desire, may become special depositors for a definite or an indefinite period, and receive such interest on their deposits as the directors of the institution may think proper to allow.” Dime or irregular depositors were permitted by sections fifteen, sixteen and seventeen. They were allowed to deposit at any time, any sum not less than one dime ; and they were allowed interest on their deposits at the rate of three per — 156 — cent, per annum, payable semi-annually, provided such deposits should have been made six months previously to the declaration of dividends; and after having received two semi-annual dividends, they were allowed certificates of deposit bearing four per cent, interest. The assets are not sufficient to pay all of the depositors in full. It then becomes our duty to ascertain the order and proportion in which they ought to be paid. The four appellants all belong to the class of special depositors. Edwards, in November, eighteen hundred and seventy-three, deposited one thousand and thirty dollars, and received a certificate from the treasurer, Taggart, signed by him in his official capacity, in the following form : “ Office of the Washington County Savings Ins. Hagerstown, November '20, 1873. Received from Tyron H. Edwards, one thousand and thirty dollars on special deposit, to draw interest from July 1st, 1873, at the rate of three per cent, semi-annuálly, if not drawn out within one year.” The other three appellants each made a deposit, and each received from the treasurer a certificate of deposit in substantially the same form,'with the exception that the amounts and rates of interests were different. Here we see that money was loaned, to be repaid with -interest when required by the lender. It is impossible to infer from' the transaction that it does not impose the responsibilities and confer the rights which ordinarily arise from an indebtedness. On the other hand the weekly depositor is a member of the corporation ; he is entitled to vote at any election for directors ; he is entitled to such semi-annual dividends as may be earned by the institution, and to an«extra dividend every third year from the surplus, if the president and directors think it proper to declare one. They are in fact and substance the stockholders who own the assets of the company. When the company goes' into liquidation it is easy to see how the assets ought to be distributed. The debts must be first paid, and after all liabilities are discharged, the assets must — 157 — be distributed among the stockholders according to their holdings. In other words, they must be paid over to the owners. In the case of the deposit made by Mr. Edwards, after the first instalment of interest became due, it was agreed between him and the treasurer that if he would let the semiannual amounts of interest remain in the institution, these amounts should draw interest as new principal. There was nothing objectionable in such an agreement as this. He had a right a draw his interest when it became due ; and he had a right immediately to lend it back to the institution. It came to the same result if they agreed beforehand to adopt this plan of investing the interest. It is in fact the usual practice of savings banks, which are conducted on the ordinary plan, to place the interest accrued on the deposit to the credit of the depositor as principal for the purpose of drawing interest, subject, of course, to his right to withdraw it from the bank if he does not wish it to remain. As an illustration of the legality of such a computation of interest we may quote from Banks v. McClellan, 24 Md. 63 : “ Money due for interest may, by agreement, be changed into principal to bear interest, in futuro, but not otherwise.” Other deposits were made by Edwards on the same terms. It has been argued that these proceedings which we have recited were beyond the powers conferred by the charter and are therefore invalid. This institution was incorporated by the Act of 1868, chapter 85. The first section gives it power “ to receive and make all deeds, transfers, contracts, conveyances and grants whatsoever.” The third gives the directors power to elect a president and appoint all necessary officers, &c., &c., to provide for the admission of members, to regulate the manner of making and receiving deposits, to provide for the investment of the funds of the corporation, &c., &c., to pass all necessary by-laws, &c., &c. Under the by-laws the weekly depositors were made members; and the deposits were received from the special depositors. Even if there had been no by-laws authorizing the special — 158 — deposits, it cannot be doubted that the corporation had power to borrow money and issue a promissory note or other stipulation for its'payment. In Booth v. Robinson, 55 Md. 436, it was said that “it is now well settled that corporations, like individuals, may borrow money for the conduct of their affairs without express authority therefor, whenever the nature of their business may render it proper or expedient. And the power to borrow carries with it very generally, unless expressly restrained, the power to secure the loan by mortgage.” In Davis' case, 32 Md. 295, it had already been decided that a building association without express authority in its charter, had the power to issue promissory notes for the purpose of effecting a loan, or of furnishing evidence of an antecedent debt. . And this power was fully recognized in Jackson v. Meyers, 43 Md. 452, and in Muth v. Dolfield, 43 Md. 466. But it seems to be very unnecessary to discuss the extent of the powers granted by the charter in this respect. These sums of money were received by the corporation and appropriated to its benefit with the knowledge of the stockholders and became portions of the fund which contributed to the increase of their dividends. At least, if not with their express knowledge, under circumstances which gave them every opportunity to know. In one instance the money has remained in the possession of the corporation for more than twenty-two years, and in all that time the interest on it has been regularly credited to the depositor on its books. The funds of the corporation are now in a Court of Equity for distribution. If they are not paid over to those persons who furnished these moneys to the corporation on the faith of an express promise to repay, most certainly great wrong and injustice will be done. We will see whether such an anomaly can exist in jurisprudence. In Hospital v. Foreman, 29 Md. 532, it was said: “ If a party makes a contract with a corporation, which is simply beyond the powers of the latter, he may recover back the money paid thereon whether the contract be executed or executory.” — 159 — This was an action at law. In another case, which was also an action at law, the doctrine was stated very distinctly in its application to facts similar to those which present the question before us. A savings bank had, in excess of its chartered powers, discounted a promissory note, and had brought suit against the endorser. It was held that although a corporation in making a contract has acted “in disagreement with its charter,” yet “ a party who has had the benefit of the agreement, cannot question its validity.” It was declared that the decision proceeded on the principle that “ it is inequitable to permit one who has received the proceeds and benefit of the contract, to repudiate it on the ground that the corporation from which he has obtained the benefit had no power to make the contract.” And the bank’s right of recovery was sustained. United German Bank v. Katz, 57 Md. 128. This decision was approved in German, &c., Home v. Hammerbacher, in 64 Md. 606. In this last case the contract was decreed to be specifically executed, it being held that even if the contract in question were ultra vires, the defendants under the circumstances of the case were estopped from setting up such defence. Other Courts have held that although the money obtained under ultra vires contracts must be returned to the party to whom it rightfully belongs ; yet an action cannot be maintained on the contract itself. Among many cases of this kind we may mention one in 139 United States Reports, p. 39, Central Transportation Co. v. Pullman Car Co. But whether an action is brought on the contract or the equitable grounds which show that the plaintiff ought ex aequo et bono to recover, the object which the law seeks to accomplish is the same. The very slight degree in which any technical rule will be permitted to interfere with the right of recovery is shown by two cases cited in Logan County Bank v. Townsend, 139 U. S. 76. The Court comments on these cases in this way: “In National Bank v. Matthews, 98 U. S. 621, it appeared that a national bank loaned money upon the security — 160 — of a note and a deed of trust of lands, both of which were assigned to it. The statute declared that a national banking association could loan money “on personal security,” and could purchase, hold and convey real estate for certain named purposes, “and for no others,” among -which was not included the securing of a present loan of money by a deed of trust or mortgage on real property. The Court, while assuming that the statute, by clear implication, forbade the bank from making a loan on real estate, refused to restrain the bank from enforcing the deed of trust. The decision went upon these grounds : That the bank parted with its money in good faith; that the question as to the violation of its charter, by taking title to real estate for purposes unauthorized by law, could be raised only by the Government in a direct proceeding for that purpose; and that it was not open to the plaintiff in that suit, who had contracted with the bank, to raise any such question in order to defeat the collection of the amount loaned. If any doubt existed as to the scope of the decision in that case, it was removed by National Bank v. Whitney, 103 U. S. 99, where it was held that the light of a national bank to enforce a mortgage of real estate taken by it to secure indebtedness then existing, as well as future advances, could not be questioned by the debtor, and that a disregard by the bank of the provisions of the Act of Congress upon that subject only laid the association open to proceedings by the Government for exercising powers not conferred by law.” A vast number of decisions upholding the general principle are collected in Thompson on Corporations. We do not find it necessary to quote more than two of them. “ Thus, if a corporation has executed a promissory note for a consideration which it has received and retained, it is bound to pay the note, although it may have been executed in furtherance of a contract which was ultra vires. So, a corporation cannot avoid its obligation to pay money which has been loaned to it, and used by it, under the plea that in borrowing the money it exceeded its statutory power to — 161 — contract debts, or that its officers by whom the loan was negotiated were not properly authorized in the premises.” 5 Thompson on Corporations, sec. 6018. (Decided March 25th, 1896). The special depositors ought to be paid in full according to the tenor of their contracts, in priority to the weekly depositors. Edwards is to receive compound interest, and the other appellants simple interest. As the order of the Court below was contrary to this result, it will be reversed. Order reversed with costs in both Courts and cause remanded.