25 Ala. 566 | Ala. | 1854
We deem it unnecessary to consider separately each objection which has been made to the recovery, and proceedings in this case in the court below, as they are presented in the assignments of error in the record ; since, to do so would only tend to lengthen this opinion unnecessarily. It will be sufficient to classify the assignments of error and thus pass upon them. t
1. It is insisted that there is no equity in the bill, as amended, which would give the Chancery Court jurisdiction under the ordinary powers of that court; and that the bill is not so framed as to bring it within the provisions of the act of 1846.
On the first branch of this objection it may be remarked, that strict trusts are admitted to be open at all times to the examination of a court of equity, and an unfaithful trustee has been constantly brought before it, and made both to discover the fund belonging to the trust, and to account for its management and misapplication. If fraud in the management of the fund is charged in the bill, by one interested in the trust estate, and who has been injured in consequence of such fraud, there is no doubt of the jurisdiction of the court. If, superadded to the matters of trust and fraud, the bill, as in this case, seeks a discovery and account, it will embrace nearly every ground on which the original jurisdiction of the Chancery Court is said to rest. In such case, it is immaterial whether a court of law can afford to' the complainant partial or full relief, in the matter complained of, it cannot hinder the aggrieved party from resorting to a court of equity for redress.
It is beyond doubt that the directors of a banking or other corporation are, in the management of its affairs, only trustees for its creditors and stockholders, and are bound to administer its affairs according to the terms of its charter, and in good faith. If they fail in either respect, they are liable to the party in interest who is injured by it, for a breach of trust, and may be made to account with him in a court of chancery.—Attorney General v. Aspinall, 2 Myl. & Cr. 625 ; Same v. Kett, 2 Beavan ; Same v. Cor. of Leicester, 7 Beav. 176.
By. the original charter of the Bank of St. Marys, a board of directors, seven in number, is required in the management of its affairs. — Prince's Digest 133, § 5. By the amended charter, the number is reduced to five, three of whom constitute a quorum to do business. These are required to be elected by the'stockholders annually, and are to serve until the end of the first Monday in January next after their election, and no longer. At their first meeting after the- 'election, they are required to choose one of their number to act as president. In the act of incorporation, certain fundamental articles of the constitution of said corporation are inserted, as a part of the charter. By the' second of these articles, the qualifications of a director are prescribed, and are as follows: “None but a stockholder, entitled in his own right to ten shares, being a citizen of this State, and not being a director of any other bank, shall be eligible as director.”- — • Prince's Dig. 134, rule 2. By the tenth of these rules it is provided, that “ The bills obligatory, and of credit, notes, and other contracts whatever, shall be binding and obligatory on said corporation ; provided, the same be signed by the president, and countersigned or attested by the cashier of said corporation.” — Prince’s Dig. 135, rule 10. This charter was granted in December, 1836, and was to continue until the first January, 1856. The location of the Bank was subsequently changed from St.- Marys to Columbus, by act of the Legislature of Georgia. The fifth section of the act of incorporation authorizes the election of directors, and the full-organization of the Bank, so soon as fifty thousand, dollars of the
It appears by the bill and proof, that, at the time of the suspension, the board of directors was composed of John G. Winter, president, and L. B. Moody, P. H. Wildman, Geo. W. Winter, (who was also cashier,) and Joseph S. Winter; that the four last named persons were the owners of only five shares yf stock each, and Jos. S. Winter and L. B. Moody were resident citizens of the State of Alabama. John G. Wiinter- owned eighteen hundred and twenty-seven shares, the ■Whole capital being only $225 717.
The board was not qualified to act as directors of the Bank ©f St. Marys, for the reason, that but one of its members possessed the necessary qualification as a stockholder. None but John G. Winter owned, according to their, own showing, as many as ten shares of stock in Ms own right. Jos. S. Winter and Moody were further disqualified because of their non-residence. The operations of the Bank, under their direction and control, were therefore illegal and -fraudulent.— When to this is added the fact, which is directly charged in the bill, and is not denied in the answer, although, from its very nature, it must have been within the knowledge of John G. and Jos. S. Winter, that the stockholders had withdrawn the amount of their subscriptions from the vaults of the Bank, in the shape of loans or otherwise, — it establishes, beyond controversy, that the stockholders themselves participated actively in the fraud which was practiced upon the note holders and others creditors of the institution.
The capita! stock of the Bank, with all its property and assets, is to be regarded as a trust fund for the payment of creditors; and the stockholders, directors, and agents of the Bank, are trustees for their benefit, and as such mg»y b¿ .made to discover and account in chancery. So, also, if any one interfere with the trust fund without authority, and-squander or misappropriate it, he will be held to be a trustee, and made to account as such.—7 Beav. 175.
In the present case, we have no hesitation in saying, that the bill may be retained under the ordinary jurisdiction of
2. But the bill is also good, under that act, as to John G. Winter, and the Bank of St. Marys.
The act provides a remedy by attachment against non-resident debtors, who have property in this State, whether their claim to such property be legal or equitable. All that is required of the creditor, in order to entitle him to the remedy provided by the act, is, that he shall swear to his demand, to the non-residence of his debtor, and to the existence of legal or equitable estate belonging to him within the limits of this State ; and that he (the creditor) should execute an attachment bond. — Sess. Acts 1845-6, p. 11.
We do not understand the act to require that these facts must be made to appear by an affidavit separate and apart from the bill. It will suffice, if the bill sets them forth with clearness, and is verified by the oath of the creditor, or some person for him.—Flake & Freeman v. Day & Co., 22 Ala. R, 132. The act is remedial in its character, and as such should receive a liberal construction. In this bill, the indebtedness of the Bank is by contract, for the payment of twenty thousand dollars, and this distinctly appears by its allegations ; so, also, is the fact of its location in the State of Georgia, and its title to property and choses in action in this State. The bill is verified by the oath of Newton St. John, one of the complainants ; and this is a sufficient compliance with the requirements of the act of 1846, to authorize the court to take jurisdiction of the case, as to the Bank, under that statute, and to issue the attachment therein provided. The allegations of indebtedness by John G. Winter, and his non-residence, are set out with equal clearness, and the bill is good as to him in this aspect, as well as in the first.
But it is said that his indebtedness does not appear by the bill, and, even if it did, his non-residence is denied in his answer, and that the answer is sustained by the proof.
On the former of these points, we think his individual indebtedness in the sum sued for is sufficiently averred. It is true, it does not exist by contract, nor is it evidenced by any writing ; but it is not the loss a legal demand against John G. Winter, in his individual character, for the whole amount
But, it is said, he has, by his answer, put the fact of his non-residence in issue, and by his proof shown that this allegation in the bill is untrue.
This part of the answer must be taken as a plea in abatement to the jurisdiction ; and as the attachment under the act of 1846 is made, by the act itself, to conform to the suing out of that process at law, we are inclined to the opinion that the proceedings under it, as it respects the pleadings, must be governed, as nearly as practicable, by the same rules ; and, as in a suit at law under our ordinary attachment statutes, the particular grounds on which that process is sued out are not allowed to be traversed by such a plea, neither can it be done under the act of 1846.
But, we apprehend, the defendant John G. Winter will not be allowed to set up this matter as a defence to this bill, for another reason : It is shown that, up to the time of the suspension of the Bank, John G. Winter held himself out to the world as its president, and acted as suoli; he cannot now deny that character, nor aver in a controversy with one who has dealt with that institution while he acted as such, that he was not qualified to hold that office. By the charter, the president is required to be chosen from the directors, and these are required to bo citizens of tho State of Georgia ; and John G. Winter must be. held to reside there.
8. "We have said, that the bill is well filed under the act of 1846 against the Bank of St. Marys. This institution is a foreign corporation, and is shown to be the debtor of the appellees to the amount claimed by them. This indebtedness, however, is questioned by the counsel for the appellants, who insist, that the draft of Geo. W. Winter on Holcombe was accepted by Henley’s agent as a payment of the notes of the Bank which he held, and which were surrendered by him at the time the draft was delivered.
The rule is, that when one security is substituted for another, without any new consideration passing between the parties, the substituted security does not extinguish the existing indebtedness, unless it is so agreed between the parties, and there is no fraud on the part of the debtor.—Toby v. Barber, 5 Johns. 68 ; McGinn v. Holmes, 2 Watts 121 ; Higgins v. Packard, 2 Hall 547 ; Chastain v. Johnson, 2 Bail. 574 ; Coxe’s R. 85 ; 9 Conn. 28.
r In the present case, it appears that the notes of the Bank were surrendered, and the draft accepted by the creditor, solely for the accommodation of the Bank, and not in payment. Eor this reason, the Bank cannot set up the draft as a payment of the notes held by Henley. Again ; the draft on Holcombe was received upon the assurance of the agents of the Bank that it would be promptly paid; when it is clear that, at the time it was drawn, as well as at its maturity, the Bank did not have the necessary funds in the hands of the drawee, and consequently had no reason to -believe that it would be honored or paid. These facts were known to the Bank, but unknown to the agent of Henley, so that the Bank is justly chargeable with fraud in inducing its creditor to receive the draft on Holcombe. In this view of the case, its indebtedness would not have been extinguished, even if the draft had been accepted as a payment: the fraud would prevent it from operating as such.—Lake v. Gilchrist, 7 Ala. 955 ; 15 Johns. 475; 2N. & M. 102; 12 Pick. 126; 1 ib. 415; 11 Mass. 359.
The holders of this draft did more : they caused it to be regularly protested for non-payment, and notice of such protest to be given to the drawer. Our conclusion is, therefore, that the Bank is debtor of the appellees to the amount of the notes, and no judgment at law is necessary to enable them to proceed against it in equity for the collection of their demand, under the act of 1846.
4. But it is said that the Bank is not in court for any purpose, as the order of publication against it is fatally defective; and that the decree pro confesso being also irregular, it was error in the court below to proceed to a final decree against it. It may, we think, be safely conceded, that both the orders of publication and the decree pro confesso before the register against the Bank are defective, and still the final decree is correct. We have already held, that where a defendant in chancery appears by his solicitor, and makes no objection to the irregular manner in which he was made a party to the case, such appearance amounts to a waiver of all irregularities in the service of process and the decree pro confesso taken against him.—Mobile & Cedar Point R. R. Co. v. Talman et al., 15 Ala. 472 ; Davenport v. Bartlett & Waring, 9 ib. 179 ; 5 ib. 158. In this case, the Bank appeared by a solicitor of the court, for several purposes, after this decree pro confesso was entered, and on his application orders were made in its
While the Bank, by its appearance and submission to the jurisdiction of the court below, has deprived itself of the right of objecting to the regularity of the service of process and the decree pro confesso, it does not forfeit the right to review in this court the action of the chancellor in refusing to set aside the decree pro confesso on its motion. But did the court err in ovei-ruling the motion to set aside the decree pro confesso, in order to allow the Bank to file its plea ? Our statute (Clay’s Dig. 251, § 39) provides, that no decree pro confesso shall be set aside, but upon filing a full and complete answer to the bill. This is the general rule, and we know no instance in which it has been departed from in favor of filing a plea. That its letter has been departed from in favor of a partial answer, containing matter which, if true, put an end to the case once and forever, is true ; and we still adhere to the correctness of that practice.—Bentley et al. v. Cleaveland, 22 Ala. 814. That case, however, not only does not countenance the doctrine that such decrees should be set aside for the purpose of allowing a mere plea, — so far from doing so, it expressly holds that such a practice would be wholly without authority. It is there said, “We cannot well see whence the
The view which we have taken on this part of the case renders a special examination of the errors assigned in relation to the decree pro confesso unnecessary. The decree pro confesso, rendered by the chancello]’ on the hearing, was not needed in order to enable him to proceed to a final decree, and no injury or benefit can result to either party from its rendition.
5. The next assignments of error relate to the final decrees against Joseph S. and John G-. Winter as individuals, and as the firm of Joseph S. Winter & Co.
We have already seen that the conduct of the directors of the Bank of St. Marys, in allowing the stockholders to withdraw the amount of their subscriptions from its vaults, and in permitting .Joseph S. Winter & Co. and John G-. Winter to use, without security, more than a million and a half of its funds in their own private business, is a fraud upon the creditors, and would not only render the directors liable for the sums thus fraudulently withdrawn, but would render each agent of the Bank who participated in it liable in his individual capacity to the creditors, for so much of said sums as
It is shown by the proof in this case, that Joseph S. Winter was a director of the Bank of St. Marys, as well as a partner in the house of Joseph S. Winter & Co. It is further shown, that this firm was the agent of the Bank, in which capacity it received largely more that a million of dollars of its notes, without any security whatever, and used them in its own business as exchange brokers, the partners charging themselves on their books with the funds so sent to and used by them, and at fixed periods causing these entries to be reversed. It is also proved, that the house of Joseph S. Winter & Co. commenced its business as brokers almost contemporaneously with the removal of the Bank to Columbus, and ceased to do business concurrently with the suspension of the Bank, at that time being indebted to the Bank upwards of one hundred thousand dollars, for which sum this insolvent institution, under the immediate direction and almost absolute control of these partners, received in payment the notes of Jos. S., with John G. Winter as surety, at two and three years.
By some singular and unexplained, and to us inexplicable, lapse of memory, the parties to these notes, in their answers under oath, say they are unable to state the precise amount of this indebtedness. The proof shows, however, that, without the intervention of the board of directors, they received from the cashier, who was the brother of one of them and the son of the other, the large sums above named, without security, and used them for their own advantage and profit. It also shows, that Jos. S. Winter & Co. received unsigned notes of the Bank of St. Marys, which were signed by the president, John G. Winter, in the city of Montgomery in this State, where the firm did business, and were put in circulation by them in this State. It also shows that a large amount of the bills of said Bank, apparently new and before unused, were received by’them and put in circulation in Alabama. These
How then stands the case as to Jos. S. Winter? He is a stockholder in the Bank of St. Marys, and in Alabama issues and puts in circulation the bills of that institution, to an amount greatly exceeding the demand of the appellees. Twenty thousand dollars of the notes so issued and put in circulation come into Henley’s possession, in the regular course of his business. The Bank, on presentation, refuses to pay them, and becomes insolvent; and Henley and his transferrees now call on Joseph S. Winter to pay them. He is, under our statute, clearly liable for their payment.—Clay’s Dig. 133, § 3.
It is no answer to this, to say that he is a stockholder only to the amount of five shares, at one hundred dollars each, and consequently should not be made liable for a larger sum. His liability does not arise under or by virtue of the charter of the Bank of St. Marys, nor in this respect can that instrument exercise any influence in fixing its amount. It springs out of our statute, and to that alone we must look to ascertain its extent. That declares, it shall be to the amount of the bills so issued and put in circulation. The Bank of St. Marys, in the issues thus circulated in this State, must be regarded as an unchartered banking association ; and if its stockholders put its notes in circulation within the limits of Alabama, the law gives to the holders of such notes a right to recover their nominal amount of such stockholder.
Again ; Jos. S. Winter is shown to have misused and applied to his own use very large sums of the funds of. this Bank, by means of which, with other causes, it has become insolvent;
6. For the reasons given, showing the liability of John G-. and Jos. S. Winter to account as agents of the Bank, and as such trustees for the creditors, we are persuaded that the firm of Jos. S. Winter & Co. is equally liable.
7. It is objected, however, that the decree cannot be sustained, because the proper parties complainant are not before the court; and it is insisted that Moulton and Farley were partners with Henley, and as such should have been joined. From all that appears in the record, they were only dormant partners, and their names do not appear in the transaction with the Bank. St. John, Powers & Co. have the entire legal interest in the draft, by endorsement from John Henley, and a perfect equity against the Bank on account of the notes surrendered to it, at the time the draft was drawn. In the whole transaction, from beginning to end, Moulton and Farley do not appear to have been known in it; and if they have any interest, it can be properly represented and protected by Henley, under whose name alone they did business, and with whom alone the Bank appears to have dealt.—Lord
The strongest evidence of the partnership between Moul-ton, Farley and Henley, to be found in the record, is the affidavit of J. S. Winter, which, it was agreed by the appellees, should be treated as testimony. This affidavit states, that these three persons were partners, and before the draft mentioned in the bill was given, had inserted a notice in a newspaper published in the city of Montgomery, announcing that fact to the world, and that their business would be conducted under the name of John Henley ; and that Moulton and Ear-ley were active, managing members of said firm. This evidence is not sufficient to show that Moulton and Parley were to be held as anything more than dormant partners of the bouse or firm of John Henley.
G-ow, in his treatise on Partnership, (pp. 12, 13,) describes and defines the several kinds of partners. He says: “An actual, ostensible partner, is a party who not only participates in the profits, and contributes to the losses, but who appears and exhibits himself to the world as a person connected with a partnership, and as forming a component member of the firm. A dormant partner is likewise a participant in the profits of the trade; but his name being suppressed and concealed from the firm, his interest is consequently not apparent.” The same distinction may be found in Watson on Partnership, pp. 34, 46. He «ays : “Sometimes all the partners in trade do not appear ostensibly to the woi’ld, though they share in the profits and loss, &c. Where they do not suffer their names to appear in the copartnership firm, but at the same, time receive their share of the profits, and bear their risk of loss, they are styled dormant partners.”
In Leveck v. Shaftoe, 2 Esp. Rep. 468, Lord Kenyon said and held, “ that if a person had been a partner, and his name in the firm, and he afterwards withdrew his name, but continued to receive part of the profits, though such person still continued liable to all the demands against the partnership, on the ground of the profits he derived, he would not allow persons who dealt with the firm, without his name appearing in it, to avail themselves of the objection of such partner’s not,
In this case, it appears, the firm was carried on under the name of John Henley alone, — all its transactions were done in his name. In his name the Bank of St. Marys dealt with the firm ; and the interest of the dormant partners cannot be set up now, when his name only is used in a bill in chancery, filed in behalf of the firm against those who have dealt with them under his name alone, in order to defeat a recovery.— The only interest these appellants can possibly have, in having the names of these dormant partners spread upon the record in this suit, is, that the decree rendered in it may conclude them as to the matters in controversy. It is not necessary that they should be named, in order to be concluded. John Henley, in whose name this security is taken, had the unquestionable right to negotiate it in his own name, and thus pass the entire interest in it to his endorsee or transferree, without consulting his dormant partners. To them he is accountable as trustee for all securities thus taken by Mm in the business of the firm, and in that character he must be considered as representing them in this suit. It is well settled, that in all controversies concerning a trust estate, where the trustee can fully represent the interest of all the beneficiaries, they are not necessary parties to the bill.—Walker v. Miller, 11 Ala. 1067, and cases their cited.
That they may, if not too numerous, be proper parties, is conceded ; but this is not the question here. If the decree against or for the party who represents their interest would conclude them, it is all the appellants have aright to demand; and regarding Henley as holding the entire legal interest of the firm, in trust for his dormant partners, in proportion to their several interests in this security, he alone is a necessary party, either at law or in equity. The confidence reposed in him by his partners, in permitting the business of the firm to be carried on in his name, creates him trustee for them, as to all assets or property appertaining to the firm which he may hold in his own name. He may be sued alone for the debt of
It is difficult to conceive upon what principle the partner, in whose name the business of the firm is conducted, is allowed to exercise this unlimited legal control over the property of the firm, unless we refer it to the principles which govern trustees in whom are vested the entire legal estate, with the absolute right of control, being accountable only in equity for an. abuse of their trust. If we are correct in this conclusion, and of its correctness there can be but little doubt, then the case cited from 11 Ala. 1067, is conclusive against the necessity of making Moulton and Farley parties to this bill.
8. It is further argued that the final decree is erroneous, inasmuch as it directs the sale of the stock of J. G-. Winter in the Central Plank Road : this, it is said, is not leviable under attachment. Such stock is to be regarded as a chose in action, and constitutes a portion of the equitable estate of its owner, and as such may be charged in equity under the ordinary powers of that court, and is expressly chargeable by attachment under the first section of the act of 1846.—Sess. Acts 1845-6, p. 17.
9. It is further assigned for error, that the chancellor rendered Ms final decree in the cause in vacation. It appears from an agreement between the solicitors for the parties in the court below, that this was done with their consent, and was requested by the solicitor for the appellants, as a favor to him. It certainly would be extraordinary to allow the appellants, by their solicitor, to obtain time in the court below, as a matter of favor to them, under an agreement to waive any irregularity which might result from the rendition of the final decree in vacation, and having thus thrown the opposite party and the chancellor off their guard, to permit the appellants to assign such irregularity for error in this court. Consent cannot confer jurisdiction ; but it can waive error, or cure an. irregularity. In this case, the court had jurisdiction of the cause, both as to its subject-matter, and the parties; it received the submission|of the case during a regular term of the court, and the act of pronouncing the decree in vacation is a
It is due to the solicitors for the appellants in this court to say, that they had no agency in making the agreement in the court below, nor does it appear in the record that they were concerned in the case in that court.
10. We have seen that the Bank of St. Marys is not, under its charter, liable on the draft drawn by G-eo. W. Winter, its cashier, and, as such is the case, it cannot be held to be liable for the damages resulting from the non-payment and dishonor of this draft. The decree of the chancellor, in respect to these damages, is erroneous, and to that extent must be corrected; and a decre here rendered for the amount of the bank bills, with legal interest thereon.
The decree of the chancellor, thus amended, must be affirmed, at the costs of the appellants, both in this court, and the court below.
I am satisfied that Moulton and Earley, upon the evidence which the record discloses, cannot be regarded as dormant partners of the firm of John Henley, and for that reason they should have been joined as plaintiffs. In other respects, I agree with the results of the opinion.