Case ID: tenn_22/html/0522-01.html
Source: Caselaw Access Project
Author: {"author": "Reese, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Nashville Bank vs. Petway.
    1. It seems to be the better opinion, that where “the members of a corporation are directed to be annually elected, the words are only directory, and do not take away the power incident to the corporation to elect afterwards, when the annual day has, by some means, free from fraud or design, been passed by,” and that the officers can continue in office after the year, and until others are duly elected.
    2. The charter of the Nashville Bank provided, that at the close of the year 1818, the power of banking should cease; it also provided, “that the powers and obligations of the corporation shall in all respects continue for the purpose of bringing the af„ fairs thereof, which shall be depending on the 1st day of January, 1818, to a final settlement and determination.” By subsequent enactments the banking powers of the corporation were continued till 1838: Held, the provision in the charter created an indefinite existence for purposes of settlement, and incorporated itself with the act extending its banking powers till 1838, and that after 1838 it continued in éxistence for purposes of settlement.
    
    3. The charter of the Nashville Bank appointed nine persons, by name, as directors, and then provides, that the directors “from and after that period shall be elected for one year by the stockholders, on the 1st Monday in January, in each and every year during the continuance of the corporation. The directors chosen at such meetings, shall take their seats on the 2d Monday in January, in each and every year, and until the new directors lake their seats the former president and board shall continue to manage the affairs of the company in the same manner as before such election, so that no risk shall be run of the affairs of said company being properly managed until the new directers form a board, from and after the said first Monday in January, 1809.” No directors were elected after the year 1838. This suit was instituted more than a year after the time for the election of directors had elapsed; Held, that the directors, holding over, were in office for the purpose of maintaining suits for the collection of the dues of the bank.
    This suit was instituted in the circuit court of Davidson county, on the 25th September, 1840, on a bill single, executed in 1828, by Petway to the President and Directors of the Nashville Bank, for the sum of $10,000, payable on the 1st day of July thereafter.
    At the return term the defendant filed an affidavit, alledging that the charter of the Nashville Bank had expired, and that this suit was instituted without authority.
    The counsel for the plaintiff on record, filed his authority for instituting the suit, and insisted, that the corporation was in existence and had communicated to him authority to prosecute the suit. The court dismissed the suit. The plaintiff appealed.
    
      E. H. Ewing, for the plaintiff.
    Was it necessary to the bringing of this suit, that there should have been regular annual elections after the end of the year 1838, up to the time of bringing the suit? Or should there have been an election during the year in which the suit was brought?
    1. It was not necessary by the terms of the charter; but on the contrary the statute contemplates that there should be no other elections after the end of the year 1838. The end of the year 1838, is considered as the expiration of the charter for ordinary banking purposes, and is called in the 20th fundamental article, “the dissolution of the association.” Upon this event, the existing directors are to take measures to wind up the affairs of the bank, not nominatim, in truth, but as directors; yet no other directors are mentioned or referred to, who are to continue to wind up the concern, and the directors then in office are to take the measures. This 20th article is not a restraint on the power of the bank to elect directors afterwards, but it rendered it unnecessary to elect. Perhaps the legislature expected that this bank could be speedily wound up and, therefore, did not provide for others than the existing directors. Perhaps they thought it might embarrass the object of winding up, to be making frequent changes in the directory; one directory being constituted, perhaps, of the debtor stockholders, and another of the creditor stockholders, as the court may well see might have been the case. However this may be,, and whatever the legislature may have intended by this 20th art., the plaintiff says:
    2. By the terms of the 2d article in regard to directors, the existing directors remain in office till new ones shall be elected, and will so remain until the delay to elect and other circumstances shall amount to a non-user. To sustain this view the 2d article is referred to, where these words are used: “the directors chosen at such meetings (annual meetings) shall take their seats at the board on the 2d Monday in January in each and every year as aforesaid; and until the new directors take their seats the former board and president shall continue 'to manage the affairs of the company in the same manner as before such election, so that no risk shall be ruir of the affairs of said company being properly managed until the new directors form aboard.” And in a subsequent clause of the same section, it is provided, that “if it should happen that an election of directors should not be made upon any day when in pursuance of this act it ought to have been made, the said corporation shall not for that cause be deemed to be dissolved.” And though it is further said, “but it shall be lawful on any other day within ten days thereafter, to hold and make an election of directors in such manner as if said election were made on the day appointed by this act for holding such election,” yet it is said “it shall not be dissolved.” To be sure it is said in the act “it maybe lawful” to do something else. Now suppose the stockholders not to do this “something else,” yetthe corporation, as it is apprehended, is not dissolved, at least, unless such is the effect at the common law of a failure to elect. Let us suppose then that it cannot be derived from the statute, whether the old directors are to hold over or not, in a case of failure to elect new ones; how is this at common law?
    3. A failure to elect is no dissolution of the corporation, and in such case the old directors remain in office, at least, de facto, and their right to sue cannot be questioned in this collateral way. See Angel on Corporations, 75-6-7: See 2d Kent’s Comm., pages 294-5-6. Trustees of VernonSo. vs. Hills 6 Cowen, 23. Slee vs. Bloom, 5 John. Ch. Rep. 379. Silver Balee Bank vs. North, 4 John. Ch. Rep. 373. People vs. liemkin, 9 John. Rep. 147:10 Yerg. 218. And dicta sustaining the same doctrine in exparte Wilcox, 7 Cowen, 402: 4 Litt. 433, &c.
    In the cases in 6 Cowen and 5 John. Ch. Rep., the court say that the old officers may hold over, and that their authority cannot be enquired into except in a proceeding directly against them by the State, and not collaterally in an action by or against them. In the last case two years passed without an election; the court say, they proceeded colore officii, and that was enough in an action by or against them.
    Suppose the bank were sued, could it say there was no body to sue?
    The provisions in the 2d article, in regard to directors retaining their seats, certainly refers to other years than the year 1809, and to other directors than those to be chosen after the directors appointed in the act of 1807. For the clause says, “the directors chosen at such meetings,” of course the annualmeetings, and more than one. The words; “from and after the said 1st Monday in January, 1809,” mean merely that the directors after that time, in all timé, are to taire and keep their seats, See. Again, it is true, it is the duty of the stockholders to elect directors yearly, and it was expected that would be done, and that the old directors would only have to hold their seats a few days over theif time; yet if no new directors are elected in any year, are the old directors to go out and a much greater “risk” of mismanagement be run, than where there would be only an interregnum of a few days?
    The president and directors are hot an integral part of this corporation, which cannot be supplied.
    The legislature, when they say the corporation shall not be dissolved for the reason of failing to elect directors on the 1st Monday in the year, do not mean to designate a cause for which the corporation shall be dissolved; they mean only to say, if this be a cause generally it shall not be held so here, but we will provide a remedy for it, by election within ten days. If the legislature even supposed that this would be a cause of dissolution, in this they were mistaken, and certainly they did not mean to enact any new cause of dissolution.
    
      
      J. Campbell, for the defendant.
    The act or charter of incorporation evidently considers the corporation dissolved, if no election of directors is made on the first Monday in January, or within ten days thereafter; for it says, if the election, shall not be made on the first Monday in January, “the said corporation shall not for that cause be deemed to be dissolved, but such election may be made in ten days thereafter, according to the mode prescribed by the charter*.
    The conclusion is irresistible that if such election be not held at either period, on the first Monday in January, or within ten days thereafter, then the corporation for that cause, must “be deemed to be dissolved.”
    Why provide that the corporation shall not be dissolved by a failure to elect directors, if it would still continue in full life and not dissolved, though the failure had taken place?
    It is insisted, that when directors are elected, they shall continue to hold their offices until new directors are elected; and if new directors are never elected, the old ones continue to hold their appointments with full powers to manage the affairs of the company.
    This position is untenable. The charter says, “The first directors shall hold their offices until the first Monday in January, 1809, and until the new directors take their seats, which shall be on the second Monday, or within ten days after the first Monday, if the directors are not elected till that time, or not elected on the first Monday. The plain meaning then of these provisions is, that the new directors shall take their seats at the time prescribed, and until such time the old directors shall continue to manage the affairs of the company; but after the time has elapsed for the new directory to take their seats, the powers of the old directors shall expire.
    No election of directors having been made since the first Monday in January, 1838, the powers of the corporation in 1840, when this suit was directed to be brought by the directors elected in 1838, had ceased to exist.
    So much for the evident meaning and construction of the act of incorporation. This construction is in conformity with the general principles of law applicable to corporations. A corporation is the mere creature of the act creating it. It can do no act except in the mode prescribed by its charter. An incorporated town can only act by its Mayor and Aldermen, except in the election of its officers, which is done by the qualified voters. A bank can only act but through the medium of its directory, except in the election of directors, &c. When the stockholders of the bank become so situated that they cannot exercise their functions by electing directors, at the time and in the mode prescribed by the charter, and when there can be no directory to exercise the powers and faculties of the corporation, then it is dissolved, or which is the same thing so far as relates to this case, it can do no corporate act. The powers of the corporation are dormant at all events. All the authorities agree in this. All the cases cited on both sides in 2d Harrington’s, Delaware, Rep., p. 8, fully sustain this position.
    Chancellor Kent lays down the principle, that “a corporation may be dissolved, when an integral part of the corporation is gone, without whose existence the functions of the corporation cannot be exercised, and when the corporation has no means of supplying that integral part, and has become incapable of acting, the corporation becomes then virtually dead or extinguished.” See Kent’s Comm. 1st edition, p. 248: Rex vs. Morris, 3d East, 213: 4th East, 17: Phillips vs. Wickham, 1st Paige, Ch. Rep, 595,: Canal Company vs. Rail Road Company, 4th Gill & Johnson’s Rep. 121, where the distinction between a forfeited franchise which must be first judicially declared, and a dissolution by the loss of an integral part of a corporation is clearly laid down.
    The plaintiffs’ counsel argue the case, as though the charter had expressly provided, that at the beginning of every year, if no new directors were elected, the old ones should continue to act until a new directory took their seats, no matter when. This position cannot be maintained. The provision for the old directors continuing to act, is contained in the last clause of the 2d article of the 2d section of the bank charter, and it applies only to the directors appointed in the act of incorporation, and their successors elected on the 1st Monday in January, 1809. All directors elected by the stockholders, went out of office in one year after they were elected and took their seats, but the corporation was not to be dissolved if the election of the successors did not take place on the 1st Monday in January, in each and every year; but the new directors elected on the 1st Monday, or if not elected, but elected in ten days afterwards, might continue the existence of the corporation. So that if the new directors were not prepared to take their seats on the 2d Monday, but did take their seats under an election held in ten days, they could go on and do business, but the period which would elapse between the 2d Monday in January, the time when the new directory were to take their seats and the time when they actually did so, would be a period when the corporation, though in existence, could do no corporate acts. But even if the position of plaintiff’s counsel be correct, so far as to authorize the old directors when elected to hold their offices after the year, they could only hold them till the time fixed for the new directory to take their seats; they could not hold them in perpetuity, when no new directors were, or could be elected.
   Reese, J.

delivered the opinion of the court.

The Nashville Bank was incorporated in 1807. By that charter, the active corporate existence of the institution for ordinary banking purposes, was to close with the year 1818. By subsequent enactment its existence was prolonged for such purposes, for twenty years more, or until the close of the year 1838. No directors were elected after January, 1838, the president and directors in office supposing they had a right to hold over for the purpose of winding up the affairs of the Bank. The suit in this record was commenced, more than a year after the first day of January, 1838. Two general questions have been raised by the record, and discussed before us. 1st. Whether the powers and functions of the bank be extinct, that is, whether as a legal person the bank have any existence whatever, either actual or potential. And 2d. Whether it be dormant and incapable at present of maintaining this suit, or capable of maintaining it as brought in the name of the directors holding over. The counsel for the defendant maintains the truth of one or the other of these two propositions. The counsel for the plaintiff denies both, and asserts that the corporation under the circumstances which have occurred, is legally capable of maintaining this action. We felt it tobe our duty early in the term to announce orally the conclusions at which we had arrived, with regard to the first point, which was, that the corporation is not extinct. We felt no difficulty in arriving at this conclusion, because the 3d section of the charter .of 1807, expressly provides, “that the powers and obligations of the corporation shall in all respects continue, for the purpose of bringing the affairs thereof, which shall be depending on the 1st day of January, 1838, to a final settlement and determination.” We had only to hold that the subsequent acts of extension, incorporated themselves with this act of 1807, and gave the same operation and effect to the above provision, with reference to the period of 1838, that it had when enacted with reference to that of-1818.

Of the propriety of such a construction, we could not upon familiar and well settled principles entertain the shadow of a doubt.

2. The counsel on both sides have, therefore, directed their at'tention to the second question, as to whether the corporation be dormant or whether notwithstanding the non-election of directors after January, 1838, the bank be now legally capable to maintain this action, and this question has been argued on both sides with ingenuity and force. And first, as to how the question is at common law, when the charter of incorporation is silent on the point.

The authorities which have been examined by us, as to cases in England and New York, are far from satisfactory. The cases are so blended with principles more immediately applicable to municipal corporations, and municipal officers, acting sometimes de facto and colore officii, that it is difficult to say on which side, the weight of opinion is to be found.

And although we incline to believe that the tendency of the cases is, in the absence of terms in a charter restricting or enlarging the powers of the corporation upon this point, to maintain the authority of the officers who hold over without an election, still we cannot but feel after all, that the question, as chancellor Kent remarks, is not “definitely settled.” It becomes more important, therefore, for us to look into the statute, and see if we can find there any distinct purpose of the legislature on the subject. And waiving any reliance on the 20thfundemental article, which has been supposed to confer, on the directors in office at the termination of the year 1838, power and. duty of holding over, without any further election, for the purpose of closing and winding up the affairs of the association, we proceed to consider what is stated in the second article.

The charter appoints in that article, nine gentlemen, nomina-tim, as directors of the institution, who were to continue in office till the first Monday in January 1809. And then immediately after follows this provision: “The directors from and after that period, shall be elected for one year by the stockholders, for the time being-, at the place where the concerns or affairs of said bank are carried on, on the first Monday in January, in each and every year, during the continuance of the corporation. The directors chosen at such meetings, shall take their seats at the board, on the second Monday in January, in each and every year as aforesaid, and until the new directors take their seats, the former board and president shall continue to manage the affairs- of the company, in the same manner as before such election, so that no risk shall be run of the affairs of said company being- properly managed, until the new directors form a board, from and after the said first Monday in January in the year 1809.”

Here is a plain and explicit direction that an existing board of directors shall continue to sit, till a new board be organized and supersede them, and for an important reason, “that there may be no risk as to the affairs of the bank being properly managed.” The reason is a general one; it springs out of, and is intimately connected with general provisions covering the whole period of the corporation. But it is argued, that it is restricted by the concluding phrase, “from- and after the first Monday in January, 1809,” to mean the board appointed in the charter nominatim.

This is a very forced construction,, contradicting the grammatical structure of the sentence, and of several other sentences, inconsistent with the object and purpose of the provision, and making the phrase predicable, not of what is found in the sentence or in preceding sentences, but of something very remote; moreover, the phrase itself, “from and after the first Monday in January, 1809,” is not restricting but amplifying in its own proper meaning, covering the whole period of the corporation, and intending to declare and-make certain the general nature and character of the provision. So then we have here the usual provision found in charters, that the old board shall continue to act, till superseded by anew one. And the effectof this provision is not weakened or destroyed by the subsequent declaration that a failure to elect directors on the 1st Monday in. January, shall not dissolve the corporation, but it shall be lawful to elect them at any time within ten days thereafter. To be sure the election for any one year, cannot take place, except on the first Monday in January or within ten days thereafter. But such omission to elect will not vacate the seats of the old board. They will .continue to sit, in order that there may be no risk that the affairs of the bank may not be properly conducted. This provision is proper, important and usual; and therefore ought to receive a favorable construction.

. Upon the whole, then, we are of opinion that the directors are in office for the purpose of maintaining this suit.