Source: https://www.legalcrystal.com/case/79604/beaston-vs-farmers-bank-delaware
Timestamp: 2019-04-25 14:22:30+00:00

Document:
First, that no lien is created by the statute.
Second, the priority established can never attach while the debtor continues the owner, and in the possession of the property, although he may be unable to pay all his debts.
Thirdly, no evidence can be received of the insolvency of the debtor until he has been divested of his property in one of the modes stated in the section.
Fourthly, whenever the debtor is thus divested of his property, the person who becomes invested with the title is thereby made a trustee for the United States and is bound to pay the debt first out of the proceeds of the debtor's property.
All debtors to the United States, whatever their character and by whatever mode bound, may be fairly included within the language used in the fifth section of the act of Congress. And it is manifest that Congress intended to give priority of payment to the United States over all other creditors in the cases stated therein. It therefore lies upon those who claim exemption from the operation of the statute to show that they are not within its provisions.
Corporations are to be deemed and considered persons within the provisions of the fifth section of the Act of Congress of 1797, and the priority of the United States exists as to debts due by them to the United States.
Bank of Delaware. The money thus attached by the Farmers' Bank of Delaware in the hands of a debtor to the Elkton Bank by legal process before the issuing of the attachment in behalf of the United States was bound for the debt for which it was first legally attached by a writ, which is in the nature of an execution, and the right of a private creditor thus acquired, could not be defeated by the process subsequently issued at the suit of the United States. If the district court of the United States has a right to appoint receivers of the property of an insolvent bank which is indebted to the United States for the purpose of having the property of the bank collected and paid over to satisfy the debt due to the United States by the bank, this would not be a transfer and possession of the property of the bank within the meaning of the act of Congress, and the right of the United States to a priority of payment would not have attached to the funds of the bank.
The Legislature of Maryland passed an act authorizing the stockholders of the Elkton Bank to elect trustees, who were to take possession of the funds and property of the bank for the purposes of discharging the debts of the bank and distributing the residue of the funds which might be collected by them among the stockholders. This, had the law been carried into effect, was not such an assignment of all the property of the bank as would entitle the United States to a priority of payment out of the funds of the bank.
No one can be divested of his property by any mode of conveyance, statutory or otherwise, unless at the same time and by the same conveyance the grantee becomes invested with the title. The moment the transfer of property takes place, the person taking it, whether by voluntary assignment or by operation of law, becomes, under the statute, bound to the United States for the faithful performance of the trust.
The cases of United States v. State Bank of North Carolina, 6 Pet. 29; United States v. Amedy, 11 Wheat. 392; 6 Cond. 362; United States v. Fisher, 2 Cranch 358; 1 Cond. 421; United States v. Hooe, 3 Cranch 73; 2 Cond. 458; Price v. Bartlett, 8 Cranch 431; Conrad v.
Atlantic Insurance Company, 1 Pet. 439; Conard v. Nicholl, 4 Pet. 308; Brent v. Bank of Washington, 10 Pet. 596; Hunter v. United States, 5 Pet. 173, cited.
This suit was commenced in the Cecil County Court of the State of Maryland in September, 1830, by an attachment issued at the instance of the Farmers' Bank of Delaware against the Elkton Bank of Maryland. To this writ the sheriff in October, 1830, returned that he had goods and chattels, rights and credits of the defendants, the Elkton Bank of Maryland, in the hands of George Beaston to the amount of five hundred dollars to the use of the plaintiffs in the attachment.
at the January term, 1832. At the April term, 1830, of the circuit court, a bill in equity was filed against the said bank at the suit of the United States, and Nathaniel Williams and John Glenn were appointed, by an order of court, receivers, with authority to take possession of the property of the said bank, to dispose of the same, and to collect and debts due to it."
"The proceedings by the United States against the Elkton Bank, and the acts of the receivers, Mr. Williams and Mr. Glenn, were made a part of the agreement as to the facts of the case."
"At December session, 1829, application was made to the Legislature of Maryland by the several persons who were the acting presidents and the acting directors of the said bank for the act which was passed at that session, ch. 170, which, with all other acts relating to said bank, are to be considered as part of this statement."
the affirmation of the judgment of the circuit court by the Supreme Court, an attachment was issued by the United States, and the other proceedings had, as appeared by the records of the circuit and Supreme Courts of the United States, which were made part of the case. Beaston has actually paid, and satisfied the United States, the amount for which judgment of condemnation was rendered against him in the circuit court. It is admitted that up to the time of the decision in the Supreme Court, the said receivers never had collected or received, or by any process of law attempted to collect or receive the said debt attached in this case. The question for the opinion of the Court is whether the plaintiff can sustain the present attachment."
"By the record of the proceedings in the Circuit Court of the United States for the District of Maryland, it appeared that upon the judgment obtained in December, 1829, against the Elkton Bank of Maryland, the United States, on 2 July, 1831, issued an attachment against the effects of the Elkton Bank, which attachment was laid on the effects of the bank, in the hands of George Beaston, on 19 October, 1831."
"The answers to the interrogatories filed on behalf of the United States by George Beaston stated"
" That prior to the time of laying the attachment in this cause, he was indebted to the Elkton Bank of Maryland in the sum of five hundred dollars or thereabout, with interest from sometime in 1828 (the period not now exactly recollected); that in October in the year 1830, an attachment at the suit of the Farmers' Bank of Delaware against this deponent, as garnishee of the Elkton Bank of Maryland aforesaid, was served on him, returnable to Cecil County Court, where the said attachment last mentioned is still depending; that at the time of the service of the attachment in this cause at the suit of the United States, the said sum of five hundred dollars and interest was in the hands of deponent, and still remain so, who claims to retain the same, as he is held liable to the payment of the attachment first served on him, at the suit of the Farmers' Bank of Delaware aforesaid, and as he considers himself entitled to a setoff as is hereinafter stated. Deponent further says that he does not exactly recollect the time when said debt was contracted, as he has had various negotiations with said bank, but that at the time he received money from said bank as a consideration for his debt, it was received in the notes of the said Elkton Bank, which were then, as he believes, in a state of depreciation of from ten to twenty percent on their nominal value. "
" That since the service of the summons in this cause, he has not paid to the Elkton Bank aforesaid or to any other person for the use of said corporation any part of the money aforesaid, nor has he made any transfer of goods, property, or effects to secure the payment thereof or any part thereof; that he is the bona fide holder and owner of notes of the Elkton Bank aforesaid, of the value nominally of eight hundred and forty-two dollars and thirty-one cents, and he claims to setoff against any demand made in this, or any other proceeding against him, for the debt aforesaid so many of the said notes at their nominal value as may be equal to the sum claimed from him in this attachment as garnishee of said bank."
"George Beaston also filed a plea of nulla bona, in the following words:"
" That the said United States of America, condemnation of the said sum of money in the attachment aforesaid, and return thereof specified in the hands of him, the said George Beaston, as of the goods, chattels and credits of the said president and directors of the Elkton Bank of Maryland, ought not to have, because he saith that the said George Beaston, at the time of laying the said attachment in the hands of him, the said George Beaston, he had not, nor at any time since hath had, nor now hath, any of the goods, chattels, or credits of them, the said president and directors of the Elkton Bank of Maryland in his hands, and this he is ready to verify. Wherefore he prays judgment whether the said United States of America, condemnation of the said money in the attachment aforesaid, and return thereof specified, as of the goods, chattels, and credits of the said president and directors of the Elkton Bank of Maryland, in the hands of him, the said George Beaston, to have, ought, and so forth."
"The United States filed a replication to this plea, and issue being joined, the parties went to trial on the pleadings, and a verdict was found by the jury in favor of the United States for six hundred and eighty-five dollars and sixty-six cents."
On the case thus agreed on and the matter set forth and referred to in the same, the Cecil County Court gave a judgment in favor of George Beaston, and the plaintiffs appealed to the High Court of Appeals of the State of Maryland. The judgment of the Court of Cecil County was reversed by the Court of Appeals of Maryland, and the defendant prosecuted this writ of error to the Supreme Court of the United States.
to insolvency in its technical sense. In 1810, the same court decided that the term 'insolvency,' as used in the first acts, and 'bankruptcy,' as used in the latter acts, are synonymous terms. That priority must be confined to the cases of insolvency specified in the act, and that insolvency must be understood to mean a legal, known insolvency, manifested by some notorious act of the debtor pursuant to law, not a vague allegation which, in adjusting conflicting claims of the United States and individuals against debtors, it would be difficult to ascertain. 12 U. S. 8 Cranch 431. The same construction has been maintained in 15 U. S. 2 Wheat. 396 and 29 U. S. 4 Pet. 386, and in a very recent case, MR. JUSTICE THOMPSON says:"
"The act looks to a legal insolvency, where the property is taken up by the law for distribution among the creditors of the debtor. There is no difficulty in the construction of the statute until we arrive at the last phrase, 'legal bankruptcy.' What is legal bankruptcy? In 1797, when the act of Congress was passed, the United States had no bankrupt laws. The words, in their connection, seem to have reference to the previous cases put in the section, and to point out some legal insolvency or some mode of proceeding by which the property of the debtor is taken out of his hands to be distributed by others; Paine's C.C.R. 629. Such being the construction of the acts of Congress giving the government a preference, we proceed to inquire whether the Elkton Bank was in such a situation as to impart to the United States this preference."
"The above facts demonstrate the inability of the Elkton Bank to pay her debts, as admitted in the statement, they could not per se give to the United States the preference contended for. It must, in the language of the authorities, be a known and legal insolvency, the former of which is not admitted and the latter could not be predicated of such a condition."
of the time and place of holding the election of directors annually, and it was furthermore, by a supplement to the said charter, required that the election for directors should take place on the fourth Monday of May."
punish such as might cover it, or portions of it, by execution or attachment. The period when it might and ought legally to be considered as under the mantle of legal protection should be the time when a court of chancery would interpose by attachment for disturbing or interfering with the possession of the receiver."
"Innocent third persons might be previously affected by extending this doctrine further. It has been argued, and we think with much force, that there is and ought to be an analogy in this respect between the law applicable to receivers and sequestrators. As regards the letter, the Court of King's Bench has decided that when a sequestration is awarded to collect money to pay a demand in equity, if it is not executed -- that is, if the sequestrators do not take possession and a judgment creditor takes out execution notwithstanding the sequestration awarded -- there may be a levy under the execution. East's Rep. 9 vol. 335."
steps, in the predicament in which he was placed, to defend and protect his interests, it is but fair that he should suffer the consequences. Had notice been given of this attachment by the United States, the plaintiff might have vindicated his rights and had an opportunity of asserting his anterior lien and of obtaining the decision of the appellate court, had it become necessary. Nor is it prescribed why it would not have been competent for the defendant, in this conflict of claims against him, to have brought the conflicting parties into chancery, where the rights and priority of each might have been adjudicated without prejudice to him. But, last of all, would the defendant be entitled to avail himself of the judgment of the United States recovered against him, since, from the examination of the record of that suit, it appears that his defense was taken solely on the plea of nulla bona -- a defense which could certainly have been of no avail when it appeared, by the answers filed in the interrogatories of the United States, that he was indebted to the Elkton Bank of Maryland, although in the answers he adverts to the attachment issued against him by the Farmers' Bank of Delaware, he has not plead such prior attachment as pending against him, whereby he could obtain the opinion of the court in relation to its priority. In every aspect, therefore, in which we can view the decision below, we are brought to the conclusion that it cannot be sustained."
"Judgment reversed, and judgment on the case stated for appellant. "
MR. JUSTICE McKINLEY delivered the opinion of the Court.
The defendant in error sued out and prosecuted a writ of attachment fieri facias against the plaintiff in error in said county court upon a judgment, previously obtained against the Elkton Bank of Maryland upon which the sheriff returned that he had attached goods and chattels, rights and credits, of the president and directors of said Elkton Bank in the hands of the plaintiff in error the sum of five hundred dollars.
relating to said bank, are to be considered as part of this statement. A meeting of the stockholders, convened on 17 May, 1830, which was the third Monday of said month, but without the notice mentioned and required by the act incorporating the bank, and its supplements, and at the said meeting a majority of the stockholders appointed two trustees in conformity with the provisions of said act, who declined accepting, and no trustees have ever since been appointed, nor has there since been an annual or other meeting of the stockholders or an election of directors, nor have there been any banking operations carried on by any persons professing to be the corporation of the Elkton Bank since March, 1829."
"At September term, 1828, the Elkton Bank obtained a judgment against George Beaston for the sum which is attached in this suit, which, at the time of issuing and service of this attachment, had not been paid by Beaston. At April term, 1830, the Farmers' Bank of Delaware obtained, in Cecil County Court, a judgment against the president and directors of the Elkton Bank for five thousand dollars, with interest from 9 December, 1825, till paid, and costs, and before the appointment and bonding of the receivers, as aforesaid, and on 24 September, 1830, upon that judgment issued this attachment, and attached, in the hands of said Beaston, the sum of five hundred dollars, and after this attachment was issued and served, and after the affirmation of the judgment of the circuit court by the Supreme Court, attachment was issued by the United States, and the other proceedings had, as appears from the record marked B, and Beaston has actually paid and satisfied to the United States the amount for which judgment of condemnation was rendered against him in the circuit court. It is admitted that up to the time of the decision in the Supreme Court, the said receivers had never collected or received, or by any process of law attempted to collect or receive, the said debt attached in this case. The question for the opinion of the court is whether the plaintiff can sustain the present attachment?"
Whereupon the court rendered judgment in favor of the defendant, and upon an appeal taken by the plaintiff, the Court of Appeals reversed the judgment of the county court.
First, the Elkton Bank of Maryland is a person, within the meaning of the Act of Congress of 3 March, 1797, giving priority of payment to the United States.
United States the amount which he owed to the Elkton Bank, is not liable to the defendant in error.
Thirdly, the appointment of receivers by the circuit court, with power to take possession of the property of the bank and to sell and dispose of the same and to collect all debts due to it, was such an assignment of its property as to give the right of priority to the United States.
Fourthly, the election of trustees by the stockholders of the bank under the act of the Maryland Legislature was also such an assignment of the property of the bank as to give the right of priority to the United States, and for these reasons they contended, the judgment of the Court of Appeals ought to be reversed.
The counsel for the defendant in error resisted all the grounds assumed by the counsel for the plaintiff in error and insisted that, by a fair construction of the fifth section of the act and the former adjudications of this Court, the priority therein provided for did not attach to the fund belonging to the Elkton Bank in the hands of the plaintiff in error.
"That when any revenue officer or other person hereafter becoming indebted to the United States by bond or otherwise shall become insolvent, or where the estate of any deceased person in the hands of executors or administrators shall be insufficient to pay all the debts due from the deceased, the debt due to the United States shall be first satisfied, and the priority hereby established shall be deemed to extend as well to cases in which a debtor, not having sufficient property to pay all his debts, shall make a voluntary assignment thereof or in which the effects of an absconding, concealed, or absent debtor shall be attached by process of law, as to cases in which an act of legal bankruptcy shall be committed."
property. United States v. Fisher, 2 Cranch 358; United States v. Hooe, 3 Cranch 73; Prince v. Bartlett, 8 Cranch 431; Conard v. Atlantic Insurance Company, 1 Pet. 439; Conard v. Nicholl, 4 Pet. 308; Brent v. Bank of Washington, 10 Pet. 596.
If the Elkton Bank of Maryland is not a "person" within the meaning of the act, no law of Congress was drawn in question in the court below, and consequently, the question of priority did not arise. That court having decided upon the legal effect of the several acts done by the circuit court of the United States, and also upon the legal effect of the election of trustees by the stockholders of the bank, under the act of Maryland, which several acts were relied upon by the plaintiff in error as being an assignment of all the property of the bank or as constituting an act equivalent to such an assignment, the question whether the bank is a "person" within the meaning of the act of Congress was necessarily decided. It lies at the foundation of the whole proceeding, and if we now decide, that the bank is not a "person" within the meaning of the act under the 25th section of the Judiciary Act of 1789, it will be our duty to dismiss the writ of error for want of jurisdiction. Inglis v. Coolidge, 2 Wheat. 363; Miller v. Nicholls, 4 Wheat. 311; Crowell v. Randell and Shoemaker v. Randell, 10 Pet. 368. McKinney v. Carroll, decided at the present term of this Court. We must therefore inquire whether the bank is a "person" within the meaning of the act of Congress.
All debtors to the United States, whatever their character and by whatever mode bound, may be fairly included within the language used in the fifth section of the act of Congress. And it is manifest that Congress intended to give priority of payment to the United States over all other creditors in the cases stated therein. It therefore lies upon those who claim exemption from the operation of the statute to show that they are not within its provisions. No authority has been adduced to show that a corporation may not, in the construction of statutes, be regarded as a natural person, while, on the contrary, authorities have been cited which show that corporations are to be deemed and considered as persons when the circumstances in which they are placed are identical with those of natural persons expressly included in such statutes. As this statute has reference to the public good, it ought to be liberally construed. United States v. State Bank of North Carolina, 6 Pet. 29. As this question has been fully decided by this Court, other authorities need not be cited.
"Another question, not raised in the court below, has been raised here, and upon which, as it is vital to the prosecution, we feel ourselves called upon to express an opinion. It is that a corporation is not a 'person' within the meaning of the act of Congress. If there had been any settled course of decisions on this subject in criminal cases, we should certainly, in a prosecution of this nature, yield to such a construction of the act. But there is no such course of decision. The mischief intended to be reached by the statute is the same whether it respects private or corporate persons."
"Finding, therefore, no authority at common law which overthrows the doctrine of Lord Coke, we do not think that we are entitled to engraft any such constructive exception upon the text of the statute."
This case, we think, is decisive of the question. And the fact that the Elkton Bank cannot be brought within all the predicaments stated in the statute proves nothing if it can be brought within any one or more of them.
The record in this case abundantly proves that a bank may become largely indebted to the United States and not have property sufficient to pay all its debts. If to these facts were superadded the fact of a voluntary assignment by the bank of all its property in any mode authorized by law, the right of the United States to priority would be clearly established.
Bank of Delaware against him as garnishee of the Elkton Bank of Maryland was served on him, returnable to Cecil County Court, where said attachment was still depending. The money thus attached in the hands of the plaintiff in error by legal process before the issuing of the attachment in behalf of the United States was bound for the debt for which it was legally attached by a writ which is in the nature of an execution, and the right of a private creditor thus acquired could not be defeated by the process subsequently issued on the part of the United States. Prince v. Bartlett, 8 Cranch 431.
We are next to inquire into the legal effect of the appointment of receivers by the circuit court. Without deciding whether a circuit court of the United States has authority in a case like this to appoint receivers with power to take possession of all the property of a debtor of the United States, it is sufficient to say in this case that it does not appear that the power conferred on the receivers was ever executed, and if it had been, it would not have been a transfer and possession of the property of the Elkton Bank within the meaning of the act of Congress, and therefore the priority could not have attached to the funds in their hands.
The only remaining question is whether the election of trustees by the stockholders of the Elkton Bank under the statute of Maryland was such an assignment of all the property of the bank as would entitle the United States to priority of payment out of its funds. In the investigation of this branch of the subject it is not necessary to inquire into the regularity of the election of the trustees. Suppose it to have been perfectly regular in all respects, did it so operate as to divest the Elkton Bank of its property? No one can be divested of his property by any mode of conveyance, statutory or otherwise, unless at the same time and by the same conveyance the grantee becomes invested with the title. As the trustees refused to accept the trust, none was created, and the election thereby became inoperative and void, and the property remained in the bank. Brent v. Bank of Washington, 10 Pet. 611; Hunter v. United States, 5 Pet. 173.
to which the priority of the United States could attach; there was no one authorized or bound to execute a trust under the statute. Therefore, no legal bar was opposed to the right of recovery and satisfaction of the debt due by the Elkton Bank to the defendant in error.
Upon the whole, it is the opinion of the Court there is no error in the judgment of the Court of Appeals.
I dissent from so much of the opinion delivered by the Court in this case as decides that a corporation is a "person" within the sense of the 5th section of the Act of 1797, ch. 74. I have no doubt whatsoever that in a legal and technical sense, a corporation is a person, and that under that denomination it may be included within the provisions of a statute, where the language and provisions and objects of the statute equally apply to corporations and to private persons. My dissent is founded upon this ground that neither the language nor the provisions of the 5th section of the Act of 1797, ch. 74, are applicable to the case of corporations, but that they apply exclusively to private persons and cannot, without violence to the words and the objects of that act, be strained so as to reach corporations. I think that the persons intended by the act are such persons only as may be brought within each of the predicaments stated in the act.
"That where any revenue officer or other person hereafter becoming indebted to the United States, by bond or otherwise, shall become insolvent, or where the estate of any deceased person, in the hands of executors or administrators, shall be insufficient to pay all the debts due from the deceased, the debt due to the United States shall be first satisfied, and the priority hereby established shall be deemed to extend as well to cases in which a debtor, not having sufficient property to pay all his debts, shall make a voluntary assignment thereof, or in which the effects of an absconding, concealed or absent debtor shall be attached by process of law, as to cases in which an act of legal bankruptcy shall be committed."
or estate in the hands of executors or administrators. The other class of cases is of insolvency inter vivos. Which are these? First, cases in which a debtor not having sufficient property to pay all his debts shall make a voluntary assignment thereof -- that is, of all his property. It certainly is practicable for a corporation to be in this predicament if by its charter and constitution it is capable of making such a general assignment. But I must say that, independent of some special and positive law or provision in its charter to such an effect, I do exceedingly doubt if any corporation, at least without the express assent of all the corporators, can rightfully dispose of all its property by such a general assignment, so as to render itself incapable in future of performing any of its corporate functions. That would be to say that a majority of a corporation had a right to extinguish the corporation by its own will and at its own pleasure. I doubt that right -- at least unless under very special circumstances. Secondly, cases of an absconding, concealed or absent debtor. Now it is plain that in no just sense can a corporation be brought within the terms of this predicament. Thirdly, cases of legal bankruptcy. Such cases do not exist in relation to corporations. The general bankrupt laws of England have never been held to extend to corporations; neither have the general insolvent laws of the several states in this Union, where they exist, ever been extended to corporations. Now my argument is this, and I wish to put it into the most precise and concise form -- that the fifth section of the Act of 1797, ch. 74, was never intended to apply to any debtors or persons who were not and might not be within everyone of the classes of predicaments above stated. Corporations cannot be within three out of the four predicaments above stated, and therefore I hold that the legislature never could have intended to embrace them within the provisions of the section.
respects the beforementioned questions of the validity or construction of the said Constitution, treaties, statutes, commissions or authorities in dispute."
The preceding part of the same section authorizes the writ of error only when the decision of the state court has been against the validity or construction of the Constitution, treaties, statutes, commissions or authorities stated in the section. So that it is manifest, and so has been the uniform course of this Court, that no question not made in the court below, on which its judgment ultimately turned, can be made, or is reexaminable here. I have already said that it is apparent upon this record that no such point arose or decision was made in the Court of Appeals of Maryland, and therefore I cannot but consider the decision here pronounced upon it as coram non judice, and in no just sense obligatory upon us or upon our successors.
I know that my brother, MR. JUSTICE BARBOUR, held the same opinion as I do on this question. His departure from the Court before the opinion in this case was pronounced does not entitle me to speak further in his behalf.
MR. JUSTICE BALDWIN concurred with MR. JUSTICE STORY in the opinion delivered by him, and with the majority of the Court in affirming the judgment of the Court of Appeals.
MR. JUSTICE McLEAN concurred with MR. JUSTICE STORY.
This cause came on to be heard on the transcript of the record from the Court of Appeals for the Eastern Shore of Maryland and was argued by counsel. On consideration whereof it is now here adjudged and ordered by this Court that the judgment of the said Court of Appeals in this cause be and the same is hereby affirmed with costs.

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