Case Name: Commonwealth against Bank of Pennsylvania. In Equity
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1842-03
Citations: 3 Watts & Serg. 184
Docket Number: 
Parties: Commonwealth against Bank of Pennsylvania. In Equity.
Judges: Huston, J. also dissented.
Reporter: Reports of cases adjudged in the Supreme Court of Pennsylvania (Watts & Sergeant)
Volume: 3
Pages: 184–215

Head Matter:
Commonwealth against Bank of Pennsylvania. In Equity.
The plaintiff’s bill charged, that the defendants were depositors and trustees for the plaintiff of large sums of public moneys, which they threatened to apply to their own use, and that they had misapplied and converted to their own use large portions thereof, and prayed an injunction to restrain them from paying out said trust moneys, or assigning any of their effects, on which an injunction issued after notice, and without objection. Afterwards, by consent, the defendants were allowed to pay to the use of the plaintiff the amount deposited and the current expenses of the Bank, without prejudice. The defendants, some time after, filed their answer, denying that they were trustees, and that they had received the moneys otherwise than as deposits in the usual course of business, and answering the other parts of the bill, and praying a dissolution of the injunction. An Act of Assembly was then passed to enable the defendants to make an assignment, which, in the first section, enacted that such assignment should be made, if approved by the stockholders; provided, the Commonwealth should have a right of voting in the election of assignees proportioned to her number of shares. The other sections prescribed the duties and powers of the assignees, and the last section declared, that before any assignment should be made, the defendants should pay the debt due to the Commonwealth. The stockholders resolved to assign, and elected assignees, but the election was held void by the Supreme Court, in consequence of the imperfections of the proviso, in relation to the number of votes the plaintiff was entitled to. Held, that the other parts of the Act remained in force and effect, and by them the Commonwealth was secured a priority of payment, and that the injunction ought not to be dissolved.
The equity powers of the Supreme Court are, as to individuals, circumscribed within narrow limits ; but over corporations they are general and unlimited, and to be exercised in the ordinary mode of a court of chancery.
If a corporation is trustee, and the plaintiff has' a priority of payment, injunction lies to restrain a misapplication of their funds. ’
ON the 31st January 1842, the attorney-general, on behalf of the commonwealth, filed a bill against the defendants, setting forth that “ The President, Directors and Company of the Bank of Pennsylvania,” being a banking corporation, the chief place of business of which is situate in the city of Philadelphia, established under and by authority of the laws of the said commonwealth, is made and constituted by'said laws, the depository of the public moneys of the said commonwealth- That in pursuance of the requisitions of the laws of the said' commonwealth, large sums of the said public moneys have been .deposited with said banking corporation from time to time, amounting to the sum of $800,000 and upwards, which said sum now is in the custody, charge, and keeping of the said “ The President, Directors and Company of the Bank of Pennsylvania,” held and kept in trust to be faithfully-applied and paid over by them to such purposes and uses as the laws of said commonwealth direct and prescribe. That said laws direct and prescribe, that the sum of money on deposit as aforesaid, shall be on the 1st day of February next ensuing, paid over and applied to the liquidation and discharge of the semi-annual interest due by the said commonwealth on that day, to the respective holders of the certificates of loans made to said Commonwealth under authority of its- laws. But now so it is, may it please your honours, the said President, Directors and Company of the Bank of Pennsylvania, in violation of the said trust confided to them, and intending to disregard the same, refuse to comply with said requisitions of the laws of this commonwealth, to pay and apply the said sum of $800,000 and upwards, moneys of this commonwealth as aforesaid, to- the uses and purposes designated by law, for which said money was received. And- as the said Ovid F. Johnson charges, threaten and intend to apply the said sum of money to their own use, in utter disregard of the obligations and duty created by law, and imposed on them, the said defendants, as the depository of the public moneys as aforesaid, unless they are restrained therefrom by the immediate injunction of this honourable court.
And the said Ovid F. Johnson, attorney-general as aforesaid, further charges, that the said defendants nave misapplied and converted to their own use, large portions of the public moneys deposited with them, on the trust and for the purposes above set forth, and that great loss and detriment will result to the said commonwealth of Pennsylvania, unless all the real and personal estate and all the assets of all sorts and kinds whatsoever, together with all books, notes, vouchers, and so forth, be secured under the order and direction of the court in such manner, and in the hands of such agents or officers as to the said court may seem meet. All which actings, doings, and refusals, are contrary to equity and good conscience, and tend to the manifest wrong and injury of the said commonwealth in the premises. In consideration whereof, and forasmuch as your orator in behalf of said commonwealth can only have adequate relief in a court of equity, where matters of this kind are properly cognizable and relievable, and in the mode now pursued, to the end therefore, that the said President, Directors and Company of the Bank of Pennsylvania, may, on their oaths, to the best and utmost of their knowledge, remembrance, information and belief, full, true, direct, and perfect answers make to all and singular, the matters aforesaid, and that as fully and particularly, as if the same were here repeated, and they and every of them distinctly interrogated thereto; and more especially that they the said defendants may in manner aforesaid answer and state, first, whether they the said defendants, did not receive on deposit, the sum of money aforesaid, belonging to the said commonwealth of Pennsylvania, to and for the trusts, uses, and purposes aforesaid: secondly, whether the said sum of money, or any part of it, has been misapplied and converted to the uses of the said defendants, and if so, how much. Thirdly, whether they the said defendants do not threaten and intend to refuse to pay over the said sum of money to and for the trusts and uses for which the same was received. And fourthly, whether they, the said President, Directors and Company of the Bank of Pennsyvania, are not now wholly unable and unwilling to pay to the said commonwealth, or to the purposes directed by law, the whole or any part of the said sum of money deposited in the manner aforesaid, for the uses aforesaid, and whether the said commonwealth is not in great hazard of losing the same. And that said defendants may answer the premises; and that a full and true account may be taken of every the said trust moneys, the sum received on deposit by said defendants, the sum misapplied and converted to their own use. The property of all kinds whatsoever, real, personal, and mixed, in possession of, and belonging to said defendants, and that they shall be decreed to pay the amount which seems to be due to the said commonwealth on such account. And that in the mean time, some proper persons may be appointed to take charge of such trust estate, and effects, and all the estate and effects belonging to said defendants. And that said defendants may be restrained by the order and injunction of this honourable court, from paying out any of their said trust moneys, or any other moneys, or from selling, assigning, transferring or delivering any of their real or personal estate or effects of any sort whatsoever, to or for any purpose whatsoever. And further may it please your honours, to grant unto your orator the commonwealth’s writ of subpoena, &c.
Annexed was an affidavit by Job Mann, Esq., that he is the State Treasurer of the Commonwealth of Pennsylvania, duly elected according to law. That public moneys to the amount of $800,000 and upwards, belonging to the commonwealth, have been deposited in pursuance of law, in the Bank of Pennsylvania, (and its branches). That said public moneys were to be, and ought to be forthcoming to pay the semi-annual interest on the public debt falling due on the 1st day of February, to wit, to-morrow. That said deposit was made on this trust and for this use in said bank. That this deponent has reason to believe and does believe that said President, Directors and Company of the Bank of Pennsylvania do not intend to pay and" apply said money thus deposited to the uses for which said deposit was made, but that they do intend, and unless restrained therefrom by the order of this court, will convert the same to their own use or to other uses in violation of law.
An injunction was thereupon issued, (not being objected to by the defendants), reciting the allegations of the bill, and enjoining the defendants from paying out any of the trust moneys aforesaid, or other moneys, or from selling, assigning, transferring or delivering any of their real or personal estate or effects whatsoever to or for any purpose whatsoever, until the hearing of this cause by the court.
On the 14th of February followihg, it was, on motion of the attorney-general, ordered that the -injunction in the above case be so far modified that the defendants shall be at liberty to pay to the treasurer of the comriionwealth the amount deposited with them by the commonwealth; and also the current expenses of the bank.
The above order was made without prejudice to the rights of either party.
On the 17th of February, an answer was affirmed to and filed, setting forth that “ the Bank of Pennsylvania is a banking institution, duly incorporated and established by the laws of the Commonwealth of Pennsylvania, under the corporate name of the President, Directors, and Company of the Bank of Pennsylvania; and that the chief place of business’of said bank, is in the city of Philadelphia.
That various sums of money of said commonwealth, have been from time to time, remitted to, and deposited with said defendants, and that the sums of money so remitted to and deposited with the said defendants by the said commonwealth, amount to the sum of $782,819.56, the whole of which was received by said defendants in notes and checks on other banks, and more than one-half thereof, in notes of, and checks on the Girard Bank, in the city of Philadelphia ; that they have endeavoured to dispose of as large a portion of their Girard Bank funds, as was in their power, and that there is still due to them, the sum of $80,000 and upwards, from the said bank. - •
And further that they received the said moneys of the said commonwealth to the amount aforesaid in the usual course of their business, in the same manner, upon the same terms, and under the same obligations, as they have received the moneys of all other depositors, during the whole time of their existence as a banking corporation', and upon no other terms, conditions, or obligations whatsoever.
That the usual course of the business of the said bank has been, at all times, to use the deposits made in said bank, in the discount of notes, the payment of checks, or for any other purpose, which the necessities or convenience of the said bank might require, and to pay such deposits at all times on demand!
That this mode of using the deposits made with said bank, was or ought to have been known, and understood by the depositors, and particularly to the agents of the commonwealth, who deposited the said public moneys with defendants, with the knowledge that said bank Would use said funds, as some compensation for the trouble and expense of disbursing the same in the payment of the interest due by the commonwealth to the holders of certificates of loans made to Said commonwealth. That for this purpose they employed a clerk, with a salary, purchased books, and incurred other expenses, fbr which they were to receive no remuneration or compensation from the commonwealth, except the privilege they enjoyed of using the said funds as aforesaid.
And these defendants further answering, deny that they have, in violation of the trust confided to them, refused to comply with the laws of this commonwealth, or refused to pay any sum or sums of money due by the said defendants to the said' commonwealth or to any person or persons whomsoever, until' they were enjoined from so doing, by this honourable court.
That they have kept a general account with the Commonwealth of Pennsylvania, as with their other depositors, and that they have never paid the interest due on the loans made to' the commonwealth or other debts or orders of the commonwealth, except when a draft has been regularly made on them for that purpose, and that no order' or draft has been received' by them, for the balance due by them to the commonwealth.
And these defendants further answering say: that they have received from the Commonwealth of Pennsylvania the sum of $782,819.56, $68,437.55 at their branch at Harrisburg, and $2375 at their branch at Easton, on deposit, in the manner and upon the terms hereinbefore set forth. That is to say: the commonwealth has deposited notes of, and checks on various banks in the state of Pennsylvania, none of which have paid any of their liabilities in gold or silver, since the 5th day of February last; and one of which, (the Girard Bank), has recently become embarrassed, and suspended payment, and its notes have entirely ceased to be current. For the deposits thus made the commonwealth has received a general credit on the books of the respondents, and has the right of drawing for the amount thereof■ checks or drafts for sums of money; but not checks or drafts payable in the particular notes or checks whereof the deposit was composed.
That these defendants supposed and believed that the said moneys would be required by the commonwealth to pay the interest to become due on the 1st of February 1842, and fully expected and were prepared to pay said money, whenever required to do so; but that owing to the failure of the Girard Bank, the refusal of the other banks in the city of Philadelphia to receive respondents’ notes, the loss of public confidence, and the unexpected withdrawal of large sums of money by depositors and noteholders, on three successive days, immediately preceding the 31st day of January 1842, they could not have paid on the 1st of February 1842, the amount due said commonwealth, except in their own notes. That they have been, and still are, earnestly desirous to relieve the commonwealth from any inconvenience from their inability to pay their deposits in current funds.
That they have mixed the funds deposited by the commonwealth with the funds deposited by others, and with their own funds, in the usual course of business of this and all other banking institutions, so that they can no longer be-distinguished.
That they never have threatened nor refused, nor intended to refuse, according to the allegation in the said bill, to pay over any sum or sums of money, to and for the trusts and uses, for which the same were received, but have been and are unable by reason of the causes hereinbefore set forth to pay the sums of money received from the commonwealth, at the present time, or until from a better state of the currency, they can collect their debts, and convert their estate and effects into money.
That they have property more than sufficient to pay any sum or sums of money they may owe to the commonwealth, or to others.
And these respondants further answering, say: that, to the best of their knowledge and belief, the said commonwealth is not in the slightest danger of losing any money due to them by the defendants, as will more fully appear from the exhibit hereunto annexed, marked (A), setting forth the estate and effects of the said defendants and their liabilities, and which they pray may be taken as part of their answer.
And these defendants deny that they have in any way misapplied the funds of the said Bank of Pennsylvania, or done, or authorized to be done, any act, matter, or thing, which they had not the right to do, in the management of the moneys, credits, and property of the. Bank of Pennsylvania; without this, that there is any other matter, cause or thing in the said complainant’s bill of complaint contained, material or necessary for these defendants to make answer unto, and not herein and hereby well and suffi ciently answered, confessed, traversed, avoided or denied, is true to the knowledge and belief of these defendants. All which matters and things these defendants are ready and willing to aver, maintain, and prove, as this honourable court shall direct. And the defendants humbly pray that your honourable court will dissolve the injunction granted in this case, and that they may be hence dismissed, with their reasonable costs and charges in this behalf most wrongfully sustained.”
Dr. State of the Bank of Pennsylvania.
Bills discounted,.........................................$1',952,769.25
Bonds, Mortgages, and other Special securities,............... 99,725.98
Real Estate,................... 306,734.90
Loan to Chesapeake and Delaware Canal Company,........... 12,360.00
Stock of the State of Pennsylvania,......................... 370,542.00
Other Stocks, ...................¡......................... 83,744.00
Post Notes received from the Bank of the United States,....... 1,280,000.00
Expenses,............................................... 5,099.48
Due by Baring, Brothers, & Co.,........................... 1,095.65
“ other Banks,..................................... 205,026.40
Notes of the Bank of the United States,..................... 155,000.00
“ other Banks, ................................ 306,829.57
Specie............ 276,027.90
$5,064,955.13
Cr. . Tuesday Evening, February 1st, 1842.
Capital Stock,...........................................$2,500,000.00
Contingent Fund,........................................ 181,861.72
Notes in Circulation,..................................... 324,726.09
Post Notes on time, ......... 303,750.00
Profit and Loss,............................ 40,602.90
Discount,........ 13,202.83
Exchange Account,....................................... 315.19
Unclaimed Dividends,.......... 9,622.20
Interest payable on Stock of the Commonwealth of Pennsylvania, 34,475.58
Reimbursements on “ “ “ 125.30
Due to other Banks,...................................... 390,394.19
Due to Depositors, ineluding $109,500, received from the Trustees of the United States Bank, on account of the Post Notes held by this Bank, and $853,632.11, to the credit of the Commonwealth of Pennsylvania,................................. 1,286,179.13
$5,064,955.13
Whilst these proceedings were pending, the Legislature, on the 29th of Mai'ch 1842, passed an Act of Assembly, entitled
An Act to enable the Bank of Pennsylvania to make an assignment for the payment of its debts and for other purposes:
Section 1 Enacted that if the Stockholders of the Bank of Pennsylvania at an adjourned meeting or any general meeting called by the directors or holden in pursuance of their charter shall decide by a majority of the votes then and there present or represented according to the scale of votes allowed at elections of directors that it is expedient for thé said bank to make a general assignment of the real and personal estate of the said corporation to trustees for the payment or securing the payment of the debts of the same and shall moreover by a like vote elect three or more trustees for that purpose it shall be the duty of the directors of the said bank in the corporate name and under the corporate seal of the President Directors and Company of the Bank of Pennsylvania forthwith to make such an assignment and to do all such acts as shall be necessary to carry the same into full effect. Provided That in the election or nomination of trustees assignees and all other officers which may be elected to close the affairs of said bank or otherwise the state treasurer shall attend in person or by proxy on behalf of the commonwealth and have as many votes for the state on her stock as though the shares of the same were held by individuals as the law now limits in relation to the election of officers in said bank
Section 2 That the said assignment"so made as aforesaid shall be deemed and taken to invest immediately in the trustees and their successors all the estate real and personal of the said corporation upon the trusts of the said assignment which trust shall be settled by the board of directors and approved of by the stockholders at a general meeting and that so much of any law of this commonwealth as requires securities from the trustees or assignees or any inventory or appraisement of the estate assigned be and the same is hereby dispensed with in the case of such an assignment and the board of directors shall -be authorized to take such security as they shall deem proper in the case
Section 3 It shall be lawful for the said stockholders at. such meeting and by such vote as aforesaid to give to the said trustees such powers over the assigned estate and effects as they may deem expedient not inconsistent with the said trust for the payment or securing the payment of the debts of the corporation in the manner aforesaid and also to impose such regulations upon them in regard to the manner of executing the trusts keeping and rendering accounts of the same and making dividends among the creditors and in regard to the responsibilities of the trustees and their compensation or allowance and also in regard to the expenses of the trust as they may deem right all of which powers regulations and provisions shall be introduced into said assignment. Provided That the said trustees or any trustees or assignees appointed in pursuance of the provisions of this Act for the payment or securing the payment of all or any portion-of the debts of said bank shall receive in payment of debts’ due to the said bank or to them as trustees at par the notes or other evidences of debt issued or created by said hank and also the checks of depositors
Section 4 The trustees so elected shall hold their office until the 1st Monday in February next and until other trustees shall be elected in their stead and it shall be. lawful for the said stockhold ers on the said day by a like vote to choose the same or other persons to act as trustees as aforesaid for another year and until others shall be chosen in their place and so on from year to year so long as the said trust shall continue and is completely executed
Section 5 The said stockholders on the 1st Monday in February in each year shall be authorized in manner aforesaid to choose new trustees in the place of all or any of the existing trustees or to fill any vacancies And it shall be the duty of the trustees whose place shall be supplied in the trust together with any continuing in the same to execute such instrument as shall vest the trust estate and effects in all the trustees who are to act in the trust for the ensuing year
Section 6 The corporate powers of the said bank shall notwithstanding the said assignment be and continue in full force save and except that it shall not exercise the banking privileges of loaning money or issuing notes or bills until all the debts and liabilities of the bank called for shall be fully discharged or secured to the satisfaction of the creditors of said bank. When the said trustees or the survivors or survivor of them shall reassign and set over all the trust estate and effects remaining in their hands to the President Directors and Company of the Bank of Pennsylvania. Provided always That so much of the sixth section of the Act entitled an Act to provide for the resumption of specie payments &c passed the 12th day of March 1842 as provides for a stay of execution upon judgments thereafter obtained in favour of certain banks therein referred to shall not be deemed or taken to apply to the said bank
Section 7 In case the said bank should make a voluntary assignment under this Act or any law now in force or by virtue of the order decree or judgment of any court in this commonwealth then and in that event the state treasurer shall appoint some suitable person in the said bank as “ Commissioner of Loans” and all the powers and duties which by the tenth section of the Act of the 13th day of March 1830 entitled an Act to authorize a. loan to defray the expenses of the Pennsylvania canal and railroad and to continue for a further time an Act to incorporate the subscribers to the Bank of Pennsylvania and for other purposes shall be vested in the person so appointed and be performed by him and all the stock that has been created by any law or that shall hereafter be created shall be issued and transferred by said Commissioner of Loans in as full and ample manner as they are now transferred by the said bank
Section 8 And the said Commissioner of Loans shall keep his office in the city of Philadelphia and of such commissioner and all the expenses of said office and the regular transfers shall be paid by the said bank quarterly in such sum as the state treasurer shall fix and the tenth section of the Act mentioned in the preceding section of this Act is hereby repealed.
Section 9 Before any assignment is or shall be made under any of the provisions of this Act by the Bank of Pennsylvania aforesaid said bank by an assignment duly executed shall deliver up and transfer to the state treasurer such bonds notes bills receivable or such other evidences of debt as shall appear a sum sufficient to pay the amount said bank is now indebted to the commonwealth for any money that has been deposited in said bank by the state treasurer.
On the construction of the first section of this Act, a contest arose which was determined by the opinion of this court, delivered on the 18th April 1842. {Ante, 177.) The defendants,on the27th April 1842, moved to dissolve the injunction, which the plaintiffs opposed.
The case was argued by Chester and Meredith, in support of the motion; and
Johnson, attorney-general, contra-

Opinion:
The opinion of the Court was delivered by
Sergeant, J.
The equity powers of our courts 'in respect to individuals, are circumscribed within a limited sphere, as we had occasion to point out in the case of Gilder v. Merwin, (6 Wharton 522); but over corporations their equity jurisdiction is general and j unlimited: for by the 13th sectjon'of the Act of 16th June 1836, j the Supreme Court and the several Courts of Common Pleas have j the jurisdiction and powers of a Court of Chancery, as far as j relates to the supervision and control of all corporations, other h than those of a municipal character, and unincorporated societies / or associations and partnerships. This gives the court all the powers and jurisdiction of a Court of Chancery over corporations, i to be exercised in the ordinary mode in which a Court of Chancery i; acts, whether by bill, injunction or otherwise, as the equity of the i case may require. If, in the present instance, the funds of the ' _ State were held by the defendants as their trustee, and the State has a priority of payment out of the assets of the bank, in preference to others, then an injunction to prevent the defendants from applying those assets, otherwise than in discharge in the first instance of the claim of the State, would be a proper proceeding until a hearing and decree upon the prayer of the bill. I agree, as was intimated in Gilder v. Merwin, that such a jurisdiction is, in many respects, ill adapted to a court organized as this court is, with an interval of six months in its sessions here, and that in some cases, extreme hardship and inconvenience may result from it: this, however, is not a consideration for us, but for the legislature, in whom only is vested the power to change it.
The grounds on which this motion has been argued, would make it necessary for us to decide, whether, under the Acts of Assembly, which have been referred to, the bank, in relation to the funds of the State, deposited with them, stood in the light of a trustee bound to give the State a preference over other creditors by deposit, or merely in the light of a debtor, the State being in the same situation as other creditors. Had this objection been taken by the defendants at the time of making their answer, and had a motion to dissolve the injunction then been made, the case would have come before us free from some of the circumstances that now attend it. The defendants did not, however, in the former stages of this proceeding, make any objection to the process, but on the contrary, if they did not expressly assent, acquiesced in it as a measure rather desirable for themselves under the circumstances then existing. Though the injunction was issued on the 31st January 1842, no answer was affirmed to till the 17th of February 1842; nor was any motion made to dissolve the injunction until the 27th day of April, 1842. In the meanwhile the defendants consented to make payments on account of the commonwealth under the rule of court of the 14th day of February 1842. And on the 29th of March 1842, the legislature passed an Act of Assembly which has an important bearing on the question before us. By that Act it would appear that a compromise or arrangement was made between the defendants and the commonwealth during the pendency of this injunction, for the adjustment of the claim of the commonwealth to the moneys deposited in the bank on account of the State, which was the cause of the injunction ; and by the 9th section of this Act, a preference is expressly given to the commonwealth; and in return the commonwealth assents to an assignment by the bank. The terms and conditions of that assignment are stipulated, and privileges are conferred upon the bank. That Act has been carried into effect by a resolution of the stockholders to make an assignment according to the terms prescribed. It is true, the effort to go further and choose assignees has failed by reason of the imperfection of the language used in the proviso of the first section, as has been decided at the present term. But it by no means follows, that the whole Act falls to the ground as a dead letter; on the contrary, I perceive no l'easons why the other provisions of the Act should not be considered as in force and operation until some further legislation takes place on the subject; since all that is now wanting is to supply the deficiency in the first section, the mode of choosing assignees, which may be done, and it is to be presumed will be done, by the legislature, at the earliest opportunity, under the influence of the same motives that dictated the former arrangement, and which we have no reason to suppose are in any respect changed; and thus the whole object in view can be attained.
The other parts of the law, excepting merely those in the proviso to the first section that relate to the choice of assignees, and such matters as follow their appointment, seem to be sufficiently precise and intelligible.
Without therefore pronouncing what may be the ultimate decree of the court in the case on the prayer for relief, sufficient, we think, exists at present, to prevent the dissolution of the injunction.