Case Name: The State of Mississippi vs. The Commercial Bank of Manchester
Court: High Court of Errors and Appeals of Mississippi
Jurisdiction: Mississippi
Decision Date: 1850-01
Citations: 13 S. & M. 569
Docket Number: 
Parties: The State of Mississippi vs. The Commercial Bank of Manchester.
Judges: 
Reporter: Mississippi Reports
Volume: 21
Pages: 569–580

Head Matter:
The State of Mississippi vs. The Commercial Bank of Manchester.
It seems that an assignment by a bank of its choses in action and other property, to trustees, for the benefit of its creditors, made pending a writ of quo warranto against it, for the purpose of preserving its assets from extinguishment, is not a dissolution of a corporation, or a surrender of its franchises.
It is the settled doctrine of this court, that a bank may make a general assignment of its property and effects, and such assignment, if in other respects fair, will he sustained.
It is a part of the common law of the land, annexed as a tacit condition to the creation of every private corporation, that it may lose its franchises by a misuser or nonuser of them.
While an assignment by a bank of its property and effects, to trustees for its creditors is not a misuser of its franchises, yet it may place it out of the power of the bank to comply with the terms and fulfil the- purposes, and perform the conditions upon which its charter was granted, and thus prove a ground of forfeiture for nonuser.
The furnishing of a sound and convertible medium of currency, is the primary object in the incorporation of banks; the accommodation of those who deal with them, and the benefit of the stockholders are the secondary objects; in regulating, therefore, the management of its monied affairs, a reasonable discretion must, of necessity, be allowed the corporation; and it is therefore difficult to define the boundary between legitimate acts of prudence and those which would be an abuse of its franchises; each case must rest somewhat on its own circumstances.
While a continued suspension of the principal corporate franchises, and a failure to perform the implied conditions on which the charter of a bank was granted, will amount to a nonuser, and so be ground of forfeiture; yet a mere assignment of the property and effects of a bank nearly out of debt to trustees to pay the debts due, and the residue to divide among the stockholders, made pending a quo warranto with the view of saving the assets, the bank in the meanwhile keeping up its corporate existence by the election of its officers, is not a misuser nor a nonuser of its franchises; yet it seems if, after the decision in its favor of the quo warranto, the trustees make no reassignment to the bank, and the latter omit the exercise of its usual corporate franchises for a continued period, it would amount to a nonuser, and be cause of forfeiture.
On appeal from the circuit court of Yazoo county; Hon. Robert C. Perry, judge.
The state of Mississippi, on the relation of E. A.jM. Gray, district attorney, instituted proceedings under the act of 1843,, against the Commercial Bank of Manchester. The pleadings are stated in the opinion. The decision in the court below was in favor of the bank, and the state appealed.
R. S. Holt, for appellant.
1. Banking corporations are not to be regarded as created by the state for the advantage or emolument of the corporators, but for the accomplishment, through their instrumentality, of some public object; the advancement of some supposed public interest. 23 Wend. R. 580, 581.
2. The charter of every such institution is a contract between the corporators and the state, by which are granted to them certain peculiar privileges, to be held and enjoyed during a speci • fied term, upon condition that they shall, during that term, as far as practicable, accomplish the purpose, design, or intention of the state, by the use of certain specified means, and the exercise of their corporate powers and functions in the manner prescribed; and the corporators, by a non-compliance in any of these respects, with the terms of their contract, forfeit to the state their franchises as for a condition broken. Ang. & Ames on Corp. 660; 23 Wend. R. 193, 235.
3. The object proposed to be accomplished by the incorpora tion of this institution, was obviously the advancement, during the prescribed term of its existence, ,of a supposed public interest, by means of its loans, its discounts, and its notes for circulation. Mr. Holt entered into an elaborate argument, to show that by its assignment it had destroyed the object of its creation, and put it out of its power to accomplish its undertakings; and was, therefore, a virtual surrender of its franchises, and cause of forfeiture of its charter.
4. But it is said that, if the assignment was valid, it must have been lawful, and if lawful, it cannot cause a forfeiture of the franchises.
The fallacy of this argument consists in the assumption, that a forfeiture of corporate franchises must, in every case, result from a violation of some general provision of law, and cannot follow upon a simple violation of the contract between the state and the corporators.
The corporators, in accepting the charter, contracted to observe its provisions, and contracted, in the event of their failure, to give up their franchises. It is the latter part of the contract which the state seeks to enforce, and the legality or illegality of the act complained of, cannot affect the contract or the rights claimed under it.
5. Many authorities are adduced on behalf of the defendant, showing that assignments made by corporations for the benefit of creditors are valid. This is admitted; but it is nothing to the point. Such an assignment may be valid, and yet, if it left the corporation incapable of accomplishing the object for which it was created, would work a forfeiture in favor of the state.
6. Other authorities are referred to, to prove that a corporation is not dissolved either by a voluntary or involuntary loss of all its property. This is also true. No violation of the charter, however flagrant itself, dissolves a corporation. The corporation can only be dissolved by a judgment of forfeiture, and until such judgment, the corporation is still in existence, though every condition on which it held its franchises may have been broken. No authority,’however, can be found to sustain the position, that such a loss of property is not a good cause or ground of forfeit ure, when, as in this case, the possession of property is indispensable to enable the corporation to act up to the end of its creation. Yet such is the position which must be assumed by the defendant.
7. Other decisions are cited to show that the assignment of the property of the corporation did not operate as a surrender of its franchises. This is also conceded to be true in law; but this does not prove that it did not constitute a good cause of forfeiture.
8. It is conceded that no decision can be adduced, which directly supports us in the position which we have taken, because the question presented is not known to have been any where directly adjudicated. It is confidently believed, however, that the principle of the decision in 6 Cowen, 217, fully sustains us. The statute of New York provides, that a suspension of business by a corporation for a defined period, shall be deemed a surrender. The common law says, that a total suspension of corporate business is cause of forfeiture. The court in that case decides, that an assignment of all the property of the corporation was equivalent to a suspension of business under the statute, and therefore equivalent to a surrender.
9. Under the- third replication, it is insisted, that the assignment operated, or was intended to operate, as an investiture of strangers with powers and privileges confided by the state exclusively to the corporation, and which the charter obliges the corporation to exercise through its recognized and appointed organs.
E. C. Wilkinson made an argument on the same side, and insisted that the Implied condition upon which the company accepted the grant, viz., that they would act up to the end and ■object of the charter, is broken by the act of the bank in making the assignment, and its franchises are consequently forfeited. Ang. & Ames on Corp. 660, and cases cited ; People v. Hudson Bank, 6 Cow. N. Y. Rep. 217; People v. Kingston <5y Middletown Turnpike Co., 23 Wend. 193; State v. * Essex Bank, 8 Term. Rep. 489; 1 Blackf. 275.
On this point Mr. Wilkinson reviewed the case in 24 Pick. Rep. 49; and also Brinkerhojf v. Brown, 7 Johns. Oh. 217; and insisted that the latter was almost entirely destroyed as authority by the case of Penniman v. Briggs, 1 Hopkins, 300, and 8 Cow. N. Y. Rep. 387. The ground upon which I insist this charter is forfeited is, that the condition of the grant is broken, and the object of the legislature in making it, frustrated and destroyed. It makes no difference whether this condition is precedent or subsequent, expressed in the grant, or implied from what is expressed. If the act complained of is clearly repugnant to the purposes of the grant, and wholly defeats the policy of the legislature in making it, the franchises claimed under it are forfeited. 23 Wend. 206; l Hopkins, 300; 1 Blackf. 270; 8 Term. Rep. 489; 8 Cow. 387; 6 lb. 217; Arthur v. The Assignees of the Vicksburg Railroad and Banking Go. 9 S. & M. 394.
W. R. Miles, for appellee.
That the bank had the power and legal right to make the assignment complained of, is a legal truism. 6 Gill & Johns. R. 205, 230, 363; 7 lb. 448, 466, 467, 468; 2 Stewart, R. 401; 5 Peters, U. S. R. 647; 6 Cow. R. 233.
If, by'her charter and the general law of the land,, the bank was fully empowered to make the assignment, it will require more than ordinarily rigorous logic to prove she violated her charter by making it; for, is it not something worse than paradoxical to say a person shall be punished, or incur a penalty, for doing that which the law says he has a perfect right to do 1
A case in 6 Cow. R. 217, may be relied on to show that this assignment is equivalent to a surrender, and is therefore a violation of the charter. But this is not so. The New York case is bottomed on and grew out of a New York statute, 'and has, therefore, no application to the general principles of law in controversy here. R. L. N. Y. 247; Ang. & Ames, Corp. 659; 19 J. R. 456, 475,476; 1 Hopk. Ch. R. 305; 2 Kent’s Com. 250, 251.
But in truth this assignment was made alone for purposes of liquidation, and by it the charter is expressly kept alive to effectuate that object. I presume it is competent for any banking corporation to go into liquidation before its charter expires, and, in the legitimate prosecution of that object, collect its dues, pay its debts, and distribute the surplus amongst the stockholders, without any violation of law. If so, the state has no right to complain. The demurrers were properly overruled, and the judgment should be affirmed. 24 Pick. R. 49; 14 lb. 63; Ang. & Ames, 658, 659.
George S. Yerger, on same side,
Contended that the assignment, with a view to wind up its business, constituted neither a surrender nor a forfeiture of its corporate rights. He reviewed the decisions in New York, particularly the one in 6 Cow. R. 218, and insisted that it was wholly based upon the statutes of New York. He argued that
1. It is necessary to ascertain what is a surrender at common law, in order to explain the New York cases, because, if its act does amount to a surrender, and it still continues to act as a corporation, a quo warranto lies by our statute, as well as the New York statute.
At common law it is clearly not a surrender. 2 Kent’s Com. 310; 24 Pick. 49; Ang. & Ames on Corp. 656 ; 6 Gill & Johns. 230. ' •
2. Is the making an assignment a forfeiture 1 A forfeiture must, in some sense, be a misdemeanor. 23 Wend. 581; Ang. & Ames, 674. It is laid down expressly in the case in 24 Pick. 49, that it is neither a surrender nor a forfeiture.
A forfeiture must be a breach of trust. The trustee doing an act authorized by law, is surely not a breach of trust. As to power to assign, &c., see 2 Kent, 316, note.
But it is said, they must act up to the end and design of their creation; if they do not, it is a forfeiture. This principle applies particularly to corporations where specific acts and duties are required by the act, as to build a bridge, turnpike roads, &c. But, in regard to its application to manufacturing and banking corporations, it is always implied that when they can no longer answer the public purposes for which they are created, they shall wind up. A manufacturing corporation is not compelled to manufacture, if it is a losing business. An insurance company is not compelled to insure -when ruin is the consequence. So a bank is not compelled to bank all the time ; it may stop its operations, and wind up. This is implied. If a bank chooses to pay up all its issues, and to wind up, must it, at the risk of a forfeiture, continue?
The charter authorizing it to continue for twenty years is a limitation. It is not compulsory; it cannot continue longer than the time. But the words and language do not compel it, at all events, to continue.
But suppose it has no authority to make an assignment. The aqt is merely unauthorized. In such case, the corporation stands precisely as if no such conveyance had been made. 6 Gill & Johns. R. 230.
Battaile, on same side,
Cited 2 Kent’s Com. 305 ; Ang. & Ames on Corp. 648, 649. On the point of the alleged surrender of its franchises, Boston Glass Manufactory v. Langdon et al., 24 Pick. R. 49, 53; 2 Kent, 310, 311; Ang. & Ames on Corp. '657,658, and n. (1) ; 15 Pick. R. 351; 16 Maine R. 224; 9 Gill & Johns. 365; 24 Pick. 49, 53; and reviewed at length also the' following cases on the same point: Sleev. Bloom, 19 J. R. 456; The Peoples. The Bank of Hudson, 6 Cow. 217; Briggs v. Penniman, Hopkins, (N. Y.) Ch. R. 300, and same case in 8 Cow. 387.
He also cited and reviewed Ang. & Ames on Corp. 659, 660; 9 Gill & Johns. 365, 421; Bi'inkerhoff v. Brown et al., 7 John. Ch. R. 217; Wilde v. Jenkins et al., 4 Paige, Ch. R. 481; People v. The Bank of Niagara, 6 Cow. 196; Revere v. The Boston Copper Company, 15 Pick. R. 351; State of Maryland v. The Bank of Maryland et al., 6 Gill & Johns. R! 205.
It has been often decided that “ a banking corporation may make an assignment for the benefit of creditors.” 6 Gill & Johns. R. 205; 24 Pick. R. 49; 7 Alabama R. (new series) 281; Kent’s Com. (5th edition) 315, note, and authorities there cited; 4 Humph..403, and S. & M. Ch. R. 207.
On the part of the state it has also been contended, that the making of the assignment violated the charter, because it disa bled the corporation from exercising and complying with the powers and duties granted and enjoined in the charter.
On this point, Mr. Battaile reviewed the charter and the facts, as admitted by the demurrer, and insisted that the corporation might, without violating its charter, or any law, or dissolving itself, tender and offer to surrender its franchises'into the hands of the state. Ang. &• Ames on Corp. 456. But, as we have seen, such offer or tender will be of no avail and ineffectual until it is accepted by the government. Ib. 656, 657,' 658; 2 Kent, 311; 24 Pick. 49; 15 Ib. 451; 9 Gill & Johns. R. 365. ’ The tendering a surrender is no ground of forfeiture or evidence of dissolution. 15 Pick. 351.
If, then, it be :a right of a corporation, at the discretion of its members to offer to surrender its franchises, is it not competent, just, lawful and proper for it to prepare itself for the consequences of an aceeptance by the government of such offer, which, when accepted, would be a dissolution 1 It is believed there can be no doubt of this right, after a consideration of the authorities •cited in the foregoing part of this brief.

Opinion:
Mr. Justice Clayton
delivered the opinion of the court.
This was an information in the nature of a quo warranto against the bank for a violation of its charter. The bank pleaded its charter. Three replications were then filed, setting out the alleged acts of violation. The first avers that the bank had assigned to trustees " all of its property of every kind and description, in trust, to sell the property and collect the debts, and pay all the liabilities of the bank, and then to divide and pay over the surplus to the stockholders, in proportion to their shares."
The second avers, "that on the day of October, 1845, the bank, with the intention of never again discounting notes, issuing bills for circulation, or otherwise carrying on banking operations, assigned to certain persons, as trustees, to liquidate and wind up its affairs and business, all its property of every kind and description, in trust," &c.
The third avers "that the bank,fraudulently, and with intent to violate the law, assigned all its bills receivable," &c.
To these several replications, the following rejoinders were filed, first, " that it is stipulated in said assignment, that the trustees therein may, whenever it is necessary, use the name of said bank in bringing or defending suits, or any other acts necessary to be done in its name; and that in and by said assignment, choses in action to the value of half a million of dollars, were assigned ; that said bank was and is not insolvent, but was then paying, and continues to pay, specie on all its demands; that nearly all its debts were paid before the filing of the information, and that it has since continued to elect its officers and perform other corporate acts." The second rejoinder is in substance the same.
The third avers " that it did not make said assignment fraudulently and with the intent to violate the law, but that, at the time of the making thereof, a quo warranto was pending against it, and the same was made for the benefit of its creditors and stockholders, and to prevent the extinguishment- of its assets, in case judgment had been rendered against it; but that said judgment was finally rendered in its favor."
To this rejoinder there was a general demurrer, on which judgment was given for the bank, and the case thence comes to this court.
The demurrer admits that the bank is not insolvent, that it . has paid, and continued to pay, specie on all its debts; that it elects its officers, and performs other corporate acts, and that the assignment was not made fraudulently, or with intent to violate the law, but to preserve its assets from extinguishment. The single question for decision, therefore, is, whether an assignment made for these purposes, and going to this extent, amounts in itself to just cause of forfeiture.
It is very properly conceded by the argument on the part of the state, that the assignment is not of itself, either a dissolution of the corporation, or a surrender of its franchises. The authorities very clearly sustain these positions. Boston Glass Manufactory v. Langdon et al., 24 Pick. 53; State Bank of Maryland, 6 Gill & Johns. 230; Angell & Ames on Corp. 656. But it is contended that the act may be cause of forfeiture and of seizure of the franchises of the bank.
"A private corporation created' by the legislature, may lose its franchises by a misuser or nonuser of them;, and they may be resumed by the government under a judicial judgment upon a quo warrauto to ascertain and enforce the forfeiture." Terrett v. Taylor, 9 Cr. 51; Commercial Bank of Rodney v. The State, 4 S. & M. 492; People v. Bank of Hudson, 6 Cowen, 218. This is the common law of the land, and is a tacit condition annexed to the creation of every such corporation. Is the assignment in this case, either such a misuser or nonuser of the corporate franchise, as amounts to causo of forfeiture!
It is the settled doctrine of this court, that a bank may make a general assignment of its property and effects, and such assignment, if in other respects fair, will be sustained. It has been argued that as such assignment is legal, it cannot have-the effect to cause a forfeiture of -charter. To some extent this is true, but not to the extent to which it is pushed in argument. It is certainly not such a misuser of its franchises, as in and of itself will amount to cause of forfeiture. But then it may place it out of the power of the bank to comply with the terms, and fulfill the purposes and perform the conditions, upon which its charter was granted, and 'thus prove a ground of forfeiture for nonuser.
Every suspension of- the use of its franchises for a limited time, does not amount to a breach of condition and consequent ground of forfeiture. • A reasonable allowance must be made for peculiar circumstances and exigencies. A substantial compliance is all that is required. The fluctuations of commerce may sometimes make it incumbent on a bank to curtail its discounts, or entirely to suspend them, in order to preserve its integrity. The less is thus sacrificed to the greater. The furnishing of a sound and convertible medium of currency, is the primary object in the incorporation of banks; the accommodation of those who deal with them, and the benefit of the stockholders are the secondary objects. It is essential to their preservation and safety, that they should cease to issue a circulation, when they have not the means to redeem it. It is right for them to withhold for a time, until they can gather strength for subsequent operations. Hence expansions and contractions are inseparably interwoven with the banking system. It has its seed-time and its harvest. A reasonable discretion must therefore, of necessity, be allowed to a corporation in the exercise of these powers,, on which its very existence depends. It is by no means easy to draw a line which would define the boundary between legitimate acts of prudence, and those which would be an abuse of its franchises. Each case must rest somewhat on its own circumstances. Commercial Bank of Natchez v. The State, 6 S. & M. 623.
In this case the question arising upon the demurrer is, whether the assignment of itself is cause of judgment of forfeiture. It was made for the purpose of collecting its debts, paying its own liabilities, and then paying the surplus to the stockholders. The organization of the bank was still kept up, by the election of its officers. It was made to prevent the extinction of its assets, in the event of a judgment against it, in the quo warranto then pending. The suspension of its banking powers, during the pendency of the proceeding, could have no effect against it, because the Briscoe act required such suspension. Its debts were all paid, except a trifling amount. After the termination of the quo warranto, as there were no creditors, the trustees, under the assignment with the assent of the stockholders, might have made a reassignment of the assets, and the bank would then have been restored to its former condition, and might have resumed operations. This, however, does not appear to have been done.
We have already stated, that the simple act of assignment was not a misuser of its chartered privileges. It could not be a nonuser, because it was an exercise of a corporate franchise. It might, however, place the bank in a situation, which would end in a nonuser, for the want of means with which to carry on its operations. But it has not in itself that effect.
The pleadings present the naked question, whether the mere assignment is cause of forfeiture. We think it is not, because, although of necessity it produces a temporary suspension of some of the corporate powers, it leaves others still in active operation. The exercise of the latter may place the bank in a situation to resume the former, at a subsequent period. A continued suspension of the principal corporate franchises, and a failure to perform the implied conditions upon which the charter was1 granted, amount to a nonuser which would be cause of forfeiture. Looking, however, to the case as now presented upon the record, we cannot see any act or omission upon the bank which would warrant a judgment of seizure against it.
The judgment of the court below is affirmed.