Court Opinion

ID: 7998190
Source: CourtListenerOpinion
Date Created: 2022-09-09 01:46:22.383414+00
Date Added: 2024-06-11T16:35:37.407969
License: Public Domain

Chancellor.
On the 13th of February, 1840, the Commercial and Railroad Bank of Vicksburg, by two separate deeds of that date, made an assignment in trust, to the complainants, of all its property and effects, of every kind and description, including the net profits of the railroad when it should be finished. The assignment recites that the embarrassments of the corporation were such, at that time, as to render it unable to either complete the railroad according to its charter, or to pay its debts. The objects of the assignment are declared to be: — 1. The payment of all its *256debts. 2. The completion of the railroad, in order to save its charter. It is also stated, that the accomplishment of this latter object would increase its ability to comply with the former, by applying all the profits of the road to that end. The trustees' are required {o sell or dispose of the whole property, as in their judgment may be deemed best for the interest of the creditors. The proceeds are to be applied to paying the expenses of executing the trust, — the necessary expenses of the President, Directors, and Company, in the management of the corporation, and in payment of debts. The trustees are authorized to borrow in the name of, and upon the credit of, the bank, the sum of two hundred and fifty thousand dollars for the purpose of completing the railroad, and this sum is to be first paid out of the fund assigned. The trustees are authorized to take the possession and control of the railroad, for the purpose of completing it, and of receiving the profits thereof, to be applied to the payment of debts ; and they are required to exhibit, periodically, a statement of their accounts to the board of directors. They are authorized to compromise with the debtors of the bank, with a view to the security of the debts, and to the interest of creditors. They are required to give twelve months to the creditors to come in under the deed, and before any dividend is declared. They are forbid to receive any' claim against the corporation, unless the directors have first pronounced it just. But a creditor, whose claim is rejected, may then bring suit on it, or by agreement with the assignees, he may have it settled by arbitration, and upon either of these conditions he becomes a party to the assignment. In the management of the railroad, the assignees are declared to be the joint agents of the bank and of the creditors. If a vacancy happens in the number of the assignees, the directors of the bank are to fill it; but if they neglect to do so, the appointment is to be made according to the course of a court of chancery. It is declared that the bank shall have no power to control, modify, or revoke any of the trusts there declared. The assignment of the profits of the railroad are without limit as to time. It is to be inferred, therefore, that it is to continue until all the debts are paid. This I believe is the substance of the two deeds to which I have referred. The defendants, being the creditors of the bank, sued upon their claims, *257and recovered judgments at law, since the date of the assignment, and had executions issued and levied upon some lots, upon which the depot-buildings are situated, at the terminus of the railroad, at the city of Vicksburg. The complainants filed their bill, setting up the assignment of the property in question to them, and pray for an injunction against the sale thereof, and that they may be permitted to proceed to discharge the trusts with which they are clothed. The case was submitted upon the general demurrer of one of the defendants to the bill. It is insisted that the assignment, under which the complainants claim, is void, as well from the want of power in the bank to make it, as from objections arising upon the signment itself. Conveyances of this description hSyé^ come into use in this State, and have not, as yet, so|far,as I am advised, received a judicial decision in any of our opurts-^'wish no special statute regulating them, nor do they app^aijtjjje^in any way affected by our insolvent laws. I am left, ther^re, this case by such lights as are furnished by the Englislrii&cis and by the adjudications of the courts of our sister States, upon the subject. So far as private persons are concerned, I do not find that it has been at any time doubted, that an individual debtor may rightfully convey his property in trust for the benefit of all his creditors equally, — where he divests himself of all control over it, without reserving any use or benefit to himself, and without imposing any sacrifice on his creditor, as a condition to his participation in the fund. Its integrity and validity cannot be impeached under the statute against fraudulent conveyances, because of its tendency to temporarily delay creditors ; nor because of its effect, in placing the property beyond the reach of process at law. I can perceive no reason, founded in either principle or policy, why a corporation may not make an assignment for similar purposes, preserving to each creditor the right of sharing equally, according to the amount of his claim. That a bank cannot legally assign its property and effects, to any other purposes than those contemplated by its charter, I readily admit. But it is surely one of the first duties of a corporation to pay its just debts ; and that it may assign its property for that purpose, is, I think, a proposition too plain for discussion. It would be strangely incongruous to hold that a bank was bound to *258pay its debts, but could not apply its property to that end, in a mode sanctioned as to individuals, without transcending the sphere of its power. But authorities are not wanting upon this point. The cases of The State of Maryland v. The Bank of Maryland, 6 Gill and Johns. Rep. 205, and the case Ex parte the Real Estate Bank of Arkansas, are in support of such an assignment. The assignment in this case is for the double purpose óf paying debts and completing the railroad. Authority to sell, transfer, or dispose of its property for the latter object, is expressly conferred upon the bank by the 4th section of its charter. I think, then, that where an assignment is for the benefit of all the creditors of the assignor, equally and ratably, it must command the sanction of every enlightened tribunal, whether it be made by a corporation or a private person. It is a practical enforcement of the maxim, that “ equality is equity.” And this it would seem was the criterion by which some of the English cases tested the validity of such assignments. In that form, the equitable principles of a bankrupt law are carried out through the medium of a private contract. In the case of Pickstock v. Lyster, 3 Maule and Selwyn, 371, the opinion of the court seems to have turned upon the ground, that the assignment effected an equal distribution of the property of the debtor, among all his creditors. Justice Bayley said, that, “ so far from being fraudulent, it was the most honest act the party could do.”
The more recent cases, however, both English and American, especially as to private persons, sanctioned a departure from this principle of equal justice, by sustaining assignments, establishing preferences in favor of particular creditors. And the rule, to that extent, may be now considered as finally settled. Goss v. Neale, 5 Moore’s Rep. 19 ; Rex v. Watson, 3 Price’s Rep. 6 ; Brewer v. Pitkin, 11 Pick. Rep. 829 ; Phenix v. Ingraham, 5 John. Rep. 112; Marbury v. Brooks, 7 Wheaton’s Rep. 565. The right of a bank, in failing circumstances, to create such a preference among its creditors, rests, I think, upon much more questionable grounds. The question, in this form, is very barren of authority ; neither my own researches, nor those of the learned counsel, have furnished but two cases directly to the point. The first is, the case of Catlin v. The Eagle Bank, 6 Conn. Rep. 233. The second *259is, the case Ex parte The Real Estate Bank of Arkansas, which simply adopts and follows the rule laid down in the case from Connecticut. The point did not arise in the case in 6 Gill and John» 205, because there the assignment was for the benefit of all the creditors, ratably. It is true, that the court, in declaring the right of the Bank of Maryland to make an assignment, say, that it had authority to do so, “ either for the benefit of the preferred creditors, or of all its creditors, equally, as well as an individual,” and Catlin v. The Eagle Bank is cited. But the case did not present the question, and it cannot, therefore, be regarded as an authority upon the point. If I were' free from the authority of adjudged cases, I should be inclined to declare, that the property of a banking corporation must be regarded as a trust fund, for the equal benefit of all its creditors; and that no preference could, therefore, be given to any one creditor, or class of creditors ; although the case, referred to from Connecticut, treats that position as having nothing in principle, analogy, or authority, to support it. In that case, the Eagle Bank, being in failing circumstances, assigned its effects to one of its creditors, without making any provision for the others. Catlin, being one of the creditors, unprovided for, filed his bill, to set aside the assignment, and to have a ratable distribution of the funds of the bank among all the creditors. The ground upon which the complainants’ counsel rested their case was, that the funds of the hank were trust funds, in the hands of the directors, for the benefit, equally, of all creditors, and that no preference could be made among them. Mr. Chief Justice Hosmer considered this view of the case as wholly inadmissible. He admitted that the directors wrere the trustees of the stockholders, but he regarded them as no more the trustees for the creditors of the bank, than an insolvent debtor is the trustee for his creditors ; and, after arguing to show that the two cases were entirely apposite, and parallel in their nature, he adds, “ The novelty and unfoundedness of the plaintiffs’ claim are such, that it is difficult to support, or even to oppose it, without taking leave of every established principle, and beating the air.” He had before said, that no principle, analogy, or adjudged case had been referred to, and he could conceive of none, in support of such a position. It is with great diffidence, that I attempt to support a *260doctrine, which is thus regarded as a great legal heresy. I think, however, with much deference, that, without “ beating the air,” much may be deduced from both principles and adjudged cases, as well as from the closest legal analogies, in support of the position, that the funds of a corporate bank are held by the corporation, as trustee for the benefit of both stockholders and creditors. The truth of the position seems to me to result most clearly from the very nature of corporate funds, and from the known duties of the directors in relation thereto. What are the purposes, to which, in legal contemplation, these funds are to be devoted ? The ultimate ends are few and simple. The funds are to be operated on, with a view to the interest of those who placed them there ; and if, in this process, debts are contracted by the bank, it follows, as a clear legal consequence, that those funds stand exclusively pledged for their payment. From what other source is payment to be obtained ? The private property of the stockholders is not liable ; nor is there, in this respect, any individual responsibility on the part of the directors. It follows, then, that the only source to which they can look, or to which they have a right to look, is the corporate property in the hands of the directors. That fund, then, must be considered as a special fund, set apart by law, in lieu of the private property of the corporators, as trust fund, for the payment of the debts of the corporation. Suppose a private person places in the hands of another a portion of his property for the benefit of his creditors, generally, would they not be entitled to share equally in the fund ?
Now, when and under what circumstances does property become impressed with a trust character ? I answer, whenever it is devoted, by private contract, or by operation of law, to special purposes, to be held for the use of particular persons. It must, thenceforth, be held in trust, to subserve the ends to which it is appointed. If the directors of a bank are to be regarded as holding the bank property, with an absolute right of disposition, they may transfer it to whom they please, with or without notice of its corporate character, freed from all claim on the part of creditors. And this is the doctrine of Mr. Chief Justice Hosmer. What remedy, then, have the creditors ? They cannot reach the property in the hands of the purchaser, they cannot make the stockholders liable ; and, surely, *261the directors are not responsible for the exercise of a plain legal right. The creditors, then, according to Mr. Chief Justice Hosmer, have no other security, than the naked faith of a corporation. Experience has shown us, that this is a doubtful capital, — not always to be trusted. Is this the only security, which the legislature intended to give those who might be luckless enough to take bank bills, under the delusive notion, that the corporate property of the banks was pledged for their redemption.? I think not. These bills are usually received upon the faith, and with the knowledge, that there is no other fund, except the corporate property of the bank, provided for their redemption ; and it would be a fraud on the public to hold, that this property was not irrevocably committed to that purpose. The remedy for these evils is, to hold that the bank property has an equity attached to it, in favor of creditors, which cannot be defeated by an arbitrary transfer thereof. But to show more clearly that a trust exists, in such cases, for the benefit of creditors, I inquire in what right, and to what use, do the directors or corporation hold such funds ? It is clear that they do not hold them in their own right, and for their own use. I am told by Mr. Chief Justice Hosmer, that they hold in trust for the benefit of stockholders. This is true ; but there must be some other trust in the case ; because, if the stockholders are the exclusive beneficiaries, they would have a right to withdraty, at any time, the whole funds of the bank, without reference to the claims of any one else. But all will admit, this cannot be done ; they can only withdraw such portion of the capital stock and profits as may remain, after paying all the debts of the corporation. It thus appears, that, although the directors, or corporation, are trustees for stockholders, they are also trustees for the creditors,- who have a prior and paramount equity. Mr. Chief Justice Hosmer held, that it might as well be maintained that the property of every insolvent debtor was a trust fund, for the benefit of his creditors. To my understanding, there is not the remotest analogy, in fact or in law. The creditor of a private person has recourse to his whole property. ■ The creditor of a corporation has no recourse, except to the corporate funds ; the private property of the corporators cannot be-reached. The creditor of an individual debtor has not only a claim upon his pres*262ent property, but, when that is exhausted, he has still a claim upon his productive industry, in the shape of future acquisitions of property. The creditor of a bank, when he has exhausted all its corporate property, has no other recourse whatever, whether his debt be all paid or not. A private debtor has the absolute right in his property, and before any lien intervenes in favor of his creditor, hé may dispose of it, whenever and to whomsoever he pleases. A corporation has but the naked, legal title in the corporate property, which cannot be aliened at pleasure, except it be subject to the trusts implied by law.
This question was examined by Judge Story, in the case of Wood v. Dummer (3 Mason’s Rep. 311), and after reasoning upon the subject with his usual clearness and ability, he says ; “ To me this point appears so plain upon principles of law, as well as common sense, that I cannot be brought into any doubt, that the charters of our banks make the capital stock a trust fund for the payment of all the debts of the corporation. The d)ill-holders and other creditors, have the first claim upon it; and the stockholders have no rights, until all the other creditors are satisfied.” He then adds. “If the capital stock is a trust fund, then it may be followed into the hands of any person having notice of the trust attaching to it.” And he cites Vase v. Grant, 15 Mass. Rep. 505, 517, 522; and Spear v. Grant, 16 Mass. Rep. 9, 15, as cases in support of that view. The case of Mumma v. The Potomac Company (8 Peters, Rep. 286) recognizes the same principles. It was there held, that the creditors of a dissolved corporation may enforce their claims against any property which had not passed into the hands of a bond fide purchaser. Thus clearly holding the corporate property, affected with a trust, for the benefit of creditors ; because, if the trust did not exist during the existence of the corporation, it evidently did not arise out of the mere act of its dissolution. 2 Story’s Eq. 499. I think it will thus appear, that Mr. Chief Justice 'Hosmer had not sufficiently considered the point, when he pronounced that the idea of a trust in such cases, had nothing in principle, cases, or analogy, to support it. If then it be true, that the funds of a corporate bank are a trust fund, primarily for the benefit of its creditors, it follows'that *263each and every creditor has an equal claim upon it, and that it is not competent for the corporation to defeat that right of equality, by making an assignment in favor of one class of creditors and to the exclusion of another. It is admitted, that where property is conveyed by a private individual, for the payment of debts generally, no preference can be given to one creditor over another ; that the fund so conveyed constitutes equitable assets, and must be distributed ratably among all the creditors. If a fund becomes pledged by operation of law, for the payment of debts generally, it is difficult to see why the same principle of equality should not be preserved in its distribution, with that which it is admitted must obtain, where the trust is created by the express appointment of the grantor. The ground upon which all the cases place the right of a private debtor, to prefer one of his creditors to another, is his absolute dominion over his own property, "and his unrestricted right of alienation. This reason has no application to a mere corporation. They have neither the absolute right in the property itself, nor, as we have seen, the unrestricted right of alienation ; they hold in the right of others, and to particular uses. The right of alienation, is therefore necessarily restricted to the uses to which the property is legally devoted. If then the reason, which applies in the one case, does not apply to the other, so neither does the law which follows it; cessante rations cessat et lex ipsa. I think this right of giving preferences so liable to abuse,, so capable of being used for fraudulent purposes, and so opposed to the spirit of equal justice, has been already carried as far as the spirit of an enlightened jurisprudence can sanction. The absolute right of property in a private debtor, carries with it an unrestricted right of disposal, which it may be impracticable for the courts to restrain, or modify, without infringing upon the law of private property ; he therefore may be left free to build up one, and put dowm another of his creditors, without reference to the justice of their claims. But even the existence of the rule, to this extent, has been deplored by many distinguished jurists. Chancellor Kent, while he admits it to be a fixed principle of law, considered that its application should be watched with jealousy, and that it should not be enlarged so as to give “it a new and dangerous facility.” Riggs v. Murray, 2 Johns. Ch. 578.
*264I conceive, that to extend the rule to a banking corporation, would be to enlarge it, and give it that “new and dangerous facility ” which the great and learned Chancellor said should be guarded against, with watchful jealousy. Suppose that a bank, in failing circumstances, should select some two or more of its bill-holders, and assign the whole of its assets to them, leaving all the other bill-holders wholly unprovided for. "Would not such an act of gross injustice and partiality shock the moral sense of every man in the community ? In such a case, there is not even the plausible pretext, which is sometimes assigned, as a reason, for allowing a private debtor to credit such a preference ; to wit: that he may select his most meritorious creditors ; because, in the case which I have supposed, there could be no conceivable distinction between the merits of the claims of the different bill-holders. And shall we admit that we live under a' system of laws, which not only tolerates such rank injustice, but is powerless to prevent it. I ask when and where was the law established ? Is it a part of the common law ? Is the rule so firmly fixed by a long series of adjudged cases, and by the customs and approval of society, as to render it unsafe and unwise, that it should be overturned ? It is indeed the law of the Supreme Court of Connecticut, and Arkansas ; but I do not find that it has any other sanction ; and, with all my respect for those distinguished tribunals, I must be permitted to doubt its soundness, its morality, and its policy.
The reason which led to the establishment of the rule, has no application to such a case. The corporation is the creature of legislative will ; it has no such general powers, or rights of property, as those which belong to a private citizen. Its powers are limited to the ends for which it was instituted.
The cases referred to, which sustain the right of a corporation to create such a preference, say, that there is “ nothing in the charters to prohibit it.” I answer, that there is nothing in the charter which grants it; and that the courts will not, by construction, imply a power, not necessary to the ends of its institution-, which it is admitted may be productive of both fraud and injustice. Public policy, and the principles of equal justice, require that the property of a debtor shall be equally devoted to the payment of *265his creditors, where the rule can be enforced, without infringing upon the laws of private property. No such infraction is involved in applying the principle to corporations. I then repeat, that I incline to the opinion, that the property of a corporation should be regarded as an equitable fund, so far, at least, as to preserve the principle of equality among its creditors. But I find it unnecessary to express a decided opinion upon this point; because after full reflection, I am satisfied, that the assignment, in this case, is not liable to the objection of giving a preference, at least, in the odious sense in which it is usually found in such assignments. It is true, that the loan for completing the railroad is to be first paid ; but the assignment contemplates a full payment afterwards, to all the other creditors, equally with those who might become such, through the medium of the intended loan. This case, therefore, bears no analogy, in principle, to the cases usually found upon the subject; ordinarily, the fund assigned for distribution, is limited and circumscribed to the amount of property the assignor then has; and the postponed creditors are left to take such fractional parts of their debts, as they can get out of the fragments that may remain, after paying off preferred creditors. But here an unlimited and continually increasing fund is indefinitely assigned, until, by its annual accumulations, the whole number of creditors may be fully paid. No one creditor is asked to compound his debt, by accepting less than its full amount, as a condition to his participation in the fund. No release is stipulated for, until full payment is made. The accruing profits of the railroad stand pledged from year to year, until all the creditors are satisfied.’ I pass next to the consideration of the objections, which are alleged to exist on the face of the assignment itself. Prefatory to this, it may be stated, that it is essential to the validity of this species of conveyance, that the assignor shall part, absolutely and irrevocably, with all title to the property ; and all authority and control over it; free from all conditions and restrictions, that will unnecessarily delay, and embarrass the rights of creditors. There must be no reservation out of the property for his benefit, unless it be the surplus, after all the debts are paid ; nor any authority to control or direct the assignees in the execution of the trust; and all the uses must be clearly and *266explicitly declared. Where the assignment is obnoxious to any of these objections, it will be declared void. 1. The first and leading objection urged by counsel, is the provision which authorizes the assignees to borrow two hundred and fifty thousand dollars, on the credit of the bank, for the purpose of completing the railroad. It is insisted that this is virtually a reservation to the use of the corporation, of the amount to be borrowed, because it was to be vested in the railroad, which is still the property of the corporation.
The deed recites, that the bank was in a condition which rendered it necessary and proper, that it should make an assignment for the benefit of its creditors. It also shows that a portion of its assets consisted in the railroad, which was then in an unfinished condition, and which it had not the ability to complete for the want of funds. The bank was bound, in good faith, to make the road, as well as its other assets, tributary to the payment of its debts. If the railroad had been left altogether exempt from any charge, on account of the debts, this might well have subjected it to the charge of fraud ; because I infer, that that was in reality the most valuable item in its assets'. It is evident, from the history of banking in this State, about that time, and since, that no further profits could be anticipated from the bank itself. The only means, therefore, left it for increasing its ability to pay its debts, was the completion of the railroad, and the appropriation of its subsequent profits to that purpose.
But how was the railroad to be made available in the payment of debts ? It was then not more than half completed, and was not, therefore, in a condition to mqke any profit; if abandoned at that time, it would prove a total loss to the company, of the large amount which had been already expended on it; and have thus diminished, if not totally destroyed, its ability to meet the demands of its creditors. Only about twelve months of the time, within which the road was to be completed, then remained ; and, by the express terms of the charter, it was to become null and void, if the road was not finished within that time. If a forfeiture of the charter was suffered, not only the railroad would be lost, but the bank would have been disabled from realizing the other portion of *267its assets, which were assigned. A large portion of the assets consisted in outstanding debts due the bank ; if the charter had been forfeited, these debts, upon well settled principles of law, would all have been extinguished. The real estate of the bank would have reverted back to the original grantors ; and the personal estate have vested in the government. 2 Kent’s Com. 307. Injurious and destructive to all parties concerned as these consequences would have been, yet they would inevitably have followed a forfeiture of the charter; because there is no provision in the charter, nor in the general laws of the land, guarding against such a result. It would seem then, that, in order to save anything for either the corporation or its creditors, it was indispensable that the railroad should be completed. But how was this to be done ? The bank had not the means. It could only be accomplished by the means resorted to. If an assignment be otherwise free from the imputation of fraud, it is not vitiated, by being made in part to secure anticipated advances ; and especially where those advances are intended to be in aid of the general purposes of the assignment. It is difficult to see upon what ground creditors could object to such a provision, where its tendency would be to increase the fund assigned for their benefit. In the case of the United States v. Hooe (3 Cranch, 73), the Court say, “It is not in itself exceptional, that property should be bound for future advances. It may indeed be converted to improper purposes, but it is not positively inadmissible.” The same doctrine is recognized in the case of Hendricks v. Robinson, 2 John. Ch. Rep. 283. It is true, it was held in the case of Barney v. Hempstead (7 Paige’s Rep. 568), that if an assignment of this character provides for the payment of future advances to the assignor, or to the assignees for his benefit, out of the property assigned, in preference to the then existing creditors, such assignment is void as against such creditors. But the reason upon which that decision is founded, viz., that such provision was for the benefit of the assignor, at the expense and to the prejudice of his existing creditors, has no application to the case before me. I think I have already shown that, in this case, the contemplated advances, so far from prejudicing, or subtracting from the fund assigned, is, in reality, calculated *268to augment it, and thus redound to the benefit of the creditors themselves. But if this provision is to be regarded as a strict reservation, yet the deed contemplates, and provides for the payment of all the debts of the corporation, before there can be any resulting use in its favor, in regard to the road ; and it is clear, upon principle, that an assignor, in such cases, may rightfully, and honestly reserve to himself, any surplus that may remain, after the payment of all debts ; because the creditors can then have no concern whatever with such surplus ; and such a reservation is nothing more than what would result from the operation of the law itself. Halcey v. Whitney, 4 Mason’s Rep. 206. In all the cases to which I have been able to refer, where assignments have been held void on account of some reservation therein, it will be found that they turned upon the fact, that the reservation in favor of the debtor was absolute and -unconditional, without regard to the question, whether all his debts were paid or not. Burd v. Fitzsimmons, 4 Dallas, 76 ; Austin v. Bell, 20 John. Rep. 442; Harris v. Sumner, 2 Pick. Rep. 129; Searing v. Brinkerhoof, 5 John. Ch. 329. In all these cases, the vice seems to have consisted in the provisions by which the debtor reserved to himself rights in and authority over the property assigned, which might be so exercised, as to be destructive to the interest of the creditors, for whose benefit the assignments professed to be made. 2. The next objection to the validity of this assignment, is, that it transfers to the assignees the power of managing and controlling the railroad. It is said that the- management of the road is an act of corporate power, which can only be exercised by the corporation itself, and cannot be delegated to others. To this it may be replied, that a corporation can only act through the intervention of agents ; the corporation itself is a mere artificial or ideal person, having neither volition nor action. And I apprehend that it may be laid down as a general rule, that a corporation may appoint any one, for the doing of any act, the performance of which is not expressly or necessarily limited, by the terms of the charter, to the directors or other officers of the institution. Angelí and Ames on Corp. 121, 149. An illustration of this rule is found in the case of Ridgway v. The Farmers Bank, 12 Serg. & *269Rawle, Rep. 265. It was there held, that the directors had power to • authorize the president and cashier to borrow money for the use of the bank. Here the corporation could not assign the railroad itself, because that is a mere franchise, and is not in its nature assignable ; the profits of the road was the only thing in connection with it, which could be assigned, or which teas actually assigned. There was, therefore, an obvious propriety in giving to the assignees, temporarily, the control of the road, with a view to its completion, and the receipt and application of its profits to the payment of debts. In the management of the road, they were the mere agents of the corporation, and I do not see how the leading objects of the assignment could have been accomplished in any other form. In the case of Cunningham v. Freeborn (11 Wend. Rep. 240), the subject of the assignment was an iron foundry, and the assignee was clothed with power to keep the establishment in operation; and to work up, and sell, the unmanufactured articles then on hand. Justice Nelson, referring to this feature of the case, says: “ In all this I can perceive no violation of law, or of honesty and fairness. It was a kind of property not readily convertible into money, and valuable only in the business in which it had been employed ; and we cannot say that provision in the assignment was injudicious, much less illegal.” The case of De Forrest v. Bacon, 2 Conn. Rep. 633, is an authority to the same point. By the 17th sec. of the bank charter, in the case before me, it is provided that a committee of stockholders shall be the superintendents of the railroad. Even if this provision has any bearing upon the question before me, still it does not appear but what these assignees are such stockholders, and, if so, their appointment would be within the letter of the charter. But suppose the directors had no power to constitute the assignees their agents, with a view to the control of the road, and the receipt of the profits thereof; can the validity of the act' be called in question in this manner ? Is it not a matter wholly between the directors and the stockholders, or between the stockholders and the government, as a question of violation of the charter ? If the stockholders have tacitly ratified it by their acquiescence, and the State has not elected to regard it as a violation of their charter, *270can the validity of the act be questioned by another person ? I think it cannot. And this I understand to have been the opinion of the Supreme Court of the United States, as expressed in 12 Wheaton’s Rep. 89, in which the Court adopt the rule as declared in the Bank of the Northern Liberties v. Cresson, 12 Serg. & Rawle, 306. I consider it as a mere question, whether the corporation has exceeded its powers, or not, and that cannot be inquired into, either in this form, or at the instance of these defendants. Silver Lake Bunk v. North, 4 John. Ch. Rep. 370 ; 3 Rand. Rep. 136.
3. Another objection to this assignment, is, that the directors have reserved the power to appoint new trustees, to fill any vacancy that nsay occur by death or otherwise ; and the case of Riggs v. Murray, 2 John. Ch. Rep., is relied on as an authority in support of this objection. It is true, that the reservation by the grantors in the deed, of the power to remove and appoint other trustees, was one of the features upon which that assignment was declared fraudulent and void. But the leading view, in that case, was the reservation of power to revoke, alter, and vary the trusts which were declared in the deed. The reservation, in that case, was not merely a power to appoint new trustees, when accident or design should create a vacancy; but a power to remove, at pleasure, those already appointed ; thus retaining a control over the trustees, and bolding them in obedience to the will of the grantors : and this was justly considered as equivalent to a power on their part to control and direct the administration of the whole trust-fund. It may be readily admitted, that such a provision is wholly inconsistent with the very nature and purposes of such an assignment: to be effectual, it must divest the grantor of all control or authority over the property assigned ; having parted with the title, be must also part with all dominion and control over it. In this case, the power to appoint a new trustee to fill any vacancy that might occur, seems to have been solely and simply intended to keep the trust alive, and in active operation. It is expressly stipulated, that the failure of the board of directors to make such an appointment, shall in nowise affect the trust itself; and that, in such event, the appointment shall be made by the court of chancery. And it is expressly provided, that the directors shall *271not have the power to alter, change, modify, or revoke the trusts there declared.
4. It is next insisted, that the deed is void, because it locks up the property of the grantor for an unreasonable time, before any payment or distribution can take place. What is a reasonable time, in such cases, must depend upon the nature and circumstances of each particular case. What would be reasonable and proper in one case, might be utterly unreasonable and improper in another. Too limited a period of action under the assignment, may be as strong evidence of fraud, as one which is too extended. The time must always be regulated by the nature and character of the property assigned ; and the time necessary to collect and convert it into money. Regard must also be had to the number and distance at which creditors may be placed. For instance, an assignment to a trustee in this State, limiting the time for creditors to file their claims to thirty days, would be clearly fraudulent against creditors residing in London. On the other hand, an assignment extending the time to twelve months, where all the creditors reside in the neighborhood, would be equally fraudulent, unless, from the nature of the property assigned, it could not be put in a shape for distribution at an earlier period. Applying these principles to the case before me, I do not think that the time given is an objection to the validity of the assignment. Much of the property assigned consisted in debts due the bank from persons widely scattered over the country ; and much time would necessarily be consumed in arranging, collecting, or securing these liabilities. It is, moreover, evident, that a large portion of the creditors were those who held the checks, certificates of deposit, and bank notes, which had been issued by the corporation,' and which may be fairly presumed to have circulated over a wide extent of country. It was, therefore, proper that full time should be given to this class of creditors to come in under the deed.
■ 5. A fifth objection is, that the assignees are clothed with power to compromise with the debtors of the bank. To determine this point, it is necessary to look to the circumstances under which this discretion was delegated ; and the restrictions under which it is to be exercised. It must be remembered, that the assignment was made at a period of great pecuniary embarrassment in this State,' *272and that failures and insolvencies were daily occurring. Under this state of things, it was reasonable to suppose that many of the debts due the bank, which were assigned, were of a doubtful character, and if anything could be saved from them by compromise, surely, the creditors of the bank cannot complain ; and, especially, as the deed expressly requires that the compromise shall be made in such manner and upon such conditions, as, in the judgment of the trustees, would be to the interest of the creditors of said bank. The case of Graver v. Wakiman (11 Wend. Rep. 187, 202) is supposed to be an authority in support of this objection. I do not so understand it. There, the assignment established preferences among different classes of creditors, and gave the assignee the power of compounding with any one or more of the creditors of the assignor, still having regard to the order of preference established by the deed. This was considered as clothing the assignee with power to make further preferences among the creditors, and thus produce further inequality between them ; because he might pay more to one, and less to another, than they would be really entitled to under the deed, according as he might operate upon the fears of the one or the hopes of the other. This, as I understand it, is clearly the substance of the decision upon that feature of the assignment. But here, the assignees are authorized to compound, not with the creditors, but with the debtors ; and then only with a view to the security of the debt, and the interest of the creditors.
6. The next objection is, that the assignees are constituted the joint agents of both the corporation and the creditors. But this joint agency only extends to the management of the railroad ; and I understand it to mean, that, so far as the completion and management of the railroad is concerned, they are to be regarded as the agents of the corporation ; but so far as it relates to the receipt and payment of the profits or tolls of the road, they are to be considered as the agents or trustees of the creditors. The corporation was not dissolved by the act of assignment, and the railroad, being a mere franchise, was not assignable ; nor is it attempted to be assigned ; it still remained where the charter placed it — in the hands of the corporation itself. The corporation might, therefore, so far as the construction and preservation of the road was concerned, *273make the assignees accountable to them as their agents. That this is the extent of the agency is perfectly clear ; because, so far as the control and administration of the trust-fund is concerned, the corporation is completely excluded from all power and authority whatever, by the very terms of the assignment. The idea of an agency over anything, presupposes a power and authority in the person creating it. But here, there is no such power or authority in the corporation, so far as the leading objects of the assignment are concerned. The trusts are all pointed out and defined, and the trustees are the sole and exclusive agents through whom they are to be executed. I cannot, then, regard this provision as establishing an authority in the corporation over the assignees, in the discharge of those duties which relate to the creditors.
7. The next objection which is urged against the validity of this assignment, grows out of the provision by which the assignees are prohibited from paying any claim except a particular class of debts, unless the same had been previously pronounced valid by the board of directors ; or unless its validity was settled by suit, or determined by arbitrators to be chosen by the creditors and the assignees. If the power of determining, finally and conclusively, what claims should be allowed, had been reserved to the board of directors alone, I could have no hesitation in declaring the assignment void. But, subject to the qualifications under which their agency, in the matter is placed, I am induced to regard that provision as a mere salutary precaution, to guard against any imposition being practised upon the assignees by means of unjust or fraudulent claims. The trustees could not be presumed to be familiar with the nature of the claims against the bank, and nothing could be more proper than that those claims should be subjected to such scrutiny as would prevent honest creditors from being injured by the allowance of unjust or dishonest claims ; and I see nothing objectionable in the mode pointed out for that purpose.
8. The omission to annex a schedule of the property assigned, is also made an objection to the validity of this assignment. The property is described as all the estate of the corporation, whether real, personal, or mixed, and all the stocks, goods, wares, merchandise, bills receivable, bonds, notes, book-accounts, claims, demands, *274judgments, and dioses in action. This, I think, is a sufficient general description of the property, to give precise information of its nature and extent by reference and inquiry. It is perfectly competent for any creditor to call for a more detailed description of the property, whenever it may be desired. In the case of Cunningham v. Freeborn (1 Edw. Ch. Rep. 264), it was objected to the validity of the assignment,, that there were no schedules annexed, to show the particulars of the property assigned', nor the names of the creditors. But it was held, that such omissions have never of themselves been regarded as sufficient to avoid an assignment. In the case of Hatch v. Smith (5 Mass. Rep. 42), the assignment was assailed upon the ground of the want of a particular description of the property conveyed : but the Court said the description was sufficient ; because, upon investigation, every particular might be easily known. The same answer applies to the case before me.
9. A ninth objection consists in the covenant, by the assignees, to exhibit, periodically, a statement of their accounts to the board of directors. This is supposed to be incompatible with honesty and fairness in the assignment. To my understanding, nothing could possibly be more harmless or innocent in its effect. How an occasional inspection, by the directors, of the accounts of the assignees, could poison and contaminate the assignment itself, or how it could be construed into a reservation of power over .the assignees, at war with the interest of the creditors, I have been unable to perceive. It is to be remembered, that this is an assignment of all the disposable property belonging to the corporation, by which, ultimately, a full payment of all its debts is contemplated. Nothing could be more natural or proper, therefore, than that the corporation should require to be advised, as the execution of the assignment progressed, whether there was a prospect that any surplus would result to their use, after the payment of the debts ; and, also, when they might resume the active control of the railroad, which they had temporarily parted with, to the assignees, to be held until, by the aid of its profits, the debts might be extinguished. This is one of the grounds upon which the Supreme Court of Louisiana decided this assignment to be void. I have not before referred to that opinion, although I have already examined all the *275grounds upon which it seems to have turned. It is the opinion of a civil law court, not very familiar with our system of jurisprudence, by which the validity of the assignment must be determined. It is evident, at all events, that the case was not investigated with the ability and research that usually characterize the decisions of that learned court. All the features of the assignment, which are supposed to be objectionable, are thrown together in close array, and the court, looking to their combined effect upon the instrument, say they are confirmed “ in the opinion, that this is not such an assignment of property, for the benefit of creditors, as would be held valid by the laws of Mississippi.” It wo.uld certainly have been more satisfactory, if the several objections, which are there crowded together, and from which a general conclusion is deduced, had been separately examined, and their precise bearing upon the validity of the assignment more particularly pointed out.
10. The last, and by far the gravest objection, to my mind, is the provision, in the deed, which requires the assignees to pay all the necessary expenses of the president, directors, and company of the bank, in the management of the corporation. If this is to be understood as a reservation for the support of the banking part of the corporation, in contradistinction from the expenses necessary to the preservation of the railroad, it will be difficult, according to adjudged cases, to redeem it from the imputation of being such a reservation, in favor of the assignor, aá to give evidence of an intention to hinder and delay creditors, unless that inference is repelled by other features of the case. And if this be its true character, it must be regarded as a destroying vice, tainting and affecting the whole instrument ; for, although there is some diversity of authority on this latter point, I consider the better opinion to be, that where such an instrument is void in part, it is void, irt toto. Mackie v. Cairus, 5 Cow. Rep. 547 ; Hyslop v. Clark, 14 John. Rep. 465 ; Austin v. Bell, 20 John. Rep. 449. What, then, is the true construction of this reservation ? The counsel for the complainant insist, it can only mean the expenses necessary to the management and keeping úp of the railroad ; because, by the assignment, the banking operation ceased, and no expenses could be necessarily incurred in that particular. If this be the true interpretation, that *276provision is not objectionable, since it would be necessary to keep up and repair the road in order to keep up the fund, from which the creditors are, in part5 to be paid ; and it would, therefore, be rather in their favor than at their expense. This construction derives some force from the fact, that it is only the net proceeds of the railroad that are actually assigned to the trustees. It would seem, therefore, that a portion of the gross profits are left to be applied, by the directory, to the necessary expenses of keeping up the road, and this may be what is meant by “ necessary expenses in the management of the corporation ; ” but it is by no means clear, that this is the true intention of that clause. But suppose it is to be regarded as a reservation for the benefit of the bank, distinct from the road; still, I incline to think,- that, looking to the whole scope of the assignment, the inference of fraud, deducible from this feature, is fully repelled. In all the cases, in which a reservation, for the benefit of the assignor, has been held to avoid the assignment, it will be found, that the amount of the fund assigned is limited and fixed, and the reservation made without reference to the sufficiency of the fund to satisfy all the debts. And this doubtless constitutes the great blemish in all such cases ; because, if the creditors are to be fully paid, notwithstanding such a reservation, they cannot complain on that account. It is the fact, that such a reservation hinders and defrauds them of their full and just demands, that renders it void. If, then, the reservation has not that tendency, so neither should it have that effect. Halcey v. Whitney, 4 Mason’s Rep. 206. But what is the nature, in this particular, of the assignment before me ? It is not merely an assignment of a limited and definite amount of property ; but, in addition to the property specified, there is an indefinite assignment of the annually-accruing profits of the railroad, to be successively applied to the payment, not of a part, but to the whole, of the debts ; and, from anything that now appears to me, I must presume that the fund assigned is sufficient, or will prove so, to accomplish that purpose. It is not, then, a reservation in favor of the assignor, whether all the debts are paid or not. The reason, therefore, which is usually urged against such reservations, would seem not to apply. I think it is not sufficient, to say that this reservation must *277protract the period vrithin which the creditors can be paid, because all assignments of this character tend, necessarily, to some extent, to delay creditors in the assertion of their claims ; but there must be a fraudulent intent manifested to produce such delay.
From this view of the reservation in question, I think it is not, of itself, such evidence of fraud as should induce me to declare the assignment void on its face. If, when the case comes to be examined upon its facts, I should find that the inference of fraud, arising from this feature of the case, is not repelled by other provisions, and it should turn out that it was intended to include a salary to,the president, cashier, and other officers, a different opinion may be pronounced.
I have now examined all the objections to this assignment. I have been fully impressed, at every step, with the difficulty and importance of the case. Many of its features are without precedent, and call for a new application of principles. It pointed, to a great extent, along" an untrodden path; and, although I have bestowed upon it the most patient and earnest consideration, I cannot say that I am entirely free from doubt as to the correctness of all the conclusions upon the various points which I have decided ; and I shall hence be gratified to see it transferred to a higher tribunal, where my views may be either sustained, or my errors corrected.
Let the demurrer be overruled.