[Beaston v. The Farmers' Bank of Delaware.]

at the January term, 1832. At the April term, 1830, of the circuit court, a bill in equity was filed against the said bank at the suit of the United States; and Nathaniel Williams and John Glenn were appointed, by an order of court, receivers, with authority to take possession of the property of the said bank, to dispose of the same, and to collect all debts due to it.

The proceedings by the United States against the Elkton Bank, and the acts of the receivers, Mr. Williams and Mr. Glenn, were made a part of the agreement as to the facts of the case.

At December session, 1829, application was made to the legislature of Maryland, by the several persons who were the acting presidents, and the acting directors of the said bank, for the act which was passed at that session, ch. 170; which, with all other acts relating to said bank, are to be considered as part of this statement.

The act of the legislature of Maryland, authorized the appointment of trustees by the stockholders of the Elkton Bank, on certain notice of the meeting of the stockholders being given; who were to take possession of the whole of the property of the Elkton Bank, and to proceed to the adjustment of its concerns. A meeting of the stockholders was convened on the 17th day of May, 1830, which was the third Monday of said month, but without the publication of the notice mentioned and required in the act incorporating the bank and its supplements; and at the said meeting, a majority of the stockholders appointed two trustees, in conformity to the provisions of said act, who declined accepting: and no trustees have ever been since appointed, nor has there since been an annual, or other meeting of the stockholders, or an election of directors; nor have there been any banking operations carried on by any persons professing to be the corporation of the Elkton Bank, since March, 1829. At September term, 1828, the Elkton Bank obtained a judgment against George Beaston, for the sum which is attached in this suit; which, at the time of the issuing and service of this attachment, had not been paid by Beaston. At April term, 1830, the Farners' Bank of Delaware obtained, in Cecil county court, a judgment against the president and directors of the Elkton Bank, for five thousand dollars, with interest from 9th of December, 1825, till paid, and costs; and before the appointment and bonding of the receivers as foresaid, and on the 24th of September, 1830, upon that judgment, issued this attachment; and attached in the hands of said Beaston, the sum of five hundred dollars: and after this attachment was issued and served, and after

[Beaston v. The Farmers' Bank of Delaware.]

the affirmation of the judgment of the circuit court by the Supreme Court, an attachment was issued by the United States, and the other proceedings had, as appeared by the records of the circuit and Supreme Courts of the United States, which were made part of the case. Beaston has actually paid, and satisfied the United States, the amount for which judgment of condemnation was rendered against him in the circuit court. It is admitted that, up to the time of the decision in the Supreme Court, the said receivers never had collected or received, or by any process of law attempted to collect or receive the said debt attached in this case. The question for the opinion of the court is, whether the plaintiff can sustain the present attachment?

By the record of the proceedings in the circuit court of the United States for the district of Maryland, it appeared, that upon the judgment obtained in December, 1829, against the Elkton Bank of Maryland, the United States, on the 2d of July, 1831, issued an attachment against the effects of the Elkton Bank; which attachment was laid on the effects of the bank, in the hands of George Beaston, on the 19th of October, 1831.

The answers to the interrogatories filed on behalf of the United States by George Beaston, stated "that prior to the time of laying the attachment in this cause, he was indebted to the Elkton Bank of Maryland, in the sum of five hundred dollars, or thereabout, with interest from some time in 1828; (the period not now exactly recollected;) that in October, in the year 1830, an attachment at the suit of the Farmers' Bank of Delaware against this deponent, as garnishee of the Elkton Bank of Maryland aforesaid, was served on him, returnable to Cecil county court, where the said attachment, last mentioned, is still depending: that, at the time of the service of the attachment in this cause, at the suit of the United States, the said sum of five hundred dollars, and interest, was in the hands of deponent, and still remain. so; who claims to retain the same, as he is held liable to the payment of the attachment first served on him, at the suit of the Farmers' Bank of Delaware aforesaid; and as he considers himself entitled to a set-off, as is hereinafter stated. Deponent further says, that he does not exactly recollect the time when said debt was contracted, as he has had various negotiations with said bank; but that, at the time he received money from said bank as a consideration for his debt, it was received in the notes of the said Elkton Bank; which were then, as he believes, in a state of depreciation of from ten to twenty per cent. on their nominal value."

VOL. XII.-0

[Beaston v. The Farmers' Bank of Delaware.]

That since the service of the summons in this cause, he has not paid to the Elkton Bank aforesaid, or to any other person, for the use of said corporation, any part of the money aforesaid; nor has he made any transfer of goods, property, or effects, to secure the payment thereof, or any part thereof; that he is the bona fide holder and owner of notes of the Elkton Bank aforesaid, of the value nominally of eight hundred and forty-two dollars and thirty-one cents; and he claims to set-off against any demand made in this, or any other proceeding against him, for the debt aforesaid, so many of the said notes at their nominal value, as may be equal to the sum claimed from him in this attachment, as garnishee of said bank.

George Beaston also filed a plea of nulla bona, in the following words: "That the said United States of America, condemnation of the said sum of money in the attachment aforesaid, and return thereof specified in the hands of him, the said George Beaston, as of the goods, chattels and credits of the said president and directors of the Elkton Bank of Maryland, ought not to have; because he saith that the said George Beaston, at the time of laying the said attachment in the hands of him, the said George Beaston, he had not, nor at any time since hath had, nor now hath, any of the goods, chattels, or credits of them, the said president and directors of the Elkton Bank of Maryland, in his hands; and this he is ready to verify. Wherefore, he prays judgment whether the said United States of America, condemnation of the said money in the attachment aforesaid, and return thereof specified, as of the goods, chattels, and credits of the said president and directors of the Elkton Bank of Maryland, in the hands of him, the said George Beaston, to have, ought, and so forth."

The United States filed a replication to this plea, and issue being joined, the parties went to trial on the pleadings; and a verdict was found by the jury in favour of the United States, for six hundred and eighty-five dollars and sixty-six cents.

On the case thus agreed on, and the matter set forth and referred to in the same, the Cecil county court gave a judgment in favour of George Beaston; and the plaintiffs appealed to the high court of appeals of the state of Maryland. The judgment of the court of Cecil county was reversed by the court of appeals of Maryland; and the defendant prosecuted this writ of error to the Supreme Court of the United States.

The opinion of the court of appeals of Maryland, states the rea

[Beaston v. The Farmers' Bank of Delaware.]

sons which induced that court to reverse the judgment of the court of Cecil county. It was as follows:

"Exemption is claimed by the defendant, from the operation of the attachment in this case. Having had judgment of condemnation passed against him, for the amount he stood indebted to the Elkton Bank of Maryland, at the suit of the United States, and having paid the money under such judgment, he rests his defence upon an alleged priority given by the acts of congress to the government; and upon certain proceedings of the government had in the circuit court of the United States for the district of Maryland, for the recovery of his claims against the Elkton Bank of Maryland. The priority of the United States is supposed to be founded on the just construction of the laws of congress, making provision for the collection of her debts. We have been referred, in the argument, to the law of 1789, ch. 5, sec. 21: 1790, ch. 35, sec. 45: 1792, ch. 27, sec. 18: 1797, ch. 74, sec. 5: and the collection law to be found in the 3d vol. of the Laws of the United States, ch. 138, sec. 65. Interpretations of various decisions of the Supreme Court of the United States, and of the circuit courts, have been given to these acts of congress, which leave no doubt as to their construction. It will be, therefore, only necessary to refer to them. The two first acts above cited, had reference to bonds given for duties; and the third act above referred to, made provision in relation to the securities in such bonds. These acts gave a preference to the United States in all cases of insolvency, or where any estate, in the hands of executors or administrators, shall be insufficient to pay all the debts of the deceased; and it was declared that the case of insolvency referred to, should be deemed to extend to all cases in which a debtor, not having sufficient property to pay all his debts, should have made a voluntary assignment thereof for the benefit of his creditors, or in which the estate and effects of an absconding, concealed, or absent debtor, shall have been attached by process of law; or to cases in which an act of legal bankruptcy shall have been committed: and, by the two subsequent laws, the same provision was made, securing the priority of the United States, and applying them to all other debts due to the United States. In the year 1805, the Supreme Court were first called upon to put a construction upon these laws; and it was adjudged, in 3 Cranch, 73, that the United States would gain no priority, in case of a partial bona fide transfer of his property by the debtor; but could only obtain it by such a general divestment of property as would, in fact, be equiva

[Beaston v. The Farmers' Bank of Delaware.]

lent to insolvency, in its technical sense. In 1810, the same court decided that the term "insolvency," as used in the first acts, and bankruptcy," as used in the latter acts, are synonymous terms. That priority must be confined to the cases of insolvency specified in the act; and that insolvency must be understood to mean a legal, known insolvency, manifested by some notorious act of the debtor, pursuant to law; not a vague allegation which, in adjusting conflicting claims of the United States, and individuals against debtors, it would be difficult to ascertain; 8 Cranch, 431. The same construction has been maintained in 2 Wheat. 396, and 4 Peters, 386; and, in a very recent case, Mr. Justice Thompson says, "the act looks to a legal insolvency, where the property is taken up by the law for distribution among the creditors of the debtor. There is no difficulty in the construction of the statute, until we arrive at the last phrase, "legal bankruptcy." What is legal bankruptcy? In 1797, when the act of congress was passed, the United States had no bankrupt laws. The words, in their connection, seem to have reference to the previous cases put in the section, and to point out some legal insolvency or some mode of proceeding, by which the property of the debtor is taken out of his hands to be distributed by others; Paine's C. C. R. 629. Such being the construction of the acts of congress, giving the government a preference; we proceed to inquire whether the Elkton Bank was in such a situation as to impart to the United States this preference.

"The above facts demonstrate the inability of the Elkton Bank to pay her debts, as admitted in the statement, they could not, per se, give to the United States the preference contended for. It must, in the language of the authorities, be a known and legal insolvency; the former of which is not admitted, and the latter could not be predicated of such a condition.

"Does the act of 1829, ch. 170, with the proceedings consequent thereon, give rise to the priority contended for? This act provided for the election, at the next annual meeting of the stockholders, held in pursuance of their charter, of two trustees, to settle all the outstanding debts and credits of the bank; and further provided, that they should be elected in the same manner as the president and directors have been heretofore elected. By referring to the charter of the bank, it will be found that one of its fundamental laws required the president and directors to give one month's notice, in the most public places in the county, and in some public print in the city of Balti