Merrill v. Inhabitants of Gray (37 F. Supp. 61, 1941)

PETERS, District Judge.

This is an action by the receiver of a national bank to recover a stock assessment. The defense is (1) that the defendant town had no power to own the stock and that, its purported ownership being void, the assessment was void, and (2) that the town held money under a bequest as trustee and used a part of the funds to acquire the stock in question as an investment for the trust, which investment in the stock was illegal, both under the terms of the will by which it acquired the money and under the laws of Maine.

The case was heard by the court without a jury. I find the facts to be as follows:

The plaintiff in November, 1933, was duly appointed receiver of the First National Bank of Portland, Maine, upon the stockholders of which bank a 100% assessment was duly made by the Comptroller of the Currency on, February 26, 1934. On that date, and in fact, since January 13, 1905, the defendant, a municipal corporation in Maine, “erected into a town by the name of Gray” by the General Court of Massachusetts on June 4, 1779, appeared on the books of the bank as the owner of 26 shares of its stock. The certificate was issued in the name of “the Inhabitants of Gray (Me.)”. In smaller handwriting above the name of the stockholder in the certificate appear the words “M. P. Frank, their attorney”.

The town received its share of the dividends paid to all the stockholders of the bank from 1905 to 1933, inclusive, aggregating $5,187.

By the will of one Henry Pennell, admitted to probate in July, 1884, the town of Gray was given a lot of land with a building thereon which Mr. Pennell had erected in the town of Gray to be used for a school building, it being specified that the devise was to be used forever by the inhabitants of said town for whatever should promote the cause of learning, education and good morals. By the same will the sum of $30,000 was given the town, “to be held by said town in trust * * * and for the following purposes, viz: said fund of $30,000 is to be converted into money * * * and then the same is to be funded and invested in state, city or town bonds or obligations of the New England states or any first class mortgages upon productive unincumbered real estate in Maine in value not less than double the amount loaned thereon exclusive of buildings upon the property. Said investments are to be made by the Selectmen of said Town of Gray unless they shall be satisfied with the investments which shall come into the hands of my Executor and said Selectmen are authorized to receive from my Executor and he is authorized to deliver to said Selectmen said investments at a fair appraisal instead of converting the same into cash if mutually agreed upon by my Executor and by said Selectmen and said fund and nature of saiu investments shall be entered upon the books of said town and be known as the ‘Pennell Fund for educational purposes in the town of Gray’. As these investments mature and fall due other safe and perfectly sure investments shall be made by the Selectmen of said Town of Gray, and entered upon the books of said town known and designated as above.” »

The selectmen were authorized to withdraw from the fund $5,000 for the purchase of books, instruments, laboratory tools, etc., to be used in connection with the school which the donor had established in the building above described. The income of $25,000 was to be used for the payment of salaries of teachers and purchase of fuel for the school. Provision was made for the disposition of the property in case the town refused to accept it, but the town did duly accept the bequests under the will and received the money, investing a part of it in the stock in question. The money received from Mr. Pennell and the proceeds of it were kept separate and called the “Pennell fund” or the “Pennell Institute fund”. The securities were kept by Mr. Frank as the attorney for the town for many years. Mr. Frank was instrumental in procuring the bequest for the town. According to some original checks which have been found, dividend checks were made payable to “Inhabitants of Gray”, and in one or two instances “Inhabitants of Gray, M. P. Frank, atty.” They were endorsed “Inhabitants of Gray, by M. P. Frank, its atty”. during the first years of the transaction, and later by other gentlemen who either endorsed as attorney or as treasurer of the town or as treasurer with the words “Pennell fund” following their name and title.

It is true that if the town of Gray was not permitted under the laws of Maine to hold or own stock in a national bank, the assessment by the Comptroller of the double liability would be a nullity and the plaintiff could not recover. It is also true that if not originally permitted to own the stock, the town could not ratify its acquisition nor take any action which by estoppel or otherwise would make it liable as an owner.

The case of one national hank holding stock in another furnishes a perfect analogy. Concord First National Bank v. Hawkins, 174 U.S. 364, 19 S.Ct. 739, 43 L.Ed. 1007, and cases cited.

The defendant rests its contention that the purchase of this stock by the town was ultra vires and therefore void, upon the general proposition that the only powers a municipal corporation has or can exercise are those granted in express terms, those fairly implied or understood to be granted, and those essential to the declared objects of the municipality, — not merely convenient but indispensable.

Defendant’s counsel in his brief quotes from Lovejoy v. Inhabitants of Foxcroft, 91 Me. 367, 40 A. 141, 142, in which the court said: “Towns in Maine, as in the other New England states, are territorial divisions into which the territory of the state is divided by the legislature for politi