From Edmund Randolph
[Philadelphia, October 18, 1791]
The attorney-general of the United States does himself the honor of replying to the questions, propounded by the secretary of the Treasury of the United States, in his letter of the 12th of October 1791,1 as follows.
1st. The Commissioners, appointed in pursuance of the act, incorporating the bank of the United States,2 have no power, as such, to superintend the election of directors, or to interfere therein.
By the first section of that act, subscriptions towards constituting the stock were to be opened, under the superintendance of such persons, not less than three, as should be appointed for that purpose by the President of the United States; the President was to appoint them accordingly; and the subscriptions were to continue open, until the whole of the stock should be subscribed.
The fifth section provides, that as soon as the sum of 400,000 dollars, in gold and silver, shall have been actually received on account of the subscriptions to the said stock, notice thereof shall be given by the persons, under whose superintendance the same shall have been made, in at least two public gazettes, printed in the city of Philadelphia; that the said persons shall at the same time, in like manner, notify a time and place within the said city, at the distance of ninety days from the time of such notification, for proceeding to the election of directors; that it shall be lawful for such election to be then and there made, and that the persons, who shall then and there be chosen, shall be the first directors.
These are the only clauses, which relate to the commissioners.
By the former clause their authority would have been concluded, as soon as the whole of the stock was subscribed.
Nor was it extended by the latter farther than to enable them to notify the time and place for proceeding to the election of directors, that is, the time and place, when and where the persons, capacitated to elect, should proceed to elect.
The commissioners will, I suppose, appear with the Books, that it may be known, who were the original subscribers. But this duty naturally arises from their possession of those books, which are the best evidence of the original rights. The superintendance of the election has no analogy to such a possession.
2ndly. But does the smallest necessity exist, why the commissioners, as such, should become the judges or superintendants of the election, or in any manner intermeddle in it? Is it not familiar to the experience of every day, that persons assemble, with equal priveleges of suffrage, and without the preeminence of any one of them, in order to constitute a body for the management of business? The first step is to appoint a moderator or chairman. In the present instance, the stockholders may with ease choose one or more persons to receive, and count the votes, to report the numbers, minute the proceedings, and notify to the newly-elected directors their nomination. This seems to be a completion of the work.
3rd. Altho’ in the 5th. section of the act, which requires the first election of directors, it is not said, by whom it shall be made; yet is the connection between that and the 4th. section so intimate, as to render it certain that it must be made by the stockholders, or proprietors of the capital stock.
Whether these terms be synonimous, or not it is immaterial here to examine. It is sufficient to say, that no man can be one or the other, except by virtue of an original subscription, or an assignment duly made of that subscription. Here lies the essence of the difficulty. Can an assignment be made before the first election of directors? The Script, it is true, may be contracted for; may be delivered into the hand of the purchaser; and the price may be actually paid. But it is a creature of the bank-law, and its Mode of transfer depends upon that law. Accordingly it is declared, in the 12th section, that the stock of the said corporation shall be assignable and transferable, according to such rules, as shall be instituted in that behalf, by the laws and ordinances of the same. Now the election of directors preceeds the institution of laws and ordinances concerning the assignment and transfer of stock; and therefore no assignment of transfer can, as yet, be legally made. It is true indeed, that the delivery of Script amounts to an agreement to transfer the stock, when the laws and ordinances shall be instituted; and the seller will be compelled in a court of law to perform all acts, which shall be hereafter necessary to the transfer. But an agreement to transfer is not an actual transfer. Hence I conclude, that no holder of purchased script can be now accepted, (merely in right of his purchase) as a voter for directors.
It is proper, however, to take notice of three objections, which may be urged against these positions. The first is, that the giving of a power to the corporation to ordain rules of transfer does not exclude the usual modes of transfering personal property before those rules shall be formed. The second, that the provision, that after the first election no share shall confer a right of suffrage, which shall not have been holden three calender months, previous to the day of election, implies, that at the first election shares assigned confer a right of suffrage; and the Third, that if the present assignees be shut out, either a sufficient number of stockholders may not be found to elect, or the original subscribers, who do not retain a shilling of interest, will be admitted to a vote, without any attachment to the common welfare.
To the first objection I answer, that the nature of script must be an acknowledgment of a certain subscription to the bank of the United States: that it does not resemble a corporeal chattle, to which delivery constitutes a complete right but rather a chose in action, concerning which the purchaser cannot without the aid of a statute use his own name judicially, but must use that of the original proprietor. Besides, the third section had already vested the corporation with ample power to regulate transfers; and the twelfth would have been nugatory, had it not been intended to prevent transfers from being full alienations, without an observance of the rules to be established.
The force of the second objection is destroyed, when we recollect; that, altho’ it be admitted that at the first election, shares acquired at any time before, howsoever short, would give a vote, yet the clause undoubtedly had in view, what every body expected, that the subscription would be filled by degrees; and therefore that no subscriber, even on the day preceding the first election, should be deprived of a vote. The objection is also founded on too distant an implication, to counteract reasoning, otherwise weighty.
The consequence of the foregoing sentiments undoubtedly is, (as a branch of the third objection expresses) that original subscribers, who may have sold out and who no longer have a fellow-feeling for the success of the scheme, will be admitted to vote.
Is this the genuine construction of the law? If it be, it is not for any man to discuss the propriety of its consequences, I confess, that a consequence, extravagantly absurd, ought to lead us to be confident, that congress never contemplated it. But in many of the States we meet with a similar instance with the present. In certain elections none but freeholders can vote. In this none but stockholders or proprietors of capital stock can vote. Let it be supposed, that the freeholder has agreed in writing to convey to another his freehold, has received the purchase money and delivered the possession; as in the case of Script, the original subscriber may have agreed to sell, has indorsed upon it an assignment and delivered it, so indorsed, to the purchaser. This agreement as to the freehold would be considered in the States, to which I refer, as giving an equitable title only to the buyer, and reserving the legal title to the vendor. So in Script, the purchasers have the equitable while the original subscribers retain the legal title. Who would vote in the case of the freehold? The holder of the legal title. Who by a parity of reason ought to vote for directors? The person, who, being the original subscriber, is alone known, as the holder of the legal title. I have seen none of those indorsements or writings, by which Script has been attempted to be transferred: and therefore will not undertake to say, whether they amount to a substitution of the purchaser, as the proxy of the seller. He, who claims to be a proxy, ought to exhibit, if not a regular letter of attorney, at least some authentic appointment to the office. I have distinguished also between the real interest, and the right of voting at the first election. Hence the conveyance of one does not absolutely insolve the other. But I can concieve, that the words of those indorsements, may perhaps be broad enough, to justify a demand of the rights of a proxy.
4th. The proxies, however, of no subscriber can have more votes, than himself. For example, four shares subscribed by one man, cannot by being divided into the hands of four proxies, confer four votes, as would have been the case, if each of them had subscribed a share. But what is to be done, if a subscriber has appointed several proxies? He may appoint, what number he pleases; but if they are divided, they cannot be called the proxies of an individual (if I may be permitted so to speak) integrally. To be the real proxies then, they must concur. It may perhaps be presumed, that, if the subscriber were in the division of his shares among his proxies to make them representatives respectively of so many, as would give them one or more votes, each might vote by himself. But their power being that of proxies only, they cannot claim separate suffrages; because they spring from the separate holding of stock in one person or in other words from separate subscriptions.
5th. The fifth question being answered in the foregoing observations, I forbear to repeat the answer. But I will now recapitulate the general result.
1st. That the commissioners cannot, as such superintend, or intermeddle in the election.
2nd That the stockholders can easily of themselves provide judges of the election.
3rd. That the original subscribers, whether holding interest or not, or their proxies, have the only right of voting.
4th. That proxies may be made by any authentic act.
5th And that all the proxies of the same subscriber must concur.
I pass by the possibility of a schism between the original subscribers or their proxies, and the assignees, as they are called, and of the election of two sets of directors. For this makes no part of your enquiry; and would be remedied by the commissioners, delivering up the books and money to that set, whom they think to be duly elected.
To the Secretary of the Treasury
DS, RG 60, Copies of Opinions, National Archives.
1. Letter not found.