Case ID: mass_27/html/0462-01.html
Source: Caselaw Access Project
Author: {"author": "Shaw C. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The President, &c. of the Plymouth Bank versus The President, &c. of the Bank of Norfolk.
    Whether a by-law of a bank, by which the stock of each member of the corporation is pledged for any mpney which he may at any time owe the bank, is valid as against other creditors of the stockholder, qumre.
    The plaintiffs having gone With a sheriff to attach the shares of a stockholder in a bank, was informed by the cashier, that by virtue of such a by-law the shares of the stockholder were pledged to the bank for their full value, as security for a loan made to him, and likewise that he had assigned the shares to another creditor who had exhibited the assignment, the certificate of stock and a power of attorney to transfer the same, and that such creditor had made a demand on the bank to have the shares transferred on their books, which they had refused, claiming to hold the shares as pledged to themselves ; the plaintiffs nevertheless caused the sheriff to attach the shares, and they were afterwards sold on the plaintiffs’ execution against the stockholder and were bought by the plaintiffs. In an action by the plaintiff's against the bank for refusing to transfer the shaves to them, it was held, that either the pledge to the bank or the assignment to the other creditor was valid, and so the plaintiffs had no cause of action against the bank.
    Where the owner of stock in a bank assigns the same to two persons, and gives one of them a power of attorney to transfer the. same on the books of the bank, such power is valid ; and whether the attorney is thereby authorized to make the vans fer to both of the assignees, or to himself alone, is immaterial.
    This was an action on the case against the defendants, for not transferring to the plaintiffs thirty shares in the capital stock of the Bank of Norfolk.
    At the trial, before Morton J., it appeared that one Langdon was an original subscriber to the stock of the Bank of Norfolk, for thirty shares, and was present at the passing of the by-lawa of that bank, and consented to the same. The 9th by-law provides, that the stock .of any member of the corporation shd be transferable only at the bank ; and this is stated in the certificates of stock. The 12th by-law is as follows: — “The stock of every member of this corporation shall be considered and hereby is pledged to the corporation for any or all moneys which such member may at any time owe the bank, and the board of directors may, if they see fit, refuse to make any transfer or pay any dividend upon the stock of any member who may be so indebted, until such debt be fully discharged.”
    On March 14th, 1827, Langdon offered his note of that date, at four months, for $4000, indorsed by Walley & Foster, to the Bank of Norfolk, for discount, and a discussion taking place among the directors on the subject of the note, the agent of Langdon said there would be no risk in discounting it for the sum of $ 3000, as Langdon had thirty shares in the capital stock of the bank, amounting to that sum, which would be held by the by-laws as security for the note ; and this fact being ascertained by a reference to the books, the note was discounted for the sum of $ 3000. Before the expiration of the four months, Langdon became insolvent, and the directors thereupon, to wit, on the 18th of April, 1827, ordered the cashier not to transfer the shares nor pay any dividend thereon, until the note should be paid. The note remains unpaid, the indorsers as well as the maker having become insolvent, and the defendants have no security for the same, except these shares.
    On the same 18th of April, Langdon, bond fide and for an adequate consideration, assigned all his right, title and interest in the thirty shares to David Lowland Thomas Cordis, and as a part of the same transaction, executed a power of attorney to Low, upon the back of the certificate, for transferring the same shares upon the books of the bank ; and on the 19th of April, Low presented the assignment and power at the bank, and demanded of the cashier to transfer the shares into the name of Low, upon the books of the bank, but the cashier refused, and informed Low that the bank held the shares as pledged for the payment of the note above mentioned, and exhibited to him the 12th article of the by-laws.
    On the 21st of April, the plaintiffs caused a w'rit of attachment to be sued out against Langdcn, and deliverec the same to a deputy-sheriff for service. The officer called at the bank with Alexander Bliss, the plaintiffs’ attorney, for the purpose of attaching the thirty shares as the property of Langdon, and was there informed by the cashier, that the shares were held by the bank as pledged for the payment of the note before mentioned ; and also that the title of Langdon, if he had any, had been assigned to Low and Cordis, and that they had demanded that the shares should be transferred into the name of Low, and that the bank had refused in the manner and for the cause above stated. The cashier delivered to the officer a memorandum of the number of the certificate of the shares, supposing the statute made it his duty to do so, and also delivered a copy of the by-law to the plaintiffs’ attorney, after reading the same in their presence and hearing. The officer nev-. ertheless, in pursuance of orders from Bliss, proceeded to attach Langdon’s interest in the shares. The plaintiffs after-wards obtained judgment and execution against Langdon, and the shares were seized and sold upon the execution. At the time and place appointed for the sale, Cordis and the agent of the Bank of Norfolk, in the hearing of the company assembled, severally forbid the sale, but the officer proceeded to sell the interest of Langdon in the shares, and the same was bid off by B. Hedge, as agent for the plaintiffs, as appears by the return upon the execution, a copy of which was left with the cashier of the Bank of Norfolk ; and Hedge thereupon demanded a transfer of the shares to the plaintiffs, which was refused for the causes above mentioned, and a copy of the 12th article of the by-laws was given to Hedge.
    Upon these facts the jury were instructed; that the by-law was valid and effectual to justify the defendants’ refusal to transfer the shares to the plaintiffs ; and that if there was any defect in the by-law, yet the assignment to Low and Cordis and the proceedings under the same, being prior in point of time, must be preferred, and would exclude the claim of the plaintiffs.
    A verdict for the defendants was taken by consent. If the direction of the judge was right, or if upon these facts the defendants were entitled to a verdict, then the verdict was to stand ; otherwise a new trial was to be granted.
    
      Mann, for the plaintiffs.
    The by-law by which the defendants claim to hold stock to cancel a debt of a stockholder, is inoperative against an attaching creditor of such stockholder. In Nesmith v. Washington Bank, 6 Pick. 329, and Sargent v. Franklin Ins. Co. 8 Pick. 90, there is a strong intimation to that effect; but independently of authorities, on general principles such a by-law is invalid. By a private engagement between the corporation and the individual stockholders, the St. 1804, c. 83, § 5, which makes such property attachable, is virtually repealed. A by-law which is to have so important an effect, ought at least to be promulgated by some public notification. Such a by-law is unreasonable and against the policy of the law, inasmuch as the bank, on account of a small sum due to them, might sequester property to a vast amount and put it out of the reach of other creditors.
    
      Nov. 2d.
    
    The defendants will urge that they held for the benefit of Low and Cordis, but after they have refused unconditionally to transfer to those assignees, and have given notice of it to the plaintiffs, and have furnished the plaintiffs with a certificate of the shares standing in the name of Langdon, (which they were not obliged to do unless he was the owner,) it is not compe tent to them to stand upon the title of the assignees.
    But admitting that the defendants are not so estopped, yet as Low and- Cordis had notice, by the certificate of the stock, that the shares were transferable only at the bank, and the bylaw was shown to them, the by-law ás to them was valid, and they took subject to the claims of the defendants. Willis v. Twambly, 13 Mass. R. 206 ; Taylor v. Stibbert, 2 Ves. jun. 437 ; Davis v. Austen, 1 Ves. jun. 249 ; Clute v. Robison, 2 Johns. R. 595.
    The claim of Low and Cordis cannot be sustained, inasmuch as the assignment was to both, but the power of attorney was to Low alone.
    At most, until a transfer should be made to Low and Cordis upon the books of the bank, they could have only an equitable title ; whereas the plaintiffs have a legal title ; and there being no fraud on their part, the legal title must prevail. At the time when the plaintiffs set out to make their attachment, the title had not passed out of the debtor to their knowledge. Expenses had been incurred by them before they arrived at the bank, when they were told of the supposed lien of the bank, and of the assignment to Low and Cordis. The lien was invalid as against themselves ; and they were informed that the bank had unconditionally refused to give a certificate of stock to Low and Cordis ; they were therefore not bound by law, to give up their pursuit of security by an attachment of the shares. Priest v. Rice, 1 Pick. 164 ; Cushing v. Hurd, 4 Pick. 253 ; Warden v. Adams, 15 Mass. R. 233; M‘Gregor v. Brown, 5 Pick. 170; Lanfear v. Sumner, 17 Mass. R. 110 ; Shumway v. Rutter, 7 Pick. 56 ; Howe v. Starkweather, 17 Mass. R. 240 ; Sargent v. Franklin Ins. Co., 8 Pick. 90.
    
      D. A. Simmons., contrà.
    
    To show that the defendants had authority to make the by-law in question, and that it was a reasonable by-law, he cited St. 1825, c. 150, § 1,2; St. 1811, c. 84, § 1 ; Union Bank v. Laird, 2 Wheat. 390 ; Bank of Utica v. Smalley, 2 Cowen, 777 ; Rogers v. Huntington Bank, 12 Serg. & Rawle, 77 ; Grant v. Mechanics' Bank, 15 Serg. & Rawle, 140 ; 2 Kyd on Corp. 98, 103 ; Lyndon v. Gorham, 1 Gallison, 367 ; Mutual Ins. Co. v. Korn, 7 Cranch, 396 ; Korn v. Mutual Ins. Co. 6 Cranch, 192; United States v. Hooe, 3 Cranch, 89; Stevens v. Bell, 6 Mass. R. 342.
    Independently of the by-law, however, the conversation between the defendants and the agent of Langdon at the time when the note was discounted, amounted to a specific pledge of the stock.
    If the defendants cannot retain the shares as pledgees, Low and Cordis have a valid title, of which the plaintiffs had notice before they made their attachment. Rankin v. Scott, 12 Wheat. 177 ; Bates v. New York Ins. Co. 3 Johns. Cas. 238 ; Dix v. Cobb, 4 Mass. R. 508 ; Quiner v. Marblehead Soc. Ins. Co. 10 Mass. R. 476 ; Ellis v. Essex Merrimack Bridge, 2 Pick. 243 ; Nesmith v. Washington Bank, 6 Pick. 324 ; Sargent v. Franklin Ins. Co. 8 Pick. 90 ; Taylor v. Bates, 5 Cowen, 376 ; Jarvis v. Rogers, 15 Mass. R. 389.
   Shaw C. J.

afterward drew up the opinion of the Court. The plaintiffs, if they can recover at all, must recover by the strength of their own title ; and if they cannot establish a valid title, it is wholly immaterial to any question in this action, whether Low and Cordis, or the defendants themselves, have the better title. As these parties are not now before the Court, it would be obviously premature to intimate any opinion upon their relative claims.

The plaintiffs claim the property in these shares, by attachment, seizure on execution and sale by the sheriff, pursuant to the statute, and no question is made of the formal regularity of their proceedings.

The defendants resist the claim, first, on the ground that the shares were lawfully pledged to them for their value, but if not, that secondly, they were rightfully transferred to Low and Cor-dis, and both these transfers preceded the plaintiffs’ attachment. And the Court are of opinion, that upon one or other of these titles the defendants had a right to hold the shares, and that the direction to the jury was right.

. Whether the bank could hold to their own use, we give no opinion, nor is it necessary ;* because if they could not, then we are clearly of opinion, that the transfer to Low and Cordis was valid, and prior to the attachment. It is found that Lang-don, in good faith, and for an adequate consideration, assigned all his right, title and interest in the shares to Low and Cordis, and surrendered the certificate, and executed a power to Low, authorizing him to transfer the shares in due form at the bank, and that Low presented the assignment, power and certificate at the bank, and demanded a transfer. This, as against Lang-don, divested his interest and left nothing for the attachment to operate upon. Even if it were likened to the case of chattels, it is like that of chattels in the custody of another ; and in such case, a sale for a valuable consideration, and an order on the depositary to deliver and notice to him of such order, is a valid sale to divest the property of the vendor, whether the depositary obeys the order and delivers the propeity, or sets up a title or lien and claims to hold it for himself.

It is said, howevpr, that the power was to Low alone ; but that was sufficient. It was a mere ministerial act; it was accompanied with the certificate, and one could make the transfer as well as more. And if it were to transfer to himself alone, it would make no difference, because, as the power was presented with the assignment, it was to demand a transfer to be made subservient to the assignment, and if it was to Low alone, it was probably to the use of himself and Cordis.

But it is insisted, as a more decisive objection, that the defendants refused to admit the assignment and make the transfer, and that no transfer was in fact made on the books of the bank, and that they cannot now set up the assignment as a transfer.

It is true that they did refuse to make the transfer, but it was provisionally, and upon the hypothesis that they had a better title themselves. Except subject to this, they had no right to refuse to admit the title of Low and Cordis, and did not claim to do so. Low and Cordis therefore, having complied with the rules of the bank, presented the certificate with a valid power at the bank, and demanded a transfer, had done all that was requisite to complete their title, and had a right to claim and hold the shares, unless the defendants could show an elder and better title. And if on suit brought against the bank they could not establish such superior title, they would be liable to Low and Cordis, for the full value of the stock, as upon an unlawful detention and appropriation, in nature of a conversion. Hussey v. Manuf. & Mech. Bank, ante, p. 415.

The plaintiffs then have failed to establish their title, under the attachment, seizure on execution and sale, and therefore there must be

Judgment on the verdict. 
      
       In Delaware a by-law giving a lien on stock for the debts of the owner, is held to be valid. M‘Dowell v. Bank of Wilmington, 1 Harrington, 27.
     
      
       See Chitty on Contr. (4th Am. ed.) 308, and notes.