Case ID: ohio-st_85/html/0043-01.html
Source: Caselaw Access Project
Author: {"author": "Davis, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

The State of Ohio v. Davis.
    
      Indictment under Section 30 of Free Banking Act — Section 3821-85, Revised Statutes — Relating to embezzlement by bank officers— Bank officer charged with abstracting, without authority, of certificates of said bank — Not an offense under laws of Ohio — ■ Such certificates not shares of stock, funds or moneys — But merely receipts of payment for shares — Banking laws.
    
    Where an indictment under Section 30 of the Free Banking Act (Revised Statutes, 3821-85) charges the defendant as an officer of a bank with abstracting, misapplying and embezzling property of the bank, to-wit, certificates of the stock of such bank of the value of fifty dollars per share on which only sixty per cent, thereof had been paid, which certificates of stock had theretofore been pledged to such bank as security for moneys theretofore received by him, which abstraction was without authority from the other officers or directors of such bank, with intent to injure and defraud the bank, and that he did so injure and defraud the bank, such indictment does not charge an offense under the laws of Ohio, because
    1st. Such certificates are not shares, but only receipts or acknowledgments that defendant had paid sixty per cent, on each share; and by virtue of Section 11 of the Free Banking Act (Revised Statutes, 3821-70) the bank had a lien on the shares allotted to the defendant and had complete control over the assignment and transfer of the same, and therefore the possession of such certificates gave to the bank no additional rights or benefits.
    2nd. Such certificates are not moneys, funds or credits of such bank, within the meaning of Section 30 of the Free Banking Act (Rev. Stat., Sec. 3821-85).
    (No. 12751 —
    Decided October 31, 1911.)
    Error to the Circuit Court of Columbiana county.
    The defendant in error was indicted jointly with Corwin D. Bachtel, by the grand jury of Stark county, Ohio, for abstracting, misapplying and embezzling personal property of the Canton State Bank. The defendants demurred to the indictment on the ground that it did not state an offense under the laws of Ohio, which demurrer was overruled. Subsequently, on motion of the defendants, the venue was changed to the adjoining county of Columbiana, and thereafter the proceedings occurred in that county. The defendant, Bachtel, having died before the trial, the court directed the jury, on the trial of the defendant in error, to return a verdict of not guilty on the second and third counts of the indictment. The first count of the indictment charges the defendant in error as follows, to-wit:
    “That William L. Davis and Corwin D. Bachtel, late of said county, on or about the 13th day of December in the year of our Lord one thousand nine hundred and four, at the county of Stark aforesaid, said William L. Davis being then and there an officer, to-wit: vice-president and a director of The Canton State Bank, a corporation, incorporated and organized as a banking company under the law of the State of Ohio known as the free banking act passed 1851, by the legislature of Ohio, and which banking company, on or about the 13th day of December, 1904, and at the time of the abstraction of the personal property of said banking company, to-wit: the certificates of stocks as hereinafter described, was doing a banking business in the city of Canton, Stark county, Ohio, as a free banking company, and said Corwin D. Bachtel being then and there and at the time an officer, to-wit: the cashier and a director of The Canton State Banking Company, certain property, to-wit: certain certificátes for 350 shares of the capital stock of said banking company, to-wit: certificate No. 20 for 100 shares, certificate No. 181 for 100 shares, certificate No. 223 for 100 shares, certificate No. 244 for 40 shares and certificate No. 256 for ten shares, which said certificates of stock had theretofore been issued by the said The Canton State Bank to the said William L. Davis, and which said certificate of stock had theretofore been hypothecated by the said William L. Davis with the said The Canton State Bank, as security for moneys theretofore received by the said William L. Davis from the said The Canton State Bank, and which said certificates were of the face value of fifty dollars per share, and upon which had been paid in thereon the sum of thirty dollars per share, and which said certificates were then and there of the value of one hundred and' five thousand dollars, of the personal property of and belonging to the said The Canton State Bank. They, the said William L. Davis and Corwin D. Bachtel, officers of the said The Canton State Bank, as aforesaid, did, at the time and date aforesaid, and at the county aforesaid, with the intent on their part to injure and defraud the said The Canton State Bank, unlawfully and fraudulently abstract from the possession of the said The Canton State Bank said certificates of stock heretofore described without the authority of any of the other officers and directors of the said The Canton State Bank, and thereby did defraud and injure the said The Canton State Bank as aforesaid.”
    On the trial, the defendant in error admitted that he had pledged the said certificates to The Canton State Bank as a security for the payment of an antecedent debt, and that, as vice-president of said bank, he and the said Bachtel as cashier had access to and custody of the said certificates, and that he, the defendant in error, directed the said cashier to pledge the said certificates at another bank as collateral to a loan made in the name of the defendant in error, and he denied that he took said certificates from the possession of The Canton State Bank and pledged them as aforesaid with any criminal intent, but claimed on the contrary that although the transaction was without the authority of the board of directors it was not without the knowledge of at least some of the directors, and that it was done in perfect good faith, believing as he had been advised by counsel, that‘he had the legal right to the possession of said certificates and the right to pledge them as he did do, and that said pledge was made as he believed for the benefit both of said Canton State Bank and himself.
    At the close of the evidence on behalf of the state, the defendant in error moved the court to instruct the jury to return a verdict in favor of the defendant for the following reasons: 1. That the indictment does not charge an offense under the laws of the state of Ohio; 2. That all of the evidence introduced by the state does not show the commission of any offense by this defendant under the laws of the state; and that the evidence offered by the state has failed to make out a case against the defendant under the indictment; which motion was overruled, to which the defendant excepted. And at the close of all the evidence, and when the state and defendant had both rested their case, and before argument, the defendant renewed his motion that the court direct-a verdict of not guilty in this case for the reasons originally stated at the close of the state’s case; which motion was overruled and the defendant excepted. The jury returned a verdict of guilty as charged in the first count of the indictment. The defendant in error moved for a new trial, which motion was overruled, and the defendant excepted, and judgment was pronounced upon the defendant in error. A bill of exceptions was taken to errors of the court in the admission and rejection of testimony and to the charge of the court as given and to the refusal of the court to charge as requested by the defendant in error. Also to the overruling of the motions of the defendant to direct a verdict in his favor and to the overruling of his motion for a new trial.' All of these exceptions were made the basis of a petition in error in the circuit court. The circuit court reversed the judgment of the court of common pleas and discharged the defendant; and to reverse the judgment of the circuit court this proceeding in error is prosecuted.
    
      Mr. W. H. Miller, assistant attorney general; Mr. Charles Krichbaum, prosecuting attorney, and Mr. Atlee Pomerene, for plaintiff in error.
    The alleged insufficiency ' of the indictment' is predicated upon the provisions of Sections 11 and 12 of the Free Banking Act, Sections 3821-70 and 3821-71, Revised Statutes.
    The court will remember that the National Banking Act was framed after the Free Banking Act. Section 3821-85 of the Free Banking Act is substantially the same in its provisions as Section 5209, U. S. Comp. Statutes (1901), prescribing penalties for abstraction and embezzlement under the National Banking Act.
    In the trial below much stress was laid on the fact that our supreme court held in the case of 
      Bank v. Bank, 36 Ohio St., 350, that one bank cannot compel transfer of stock in another bank to it, in view of Sections 11 and 12 of the Free Banking Act, but it will be noted that the supreme court expressly said “that the stock in the present case was pledged or received to secure a precedent loan is not claimed,” and again, “that the plaintiff may have acquired rights by the pledge received from Foote, to such interest in the bank as said certificate of stock presented, is quite true.”
    While the Free Banking Act provides that no company shall take as security for any loan or discount, a lien upon any part of its capital stock, and' no banking company shall be the holder or purchaser of any portion of its capital stock unless such purchase shall be necessary to prevent loss upon a debt previously contracted in good faith, etc., it does not say that if the bank did take this stock, it could not hold it as against the pledgor. Neither does it say that its rights so acquired may not be retained for security for debts or that they may not be enforced. There is no direct authority upon this exact question in Ohio. National Bank v. Stewart, 107 U. S., 676; National Bank v. Matthews, 98 U. S., 621; National Bank v. Whitney, 103 U. S., 99; Thompson v. National Bank, 146 U. S., 248.
    The fact that the taking of security by which a loan of the bank is secured, is prohibited by law neither invalidates the loan or the security. 3 Ency. U. S. Sup. Ct. Rep., 62, and authorities cited.
    
      Where the provisions of the National Banking Act prohibited certain acts by banks or their officers, without imposing any penalty or forfeiture applicable to particular transactions which have been executed, their validity can be questioned only by the United States and not by private parties. Thompson v. National Bank, 146 U. S., 248; Weber v. National Bank, 64 Fed. Rep., 211; 1 Gould & Tucker’s Notes, pp. 492, 493; 2 Gould & Tucker’s Notes, p. 602; National Bank v. Whitney, 103 U. S., 99.
    We conclude, therefore, that under the National Banking Act, as well as under the Free Banking Act of Ohio, while these organizations may not take their own stock as collateral security for concurrent loans, yet if they do take them, and the acts are executed, it does not lie in the mouth of the pledgor who has done the illegal act, to complain and ask the courts to set aside this act and thereby deprive the bank of the security which he has so given, and if he cannot appeal to the civil courts to return his property, how can he like a thief in the night steal this stock from the bank’s vaults and claim that he is immune. Will this court say that he can do, without punishment, what the civil courts will not permit him to do?
    Congress intended to make criminal the conversion and misapplication of the funds, whether the party misapplying received any advantage or not. 2 Morse on Banking, p. 1403; United States v. Lee, 12 Fed. Rep., 816.
    Assuming that the certificates of stock were valid certificates of stock and not prohibited by statute, was the hypothecation or assignment of the certificate of stock by Davis to secure a precedent debt due the Canton State Bank invalid and nugatory because of the fact that the statute says the same shall only be assignable on the books of the company, etc.? Cook on Corporations (4 ed.), Secs. 378, 465.
    It follows also that the certificates of stock were a pledge for the security of a debt due the bank and was not forbidden by the statute. National Bank v. National Bank, 37 Ohio St., 215; National Bank v. Case, 99 U. S., 628; Cochran & Fulton v. Ripy, Hardie & Co., 13 Bush (Ky.), 495; 22 Am. & Eng. Ency. Law (2 ed.), 845; 2 Cook on Corporations (4 ed.), Section 465; Hunt v. Bode, Assignee, 66 Ohio St., 270; Dueber, etc., Mfg. Co. v. Dougherty, 62 Ohio St., 589.
    
      Messrs. Webber & Turner and Messrs. Welty & Albaugh, for defendant in error.
    The alleged certificates were not legal or valid certificates of stock. Clearly, therefore, certificates of stock issued by a banking company organized under the act in question, would possess none of the attributes of certificates of stock as commonly issued by corporations; they would not be negotiable; title to the shares could not be transferred by assignment of the certificate by the owner, and such certificates would, in short, be nothing more than a mere receipt for the money paid in thereon.
    The Canton State Bank was not only prohibited by express statutory provision from holding shares of its own stock, but was given a statutory lien upon all its shares, the owners of which were indebted to the bank.
    It will be observed that by the provision of Section 11 of the Free Banking Act, the only manner in which title to shares of stock of such company can pass is by assignment “on the books of the company.” The indictment does not allege that any such assignment was made, nor does it allege any fact showing that the bank had any right to own or hold said shares — or if it was the owner thereof, or of any interest therein — that it has been deprived of its said ownership or interest by any act of defendant in error.
    If we understand the force of counsels’ argument, it is claimed that a transaction although otherwise irregular and in fact prohibited by express statutory provision, will, if consummated, be held to be legal.
    In the case of Vanatta v. Bank, 9 Ohio St., 27, the supreme court has construed the provisions of Section 3821-82 of the Free Banking Act.
    Intent to defraud or injure the bank, is an essential ingredient of the offense, and as no fraud or injury could possibly result to the bank from the commission of any or all of the acts charged, such acts do not constitute an offense.
    As has already been pointed out the penal section of the National Banking Law, known as Section 5209, U. S. Comp. Statutes (1901), is identical in its provisions with Section 30 of the Free Banking Act (Section 3821, Bates’ Revised Statutes). The case of United States v. Corbett, 162 Fed. Rep., 687, is especially in point.
    In answer to the inquiry propounded by counsel we reply that defendant in error did not “steal this stock from the bank’s vaults,” nor does the indictment charge him with such offense. Counsel for the state persist in using the terms “stock” and “certificates of stock” interchangeably, as if there is no distinction between the terms. The case of Ball et al. v. Manufacturing Co., 67 Ohio St., 306, points out very clearly this distinction.
    The certificates of stock were neither “moneys, funds or credits of the company” within the meaning of Section 3821-85, Revised Statutes. United States v. Smith, 152 Fed. Rep., 542.
   Davis, J.

The most serious question raised in this case, and the only one which we find it necessary to decide, is whether the indictment charges an offense under the laws of this state. The indictment charges the defendant in error as vice-president and director of The Canton State Bank with abstracting, misapplying and embezzling, on or about December 13, 1904, certain property, to-wit: certificates of the capital stock of said bank of the face value of fifty dollars per share and upon which had been paid thereon thirty dollars per share, which certificates had theretofore been hypothecated by defendant with such bank as security for moneys theretofore received by him, without the authority of any of the other officers and directors of said bank and with the intent to injure and defraud the bank, and that he, with his co-defendant, the cashier of the bank, did defraud and injure the bank.

The question as to the sufficiency of the indictment was urged in the trial court upon demurrer to the indictment, and during the trial upon motions to direct a verdict for the .defendant and requests to charge the jury, and after the trial upon a motion for a new trial. Upon a petition in error in the circuit court it was held that the judgment of conviction was contrary to law, because the indictment fails to charge any offense under the laws of Ohio. Is the judgment of the circuit court correct?

In considering this question it will be necessary to look to the act of the general assembly known as the Free Banking Act, and particularly to Sections 11 and 12, (Revised Statutes, Sections 3821-70 and 3821-71) and Section 30 (Revised Statutes, 3821-85). The last named section is the one under which this indictment was drawn, and it reads as follows: “Every president, director, cashier, teller, clerk, or agent of any banking company, who shall embezzle, abstract, or willfully misapply any of the moneys, funds, or credits of such company, or shall, without authority from the directors, issue or put forth any certificate of deposit, draw any order or bill of exchange, make any acceptance, assign any notes, bonds, drafts, or bills of exchange, mortgage, judgment or decree, or shall make any false entry in any book, report, or statement of the company, with intent in either case to injure or defraud the company, or any other company, body politic or corporate, or any individual person, or to deceive any officer of the company, or any agent appointed to inspect the affairs of any banking company in this state, shall be guilty of an offense, and, upon conviction thereof, shall be confined in the penitentiary, at hard labor, not less than one year, nor more than ten years.”

The defendant in error in his contention that the indictment does not state an offense relies upon the other two sections mentioned above, which are as follows: “The capital stock of every company shall be divided into shares of fifty dollars each, which shall be deemed personal property, and shall only be assignable on the books of the company, in such a manner as its by-laws shall prescribe; each bank shall have a lien upon all stock owned by its debtors, and no stock shall be transferred without the consent of a majority of the directors, while the holder thereof is indebted to the company,” and “no company shall take, as security for any loan or discount, a lien upon any part of its capital stock; but the same security, both in kind and amount, shall be required of shareholders as of persons not shareholders; and no banking company shall be the holder or purchaser of any portion of its capital stock, or of thé capital stock of any other incorporated company, unless such purchase shall be necessary to prevent loss upon a debt previously contracted in good faith, on security which, at the time, was deemed adequate to insure the payment of such debt, independent of any lien upon such stock; and stock so purchased shall in no case be held by the company so purchasing, for a longer period of time than six months, if the same can be sold for what the stock cost, at par.”

As we advance in the consideration of this matter it is necessary to keep in view the well marked distinction between shares in the capital stock in a corporation and the certificates issued therefor. The shares are the substance. The certificates are the evidence of things not seen. The shares are actual property of the stockholder. The certificates are the mere attestation of the stockholder’s ownership of the shares. The certificates are no more actual property than a man’s deed is his farm. They are no more than an admission on the part of the corporation that the person to whom they were issued has, pro tanto, performed his part of the contract in becoming a stockholder. They are not negotiable; and even a bona fide purchaser of certificates of stock acquires no title as against equities existing against the vendor.

Substantially this view of the relation .of certificates to shares of capital stock was adopted by the court in Ball et al. v. The Towle Mfg. Co., 67 Ohio St., 306. In that case one Ball was the owner of ten shares of the capital stock of the American Exchange National Bank. The manufacturing company, as a creditor of Ball, began proceedings in aid of execution and served process therein on the bank. Subsequently Ball pledged the certificate for his ten shares of stock in the bank to one Crowell to secure an antecedent debt and for an additional loan. Crowell received the certificate in good faith and without any actual knowledge of the equities of the manufacturing company. The court held that, by the notice served on the corporation in proceedings in aid of execution, the manufacturing company acquired a lien on the shares of stock prior to the rights of Crowell by the pledge of the certificate.

The pertinence of these observations will be apparent when we recur to the statutes. Our general statute as to corporations (Revised Statutes, Section 3254) seems to require that certificates may be issued only when the stock is fully paid up. The certificates in question here, however, declare upon their face that only sixty per cent, of the face 'value of the stock represented by them had been paid. Hence, whether they were lawfully issued or not, or whether they had never been issued, the bank had a lien upon the shares owned by its debtors as provided by Section 11 (Rev. Stat., Sec. 3821-70) of the Free Banking Act, cited and quoted above, and, as provided, no stock should be transferred while the holder thereof was indebted to the bank, without the consent of a majority of the directors. And it was further provided therein that shares of stock should only be assignable on the books of the company. Although Section 12 of the Free Banking Act, heretofore quoted, was made the basis of considerable comment in the argument of this case and entered into the opinion of the circuit court, we do not think that it necessarily concerns the contention of the defendant in error, and we therefore dismiss it from our consideration. We may assume for the purposes of this case that, under Section 12, the bank could obtain a lien on the defendant in error’s stock for a loan or discount; and we may assume that the bank might become the holder or purchaser of these shares of. its capital stock to prevent loss upon a precedent debt, still the position of the state is made no stronger thereby, because that which was abstracted, misapplied or embezzled, was not the shares of the capital stock. That which was taken from the bank’s possession was the certificate or statement that the defendant in error had paid sixty per cent, on the shares.

The mere delivery of those certificates could not be construed as a symbolical surrender of the sixty per cent, already paid on the stock, because by the express provision of Section 11, the shares of capital stock, not the certificates of payment therefor, in whole or in part, “shall be deemed personal property and shall only be assignable on the books of the company.” And further, “each bank shall have a lien upon all stock owned by its debtors, and no stock shall be transferred without the consent of a majority of the directors, while the holder thereof is indebted to the company.” The certificates, therefore, were not personal property belonging to the bank, as charged in the indictment, nor were they assignable unless at the option of the banking company, nor were they in fact assigned or transferred on the books of the company. The bank had the same rights respecting the shares of stock standing in the name of the defendant in error, after it obtained possession of the certificates, and after they were abstracted, as before, no more and no less. So that the abstraction of the certificates did not and could not “defraud or injure” the bank as charged in the indictment. Under all the circumstances of this case, these certificates were no more in law than receipts for money paid on the shares of stock allotted to the defendant in error; and as an officer of the bank, having access to its vaults, he had the same right to make reprisal as if he had found his own umbrella in the vault and had taken it. If any question is made as to the moral right of the accused to take possession of the papers, as of no value to. anybody but himself, and to pledge them to another bank as collateral to a loan, knowing that the Canton State Bank had a lien on the shares, that is a question outside of our jurisdiction.

Another contention is made over this indictment, and we notice it although it does not seem to be important after the conclusions already expressed. The indictment was drawn under Section 30 of the Free Banking Act (Revised Statutes,-Sec. 3821-85) which provided that: “Every president, director, cashier, teller, clerk or agent of any banking company who shall abstract or willfully misapply any of the moneys, funds or credits of such company,” etc. The indictment charges that the defendant in error abstracted personal property of the bank, to-wit: the certificates of stock, etc.

We have already shown that it is not certificates of stock but the actual shares of stock which are declared to be personal property; but it is said that the certificates are included within the descriptive terms “moneys, funds or credits” in Section 30 above. That the certificates are not “moneys” or “credits” seems to be too obvious for argument, United States v. Smith, 152 Fed. Rep., 542, but still apparently confounding the shares with the certificates the counsel for the state say: “It is absurd to say that they may not issue to the stockholder some evidence of his holdings, and if it is issued what is there under the law to prevent this evidence (or personal property as it is called in the statute) from being either sold or transferred, subject only to such rights as the bank issuing the same may have against the stockholder for indebtedness to the bank. And if it has been issued or transferred by way of collateral to some other bank, who will say that it would not be funds of the bank which might be abstracted within the meaning of the statute?” This argument begs the whole question, first because it assumes that certificates are the same as shares, and, second, because it assumes, what is not true in this case, that the shares evidenced by the certificates may be assigned or transferred without consent of the banking company, and third, it assumes that these certificates were “transferred” although the statute says that no stock shall be transferred without consent of a majority of the directors, while the holder thereof is indebted to the company. Whether the argument of counsel might not be sound when certificates of a corporation, without such statutory restrictions as are to be reckoned with here, are indorsed or assigned thereon when pledged, we do not decide. But to return to the words of the statute, lexicographers define the word “funds” as meaning permanent investment for income, “stock of convertible wealth,” or perhaps, giving it the broadest meaning that can be given in this connection, it is nearly synonymous with “assets”; but to contend that the mere certificate is an asset when the real thing, of which the certificate is only an evidence of title, is already within the complete control of the creditor company, seems to us to be not only a confusion of reasoning but of the facts also. It follows that since the abstraction of the certificates was neither an abstraction of moneys, credits or funds, the indictment was fatally defective in that respect also.

The judgment of the circuit court is

Affirmed.

Spear, C. J., Shauck, Johnson and Donahue, JJ., concur.