Case Name: Leggett v. The Bank of Sing Sing
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1862-03
Citations: 24 N.Y. 283
Docket Number: 
Parties: Leggett v. The Bank of Sing Sing.
Judges: 
Reporter: New York Reports
Volume: 24
Pages: 283–298

Head Matter:
Leggett v. The Bank of Sing Sing.
A provision in the articles of a banking association that the shares of its stock shall not be transferable until the shareholder shall discharge all debts due by him to the association, includes liabilities of the shareholder which have not matured.
Such a provision creates a valid lien as against an assignee of the stock, who takes with knowledge thereof, while the shareholder is under a contingent liability as indorser, and gives no notice to the bank of his claim until after the indorser’s liability has become fixed.
This was an action upon the case for the refusal of the defendant to permit the transfer upon its hooks of twenty shares of the capital stock of the bank to the plaintiff as the assignee of one William E. Leggett. The cause was tried before a referee; and, upon the trial, it appeared that Leggett was one of the original associates in the organization .of the bank, and became the holder-and owner of, twenty shares, of one hundred dollars each, of its capital stock. The articles of association required suitable books to be kept by the directors for the registry and transfer of the shares, and declared that “every transfer, to be valid, should be made on such books, and signed by the shareholder or his attorney duly authorized in writing.” Section 3 * of article 5 was in these words : “ bic share or shares shall be transferable on which any call for an installment of capital, or any interest on such installment, shall remain unpaid, nor unless the shareholder making the transfer shall previously discharge all debts due by him or her to said association, or shall have remaining capital stock untransferred sufficient to cover and secure the amount that he or she may oioe to the said association.” Section 4 of the same article made provision for the sale of the stock “ whenever any shareholder of the association should owe a debt then due to the association, and which should have been due and unpaid for the space of three months.” These provisions were, as the referee found, well known to the plaintiff.
On the 3d day of January, 1854, William E. Leggett sold and assigned his stock to the plaintiff, and delivered the certificate, assignment and power of attorney to transfer the same on the books of the bank to said plaintiff. On the 8th day of May, 1855, and again on the 10th and 14th days of the same month, the plaintiff demanded of the defendant, upon a production of the assignment and power of attorney and offer to surrender the original certificate of stock, that the stock be formally transferred on the books, and a new certificate thereof be delivered to the plaintiff; which was refused by the defendant, claiming that the original shareholder was a debtor to the bank, and that the stock was a security for the payment of such debt, and was not transferable until the same should be paid. It was admitted that William E. Leggett, on or about the 1st day of January, 1854, vías indorser on notes of one Thompson, since deceased, to the amount of four thousand dollars, which notes were then held by the defendant; that Thompson died before said notes became due, and the notes were protested and the indorser charged; that W. E. Leggett became the executor of Thompson, and from time to time paid portions of said notes, and gave his notes as executor, indorsed .by him individually, for the balance due. It also appeared that, on the 9th of April, 1855, there remained due of the Thompson debt one thousand nine hundred dollars, for which W. E. Leggett, on that day, made a note, payable on the first day of August thereafter, payable to his own order, and indorsed by him, and signed, “ W. E. Leggett, Ex.,” which note was outstanding and a held by the defendant at the time of the demand of the transfer and new certificate in May, 1855. The referee decided that the note for one thousand nine hundred dollars not having matured at the time of the demand for a transfer of the stock, the same was not a lien upon the capital stock of the maker, and that the plaintiff was entitled to a transfer of the stock, notwithstanding such indebtedness,* and gave judgment for the plaintiff for the value of the stock, which was affirmed by the Supreme Court sitting in the first district; and from that judgment the defendant appealed to this, court.
John K. Porter, for the appellant.
David Dudley Field, for the respondent.

Opinion:
Weight, J.
The real inquiry is, was there a "debt due" from Leggett to the bank, within the meaning of the articles of association, at the time the transfer of the stock was demanded. It is not the question, whether, at the time the plaintiff became the equitable owner of the stock, by a secret, undisclosed sale, the shareholder was such debtor; nor whether the indorser of a.promissory note, whose liability has not been fixed, falls within the class of debtors in respect to whom the lien was intended to attach. It may be conceded that it must be a fixed liability of the shareholder himself. The referee finds, and the case discloses the facts, that, in January, 1854, Leggett was the indorser on certain notes made by one Thompson and discounted by the bank, which had not then matured. Thompson died before the notes matured, and after their maturity Leggett reduced the amount of such notes by payments. On the 9th April, 1855, there was the sum of one thousand nine hundred dollars remaining due, for which amount Leggett made a note, payable at the defendant's bank on the 1st August; 1855, to his own order, and indorsed by himself The note was signed " W. E. Leggett, Ex." Leggett thus undoubtedly became a debtor to the bank. If his contingent ' liability as indorser had not been fixed previously, he undertook then to become personally responsible for one thousand nine hundred dollars of the indebtedness. Affixing the letters "Ex." to his signature could not alter his personal liability or bind the estate of Thompson. This was the view taken by the referee and the Supreme Court. If Leggett was not a debtor of the bank, within the meaning of the articles of association, prior to the 9th April, 1855, he unquestionably assumed the relation at that time.
But the' referee placed, his decision, not on the- ground that Leggett was not indebted to the bank when the transfer of the stock was refused, but on what I deem to be an erroneous construction of the provision of the articles of association touching the question. The phrase, "all debts due by him or her to the association," was held to mean only debts presently payable, and that, although a stockholder may have borrowed on his own note the money of the bank and put it in his-pocket, unless such note had matured, no lien attached, and the association could not lawfully refuse a transfer of his stock. This cannot be a correct interpretation of the sense in which the associates used the words, "all debts due," or designed .that they should be understood. The provision was intended to embrace all debts which the stockholder owed the association, whether payable presently or in the future. Its purpose was, not to facilitate stockjobbing, but to promote the legitimate business of banking, and to benefit the bank by strengthening its securities; and it is in this light that the provision is to be construed. There is a much stronger reason for inferring an intention to embrace debts payable in the future rather than presently, growing out of the fact that most of the debts-created with a banking institution are through the medium of discounted paper, where the credit of the borrower is extended. As was said in Grant v. The Mechanics' Bank of Philadelphia (11 Serg. & Rawle, 143), of what benefit would it. be if the stockholder had the unrestrained right of transfer at any time before his note fell due ? The time of making the loan is that at which the directors must look for security. To construe" the provision to embrace only debts presently payable, would be to limit it for the benefit of the borrower, and not the association. The whole provision, taken together, shows that the object of making the stock not transferable was to "coyer and secure" the amount owing by the stockholder to the association, whether due and payable in presentí or in futuro. The restraint is upon transferring the stock, " unless the shareholder shall previously discharge all debts due by him to said associa,: tian, or shall have remaining capital stock untransferred suffi eient to cover and secure the amount that he may owe to said association." The expression, " the amount that he may owe," is evidently intended as the equivalent of the previous phrase, "debts due;" each being used to denote the indebtedness which the stock was to "cover and secure." The apt and explicit words used by the associates in the succeeding section of the fifth article, to limit the right of sale to cases of actual default, shows that they had no difficulty of discriminating, when that was their purpose, and excludes the idea that the general words of the previous section were used in the same restricted sense.
When, therefore, the bank was first notified that the stock had been assigned to the plaintiff, and the latter demanded that it should be transferred to him, Leggett, the shareholder, was a debtor to the bank, and on that ground, I think, such transfer was rightly refused. It can make no difference with the question if it should be conceded that, in January, 1854, when the plaintiff became the equitable owner of the stock, Leggett was not a debtor to the bank, and that then, had a transfer been1 demanded, it could not have been legally refused. Nor is it important to determine what would have been the rights of the plaintiff and the bank, had the plaintiff, upon becoming the equitable owner of the stock, notified the bank that he was such owner. Nothing of the kind was done. The case is presented of the plaintiff, unknown to the bank, in January, 1854, purchasing a shareholder's stock, and taking an assignment of a certificate expressing on its face that the shareholder's title was, subject to all conditions and stipulations in the defendant's articles of association, transferable only on the books of their banking-house, by him or his attorney, on delivery of such certificate; and that, although knowing that the articles of association gave the bank a lien on such stock for any debts due from the shareholder at the time the transfer was demanded, neither notifying the bank that he was such owner, or demanding a transfer, until sixteen months after the alleged secret purchase, and after the shareholder, if not a debtor to the bank at the time ctf sale, had subsequently become such debtor. The lien unquestionably attaches in respect to the shareholder's debts existing when the bank is asked to transfer the legal title; and one becoming the owner of stock, subject to a provision in the articles of association giving the bank such lien, and of which he has knowledge, but who omits to give the bank notice of his ownership, and thereby enables his vendor to have credit on the faith of his being a stockholder, has no superior' equity to be enforced.
The judgment of the Supreme Court should be reversed, and a new trial ordered, with costs to abide the event.
Dehio, Davies, Gould and Smith, Js., concurred.