Appeal of the Liggett Spring & Axle Co.

Mr. Justice Gordon delivered the opinion of the court, January 4th, 1886. The findings of the Master, about which there is little or no dispute, make the case in hand sufficiently clear and intelligible. It is admitted that the defendant bank is entitled to hold the four warehouse certificates, deposited with it on the 9th of March, 1883, as general collateral security, until it has realized the plaintiff’s seven thousand dollar note, and the balance of the three thousand dollar loan to Marshall of the 11th of April, 1883. But the contention is that, as the plaintiff, to whom Marshall had previously pledged the certificates as security for the note above mentioned, which, it is alleged, was but a loan of the company’s credit to him, the bank cannot hold them on account of the precedent indebtedness of Marshall to it. As to this, the Master has well found that, admitting the validity of the company’s claim, the position thus assumed is correct. According to the doctrine as established by Maynard v. The Bank, and many other cases, the pledge of negotiable securities for an antecedent debt not being founded upon a present valuable consideration, is to be taken subject to the equities subsisting between the pledgor and third parties. The principle here stated is too well established to be shaken by decisions extra this Commonwealth, or by an attempt to introduce the doctrine of bankers’ liens. A doctrine which, however it may agree with the policy of other states, has no place in our own. How a custom of this kind could obtain in the face of a well established legal principle, we cannot conceive, for an elementary condition of a custom is that it be lawful, and without this it is vicious and void. Agreeing then, as we do, with the Master in this particular, [299] we next come to the inquiry: “What is the effect of the agreement of Marshall with the plaintiff to repay the seven thousand dollar note ? Are there any equities in the plaintiff under that agreement? In this the decision of the Master is adverse to the eompaiyy, and, as we think, rightly. When we look at the copy of the company’s minutes, dated March 26th, 1888, and also consult the testimony of Mr. Hugus, we find, (1.) That at that date the undivided profits of the partnership amounted to something over twenty-eight thousand dollars. (2.) It was determined by the meeting of the partners then held, to declare a dividend of these profits, and in pursuance of this action, the seven thousand dollar note was issued to Marshall. Now, there is no way of avoiding the fact that the dividend thus ordered belonged to Marshall, and that the note was but the equivalent of a certificate of indebtedness for that amount. What then does the agreement to return this money within thirty-four days from the date thereof amount to ? The company had, by its resolution determined the ownership of this money, and if the agreement to refund was based on any consideration whatever, it should have been made to appear. Not only was there no proof of such consideration, but there is not even an apparent reason for an arrangement of this kind. The plaintiff did not propose to increase its working capital, nor is there evidence to 'support the idea that it had in view any special purpose to which it could apply this fund. This money was in its treasury as so much undivided profits, and as the amount thereof represented by the seven thousand dollar note actually belonged to Marshall, we must take it that the agreement to refund was either of no binding force whatever, or depended on some condition that never occurred. In fact, no other hypothesis concerning this note can be entertained; for if it was a loan of the credit of the company to one of its members, it was unlawful and could not be enforced. The 7th section of the Act of the 2d of June, 1874, expressly declares: “It shall not be lawful for such association to loan its credit, its name or its capital to any member of said association.” We need not cite cases to show that an unlawful obligation cannot be enforced in a court either' of law or equity. It follows, that Marshall might, as he did, repudiate his agreement with the company, and otherwise dispose of the securities according to his own will and pleasure. The appeal is dismissed, the decree affirmed, and it is ordered that the appellant pay the costs.