Mobile Mutual Insurance v. Cullom

BRICKELL, J. — The common law regards the shares composing the capital of an incorporated company as personal property, capable of alienation or succession in any of the modes by which that species of property may be transferred. Angelí & Ames on Corporations, § 557; Sargent v. Franklin Ins. Co. 8 Pick. 90. Thus regarding such shares, a lien or equity in favor of the corporation, to charge them with a debt due from the shareholder, could not be implied. Heart v. State Bank, 2 Dev. Eq. 111; Ang. & Ames on Cor. § 355; Steamship Dock Co. v. Herron, 52 Penn. 280. When the rights of third persons, accruing by purchase from the shareholder, intervened, the recognition of such a lien, or equity, would have offended the rigid rules of the common law; guarding against secret trusts. The common law not implying a lien, it has become usual, in statutes creating moneyed or commercial corporations, expressly to declare a lien in favor of the corporation, on the stock of the shareholder, for debts owing by him to the corporation. When a lien is so declared, the courts, in enforcing it, have regarded it as intended for the security of the corporation, and, unless compelled by the language in which it is created, have not confined it to the debt contracted for stock, but have [562] extended it to the general debts contracted with the corporation. Ang. & Ames on Cor. §§ 355, 570, 571, 572; Union Bank v. Laird, 2 Wheat. 390; Brent v. Bank of Washington, 10 Pet. 596. The assignee, or whoever succeeds to the rights of the shareholder, takes the stock subject to the lien of the corporation. Stebbins v. Phoenix Fire Ins. Co. 3 Paige, 350; Brent v. Bank of Washington, supra. The assignee stands in the relation of one acquiring a thing not negotiable, and his right is subordinate to the prior right of the corporation, to charge the stock with the debts due or contracted by the assignor, before notice of the assignment. Mechanics' Bank v. N. Y. & N. H. R. R. Co. 3 Kernan, 599. 2. We do not understand the appellees to question these propositions, but they insist that the lien created by the 12th section of the appellant’s charter must be confined to the debt contracted for stock, authorized by the 5th section; and this is the view on which the chancellor proceeded in the decree rendered. We cannot assent to this construction. The language of the 12th section is broad enough to embrace every debt contracted with the corporation in the exercise of its corporate powers; and we cannot, upon conjecture, depart from its plain meaning. The object in creating the lien is the security of the corporation. That security is extended to “ any debt or liability ” of the stockholder, not distinguishing between the character or consideration of the debts. We can perceive no good reason for such a distinction; but, on tbe contrary, we perceive a good reason for embracing every debt properly contracted with the corporation. The stock being liable as a security for the debt, it enables the stockholder, frequently without other security, to contract debts with the corporation, when, without such liability, other security would be required of him. In this case, we find Cullom, the shareholder, without any other security than the supposed liability of his stock, contracting debts for premiums on insurances. The stock not being a debt due from the corporation to the shareholder, this debt cannot be set off against the stock. The common law implying no lien or equity, in favor of the corporation, to retain the stock, or the dividends accruing - after notice of the assignment of the stock, for the satisfaction of the debt, we must think the provision in the charter was intended to supply this deficiency of the common law. The security afforded the corporation — a security to which it is justly entitled — is a good and substantial reason for adhering, as we are bound to do, to the plain words of the charter. In this view we are supported by numerous adjudications. In Cunningham v. Ala. Life Ins. & Trust Co. (4 Ala. 652), a by-law of the corporation simply declared: “No stockholder [563] shall be permitted to transfer his stock of the company while in default.” This court declared an indebtedness due by promissory note, made by a partnership of which the shareholder was a member, was an indebtedness within the meaning of the bylaw, for the security of which the corporation could retain the stock, against the assignee of the shareholder. In St. Louis Perp. Ins. Co. v. Goodfellow (9 Missouri, 149), the court say, the word indebted, when employed in a by-law or a charter, restraining a stockholder from transferring his stock while indebted to the company, applies as well to debts to become due, as to those which are actually due, and as well to those owing by the stockholder as surety or indorser, as to those in which he is principal debtor. The case of Rogers v. Huntingdon Bank (12 Serg. & Rawle, 77), bears a close resemblance to the case before the court. The statute of Pennsylvania providing for the incorporation of banks declared : “ No stockholder, indebted to the institution, shall be authorized to make a transfer, or receive a dividend, till such debt shall have been discharged, or security to the satisfaction of the directors given for the same.” A stockholder was indebted to the bank for an unpaid balance on his subscription of stock, and on a note discounted. Having assigned his stock, the question arose between the assignee and the bank as to the right of the bank to retain the stock for the discounted note, — the right to retain for the unpaid balance of the subscription of stock being admitted. There, as here, the assignee insisted that the general words of the statute should be restrained to the debt for stock ; but the court said : “ The words, embrace all debts, and there is good reason for their extending to all; ” and sustained the right of the bank to retain for both debts. We are clearly of the opinion, that the appellant has a lien on the stock, as well for the debts for premiums on insurances effected by Cullom, contracted before notice of the claim of the appellees, Baldwin and the personal representatives of Whiting, as for the unpaid balance on the stock note. The chancellor decreed a lien only for the balance on the stock note. In this he erred ; and for that error, the decree must be reversed, and the cause remanded for proceedings in conformity to this opinion. The appellees must pay the costs of this appeal, in this court, and in the chancery court.