Morrison-Wentworth Bank v. Kerdolff

Gill, J. — Statement This is a suit by plaintiff, a banking institution at Lexington, against W. P. Kerdolff and the other defendants, his children, for the ’ enforcement of an alleged lien against twenty shares of the stock of the bank which was formerly owned by said Kerdolff, but lately transferred by him to said children. The bank was organized in January, 1875, and the senior Kerdolff became then and continued a shareholder and director until January 7, 1896, when he — 300 — assigned and delivered his certificates of stock over to the other defendants — his two sons and four daughters. Among the provisions of' section number 17 of the by-laws, adopted at the organization of the bank, it was declared that “no transfer shall be made or allowed by any stockholder, who, at the time, is indebted to the bank.” And on the face of each certificate of stock (those of Mr. Kerdolff as well as all others) this stipulation appeared: “It is hereby expressly agreed and understood that this bank shall have a lien upon said shares for any debt or claim it may have at any time against’the holder thereof.” During the several years that the elder Kerdolff held the stock he became largely indebted to the plaintiff bank. This indebtedness, amounting to nearly $5,000, was evidenced by several promissory notes, which were reduced to judgment in September, 1896, a few days before the institution of the present action. By reason of the above stated by-law and stipulation set out in the stock certificates issued to, and held by, said W. F. Kerdolff, the plaintiff claims the right to subject the twenty shares of stock to the payment of its judgment. On the other hand the defendants (other than said W. F. Kerdolff) insist that they are innocent purchasers of the stock for value and that plaintiff has no lien thereon. At the trial in the circuit court plaintiff had judgment as prayed and defendants appealed. Corporations-by-iaw: creat." mg lien on stock: contract: . If effect is to be given to the "agreement apparently entered into between W. F. Kerdolff and the bank at Subscription, and US evidenced by the stipulation inserted in ^ x faCg 0f ^g stock certificates, then plaintiff has the clear right to enforce a lien against said stock; for manifestly this was the contract. On the face of the stock certificates it was — 301 — “hereby expressly agreed and understood ‘that this bank shall have a lien upon said shares for any debt or claim it may have at any time against the holder thereof.” Counsel have treated the foregoing stipulation, appearing in the body of the stock certificate, as a by-law of the corporation; and as such defendants insist that it is void as being in restraint of trade and violative of a sound public policy.. Authorities are cited sustaining the general proposition that by-laws, unauthorized by the corporate charter, which seek to restrain the transfer of the stock of the corporation by attempting to create a secret lien in its favor for debts due it from the stockholder, are void. because in restraint of trade and against public policy. And unquestionably this is the general rule, the weight of authority is that way. But the rule is quite different where the corporate charter expressly provides for such a lien, or where, though not provided for nor yet prohibited, such a by-law exists with the assent of the stockholders and knowledge of his transferee. If the stockholder shall take the stock with full notice and in recognition of the reserved lien, then there is no valid reason why he should not be bound thereby. And more than this, if the assignee of the first holder shall, when he purchases the stock, have like knowledge of the lien, then he will take the stock.subject thereto; for as to him it was not a secret lien; .he took the transfer with full knowledge, of the equities between the parties. It is only the bona fide purchaser, without notice of such unauthorized by-law, that is protected from the lien. 1 Cook on Stock and Stockholders, secs. 522, 524; Savings Ass’n v. Printing Co., 25 Mo. App. 642; Bank v. Durfee, 118 Mo. 431; Trust, Etc., Co. v. Lumber Co., 118 Mo. 447; Jennings v. Bank, 79 Cal. 323; Ins. Co. v. Goodfellow, 9 Mo. loc. cit. 154; Bank v. Bank, 45 Mo. 513; Spurlock v. R. R., 61 Mo. 319. — 302 — This was clearly the holding of our supreme court in Bank v. Durfee, supra. In that case Wanschaffe, who was a shareholder and officer in the plaintiff bank, transferred as security his stock certificate to some of his creditors. Subsequently Wanschaffe became a defaulter to the bank, and it sought to enforce a lien against the stock held by the creditors — basing its claim on an alleged by-law providing that said bank should have a lien on all stock issued to a stockholder for any indebtedness of such shareholder to the bank. While in that case the court held the by-law invalid, as such, and decided that the creditors had a superior claim to the stock, the court yet clearly intimated that if the creditors, who had taken the stock by assignment from the original holder, had notice of such bylaw, then their title would not be protected; that in that event they would not be bona fide holders. The court, through Judge Bubg-ess, uses this language: “As between the plaintiff and Wanschaffe, we think the by-law providing for a lien in favor of the bank on the stock for the unpaid indebtedness, although passed without authority (italics ours), was binding on him and purchasers of the stock from him with notice of such lien. At the time of the adoption of the by-law he was an officer of the bank, and continued to be such for many months thereafter, and was at the time of the transfer of the stock in controversy. As he was a party to the passage of the by-law, and always recognized it as being in force, he should not now be heard to say that it had never been legally adopted.” To the same effect is the court’s opinion in Trust, Etc., Co. v. Lumber Co., supra, where it was held that notwithstanding the by-law may not be valid because not authorized by the corporation statute, yet if it becomes a part of the agreement or subscription to stock by the -original holder, the restriction will bind — 303 — him and his transferee with notice. Says Judge G-antt in that ease: “When such a lien is asserted, it should clearly appear to be authorized by public law, or by a duly appointed by-law, or by valid agreement of which the purchasers of the stock have notice. * * * The pledge or sale of this stock was simply a pledge or sale of personal property, and the pledgee or vendee, without notice of the lien, took it discharged therefrom. If that property was bound by a lien of which he had lawful notice, he took it subject to it, and if he had no such notice he took it discharged therefrom.” In Savings Ass’n v. Printing Co., supra, the St. Louis court of appeals had a case involving a by-law not properly adopted; and while the court condemned it as such, it was yet held effective as against a transferee of the stock with notice. “If the transferer,” says the court, “has bound himself to a valid restriction upon the alienation, whereof the transferee has due notice, the latter can acquire no greater right in that regard than was vested in the transferer. The plaintiff in this case took the certificate with notice on its face of the restriction which bound its assignor, and thus became equally subject to its terms.” Another instructive case is found in a late decision by the supreme court of California, Jennings v. Bank, 79 Cal. 323. The evidence here discloses that Kerdolff, the original holder of this stock, took part in the organization of the plaintiff bank and was for years one of its directors. He took the stock certificate with full knowledge that on its face a lien on the stock was created and reserved to secure the bank for anything he might owe it. This clearly bound him — not as a valid by-law, but as a contractual obligation. It bound also his children (the other defendants in this case) when they subsequently acquired such stock; for it is — 304 — clear that they became purchasers with full knowledge of the contract. This disposes of every material point in the case. There is no merit in the suggestion of res acljudica1¡a. This case has never been before the court for adjudication, and hence there is nothing in the record to serve as the basis for such a claim. The judgment is manifestly for the right party and will be affirmed. All concur.