Third Nat. Bank of Buffalo v. Buffalo German Ins. Co.

Mr. Justice White, after making the foregoing statement, delivered the opinion of the court. It is obvious that the bank had no lien on the stock of Levi *588 as the result of an express contract of pledge. The mere statement by Levi in a conversation with the, president of the bank whén the last loan was made to him, that' his stock was a security to the bank, did not amount to a pledge of such stock, as there was no delivery of the certificates. As tersely said by the court below: “If we 'assume the existence of a contract between the defendant bank and Levi, (and all we know of it is the testimony of the president of the defendant" as to a conversation with Levi, in which he said the bank could consider the stock in his safe as collateral for his loans,) it was executory .in its nature as long as the gtoek remained in his possession and until it was in fact pledged to the bank by a delivery. Possession is of the essence of a pledge in order to raise a privilege, against third persons. Casey v. Cavaroc, 96 U. S. 467; Wilson v. Little, 2 N. Y. 443.” We may, therefore, at once lay out of view the provisions of section 5201, Revised. Statutes, prohibiting a national bank from making any loan or .discount on the security of its shares of stock, "and forbidding the purchase os holding by a national bank of such shares of stock, unless necessary to prevent loss on a debt previously contracted in good faith. And putting these provisions aside, we may also pass the consideration of the decisions of this.eo.urt construing the. provisions in question, and holding that they may not be availed of by a debtor of the bank to defeat the enforcement of obligations by him contracted in favor of the bank. Bank v. Matthews, 98 U. S. 621; Bank v. Whitney, 103 U. S. 99; Thompson v. Bank, 146 U. S. 240. This brings us to the real question in the case which is, the validity and effect of the provisions of the charter and by-law of the, bank forbidding a transfer of stock where the stockholder was indebted to the bank and the insertion of a condition to the same effect in-the certificates of stock which were held by Levi, and which he delivered to the insurance company, as collateral, when he borrowed money from that company. If those provisions were -falid it is obvious that- the insurance company *589 took the stock subject to the paramount right which the bank possessed. If, on the other hand, the condition in question was void because repugnant to the text of the national bank law and in conflict with'the public policy which that act embodies, it is equally clear that there was no lien in favor of the bank, and the title of the insurance company, derived from its pledge and purchase, was paramount to any assumed right of the bank to refuse to transfer the stock in order to enforce a lien which, .it was asserted, the bank possessed as a result of the condition in question. That the provisions .referred to were void because coming within the last mentioned category will become apparent from a brief consideration of the national bank law found in the Revised Statutes as elucidated by its evolution from the acts of 1863 and 1864, and as expoundéd by the previous-decisions of this court. National banks were first created by the act of 1863. 12 Stat. 665. By section 36 of that act it was provided: “That the capital stock of any association formed under this act shall be divided into shares of one hundred dollars each, and shall be assignable on the books of the association in such manner as its by-laws shall prescribe; but no shareholder in any association under this act shall have power to sell' or* transfer any share held in his own right so long as he shall be liable, either as principal, debtor, surety or otherwise, to the association for any debt which shall have become due and remained unpaid, nor in any case shall such shareholder be entitled to receive any dividend, interest or profit on such shares so long as such liabilities shall continue, but all such dividends, interests and profits shall be retained by the association and applied to the discharge of such liabilities; and no. stock shall be transferred without the consent of a majority of the directors while the holder thereof is thus indebted to the association.” Sect’on 37 of the same act provided that— “No banking association shall take, as security for any loan or discount, a lien upon any part of its capital stock, , . . *590 and no such banking association shall be the purchaser or holder of any portion of its capital stock or of the 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; or in case of forfeiture of stock for the non-payment of installments due thereon, and stock so purchased or acquired shall in no case be held by such association so' purchasing for a longer period of time than six months, if the same can, within that time, be sold for what the stock costs.” ' The act of 1863 was expressly repealed (sec. 62) by the act of 1864. 13 Stat. 99.. The repealing act, however, contained the following: “Provided, that such repeal shall not affect any appoint.ments inade, acts done or proceedings had, or the organization, acts or proceedings of any association organized or in the process of •'organization under the act aforesaid.” ' The act of'1864, which, contained a repealing clause subject to the foregoing proviso, reenacted in completer form the entire law. as to national banks. The subjects which had been embraced by section 36 of the act of 1863 were contained in section 12 of the act of 1864, in part, as follows: “The capital stock of any association formed under this act shall be divided into shares of one hundred dollars each, and be deemed personal property, and transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of association; . •The remaining provisions of the section related solely to the double liability of the shareholders. It hence follows that all the provisions found in section 36 of the act of 1863, empowering the board of directors of a national bank to withhold a transfer in case of a debt due by a stockholder to a bank, were not only omitted from the new act, but were expressly repealed. The provision found in the thirty-seventh section’of *591 the act of 1863, prohibiting an association from making any loan or discount on the security of the shares of its own capital stock, was reéxpressed in a substantially identical, though somewhat more amplified, form of statement in section 35 of the new act. The provisions of the act of 1864, in the particulars in question, are now embodied in sections 5139 and 5201. of the Revised Statutes. When this history of the legislation is considered it becomes apparent that the clause inserted in the articles of association, in the by-laws and the certificates of stock of the bank here being considered was directly repugnant to the act of 1864, and amounted simply to an attempt on the part of the bank to .exercise the power which was granted under the act of 1863, but which was denied by the act of 1864. And this result was long since pointed out by the decisions of this court. In Bank v. Lanier, 11 Wall. 369, the case was this: The First National Bank of South Bend was organized under the act of 1863. A by-law of the bank provided that "the stock of the bank should be assignable ^only on its books, subject to the provisions and restrictions of the act of Congress.” Culver became a stockholder in the bank,, certificates having been issued to him as such, stating on their face the limitations on the power to transfer expressed in the by-law just referred to. By an agreement between Culver and the bank it was understood that his stock in the bank should secure the bank against any loss resulting from a deposit of its funds made by the bank with the house of Culver, Penn & Co., of New York, of which Culver was a member. When, however, this agreement was made the certificates of stock were not delivered to the bank, but remained in the possession of Culver. After the passage of the national bank act of 1864, Culver, in violation of his agreement with the bank, sold his stock and delivered the certificates thereof, with power to transfer the same to Lanier and Handy, who requested a transfer of the same. This the bank refused to do on the ground of Culver’s agreement, and on the further ground of the provision in the by-láw and certificates, which,, it was *592 asserted, but expressed by reference the provisions of the thirty-sixth section of the act: of 1863. Two questions were necessary to be decided: a, the right of the bank resulting from the understanding .with Culver; and, b, its right arising from the terms of the by-law-and certificate. These questions were ruled adversely to the bank. It was held that the agreement between the bank and Culver was void because it was within the prohibitions of both the thirty-seventh section of the act of 1863 and the thirty-fifth section of the act of 1864, prohibiting a national' bank from loaning on the security of its own capital stock, etc. Irrespective, however, of this question, it was expressly decided that, as the act of 1864 had repealed the provision of the act of 1863, subjecting transfers of stock in national banks-to debts due by the stockholder to the bank, or permitting the board of directors to provide to that effect, the result of the act of 1864 was impliedly to'prohibit a bank from .imposing such a condition on the transfer of stock. And the.doctrine was applied to a by-law adopted prior to the passage of the- act of 1864, because it."was held that the continued operation of such a by-law was prevented by the act of 1864, as the right to continue it was not saved by the proviso to the repealing clause of that act. It was pointed out that the provision of the act of 1864, making the stock of national banks transferable like other personal property, was a fundamental departure from the act of 1863, and was based on-a rule of public policy initiated by the act of 1864, intended to afford facilities for the transfer of stock in national banks, and thereby to encourage investment in such stock. The same subject was considered' in Bullard v. Bank, 18 Wall. 589. There a by-law and form of certificate, adopted after the enactment of the statute of 1864, reserving the right to refuse to transfer stock in a national bank where the stockholder was indebted to the bank, was again determined to be ultra vires, because in conflict with the act of 1864, and such a provision was decided to be inoperative even as against the assignee in bankruptcy of the stockholder. These cases foreclose every *593 question presented on this record. The cases have been frequently referred to approvingly. Earle v. Carson, 188 U. S. 42, and authorities there cited. The contention that, although the condition in the certificate was void, nevertheless it operated as a notice to the insurance company, and thereby deprived it of its right to compel the transfer of the stock, but asserts in another form that there was power, by the insertion of such a condition in the certificate of stock to deprive the,, stock of a national bank of its attribute of sale like any other personal property. The extension wholly ignores not only the text of the law, bút the rule of public policy which the national bank act has been decided to embody Harmed..