Mechanics Bank of Alexandria v. Seton
26 U.S. 299 (1828)

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U.S. Supreme Court

Mechanics Bank of Alexandria v. Seton, 26 U.S. 1 Pet. 299 299 (1828)

Mechanics Bank of Alexandria v. Seton

26 U.S. (1 Pet.) 299

Syllabus

Although it seems to be a general rule that a court of chancery will not decree a specific performance of contracts except for the purchase of lands or things which relate to the realty and are of a permanent nature, and that where contracts are for chattels, and compensation can be made in damages, the parties may be left to their remedy at law, yet notwithstanding this distinction between personal contracts for goods and contracts for lands, there are many cases to be found where specific performance of contracts relating to personalty have been enforced in chancery, and courts will only weigh with greater nicety contracts of this description than such as relate to lands.

Although an objection for want of proper parties may be taken at the hearing, yet the objection ought not to prevail upon the finial hearing of an appeal except in very strong cases and where the court perceives a necessary and indispensable party is wanting.

All persons materially interested in the subject of a suit in chancery ought to be made parties, either plaintiffs or defendants; but this is a rule established for the convenient administration of justice, and is more or less within the discretion of the court, and it should be restricted to parties whose interests are in the issue and to be affected by the decree. The relief granted will always be so modified as not to affect the interests of others.

The cross-examination of a witness by the opposite party is considered as a waiver of exceptions to the regularity of his deposition.

By the rules of this Court,

"In all cases of equity and admiralty jurisdiction, no objection shall be allowed to be taken to the admissibility of any deposition, deed, grant, or other exhibit found in the record as evidence unless objection was taken thereto in the court below, but the same shall otherwise be deemed to have been taken by consent."

It is not a correct construction of the 3d and 21st sections of the act of Congress incorporating the Mechanics Bank of Alexandria that the stock of the bank shall be deemed to belong to the persons in whose names it stands upon the books of the bank and that the bank is not bound to recognize the interests of any cestui que trust, and may refuse to permit the stock to be transferred, whilst the nominal holder is indebted to the bank.

Full notice of a trust draws after it all the consequences of a full declaration of the trust as to all persons chargeable with such notice.

It is well settled in equity that all persons coming into possession of trust property with notice of the trust shall be considered as trustees, and bound, with respect to that special property, to the execution of the trust.

A subsequent board of directors of a bank is to be considered as knowing all the circumstances communicated or known to a previous board.

It is a well settled rule that a court is not bound to take notice of any interest acquired in the subject matter of the suit pending the dispute.

Page 26 U. S. 300

This suit was instituted on the chancery side of the circuit court by the appellees, complainants in that court, against the Mechanics Bank of Alexandria to compel them to permit a transfer to be made of $3,000 of the capital stock of the bank, standing in the name of Adam Lynn, and held by him as trustee of the complainants.

The bill charges that the complainants' grandfather, John Wise, to make provision for the support of his children and grandchildren, had made sale, in 1815, of an establishment called the City Tavern, at the price of $14,000, of which $10,000 were paid by the transfer of that amount of United States six percent stock, made by the purchasers to the said Adam Lynn, the nephew and agent of the said John Wise, for his use. That the residue, $4,000, was paid to the said Adam, in money to be by him invested in stocks, for the use, and subject to the control, of the said John Wise. That out of this sum, the said Adam purchased from one James Sanderson $3,000 of the capital stock of the bank, which was in like manner transferred to him, and that although no trust was in terms declared in the transfer of either of the said stocks, they were both avowedly purchased and held by the said Adam in his character of agent and trustee for Wise. That on 29 April, 1815, the said John executed a deed to the said Adam by which he conveyed to him the said stocks described as standing in the said Adam's name, in trust for the use of the said John during his life as to the dividends, and after his death, then, as to the bank stock, to the use of the complainants, and that he has since died. That when the purchase of the bank stock was made, and when it was transferred to the said Adam, it was well known to the president and directors of the bank that the purchase was made, and the transfer received by him in his fiduciary character.

That the bank stock was purchased on 11 February, 1815, from one James Sanderson, at a small advance, and on that day a payment of $720 was made in part of the purchase money, and as Sanderson had obtained a discount from the bank, on the pledge of all the stock he held in it, it became necessary to know on what terms the board of directors would permit a transfer.

That this application was accordingly made by the said Adam, who distinctly stated that the purchase was to be made for the benefit of the said John Wise, was to be paid for in his funds, and was to be transferred to the said Adam for his use. He further proposed to the Board, as an accommodation to himself, that he should be allowed to discharge a part of the purchase money to Sanderson, by assuming on himself a part of

Page 26 U. S. 301

Sanderson's debt to the bank, and continuing to that extent the lien the bank then held on the stock to be transferred. That this proposal was rejected distinctly on the ground that the board must consider the said John Wise as the owner of the stock.

That the said Adam then paid $2,400 to the bank in discharge of the said Sanderson's stock debt, which being done, the transfer was permitted and, on 15 March, 1815, was made to the said Adam as trustee, though the trust was not declared in the transfer. That it was however officially made known previously to the transfer, and was afterwards frequently a subject of conversation amongst the directors at the Board.

That the complainants having expressed to the said Adam their desire that he would transfer their stock to their guardian, he offered himself ready to do so, but that on application at the bank, permission was refused on the allegation that he was a debtor to the bank and that it held a lien for that debt on all its stock which stood in his name.

That the said Adam was proprietor of other stock in the bank in his own right, to the amount of $18,014, and had a discount on it to the amount of $15,360, which was little more than the sum permitted to be loaned on stock security, by a bylaw of the bank -- that is to say, 4/5 of the amount of such stock.

The bill further charges, that when the said Lynn's debt to the bank was contracted, he was one of the directors, and that by the 9th article of the charter of incorporation, the president and directors were prohibited from receiving discounts or loans on accommodation, beyond $5,000. That all the loans to him were of that description, and that so far as they exceed $5,000, being in violation of the charter, can create no lien under it. The bill, after propounding special interrogatories corresponding with the previous allegations, prays that the bank may be compelled to open its transfer book and to permit Lynn to transfer the stock, and for general relief.

The answer denies that the board of directors had notice of the fiduciary character in which Lynn held the stock claimed by the complainants. It avers that at the time the answer was put in, there was no stock standing in his name on the books, the whole of the stock which stood in his name having been applied to the payment of his debts to the bank, under articles of agreement between him and the cashier.

It admits that Lynn had received accommodation loans on stock, to an amount exceeding $5,000, but asserts that loans of that description did not fall within the prohibition of

Page 26 U. S. 302

the charter, but if they did, it cannot affect the bank's right, claiming as purchasers under the contract before mentioned.

The purchase of the stock by Lynn in his fiduciary character, and the knowledge of that fact by the board of directors, officially and individually, is claimed to be fully proved by the testimony of the said Adam Lynn, a director of the bank, and by that of Robert Young, president, and of Daniel McLeod and John Gird, directors.

The special agreement under which the respondents claim the stock, appears to have been entered into on 30 May, 1821, nearly a year after the bill had been filed. By this contract, Lynn agreed at once to transfer all his stock, except that claimed by the complainants; for the transfer of this he gave a power of attorney, which by agreement was not to be executed by a transfer until the decision of the court on the respondent's claim of lien in this suit.

The circuit court, on hearing, decreed a transfer, from which decree, this appeal was entered.

Page 26 U. S. 304

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