Robert Brent was the holder of six hundred and fifty-nine shares
of stock in the Bank of Washington, and was indebted to the bank as
endorser on certain promissory notes, one of which became due after
his death. He was also indebted to the United States as paymaster,
and he made an assignment of his property to satisfy the debt. The
assignees did not accept the assignment. He died sometime
afterwards. The bank, under the provision of their charter, which
gives a lien on the stock held by a debtor for the payment of debts
due to them before the transfer of the stock held by a stockholder,
insisted on the lien against the claim of priority by the United
States, and their claim was sustained by the court.
It has been the uniform construction of the fifth section of the
act of 1797, 1 Story's Laws, 464, and of the similar provision in
the sixty-fifth section of the collection act of 1799, 1 Story's
Laws 630, that whether in a case of insolvency, death, or
assignment, the property of the debtor passes to the assignee,
executor, or administrator, the priority of the United States
operating not to prevent the transmission of the property, but
giving them a preference in payment out of the proceeds.
This preference is in the appropriation of the
debtor's
estate; so that if, before it has attached, the debtor has
conveyed or mortgaged his property, or it has been transferred in
the ordinary course of business, neither are overreached by the
statutes; and it has never been decided that it affects any lien,
general or specific, existing when the event took place, which gave
the United States a claim of priority.
Another rule is settled by these cases -- that the priority does
not attach to property legally transferred to a creditor on
respondentia; though he may hold it subject to an account, equity
or trust for the borrower. Such transfer will be protected against
the United States, though not an out and out sale in the course of
business, so as to divest the equitable as well as the legal
interest of the party.
Every stockholder of a bank who draws or endorses a note to
procure a loan from the bank is bound to know the terms of the
charter and bylaws; his signature to the note is an inchoate pledge
of his stock for security, if so provided in the charter; his stock
gives credit to his name, and the bank grant the loan on its
faith.
Robert Brent, a paymaster of the Army of the United States,
having become indebted to the United States and being in an infirm
state of health, on 17 May, 1819, executed an assignment stating
the situation of his health and his earnest desire to satisfy and
adjust the claim of the government against him as paymaster as
aforesaid, and to do justice to others, and that the better to
secure these objects
Page 35 U. S. 597
and purposes, the assignment proceeded in the following
terms:
"I have conveyed and assigned, and do by these presents convey
and assign, in consideration of the premises, and for the sum of
one dollar to me in hand paid, to George Graham, Joseph Pearson and
Robert Y. Brent, all my real and personal estate and property, in
whatsoever consisting and wheresoever situated, to them, the said
George Graham, Joseph Pearson and Robert Y. Brent, their executors
and administrators, and to the survivor of them, nevertheless, for
paying and satisfying all just claim or claims of the government as
aforesaid, as well as for satisfying all just claim or claims of
all others, as far forth as the said estate and property above
conveyed will answer, with full power and authority to them or the
majority of them to sell and convey, and to make good and
sufficient titles to all or any part of the property referred to,
in conformity with the intention and purpose of this writing, it
being well understood that the said trustees, after satisfying the
purposes of the said trust, shall well and fully account with the
said Robert Brent, his heirs, executors, or administrators, for the
execution of the trust aforesaid, and fully restore to the said
Robert Brent, his heirs, executors, or administrators any overplus
or surplusage that may remain of the estate aforesaid, and it being
also understood that the said Robert Brent reserves to himself the
possession and use of such part of the property aforesaid as may be
for his reasonable support and maintenance, and likewise, the
privilege of disposing of any part of the trust estate, with the
consent of the trustees, for the objects designated above."
It was agreed that the assignees refused to accept the
assignment or to act under it.
Robert Brent died on 7 September, 1819, leaving real and
personal estate, and the executors qualified and took possession of
his estate in 1820. At the time of his death, he held six hundred
and fifty-nine shares of stock in the Bank of Washington, and at
that time he was indebted to the bank, as endorser on two
promissory notes, one for $1,000 drawn by Thomas L. Washington and
endorsed by Robert Brent, due and protested on 22 May, 1819; the
other for $667, also drawn by Mr. Washington and endorsed by Mr.
Brent, due and protested on 29 May, 1819; he was also, at the time
of his death, endorser of a promissory note drawn by John Cooke for
$400, which became due and was protested on 19 November,
Page 35 U. S. 598
1819, making, together with the other notes, the sum of $2,067,
of which $1,667 only were due at his decease.
Some years after the death of Robert Brent, the Bank of
Washington instituted a suit against the executors on the note of
$400, and on the note of $667, and on a plea of the statute of
limitations, a verdict and judgment were rendered for the
defendants.
The eleventh section of the charter of the Bank of Washington
provides that
"All debts actually due and payable to the bank (days of grace
for payment being passed) by a stockholder requesting a transfer,
must be satisfied before such transfer shall be made unless the
president and directors shall direct to the contrary."
The same section of the charter also declares:
"That the shares of capital stock at any time owned by any
individual stockholder shall be transferable only on the books of
the bank according to such rules as may, conformably to law, be
established in that behalf by the president and directors."
The certificates of stock issued by the bank declare that "the
shares are to be transferred at the bank by the stockholder, or his
attorney, on surrendering the certificate of the same." There is
also a provision in the section which authorizes the directors to
make regulations for the government and transactions of the bank
"conformable to law."
The executors of Robert Brent, in the year 1820, called upon the
Bank of Washington and requested to be allowed to transfer the
stock held by their testator. This was refused, without the payment
of the notes, the bank claiming the same under the provision of the
charter, which, it was insisted, gives the bank a right to be so
paid. In 1835, the bank had retained dividends on the stock, and
had sold a part of it, amounting to $289.80.
Bills were filed in the circuit court by the surviving executor
of Robert Brent for the use of the United States against the Bank
of Washington claiming a right to transfer the stock for the
payment of the debt due to the United States on the allegation of
the right of priority given to the United States by the acts of
Congress. The Bank of Washington, at the same time, filed a bill
claiming to appropriate the stock, by a sale of it, to the payment
of the debt due to them, and asserting their right to a lien and to
payment under the provisions of the charter.
The following agreement was made in the circuit court between
the parties to these suits:
Page 35 U. S. 599
"It is agreed by and between the said parties that if the court
shall be of opinion that the eleventh section of the charter of the
Bank of Washington, as follows:"
" All debts actually due and payable to the bank (days of grace
for payment being passed) by a stockholder requesting a transfer
must be satisfied before such transfer shall be made, unless the
president and directors shall direct to the contrary,"
"confers upon said bank a specific lien upon the stock held by
any stockholder indebted to said bank, the days of grace being
passed; then the court may decree that the stock, or a sufficient
amount thereof, held by complainant's testate in said bank, shall
be sold at public sale, upon such terms as the court may think
proper to impose, and by such trustee as they may appoint, and may
further direct that the proceeds thereof, after paying the expenses
of the sale, and the costs of this suit, shall be applied to the
payment of the notes hereinafter enumerated, and by this agreement
admitted to be due and unpaid by the complainant's testate to the
defendants, unless the court shall further be of opinion that said
lien granted by said charter is overreached, controlled, and
destroyed by the claims of the United States now made to a priority
of payment out of said stock by virtue of the Act of Congress of
1799, ch. 128, sec. 65, as follows:"
" In all cases of insolvency or where any estate in the hands of
executors, administrators and assigns shall be insufficient to pay
all the debts due from the deceased, the debt or debts due to the
United States shall be first satisfied."
"Or unless the court be further of opinion that the claims or
debts or said notes due to said defendants and hereinafter
particularly specified, upon two of which notes of said testate as
hereinafter described, it is agreed suits were instituted by the
defendants against the complainants on the common law side of this
Court at the trial of which said suits, the complainants had solely
and exclusively, upon the ground of the plea of limitations, a
verdict in their favor were thereby extinguished, and the said lien
in consequence of said limitations lost and destroyed, then the
court to decree, if the claims of the United States to priority of
judgment be allowed, that the proceeds of said sale be applied in
payment of the debt due the United States, or unless they shall be
of opinion that the said lien is not affected by any such priority,
but has been destroyed by the said verdicts in favor of
complainants, then the proceeds of such sale to be applied to the
payment of the note upon which no such verdict was rendered in
favor of complainants."
The circuit court, on 26 January, 1826, made the following
decree in the two cases:
"These causes coming on to be heard upon the bill, answers, and
exhibits, and the facts stated in the agreement entered into
between the complainants and defendants, it is this 22 January in
the year 1836, ordered and decreed by the court, that the stock of
Robert Brent deceased, standing in his name, in the Bank of
Washington, or so much thereof as may be necessary to satisfy the
several notes in the said agreement specified, be sold at public
vendue, on the credit of sixty or ninety days, the purchasers to
give notes with good endorsers, as the trustee may approve, notice
being first given of the day of sale in one of the city newspapers,
and that J. Hellen be, and he is hereby appointed a trustee to make
said sale, and after paying the expenses of sale and costs of suit
to defendants, he shall apply the proceeds of the sale to the
payment of all the notes of said Brent, enumerated in the above
statement as due to said defendants, and it is further decreed that
the balance of said stock shall be transferred to the United States
by said defendants on the books of said bank."
The United States prosecuted this appeal.
Page 35 U. S. 610
Mr. Justice BALDWIN delivered the opinion of the Court.
Robert Brent, the testator, owned six hundred and fifty-nine
shares of the capital stock of the Bank of Washington in this
district which stood in his name on their books at the time of his
death in September, 1819; when he was indebted to the bank $1,667
as endorser of two notes drawn by J. L. Washington, one of which
was protested on 19, the other on 22 May preceding, and due notice
thereof given. He was also endorser of a note of John Cooke due
said bank, payable on the 19th of November 1819, which was also
duly protested, and notice thereof given. On the 17th of May 1819,
he made an assignment of all his estate, real and personal, to
Page 35 U. S. 611
secure the United States, to whom he was indebted, and all other
creditors, which was recorded the same day, but never was accepted
by the trustees, and became inoperative.
In 1820, the complainants, as executors, administered on the
estate, when they called on the bank to allow them to transfer the
stock belonging to the estate, which was refused by the bank on the
claim of a lien for the amount of the above notes, of which they
demanded payment before they would permit a transfer thereof on
their books. Suits were afterwards brought by the bank against the
executors to recover the amount of the three notes, in one of which
they obtained a verdict; on the two others, verdicts were obtained
in favor of the executors on the plea of the act of
limitations.
In 1827, the executors filed their bill on the equity side of
the circuit court praying for a decree to transfer the stock
discharged from any alleged lien of the bank for the debt due by
the testator; on the ground that being a debtor to the United
States to a large amount and his estate insufficient to pay his
debts, the debt due to them ought to be first paid pursuant to the
provisions of the fifth section of the act of 1797, 1 Story 464,
465, and that the debts claimed by the bank were barred by the act
of limitations, and the verdict rendered for the defendants. These
are the only questions in the case.
The act of Congress referred to is in these words:
"That where any revenue officer or other person hereafter,
becoming indebted to the United States by bond or otherwise, shall
become insolvent, or where the estate of any deceased debtor, in
the hands of executors or administrators, shall be insufficient to
pay all debts due from the deceased, the debt due to the United
States shall be first satisfied."
It has been the uniform construction of this act, and the
similar provision in the sixty-fifty section of the collection act
of 1799, 1 Story 630, that whether in a case of insolvency, death,
or assignment, the property of the debtor passes to the assignee,
executor or administrator the priority of the United States
operating not to prevent the transmission of the property, but
giving them a preference in payment out of the proceeds.
Conard v. Atlantic
Insurance Company, 1 Pet. 439.
This preference is in the appropriation of the
debtor's
estate, so that if, before it has attached, the debtor has
conveyed or mortgaged his property, or it has been transferred in
the ordinary course of business, neither are overreached by the
statutes,
26 U. S. 1 Pet.
440, and it has never been decided that it affects any lien,
general or specific,
Page 35 U. S. 612
existing when the event took place which gave the United States
a claim of priority. In the case of
Conard v. Atlantic
Insurance Company, above quoted, in
Conard v.
Nicholl, 4 Pet. 291, and
Conard v.
Pacific Insurance Company, 6 Pet. 262,
31 U. S. 279,
this Court considered the effect of the priority of the United
States, in cases where their debtor has taken up money on
respondentia bonds, on an agreement that the bill of
lading of the goods therein mentioned should be endorsed to the
lenders as a collateral security for the loan; that the return
cargo should be consigned to them on their account and risk, the
bills of lading to be so expressed, endorsed in blank and delivered
to them, and the property be delivered to the order of the
shippers, as a continuation of the collateral security. This was
held, in all these cases, to amount to a transfer of the absolute
legal right to the property composing the return cargo, to the
holders of the bonds, so as to enable them to recover their value
from the marshal, who had levied on them by virtue of an execution
at the suit of the United States, and detained them after a demand
of delivery. They recovered damages commensurate with their legal
right of property, and the court would not inquire whether, in any
event, the lenders on
respondentia could be considered as
trustees for the borrower, his creditors or assigns, deeming it
immaterial.
31 U. S. 6 Pet.
272.
Another rule is settled by these cases -- that the priority does
not attach to property legally transferred to a creditor on
respondentia, though he may hold it subject to an account,
equity, or trust for the borrower. Such transfer will be protected
against the United States, though not an out and out sale in the
course of business, so as to divest the equitable as well as the
legal interest of the party. Such a transaction approximates to one
which merely gives a lien; its object is security, not a sale; it
is in law a sale by the shape of the contract and securities, but
if the goods were of greater value than the debt due, equity would
compel an account for the surplus, considering the whole
transaction to have been one of loan and priority merely. On the
other hand, if the borrower, his creditor or assignee should come
into equity to ask such account, it would be decreed to him only
after the payment of the debt due; the holder of the security would
be allowed to retain it for such purpose, however defective it
might be at law. Nor would a court of equity take from the lender
any legal right, which he might have to the possession of the
Page 35 U. S. 613
property, or to prevent its transfer to another, whereby such
right would be impaired if his conduct had been
bona
fide.
Whatever may be the defects in the rights of a
bona
fide creditor at law, equity will protect him in their
enjoyment till they are lost at law; if his conscience is not so
affected as to bring him within the jurisdiction of a court of
conscience, which does not administer legal remedies for legal
rights. Its action is on equitable rights, by equitable remedies,
or legal rights for which the law provides no remedy,
28 U. S. 3 Pet.
447, or none so adequate as equity, so beneficial or complete.
22 U. S. 9
Wheat. 845. This is a case of that description, or the plaintiffs
have no standing in equity, for if they have a complete legal right
to priority of payment out of the stock of Mr. Brent, and a remedy
to enforce it, plain, adequate, and complete at law, the sixteenth
section of the Judiciary Act, 1 Story 59, is a proviso on the
jurisdiction of a court of equity, and it is not a case in equity
under the third article of the Constitution.
In the bill of the complainants, they do not contest the lien of
the bank by any paramount right in themselves as executors; they
are the mere conduits through whom the United States claim the
benefit of the legal priority given them by law, which the
executors are compelled to assert in order to save themselves from
the consequences of their paying any other debt than that due to
the United States before it is satisfied, as prescribed by the
sixty-fifth section of the collection act.
If Mr. Brent was such a debtor as is contemplated by the law,
and died without property sufficient to pay his debts, the right to
satisfaction out of his estate, in preference to any other
creditors, is undoubtedly in the United States. The record does not
contain any evidence of insolvency, but as the case has been argued
on the assumption that it existed, and that Mr. Brent was a debtor
within the purview of the law, the court will so consider him and
his estate. Assuming, then, the right of the United States as
respects the executors, and all his creditors, except the bank, to
priority of payment, to be complete; we find them, through the
executors, plaintiffs in equity, claiming a decree for the transfer
of the stock of the testator standing on the books of the bank, in
order to have it sold for the exclusive payment of their debt. A
court of law cannot do this, for by the eleventh section of the
bank charter, the stock is transferable only on the books of the
bank, according to such rules as may, conformably to law, be
established in that behalf by the president and
Page 35 U. S. 614
directors. Davis' Laws Dist. of Col. 224. On a similar provision
in the charter of the Union Bank of Georgetown, this Court, in the
Union Bank v.
Laird, declared that "no person could acquire a
legal title to any shares, except under a regular transfer,
according to the rules of the bank." The executors cannot sustain a
suit at law in their own right for refusing to permit such
transfer, inasmuch as, by another clause of the same article in the
charter, it is provided:
"But all debts actually due and payable to the bank (days of
grace for payment being past) by a stockholder requesting a
transfer must be satisfied before such transfer shall be made,
unless the president and directors shall direct to the
contrary."
As Mr. Brent owed the debts now claimed by the bank on the notes
due and protested before his death, this would be a complete answer
to a suit at law by his executors for not permitting a transfer,
and the same objection would be fatal to a suit in their name for
the use of the United States. The defense is a legal one: the case
provided for by the charter and by law had happened; the bank had a
perfect right to hold on to the stock, and this Court has decided
in the case of
Laird that a rule of the bank imposing such
a restriction on the transfer of stock is conformable to law.
15 U. S. 2
Wheat. 392-393.
The United States has no pretense of a legal right to a transfer
of the stock to themselves, or to recover damages for refusing it;
the right to hold the stock devolves on the executors, to whose
hands it must come for sale and distribution; the proceeds, not the
stock, go to the United States in virtue of their priority; such
are the words of the law -- "the estate of any deceased debtor in
the hands of executors or administrators." Thus compelled to come
into equity for a remedy to enforce a legal right, the United
States must come as other suitors, seeking in the administration of
the law of equity, relief, to give which courts of law are wholly
incompetent on account of the legal bar interposed by the bank.
This Court, in
United States v.
Mitchell, 9 Pet. 743, have recognized the principle
in the common law that though the law gives the king a better or
more convenient remedy, he has no better right in court than the
subject through whom the property claimed comes to his hands. 2
Co.Inst. 573; 2 Ves.Sr. 296, 297; Hard. 60, 460. This principle is
also carried into all the statutes, by which the appropriate courts
are authorized to decide, and under which they do decide on the
rights of a subject in a controversy with the King, according to
equity and good conscience between subject and subject. 7 Co. 19; 6
Hard. 27, 170, 230, 502; 4 Co.Inst. 190.
Page 35 U. S. 615
It is not difficult in this case to decide what the rules of
equity and good conscience require. The bank has lent its money on
the name, credit, and stock of Mr. Brent, before the United States
could have any claim of preference. Two notes were due, protested,
and the legal lien of the bank for their payment complete; as to
the third, the time for repayment had not arrived before such right
attached on the property of Mr. Brent in the hands of his
executors, but it was confined to what belonged to and was part of
the assets of the estate. The right was a legal one; the claim of
the United States was a statutory one, but its existence was not
founded on any bad faith of the bank, its conscience was
unaffected, and by law they held the legal control of the transfer
of their stock; their consent was necessary to the transmission of
the legal title to the executors, and the only ground on which the
aid of a court of equity is asked to compel them to give their
consent is a legal claim to the proceeds by a right which will
deprive the bank of all security for their debt. In good
conscience, there can be no claim more equitable than that of the
bank for money lent, and if the law has placed them on the
tabula in naufragio, it little comports with the
principles of equity to take it from them merely because, by the
death of Mr. Brent before the protest of the third note, the legal
lien, secured by their charter, had not become consummated, before
the legal right of the United States had attached to priority of
payment out of his estate. An individual asserting such a claim in
equity against the bank, in virtue of an act of bankruptcy, an
execution or assignment, between the date and the protest of the
note, would be compelled to do equity before he could enforce his
legal right, and we can perceive no reason why the United States
should be exempted from this fundamental rule of equity, subject to
which, its courts administer their remedy.
Every stockholder who draws or endorses a note to procure a loan
from the bank, is bound to know the terms of the charter and
bylaws; his signature to the note is an inchoate pledge of his
stock for security; his stock gives credit to his name, and the
bank grants the loan on its faith.
Though the charter has not made the note a lien on the stock
till the note is protested, so as to give the bank both a legal and
equitable right to refuse the transfer till it is paid; yet it has
given them the power to prevent a transfer unless on their books,
by such rules as they may prescribe, which gives them power to
prevent the legal
Page 35 U. S. 616
title from passing to a purchaser. Connecting this with the
power to make bylaws for the government of the bank and the
management of their concerns, the bank would have a strong case in
equity, had the latter clause in the eleventh section of their
charter been omitted.
Under the usual clause in the charter to the Hudson Bay Company
to make bylaws, &c., they had made one respecting the transfer
of their stock, so that it should be first liable for debts due to
the company by their own members, or to answer the calls of the
company on their stock. One of the stockholders, indebted to the
company for money received for their use, became bankrupt; his
assignees brought a bill to compel a transfer of his stock, which
was opposed by the company in virtue of their bylaws. The
chancellor declared
"the bylaw a good one, for the legal interest of all the stock
is in the company, who is trustee for the several members and may
order that the dividends to be made, shall be under particular
restrictions or terms, and by the same reason that this bylaw is
objected to, the common bylaws of companies, to deduct the calls
out of the stocks of the members refusing to pay their calls, may
be said to be void."
Child v. Hudson Bay Co., 2 P.W. 207, 209; S.P. 1 Str.
645; 1 Eq.Cas.Ab. 9, pl. 8; 13 Ves. 428, 429.
In
Waln's Assignees v. Bank of North America, it was
held by the Supreme Court of Pennsylvania that when, by the known
usage of a bank, the stock of a debtor was not transferable till
the debt was paid, such usage was binding on his assignees, the
bank having, by its charter, power to make bylaws and having made
one requiring all transfers to be made on its books in the presence
of its officers. 8 S. & R. 73, 86. In giving such power by
charter and executing it by such a bylaw, the intention of the law
of incorporation is most evidently to give a security to the bank;
by permitting a transfer and giving a certificate to the holder,
the bank gives up all claims on the stock; the legal right to
supervise the transfer was intended for its benefit. On this
principle, this Court said
"No person therefore can acquire a legal title to any shares
except under a regular transfer according to the rules of the bank,
and if any person takes an equitable assignment, it must be subject
to the rights of the bank under the act of incorporation, of which
he is bound to take notice."
15 U. S. 2
Wheat. 393.
The principle of these cases covers the present in all its
bearings. It is admitted that the bank has a legal right to
withhold the
Page 35 U. S. 617
transfer till payment of the notes protested in the lifetime of
Mr. Brent; the case is equally clear in equity as to the note
endorsed by him and discounted by the bank, though not protested
till after his death.
A commission of bankruptcy relates to the act of bankruptcy,
having the effect of an execution; it prevents the transmission of
the bankrupt's property from that time to any but his assignees;
the same effect follows a voluntary assignment -- both operate to
transfer the property itself, whereas the priority of the United
States attaches only after the transfer is made by the party, or by
operation of law at his death. If, then, the lien of a corporation
attaches to an actual transfer of the stock, so as to make it
subject to all their equitable demands upon it,
a fortiori
it must remain on it when a preferred creditor can claim payment
only out of the proceeds in the hands of the assignees, or personal
representatives of the debtor.
So long, then, as this note remains due and unpaid, the
complainants are not entitled to a transfer of the stock owned by
their testator.
But they allege that the debt is extinguished by the verdict in
their favor rendered on a plea of the statute of limitations.
In
Bank of the United States v.
Donnelly, 8 Pet. 361, this Court laid it down as an
established principle that the act of limitations operated only to
bar the remedy, not to extinguish the right or cause of action, and
that a judgment on a plea of the statute was only to bar the remedy
on a contract when sued for in Virginia, as the limitation act of
that state embraced the one declared on, but did not operate to
extinguish the contract when sued for elsewhere or in Kentucky,
where, by the
lex loci, it was not affected by any
limitation.
Id. 33 U. S.
370.
We cannot take this case out of this established rule; the legal
remedy is barred, but the debt remains as an unextinguished right,
and the bank, when called into a court of equity, may hold to any
equitable lien or other means in their hands till it is
discharged.
The decree of the circuit court is affirmed.
This cause came on to be heard on the transcript of the record
from the Circuit Court of the United States for the District of
Columbia holden in and for the County of Washington, and was argued
by counsel, on consideration whereof it is decreed and ordered by
this Court that the decree of the said circuit court in this cause
be and the same is hereby affirmed with costs.
