1. The title to shares of the capital stock of a national bank
passes when the owner delivers his stock certificate to the
purchaser with authority to him or any one whom he may name to
transfer them on the books of the bank.
2. In good faith, and without intent to evade his responsibility
as a stockholder, A., the owner of such shares, sold them to a
broker, to whom he delivered his stock certificate and a power to
transfer them, leaving blanks for the names of the attorney and
transferee. The broker sold them to B., the president of the bank,
who gave his individual check in payment therefor, and received the
certificate and power. By the directions of B., a bookkeeper of the
bank inserted his own name as attorney, and transferred the stock
to B. as "trustee" on the official stock register. The entries in
the stock ledger and other books of the bank show that B. purchased
the stock for it, and reimbursed himself with its funds. The
bookkeeper lead actual knowledge of all the facts. In a suit
brought by the receiver of the bank to compel B. to retransfer the
shares and A. to repay the price therefor and to have the latter
declared a stockholder in regard to them,
held that as the
bookkeeper was the agent of the Bank, his knowledge of the
transaction could not be imputed to A., and that the suit could not
be maintained.
The facts are stated in the opinion of the Court.
MR. JUSTICE FIELD delivered the opinion of the Court.
The questions raised in this case are important to owners of
shares in the national banks, but they are not difficult of
solution. The delay in their decision has been caused by the great
pressure of business upon the Court, and not from any doubt as to
their proper disposition. The appellant, the complainant below, is
the receiver of the National Bank of the State of Missouri,
appointed by the Comptroller of the Currency on the 27th of June,
1877. The bank failed on the 20th of that month. The defendant,
James H. Britton, was its president, and had been so for some
years. On the 16th of May, 1877, and for some time previously, the
defendant Laflin was a stockholder
Page 103 U. S. 801
of the bank, owning eighty-five shares of full-paid stock. He
was not a director of the bank, nor had he any personal knowledge
of its actual financial condition. It is to be presumed that he
regarded that condition as sound, for up to the time of the
failure, he continued to deposit funds with it for a company of
which he was a resident director at St. Louis. On the day
mentioned, May 16, 1877, he sold his eighty-five shares to a
broker, to whom he delivered his certificate of the stock, with a
blank power of attorney endorsed thereon, authorizing the attorney,
whose name might be subsequently inserted by the broker or any
other party becoming the owner of the certificate to transfer it on
the books of the bank in such form and manner as might be necessary
or required by its regulations. Laflin did not at the time know for
whom the stock was bought; information on the subject was withheld
from him. He received for the price agreed the broker's check on a
banking house in St. Louis, which was paid the same day on
presentation. The broker was, however, in fact acting for Britton,
the president of the bank, who represented that he was purchasing
for himself or for a party whose name he did not disclose. There
was no intimation that he was making the purchase for the bank or
in its interest. He gave the broker his individual check on the
bank for the price of the stock, which was paid on presentation.
Subsequently, but on the same day, he received the certificate, and
thereupon directed a bookkeeper in the bank, named Geralt, to fill
up the power of attorney with his, the bookkeeper's, name and to
transfer the certificate to his, Britton's, name as trustee on the
transfer book or stock register of the bank, which was accordingly
done. He had at the time to his individual credit at the bank
several hundred dollars more than sufficient to meet his check. He
had for years dealt largely on his own account in its stock, and
there was nothing in the transaction between the broker and himself
to awaken suspicion as to its legality or propriety. Some days
afterwards, on the 29th of the same month, at an election of
directors, he represented and voted on the stock purchased.
It appears, however, that whilst the shares stood on the
official stock register in the name of Britton as trustee,
without
Page 103 U. S. 802
stating for whom he was trustee, the transaction was entered on
the stock ledger in an account with him as "trustee of the bank."
And by his directions, the bookkeeper credited his individual
account with the amount of the check given for the shares and
charged the same amount to the "sundry stock account." In other
words, the entries on the books -- other than the official stock
register -- showed that the stock was purchased by Britton for the
benefit of the bank and paid for with its funds. But neither Laflin
nor the broker had any notice of the manner in which the transfer
was made or of the entries on the books of the bank, or that the
purchase had been made with its funds. The bookkeeper, Geralt, who
made the transfer and the entries had, however, actual knowledge of
the facts.
The present suit is brought by the receiver of the bank to set
aside the purchase of the eighty-five shares, to compel Laflin to
repay the money received and Britton to retransfer to him the
shares on the books of the bank, and to have him declared to be
still a stockholder in respect of those shares.
The statute declares that the capital stock of every national
banking association shall be divided into shares of one hundred
dollars each and be transferable on its books in such manner as may
be prescribed by its bylaws or articles, and that every person
becoming a stockholder by such transfer shall, in proportion to his
shares, succeed to all the rights and liabilities of the prior
holder. There was no bylaw of the association here regulating
transfers of its shares, but each certificate of stock contained
this provision:
"Transferable only on the books of the said bank, in person or
by attorney, on the return of this certificate, and in conformity
with the provisions of the laws of Congress and the bylaws which
may be in force at the time of such transfer."
The statute also declares that no association shall be the
purchaser of any shares of its own capital stock unless the
purchase be necessary to prevent a loss upon a debt previously
contracted. The purchase by the bank, through its president, in the
present case was not made to prevent such a loss. Laflin was not
indebted to the bank at the time he sold his
Page 103 U. S. 803
shares. The receiver therefore, starting with the conceded fact
that the purchase by the bank was prohibited and therefore illegal
on its part, seeks to charge Laflin with the consequences of such
illegality as though he had dealt directly with the bank or had
known at the time that the purchase was made for it. He assumes
such knowledge by Laflin because the party with whose name the
blank power of attorney was filled, to make the transfer of the
certificate of stock, was cognizant of the facts. His argument is
substantially this: the transfer of the stock is not complete until
made on the books of the bank, and the attorney who made it knew
that the purchase was by the bank and with its funds, and his
knowledge was the knowledge of Laflin.
The general doctrine that the principal in a transaction is
chargeable with notice of matters affecting its validity coming to
the knowledge of his agent pending the proceeding is not
questioned. Had Geralt, the bookkeeper, been appointed by Laflin to
make the sale, and had he in negotiating it learned the facts as to
the purchase and use of the funds of the bank, there would be
ground to invoke the application of the doctrine. But such was not
the position of Geralt to Laflin. The sale was consummated, so far
as Laflin was concerned, when he delivered the certificate, with
the power to transfer it, to the broker. The latter did not mention
the name of the principal for whom he was acting. He declined to
give it. Laflin had a right, therefore, to treat him as the
principal, and if he was competent to make the purchase the sale
was valid. Shares in the capital stock of associations, under the
national banking law, are salable and transferable at the will of
the owner. They are in that respect like other personal property.
The statute recognizes this transferability, although it authorizes
every association to prescribe the manner of their transfer. Its
power in that respect, however, can only go to the extent of
prescribing conditions essential to the protection of the
association against fraudulent transfers or such as may be designed
to evade the just responsibility of the stockholder. It is to be
exercised reasonably. Under the pretense of prescribing the manner
of the transfer, the association cannot clog the transfer with
useless restrictions or make it dependent
Page 103 U. S. 804
upon the consent of the directors or other stockholders. It is
not necessary, however, to consider what restrictions would be
within its power, for it had imposed none. As between Laflin and
the broker, the transaction was consummated when the certificate
was delivered to the latter with the blank power of attorney
endorsed and the money was received from him. As between them, the
title to the shares then passed; whether that be deemed a legal or
equitable one matters not; the right to the shares then vested in
the purchaser. The entry of the transaction on the books of the
bank, where stock is sold, is required not for the translation of
the title, but for the protection of the parties and others dealing
with the bank and to enable it to know who are its stockholders,
entitled to vote at their meetings and receive dividends when
declared. It is necessary to protect the seller against subsequent
liability as a stockholder, and perhaps also to protect the
purchaser against proceedings of the seller's creditors. Purchasers
and creditors, in the absence of other knowledge, are only bound to
look to the books of registry of the bank. But as between the
parties to a sale, it is enough that the certificate is delivered
with authority to the purchaser, or anyone he may name, to transfer
it on the books of the company, and the price is paid. If a
subsequent transfer of the certificate be refused by the bank, it
can be compelled at the instance of either of them.
Bank v.
Lanier, 11 Wall. 369;
Webster v. Upton,
91 U. S. 65;
Bank of Utica v. Smalley, 2 Cow. (N.Y.) 770;
Gilbert
v. Manchester Iron Co., 11 Wend. (N.Y.) 627;
Commercial
Bank of Buffalo v. Kortright, 22
id. 348;
Sargeant v. Franklin Insurance Co., 8 Pick. (Mass.)
90.
The transferability of shares in the national banks is not
governed by different rules from those which are ordinarily applied
to the transfer of shares in other corporate bodies. The power of
attorney endorsed on the certificate is usually written or printed,
with a space in blank for the name of the attorney to be inserted,
for the accommodation of the purchaser. The subsequent filling up
of the blank by him with another name instead of his own, as it may
suit his convenience, does not so connect the vendor with the party
named as to charge him with the latter's knowledge, and thus
affect
Page 103 U. S. 805
the previous transaction. A different doctrine would put a
speedy end to the signing of powers of attorney in blank. And
instruments of that kind are of great convenience in the sale of
shares of incorporated companies, and are in constant use. The name
with which the blank may be subsequently filled up by the purchaser
is not in practice regarded as affecting the previous sale in any
respect, but as a matter which concerns only the purchaser. It
would be a source of disturbance in business if any other result
were attached by the law to the proceeding.
The further position of the receiver that the assets of the bank
constituted a trust fund for the benefit of its creditors and,
where wrongfully diverted, can be followed in whosesoever's hands
they can be traced, may, as the statement of a general doctrine, be
admitted. But it has no application to the case at bar. Here, no
assets of the bank were received by Laflin. What he received came
from the broker, the only person with whom he dealt or whom he know
as principal in the negotiation. The circumstance that the purchase
was actually in the interest of the bank -- though of that fact the
broker was ignorant -- cannot affect the latter's character as
principal, so far as Laflin was concerned, which he bore in the
negotiation.
The whole transaction on the part of Laflin was free from any
imputation of fraud. He sold his shares to a person competent to
purchase and hold them and received the stipulated price. It would
be a perversion of justice and of the ordinary rules governing men
in commercial transactions to hold the sale under such
circumstances vitiated by the relations of the purchaser to others
of which the seller had no knowledge or any grounds to entertain a
suspicion. The validity of the sale of stock cannot be made to
depend upon the accident of the immediate purchaser or of the party
to whom he may transfer the certificate, in filling up the blank in
the power of attorney with the name of a person, to make the formal
transfer, who is acquainted with the secret interests of others in
the shares purchased. The validity of a sale and its completeness
must be determined by the relation which the contracting parties at
the time openly bear to each other.
Of course, the whole case here would be changed if the sale by
Laflin had not been made in good faith, but was made merely to
evade his just responsibility as a stockholder or to work a fraud
upon other stockholders or creditors of the bank.
Decree affirmed.