The following propositions may be considered as settled in
regard to the liability of shareholders of national banks. under
section 5151, Rev.Stat.:
1. Liability may be established by allowing one's name to appear
upon the books of the corporation as owner, though in fact he be
only a pledgee. Nor can the real owner exonerate himself from
responsibility by making a colorable transfer of the stock, with
the understanding that at his request it shall be
retransferred.
2. Stockholders of record are liable for unpaid installments,
though in fact they may have parted with their stock, or held it
for others.
3. A mere pledgee, however, who receives from his debtor a
transfer of shares, surrenders the certificate to the bank and
takes out new ones in
Page 189 U. S. 243
his own name, in which he is described as "pledgee," and holds
them afterwards in good faith, and as collateral security for the
payment of his debt, is not subject to personal liability as a
shareholder. But it is otherwise, if he allow his name to appear on
the book as owner, or being the owner, makes a colorable transfer
of the stock.
Where it was shown that a trust company loaned on shares of a
then solvent and dividend paying. national bank, and accepted its
stock as collateral, and subsequently the pledgor failed, and the
trust company caused the stock to be transferred to one of its
employees, paid an assessment subsequently levied upon the stock,
and charged it to the pledgor, and frequently wrote to ascertain if
there was any market for the stock, stating that it was held as
collateral,
Held, that, although the construction of
written instruments is one for the court, where the case turns upon
the proper conclusions to be drawn from a series of letters,
particularly of a commercial character taken in connection with
other facts and circumstances, it is one which is properly referred
to a jury, and as this case really turned upon the actual ownership
of the shares, such question of ownership was properly left to the
jury as one of fact.
Held, that the pledgee is not bound by statements made
without its knowledge by the assignees of the pledgors upon the
schedules of liability to the effect that the pledgee had converted
the stock.
This was an action at law by the receiver of the Keystone
National Bank of Erie, Pennsylvania, against the defendant company,
as the actual owner and holder of 172 1/2 shares of the capital
stock of the bank, standing upon its books in the name of one
William W. Hand, to recover an assessment upon the shareholders of
one hundred percent made by the Comptroller of the Currency
pursuant to Rev.Stat. sec. 5151.
The facts of the case are substantially as follows: on November
15, 1890, Delamater & Co., a banking firm of Meadville, Pa.,
borrowed $15,000 of defendant company, in renewal of prior loans,
giving therefor their note for sixty days, and as collateral
security deposited 230 shares of the capital stock of the Keystone
National Bank of the par value of $100 per share, standing in the
name of the individual members of the firm. The shares were valued
at the time at par, $23,000; the bank was in good credit, and for
twenty-seven years had regularly, and was then paying, semiannual
dividends. With its certificates of stock thus deposited, powers of
attorney signed by the individual holders of the stock were also
delivered to the defendant. These documents empowered the defendant
to
Page 189 U. S. 244
transfer the shares -- the name of the transferee and the
attorney being blank.
Twenty days thereafter, and on December 5, 1890, Delamater &
Co. failed and made a general assignment for the benefit of their
creditors, and on December 17, defendant having received notice of
the assignment, wrote to the assignees declining to renew the note,
but offering to anticipate its payment and return the collaterals.
It seems the assets of Delamater & Co. were insufficient for
this purpose.
On January 10, 1891, defendant sent to the Keystone National
Bank of Erie the original certificates, deposited as collateral,
and requested the bank to transfer the shares to William W. Hand, a
clerk in the employ of the defendant. Three days later, and on
January 13, the bank paid a semi-annual dividend of two percent,
but it does not appear who received this dividend, which proved to
be the last one paid by the bank. The transfer was made on the
books of the bank, and new certificates issued in the name of Hand,
dated January 15, 1891, and were transmitted by the bank to the
company, which acknowledged receipt of the stock, and stated that
it would like to have a bid for the stock "if you know of a
purchaser." Hand signed the transfer in blank on the back of these
certificates, and in that form they were retained by the defendant.
There was no receipt for the certificates except a memorandum in
the handwriting of the clerk on the stub of the stock book: "Sent
to the Fidelity Insurance, Trust, and Safe Deposit Company,
Philadelphia, Penn., 1/17/91."
Fourteen months thereafter, and on March 16, 1892, the
Comptroller of the Currency, finding that the capital of the bank
was impaired, ordered an assessment of twenty-five percent on the
capital stock to make good the deficiency. The assessment upon
these shares amounted to $5,750. This amount was paid by the
defendant and charged on its books to Delamater & Co. as an
additional advance. Its check was sent to the bank in a letter
signed by Mr. Hand.
On December 22, 1892, pursuant to Rev.Stat. sec. 5143, and with
the approval of the Comptroller of the Currency, the capital stock
of the bank was reduced from $250,000 to $150,000,
Page 189 U. S. 245
divided into 1,500 shares of $100 each. Thereupon, and on
January 24, 1893, the defendant sent to the bank the certificates
for 230 shares, and on February 7 received the certificates in the
name of Hand, for 172 1/2 shares, being the reduced number. Hand
signed a transfer in blank on the back of the certificates, and in
that form they remained in the possession of the defendant. On
March 20, 1894, the vice-president of the defendant company
addressed a letter to the bank, stating that the company held 172
1/2 shares of the stock registered in the name of W. W. Hand, and
requesting a copy of their last statement and any other information
regarding the business of the bank, and as to whether there were
any sales of stock, saying "We would like to sell our holdings, if
marketable." No reply being received to this letter, the defendant
company repeated its substance in another letter of April 4,
stating that "as we have a loan of $22,000 depending upon the value
of 172 1/2 shares, we desire the above information." Several other
letters were written to the same purport.
On June 20, 1897, the Keystone National Bank closed its doors,
on July 26, the Comptroller of the Currency appointed a receiver,
and on November 3 ordered an assessment of 100 percent on the
stockholders. Whereupon this action was brought to recover an
assessment of $17,500 on the shares registered in the name of
Hand.
The case was tried before a jury, and the question submitted to
them
"whether, before this Keystone National Bank failed, the
defendant company, the Fidelity Trust Company of this city, was the
real owner of these shares of stock, or whether it continued to be
the pledgee of the stock -- whether the stock had become theirs in
the sense in which we use in ordinary speech the word 'owner,' or
whether it had been continued to be pledged to them as collateral
security for the payment of the note which has been offered in
evidence."
Upon the issue thus submitted, the jury returned a verdict for
the defendant, upon which judgment was entered, and the case taken
to the circuit court of appeals upon writ of error. That court
affirmed the judgment. 108 F. 475.
Page 189 U. S. 246
MR. JUSTICE Brown delivered the opinion of the Court.
There being but little conflict in the testimony as to the
actual facts, the question really is whether the court should have
submitted the case to the jury, or instructed a verdict for the
plaintiff.
By Rev.Stat. section 5151,
"the
shareholders of every national banking association
shall be held individually responsible, equally and ratably, and
not one for another, for all contracts, debts and engagements for
such association to the extent of the amount of their stock therein
at the par value thereof, in addition to the amount invested in
such shares,"
and by sec. 5234, the receiver may, upon order of the proper
court, enforce this individual liability.
Most of the cases arising under this section have turned upon
the question whether defendant was in fact the owner of the shares.
In this connection, the following propositions may be considered as
settled:
1. That liability may be established by allowing one's name to
appear upon the books of the corporation as owner, though in fact
he be only a pledgee.
Pullman v. Upon, 96 U. S.
328. Nor can the real owner exonerate himself from
responsibility by making a colorable transfer of the stock, with
the understanding that at his request, it shall be retransferred.
National Bank v. Case, 99 U. S. 628;
Bowden v. Johnson, 107 U. S. 251;
Stuart v. Hayden, 169 U. S. 1.
2. Stockholders of record are liable for unpaid installments,
though in fact they may have parted with their stock, or held it
for others.
Hawkins v. Glenn, 131 U.
S. 319.
3. A mere pledgee, however, who receives from his debtor a
transfer of shares, surrenders the certificate to the bank and
takes out new ones in his own name, in which he is described as
"pledgee," and holds them afterwards in good faith, and as
Page 189 U. S. 247
collateral security for the payment of his debt, is not subject
to personal liability as a shareholder.
Pauly v. State Loan
& Trust Co., 165 U. S. 606. But
it is otherwise if he allow his name to appear on the book as
owner, or, being the owner, makes a colorable transfer of the
stock.
National Bank v. Case, 99 U. S.
628.
Three cases in this Court are specially pertinent to the one
under consideration, and we have little more to do than to point
out the salient facts of each and determine by which one of them
this case is controlled.
In
National Bank v. Case, 99 U. S.
628, it appeared that the Germania Bank lent $14,000 to
the firm of Phelps, McCullough & Co., who, to secure the
payment of the loan, pledged to the bank one hundred shares of the
stock of the Crescent City Bank, with power, on nonpayment of the
note, to dispose of the stock for cash at public or private sale
without recourse to legal proceedings. At the same time, a power of
attorney was given authorizing a transfer of the stock to the
Germania Bank. The note not being paid at maturity, a transfer was
made to the Germania Bank on the transfer books of the Crescent
City Bank. The stock was subsequently transferred to one of the
clerks of the Germania Bank with an understanding between him and
the officers of the bank that he should retransfer it at their
request. It was held that, notwithstanding the transfer to the
clerk, the stock remained subject to the bank's control, that the
transfer was made to evade the liability of the true owners, and
that, as Phelps, McCullough & Co. had ceased to be the owners
of the stock, the bank was liable. The liability was put by the
court upon the ground that the stock was transferred to the
Germania Bank upon the transfer books of the Crescent City Bank,
and thereby the bank became subject to the liabilities of a
stockholder, and that, as a transfer of the stock to its clerk,
Waldo, was colorable, it had not exonerated itself from that
liability.
The case is distinguishable from the instant case by the fact
that the stock was actually transferred to the bank upon the
transfer books of the Cresent City Bank, which thus appeared as
owner, and that the subsequent transfer to Waldo was merely
Page 189 U. S. 248
colorable. There was also the further fact that the Crescent
City Bank was in a failing condition when the transfer to Waldo was
made, and there was no reasonable doubt that the defendant,
Germania Bank, knew it and made the transfer to escape
responsibility. In the present case, the stock was never
transferred to the defendant, and the transfer to Hand took place
within two months of the time of the original pledge, when the
Keystone Bank was supposed to be perfectly solvent, and remained so
for more than a year thereafter, when the assessment of twenty-five
percent was made, the bank continuing in business until June 20,
1897, more than six years after the transfer to Hand.
In
Anderson v. Philadelphia Warehouse Co., 111 U.
S. 479, the law as laid down in the prior case was
somewhat relaxed, and a tendency manifested to look more closely at
the equities. In that case, Blumer & Co. borrowed a sum of
money from the defendant, and as security for the loan transferred
450 shares of stock of the First National Bank of Allentown
standing in the name of one Kern, a partner in the firm of Blumer
& Co., on the books of the bank, and had a new certificate
issued in the name of one Henry, president of the defendant
warehouse company. The fact of the transfer of this stock to its
president was brought to the attention of the directors of the
warehouse company, who deemed it inadvisable to have the stock
stand in the name of the president, and it was therefore,
transferred to one McCloskey, a porter in the employ of the
company, and irresponsible. McCloskey never had possession of the
certificate, and at the request of the warehouse company, gave a
power of attorney for the sale and transfer of the stock, and
shortly thereafter died. The stock was subsequently transferred to
one Ferris, another employee, also irresponsible. Dividends were
regularly paid on this stock to Kern, and the warehouse company
never acted as a shareholder. It was held that, as there was no
evidence of fraud or bad faith, as the warehouse company was never
the owner of the stock and never held itself out as such, never
consented to a transfer of the stock on the books, never claimed
dividends, or acted as a shareholder, or ever pretended to be
anything but a mere pledgee -- it was not liable.
Page 189 U. S. 249
Said the Court:
"The creditors were put in no worse position by the transfers
that were made than they would have been if the stock had remained
in the name of Kern, or Blumer & Co. who were always the real
owners."
It was held that, as the defendant promptly declined to allow
itself to stand as a registered shareholder, because it was
unwilling to incur the liability such a registry would impose, and
asked that the transfer be made to McCloskey, from that time the
case stood precisely as it would if the transfer had been
originally made to him instead of to Henry, the president of the
company.
"All this was done in good faith, when the bank was in good
credit and paying large dividends, and years before its failure or
even its embarrassment."
The case differs from this only in the fact that here there was
some evidence (enough to go to the jury) that defendant
had held itself out as the owner of the shares.
In
Pauly v. State Loan & Trust Co., 165 U.
S. 606, the stock which was delivered to the defendant
as collateral security was reissued, and new certificates issued to
the defendant as "pledgee." It was held that, as the stock book
gave information that the defendant held the stock as pledgee only,
it was not liable to an assessment.
See also Robinson v. Sout.
Nat. Bank, 180 U. S. 295;
Nat. Park Bank v. Harmon, 79 F. 891,
S.C., 172
U.S. 644.
There is no doubt whatever that the defendant originally took
blank transfers of the certificates of stock in question as
security for its loan to the Delamaters; that, at that time, the
stock was worth its face value, $23,000; had paid dividends for
twenty-seven years prior thereto, and was in good credit. To charge
the defendant with liability as a shareholder it must be made to
appear that it had either become the owner of the shares in fact or
had held itself out to be the owner, and thereby estopped itself to
deny its liability as such.
The first change in its attitude toward the stock took place
within two months after the original pledge, and was caused by the
failure of the Delamaters, which occurred within twenty days after
the loan was made. The change consisted in sending back, January
10, 1891, the original certificates, and requesting the bank to
transfer the shares to Hand, which was
Page 189 U. S. 250
done. Defendant evidently did not then intend to become the
owner of the stock, as, immediately after receiving notice of the
failure of the Delamaters, the vice-president of the company
addressed a note to them, or their assignees, calling attention to
the note and the pledge of the stock, and saying that, if they were
prepared to anticipate the payment of the note and have the
collateral returned, they would be glad to so arrange it, and in a
further letter of May 5, 1891, to the Delamaters, he notified them
that the note was secured by the Keystone Bank stock, and "if we
cannot secure payment for the note and interest, I have to notify
you that we shall proceed to sell the collateral at auction." It
also appears that, on July 7, 1892, the vice-president of the
company addressed a letter to the auditor of the Delamater estate,
notifying him of their claim against that estate upon the note for
$15,000, and stating that the company held the shares of the
Keystone Bank as collateral for the loan. Thereafter, and on March
30, 1893, the company received a dividend of $795.60, to which it
was undoubtedly entitled as pledgee.
Even so late as 1894, the vice-president of the defendant
company addressed a note to the Keystone Bank requesting
information regarding their business; whether there had been any
sales of the stock and at what price, and saying that "as we have a
loan of $22,000 depending upon the value of 172 1/2 shares, we
desire the above information." It is true that the defendant, in
1892, paid an assessment of $5,750 upon this stock, but the amount
was charged to the Delamaters as an additional advance, and was
evidently paid to save its interest in the stock from forfeiture.
Rev.Stat. sec. 5205, as amended in 1876, 19 Stat. 64. It is not
easy to see how the defendant could have done otherwise than it did
without prejudice to its own rights, as well as to the rights of
the assignees of the pledgeors.
It is also evident that the assignees of the Delamaters treated
the interest of the defendant in the stock as a mere pledge, since
in their account filed in the Court of Common Pleas of Crawford
County, July 13, 1896, they charge themselves in the account as
follows:
"Equities in stocks and bonds, pledges as collateral on loan
unadjusted, as follows: (a) $23,000, stock of
Page 189 U. S. 251
the Keystone National Bank of Erie, pledged for a loan of
$15,000, appraised at $8,000."
Proof was offered that in this account the assignees had made
another entry,
"said stock having been converted by the holder of the note, and
said stock having been assessed to the amount of 25 percent of its
face value, did not sell for enough to pay the debt for which it
was pledged."
This memorandum was excluded, and properly so, by the court
below, inasmuch as it was a mere assertion of fact made by these
assignees without the knowledge of the defendant. The company could
not be bound by a statement thus made by these assignees without
its knowledge or acquiescence. Again, it was obviously untrue, as
the stock had never been sold. Evidently all that was intended by
the word "converted" was that the stock was not worth enough "to
pay the debt for which it was pledged." There can be no doubt that
defendant would have been willing at any time to surrender the
stock upon payment of the debt, and that it retained it simply
because it was forced to do so.
It is also true that a number of letters were written during the
time the defendant held possession of its certificates, in which it
made inquiries as to the value of the stock, the number of sales
made, and spoke of itself as holding or owning the stock which it
desired to sell, and that Hand once or twice voted the shares by
proxy; but the bank clearly could not have been misled, as the
nature of such ownership was shown in the letter of April 4, 1894,
in which they spoke of a loan of $22,000 depending upon the value
of 172 1/2 shares, and repeatedly thereafter, and as late as April,
1897, said they were anxious to sell this stock "to close an
account" for which it was collateral.
If such representations had been made either by a formal entry
upon the books of the bank or to the public, or to anyone who could
have been prejudiced by them, defendant might be held to be
estopped, but as they were made to officers of the bank, who
understood perfectly the capacity in which the defendant retained
the stock, it was properly held to be a question for the jury.
Plaintiff also offered to show in the stock ledger of the
Page 189 U. S. 252
bank over the name of W. W. Hand, in an account opened with him
at the request of the defendant, a pencil memorandum at the top of
the page in these words: "Fidelity Trust & Safe Deposit
Company, Philadelphia." As it does not appear who made this
memorandum, when or for what purpose it was made, or what it was
intended to indicate, it was properly excluded from the
consideration of the jury. It was probably explanatory of the fact
that correspondence with regard to Hand's account was kept up with
the defendant company. It had no tendency, however, to show
anything inconsistent with defendant's position as pledgee of the
stock. As the stock stood in Hand's name, the entry had no tendency
to prove ownership in another.
Carey v. Williams, 79 F.
906;
Sigua Iron Co. v. Greene, 104 F. 854.
The fact that the certificates were put in the name of Hand,
though calculated upon its face to awaken suspicion, wrought no
material change in the situation. If defendant were in fact the
owner of the shares, it could not avoid liability by listing them
in the name of another.
National Bank v. Case,
99 U. S. 628. If it
were the pledgee, it had the option of listing these shares in its
own name as pledgee;
Pauly v. State Loan & Trust Co.,
165 U. S. 606, or
in the name of another and irresponsible party, even though this
were done for the purpose of avoiding liability.
Anderson v.
Philadelphia Warehouse Co., 111 U. S. 479. The
creditors were not injured, since, if the exact truth had appeared
upon the face of the certificates, by registering the shares as
pledgee, they would have had no recourse against the defendant.
Upon the other hand, if defendant had really owned the shares, it
would have been a fraud to list them in the name of Hand. Perhaps
it would have been less open to criticism to have listed them in
its own name as pledgee, but as its failure to do so, under the
theory of the defendant that it was in fact the pledgee, misled no
one, it should not be held liable for what was done in good faith
and with no intent to defraud.
The case then really turned upon the actual ownership of the
shares, and this question was properly left to the jury as one of
fact. Although the construction of written instruments is one
Page 189 U. S. 253
for the court where the case turns upon the proper conclusions
to be drawn from a series of letters, particularly of a commercial
character, taken in connection with other facts and circumstances,
it is one which is properly referred to a jury.
Brown v.
McGran, 14 Pet. 479. In that case, it was said by
Mr. Justice Story that
"there certainly are cases in which, from the different senses
of the words used or their obscure and indeterminate reference to
unexplained circumstances, the true interpretation of the language
may be left to the consideration of the jury for the purpose of
carrying into effect the real intention of the parties. This is
especially applicable to cases of commercial correspondence, where
the real objects, and intentions, and agreements of the parties are
often to be arrived at only by allusions to circumstances which are
but imperfectly developed."
This case is specially applicable to the one under
consideration, inasmuch as plaintiff relies chiefly upon the fact
that defendant, in its correspondence with the bank, spoke of
itself as owning or holding the shares standing in the name of
Hand. Under the circumstances, it is entirely possible that the
word "owner" may have been used in its ordinary sense, or as
representing a pledgee upon whom the ownership of the shares had
been cast by the failure of the pledgeor, and the depreciation of
the value of the shares to an amount insufficient to pay the note.
It can hardly be possible that the statute was intended to impose a
liability upon a pledgee who had taken the shares as collateral
security, and, through the failure of the pledgeors, had been
forced against its will into the position of ownership. Such a
result might operate to destroy altogether the possibility of
raising money upon the deposit of national bank shares as
collateral.
See also Fagin v. Connoly, 25 Mo. 94;
Prather v. Ross, 17 Ind. 495;
Roberts v.
Bonaparte, 73 Md.191;
Macdonald v. Morrill, 154 Mass.
270.
This case could only have been withdrawn from the jury upon the
theory that, taking all the testimony together, there could be but
one reasonable interpretation put upon the conduct of the defendant
with respect to these certificates. Such, in our opinion, is not
the case. The fact undoubtedly was that the
Page 189 U. S. 254
defendant did not intend to impose upon itself the statutory
liability of a shareholder, and, considering that it had not only
lost its original debt of $15,000 (less a small dividend) by the
failure of the Delamaters, as well as the additional assessment of
$5,750, paid to save the shares from forfeiture, that there was no
evidence of fraud or double dealing in its conduct, and that its
liability was purely a technical one, it was not unnatural for the
jury to require that such liability should be clearly established
before imposing upon it an additional burden of $17,250, for which
it had received no possible consideration.
Some stress is laid by the plaintiff upon the fact that neither
the Delamaters nor their assignees ever gave their consent to the
transfer of the stock to Hand; but, as the power of attorney
originally given upon the deposit of the stock expressly authorized
such transfer, and the rights of the defendant could only be
protected in that way, there is no force in the objection,
particularly in view of the fact that neither the Delamaters nor
their assignees complained of such transfer. Being an act which it
was authorized to take as pledgee, it cannot be made responsible as
owner therefor.
There was no error in the action of the court of appeals, and
its judgment is therefore
Affirmed.
MR. JUSTICE HARLAN dissented.
