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
MR. JUSTICE THOMPSON delivered the opinion of the Court.
The appellees, who were the complainants in the court below,
filed their bill against the Mechanics Bank of Alexandria, setting
out their right to $3,000 of the capital stock of that bank, which
was standing in the name of Adam Lynn; but which was avowedly
purchased and held by him as trustee for John Wise, the grandfather
of the complainants, and from whom they derived their right and
title to the stock in question. That they were desirous of having
their stock transferred to their guardian, which the trustee, Adam
Lynn, was willing to do, and offered to transfer the same, but that
on application to the bank, permission was refused on the
allegation that Adam Lynn was a debtor to the bank and that it held
a lien for that debt on all the stock of the bank which stood in
his name. The bill alleges that when the stock was purchased by
Adam Lynn, for John Wise, and transferred to him upon the books of
the bank, it was well known to the president and Directors, that
the purchase was made by, and transferred to Lynn, in his character
of trustee for John Wise, although the trust was not expressed in
the transfer.
The bill prays that the bank may be compelled to open its
transfer book, and permit Adam Lynn to transfer the $3,000, in
stock, to the said Louisa and Anna Maria Seton, or to their
guardian, Nathaniel S. Wise.
The bank, by its answer, denies that the board of directors knew
or had any notice that Adam Lynn held the stock as trustee, but
alleges that all the stock standing upon the books of the bank in
the name of Adam Lynn was considered by the board of directors as
his own stock, and avers that at the time the answer was put in,
there was no stock standing in his name on the books, but that the
whole of it had been applied by the bank to the payment of his
debts to it according to articles of agreement between him and the
cashier of the bank.
The bank also sets up the right under its charter to hold the
stock for the payment of Lynn's debt, but had, under the agreement
made with the cashier as before mentioned, become the purchaser of
the stock for a full and fair consideration, without any knowledge
that the complainants had any interest in the same.
The court below, upon the bill, answer, and exhibits and proofs
taken in the cause, decreed that the bank should cause its transfer
book to be opened, and to permit Adam Lynn to
Page 26 U. S. 305
transfer the stock to Nathaniel S. Wise, guardian of the
complainants, to be by him held in trust for their use. From this
decree there is an appeal to this Court, and the following points
have been made, upon which a reversal of that decree is
claimed.
1. That the subject matter of the bill is not properly
cognizable in a court of chancery, but that the remedy is at law,
and the party to be compensated in damages.
2. That there is a want of proper parties.
3. That upon the merits, the bank has a right to hold and apply
the stock in payment of Adam Lynn's debt to it.
With respect to the first objection, it has been said that a
court of chancery will not decree a specific performance of
contracts except for the purchase of lands or things that relate to
the realty and are of a permanent nature, and that where the
contracts are for chattels and compensation can be made in damages,
the parties must be left to their remedy at law. But
notwithstanding this distinction between personal contracts for
goods and contracts for lands is to be found laid down in the books
as a general rule; yet 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.
But the application of this distinction to the present case is
not perceived. If this had been a bill filed against the bank to
compel a specific performance of any contract entered into with it
for the sale of stock, it might then be urged that compensation for
a breach of the contract might be made in damages, and that the
remedy was properly to be sought in a court of law. But the bill
does not set up any contract between the complainants and the bank,
nor does it seek a specific performance of any express contract
whatever entered into with the bank. It only asks, that the bank
may be compelled to open its transfer book and permit Adam Lynn to
transfer the stock. By the charter and bylaws of the bank, such
transfer could only be made upon the books of the bank, and it was
by its consent alone that this could be done.
Although it might be the duty of the bank to permit such
transfer, it would be difficult to sustain an action at law for
refusing to open its books and permit the transfer. Nor have the
appellants shown such a claim to the stock as to authorize the
court to turn the appellees round to their remedy at law against
Lynn, admitting they might have it. At all events, the remedy at
law is not clear and perfect, and it is not a case for compensation
in damages, but for specific performance, which can only be
enforced in a court of chancery.
Page 26 U. S. 306
2d. The second objection, that Adam Lynn ought to have been made
a defendant, would seem to grow out of a misapprehension of the
object of this bill and the specific relief sought by it.
It ought to be observed here preliminarily, as matter of
practice, that although an objection for want of proper parties may
be taken at the hearing, yet the objection ought not to prevail
upon the final hearing on appeal except in very strong cases, and
when the court perceives that a necessary and indispensable party
is wanting.
The objection should be taken at an earlier stage in the
proceedings, by which great delay and expense would be avoided.
The general rule as to parties undoubtedly is that when a bill
is brought for relief, all persons materially interested in the
subject of the suit ought to be made parties, either as plaintiffs
or defendants, in order to prevent a multiplicity of suits and that
there may be a complete and final decree between all parties
interested. But this is a rule established for the convenient
administration of justice, and is subject to many exceptions, and
is more or less a matter of discretion in the court, and ought to
be restricted to parties whose interest is involved in the issue
and to be affected by the decree. The relief granted will always be
so modified as not to affect the interest of others. 2 Mad.Chancery
180; 1 Johns.Chancery Cases 350.
Where was the necessity or even propriety of making Lynn a
party? No relief is sought against him. The bill expressly alleges
that he was perfectly willing to make the transfer, but permission
was refused by the bank. There is no allegation in the bill upon
which a decree could be made against Lynn, and it is a well settled
rule that no one need be made a party against whom, if brought to a
hearing, the plaintiff can have no decree. 2 Mad.Ch. 184; 3 P.Will.
310, Note 1.
The contest, with respect to the right to the stock is between
the complainants and the bank, and it cannot be necessary to bring
Lynn into the suit in order to determine that question. He claims
no right to the stock, and if the bank has established its right to
hold it for the payment of Lynn's debt, the complainants have no
pretense for requiring the books of the bank to be opened and to
permit the transfer to be made as prayed in the bill. The bank
cannot compel the complainants to bring Lynn before the court as a
defendant for the purpose of litigating questions between
themselves with which the complainants have no concern. No
objection to the decree can therefore be made for want of proper
parties.
The remaining inquiry is whether the bank is entitled to hold
this stock as security, or apply it in payment of Lynn's
Page 26 U. S. 307
debt, either by virtue of its charter or under the agreement
between him and the cashier.
An objection, however, has been made preliminarily to this
Court's noticing the deposition of Adam Lynn, because, as is
alleged, it was taken after the cause was set down for hearing and
without any order of the court for that purpose.
Admitting this to have been irregular, no objection appears to
have been made in the court below to the reading of the deposition,
and had it been made, it ought not to have prevailed even there,
because the defendants cross-examined the witness, which would be
considered a waiver of the irregularity.
But at all events the objection cannot be listened to here,
according to the express rule of this Court (February Term 1824)
which declares
"That 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 and
entered of record, but the same shall otherwise be deemed to have
admitted by consent."
It is deemed unnecessary to enter into an examination of the
proofs in the cause to show that in point of fact the stock in
question was held by Lynn in trust for the complainants and that
this fact was known to the board of directors when it was
transferred to him by James Sanderson. The evidence establishes
these points beyond any reasonable ground of doubt, and the real
question is whether the bank, with full knowledge of the board of
directors that this stock was not the property of Lynn, but held by
him in trust for the appellees, can assert a lien upon it for the
private debt of Lynn either under the charter or the agreement made
with Chapin and the transfer made by him to the bank.
The equity of the case must strike everyone very forcibly as
being decidedly with the appellees. And unless the claims of the
bank can be sustained by the clear and positive provisions of its
charter, the decree of the court below ought to be affirmed.
This claim is asserted under the provisions of the 3d and 21st
sections of the act of Congress incorporating the bank.
The third section, after providing for the opening the
subscription for the stock and pointing out the manner in which the
excess shall be reduced in case the subscription shall exceed the
number of shares allowed to be subscribed, has this proviso;
"Provided always that it is hereby expressly understood that all
the subscriptions and shares obtained in consequence thereof shall
be deemed and held to be for the sole and exclusive use and benefit
of the persons,
Page 26 U. S. 308
co-partnerships, or bodies politic subscribing, or in whose
behalf the subscriptions respectively shall be declared to be made
at the time of making the same, and all bargains, contracts,
promises, agreements, and engagements in any wise contravening this
provision shall be void."
The 21st section declares
"That the shares of the capital stock shall be transferable at
any time according to such rules as may be established by the
president and directors, but no stock shall be transferred, the
holder thereof being indebted to the bank, until such debt be
satisfied, except the president and directors shall otherwise order
it."
These sections, when taken together, have been supposed to
require a construction that the stock shall be deemed to belong to
the person in whose name it stands upon the books of the bank, and
that the bank is not bound to recognize the interest of any
cestui que trust, and may refuse to permit the stock to be
transferred whilst the nominal holder is indebted to the bank.
This construction, however, in the opinion of the Court, cannot
be sustained. The third section must clearly be understood as
applying to the first subscription for the stock, and was intended
to prevent one person subscribing for stock in the name of another
for his own benefit.
The construction of the 21st section will depend upon the
interpretation to be given to the word "holder" as there used. This
term is not necessarily restricted to the nominal holder. It will
admit of a broader and more enlarged meaning, and may well be
applied to the party really and beneficially interested in the
stock. And there can be no good reasons why it should not be so
applied when the bank is fully apprised of all circumstances in
relation to the stock and knows who is the real holder thereof.
This provision was intended to put into the hands of the bank
additional security for debts due from stockholders. But when it is
known that the person in whose name the stock stands has no
interest in it, he will acquire no credit upon the strength of such
stock, and that such was the understanding of the bank in this case
is clearly shown by the evidence. For when the transfer was made to
Lynn, he asked to have the discount continued to him which
Sanderson, from whom he purchased, had upon the stock. But this was
refused on the ground that the stock did not belong to Lynn, but to
Wise. There is no evidence in the cause to show that Lynn's debt
was contracted with the bank after the stock was transferred to
him, or that he has in any manner obtained credit with the bank on
account thereof, but the contrary is fairly to be understood from
the proofs. Nor does the bank allege the
Page 26 U. S. 309
insolvency of Lynn or that it has not a full and complete remedy
against him without having recourse to this stock.
To permit the bank under such circumstances to avail itself of
this stock to satisfy a debt contracted without any reference to it
as security and with full knowledge that Lynn held it in trust for
the complainants would be repugnant to the most obvious principles
of justice and equity. Suppose the trust had been expressly
declared upon the transfer book of the bank, would there be the
least color for sustaining the claim now set up? And yet Lynn would
be the legal holder of the stock in such case as much as in the one
now before the court. Full notice of a trust draws after it all the
consequences of an express declaration of the trust as to all
persons chargeable with such notice.
It is a well settled rule 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. 2 Mad.Ch. 125; 1 Sch.
& Lef. 262.
Notice to an agent is notice to his principal. If it were held
otherwise, it would cause great inconvenience, and notice would be
avoided in every case by employing agents. 2 Mad.Ch. 326. Notice to
the board of directors, when this stock was transferred to Lynn,
that he held it as trustee only was notice to the bank, and no
subsequent change of directors, could require a new notice of this
fact. So that if the bank had sustained any injury by reason of a
subsequent
board not knowing that Lynn held the stock in
trust, it would result from the negligence of its own agents, and
could not be visited upon the complainants. But no such injury is
pretended. From anything that appears to the contrary, Lynn is
fully able to pay his debt to the bank.
The case of
Union Bank of Georgetown v.
Laird, 2 Wheat. 390, has been supposed to have a
strong bearing upon the one now before the Court. But the
circumstances of the two cases are very dissimilar. In the former,
Patton was the real as well as the nominal holder of the stock when
he contracted his debt with the bank, and when his acceptance fell
due, and the lien of the bank, no doubt, attached upon the stock,
and this was previous to the assignment of it to Laird, and the
question there was whether the bank had done anything which ought
to be considered a waiver of the lien. But in the present case,
Lynn never was the real owner of the stock, and the bank well
understood that he held it as trustee, and no lien for Lynn's debt
ever attached upon it.
The appellants cannot, therefore, under any provisions in their
charter apply this stock to their own use for the debt of
Page 26 U. S. 310
Lynn to the prejudice of the rights of the known
cestui que
trusts.
Nor is there any ground upon which the claim of the bank can be
sustained under the agreement made between Lynn and Chapin, the
cashier, and the transfer thereof made by the latter to the bank.
If the bank, as has already been shown, was chargeable with the
knowledge that Lynn was a mere trustee, it could acquire no title
from him discharged of the trust, and if necessary, might itself be
compelled to execute the trust. Nor has the bank any title to this
stock under the transfer made by Chapin. This was done without any
legal authority, being several months after Lynn had revoked the
power of attorney, under which the transfer was pretended to be
made, and with full knowledge that Lynn was not the owner of the
stock. But another and complete answer to the whole of this
arrangement between Chapin and Lynn is that it was made long after
the bill in this case was filed, and it is a well settled rule that
the court is not bound to take notice of any interest acquired in
the subject matter of the suit pending the dispute.
The decree of the court below must accordingly be affirmed
with costs.
