While the mere pledgee of national bank stock cannot be held for
double liability as a shareholder so long as the shares are not
registered in his name, although an irresponsible person may have
been selected as the registered shareholder, the real owner of the
shares may be held responsible although the shares may not be
registered in his name.
Where the pledgee of national bank stock has by consent credited
the agreed value of the stock belonging to the pledgor, but
registered in the name of a third party who is the agent of the
pledgee, on the note, and then proved his claim for the balance
against the estate of the pledgor, the title to the stock has so
vested in the pledgee that, notwithstanding the stock has not been
transferred, he is liable to assessment thereon as the owner
thereof.
Page 204 U. S. 163
Where the strict compliance with the terms of a note as to sale
of the collateral pledged therewith is waived by the maker, the
holder who accepts the collateral at an agreed price and credits it
on the note is estopped from claiming that he does not become the
owner of the collateral because there was no actual sale thereof as
required by the note.
These principles applied when the pledgee of national bank stock
was a national bank.
137 F. 461 affirmed.
This case was begun in the United States circuit court by John
Hulitt as receiver of the First National Bank of Hillsboro, Ohio,
against the Ohio Valley National Bank, to recover the amount of an
assessment upon certain shares of the stock of the Hillsboro Bank,
which had become insolvent, which assessment was directed by the
Comptroller of the Currency in accordance with the provisions of
the National Bank Act. The case was tried upon an agreed statement
of facts, from which it appears that, on March 18, 1893, one
Overton S. Price, for a loan of $10,000, gave his promissory note
of that date to the Ohio Valley Bank, due ninety days after date,
payable to his own order and indorsed by him, and deposited as
collateral security for the note, among other securities, fifty
shares of stock of the said First National Bank of Hillsboro, Ohio.
The note had a power of sale attached to it, signed by Price, and
authorizing the holder to sell or collect any portion of the
collateral at public or private sale on the nonperformance of the
promise, and at any time thereafter, without advertising or
otherwise giving Price notice, and providing that, in case of
public sale, the holder might purchase without liability to account
for more than the net proceeds of the sale.
On December 25, 1893, Price died, leaving the note due and
unpaid, and no payments have been made thereon except as
hereinafter stated.
On June 18, 1894, the bank made a transfer of the pledged stock
of the First National Bank of Hillsboro, and also of certain other
stock in the Dominion National Bank of Bristol, Virginia, to one
Henry Otjen, an employee of the bank, and pecuniarily
Page 204 U. S. 164
irresponsible. The shares were transferred on the books of the
banks and new certificates issued in the name of Otjen and
delivered to him on July 7, 1894. Otjen indorsed the certificates
in blank. No money passed in consideration of the transfer, and
none was expected, nor was any credit given or indorsed on the note
by reason thereof.
The transfer was made upon the understanding and agreement
between Otjen and the bank that Otjen should hold the stock as
security for the indebtedness of the estate of Price upon the note,
he to apply any amounts which he might realize from said stock as
credits upon the note. In pursuance of this agreement, Otjen
subsequently paid the bank sums received from the Dominion National
Bank on account of dividends received until the sale of that stock,
when the proceeds of sale were likewise applied by him upon the
note.
On February 19, 1896, the bank prepared proof of claim against
the estate of Price, and at that time, believing the stocks
transferred to Otjen to afford a reasonable security for the note
to the amount of $4,484, indorsed a credit for that sum upon the
note, as follows:
"Forty-four hundred and eighty-four ($4,484.00) dolls. paid on
ac. of within note June 18, '94, being proceeds of sale of 30 shrs.
stock Dominion National Bank and 20 shares of stock 1st National
Bank of Hillsboro, O."
The bank filed its proof of claim for the balance of the
indebtedness upon the note; that no consideration was paid for said
credit, and the same was not entered on the bank's books; that all
dividends arising upon the distribution of the estate of Price were
applied upon the note.
The Hillsboro bank continued to do business until July 16, 1896.
From the date of transfer, at all times the stock appeared on the
books of the Hillsboro bank in the name of Otjen, there being
nothing on the books to connect the Ohio Valley National Bank with
the stock or to indicate that it had any interest therein; that the
defendant bank at no time performed any act of ownership, or
exercised or attempted to exercise any of the rights of a
stockholder in said bank, or of
Page 204 U. S. 165
the Dominion National Bank, unless the acts stated were, in
legal intendment, of that character. The Ohio Valley National Bank
procured the shares to be transferred to Otjen because it was
unwilling to assume the risk of the statutory liability of a
stockholder in respect thereto. The circuit court of appeals held
the bank liable as a stockholder, 137 F. 461, and directed judgment
accordingly.
Page 204 U. S. 166
MR. JUSTICE DAY, after making the foregoing statement, delivered
the opinion of the Court.
Section 5151 of the Revised Statutes provides that the
shareholders of every national banking association shall be held
individually responsible, equally and ratably, not one for another,
for all contracts, debts, and engagements of 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. This
section undertakes to hold all shareholders responsible, and
questions have arisen under varying circumstances as to what
constitutes such shareholder.
In
Anderson v. Philadelphia Warehouse Company,
111 U. S. 479, it
was held that the mere pledgee, who had never acted as a
shareholder, would not be liable as such, notwithstanding the stock
was transferred on the books of the bank and the certificate issued
to an irresponsible person, in that instance a porter in the
employment of the company, and this although the transfer had been
thus made for the purpose of avoiding liability which might be
incurred by the shareholders of the bank, in case of insolvency. In
the course of the opinion, Mr. Chief Justice Waite, speaking for
the Court, recognized that the real owner might be held liable as a
shareholder, but in that case the facts showed the warehouse
company, sought to be held as a shareholder, was never other than a
pledgee, and that, notwithstanding the transfer to the
irresponsible person, the real ownership of the stock remained in
the original holder.
In
Pauly v. State Loan & Trust Company,
165 U. S. 606, the
subject was considered at length, and it was held that one who was
described in the certificate as a pledgee, and who in good faith
held the shares as such, was not a shareholder, subject to the
personal liability imposed by section 5151. The previous cases in
this Court were reviewed, and, in summing up the rules relating to
the liability of shareholders in
Page 204 U. S. 167
national banks, deducible from previous decisions, among other
things, it was said:
"That the real owner of the shares of the capital stock of a
national banking association may, in every case, be treated as a
shareholder within the meaning of section 5151."
And again:
"The object of the statute is not to be defeated by the mere
forms of transactions between shareholders and their creditors. The
courts will look at the relations of parties as they actually are,
or as, by reason of their conduct, they must be assumed to be, for
the protection of creditors. Congress did not say that those only
should be regarded as shareholders, liable for the contracts,
debts, and engagements of the banking association, whose names
appear on the stock list distinctly as shareholders. A mistake or
error in keeping the official list of shareholders would not
prevent creditors from holding liable all who were in fact the real
owners of the stock, and as such had invested money in the shares
of the association. As already indicated, those may be treated as
shareholders within the meaning of section 5151 who are the real
owners of the stock, or who hold themselves out, or allow
themselves to be held out, as owners in such way and under such
circumstances as, upon principles of fair dealing, will estop them,
as against creditors, from claiming that they were not, in fact
owners."
And in
Rankin v. Fidelity Trust Company, 189 U.
S. 242,
189 U. S. 252,
the doctrine was stated that a defendant who was in fact the owner
of shares of stock could not avoid liability by listing them in the
name of another, notwithstanding it might do so if it were the mere
pledgee of the stock, and further, that the case then under
consideration turned upon the actual ownership of the shares, which
question was properly left to the jury. And to the same effect are
well considered cases in other courts, federal and state. It was
held that the real owner might be charged, although his name never
appeared upon the books of the bank.
Davis v. Stevens, 17
Blatchf. 259, Fed.Cas. No. 3,653, opinion by Mr. Chief Justice
Waite;
Houghton v. Hubbell, Circuit Court of Appeals,
First Circuit,
Page 204 U. S. 168
91 F. 453;
Laing v. Burley, 101 Ill. 591;
Lesassier
v. Kennedy, 36 La.Ann. 539.
Assuming, then, the established doctrine to be that the mere
pledgee of national bank stock cannot be held liable as a
shareholder so long as the shares are not registered in his name,
although an irresponsible person has been selected as the
registered shareholder, we deem it equally settled, both from the
terms of the statute attaching the liability and the decisions
which have construed the act, that the real owner of the shares may
be held responsible although in fact the shares are not registered
in his name. As to such owner, the law looks through subterfuges
and apparent ownerships and fastens the liability upon the
shareholder to whom the shares really belong.
Applying these principles to the case at bar, we think there can
be no doubt of the liability of the Ohio Valley National Bank in
this case. Conceding that it was exempt so long as the relation
which it held to the stock was that of a pledgee, and that Otjen
was the registered stockholder, holding for the benefit of the bank
as pledgee, and not as owner -- what was the attitude of the
parties after the death of Price, and the credit of the supposed
value of the stock upon the note, and its presentation for
allowance and acceptance by the representatives of Price's estate?
As the foregoing statement shows, the stock was originally
delivered to the bank, with a power of public or private sale for
the liquidation of the pledge. After the death of Price, the bank
caused the stock to be registered in the name of Otjen. After proof
of the claim the dividends paid out of the Price estate were
credited upon the note. If the bank had followed literally the
authority of the power of attorney attached to the note and sold
the stock at public or private sale, and itself become the
purchaser, we take it there could be no question that it would thus
have become the real owner of the stock, and, within the principles
of the cases heretofore cited, the shareholder, liable under the
terms of the statute. We think what was in fact done
necessarily
Page 204 U. S. 169
had the same effect; the bank applied the value of the stock
with the consent of the pledgeor, and thus vested the title in the
bank.
It is urged that, although the indorsement upon the note in the
form in which it was presented to Price's administrator recited
credit as of June 18, 1894, being proceeds of a sale of the stock,
there never was a sale in fact, and that the bank is not estopped
by anything shown in the case from showing the true situation and
the actual transaction between the parties.
Conceding for this purpose that Price's representative could
have insisted upon a strict performance of the power conferred in
the authority given to the bank as to the disposition of the
collateral, yet, if the representative of Price desired to do so,
there was nothing to prevent him from waiving a strict compliance
with the terms named and permitting the bank to acquire title to
the stock by crediting its value on the note. This is in fact what
was done. Instead of selling the stock, the bank, in executing the
authority conferred, indorsed what it deemed the value of the
stock, as of the date of the credit, upon the note, and, reduced by
the amount of this valuation, presented the note to the
administrator of Price, who must have allowed the claim in this
form, as it is specifically stated that the subsequent dividends
upon the claim were paid to the bank. By this transaction, who
became the real owner of the stock? Certainly not Otjen, for it is
not contended that he was other than a mere holder of the stock as
collateral security to the bank, without any beneficial interest.
Price had died, and his representative had allowed the claim,
showing the application of the value of the stock as a credit upon
the note. If Price's representative could have objected to the form
in which the bank liquidated the pledge, he did not do so, but
accepted the bank's method of divesting him of title by allowing
the claim with the credit upon it. The bank thus become the
beneficial owner of the stock, and had the Hillsboro National Bank
continued solvent, it certainly could not
Page 204 U. S. 170
have denied to the Ohio Valley Bank, after this transaction, the
rights and privileges of a stockholder.
As we have seen, this Court, in construing the banking act, has
not limited the liability to the registered stockholders. While the
registered stockholders may be held liable to creditors regardless
of the true ownership of the stock, and the pledgee of the stock,
not appearing otherwise, is not liable, although the registered
stockholder may be an irresponsible person of his choice, yet,
where the real ownership of the stock is in one, his liability may
be established notwithstanding the registered ownership is in the
name of a person, fictitious or otherwise, who holds for him.
We think the circuit court of appeals did not err in holding the
bank, in view of the facts shown in the case, as the true owner and
responsible shareholder of the stock in question.
Judgment affirmed.
