The Mechanics Bank of Alexandria v. Seton
APPEAL from the Circuit Court for the county of Alexandria.
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 three thousand dollars 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 supp ort of his children and grandchildren, had made sale, in 1815, of an establishment called the City Tavern, at the price of 14,000 dollars; of which 10,000 dollars were paid by the transfer of that amount of United States six per cent. 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, 4000 dollars, 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 3000 dollars 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 the 29th of 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 the 11th of February 1815, from one James Sanderson, at a small advance; and on that day, a payment of 720 dollars 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 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 2400 dollars to the bank, in discharge of the said Sanderson's stock debt; which being done, the transfer was permitted, and, on the 15th of 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 dollars, and had a discount on it to the amount of 15,360 dollars, which was little more than the sum permitted to be loaned on stock security, by a by-law of the bank-that is to say, 4-5ths 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 5000 dollars. That all the loans to him were of that description; and that so far as they exceed 5000 dollars, 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 5000 dollars, but asserts that loans of that description did not fall within the prohibition of 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 M'Leod and John Gird, directors.
The special agreement under which the respondents claim the stock, appears to have been entered into on the 30th day of 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.
Mr. Swann, and Mr. Wirt, for the appellants.--
The Mechanics Bank of Alexandria did not know of the trust; this stock stood in the name of Adam Lynn, and they had no notice of any other ownership in it; no trust was declared upon the books of the bank; and by the provisions of the charter, the persons who appear as stockholders upon the books, are the only stockholders. By the charter, no one who is a debtor to the bank, can transfer stock owned by him, the bank having a prior lien on the same for their debt.
The claim of the plaintiffs below, is resisted on the following grounds:--
1. Adam Lynn made a special agreement to transfer this stock to the bank.
2. Adam Lynn was a debtor to the bank, and this stock standing in his name, on the books of the bank, without a declaration of the trust, was properly retained as a security for the debt due by him.
3. The subject in controversy in this case, is not proper for the decision of a Court of Chancery. There cannot be a specific performance decreed by this Court, as the stock cannot be designated, or specially described. 1 Mad. Chan. 403. 1 P. Williams, 570.
4. By the charter of the bank, the only evidence of ownership of stock, is the books of the bank. In the case of a corporation existing under a law, the forms prescribed by the law must be complied with. 17 Mass. Rep. 1. 2 Black. Com. 127.
5. In this case, it was considered by the complainants, that Adam Lynn should be a party to the bill, and a rule was taken on him to appear; but the Court went on to a bearing and decision of the suit, without his having been made a party. The Court will, therefore, having this fact upon the proceedings, ex officio, turn the parties out of Court. Duguid vs. Patterson 1 Hen. & Mum. 445.
Mr. Jones, and Mr. Taylor, for the appellees.
1. As to the specific lien claimed by the appellants, under a power of attorney, given by Adam Lynn. It was granted after the bill of the complainants was filed, and is therefore of no value. The transfer, by the power of attorney, was also a violation of the agreement, under which it was given.
But, if this is not an answer to the claim of specific lien; the transfer of the stock, by power of attorney, was made, with notice of the right of the complainants.
2. It does not appear, that the debt due by Adam Lynn to the bank, arose after the purchase of this stock; and therefore no new credit was given upon this stock. The trust was known to the Board of Directors, when the stock was transferred by Sanderson to Lynn; and from that time they dealt with the trustee subject to the trust. A corporation, by the decisions of this Court, is like an individual, in transactions of this kind; and the succeeding Board of Directors were bound by the circumstances which occurred when the trust commenced.
3. The bank were the trustees of the complainants, either by an original contract, or as trustees, resulting from the payment of the purchase money for the stock out of their funds. 2 Vez. & Beam. 388. 5 Vezey, 43. 1 P. Williams, 112. 1 Vezey, 275. 10 Vezey, 360. 1 Vezey, jun. 32. 42. As to constructive notice, were cited, 8 Comyn's Dig. N. Ed. 363, 15th division, 2d division, 10. 20, 21. 15. 358.
4. This is the case of trust, which is the peculium of a Court of Chancery; and the number of shares which are claimed, is a sufficient designation of the property. The original shares bought of Sanderson, remained in the name of Adam Lynn, when the bill was filed.
5. The provisions of the charter, relative to evidence of ownership of stock, can only apply, when parties are the holders of stock, in their own right. The practice of the bank to hold stock as mortgagees, shows a different construction of the charter, by the bank itself, from that which is claimed in this case.
6. The rules of the Court of Chancery are, that all persons who were parties to the transactions, and all who must be before the Court, for the purposes of complete justice in the case, must be made parties. It was not deemed necessary to make Adam Lynn a party, as he was willing to do all that the Court would have required from him; and it was the bank only, who, having the control of the stock, could make the transfer, sought by the complainants.
Mr. Justice THOMPSON delivered the opinion of the Court.--