[193 U.S. 581, 582] The Third National Bank of Buffalo, spoken of hereafter as the bank, was organized on the 9th of February, 1865, and its articles of association contained the following:
In virtue of the authority assumed to be conferred by the foregoing provision, the board of directors adopted in February, 1865, a by-law as follows:
Pursuant to this by-law the stock certificates of the bank were thus framed:
Emmanuel Levi became the registered holder and owner of 450 shares of the capital stock, evidenced by certificates in the form just stated. Levi borrowed money from the bank upon his promissory notes, secured by various collaterals. On the first day of October, 1890, he applied for a further loan, which the bank agreed to make, provided the new loan was indorsed by Louis Levi, a son of Emmanuel. At that time, in a conversation between the president of the bank and Levi, it was understood that all the stock held by Levi in the bank should be considered as additional security for his entire loan. When this conversation took place, however, the certificates evidencing Levi's stock were in his possession, and no formal pledge or subsequent delivery of the certificates of stock to the bank took place.
A few months after (on December 3, 1890), Emmanuel Levi borrowed $25, 000 from the Buffalo German Insurance Company, hereafter spoken of as the insurance company, and secured this loan by pledging, delivering, and assigning to the insurance company his certificates of stock in the bank. The written contract of pledge gave the insurance company power, in default of payment of the loan at its maturity, to sell the stock at public or private sale after notice and apply the proceeds to the debt. On August 13, 1891, and on May 5, 1892, Levi borrowed additional sums from the insurance company and secured these loans by a pledge and assignment of his remaining stock in the bank. These contracts of pledge also contained a power of sale similar to that conferred by the first contract. In June, 1893, Emmanuel Levi died, and Louis and Rosa Levi were appointed and qualified as his executors. On the 9th of June, 1896, there was due to the insurance [193 U.S. 581, 584] company on the notes of Levi, secured by the pledge of his stock as above stated, the sum of $55,000 of principal, with certain unpaid interest. On that date the insurance company served upon the executors of the estate of Levi a demand for the payment of the debt, accompanied with a notice that if payment were not made the stock would be sold and the proceeds applied to the debt. Payment not having been made, after adequate notice, the attorneys for the bank, the attorneys of the executors of Levi, and one of the executors being present, the stock was sold at public auction, and was bought by the insurance company for the sum of $44,000, that being the highest bid offered. The insurance company thereupon presented to the bank the certificates of stock, the assignment thereof, and the evidence of the purchase at auction, and demanded a transfer to its name. This the bank refused on the ground of Levi's indebtedness to it. Subsequently the insurance company filed its bill, praying that the bank be decreed to transfer the stock and pay the dividends which had accrued thereon since the date of the demand to transfer. The bank, by its answer, set up the debt due by Levi to it, asserting that under the provision of its articles of association and by-laws, as well as under the terms of the certificates of stock and the agreement with Levi, it had the right to apply the dividends on the stock, accrued since the purchase by the insurance company, to its debt, and, indeed, having a prior lien upon the stock for its debt, had the right to withhold the transfer of the stock until the debt due it by Levi or his estate was paid. There was a decree in the trial court in favor of the bank. The case was appealed by the insurance company to the appellate division of the supreme court, fourth department, in which court the judgment of the trial court was affirmed. 29 App. Div. 137, 51 N. Y. Supp. 667. The insurance company prosecuted its appeal to the court of appeals of the state of New York, and in that court the judgments below were reversed and the case was remanded for further proceedings. 162 N. Y. 168, 48 L. R. A. 107, 56 N. E. 521. The cause was again tried and resulted in a decree in favor of the insur- [193 U.S. 581, 585] ance company in both the trial court and the appellate division of the supreme court, and these judgments were affirmed by the court of appeals on the authority of its previous opinion. It is to review such decree of affirmance that this writ of error is prosecuted.
Messrs. Adelbert Moot and George L. Lewis for plaintiff in error.
[193 U.S. 581, 587] Mr. Arthur W. Hickman for defendant in error.
Statement by Mr. Justice White:
Mr. Justice White, after making the foregoing statement, delivered the opinion of the court:
It is obvious that the bank had no lien on the stock of Levi [193 U.S. 581, 588] as the result of an express contract of pledge. The mere statement by Levi in a conversation with the president of the bank when the last loan was made to him, that his stock was a security to the bank, did not amount to a pledge of such stock, as there was no delivery of the certificates. As tersely said by the court below:
We may, therefore, at once lay out of view the provisions of 5201, Revised Statutes, prohibiting a national bank from making any loan or discount on the security of its shares of stock, and forbidding the purchase or holding by a national bank of such shares of stock, unless necessary to prevent loss on a debt previously contracted in good faith. And putting these provisions aside, we may also pass the consideration of the decisions of this court construing the provisions in question, and holding that they may not be availed of by a debtor of the bank to defeat the enforcement of obligations by him contracted in favor of the bank. Union Nat. Bank v. Matthews, 98 U.S. 621 , 25 L. ed. 188; National Bank v. Whitney, 103 U.S. 99 , 26 L. ed. 443; Thompson v. Saint Nicholas Nat. Bank, 146 U.S. 240 , 36 L. ed. 956, 13 Sup. Ct. Rep. 66. This brings us to the real question in the case, which is, the validity and effect of the provisions of the charter and by-law of the bank forbidding a transfer of stock where the stockholder was indebted to the bank, and the insertion of a condition to the same effect in the certificates of stock which were held by Levi, and which he delivered to the insurance company, as collateral, when he borrowed money from that company. If those provisions were valid it is obvious that the insurance company [193 U.S. 581, 589] took the stock subject to the paramount right which the bank possessed. If, on the other hand, the condition in question was void because repugnant to the text of the national bank law and in conflict with the public policy which that act embodies, it is equally clear that there was no lien in favor of the bank, and the title of the insurance company, derived from its pledge and purchase, was paramount to any assumed right of the bank to refuse to transfer the stock in order to enforce a lien which, it was asserted, the bank possessed as a result of the condition in question. That the provisions referred to were void because coming within the lastmentioned category will become apparent from a brief consideration of the national bank law found in the Revised Statutes, as elucidated by its evolution from the acts of 1863 and 1864, and as expounded by the previous decisions of this court.
National banks were first created by the act of 1863. 12 Stat. at L. 665, chap. 58. By 36 of that act it was provided:
Section 37 of the same act provided that--
The act of 1863 was expressly repealed ( 62) by the act of 1864 (13 Stat. at L. 99, chap. 106). The repealing act, however, contained the following:
The act of 1864, which contained a repealing clause subject to the foregoing proviso, re-enacted in completer form the entire law as to national banks. The subjects which had been embraced by 36 of the act of 1863 were contained in 12 of the act of 1864, in part, as follows:
The remaining provisions of the section related solely to the double liability of the shareholders. It hence follows that all the provisions found in 36 of the act of 1863, empowering the board of directors of a national bank to withhold a transfer in case of a debt due by a stockholder to a bank, were not only omitted from the new act, but were expressly repealed. The provision found in the 37th section of [193 U.S. 581, 591] the act of 1863, prohibiting an association from making any loan or discount on the security of the shares of its own capital stock, was re- expressed in a substantially identical, though somewhat more amplified, form of statement in 35 of the new act. The provisions of the act of 1864, in the particulars in question, are now embodied in 5139 and 5201 of the Revised Statutes (U. S. Comp. Stat. 1901, pp. 3461, 3494).
When this history of the legislation is considered it becomes apparent that the clause inserted in the articles of association, in the by-laws and the certificates of stock of the bank here being considered, was directly repugnant to the act of 1864, and amounted simply to an attempt on the part of the bank to exercise the power which was granted under the act of 1863, but which was denied by the act of 1864. And this result was long since pointed out by the decisions of this court. In First Nat. Bank v. Lanier, 11 Wall. 369, 20 L. ed. 172, the case was this: The First National Bank of South Bend was organized under the act of 1863. A by-law of the bank provided that 'the stock of the bank should be assignable only on its books, subject to the provisions and restrictions of the act of Congress.' Culver became a stockholder in the bank, certificates having been issued to him as such, stating on their face the limitations on the power to transfer expressed in the by-law just referred to. By an agreement between Culver and the bank it was understood that his stock in the bank should secure the bank against any loss resulting from a deposit of its funds made by the bank with the house of Culver, Penn, & Co ., of New York, of which Culver was a member. When, however, this agreement was made, the certificates of stock were not delivered to the bank, but remained in the possession of Culver. After the passage of the national bank act of 1864, Culver, in violation of his agreement with the bank, sold his stock and delivered the certificates thereof, with power to transfer the same, to Lanier and Handy, who requested a transfer of the same. This the bank refused to do on the ground of Culver's agreement, and on the further ground of the provision in the by-law and certificates, which, it was [193 U.S. 581, 592] asserted, but expressed by reference the provisions of the 36th section of the act of 1863. Two questions were necessary to be decided: a, the right of the bank resulting from the understanding with Culver; and b, its right arising from the terms of the by-law and certificate. These questions were ruled adversely to the bank. It was held that the agreement between the bank and Culver was void because it was within the prohibitions of both the 37th section of the act of 1863 and the 35th section of the act of 1864, prohibiting a national bank from loaning on the security of its own capital stock, etc. Irrespective, however, of this question, it was expressly decided that, as the act of 1864 had repealed the provision of the act of 1863, subjecting transfers of stock in national banks to debts due by the stockholder to the bank, or permitting the board of directors to provide to that effect, the result of the act of 1864 was impliedly to prohibit a bank from imposing such a condition on the transfer of stock. And the doctrine was applied to a by-law adopted prior to the passage of the act of 1864, because it was held that the continued operation of such a by-law was prevented by the act of 1864, as the right to continue it was not saved by the proviso to the repealing clause of that act. It was pointed out that the provision of the act of 1864, making the stock of national banks transferable like other personal property, was a fundamental departure from the act of 1863, and was based on a rule of public policy initiated by the act of 1864, intended to afford facilities for the transfer of stock in national banks, and thereby to encourage investment in such stock. The same subject was considered in Bullard v. National Eagle Bank, 18 Wall. 589, 21 L. ed. 923. There a by-law and form of certificate, adopted after the enactment of the statute of 1864, reserving the right to refuse to transfer stock in a national bank where the stockholder was indebted to the bank, was again determined to be ultra vires, because in conflict with the act of 1864, and such a provision was decided to be inoperative even as against the assignee in bankruptcy of the stockholder. These cases foreclose every [193 U.S. 581, 593] question presented on this record. The cases have been frequently referred to approvingly. Earle v. Carson, 188 U.S. 42 , 47 L. ed. 373, 23 Sup. Ct. Rep. 254, and authorities there cited. The contention that, although the condition in the certificate was void, nevertheless it operated as a notice to the insurance company, and thereby deprived it of its right to compel the transfer of the stock, but asserts in another form that there was power, by the insertion of such a condition in the certificate of stock, to deprive the stock of a national bank of its attribute of sale like any other personal property. The contention wholly ignores not only the text of the law, but the rule of public policy which the national bank act has been decided to embody.