Farmers' State Bank of Leith v. Herron
| Decision Date | 26 November 1927 |
| Docket Number | No. 5423.,5423. |
| Parties | FARMERS' STATE BANK OF LEITH v. HERRON et al. |
| Court | North Dakota Supreme Court |
The provisions in section 5160, C. L. 1913, viz., “but no transfer of such stock shall be valid against a bank or any creditor thereof, so long as the registered holder of such stock shall be liable as principal debtor, surety or otherwise to the bank for any debt which shall be due and unpaid,” in effect creates a statutory lien which continues to exist as long as a stockholder is so indebted to the bank, and may be established and foreclosed in an action in equity.
Certified Question from District Court, Grant County.
Action by the Farmers' State Bank of Leith against George W. Herron and another. Findings of fact and conclusions of law for plaintiff. A question was certified by the trial court. Question answered.Divet, Shure, Holt, Farme, Murphy & Thorp, of Fargo, for plaintiff.
I. N. Steen, of Carson, for defendants.
This is an action to recover an indebtedness from the defendant George W. Herron, a stockholder in the plaintiff bank, and to establish and foreclose a lien on the defendant's stock, claimed to exist, under section 5160, C. L. 1913.
The defendant Kimball, a transferee of the stock, subsequent to the indebtedness of the defendant Herron, was made a party, and it is conceded that Kimball was a purchaser for value in good faith and without notice of the indebtedness of Herron to the bank.
The trial court made findings of fact and conclusion of law favorable to the plaintiff, and upon application of the parties, under the provisions of sections 7849b1 to 7849b3, inclusive, of the Supplement to the Compiled Laws of 1913, duly certified to this court the following question, to wit:
“Under the provisions of chapter 28 of the Civil Code, and especially under the provisions of section 5160 of the Compiled Laws of 1913, does a state banking association have a lien upon its shares of stock for the indebtedness due from its stockholders to it?”
The application and certificate are regular and adequate in form and substance under the statute, and it appears therefrom, and from the entire record certified to this court, that the issue in said case depends wholly on the construction of the law applicable thereto, that such construction or interpretation is of great moment in the cause, and for the whole benefit of the parties to the action. The question certified involves the construction of sections 5160 and 5169 of the Compiled Laws of 1913.
Section 5160, C. L. 1913, under which the plaintiff bank claims a lien against the defendant stock, provides:
“No transfer of such stock shall be valid against a bank or any creditor thereof, so long as the registered holder of such stock shall be liable as principal debtor, surety or otherwise to the bank for any debt which shall be due and unpaid; nor in any case shall any dividend, interest or profit be paid on such stock so long as such liability continues, but such dividend, interest or profit shall be retained by such bank and applied to the discharge of such liabilities.”
Section 5169, C. L. 1913, provides that:
Counsel for the defendants in his very able brief contends that, since the repeal of the bankers' general lien law, banks, under section 5160, C. L. 1913, have only a possessory lien on dividends, interest, or profits due on stock, so long as the stockholder is indebted to the bank, and that, under section 5169, a bank is prohibited from obtaining a lien by contract on any stockholders' stock. It is true that, under section 5160, the banker has a possessory lien on the dividends payable on stock when the stockholder is indebted to the bank. In fact, it has more than a lien, it has the right to appropriate and apply such dividends to the discharge of such liabilities, and it is also true, under section 5169, that the bank cannot purchase or loan money on its own stock, unless such security or purchase is necessary to prevent a loss on a debt previously contracted in good faith. It is true that section 5160, C. L. 1913, does not say in so many words that the bank has a lien on the stock for the indebtedness of a stockholder, but, if from the language used it was clearly the intent of the Legislature that the stock was to be held in law as security for the indebtedness of the stockholder, it is sufficient.
The state banking law was passed in 1890 (Laws 1889-90, c. 23), and it does not contain the provision that no transfer of such stock shall be valid against the bank or any creditor thereof, so long as the registered holder of such stock shall be liable as principal debtor, surety, or otherwise to the bank for any debt which shall be due and unpaid; nor does it contain the provision that the bank shall retain the dividends and apply them on the debt, but it does contain the provisions against loans or discounts on the security of the stock as provided in section 5169, C. L. 1913.
In 1893 the Legislature redrafted and passed a new banking law, being chapter 27, Session Laws 1893. Section 10 of the act relates to the transfer of stock and remains intact as it was passed in 1890. Section 19 of the act relating to loans or securities on shares is also unchanged. In 1905 the Legislature redrafted and again passed the banking act. Chapter 165, p. 283, Session Laws of 1905. Section 12 relating to loans, discounts, or securities on shares of stock remains unchanged, but section 11 of the act relating to transfer of stock was amended, and includes all the provisions, and reads exactly the same as section 5160, C. L. 1913. It is clear from this act of the Legislature that it was the intention to make the stock responsible for the indebtedness of a stockholder. Congressional action seems to have been just the reverse of the state Legislature, for while there was no such provision in the first and second acts of the state Legislature, there was such a provision in the National Bank Act of 1863. Section 36 of the National Bank Act of 1863 (12 U. S. Statutes at Large, p. 675) provides:
“* * * But no shareholder in any association under this act shall have power to sell or transfer any share held in his own right so long as he shall be liable, either as principal, debtor, surety, or otherwise, to the association for any debt which shall have become due and remain unpaid, nor in any case shall such share holder be entitled to receive any dividend, interest, or profit on such shares so long as such liabilities shall continue, but all such dividends, interests, and profits shall be retained by the association, and applied to the discharge of such liabilities. * * *”
Section 37 of the National Banking Act of 1863 (12 Statutes at Large, p. 676) is practically the same as section 5169 of the Compiled Laws of 1913.
Section 36 of the National Bank Act was repealed in 1864.
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