Hotchkiss & Upson Co. v. Union Nat. Bank

• Decision Date: 20 May 1895
• Docket Number: 229.
• Citation: Hotchkiss & Upson Co. v. Union Nat. Bank, 68 F. 76 (6th Cir. 1895)
• Parties: HOTCHKISS & UPSON CO. v. UNION NAT. BANK.
• Court: U.S. Court of Appeals — Sixth Circuit

68 F. 76

HOTCHKISS & UPSON CO. v. UNION NAT. BANK.

No. 229.

United States Court of Appeals, Sixth Circuit.

May 20, 1895

This is a suit in equity, brought by the appellee, the Union National Bank, of Cleveland, Ohio, against the appellant, the Hotchkiss & Upson Company, a corporation organized under the laws of Connecticut. The object of the bill is to enforce a lien upon 260 shares of stock of the defendant below acquired by it in pledge upon certain transactions with Charles A. Hotchkiss, president of that company. Those transactions were as follows: On November 13, 1885, Hotchkiss borrowed of the complainant $5,000, for which he gave his note of that date. On December 12, 1885, he borrowed $10,000 more, for which he likewise have his note. On March 16, 1886 he took up these two notices, and gave a new note of that date for the sum of $15,000, that being the amount of both the former notes. This last-mentioned note was renewed from time to time until July 28, 1887, when the note for $15,000 now held by the bank was executed, and was made payable four months after its date. This is one of the obligations constituting the basis of the complainant's ground for relief. On April 16, 1887, the said Hotchkiss made another loan of the bank, this loan being of $6,000, for which he gave to the bank his note of that date. This note was renewed August 19, 1887, by a note for the same sum, made payable in four months. This is the other part of the indebtedness for which the complainant asserts a lien. Upon the making of the original note for $15,000, Hotchkiss assigned in pledge to the bank for the security thereof two certificates of stock, representing 140 shares of the Hotchkiss & Upson Company, and delivered them to the bank. On making the $6,000 note of April 16, 1887, he likewise assigned in pledge 120 shares of the stock of the same company as security for the payment of that note. Both these assignments of stock consisted of a delivery thereof with a blank power of attorney for the transfer of the stock upon the books of that company, executed by Hotchkiss. Neither of the notes so taken upon the last renewals had been paid, either in whole or in part. The stock has never been transferred upon the books of the company to the bank, and no copy of the power of attorney was ever filed in the office of the company.

The defense is that during the years 1887 and 1888 Hotchkiss became indebted to the Hotchkiss & Upson Company in the sum of $50,000 by reason of his having embezzled the funds of the company of which he had charge as an officer, he being the president thereof. This embezzlement commenced in the early part of 1887, and was continued from time to time through that and the succeeding year. And it is contended that by force of the general laws of Connecticut relating to corporations a lien was given to the company upon the stock standing upon its books in the name of Hotchkiss for the amount of the indebtedness created by his embezzlements, and that this lien is paramount to that of the bank, for the reason that there was no transfer of the stock by Hotchkiss to the bank upon the books of the company, and no copy of the power of attorney, was filed in the office of the company as required by the law of Connecticut in order to make the assignment good as against the company. The provision of the statutes of Connecticut giving the company such lien is found in section 1923 of the General Statutes of that state (Revision of 1887), which reads as follows: When not otherwise provided in its charter, the stock of every corporation shall be personal property, and be transferred only on its books in such form as the directors shall prescribe; and such corporation shall at all times have a lien upon all the stock owned by any person therein for all debts due to it from him. ' And section 1924 declares how such stock may be pledged, and the manner in which such pledge may be made effectual, as follows: 'Shares of stock in any corporation, organized in this state under the laws of this state or of the United States, may be pledged by executing and delivering a power of attorney for its transfer, with the certificate of stock therein mentioned, to any party to whom the pledge is made; but no such pledge, unless consummated by an actual transfer of the stock to the name of such party, shall be effectual to hold such stock against any person but the pledgor and his executors and administrators, until a copy of said power of attorney shall be filed with the cashier, treasurer or secretary of said corporation. ' As stated before, the provisions of section 1924 were not complied with; but the complainant in the court below introduced evidence from which, as it alleges, it is made to appear that Hotchkiss, the president, and A. S. Upson, its treasurer, were the owners of nearly all the stock, and were the principal managers of the business of the company; that the business was principally carried on at Cleveland, that the company had extensive dealings with the bank, and that Hotchkiss as president, necessarily, and Upson as treasurer, by distinct information, had notice of the loans by the bank to Hotchkiss, and of the above-mentioned pledges of his stock, prior to the date of the beginning of the embezzlements by Hotchkiss, and that the company was affected by such notice; and it is claimed by the bank that such actual notice is equivalent to the statutory notice required by the laws of Connecticut. The court below found upon the evidence that on April 16, 1887, when Hotchkiss pledged the 120 shares of stock as security for the $6,000 note, he had already embezzled from and was indebted to his company in a sum of more than $14,000, and the complainant's claim upon the shares of stock assigned as security for that sum was rejected; but, it appearing that the pledge of the 140 shares to secure the $15,000 note was made before the commencement of the indebtedness to the company by Hotchkiss, it was held by the court, upon the further finding that the company had notice of the pledging of these shares before the embezzlements commenced, that the bank's lien was superior to that of the appellant. Accordingly a decree was passed denying the lien upon the 120 shares of stock pledged in payment of the $6,000 note, and sustaining the lien of the bank upon the 140 shares pledged in payment of the $15,000 note. From this decree the Hotchkiss & Upson Company have appealed.

J. E. Ingersoll, for appellant.

Squire, Sanders & Dempsey, for appellee.

Before TAFT and LURTON, Circuit Judges, and SEVERENS, District Judge.

Having stated the case as above, SEVERENS, District Judge, .

The appellant contends, in the first place, that there was neither any transfer of the shares of the company upon its books upon the occasion of their being pledged by Hotchkiss to the bank in payment of his loan for $15,000, which is admitted; nor any written notice filed in any proper office of the company of the assignment of the stock, nor any copy of the power of attorney for its transfer, which is also admitted; and that actual notice of such assignment was ineffectual to bind the company. This last contention presents the question to be decided, and it seems to turn upon the construction and effect to be given to the laws of the state of Connecticut. The appellee insists that, while the pledgee of shares of stock in this Connecticut corporation was bound to take notice of the provisions of the charter by which it was organized, yet that, if that stock was transferred in some other state than Connecticut, the transferrer would not be bound by...