Kenton Ins. Co. v. Bowman

• Decision Date: 11 November 1886
• Citation: 84 Ky. 430,1 S.W. 717
• Parties: KENTON INS, CO. v. BOWMAN and others.
• Court: Kentucky Court of Appeals

1 S.W. 717

84 Ky. 430

KENTON INS, CO. v. BOWMAN and others.

Court of Appeals of Kentucky.

November 11, 1886

Appeal from Kenton chancery court.

J. F. &amp C. H. Fisk, for appellant, Kenton Ins. Co.

Haham &amp Myers, O'Hara & Bryan, Collins & Fenley, A. C. Ellis, R P. Erush, and Wm. Gorbel, for appellees, Bowman and others.

BENNETT J.

On the twenty-first of October, 1874, V. Shinkle, and his wife Lydia A. Shinkle, executed to appellant a mortgage on a tract of land belonging to the wife, Lydia A. Shinkle, to secure a note executed by them to appellant for the sum of $24,886, and payable three years after date, with 7 per cent. interest, payable semi-annually. V. Shinkle was president of the Kenton Insurance Company, the appellant, from the time of its organization, under its charter, by an act of the legislature of this state, approved the thirteenth of February, 1867, until some time in 1884, and owned a large amount of its stock at the time said note and mortgage were executed. On the fifteenth of August, 1883, V. Shinkle executed to the appellees W. M. Fenley and R. J. Miller a deed of assignment of all of his property for the benefit of his creditors, he having become insolvent. In 1883, but prior to his deed of assignment, V. Shinkle pledged to the First National Bank a certificate for some shares of stock which he owned in the Kenton Insurance Company, the appellant, to secure a loan or loans of money made by the bank to him. In 1880 and 1883, but before the deed of assignment, V. Shinkle pledged to the Northern Bank certificates for some other shares of stock which he owned in the Kenton Insurance Company, to secure loans of money made by that bank to him. He also pledged to the German National Bank of Covington a certificate for some shares of stock which he owned in the Kenton Insurance Company, to secure a loan or loans made by that bank to him.

On the seventh of September, 1883, the appellant brought suit in the Kenton chancery court against Luly M. Bowman, her husband, and others, the children of V. and Lydia A. Shinkle, and also the assignees of V. Shinkle, to enforce its mortgage lien on said land, and have it sold to pay the remainder of said debt, etc. On the first of October, 1883, the assignees of V. Shinkle brought suit in the Kenton chancery court to sell the lands assigned to them, for the purpose of paying the debts of V. Shinkle, etc. The appellant, by an amended petition, claimed a lien on the stock which V. Shinkle owned in its company, including that pledged to the bank to secure said debt of $24,886, or the remainder of it, in addition to its mortgage lien upon said land.

The banks above mentioned, by their separate answers, contest the right of appellant to a lien on the stock pledged to them, upon the grounds-- First, that appellant, under its charter, has no lien upon the stock of V. Shinkle to secure his indebtedness to it; second, that, if appellant ever had a lien under its charter to secure the said indebtedness, it waived said lien by taking a mortgage on said land, which they contend was ample security to secure the payment of said indebtedness; third, that they loaned V. Shinkle said sums of money, and received the stock as a pledge for the payment of it, upon the verbal and written assurance of appellant that it had no lien or claim upon said stock. The assignees also insist that appellant has no lien upon any of the stock owned by V. Shinkle in its company. The children of V. and Lydia A. Shinkle, by their answer, insist that appellant's charter gave it a lien upon the stock of V. Shinkle, and that said mortgage was executed in view of that lien, and with the understanding that the stock was ample security for the payment of said debt, and that the mortgage was required as a mere matter of form, to satisfy the demands of the insurance bureau of the state; and that, therefore, said stock should be first applied to the payment of the mortgage debt, etc.

The first question is, does the appellant's charter give it a lien on the shares of stock owned by the stockholders in their own right, to secure the payment of their indebtedness to the company? The tenth section of appellant's charter provides "that the stock of this institution may be assigned and transferred on the books of the company, in person or by power of attorney, but no stockholder indebted to the company shall be permitted to make any transfer, or receive any dividend, until such debt is paid or secured to the satisfaction of the president and board of directors."

The supreme court of the United States in the case of Union Bank v. Laird, 2 Wheat. 390, construed the eleventh section of an act of congress passed the eighteenth of February, 1811, incorporating the Union Bank, which section provided "that the shares of the capital stock, at any time owned by any individual stockholder, shall be transferable only on the books of the bank, according to such rules as may, conformably to law, be established in that behalf by the president and directors; but all debts actually due and payable to the bank * * * by a stockholder requesting a transfer must be satisfied before such transfer shall be made, unless the president and directors shall direct to the contrary." The certificate issued to Patton for 50 shares held by him declared "the shares to be transferable at said bank by the said Patton, or his attorney, on surrendering this contract." The court said: "No person, therefore, can acquire a legal title to any shares, except under a regular transfer, according to the rules of the bank; and if any person takes an equitable assignment, it must be subject to the rights of the bank under the act of incorporation, of which he is bound to take notice. The president and directors of the bank expressly deny that they have waived, or ever intended to waive, the right of the bank to the lien for debts due to the bank by the form of the certificate, and that they ever directed any transfer to be made to Patton which should stipulate to the contrary. Under such circumstances, it must be held that the shares are responsible for the debts due to the bank."

In the case of Mechanic's Bank v. Seton, 1 Pet. 309, the twenty-first section of the act chartering the bank provided "that the shares of the capital stock shall be transferable at any time, according to such rules as may be established by the president and directors; but no stock shall be transferred, the holder thereof being indebted to the bank, until such debt be satisfied, except the president and directors otherwise order it." The court said: "This provision was intended to put into the hands of the bank additional security for debts due from the stockholders."

In the case of Brent v. Bank of Washington, 10 Pet. 614, the court construed a provision of the bank's charter which was similar to the eleventh provision quoted in Union Bank v. Laird, supra. The court said: "As Mr. Brent owed the debts now claimed by the bank, on the notes due and protested before his death, this would be a complete answer to a suit at law by his executors for not permitting a transfer; and the same objection would be fatal to a suit in their name for the use of the United States. The defense is a legal one. The case provided for by the charter and by law had happened. The bank had a perfect right to hold on to the stock." Again, on page 615, the court said: "Two notes were due and protested. The legal lien of the bank for their payment was complete." Again, on the same page the court said, in reference to the note not due: "Though the charter has not made the note a lien on the stock till the note is protested, so as to give the bank both a legal and equitable right to refuse the transfer till it is paid, yet it has given them the power to prevent a transfer, unless on their books, by such rules as they may prescribe; which gives them power to prevent the legal title from passing to a purchaser." In the case of National Bank v. Watsontown Bank, 105 U.S. 220, the court construed section 10, art. 10, of an act regulating banks, which reads: "* * * But no stockholder indebted to the bank for a debt actually due and unpaid shall be authorized to make a transfer, or receive a dividend, until such debt is discharged, or security to the satisfaction of the directors given for the same." The court said: "The title, however, was unquestionably subject to the lien given by its charter to the Watsontown Bank," etc. The court in this case decides that the transfer of the certificate...