Magruder v. Colston

• Decision Date: 08 March 1876
• Citation: 44 Md. 349
• Parties: JOHN W. MAGRUDER, Receiver of the MERCHANTS' NATIONAL BANK OF WASHINGTON v. FREDERICK COLSTON and others, trading as COLSTON, ARCHER & CO.
• Court: Maryland Court of Appeals

44 Md. 349

JOHN W. MAGRUDER, Receiver of the MERCHANTS' NATIONAL BANK OF WASHINGTON v. FREDERICK COLSTON and others, trading as COLSTON, ARCHER & CO.

Court of Appeals of Maryland

March 8, 1876

APPEAL from the Superior Court of Baltimore City.

The facts of the case are sufficiently stated in the opinion of the Court.

Exception.--The plaintiff offered at the trial below ten prayers, the third and fourth of which only are noticed by this Court, and are as follows:

3. If the jury shall find from the evidence that the defendants were shareholders of the stock of the Merchants' National Bank, and that on the 2nd of May, 1866, they transferred their stock to Josiah Colston, having information at the time of said transfer that the bank was insolvent, and that they transferred said stock for the nominal consideration of $1 and that said transferee was a man of little or no means and not pecuniarily responsible, and known to be so to the defendants, and that said transfer was made with a view and for the purpose of evading or escaping their responsibility under the 12th section of the National Banking law, such transfer constitutes no defence to this action and will have no effect to relieve them from the responsibility which would have attached to them in case said transfer had not been made.

4. If the jury shall find that the defendants were shareholders of the stock of the Merchants' National Bank, and that the legal title of said stock was in their name on the books of the bank, and the fact that they sold said stock under an agreement with Bayne & Co. as pledgees to secure a loan of money, nevertheless the defendants are responsible in law to the plaintiff in this action to the same extent as if they sold the legal title to said stock absolutely and not as pledgees for the security of said loan.

And the defendants offered three prayers, of which the second only as follows, was noticed by this Court:

2. That if the jury find from the evidence that the defendants received the 50 shares of stock mentioned in the evidence as collateral security in part for the payment of a loan made by them to Bayne & Co., and that they had no right to, or interest in, said stock, except as collateral security for said loan; and if they shall further find that by the terms of the contract between Bayne & Co., and the defendants, the defendants had the right to sell, and transfer said stock whenever the said Bayne & Co. should fail, on demand, to return said loan, and that the defendants called on Bayne & Co. to repay said loan, and that Bayne & Co. failed to do so and that the defendants thereupon sold said stock to Josiah Colston, and transferred the certificate thereof to him on the 2nd of May, 1866, as shown in evidence, then the plaintiff is not entitled to recover in this action, even if the jury shall find that at the time said sale and transfer were made, the defendants were aware that the said bank was in failing circumstances, and that the defendants made said sale and transfer with the intent to avoid loss by retaining said stock, and shall also find that said bank actually ceased to do business, and failed on the third day of May 1866.

The Court (DOBBIN, J.,) refused the foregoing prayers of the plaintiff, and granted that of the defendants. The plaintiff excepted. The jury rendered a verdict for the defendants, and judgment was entered accordingly. The plaintiff appealed.

The cause was argued before BARTOL, C.

J., STEWART, GRASON, MILLER, ALVEY and ROBINSON, J.

William M. Merrick, for the appellant.

The third and fourth prayers of the plaintiff, and the second of the defendant raise the question whether a holder of stock, knowing a bank to be insolvent, for the purpose of escaping his responsiblity to the creditors of the bank, can lawfully transfer his stock for nominal consideration to a man of straw, and thereby rid himself effectually of his obligation to contribute an amount equal to the value of his stock to satisfy the debts of the bank under the 12th section of the Banking Law.

The appellant maintains that he cannot; that fraud vitiates everything, as well an assignment of stock as any other act intended to prejudice the rights of innocent parties. Marcy vs. Clark, 17 Mass., 334; Holyoke Bank vs. Burnham, et al., 11 Cushing, 183 to 186; Roman vs. Fry, 5 J. J. Marshall, 634; Moss vs. Oakley, 2 Hill, 270; Adderly vs. Storm, 6 Hill, 624 to 628; Hale vs. Walker, 31 Iowa, 344, 354; Matter of the Empire City Bank, 18 New York, 223; Rosevelt vs. Brown, 1 Kernan, 148; Onslow vs. Corrie, 2 Maddock, 340; Ex parte De Pass, 5 Jurist, New Series, 1193, 1194; Angel & Ames on Corporations, sec. 623; Crease, et al. vs. Babcock, et al., 10 Metcalf, 547.

Charles Marshall, for the appellees.

The holders of stock like that of a National Bank, to the holding of which personal liability attaches in the event of the bank's insolvency, have the right to sell and transfer the same if they obtained and held the stock under a contract which gave them that right, and the right is not taken away by the fact that the bank afterwards becomes embarrassed, as long as the bank continues to do business and transfer stock. Apart from express authority, this proposition would seem to be plain enough on principle. The pledgee of such stock has rights which proceed from his contract with the pledgor, made without reference to anything but the value of the pledge as a security. Those rights cannot be taken away from him as long as the legal power to sell and transfer the stock remains. The pledgee is not bound by his contract to retain a bad security for his debt.

The contract in this case was one by the terms of which the defendants were entitled to sell upon the non-payment of the debt for which they held it in pledge. This right was secured by contract in which the creditors of the bank had no interest, and which gave the defendants vested and absolute rights.

They sold the stock absolutely, and effected the transfer of it while the bank was yet transacting business. An actual sale made under such circumstances by a pledgee, followed by a transfer of the stock is one that he is competent to make under the contract of bailment.

There can be no doubt that an assignee of a lease may terminate his liability by assigning to a bankrupt, and one of the cases cited shows that if the party be an executor, the Court will hold him personally responsible for the loss if he holds on to an unprofitable term. The liability is strictly a legal one, and unless it be shown to exist under the statute, it is not to be implied. Utley & Godfrey vs. Union Tool Company, 11 Gray, 139. It arises under sec. 12, of the Act of 1864, June 3rd, ch. 106. See also sec. 63 of same Act.

The holder of stock as collateral security is not a shareholder in the sense of the 16th section. Merchants' Bank vs. Cook, 4 Pick., 410.

But after the transfer by the defendants in pursuance of the contract under which they got the stock as collateral, there can be no charge of mala fides, and the liability, if any ever existed, ceased. Holyoke Bank vs. Burnham, 11 Cush., 186; Ex parte De Pass, 5 Jurist, N. S., part 1, 1193; Rosevelt vs. Brown, 1 Kernan, 152; Rowley vs. Adams, 4 Myl. & Cr., 534; Onslow vs. Corrie, 2 Maddock, 340; Woolveridge vs. Steward, 1 Cr. & M., 644.

GRASON J., delivered the opinion of the Court.

The questions presented by some of the prayers, as to the organization of the Merchants' National Bank of Washington, having been abandoned by the counsel of the appellant, the only questions before the Court upon this appeal arise upon his third and fourth prayers, which were rejected by the Court below, and the appellee's second prayer which was granted. The record shows that, some time before the failure of the bank, the appellees, who were bankers and brokers in Baltimore City, lent to Bayne & Company eight thousand dollars, payable on call, and took from them as collateral security for repayment of the loan one hundred shares of the stock of the Merchants' National Bank of Washington, fifty shares of which were in a certificate standing in the name of Oscar A. King, and endorsed...