McClintock v. Central Bank of Kansas City

• Decision Date: 05 February 1894
• Citation: 24 S.W. 1052,120 Mo. 127
• Parties: McClintock, Appellant, v. Central Bank of Kansas City
• Court: Missouri Supreme Court

24 S.W. 1052

120 Mo. 127

McClintock, Appellant, v. Central Bank of Kansas City

Supreme Court of Missouri, First Division

February 5, 1894

Appeal from Jackson Circuit Court. -- Hon. J. H. Slover, Judge.

Affirmed.

S. E Cheeseman for appellant.

(1) The admitted allegation of plaintiff's petition shows the incorporation of defendant bank under the laws of the state with a capital stock of $ 50,000; defendant's amended answer shows an illegal loan, to wit, $ 13,062.81, for which the stock was pledged as collateral. R. S. 1889, chap. 42 art. 7, sec. 2758. (2) Illegal acts can not be made the subject-matter of a defense to an action at law. Tracy v. Talmage, 14 N.Y. 162; Crocker v. Whiting, 71 N.Y. 161; Pratt v. Eaton, 18 Hun (N. Y.), 293; Smith v. Company, 4 Ala. 558; Bank v. Swain, 8 Ohio 257; Orr v. Lacey, 2 Doug. (Mich.) 230; Green's Brice's Ultra Vires [2 Ed.], p. 729, note a; Fowler v. Scully, 72 Penn. St. 456; Railroad v. Turner, L. R. 8 Ch. App. 152. (3) It is against the policy of the law to permit a state bank to make a loan of its business capital to a stockholder, taking as the security therefor, shares of its own capital stock theretofore sold to him. R. S. 1889, secs. 2745, 2758; Coppier v. Company, 38 Ohio St. 275-279; Bank v. Wulfelkulder, 19 Kan. 60; Cook's Stock and Stockholders, sec. 309, and authorities cited; secs. 313 and 533 and authorities cited; 1 Morawetz on Priv. Cor. [2 Ed.], secs. 112, 113. (4) The loan being illegal, the pledge of the stock to secure the same is also illegal and contrary to public policy; defendant's amended answer after the general denial clause should have been stricken out. See authorities supra. (5) The stock of a company, being incorporeal property not capable of manual delivery, can not be made the subject of a valid pledge, by a mere leaving of the certificate in the hands of the pledgee, so as to shut out the rights of attaching creditors acquired subsequent thereto, without notice of the same. 18 Am. and Eng. Encyclopedia of Law, p. 607, note 5, and p. 611; Nisbit v. Bank, 12 F. 686; Wilson v. Little, 2 N.Y. 443. (6) By making a private sale of the stock to Thayer, the defendant bank was guilty of a conversion of the same. Fowle v. Ward, 113 Mass. 548; Hemppling v. Burr, 26 N.W. 496; 2 Story's Eq. Jur. sec. 1008; Garlick v. James, 12 Johns. 146. (7) Where stock is pledged, in order to divest the pledgor's title the pledgee must pursue one or the other of two remedies; file a bill in equity for the foreclosure and sale of the pledge, or give notice to the pledgor of an intent to sell, and sell at public auction, after advertising the sale. Cook on Stock and Stockholders, secs. 476, 477, 478 and 479; Vanpell v. Woodward, 2 Sand. Ch. 143; Story on Bailments [9 Ed.], sec. 310; Tucker v. Wilson, 5 Bro. Par. Cases, 193; Brown v. Ward, 3 Duer, 660; Chouteau v. Allen, 70 Mo. 330. (8) If the pledgee by his own voluntary act places the pledge beyond his own power to restore it, it is a waiver of the pledge. Sickles v. Richardson, 23 Hun (N. Y.), 559; Bank v. Dows, 68 Iowa 460; Buck v. Ingersoll, 11 Met. (Mass.) 226; Legg v. Willard, 17 Pick. (Mass.) 140; Jacob v. Latour, 5 Bing. 130; Sweet v. Brown, 5 Pick. (Mass.) 178; Whittaker v. Sumner, 20 Pick. (Mass.) 399; Lee v. Bank, 2 Cin. S.Ct. 298-312; Allgear v. Walsh, 24 Mo.App. 142; Paul v. Hayford, 22 Maine, 234; Jones on Chattel Mort. [3 Ed.], sec. 7, p. 8; Drake on Attach. [6 Ed.], sec. 540; Moore v. Bank, 52 Mo. 377; Bank v. Bank, 105 U.S. 217. (9) The lien of a pledge can not be separated either from the possession of the pledge, or from the debt, so that to make an effectual sale both must pass to the assignee. Whitney v. Peay, 24 Ark. 22; Johnson v. Smith, 11 Humph. (Tenn.) 396; Lewis v. Bammer, 12 Abb. Pr. N. Y. 305. (10) The court erred in using before the jury the following language, viz.: "I do not think that the bank cashier's statement as to the amount of the indebtedness is binding upon the bank, for if that were so, a cashier would have power to wreck any bank in the country." R. S. 1889, Code of Civil Proc., sec. 2188. (11) The court erred in refusing to strike out all of the evidence of the witness Thayer, as to any indebtedness due from P. C. Cowling to the bank. Authorities supra. (12) The court admitted improper and incompetent evidence on the part of defendant, over plaintiff's objections. R. S. 1889, sec. 2186; Cook on Stock and Stockholders, sec. 486; Railroad v. Paine, 29 Gratt. (Va.) 502; Railroad v. Griffith, 76 Va. 913.

F. W. Griffin and F. M. Hayward for respondent.

Barclay, J. Black, C. J., Brace and Macfarlane, JJ., concur.

OPINION

Barclay, J.

The case amounts to this. Plaintiff sues the defendant bank for conversion of fifty shares of its capital stock, of the par value of $ 5,000, which he claims to own. His title rests upon a purchase of it for the price of ten dollars, under an execution against Mr. Cowling, in whose name the stock originally stood on the books of the bank.

The execution sale to plaintiff was based on a levy upon the stock, September 6, 1888, as the property of Cowling, at which time the cashier of the bank furnished to the levying officer a certificate to the effect that the judgment debtor owned fifty shares of the stock, subject to an incumbrance of $ 6,000.

Plaintiff demanded of the bank after the sale, a transfer of the stock to him, which was refused.

The present defendant, on the trial of this cause in the circuit court, gave uncontradicted evidence to prove (and the jury found as facts in response to instructions) that, at the time of plaintiff's attachment of Cowling's interest in the stock, the same was held by the defendant bank as collateral security for the payment of an indebtedness, owing by Cowling to the bank, amounting to $ 6,000 or more; and that it yet remained unpaid. The jury were told if they found these facts to return a verdict for defendant, which they accordingly did.

Plaintiff appealed, after the usual steps to that end.

It does not seem essential to state the pleadings or the evidence at large. The foregoing is a general sketch of the controversy, sufficient for present purposes. Any matters of detail that may be thought important will be mentioned further on.

I. The first objection questioning the correctness of the circuit judgment is that defendant could not assert a lien upon the stock as collateral to secure the indebtedness of Cowling, because it was ascertained March 20, 1888, to be $ 13,062.81; for which amount Cowling then delivered his renewal note to the bank. This transaction, plaintiff claims, was illegal and void in view of the statute declaring that no company shall permit any individual to become at any time indebted to it in a sum exceeding twenty-five per cent. of its capital stock, actually paid in. (R. S. 1889, sec. 2758).

The capital stock of the bank, it will be assumed, as plaintiff contends, was then $ 50,000. It will be seen that said note, to the extent of $ 561.19, was in excess of the amount specified in the statute quoted.

Without developing other less obvious answers to the above contention, there is one which meets it so plainly as to dispense with the necessity for further considering it.

The statute does not in terms declare void all contracts of loan to one person in excess of one-fourth of the capital stock. It forbids a loan beyond that amount, but impliedly sanctions one to that limit. The transaction is not intrinsically immoral; and, whatever view may be taken as to such contracts when fully executed, it is obvious that, as the excess of the loan over the prescribed limit is readily severable from the part which is within that limit, the loan is valid at least to the extent defined; in this case to the amount of $ 12,500. Kerrison v. Cole (1807), 8 East, 231. Within the limits of the statute Cowling would clearly be liable upon his agreement to pay, and his collateral pledge would be valid as security for that amount at least.

It is not necessary in the present action to further examine into the meaning of that statute.

II. It is next asserted that the pledge of the stock was invalid as to plaintiff in respect of its form. It appears that it was effected by an assignment or transfer in blank, signed by the debtor, the pledgor, on the back of the stock certificate; and the latter was pinned to the note. This was sufficient.

Plaintiff was notified, before he bought the interest of the pledgor at the...