
    James Nesmith et al. versus Washington Bank
    Tile charter of a bank provided that the capital stock should not be sold or transferred, but should be held by the original subscriber during one year from the date of the charter ; and a by-law declared the stock of each stockholder to be pledged for any sum which he should owe to the bank. Within the year a subscriber assigned his shares, and the assignee gave notice thereof to the bank and paid the last instalment due on these shares. Afterwards, and within the year, the bank lent money to such subscriber. It was held, that although the assignee was not entitled to a certificate of stock in his own name, yet that the assignment vas valid in equity, and that, as the money was lent after notice of the assign ment, the shaves were not pledged for its repayment. But whether the by-law could under any circumstances create a lien on the shares as against the creditors of the stockholder, quare.
    This was an action of assumpsit instituted in the name of the plaintiffs for the benefit of the Provident Institution for Savings, to recover the amount of the dividend declared by the Washington Bank, on the 5th of April, 1826, on two shares of the stock of the same bank standing in the names of the plaintiffs. The defendants pleaded the general issue.
    On the trial before Ward C. J. of the Court of Common Pleas, the following facts appeared in evidence.
    The act incorporating the Washington Bank was passed on the 26th of February, 1825, containing these provisions, viz. “ The capital stock of said bank shall not be sold or transferred, but shall be holden by the original subscribers thereto, for and during the period of one year from the time of passing this act; ”—and “ no stockholder shall be allowed to borrow any money until he shall have paid in his full proportion of the whole of said capital stock.”
    On the 23d of March, 1825, the bank made a by-law, as follows:—iC The stock of every member of said corporation shall be considered and is hereby declared to be pledged to the corporation for any and all sums of money which said member may at any time owe said bank; and the boaid oi directors may, if they see cause, refuse to make any transfer or pay any dividend upon the stock of any member who may be so indebted, until said debt be fully discharged.”
    The plaintiffs were original subscribers for twC shares in .he bank, of 100 dollars each, and after paying the several assessments which had been made, amounting in the whole to seventy-five per cent, they on the 1st of September, 1825, transferred their right to these shares to Ball & Davis, and before the 28th of the same month, Ball & Davis transferred their right to the Provident Institution as collateral security for a loan. The treasurer of this institution, on the same 28th of September, the day on which the last instalment of the capital stock of the Washington Bank was payable, paid into the bank the instalment due on the two shares, and gave notice to the president and cashier that these shares were transferred, as above mentioned, to the Provident Institution, and that he made the payment on account of that institution ; upon which the president remarked, that the shares could not be transferred for some months then to come.
    On the 25th of April, 1826, a dividend of eight dollars was declared upon the two shares, and on the same day the treasurer of the Provident Institution demanded the dividend and a transfer of the shares, and offered to surrender the receipts of the bank for the several instalments which had been paid ; but the president and cashier refused to pay him the dividend or transfer the shares.
    On the 28th of December, 1825, the bank discounted a note made by the plaintiffs and indorsed by one Baker, for 32Ú dollars and 50 cents, payable in six months, which was still unpaid.
    Upon this evidence the judge instructed the jury, that the legislature, when they granted a charter to a number of citizens to facilitate their operations in any branch of business, had the power and the right to couple with the grant any limitations and restrictions which they might consider the public interest and convenience and sound policy required ; that the act incorporating the bank, having expressly provided that stockholders should not sell or transfer their stock, but that the shares should be held by the original subscribers for one year from the time of passing the act, the transfer from the plaintiffs to Ball & Davis was void, and the Provident Institution could derive no title through them to the two shares or the dividend declared upon them ; that it was true, there was no equity in the bank’s retaining the shares to cover a loan made to the plaintiffs after notice that the Provident Institutian claimed the shares under an assignment and had paid one instalment of the capital stock, yet the provision in the statute was peremptory, and an assignment, which in equity would otherwise have been good and the interest under it have been protected by the court, must bend to the positive provisions oí the statute ; that the evil resulting from bank charters being ob ained merely for the purposes of speculation, when there was no intention on the part of the applicants to fill up their shares and pursue the business of a bank upon regular principles, was a great one, and in order to suppress it the legislature had found it necessary to prohibit the sale and transfer of shares until the whole capital stock was paid in, and to prohibit a loan to any stockholder upon the credit of instalments which had been paid in, to enable him to pay subsequent instalments.
    
      April 9th, 1827.
    Under the above instructions the jury returned a verdict for the defendants ; whereupon the plaintiffs filed exceptions.
    
      Savage and Merrill
    
    supported the exceptions and cited Quiner v Marblehead Soc. Ins. Co., 10 Mass. R. 476.
    
      Cooke, for the defendants.
    The by-law in question per-
    mits the defendants to refuse their assent to a transfer of shares, so long as any debt remains due from the stockholder ; and in this there is nothing illegal or inequitable. A mortgage for security against future liabilities has been upheld by this Court.
    The loan was made in reference to the by-laws, and the instrument of assignment to the Provident Institution recites that the shares are to be subject to the by-laws. Taylor v. Bates, 5 Cowen, 376. The defendants did not assent to the assignment, but on the contrary they gave notice that the shares could not legally be transferred lor some months. But the act of incorporation is conclusive ; according to which a transfer cannot be made within the year. .The plaintiffs assign to a third person in order to procure a loan to pay their instalments ; this the legislature intended to prevent, and the assignment is therefore entirely void. Mackie v. Cairns, 5 Cowen. 547.
    
      June 26th, 1828.
   The opinion of the Court was drawn up by

Parker C. J.

The present plaintiffs are the legal owners of the two shares on which the dividend is claimed. They were original subscribers and have a right to the dividend, unless the bank can show a right to retain it and appropriate it to their own use. They set up such a right under the statute incorporating the bank, and under a by-law made by the corporation. The general objection under the statute is grounded on the provision contained in it, "that the cap~taI stock of said bank shall not be sold or transferred, but shall be holden by the original subscribers thereto, for and during the period of one year from the time of passing this act." It appearing in the case that the plaintiffs had made a transfer of their two shares to Ball & Davis before the expiration of the year, and that Ball & Davis had assigned the same to the Provident Institution for Savings also within the year, for whose benefit this action is brought, it was considered by the Court of Common Pleas that both these transfers are void, and so that the action could not be maintained, notwithstanding the defendants had so far admitted the assignment to the Provident Institution as to receive of their agent the last instalment of 25 dollars on each share ; intimating to them only, that the transfer would not be valid for two or three months to come from the time this instalment was paid in ; which was on the 28th of September, 1825, the year not expiring until the 26th of February, 1826.

Certainly the transfers were not valid in law when they were made, and the bank could not legally then have issued certificates to the assignees, or have admitted them to be the owners on the books ; but we cannot discern why the assign inent did not equitably pass the property, as well as the indorsement of any paper not negotiable by law, the object of the legislature being to prevent a change of responsibility to the bank or the public, and to prevent speculation in the stock for a limited period; not to lock up this property against the creditors of stockholders, or to deprive them of the power of voluntarily paying their debts with it. The transfer, as we understand the statute, is not made null and void ; it is merely inoperative during the prohibited period ; so that the original subscribers are to stand as owners in regard to the bank, and in reSar(^to such creditors as may have occasion to attach the property as theirs, they not knowing of any equitable lien upon it in favor of any other person.- “ The stock snail not be sold or transferred, but shall be holden by the original subscribers thereto for and during the period of one year.” Can it be supposed that the legislature intended it should be holden free from their creditors for that period ? If so, they would have provided a safe retreat for debtors for any sum which they may have subscribed to the bank. No, the sole object was to cure a supposed evil, that of subscribing to bank stock without intention to become stockholders, but for the purpose only of speculating upon the rise of shares ; and this was done to a considerable degree by an interdict upon their transfer for a year. If more was intended, all such transfers would have been declared void to all intents and purposes, and then the singular phenomenon would have existed, of a legal disability in the debtor to appropriate his money to the payment of his debts. It cannot be disputed that the plaintiffs’ right to these shares might have been attached and sold under the statute which authorizes such a disposition of such property, nor can it be doubted that if the plaintiffs had made a direct assignment to the Provident Institution as collateral security for money borrowed to pay the last instalment, the equitable interest would have passed. Shall the intermediate sale to Ball & Davis make a difference ? We think not; for the assignment to them, though it gave them no right to demand certificates or in other respects to be considered owners during the year, yet we think passed the equitable interest, which after the year might be converted into legal property. In the case of Quiner v. Marblehead Soe. Ins. Co. 10 Mass. R. 476, principles analogous to those which present themselves in this action were discussed and decided. The statute incorporating that company provided, that no transfer should be permitted or be valid until the whole stock was paid in. A transfer was made to Isaac Story before the whole stock was paid in, to satisfy a debt which two of the original subscribers owed to him. This was held to be an assignment in equity, which entitled Story to the certificates after he should have paid what remained due on the stock. The difference between the two cases is, that Isaac Story was an antecedent creditor of Bradstreet & Story, the assignors, but here it does not appeal' that Ball & Davis were any thing but purchasers ; but we think the only effect of this circumstance is, that Ball & Davis, and those claiming under them, could not become owners for the ) ear, during which time the shares remained to all legal purposes the plaintiffs’ property, liable for their debts to creditors without notice. The St. 1804, c. 83, which provides for the attachment of shares and interests in incorporated companies, would, we think, authorize the attachment of shares not filled up, for it speaks of the amount of interest as distinct from the shares which any debtor may have in the company stock.

What fair or legal objection then can be made to the plaintiffs’ recovery of the dividends upon their shares, to the use of those to whom they have been equitably transferred ? There is no objection to the capacity of the plaintiffs, for they are the legal owners of the shares. Have the bank any lien or equitable interest to set up in defence ? They do in truth claim to hold these shares and the product of them, on account of a loan made to the plaintiffs of a sum beyond the value of the shares, by virtue of a by-law which subjects to a lien the stock of all members who shall owe any thing to the bank. We need not, in order to decide this case, go into the consideration of the validity of this by-law against any creditors of a stockholder, though it may be worth inquiry by the corporation, whether such a by-law can be of any avail except between them and the debtor. We suspect it is a first attempt, by a general declaration of this kind, to give themselves a preference over other creditors, without taking the usual means of pledge or transfer of the particular, stock they intend to hold.

But admitting the by-law to be operative under common circumstances, we think it ought not to avail in the present instance. The loan was made after notice by the Provident Institution of their claim to the shares, and after the defendants had received from that company the instalment due on the shares. They surely could not, under such circumstances, have lent the money on the faith of these shares. They look the usual security, notes with indorsers. They cannot resort to their by-law to strengthen their security, and on this ground certainly have no equitable claim.

For the foregoing reasons we are all clear that the verdict must be set aside, and a new trial granted at the bar of this court. 
      
       See Sargent v. Essex Marine Railway Corp. 9 Pick. 204
     
      
       See Plymouth Bank v. Bank of Norfolk, 10 Pick. 454.
     