
    Henkle v. Salem Manufacturing Co.
    T. being indebted to a bank, pledged to it as collateral security for' such debt certain shares of stock in The Salem Manufacturing Company, and executed to the president of the bank a power of attorney to trans-; for the stock, on the books of the company, to the pledgee, or any other person to whom the same may be sold. The stock was never transferred on the books of the company to the bank; it never voted upon it or exercised acts of ownership thereof.
    
      Held: The bank was not a stockholder within the meaning of article 13, section 3, of the constitution, or sections 3258-60, Revised Statutes and was not liable to creditors of the corporation in an action to enforce the individual liability of stockholders.
    Error to the District Court of Columbiana county.
    The Salem Manufacturing Company being insolvent, the plaintiff in error, a creditor thereof, filed a petition against the corporation, and its stockholders to enforce the individual liability of such stockholders. The petition alleged that the Eirst National Bank of Salem was a stockholder at the time the debt due plaintiff and the other indebtedness of the company were contracted. It is not alleged, nor is it claimed, that the bank was a stockholder, at the time the action was commenced. The answer of the bank denies that it was ever a stockholder in the corporation. The action was tried upon the issue thus presented, in the district court, and a judgment rendered for the defendant. The court stated its conclusions of fact and law separately. A bill of exceptions was taken, embodying all the evidence offered in the case, and made a part of the record.
    This proceeding is prosecuted by the plaintiff in error to obtain a reversal of that judgment.
    The findings and judgment of the district court are as follows:
    
      “ This cause coming on for hearing upon the appeal of said defendant, the Eirst National Bank of Salem, Ohio, and issues joined between said William D. Henkle, plaintiff, and said Eirst National Bank of Salem, Ohio, defendant, the same was submitted to the court upon the pleadings and evidence without the intervention of a jury, and the court being fully advised in the premises, as its conclusions of fact, finds that the First National Bank of Salem, defendant, was never the owner of stock or a stockholder in the said Salem Manufacturing Company. That on November 8, a. d., 1870, certificates for 115 shares of the stock of said Salem Manufacturing Company of the par value of eleven thousand five hundred dollars were delivered by the firm of Taber & Co. to Robert Pow. Said Taber & Co. before said delivery, executing warrants of attorney which were attached to said certificates conferring power on the said Robert Pow to assign and transfer said stock to said defendant bank or to any person or persons or corporation to whom said stock might thereafter be sold.
    
      “ The court finds that said certificates of stock were so delivered to said Robert Pow in trust for the use and benefit of said defendant, the First National Bank of Salem, and as collateral security for and to an indebtedness of Taber & Co. owing to said bank.
    
      “ That said Robert Pow, by • the direction and in the interest of said Bank did on the 30th day of December, a. d. 1871, transfer and assign to Joseph R. Roller sixty-five shares of said stock of the par value of six thousand five hundred dollars, and that on the 18th day of March, a. d. 1872, said Robert Pow by the direction and in the interest of said First National Bank transferred and assigned to Henry B. Baldwin fifty shares of said stock of the par value of five thousand dollars. That said sales were made for the benefit of said First National Bank and that it received the proceeds of the stock when so sold and transferred to said Roller and said Baldwin upon the respective dates above named. That said Joseph R. Roller and Henry B. Baldwin were defendants in this action on account of said stock so transferred to them, were served with process, and a decree taken against each of them for the full amount of their statutory liability on said stock in the court of common pleas in this action, which decree is still in full force; that said Joseph R. Roller was at ■the date of said transfer and- decree and still is solvent and responsible, and that Henry B. Baldwin was at the date of said transfer and has ever since been insolvent. ,
    “ That said defendant the Salem Manufacturing Company is an insolvent corporation of the state,of Ohio, and that full contribution is required and necessary to be made from each and every of the stockholders therein, of an amount equal to the par value of the stock owned or held by each, with interest thereon, for the payment of the debts of said company. And as its conclusions of. law upon the above found facts the court finds, that said defendant the First National Bank was not and is not a stockholder nor is it liable as a stockholder or otherwise to contribute to the payment of the debts of said Salem Manufacturing Company. It is therefore considered by the court that the said defendant, the First National Bank of Salem, go hence without day and recover from the plaintiff its costs herein expended, to all of which ruling, judgment and order of the court plaintiff excepts.
    “ And now comes the said William D. Henkle, plaintiff, and presents to the court here his bill of exceptions to the overruling of his motion for a new trial, and the same is signed sealed and allowed and ordered .to be placed on file and made a part of the record in this case, all of .which is so done as prayed for at the term aforesaid.
    “ And by consent it is further ordered that no record be made of any of the pleadings in this cause filed except of plaintiff’s petition, and the answer of said defendant, .the First National Bank thereto.”
    The stock never appeared upon the books of the company in the name of the bank.
    The testimony, as to the actual contract under which the bank took the stock, consists wholly of that given by two witnesses, M. Frank Taber, for the plaintiff, and Henry C. Jones (who acted for the bank in the transaction), for the defendant.
    The material part of Taber’s testimony is as follows :
    I was a member of the firm of Taber & Go. That is my signature in the warrant of attorney in that bopk (being the warrants of attorney, copies of which are hereto attached). We sold stock to the First National Bank of Salem. That is my recollection of it now. We did surrender it to them for a, consideration. By we, I mean Taber & Co. I cannot state positively the amount of the consideration without looking over old papers. I signed this paper. The First National Bank received that stock in part payment of a debt that wé owed them. The amount of the indebtedness of Taber & Com-. pany was about $36,000 owing to the bank. That debt was-discharged by the payment to the bank of a large variety of, property, consisting of machines, accounts, farmers’ notes and ' stock of the Salem Manufacturing Company.' This warrant of attorney was made out and given to them a short time before we made this final settlement, probably three weeks beíoré. The First National Bank held our notes to the full amount of our indebtedness. I do not know what kind of instrument was drawn to transfer these properties to the bank, but we turned them over to the bank or to their attorney, Henry C. Jones, and that transaction was carried on in the private .office of the bank in the bank building.
    . Upon the same subject, Jones testifies in substance as fob. lows:
    I was attorney for the First National Bank in 1869, 1870 and 1871 (and am still), at the time Taber & Co. had negotiations with the bank. I remember the arrangement that was, made between Alexander Pow and Oscar and Frank Taber. I managed the details of the affair. In November, 1870, Taber & Co. owed the bank from $34,000 to $35,000. The indebtedness to the bank was evidenced by notes. Some of the notes were' signed by Oscar Taber, Frank Taber and Moses Taber, and some by Taber & Co. Don’t remember all the conversation about the arrangement. It took some weeks to get the thing consummated. Tabers borrowed money largely, but put in farmers’ notes as collateral security. I don’t know how many of those notes were held by the bank at that time. Oscar Taber had agreed to pay $4,000, but instead of paying money down they gave farmers’ notes. A number of these notes were not transferred. When the arrangement was made, Oscar Taber said he could not give a $4,000 or $5,000 note as collateral security; he then agreed to give me some other security but found that he could not do that. I got assignment from Oscar Taber for accounts in hands of ¥m. Penrose, some' $9,000. Taber & Co. could not get.paper to take up this indebtedness fast enough,'so they proposed to give stock in the Salem Manufacturing Company. I objected to this. I wanted land but could not get that. They said we should take the stock as collateral, and apply the proceéds of any sales to the payment of the indebtedness. If after paying the indebtedness, there was any surplus-, it should be paid to Taber & Co. Such was the agreement under which powers of attorney were executed. Mr. Taber’s statement is incorrect. Stock was not applied to payment of debt of Tabers to the bank. The; warrant of attorney was made out at time of agreement. There was no written agreement.
    There is considerable testimony from these witnesses, and the cashier of the bank, as to the conduct of the parties in reference to the stock and how it was treated by the bank, and as to the sales made to Roller & Baldwin. It does not materially change the condition the case was in upon the testimony above given.
    
      J. T. Brooks, for plaintiff in error.
    
      J. A. Avnbler, for defendant in error:
    As to, the rule in determining who are stockholders, see Thompson’s Liability of Stockholders, §178; Adderly v. Storm, 6 Hill, 621. To the same effect see Thompson’s Stockholders’ Liability, chap. 10; Newry, &c. R. R. Co. v. Moss, 14 Beav. 64; In re Phœnix Life Ins. Co., Hoares case, 2 Johns. & H. 229 ; Worrall v. Judson, 5 Barb. 210; Divin v. Duncan, 11 Barb. 520 ; Mills v. Stewart, 62 Barb. 444; Matter of Empire City Bank, 18 N. Y. 200, 223, 225, 226 ; Mills v. Stewart, 41 N. Y. 384; Wheelock v. Host, 77 Ills. 296; Hole v. Walker, 31 Iowa, 311, 351; Magruder v. Colston, 44 Md. 349; Childs v. Coffin, 17 Mass. 64; Marcy v. Clark, 17 Mass. 330; Holyoke Bank v. Burnham, 11 Cush. 183 ; Crease v. Babcock, 10 Metc. 525; Green v. Breed, 10 Metc. 569 ; Stanley v. Stanley, 26 Maine, 191; Fowler v. Ludwig, 34 Maine, 455 ; Skowegan Bank v. Cutler, 49 Maine, 315 ; State v. Ferris, 42 Conn. 560 ; Upton v. Trebilcock, 1 Otto, 45 ; Sanger v. Upton, 1 Otto, 56 ; Webster v. Upton, 1 Otto, 65 ; Pulman v. Upton, 6 Otto, 328; National Bank v. Case, 9 Otto, 628.
   Doyle, J.

We are asked to reverse the .findings and judgment-of the district court.. -First. Because the finding of facts is against the preponderance of the testimony; and, Second. Because the judgment upon those facts is against the law.

1. The rule announced in Landis v. Kelly, 27 Ohio St. 567 and so often re-affirmed by this court, is peculiarly applicable to this case. Upon the issue presented the burden of proof was upon the plaintiff to establish that the bank was a stockholder, at such time as rendered it liable to creditors of the corporation. The court found from the testimony that the bank held the stock as collateral security, for a debt fine from the owner, but was not, itself, such owner. That finding is in accord with the testimony offered by the bank. That there was a conflict of testimony furnishes no ground for reversing-that finding by this court. It must appear from the record that the finding or verdict is clearly against the preponderance of testimony. We .are unable to say that, from the record in this case. See McGatrick v. Wason, 4 Ohio St. 567; Kane v. Stone Co., 39 Ohio St. 1; Scott v. Perlee, 39 Ohio St. 63.

2. The general rule, independent of statutory provision, is that the liability to pay calls and • to respond, in the event of insolvency, to creditors, attaches to the holder of the legal title only. The courts will not (save in exceptional cases) look beyond1 the registered shareholder; and it matters not whether such registered shareholder be a mere trustee for another, of a pledgee, holding the stock as collateral security. He is liable as a stockholder and must look to his cestui que trust, or pledgor, for such indemnity or reimbursement as he may be. entitled to. Thompson’s Liability of Stockholders, § 178 ; Adderly v. Storm, 6 Hill, 624; Empire City Bank, 18 N. Y. 223; Mills v. Stewart, 41 N. Y. 384; Wheelook v. Kost, 77 Ill. 296 ; Hale v. Walker, 31 Iowa, 344; 49 Maine, 315 ; 1 Otto, 56; 42 Conn. 560.

One exception to this general rule, is where stock has been fraudulently transferred to escape responsibility and at the same time retain the advantages of a stockholder. There may be others, but the general rule is as stated. The rule as now declared in this state by section 3259 Revised Statutes is :

The term ‘ stockholders ’ as used in the- preceding section shall apply not only to such persons as appear by the books of the corporation to be such, but. to any equitable owner of stock, although the stock appears on the books in the name of another.”

But neither' under the general rule stated nor the rule thus fixed by statute, is one who holds the shares of stock merely as collateral security for a debt, without a transfer thereof to him on the books of the company, the legal or equitable owner of such stock. He would not be entitled to vote upon it as against his pledgor, and if ho received any dividends the same would be credited upon the debt, as security for which he held it. Under this statute, in going beyond the registered owner it is for the purpose of finding the real owner. Neither the language of the constitution (art. 13, § 3) nor the statute R. S. §§ 3258-3260 requires us to hold that this species of property may not be used as a pledge or security for a debt, without subjecting the pledgee or creditor to liability for debts of the corporation which he has nothing to do with contracting, and in which corporation he is not entitled to the privileges of a member. Such creditor or pledgeelias the option, in a case like the one at bar, to perfect his security by investing himself with the legal title, with its attending liability to creditors in the event of the insolvency of the corporation, or to hold the shares as pledgee merely, doing no acts which as to creditors will estop him from denying his -ownership, assuming thereby whatever risk there may be, from rights of third parties intervening, to have - his security impaired..

Judgment affirmed.  