
    Dayton National Bank v. Merchants’ National Bank
    1. A pledgee of shares of the capital stock of a national hank, having an irrevocable power of attorney for the transfer of such shares to him on the books of the bank, brought suit for the value of such stock against the bank, which, after notice that the pledgor had been adjudicated a bankrupt, had refused to permit such transfer to be made. The assignee in bankruptcy of the pledgor, having been made a party by consent, filed an answer and cross-petition praying for an account of the amount due the pledgee and a sale of the stock, which prayer was granted. Held, that it is error for the court to render a further judgment that, in the event the proceeds of the sale are insufficient to satisfy the pledgee’s claim, the bank shall pay the deficiency, not exceeding the difference between the proceeds of the sale and the value of the stock at the time of such refusal.
    2. Where part of a promissory note is paid, and a note in renewal is executed for the balance, a pledge given as collateral security when the first note was executed, will stand as collateral security for the balance of the debt embraced in the new note, in the absence of any agreement to the contrary.
    Error to the Superior Court of Montgomery County.
    The parties above named are corporations organized under the national banking acts, and engaged in the business of banking at the city of Dayton. On November 8, 1873, Andrew Gump, being the owner of thirty shares, each for $100, of the capital stock of the Dayton National Bank, assigned' the same to the Merchants’ National Bank, and executed to it an irrevocable power of attorney authorizing its president to transfer such shares on the books of the Dayton National Bank, and receive a new certificate. This transfer of stock was made as collateral security, to secure to the Merchants’ National Bank the payment of a loan of money made November 19, 1873, evidenced by a promissory note for the amount, $1,500, upon which note Gump was liable. On February 9, 1874, the sum of $300 was paid on the note, and a new note for the balance, $1,200, was executed, payable in ninety days, and the collateral security was retained. It is further claimed by the Merchants’ National Bank, that the stock was pledged by Gump and held by it as collateral security for the payment of four other promissory notes, upon which he was liable, three of them executed in December, 1873, and the other in January, 1874, the four notes amounting to $2,550, and being given in renewal of notes outstanding when the stock was pledged ; but this claim is denied by the Dayton National Bank in its answer in the suit hereinafter mentioned.
    The Merchants’ National Bank presented the certificate for the shares and the power of attorney to the Dayton National Bank, and demanded a transfer of the shares on the books of the bank and the issue of a new certificate for such shares ; but the Dayton National Bank refused to permit such transfer to be made, or to issue such certificate; and afterward, on June 13, 1874, the Merchants’ National Bank brought suit against the Dayton National Bank, seeking to recover damages in the sum of $4,500, “ and other relief, ” by reason of the matters above stated.
    During the pendency of the action, Alfred Pruden was made a defendant, who filed an answer and cross-petition, in which he avers that said note for $1,500 was delivered up to the makers and canceled, and that the stock was never pledged as collateral for the note for $1,200, nor for the payment of any of the above mentioned notes; that he, Pruden, is the assignee in bankruptcy of said Gump, and has received a deed of assignment under the bankrupt act, conveying to him the property of every sort, owned by said Gump, or to which he was entitled, or in which he was interested, on March 26, 1874 ; and that, as such assignee, he demanded the stock of the Merchants’ National Bank, but the bank refused to deliver the same to him. He asked that the court should decree a cancellation of the certificate of stock in the hands of the Merchants’ National Bank, and award judgment against the Dayton National Bank for the value of the stock, and prayed for such other and further judgment as might be warranted.
    All the persons liable upon the promissory notes hereinbefore referred to are insolvent.
    The case was submitted to the court on the pleadings and testimony, and the court found that at the time the creditors of Gump filed them petition in bankruptcy, that is, on March 26, 1874, the Merchants’ National Bank held the shares of stock as collateral security for the payment of all the above mentioned notes, amounting in principal to $3,750; that the indebtedness, when the stock was received from Gump, as collateral security, on November 8, 1873, was evidenced by other notes, those above mentioned being given in renewal thereof; that after’ the appointment of Pruden as such assignee, he gave notice to the Dayton National Bank to not pei’mit any transfer of the stock on its books to the Merchants’ National Bank, and not to issue to it any certificate for such stock; that this was before the Merchants’ National Bank had recpiested that such transfer be made or such certificate issued; and that subsequently to such notice by the assignee, and before bringing suit, the Merchants’ National Bank requested the Dayton National Bank to make such transfer, or permit it to be made, and issue such certificate, which request wras refused. The court decreed that the Dayton National Bank should pay the Merchants’ National Bank the amount of four dividends on the stock, after deducting taxes paid on the stock, and that the balance of such dividends should be applied on the indebtedness to the Merchants’ National Bank, amounting to $1,191.82. The decree then proceeds as follows: “And it is further ordered, adjudged and decreed that, for the purpose of paying the balance remaining unpaid of such indebtedness, the Merchants’ National Bank shall, after giving notice by publication in some newspaper of- general circulation in Montgomery county, of the time and place of such sale, proceed to sell said thirty shares of capital stock to the highest and best bidder, and shall, by its president, duly transfer and assign to such purchaser the stock upon the books of the Dayton National Bank; whereupon the Dayton National Bank shall, by its proper officers, issue to such purchaser a new certificate for said thirty shares, and after paying the costs and expenses strictly incident to such sale out of the proceeds of the same, the balance shall be applied to the payment of the amount remaining unpaid of such indebtedness, with interest. And in case there shall be any surplus remaining of such proceeds of the sale, after the indebtedness and such costs and expenses shall be fully paid, the same shall be paid over to Alfred Pruden, assignee as aforesaid. And in the event that upon such sale the stock should be sold for less than $125 per share, its value at the date of such refusal, and by reason of its sale for such lesser amount, the proceeds shall be insufficient to fully pay the amount then remaining unpaid, with interest, then and in that case the Dayton National Bank shall pay to the Merchants’ National Bank any such deficiency balance, provided the same shall not exceed the difference between the amount such stock shall actually have brought, and said sum of $125 per share; and it is further ordered that the Dayton National Bank pay the costs of this suit, taxed at $ .”
    On application of the Dayton National Bank and Alfred Pruden, assignee, this petition in error was, on leave, filed in thi's court.
    
      Houk & McMahon and Craighead & Craighead, for defendant in error:
    I. National banks can loan on “ personal security.” This is in contradistinction to “.real security,” and embraces all .methods of personal security not expressly prohibited in the statute. National banks cannot loan on their own stock, or on legal tender or national bank notes, nor on real estate. But loans on collaterals of any other kind are usual, and therefore incidental. This is definitely settled in a recent case in the supreme court of the United States, and is therefore the law. National Bank v. Case, 99 U. S. 632. See also Shinkle v. Bank of Ripley, 22 Ohio St. 517; National Bank v. Boyd, 44 Md. 47; Talmadge v. Pell, 7 N. Y. 343. But even if the power did not exist, the borrower could not avail himself of the defense. National Bank v. Matthews, 98 U. S. 628; National Bank v. Loomis, 51 Vt. 349 ; Wroter's Assignee v. Armat, 31 Grat. 228.
    II. The assignment and delivery of the certificate, with a power of attorney to transfer, made the transaction complete, and vested full title in the Merchants’ Bank. Transfer on the books was not necessary. Black v. Zacharie, 3 How. (U. S.) 513; McAllister v. Kuhns, 96 U. S. 87; McNeil v. Tenth National Bank, 46 N. Y, 330 ; Conant v. Seneca Bank, 1 Ohio St. 299. Such complete title having vested, was not affected by the subsequent proceedings in bankruptcy. Bank of Louisville v. State Bank; 14 Am. Law Reg. N. S. 281; Jerome v. McCarter, 94 U. S. 738.
    III. The refusal to make the transfer amounted to a conver-, sion by the Dayton Bank. It recognized the title of G ump’s assignee; refused to permit the Merchants’ Bank to realize on its security, and, in its answer, positively denied all title in the Merchants’ Bank. It thus became liable for the value of the stock at the time of the demand, with interest from that date. McAllister v Kuhns, 96 U. S. 87; Case v. National Bank, 100 U. S. 450 ; Kartright v. Buffalo Bank, 20 Wend. 90; Bond v. Mount Hope Co., 99 Mass. 506 ; Hill v. Pine River Bank, 45 N. H. 300 ; Bank of America v. McNeil, 10 Bush (Ky.) 56; Railroad Co. v. Sewall, 35 Md. 239.
    
      Gunckel v. Rowe, for plaintiffs in error:
    I. The same rule applies undoubtedly to transfers of stock that applies to banks refusing to pay checks when directed, before presentment or acceptance, not to pay same. An equally good rule should be allowed in respect to the transfer of stock. As to checks, see Dykes v. Leather M'f'g Co. Bank, 11 Paige Ch. 612 ; Schneider v. Irving Bank, 80 How. Pr. 190; Ætna National Bank v. Fourth National Bank, 7 Am. Rep. 314; 2 Parsons on Notes and Bills, 60, 61.
    II. The possession of the certificate by the Merchants’ National Bank, with a mere power of attorney authorizing a transfer to be made, put in it no title to the stock ; a transfer upon the boobs of the Dayton National Bank was necessary to place title in the Merchants’ National Bank; and at the time demand was made for such transfer, the title was vested in the assignee of Gump’s estate. Shaw v. Spencer, 100 Mass. 382; 13 N. Y. 599 ; 4 Allen (Mass.) 277. We claim that there was not actual delivery, and there could not be except by transfer on the books. There must be an actual delivery to support a pledge. “It is of the essence of the contract that there should be an actual delivery of the thing to be pledged.” Story on Bailments, § 297; Harries v. Craun, 2 Pick. 610; Bunsby v. Amel, 8 Pick. 236. Until the delivery of the thing, the whole rests in an executory contract. However strong may be the engagement to deliver it, the pledgee acquires no right of property in the thing. Story on Bailments, §§ 290,297; Portland Bank v. Stubbs, 6 Mass. 422; Necker v. Buffington, 15 Mass. 477; 2 Kent Comm. 4 ed. 571Willard Eq. Jur. 455 ; 1 Parsons on Cont. 594-597. Any creditor of Gump, in attachment or by creditor’s bill (there having been no transfer made on the books), could have subjected the stock, prior to his bankruptcy, to the payment of claims. Dutton v. Conn. Bank, 13 Conn. 493. If Gump, without this transfer having been made, had assigned for the beneht of his creditors, his assignee would have held it; and the same is true when he is forced into bankruptcy. Swift v. Thompson, 9 Conn. 63 ; Shipman v. Ætna Ins. Co., 29 Conn. 245; City Fire Ins. Co. v. Olmsted, 33 Conn. 480. The case of Shipman v. Ætna Ins. Co. is a case, in ail its features, like the one at bar’, and the court there held that the party held no lien whatever upon the stock. Special attention is invited to this case. See also case oi Northrup v. Newton & Bridgeport Turnpike Co., 3 Conn. 544; 6 Conn. 552; 12 Gray, 213.
    As to the power of a national bank to take stock as security. The powers granted in section 5136 0. S. Rev. Stats. 999, are the only powers that a national bank can exercise. The modes pointed out are the only pledge to the stockholders that their funds will not be imperiled in any other mode. Every other power is as much withheld, as if it was in express terms prohibited. Bank of Augusta v. Earle, 13 Pet. 587; Pearce v. Mad. & Ind. R. R., 21 How. 442 ; Perrine v. Ches. & Del. Canal Co., 9 How. 184; Del. & Md. Steam Nav. Co., 8 G. & J. 319. A corporation is a mere creature of the law, and can exercise no powers than those which the law confers upon it. Dartmouth College v. Woodward, 4 Wheat. 636; Bank v. Dandridge, 12 Wheat. 64; Charles River Bridge v. Warren Bridge, 41 Pet. 544 ; Bank v. Earle, 13 Pet. 587; Straus v. Eagle Ins. Co., 5 Ohio St. 59. A corporation derives all its power from the act, and is only what the incorporating act makes it; and is capable of exerting its faculties only,in the manner in which that act authorizes, Heard v. Provident Ins. Co., 2 Cranch, 127. The above section 5631 gives all the powers that a national bank can exercise. All others are excluded "by implication, the same as if specially derived. Such is the rule with respect to all corporations. 
      New York Fire Ins. Co. v. Eby, 5 Conn. 572; Child v. Hudson Bay Co., 2 P. Wm. 207; Mathews v. Spinker, 24 Am. Law Reg. 488 ; Heard v. Provident Ins. Co., 2 Cranch, 127 ; Venango Bank v. Taylor, 50 Pa. St. 14. A power to discharge may embrace that of making payment of any kind whatever, but not that of purchasing or acquiring. Clark v. Farrington, 13 Wis. 323; Hood v. New York & New Haven R. R., 22 Conn. 1, 502; Pearce v. Mad. & Ind. R. R. Co., 21 How. 442. We claim, therefore, that the taking of stock as collateral is no more within the authorized business of national banks, than the taking of special deposits to keep merely for the accommodation of the depositor. National banks are not bound for such deposits. Wiley v. First National Bank of Bratileboro, 47 Vt. 546. Although dealing in stocks is not expressly prokihited, yet such prohibition is implied from the failure to grant the power. First National Ba/nk of Charlotte v. National Fx. Bank, 92 U. S. (2 Otto)' 122; Fowler v. Scully, 72 Pa. St. 456.
   Oket, J.

Nothing is better settled, than that shares in the capital stock of a corporation are the subject of pledge. A national bank may hold such shares in the capital stock of another national bank, as collateral security for a loan or loans made or to be made. National Bank v. Case, 99 U. S. 628. Moreover, an objection to such transaction could not be made in this action. Where, as in this case, the pledgor executes an irrevocable power of attorney, authorizing a transfer of such shares on the books of the bank issuing the same, the pledgee has the right to demand that such transfer be made. Here, immediately after the note of February 9, 1874, became due, the pledgee applied to the Dayton National Bank to permit such transfer. On refusal of the request, the right to prosecute this action for the value of the stock accrued to the pledgee. Case v. Bank, 100 U. S. 446; Johnston v. Laflin, 103 U. S. 850; and see McAllister v. Kuhn, 96 U. S. 87. True, at the time of such refusal, an assignee in bankruptcy had been appointed for Crump ; but this did not affect the interest of the pledgee in the shares of stock. Jerome v. McCarter, 94 U. S. 734, 739 ; Yeatman v. Savings Institution, 95 U. S. 764. If, however, as said in the latter case, the assignee desired a sale of them, and a distribution of the proceeds, or if he doubted the validity of the pledge, he. could have instituted an action against the corporation, in some court of competent jurisdiction, . . . . and thereby obtained a judicial determination of the rights of the parties.” And see Schouler on [Bailments, 232.

We find, in the answer of the Dayton National Bank, a request that Pruden, assignee of Gump, be made a party to the action; but the record does not show that he was made a party on motion of that bank, and, what is of more importance, it does not disclose any objection on the part of the pledgee to such new party. We think the answer and cross-petition of Pruden is, in effect, an equitable action to obtain an account and a sale of the stock, and under the circumstances stated, we must regard such answer and cross-petition as having been filed by consent of the parties.

In such posture of the case, the proper decree was, as this is, that the amount for which the^tock is held as collateral security, should be ascertained; that the Dayton National Bank should pay upon such indebtedness the amount of dividends received by it on the stock, with interest, iess the amount of taxes it has paid on such shares; that the stock should be sold at a public sale; and that the proceeds of the sale should be applied in satisfaction of the balance due the pledgee, and costs and expenses, and if a surplus remained, that it should be paid to the assignee. But the decree should not direct, as this does, that if the stock sells for less than its value at the time the request for transfer was refused, and the proceeds of the sale are insufficient to satisfy the sum due the pledgee, and costs and expenses, then the Dayton [N ational Bank shall pay the pledgee the deficiency, not exceeding the difference between the amount realized from such sale and file sum the stock was worth at the time of such refusal. In such equitable action, the pledgee can only look to the stock and dividends for the satisfaction of its claims. The proposition that it may go further in such action, and recover damages, in any amount, as for a conversion, is supported by no just principle.

We are not prepared to say the finding that the stock was deposited by Gump with the Merchants’ National Bank, to secure the payment of all sums for which he was then or might become liable to that bank, is clearly against the weight of evidence—certainly we cannot say such finding is so against the evidence as to call for a reversal of the judgment in that respect. Clearly the pledge was made to secure the repayment of $1,500. Perhaps there is sufiicient support in the evidence for the finding that the stock was not only pledged to secure the repayment of $1,500 to be thereafter advanced, but also as collateral security for the other sums for which Gump was liable, and then due to the bank, notwithstanding any change that might thereafter be made in the form of the indebtedness. But, however that may be, the parties in this case cannot be heard to object that property may not be pledged for future advances, as well as for an existing indebtedness ; and where it is taken in pledge for an existing indebtedness, the renewal of a promissory note given as evidence of such indebtedness, will not affect the creditor’s interest in the pledge, in the absence of an agreement to the contrary, but the pledge will stand as security for such balance of indebtedness in its new form.

Nor can we say there was any error with respect to the question made in argument concerning usury in the pledgee’s claims. The matter is not so presented in the record as to call for any interference with the judgment on that ground. Whether, therefore, if the record disclosed the facts concerning usury to be as claimed in argument, any ground of complaint against the judgment in that respect would be available to the plaintiffs in error, we need not determine. See National Bank v. Matthews, 98 U. S. 621; Pullman v. Upton, 96 U. S. 328.

Judgment modified as above.  