Ames Suit Hale v. Walker. HALE V. WALKER, appellant. (31 Iowa, 344.) National banks — Transfer of stock — Liability of transferee. A person who appears upon the books of a National bank as the legal owner of shares of its stock is, upon the failure of such bank, liable for the debts of the association to the extent of the shares held by him, although he received and holds such shares as collateral security for a loan to a shareholder.* A CTION by a receiver of an insolvent National bank against a shareholder to enforce the individual liability of such shareholder for the debts of the association, according to the provision of section 12 of the National Banking Act. On the 28th day of December, 1868, the plaintiff, Hale, filed a petition in the Van Buren District Court, in which he alleged his appointment as receiver of the First National Bank of Keokuk, organized under the Currency Act of Congress, of Feb. 25, 1863 ; the refusal of the bank to pay its circulating notes and other liabilities; the absence of available assets to pay over fifty per cent of the liabilities of the bank - the necessity for him as receiver to enforce the individual liability of the stockholders - and that, at the time of the failure of the bank, the defendant, Joel Walker, was the transferee of H. K. Love, and owner of fifty shares of stock of $100 each, in said bank, amounting to $5,000, as appears from the stock-books of said bank. The plaintiff asks judgment for $5,000 with interest. The following exhibit is annexed to the petition : "Copy from the stock-books of the bank. Dr.-Joel Walker, May 24, 1866, fifty shares, paid $5,000. Cr.- May 28, 1866, paid up, $5,000." On the 15th day of January, 1869, the defendant filed his answer to this petition, in which he denies "that at the time the said. banking association closed its doors, and failed to redeem its circulation and pay its liabilities, the said Joel Walker became the owner (as the transferee of H. K. Love, or otherwise) of fifty shares of stock of $100 each in said bank, amounting to $5,000; and as *See Wheelock v. Kost, ante, p. 406; Magruder v. Colston (44 Md. 349), post. Hale v. Walker. to all the foregoing averments of the petition not herein specifically denied, which defendant neither admits nor denies, he calls for strict proof." And by way of further answer he shows that on June 21, 1865, this defendant was the owner of the following described United States bonds, viz.: of bonds known as 10-40 bonds, $2,000, and of 7-30 bonds, $3,000; that one H. K. Love, being then and there the president of said banking association (and so remaining until on and after February 21, 1868), being desirous of procuring the loan and use of said bonds, either for himself or otherwise, borrowed the same of this defendant, giving defendant as security therefor a pledge of certain shares of stock in said banking association, as will fully appear by the agreement, of date June 21, 1865, of which a copy is hereto attached, marked "Exhibit A," and made part of this answer. That afterward, to wit, on or about May 24, 1866, the said Love (still acting as, and being president of said bank as aforesaid), representing that the aforesaid agreement and pledge of bank stock was not in as reliable and perfect a shape and condition as would be desirable for the interest of defendant, so as to make him the unqualified pledgee of said bank stock, and informing defendant that to make said pledge secure and reliable, its transfer on the books of said bank, as said pledge, would be desirable if not necessary, induced defendant to surrender said agreement and pledge as shown by "Exhibit A," and thereupon executed to defendant, instead thereof, a new mortgage or pledge thereof, a copy of which is hereto attached, marked "Exhibit B," and made part hereof. And he shows that in the execution of said agreement it was fully and explicitly understood between said Love and this defendant, that the defendant, under said agreement, continued to hold said stock only as the pledgee or mortgagee thereof, and not otherwise; that in no intendment was he to be held or construed as a purchaser or owner thereof, or as a shareholder of said banking association; that in all said matters this defendant acted under and relied upon the representation of the said Love; that the defendant was ignorant of and unskilled in transactions of this nature, and knowing said Love to be the president of said bank, constant in his attendance thereon, and fully qualified by experience as a banker, trusted implicitly to the representation by him then and there made, as to the nature and effect of said written agreement; and he avers and is Hale v. Walker. ready to show that if, by any construction or intendment of law, the said instrument, or any part of the same, shall seem to hold this defendant to be a purchaser, and not a mortgagee of said stock, then said instrument so set forth, which was then and there written by the said Love, was either false or fraudulently so written, or so done by mistake, as the whole tenor and purport of said agreement fully shows, and therefore, should be corrected and reformed so as to correctly agree with the intention of the defendant and the representations and agreements of said Love, as made at the time. and with the evident purport and intention of said instrument taken as a whole. The defendant prays that the cause may be transferred to the equity side of the court, that a decree may be entered reforming the contract as set out in Exhibit "B," so that the same may be conformable to the real intent and purpose of the parties, etc. The following is Exhibit "A" referred to in the answer: "First National Bank of Keokuk, Iowa, No. 46, fifty shares. Be it known that H. K. Love is the proprietor of fifty shares of the capital stock of the First National Bank of Keokuk, on which $100 per share have been paid, and which is transferable only on the books of the association by him or his attorney, on surrender of this certificate: "H. K. LOVE, President. "KEOKUK, June 21, 1865." "Joel Walker has deposited with me $2,000 in United States 10-40 bonds, and $3,000 in United States 7-30 bonds, with semi-annual coupons attached, which I agree to return to him or his order on the 15th day of August, 1867. For the use of said bonds I agree to collect the interest and pay it over to said Walker without charge. As security for the safe return of said bonds, I have placed in the hands of said Walker share No. 46 of the First National Bank of Keokuk, Iowa, calling for fifty shares of the stock of said bank, which is to be returned to me with this certificate when the above United States bonds will be returned to him. The following is exhibit "B," referred to in the answer : "This agreement between Joel Walker and H. K. Love, witnesseth: that the said Walker has this day purchased of the said Love fifty shares of the First National Bank of Keokuk, for which he has paid the said Love in United States 10-40 bonds $2,000, and 7-30 bonds $3,000; the said stock will appear upon the books of said bank and certificate No. 46, in the name of said Walker, for fifty shares, amounting to $5,000. "Now, therefore, said H. K. Love hereby agrees to guaranty to said Walker semi-annual dividends upon said bank stock, at the rate of 7-30 per cent per an Hale v. Walker. num in currency on $3,000, and 5 per cent per annum in specie on $2,000, free from all taxes, said dividends to be due and payable to said Walker on the 15th of August and 15th of February each year. And in consideration of said guaranty the said Love is to have and receive all said bank stock has made, or may hereafter make, over and above 7-30 per cent, and 5 per cent per annum, as above specified. And said Walker hereby assigns to said Love all the earnings of said bank stock over and above 7-30 per cent and 5 per cent per annum, as aforesaid. And said bank is hereby authorized and directed to pay over the same to said Love or his order. "This agreement, unless extended by mutual consent, will terminate on the 15th day of August, 1867, at which time said Walker is to make over and transfer to said Love the certificate No. 46, calling for fifty shares of stock of the First National Bank of Keokuk, and said Love is to return to him, in full pay ment for the same, $2,000 in United States 10-40 bonds, and $3,000 in United States 7-30 bonds; whereupon the certificate No. 46, above referred to, will be the property of said Love, and the stock will be transferred upon the books of said bank to him. Witness our hands this 24th day of May, 1866. " * * * The time on the within contract is extended to February 15, 1868, at which time the whole $5,000 is to be paid (without notice) in 5-20 bonds, and interest at the rate of 7-30 in currency per annum. "August 14, 1867. "H. K. LOVE, The plaintiff demurred to this answer on the ground of want of equity. Demurrer sustained and defendant appeals. H. H. Trimble, for appellant. R. P. Lowe, for appellee. DAY, C. J. In section 12 of the act to provide a National currency, "it is enacted that the capital stock of any association formed under the act shall be deemed personal property, and transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of the association; and that every person becoming a shareholder by such transfer shall, in proportion to his shares, succeed to all the rights and liabilities of the prior holder of such shares; and that the shareholders of each association formed under the provisions of the act shall be held individually responsible for all contracts, debts, and engagements of such association to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares." The petition avers "that, at the time said bank closed its doors Hale v. Walker. and refused to pay its liabilities, the defendant, Joel Walker, was the transferee of H. K. Love, and owner of fifty shares of stock of $100 each in said bank, * * as will fully appear from the stock books in said bank." A careful scrutiny of the answer of defendant shows that he does not deny the allegation that he is the transferee upon the books of the bank of H. K. Love. In one paragraph of the answer he "denies that at the time the said banking association closed its door and failed to redeem its circulation and pay its liabilities, that the said Joel Walker became the owner (as the transferee of H. K. Love, or otherwise) of fifty shares of stock of $100 each in said bank." The statement in the petition that Joel Walker " was the owner of fifty shares of stock" is the mere legal conclusion of the pleader, from the averment of the fact that he was the transferee of H. K. Love. This conclusion of law, but not the averment of fact, the defendant denies. The agreement referred to in the answer as exhibit "B" states "that the said Walker has this day purchased of the said Love fifty shares of the First National Bank of Keokuk," and stipulates that "the said stock will appear upon the books of said bank and certificate No. 46, in the name of said Walker, for fifty shares amounting to $5,000." It is quite apparent, from the entire answer, that the fact of transfer is conceded, and that the defendant relies for immunity upon the fact that the transfer was made as security to defendant for a loan to H. K. Love. The question thus presented upon the record, though a new one here, has been the subject of judicial determination in some of the sister States. In the case of Creese et al. v. Babcock et al., 10 Metc. 525, it was held, under a statute containing provisions as to the liability of a shareholder, substantially the same as those of the one under consideration, that the holder of stock at the time of the dissolution of the charter, although he held the shares as collateral security, or as trustee for other persons, was individually responsible for the debt of the corporation. This doctrine was re-affirmed in the same court in the case of Grew v. Breed et al., 10 Metc. 569, in which it was held, that those who hold stock as collateral security, and those who hold it in trust, whether the trust does or does not appear on the books of the bank, are liable for the payment and redemption of unpaid bills. In Adderly v. Storm, 6 Hill, 624, it was held, that the transferee of shares of stock, as collateral security, was liable for a debt of the |