CHAPTER XL.

LIENS OF BANKS.

§ 311. General and special liens.

"A lien is defined to be a legal claim or charge upon real or personal property for a satisfaction of some debt or duty." Under the Code of California a banker has a general lien dependent on possession upon all property in his hands belonging to a customer for the balance due to him from such customer in the course of business. It is a well-established principle that a bank has a general lien on all of the moneys and funds which have been placed in the bank's possession and it may use the same and cancel any matured debt owing by the debtor to the bank.

The court, in Muench v. Bank, 11 Mo. App. 144, says: "The general lien of bankers is part of the law merchant. That bankers have a lien on all money and funds of a depositor in their possession for the balance of the general account, is undisputed. A banker's lien does not arise on securities deposited with him for a special purpose; otherwise, we have no doubt that when a discount has been made by the bank and the note is matured so as to create an indebtedness from the depositor of the bank, all funds of the depositor which the bank has at the date of the maturity of the discounted note, or which it afterward acquires in the course of business with him, may be applied to the discharge of his indebtedness to the bank, and this is true not only of the general deposit of the customer, but the rule applies to any commercial paper belonging to the depositor in his own right and placed by him with the bank for collection."

A deposit of collateral security made to secure a particular debt, cannot be held by the bank after such indebtedness is paid and upon demand made by the owner must be returned to him. But a general deposit of collateral security made to secure any and all indebtedness that may be owing by the debtor, can be held until all the debtor's indebtedness is settled, and the lien of the bank can be enforced against said

property. But a bank has no lien upon the deposit of a customer for an indebtedness owing to it by him which has not matured, though he be insolvent.1

Stock certificates.

The Supreme Court of the United States in the case of Hammond v. Hastings, 134 U. S. 401, in discussing the law as enacted by the Legislature in the State of Michigan, section 4143, Howells' Annotated Statutes (1st ed.), section 17 of Act 187 (1875), which reads: "The stock of every such corporation shall be deemed personal property and be transferred only on the books of such corporation in such form and manner as their by-laws shall prescribe, and such corporation shall, at all times, have a lien upon all of the stock, the property of its members invested therein for all debts due from them to such corporation," says:

"The general act, Howells (1st ed.), § 4866, provides as to all corporations that a transfer of stock shall not be valid except as between the parties, unless entered on the books of the company showing the names of the parties by, and to whom transferred, the number and designation of shares and the date. of the transfer. The bank was ignorant of 'Sweet's' indebtedness to the corporation when it lent its money on the security of the stock, and of course Hastings, though notified thereof at the time of the sale, succeeded to all of the rights of the bank. On these facts the circuit judge held that the purchaser took the stock discharged of any lien and submitted to the jury only the question of the value of the stock. This having been found by its verdict, judgment was entered therefor and the corporation now alleges error. The single question is, whether the corporation had a lien upon the stock for Sweet's indebtedness as against the claims of the bank and the purchaser. This question must be answered in the affirmative, for the rule is clear and unquestioned that where by general law a lien is given to a corporation upon its stock for the indebtedness of the stockholder, it is valid and enforceable against all the world.”

1 Homer v. Nat. Bank of Commerce (Mo. Sup.), 41 S. W. 790: Gibbons v. Hecox, 105 Mich. 509, 63 N. W. 519.

2 Union Bank v. Laird, 2 Wheat.

390; Brent v. Bank of Washington, 10 Pet. 596: National Bank r. Watsontown Bank, 105 U. S. 217, 221; Rogers v. Huntington Bank, 12 S. & R. (Pa.) 77; Sewall v. Lan

The law under which this corporation (referring to the case of Hammond v. Hastings) was organized was a general law; so it has been decided by the Supreme Court of Michigan, in Newberry v. Detroit, etc., Co., 17 Mich. 141, 151, where it is said: "The law in question is a public act, and all are charged with knowledge of its provisions." This construction by the Supreme Court of the State of the law is conclusive in this court, as well as elsewhere, as to its character. The law in terms provides for a lien, and that being a public law, all are charged with knowledge of its provisions. Generally, wherever paper of a nature similar to this is issued under authority granted by general statute, whoever deals with that paper is charged with notice of all limitations and burdens attached to it by such statute. And this is true whether the party lives in or out of the State by which the law was enacted.

It is unnecessary to enter upon the certificate any statment of the limitations and burdens which the law casts upon all such paper, and the omission to state such limitations upon the face of the paper is not a waiver by the corporation of the benefits thereof.

The statute of the United States provides, section 5230, that: "For any deficiency in the proceeds of all of the bonds of an association (bank) to reimburse to the United States the amount expended in paying circulating notes of the association, the United States shall have a permanent lien upon all of its assets, and such deficiency shall be made good out of such assets in preference to any and all other claims whatsoever, except the necessary costs and expenses of administering the same."

The Supreme Court of the State of California, in the case of The Anglo Californian Bank (Limited), Appellant, v. Granger's Bank of California, Respondent, 63 Cal. 359, says:

"The lien, if any, must have been created by the by-law above quoted, and it seems to us that no lien could be created in that way which would affect a bona fide purchaser for value without notice to whom the stock was transferred in mode prescribed by the Code. We think that the by-law, which it is

caster Bank, 17 S. & R. (Pa.) 285; Presbyterian Congregation v. Carlisle Bank, 5 Penn. St. 345, 348; Farmer's Bank v. Iglehart, 6 Gill. (Md.) 50; Reese v. Bank of Com

merce, 14 Md. 271; Hartford Bank v. Hartford Ins. Co., 45 Conn. 22; Bishop v. Globe Co., 135 Mass. 132; Bohmer v. City Bank, 77 Va. 445.

claimed gives the defendant such a lien, is clearly inconsistent with the provisions of section 324 of the Civil Code which we have quoted. The provision that the transfer is not valid except between the parties thereto until the same is so entered upon the books of the corporation as to show the names of the parties by and to whom transferred, the number or designation of the shares, and the date of the transfer,' does not, as we consider it, justify the defendant in its refusal to enter upon its books the transfer from Fowler to the plaintiff any more than it would in the absence of any such by-law as the one upon which the defendant relies for its justification in this case. If there was a valid transfer of the stock from Fowler to the plaintiff, the latter had a right to have it transferred on the books of the defendant. The defendant might make by-laws regulating the transfer of stock, but it could not, under the power to regulate the transfer of stock, create a secret lien upon it, which would adhere to it in the hands of a bona fide purchaser for value and without notice."

This question was elaborately, if not exhaustively, discussed in Bullard v. Bank, 18 Wall. 589, and in Driscoll v. West Bradley & C. M. Co., 59 N. Y. 96, and the conclusion reached in both cases was that a corporation could not, under the power to make by-laws for the regulation of the transfer of stock, create or declare a lien upon the stock by by-law, nor refuse to permit a transfer until the indebtedness of the stockholder to the company be paid.

It is held that the bank's lien is not only effective against the debtor, but that the bank may pursue the property in the hands of his assignee for creditors, and may be enforced as against such assignee.

"Thus a bank to which paper was indorsed for collection before the maker thereof assigned for the benefit of creditors may set off the amount of the paper in a suit against it by the assignee to recover the maker's deposit in the bank." 3

A commercial State bank can, by special agreement, unless prohibited by statute, have assigned to it as security its own. stock, and it may purchase the same at a sale to protect the bank from loss. It may then sell the stock purchased at such

3 Seloner on Bank Collections, p. 42; Penn. Bank v. Farmers' Deposit Nat. Bank, 130 Pa. St. 209.

sale and take the purchasers' note with the stock as collateral security.*

A national bank cannot, either by specific provisions or agreement entered into, take its own stock as security for a debt contracted by the stockholders with the bank, but as the law provides no penalty for its violation the proceeding can only be inquired into by the United States.

Rule between corespondent and initial bank.

The general rule is that, as between the correspondent bank and the initial bank where there have been for several years mutual and extensive dealings between two banks and an account current kept between them in which they mutually credited each other with the proceeds of all negotiable paper transmitted for collection when received and accounts were regularly transmitted from the one to the other and settled upon these principles, and balances remitted when called for and upon the face of the paper transmitted, it always appeared to be the property of the respective banks, and the collecting bank had no notice that the transmitting bank did not own the paper, and such paper was transmitted by each of the two banks on its own account; held, there is a lien for a general balance of account no matter who may be the real owner of the paper.3

But the general rule does not hold in the absence of a previous agreement or mutual dealings between the correspondent and the initial bank. The court says, in Millikin v. Shapleigh, 36 Mo. 596:

"*** But where there is no such mutual arrangement or previous course of dealing between the parties whereby it is expressly or impliedly understood that such remittances of paper are to go to the credit of the previous account when received and no advance is made and no credit is given on the basis of the particular bill or on the faith of such course of dealing or such remittances, or where the special circumstances are inconsistent with the hypothesis of such mutual understanding, and the one bank merely bases the proceeds of paper

4 Union Nat. Bank v. Hunt, 7 Mo. App. 42.

5 Carroll. Exchange Bank of Wheeling, 30 W. Va. 518, 4 S. E.

440. The President and Directors of the Metropolis, Plaintiff in Error, r. The President, Directors, etc., of the New England Bank, 6 How. 212.