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when the sale is absolute, it is usual to issue new certificates to the party taking up the old. Such a practice facilitates the easy use of this property in commercial transactions. The requirement that the title could alone be transferred on the books of the corporation, or by notice to the corporation, would greatly tend to trammel this use, and, as far as we can see, notice to the corporation can serve no practical end, and has no appropriate place in the transaction, so far as passing the title from a holder to a purchaser, or the right of a creditor as to a purchaser, for he can, as he will always do, protect himself by requiring an assignment of the certificate and then a transfer on the books of the corporation. The rule requiring a transfer on the books of the corporation can only serve to give a creditor who has a judgment or attachment a legal advantage, who has never given credit on the faith of the stocks over the other who has advanced his money on them, and taken the evidence of his security by a transfer of the certifiIn such cases alone will the contest be likely to arise, as the party who intends to trust to the security of such property will always take the assignment. In such a contest the equities are altogether in favor of the assignee who has advanced his money on the faith of the collaterals."


VIII. Liens upon Stock in Favor of the Corporation.

§ 221. That a corporation may itself have a lien by statute upon the shares of a stockholder is everywhere conceded; and for this reason, also, no one is entitled to regard his security upon stock complete until it has actually been transferred to him upon the company's books. For instance, if the charter of a corporation not only provides that no assignment of stock shall be valid unless made upon the books of the company, but also provides that the corporation shall have a lien upon the stock of any shareholder indebted to the company for the payment of his debt, any one taking a transfer of the stock by delivery of the certificate, without a transfer upon the company's books, takes it subject to all the equitable rights

of the company against the apparent owner of the stock.' But the corporation has no lien upon the stock of a shareholder merely by virtue of a provision that the stock shall be transferable on the books of the company. Such a lien can not be implied: it must be expressly created; and there is authority for holding that, under a by-law providing that the shares of a stockholder indebted to the corporation shall not be transferable, and that the certificates should contain notice of this provision, a pledge of certificates containing merely a notice that the stock is only transferable upon the books of the corporation gives to one taking such certificates, without notice of the owner's liability to the corporation or of such by-law, a title paramount to the equities of the corporation. It may well be questioned, however, whether any notice of the by-law would be necessary, unless the by-law itself made it so. No lien upon stock exists at common law: it exists only by statutory authority, either expressed by general law, or by the act of incorporation, or by-laws made under such authority."

1 Union Bank v. Laird, 2 Wheat. 390; Pendergast v. Bank of Stockton, 2 Sawyer 108; Stebbins v. Phenix Fire Ins. Co., 3 Paige (N. Y.) 350; National Bank v. Watsontown Bank, 105 U. S. 217; In re Bigelow, 2 Ben. 469; Grant v. Mechanics' Bank of Phila., 15 S. & R. (Pa.) 140; Geyer v. Western Ins. Co., 3 Pitts. (Pa.) 41; Mount Holly Paper Co.'s Appeal, 99 Pa. St. 513; Bohmer v. City Bank, 77 Va. 445; Petersburg Sav. & Ins. Co. v. Lumsden, 75 Va. 327; Vansands v. Middlesex Co. Bank, 26 Conn. 144; Planters' & Merchants' Mut. Ins. Co. v. Selma Sav. Bank, 63 Ala. 585; Newberry v. Detroit & Lake Superior Iron Co., 17 Mich. 141; Mechanics' Bank v. Merchants' Bank, 45 Mo. 513, 100 Am. Dec. 388; St. Louis Perpetual Ins. Co. v. Goodfellow, 9 Mo. 149; Cunningham v. Alabama Life Ins. & Trust Co., 4 Ala. 652; Farmers' Bank of Md. v. Iglehart, 6 Gill (Md.)

50; Burford v. Crandell, 2 Cranch C. C. 86; Bank of America v. McNeil, 10 Bush (Ky.) 54; In re Peebles, 2 Hughes 394. As to marshaling as between a corporation having a lien upon stock by charter, and the general creditors of an insolvent debtor, see German Security Bank v. Jefferson, 10 Bush (Ky.) 326.

2 Bank v. Lanier, 11 Wall. 369; Sargent v. Franklin Ins. Co., 8 Pick. (Mass.) 90, 19 Am. Dec. 306; Bryon v. Carter, 22 La. Ann. 98; Case v. Bank, 100 U. S. 446. As to the effect of a known usage, see Morgan v. Bank of N. A., 8 S. & R. (Pa.) 73, 11 Am. Dec. 575.

Lee v. Citizens' Nat. Bank, 2 Cin. (Ohio) 298.

4 Steamship Dock Co. v. Heron, 52 Pa. St. 280; Leggett v. Bank of Sing Sing, 24 N. Y. 283; Driscoll v. Bradley Mfg. Co., 59 N. Y. 96; Union Bank v. Laird, 2 Wheat. 390; New

Of course a corporation can not, under such a provision, maintain a lien for a liability of a stockholder accruing after the service of an attachment or a levy of an execution upon the stock;' and no lien can be created by force of a by-law adopted subsequently to the issuing of the stock."

The taking of collateral security by a corporation is no waiver of a lien which the corporation has by its charter or by-laws upon the debtor's shares in such corporation. Therefore, the lien of the corporation upon the debtor's shares in such case is superior to any which the debtor can give by a transfer to another. But where a by-law required the consent of the directors to a transfer of stock by one indebted to the company, but in the practice of the company this requirement was never enforced, a transfer by a stockholder, attested in the usual way by the secretary of the company, was held good, although he was indebted to the company.*

A by-law which is not expressly authorized by general law, or by the act of incorporation, is not notice of a lien thereby declared upon the stock of any stockholder indebted to the corporation.5

A provision incorporated into a certificate of stock of a national bank stating that "no transfer of the stock of this association shall be made, without the consent of the board of directors, by any stockholder who shall be liable to the association, either as principal debtor or otherwise, which liability shall be a lien upon the said stock and all profits thereof and dividends," is effective to create a lien in favor of the bank, as against a party to whom an instrument of assignment of the stock has been duly executed by the owner thereof, to secure

Orleans Nat. Banking Asso. v. Wiltz, 10 Fed. Rep. 330; Bryon v. Carter, 22 La. Ann. 98; McDowell v. Bank of Wilmington, 2 Del. 1; Cummings v. Webster, 43 Me. 192; Dearborn v. Washington Sav. Bank, 18 Wash. 8, 50 Pac. Rep. 575.

1Geyer v. Western Ins. Co., 3 Pitts. (Pa.) 41.

Bryon v. Carter, 22 La. Ann. 98. Union Bank v. Laird, 2 Wheat. 390; In re Peebles, 2 Hughes 394.

Chambersburg Ins. Co. v. Smith, 11 Pa. St. 120. And see Upton v. Burnham, 3 Biss. 431.

5 See 59 N. Y. 96.


an indebtedness, created at the time and in consideration thereof in favor of the assignee.1

§ 222. In Connecticut it is provided that every corporation shall at all times have a lien upon all stock owned by any person therein, for all debts due to it from him. This statute, it was held, immediately upon going into effect, created a lien in favor of a corporation for an old indebtedness, upon stock which had previously been pledged to a third person, if such pledge was made merely by delivery of the certificate of the stock, with a power of attorney for its transfer, and no copy of the power of attorney had been filed with the corporation, or other notice given to it.

Since the passage of this statute it is not necessary that the corporation, in order to be able to claim the benefit of it, should issue certificates containing notice of any right of lien on the part of the corporation."

§ 223. But a corporation having notice that the stockholder has pledged his stock, by a delivery of the certificate with a power to transfer the stock upon the books of the corporation, can not have a lien upon the stock for a credit afterwards extended to him upon the faith of its charter right to a lien to secure a stockholder's indebtedness. Such an equitable assignment of the stock affects one who has knowledge of it equally as much as if the transfer had been made upon the books. Notice to the executive officer of a corporation, such as the cashier of a bank, engaged in the active discharge of his duties, is notice to the corporation itself of such an equitable transfer; and such officer, knowing of the pledge of

1 Buffalo German Ins. Co. v. Third Nat. Bank, 29 App. Div. (N. Y.) 137.

2 G. S. 1888, § 1923. This statute went into operation the first day of January, 1875. First Nat. Bank v. Hartford Life and Annuity Ins. Co., 45 Conn. 22. Practically, the statute placed an attachment upon the stock

in behalf of the corporation; it publicly recorded a completed lien for its security, and that would have been the precise effect of an attachment. Per Pardee, J.

3 First Nat. Bank v. Hartford Life and Annuity Ins. Co., 45 Conn. 22.

the stockholder's certificate to secure a promissory note, is presumed to know that it remains in pledge for a renewal of the original note. Knowledge of the original transaction should put the officer upon inquiry as to the state of the stockholder's shares before the corporation gave him credit upon the faith of his having stock upon which a lien could attach in favor of the corporation.'

§ 224. National banks can not claim such a lien. Such banks are prohibited from loaning upon the security of their own stock, and from holding or purchasing their own stock, except when necessary to prevent loss on a debt previously contracted in good faith. It is inconsistent with the policy of this act for a bank, by virtue of its articles of association or by-laws, to have a lien upon the shares of a stockholder for his indebtedness to the bank. But such a bank may hold a cash dividend upon shares of its stock, as a pledge for the indebtedness of a stockholder to the bank; and a bank may attach the shares of a stockholder for his debt to the bank.

1 Case v. Bank, 100 U. S. 446, 454; Merchants' Bank v. State Bank, 10 Wall. 604, 650; Birmingham Trust & Savings Co. v. Louisiana Nat. Bank, 99 Ala. 379, 13 So. Rep. 112; Bank of America v. McNeil, 10 Bush (Ky.) 54. "The indebtedness this lienis intended to secure," said Lindsay, J., delivering the opinion of the court, "is such as may exist at the time the stockholder attempts to dispose of his stock. It is manifest that the lien can not become effectual for any purpose until the stockholder contracts a debt to the bank. Until this is done, his power to sell, give, devise, or incumber his stock is as perfect and complete as is his right so to dispose of or incumber any other personal property he may own. He can not pass the complete legal title to his stock except by a transfer entered upon the books of the bank, nor can he by any arrange

ment not made known to the bank deprive it of the right to look to his stock as an ultimate security for the payment of any indebtedness it may innocently permit him to incur; but he may, by bargain and sale, by gift, devise, or pledge, divest himself of title; and when he has done so, and notice has been given to the bank, it has no right to extend credit to him upon the faith of his charter lien upon his stock."

212 Stat. at Large, 675; Act of June 3, 1864.

3 Bank v. Lanier, 11 Wall. 369; Bullard v. Bank, 18 Wall. 589; and see Evansville Nat. Bank v. Metropolitan Nat. Bank, 2 Biss. 527; Second National Bank v. National State Bank, 10 Bush (Ky.) 367.

4 Hagar v. Union Nat. Bank, 63 Me. 509; Thompson's Nat. Bank Cases, 523.

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