Cross v. Phenix Bank

1 R.I. 39

• Court: Supreme Court of Rhode Island
• Decided: May 6, 1840
• Status: Published

Opinion

By the Court.

Stock specifically pledged by the terms of a contract for the payment of a debt, should be applicable from the date of the first express pledge, and when there are a number of such contracts the stock pledged should be applied to the payment of the debts secured thereby in successive order, according to the dates of the several pledges.

Where the provisions of the charter expressly pledge the stock, and the contract in terms pledges none, such pledge must be regarded rather as a legal and necessary consequence of the contract than as the voluntary act of the debtor at the time of contracting. If he contracts a debt at the bank in which he is a stockholder he has no choice, the charter, not he imposes the pledge, and the pledge in this case is general. It extends to any debt otherwise than any original instalment due from the bank. The provisions of the charter apply as to such debts the moment a person becomes a stockholder. The condition on which he holds stock, even before he contracted any debts to the bank, is that if he do become indebted his stock shall be liable. The bank and the individual stockholder are then the only parties prior to this pledge, and it is applicable by the express terms of the pledge to all debts of the stockholder, that may at any time thereafter become due. It is a general pledge of certain property as to a particular description of debts. It is a reduction, so to speak, of the general law of the law in reference to all the debts and all the property of the debtor to a special form or remedy in reference to bank stock and debts due from the stockholder to this particular bank. Priority of date gives no preference under the general law, and why should it under the special. It is a remedy which the bank holds in its own hands for the security of the enforcement of the payments of debts due from its stockholders, and which has been given to it by the legislature no doubt for, among other objects, the better security of the public against bank failures. But whatever might have been the intent we cannot come to the conclusion that this provision was adopted with a view to the security of indorsers or sureties, though unquestionably they may be entitled to relief against any abuse of the power which it confers. The stockholders proposed it for their own security, and the legislature sanctioned it for that among other purposes. It was intended to secure the payment of such debts of each stockholder as became insecure, whether by the failure of principal or surety, or by the failure of both ; and such intent is inconsistent with an application of the pledge regulated by a priority of date. Such a rule would make the provision operate only for the benefit of the surety, where surety would not be needed until the indebtedness exceeded the amount of the stock; and if in all such cases the surety was sufficient, the pledge would be of no value to the bank, whilst as to all debts exceeding the amount of stock, and for which its additional security would be needed, the pledge would be wholly inapplicable. This never could have been the understanding, either of the legislature, or the stockholders, on becoming such, nor could the surety of an indebted stockholder indulge the expectation, with any degree of confidence, that such could be the construction of such a provision.

Undoubtedly the power conferred by this provision on the bank directors is susceptible of very great abuse; but in every such case it is believed that a court of equity might well interpose, not however on the ground that the indorser has a lien on the stock, but on general principles of equity.

No such interposition appears to us to be necessary, and we, therefore, dismiss the bill. But as it appears to us to have presented a question of legal construction which it was desirable should be settled not merely for the benefit of the complainant, but of the respondent, the said bill is dismissed without costs, for the respondent.

Let a decree be entered accordingly.