Storrs, C. J.
It is unnecessary to consider the question whether the plaintiff has adopted the proper form of remedy for the injury of which he complains, because we are of the opinion that the defendants have an equitable lieu on the bank shares in question in this suit as security for the indebtedness of Smith to them, and that they are not bound to transfer those shares to the plaintiff until that indebtedness is paid. Neither the plaintiff or defendants have any legal title to those shares, they having been originally owned by-Smith, and still standing in his name on the books of the bank, and such title never having been transferred. It is not claimed that any legal interest in those shares passed to the bank by virtue of the stipulation in the certificate given to Smith, that the shares were subject to his indebtedness and liability to the bank. Nor can it be claimed that the assignment of those shares by Smith to the trustee, of whom the plaintiff is the successor, transferred a legal title to them, as it was not made on the books of the bank, and the original certificate to Smith was not surrendered nor a new certificate issued, as was required by the third article of the by-laws of the bank, which was passed in pursuance of its charter, and a compliance with which by-law was necessary in order to transfer a legal title in the shares. Marlborough Mfg. Com. v. Smith, 2 Conn., 579. Northrop v. Newtown and Bridgeport Turnpike Co., 3 id., 544 Northrop v. Curtis, 5 id., 246. Oxford Turnpike Co. v. Bunnel, 6 id., 552.
Any interest, therefore, which either of these parties has in this stock, is only of an equitable character. The only title which the plaintiff has to it is derived from the assignment by Smith to his trustee, whom the plaintiff has succeeded. Although, as has been said, no legal title passed by that assignment, it transferred to such trustee such equitable [154] interest in the stock as the assignor had, and no more; or, in other words, it conveyed an equitable title to it, subject to any equitable claim which existed against it either in favor of the defendants or any other person. We are therefore to inquire, whether the defendants had any such claim when that assignment was made. It is found that Smith was then indebted to them, on paper discounted by them, on which Smith was an indorser, and which was overdue; and they claim that they then had an equitable lien on the stock by virtue of the provision in the original certificate of the stock issued by the defendants to Smith, that it should be subject to his indebtedness and liability to them. . If that claim is sustained, as it clearly must be but for the objections of the plaintiff, the result will be, that, as neither of the parties has a legal title to the stock in question, and the defendants have an equitable title to it by virtue of the provision just mentioned, which was prior to that of the plaintiff acquired under-Smith’s assignment, the title of the defendants must prevail, on the principle that where the equity of the parties is equal, and neither has the legal title, he who is first in time is strongest in right. Qui prior est in tempore potior est in jure. This principle is well settled, and was recognized and applied in the case of the Union Bank of Georgetown v. Laird, 2 Wheat., 390, which, in all essential respects, is precisely like the present, if the objections of the plaintiff to the validity of the defendants’ lien are not well founded. See also The Com. Bank of Buffalo v. Kortright, 22 Wend., 348. Bates v. New York Ins. Co., 3 Johns. Cas., 238. We will briefly examine those objections.
The first section of the defendants’ charter provides, that they may establish and put in execution such by-laws, ordinances, and regulations, as may be deemed expedient, for the well-ordering the concerns of their corporation. It is conceded that no by-law has been passed by the defendants, giving them a lien on the shares of the stockholders for their indebtedness to the bank, and that no such lien is implied by the general principles of the common law. Angel & Ames on Corp., § 355. Nesmith v. Washington Bank, 6 Pick., 324. [155] Plymouth Bank v. Bank of Norfolk, 10 Pick., 454. And the plaintiff claims that no regulation has been adopted by the defendants subjecting the stock to such a lien. The defendants insist that the adoption by their directors shortly after their organization, of the form of stock certificates like that which was delivered to Smith, the uniform practice ever since of issuing such certificates, and the reception of them by all the stockholders without objection, constituted, or must be deemed sufficient evidence of, a regulation of the corporation, that the stock should be subject to a lien for the indebtedness .of its owners, and that no written vote was necessary to its validity; and, further, that an usage by the bank, known to Smith, not to permit a transfer of its stock while the owner is indebted to it, has been established in this case, which justified the defendants in the refusal to transfer of which the plaintiff complains. Both of these claims of the defendants are certainly very strongly supported by the authorities they have cited. But it is not necessary for us to decide upon their validity, for we are clearly of opinion that, as this case is presented to us, the provision in the certificate of Smith, on which the defendants rely to sustain their lien, was binding on him by his acceptance of that instrument, and, if it did not strictly .constitute, was tantamount to, an agreement between him and the defendants, that his stock should be subject to his indebtedness and liabilities to them. That provision is a qualification or restriction of the title of Smith to the stock, of which title it was the object of that certificate to furnish the legal evidence, or rather of which the certificate was the consummating act; and, as the muniment of Smith’s title, we think that it must be treated as an entire instrument of which the qualification is a part, and that the latter therefore can not be disjoined from it or treated as of no validity. To consider it otherwise than as an agreement would be to disregard the plain intention of the parties, which courts will always, if possible, carry into effect, and to sanction the perpetration of a fraud on the defendants. Smith having received the certificate proffered to him by the defendants with that restriction, neither he or his assignee [156] should be permitted to deny his assent to it, and that would be sufficient to constitute an agreement.
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Storrs, C. J.
It is unnecessary to consider the question whether the plaintiff has adopted the proper form of remedy for the injury of which he complains, because we are of the opinion that the defendants have an equitable lieu on the bank shares in question in this suit as security for the indebtedness of Smith to them, and that they are not bound to transfer those shares to the plaintiff until that indebtedness is paid. Neither the plaintiff or defendants have any legal title to those shares, they having been originally owned by-Smith, and still standing in his name on the books of the bank, and such title never having been transferred. It is not claimed that any legal interest in those shares passed to the bank by virtue of the stipulation in the certificate given to Smith, that the shares were subject to his indebtedness and liability to the bank. Nor can it be claimed that the assignment of those shares by Smith to the trustee, of whom the plaintiff is the successor, transferred a legal title to them, as it was not made on the books of the bank, and the original certificate to Smith was not surrendered nor a new certificate issued, as was required by the third article of the by-laws of the bank, which was passed in pursuance of its charter, and a compliance with which by-law was necessary in order to transfer a legal title in the shares. Marlborough Mfg. Com. v. Smith, 2 Conn., 579. Northrop v. Newtown and Bridgeport Turnpike Co., 3 id., 544 Northrop v. Curtis, 5 id., 246. Oxford Turnpike Co. v. Bunnel, 6 id., 552.
Any interest, therefore, which either of these parties has in this stock, is only of an equitable character. The only title which the plaintiff has to it is derived from the assignment by Smith to his trustee, whom the plaintiff has succeeded. Although, as has been said, no legal title passed by that assignment, it transferred to such trustee such equitable [154] interest in the stock as the assignor had, and no more; or, in other words, it conveyed an equitable title to it, subject to any equitable claim which existed against it either in favor of the defendants or any other person. We are therefore to inquire, whether the defendants had any such claim when that assignment was made. It is found that Smith was then indebted to them, on paper discounted by them, on which Smith was an indorser, and which was overdue; and they claim that they then had an equitable lien on the stock by virtue of the provision in the original certificate of the stock issued by the defendants to Smith, that it should be subject to his indebtedness and liability to them. . If that claim is sustained, as it clearly must be but for the objections of the plaintiff, the result will be, that, as neither of the parties has a legal title to the stock in question, and the defendants have an equitable title to it by virtue of the provision just mentioned, which was prior to that of the plaintiff acquired under-Smith’s assignment, the title of the defendants must prevail, on the principle that where the equity of the parties is equal, and neither has the legal title, he who is first in time is strongest in right. Qui prior est in tempore potior est in jure. This principle is well settled, and was recognized and applied in the case of the Union Bank of Georgetown v. Laird, 2 Wheat., 390, which, in all essential respects, is precisely like the present, if the objections of the plaintiff to the validity of the defendants’ lien are not well founded. See also The Com. Bank of Buffalo v. Kortright, 22 Wend., 348. Bates v. New York Ins. Co., 3 Johns. Cas., 238. We will briefly examine those objections.
The first section of the defendants’ charter provides, that they may establish and put in execution such by-laws, ordinances, and regulations, as may be deemed expedient, for the well-ordering the concerns of their corporation. It is conceded that no by-law has been passed by the defendants, giving them a lien on the shares of the stockholders for their indebtedness to the bank, and that no such lien is implied by the general principles of the common law. Angel & Ames on Corp., § 355. Nesmith v. Washington Bank, 6 Pick., 324. [155] Plymouth Bank v. Bank of Norfolk, 10 Pick., 454. And the plaintiff claims that no regulation has been adopted by the defendants subjecting the stock to such a lien. The defendants insist that the adoption by their directors shortly after their organization, of the form of stock certificates like that which was delivered to Smith, the uniform practice ever since of issuing such certificates, and the reception of them by all the stockholders without objection, constituted, or must be deemed sufficient evidence of, a regulation of the corporation, that the stock should be subject to a lien for the indebtedness .of its owners, and that no written vote was necessary to its validity; and, further, that an usage by the bank, known to Smith, not to permit a transfer of its stock while the owner is indebted to it, has been established in this case, which justified the defendants in the refusal to transfer of which the plaintiff complains. Both of these claims of the defendants are certainly very strongly supported by the authorities they have cited. But it is not necessary for us to decide upon their validity, for we are clearly of opinion that, as this case is presented to us, the provision in the certificate of Smith, on which the defendants rely to sustain their lien, was binding on him by his acceptance of that instrument, and, if it did not strictly .constitute, was tantamount to, an agreement between him and the defendants, that his stock should be subject to his indebtedness and liabilities to them. That provision is a qualification or restriction of the title of Smith to the stock, of which title it was the object of that certificate to furnish the legal evidence, or rather of which the certificate was the consummating act; and, as the muniment of Smith’s title, we think that it must be treated as an entire instrument of which the qualification is a part, and that the latter therefore can not be disjoined from it or treated as of no validity. To consider it otherwise than as an agreement would be to disregard the plain intention of the parties, which courts will always, if possible, carry into effect, and to sanction the perpetration of a fraud on the defendants. Smith having received the certificate proffered to him by the defendants with that restriction, neither he or his assignee [156] should be permitted to deny his assent to it, and that would be sufficient to constitute an agreement.
The expression in Smith’s certificate is, that the shares mentioned in it are “transferable at said bank only by him or his attorney, on surrender of the [said] certificate, subject nevertheless to his indebtedness and liability at the bank, according to the charter and by-laws of said bank.” There is nothing in the charter or by-laws which gives to the defendants a lien upon the shares of a stockholder for his indebtedness or liability to them; and the plaintiff thereupon insists that the present indebtedness of Smith is not embraced in the certificate, because the only indebtedness to which, by its terms, it makes the stock subject, is one which is made so by the charter or by-laws. Without going into an extended criticism of the language of this certificate, we are of the opinion that this is not its just construction; but that its true meaning is, that the shares should be transferable according to the charter and by-laws, subject nevertheless to the indebtedness of Smith of whatever nature; as if the phrase “according to the charter and by-laws”had been inserted immediately after the word “transferable,” orifthe phrase “subject,” &c. had been included in a parenthesis, and thus excluded from the preceding expression. The instrument is somewhat awkwardly expressed, and such an arrangement of its language as we have suggested, is necessary, as we think, in order to give it a sensible meaning, while it does no violence to its grammatical construction. We can conceive of no reason which should lead to the introduction of a qualification in it, restricting the transfer of the shares, which would extend only to a particular kind of.debts due to the bank; much less to one v hich would constitute but a very small part of that great amount of indebtedness of which its property would principally consist. The circumstance, also, that the qualification in question would have no operation, at least when the certificate was delivered, militates very strongly against the construction which the plaintiff claims. There are other obvious reasons opposed to that construction, but we do not deem it necessary to pursue this objection further.
[157] The plaintiff further insists, that the provision in question, which subjects the stock of Smith to his indebtedness and liability to the defendants, is invalidated by the statute which declares that “no bank shall make any loan or discount on pledge of its own stock.” (Rev. Stat, Tit. 3, § 226.) The object of this law is not very obvious. It would seem that it was not passed for the benefit of the stockholders or creditors of banks, because so far as their interests are concerned, they would be no more exposed to suffer by a loan or discount made on a pledge of the stock of the bank than on any other kind of security. We suppose that the law was dictated by a regard to the general policy which leads to the incorporation of banking institutions, which are supposed to be required, for the special benefit, not of the stockholders, who are presumed to be capitalists, and therefore lenders, instead of borrowers, but of the public who should have occasion for bank facilities and accommodations in their business. It was probably intended as a check on loans to stockholders by which the public generally might be unduly deprived of such facilities and accommodations, if the former, who would naturally have a particular influence with the directors, were allowed to make use of their, portion of the capital of the bank for their own benefit, by borrowing it on a pledge of their stock. The directors of banks, whose exclusive business it is to make loans and discounts, and perhaps the banks of which they are the agents, might be amenable to the courts for a violation of this law, if they should disregard its prohibition, as they clearly would be to the legislature; but there would seem to be no sufficient reason why the loan or pledge should be pronounced void. Especially is it questionable, whether it can be treated as invalid, in the absence of any provision in the act declaring that the loan or pledge shall be void, or imposing any punishment for its violation. There is therefore much reason for the claim that the act is only directory. We do not intend, however, to decide this point. We are fully satisfied that the law does not, by fair construction, embrace a case like the present, where paper was discounted by a bank for the benefit of a person who had no interest in the [158] stock in question, not on a specific pledge of the stock, but on the personal security of a party who was a stockholder and had only previously pledged his stock generally for his future indebtedness or liability to the bank. Such discount can not be said to be made on a pledge of the stock, according to the proper meaning or accustomed acceptation of that phrase. A loan or discount on a pledge of stock, is an expression of mercantile origin, and is understood to mean a loan or discount where the stock of the person, for whose benefit it is. made, or that of another, is expressly and specifically pledged at the time for its repayment. It would seem to imply, also, that that should be the only security then given, and we should hardly understand that a loan was made on a pledge of stock where other security was also taken. Still we would not say that the phrase in question would not apply to such a case. From this explanation it is plain, that the discount for the benefit of Coe, on the acceptance of Smith, on which the indebtedness of the latter to the defendants arose, was not made on a pledge of Smith’s stock, and that it is not therefore embraced by the terms of the act. That it is not within the mischief which it was designed to remedy is also obvious from what has been said in regard to the object for which it was passed.
Therefore the objections to the defendants’ lien ought not to prevail, and judgment is advised in their favor.
In this opinion the other judges concurred.
Judgment advised for defendants.