U.S. Supreme Court
Brent v. Bank of Washington, 35 U.S. 10 Pet. 596 596 (1836)
Brent v. Bank of Washington
35 U.S. (10 Pet.) 596
Robert Brent was the holder of six hundred and fifty-nine shares of stock in the Bank of Washington, and was indebted to the bank as endorser on certain promissory notes, one of which became due after his death. He was also indebted to the United States as paymaster, and he made an assignment of his property to satisfy the debt. The assignees did not accept the assignment. He died sometime afterwards. The bank, under the provision of their charter, which gives a lien on the stock held by a debtor for the payment of debts due to them before the transfer of the stock held by a stockholder, insisted on the lien against the claim of priority by the United States, and their claim was sustained by the court.
It has been the uniform construction of the fifth section of the act of 1797, 1 Story's Laws, 464, and of the similar provision in the sixty-fifth section of the collection act of 1799, 1 Story's Laws 630, that whether in a case of insolvency, death, or assignment, the property of the debtor passes to the assignee, executor, or administrator, the priority of the United States operating not to prevent the transmission of the property, but giving them a preference in payment out of the proceeds.
This preference is in the appropriation of the debtor's estate; so that if, before it has attached, the debtor has conveyed or mortgaged his property, or it has been transferred in the ordinary course of business, neither are overreached by the statutes; and it has never been decided that it affects any lien, general or specific, existing when the event took place, which gave the United States a claim of priority.
Another rule is settled by these cases -- that the priority does not attach to property legally transferred to a creditor on respondentia; though he may hold it subject to an account, equity or trust for the borrower. Such transfer will be protected against the United States, though not an out and out sale in the course of business, so as to divest the equitable as well as the legal interest of the party.
Every stockholder of a bank who draws or endorses a note to procure a loan from the bank is bound to know the terms of the charter and bylaws; his signature to the note is an inchoate pledge of his stock for security, if so provided in the charter; his stock gives credit to his name, and the bank grant the loan on its faith.
Robert Brent, a paymaster of the Army of the United States, having become indebted to the United States and being in an infirm state of health, on 17 May, 1819, executed an assignment stating the situation of his health and his earnest desire to satisfy and adjust the claim of the government against him as paymaster as aforesaid, and to do justice to others, and that the better to secure these objects chanrobles.com-red
and purposes, the assignment proceeded in the following terms:
"I have conveyed and assigned, and do by these presents convey and assign, in consideration of the premises, and for the sum of one dollar to me in hand paid, to George Graham, Joseph Pearson and Robert Y. Brent, all my real and personal estate and property, in whatsoever consisting and wheresoever situated, to them, the said George Graham, Joseph Pearson and Robert Y. Brent, their executors and administrators, and to the survivor of them, nevertheless, for paying and satisfying all just claim or claims of the government as aforesaid, as well as for satisfying all just claim or claims of all others, as far forth as the said estate and property above conveyed will answer, with full power and authority to them or the majority of them to sell and convey, and to make good and sufficient titles to all or any part of the property referred to, in conformity with the intention and purpose of this writing, it being well understood that the said trustees, after satisfying the purposes of the said trust, shall well and fully account with the said Robert Brent, his heirs, executors, or administrators, for the execution of the trust aforesaid, and fully restore to the said Robert Brent, his heirs, executors, or administrators any overplus or surplusage that may remain of the estate aforesaid, and it being also understood that the said Robert Brent reserves to himself the possession and use of such part of the property aforesaid as may be for his reasonable support and maintenance, and likewise, the privilege of disposing of any part of the trust estate, with the consent of the trustees, for the objects designated above."
It was agreed that the assignees refused to accept the assignment or to act under it.
Robert Brent died on 7 September, 1819, leaving real and personal estate, and the executors qualified and took possession of his estate in 1820. At the time of his death, he held six hundred and fifty-nine shares of stock in the Bank of Washington, and at that time he was indebted to the bank, as endorser on two promissory notes, one for $1,000 drawn by Thomas L. Washington and endorsed by Robert Brent, due and protested on 22 May, 1819; the other for $667, also drawn by Mr. Washington and endorsed by Mr. Brent, due and protested on 29 May, 1819; he was also, at the time of his death, endorser of a promissory note drawn by John Cooke for $400, which became due and was protested on 19 November, chanrobles.com-red
1819, making, together with the other notes, the sum of $2,067, of which $1,667 only were due at his decease.
Some years after the death of Robert Brent, the Bank of Washington instituted a suit against the executors on the note of $400, and on the note of $667, and on a plea of the statute of limitations, a verdict and judgment were rendered for the defendants.
The eleventh section of the charter of the Bank of Washington provides that
"All debts actually due and payable to the bank (days of grace for payment being passed) by a stockholder requesting a transfer, must be satisfied before such transfer shall be made unless the president and directors shall direct to the contrary."
The same section of the charter also declares:
"That the shares of capital stock at any time owned by any individual stockholder shall be transferable only on the books of the bank according to such rules as may, conformably to law, be established in that behalf by the president and directors."
The certificates of stock issued by the bank declare that "the shares are to be transferred at the bank by the stockholder, or his attorney, on surrendering the certificate of the same." There is also a provision in the section which authorizes the directors to make regulations for the government and transactions of the bank "conformable to law."
The executors of Robert Brent, in the year 1820, called upon the Bank of Washington and requested to be allowed to transfer the stock held by their testator. This was refused, without the payment of the notes, the bank claiming the same under the provision of the charter, which, it was insisted, gives the bank a right to be so paid. In 1835, the bank had retained dividends on the stock, and had sold a part of it, amounting to $289.80.
Bills were filed in the circuit court by the surviving executor of Robert Brent for the use of the United States against the Bank of Washington claiming a right to transfer the stock for the payment of the debt due to the United States on the allegation of the right of priority given to the United States by the acts of Congress. The Bank of Washington, at the same time, filed a bill claiming to appropriate the stock, by a sale of it, to the payment of the debt due to them, and asserting their right to a lien and to payment under the provisions of the charter.
The following agreement was made in the circuit court between the parties to these suits: chanrobles.com-red
"It is agreed by and between the said parties that if the court shall be of opinion that the eleventh section of the charter of the Bank of Washington, as follows:"
" All debts actually due and payable to the bank (days of grace for payment being passed) by a stockholder requesting a transfer must be satisfied before such transfer shall be made, unless the president and directors shall direct to the contrary,"
"confers upon said bank a specific lien upon the stock held by any stockholder indebted to said bank, the days of grace being passed; then the court may decree that the stock, or a sufficient amount thereof, held by complainant's testate in said bank, shall be sold at public sale, upon such terms as the court may think proper to impose, and by such trustee as they may appoint, and may further direct that the proceeds thereof, after paying the expenses of the sale, and the costs of this suit, shall be applied to the payment of the notes hereinafter enumerated, and by this agreement admitted to be due and unpaid by the complainant's testate to the defendants, unless the court shall further be of opinion that said lien granted by said charter is overreached, controlled, and destroyed by the claims of the United States now made to a priority of payment out of said stock by virtue of the Act of Congress of 1799, ch. 128, sec. 65, as follows:"
" In all cases of insolvency or where any estate in the hands of executors, administrators and assigns shall be insufficient to pay all the debts due from the deceased, the debt or debts due to the United States shall be first satisfied."
"Or unless the court be further of opinion that the claims or debts or said notes due to said defendants and hereinafter particularly specified, upon two of which notes of said testate as hereinafter described, it is agreed suits were instituted by the defendants against the complainants on the common law side of this Court at the trial of which said suits, the complainants had solely and exclusively, upon the ground of the plea of limitations, a verdict in their favor were thereby extinguished, and the said lien in consequence of said limitations lost and destroyed, then the court to decree, if the claims of the United States to priority of judgment be allowed, that the proceeds of said sale be applied in payment of the debt due the United States, or unless they shall be of opinion that the said lien is not affected by any such priority, but has been destroyed by the said verdicts in favor of complainants, then the proceeds of such sale to be applied to the payment of the note upon which no such verdict was rendered in favor of complainants."
The circuit court, on 26 January, 1826, made the following decree in the two cases:
"These causes coming on to be heard upon the bill, answers, and exhibits, and the facts stated in the agreement entered into between the complainants and defendants, it is this 22 January in the year 1836, ordered and decreed by the court, that the stock of Robert Brent deceased, standing in his name, in the Bank of Washington, or so much thereof as may be necessary to satisfy the several notes in the said agreement specified, be sold at public vendue, on the credit of sixty or ninety days, the purchasers to give notes with good endorsers, as the trustee may approve, notice being first given of the day of sale in one of the city newspapers, and that J. Hellen be, and he is hereby appointed a trustee to make said sale, and after paying the expenses of sale and costs of suit to defendants, he shall apply the proceeds of the sale to the payment of all the notes of said Brent, enumerated in the above statement as due to said defendants, and it is further decreed that the balance of said stock shall be transferred to the United States by said defendants on the books of said bank."
The United States prosecuted this appeal. chanrobles.com-red