Bullard v. Bank
ON certificate of division in opinion between the judges of the Circuit Court for the District of Massachusetts; the case being thus:
Congress in February, 1863, passed an act authorizing voluntary associations for the purpose of banking; the act by which a system of National banks was established. 
The eleventh and twelfth sections of the act gave to these associations power to make by-laws, not inconsistent with the provisions of the act for the management of their property, the regulation of their affairs, and for the transfer of their stock.
The thirty-sixth section enacted:
'No shareholder in any association under this act shall have power to transfer or sell any share held in his own right so long as he be liable, either as principal debtor, surety, or otherwise, to the association for any debt which shall have become due and remained unpaid.'
In June, 1864, Congress passed a new act on the same subject of the National banks.  This new act retained or re-enacted many or most of the provisions of the old one, but did not retain or re-enact the thirty-sixth section above-quoted. On the contrary, the new act by its thirty-fifth section enacted,
'That no association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser nor holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith.'
The new act in terms repealed the old act. It provided, however,
'That such repeal shall not affect any appointments made, acts done, or proceedings had, or the organization, acts or proceedings of any association organized or in the process of organization under the act aforesaid.'
And provided also,
'That all such associations so organized or in process of organization, shall enjoy all the rights and privileges granted, and be subject to all the duties, liabilities, and restrictions imposed by this act . . . without prejudice to any right acquired . . . under any act hereby repealed.'
The new Banking Act, that, namely, of 1864,-after providing by its fifth section, that associations for carrying on banking might be formed 'by any number of persons not less than five, who shall enter into articles of association which shall specify, in general terms, the object for which the association is formed, and may contain any other provisions not inconsistent with the provisions of this act which the association may see fit to adopt for the regulation of the business of the association, and the conduct of its affairs,'-enacted:
'SECTION 8. That every association formed pursuant to the provisions of this act, shall from the date of the execution of its organization certificate be a body corporate . . . and its board of directors shall have power to define and regulate by by-laws not inconsistent with the provisions of this act, the manner in which its stock shall be transferred . . . its general business conducted, and all the privileges granted by this act to associations organized under it shall be exercised and enjoyed.
'SECTION 12. That the capital stock of any association formed under this act shall be divided into shares of $100 each, and be deemed personal property and transferable on the books of the association in such manner as may be prescribed in the by-laws or articles of association.'
Under this said new act, a bank styled the National Eagle Bank was formed at Boston on the 29th of March, 1865. The articles of association constituting it, referring to the act of 1864, contained a provision that the directors of the association shall.
'Have the power to make all by-laws that it may be proper and convenient for them to make under said act, for the general regulation of the business of the association, and the entire management and administration of its affairs; which by-laws may prohibit, if the directors so determine, the transfer of stock owned by any stockholder who may be liable to the association, either as principal debtor or otherwise, without the consent of the board.'
Subsequently, on the 22d of November, 1871, at a meeting of the directors, the following by-law was adopted:
'In pursuance of one of the articles of association, and to carry the same into effect, and in the exercise of an authority conferred by an act, under which the bank was organized, to define and regulate the manner in which its stock may be transferred, it is hereby declared,
"All debts actually due and payable to the bank (days of grace for payment being passed) by a stockholder, as principal debtor or otherwise, requesting a transfer, must be satisfied before such transfer shall be made, unless the board of directors shall direct to the contrary."
And on the 7th of December, 1871, this by-law was amended by adding the words,
'And no person indebted to the bank shall be allowed to sell or transfer his or her stock without the consent of a majority of the directors, and this whether liable as principal or surety, and whether the debt or liability be due or not.'
Of this bank, one Clapp became a stockholder, purchasing one hundred and fifty shares. He afterwards (in July, August, September, and October) borrowed money from the bank on several notes, having different dates of maturity. On the 8th of November he failed to pay some of it then due, and on the 19th of January, 1872, was decreed a bankrupt therefor. His trustee in bankruptcy, one Bullard, claiming the stock as part of the assets in bankruptcy, demanded of the bank a transfer of it to him. The bank, asserting a lien to the extent of the notes held by it, refused to allow the transfer asked for. Certain of the notes given in October, 1871, had not fully matured when Bullard made his application.
Bullard now brought suit against the bank for refusing to allow the transfer asked for. The judges in the court below differed in opinion as to what judgment should be given, and certified to this court for answer these questions:
First. Whether a National bank organized under and controlled by the act of 1864 can acquire a valid lien upon the shares of its stockholders by the articles of association or by-laws, as proved in this case?
Second. Whether if such articles of association and by-laws, or both, created any valid lien upon the shares of the stockholders in a national bank organized under the act of 1864, such lien attached to the shares before the time when there was an existing debt, from the stockholders to the bank, due and unpaid?
Third. Whether the National Eagle Bank is entitled to hold the interest of Clapp, in the stock mentioned, by way of lien or security, for all or any of the notes mentioned?
Mr. B. R. Curtis relied on the case of Bank v. Lanier,  as decisive against the lien now set up by the bank; arguing, moreover, that even in a general view of the matter, a by-law giving the bank a lien upon the stock of its debtors was not 'a regulation of the business of the association and the conduct of its affairs,' but, on the contrary, was an attempt to derogate from the rights of the stockholders as such, and to create a lien on their property, while in view of the whole spirit of the act of 1864, against a lien, it was especially not so to be considered; and arguing, finally, that as the by-law was passed after the act of bankruptcy was committed, it contravened the Bankrupt Act.
Mr. C. B. Goodrich, contra, sought to distinguish this case from the one just mentioned. He argued that though the act of 1864 (herein unlike the act of 1863) did not itself and directly create a lien, yet that it did, in its fifth section, authorize the creation of such a lien by the articles of association and by-laws made under them; that the difference was that now the matter was left to the good judgment of the stockholders and directors alone. And he referred the court to a printed opinion of Mr. Justice Clifford, in the case of Knight v. The Old National Bank of Providence, in the Circuit Court for the District of Rhode Island, A.D. 1871, in which case, after a long and elaborate consideration of the question, the said learned justice ruled in favor of the validity of such a lien as the bank here sought to maintain.
Mr. Justice STRONG delivered the opinion of the court.
^1 12 Stat. at Large, 665.
^2 13 Id. 99.
^3 11 Wallace, 369.