author: MacDade, J., Fronefield, P. J.

text:
    City of Chester v. Chester City School District.

      A. A. Cochran, for plaintiff; 'Paul Lane Ives, for defendant.

      July 14, 1930.
   MacDade, J.,

The School District of the City of Chester is the owner of a plot of ground on the south side of Twelfth Street, in the City of Chester, upon which no building has been erected, and the lot is not contiguous to nor adjoining a schoolhouse. The plot was acquired December 1, 1920. The property is vacant and unimproved, and it is claimed that it is held for future building purposes of the school district. It occupies a square of ground on the south side of Twelfth Street, extending from Hyatt Street to Melrose Avenue and from Twelfth Street to Morton Avenue. There is no revenue to be derived from the property, it has not been used as a playground for school children, is not fenced in and is.a commons.

It may be assumed, and it is conceded, that at the time of purchase the school board had in mind the erecting of a schoolhouse on the lot, but its plans were changed and the schoolhouse was never erected. The school board is holding the lot to erect a schoolhouse some time in the future, but there is no definite plan and no definite time in mind when the lot will be used for a schoolhouse or school purposes.

In the fall of 1923 the City of Chester paved with asphalt the roadway of Twelfth Street, from Chestnut Street to Melrose Avenue, on which part of Twelfth Street the school district lot abuts, and an assessment was made against the said lot for its share of the cost of the said pavement, amounting to $2921.70, and, on February 28, 1924, the City of Chester filed a lien against the said lot in the name of the School District of the City of Chester for $2921.70, to No. 409, December Term, 1923. On February 20, 1929, a scire facias was issued on said lien, and the defendant filed an affidavit of defense. The suit was tried before our brother, President Judge Fronefield, on February 3, 1930, and the court affirmed the plaintiff’s point, which was “Under all the evidence the verdict should be in favor of the City of Chester;” whereupon the jury rendered a verdict in favor of the plaintiff and against the defendant for the sum of $4177.73, to which the defendant filed exceptions and moved the court for judgment non obstante veredicto, which motion we now have under discussion.

There is no dispute as to the facts in this case. The school board bought a lot on which to build a school building, but changed its plans. The building was never built and the lot has been held without any use being made of it of any kind, either for school or other purposes. It was an open lot when purchased, and is still an open lot, and it is nothing but a commons.

There is only one question of law involved: Is the lot under the facts liable for the lien for the paving filed by the city?

Generally speaking, property, that is, property owned by the government, the state or a municipality is not taxable, but there is one exception to this general rule. This exception is that the exemption from taxation is dependent upon the use to which the property is put. If it is used for public purposes, then it is exempt. In Erie County v. Erie City, 113 Pa. 360 (1886), the court laid down the law that whether or not it is taxable “rests in the character of the ownership rather than in the character of the property;” that is to say, real estate owned by any department of the government which exempts it from taxation.

The court in this case also said that public property is not subject to general tax laws; that such property must be taxed specially by acts of assembly.

If this land thus owned and held by the school district is to be considered as owned and held for public purposes, it is not subject to an assessment for paving the street or roadway upon which such land abuts — the land being unimproved.

It is the law of this jurisdiction that the property of municipal subdivisions of the state, which includes school districts, cannot be assessed for taxation or for the cost of public improvements unless some statute expressly so provides, and no exemption law is needed to relieve lands held for public purposes from such charges: Poor Directors v. School Directors, 42 Pa. 21; County of Erie v. City of Erie, 113 Pa. 360; Erie v. Erie School District, 17 Pa. Superior Ct. 33; Pittsburg v. Sterrett Subdistrict School, 204 Pa. 635.

The provisions of the School Code, exempting property of school districts (Act of May 18, 1911, P. L. 309, section 631) was unnecessary to effect this end: Wilkinsburg Borough v. School District, 298 Pa. 193.

Statutes imposing assessments for local improvements are enacted in the exercise of the taxing power of the legislature and, notwithstanding the generality of the enumeration of the property affected, they do not apply to property held or used for public purposes by the state or any of its political subdivisions: Pittsburg v. Sterrett Subdistrict School, 204 Pa. 635; Erie v. Erie School District, 17 Pa. Superior Ct. 33.

The reason for the exemption rests in the character of the ownership rather than in the character of the property: County of Erie v. City of Erie, 113 Pa. 360, 366.

The fact that the land is not occupied by buildings should make no difference if, as in the instant case, it is to be considered as held for public purposes.

It is contended that, since the property is vacant, it is thereby rendered subject to assessment, even though it is held for public school purposes. There is no analogy between this case and the case of church property. See Chester v. Friends’ Meeting, 20 Del. Co. Rep. 387.

In the latter case the real estate owned by a church is taxable and liable for assessment by the general language of the taxing statute and statutes relating to municipal assessments. To escape such liability, the burden is upon the church to point to the statute expressly exempting its property, and, unless the case falls within the exempting statute, the liability is inevitable. In the case of property owned by a school district and held for public purposes “exemption is the rule, and taxation the exception.” The city must show legislative authority expressly subjecting such property to tax or municipal assessment.

The Act of July 17, 1919, P. L. 1021, refers to exemption from taxation only, and not to assessments for local improvements. Its title discloses merely a purpose to exempt from taxation. If construed to render subject to taxation property which was not taxable before its passage, it would be unconstitutional: Sewickley Borough v. Sholes, 118 Pa. 165.

The Act of May 16, 1923, P. L. 207, was passed after the passage of the ordinance under which the paving in the present case was authorized, being before the completion of the work. Section forty of the act declares that the “act shall apply ... to municipal claims heretofore lawfully imposed or assessed within six months before the passage of the act and not liened at the time of its passage.”

By the provisions of section five of the act, all real estate owned by the state or United States is exempt from liability to liens for taxes and municipal claims. As to real estate owned by a school district, all such real estate is made subject to municipal claims for removal of nuisances, sewer claims, sewer connections and for recurbing, paving, repaving or repairing the foot-way in front thereof. Property owned by a school district which before the passage of the act was exempt from taxation is expressly excepted from any liability for any tax or municipal claims other than for nuisances, sewers, curbs and sidewalks. The act does not purpose to authorize a lien for paving a roadway or street, and, in a recent case construing this act, the court declared that no assessment for improvements can be made against property of a school district unless it is one of the classes of improvements expressly mentioned in the act: Wilkinsburg Borough v. School District, 298 Pa. 193.

If the often reiterated principle of law is correct, that property held for public purposes is exempt from taxation without any exempting statute, there is nothing in the Act of 1923 which renders the property liable to the assessment in this case.

The city stresses the fact that the property in this case is vacant and not occupied by buildings. The test is the character of the ownership rather than the character of the use. The cases usually cited for the proposition that municipal property is liable to taxation if employed for gain apparently do not sustain such a principle of law and in any event are not applicable to the present case. There is no evidence that the property here is held for gain, but the only evidence is that the property is held for the future uses of the school district, a public use in the erection of a public school.

The stipulation as filed of record and incorporated in the testimony is as follows:

“By Mr. Ives: I will make a stipulation of record that the school district acquired title to this property on December 1, 1920; that the property is a vacant lot which has never been built upon. It is held by the school district. By Mr. Cochran: Or used in any way. By Mr. Ives: It is not being used in any way except that it is being held by the school district for the future use of the district in the erection of a public school. By Mr. Cochran: And that no time has been determined by the school board for the erection of a school upon the lot at this time. By Mr. Ives: I agree to that. By Mr. Cochran: The school district at this time has not decided that. All right. That is the ease. By the Court: You agree that stipulation is correct. By Mr. Cochran: I agree that stipulation is correct.”

The School Code vests in the board of school directors a discretionary power in regard to the acquisition, holding and distribution of real estate for public school purposes and the holdings of real estate are not limited by the act. From a practical point of view there is no difference between two large tracts of land owned by a school district, one of which is occupied to a very small extent by a school building and the other not presently occupied. The courts have never dwelt on the question of use, but have based the well established rule of exemption on the fact that the moneys of school districts are public funds and that to compel the payment of assessments is to transfer such funds in a manner never intended by law.

The Act of April 29, 1844, P. L. 486, §, 32, 4 Purdon, 4620, paragraph 198 (and see note “h”), provides “that all real estate . . . not exempt by law from taxation . . . shall be valued and assessed and subject to taxation, for the purposes in this act mentioned, and for all state and county purposes whatsoever.” The provisions of this act are comprehensive, making all real estate taxable not exempt from taxation. In order to ascertain the property exempt from taxation, we turn to the acts of assembly providing for exemptions of real estate from taxation. There have been many of these since 1844, and they all have exempted practically in the same words, “school houses . . . with grounds thereto annexed and necessary for the occupancy and enjoyment of the same.” The last act on the subject is that of July 17,1919, P. L. 1021, section 1. These acts as well as this last cited act refer to exemptions from general taxation.

Unfortunately for the city, the Acts of 1844 and 1919 relate to taxation for general purposes and not to assessments of the cost of public improvements against abutting land. This compels us to look to the Act of May 16, 1923, P. L. 206, section five, which provides as follows: “All real estate, by whomsoever owned and for whatsoever purpose used, other than property owned by the State or United States, shall be subject to all tax and municipal claims herein provided for.” That, standing alone, would mean that school property could be taxed for general purposes and assessed for municipal work, but there follows an exception, “that all property owned by any county, city, or other municipality or municipal division, and actual places of religious worship, places of burial not held or used for private or corporate profit, and institutions of purely charity, shall not be subject to tax or municipal claims on property, by law, exempt from taxation except for the removing of nuisances, for sewer claims and sewer connections, or for the recurbing, paving, repaving, or repairing the footways in front thereof. All other real estate, by whomsoever owned and for whatsoever purpose used, shall be subject to all claims and municipal claims herein provided for.” In other words, school property exempt by law from general taxes shall not be liable to municipal claims, except that such property shall be liable for sewer claims and sewer connections, and for the recurbing, etc., of sidewalks. Roadway paving is not included in this last exception. The Act of 1923 does not authorize the assessment of the cost of roadway paving against school property exempt by law. Under the common law, or the law relating to the rights of sovereignty, public property, and this means school property, is exempt from all kinds of assessments, both taxes and municipal claims, but does the law cover school property not used for school purposes, a vacant lot unimproved and apparently remaining idle and unproductive and not in actual use? Can a school board buy a lot and hold it unused for any purposes, either school or otherwise, for three years, and the lot not be liable to pay an assessment of the cost of roadway paving?

This is answered by stating that by the School Code (Act of May 18, 1911, P. L. 309, 347), the necessity for the purchase of land, and the determination of the purposes to which it should be devoted, was lodged with the directors of the school district, who are authorized to construct not only the building itself, but provide also for adjoining grounds to be used for play and recreation. The extent of the holding is for the board to pass upon, though property secured and devoted to other than educational or allied uses must be treated as separate from that set apart for school activities: Wilkinsburg Borough v. School District, 298 Pa. 193.

This latter case also decides: “Property of municipal subdivisions of the State cannot be assessed unless some statute expressly so provides, and no exemption law is needed to relieve lands held for public purposes from such charges: Erie Co. v. City of Erie, 113 Pa. 360; Robb v. Philadelphia, 25 Pa. Superior Ct. 343; Reading v. Berks Co., 22 Pa. Superior Ct. 373. Though unnecessary to effect this end, the School Code of 1911 did expressly exempt all property of the districts used for schools, recreation, or other purposes.”

See, also, Bedford v. Schnably, 89 Pa. Superior Ct. 486; note, 36 A. L. R. 1540.

To justify a municipal claim in this instance, express authority must be shown. There is no presumption of an intention to permit such charge, but a clear direction to this effect must appear: Pittsburg v. Sterrett Subdistrict School, 204 Pa. 635, 643; Com. v. P. R. T. Co., 287 Pa. 70.

In the present case, the school district is liable only where expressly charged by the statute, which is to be strictly construed. We find no statute so charging a school district with a “paving roadway” improvement.

No act of assembly warrants the assessment, and, in the absence of express statutory imposition of liability, no charge could be lawfully made against the school district by the City of Chester for such improvement. There was, therefore, no power to file a municipal lien of this character.

To reiterate, in conclusion, to quote from Assessments Against State Armory, 7 D. & C. 355, we would state that it is our judgment that the property of the state is not subject to taxation: Harrisburg v. Penna. Canal Co., 2 Pearson, 93; Philadelphia v. American Philosophical Society, 42 Pa. 9; Opinions of the Attorney General, 1905-06, page 176; Phœnixville Armory, 39 Pa. C. C. Reps. 108.

Nor is the property of any of its municipal subdivisions, when used for public purposes, unless specifically made so by statute. No exemption law is needed to relieve any public property held as such from taxation: Pittsburg v. Subdistrict School, 204 Pa. 635; Directors of the Poor v. School Directors, 42 Pa. 21; County of Erie v. City of Erie, 113 Pa. 360; Erie v. School District, 17 Pa. Superior Ct. 33; Robb v. Philadelphia, 25 Pa. Superior Ct. 343; Reading v. Berks County, 22 Pa. Superior Ct. 373.

These eases point out the confusion, increased expense and absurdity of one branch of the government taxing the property of another branch and collecting money from the taxpayers in order to relieve taxpayers; also that a lien for such taxes against such public property could not be collected by the sale of the land against which it is filed (Philadelphia v. American Philosophical Society, 42 Pa. 9, 20), not even for municipal taxes for street improvements (Pittsburg v. Subdistrict School, 204 Pa. 635) ; also, that the amount of the assessment could not be recovered by an action in assumpsit: Erie v. School District, 17 Pa. Superior Ct. 33, 38; Tinicum Township v. United States Shipping Board, 17 Del. Co. Reps. 173.

That municipal taxes for local improvements, including the paving of a street upon which the land of the public abuts, are included within this rule clearly apears in the cases of Pittsburg v. Subdistrict School, 204 Pa. 635, 642; Erie v. School District, 17 Pa. Superior Ct. 33, and Robb v. Philadelphia, 25 Pa. Superior Ct. 343.

In National Guard v. Tener, 13 W. N. C. 310 (1883), real estate, owned by a private corporation authorized under its charter to hold property for purposes of an armory and which was so used, was held to be public property used for public purposes within the meaning of the Constitution and the Act of May 14,1874, P. L. 158, and, therefore, to be exempt from municipal taxes, even though income was derived from an occasional use of the building for other than public purposes.

To the same effect is the case of Scranton City Guard Ass’n v. Scranton, 1 Pa. C. C. Reps. 550, and in Phœnixville Armory, 39 Pa. C. C. Reps. 108, Deputy Attorney General Hargest advised the State Armory Board that no portion of land, title to which was in the Commonwealth for armory purposes, was subject to taxation, even though a dwelling house erected upon the rear of the lot was then yielding a monthly rental.

In the case of Pittsburg v. Subdistrict School, 204 Pa. 635, 645, the court, in construing the Act of May 16, 1891, P. L. 75, which was similar to the act under which the filing of the Plymouth lien has been attempted, says: “Taxation of any kind whatever imposed upon the property would interfere with and defeat the commonwealth in maintaining the system of education required by the constitution. Such an intention should not be attributed to the legislature in the enactment of either special or general tax laws unless it is manifested by clear and explicit language.” That case holds that the said Act of 1891 does not apply to property held by the state or by any of its political subdivisions for public use. The same is true of the later acts of assembly authorizing the assessment of the cost of public improvements upon abutting property and of the filing of liens therefor.

We hold, therefore, that the real estate in question, being owned by the School District of Chester and being used for public purposes, is not subject to assessment for, or liable to the payment of any portion of, the cost of the paving of the street upon which it abuts.

Holding to these views, we make the following

Order.

And now, July 14,1930, the above matter coming on to be heard by the court in banc upon a motion by the defendant, School District of the City of Chester, for judgment in its favor non obstombe veredicto, together with oral arguments and briefs, the court doth order and decree that the motion of the defendant aforesaid for judgment in its favor non obstante veredicto for the plaintiff be and is hereby allowed and the prothonotary be and is hereby directed to enter judgment upon the whole record in favor of the defendant and against the plaintiff notwithstanding the verdict for the plaintiff sec. reg. et. sec. leg.

Fronefield, P. J.

I concur in the result reached by our brother MacDade in the above case, on the ground that real estate owned and held in good faith by a school district, though not yet used for school purposes, is exempt by law from taxation (Directors of Poor v. School Directors, 42 Pa. 21; County of Erie v. City of Erie, 113 Pa. 360; Wilkinsburg Borough v. School District, 298 Pa. 193), and is, therefore, not subject to a municipal claim for roadway pavement laid in the abutting street. Were the property not exempt from taxation, it would be liable, under the Act of May 16, 1923, ;§ 5, P. L. 209, for municipal claims for roadway paving.

Prom William R. Toal, Media, Pa.


source: Caselaw Access Project

author: Groff, J.,

license: Public Domain

text:
    Daniel Miller Company v. Lochman.

      George Ross Eshleman, for plaintiff; Charles W"Eaby, for defendant.

      Jan. 10, 1931.
   Groff, J.,

From the pleadings in this ease we ¿ather that on Oct. 7, 1929, the plaintiff, Daniel Miller Company, brought suit against the defendant, Kenneth L. Loehman, to October Term, 1929, No. 87, for the sum of $491.24, and on Oct. 26, 1929, the said sum of $491.24 was paid by the said defendant to the said plaintiff, and the said suit was marked “Settled, ended and costs paid.”

Plaintiff now claims there was $100 more due at that time than suit was brought for, and that the settlement made thereon was through an error, and that plaintiff has a right to recover the amount now sued for.

The defendant filed his aifidavit of defense raising a question of law, stating that the settlement of the former suit was a complete discharge of all amounts due the former party, in other words, that it constituted payment.

Section three of the Practice Act of May 14, 1915, P. L. 483, says:

“Pleas in abatement, pleas of the general issue, payment, payment with leave, set-off, the bar of the statute of limitations, and all other pleas are abolished. Defenses heretofore raised by these pleas shall be made in the affidavit of defense.”

Section four of the same act provides:

“Demurrers are abolished. Questions of law heretofore raised by demurrer shall be raised in the affidavit of defense, as provided in section twenty.”

And section twenty of the same act says:

“The defendant in the affidavit of defense may raise -any question of law, without answering the averments of fact in the statement of claim; and any question of law so raised may be set down for hearing and disposed of by the court. If in the opinion of the court the decision of such question of law disposes of the whole or any part of the claim, the court may enter judgment for the defendant, or make such other order as may be just. If the court shall decide the question of law, so raised, against the defendant, he may file a supplemental affidavit of defense to the averments of fact of the statement within fifteen days.”

This proceeding, according to the act of assembly, is in lieu of demurrer at the common law.

In volume 1 of Bouvier’s Law Dictionary, Rawle’s 3rd Revision, at page 837, “demurrer” is defined as follows:

“In Pleading. An allegation, that, admitting the facts of the preceding pleading to be true, as stated by the party making it, he has yet shown no cause why the party demurring should be compelled by the court to proceed further. A declaration that the party demurring will go no further, because the other has shown nothing against him.”

The question of law raised in this affidavit of defense is not such as would have been raised by a demurrer at the common law, but it would have been raised under section three of the Practice Act above quoted, and the proper defense at the common law would have been the plea of payment or the general issue. The said affidavit of defense indicating one of the pleas mentioned in section three of the said Practice Act, it must be made in an affidavit of defense to the merits.

We, therefore, decide the question of law raised in the affidavit of defense against the defendant, and authorize him to file a supplemental affidavit of defense to the averments of fact in the statement within fifteen days from the filing of this opinion. Question of law decided against the defendant.


author: Davis, J.,

text:
    The Maccabees v. Kieserman et al.

      Grover C. Ladner, for plaintiff; G. Brewster Rhoads, for defendants.
    May 5, 1931.
   Davis, J.,

The plaintiff averred that it is a fraternal benefit society incorporated under the laws of the State of Michigan; that on February 1, 1930, the defendant, Bessie Kieserman, made application to the plaintiff for membership and the issuance to her of a $5000 death benefit certificate; that on the 1st day of March, 1930, on the faith of the written application signed by the applicant, the defendant here, she was admitted to membership and a death benefit certificate issued; that in the said application the defendant made the following warranty in answer to question twenty-nine, addressed to the applicant: “Q. Have you ever applied for insurance or reinstatement in any society or company and been rejected, action postponed or limited to a certificate or policy different from the kind you applied for? A. No.”

The applicant further agreed that all answers to the questions in said application were true and were to be construed as warranties. The plaintiff further averred that it subsequently discovered that the answer so warranted to question twenty-nine was false and untrue; that defendant had applied for insurance in at least two other insurance companies and her application rejected, that she then made application to a third insurance company and a limited policy or certificate issued; that on November 29, 1929, the said Bessie Keiserman applied for a $1000 policy of life insurance to the Continental Casualty Assurance Company, a medical examination was made and the application for insurance declined and the policy refused; that during the latter part of November or early part of December, 1929, defendant made application to the United States Life Insurance Company, with principal offices at 156 Fifth Avenue, New York City, for insurance, and after medical examination reported to said company on December 5, 1929, that defendant’s application was rejected; that during the month of December, 1929, the defendant made application to the Peoria Life Insurance Company, of Peoria, Illinois, for an ordinary life insurance policy of $2500, which application the said Peoria Life Insurance Company rejected and refused to issue a life insurance policy. The plaintiff further averred that it first discovered the falsity of the representations made by the defendant on or about March 22, 1930, and that on March 29, 1930, upon verification of the falsity of the answers warranted by the defendant, the defendant was notified by the plaintiff of its election to rescind the benefit certificate issued to the defendant, and tendered a return of the premiums theretofore paid on said policy to the defendant. The defendant refused to accept the same and refused to surrender the benefit certificate.

The plaintiff prays for a decree canceling the benefit certificate issued on the basis of the application and containing the false statement as hereinbefore set forth, and for a decree against the defendant, commanding and requiring her to deliver up for cancellation the said benefit certificate in her possession.

The defendant in her answer admitted the first, second and third averments of plaintiff’s bill. As to the fourth averment, the defendant denied that in her application she had warranted the answer to question twenty-nine, referred to in plaintiff’s bill. She admitted, however, that all answers made upon her application were warranted by her as true. The defendant further averred that she was an aged woman and unable to either read or write English, except her name; that at the time of making said application she gave true and correct answers to the questions asked her by one James A. Silber, the then duly authorized agent of the plaintiff society, and that she was induced by Silber to execute the application in blank; that the answers as appearing in said application were filled in without the knowledge or consent of the defendant; that the defendant did not know the answers were inserted in said application until advised to that effect in September, 1930. The defendant further answered that she had been refused policies by other companies as set forth in paragraph five of plaintiff’s bill, all of which information was communicated by her to plaintiff’s agent, Silber, at the time of making her application to the plaintiff society. The sixth, seventh and eighth paragraphs of the plaintiff’s bill were admitted. She denied paragraph nine of plaintiff’s bill. She further denied that she had refused to accept the tender of the premiums paid on the said policy.

Findings of fact.

The court makes the following findings of fact:

1. The plaintiff is a bona fide fraternal benefit society incorporated under the laws of the State of Michigan and authorized to do business in Pennsylvania.

2. On February 1, 1930, the defendant, Bessie Kieserman, of the City of Philadelphia, made application to the plaintiff for membership and issuance to her of a $5000 death benefit certificate, said application being made in writing. The other defendants, Joseph, Benjamin and Philip Kieserman. were named therein as beneficiaries.

3. Subsequently, on the first day of March, 1930, on the faith of the written application as aforesaid (exhibit “A” of the bill), the defendant, Bessie Kieserman, was admitted to membership and there was issued to her a death benefit certificate, a copy of which is annexed to the bill and marked exhibit “B.”

4. The benefit certificate was issued upon the faith of the written application signed by the insured, Bessie Kieserman, in which she warranted, inter alia, as follows: “29. Q. Have you ever applied for insurance or reinstatement in any society or company and been rejected, action postponed or limited to a certificate or policy different from the kind you applied for? A. No.”

5. The application contains the following agreement signed by Bessie Kieserman, by which she must be regarded as bound:

“I hereby agree and warrant, that the above as written are true answers to the questions, and that any untrue answers, or suppression of facts shall vitiate my benefit certificate. I agree that no officer or representative of the Association has any authority to waive, either by writing, practice or otherwise, a strict compliance with its laws. This application shall not be binding on the Association until approved by the Medical Director nor shall I be entitled to participate in the benefit fund of the Association until I have paid my advance monthly rate. My acceptance of any certificate issued on this application will constitute a ratification by me of any restrictions, corrections, changes or additions to this application made by the Association.”

6. The answer to question twenty-nine of the application was false in that, on November 29, 1929, the applicant had applied to the Continental Casualty Assurance Company for a $1000 policy, and about the same time, November or December, 1929, had applied to the United States Life Insurance Company for insurance, both of which applications were, after medical examination, rejected. Also, in December, 1929, she made application to the Peoria Life Insurance Company for an ordinary life policy of $2500, which was also refused, and a policy providing merely for return of premiums in case of death which that company issued, the said applicant (Bessie Kieserman) refused to accept and returned.

7. The defendant, Bessie Kieserman, is a shrewd business woman engaged in money loan business, who has made frequent applications for insurance to many companies and admitted she was familiar with the fact that all insurance companies request information relating to action by other companies on previous applications of insurance.

8. There was no misrepresentation or fraud on the part of the plaintiff or any of its agents.

9. The beneficiaries claim no interest whatsoever in the benefit certificate in question.

10. The defendant was tendered the full amount of premium which she paid for the benefit certificate requested to be canceled, viz., $818.25, but she refused to accept the same.

11. After such refusal the plaintiff brought this bill for cancellation.

12. Out of the premium received the plaintiff paid the agent a commission for the same and does not now have the full amount of the premium. Moreover, a full year has passed since premium was paid and plaintiff has suffered damages to the amount of a reasonable counsel fee in bringing this action to cancel the benefit certificate.

Discussion.

The defendant seeks to avoid the consequences of the application by averring in her answer that she was unable to read and write, that she was an aged woman and that she signed the application in blank at the instance of plaintiff’s agent. The testimony of the defendant upon hearing before the chancellor does not sustain these averments. Her physical appearance and mental attitude gave no indication of the infirmities of age. She was a woman of keen intellect, actively engaged in the business of investigator for a finance company; in fact, the corporation was known as the Bess-Kay Company, being a combination of defendant’s Christian name and surname. This company is engaged in the business of lending money, and the defendant carries on certain investigations before a loan is made in order to determine the responsibility of the borrower. She has been in this country for thirty-five years and is now fifty-eight years of age. Her testimony at the hearing was contradictory of the averments set forth in the sworn answer. In her answer she averred that she signed the application in blank for one James Silber, an alleged agent of the plaintiff, and that the said James Silber induced her to sign the application. At the time of the hearing she testified that she signed the application at the request of the doctor who examined her, that he was the only one who asked her to sign it. This testimony was specifically denied by Silber, and Dr. Hanna, who examined the defendant at the time her application was filed, denied that he induced her to sign the application in blank. The defendant admitted that when she made application to other companies she had answered that she had never been rejected by any insurance company and that she knew at the time she made these answers that they were untrue. She admitted that she had applied to other companies when she made the application, stating that she had never been rejected; in knowing she was not telling the truth, she left it to the companies to find out as to the truth or falsity of her statements.

The contradictory testimony of the defendant, her evasion and the admitted falsity of her statements are sufficient to defeat her right to equitable relief. It is one of the elementary and fundamental principles of equity that he who seeks equity must do equity, and another, that he who cometh into equity must come with clean hands. The doors are shut against one who in his prior conduct in the very subject matter at issue has violated good conscience, good faith and fair dealing. Equity refuses to lend its aid in any manner to one seeking its active interposition who has been guilty of unlawful or inequitable conduct in the matter with relation to which relief is sought: Orne v. Kittanning Coal Co., 114 Pa. 172; Reynolds v. Boland, 202 Pa. 642; Bishoff v. Valley Dairy Co., 302 Pa. 125; 21 C. J. 180, § 163.

In American Union Life Ins. Co. v. Judge, 191 Pa. 484, it was held:

“Where an applicant for life insurance answers ‘No’ to the question ‘Is any negotiation for other insurance on your life now pending?’ and ‘No’ to a question as to whether any other company had ever declined or postponed acceptance of a proposal to insure his life, the policy is thereby rendered invalid, if it appears that two weeks prior to the signing of the application the insured had made application to another company for insurance, and that this application had been declined, although the declination had not been communicated to the insured.”

See, also, Moncur v. Western Life Indemnity Co., 269 Pa. 213.

The answer of the defendant in the instant case, that she was unable to read English, even if that were true, does not acquit her of the duty to demand that the paper she signed be first read to her. In Greenfield’s Estate, 14 Pa. 489, 496, it was said:

“If a party who can read . . . will not read a deed put before him for execution; or if, being unable to read, will not demand to have it read or explained to him, he is guilty of supine negligence, which, I take it, is not the subject of protection, either in equity or at law.”

The defendant here was not ignorant of the requirements incident to an application for insurance. She had made applications to several other companies wherein the questions propounded were identical with those in the application in the instant case, and her testimony was that she had knowingly made false answers to those questions. She was the applicant and had a vital interest in having the policy issued, and was, therefore, under a duty to have the application read to her before signing it.. The plaintiff tendered to the defendant the full premium paid on this policy, and she rejected the offer. The plaintiff has met the requirement of the rule of law that a bill for rescission will not be entertained unless an offer is made to restore to the defendant what the plaintiff has.

The chancellor makes the following

Conclusions of law.

1. The plaintiff is entitled to the decree prayed for, requiring the benefit certificate in question to be delivered up and canceled, it having been procured by a fraudulent representation known to the defendant, Bessie Kieserman, to be false.

2. The defendant, having deliberately perpetrated a fraud on the plaintiff, is not entitled to recover back the premium paid, but only such sum, if any remaining, after deduction of the expenses and commissions to which the plaintiff has been put by the defendant’s fraud and her refusal to accept tender of return of full premiums and cancellation of certificate, in which expenses plaintiff is entitled to include a reasonable counsel fee, which, if the parties cannot agree upon, will be fixed by the court.

3. Plaintiff is entitled to a decree that the defendant beneficiaries have no interest in the certificate.

4. Defendant to pay all costs.

Final decree.

This cause came pn for a hearing on bill, answer and proofs, upon consideration of which, it is ordered and decreed:

1. That the $5000 death benefit certificate issued by The Maccabees on February 1, 1930, certificate No. 1,066,768, be and the same is hereby declared null and void, and that Bessie Kieserman, the insured and holder thereof, be required to forthwith deliver up the same to the plaintiff or its attorneys for cancellation.

2. That the defendants, Joseph Kieserman, Benjamin Kieserman and Philip Kieserman, beneficiaries named therein, are hereby declared to have no further interest therein and no right to recover thereon in case of the death of said Bessie Kieserman.

3. It appearing to the court that the commission paid to the agent securing the application, together with the doctor’s examination fee, exceeds the first premium paid, it is hereby decreed that the plaintiff shall have the right to reimburse itself out of said premium so far as it is able to do so, and that the defendant, Bessie Kieserman, shall have no right to a return of said premium, either in this proceeding or in any other.

4. That the defendant, Bessie Kieserman, shall pay all costs.


author: Kun, J.,

text:
    In re Reilly Brock & Co.

      Wolf, Block, Schorr & Solis-Cohen, for petitioners.

      Saul, Ewing, Remick & Saul and Francis H. Bohlen, Jr., for assignees.

      Townsend, Elliott & Munson, for James McElvie, Jr.
    January 2, 1931.
   Kun, J.,

Jenks, Gwynne & Co. filed their petition, praying for the return of certificates for 900 shares of Houston Oil Company stock and 300 shares of Union Traction Company stock or for the payment of the proceeds of this stock. Following the filing of an amended answer by the assignees, the petitioners have withdrawn their claim against the assignees for 300 shares of Union Traction Company stock and 400 shares of Houston Oil Company stock, as to which they are asserting claims against others.

Petitioners persist in their claim for the return of 500 shares of Houston Oil Company stock, certificates for all of which are in the possession of the assignees.

1. As to 400 of said shares (certificates NY 110, NY 111, NY 112, NY 113).

Petitioners had bought 900 shares of this stock for Reilly Brock & Co., on account of which the latter had paid $11,000 and owed $8701.88. When the petitioners bought the stock for the account of Reilly Brock & Co., title to the stock in law vested in Reilly Brock & Co., or through them in any of the latter’s customers for whom they ordered it. The petitioners held the stock as collateral security for the payment of the balance due by Reilly Brock & Co., who thereafter were in the position of pledgors and petitioners were pledgees of the stock, having a lien on the stock for the balance due them. It is not contended in the case that the transactions between the brokers were on credit. The business between them was conducted on a cash basis, but payments between them were not made actually in cash, but by check, which the necessities of modern business have long since developed into a commonly accepted usage as a substitute for cash.

There was no question of bad faith involved when the petitioners surrendered the certificates of stock on which they had a lien for the balance due them on October 23, 1930, for the check of Reilly Brock & Co. for the amount due. The cashier at Reilly Brock & Co. who issued the check had reason to believe the cheek was good, as the apparent balance to the credit of his company at the bank on which the cheek was drawn would amply cover the check, though part of the balance was made up of uncollected items, for the bank had always honored checks drawn against such items.

However, when the check was presented at the bank on October 24, 1930, as the answer of the assignees shows, the bank refused to pay the check against uncollected funds because of its knowledge of the pending failure of Reilly Brock & Co., who made an assignment for the benefit of their creditors on the same date. Palpably they were insolvent when they issued their check to petitioners and obtained the certificates of stock in question from them.

It is unnecessary to assume that their cashier knew it, but that they knew it or should have known it cannot be questioned. However, the court’s view of the law applicable to the question is that it is not necessary to find that there was an actual and intentional fraud practiced on the petitioners when the certificates of stock were obtained from them. It is quite true that ordinarily the- lien of a pledgee continues only so long as he retains possession of the pledged property, and if a pledgee surrenders a pledge on the promise that the indebtedness will be paid from the sale of the pledge itself, there is a surrender of the pledgee’s lien; that is to say, where a pledgee as a voluntary act is willing to substitute for his hold on the pledge the credit or word of the pledgor, he thereby relinquishes his lien, and this rule would also apply where the voluntary surrender of possession by the pledgee has been induced by a misconception of his rights for want of correct information: Jones on Collateral Securities (3rd ed.), 52, et seq.; 21 R. C. L. 655; 49 C. J. 933.

It is equally clear, however, the pledgee cannot be deemed to have released his lien when the possession of the pledge has been obtained by the pledgor through deception or false pretence: Jones on Collateral Securities (3rd ed.), 54, 55; Thompson v. Patrick, 4 Watts, 414.

Counsel for the assignees concede that if the certificates had been obtained from the petitioners by actual fraud they would be entitled to recover them, but insist that since the check given to the petitioners was issued in good faith, the law as stated does not apply to this transaction. It might be sufficient to point to the fact that whatever the good faith of the cashier of Reilly Brock & Co. may have been in issuing the check, his principals, as stated, were in fact hopelessly insolvent when the check was issued; a fact they either knew or must be held to have known, and which indeed was the reason given by the bank for not paying the check against uncollected items. The question, however, need not be determined on that point. In the opinion of the court, the question turns not so much on the mental good faith of the parties as on the actualities of the case. This, in turn, depends on the significance of a check given in payment in an admittedly cash transaction.

Counsel for the assignees concede that if the petitioners had been vendors and Reilly Brock & Co. vendees of the stock in question, the check given in payment not being paid, the petitioners would be entitled to the return of the stock, but contend that the law is different as between pledgor and pledgee, and as between them, in similar circumstances, the only basis- on which the pledgee may recover the pledged property is by .proof that the pledgor practiced actual and intentional fraud on the pledgee in obtaining the pledge.

The court can see no reason why there should be this distinction in the law and no authority has been cited to support such contention. When petitioners surrendered the stock which they had been holding with their lien on it for the balance due them, they did not do it as a voluntary act, in the legal sense, intending in any way to change the relationship between them and Reilly Brock & Co. as one of pledgor and pledgee to one of debtor and creditor, and to rely thereafter on the credit of Reilly Brock & Co. on its promise to do something in the future. As stated, the transactions between-them were on a cash basis, each accepting the checks of the other as and for cash.

The question, therefore, really resolves itself into a determination of the legal significance of a payment by check in a cash transaction. Undoubtedly, had Reilly Brock & Co. sent over to the petitioners by messenger so many bank notes which turned out to be counterfeit, although no bad faith was involved in the transaction whatever, the petitioners’ right to recover the pledged securities would be conceded. A check given in lieu of cash in the same circumstances, and not paid, for whatever reason, cannot be the instrumentality through which greater rights may be obtained. In a word, the assumed cash payment turns out not to be cash at all, so that whatever has been obtained on the supposition that it was cash must be restored. The distinction between a note or other obligation for the payment of money and a bank check, which is really not an obligation for the payment of money, but an order to the maker’s banker to pay money for him, was clearly drawn in Com. v. Wallace, 114 Pa. 405, 412: “If the debtor says nothing as to his solvency or property, the creditor does not understand that he represents anything. A note or other obligation for the payment of money, by usage, does not mean a pretence of ability to pay; but the giving of a bank check by usage is a pretence that there is money in the bank subject to the check. Acts may amount to a pretence as well as words.”

In Corn Exchange National Bank v. Loan Co., 188 Pa. 330, where plaintiff had turned over to the defendant a package of $2 bills, amounting to $2000, for a check for that amount, which was not paid because the defendant thereafter made an assignment for the benefit of its creditors, while the transaction was one neither between pledgor and pledgee nor between vendor and vendee, but one of mere accommodation, the transaction being one similar to a cash transaction between the parties, and the check given in payment being unpaid, the property in that case (the package of $2 bills) was held to have been obtained “by a plainly implied misrepresentation;” that is, that the check was as good as cash, and the package of bills was ordered returned.

In Block v. Oliver, 102 Ky. 269, this was conceded to be the law as applying to transactions between pledgor and pledgee. The court said, at page 275: “It is contended on the other hand, and upon abundant authority, that if Sutton’s [the pledgor’s] check on the Louisville Banking Company had not been paid, the German Security Bank [the pledgee] could have reclaimed from him the note and collateral which were taken up by its delivery. That is undoubtedly true. Numerous cases of the kind have been cited, in which, when checks were dishonored, the notes and collateral securing them, which had been taken up by means of such checks, were held to have been wrongfully obtained from the holders, and to be recoverable. We do not doubt the correctness of those cases.” The point really decided in the case was that when the check is paid in such a transaction, the payment relates back to the time the check was given, which rather emphasizes the point that the check is really taken as and for cash.

It follows that the check given to petitioners for the surrender of their lien on the 400 shares of Houston Oil Company stock (certificates Nos. NY 110, NY 111, NY 112, NY 113) not having been paid, petitioners did not lose their lien thereon for the balance due them on the certificates, and they are, therefore, entitled to the return of these certificates or payment to them of the proportion of the balance due them with respect thereto.

2. As to the remaining 100 shares of Houston Oil Company stock, certificate No. NY 114, claim therefor has been filed on behalf of James McElvie, Jr., as against the claim of petitioners. It appears claimant ordered the same through his local bank in Maryland, which ordered it of Reilly Brock & Co., the latter confirming the purchase of 100 shares of Houston Oil Company stock for the account of the claimant on June 18, 1930. The claimant paid Reilly Brock & Co. for the stock in full on June 20, 1930. Undoubtedly, had Reilly Brock & Co. purchased the stock directly, title thereto would have vested in claimant McElvie, and were they in possession of it under those circumstances, he would be entitled to it. The difficulty is, however, that Reilly Brock & Co. purchased it through Jenks Gwynne & Co., who were in the position of sub-brokers, and while by such purchase the title to the 100 shares likewise vested in claimant McElvie, it was subject, however, to the petitioners’ lien on the same for the balance due them. This was clearly pointed out in Barbour v. Sproul, 239 Pa. 171, 176: “When a customer orders his broker to buy stock, and the broker does buy it from a sub-broker, and the broker then notifies the customer that the stock has been bought, the broker’s title to the stock thereby passes to the customer, subject to any amount due from the customer to the broker and to any lien of the sub-broker: 2 Cook on Corp., 1164.”

Unfortunately for the claimant McElvie, while he had paid for the stock in full to his own brokers, Reilly Brock & Co., in reliance upon their integrity, the latter had not paid their sub-brokers therefor in full, so that petitioners still had a lien on the stock for the balance due them, and as it has been shown in respect to the 400 shares, they did not lose their lien by the surrender of the stock in exchange for a check to them for the balance due them, which check turned out to be worthless. It appears that the certificate NY 114 involved in this transaction was, on instructions from Reilly Brock & Co. when it sent to petitioners its worthless check on October 23, 1930, transferred and a new certificate issued in the name of the claimant McElvie, Jr. The assignees of Reilly Brock & Co. received from the transfer agent a new certificate for 100 shares, No. NY 2907, made out in the name of the claimant McElvie, Jr., which certificate is in the possession of the assignees.

This is not a case in which any equities of the claimant rise higher than those of the petitioners. Had he paid a consideration for the transfer of the stock to him at the time, or had the certificate been delivered to him, although the consideration was passed, he might, in the first instance, recover back his money as having been received by the assignors while insolvent, or, in the second instance, claim that title passed to him under the Uniform Stock Transfer Act of May 5, 1911, P. L. 126. However, he had paid for the stock in full sometime before, relying upon the integrity of his own brokers, and the certificate, though transferred to his name, through instructions of the petitioners on the assumption that they had been paid, was not delivered to him, but is in the possession of the assignees. In these circumstances, the surrender oí the certificate for 100 shares in question (NY 114) by the petitioners having been obtained by. legal fraud and not having passed to any innocent third party for a present consideration, the lien of the petitioners thereon was not lost.

Counsel for the assignees has referred the court to the matter of the Assigned Estate of George W. Kendrick, 3rd, & Co., in the Court of Common Pleas No. 4, March Term, 1922, No. 1544, referring to the claim of Carrow Thibault (or Huber & Co.) to certain stock or proceeds thereof. Thibault had given it to Huber & Co. to sell. They sold it to the assignors, who gave their check for it, which check was dishonored, they having made an assignment for the benefit of creditors. The court held that the certificate of stock having been endorsed and delivered to the assignors, Kendrick & Co., title to it passed to them, notwithstanding their check given in payment for it was dishonored. The court rests its view on the Uniform Stock Transfer Act and Smith v. Smith Co., 21 Pa. 367. We cannot agree with the view there expressed, and we believe that neither the Transfer Act nor the case cited supports it. The purpose of the act is to protect innocent third parties who obtain certificates duly endorsed and delivered to them for value; that is, it makes certificates of stock negotiable., The act does not, however, confirm title to a certificate in one who has obtained it by fraud, either actual fraud or, as we hold, by means of a worthless check.

The act has not changed the substantive law of the state on the question here involved. Title to a certificate of stock, although endorsed and delivered, cannot bé obtained by fraud, whether actual or legal fraud, any more now than it could have been before the act was passed. As between such direct and original parties, “a plainly implied misrepresentation” having been practiced, through which the certificate was obtained, it may be recovered, although if it should have passed on to an innocent third party for value, the act would protect him, and it could not be recovered from such party. The case cited, Smith v. Smith Co., is, in our opinion, not at all in point. In that ease the purchaser of merchandise gave to the seller his promissory note for the amount due, payable six months after date. On the contention that the purchaser at the time of the purchase had no intention to pay for the goods, and that he was then insolvent, the seller claimed no title to the goods passed, and that he had a right to reclaim them, and the sheriff having sold them on certain executions, after notice of the claim, the seller sought to hold him in an action of trespass for damages. The court said there was no basis for avoiding the sale, as there was no actual fraud shown; that the mental attitude of the purchaser, assuming that such a thing could be shown, that he had no intention to pay, or the fact of insolvency when nothing was said about it, would not be enough to avoid the sale, and the court said (page 372) that it was regarded “as essential to actual fraud that the intent to mislead should be acted out by false representations, contrivances or artifices, or by conduct which reasonably involves a false representation.” It is to be borne in mind that this was a sale on credit; a note payable in six months was taken by the seller. It was not a cash sale. Payment was not made by check which turned out to be worthless. Had it been such, the element would have been present which would have come within the court’s requirement to show fraud, “conduct which reasonably involves a false representation,” because that is what the later eases adjudicated the giving of a worthless check to be.

The quotation from the case of Com. v. Wallace, supra, in whieh the distinction is drawn between a note or other obligation and a check given in payment, is directly in point. In giving the former, there is involved no representation at all, either of solvency or ability to pay; the giving of the latter is a pretence that the maker has money in bank to pay it, and where the check turns out to be worthless, it is held that there has been “a plainly implied misrepresentation” (Corn Exchange National Bank v. Loan Co., supra), and property obtained thereby is recoverable, title not having passed; that is to say, since the payment proves to be abortive, so is the passing of title determined to be abortive, and the law will restore the status quo ante.

For the reasons set forth, we cannot follow the view to the contrary expressed in the Kendrick ease.

The court concludes, therefore, that the petitioners are likewise entitled to the return to them of the certificate NY 114 (now NY 2907) in the possession of the assignees, or payment to them of the proportion of the balance due them with respect thereto.

Counsel will draw appropriate orders.


author: Alessandkoni, J.,

text:
    Frankil v. Frankil.

      Clinton 0. Mayer and B. A. Magaziner, for plaintiff.

      Judah Zeliteh, for defendant.
    January 20, 1931.
   Alessandkoni, J.,

The plaintiff’s petition recited that judgment was entered against Samuel Frankil, the defendant, in the sum of $3782.20, and an attachment sur judgment issued attaching all the goods, chattels, rights and credit of the defendant in the hands of The Pennsylvania Company for Insurances on Lives and Granting Annuities, the Colonial Trust Company and the National Knitting Mills, garnishees. No part of the judgment has been paid, and it is averred that the defendant is one of the copartners trading as National Knitting Mills, located at 256 South American Street, Philadelphia, Pennsylvania, which partnership consists of the defendant, Samuel Frankil, Eva Frankil, Fannie Frankil and Charles Frankil. The petition prays for a charging order against the interest of the defendant in the partnership known as National Knitting Mills.

The court granted a rule on the copartnership to show cause (a) why the plaintiff should not have a charging order against the interest of the defendant in the National Knitting Mills and (b) why the sheriff of Philadelphia County should not be directed to sell the right, title and interest of the defendant in the copartnership known as National Knitting Mills. No answer was filed to the petition.

The defendant concedes that under the Partnership Act of 1915, section twenty-eight, the plaintiff has a right to the charging order, but contends that the plaintiff is not entitled to an order on the sheriff to sell the right, title and interest of the defendant in the partnership. The defendant relies on section twenty-eight of the Partnership Act of March 26, 1915, P. L. 18, and cites only subsection one of section twenty-six, which states that: “On due application to a competent court by any judgment creditor of a partner, the court . . . may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him.”

The defendant, however, fails to recite subsection two of section twenty-eight, which provides several methods of redeeming the interest charged “at any time before foreclosure, or in case of a sale being directed by the court. . . .” This part of section twenty-eight is meaningless, unless it is construed as conferring upon the court the right to direct a sale. Subsection one, moreover, gives the court making the charging order the right “to make all other orders, . . . which the circumstances of the case may require.” There, therefore, can be no doubt but that the court has a right to order the sheriff to sell the interest charged.

The defendant quotes from 24 Yale Law Journal, 634 (an article by Wm. Draper Lewis on the “Partnership Act”), in which the author states that a separate creditor can obtain an order on the other partners to pay him the profits due to the debtor partner, but the defendant fails to incorporate in his brief the continuation of the quotation, which reads as follows: “or to make any further order which will result in his securing the payment of his judgment without unduly interfering with the rights of the remaining partners in partnership property.”

And now, to wit, January 20, 1931, the rule for a charging order is made absolute and the sheriff of Philadelphia County is directed to sell the right, title and interest of the defendant in the partnership known as National Knitting Mills.


author: Sherwood, J.,

text:
    Freed, Trustee, v. Shrewsbury Savings Institution.

      McClean Stock, for plaintiff.

      George Hay Kain (of Cochran, Williams & Kain), and W. G. Allen, for defendant.
    June 23, 1930.
   Sherwood, J.,

This is a petition for mandamus in the form of a ease stated. The facts are agreed to. The relevant facts are: Henry W. Rehmeyer was the owner of twenty-seven shares of the capital stock of the Shrewsbury Savings Institution, as evidenced by two certificates therefor; the one, No. 205, dated June 26, 1919, for twelve shares, and the other, No. 206, dated Oct. 10, 1919, for fifteen shares. He was adjudicated a bankrupt June 3, 1929. His duly elected trustee in bankruptcy sold and attempted to transfer to the purchaser the bankrupt’s shares of stock in defendant bank. The defendant bank refused to transfer because bankrupt was indebted to it in an amount greater than the market value of the shares of its stock, and, further, because notice of its right of lien and right to refuse transfer had been stamped on the stock certificates pursuant to section 15 of the Act of May 5, 1911, P. L. 126.

Defendant bank was incorporated under a special act of assembly approved April 26,1850, P. L. 786. Its charter was extended from time to time, and on Dec. 31, 1921, after proceedings duly had, it came under the provisions of the Act of May 13, 1876, P. L. 161, entitled “An act for the incorporation and regulation of banks of discount and deposit,” as provided in section 32 thereof. Letters patent were duly granted to it thereunder, and it was duly reorganized in conformity therewith.

Article 27 of the by-laws of the Shrewsbury Savings Institution, as duly amended on Dee. 15, 1877, and continuously since in force, provides as follows: “The institution shall have a lien upon the stock of any stockholder who shall be the maker, drawer, acceptor or endorser of, or in any wise liable upon any note, draft, bill of exchange or other security for the payment of money held by the institution which shall be unpaid at maturity.

“Whenever any note, draft, bill of exchange or other security for the payment of money held by the institution on which any stockholder shall be liable as maker, drawer, endorser or in any wise shall be due and unpaid for the space of six months, it shall be the duty of the cashier to notify such stockholder in writing that if said indebtedness shall remain unpaid for the space of thirty days his stock will be sold at public sale to pay the same. At the expiration of the time specified in said notice, said stock, or so much thereof as shall be necessary to pay the debt, shall be offered at public sale after ten days’ notice by handbills in the most public places in Shrewsbury Borough, and sold to the highest bidder (the directors reserving the right to reject any bid they may deem insufficient) and the proceeds to be applied to the payment of such indebtedness.”

The petition for mandamus is at the instance of the trustee in bankruptcy. Counsel at the argument verbally agreed that if the court doubted the petitioner’s right and felt that the proceedings should have been instituted by the purchaser rather than the trustee, that fact in itself should not prevent a decree against the bank compelling transfer to the purchaser from the trustee if the lien of the bank, under its by-laws as printed on its certificate, was not enforceable.

The question involved is: May a state bank, incorporated under the special Act of April 26, 1850, P. L. 786, which subsequently comes under the general Banking Act of 1876, P. L. 161, and reorganizes thereunder, retain a lien upon the shares of its capital stock owned by a stockholder for a purpose of securing itself for loans made to said stockholder?

The general Banking Act of 1850, P. L. 477, article x, provides: “The stock of the bank shall be assignable and transferable on the books of the corporation only, and in the presence of the president or cashier, in such manner as the by-laws shall ordain; but no stockholder indebted to the bank for a debt actually due and unpaid, shall be authorized to make a transfer or receive a dividend until such debt is discharged, or security to the satisfaction of the directors given for the same.” This restricted the transfer of stock by an indebted stockholder. However, its provisions are only applicable to banks of issue and not to savings banks: Merchants’ Bank v. Shouse, 102 Pa. 488. Later, the general Banking Act of 1876, P. L. 161, for the incorporation of banks of discount and deposit, also provided a lien on the debtor’s stock. Section 21 provided: “And no shareholder shall sell or transfer any shares in the capital stock held in his own right so long as he shall be liable, either as principal debtor, surety or otherwise, to the corporation, for any debt without the consent of a majority of the directors.” The above acts of assembly indicate the early legislative policy to give a bank a lien on its stock for the indebtedness of the stockholder. In Bank of Millvale v. Ohio Valley Bank, 234 Pa. 1, it was held that the "lien which a state bank, organized under the Act of May 13, 1876, P. L. 161, has upon the shares of capital stock owned by its stockholders has been taken away by the Act of June 24, 1895, P. L. 258. The earlier case of Sproul v. Standard Plate Glass Co., 201 Pa. 103, held that the same Act of June 24, 1895, P. L. 258, giving an absolute right to a purchaser of pledged stock to have the stock transferred upon the books of the corporation, repealed section 7 of the Act of April 29, 18.74, P. L. 73, which directs that no certificate shall be transferred so long as the holder thereof is indebted to said company, unless the board of directors shall consent thereto.

Prior to the Act of 1895, corporations, including banks of discount and deposit, were vested with a lien upon their stock for an indebtedness owing by a stockholder to the corporation. This act favors the sale and transfer of stock and avoids anything tending to hamper such transactions. Clearly, the purpose of the act was to facilitate the transfer of stock. It gives an absolute right of sale inconsistent with the right to refuse a transfer, and it follows that section 21 of the Act of 1876 is necessarily repealed.

It is further to be noted that such lien is more expressly taken away by the Act of June 14, 1901; P. L. -561, which applies to savings institutions. This act provides by section 2: “That no corporation under this act shall take as security for any loan or discount, a lien on any part of its capital stock, but the same surety, both in kind and amount, shall be required of persons, shareholders and not shareholders; and no such corporation shall be the holder or purchaser of any of its capital, unless such purchase shall be necessary to prevent loss on a debt previously contracted in good faith, on surety which at the time was deemed adequate for the payment of such debt, without a lien upon such stock, or in case of forfeiture of such stock, for the nonpayment of instalments due thereon, and the stock so purchased shall, in no case, be held by the corporation so purchasing for a longer period than six months, if the same can be sold for what such stock cost the corporation.”

We look in vain through the act incorporating the Shrewsbury Savings Institution for any express authority to acquire a lien against the shares of its stockholders for loans, but conceding that it had that authority, it would follow that this right was taken away by the Acts of 1895 and 1901; the first looking toward the facilitation of the transfer of stocks of Pennsylvania corporations, and the second expressly prohibiting the taking as security for any loan a lien on any part of its capital stock. It follows that the bank did not have a lien on the stock of a shareholder for his indebtedness unless the enactment of the Pennsylvania Legislature, known as the Uniform Stock Transfer Act of 1911, P. L. 126, § 15, can be construed as giving a right of lien to corporations which comply with the provisions of that act. Section 15 provides: “There shall be no lien in favor of a corporation upon the shares represented by a certificate issued by such corporation, and there shall be no restriction upon the transfer of shares so represented, by virtue of any by-law of such corporation, or otherwise, unless the right of the corporation to such lien or the restriction is stated upon the certificate.” Our view of the provision of this section is that it is not intended to create a right of lien where none exists, but where a valid lien can be created it is aimed to protect the purchaser or pledgee of stock from secret liens by making statement upon the certificate essential to validity; .that the underlying purpose of this act is the protection of transferees. It does not effect the repeal of the Act of 1901, which relates to banks and trust companies, because the reasons underlying that act are different from that underlying the Stock Transfer Act. The Act of 1901 prohibits liens by banks and trust companies, because it is deemed impolitic that the bank should take its own shares as security, while the provisions of the Stock Transfer Act look to the safety of the transferee by preventing the enforcement of secret liens not stated on the certificate.

The decision of the United States Supreme Court upon the Federal Banking Act strengthens our conclusion. In the case of Bank v. Lanier, 78 U. S. 389, it was held, having in view the provisions of the Federal Acts of 1863 and 1864 above referred to, that loans by national banks to their stockholders do not give a lien to the bank on the stock of such stockholders. To the same effect is Bullard v. Bank, 85 U. S. 589.

Counsel for the bank insists that, apart from any statutory lien, the bank may secure a lien by agreement with its borrower, and that this was in effect accomplished by the by-law. In support thereof the cases of Schiff v. Schindler et al., 98 Pa. Superior Ct. 207, and Southwark National Bank v. Beck, Admin’x, 98 Pa. Superior Ct. 213, are cited. In "the latter case, a depositor in plaintiff bank borrowed money from it, for which he gave a promissory note, and the same time executed and delivered to the plaintiff a collateral agreement, wherein he agreed that, in the event of his death or insolvency, all of his notes or obligations held by the plaintiff should, at its option, immediately become due and payable, irrespective of the date of maturity of the obligation, and that all sums of money cn deposit with' the said plaintiff bank should become the subject of set-off by the said bank against any liability or indebtedness of the defendant. This contract was held to be valid and the bank had authority to appropriate the deposit. There is no statutory prohibition preventing such an agreement between the parties, and, therefore, the agreement was held to be valid and to give to the bank the right to set-off its indebtedness against the deposit of the insolvent defendant. The case at bar is distinguished in that there is a statutory prohibition concerning the creation of such a lien by the defendant bank by agreement or otherwise, under the Act of 1901, hereinbefore recited. In 14 Corpus Juris, 790, the rule is asserted to be: “If, however, a by-law giving a lien to the corporation is not merely unauthorized but is one prohibited by statute, as where the statute prohibits the corporation from making a loan on the security of its own shares, the by-law is void and a transferee takes free of the right of the corporation to assert a lien.” It follows that the bank, not having a lien by reason of its by-laws, should transfer the stock to the purchaser from Rehmeyer’s trustee for the following reasons:

(a) The statute gives the plaintiff no lien upon its capital stock for loans of its stockholders, but, to the contrary, prohibits such lien.

(b) As a contract, the by-law is ultra vires, because in conflict with the Acts of June 24, 1895, P. L. 258, and June 14, 1901, P. L. 561.

And now, to wit, June 23, 1930, it is ordered and decreed that judgment be entered in favor of the plaintiff and against the defendant and that a writ of peremptory mandamus be issued in behalf of the plaintiff, requiring the defendant, upon surrender of certificates Nos. 205 and 206, to transfer the twenty-seven shares of stock on its book to the purchaser from the trustee and to issue a new certificate therefor.