There is little, if any, dispute respecting the facts of this case, which are epitomized in the foregoing recital; and while counsel, both upon the oral argument and in their briefs, have discussed with some degree of elaboration several minor issues, which possess more or less relevancy to the main contention, we are convinced that these issues are quite subordinate in their character, and that there is really but one question in the case which demands our serious consideration. This question involves the effect to be given to the lien clause incorporated into the defendant’s certificates of stock, and its determination, whatsoever it may be, is, in our opinion, necessarily decisive of the conflicting claims of the parties to the subject-matter of the controversy; for if this clause is absolutely void, as against subsequent purchasers or lienors, it follows, of course, that the plaintiff’s contention is well founded, whereas, if, as to the plaintiff, the clause may be regarded as valid; it is equally obvious that *670the defendant’s right to the stock in question is paramount to that of the plaintiff. This proposition, however, it is proper to state, is founded to some extent, at least, upon the assumption that the plaintiff can,.in no aspect of the case, be regarded as a bona ñde transferee of the stock. It is an undoubted fact that bank-stock certificates, while not possessing all the characteristics of commercial paper, are nevertheless esteemed by the business world as having a value somewhat superior to ordinary securities. For this reason they have come to be regarded as one of the most desirable bases of commercial transactions, and when transferred to a purchaser for value, and without notice of any defect in title, the certificate is of itself generally an assurance to the transferee that upon its presentation the holder will be entitled to have the stock transferred to him upon the books of the bank. Bank v. Lanier, 11 Wall. 369; Driscoll v. Manufacturing Co., 59 N. Y. 96-105. But in this instance, as we have seen, the certificates were not in the usual form; for they contained what was equivalent to an announcement to the whole world that the stock which they represented was subject to a possible lien in favor of the corporation issuing the same, and that such stock would not be transferred upon the books of the corporation until that lien was satisfied. Consequently, when the certificates in question came into the plaintiff’s possession, it was with full notice of the defendant’s rights, whatever they might be, and therefore the plaintiff took the same subject to whatever equities existed against the title of the pledgor. In «other words, it now occupies precisely the same relation towards this defendant as would its pledgor, if he were seeking to recover damages for the conversion of so much of his stock as had been sold by the bank to satisfy its lien for borrowed money. Porter v. Parks, 49 N. Y. 564; Williamson v. Brown, 15 N. Y. 354; Fowle v. Ward, 113 Mass. 548. We come, then, to the consideration of the one vital question to which we have already adverted, which is, what, if any, right or interest did. the defendant retain in the 450 shares of its capital stock, which the nominal owner, Emanuel Levi, assumed to assign to the plaintiff? The defendant was organized under the national banking law of 1864, which was a substitute for a similar law enacted by the congress of the United States in 1863. The thirty-sixth section of the earlier statute declared that:
“■■■ * * No shareholder in any association under this act shall have power to sell or transfer any share held in his own right so long as he is liable either as principal debtor, surety or otherwise to the association for any debt which shall have become due and remain unpaid. * * 12 Stat. 675.
This section was, however, omitted from, and expressly repealed by, the act of 1864; and such repeal must be regarded as the “manifestation of a purpose to withhold from banking associations a lien upon the stock of their debtors,” and a notification to the directors of such associations “that thereafter they must deal with their shareholders as they do with other people.” Bullard v. Bank, 18 Wall. 594. It is apparent, then, that the policy of the amended act was to prohibit and prevent liens in favor of national banks upon the ’Stock of their debtors; and, although this same act authorizes such associations to enact by-laws for the regulation of their business and the manage*671ment of their property, such by-laws are required to be consistent with the provisions of the act, and it is therefore quite certain that the defendant could not accomplish by indirection that which was prohibited by the law to which it owes its existence. But the act of 1864 not only repealed section 36 f the earlier act. It also contained' a provision that no association organized thereunder should make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith. 13 Stat. 110, § So. We have here, then, an express inhibition against doing the very act which lies at the foundation of the defendant’s contention; for it is established beyond all controversy that whatever lien it has or claims upon the stock in question was created by way of security for a present or future loan of money, and-not for a past indebtedness. And it would seem that, with this much determined, the question which is presented for our consideration ought not to be difficult of solution; for, although the inhibitory statute to which reference has just been made imposes no penalty for its violation, the principle of law is well settled in this state that the courts will not enforce or sustain a contract, the subject-matter of which is malum prohibitum. Crocker v. Whitney, 71 N. Y. 161. ■ And the defendant’s contract is undeniably of that nature. Conklin v. Bank, 45 N. Y. 655; Crocker v. Whitney, supra; Nicollet Nat. Bank v. City Bank, 38 Minn. 85, 35 N. W. 577. But this is a case which, as has been stated, involves questions arising under a federal law, respecting a corporation created by its authority, and in giving construction to that law the rulings of the federal courts must be regarded as controlling. Duncomb v. Railroad Co., 84 N. Y. 191. It becomes important, therefore, to ascertain from the source indicated, if possible, what effect the violation of this statute will have upon the defendant’s contract of lien, which, but for the statute above cited, would unquestionably be perfectly valid and equitable. By the terms of section 5136 of the Bevised Statutes of the United States, a national banking association is impliedly, if not expressly, prohibited from loaning money upon real-estate security; and, as in the present case, no penalty is denounced for the violation of that statute. In the case of Bank v. Matthews, 98 U. S. 621, the plaintiff took, by assignment, a note which was secured by a deed of trust, which was likewise assigned to the plaintiff; and, the note not being paid at maturity, proceedings were instituted to sell the premises described in the trust deed. The grantor thereupon filed a bill to enjoin the sale, upon the ground that by sections 5136 and 5137 of the Bevised Statutes the deed did not inure as a security for the loan made by the bank at the time of the assignment of the note and deed. It was held that the deed was in effect a mortgage, but that the bank was entitled to enforce its claim, for the reason that a judgment of ouster and dissolution was the only check contemplated by congress in prohibiting the taking of such security, and that such a judgment was available to the government only, and not to an individual. The doctrine thus enunciated was subsequently reiterated by the supreme court of the United States in a case where *672a national bank had, in open violation of the statute, taken a mortgage upon real estate as security for past and future indebtedness, in which case it was expressly held that a disregard of the prohibitory clause of the banking law did not vitiate the real-estate securities taken for loans, but only laid the association taking them open to proceedings by the government. Bank v. Whitney, 103 U. S. 99, reversing same case in 71 N. Y. supra. Still later the precise question now under consideration came up for adjudication in the same court in a case where a stockholder in a national bank borrowed money of the bank, and pledged his stock as security therefor. Failing to pay the debt at its maturity, the bank sold his stock, and applied the proceeds upon the borrower’s indebtedness, who thereupon brought an action to recover the same, upon the ground that the bank was prohibited by statute from loaning money “on the security of the shares of its own capital stock.” The trial court charged the jury that:
“If they found from the evidence that the stock was delivered by him [the borrower] to the bank as a pledge or collateral security for a present loan of money made to him by the bank at the time of such delivery, the plaintiffs [who were the administrators of the borrower] were entitled to recover the amount of the proceeds, with interest from the date of the sale, as the defendant was prohibited by the currency act from thus receiving its own stock.”
This charge was excepted to, and, upon a review of the judgment entered upon a verdict in favor of the plaintiffs, a new trial was granted; the supreme court, in its opinion, malting use of the following language, viz.:
“While this section [section 35, 13 Stat., or section 5201, Rev. St.], in terms, prohibits a banking association from making a loan upon the security of its own stock, it imposes no penalty, either upon the bank or borrower, if a loan upon such security be made. If, therefore, the prohibition can be urged against the validity of the transaction by any one except the government, it can only be done before the contract is executed, while the property is still subsisting in the hands of the bank. It can then, if at all, be invoked to restrain or defeat the enforcement of the security. When the contract has been executed, the security sold, and the proceeds applied to the payment of the debt, the courts will not interfere with the matter. Both bank and borrower are in such case equally the subjects of legal censure, and they will be left by the courts where they have placed themselves.”
Thus it will be seen that, while grave doubt is expressed whether the prohibition in the statute can at any time be urged against the validity of the transaction by any one except the government, it is asserted that it certainly cannot be after the contract has been executed, the security sold, and the proceeds applied to the payment of the debt for which it was pledged. In this case the bank had applied the dividends declared upon the stock in question for the years 1898 and 1897 in liquidation of the pledgor’s indebtedness; and, if obliged to surrender the stock itself, the loss, if any, would, of course, fall upon the stockholders. As was said in the case of Bank v. Matthews, supra, it cannot be that it was intended by congress “that stockholders, and perhaps depositors and other creditors, should be punished, and the borrower rewarded, by giving success to this defense whenever the offensive act shall occur.”
The Reports contain many other cases where the same principle for *673which, the defendant is contending has been applied. In the case of Fleckner v. Bank, 8 Wheat. 339, it was held that the taking of usury could not be set up by way of defense to a note on which it was taken, inasmuch as the statute incorporating the bank did not declare such securities void; that it was merely a violation of the bank’s charter, for which a remedy may.be applied by the government. In another case, where a defendant sued by a national bank for moneys which it had loaned him set up as a bar that such loan exceeded in amount one-tenth part of the bank’s capital stock actually paid in, it was held that such a defense was not available; that when a statute prohibits an act, and even wflien it annexes a penalty' for its commission, it does not follow that the unlawfulness of the act was meant to avoid a contract made in contravention of it. Gold-Min. Co. v. Rocky Mountain Nat. Bank, 96 U. S. 640. And in a comparatively recent case it was said, in the course of the opinion of the court, "that it has been held repeatedly by this court that where the provisions of the national banking act prohibit certain acts by banks or their officers, without imposing any penalty or forfeiture applicable to particular transactions which have been executed, their validity can be questioned only by the United States, and not by private parties.” Thompson v. Bank, 146 U. S. 240-251, 13 Sup. Ct. 66. This was a case where the defendant had unlawfully certified checks drawn upon it, in violation of section 5208 of the Revised Statutes, and it was held that the checks thus certified were good and valid obligations against the bank. It is not to be denied that there are several authorities which seem to support the converse of the proposition which these eases establish. We have already cited two which expressly declare that contracts made in violation of the provisions of the national banking law cannot be enforced; but one of these (Crocker v. Whitney, supra), as has already been stated, was reversed by the supreme court of the United States, and the other (Conklin v. Bank, supra) we do not feel at liberty to follow, in view of the decisions to the contrary by the ultimate tribunal, whose jurisdiction of these questions is such as to invest its adjudications with the quality of stare decisis. It remains only to consider one or two other authorities upon which great reliance is apparently placed by the plaintiff, by reason of the fact that they are also decisions of the supreme court of the United States. The case of Bank v. Lanier, 11 Wall. 369, was one where the plaintiff in error assumed that it had a lien upon certain stock for an indebtedness of the stockholder, without having .made any special agreement on the subject, by virtue of the provisions of section 36 of the currency act of 1863, and of a by-law of the bank enacted when this section was in force; and it was held that, wdien the restrictions of section 36 fell, the by-law fell with them, and the bank became subject to the provisions of the act of 1864. The principal question, however, which this case decides, is that a bank, whose certificates declare the stockholder entitled to so many shares of stock, which can be transferred on the books of the corporation, in person or by attorney, when the certificates are surrendered, but not otherwise, and which suffers a stockholder to *674transfer to anybody on the books of the bank his stock, without producing and surrendering his certificates thereof, is liable to a bona fide transferee for value of the same stock, who produces the certificates, with a properly executed power of attorney to transfer; and this although no notice had been given to the bank of the latter transfer. In the case of Bullard v. Bank, 18 Wall. 589, the defendant was organized in 1865. Its articles of association-referred to the act of 1864 and then provided that the directors should—
“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 a by-law was adopted by the directors, which declared that:
“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 thereafter this by-law was amended by adding thereto the-words following:
“And no person indebted to the bank shall be allowed to sell or transfer his other 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.”
It was held that this by-law was not “a regulation of the business of the bank, or a regulation for the conduct of its affairs,” within the meaning of the national banking act of 1864, and therefore such a regulation as,> under the act, national banks had a right to make, and, consequently, that it furnished no authority to the bank by which it could acquire a lien on its own stock held by persons who were its debtors. We do not regard these cases-as conflicting in principle with those heretofore cited, but, if we are wrong in our interpretation of them, the more recent decisions certainly establish the doctrine, most unequivocally, that a contract made in contravention of any provision of the national banking act is not, in the absence of any declaration to that effect in the act itself, void or incapable of enforcement; and, this being so, we feel constrained to apply that doctrine to the present case.
Some point is made by the plaintiff of the fact that the Levi certificates were never actually delivered to the defendant. This is unquestionably so, and it is likewise true that, as a general rule, personal property, when pledged for the payment of a debt, should-pass into the possession, and remain under the control, of the pledgee. 18 Am. & Eng. Enc. Law, 595, 598; Black v. Bogert, 65 N. Y. 601. The contract in this case, however, differs in one essential respect from ordinary lien contracts, in that the stock was-sold, and the certificates thereof were delivered to the purchaser, upon the distinct agreement, expressed in unequivocal language. *675that the stock was subject to a lien for any indebtedness of the holder, and was not transferable upon the books of the bank until such indebtedness was canceled. In these circumstances, we are of the opinion that it became unnecessary for the bank to retain the certificates.
Our conclusion of the whole matter is that the case was properly disposed of at the trial term, and that the decision there rendered should therefore be sustained. Judgment affirmed, with costs.
GREEN and WARD, JJ., concur. HARDIN, P. J., and FOLLETT, J., dissent.