Court Opinion

ID: 7097712
Source: CourtListenerOpinion
Date Created: 2022-07-24 12:12:41.383628+00
Date Added: 2024-06-11T16:13:18.380199
License: Public Domain

ON REHEARING.
Day, Oh. J.
_-transfer of stock, Upon petition of appellant, filed within the time by rule prescribed, a rehearing ivas granted upon the last P0^ determined in the foregoing opinion. As directed by the court, the case has been re-argued upon the questions involved in this branch of the opinion, and has again been submitted for final determination. The foregoing opinion, we think, correctly holds that the assignment of the ten shares of Ochs’ capital stock to Porter, by means of a transfer ticket and an entry thereof in the transfer books of plaintiff, the delivery of the certificate of stock held by Ochs, and the crediting of the stock to Porter on the plain*585tiff’s ledger, as set forth in the 9th finding of facts, as between Porter and the bank constituted Porter the owner of the stock formerly held by Ochs. A certificate of stock, which the stockholder might always have in his possession, would furnish convenient and accessible evidence of ownership, but it is not at all essential to the fact of ownership. And so the bank evidently regarded the transfer in this case, for Porter voted this stock at all elections of stockholders, drew the dividends thereon, and was elected a director of the bank, which could not legally have been done, unless he had been the owner of this stock. At the time, then, that the understanding and agreement between Porter and Gifford, set forth in the eleventh finding of facts, had their origin, Porter was the legal owner of the ten shares of stock in question. The most that can be claimed for this agreement between Porter and Gifford is that it created between them a latent equity or secret trust capable of enforcement as between the parties. There was nothing anywhere upon the books of the bank to advise third parties, proposing to deal with the stock, of the existence of this trust. Whilst matters remained in this condition, and sometime before January 15, 1873, Porter borrowed of S. T. Smith $1,200, and put up with him as collateral security therefor the said stock, assigning it to him by a transfer ticket, and an entry upon the transfer books, and delivered to him the transfer ticket received from Ochs. This was done before Smith had any knowledge of the transaction between Porter and Gifford. He advanced his money upon the faith of Porter’s absolute unincumbered ownership of the stock. His position is similar to that of a mortgagee in good faith, without knowledge of a prior unrecorded mortgage. As between Porter and Smith, Smith simply acquired an equity or a lien. As between Smith and Gifford, the equity or lien of Smith is superior to that of Gifford. But as between Smith and the bank, Smith became the owner of the stock. It is true the by-laws of the bank provide that “ no transfer of stock shall be valid except when made upon the books of the bank, and upon the return of the certificate to be transferred.” This provision is intended to prevent the sale of outstanding certificates to innocent purchasers, when the *586stock lias been transferred upon the books of the bank. It is apparent that this provision is necessary to prevent the perpetration of frauds upon innocent third parties. But in this case Porter had no certificate of stock. There was no possibility of his transferring the stock on the books of the bank to one, and assigning his certificate of purchase to another. Besides, the provision requiring the surrender of the stock certificate is one which the bank may, at its peril, waive. Upon this subject, in N. Y. & N. H. R. R. Co, v. Schuyler, 34 N. Y.; 30 (80), the following language is employed: “The non-production and surrender of the certificate at the time of the transfer is not fatal to the title of the transferee. It is only essential to the safety of the corporation, and may be waived by it at its own peril. The company has the means of knowing whether a certificate of particular stock is outstanding or not, and the power to compel its return and cancellation before any transfer is made, and a buyer, where the transfer is jiermitted by the corporation to be made on its books, by one to whose credit the stock is standing, has a right to presumo that no certificate has issued, or if one has, that his vendor has duly surrendered it for cancellation.” No certificate of stock having been issued to Porter, the bank was not guilty of any dereliction of duty in permitting a transfer of Porter’s stock to Smith, upon the books of the bank. Smith became, as between him and the bank, the owner of the stock, and entitled to a certificate therefor, under the by-laws of the corporation. Whilst the relative rights of the parties remained in this condition, on January 15, 1873, Porter borrowed $1,200 of Charles Whitaker, to pay Smith, and for other purposes, and at the same time entered into an agreement in wilting with said Whitaker, to sell to him said ten shares of stock for $1,600, if he should so elect in a given number of days, in which case he was to pay said Porter $400 in addition to the amount borrowed, and, if said Whitaker did not so elect the $1,200 was to be and remain a loan, and the stock collateral to it, and by said contract said Smith was to, and did, hold said stock as before as trustee for the parties, to execute and see that the agreement was carried out. This agreement was made and Whitaker ad*587vanced $1,200 before he knew anything of the arrangement between Gifford and Porter, concerning said stock. Upon these facts some of the members of this court entertain the following views: By this agreement and advancement Whitaker became entitled to all the rights of Smith to the extent of his advancement. Smith was, at that time, as between him and the bank, the owner of the legal title. In fact he was the owner of the legal title against all the parties to the transaction. Porter, however, had an equity, which he could assert or not, at his pleasure. -If he failed to assert such equity Gifford could not as against Smith, for his equity was superior to Gifford’s, and was coupled with the legal title. By the agreement Whitaker became entitled to all the rights of Smith, and was entitled to the transfer of the legal title to the stock on the books of the bank as collateral security for $1,200. If, thus entitled to the legal title, he began an action against the bank he could have compelled that to which he was legally entitled. The fact that the Bank, Whitaker and Smith, after Whitaker advanced the $1,200 and became entitled to the transfer of the stock, received notice of Gifford’s equity, cannot change this result, because Whitaker was still entitled to the transfer of the legal title as collateral security for the $1,200. The Bank did voluntarily what it could have been compelled to do, and is not, therefore, liable to the defendant in any manner whatever.
The view, however, which is more satisfactory to the writer, is the following: -By the agreement and advancement Whitaker became entitled to a transfer of the stock as collateral security for the amount of the loan. After Smith, Whitaker and Hiram Pi’ice, the president of the Bank, had notice from Gifford of the arrangement between himself and Porter in relation to said stock, the Bank permitted Smith to surrendex-, and have canceled, his certificate of stock, to transfer the stock on the books of the Bank to Whitakex’, and issued a new certificate of the stock to Whitaker, who now holds the saxne. We need not detex’mixxe whether Whitaker could, after notice of Gifford’s claim, make any further payment, and acquire any rights to the stock, other than as a security for the $1,200 loan. If he could, he became entitled to an absolute transfer of the *588stock, and to a certificate therefor, by his payment of the further sum of $100, under the agreement. If he could not, notwithstanding the transfer and issue of stock to him, he holds the balance thereof, above the sum of $1,200, in trust for Gifford. It may be that the bank, in permitting an absolute transfer and the issuance of a stock certificate to Whitaker, has vested in him a greater title than he is under the circumstances entitled to. But the bank ought not, because of this, to be held liable for the value of the excess of the stock, unless Gifford has sustained some damage by the bank’s action.
It appears from the finding of facts that Whitaker still owns the stock. If he is not entitled to it absolutely, he holds the excess of it over $1,200 in trust for Gifford. If Gifford' is entitled to any relief, he has a complete remedy against Whitaker. The bank ought not to be held responsible in damages, so long as it appears that its action has occasioned no injury. We unite in the opinion that the conclusion heretofore reached must be adhered to.