Court Opinion

ID: 8260104
Source: CourtListenerOpinion
Date Created: 2022-10-16 15:52:59.426383+00
Date Added: 2024-06-11T16:43:09.284853
License: Public Domain

Thompson, J.
This was an action in the nature of a suit in equity to compel the defendant to issue to the plaintiff other certificates of stock in the place of his original certificates, alleged to have been lost, without the word, “duplicate,” or any other words being written upon them to indicate that they were issued in place of other certificates, which are still outstanding. Such proceedings were had in the circuit court that the court ordered the defendant to issue such new certificate to the plaintiff without any such words being upon it, the plaintiff having given to the defendant a bond of indemnity in the sum of $20,000, containing the following clause: “In consideration of said Eureka Brick Machine Manufacturing Company issuing to said H. H. Keller duplicate shares of stock in said company in the place, of said shares lost (the parties bind themselves) to hold themselves responsible to said company for any loss they may be liable for in the issuing or by reason of having to issue said duplicate shares of stock to said *86Keller.” This bond was signed by George O. Hull, the cashier of the bank to which the certificates were delivered by the plaintiff, and also by James Hull, the brother to whom he claims to have delivered them for safe keeping, — a circumstance which tends to show their good faith in the matter and their willingness to assist the plaintiff ,in repairing, as far as possible, the damage accruing to him from the unfortunate accident.
The certificates, alleged to have been lost, were certificates for one hundred shares of stock, in the aggregate, in the defendant company,, of the nominal value of $100 per share. The plaintiff was one of the' original members of the corporation, and its first president. The certificates were issued to him directly by the company, and in his name. He delivered them to the National Bank of St. Joseph as collateral security for the faithful performance by him of an obligation. He testifies that, when so delivered, they were not indorsed in blank; but Mr. Hull, the cashier of the bank, testifies that they were so indorsed, not from positive recollection, but from the fact that' it was his habit not to receive stock as collateral security which was not so indorsed. The transaction took place after banking hours, and the cashier states that he delivered the certificates to his brother for safe keeping. Some two months afterwards, such events having supervened that the plaintiff became entitled to have them redelivered to him, a search was made for them, and they could not be found. James Hull, the brother of the cashier, who was collector of state and county revenue at St. Joseph, denies that the certificates were ever delivered to him, and testifies that he never saw them, but does not deny that an envelope containing them may have been left at his office.
It further appears that, upon the plaintiff tendering to the defendant the bond of indemnity, with the condition above quoted, the latter tendered to him a new certificate, containing the word, “duplicate,” and also the *87following words : “These certificates, issued in lieu of numbers 45, 46, 47 and 48, claimed to have been lost and unindorsed ; ” and also, in another place, the words, “ Duplicate original claimed to have been lost.” The evidence also shows that the plaintiff could have sold the shares, if he could have produced a certificate which did not contain the words showing that it had been issued in lieu of another, claimed to have been lost.
• It is thns perceived that the question which arises on this record is, whether, upon tendering sufficient indemnity, a stockholder, who has lost or mislaid his certificate, is entitled to the aid of a court of equity to compel the corporation to issue to him other certificates, which on their face purport to be originals, and which contain no notice that they are issued in lieu of those claimed to have been lost, in the absence of any statute, by-law or other express legal or conventional obligation so to do.
We lay out of view the case, where the original certificate is shown by satisfactory evidence to have been destroyed, for that is not the case before us, and we do not wish to be understood as intimating any opinion as to what a court of equity ought to do under such circumstances. We also wish to be understood as not denying the jurisdiction of a court of equity to grant appropriate relief, on indemnity being given* to the owner of a written obligation shown to have been lost or destroyed. The existence of such a jurisdiction has been affirmed in Savannah National Bank v. Haskins, 101 Mass. 370; Galveston City Co. v. Sibley, 56 Tex. 269, and in other cases. The question before us is as to . the extent to which such a court will grant relief in the case of a loss of an instrument of the peculiar nature of a stock certificate.
What, then, is a stock certificate % It is a solemn and continuing affirmation by the corporation that the person, to whom it was issued, is entitled to all the rights and subject to all the liabilities of a stockholder *88in the company in respect1 of the number of shares named, and that the company will respect his rights, and the rights of anyone to whom he may transfer such shares, by refusing to admit any new transferee to the .rights of a shareholder except upon surrendering of the certificate. While it is not in a strict sense a negotiable instrument, yet it, partakes to a great extent of the qualities of a negotiable security. Upon being indorsed by- the original holder therein named, by signing a blank power of attorney, authorizing the person therein named to cause it to be transferred on the books of the corporation, it passes from hand to hand by delivery, very much as does a negotiable bond. When it falls into the hands of one, who buys not for speculation but for investment, and who wishes to be admitted to the rights of. a stockholder, he inserts a name in the blank power of attorney, and the person so empowered demands of the corporation the right to transfer it on the books of the company to the present holder. If this demand is refused, the holder has two remedies: First. An action against the corporation for damages for the conversion of his shares. McAllister v. Kuhn, 96 U. S. 87 (affirming s. c., 1 Utah, 275); Bank v. Lanier, 11 Wall. (U. S.) 369; Holbrook v. Zinc Co., 57 N. Y. 616; Payne v. Elliott, 54 Cal. 339; s. c., 35 Am. Rep. 80; Ayres v. French, 41 Conn. 142; Boylan v. Huguet, 8 Nev. 345; Bond v. Iron Co., 99 Mass. 505; Freeman v. Harwood, 49 Me. 195; Baltimore, etc., Ry. Co. v. Sewell, 35 Md., 238; s. c., 6 Am. Rep. 402; Pratt v. Railroad, 126 Mass. 443. Second. A-suit in equity to compel the corporation to issue a new certificate to him and to admit him to the rights of a shareholder. Cushman v. Mfg. Co., 76 N. Y. 365; s. c., 32 Am. Rep. 315; Iron Ry. Co. v. Fink, 41 Ohio St. 321; Chew v. Bank, 14 Md. 299; St. Romes v. Press Co., 127 U. S. 614; Tel. Co. v. Davenport, 97 U. S. 369.
Both of these remedies necessarily proceed on the ground, that the holder of the certificate is entitled to *89be admitted by the corporation.to the rights of a shareholder, and that the corporation denies this right. The second remedy also proceeds upon the well-known principle that, in the eye of a court of equity, a corporation is a trustee for its shareholders for the purpose .of protecting their rights as such.
Let us next inquire, with special reference to the facts of this case, what is the liability of the corporation where it issues a certificate of stock, which by its terms is transferable only on the books of the‘company, and then, on the representation of the person to whom it was originally issued that it has been lost or destroyed, issues to him. another certificate, and he negotiates the latter to an innocent taker. It incurs the risk of a double liability in respect of the same shares. There are two adjudications on this point. In Greenleaf v. Ludington, 15 Wis. 558, the holder of a stock certificate assigned it, and then presented to the company an affidavit that he had lost it, and gave bond of indemnity and procured from the company a new negotiable one. Thereafter the holder of the original certificate demanded of the company a transfer of the title on its books to him, which the company refused. It was held that he could maintain an action against the company for damages. So, in Cleveland, etc., Ry. Co. v. Robbins, 35 Ohio St. 483, certain shares were transferred by the person named in the certificate to a bona fide purchaser in the usual way of signing the blank power of attorney indorsed on the certificate. Afterwards the company issued to a third party new certificates on the supposition, that the originals had been lost by the original holder. It was held that it must make good the damages to the bona fide transferee.
These cases, in what they hold, are consistent with the theory advanced by the court of appeals of New York in the celebrated Schuyler fraud cases, and no doubt held by other courts, that, in the case of an *90attempted double transfer of the same shares, the bona fide taker, to whom they are first transferred on the books of the company in the regular way, gets the title and is the shareholder. In the second of these - cases it was said by Davis, J.: “Where the stock of a corporation is by the terms of its charter or by-laws transferable only on its books, the purchaser, who receives a certificate with power of attorney, gets the entire title, legal and equitable, as between himself and his seller, with all ■ the fights the latter possessed ; but, as between himself and the corporation, he acquires only an equitable title, which they are bound to recognize and permit to be ripened, into a legal title, when he presents himself, before any effective transfer on the books has been made, to do the acts required by the charter or by-laws in order to make a transfer. Until those acts be done,, he is not a stockholder, and has no claim to act as such; but possesses, as between himself and the corporation, by virtue of the certificate and power, the right to make himself, or whomsoever he chooses, a stockholder by the prescribed transfer. The stock not having-passed by the delivery of the certificate and power of attorney, the-legal title remains in the seller, so far as affects the company and subsequent bona fide purchasers who take by transfer duly made on the books. And hence a buyer, in good faith, of the person in whose, name the stock stands on the books, who takes a transfer in conformity to the charter or by-laws, permitted to be made by the authorized officer of the corporation, becomes vested with a complete title to the stock, and cuts off all the rights and equities of the holder of the certificate to the stoelc itself. What other rights and equities he may possess, is another question ; but if the transferee has taken in good faith and for value, the stock is gone beyond his reach and beyond recall by the corporation. 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 *91the 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 permitted by the corporation to be made on its books by one to whose credit the stock is standing, has a right to presume that no certificate has issued, or, if one has, that his vendor has duly surrendered it for cancellation.”
This reasoning contains the further suggestion, that to compel a corporation to issue a second original certificate in the place of one alleged to have been lost might put it in the hands, of third persons to prejudice the rights of the public by imposing upon them as purchasers one or the other of these certificates. Both cannot be good. The certificate is only the symbol, it is not the stock. There may be two certificates in respect of the same shares, but there cannot be two sets of the same shares held in full ownership by two different persons, or by one person. If one certificate is good so as to confer the rights of a shareholder upon its owner, the other is void, except as giving an action for damages against the corporation. This is obvious when it is considered that the shares of the corporation can only be increased in the manner pointed out by its charter or governing statute, and not by the misprisions of its ministerial officers. Upon this ground it has been held that, if all the shares which the company is empowered to issue have been issued, and if other shares are thereafter issued, such excessive issue of shares is void, and does not even make their holders liable to creditors of the company. Scovill v. Thayer, 105 U. S. 143, 148, and cases cited. If then a corporation can be compelled, on proof satisfactory to a court of equity and a bond of indemnity being given, to issue other original certificates in place of certificates claimed to have been lost, it may place in the hands ©f third *92parties the means of defrauding the public by conveying to them certificates of shares which do not give to them the rights of shareholders, but which only give to them the right to maintain a lawsuit against the company. . >
It is not necessary, for the purpose of this decision, •for ns to express an opinion, as to which of the certificate-holders, in such a case, would be entitled to the rights of stockholders as against the company. That question could only properly arise for determination in the contingency named, and we ought not to express an opinion upon it in this case, especially as- no-parties directly interested- in determining it are before the court. It is sufficient for the purposes of this case for ns to say that there are opposing theories on the subject. The New York doctrine,* as shown by the language above quoted, is that the one whose transfer is first regularly made on the books of the corporation is the real stockholder. But, on the other hand, the supreme court of Illinois has held in Hall v. Road Co., 70 Ill. 673, that, if the secretary of a corporation issues new certificates of stock to one claiming to have purchased existing shares therein, without taking up and canceling the original, the new certificates will be invalid. Under this theory it is possible (though we do not so decide) that, if relief were granted in this case, as demanded by the plain tiff, a bona fide purchaser of the new certificates would get no rights as a share-. holder, but only an action for damages against the coi’poration. Assuming that such a result is possible, it follows thaf any person to whom a certificate of corporate stock is offered for sale, which has been issued in lieu of another certificate still outstanding, has a right to know that fact. Upon what principle, then, shall a court of equity oblige a corporation to issue, in such a case as this, a new certificate concealing that fact? The concealment of such a fact by the holder from a purchaser -might be such a fraudulent concealment as *93would avoid the sale. Can a court of equity make itself a party to such a fraudulent concealment?
It may be conceded, for the purposes of this case, that, where certificates of stock pass out of the hands of the original owner by theft, fraud, or even by accident, without negligence, a bona fide transferee, into whose hands they may subsequently come, will get no title which he can assert against the true owner, and hone which he can oblige the corporation to recognize. Biddle v. Bayard, 13 Pa. St. 150; Sherwood v. Meadow Valley, etc., Co., 50 Cal. 412. But, where he signs a blank indorsement of transfer, with an irrevocable power of attorney on the back of the certificate, and delivers it so signed to a third person, he not only voluntarily puts such third person in possession of the usual symbol of his property, but he also confers on him evidence of title, so that he may pass a good title to others, as against the original owner, to an innocent purchaser, although he has, in making the transfer to the innocent purchaser, proceeded in fraud of the original owner and exceeded the authority actually conferred. McNeil v. Bank, 46 N. Y. 325; s. c., 7 Am. Rep. 341; Merchants' Bank v. Livingston, 74 N. Y. 223; Mt. Holly, etc., Co. v. Ferree, 17 N. J. Eq. 117; Walker v. Railroad, 47 Mich. 338. Assuming the soundness of these decisions, it follows that in this case the plaintiff, having voluntarily • delivered the certificates to the bank cashier, indorsed in blank as the cashier thinks, if the latter should transfer them to a third person for safe keeping, and that third person should wrongfully transfer them to an innocent taker, the plaintiff could not assert a title to them as against such innocent taker. If he could not assert a title to them as against an innocent purchaser, it would be on the ground, that he had parted with his title to the latter ; and, if he had parted with his title to the latter, it is not easy to see how he could subsequently transfer a good title to another by means of a new certificate issued' by the corporation.
*94But as against the corporation the rights of the second purchaser, he being an innocent purchaser, would be at least such that he could maintain an action against the corporation for damages for refusing to transfer the shares to him on its books, — and this wholly without reference to the rights of the preceding purchaser as against the corporation. This was ruled by the supreme-court of the United States in Bank v. Lanier, 11 Wall. 369, 377, where certain bona fide purchasers of-national bank shares sued the bank for damages for refusing to transfer the shares to them on their books. Mr. Justice Davis, in giving the opinion of the court, said : “The power to transfer their stock is one of the most valuable-franchises conferred by congress upon banking associations. Without this power it can readily be seen the-value of the stock would be greatly lessened ; and, obviously, whatever contributes to make the shares of stock a safe mode of investment, and easily convertible, tends, to enhance their value. It is no less to the interest of the shareholder than the public, that the certificate representing his stock should be in a form to secure public-confidence ; for without this he could not negotiate it to any advantage. It is in obedience to this requirement that stock certificates of all kinds have been constructed in a way to invite the confidence of business men, so that they have become the basis of commercial transactions in all the large cities of the country, and are sold in open market the same as other securities. Although neither in form nor character negotiable paper, they approximate to- it as nearly as practicable. If we assume-that the certificates in question are not different from those in general use by corporations, and the assumption is a safe one, it is easy to see why investments of this character are sought after -and relied upon. No better form could be adopted to assure the purchaser that he-.can buy with safety. He is told, under the seal of the corporation, that the shareholder is entitled to so much stock, which can be transferred on the books of the-*95corporation in person or by attorney, when the certificates are surrendered, but not otherwise. This is a notification to all persons interested to know, that whoever in good faith buys the stock, and produces to the corporation the certificates, regularly assigned with power to transfer, is entitled to have the stock transferred to him. And the notification goes .further, for it assures the holder that the corporation will not transfer the stock to anyone not in possession of the certificates.”
Without pursuing this line of inquiry further, we are clear that the company cannot be involved in the double liability, which might follow from having two original certificates for the same shares outstanding, in the absence of any statute, by-law or conventional obligation putting such a liability on it, by the mere fact that one of its shareholders has, through his fault or misfortune, -lost his original certificate, although suitable indemnity is given. If a second certificate conveying no information on its face that it is a duplicate is issued, and is negotiated to an innocent taker, it may find itself under a double liability in respect of the same shares. It majT find that it has issued and received pay for one hundred shares, and that it is liable in respect of two hundred. By this act it may impair the value of the ■shares of every other stockholder in the company. Besides, if it can be required to do this in favor of one ■shareholder who has been so careless or unfortunate as to lose his certificates, it may be required to do so fpr all. In this way it may incur double liabilities, which may not mature for years, in respect of the same shares, against which it holds bonds of indemnity which may be good to-day and worthless to-morrow. Suppose that the new certificates have been negotiated to innocent takers, and in the meantime the bond of indemnity has become worthless ; by what means can the corporation proceed to get a new and sufficient bond ?
These suggestions show the difficulty in the way of granting the relief claimed by the plaintiff in this case; *96and the same difficulties have presented themselves to-other courts. It was felt in a case already cited (Savannah National Bank v. Haskins, 101 Mass. 370), where it was held by a majority of the court that a suit in equity could be maintained for relief by one who had by accident lost a negotiable bill of exchange, where the death of the drawer rendered it impossible to procure a new one, provided suitable indemnity should be given. The question arose on a demurrer to the bill, and the-court only felt called upon to decide, at that stage of the case, that proper relief could be given “where it is in the power of the court to secure the defendant from all appreciable injury.”
The same difficulty was felt by the supreme court of Texas,' in the case of Galveston City Co. v. Sibley, 56 Tex. 269, which was a suit in equity to procure relief analogous to that demanded in the case before us. The court refused to require the company to issue a new certificate in the place of the one alleged to have been lost, but did establish the rights of the plaintiffs as stockholders by its decree, upon their giving a good bond -of indemnity, which provided (among other things) “that this decree, or a certified copy thereof, is and shall be held as evidence of' the right, title and interest of the plaintiffs in and to said stock,” etc. The court said: “To require that the defendant company, in the present-case, should substitute the alleged lost certificate of stock, which was assignable by transfer accompanying it, without being required to be upon the books of the company by a new certificate not defeasible on its face, would be to demand that which the company is not under either a legal or a moral obligation to perform. This, in the event the original certificate was not in fact, lost, might force the company to recognize and pay a share of stock not voluntarily issued by them, and which would to that extent lessen th e value of those previously issued. And, besides, in the event the number of shares authorized by the charter had already been *97issued, then under the guise of judicial authority the company might be compelled to do an unauthorized act and one ultra vires.”
The same difficulty was felt by the court of appeals of Maryland in Chesapeake, etc., Canal Co. v. Blair, 45 Md. 102, where the instrument lost was a negotiable coupon bond which had several years to run, and where the court granted relief in the form of a decree requiring the company to issue non-negotiable certificates in the place of the lost, bond.
The only case which we have been able to find, where the relief prayed for in this case was granted, is the case of Phillips v. Gaslight Co., 25 La. Ann. 413. In this case there was a by-law providing for the issuing of new certificates in place of lost.ones. We observe that-the court also authorized this to be done without indemnity, taking the view that an assignee of the certificate-supposed to be lost (if it should prove not to have been destroyed) would have no rights against the company. This may be the law of' Louisiana, but it is not the general American law, nor is it our law.
We are, therefore, of opinion that the decree of the circuit court must be reversed. We think that the most that can be required of the defendant is to issue to plaintiff duplicate certificates in lieu of the ones which have been lost. We are also of opinion that, if this is all that is required of the company, a bond of indemnity in the sum of $1,000, signed by two solvent sureties will be sufficient. We direct the circuit court, if the plaintiff shall so move, to enter a decree requiring the defendant, on the plaintiff giving to it such a bond, to issue to him stock certificates in lieu of those which have been lost, bearing the same numbers, but. containing the word “Duplicate,” written in red ink or conspicuously printed across their face; and also the following words, “Issued in pursuance of the decree of the circuit court of the city of St. Louis, state of *98Missouri, in the case of Henry Keller v. Eureka Brick Machine Co., being case numbered 81,263, on the docket of that court, in li'eu of other certificates found by the court to have been accidentally lost and not negotiated by said Keller.” It is so ordered.
Judge Rombauer concurs ; Judge Biggs dissents.