Court Opinion

ID: 6895020
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:48:42.288352+00
Date Added: 2024-06-11T16:05:57.272603
License: Public Domain

Lord, C. J.,
dissenting. — The memorandum, it is agreed, establishes the relation of pledgor and pledgee. The inquiry then presented is twofold, viz.: 1st, Whether a pledgee to whom is assigned a certificate of shares of stock of a corporation as collateral security for a promissory note, executed by the pledgor with an irrevocable power of attorney, authorizing such pledgee to transfer such shares to his own name on the books of the company, may, in pursuance of such power or contract, have such transfer made, and a new certificate issued to himself before default and sale; and 2d, whether, after such transfer and issuance of a new certificate, but while such debt or promissory note remains unpaid, the pledgee may, as an incident of such *138pledge or contract, vote such shares of stock. Upon the first point the case of Rich v. Boyce, 39 Md. 314, is decisive. The facts were these: Boyce loaned Eich a sum of money for which he took his note, and also a certificate of stock as a pledge to secure his loan. The face of the certificate declared that it “ was transferable only in person or by attorney on the books of the corporation on return of this certificate.” On it was indorsed a power of attorney executed by Eich, authorizing Boyce to have the stock transferred to his own name on the books of the corporation. Boyce, two days after the loan and before the maturity of the note, surrendered the certificate to the company, and a new certificate was issued to him in his own name. The note falling due, Boyce sued Eich on it.
The court say: “ The sixth exception was taken to the ruling of the court below, refusing to permit the appellant to offer evidence of the market value of the pledged stock at thettime it was pledged. This proof was offered upon the theory that the appellant, by delivering up to the railroad company the certificate of stock No. 727, and taking a certificate of the same number of shares of the same stock in his own name, had thereby converted the certificate No. 727, aud the stock it represented, to his own use. By the power of attorney on the back of the certificate, which is proved to have been executed by the appellant, the appellant was authorized to have the stock transferred to his own name upon the books of the company; and the certificate shows upon its face that this could be done in no other way than by returning the certificate to the company and having another issued to himself. The evidence offered in this exception was therefore clearly inadmissible. The seventh exception is to the refusal of the court to permit evidence to be offered to show that the appellant had never, at any time or in any manner, authorized the appellee to surrender the stock pledged, or to have it re-issued to the appellee in his own name. As we have shown in considering the preceding exception, that such authority was given by the power of attorney indorsed on the back of the certificate, the proof offered was properly rejected. The eighth exception was taken to the rejection of proof of usage or *139custom in Baltimore City among brokers, that a pledgee lias no right to surrender to the company issuing it the stock pledged, and have're-issues in his own name; but that the pledgee must retain the same as pledged until default, and if no default takes place, to return the identical stock pledged to the pledgee. The contract between the parties expressly conferred authority upon the appellee to have the stock transferred to his own name, and as that contract is perfectly plain and unambiguous in its language and terms, no evidence of usage or custom was admissible to explain or control it. The ninth exception was taken to the refusal of the court to permit evidence to be given that the appellee had neither made a demand for the payment of the note, nor offered to return the stock he pledged. The appellee was not bound to make any demand for payment of the money due upon the note, the suit itself being all the demand which the law required. Hor was he obliged to tender a return of the pledge. His contract gave him the right to hold the pledge until the note was paid. All that was required of the appellee was to have the stock ready to be returned on the payment of the money, to secure which the pledge was given. The evidence offered was therefore properly rejected.” And the court further say in respect to certain prayers: “So far from the transfer of stock to the appellee’s own name being a wrongful conversion, it was the mere exercise of an undoubted right conferred upon him by the appellant. Without such right, the pledge would have been doubtful security, as the stock would have been liable to execution or attachment by any creditor of the appellant.”
How, what are the facts in the present case? Seeley assigned and delivered to Reed a certificate of 361 shares of the capital stock of the corporation, as collateral security for the payment of a note of §50,000 given to him by Seeley, and at the same time executed an irrevocable power of attorney authorizing Reed to transfer said shares to his own name on the books of the corporation. Before the note became due, Reed caused the stock to be transferred to his name upon the books of the corporation. Manifestly, he had the right to do this, as it was in conformity with the plain terms of the contract, and in pursuance of the *140right conferred upon him by Seeley. Nor is such transfer to his own name inconsistent with the legal relation of the parties, but necessary to render the pledgee’s security available, and to protect it from attachment or execution of the creditors, if any, of Seeley, the pledgor.
“ The delivery of certificates of stock,” says Mr. Colebrooke, “as collateral security, with a power of attorney to transfer them to another person, confers a power coupled with an interest, and gives to any one claiming under an execution of the power a right to demand of the bank a new certificate of stock. The power thus given can only be revoked by payment of the debt for which the stock has been transferred as collateral security.” (Colebrooke on Collateral Securities, § 272.) “Where,” said Okey, J., “as in this case, the pledgor executes an irrevocable power of attorney, authorizing a transfer of such shares on the books of the bank issuing the same, the pledgee has a right to demand such transfer to be made.” (Dayton National Bank v. Merchants’ National Bank, 37 Ohio St. 215. See, also, Dickinson v. Central National Bank, 129 Mass. 279; Gill v. Continental Gas Co. Law R. 7 Ex. 322.) Eeed, therefore, exercised an undoubted right conferred upon him by Seeley under the plain terms of the contract, when he procured the transfer of the shares to his own name on the books of the corporation. Subsequently, in July, 1886, and while the debt or note still remained unpaid, a meeting of the stockholders was convened and these shares appeared on the books of the company in Eeed’s name. Mr. Seeley attempted to vote these shares, but his vote was rejected. Had Eeed a right to vote these shares pledged to him and standing in his name on the books of the company? “ A person in whose name the stock of the corporation stands is, as to the corporation, a stockholder, and has the rights to vote upon the stock, .... nor would this result follow any the less certain ly if the shares of stock were received in pledge only to secure the payment of a debt, providing the shares were transferred on the books of the company to the name of the pledgee.” (Boynton, J., in Franklin Bank v. Commercial Bank, 36 Ohio St. 355.) “In the absence of restrictive statutes,” says Mr. Colebrooke, “the pledgee of *141certificates of stock, indorsed and transferred on the books of the company, has a right to vote at its meetings. His name appearing as stockholder upon the records of the corporation, he becomes for all purposes a stockholder. The right to vote is an incident of the pledge, and according to the presumed intentions of the parties. Where such stock remains in the name of the pledgor on the books of the company, the right to vote remains with him.” (Colebrooke on Collateral Securities, § 283, and notes 2, 3, in which numerous authorities are cited.) Now Need had put his name on the books of the corporation by force of the authority conferred on him by the power of attorney executed by Seeley; that power being coupled with an interest remained irrevocable until the note was paid, for which the shares of stock were transferred as collateral security. As Seeley had not paid the note the power was unrevoked, and the right of Need to appear upon the books of the corporation as transferee of the shares was intact and according to the terms of the contract. His name thus appearing on the books of the corporation, Heed became liable to the responsibilities and entitled to the privileges of a stockholder, among which is the right to vote. As Seeley had clothed him with the power to assume such duties, responsibilities, and privileges, what right has he to complain while his note remains unpaid and the power unrevoked? When he shall have relieved himself from his default by the payment of his note he will then be entitled to a return of his collateral, or what is the same thing, a transfer of the stock, whereby he may again appear upon the records of the corporation as a stockholder, and entitled to enjoy his privileges as such.