75 Tenn. 1 | Tenn. | 1881
delivered the opinion of the court.
On the 28th of June, 1871, the complainant, "W, H. Cherry, borrowed from the City Bank of Memphis, f1,000, for which he executed and delivered to the bank ins note, due on demand, and, at the same time, deposited with said bank as collateral security, a certificate of forty shares, of $100 each, of the capital stock of the Mississippi "Valley Insurance Company. The certificate was in the following form: “This is to certify that W. H. Cherry is entitled to forty shares in the capital stock of the Mississippi "Valley Insurance Company, transferable in person or by attorney on surrender of this certificate.” On the back of the
On the 19th of June, 1872, complainant executed to the City Bank of Memphis his note at ninety days for $1,000, another sum of money that day borrowed by him, and to secure its payment delivered to the bank, as collateral security, with a similar endorsement and blank power of attorney as above, a certificate of thirty shares of $100 each in the capital stock of the Merchants National Bank. The certificate was in the form of the certificate as above.
On the 31st of July, 1872, the City Bank suspended payments, and proved to be utterly insolvent. Upon inquiry, complainant learned that the certificates of stock, deposited as collateral security for the payment of his notes, were claimed by the defendant, John T. Frost, as having been pledged to him to secure money borrowed from him. by the City Bank. Complainant offered to pay the amount of his two notes upon surrender of his certificates, which offer was refused by the defendant Frost. Complainant then, on the 1st of August, 1872, notified the .Mississippi Valley Insurance Company and the Merchants National Bank not to assign the stock on their books, no assignment having yet been made under the power, and on the 9th of August, 1872, he commenced this suit to enjoin ' the transfer, and to assert his rights. The chancellor, on final hearing, dismissed his bill, and he appealed.
The complainant insists that the defendant is not a bona fide purchaser for value and without notice within the rule of law relied on by the defendant. He bases his contention, first, on the character of the transaction between the defendant and the bank, and, secondly, on the character of the certificate.
It does satisfactorily appear that no money was actually loaned by the defendant to the bank on the 10th of May, 1872. About $3,000 of the consideration of the notes of the bank executed on that day
It is first insisted by the complainant, upon this state of facts, that, even if it be conceded that certificates of stock are .of that character of securities which pass to a bona fide purchaser for value free from the equities of third persons, the defendant only received these certificates as security for a pre-existing debt, and not for a consideration passing at the time. The defendant undertakes to meet this argument by saying in his answer and deposition that each of these transactions was a new one, the previous notes paid, and the new note or notes thereupon executed for the new consideration passing. The deposition of the president of the bank, with whom the transactions were made, is not taken, and, perhaps, in the absence of any positive testimony to the contrary, the defendant’s evidence must be allowed to prevail. The substance
It is next insisted, in this connection, that the certificate of stock in the Merchants Bank was not received by the defendant on the 10th of May, 1872,.
Stock in a corporation, in the sense of the interest of the stockholder, is a species of incorporeal personal property, in the nature of a chose in action. A certificate of stock is only written evidence of the owner
The case now before us raises the very question suggested in the latter clause of the sentence quoted. A pledgee of stock has clearly no right, either by absolute sale or sub-pledge, to convey any greater interest than he himself has in the stock pledged : Talty v. Freedman’s Saving and Tr. Co., 93 U. S., 321. The equity of the pledgor is to redeem his stock by the payment of the debt secured, and that equity would prevail against the equity of any assignee standing in the shoes of the assignor. The question is, therefore, squarely raised in this case whether a sub-pledgee of a certificate of stock transferred with a blank power of attorney, can occupy a better position than his pledgor. In the view taken by the minority of the court in Cornick v. Richards, and still entertained by them, the assignment of the certificate in that form only passed the equitable title, and any subsequent assignee would, under well-settled law, take subject to the prior equity. In the view of the majority of the court, such an assignment passed the legal title, and, logically; the subsequent assignee would also have the legal title, -which, coupled with the equity arising from
The weight of authority, in those States which have adopted the rule that the assignment of a certificate of stock, with a blank power of attorney to transfer, passes the whole title, legal and equitable, undoubtedly is that a sub-assignee, by sale or pledge, may acquire a better right than his assignor. The reason is, that the owner has passed the legal title with an unlimited power of disposition, and cannot set up an unknown equity against a title acquired thereunder in good faith for a valuable consideration, and in due course of trade. It is conceded that the delivery of a chattel or chose to another in pledge is insufficient to preclude the real owner from asserting his rights in case of an unauthorized disposition of it by the pledgee; but, it is said, “ if the owner intrusts to another not merely the possession of the property, but also written evidence over his own signature of title thereto, and of unconditional power of disposition over it, the case is vastly different”: McNeil v. Tenth National Bank, 46 N. Y., 325. The owner is estopped to dispute the title which he has apparently conferred:. Wood v. Smith, 37 Leg. Int., 315; Cushman v. Thayer Man. Co., 76 N. Y., 365; Prall v. Tilt, 28 N. J. Eq., 483. And the owner may always prevent this result by specifying in his transfer that it is made as collateral security.
Upon a reconsideration of the question, the majority of the court adopt these conclusions as the necessary result of the principle settled in Cornick v. Richards, and consider the suggestion in the opinion in that case-
But the proof shows that on the 10th of May,. 1872, when the defendant took the Mississippi 'Valley Ins. Co. certificate of stock, the complainant had paid only forty per cent, of the stock, and the defendant is only a purchaser in due course of trade to the extent of its then value. The subsequent jsayment on and change of the form of complainant’s stock note into a negotiable note still unpaid, no matter what may have been the intention with which the change was made, would not increase the defendant’s interest.
With this modification, the decree below will be affirmed. The defendant Frost will pay the costs of this court.
The costs of the court below will be paid as directed by the chancellor, and the cause will be remanded for further proceedings upon the motion of the defendant Frost for damages by reason of the injunction.