24 Del. Ch. 152 | New York Court of Chancery | 1939
This case is before the court on a bill of interpleader filed by E. I. duPont de Nemours & Company, the complainant. The question to be determined is whether, under the undisputed facts hereinafter stated, the 200 shares of the common stock issued by that
On the afternoon of September 26th, 1935, F. Irving Walls, the managing head of F. Irving Walls & Co., engaged in the brokerage business in the City of Wilmington, but not a member of the New York Stock Exchange, inquired of the Wilmington office of Francis I. duPont & Co., whether, if an order were placed with that company before three o’clock that day for the purchase of 200 shares of the common stock of E. I. duPont de Nemours & Company, the certificates could be delivered on the following morning. He stated that it would have “the features of a cash transaction.” Francis I. duPont & Co. was a member of the New York Stock Exchange, and, also, maintained an office in that city. The customary delivery period of stock, purchased through a brokerage house, is two days after the receipt of the order, and, on this inquiry being made, that company communicated with its New York office and inquired whether the delivery of the stock in question on the following day would violate the rules of the Stock Exchange. Being informed that the said stock could be delivered on the day and time in question Francis I. duPont & Co. communicated this information to Walls & Co., and the order for the purchase of the stock was thereupon given and executed. The stock certificates in question were duly received by Francis I. duPont & Co., at its Wilmington office, on the morning of September 27th, 1935, and were promptly delivered by that company to the Walls Company. At the same time a check for $25,650.00, payable to the order of Francis I. duPont & Company, drawn by the Walls Company on the Central National Bank, of Wilmington, and which represented the purchase price of the stock so sold, was delivered to Francis I. duPont & Co. A receipt for these certificates, made out in the usual form, was, also, given at that time by the Walls Company to the Francis I. duPont Company. The usual confirmatory notice of the sale of that
On September 28th, in the usual course of business, that check was forwarded to the Wilmington Trust Company for payment, but was subsequently returned unpaid, with the notation “payment stopped.” Because of its inability to deliver new certificates to the purchaser of the 200 shares of duPont common, sold on the New York Stock Exchange pursuant to the order of Walls & Co., on September 27th, 1935, Laird & Company delivered to Belden & Company, the purchaser of that stock, 200 shares of the same stock owned by it in its individual capacity, and in which Walls & Co., had no interest, whatever.
The proceeds arising from the sale of the stock so sold by Laird & Company for the Walls Company was $25,214.23, and on October 1st, 1935, the customary delivery date of stock sold on the exchange,, and in the due course of business that amount was credited to the accounts of Walls & Co., on the books of Laird & Company. The $24,000 check, on account, had been previously charged to that account on September 27th, but on the same date, when payment of
From the undisputed facts, it must, therefore, be conceded that the delivery of the common stock certificates of the complainant company by Francis I. duPont & Co., to Walls & Co., was procured by fraud, in that the check for $25,650.00, which represented the purchase price of that" stock, was not only never paid, but, when it was drawn and delivered, Walls & Co. knew that it did not have sufficient funds in bank to meet it when it should be presented for payment. But it must, also, be conceded:
(1) That, prior to the delivery of such stock certificates by Francis I. duPont & Co., to Walls & Co., they had been endorsed in street form, and in that form were subsequently delivered by the Walls Company to Laird & Company for sale; and pursuant to that direction the stock represented thereby was, in fact, sold in two lots by the latter company on the New York Stock Exchange on September 27th, 1935.
(2) That Laird & Company had no notice, whatever, of the fraud previously practiced by Walls & Co., in procuring the stock certificates in question and, relying on the apparent ownership by that company indicated by the possession and form of the certificates, not only made substantial monetary advances thereon, but was, also, forced to deliver other like certificates of the complainant company, owned by it individually, to the purchaser on the Stock Exchange, in order to carry out its contracts of sale.
(3) The only fair inference that can be drawn from the evidence is that both of the sales of the stock of the complainant company in question were made on the morning of September 27th, 1935, before the death of Walls, and before any question, with respect to the real" ownership of*160 that stock, had been raised. In fact, 100 shares thereof had been sold before the $24,000 advance was made by Laird & Company.
Under the pleadings and the admitted facts, the controversy is, therefore, between Francis 1. duPont & Co., and Laird & Company, and not between Francis I. duPont & Co., and Walls & Co.
The Uniform Stock Transfer Act has never been adopted in this State, so the determination of this case is necessarily governed by equitable principles, and not by the provisions of that act.
It must be conceded that one having no title to goods, chattels, or other personal property can ordinarily pass none, by an alleged sale to another person. Mears v. Waples, 4 Houst. 62; McNeil v. Tenth National Bank, 46 N. Y. 325, 7 Am. Rep. 341.
At common law, a sale in a market overt was ordinarily an exception to that general rule (Mears v. Waples, 4 Houst. 62), but sale of that nature, and the rights incident thereto, were never recognized in this country. Bouv. Law Dict., (Rawles 3rd Rev.) 2095.
But another well established and still recognized exception to the general rule above stated is that where the real owner of goods, chattels, or other personal property, by some act on his part, has given to another person the apparent indicia of title thereto, and, therefore, the apparent right to dispose of such property, a bona fide purchaser, or pledgee, for value from the person holding such evidence of title will be protected against the claim of the real owner. Mears v. Waples, 4 Houst, 62; McNeil v. Tenth Nat. Bank, 46 N. Y. 325, 7 Am. Rep. 341; Russell v. Amer. Bell Tel. Co., 180 Mass. 467, 62 N. E. 751; Baker v. Davie, 211 Mass. 429, 97 N. E. 1094; National Safe Dep. Co. v. Hibbs, 229 U. S. 391, 33 S. Ct. 818, 57 L. Ed. 1241; 12 Fletch. on Corp., § 5565; see, also, 52 Harvard Law Rev., 555.
“It must be conceded that as a general rule, applicable to property other than negotiable securities, the vendor or pledgor can convey no greater right or title than he has. But this is a truism, predicable of a simple transfer from one party to another where no other element intervenes. It does not interfere with the well-established principle, that where the true owner holds out another, or allows him to appear, as the owner of, or as having full power of disposition over the property, and innocent third parties are thus led into dealing with such apparent owner, they will be protected.”
The mere possession of chattels or other personal property, whether as a mere depository, pledgee or other bailee, without any other evidence of title, or authority to sell, does not come within this rule, and will not enable the possessor, by a sale of it, to give a good title to such property. McNeil v. Tenth Nat. Bank, 46 N. Y. 325, 7 Am. Rep. 341. But, as already indicated, a very different rule ordinarily applies when the owner of such property, not only gives another person possession of it, but, also, gives him written evidence of title, and the apparent power to dispose of it. McNeil v. Tenth Nat. Bank, 46 N. Y. 325, 7 Am. Rep. 341, and other cases above cited.
The delivery of stock certificates, endorsed in street form, _ usually comes within this rule, if they are sold or pledged to a bona fide purchaser for value, without notice of any defects in the title of the seller. This is not cri the ground that such certificates are negotiable instruments, but on the ground of estoppel, based on the negligent or other acts of the real owner, which tend to mislead a bona fide purchaser or pledgee for value. Baker v. Davie, 211 Mass. 429, 97 N. E. 1094; Russell v. American Bell Tel. Co., 180 Mass. 467, 62 N. E. 751; National Safe Deposit Co. v. Hibbs, 229 U. S. 391, 33 S. Ct. 818, 57 L. Ed. 1241.
The recognition of these general principles is merely the application to particular facts of the well settled equitable rule that “wherever one of two innocent persons must
Applying these principles to the facts of this case, the delivery by the Francis I. duPont Company of the certificates in question in street form to the Walls Company clothed that company with the apparent indicia of title to that stock, and thereby enabled it to mislead Laird & Company, an innocent party, who, acting in entire good faith, has parted with more than the value of the stock so delivered to it for sale. The equities of the case are, therefore, in favor of Laird & Company, though the Walls Company check for $25,650 was never paid. Laird & Company is, therefore, entitled to have issued and delivered to it certificates for the stock in question. It is, also, entitled to the unpaid dividends on that stock since September 27th, 1935.
Neither Truxton v. Fait & Slagle Company, 1 Pennewill 483, 42 A. 431, 73 Am. St. Rep. 81, nor any other case cited on behalf of Francis I. duPont & Co., is inconsistent with this conclusion.
It is true that in Hunt, Receiver v. Drug, Inc., [5 W. W. Harr. (35 Del.) 332, 156 A. 384] the Superior Court held that a bona fide purchaser for value from a thief of a stock certificate, endorsed in blank, could not assert title to that certificate, where no negligence on the part of the real owner was shown. But that principle has no application to this case because the Francis I. duPont Company unquestionably delivered the certificates to the Walls Company.
A decree will be entered in accordance with this opinion.
Note. Before decree entered this opinion was modified in one particular. See fast f. 250.