106 F. 558 | 8th Cir. | 1901
after stating the ease as above, delivered the opinion of the court.
Corporations issue certificates of the ownership of their stock. They condition the rights of their stockholders to vote, to participate in their management, and to receive dividends upon their stock, upon a registry of their ownership of their shares in the corporate books and upon these certificates. They make the certificates and keep the registries, and they thereby assume an obligation to each stockholder to use reasonable diligence to certify, and to make their records declare the truth. No man can be lawfully deprived of his property without his consent except by due process of law, and, if he once becomes the owner of stock in a corporation, that association cannot recklessly deprive him of that ownership, and confer it upon another, without liability for the damage it causes. It is bound to use reasonable diligence in every case to ascertain whether or not a transfer of stock requested is duly authorized by the former owner, to make those transfers that are so authorized, and to prevent those that are unauthorized; and for every breach of this obligation it is legally liable to the parties injured for the damage it thus inflicts. Telegraph Co. v. Davenport, 97 U. S. 369, 371, 372, 24 L. Ed. 1047; Cook, Stock, Stockh. & Corp. Law, § 327; St. Romes v. Cotton-Press Co., 127 U. S. 614, 8 Sup. Ct. 1335, 32 L. Ed. 289; Loring v. Salisbury Mills, 125 Mass. 138; Same v. Frue, 104 U. S. 223, 26 L. Ed. 713; Salisbury Mills v. Townsend, 109 Mass. 115; Pratt v. Manufacturing Co., 123 Mass. 110; Pennsylvania R. Co.’s Appeal, 86 Pa. 80.
At the time of the transfer of this stock of which complaint is here made, the appellee was its equitable owner; 'and Felix J. Stark, his brother, held the title to it in trust for his benefit, with no authority to sell or to transfer it. The certificates which represented it and the corporate books alike declared, not that Felix J. Stark, but that Felix J. Stark, trustee, held the title to it. Felix violated his trust.
Rut the word “trustee” means something. It is a warning and declaration to every one who reads it (1) that the person so named is not the owner of the property to which it relates; (2) that he holds it for the use and benefit of another; and (8) that he has no right or power to sell or dispose of it without the assent of his cestui que trust. It denies the equitable ownership and beneficial interest of the party to whom it is applied, and asserts that he holds it in a representative capacity. It signifies the opposite of the word “owner,” and means that, while the party called “trustee” has the naked legal tide, he has no beneficial right, title, or interest in the properly. Ño one who should read in stock certificates or in corporate records that one share was owned by Felix J. Stark, while another was owned by Felix J. Stark, trustee, would fail to understand that he held die former for himself, and the latter for another. Not only this, hut the term “trustee” is a term of administration, and not of sale. A trustee ordinarily holds the property intrusted to his charge to collect the rents, issues, dividends, or profits thereof, and to apply them to some specified use. Brokers, administrators, and executors frequently have the power to dispose of the property intrusted to their
It is said, however, that the term “trustee” gave no indication of the name of the equitable owner, and that this fact relieved the corporation from the dischárge of its duty. This corporation was bound to exercise reasonable diligence to ascertain whether or not the equitable owner of this stock had authorized its transfer and to prevent its cancellation and its loss by him if he had given no such authority. The warning and declaration which the word “trustee” bore to this corporation that Felix J. Stark was not the owner, that he held it for another, that he had no power to assign it, were certainly sufficient to put the company upon inquiry for the cestui que trust, and for his assent to the surrender and destruction of the certificates. No reasonable man, in the presence of such a warning, and in the honest discharge of such a duty, would fail to investigate; and notice sufficient to put a man of reasonable prudence and intelligence upon inquiry is notice of all the facts which a diligent investigation would develop, or is evidence from which knowledge of those facts may be inferred and found. The mining company asked no questions, made no inquiry, canceled and surrendered the stock .of the appellee upon the unauthorized assignments, and issued certificates and made a record of its ownership by others. This was neither the exercise of reasonable diligence, nor of any diligence, to ascertain the beneficial owner of this stock, and to prevent its transfer without his consent; and it was a clear breach of the obligation of the corporation to discharge this duty. The old excuse for this dereliction that the word “trustee” pointed to no one but the trustee himself of whom inquiry could have been made, and that such an inquiry would have been idle, because he who would violate his trust would make false answers, is again presented. Its futility has been often shown, and perhaps nowhere better than by Sir John Bomilly, master of the rolls, in Jones v. Williams, 24 Beav. 62, where he said:
“With respect to the argument that it was unnecessary to make any inquiry, because it must have led. to no results, I think it impossible to admit the validity*563 of this excuse. I concur in the doctrine of Joños v. Smitu 1 ’ • *Vr»£ ⅛ falso answer or a reasonable answer given to an inquiry mh*>c . 1 - willi the necessity of further inquiry; but I think it impossible ■ ⅛ to come to (Ue conclusion that a ialse answer would lure been cm- ■ ,. i. would have preelndod the necessity of further inquiry. X more ''íuu-ívui -fu •- trine could not be laid down, nor one involving a mare unK-Jfi,-ó.'ri'H,-'q<"¡./!!y, namely, a hypothetical inquiry as to what A. would h ve >¡:úc if K. fc"l ¡¡rid something other Uian what he did say.”
It is no excuse for the failure to make any inquiry that suck an investigation, if made, might have failed to develop the truth,. Shaw v. Spencer, 100 Mass. 382, 390.
The suggestion is made that the bookkeeper of the mining company testified that he remembered that, at the time one lot of stock was transferred to Felix J. Stark as trustee, Felix told him that he was the owner of it, and that it was put in his name as trustee, and in smaller certificates, for the convenience of selling it. But this evidence clearly show's that this statement was not made at the time when the stock was transferred from Stark, trustee, to the purchasers, and that it was not made in response to any inquiry made by the corporation for the cestui que trust, in the discharge of the duty then incumbent upon it. The result is that the appellant was guilty of negligence in canceling (he certificates of the appellee's stock, and certifying and recording its ownership by others, without making an\ inquiry to ascertain for whom the truslee held it, and whether or not (he cestui que trust had authorized its disposition. A corporate record and certificate of ownership of stock by A. If., trustee, is notice to the corporation that he holds it, without the power of disposition, for some cestui que trust; and it is actionable negligence for the corporation to cancel the certificate and transfer the stock on the signature of the trustee to the assignment, without any inquiry for* the cestui que trust, or for liis assent to the transfer. Shaw v. Spencer, 100 Mass. 382, 389; Sturtevant v. Jaques, 14 Allen, 523; Fisher v. Brown, 104 Mass. 259, 261; Duncan v. Jaudon, 15 Wall. 165, 176, 21 L. Ed. 142; Central Nat. Bank v. Connecticut Mut. Life Ins. Co., 104 U. S. 54, 26 L. Ed. 693; Welles v. Larrabee (C. C.) 36 Fed. 866, 870, 871, 2 L. R. A. 471; Bank v. Parson, 54 Minn. 56, 63, 55 N. W. 825; Gaston v. Bank, 29 N. J. Eq. 98, 102; Bundy v. Town of Monticello, 84 Ind. 119. 130; Gerard v. McCormick, 130 N. Y. 261, 267, 29 N. E. 115, 14 L. R. A. 234; Bailey v. Finch, L. R. 7 Q. B. 34; Pannell v. Hurley, 2 Colly. 241; Duggan v. Agency Co., 30 Am. & Eng. Corp. Cas. 89, 95; Sweeny v. Bank, 12 Can. Sup. Ct. 661, 668; Bank v. Lange, 51 Md. 138, 144; Swift v. Williams, 68 Md. 236, 256, 11 Atl. 835; Marbury v. Ehlen, 72 Md. 206, 216, 19 Atl. 648; Lowell, Stocks, § 69; Mor. Priv. Corp. §§ 181, 184; Cook, Stock, Stockh. & Corp. Law, §§ 325, 327. There are three early decisions which repudiate this declaration of the law. They are Brewster v. Sime, 42 Cal. 139, 145 (decided in 1871); Thompson v. Toland, 48 Cal. 99, 113 (decided in 1874); and Albert v. Mayor, etc., 2 Md. 159, 171 (a decision rendered in 1852, which lias been overruled by the supreme court of Maryland in 'Marbury v. Ehlen, 72 Md. 206, 216, 19 All. 648). But these decisions have not been followed, and the reason of the case, the later decisions of the courts, and the declarations
It is contended, however, that the appellee is estopped from, insisting^afion his claim to recover in this case, because before his stock wás placed in the name of Felix J. Stark, trustee, the former certificates which represented it were, by assignments in blank by powers of attorney, and by delivery of possession, placed under the absolute control of Felix J. Stark, who might then have sold and assigned them without notice to the corporation of the trust relation. The answer is that he did not sell and transfer them when he appeared to.be the owner and to have the control of them. While they stood in his name as owner, or while the certificates were assigned in blank, and he had the power to insert the name of the assignee, he appeared to be the owner, and was thereby given apparent authority to sell and dispose of the stock. If he had used this appearance of power, the appellee would have been estopped to deny that the power existed, .because he caused that power to appear to be granted to his brother. He did not use it, but caused notice to be spread upon the records of this corporation, and to be inserted in the certificates, that he held the title to this stock, not for himself, but as trustee for another. When this had been done, the corporation had recerred its notice, and it was too late for it to rely upon an appearance that had been removed. Felix J. Stark had raised the red flag. He had notified the corporation that he was not the owner, and had not the power to dispose of the stock without the assent of his cestui que trust. For this reason the appellee was not estopped from enforcing his rights and recovering the value of his stock.
Another objection to the decree for the appellee is that Felix J. Stark was a broker in Salt Lake City, and that it was an established custom among the brokers of that city to carry in their names as trustees the stock of third parties, and to assign and transfer it without the consent of their cestuis que trustent. There is no evidence that this custom was known to the appellee, who was a resident of the city of St. Louis. But there is another and a conclusive reason why it cannot deprive the-appellee of his property in this case. It changes the nature — the essence — of the relation of trustee and cestui que trust. It gives to the trustee a power which that relation and the obligations which condition it deny, and for that reason it cannot obtain to destroy or change the legal rights of the parties. A local custom which relates simply to the mode of the performance of a contract or to its interpretation, if established and known to the parties, may be enforced. But one which makes a substantial change in the rights and relations of the parties, and which violates a settled rule of law, binds no one who does not know and assent to it. Irwin v. Williar, 110 U. S. 499, 515, 516, 4 Sup. Ct. 160, 28 L. Ed. 225; Allen v. Bank, 120 U. S. 20, 39, 7 Sup. Ct. 460, 30 L. Ed. 573; Robinson v. Mollett, L. R. 7 H. L. 802, 816, 828, 836; Barnard v. Kellogg, 10 Wall. 383, 19 L. Ed. 987; Shaw v. Spencer, 100 Mass. 382, 393; Lehman v. Marshall, 47 Ala. 362; Leuckhart v. Cooper, 3 Bing. N. C. 99; Baxter v. Sherman, 73 Minn. 434, 441, 76 N. W. 211; Lowell, Stocks, § 69.
