151 Tenn. 21 | Tenn. | 1924

Mr. Chief Justice Green

delivered the opinion of the Court.

The complainant Heymann, who resided in New York, sent to one Silverman, a stockbroker in Chattanooga, ninety shares of Dixie Portland Cement Company stock. This stock was sent to Silverman upon representations of the latter that he had found a purchaser for same at a price satisfactory to complainant, and, upon further representation or promise by Silverman, that he would immediately remit proceeds of the sale to the complainant.

*24Instead of selling said stock sent to him as above, Sil-verman pledged thirty-nine shares of it to the Hamilton National Bank, along with some other stock, as security for a loan Silverman obtained from that institution. This record does not show what Silverman did with the remainder of the stock sent him by complainant. Only the thirty-nine shares aforesaid are involved in this suit.

It seems that Silverman was very much involved and committed suicide a day or two after pledging complainant’s stock to the Hamilton National Bank.

This suit is brought by complainant to recover said thirty-nine shares of stock or the válue thereof from defendant bank. The bank answered and denied complainant’s right to the relief sought, on the ground that it had obtained these shares as an innocent purchaser for value. The chancellor sustained this defense and dismissed complainant’s bill, from which decree he has appealed to this court.

The stock pledged to defendant bank consisted of several certificates, all issued to complainant Heymann, and on the back of each of the certificates the following appeared :

“For value received, - hereby sell, assign and transfer unto-share of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint-— to transfer the said stock on the books of the within named corporation with full power of substitution in the premises. ’ ’

These indorsements had been dated and signed by the complainant when the certificates were sent to Silverman.

Although some criticism is made of the testimony of Preston, the bank officer making the loan to Silverman, *25we think it fairly appears from this testimony that the hank loaned Silverman $5,500, evidenced by note, and that to secure this note Silverman attached to it, as collateral, fifty shares of Dixie Portland Cement Company stock (thirty-nine of which were Heymann’s) and two hundred shares of Columbia Grafonola Company stock. The proof does not indicate that this is a case similar to Banking Co. v. Hall, 119 Tenn., 548, 108 S. W., 1068, in which the borrower merely got credit for the proceeds of the paper discounted. In the case before us it appears that Silverman actually got the money on the note aforesaid, and used it to take down certain shares of Coca Cola stock attached to a draft he had drawn on parties in New Orleans, which draft had been dishonored and returned.

While certificates of stock are not negotiable instruments, it is well settled in Tennessee that when they are indorsed by the owner, in blank, with an assignment for value, and with a power of attorney to make transfer on the books of the company, and placed in the hands of another person, such other person may confer good title to the shares represented by the certificates upon an innocent purchaser for value. It makes no difference so far as the rights of the innocent purchaser for value are concerned that the delivery to him was unauthorized or was a breach of trust. Hood title may pass under these circumstances to an innocent purchaser for value either by way of outright sale or pledge. This is upon the theory that the owner of the certificates by so indorsing them in blank and placing them in the hands of another person has conferred upon that person all the indicia of *26ownership, and is therefore estopped to question the title of one acquiring such stock for value and in good faith from the apparent owner. Cherry v. Frost, 75 Tenn., (7 Lea), 1; Bank v. Farrington, 81 Tenn. (13 Lea), 336; Caulkins v. Gas Co., 85 Tenn., 684, 4 S. W., 287, 4 Am. St. Rep., 786; Planing Mill Co. v. Bank, 86 Tenn., 252, 6 S. W., 340, 6 Am. St. Rep., 835; Smith v. Railroad, 91 Tenn., 222, 118 S. W., 546; Parker v. Bethel Hotel Co., 96 Tenn., 252, 34 S. W., 209, 31 L. R. A., 706; McClung v. Colwell, 107 Tenn., 592, 64 S. W., 890, 89 Am. St. Rep., 961.

We think there is nothing in the indorsement appearing on the certificates in suit which distinguishes it from the indorsements on certificates involved in the cases just cited. So far then as complainant’s stock was pledged to secure money advanced in good faith thereupon by the hank, the hank obtained good title thereto.

It appears, however, from the testimony of Preston, the hank officer, that the proceeds of the collateral deposited to secure the $5,500 loan was not all required for the discharge of this loan. There was a balance left which was applied to other indebtedness due by Silver-man to the bank, this being done under authority of a clause in the note executed by Silverman.

We think the hank had no right to make such application of the balance of the proceeds of complainant’s stock after the $5,500 note was paid. In other words, the bank was a purchaser or holder for value of complainant’s stock only to the extent that said stock was pledged to secure money loaned at the time. As to the past due indebtedness owing by Silverman to the bank, it was not a holder for value of complainant’s stock. *27It was conceded by the court in Cherry v. Frost, supra, that an old indebtedness due from a pledgor to pledgee did not constitute a valuable consideration so as to give the pledgee good title, as against the real owner, the stock wrongfully pledged by'the apparent owner. Past due indebtedness was not in Tennessee treated as “value” in the negotiation of a promissory note, so as to make one, taking such an instrument for an antecedent debt, an innocent bolder for value, prior to the adoption of the Negotiable Instruments Act. Bank v. Johnston, 105 Tenn., 521, 59 S. W., 131.

It is said, however, that chapter 113 of tbe Acts of 3917, called the Uniform Stock Transfer Act, changes tbe rule just stated, and that under that act an antecedent or preexisting obligation is declared to be “value.”

Tbe Dixie Portland Cement Company is chartered under the laws of West Virginia. Chapter 113 of tbe Acts of 1917 is entitled, “An act to make uniform with tbe laws of other States tbe law of transfer of shares of stock in private corporations chartered, organized, and existing under and by virtue of tbe laws of tbe State of Tennessee.” Likewise section 1 of tbe act of.1917 indicates that the provisions of tbe statute are only applicable to certificates of stock in Tennessee corporations.

Section 22, containing definitions of terms employed in tbe act, provides that unless tbe context or subject-matter otherwise requires:

“Certificate means a certificate of stock in a corporation organized under tbe laws of this State or of another State whose laws are consistent with this act.”

*28In the same section “stares” áre defined as shares of stock in a corporation organized under the laws of this State or of another State with consistent laws.

Since the caption of the act limits its scope to provisions with reference to shares of stock in Tennessee corporations, the requirement of section 22, making its provisions relate to shares of stock in corporations chartered in other States, puts another subject in the act, beyond the scope of the title, and renders it unconstitutional. Constitution, article 2, section 17.

The Uniform Stock Transfer Act proposed by the American Bar Association was not intended to be limited to legislation with reference to shares of stock in corporations organized in the particular State of its enactment. The Uniform Act was changed as indicated before its adoption in Tennessee. 6 U. L. A., p. 4.

If any effect is to be given to the definitions of certificates and shares contained in section 22, the act can only be sustained by eliding such provisions. Some of us do not believe that elision is permissible to save an act otherwise bad nnder the two-subject clause of the Constitution. Certainly elision is not permissible in any case if the result so attained will defeat the legislative intent. Malone v. Williams, 118 Tenn., 390, 103 S. W., 798; Spicer v. King Bros., 136 Tenn., 408, 189 S. W., 865; Edwards v. Davis, 146 Tenn., 615, 244 S. W., 35, and cases cited.

While the formal transfer of stock on the books of a corporation is regulated by the law of the domicile of the corporation, contracts with reference to the sale of shares of stock are usually governed by the law of the place of *29contract. 14 C. J., 681; 3 Clark & Marshall on Corporations, p. 1733; Moore v. Gennett, 2 Tenn. Ch., 375.

A large proportion of shares of stock bought and sold in Tennessee is stock of corporations organized under the laws of other States. We cannot believe that the legislature intended to establish one set of rules to regulate trading in stock of Tennessee corporations and to leave in force another and different set of rules to regulate trading in stock of foreign corporations. This, however, would be the effect .of chapter 113 of the Acts of 1917 if we resort to the doctrine of elision as suggested. We therefore feel constrained to declare said act unconstitutional and void.

As said before, Silverman pledged, to secure the $5,500 note, two hundred shares of Columbia Grafonola Company Stock, and fifty shares Dixie Portland Cement Company stock, thirty-nine shares of the latter belonging to complainant. Out of the proceeds of the sale of the stock pledged, the proceeds of the stock that belonged to Sil-verman should first be applied to the payment of the $5,500 note. The proceeds of complainant’s stock should then be applied to the balance due on the note, and the remainder of such proceeds turned over to the complainant.

The chancellor’s decree will accordingly be modified as indicated, and the cause remanded for further proceedings. Defendant will pay one-third of the costs of appeal and the complainant two-thirds. The chancellor will adjudge the costs below.

Chambliss, J., did not participate in this decision.
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