32 App. D.C. 459 | D.C. Cir. | 1909
delivered the opinion of the Court:
It appears from the agreed statement of facts, that the purchasers of the stock in question were known to the plaintiff, and presumably might have been joined in the action, which is against Hibbs, the innocent agent in whose hands the stock was placed by the wrongdoer for sale. Before considering the question of the liability of the agent, as such, we think it important to consider whether the title actually passed to the purchasers, as against the plaintiff. If it did, then the question arises whether the agent is liable for the conversion notwithstanding that fact.
It is well settled that certificates- of stock are not negotiable instruments. At the same time, they are so constantly used as collateral and passed from hand to hand, when the blank transfer and power of attorney on their backs has been formally executed by the party to whom they were issued, that the general custom in the city of Washington, as we have seen, is to regard the holder as the owner for the purpose of selling or pledging them. As has been said by the Supreme Court of the United States, in the case of national bank stock, but in words equally applicable to the stock of all ordinary corporations:
“The power to transfer their stock is one of the most valuable franchises conferred by Congress on banking associations. Without this power, it can readily be seen the value of the stock would be greatly lessened, and, obviously, whatever contributes to make the shares of stock a safe mode of investment, and easily convertible, tends to enhance their value. It is no less the interest of the shareholder than the public, that the certificate representing his stock should be in a form to secure public confidence, for without this he could not negotiate it to any advantage. It is in- obedience to this requirement, that stock certificates of all kinds have been constructed in a way to invite the confidence of business men, so that they have become the basis of commercial transactions in all the large cities of the country, and are sold in open market the same as other securities. Although neither*469 in form or character negotiable paper, they approximate to it as nearly as- practicable. If we assume that the certificates in question are not different from those in general use by corporations, — and the assumption is a safe one, — it is easy to see why investments of this character are sought after and relied upon. No better form could be adopted to assure the purchaser that he can buy with safety. He is told, under the seal of the corporation, that the shareholder is entitled to so much stock, which can be transferred on the books of the corporation, in person or by attorney, when the certificates are surrendered, but not otherwise. This is a notification to all persons interested to know, that whoever in good faith buys the stock, and produces to the corporation the certificates, regularly assigned, with power to transfer, is entitled to have the stock transferred to him. And the notification goes further, for it assures the holder that the corporation will not transfer the stock to anyone not in possession of the certificates.” First Nat. Bank v. Lanier, 11 Wall. 369, 377, 20 L. ed. 172, 174; Earle v. Carson, 188 U. S. 42, 46, 47 L. ed. 373, 376, 23 Sup. Ct. Rep. 254.
This facility of commercial use, and its constant exercise, of such indorsed stocks by way of pledge and sale, accounts for the usage heretofore mentioned as general and well known to the plaintiff, — a usage that rather follows the established law than sets up a new and independent rule governing such transactions. Of course, usage cannot overturn a rule of law and create a new class of negotiable instruments unknown to the law. “It simply fixes the meaning of an ambiguous expression, for the purpose of determining whether it is open to the former owner to deny that the property in the paper and the equitable benefit of the promise have passed to another.” Scollans v. E. H. Rollins & Sons, 179 Mass. 346, 353, 88 Am. St. Rep. 386, 60 N. E. 983. While, therefore, certificates of stock, indorsed as in this case, do not become negotiable instruments in a strictly legal sense, they nevertheless so approximate them as that the ordinary rules of agency and estoppel which apply in the ease of chattels are applied to them with great liberality in the behalf of an innocent purchaser. And notwithstanding the fact that transfers of
It is well-established law that where a named owner of a stock certificate executes a transfer thereof in blank, and delivers it to a broker or an agent for certain limited purposes, and that broker or agent, in violation of his duty and obligation to the depositor, delivers it to another person without notice and for a valuable consideration, the purchaser takes a good title. McNeil v. Tenth Nat. Bank, 46 N. Y. 325, 7 Am. Rep. 341; Cowdrey v. Vandenburgh, 101 U. S. 572, 575, 25 L. ed. 923, 925; National Safe Deposit Sav. & T. Co. v. Gray, 12 App. D. C. 276, 287; Russell v. American Bell Teleph. Co. 180 Mass. 467, 469, 62 N. E. 751; Pennsylvania R. Co.'s Appeal, 86 Pa. 80, 83; Burton's Appeal, 93 Pa. 214.
On the other hand, it is a general rule of law that where stock certificates, so indorsed, have been stolen from the owner, without culpable negligence on his part, an innocent purchaser from the thief, or his assignee, does not take the title. East Birmingham Land Co. v. Dennis, 85 Ala. 565, 568, 2 L.R.A. 836, 7 Am. St. Rep. 73, 5 So. 317, and cases there cited; Farmers' Bank v. Diebold Safe & Lock Co. 66 Ohio St. 367, 58 L.R.A. 620, 90 Am. St. Rep. 586, 64 N. E. 518; O’Herron v. Gray, 168 Mass. 573, 40 L.R.A. 498, 60 Am. St. Rep. 411, 47 N. E. 429; Scollans v. E. H. Rollins & Sons, 173 Mass. 275, 279, 73 Am. St. Rep. 284, 53 N. E. 863; Knox v. Eden Musée Ameri
It is also a general principle applicable in law as well as in equity, where no settled rule of law intervenes to prevent its operation in a particular case, that where a loss has occurred through the wrongful action of a third person, and must be borne by one of two innocent persons, the one who by his negligence or inadvertence has placed it in the power of the third person to perpetrate the wrong must suffer the consequences. Lickbarrow v. Mason, 2 T. R. 70; Carusi v. Savary, 6 App. D. C. 330, 344; Fifth Cong. Church v. Bright, 28 App. D. C. 229, 239; Central Nat. Bank v. National Metropolitan Bank, 31 App. D. C. 391, 17 L.R.A.(N.S.) 520.
In the light of the foregoing principles as applied to the agreed facts in this case, we come to the determination of the question whether the plaintiff can set up a title to the stock superior to that of the innocent purchaser.
This is not the plain case of certificates intrusted to an agent or creditor as security for a particular purpose, and fraudulently disposed of by him for another, under the general power enabling him so to do, so as to bring it directly within the principle illustrated by the case of McNeil v. Tenth Nat. Bank, supra, and other cases cited. Nor, on the other hand, is it a plain case of theft, without negligence of the owner and custodian, so as to bring it directly within the principle of Fast Birmingham Land Co. v. Dennis, supra, and cases cited therewith. On the whole, however, giving due allowance to the character and values of the paper, and the general usage of the business in relation thereto in which the trust company was engaged, also, we are of the opinion that the analogy in this case is with the former, rather than the latter. The importance of the question, the forcible argument on behalf of the appellant, and the well-considered cases on which he relies, render a review of the latter important, if not necessary. The case most strongly relied on, and which presents the greatest difficulty, is that of Knox v. Eden Musée Americain Co. 148 N. Y. 441, 31 L.R.A. 779, 51 Am. St. Rep. 700, 42 N. E. 988, decided by the same court that had decided McNeil v. Tenth Nat. Bank.
In O'Herron v. Gray, 168 Mass. 573, 40 L.R.A. 498, 60 Am. St. Rep. 411, 47 N. E. 429, the stock belonged to a minor and was indorsed in blank by her guardian. It was taken from the deposit vault by an officer having access thereto, and pledged for a loan. It was stolen, and, moreover, the purchaser was clearly chargeable with inquiry into the right of the guardian to transfer.
In Scollans v. E. H. Rollins & Sons, 173 Mass. 275, 279, 73 Am. St. Rep. 284, 53 N. E. 863, the registered bonds, with blank assignment upon them, were left with a broker firm for safe keeping merely. One of the firm took the bonds from the safe and sold them to a purchaser, who relied on the blank transfer. It was held that the title did not pass. Eeferring to the transfers executed in blank, the court said: “Where they do not purport in terms to confer ownership upon the bearer, the .most which can be predicated of them, in the absence of evidence
In Board of Education v. Sinton, 41 Ohio St. 504, the board of education for a certain school district were authorized to issue $20,000 of bonds, and no more. September 1, 1869, they issued 200 bonds of $100 each, payable September 1, 1879, to bearer. Their' payment in advance of'maturity was contemplated out of taxes levied for the purpose from year to year. Thirty of these bonds were redeemed before June, 1875, by the treasurer, on whose report the board ordered them to be canceled by defacing the signatures. The treasurer was one of the board, consisting of three members, and signed the bonds with the other two. He failed to cancel the bonds and subsequently took them to Sinton and deposited them with him as collateral security for' money borrowed. Sinton had no previous acquaintance with the treasurer, and made no inquiry as to the custody or title to the bonds. The court denied his recovery, holding: 1. That the board had exhausted its power, and was not vested with authority to reissue bonds redeemed before maturity, as a private person or corporation would be. 2. There could be no estoppel by the act of public officers; but, assuming that there could be, there was no act of gross negligence by the remaining members, of the hoard in leaving the matter of cancelation to the treasurer. 3. Sinton was not an innocent purchaser, as the bonds bore the signature of the treasurer, who might, therefore, well have had possession without any right of disposition. Under these circumstances it was the duty of Sinton to make inquiry. The distinction between that case and this is apparent.
Whilst not to be understood as intimating that a corporation or any other person is liable in all cases for the default of an agent or servant whose previous conduct has been such as to warrant the confidence reposed in him, we are of the opinion, in the-absence of controlling authority to the contrary, that where the-servant has been intrusted, as in this case, with a paper so indorsed as to enable him readily, and without exciting suspicion,, to impose upon others as the true owner, notwithstanding the fraudulent representations through which he may have obtained, that possession, the loss, as between two innocent persons, ought to fall upon the one whose act was the proximate cause of the loss. We see no reason why that principle should not apply in favor of the innocent purchaser in this case.
Upon the conclusion that the transaction passed the title to-the shares to the innocent purchaser, it remains to inquire whether the equally innocent negotiator of the sale is nevertheless, liable as the agent of the wrongdoer. The contention is that “the protecting innocence of a bona fide holder cannot be extended to the agent of the wrongdoer.” The following decisions are-cited in support of this contention. Hoffman v. Carow, 22 Wend. 285, 292; Koch v. Branch, 44 Mo. 542, 546, 100 Am. Dec. 324; Coles v. Clark, 3 Cush. 399; Bercich v. Marye, 9 Nev. 312, 316; Kearney v. Clutton, 101 Mich. 106, 45 Am. St. Rep. 394, 59 N. W. 419; Swim v. Wilson, 90 Cal. 126, 128, 13 L.R.A. 605, 25 Am. St. Rep. 110, 27 Pac. 33; Kimball v. Billings, 55 Me. 147, 151, 92 Am. Dec. 581.
In all of those cases, save one, the facts are such as to show that the purchaser took no title by the purchase. In Hoffman v.
It will be observed that in no one of those cases would the purchaser have been exempt from liability had he been joined in the action for conversion. They are all founded in the settled rule of public policy that no title to chattels can be acquired through theft, or wrongful taking. Hence all persons, from the first to the last, who take an active or material part in dealing with the goods, are held liable for the goods or their value. Innocence of agent or purchaser is no protection to either. If it were otherwise, theft and wrongful taking of property would be encouraged. The exceptional case mentioned is that of Kimball v. Billings, supra. In that case, bonds payable to bearer, and presumably negotiable instruments, were stolen. An innocent agent who sold them for the thief was held liable for conversion. Under such conditions the innocent purchaser took an indefeasible
The same rule of exemption of the innocent agent has been employed in Maryland, in a case where one, having purchased goods with the intention to defraud the vendor, had them sold at auction and received the money from the auctioneer, who had no knowledge of the fraud. The vendor had parted with his title through fraud practised upon him, and was entitled to rescind the sale. Higgins v. Lodge, 68 Md. 229, 236, 6 Am. St. Rep. 437, 11 Atl. 846. Under that sale, the title would, of course, pass to an innocent purchaser.
If the innocent purchaser, under the special circumstances of this case, would be protected in the title acquired from the agent, we perceive no good reason why the equally innocent agent who, in good faith and in the ordinary exercise of his business, effected the sale, should not be protected also. The fraudulent holder -of the paper produced the same indorsed in such manner as to raise the usual and reasonable presumption of actual ownership. The broker, in good faith, acted upon the presumption and procured a purchaser, who, acting upon the same presumption, purchased and paid for it. If the purchaser is to be exempted from liability, then it seems reasonable and just that the broker ■should be also.
For the reasons given, the judgment will be affirmed, with costs. Affirmed,