213 N.W. 859 | Mich. | 1927
Lead Opinion
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *466
[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *467 Plaintiff replevined from defendant five certificates covering 3,000 shares preferred stock of the Gladys Belle Oil Company. Defendant claims a lien on the certificates under pledge as collateral security to a loan made to Hazel Peckinpaugh, plaintiff's daughter. Plaintiff had judgment, and the case is here by writ of error sued out by defendant.
At the time the certificates were pledged they bore the indorsement of plaintiff in blank. April 19, 1920, E.A. Kemp, husband of plaintiff's daughter, Hazel, borrowed $1,100 from defendant, gave his note and pledged and delivered the indorsed certificates as collateral security. When the note fell due Hazel visited defendant, claimed it was her obligation, gave a renewal thereof with the certificates remaining as collateral security. Disposition of the case involves the provisions of the uniform stock transfer act, being chapter 229, 3 Comp. Laws 1915. Sections of that chapter will be cited in the course of the opinion. Plaintiff claims she never sold the certificates, did not *468 borrow money from defendant, and the pledge was without her consent or knowledge. The certificates were not indorsed by reason of any fraud or duress or under such mistake as to make the indorsement inequitable, so section 7 of the act has no application to the indorsement involved here.
Defendant stands in the position of a purchaser for value in good faith, without notice of any fact making the transfer wrongful, and therefore, even if the certificates were delivered to defendant without authority from the owner, the protection afforded defendant by the mentioned section of the act bars this action by plaintiff. It may appear like a hard rule, looking at it from the standpoint of the owner of the certificates, but, from the standpoint of the good-faith purchaser, it has appealing equities, long recognized by the courts as a rule of the common law. These certificates, when indorsed in blank by plaintiff, possessed sufficient negotiability to pass title upon delivery to a purchaser.
The trial judge left it to the jury to find whether the certificates were feloniously appropriated by Mr. Kemp or his wife, Hazel, without the knowledge or consent of plaintiff, with instruction that if so taken plaintiff should recover. Error is assigned on this instruction. We have searched this record and find no evidence justifying the instruction. What was said by plaintiff does not support it. Plaintiff testified:
"I never sold these certificates. I never made a loan or borrowed money from H. W. Noble Company in April, 1920. * * * I told them (defendant) that the certificates were pledged without my knowledge. They said that they were pledged there on a loan, and I said that they were pledged without my knowledge or consent. * * * It (certificates) was taken there (to defendant) without my knowledge; so I did not know who it was took it."
This is all the testimony on the subject of felonious *469 appropriation of the certificates. Plaintiff was the only witness in her own behalf, her daughter and son-in-law not giving any testimony. According her testimony every intendment, it shows no more than that the certificates were delivered to defendant without authority from the owner. But this was not enough, for the statute expressly provides the certificates may not be reclaimed if, with indorsement, they were transferred without authority of the owner to a purchaser for value in good faith, without notice of any facts making the transfer wrongful. The evidence was undisputed that defendant took the certificates in pledge for a loan actually made, and later extended time of payment, and acted in good faith without notice of any fact making the transfer wrongful.
If larceny by trick or felonious appropriation was claimed, the burden rested on plaintiff to make some proof thereof. The instruction was erroneous for another reason.
A purchaser in good faith of certificates of stock, indorsed in blank, is protected although they may have been stolen by the prior holder. This is the rule applied by this court with reference to negotiable bonds (City of Adrian v. National Bank,
"A thing is done 'in good faith' within the meaning of this act, when it is in fact done honestly, whether it be done negligently or not."
Bad faith may, of course, be predicated upon actual notice demanding inquiry. But good faith, in a transaction arising in the usual course of business, demands no sua sponte questioning of the title of the possessor of certificates of stock indorsed in blank. Such indorsed certificates do not travel with the earmark caveat emptor, but possess veritas nuda. The rule, let the purchaser beware, and the doctrine of suspicion impugning rights of a possessor of indorsed certificates until the contrary is made to appear, would not only unduly retard negotiability demanded in the commercial world, but, in all except extremely rare instances, be considered a gratuitous insult.
The uniform stock transfer act accepts common honesty as a concept reasonably safe as a basis of everyday action in the commercial world, and leaves the few instances of "fraud, duress, mistake, revocation, death, incapacity and lack of consideration or authority," to be worked out under rules of law and equity, including the law merchant, principal and agent, executors, administrators, and trustees, unless the certificate has been transferred to a purchaser for value in good faith without notice of any fact making the transaction wrongful. Upon indorsement in blank by the owner, a stock certificate becomes a "courier without luggage, whose countenance is its passport."
We are not unmindful of the holdings at common law that stock certificates are not negotiable instruments, and also that they are not made such by the negotiable instruments law, for the certificates are but evidence of the shares and their ownership. While this is well settled, the certificates, when indorsed in blank, possess a quasi negotiable character, *471
so closely allied to true negotiable instruments that the law sanctions their passing from hand to hand free from antecedent equities (Austin v. Hayden,
The record does not disclose whether the Gladys Belle Oil Company is a domestic or foreign corporation, and the point is made by plaintiff that the stock transfer act is not applicable unless the certificates were issued by a Michigan corporation or by a corporation in a State where the uniform stock transfer *472 act is in force; citing the following definition in section 22:
" 'Certificate' means a certificate of stock in a corporation organized under the laws of this State or of another State whose laws are consistent with this act."
Also citing Casto v. Wrenn,
In West v. Newton,
"As the claim that the testimony does not show the plaintiff to be a licensed broker is raised for the first time in this court, we must decline to consider it."
In Roepcke v. Railroad Co.,
"It is too well established to require the citation of authority that the case must be heard in this court upon the claim and theory upon which it was tried in the court below." *473
In Deloria v. Van Winkle,
"After trying the case upon the theory that it was a Michigan corporation, subject to the provisions of Act No. 232, and developing upon cross-examination who the stockholders and directors were, and making no point in the trial court of plaintiff's failure in this regard, we think the defendant is in no position to raise this question on appeal."
It may be thought the rule of review mentioned does not apply when the point is presented by an appellee in support of a judgment. In O'Toole v. Insurance Co.,
"We think the question is not properly before us for decision. It did not appear to have been presented in the court below, and, in any event, it was not there determined. On the contrary, the case was determined upon an entirely different theory of plaintiff's right."
The case at bar was determined in the court below under the stock transfer act, and our review of assigned errors is of the trial had and determination made. We, therefore, decline to pass on the point raised here by plaintiff for the first time. This point, however, leads us to grant a new trial instead of directing judgment to be entered in the circuit for the amount of defendant's lien.
The judgment is reversed and a new trial granted, with costs to defendant.
SHARPE, C.J., and STEERE, FELLOWS, CLARK, and McDONALD, JJ., concurred with WIEST, J. *474
Dissenting Opinion
I am in accord with that portion of the opinion of Mr. Justice WIEST in this case in which he holds that it was error to submit to the jury the question whether the shares were feloniously obtained because of a lack of proof on that question, but I am not in accord with the statement in the opinion that "a purchaser in good faith of certificates of stock, indorsed in blank, is protected although they may have been stolen by the prior holder."
It is not my understanding that this statement is the law. It is at variance with the following authorities:
"Share certificates not being negotiable instruments, if such a certificate is lost or stolen from the owner, without fault on his part, his right to it is superior to that of any person who may acquire it by purchase for value from any other holder; and he may maintain, against the corporation and the person who sold the stolen scrip, an action to establish his right to it." 10 Cyc. p. 619.
"Stock certificates are assignable, and pass by indorsement or delivery as bills of exchange and promissory notes pass, but a majority of the courts have declared that they are not negotiable instruments, notwithstanding a custom or usage among stock brokers to the contrary; and an innocent purchaser for value of such certificate, although indorsed in blank by the owner, is deemed to obtain no better title to the stock than his vendor had." 7 Rawle C. L. p. 213.
"One of the most important elements of the negotiability of promissory notes is that, if the holder of such note loses it or it is stolen from him when it is indorsed in blank, a subsequent bona fide purchaser of such note is protected as against the person who loses it. A different rule seems to prevail as regards certificates of stock indorsed in blank and then lost or stolen. In this respect certificates of stock are not negotiable. It has been clearly held that a purchaser from a thief of certificates of stock indorsed in blank is not protected, nor is any subsequent purchaser of *475 that identical certificate allowed to claim the stock." 1 Cook on Corporations (3d Ed.), § 368.
"The rule as to the rights of a bona fide holder in respect to paper which has been lost or stolen does not extend to cases where the paper is nonnegotiable. So it has been decided that a certificate of stock is not negotiable and that a purchaser of such a certificate acquires no rights thereto where it was stolen without fault or negligence of the owner though it was regularly indorsed." 1 Joyce on Defenses to Commercial Paper (2d Ed.), § 592.
See, also, Brannan's Negotiable Instruments Law (4th Ed.), p. 11; Jones on Collateral Securities (3d Ed.), § 461; Swim v.Wilson,
Further, I am unable to see the object of discussing this legal question in this case, as the opinion holds that the question whether the shares were stolen is not in the case. After reviewing the testimony on that question, the opinion states "if larceny by trick or felonious appropriation was claimed the burden *476 rested on plaintiff to make some proof thereof. The instruction was erroneous." This holding clearly put the question out of the case, and what the law may be on that question is immaterial so far as this case is concerned.
As to whether our stock transfer act (3 Comp. Laws 1915, § 11920 et seq.) has changed or modified this rule, see discussion in the case of Jackson v. Peerless Portland CementCo., post, 476.
I concur in the reversal of the case on the ground of a lack of proof that the certificates of stock were stolen. Defendant is entitled to costs of this court.
SNOW, J., concurred with BIRD, J.