129 Misc. 891 | N.Y. Sup. Ct. | 1927
On or about March 29, 1927, plaintiff was the owner and holder of record of 400 shares of preferred stock of defendant Hercules Powder Company, Inc., a Delaware corporation, whose transfer agent is the defendant, the New York Trust Company. Prior to that date plaintiff received a letter purporting to emanate from the Hercules company, and to be signed on its behalf by one A. M. Oliver as “ assistant to president,” stating that one G. A. Sprague, whose signature was affixed for the purpose of identification, would call upon plaintiff in relation to a matter of mutual interest to the latter and the company. A similar letter was received by plaintiff’s wife, who was the owner and holder of record of 200 shares of preferred stock. On or about March twenty-ninth a person representing himself to be G. A. Sprague called upon plaintiff, stated that he was a representative of the company which was offering its preferred stockholders one and one-quarter shares of common stock for each share of preferred stock, and proceeded to point out the advantages of effecting the transfer. Plaintiff determined to accept the offer, and so did his wife. Sprague told plaintiff to forward the certificates indorsed in blank, with proper guarantees of the signatures, to “ Hercules Powder Company, Inc., Wilmington, Delaware, Attention A. M. Oliver.” Meanwhile he gave plaintiff what purported to be certificates of deposit of Hercules Powder Company, Inc., printed documents, with imitation lithograph borders, which acknowledged on behalf of the company the receipt of 400 and 200 shares respectively of preferred stock to be exchanged for common stock on the basis previously outlined. The plaintiff caused both his and his wife’s certificates to be indorsed in blank and the signatures guaranteed by a reputable trust company, and sent the stock by registered mail to the “ Hercules Powder Company, Inc., Wilmington, Delaware, Attention A. M. Oliver.” He and his wife received letters two days later purporting to have been written by the company acknowledging receipt of the stock and stating that new common stock would be forwarded in a few days. About two weeks later
In this action the plaintiff asks that it be adjudged that he is the sole and exclusive owner of 400 shares of preferred stock of the Hercules company and that the defendants be directed to issue to him certificates of stock evidencing ownership of said 400 shares. The present application is for a temporary injunction, restraining the corporate defendants, pendente lite, from transferring (1) any of the shares originally evidenced by the certificates held by plaintiff and (2) any certificates issued upon the surrender and cancellation of the original certificates or upon the surrender and cancellation
If article 6 of the Personal Property Law of this State (as added by Laws of 1913, chap. 600), relating to transfers of corporate stock, were held applicable to the present situation, it would be clear that plaintiff has lost all right to his stock as against the intervening defendants by reason of the fact that it was stolen while indorsed in blank. The thief could convey a good title to a bona fide purchaser for value. (Pers. Prop. Law, §§ 166, 168; see note of Commissioners on Uniform State Laws to § 5 of the Uniform Stock Transfer Act, with which § 166 of the Personal Property Law is identical; cf. Iowa Securities Corp. v. Ridgewood Nat. Bank, 106 Misc. 335; Nicholson v. Morgan, 119 id. 309.) A difficulty is, however, presented by reason of the fact that the Hercules Powder Company, Inc., is a Delaware corporation. Section 183 of the Personal Property Law, dealing with “ definitions,” states that: “ ‘ 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,” and that “ ‘ shares ’ means a share or shares of stock in a corporation organized under the laws of this state or of another state whose laws are consistent with this act.” The notes of the Commissioners on Uniform State Laws to section 22 of the Uniform Stock Transfer Law, which is the prototype of section 183 of the Personal Property Law of this State, indicate that it was their intention that as to foreign corporations the act was to apply only to those organized in a State which had a like law governing the transfers of stock. This has been the interpretation placed upon the statute by the Massachusetts courts. (Barstow v. City Trust Co., 216 Mass. 330; Boston Safe Deposit & Trust Co. v. Adams, 224 id. 442; Casto v. Wrenn, 255 id. 72.) These decisions are to be regarded as particularly persuasive in view of the fact that section 180 of the Personal Property Law provides that “ This act shall be so interpreted and construed as to effectuate its general purpose to make uniform the law of those states which enact it.” The complaint alleges, and it is nowhere denied, that the State of Delaware has no law parallel to article 6 of the Personal Property Law of the State of New York, and had no such law at any of the times mentioned in that pleading. It follows that the rights of the parties are not affected by our statute and are to be determined according tc common-law principles.
The same author (at p. 1351) states that even where the owner’s indorsement was forged and a transfer obtained, the bona fide purchaser of a new certificate issued in its place is entitled to retain the same. “ It has already been shown that the transferees of a certificate of stock which has been put in circulation by forgery are not allowed to retain such stock where there has not been, at some time subsequently to the forgery, a transfer registered on the corporate books. It has also been shown that he who applies to the corporation for a registry of transfer, such registry being the first one since the forgery was committed, is not allowed to retain the stock. An entirely different rule prevails as regards all subsequent bona fide holders of the new certificate obtained by the first registry. The person who obtains the first registry has no rights except as against his transferrer. But all subsequent purchasers without notice are fully protected. They cannot be compelled to give up the stock, either to the corporation or to the person who lost it by forgery. This rule arises, not from the law of negligence, but from the law of estoppel operating against the corporation. It is in accord with the demands of trade and the constant tendency of the law to protect bona fide purchasers of certificates of stock.” (Italics mine.)
The rationale of the rule seems to be grounded in the notion that a purchaser of stock should be required to search in the company’s books no farther back than the issuance of the certificate bought by him. Thus it is stated in the same work (at p. 1437): “ This rule is peculiar to stock certificates, and cuts off rights even of a former owner who has been deprived of the stock by forgery. The person who obtains a registry first, after the illegal act has been done, is not protected by this rule. But his bona fide
However, an examination of the authorities cited in these various works in support of the proposition that a bona fide purchaser of a substituted certificate is protected in his possession, even though he would have had no right to retain the original certificate had there been no intermediate registry, discloses that the law is not nearly so well settled on the subject as the text-writers would make it appear. It would be impracticable to analyze here all the various cases cited in these treatises. Suffice it to say that although a number of them do state the law in accordance with the quotations set forth, such statements in many instances constitute nothing more than obiter dicta. Indeed, some permitted the purchaser of the substituted certificate to recover damages rather than stock, and others are easily distinguishable on other grounds and are, therefore, of doubtful weight.
Thus, in Winter V. Montgomery Gas Light Co. (89 Ala. 544) the purchaser of a new certificate was permitted to retain it because he had no knowledge of the fact that the sale of the original certificate constituted a breach of trust. The real basis of the decision — it was necessary to go no further — was that the equitable rights of the cestui were cut off by the sale to a bona fide purchaser for value, whereas in the instant case the title of the plaintiff was legal and not equitable. The holding in Scarlett & Scarlett, Inc., v. Ward (52 N. J. Eq. 197, 210) was predicated upon the theory that the seller of the stock had the right to dispose of it. The decision in Westinghouse v. German National Bank (196 Penn. St. 249) could well be sustained even if a new certificate had not been issued, in view of the apparent authority vested in the sellers of the stock, to whom it had been indorsed, to dispose of it as their own. In Chester County G. T. & S. D. Co. v. Securities Co. (165 App. Div. 329; affd., 219 N. Y. 599) registered non-negotiable bonds were stolen and sold with forged indorsements to a bona fide purchaser for value who presented them for transfer and received new bonds in their place. The owner was nevertheless held entitled to recover the new bonds from their holder. It should be observed, however, that the latter was not a purchaser of the new bonds, but of bonds with forged indorsements, and it could not improve its position merely by presenting to the company bonds which it had no right to retain and procuring the issuance of new ones. In Bank v. Lanier (11 Wall. 369) the certificate was purchased from the record owner without .knowledge that the latter, without surrendering the certificate, had caused the stock to be transferred on the company’s
The doctrine that the purchaser of a certificate of stock need not look back of the last registry on the corporate books is not, however, without authority to support it. In Pratt v. Taunton Copper Co. and Pratt v. Machinists’ National Bank (123 Mass. 110) certificates of stock in the respective corporate defendants belonging to a Mrs. Pratt were stolen, substituted certificates were issued on presentation of the stolen ones with a forged power of attorney, and the substituted certificates were sold to a bona fide purchaser for value. It was held that Mrs. Pratt was entitled to a new certificate from each corporation, since she could not be deprived of her stock by forgery. The court added, with reference to the bona fide purchaser (at p. 112): “ His rights against the corporation depend upon the effect of this certificate, and the plaintiff is clearly entitled to no decree against him.” In Machinists’ National Bank v. Field (126 Mass. 345) the bank, which was one of the defendants in Pratt v. Machinists’ National Bank (supra) and which by decree had there been directed to issue a new certificate to Mrs. Pratt, sued to compel Dean, the bona fide purchaser of the certificate issued in place of the stolen one, to return his shares. The court held (at p. 348) that although the issuance of this certificate had resulted in an overissue of stock: “ Dean cannot be ordered to return his certificate, because he purchased the shares in good faith and for valuable consideration, and the certificate issued to him is as against the bank conclusive evidence of his title. The bank has no right to compel him, rather than any other stockholder to give up his certificate and thereby assume the responsibility of its own illegal act in issuing a greater number of shares than the law authorized.” The case of Boston & Albany R. R. Co. v. Richardson (135 Mass. 473) presents another phase of the litigation arising out of the theft of Mrs. Pratt’s stock. (Pratt v. Boston & Albany R. R. Co., 126 Mass. 443.) In holding that the plaintiff, which had been compelled to issue a certificate to Mrs. Pratt in place of the one stolen, could recover damages against the person who had presented the stolen certificate with a forged power of
However, in Moores v. Citizens’ National Bank of Piqua (111 U. S. 156), the United States Supreme Court, in an opinion by Mr. Justice Gray, the very judge who, as chief justice of the Massachusetts court, had written for a unanimous court the opinions in Pratt v. Taunton Copper Co. and Machinists’ National Bank v. Field, said (at pp. 165, 166): “ When a corporation, upon the delivery to it of a certificate of stock with a forged power of attorney purporting to be executed by the rightful owner, issues a new certificate to the present holder, who sells it in the market to one who pays value for it, with no knowledge or notice of the forgery, the corporation is doubtless not relieved from its obligation to the original owner, but must still recognize him as a stockholder, because he cannot be deprived of his property without any consent or negligence of his. Midland Railway v. Taylor, 8 H. L. Cas. 751; Bank v. Lanier, 11 Wall. 369; Telegraph Company v. Davenport, 97 U. S. 369; Pratt v. Taunton Copper Company, 123 Mass. 110; Pratt v. Boston & Albany Railroad, 126 Mass. 443. And the corporation is obliged, if not to recognize the last purchaser as a stockholder also, at least to respond to him in damages for the value of the stock, because he has taken it for value without notice of any defect, and on the faith of the new certificate issued by the corporation. In re Bahia & San Francisco Railway, L. R. 3 Q. B. 584.” (Italics mine.)
Mr. Justice Gray’s failure to follow by utterance his own opinion in Machinists’ National Bank v. Field (126 Mass. 345) or even to cite the case, might tend to weaken the force of the latter authority, although to be sure he took no precise position in the Moores case as to the extent of the rights of the bona fide purchaser of the new certificate, and obviously it was not necessary for the purposes of the decision that he do so.
Turning now to the law of England on the subject, we find it is not in an altogether satisfactory state. In Davis v. Bank of
In the case of Matter of Bahia & San Francisco R. Co. (L. R. 3 Q. B. 584 [1867, 1868]) it was held that the bona fide purchaser for value of new certificates issued in place of certificates which had been presented to the corporation for transfer with forged indorsements, was entitled to recover damages against the corporation. However, the various judges composing the cou-rt repeatedly stated that the corporation was estopped to deny the title of the purchaser of the new certificates issued by it, and it is by no means clear, therefore, that the purchaser’s only remedy was a suit for damages. Had the court been of that opinion, it would have been more proper to base its decision on a misrepresentation by the corporation to the purchaser’s damage rather than upon an estoppel to deny the • purchaser’s title, which implies that the purchaser possesses and may retain title to the certificates held by him. In Simm v. Anglo-American Telegraph Co. (L. R. 5 Q. B. D. 188, 192) Bindley, J., cites the Bahia Case (supra) as authority for the proposition that the bona fide purchaser of a new certificate procures a “ good title by estoppel.” The action, however, was for damages, and there could, therefore, be no decision on the right to retain the new stock.
There are a number of cases in this country which squarely hold that an innocent purchaser of a stock certificate is protected in
In the Holbrook Case (supra) our Court of Appeals said (at pp. 621, 622): “ It cannot now be denied, that if a corporation having power to issue stock certificates does in fact issue such a certificate, in which it affirms that a designated person is entitled to a certain number of shares of stock, it thereby holds out to persons who may deal in good faith with the person named in the certificate, that he is an owner and has capacity to transfer the shares. This proposition does not rest on any view of the negotiability of stock but on general principles appertaining to the law of estoppel. * * * When the defendant issued its certificates to William T. Riggs, it affirmed to all persons who might deal with him, that he owned a certain portion of its capital stock and had full power to transfer it. Any purchaser has a right to rely upon this statement, and to claim, the benefit of an estoppel in its favor. The correctness of this view can be readily perceived, by supposing that an inquiry had been made at the office of the company as to the ownership of Riggs, and an answer had been given containing the same expressions as are found in the certificate — could not a purchaser have acted with safety upon such a statement? The certificate itself must be regarded as a continuing affirmation of the ownership of Riggs and his power over the stock until it is withdrawn in some manner recognized by law.” The plaintiff did not seek there to be adjudged a stockholder, but demanded damages for defeildant’s refusal to transfer on its books the shares for which he held certificates. The fact that the theory of plaintiff’s recovery was not that he suffered damage by reason of misrepresentations, but that defendant’s refusal to transfer the stock was wrongful, indicates that he had a right to such transfer and could, had he so desired, have compelled the corporation to recognize him as a stockholder.
In American Exchange National Bank v. Woodlawn Cemetery (120 App. Div. 119) the Appellate Division, first department, said (at p. 130): “ If this had been merely a fraudulent issue, and not
That case was reversed by the Court of Appeals (194 N. Y. 116), but only on the ground that the law governing stock certificates could not be extended to certificates of a membership corporation. The court said (at p. 126): “ While they [stock certificates in business corporations] are neither in form, or character, negotiable paper, it is because they approximate to it, as well as because they have become the basis of commercial transactions and are sold in open market, the same as other securities, that they are accorded a negotiability like to that of commercial paper. The nature and extent of the dealings in them, in which they are passed from hand to hand like negotiable paper and in so many ways enter into the basis of credit, have influenced courts to accord to them the character of negotiability in order to meet a commercial need of the day.”
While there is no abundance of authority holding squarely that the purchasers of new certificates under circumstances such as those here presented, are protected in their possession, it is significant that able counsel for the plaintiff has been unable to find decisions to the contrary, with the exception of Wells v. Smith (7 Abb. Pr. 261), a decision at Special Term, of doubtful weight. Johnston v. Renton (L. R. 9 Eq. 181), cited by plaintiff, involved the rights of one to whom the new certificate was issued and not of a purchaser of a certificate already issued. That case is, therefore, clearly distinguishable.
The definite tendency of our law to extend to stock certificates many of the attributes of negotiable instruments (cf. American Exchange National Bank v. Woodlawn Cemetery, 194 N. Y. 116) culminated in 1913 in the enactment of article 6 of the Personal Property Law, which confers negotiability upon stock certificates of domestic corporations and of corporations organized in States having similar legislation. We find in this recognition by the Legislature of business usages and the needs of commerce, a declaration of the proper approach to the problem at hand. A rule which would require the purchaser of a stock certificate issued and authenticated by a responsible corporation, to look back of the last registry, and, so to speak, “ to search the title,” a procedure which might well involve the examination of countless intermediate
The character and extent of plaintiff’s rights as against the Hercules Powder Company, Inc., and the New York Trust Company, whether to damages or to stock, or to neither, it is unnecessary to determine at this time. It may be that the trial and appellate courts will follow the Massachusetts rule and direct the corporation to recognize plaintiff as a stockholder and issue certificates to him, even though it is estopped to repudiate those held by Laird, Bissell & Meeds and others similarly situated. It is equally unnecessary to decide upon the proper disposition to be made where such recognition of two sets of stockholders will result in' an overissue of stock, in which event one may be entitled to stock and the other to damages. (Cf. N. Y. & N. H. R. R. Co. v. Schuyler, supra; Moores v. Citizens’ National Bank of Piqua, supra; Matter of Bahia & San Francisco R. Co., supra; 4 Thomp. Corp. [2d ed.] §§ 3551 et seq.) There is no possibility here of an issue of stock in excess of the authorized capitalization, since only 114,241 shares of preferred stock are issued and outstanding, out of a total authorized capitalization of 200,000 preferred shares. The only relief demanded on this motion is that the defendants Hercules Powder Company, Inc., and the New York Trust Company be restrained from transferring the stolen shares or any issued in their place. The stolen certificates have, however, already been transferred, and the ones issued in their stead belong to those holding them as bona fide purchasers for value, whatever plaintiff’s rights may be as against the corporation and its transfer agent, which the trial alone can determine.
For the reasons indicated, the motion for a temporary injunction is denied.