91 Tenn. 221 | Tenn. | 1892
Under the will of Jos. ~W. Baugh, certain real estate and the “ one-fifth part in value” of his personal estate, was bequeathed to
“ To have and to hold the same, together with the increase, rents, and profits thereof, to her sole and separate use and benefit, and free from the debts, contracts, liabilities, and control of any husband whom she may marry, and for and during the term of her natural life; and at her death the said property, real and personal, together with the increase, rents, and profits thereof not consumed in her support and maintenance, and the support and maintenance and education of her children, to be equally divided between the children of the said Fanny, the child or children of any deceased child to take the share its parent would have taken if living. But should the said Fanny depart this life leaving no child or children, or the issue of such, then, in that event, the property herein bequeathed to her, and its increase, etc., shall be equally divided between her brothers and sisters surviving her, and the issue of such as 'may be dead leaving issue. And should it become necessary, in giving full force to this item of my will, I desire that suitable trustees be appointed, it being distinctly my will and desire to give to my said daughter a life estate merely, with remainder over as hereinbefore mentioned.”
Testator owned, at his death in 1872, fifty-seven bonds of five hundred dollars each, issued by the defendant railway company. He also owned one thousand two hundred and fifty shares of the com
No executor being named in the will, Mr. S. S. House was appointed and qualified as administrator with the will annexed. These bonds and stock certificates came to the hands of Mr. House as assets to be administered. There being no occasion to use them in ’payment of debts, and no specific bequest having been made of either bonds or stock, the administrator distributed them among the legatees — the shares of stock by an assignment of the certificates to the “heirs and distributees of J. W. Baugh, deceased.” No particular number of shares were directed to be assigned to the several distributees, nor were the persons designated who were “heirs and distributees;” but Mr. J. W. Baugh, a son and distributee, was, in the usual form, constituted his attorney in fact ' to make and execute all necessary acts of assignment and transfer to carry out the purpose. Under this power and assignment, the company transferred two hundred and fifty-one shares to Fanny F., Baugh, the complainant, who was then a minor and unmarried. This certificate was, in form, an assignment and transfer out and out of the whole title to these shares, it nowhere being recited in the certificate that her interest was but a life estate.
Shortly after this transfer, Mrs. C. H. Baugh, widow of the testator and mother of Fanny, was
In May, 1877, complainant, Fanny, was married to the defendant, B. B. Smith, and in December, 1877, Mrs. Baugh’s resignation as trustee for Mrs. Smith was accepted, and Mr. Smith appointed in her room and place, he entering into bond in the sum of fifteen thousand dollars, with three sureties. Thereupon the bonds and stock held for Mrs. Smith were turned over to her husband as. her trustee.
In February, 1879, B. B. Smith and wife jointly assigned the certificate standing in her name, by filling out' the blank assignment to Gr. M. liizon, and constituted him their attorney in fact to assign same on transfer books of the corporation.
May 17, 1879, this assignment to Bizon was duly acknowledged before a Clerk of a. County Court, Mrs. Smith being privily examined.
On the same day this certificate was sold and-assigned to Clark, Dodge & Co., Rizpn executing an assignment on the original certificate. This sale was made by, and the money paid to, Mr. .Smith.
Afterward Clark, Dodge & Co. assigned the
The railroad bonds held by Smith were, about the time of the sale of the stock, sold to the defendant, Samuel Seay. The bonds and shares were sold for their full market value at the time. The proceeds were by the trustee misapplied, and, as charged by the bill and admitted' in his deposition, “squandered in drinking, gambling, and other dissipations.”
As to the bonds, the bill charges that the purchaser knew that the seller, Mr. Smith, held them as a trustee, and was therefore bound to inquire as to his power to make sale; that, in fact, they Avere bought for the company issuing them, or for Mr. G-. W. Seay, its secretary and treasurer, who, it is charged, knew, or ought to have known, of the trust under which they were held.
A decree is sought against all the persons suggested as interested in the purchase or aiding in making the sale. The Chancellor dismissed the bill so far as any relief was sought on account of the sale of these bonds. In this part of his decree we most fully concur. The evidence that they were purchased by Mr. Samuel Seay in good faith, and in absolute ignorance that Mr. Smith held» them in trust, is entirely satisfactory. Ve are also satisfied that neither G-. W. Seay nor the
Are complainants entitled to any relief against any of the defendants on account of either the sale or transfer of the stock certificate ? The assignment to Rizón seems to have been a sham, and intended to aid iii the proposed sale of the shares. Rizón was Smith’s brother-in-law. He was present at the sale to one McCrory, and himself executed an assignment to Clark, Hodge & Co., for whom, it would seem, McCrory was acting. Rizón at once received a part of the proceeds. He is not sued; neither are the sureties on Smith’s bond as trustee. The bill undertakes to excuse this by alleging the sureties to be insolvent. They are the father and brothers of the defaulting trustee, and this is more probably the reason for omitting them. Clark, Hodge & Co. are not sued. Victor Newcomb, in whose name the shares now appear to stand, was named as a non-resident defendant in the caption of the bill. No publication seems to have been made, and no attachment was sought against the shares which, from this' record, seem to still stand in his name. Mr: Newcomb did not answer, and, not being
Complainants have sought to support this decree upon several independent grounds.
First. — That ' the act of the corporation was negligent iu issuing a certificate, in 1878, to Eanny Baugh without showing on its face the trusts and limitations under which she held the title, and that this neglect led to the subsequent loss of the stock to an innocent purchaser without notice.
We are of opinion that, upon the facts of this case, the corporation is not now liable to an action on this ground. It had no knowledge that there was a will limiting the title of Eanny Baugh to this stock, aud there were no circumstances connected with the transfer by Mr. House, as admin-, istrator, calculated to put it upon inquiry as to the existence or terms of a will. He -assigned the certificate standing in the name of his decedent simply as administrator. If he had assigned as administrator cuto testamento annexo, it would have been notice of a will; but such a signature would have been singular, though technically exact. The assignment was to thé “ heirs and distributees not legatees, of J. W. Baugh. There was, there
The power of Mr. House under the will to dispose of this stock cannot be doubted. He had a right to sell, or distribute in kind to the legatees if not needed for payment of debts. It had not been specifically devised. “The one-fifth in value” of testator’s personal estate given to his daughter, Fanny, might have been paid to her in money, bonds, or stocks, the beneficiary consenting. His assignment of these shares to her on account of her bequest was within his power. That he assigned the title absolutely was not breach of his trust. She took the title under the will and subject to the limitations of the will, and became herself charged with a trust in favor of the remainder-men.
We come now to consider the ground upon which the Chancellor seems to have rested hi's decree, viz., that the corporation was guilty of negligence in permitting the transfer of this stock to Victor Newcomb.
The contention of complainant is that the company had constructive notice of the fact that this stock was held by Mr. Smith as trustee, and that as trustee he had no power of sale, and that
After the appointment of Mrs. Baugh as trustee she executed receipts for a number of dividends. Some of these receipts were signed by her as guardian, others as guardian trustee, and others as trustee. After Mr. Smith’s appointment he was directed by the secretary of the company to receipt as trustee.
The secretary, who paid them dividends and took their receipts, says that he supposed from Mrs. Baugh’s receipts that she was guardian; that in point of fact he had no information of her being a trustee, or that Mr. Smith was her successor; that he required the latter to receipt as trustee because the stock stood in the name of a married woman, and that he used the term trustee as synonymous with agent.
The evidence of knowledge of a trust is unsatisfactory. But waiving i this, and waiving the question as to the power of the trustee to sell, we shall rest our decision upon another question.
If a corporation transfer shares upon a forged assignment and power of attorney, or upon the authority of one wrongly assuming to be the agent of the owner, or upon a void decree or judgment, its act would be a nullity, in so far as it was thereby sought to affect the rights or status of the true owner as a share-holder. Such owner
But where the assignment of shares is made by the person appearing on its books to be the absolute owner, but the assignment was in breach of trust, then the liability of the corporation to the cestui que trust for transferring such shares depends not only upon its being shown that the corporation had either actual or constructive notice of the breach of trust, but upon its further appearing that its act in recognizing the assignment and making the transfer operated to aid the breach of trust and contributed directly to the loss of the stock by the cestui que trust.
If it be assumed that the facts known to the
The rule on this subject has been well stated by Mr. Lowell in his recent and most valuable work upon Transfer of Stocks. “ The liability of the corporation,” says Mr. Lowell at Section 153, “ for recording of transfers made in breach of trust depends very much upon the position of the purchaser. If he has acquired, before transfer on the books, a perfect title to the stock, free from all claims on the part of the cestui que trust, the breach of trust is complete before the corporation is asked to transfer, and when it records the transfer the corporation is merely doing what it is bound to do, and is not helping the trustee to commit the breach of trust. The. corporation can therefore incur no liability to the cestui que trust by recording a transfer to a bona fide purchaser
The negligence of the corporation in permitting the transfer must be the efficient and proximate cause of the loss sustained by the cestui que trust. If the purchaser’s title was complete without the transfer, then it cannot be the efficient proximate cause of the loss. Such a purchaser could compel a transfer to. himself, and it would be the gravest injustice to hold the corporation responsible when its refusal would subject it to liability to the purchaser and in no way improve the case of the cestui que trust.
Let us apply this principle to the facts in this case. This stock stood in the name of Eanny Baugh. The certificate was issued to her. She joined her husband in assigning it to her brother-in-law, G-. M. Rizón.' This assignment and power of attorney to Rizón they acknowledged before the Clerk of the County Court. Mrs. Smith says she consented to a sale, and assigned the shares to ■enable her husband to make a sale, because he promised to invest the proceeds in other property. The transfér to Rizón, as before stated, was probably for the purpose of better enabling Smith to bring about a sale. Three months after date of this assignment, Smith and Rizón together made a sale to Claific, Dodge & Co., for cash, for full
The observation of Judge Ereeman in Cornick v. Richards, 3 Lea, 1, that the purchaser of shares assigned in blank by the owner “must take subject to previous equities as any other assignee standing in the shoes of his assignor” was unnecessary to the decision; and in the subsequent case, of Cherry v. Frost, 7 Lea, 1, the Court unanimously declared it to have been an inadvertent statement. The undoubted rule in this country is that a purchaser of shares from the apparent owner obtains a good title, notwithstanding such apparent owner may have been in fact a trustee and guilty of a breach of trust in making the sale. Cook on Stocks and Stockholders, Secs. 325 and 434. In Cherry v. Frost, supra, it was held that where a pledgee of stock assigned in blank
The title of the purchaser upon the assignment of the certificate was complete without registration or transfer on the stock books of the corporation. The rule requiring transfer on the books of the company, by the well-settled line of decisions in this State and by the great weight of authority in the Courts of, America, is a rule made solely ‘for the benefit of the company. By it the company is enabled to know who are entitled to vote and to whom it may pay dividends. A complete equitable and legal title passed by the act of the owner in assigning the certificate, and the subsequent registration of this assignment and issuance of a new certificate in no way affected the rights of the cestui que trust. The breach of trust was
That Mrs. Smith was a minor at the time of the sale and at date of transfer on the company’s books, cannot affect the question of the company’s liability for making the transfer. The transfer of shares by a minor is . voidable, not void. It is one of those acts which may or may not be to-the interest of the minor. To say that every sale of shares by a minor was void would be disastrous to them in most cases. It is like the sale of lands or any other sort of property by a minor. If the act on its face is not such an one as is manifestly injurious to the minor, it will be held voidable merely at the election of the minor. This is the rule in this State, concerning sales and conveyances by minors. Wheaton v. East, 5 Yer., 61; McGan v. Marshall, 7 Hum., 125; Barker v. Wilson, 4 Heis., 269. The same rule has been applied to the purchase and sale of stocks by minors. Lumsden’s Case, the Law Reports, Chancery Appeal Cases, Yol. IY., 31; Cook on Stocks, Secs. 318 and 427; 10 Am. and Eng. Ency. of Law, Yol. X., 635.
The sale being only voidable at the election of
The decree of the Chancellor must be reversed as respects the Nashville <⅛ Decatur Railroad Company. Complainants will pay all the costs of the causes.