Baker v. Atlantic Coast Line R. Co.

• Citation: 92 S.E. 170,173 N.C. 365
• Decision Date: 18 April 1917
• Docket Number: 66.
• Parties: BAKER ET AL. v. ATLANTIC COAST LINE R. CO.
• Court: United States State Supreme Court of North Carolina

92 S.E. 170

173 N.C. 365

BAKER ET AL. v. ATLANTIC COAST LINE R. CO.

No. 66.

Supreme Court of North Carolina

April 18, 1917

Appeal from Superior Court, Edgecombe County; Allen, Judge.

Action by William S. Baker and others against the Atlantic Coast Line Railroad Company. Judgment for plaintiffs, and defendant appeals. Affirmed.

Where a corporation transferred shares held by legatees whose interest might be terminated by their death without issue, a right of action against the corporation for the stock or its value did not accrue, so far as the statute of limitations is concerned, until the legatees' deaths without issue.

This is an action to recover four shares of stock or the value thereof, bequeathed in item 12 of the will of Moses Baker the plaintiffs being the next of kin referred to in said item, tried on the following agreed facts:

(1) Moses Baker died in 1857, a resident of Edgecombe county N.C. In August, 1857, his last will and testament, the material part of which is as follows, was duly admitted to probate:

"Item 12th. I give and bequeath unto my grandsons, John Baker and Jesse Baker, negro man Ben and my 'Ruffin tract of land,' adjoining the lands of Samuel P. Jenkins, and containing about two hundred acres; also two shares each of Wilmington & R. R. R. stock. If either of them shall die without issue, I give the share of the one so dying in all property given or devised to them in this instrument to the survivor; and if both shall die, leaving no issue, then I give, devise and bequeath the lands, slaves and other property to their next of kin, in equal degree, who shall be of the issue of my body, except Naomi Armstrong, wife of Baker Armstrong, and her sister, Martha Ann Baker, it being intended that they or their issue shall under no circumstances inherit any portion of my estate, either directly or indirectly."

The executor therein named, William S. Baker, duly qualified and letters testamentary were duly issued to him.

(2) At the time the will became effective, Moses Baker, testator, held and owned nineteen shares of stock, a portion of which was the stock referred to in paragraph 12 of the will, in the corporation Wilmington & Raleigh Railroad Company, whose name was by act of the North Carolina Legislature changed to Wilmington & Weldon Railroad Company on February 14, 1855.

(3) On November 13, 1857, William S. Baker, the duly appointed and qualified executor of the will of Moses Baker, as such executor, surrendered certificates for nineteen shares of stock then standing in the name of the testator on the books of the Wilmington & Weldon Railroad Company, the then name of the company, and the said Wilmington & Weldon Railroad Company, at his request, issued new certificates, among which was one certificate for two shares to John Baker and one certificate for two shares to Jesse Baker.

The John and Jesse Baker to whom such certificates were issued were the John and Jesse named as legatees in paragraph 12 of Moses Baker's will. That Jesse Baker died in 1863, without issue.

(5) Thereafter, and on January 12, 1866, the certificate for two shares which had been issued to John Baker was delivered to the Wilmington & Weldon Railroad Company by John Baker, and the certificate which had been issued to Jesse Baker for two shares was likewise delivered to the Wilmington & Weldon Railroad Company, and the four shares of stock were canceled on the books of the company and a new certificate or certificates therefor issued and delivered to one John I. Proctor.

(6) In 1900 the Wilmington & Weldon Railroad Company was merged in the Atlantic Coast Line Railroad Company, defendant herein.

(7) That among the terms of the merger agreement are the following: On April 21, 1900, by the merger agreement, on page 14, the Wilmington & Weldon Railroad Company conveyed to the Atlantic Coast Line Railroad Company all its property, rights, franchises, etc., subject, however, to all existing liens thereon and all the liabilities of the said Wilmington & Weldon Railroad Company of every kind and nature.

(8) John Baker died in 1913, leaving no issue.

(9) Prior to the commencement of this action plaintiffs demanded of defendant the certificates of stock above described, and any stock issued in lieu thereof, and all increment, rights, and property accruing thereto, and same has been refused. This action was commenced within one year after the death of John Baker.

Judgment was entered in favor of the plaintiffs, and the defendant excepted and appealed.

P. A. Willcox, of Florence, S. C., F. S. Spruill, of Rocky Mount, John L. Bridgers, of Tarboro, and W. A. Townes, of Wilmington, for appellant.

G. M. T. Fountain & Son and Henry Staton, all of Tarboro, for appellees.

ALLEN J.

At common law the ownership of personal property was absolute and incapable of division into successive interests, but this was modified by the English courts to permit the disposition of such property by will, but not by deed, upon the same terms and in the same manner as real property, and this state has followed and adopted the later doctrine. 24 A. & E. Ency. 436 et seq., and cases cited in the note.

The plaintiffs then have an interest in the stock in controversy, and their right to recover is dependent upon establishing that the defendant has participated in the wrongful transfer of stock, in which they had an interest, thereby depriving them of their property, and the correct solution of the question involved requires an investigation of the relation existing between the corporation and the stockholder, and of the duty owing by one to the other in reference to the transfer of stock, because if there is no duty there is no liability, and, on the other hand, if there is a duty, which the defendant has failed to perform, causing damage to the plaintiffs, the defendant is responsible.

The usual method of transferring stock is for the holder of the share to indorse thereon a written transfer or authority to transfer, and to deliver the certificate to the transferee, who in turn delivers it to the corporation, which, if satisfied of the genuineness of the signature of the holder and of the identity of the transferee, takes up the old certificate and issues a new one, so that ordinarily a transfer is not completed without the active participation of the corporation.

The corporation is the "custodian of the shares" ( Leurey v. Bank, 131 La. 30, 58 So. 1022, Ann. Cas. 1913E, 1168), and is a trustee for the shareholder ( Bayard v. Bank, 52 Pa. 235; Tafft v. R. R., 84 Cal. 131, 24 P. 436, 11 L. R. A. 125, 18 Am. St. Rep. 166; Leurey v. Bank, Ann. Cas. 1913E, 1174; Cox v. Bank, 119 N.C. 302, 26 S.E. 22).

The court says in the case from Pennsylvania:

"That a bank or other corporation, and also these defendants, are trustees to a certain extent for stockholders--that is, for the protection of individual interests--cannot be denied. They are alike trustees of the property and of the title of each owner. They have in their keeping the primary evidence of title, and they are justly held to proper diligence and care in its preservation. From this it results that they may rightfully demand evidence of authority to make a transfer before they permit it to be made. Their own safety requires that they be satisfied of the right of the person proposing to make a transfer to do what he proposes. Generally sufficient evidence of such right is found in the possession of legal title to the stock. Yet it is well settled that it is not in all cases sufficient, notwithstanding that the true equitable ownership may be in some other than the holder of the legal right, and a transfer may be a gross wrong to such an equitable owner. To that wrong the corporation or keepers of the register make themselves parties if, with knowledge that there is no equitable right to transfer, they permit it to be done. And in equity, whatever puts a party upon inquiry, is notice of what inquiry must reveal. The real difficulty is in determining how far it is the duty of the transfer agent to inquire." Bayard v. Bank, 52 Pa. 232, quoted in Tafft v. R. R., 84 Cal. 131, 24 P. 436, 11 L. R. A. 125, 18 Am. St. Rep. 166.

Our court lays down the same doctrine in the Cox Case as follows:

"The rights of stockholders and persons interested in stock are placed by law under the protection of the bank, so far as concerns the transfer on its books. The defendant bank, as a corporation, is made the custodian of the shares of its stockholders, and is clothed with power to protect the rights of every one from unauthorized transfer. It is a trust placed in its hands for the protection of individual interests, as well as its own, and, like every other trustee, it is bound to execute the trust with proper diligence and care, and is responsible for any loss sustained by its negligence or misconduct."

These authorities and others also establish the principle that the corporation, as trustee, owes the duty to the shareholder of care and diligence, that it has the right and it is its duty to make inquiry as to the authority of one asking for a transfer of stock, and that, if put on inquiry, it has notice of all the inquiry would reveal.

"For the protection of the rights of the lawful owner of the shares, the corporation is bound to use reasonable care in the issue of certificates. If, by the form of the certificate or otherwise, the corporation has notice that the present holder is not the absolute owner, but holds the shares by such a title that he may not have authority to transfer them the corporation is not...