Baker v. Davie
| Decision Date | 11 March 1912 |
| Citation | 97 N.E. 1094,211 Mass. 429 |
| Parties | BAKER et al. JACKSON v. DAVIE et al. JACKSON v. SAME. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
Chas Warren and Gardner Perry, for appellant Wm. H. Jackson.
Currier Rollins, Young & Pillsbury and Richd. Y. Fitzgerald, for appellants Harriman and Chace.
Wm Noble and Arthur S. Davis, for appellant Wheeler.
Elbridge R. Anderson, for appellees Baker and others.
Jas. E Cotter and Jos. P. Fagan, for appellee Federal Trust Co.
These suits involve the rights of various persons in certain shares of stock. The occasion for litigation arises from the perfidy of Robert E. Davie. William H. Jackson was the owner of 1,170 shares of the American News Company, for which he held a single certificate in ordinary form, stating among other things that it was 'transferable only on the books of the company, by him or his attorney, on surrender of this certificate.' He was induced by fraudulent representations of Davie, of such nature that as between the two no title or right to use for his own benefit passed to Davie, to hand to the latter this certificate, together with two instruments, each signed in blank by himself. These are called 'powers of attorney and transfer' and although printed as a single document, they consist of two parts, the first being a bargain, sale and transfer of the stock and the second being an irrevocable power of attorney to sell and make over all or any part of the stock and to do all things necessary to accomplish that purpose. The one of these now material was a transfer of 1,070 of the 1,170 shares of stock represented by the certificate. The name of the transferee and attorney was left blank.
Davie signed as witness to Jackson's signature and, after having the signature guaranteed by a firm of stockbrokers, used the certificate and instrument of transfer as collateral, on which he borrowed large sums of money from the Federal Trust Company. The physical possession of the certificate and instrument has continued in the Trust Company at all times. Davie, during these transactions, was a stockbroker of good reputation in Boston and well known to all the parties to these suits.
The master found that 'where a certificase of stock is in the possession of a person who is known and is of good reputation, * * * and * * * where the one holding such certificate is in possession of a separate instrument of power of transfer signed by the person named in the certificate as owner, applicable to such stock with blank spaces left for the apparent purpose of adapting the paper to the transfer of stock when filled appropriately, it is the custom in Massachusetts, at least if the signature is guaranteed by a stock exchange house and is witnessed, when offered for pledge, sale or transfer, to treat them as capable of good transfer and delivery by such holder for such sale or pledge.'
I. It is plain that upon these findings the Federal Trust Company became entitled to all the rights of a pledgee of the 1,070 shares of stock, no matter how faithless Davie had been to his agreement with the owner, by which he secured possession of the stock and the instrument.
The case falls within Scollans v. Rollins, 179 Mass. 346, 60 N.E. 983, 88 Am. St. Rep. 386, and Russell v. American Bell Telephone Company, 180 Mass. 467, 62 N.E. 751. The principle of law established by these cases is that if the owner of stock knowingly places in the hand of another the certificate therefor, either indorsed in blank or by a separate instrument of transfer and power of attorney, the person to whom the certificate and instrument are delivered can pass a good title by delivery or pledge regardless of the relations between him and the owner. This is not on the ground that the certificate becomes a negotiable instrument, but, on the ground of estoppel, because the owner, having given another such indicia of title as clothes him with the appearance of ownership, is precluded from setting up title in himself as against a holder in good faith.
Jackson seeks to distinguish the present case in that the language used by Davie at the time of procuring the loan from the Federal Trust Company was sufficient to put the latter on inquiry and to indicate that his title was less than might have been assumed if nothing had been said. The circumstance on which he relies is that Davie stated to the Federal Trust Company at the time of obtaining from it the first and subsequent loans 'that stock was practically his.' 'This stock is all right.' 'This was given to him all right, given to him to use in the market.' 'It was given to him to use.' 'He had the right to use that stock.' The master specifically finds that the Trust Company acted in good faith. This language does not show any limitation upon what appeared to be the rights of Davie under the instrument signed by Jackson in the light of the custom proved. There is nothing in it to suggest that he did not actually possess, with reference to the certificate, the rights which he undertook to exercise. It cannot be said fairly to derogate from the power to transfer the absolute title which, by the words of the instrument in connection with the custom, he appeared to have.
It is further argued, in behalf of Jackson, that the custom proved in the case at bar is essentially different from that found in Scollans v. Rollins and Russell v. American Bell Telephone Company, in that it prevails with certainty only 'if the signature is guaranteed by a stock exchange house,' and that as the guaranty of his signature by the stock exchange house was procured by Davie without the knowledge of Jackson and after the delivery of the instrument to him, Jackson is not prevented, under the somewhat strict rules of estoppel, from setting up title in himself. Entrusting the certificate to Davie in blank was, so far as innocent third persons are concerned, an authorization to so fill the instrument as to make it effective to accomplish its apparent purpose. The guaranty of signature must necessarily be made after the signing and is something with which the owner has no apparent connection. It appears to be chiefly a safeguard against forgery.
II. After the certificate had been in the possession of the Federal Trust Company for about four months, Davie became indebted to the firm of Baker, Ayling & Co. in large sums, on account of which they threatened action against him. In return for their promise not to bring action at the time, he executed an assignment to Baker, Ayling & Co. of 'all my right, title and interest in and to all securities now or hereafter pledged by me with the Federal Trust Company * * * and now consisting of ten hundred seventy (1,070) shares of the capital stock of the American News Company and two hundred (200) shares of the preferred stock of the Connecticut River Power Company of Maine, subject, however, to all the rights of the Federal Trust Company to hold the same as collateral.' Before accepting this assignment, Baker, Ayling & Co. went to the Federal Trust Company and inspected this certificate of stock and instrument signed by Jackson. They thereupon gave notice to the Federal Trust Company of the assignment to them by Davie.
A certificate of stock indorsed in blank is not negotiable. It is not governed by the law as to negotiable instruments. It is the evidence of ownership of personal property. Title to the shares of the American News Company, under the form of certificate here disclosed, could be actually transferred only upon the books of the company upon surrender of the certificate. There was, therefore, at common law no completed transfer of title by Jackson, even though he signed the instrument. Apart from controlling custom, this is the common law of this commonwealth and of England. Scollans v. Rollins, 173 Mass. 278-279, 53 N.E. 863, 73 Am. St. Rep. 284; France v. Clark, 26 Ch. D. 257; Société Générale de Paris v. Walker, 11 A. C. 20; Earl of Sheffield v. London Joint Stock Bank, 13 App. Cases, 333-343; Colonial Bank v. Cady, 15 A. C. 267, 273, 277, 278, 285. See Fox v. Martin, 64 L. J. Ch. 473.
That position is the starting point. Baker, Ayling & Co. show no right to the shares unless they get beyond this point. But there is a controlling custom found to exist in the case at bar. They rely upon that as giving them rights. That custom is that a certificate in the condition in which this one was 'when in the possession of a person who is known and is of good reputation,' is treated 'when offered for sale, pledge or transfer * * * as capable of good transfer and delivery by such holder for such sale or pledge.' The arrangement between Davie and Baker, Ayling & Co. was not a pledge. It is elementary that physical possession is essential to the existence of a pledge. The physical possession of this certificate has remained at all times in the Federal Trust Company. The transaction between Davie and Baker, Ayling & Co. was in writing. It purported to be a transfer directly from him to them, subject to the rights of the Trust Company, of his rights in the stock. It was not at this time in the 'possession' of Davie, but of the Trust Company. The custom governs, however only when the certificate is in the 'possession' of the...
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