First Nat. Bank in Fort Lee v. Englewood Mut. Loan & Bldg. Ass'n

• Decision Date: 19 October 1938
• Citation: 124 N.J.Eq. 360,1 A.2d 871
• Parties: FIRST NAT. BANK IN FORT LEE v. ENGLEWOOD MUT. LOAN & BUILDING ASS'N.
• Court: New Jersey Court of Chancery

1 A.2d 871

124 N.J.Eq. 360

FIRST NAT. BANK IN FORT LEE

v. ENGLEWOOD MUT. LOAN & BUILDING ASS'N.

Court of Chancery of New Jersey.

Oct. 19, 1938.

Syllabus by the Court.

White owned 25 shares of defendant's stock; as an evidence of title, he received from the defendant, Book of account No. 8606. He received no certificate of stock for his shares from the defendant; that was retained by the defendant. White obtained a loan from the complainant and as collateral security executed a written instrument which comprised a promissory note, an assignment of his shares of stock and a power of attorney to transfer the same; he, at the same time, delivered his Book of account No. 8606. The complainant, in writing, notified the defendant that it held the shares of stock as collateral security and made inquiry of the defendant as to the value of the shares. The defendant acknowledged the communication. Subsequently, and during the period while the complainant held the said security, the defendant procured from White a written assignment of all his "right, title and interest in and to Book No. 8606" in satisfaction of a deficiency judgment it obtained against him. Held, complainant holds an equitable title to the said 25 shares of stock and is entitled to have the same transferred upon the books of the defendant in order to obtain legal title.

Suit by the First National Bank in Fort Lee against the Englewood Mutual Loan & Building Association to compel it to transfer on its books certain stock and register it in the complainant's name.

Decree for complainant.

Gross & Blumberg, of Newark, for complainant.

Seufert & Elmore, of Englewood, for defendant.

EGAN, Vice Chancellor.

The instant case was heard by Vice Chancellor Lewis in December, 1937. Due to his illness, no decision was rendered by him. On June 13, 1938, the cause was rereferred to me, and counsel submitted it on the record of the facts presented at the hearing.

The complainant alleges: That on or about March 28, 1931, Edward A. White, now deceased, owned twenty-five shares of stock in the defendant association; that the title to those shares are indicated by book No. 8606, issued by the defendant association; that on or about the date last aforesaid, White assigned the shares to the complainant as collateral security for a loan given to him by it; that the said assignment was made by the execution, and delivery, of a collateral note, by the terms of which the said shares were pledged and assigned, and an irrevocable power of attorney to transfer the same, and also by the delivery to the complainant of the said book No. 8606; that the complainant succeeded to the assignor's rights in the shares of stock; that the shares were afterwards sold to satisfy the indebtedness of White, and were purchased by the complainant; that complainant's interest in the shares was acknowledged by the defendant, and in the face of repeated demands upon the defendant, it, the defendant, refused to register the stock in the name of the complainant.

The defendant association, in effect, denied the complainant's allegations, and says that title to the shares of stock are represented by a certificate of stock issued by it. It admits that it has refused to transfer the shares upon its books, and asserts as a reason therefor, that complainant at no time tendered to it the stock to be transferred. It further states that it holds the shares of stock in satisfaction of an indebtedness due it from White.

Upon making the loan to White, and his consequent execution of the assignment and pledge, the complainant, through its officers, notified the defendant association that the complainant was holding the shares of stock, represented by book No. 8606, as collateral security for a loan. Also, later, on January 5, 1932, the complainant sent a written communication to the defendant association in which it stated it held the shares of stock as collateral security, and therein inquired as to the withdrawal value of the shares. The defendant replied to that communication by letter as follows: "Your letter of January 5th received and we note that you are holding as collateral security for a loan Book No. 8606, 25 shares, in the name of Edward A. White. The present value of these shares is $2388.08." (Exhibit C-4)

On November 2, 1934, the complainant again wrote a letter to the defendant conveying notice of White's assignment of the stock (Exhibit C-5), which was answered by the defendant in a letter dated November 3, 1934, wherein it stated: "The present withdrawal value of Book #8606 in the name of Edward A. White is $2784.48." (Exhibit C-6)

Subsequently, on August 12, 1936, the complainant wrote the defendant as follows: "We are holding as collateral security to a loan certificate #8606 for twenty-five shares of your association, in the name of Edward A. White. Will you kindly advise us what the present withdrawal value is?" (Exhibit C-7)

The loan to White, as it became due, was renewed from time to time by the bank. During the period of the related correspondence, and the renewals of the note, the defendant at no time informed the complainant that a certificate for the stock was in existence, and that it retained the same. It did not question the validity of White's assignment of the stock to the complainant. It will be observed in the above letters, that the defendant referred to the withdrawal value of the "book" &c, suggesting the inference that the "book" represented the shares. One of its letters states the "present withdrawal value of book No. 8606, &c."

On February 20, 1935, the twenty-five shares became the only collateral security for the indebtedness of White. His note to the complainant bank was renewed solely on the basis of, and in reliance upon, the value of the building and loan shares given to complainant by the defendant association as expressed in the correspondence aforesaid between them (Case, pp. 13, 14).

White's failure to pay the last renewal note at its maturity, caused the complainant to sell the twenty-five shares of stock. Before the sale, notice thereof was given to White and to the defendant association. The complainant, being the only and highest bidder at the sale, purchased the shares of stock. The defendant never issued a certificate for the twenty-five shares of stock to White. The certificate for the said shares was not removed from the stock register book of the defendant association until after the institution of this suit. J. Archie Thompson, the president of the defendant association, testified that the certificate "had never been delivered to White, but had always been in the possession of the defendant." He also testified that the defendant had foreclosed a mortgage on White's home, and that a deficiency of about $1400 resulted. Confronted with that deficiency, White, through his attorney, Judge Francis V. D. Lloyd, then entered into negotiations with the defendant association. As a result, White assigned to the defendant "his right, title and interest in the twenty-five shares of the Englewood Mutual Building and Loan Association." Those shares had not been pledged with the defendant as security for its mortgage on White's property, from which the deficiency arose. The assignment of the shares by White to the defendant was subsequent to his assignment of the same stock to the complainant.

Counsel for the defendant association, Judge William Seufert, admitted that the defendant association had received notice of the assignment to the complainant; and he admitted also that the defendant received notice from White's attorney, Judge Lloyd, to the same effect. Judge Lloyd stated "I so advised Judge Seufert." He further testified that he said to Judge Seufert, "that Mr. White would be very glad to assign his right and title and interest in those shares, because it occurred to me that they might be in value over and above the amount which was due to the bank in shares. I said to him that if this was agreeable, if he would prepare the form of assignment and whatever papers he wanted, I would send them to Mr. White and we would close the transaction on that basis. Judge Seufert did send me the form of assignment to be executed to Mr. Gorham, the treasurer of the Association, I sent the assignment, which is the assignment offered in evidence, D-S, to Mr. White for execution. It was executed and we expected to have a general release from the Englewood Building and Loan Association and that closed the transaction."

In accordance with the arrangement with the defendant association, White assigned: "all my right, title and interest in and to Book No. 8606 (original No. 14045) the Englewood Mutual Loan and Building Association, to me and all my right, title and interest in and to twenty-five shares of stock represented thereby and the account represented thereby, and in and to all moneys therein mentioned, with the interest thereon, now due or to become due." (Exhibit D-5)

The witness, Thompson, president of the defendant corporation, testified as follows:

"Q. And by the very language of this assignment you took an assignment of the book, didn't you? A. No. I took an assignment of the stock. The book represented the stock." (Italics mine.)

The evidence shows that since 1929 no certificates were issued for stock purchased from the defendant association by shareholders. The only physical evidence of ownership of shares of stock in the defendant association appears to be the account book (Case, pp. 30, 31). That fact was made known throughout banking circles by the defendant association (Case, pp. 51, 52).

The theory of the bill is that complainant's title under the assignment and sale is an equitable title only, as between it and the defendant; and that equitable relief is necessary to have the shares transferred of record and legal title thereby perfected. Lockward v. Evans, 88 N.J.Eq. 530, 102 A. 19; Morris v. Hussong Dyeing Machine Co., 81 N.J.Eq. 256,...