Geyser-Marion Gold-Min. Co. v. Stark

• Decision Date: 11 March 1901
• Docket Number: 1,404.
• Citation: 106 F. 558
• Parties: GEYSER-MARION GOLD-MIN. CO. v. STARK.
• Court: U.S. Court of Appeals — Eighth Circuit

106 F. 558

GEYSER-MARION GOLD-MIN. CO. v. STARK.

No. 1,404.

United States Court of Appeals, Eighth Circuit.

March 11, 1901

Syllabus by the Court.

It is the duty of every corporation to use reasonable diligence in each case to ascertain whether or not a transfer of stock requested is duly authorized by the former owner, to make transfers so authorized, and to prevent those unauthorized and for every breach of this duty it is liable to the injured party for the damage it inflicts.

The legal presumption is that a trustee has no power to sell or transfer the subject of his trust.

A corporate record and certificate of ownership of stock by A B., trustee, is notice to the corporation that he holds it without the power of disposition, for some cestui que trust.

It is actionable negligence for the corporation to cancel the certificate and transfer the stock on the signature of the trustee to the assignment, without any inquiry for the cestui que trust, or for his assent to the transfer.

A local custom of dealers in a place where a sale is made, which violates a well-established principle of law, and changes the nature and obligations of the relation of two parties to each other, is inoperative unless known and assented to by both.

This was a suit in equity brought by the appellee, Charles B. Stark, against the appellant, the Geyser-Marion Gold-Mining Company, a corporation of the state of Utah, to compel it to either reinstate upon its records the registry of his ownership of 3,000 shares of its stock, or to pay to him the value of that stock, which the appellee alleged the corporation, had negligently permitted to be transferred upon its records to third parties. The appellant answered that the stock in question stood upon its books in the name of Felix J. Stark, trustee; that, pursuant to a custom which existed in Salt Lake City, this trustee sold and assigned the stock to third parties, who surrendered the certificates to the corporation, and thereupon the appellant issued new certificates of stock to these purchasers, and registered the ownership thereof in their names, without any notice that the complainant was interested therein. At the close of the hearing these facts were established: Charles B. Stark was a resident of St. Louis, Mo. Felix J. Stark, his brother, resided in Salt Lake City, in the state of Utah. In 1897 and 1898 Felix J. Stark bought for Charles B. Stark 3,000 shares of the stock of the appellant. A certificate for 1,000 of these shares was issued in the name of Charles B. Stark, who subsequently assigned it in blank, or signed a power of attorney authorizing Felix J. Stark to transfer it, and delivered the certificate to him. Thereupon Felix surrendered the certificate for these 1,000 shares to the corporation, and at his request the corporation issued a new certificate for these shares to Felix J. Stark, trustee, and so recorded the ownership upon its books. The certificates for the remaining 2,000 shares, when purchased, were assigned either in blank or to Felix J. Stark, and were delivered to him. He surrendered them to the corporation, and at his request the corporation canceled them, and issued and delivered to Felix J. Stark, trustee, new certificates for these 2,000 shares, and recorded the ownership thereof in his name as trustee upon its books. Felix J. Stark had no beneficial interest in any of this stock. The appellee, Charles B. Stark, was the equitable and beneficial owner thereof, and Felix J. Stark held it as his trustee. The appellee pursued the course indicated by these facts for the purpose of enabling him to direct his trustee to sell and transfer his stock at any time by wire, without waiting to forward the certificates from St. Louis. The appellee never did authorize his trustee, Felix, to sell or transfer the stock. But Felix J. Stark sold and assigned this stock, by means of the signature, 'Felix J. Stark, Trustee,' to third parties, and appropriated the proceeds of the sale to his own use, without the knowledge of the appellee. Thereupon the purchasers presented the certificates for these 3,000 shares of stock, with the assignments thereof, signed by Felix J. Stark, trustee, and surrendered them to the corporation. The mining company accepted the surrender, canceled the certificates, issued new certificates for like amounts to these purchasers, canceled the registry in its books of the ownership of this stock by Felix J. Stark, trustee, and recorded its ownership by the purchasers. At the time of these transactions Felix J. Stark was a broker, and a member of the Stock Exchange of Salt Lake City, and it was a custom in that city for brokers to carry in their names, as trustees, stock belonging to third parties, which was extensively bought and sold without any actual transfer of the certificates of stock; the brokers holding them in their possession and in their names as trustees, and accounting to the respective purchasers. It was also the custom for such brokers to transfer and assign the stock by signing the assignments with their names as trustees, without the signatures of the cestuis que trustent. The appellant had no actual notice of his interest in it. Upon this state of facts the court below found that the appellee was entitled to recover from the mining company the damages which he had sustained by the transfer and loss of his stock. It found these damages to be $2,851.22, and entered a decree accordingly. The mining company has appealed from this decree.

J. E. Frick (H. C. Edwards, on the brief), for appellant.

John W. Judd and Harrison O. Shepard (Charles B. Stark, Richard B. Shepard and Allen T. Sanford, on the brief), for appellee.

Before CALDWELL, SANBORN, and THAYER, Circuit Judges.

SANBORN Circuit Judge, after stating the case as above.

Corporations issue certificates of the ownership of their stock. They condition the rights of their stockholders to vote, to participate in their management, and to receive dividends upon their stock, upon a registry of their ownership of their shares in the corporate books and upon these certificates. They make the certificates and keep the registries, and they thereby assume an obligation to each stockholder to use reasonable diligence to certify, and to make their records declare the truth. No man can be lawfully deprived of his property without his consent except by due process of law, and, if he once becomes the owner of stock in a corporation, that association cannot recklessly deprive him of that ownership, and confer it upon another, without liability for the damages it causes. It is bound to use reasonable diligence in every case to ascertain whether or not a transfer of stock requested is duly authorized by the former owner, to make those transfers that are so authorized, and to prevent those that are unauthorized; and for every breach of this obligation it is legally liable to the parties injured for the damage it thus inflicts. Telegraph Co. v. Davenport, 97 U.S. 369, 371, 372, 24 L.Ed. 1047; Cook, Stock, Stockh. & Corp. Law, Sec. 327; St. Romes v. Cotton-Press Co., 127 U.S. 614, 8 Sup.Ct. 1335, 32 L.Ed. 289; Loring v. Salisbury Mills, 125 Mass. 138; Same v. Frue, 104 U.S. 223, 26 L.Ed. 713; Salisbury Mills v. Townsend, 109 Mass. 115; Pratt v. Manufacturing Co., 123 Mass. 110; Pennsylvania R. Co.'s Appeal, 86 Pa. 80.

At the time of the transfer of this stock of which complaint is here made, the appellee was its equitable owner; and Felix J. Stark, his brother, held the title to it in trust for his benefit, with no authority to sell or to transfer it. The certificates which represented it and the corporate books alike declared, not that Felix J. Stark, but that Felix J. Stark, trustee, held the title to it. Felix violated his trust.

He signed the name 'Felix J. Stark, Trustee,' on the assignments of the certificates without any authority from his cestui que trust to either sell or assign them, and he delivered them to the purchasers. For these acts the corporation was not liable. After their performance the stock still stood of record in the name of Felix J. Stark, trustee and the appellee, the cestui que trust, still had the right to direct the action of the trustee, to dictate his vote in the management of the affairs of the corporation to receive the dividends on the stock, and to control its disposition. But when the corporation accepted unauthorized assignments of the trustee, canceled the certificates, issued new certificates for the same share of stock, which declared the purchasers to be their owners, and recorded the ownership of this stock upon its corporate books in the purchasers, instead of in Felix J. Stark, trustee, the appellee's stock was gone, and he was deprived of all his legal and equitable rights therein. Was the corporation liable to him for this loss? Counsel for the appellant maintain that this question should be answered in the negative (1) because the addition of the word 'trustee' to the name Felix J. Stark gave the corporation no notice that this stock was held in trust for any one, and imposed upon it no duty to inquire concerning the cestui que trust; (2) because the appellee is estopped by the fact that before the title of the stock was recorded in Felix J. Stark, trustee, he permitted assignments thereof to be made to Felix individually, and gave him possession and control of the certificates; (3) because it was the custom of stockbrokers in Salt Lake City to hold the title to stock in their names as trustees and to assign and transfer it without the consent of their cestuis que trustent, and (4) because the stock had been assigned to the purchasers by Felix J. Stark, trustee, and this assignment had vested in them a perfect title, so that the subsequent transfer thereof...