Howison v. Mechs. Sav. Bank

• Decision Date: 03 March 1936
• Citation: 183 A. 697
• Parties: HOWISON v. MECHANICS SAV. BANK et al.
• Court: New Hampshire Supreme Court

183 A. 697

HOWISON

v. MECHANICS SAV. BANK et al.

Supreme Court of New Hampshire. Hillsborough.

March 3, 1936.

Transferred from Superior Court, Hillsborough County; Burque, Judge.

Bill in equity by Mary A. Howison against the Mechanics Savings Bank and another, wherein plaintiff and named defendant moved for judgment and question whether plaintiff was entitled to judgment was transferred without ruling.

Judgment for named defendant, unless plaintiff should redeem pledge.

Bill in equity to recover 72 shares of the stock of the American Telephone & Telegraph Company. Trial before a master, who made certain findings and ruled that the bill should be dismissed, with costs to the defendant. The defendant moved for judgment on the report, and the plaintiff moved for judgment notwithstanding the report. The question whether the plaintiff is entitled to judgment was transferred without ruling by Burque, J.

The material facts appearing in the master's report are as follows: On January 5, 1931, the plaintiff, who was sick and about to go South, delivered to the defendant James J. Dowd, a broker, certificates for the shares in question, to be held in trust by Dowd to return to her if she came back alive, and, in case she died, to sell them and hold the proceeds for her sister. The plaintiff indorsed the certificates in blank and had her signature guaranteed by the Amoskeag National Bank. Dowd had no authority to pledge the stock for his own debt. Dowd applied to the defendant bank for a loan to himself of $9,000, and offered the 72 shares of Telephone stock as collateral. Dowd had been a customer of the bank since June 21, 1926, and the bank had made loans to him aggregating over $80,000 on collateral, much of which was similar to the Telephone stock offered. His loans were well secured. He had never been in default, and was in good standing with the bank. The market value of the stock offered for pledge on January 6, 1931, was about $12,600.

It is the custom of banks to make loans on stock certificates indorsed as the Telephone stock was indorsed without question, although the defendant bank knew, and all banks know, that stock brokers frequently hold stocks in trust for customers, and the defendant bank knew that Dowd frequently held stock indorsed in blank belonging to others as well as to himself.

The defendant bank did not inquire of Dowd how he acquired title to the stocks in question, and Dowd made no representations whatsoever in regard to the matter. He dealt with the assistant treasurer of the bank, Harry L. Bickford, who was duly authorized to act for the bank in the matter. Bickford at the time of the trial believed that, if inquiry had been made of Dowd as to his right to pledge the stock, Dowd would have told the truth and revealed the trust. Bickford would have inquired as to Dowd's right had the signature of Mrs. Howison not been guaranteed, but Bickford knew that the guaranty was merely one of the genuineness of the plaintiff's signature. The bank had no suspicion, or cause for suspicion, that Dowd was not the true owner of the stock, and relied solely on the form of the indorsement, as it is the custom of banks to do when dealing with a reliable customer and as the defendant was abundantly justified in doing. The stock certificates had only the qualities of negotiability of ordinary stock certificates indorsed in blank.

The bank in entirely good faith loaned Dowd $9,000 in cash on January 6, 1931, on the security of the Telephone stock. The pledge was also made to secure an antecedent debt and any future loans the bank might make to Dowd. Later the bank loaned Dowd $1,500, which has since been paid, and $2,300, none of which has been paid. No part of the $9,000 loan has been paid. Exclusive of interest, Dowd owes the bank $16,310.19. The bank holds other collateral pledged with other loans, but the principal due on all loans is $3,820 more than the value of all the collateral.

The plaintiff returned from the South on April 28, 1931, and asked for her stock. Dowd told her that it was in his safe and frequently gave her the same assurance. It was not until February, 1932, that the plaintiff learned of Dowd's misconduct and notified the bank of her claim. This was the first intimation the bank had of any adverse claim to the stock. The plaintiff was negligent in not learning sooner what had become of the stock, but the bank was not prejudiced by her failure to act sooner.

Charles A. Perkins and McLane, Davis & Carleton, all of Manchester (J. P. Carleton, of Manchester, orally), for plaintiff.

Warren, Wilson, McLaughlin & Bingham and John J. Sheehan, all of Manchester (J. Walker Wiggin, of Manchester, orally), for the defendant bank.

PAGE, Justice.

There may be some doubt whether P. L. c. 225, § 52, was intended to apply to transfers or powers of attorney in blank, delivered without authority, as well as to those technically completed and delivered with authority of the assignor. If it applies, the plaintiff is without standing. But the same result is reached, for purposes of this case, by another route.

The facts recited develop a situation which in all its main essentials has been the subject of frequent judicial decision. The weight of authority is overwhelming that in a case like this the holder for value in good faith, without notice of the secret trust existing between the true owner of the shares and the owner's faithless agent or trustee, may hold the shares unless, in the case of pledge, the true owner redeems them. Nelson v. Owen, 113 Ala. 372, 21 So. 75; Brittan v. Oakland Bank, 124 Cal. 282, 57 P. 84, 71 Am.St.Rep. 58; O'Mara v. Newcomb, 38 Colo. 275, 88 P. 167; McCarthy v. Crawford, 238 Ill. 38. 86 N.E. 750, 29 L.R.A.(N.S.) 252, 128 Am.St.Rep 95; Meier v. Continental Nat. Bank, 83 Ind.App. 109, 143 N.E. 377; Nolan v. Robertson, 131 Kan. 333, 291 P. 750; Citizens' Bank v. Trust & Deposit Co, 206 Ky. 86, 266 S.W. 875, 40 A.L.R. 1001; Russell v. American Bell Tel. Co, 180 Mass. 467, 62 N.E. 751; Austin v. Hayden, 171 Mich. 38, 137 N.W. 317, Ann.Cas. 1915B, 894; Stone v. Marye, 14 Nev. 362; McNeil v. Tenth Nat. Bank, 46 N.Y. 325, 7 Am.Rep. 341; Mount Holly, L. & M. Turnpike Co. v. Ferree, 17 N.J.Eq. 117; Green v. Furniture Lines, 198 N.C. 104, 150 S.E. 713; Dueber, etc, Co. v. Daugherty, 62 Ohio St. 589, 57 N.E. 455; State Nat. Bank v. Scales, 60 Okl. 225, 159 P. 925; Gray v. Fankhauser, 58 Or. 423, 115 P. 146; Shattuck v. American Cement Co, 205 Pa. 197, 54 A. 785, 97 Am.St.Rep. 735; State Bank v. Cox, 11 Rich.Eq.(S.C) 344, 78 Am.Dec. 458; Garvin v. Pettee, 15 S.D. 266, 88 N.W. 573; Cherry v. Frost, 7 Lea (Tenn.) 1; Strange v. Houston & T. C. R. Co, 53 Tex. 162; Garfield Banking Co. v. Argyle, 64 Utah, 572, 232 P. 541; National Safe Deposit, S. & T. Co. v. Hibbs, 229 U.S. 391, 33 S.Ct. 818, 57 L. Ed. 1241; National Safe Deposit, S. & T. Co. v. Gray, 12 App.D.C. 276; Colonial Bank v. Cady, L.R. 15 App.Cas. 267 (doubted in Fox v. Martin, 64 L.J.Ch. N.S. 473, in 1895, but followed by Fuller v. Glyn, [1914] 2 K.B.Div. 168); Duggan v. Co, 18 Ont.App. 305.

All of the foregoing cases, except six, go expressly on the theory of estoppel. In four of the six, the reasoning shows estoppel to have been the real basis of the decisions. Another, without reasoning, rests upon the authority of McNeil v. Tenth Nat. Bank, supra, perhaps the leading case of estoppel, though suggestions of the doctrine were thrown out many years before. Jarvis v. Rogers, 13 Mass. 105. The remaining case, devoid of reasoning and nearly of citation of authority, is at least consistent with the long line of cases that have expounded the theory of estoppel.

Against this array of authority in more than twenty-five jurisdictions, one jurisdiction long stood alone. Taliaferro v. First Nat. Bank, 71 Md. 200, 17 A. 1036. But the passage in Maryland of the Uniform Stock Transfer Act has brought that state into line. Jenkins v. Continental Trust Co, 150 Md. 416, 133 A. 610.

Behind the doctrine of estoppel lies the convenience, and even necessities, of the enormous volume of business dealings that have grown up in connection with shares of corporate stock. The background was well stated by Mr. Justice Davis in 1870, First Nat. Bank v. Lanier, 11 Wall. 369, 377, 20 L.Ed. 172: "It is no less the interest of the shareholder, than the public, that the certificate representing his stock should be in a form to secure public confidence, for without this he could not negotiate it to any advantage. It is in obedience to this requirement, that stock certificates of all kinds have been constructed in a way to invite the confidence of business men, so that they have become the basis of commercial transactions in all the large cities of the country, and are sold in open market the same as other securities. Although neither in form or character negotiable paper, they approximate to it as nearly as practicable. * * * It is easy to see why investments of this character are sought after and relied upon. No better form could be adopted to assure the purchaser that he can buy with safety. He is told, under the seal of the corporation, that the shareholder is entitled to so much stock, which can be transferred on the books of the corporation, in person or by attorney, when the certificates are surrendered, but not otherwise. This is a notification to all persons interested to know, that whoever in good faith buys the stock, and produces to the corporation the certificates, regularly assigned, with power to transfer; is entitled to have the stock transferred to him. And the notification goes further, for it assures the holder that the corporation will not transfer the stock to any one not in possession of the certificates."

The Lanier Case did not involve the precise question with which we are now dealing. The court held that, where a shareholder assigned a certificate, with the usual power of attorney to transfer the shares, to a bona fide...