Mapleton Bank v. Standrod

• Decision Date: 20 December 1902
• Citation: 71 P. 119,8 Idaho 740
• Parties: MAPLETON BANK v. STANDROD
• Court: Idaho Supreme Court

71 P. 119

8 Idaho 740

MAPLETON BANK v. STANDROD

Supreme Court of Idaho

December 20, 1902

CORPORATIONS-STOCK-TRANSFER-PLEDGE.-A written transfer of a certificate of shares of stock in a corporation, made in good faith and for value, and possession taken thereof as a pledge for the payment of a private debt of the assignor, and the transfer not entered on the proper book of the corporation, has preference over a subsequent attachment thereof in favor of a creditor of the assignor or transferrer of the stock.

TRANSFERS OF STOCK-BOOKS OF CORPORATION.-That provision of section 2611 of the Revised Statutes which provides that a transfer of stock, made by indorsement, and delivery of the certificate is not valid, except between the parties thereto until the same is entered upon the books of the corporation, was not intended as a protection to creditors of a stockholder, but was intended to protect the corporation, its members and its creditors.

PLEDGED STOCK-ATTACHING CREDITOR.-Where stock has been pledged and transferred by indorsement, and delivery as security for the payment of a debt and transfer not entered on the books of the corporation, and is thereafter attached at the instance of a creditor of the stockholder, such attachment is valid only against the interest of the assignor therein after the debt has been paid.

(Syllabus by the court.)

APPEAL from District Court of Bingham County.

Judgment sustained. Costs of this appeal awarded to the respondents.

E. E Chalmers and N. H. Clark, for Appellants.

The general question is whether the attachment liens acquired by appellants in their suits against Harris or the attempted pledge of said stock by Harris to the Mapleton Bank has the preference of priority. It is here urged on behalf of the appellants that the liens acquired by their attachments are prior and superior to the alleged lien of the Mapleton Bank for the reason that at the time when the attachments were levied, and when judgments were entered, the said shares of stock stood upon the books of the Farmers' State Bank in the name of said T. A. Harris, and that the transfer by indorsement and delivery of the certificates of stock did not effect a pledge of the shares as against said attaching creditors. Upon this general proposition we submit the following authorities: By section 2611 of the Revised Statutes of Idaho it is provided: "Whenever the capital stock of a corporation is divided into shares, and certificates therefor are issued, such shares of stock are personal property and may be transferred by indorsement, by the signature of the proprietor or his attorney or legal representative, and delivery of the certificates, but such transfer is not valid, except between the parties thereto until the same is so entered upon the books of the corporation as to show the names of the parties by and to whom transferred, the number and designation of the shares and the date of entry." (Aulbach v. Dahler, 4 Idaho 654, 43 P. 322; to the same effect is Lyondonville Nat. Bank v. Folsom, 7 N. Mex. 611, 38 P. 253.) "A transfer of shares of stock is invalid as to creditors, even though they have notice, when made in any other way than that provided by code of 1873, section 1078, which declares that a transfer of shares is not valid except as between the parties thereto until it is regularly entered on the books of the company." (Ottumwa Screen Co. v. Stodghill, 103 Iowa 437, 72 N.W. 669; Thompson on Corporations, sec. 2634, and note.) There is in this case no allegation or proof to the effect that the attaching creditors of the defendant have had notice of the alleged pledge or any knowledge of the facts sufficient to put them on inquiry regarding the so-called pledge. (Port Townsend Nat. Bank v. Port Townsend Gas etc. Co., 6 Wash. 597, 34 P. 155.)

F. S. Deitrich, for Respondent.

There is a conflict of authority even where statutes are substantially the same, but we respectfully submit that not only the weight, but the decided tendency, of modern authority clearly favor and sustain the unregistered pledge of corporation stocks as against a subsequent attachment thereof upon a debt of the pledgor. The phenomenal increase of corporations is one of the marked features of the modern commercial world. Corporation stocks have come to be one of the most common forms of security; they pass daily from hand to hand. The facility with which they can be transferred make them especially attractive to the lender, and hence especially available to the borrower, certificates of stock are therefore more and more demanding to be recognized as negotiable instruments. They are most frequently held by persons far away from the home office of the corporation, and frequently in foreign lands. To require that registration be had every time they are used as a pledge would entail delay, expense and risk, which would be intolerable, and would deprive them of much of their value. Nor is a transfer upon the books of the company desirable from the lender's stand-point. He will be cautious against permitting the corporation records to hold him out as a stockholder, and thus subject him to the possibility of being held responsible as a stockholder to creditors of insolvent companies. Such liability is the inevitable logical result of the doctrine announced in Aulbach v. Dahler, 4 Idaho 654, 43 P. 322, where not the rights of a creditor of the pledgor against the pledgee are involved, but of a creditor of a corporation against one who permits the books of the corporation to hold him out as a stockholder, although in fact not a stockholder. Kentucky has a statute in almost the identical language of our section 2611, and the question under discussion was involved in the case of Thurber v. Crump, 86 Ky. 408, 6 S.W. 145. (Railroad Co. v. Schuyler, 34 N.Y. 30; Lowell on Transfer of Stocks, 93, 95, 96; Port Townsend Nat. Bank v. Port Townsend Gas etc. Co., 6 Wash. 597, 34 P. 155.) The vendee of unregistered stock is by the statute simply prevented from asserting his claim as against those to whom the corporation records give notice, namely, the corporation and its creditors and stockholders. (Daniel on Negotiable Instruments, 4th ed., secs. 1708e, 1708f; Cook on Corporations, 4th ed., secs. 486, 487, 490; Morawetz on Private Corporations, sec. 195 et seq.; Angell and Ames on Corporations, 11th ed., sec. 354; 1 Spelling on Corporations, par. 498; Drake on Attachment, 5th ed., secs. 223, 245, 525, 608; Lowell on Transfer of Stocks, secs. 93, 95, 96; Wade on Attachment, sec. 30, p. 30; May v. Cleland, 117 Mich. 45, 75 N.W. 129; Seeligson v. Brown, 61 Tex. 114; Lund v. Wheaton, 50 Minn. 36, 36 Am. St. Rep. 623, 52 N.W. 268; Bank v. McElrath, 13 N. J. Eq. 24; Batesville Tel. Co. v. Schmidt Grocer Co., 68 Ark. 115, 56 S.W. 784; Port Townsend Nat. Bank v. Port Townsend Gas etc. Co., supra; Masury v. Bank, 93 F. 603; Kern v. Day, 45 La. Ann. 71, 12 So. 6; McClintock v. Central Bank, 120 Mo. 127, 24 S.W. 1052; Tombler v. Palestine Ice Co., 17 Tex. Civ. App. 596, 43 S.W. 896; Goyer v. Weldberger, 71 Miss. 438, 15 So. 235; Baldwin v. Canfield, 26 Minn. 43, 1 N.W. 261; Telford etc. Turnpike Co. v. Gerhab (Pa.), 13 A. 90; Morton v. Cowan (Can.), 25 Ont. Rep. 529; Weston v. Water Co., 6 Cal. 425; People v. Elmore, 35 Cal. 653; Bank v. Wilson, 58 Cal. 600; Commercial Nat. Bank v. Bank (Mass.), 7 F. 369; Spreckels v. Bank, 113 Cal. 272, 54 Am. St. Rep. 348, 45 P. 329; West Coast Safety Faucet Co. v. Wolf, 133 Cal. 315, 85 Am. St. Rep. 171, 65 P. 623; Doty v. Larimore etc. Bank, 3 N. Dak. 9, 53 N.W. 77, 17 L. R. A. 259; Smith v. Railroad Co., 91 Tenn. 221, 238, 18 S.W. 546; Parker v. Bethel Hotel Co., 96 Tenn. 252, 34 S.W. 209, 31 L. R. A. 706, 713; Fraser v. Dill, 11 S.C. 486.) In Daniel on Negotiable Instruments, fourth edition, the author says: Sec. 1708e. (3) "As between the transferee of a certificate of stock and a creditor of a transferrer, it would seem that any bona fide assignment of the stock for value would effectually pass the transferrer's interest therein, so far as to supersede the right of an attachment or execution creditor to levy upon it for a debt due by the transferrer. Sec. 1708f. (4) "As between the transferee of a certificate of stock and a third party who has purchased the shares, the better opinion is that a bona fide transfer of the certificate carries with it the transferrer's interest in the stock, and that a subsequent purchaser who simply relies on the books of the corporation for information as to who are stockholders, and who buys the shares without taking the certificate, does so at his own peril. The certificate is the muniment of title."

SULLIVAN, J. Quarles, C. J., and Stockslager, J., concur.

OPINION

SULLIVAN, J.

This is an action to foreclose a pledge of five shares of the capital stock of the Farmers' State Bank, a corporation doing business at Idaho Falls, state of Idaho which had been pledged by the defendant T. A. Harris, to the Mapleton Bank a banking partnership of Mapleton, in the state of Iowa, and the appeal is from the judgment on the judgment roll alone. The defendant, T. A. Harris, made no appearance, and the defendants, the Farmers' State Bank and C. G. Peck, secretary thereof, filed disclaimers. The defendants who are appellants, William Lindsey and D. W. Standrod & Co., answered separately, and join in this appeal. The facts were stipulated, and the following is a sufficient statement of them for a decision of this appeal: On July 2, 1900, at Mapleton, state of Iowa, defendant T. A. Harris, executed to the cashier of the said Mapleton Bank his promissory note for $ 1,500, due six months after date, with interest at the rate of eight per cent per annum, attorney's fees, etc., and at said time and place, as a part of...