Muffat v. Detroit-Macomb Land Co.

• Decision Date: 07 January 1931
• Docket Number: No. 117.,117.
• Parties: MUFFAT v. DETROIT-MACOMB LAND CO. et al.
• Court: Michigan Supreme Court

252 Mich. 692

234 N.W. 148

MUFFAT

v.DETROIT-MACOMB LAND CO. et al.

No. 117.

Supreme Court of Michigan.

Jan. 7, 1931.

Appeal from Circuit Court, Wayne County, in Chancery; Charles B. Collingwood, Judge.

Suit by Albert Muffat against the Detroit-Macomb Land Company, and cross-suit by defendant against John Whittaker. From an adverse judgment, plaintiff appeals.

Judgment in accordance with opinion.

Argued before the Entire Bench.

Harry Henderson, for Detroit, for appellant.

Oxtoby, Robison & Hull, of Detroit, for appellee Land Company.

Divie B. Duffield, of Detroit, for appellee, Whittaker.

BUTZEL, C. J.

Merritt M. Willmarth was secretary and a large stockholder in the Detroit Macomb Land Company, defendant corporation. He borrowed the sum of $1,100 and later the sum of $600 from Eleanor Woodworth and gave her as payee his notes in each instance. Willmarth secured the $600 note by indorsing over to the payee certificate No. 363 for 103 shares of stock in defendant corporation. The note contained provisions securing the payee not only for the face amount of the note with interest but also for all present and future indebtedness and liabilities, absolute and contingent, that might be due her from Willmarth. It further provided that in case of default payee might sell the collateral at public or private sale, with or without notice, and apply the proceeds towards the payment of the note and other liabilities due payee.

Plaintiff Albert Muffat, together with another party, indorsed the $1,100 note as an accommodation to Willmarth. Upon Willmarth's failure to pay the $1,100 note, Miss Woodworth brought suit and recovered judgment against him, plaintiff, and the other indorser. Thereafter, plaintiff went to see her for the purpose of settling the judgment debt, and she told him of the stock which secured the $600 collateral note as well as any other indebtedness due her from Willmarth. This indebtedness would include this judgment which had been rendered in her favor against Willmarth, plaintiff, and the other indorser. Miss Woodworth offered to turn the stock over to plaintiff upon the payment of the $300 balance still due on the $600 note. This was done for the express purpose of enabling plaintiff to recoup his loss. He had been a stockholder in defendant corporation and was familiar with the value of the stock. Upon payment of the judgment, which was assigned to plaintiff, and of the $300, Miss Woodworth indorsed the stock over to plaintiff on the back of the original certificate which Willmarth had indorsed over to her. She also indorsed the collateral note, without recourse, and gave it to plaintiff. He thereupon presented the certificate of stock to Mr. C. M. Burton, who had succeeded Willmarth as secretary of the corporation. Plaintiff then learned for the first time the following facts: That of the 103 shares of stock represented by certificate No. 363, which Willmarth had personally owned at one time when he had been secretary of defendant corporation, he had sold 84 shares to cross-defendant John Whittaker, to whom a new certificate was issued; that subsequently the corporation issued a new certificate for the remaining 19 shares to Willmarth; that this certificate No. 363 for the 103 shares came into his hands, as secretary, for cancellation; that either fraudulently, or by mistake, as he claims, he hypothecated it with Miss Woodworth as security for the indebtedness due her.

Upon defendant corporation's refusal to make the transfer and recognize plaintiff as the owner of the 103 shares, he brought suit to compel it to do so. Defendant in its answer and cross-bill set forth the fact that it had issued 84 of the 103 shares to John Whittaker, whom it made cross-defendant and that it could not issue the same shares twice to two different parties. It asked the court to determine whether plaintiff or Whittaker was entitled to the 84 shares, and that if plaintiff was entitled to it, the Whittaker stock be canceled.

Upon a hearing of the case, the circuit court judge found against plaintiff and in favor of defendant corporation and cross-defendant Whittaker. He based his decision on the theory that when an officer, who has the power to issue certificates of stock, hypothecates stock represented by a certificate, standing in his name for his personal debts, the pledgee is put upon inquiry. Had due inquiry been made, Willmarth's remissness would probably have been discovered.

We cannot agree with the court's conclusion. There is no claim made that either plaintiff, Whittaker, or Miss Woodworth knew of Willmarth's mistake or wrongdoing. They were all innocent parties when they respectively acquired the stock. Furthermore, there is no duty of inquiry on the part of a purchaser or pledgee of stock purchased from a stockholder who is an officer of a corporation, when the certificate is made out to such officer in his individual capacity. It is not at all unusual for an officer of a corporation to be a large stockholder. Very frequently the officers are selected from the stockholders. The corporation should see to it that the transfer of stock is properly safeguarded. As a rule, it does this by selecting its officers with greatest care. Frequently, further precaution is taken by appointing registrars and transfer agents. One of the largest stock exchanges in the country demands that this be done before it will accept the listing of a corporation's stock. In Greensburg Title & Trust Co. v. Aspinwall-Delafield Co., 266 Pa. 160, 109 A. 631, 632, the transfer to a bona fide pledgee by the secretary of a corporation of stock standing in his name was held effective, notwithstanding the fact that he acted fraudulently. The court (quoting from Railway Co. v. Citizens' National Bank, 56 Ohio St. 351, 47 N. E. 249) made this statement:

“As the secretary had the right to hold stock, and did hold it, and as but one mode is provided by * * * the rules of the company for the issue of stock certificates, the fact that a certificate is issued in his favor cannot of itself be adjudged a circumstance calculated to place an ordinarily prudent man...