Ogilvie v. Idaho Bank & Trust Co.

Decision Date31 July 1978
Docket NumberNo. 12191,12191
Citation99 Idaho 361,582 P.2d 215
Parties, 24 UCC Rep.Serv. 1267 L. Katharine OGILVIE, Plaintiff-Respondent, v. IDAHO BANK & TRUST CO., Defendant-Appellant.
CourtIdaho Supreme Court

William A. Parsons, of Parsons & Smith, Burley, Dennis P. Harwick, Pocatello, for defendant-appellant.

Craig Marcus, of Marcus & Marcus, Boise, for plaintiff-respondent.

ON REHEARING

McFADDEN, Justice.

The previous opinion in this case is withdrawn and this opinion is hereby substituted.

This appeal arises from an action to recover stock certificates pledged to defendant-appellant Idaho Bank and Trust Company (hereinafter IB&T). The district court granted summary judgment in favor of plaintiff-respondent L. Katharine Ogilvie (hereinafter respondent Ogilvie), holding that the pledge of the stock certificates was invalid and that IB&T acquired no rights by the pledge. The judgment is affirmed.

Stock certificates representing 629 shares of common stock of Idaho First National Bank were originally purchased by respondent Ogilvie. At her request, the certificates were reissued to respondent Ogilvie and her son, Richard R. Ogilvie, as follows:

1. Two hundred eighty-eight shares were issued between May 5, 1956, and January 21, 1965, in the following language: "L. KATHARINE OGILVIE & RICHARD R. OGILVIE, JT. TEN."

2. Three hundred forty-one shares were issued between March 4, 1968, and January 18, 1973, in the following language: "L. Katharine Ogilvie & Richard R. Ogilvie. As joint tenants with right of survivorship and not as tenants in common."

Respondent Ogilvie states in her deposition, which was introduced in the proceeding below, that she placed both names on these certificates, "because I thought I just might die someday and I wanted them to go to him." She states further that while the dividends were paid to her, additional issues of stock, either by way of stock splits or stock dividends, were issued in both names. She kept the stock certificates in a metal file box in her home until she became ill and, following hospitalization, was moved to a Boise nursing home. Her sister then took possession of her belongings, including the stock certificates. Richard Ogilvie thereafter somehow acquired possession of the shares from his aunt, but without respondent Ogilvie's knowledge or consent.

On November 20, 1974, Richard Ogilvie pledged these stock certificates to IB&T as collateral for a $14,795.50 personal loan. Idaho Bank and Trust did not register this transfer with Idaho First National Bank nor did it receive new, reissued or re-registered stock certificates from Idaho First National Bank.

In conjunction with the loan, IB&T required the signatures of both Richard Ogilvie and respondent Ogilvie on the stock power indorsing the stock certificates. The signatures of respondent Ogilvie appearing on these documents were forged. The loan became due on February 18, 1975, and has since been delinquent. Richard Ogilvie died on March 1, 1975. Idaho Bank and Trust then commenced foreclosure proceedings on the certificates. Respondent Ogilvie, in response, initiated the present action to recover the stock certificates from IB&T. The district court granted summary judgment for respondent Ogilvie, holding that there was no evidence of a valid intervivos gift of the stock certificates to Richard Ogilvie. The district court held that since Richard Ogilvie acquired no interest in the certificates that might be encumbered by a pledge of the certificates, IB&T acquired no interest in the certificates. This appeal is from that judgment.

The issue on appeal is whether, by obtaining a pledge of the certificates from Richard Ogilvie, IB&T acquired any interest in these stock certificates, and if so, to what extent.

Notwithstanding Idaho statutory and common law principles concerning gifts and the creation of joint tenancies, transfers of investment securities are governed by the Idaho Uniform Commercial Code Investment Securities (hereinafter Article 8). I.C. §§ 28-1-105(2), -8-102(1)(b). However, where Article 8 is silent as to the applicable law, our disposition is governed by principles of law and equity supplementing the provisions of the Uniform Commercial Code. I.C. § 28-1-103.

I UNIFORM COMMERCIAL CODE INVESTMENT SECURITIES

The stock certificates involved in this case are "securities" as that term is defined by Article 8. "A 'security' is an instrument which is . . . in . . . registered form; and is of a type commonly dealt in upon security exchanges . . . (and) . . . is issued or dealt in as a medium for investment; and is . . . divisible into a class or series of instruments; and evidences a share, participation or other interest in property or . . . evidences an obligation of the issuer." I.C. § 28-8-102(1)(a).

Under Article 8, IB&T, by virtue of Richard Ogilvie's pledge of the stock certificates, is a purchaser of securities. A "purchaser" is defined by I.C. § 28-1-201(33) as "a person who takes by purchase." Under I.C. § 28-1-201(32), " 'purchase' includes taking by . . . pledge, . . . gift or any other voluntary transaction creating an interest in property." The facts are uncontroverted that Richard Ogilvie voluntarily pledged the stock certificates to IB&T, thereby conferring purchaser status upon IB&T.

Under these facts, IB&T also enjoys the preferred status of a "bona fide purchaser." See I.C. § 28-8-301(2). Idaho Code § 28-8-302 provides: "A 'bona fide purchaser' is a purchaser for value in good faith and without notice of any adverse claim who takes delivery of a security . . . in registered form . . . indorsed to him . . . ." As has been indicated, IB&T is a "purchaser" under I.C. § 28-1-201(32), (33). "Value" includes the act of extending credit. I.C. § 28-1-201(44)(a). Under Article 8, "good faith" and "without notice" mean that the person extending credit acts honestly in conducting the transaction and has neither actual knowledge, nor, from all the facts and circumstances, should have known that an adverse claimant asserts rights in the pledged collateral. I.C. § 28-1-201(19), (25). In the instant case, there is no evidence that anyone other than Richard Ogilvie or respondent Ogilvie claim any interest in the securities. Although IB&T could have protected itself from a forgery, I.C. § 28-8-312, there is no evidence suggesting that IB&T knew or should have known that respondent Ogilvie claimed rights to the pledged collateral because her signature was forged. Therefore, by extending credit IB&T became a bona fide purchaser of the pledged securities after receiving delivery of the shares pursuant to the pledge agreement.

(A) RESPONDENT OGILVIE'S FORGED INDORSEMENT

Once the logical connection between different definitional sections of the Idaho Uniform Commercial Code is made and such definitional matters understood, I.C. §§ 28-8-301 to -8-320 provide a relatively simple method for resolving claims between competing claimants in investment securities.

As a general rule, a bona fide purchaser, upon receiving delivery of an investment security, prevails against all adverse claimants. I.C. § 28-8-301(2). A bona fide purchaser is, therefore, a favored sub-class of purchasers prevailing over all claimants, including the true owner of the security. I.C. § 28-8-301(1).

To this broad statement is added the exception contained in I.C. § 28-8- 311(a), providing that in cases of forged indorsements, a bona fide purchaser prevails against the true owner only if he has received new, reissued or re-registered securities from the issuer. 1 Under I.C. § 28-8-311(a), the true owner of an investment security, with certain exceptions not herein applicable, may assert the ineffectiveness of an "unauthorized indorsement" appearing on pledged securities against a bona fide purchaser, unless the bona fide purchaser has received new, reissued or re-registered securities from the issuer. The "unauthorized indorsement" referred to in I.C. § 28-8-311 "means one made without actual, implied or apparent authority and includes a forgery." I.C. § 28-1-201(43). Thus when reconciling the broad protection extended a bona fide purchaser in I.C. § 28-8-301(2) with the protection afforded the true owner of the securities in I.C. § 28-8-311(a), as between the owner and a bona fide purchaser relying on a forged indorsement of pledged securities, priority is given the owner, unless the bona fide purchaser also received reissued stock certificates from the issuer prior to receiving notice of the owner's adverse claim. See Folk, Article 8: Investment Securities, 44 N.C.L.Rev. 654 (1966); Folk, Some Problems Under Article 8 of the Uniform Commercial Code, 5 Ariz.L.Rev. 193 (1964); Guttman, Article 8 Investment Securities, 17 Rutgers L.Rev. 136 (1962).

This priority extended to the true owner of forged stock certificates includes the right to reclaim possession of the securities from a bona fide purchaser:

If the transfer is wrongful because of an unauthorized endorsement, the owner may also reclaim or obtain possession of the security or new security even from a bona fide purchaser if the ineffectiveness of the purported indorsement can be asserted against him under the provisions of this chapter on unauthorized indorsements (section 28-8-311).

I.C. § 28-8-315(2).

The record is uncontradicted that Richard Ogilvie forged respondent Ogilvie's indorsement to the promissory note, pledge instrument, loan purpose statement and stock power in pledging the securities to IB&T as collateral for his loan. Since IB&T did not receive new, reissued or re-registered securities from Idaho First National Bank, it cannot assert rights in the securities against respondent Ogilvie by virtue of the forged indorsement.

(B) RICHARD OGILVIE'S INDORSEMENT

Richard Ogilvie's own indorsement of the promissory note, pledge instrument, loan purpose statement and stock power, however, was not forged. The issue remains whether IB&T acquired an interest and if...

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