Palmer v. O'Bannon Corp.

• Decision Date: 26 May 1925
• Citation: 149 N.E. 112,253 Mass. 8
• Parties: PALMER v. O'BANNON CORPORATION et al.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

253 Mass. 8

149 N.E. 112

PALMER

v.O'BANNON CORPORATION et al.

Supreme Judicial Court of Massachusetts, Suffolk.

May 26, 1925.

Case Reserved from Supreme Judicial Court, Suffolk County; James B. Carroll, Judge.

Action by Josephine D. Palmer, as executrix of Theodore D. Palmer, against the O'Bannon Corporation and others. On reservation of single Justice for hearing before full court. Bill dismissed as to claim for damages.

Harold S. Davis, of Boston (J. M. Raymond, of Boston, on the brief), for plaintiff.

R. E. Goodwin, of Boston (R. R. Duncan, o Boston, on the brief), for defendants.

of Boston, on the brief), for defendants.

The bill was brought by Theodore D. Palmer October 20, 1920, and upon his death the present plaintiff, his executrix, appeared to prosecute the suit. It appears from the master's report that the litigation rests on a pledge by John W. O'Bannon dated March 12, 1920, of 968 shares of the common stock of the defendant corporation to the plaintiff's testator to be held as general collateral for the payment of certain indebtedness due or to become due from O'Bannon to Palmer. We shall refer to the O'Bannon Corporation as the corporation, and to Palmer as the pledgee. The undated assignment or power of attorney on the back of each of the twenty-five stock certificates was signed and delivered in blank by O'Bannon. The corporation, organized and chartered under the laws of this commonwealth with its place of business in Boston, appointed the defendant bank, also of Boston, its agent for the transfer of stock. A supply of blank certificates signed by the proper officers, and bearing the corporate seal, was placed in the possession and custody of the bank, whose agency is not shown to have been revoked during the period covered by the controversy, and thereafter no transfers were made except through the bank. It does not appear whether the bank also had the stock ledger or transfer book. The pledgee, who had become a resident of the state of New Jersey, acting by his agent a national bank of Orange, N. J., transmitted as early as August 9, 1920, the certificates still unfilled to the bank, and requested a transfer of the stock and the issuance of new certificates in the name of Theodore D. Palmer. While the pledgee by reason of his special property was entitled to possession until the debt secured was satisfied and could protect, transfer or sell his interest, the title of O'Bannon as between the parties could not be divested except by strict foreclosure. Pomeroy v. Smith, 17 Pick. 85;Ullman v. Barnard, 7 Gray, 554;Adams v. O'Connor, 100 Mass. 515, 1 Am. Rep. 137;Gurley v. Reed, 190 Mass. 509, 77 N. E. 642;Chase v. Boston, 193 Mass. 522, 79 N. E. 736.

But the officers of the corporation had heard rumors late in March, 1920, concerning O'Bannon's mental condition, which was followed on April 10, 1920, by information of his commitment to a hospital for examination, and on May 15, 1920, after preliminary proceedings O'Bannon, a resident of the state of New York, was adjudged incompetent by the Supreme Court of that state and a committee of his person and property was appointed. The law of New York was a question of fact, and the master reports that the decree, which does not appear to have been modified or revoked, was valid. Electric Welding Co., Ltd., v. Prince, 195 Mass. 242, 81 N. E. 306. The board of directors of the corporation under these circumstances notified the bank on June 15, 1920, that no transfers of shares of the corporations's stock should thereafter be made out in the name of O'Bannon without express instructions. The correspondence however between the bank and the pledgee's agent and his counsel relating to and insisting upon the registration of the shares continued without any action by the bank which also received notice from the O'Bannon committee that the pledge was invalid, and that no transfer should be made. But the certificates, which never were withdrawn or demanded, remained with the bank.

The defendants contend, that even if the pledgee was legally entitled to have the stock transferred, he should have presented certificates which he had completed by filling in the blank assignments with his own name, and not having done so, they were not required to supply the omission, especially where the validity of the pledge was in serious dispute. The interlocutory decree of December 17, 1921, from which neither party appealed, ordered a transfer and the issuance of new certificates forthwith by the defendants, ‘upon presentation to them or either of them of the certificates of stock bearing the name of Josephine D. Palmer, executrix of the will of Theodore D. Palmer, deceased, inserted in the blanks provided in said certificates for the name of a transferee. * * * ’ This decree with which the defendants have complied, must be held to have established the plaintiff's right to a transfer at that time if the certificates were presented in the form therein prescribed. United Drug Co. v. Cordley & Hayes, 239 Mass. 334, 337, 132 N. E. 56. It recites that--

‘The only question affecting the merits to be heard, determined or foreclosed at this time by the court is the question whether the plaintiff is now entitled to a decree directing the defendants to transfer the shares of stock referred to in the bill of complaint to the plaintiff.’

The case was then referred to a master to hear the parties and their evidence ‘as to whether the defendants or either of them are liable to the plaintiff in damages by reason of their failure to transfer the shares of stock * * * prior to December 17, 1921, and as to the sum or sums, if any, in which they or either of them are liable.’ The remaining questions therefore, are, whether the plaintiff, as she contends, is entitled to recover damages against the defendants either jointly or severally.

If, as found by the master, a pledgee of shares of stock of a corporation is prima facie entitled under the law of the state of New York and of the state of New Jersey to have it transferred into his own name, yet the defendants properly might require him to satisfy them of his authority to demand and receive the new certificates. Bird v. Chicago, Iowa & Nebraska Railroad, 137 Mass. 428, 429, and cases cited. The master states, that the pledgee wished to have new certificates in his own name in exchange for those held in pledge standing in O'Bannon's name, because he feared that owing to the controversy between him and the committee he would be enjoined if he attempted to sell the stock. It was the duty of the proper officers of the corporation to ascertain whether its stock was being transferred in accordance with its by-laws, and in accordance with law, before issuing new certificates. Allen v. South Boston Railroad, 150 Mass. 200, 204, 22 N. E. 917,5 L. R. A. 716, 15 Am. St. Rep. 185. And under the blank power of attorney of O'Bannon it was the duty of the pledgees, and not the duty of the defendants to fill in the blanks with his own name, and if this was not done a completed instrument had not been presented. If it be assumed that the certificates for 300 shares given by O'Bannon to Palmer September 17, 1912, which were assigned by O'Bannon under seal, were an absolute transfer, notwithstanding the language of the general pledge, the certificates did not state the name of the attorney to make the transfer and neither the corporation nor the bank was required to act in that capacity. If new certificates were issued the stock ledger or transfer book would fail to show the right of the pledgee to have the transfer made. Andrews v. Worcester, Nashua & Rochester R. Co., 159 Mass. 64, 67, 33 N. E. 1109;Clews v. Friedman, 182 Mass. 555, 66 N. E. 201. In the first request for a transfer by the pledgee's agent and subsequently by his counsel, the bank was addressed as transfer agent. The pledgee...