Peckinpaugh v. H. W. Noble & Co.

• Decision Date: 03 May 1927
• Docket Number: No. 14.,14.
• Citation: 238 Mich. 464,213 N.W. 859
• Parties: PECKINPAUGH v. H. W. NOBLE & CO.
• Court: Michigan Supreme Court

238 Mich. 464

213 N.W. 859

PECKINPAUGH

v.H. W. NOBLE & CO.

No. 14.

Supreme Court of Michigan.

May 3, 1927.

Error to Circuit Court, Wayne County; Glenn E. Warner, Special Judge.

Replevin by Laura W. Peckinpaugh against H. W. Noble & Co. Judgment for plaintiff, and defendant brings error. Reversed, and new trial granted.

Argued before the Entire Bench.

Bird and Snow, JJ., dissenting in part.Charles F. Delbridge, and W. Leo Cahalan, both of Detroit, for appellant.

Howard Streeter, of Detroit, for appellee.

WIEST, J.

Plaintiff replevined from defendant 5 certificates covering 3,000 shares preferred stock of the Gladys Belle Oil Company. Defendant claims a lien on the certificates under pledge as collateral security to a loan made to Hazel Peckinpaugh, plaintiff's daughter. Plaintiff had judgment, and the case is here by writ of error sued out by defendant.

At the time the certificates were pledged they bore the indorsement of plaintiff in blank. April 19, 1920, E. A. Kemp, husband of plaintiff's daughter, Hazel, borrowed $1,100 from defendant, gave his note, and pledged and delivered the indorsed certificates as collateral security. When the note fell due Hazel visited defendant, claimed it was her obligation, gave a renewal thereof with the certificates remaining as collateral security. Disposition of the case involves the provisions of the Uniform Stock Transfer Act, being chapter 229, C. L. 1915. Sections of that chapter will be cited in the course of the opinion. Plaintiff claims she never sold the certificates, did not borrow money from defendant, and the pledge was without her consent or knowledge. The certificates were not indorsed by reason of any fraud or duress or under such mistake as to make the indorsement inequitable, so section 7 of the act has no application to the indorsement involved here.

Defendant stands in the position of a purchaser for value in good faith, without notice of any fact making the transfer wrongful, and therefore, even if the certificates were delivered to defendant without authority from the owner, the protection afforded defendant by the mentioned section of the act bars this action by plaintiff. It may appear like a hard rule, looking at it from the standpoint of the owner of the certificates, but, from the standpoint of the good-faith purchaser, it has appealing equities, long recognized by the courts as a rule of the common law. These certificates, when indorsed in blank by plaintiff, possessed sufficient negotiability to pass title upon delivery to a purchaser.

The trial judge left it to the jury to find whether the certificates were feloniously appropriated by Mr. Kemp or his wife, Hazel, without the knowledge or consent of plaintiff, with instruction that if so taken plaintiff should recover. Error is assigned on this instruction. We have searched this record and find no evidence justifying the instruction. What was said by plaintiff does not support it. Plaintiff testified:

‘I never sold these certificates. I never made a loan or borrowed money from H. W. Noble & Co., in April, 1920. * * * I told them (defendant) that the certificates were pledged without my knowledge. They said that they were pledged there on a loan, and I said that they were pledged without my knowledge or consent. * * * It (certificates) was taken there (to defendant) without my knowledge, so I do not know who it was took it.’

This is all the testimony on the subject of felonious appropriation of the certificates. Plaintiff was the only witness in her own behalf, her daughter and son-in-law not giving any testimony. According her testimony every intendment, it shows no more than that the certificates were delivered to defendant without authority from the owner. But this was not enough, for the statute expressly provides the certificates may not be reclaimed if, with indorsement, they were transferred without authority of the owner to a purchaser for value in good faith, without notice of any facts making the transfer wrongful. The evidence was undisputed that defendant took the certificates in pledge for a loan actually made, and later extended time of payment, and acted in good faith without notice of any fact making the transfer wrongful.

If larceny, by trick or felonious appropriation, was claimed, the burden rested on plaintiff to make some proof thereof. The instruction was erroneous for another reason. A purchaser in good faith of certifcates of stock, indorsed in blank, is protected although they may have been stolen by the prior holder. This is the rule applied by this court with reference to negotiable bonds (City of Adrian v. Whitney Central National Bank, 180 Mich. 171, 146 N. W. 654, Ann. Cas. 1916A, 600), and we see no reason, giving due consideration to the provisions of the Stock Transfer Act, to make any different holding with reference to certificates of stock indorsed in blank. The purchaser of certificates of stock, made negotiable by signature in blank of the person to whom issued, owes no duty to such person to inquire into the title of the party in possession. The question of legal right never turns upon diligence or want of diligence in making inquiry into the right of the possessor, but is resolved by good or bad faith. The statute declares this rule:

‘A thing is done ‘in good faith’ within the meaning of this act, when it is in fact done honestly, whether it be done negligently or not.' Section 22.

Bad faith may, of course, be predicated upon actual notice demanding inquiry. But good faith, in a transaction arising in the usual course of business, demands no sua sponte questioning of the title of the possessor of certificates of stock indorsed in blank. Such indorsed certificates do not travel with the earmark caveat emptor, but possess veritas nuda. The rule, let the purchaser beware, and the doctrine of suspicion impugning rights of a possessor of indorsed certificates until the contrary is made to appear, would not only unduly retard negotiability demanded in the commercial world, but, in all except extremely rare instances, be considered a gratuitous insult.

The Uniform Stock Transfer Act accepts common honesty as a concept reasonably safe as a basis of everyday action in the commercial world, and leaves the few instances of ‘fraud, duress, mistake, revocation, death, incapacity and lack of consideration or authority’ to be worked out under rules of law and equity, including the law merchant, principal and agent, executors, administrators and trustees, unless the certificate has been transferred to a purchaser for value in good faith without notice of any fact making the transaction wrongful. Upon indorsement in blank by the owner a stock certificate becomes a ‘courier without luggage, whose countenance is its passport.’

We are not unmindful of the holdings at common law that stock certificates are not negotiable instruments and also that they are not made such by the Negotiable Instrument Law (Pub. Acts 1905, No. 265), for the certificates are but evidence of the shares and their ownership. While this is well settled, the certificates, when indorsed in blank, possess a quasi negotiable character, so closely allied to true negotiable instruments that the law sanctions their passing from hand to hand free from antecedent equities (Austin v. Hayden, 171 Mich. 38, 137 N. W. 317, Ann. Cas. 1915B, 894;Union Trust Co. v. Oliver, 214 N. Y. 517, 108 N. E. 809), and the Uniform Stock Transfer Act protects them in the hands of a good-faith purchaser because of such quasinegotiable character and in recognition of the long-established and quite universal practice in transferring title thereto.

In the eye of the law an indorsement in blank of a stock certificate is not a mere inquisitive bit of evidence calling for investigation of rights remaining with the indorser. The indorsement in blank gave power to any possessor of the certificates to pass title by delivery. Indorsement of and delivery by the owner are distinct. Indorsement must appear; delivery by the owner need not be shown by a good-faith purchaser from one having possession. A pledgee is a purchaser. Section 22. An antecedent or pre-existing obligation constitutes value where a certificate is taken as security therefor. Section 22. Defendant, as pledgee of the certificates, acted within universal custom, based on convenience and incorporated in the provisions of the Stock Transfer Act, in recognition of the negotiability of stock certificates in commercial dealings. The Uniform Stock Transfer Act is all-inclusive and admits of no exception, even in case of theft or felonious taking from the owner, affecting the rights of a good-faith purchaser. If such exception should exist it will have to be so provided by legislation and not by way of judicial amendment.

The record does not disclose whether the Gladys Belle Oil Company is a domestic or foreign corporation, and the point is made by plaintiff that the Stock Transfer Act is not applicable unless the certificates were issued by a Michigan corporation or by a corporation in a state where the Uniform Stock Transfer Act is in force, citing the following definition in section 22:

“Certificate' means a certificate of stock in a corporation organized under the laws of this state or of another state whose laws are consistent with this act.'

Also citing Casto v. Wrenn (Mass.) 150 N. E. 898;Boston Safe Deposit & Trust Co. v. Adams, 224 Mass. 442, 113 N. E. 277, L. R. A. 1916F, 488. This point does not appear to have been presented at the trial. The issues in the case were tried out under the provisions of the Stock Transfer Act. The trial judge held the statute did not prevent recovery by plaintiff if the certificates were feloniously appropriated. In so instructing the jury he...