Phillips v. Citizens' Nat. Bank

• Decision Date: 03 April 1929
• Docket Number: (No. 980-5126.)
• Citation: 15 S.W.2d 550
• Parties: PHILLIPS v. CITIZENS' NAT. BANK et al.
• Court: Texas Supreme Court

15 S.W.2d 550

PHILLIPS v. CITIZENS' NAT. BANK et al.

(No. 980-5126.)

Commission of Appeals of Texas, Section B.

April 3, 1929.

Error to Court of Civil Appeals of Tenth Supreme Judicial District.

Suit by Citizens' National Bank against the Shear Company, in which T. C. Phillips and Nellie L. Wilson were impleaded. Judgment for plaintiff against T. C. Phillips was affirmed by the Court of Civil Appeals [3 S. W.(2d) 849], and latter brings error. Judgments of Court of Civil Appeals and district court reversed and remanded.

Spivey & Spivey, of Waco, for plaintiff in error.

H. M. Richey, of Waco, for defendants in error.

SHORT, P. J.

The Citizens' National Bank of Waco sued the Shear Company, and that company impleaded T. C. Phillips and Mrs. Nellie L. Wilson. The suit involved the right to certificate No. 16 for 25 shares of the capital stock of the Shear Company, which had been issued to C. W. Wilson and by Wilson pledged to T. C. Phillips to secure a loan of $5,000 and thereafter again pledged to the Citizens' National Bank to secure a loan of $4,000; Mrs. Wilson claiming the shares of stock as her separate property as having been issued in lieu of old certificate No. 112 for shares of stock in the Rotan Grocery Company, the predecessor of the Shear Company, and pleading through the alternative that the reissuance of her stock in her husband's name had resulted in a loss to her for which she sought damages. From an adverse decision Mrs. Wilson and T. C. Phillips prosecuted separate appeals. The appeal of Phillips was dismissed, and that of Mrs. Wilson was sustained, and as to her claim against the Shear Company the cause was remanded. (Tex. Civ App.) 284 S. W. 654. Upon writ of error, the judgment of the Court of Civil Appeals reversing and remanding the cause as between Mrs. Wilson and the Shear Company was affirmed, but its judgment dismissing the Phillips' appeal was reversed and the cause remanded to that court for disposition on the merits. 292 S. W. 531. Upon a consideration of this suit between the Citizens' National Bank and T. C. Phillips, the Court of Civil Appeals affirmed the judgment of the trial court. Wilson v. Shear Co., 3 S.W.(2d) 849.

The certificate of stock over which this controversy rages was as follows:

"This certifies that C. W. Wilson is the owner of 25 shares of the capital stock of the Shear Company transferable on the books of the corporation in person or by attorney on surrender of this certificate.

                                 "H. H. Shear, President
                                 "Harold Shear, Secy."
                

On the back of the certificate was the following:

"For value received ______ hereby assign and transfer unto ______, ______ shares of the capital stock represented by the certificate on the reverse hereof and do hereby appoint ______ attorney irrevocable, to transfer the said stock on the books of the corporation, this ______ day of ______, A. D. 19__.

                               "[Signed] C. W. Wilson."
                

On May 23, 1920, C. W. Wilson borrowed $5,000 from T. C. Phillips, executing a note therefor, and at the same time pledged the above certificate to secure the payment of said note. Thereafter, about Easter Sunday, 1921, T. C. Phillips lost the certificate and note attached out of his coat pocket while in Hillsboro, Tex. The papers were found by an interurban employé in or about the interurban station and were by him mailed to C. W. Wilson at Waco. On May 25, 1921, C. W. Wilson borrowed $4,000 from the Citizens' National Bank, giving his note therefor, and at the same time delivered the certificate of stock as a pledge to secure the payment of that note. Upon Wilson's failure to pay the $4,000 note, the Citizens' National Bank foreclosed its pledgee's lien, according to the terms of its collateral contract with Wilson, and bought the stock at such sale.

The cause was tried to a jury upon special issues, including the following, which were answered as indicated:

"3. Did T. C. Phillips lose said stock certificate No. 16 out of his possession while holding it as a pledge for the payment of said note for $5,000? Answer: Yes."

"5. Did T. C. Phillips at the time of the loss of said Certificate No. 16 fail to exercise ordinary care in the safekeeping in his possession of said certificate of stock? Answer: Yes.

"6. Was the failure of T. C. Phillips to exercise ordinary care in the safekeeping of said certificate of stock negligence of the part of T. C. Phillips resulting in the loss by him of said certificate of stock? Answer: Yes.

"7. Did T. C. Phillips, after he had information that said certificate of stock No. 16 had been found and returned to C. W. Wilson, through agreement with C. W. Wilson, accept from C. W. Wilson his note for $5,000 dated May 23, 1920, in lieu of and in extinguishment of the duplicate note of C. W. Wilson for that amount, in consideration that C. W. Wilson would execute a deed of trust in favor of T. C. Phillips on land in Young County, Texas, as security for said duplicate note? Answer: Yes.

"8. Was the execution by C. W. Wilson of the note delivered by him to A. B. Rogers at San Antonio, Texas, intended by T. C. Phillips and C. W. Wilson to be a novation of the original indebtedness as evidenced by the note of C. W. Wilson in the sum of $5,000 executed at the time T. C. Phillips loaned to him said sum of money? Answer: Yes."

"In this connection you are charged that by the term `novation' is meant the substitution of a new debt or obligation for an existing one which thereby extinguishes the original by mutual consent by both parties to the contract with the intent that the new note is to operate as a release of the original debt."

The plaintiff in error duly objected to the submission of the issues above stated.

The Court of Civil Appeals predicated its decision upon three grounds: First, that the stock certificate was a negotiable or at least quasi negotiable instrument, and the Citizens' National Bank took it for value without notice of any vice in Wilson's apparent title; second, upon the estoppel of Phillips through his negligence in the loss of the certificate to assert title to it; and, third (impliedly), upon the ground of release by novation. We will notice these points in the order named.

The ordinary stock certificate, such as that involved in this case, is not negotiable under the law merchant. It is true by the custom of the country stock certificates pass current after the manner of negotiable notes, but at last the certificate is not the stock in the corporation, but is mere evidence of it, and such instrument is not negotiable under the...