Smith v. Nashville & D. R. Co.
Decision Date | 23 February 1892 |
Citation | 18 S.W. 546,91 Tenn. 221 |
Parties | Smith et al. v. Nashville & D. R. Co. et al. |
Court | Tennessee Supreme Court |
Appeal from chancery court, Davidson county; Andrew Allison Chancellor.
Suit by Fannie F. Smith and others against the Nashville & Decatur Railroad Company and others for bonds and stocks alleged to have been purchased and transferred by defendants with notice that the sale was in violation of the trust in which they were held. From a decree against the railroad company it appeals. Reversed.
Under the will of Joseph W. Baugh, certain real estate, and the "one-fifth part in value" of his personal estate was bequeathed to the complainant, his daughter, then Fannie F. Baugh, subject to the following limitations: Testator owned at his death, in 1872, 57 bonds, of $500 each, issued by the defendant railway company. He also owned 1,250 shares of the common stock of the same corporation, for which he held stock certificates, registered on the books of the company in his own name. No executor being named in the will, Mr. S. S. House was appointed and qualified as administrator with the will annexed. These bonds and stock certificates came to the hands of Mr. House as assets to be administered. There being no occasion to use them in payment of debts, and no specific bequest having been made of either bonds or stock, the administrator distributed, among the legatees, the shares of stock by an assignment of the certificates to the "heirs and distributees of J. W. Baugh, deceased." No particular number of shares were directed to be assigned to the several distributees, nor were the persons designated who were "heirs and distributees;" but Mr. J. W. Baugh, a son and distributee, was, in the usual form, constituted his attorney in fact, to make and execute all necessary acts of assignment and transfer to carry out the purpose. Under this power and assignment, the company transferred 251 shares to Fannie F. Baugh, the complainant, who was then a minor and unmarried. This certificate was, in form, an assignment and transfer, out and out, of the whole title to these shares; it nowhere being recited in the certificate that her interest was but a life-estate. Shortly after this transfer, Mrs. C. H. Baugh, widow of the testator and mother of Fannie, was appointed by the county court trustee for her daughters, Fannie and Cicily, to the latter of whom a similar bequest had been made, subject to same limitations. She qualified by giving bond in the sum of $70,000, and received into her possession the bonds and stock certificates which had been assigned to her cestui que trust by the administrator. In May, 1877, complainant Fannie was married to the defendant B. B. Smith, and in December, 1877, Mrs. Baugh's resignation as trustee for Mrs. Smith was accepted, and Mr. Smith appointed in her room and place, he entering into bond in the sum of $15,000, with three sureties. Thereupon the bonds and stock held for Mrs. Smith were turned over to her husband as her trustee. In February, 1879, B. B. Smith and wife jointly assigned the certificate standing in her name, by filling out the blank assignment, to G. M. Rizon, and constituted him their attorney in fact to assign same on transfer books of the corporation. May 17, 1879, this assignment to Rizon was duly acknowledged before a clerk of a county court, Mrs. Smith being privily examined. On the same day this certificate was sold and assigned to Clarke, Dodge & Co., Rizon executing an assignment on the original certificate. This sale was made by, and the money paid to, Mr. Smith. Afterwards, Clarke, Dodge & Co. assigned the same certificate to Victor Newcomb, and on December 15, 1879, it was sent to the secretary of the defendant corporation, and the shares transferred from the name of Fannie Baugh to that of the purchaser, a new certificate being issued. The railroad bonds held by Smith were, about the time of the sale of the stock, sold to the defendant Samuel Seay. The bonds and shares were sold for their full market value at the time. The proceeds were, by the trustee, misapplied, and, as charged by the bill and admitted in his deposition, "squandered in drinking, gambling, and other dissipation." As to the bonds, the bill charges that the purchaser knew that the seller, Mr. Smith, held them as a trustee, and was therefore bound to inquire as to his power to make sale; that, in fact, they were bought for the company issuing them, or for Mr. G. W. Seay, its secretary and treasurer, who, it is charged, knew, or ought to have known, of the trust under which they were held. A decree is sought against all the persons suggested as interested in the purchase or aiding in making the sale. The chancellor dismissed the bill so far as any relief was sought on account of the sale of these bonds. In this part of his decree we most fully concur. The evidence that they were purchased by Mr. Samuel Seay in good faith, and in absolute ignorance that Mr. Smith held them in trust, is entirely satisfactory. We are also satisfied that neither G. W. Seay nor the railroad company were in any way concerned in their purchase or sale. It is simply a case of negotiable securities, in no way ear-marked, sold in open market, by a trustee, entitled to their possession, to innocent purchasers, for full value, who neither had knowledge of the fact that the seller was a trustee nor of any proposed breach of a trust.
Are complainants entitled to any relief against any of the defendants on account of either the sale or transfer of the stock certificate? The assignment to Rizon seems to have been a sham, and intended to aid in the proposed sale of the shares. Rizon was Smith's brother-in-law. He was present at the sale to one McCrory, and himself executed an assignment to Clarke, Dodge & Co., for whom, it would seem, McCrory was acting. Rizon at once received a part of the proceeds. He is not sued; neither are the sureties on Smith's bond as trustee. The bill undertakes to excuse this by alleging the sureties to be insolvent. They are the father and brother of the defaulting trustee, and this is more probably the reason for omitting them. Clarke, Dodge & Co. are not sued. Victor Newcomb, in whose name the shares now appear to stand, was named as a non-resident defendant in the caption of the bill. No publication seems to have been made, and no attachment was sought against the shares, which, from this record, seem to still stand in his name. Mr. Newcomb did not answer, and, not being before the court, his attitude as a purchaser becomes unimportant, except so far as it shall affect the liability of the corporation for transferring this stock to him. The chancellor was of opinion that the railway company was guilty of negligence in making or allowing this transfer, and decreed accordingly. From this part of the decree it has appealed.
Complainants have sought to support this decree upon several independent grounds.
That the act of the corporation was negligent in issuing a certificate in 1873 to Fannie Baugh, without showing, on its face, the trusts and limitations under which she held the title, and that this neglect led to the subsequent loss of the stock to an innocent purchaser without notice. We are of opinion that, upon the facts of this case, the corporation is not now liable to an action on this ground. It had no knowledge that there was a will, limiting the title of Fannie Baugh to this stock, and there were no circumstances connected with the transfer by Mr. House as administrator calculated to put it upon inquiry as to the existence or terms of a will. He assigned the certificate, standing in the name of his decedent, simply as administrator. If he had assigned as administrator cum testamento annexo, it would have been notice of a will, but such a signature would have been singular, though technically exact. The assignment was to the "heirs and distributees," not legatees, of J. W. Baugh. There was therefore nothing about the transfer calculated to indicate a will. In this respect the case is to be distinguished from Covington v. Anderson, 16 Lea, 310, and Caulkins v. Gas-Light Co., 85 Tenn. 683, 4 S.W. 287. The fact that stock is assigned by one other than the person to whom it was issued devolves upon a corporation, when called upon to transfer the shares and issue a new certificate, the duty of inquiry as to the power of the assignor to make the assignment. Here it made no inquiry. It assumed, therefore, the risk as to Mr. House's power to dispose of this stock. In assuming that he had the power, it...
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