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issue, an indorsement was made on it by the president of the corporation, to the effect that it had been deposited with the holder as collateral security for a loan. It was held that the holder of the certificate was not personally subject to any liability as a stockholder, but was protected by the exemption in the statute.'

A similar decision was made in New York in a case arising upon a like statute. The certificate pledged in this case was one that had been regularly issued by the corporation in the usual course of business. It was an absolute transfer of the stock to the pledgee, but it was held that it might be shown by parol evidence that the transfer was in fact made to him as collateral security."

The supreme court, referring to these decisions and approving them, said: "We do not well see how any different conclusion could logically have been arrived at. If the law declares that stock held as collateral security shall not make the holder liable, surely it must be competent to show that it is so held. And when this fact is once established, there is an end of the application of estoppel, unless it can be invoked by some party who has been specially misled by the conduct of the defendants."

§ 460. If one to whom stock has been pledged continues to hold it after the debt is paid by a certificate in his own name, under an agreement made at the time of taking the stock that he would sell the stock if he could, and he does not return the stock to the former owner until the corporation has become insolvent, he is not exempt from liability to the creditors of the corporation as being a pledgee, or even as holding the

'Matthews v. Albert, 24 Md. 527. 2 McMahon v. Macy, 51 N. Y. 155. The commissioners of appeal said: "It is always competent to show that an assignment or conveyance absolute in form, was only intended as a security. There is nothing in any statute which makes the books of the

company incontrovertible evidence of ownership of stock. A person may be the absolute legal and equitable owner of stock without any transfer appearing upon the books."


Burgess v. Seligman, 107 U. S. 20, 2 S. C. Rep. 10, 27 Alb. L. J. 256.

stock as trustee, but as to such creditors he stands in the shoes of the former owner.'

II. His Rights Acquired in Good Faith from the Apparent Owner.

§ 461. A certificate of stock in a corporation is not a negotiable instrument; and a bona fide assignee of such a certificate, with a power to transfer the stock, takes it subject to the equities existing against the assignor, whether in favor of the corporation or of a third person. Therefore, if a certificate of stock be fraudulently issued by the agent of a corporation, to one not entitled to the stock, and such holder assign it as collateral security for a loan of money, although the lender take the certificate in good faith, relying upon its genuineness, he

2 London & County Banking Co. v. London & River Plate Bank, 20 Q. B. D. 232; Shaw v. Railroad Co., 101 U. S. 557, 565; Bangor Electric Light & Power Co. v. Robinson, 52 Fed. Rep. 520; Shaw v. Spencer, 100 Mass. 382, 97 Am. Dec. 107; O'Herron v. Gray, 168 Mass. 573, 47 N. E. Rep. 429; Knox v. Eden Musee American Co., 148 N. Y. 441, 42 N. E. Rep. 988; Atkins v. Gamble, 42 Cal. 86, 10 Am. Rep. 282; Sherwood v. Meadow Valley M. Co., 50 Cal. 412; Barstow v. Savage M. Co., 64 Cal. 388, 1 Pac. Rep. 349, disapproving of Winter v. Belmont M. Co., 53 Cal. 428.

1 Erskine v. Lowenstein, 11 Mo. and a share of bank stock it is not App. 595. difficult to appreciate. Nor are they, like notes and bills of exchange, less adapted to circulation, but invented to supply the exigencies of commerce, and governed by the peculiar code of the commercial law. They are not like exchequer bills and government securities, which are made negotiable either for circulation or to find a market. Nor are they like corporation bonds, which are issued in negotiable form for sale, and as a means for raising money for corporate uses. The distinction between all these and corporate stocks is marked and striking. They are all in some form the representative of money, and may be satisfied by payment in money at a time specified. Certificates of stock are not securities for money in any sense, much less are they negotiable securities. They are simply the muniment and evidence of the holder's title to a given share in the property and franchises of the corporation of which he is a member."

In Mechanics' Bank v. N. Y. & N. H. R. Co., 13 N. Y. 599, 626, the subject was fully examined. This case arose out of a fraudulent overissue of stock of the defendant corporation by its agent Schuyler. Upon this point Comstock, J., said: "Stocks are not like bank bills, the immediate representative of money, and intended for circulation. The distinction between a bank bill

can not as the holder of a negotiable instrument claim the rights of a stockholder. But he is entitled to relief upon another ground. The certificate having been issued under the corporate seal with the signatures of the proper officers, acting within the scope of their apparent authority, the corporation is estopped from repudiating the instrument; and the holder having an equitable title may require the corporation to respond in damages, if it is unable to transfer the stock to him by reason of having already issued the full amount of its authorized shares. A corporation not less than an individual is answerable for the conduct of its agents in the business intrusted to their care. The fact that the assignor of such certificate was cognizant of the fraud of the officers of the corporation in issuing it, or even participated in such fraud, is not conclusive against such bona fide holder. For though a certificate of stock is not a negotiable instrument, it is a written declaration that the holder has a share in the capital of the corporation, and if he has been misled by such declaration, the corporation that has made the statement, and not he who has parted with his money relying upon its truth, should bear the loss.2

§ 461a. But if a person does not act in good faith or does not exercise due care in taking a certificate of stock, and an

1 In re Bahia & San Francisco R. Co., L. R. 3 Q. B. 584; New York & N. H. R. Co. v. Schuyler, 34 N. Y. 30; Holbrook v. New Jersey Zinc Co., 57 N. Y. 616; Bridgeport Bank v. New York & N. H. R. Co., 30 Conn. 231; Fatman v. Lobach, 1 Duer (N. Y.) 354; Leavitt v. Fisher, 4 Duer (N. Y.) 1; Hall v. Rose Hill & Evanston Road Co., 70 Ill. 673; Bank of Kentucky v. Schuylkill Bank, 1 Pars. (Pa.) 180; Willis v. Fry, 13 Phila.( Pa.) 33, 6 Weekly Notes of Cases 461; Kisterbock's Appeal, 127 Pa. St. 601, 18 Atl. Rep. 381; Mount Holly Paper Co.'s Appeal, 99 Pa. St. 513.

See National Exchange Bank v. Sibley, 71 Ga. 726, where it was not decided whether the corporation or its officers were liable.

2 That certificates of stock in a corporation are not negotiable securities in a commercial sense, see Biddle v. Bayard, 13 Pa. St. 150, 152; Burton v. Peterson, 35 Leg. Int. 144. See, also, Atkins v. Gamble, 42 Cal. 86, 99, 10 Am. Rep. 282; Sherwood v. Meadow Valley Mining Co., 50 Cal. 412; Winter v. Belmont Mining Co., 53 Cal. 428, 432.

officer of the corporation fraudulently issues the certificate, no damages can be recovered from the corporation upon its failure to recognize the certificate as valid. Thus, if the treasurer of a corporation issues as security for his private debt a certificate of stock in the corporation, and the creditor taking the certificate fails to investigate the title to the stock, he is affected with notice of whatever he might have discovered upon making proper inquiry.' In the case cited the court say: "An agent can not properly act for his principal and himself when their interests are adverse, and any person dealing with an agent in a matter affecting his principal, and knowing that the interests of the agent are adverse to those of his principal, ought to be held to the duty of ascertaining that the acts of the agent are authorized by his principal. The difficulty in the present case is that these considerations are only partially applicable to it. It is on account of the danger that one officer may abuse his power to issue stock certificates that the by-laws of corporations usually require the certificates to be signed by at least two officers of the corporation. If one of these neglects his duty, or delegates the performance of it to the other, the safeguard intended by this requirement of the by-laws becomes ineffectual, and if one of these officers, in issuing a stock certificate, has a personal interest adverse to that of the corporation, a person dealing with him and knowing this may well be required to take notice that the rights of the corporation are not protected in the transaction to the full extent intended by the by-laws. We think that it is a safer and more reasonable rule to hold that a person taking in pledge a certificate of stock, newly issued in his name by an officer of a corporation as security for the private debt of the officer, should be required to investigate the title to the stock, if the officer is one who has the power, either alone or with others, to issue stock certificates, than to hold that such a person can rely upon a certificate so issued to him in the absence of actual notice or knowledge that it has been fraudulently issued.""

1 Farrington v. South Boston R. Co., 150 Mass. 406, 409, 410, 23 N. E. Rep. 109.

See the case of Moores v. Citizens'

Nat. Bank, 111 U. S. 156, 4 S. C. Rep. 345, affirming the decision of the circuit court, 15 Fed. Rep. 141.

The treasurer of a savings bank took certificates of stock belonging to the savings bank, had them transferred to a national bank, and new certificates issued to such bank, and, on the pledge of the new certificates, borrowed a sum of money in the name of the savings bank. The debt not being paid, the national bank sold the shares of stock under a power given by the treasurer of the savings bank in its name. It was held that, whether the treasurer of the savings bank had authority or not to make the transfers of the stock, the receivers of the savings bank could not maintain an action of contract against the national bank to recover the proceeds of the shares sold by it.1

§ 462. A usage of brokers or bankers to treat a certificate of stock as a negotiable instrument is bad, and can not be shown. Even a usage to issue powers of attorney for the transfer of stock, with the name of the transferee left blank, has been declared a vicious usage, which no considerations of convenience are sufficient to justify. But the validity of such powers is well established.

§ 463. There are, however, some authorities which assimilate certificates of stock very closely to negotiable instruments, and give a bona fide holder for value very much the same rights that such a holder of negotiable paper, taking it before maturity, has. Thus, in a recent case, the court of errors and appeals of New Jersey say: "By commercial usage, as universally acknowledged by the business community as the law of negotiable paper, and sanctioned by repeated adjudications in our courts, as well as in those of other states, a certificate of stock, accompanied by an irrevocable power of attorney, either filled up or in blank, is, in the hands of a third party, presumptive evidence of ownership in the holder. And where the

1 Holden v. Metropolitan Nat. Bank, Aull v. Colket, 2 Weekly Notes Cas. 138 Mass. 48. 322. § 165.



Denny v. Lyon, 38 Pa. St. 98, 80

Am. Dec. 463, per Woodward, J.;

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