Palmer v. O'Bannon Corp.

Braley, J. 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 nine hundred and sixty-eight 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the corporate seal, was placed in the — 14 — possession and custody of the bank, whose agency is not shown to have been revoked during the period covered by the controversy, and thereafter no transfers were made except through the bank.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, New Jersey, as early as August 9, 1920, transmitted 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. Gurley v. Reed, 190 Mass. 509. Chase v. Boston, 193 Mass. 522. 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. The board of directors of the corporation under these circumstances notified the bank on June 15, 1920, that no transfers of shares of the corporation’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, — 15 — 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 referred to in the bill of complaint bearing the name ‘Josephine D. Palmer, Executrix of the will of Theodore D. Palmer, deceased, ’ inserted in the blanks provided on 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 if at that time the certificates were presented in the form therein prescribed. United Drug Co. v. Cordley & Hayes, 239 Mass. 334, 337. 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 so 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 — 16 — 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 enj pined 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. And under the blank power of attorney of O’Bannon it was the duty of the pledgee, 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 three hundred 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 Railroad, 159 Mass. 64, 67. Clews v. Friedman, 182 Mass. 555. 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 with knowledge of the relation was dealing with the bank as agent of a disclosed principal. The fact of agency and the identity of the principal were known to him, and the refusal of the bank on September 15, 1920, to make and register the transfers at that time was in accordance with the instructions of the corporation, the bank’s principal, which the bank was bound to follow. People’s National Bank v. Freeman’s National Bank, 169 Mass. 129. National Bank v. City Bank, 103 U. S. 668. The shares in question were issued by the corporation, and — 17 — formed part of its capital stock. The duty of transference upon change in ownership, in accordance with law rested upon the corporation, whether the transferee had an absolute or only a defeasible title. St. 1910, c. 171, § 9. Boston Safe Deposit & Trust Co. v. Adams, 224 Mass. 442, 446. The bank moreover made no independent promise to nor entered into any independent relations with the pledgee, and the master’s report conclusively shows, that it did not act on its own responsibility. Conant v. Alvord, 166 Mass. 311. It is urged, that the pledgee did not know of the special instructions, and that, being a general agent, the bank had ostensible authority. Danforth v. Chandler, 237 Mass. 518. But the relation of principal, and agent had not been terminated, and, if the bank declined to register the stock in the pledgee’s name, the mere declination would not be an act of misfeasance as between itself and the pledgee. It would be at most a neglect of duty for which the corporation alone was responsible. Commercial Bank v. French, 21 Pick. 486. Cabot Bank v. Morton, 4 Gray, 156, 160. Eastern Railroad v. Benedict, 5 Gray, 561, 562. Atlantic Cotton Mills v. Indian Orchard Mills, 147 Mass. 268. Quincy Mutual Fire Ins. Co. v. International Trust Co. 217 Mass. 370. Colvin v. Holbrook, 2 N. Y. 126, 129. Lloyd v. Grace, Smith & Co. [1912] A. C. 716. See Barstow v. City Trust Co. 216 Mass. 330. The plaintiff has failed to establish any claim for damages against the defendant bank. The situation of the parties between August 9, 1920, or September 15,1920, and December 17,1921, does not appear to have changed materially, except that the value of the stock had greatly depreciated. The plaintiff received the new certificates under the decree covering all the shares, which she sold and bid in at a gross price of $130 in March, 1922, pursuant to an order of the court entered in the O’Bannon proceedings. The plaintiff claims damages either on the ground of conversion or a wrongful detention of the stock from August 9, 1920, to December 17, 1921. See McMurtrie v. Guiler, 183 Mass. 451. The vote of the board of directors not to transfer, followed by notice to the bank of the vote, and the notice of the bank through its trust officer — 18 — September 15, 1920, to the pledgee’s agent that no transfer could now be made, was a refusal of the corporation to act because of the lunacy of O’Bannon, raising doubts as to the validity of the pledgee’s title. It was not put on the ground, that until the pledgee had filled the blanks the corporation was not required to issue new certificates. But, it being plain on the facts reported that there was no fraud or intention to deceive or mislead, the defendant is not estopped from making this defence, which is pleaded in the fourth paragraph of the answer. Stiff v. Ashton, 155 Mass. 130. Jones v. Adams, 162 Mass. 224. Moss v. Old Colony Trust Co. 246 Mass. 139, 150. College Point Boat Corp. v. United States, 267 U. S. 12. The corporation, as previously said, could not be compelled by the pledgee to do that which it was not required to do, and its failure of compliance with his request was not on the present record a conversion of the stock, or an unlawful detention of the stock or of the certificates. Clews v. Friedman, 182 Mass. 555. Gray v. Portland Bank, 3 Mass. 364. Sargent v. Franklin Ins. Co. 8 Pick. 90. Wyman v. American Powder Co. 8 Cush. 168. Allen v. South Boston Railroad, 150 Mass. 200. Hagar v. Norton, 188 Mass. 47. Bellows Falls Power Co. v. Commonwealth, 222 Mass. 51, 58, 59. Hall v. Paine, 224 Mass. 62. See G. L. c. 155, §§ 24-36, inclusive; c. 156, § 33. The exceptions of the defendants to the master’s report have therefore become immaterial and the plaintiff’s exceptions, in so far as argued, need not be considered, as she cannot recover damages. The plaintiff also claims the amount of certain dividends, with interest, payable by the corporation November 1, 1920, but which have now become of fractional value by reason of its financial status. The general property in the shares remained in the pledgor until foreclosure, and in the absence of any terms in'the pledge that the pledgee was to receive them, they belonged to O’Bannon. Commonwealth v. Althause, 207 Mass. 32. Fairbanks v. Sargent, 117 N. Y. 320. Merchants’ Bank v. State Bank, 10 Wall: 604. Clark v. Iselin, 21 Wall. 360. — 19 — The result is, that an interlocutory decree is to be entered overriding all the exceptions to, and confirming the master’s report, and a final decree is to be entered dismissing the bill as to the claim for damages. Ordered accordingly.