Nelson v. Owen

BEIOKELL, O. J. Three of the causes of demurrer to the bill, are founded on the ground, that for the conversion of the stock, the complainant had an adequate remedy at law ; the essence of the remaining causes, is, that the bill should by proper averments have negatived the right and equity of Perkins and of Nelson, to protection as l)ona fide purchasers of the stock. When a pledgee by an unauthorized sale, or other unauthorized disposition, converts the pledge, the pledgor upon paying or tendering payment of the debt, may maintain trover for the conversion, and. this remedy is generally deemed adequate, excluding all necessity for the interference of a court of equity. — Jones on Pledges, § 556, et seq. Exceptional cases may occur, in which this remedy is inadequate, and a court of equity will intervene for the protection and relief of the pledgor. It is said by Judge Story : “Generally speaking, a bill in equity to redeem will not lie on the behalf of the pledgor or his representative, as his remedy, upon a tender, is at law. But if any special ground is shown, as if an account or a discovery is wanted, or there has been an assignment of the pledge, a bill'will lie.”-2 Story Eq., § 1032. And in Jones on Pledges, section 557, it is said: “Á bill in equity may be maintained to redeem a pledge, if an account is wanted, or if there has been an assignment of the pledge, notwithstanding the pledgor has a remedy at law, in an action of trover.” With much of closeness, this court has adhered to the doctrine, that where rights are legal, and courts of law may proceed to a judgment which will afford complete justice and full protection to the parties, courts of equity will not intervene. When, however, there is in the particular case, something exceptional, some peculiar fact or circumstance, rendering the remedy at law inadequate, equity will intervene, that complete justice may be done and full protection afforded to the parties. Whether adherence to this doctrine, would require that a court of equity should decline jurisdiction to compel specific delivery of a pledge, on the ground that a relation of trust and confidence exists between pledgor and pledgee, it is not now necessary to consider. The facts of this case, as alleged in the bill, and to them our decision must be limited, are exceptional and furnish special ground for the interference of a court of equity. The pledgee, — 377 — Berry, is insolvent, and i.lie insolvency renders unavailing a recovery of damages at layv against liim, for the conversion of the stock. The personal representatives of Nelson who have succeeded to the possession of the certificate of stock, reside without the State, and as against them, ordinary legal remedies can not be pursued. These concurring facts, present a case in which a court of equity may, and ought to intervene for the relief of the pledgor, compelling a restoration of the certificate of stock, which, in the hands of strangers, casts a cloud on his title, and may involve him in litigation with the corporation.-Hasbrouck v. Vandervoort, 4 Sandford, (Sup. Ct.), 74; White Mt. R. R. Co. v. Bay State Iron Co., 50 N. H. 57; Pollak v. Janney, 100 Ala. 561. If it appeared clearly on the face of the bill, that Nelson acquired the stock in good faith and for a valuable consideration, without notice of the right the complainant asserts, it may be, a demurrer would be entertained; or, if it appeared that Nelson acquired the stock upon a fair and valuable consideration, in the usual course of business, the want of averment that he liad notice of the right of the complainant, it may be, would render the bill demurrable.-Story Eq. Pl., § 603; 2 Lead. Eq. Cases, (Pt. 1), 24; Lewis v. Mohr, 97 Ala. 366. But the bill is without these averments ; it is silent as to the consideration upon which Nelson acquired the stock, or the manner of acquisition. The defense of a bona fide purchaser, in this state of case, can be made available only by plea or answer; and whether made in the one mode or the other, it is essential that notice, though not averred in the bill, be denied.-2 Lead. Eq. Cases, (Pt. 1), 25; Moore v. Clay, 7 Ala. 742; Johnson v. Toulmin, 18 Ala. 50; DeVandal v. Malone, 25 Ala. 273. There was no error in overruling the demurrer and the motion to dismiss the bill for want of equity. The questions on which the real merits of the controversy depend, are of great practical importance to the owner of shares of stock in corporations, and to all who deal in them, either as purchasers, or in the acceptance of them as security for the payment of debts. In view of the prevailing current of authority, these questions are not of difficult solution, and do not require extended discussion. Briefly stated, the material, controlling facts are, that Owen was the owner of forty-eight shares — 378 — of the capital stock of the North Birmingham Land Company, a corporation organized and existing under the laws of this State, haying its domicile in the city of Birmingham. The company had issued to Owen, a certificate, in the customary form of such certificates, of ownership of the stock. On the 4th day of October, 1890, he borrowed five hundred dollars from, or through the agency of, one Berry, a broker doing business in Birmingham, making his promissory note for the payment thereof at ninety days, pledging the certificate of stock as collateral security. On the back of the certificate, was the form of an assignment or transfer, expressing to be made in consideration of value received, including a„n irrevocable power of attorney, authorizing a transfer to be made on the books of the company. As to date, the name of the assignee or transferee, and of the attorney, the form was in blank. At the time of the delivery of the certificate to Berry, Owen signed, or had previously signed, this form, and his signature was attested % a subscribing witness. Subsequently, it does not clearly appear upon what consideration, or for what purpose, Berry delivered the certificate to one Perkins, by whom, with the assent of Berry, it was pledged to the Birmingham National Bank, to secure payment of one thousand dollars presently loaned. Perkins was indebted in a sum of money exceeding twelve hundred dollars to Charles Nelson of Nashville, Tennessee, and one Brengleman was the agent for the collection or securing payment of the debt. In the course of an interview with Brengleman, Perkins said he was without ready money, but had this certificate of stock in pledge to the Birmingham National Bank. The result of the interview, was an agreement that Brengleman should pay the debt to the bank, redeeming the stock, and extend the time of payment of the debt due Nelson, taking the certificate stock, as collateral security for the payment of the original debt, and for the money advanced tb the bank. The money was paid to the bank, and nine notes maturing at different times in the future, for the payment of the aggregate indebtedness were taken ; and the certificate of stock delivered to Brengleman, as collateral security for their payment. Owen paid the debt to Berry for which he originally pledged the stock and several times demanded of him the return of the certificate. — 379 — There is no evidence that the National Bank, or that Brengleman, or Nelson, had any notice or knowledge of the transaction between Owen and Berry; or that Owen had not parted with title to the stock, absolutely and unconditionally. The shares constituting the stock of a corporation, are now regarded by the common law, whether the property owned by the corporation is real or personal, as personal property, capable of alienation or succession, in any of the modes by which that species of property may be transferred or transmitted. Strictly speaking, they are not chatties, but are rather chosen in action — “or, in other words, they are merely evidence of property.” Ang. & Ames, Corporations, §§ 657-60 ; 1 Cook, Stocks & Stockholders, § 12; 1 Thompson, Corporations, §§ 1066-70. Statutes may, and not infrequently do, declare them personal property ; but if a larger legislative intent is not apparent, such statutes are construed as merely declaratory of the known rule of the common law. As evidence of ownership — as a muniment of title— corporations are accustomed to issue certificates to the shareholders. The certificate is but “the written acknowledgment by the corporation of the interest of the shareholder in the corporate property and franchises ; it operates to transfer nothing from the corporation to the shareholder, but merely affords to the latter evidence of his rights.” — ICook, Stocks & Stockholders, § 14. Upon principle and authority, it is manifest, the certificate has not in it the elements and characteristics of negotiable or commercial paper; it is not evidence of. debt; it is not a promise to pay, nor an order for the payment of money; it is but a muniment of title. While this is true, a species of negotiability, or to employ the usual phrase, sufficiently expressive for all practical purposes, a quasi negotiability attaches to it, adding to its value. And if the owner, in any form, clothes another with the apparent title and the consequent power of disposition, inducing third persons to deal with him as owner, such persons are entitled to full protection; to the same measure of protection extended to the bona fide taker of negotiable or commercial paper. — 2 Thompson, Corporations. §§ 2589, et seq; 1 Cook, Stocks & Stockholders, §§ 411-16; Jones on Pledges, §§ 134, 136, 466; Colebrook on Collateral Securities, §§ 437-39. — 380 — The judicial decisions supporting this doctrine, now of general recognition in this country, are referred to in these authorities, and a citation of them is not necessary. In McNeil v. Tenth National Bank, 46 N. Y. 325, s. c. 7 Am. Rep. 341, (which we may remark, is not distinguishable from the case before us), it was said: “It must be conceded that as a general rule, applicable to property other than negotiable securities, the vendor or pledgor can convey no greater right or title than he has. But this is a truism, predicable of a simple transfer from one party to another where no other element intervenes. It does not interfere with the established principle, that where the true owner holds out another, or allows him to appear, as the owner of or as having full power of disposition over the property, and innocent third parties are thus led into dealing with him as apparent owner, they will be protected. Their rights ill such cases do not depend on the actual title or authority of the party with whom they deal directly, but are derived from the act of the real owner, which precludes him from disputing, as against them, the existence of the title or power which through negligence or mistaken confidence, he caused or allowed to appear to be vested in the party making the conveyance.” The doctrine was recognized in East Birmingham Land Co. v. Dennis, 85 Ala. 565. Voluntarily, Owen delivered the certificate to Berry, accompanied by a transfer and an irrevocable power of attorney authorizing transfers on the books of the company. The transfer in the particulars which have been mentioned was in blank, and doubtless purposely left in blank, to facilitate the use of the certificate. The presence of the blanks, imported authority to fill them by any holder of the certificate desiring a transfer on the books of the company. It is rather difficult, on the facts of the case, to resist the conclusion that a transfer of the certificate by Berry, was contemplated. However that may be, Owen is estopped from a denial of Berry’s ownership of the stock and authority to dispose of it by sale or pledge, as against third persons succeeding to the possession of the-certificate, dealing in good faith and for va-lue. If Berry has betrayed trust and confidence reposed in him, and loss or injury results, Owen had full opportunity to protect himself by a declaration in the transfer of the purpose for which it was made. ■ Not — 381 — having taken care to protect himself; not expressing in the writing the real character of the transaction between him and Berry as he now asserts it to have been, there is nothing of right or justice in the effort to visit loss on strangers who trusted to the truth of the writing, and all that it naturally and logically imports. A bona fide purchaser, entitled to protection against the prior right of the pledgor, is one who gives value, or yields up an existing right, or changes his condition for the worse, trusting to the apparent ownership the pledgor has created.-Mobile Life Ins. Co. v. Randall, 71 Ala. 220. It is not contended that the Birmingham National Bank and Nelson were not purchasers of the stock upon a fair and valuable consideration, in the ordinary, usual course of business, without notice of the transaction between Owen and Berry, or that there was any infirmity in the apparent title to the stock. The taking of certificates of corporate stock in payment, or as collateral security for the payment, of debts, is a frequent business transaction. The bank loaned money, taking the certificate as collateral security ; the loan and pledge were contemporaneous and concurrent. Nelson' redeemed it from the bank, and in consideration of its pledge to him, gave time for the payment of the money advanced in redemption and of the antecedent debt due him. The bank gave value in the loan of the money; Nelson gave value in advancing the money to redeem the stock, in yielding up his existing right to demand payment of the debt due him, and in extending the day of payment of the aggregate indebtedness ; each is entitled to protection as a bona fide purchaser. These transactions were had with the apparent owner, having the muniment of title, and every visible indicia of ownership, of which the stock was capable. Without opening the way for fraud and hishonesty, transactions of this character cannot be undone, at the instance of a party, who, by his own conduct, induces them. We do not perceive the force of the contention, that section 1784 of the Code infringes upon or abrogates the general rule of law estopping the pledgor from assert-title against a purchaser from, or the pledgee of, the apparent owner. The section forms part of a chapter of the Code devoted to “Collateral Securities; Pledges,” and must be read and construed in connection with the — 382 — other sections constituting the chapter. The primary-intent of the chapter, is, to define and declare the rights and duties of pledgor and pledgee — of the giver and taker of collateral security — as between themselves; there is no purpose manifested to define the intervening rights of third persons, dealing with either. It may be conceded, that under the influence of this section, when Berry parted with the stock, separating it from the debt, Owen, without payment, or tender of payment of the debt, could have maintained trover against him for a conversion of the stock ; or could have maintained the like action, against one taking the stock with notice of the pledge. This question is not before us, and we need not, and do not decide it. The question now presented is essentially different and readily distinguishable. The separation of the pledge and debt was in exercise of the dominion, the apparent ownership with which Owen clothed Berry, as was the disposition of the pledge by Berry. The title bona fide purchasers have acquired, relying upon the apparent ownership with which Berry was clothed, is the title Owen is estopped from denying. By no act of Berry's, or of Owen’s, could the estoppel be removed, or the rights of such purchasers be affected. General as may be the words of the statute, they must be read and construed in the light ' of the common law, and must not be regarded as infringing upon its rules and principles, save so far as may be expressed, or fairly implied to give them full operation.-Scaife v. Stovall, 67 Ala. 237. Discussing a question not wholly dissimilar, it was said in Shaw v. Railroad Co., 101 U. S. 565: “No statute is to be construed as altering the common law further than its terms import. It is not to be construed as making any innovation upon the common law which it does not fairly express.” A construction of the statute, as operating an abrogation of the salutary, conservative principle of the common law, estopping as against bona fide purchasers, the owner of personal property, who has parted with all the indicia of ownership, clothing another with it, enabling him to deal with it as owner, would be repugnant to all known rules of statutory construction. It is quite an error to suppose there is anything said or decided in Pollak v. Janney, 100 Ala. 561, contrary to this view. Judicial — 383 — decisions must be read in the light of the facts on which they are based, and in that case, the court was passing on the rights of the parties to the original transaction ; the rights of third persons dealing in good faith with either of the parties, -were not involved, and in reference to them there was no expression of opinion. It is scarcely necessary, but from abundant caution it may be proper to say, the case does not involve the right of the true owner to reclaim, or to recover damages for the conversion of a certificate of stock, which, without laches on his part, he may have lost, or may have been stolen from him. That question was considered and decided in East Birmingham Land Co. v. Dennis, 85 Ala. 565. In such cases, the true owner does not voluntarily and intentionally clothe another with the indicia of ownership and the power of disposition, inducing dealings -with him as if he were the real owner. The decree of the chancellor is not in accord with the view we have expressed, and it must be reversed, and a decree rendered dismissing the bill. The appellee must pay the costs in this court, and in the court of chancery. Reversed and rendered.