Corporation, Rights of stockholder, Transfer of shares. Stockbroker. Conversion. Contract, What constitutes. Evidence, Relevancy. Statute.
The owner of shares of stock in a corporation indorsed in blank a certificate representing the shares and delivered it to a bank in Michigan as security for a loan. The cashier of the bank embezzled the certificate and, after having passed through various hands, it was sold in Boston to a stockbroker who had no notice of any right of its original owner. The stockbroker presented the certificate to the corporation's transfer agent in Boston, who received it and sent it to the corporation, and refused to deliver to the stockholder either the same certificate or a new certificate for the same number of shares. The stockbroker brought an action against the transfer agent, with a declaration containing counts in both tort and contract. At the trial there was no evidence of the law of Michigan, and it was held that the rule of the common law of this Commonwealth applied, that the plaintiff never received any title to the certificate or to the shares of stock which it represented, and that the transfer agent was under no liability to him, either in contract or in tort.
Evidence of a custom in the city of Boston in regard to the effect of a sale and delivery of a certificate of capital stock in a corporation, indorsed in blank by the person whose name appears upon its face, is not admissible in an action by a stockbroker, who purchased in good faith in Boston a certificate, indorsed in blank, which had been stolen from one to whom it had been pledged by its owner in Michigan, in the absence of evidence that a custom of the same nature prevailed at the time and place of the pledge.
Sections 1, 5, and 7 of St. 1910, c. 171, as to the transfer of title to certificates of shares of stock in corporations and to the shares which they represent, and especially as to the effect of the delivery of certificates without authority from the owner, have no extraterritorial application.
BRALEY, J.
A certificate of stock issued by a corporation with a form of assignment and power of attorney to make the necessary transfer printed on the back, which has been signed in blank by the owner, is not at common law a negotiable instrument, title to which passes by delivery. If obtained feloniously from the true owner, his title ordinarily is not divested upon sale by the thief to a purchaser for value, without notice of the theft. Scollans v. Rollins, 173 Mass. 275, 278. The case at bar upon the agreed facts falls within this familiar rule. The original owner of the stock in question, one Schumacher, after signing the certificate in blank, pledged it as security for a loan to a national bank whose cashier subsequently embezzled and appropriated the certificate to his own use. It is under his felonious act that the plaintiffs derive their alleged title. But as no title passed, the defendant as the transfer agent of the corporation is not liable either in contract, or tort for its refusal to return the certificate presented for transfer, or to issue therefor a new certificate. Spooner v. Holmes, 102 Mass. 503. O'Herron v. Gray, 168 Mass. 573.
The evidence of a local custom that a good title passed by delivery under either a sale or a pledge, where the certificate is indorsed in blank or is transferred by a separate instrument, and power of attorney, if the signature is guaranteed by a stock exchange house and witnessed, because as stated in Baker v. Davie, 211 Mass. 429, 436, "the owner, having given another such indicia of title as clothes him with the appearance of ownership, is precluded from setting up title in himself as against a holder in good faith," was rightly excluded. If the custom is good, — a question we do not decide, — the pledge took place in another jurisdiction where a custom of this character is not shown to have prevailed, and under such circumstances as to preclude any inference that Schumacher had any reason to anticipate embezzlement by the cashier or that the certificate through his criminal act might come into the possession of the plaintiff or other foreign purchasers who were ignorant of the true ownership. Barrie v. Quinby, 206 Mass. 259, 264, 265. Russell v. American Bell Telephone Co. 180 Mass. 467.
We add, as matter of precaution, that the St. of 1910, c. 171, §§ 1, 5, and 7 has no extraterritorial application.
The failure of the plaintiffs for these reasons to prove title in themselves justified the presiding judge in refusing the first seven rulings requested, and the remaining seven requests, to meet other grounds of defense, therefore became immaterial.
Judgment for the defendant.