Cornell University Law Library The Moak Collection PURCHASED FOR The School of Law of Cornell University And Presented February 14, 1893 IN nenoRY of JUDGE DOUGLASS BOARDMAN FIRST DEAN OF THE SCHOOL By his Wife and Daughter A. M. BOARDMAN and ELLEN D. WILLIAMS Cornell Unlv-rslty Library KF 1454.L91 \.ransteroJ,Stoc..nP|JXg-''''^" •fB 019 371 198 DATE DUE 44p4< ^ > CAYLOHD PRINTED IN U S A Cornell University Library The original of tiiis bool< is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31 92401 9371 1 98 THE TRANSFER OF STOCK IN PRIVATE CORPORATIONS. THE TRANSFER OF STOCK IN PEIYATE COEPORATIONS. BY ABBOTT LAWRENCE LOWELL AND FRANCIS C. LOWELL. BOSTON: LITTLE, BROWN, AND COMPANY. 1884. Copyright, 1884, Bt Abbott Lawkencb Lowell and Francis C. Lowell. TThivbrbitt Press: JoHir 'WrLsoN akd Son, Caubrisob. P E E F A C E. In" consequence of the recent increase in the num- ber of private corporations, and of their growth in importance, many treatises have lately appeared, deal- ing either with the law of corporations in general, or with some particular branch of it. In this volume we have treated of the transfer of stock. In addition to the American authorities, we have cited a considerable number of English cases, for two reasons : first, because some of the cases are of great importance in illustrating the matter under considera- tion; and second, because others, unless explained, have proved, and will continue to prove, very mis- leading. Boston, August 14, 1884:. TABLE OF CONTENTS. CHAPTER I. \ Xl ' ' Page Of the NATtlEE AND OWNERSHIP OF StOCK . ^^ ' . . 3 CHAPTER II. Op the Passing of Title 32 CHAPTER III. Of Teansfer in Equity 65 CHAPTER IV. Op Transfer on the Books 82 CHAPTER V. Op the Effect of Ceetificates 118 CHAPTER VI, Op the Liability op the Corporation . 152 CHAPTER VII. The Lien op the Corporation 178 VIU TABLE OP CONTENTS. CHAPTER Vin. Page iNDIVrDUAIi LlABILirr AS AFFECTED BY TeANSFEE . . . . 196 CHAPTER IX. Remedies and the Measuee of Damages 220 APPENDIX A. Of the Individual Liability of Infants, etc 245 APPENDIX B. Of the Possession of Stock 256 APPENDIX C. Mass. St. 1884, Chap. 229 263 INDEX 267 TABLE OF CASES CITED. A. Section Abeles v. Cochran 25 Abercrombie v. Riddle 52 Adderly v. Storm 53, 98, 202 Agricultural Bank ». Burr 33, 88, 109, 123, 125 Aitken v. Woodside 87 Albert v. Baltimore Sayings Bank 69, 151 Alfonso's Appeal 86 Allen V. Dykers 56, 57 V. Hill 86 V. Montgomery B. B. 195 V. Pegram 7, 133 Allin's Case 59 Alvord V. Smith 102 American Asylum v. Fhcenix Bank 233, 234, 236 American B. R. Frog Co. v. Haven 26 Anderson's Case 49 Anderson v. Nicholas 11, 12, 129, 130 V. Phila. Warehouse Co. 82, 83, 202 Angelo, In re 38 Anglo-Californian Bank v. Gran- ger's Bank 167 Anonymous 213 Arnold v. Buggies 7, 8 V. Suffolk Bank 14, 108, 136, 137, 239 Arthur v. Midland E. R. 102 Ashby V. Blackwell 143, 146 Ashton V. Atlantic Bank 70 Athenaeum Co. v. Pooley 112 Atkins V. Gamble 4, 6 Atkinson v. Atkinson 40, 62, 70, 71, 99, 158 Attica Bank v. Manufacturers Bank 31, 166, 167 Att'y Gen. v. Bouwens 36 AuU V. Colkett 131 Section Aultman's Appeal 83, 187, 203 Austin V. Bank of England 151 Avil V. Alexandria Water Co. 112 Aylesbury R. R. v. Mount 187 Ayres v. French 11 B. Bacon v. Pomeroy 200 Bachman, In re 167, 181 Bahia & San Francisco R. R.,/n re 111, 114, 115, 216 Bailey v. Strohecker 233 V. Universal Provident Ass. 82 Baird's Case 29 Baker's Case 16 Baker v. Drake 58, 211, 216, 219 V. Marshall 233 V. Wasson 68, 120, 143, 144 V. Woolston 30 Baldwin v. Canfield 55, 92, 93 V. Williams 10 Baltimore R. R. v. Sewell 60, 93, 137, 216 Bank v. Lanier 118, 119, 121, 123, 124, 170 Bank of America v. McNeil 11, 14, 91, 92, 94, 98, 137, 175, 238 Bank of Commerce's Appeal 80, 90, 98, 126 Bank of England v. Lunn 151 V. MofEatt 151 V. Parsons 151 Bank of Ireland v. Evans' Charities 131, 135, 144, 145, 239 Bank of Kentucky v. Schuylkill Bank 116 Bank of Utica v. Smalley 47, 91, 93, 94 Bank of Virginia v. Craig 147, 151 TABLE OP CASES CITED. Section Barclay v. Calver 57 Bargate v. Shortridge 49, 189 Barker, In re 27, 30 Earned v. Hamilton 213, 217 Barre Bank v. Hingham Mfg. Co. 83, 202 Barrett's Case 28, 82 Barrows v. Nat. Eubber Co. 38 Barton v. Pt. Jackson & U. F. Plank Eoad Co. 25 Bates V. McKinley 52 V. N. Y. Ins. Co. 161, 178 Battie's Case 194 Bayard v. Farmers & Mechanics Bank 62, 66, 69, 70, 71, 100, 189, 151, 152 Becher v. Wells Mill Co. 53, 98 Beckett v. Houston 44, 109 Beckitt w. Billbrough 223, 227 Beckwith v. Burrough 53, 91 Bell V. LafEerty 94, 126 Bend v. Susquehanna Bridge 187 Bennett's Case 198 Bent V. Hart 24 Bercich v. Marye 216 Bergman v. St. Paul Building Assoc. 34, 129 Berlin v. Eddy 5, 57 Bermingham v. Sheridan 135, 227, 228 Berry v. Yates 19 Bickell V. Colton 213 Bigelow, In re 170, 172, 176 Biggart v. Glasgow Bank 16 Bigg's Case 199 Billings V. Robinson 187 Birch's Case 81 Birkenhead, Lancaster & Cheshire R. R. V. Piloher 16 Birmingham Ins. Co. u. Common- wealth 233 Bishop V. Globe Co. 181 Black V. Homersham 52 V. Zacharie 50, 91, 98, 105 Blaisdell v. Bohr 144, 146, 240 Blanchard v. Dedham Gas Co. 88, 98, 104, 125 Blouin V. Hart 55, 93, 103 Blyth's Case 109 Blyth V. Carpenter 213, 217 Boardman v. Cutter 10 V. L. S. & M. S. E. R. 52 Boatmen's Ins. Co. v. Able 44, 98, 109 Bohlen's Estate 62, 65, 70, 76, 77, 100, 139, 151, 152, 156 Bohmer v. City Bank 171 Bond V. Appleton 209 V. Mt. Hope Iron Co. 11, 14, 137, 140, 238 Bonney v. Smith 41 Berries v. Hutchinson 212 Section Bosanquet v. Shortridge 189, 190 Boston & Albany R. B. v. Richard- son 110, 112, 113, 147 Boston Music Hall Co. v. Cory 80 Bowdell V. Farmer's Bank 83 Bowden v, Johnson 195, 196 Boyd V. Rockport Cotton Mills 92, 98, 104, 125 Boylan v. Huguet 5, 11, 58, 216 Brant v. Ehlen 118, 186 Brass v. Worth 56, 58 Brent's Ex'rs v. Washington Bank 174, 176, 177, 178 Brewster v. Hartley 27, 30, 53, 55 V. Lathrop 52 V. Sime 69, 132 Brick V. Brick 53 Bridgeport Bank v. N. Y. & N. H. R. R. 45, 46, 55, 119, 123, 124, 141, 150 Briggs V. Massey 31, 66, 67 Brigham v. Mead 44, 109 Bright V. Lord 52 Brightwell v. Mallory 31 Brisbane v. Del. & Lack. R. E. 118, 121, 125, 126, 238 Bristed v. Wilkins 151 Broadway Bank v. McElrath 45, 53, 55, 88, 92, 93, 98, 99, 103, 129 Brock V. Buttan 103 Brown o. Adams 98, 107 V. Black 193 V. Hitchcock 187 V. Howard Ins. Co. 112, 144, 147, 240 V. Ward 56 V. Wilcox 202 Bruce v. Smith 91, 98, 99 Bruffu. Mali 115, 116 Brundage v. Brundage 52 Bryon v. Carter 166, 167 Buchan's Case 29, 49 Buckmaster v. Consumer's lee Co. 236 Budd's Case 190, 194 Bugg's Case 28, 88, page 258 Building Assoc, v. Sendmeyer 45, 46 Bull V. Douglas 217 Bullard v. Bank 170 Bullock V. Chapman 81 Bulmer's Case 29, 49 Burgess v. Seligman 53, 82, 83, 204 Burkinshaw v. Nicholls 118, 186 Burlinson's Case 16, 202 Burnes v. Pennell 94 Burns v. Lawrie's Trustees 80, 175 Burr V. Wilcox 84, 206 Burroughs v. N. C. R. E. 52 Bush's Case 49, 190 Busey v. Hooper 109 Byrne v. Union Bank 161, 162 TABLE OF OASES CITED. XI Section Cady V. Potter 95, 98, 120, 143 Calvit V. McFadden 213 Camden & Atlantic B. B. u. Elkins 48 Campbell v. Morgan 112 Cape's Ex'r'a Case 208 Capper's Case 16 Cappur V. Harris 222 Capron v. Thompson 58, 231 Carlisle o. So. Eastern B. B. 52 Carroll v. MuUanphy Savings Bank 56, 89,98 Cartmell's Case 32 Case V. Bank 87, 107, 135, 140 Castello's Case 16, 193 Castello V. Albany City Bank 56 Castleman v. Holmes 17, 193 Catohpole v. Ambergate B. B. 136, 233, 238 Cecil Bank v. Watsontown Bank 44, 107, 108, 109, 136, 181 Central Agrio. Assoc." v. Ala. Ins. Co. 195 Central B. B. a. Collins 20 V. Papot 52 Chaffin V. Cummings 109 Chambersburg Ins. Co. v. Smith 49, 107, 176, 181 Chandler v. Northern Cross E. B. 109 Chapman v. New Orleans Gas Co. 138, 140 V. Shepherd 59 Chappell's Case 48, 59 Chartres' Case 190 Chater v. San Francisco Mining Co. 236 Cbeale v. Kenward 227 Cheltenham & Great Western B. B. V. Daniel 49 Cherry v. Erost 98, 130 Chesley v. Pierce 208 Chester Glass Co. v. Dewey 108, 109, 136, 174 Chetlain v. Bepublic Ins. Co. 25 Chew V. Bank of Baltimore 139, 144, 240 Chicago, P. &. S. W. B. B. v. Mar- seilles 25 Child V. Coffin 200 V. Hudson's Bay Co. 163, 166 V. Hugg 56, 58 Chouteau Spring Co. v. Harris 31, 44, 48, 49, 88, 89, 94, 95, 109 Churchill ». Bank of England 151 City of Ohio v. Cleveland B. B. 62 City Bank of Columbus v. Bruce 25, 26 Clapp V. Astor 52 V. Peterson 24, 25 Clarke v. Pinney ^ 213 Cleveland E. E. v. Bobbins 85, 86, 140 Section Clinton B. E. v. Eason 189, 190 Clive V. Clive 52 Cohen v. Gwynn 146 Cole V. Byan 187 Colemata v. Columbia Oil Co. 25, 62 V. Spencer 60, 08, 104 Coles V. Bank of England 131, 135, 145, 239 Colquhoun v. Courtenay 194 Colt V. Ives 98, 104 V. Nettervill 222 V. Owens 216, 217, 219 Columbine v. Chichester 222 Colvin V. Williams 10 Comeau v. Guild Farm Oil Co. 90, 93 Comins v. Coe 38, 44, 109 Commercial Bank v. Kortright 14, 45, 46, 130, 140 Commonwealth v. Watmough 98, 103 Conant v. Seneca Bank 91, 92, 94, 98, 163, 175, 176, 181 Conklin v. Oswego Bank 170 Connor v. Hillier 11 Consols Ins. Ass. v. Newhall 46 Continental Bank v. Eliot Bank 50, 55, 89, 92, 104, page 265 Contract Corporation, Ex parte 18, 21, 46 Conyngham's Appeal 218 Cooper V. Dismal Swamp Canal Co. 233, 234 Copeland v. Copeland 7 Coppin V. Greenlees & Bansom Co. 23, 25 Cork & Bandon B. B. v. Cazenove 16, page 254 Cornick v. Bichards 55, 80 Corning v. McCullough 184 Costello's Case 194 Cottam V. Eastern Counties B. B. 144, 145, 240 Courtright v. Deeds 129 Covell V. Loud 59 Cowles V. Cromwell 187 V. Whitman 225 Cox's Case 102, 194 Crawford v. Provincial Ins. Co. 80, 135, 152, 233 V. Bohrer 186 Crease v. Babcook 23, 27, 28, 30, 83, 202 Credit Foncier, Ex parte, 22 Crocker v. Crocker 132 Cross V. Phenix Bank 179 Croxton's Case 208 Cuddee v. Butter 222 Cuningharae v. Glasgow Bank 28 Cunningham v. Ala. Ins. Co. 166, 169, 172 Currie v. White 52 Currier v. Lebanon Slate Co. 23, 24 xu TABLE OF CASES CITED. Section Curry v. Woodward 62, 186 Curtis's Case 16, 193 Curtis V. Harlow 209 Cushman v. Thayer Mfg. Co. 98, 118, 119, 121, 124, 136, 236 Cutting V. Damerel 190 D. Daggett V. Davis 13, 229, 230 Dalton V. Midland B. R. 144, 146, 243 Daly V. Thompson 116, 129, 186, 238 Dane v. Dane Mfg. Co. 200 V. Young 48, 82, 89, 203 Daniels, In re 58 Daniell's Case 193 Dauchy w. Brown 195, 209 Davis V. Bank of England 139, 144, 145, 239 V. Lane '42 V. Old Colony E. B. 174 Day V. Holmes 57 Dayton Bank <>. Merchants Bank 42, 137 De Gendre v. Kent 52 Delaware Canal Co. v. Sansom 187 Delaware R. R. v. Irick 47, 91 Deming v. Bull 208 Dennison, Ex parte 57 Denny v. Lyon 45, 130 Denton v. Livingston 9 DePass' Case 194 Dewing u. Perdicaries 111,144 Dickinson v. Central Bank 50, 88, 89, 91, 105, page 265 Dodds V. Hills 69, 99 Doloret v. Rothschild 223, 225 Donaldson v. Gillott 129, 144 Douglas V. Craft 213 Dovey's Appeal 67, 130, 132 Downer's Adm'r v. Zanesville Bank 172 Downes v. Back 213 Downing v. Potts 88, 107 DriscoU V. West Bradley Co. 166, 167 Dronfield Silkstone Co., In re 22 Dublin & Wicklow R. R. v. Black 16 Duke !). Cahawba Nav. Co. 93 Duncan v. Jaudon 62, 69, 70, 71, 75, 157 V. Luntley 144, 240 Duncuft V. Albrecht 10, 222, 225 Dunlop V. Dunlop 177, 179 Dunn V. Commercial Bank of Buf- falo 107 Dupee V. Boston Water Power Co. 25,26 Durham v. Monumental Mining Co. 233 Section Dutton V. Connecticut Bank 89, 98, 104, 106, 125 Duvergier v. Fellows 31 Dykers v. Allen 5 E. Fames v. Wheeler 88, 190 Early and Lane's Appeal 30 Earp's Appeal 52 East Gloucestershire R. R. v. Bar- tholomew 4 East Wheal Mining Co., In re 139 Eastern R. R. v. Benedict 10, 217 Eastman v. Fiske 96, 98, 103 Ebbett's Case 16 Eby V. Guest 25 Edwards v. Hall 7 V. Sonoma Bank 136, 238 Eicholz V. Fox 217 Ellis V. Essex Bridge 40, 44, 62, 70, 109 Ellison V. Schneider 49 Emmerson's Case 227 Empire City Bank, In re 83, 202 Enders v. Board of Works 215 Ersldne v. Lowenstein 28, 118, 186, 203 European & N. Am. R. R. v. McLeod 4 Eustace v. Dublin Trunk R. R. 1.S5 Evans v. Coventry 23 V. Wood 49, 87 Evansville Bank v. Metropolitan Bank 170 Everhartu. West Chester and Phila. R. R. 195 Exchange Bank v. Silliman 179 Eyre's Case 198 F. Factors & Traders Ins. Co. v. Ma- rine Dry Dock Co. 55, 119, 121, 124, page 265 Fanning v. Hibernian Ins. Co. 49, 204, 205 Farmers Bank v. Iglehart 174, 176 Farmers Gold Bank v. Wilson 103 Farmers & Mechanics Bank v. Champlain Co. 25 V. Wasson 48, 161 t). Wayman 143 Farwell B.Houghton Copper Works 26 Fatman v. Lobach 130 Fawcett v. Laurie 52 Felt V. Heye 130 I Fenwick's Case 28 TABLE OF CASES CITED. xm Section Ffooks V. Southwestern R. E. 31 Field V. Pierce 44, 108, 109, 136 V. Schieffelin 40, 62, 70 Fine v. Hornsby 10 Finney's Appeal 55, 92, 98, 103 Titexnan's iia. Co., Ex parte 283 First Bank of Charlotte v. Ex- cliange Bank 19, 20, 21 First Bank of Davenport ti. Gifford 44, 109, 121, 122 First Bank of Hartford v. Hartford Ins. Co. 103, 118, 164, 176, 181 Fisher v. Essex Bank 98, 104 V. Seligman 82, 203, 204 Fiske V. Carr 88, 98, 104 Fitzhugh V. Shepherdsville Bank 118, 169, 181 Fletcher v. Bylands page 249 Foote, Appellant 52 Foreman v. Bigelow 118, 186 Forrest^v. Elwes 214, 217 Foster v. Bank of England 47 V. Potter 9 Fowie V. "Ward 214, 225 Fowler v. Ludwig 82 Fox's Case 81 Fox V. Clifton 60, 82 France v. Clarke 55, 99 Franklin v. Bank of England 151 Franklin Bank v. Commercial Bank 20, 21, 138, 157 Franklin Co. v. Lewiston Savings Bank 21 Franks Oil Co. v. McCleary 187 Fraser v. Charleston 42, 91, 92, 98, 104 V. Ritchie 24, 25 Freeman v. Cooke 114, 130 V. Harwood 11, 56 V. Luckett 212 Friedlander v. Slaughter House Co. 124, 125, 145 Fromm v. Sierra Nevada Mining Co. 11, 216 Frost V. Clarkson 5 Frue V. Houghton 222 Fulgam :;. Macon B. R. 109 G. Gainsford v. Carroll 213 Galveston Co. v. Sibley 128, 241 Gardener v. Pullen 222 Gardner v. Hooper 11 Garrick v. Taylor 36 Gass V. Hampton ISO, 132 Gaston v. American Bank 62, 69 Gelpke v. Wilson 186 German Bank v. Wulfekuhler 23, 25 Section Gibson v. Hudson's Bay Co. 162, 166 Gifford V. Thompson 52 Gilbert's Case 48 Gilbert v. Holmes 41 V. Manchester Iron Co. 47, 48, 91, 93 Gillet V. Moody 24 Gilpin V. Howell 5 Ginger, Ex parte 190 Ginz V. Stumph 63 Gooch's Case 16 Goodson's Claim 21 Goodwin v. American Bank 75 V, Hardy 52 V. Ottawa & Prescott R. R. 137, 140 V. Eobarts 129, 130 Gorham v. Gross page 249 Gouthwaite's Case 49 Gower's Case 82, 197, 199 Grady's Case 22, 49, 193 Graff V. Pittsburg R. R. 82, 187 Granger v. Bassett 52 Grant v. Mechanics Bank 172, 176, 178 Gray v. Coffin 184 V. Portland Bank 137, 239 Great Western E. R. v. Metropol- itan R. R. 21 Green v. Bank of England 102 Green Mt. Turnpike Co. v. Bulla 90, 98, 107, 233 Greenleaf v. Ludington 128 Gresham Life Ass. Co., In re 48 Grew V. Breed 28, 29, 83 Grissell v. Bristowe 87 Griswold v. Seligman 28, 82, 203, 204 Gruman v. Smith 58, 217, 219, 231 Grymes v. Hone 43, 44, 95, 98 Gustard's Case 190 H. Hadley v. Baxendale 212 Hagar v. Union Bank 52, 178 Hague V. Dandesou 178 Hale V. Walker 83, 202 Hall's Case 199 Hall V. Rose Hill Co. 44, 111, 112, 122 V. U. S. Ins. Co. 187 Hambleton v. Ohio Cent. R. R. 112, 144, 147, 240 Hamer v. Hathaway 213 Hardcastle v. Commercial Bank 179 Hare v. London & N. W. R. R. 46 V. Waring 80, 99 Harris v. Stevens 52 Harrison's Case 198 Harrison v. Harrison 62, 70 XI V TABLE OF CASES CITED. Section Hart's Case 16 Hart V. Frontino Mining Co. Ill, 147 Hartford R, R. v. Boorman 187 Hartga v. Banlc of England 151 Hartridge v. Rockwell 25, 26 Harward's Case 82, 203 Hasbrouck v. Vandervoort 53, 55 Hastings v. Blue Hill Turnpike Co. 7 Hatch V. Rowland 38 Hatton's Case 194 Hawkins v. Maltby 45, 87 Hawley v. Brumagira 5 V. Upton 109 Hays V. Pittsburg & S. R. R. 82 Hazlehurst v. Savannah, G. & N. A. R. R. 20 Heart v. State Bank 161 Heath v. Griswold 57 Heaven v. Pender 131 Helm V. Swiggett 98, 100, 137, 138, 175 Hennessy, Ex parte 32 Hibblewhite v. M'Morine 46 Hickling v. Wilson 186 Higg's Case 81 HUdyard v. South Sea Co. 144, 152, 240 Hill's Case 36 Hill V. Newlchawanick Co. 52, 53, 55, 86 V. Pine River Bank 38, 50, 136, 238 V. Smith 213 Hinde v. Liddell 212 Hoagland v. Bell 80 Hoare's Case 28, 29, 49, 205 Hodges V. New England Screw Co. 19 V. Planters Bank 181 Holbrook v. New Jersey Zinc Co. 45, 67, 96, 98, 111, 119, 123, 129, 158 Holden v. New York & Erie Bank 154, 157 Hollwey's Case 193 Holmes, Ex parte 26, 27 Holyoke Bank o. Burnham 83, 195, 208 V, Goodman Paper Mfg. Co. 49 Hope u. International Finance Soc'y 22 Hopper V. Sage 52 Hoppin V. Buffum 27, 30, 80, 86, 88, 94 Horton v. Morgan 5, 57 Houldsworth v. Glasgow Bank 202 Houston R. R. v. Van Alstyne 112 Howe V. Boston Carpet Co. 19, 21 Huddersfleld Canal Co. v. Buckley 187 Hughes-Hallett v. Indian Mining Co. 28 Humberston v. Chase 151 Humble v. Langston 87 V. Mitchell 10 Humby's Case 87, 191 Humphrey sville Copper Co. w. Ver- mont Copper Co. 213 Hunt V. Rousmaniere's Ex'rs 41, 42 Section Hunterdon Bank v. Nassau Bank 65, / 103 Huntington R. R. v. English 218 V. Mather 53 Hussey v. Manuf'rs & Mechanics Bank 39 Hutchins v. State Bank 36, 50, 62, 70, 71 Hyam's Case 184, 194 Hyatt V. Allen 52 lasigi V. Chicago, B. & 0. R. R. 136, 139, 236 Ind's Case 4 Indianapolis Chair Co. v. Wilcox 15 Ingram v. Rankin 216 Iowa Lumber Co. v. Foster 25 Irish Peat Co. v. Phillips 60 Isham V. Buckingham 49 Jackson, In re 9 Jackson v. Cocker 227 James v. WoodruH 69 Jaudon v. Nat. City Bank 62, 66, 69, 72, 75 Jermain v. Lake Shore E. R. 52 Johns V. Johns 7 Johnson v. Albany & S. R. R. 108, 109, 136 V. Bridgewater Iron Co. 52 V. Laflin 17, 31, 88, 91, 96, 98, 99, 193, 195 V. Somerville Dyeing Co. 83, 190, 202 V. UnderhUl 87, 94, 98, 189, 190, 191 Johnston v. Eenton 144, 240 Joint Stock Discount Co. v. Brown 19 Jones' Case 199 Jones V. Latham 105 Judson ». Rossie Galena Co. 208 K. Keene's ExVs Case 97 Kellogg V. Stockwell 87, 91, 95, 98 Kennedy v. Whitwell 212 Kent ji. Ginter 215 Keppel's Adm'rs v. Petersburg R. R. Ill, 144 TABLE OP CASES CITED. XV Kimball v. Union Water Co. King's Case King V. Rome W. & O. R. R. Kintrea's Case Klopp V. Lebanon Bank Kluht's Case Knapp V. Alvord Kniglit's Case Knight V. Barber V. Old Nat. Bank Kortright u. Buffalo Bank 45, Kulms V. Westmoreland Bank Section 233 28, 206 48 49, 190 178, 179 202 42 199 10 165, 170 46, 187, 213, 238 179 La Grange R. R. v. Rainey 2 Laing v. Burlev 97 Lake Siiore & M. S. R. R. v. Hutchins 65 Lallande v. Ingraham 55 Lane's Case 4, 22, 49 Langfear v. Sumner 104 Langton v. Waite 5, 57 Larrabee v. Badger 217 V. Baldwin 208 Lawe's Case 193 Lawrence v. Maxwell 57 Leach v. Fobes 223 Leavitt v. Fisher 42, 130 Le Croy v. Eastman 5 Lee V. Citizen's Bank of Fiqua 55, 119, 124 Leggett V. Sing Sing Bank 165 Leitch V. Wells 36, 45, 66, 67, 96, 98 Leland v. Hayden 19, 25, 26 Lewis V. Graham 30, 53, 56 Liquidators of British Assurance Ass., Ex parte 18 Litchfield's Case 16 Liverpool Ins. Co. v. Massachusetts 184 Lockwood V. Mechanics Bank 89, 98, 99, 167, 169 Loeb Bros. v. Flash Bros. 213 London & Brighton R. R. v. Fair- clough 97, 202 London & Provincial Tel. Co., In re 132 Long Island R. R., In re 34, 86 Loring v. Brodie 68, 75, 216 V. Salisbury Mills 69, 70, 72, 74, 100, 139, 151, 152, 156, 158, 242 Louisa Bank v. Traer 186 Louisville Bank v. Newark Bank 170 Lovell V. Minot 40, 62, 70 Lowry v. Commercial Bank 62, 68, 70, 71, 72, 73, 75, 92, 95, 98, 151, 152, 242 Luard's Case Lumsden's Case Lund's Case Section 16 16 194 M. Macauly v. Robinson 199 McAllister v. Kuhn 11 M' Arthur v. Lord Seaforth 213 McClaren v. Franeiscus 195, 209 M'Courry v. Suydara 60, 98, 98 McCready v. Rumsey 118, 181 MeDaniels v. Flower Brook Mfg. Co. 30 M'Dowell V. Wilmington Bank 165, 166, 167 MoHenry v. Jewett 27 McHose V. Wheeler 82 McKenney v. Haines 215, 217 McKenzie v. Kittridge 187 McMabon v. Macy 53, 82, 204 MoMaster v. Davidson 208 M'Murrioh v. Bond Head Co. 137, 161, 216, 238 M'Neely v. Woodruff 26 McNeil V. Tenth Nat. Bank 45, 46, 96, 97, 98, 130 Machinists Bank v. Field 111, 116 Magruder v. Colston 82, 83, 196, 202 Maguire's Case ■ 49, 203 Magwood V. Railroad Bank 69, 100, 151, 162 Maitland's Case 16, 202 Mandion v. Firemen's Ins. Co. 195 Mandlebaum v.JS, Am. Mining Co. Ill, 147 Mann's Case 16, 193 Manning v. Quicksilver Mining Co. 52 Mansur v. Pratt 40 March v. Eastern R. R. 52 Marcy v. Clark 195 Markham v. Jaudon 56, 58, 218 Marlborough Mfg. Co. v. Smith 89, 98, 100, 107 Marsh v. Keating 144, 216, 232 Martin v. Sedgwick 80 Maryland Ins. Co. v. Dalrymple 56 Marziou ?. Pioche 41 Massachusetts Iron Co. v. Hooper 161, 163 Master's Case 194 Matthewman's Case 16 Matthews v. Albert 82, 204 V. Coe 219 Matthews v/ Massachusetts Bank 45, 138 Mayor of Baltimore v. Ketchum 144, 240 XVI TABLE OF CASES CITED. Section Mechanics Bank v. Merchants Bank 166, 167 V. N. Y. & N. H. R. R. 89, 98, 111, 129 V. Seton 136, 151, 242 Mechanics Banking Co. v. Mari- posa Co. 46 Mechanics Building Assoc, v. Con- over 30, 53 Meliorucchi v. Royal Ass. Co. 162, 163 Merchants Bank v. Cook 30, 53 V. Livingston 130 V. Richards 55, 89, 94, 95, 98, 104, 243 V. Shouse 161, 178 Merrill v. New England Ins. Co. • 36 V. Call 60 Merry v. Lynch 42 Messersmith v. Sharon Savings Bank 187 Michigan Bank v. Gray 194 Michigan Ins. Co. v. Leavenvforth 42 Middlebrook v. Merchants Bank 36, . 136,236 Middletown Bank v. Magill 208 Midland Great Western R. R. . Bank of Gettysburg 8 Slee V. Bloom 186 Sloman v. Bank of England 144, 242 Small V. Herkimer Mfg. Co. 199 Smith V. American Coal Co. 55, 89, 92, 94, 98, 103, 119 V. Canada Car Co. 48 V. Crescent City Co. 57, 89, 93, 103, 118, 119, 121, 124, 125 TABLE OF CASES CITED. XIX Section Smith V. Dunlap 213 V. Huckabee 184 V. Quartz Mining Co. 58 Smock V. Henderson 111 SneU's Case 199 Somerville's Case 81 So. Western K. E. ». Thomason 7, 71, 93, 100 Soutlimayd v. Euss 208 Speight V. Gaunt 62 Sprague v. Cocheco Mfg. Co. 123 St. Lawrence Steamboat Co., In re election of 80, 88, 139 St. Louis Ins. Co. v. Goodfellow 89, 93, 137, 162. 166, 167, 172 Stamford Bank v. Ferris 4, 39 Stanhope's Case 199 StanUand u. Willott 89 Stanwood v. Stanwood 8 Stapleton v. King 213 Startup V. Cortazzi 218 State V. Cheraw R. R. 233 V. First Bank of JeffersonTille 55, 88, 98, 233 V. Franklin Bank 25 V. Guerrero 233 V. Leete 96, 98 V. North Louisiana E. E. 133, 225 V. Pettineli 94 V. Rombauer 233 V. Smith 26, 32 V. Warren Foundry 233, 234 State, Ex rel. Bush v. Warren Foundry Co. 38 Danforth v. Hunton 51 Martin v. New Orleans R. R. 55, 89, 106, 121, 125 • Phillips V. New Orleans Gas Co. 128 White V. Ferris 86, 94, 106 State Bank v. Cox 90, 130 State Bank of Ohio v. Fox 26 State Ins. Co. v. Gennett 80, 89, 98 w. Sax 55, 80 Steacy v. Little Eock E. R. 118, 186 Steamship Dock Co. v. Heron's Adm'r 161, 166 Stebbins v. Phoenix Ins. Co. 44, 80, 89, 98, 99, 111, 164, 169, 178 Stewart v. Anglo-Cahfornian Co. 108 Stewart v. Cauty 212 V. Mahoney Co. 27 V. Fireman's Ins. Co. 62, 72, 73, 75, 100, 151, 152 Stewart's Trustees v. Evans 29 Stockton V. Malleable Iron Co. 172 Stockwell V. St. Louis Mercantile Co. 89, 94 Stone w. Hackett .88,96 Stover V. Flack 84 Straffon's Ex'r's Case Strange v. Houston E. R. 68, Stranton Iron Co., In re Street v. Nelson Strout V. Natoma Water Co. Sturges V. Keith Sturtevant v. Jaques Sumner v. Marcy Sutton V. Bank of England Suydam v. Jenkins Swan, Ex parte Swan V. North British Co. 85, Syer V. Bundy Symon's Case Section 82, 203 119, 123, 124, 130 48 213 92, 103 215, 216 69 19,20 137 219 131 114, 129, 181, 289 96 16, 193 Talmage v. Pell 19, 20 V. Third Nat. Bank 130 Tayler v. Great Indian E. E. 46, 130, 144, 240 Taylor v. Hughes 49, 135, 189 V. Miami Co. 25, 186 V. Midland R. R. 144 Telegraph Co. v. Davenport 129, 139, 144, 240 Tempest v. Kilner 10 Thomas' Case 29 Thomas ». Glasgow Bank 16 Thompson v. Toland 5, 11, 35, 88, 69, 130, 132 Thomson v. FuUarton 80 Thorp V. WoodhuU 108, 109, 136 Tippetts V. Walker 7 Tisdale v. Harris 10, 50 Titus V. Great Western Turnpike Co. 115 Todd V. Taft 225 Tome V. Parkersburg R. E. 115 Townes v. Nichols 233 Townsend v. Mclver 49, 90, 138, 140, 233 Treasurer v. Commercial Mining Co. 222 Trustees of Andover Schools v. Flint 184 Tuttle V. Walton 166, 168 U. Union Bank v. Laird 98, 99, 164, 169, 172, 181 Union Bank of Tennessee ». State 9 Union Screw Co. v. Am. Screw Co- 62 XX TABLE OF CASES CITED. Section United States v. Columbian Ins. Co. 26 V. Cutts 42, 91, 92, 98 V. Vaughan 89, 91, 98, 103 United States Trust Co. v. Harris 26 Upton V. Bm-nham 89, 97, 202 V. Tribiloock 118 V. "Vail V. Hamilton 25, 26, 53, 55 Vandenburg v. Broadway R. R. 88 Van Diemen's Land Co. u. Cock- erell 14, 34 Van Norman v. Circuit Judge 38 Vanpelt v. Woodward 56 Van Sandau v. Moore 184 Vansands v. Middlesex Bank 89, 98, 168, 176 Vaughan v. Wood 217 Verplanok v. Mercantile Ins. Co. 25 Vicksburg R. R. v. McKeen 187 Vowell V. Thompson 27 W. Wakefield v. Fargo 82, 203 Walker's Case 189, 190 Walker v. Bartlett 45, 87 V. Detroit Transit Co. 45, 129, 130, 236 Wall V. Tomlinson 8 Wallace v. Holmes 40, 62, 70 Wallace Heustis Stone Co., In re 83, 97 Wain V. Bank of N. America 168 Walsh V. Sexton 109 V. Stille 69, 72 V. Union Bank 193 Walter's Case 193 Ward's Case 190 Ward V. South Eastern R. R. 85, 132 Ware v. Cumberlege 7 Warkworth Co., .fc> parte 190 Waterhouse v. jamieson 118, 186 V. London & S. W. R. R. 112, 114, 115, 129, 144, 147 Wearer v. Barden 225, 240 Webster v. Grand Trunk R. R. 135, 239 V. Upton 87, 187, 202, 227 Wehle V. Haviland 216 Welles V. Cowles 7 Wells V. Abernethy 216 West V. Pritchard 218 West Branch Bank v. Armstrong 177, 179 Section West Branch Co.'s Appeal 130 West Cornwall R. R. v. Mowatt 203 West Phila. Canal Co. v. Innes 187 Western Maryland R. R. v. Frank- lin Bank 115 Westmoreland Bank, In re 87 Weston's Case L. R. 4 Ch. 20 48 L. R. 6'Ch. 614 16, 193 Weston ti. Bear River Co. 92, 103, 106 Weyer v. Second Bank 71, 98 Wheeler v. Faurot 208 Wheelock v. Kost 83, 203 V. Moulton 7 White V. Salisbury 44, 89, 98, 109, 217 V. Schuyler 223 White's Bank v. Toledo Ins. Co. 174 Whitehaven R. R. v. Bain 91 Wilcocks, Ex parte 30, 86 Wilkinson v. Anglo-Califomian Co. 108 V. Lloyd 224 V. Providence Bank 233 Williams's Case L. R. 9 Eq. 225 190 7 Ch. D. 676 28 Williams v. Archer 216, 230 V. Hanna 208 V. Mechanics Bank 89, 90, '92, 98, 103,104 V. Savage Mfg. Co. 26 Willis V. Phila. & Darby R. R. 115, 237 Wilson's Case 16 Wilson V. Harman 52 V. Little 30, 53, 55, 56 V. Propr's of Central Bridge 27 V. Whitaker 218 Winter v. Belmont Mining Co. 45, 98 Wintringham v. Rosenthal 187 Wonson v. Fenno 98 Wood's Appeal 36, 62, 70, 130 Wood V. Dumraer 186 Woodruff V. Harris 47 Woodstock R. R. v. Tupper 47 Work V. Bennett 57, 218 Wright's Appeal 112, 115, 147 Wright V. Tuckett 62 Wyman v. American Powder Co. 217 Wynne v. Price 87, 227 Young V. Vough 175. 177, 179, 181 Zulueta's Claim S@ TRANSFER OF STOCK. TRANSFER OF STOCK. CHAPTER I. OP THE NATURE AND OWNBESHIP OF STOCK. § 1. A COEPOEATION is an imaginary person who, by a fiction of law, possesses certain rights and is made subject to certain duties. A corporation can be created in England only by Act of Parliament or by a grant from the Crown, and in this country only by the force of statute ; for the common law does not recognize any power to form corpora- tions by simple association and consent.^ § 2. Among other rights and duties are those in regard to a class of persons called stockholders, who may be real or other imaginary persons.^ These stockholders have not only a right to profits and to a share of the corporate property on dissolution, but they have also power to direct the course of action of the corporation according to the provisions of its charter. And yet the corporation is something distinct from its members. Its life is independent of theirs. Its will may, at times, be different from that of any member, or of any given proportion of its members ; and it may be bound by conduct which binds no one of its members as an indi- ' Bl. Com. *472. ^ The State may be a stockholder in a corporation formed under its own laws, and the State may sell its stock like any other stockholder. The La Grange §• Memphis R. R. Co. v. Rainey, 7 Cold. 420. 4 TRANSFER OF STOCK. § 3 vidual. Of course, there are, in reality, no rights or duties but those of natural persons;^ but the rights and duties of natural persons who deal with a corporation arise from a fiction, and their nature and extent are determined by that fiction. A person, therefore, who confounds a corporation with its stockholders, who says that they are the corpora- tion, or that it consists of its members, not only misstates the legal view of the matter, but is in danger of falling into endless confusion and error. A corporation is distinct from its members in the same sense that a State is distinct from its citizens. The parallel, indeed, between a corporation and a State is very close. A State is generally spoken and thought of as a person, because that is the simplest way of picturing to the mind the collection of powers and obligations connected with the idea of a State. The citizens have certain powers and duties, and the State may execute their will when ex- pressed in accordance with certain forms ; but to fail to treat a State, either in its domestic or foreign relations, as something distinct from its citizens would lead not only to theoretical error, but to endless practical difficulties. § 3. The legal conception of a corporation is precisely the same as the mercantile view of a partnership. A merchant speaks as if he had no direct connection with his partners or with any one who deals with them, because all the business is done through the " firm ; " and this " firm " is a fictitious person, — very real to the partners, but not recognized by the law.^ Now, it is because the " firm " is not recognized by the courts, that it is not always safe to apply to American corporations the English law of joint-stock companies, de- veloped, as it is, largely from the law of partnership; and 1 It is only an independent will that can be subject to a duty or enjoy a right. " For the difference between the legal and mercantile views of a partnership, see Lindley on Partnership, bk. 1, oh. 7, § 1 ei seq., and Cory on Accounts. The "firm" is recognized as a person by the civil law. Dooe V. Young, 7 McPherson, 304; and see Code Nap. § 1832 etseq. § 4 OF THE NATURE AND OWNEBSHIP OF STOCK. 5 this is an especially dangerous thing to do in cases concerning the nature and transfer of stock. An American corporation is strictly a corporation, although new features have, in some cases, been added to it, — such, for instance, as a certain de- gree of individual liability, — but the modern English joint- stock company is a sort of hybrid, for it is regarded to a considerable extent as a legal person distinct from the share- holders, while in some respects its separate existence is com- pletely ignored.^ It is unsafe, therefore, to argue from the case of a joint-stock company to that of a corporation without taking great care to find out whether the decision relied on is founded on one of the qualities peculiar to a partnership, or one of those belonging to a corporation. § 4. The stock of a corporation may be defined as the sum of all the rights and duties of its stockholders, and it is di- vided for convenience into a definite number of equal shares. Each share, therefore, is but a fraction of all the rights and duties which together compose this sum ; and one share can- . not be distinguished from another, because a share is incapa- ble of identification. One share bears the same relation to another that pne undivided fraction of any property always bears to another fraction of the same denorhinatidn. To illustrate this let us suppose that a testator orders his prop- erty divided equally among his children, A. B. C. and D. Before the division, each child has a right to a quarter of the property. Each is not entitled to the same quarter, and yet the quarter belonging to A., for instance, cannot be identified. The certificates of stock have, it is true, an identity, and in fact numbers are generally attached both to the certificates and the shares; and this is very convenient to mark the trans- fers of the stock,^ but it does not make a difference between • See the intro'ductoiy chapter to Lindley on Partnership, where the different kinds of English companies are discussed. ^ See Lane's Case, 1 De G. J. & S. 504. But it is not necessary un- less required by statute. European §• North Am. By. Co. y. McLeod, 3 6 TRANSFER OF STOCK. § 5 the fraction of the whole stock belonging to one stockholder and that belonging to another. This is true, not because one share is as good as another, or because courts refuse to re- gard useless distinctions, but because, so long as a person is entitled only to an undivided fraction of property, that frac- tion is not capable of being identified.^ § 5. This principle is illustrated by the case of" a pledgee who has stock of his own and also stock pledged to him, both standing in his own name. As the stock cannot be identified, it follows that if he transfers some of it, it is a matter of in- tention whether the shares he transfers are his own or those of the pledgor.2 But where one of the acts is innocent and the other tortious, it will be presumed that he does the inno- cent act, and transfers the stock belonging to himself, al- though the certificates he uses are those he received when the stock pledged to him was put into his name, and not those issued to him when he bought his own stock. A pledgee of stock, therefore, who holds in his own name the stock pledged is not liable for any transfer, provided he retains as many Pugs. 3, and perhaps not even then. 'East GloucesiersMre Ry. Co. v. Bar- tholomew, L. K. 3 Ex. 15. ' See Ind's Case, L. R. 7 Ch. App. 485, where the owner of shares num- bered from 11,105 to 11,154 undertook by mistake to transfer those num- bered from 11,005 to 11,054, and it was held that the transferee became a stockholder. Mellish, L. J., said: " I think the numbers of the shares are simply directory for the purposes of enabling the title of particular persons to be traced; but that one share, an incorporeal right to a certain portion of the profits of the company, is the same as another, and that share No. 1 is not distinguishable from share No. 2, in the same way that a grey horse is distinguishable from a black horse. If, therefore, a holder of shares has the same number of shares which he professes to transfer, or a larger number, and by mistake the wrong distinguishing numbers are put in the transfer, that will not prevent the fifty shares which belonged to him passing to the transferee." The illustration would have been more forcible if the learned judge had called both his horses black. See also Atkins v. Gamble, 42 Cal. 86, 101, and Stamford Bank v. Ferris, 17 Conn. 259. 2 See Berlin v. Eddy, 83 Mo. 426. § 5 OF THE NATURE AND OWNERSHIP OF STOCK. 7 shares as have been pledged to him.^ Now where a pledgee has a right to make a transfer of the stock pledged into his own name, and does not do so, but transfers directly to a third person the certificates pledged to him, it may still be sup- posed that he intends to transfer his own stock, although he purports to transfer the stock which was pledged; and in such cases it is held that the pledgee is not liable, if he continues to hold as much stock as was pledged to him.^ The pledgee is, of course, liable if at any time he retains less ; ^ and this, although he is ready to redeliver the full amount of stock at the time the debt is paid. When a pledgee has not a right to take a transfer into his own name, and yet sells stock and transfers the certificates of the pledgor, the case is like that of an agent who wrongfully transfers the stock of his prin- cipal. The transaction cannot be made innocent by any in- terpretation that can be put upon it, and the pledgor would no doubt have a right to treat it as a transfer of the stock pledged,* whether the pledgee retained any stock in his own name or not. But, in order that the pledgee may not take advantage of his own wrong, the pledgor may perhaps have a right to treat the transaction as a sale of the pledgee's own stock, and claim that the stock still standing in the name of the pledgee is subject to the pledge. These principles apply not only to pledges, but also to contracts to buy stock and hold it, and it is only necessary in such cases to hold as many shares as the contract demands.^ On the same principle, a 1 Boylan v. Huguet, 8 Nev. 345. Nourse v. Prime, 4 Johns. Ch. 490; s. c. 7 Johns Ch. 69. Horton v. Morgan, 19 N. Y. 170. Oilpin v. Howell, 5 Pa. St. 41; and see^e Cray v. Eastman, 10 Mod. 499. This is also true of a trustee. Pinkett v. Wright, 2 Hare, 120. 2 Atkins V. Gamble, 42 Cal. 86. Thompson v. Toland, 48 Cal. 99. ' Dykers v. Allen, 3 Hill, 593; s. c. 7 Hill, 497; and see Langton v. Waite, L. K. 6 Eq. 165. * Siee Parsons Y. Martin, 11 Gray, 111; and a dictum in Gilpin v. Howell, 5 Pa. St. 41. 5 Hawley v. Brumagim, 33 Cal. 394. Boylan v. Huguet, 8 Nev. 345. Gilpin V. Howell, 5 Pa. St. 41. 8 TKANSFEB OF STOCK. § 7 purchaser of stock cannot object to a tender on the ground that the shares tendered are not the identical ones agreed upon.i § 6. A share of stock in a corporation consists of a set of rights and duties between the corporation and the owner of the share, and these rights and duties are of many kinds, but the only ones that come properly into these pages are those which are connected with transfer. Now, the word stock is used in this book to denote the rights and duties of stock- holders only, although it is often used in a sense so much broader as to include even government securities; but it is a pity that the word should have such different meanings, inas- much as stock in the governmeut funds means only an agree- ment by the government to pay money, resembling in its nature far more nearly the bonds than the stock of a private corpoTation. § 7. Stock in a coTporation being in the eye of the law a mere collection of rights against an individual, it is now universally regarded as personal property; and this, although the corporation owns real estate.^ The law is the same with regard to joint-stock companies, and much of the reasoning in decisions concerning the stock of these companies applies as well to true corporations.* Whenever, in fact, stock in a cor- poration has been held to be real estate, the decision has been overruled or the law changed by statute.* ^ Frost V. Clarkson, 7 Cow. 24. Noyes v. Spaidding, 27 Vt. 420; and see Shales v. Seignoret, 1 Ld. Raym. 440. <> 3 Dane's Abr. 108. Edwards v. Hall, 6 De G. M. & G. 74. South Western R. R. Co. v. Thomason, 40 Ga. 408 (assamed). Seward v. 7%e City of Rising Sun, 79 Ind. 351. Allen v. Pegram, IB Iowa, 163. Tippets V. Walker, 4 Mass. 595. Hastings v. Blue Hill Turnpike Co., 9 Pick. 80. Johns Y. Johns, 1 Ohio St. S50. Arnold v. Ruggles, 1 B.. 1. IQo. Wheelock V. Moulton, 15 Vt. 519, 523. See also the cases collected in Lindley on Partnership, bk. 3, ch. 5, § 1, and in The Southern Law Review, vol. vii. N. s. 430. 8 See, for example, the opinion of Lord St. Leonards in Myers v. Perigal, 22 L. ,7. Ch. 431 ; s. c. 2 De G. M. & G. 599. * Ware v. Cumlerlege, 20 Beav. 503; s. c. 1 Jur. N. S. 745, was § 8 OF THE NATUEE AND OWNEESHIP OF STOCK. '9 § 8. It is sometimes said that stock is a chose in action, but this depends upon the true meaning of the term " chose in action." The first personal property known to the law con- sisted only of material objects or chattels, and the person who had the right to enjoy them either had them in his possession or could bring suit to acquire possession of them.^ In the former case the property was said to be a chose in possession, in the latter a chose in action. Now, although a right to the delivery of specific chattels has long ceased to be the only incorporeal personal property known to the common law, yet the definition of a chose in action, as a right to acquire pos- session of a specific chattel, has not been entirely abandoned, and its meaning has never been extended to cover anything but claims for future payments of money. This may be seen by consulting the definitions of a chose in action given by the text writers,^ and especially by Blackstone, who attempts to show that a judgment for damages in an action for breach of contract merely gives to the plaintiff possession of property to which he already had a right ; ^ although, he says, this is not true of a judgment in an action of tort.* A chose in ac- tion, being merely a right to bring suit, was not assignable at common law ; and it was for this reason that a husband ac- quired by marriage no title to the choses in action of his wife unless be reduced them to possession, — that is, unless he converted them into choses in possession. Now this rule should not be blindly extended and applied to rights which expressly overruled in Edwards v. Hall, 6 De G. M. & G. 74. And the American cases Welles v. Cowles, 2 Conn. 567, and Copeland v. Copeland, 7 Bush, 349 (following the earlier case of Price v. Price's Heirs, 6 Dana, 107), were each followed within a year by a statute expressly making stock personal property. 1 Hence the expression, "reduction to possession." 2 Co. Lit. 351, b. ; Bacon's Abr. Baron & Feme (C), 3 ; Dane Abr. 48S ; 2 Kent Com. * 351. 8 This idea arises from the fact that debt was at common law a real action. * 2 Bl. 'Com. *396 and *436. See Williams ou Pers. Prop. 4 et'seq. 10 TRANSFER OF STOCK. § 9 may never lead to a cause of action at all or even to a claim for money, nor to rights which are assignable at common law ; and yet it has been held that the stock of a wife does not pass by marriage, to her husband without a reduction to pos- session.^ Now stock, from its incorporeal nature, is incapable of a real possession, and hence cannot be reduced to posses- sion in the ordinary sense ; but it has been held that a special transfer of stock by the husband and a retransfer to him is sufficient to satisfy the rule.^ § 9. A share of stock is a species of incorporeal personal property^ assignable at common law.* It is neither a chattel nor a chose in action.^ Its recent origin is illustrated by the fact that it could not be reached by creditors at common law. It is intangible, and therefore cannot be taken on execution; inasmuch as the sheriff can at common law seize only material objects.^ Nor could it be reached by the process of garnish- ment, because this applied only to choses in action strictly so called, — that is, to chattels in possession of a third party which the debtor had a right to obtain, — and therefore only specific chattels and debts ^ could be reached in that way.* But, of course, some means of applying stock to the payment of debts is everywhere provided by statute. 1 Wall Y. Tomlinson, 16 Ves. 413. Stanwood v. Stanwood, 17 Mass. 57. SlaymaJcer v. Bank of Gettysburg, 10 Pa. St. 373. Arnold v. Ruggles, 1 R. I. 165. ' Slaymaher v. Bank of Gettysburg, 10 Ea. St. 373. 3 It has been held that stock has no locality, and that where a State has bound itself not to tax a corporation, it could tax only those stockholders ■who were residents in the State. Union Bank of Tennessee v. State, 9 Yerg. 490. * Lindley on Part. bk. 3, ch. 5, § 1. 6 See Sargent v. Essex Marine Co., 9 Pick. 202. It is not a chose in action within the meaning of the English Bankrupt Acts. In re Jackson, L. R. 12 Eq. 354. ' Denton v. Livingston, 9 Johns. 96. Foster v. Potter, 37 Mo. 525. ' See p. 9, note 3. ' Planters Bank v. Leavens, 4 Ala. 753. Foster y. Potter, 37 Mo. 525. § 11 OF THE NATTJBB AND OWNERSHIP OF STOCK. 11 § 10. From what has been said already, it follows that stock is not an interest in land within the meaning of the Statute of Frauds,^ but it has been much disputed whether it is included in the expression " goods, w^res, and merchan- dise," as used in that statute.* That a contract to sell stock should not be enforceable unless proved by writing may be very beneficial to the community, but it is certainly a great straining of language to hold that stock comes within the meaning of the terms " goods, wares, and merchandise," and it is safe to say that stock would never have been held to fall within these terms were it not for the certificates issued to the stockholders. After some doubt it has been settled in Eng- land that stock does not come within the seventeenth section of the Statute of Frauds,^ but the opposite view has been taken in the United States, whenever the question has been raised.* § 11. Another question, of a kindred nature, is whether stock can be converted, and damages recovered for the tort in an action of trover. The courts of Pennsylvania have held that only material objects can be converted at common law. Thus, Huston, J. said in an early case:® "Though trover might lie for a certificate of stock, as it does for a bond or deed, yet it will not lie for one hundred shares of bank stock, any more than it would for a debt due on a right of entry." And thib opinion is unquestionably in accord with the prin- 1 29 Car. II. ch. 3, §§ 3, 7. ^ 29 Car. II. ch. 3, § 17. ' Pickering v. Appleby, Com. 353, qumre. Mussellv. Cooke, Finch Preo. 533 (semble, stock falls within the statute). All the later cases hold that stock is not within the statute. Humble v. Mitchell, 11 A. & E. 205. Buncuft V. Albrecht, 12 Sim. 189. Tempest v. Kilner, 8 C. B. 249. Nor is it goods, wares, and merchandise, within the meaning of the Stamp Act. Knight v. Barber, 16 M. & W. 66. ^ Colvin V. Williams, 3 Har. & J. 38. Tisdale v. Harris, 20 Pick. 9. Baldwin v. Williams, 3 Met. 365. Eastern R. R. Co. v. Benedict, 10 Gray, 212. Boardman v. Cutter, 128 Mass. 388. Fine v. Hornsby, 2 Mo. App. 61. ^ Sewall V. Lancaster Bank, 17 S. & R. 285 ; and see Neiler v. KeUey, 69 Pa. St. 403. 12 TEANSFEE OF STOCK. § H ciples of the action of trover at common law. A special action on the case has been generally allowed by the courts, to redress injuries done to a stockholder ; ^ but it is unfortu- nate that it should have been confounded with the action on the case but trover, for it must be remembered that it is founded on something entirely different from the conversion of a chattel. At common law trover was one of the pos- sessory actions, and it was used to redress violations of the right to possess personal property ; but only material objects can really be possessed, and for this reason mere obligations could not be the subject of trover at common law. It is, therefore, clear that trover for stock must be brought for some injury not founded upon possession. But stock is a collection of rights against the corporation ; and so long as the corporation is able and willing to fulfil its duties, the stockholder cannot be deprived of the enjoyment of his rights, unless he ceases to be a stockholder by being deprived of the stock itself. Except where the corporation itself is at fault, therefore, conversion of stock can be wrought only by de- priving the stockholder of his right to the stock itself;^ and 1 McAllister v. Kuhn, 96 U. S. 87. Nabring v. Bank of Mobile, 58 Ala. 204. Payne v. Elliot, 54 Cal. 339. Fromm v. Sierra Nevada S. M. Co., 61 Cal. 629. Ayres v. French, 41 Conn. 142. Bank of America v. McNeil, 10 Bush, 54. Parsons v. Martin, 11 Gray, 111, 116. Bond v. Mt. Hope Iron Co., 99 Mass. 505. Freeman v. Harwood, 49 Me. 195. Morton V. Preston, 18 Mich. 60. Boylan v. Huguet, 8 Nev. 345. Anderson v. Nicholas, 28 N. Y. 600. Connor v. Hillier, 11 Rich. 193. It is curious that in Massachusetts, stock has been decided to be a chose in action, to be " goods, wares, and merchandise," and to be capable of conversion. Whether in the case of such a corporation as that referred to in Gardner V. Hooper, 3 Gray, 398, 404, whose shares were made real estate by a special provision in the charter, these decisions would be followed, and the stock held to belong to every species of property known to the common law, quoere. " See Nabring v. Bank of Mobile, 58 Ala. 204 (semble contra). It is not necessaiy that the plaintiff should have been deprived of his legal title to the stock, for the question is not about the legal title, but about the right against the corporation. Suppose, for example, that the § 12 OF THE NATURE AND OWNERSHIP OP STOCK. 13 this can be done by means of a certificate indorsed in blank and transferred to a bona fide purchaser for value.^ § 12. However freely the scope of the action is extended it is important to distinguish between the stock and the cer- tificate. A certificate of stock is evidence of the owner's title to the stock, but, unlike a bond or note, it is looked upon by the law as something distinct from the rights it represents. The obligation to pay money is regarded as peculiarly embod- ied in a bond or note. The obligation does not arise unless the instrument is executed, and it ceases if the instrument is altered or cancelled by the owner. There is no right to a new instrument if the first one is lost or destroyed, and no action can be brought unless this is produced or its destruc- tion proved. None of these facts is true of a certificate of stock,^ and it is, therefore, evident that a certificate may be converted without affecting the rights of the stockholder, corporation is given by statute a positive right to refuse to recognize any one as a stockholder who does not produce the old certificate, and this although the corporation is given notice of all the facts about the title. If the certificate of a stockholder in this corporation is converted before the transfer to him is recorded, he is deprived of his rights against the corporation, and may bring an action against the person who has withheld his certificate, and allege the conversion of the stock. Another illustration may be given in a corporation with such powers. Suppose A. allows B. to put stock into his name on the books, intend- ing, however, to retain the legal title, with a right to a retransfer upon the books on demand. If B. refuses to retransfer, A. may perhaps obtain redress in an action of tort. See Appendix B. Moreover, perhaps it is not necessary that the plaintiff should have had a complete legal title, for it has been held that a pledgee has a sufficient legal interest to maintain this action against a stranger. Thompson v. Toland, 48 Cal. 99. 1 In McAllister v. Kuhn, 96 U. S. 87, Waite, C. J., said : " A blank en- dorsement of a certificate may be fiUed up by writing an assignment and power of attorney over the signature indorsed, and in this way an actual transfer of the stock on the books of the corporation may be perfected. A wrongful use of such an indorsed certificate for such a purpose may operate as a conversion of the stock." 2 See §§ 109 and 129, infra. 14 TEANSPEK OF STOCK. § 13 although like transactions with negotiable paper would cut off entirely the rights of the owner. An example of this may be found in Anderson v. Nicholas^ 28 N. Y. 600, where a certificate indorsed in blank was stolen, and sold under such circumstances that the court held that the purchaser had not acted hona fide^ and had acquired no title to the stock, but the court went on to decide that the purchaser, by refusing to deliver the certificate on demand, became guilty of con- verting the stock. In. other words, the court held : first, that the defendant had not deprived the plaintiff of the stock ; and second, that he had converted it. Had the subject of this action been a negotiable note, the plaintiff would have been deprived of his rights against the maker while the note was in the hands of the defendant, just as completely as if the defendant had been a hona fide purchaser for value, and had obtained a good title to the note. But as the subject of the action was stock, the plaintiff was not, in fact, deprived of his right or his power to enjoy the stock in any way. The certifi- cate was not necessary in order to collect dividends, to vote, or even, perhaps, to transfer the stock itself.^ § 13. A case may be supposed that will illustrate even more clearly the distinction between the stock and the cer- tificate. I own stock, and my certificate without an indorse- ment is stolen. My right to the stock is not affected. In fact, I may go to the corporation and get another certificate, and, therefore, I cannot bring trover for the stock ; but the certificate may be valuable to me, because it may be expen- sive or troublesome to me to get another, and I may, therefore, recover damages for the conversion of my certificate from the person who has injured me.^ It is not the form of the rem- edy that is in question in this case, but the quality and degree of the substantive injury. The case supposed differs from the one that arose in New York only in the fact that in the latter > See § 11, note 2, supra, and conf. § 109, infra. * Daggett v. Davis, 18 N. W. Rep. 548. § 15 OF THE NATUKB AND OWNBBSHIP OP STOCK. 15 case the defendant had in his possession certificates indorsed in blank, and had power to sell to a bona fide purchaser for value, and he would have been able by such a sale to deprive the plaintiff of his stock. This may be a good ground for going into equity to obtain an injunction, or perhaps a cancel- lation of the certificate, but it is not a good foundation for an action of trover ior the stock. The court in New York held the defendant liable because he had power to commit an injury. A parallel case would be presented if I were allowed to sue a man in trespass because he had bought a gun and I was afraid he would shoot my horse. And it would clearly make no difference that he got the gun by unlawful means, for example, that he stole it from me. It would not be easy under a decision like this to adjust th§ damages, or to say whether after satisfying judgment the defendant would have a right to transfer the stock, and shoot the horse, or not. § 14. The corporation itself may interfere with the rights of a stockholder by simply denying them,^ without any trans- fer at all, — by refusing, for example, to transfer stock on its books to a purchaser.^ In such a case as this, an action that shifts the title on a judgment for the value of the property may be a great convenience. But such an action would lie only where the corporation denied the title itself to the stock, and not where it conceded the title, but denied some inciden- tal right, such as a right to vote, or to be paid a dividend. § 15. It seems to be generally taken for granted that the relation of a corporation to its stockholder is one of contract. This is by no means so clear as it may at first sight appear; but the question has too little direct bearing upon our sub- ject, and requires too lengthy a discussion, for treatment in 1 Com. Bank of Buffalo v. KortwrigU, 22 Wend. 348. ^ Bank of America v. McNeil, 10 Bush, 54. Bond v. Mt. Hope Iron Co., 99 Mass. 505; and a refusal to issufe certificates may be sufficient evidence of such a denial. Arnold v. Suffolk Bank, 27 Barb. 424. So an unlawful attempt to forfeit the stock. Van Diemen's Land Co. v. Cockerell, 1 C. B. N. 8. 732; and conf. ch. v. §§ 137 and 144, infra. 16 TRANSFER OF STOCK. § 16 the text of this book ; and yet it has a bearing on the nature and transfer of stock so important that a note on the subject has been placed at the end of the book.i An attempt is there made to prove that, under the common law, contracts are not separated from other obligations by any broad natural distinc- tion, and to point out how much the obligation of a corpora- tion to its stockholder differs from an ordinary contract. The inquiry is connected with the subject of this chapter chiefly by its bearing on the capacity of certain classes of persons to become stockholders, and some arguments are presented in the appendix for holding that infancy ^ is not a good ground for avoiding a transfer of stock, or relieving the stockholder from individual liability. "We are speaking now of the re- lation of the corporation to the stockholder, not that of the stockholder to the person who sold him the share. It may very well be that an infant cannot refuse to pay an assess- ment, or an unpaid subscription, and that he cannot avoid the individual liability of a stockholder, and yet that he can avoid the contract with his vendor,' and recover from him the money he has been obliged to pay. § 16. In England the position of an infant stockholder has been much considered, and the results have not been in accordance with the views here suggested, but, owing to the peculiar nature and origin of joint stock companies in that country, the English decisions are not conclusive upon Amer- ican corporations.* These decisions lay down the rule that a transfer of shares to an infant is not binding on him, and that he may avoid it either as against his vendor or as against the company.^ It was said in one case that the transaction 1 Appendix A. 2 The case of a lunatic depends perhaps on different principles. See Lindley on Part. bk. 1, ch. 3, § 2. ' See Indianapolis Chair Mfg. Co. v. Wilcox, 59 Ind. 429. * See § 3, supra. 5 The Newry §• Enniskillen iJy. Co. v. Coombe, 3 Ex. 565. Birkenhead Lan. §• Ches. Ry. Co. v. Pilcher, 5 Ex. 24. Litchfield's Case, 3 De G. & S. § 16 OP THE NATTJEB AND OWNERSHIP OF STOCK. 17 was a mere nullity and the transfer void ; ^ but it has been since decided that the transfer is not void, but voidable, and that not only is it valid until it is avoided,^ but also that the infant must avoid it within a reasonable time after his ma- jority, or he will be held to have ratified it.^ If on account of insolvency the company is wound up before the infant comes of age, the law raises a presumption that he desires to avoid the transfer, because it is manifestly for his interest so to do,* — at least, if no dividends have been declared since the transfer ; ^ for if the company has been very successful and has paid large dividends since the transfer, while the lia- bilities are small, it may be for the interest of the infant to ratify the transaction.^ As an offset to the hardship of losing a contributory, it seems that the company can refuse to receive an infant as a stockholder, and that it can repudi- ate him after the transfer is made, unless by acquiescence after knowledge of the infancy it has prevented itself from so doing.^ A case arose in which the infant was willing to rat- ify the transfer, but the ofScial liquidator was not, and it was held that the name of the infant must be taken off the list 141. Reid's Case, 24 Beav. 318. Capper's Case, L. R. 3 Ch. 458. Curtis's Case, L. R. 6 Eq. 455. Hart's Case, L. R. 6 Eq. 512. Lumsden's Case, L. R. 4 Ch. 31. Wilson's Case, L. R. 8 Eq. 240. Weston's Case, L. R. 5 Ch. 614. Baker's Case, L. R. 7 Ch. 115. Maitland's Case, 38 L. J. Ch. 554. 1 Mann's Case, L. R. 3 Ch. 459, note. " Lumsden's Case, L. R. 4 Ch. 31. Where an infant has conveyed to an adult, so that the company has a responsible stockholder, it cannot resort to the infant's vendor. Gooch's Case, L. R. 8 Ch. 266. 8 Dublin §• Wicklow Ry. Co. v. Black, 8 Ex. 181. And see Ebbett's Case, L. R. 5 Ch. 302, and Cork ^ Bandon Ry. Co. v. Cazenove, 10 Q B. 935, per Coleridge and Erie, J J. * Reid's Case, 24 Beav. 318. Curtis's Case, L. R. 6 Eq. 455. Weston's Case^ L. R. 5 Ch. 614. But perhaps a disaffirmance ought to be set out in the plea. See Birkenhead, Lan. §• Ches. Ry. Co. v. Flicker, 5 Ex. 114. 6 Capper's Case, L. R. 3 Ch. 458. « Lindley on Part. bk. 4, ch. 3, div. 1, § 10, 4. ' See Parsons' Case, L. R. 8 Eq. 656. 2 18 TEANSFBE OF STOCK. § 18 of Stockholders, and that of his vendor substituted.^ " For this simple reason," to use the words of Giffard, L. J., " that it required two things to make the transfers valid : not only the confirmation of B. S. (the infant), but also the acceptance of that confirmation, either implied or actual, on the part of the company." It is held in England that if a married woman has separate property, she may bind it by contract, and hence her separate property may be liable for her shares in a company; 2 but semble, if she has no separate property she cannot be liable at all,^ and if shares are transferred to her, the transfer is absolutely void.* § 17. The only cases in this country in which the liability of an infant has been suggested at all (so far as the authors are aware) are Johnson v. Laflin, 5 Dill. 65, 81, where the English doctrine is referred to and assumed obiter, and Castleman v. Holmes, 4 J. J. Marsh. 1, where a doubt is ex- pressed about the capacity of an infant to become a stock- holder. The American courts are at liberty, therefore, to decide this question de novo, whenever it may arise. § 18. It has been already said that the stockholders may be real or fictitious persons. This is in general true ; for there is, at common law, no reason why one corporation should not become a member of another,^ looking at the matter from 1 Symons's Case, L. R. 5 Ch. 298. See also Castello's Case, L. E. 8 Eq. 504. In Symons's Case, there was a provision that no transfer should be registered until approved by the directors; whether this provision was essential to the decision of the case or not, qucsre. In the opinion of Lindley, the power is general. See his remarks ou this case, Lindley on Partnership bt. i. ch. 3, §§ 2, 3, and bk. iv. ch. 3, div. 1, § 10, 4. * See Mrs. Malthewman's Case, L. R. 3 Eq. 781. Biggart v. City of Glasgow Bank, 6 Rettie, 470. ' But a husband is liable on his wife's stock, on the gfround that he is liable on his wife's contracts made before marriage. Luard's Case, 1 De G. F. & J. 533. Burlinson's Case, 3 De G. & S. 18. And he has also been held liable on stock bequeathed to her during coverture. Thomas v. City of Olasgow Bank, 6 Rettie, 607. * This has since been changed by statute. ^ Ex parte The Contract Corporation, L. R. 3 Ch. 105. § 19 OF THE NATIIRE AND OWNERSHIP OF STOCK. 19 the point of view of the corporation whose shares are in question. But there may be, and often are, very good rea- sons why a corporation should not be allowed to buy the stock of another. There is one objection to such a purchase of stock that has great force in England, and is perhaps ap- plicable to a few American corporations. It has been held that one company cannot take shares in another partnership or body, because it thereby enters into a partnership, and this (in the words of James, L. J.^) " would in effect be to make every shareholder a partner or shareholder in such partnership or body." This doctrine does not in terms apply to English incorporated companies or to anj' American corporations,^ but the substance of the objection is that the individual liability of the stockholders is put beyond the control of their own directors, and into the hands of others, and this applies to anj' case where the stockholders of both corporations are sub- ject to an unlimited personal liability. § 19. But if the stockholders of a corporation are not subject to an unlimited liability, and if there is nothing to the contrary in the charter, it may buy the stock of another cor- poration ; provided the purchase is made for a proper pur- pose. Thus one corporation may take the stock of another in payment of a debt,^ or it may contract to sell goods in exchange for stock ; * and it is believed that there is no ob- jection to the investment by a corporation of its surplus funds in this way, instead of lending them at interest or allowing them to lie idle.^ It is the object and effect of the transao- * Ex parte Liquidators of ihe British Nation Life Assurance Ass., 8 Ch. D. 679. " It applies of course to American as well as to English joint stock companies. These organizations exist in few of our States. * First Nat. Bank of Charlotte v. Nat, Exchange Bank, 92 U. S. 122. Howe V. Boston Carpet Co., 16 Gray, 493. * Talmage v. Pell, 7 N. Y. 328. Hodges v. New England Screw Co., 1 R.I. 312; B.C. 3tl. 1.9. 5 See Leland v. Hayden, 102 Mass. 542, 551. But a stockholder might have a right to complain, if the purchase, under the circumstances, 20 TEANSFEK OF STOCK. § 20 tion which determine whether the purchase is beyond the powers given by the charter or not. The purchase of shares of stock is ultra vires, if it is not a reasonable means of carry- ing out the purposes for which the corporation was organized. And it has been held that it is not reasonable for a corpora- tion to buy stock with a view to an incidental increase of its own business.^ § 20. The purchase by one corporation of the stock of another is even more clearly ultra vires if it amounts to engag- ing in a new business not authorized by its charter. If it amount, for example, to a dealing or speculating in stock,^ this is bad, not because the subject matter is stock, but because the business is not within the scope of the charter. A rail- road company, for example, acts ultra vires if it becomes a horse dealer or a stock broker. It is ultra vires on the same principle for one corporation to purchase the stock of another in order to obtain an interest and control in its affairs, where the business of the second corporation is not such as the first is authorized to carry on under its own charter.^ Thus where a corporation, chartered to manufacture wood, bought stock in a bank in order to control the bank, the purchase was held to be in effect an attempt to engage in banking, and therefore amounts to a misapplication of the funds, especially if the stock was not a proper subject for investment by a trustee. Joint Stock Discount Co. v. Brown, L. R. 3 Eq. 139; 8. c. L. R. 8 Eq. 381. 1 Joint Stock Discount Co. v. Brown, L. R. 8 Eq. 381. Sumner v. Marcy, 3 Wood. & M. 105. The New Orleans, Ij-c. Steamboat Co. v. Ocean Dry Dock Co., 28 La. Ann. 178. It is on this principle that one corporation cannot use its funds to bolster up another. Berry v. Yates, 24 Barb. 199. 2 First Nat. Bank of Charlotte v. Nat. Exchange Bank, 92 U. S. 122. Talrmge v! Pell, 7 N. Y. 328. " In Franklin Bank v. Commercial Bank, 36 Ohio St. 350, the court deny altogether the power of one corporation to buy the stock of another, on the ground that such a power would enable a corporation to control another corporation with a different business. But this decision goes too far; for, instead of restraining the abuse of a power which is in itself harmless, and is often beneficial, it denies the power altogether, for fear it may be abused. § 21 OB' THE NATURE AND OWNERSHIP OF STOCK. 21 ultra vires} A purchase by a dry dock company of stock in a steamboat company has been held bad for the same reason.2 So also a purchase by one railroad corporation of stock in another, whose tracks ran beyond the country in which the first is allowed by its charter to run.* But such a purchase would not be ultra vires on this ground, if the busi- ness of the second corporation were such as the first might lawfully undertake. The objection would not apply, for ex- ample, to a railroad which bought stock in another running within the charter limits of the first.* § 21. Excepting purchases of stock made to control the affairs of another corporation, and apart from the question of individual liability, it would seem that the purchase by one corporation of the stock of another should be governed by the same laws that regulate the purchase by a corporation of any other kind of property. But it must be confessed that the authority on this question is very doubtful in America.^ The subject has undergone a most singular development in England. In Salomons v. Laing, 12 Beav. 339, it was held that one company could not buy the shares of another. This was followed in the case of The Great Western Ry. Co. v. Metropolitan By. Co., 32 L. J., Ch. 382, but on appeal. Lord Justice Turner referred to the question and refused to give an opinion upon it. In Ex parte The Contract Corporation, L. R. 3 Ch. 105, Lord Cairns said that such a purchase was ordi- narily ultra vires, but that where the memorandum of associ- ation allowed it, there was nothing at common law to 1 Sumner v. Marcy, 3 Wood. & M. 105. 2 The New Orleans Sfc. Steamboat Co. v. Ocean Dry Dock Co., 28 La. Ann. 173. « The Central R. R. Co. v. Collins, 40 Ga. 582. Hazlehurst v. The Savannah Sfc. R. R. Co., 48 Ga. 13. * See Ryan v. Leavenworth, Atch. §• N. W. R. R. Co., 21 Kas. 365. 6 See First Nat. Bank of Charlotte v. Nat. Exchange Bank, 92 U. S. 122, Mutual Savings Bank v. Meriden Agency Co., 24 Conn. 159. Franklin Co. V. Lemston Savings Bank, 68 Me. 43. Howe v. Boston Carpet Co., 16 Gray, 493. Franklin Bank v. Commercial Bank, 36 Ohio St. 350. 22 TRANSFER OB" STOCK. § 22 prevent it. And finally, in The Royal Bank of Indians Case, L. R. 4 Ch. 252, Lord Justice Selwyn said that there was nothing to prohibit one trading corporation from taking shares in another, though, of course, there might be " circumstances which prohibit or render it improper for a company to do so, having regard to its own constitution as defined by its memorandum and articles," — thus apparently reversing the presumption, and putting on him who denies the power, the burden of proving that the purchase is inconsistent with the constitution of the company.^ § 22. The power of a corporation to buy its own stock has been made the subject of a good deal of litigation. This power is closely connected with the one we have just consid- ered ; and yet they must be treated separately, because the objections urged against one do not always apply to the other, and the limitations of the two are, therefore, somewhat different. The objection that the transaction is substantially an attempt to engage in the business of the corporation whose shares are bought can never apply to the purchase by a cor- poration of its own stock. The objection, however, that the corporation has embarked in the business of trading in stock does not depend at all on the nature of the stock, and one of the chief reasons given in England for refusing to allow a company to buy its own stock is founded on this objection. Such a purchase has been held to be a trafficking in shares, and ultra vires unless specially permitted by the memorandum of association.^ It has also been held to be ultra vires on the ground that it works a reduction of capital.^ In fact, it was said in one case ^ that the purchase must be either a traffick- ing in shares or an attempt to reduce the capital of the com- pany. But the effect of such a purchase depends on the 1 See Qoodson's Claim, 28 W. R. 760. 2 Zulueta's Claim, L. R. 5 Ch. iii. Ex parte Credit Fonder L. R. 7 Ch. 161. ' Hope V. The International Financial Society, 4 Ch. D. 327. § 23 OF THE NATURE AND OWNERSHIP OP STOCK. 23 intention with which it is made ; and a surrender of shares hy a stockholder has been recently sustained on the ground that the company intended neither to traffick in the stock nor to reduce its capital.^ § 23. There is an objection to the purchase by a corpora- tion of its own stock which arises from the rights of credi- tors, and this may be considered under two separate heads : first, where the stockholders are subject to individual liability ; and second, where they are not. Where there is an individ- ual liability, a purchase by the corporation of its own shares may diminish the number of persons on whom the credi- tors can call for payment of the corporation's debts, and it may also increase the proportion that each stockholder is liable to pay.^ These reasons have been thought sufBcient for holding that a corporation cannot purchase its own stock.* But it is the policy of the law to make transfers of stock as 1 In re Bronfield Silkstone Co., 17 Ch. D. 76. And see Shropshire Rys. Co. T. The Queen, L. R. 8 Q. B. 420, per Cookburn, C. J. s. c. L. R. 7 a L. 496, per Cairns, C. In Grady's Case, 1 De G. J. & S. 488, and in Lane's Case, id. 504, the company was specially authorized to buy its own stock when the purchase was approved by a general meeting of the stockholders, and in the latter case the approval had to be given previ- ously; but it was held that the directors could make a conditional contract, and that it was enough if the approval was given before the transfer became finally binding. See § 26, infra, where the question of merger is further discussed. '^ In Crease v. Bdbcock, 10 Met. 525, it was held that, where a statute made stockholders liable " in proportion to the stock they may respect- ively hold," the fact that the corporation owned some of its own stock did not increase the liability of the remaining stockholders. That is, the statute was interpreted to mean that each stockholder was liable for the proportion of the debts that his stock bore to the actual or charter capital. The decision involved, therefore, the principle that a corporation is not to be regarded as its own stockholder, and yet that the stock is not to be considered as temporarily merged. Whenever this principle applies, the purchase by a corporation of its own stock cannot injure the remain- ing stockholders, but the danger to creditors is all the greater. * Evans v. Coventry, 25 L. J. Ch. 489. German Bank v. Wulfehuhler, 19 Kas. 60. Currier v. Lebanon Slate Co., 56 N. H. 262. Coppin v. Greenlees §• Sansom Co., 38 Ohio St. 275. 24 TRANSFER OP STOCK. § 24 free as possible, if not made with a fraudulent purpose ; and where the liability is unlimited, the creditors are just as effect- ually deprived of a person on whom they may call, when his shares are bought by another stockholder, as when they are bought by the corporation itself. In any case, both stock- holders and creditors are as much injured by a transfer of stock to a pauper as by a transfer to the corporation, and yet in neither of these cases can the stockholders or the creditors interfere, unless the directors are given power by the charter to refuse to receive a stockholder, or unless fraud can be proved. Whatever the liability of the stockholder may be, it is the object of the law to leave the right to transfer stock entirely untrammelled so long as it is honestly used, and there seems to be no sufficient reason for excluding the cor- poration itself from the benefit of this principle, when the transfer is really for its interest ; provided, of course, that nothing to the contrary appears in the charter.^ § 24. When there is no individual liability, the purchase by a corporation of its own stock diminishes the property that can be applied to the payment of its debts by just the • amount of the purchase money. To receive the shares as a gift is no injury to creditors, but any money paid for them is taken from the funds of the corporation. The transaction, as far as creditors are concerned, stands on the same footing as a gift of money, or the payment of a dividend. If made in order to defraud creditors, or on the eve of insolvency, it would no doubt be bad.^ But like any other aUenation of property 1 See In re Reciprocity Bank, 22 N. Y. 9. A statute declared that the stockholder should be absolved from liability by transfer to any resident of the State of full age, &o. It was held that a transfer to the bank itself did not absolve him, but that he was liable only for debts contracted while he was a stockholder. 2 Peterson V. Illinois Land Co., 6 Bradw. 257, explained in Fraser v. Ritchie, 8 Bradw. 554. Clapp v. Peterson, 104 111. 26. Gillet v. Moody, 3 Comst. 479. Currier v. Lebanon Slate Co., 56 N. H. 262. And see Bent V. Hart, 10 Mo. App. 143. § 26 OF THE NATTTJBB AND OWHBBSHIP OF STOCK. 25 which may injure creditors, the transfer is bad only so far as the creditors have a right to avoid it and recover the money paid for the stock. § 25. The right of a corporation to take its own stock in payment of a debt when a loss would otherwise be sustained, is universally conceded in this country, and there are a few cases that deny the right to hold it under any other circumstances.^ But the great weight of authority in America is to the effect that a solvent corporation may buy its own stock whenever in the discretion of the directors such a purchase is for the benefit of the corporation ; ^ subject only to the same limita- tions that apply to every other kind of property. § 26. A corporation cannot, of course, be strictly its own stockholder, for it is only by means of a fiction that any one can be considered to have rights against himself. But it does not follow that the stock, when bought by the corpora^ tion, is extinguished or permanently merged, so that it cannot be reissued. It has, indeed, been sometimes suggested that the transfer should be taken into the name of a trustee to prevent merger ; ^ but there is no need of this, for merger is a matter of intention, and the corporation may, if it prefers, 1 German Bank v. Wulfekuhler, 19 Kas. 60. Aheles v. Cochran, 22 Kas. 405. Barton v. Port Jackson §■ Union Falls Plank Road Co., 17 Barb. 397. And see Taylor v. Miami Co., 6 Ohio, 176. State of Ohio v. Franklin Bank, 10 Ohio, 91, 99. Coppin v. Greenlees Sj- Ransom Co., 38 Ohio St. 275. Coleman v. Columbia Oil Co., 51 Pa. St. 74. 2 Hartridge v. Rockwell, K. M. Charlt. 260. Robison v. Beale, 26 Ga. 17, 28. Chicago P. Sf S. W. B. R. Co. v. Marseilles, 84 111. 145 and 648. Fraser v. Ritchie, 8 Bradw. 554. Iowa Lumber Co. v. Foster, 49 Iowa, 25. Leland v. Hayden, 102 Mass. 542, 551. Dupee v. Boston Water Power Co., 114 Mass. 37. City Bank of Columbus v. Bruce, 17 N. Y. 507. And see Chetlain v. Republic Life Ins. Co., 86 111. 220. Clapp v. Peterson, 104 lU. 26. Verplanckv. Mercantile Ins. Co., 1 Edw. Ch. 84. Vailv. Ham- ilton, 85 N. Y. 453. Eby v. Guest, 94 Pa. St. 160. Farmers Sj- Mechanics Banky. Champlain Trans. Co., 18 Vt. 131. Rivanna Nav. Co. v. Daw- sons, 3 Gratt. 19. * Leland v. Hayden, 102 Mass. 542, 551. Ex parte Holmes, 5 Cow. 426, 435. 26 TRANSFER OP STOCK. § 26 take a transfer into its own name, and yet have power to sell the stock again.^ As merger would work a reduction of the capital stock, the shares undoubtedly would not be treated as merged when a reduction of capital is not allowed by charter; and in any case it is to be presumed that a merger is not in- tended, and it would require " some manifestation of such an intent to produce that result." ^ The stock may be reissued, and yet the corporation need not be regarded as its own stockholder. The stock may be considered to be in a sort of abeyance, from which it can be called by a sale.^ The rights attaching to the stock while it is held by the corporation are important only in so far as they relate to voting at corpor- ation meetings. Now it has always been held that a corpor- ation cannot vote on stock standing in its own name ; and that the law cannot be evaded by putting the stock into the name of a trustee.* The reasons for this rule are very strong. If the officers of the corporation were allowed to vote on this stock, the stockholders would be deprived to that extent of the power to control the election,^ and the officers would be under a temptation to use the property of the corporation to buy up shares in order to elect themselves. If the officers 1 State Bank of Ohio v. Fox, 3 Blatch. 431. Hartridge v. Rockwell, R. M. Charlt. 260. Am. Ry. Frog Co. v. Haven, 101 Mass. 398. Dupee V. Boston Water Power Co., 114 Mass. 37. U. S. Trust Co. v. Harris, 2 Bosw. 75. City Bank of Columbus v. Bruce, 17 N. Y. 507. Vail v. Ham- ilton, 85 N. Y. 453. State v. Smith, 48 Vt. 266. And see Clapp v. Peterson, 104 111. 26. Rivanna Nav. Co. v. Dawsons, 3 Gratt. 19. " City Bank of Columbus v. Bruce, 17 N. Y. 507, followed in State v. Smith, 48 Vt. 266. 8 See Williams v. The Savage Mfg. Co., 3 Md. Ch. 418. * United States v. Columbian Ins. Co., 2 Cranoh. C. C. R. 266. Mons- seaux V. Urquart, 19 La. Ann. 482. Am. Ry. Frog Co. v. Haven, 101 Mass. 398. Ex parte Holmes, 5 Cow. 426, 435. Vail v. Hamilton, 85 N. Y. 453. M'Neely v. Woodruff, 1 Green, 352. Faj-well v. Houghton Copper Works, 8 Fed. Rep. 66. s If a corporation, for example, holds more than half of its own stock, the officers could keep themselves in office, although all the stockholders voted against them. § 27 OF THE NATURE AND OWNERSHIP OP STOCK. 27 of the corporation are not allowed to vote on the stock, it is very hard to say who shall be. In the case of an ordinary vote, decided by a majority, it makes no difference whether the stock held by the corporation is allowed no vote at all, or the majority of the actual stockholders present are allowed to vote on it. But where a certain proportion of votes is required to carry a motion, any vote on this stock would entirely upset the proportion intended, unless, as has been suggested,^ each stockholder is allowed to vote on his proportion of the stock in question. The position is still more difficult when a ballot is taken for several directors at once, and those having the highest number of votes are elected. Moreover, if a vote is allowed on this stock, it may go a long way in reducing the amount of stock required for a quorum, or if it is counted but not allowed a vote, it may have the effect of raising the amount of stock so required. The only way to escape from all these difficulties is to treat the stock as temporarily merged, or in a sort of abeyance, while in the hands of the corporation,^ but capable of being reis- sued by a sale. This rule is simple in practice, and it is not perceived that it fails in any way to represent the true relar tions of the parties. § 27. The rights of a stockholder may belong at common law to one person, while in equity he may be under an obli- gation to use them for the benefit of another. That is, the legal title may be in one person, but he may hold it in trust for another. Now, as a general rule, all those rights and du- ties which affect the stockholder, and pass with the ownership of the stock, attach to the legal title. The person who has the legal title may exercise all the rights and is subject to all 1 Ex parte Holmes, 5 Cow. 426, 435. But in Vail v. Hamilton, 85 N. Y. 453, it was decided that the stock could not be voted upon in this way ; but the court said it was not necessary to give an opinion on the question whether, in estimating the two-thirds, this stock should be counted out altogether, as suggested in the text, or not. 2 See Farwell v. Houghton Copper Works, 8 Fed. Rep. 66. 28 TEANSPEK OP STOCK. § 28 the duties of a stockholder, although, of course, strangers to the trust may be bound by notice of its terms. This prin- ciple becomes important when the right to vote at corporate meetings is in issue. The legal title carries the right to vote, and the right belongs, therefore, to a trustee ^ or administra- tor,2 and not to the cestui que trust or legatee. But the right of a cestui que trust to control the trustee depends upon the nature of the trust; thus, in the case of an ordinary testa- mentary trust established for the benefit of several persons, some of whom may be infants or unborn, one of the objects of the trust is to get the benefit of the discretion of the trustee in the management of the property ; and the power to vote at corporate meetings is necessary for a proper management of the property, and is one of the things about which the dis- cretion of the trustee is to be used. But if the trust, on the other hand, is naked, so that the cestui que trust could bring a biU in equity for a conveyance of the property, he could, no doubt, compel the trustee to vote as he directed.^ And it has been held that a mortgagor can bring a bill in equity to compel the mortgagee to give him a power of attorney to vote, on the ground that the mortgagor was intended to re- tain the management of the property* § 28. The same principles are applicable to individual lia- bility. The liability attaches to the legal title ^ to the stock, 1 In the matter of Barker, 6 Wend. 509. And see Crease v. Bdbcock, 10 Met. 525, 545, 546. " In re North Shore Staten Island Ferry Co., 63 Barb. 556. * See Hoppin v. Buffum, 9 R. I. 513. Wilson v. Proprietors Central Bridge, 9 R. I. 590. Brewster v. Hartley, 37 Cal. 15. Stewart v. Mahoney Co., 54 Cal. 149. Ex parte Holmes, 5 Cow. 426, 435. But the last three oases did not, perhaps, involve trusts at all, and the legal title was really not vested in the person whose name appeared on the books. * Vowell V. Thompson, 3 Craneh C. Ct. 428. And see McHenry v. Jewett, 90 N. Y. 58, where a pledgor tried to enjoin a man who held as trustee for the pledgee from voting, but failed because he did not show that the voting would injure him. s See Barrett's Case, 4 De G. J. & S. 416. § 28 OF THE NATURE AND OWNERSHIP OF STOCK, 29 and the trustee is, therefore, the person liable,^ and his liability is not limited by the amount of the trust property ,2 so far as the creditors are concerned ; ' and this although the trust appears on the books of the corporation,* because a notice to the corporation that another person is beneficially interested in the stock furnishes no ground for releasing the legal owner. The legal owner of the stock is liable because he has the legal title, and not because he has deceived the cor- poration into thinking him the person beneficially interested. It makes no difference that the transfer is made to the trustee for the purpose of saving from liability the person who really advances the money;^ and this is true even when the consent of the directors is necessary to allow a person to become a 1 Hoare's Case, 2 J. & H. 229. Mitchell's Case, L. R. 9 Eq. 368. King's Case L. R. 6 Ch. 196. Williams's Case, 1 Ch. D. 576. Muir v. City of Glasgow Bank, 4 App. Cas. 337. Crease v. Babcock, 10 Met. 525, 545, 546. Grew v. Breed, 10 Met. 569, 576. And where the corpora- tion has a lien on stock for the debts of the stockholder, a debt from a trustee will give a lien on stock he holds in trust. Netv London §• Brazil- lian Bank v. Brocklebank, 21 Ch. D. 302. As trustees are joint owners, each one is liable in solido. Cuninghame v. City of Glasgow Bank, 4 App. Cas. 607. 2 Muir V. City of Glasgow Bank, 4 App. Cas. 337. Grew v. Breed, 10 Met. 569. This rule has, of course, been changed in many places by statute, and for decisions upon the application of such a statute, see Ers- kine v. Lowenstein, 11 Mo. App. 595, and Griswold v. Seligman, 72 Mo. 110. ' But if the trustee has taken the stock for the accommodation of another person, he would have a right to call on him for indemnity. Mitchell's Case, L. R. 9 Eq. 363. Ex parte Oriental Bank, L. R. 8 Ch. 791. Hughes Hallett v. Indian Mammoth Gold- Mining Co., 22 Ch. D. 561. * It is in fact often provided in England by the Deed of Settlement that the corporation shall notice no trusts. Fenwick's Case, 1 De G. & S. 557. Bugg's Case, 2 Dr. & Sm. 452. And such has been said to be the effect of the Cos. Clauses Consol. Act 8 & 9 Vic. 0. 16. The Newry ^c. Ry. Co. V. Moss, 14 Beav. 64. ' And the corporation must register the trustee in such a case, unless the directors have a discretion in the matter of receiving stockholders. King's Case, L. R. 6 Ch. 196. What is said in the text does not apply where the stock is transferred to the trustee by the cestui que trust. 30 TRANSFER OP STOCK. § 30 stockholder.! Such conduct is no fraud on the coi-poration for which the cestui que trust is liable, because the directors in giving their consent rely on the responsibility of the trustee alone, and there is no fraud in regard to that. § 29. An executor or administrator stands in a different position from a trustee, because he represents and continues the person of the deceased, and for that purpose he has a double personality. As in the case of a corporation sole, the person whose existence is by a fiction continued is regarded as distinct from the person who is clothed with the representa- tive character.2 An executor or administrator is, therefore, liable for stock which he holds in his representative character, only to the extent of the property of the deceased.^ § 30. The legal title to stock may be vested in one person, and yet certain legal rights in it may belong to another. This is true in the case of a pledge. The general property or legal title is vested in the pledgor, while certain legal rights commonly called a special property belong to the pled- gee.* Under these circumstances the rights and duties of a 1 Williams's Case, 1 Ch. D. 576. 2 The same is, no doubt, true of an assignee in bankruptcy, and trus- tees are now in many States put by statute upon the same footing. There is, in fact, a tendency in recent legislation to consider a trustee as a sort of corporation sole. The statutes limiting the liability of trustees are evidence of this; and so are the statutes which cause the legal title-to pass to a new trustee by force of his appointment. See § 37, infra. « Thomas's Case, 1 De G. & S. 579. Baird's Case, L. K. 5 Ch. 725. Grew V. Breed, 10 Met. 569, 576. Stewart's Trustees v. Evans, 9 MacPherson, 810. And see Hoare's Case, 2 J. & H. 229. Bulmer's Case, 33 Beav. 435. Buchan's Case, 4 App. Cas. 549, per Lord Selborne. * Story on Bailments, § 287; Angell and Ames on Corporations, § 132. Merchants Bank v. Cook, 4 Pick. 405. Newton v. Fay, 10 All. 505, 506. Letois V. Graham, 4 Abb. Pr. 106. And see Baker v. Woolston, 27 Kas. 185; and see § 53, infra. But see Wilson v. Little, 2 Comst. 443, contra. On the question whether the interest of the pledgor can be taken on execu- tion or not, see Story on Bailments, § 353. Nabring v. Bank of Mobile, 58 Ala. 204. Mechanics Building Ass. v. Conover, 1 McCart. 219. Early §• Lane's Appeal, 89 Pa. St. 411. § 30 OP THE NATUKB AND OWNERSHIP OF STOCK. 31 stockholder attach to the legal title, and not to the special property. The right to vote, for example, belongs to the pledgor 1 and not to the pledgee.^ On the same principle, the pledgor should be the person individually liable; but this •whole matter is complicated with questions about the effect of making a transfer on the books into the name of the pledgee, and the effect of such a transfer will be discussed in another chapter.^ 1 Scholfield V. Union Bank, 2 Cranoh C. C. K. 115. Brewster v. Hartley, 37 Cal. 15. In the matter of Barker, 6 Wend. 509. Hoppin v. Buffum, 9 R. I. 513. And see Ex parte Wilcocks, 7 Cow. 402. See also § 53, infra. But see Crease v. Babcock, 10 Met. 525, 545. 2 McDaniels v. Flower Brook Mfg. Co., 22 Vt. 274. » See § 83, infra. 32 TEANSPBE OP STOCK. § 31 CHAPTER II. OP THE PASSIKG OP TITLE. § 31. CoNTiNTJOUS existence, unbroken by the death of its members, is one of the chief advantages of a corporation, and for this reason the charter contains a provision for the admission of new members. This provision varies in differ- ent classes of corporations.^ In some of them new members are admitted only by election, in others simply by residence in a certain place. But the only corporations that claim our attention here are private business corporations ; that is, cor- porations established for the pecuniary profit of their mem- bers. These corporations have a capital stock, and the members are termed stockholders. The capital stock is usually limited in amount, and divided into a fixed number of equal shares, so that after the whole capital has been sub- scribed, a new member can be admitted only by a transfer of stock. Now the charter usually declares that the stock shall be transferable by the owner ; and although the right of a stockholder to transfer his stock depends entirely upon the charter,^ yet the right is given so universally, and it forms so large a part of the benefits of incorporation that even if not expressly granted it will be implied from any expressions in the charter or statute that appear to recognize such a power.^ It is perhaps safe to go farther and say that the crea- tion of stock in a corporation is sufficient evidence of an » See Overseers of the Poor of Boston v. Sears, 22 Pick. 122, 130, 131. 2 Johnson v. Laflin, 5 Dill. 65, 74. See Bank of Attica v. Mfgrs. §• Traders Bank, 20 N. Y. 501. » See Duvergier v. Fellows, 5 B. & C. 248. \ § 32 OF THE PASSING OF TITLE. 33 intention to establish a property in the stock, with all the in- cidents that usually attach to such property.^ According to this view of the matter, the stock of a corporation is always transferable like any other personal property, unless there is something in the charter to the contrary.^ If the right to transfer can be implied from the charter, the stock stands on the same footing as any other personal property, and a trans- fer vests not only equitable rights but the legal title in the transferee,^ who becomes a complete stockholder in the cor- poration.* § 32. Now stock is personal property, and therefore no one can acquire the title to stock without his own consent.^ But where a transfer of stock must be for the benefit of the grantee, his assent, as in the case of a gift of any other prop- erty, will be presumed, although he is in fact ignorant of the transaction.^ Stock in a corporation subject to individual liability differs, however, from other kinds of property in this, that the ownership of it is not necessarily beneficial, but may involve liabilities greater than the benefits. Now the only ground for dispensing with actual acceptance by the grantee is that the transfer is for his benefit, and that he would ac- cept the stock if given an opportunity to do so. This rule applies only when the transfer must be beneficial to the grantee. It is doubtful, therefore, whether there is any 1 Poole V. Middleton, 29 Beav. 646. 2 Johnson v. Lafiin, 5 Dill. 65, 73 et seq. Sargent v. Franklin Ins. Co., 8 Pick. 90. Chouteau Spring Co. Y. Harris, 20 Mo. SS2. Brightwell V. Mallory, 10 Yerg. 196. Angell & Ames on Corp. § 318. Field on Corp. § 110. Morawetz on Corp. § 221. 8 Briggs v. Massey, 42 L. T. N. S. 49. And see §§ 66, 96, & 99, infra. * It has been held in England that a purchaser of stock is bound by the conduct of his vendor. Ffooks v. South Western Ry. Co., 1 Sm. & G. 142. Peek v. Ourney, L. K. 13 Eq. 79. But it is not probable that such a doctrine will be applied to purchasers without notice in this country. ^ Skowhegan Bank v. Cutler, 49 Me. 315. ' Assumed in Roberts's Appeal, 85 Pa. St. 84. 34 TRANSFER OF STOCK. § 33 presumption of acceptance in the case of stock to which any considerable individual liability is attached ; and it is clear that where an attempt is actually made to enforce the liabil- ity of the transferee, no presumption will prevent his right to refuse the transfer.^ In any case, indeed, the grantee would have the right to repudiate the transaction,^ if he had not already confirmed it; for otherwise the presumption would work against his will as well as in his favor. What will amount to an acceptance, in any case, is a question of fact, not, as yet, regulated by any general rules of law.^ § 33. Before proceeding to consider the various ways in which stock can be transferred, it may be well to make a logical analysis of the subject, and then consider separately the questions arising under each division. Title to stock may be acquired directly from the corporation when it issues or creates it,* or — It may be acquired by transfer. Where title is obtained by transfer the stock may be trans- ferred — I. Without regard to the previous owner (as in case of a sale on forfeiture for non-payment of calls, etc.), or — II. The rights of certain definite persons only may be transferred.^ 1 Cartmell's Case, L. R. 9 Ch. 691. Robinson v. Lane, 19 Ga. 337. 2 Ex parte Hennessy, 2 Mac. & G. 201, and see Stale v. Smith, 48 Vt. 266. » Pirn's Case, 3 De G. & S. 11 ; and see Sanger v. Upton, 91 U. S. 56. * Title to stock as against the corporation probably cannot be ac- quired by prescription (Cf. App. B.), and it has been held that it is not lost by allowing the corporation to treat the shares as its own prop- erty. Agricultural Bank v. Burr, 24 Me. 256. 6 Even when equities and other collateral claims are cut off, the stock is not transferred without regard to those claiming thereunder. They are definite persons whose rights are cut off because inferior to those of the purchaser. The distinction in the text is the same that exists be- tween proceedings in rem and in persoimm. § 35 OF THE PASSING OF TITLE. 35 The rights of a definite person may be transferred — A. By operation of law,' or, B. By acts of the parties. If transferred by acts of the parties, it may be done — 1. Voluntarily on the part of the owner; ^ or, 2. Involuntarily. That is, the transfer may be made (1) by the act of the owner, or (2) by the act of another. § 34. The power to transfer stock without regard to any definite owner (I.) depends entirely upon statute.^ The most common instances of it are the sale of stock for non-payment of a tax laid upon it, and the forfeiture of stock to the cor- poration for non-payment of the subscription or of a call. Such a forfeiture as this takes place, in general, only at the option of the corporation, and some act on its part is there- fore necessary to manifest an intention to transfer the stock. A regular conveyance may or may not be necessary, accord- ing to the form of proceeding required by the statute, but in any case the provisions of the statute must be strictly fol- lowed.* § 35. When the transfer is made by operation of law (II. A.) no conveyance is needed, because by the definition the title 1 The term " transfer by operation of law " is used to denote those cases where the law passes the title whenever certain circumstances occur, whether those circumstances were brought about with the intention of passing the title or not. " Transfer by acts of the parties " is used to denote those cases where the title passes only when certain acts are done with the intention of passing the title. ^ Under this head come the cases in which by his own conduct the owner is estopped to deny that he has transferred. ' A corporation cannot by by-law subject its stock to forfeiture. In re Long Island It. S. Co., 19 Wend. 37. Nor can it provide for drawing stock by lot, paying for the shares drawn, and then cancelling them. Bergmam v. St. Paul Mut. Building Ass., 29 Minn. 275. * See Van Diemen's Land Co. v. Cockerell, 1 C. B. n. 8. 732. 36 TRANSFER OP STOCK. § 36 passes absolutely on the happening of certain events, and the transfer is at once complete without the aid of a conveyance. Now stock is transferred by operation of law in the cases, — of judgment in trover ; of death ; and of the appointment of a new trustee, in some jurisdictions. A judgment in trover for the value of the property, when satisfied, changes the title at common law, and whether this form of action can be brought for stock or not, yet if in any action the plaintiff receives the full value of stock in damages, such title as the plaintiff has ought to pass to the defendant ; ^ for, if not, it is clear that damages ought never to be given for the value of the stock when the legal title is in the plaintiff. § 36. On the death of a stockholder, his shares pass with the rest of his personal property to his executor or adminis- trator.2 But the position of an executor is peculiar in this, that, where there are several, each in his own person so far represents the testator that he can transfer his property without joining the other executors in the conveyance.^ Where a person dies owning stock in a foreign corporation, a conflict of laws arises. A State might refuse to allow any claim upon its citizens to be paid until the domestic creditors were satisfied, but this is not usually done. The executor, for example, can endorse a foreign negotiable note, and the endorsement is valid in the country of the maker.* It has been held in America that although an executor cannot sue 1 Where a stockholder allowed his agent to deal with the certificates in such a way that he was estopped to deny the title of one to whom the agent pledged them; but the pledgee on the bankruptcy of the agent was compelled to pay the value of the stock; it was held that the title passed to him. Thompson v. Toland, 48 Cal. 99. 2 Except when stock is owned by two persons jointly, for in that case on the death of one the stock belongs to the other. HUVs Case, L. R. 20 Eq. 585. Garrich v. Taylor, 4 De G. F. & J. 159. 8 Com. Dig. Adm. B. 12; Bacon's Abr. Ex. & Adm. D.; AVilliams on Exec'rs, part iii., bk. 1, ch. 2. Leitch v. Wells, 48 N. Y. 585, 601. Wood's Appeal, 92 Pa. St. 379. 1 Story, Confl. of Laws, §§ 359, 517. § 37 OF THE PASSING OF TITLE. 37 on a foreign debt in his own name,-^ yet an assignment by the executor is good if the assignee can sue in his own name.^ And in England it was decided that the executor had power to sell foreign bonds.^ The principle seems to be that while an executor has no authority beyond the jurisdiction in which he was appointed, yet if he can transfer a claim without doing any acts beyond that Jurisdiction,* the transfer will be valid everywhere ; at least if he has in his possession instru- ments without which the claim cannot be transferred. If the executor who has possession of a bond or note cannot trans- fer it, the property cannot be administered at all,^ and the same is true of stock where a surrender of the certificate is necessary in order to make a transfer. These principles have been applied to the transfer of stock by executors in this country.® § 37. At common law the legal title passed without re- gard to anything but the strict rules of legal ownership. It made no difference that the legal title was held by a trustee or an executor in his representative character.' But there is now a tendency in the law to transfer the legal title to prop- erty, held by one person for the benefit of another, to the successor in ofBce instead of the personal representative of the legal owner. This tendency has been so far developed 1 St»ry, Confl. of Laws, §§ 513-515. Williams on Exec'rs (Am. ed.), 362, n. (u). ^ See the cases collected in Williams on Exec'rs (Am. ed.), 362 n. (u), and 1663 (g^). 2 Atty. Gen. v. Bouwens, 4 M. & W. 171. 1 In the case of stock, the transfer on the books, although made in the name of the executor, is not, in substance, the act of the executor at all. See §§ infra. 5 Atty. Gen. v. Bouwens, 4 M. & W. 171; and see Story, Confl. of Laws, §§ 359, 517. * Hutchins V. State Bank, 12 Met. 421, approved in Merrill v. New England Ins. Co. , 103 Mass. 245, 248. Middlebrook v. Merchants Bank, 3 Keyes, 135. And see Alfonso's Appeal, 70 Pa. St. 347. ' See In re Mohawk §• Hudson R. R. Co., 19 Wend. 135. Lewin on Trusts, oh. 12, sect. 3. Perry on Trusts, §§ 284, 343, 344. 38 TRAHSFEK OP STOCK. § 38 that on the death of an executor in America the property passes, not to his executor, but to the administrator de bonis non of the testator. And in some jurisdictions the principle has by statute been applied to all express trusts. It is en- acted that where a trustee is in any way removed and a successor appointed, the trust property shall at once vest in the new trustee. And this it does by operation of law, just as it passes to an executor on the death of his testator.^ § 38. Stock may be transferred without the consent of the owner (II. B. 2), — by the sheriff, on execution ; ^ by a judge, when under a bankrupt or insolvent law he makes an assign- ment of all the property of the bankrupt ; by a trustee appointed by the court to make a transfer, when the owner will not obey the order of the court ; ^ by a vendor or credi- tor who avoids a transfer on the ground of fraud ; or by an infant who avoids a transfer on account of his infancy. At common law, stock could not be taken on execution ; * but some process is now generally provided for reaching it with- out the aid of equity. The sheriff is usually authorized to sell it on execution and to make a transfer to the purchaser.^ In cases of bankruptcy it might be provided that the prop- erty should vest in the assignee by virtue of his appointment, and then no conveyance would be necessary ; but it is more ^ Parker Y. Converse, 5 Gray, 336. ^ It has been held that inasmuch as the power of the sheriff comes from the State and not from the stockholder, he is not bound by a provi- sion in the charter requiring a stockholder before selling his stock to tender it to the corporation at the price at which he is willing to sell it. Barrows v. Nat. Rubber Co., 12 R. I. 173 ; s. c. 13 R. I. 48. 8 Re Angela, Ex parte Frith, 5 De G. & S. 278. And by statute in England, stock belonging to a lunatic may be transferred by a judicial order. See In re Ives, 9 Jur. n. s. 611. * And it is said that the statutes giving this remedy must be construed strictly. Van Norman v. The Circuit Judge of Jackson Co., 45 Mich. 204. ^ The stock is bound only from the time the writ is served on the corporation, not from the time it is delivered to the sheriff. Hatch v. Rowland, 5 U. C. Pr. Rep. 223. § 38 OF THE PASSING OF TITLE. 39 common to provide that the judge shall make an assignment of the bankrupt's property to the assignee. A similar pro- vision exists by statute in some jurisdictions, in cases where the owner of property refuses to transfer it when ordered to do so by the court. A trustee is appointed to make the conveyance in place of the delinquent. All these transfers depend entirely upon statute, and the formalities provided by the statute must be strictly followed ; but it often happens that the statute does not provide for the exact form of the conveyance, and then difficulties may arise in determining how far the special formalities required in other cases for the transfer of the stock must be observed. The answer depends in a great measure upon the nature of the formality in ques- tion. It is evident, for example, that a rule requiring the surrender of the certificate of stock before transfer can have no application to a conveyance of this kind made without the consent of the owner ;^ while a rule which, for the protection of the corporation and of bona fide purchasers, requires a record of the transfer to be made on the books of the corpora- tion may, perhaps, apply to all conveyances,^ unless the statute shows clearly a contrary intention. If in a transfer of this kind the form of the instrument only is in question, — sealing or attestation, for example, — it may safely be assumed that the form of conveyance usually required in transfers of the stock must be observed when a special transfer of that stock alone is made, but not when a general assignment is made of all the debtor's property. A transfer made in fraud of the vendor ^ or of his creditors * may be avoided by the 1 See §§ 123, 125, infra. ^ See § 107, infra. ' in order that the vendor may avoid a sale of stock there must be an actual fraudulent intent at the time of the sale. It is not enough that a check given in payment for the stock is dishonored. Comins v. Coe, 117 Mass. 45. * The rights of creditors to avoid a transfer depends on the 13 Eliz. ch. 5, and upon more recent statutes made in imitation of that Act. And it is presumed that these statutes apply to stock as well as to any other 40 TKANSPEK OF STOCK. § 39 person defrauded at any time before the property has passed into the hands of a lona fide purchaser for value.^ The legal title passes in spite of the fraud, and the transfer is in every way valid until it is avoided.^ No special form is necessary to avoid a fraudulent transfer.^ No conveyance is, in fact, made at all. And excepting, perhaps, provisions requiring the transfer to be made on the books, the formalities usually necessary to transfer the stock have no application when it is sought merely to avoid a previous transfer on the ground of fraud. This is also true where any one avoids his transfer on the ground of infancy. In fact, all that has been said of the effect of a fraudulent transfer applies with equal force to the conveyance of an infant, except that the latter is voidable even in the hands of a bona fide purchaser for value. § 39. We come now to voluntary transfers made by the owner of stock (II. B. 1) ; and these may be divided into transfers made directly by the owner in person, and those made by means of an agent. Of the former, nothing need be said in this place, because they are subject to the same gen- eral rules that govern transfers of other personal property.* If a stockholder has by law a general right to transfer his stock, his power to pass the legal title is limited only by his kind of personal property. Skowhegan Bank v. Cutler, 49 Me. 315. State ex rel. Bush, v. Warren Foundry Co., 3 Vroom, 439. And see Thompson v. Toland, 48 Cal. 99. Pinherton v. Man. §• Law. R. R. Co., 42 N. H. 424, 451. 1 But not afterwards. Benjamin on Sales, § 433. And see Moore v. Meirop. Nat. Bank, 55 N. Y. 41. 2 Benjamin on Sales, §§ 436, 438 et seq. Hill v. Pine River Bank, 45 N. H. 300. " See Benjamin on Sales, § 443. * A transfer was made to " H., cashier," and it was held to be for the jury to say whether the stock passed to H. or to the corporation. Stam- ford Bank v. Ferris, 17 Conn. 259. A pledge of stock, except $2,750, was held to mean except the number of shares which would be worth $2,750, at par. Hussey v. Manuf. §• Mech. Bank, 10 Pick. 415. The ordinary rules about gifts made causa mortis apply to stock. See Staniland V. Willott, 3 Mao. & G. C64. § 40 OP THE PASSING OF TITLE. 41 personal disabilities, whether he holds the property for his own benefit or not. § 40. Under the head of agents should, perhaps, be classed guardians. A clear idea of the position of a guardian can be obtained by regarding him as an agent whose powers are derived from statute. He has no estate in the property of his ward, and the legal title is not in him ; but he has au- thority to manage it for the benefit of his ward. Stock, therefore, should be registered iu the name of the ward, and the certificate should be taken out in his name ; but the transfer should be signed by the guardian describing himself as guardian. This accords with the actual state of the legal title, and it leads only to confusion to register the guardian as the owner of the stock. Although the guardian has no title to his ward's property, he has power at common law to transfer it.^ And it has been held that a statute, which forbids the guardian to convey without leave of court, does not take away this common-law power, but merely makes an unauthorized sale a breach of trust, so that a person who buys without notice that the property belongs to the ward wiU still get a good title.^ The power to sell, however, exists only during the guardianship, and, as the authority of the guardian of an infant terminates on the majority of the ward, the power to sell ceases at the same time.^ This power of sale has recently given rise to a curious conflict of laws. A guardian appointed in New York having power to sell by the laws of that State, transferred stock in a Georgian corporation. And the courts of Georgia held the sale valid, although a guardian had no power to sell by the laws of their own State.* 1 Wallace v. Holmes, 9 Blatch. 65. Ellis v. Prop'rs of the Essex Merri- mack Bridge, 2 Pick. 243; and see Lovell v. Minoi, 20 Pick. 116. Field v. Schieffelin, 7 Johns. Ch. 150. Cf. § 62, infra. But see Perry on Trusts, §§ 605, 606. 2 Atkinson v. Atkinson, 8 All. 15. ' Mansur v. Pratt, 101 Mass. 60. * Ross V. South Western R. R. Co., 53 Ga. 514. 42 TEANSFBR OF STOCK. § 41 § 41. The principles of agency apply in full force to trans- fers of stock. The rights of the parties themselves and of third persons dealing with them are not peculiar in the case of stock, and ought not to be discussed in these pages ; but there is one question which demands special consideration here, owing to the confusion in which it has been involved, and also to the frequency with which it must arise in stock transactions ; and that is the questiofi of revocation. A power of attorney is merely an authority to do an act in the name of the principal, and it is revocable at his pleasure. But t^e principal may so bind himself by a contract not to revoke the power that if he does revoke it he will be liable to an action for damages. In such a case, the law enforces a sort of specific performance, and makes the power irrevocable. Or rather, the law looks upon the transaction as the convey- ance of a right to the agent, and not at all as a contract on the part of the-principal.^ Whether, in any case, a convey- ance of an absolute right is made to the agent, or whether a revocable power only is given, is purely a question of intention. An express declaration that the power is irrevo- cable is, indeed, sometimes made, and then no question can arise. But the intention of the parties is usually to be gath- ered only from the circumstances under which the power is given and from the objects to be accomplished by its use. Now, if the object of the power is to put property beyond the control of the principal, it is very evident that he is not in- tended to have power to take the property back again at pleasure. When the owner of stock sells it, it is clear that he does not intend the passage of the legal title to depend upon the continuance of his life ; it is clear, therefore, that a power of attorney, given to a purchaser of stock in order to enable him to transfer it on the books of the corporation, is 1 The expression " power coupled with an interest," besides being inaccurate, has been used in so many different senses that it has become vei7 misleading, and has been altogether discarded in this book. § 42 OF THE PASSING OP TITLE, 48 irrevocable. And it is equally clear that a power of attorney, given as part of a security, cannot be revoked by the prin- cipal, for otherwise the chief object in taking the security would be lost.^ § 42. A revocable power of attorney is revoked by death ; ^ but courts at one time went farther than this, and held that all powers of attorney which were to be executed in the name of the principal, were revoked by death, whether revocable during life or not.^ It was argued that the attorney acts in the stead of his principal, as his substitute, and must do all acts in his name ; that the act of the attorney has only the force it would have if performed by the principal himself; and that the act of the attorney is, therefore, ineffectual un- less such as the principal himself could perform. The answer to this is, that where the power is irrevocable, the attorney does not reaUy act as the substitute of the principal, although he makes use of his name, because the principal has, in fact, transferred to the agent a power to act in his own right. It is not merely that the principal has given to his agent a power to sell the stock and has contracted that he will transfer the stock as the attorney desires, or even that he will accept as his own the future act of the attorney ; but he has, in effect, granted away the right to sell, and the attorney transfers by virtue of a right that has become vested in himself. The right is derived from the principal, it is true, but it has been con- veyed to the attorney. This is not a case of estoppel, for it is matter of right, not of excuse ; and it makes no difference that the death of the principal is known. He has simply conveyed something which he cannot recall in his lifetime, and which is not destroyed by his death. If these views are correct, 1 Story on Agency, § 477 ; Wharton on Agency, § 95. Hunt v. Rous- manier's Exec'rs, 8 Wheat. 174. Marziou v. Pioche, 8 Cal. 522. And see Bonney v. Smith, 17 111. 531.' Gilbert v. Holmes, 64 111. 548; and cases cited in § 42, note 1, infra. " Hunt V. Rmsmanier's Exec'rs, 8 Wheat. 174. * Michigan Ins. Co. v. Leavenworth, 30 Vt. 11. 44 TRANSFER OF STOCK. § 44 nothing is revoked by the death of the principal which he could not revoke during his life.^ § 43. It is often assumed that a vrriting is necessary for the conveyance of stock, on the ground that the common law always requires something more than a contract to pass the title to property, for the sake of publicity, and in order that there may be sufficient evidence of the transfer. But, what- ever the law may have been in early times, no such general principle can be laid down to-day. For when a sale of per- sonal property is made by a parol contract, the title passes as soon as the goods are specified, if that is the intention of the parties.^ In such cases neither a writing nor a delivery of the goods is necessary to pass the title, and there is no reason that the title to stock should not pass in the same way.* If a written instrument is necessary it must be delivered ; but it has been held that a delivery to a third person to deliver to the grantee on the death of the owner is good as a donatio mortis causa.^ To make a valid transfer by gift, however, a delivery of the certificate or of a written transfer is probably necessary, because the common law requires delivery of possession, or of some symbol of possession, in transfers not made by deed or by sale.^ § 44. Whether on a sale of stock a written assignment is necessary to pass the title or not, it is certainly sufficient, 1 Merry Y. Lynch, 68 Me. 94. Knapp y. Alvord, 10 Paige, 205. Fraser V. Charleston, 11 S. C. 486; and see United States v. Cutts, 1 Sum. 133. Leavitt v. Fisher, 4 Duer, 1. Davis v. Lane, 10 N. H. 156. Of course, such a power is not affected by the bankruptcy of the principal. Dayton Nat. Bank v. Merchants Nat. Bank, 37 Ohio St. 208. And clearly it makes no difference whether the agency is created by a written instrument, or by parol. 2 Benjamin on Sales, §§ 3, 78, and 308. * Scripture v. Francestown Soapstone Co., 50 N. H. 571, 585. A share in a cost-book mining company can be transferred by pai'ol. Northley v. Johnson, 29 Beav. 646. * Grymes v. Hone, 49 N. Y. 17. ' Williams on Personal Property, ch. 3. § 45 OF THE PASSING OF TITLE. 45 apart from some provision of statute, charter, or by-law to the contrary.^ A seal is not required at common law.^ Nor is it necessary that the transfer should be endorsed on the cer- tificate.^ The certificate need not, in fact, be delivered to the purchaser at all ; * any writing is enough.^ And even' a special provision in the charter that stock shall be transferred only on the surrender of the certificate, although intended to prevent the corporation from making a record of the transfer, and issuing a new certificate, until the old one has been sur- rendered to be cancelled, does not affect the passing of the legal title.^ A transfer is perfectly good, although the seller of the stock never had a certificate at all,^ and although no certificate is issued to the transferee.* But an endorsement on the certificate is by far the most convenient form of trans- fer, because the same instrument then combines the evidence of the seller's right to the stocl^ and of his transfer to the purchaser. § 45. An agent to execute a simple written instrument may be appointed by parol, and therefore a transfer with a 1 Chouteau Spring Co. v. Harris, 20 Mo. 382. Stebhins v. Phoenix Fire Ins. Co., 3 Paige, 350, 361. 2 Quiner v. Marhlehead Ins. Co., 10 Mass. 476; and see Sargent v. Franklin Ins. Co., 8 Pick. 90. 2 First Nat. Bank of Davenport v. Gifford, 47 Iowa, 575. Boatmen's Ins. Co. V. Able, 48 Mo. 136. * White V. Salisbury, 33 Mo. 150. 5 Chouteau Spring Co. v. Harris, 20 Mo. 382. And see Ellis v. Proprie- tors of the Essex Merrimack Bridge, 2 Pick. 243. Grymes v. Hone, 49 N. T. 17. 8 Boatmen's Ins. Co. v. Able, 48 Mo. 136. JVew York §• New Haven R. R. Co. V. Schuyler, 34 N. Y. 30, 81. And see First, Nat. Bank of Davenport v. Gifford, 47 Iowa, 575. But see Hall v. Rose Hill, Sfc. Road Co., 70 111. 673. See § 122, infra. 1 First Nat. Bank of Davenport v. Gifford, 47 Iowa, 575. Brigham v. Mead, 10 All. 245. And see § 109, infra. 8 CecU Nat. Bank v. Watsontown Bank, 105 U. S. 217. Beckett v. Houston, 32 Ind. 393. First Nat. Bank of Davenport v. Gifford, 47 Iowa, 575. Field v. Pierce, 102 Mass. 253, 261. CominsY. Coe, 117 Mass. 45. Chouteau Spring Co. v. Harris, 20 Mo. 382. And see § 109, infra. 46 TBANSFER OF STOCK. § 45 blank for the name of the transferee is good, if authority is orally given to an agent to fill up the blank.^ Now a sale gives the purchaser an implied authority to fill up any blanks in the assignment.^ And, more than this, if the purchaser sell, his assignee becomes the agent of the seller to fill up the blanks.^ But the right to fill up the blank depends upon an implied authority from the seller, and if the seller gives an express authority to fill the blank with the name of one per- son, there is no implied authority to fill it up with the name of another.* The instrument of transfer executed in blank is not negotiable, since a purchaser from a thief does not get a good title ; but a person who receives such an instrument from one who has a right to fill it up, acquires himself the same right ; and, if his purchase is bona fide and for value, he gets his legal title free from equitable claims, and he may even get the benefit of an estoppel to cure a defect in his legal rights against an earlier holder who has wilfully and negli- gently misled him.^ If an instrument in writing is required to transfer the stock, the title does not pass until the assign- ment in writing is made complete by filling the blank with 1 Hawkins v. Mallhy, L. R. 3 Ch. 188. 2 Walker v. Detroit G. H. §• M. R. R. Co., 49 Mich. 446. Broadway Bank v. McElrath, 2 Beas. 24. Aud see Walker v. Bartlett, 18 C. B. 845. 8 Ex parte Sargent, L. R. 17 Eq. 273. Matthews v. Mass. Nat. Bank, 1 Holmes, 396. Bridgeport Bank v. New York §• New Haven R. R. Co., 30 Conn. 231. Otis v. Gardner, 105 111. 436, 442. Winter v. Belmont Mining Co., 53 Cal. 428. Sewall v. Boston Water Power Co., 4 All. 277. Mt. Holly Turnpike Co. v. Ferree, 2 C. E. Green, 117. Commercial Bank of Buffalo Y. Kortnght, 20 Wend. 91; 8. c. 22 Wend. 348. McNeil v. Tenth Nat. Bank, 46 N. Y. 325. Leitch y. Wells, 48 N. Y. 585. Holbrook V. New Jersey Zinc Co., 57 N. Y. 616. Building Ass. v. Sendmeyer, 50 Pa. St. 67. Persh v. Quiggle, 57 Pa. St. 247. * Commercial Bank of Buffalo Y. Kortright, 22 Wend. 348 ; per Wal- worth, C. Dis. at p. 358. Mechanics Banking Co. v. Mariposa Co., 3 Rob. 395. Denny v. Lyon, 38 Pa. St. 98. ' See § 129 et seq. infra. All that is there said about the effect of a certificate endorsed in blank, as between the parties, applies as well to any form of transfer in blank. § 47 OB" THE PASSING OF TITLE. , 47 the name of the assignee.^ In this case no intermediate holder is a stockholder, and the assignee who fills the blank with his own name derives his title directly from the person who signed the transfer. If an instrument in writing is not required to transfer stock, the title passes by the contract, and the power of attorney is only an authority to make the proper entries in the books of the corporation, and it need not be filled up in order to complete the transfer.^ § 46. An assignment of stock in blank is good because an instrument under seal is not necessary, and an agent to exe- cute a simple written instrument can be appointed- by parol ; but an attorney to execute a sealed instrument can be ap- pointed only by an instrument under seal, and, therefore, if a seal is required to transfer the stock of any corporation, a transfer of that stock executed in blank is absolutely void.^ It has been generally assumed, however, that a seal affixed to a blank transfer will not destroy the effect of the instru- ment, provided no seal is necessary to transfer the stock.* § 47. So much for the transfer of stock at common law. If any formalities are required by charter or statute in order 1 Silgreaves v. Farmers Sj" Mechanics Bank, 49 Pa. St. 359, 365. In Bridgeport Bank v. New York §• New Haven R. R. Co., 30 Conn. 231, it was held that when the blank is filled up the transfer relates back to the date of the assignment. 2 See Building Ass. v. Sendmeyer, 50 Pa. St. 67. 8 Hibhlewhite v. M' Marine, 6 M. & W. 200. Tayler v. Great Indian Peninsular Ry. Co., 4 De G. & J. 559. The Consols Ins. Ass. v. Newhall, 3 F. & P. 130. Ex parte Sargent, L. R. 17 Eq. 273. The dictum in Bridgeport Bank v. New York §• New Haven R. R. Co., 30 Conn. 231, contra, destroys all difference between instruments which are under seal and those which are not, and defeats the object of the regulation which requires the seal. An alteration in an instrument under seal renders it void. Hare v. London §• Northwestern Ry. Co., John. 722. For the effect of instruments under seal executed in blank in the different States, see Biddle on Stock Brokers, 271 et seq. * Ex parte Sargent, L. R. 17 Eq. 273. Ex parte The Contract Corpora- tion, L. R. 3 Ch. 105. Ortigosa v. Brown, 47 L. J. Ch. 168. Bank of Buffalo T. Kortright, 20 Wend. 98; s. c. 22 Wend. 348. McNeil v. Tenth National Bank, 46 N. Y. 325, Building Ass, v. Sendmeyer, 50 Pa. St. 67. 48 TBANSFBR OF STOCK. § 48 ^ to pass the legal title, they must, of course, be observed, or the transfer will have no effect so far as the legal title is con- cemed.i But such provisions are not, in general, intended to annul any contract between the parties, and in equity the transferee may acquire a right to the stock, although these formalities are neglected ; ^ and it has been held that the seller, in such cases, is so far stripped of all beneficial inter- est that he is a competent witness in suits in which stock- holders are not allowed to testify.^ § 48. A corporation has a general power to make any reasonable regulations about the transfer of its stock. But this gives the directors no power to refuse to allow a transfer of the stock,* even if they think it is made for an improper purpose,^ and it gives the corporation no right to forbid * By far the most common provision of this kind is one which requires the transfer to be recorded on the books of the corporation, and this is so important that it has been dealt with in a separate chapter. See ch. iv. 2 See § 91, infra. When it is provided that the transferee must sign an acceptance, his failure to do so will not give the creditors of the vendor a right to attach the stock. Woodruff v. Harris, 11 TJ. C. Q. B. 490. And although the transferee may have no right against the corporation until he signs the acceptance, yet the vendor has no right to dividends. Foster Y. Bank of England, 8 Q. B. 689. 3 Delaware §• Atlantic R. R. Co. v. Irick, 3 Zab. 321. Bank of Utica V. Smalley, 2 Cow. 770. Gilbert v. Manchester Iron Co., 11 Wend. 627. But a provision that no stockholder should transfer while his calls remain unpaid has been given the opposite construction in Canada. Woodstock Ry. Co. V. Tupper, 1 Han. 454. * Weston's Case, L. R. 4 Ch. 20; approved in Gilbert's Case, L, R. 5 Ch. 559; and see Chappell's Case, L. R. 6 Ch. 902. Even when the directors are given power by statute to refuse, they must exercise their power reasonably. Robinson v. The Chartered Bank, L. R. 1 Eq. 32. In re Smith V. The Canada Car Co., 6 U. C. Pr. Rep. 107. In such ca^es they have power to object only on account of the person of the transferee, and cannot refuse because they disapprove of the object of the transfer. Moffatt V. Farquhar, 7 Ch. D. 591. And although they are not bound to give their reasons for refusal, the court will interfere if there is corrupt or arbitrary conduct. Ex parte Pinney, L. R. 8 Ch. 446. In re Gresham Life Ass. Co., 21 W. R. 95. ' In re Stranton Iron §• Steel Co., L. R. 16 Eq. 559; and see Camden §• § 48 OF THE PASSING OF TITLE. 49 transfers of stock ; ^ or to restrain them by unreasonable by- laws.^ Whether a by-law is reasonable or not is a question of law for the court, and it may be laid down that it would not be reasonable to forbid transfers to certain classes of per- sons, ^ or to make the right to a transfer depend upon the will of the corporation itself, or of any other person.* It is doubtful whether a by-law is valid which requires stock- holders to offer their stock to the corporation at par, before selling it to any one else.^ But the corporation can prescribe the form of the conveyance, if the right to transfer is not substantially impaired thereby. It may, for example, pro- vide in the by-laws that it will not recognize transfers unless they are recorded on its books,® or that it will not record transfers unless the old certificate is surrendered to be can- celled.^ A by-law which required the transfer to be exe- cuted in the presence of witnesses has been sustained on the same principle.^ And so also a by-law which required the Atlantic B. R. Co. v. Elkins, 10 Stew. 273. But courts are said not to look with a favorable eye on transfers made for improper purposes. King- man V. The Rome, Waterlown, and Ogdensburg R. R. Co., 30 Hun, 73. And in England a mandamus will not be granted on the application of a person whose real object is not the enjoyment of the rights of a stock- holder. The Queen v. Liverpool, Man. §• Newcastle upon Tyne Ry. Co., 21 L. J. Q. B. 284. 1 Except, perhaps, before the capital is paid in. See Orr v. Bigelow, 14 N. Y. 556. 8 Sargent v. Franklin Ins. Co., 8 Pick. 90. Chouteau Spring Co. v. Harris, 20 Mo. 382. And see Moore v. Bank of Commerce, 52 Mo. 377. Bank of Attica v. Manufacturers §• Traders Bank, 20 N. Y. 501. On the power to make a lien by by-law, see § 165, infra. ' Such as insolvents. Chouteau Spring Co. v. Harris, 20 Mo. 382. * Farmers §• Mechanics Bank of Lineville v. Wasson, 48 Iowa, 336. Sargent v. Franklin Ins. Co., 8 Pick. 90. In Gilbert v. Manchester Iron Co., 11 Wend. 627, the validity of the by-law was not before the court, and no opinion was given upon it. 6 Price V. Minot, 107 Mass. 49. « See § 91, infra. ' See § 121, infra. ' Dane v. Young, 61 Me. 160. The by-law in this case was held to require attesting witnesses. 4 50 TBANSFEE OP STOCK. § 49 transfers to be made on the books of the corporation in the presence of the president or secretary.^ § 49. When stock cannot be completely transferred unless one of the parties to the assignment performs certain acts, the sale itself is a suflScient authority to him to perform these acts ; and, more than this, it becomes his duty to perform them, and he will be liable for any damage that is caused to the other party by a failure to perform the duty thus thrown upon him.2 And when the consent of the directors is re- quired to admit a stockholder, courts have presumed, in the absence of evidence to the contrary, that the purchaser would have been accepted by the directors if he had applied to them, as it was his duty to do.^ The corporation has power to waive any provisions made purely for its own benefit ; * but, apart from actual waiver, the effect of the omission of any formality depends very much upon the conduct of the parties. The principle that no one shall take advantage of his own wrong applies to matters of this kind. If the corpo- ration, for example, will not allow the required formalities to be observed, it cannot take advantage of the omission, and contend that the title has not passed.^ Perhaps it is on a similar principle, in corporations where the consent of the directors is necessary for a transfer, but it is the custom of the corporation to be satisfied with the consent of a part only® or to transfer without any consent at all,^ that a transfer 1 See Planters Sj- Merchants Ins. Co. v. Selma Savings Bank, 63 Ala. 585. 2 For the application of this principle to transfer on the books, see § 87, infra. s Evans v. Wood, L. R. 5 Eq. 9. * Sadler's Case, 3 De G. & S. 36. 6 Chouteau Spring Co. v. Harris, 20 Mo. 382. And where a corporation declared that it would not transfer certain stock, it was held that the required formalities need not be observed in making the demand. Toum- send V. Mclver, 2 S. C. 25. « Bargate v. Shortrulge, 5 H. L. C. 297; and see Ellison v. Schneider, 25 La. Ann. 435. ' Chambersburg Ins. Co. v. Smith, 11 Pa. St. 120; and see Bush's Case, L. R. 6 Ch. 246. § 50 OP THE PASSING OF TITLE. 51 according to the custom is held valid. Any person may also by subsequent conduct estop himself to set up a lack of for- mality in the transfer.^ And for this reason a corporation which receives a purchaser and continues to treat him as a stockholder may not be allowed to repudiate him afterwards, and treat the vendor as the owner of the stock.^ § 50. Whatever the general principles of international law in regard to the assignment of personal claims may be, the validity of transfers of the stock of corporations should be governed by the law of the place where the corporation is created,^ as far as the formalities of the transfer are con- cerned. Transfers of the stock of United States Banks are, 1 Holyohe Bank v. Goodman Paper Mfg. Co., 9 Cush. 576; and see Maguire's Case, 3 De G. & S. 31. See also Sheffield §• Manchester Ry. Co. V. Woodcock, 7 M. & W. 574. Cheltenham §• Great Western Ry. Co. v. Daniel, 2 Q. B. 281. Fanning v. Insurance Co., 37 Ohio St. 330. There is a good deal of law in England on the question of what acts will make an executor liable personally. See Bulmer's Case, 33 Beav. 435. Buchan's Case, 4 App. Cas. 549. It seems that collecting dividends alone is not enough, although an executor has no right to collect them unless he is per- sonally a stockholder. Ex parte Gouthwaite, 3 Mac. & G. 187. Ness v. Armstrong, 3 De G. & S. 38, note. But see Hoare's Case, 2 J. & H. 229. 2 Murray v. Bush, L. R. 6 H. L. 37. Taylor v. Hughes, 2 J. & H. 24. Isham V. Buckingham, 49 N. Y. 216. This is also evident from the manner in which the vendors were allowed to escape in Grady's Case, 1 De G. J. & S. 488, and Lane's Case, 1 De G. J. & S. 504; and see the cases in the pre- ceding notes. But if the assent of the directors is necessary to a transfer, and that assent is given by mistake, it can be withdrawn. Anderson's Case, L. R. 8 Eq. 509. And the same thing is true of assent obtained by fraud. Payne's Case, L. R. 9 Eq. 223. See also Ex parte Kintrea, L. R. 5 Ch. 95. 8 Story, Conflict of Laws, § 383. Robinson v. Bland, 2 Burr. 1077, 1079. Black v. Zacharie, 3 How. 483, 511 ; cf. p. 514. Richmondville Co. V. Prall, 9 Conn. 487. Hutchins v. The State Bank, 12 Met. 421, 427. Hill v. Pine River Bank, 45 N. H. 300. New York §• New Haven R. R. Co. V. Schuyler, 38 Barb. 584, 563, 564. Noyes v. Spaulding, 27 Vt. 420. But the validity of a contract to sell stock under the Statute of Frauds is determined by the lex loci contractus. Tisdale v. Harris, 20 Pick. 9. And this principle does not, of coarse, extend to questions about the capacity of the persons who make the transfer of the stock. See Ross v. South- western R. R. Co., 53 Ga. 514. Hill v. Pine River Bank, supra. 52 TEANSPEE OP STOCK. § 52 on this principle, governed by the laws of the United States, and not by the laws of any particular State.^ The reason for this principle is that statutes regulating the trans- fer of stock, if not expressly restricted to domestic corpora- tions, are intended for the benefit of those corporations and their stockholders, and not for the benefit of foreign cor- porations and such of their stockholders as happen to reside within the jurisdiction. The argument from convenience is also strongly in favor of this rule, because on no other princi- ple can all the stock transactions of a corporation be governed by the same laws. § 61. Although a conveyance has been made in due form, it sometimes happens that the title does not pass ; for the transfer may be void by statute, or it may be held void be- cause of the incapacity of the grantee, or on account of the object of the transfer. Where a statute, for example, gave votes to citizen stockholders only, transfers made by a for- eigner to citizens in order to give them votes were held to be a fraud on the law, and therefore void.^ It has also been held that where both buyer and seller knew that the object of the transfer was to control the corporation for illegal purposes the sale was void.^ Both these decisions are, however, open to much question, for the transfer may not be void, although the transferee is not allowed to vote ; and it has been held that the transferee under such circumstances cannot be de- nied even the right to vote.* § 52. A transfer of stock passes all the rights of the stockholder, and completely substitutes the transferee for the former owner of the stock. An ordinary cash dividend, however, is a debt due from the corporation, and is quite 1 Continental Nat. Bank v. Eliot Nat. Bank, 12 Reporter, 35. Dickinson V. Central Nat. Bank, 129 Mass. 279. Sibley v. Quinsigamond Nat. Bank, 133 Mass. 515. Scott v. Pequonnock Nat. Bank, 15 Fed. Rep. 494. 2 State ex rel. Dan/orth v. Hunton, 28 Vt. 594. 8 Newark v. Elliott, 5 Ohio St. 113. * Pender v. Lushington, 6 Ch. D. 70. § 52 OF THE PASSING OF TITLE. 53 independent of the stock,^ and, therefore, a transfer of stock does not carry dividends.^ A dividend may be separated from the stock, in this way, before it is payable, and it then becomes a present debt payable at a future time. The cor-" poration has power to make the dividend an independent debt at any time it may select, and this is usually done by declaring the dividend payable to the stockholders of record at a certain time. If no time is expressly fixed at which the dividend shall become an independent debt, the intention of the corporation must be gathered from the circumstances of the case.^ But where a corporation simply declares upon one day a dividend payable on another, there seems to be a presumption that the corporation intends to pay the dividend to those persons who were stockholders on the day the divi- dend was declared, and the dividend becomes an independent debt at that time.* A dividend is an independent debt, but 1 Paton V. Sheppard, 10 Sim. 186. And see Carlisle v. The SoutJieastern Ry. Co., 1 Mac. & G. 688. Fawcett v. Laune, 1 Dr. & S. 192. 2 A contract to sell on demand, means to sell stock such as it is on the day of demand, and a dividend declared before demand belongs to the seller. Bright v. Lord, 51 Ind. 272; and see Central R. R. §• Banking Co. V. Papot, 59 Ga. 342 ; 8. c. 67 Ga. 675. But a simple offer to sell stock means to sell it such as it is at the date of the offer, and a dividend declared between the offer and acceptance passes to the buyer. Harris v. Stevens, 7 N. H. 454. And the same is true of a dividend between the contract of sale and the completion of the purchase. Black v. Homersham, 4 Ex. Div. 24. And also when stock is deliverable at seller's option. Currie v. White, 45 N. Y. 822. There is a statute in Maine that an attach- ment shaU cover aU accruing dividends. Hagar v. Union Bank, 63 Me. 509. 8 City of Ohio v. The Cleveland R. R. Co., 6 Ohio St. 489. Brundage V. Brundage, 65 Barb. 897 ; s. c. 60 N. Y. 544. And see Burroughs v. North Carolina R. R. Co., 67 Ni C 376. * Wright V. Tucketi IJ. & H. 266. De Gendre v. Kent, L. R. 4 Eq. 283. Bright -7. Lord, 51 Ind. 272. Hill v. Newichawanick Co., 48 How. Pr. 427; affirmed 71 N. Y. 593. And see Brundage v. Brundage, 65 Barb- 397; 8. c. 60 N. Y. 544. Hopper v. Sage, 47 N. Y. Sup. Ct. 77. City of Ohio V. The Cleveland R. R. Co., S Ohio St. 489. But see Clive v. Clive, Kay, 600. Curry v. Woodward, 44 Ala. 305. 54 TKANSPER OF STOCK. § 52 profits earned and retained by the corporation give rise to no debt, and the right to them passes with the stock,^ al- though it may have been the duty of the corporation to have distributed them in dividends.^ Where shares of stock are held for the benefit of one person for life with remainder to another, the stock is principal, and the dividends alone are income. The profits of the corporation remain principal until they are distributed in dividends,^ and it would seem that the dividends should be treated as income only from the time they are separated from the stock, and made an independent debt.* There is no right to an apportionment of a dividend between the life tenant and the remainder man ; ^ and even 1 Clive V. Clive, Kay, 600. Bates v. MacKirdey, 31 L. J. Ch. 389. Phelps V. Farmers §■ Mechanics Bank, 26 Conn. 269. Ryan v. Leaven- worth, Atch. §■ Northwestern Ry. Co., 21 Kas. 365. Abercrombiev. Riddle, 3 Md. Ch. 320. Foote, Appellant, 22 Pick. 299. Clapp v. Astor, 2 Edw. Ch. 379. Hyatt v. Allen, 56 N. Y. 553. Union Screw Co. v. American Screw Co., 11 K. I. 569; afllrmed, 13 R. I. 673. And see Minot v. Paine, 99 Mass. 101. Gifford v. Thompson, 115 Mass. 478. Coleman v. The Columbia Oil Co., 51 Pa. St. 74. Unless the parties intend otherwise. Brewster v. Lathrop, 15 Cal. 21. But see Johnson v. Bridgewater Iron Mfg. Co., 14 Gray, 274. 2 March v. Eastern R. R. Co., 43 N. H. 515. Nickals v. New York, Lake Erie, §• Western R. R. Co., 15 Reporter, 72. And see Goodwin v. Hardy, 57 Me. 143. And this is true although the corporation has guaranteed definite dividends to its stockholders at certain fixed dates. Manning Y. Quicksilver Mining Co., 24 Hun, 360. Boardman v. Lake Shore §• Mich. So. R. R. Co., 84 N. Y. 157. Jermain v. Lake Shore if Mich. So. R. R. Co., 91 N. Y. 483. ' De Oendre v. Kent, L. R. 4 Eq. 283. Foote, Appellant, 22 Pick. 299. Clapp V. Astor, 2 Edw.'s Ch. 379. Hyatt v. Allen, 56 N. Y. 553. And see Minot V. Paine, 99 Mass. 101. Rand v. Hubbell, 115 Mass. 461. Gifford V. Thompson, 115 Mass. 478. * See the cases in note 4, supra. » Foote, Appellant, 22 Pick. 299. Clapp v. Astor, 2 Edw.'s Ch. 379. Hyatt V. Allen, 56 N. Y. 553. And this has been held although a statute directed an apportionment of income. Granger v. Bassett, 98 Mass. 462. Contra, Earps' Appeal, 28 Pa. St. 368. Ex parte Rutledge, Harp. Eq. 65. On the same principle, income from the public funds could not be appor- tioned. Wilson V. Harman, 2 Ves. Sr. 672. Sherrard v. Sheirard, 3 Atk. § 53 OP THE PASSING OP TITLE. 65 where the price of stock advances in expectation of a divi- dend, and is sold by a trustee before the dividend is declared, the life tenant is not entitled to an allowance on account of the enhanced value of the stock.^ But, of course, a trustee would not be allowed arbitrarily to injure the life tenant in this way for the benefit of the remainder man, — one of his first duties being to deal evenly between them. § 53. Stock can be taken as collateral security for a debt or agreement in any one of four different ways. In the first place, the owner may agree to hold the stock in trust for his creditor, and in this case the latter gets no legal right to the stock at all, but only a claim in equity. Or, secondly, the security may be given by means of a pledge, whereby certain legal rights, sometimes called a special property, pass to the pledgee, whil^ the legal title remains in the pledgor.^ Or, thirdly, by a mortgage, and in this case the legal title passes to the mortgagee, but the mortgagor retains a legal right of defeasance until the time of payment expires, and after- wards an equitable right to redeem until foreclosure.^ Or, in the fourth place, the security may be given by means of an absolute conveyance in trust to satisfy the debt, and to pay 502. Rashleigh v. Master, 3 Bro. Ch. Cas. 99; and see Sargent v. Sargent, 103 Mass. 297. 1 Abercromhie v. Siddle, 3 Md. Ch. 320. 2 Story on Bailments, § 287. Becker v. Wells Flouring Mill Co., 1 Fed. Rep. 276. Newton v. Fay, 10 All. 505, 506. Broadway Bank v. McElrath, 2 Beas. 24. In New York it is held that the legal title to a pledge passes to the pledgee. Wilson v. Little, 2 Comst. 443. Hashrouck V. Vandervoort, 4 Sandf. 74. HHIy. Newichawanick Co., 48 How. Pr. 427. Vail V. Eamilton, 85 N. Y. 453. And see Brewster v. Hartley, 37 Cal. 15. But this is a misuse of language. It loses- sighl of the distinction between a pledge and a mortgage, and seems to defeat the intention of the parties. In Adderly v. Storm, 6 Hill, 624, Bronson, J., says that the transfer of stock as collateral security does not create a pledge, because the legal title passes; nor a mortgage, because the conveyance is not made upon con- dition, and a retransfer is necessary to pass the title back to the debtor. ' Story on Bailments, § 287. Adderly v. Storm, 6 Hill, 624. Hunt- ington v. Mather, 2 Barb. 538. 56 TEANSFEE OP STOCK. § 58 over any surplus to the debtor, who retains in this case noth- ing but an equitable right to the property.^ The intention of the parties determines to which of these four classes any transaction belongs, but a conveyance sufficient to pass the legal title is necessary to create a mortgage or a transfer in trust. Any security must belong to the same class for all purposes. It cannot be a pledge between the parties, and a mortgage as to all the rest of the world ; because any one transaction can have but one nature for all persons ; but either party to the transaction may by his own conduct be estopped to set up the true nature of the security to the injury of any person whom he has misled.^ Stock is given as collateral security in order to secure the creditor from loss, and, subject to this, the debtor usually intends to retain all his rights as a stockholder, and yet the creditor does not intend to rely on a purely equitable right. It is to be presumed, therefore, that a pledge is intended, unless there is some evidence to the con- trary.^ On this principle a delivery of the certificate with a blank power of attorney, as collateral security, will constitute a pledge, and not a mortgage.* And this is probably true of a transfer on the books absolute in form but intended in fact as collateral security ; ° because, although a transfer is abso- lute in form, parol evidence can be introduced in equity to show that it was, in fact, intended only as collateral security .^ 1 Such appears to be the view taken by the court oE the transaction in Beckwiih v. Burrougli, tS R. I. 294. 2 See § 81 el seq. infra. * See Smith v. Quartz Mining Co., 14 Cal. 242, -where a conditional sale is expressly made. * Merchants Bank v. Cook, 4 Pick. 405. Mechanics Building Ass. v. Conover, 1 McCart. 219. Broadway Bank v. McElrath, 2 Beas. 24. Lewis V. Graham, 4 Abb. Pr. 106. * Nabring v. Bank of Mobile, 58 Ala. 204; and see Wilson v. Little, 2 Comst. 443. But see Adderly v. Storm, 6 Hill, 624. Huntington v. Mather, 2 Barb. 538. » Brick V. Brick, 98 U. S. 514. Ginz v. Stumph, 73 Ind. 209. Newton V. Fay, 10 All. 505. McMahon v. Macy, 51 N. Y. 155. And see Burgess § 54 OF THE PASSING- OF TITLE. 57 And even at common law, when a conveyance has been made, it may be shown that no transfer was, in fact, intended at all, and therefore a transaction may be held to be a pledge, although the debtor executes a conveyance suflScient in form to transfer the legal title .^ § 54. In order to understand the nature of a pledge of stock it is important to consider the history of bailments made to insure the performance of an agreement. In early times a pledge seems to have worked as a hostage ; that is, it was effectual because it deprived the pledgor of something that he valued until the agreement on his part was per- formed. A chattel was therefore delivered to the pledgee, and he had a right to retain possession of it until the condi- tions of the pledge were satisfied, but he had no right to sell the pledge or to make it his own. Pledges, however, came to be used more and more to insure the payment of money, and it was perceived, in the case of a debt, that it was more im- portant to the creditor to get payment for his debt than to make the debtor unhappy. The law therefore struck at the root of the matter, and allowed the creditor, upon the de- fault of his debtor, to foreclose the pledge.^ The same prin- ciple was afterwards extended, and the creditor was allowed to sell the pledge, pay his debt, and give back the surplus to the debtor ; and this he is now allowed to do without the aid of judicial process. So that a pledge now works as a secu- rity, and makes the creditor safe by enabling him to pay the debt himself by a sale of the pledge, as soon as the debtor is in default. The same change from hostage to security may be traced even more clearly in the history of mortgages and bonds. In early times a delivery of possession was essential y. Seligman, 107 U. S. 20. BecJier v. WeUs Flouring Mill Co., 1 Fed. Kep. 276. 1 See 1 Greenleaf on Evidence, § 284. 2 See the process of judicial foreclosure described in Glanvil, bk. x. oh. 6, 7, and 8. This was the only remedy the pledgee appears to have had at that time. 58 TBANSFBE OF STOCK. § 55 to a pledge, because otherwise the pledge would have no effect on the pledgor ; but after the pledgee obtained the right to sell the pledge on the default of the pledgor, the latter would probably have been allowed to have possession of the pawn, as he has of real estate which is mortgaged, were it not for the opportunity he would have to defraud innocent pur- chasers and creditors. Delivery of possession is essential to a pledge to-day, therefore, only because it deprives the pledgor of his apparent title to the property. § 55. Stock in a corporation cannot strictly be possessed,^ and the attempt, where stock has been pledged, to find an analogy to the possession of a chattel has produced some cu- rious vagaries. It has been said that a transfer on the books is analogous to a delivery of possession, on the ground that it clothes the pledgee " with all the marks and indications of ownership ; " and it has been held that a pledge is not good against creditors without such a transfer.'* Another court is a little less exacting, but holds that there must be either a transfer on the books, or a power of attorney to make the transfer, " so that the pledgee can take possession of the stock," 3 and the same thing has been required on the ground that the pledgee must have power to get the legal title.* And finally it has been supposed that, inasmuch as stock cannot be possessed, the pledgee must actually receive the legal title ; ^ but such a doctrine ignores the distinction between a pledge and a mortgage, and would seem to violate the inten- tion of the parties.^ Fortunately, this matter is usually simple 1 See Appendix? B. 2 Pinkerton v. Man. §• Law. R. R. Co., 42 N. H. 424. " Plait V. Hawkins, 43 Conn. 139. * See JVisbit v. Macon Bank §• Trust Co., 12 Fed. Rep. 688. 6 See Brewster v. Hartley, 37 Cal. 15. State v. First Nat. Bank of JeffersonvUle, 89 Ind. 302. Wilson v. Little, 2 Comst. 443. Hasbrouck v. Vandervoort, 4 Sand. 74. Hill v. Newichawanick Co., 48 How. Pr. 427. Vail V. Hamilton, 85 N. Y. 453. ° See § 53, supra. § 55 OF THE PASSING OP TITLE. 59 in practice, for it is clear that a pledgee stands in no better position than a purchaser, and if a transfer on the books is necessary to protect the latter from subsequent purchasers or attaching creditors, it is also necessary in order to protect a pledgee.^ If, on the other hand, the corporation is forbidden to transfer without a surrender of the certificate, the provis- ion avails a pledgee, and, if he holds the certificate, he is as safe as if he were an absolute purchaser.^ When there is no provision that stock shall be transferred only on the books, and none which requires a surrender of the old certificate, or where neither of these provisions applies to the case, it seems to be generally assumed that an assignment of the stock with a delivery of the certificate is sufficient to constitute a pledge.^ But if it is necessary to deprive the pledgor of his apparent title to the stock, it may be doubted whether the delivery of a certificate without a transfer on the books is sufficient for this purpose, and if, as is most probable, it is not necessary that the pledgor should give up the, insignia of title, the delivery of a written assignment alone would be enough.* 1 See § 92, infra. 2 Bridgeport Bank v. New York §• New Haven R. R. Co., 30 Conn. 231. . State ex rel. Martin v. New Orleans §• Carrollton R. R. Co., 30 La. Ann. 308. Factors §• Traders Ins. Co. v. Marine Dry Dock Co. , 31 La. Ann. 149. New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 78. Smithy. Am. Coal Co., 7 Lans. 817. Lee v. Citizens Nat. Bank of Piqua, 2 Cin. 298. ' Continental National Bank v. Eliot National Bank, 12 Reporter, 35. New Orleans Banking Ass. v. Wittz, 10 Fed. Rep. 330. Blouin v. Liquidators of Hart, 30 La. Ann. 714. Pilot v. Johnson, 33 La. Ann. 1286. Newberry V. Detroit ^ Lake Sup. Iron Co., 17 Mich. 141. Baldwin v. Canfeld, 26 Minn. 43. Merchants Nat. Bank v. Richards, 6 Mo. App. 454. Broadway Bank v. McElrath, 2 Beas. 24. Mt. Holly Turnpike Co. v. Ferree, 2 C. E. Green, 117. Hunterdon County Bank v. Nassau Bank, 2 C. E. Green, 496. Finney's Appeal, 59 Pa. St. 398. Cornick v. Richards, 3 Lea, 1 ; while State Ins. Co. v. Sax, 2 Tenn. Ch. 507, contra, puts a pledge and a sale upon the same footing. * By the Code of Louisiana the pledgee must be put into possession of some evidence of obligation, and in a case where a certificate had never been issued, it was held that a delivery of a written assignment did not make a pledge. Lallande v. Ingram, 19 La. Ann. 364. 60 TEANSFEE OP STOCK. § 56 § 56. Upon the default of the pledgor the pledgee can file a bill iu equity to have the pledge sold and the proceeds applied to the payment of his debt ; ^ or, after notice to the pledgor, he can sell the pledge himself, retain the amount of his own debt, and costs, and pay the surplus to the pledgor.^ But these remedies are open to the pledgee only after the pledgor is in default, and if the loan is made upon demand or for an indefinite time, a demand for payment must be made before the pledgor can be put in default.^ A sale by the pledgee can be made onlj' after notice to the pledgor,* unless there is an agreement to the contrary.^ Such a sale must be made at public auction ; ^ and it is held in New York that the brokers' board is not a public auction within the meaning of this rule ; "^ but it is doubtful whether this decision would 1 Without fixing his damages by an action at law. Vanpell v. Wood- ward, 2 Sandf. Ch. 143. 2 Story on Bailments, §§ 308-310. Mt. Holly Turnpike Co. v. Ferree, 2 C. E. Green, 117. But he is under no duty to sell, and a failure to do so will not affect his rights against the pledgor, unless he is guilty of actual fraud. Napier v. The Central Georgia Bank, 68 Ga. 637. s Schouler on Bailments, 207. France v. Clark, 22 Ch. D. 830. Nabringv. Bank of Mobile, 58 Ala. 204. Lewis v. Graham, i Abb. Pr. 106. And see Brown v. Ward, 3 Duer, 660. Brass v. Worth, 40 Barb. 59. This is true although notice of sale is expressly waived. Wilson v. Little, 2 Comst. 443. And a custom of broker to sell without demand is bad. Markham v. Jaudon, 41 N. Y. 235. * Story on Bailments, § 310. Schouler on Bailments, 207. Nabring V. Bank of Mobile, 58 Ala. 204. Markham v. Jaudon, 41 N. Y. 235. Brass v. Worth, 40 Barb. 648. Brown v. Ward, 3 Duer, 660. Lewis v. Graham, 4 Abb. Pr. 106. 6 Maryland Fire Ins. Co. v. Dalrymple, 25 Md. 242. Milliken v. Dehon, 27 N. Y. 364. ' Schouler on Bailments, 209. ' Markham v. Jaudon, 41 N. Y. 235. Rankin v. McCullough, 12 Barb. 103. Castello v. Albany City Bank, 1 N. Y. Leg. Obs. 25. That the sale must be made at the Merchants' Exchange, see Brovm v. Ward, 3 Duer, 660. But a special agreement that the sale may be made at the brokers' board does not, of course, authorize any other private sale. Allen v. Dykers, 3 Hill, 593; B. c. 7 Hill, 497. § 67 OF THE PASSING OP TITLE. 61 be followed in other States.^ The pledgee, moreover, is uot allowed to buy the stock at the sale ; and if he does, he will be treated as if he had made no sale at all,^ on the ground that courts will not encourage a practice so liable to abuse. § 57. Except in accordance with these principles a pledgee has no right to transfer a greater interest than he possesses. If he makes a wrongful sale of the stock, he will be liable at once to the pledgor in an action of tort ; '^ and a custom among brokers to sell the stock pledged and return the same number of shares to the pledgor on payment of the debt has been held bad.* It has been held, however, that a pledgee who receives blank assignments of the shares has an implied right to make a transfer on the books of the corporation, and to take out new certificates in his own name, because this is a reasonable measure to insure his own security ; ^ and this is no doubt true, at least unless the pledgee holds the certifi- cates and there is a provision that the corporation shall not transfer the stock until the outstanding certificates are can- celled.^ If the pledgee has a right to treat the stock in this way, a sale on his part is not wrongful, provided he retains in his own name as many shares as have been pledged to him ; '' 1 Maryland Fire Ins. Co. v. Dalrymple, 25 Md. 242. And see Child v. Hugg, 41 Cal. 519. 2 Schouler on Bailments, 209. Freeman v. Harwood, 49 Me. 195. Carroll v. Mullanphy Savings Bank, 8 Mo. App. 249. 8 Ex parte Dennison, 3 Ves. 552; and see Langtomr. Wake, L. K. 6 Eq. 165. It has been assumed that the pledgor can recover without a tender of payment for the debt. Allen v. Dykers, 3 Hill, 593; s. c. 7 Hill, 497. Neiler v. KeUy, 69 Pa. St. 403. Work v. Bennett, 70 Pa. St. 484. * Allen V. Dykers, 3 Hill, 593; s. c. 7 Hill, 497; and see Lawrence v. Maxwell, 53 N. Y. 19. Unless that is the intention of the parties. Barclay v. Calver, 30 Hun, 1. Ogden v Lathrop, 65 N. Y. 158. « Day V. Holmes, 103 Mass. 806. Horton v. Morgan, 19 N. Y. 170; and see Berlin v. Eddy, 33 Mo. 426. But it has been said in Louisiana that a pledgee has no right to put stock into his own name when a pledge by the delivery of the certificates is good against creditors. See Smith v. Crescent City Live Stock Co., 30 La. Ann. 1378. ' See § 121 et seq. infra. ' See § 5, supra. 62 TRANSPEK OP STOCK. § 59 and it has been held that it is no conversion for a pledgee who has power to make a transfer of the stock into his own name, to transfer it to the name of another person — putting it into his name as trustee, or taking back blank assignments, — if the stock remains under the control of the pledgee and the pledgor suffers in fact no injury; provided that it is not the intention of the pledgee to sell the pledge, and that the transfer is really made for fear of injuring his credit, or to protect himself from individual liability-^ § 58. It is very common for a broker to buy stock for his principal, and agree to carry it on a margin, and it is gener- ally presumed in such cases that the parties intend that the title to the stock shaU vest in the principal, subject to a pledge in favor of the broker ; ^ but the law on this question does not appear to be entirely settled.^ § 59. It is sometimes said that the ordinary rules govern- ing the transfer of stock apply only to a going concern ; * but the common law recognizes no difference between a corpora- tion in active operation and one that has ceased to do business.^ The right to transfer, granted expressly or by 1 Day V. Holmes, 103 Mass. 306. Horton v. Morgan, 19 N. Y. 170. And in Heath, v. Griswold, 5 Fed. Rep. 573, the court say that the motive is not important, — that the question is, what the acts of the pledgee amount to. 2 Biddle on Stock Brokers, 378 et seq. Child v. Hugg, 41 Cal. 519. Boylan v. Huguet, 8 Nev. 345. Markham, v. Jaudon, 41 N. Y. 235. Baker V. Drake, 66 N. Y. 518. Gnman v. Smith, 81 N. Y. 25. Capron v. Thompson, 86 N. Y. 418. Brass v. Worth, 40 Barb. 59. 8 In re Daniels, 13 N. B. E. 46. In this case a different view of the transaction was taken, and it was held that the broker must give notice of his debt, on the bankruptcy of his principal ; that he could not wait till the stock had fallen, then sell it, and prove for the balance of his debt. See also Covell v. Loud, 135 Mass. 41, where it was held that the broker might sell without giving notice, if the stock fell below the margin. « AUins's Case, L. R. 16 Eq. 449. 6 See Chappell's Case, L. R. 6 Ch. 902, per Mellish, L. J. The Lords Justices disagreed only on the question whether the company was dis- solved or not. It seems that a transfer of stock may be valid after the § 60 OF THE PASSING OF TITLE. 63 implication in the charter, usually depends only upon the existence of the corporation, and is coextensive with that. So long as the property continues to be stock in a corpora- tion, it is transferable ; subject, however, to this qualification, that the condition of the corporation may be one element in determining whether the transfer is a fraud on the creditors of the corporation.^ But the rights of a member of an un- incorporated association are not transferable ; and, therefore, stock can be transferred only while the concern is a corpora- tion. Now, on dissolution the body ceases to be a corporation, and the stock becomes only a right to a settlement of the affairs of the concern, and to a division of the proceeds. Such a right is a mere chose in action, and is not transferable at law.2 § 60. This is also true before the charter takes effect. The right to subscribe is not transferable at law, because it is not stock in a corporation, and yet an assignment made before incorporation may give the assignee a good right to demand a transfer when the charter has been granted.^ It has been held that a subscriber does not become a stock- holder until payment of the first instalment ; that it is pay- ment and not subscription which makes the stock.'* But winding up has begun even under the Companies Act (1862). Chapman V. Shepherd, L. R. 2 C. P. 228. 1 See § 19i et seq. infra. " Chappell's Case, L. R. 6 Ch. 902, per James, L. J. James v. Wood- ruff, 10 Paige, 541 ; affirmed, 2 Den. 574. In Sewall v. Chamberlain, 16 Gray, 581, where stock had been sold and transferred before disso- lution, it was held that the treasurer might afterwards sign a certiiioate for the purchaser, as this was only the "formal authentication of that which in substance and legal effect had been executed before the disso- lution of the corporation took effect." 8 Baltimore City Ry. Co. v. Sewell, 35 Md. 238. * Coleman v. Spencer, 5 Blackf. 197 ; but it was provided that the stock of this corporation should be forfeited if the first instalment was not paid. In Fox V. Clifton, 6 Bing. 776, it was held that an application for shares, and the payment of the first instalment did not constitute a partner in a joint stock company. 64 TRANSFER OF STOCK. § 60 apart from some special provision of the charter,^ it is not believed that this decision will be followed.^ It is, how- ever, very common to forbid, by statute, the transfer of stock until a certain proportion of the capital, or even the whole, has been paid in ; but courts are not altogether agreed about the meaning of such a provision. It has been held in Maine that it has the effect of annulling a contract to sell made before the required proportion of capital is paid in.^ But it has been said in Massachusetts that the object of the provision is " to prevent speculation in the scrip, and to con- tinue the responsibility of the original subscribers." And it was therefore held that a debtor might substitute for him- self his creditor, who would acquire a right to pay up the subscription, and have a transfer to himself recorded; and that this right was not subject to the claims of the debtor's other creditors.* That is, the court held that the statute was not intended to make contracts for the sale of the stock void, nor to prevent the passing of certain rights, at least, in equity. 1 A deed of copartnership provided that on allotment the name of the allottee should be registered with the numbers of the shares allotted to him; and it was held that the allottee was not a stockholder until the numbers of the shares were entered with his name on the stock list. The Irish Peat Co. v. Phillips, 30 L. J. Q. B. 114. 2 Where a record in the books of the corporation is necessary to com- plete a transfer, there can, of course, be no valid demand for transfer until there are books. M'Courry v. Suydam, 5 Halst. 245. 8 Merrill v. Call, 15 Me. 428. Under the English Joint Stock Com- panies Registration Act, 7 & 8. Vic, ch. 110, the allottee of shares in a company can make no valid contract to transfer his stock before he ex- ecutes the deed of settlement. Ex parte Neilson, 3 De G. M. & G. 556. * Quiner v. Marblehead Ins. Co. , 10 Mass. 476. In a case in New York one man agreed to subscribe for stock and transfer it to another; the court held the former to be merely the agent of the latter. The title thus vested in the principal on subscription, and the law was not broken. Orr V. Bigdow, 14 N. Y. 556. § 62 OF TRANSFER IN EQUITY. 65 CHAPTER III. OF TRANSFER IN EQUITY. § 61. Before proceeding to discuss tlie transfer of stock in equity, it may be well to notice that the practice of putting property in trust has become so common in America, and es- pecially in New England, that an important part of the stock of our corporations is now held by trustees. A rich man often puts the bulk of his property in trust, and appoints his sons the trustees of his will. Under these circumstances it is but natural that the law of trusts should have been, very much relaxed in regard to the kinds of property which a trustee may invest in, and it is possible that we may see further modifications of the law. Such a change is especially prob- able in respect to the power of a trustee to substitute for him- self a temporary agent, or to surrender his powers for a time to a co-trustee, giving him the control of the trust property, or delegating to him a certain amount of discretion. § 62. A trustee is, in general, supposed to hold the par- ticular property he receives for the purpose of managing and protecting it, and of paying over the income to the cestuis que trustent. He is not expected to increase the trust fund, or even to prevent loss by making a change of investments. He has, in general, therefore, no power to sell the trust prop- erty.^ A sale is a breach of trust,^ and a trustee who sells 1 It has been said that he may sell in order to change from illegal to legal investments. See Bohlen's Estate, 75 Pa. St. 304. 2 Harrison v. Harrison, 2 Atk. 121. Duncan v. Jaudon, 15 Wall. 165, 175. Prall V. Tilt, 1 Stew. 479. Gaston v. American Nat. Bank, 2 Stew. 98. Bayard v. Farmers §• Mechanics Bank, 52 Pa. St. 232. And see TRANSFER OF STOCK. § 63 stock can be compelled to replace it.^ This is not true of executors,^ or of guardians, or of trustees appointed for the purpose of sale or liquidation .^ It is the duty of an executor to pay the debts of his testator, and to dispose of the surplus according to the will. He has, therefore, a general power to sell personal property in order to pay debts* A guardian, like a trustee, holds property in order to preserve it, and to allow some one else to enjoy the income. There is, however, this difference in their positions, and it was formerly more marked than it is to-day: a trustee is given only certain property which it is desired to guard in peculiar safety, while a guardian has complete control of all the property of his ward. For this reason it is important that a guardian should have power to change investments ; and, moreover, the ward may need more than the income of the property for his sup- port. A guardian, therefore, has a general power to sell for the benefit of his ward.^ § 63. Although a trustee does not have a power of sale by Lowry v. Commercial Bank, Taney, 310. Jaudon v. Nat. City Bank, 8 Blatch. 430, 438. 1 Earl Powlet v. Herbert, 1 Ves. 297. In this case the trustee was ordered to buy the stock back, and if it had become cheaper, he was ordered to invest the difference in the same way. ^ It is very common in this country to confuse the offices of executor and trustee, and a person often continues to style himself executor when he is really acting as trustee. See Stewart v. Firemen's Ins. Co. 53 Md. 564. Ross V, South Western R. R. Co., 53 Ga. 514. ' E. g., trustees for the benefit of creditors. Bayard v. Farmers §• Mechanics Bank, 52 Pa. St. 232. * Perry on Trusts, § 225. Lewin on Trusts, 7th ed., 431. Duncan v. Jaudon, 15 Wall. 165. Lowry v. Commercial Bank, Taney, 310. Frail v. Tilt, 1 Stew. 479. Oaston v. American Nat. Bank, 2 Stew. 98. Hutchins V. State Bank, 12 Met. 421. Bayard v. Farmers §• Mechanics Bank, 52 Pa. St. 232. Wood's Appeal, 92 Pa. St. 379. And see Jaudon v. Nat. City Bank, 8 Blatch. 430, 438. « Wallace v. Holmes, 9 Blatch. 65. Ellis v. The Proprietors of Essex Merrimack Bridge, 2 Pick. 243. Atkinson y. Atkinson, ?• AW. 15. Field V. Schieffelin, 7 Johns. Ch. 150. Assumed in Lovell v. Minot, 20 Pick. 116. Cf. § 40, supra. But see Perry on Trusts, §§ 605, 606. § 65 OF TEANSPEE IN EQUITY. 67 virtue of his oflSce, there is in most jurisdictions a statutory process by which he can obtain leave to sell from some court, and the trustee is often expressly given a power of sale by the instrument creating the trust. Such a power is some- times absolute, sometimes it is given only for limited purposes, and often it is to be used only upon a condition, such as the assent of the cestui que trust. Any conditions annexed to the power of sale must be strictly observed, because the power to sell is derived only from the provisions of the instrument creating the trust, and exists only upon the terms specified therein. § 64. Every trustee must be careful not to give any one an opportunity to make way with the trust funds. As far as he reasonably can, he must avoid giving control of the trust property to another.^ A trustee, for example, who has power to sell stock must not give to an agent the certificates en- dorsed in blank, or allow him to receive the proceeds of a sale, except so far as such a course is reasonably justified by necessity or by the force of custom.^ A trustee may, how- ever, be authorized to confide the custody of the trust prop- erty to an agent by the instrument creating the trust, and such an authority is implied in the case of a co-trustee, as far as collecting the income is concerned.^ Although a trustee does not warrant the honesty or capacity of any agent that it may be lawful for him to employ, yet he must look carefully after him.* He cannot commit the care of the trust property even to his co-trustee, and then by absence or neglect give him an opportunity to misapply it. § 65. There is another principle of equity which is often 1 Perry on Trusts, § 402 et seq. Lewin on Trusts, 7th ed. 231 et seq. Underbill on Trusts, 112. Godefroi on Trusts, 17. ^ See Speight v. Gaunt, 9 App. Cas. 1. * Lewin on Trusts, 7th ed., 238. * Perry on Trusts, § 418. Lewin on Trusts, 7th ed. 243. Underbill on Trusts, 118. 68 TRANSFER OF STOCK. § 65 confused with the one we have been considering, namely, the principle that a trustee must not delegate the discretion which is confided to him.^ When any discretion is given to a trustee, it is presumed that it is given on account of confi- dence in his judgment ; and he cannot substitute for that the judgment of another. And, more than this, it is laid down that where the judgment of several trustees is relied upon, no one of them can delegate his authority to the others. If the rights of bona fide purchasers are not in question, the delega- tion of discretion is invalid in equity, and an exercise of the 1 Perry on Trusts, § 408; Lewin on Trusts, 7th ed., 235, 236. Under- bill on Trusts, 135. Godefroi on Trusts, 20. This principle, as we have said, is often confused with the last, because an act that violates one usually violates the other also. They are, in fact, very different. The former depends on the fact that the trustee has allowed some one to make way with the trust property, and the remedy is based on the loss of the property. There need be no dele- gation of discretion at all. A trustee may, for instance, direct or arrange a particular sale, and allow payment to be made by check to the order of some one else, who runs off with the money. The latter principle depends on the substitution of the discretion of some one else for that of the trustee, and the injury is based on the fact that the judgment of the agent has been unwise, or that the exercise of the discretion is altogether void. There need be no misappropriation of the trust property. A trustee, for example, is liable if he appoints a general agent to manage the trust who buys and sells foolishly but honestly. The agent need not even have control of the trust property. It is enough if the trustee signs all instru- ments himself, but makes no inquiries. A case clearly illustrating the difference between the two principles is presented when a trustee gives to an agent a general power of attorney and goes abroad. The agent attempts to sell stock, and is told that he, cannot do so under a general power of attorney. He writes abroad and gets a letter from the trustee directing a sale on certain definite terms. In accordance with these directions the transfer is made, and then the agent runs away with the proceeds of the sale. There has been no delegation of discretion, be- cause the |trustee himself prescribed the exact terms of the sale, but the letter had no effect on the control of the trust property by the agent, or on his power to steal it. The trustee has, in fact, appointed an agent, to receive money which he ought to have received himself, and a loss has occurred in consequence. And the fact that the trustee directed the terms of the sale has nothing to do with his liability for this loss. § 66 OP TEANSFER IN EQUITY. 69 delegated power by the agent is void.' This principle does not prevent a trustee from appointing an agent to perform a purely ministerial act,^ because the agent in that case is given no discretion. An agent may be appointed, for example, to sign a particular deed, or to endorse a particular certificate of stock. A trustee may perhaps be justified by custom in delegating some slight discretion to an agent, and, of course, he may be authorized to do so by the instrument creating the trust. But the appointment of two trustees does not author- ize one of them to delegate his discretion to the other, because it is to be presumed that the object in appointing two trustees is to obtain the judgment of both. § 66. Fi'om the fact that the legal title to stock can be transferred, it follows that a hona fide purchaser for value takes stock clear of equities,^ if he gets the legal title to it.* But if any one receives and holds trust property without giving value for it, he is bound to restore it ; for, when he is notified, equity fastens a trust upon him, even if he had no notice at the time he received the property. And any one who buys trust property after notice that the sale is a breach of trust, takes the property subject to the trust, although he has paid value for it. A person who is a party to a breach of trust may be liable although he never has the legal title to ' Perry on Trusts, § 408. Lewin on Trusts, 7th ed., 235, 236. Under- bill on Trusts, 135. Godefroi on Trusts, 20. It is necessary only that the trustee should exercise his discretion in the matter, and this he may do by ratifying the act of the agent, and a receipt of the proceeds of a sale by the trustee has been held a sufficient ratification. Lake Shore §• Michigan Southern R. R. Co. v. Hutchins, 37 Ohio St. 282. In Bohlen's Estate, 75 Pa. St. 304, it was said that the trustee might have ratified; but it is hard to see how the trustee could have ratified the act of ^e agent after the purchase money had been stolen. 2 Perry on Trusts, § 409. Lewin on Trusts, 7th ed., 286. Underbill on Tnists, 135. BoMen's Estate, 75 Pa. St. 304, 317. » Briggs v. Massey, 42 L. T. 49. And this is, of course, equally true of a pledgee. Leitch v. Wells, 48 N. Y. 585. * Shropshire Rys. Co. v. The Queen, L. R. 7 H. L. 496; and see §§ 96, 99, infra. 70 TRANSFER OF STOCK. § 67 the property, for it would seem that any one who assists a trus- tee to commit a breach of trust, after notice that it is a breach of trust, is a wrongdoer, aud should be liable to the cestui que trust for the injury he has helped to cause.^ And this principle has been applied in cases where the trustee has no power to transfer the legal title without the concur- rence of a certain person, who assists in making the transfer after notice that it is a breach of trust.^ In order to render the parties to a transfer liable in equity, it is' not necessary that the seller should hold the property under an express trust, or even that he should have the legal title to the prop- erty at all. It is enough if he has a legal power to sell, and intends to use it in such a way as to violate the equitable rights of others. § 67. The ordinary principles of notice apply, to transfers of stock, but constructive notice, that is, notice conclusively presumed from the existence of certain facts, has little appli- cation to stock. A principal is, of course, bound by the knowledge of his agent ; but it has been held that the doc- trine of notice by lis pendens, does not apply to a transfer of stock,^ and these decisions will without doubt be generally followed in America. The kind of notice we have called constructive is founded on public policy, rather than on the actual fault of the person to whom it is imputed ; for it binds him to find out at his peril facts that he may have been ab- solutely unable to discover, and holds him liable when his acts would be innocent but for the existence of circumstances that no amount of care on his part would have revealed. All other notice depends either upon actual knowledge of the rights violated, or on the fact that it is the fault of the per- 1 Bayard v. Farmers Bank, 52 Pa. St. 232. 2 Jaudon v. Nat. City Bank, 8 Blatch. 430, 438. Bayard v. Farmers Bank, 52 Pa. St. 232. And see §§ 100, 152, infra. 8 Leitch V. Wells, 48 N. Y. 585, per Earl, C, at p. 613. Holhrook v. New Jersey Zinc Co. 57 ST. Y. 616. And see Dovey's Appeal, 97 Pa. St. 153. § 68 OB" TEANSFEK m EQUITY. 71 son charged if he has no knowledge of them.^ In the last case the principle may be stated in this way : If there are circumstances that would arouse the suspicion of a reasonable man, inquiry must be made until a reasonable man would be satisfied; and if inquiry be not made, the person charged cannot take advantage of his own wrong, but is held to have notice of everything that a proper inquiry would have re- vealed.2 Whether such a state of facts exists or not, is a ques- tion which depends upon the circumstances of each case, but courts have established certain general presumptions in the case of transfers of stock, and it is with these presumptions that we are chiefly concerned. § 68. We shall consider, first, what will give notice that a person seeking to transfer stock holds it in trust ; and second, what will give notice that a breach of trust is in- tended. The books of a corporation are not constructive notice, like a registry of deeds, and, therefore, the purchaser of stock has no notice of recorded transfers unless he has actual knowledge of them.* And it wUl, no doubt, be held 1 It is really on this ground, and not on the other, that one having knowledge of a written instrument is presumed to have knowledge of its contents ; for notice of an instrument for one purpose is not notice of its contents for another purpose in a subsequent and separate transaction. Briggs v. Massey, 42 L. T. 49. 2 This is by some authorities considered too much to require, and it is often said that to be chargeable with notice one must be guilty of bad faith or gross negligence. The rule given in the text is more in accord- ance with the standards of duty usually fixed by the law. Equity does not, perhaps, intend to require a very great degree of diligence from persons buying property. But in dealings where his neighbors' rights are concerned, the law usually requires that a man shall use such care as the average man can be expected to give to such matters. For this purpose the expressions average, ordinary, prudent, or reasonable man have the same meaning. For a description of this personage, see Holmes on the Common Law, 108 ei seq. " Lowry v. Commercial Bank, Taney, 310. Salisbury Mills v. Townsend, 109 Mass. 115. Strangev. Houslonand Texas Central R. R. Co., 53 Tex. 162. But see Ross v. South Western R. R. Co., 53 Ga. 514, 531. 72 TKANSPER OF STOCK. § 69 that the purchaser has not constructive notice of statements in the certificate of his vendor,^ at least when he receives a certificate in his own name,^ or in the name of an agent of the vendor.2 It is clear, for example, that a person who buys stock from a broker has no cause for suspicion from the fact that the certificate of the seller is withheld, because it is the custom of brokers not to tell the names of their principals, — and the custom is a highly proper one. § 69. When the purchaser sees the certificate of his vendor, and it contains a statement that the stock is held upon trust, the purchaser has, of course, notice of that trust. But it has been doubted whether the certificate is notice of a trust, if it merely contains the name of the owner, followed by the word " trustee," " executor," " guardian," or other expression de- noting a fiduciary capacity.* There is no doubt that it is enough if the names of the beneficiaries are added.^ And it would be enough if the trust were in any other way de- scribed, — by stating, for example, that the owner is trustee under the will of J. S., or by declaring that he holds the stock in trust to maintain a library at Dale. It would seem, 1 Absence of the certificate has been held rot to be notice that the vendor had previously sold the stock. Baker v. Wasson, 53 Tex. 150. But if the purchaser receives the certificate of his vendor he has notice of its contents. JLoring v. Brodie, 134 Mass. 453. ^ Lowryy- Commercial Bank, Taney, 310; but see, contra. Nutting v. Thomason, 46 Ga. 34. * Assumed in Pratt v. Taunton Copper Co., 128 Mass. 110. * That it is enough, see Sturtevant v. Jaques, 14 All. 523. Shaw v. Spencer, 100 Mass. 382. Gaston v. American Bank, 2 Stew. 98. Walsh V. Stille, 2 Pars. Eq. Cas. 17. Contra, see Brewster v. Sime, 42 Cal. 139. Thompson v. Toland, 48 Cal. 99. Albert v. Baltimore Savings Bank, 2 Md. 159 ; s. c. 1 Md. Ch. 407. The mere fact that the stock stands in the names of two persons is not enough to put the purchaser on inquiry. Dodds V. Hills, 2 H. & M. 424. s Duncan v. Jaudon, 15 Wall. 165. Loring v. Salisbury Mills, 125 Mass. 188. Bayard v. Farmers §• Mechanics Bank, 52 Pa. St. 232. Sim- ons V. South Western Railroad Bank, 5 Rich. Eq. 270. Magwood v. Rail- road Bank, 5 S. C. 379. And see Jaudon v. Nai. City Bank, 8 Blatch. 430. Reeder v. Barr, 4 Ohio, 447. § 70 OF TEANSFBE IN EQUITY. 73 however, that the use of the word " trustee " alone ought to be enough to put a purchaser on inquirj^ because, by its use, the certificate expressly declares that the person named holds the stock as trustee; and it is certainly very odd to decide that this is not enough to cause a reasonable man to suspect that the stock is held subject to a trust. A statement of the nature of the trust, or of the names of the beneficiaries would affect the character and extent of the inquiry to be made, but the use of the word " trustee " alone gives the purchaser full notice that there is a trust of some sort, al- though no definite statement of the nature of the trust is added. It is common to issue certificates and insert the word " trustee " where no trust exists in reality, but it has been held that such a practice cannot destroy the effect of the notice.^ And it has also been decided very properly that no usage to treat such certificates as negotiable instruments, and to buy and sell them without inquiry, will justify a dis- regard of the notice contained in them.^ § 70. Notice that the vendor of stock holds it in trust is not always notice that the intended sale is a breach of trust ; but assuming in any case notice that the vendor holds the stock in a fiduciary capacity, the next question is, what is the effect of such notice and what inquiry is necessary ? A trustee has, in general, no power to sell trust property, and therefore, notice that one is a trustee is notice that he has no power to sell, and thus, unless a sale is specially authorized, it is a breach of trust.^ But a guardian has a general power 1 "No one is at liberty to disregard such notice and to abstain from inquiry for the reason that a trust is frequently simulated or pretended when it really does not exist." Shaw v. Spencer, 100 Mass. 382, 393. 2 "A usage to disregard one's legal duty, to be ignorant of a rule of law, and to act as if it did not exist, can have no standing in the courts. Jh. 394. * Harrison v. Harrison, 2 Atk. 121. Duncan v. Jaudon, 15 Wall. 165. Loring v. Salisbury Mills, 125 Mass. 138. Prall v. Tilt, 1 Stew. 479. Bayard v. Farmers Sf Mechanics Bank, 52 Pa. St. 232. Bohlen's Estate, 75 Pa. St. 804, 813. 74 TRANSFER OP STOCK. § 70 to sell for the benefit of his ward,^ and an executor or admin* istrator, in order to pay the debt of the deceased.^ Now it is not reasonable to expect a purchaser of stock from an executor or administrator to find out if there are any debts unpaid ; or a purchaser from a guardian, to decide whether or not the ward needs the money for his support, or whether it is proper for the guardian to make a change of investments. On the contrary, it is but reasonable for a person who buys stock from an executor, administrator,^ or guardian,* to assume that the sale is honestly made, and is justified by the circum- stances of the case ; for these sales are made fi"equently, and in the great majority of cases are perfectly proper. This is also true of a purchase from a trustee who has a general power of sale, either implied from the nature of his trust or expressly given by the instrument under which he holds the property.^ Any one, therefore, unless he has reason to sus- pect something wrong, may safely buy stock from a person who holds it in a fiduciary character, but who, by virtue of 1 Ellis V. Proprietors of Essex Merrimack Bridge, 2 Pick. 243. And see Atkinson v. Atkinson, 8 All. 15. Field v. Schieffelin, 7 Johns. Ch. 150. Assumed in Lovell v. Minot, 20 Pick. 116 ; and in Wallace v. Holmes, 9 Blatch. 65. It was held that a statute giving power to the Probate Court to authorize a guardian to sell did not deprive him at all of his power to sell at common law. ' Periy on Trusts, § 225. Lewin on Trusts, 7th ed., 431. Duncan v. Jaudon, 15 Wall. 165. HutcJiins v. State Bank, 12 Met. 421. Prall v. Tilt, 1 Stew. 479. Bayard v. Farmers §• Mechanics Bank, 52 Pa. St. 232. Wood's Appeal, 92 Pa. St. 379. This power extends even to prop- erty specially bequeathed. Lowry v. Commercial Bank, Taney, 310. And see English cases collected in § 151, infra. 8 Perry on Trusts, § 225. Lewin on Trusts, 7th ed., 431. Duncan y. Jaudon, 15 Wall. 165, 175. Lowry v. Commercial Bank, Taney, 310. Hutchins v. State Bank, 12 Met. 421. Bayard v. Farmers §• Mechanics Bank, 52 Pa. St. 232. Wood's Appeal, 92 Pa. St. 379. * Ellis v. Proprietors of Essex Merrimack Bridge, 2 Pick. 243. Field v. Schieffelin, 7 Johns. Ch. 150. And see Ashton v. Atlantic Bank, 3 AH. 217. Atkinson v. Atkinson, 8 All. 15. 6 Perry on Trusts, §§ 225, 814. And see Lewin on Trusts, 7th ed., 417. Godefroi on Trusts, 125-127. § 72 OF TBANSPEK IN EQUITY. 75 his office, or of a special authority, has a general power to sell. § 71. It often happens that the purchaser of stock thinks that the seller has a general power to sell, when in fact he has not. And in these cases the question is whether the pur- chaser was reasonably justified in believing that the seller had such a power. This question is well illustrated by two examples : first, where the power of an executor to sell is restricted by statute ; and, second, where it is restricted by the will under which he acts. The statute affects the general law, which every one is presumed to know,^ and, although the statute is not intended to affect the legal title,^ yet in equity it restricts the power of the executor to sell. Every one, therefore, who deals with an executor is held to know the statutory restrictions upon his power to sell the stock.3 But this presumption does not apply to a restriction made by the will, and it is so uncommon for a testator to deprive his executor of the general power to sell any prop- erty, that it is but reasonable for a purchaser to rely on the common-law power of sale, unless he has some special reason to suppose that it is restricted by the will.* § 72. A trustee,* on the other hand, has no general power to sell, unless it is specially given to him ; and a purchaser 1 Weyer v. Second Nat. Bank of Franklin, 57 Ind. 198. ^ A purchaser who had no notice that the seller held the stock as exec- utor, would, no doubt, get a good title in spite of such a statute. See Nutting V. TJiomason, 46 Ga. 34. Atkinson v. Atkinson, 8 All. 15. 3 Perry on Trusts, § 225. South Western B. R. Co. v. Thomason, 40 Ga. 408. Nutting v. Thomason, 46 Ga. 34. Weyer v. Second Nat. Bank of Franklin, 57 Ind. 198. * Perry on Trusts, § 225. Lewin on Trusts, 7th ed., 431. And see Duncan v. Jaudon, 15 Wall. 165. LowryY. Commercial Bank, Taney, 310. HutcUns V. State Bank, 12 Met. 421. Prall v. Tilt, 1 Stew. 479. Bayard V. Farmers §• Mechanics Bank, 52 Pa. St. 282. The testator has not, of course, power to forbid a sale for the payment of debts, but he may pre- fer one piece of property to another. ^ This does not, of course, include trustees for the benefit of creditors, or others, who are appointed for the purpose of sale. 76 TEANSFEK OP STOCK. § 72 from a trustee cannot rely on any general power of sale, unless it is reasonable for him to believe that it is specially given by the terms of the trust. It is necessary, therefore, that the purchaser should be reasonably satisfied what the terms of the trust are. This, at times, is not a very simple matter. It often happens that nothing is known of the trust except from the word " trustee " in the certificate, and in such a case it would be wise, if not necessary, to inquire of the corporation about the trust ; ^ but if no light can be obtained from the corporation, the only means of information is the trustee himself. His account of the matter may be accepted, if on the whole it would be satisfactory to a rea- sonable man. Whether it would be satisfactory or not de- pends upon all the circumstances of the case, — such as the character of the man, and the nature of the trust which he admits. He is more readily to be believed, for example, if he exhibits a valid instrument, and declares that he holds the property under that, than if he denies that there is any trust at all, and insists that the word " trustee " was put into the certificate by mistake, or in order to defraud his creditors. If the name of the cestui que trust is contained in the certifi- cate, or is discovered in any other way, it would be at least prudent, if not absolutely necessary, to inquire of him about the trust.^ And if the purchaser knows that the trust is created by a certain instrument, it is necessary for him to find that instrument ; for it is well settled in equity that a man has notice of the contents of an instrument known to affect the title.^ This is the meaning of the expression so com- monly used, that " notice that a person is trustee is notice of the will under which he acts," * and the saying is true when- 1 WalsT^ V. Stale, 2 Pars. Eq. Cas. 17. 2 See Jandon v. Nat. City Bank, 8 Blatch. 430, 437, 438. ' See Loringr. Salisbury Mills, 125 Mass. 138; and see § 67, note 1, supra. i Itowry V. Commercial Bank, Taney, 810. Ross v. South Western R. R, § 74 OP TEANSFEE IN EQUITY. 77 ever there is notice that the trustee acts under a will at all. If, therefore, it is known that the trustee holds under an existing written instrument, no secondary evidence of its contents should be taken, and it is unsafe to act except after seeing the instrument itself.^ § 73. The fact that an executor has a general power to sell, which a trustee has not, makes a great difPerenoe in the position of the purchaser. But the executor has this power only while he is really acting as executor. Now, it is very common in this country to confuse the office of executor with that of trustee,^ — partly because equity jurisdiction has existed to its full extent only for a short time in some States, and partly on account of the common practice of appointing the same per- sons executors and trustees. The result is that the same person often performs the duties of executor and trustee at the same time ; and sometimes he does not close up the accounts of the estate after it is all administered, but con- tinues to style himself executor, although he is managing the property really as trustee. It is not safe, therefore, to treat every one as an executor because he calls himself by that title, and although a signature as executor cannot be notice that the seller is acting in any other capacity, yet it may sometimes be evident from the length of time since the death of the testator, or other circumstances, that he is in fact acting as trustee. And where the purchaser knows that he is buying from a trustee, he is not relieved from responsibility because the trustee styles himself executor. § 74. If the purchaser has notice of the terms of the trust, Co., 53 Ga. 514, 531. And see Stewart v. Firemen's Ins. Co., 53 Md. 564. Presbyterian Congregation v. Carlisle Bank, 5 Pa. St. 345. 1 Except of course that the official copy at the registry of deeds or of probate is a sufficient substitute. 2 For cases in which a person really acting as trustee styled himself executor, see Lowry r. Commercial Bank, Taney, 310. Boss v. South Western R. R. Co., 53 Ga. 514. Stewart v. Firemen's Ins. Co., 53 Md. 564. 78 TBANSFEE OP STOCK. § 75 and there are any conditions attached to the power to sell, he has, of course, notice of these, and he must be reasonably satisfied that they have been complied with ; for if they have not, he has notice that the sale is a breach of trust. If the trustee, has, for example, power to sell only with the consent of a cestui que trust, the purchaser must be satisfied that the consent has been obtained.^ § 75. We have said that any one who buys stock from a person who has a general power to sell may presume that the sale is honestly and properly made, unless he knows facts which would arouse the suspicions of a reasonable man. What will be enough to raise such suspicions is a matter that has not yet been reduced to any general rules. In the case of an executor, a great length of time since the death of the testa- tor may be enough to cause a doubt whether the sale is made in order to pay debts.^ And when a statute, without compel- ling executors to get permission to sell from the court, allowed them to do so, and it was customary for executors to follow the statute, it was held that a sale without such a permission was suspicious.^ Although both an executor and a trustee who has authority to sell, have power to borrow money when it is necessary, and a bona fide pledgee from either will get a good title,* yet a pledge by a trustee or an executor is so much less common than a sale, and is so much more likely to be used as a means of fraud, that it would seem to be in- cumbent on a pledgee to look at the transaction with more care than is required of a purchaser.^ And if the pledgee 1 Loring v. Salisbury Mills, 125 Mass. 138. 2 Lowryv. Commercial Bank, Taney, 310. Stewart v. Firemen's Ins. Co., 53 Md. 564. But where there is no statute of limitations for proving debts, the time may be very long. See Lewin on Trusts, 7th ed., 435. 8 Lowry v. Commercial Bank, Taney, 310. * Goodwin V. American Nat. Bank, 48 Conn. 550. But a power to sell does not necessarily imply a power to pledge. Loring v. Brodie, 134 Mass. 453. ^ See Jaudon v. Nat. City Bank, 8 Blatch. 430. It has, however, been § 77 OP TBANSFER IN EQUITY. 79 knows that the pledge is given to secure a private debt of the trustee, he knows, of course, that the pledge is a breach of trust.' § 76. A purchaser from a trustee who has power to sell is liable, if he has cause to suspect that the sale is dishonestly- made, or that the trustee is unlawfully delegating the discre- tion confided to him. The liability in the second case arises from the fact that when a trustee unlawfully delegates his discretion to an agent, the exercise of the discretion by an agent is void in equity, so that a sale by the agent is treated as if entirely unauthorized by the trustee, as far as the cestui que trust is concerned. The fact that the certificate of stock is indorsed by an attorney is not perhaps enough to give notice of such a breach of trust, because his authority may be purely ministerial, or it may be that the agent is acting strictly under the directions of the trustee and has no discre- tion at all. But if the agent exhibits a general power of attorney, this would undoubtedly be held notice that the trustee is not using his own discretion, but has surrendered to the agent the whole management pf the trust property.^ § 77. Closelj' allied to the duty of a purchaser to avoid assisting in a sale when it is a breach of trust, is his duty to see to the application of the purchase money. This is a matr ter of less importance in America than it is in England, on account of our practice of giving the trustee a general power to sell ; for it is settled, not only that a. purchaser is excused from seeing to the application of the purchase money when it is provided that the receipt of the trustee shall be enough, but also that a purchaser cannot be expected to see to the applica- held that the fact of depositing the money loaned in a bank in the exec- utor's own name, is not notice that the loan was made for his private use. Goodwin V. American Nat. Bank, 48 Conn. 550. 1 Duncan v. Jaudon, 15 Wall. 165. ProK v. Hamil, 1 Stew. 66. Shaw V. Spencer, 100 Mass. 382. 2 BoUen's Estate, 75 Pa. St. 204. 80 TEANSPEE OF STOCK. § 77 tion of money to general and indefinite purposes, such as the payment of debts, or to future and discretionary matters, such as the reinvestment of the trust funds.^ If the power of sale, however, is given only for a specific purpose, to pay off a cer- tain mortgage, for example, it is possible that the purchaser might be obliged to see to the application of the purchase money, or at least to satisfy himself reasonably that the money was to be correctly applied.^ And there can be little doubt that if the purchaser knows that he is paying the pur- chase rnoney to an improperly authorized agent, or to any agent whom the trustee does not or cannot watch, he will be liable for any loss that may occur through the misconduct of that agent. A purchaser is often put in this position when a trustee goes abroad, and leaves the trust property, with a power of attorney to sell it, in the hands of an agent or of his co-trustee. In such cases it is clearly impossible for the trustee to keep up a proper supervision of his agent, and if the purchaser, knowing these facts, pays the purchase money to the agent, who runs off with it, the purchaser ought to be held liable to the cestui que trust for the loss. The fact that the certificate of stock is indorsed by an attorney for the trustee is not, perhaps, enough to give notice that the trustee has unlawfully given to the attorney the control of the trust property, but it would be wise in such cases to pay directly to the trustee, if possible.^ If the attorney, when asked for his power, exhibits a general power of attorney, this would undoubtedly be a sufficient notice that the trustee does not intend to receive the purchase money in person,* and the pur- chaser in paying would take the risk of the honesty of the agent. Unless, indeed, the trustee has given special direc- 1 Lewin on Trusts, 7th ed., 412 et seq. Perry on Trusts, § 794 et seg. Godefroi on Trusts, 125, 126. ^ Lewin on Trusts, 7th ed., 413. Perry on Trusts, § 796. 8 A check should in any case be drawn payable to the order of the trus- tee, and not of the agent. * Conf. Bohlen's Estate, 75 Pa. St. 304. § 79 OF TEANSFEE IN EQUITY. 81 tions for reinvestment, for if so, the purchaser may avoid all liability by seeing that the new investment is made, and properly secured by the evidences thereof being put in the name of the trustee. § 78. Notice is commonly said to be effectual if given either before the payment of the purchase money, or before the passing of the title. But where there is a provision that transfers can be made only on the books of the corporation, and this provision is so construed that the legal title does not pass until the transfer is made upon the books, it is probable that the delivery of a certificate with a power of attorney to transfer, giving as it does a power at law to transfer the legal title, is enough to protect the purchaser, although he receives notice of the trust before the transfer is actually made upon the books.^ § 79. Notice of a trust which affects stock is, in general, obtained only by means of the certificate, and it is of great importance that certificates should not be so issued as to mislead purchasers. The certificate should not state that the owner holds the stock as trustee unless it is true, and if there is a real trust the certificate should contain such a reference to it that it can readily be identified, and its terms easily discovered. The common practice of issuing certifi- cates, and inserting the word " trustee " after the name of the owner, puts upon the purchaser and the corporation an unnecessary burden, and lays them open to an indefinite future liability. The difficulty of investigating a trust de- scribed in this way is so great that many purchasers and cor- porations are likely to prefer the risk of loss to the labor of hunting up the trust, and thereby the interests of the cestui que trust are imperilled, while the corporation may find itself involved in a liability which a little care at the right time would have entirely prevented. 1 See a discussion of the matter in § 99, infra. 82 TBANSPER OP STOCK. § 80 CHAPTER IV. OP TEANSPEE ON THE BOOKS. § 80. EvEEY corporation must, of course, keep lists of its stockholders, and records of the transfers of its stock, and these are admissible in evidence to prove who the stockholders are, because the entries are made in the course of business. The books of the corporation afford, therefore, prima facie evidence in all cases in which the title to stock is called in question.^ But they are not conclusive, and give, in general, prima facie evidence only, which maybe rebutted by showing the real state of the title.^ Apart from statute or some special regulation made by the corporation, a record of the transfer on the books of the corporation is not necessary to pass the title, complete both at law and in equity, and valid for all purposes.^ It has, however, been suggested that stock 1 Regina v. NasTi, 2 Den. C. C. 493. Hoagland v. Bell, 36 Barb. 57. Hoppin V. Buffum, 9 R. I. 513. Pittsburg, Wheel. §• Ken. R. R. Co. v. Applegate, 21 W. Va. 172. Provincial Ins. Co. v. Shaw, 19 U. C. Q. B. 533. The register is expressly made evidence by statute in England, and there is a good deal of law on the question, what is a proper register. See Lindley on Partnership, bk. i. ch. 5, § 1, (6), 1. It is said in England that the register is not evidence unless made so by statute Lindley, ut supra, § 2. Hare v. Waring, 3 M. & W. 362. 2 Lindley on Partnership, bk. i. ch. 5, § 1, 5, 6, collects the English cases. ' People v. Devin, 17 111. 84. Pitot v. Johnson, 33 La. Ann. 1286. Bonton Music Hall v. Cory, 129 Mass. 435. Cornicky. Richards, 3 Lea, 1. Crawford v. Provincial Ins. Co., 8 U. C. C. P. 263. And see Northrop v. Newtown Turnpike Co., 3 Conn. 544. Stehbins v. Phoenix Ins. Co., 3 Paige, 35Q, 361. Scott v. Pequonnock Nat. Bank, 15 Fed. Rep. 494. In New Jersey it is provided that the books shall be the only evidence of the right to vote, and that no one shall be elected a director who is not a bona fide stockholder. But in the case of In re Election of St. Laiorence Sieom-. § 81 OF TRANSFER ON THE BOOKS. 83 is a chose in action and that notice to the corporation is therefore necessary to prevent a subsequent purchaser or a creditor from getting a better title than the first vendee.^ But stock differs from a chose in action, in that it is trans- ferable at law; and the doctrine that the first person who gives notice of the assignment of a chose in action to the debtor acquires the best right thereto, is purely a doctrine of equity, and cannot apply to cases where the legal title is transferred. § 81. Although the books of the corporation are not conclusive evidence of title, yet they declare that the persons whose names appear in them, do, in fact, own stock as therein stated. Any one, therefore, who makes such a statement, by causing a record to be made in the books of the corporation, may be estopped to deny that the statement is true, if the denial would injure a person who has been misled by the record in the books. A false repre- sentation of this kind is made by any one who allows his name to be entered on the books for stock that does not belong to boat Co., 15 Vroom, 529, the court say that a person " may be a bonajide holder of stock " although the transfer to him has not been entered on the books. In the case of The Bank of Commerce's Appeal, 73 Pa. St. 59, the court said obiter that only an equitable title passed before transfer on the books, and that when the corporation performs a corporate duty, its own record is all it needs to consult. In this ease, however, there was a transfer rule made by the articles of association, although the court do not refer to it in the opinion. 1 On this ground it has been held in Tennessee that a transfer on the books is not necessary to secure stock from attachment. State Ins. Co. v. Genneit, 2 Tenn. Ch. 100. But that notice to the corporation is necessary. State Ins. Co. v. Sax, 2 Tenn. Ch. 507. It had been held earlier in the same State, however, that the doctrine about the assignment of a chose in action did not apply to stock. Cornich v. Richards, 3 Lea, 1. The case of Martin v. Sedgvnck, 9 Beav. 333, is not in point on this matter, because the legal title was outstanding, and the parties intended to transfer only a right in equity. But the doctrine of choses in action may perhaps apply to joint stock companies. Burns v. Lawrie's Trustees, 2 Dunlop, 1348. Thomson v. FuUarton, 5 Dunlop, 379. 84 TRANSFER OF STOCK. § 82 him, or by one who causes another person to be recorded as the owner of stock which belongs, in fact, to himself. In these cases the entry on the books has no effect on the actual passing of the legal title, but on account of the misconduct of the person who makes the false record, an estoppel arises in favor of the injured party, who may avail himself of it or not at his option. The party injured is not bound by the statements in the books, but he has a right to insist that the persons who caused the entries to be made shall not be heard to say that they are wrong. It is, of course, essential that the false entry should have been made with the consent of the person against whom the estoppel avails, for it is clear that an entry on the books can create no rights against a person who never knew that the entry was made.^ § 82. The subject of estoppel by false statements in the books of the corporation may for convenience be divided into three parts, according to the classes of persons who get the benefit of the estoppel. These classes are : first, the creditors of the corporation ; second, persons who deal directly with the stockholders individually ; and third, the corporation itself. The creditors of the corporation may have the benefit of an estoppel against a person who permits his name to be entered on the books for stock which does not belong to him,^ 1 Birch's Case, 2 De G. & J. 10. Fox's Case, 3 De G. J. & S. 465. Bullock V. Chapman, 2 De G. & S. 211. Higg's Case, 2 H. & M. 657. Somerville's Case, L. R. 6 Gh. 266. In re Reciprocity Bank, 22 N. Y. 9, 17. 2 Barrett's Case, 4 De G. J. & S. 416. Wakefield v. Fargo, 90 N. Y. 213. See also Straffon's Case, 1 De G. M. & G. 576. Gower's Case, L. K. 6 Eq. 77. Dane v. Young, 61 Me. 160, 169. In re Reciprocity Bank, 22 N. Y. 9, 17. Graff v. Pittsburg §• Steubenville R. R. Co., 81 Pa. St. 489. McHose v. Wheeler, 45 Pa. St. 32. Appeal of Miller, 1 Pa. Sup. Ct. 120. In Harward's Case, L. R. 13 Eq. 30, a man held himself out to the public as a director, and he was held liable to creditors on the minimum number of shares required to qualify a director; and see Hays V. Pittsburg §• Steubenville R. R. Co., 38 Pa. St. 81. In Griswold v. Selig- man, 72 Mo. 110, the court rest the estoppel chiefly on the fact that the defendant voted on the stock. See also Fisher v. Seligman, 75 Mo. 13. § 83 OP TEANSFBB ON THE BOOKS. 86 or allows his name to remain on the books after he has sold the stock.^ The fact that the person whose name appears on the books has given notice to the corporation that he is not the owner of the stock is of no consequence,^ because the claim of the creditors does not arise from any right of the corporation, but from the misconduct of the defendant in misleading them. It appears to be unnecessary for the cred- itors to prove that they have actually relied upon the books of the corporation, inasmuch as this would be very difficult, and would make the remedy of the creditors un- certain ; there is a conclusive presumption of law that the creditors have contracted their debts on the faith of the stock lists of the corporation.^ § 83. It must be upon this principle of estoppel that a pledgee of stock, who has been entered in the books of the These cases were denied in Burgess v. Seligman, 107 U. S. 20. In that case, however, the stock did not stand in the name of the defendant absolutely; and see late case of Anderson v. Phila. Warehouse Co., Ill U. S. 479. In McMahon v. Macy, 51 N. Y. 155, the question of estoppel was not suggested; and the case of Matthews v. Albert, 24 Md. 527, is not in point, because the rights of the creditors of the eoi-poration were not involved. The question arose among the stockholders themselves, and the corporation knew that the person in whose name the stock stood was not the absolute owner.. See the comments on the last three cases in § 204, infra. It has been held in England that the mere insertion of one's name on the list of subscribers to a company does not amount to such a holding out as to render a man liable to the creditors of the company. Fox V. Clifton, 6 Bing. 776. In Ness v. Angas, 3 Ex. 805, the court say that although an estoppel might avail at common law it will not help out the statutory remedy; and see Ness v. Armstrong, 4 Ex. 21. Moss v. Steam Gondola Co., 17 C. B. 180. Bailey v. The Universal Provident Life Ass., 1 C. B. N. S. 557. 1 Fowler v. Ludwig, 34 Me. 455. No reference is made by the court in this case to any special regulation governing the corporation. 2 Price Sf Brown's Case, 3 De G. & S. 146. This does not apply when the name is only put into the lists of contributories after the winding up has begun. Shewell's Case, L. R. 2 Ch. 387; but this case is also distin- guishable on other grounds. 8 Magruder v. Colston, 44 Md. 349. Fisher v. Seligman, 75 Mo. 13. This seems to be assumed, indeed, in all the eases. 86 TKANSFBB OP STOCK. § 83 corporation as the absolute owner is individually liable.^ The interest of the pledgee in the stock, if the transaction is, in fact, a pledge and not a mortgage, has nothing to do with the liabiUty, and it is frequently said that the private rela- tions of the pledgor and pledgee are of no consequence. This is evident from the fact that the liability of the pledgee remains, although, by a payment of the debt and a return of the certificates with a power of attorney to transfer, his interest has ceased ; ^ and from the fact that if an entry on the books is made in the name of another person to hold for the pledgee the latter is not liable.^ But this matter is in a state of great confusion, because it is not the custom of corporations to make any record of a pledge, as such, and if the pledgee wants the pledge recorded at all, he is usually obliged to take a transfer on the books absolute in form.* It is often said by the courts that a pledgee who takes a transfer on the books of the corporation has the legal title ; but if so, the transaction is no longer a pledge but a mortgage, and yet it is held in suits between the parties to the security that it ' See Price §■ Brown's Case, 3 De G. & S. 146. Pullman v. Upton, 96 U. S. 328. Nat. Bank v. Case, 99 U. S. 628. Moore v. Jones, 3 Woods, 53. Bowdell v. Farmers Bank, 25 Int. Rev. Eec. 405. Wheelock v. Kost, 77 111. 296. Hale v. Walker, 31 Iowa, 344. Magruder v. Colston, 44 Md. 349. Crease v. Babcock, 10 Met. 525. Grew v. Breed, 10 Met. 569. Rosevelt v. Brown, 11 N. Y. 148. In re Empire City Bank, 18 N. Y. 199. Aultman's Appeal, 98 Pa. St. 505. In re Wallace Heustis Grey Stone Co., N. S. Eq. Rep. 461. Many of these cases concern the stock of National Banks; and the National Bank Act of 1864, § 12, provides for a transfer on the books, and adds, " every person becoming a shareholder by such transfer " shall be individually liable. Although this expression cannot mean that every one whose name appears on the books is a stockholder, whether his name appears with his own consent or not, yet it may very well mean that any one who causes his name to be entered on the books shall be held to be a stockholder for the purpose of individual liability. " Bowdell V. Farmers Bank, 25 Int. Rev. Rec. 405. ' Anderson v. Philadelphia Warehouse Co., Ill U. S. 479. * The way in which a pledgee was allowed to avoid his liability in Magruder v. Colston, 44 Md. 349, shows that the court felt his position to be one of peculiar hardship. § 84 OF TEANSPBE ON THE BOOKS. 87 was their intention to create a pledge, and not a mortgage.^ The language of the courts in these cases must, therefore, mean that a pledgee who gets a transfer on the books has the legal title as between him and the corporation or its cred- itors ; or, to put it more accurately, that he is estopped, in such a case, to deny that he has the legal title. In Massa- chusetts, where it is provided by statute that if the entry on the books states the debt and the name of the pledgor, the pledgee shall not be liable, the courts have gone so far in some cases as to say that if the statute is not exactly followed the pledgee is liable. This would include a case where the books state that the stock is held by A. as a pledge from B., but omit to state the debt, and in such a case there is clearly no representation by A. that he is the owner of the stock. But, although the language 'of the court goes to this extent, the question did not arise for decision in any of the cases.^ § 84. This estoppel is only a privilege of which the credi- tors may avail themselves or not at their option ; for, apart from some special regulation, the books are not conclusive upon the creditors, and they may disregard wrong entries and proceed against the real owners of the stock. If they could not do this, the persons who made the false entry could take advantage of their own wrong to the injury of the creditors. It would seem, therefore, that the creditors could refuse to recognize the pledgee whose name appears on the books, and pursue their remedies against the pledgor as if the stock had remained in his name. But the creditors have only an option, and they cannot proceed against both. These 1 Conf. § 53, supra. 2 Holyoke Banh v. Burnham, 11 Cush. 183. Johnson v. SomeniUe Dyeing §• Bleaching Co., 15 Gray, 216. Barre Nat. Banh v. Hingham Mfg. Co., 127 Mass. 563. See a discussion of this statute in Newton v. Fay, 10 All. 505; and see Burgess v. Seligman, 107 U. S. 20, where a trustee is spoken of in almost the same terms. But that the liability of the pledgee rests really on estoppel, see Anderson v. Philadelphia Ware- house Co., Ill U. S. 479. 88 TEANSFEE OF STOCK. § 85 principles of estoppel have been applied in cases where a pur- chase of stock was made by an agent, who caused the stock to be transferred on the books into his own name, although the legal title vested in the principal, and it was held that the creditors could proceed against either, — the principal, on the ground that he had the legal title ; ^ or the agent, on the ground that he was estopped to deny that he had it.^ § 85. The creditors of the corporation are presumed to have relied on the books, but there is no sufficient reason for any such presumption in the case of persons who deal directly with the stockholders themselves. There is no principle of public policy to excuse such persons from proving that they have been actually misled by the false entries in the books. This is the rule at common law, but where there is a transfer rule or registry law applicable to the case, the rights of the parties do not depend on false representation at all, but on the absolute force of statute ; and the rules which require transfer on the books are so framed that persons who act bona fide get the benefit of them without regard to any actual reliance on the corporation's books. The benefit of an es- toppel is not confined to purchasers of the stock, but extends to all persons who have been misled, and who would other- wise suffer injury in consequence of the false representation. An attaching creditor, for example, would no doubt get the benefit of the estoppel if he could prove that in consequence of the representation he lost his opportunity to attach other property, or to obtain satisfaction for his claim. A false representation may be made by putting stock into the name of some one who is not the owner, and a stockholder who does this with his stock may be estopped to contradict the record he has made. A pledgor, for example, who allows the pledgee to make a transfer into his own name, would be estopped to deny the title of one who, relying on the transfer 1 Burr V. Wilcox, 22 N. Y. Stover v. Flack, 30 N. Y. 64. 2 Stover V. Flack, 30 N. Y. 64. § 86 OF TEANSPBR ON THE BOOKS. 89 books of the corporation, bought the stock from the pledgee. ^ Whether a purchaser of stock makes a false representation by allowing the stock to remain in the name of the seller is a much more difficult question.^ If this amounts to a repre- sentation at all, the question arises whether the liability- depends on the actual negligence of the purchaser in not recording the transfer within a reasonable time, or whether the mere fact that the stock remains in the name of the seller, after the title has passed, constitutes in itself a fraudulent misrepresentation.^ § 86. When the corporation itself claims the benefit of the estoppel, it may, perhaps, be presumed to rely upon its own books, since it has notice of their contents. But the corpora- tion is not justified in acting upon the records in its books if it has notice that they are wrong. The corporation will be held harmless for any act done in consequence of a false representation made upon its books by the person who com- plains of its conduct ; but, after receiving notice of a claim of title, the corporation cannot disregard it, and take refuge behind its books.* The corporation, may, for example, pay dividends to the stockholder of record, although he has sold his stock ; ^ but if the purchaser gives notice of his title, the • 1 See Ward v. South Eastern Ry. Co., 2 El. & El. 812. And conf. § 132, infra. 2 In Swan v. North British Australasian Co., 2 H. & C. 175, a doubt is suggested by Blackburn, J. , -whether to constitute an estoppel by negli- gence it must not appear that the person estopped neglected some duty •which the la-w cast upon him. And conf. § 131, infra. 8 See Cleveland R. R. Co. v. Bobbins, 35 Ohio St. 483, where stock remained in the name of the seller, and the corporation paid him divi- dends. The court speak as if the delay in recording the transfer -was intentional, and yet nothing is said of negligence. * In Pitot V. Johnson, 33 La. Ann. 1286, it -was held that the corporar tion had no lien for money lent after the boiTO-wer had pledged his stock, although the corporation had no notice of the pledge. 6 Cleveland R. R. Co. v. Robbins, 35 Ohio St. 483. The question ■whether negligence is necessary or sufficient to sustain an estoppel arises here, as in the preceding section. 90 TEANSFBE OP STOCK. § 87 corporation must pay the dividends to him, although he makes no record of the transfer.^ The same principles apply to the right to vote. The corporation would, no doubt, be justified in allowing the person in whose name the stock stands to vote on it, and if during the meeting of the stock- holders another person should claim to be the owner of the stock, the corporation would have a right to be reasonably satisfied that his claim was valid before it need act upon it ; but after the claim had been established the corporation would have no right to refuse the real owner the right to vote.^ § 87. A purchaser of stock could not be estopped to set up his title on the ground that he had allowed the stock to remain in the name of his vendor, if it were not that he had a right to have it transferred into his own name.^ And it would, no doubt, be presumed in any case that the corpora- tion would have made the transfer if requested to do so. But if the corporation after a demand refuses to make the transfer, it is difficult to see how a statement on the books over which the purchaser never had any control can be held to be a representation on his part. The vendor of stock also has a right to have it transferred into the name of his vendee, and it has been said that the purchase is in itself a sufficient authority to the vendor to make the transfer.* He may, there- fore, demand the transfer, and it is provided by statute in 1 See Northrop v. Newtown Turnpike Co., 3 Conn. 544. Hill v. Newich- awanick Co., 48 How. Pr. 427. In the last case the court consider that the pledgee has the legal title although the pledge is not recorded. 2 People V. Devin, 17 111. 84. And see Allen v. HiU, 16 Cal. 113. The cases of In re Long Island R. R. Co., 19 Wend. 37; In re Mohawk §• Hudson R. R. Co., 19 "Wend. 135; Ex parte Wilcocks, 7 Cow. 402, turn on a special statute. In State ex rel. White v. Ferris, 42 Conn. 560, also, there was a special regulation, and in Hoppin v. Buffum, 9 R. I. 513, the matter was settled by a by-law. In the last case it was said that if one of two parties has the right to vote, and they are agreed between themselves which it shall be, that might be enough. » See § 136, infra. * Webster v. Upton, 91 U. S. 65. § 87 OF TRAN8PEE ON THE BOOKS. 91 England that his name shall be removed from the list of con- tributories, if the company was guilty of an unreasonable delay in recording the transfer.^ But apart from a statute of this kind the vendor may, perhaps, be liable to creditors, although the corporation has refused to take his name off the books ; because the statement on the books that he is a stockholder was at first made with his consent, and it is a continuing representation, for the consequences of which he may very well be liable, although he is prevented from withdrawing it by the wrongful conduct of the corporation. The position of the vendor, in such a case, is very much like that of a principal who has given to his agent a general power of attorney, and cannot get it back. It is clear that the vendor ought to have some remedy against the corpora- tion for any injury he may suffer,^ but he would rarely be called upon to pay the creditors of the coi-poration unless the corporation itself was insolvent, and was being wound up, and then the remedy against the corporation would not be very valuable. In order to prevent such a loss, the vendor may file a bill in equity to compel the corporation to register the transfer ; ^ and if the transfer cannot be recorded until some act is done by the purchaser, it becomes his duty to perform that act, and the vendor can maintain a bill in equity to compel him to do so,^ or if the purchaser fail to perform that act, and the vendor is thereby made liable to the creditors of the corporation, he may recover from the purchaser the amount of his loss.* § 88. So much for the effect of the transfer books of the 1 25 & 26 Vic. c. 89, § 35. And see § 190, infra. But it has been held that this provision does not apply where the directors have power to reject an irresponsible transferee, and the purchaser is, in fact, irresponsible. SMpman's Case, L. R. 5 Eq. 219. For a decision on the question of what amounts to unnecessary delay, see Shepherd's Case, L. R. 2 Ch. 16. 2 See Case v. Bank, 100 U. S. 446. » See § 226, infra. i Walker V. Bartlett, 18 C. B. 845. Wynne v. Price, 3 De G. & S. 310. Grissell v. Bristowe, L. R. 3 C. P. 112.. Evans v. Wood, L. R. 5 Eq. 9. 92 TEANSFEE OF STOCK. § 88 corporation at common law. The subject is not, however, usually left to the common law, but is more or less regulated by statute. It is often provided, for example, that the books shall be conclusiv-e on questions of individual liability,^ or of the right to vote,^ or of the right of creditors to seize the stock on execution ; ^ and sometimes it is expressly enacted that the legal title shall not pass till the transfer is made upon the books.* But by far the most important regulation is one which provides in general terms that the stock is transferable only on the books of the corporation.^ Provisions to this Paine v. Hutchinson, L. R. 3 Eq. 257; s. c, L. R. 3 Ch. 388. Haw- kins V. Maltby, L. K. 4 Ch. 200. Kellogg v. Stockwell, 75 111. 68. Johnson V. Underhill, 52 N. Y. 203. And see In re Westmoreland Bank, 1 Han. 506. But a common count for money paid is not the proper remedy. Sayles v. Blane, 14 Q. B. 205. Where the purchaser has resold the stock, it has been doubted whether he must indemnify the seller for any calls except those made while the purchaser was himseK beneficially interested in the stock. Humble v. Langston, 7 M. & W. 517, as explained in Walker v. Bartletl, Orissell v. Bristowe, supra. But semble, this distinction was introduced simply to distinguish Humble v. Langston. In Ex parte Humby, 28 L. J. Ch. 875, however, it was held that the purchaser was not bound to indem- nify the seller, because the parties did not consider the purchaser under any duty to register himself. In Aitken v. Woodside, 14 Dunlop, 572, it was held that the nominal owner of stock has a right to ask a pledgee from the real owner to pay the calls, or to give the nominal owner the certificate in order that he may transfer and avoid liability. 1 Ex parte Bugg, 2 Dr. & Sm. 452 ; and see Midland Great Western Ry. Co. V. Gordon, 16 M. & W. 804. Although the same formalities are not necessary to relieve a stockholder from liability to the other owners of shares. Re Orpen, 32 L. J. Ch. 633. 2 Downing v. Potts, 3 Zab. 66. In re Election of St. Lawrence Steam- boat Co., 15 Vroom, 529. In re Election of Directors of Long Island R. R. Co., 19 Wend. 87. In re Mohawk §• Hudson R. R. Co., 19 Wend. 135. And see Pender v. Lushington, 6 Ch. Div. 70. Hoppin v. Buffum, 9 R. I. 513. For a curious statute of this kind, see Vandenburg v. Broad- way R. R. Co., 29 Hun, 348. * See People's Bank v. Gridley, 91 111. 457. Agricultural Bank v. Burr, 24 Me. 256, 264. * Fiske V. Carr, 20 Me. 301. 5 It would seem that " transferable on the books," should mean only on the books, because it is only on account of some provision in the char- § 89 OF TBANSFER ON THE BOOKS. 93 effect are now to be found in the charter or by-laws of a majority of our corporations, but they have received a great variety of interpretations. The meaning of any statute must, of course, depend upon the language in which it is expressed, and it is not safe to reason from the interpretation of one statute to the meaning of another, expressed in slightly dif- ferent language. And yet the courts in this case have paid but little attention to the language of the particular statute in question,! and seem rather to have considered that the legislature intended to subject the transfer of the stock af- fected to certain well known rules. It is, therefore, possible to lay down the different principles established in the differ- ent States upon this matter, and it is safe to assume that the courts in any jurisdiction will construe a new statute as they have construed the old ones, unless this is very plainly con- trary to the intention of the legislature, or the tendency of the law. § 89. A transfer rule of this kind can be made by general statute or by a provision in a special charter, and these two ter, express or implied, that the stock is transferable at all, and a pro- vision for transfer in one way would seem to exclude any implied right to transfer in any other way. See Blanchard v. Dedham Gas Light Co., 12 Gray, 213. Contra, Chouteau Spring Co. v. Harris, 20 Mo. 382, 388. The case of Eames v. Wheeler, 19 Pick. 442, cannot be regarded as an author- ity to the contrary; and, if it were, it would be overruled by the more re- cent decisions. The National Bank Act provides that the stock shall be transferable on the books according to such rules as may be prescribed by by-law, and it is not clear whether this makes in itself a transfer rule, or whether a by-law is necessary. For the former view, see State v. First Nat. Bank of Jeffersonville, 89 Ind. 302. And see Johnson v. Laflin, 103 U. S. 800. Dickinson v. Central Nat. Bank, 129 Mass. 279. And see, contra, Broadway Bank v. McElrath, 2 Beas. 24. Scott v. Pequonnock Nat. Bank, 15 Fed. Rep. 494. 1 In Stone v. Hackett, 12 Gray, 227, a statute provided that no con- veyance unless recorded should be valid " against any other persons than the grantors or their representatives," and it was held that the title passed between the parties; whereas a provision that stock shall be transfer- able only on the books has always been construed to prevent the passing of the legal title before recording. See Mass. case in § 98, note, infra. 94 TRANSFER OF STOCK. § 89 ways of making it are equally effective, at least wherever a charter is a public act of which every one is bound to take notice. But the effect of such a rule made in other ways is not so clear. Where power is expressly given to a corpora- tion by statute, to make by-laws in regard to the transfer of its stock, and in pursuance of this power a by-law is passed which declares that the stock is transferable only on the books, it would seem that the regulation ought to have the same effect as if made directly by statute.^ And this has been generally assumed,^ even to the extent of holding that the legal title does not pass until the transfer is made on the books,^ when that is the effect of a similar regulation made by statute. But in Missouri it is held that the only object of such a statute is to give to the corporation power to regulate the transfer of stock for its own convenience, and that the by-law will protect the corporation, but has no effect on strangers.* Where no special power is given to the corpora- tion to regulate the transfer of its stock, it is sometimes assumed that a by-law requiring transfer on the books will 1 Vansands v. Middlesex County Bank, 26 Conn. 144. People's Bank V. Gridley, 91 111. 457. ^ Button V. Connecticut Bank, 13 Conn. 493. Mechanics Bank v. New York §• New Haven R. R. Co., 18 N. Y. 599. New York §• New Haven R. R. Co. V. Schuyler, 34 N. Y. 30, 80. United States v. Vaughan, 3 Binn. 394. And see Williams v. Mechanics Bank, 5 Blatch. 59. Continen- tal Nat. Bank v. Eliot Nat. Bank, 12 Reporter, 35. ° Marlborough Mfg. Co. v. Smith, 2 Conn. 579. Northrop v. Newtown §■ Bridgeport Turnpike Co., 3 Conn. 544. Vansands v. Middlesex County Bank, 26 Conn. 144. People's Bank v. Gridley, 91 HI. 457. Stebbins v. Phoenix Ins. Co., 3 Paige, 350. Lockwood v. Mechanics Nat. Bank, 9 R. I. 308. And see Planters If Merchants Ins. Co. v. Selma Savings Bank, 63 Ala. 585. * St. Louis Ins. Co. v. Goodfellow, 9 Mo. 149. Chouteau Spring Co. V. Harris, 20 Mo. 382. Moore v. Bank of Commerce, 52 Mo. 377. But the effect of a transfer rule made directly by statute or charter is not clear in Missouri. See White v. Salisbury, 33 Mo. 150. Moore v. Bank of Commerce, 52 Mo. 377. Merchants' Bank v. Richards, 6 Mo. App. 454. Carroll v. MuUanphy Savings Bank, 8 Mo. App. 249, 252. § 90 OF TRANSFER ON THE BOOKS. 95 have the same effect as a statute, provided the corporation is expressly given a general power to make by-laws.^ But such power is always implied, if the by-laws concern the affairs of the corporation and are reasonable. And while it is held to be within this general power for a corporation to make a transfer rule for its own convenience, and to protect it in its dealings with the stockholders,^ yet the weight of authority is in favor of the doctrine that a transfer rule so made is an arrangement by the corporation for its own convenience sim- ply, and has no effect on the transactions of third persons in which the rights of the corporation are not involved.^ § 90. It has been assumed that a transfer rule made by the articles of association has the same effect as if made by the charter ;* but that depends on the question whether the pro- vision can fairly be said to be authorized or ratified by the charter. Such a provision in the articles of association would, no doubt, be valid as far as the protection of the corporation is concerned, but it is not so clear that it would have any effect on other persons. A certificate which contains a state- ment of such a rule is often referred to as if a regulation could be enacted by issuing a certificate, as it can be enacted by passing a by-law.® But the act of issuing the certificate is 1 Oxford Turnpike Co. v. Bunnel, 6 Conn. 552; and see State ex rel. Martin v. New Orleans §• Carrollton R. R. Co., 30 La. Ann. 308. Bane v. Young, 61 Me. 160. * Upton V. Burnham, 3 Biss. 431, ih. 520. Smith v. Crescent City Live Stock Co., 30 La. Ann. 1378. Sargent v. Essex Marine Co., 9 Pick. 202. Merchants Bank v. Richards, 6 Mo. App. 454; affirmed, 74 Mo. 77. Stockwell V. St. Louis Mere. Co., 9 Mo. App. 133. Smith v. American Coal Co., 7 Lans. 317. State Ins. Co. v. Gennett, 2 Tenn. Ch. 100. ' Upton V. Burnham, 3 Biss. 431, 520. Smith v. Crescent City Live Stock Co., 30 La. Ann. 1378. Sargent v. Essex Marine Co., 9 Pick. 202; approved in Dickinson v. Central Nat. Bank, 129 Mass. 279. Smith v. American Coal Co., 7 Lans. 317. State Ins. Co. v. Gennett, 2 Tenn. Ch. 100. * See Purchase v. Exchange Bank, 3 Rob. 164. Bank of Commerce's Appeal, 73 Pa. St. 59. 6 Comeau v. Guild Farm Oil Co., 3 Daly, 218. 96 TEANSFEB OP STOCK. § 91 merely the making of a statement of fact in writing, and it has in itself no legislative force whatever. A certificate which states that the stock is transferable only on the books of the corporation may be evidence that a valid regulation to that effect has been made,i and it would make a good foundation for an estoppel if the corporation attempted to deny the existence of such a regulation.^ It has been suggested that a usage to transfer stock only on the books may be valid and binding if notice of the custom is contained in the certiiicate, on the ground that it becomes a part of the contract with the stockholder.^ But unless such a usage is of itself binding on the stockholder,* it can avail only against those persons who have actual knowledge of its terms and are held to have assented to them. § 91. We have considered the various ways in which a transfer rule can be made, and the different effects of rules made in different ways ; we now come to the various in- terpretations that have been given to such a rule when made directly by statute, or by some other means having the same force. And first, such a rule is nowhere construed to inval- idate the transfer altogether. This is the effect of the Statute of Frauds on contracts within its operation, but no such con- struction has ever been given to any law making stock trans- ferable only on the books of the corporation. Even in the jurisdictions where it is held that the legal title does not pass until transfer on the books, it is conceded that an assignment unrecorded gives an equitable right to the assignee,^ and 1 See Williams v. Mechanics Bank, 5 Blatch. 59. Green Mountain §• State Line Turnpike Co. y. Bulla, 45 Ind. 1. 2 See § 118, infra, and cases in the two preceding notes, supra. 8 Townsend v. Mclver, 2 S. C. 25; aad see State Bank v. Cox, 11 Rich. Eq. 3U, per O'Neall, C. J., Dis. * That such a rule may be binding by custom, see State Bank v. Cox, 11 Rich. Eq. 344. See also opinion of O'Neall, C. J., Dis. 6 Black V. Zacharie, 3 How. 483. United States v. Cutts, 1 Sumn. 133. Johnson V. Laflin, 5 Dill. 65. Kellogg v. Stockwell, 75 111. 68. Bruce v. § 92 OF TRANSFER ON THE BOOKS. 97 where stock until transfer on the books is liable to attachment and execution by the vendor's creditors, it is held that the rule does not avail a creditor who has notice of the assign- ment before he levies on the stock.^ For the same reason a transfer not recorded is good against an assignee in insol- vency,^ and against the assignor's creditors after his death.' It is also enough to make the transferor a competent witness,* and to give the assignee a right to sue the officers of the cor- poration for malfeasance.^ § 92. Another point on which all the courts agree is that such a rule applies not only to transfers of the complete legal title, but also to the transfer at law of any lesser interest in the stock.* The rule has, indeed, been universally applied to all assignments made as collateral security," without raising the question whether it was the intention of the parties to pass Smith, 44 Ind. 1. Bank of America v. McNeil, 10 Bush, 54. Conant v. Seneca Bank, 1 Ohio St. 298. United States v. Vaughan, 3 Binn. 394. Beckwilh v. Burrough, 13 R. I. 294. 1 Black V. Zacharie, 3 How. 483. Scripture v. Francestown Soapstone Co., 50 N. H. 571. 2 Dickinson v. Central Nat. Bank, 129 Mass. 279. » Fraser v. .Charleston, 11 S. C. 486. * Delaware Sf Atlantic R. R. Co. v. Jrick, 3 Zab. 321. Bank of Utica V. Smalley, 2 Cow. 770. Gilbert y. Manchester Iron Co., 11 Wend. 627. White Haven §• Furness Junction By. Co. v. Bain, 12 Dunlop, 829. See § 47, supra. 6 Parrott v. Byers, 40 Cal. 614. ' In Fraser v. Charleston, 11 S. C. 486, it is expressly denied that there is no difference in this matter between a pledge and a sale. ' See United States v. Cutts, 1 Sumn. 133. Lowry v. Commercial Bank, Taney, 310. Williams v. Mechanics Bank. 5 Blatoh. 59. Continental Nat. Bank v. Eliot Nat. Bank, 12 Reporter, 35. Planters If Merchants Ins. Co. V. Selma Savings Bank, 63 Ala. 585. Weston v. Bear River Co., 6 Cal. 186 ; Weston V. Bear River Co., 6 Cal. 425. Strout v. Natoma Water Co., 9 Cal. 78. Oxford Turnpike Co. v. Bunnel, 6 Conn. 552. People's Bank v. Gridley, 91 111. 457. Bank of America v. McNeil, 10 Bush, 54. Boyd v. Rockport Steam Cotton Mills, 7 Gray, 406. Baldivin v. CanfieM, 26 Minn. 43. Broad- way Bank V. McElrath, 2 Beas. 24. New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30. Smith v. American Coal Co., 7 Lans. 317. Conant V. Seneca County Bank, 1 Ohio St. 298. Finney's Appeal, 59 Pa. St. 398. 7 98 TRANSFER OF STOCK. § 93 the legal title, or to create a strict pledge and leave the legal title in the pledgor. § 93. But though all the courts have construed the transfer rule alike on these two points, their decisions agree no farther.^ Three different constructions have, in fact, been given to this rule. The first applies the provision for the benefit and pro- tection of the corporation alone ; the second gives the rule something the effect of a registry law, and, without preventing the passage of the legal title, it applies the rule for the benefit both of the corporation and of the hona fide purchaser of the stock ; while the third construction takes the rule literally, and makes the record on the books necessary to pass the legal title. Each of these constructions must be treated separately, because they have very different effects on tlie rights of the parties interested. According to the first con- struction, the transfer rule is made solely for the benefit of the corporation, that it may know what persons have a right to be treated as stockholders. Not only does the legal title, under this interpretation of the rule, pass without a transfer on the books, but the rule is of no avail to purchasers of stock, whose rights are, therefore, left to be determined by the common law.^ In this the first construction differs from both the others we have mentioned, and it is worthy of remark, that, although the courts frequently declare that the transfer rule is intended solely for the benefit of the corporation,^ yet except for one case in New Jersey,* this construction of the 1 But see § 94, infra. 2 Mt. Holly Turnpike Co. Y. Ferree, 2 C. E. Green, 117. A fortiori, a creditor gets no benefit from the rule. See § 103, infra. * Duke V. Cahawba Namgation Co., 10 Ala. 82. South Western R. R. Co. V. Thomason, 40 Ga. 408. Boss v. South Western R. R. Co., 53 Ga. 514, 532. Blouin v. Liquidators of Hart, 30 La. Ann. 714. Smith v. Cres- cent City Live Stock Co., 30 La. Ann. 1378. Baldwin v. Canfeld, 26 Minn. 43, 55. St. Louis Perpetual Ins. Co. v. Goodfellow, 9 Mo. 149. Bank of Vtica V. Smalley, 2 Cow. 770. Gilbert v. Manchester Iron Co., 11 Wend. 627. Comeau v. Guild Farm Oil Co., 3 Daly, 218. * Mt. Holly Turnpike Co. v. Ferree, 2 C. E. Green, 117. And as to § 94 OF TRANSFER ON THE BOOKS. 99 rule was not necessary to any of the decisions, and rests upon dicta alone.^ § 94. The transfer rule under the first construction changes the common law in this, that the corporation, although noti- fied of a sale of stock, is not bound to release the seller from liability^ or to yield to the purchaser the right of a stock- holder until the transfer has been registered upon its books.^ The position of the corporation is, in fact, very much the same under all three constructions of the transfer rule,* ex- cept so far as the question of waiver is concerned.^ Accord- ing to the third construction the legal title does not pass until transfer on the books ; and since the right to vote, the right to receive dividends, etc., attach to the legal title, a purchaser of stock has no right to vote until his transfer is recorded, and he cannot claim from the corporation a dividend- declared while the stock stood in the name of his vendor But in order that the corporation under the other two con- structions may get the full benefit of the rule, it seems to be necessary to hold that, under these constructions also, it lias a right to act as if the title remained in the vendor this, see M'Courry v. Suydam, 5 Halst. 245. In Ballimore City R. R. Co. V. SeweU, 35 Md. 238, the court say that the transfer rule is made only for the benefit of the corporation ; but later in the opinion they say that at least an equitable title passes; and see to same effect, Broadway Bank v. McEirath, 2 Beas. 24. 1 We are speaking only of transfer rules made directly by statute or by some other means of equal force. See Appendix C. 2 Johnson v. UnderMU, 52 N. Y. 203. Shellington y. Howland, 53 N. Y. 371. And see Midland Gt. Western Ry. Co. v. Gordon, 16 M. & W. 804. But the purchaser may be individually liable also. See Burnes v. Pen- nell, 2 H. L. C. 497. And this is sometimes provided expressly. Johnson V. UnderhiU, 52 N. Y. 203. 8 Sec Stockwell v. St. Louis Ins. Co. 9 Mo. App. 138. * If two assignments are made of the same stock, and the second as- signee records first, the position of the corporation under the first con- struction of the transfer rule is more easily suggested than explained. See Smith v. American Coal Co ,7 Lans. 317. 6 As to this, see §§ 97, 101, infra. 100 TRANSFER OF STOCK. § 95 until the purchaser records his transfer on the books. Under every construction of the rule, therefore, the corporation can allow the vendor to vote,^ and to receive dividends,^ and can deny these rights to the purchaser,^ until the transfer is made upon the books. The English statutes and charters sometimes contain a provision that the company shall notice no trusts, but no such provision is to be found in American Acts, and our corporations cannot, under any interpretation of the transfer rule, act in defiance of equitable claims after notice of them.4 It would also be conceded on all hands that the corporation cannot take advantage of its own wrong by refusing without lawful excuse to make a transfer on its books, and then refusing to recognize the in- jured person as a stockholder.® § 95. We come now to the second construction which gives the transfer rule much the same effect upon transfers of stock that the American registry laws have upon the con- veyance of real estate.* The legal title passes without a ^ People ex rel. Probert v. Robinson, 1 Pao. Rep. 156. State exrel. White V. Ferris, 42 Conn. 560. State v. Pettineli, 10 Nev. 141. Hoppin v. Buffum, 9 R. I. 513. And see Smith v. American Coal Co., 7 Lans. 317. " See Bank of Utica v. Smalley, 2 Cow. 770, 778, and Smith v. American Coal Co., 7 Lans. 317. Bell v. Lafferty, 1 Pa. Sup. Ct. 454. ' See Stale ex rel. White v. Ferris, 42 Conn. 560. Sargent v. Essex Marine Co., 9 Pick. 202. Bank of Utica v. Smalley, 2 Cow. 770, 778. Hoppin V. Buffum, 9 R. I. 513; cf. § 86, supra. * See Smith v. American Coal Co., 7 Lans. 317. Bell v. Lafferty, 1 Pa. S. C. R. 454. After notice of the assignment the corporation cannot loan money to the assignor and insist upon its lien. Bank of America v. McNeil, 10 Bush, 54. Conant v. Seneca Bank, 1 Ohio St. 298. 5 Chouteau Spring Co. v. Harris, 20 Mo. 882. Merchants Nat. Bank Y. Richards, 6 Mo. App. 454; s. c. 74 Mo. 77. And it has been held that if the corporation cannot, for any reason, make a transfer on the books it is bound to respect the rights of the purchaser after notice of them. Pur- chase V. Exchange Bank, 3 Rob. 164. e See McNeil v. Tenth Nat. Bank, 46 N. Y. 325, 332. Eastman v. Fiske, 9 N. H. 182. Scripture v. Francestovm Soapstone Co., 50 N. H. 571. Noyes v. Spaulding, 27 Vt. 420. The transfer rule under this construction must have very much the same effect as the act for the registry of deeds § 96 OF TEANSPEE ON THE BOOKS. 101 transfer on the books, but is liable to be divested in favor of a subsequent bona fide purchaser from the same grantor.^ The provision that stock shall be transferable only on the books, differs, however, from the registry law of real estate in some important particulars. A purchaser of land has constructive notice of everything properly on record that affects his title, but the assignee of stock is not required to search the transfer books of the corporation, and he has no constructive notice of their contents.^ The corporation, moreover, unlike a register of deeds, is not bound to record all transfers that are brought to it, but only those that are genuine and valid ; and if it records a transfer where it ought not to, it is liable to any one who is injured thereby.' § 96. From the fact that the legal title passes by the as- signment alone, it follows that the purchaser, if bona fide, takes the stock free from equities,* although he gets no transfer on the books. He receives the title as if there were no transfer rule at all, and, of course, notice of a trust given after the assignment has no effect upon his rights.* The of land in New Zealand. For there the government after searching the registry, issues a certificate to the purchaser by which it warrants his title. 1 New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 80. Cady V. Potter, 55 Barb. 463. And see Johnson v. Laflin, 103 U. S. 800, 804. Kellogg v. Stockwell, 75 111. 68. Merchants Nat. Bank v. Richards, 6 Mo. App. 454, 461. State v. Leete, 16 Nev. 242, 250. Grymes v. Hone, 49 N. Y. 17. And see the cases in the preceding note, and at end of note to section 98, infra. An attaching creditor does not necessarily get any benefit from this rule ; that depends on the intention of the legislature. See § 103, infra. "^ Lowry v. Commercial Bank, Taney, 310. Salisbury MiUs v. Townsend, 109 Mass. 115. But see Ross v. South Western R. R. Co. 53 Ga. 514, 531. 8 See § 148, infra. * Ross V. South Western R. R. Co., 53 Ga. 514, 532. Leitch v. Wells, 48 N. Y. 585. And see Ex parte Sargent, L. R. 17 Eq. 273. Stone v. Hackett, 12 Gray, 227. Holhrook v. New Jersey Zinc Co., 57 N. Y. 616, 623^. « Ross v. South Western R. R. Co., 53 Ga. 514, 532. 102 TBANSFEE, OP STOCK. § 97 rights of successive assignees of the same stock depend, per- haps, on different principles. If the owner of stock assigns it to two persons in succession, the one who first gets it trans- ferred on the books will hold it against the other, as is the case under a registry law, when a double conveyance of land is made. Now the legal title passes by the first assignment, and it must remain in the first assignee until the second gets his transfer on the books. The position of the latter before recording is very peculiar, and the question arises whether notice of the earlier assignment given to him after he has paid the purchase money, but before he has recorded his transfer, will prevent his getting a perfect title to the stock. The principle of notice, in such cases, seems to be founded on the fact that courts will not allow the registry law to be made an instrument of fraud, and therefore will not give the benefit of it to one who buys with knowledge of the previous con- veyance ; but if, before notice is given, the trade between the parties is complete, the purchase money paid, and nothing remains to be done except for the purchaser to record the conveyance, the transaction is not a fraud on the part of the purchaser, and his object in recording is only to prevent loss to himself. Notice, therefore, of a previous conveyance given to a subsequent assignee after the assignment to him, and payment of the purchase money, cannot deprive him of the stock, although it is given before the transfer is made upon the books.^ § 97. The right of a purchaser to upset a prior unrecorded assignment, under the transfer rule, depends upon the abso- lute force of statute, and not upon any false representation or negligence in the part of the first assignee. It is of no consequence whether the purchaser relied on the books of the corporation or not, and it is not necessary that he should have had any knowledge even of their contents. But although 1 See Johnson r. Laflin, 5 Dill. 65, 83. Syer v. Bundy, 9 La. Ann. 540, was a parallel case in real estate. § 98 OP TRANSFER ON THE BOOKS. 103 the transfer rule does not proceed upon the principles of estoppel, yet the courts which hold that the legal title passes without a transfer on the books, declare that the provision is intended solely for the benefit of the corporation and of pur- chasers of stock, and it may be doubted whether the rule will be allowed to work an injury to these persons. It is not improbable, therefore, that either the corporation or the purchaser may be permitted to waive the rule, and insist upon the real state of the title to the stock.^ And it has been held that the corporation can make the transfer on the books of its own accord, even if this is contrary to the wishes of the transferee.^ § 98. When the transfer rule is applied for the benefit of hona fide purchasers, the question whether the legal title passes before transfer on the books is of less importance than one might at first sight suppose.^ The question has often been discussed,* but an answer is, in fact, rarely necessary 1 See Sadler's Case, 3 De G. & S. 36. McNeil v. Tienth Nat. Bank, 46 N. Y. 325. In some joint stock companies the stockholders must assent to the waiver." Keene's Ex'rs Case, 3 De-G. M. & G. 272. A purchaser whose transfer is not recorded may nevertheless be liable to creditors. Laing v. Burley, 101 111. 591. Contra, In re Wallace Heustis's Grey Stone Co., N. S. Eq. R. 461. 2 Upton V. JBurnham, 3 Biss. 431, ib. 520; and see London §• Brighton Ry. Co. V. Fairclough, 2 Man. & G. 674. * See the last part of Appendix B. * The authorities on this question are as follows : — That the legal title passes before transfer on the books. In the following cases this is made part of the ratio decidendi: Ross v. South Western R. R. Co., 53 Ga. 514, 532. Merchants Nat. Bank v. Richards, 6 Mo. App. 454, 463; s. c. 74 Mo. 77. Carroll v. Mullanphy Savings Bank, 8 Mo. App. 249, 252 (but see other Missouri cases infra, and conf. § 89 note, supra). Scripture v. Francestown Soapsione Co., 50 N. H. 571 (semble). McNeil v. Tenth Nat. Bank, 46 N. Y. 325. Leitch V. Wells, 48 N. Y. 585. Smith v. American Coal Co., 7 Lans. 317. Noyes v. Spaulding, 27 Vt. 420. Cherry v. Frost, 7 Lea, 1. In the following cases the same principle was laid down obiter: State V. Leete, 16 Nev. 242, 250. Eastman v. Fiske, 9 N. H. 182. New Ym-k Sf New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 80. Grymes v. 104 TEANSPBR OP STOCK. § 98 for the decision of a case, for although in many cases the decision appears to depend upon this question, yet the deci- sion can usually be maintained in other grounds. It is often V. Hme, 49 N. Y. 17. Johnson v. Underhill, 52 N. Y. 203, 211. Holhrook T. New Jersey Zinc Co., 57 N. Y. 616, 623. Cushman v. Thayer Mfg. Jewelry Co., 76 N. Y. 365, 871. And see Purchase v. Exchange Bank, 3 Rob. 164. In Adderly v. Storm, 6 Hill, 624, Bronson, J., draws this distinction. If the stock is transferred by means of an assignment which is to be recorded on the books, the title passes before the record is made; but if the parties prefer to convey the stock by executing a power of attorney to make a transfer on the books, the title does not pass until the transfer is made on the books. But such a distinction does not seem to be in accordance with the object of the rule, or with the intention of the parties. That the legal title does not pass until transfer on the books. In the following cases this principle is made a part of the ratio deci- dendi : Union Bank v. Laird, 2 Wheat. 390. Lowry v. Commercial Bank, Taney, 310. Brown v. Adams, 5 Biss. 181. Williams v. Mechanics Bank, 5 Blatch. 59. Becher v. WeUs Flouring MiU Co., 1 Ted. Rep. 276. Marlborough Mfg. Co. v. Smith, 2 Conn. 579. Northrop v. Newtown §• Bridgeport Turnpike Co., 3 Conn. 544. Oxford Turnpike Co. v. Bunnel, 6 Conn. 552. Dutton v. Connecticut Bank, 13 Conn. 493. Vansands v. Middlesex County Bank, 26 Conn. 144. Coleman v. Spencer, 5 Blackf. 197. Helm v. Swiggett, 12 Ind. 194 (semhle). Weyer v. The Second Nat. Bank of Franklin, 57 Ind. 198. Fishery. Essex Bank, 5 Gia,j, S7S. Boyd V. Rockport Steam Cotton Mills, 7 Gray, 406. Blanchard v. Dedham Gas Light Co., 12 Gray, 213. M'Courry v. Suydam, 5 Halst. 245 (but see § 93, note, supra). Stebbins v. Phoenix Fire Ins. Co., 3 Paige, 350. Mechanics Bank v. New York If New Haven R. R. Co., 13 N. Y. 599. New York §• New Haven R. R. Co. v. Schuyler, 38 Barb. 534; (but see later New York cases, suprct). Lockwood v. Mechanics Nat. Bank, 9 R. I. 308, 331, 835. In the following cases the same doctrine is laid down obiter: Black V. Zacharie, 3 How. 488. United States v. Cutis, 1 Sumner, 133 (this was, however, a case of government debt, not of corporate stock). Planters §■ Merchants Ins. Co. v. Selma Savings Bank, 63 Ala. 585. Otis V. Gardner, 105 111. 436 {semble). And se&KeUoggY. Stockwell, 75 111. 68. People's Bank v. Gridley, 91 111. 457. Bruce v. Smith, 44 Ind. 1. State V. First Nat. Bank of Jeffersonville, 89 Ind. 802. Shaw v. Spencer, 100 Mass. 382. Sibley v. Quinsigamond Nat. Bank, 183 Mass. 515, 519. White V. Salisbury, 33 Mo. 150. Boatmen's Ins. Co. v. Able, 48 Mo. 136 (but see other Missouri cases, supra, and conf. § 89, note). Conant v. Seneca County Bank, 1 Ohio St. 298. United States v. Vaughan, 3 Binn. 394 § 99 OF TRANSFER ON THE BOOKS. 105 supposed, for example, that the right of a creditor to seize stock which has been sold, before it is transferred upon the books, depends upon the passing of the legal title, but we shall attempt to prove ^ that the legal title has, in reality, no effect upon the matter. It would appear also at first sight that the passing of the legal title ought to have an important effect in equity, but on a more careful examination of the subject it would seem that the bare legal title to the stock is of no consequence in equity. § 99. We have seen that if the legal title to stock is held to pass before a transfer on the books, a bona fide purchaser for value is protected from equitable claims against his ven- dor, although the transfer is not recorded on the books ; and notice of these claims will not affect the purchaser if given after the vendor has executed the assignment of the stock ; but all this would appear to be equally true if the legal title (semble). Bank of Commerces Appeal, 73 Pa. St. 59. Fraser v. Charles- ton, 11 S. C. 486 (semble). In the following oases the question is raised but no opinion upon it is given : — - Johnson v. Laflin, 100 U. S. 800; s. c. 5 Dill. 65. People ex rel. Probert Y. Robinson, 1 Pac. Kep. 156. Colt v. Ives, 31 Conn. 25. Green Mt. §• Stale Line Turnpike Co. v. Bulla, 45 Ind. 1. Broadway Bank v. McElrath, 2 Beas. 24. Commonwealth v. Watmough, 6 Whart. 117. Finney's Appeal, 59 Pa. St. 398. State Ins. Co. v. Gennett, 2 Tenn. Ch. 100 at 105. See also Bank of America v. McNeil, 10 Bush, 54. The case of Fiske v. Carr, 20 Me. 301, turned on a statute which pro- vided expressly that the title should not pass until transfer on the books. In the following cases nothing is said of the legal title, but it is laid down that the rule avails bona fide purchasers: — People v. Elmore, 35 Cal. 653. Winter v. Belmont Mining Co., 53 Cal. 428. Skowhegan Bank v. Cutter, 49 Me. 315. Wonson v. Fenno, 129 Mass. 405. (In this case no transfer rule appears, but doubtless there was one.) Cady v. Potter, 55 Barb. 463. (No transfer rule appears in the report, but the case professes to follow the case New York Sf New Haven R. R. Co. v. Schuyler, 34 N. Y. 80, supra.) Sabin v. Bank of Woodstock, 21 Vt. 353. And see Morrison v. Harrison, 3 Efittie, 406. » See § 104, infra. 106 TEANSFER OP STOCK. § 99 does not strictly pass until transfer on the books. In the latter case a person who buys stock and has it transferred to himself on the books gets the legal title and takes it clear of equities, if he has no notice of them; but it does not follow- that if he neglects to get a transfer on the books he holds the stock subject to equitable claims against his vendor. Suppose he buys the stock bona fide, pays value for it, and gets an assignment or a power of attorney to transfer it on the books, but before he can record the transfer he is given notice that his vendor held the stock in trust, and had no power to sell it. Can the purchaser in such a case hold the stock against the cestui que trust f It is to be noticed that this is not a case of getting in a bare legal estate after dis- covering a defect in one's title ; nor is it parallel to a case of buying an equitable claim, discovering a prior claim, and then getting in the legal title ; because in the case first supposed there is but a single transaction. The legal title is from the first the object of the purchase, and it would vest in the purchaser at once, if it were not that the parties cannot, by any act, pass the legal title before the transfer is made upon the books. The whole conduct of the parties constitutes but a single transaction, and the question is at what time notice to the purchaser ceases to be effectual. Before the transfer is made on the books, the dealing between the parties is at an end,i and the assignee has power to take the legal title to himself without the aid of the assignor.^ This power is a 1 A tender of the certificates, and a power of attorney to transfer, is ordinarily sufficient performance of a contract to sell stock. Noyes v. Spaulding, 27 Vt. 420. Munn v. Bamum, 24 Barb. 283. See Bruce v. Smith, 44 Ind. 1. But, of course, the certificates must be in the name of the vendor or so endorsed that he can transfer them. Hare v. Waiing, 3 M. & W. 362. ^ The purchaser is not protected when an act of the seller is necessary to pass the title to him. Ortigosa v. Brown, 47 L. J. Ch. 168. Or where he cannot get it without the approval of the directors. France v. Clark, 22 Ch. D. 830. And the principle, of course, does not apply when nothing § 99 OF TEANSFEK ON THE BOOKS. 107 legal and not only an equitable one, or it could not pass the legal title, and, moreover, it is irrevocable at law. The assignee has, therefore, a right, at law, to vest the legal title in himself, and, although he has not the legal title, it would seem that equity ought not to interfere with him, but ought to leave him to his rights at law. And if left to his rights at law, he will get the legal title, for he has a right to demand of the corporation a transfer on the books, and to recover damages against it in case of refusal. If the transfer on the books is to be made by means of a power of attorney from the vendor, the authority must, in form, be exercised in his name, and this appears to involve a fresh breach of trust on his part ; but, in substance, the assignee acts by virtue of a right that has become vested in himself.^ There is very little authority on the question whether a lona fide purchaser for value is protected before he gets the legal title by transfer on the books or not, and that little is divided, but is on the whole in favor of the views we have presented.^ If, how- ever, it is held that the purchaser is not protected until the transfer is made on the books, the difficulties in the problem are not over, because the question then arises whether a person who buys an equity bona fide, and finds a defect in but a right in equity is intended to pass, as in a case where the seller makes no assignment of the stock, and gives no power to transfer it at all. Shropshire Sys. Co. v. The Queen, L. R. 7 H. L. 496. 1 Johnson v. Laflin, 103 U. S. 800. Cf. § 41 et seq., supra. 2 Bodds V. Hills, 2 H. & M. 424, 12 L. T. 139. And see Otis v. Gardner, 105 111. 436. Broadway Bank v. McElrath, 2 Beas. 24, 30; assumed in Atkinson v. Atkinson, 8 All. 15. And conf. Johnson v. Laflin, 5 Dill, 65, 83, 84; s. c. 103 U. S. 800. But see, contra. Union Bank of Georgetown v. Laird, 2 Wheat. 390. Stebbins v. Phcenix Fire Ins. Co., 3 Paige, 350. Lockwood v. Mechanics Nat. Bank, 9 R. I. 308, 331. In these three cases it was held that a purchaser of stock took it subject to the lien, because the legal title did not pass till transfer on the books. But in the cases in Wheaton and Paige the corporation had a lien by charter which would have availed against a purchaser, no matter when the title passed, and in none of these cases was the principle suggested in the text discussed. 108 TRANSFER OP STOCK. § 100 his right, may, after notice, protect himself by getting in a legal title as a tabula in naufragio?- This question is not quite the same as the one which we have already discussed, for the question last raised depends on the same principle as the tacking of mortgages. The purchaser is protected only in case he succeeds in getting the legal title, and only in case he gets it from a person who does not know that by passing the title he is committing a breach of trust. But if the views presented on the question first discussed are sound, the purchaser is protected against equitable claims whether he gets the legal title or not. § 100. We have tried to prove that a purchaser of stock, which has not been transferred on the books, is protected from equitable claims, if at the time of the assignment he had no notice of them, and this, whether the legal title passes before the transfer on the books or not. It follows that the corporation cannot refuse to make a transfer on the books to such a purchaser, and, by making the transfer, does not incur any liability to the cestui que trust of the vendor. It remains to show that the corporation is liable for making a transfer on the books to a purchaser who has paid no value, or who, at the time of the assignment, had notice that the sale was a breach of trust ; and that this liability does not depend at all on the question whether the legal title passes before the transfer on the books or not. The liability of the corporation in such cases may be put on either of two grounds. It may be said, that, just as a stockholder has a right to have his stock stand in his own name on the books of the corporation, so a cestui que trust has a right to have the stock which is held in trust for him stand on the books in the name of his trustee ; and that, if the corporation transfers the stock into the name of a stranger, it violates this right of the cestui que trust. The cestui would, therefore, have a right to compel 1 See Dodds v. Hills, 2 H. & M. 424, which appears to have been decided upon this ground also. § 100 OF TRANSFER ON THE BOOKS. 109 the corporation to put the stock back into the name of the trustee ; and the corporation could not escape from liability, in such a case, on the ground that since the transfer on the books, the stock had passed into the hands of a bona fide pur- chaser for value. If the liability of the corporation is put upon this ground, it arises, without regard to any transfer rule at all, whenever the stockholders are entitled to have the stock belonging to them stand in their own names on the books of the corporation .^ The liability of the corporation may be put on another ground. It is clear that under any construction of the transfer rule an unrecorded assignment does not pass the title as against the corporation. That is, until transfer on the books the corporation can continue to treat the vendor as a stockholder, and can refuse to recognize the purchaser as the owner of the stock, as far as his legal rights are concerned. The corporation, therefore, by record- ing the transfer, deprives the trustee of these rights at law, and transfers them to the purchaser. The liability of the corporation for doing this depends only on the existence of a regulation which requires transfers to be made upon the books, and it is of no consequence whether this regulation is so construed that the legal title does not pass until transfer on the books, or even whether it avails purchasers of stock at all ; for it is important only that the corporation should have power at law to treat as a stockholder the person whose name appears upon its books. Whatever the legal title, as distin- guished from the right against the corporation, may mean,^ it would seem that the former is of no importance to the ceBtui que trust. No matter where the legal title may be, the trustee has, after the assignment, no power at law to prevent the purchaser from getting a transfer on the books, while the duty of the corporation towards both the vendor and the pur- chaser is entirely independent of any such title. It would 1 As to this right, see § 136, infra. * The last part of Appendix B. 110 TRANSFEE OF STOCK. § 102 seem, therefore, that the rights of the cestui que trust can hardly be made to depend on the question whether this legal title has vested in the purchaser before the corporation makes the transfer on the books or not.^ § 101. According to the third construction of the transfer rule, the legal title can be passed only by a transfer on the books, and this is as true when the question is raised between the parties to the transfer, as when the benefit of the rule is claimed by the corporation, or by a subsequent purchaser of the stock. Under this construction of the transfer rule neither the corporation nor any one else can waive the rule,^ because it is not made for the benefit of any especial class of persons, but in accordance with a general policy. § 102. Although the legal title can pass only by transfer on the books, it does not follow that a transfer on the books will pass the legal title. It is clear that the title will not pass if the parties intended that it should not, although they may be estopped, if the rights of third persons are involved. A pledgee, for example, very often transfers the stock pledged into his own name to secure it from the creditors of the pledgor, and yet he has usually no intention to vest the title in himself, and both parties prefer to consider the security a pledge, rather than a mortgage or a sale upon trust.^ In such a case either party can insist that the legal title has not passed ; because a party to a written instru- ment, though not allowed to change its meaning by parol, 1 The cases of Stewart v. Firemen's Ins. Co., 53 Md. 564; Bayard v. Farmers §• Mechanics Bank, 52 Pa. St. 232; Bohlen's Estate, 75 Pa. St. 304; Magwood v. Railroad Bank, 5 S. C. 379, are not made to depend on the passing of the legal title. And in the case of Loring v. Salisbury Mills, 125 Mass. 138, it was said that the title passed by the assignment. But see South Western R. R. Co. v. Thomason, 40 Ga. 408, semhle contra. " Assumed in Marlborough Mfg. Co. v. Smith, 2 Conn. 579. In Selm V. Swiggett, 12 Ind. 194, it was held that a mesne assignee whose name did not appear on the books was not a stockholder, and the corporation could claim no lien against him. * See § 53, supra. § 103 OF TRANSFER ON THE BOOKS. Ill may nevertheless deny that it was intended to operate as an instrument at all.^ This is equally true of a transfer on the books absolute in form, and if this does not, in fact, accord with the intention of the parties, it may be claimed that it has no effect at all. A party to a transfer of stock may, there- fore, assert that the real transaction is a pledge, and that the title has not passed, although a transfer to the pledgee, absolute in form, has been made on the books of the corpora- tion. Where, however, the stock has never stood on the books in the name of the pledgor, but is transferred directly to the pledgee by a third person, the title must pass to the pledgee ; because it cannot pass to the pledgor if a transfer on the books is necessary to pass title, and yet it is the intention of the parties that the title shall pass out of the seller. It is not uncommon for a purchaser of stock, to which an in- dividual liability is attached, to put the stock into the name of a fictitious person, or of some one who, as he knows, does not consent to be a purchaser, or is incapable of taking the title. In such a case the real purchaser would un- doubtedly be held to be a stockholder and individually liable, although some form, such as a transfer on the books, or the execution of the transfer by the grantee, is required to pass the title to the stock. The real purchaser would be held to have assumed as his own for the purpose of the transaction the name he has caused to be entered on the books, on the ground that the transaction can be given no other meaning. The purchaser must be held to have intended to give the name of some person as the transferee, and by the name he used he could have meant no one but himself.^ § 103. If the transfer rule is made solely for the benefit and protection of the corporation, a creditor who attaches 1 Alvord V. Smith, 5 Pick. 232. 2 Green v. Bank of England, 3 Y. & C. Ex. 722. Ex parte Cox, 33 L. J. Ch. 145. Richardson's Case, L. R. 19 Eq. .588. And see Pugh §• Sharman's Case, L. R. 13 Eq. 566. And a transfer by a stockholder into a fictitious name is no transfer at all. Arthur v. Midland R. R. Co., 3 K. & J. 204. 112 TEANSrER OP STOCK. § 103 stock, or takes it in execution after it has been sold, gets nothing although the transfer has not been recorded.^ Where, on the other hand, it is held that the rule is made for the benefit of bona fide purchasers, it does not follow that creditors also get the benefit of it. That depends upon the intention of the legislature.^ A creditor is not strictly a bona fide pur- chaser for value, and yet it may be the policy of the law to make his remedies more certain by giving him a right to rely on the transfer books of the corporation. The authorities on this matter are divided,^ and the decision in any case must depend a good deal on the terms of the statute which governs the corporation, but courts are to a peculiar degree the judges of the policy of the legislation of their own States.* It is worthy of notice, however, that if a creditor who seizes stock on execution does not get a better title to it than a 1 Blouin V. Liquidators of Hart, 30 La. Ann. 714. Smithy. Crescent City Live Stock Co., 30 La. Ann. 1378. Sargent v. Essex Marine By. Co., 9 Pick. 202. Smith v. American Coal Co., 7 Lans. 317. ' Sometimes a provision of this kind is expressly made for the benefit of creditors. See First Nat. Bank v. Hartford Life Ins. Co., 45 Conn. 22. ' That a creditor gets the benefit of the rule. Williams v. Mechanics Bank, 5 Blatch. 59. Strout v. Natoma Water Co., 9 Cal. 78. (C/. other California cases infra.) But see Farmers^ Nat. Gold Bank v. Wilson, 58 Cal. 600. Skowhegan Bank v. Cutter, 49 Me. 315. Eastman v. Fiske, 9 N. 11. 182. Brock v. Ruttan, 1 U. C. C. P. 218. In the following cases it was provided that no transfer should be valid except between the parties until recorded. Naglee v. Pacific Wharf Co., 20 Cal. 529. Murphy, Petitioner, 51 Wis. 519. In Weston v. Bear Rioer Co., 5 Cal. 186, it was also pro- vided that a transfer should not be valid for any purpose whatever if not made on the books. The case of People's Bank v. Gridley, 91 111. 457, turned partly on a statute about the attachment of stock. And see People ex rel. Adams v. Goss §■ Phillips Mfg. Co., 99 111. 355. That a creditor gets no benefit from the transfer rule. Newberry v. Detroit Mfg. Co., 17 Mich. 141; per Cooley and Campbell, JJ. Broad- way Banky. McElrath, 2 Beas. 24; followed in Hunterdon Banky. Nassau Bank, 2 C. E. Green, 496. Commoriwealth v. Watmough, 6 Whart. 117. United States v. Vaughan, 3 Binn. 394. Finney's Appeal, 59 Pa. St. 398. Scott V. Pequonnock Nat. Bank of Bridgeport, 15 Fed. Kep. 494. See also the cases in the next two notes. * See Sibley v. Quinsigamond Nat. Bank, 133 Mass. 515, 520. § 104 OP TRANSFER ON THE BOOKS. 113 prior purchaser who has not recorded his transfer, the position of the corporation is, to say the least, pecuKar. After the stock is sold on execution the corporation issues a certificate to the purchaser at the sale, and this certificate passes, we will sup- pose, into the hands of a bona fide purchaser. Afterwards a man turns up who bought the stock from the debtor before the execution issued, and if he has a right to the stock, it is somewhat difficult to say whether the corporation or the holder of the certificate issued on the execution sale shall lose the value of the shares. § 104. Even in States where it is held that the legal title does not pass until the record is made upon the books, an equitable right passes by the assignment, and the assignor is divested of all beneficial interest in the stock. Now it is a general rule that a creditor gets only the beneficial interest of his debtor ; ^ but there is a peculiar doctrine in New Eng- land about creditors which has led to a great deal of confu- sion in the law. The doctrine arose in this way. By the civil law, delivery is necessary to pass the title to property sold, but at common law the title passes as soon as the con- tract is made and the goods are specified, if such is the inten- tion of the parties. Now in an early case in Massachusetts ^ the court, in ignorance of this distinction, followed the civil law, and laid down the extraordinary doctrine that, until de- livery, the legal title passes only between the parties, and not against bona fide purchasers, among whom the court in- cluded creditors. When the question arose in regard to stock the courts applied this doctrine, and held that until the legal title passed, a creditor who attached the stock without notice could defeat the rights of a prior purchaser.* There 1 Robinson v. Nesbilt, L. R. 3 C. P. 264. Continental Nat. Bank v. Eliot Nat. Bank, 12 Reporter, 35. Sibley v. Quinsigamond Nat. Bank, 133 Mass. 515. Fraserv. Charleston, 11 S. C.'486. " Lanfear v. Sumner, 17 Mass. 110. * Northrop v. Newtown §• Bridgeport Turnpike Co., 3 Conn. 544. Ox- ford Turnpike Co. v. Bunnel, 6 Conn. 552. Dutton v. Connecticut Bank, 8 114 TEANSPEE OF STOCK. § 105 is, however, an underlying feeling that fraud is the real foun- dation of the doctrine,^ and that a creditor gets ahead of the earlier purchaser, because the possession of the property by the vendor after the sale is a badge of fraud. And it is accordingly held that if the purchaser has done all that he can to get possession of the property, he is not postponed to the creditor, although he has not succeeded in getting pos- session, or in vesting the legal title in himself. For the same reason a purchaser who fails to get the legal title to stock by transfer on the books is protected from the seller's creditors, if he has in fact done all he can to get the transfer recorded.^ § 105. If an attaching creditor has notice, he cannot, of course, hold the stock ; ^ and it has been said that a purchaser at the execution sale who has notice cannot hold it ; * but if the creditor is put on the same footing as a purchaser, not only must he be protected in his possession, but he ought also to get a marketable title which he can sell to any one except the original owner.^ An assignee in bankruptcy takes only the beneficial interest of the bankrupt in MassachusettSj^ 13 Conn. 493. Shipman v. ^tna Ins. Co., 29 Conn. 245. Coleman v. Spencer, 5 Blackf. 197. FisTce v. Carr, 20 Me. 301. Fisher v. Essex Bank, 5 Gray, 378. Boyd v. Roclport Steam Cotton Mills, 7 Gray, 406. Blanchard v. Dedham Gas Light Co., 12 Gray, 213. Rock v. Nichols, 3 AU. 342; and see Williams v. Mechanics Bank, 5 Blatch. 59. In Sibley v. Quinsigamond Nat. Bank, 133 Mass. 515, the court refused to extend the doctrine to the stock of National Banks. 1 See Shipman v. JEtna Ins. Co., 29 Conn. 245, 253. Colt v. Ives, 31 Conn. 25. 2 Colt V. Ives, 31 Conn. 25. Plymouth Bank v. Bank of Norfolk, 10 Pick. 454. Merchants Nat. Bank v. Richards, 6 Mo. App. 454. 8 Black v. Zacharie, 3 How. 483. Scripture v. Francestown Soapstone Co.,50N. H. 571. 4 Weston V. Bear River Co., 6 Cal. 425. Doubted in Naglee v. Pacific Wharf Co., 20 Cal. 529. But see People v. Elmore, 35 Cal. 653; see also Rogers v. Stevens, 4 Halst. Ch. 167, where the creditor was himself the purchaser, and had attached without notice. ^ Jones V. Latham, 70 Ala. 164. 8 Dickinson v. Central Nat. Bank, 129 Mass. 279. And see Purchase V. New York Exchange Bank, 3 Rob. 164. § 107 OF TRANSFER ON THE BOOKS. 115 but in Connecticut he is put on the same footing as attaching creditors, because he represents, it is said, their rights.^ § 106. The object of the transfer rule is to enable the corporation to know who its stockholders are, and to protect purchasers and others from the danger of double sales of the same stock. Whether a transfer is made, therefore, by act of the parties or by operation of law, the reason for the transfer rule remains, so long as it is possible for the former owner to impose on strangers by his apparent title. And since there is no difficulty in having a transfer of any kind recorded on the books, it is clear that the transfer rule must apply to all transfers, however made, except those resulting from death. When a transfer is made by death there is no danger of a second transfer by the former owner, and purchasers, there- fore, need no protection ; and the transfer rule, in such a case, would benefit the corporation only on account of the convenience of having the name of the executor on its record. Transfers by death, therefore, may perhaps not be subject to the transfer rule.^ But any other transfer gives the former owner an opportunity to impose on the corpora- tion and on bona fide purchasers, whether the transfer is voluntary or not. For this reason it is to be presumed that statutes which provide for general transfers of property, — such as bankrupt and insolvent laws, — are not intended to overrule special regulations for the transfer of stock. And these statutory assignments must be recorded on the books of the corporation like voluntary transfers of the stock.^ § 107. It is sometimes doubtful whether the transfer on the 1 Shipman v. Mtna Ins. Co., 29 Conn. 245. ^ In the case of In re North Shore Siaten Island Ferry Co., 63 Barb. 556, it was held that a transfer on the books was not necessary to enable an administrator to vote. But in State v. New Orleans §■ Carrollton R. R. Co., 30 La. Ann. 308, it was held that the heirs could not claim a dividend without a transfer on the books. * Button V. Connecticut Bank, 13 Conn. 493. State ex rel. White v. Ferris, 42 Conn. 560. 116 TBANSFER OF STOCK. § 107 books is to be made by the parties themselves, or made by the officers of the corporation ; and this depends very much upon the terms of the regulation. Where it is provided, for example, that the stock shall be transferable on the books in the presence of the president,^ etc., or that transfers must be made on the books in person or by attorney,^ it has been held that the seller or his attorney must execute a transfer on the books.^ But where, on the other hand, the stock was trans- ferable as the corporation should prescribe, and a by-law provided that the directors should prescribe a form of transfer to be registered on the books, it was held that an assignment executed in pais, and then recorded by the corporation, was sufficient to transfer the stock.* The object of the transfer rule is to provide for a record of the transfers of stock, and the entries in such a record can be more conveniently made by the officers of the corporation than by the parties to the transfer. It would seem therefore that a transfer in pais recorded or noted on the books by the officers of the cor- poration fulfils the purpose of the rule, and should be held to be the mode of transfer intended, unless something to the contrary appears by the terms of the regulation.^ The nature of a valid demand for the transfer of stock depends on the form in which the transfer is to be made. If it is necessary for the vendor to execute a transfer on the books, he must ' Planters §• Merchants Ins. Co. v. Selma Savings Bank, 63 Ala. 585. " Marlborough Mfg. Co. v. Smith, 2 Conn. 579. Dunn v. Commercial Bank of Buffalo, 11 Barb. 580. But see Sargent v. Franklin Ins. Co., 8 Pick. 90. * In such a case the blank in the power of attorney is usually filled with the name of the transfer clerk of the corporation, so as to constitute him the attorney of the vendor to transfer. * Northrop v. Curtis, 5 Coun. 246; and see Northrop v. Newtoion 8f Bridgeport Turnpike Co., 3 Conn. 544. 5 Cecil National Bank v. Watsontotm Bank, 105 U. S. 217, 222. Sargent V. Franklin Ins. Co., 8 Pick. 90. See also on this matter Brown v. Adams, 5 Biss. 181. Green Mt. §• State Line Turnpike Co. v. Bulla, 45 Ind. 1. § 107 OF TRANSFER ON THE BOOKS. 117 demand in person or by attorney to be allowed to do so.' But if the record is to be made by the officers of the corpora- tion, it is enough for the transferee to prove to the proper officer his right to the stock, and ask him to make a transfer on the books ;^ and the person usually intrusted with this duty by the corporation is a proper officer in such a case.* When a transfer on the books is required, the transfer must be actually recorded, and it is not enough that the certificate, properly indorsed, is delivered to the corporation with a request, for transfer on the books. This may be enough to hold the corporation, but it is not enough to satisfy the transfer rule,* unless it is distinctly so provided.^ Beyond the matters we have here discussed, very few questions have been raised about the proper form of transfer on the books,® and this form must in any case depend very much upon the terms of the particular regulation which governs the corporation, and upon the practice of the cor- poration itself. 1 Dttnn-v. Commercial Bank of Buffalo, 11 Barb. 580. 2 Sargent v. Franklin Ins. Co., 8 Pick. 90. » Case V. Bank, 100 U. S. 446. * Breton v. Adams, 5 Biss. ISl. Northrop v. Newtown §• Bridgeport Turnpike Co., 3 Conn. 544. ^ The Oxford Turnpike Co. v. Bunnel, 6 Conn. 552. ° On this matter see Chamhersburg Ins. Co. v. Smith, 11 Pa. St. 120. In Downing v. Potts, 3 Zab. 66, it was held that the transfer book con- trolled the stock ledger. 118 TEANSFEE OF STOCK. 109 CHAPTER V. OF THE EFFECT OF CERTIFICATES. § 108. A CEETIPICATE of stock is a document signed by one or more of the officers of a corporation, and it contains a statement that the person named is the owner of a certain number of shares. Every stockholder has a right to demand a certificate of the stock which belongs to him,^ except in the rare case of a corporation whose charter and by-laws make no provision for certificates, and which has not, in fact, been in the habit of issuing them at all.^ These certificates are the stockholder's evidence of his title, and thej'' are a great convenience to him in transferring the stock. If properly used, they are a great protection against fraud and mistake ; but if issued carelessly, or disregarded in making transfers, they are liable to create much confusion, and bring upon one of the parties to the transfer, or even upon the corporation itself, a loss as great as the value of the stock. § 109. It is very common to speak of the certificates as if they were the stock itself, but this is not the view taken by the law. A bill of exchange or promissory note is insepara- ble, in the eye of the law, from the obligation which it rep- ' Cecil Nat. Bank v. Watsontown Bank, 105 U. S. 217, 223. Chester Glass Co. V. Dewey, 16 Mass. 94. Arnold v. Suffolk Bank, 27 Barb. 424. Johnson v. Albany §• Susquehanna R. S. Co., 40 How. Pr. 193. And see Sargent v. Franklin Ins. Co., 8 Pick. 90. Field v. Pierce, 102 Mass. 253, 261, 262. But a person is not entitled to a certificate if he has not done all that is necessary to become a shareholder. Wilkinson v. Anglo-Califor- nian Co., 18 Q. B. 728. Nor i£ his shares have been legally forfeited. Stewart v. Anglo- Calif ornian Co., 18 Q. B. 736. ^ Thorp V. WoodhuU, 1 Sandf . Ch. 411. § 109 OF THE EFFECT OF CERTIFICATES. 119 resents, so long as both are in existence. But this is not true of certificates of stock. These need never be issued at all as far as the validity of the stock is concerned. A sub- scriber to stock is bound without them.^ A transfer of stock is valid and complete, although no certificate is issued to the purchaser.^ The transferee is individually liable as stock- holder in such a case.* He has full right to vote,* and to receive dividends,^ and a complete power to transfer.® In fact, it is not uncommon to transfer stock without using the certificate where one has been issued, and such a transfer is without doubt perfectly good.'^ But it is more convenient, especially where the whole number of shares represented by the certificate is sold, to transfer by means of an assignment' on the back of the certificate itself ; and this is by far the safest plan, because it keeps together the evidence of the transfer, and of the seller's title to the stock. The loss, 1 Blyth's Case, 4 Ch. D. 140. Hawleyy. Upton, 102 U. S. 314. Fidgam V. Macon §■ Brunswick R. R. Co., 44 Ga. 597. Chandlery. Northern Cross R. R. Co., 18 111. 190. New Albany §• Salem R. R. Co. v. McCormick, 10 Ind. 499. Agricultural Bank v. Burr, 24 Me. 256. Chaffin v. Cummings, 37 Me. 76, 83. Chester Glass Co. v. Dewey, 16 Mass. 94. Schaeffer v. Missouri Home Ins. Co., 48 Mo. 248. Thorp v. WoodhuU, 1 Sandf. Ch. 411. Nor is a certificate necessary to give a subscriber the rights of a stockholder. Johnson y. Albany §• Susquehanna R. R. Co., 40 How. Pr. 193. Busey v. Hooper, 35 Md. 15, is not contra, but decides only that subscription alone does not make a stockholder. " Cecil National Bank v. Watsontown Bank, 105 U. S. 217. Field v. Pierce, 102 Mass. 253, 261. Comins v. Coe, 117 Mass. 45. Chouteau Spring Co. v. Harris, 20 Mo. 382. ' Mitchell V. Beckman, 16 Keporter, 586. Agricultural Banky. Wilson, 24 Me. 273. * Beckett v. Houston, 32 Ind. 393. ^ Ellis V. Proprietors Essex Merrimack Bridge, 2 Pick. 243. ' First Nat. Bank of Davenport v. Gifford, 47 Iowa, 575. And see Brigham v. Mead, 10 All. 245. ' White V. Salisbury, 33 Mo. 150. Boatmen's Ins. Co. v. Able, 48 Mo. 136. New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 81 ; 8. c. in Sup. Ct. 38 Barb. 534. Assumed in Chouteau Spring Co. v. Harris, 20 Mo. 382. 120 TRANSFER OP STOCK. § HO destruction, or alteration of a certificate does not defeat the rights of a stockholder; but if he can prove the loss, and that the old certificate can involve the corporation in no fresh liability, he is entitled to a new one.^ In short, the obligation of the corporation is not identified with the cer- tificate, as the obligation represented by a bill or note is identified with the instrument itself. A certificate is, how- ever, a muniment of title, and a delivery of the certificates, like a delivery of title deeds in England, may be evidence of an intention to transfer the property they represent, and on the same principle the delivery of a certificate of stock may be good as a donatio mortis causa, although no transfer of the stock is executed.^ § 110. A certificate of stock contains, as we have said, a statement by the corporation that the person named is the owner of a certain number of shares ; and if that statement or representation is false, it may render the corporation liable^ by furnishing ground for an estoppel or for an action of tort.* An extended discussion of the doctrine of estoppel, or of the nature of an action for a false representation, does not prop- erly fall within the scope of this book ; but the rights of purchasers of stock depend so much on representations made by means of certificates, that this chapter could hardly be made intelligible without a reference to the main features of an estoppel, and of the action of deceit. And there are two questions which, on account of their importance, must be treated somewhat more fully. The first question is. How 1 See § 128, infra. '^ Walsh V. Sexton, 55 Barb. 251. See Reed v. Copeland, 50 Conn. 472. 8 This has nothing to do with any rule about transfer on the books, because it is not a question of legal title, but of the false representation by the corporation. * The expression " action of tort " is used because in a recent case the term " action of deceit" is confined to those cases where the defendant knows that his representation is untrue. Boston If Albany R. R. Co. v. Richardson, 135 Mass. 473. § 111 OF THE EFFECT OF OEETIFICATES. 121 far must the representation be known to be false, in order to furnish the ground for an estoppel, and how far in order to sustain an action at law ? This is briefly discussed in §§ 113 et seq. The second question is : In order to raise an estoppel, must a representation be proved, or is it enough that the negligence of the person estopped furnished the means where- by the person claiming the benefit of the estoppel was misled ? This matter is considered in § 131. § 111. To constitute an estoppel in pais, it is necessary, generally speaking, that a representation should be made with the intention that another person should act upon it,^ and that this person should in fact act upon it with reason- able prudence, and in such a manner that, if the representa- tion were false, he would occupy (except for the estoppel) a worse position than he would have occupied if the repre- sentation had not been made. An intent to influence the conduct of a definite person is not necessary. It is enough if there is a general intention that any one whom it may concern should act upon the representation. Now, all these elements of an estoppel esist where a corporation issues a certificate of stock, and a bona fide purchaser or pledgee advances money on the faith of that certificate.^ Because the certificate contains a representation by the corporation which it intends purchasers to act upon, and it is undoubt- edly reasonable for them to rely upon it.^ Whenever, there- fore, a corporation issues certificates for spurious stock, or * It would be more correct to say that the representation must be so made that an ordinary man would suppose that it was intended to be acted upon. But the definition in the text is accurate enough for the general purposes of this book, and does not pretend to be exact. See also § 130 infra. ^ Even where the elements of an estoppel do not exist, the surrender of a certificate and issuing of a new one raises a presumption that a transfer has been made. Smock v. Henderson, 1 Wilson (Ind. Superior Ct.), 241. * In re Bahia §• San Francisco By. Co., L. R. 3 Q. B. 584. Holhrook v. New Jersey Zinc Co., 57 N. Y. 616. 122 TEANSFBK OP STOCK. § 112 gives a certificate to a person who claims stock under a transfer which is forged or otherwise invalid, it will be estopped to deny the statements in these certificates to the injury of a lona fide purchaser who has advanced money on the faith of them.i The certificates are, of course, made by an agent of the corporation, and, to hold the corporation, it must be shown that the agent had apparent power to issue them.2 And such an apparent power is enough if the pur- chaser was deceived by it, although the agent had, in fact, no authority to issue the certificates under the circumstances.^ The representation must be voluntary, — that is, it must not be made uiider compulsion, and on this ground a corporation is not liable for certificates issued by order of the Confeder- ate Government.* But in order that duress may excuse the corporation, it must be the real cause of the act. It is no defence that compulsion would have been employed if the act had not been voluntarily performed.^ § 112. Unless it is reasonably prudent under the circum- stances for the purchaser to believe the representation, and to act upon it, he will have no right to redress. If, therefore, 1 In re Bahia §• San Francisco Ry. Co., L. R. 3 Q. B. 584. Harl v. Frontino Gold Mining Co., L. R. 5 Ex. 111. Simm Y. Anglo-American Telegraph Co., 5 Q. B. D. 188. Mandlebaumy. North American Mining Co., 4 Mich. 465. Machinists Bank v. Field, 126 Mass. 345. Stebbins v. Phoenix Fire Ins. Co., 3 Paige, 350, 362. And see Hall v. Rose Hill, ^c. Road Co., 70 111. 673. The purchaser in such a case is, of course, in no better position than any other stockholder, and the corporation has as much right to a lien on his stock as it would have if the stock were valid. Ml. Holly Co.'s Appeal, 99 Pa. St. 513. '^ Mechanics Bank v. New York §• New Haven R. R. Co. ,13 N. Y. 599. New York §• New Haven R. R. Co. v. Schuyler, 17 N. Y. 592. And see Hall V. Rose Hill, §-c. Road Co., 70 111. 673. s See New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 61. * Dewing v. Perdicaries, 96 U. S. 193. Central R. R. Co. v. Ward, 37 Ga. 515. 6 See Keppel's Adm'rs v. Petersburg R. R. Co., Chase's Dec. 167. The court in this case discuss only the rights of the original stockholder, but the question involved is the same. § 112 OP THE EFFECT OF CERTIFICATES. 123 he has any reason, either from the constitution of the corpo- ration, or the circumstances attending the purchase, to doubt that the representation in the certificate is true, the corpora- tion will not be estopped to deny his title ; ^ and for this reason a purchaser is not protected when he buys stock in a corporation which is obliged to go through certain formalities before stock can be issued, if the certificate does not state that they have been performed, and if he has not made inquiries to a reasonable extent.^ It is also necessary that the person 1 See Avil v. Alexandria Water Co., 1 Hughes, 408. And see Wright's Appeal, 99 Pa. St. 425, where the agent of the purchaser was the president of the corporation and issued himself the fraudulent certificates, and it was held that the purchaser was bound by the knowledge of her agent. 2 See Official Manager of Atherueum Co. v. Pooley, 3 De G. & J. 294. Hall V. Rose Hill, §-c. Road Co., 70 111. 673. The Supreme Court of the United States has recently decided, in the case of Moore v. First Nat. Bank of Piqua, 111 U. S. 156, where the cashier of a bank fraudulently issued to a purchaser o^ stock a cei-tiflcate which stated on its face that the stock was transferable only on the surrender of the certificate, that the pur- chaser had no remedy against the bank, because by the terms of the certificate the purchaser had notice that the cashier had no authority to issue the certificate to her unless the certificate of her vendor was properly surrendered and cancelled, and also that she was bound to find out whether this had been done or not. The court appear to limit the duty of the purchaser to finding out whether the certificate of his immediate vendor has been duly surrendered or not, and it seems that he would not be expected to go farther back in the chain of title. But the decision is certainly open to criticism. In the first place, it is said that the corpo- ration has power to waive the rule which requires a surrender of tht out- standing certificate before transfer (conf. § 122, infra), and if this is true, it follows that a purchaser of stock has no notice of any defect in his title, even if he knows that the new certificate was issued to him without the surrender of an old one. Again, it is to be noticed that although the rule which requires the surrender of the old certificate when stock is transferred limits the au- thority of the agent, and although the form of the certificate gives notice of this limitation to the purchaser, yet, without any such rule, the agent would have no authority to issue a new certificate except when stock had been transferred by the owner, and this every purchaser must know •without any special notice in the certificate. If, therefore, the purchaser in the principal case was bound to see that the old certificate had been surrendered,, it would seem that a purchaser ought to be bound, in any 124 TRANSFER OF STOCK. § 112 who claims the benefit of the estoppel should have acted in such a way that if the representation were contradicted he would occupy (except for the estoppel) a worse position than he would have done if the representation had not been made ; ^ and, therefore, a pledgee for a pre-existing debt, or any other person who does not pay value for the stock, acquires no rights against the corporation.^ The change, moreover, in the position of the person injured, must take place in consequence of the representation. Now, it is a very simple matter to prove this where the estoppel depends upon the certificate issued to the vendor of the person injured, because it is almost self-evident that a purchaser or pledgee who receives the certificate of his vendor, advances his money in consequence of the statements in that certificate ; but where a person seeks to raise an estoppel on the strength of the certificate issued directly to him, the case is not so case, to see that the former owner has in fact transferred his stock. But such a doctrine would mean that a corporation could never be liable to the first holder of a certificate fraudulently issued. Thirdly,>the rule laid down in the principal case does not allow the purchaser to presume that the transfer is properly made unless he has reason to suspect the contrary, but obliges him to discover facts which lie peculiarly within the knowledge of the agent of the corporation (conf. Wharton on Agency, § 138) ; for the officers of the corporation certainly have peculiar means of knowing whether a certificate has been issued, and whether it has ever been cancelled. If it were an uncommon thing for a purchaser to receive a fresh certif- icate in his own name without seeing the certificate of his vendor, the case would present a different aspect, for in that case the absence of the certificates would naturally cause the purchaser to suspect that something was wrong. But, as a matter of fact, far from being uncommon, this mode of conveying stock is customary among brokers, and most of the transfers of stock are now made in that way. See a discussion of this case in the Albany Law Journal, vol. xxix. 364, It is to be noticed that in the principal case, as in WrigWs Appeal, 99 Pa. St. 425, the officer who issued the certificate was himself the person who received the money from the fraud. 1 WrigWs Appeal, 99 Pa. St. 425; and see Simm v. Anglo-American Telegraph Co., 5 Q. B. D. 188, per Brett, L. J., at 211. * Campbell v. Morgan, 4 Bradw. 100. § 113 OF THE EFFECT OF CEBTIFTCATE9. 125 clear. It is necessary to prove that he advanced his money because he relied on the certificate issued to him ; ' and in such a case it is by no means evident that it is reasonable for him to rely on the statements in the certificates, or that the corporation intended or expected him to do so. § 113. The facts that will give rise to an estoppel are also sufficient to support an action of tort, except so far as actual knowledge that the representation is false may be necessary on the part of the person making it. The question whether or not the representation must be actually fraudulent, that is, whether the person who makes it must know that it is not true, is one which is connected with the fundamental princi- ples of the law of torts, and involves the general question whether a man is held at his peril to possess the degree of intelligence and painstaking that fall to the lot of the average man.2 Suppose, for example, that J. S. knows of facts such that an ordinary man in his position would discover the exist- ence of a further fact, but that J. S. does not discover the existence of this further fact, and makes a representation that the fact does not exist. Can J. S. resist an action on the ground that he did not know the truth about this fact ; or is it enough that he made a representation under such circum- stances that an ordinary man would have known that it was not true ? Again, suppose that J. S. represents expressly that he has knowledge about a fact, and that it does not exist, or, what amounts to the same thing, suppose he makes the representation as of his own knowledge, and this under such circumstances that an ordinary man in his position would 1 Waterhouse v. London Sf Southwestern Ry. Co., 41 L. T. n. s. 553. Simm Y. Anglo-American Telegraph Co., 5 Q. B. D. 188. Brown v. Howard Ins. Co., 42 Md. 384. Hambleton v. Central Ohio R. R. Co., 44 Md. 551. Boston §• Albany R. R. Co. v. Richardson, 135 Mass. 478. Houston R. R. Co. V. Van Alstyne, 56 Tex. 439. And see Hall v. Rose Hill Road Co., 70 Hi. 673. See also a further discussion of this subject in § 147, infra. 2 Holmes on the Common Law, 107 et seq. , and for a discussion of the action of deceit in that book, see page 135 et seq. 126 TEANSFBE OF STOCK. § 114 have known that he had not actual knowledge of the facts. Can J. S. afterwards be heard to say that he did not have actual knowledge of the facts, but honestly believed that he had ? Would it not rather be held, in such a case, that J. S. ought to have known that he had not actual knowledge of the facts; that his statement that he had such knowledge was, in the eye of the law, wrongful : and that he is estopped to contradict it ? If so, the case stands as if J. S. had known the true state of the facts and had knowingly made a false representation, and, for the consequences of this, he is liable in an action of deceit. If, therefore, a man is conclusively presumed to be up to the ordinary level in care and intelli- gence, he is liable for the consequences of his statement with- out regard to actual fraud, if an ordinary man in his position would have known that the statements were not true, or if the statements were made as of knowledge, and an ordinary man would have known that he had not actual knowledge of the facts.^ It is commonly laid down that actual fraud is necessary to support an action for a false representation,^ and it is sometimes said to be necessary for an estoppel,^ but these general statements are, in each case, so qualified by excep- tions that the decided cases seem to fit very closely to the principles stated above.* § 114. Whether actual fraud is required to make a false representation tortious or not, the estoppel and the action of tort ought to stand on the same footing in the matter ; 1 There might also be a liability in contract in such cases upon an im- plied warranty, the consideration for the contract being the conduct induced by the representation. Boston §• Albany R. R. Co. v. Richardson, 135 Mass. 473. 2 Billiard on Torts, i. § 13. 8 Bigelow on Estoppel, 3d ed. 519 et seq. But this author confuses knowledge of the falsity of the representation with knowledge that the person injured would act upon it, especially in reference to the Massa- chusetts oases i while on page 530 he makes such exceptions to his rule that he brings himself within the limits suggested in our text. * See Addison on Torts (5th Eng. ed.), 675. Copley on Torts, 497, 501. § 115 OF THE EFFECT OF CBETIFICATES. 127 because, if fraud is necessary for an action of tort, but not for an estoppel, we have this strange state of things, that a cor- poration, for example, may be estopped to deny that a pur- chaser of certificates fraudulently issued is a stockholder, but if the estoppel does not afford him adequate relief, or if, on account of the rights of third persons or for any other reason, he cannot avail himself of the estoppel, he has no right to compensation for his injury. This is a case of fitting the right to the remedy, and not the remedy to the wrong,^ because the wrong is acknowledged, and only a partial remedy is given for it. It would be more logical to regard the case as one of damnum absque injuria, and deny all redress, or else to treat the corporation as a wrong-doer, and give the injured person a remedy that would in all cases compensate him for his loss. If these views are accepted, the same facts will give rise to an estoppel, and to an action of tort,^ except where, for some reason apart from the relations of the parties themselves, an estoppel will not hold."* § 115. To apply these principles to the issue of certificates by a corporation : When a corporation makes an over-issue of certificates of stock, it knows through its agents that these certificates represent no stock at all, and although the over- issue was made by a mistake, and at the time the certificates were issued no officer actually knew that certificates for the whole amount of the capital stock were already outstanding, yet the corporation would no doubt be held to know the con- tents of its own books. If, therefore, a corporation makes an over-issue of certificates of stock, it is liable in an action of 1 On the principle of the common law which declared that there was no right without a remedy, and then in practice defined a wrong as that for which there was a remedy. 2 On this matter, see Freeman v. Cooke, 2 Exch. 654. Swan v. North British Australasian Co., 7 H. & N. 601, per Martin, B. ; s. c. in Exch. Ch. 2 H. &C. 175, j?er Blackburn, J. In re Bahia If San Francisco Ry. Co.,L. R. 3 Q. B. 584. Waterlouse v. London §■ South Western R. R. Co. , 41 L. T. 553. 8 See § 116, infra. 128 TKANSFEK OF STOCK. § 116 tort to a bona fide purchaser of the certificates fraudulently issued.^ But when a corporation issues certificates to a pur- chaser of stock where the title has not passed, it does not in general know that the statements in the certificales are not true, and it is not liable to an action of tort if actual fraud must be proved. But the corporation clearly makes these statements as of knowledge, and, if the principles we have suggested above are sound, the corporation, without regard to any actual fraud, or to any negligence in failing to ascertain whether the title to the stock has really passed, is liable in tort to a lona fide purchaser of these certificates.^ § 116. When a corporation has stock outstanding to the full extent allowed by its charter, an issue of more is ultra vires, and the new stock is probably void in the hands of a lona fide purchaser, in spite of any estoppel.^ And, even if the stock created in excess of the charter limit is not abso- lutely void, yet if the existence of such stock renders the charter liable to forfeiture, it may be doubted whether the estoppel will hold,* because the object of an estoppel is to save the person who has the benefit of it from the injury he would otherwise suffer in consequence of the false represen- tations ; but instead of doing this, the estoppel in the case ^ Tome V. Parkershurg Branch R. R. Co., 39 Md. 36; approved in Western Md. R. R. Co. v. Franklin Bank, 60 Md. 36. New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 49, 60. Bruff v. Mali, 36 N. Y. 200. Titus v. Great Western Turnpike Road, 5 Lans. 250; s. c. 61 N. Y. 237. Bank of Kentucky v. Schuylkill Bank, 1 Pars. 180. Willis v. Philadelphia §• Darby R. R. Co., 6 W. N. C. 461. And see People's Bank v: Kurtz, 99 Pa. St. 344. Wright's Appeal, 99 Pa. St. 425. ° In re Bahia Sf San Francisco Ry. Co., L. R. 3 Q. B. 584. And see Simm v. Anglo-American Telegraph Co., 5 Q. B. D. 188. But as to negli- gence, see Waterhouse v. London Sj- South Western R. R. Co., 41 L. T. N. s. 553. " New York §■ New Haven R. R. Co. v. Schuyler, 34 N. Y. 80, 49. The People v. Parker Vein Coal Co., 10 How. Pr. 543. And see Bruff v. Mali, 36 N. Y. 200. People's Bank v. Kurtz, 99 Pa. St. 344. But see Machinists Bank v. Field, 126 Mass. 345. * But see Machinists Bank v. Field, 126 Mass. 345, contra. § 118 OP THE EFFECT OF CERTIFICATES. 129 supposed would subject the corporation to the danger of for- feiting its charter, and the purchaser, among the other stock- holders, to the danger of losing his stock.^ § 117. When the circumstances of any case are such as to give rise both to an estoppel and an action of deceit, the person injured may take advantage of either remedy at his option ; but although the estoppel does not give an exact compensation, he would not be allowed to get the benefit of this remedy and then make up the rest of his loss by an ac- tion for damages ; because, to do this, he must claim to be a stockholder on the ground that the representation is true, and at the same time sue the corporation on the ground that it is false. In making the choice it should be borne in mind that the estoppel never affords an exact compensation for the injury, and falls in some cases very far short of it. This is because the result of the estoppel is an increase of the num- ber of shares in the corporation which are outstanding, and thereby the proportion which the stock in question bears to the whole amount of stock outstanding is diminished. If the number of shares in issue is small, and the whole num- ber of shares in the corporation is large, the remedy by es- toppel is sufficiently exact. But if the stock in issue is a large part of the whole amount of stock outstanding, this matter becomes so important that it cannot be disregarded. Suppose, for example, that one third of the whole number of shares is in issue, and that the purchaser avails himself of the estoppel, he obtains only a quarter of the capital stock. In many cases, however, where the remedy by estoppel af- fords compensation which is nearly exact, it may be more important to control the stock than to take advantage of a remedy which is pecuniarily accurate. § 118. A certificate in the ordinary form represents nothing except that the person named was, at the date of the certifi- ' But this is no reason an action should not lie for damages. Daly v. Thompson, 10 M. & W. 309. And see People's Bank v. Kurtz, 99 Pa. St. 344. 9 130 TRANSFER OP STOCK. § 118 cate, the owner of stock as therein stated. For example, in a case where the articles of association provided that the stock should not be transferable until the subscriptions were paid in, it was assumed that the issue of a certificate to a subscriber was not a representation that the subscription had been paid.^ And, on tlie same principle, it has been held that a certificate in the ordinary form does not represent that the corporation has no lien on the stock.^ If, however, the cer- tificate is not in the ordinary form but contains statements of other facts, these may very well be representations by which the corporation would be bound.^ It is not uncommon, for example, to state in the certificates that the stock is fully paid up, and such a representation is held to protect a bona fide purchaser even from the claims of the creditors of the corporation.* The only other statements ^ in certificates that appear so frequently as to merit special notice here are, one which declares that the stock is transferable only on the books, and one which declares that the transfer will be made only upon the surrender of the certificate. These statements are representations by the corporation that there are valid regulations requiring transfers to be made on the books, or forbidding the corporation to transfer without the surrender 1 McCready v. Rumsey, 6 Duer, 574, per Bosworth, J. 2 First Nat. Bank ^. Hartford Ins. Co., 45 Conn. 22, 35, 36. Reese v. Bank of Commerce, 14 Md. 271. The case of Fitzhugh v. Shepherdsville Bank, 3 Mon. 126, contra, was really a case of pledge and not of lien. » Where the certificate stated that the stock -was " not assessable," this was held to mean not assessable after it shall be fully paid up. Upton v. Tribilcock, 91 U. S. 45. * NicoU's Case, 26 W. R. 334 ; on appeal nomine Burkinshaw v. Nichols, 3 App. Cas. 1004. Steacy v. Little Rock §-c. R. R. Co., 5 Dill. 348. Brant v. Ehlen, 59 Md. 1. And the same result may be produced by a representation that the stock is full paid made in any other way. Waterhouse v. Jamieson, L. R. 2 H. L. Sc. & D. 29. Erskine v. Lowen- stein, 11 Mo. App. 595. And see Foreman v. Bigelow, 4 Cliff. 508. Phelan v. Hazard, 5 Dill. 45. 6 For the effect of a statement in a certificate that there is a lien, see § 168, infra. § 119 OF THE EFFECT OF CERTIFICATES. 131 of the certificate. But the corporation has, of course, knowl- edge whether any such rules really exist or not, and if they do not exist, the corporation would be estopped to contra- dict the statements in the certificates to the prejudice of any one who had entitled himself to the benefit of an estoppel.^ § 119. It has been suggested that a certificate, even in the ordinary form, and without any special regulation in the charter or by-laws, has the effect of assuring a purchaser that the seller has made no transfer of the stock before his pur- chase, — and of protecting him from transfers made after- wards.^ To accomplish the first of these results it would be necessary to construe the statement in the certificate into a representation that the person named continues to be the owner of the stock so long as the certificate is outstanding.^ But it is evident that the corporation cannot be supposed to assert to the purchaser of stock that the vendor has made no unrecorded assignment, for of such assignment it can know nothing. The corporation, therefore, can be held to represent only that there are no transfers on the books. Moreover, if the corporation is held to represent that there are no transfers on its books, it must have power to refuse to record a transfer unless the old certificate is surrendered and * In regard to the rule requiring transfer on the books, see § 90, supra ; and in regard to the rule about the surrender of the certificate, Bank v. Lanier, 11 Wall. 369. And see Piatt v. Birmingham Axle Co., 41 Conn. 255. Smith v. Crescent City Live Stock Co., 30 La. Ann. 1378. New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 80, 81. Cushman V. Thayer Mfg. Jewelry Co., 76 N. Y. 365. Brisbane v. Del. Lack. §• West. R. R. Co., 25 Hun, 438; and conf. § 121, infra. 2 Morawetz on Corporations, § 331. ^ The only authority that could be relied on to support such a construc- tion is Holbrook v. New Jersey Zinc Co., 57 N. Y. 616, 622, -where the court say that " the certificate itself must be regarded as a continuing aflSrmation of the ownership of E., and his power over the stock until it is withdrawn in some manner recognized by law; " but the court did not have in mind the point discussed in the text, and it does not appear whether the thing to be withdrawn was the representation or the certificate. 132 TEANSFEE OP STOCK. § 120 cancelled, for otherwise the corporation would be in danger of incurring a double liability witliout fault on its part. But it is by no means clear that a corporation has any such power unless it is specially provided in its charter or by-laws that the stock shall be transferred only on the surrender of the certificate ; for, with one exception, a special provision to this effect appears in the report of every case in which the power has been upheld in this country.^ The provision is, indeed, so common that it probably existed even in the case which forms the exception, although the court pay no atten- tion to it in their opinion .^ § 120. The possession of a certificate cannot protect a purchaser of stock from injury by a second transfer on the part of his vendor, unless the absence of the certificate is held to be notice to the corporation of outstanding claims to the stock. But even this would be of very little use unless the absence of the certificate is notice to purchasers also, or unless it is held that a valid demand for a transfer cannot be made without a surrender of the old certificate ; because if a purchaser has a right to a transfer, the corporation cannot by transferring to him incur a liability to another person without 1 See Bank v. Lanier, 11 Wall. 369. Bridgeport Bank v. New York §• New Haven R. R. Co., 30 Conn. 231, 270. Factors §• Traders Ins. Co. v. Marine Dry Dock Co., 31 La. Ann. 149. Smith v. Crescent City Live Stock Co., 30 La. Ann. 1378. Railroad Co. v. Rohhins, 35 Ohio St. 483. Lee V. Citizens- Nat. Bank ofPiqua, 2 Cin. 298. New York §• New Haven R. R. Co. V. Schuyler, 34 N. Y. 30, 81. Cushman v. Thayer Jewelry Mfg. Co., 76 jST. Y. 365. Strange v. Houston §• Texas Central R. R. Co., 53 Tex. 162. In Shropshire Rys. Co. v. The Queen, L. R. 7 H. L. 496, Lord Cairns says that it is within the discretion of the directors to refuse to transfer without the surrender of the certificate, but that they would not be liable for transferring without it. Such a principle has cleai'ly no application to a corporation whose directors have no option in the matter of transfer. 2 Smith V. American Coal Co., 7 Lans. 317. The form of the certificate and the regulations governing the transfer of stock are not set out in this case, and moreover, the case appears to have been decided on another ground. § 121 OP THE EFFECT OF CEBTIFIOATBS. 133 fault on its own part. It seems to be generally assumed that the absence of the certificate is not notice to a purchaser of stock that the vendor has already pledged or sold the stock.^ And yet a prudent man ought to suspect that there is some- thing wrong about a transfer when he knows that it is made without the use of the certificate, for the absence of the certificate can be explained only by proving that it was never issued, or that it has been lost, or that it has been assigned ; and of these three suppositions the last is the most probable.^ § 121. But although a certificate does not under ordinary circumstances have the effect of assuring a purchaser that the seller has not already transferred the stock, or of protecting him from injury by a second transfer on the part of his vendor, yet both of these results are often obtained by means of a special regulation in the charter or by-laws of the cor- poration. It is very common to provide that stock shall not be transferred unless the certificate is surrendered and can- celled ; and a statute which declared that stock should be transferable by the delivery of the certificates has been held to have this effect,^ on the ground that a delivery of the certificates passed the title to the stock by force of the statute, although the owner had already conveyed it to another ; but such a construction is a great straining of the language. It seems to be generally assumed that a rule requiring the surrender of the certificate before transfer on the books can be made by by-law.* And even if no such 1 New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30. Baker V. Wasson, 53 Tex. 150. Assumed in Cady v. Potter, 55 Barb. 463. And see in this connection, Piatt v. Birmingham Axle Co., 41 Conn. 255. ^ But if the corporation assures the purchaser that no certificate has ever been issued he may well be satisfied. Conf. § 122, infra. * Factors §■ Traders Ins. Co. v. Marine Bry Bock Co., 31 La. Ann. 149. * First Nat. Bank of Davenport v. Gifford, 47 Iowa, 575. State ex rel. Martin V. New Orleans Sf CarrolUon R. R. Co., 30 La. Ann. 308. Smith V. Crescent City Live Slock Co., 30 La. Ann. 1878, 1382. New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 82. Railroad Co. v. Robhins, 35 Ohio St. 483. In the New York case the corporation had 134 TKANSPEE OF STOCK. § 122 regulation has been made at all, yet, if the certificate contains a statement of such a rule, the corporation will be estopped, as we have already said,i to deny that such a rule has been made. A bona fide purchaser, who has relied on the state- ment in the certificate, has a right to be treated by the cor- poration as if a valid regulation had been made, but the estoppel does not affect other persons, and the corporation may, therefore, incur a double liability. § 122. A regulation that stock shall be transferred only on surrender of the certificate does not render a transfer without the surrender of the certificate invalid. A person who obtains a transfer in violation of the rule gets the legal title to the stock,^ and, if he is a bona fide purchaser for value, his title cannot be assailed in equity ; because, if the corporation makes no objection to the transfer, he may presume that no certificate has been issued, or that it has already been sur- rendered and cancelled. He has no means of knowing about these facts, but the corporation knows from its books whether a certificate is outstanding or not. The regulation simply entails a duty on the corporation and makes it liable for all injury caused by a breach of this duty. It is said, therefore, that the rule is one which the corporation may waive at its peril.^ power by statute to make by-laws for the transfer of its sto(Sk, and in the case in Iowa the by-law was perhaps authorized by the National Bank Act, but the court rely only on the by-law. 1 See § 118. Bank v. Lanier, 11 Wall. 369. And see Plait v. Birming- ham Axle Co., 41 Conn. 255. Smith v. Crescent City Live Stock Co., 30 La. Ann. 1378, 1382. Brisbane v. Del. Lack. §• West. R. E. Co., 25 Hun, 438. Cuahman v. Thayer Mfg. Jewelry Co., 76 N. Y. 365. 2 New York §• New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 80, 81. 8 New York §• New Haven R. R. Co. v. Schuyler, 34 IST. Y. 30, 81 ; s. c. 38 Barb. 534. And see First Nat. Bank of Davenport v. Gifford, 47 Iowa, 575. But in the case of Moore v. Citizens Nat. Bank of Piqua, 111 U. S. 156, it has recently been held that a rule of this kind limited the authority of the officers of the corporation to transfer stock, and that a purchaser must see that the certificate of his vendor is duly surrendered. See to § 123 OF THE EFFECT OF CEETIFIOATES. 135 § 123. By making a transfer on its books without a sur- render of the outstanding certificate, the corporation may render itself liable, — either to a person who after the transfer by the corporation buys the certificate which ought to have been cancelled ; or to a holder of the certificate who bought before the transfer complained of, and whose right to the stock has been cut off by that transfer. These are the same classes of persons whose rights we considered in cases where there is no special regulation about the surrender of the certificates before transfer.' Where there is a regulation of this kind the duty of the corporation is clear. The ground of complaint on the part of a person belonging to the first class we have mentioned is that he has been misled by the outstanding certificate which the corporation ought to have cancelled ; and the result of the regulation in these cases is to give to the certificate the effect of a continuing representa- tion on the part of the corporation that the stock has not been transferred on its books, and upon that representation the purchaser may rely.^ It is clear that the corporation cannot be made doubly liable for the stock without fault on its part, and its liability for transferring without cancelling the certificate must therefore be exactly coextensive with its right to refuse to transfer unless the certificate is sur- rendered.* But it does not follow from this that the cor- poration has power in all cases to refuse to transfer when the old certificate is not surrendered. To carry the rule to that extent would make it almost impossible to get stock away from an owner who is unwilling to transfer it. For in all cases of transfer made against the will of the owner it must same effect Hall v. Rose Hill Ifc. Road Co., 70 111. 673; also a discussion of the first of these cases in a note to § 112, supra. 1 See §§ 119 and 120, supra. 2 Bank v. Lanier, 11 Wall. 369. Strange v. Houston §• Texas Central R. R. Co., 53 Tex. 162. And see Bridgeport Bank v. New York §• New Haven R. R. Co., 30 Conn. 231, 270. * But see § 128, infra, on the effect of losing the certificate. 136 TRANSFER OF STOCK. § 124 be very difficult and often impossible to find the certificates, and it would make stock well-nigh free from attachment and execution to hold that the creditor must get the certificate or run the risk of any future transfers by his debtor. It would seem, therefore, that stock may be taken on execution with- out regard to any certificate outstanding in the hands of the debtor.^ And in a case where, by order of court, trust prop- erty was passed over to a new trustee, who did not get possession of the old certificates, it was held, on the same principle, that the corporation was not liable to a bona fide purchaser of those certificates.^ We must, therefore, take the other horn of the dilemma and say that the corporation cannot require the surrender of the certificate in the case of a transfer made against the will of the owner, and that it is not liable to a purchaser who is misled by a certificate out- standing after such a transfer. It follows that the certificate is only a continuing representation that the stockholder has made on the books of the corporation no voluntary transfer,^ and of other transfers the purchaser must take his risk.* § 124. The liability of the corpoi-ation to the second class of persons — that is, holders of certificates who bought them before the transfer complained of — arises chiefly when there is a rule requiring a transfer on the books, so construed that the first assignee who gets his transfer recorded can hold the stock; and if the corporation, under these circumstances, 1 See Sprague v. Cocheco Mfg. Co., 10 Blatoh. 173, 176. Agricultural Bank v. Burr, 24 Me. 256, per Shepley, J. 2 Sprague v. Cocheco Mfg. Co., 10 Blatch. 173. The case of Holhrook V. New Jersey Zinc Co., 57 N. Y. 616, 622, is probably not intended to be contra. See § 119, note 3; and § 158, note. * Under this are included transfers by a guardian, for, although a guardian transfers without the consent of the owner, it is done for his benefit. The guardian represents his ward as a sort of statutory agent, and his consent is to be regarded as that of the ward. See § 40, supra. * The avoidance of a fraudulent sale is an exception to this rule, and in such a case it would, no doubt, be necessary to get hold of the out- standing certificate. § 125 OF THE EFFECT OF CERTIFICATES. 137 allows a purchaser who has not the certificate to get a trans- fer on the books, and thereby defeats the title of an earlier purchaser who holds the certificate, it will be liable to the latter for the injury it has caused him. The effect of the rule in these cases is that the absence of the certificate is notice to the corporation that the certificate is in the hands of another claimant.! And the result is that a hona fide holder of a certificate need not fear that a subsequent purchaser can deprive him of his stock by an earlier application to the corporation for transfer, because the corporation is bound to refuse to transfer unless the certificate is produced ; and if the corporation violates this duty it is liable in damages to the hona fide holder of the certificate.^ But if the holder of the certificate knows of the intended transfer, and helps to mislead the corporation by an apparent acquiescence, he may, of course, debar himself from any remedy against it.^ § 125. Here, as in the case of the first class of persons whose rights we considered, the power of the corporation to require a surrender of the certificate * and the liability for transferring without a surrender must be exactly coextensive ; and we must again refer to the question how far the rule affects transfers made against the will of the owner,^ for it is 1 Lee V. Citizens Nat. Bank of Piqua, 2 Cin. 278. Strange v. Houston Sr Texas Central R. R. Co., 53 Tex. 162, 169. 2 Bridgeport Bank v. New York §■ New Haven R. R. Co., 30 Conn. 231, 270. Smith v. Crescent City Live Stock Co., 30 La. Ann. 1378. New York Sr New Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 81. Cushman v. Thayer Mfg. Jewelry Co., 76 N. Y. 385. Railroad Co. v. Roibins, 35 Ohio St. 483. And see Bank v. Lanier, 11 Wall. 369. Factors §• Traders Ins. Co. V. Marine Dry Dock Co., 31 La. Ann. 149. Friedlander v. Slaughter House Co., 31 La. Ann. 523, 525. * Friedlander v. Slaughter House Co., 31 La. Ann. 523. * State ex rel. Martin v. New Orleans §■ Carrollton R. R. Co., 30 La. Ann. 308. 8 It seems to be assumed that the corporation need not transfer to the representatives of a person deceased without a surrender of the certificate. Slate ex rel. Martin v. New Orleans §■ Carrollton R. R. Co., 30 La. Ann. 308. Brisbane v. Del. Lack. §• West. R. R. Co., 25 Hun, 438. 138 TEANSFER OF STOCK. § 125 by no means clear that the rights of a creditor are the same in the two cases. If a creditor is obliged to get possession of the certificate of his debtor before he can apply the stock to the satisfaction of his debt, stock is, indeed, a singularly valu- able investment for debtors. But, on the other hand, it is no great hardship upon a creditor to require him to get the certificate of his debtor, or to run the risk that the debtor has already conveyed the stock away. The result of this would be that, unless the creditor gets the certificate, he takes only the equitable interest of his debtor. But that is all a bona fide purchaser would take in such a case ; and although a creditor receives in some jurisdictions the benefit of the rule requiring transfers to be made upon the books,^ and is treated like a bona fide purchaser, yet it is going very much farther to give him property which his debtor has already sold, in a case when it would not be given to a bona fide purchaser. But it is to be noticed, as we have already pointed out,^ that, if a creditor who levies upon stock cannot hold it against a prior purchaser who has not recorded his transfer, the corporation cannot safely issue a certificate to the person who buys the stock at the execution sale. As to the authority upon this matter, it seems to be generally assumed that the creditor, in such a case, is not affected by the rule which requires the surrender of the certificate before transfer on the books, and that he can hold the stock in spite of any certificate in the hands of a prior purchaser.^ 1 See §§ .103, 104, supra. « § 103, supra. ' Button V. Connecticut Bank, 13 Conn. 493. People's Bank v. Gridley, 91 111. 457. Boyd v. Rockport Steam Cotton Mills, 7 Gray, 406. Blanchard V. Dedliam. Gas Light Co., 12 Gray, 213. And see Agricultural Bank v. Burr, 24 Me. 256, per Shepley J. But see Smith y. Crescent City Live Stock Co., 30 La. Ann. 1378; and Friedlander v. Slaughter House Co., 31 La. Ann. 523, which appear to support the views given in the text. But semble, the attaching creditor in these oases would not have got ahead of the prior purchaser if there had been no provision about the surrender of the certificate. Pilot v. Johnson, 33 La. Ann. 1286. § 128 OF THE EFFECT OF OEETIFICATES. 139 § 126. The holder of the certificate has no cause of com- plaint against the corporation unless he has been injured by the wrongful transfer, and this cannot be unless he had such a title to the stock that he could have demanded a transfer of it to himself on the books, except for the transfer he complains of. It is to be remembered also that a corporation which has a regulation of this kind may deal with its stockholders in many wa}-s without requiring their certificates ; and the cor- poration runs no risk by so doing. The corporation may, for example, loan money to a stockholder, and insist upon its lien,i or it may pay dividends to him, or to his assignee,^ or perform, indeed, any corporate act, except making a transfer on its books, without troubling itself about any certificate that may be outstanding. And this is true because it is not customary to produce the certificate in such cases, and it would be an immense inconvenience both to the corporation and to the stockholders, if dividends could not be paid, or other acts of this kind performed, without an inspection of all the certificates outstanding. § 127. The results of the foregoing discussion may be concisely stated as follows : When there is a regulation which forbids the corporation to transfer stock except upon the surrender of the certificate, a purchaser of stock who holds the certificate may be sure that his delay will not enable a junior purchaser to oust him by an earlier registra- tion, for if he does lose his stock in this way he has a remedy against the corporation for his loss. And a purchaser of stock who receives the certificate may safely assume that no volun- tary transfer of the stock bad been recorded on the books of the corporation at the time of his purchase. § 128. The rule which requires a surrender of the certifi- 1 Piatt V. Birmingham Axle Co., 41 Conn. 255. '■i Bailroad Co. v. Robbins, 35 Ohio St. 483. Brisbane v. Del. Lack. §• West. R. R. Co., 25 Hun, 438. Bell v. Lafferty, 1 Pa. Sup. Ct. 454. And see Bank of Commerced Appeal, 73 Pa. St. 59. 140 TRANSFER OP STOCK. § 128 cate before stock can be transferred on the books has an important bearing on the rights of a stockholder who de- mands a new certificate, alleging that the old one is lost or destroyed. If this certificate has really been destroyed the stockholder may, perhaps, have as good a right to demand a certificate as if he had never had one.^ But if a new certifi- cate is issued on the ground that the old one has been lost or destroyed, when in fact it has not, the corporation cannot avoid its obligations to a purchaser of the old certificate by showing that it was supposed to be destroyed, and that a new certificate has been issued to the former owner of the stock.^ And it would make no difference that the destruction of the certi&cate had been proved in a suit between the old stock- holder and the corporation, because the purchaser would not be bound by a decision in a suit to which he was not a party. Now the liability of a corporation which has issued two cer- tificates covering the same stock is by no means clear, unless there is a rule which requires a surrender of the certificate before transfer on the books ; for, if there is no such rule, the certificate has, as we have said,^ no effect, except as a repre- sentation that the person named was at the date of the cer- tificate the owner of stock as therein stated. But if both certificates in the case supposed bear the same date, all the statements in both certificates are perfectly true. If, there- fore, the two certificates are sold to different persons, and one of them by a transfer on the books obtains the title to the stock, it is very doubtful whether the corporation is under any liability __ to the other;* for it is clear that the 1 See State ex rel. Phillips v. New Orleans Gas Light Co., 25 La. Ann. 413. Galveston City Co. v. Sibley, 56 Tex. 269. * Railroad Co. v. Rohbins, 35 Ohio St. 483 ; although in this case the corporation issued the new certificate in pursuance of a by-law, which provided for a new certificate iu case of loss. Greenleaf\. Ludington, 15 Wis. 558. » §§ 118, 119, & 120, supra. * See State ex rel. Phillips v. New Orleans Gas Co., 25 La. Ann. 413, where no such rule about the surrender of the certificate appears. § 129 OF THE EFFECT OP CEETIFI0ATE3. 141 rights of the latter are no greater than they would be if the certificate which he holds were the only one that had been issued for the stock, and even in such a case it is very doubtful whether he would have any claim against the cor- poration.i But if, on the other hand, the corporation is obliged to require the surrender of the certificate when stock is transferred, the purchaser or pledgee of either certificate is protected from any transfer of the stock on the books without the production of the certificate which he holds. If, therefore, the old certificate has, in fact, been, trans- ferred and not destroyed, or if it has been lost but is found again by the owner and sold, and if the owner sells the. new certificate also, the corporation will be liable to both the purchasers. A corporation which is subject to such a rule about the surrender of the certificate, is never safe, therefore, in issuing a new certificate in place of one which is alleged to have been lost or destroyed, and it ought not to be com- pelled to do so, without sufficient security.^ What security will be held to be sufficient, perhaps it is not easy to say ; but the only security which is absolutely safe is a pledge of the stock itself. § 129. It has been already said in an earlier chapter ^ that a certificate of stock may be indorsed in blank and that any one who becomes by delivery the lawful owner may fill up the blank with his own name, and thus complete the transfer of the stock to himself. By means of such an assign- ment in blank a man can sometimes convey a better title than he has himself, and yet a certificate of stock is not, properly speaking, negotiable.* An instrument is negotiable 1 See §§ 119, 120, supra. 2 See Oalveston City Co. v. Sibley, 56 Tex. 269. 8 See § 45, supra. * See Sherwood v. Meadow Valley Mining Co., 50 Cal. 412. Sewallv. Boston Water Power Co., 4 All. 277. Shaw v. Spencer, 100 Mass. 382. Anderson v. Nicholas, 28 N. Y. 600. Moore v. Metropolitan Nat. Bank, 55 N. Y. 41, 48. In the oases of Goodwin v. Robaris, L. R. 10 Ex. 76; 142 TRANSFER OF STOCK. § 129 when a person who buys it bona fid& and for value gets a good legal title to the obligation which it represents, without regard to the title of the person from whom he buys, and without regard to any negligence, actual or presumed,^ on the part of any previous owner. A person, therefore, who has possession of money, or of a bill or note which is indorsed in blank or which is payable to the bearer, need prove only that he received it for value and in good faith. He must, of course, prove that all the indorsements necessary to transfer the title are genuine, in order to show that the instrument was in a condition to pass by delivery ,2 but beyond this he need prove only that he bought hona fide and for value. He need not trouble himself about the title of any previous holder. But this is not true of a certificate of stock, for no one can be deprived of his stock except by a transfer or by fault on his part.* It is necessary, therefore, to prove a transfer from the previous owner, or such conduct on his part that he is estopped to deny that he has transferred.* This is equally true of all the previous owners of the stock ; and it is therefore necessary, as in the case of a chattel,^ to 8. 0. 1 App. Cas. 476 ; and Rumball v. Metropolitan Bank, 2 Q. B. D. 194, a certificate of stock is said to be negotiable on proof of usage, but in neither case was such a doctrine necessary to the decision. 1 Unless we indulge in the fiction that negligence is conclusively pre- sumed against the owner of a negotiable instrument. " la. Mechanics Bank v. New York §• New Haven R. R. Co., 13 N. T. 599, the court seemed to think that if a certificate were not negotiable, spurious stock would become valid in the hands of a bona fide purchaser. " Telegraph Co. v. Davenport, 97 U. S. 369. Pratt v. Taunton Copper Co., 123 Massi 110. Weaver v. Barden, 49 N. Y. 286. And see Bergman V. St. Paul Mutual Building Ass., 29 Minn. 275 ; see also the cases collected in §§ 143, 144, infra. * Donaldson v. Gillott, L. R. 3 Eq. 274. Waterhouse v. London §• South Western R. R. Co., 41 L. T. 553. Assumed in Swan v. North British Australasian Co., 7 H. & N. 603; s. 0., 2 H. & C. 175. And see the cases collected in note 4, p. 141. 5 Stock in this regard is, in fact, just like a chattel. Moore v. Metro- politan Nat. Bank, 55 N. Y. 41, 48. § 129 OF THE EFFECT OF CEETIFICATBS. 143 trace title through all the previous owners, showing a trans- fer, or ground for an estoppel against each one.^ The burden of going through this process is very much lightened by the fact, that there is a natural presumption that a person who has possession of a certificate of stock indorsed in blank came by it honestly and in the ordinary course of business, and this presumption avoids the necessity of proof in the absence of any evidence to rebut it.^ Now the presumption applies not only to the last owner, but also to all the others in the chain of title. Each one is presumed to have obtained the certificate by lawful means, in the absence of evidence to the contrary. Possession of a certificate of stock is, there- fore, said to be prima facie evidence of title.^ If, however, the passing of the stock from some person in the chain of title is put in issue, a transfer or an estoppel must be proved against him. The essentials of a transfer have been dis- cussed in earlier chapters. We are here concerned with the estoppel. In fact, we are concerned with something more than the estoppel, because, even where the estoppel will not give title to stock, on account of the rights of third persons who are not estopped, the same facts will usually, if not always,* be suiBcient tb maintain an action of tort on the misrepresentation. We are strictly concerned here with the effect of the certificate in creating rights against the owner of stock ; and although a certificate is rarely essential to these rights, — although an apparent agency, for example, may be made by a power of attorney written on a plain piece of paper, as well as on the back of a certificate of stock, — yet the certificate is so often involved in these transactions that the questions they present are more properly discussed in this chapter than in any other. 1 See Daly v. Thompson, 10 M. & W: 309. " Holbrook v. New Jersey Zinc Co., 57 N. Y. 616, 623. « Courtright v. Deeds, 37 Iowa, 503, 509. Walker v. Detroit Transit Co., 47 Mich. 338. Broaday Bank v. McElrath, 2 Beas. 24. * See § 113 et seq., supra. 144 TEANSPEE OF STOCK. § 130 § 130. To support an estoppel or an action of tort, it is not necessary that the representation should be made in language, for the false impression on the mind of the person injured may be produced as well by conduct as by language. Nor is it necessary that the guilty person should actually intend the other to act upon the representation. It is enough if he knew that the injured person would act upon it, or was likely to do so,^ for it is clear that in this case, at least, the law will not distinguish between foresight and intent. These principles have an important bearing on questions of agency ; because, if a stockholder gives to his agent an apparent power to sell or pledge his stock, he makes by his conduct, a repre- sentation which he knows an innocent purchaser is likely to act upon, and in such a case the principal is estopped to deny the authority of the agent. A great deal is said about gen- eral and special agencies, but the real question in any case, is simply whether or not the principal has given to his agent such an apparent power that an innocent person has been reasonably misled ; and the distinction between general and special agents is of importance only so far as the courts have treated a general authority as conclusive evidence of ah ap- parent authority to do any act within the limits of the gen- eral power. The execution and delivery by a stockholder of a general power of attorney is held to amount to a represen- tation by him, that the person to whom he delivers the power, has authority to sell or pledge the stock.^ A power 1 Freeman v. Cooke, 2 Exch. 654. 2 Goodwin v. Robarts, 1 App. Cas. 476. Eumball v. Metropolitan Bank, 2 Q. B. D. 194. Otis v. Gardner, 105 El. 436. Prall v. Tilt, 12 C. E. Green, 393. Moore v. Metropolitan Nat. Bank, 55 N. Y. 41. Leavitt v. Fisher, 4 Duer, 1. West Branch Co.'s Appeal, 81* Pa. St. 19. Dovey's Appeal, 97 Pa. St. 153. Moodie v. Seventh Nat. Bank, 3 W. N. C. 118. State Bank v. Cox, 11 Rich. Eq. 344. The principle applies, of course, in any case where there is apparently a general power to sell. Walker v. Detroit Transit Co., 47 Mich. 338. In Commercial Bank of Buffalo v. Kortright, 22 Wend. 348, Chancellor Walworth was of opinion that the principle did not apply if the purchaser had not got a legal title, because § 130 OF THE EFFECT OF CEETIFIOATES. 145 of this kind is frequently created when stock is pledged, by giving the pledgee a certificate indorsed in blank, and in such cases the pledgor should remember that his rights in the stock depend only on the honesty of the pledgee.^ It is necessary, of course, that the representation should have been made by the principal, or, at least, that it should have been made possible by his negligence.^ For this reason an assign- ment filled up with the name of the assignee, and then delivered to another person to hold, cannot be converted into a representation of a general power to convey by erasing the name and leaving a blank. And if the assignment is left blank by the owner with a verbal agreement that it is to be filled up only with the name of a certain person, or only upon he had not recorded his transfer on the hooks. But the legal title has nothing to do with the question, because it is a matter of estoppel by conduct, and a man may estop himself to set up his title in equity as well as at law. The estoppel will hold even although he cannot for other reasons get a complete title to the stock. Where, for example, his title is upset in bank- ruptcy proceedings, and he is obliged to pay the value of the stock to the assignee, he can hold the stock against the former owner. Thompson v. Toland, 48 Cal. 99. In the case of Merchants Bank v. Livingston, 74 N, Y. 223, a singular distinction is drawn. The court said that a blank power of attorney to transfer stock would estop the real owner to deny that he had sold the stock to the attorney, or would estop him to deny that the attorney was his agent to sell ; but it was held that the power did not estop him to deny that the attorney was his agent to pledge the stock. Such an interpretar tion of the meaning of a blank power is certainly not in accord with the common understanding of the matter. In the case of Ortigosa v. Brown, 47 L. J. Ch. 168, it was held that a blank power to transfer raised no estoppel against the person who made it; but perhaps that decision turned on the formalities required for transfer. » Ex parte Sargent, L. R. 17 Eq. 273. Mt. Holly ^•c. Turnpike Co. v. Ferree, 2 C. E. Green, 117. McNeil v. Tenth Nat. Bank, 46 N. Y. 325. Fatman v. Lobach, 1 Duer, 354. Wood's' Appeal, 92 Pa. St. 879. Cherry V. Frost, 7 Lea, 1. Strange v. Houston §• Texas Central R. R. Co., 53 Tex. 162. And see Gass v. Hampton, 16 Nev. 185. Commercial Bank of Buffalo V. Kortnght, 22 Wend. 348. Felt v. Heye, 23 How. Pr. 359. 2 See § 131, infra. 10 146 TEANSFEE OF STOCK. § 131 certain conditions, as soon as the blank is filled up the rep- resentation by the owner, that the holder has a general power to transfer, ceases, and the assignment cannot be made to have this effect again by erasing the name inserted in the blank. The purchaser of a certificate so treated has no claim against the owner of the stock.^ In any case the pur- chaser must act reasonably when he relies on the apparent power of the agent, and he will not be protected if the cir- cumstances were such as would arouse the suspicions of a reasonable man.^ § 131. These principles are well settled in the law of agency, but they have not been so generally applied in other departments of the law. Apart from cases of agency, it is not clear whether an express representation must be proved in order to raise an estoppel, or whether it is enough that the negligence of the person estopped furnished the means where- by the person injured was misled. There is, of course, no liability unless the negligence is the proximate cause of the injury.* But if this is proved, that is, if it appears that the false impression on the mind of the person injured was the natural and probable result of the negligent conduct of another, it would seem that the guilty person makes, in the eye of the law, a representation just as truly as if he had produced the same impression by means of language. But this view of the matter has not been generally accepted. The question arises chiefly when a certificate of stock has been indorsed in blank, then lost or stolen, . and comes finally into the hands of a bona fide purchaser for value. 1 Denny v. Lyon, 38 Pa. St. 98. 2 Where a man bought certificates of stock worth ten dollars a share from a lad sixteen years old for six dollars a share, it was held that he was not a Jona /rfe purchaser. Anderson v. Nicholas, 2SN. Y. 600. See also TaylerY. Great Indian Peninsula Ry. Co., 4 De G. & J. 559. Tal- mage v. Third Nat. Bank, 91 N. Y. 531. « Swan V. North British Australasian Co., 2 H. & C. 175. Bank of Ireland v. Evans' Charities, 5 H. L. C. 389. § 131 OF THE EFFECT OF CERTIFICATES. 147 There is very little authority upon the point in this country,^ but in England the question was very fully considered in the case of Swan v. North British Australasian Co.? and in another suit which, grew out of the same frauds.^ In this case the instrument of transfer was a deed, and the opinions of some of the judges turn upon that point. The deed was delivered to an agent, but the stock could not be transferred without the certificates, and these the owner left locked up in a box ; but the agent, perhaps in consequence of the negligence of the owner, stole the certificates, filled out the deed, and sold the stock. Although the decision turns a good deal on the facts of the case, the opinions treat fully of the question of estoppel by negligence. The majority of the court of Ex- chequer Chamber agreed that the negligence was not the proximate cause of loss, but did not agree on the principles of estoppel. For a discussion of these principles the opinions of Erie, C. J., in the Common Pleas, of Wilde, B., in the Exchequer, and of Cockburn, C. J., and Mellor, Keating, and Blackburn, JJ., on appeal, are especially interesting.* 1 In Aull V. Colket, 2 W. N. C. 322; s. c. 33 Leg. Int. 44, the certif- icate had been stolen, and it was held that the case ought to have been left to the jury to say whether it fell within the rule that where one of two persons must suffer by the fraud of a third, he who intrusted the third person with the means of deception should bear the loss. But in Sherwood v. Meadow Valley Mining Co., 50 Cal. 412, the court assumed that a person who lost his certificate indorsed in blank was not estopped. 2 7 H. & N. 603; s. c. on appeal, 2 H. & C. 175. * Ex parte Swan, 7 C. B. N. s. 400. See also Colesy. Bank of England, 10 A. & E. 437. * Erie, C. J., Wilde, B., and Keating, J., were of opinion that negli- gence is enough to raise an estoppel. Cockburn, C. J., and Byles, J., were of the opposite opinion, and Mellor, J., was uncertain, while Black- burn, J., declared that negligence alone is not enough unless it is a breach of some duty. The principle suggested by Blackburn, J., is important, and has a bearing upon all branches of the law of tort. It involves the question whether a man is always liable for the injury caused by his negligence, when that injury is such that he would be liable if he caused it directly and on purpose; or whether a man is under a duty to use reasonable care 148 TEANSFEE OP STOCK. § 132 § 132. In order to support an estoppel it does not appear to be necessary that the person injured should know who made the representation, or even that he should know that any representation has been made at all ; for conduct which is calculated to induce a man to believe and act upon a mis- take may be the cause of injury to that man although the author of the injury is not seen in the matter, and, if so, it is hard to see why the latter may not be estopped to contra- dict the false impression he has made. For this reason it makes no difference whether a stockholder delivers to a pledgee certificates issued in the pledgor's own name and indorsed in blank by him, or whether he gives the pledgee towards his neighbor only in a limited class of cases, and is liable for the consequences of his negligence only in cases where such a duty exists. This is the same question that arises when a man contracts to manu- facture some article, and in consequence of a defect in the article, which is the result of his negligence, a stranger to the contract is injured. In the last of these cases that has arisen in England (Heaven v. Pender, IX Q. B D. 503), the question is discussed in general terms by Brett, M. R., who says: "The proposition which these recognized cases suggest, and which is, therefore, to be deduced from them, is that whenever one person is by circumstances placed in such a position with regard to another that every one of ordinary sense who did think would at once recognize that if he did not use ordinary care and skill in his own conduct with regard to those circumstances he would cause danger of injury to the person or property of the other, a duty arises to use ordinary care and skill to avoid such danger." With this opinion Cotton and Bowen, L. JJ. did not agree, although they concurred in the decision of the case. Courts of equity have, in some cases, gone farther even than this and held, not only that a man must act with due care if he acts at all, but also that he is under a positive duty to act, and that a neglect of this duty will lay the foundation for an estoppel. We refer to the cases wherp the owner of property who knows that another person is buying it under a mistake about the title, and takes no steps to correct that mistake, but allows the property to be bought, is estopped to set up his own title. See Bigelow on Estoppel (3d ed.), p. 492 el. seq. It may be pertinent to remark here that a purchaser of stock cannot hold the corporation liable for paying dividends to the seller until notice. (See § 86, supra , and this may be upheld on the ground that by custom the purchaser is under a duty to notify the corporation of the sale.) § 133 OF THE EFFECT OF CKKTIFIOATES. 149 certificates assigned in blank by a former holder, so that the pledgor's own name does not appear. In the latter case as well as the former the pledgor would be pstopped to deny the title of a person who bought bona fide from the pledgee.^ In the same way a stockholder may be estopped if he allows the name of another person to be entered on the books as the owner of stock which belongs, in fact, to himself,^ or if he allows the certificates for his stock to be issued in the name of another person.^ The doctrine of equity by which a man is estopped to set up his title to property after standing by and allowing another person to buy it without giving notice of his rights, illustrates the principle under discussion, because it does not proceed on the ground that the purchaser relied on the silence of the owner, for the purchaser, on the contrary, has usually no idea that the owner has any claim to the property, and relies on something entirely different. The doctrine proceeds on the ground that the owner has allowed the purchaser to entertain a false impression, knowing that he would act upon it.* § 133. There is one more decision upon the effect of cer- tificates of stock which must be noticed in this chapter, for it declares that a transfer in blank indorsed on a certificate has the effect of a warranty by the indorser that he owns the stock described in the certificate, and this warranty, it is said, avails a bona fide purchaser of the certificate. In 1 Gass V. Hampton, 16 Nev. 18.5. Brewster v. Sime, 42 Cal. 139. And see Dovey^s Appeal, 97 Pa. St. 153. Moodie r. Seventh Nat. Bank, 3 W. N. C. 118. 2 See § 85, supra. ' Thompson v. Toland, 48 Cal. 99. And see Ward v. South Eastern Ry. Co., 2 El. & El. 812. In Crocker v. Crocker, 31 N. Y. 507, the agent probably had the legal title, and hence the purchaser needed no estoppel for his protection. * Conf. Bigelow on Estoppel (3d ed.), 492 et seq., with 519 et seq. And of course a stockholder may be unable to claim his stock on account of his laches. See In re London §• Provincial Tel. Co., L. R. 9 Eq. 653. 150 TEANSFEE OF STOCK. § 133 Matthews v. Massachusetts Nat. Banh^ a certificate for two shares of stock in the name of C. was so altered by him that it read two hundred shares in the name of the defendant as collateral security, and it was then pledged to the defendant for a loan. The loan was paid, and the defendant indorsed a transfer in blank upon the certificate and redelivered it to C, who pledged it to the plaintiff. In a suit by the plaintiff against the defendant, the court held that the plaintiff could recover the value of two hundred shares of the stock, on the ground that the indorsement was a contract to assign two hundred shares to any one who would fill up the blank with his own name. Upon the sale of a chattel at common law there is an implied warranty on the part of the vendor that he has a good title, but there is no warranty of the quality or value of the property. This principle applies also to personal obligations, and a person who sells these is held to warrant that he has a valid title to them,^ and the vendor in such a case warrants, not only that he has a good title to the instru- ment which he holds, but also that he has title to the obliga- tion which he purports to sell. He warrants, in other words, that he has, against the person who executed the instrument, these rights which he professes to have. A person who sells a promissory note, for example, warrants not only that he has a good title to the note, but also that the note is genuine.^ But the vendor does not warrant that the obligation has the value or quality * or even the precise nature which it appears to have. The line appears to be drawn in this way. The ' 1 Holmes, 396; and see a criticism of this case in 14 Am. Law Reg. N. s. 153. ^ For an application of this principle to stock, see Allen v. Pegram, 16 Iowa, 163. State v. North La. §• Tex. R. R. Co., 34 La. Ann. 947. People's Bank v. Kurtz, 99 Pa. St. 344. » Chitty on Bills, 185 ; Byles on Bills, 164 ; Story on Prom. Notes, § 118. * Allen V. Pegram, 16 Iowa, 163. The vendor does not warrant that the corporation has a good title to the property which it is supposed to own. State v. North La. If Tex. R. B. Co., 34 La. Ann. 947. § 133 OF THE EFFECT OF CERTIFICATES. 161 vendor warrants that he has title to a valid obligation which is represented by the instrument which he assigns, but he does not warrant that this obligation has exactly the character which it purports to have. It has been held, therefore, that the vendor warrants that the certificate has been duly issued by the corporation, but does not warrant that it was not fraudulently issued in excess of the charter limit of stock.^ It is a mistake, however, to suppose that this warranty arises in any way from the written assignment or the indorsement on the certificate, for it arises simply from the sale without regard to the form in which the sale is made. In the case of a promissory note or bill of exchange, for example, this warranty on the part of the vendor arises not only when he makes an indorsement, but also when he sells an instrument which is payable to bearer and passes by mere deli very .^ And the same thing would, of course, be true of a certificate of stock. 1 People's Bank v. KuHz, 99 Pa. St. 344. " Chitty on Bills, 185; Byles on Bills, 164; Story on Prom. Notes, §118. 152 TRANSFER OF STOCK. § 135 CHAPTER VI. OF THE LIABILITY OF THE CORPORATION. § 134. A CORPORATION may render itself liable by not making a transfer of stock on its books and not issuing a cer- tificate when it ought to do so, or by doing these things When it ought not to, and, as often happens elsewhere, the corpora- tion must decide at its peril whether a person who demands a transfer on the books is entitled to it or not. The corporation cannot, of course, come under a liability to each of two ad- verse claimants without fault on its part, but the fault may be a fault only in the eye of the law. A mere mistake will sometimes render it liable to both claimants, although it has taken great pains to discover the real rights of the parties. § 135. A stockholder in a corporation has a right to trans- fer his stock,^ and if the corporation is compelled by statute to keep upon its books a record of the transfers of its stock, or if, without a statute, it is the custom of the corporation so to do, a stockholder has a right to have his transfer recorded in the usual form.^ K the corporation refuses to allow a transfer on its books, without a valid excuse, it is liable in damages to the vendor of the stock for any injury he may sustain.^ But if the stockholders are subject to an individual 1 See § 31, supra. 2 In Crawford v. The Provincial Ins. Co., 8 U. C. C. P. 263, it was held that the corporation was under no duty to register a transfer where registry is not made necessary to a transfer by statute ort)y-law, and this on the ground that a transfer without registry is valid. 8 Case Y. Bank, 100 U. S. 446. Webster v. Grand Trunk R. R. Co., 3 Low. Can. Jur, 148. This is assumed in Bank of Ireland v. Evans's Charities, 5 H. L. C. 389; and in Coles v. Bank of England, 10 A. & E., § 136 OF THE LIABILITY OP THE COEPOKATION. 153 liability this is not at all an adequate remedy, because a stock- holder whose name remains on the books of the corporation may, perhaps, be liable to creditors, although he has done everything in his power to have his name taken off.^ The refusal of the corporation may therefore subject the stock- holder to an irreparable injury, and it would seem to be clear, in such a case, that he could maintain a bill in equity against the corporation to compel it to record the transfer. ^ § 136. But the liability of the corporation commonly arises from the other side. The transferee of stock, as well as the transferor, has a right to have the transfer recorded on the books,^ and the corporation is, moreover, bound to issue to him a certificate for the stock in his own name,* at least if the corporation is in the habit of issuing certificates at all, or is directe4 to do so by statute, charter, or by-law.^ These rights do not depend at all on the question whether the title passes vrithout a transfer on the books or not ; for if the title passes before record, the purchaser is a stockholder and has a right 437, where this form of remedy appears to have been used to test the title to the stock. 1 See § 87, supra. * See Bermingham v. Sheridan, 33 Beav. 660. Eustace v. Dublin Trunk Ry. Co., L. R. 6 Eq. 182. Taylor v. Hughes, 2 J. & Lat. 24. * Rex -v. Bank of England, Doug. 524. Catchpole v. Ambergate Ry. Co., 1 E. & B. 111. Norris v. Irish Land Co., 8 E. & B. 512. Daly v. Thompson, 10 M. & W. 309. Mechanics Bank v. Seton, 1 Pet. 299. Edwards v. Sonoma Bank, 59 Cal. 136. lasigi v. C. B. Sf. Q. R. R. Co., 129 Mass. 46. Hill v. Pine River Bank, 45 N. H. 300. Cushman v. Thayer Mfg. Co., 7 Daly, 330; s. c. 76 N. Y. 365. Middlebrooh v. Mer- chants Bank, 3 Abb. Ct. App. 295. Presbyterian Congregation v. Carlisle Bank, 5 Pa. St. 345. And see the cases cited in the following section. This is not true where the books are private and kept solely at the pleasure of the corporation. See the preceding page, note 2. * Cecil Nat. Bank v. Watsontown Bank, 105 U. S. 217, 223. Chester Glass Co. V. Dewey, 16 Mass. 94. Arnold v. Suffolk Bank, 27 Barb. 424. Johnson v. Albany §• Susq. R. R. Co., 40 How. Pr. 193. And see Sargent V, Franklin Ins. Co., 8 Pick. 90. Field v. Pierce, 102 Mass. 253, 261. * For a case in which the corporation was not required to issue a certi- ficate, see Thorp v. Woodhull, 1 Sandf. Ch. 411. 154 TEANSFEB OP STOCK. § 138 to have his stock transferred into his own name on the books of the corporation, and if a transfer on the books is required to pass the title to the stock, the right of the purchaser is none the less good at common law, and arises from the obliga- tion of the corporation to recognize and treat as a stockholder any one who buys its stock, although the act of the corpora- tion itself is required to pass the title. § 137. If a corporation refuses,^ without lawful excuse, to transfer stock upon its books or to issue a certificate to the purchaser, the latter may treat the refusal as a complete denial of his ownership,^ and he may, therefore, sue the cor- poration and recover the full value of the stock,^ as in a suit for the conversion of a chattel at common law ; and it follows that the corporation, like a defendant in trover, must, after judgment satisfied, acquire all the rights of the plaintiff to the stock, and that it may transfer it into its own name on the books. If this action at law fail to afford the purchaser an adequate remedy, he can, in a proper case, bring a bill in equity to compel the corporation to make a transfer on its books,* and to issue to him a certificate for the stock. § 138. A corporation is not obliged, like a register of deeds, 1 For what is sufficient evidence of a refusal, see In re Goodwin v. The Ottawa §• PrescoU JR. R. Co., 13 U. C, C. P. 254. Even if the corporation does not actually refuse to transfer, it is liable for an unreasonable delay in transferring. Sutton v. Bank of England, 1 C. & P. 193. 2 Bank of America v. McNeil, 10 Bush, 54. Bond v. Mt. Hope Iron Co., 99 Mass. 505. St. Louis Ins. Co. v. Goodfellow, 9 Mo. 149. Arnold V. Suffolk Bank, 27 Barb. 424. And see § 14, supra. ' Helm -v. Swiggett, 12 Ind. 194. Bank of American. McNeil, 10 Bush, 54. Baltimore City R. E. Co. v. Sewell, 35 Md. 238. Gray v. Portland Bank, 3 Mass. 363. Sargent v. Franklin Ins. Co., 8 Pick. 90. Bond v. Mt. Hope Iron Co., 99 Mass. 505. St. Louis Ins. Co. v. Goodfellow, 9 Mo. 149. Pinkerton v. Man. Sf Law. R. R. Co., 42 N. H. 424. Kort- right v. Buffalo Bank, 20 Wend. 91 ; s. c. 22 Wend. 348. Arnold v. Suffolk Bank, 27 Barb. 424. Dayton Nat. Bank v. Merchants Nat. Bank, 37 Ohio St. 208. McMurrich v. Bend Head Harbor Co., 9 U. C. Q. B. 333. 4 See § 235, infra. § 139 OF THE LIABILITY OF THE COKPOEATION. 155 to record all transfers that are ofiPered. On the contrary it often happens that the corporation is not only at liberty to refuse, but is bound to do so, and is liable, if it allows the transfer, to any person who is injured thereby. The corpora- tion is justified in refusing to transfer if the purchaser is, for any reason, unable to take the stock.^ And, unless bound by an estoppel, the corporation can refuse to transfer, when the purchaser has not obtained a title good against the former owner of the stock, or when a transfer would be a violation of its duty, at law or in equity, towards another person.^ It is, however, of no consequence that the title of the purchaser is voidable, if it has not been in fact avoided, because, by the definition of the term voidable, the title of the purchaser, in such a case, is valid until it is avoided.^ § 139. Whatever the principles of the common law may be, in regard to the liability of a bailee for refusing to deliver chattels to a person who claims to be the owner, it is held in the case of stock that the corporation is not liable for refusing to transfer until the claimant offers a reasonable proof of his title. It is not enough for the owner to make a demand and 1 If it is ultra vires, for example. Franklin Bank v. Commercial Bank, 36 Ohio St. 350. 2 In Purchase v. Exchange Bank, 3 Kob. 164, it was held that an injunc- tion issued in a suit to which the plaintiff was not a party was a good defence to the corporation for not transferring to him, but that the cor- poration, after notice, was bound to respect his rights. This amounts to saying that the corporation can refuse to transfer when a stranger claims the stock, whether his claim is well founded or not ; for it is clear that the claim has no greater effect because made by a suit against the corporation. A sounder view is presented in Townsend v. Mclver, 2 S. C. N. s. 25, where it was said that notice that there were parties equitably interested, who intended to dispute the right to a transfer might justify the corporation in suspending transfer, but would not justify a refusal to transfer, if, after a reasonable time these parties failed to apply to the court. But the cor- poration is not liable for obeying an order of court in a suit to which the person injured was a party. Chapman v. New Orleans Gas Light §• Bank- ing Co., 4 La. Ann. 153. 8 Helm V. Smggett, 12 Ind. 194. 156 TRANSFER OF STOCK. § 140 then prove his title in a suit. The corporation may require evidence of his right to a transfer, and is not liable for refusing to transfer, unless the evidence offered is such that it would satisfy a reasonable man that the claim is valid.^ The corporation may, therefore, require the identity of the parties, and the genuineness of the signatures to be established before transferring.^ It may require of a trustee proof of his right to sell, and may refuse to transfer till reasonably satis- fied of his power.2 And, if in doubt between two claimants, it may make them interplead, and bear the costs of suit, unless it is estopped to dispute the claim of one of them.* But the corporation must be reasonable in its refusal, and it cannot refuse to transfer if it can satisfy itself of the pur- chaser's title by examining the evidence offered.^ § 140. A purchaser of stock has no right to a transfer on the books until he makes a demand. It follows that there is no cause of action until demand and refusal, and that the Statute of Limitations begins to run only from that time.® The demand for a transfer must be made in the proper 1 The same principle applies to other dealings between the corporation and its stockholders, — such as voting on stock by proxy. See In re St. Lawrence Steamboat Co., 15 Vroom, 529. * Davis V. Bank of England, 2 Bing. 393, 405. Telegraph Cp. v. Daven- port, 97 U. S. 369. And see Sargent v. Franklin Ins. Co., 8 Pick. 90. * Chew V. Bank of Baltimore, 14 Md. 299. Loring v. Salisbury Mills, 125 Mass. 138. Bayard v. Farmers Bank, 52 Pa. St. 232. Bohlen's Es- tate, 75 Pa. St. 304, 312. And see Re East Wheal Martha Mining Co., 33 Beav. 119. * See § 242, infra. In Ghew v. Bank of Baltimore, 14 Md. 299, it was said that the corporation could also compel the attendance of the party, to determine such matters as were in dispute. « See Ex parte Sargent, L. K. 17 Eq. 273. lasigi v. C. B. §• Q. R. R. Co., 129 Mass. 46. 8 Cleveland R. R. Co. v. Robbins, 35 Ohio St. 483. But the purchaser may debar himself from any remedy in equity although he has made no demand, if he delays to give notice of his claim after hearing that the corporation has transferred, or is about to transfer, the stock to an- other. § 141 OF THE LIABILITY 0¥ THE COEPORATION. 167 manner,^ and all the formalities which the corporation has a right to require must be observed.^ If there is a by-law, for example, forbidding transfer on the books without a surrender of the certificate, the corporation can refuse to transfer unless the certificate is produced.* But it has been held that if the corporation would take advantage of the want of a mere formality in making the demand, the refusal to transfer, like a refusal to accept a tender at common law, must be put on that ground at the time.* A lack of these formalities cannot be used afterwards to bolster up a wrongful refusal. § 141. Two other cases in which the corporation has a right to refuse to transfer upon its books require to be noticed here. The first of these is presented when the corporation is given a lien on the stock of its debtors. Now the objects of such a lien would be defeated if the debtor had the usual power to sell, and the corporation can, therefore, refuse altogether to transfer the stock upon its books until the debt is paid. The second case arises from the habit which all large corporations have now adopted, of closing their books for a time before paying a dividend. Although this prac- tice has not yet been sanctioned by the courts, there can be no doubt that it is valid, within reasonable bounds, as far as the right of the corporation to refuse to transfer is 1 A demand for transfer made on the officers or clerks at the office of the corporation is good, for the purchaser may presume that the principal one has power to transfer. Case v. Bank, 100 U. S. 446. Commercial Bank of Buffalo v. Kortright, 22 Wend. 348. In re Goodwin v. The Ottawa §• Prescott Ry. Co., 13 U. C. C. P. 254. But if the transfer is to be made by attorney, and a power is executed with the name of the cashier as attorney, he is not, of course, bound to act under it. Chapman v. New Orleans Gas Light §• Banking Co., 4 La. Ann. 158. 2 The conveyance itseK must be in a proper form. Regina v. General Cemetery Co., 6 E. & B. 415. 8 See §§ 119, 121, et seq., supra. * Bond v. Mt. Hope Iron Co., 99 Mass. 505. Townsend v. Mclver, 2 S. C. 25. 158 TRANSFER 01 STOCK. § 142 concerned.! But what effect such a practice may have on the rights of an assignee or creditor of the stockholder of record is not, perhaps, so clear. § 142. So much for the liability of a corporation on account of a wrongful refusal to make a transfer on the books^:i^We now come to the liability for making a transfer when it ought not to do so. And this includes two separate inquiries, for we must distinguish the liability of the corporation where the legal title passes from its liability where no title passes, in spite of the transfer on the books. If a transfer is attempted, and there is no power to convey, the corporation, by making the record and giving a new certificate to the purchaser, does not affect the title of the real owner of the stock ; for the transfer is a mere nullity as to him, and he remains the owner of the stock.2 But the corporation may become liable in damages to a purchaser who has been misled by the transfer on the books, or by the issue of a new certificate, and it may be estopped to deny his title. If, on the other hand, the seller has power to convey the legal title, but is a trustee, or is for any reason under a duty not to use his power,^ a transfer by the corporation can do no injury to the purchaser,* because if he buys bona fide and for value, he becomes the absolute own_pr of the stock, and if not, he has clearly no cause of action against the corporation. But to the cestui que trust who is injured by the transfer on the books, the corporation ^ In the confusion arising upon the discovery of Schuyler's frauds in the New York & New Haven R. R. Co., it was held that the corporation was justified in temporarily closing the transfer books Bridgeport Bank, V. New York §• New Haven R R Co., 30 Conn. 231, 272. " He has, of course, a right to a new certificate if the corporation has cancelled his old one, but this has nothing to do with the transfer on the books. His rights would be precisely the same if the corporation had thrown the certificate into the fire by mistake. The transfer by the corporation may be evidence of such a total denial of the stockholder's rights as to sustain an action of tort. See § 144', infra. ^ This duty may be legal or equitable. See § 160, infra. * Salisbury Mills v. Townsend, 109 Mass. 115. § 143 OF THE LIABILITY OF THE COKPOEATION. 169 is liable, if it had notice of his rights.) We shall consider, first, the effect of a wrongful transfer by the corporation, in cases where the legal title does not pass, and afterwards, its effgfit in cases where the legal title does pass. C^ 143. No one can be divested of his stock without his consent, except by virtue of a superior right on the part of some one else, unless by his own fault he has estopped him- self to deny that he transferred.^ The fact that some one deludes the corporation into the belief that certain stock has been sold, and induces it to make a transfer on the books and to issue a new certiiicate, cannot pass the title of the owner.2 But this principle has not always been clearly understood, owing to a confusion between the stock and the certificate. In a recent case,'' for example, the court say that the corporation alone has power to cancel old stock, and issue new, and that the liability for doing this wrongfully, rests upon a breach of the contract on the part of the cor- poration to hold the stock for the benefit of the true owner of the certificate.*)' To decide that a transfer by the corporation passed the stock, without consent or fault on the part of the stockholder, would put all stock at the mercy of the cor- poration, for it could easily divest any one of his stock, and leave him to his remedy in damages ; an ingenious way to 1 And if there is an estoppel the corporation obtains the benefit of it as well as the purchaser, if it acts bona fide and has been misled by the owner of the stock. And see § 145, infra. * Cady V. Potter, 55 Barb. 463. And see Farmers §• Mechanics Bank V. Wayman, 5 Gill, 336. 8 Baker v. Wasson, 53 Tex. 150. < The confusion in this case is too evident to require explanation, and the authors are unable to explain the meaning of the judge. Even in the venerable case otAsTibyy. Blackwell, Amb. 503; s. c. 2 Eden, 299, this principle was not appreciated, for it appears that the court sustained the claim of the stockholder whose signature to a transfer was forged, on the ground that the corporation stood in the position of a trustee, and that trustees "must see to the reality of the authority empowering them to dispose of the trust money." 160 TRANSFER OF STOCK. § 144 manage elections and to keep control of the affairs of the corporation. § 144. A transfer by the corporation, therefore, if made without authority, does not deprive the stockholder of any of his rights. It has, in fact, no more effect than if a stranger had destroyed the certificates and made the false entry on the books of the corporation.^ The stockholder can, of course, get a new certificate, and have the record corrected, but otherwise his rights as a stockholder are precisely what they were before. This principle has been frequently recognized and enforced in cases of forgery.^ It is clear that the forgery gives no authority to the corporation to make a transfer on the books, and no amount of care on its part can convert a forgery into a valid conveyance or pass the title to the stock. The same thing is true when a conveyance is made by a lunatic,^ and when a transfer was made by the corporation under the orders of the Confederate Government/) It follows that when a person proves that he 1 In Duncan v. Luniley, 2 Mac. & G. 30, it seems to have been held that the stockholder was not entitled to have the stock replaced in his name unless he alleged that the unauthorized transfer was the act of the corporation. 2 Hildyard v. South Sea Co., 2 P. Wms. 76. Davis v. Bank of Eng- land, 2 Bing. 393. Sloman v. Bank of England, 14 Sim. 475. Coltam v. Eastern Counties Ry. Co., IJ. & H. 248. Bank of Ireland v. Evans' Char- ities, 5 H. L. C. 389. Midland Ry. Co. v. Taylor, 8 H. L. C. 751. Taylor v. Midland Ry. Co., 29 L. J. Ch. 731. Johnston v. Renton, L. R. 9 Eq. 181. Telegraph Co. v. Davenport, 97 U. S. 369. Blaisdell v. Bohr, 68 Ga. 56. Brown v. Howard Ins. Co., 42 Md. 384. Hambletomr. Central Ohio R. R. Co., 44 Md. 551. Mayor of Baltimore y. Ketchum, 57 Md. 23. Pratt V. Taunton Copper Co., 123 Mass. 110. Pratt v. Boston §■ Albany R. R. Co., 126 Mass. 443. And see Dalton v. Midland Ry. Co., 12 C. B. 458. Tayler v. Gt. Indian Pen. Rjj. Co., 4 De G. & J. 558. Donald- son v. Gillot, L. R. 3 Eq. 274. Waterhouse v. London §• South Western Ry. Co., 41 L. T. n. s. 553. Simm v. Anglo American Tel. Co., 5 Q. B. D. 188. Sewall v. Boston Water Power Co., 4 All. 277. ' Chew V. Bank of Baltimore, 14 Md. 299. * Dewing v. Perdicaries, 96 U. S. 193 ; s. c. Chase's Deo. 435. And see KeppeVs Adm'rs v. Petersburg R. R. Co., Chase's Dec. 167. And the § 145 OF THE LIABILITY OP THE COEPORATION. 161 has been the owner of stock, a transfei' on the books of the corporation, although prima facie evidence of a conveyance, is not conclusive, and the corporation must show that the record on its books was made in pursuance of a valid trans- fer.i Now, although a transfer made by the corporation without the consent of the owner cannot deprive him of his stock, it by no means follows that it is not sufficient evidence of a denial of his title, and of a refusal to recognize him as a stockholder. If so, he can sue the corporation, like a pur- chaser who is refused a transfer on the books, and he can recover the full value of the stock.^ There is very little authority upon this point,^ because stockholders under these circumstances, fearing, perhaps, that they had no remedy at law, have almost invariably gone into equity.* § 145. The principle that a transfer made without author- ity from the owner cannot- deprive him of his rights against the corporation is subject to a single exception, which is in reality not an exception at all. Where the transfer by the corporation is the result of the negligence of the stockholder he cannot claim his stock and make the corporation suffei' the consequences of his fault. If a stockholder misleads the corporation, for example, into a belief that he has sold his corporation would be excused for not paying dividends to the stockholder if it acted under the orders of the Confederate Government, but this would be a defence only if duress was the real cause of its conduct. Keppel's AdmVs V. Petersburg R. R. Co., Chase's Deo. 167. 1 Pollock V. National Bank, 7 N. Y. 274. 2 See §§ 14, 137, supra. ' In Daris v. Bank of England, 2 Bing. 393, it was held that an action for damages would not lie on account of the transfer, because the plaintiff remained the owner of the stock. See also Duncan v. Luntley, 2 'Mac, & G. 30. In favor of the view given in the text see Marsh v. Keating, 1 Bing. N. C. 198. Pollock v. National Bank, 7 N. Y. 274. Baker v. Wasson, 53 Tex. 150. In several cases, however, relief in equity has been decreed in the alternative for retransfer on the books or damages. See the cases collected in note 2, p. 160. * See the other cases collected in note 2, p. 160. 11 162 TKANSFEE OP STOCK. § 146 stock, and the corporation is thereby induced to transfer, and becomes estopped to deny the title of a bona fide pur- chaser, the owner cannot, by claiming the stock, subject the corporation to a double liability, but is himself estopped to deny that he had sold it.i And this principle has been carried so far that a stockholder has been said to be under a duty to inform the corporation of his right to stock, if he knows that it is proposed to make a transfer of it ; and a neglect of this duty has been held to be enough to deprive bim of his stock.^ ,/ § 146. The liability of the corporation to a purchaser of stock when the title does not pass, arises where the corpora- tion falsely represents to him that the stock is properly conveyed,^ and the liability is enforced by means of an es- toppel, or an action of tort. The general nature and limita- tions of this kind of liability and 'of the remedies to enforce it were considered in chapter five, when we treated of repre- sentations made by means of the certificate, and it is unneces- sary to review the ground there covered. We shall, there- fore, discuss in this place only those matters which have a peculiar bearing on transfers of stock where the title of the former owner fails to pass, and we shall treat only of the rights of the immediate transferee. It is only necessary to remark, therefore, that a transfer of stock on the books of the 1 Coles V. Bank of England, 10 A. & E. 437. And see Bank of Ireland V. Evans' Charities, 5 H. L. C. 389. Friedlander v. Slaughter House Co., 31 La. Ann. 523. Sewall v. Boston Water Power Co., 4: All. 277. In Cottam V. Eastern Counties Ry. Co., 1 J. & H. 243, it was held that where two trustees allowed the third to keep the muniments of title and to col- lect the income, this was not such negligence as to estop them to deny his authority to sign their names to a transfer. ^ See Davis v. Bank of England, 2 Bing. 893, 409. Friedlander v. Slaughter House Co., 31 La. Ann. 523. ' This liability has no connection with the right of the former owner of the stock, so that the purchaser is not a necessary party to a bill by the former owner against the corporation. Pratt y. Boston Sf Albany R R. Co., 126 Mass. 443. Contra, Blaisdellf. Bohr, 68 Ga. 56. § 147 OP THE LIABILITY OF THE COKPOBATION. 163 corporation may amount to a binding representation, apart from the fact that a certificate has been issued,' and that representation may be the foundation of liability. § HI. Now, in order that a representation may give rise to liability, it must be proved that the representation was the cause of the loss. It is not enough, that the pur- chaser of stock advanced his money because he supposed that the transfer to him was valid, — and that, in fact, the corporation stated to him that it was valid, — unless it can also be proved that the statement of the corporation was the cause of his paying the purchase money ; ^ because it must be proved that the wrongful act of the corporation was the cause of the injury. Now it cannot be taken for granted that the immediate purchaser paid his money in consequence of the representation by the corporation. On the contrary, the purchaser usually relies on information derived from other sources in regard to the genuineness of the signatures, the ca- pacity of persons, &c., so far as the immediate transfer to him is concerned ; and in many cases he pays the purchase money before going to the corporation at all, — an almost conclusive proof that no representation on the part of the corporation had any influence upon his conduct.^ Before the corporation can be held liable it must also be proved that it was reason- able for the purchaser to suppose that the representation was 1 See Ashby v. Blachwell, Amb. 503 ; 8. c. 2 Eden, 299. Dalton v. Midland Ry. Co., 12 C. B. 458. Simm r. Anglo-Am. Tel. Co., 5 Q. B. D. 188, per Lindley, J., p. 192. Cohen v. Gwynn, 4 Md. Ch. 357. New York §• JVew Haven R. R. Co. v. Schuyler, 34 N. Y. 30, 77. ^ Simmy. Anglo-American Tel. Co., 5 Q. B. D. 188, per Brett, L. J. Brovon v. Howard Ins. Co., 42 Md. 384. Hambleion v. Central Ohio R. R. Co. , 44 Md. 551. And see Waterhouse v. London §■ North Western Ry. Co., 41 L. T. N. 8. 553. Wright's Appeal, 99 Pa. St. 425. In Hart v. Frontino Gold Mining Co., L. R. 5 Ex. Ill, for example, this fact expressly appears. * If the corporation actually knows of the fraud, it may be held to be a joint tort feasor and liable to the purchaser, although his conduct has not been influenced by the representation. 164 TRANSFER OP STOCK. § 147 intended or expected to influence his conduct, and that it was reasonable for him to believe the representation and rely upon it. These two things go together, because, if the cor- poration represents to the purchaser that the transfer is valid, intending thereby to influence his conduct, it would, no doubt be reasonable for him to rely on that representation ; for the corporation may have better means of knowing than he. But in these respects the position of the first transferee is very different from that of a subsequent purchaser of the stock. The corporation does not, in fact, usually intend to influence the conduct of the immediate purchaser at all. It assumes the validity of the conveyance and performs a ministerial act in recording it and issuing a new certificate, but this certifi- cate, on the other hand, is intended to influence the conduct of subsequent purchasers. If J. S. brings to the corporation a certificate indorsed in the name of the stockholder, and the corporation makes the transfer and issues a new certificate to J. S., it does not intend to influence his conduct, by stating to him that the signature of the former owner is genuine, but the new certificate is intended to be a statement that J. S. is a stockholder, and is intended to influence the con- duct of any one who deals with him. The immediate pur- chaser cannot, therefore, in general, assume that the corpora- tion, by transferring, makes any representation which is in- tended to influence him.^ It is sometimes said that the authority of the corporation to make a transfer is a matter which lies peculiarly within its own knowledge, and that, if it makes the transfer, it may well be supposed to represent that it has authority to do so. But this matter does not lie peculiarly within the knowledge of the corporation. The question frequently arises when a transfer of stock has been forged, and in such a case it is clear that although the signa- ture of the stockholder may be well known to the corporation * See Simm v. Anglo-American Tel. Co., 5 Q. B. D. 188. § 147 OF THE LIABILITY OP THE COllPOEATION. 165 and may appear frequently on its books, yet it is possible, on the other hand, that the corporation has never seen it ; and if the signature of the stockholder is not to be found on the books of the corporation, the purchaser has a much better opportunity than the corporation to ascertain whether the signature to the transfer is genuine or not. Of the capacity of the parties the corporation has not better means of know- ing than the purchaser. In short, the corporation has not peculiar knowledge of these facts, and is not peculiarly bound to find them out.^ The purchaser of stock cannot, therefore, require a statement by the corporation that the transfer to him is valid, nor has he a right to treat a transfer on the books of the corporation, or the issue of a certificate to him, as a representation to that effect.^ The purchaser, of course, is at liberty to prove that he took the certificate to the corporation in order to find out whether the transfer was good, and that the corporation assured him that it was good, intending him to rely upon that statement.* But the converse of this is also true. The corporation may prove that the purchaser or any other person declared that the transfer was valid, intending the corporation to rely and act upon that statement, and, if this is proved, the cor- poration will have an action against that person for any damages it may suffer in consequence of his representa- tions. Either the corporation or the purchaser may prove' a cause of action for false representations against the other, but it is at least as probable, and as fair to assume, that the corporation relied on a representation made by the purchaser 1 Hamhletnn v. Central Ohio R. R. Co., 44 Md. 551. Bank of Virginia V. Craig, 6 Leigh, 390. * Hambletnn v. Central Ohio R. B. Co., 44 Md. 551, Bank of Virginia V. Craig, 6 Leigh, 399. And see Simm y, Anglo-American Tel. Co., .5 Q. B. D. 188. ' This appears to have been the case in Hart v. Frontino Gold Mining Co., L. R. 5 Ex. Ill; and in Mandlehaum v. North American Mining Co., 4 Mich. 465. 166 TKANSFBK OP STOCK. § 149 as that the purchaser relied on a representation made by the corporation.^ § 148. It may be noticed that the liabilities heretofore dis- cussed in this chapter do not depend at all on the existence of a regulation requiring transfers to be made on the books. Such a rule could have no effect upon the cases we have been considering, unless it vrere construed to make the books of the corporation, like a registry of deeds, a mere collection of documents, made without regard to their validity. In a juris- diction where this view prevailed, the corporation would be obliged to record everything purporting to be a transfer which was brought to it, and could not be liable to any one for so doing. Although such a doctrine has been suggested, it is pretty certain that it will never be maintained. § 149. We now come to cases of wrongful transfer by a corporation where the legal title passes ; and these occur where the seller has power to pass the legal title, but holds that power subject to a duty which is violated by the sale. In such cases, as we have already said, the corporation can come under no peculiar liability to the transferee or his as- signee. If any one of them is a bona fide purchaser for value, he acquires all the rights of a stockholder, free from any claims against his vendor; and if any one of them does not get a complete title to the stock, it is because he had notice of the defect in the title or did not pay value for the stock, and in either ease he has not been injured by the act of the corpora- tion.^ But if the corporation has notice of the claims of the 1 In Boston §• Albany R. R. Co. v. Richardson, 135 Mass. 473, it was held that a bi-oker who brings an assignment to the corporation represents that the signature is genuine, and that the corporation can recover from him the value of the stock if the assignment turns out to be forged, after the new certificate has passed into the hands of a bona fide purchaser for value. But in Simm v. Anglo-American Tel. Co., 5 Q. B. D., 188, Lindley, J. , said that a purchaser by bringing a transfer to the corporation does not represent that it is genuine, while the Lords Justices gave no opinion upon the point. * See Shaw v. Spencer, 100 Mass. 382. This matter must not be con- § 151 OP THE LIABILITY OF THE OOEPOEATION. 167 cestui que trust,^ and yet makes the transfer on the books, it becomes a party to the transfer, and a joint wrong-doer with the trustee, and it is therefore liable to the cestui que trust for all damages occasioned to him by this wrongful act, unless, indeed, the purchaser had obtained, before transfer on the books, an indefeasible right to the stock. § 150. The right violated by the transfer may be one recog- nized at law, or it may be one recognized only in equity. Of the former class are cases of agency, of double sales,^ and per- haps of fraudulent purchase.^ In all these cases, if the corpo- ration has notice that the transfer is a breach of duty, and if the transferee has not already acquired an indefeasible right to demand a transfer, the corporation must refuse to make it ; and if, in spite of these facts, it does make the transfer it will be liable for all the injury occasioned thereby. These cases, however, seldom occur at law, and the courts of common law apply to them the principles of equity, for the doctrines of the law in these matters are but a graft from chancery. It is unnecessary, therefore, to discuss them further here, and we shall proceed at once to consider transfers in breach of trust. § 151. It is often said in England* that a corporation is not bound to notice trusts, but in most of the cases which are cited to this effect, the point was not mentioned at all, and in fused with the question of the liability of the corporation to a purchaser from a trustee who fails to get the legal title, and who has been led to suppose that there was no trust, by. the representations of the corpo- ration, or by the form of the certificate. On this question see § 158, infra. 1 This term is used for convenience, although the right violated by the transfer may be legal as well as equitable. See § 150, infra. 2 See Bridgeport Bank v. New York If New Haven R. R. Co., 30 Conn. 231. But if the second assignee is a bona fide purchaser for value, and gets the benefit of the transfer rule at all, he has an absolute right to a transfer, although the corporation knows of the previous assignment. ' But see § 138, suTpra. * Lewin on Trusts (7th ed.), 830. 163 . TEANSFEE OF STOCK. § 151 the rest of them it was not necessary for the decision of the case. Almost all the cases which are commonly relied upon to support this view ' involved only the question whether a legacy of stock is good without the assent of the executor, and whether he has power to sell the stock if he has not assented to the legacy. After some doubt,^ it has finally been settled that the assent of the executor is necessary, and that he has as much right to sell stock which is specially be- queathed, as he has to sell any other kind of property under the same circumstances.^ In the course of these decisions the courts have sometimes said that the corporation was not bound to notice trusts,* but this point was not necessarily involved in the decisions, and does not appear to be perfectly clear even in England.® In America, on the other handj it is well settled that a corporation is bound to respect the rights of a cestui que trust, and is liable if, after notice> it violates them.'' The American law in this matter is in accordance 1 In the case of Pearson v. Bank of England, 2 Cox, 175, the bank refused to record a transfer from the life tenant to the remainderman, and, although compelled to record it by a bill in equity, it was not char'ged with the costs of suit. Bristed v. WilHns, 3 Hare, 235, turned on the efEect of a judge's order charging the stock for the benefit of creditors. 2 See Pearson v. Bank of England, 2 Bro. C. C. 529. « Bank of England v. Moffat, 3 Bio. C. C. 260; s. c. 5 Ves. 668. Hartga v. Bank of England, 3 Ves. 55. Bank of England v. Parsons, 5 Ves. 665. Bank of England v. Lunn, 15 Ves. 569. Franklin v. Bank of England, 1 Russ. 575. And see Churchill v. Bank of England, 11 M. & W. 323. * Hartga v. Bank of England, 3 Ves. 55. Bank of England v. Parsons, 5 Ves. 665. 8 In Humbersion V. Chase, 2 Y. & C. 209, it seems to have been con- sidered that a corporation might be liatble for a breach of trust if the notice were sufficiently distinct. And in Austin v. Bank of England, 8 Ves. 522, the Bank refused to make a transfer without the direction of a court of equity, fearing that it might violate equitable rights; and the Bank was allowed opsts. ' Lowry v. Commercial Bank, Taney, 310. Stewart v. Firemen's Ins. Co., 53 Md. 564. Loring v. Salisbury Mills, 125 Mass. 138. Bayard v. Farmers Bank, 52 Pa. St. 232. Bohlen's Estate, 75 Pa. St. 304. Magwood V. Railroad Bank, 5 S. C. 379. And see Mechanics Bank of Alexandria v. § 152 OF THE LIABILITY OP TfiB OOBPOEATION. 169 with good sense, for it is hard to see any reason why a cor- poration should not be bound by a trust after notice of it, to the same extent as a natural person. § 152. In America, therefore, it is clear that a corporation is liable to a cestui que trust, if, after notice of his rights, it does an act which injures him. But all that the corporation does in many cases is to record on its books the transfer made by the trustee, and the question is presented whether this is in itself any injury to the cestui que trust. If the transfer books are private and are kept, like other private books, solely for the convenience of the corporation, so that no one has any right to require that his name should be put on those books or taken off them,^ it is clear that the corporation by making in its books any entry it pleases, can do no injury to the cestui que trust? But there are very few corpora- tions in this country, if any, whose books have not some effect on the rights of the stockholders, and in the great majority of our corporations a transfer on the books may injure the cestui que trust in several ways. In the first place the cestui que trust is, probably, entitled to have the stock stand on the books in the name of his trustee, in any corpora- tion whose stockholders are entitled to have their stock stand on the books in their own names ; and if the corporation, after notice of the trust, puts the stock into the name of a stranger it violates this right of the cestui que trust. The corporation could be compelled in such a case, to put the stock back into the name of the trustee, and it would not be excused from liability by the fact that the stock had gone beyond its control in consequence of its own wrongful act. A transfer on the books ma}"^ injure the cestui que trust in Seton, 1 Pet. 299. Albert v. Savings Bank of Baltimore, 1 Md. Ch. 407. The only case to the contrary appears to be Bank of Virginia v. Craig, 6 Leigh, 399. 1 Crawford v. The Provincial Ins. Co., 8 U. C. C. P. 263. Conf. § 135, supra. " Hildyard v. South Sea Co., 2 P. Wms. 76. 170 TRANSFER OP STOCK. § 152 another way, if there is a regulation which makes the stock transferable only on the books of the corporation ; for when such a regulation exists, the corporation can refuse to pay any attention to a transfer until it is recorded, — as far as rights strictly legal are concerned. The result is that the transfer on the books deprives the trustee of all his legal rights against the corporation and vests them in the pur- chaser. This, in itself, is clearly an injury to the cestui que trust, and, in fact, it has already been pointed out that the liability of the corporation is the same, whether the strict legal title passes before transfer on the books or not.^ The transfer on the books may injure the cestui que trust in still another way ; for it is worthy of notice that a transfer on the books and the issue of a new certificate make it very much easier for the parties to the breach of trust to procure a hona fide purchaser, and thereby destroy the right of the cestui que trust to recover the stock. If, therefore, we leave out of account any corporations whose transfer books are strictly private, it may be said, in general terms, that, where stock is held subject to a trust the terms of which either do not authorize a sale, or authorize it only upon conditions, it is a breach of trust to pass the title by a sale which is not author- ized by the terms of the trust ; and that, if the corporation makes the transfer on the books after notice of the facts, it assists in the breach of trust, and is liable to the cestui que trust? And, even if the trustee has power to sell, yet if he has unlawfully delegated his discretion in the matter to an agent, the delegated power is void in equity, and the cor- poration is liable just as if the trustee had been given no power to sell at all.^ 1 Conf. § 100, supra. ^ Lotvry v. Commercial Bank, Taney, 310. Stewart v. Firemen's Ins. Co., 53 Md. 564. Loringv. Salisbury Mills, 125 Mass. 188. Bayard v. Farmers Bank, 52 Pa. St. 232. Magmod v. Railroad Bank, 5 S. C. 879. 8 Bohlen's Estate, 75 Pa. St. 304. § 154 OP THE LIABILITY OF THE COKPOKATION. 171 § 153. The liability of the corporation for recording a transfer made in breach of trust depends very much upon the position of the purchaser. If he has acquired before transfer on the books a perfect title to the stock, free from all claims on the part of the cestui que trust, the breach of trust is com- plete before the corporation is asked to transfer, and when it records the transfer, the corporation is merely doing what it is bound to do, and is not helping the trustee to commit the breach of trust. The corporation can, therefore, incur no liability to the cestui que trust by recording a transfer to a bona fide purchaser for value, unless there is a regulation making the stock transferable only on the books, and unless that regulation is so construed that the act of the corporation is necessary to pass the legal title. Even in this case we must return to the old question we have referred to so often before, namely, whether or not notice to the purchaser has any effect if given after the assignment is complete between the parties ; for if notice is of no avail after the assignment, a purchaser for value who has no notice before he demands a transfer on the books, has acquired an indefeasible right to the stock, and the corporation cannot, by transferring to him, incur any liability to the cestui que trust} § 154. In the third chapter we discussed the duties of trus- tees and others who hold stock in a fiduciary capacity, and the liabilities of persons. who assist them to commit a breach of trust. We discussed the question what is sufficient notice of a trust, and what is notice that a breach of trust is in- tended. It is unnecessary to review what was said there. It is enough to state that the principles developed in that chapter apply to corporations, as well as to purchasers of stock, and to point out the difference between the facts necessary to fix a corporation with notice, and those required to fix a purchaser ; and first, it should be remembered that a corporation has no soul and can receive notice only through its agents. It has 1 See §§ 99, 100, supra. 172 TKANSFEB OJ? STOCK. § 156 notice, therefore, only in those cases in which notice to the agent is imputed to the principal,^ and to determine whether the corporation has notice in any given case it is, perhaps, fair to ask whether, if the affairs of the corporation had been managed for the benefit of an actual person who was absent, the notice to that person's agent would, under the circum- stances, be imputed to him.^ § 155. A very important difference in the positions of the purchaser and the corporation is produced by the fact that the purchaser, if not entirely satisfied of the authority to sell, can generally refuse to buy the stock, and drop the whole matter ; but the corporation must act one way or the other. It is liable to an action by the purchaser if, without sufBcient excuse, it refuses to transfer, and by the cestui que trust if it transfers after notice of his rights. It must take the respon- sibility of deciding upon the rights of the parties, and is liable if its decision is held to be unreasonable. There is no safe course for it in case of doubt, and this is a reason why a different rule as to the kind of notice required should be applied to the purchaser and to the corporation, in cases where inquiry produces unsatisfactory answers. It is not a reason for relaxing the duty to make inquiry, but it is a reason for excusing a transfer in some eases where the doubt cannot be entirely cleared away. In the case of a purchaser the question to be asked is, whether a reasonable man would have taken the risk or not. In the case of the corporation the question should be, which risk would a reasonable man have taken./ § 156. The transfer books of the corporation have a very ^ On this principle it has been held that notice to the secretary is not notice to the corporation, when he is himself a party to the fraud. Piatt V. Birmingham Axle Co., 41 Conn. 25.5. But the soundness of this decision may be doubted. See Holden v. New York Sf Erie Bank, 72 N. Y. 286. 2 Notice to a person who is a general agent to superintend the business of the corporation is notice clearly enough. Scripture v. Francestotun Soapstone Co., 50 N. H. 571. And notice to the president, cashier, or to a director is often enough. Porter v. Bank of Rutland, 19 Vt. 410. § 156 OF THE LIABILITY OF THE COKPOEATION. 178 different effect on the purchaser and on the corporation, because the former has not constructive notice of their con- tents, as he has of deeds in a registry ; but if any fact stated in these books has been known to the corporation, and even if, at the time of the transfer complained of, none of its officers remembered such a fact, the corporation would, nevertheless, be held to have notice of it, at least if connected with the transfer in question.^ If the corporation, for example, registered a stockholder as " trustee for J. S.," and the stock- holder undertook to sell, the corporation would doubtless be conclusively presumed to know that he held the stock in trust for J. S. In practice, moreover, the purchaser is more likely to have notice of certain classes of facts, and the cor- poration of others. The purchaser, for example, is more likely to know into whose hands the purchase money is paid. He knows also, of necessity, the nature of the trans- action, but the corporation knows this only by accident. The purchaser knows whether the transaction is a sale, a pledge, or a transfer made to satisfy a debt, and in the last two cases he knows whose debt is secured or paid. Whereas the corporation knows only the fact that a transfer is made, and, if this is done by a person who has a general authority to sell, the corporation could safely assume that the transfer was made for a proper purpose. The corporation, on the other hand, is more likely to see the instruments by virtue of which the vendor claims to have authority to convey, -r— such as trust-deeds, wills, powers of attorney etc., — and the corporation is, therefore, more likely to have actual notice of their contents. The corporation is more likely to discover, for example, that one of several trustees, or a business agent, is managing the trust property under a general power of at- torney. Now, the mere fact that the instrument by which the stock is transferred is signed by some one as attorney for the trustee may not, perhaps, amount to notice that the trustee 1 See Loring v. Salisbury Millt, 125 Mass. 138. 174 TEANSFEE OF STOCK. § 157 has delegated his discretion, or allowed the agent to control the property, because the attorney may be authorized to do only a purely ministerial act. But a general power of attorney given by the trustee would clearly be notice both of a delegation of discretion,^ and of the power of the agent to control the trust property. And even a special power of attorney would probably show on its face whether the trustee expected to receive the purchase money himself or intended to allow the money to go into the hands of the agent. § 157 When a trustee buys stock, there is a responsibility which may affect the corporation although very unlikely to trouble the vendor, and that is the liability to the cestui que trust when the trustee buys stock which he is not authorized to buy by the terms of the trust ,, or which is, for any other reason, an improper investment."^ A vendor of stock does not usually know, even through his broker, who the purchaser is, and it is very rare that he knows whether the purchase is made on account of a trust or not. But the corporation always knows the name of the purchaser, and is usually given notice when the stock is bought for a trust. Now suppose the corporation, at the time of recording the transfer, receives from the purchaser a statement of the terms of his trust and from these it appears that the trustee has no power to invest in the stock ;2 or suppose that the corporation knows that the stock is worthless, or that the purchase is made in order to defraud the cestui que trust; in such a case as this would not the corporation be liable for making the transfer, if a refusal would have prevented the passing of the purchase money ? If the corporation has a right to refuse to transfer, it would seem to follow that it must do so. Now, it '- Bohlen's Estate, 75 Pa. St. 304. ^ Suppose he is restricted to United States and State bonds, like the trustee whose dishonesty gave rise to the case of Duncan v. Jaudon, 15 Wall. 165. § 158 OF THE LIABILITY OF THE COEPOEATION. 175 has been held that a corporation is not liable for refusing to record a transfer to another corporation where a purchase of the stock by the latter was ultra vires,^ and why should not the same principles apply where the purchase of stock is a breach of a private trust ?5' § 158. There is another ground of liability which has received very little attention as yet, but which may become of importance at any time. It is very common for trustees to buy stock, and put it into their own names, without stat- ing any trust; but this practice makes it very easy for a dishonest trustee to sell to a bona fide purchaser, and deprive the cestui que trust of the property, and it may well be asked whether a corporation is not liable for issuing certificates in this form after notice of the trust, if the trustee is enabled by means of them to procure a bona fide purchaser for value. The liability of the corporation would be clear if it had any reason to suspect the honesty of the trustee, and this is, in fact, the case where the trustee sells stock without authority to do so, and the corporation issues a new certificate to a purchaser who did not buy bona fide. Under these circum- stances the corporation knows that the trustee and the pur- chaser both intend to violate the rights of the cestui que trust, and it must, therefore, know that a certificate issued to the purchaser will probably cause the cestui que trust to lose the stock. In such a case the corporation would, no doubt, be liable to the cestui que trust ; but where the corporation * Franklin Bank v. Commercial Bank, 36 Ohio St. 350. ' In Holden v. New York §• Erie Bank, 72 N. Y. 286, a stockholder trans- ferred his bank stock to himself as executor, and although it was worthless, he paid himself par for it. The bank had notice of that fact, and it was held that the bank was not liable because it recorded the transfer, or because it paid the check drawn by him as executor, but was liable because it received a deposit of the purchase money to the executor's per- sonal account. It would seem that this court, like the famous West Indian judge, would have been wise if it had withheld the reasons for its decision. 176 ■ TEANSFEE OP STOCK. § 158 simply issues to the trustee a certificate which takes no notice of the trust, the case is by no means as strong, because the motive of the trustee for taking a certificate in this form is not usually fraudulent. And yet the corporation is doing an act out of the common course, and without any good object, which may cause a loss to the cestui que trust, and it may very well be held liable for the consequences. The cestui que trust could probably file a bill against the trustee and the corporation, and compel them to cancel the certificate and issue a new one which should contain a notice of the trust ; and, if so, the liability of the corporation in case of loss would seem to follow as a corollary'. The liability of the corporation in such a case has not been presented for consideration in this country.^ But in a recent English case a similar point arose and was very thoroughly considered. A coi'poration bought shares of its own stock and put them into the name of a certain person without any intimation that he was not the absolute owner. The trustee sold the stock to a pur- chaser who bought bona fide, but failed to get anything but an equitable assignment from the trustee. The purchaser brought suit to compel the corporation to transfer the stock to him, on the ground that by its conduct it had postponed its rights to his, but the court of Queen's Bench decided in favor of the corporation.^ The claim of the purchaser was sustained on appeal to the Exchequer Chamber,^ but the House of Lords took the same view of the matter as the Queen's Bench and held that the corporation had done nothing to affect its right to the stock.* This case seems to go on the ground that an omission to state a trust in the cer- 1 The case of Atkinson v. Atkinson, 8 All. 15, involves a contrary doctrine, but it is very evident that this question was not present in the mind of the court. And see in support of the text, Loring v. Salisbury Mills, 125 Mass. 138. ' The Queen v. Shropshire Union Co., L. K. 8 Q. B. 420. « Id., L. R. 8 Q. B. 420, 439. * Shropshire Rys. Co. v. The Queen, L. R. 7 H. L. 496. § 159 OP THE LIABILITY OF THE COEPOEATION. 177 tificate is not such a breach of duty on the part of the corpora- tion as to make it liable to innocent persons who have been injured thereby. But the decision does not have much ap- plication to American corporations, because these English companies are not in the habit of noticing trusts, or of making any reference to them in the certificates of stock, and this has a very important bearing on the question whether the loss was the natural and probable consequence of the act of the^rporation .^ § 159. Closely connected with this question is another, which involves the liability of the corporation for making on its books a transfer of stock from a trustee, when it has good reason to suppose that the purchase money is to go into the hands of an improperly authorized agent. If the corporation knew that the result of its act would be that the money would go into the hands of such an agent, and that he would probably run away with it, the liability of the corporation would be clear ; but if the corporation has notice only that the sale is made by an agent who ought not to be allowed to receive the purchase money it may, perhaps, be doubted whether the loss sustained by the cestui que trust is the nat- ural and probable result of the transfer on the books. This question has not yet been brought into court, but corporations are too much in the habit of assuming that a transfer on the books may be safely made when the agent has a special power of attorney to make the sale, so that no discretion has been delegated to him. 1 See Holhrook v. New Jersey Zinc Co., 57 N". Y. 616, 622, where it was held that a person who bought stock from a trustee after the appoint- ment of his successor, and received the certificate of the trustee which stated no trust, got a title good against the corporation. Now, this case must proceed either on the ground that a new trustee is obliged to get the old certificate or run the risk that the old trustee may convey the stock away (and it can hardly be supposed that the court meant to lay down such a rule as this, see § 123, supra), or the case must have been decided on the ground that the corporation, by issuing a certificate which stated no trust, made itself liable to a honafide purchaser for value. 12 178 TRANSFER OP STOCK. § 162 CHAPTER VII. THE LIEN OP THE CORPORATION. § 160. We consider next the right of a corporation to re- fuse to register or to permit the transfer of its stock because of the lien which it often has thereon to secure the payment to itself of the debts of its stockholder. We shall consider how such lien is created, to what debts it extends, how it may be enforced and how it may be abandoned. § 161. At common law, in the absence of any special provision contained in its charter, articles of association, or by- laws, a corporation has no lien upon the stock of its stock- holder who is indebted to it ; ^ however, as the right has often been claimed, it is well to consider the ground upon which the claim rests. § 162. If A. is indebted to B., B. has, in consequence there- of, no lien upon the real estate or chattels of A., not even if the property be in the hands of B., unless it is pledged ex- pressly or impliedly, or unless a lien is given by some special rule of positive law, as in the case of a common carrier. There is, however, one kind of property upon which, by virtue of his being a creditor of A., we may say that B. has a lien. If, besides being a creditor, B. is at the same time a debtor of A., he can refuse to recognize A.'s attempt to trans- 1 Pinkett v. Wright, 2 Hare, 120. Farmers' Bank v. Wasson, 48 Iowa, 336. Byrne v. Union Bank, 9 Rob. (La.) 433. Sargent v. Franklin Ins. Co., 8 Pick. 90. Mass. Iron Co. v. Hooper, 7 Cush. 183. Bates v. N. Y. Ins. Co., 3 Johns. Cas. 238. Heart v. State Bank, 2 Dev. Eq. 111. Steamship Dock Co. v. Heron's Adm'r, 52 Pa. St. 280. Merchants Bank of Easton v. Shouse, 16 Reporter, 442 (Pa. Sup. Ct.). MMurrich v. Bond Head Co., 9 U. C. Q. B. 333. § 163 THE LIEN OF THE CORPORATION. 179 fer that debt to C. in such a way as to defeat his right of set- off against the assignee of the debt.^ This is exactly what a corporation tries to do when it refuses to permit the transfer of its stock to the assignee of its stockholder. It does not deny that the stockholder has parted with his rights, but it insists on retaining the power to set off against those rights its own claims upon the transferor. If, then, the position of stockholder and corporation were that of creditor and debtor, the corporation, even without special provision, would be able to prevent the transfer of its stock until its claims upon the transferor were satisfied.^ The relation of the two parties is not that of creditor and debtor, indeed, and there is no such lien, but the relations are sufficiently alike to give a show of reason to the claim of the corporation, and to suggest the advisability of securing such a lien by positive law.* § 163. Another explanation of the claim of the corporation is given by Chief Justice Shaw, who considered that it arose from the fact that, in a partnership, each partner has no more than a claim to the surplus after all debts are paid, and, therefore, in a certain sense the partnership has a lien upon the share of each partner to secure the payment to it of his debts. But, as the learned judge points out, while a partner- ship does not exist separate from the partners, a corporation is a being distinct from its members, and the analogy fails.* 1 It is not denied that the historical origin of the above rule is to be found in the fact that B.'s debt, being a chose in action, was not trans- ferable at common law, an(i that in equity the assignee of a debt takes it "subject to equities." The illustration is used because it is believed that it supplies the origin of, and most plausible argument for, the claim to a lien at common-law, apart from express provision. 2 See Gibson v. Hudson's Bay Co., 7 Vin. Ab. 125; 8. 0. 1 Str. 645. Meliorucchi v. Royal Assurance Co., 1 Eq. Cas. Ab. 8, PL 8. St. Louis Ins. Co. V. Goodfellow, 9 Mo. 149, 153. See also Byrne v. Union Bank, 9 Kob. (La.) 433, where it is said that there is no lien because there is no set-off. s See St. Louis Ins. Co. v. Goodfellow, 9 Mo. 149, 153. * Mass. Iron Co. v. Hooper, 7 Cush. 183, 187. See also Child v. Hud- 180 TEANSFEE OF STOCK. § 165 § 164. The lien may be given to a corporation by a gen- eral statute or by its charter, unless the statute or charter, in giving it, contravenes some constitutional provision. This follows, of course, from the right of making laws vested in the legislature.! Such lien may be given to a corporation already established,^ at least if the legislature has power to amend its charter, and, subject to the same condition, the lien may be taken away, unless it has already attached to particular stock for a debt in existence when the repealing Act was passed. In the last case it would seem to be a right of prop- erty which cannot be taken away. § 165. Such a lien may be given by the articles of associa- tion, unless there be some contrary provision in the constitu- tion, or in the general law under which the subscribers to the articles of association are enabled to form a corporation.^ Perhaps the rule should be stated thus : The articles of association get their force from the general law authorizing the formation of corporations, and, therefore, must be author- ized expressly or impliedly by such law; but the lien is so ordinary a right for the corporation to have, that the power to acquire it by articles of association will be presumed, even if the general law is silent upon the subject, unless the legis- lature, in some other way, has shown an intention that such lien should not be acquired. If a corporation is established by special charter, such charter becomes its rule of life, and, as a contract made with the State, is unchangeable except in accordance with the provisions of the charter itself or with son's Bay Co., 2 P. Wms. 207, 208, Wearg arguendo. Meliorucclii v. Royal Assurance Co., 1 Eq. Cas. Ab. 8, PI. 8. Ex parte Plant, 4 Dea. & Chit. 160. Conant Y. Seneca Bank, 1 Ohio St. 298, 304. For the so-called partner- ship lien, see Lindley on Partnership (4th Am. ed.), *679. 1 Union Bank v. Laird, 2 Wheat. 390. Stebbins v. Phoenix Ins. Co., 3 Paige, 850. First Nat. Bank v. Hartford Ins. Co., 45 Conn. 22. Rogers V. Huntingdon Bank, 12 S. & R. 77. " First Nat. Bank v. Hartford Ins. Co., 45 Conn. 22. 8 Leggett v. Sing Sing Bank, 24 N. Y. 283. See Knight v. Old Nat. Bank, 3 Cliff. 429, and McDowell v. Wilmington Bank, 1 Harr. 27. § 166 TECB LIEN OP THE COEPOEATION. 181 some general law, previously passed, which is read into the charter by implication. So, when a corporation is formed under a general law, it is believed that the articles of associ- ation, duly agreed to, when they are not in conflict with the general law, become in like manner the rule of life of the cor- poration, unchangeable to the same extent as is the charter of a corporation specially created. § 166. When the charter and articles of association are wholly silent on this subject, or give to the corporation only a general power to make by-laws for its better management, it seems that the corporation cannot create a lien by passing a by-law, though the decisions are conflicting,^ We shall dis- cuss later ^ the question whether or not a by-law, brought to the notice of the assignee of a stockholder before the assign- ment, can bind him as giving him notice of an equitable right in the corporation ; but a by-law which may be passed at any time, and may be unknown even to most of the stock- 1 In Nesmiih v. Washington Bank, 6 Pick. 324, 329; Plymouth Bank V. Norfolk Bank, 10 Pick. 454, 459; and Steamship Dock Co. v. Heron's AdrnW, 52 Pa. St. 280, the matter is treated as doubtful, with a leaning against the validity of the by-law. And in Child v. Hudson's Bay Co. , 2 P. Wms. 207; s. c, apparently on rehearing, nam. Gibson y. Hudson's Bay Co., 1 Str. 645, 7 Vin. Ab. 125, the decision on the point is doubtful. In Bryony. Carter, 22 La. Ann. 98; Attica BankY. Manufacturers Bank, 20 N. Y. 501; and Driscoll v. West Bradley Co., 59 N. Y. 96, it was held that a provision in the by-laws was ineffectual, although, apart from the by-laws, there was power to regulate transfers. But in M'Dowell v. Wil- mington Bank, 1 Harr. 27; St. Louis Ins. Co. v. Goodfellow, 9 Mo. 149; and Mechanics Bank v. Merchants Bank, 45 Mo. 513, the by-law was held valid under similar circumstances. So in Pendergast v. Stockton Bank, 2 Saw. 108, where an attempt was made to distinguish the New York cases on the ground that the statute there required that the transfer should be reg- ulated by the articles of association. As, however, these gave power to the directors to make by-laws, the cases are really indistinguishable. In Tuttle V. Walton, 1 Kelly, 43, the decision is put upon the ground that the transferee had notice of the claim of the corporation. In Cunningham v. Alabama Ins. Co., 4 Ala. 652, the trustees had power to regulate transfers, but the decision is not put wholly on that ground. 2 See § 168. 182 TBANSFEE OF STOCK. § 168 holders, can hardly impair the ordinary right of a stockholder to sell his stock in the course of trade to a man who knows nothing of the by-law. It is clear that there can be no dif- ference between a by-law which in terms forbids the transfer of stock by an indebted stockholder and one which declares that his stock is pledged to the corporation for the payment of his debt. § 167. If the charter or the articles of association expressly give a lien to the corporation, of course there is no need of a by-law. But it is more common to provide in charter or articles that the corporation may give itself a lien by a by-law duly passed. The question often has arisen whether or not a provision in the charter or articles of association empowering a corporation to regulate by a by-law the mode of transferring its stock will enable the corporation to secure a lien by means of a by-law providing for the same. The decisions are con- flicting, but it would seem that a provision in the charter or articles like the one above referred to is intended simply to give the corporation power to prescribe certain formalities necessary to a transfer, so as to guard itself from liability, in case it pays dividends to the person standing on its books as owner of the stock, or in any way recognizes such person as the true owner.^ A provision enabling the du'ectors to reject a transferee gives no right to establish a lien by making the indebtedness of the transferor a ground of rejection.^ § 168. Heretofore we have considered the question of lien ■ Anglo-Califomian Bank v. Grangers Bank, 16 Reporter, 7 (Cal. Sup. Ct.). Bryon v. Carter, 22 La. Ann. 98. Attica Bank v. Manufacturers Bank, 20 N. Y. 501. Driscoll v. West Bradley Co, 59 N. Y. 96. In re Bachman, 12 N. B. R. 223 — St. Louis Ins. Co. v. Goodfellow, 9 Mo. 149. Mechanics Bank v. Merchants Bank, 45 Mo. 513, contra. And see Lock- wood V. Mechanics Bank, 9 R. I. 308. In People v. Crockett, 9 Cal. 112, it is doubted whether or not such lien would hold the stock against the claim of a bona fide purchaser for value. See also Pendergast v. Stockton Bank, 2 Saw. 108, and McDowell v. Wilmington Bank, 1 Harr. 27. 2 Pinkett v. Wright, 2 Hare, 120. § 168 THE LIEN OP THE COEPOKATION. 183 apart from the personal knowledge of the assignee of the stock ; but in cases where the corporation, without authority given by the charter or the articles of association, has passed a by-law, or has claimed a lien by statements made on the face of the certificate, or by a long established custom gener- ally acquiesced in, it has been contended that an assignee, with notice of these facts, takes the stock subject to the lien. It is said that in these cases the stockholder should be con- sidered as having pledged his stock impliedly, so that no one but a purchaser for value and in good faith will take it free from the lien. But the force of this reasoning well may be doubted. Where there has been an actual pledge, though not evidenced by an entry on the books of the corporation, the corporation's lien may avail against a purchaser with notice, or a volunteer ; but a by-law, unauthorized by charter, which may be unknown to the stockholder, or against which he may have voted, or a custom which he may have had no opportunity to dispute, should not be allowed to create a contract between him and the corporation. In one case ^ it was said that the assignor " became the purchaser of the stock on the terms and conditions expressed in the by-law, and no other." As, however, a corporation cannot make a valid by-law unless authorized to do so in its charter or articles of association, the argument does not advance the question. If the by-law is authorized by the charter or articles, it is binding on all the world, whether there is notice of its provisions or not ; if it is not so authorized, it is void and binds nobody, for a corporation cannot make member- ship in itself dependent upon other conditions than those allowed by law. It must be admitted, however, that there is some authority in favor of a lien in these cases.^ 1 Tuttle V. Walton, 1 Kelly, 43, 49. 2 TuUle V. Walton, 1 Kelly, 43, lien given by by-law. Wain v. Bank of North America, 8 S. & R. 73, by usage. Vansands v. Middlesex Bank, 26 Conn. 144, by statement in the certificate. 184 TEANSFEE OF STOCK. § 170 § 169. In some cases where the legal title to the stock passes only by transfer on the books, an attempt has been made to sustain a lien on the following grounds. It is said that the assignee has only an equitable title, and can there- fore have no higher claim than the assignor, and that, as the assignor was indebted to the corporation, the assignee must take the stock subject to the debt.^ But the argument is fallacious. Except where a set-off is allowed, the corporation cannot refuse, even in equity, to fulfil its obligations to the stockholder because the stockholder has not fulfilled his obligations to it. Moreover, if the stock has not been pledged to the corporation, the assignee has a right to a transfer which he can vindicate by an action at law,^ and the corporation has no better right to refuse the transfer on account of the indebtedness of the assignor, than the bailee of a horse has to refuse to deliver it to the bailor's assignee because the bailor is indebted to him.^ As we have said above, the right of set-off exists only in case of two debts ; apart from this, the lien must be given either by common law or by statute. § 170. If there be no provision in the general law under which the corporation is formed giving a lien to the corpo- ration, such a provision in the articles of association will be effectual. It is, however, competent for the legislature, unless restrained by the constitution, to provide in another statute that there shaU be no such lien. The intent of the legislature is to be ascertained from a comparison of all 1 See Cunningham v. Alabama Ins. Co., 4 Ala. 652, 656. Lochwood v. Mechanics Bank, 9 R. I. 308, 331. And see Fitzhugh v. Shepherdsville Bank, 3 Mon. 126. 2 See § 236. ' See Union Bank v. Laird, 2 Wheat. 390, where the intent seems to be only that there can be no waiver until the legal title has passed, and Stebbins v. Phoenix Ins. Co., 3 Paige, 350, where it was said that in equity the lien given by the by-law extends to all the debtor's stock, whether standing in his name or not. § 172 THE LIEN OF THE COKPOEATION. 185 statutes bearing on the subject ; and it has been decided that, where a general law creating a lien in express terms was superseded by a law wholly silent on the subject, in that case the right to establish a lien was denied by implication.^ If a corporation is forbidden to lend money upon the security of its own stock, is it thereby prevented from establishing a lien in the case of debts not contracted contrary to the statute ? It should seem that it is not prevented.^ It has been decided that the lien of the corporation will cover shares which are part of a fraudulent over-issue. The decision is based upon the fact that they were issued in such a way as to estop the corporation from denying their validity.^ § 171. In conclusion, then, we may say that a lien cannot exist without authority therefor, express or implied, given by the legislature, and that, when it does exist, it avails against all persons, whether they have notice of it or not.* § 172. We consider next what debts will be secured by the lien of the corporation. This, of course, depends entirely 1 Bank v. Lanier, 11 Wall. 369. Bullard v. Bank, 18 Wall. 589. EvansvUle Bank v. Metropolitan Bank, 2 Biss. 527. Louisville Bank v. Newark Bank, 11 N. B. R. 49, 52. Conklin v. Oswego Bank, 45 N. Y. 655. In Bullard v. Bank, 18 Wall. 359, it is decided that the lien does not exist after the repeal of the general law, even if it is based upon the articles of association ; overruling Knight v. Old National Bank, 3 Clifi. 429. See In re Bigelow, 1 N. B. R. 667. ^ The somewhat confused opinion in Bank -v. Lanier, 11 Wall. 869, is resolvable into the following parts : 1. The first and third pleas, which set out an actual pledge, are bad, because the bank was expressly forbid- den to lend money on such security. 2. The second plea, which sets up a lien, is bad, because there was no power to create such a lien. 3. The declaration is good, because, in the absence of a lien, the certificate amounted to a representation that Culver owned the stock. The case does not decide : 1. That there was no lien, because the corporation was forbidden to lend money on the security of its stock, or 2. That, if there had been a lien, the certificate would have estopped the defendant from setting it up. » Mt. HoUy Co.'s Appeal, 99 Pa. St. 513. * Ballmer v. City Bank, 77 Va. 445. 186 TEANSFEK OF STOCK. § 1-73 upon the language of the charter, articles of association, or by-laws, supposing each to be valid. The hen, ordinarily, is not limited to the securing of debts connected with the ownership of the stock,i guch as assessments, unpaid subscrip- tions, and the like, but covers all debts however arising, and, generally speaking, will cover debts not yet due, dehita in presenti, solvenda infuturo,^ even where the obliga- tion to pay is contingent, as in the case of the indorser of a promissory note.^ If the lien is given to secure debts actually due and payable, notes not due are not covered by it.* The lien on stock standing in the name of a partner will secure the debts of the partnership, as well as those of the individual.^ § 173. It is believed that the question never has arisen whether or not a corporation has a lien to secure a claim against its stockholder which is not a debt actual or contingent, as, for instance, damages recoverable in actions of tort or contract. As most corporations are empowered to establish a lien for debts merely, such a right is rare, at least, and it is doubtful whether or not silence in a general act for the formation ot corporations would give a corporation authority to establish such a lien by its articles of association. If the charter or articles of association enable the corporation to establish a lien by by-law to secure certain classes of debts, of course the corporation cannot make the by-law larger than 1 Union Bank v. Laird, 2 Wheat. 390. Cunningham v. Alabama Ins. Co., 4 Ala. 652. Mobile Ins. Co. v. Cullom, 49 Ala. 558. Rogers v. Huntingdon Bank, 12 S. & R. 77. Where a lien is given on stock for money "become payable thereon," paid up shares cannot be held for unpaid subscriptions on other shares. Shenandoah R. R. v. Griffith, 76 Va. 913. ^ Grant v. Mechanics Bank, 15 S. & R. 140. But see the peculiar decision in Stockton Malleable Iron Co., 2 Ch. D. 101. 8 St. Louis Ins. Co. v. Good/ellow, 9 Mo. 149. * Reese v. Bank of Commerce, 14 Md. 271. But see Downer's Adm'r v. Zanesville Bank, Wright, 477, for the opposite view. 6 In re Bigelow, 1 N. B. K 667. § 174 THE LIEN OF THE COBPOEATION. 187 its authority. Probably it can be made to cover less. In those jurisdictions where a corporation, without authority given in charter or articles of association, can establish a lien by means of a by-law, it is probable that such lien may be made to cover all debts at least. § 174. As we have said already, this lien is given to the corporation in order to secure to it a right similar to the right of set-off. It has been decided that the lien does not hold in cases where the corporation has assumed to purchase a debt, but in reality has done no more than lend the use of its name to some creditor of one of its stockholders.^ If, however, the corporation has a lien for all debts, it is of no consequence whether the debt was originally a debt owed to the corporation, or was bought from some creditor of a stock- holder.^ Again, if there exists a debt which can be enforced by suit in any form, the fact that the debt resulted from a transaction ultra vires of the corporation will not deprive the corporation of its lien. For example, if a corporation sells goods which its charter does not authorize it to deal in, it can recover their market value from the vendee,^ and, if the vendee is its stockholder, it will have a lien upon his stock to secure the debt. Though an action on the debt is barred by the Statute of Limitations, yet the lien of the corporation still remains where the statute extinguishes the remedy only, and does not destroy the debt.* A statute which extinguished the debt would destroy the lien with it, as the lien must be an incident of the debt. If a debt due by a stockholder to an individual, and already barred by the Statute of Limitations were purchased by the corporation, it seems that the lien would not cover such a debt ; for the corporation, at least if 1 White's Bank v. Toledo Ins. Co., 12 Ohio St. 601. 2 See White's Banhy. Toledo Ins. Co., 12 Ohio St. 601, 606. ' Chester Glass Co. v. Dewey, 16 Mass. 94. See Davis v. Old Colony Railroad, 131 Mass. 258. < Brent v. Washington Bank, 10 Pet. 596. Farmers Bank v. Iglehart, 6 Gill, 50. 188 TRANSFER OP STOCK. § 176 it knew that the debt was barred, would be making use of its powers to collect the debts of others. § 175. Although the corporation has a lien upon its stock to secure all debts, whether actual or contingent, yet where it has notice of an assignment of the stock, it cannot hold it for debts incurred by the assignor subsequent to the notice.^ This actual notice, however, must be proved by the assignee ; the corporation is not bound to show affirmatively that it was ignorant of the assignment when the debt was incurred. The rule is the same whether the legal title passes to the assignee before a transfer on the books or afterwards. In the same way, the lien of the corporation will not secure the debts of one whom the corporation knows to hold the stock merely as trustee for another. On the other hand, if the trust is unknown to the corporation at the time the debt is incurred, its lien attaches.^ It is generally assumed that the corporation has a lien upon stock to secure the debts of the holder of the legal title only.^ It has been decided in one case, however, that there is a lien thereupon to secure the debts of the equitable owner, at least as against every one but the bona fide purchaser of the legal title.* The opinion, however, is confused, and seems to regard the lien, not as the creature of statute, but as depending on the re- liance of the corporation for security upon the stock of its stockholder. § 176. Let us suppose that a corporation has a lien upon certain shares of stock in a given case, what is the effect 1 Bank of America v. McNeil, 10 Bush, 54. Nesmith v. Washington Bank, 6 Pick. 324. Conant v. Seneca Bank, 1 Ohio St. 298. See Piatt v. Birmingham Axle Co., 41 Conn. 255. 2 Young v. Vough, 8 C. E. Green, 325. Burns v. Lautrie's Trustees, 2 Dunlop, 1348. « See Helm v. Swiggett, 12 Ind. 194, where it was decided that the lien did not cover the stock of an assignee who. had not obtained a transfer on the books. * Planters Ins. Co. v. Selma Savings Bank, 63 Ala. 585. § 176 THE LIEN OF THE OOKPOBATION. 189 of the lien ? The corporation can refuse absolutely to trans- fer the stock on its books until the debt is paid.^ It is not bound to estimate its debt and retain only a reasonable amount of stock to satisfy its claim ; it can retain all the stock for any debt.^ If it be desirable, however, the cor- poration can allow the transfer of a part of the stock with- out waiving its lien on the rest.^ It cannot prevent the assignee from acquiring an equitable title subject to the lien,* but it is not bound to consider what the consequences of its refusal to transfer may be to the assignee. No case has been found which decides whether or not the assignee of stock can compel a transfer on the books by assuming as his own the debt of the assignor, thus securing to the corpo- ration the continued existence of the lien if the transfer is made, while leaving the assignor still liable. Of course, it generally would be for the interest of the corporation to allow such an arrangement, but it is believed that the corporation, if it wishes, can refuse the transfer. Undoubtedly the as- signee would be able to discharge the lien by payment of the debt ; if not allowed to do so, his remedy would be in equity. The corporation is not bound to do anything in order to avail itself of the rights secured by the lien. To keep the lien alive, it is not necessary to make any attempt to collect 1 Brent v. Washington Bank, 10 Pet. 596. Vansands v. Middlesex Bank, 26 Conn. 144. First Bank of Hartford y. Harlfmd Ins. Co., 45 Conn. 22. Farmers Bank v. Iglehart, 6 Gill, 50. Reese v. Bank of Com- merce, 14 Md. 271. Rogers v. Huntingdon Bank, 12 S. & K. 77. Grant y. Mechanics Bank, 15 S. & R. 140. Sewallr. Lancaster Bank, 17 S. & R. 285. 2 Sewall V. Lancaster Bank, 17 S. & R. 285. 8 First Bank of Hartford v. Hartford Ins. Co., 45 Conn. 22. But see Presbyterian Congregation v. Carlisle Bank, 5 Pa. St. 345, which seems to uphold a contrary doctrine; but the opinion is violent and unreasoned, and from its last paragraph it appears the decision might have been different, if the defendant had not been a bank, and therefore " odious to the common mind." * Conant v. Seneca Bank, 1 Ohio St. 298. And see ChmtAershurg Ins. Co. V. Smith, 11 Pa. St. 120. 190 TEANSFEE OF STOCK. § 178 the debt, any more than in the case of a pledge or a mortgage.^ § 177. Beside its passive right to refuse a transfer of the stock, the corporation may, on application to a court of equity, have the stock sold and the debt satisfied out of the proceeds of the sale.'^ If, however, it is given a right to for- feit the shares on the non-payment of the debt, it may well be that a sale will not be allowed, on the ground that the remedy by forfeiture is sufficient.^ Unless a power to sell is expressly given to the corporation by the charter or articles of association, it would seem that the sale cannot be made except by order of a court ; for it is very doubtful, at least, if the power can be given by by-law, where the charter or articles give only a lien. During the progress of the suit, the assignee of the stock, by tendering the amount of the debt with interest and necessary costs, can doubtless obtain the right to a transfer on the books. Moreover, it seems that a corporation, having a lien upon certain of its shares to secure the payment of a debt already due, can attach them on execution in an action at law and have them sold and the proceeds applied to pay the debt. If the debt to the corpo- ration was contracted before notice to it of an assignment of the stock, subsequently received notice thereof will not de- feat the attachment or levy, for the lien enables the corpora- tion to treat the assignment as a nullity so far as its own rights are concerned.* § 178. When a dividend has been declared upon stock, the duty to pay it is a debt owed by the corporation to the 1 First Bank of Hartford v. Hartford Ins. Co., 45 Conn. 22. In re Bigelow, 1 N. B. R. 667. 2 Brent v. Bank of Washington, 10 Pet. 596. See In re Morrison, 10 N. B. R. 105. » See Dunlop v. Dunlop, 21 Ch, D. 583. . * See West Branch Bank v. Armstrong, 40 Pa. St. 278; and Young y. Vough, 8 C. E. Green, 325. In the last case the execution was issued in a suit by the indorser who had paid the note. See § 179. § 178 THE LIEN OP THE CORPORATION. 191 stockholder. If there is any debt already payable, due from the stockholder to the corporation, the latter can set it off against his claim to the dividend.^ But it is probable that the lien of the corporation does not ordinarily cover divi- dends. If the lien exists as security for those debts which are already payable, the question can hardly arise, since there exists the direct remedy by way of an action in set-off.^ If the lien secures all debts, whether payable or not, it is be- lieved that the corporation is not justified in withholding dividends or in denying the right to vote. Until the stock- holder is in default, the corporation's lien is limited to the light of refusing to recognize a transfer. ^ The rule must be the same in cases where the stock has been assigned. Until the stockholder is in default, the assignee has a right to the dividends, at least in equity ; after default, if the corporation ' Hagar v. Union Bank, 63 Me- 509. Sargent v. Franklin Ins. Co., 8 Pick. 90, 99. Bates v. New York Ins. Co., 3 Johns. Cas. 238. In Mer- chants Bank V. Shouse, 16 Reporter, 442 (Pa. Sup. Ct.), where the stock- holder had died indebted to the corporation, which afterwards was wound up and had declared a dividend in liquidation, it was decided that the corporation in an action by the administratris could not set off its claim against the dividend. The corporation had no lien. The decision is correct if the administratrix be regarded as a person separate from the deceased. Hence, an assignee would Hold the stock and dividends free from the lien; but it should seem that she merely continued the person of the deceased, and that the right of set-off should have existed against her. See also Brent's Ex'rs v. Washington Bank, 2 Cranch C C. R. 517, in which case there was a lien, and the decision was the same. The point, however, was not material to the case, and the decision was by a divided court. 2 As in Hague v. Dandeson, 2 Ex. 741, where, however, the decision is rested partly on the ground of lien. « See Brent's Ex'rs v. Bank of Washington, 2 Cranch C. C. R. 517, where the question is discussed as if the corporation sought to retain the dividends by virtue of its lien on the stock. Of course, the statute may give a lien on the dividends, as well as on the stock. Stebbins v. Phoenix Ins. Co., 3 Paige, 330. Gfrant v. Mechanics Bank, 15 S. & R. 140. Klopp V. Lebanon Bank, 46 Pa. St. 88. In the first case the lien was for debts ; in the second and third cases, for debts due and payable. 192 TRANSFER OP STOCK. § 179 has a lien, it can treat the assignment as a nullity, so far as to set off against the claim for dividends all debts due to it and incurred by the stockholder before notice of the assignment. § 179. The lien of the corporation will' enure to the benefit of the debtor's sureties ; that is to say, if the stock- holder makes a promissory note to the corporation, which is indorsed by another person, and afterwards paid by the indorser, the latter will be entitled, in equity at least, to all the rights vested in the corporation before payment, as in the case of any other property held by the creditor to secure the debt of the principal debtor.^ There is no hardship to any one in so holding, for the corporation could assert its claim on the stock without calling on the indorser for pay- ment. A more difficult question is presented when the surety claims to hold the stock in equity, against the lien of the corporation to secure a subsequent debt. There is very little authority on the point, and that is conflicting,^ but it seems that the lien is for the benefit of the corporation, given as a security by the policy of the law, and not to be defeated in one instance because in another the principal debtor has failed to meet his obligations ; and it is believed that this is certainly the case where the corporation, at the time the second debt was incurred, did not know that there was a surety on the first.^ If, however, the surety has paid the first debt and thus become subrogated to the rights of 1 Young v. Vough, 8 C. E. Green, 325. Rogers v. Huntingdon Bank, 12 S. & R. 77, 79. West Branch Bank v. Armstrong, 40 Pa. St. 278. Klopp V. Lebanon Bank, 46 Pa. St. 88. 2 Kuhns V. Westmoreland Bank, 2 Watts, 136, -where the claim of the surety is preferred; and Cross v. Phenix Bank, 1 R. I. 39, contra. In Klopp V. Lebanon Bank, 46 Pa. St. 88, it is impossible to discover whether the defendant resisted the claim of the surety on this point. See Exchange Bank v. Silliman, 65 N. Y. 475, and Hardcastle v. Commercial Bank, 1 Hare, 374, note. * As in the case of an accommodation note. § 181 THE LIEN OP THE COEPORATION. 193 the corporation before the second debt is incurred, it would seem that the lien for the second debt should be subordinated to his rights. The corporation need not avail itself of its lien ; it can proceed at once against the surety .^ In one case where the surety had paid the debt, the corporation was compelled to transfer the stock into his name, but this pro- ceeding seems as unjustifiable as would a transfer into the name of the corporation without previous purchase at a sale ordered by the court.^ § 180. The corporation can, then, assign its claim against its stockholder to a surety who has paid the debt, and the lien will survive for the benefit of the latter ; but it is prob- able that it will not survive for the benefit of any other assignee. Whether this would be the case if the assignment was equitable only, may be doubtful. § 181. As the lien exists for the benefit of the corpora- tion, it may be waived by the corporation expressly or im- pliedly.^ The lien is, of course, destroyed or waived by a transfer of the stock upon the books of the corporation.* Even if the corporation at the time when the transfer is made notifies the purchaser that it intends still to keep alive the lien, this notice would not bind the stock in the hands of a bona fide vendee of such purchaser, and it is probable that even the purchaser himself would hold the stock free of the lien, unless he assented to the proposed arrangement 1 Cross V. PUnix Bank, 1 R. I. 39. 2 Khpp V. Lebanon Bank, 4G Pa. St. 88. On the question how far stock covered by the lien of the corporation is so charged as to entitle the holder of other property pledged for the debt to demand contribution, see Dunlop V. Dunlop, 21 Ch. D. 583. 8 See Hodges v. Planters Bank, 7 G. & J. 306, 310. * Cecil Bank v. Watsoniown Bank, 105 U. S. 217. Hodges v. Planters Bank, 7 G. & J. 306. See Chambersburg Ins. Co. v. Smith, 11 Pa. St. 120. See, however, In re Bachman, 12 N. B. R. 223 ; and Conant v. Seneca Bank, 1 Ohio St. 298, 304. The first case seems to rest upon the ground that the real parties were the creditors of the corporation and the stock- holder, but this ought to make no difference. 13 194 TRANSFER OF STOCK. § 182 at the time of the transfer. If he did so assent, he would be bound in equity. Again, the corporation may expressly waive its lien by declaring that it does not mean to claim it, or by stating that the stock is free from incumbrances.^ Any representation made by a duly authorized agent of the corporation,'^ upon the faith of which the assignee reasonably and in good faith takes the assignment of the stock, paying money therefor, will bind the corporation, which will be estopped to deny the truth of such representation. The representation may be made in the particular case, or gener- ally. It may be made on the face of the certificate, and perhaps the lien will be treated as waived by a continuous usage on the part of the corporation allowing transfers by indebted stockholders. Such a course of business must be persisted in long enough to give the. purchaser a reasonable belief that the corporation considers its by-law to be obsolete. A statement made in the certificate, that the stock is trans- ferable on presentation and surrender thereof, does not waive the lien, but merely gives information as to the manner in which the stock is transferred.^ The lien is not waived by taking additional security for the debt.* § 182. If the corporation has waived its lien, it seems that a surety for payment of the debt is discharged there- by, where the lien would have enured to the benefit of the surety; for it is clear that the corporation cannot de- prive him of this benefit and yet hold him liable for the debt. Where the lien does not enure to his benefit, of 1 Moore v. Bank of Commerce, 52 Mo. 377. 2 On the question of agency in this aspect, see Bishop v. Globe Co., 135 Mass. 132. Young v. Vough, 8 C. E. Green, 325. Chambersburg Ins. Co. V. Smith, 11 Pa. St. 120. » First Bank of Hartford v. Hartford Ins. Co., 45 Conn. 22. Reese v. £ank of Commerce, 14 Md. 271. McCready v. Rumsey, 6 Duer, 574. But see Fitzhugh v. Shepherdsville Bank, 3 Mon. 126, where, however, there was no lien. * Union v. Laird Bank, 2 Wheat. 390. § 182 THE LIEN OF THE OOEPORATION. 195 course the corporation may waive it without losing any of its rights.^ 1 See Perrine v. Fireman's Ins. Co., 22 Ala. 575, where the corporation might at its option retain the dividends and prohibit the transfer. The court say that there is no lien until the corporation has exercised its option, and therefore that the surety was not discharged. It would seem, however, that a lien is the right to retain at the option of the creditor, and that the reasoning of the court was sounder than its premises. 196 TEANSPEB OF STOCK. § 184 CHAPTER VIII. INDIVIDUAL LIABILITY AS AJTBCTBD BY TBANSPEE. § 183. When a corporation is unable or unwilling to pay- its debts, provision is sometimes made that its creditors shall have a remedy against its stockholders. This gives to the creditors certain rights against the individual stockholders, and we have to consider how these rights are affected by the transfer of the stock. In this consideration we must bear in mind that, while heretofore we have regarded transfers as affecting three parties only, transferor, transferee, and cor- poration, we now have a fourth party affected, namely, the creditors of the corporation. § 184. This right to enforce individual liability does not exist at common law; it is a creature of statute.^ At the same time, in interpreting these statutes there exists a great difference between the course of the law in England and its course in America. In England a joint stock company, and even a trading corporation, are regarded as essentially part- nerships, with certain statutory modifications.^ Generally 1 Thompson's Liability of Stockholders, § 4. Eeid v. Eatonton Mfg. Co., 40 Ga. 98. Shaw v. Boylan, 16 Ind. 384. Trustees of Schools in Andover v. Flint, 13 Met. 539. Gray v. Coffin, 9 Cush. 192. See Coming V. McCullough, 1 N. Y. 47. In Reid v. Eatonton Mfg. Co., 40 Ga. 98, it ■was held that if a stockholder represents himself to be individually liable, he should be proceeded against without regard to his position as stock- holder. See also Trustees of Schools in Andover v. Flint, 13 Met. 539. Both these cases hold that individual liability cannot be created by a by-law. « See Hyam's Case, 1 De G. F. & J. 75, 78. Oliver v. Liverpool Ins. Co., 100 Mass. 531 ; 8. c. nom. Liverpool Ins. Co. v. Massachusetts, 10 Wall. 566, and Lord Eldon's remarks on the history of joint stock companies § 185 TRANSFEE AND rSTDIVIDTTAL LIABILITY. 197 speaking, the shareholders in these companies and corpora- tions are left individually liable, unless they have escaped such liability by a transfer in due statutory form ; and hence great stress is laid upon the formal completeness of the transfer in question. In the United States, a corporation is treated as an entity, and individual liability on the part of its members, when and so far as it exists, is treated as a statutory exception.^ In England, therefore, when it is sought to fix individual liability upon a stockholder, the question raised is, whether or not he has availed himself in due form of the statutory exception exempting him from liability. In the United States the question is, whether or not he is fairly within the view of the statutory exception fixing him with liability. § 185. As the whole matter of individual liability depends upon statute, in order to decide a particular case, the partic- ular statute must be examined with great care ; here it is possible to lay down only general principles. Some statutes allow a suit against the stockholders directly, some allow execution upon a judgment against the corporation to be levied upon the stockholders, while sometimes the liability is worked out by an assessment in the name of the corporation. Concerning two special sorts of liability, however, it is doubtful whether they should be classed as liabilities toward the corporation or toward the corporation's creditors. First, a stockholder may owe the whole or a part of the original subscription to the capital of the corporation, and Second, he may owe the amount of an assessment, levied by an existing and solvent corporation in order to carry on its business. in Van Sandau v. Moore, 1 Russ. 441, 458. These last are interesting as showing how foreign to Lord Eldon was the idea of a modern trading corporation as established in America. 1 Smith V. Huckahee, 53 Ala. 191, Trustees of Schools in Andover v. Flint, 13 Met. 539. Gray v. Coffin, 9 Cush. 192. Salt Lake City Bank v. Hendrickson, 11 Vroom, 52. 198 TKANSFEK OF STOCK. § 186 § 186. And First, as to the liabilities of transferor and transferee in regard to unpaid subscriptions. It is generally- said that the nominal amount of the capital stock of a cor- poration is a trust fund for the benefit of its creditors ; that is to say, the creditors, as between themselves and any stock- holder, can compel him to pay his proportionate share of the capital stock into the treasury of the corporation, and this payment must be real. If this be so, it is clear that no agree- ment between the corporation and the stockholder can dis- charge the latter.i The subscription is made for the benefit of the corporation's creditors as well as for that of the cor- poration itself, and although it may be that the creditors' claim is worked out by means of the corporation, yet, so far as the creditors are concerned, the capital of the corporation cannot be impaired by any agreement releasing a stockholder from his liability to make up his share of the same. So long as the corporation continues successful, so long as it pays its debts, it may release its subscribers from liability, may de- clare that its partly paid stock shall be treated as fully paid stock, and may deprive itself of all remedy against its stock- holders for the balance remaining unpaid on their subscrip- tions ; ^ but it cannot defeat the right of its creditors to have their debts paid out of such balance. If, however, a person receives from the corporation or from a stockholder an issue or a transfer of shares, relying upon the statement of the corporation that the same have been fully paid up, such person is not liable for the balance actually unpaid. It has been said in England that he has never contracted with the 1 Sawyer v. Eoag, 17 Wall. 610. Wood v. Dummer, 3 Mas. 308. Curry v. Woodward, 53 Ala. 371. Sickling v. Wilson, 104 111. 54. Osgood Y. King, 42 Iowa, 478. Crawford v. Rohrer, 59 Md. 599. Slee v. Bloom, 19 Johns. 456. Miller's Appeal, 1 Pa. S. C. R. 120. See Louisa Bank v. Traer, 16 N. W. Rep. 120, founded on a misapprehension of Phelan v. Hazard, 5 Dill. 45, and standing alone. 2 Gelpcke v. Wilson, 19 Iowa, 263. Taylor v. Miami Co., 6 Ohio, 176. See Curry v. Woodward, 53 Ala. 371, 376. § 187 TRANSFER AND INDIVIDUAL LIABILITY. 199 corporation to pay the balance, and hence is not liable, but if he knew that the stock was not fully paid, he womld be liable whether he had contracted or not, and it would seem more accurate to say that he is justified in trusting the statement of the corporation because he can have no other means of finding out the truth.^ § 187. An original subscriber to the stock of a corporation can, in the absence of special provision, escape liability for the balance of the stock subscription not yet called for, by a transfer sufficient to exempt him in an ordinary case of in- dividual liability, and the transferee will take his place as regards the corporation and its creditors.^ As soon as a cor- poration is founded, one of its chief attributes is the ability of its stockholder to substitute another person for himself in regard to both his rights and liabilities. There is no princi- ple which limits this power of substitution to a time after the capital stock has been paid in. The so-called contract of sub- scription is not a contract to pay so much money, but an entering into the relation of stockholder in the corporation. It ought to be noticed, however, that in many corporations there are special provisions declaring the original subscribers liable for the original subscription, even though they may have parted with their stock. Under these circumstances 1 Burkinshaw v. Nicolls, 3 App. Cas. 1004. Waterhouse v. Jamieson, L. R. 2 H. L. (So. & D.) 29. Foreman v. Bigelow, 4 Cliff. 508. Steacy v. LUlle Rock R. R., 5 Dill. 348. Brant v. Ehlen, 59 Md. 1. Erskine v. Lowenstein, 11 Mo. App. 595. It seems that the burden of proving notice rests with the creditors. See Waierhome v. Jamieson, L. R. 2 H. L. (Sc. & D.) 29; s. c. 6 Macph. 591. a Huddersfield Canal Co. v. Buckley, 7 T. E. 36. Webster v. Upton, 91 U. S. 65. Hartford R. R. v. Boorman, 12 Conn. 530. Bend v. Susquehan- nah Bridge, 6 H. & J. 128. Hall v. U. S. Ins. Co., 5 Gill, 484. Cowles v. Cromwell, 25 Barb. 413. Cole v. Ryan, 52 Barb. 168. Billings v. Robinson, 28 Hun, 122 ; s. C. 94 N. Y. 415. McKenzie v. Kittridge, 24 U. C. C. P. 1. Wintringham v. Rosenthal, 25 Hun, 580, deciding that an assignee is not liable though an original subscriber is, rests upon a mis- conception of Seymour v. Sturges, 26 N. Y. 134, which decided that, under a peculiar statute, neither original subscrhser nor assignee was liable. 200 TEANSFBB OP STOCK. § 187 the question may arise, whether or not the transferee also is liable for the unpaid balance. This often depends on the wording of the particular statute, but generally it should seem that he is liable, for otherwise, if the original subscriber should fail to pay, the corporation would be deprived of part of its capital, without the means of reducing its stock to a corresponding extent. To save all question, it is sometimes provided that shares shall not be transferable until fuUy paid up.^ Even where by statute the original subscriber remains liable for the unpaid balance of the capital stock after trans- fer, it seems that any subsequent stockholder can escape such liability by a transfer ; for this exists merely as a consequence of his ownership, and as part of his obligations as stock- holder.2 In all cases it is more correct to say that the stock passes, carrying with it a personal liability imposed upon its owner, than to say that there is a lien upon it. It is believed that the stock cannot be sold or in any way applied to the pay- ment of the debt, unless this is expressly authorized. If the call has already been made, and the amount called for become payable before the transfer, the assignor of course, is liable as 1 The condition of the law in Pennsylvania on this point is very pecu- liar. In Delaware Canal Co. v. Sansom, 1 Binn. 70, 75; Palmer v. Ridge Mining Co., 34 Pa. St. 288; Franks Oil Co. v. McCleary, 63 Pa. St. 317; and Pittsburgh Coal Co. v. Otterson, 4 W. N. C. 545, it was decided that the transferee was not individually liable. In several of the cases there was a right in the corporation to forfeit the shares, and it is not stated whether the transferor remained liable or not. Acting partly on the ear- liest of these cases, and partly on peculiar provisions of statute, it was decided in Pittsburgh. R. R. v. Clarke, 29 Pa. St. 146, and in Graff v. Pitts- burgh R. R., 31 Pa. St. 489, that the original subscriber remained liable after transfer; and this is probably now the settled rule in all corporations in Pennsylvania unless the statute is express to the contrary. See Messer- smith V. Sharon Savings Bank, 96 Pa. St. 440; and Aultynan's Appeal, 98 Pa. St. 505. The case of Brown v. Hitchcock, 36 Ohio St. 667, decides merely that one who is a stockholder at the time a particular debt is con- tracted cannot escape liability therefor by a subsequent transfer. ^ See West Phila. Canal Co. v. Innes, 3 Whart. 198. Billings v. Rob- inson, 94 N. Y. 415. § 189 TRANSFER AND INDIVIDUAL LIABILITY. 201 for any other debt,^ and the rule should be the same where the call has been made, but is not yet payable.'^ The liability of the transferee in such case is at least doubtful, but ordinarily the corporation has a lien and can prevent the transfer. § 188. It is seldom that a solvent corporation has power to levy assessments beyond the amount of its capital stock, and the power must be expressly granted. When it is given, the liability to pay such assessments becomes one of the obliga- tions of a stockholder, avoided by making, and incurred by receiving, a transfer of stock. After the call is made, the rule is the same as in the case of unpaid subscriptions. § 189. Individual liability attaches to the stockholder, to the person who is the legal owner of the stock. It must be borne in mind, however, that the question arises between the stockholder and the corporation's creditors, and therefore it well may be that a person who is not a stockholder, as be- tween himself and the corporation, may yet be treated as one when the rights of the creditors are in question. We have seen that two persons may have rights against a corporation in regard to the same shares of stock ; so it may be that the creditors of a corporation, in seeking to enforce individual liability, can at least choose which of two persons shall be considered as owner of its stock. We have to consider how a stockholder divests himself of this liability by transfer, and how one, not previously liable, by a transfer comes under the liability. In so doing, we must bear in mind that both may be liable, at least to the extent of allowing the creditors to elect between them, and also that, while as between transferor and transferee, the latter is liable, yet the former alone may be liable to creditors .^ 1 Vicksburg R. R. v. McKeen, 14 La. Ann. 724. 2 N. American Association v. Bentley, 19 L. J. Q. B. 427; but see West Phila. Canal Co. v. Innes, 3 Whart. 198, and Aylesbury R. R. v. Mount, 4 Man. & G. 651. « See Bargate v. Shortridge, 5 H. L. C. 297 ; s. c. 16 Beav. 84. Bosan- 202 TRANSFER OP STOCK. § 190 § 190. The transfer must be one which passes the legal title. If any act is required for that purpose, and, of course, if any act is expressly required in order to escape individual liability, there must be such an act, at least unless its absence is the result of neglect on the part of the corporation.^ If, then, the stockholder has done all in his power to clear him- self of the legal title and of individual liability, but if some needful act has not been performed through the fault of the corporation, will such stockholder be bound to the corpora- tion's creditors? Much must depend upon the precise lan- guage of the statute, but, speaking generally, it is impossible to see how the creditors of a corporation can be estopped by the acts of their debtor.^ From such neglect of the corpora- quet V. Shortridge, 4 Ex. 699. Morgan's Case, 1 Mac. & G. 225. Walker's Case, L. K. 2 Eq. 554. Tayhr v. Hughes, 2 J. & La T. 24. Clinton §• Port Hudson R. R. v. Eason, 14 La. Ann. 816. Johnson v. Underhill, 62 N. Y. 203. In Bargate v. Shortridge, the plaintiff was not allowed to re- cover, because the corporation was estopped and the use of a creditor's name by it was a mere sham. 1 Bosanguet v. Shortridge, 4 Ex. 699. Ward's Case, L. R. 2 Ch. 431; s. c. 2 Eq. 226. Head's Case, L. R. 3 Eq. 84. Clinton §• Port Hudson R. R. V. Eason, 14 La. Ann. 816. Eames v. Wheeler, 19 Pick. 442. Johnson v. Somerville Dyeing Co., 15 Gray, 216. Johnson v. Underhill, 52 N. Y. 203. Shellinglon v. Howland, 53 N. Y. 371. See Budd's Case, 3 De G. F. & J. 297. And see Kintrea's Case, L. R. 5 Ch. 95 ; Payne's Case, L. R. 9 Eq. 223 ; and Williams's Case, L. R. 9 Eq. 225, where the directors were induced to consent to the transfer by fraud on the part of the trans- feror, and hence it was held that the assent and the transfer were null, and the transferor still liable. In Bush's Case, L. R. 6 Ch. 246, the only act remaining to be done was to be performed by the transferee at the request of the directors, the title had probably passed, the transferee was probably liable, and the transferor's name had been removed from the reg- ister. Still the decision, which holds that he had escaped liability, goes to the verge of sound principle at least. Cutting v. Damerel, 88 N. Y. 410, stands alone. In most of the above cases it is impossible to distinguish between acts necessary to the passage of the legal title, and those neces- sary to the avoidance of individual liability. 2 Chartres' Case, 1 De G. & S. 581. See also Gustard's Case, L. R. 8 Eq. 438, where it was decided that the directors who had the right to refuse a transferee, were not bound to notify the transferor that they had done so. § 191 TEANSFEE AND INDIVIDUAL LIABILITY. 203 tion, however, this important result follows : The corporation and its other stockholders are estopped to deny the efficacy of the transfer, and hence, when the individual liability of the other members is a sufficient security for the debts of the corporation, the transferor should not be put upon the list of contributories. Such seems to be the line of reasoning in the English decisions, and there is nothing in America opposed to this view.^ In England the case of delay or default on the part of the corporation in recording a transfer is covered by statute.^ § 191. It should be said that, even where the legal title passes without transfer on the books it is often provided that those whose names appear on the books shall be the persons individually liable. Probably, however, such a regulation does not affect the law. When a man, with his consent, is entered upon the books of a corporation as its stockholder, it seems that the contifiued presence of his name on the books will estop him from proving that he is not a stockholder in fact.^ It is not an element of this estoppel that any or all of the creditors of the corporation should have been deceived actually by the appearance of the vendor's name on the books. All creditors are supposed to contract with reference to the state of the books, whatever it may be, as it would be practically impossible to ascertain whether they had done so or not, while the result of limiting the estoppel to the debts of those creditors who have been actually deceived would * See Orpen's Case, 32 L. J. Ch. 633. Decisions made in the course of winding up an English joint stock company must be examined with care. It does not follow, because a man is not a " contributory," that he is not liable to creditors. See Ex parte Warkworth Dock Co., 18 Beav. 629. Ex parte Ginger, 5 Ir. Ch. 174, 188. Nor does it follow that he is a " member," because he is liable as " contributory." 2 25 & 26 Vict. oh. 89, § 85. See Shepherd's Case, L. R. 2 Ch. 16. Nation's Case, L. R. 3 Eq. 77. Walker's Case, L. R. 6 Eq. 30. » See § 197; and Price If Brown's Case, 3 De G. & S. 146; Humby's Case, 28 L. J. Ch. 875; and Johnson v. Underhill, 52 N. Y. ■208. 204 TEANSPEE OF STOCK. § 193 give individual creditors rights against individual share- holders, and thus plunge the settlement of the affairs of any company into inextricable confusion. Perhaps it is needless to say that no regulation can render any person liable who is not, and has not been, a stockholder, and whose name has been put upon the corporation's books without his consent.^ Again, no rule will affect the case of a stockholder whose name has been removed from the books without more ; such person will undoubtedly remain liable. The rule, whether statutory or working through an estoppel, means that the appearance of a man's name on the books with his consent is conclusive evidence of membership, so far as individual lia- bility is concerned. § 192. The transfer, in order to be valid, must be made to a transferee capable of taking the stock. A transfer to one incapable is no transfer at all, leaves the legal title where it was, and does not free the transferor from individual liability ; hence an attempted transfer to a fictitious person leaves the transferor liable. Even if the transferor believes that he is transferring to a real person, this ought to make no differ- ence ; for, unless some real person can be shown to have used the fictitious name, there is no transfer at all.^ § 193. Let us suppose that the transfer is made to an infant, lunatic, married woman, or corporation forbidden to hold the stock in question. Such a transfer may produce one of three results, — the proposed transferee may succeed to both the title and liabilities of the transferor, to the title without the liabilities, or to neither.^ In the first case a transfer to one of the persons above mentioned is like a transfer to any one else, and is governed by general rules ; in 1 See Panmure's Case, 24 Ch. D. 367. '^ Muskingum Co. v. Ward, 13 Ohio, 120. * For a discussion of the question into which of these classes the sev- eral kinds of transferees will fall, see ch. i. and Appendix B. We discuss here simply the effect on the transferor. § 193 TKANSPER AND INDIVIDUAL LIABILITY. 205 the third case it is like an attempted transfer to a fictitious person, and hence, as there is no transfer at all, the transferor remains liable. The only difficulty arises in the second case. In England it is well settled by authority that, in order to exempt the transferor from liability, the transferee must be capable of coming under the same liability. The point has been ruled frequently in the case of an infant, but the lan- guage of the court covers the other cases as well.^ In America the point never has been decided, and has been treated in but one or two cases.^ In this matter, as in every other concerning individual liability, very much depends upon the particular statute or charter, but, supposing the simplest case, that in which all " members " or all " stock- holders " are liable, it is difficult to see how one who has parted with the title to his stock in good faith can be a " member " or " stockholder " of a corporation. Here, as elsewhere, we may find the English clinging to their strict ideas derived from the law of partnership, and holding the transferor liable until a substitute can be found for him ; while, in America, after the legal title once has passed and the transfer has been registered, the matter is treated as a question of good faith. At the same time, in view of the language of Judge Dillon, it cannot be said that the question is settled. In all the preceding discussion, it has been as- sumed that the transferor had no knowledge of his trans- feree's incapacity ; if he had such knowledge, he is held, on principles which will be stated presently. When the transfer » Mann's Case, L. R. 3 Ch. 459, note. Symom' Case L. R. 5 Ch. 298. Weston's Case, L. R. 5 Ch. 614. Curiis's Case, L. R. 6 Eq. 455. Castello's Case, L. R. 8 Eq. 504. See Brown v. Black, L. R. 8 Ch. 939. Nkkalls V. Merry, L. R. 7 H. L. 530. " See Johnson v. Laflin, 5 Dill. 65, 81. Castleman v. Holmes, 4 J. J. Marsh. 1. Roman v. Fry, 5 J. J. Marsh. 634. Walsh v. Union Bank, 5 Queb. L. R. 289. In the Kentucky cases the defendant had subscribed for the stock in his children's names. See also In re Reciprocity Bank, 22 N. Y. 1, 18. 206 TKANSPBE OP STOCK. § 194 is made, not to a corporation forbidden to purchase its stock, but to a trustee to hold for such corporation, to one who is capable both of taking title to the stock and of entering into the liabilities of a stockholder, the transferor will escape liability if he did not know of the trust.^ If he did know of it, it seems that he will remain liable.^ Of course, if the cor- poration has the right to buy and to hold its own stock, a transfer to it will exempt the transferor.* § 194. There is a class of cases which have arisen in Eng- land, where, because the company is in a precarious condition, the owner of shares has made a formal transfer to a man of straw, intending thereby both to escape individual liability himself, and at the same time, if the state of the company should improve unexpectedly, to keep all his interest in the stock. In such a case, the transferor is held liable, even though the transferee is capable of taking title to the stock and of coming under the liabilities of a stockholder.* The language in many of the cases is somewhat vague, but the courts seem to have started with the principle that such transfers do not pass even the legal title, but are merely shams, not intended by either party to pass the title between themselves, and hence having no effect as to third parties ex- cept by estoppel. It is probable that some of the cases go farther, and that the transferor has sometimes been held 1 Nicol's Case, 3 De G. & J. 387. Hollwey's Case, 1 De G. & S. 777. Johnston v. Laflin, 103 U. S. 800; s. c. 5 Dill. 65. 2 See Lawes's Case, 1 De G. M. & G. 421. NicoVs Case, 8 De G. & J. 387, 433. Daniell's Case, 22 Beav. 43. Walter's Case, 3 De G. & S. 244. Johnson v. Laflin, 5 Dill. 65, 84. » See Grady's Case, 1 De G. J. & S. 488. * Hyam's Case, 1 De G. F. & J. 75. Costello's Case, 2 De G. F. & J. 302. Budd's Case, 3 De G. F. & J. 297. Lund's Case, 27 Beav. 465. Bank of Michigan v. Gray, 1 U. C. Q. B. 422. See DePas's Case, 4 De G. & J. 544. Masters' Case, L. R. 7 Ch. 292. Slater's Case, 35 Beav. 391. Hat- ton's Case, 31 L. J. Ch. 340. Cox's Case, 33 L. J. Ch. 145. See also Colquhoun v. Courlenay, 43 L. J. Ch, 338, where the plaintifE never had been the registered owner of the shares. § 195 TRANSFER AND INDIVIDUAL LIABILITY. 207 liable where the facts show that the title undoubtedly did pass.^ The law is the same in the United States,^ but the cases are covered by a principle not recognized in England, which goes much further. In the English cases we find the following elements : First, the retention by the transferor of all benefits which belong to the position of stockholder, while he seeks to escape from its liabilities; Second, the critical condition of the company ; and, usually. Third, the pecuniary inability of the transferee to respond to calls. Except as evidence that the transfer was not out and out, it is impossi- ble to see how the third condition affects the matter. I may make a colorable transfer to a rich man as well as to a poor one. If the transfer is merely a sham, it is diflScult to see how the second condition is of consequence ; no doubt, how- ever, such a transaction is of rare occurrence except when the company is in failing circumstances. The real question should be whether the formal transfer is intended to effect some other object of the parties (either the escape from lia- bility or something else) without passing the title in reality, or is intended to effect a real transfer, leaving the transferor and transferee as cestui que trust and trustee. Some of the English cases seem to go farther than this and to hold that, even where a trust relation is created, the transferor may be liable ; but it seems there is no sound middle ground between the position above stated and that of the American courts, which will be stated presently. At any rate, the transfer of shares in a solvent company to a trustee to hold for the bene- fit of the transferor, never has been held, without more, to leave the transferee liable, and a transfer may be made to one known to be insolvent, if the transfer is out and out.* § 195. In America the courts have gone further than in 1 See Lindley on Partnership (4th Eng. ed.), 1404, 2 See National Bank v. Case, 99 U. S. 628. » Moore v. McLaren, H U. C. C. P. 534. See Bailie's Case, 39 L. J. Ch. 391. 208 TRANSFER 0¥ STOCK. § 196 England. As we have observed before, in England all stock- holders are considered liable, unless they can bring themselves within a statutory exception, that is, unless they cease to be technically " members." Hence a transfer of stock to an in- solvent as trustee for the transferor is held to exempt the transferor from individual liability unless such transfer is treated as void and as leaving the title, legal as well as equi- table, in the transferor. In America, on the other hand, a stockholder is individually liable if he is declared to be so by statute ; the question therefore is, what class of men does the statute fairly include ? Now the object of the statute is to establish, behind the liability of the corporation, and as a sort of guarantee of it, the liability of the stockholders, and the courts have decided that the statute was not intended to allow a man, when he found his stock' was worthless, to escape from liability by transferring to one, who, as he knew, was legally or pecuniarily incapable of meeting the obliga- tions of a stockholder ; and this even though the transfer was out and out and passed the legal title.^ It has been decided* however, where the transfer was made in pursuance of a previous engagement, that the transferor ceased to be liable, even although the transfer was to be made at his option, which option was determined by a desire to escape from lia- bility.^ Such a decision goes a great way to overturn the American doctrine, but it is made to depend on the good faith of the previous agreement. § 196. In order that the transferor should remain liable, 1 Bowden v. Johnson, 107 U. S. 251. Mandion v. Firemen^s Ins. Co., 11 Kob. (La.) 177. Marcy y. Clark, 17 Mass. 330. McClaren v. Francis- cus, 43 Mo. 452. Provident Savings Institution v. Jackson Skating Sink, 52 Mo. 557. DamJiy v. Brown, 24 Vt. 197. See Allen v. Montgomery R. R., 11 Ala. 437, 451. Central Agricultural Assoc, v. Alabama Ins. Co., 70 Ala. 120. Johnson v. Laflin, 5 Dill. 65, 75. Everhart v. West Chester §• PhUa. R. R., 28 Pa. St. 339. 2 Holyoke Bank v. Burnham, 11 Cush. 183. See Magruder v. Colston, 44 Md. 349. § 197 TBANSFBK AND INDIVIDUAL LIABILITY. 209 it is not necessary that the transferee should be actually in- solvent. The language of the courts is sometimes vague, but it is believed that the true question is : Did the transferor, in order to save himself from an imminent liability to pay money, and in order to defraud the corporation's creditors, transfer his stock to some one whom he knew to be legally or pecuniarily incapable of filling a solvent stockholder's place.^ If, in order to escape liability, the transfer is made to one legally and pecuniarily able to meet the liability, such a transfer, if induced by misrepresentation, may be a fraud upon the transferee, who may have a right to rescind the sale, but he alone will be liable to creditors until the name of the transferor has been again placed upon the books of the corporation.^ As to the transferee's liability in all the cases mentioned alone, see § 202. The pledgor of stock will be individually liable, except in cases where he is held to have parted with the legal title.^ § 197. One who no longer holds the legal title to stock, and thus would ordinarily be rid of his individual liability, may yet remain liable to the coi-poration's creditors because he has estopped himself by his conduct to deny that he is still a stockholder. We have spoken of the case of the ven- dor who allows his name to remain on the books after the legal title has passed from him, and who is estopped to deny the representation thus made to the creditors of the corporation.* In America, as has been said before, if a transfer is made to one capable of taking title to the stock, but legally incapable of incurring the obligations of a stockholder, if this fact is not known to the transferor, he will probably escape liability.' ^ See Bowden v. Johnson, 107 U. S. 251 ; and Miller t. Great Republic Ins. Co., 50 Mo. 55. In the last case the transferor did not know that the transferee was insolvent, and he was therefore held not liable. 2 See Slater's Case, 35 Beav. 391. 8 See § 202. * See § 191; and Gowers' Case, L. R. 6 Eq. 77. 6 See § 193. 14 210 TEANSFEE OP STOCK. § 199 If, however, the transferor should make the transfer with knowledge of this fact, he will probably remain liable. It is not like the case of a transfer to an insolvent or a poor man, which, if made when the corporation is in prosperous circum- stances, and without intent to defraud, may exempt the transferor, because the transferee is legally liable, and may become pecuniarily responsible ; it is a transfer to one legally incapable of filling the transferor's place. § 198. A director of a corporation is liable on the ground of fraud, if he makes use of his position to get clear of his responsibility ; ^ and a stockholder will remain liable if he secures the needful assent of the directors to a transfer by a fraudulent bargain with them,^ or by fraudulently imposing upon them.^ If, however, the assent is the result of a fair bargain, the transferor will be discharged,* unless he is held on other grounds. § 199. One who is a stockholder may escape from liability by forfeiting his stock, if the forfeiting is done in due form, and is within the power of the corporation and of its agent acting in the particular case.^ If it is done with intent to de- fraud the creditors, or without due authority, the proceedings will not avail the person whose stock it is attempted to forfeit, and he will remain liable to the creditors, either as a stock- holder, or by estoppel.^ The forfeiture must be complete, and must have been actually carried out by the corporation ; 1 Munt's Case, 22 Beav. 55. 2 Eyre's Case, 31 Beav. 177. See Bennett's Case, 5 De G. M. & G. 284. 8 See Parker's Case, L. R. 2 Ch. 685, where the directors were per- suaded to postpone a caU, and before it was made the stockholders trans- ferred. ^ Harrison's Case, L. K. 6 Ch. 286. 6 Knight's Case, L. R. 2 Ch. 321. SneWs Case, L. R. 5 Ch. 22. Ma- cauly V. Robinson, 18 La. Ann. 619. Mills v. Stewart, 41 N. Y. 384. See Small v. HerUmer Mfg. Co., 2 N. Y. 330. » Stanhope's Case, L. R. 1 Ch. 161. Hall's Case, L. R. 5 Ch. 707. See Gowers' Case, L. R. 6 Eq. 77. Jones's Case, 27 L. J. Ch. 666. § 202 TEANSFEE AND INDIVIDTTAL LIABILITY. 211 a mere statement that the corporation intends to forfeit the shares is not enough.^ § 200. It was provided by statute in Massachusetts that, in certain circumstances, an execution against the cor- poration might be levied on the bodies and estates of any members thereof. Under this statute it was held that such a levy could hot be made upon the estate of a member deceased at the time when the action was brought.^ It would seem, however, that the executor continued the person of the deceased, and that some one should be responsible for the stock. The decision applies only to a particular statute. § 201. If a stockholder, being liable to pay a given debt of the corporation, promises a particular creditor not to transfer his stock, and if the creditor, at his request, does not sue him until after he has transferred it and thus has ceased to be liable under the statute, such stockholder can neverthe- less be sued by the particular creditor on the ground of estoppel.^ § 202. We have considered how a stockholder in a corpo- ration can divest himself of the individual liabilitj' which attaches to his position. We now consider how one, not a stockholder, can come under this liability. He can do so by becoming a stockholder, or by estopping himself from deny- ing that he has become one. And first, any one who, in any way, becomes a stockholder in a corporation, as such stock- holder becomes individually liable, unless his personal status is such that he is incapable of entering into the obliga- tion in question, as perhaps, if he is an infant, lunatic, or married woman.* How far these persons can be stockholders, 1 See Bigg's Case, L. E. 1 Eq. 309. 2 Mass. St. 1808, ch. 65, § 6. Child v. Coffin, 17 Mass. 64. Dane v. Dane Mfg. Co., 14 Gray, 488. Bacon v. Pomeroy, 104 Mass. 577. See Ripley v. Sampson, 10 Pick. 371. » Paine v. Stewart, 33 Conn. 516. * Brown v. Wilcox, 22 N. Y. 551. As to the liability of the husband of a female stockholder in England, see Burlinson's Case, 3 De G. & S. 18 ; 212 TEANSPEE OP STOCK. § 202 with the ordinary liabilities of stockholders, has been dis- cussed elsewhere,^ but no incapacity arising after transfer will exempt one who has already become a stockholder. Moreover, if stock be purchased by one who causes it to be put in the name of a fictitious person, or if stock be sold by an infant, lunatic, or married woman to a person sui Juris, the real purchaser in the first case,^ and the transferee in the second, will be liable if they have the legal title, and not otherwise. So, again, one who has taken stock in pledge is not liable, as pledgee, except so far as he is considered to hold the legal title, but in some jurisdictions a pledgee is treated as having the legal title, and therefore liable.^ A mortgagee, as holding the legal title, should be indirJdually liable. Where a stockholder in an insolvent corporation makes a fraudulent transfer in order to avoid liability, and so is held to remain liable, nevertheless the transferee will be liable also, either because the title has passed, or by estoppel if his name is entered on the books of the corporation. So also, if the transfer is induced by the fraud of the transferor * or of the corporation,^ the transferee may have an action for Sadler's Case, 3 De G. & S. 36; and Kluht's Case, 3 De G. & S. 210. It seems to be put on the ground of the husband's liability for the partner- ship debts of his wife. No such liability would exist in an American corporation ; and in England, see Ness v. Angus, 3 Ex. 805. 1 See Appendix A. 2 See Pugh §• Sharman's Case, L. R. 13 Eq. 566. Richardson's Case, L. R. 19 Eq. 588. The real purchaser has, in fact, acted under an alias. Where he did not do so, but really bought for the infant he is not held. Maitland's Case, 38 L. J. Ch. 554. Pullman v. Upton,, 96 U. S. 328. 3 Anderson v. Phila. Warehouse Co. , 111 U. S. 479. See Hale v. Walker, 31 Iowa, 344. Magruder v. Colston, 44 Md. 349. Crease v. Babcock, 10 Met. 525. Johnsony. Somerville Dyeing Co., 15Gra,j,21Q. BarreBankv. Bingham Mfg. Co., 127 Mass. 563. Adderlyy. Storm, 6 Hill, 6J4. Rosevdt V. Broion, 11 N. Y. 148. Re Empire City Bank, 18 N. Y. 199. In these cases either the transfer was made in such a way that the pledgee was con- ' sidered to hold the legal title, or else was estopped to deny that he held it. * See Slater's Case, 35 Beav. 391. ' Oakes v. Turquand, L. R. 2 H. L. 325, which overrules a number of § 203 TEANSPEE AND INDIVIDTJAL LIABILITY. 213 damages against the person or body deceiving him, and may in some cases rescind the sale, but until his name is removed from the books, he vrill be individually liable. If it be held that a provision in a given charter or by-lavf requiring a transfer on the books is made solely for the benefit of the corporation, it may well be that a purchaser who has bought stock intending not to have his name entered on the corpora- tion's books, will become individually liable if the corporation enter it in spite of his objection. If so, the vendor will prob- ably cease to be liable.^ § 203. Again, not only a stockholder is liable, but also one who is estopped, as against the creditors of tlie corporation, to deny that he is a stockholder.^ If a married woman, or other person incapable of making a valid transfer, make one apparently valid to a person who causes it to be registered, such person is liable, because he has held himself out to the creditors of the corporation as its stockholder ; and the same will be true if the transfer is ineffectual for any other cause, even although the vendee may reasonably suppose that he has obtained the title, because the creditors of the corpora- tion cannot be estopped by the fraud of the vendor. Even if the vendee has failed to get title through the fraud of the corporation, the result should be the same, as the creditors are separate from the corporation and not responsible for its acts. If there has been no sale at all, but merely an entry upon the corporation's books that a given person is the owner of certain shares, the entry having been made with earlier cases and settles the law in England. See Houldsworih y. Glasgow Bank, 5 App. Cas. 317. 1 See London §• Brighton E. E. v. Fairclough, 2 Man. & Gr. 674, 706. Upton V. Burnham, 3 Biss. 520. Webster v. Upton, 91 U. S. 65. 2 Straffon's Ex'rs Case, 1 De G. M. & G. 576. Maguire's Case, 3 De G. & S. 31. Harward's Case, L. R. 13 Eq, 30. See also West Cornwall E. R. V. Mowatt, 15 Q. B. 521, where it is held that the defendant could not set up the illegality of the agreement whereby he became stock- holder. 214 TBANSFBR OF STOCK. § 204 such person's consent, it seems that he is liable.^ And the result should be the same, even if the number of shares is thus increased beyond the charter limit, for the creditors can hardly be expected to verify the books by adding together the number of shares. In some jurisdictions it is provided by statute that those whose names appear upon the books of the corporation shall be individually liable. In such case, it is clear that any one who, with his own consent, is entered as a stockholder will be so liable, but it seems that this statu- tory provision does not add to the rule at common law. The individual liability of stockholders is intended as a security to the corporation's creditors, and the books of the corpora- tion constitute a representation upon which creditors have a right to rely, and in reliance upon which they are presumed to have acted. Whether any person can become individ- ually liable, by leaving his name on the books of the corpo- ration, where it had been placed without his authority, is at least doubtful. § 204. A difference of opinion has arisen between the Su- preme Court of the United States and that of Missouri, which seems to call for particular notice. The cases are Burgess v. Seligman, 107 U. S. 20 ; Griswold v. Seligman, 72 Mo. 110 ; and Fisher v. Seligman, 75 Mo. 13, — all arising from the same transaction. The statute of Missouri governing the cases provided that no person holding stock as collateral security should be personally liable, but that the liability should rest on the pledgor. Seligman had received from the corpora- tion in question certain shares of stock as collateral security, and the entry on the books of the corporation described him 1 Price Sj- Brown's Case, 3 De G. & S. 146. Griswold v. Seligman, 72 Mo. 110. Fisher v. Seligman, 75 Mo. 13. Erskine v. Lowenstein, 11 Mo. App. 595. Wakefield v. Fargo, 90 N. Y. 213. See Straffon's ExWs Case, 1 De G. M. & G. 578, 595. National Bank v. Case, 99 U. S. 628, 631. Wheelock v. Kost, 77 111. 296. Dane v. Young, 61 Me. 160, 169. In re Reciprocity Bank, 22 N. Y. 1, 17, 18. Aultman's Appeal, 98 Pa. St. 505, 516. § 204 TRANSFEB AND INDIVIDUAL LIABILITY. 215 as holding them in escrow, though the certificate was in the usual form. He voted upon the shares and was chosen director, though it did not appear that he accepted the oflBce. Under these circumstances the Supreme Court of Missouri held that Seligman was individually liable, while that of the United States held otherwise. The decision in the former case seems to rest on two grounds : first, that whatever was Seligman's actual position, he was estopped to deny that he was a stockholder ; and second, that the statute did not cover a case in which there was not and could not be a responsible pledgor. As to the latter ground, the decision contravenes the plain language of the statute, and that without any over- ruling reasons of public expediency or justice (see the re- marks of Bradley, J., 107 U. S. 36). As to the former ground, a careful examination is necessary. The statute provides in substance that the holding of stock as collateral security shall not make the holder individually liable ; that is to say, he will be in the same position as if he did not hold stock at all. But the statute does not exempt him from the legal consequence of his acts, and if these acts are such as to bind him, even supposing that he is not a stockholder, he will be bound although he holds stock as collateral security. Of the two cases cited by Mr. Justice Bradley, it is sufficient to say that Matthews v. Albert, 24 Md. 527, is entirely misappre- hended by him. Tiernan was not defendant, but plaintiff j the question was simply whether or not he was a non-stockhold- ing creditor, and no question of estoppel did or could arise. Moreover, it seems that Tiernan repudiated the transaction as soon as he knew of it, so that he could not have been estopped. In McMahon v. Macy, 51 N. Y. 155, a new trial was granted on several grounds, one of which was that the defendant had not been allowed to prove that he held the stock as collateral security, a fact probably relevant whether an estoppel existed or not. In neither case was the estoppel discussed. In Burgees v. Seligman the true question was, 216 TEANSPEE OP STOCK. § 206 then, whether the acts of Seligman constituted an estoppel. He could not have been estopped as against the corporation, though this is suggested in Fisher v. Seligman, for the corpor- ation knew the state of the case as well as he did. It is not necessary to show that any particular creditor was misled, but could the acts of Seligman have misled anybody? The form of the certificate, perhaps known only to him, had no such effect; the entry on the books, however inartificial, was substantially accurate; and the act of voting, though wholly improper in a pledgee,^ seems hardly sufficient ground for an estoppel. It must be admitted that the law on the subject of individual liability by estoppel is not in a condition wholly satisfactory, but the above theory is sub- mitted as sound in principle and as most strongly supported by authority. § 205. The holder of the legal title to stock is individually liable, not the holder of the equitable, — the trustee, and not the cestui que trust?' In some jurisdictions, however, the liabil- ity of a trustee is limited by statute, as otherwise his position would be very hazardous. § 206, Let us suppose that each of two persons is liable in respect of certain shares of stock, — A., because he is the legal owner of the shares, and B., because he is estopped to deny that he is their owner ; ^ can the creditor proceed against both, or mus't he elect between them ? It should seem that he must elect. The fault of A. or of B. or of them both is no reason why the creditor should be better off than if they had been faultless ; both cannot be owners of the stock, and it is contrary to sound principle that the fiction of estoppel, intro- duced to protect the creditor from fraud, should be so used as 1 See Scholfield v. Union Bank, 2 Cranch C. C. R. 115; and see Fan- ning Y. Hibernia Ins. Co. , 37 Ohio St. 339. ^ King's Case, L. E. 6 Ch. 196. Newry R. E. v. Moss, 14 Beav. 64. Shipman's Case, L. K. 5 Eq. 219. See Hoare's Case, 2 J. & H. 229; and Fanning r. Hibernia Ins. Co., 37 Ohio St. 339. « See Burr v. Wilcor, 22 N. Y. 551. § 208 TEANSFEE AND INDIVIDUAL LIABILITY. 217 to give him a greater advantage than if no fraud had been practised. § 207. We have to consider next, at what time a person must be a stockholder in order to incur individual liability. Usually each statute expressly selects some one particular time and provides that those persons who are stockholders at that time shall be individually liable. The time selected varies much with the various statutes. Sometimes it is when the debt is incurred, sometimes when the corporation fails to pay it, sometimes when judgment thereon is rendered against the corporation, or again, when execution against the corpo- ration is returned unsatisfied. There are, however, some cases in which the statute says simply that stockholders shall be liable. In such a case, at what date must one be a stockholder in order to incur the liability? § 208. The cases on the point are few, and some of the decisions seem irreconcilable, but the answer ought to de- pend upon the kind of liability imposed by statute on the stockholders. In a partnership, each partner is liable for those debts only which were contracted when he was a mem- ber of the partnership, for, with every change of members, a new partnership is created. Therefore, when the intent of the statute appears to be that an individual liability, like that existing in a partnership, should be created, either generally, or under certain circumstances, those persons will be liable who were stockholders when the obligation was incurred. Such a case arises when the statute provides that all stock- holders shall be jointly, or jointly and severally, liable for all debts of the corporation, or where they are made so liable if certain formalities have not been observed, or for certain classes of debts.^ A similar decision has been reached where 1 Williams v. Hanna, 40 Ind. 535. MUldam Foundery v. Hovey, 21 Pick. 417, 453. Holyoke Bank v. Burnham, 11 Cush. 183. See Larrahee v. Baldvdn, 35 Cal. 155. In Croxton's Case, 1 De G. M. & G. 600 ; and in Cape's Executors' Case, 2 De G. M. & G. 562, the decision depended on the 218 TEAKSFBE OP STOCK. § 209 a demand upon the corporation was necessary before the stockholder could be sued, and even where a judgment against the corporation was required before proceeding against him, but in both these cases the statute declared distinctly that the stockholders were liable for the debt, and the courts treated the statutes as extending the principles of a partnership to the law of corporations.^ § 209. "Where, however, the statute does not make the stockholders liable for the debts of the corporation, but provides in certain cases, where a corporation has failed to pay a debt, or a judgment against it has been returned un- satisfied, that the remedy may be enforced against a stock- holder, — there those are liable who are stockholders when this remedy is sought to be enforced against them.^ It is admitted that the distinction is a fine one, and that there are one or two decided cases which present difficulties,^ but it particular statutes or articles. In McMaster v. Davidson, 29 Hun, 542, the statute made the stockholders liable " for all debts and contracts made." A stockholder, who became one after the making of the contract but before the arising of the debt, was held liable. As to the renewal of notes creating a new debt, see Wheeler v. Faurot, 37 Ohio St. 26, and cases cited. 1 Moss V. Oakley, 2 Hill, 265. Judson v. Eossie Galena Co. , 9 Paige, 598. Chesley v. Pierce, 32 N. H. 388. Middletown Bank v. Magill, 5 Conn. 28, decided by three judges against two, is opposed to the above cases, and also to the line of reasoning in Souihmayd v. Russ, 3 Conn. 52; and Deming v. Bull, 10 Conn. 409. 2 Nixon Y. Green, 11 Ex. 550. McClaren v. Franciscus, 43 Mo. 452. See Dauchy v. Brown, 24 Vt. 197. Bond v. Appleton, 8 Mass. 472. ' In Curtis v. Harlow, 12 Met. 3, the statute declared that all the members should be liable until the capital stock was paid in and a certi- ficate entered and recorded. One who had become a stockholder after the debt was incurred was held liable. The language of the court is general, but the case might have been decided on the ground that the statute was intended to fix a penalty for the failure to perform an act which the stockholder ought to have compelled the corporation to do. In Moss v. McCullough, 5 Hill, 131; B. c. 5 Den. 567, the statute made the stock- holders liable after judgment against the corporation. The court below treated them as guarantors and held those only liable who were stock- holders when the suit was brought. The Court of Appeals reversed this § 209 TRANSFER AND INDIVIDtTAL LIABILITY. 219 is believed that the distinction is sound. In the first class of cases, the statute makes the debt of the corporation to be the debt of the stockholder when it is contracted, while a judgment or any other requisite is merely a formality neces- sary for bringing the action ; in the second class of cases, these requisites are conditions precedent to the stockholder's liability. decision on other grounds, and the senators differed on this point. The head-note in 5 Den. 567, exactly reverses the opinion of Senator Lott, and it seems probable that the text misstates the opinion of some of the other senators. See pp. 585, 586. 220 TBANSrEE OF STOCK. § 211 CHAPTER IX. EEMEDIES AND THE MEASUEE OF DAMAGES. § 210. Wb consider, finally, what forms of action can be resorted to in order to enforce the rights which we have dis- cussed heretofore, and we shall consider also what is the measure of damages in these several forms of action. Con- siderable difficulty exists in treating of the various forms of action at the present day. In many jurisdictions the old forms have been abolished, in others they have been much altered. In some, equity and law have been combined for all purposes ; in others, for some purposes only, while, at times, judges use the old names without fully realizing their meaning. In this place we shall treat of the old forms, as it is much easier to translate case and trover into tort than it is to differentiate tort into case, trover, and a, half-dozen other forms of action. Much of the discussion in regard to these forms is as necessary now as it ever was ; for example, the conditions under which specific performance can be enforced are the same, whether it is sought in equity, law, or a fusion of the two. Before dealing with this subject generally, how- ever, we shall treat of a special matter which has occasioned much discussion and some conflict in the authorities. § 211. There is great difference of opinion as to the point of time to be taken as a standard in valuing stock for the purpose of assessing damages. For the sake of convenience, we shall here discuss this question as- it arises in all the forms of action to be mentioned in this chapter. It is the intent of the law to reimburse every man for the damage resulting from any wrong done him by his neighbor which is a wrong § 212 BEMEDIES AND THE MEASURE OP DAMAGES. 221 in the eye of the law, and it may be said generally that it ia for the jury to fix the amount of this damage in the particular case, and award compensation for it to the plaintiff. But rules of law have been developed, which are found to work greater justice in the mass of cases than would result from leaving the question to the jury untrammelled by instructions. It must be a matter of conjecture in most cases what a man's loss really is, for the comparison must be made with a state of affairs purely imaginary and depending upon an indefinite number of conditions.^ In order to make an end of liti- gation, the courts have neglected most of these conditions, and presumptions are established, based on the average experi- ence of mankind, but sometimes ignoring special conditions in a particular case. For example, if stock in a corporation has been converted, and the owner sue for the conversion, it has been held that he can recover the value of the stock, based on the highest price at which it has been sold between the day of conversion and the day of trial, if the jury believe that he would have held the stock so long.^ Now, obviously, if it be true that the plaintiff would have retained his stock just so long and no longer, and also if he could not have bought stock previously to take the place of that which was converted, the rule thus laid down is correct.^ But most courts hold that a jury is not fitted to examine such nice questions of conjecture, and accordingly they assume, either that the plaintiff would, or would not, sell his stock at that price, and sometimes that he could, or could not, have bought stock previously. Unfortunately they do not agree in their assumptions, and hence the rules which they lay down are various. § 212. In an action of trover for the conversion of an ordinary chattel, the usu^l measure of damages is the value 1 See Robinson v. Harman, 1 Ex. 850, 855. .2 Moody v. Caulk, 14 Fla. 50, 52. « See Baker v. Drake, 53 N. Y. 211. 222 TEANSPEE OF STOCK. § 212 of the chattel at the time of conversion, with interest,^ and no more ; for the law will not allow the plaintiff to charge even a tort-feasor with damages which the plaintiff might have saved.2 The rule rests upon public policy, as it is for the public good that a wrongful act should do as little injury as possible. Hence, if the plaintiff whose goods are con- verted thinks that he will sustain any incidental damage through being deprived of them, the law considers that he should go into the market and buy like goods to take their place ; and he recovers from the defendant the money paid for these, while the interest is a compensation for its use. Now it may be that like goods cannot be bought immediately and that their price will rise, or it may be that the plaintiff has not the money wherewith to buy ; in either case, the damages may not be adequate compensation for the conversion. But the plaintiff is not limited to an action of trover ; if the de- fendant has sold the goods converted, the plaintiff may waive the tort, declare the defendant to be his agent (a statement which the defendant is not allowed to deny), and recover the proceeds of the sale as money had and received by him to the plaintiff's use. In such case interest runs only from the time that the defendant receives the plaintiff's money. Again, if the defendant still has the goods in his possession, in many cases the plaintiff may recover the goods themselves in an action of detinue, where that action is still permitted, or in the action of replevin as enlarged by statute in some juris- dictions, ' recovering at the same time damages for their 1 2 Sedgwick on Damages (7th ed.), 368. Kennedy v. WhitweXl, 4 Pick. 466. 2 See Hinde v. Liddell, L. K. 10 Q. B. 265. Seymour v. Ives, 46 Conn. 109, 115. Paine v. Sherwood, 21 Minn. 225, and see Stewart v. Cauty, 8 M. & W. 160, and Borries v. Hutchinson, 18 C. B. n. s. 445, and note to the American edition. If the goods were not obtainable in the market, then the plaintiff will recover incidental damages if the cause thereof was in the contemplation of the parties, not otherwise. See Hadley v. Baxen- dale, 9 Ex. 341. Paine v. Sherwood, 21 Minn. 225. § 213 REMEDIES AND THE MBASUEE OF DAMAGES. 223 detention.^ In the action of detinue, if the goods cannot be restored, their value is computed as of the time of verdict.^ § 213. In an action of assumpsit for the non-delivery of goods, if the price has not been paid and if the goods are purchasable in the market, the damages will be the difference between the market value of the goods at the time and place of delivery, and their contract price, with interest on such difference.* If the contract has been executed by payment of the price, some courts have held that the market value at another time should be taken as the standard.* In such case they assume that the plaintiff has not the money wherewith to buy a like article, and the}' estimate the damages accordingly. It seems, however, that such an assumption is not sound. If it be assumed that the plaintiff has just enough money to pay the contract price, and no more (an assumption usually false), still he cannot make himself good, even if the contract be wholly executory, for, to suppose the contract worth suing on, the goods must have risen in price. If then, we assume that the plaintiff is worth an indefinite sum more than the contract price, where are we to stop, and what rule shall be laid down in case of part payment ? It may happen often that the plaintiff depends upon the execution of the contract by the defendant for getting the money wherewith to pay him, and it is not believed that, as a matter of fact, the plain- tiff is much more likely to be out of money in the case of an ' See 1 Sutherland on Damages, 621. 2 See Freeman v. Lucketl, 2 J. J. Marsh. 390. « Gainsford v. Carroll, 2 B. & C. 624. Shaw v. Holland, 15 M. & W. 136. Earned v. Hamilton, 2 Eng. R. Cas. 624. Shepherd v. Hampton, 3 Wheat. 200. Clarke v. Pinney, 7 Cow. 681. See "Anonymous " cited, 5 C. B. 326, and for interest, 1 Sutherland on Damages, 174. * Stapleton v. King, 40 Iowa, 278. Clarke v. Pinney, 7 Cow. 681. Calvit T. McFadden, 13 Tex. 324. See Owen v. Routh, 14 C. B. 327. Shephard v. Hampton, 3 Wheat. 200. West v. Pritchard, 19 Conn. 212. Perhaps Shepherd v. Johnson, 2 East, 211, is to be explained on the ground that it was an action on a bond, but it is hard to see the difference. 224 TKANSFEK OP STOCK. § 213 executed than in the case of an executory contract.^ Again, if any other time than that of the breach be taken, what shall it be ? To fix upon the time of trialj^^ or of verdict, would be no more advantageous to the plaintiff, as a rule, than to take the time of the breach of the contract; for the goods may not be in the market at the later time, or they may have fallen in value since the earlier. To allow the plaintiff to elect the date is wholly indefensible on principle,* while to give him the highest price between the time of delivery and that of trial makes necessary the very improbable assumption that he would have sold them at that exact time. Such a method of assessing damages is defensible only upon the ground that any and all assump- tions should be made against a wrong-doer; and it is no legitimate part of any system of law, except one which gives damages in a civil action, to inflict punishment and not to re- imburse the plaintiff.* The method which allows the jury to take any measure of damages they see fit is, indeed, a return to first principles, but it is contrary to the principles of modern jurisprudence.^ It is not more sensible to take the value at 1 Smith V. Dunlap, 12 111. 184. Bickell v. Colton, 41 Miss. 368. Hill V Smith, 32 Vt. 433. HumphreysvUle Copper Co. v. Vermont Copper Co., 33 Vt. 92. 2 See Dowries v. Back, 1 Stark. 318. " See M' Arthur v. Lord Seaforth, 2 Taunt. 257, in which case nothing more was decided than that the verdict was large enough. See also Blyth V. Carpenter, L. R. 2 Eq. 501. * M' Arthur v. Lard Seaforth, 2 Taunt. 257. See Stapleton v. King, 40 Iowa, 278. Kortnght v. Buffalo Bank, 20 Wend. 91 ; s. c. on appeal, 22 Wend. 348. Caltiit v. McFadden, 13 Tex. 324. 6 Startup V. Cortazzi, 2 C. M. & R. 165. See Loeb §• Bro. v. Flash Bros., 65 Ala, 526; and Street v. Nelson, 67 Ala. 504. The last cases were ac- tions of trover, and it seems that the Alabama courts treat that action with great liberality. " Trover is, to some extent, an equitable action, and many circumstances may enter into the transaction, requiring full damages, or mitigating the defendant's conduct and consequent liability to simple compensation." 65 Ala. 538. What "full damages" are, as distin- guished from " simple compensation," has not yet been laid down. § 215 REMEDIES AND THE MEASUBE OP DAMAGES. 225 what is called a reasonable time after the breach.^ The law does not require a man to hasten in the exercise of his legal rights, and laches exists only in equity. But the law does require a man to procure the goods as soon as possible, or take the risk of their rising in price, and the rule above given has a certain resemblance to that requirement. § 214. The plaintiff, after the contract has been broken, is not necessarily limited to an action of assumpsit. In some cases, he can bring a bill in equity for the specific perform- ance of the contract, thus recovering the goods themselves, — or their value at the time of decree, if the defendant has dis- posed of them after filing the bill, — with incidental damages in both cases.^ Such a bill can be brought where an action for damages is not an adequate remedy, unless the defendant has sold the goods to a bona fide purchaser for value.^ Here, and in all other cases where the procedure is in equity, the defendant is treated as trustee, and the procedure is more flexible ; the plaintiff is allowed to elect between the actual profit made by the defendant, and the legal rate of interest.* Even here, however, there is no trace of a rule giving to the defrauded cestui que trust the highest value of the goods. § 215. Such, in brief, are the rules fixing the rate of com- pensation in the case of ordinary chattels. It remains to seek 1 See Page v. Fowler, 39 Cal. 412. Douglass v. Craft, 9 Cal. 562, and Hamer v. Hathaway, 33 Cal. 117, which were cases of trover. 2 Sewall V. Boston Water Power Co, 4 All. 277. O'Meara v. N. Amer- ican Mining Co., 2 Nev. 112. In Fowle v. Ward, 113 Mass. 548, it was claimed by the defendant that the value of the stock should be taken as of the time of the breach of contract, but the court decided against him and fixed upon the time of filing the bill. The question whether or not the time of decree should be taken, does not seem to have been consid- ered. As it stands, the case is opposed to Sewall v. Boston Water Power Co. , 4 All. 277, and must be considered as resting on an oversight. 8 See § 222. * See Forrest v. Elwes, 4 Ves. 492. Earl Powlet v. Herbert, 1 Ves. 297. 15 226 TEANSFEE OF STOCK. § 216 if there is any reason why the same rules should not be applied to stock, and, if there is none, to apply these rules. It is hard to see why the rules should in any way differ when the question arises in regard to stock.^ For example, if stock can be likened to a chattel so that an action of trover can be brought for its conversion, it may be likened to a chattel when the damages for its conversion are to be estimated. It has been said, however, that shares in a corporation are a commodity peculiarly subject to fluctuation in price ; that, in the case of other chattels, the value at the time of conversion is taken because it is supposed to be the value up to the time of trial, — a supposition which would be unlikely in case of stock. Such a view is erroneous in fact and in law. Shares in a corporation may or may not be peculiarly liable to fluctu- ation ; in some corporations their price is steadier than that of many necessaries of life ; and when they are thus compared with such an article as millinery,^ the statement is absurd. Moreover, the true reason why the value at the time of con- version is fixed upon is that, for reasons of public policy, the law requires the plaintiff to secure himself from loss as well as he may, before seeking to charge the defendant with the same. And it is not true that stocks are bought to sell more than other goods ; on the contrary, almost all the necessaries of life are, unavoidably, bought for sale several times before they reach the consumer. § 216. If, then, stock is to be treated like any other com- modity, let us see how the principles above laid down apply. It is impossible to reconcile all the cases, as some of them proceed upon principles which we have tried to prove errone- ous, but it is believed that the general drift of the cases is 1 See Wells v. Ahernethy, 5 Conn. 222, 227. Sturges v. Keith, 57 111. 451. McKenney v. Haines, 63 Maine, 74. Pinkerton v. Manchester Sf Lawrence R. R., 42 N. H. 424. Enders v. Board of Works, 1 Gratt. 364. For the other view see Kent v. Ginter, 23 Ind. 1. Montgomery Bank v. Reese, 26 Pa. St. 143. '^ See Wehle v. Haviland, 69 N. Y. 448. § 216 REMEDIES AND THE MBASXJEB OF DAMAGES. 227 toward uniformity. If the plaintiff, having been deprived of his stock, sue in trover or in case, he should recover the value of the stock at the time he was deprived of it, with interest thereon.^ If the stock could not be bought at that time, it seems that its price as soon as the plaintiff could buy it should be taken as the standard, on the ground that he was authorized to buy it then, and thus entitled to what he then paid for it.^ If the defendant has sold the stock, the plaintiff can waive the tort, and in an action of indebitatus assumpsit for money had and received, recover the money paid to the defendant, with interest from the time of such payment.^ If the certificate stUl remains with the defendant, the plaintiff can recover it in an action of detinue, in jurisdictions where that form of action exists in name or in substance,* or by replevin where that remedy is applicable to certificates of stock. As we have said elsewhere,^ stock has been likened to a chattel to such a degree that an action of trover can be brought for its conversion. If the analogy be forced further, so that detinue or replevin may be brought as well, it follows, where 1 Seymour v. Ives, 46 Conn. 109. Sturges v. Keith, 57 111. 451. Balti- more R. R. V. Sewell, 35 Md. 238. Boylan v. Huguet, 8 Nev. 345. Pin- kerton v. Manchester §• Lawrence R. R., 42 N. H. 424. See In re Bahia R. R., L. R. 3 Q. B. 584. O'Meara v. North American Mining Co., 2 Nev. 112, 116. M'Murrick v. Bond Head Co., 9 U. C. Q. B. 383. In Baltimore R. R. v. Sewell, 35 Md. 238, the court seems to have allowed both dividends and interest, but it probably was overlooked that thus the plaintiff was paid twice over for the use of his money. See Fromm v. Sierra Nevada Mining Co., 61 Cal. 629, where the rule is fixed by statute; and for the New York and Pennsylvania cases, see §§ 218, 219. 2 See Baker v. Drake, 53 N. Y. 211. Colt v. Owens, 90 N. Y. 368. s Marsh v. Keating, 1 B. N. C. 198. See Ingram v. Rankin, 47 Wis. 406, 417 ; and Loring v. Brodie, 134 Mass. 453, where the plaintiff brought a bill in equity to obtain bonds impressed with a trust which had been sold; he obtained the price at which the bonds were sold, with the interest actually received previous to the sale, and interest afterwards. The court also decreed the return of stock impressed with the same trust, together with the dividends received thereon. ^ See Williams v. Archer, 5 C. B. 318. 6 See § 231. 228 TRANSFER OP STOCK. § 217 either of these forms of action exists, or where their substance is preserved under another name, that the plaintiff, if the defendant still retains control of the stock, can obtain either the stock itself or its value at the time of verdict, since that is the alternative judgment rendered in such case.^ The same result would follow if either action can be maintained for the certificate, and if the value of the stock is allowed when the certificate is not returned. There are traces of such results in the decisions,^ but it is believed that the action of detinue has practically disappeared, while that of replevin very seldom would be so extended as to apply to stock, and in many jurisdictions does not exist at all. It may also be doubted whether or not the value of the stock would be allowed if the defendant did not return the certificate. § 217. If the plaintiff sue in contract, the value of the stock will be taken at the time of the breach,^ or as soon 1 See Peters v. Heyward, Cro. Jao. 681. See Williams v. Archer, 5 C. B. 318. Bercich v. Marye, 9 Nev. 312. 2 Bercich v. Marye, 9 Nev. 312. See Ingram v. Rankin, 47 Wis. 406, 417. In an action of detinue for certificates of stock, it has been held ( Williams v. Archer, 5 C. B. 318) that the plaintiff could recover, as inci- dental damages, the depreciation in value of the stock between the time of demand and that of redelivery. This decision must proceed on the ground that the action of detinue contemplates a return of the chattel sued for, while the action of trover results in vesting the title in the de- fendant. If, then, the plaintiff, being unable to. transfer without the certificate, goes into the market and buys the stock, he will find himself with double the amount of stock on his hands. Now, the plaintiff is en- titled to recover his certificates with what he has lost from their detention. The damages will be: 1. The profits of which he may have been deprived ' in consequence of his not having had the certificates; and 2. The depre- ciation in the value of the stock between the time of demand and that of verdict; because if, at the time of demand, he had bought the stock, he would be entitled to sell it at the time of verdict, and recover its fall in value from the defendant. Probably a like rule should be applied to an action of trover in which the defendant is allowed to diminish damages by a return of the thing sued for, and to a bill in equity for the delivery of certificates. « Shaw V. Holland, 15 M. & W. 136. Earned v. HamiUon, 2 Eng. R. Cas. 624. Jlfc^ffenneyv. Thames, 63 Me. 74. Sargent y. Franklin Ins. Co., § 218 EEMEDIES AND THE MEASTTBE OF DAMAGES. 229 thereafter as the plaintiff could procure the stock,^ and this whether the contract is executed or executory : interest will be allowed from the time of the breach. If the remedy is a bill for specific performance, there will be a decree for the delivery of the stock, and the payment of mesne profits by way of incidental damages. If the stock is not delivered, the plaintiff will be allowed its money value at the time of the decree ; '^ or, if the stock has been sold, the plaintiff can obtain the proceeds.* § 218. The whole matter has received so full a discussion in the courts of Pennsylvania, that it is worth while to con- sider the cases together. The rule of the highest price was adopted in Bank of Montgomery v. Reese, 26 Pa. St. 143, which was an action against the corporation, and in which the court said that it made no difference whether the price had been paid or not ; and the case was followed in Reitenhaugh v. Ludwich, 31 Pa. St. 181, an action against a mortgagee ; in Musgrave v. Beckendorff, 53 Pa. St. 310, an action against a borrower ; and in ConyngharrCs Appeal, 57 Pa. St. 474, a bill in equity against a pledgee. But in Wilson v. Whitaker, 49 Pa. St. 114, the rule of the highest price was said to rest upon the fact that the defendant was trustee for the plaintiff, and it was not applied to a simple contract where the 8 Pick. 90. Wyman v. American Powder Co., 8 Cush. 168. Eastern R. R. Co. V. Benedict, 10 Gray, 212. White v. Salisbury, 33 Mo. 150. Eicholz V. Fox, 12 Phila. 882. Noonan v. Ilsley, 17 Wis. 314. See Blyth V. Carpenter, L. R. 2 Eq. 501. Larrabee v. Badger, 45 111. 440. Bull v. Douglas, 4 Mnnf. 803. 1 See Pott V. Flaiher, 16 L. J. Q. B. 366. Qruman v. Smith, 81 N. Y. 25. CoU V. Owens, 90 N. Y. 368. 2 Sewall V. Boston Water Power Co., 4 All. 277. CMeara v. North American Mining Co., 2 Nev. 112. See Vaughan v. Wood, 1 M. & K. 403. In Forrest v. Elwes, 4 Ves. 492, apparently the value was computed as of the time of breach, but the suit was to determine in equity what Forrest would have been liable to pay at law. The remarks of the Master of the KoUs about a trustee and cestui que trust are true, but irrelevant. « Earl Powlet v. Herbert, 1 Ves. 297. 230 TRANSFER OP STOCK. § 219 price had not been paid. In Neiler v. Kelley, 69 Pa. St. 403, and in Worh v. Bennett, 70 Pa. St. 484, actions against a pledgee, the value was taken at the time of conversion, be- cause the money due had not been tendered by the pledgor, and it was said that the rule of the highest price applied only in those cases where there was a duty to deliver the stock. Yet the defendant was as much a trustee as in Conyngham! s Appeal. In Huntingdon B. B. v. English, 86 Pa. St. 247, the value at the time of delivery was allowed, and it was said that the plaintiff could have bought the stock in the market, and that the highest-price rule applied only to cases involving a trust, or those in which " the application of that rule " was "necessary in order that justice may be meted out to the parties litigant." Finally, in North v. Phillips, 89 Pa. St., 250, the rule was not applied in an action of assumpsit against a broker who had sold stocks which he had bought for the plaintiff on a margin. Yet the defendant was clearly as much a trustee as in ConynghwnHs Appeal, and part of the price had been paid. Probably the rule of the highest price, if followed at all, would be followed only in cases where the prejudice of the court was aroused, that is to say, in a case " where justice could not be reached by the ordinary measure of damages" (89 Pa. St. 254). § 219. In New York the tendency is to reach the same result, and by the same defective reasoning. The highest- price rule was followed in Bomaine v. Van Allen, 26 N. Y. 309, and Marhham v. Jaudon, 41 N. Y. 235, actions of trover against a pledgee. The two cases are, however, practically overruled in Baker v. Brake, 53 N. Y. 211, though Judge Rapallo attempts to distinguish the former case on the ground that there the stock was not bought for speculative purposes, — which, if true, would take away from the highest- price rule its only possible reason, — and intimates that it ap- plies only where the price has been paid, ignoring the fact that such was the case in Baker v. Brake as to a part of the § 222 BEMEDIES AND THE MEASURE OF DAMAGES. 231 price. See also Suydam v. Jenkins, 3 Sandf. 614. Matthews V. Coe, 49 N. Y. 57. Gruman v. Smith, 81 N. Y., 25. Colt V. Owens, 90 N. Y. 368. The last case refuses to apply the highest-price rule where a guaranty had been given by the plaintiff, but no money had been paid. § 220. We return to the general subject of this chapter, the consideration of the forms of action applicable in enforc- ing the rights discussed in this work. In certain cases the remedy has been mentioned in treating of the right, but it seems best to treat .of the remedies in one place, even at the risk of some slight recapitulation. § 221. If the seller of stock has contracted to transfer it to the purchaser and refuses to do so, the purchaser can maintain an action of assumpsit against him, as in the case of any other breach of contract. If the purchaser has already paid the price, he will recover, by way of damages, the value of the stock at the time when it should have been delivered by the terms of the contract ; if the price is unpaid, the measure of damages wiU be the difference between the con- tract price and that at the time mentioned above. If the purchaser has sustained other damage resulting from the failure to transfer, he may recover therefor, if the result is not too remote. § 222. If, however, the purchaser is not satisfied with his remedy in damages, but wishes the stock itself, can he main- tain against the seller a bill for specific performance of the contract? The earliest cases are in direct conflict, some allowing this remedy and some denying it,^ but it is now well established that a bill for this purpose will lie, under certain circumstances. If the stock in question is a commodity 1 Cuddee v. Butter, 5 Vin. Ab. 538; s. c. 1 P. Wms. 570. Cappur v. Harris, Bunb. 135. Colt v. NettervUl, 2 P. Wms. 304. In Nutbrown v. Thornton, 10 Ves. 159, the stock mentioned appears to have been cattle on a farm, and not shares in a corporation, though the case is often quoted as if it concerned the latter. Gardener v. Pullen, 2 Vera. 394, deals only with the measure of damages. 232 TKAKSPBE OF STOCK. § 223 purchasable in the market, it is obvious that the remedy in damages given by the action of assumpsit must be sufficient ; for the plaintiff, with the money thus obtained, can purchase the very stock itself, as there is no distinction between one share and another. If, however, the money will not command the stock, and if the seller is still in a position to carry out the contract, he may be compelled to do so by a bill in equity based upon the inadequacy of the remedy at law. The pur- chaser can maintain a bill for specific performance if he al- leges and proves, first, that he cannot reasonably obtain the stock otherwise,^ and second, that the seller is able to convey it to him.2 § 223. In practice, courts have often gone further than this. It is seldom, if ever, required that the bill should state in terms the practical impossibility of obtaining the stock except by means of the seller. The court ascertains this fact from evidence at the hearing, or from the nature of the corporation, and, although it is admitted that a bill will not lie for the transfer of public securities, yet a bill for the transfer of shares in a private corporation has sometimes been allowed without inquiring into the adequacy of the remedy at law.^ It is believed, however, that the true rule is the one laid 1 Duncufi V. Alhrecht, 12 Sim. 189. Treasurer v. Commercial Coal Mining Co., 23 Cal. 390. Frue v. Houghton, 6 Col. 318. See Ross v. Union Pacific Railroad, 1 Woolworth, 26, in which case the rule is very strictly laid down. 2 See Cuddee v. Rutter, 5 Vin. Ab. 538. Columbine v. Chichester, 2 Phil. 27. 8 Poole V. Middleton, 29 Beav. 646. Parish v. Parish, 32 Beav. 207. Turner v. Moy, 32 L. T. n. s. 56. See Beckitt v. BilUtrough, 8 Hare, 188. White V. Schuyler, 1 Abb. Pr (n. s. ) 300. In Doloret v. Rothschild, 1 S. & S. 590, the demurrer was overruled, partly on the ground that the plaintiS had no title except in equity, as to which see § 225, and partly because the remedy at law was inadequate on account of the possible insolvency of the defendant, Baron Rothschild. The second ground, if vaUd, would sustain a bill in equity in every case. In Leach v. Fobes, 11 Gray, 506, a transfer of land was sought by the same bill, and this fact is relied on by the court. See also the cases collected in § 236, note 1. § 226 EBMEDIES AND THE MBASUEB OP DAMAGES. 233 down above. The rule should be the same when the bill seeks only for a surrender of the certificates, which, indeed, would sometimes amount to a transfer of the stock. § 224. If the seller cannot transfer the stock through the refusal of the corporation to make the necessary record, the contract may be construed as a guaranty by the seller that the corporation shall assent to the transfer, in which case he will be liable in damages ; ^ but even if it be con- strued simply as binding the seller to do all that he can, he may still be compelled by a bill in equity to execute a transfer in the ordinary form, even though that may prove ineffectual^ § 225. The class of cases treated of above must not be confounded with that in which a cestui que trust entitled to a conveyance brings a bill in equity to obtain one, having no remedy at law. In such a case relief must be sought in equity, and a conveyance will be decreed as the appropriate remedy .8 The court may decree the payment of incidental damages, by way of auxiliary relief, in any bill for specific performance.* § 226. If there is a valid contract for the sale of stock, and if the buyer refuses to carry it out, either by withholding the price, or by neglecting to have his name entered on the books of the corporation as owner, the seller may sue him in an action of assumpsit and recover from him the damage he has sustained. If the title to the stock has vested in the 1 Wilkinson v. Lloyd, 7 Q. B. 27. 2 Poole V. Middleton, 29 Beav. 646. 8 Cowles V. Whitman, 10 Conn. 121. Todd v. Tafl, 7 Allen, 371. Weaver v. Barden, 49 N. Y. 286. See also Doloret v. Rothschild, 1 S. & S. 590; and Fowle v. Ward, 113 Mass. 548. * Duncuft V. Alhrecht, 12 Sim. 189. If the seller transfers in good faith to the purchaser stock which belongs to an over-issue, fraudulent on the part of the corporation, it has been decided that the purchaser has no remedy against the seller, because he has one against the corporation. Peopled Bank v. Kurtz, 99 Pa. St. 344. See State v. N. Louisiana R. R., 34 La. Ann. 947. 234 TEANSPEE, OF STOCK. § 228 buyer, the seller will recover the contract price ; if the title remains in himself, he will recover the excess of the contract price above the value of the stock. If, in consequence of the buyer's failure to perform his contract, the seller has been compelled to pay calls, or has sustained other incidental damage, he can recover for it from the buyer in an action of assumpsit. ^ 227. But if the buyer refuses to have his name entered upon the books of the corporation as stockholder, the seller is not limited to an action of assumpsit. It has been said that the purchase is, in itself, sufficient authority to the seller to make the transfer,^ and there can be no doubt that the cor- poration would be justified in substituting the buyer's name for the seller's upon its books. If the seller refuses himself to make the transfer, the buyer can maintain a bill to make liim do so,^ and, if the purchase itself gives authority to the buyer to make the transfer, it should seem that he can main- tain a bill against the corporation to compel it to accept such transfer and make the necessary record.^ In the above case, it does not matter that the legal title to the stock passes to the buyer before a transfer on the books ; a bill will lie, pro- vided that the seller remains under any liability in conse- quence of his name remaining on the books. § 228. If the directors of the cqrporation, being authorized by the charter or the articles of association, rightfully refuse 1 Webster v. Upton, 91 U. S. 65, 71. 2 Wynne v. Price, 3 De G. & S. 310. Cheale v. Kenward, 3 De 6. & J. 27. Paine v. Hutchinson, L. R. 3 Ch. 388; s. c. 3 Eq. 257. See Shaw v. Fisher, 5 De G. M. & G. 596; s. c. 2 De G. & S. 11. WeMer v. Upton, 91 U. S. 65. See also Emmerson's Case, L. R. 1 Ch. 433, where it was held that if the contract were made in ignorance of the fact that the com- pany was insolvent, the court would not enforce it. For contracts to sell shares, made before incorporation, see Jackson v. Cocker, 4 Beav. 59; and Beckitt T. Billbrough, 8 Hare, 188. » See Bermingham v. Sheridan, 33 Beav. 660, where it is recognized that a bill would lie if the buyer had not been rightfully refused by the directors. § 230 EEMEDIES AND THE MEASURE OP DAMAGES. 235 to accept the buyer as stockholder, it is clear that a bill in equity will not lie to compel him to do a nugatory act. Whether he will be liable to the seller in damages or not depends upon the construction of the contract.^ § 229. If the plaintiff has the right of possession in regard to certain certificates of stock, and the defendant refuses to deliver them, the plaintiff has his choice among several forms of action. If the defendant is under any contractual liability to deliver the certificates, of course an action of assumpsit will lie, and in any case, after demand and refusal, an action of trover. In either case the damages will be the same. The loss of the certificates undoubtedly causes injury to their owner, as does the loss of title-deeds, but unless the certifi- cates are indorsed in such a way that the defendant can give title to the stock, the plaintiff is in no danger of losing his property, and his damages will be confined to compensation for the expense of obtaining new certificates, the injury which he may have sustained by reason of not having the certificates when he wished to transfer the stock, and the like. As a result of the judgment in such an action of trover, no title to the stock would pass to the defendant.^ § 230. In those jurisdictions in which the action of deti- nue still exists, it is applicable in the above case, and it has been said that the judgment should be in the alternative for the return of the certificates or the value of the stock.* But this is at least doubtful, unless the certificates are so in- 1 See Bermingham v. Sheridan, 33 Beav. 660. In the supposed case of the refusal by the corporation to register the transfer, the seller may be compelled to execute the transfer in the ordinary form (see Poole y. Middletoh,29 Beav. 646), in order to enable the buyer to. sue the corpo- ration ; the seller can sue the corporation without any such transfer, in case of a wrongful refusal to register. This explanation seems the only way of reconciling the two cases cited above. 2 See Daggett v. Davis, 18 N. W. Rep. 548. 8 See Williams v. Archer, 5 C. B. 318, and cases cited in the notes. Peters v. Heyward, Cro. Jac. 681. See Daggett v. Davis, 18 N. W. Rep. 548. 236 TRANSFER OP STOCK. § 233 dorsed as to enable their holder to make title to the stock. Compensation for any incidental injury may be given.^ In some jurisdictions certificates of stock can be reached by an action of replevin. § 231. As has been stated elsewhere in this work, at common law the action of trover never can be brought for the conversion of the stock itself, because there can be no possession of it apart from the legal title.^ In some jurisdic- tions, however, an action which the courts call trover has been allowed where the defendant, having got possession of certificates of stock belonging to the plaintiff, has wrongfully transferred them to a third party in such a way as to give him title to the stock ; as, for instance, where the certificates were indorsed in blank and bought by the third party for value and in good faith. It would be more accurate to call the action a special action on the case, but, whatever it be called, it is allowed in many jurisdictions, and the value of the stock is given by way of damages. The action is main- tainable where the plaintiff has been substantially deprived by the defendant's act of his rights in connection with the stock. For a fuller discussion of the question and for the authorities, see Chapter I.^ § 232. The owner of stock which has been converted can, as against one who has converted it, affirm any sale or attempted sale made by the latter, even though attempted by means of a forgery, and can sue the wrong-doer for the pro- ceeds thereof in an action oi indebitatus assumpsit for money had and received to the owner's use.* § 233. If one has bought shares in a corporation, he is en- titled to all the rights of a shareholder, whatever they may 1 Williams v. Archer, 5 C. B. 318. a See chap. i. » Where the pledgee of stocks sells it so as to divest the title of the pledgor, although the latter may sue in trover for the conversion of the stock, yet the claim of the former for the original debt is not destroyed. Gruman v. Smith, 81 N. Y. 25. ' Capron v. Thompson, 86 N. Y. 418. * Marsh v. Keating, 1 B. N. C. 198. § 233 EEMEDIES AND THE MEASTTKE OF DAMAGES. 237 be, and, if the corporation refuses him these rights, he can maintain an action against it for such refusal. What these rights are in regard to transfer on the books, certificates, the right to vote, dividends, etc., have been discussed in another chapter and we shall not treat them here. The rights of the buyer are the same whether the title to the stock passes before transfer on the books or not, but if there is a transfer rule, it may be that the buyer cannot sue the corporation for dividends or for refusing to allow him to vote, until he has secured a transfer on the books,^ though in an action for refusing to transfer, he may recover compensation for the other wrongful acts of the corporation. The buj'er cannot, how- ever, compel the corporation to admit him as a member by mandamus.^ This remedy has been allowed where a sheriff was seeking to transfer stock sold on execution, on the ground that the sheriff was performing a public duty.^ It has been allowed also when the corporation was a railroad company, on the ground that it was a public corporation,* but both these distinctions seem fanciful. 1 See Catchpole v. Ambergate R. R., 1 E. & B. Ill, 117. ^ Angell & Ames on Corporations, 11th ed. 425. Rex v. Bank of Eng- land, Doug. 524. Rex v. London Assurance Co., 5 B. & A. 899. Kimball V. Union Water Co., 44 Cal. 173. American Asylum v. Phoenix Bank, 4 Conn. 172. Tovmes v. Nichols, 73 Me. 515. Murray v. Stevens, 110 Mass. 95. Baker v. Marshall, 15 Minn. 177. State v. Rombauer, 46 Mo. 155. State v. Guerrero, 12 Nev. 105. State v. Warren Foundry, 3 Vroom, 439. Shipley v. Mechanics Bank, 10 Johns. 484. Ex parte Fireman's Ins. Co., 6 Hill, 243. Durham v. Monumental Mining Co., 9 Ore. 41. Birming- ham Ins. Co. V. Commonwealth, 92 Pa. St. 72. Wilkinson v. Providence Bank, 3 K. I. 22. Cooper v. Dismal Swamp Canal Co., 2 Murph. 195, contra. People v. Crockett, 9 Cal. 112, must be considered as overruled; and Green Mt. Turnpike Co. v. Bulla, 45 Ind. 1, as much modified by- later decisions. See also Rex v. Worcester Canal Co., 1 Man. & R. 529. Reg. V. Liverpool §• Manchester R. R., 21 L. J. Q. B. 284. Crawford r. Provincial Ins. Co., 8 U. C. C. P. 263. 8 Bailey v. Strohecker, 38 Ga. 259. State v. Jeffersonville Bank, 89 Ind. 302. But see Durham v. Monumental Mining Co., 9 Ore. 41. * Townsend v. Mclver, 2 S. C. 25. State v. Cherato R. R. 16 S. C. 524. 238 TRANSFER OF STOCK. § 236 § 234. In general, two reasons have been given for the denial of this writ : first, that it is a high prerogative writ and therefore confined to cases of a public nature ; and second, that an action for damages is a sufficient remedy in all respects, and that this writ will be granted only when, with- out it, there would be a denial of justice. The first of these grounds is now seldom relied on, and in regard to the second we shall see that many courts allow a bill in equity in certain cases to compel the corporation to register the transfer of stock, apparently on the ground that an action at law for damages is not always a sufficient remedy.^ Which remedy then is to be preferred, the writ of mandamus, or a biU in equity? There is very little authority on the subject, and that conflicting,^ but it is believed that the writ of man- damus will be confined to cases, if any there be, where neither an action at law nor a bill in equity furnishes suf- ficient relief, inasmuch as mandamus is an extraordinary remedy and affords no means whereby conflicting claims to the stock can be adjusted, and all the parties brought before the court. § 285. In some jurisdictions the remedy by mandamus is allowed by statute,^ but in no case will the writ issue if the court believes that the application is made, not in good faith, but for what may be considered an improper purpose.* § 236. It is held that the buyer can maintain a bill in equity to compel the corporation to register the transfer on 1 See § 236. = See American Asylum v. Phosnix Bank, 4 Conn. 172, in which a bill in equity was allowed against the defendant's objection that mandamus was the proper remedy; and Cooper v. Canal Co., 2 Murph. 195, contra. See also State v. Warren Foundry, 3 Vroom, 489. ^ People v.Goss Mfg. Co., 99 111 855. 111. Rev. Sts. oh. 87, § 9. And see Norrii v. Iruh Land Co., 8 E. & B. 512, where the court hesitate between the statute and the fact that the coi-poration was established by royal charter, as a ground for issuing the writ. * Beg. y. Liverpool ^ Manchester S. B., 21 L. J. Q. B. 284. § 237 REMEDIES AND THE MEASTJEB OP DAMAGES. 239 its books.^ It seems that the remedy in equity should be limited to cases where the buyer has no adequate remedy at law,^ as, for instance, where he could not obtain the stock in the market. The rule should be the same as that which governs bills for specific performance brought by the buyer against the seller ; for the right rests upon the same grounds as in the last mentioned case, namely, the inadequacy of relief afforded by the action of assumpsit. Courts have allowed bills in equity, however, in many cases where this inadequacy has not been shown, and sometimes seem to have gone so far as to assume that shares in an ordinary corpora- tion cannot be bought in the market. It should be men- tioned, also, that the refusal of the corporation to recognize the rights of the buyer may arise from some objection to him personally, so that it would be useless for him to buy other stock. In such case, he may well maintain a bill in equity although the stock is purchasable in the market. § 237. If the right of the plaintiff arises from the purchase of a certificate representing an over-issue of stock, made in such a way as to bind the corporation, the plaintiff may have no right to a transfer, because the corporation may not be able to issue stock to him without exceeding its chartered amount. If the bill is otherwise properly brought, it seems that it will be retained and the plaintiff will be awarded damages.* He will recover, not the value of the stock at the time of refusal to transfer, but its value at the time of decree, with dividends by way of mesne protfis. 1 lasigiv. C. B. §• Q. R. R., 129 Mass. 46. Middlehrooh y. Merchants Bank, 3 Abb. Ct. of App. Dec. 295. Cushman v. Thayer Mfg. Co., 76 N. Y. 365. Buckmaster v. Consumers Ice Co., 5 Daly, 313. See Chater v. San Francisco Mining Co., 19 Cal. 219. 2 Walker v. Detroit R. R., 47 Mich. 338. And see American Asylum V. Phoenix Bank, 4 Conn. 172, where there was no adequate remedy by assumpsit. 3 Willis V. Phila. §• Darby R. R., 6 W. N. C. 461. See People's Bank V. Kurtz, 99 Pa. St. 344. 240 TKANSFEE OP STOCK. § 239 § 238. In every case the buyer can sue the corporation in an action of assumpsit ^ or in a special action on the case.^ The last named seems the most appropriate form of action, but there is no doubt that assumpsit can be maintained, even although the legal title to the stock has not passed ; as, for instance, in those jurisdictions in which registry is necessary to the passage of the title. If the acts of the corporation have enabled a bona fide purchaser for value to get title to the stock, or if they are construed as amounting to a total denial of the plaintiff's rights, he will recover the full value of the stock, even though, in the last case, the legal title is in him. If the full value is recovered, and the corporation satisfies the judgment, the title to the stock, as between the buyer and the corporation, should pass to the latter.^ If the acts of the corporation are not construed as amounting to a total denial of the rights of the buyer, he will recover what- ever damage he may have sustained from the particular acts, and, if the corporation again infringes his rights, he may again bring suit. In one case it has been held that the buyer can sue the corporation in trover.* § 239. In the same way, where a stockholder in a corpo- ration, having been regularly admitted as such, is by the cor- poration denied any of his rights, as, for instance, the right to transfer his stock to another person, to vote, to receive a 1 Sargent v. Franklin Ins. Co., 8 Pick. 90, 98. Pinkerlon v. Manchester §• Lavyrence R. R., 42 N. H. 424. Hill v. Pine River Bank, 45 N. H. 300. Kortriglit v. Buffalo Bank, 20 Wend. 91 ; s. c. 22 Wend. 348. See Bond V. Ml. Hope Iron Co., 99 Mass. 505. 2 Daly V. Thompson, 10 M. & W. 309. Catchpole v. Amhergate R. R., 1 E. & B. 111. M'Murrich v. Bond Head Co., 9 U. C. C. P. 333. See Bond V. Mt. Hope Iron Co., 99 Mass. 505, where under the Practice Act the action is called simply tort. Kortright v. Buffalo Bank, 20 Wend. 91. Edwards v. Sonoma Bank, 59 Cal. 136. Brisbane v. Delaware, L. §• W. R. R., 25 Hun, 438, s. c. on appeal, 94 N. Y. 204. « See Bond v. Mt. Hope Iron Co., 99 Mass. 505. * Bank of America v. McNeil, 10 Bush, 54. See Edwards v. Sonoma Bank, 59 Cal. 136. § 240 REMEDIES AND THE MEASURE OF DAMAGES. 241 certificate and the like, he can sue the corporation in as- sumpsit ^ or in case,^ and this although he has sold his stock and executed as complete a transfer of it as is possible with- out the act of the corporation. ^ Here, again, it seems that the full value of the stock should be given as damages if the acts of the corporation are construed as amounting to a com- plete denial of the plaintiff's rights, in which case the title to the stock would pass to the corporation upon satisfaction of the judgment. If the acts of the corporation are not so construed, the damages should be limited to compensation for the injury arising from the particular acts. If the acts of the corporation amount to a complete denial, the plaintiff may sue in trover. § 240. Again, where a corporation attempts to divest the title of its stockholder by means of an unauthorized transfer on the books, the stockholder may bring a bill in equity against the corporation to compel a retransfer to himself, at least where there is any sort of transfer rule. Under the authorities it seems that the bill can be maintained even when the stockholder could have gone into the market and bought other stock, but this last point does not seem to have been raised.* It has been suggested that the. bill can be 1 Rex V. Bank of England, Doug. 624. See Arnold v. Suffolk Bank, 27 Barb. 424. ' Bank of Ireland v. Evans' Charities, 5 H. L. C. 389. Davis v. Bank of England, 2 Bing. 393. Coles v. Bank of England, 10 A. & E. 437. Swan V. N. British Australasian Co., 7 H. & N. 603; s. c. in Cam. Scao. 2 H. & C. 175. Gray v. Portland Bank, 3 Mass. 364. See Arnold v. Suffolk Bank, 27 Barb. 424. « Webster v. Grand Trunk R. R., S Low. Can. Jur. 148. * Hildyard v. South Sea Co., 2 P. Wms. 76. Cottam v. Eastern Coun- ties Railway, IJ. & H. 243. Johnston v. Renton, L. R. 9 Eq. 181. Tele- graph Co. V. Davenport, 97 U. S. 369. Blaisdell v. Bohr, 68 Ga. 56. Chew V. Bank of Baltimore, 14 Md. 299. Brown v. Howard Ins. Co., 42 Md. 384. HamUeton v. Central Ohio R. R., 44 Md. 551. Mayor of Balti- more V. Ketchum, 57 Md. 23. Sewall v. Boston Water Power Co., 4 All. 277. Pratt v. Taunton Copper Co., 123 Mass. 110. Pollock v. National 16 242 TBANSFEB OP STOCK. § 240 maintained as for the purpose of removing a cloud upon the plaintiff's title ; i whether this be so or not, it should seem that the plaintiff, having once been the undoubted owner of the stock and never having divested himself of the title, ought not to be compelled to take the value of the stock in money, even though other parties may have acquired rights in connection with it against the corporation.^ It is of no importance whether the acts of the corporation are the result of fraud, negligence, or a natural mistake, unless the plaintiff has by some act of his estopped himself from asserting his rights. The latter is not compelled first to exhaust his remedy against one who, in bad faith, holds the insignia of title given by the corporation, but may proceed directly against the corporation itself,^ or may join the corporation and holder as defendants to the same bill,* or may proceed against the holder alone. ^ The court will not, however, in the decree, attempt to adjust the rights of the corporation and holder as between themselves, but will leave them to another action.^ It seems that the decree should be framed so as to order a retransfer by the holder, and a record of this transfer by the corporation, but usually a re-entry of the plaintiffs name in the books of the corporation is con- sidered suflicient. As incidental relief, the court may order Bank, 7 N. Y. 274. See Tayler v. Great Indian Railway, 4 De G. & J. 559 ; and Duncan v. Luntley, 2 Mac. & G. 30. In the last case the bill failed because the court held it did not state that the wrongful acts were the acts of the corporation. 1 Cottam V. Eastern Counties Railway, IJ. & H. 243, 248. " See Pollock v. National Bank, 7 N. Y. 274, and the dissenting opin- ion of Welles, J. 8 See Mayor of Baltimore v. Keichum, 57 Md. 23. Pratt v. Taunton Copper Co., 123 Mass. 110. * See cases cited in § 240, note 4. 6 See Weaver v. Barden, 49 N. Y. 286. ' Cottam V. South Eastern Railway, 1 J. & H. 243. Johnston v. Renton, L. R. 9 Eq. 181. Sewall v. Boston Water Power Co., 4 All. 277. Pratt V. Taunton Copper Co., 123 Mass. 110. § 242 EEMEDIES AND THE MEASURE OP DAMAGES. 243 the issue of certificates ^ and the payment of dividends to the plaintiff.^ § 241. As we have before observed, if the corporation refuses to register a transfer made by one of its shareholders, it may be compelled to do so by a bill in equity, at least if the stockholder remains under any liability in consequence of the failure to register.^ If the stockholder has lost his certificate, it has been decided that he can compel the cor- poration to issue to him a new one, by giving to it a suf- ficient bond of indemnity.* § 242. If one is the beneficial owner of stock in a cor- poration while the legal title is vested in another as trustee, the remedy of the cestui que trust, as against the trustee, the corporation, or the fraudulent transferee of the stock, for any wrongful act, will, of course, lie wholly in equity.^ And the rule is the same if the plaintiff, without being a cestui que trust in the ordinary sense, is for any reason disabled from bringing a suit at law ; as, for example, where he was one of two joint-owners, and unable to sue without joining his co-owner, who had made the transfer complained of, and therefore could not sue.® In one case, a bill in equity to compel the corporation to register a transfer of stock to a 1 Brown v. Howard Ins. Co., 42 Md. 384. Hambleton v. Central Ohio R. R., 44 Md. 551. Sewall v. Boston Water Power Co., 4 All. 277. 2 Blaisdell v. Bohr, 68 Ga. 56. Hambleton v. Central Ohio R. R., 44 Md. 551. Sewall Y. Boston Water Power Co., 4 All. 277. a See § 227. * Galveston City Co. v. Sibley, 56 Tex. 269. 5 Midland R. R. v. Taylor, 8 H. L. C. 751. Lowryy. Commercial Bank of Baltimore, Taney, 310. The extraordinary statement to the contrary in Salisbury Mills v. Townsend, 109 Mass. 115, is wholly unfounded, and may be considered as overruled by Loring v. Salisbury Mills, 125 Mass. 138. * Sloman v. Bank of England, 14 Sim. 475. See also Loring v. Salis- bury Mills, 125 Mass. 138, where a trustee was allowed to sue the corpo- ration in equity for registering a fraudulent transfer made by a former trustee. No doubt, a biH could have been maintained by the cestui que trust. 244 TEANSFBE OP STOCK. § 243 new trustee was allowed without making the former trustee a party, on the ground that he was willing to make the transfer. The reasoning is inconclusive, and it seems that he should have been the party plaintiff in an action at law, or a party defendant to a bill in equity.^ § 243. Where the corporation is asked to transfer, and is in doubt whether the title, legal or equitable, is in one person or in another, it can compel the claimants to interplead, inasmuch as it may be considered the custodian of a right in which it claims no interest itself, but which it is bound to make over to one of the claimants.^ But if the corporation has made itself absolutely liable to one of the claimants, irrespective of the rights of the others, as, for example, by registering a transfer, or by issuing a certificate, the bill will not lie, as the corporation has ceased to be a mere stake- holder.^ * Mechanics Bank v, Seton, 1 Pet. 299. ^ See Merchants Bank v. Richards, 6 Mo. App. 454; s. c. on appeal, 74 Mo. 77. See also Mt. Holly Turnpike Co. v. Ferree, 2 C. E. Green, 117, where it is assumed that a bill of interpleader would lie in such a case. 8 Dalton V. Midland Railway, 12 C. B. 458. Salisbury Mills v. Town- send, 109 Mass. 115. Mt. Holly Turnpike Co. v. Ferree, 2 C. E. Green, 117. OP THE INDIVIDTTAL LIABILITY OP INFANTS. 245 APPENDIX A. OF THE INDIVIDUAL LIABILITY OF INFANTS, ETC. It is often taken for granted that the relation of a corpora- tion to its stockholder arises from contract, and an attempt is made to explain all the rights and duties of the stockholder on that theory. This can, indeed, be done by the help of certain fictions, among which the fiction that every transfer of stock is accompanied by a novation of the contract, holds a very prominent place ; but the process suggests the familiar attempt to deduce all the duties of citizens and all the prin- ciples of law from the fiction of a social compact. It would not be very profitable for any one to try to discover the liabilities of an infant at common law by reasoning from the social compact as a premise, and for the same reason it is not safe to lay down the duties of a stockholder on the theory that they arise from contract. This matter is of sufficient importance to merit consideration, and a discussion of it is presented here, not for the purpose of proving that the rela- tion of a corporation to its stockholder does not arise from contract, but in order to show that contracts under the com- mon law are not separated from other personal obligations by any broad natural distinctions, and that all the properties of a contract do not necessarily attach to an obligation be- cause it arises only by the consent of the parties. It is commonly said that an action of tort can be brought only for a malfeasance, and that a mere non-feasance cannot be a tort. This is, no doubt, true when the act complained of is simply a breach of one of those duties which all the members of a community owe to each other, that is, where 246 APPENDIX A. the right violated is a right in rem ; for, as Austin has pointed out,i "The duties which correlate with rights in rem are always negative ; that is to say, they are duties to forbear or abstain." And Campbell adds, in a note : " This, indeed, is almost a necessary consequence of the definition. For if rights of the class jus in rem involved positive duties, every such duty would either set the whole world in motion, or involve universal liability to punishment, a result which it would be absurd to contemplate." But it does not follow from this that all duties which involve positive acts arise from contract. To understand the nature of a contract it is neces- sary to consider how the various kinds of rights in personam are created. In this discussion we shall leave aside those rights in personam which arise without any voluntary act on the part of the person on whom the duty is imposed.^ Rights and duties of this class, at least when sufficiently complicated, are denoted by the term status, and, except in relation to infants, they are becoming less common every day. More- over, they have no bearing on the matter under consideration, and we shall therefore confine ourselves to those rights in personam which arise in consequence of some voluntary act on the part of the person against whom the right avails. Rights in personam and rights in rem are defined by Aus- tin as follows : ^ " Rights in rem are those which avail against 1 Jurisprudence, leot. xiv. ° Many of the obligations of this class were said in the Roman law to arise quasi ex contractu, but in the Code Napoleon they are distinguished from quasi contracts, and put under a separate head by themselves (Cod. Nap. 1370, 1371). And see Demangeat, who says (ii. 357): " £n droit fianfais, on appelle quasi contrat un fait volontaire et licite duquel il resuUe une ou plusieurs obligations. En droit romain, une obligation est dite nattre 'quasi ex contractu,' lors meme qu'il n'eioiste aucun fait volontaire auquel on puisse rattacher la naissance de cette obligation . . . En un mot, les Romains comprennent sous le now, d' ' obligationes gum quasi ex contractu naseuntur,' ce que nous appelons chez nous, 1°. des engagements qui re'sultent de Vautoriti seule de la loi; 2°. des engagements qui r^sultent de quasi contrats." And aee, to the same effect, Duranton, Traitd des Contrats, ch. 1, §§ 1, 5, & 6. ' Jurisprudence, lect. xiv. OF THE INDrVIDUAL LIABILITY OF INFANTS. 247 persons generally ; rights in personam are those which avail exclusivelj' against certain or determinate persons." But it is evident that a right in rem is merely the sum of rights against individuals. The same right avails against each member of the community, and therefore it avails against the whole com- munity. Now we have said that the duties which correlate with rights in rem are negative. They are not, however, con- fined to duties to abstain from a single act, or even from a series of acts, but they include duties to abstain from a cer- tain act, unless it is followed by a series of other acts to be done by the obligor. In this case no one is under an absolute duty to abstain from doing the act in question,^ but, if he does that act, he comes under a duty to follow it up by the rest of the series, and, in this way, positive acts may form part of a duty which correlates with a right in rem. Such a duty does not set the whole world in motion, because the world is under no duty to enter upon this series of acts ; but, if any one does enter upon the series, he lays himself under an obligation to complete the whole of it, and, by so doing, he undertakes a duty which is not laid upon all members of the community ; and, therefore, the right which avails against him is by defini- tion only a right in personam. Every right in personam which arises from a voluntary act on the part of the person on whom the corresponding duty is imposed m&j, in this way, be described as part of a more comprehensive right in rem. And the duties which correlate with any such right in personam may be stated as part of a series of duties which, taken together, correlate with a right in rem. A few examples of this may be given at common law. I have a right in rem that no one shall get a wild beast, unless he so keep it as not to injure me. J. S. gets a wild beast, and I have now a right in personam against J. S. that he shall so confine his beast that he does not injure me. Again, 1 That is, a commission of the act in question does not immediately give rise to a right of action. 248 APPENDIX A. I have a right in rem that whoever sets up as a common carrier shall carry any goods I bring to him. Adams Express Company sets up as a common carrier, and I have now a right in personam against this company that it shall carry any goods I bring to it. As a third example, I have a right in rem that whoever makes an agreement with me, shall perform it. J. S. makes an agreement with me, and is bound to per- form it. In this case, also, the right against J. S. has -become a right in personam. The duties which correlate with any right in rem might be stated in the form of a series, such that, after the first act of the series is performed, the right ceases to be in rem and avails only in personam. But such an analysis throws light on the matter under discussion, only in a few cases. The act which converts a right in rem into a right in personam may have that effect only when done with the intention of assum- ing the corresponding obligation,^ or it may have that effect without regard to the intention with which it is performed ; 1 Or of assuming the character to which that obligation attaches, as in the case of a common carrier or a public officer, etc. Sandars.in the first edition of his commentary on Justinian, appears to have fallen into the error of supposing that there is a distinction between a voluntary assump- tion of the obligation and a voluntary assumption of the character to which the obligation attaches ; for he says (note to lib. iii. tit. xxvii.) : " The lead- ing distinction between obligations e contractu and those quasi e contractu is, that in the former one person chooses to bind himself to another, in the latter he chooses to place himself in such circumstances that he is thereby bound to another." He seems to have perceived the mistake, for in a later edition (6th) he changes the latter part of the sentence so as to read: " In the latter he is placed in such circumstances that he is," etc. But if he means by this that all quasi contracts arise without regard to the in- tention of the person on whom the obligation is imposed, he falls into a second mistake; for it would seem that the obligation of a negotiorum gestor, for example, arises only in case his acts are done with the intention of assuming the management of the property. Hunter, in his commenta- ries on the Roman law, seems to have fallen into the same mistake when he says (279) that "In the case of a quasi contract the person undertaking a duty either does not act voluntarily, or acts without any intention of thereby creating a right in personam in favor of another." OP THE INDIVIDUAL LIABILITY OP INPANTS. 249 and it is only cases of the former class which need be consid- ered here.^ Now a distinction is to be drawn between those cases in which the obligation is made complete by the consent of one of the parties alone, and those cases in which the obli- gation arises only when both parties give their consent.^ The right in the first class of cases cannot be said to arise from contract, because one of the chief elements of a contract, the mutual consent, is wanting. To this class belong those cases where a man undertakes to do a duty of such a nature that the neglect of it will endanger the community ; and in such a case he is liable for the consequences of his neglect in an action of tort.* Those cases in which the obligation arises only when the consent of both parties has been given, contain more of the elements of contract ; and yet these cannot all be classed as contracts at common law, because under this head fall the 1 The rights of the latter class are chiefly delicts, and give rise imme- diately to rights of action. 2 This is the line of distinction in the Roman law between obligations which arise ex contractu and those which arise quasi ex contractu. See Gains, Inst. lib. iii. § 91 ; and a quotation from him in the Digest, 44, 7, 1. Justinian, Inst. lib. iii. tit. xxvii. Domat, bk. ii. Pothier, Obligations, part 1, ch. 1, sect. 2, § 1. Maine's Ancient Law, 344. The quotation often made from the unfinished fragments of Austin does not give a logical definition of a quasi contract, but merely states the reasons for the existence of such an obligation. Except for the contracts implied at common law from the payment of money by mistake, quasi contracts are enforced in the English system of jurisprudence chiefly in equity. And Holland, in his book on jurispru- dence (183 et seg."), is right, according to the division of obligations in the Roman law, in putting the duty of a common carrier under the head of contract. ' Osborne v. Morgan, 130 Mass. 102. Under this head should perhaps be placed the cases of collecting on one's own land, water, cattle, or other dangerous substances. Fletcher v. Rylands, L. R. 1 Ex. 265, 279 ; s. c. L. R. 3 H. L. 830, 339. Gorham v. Gross, 125 Mass. 232. See also the case of assuming charge of a fire stated by Ulpian (Dig. 9, 2, 27, § 9), as explained by Colquhoun (Civil Law, § 1533), and in Osborne v Morgan, supra. 250 APPENDIX A. cases of common carriers, and also of registers of deeds and of other public officers. A common carrier is bound to carry any goods that are brought to him, and, if he refuses to do so, he is liable in tort.^ And when a public officer neglects his duty and is liable civilly at all, he must be sued in tort.^ These cases cannot be distinguished from ordinary contracts on any logical grounds. It will be at once suggested that in one case the law lays down the terms of the obligation, while in the other case they are arranged by the parties. But no exact line of this kind can be drawn, because the terms of many of the most common contracts are more or less deter- mined by the law, while the terms of almost all obligations are more or less within the control of the parties. Accord- ing to this distinction, moreover, it would be clear that the relation of a corporation to its stockholder is not founded on contract. Nor is it possible to distinguish contracts from these other obligations which arise by the consent of both parties, on the ground that the offer in the case of a contract is made only to certain definite persons, while the rights which correlate with these other obligations reside in the whole world, that is, in any person who performs the required conditions. If this distinction were sound, an offer of a reward to any one who will give certain information would not give rise to a contract. And for the same reason a negotiable bill of exchange or promissory note would not be a contract ; for, although it is commonly said that the rights of the holder of a negotiable note against the maker arise from the fact that the rights of earlier holders have been transferred to him, yet this view of the matter really involves a fiction ; because a transfer is properly a passing of the rights which reside in the transferor, and, if the transferee acquires any further or 1 Wood's Browne on Carriers, § 579. Schouler on Bailments, 556. " See Addison on Torts, § 30. Bigelow on Torts, 285. Hilliard on Torts, chs. 28-32, passim. OF THE INDIVIDUAL LIABILITY OF INFANTS. 251 greater rights, he acquires them, not on account of the trans- fer, but in consequence of some direct connection with the person against whom the right avails. It makes no difference, in the case of a negotiable note, whether we say that the maker is estopped to set up certain facts to the injury of a bona fide purchaser, or whether we say that he makes an offer to all the world, for the fact remains that the maker of such a note comes under a certain definite duty to any person who buys the note. No line can, in fact, be drawn between those obligations which are considered by the common law as contracts, and those which are not. It may be well, however, to describe the relation of a corporation to its stockholders and their transferees. This relation arises only by the consent of both parties, but the corporation, like a common cariier, does not give a fresh consent each time that it comes under a duty towards a new person, but consents, once for all, to assume the character to which all its duties attach. A title to stock can, it 'is true, be acquired only by a transfer from the pre- vious owner, but the corporation has no power to refuse to treat as a stockholder any person who buys a share of stock. The terms of the obligations, both of the corporation and of the stockholder, are mainly prescribed by the law, for the corporation has very little power to vary these terms, and the stockholder has no such power at all. The position of the corporation is, in fact, very much like that of a common carrier, and, as a matter of authority, an action against the corporation for neglect of its duties to a stockholder, can be brought in tort ; ^ and, when it is brought in assumpsit, the form of the action is often sustained on the ground that the law raises an implied promise on the part of the corporation to do its duty,'^ and this implies that the duty is not supposed to arise from contract. In one case, indeed, where a pur- chaser of stock sued the corporation for refusing to transfer 1 See § 238. ' See cases in § 238, note 1. 252 APPENDIX A. the stock to Mm on the books, the court said, " It is an action for damages on account of a wrong done, and not an action founded on a contract between the stockholder and the bank."i We have attempted to show that an obligation is not nec- essarily considered by the common law as a contract because it arises only by the consent of the parties ; and it remains to show that a person who consents to assume an obligation while under a legal disability may, nevertheless, be unable to avoid the obligation on the ground of his incapacity to con- tract. The doctrine that an infant and a lunatic are not bound by certain of their acts is founded, like all the other principles of the law, on public policy. And a distinction is to be made between those duties which are imposed for the benefit of a large and indefinite number of persons, and those which are imposed for the benefit only of a few.^ An infant and a lunatic are both liable, to a certain extent at least, for their torts ; and it does not necessarily make any difference that the duty which is violated can arise only when the infant or lunatic voluntarily assumes it. An infant would, for ex- ample, undoubtedly be liable, if he assumed charge of a wild beast and then neglected to keep control of him. And it has been recently decided that a lunatic is liable for injuries caused by the defective condition of premises owned by him,^ and this decision would, no doubt, have been the same if the defendant had been an infant. No question was made in this case whether the land had vested in the defendant be- fore or after his insanity began ; and it is presumed that, in the case of an infant at least,* the question whether the land > Presbyterian Congregation v. Carlisle Bank, 5 Pa. St. 345. " Of course, this is not a logical division of obligations, and it must not be confused with the distinction between contracts and other obliga- tions, which we have already considered and shown to be without founda- tion. ' Morain v. Devlin, 132 Mass. 87. * The case of a lunatic is discussed at the end of this appendix. OF THE INDIVIDTJAL LIABILITY OF INFANTS. 253 vested in the defendant while he was under the disability or not would be immaterial. The fact that the duty is imposed for the benefit of a large and indefinite number of persons is in itself a very strong reason for holding that infancy is no defence ; and when each one of this large and indefinite body of persons assumes a corresponding duty towards the principal actor, it is but reasonable to hold that no one of them can avail himself of his infancy to avoid that duty. The case of a common car- rier presents a striking example of this. The effect of infancy in connection with this occupation does not appear to have been, as yet, the subject of decision, but it is not probable that an infant who had set up as a common carrier would be allowed to carry a passenger half a journey, and then drop him and avoid his obligation to complete the transportation. Perhaps as strong a case is presented when the person carried is an infant. Suppose that an infant should buy a ticket from New York to San Francisco, and that at Chicago he should get out and demand part of bis money back ; it is not probable that his claim would be sus- tained, and the reason is that a common carrier is bound tO' carry all goods that are brought to him, and all persons who apply to be carried. A carrier is not bound to inquire into the ownership of goods delivered to him, and he is not guilty of conversion for carrying stolen goods unless he knows that they have been stolen. To hold otherwise would oblige the carrier to investigate the ownership of every parcel brought to him, and decide upon it at his peril ; the consequence of which would be great inconvenience and expense to the public. On the same principle it would seem that a com- mon carrier ought not to be bound to inquire into the capacity of the persons whom he carries, but ought to be allowed to presume that every one who applies to him is sui juris, unless he has notice to the contrary. The case of an infant presents, in fact, a singularly strong case for the 254 APPENDIX A. carrier, for he has no right to refuse to carry the infant, and in this his position differs from that of other persons who deal with an infant ; for they can refuse to have anything to do with the minor, if they are not willing to run the risk of having their contracts avoided, but the common carrier has no such privilege. These arguments apply also to a corporation whose stock is bought by an infant, and it is only necessary to look at the English cases of infant stockholders to see the hardship which is inflicted upon innocent persons when an infant is allowed to repudiate his liability. In one of the first cases in which the liability of an infant was discussed in England, he was held liable.^ Two of the members of the court put the decision on the ground that the infant had ratified his con- tract by allowing his name to remain on the list of stock- holders after his majority. But the chief justice. Lord Denman, and Mr. Justice Patteson held that, by statute, the infant was allowed to become a stockholder, and that every stockholder was made personally liable. They were of opin- ion, in other words, that the liability was imposed, not by contract, but by the force of statute. The same argument was urged in a case in the Exchequer ; '■^ but Baron Parke was of opinion that the statute only carried into effect the pri- vate agreement of the parties. The principle thus laid down in the Exchequer may be very true as far as English joint stock companies are concerned, but it clearly does not apply to corporations organized under general laws. When a cor- poration is chartered under a general law, it cannot be said that the statute merely gives effect to an agreement pre- viously made between the parties. On the contrary, the general statute declares what the rights and duties of corpo- rations shall be, and provides that any persons may associate together and accept these terms. It is worthy of notice, 1 Cork §• Bandon Ry. Co. v. Cazenove, 10 Q. B. 935. 2 The Newry §• EnniskilUn Ry. Co. v. Coombe, 3 Ex. 565. OP THE INDIVIDUAL LIABILITY OF INFANTS. 255 moreover, that Parke, B., and still more, Rolfe, B., confined their opinions to cases where the infant was an original subscriber, and left it doubtful whether a liability arising in consequence of a transfer could be considered as founded in contract or not. The position of a lunatic is peculiar, and his consent in any matter is perhaps absolutely void at law. But if some one seeks to confer a benefit upon him, his consent to receive the benefit will be presumed. He would seem to stand, there- fore, in the same position as an absentee who has no knowl- edge of the transaction, and the question to be determined in the case of a transfer of stock to him is whether the owner- ship of the stock will, on the whole, be beneficial to him or not. But, if the liability attaches to the stock by force of the statute, it is clear that the lunatic will be personally liable if the title to the stock is vested in him. 256 APPENDIX B. APPENDIX B. 01" THE POSSESSION OP STOCK. So much is said about the possession of stock, both in text- books and in the reported cases, that it is important to understand clearly what is meant by it ; and yet the subject is so abstruse in its nature, and so confusing to any one who attempts to explain it, that it seems wise to put into an appendix the suggestions which are to be made upon the matter. The question whether or not a right can really be possessed has been discussed at great length by the German jurists; but English speaking people would probably agree that the term possession denotes only a physical relation, and can be properly used only with reference to material objects.^ But, apart from this, the expression " possession of a right " is inaccurate, and, what is worse, it is very misleading ; for the term possession denotes a simple fact which does not depend upon any matter of law. It denotes a certain relation be- tween the possessor and the thing possessed, and this relation may, perhaps, be defined as an immediate power on the part of the possessor to control the thing possessed with an intent to have that power,i and an immediate power to exclude others with an intent to have that power also ; such a rela- tion, however, cannot exist between a person and a conclu- sion of law. One man may, it is true, have power to control the will of another to such an extent that, if the subject of the control were a horse, the horse would be in the possession of the person who controlled him ; and, where such a relation exists between two persons, one of them may be said to pos- 1 Conf. Holmes, Common Law, 239. OP THE POSSESSION OP STOCK. 257 sess the will of the other. But any rights to which such a state of facts gives rise, cannot be said to be in any sense possessed, for they are themselves nothing but the legal con- sequence of the possession.^ Although the expression " possession of a right " is clearly inaccurate, there may exist between two persons a relation which will give rise to rights analogous to those which depend upon the possession of a chattel. Suppose, for example, that one person has control of another so far that he is in the habit of directing his conduct, or of receiving services from him. Such a state of facts may give to the person who haS the control a right that no stranger shall disturb that state of facts ; and the action of trespass per quod for the services of a grown-up daughter, is, no doubt, as suggested by Mr. Holmes,^ an example where such rights do arise ; but it is probably a solitary example, for such a control certainly does not usually give rise to any rights at all. But since " the gladsome light of jurisprudence " first appeared, it is not prob- able that such a control has ever given to a mere possessor any rights against the person controlled, except, perhaps, by prescription.^ Although the mere fact of controlling the will of another person gives rise to no rights against him, yet there might exist a state of facts which, in some crude system of jurispru- dence, would give to one person the benefit of an obligation Imposed upon a second, while the legal title to that obligation was vested in a third ; and the resemblance of such a condi- tion of things to the possession of a chattel is very strong. An example of this can hardly be found in modern law, but the idea that the benefit of an obligation resides in any person who has possession of a certain charm or talisman, 1 Conf. Savigny, Besitzes, xii. Holmes, Common Law, 238. ' Holmes, Common Law, 240. « The duties of one who exercises a common employment depend upon a different principle. 17 258 APPENDIX B. whether he came by it lawfully or not, is thoroughly in ac- cordance with primitive notions of law ; and this may be seen in the legends of many races, and particularly in the tales of the " Arabian Nights." Now there is nothing exactly parallel to this in the case of a corporation, but it is sometimes pro- vided that the persons whose names appear on the books shall have the rights of stockholders, — shall have a right to vote, for example, — and if such a provision were to be construed literally, so that the person whose name appeared on the books had a right to vote without regard to the real state of the title,^ the books of that corporation would have precisely the same effect as a talisman in the legends we have referred to. But there are no provisions of statute or charter in this country which are construed as authorizing a corporation to disregard entirely the claims of the real owner of stock, and as compelling it to treat as a stockholder a person whose name appears on its books when he has, in fact, no title to the stock. We have been considering so far the question whether a man, without having the legal title to stock, can acquire rights analogous to those which flow from the bare possession of a chattel, and we have seen that he cannot. We now come to the question whether a person who has the legal title to stock can be so deprived of the enjoyment of his rights that he will stand in a position analogous to that of the owner of a chattel who has been deprived of possession ; and this is a very different matter. But, first, it is to be noticed that apart from some special provision of law this question also must be answered in the negative, for no act can be com- mitted in respect to stock which is analogous to the conver- sion by one person of a chattel to which the legal title still remains in another, unless, indeed, the corporation is also at fault ; because, apart from some special provision of law, nothing will justify the corporation in refusing to ' See Ex parte Bugg, 2 Dr. & Sm. 452. OP THE POSSESSION OP STOCK. 259 recognize the claims of the real owner of the shares,^ and the fact that the corporation has been treating a stranger as the owner of the stock gives it no power to continue to do so. The corporation is bound to treat as a stockholder the person who has the legal title to the stock, and, so long as the cor- poration is able and willing to do this, no conduct on the part of a stranger can deprive the stockholder of the enjoyment of his rights. A stranger may, of course, deprive a stockholder of the enjoyment of his rights by inducing the corporation to violate its duty toward him, and it may be that the stranger, in such a case, would be liable to an action by the stock- holder. This is the old question whether a man is liable to an action for inducing another man to break his contract with a third. At common law, as we have said, a stranger cannot de- prive the legal owner of stock of the enjoyment of his rights, unless the corporation is at fault ; but there are certain pro- visions which are very generally made by statute, charter, or by-law, and which have an important bearing upon this matter. Such are the provision that the corporation shall not be required to recognize any one as a stockholder whose name does not appear upon its books, and the provision that the corporation shall make no transfer on its books without a surrender of the outstanding certificate. Now suppose that the owner of stock in a corporation which is subject to these regulations puts his stock into the name of a stranger with- out, however, intending to transfer the legal title, and sup- pose that the stranger wrongfully refuses to give up the certificate or to retransfer the stock upon the books. The stranger, in such a case, does not stand in a position analo- gous to that of the possessor of a chattel, because, as we have said, he has himself no rights against the corporation ; but his position is analogous to that of a person who has converted a chattel from the use of the owner, because the owner of 1 But he may, of course, estop himself. 260 APPENDIX B. the stock is deprived of his power to vote, to claim dividends, and to enjoy the other rights of a stockholder. But the analogy between the cases of stock and of chattels must not be pushed too far, for the resemblance consists only in the fact that, in each case, the owner is deprived of a power of control which he might otherwise enjoy ; ^ and there is an important difference to be borne in mind. In the case of a chattel, the owner is deprived of no rights at all, but only of a physical power, whereas, in the case of stock, the owner is deprived of his rights, and, in consequence of this, he loses his power to control the corporation. We have said that where there is a regulation which pro- vides that transfers of stock can be made only on the books of the corporation, the person who has the legal title to the stock, but has not obtained a transfer on the books, has no right, as against the corporation, to be treated as a stock- holder; and it remains for us to consider what the legal title means under these circumstances. The provisions which require transfers to be made only on the books have been viewed very differently in the several States ; and while it has invariably been held that a provision of this kind gives the corporation a right to refuse to treat as a stockholder a person whose name does not appear upon its books, there has been a great deal of discussion on the question whether the legal title passes before transfer on the books or not, and many decisions have been made to turn upon this point ; and this although the passing of the legal title had usually nothing to do with the matter in hand.^ It has been laid down in some States, as in New York for example, that the legal title passes 1 As in the case of a chattel, it would make no difference that he did not have actual control at the time of the conversion, if he had a right to have the actual control. ^ Some of the decisions upon the right of a corporation to enforce its lien, and upon the power of a creditor to attach stock while an assignment by the debtor remains unrecorded, are examples of this. OF THE POSSESSION OF STOCK. 261 between the parties without a transfer on the books, while in Connecticut and many other States it is held that the legal title does not pass until the transfer is recorded.^ Now we have attempted to show that the rights of an attaching cred- itor do not depend on this matter of the passing of the legal title,^ and that the legal title in this case has no effect in equity. It is not at all easy, indeed, to see what difference there is between the effects of the New York and of the Connecticut interpretations of the regulation, and it is safe to say that when the provision about transfer on the books is so con- strued as to avail a second purchaser of stock who gets his transfer recorded first, it is a matter of very little importance whether the legal title passes before transfer on the books or not. Without attempting to define the legal title to a chattel, it may be noticed that, of those rights which usually attach to the legal title, an indefinite proportion may be lopped off, and yet the residuum of rights which survives the process is still called the legal title. The owner of a chattel may, for example, pledge it or lease it, and in that case he retains no immediate right to possess or to use it, but simply a future or conditional right to revest in himself the right to possess the chattel, and yet he retains the legal title. On the other hand, a vendor who has been induced to sell a chattel by fraud has a right to revest in himself the right to possess that chattel, and yet the legal title is not vested in him but in his vendee. And this is also true of a sale by an infant. Now the difference between the position of the pledgor or lessor of a chattel and that of an infant vendor seems to consist in the fact that the former can bring an action in his own name for any injury done to the chattel,^ while the latter cannot ; and, perhaps, also in the fact that the former has a power to trans- * See § 98, supra. ' See § 103 etseq., supra. ' Story on Bailments, § 352. 262 APPENDIX B. fer his rights, which is denied to the latter.^ There may, perhaps, be a similar difference between the positions of as- signees of stock in New York and in Connecticut, before the transfer is recorded on the books. Suppose, for example, that a stranger, by withholding the certificate, prevents the assignee of stock from recording his transfer, it may be that in New York the assignee could sue the stranger for the value of the stock at law and in his own name, while in Connecticut he might be obliged to bring the suit in the name of the stockholder of record, or go into equity. It is conceded under both interpretations of the transfer rule that the assignee can sue the corporation at law for refusing to allow a transfer on its books, but it may be that there are other violations of duty on the part of the corporation, or of its officers, for which an assignee of stock could sue at law in New York, while in Connecticut he would be obliged to seek redress in equity. But, with these trivial exceptions, it would seem to make no difference whether the legal title passes before transfer on the books or not. 1 This is of no consequence in the case of stock, because under either the New York or the Connecticut law a purchaser whose transfer is not recorded can transfer all the rights he has; and the vendor can sometimes transfer a great deal more than he has. APPENDIX C. 263 APPENDIX C. Since the text of this book was written a statute has been passed in Massachusetts, which will have an important effect on the transfer of stock in that commonwealth. The text of the Act is as follows : — CHAPTER CCXXIX. AN ACT RELATING TO THE TRANSFER OP STOCK IN CORPORATIONS. £e it enacted hy the Senate and House of Representatives in General Court assembled, and hy the authority of the same, as foUows: — The delivery of a stock certificate of a corporation to a honafide purchaser or pledgee, for value, together with a written transfer of the same, or a written power of attorney to sell, assign, and transfer the same, signed by the owner of the certificate, shall be a sufficient delivery to transfer the title as against all parties ; but no such transfer shall aflTect the right of the corporation to pay any dividend due upon the stock, or to treat the holder of record as the holder in fact, until such transfer is recorded upon the books of the corpora- tion, or a new certificate is issued to the person to whom it has been so transferred. Approved, May 9, 1884. In order to understand the meaning of this statute it is necessary to be familiar with the peculiar Massachusetts doctrine about the passing of title upon the sale of a chattel, and the effect which this doctrine has upon the rights of attaching creditors. The doctrine has already been so fully explained in an earlier part of this book,^ that it is unneces- 1 See § 104, swpra. 264 APPENDIX 0. sary to state it here. The statute by its terms merely pro- vides that an assignment of the stock accompanied by a delivery of the certificate shall pass the title. But this, as we have pointed out in a former chapter,^ does not necessarily prevent a purchaser or an attaching creditor from getting a better title than a prior purchaser who has not recorded his assignment. But in Massachusetts the right of an attaching creditor or a purchaser to defeat a prior unrecorded assign- ment does not arise from any perception of the advantages of keeping a record of transfers of stock similar to the registry of deeds, but depends simply on the fact that until the record is made the legal title remains in the vendor. The Act of* 1884 will have the effect, therefore, of protecting a purchaser of stock, who receives the certificate, from the danger of being deprived of the stock by a creditor who attaches after the transfer is recorded, or by a subsequent purchaser who makes an earlier application to the ^corporation for a transfer on the books. It is to be noticed, however, that the statute applies only to assignments which are accompanied by a delivery of the certificate, and all other assignments remain as they were before the Act. It would seem, therefore, that a purchaser who does not receive the certificate is still in danger of being deprived of the stock by a creditor who attaches it before the assignment is recorded. The object of the Act is to make stock pass more readily in the market, and the wisdom of this policy may very well be doubted ; but the statute does only half the work, for it pro- tects the holder of the certificate from injury by a subsequent transfer on the books of the corporation, but it is silent in regard to prior transfers. ^ A purchaser who receives a certif- icate may feel sure that no subsequent act of the vendor or his creditors can deprive him of the stock, but he has no assurance that the stock had not been sold and the title vested in another person before he bought the stock himself. 1 See § 103, supra. 2 Cg„jr § ng g^ jg^_^ j„^^jj_ APPENDIX C. 265 The Act provides, it is true, that an assignment in the form prescribed shall be a sufficient delivery to transfer the title as against all parties, and a similar statute has been construed in Louisiana ^ to mean that the stock should pass by the assign- ment, although it had already been sold and the title vested in another person ; but such a construction is certainly a great straining of the language of the Act. The statute provides that no transfer shall affect the right of the corporation to pay any dividend due upon the stock, or to treat the holder of record as thC' holder in fact, until the transfer is recorded. This would appear to give the cor- poration power to ignore absolutely the rights of any persons whose names do not appear upon its books, but it can hardly be supposed that this was the intention of the legislature. The Act was probably not intended to change the existing law on this point, and, although the corporation can un- doubtedly refuse to treat as a stockholder a purchaser whose transfer has not been recorded on its books, yet it cannot act in defiance of his claims after it has notice of them. It is not probable, for example, that the corporation would be allowed to pay dividends to the holder of record, after notice that a purchaser of the stock was entitled to them. It should be added that it is, at least, very probable that the act applies to transfers of stock in Massachusetts corporations only.^ * Factors' If Traders' Ins. Co. v. Marine Dry Dock Co., 31 La. Ann. 149. '^ See Continental Bank v. Eliot Bank, 11 Reporter, 35. Dickinson v. Central Bank, 129 Mass. 279. INDEX. INDEX. [Matters treated in the Notes are referred to by the number of the Section.] ABEYANCE, Section when stock is in 26 ACT, of the parties, transfer by ... , 33, 38 ACTION (see Chap. IX.), forms of (see Forms op Action). ADMINISTRATOR. (See Executok.) AGENCY, revocation of 41, 42 AGENT, what amounts to holding out as 130 buying stock ' 84 individual liability of 84 notice to, imputed to principal 67 receiving purchase money 156 theft of certificates by . ' ' . 131 transfer by 39, 41, 45 on the books by 107 transfer on books, in case of unauthorized sale by . . 150 of corporation, making false representations . . 112, 115 waiving lien 181 of trustee 64,65,76,77 owner estopped to deny authority of 129, 130 ALTERATION, of certificate 133 APPLICATION, of purchase money .' 77 ARTICLES OF ASSOCIATION, giving lien 165 making transfer rule 90 270 INDEX. ASSESSMENTS, Section and certificate 118 liability for, as afiected by transfer 188 ASSIGNEE, in bankruptcy, individual liability of 29 title of, affected by transfer rule . 105, 106 mesne, not a stockholder, and no lien against him . . 102 second, and transfer rule 150 ASSIGNMENT, passes equitable interest, subject to lien 176 of lien to surety 180 notice of, as affecting lien 175 unrecorded, passes equitable right 91, 104 double (see Double Assignment). ASSOCIATION, articles of (see Aeticles of Association). ASSUMPSIT, by buyer against seller 221 by seller against buyer 226 by buyer against corporation . . 238 by stockholder against corporation 239 for certificates 229 measure of damages in 213, 217, 221, 226 ATTACHMENT, of stock 38 as affected by certificate 123, 125 to enforce lien 177 as affected by transfer rule . 91, 95, 98, 103, 104, 105, 125 made in reliance upon the books 85 ATTORNEY, power of (see Power op Attoenet). AUCTION, sale of pledge by , 56 AVOIDANCE, of fraudulent sale 38 123 by creditors, of transfer „ . 38 by infant, of transfer 38 BANKRUPTCY, as affecting power of attorney 42 transfer in 38 assignee in (see Assignee, in bankruptcy). INDEX. 271 BILL IN EQUITY, Section where no legal remedy 242 by buyer against seller 222-224 by seller against buyer 227 by cestui que trust against trustee to obtain stock .... 225 by buyer against corporation 1B1, 236, 237 by seller against corporation 87, 135, 227 by stockholder against corporation 240 to compel corporation to express trust in a certificate . 158 to obtain certificates 223, 240, 241 to transfer, and transfer rule 227 and mandamus 234 incidental damages in 225 and measure of damages 214, 217 BILLS, and notes, compared with stock 12, 129, 133 BLANK, power of attorney in 107 right to fill 45 transfer in (see Transfer in Blank). BONA FIDE PURCHASEE, rights of 66 against corporation 238 condition of, before transfer on the books 153 of certificate, who is 112, 115 as affected by certificate 125 of stolen certificate 131 affected by lien 167,168 protected by transfer rule . . . 93, 95, et seq., 98 et seq. BONDS, are not stock 6 BOOKS, of corporation » . . . 80 entries in ... . . 156 are jorjnja/acie evidence of membership 80 transfer on, as afiecting legal title , 80, 81 evidence of membership, as to individual liability . . . 191 creditors supposed to rely on them 82, 85, 191 individual liability of those whose names appear on 191, 197, 203, et seq. of corporation, and registry of deeds 148, 156 removal of name from 191 272 INDEX. BOOKS — continued. Section cestui que trust entitled to have stock stand in name of trustee on 152 closing, before paying dividend 141 estoppel by entry in ... . SI et seq., 191, 203, et seq. transfer on (see Transfer on the Books). rule for transfer on (see Teanseee Rule). BREACH OF TRUST, liability on sale in 66, 76 by corporation in making wrongful transfer on the books 152 et seq. by corporation and purchaser . , 156 BROKERS, custom of 57, 112 BROKERS BOARD, not an auction 56 BUYER. (See Pukchasee). BY-LAW, cannot create individual liability 184 as giving lien 166 e< seq. in regard to transfer 48 making transfer rule 89 effect of transfer rule made by 89 in regard to surrender of certificate before transfer . . 119 CALLS, liability for, as affected by transfer 187 CANCELLATION, of certificate J23 of stock J 43 CAPACITY, of transferee, as affecting individual liability . 192, 193, 197 CAPITAL, is trust fund for creditors 186 increase of, by estoppel 1 17 reduction of, by purchase by corporation of its own stock 22, 24 CASE, by stockholder against corporation 239 CASHIER, • of bank, notice to I54 INDEX. 273 CERTIFICATE, Section nature and effect of (see Chap. V.). its nature and use 4, 108, et seq., 126 its relation to stock ..... 12,13,109,129,133,143 is evidence of title 109 differs from bill or note 109 not negotiable 129 and dividends 12, 109, 126, 131 and right to vote 12, 109 and transfer 109 and transfer rule 90, 118, 124 transfer without, good 109, 122 its effect on construction of Statute of Frauds .... 10 delivery of 43, 44, 109, Appendix C. tender of 99 taken in pledge 112,130,132 effect of, on pledge 55, 57 refusal to issue, may amount to conversion 14 conversion of, not conversion of stock . . . . 11, 12, 13 notice from 68,69,72,79 absence of, may be notice 68, 120 as affecting JoMfl! ^rfe purchaser 125 issue of, in name of another 132 holder of, assenting to transfer to another 124 surrender of, before transfer . . 44, 48, 55, 112, 118, 119, 121, et seq. corporation may waive rule for its surrender . . . . 122 liability of corporation for transfer without . . . . 123 not surrendered when transfer is against owner's will . 38 what it represents 118, 119 estoppel and fraudulent representation by . . . 110 et seq. honajide purchaser of Ill contains representation by corporation . . . . . . 'Ill representation in, must be voluntary Ill as protecting subsequent purchaser 119 estoppel by outstanding 123 as giving rights against coi'poration 123 ci seq. representation by issuing new 147 issue of, to wrongful transferee 142 estopping corporation to deny transfer rule ...... 90 form of, in cases of trust 79 not expressing trust 158 indorsement of, by trustee's agent 77 as affecting attachment and execution . . . . 123, 125 18 274 INDEX. CEUTIFIC ATE — continued. Section issued on execution sale 103, 125 issue of two, for same stock 128 corporation compelled to issue 136, 137 bill in equity to obtain 223, 240, 241 issue of new 128,142,147 new, bill in equity to obtain 241 actions for withholding 229 detinue for 216, 230 measure of damages in action for 216 return of, diminishing damages 216 indorsement of 1 29 creates warranty 133 indorsed in blank, presumption from possession of . . 129 and transfer to representatives of deceased person . . 125 stating that stock is transferable on surrender thereof, does not waive lien 181 statement in, as creating lien 1 68 and individual liability 109 alteration of 133 cancellation of 123 loss or destruction of 109, 128 over issue of 115 stolen 131 CESTUI QUE TRUST, rights of 27 and legal title 100 corporation must respect rights of 151 et seq. rights against corporation under transfer rule .... 100 notice of rights of, under transfer rule 99, 100 right to have stock stand in name of trustee . . . . 100 liability of corporation to, for wrongful transfer . 142, 152 lien for debts of 175 assent of, to sale 74 rights of, in case of sale 66 not individually liable 28, 205 remedies against corporation and others 242 CHARTER, affecting transfer 119 sUence of, does not prevent transferability 31 making transfer rule 89 giving lien ... 164 forfeiture of 116 formalities required by, for transfer 47 INDEX. 275 CHATTELS, Section compared with stock 215 CHECK, in payment for trust property, how drawn 77 CHOSE IN ACTION, its relation to stock 8, 9, 80 assignment of 1 62 CHOSE IN POSSESSION 8 CLASSIFICATION, of transfers 33 COLLATERAL SECURITY 53 (See Pledge ; Moetgagb.) CONDITION, in power of sale 63, 74 CONFEDERATE GOVERNMENT, transfer by order of 144 CONFLICT OF LAWS. (See International Law.) CONSENT, necessary to accyiiring legal title 32 to take title, affected by individual liability 32 no one divested of stock without, except, etc 143 CONTRACT, is this the relation of stockholder to corporation ... 15 (See Appendix A.) to buy stock 5 action of (see Assumpsit). CONTRIBUTION, in case of property covered by lien 179 "CONTRIBUTORY" 190 (See Individual Liability.) CONVERSION, of stock 11, 12, 231 by refusal of corporation to transfer .... 137 by pledgee 67 waiver of 212, 216 CORPORATION, is an imaginary person 1 how created 1 distinct from stockholders 2 and stockholder, not creditor and debtor 162 276 INDEX. COtLFOUATlOl^i — continued. Section resembles a State ^ mercantile idea of partnership 3 continuous existence of 31 difference between English and American . . . . 3, 184 its purchase of its own stock 22 et seq. holding of stock by one, in another 18-21 its purchase of stock in another presumed lawful in England 21 must not buy stock in another for speculation .... 20 must not buy stock in another for business not authorized by charter 20 transfer to a, incapable of purchasing 193 may take stock in payment of debt 25 transfer rule benefits 89, 93, 94, 101, 106 liability of, under transfer rule 100 cannot take advantage of its own wrong, under transfer rule 94 its wrongful refusal to transfer stock 14 need not record all transfers 138 lien of (see Lien). lien of, for debts purchased 174 may waive lien by declarations 181 can release its own claim to subscription 186 cannot release subscription so as to defeat creditors . . 186 creditors not identified with 183, 186, 190 cannot use creditor's name to collect its debts . . . . 189 fault or delay of, as affecting individual liability . . . 190 in precarious condition, transfer in 194 et seq. liability of (see Chap. VI.). unauthorized transfer by, and rights of stockholder . . 144 liability of, for wrongful transfer . . . . 138, 142, et seq. fraud of, inducing transfer 202 may ask evidence of right to transfer 139 can make transfer against wish of assignee 97 liability of, for transfer without certificate . 123, 126, et seq. paying dividends after notice of claim 86 representations by, in transferring 147 estopped to deny transfer it has prevented 190 estopped by representations of agent 112, 115 excused by negligence of stockholder 145 acquiring title to stock, after judgment in trover . . . 137 action of, against purchaser for false representations in- ducing transfer 147 INDEX. 277 CORPORATION — coK^mwerf. Section liability of, on issue of new certificate 1 42 making representations concerning transfer by certificate 119 liability of, for breach of trust 79 liable for recording wrongful sale by trustee . . . . 152 to cestui que trust for wrongful transfer on the books 152 liability for issuing certificate which does not express trust 158 liability of, where purchase-money is embezzled by trustee's agent 158 liability for recording improper investments by trustee . 157 notice to, what is 154, 155 must decide between claimants 155 not liable to two claimants without its fault . . 120, 134 estoppel in its favor 86 and over-issue of stock 115, 116 CO-TRUSTEES 64 CREDITORS, avoiding transfer 38 have rights apart from corporation . . . 82, 183, 186, 190 not estopped by acts of corporation 190 supposed to rely on books 82, 85, 191 estoppel in their favor 82, 84, 87 right to elect between pledgee and pledgor .... 84 must elect between two persons individually liable . . 206 when can avoid corporation's purchase of its own stock . 24 when injured by corporation's purchase of its own stock 23, 24 CUSTOM, as making transfer rule 90 as creating lien 168 as waiving lien 181 to disregard statements in certificate 69 of brokers 57, 112 DAMAGES, theory of 211 not always adequate remedy for refusal to transfer . . 135 incidental, in assumpsit 226 in bill in equity 225 measure of (see Measure of Damages). DEATH, passage of title on 35, 36 as affecting transfer rule 106 278 INDEX. I>T:,ATR — continued. ^"'*'"" revocation of agency by 41, 42 as affecting lien ^'° as affecting individual liability 200 (See ExBCUTOK.) DEBITA IN PRESENTI, SOLVENDA IN FUTURO, covered by lien ^'^ DEBT, corporation can take stock in payment of 25 what, does lien cover ? . . .• 172 purchased by corporation, lien for . 174 DECEIT, action of HO, 113 DELAY, in making transfer 87 in transferring, liability for 137 of corporation, as affecting individual liability . . . . 190 DELIVERY, of instrument 43 of certificate 109 and passage of title to personal property 104 DEMAND, for transfer on the books 107, 120, 140 as condition precedent to individual liability . . . . 208 contract to sell on 52 DETINUE, for stock 216 for certificates 216, 230 measure of damages in 212, 216 DIRECTOR, of corporation, notice to 154 power to regulate transfer 48 refuse transferee ... 28, 48, 49, 87, 190, 228 power of, to reject transferee, gives no lien 167 individually liable, if he retires by fraud 198 assent of, fairly secured, and individual liability . . . 198 secured by fraud, and individual liability . . 198 DISABILITY, to take stock, corporation, need not transfer to persons under 138 DISCRETION, delegation of 65, 76, 152, 156 INDEX. 279 DISSOLUTION, Section effect of, on transferability 59 DIVIDEND, certificates not needed to collect . . . .12,109,126,131 au independent debt 62 effect of transfer on right to 52 rights of vendor and vendee 47 life-tenant and remainder-man ...... 62 and transfer rule 94 corporation may pay it, relying on books 86 as covered by lien 178 closing books before paying 141 DONATIO MORTIS CAUSA ........ 39, 43, 109 DOUBLE ASSIGNMENT, under transfer rule 94, 96 DURESS, in issuing certificates Ill ELECTION, between estoppel and action of tort 117 by creditors, between two persons individually liable . . 206 EQUITY, transfer in (see Chap. III.) 47, 60 and transfer rule 98 unrecorded assignment gives rights in . ■ . . . . 91, 104 assignee can acquire interest in, subject to lien . . . 176 remedy of stockholder in, for wrongful transfer . . . 144 biU in (see Bill in Equity ; Cestui Que Trust). ESCROW, stock held in 204 ESTOPPEL, 42 its nature 110, 113, et seq., 131 et seq. elements of 81, 111, ef seq., 130 et seq. classification of 82 of pledgor by transfer on books 85 in favor of purchaser 85 creditor 82, 84, 87 purchaser leaving stock in seller's name 85 of pledge 83 in favor of corporation 86 , by indorsement in blank 132 in tracing title to stock 129 280 INDEX. ESTOPPEL — continued. Section by negligence 131 by entry of name on books 191, 197, 203, et seq. of principal to deny agent's authority 129, 130 by silence concerning one's rights 132 by entries on corporation books 81 e< seq. by certificate 110 of corporation to deny transfer rule 90 to set up want of formality 49 to deny transfer that it has prevented . 190 in case of wrongful transfer . . . . 146 in case of over-issue of stock 116 of particular stockholder, to set up transfer 201 election between, and action of tort 117 (See Bill In Equity; Cestui Que Teust.) EVIDENCE, books are, of membership 80 certificate is, of title 109 corporation may ask, of right to transfer 139 EXECUTION, stock cannot be taken on, at common law 9 transfer on 38 as affected by transfer rule 91, 103, 105 certificate 123, 125 sale, title of purchaser at . . . ' 105 EXECUTOR, confused with trustee 73 transfer by 36, 37 and transfer rule j^06 sale Ijy 62, 70, 71, 73, 75 notice that he has not power to sell 71 73 75 pledge by '. ' 75 assent of, to legacy of stock j52 individual liability of 29 49 and individual liability of testator 200 (See Death.) FALSE REPRESENTATION, '^^ ""^^"^^ 110, 113, et seq. must be reasonably believed 147 must cause loss -iirj and transfer rule nn INDEX. 281 FALSE REPEESENTATION — cowiiwMerf. Section made by power of attorney in blank 130 of purchaser, inducing corporation to transfer . . . 147 made by certificate 110 et seq., 123 in issuing new certificate 147 FICTIONS, concerning the nature of a corporation 1, 2 FICTITIOUS PERSON, taking stock in name of 102 transfer to, affecting individual liability .... 192, 202 FIRM, mercantile view of 3 FORECLOSURE, of pledge 54 FOREIGN CORPORATION, transfer of stock in 36, 50 and rights of executor 36 FORFEITURE 34 attempted, may work conversion 14 and lien 177 for non-payment of subscription 187 and individual liability 199 must be complete, to discharge individual KabUity . . 199 of charter 116 FORGERY, no rights acquired thereunder 144 FORM, of transfer on the books 107 FORMS OF ACTION, much changed recently 210 FORMALITIES, for transfer 130 FRAUD, actual and constructive 113, 114, 115 avoidance of transfer for 38 possession of property after sale is badge of . . . . 104 and recording transfer after notice '• 96, 99 inducing transfer, and individual liability . . . 196, 202 of corporation, in making transfer 147 (See False Representation.) FRAUDULENT SALE, avoidance of 123 282 INDEX. GAKNISHMENT, ^^'="°" not applicable to stock " GIFT, transfer by ^^ "GOING CONCEEN" 59 "GOODS, WARES AND MERCHANDISE," is stock? ^" GUARDIAN, rights of ^" powers of "■^ acting in other States 40 transfer by 40, 62, 70, 123 HIGHEST PRICE RULE, in general . . . ; 213, 214, 218, 219 HOSTAGE, pledge formerly a 54 HUSBAND, rights of, in regard to wife's stock 8 individual liability of 16, 202 (See Makkied Woman.) ILLEGAL PURPOSES, transfer for 51 INCAPACITY, of transferor 203 of transferee 192 INDEBITATUS ASSUMPSIT 332 INDIVIDUAL LIABILITY (see Chap. VIII.), is none at common law 184 how created 184 how worked out 185 in England and United States .... 184, 193, et seq. a guaranty of corporation's debts 195, 203 limited to proportion of nominal capital 23 and transfer rule 88 attaches to legal title 189, 190, 194, 195, 205 of infant 16 (See Appendix A.) affected by transfer to infant, etc 193, 202 of agent 84 of principal 84 as affected by pledge 30 INDEX. 283 INDIVIDUAL JAABUATY — continued. Section of one who has used fictitious name 102, 202 of pledgor 84 of pledgee 83, 84, 102 of trustee 28, 29 and certificate 109 may attach to two persons at once 189 divested by transfer 189 ei seq. transfer to one incapable of incurring .... 193, 197 afEected by transfer to corporation 23 created by transfer 202 et seq. estoppel 191, 197, 203, et seq. and forfeiture 199 when it attaches 207 et seq. attaching at judgment or execution 209 time of debt 208 makes damages for refusal to transfer an inadequate remedy 135 INDORSEMENT, of certificates 44,45, 129 and warranty of title 133 covered by lien 172 INDORSEE. (See Sukett.) INFANT, as stockholder 15, 16, 17 (See Appendix A.) transfer by 16, 203 avoidance of transfer by 38 transfer of stock to 16 into name of 193, 202 corporation can refuse, as stockholder 16 should have stock registered in his name 40 individual liability of 16 transfer to, and individual liability 193, 202 INJUNCTION, as a ground for refusal to transfer 138 INSOLVENCY, transfer in 38 unrecorded transfer, good against assignee in ... . 91 (See Bankbuptct.) INSOLVENT, transfer to 194 et seq. corporation, transfer of shares in, and individual liabil- ity 194, 195, 196, 202 284 INDEX. INTEREST, _ ^'^°'' in action of money had and received 212, 216 of trover 212, 216 allowed in a bill in equity 214 INTERNATIONAL LAW, as affecting transfer ^^ INTERPLEADER, corporation may bring bill against adverse claimants 139, 243 INVESTMENTS, restriction of trustee, to certain 157 JOINT AND SEVERAL LIABILITY, of stockholders 208 JOINT OWNERSHIP 36 JOINT STOCK COMPANY, in England 184 English, is a hybrid 3 differs from American corporation .... 3 developed from idea of partnership .... 3 JURY, province of, in assessing damages 211, 213 LEGACY, ■ of stock, assent of executor to 151 LEGAL TITLE, to stock 27 consent necessary to acquisition of 32 passage of, at common law 37 may pass without writing : . . 43 passage of, as affected by formalities 47 and pledge 53, 55 in pledgor 30 not intended to pass by pledge 102 and transfer on the books . 80, 81, 88, 89, 91, et seq., 96, 98, 101, et seq., 136 does not always pass by transfer on the books . . . 102 as acquired by purchase of certificate 129 passage of, without certificates 122 and wrongful transfer by corporation . . 1 42 and cestui que trust 100 passage of, does not affect rights of cestui que trust in case of wrongful transfer on the books 152 INDEX. 285 LEGAL TITLE — continued. Section lien is for debt of holder of 175 and individual liability ... 28, 189, 190, 194, 195, 205 LIABILITY, of corporation (see Chap. VI.) . individual (see Individual Liability). LIEN, of the corporation 48 (See Chap. VII.) origin of 162,163 is none at common law 161 compared with partnership lien 163 andsetroff 162,169,178 how given lUetseq. as given by power to regulate transfers 1 67 not given by power to refuse transferee 167 as affected by transfer rule 94, 99, 169 representation in certificate 118 how taken away 164, 170 what debts does it cover ? 112 et seq. binds stock for debts of trustee 28 on stock held in trust . . . 175 notice of 166, 168, 171 affected by rule forbidding loans on security of stock . 170 as covering dividend 178 as affecting right to vote ' 178 bonajide purchaser 167, 168 none against mesne assignee 102 is none for subscription 187 effect of 176 et seq. refusal of corporation to transfer because of .... 141 enforced by sale 177 and sureties 179, 180 assigned to surety 180 and contribution 179 discharged by payment of debt by assignee . . . . 176 waiver of 169, 181, 182 not waived by part transfer 176 on overissue of stock 170 LIMITATIONS, Statute of. (See Statute of Limitations.) LIS PENDENS 67 LUNATIC, as stockholder (see Appendix A) . transfer by 144 to, affecting individual liability .... 193, 202 286 INDEX, "MAN OF STRAW," . Section transfer to 194,195,202 MANDAMUS, to compel transfer 48, 233-235 and bill in equity 234 allowed by statute 235 MARGIN, purchase on 58 MARRIED WOMAN, as stockholder 16 (See Appendix A.) transfer by 203 to, affecting individual liability .... 193, 202 individual liability of husband 16, 202 (See HtrsBAND.) MEASURE OF DAMAGES (see Chapter IX.), in case of stock 215 rules for, have become fixed 211 time fixed in estimating 211 et seq. in trover (see Tkovek). " MEMBER " 190, 195 MERGER, of stock 26 MESNE PROFITS, as incidental damages 217 MONEY HAD AND RECEIVED, measure of damages m 212, 217 MORTGAGE, of stock 83 what constitutes 53, 55 effect of, on right to vote 27 NEGLIGENCE, and estoppel 110,113 creating estoppel 131 of stockholder, excusing wrongful transfer by corpora- tion 145 NEGOTIABLE, certificate is not 129 NEW YORK, measure of damages in 219 INDEX, 287 NOTICE, Section constructive 67 from corporation 72 of defect in title, what is 131 of purchaser's rights 9i that executor has not power of sale 71,73,75 from corporation books 68 to corporation, under transfer rule 95 of custom making transfer rule 90 to purchaser, under transfer rule 96, 97 of trust 66 e< seq. of breach of trust, what is 154 from trustee 72 from instrument of trust 72 to corporation, what is 154, 156 of equitable claim 86 when effectual 78 when given 153 when must be given, under transfer rule . . 96, 99, 100 before transfer on the books 153 of lien 166, 168, 171 of assignment, as affecting lien 175 to agent 67 in case of pledge 75 from certificate 68, 69, 72, 79, 112, et seq. from absence of certificate 68, 120 that shares are not paid up ... ' 186 OPERATION OP LAW, transfer by 33, 35 "OUT AND OUT," transfer, and individual liability 194 OVEEISSUE, of stock, liability of corporation 237 lien on 170 of certificates 115 PARTIES, to bUl against corporation for retransfer 240 to a bill in equity by cestui que trust against corporar tion 242 PARTNERSHIP, its relations to a corporation 3 lien of, compared with that of corporation 1 63 288 INDEX. PAETNEESHIP — continued. Section individual liability in, and that in a corporation . . • 208 debts, covered by lien 172 PAYMENT, of price as affecting measure of damages 213, 216, 218, 219, 221 PENNSYLVANIA, measure of damages in 218 PEESONAL PEOPEETY, stock is 7 PLEDGE, of stock ^ 30 history of 54 what constitutes 53, 54, 55 collateral security is presumed to be 53 purchase on margin is 58 not intended to pass legal title 102 passage of title in 53, 55 transfer rule applies to 92 and transfer on books 55 by transfer in blank 132 effect of delivery of possession on 54 and delivery of certificate 128, 130, 132 by trustee or executor 75 of stock, rights of pledgee and pledgor 5 effect of, on right to vote 27 30 implied, as giving lien 168 as affecting individual liability 30 remedies for default in payment 56 57 foreclosure of 54. sale by pledgee 57 conversion of, and measure of damages . . . 218 219 231 PLEDGEE, another holding stock for 33 taking stock into his name 202 buying certificate ji o individual liability of 33 202 204 estopped to deny he is a stockholder ... 83 202' 204 PLEDGOE, • ' > estopped by transfer on books 35 individual liability of 84 196 POSSESSION, ' °*«t°<=^ 8,11,55 (See Appendix B.) INDEX. 289 POSSESSION — conitwMed Section delivery of 43 as efiecting pledge . , 54, 55 of property after sale is badge of fraud 104 POWER, coupled with an interest 41 to obtain transfer, is legal, not equitable only .... 99 POWER OF ATTORNEY, general and special 76, 130 in blank 107 to transfer stock 129, 130 and transfer rule 99 given by trustee 65, 76, 77 giving notice of breach, of trust 156 general, notice of delegation of discretion 156 how afiected by bankruptcy 42 revocation of 41 POWER OF SALE, and lien 177 PRESCRIPTION, as affecting title 33 PRESIDENT, of corporation, notice to 154 PRICE, payment of, as affecting measure of damages 213, 216, 218, 219, 221 rule of highest (see Highest Peice Rule). PRINCIPAL, individual liability of 84 (See Agent.) PROXY, voting by 139 PUBLIC SECURITIES, are not stock t.. 6 no bill in equity to transfer ' . 223 PURCHASE MONEY, must be paid after representation 147 received by agent 156, 158 application of (see Application of purchase money). PURCHASER, may make transfer 87 liable to seller if transfer is not made 87 subsequent, protected by certificate 119 290 INDEX. PUECHASER — continued. Section injury to, in case of transfer of stock held in trust . . 142 can sue corporation for not transferring 136 compelling transfer by bill in equity against corporation 137 honafde (see Bona Fide Puhchasek). QUORUM, how affected by the owning of its stock by corporation . 26 RATIFICATION, of agent's act, by trustee 65 REASONABLE TIME, after breach, and measure of damages 213 REFUSAL, to transfer 48 power of, as giving lien 1 67 because purchase is unauthorized .... 157 of transferee, by directors 190, 228 REGISTER. (See Books.) REGISTRY LAW, and transfer rule 93, 95, 96 REGISTRY OF DEEDS, and books of corporation 148, 156 REGULATIONS, of corporation concerning transfer 48 REISSUE, of stock 26 REMAINDERMAN, transfer to jgj^ REMEDIES. (See Chap. IX.) REPLEVIN, for stock 216 measure of damages in 212 216 REPRESENTATION, by transfer on books 146 147 false (see False Representation). REVOCATION, of power A-, SALE, by executor 62, 70, 71, 73, 75 by guardian g2 INDEX. 291 SALE — continued. Section gives authority to make transfer on books • • .49, 87, .227 as creating warranty 133 to enforce lien 177 power of (see Powee op Sale). by trustee (see Trustee, sale by). SEAL 44,46 SECRETARY, of corporation, notice to 154 SECURITIES. (See Public Secueitie8.) SECURITY, required, in issuing new certificate 128, 241 SELLER, may make transfer on the books 87 SET-OFF, and lien 162, 169, 178 against dividend 178 SHARE, of stock, what is 6 paid up, representation by corporation 186 SHERIFF, transferring stock 38, 233 SIGNATURE, genuineness of, representations about 147 STATE, parallel between it and a corporation 2 STATUTE, transfer regulated by 88 ei seq. making transfer rule 89 must be carefully examined in cases of individual lia- bnity 185 of Frauds, does it cover stock ? 10 as affecting transfer 50 of Limitations, runs after demand for transfer .... 140 as affecting lien 174 STOCK, its nature 4 is assignable incorporeal personal property 9 its nature illustrated in the case of a pledge .... 5 is an unidentified fraction of rights and duties .... 4 nature of a share of 6 292 INDEX. STOCK — continued. Section is personal property ' > ° its relation to a chose in action 8, 9, 80 incapable of possession 8, 1 1 has no locality 9 unlike negotiable paper 12 transferability of 31, 59 creation of, indicates transferability 31, 59 confounded with certificate 109, 143 conversion of 231 measure of damages in case of 215 fluctuations in price of 215 STOCKHOLDEK, his rights 2 who he may be 2 what constitutes 60 his relation to the corporation 15 and corporation, not creditor and debtor 162 his right to transfer 135 has right to certificate 108 corporation cannot be its own . 26 not deprived of his rights by unauthorized transfer by corporation 144 remedy against buyer of stock at unauthorized sale . . 240 SUBSCEIPTION, for stock 60 payment of, represented by certificate 118 original, liability for 185 et seq. liability for, as affected by transfer 187 corporation cannot release 186 transferee liable for 187 no lien for 187 SUEETY, rights of, in regard to lien 179, 180 can be proceeded against without resorting to lien . . 179 discharged by waiver of lien 182 SUEEENDER, of certificate, before transfer . . 112, 118, 119, 121, et seq. corporation may waive rule for . . . . 122 TA3ULA IN NAUFRAGIO 99 TACKING, doctrine of 99 INDEX. 293 TAX, Section sale for nonpayment of 34 TENDER, of certificates 99 THEFT, of certificate , . . , . 131 does not convert stock 13 TIME, taken in computing damages 211 et seq. TITLE, legal. (See Legal Title.) TOET, action of, for false representation 113 damages in, as covered by lien 173 TRAFFICKING, in shares 22 TRANSFER, classification 33 affected by charter and by-laws 119 policy is to leave it untrammelled 23 in writing 43, 44 writing not needed for 43 without certificate, good 109,122 every, need not be recorded by corporation 138 by agent, owner estopped to deny 129, 130 into name of another 102 to one incapable of incurring individual liability . 193, 197 to " man of straw," and individual liability . . . 194, 202 to corporation, effect on individual liability 23 incapable of purchasing 193 to escape liabUity 28, 194, 195, 196, 202 induced by fraud, and individual liability . . . 196, 202 power to regulate, as giving lien 1 67 corporation can allow part, without waiving lien . . . 176 lien gives power to refuse to 176 refusal of corporation to 14, 48 by corporation without authority, and rights of stock- holder 144 TRANSFER IN BLANK 45, 46 effect of 129 and pledge 130, 132 and estoppel 130 as giving warranty 133 294 INDEX. TRANSFEE IN EQUITY. (See Chap. III.) Section TRANSFER ON THE BOOKS (see Chap. IV.) 48 and delivery of possession 65 as affecting legal title 80, 81 pledge 53, 55, 102 form of '-"' by agent 107 sale is authority to make 227 may be made against assignee's wish 97 necessary when transfer is against owner's will ... 38 corporation refusing to make 87 liability of corporation for not making , 135 when corporation bound to make, under transfer rule . 100 unauthorized by corporation 240 liability of corporation for wrongful . . . 138, 146, et seq. wrongful, by corporation when legal title passes . 14:2 et seq. not conclusive evidence of conveyance 144 wrongful when legal title does not pass . . 102, 146, et seq. may violate legal or equitable rights . . . . 150 without respect to equitable rights 152 as affecting cestui que trust 100 notice before 96, 99, 100 condition of bona fide purchaser before 153 representations in certificate concerning 119 amounting to representation 146 refused on account of lien 141 waives lien 181 how demanded 107, 120, 140 corporation compelled to, by bill in equity . . . 135, 137 TRANSFER RULE 88 c< seq. how made 89, 90 meaning of 88 e< seq. construction varies 88, 91, e< seq., 98 cases collected on meaning of 98 does not depend on fraudulent representation .... 97 construed to protect only corporation 93 hona fide purchaser 93 et seq., 98 et seq. applies to transfer of any interest 92 effect of, when made by by-law 89 as affecting legal title, individual liability, and right to vote 88 does not wholly invalidate transfer 91 liability of corporation under 100 INDEX. 295 TRANSFER BUL^ — continued. Section corporation cannot take advantage of its own wrong under 94 as afEected by death 106 and executors 106 as afEected by notice 95 as affecting riglit to transfer 136 corporation's liability for transfer . . 148, 153 and certificate 118, 124 and attachment and execution . . , 91, 95, 98, 103, et seq. and attachment ' 125 as affecting lien 169 and individual liability 202 TRANSFERABILITY 31, 59, 60, 187 limited by charter 60 before incorporation 60 continues during existence of corporation 59 TRIAL, value at time of 213, 215 TROVER, for stock 11, 12, 137, 215, 231 for certificates 229, 231 can be maintained by pledgee of stock 11 by buyer against corporation 238 by stockholder against corporation 239 when can be brought against corporation 14 judgment in, passes title 35 measure of damages in . . . 211, 212, 216, 218, 219, 239 TRUST, in America, its frequency and nature 61 not expressed in certificate 158 notice of 66 «* seq. corporation's notice of 151 e* seq. notice of, in England 28 lien on stock held in 175 breach of (see Bkbach of Teust). TRUSTEE, confused with executor 73 powers of 62, 70, 72 duties of 62 passage of title on death of 37 I by 62 e< seq. I by, under statute 63 pledge by • 75 296 INDEX. TRVST'E'E — continued. Section stock must be left in his name ... 100 can vote 27 rights against cestui que trust 28 improper purchase of stock by 157 and application of purchase money 77 taking certificate which does not express trust .... 158 must give corporation proof of right to sell . . . . 139 must not delegate discretion . . 65, 76 employing agent . 64, 65, 76, 77 ratifying agent's act . 65 giving power of attorney 65, 76, 77 going abroad 61, 65, 77 joint, liable in solido 28 individually liable 28 individual liability of, limited by statute 205 corporation liable for recording his wrongful sale . . . 152 new, appoiutment of 35 transfer to 123 bill to compel transfer to 242 to make transfer 38 ULTRA VIRES, when purchase of stock by one corporation in another is 19 when purchase of its own stock by corporation is . . . 22 and over-issue of stock 116 corporation can refuse to record a purchase which is . . 157 lien for debts arising from acts that are 174 VOIDABLE TITLE, transfer by corporation to one having 138 VOTE, right of vendor and vendee to 51 trustee has right to 27 right to, on stock standing in name of corporation . . 26 as affected by mortgage 27 pledge 27 right to, affected by transfer rule 88 94 by transfer on books . . . . 80, 86, 87 and certificate 109 certificate not needed for 12 right to, as affected by lien 178 as affecting individual liability 204 action for refusal to permit 233 INDEX. 297 WAIVER, Section by corporation, of provisions for its benefit 49 of transfer rule, by corporation 94, 97 of rule for surrender of certificate 122 of Uen 169, 181, 182 discharging surety 182 registering part transfer is not . . . . . . 176 of conversion 212, 216 WAERANTT 113 by indorsement in blank or sale 133 WITNESS, how stockholder can become 47 and unrecorded transfer 91 University Press : John Wilson, and Son, Cambridge, KF 145^1- L91 Authi Tiowell, Abbott Lawrence Vol. Title rjj^g transfer of Stock in Private Corporations. Copy Date Borrower's Name