Sabin v. Bank of Woodstock , 21 Vt. 353 ( 1849 )

The opinion of the court was delivered by

Redfield, J.

The important facts in this case are, briefly, that Elisha L. Sabin, a brother, of the plaintiff, owned, in October, 1835, nearly two hundred shares in the capital stock, and was not indebted to the bank. At that time, and for the purpose merely of increasing his vote, in the election of bank officers, he conveyed one hundred^ and eighty shares to forty five different persons, taking from them proxies for the purpose of voting in their names. From that time forward, until the defendants attached the shares, on the 16th day of November, 1839, Elisha L. Sabin continued to control the shares, as his own property, without any intimation from any source, that they' were not in fact exclusively so. During this time Elisha L. Sabin had obtained of the bank large credits, upon the faith of his being the owner of this stock. Most of the shares had, in the meantime, been reconveyed to Elisha L. Sabin ; but the plaintiff’s four-shares, or those conveyed to him, had remained on the books of the bank in his name. The debt, upon which the defendants attached the shares, accrued on the 6th of January, 1837.

On the.9th of October, 1837, Elisha L. Sabin again distributed his stock in the same manner, and for the same purpose. At this time he was indebted to the bank in a larger sum than all his stock, which has never been satisfied, except by a sale of the stock. At this time two additional shares were conveyed to the plaintiff. The plaintiff had no interest whatever in these six shares, (which were sold by the bank as the property of Elisha L. Sabin, and to pay his indebtedness to the bank, and upon execution, on the 19th day of December, 1840, and which are in,controversy in this suit,) until the 25th day of October, 1837, when he took them of his brother, in payment of debts he had against him.

That portion of the charter of the bank, by which the defendants claim to hold these six shares, as the property of Elisha L. Sabin, is as follows: “ That the shares in said bank shall be transferable, in such manner as shall be prescribed by the' by-laws of said corporation.Provided, that no transfer shall be valid, until the same shall be re» corded in a book, to be kept by the directors, in said bank, for that purpose, and unless the person making the same shall have previ-» ously discharged all debts due from him or her to said corporation.”

The last transfer made by Elisha L, Sabin, October 9,1837, was made at the suggestion of persons, who were at the time directors of the bank, and who constituted a majority of the board, but acting separately, but for the common object of securing their own reelection. These transfers were all recorded upon the books of the bank in due form. Elisha L. Sabin received all the dividends upon these six shares, which were paid before the sale upon execution. And the plaintiff made no claim upon the bank until 1841, when there remained one dividend upon these shares, prior to the sale, unpaid, which was then paid to the plaintiff, he at the time making demand of the subsequent dividends, (after the sale,) which the bank refused to pay.

The question to be determined is, whether, under this state of facts, the plaintiff is entitled to hold the six shares against the bank. This will depend upon the question, at what time the plaintiff’s title is to be regarded as accruing, as between him and the bank.

We should not be inclined to question, that a bona fide purchaser of shares of one in whose name the shares stood on the books of the bank, and who was not himself indebted to the bank, would acquire good title to the shares, as against the world. Such seems to be the rule laid down in the English cases, cited in argument, even when the transfers have been made by virtue of forged powers of attorney. This is done to give greater security to that species of property, and is really for the advantage of the banks, inasmuch as the value of the property depends somewhat upon the perfect security of the title. It is also esteemed somewhat culpable, in the officers of such a corporation, to suffer a transfer of stock to be made upon their books, by means of a forged power, when it is supposed they possess readier means of detecting the genuineness of the handwriting as well as of the other transactions of their shareholders, than strangers have. So that one who purchases stock in these corporations is not obliged to look beyond the books of the bank, for the evidences of title, and if he purchases upon that appearance he is entitled to receive the dividends of the bank. They, too, would be liable also to pay the dividends to the true owner, if they had suffered the transfer to be entered upon their books upon insufficient authority. This is substantially the rule of the English courts, and of many of the American states, and of the national courts. The opinion of Taney, Ch. J., in Lowry v. The Commercial and Farmers’ Bank of Baltimore, in the circuit court, decided in July, 1848, which we have not seen, except as reported through the newspapers, is to the same effect, if we correctly apprehend its principle. That was the case of a transfer, suffered by the bank, through the agency of an executor, who, by the will, was not authorized to make the transfer. The court held, that the bank was bound to look into the will, for the purpose of learning the extent of the executor's authority, and were culpable for not doing so, and chargeable with implied notice of the contents of the will.

But it does not seem to us, that the present case comes within this principle. The great question here is, whether the plaintiff was at liberty to purchase these shares, upon the faith of the formal title merely being in himself; or whether, having for years suffered the former nominal owner, and in fact the real owner, to treat the stock to all intents as his own, he was not bound to make inquiries, as to the state of the title, before he purchased, and, after he purchased, to give notice to the bank of his having become the beneficial owner, before he could compel the court to protect him as such 1 It seems to us, that such was his duty.

We do not, indeed, feel prepared to say precisely how far such merely formal transfers upon the books of the bank, and for the purpose of defeating the proper objects of the charter, in one particular, are to be regarded as of any force whatever, as to those who are instrumental in bringing them about. Reason and policy and justice would seem to require, that they should be treated as simply void. But certainly the plaintiff had no reason to expect, that the bank would deal any differently with his brother, on account of any such mere shadow of a transfer, while he was all the time receiving the dividends, and treating the stock, to all intents, as his own, which it in fact was. Nor can it be supposed, that any honorable man would act upon any such expectation. We think, therefore, that his title must date, as between himself and the bank, from the time they had notice of such title.

And the fact, that certain persons, who formed the majority of the board of directors, advised this distribution of the stock, can, in our apprehension, make no difference. As directors, they had no right to make or advise any such operation. It was not supposed by any one, that, as directors, they had any such authority, or that they professed to act upon any such ground. We think, therefore, that all the plaintiff’s shares must be considered as standing upon the same ground. So far as the bank was concerned, at the time of the attachment and sale, the title was in Elisha L. Sabin. -

It is, perhaps, not necessary to go farther. We entertain, however, upon the present argument, no reasonable doubt, that the mode of transfer of stock pointed out in the charter is the only mode, which the public are bound to regard as conveying the title. All persons, unaffected with notice to the contrary, are at liberty to act upon the faith of the title being where it appears upon the books of the corporation to be.

This view we do not think inconsistent with the notion, that any other mode of conveyance may be perfectly good, between the parties to it, and to all others having notice of it, the same as an unrecorded deed, or notice of a mere equity,

It seems to us reasonable to conclude, that the defendants, as a corporation, under their charter, might refuse to allow the transfer of stock to go upon their books, until all debts due from the grantor, or seller, to the bank were paid. Indeed, this seems the only mode in which they could enforce their lien against the title of a bonajide purchaser.

But if a formal transfer of stock were made upon the books of the bank by mistake, or in any other way, not intending to convey title, we do not think one who had knowledge of that fact would acquire any title, as against a bonajide owner, or pledgee, by purchase of the person in whose name the stock stands. These are, we believe, but elementary principles in the law, as they certainly are in reason, justice, and morals. Judgment affirmed.