People's Bank v. Kurtz

Chief Justice Sharswood

delivered the opinion of the Court, January 23d 1882.

It was held at first that in an action on the case for deceit against a party who had sold a personal chattel to the plaintiff, to which he had no title, that it was necessary to aver a scienter: Dale’s Case, Cro. Eliz. 44; Roswel v. Vaughan, Cro. Jac. 196. But this doctrine was subsequently exploded, and an averment of possession considered sufficient, as the vendor must be intended cognizant of his own title, the sale being necessarily an affirmation of title. Cross v. Gardner, Carth. 90; Medina v. Stoughton, 1 Ld. Raym. 593. It may now be regarded as well settled, that a party selling as Ids own, personal property of which he is in possession, warrants the title to the thing sold; and that, if by reason of defect of title, nothing passes, the purchaser rnay' recover back his money, though there be no fraud or warranty on the part of the vendor. This doctrine is held to apply to dioses in action as well as other descriptions of personal property: Charnley v. Dulles, 8 W. & S. 353.

Shares of stock in a corporation are choses in action, giving a right to dividends and an interest in the capital. The certificate is the evidence of such ownership, and there can be no doubt that if the certificate is forged, or the holder is not such bona fide, so that ho lias no claim on the corporation, the vendor would be liable to his vendee on the implied warranty of title. His possession of the certificate would be as to his vendee possession of the stock, just as possession of a bond or note is possession of the debt which they represent. Where, however, there has been a fraudulent over-issue of stock, evidenced by certificate under the genuine seal of the corporation, the case presented is somewhat different. It has been settled, that a corporation is liable to bona fide holders of such fraudulent certificates, because, like individuals, they are responsible for the fraudulent exercise of the power intrusted by them to their officers or agents. It is unnecessary, in this case, to consider whether they are bound to permit a transfer on their books and to deliver a new certificate to the bona fide vendee. It may be that when the over-issue is in excess of the amount authorized by the charter, they would not be. But it seems to be established, upon principle as well as authority, that the bona fide holder of such a fraudulent- certificate would have a right of action against the corporation, and that his measure of damages would be the market value of his stock at the time the transfer was demanded: Willis v. Philadelphia & Darby R. R. Co., 6 W. N. C. 461, and eases cited in the opinion of Judge Hare. The vendor of such a certificate has then a title which ho can transfer, and a remedy against the corporation. Suppose the shares in the case before us had been transferred by an original subscriber, his vendee would have been in the same position as the assignee of shares subsequently issued in excess of the charter. He would have had a clear right to demand a transfer and new certificate. Such certificate, however, would liave been worth to him only the value of the stock in the market at the time. If his transfer had been refused, he would be entitled to the same remedy and the same measure of damages. The vendor of shares of stock certainly does not warrant the solvency of the corporation. Corporations are especially liable to be made insolvent by the embezzlement and fraud of tbeir agents or officers. It matters not whether the loss arises from robbery or embezzlement, or by the fraudulent issue of stock, the value of the stock is depreciated. It matters not whether such fraud or robbery was before or after the sale of the stock, the bona fide vendor cannot, under the rule in question, be held responsible for the depreciation in value. It is one of the risks yvhich are assumed by all dealers in such securities. It is agreed in the case stated, that “the certificates were in the usual form, and regular od their face, and were issued by the duly constituted officers of the company, and were sealed with the genuine seal of the corporation.” We are of opinion that the implied warranty of title extended no further, and that there was no breach.

Judgment affirmed.