§ 2393. Meaning of this Expression. The distinction between the legal and equitable ownership of personal property must be more or less shadowy, and it is believed that the courts which say that, in the case supposed in the two preceding paragraphs, the legal title passes, and those which say that only an equitable title passes, do not differ much in their real meaning. The difference between the legal and equitable ownership of corporate shares is analogous to the difference between the legal and equitable ownership of land. Roughly speaking, the legal owner of land is the one who owns it by deed, whereas the equitable owner is the one who, being the real owner, has no deed, but must invoke the aid of a court of equity, as against the legal owner, to get a deed. So, the legal owner of shares in a corporation is the owner in whose name the shares stand on the books of the corporation, whereas the equitable owner is the one who, being the beneficiary, that is the real owner, is not registered as such on the corporate books, and who must, if the corporation refuses so to register him, go into a court of equity to compel them to do so.' The real meaning is that his title is complete as against everybody but the corporation itself, and those who have a superior right to have the corporation make the transfer to them.2 Dedham Gaslight Co.,12 Gray (Mass.), 213; Marlborough Man. Co. v. Smith, 2 Conn. 579; Northrop v. Newton &c. Tp. Co., 3 Conn. 544; Shipman v. Ætna Ins. Co., 29 Conn. 245; Naglee v. Pacific Wharf Co., 20 Cal. 529; Williams v. Mechanics' Bank, Blatchf. (U. S.) 59; Brown v. Adams, 5 Biss. (U. S.) 181; Broadway Bank v. McElrath, 13 N. J. Eq. 24; Black v. Zacharie, 3 How. (U. S.) 483; Otis v. Gardner, 105 Ill. 436; Farmers' Nat. Gold Bank v. Wilson, 58 Cal. 600; Application of Murphy, 51 Wis. 519; Union Bank v. Laird, 2 Wheat. (U. S.) 390; Pittsburgh &c. R. Co. v. Clarke, 29 Pa. St. 146; State Insurance Co. v. Sax, 2 Tenn. Ch. 507. These cases all sustain the statement in the text that an assignment by delivery will not pass a legal title, though it may 111 pass an equitable title; but they vary as to the rights of an attaching creditor. 1 Post, § 2495. 2 The courts do not intend to exclude this larger meaning when they say loosely that an unrecorded transfer of shares is good as against everybody but the corporation. This expression is generally used in cases where the corporation is resisting the transfer as being in derogation of its own rights, and where the courts are not thinking of the rights of creditors and subsequent purchasers without notice. Thus, according to the official syllabus of a case in Georgia the title of a purchaser of stock in a railroad company is complete against everybody but the corporation, when the seller has given, on the scrip, authority to the 1761 § 2394. Contract to Sell: Assignment of Certificate. - The general rule being that, in order to pass the full legal title, the assignment must be made on the books of the company, it is therefore held that a contract to sell and deliver shares of stock is satisfied by transferring the shares to the vendee upon the books of the company without delivering the certificate of stock to him, the certificate being merely additional evidence of title.1 On the other hand, it is a recognized rule in the sale of such shares, that an assignment of the stock certificate will not, of itself, pass the title to the shares, although like an agreement in writing to sell land, it gives an equity, so that the assignee of the certificate can compel a transfer upon the books, except as against a bona fide purchaser who has acquired a title by such transfer. It follows that the purchaser of such shares may insist that the certificate shall be delivered up to him; and where the corporation itself is the purchaser, it may insist that the certificate shall be delivered up for cancellation. Yet where this is not insisted upon at the time of the transaction, the purchaser is not at liberty to refuse payment on the ground that he has not received a transfer of title. The outstanding certificate might be evidence of an equity in the hands of a bona fide holder, and might give the purchaser trouble; but he should protect himself by requiring its surrender to him at the time of the sale.3 § 2395. Unregistered Transfers Estop the Transferor. Proceeding another step, it is clear that, in the absence of fraud proper officer to transfer upon the books, and the purchaser has paid the price; and there is at least a prima facie presumption that the price is paid when the authority to transfer is given, and the possession of the scrip is delivered. Ross v. Southwestern R. Co., 53 Ga. 514. Again, it has been said that transfers of stock in a corporation, which have not been entered on the books of the company, as provided by statute, are, nevertheless, valid as against all the world, except subsequent purchasers in good faith without notice. Parrott v. Byers, 40 Cal. 614. 1 White v. Salisbury, 33 Mo. 150. See Agricultural Bank v. Burr, 24 Me. 256, 263; Ellis v. Essex Merrimac Bridge Co., 2 Pick. (Mass.) 243; Chester Glass Co. v. Dewey, 16 Mass. 94; s. c. 8 Am. Dec. 128. 2 Boatman's Ins. & Trust Co. v. Able, 48 Mo. 136, 139. See Sargent v. Franklin Ins. Co., 8 Pick. (Mass.) 90; s. c. 19 Am. Dec. 306; Sargent v. Essex &c. Co., 9 Pick. (Mass). 202; Commercial Bank v. Kortright, 22 Wend. (N. Y.) 348; s. c. 34 Am. Dec. 317; Chouteau Spring Co. v. Harris, 20 Mo. 382. 3 Boatmen's Ins. & Trust Co. v. Able, 48 Mo. 136. or other equitable circumstances, a transfer of corporate shares, though not made on the company's books in conformity with its rules, estops the transferor and is good as against him. A party who sells corporate stock and receives a consideration therefor, and gives a power of attorney for its transfer, will not be allowed, in equity, to defeat the rights of parties acquired under the transfer, solely upon the ground of the legal insufficiency of the instruments by which it was effected.1 In a case in the English Chancery Division it is reasoned that when certificates of stock, having on the back blank forms of transfer and of power of attorney to surrender and cancel the certificates, duly signed by the registered holders, are transferred, each prior holder confers on the bona fide holder for value of the certificates, for the time being, authority to fill in the name of the transferee, and is estopped from denying such authority, and to this extent, but no further, is estopped from denying the title of such holder for the time being. By such delivery an inchoate legal title passes, but a title by unregistered transfer is not equivalent to the legal estate in the shares, or to the complete dominion over them.2 It has been laid down in New York that "a blank transfer of a certificate of stock, with irrevocable power of attorney to transfer, signed by the person who appears by the certificate to be the owner, confers upon the holder of the certificate and power of attorney, the apparent legal and equitable title to the stock; and that a bona fide purchaser of such stock from such holder can hold the stock against the real owner, who is estopped from asserting his title." class of cases is not to be confounded with the case stated in a future section where the owner has lost possession of his certificate without fault on his part. They rest on the principle that the real owner, having by contract conferred on the holder all the external indicia of title, and an apparently unlimited power of disposition over the stock, "is estopped to assert his title against a third person, who, acting in good faith, acquires it 1 Chew v. Bank of Baltimore, 14 Md. 299. 2 Colonial Bank v. Hepworth, 36 Ch. Div. 36; s. c. 56 L. J. (Ch.) 1089; 57 L. T. (N. s.) 148. This 3 Merchants Bank v. Livingston, 74 N. Y. 226. An analysis of the New York cases will be found in Pom. Rem., §§ 160, 161. Post, § 2516. for value from the apparent owner." This rule has been placed upon the principle that where one of two innocent parties must suffer through the fraud of a third the loss must rather fall on the one who by placing trust and confidence in the third has enabled him to commit the fraud. But it is not sound to place it upon this principle, because this principle would apply to a horse or any other chattel as well as to a certificate of corporate stock; so that if the owner of a horse should hire or lend him to a third person, who should take him out of his sight and then sell him to an innocent purchaser, the owner, by the operation of this principle, would lose his title. The view can rest upon no other doctrine than that which favors the extension of certain incidents of negotiability to this kind of paper. 3 § 2396. And His Privies as His Assignee in Bankruptcy. Clearly such a transfer will also estop the privies of the transferor, unless their equities are such as to enable them to assert a higher title than he had, under principles hereafter stated. Following the principle that a transfer of shares of corporate stock is good between the transferor and his transferee, and hence binding upon the privies of the transferor, although not made on the books of the corporation, as provided by its charter, it has been held that where the director of a national bank transferred certain stock owned by him in the bank to a third person, as collateral security for his note, and afterwards went into bankruptcy, and thereafter the pledgee of the stock sold it on notice to him and to his assignee, and the bank refused to transfer the shares to the purchaser, - the purchaser had a right of action against the bank for a conversion. The transfer of the shares in pledge, with the execution of the customary power of attorney, gave to the pledgee a power coupled with an interest which was not revoked by the bankruptcy of the pledgor and which could only be revoked 1 2 Dan. Neg. Inst., 3rd ed., § 1708 g; McNeil v. Bank, 46 N. Y. 325; s. c. 7 Am. Rep. 341; Mount Holly Turnpike Co. v. Ferree, 17 N. J. Eq. 117; Prall v. Tilt, 28 N. J. Eq. 479. 2 East Birmingham Land Co. v. Dennis, 85 Ala. 565; s. c. 28 Cent. L. J. 402; citing Allen v. Maury, 66 Ala. 10 (which related to warehouse receipts). 3 See further of the rights of bona fide purchasers, post, §§ 2593, 2636. 4 Post, §§ 2593, 2636. by the payment of the debt. The assignee under the bankrupt act, except as to property conveyed for the purpose of defrauding creditors, and in violation of the provisions of the act, took only such estate as the bankrupt had, and consequently acquired no right to the shares higher than that which the bankrupt had.1 $2397. Unregistered Transfers not Valid against Third Parties without Notice.-Another view which receives much support in reason and authority is that, where the governing statute requires the transfer to be made on the books of the company, a transfer of shares of corporate stock not registered on the books of the corporation, is not valid as against third persons who have not actual notice of the transfer. These decisions proceed on the larger view that the object of such a statute is not merely the protection of the corporation itself, but the protection of the public; that it is in the nature of a recording act, and that the books of the corporation furnish a registry to which any person intending to deal in respect of the shares may look for information as to their real ownership. It should be constantly borne in mind that the question is liable to turn upon the reading of particular local statutes, and perhaps the different readings of such statutes account for the differences of judicial opinion upon this question.3 2 § 2398. Danger of Failing to Obtain a Transfer.— “By omitting to register his transfer, the holder of the certificate and 1 Dickinson v. Central Nat. Bank, 129 Mass. 279; s. c. 37 Am. Rep. 351. See also Continental National Bank v. Elliott Nat. Bank, 7 Fed. Rep. 369, learned opinion by Lowell, J. 2 This conclusion is affirmed, and this view of such statutes is expressed with more or less directness, in the following cases: Weston v. Bear River &c. Co., 5 Cal. 186; s. c. 63 Am. Dec. 117; s. c. on second appeal, 6 Cal. 425, 429; Parrott v. Byers, 40 Cal. 625; People v. Elmore, 35 Cal. 655; Strout v. Natoma &c. Co., 9 Cal. 78; Naglee v. Pacific Wharf Co., 20 Cal. 533; Application of Murphy, 51 Wis. 525. any purpose Compare Pendergast v. Bank of Stock- 3 For opposing views on this question with referenee to creditors, see the next article, post, § 2409, et seq. |