forged, and the certificate is transferred for value to an innocent purchaser, and he thereafter presents the same to the corporation, and the latter, without negligence, issues to him a new certificate, and the holder of the new certificate sells the same, but the corporation refuses to issue another new certificate to the second vendee, by reason of having discovered the fact of the forgery, the original holder of the certificate may maintain a suit in equity against the first transferee and the corporation to compel the first transferee to deliver up the certificate issued to him, and to compel the corporation to issue a new one to the complainant. As between the first and second transferees, the latter must look to the former, his transferor, for indemnity. As between the first transferee and the corporation, the equities are in favor of the corporation, both being equally free from negligence; for the first transferee having first parted with his money on the faith of the forgery of the indorsement, can not be allowed to shift the consequences of his misfortune upon the corporation, equally innocent. Even if the corporation was negligent, its negligence was not the proximate cause of the loss of the first transferee, because such loss had previously accrued. If the second purchaser, being a bona fide purchaser for value, had been registered as the owner of the stock by the corporation, a different question would be presented as between him and the company.1

§ 2568. Original Shareholder no Remedy as against Subsequent Purchaser. But suppose that, in such a case, the new certificate, which the corporation issued to take up the certificate having the forged power of attorney, has passed into the hands of a bona file purchaser for value. In such a case other equities may arise between the original shareholder and the subsequent purchaser; at least, the rights of such purchaser cannot be concluded in a suit in equity between the original shareholder and the corporation. The original shareholder cannot have a decree against him, because he has rights against the corporation which depend upon the effect of the certificate which he has

1 Brown v. Howard Fire Ins. Co., 42 Md. 384; s. c. 20 Am. Rep. 90. Compare Swan v. North British Aus

tralasian Co., 7 Hurl, & N. 603; Lowry v. Com. &c. Bank, Taney (U. S.), 310.

received from it; though if he knew or was bound to know that the power of attorney under which the transfer was made was forged, a different case would be presented.1

§ 2569. Notice to Shareholder of Application to Register not an Estoppel. It is held in the English Queen's Bench Division that where, on application to a company to register a transfer of stock, the company sent a letter giving notice of it to the holder of stock on the register, and stating that, unless they heard from her to the contrary, the stock would be transferred in their books, and she did not answer the letter, and the company subsequently registered the transfer, she was not estopped from alleging that her signature to the transfer was a forgery, and demanding to have her name replaced on the register as holder of the stock,2-a decision which seems contrary to reason and justice.

SECTION

SUBDIVISION II. Liability to Bona Fide Sub-purchaser.

2572. Foundation of the rule which holds the corporation thus liable.

2573. Further of the doctrine that the corporation, by admitting the

SECTION

forged transfer to registration, estops itself in favor of an innocent transferee. 2574. Illustration of this principle. 2575. Another illustration.

§ 2572. Foundation of the Rule which Holds the Corporation thus Liable. In several cases, the English judges have traced the foundation of the rule which holds the corporation liable, to the rule thus declared in the Court of Queen's Bench,— "that, where one, by his words or conduct, willfully causes another to believe in the existence of a certain state of things, and induces him to act on that belief, or to alter his own previous position, the former is concluded from averring against the latter a different state of things as existing at the same time." The principle is more broadly stated by Lord Denman, C. J., where

1 Pratt v. Taunton Copper Co., 123 Mass. 110; s. c. 25 Am. Rep. 37.

2 Barton v. London &c. R. Co., 24

Q. B. Div. 77.

3 Pickard v. Sears, 6 Ad. & El. 474;

8. c. 2 Nev. & P. 491. That rule is said to have been founded on previous authorities, such as Graves v. Key, 2 Barn. & Ad. 318, and Heane v. Rogers, 9 Barn. & Cres. 586.

66

he says that a party who negligently or culpably stands by and allows another to contract on the faith of a fact which he can contradict, can not afterwards dispute that fact in an action against the person whom he has assisted in deceiving.1 Reaffirming this doctrine, that eminent lawyer, Baron Parke, said: By the term willfully,' however, in that rule, we must understand, if not that the party represents that to be true which he knows to be untrue, at least, that he means his representation to be acted upon, and that it is acted upon accordingly; and if, whatever a man's real intention may be, he so conducts himself that a reasonable man would take the representation to be true, and believe that it was meant that he should act upon it, and did act upon it as true, the party making the representation would be equally precluded from contesting its truth; and conduct, by negligence or omission, where there is a duty cast upon a person, by usage of trade or otherwise, to disclose the truth, may often have the same effect."2 It is thus perceived that this principle is the ordinary doctrine of estoppel in pais. Now let us consider its application to the case of a corporation which issues a new certificate to the transferee of shares whose transfer has been forged. In order to understand the position in which the corporation thus puts itself, it is necessary to recur to the nature of a share certificate; 3 and this has been thus explained, in a leading case on the question under consideration, by Lord Cockburn, C.J.: "The company are bound to keep a register of shareholders, and have the power to issue certificates certifying that each individual shareholder named therein is a registered shareholder of the particular shares specified. This power of granting certificates is to give the shareholders the opportunity of more easily dealing with their shares in the market, and to afford facilities to them of selling their shares by at once showing a marketable title, and the effect of this facility is to make the shares of greater value. The power of giving certificates is, therefore, for the benefit of the company in general; and it is a declaration by the company to all the world that the person in whose name the certificate is made out, and to whom it is given, is a share

1 Gregg v. Wells, 10 Ad. & El. 97.

2 Freeman v. Cooke, 2 Exch. 654,

3 This has been explained elsewhere; ante, § 2349, et seq.; post, § 2587, et seq.

663.

That brings the

holder in the company, and it is given by the company with the intention that it shall be so used by the person to whom it is given, and acted upon in the sale and transfer of shares." 1 The application of the principle immediately suggests itself to the mind; the corporation is bound by the representation which it thus makes to the public, either to treat innocent persons deceived by the representations as shareholders, or to indemnify them in respect of what they have lost in consequence of the representation. Such was the application of the principle made by the same eminent judge in the continuation of his opinion: "It is stated in this case that the claimants acted bona fide, and did all that is required of purchasers of shares; they paid the value of the shares in money on having a transfer of the shares executed to them, and on the production of the certificates which were handed to them. It turned out that the transferors had in fact no shares, and that the company ought not to have registered them as shareholders or given them certificates, the transfer to them being a forgery. case within the principle of the decision in Pickard v. Sears, as explained by the case of Freeman v. Cooke,3 that if you make a representation with the intention that it shall be acted upon by another, and he does so, you are estopped from denying the truth of what you represent to be the fact." Lord Blackburn, another very eminent judge, expressed the same opinion in a little different language: The statute," said he, "further provides that the company may give certificates specifying the shares held by any member; and the object of this provision is expressly stated to be that this certificate should be prima facie evidence of the title of the person named to the shares specified; and the company, therefore, by granting the certificate, do make a statement that they have transferred the shares specified to the person to whom it is given, and that he is the holder of the shares. If they have been deceived and the statement is not perfectly true, they may not be guilty of negligence, but the company, and no one else, have the power to inquire into the

1 Re Bahia &c. R. Co., L. R. 3 Q. B. 584, 594, 595.

26 Ad. & El. 469.

4

32 Exch. 654; s. c. 18 L. J. Exch. 114.

Re Bahia &c. R. Co., L. R. 3 Q. B.

at p. 595.

matter; and it was the intention of the legislature that these certificates should be documents on which buyers might safely And the claimants, having bona fide acted upon that statement and suffered damages, can they recover from the company? I think they can, on the principle enunciated in Freeman v. Cooke." 991

§ 2573. Further of the Doctrine that the Corporation, by Admitting the Forged Transfer to Registration, Estops Itself in Favor of an Innocent Transferee. The important judgment

of Mr. Chief Justice Best, already referred to,2 includes dicta to the effect that if the corporation admits the forged transfer to registration, it thereby estops itself as against an innocent transferee, from disputing his rights as a shareholder. "We are not

called on," said he, "to decide whether those who purchase the stock transferred to them under the forged powers might require the bank to confirm that purchase to them, and to pay them the