others, may treat its registered shareholders as the actual owners of the shares standing in their name, applies only to such transactions as are within the express or implied powers conferred upon the company or its shareholders collectively; and an assignee of shares having possession of a certificate, although holding under an unregistered transfer, is not bound by a contract between the registered shareholder and the corporation, which is not within such powers. When, therefore, after an assignment of a certificate of shares, which assignment was not registered, all the other shareholders, with the assignor and the corporation, entered into an agreement, giving certain of the shares, which were surrendered by the shareholders to be sold to pay the debts of the corporation, priority in dividends over the other shares, under which agreement new certificates were to be issued in lieu of the shares retained, which by their terms were made subject to a first lien on the net profits thereby given to the surrendered shares, it was held that this agreement was not binding on the assignee, and that he was entitled, on surrender of the assigned certificate, to an unconditional certificate for the number of shares specified in the certificate assigned.1 SECTION ARTICLE II. WHO ARE SUCH PURCHASERS. 2603. Who a bona fide purchaser with out notice: must have paid the 2604. Lis pendens when not notice. officer bound to investigate SECTION 2607. Who not a purchaser for value. 2608. Notice to purchaser from officer acting as his agent. 2609. Notice of broker's want of authority implied from failure to execute blank power of attorney. 2610. Circumstances sufficient to put a purchaser on inquiry. § 2603. Who a Bona Fide Purchaser without Notice: Must have Paid the Purchase Money before Notice. - To entitle a 1 Campbell v. American Zylonite Co., 122 N. Y. 455; s. c. 11 L. R. A. 596; 34 N. Y. St. Rep. 38; 25 N. E. Rep. 853; reversing s. c. 23 Jones & Sp. 562. It has been held in the court of Queen's Bench at Montreal, in a case where it was sought to charge a savings bank with a double liability under a statute as the owner of shares of another bank, that a corporation, shares of which are transferred to a savings bank, is presumed to know that the shares are held by the latter as collateral security, inasmuch as, under the governing statute, a savings bank cannot acquire shares or hold them, except as pledgee. Exchange Bank v. City and District Savings Bank, L. R. 6 Q. B. 96. party to the character of a bona fide purchaser, without notice of a prior right or equity, he must not only have obtained the legal right to the property, but he must have paid the purchase money or some part thereof, or have parted with value on the faith of the purchase, before notice of such prior right or equity. The mere giving of security to pay the purchase money is not sufficient to entitle the purchaser to the protection of the court.1 § 2604. Lis Pendens when not Notice. The pendency of an action in another State to determine the title to corporate stock is not constructive notice to the purchaser in New York of a defect in the title of his assignor, and does not affect the title acquired by him.2 Whether a lis pendens in the domestic State is a constructive notice, in respect of purchases of corporate shares, seems doubtful; for the common law doctrine of lis pendens does not apply to negotiable paper and to the ordinary articles of commerce, sold in the usual way.3 § 2605. Who not an Innocent Purchaser. One who knows that the person purporting to sell or pledge is acting in fraud of the rights of the real owner, or who has information sufficient to put a reasonable and just man upon such inquiry as would discover that such is the fact, the meaning of this rule. is not an innocent purchaser within Thus, when the purchaser knew that the holder held the certificate in a fiduciary character, he was not protected when he took it to secure a debt growing out of another transaction. So, where the vendor was a boy of only sixteen years of age, it was held that the vendee was not a bona fide purchaser. So, where one buys a certificate of corporate 1 Weaver v. Barden, 49 N. Y. 286. 2 Holbrook v. New Jersey Zinc Co., 57 N. Y. 616. That a lis pendens can have no extra-territorial effect, see Carr v. Lewis Coal Co., 96 Mo. 149; s. c. 9 Am. St. Rep. 328; affg. s. c. 15 Mo. App. 328; Shelton v. Johnson, 4 Sneed (Tenn.), 672; s. c. 70 Am. Dec. 265, and note 269. 3 Ante, § 2433. As to the extent to which the doctrine of lis pendens applies to personal property, see the learned opinion of Bakewell, J., in Carr v. Lewis Coal Co., 15 Mo. App. 551; also 14 Am. Dec. 778, note. In Pennsylvania the doctrine is applied to non-negotiable securities. Deaum v. Lawson Co., 37 Pa. St. 533. See also Hayemeyer v. Superior Court, 84 Cal. 327; s. c. 18 Am. St. Rep. 192. 4 Prall v. Tilt, 28 N. J. Eq. 479. 5 Anderson v. Nicholas, 28 N. Y. 600. stock not under seal of the corporation and not signed by the person whom he knows is its president under a representation that it is all the stock of the company, but with the knowledge that certain persons are officers and directors of the company, and that the articles of incorporation require directors to be stockholders, these facts are sufficient to put him on inquiry, and he cannot be said to be an innocent purchaser.1 § 2606. When Purchaser from Corporate Officer Bound to Investigate His Authority. One who accepts newly-issued certificates of stock from an officer of a corporation, who has authority from the corporation to sign, seal and issue for the corporation certificates of its stock, as collateral security for a personal loan made to the officer, is bound to inquire whether the officer has authority to issue the certificates for the purpose intended; and if he does not make such inquiry, and the officer in fact issues them in fraud of the rights of the corporation, he takes them subject to those rights. The officer in question was the treasurer of a railroad company, and the principle of the decision was that one dealing with an agent in a matter affecting his principal, and knowing that the interest of the agent is adverse to that of his principal, should be held to the duty of ascertaining that the acts of the agent are authorized by his principal.2 § 2607. Who not a Purchaser for Value. -The rule in respect of purchases of land is that no one is a purchaser for value until he has paid money or other thing of value, and then only in respect of the money or value paid. In respect of 1 Byers v. Rollins, 13 Colo. 22; s. c. 21 Pac. Rep. 894. 2 Farrington v. South Boston R. Co., 150 Mass. 406; s. c. 15 Am. St. Rep. 222; 5 L. R. A. 849; 7 Rail. & Corp. L. J. 196; 23 N. E. Rep. 109. This case is distinguished from Allen v. South Boston R. Co., 150 Mass. 200, 8. c. 15 Am. St. Rep. 185 in which the plaintiff was a purchaser of stock fraudulently issued by the treasurer of the same corporation, and where the corporation was held liable for his fraudulent acts, and where it was held that the purchaser of corporate shares does not assume any duty towards the corporation to see that the vendor of stock surrenders the stock and transfers it on the books of the corporation, that being the duty of the corporation towards both the buyer and seller before it issues new certificates. assignments of commercial paper, bills of lading, etc., there is a difference of opinion whether, in order to make one a purchaser for value within the meaning of the rule which cuts off equities, he must have parted with new value at the time of the transfer, or whether he occupies the same advantage where he takes by way of security for an antecedent indebtedness.1 The road is open for the same difference of opinion in respect of sales of corporate stocks, though no reason is perceived why there should be one rule in this respect in respect of land and another in respect of personal property. But it has been held that, although there has been a negotiation for a sale, yet if a creditor of the intending vendor attaches before the purchase price is paid and the certificates delivered, the rights of the attaching creditor are superior to those of the vendee.' And more broadly and in analogy to the rule in respect of land, and it may be added on the soundest grounds, it has been held that one is a holder for value within the meaning of the rule only in so far as he parts with value at the time of the transaction; he is not a purchaser for value to the extent of an overdue check surrendered and an antecedent debt receipted for.3 § 2608. Notice to Purchaser from Officer Acting as His Agent. The mere fact that the officer of the corporation who makes fraudulent issue of its shares to purchaser is acting as broker for the purchaser at the time, does not impute to the purchaser constructive notice of the fraudulent character of his act, the principle being that notice to an agent is not imputed to his principal when the agent is engaged in committing an independent fraudulent act on his own account, and when the facts to be imputed relate to this fraudulent act. This is merely an application of the general doctrine in the law of agency, that the acts of an authorized officer of a corporation are binding upon the corporation, and that when he is acting within the apparent scope of his authority, one dealing with him is not bound to have 1 See Conrad v. Fisher, 37 Mo. App. 352. 2 Young v. South Tredegar Iron Co., 85 Tenn. 189; 8. c. 4 Am. St. Rep. 752. 3 Moodie v. Seventh National Bank, 11 Phila. (Pa.) 366. Allen v. South Boston R. Co., 150 Mass. 200; s. c. 15 Am. St. Rep. 185. knowledge of extrinsic facts making it improper for him to act in the particular case.1 § 2609. Notice of Broker's Want of Authority Implied from Failure to Execute Blank Power of Attorney. If the principal delivers certificates to the broker without executing the usual blank power of attorney indorsed thereon, this fact will put any one with whom the broker may seek to negotiate the shares, upon inquiry as to the extent of his authority. Accordingly, it has been held that the conduct of executors in delivering to a broker transfers of stock without filling out blank powers of attorney was consistent either with an intention to sell or pledge the shares, or to have themselves registered as the owners, and therefore did not estop them from setting up their title as against a bank to which he had fraudulently transferred them, for the bank ought to have inquired into the broker's authority.2 § 2610. Circumstances Sufficient to Put a Purchaser on Inquiry. By a provision in the charter of a bank in Vermont, no transfer of stock in the bank was to be valid unless recorded in a book to be kept by the bank for that purpose, and unless the person making the same should have previously discharged all debts due from him to the bank. In October, 1835, one A., who was the owner of nearly 200 shares of the capital stock of the bank, and who was not then indebted to the bank, transferred his stock, in due form, upon the books of the bank, to forty-five different persons, without consideration, and for the purpose of increasing the vote upon his stock at an approaching election of bank officers; and by this transfer four shares were conveyed to the plaintiff. Nearly all of these shares, but not those conveyed to the plaintiff, were reconveyed to A. by the persons to whom they had been transferred; and on the 9th of October, 1837, he made a similar distribution of his stock, by transfer in due form upon the books of the bank, for a similar purpose, and at this time transferred to the plaintiff two shares. A. was at this time indebted to the bank to an amount exceeding the value of all the stock owned by him. The plaintiff had no interest in the six shares which stood in his name, until 1 Credit Co. v. Howe Machine Co., 54 Conn. 357, 389; s. c. 1 Am. St. Rep. 123. 2 Colonial Bank v. Cady, 15 App. Cas. 267; affirming s. c. sub nom. Williams v. Colonial Bank, 38 Ch. Div. 388. See ante, § 2592. |