SCOTT v. PEQUONNOCK NATIONAL BANK.

1883. 15 Fed. 494, 21 Blatchf. 203.97

THIS was an action at law to recover damages from the defendant corporation (a national bank organized under the laws of the United States relating to national banking, and doing business at Bridgeport, Fairfield County, Connecticut) for a refusal to allow a transfer upon its books, to the plaintiffs, of ten shares of its stock. On the 20th day of May, 1868, the shares in question were registered on the books of the bank in the name of one Samuel Wilmot, and represented by a certificate in his name. On or about the 20th day of May, 1868, Wilmot assigned the shares to one Dunbar in the city of New York, by delivering to him the certificate therefor and a written assignment of and power of attorney to transfer the same; the assignment and power of attorney being in blank. Subsequently, and on or about January 1st, 1869, Dunbar assigned the shares to William B. Scott & Co., of New York City, by delivering to them the said certificate, written assignment and power of attorney. Subsequently, on the 13th of August, 1869, William B. Scott & Co. made demand upon the bank, at its place of business in Bridgeport, Fairfield County, Connecticut, to transfer the ten shares on the books of the bank to their own names and to issue a new certificate, at the same time presenting the old certificate in the name of Wilmot, together with the written assignment and power of attorney. The bank, however, refused to make the transfer or to issue a new certificate, upon the ground that the said ten shares had, on the 26th day of July, 1869, been levied upon by virtue of a writ of attachment. Subsequently, on the 22nd day of October, 1869, the said ten shares were sold at public auction by the sheriff of Fairfield county, Connecticut, pursuant to a judgment recovered (in the action in which the attachment had issued) against Wilmot on the 13th day of August, 1869, and an execution issued thereon on the first day of October, 1869, and the bank thereafter transferred the said shares upon its books from the name of Wilmot to the name of Clark, the purchaser at the sheriff's sale, and delivered to Clark a new certificate, and paid to him or his assigns the dividends accruing thereafter on said shares.

The bank had no by-laws, and the practice of the bank from its organization had been uniformly to require the transferrer to authorize the transfer on the transfer books of the bank, either in person or by attorney, on the surrender of the outstanding certificate.

SHIPMAN, J.-This is an action at law to recover damages from the defendant corporation for a refusal to allow a transfer upon its books to the plaintiff of 10 shares of its stock. By written stipulation of the parties the case was tried by the court upon the hereto

97 Statement rewritten.-Eds.

prefixed agreed statement of facts, and a jury was waived. Said facts are also found to be true. In the absence of a statute or of a provision in the charter, or of a by-law passed in pursuance of authority conferred by the charter, prescribing the exclusive manner in which the stock of a corporation shall be transferred, the stockowner has a right to transfer such property to a purchaser by the delivery of the stock certificate, with a written assignment thereof. The title of a bona fide purchaser, to whom such certificate and assignment have been delivered, will not be divested by the subsequent attachment of the stock at the suit of a creditor of the vendor. Boston Music Hall v. Cory, 129 Mass. 435.

In some of the states statutes have been passed, or provisions have been inserted in the charters of the corporations, prescribing, either expressly or by implication, an exclusive method of transfer. The courts of Connecticut and Massachusetts have been quite rigid. in maintaining the doctrine that when such statutes or charter provisions exist, an unrecorded transfer of stock shall not be valid as against attaching creditors of the vendor, and the courts of the former state have strongly leaned toward a construction of the charter of Connecticut corporations that shall compel a record of the assignment.

The Connecticut decisions, especially the earlier ones, which were made at a time when the rights of attaching creditors were strongly favored in that state, were to the effect that "in cases where the legislature in the act of incorporation either prescribe the mode of transferring stock, or authorize the company to do it in their bylaws, and the company do in their by-laws prescribe a mode as the only one to be pursued, that mode must be followed, or the legal title will not pass by an assignment which would be good at common law had no particular and exclusive mode of transfer been prescribed." Colt v. Ives, 31 Conn. 25. The reason of the rule is stated by the court in Colt v. Ives as follows:

"In regard to chattels there must be a substantial change of possession accompanying and following the sale, or it will, unexplained, be conclusive evidence of fraudulent trust, which will render the sale void as to creditors. * * * And in the case of the purchase of stock in a corporation, there must be such a transfer of it as the legislature in the charter or by statute prescribed; and notice of the assignment of choses in action, and the transfer required by the statute of corporate stock, stand in lieu of the taking and retaining of the possession of personal chattels sold, being the only possession the nature of the property admits of."

In Fisher v. Essex Bank, 5 Gray 373, Chief Justice Shaw, after saying that whatever common-law rules, in the absence of any express rule of law, courts have adopted to determine what act constitutes the actual transfer of shares, when the transfer is so regulated such law must govern, held that an express provision in the act of incorporation of a bank that the stock should be transferable only at its banking house and on its books, made a transfer at the bank imperative as against an attacking creditor without

notice of the previous assignment and delivery of the certificates to a purchaser. Judge Shaw's reasoning was to the effect that it is necessary to fix some act and some period of time at which the property changes and vests in the vendee, and that by the charter the transfer at the bank is made "the decisive act of passing the property-the legal, transferable, attachable interest."

The defendant claims the benefit of this series of decisions in the present case, and especially insists that as the defendant corporation is located in Connecticut the decisions of the courts of that state should have a controlling effect.

The defendant having been incorporated under the national banking act, the rules which regulate the transfers of its stocks are to be found in the statutes of the United States. The twelfth section of the act of 1864 (13 St. at Large, 102) provided that the shares of the stock of a national bank shall be "transferable on the books of the association in such manner as may be prescribed in the bylaws or articles of the association." In the eighth section of the same act the directors were empowered "to define and regulate by by-laws, not inconsistent with the provisions of the act, the manner in which its stock shall be transferred." These provisions are continued, in substantially the same terms, in sections 5135 and 5136 of the Revised Statutes. The construction of the statute, and the question of title as between the assignee and the attaching creditor are not controlled by the tenor of the decisions of any one state.

The construction which has been more generally placed upon those provisions in charters which require that the transfer shall be made only upon the books of the corporation, or upon provisions of a similar character, is that this regulation is designed for the security of the bank and of bona fide purchasers who take transfers of the stock and possession of the certificates, without notice of any prior equitable transfer; and that, as between the parties to the sale, a transfer not in conformity to such provisions passes the equitable, though not the legal, title, and vests the right to the shares in the purchaser. Black v. Zacharie, 3 How. 483; U. S. v. Cutts, 1 Sumn. 133; N. Y. & N. H. R. Co. v. Schuyler, 34 N. Y. 80; McNeil v. Tenth Nat. Bank, 46 N. Y. 325. The New York decisions are to the effect that such a transfer conveys the legal title. In Johnston v. Laflin, 103 U. S. 800, a case involving the transfer of shares in a national banking association, which, like the defendant, had made no by-laws on the subject of transfers of its stock, the court say:

"Shares in the capital stock of associations, under the national banking law are salable and transferable at the will of the owner. They are, in these respects, like other personal property. The statute recognizes this transferability, although it authorizes every association to prescribe the manner of their transfer. * * * Ít is not necessary, however, to consider what restrictions would be within its (the bank's) power, for it had imposed none. As between Laflin and the broker, the transaction was consummated when the

certificate was delivered to the latter, with the blank power of attorney indorsed, and the money was received from him. As between them, the title to the shares then passed. Whether there be deemed a legal or equitable one, matters not; the right to the shares then vested in the purchaser. The entry of the transaction on the books of the bank, where stock is sold, is required, not for the translation of the title, but for the protection of the parties and others dealing with the bank, and to enable it to know who are its stockholders, entitled to vote at their meetings and receive dividends when declared. It is necessary to protect the seller against subsequent liability as a stockholder, and perhaps also to protect the purchaser against proceedings of the seller's creditors."

From this recent decision of the United States Supreme Court it appears that no exclusive method of transfer of stock in a national banking association is imposed by the provisions of the national banking act in regard to transfers, when no by-laws on the subject have been passed by the bank whose stock is in controversy, and that an unrecorded transfer is good as between the parties, and that the question of the rights of an attaching creditor to stock transferred by an unrecorded assignment, was regarded by the learned judge who wrote the opinion as one not definitely settled.

In holding that the unrecorded transfer has preference over the attachment, I am influenced by the following considerations:

First. In the absence of positive provisions of law or rules of evidence, either statutory or by decisions of courts, whereby transfers of property, made without notice to the public or without registry, are declared fraudulent or void as against attaching creditors without notice, or whereby certain specified acts are made prerequisite to the vesting of a new title, creditors take their debtor's property subject to all honest and bona fide liens and equitable transfers. Boston Music Hall v. Cory, 129 Mass. 435; Continental Nat. Bank v. Eliot Nat. Bank, 7 Fed. Rep. 369. In this case there is no statutory provision, and no by-laws, which require that a transfer of the stock must be recorded, and, in the absence of such provision, the non-recording of the transfers is not evidential of fraud, as is the case when the vendor retains possession of chattels after a sale. The delivery of the certificate and the assignment and the power to transfer is sufficient delivery at common law.

The statutes of Connecticut in regard to the attachment of stock and the levy of executions thereon, do not give to attaching creditors any peculiar right in stock which has been transferred by the unrecorded transfer. The extent of the rights which the attaching creditor would have in such stock of a Connecticut corporation is to be determined by other statutes than those which relate to attachment and levy of execution. Boston Music Hall v. Cory, 129 Mass. 435.

Second. The tendency of modern decisions is to regard certificates of stock attached to an executed blank assignment, and power to transfer, as approximating to negotiable securities, though

neither in form or character negotiable. Bank v. Lanier, 11 Wall. 369; Railroad Co. v. Bridgeport Bank, 30 Conn. 270.

Third. The courts of these states, which have most strongly upheld the superior rights of attaching creditors of the vendor as against the unsecured equities of purchasers, regard the attaching creditor with less favor than formerly, "when attachments and sales on execution were the only compulsory mode of securing an appropriation of a debtor's property to the payment of his debts." Colt v. Ives, 31 Conn. 25.

Fourth. Decisions of high authority in the federal courts have given unrecorded transfers of stock for value precedence over subsequent attachments in behalf of creditors of the vendor, or over the claims of creditors. U. S. v. Cutts, 1 Sumn. 133, approving U. S. v. Vaughan, 3 Bin. 394; Continental Nat. Bank v. Eliot Nat. Bank, by Judge Lowell, 7 Fed. Rep. 369.

In the agreed statement of facts it is agreed that, if the plaintiffs are entitled to judgment, the amount of damages is the sum of $1,030, plus the lawful interest on the same from August 13, 1869, to October 23, 1882. In an action of tort to recover unliquidated damages, if interest as a part of the damages is to be added to the principal sum found to be due, the rate of interest is now, in this state, 6 per cent. Salter v. Railroad Co., 86 N. Y. 401.

Let judgment be entered for the plaintiffs in the sum of $1,845.41, and costs of suit.98

98 See also Thurber v. Crump (1887) 86 Ky. 408, 10 Ky. L. 59, 6 S. W. 145; Lund v. Wheaton Roller Mill Co. (1893) 50 Minn. 36, 52 N. W. 268, 36 Am. Rep. 623; Haslam v. First Nat. Bank (1900) 79 Minn. 1, 81 N. W. 535; Doty v. First Nat. Bank (1892) 3 N. Dak. 9, 14, 53 N. W. 77, 17 L. R. A. 259; and note in 16 Harv. Law Rev. 312, approving the principal case. But see Ottumwa Screen Co. v. Stodghill (1897) 103 Iowa 437, 72 N. W. 669; Fisher v. Essex Bank (1855) 5 Gray (Mass.) 373; Shenandoah Valley R. Co. v. Griffith (1882) 76 Va. 913. See notes, 9 Columbia Law Rev. 433; effect of an unregistered transfer of stock (n); 9 Mich. Law Rev. 258, priority of rights between unrecorded transferee and attaching creditor (n).

In Alabama, Arkansas, Colorado, Connecticut, Indiana and New Mexico, the attachment creditor prevails (see Cook on Corp's., 6th ed., sec. 490); also in California, if he has no notice, and in Iowa, unless notice has been served on the secretary of the corporation.

In Michigan, Minnesota, New Jersey, New York, Pennsylvania, Ohio, and some other states, the unregistered transferee prevails at common law. (Cook, sec. 487.) See Flostroy v. William B. Corby Coal Co. (1912), 80 N. J. Eq. 547, 85 Atl. 578 (equitable rule of priority applied). So also, in New York, does the assignee of an ordinary chose in action at common law prevail over subsequent attaching creditors, and in cases of successive assignments the one first in time prevails. See Williams v. Ingersoll (1882) 89 N. Y. 508, at pages 522, 523; Fortunato v. Patten (1895) 147 N. Y. 277, at p. 283, 41 N. E. 572.

In Illinois, Maine, Maryland, Massachusetts, Virginia, Wisconsin, and some other states, the unregistered transferee is now protected by statute. (Cook, sec. 488). Cf. People's Bank v. Gridley (1879) 91 Ill. 457; Atkinson v. Foster (1890) 134 II. 472, 25 N. E. 528, and Rice v. Gilbert (1898) 173 III. 348, 50 N. E. 1087 (statutory intent to make corporate stock as nearly negotiable as possible); Magerstadt v. Schaefer (1905) 213 Ill. 351, 72 N. E. 1063. See also Clews v. Friedman (1903) 182 Mass. 555, 66 N. E. 201, holding