corporation; and when authorized to adopt by-laws regulating the transfer of stock it would seem that a regulation made creating the lien for debts due the institution would be a reasonable exercise of such authority. A purchaser acquires by proper transfer of the certificate of stock all the rights of the transferrer. He can protect himself from possible loss by inquiry as to the status of the stock; and there are well-considered authorities which susfain the view that the corporation when authorized to regulate the transfer of stock has an incidental power to pass a by-law fixing a lien upon its stock for debts due by the stockholder.25 But the weight of authority is in favor of the doctrine that a purchaser for value in the usual course of business without notice is not affected by a secret lien of the corporation on the stock.26

§ 1708e. (3) As between the transferee of a certificate of stock and a creditor of the transferrer, it would seem that any bona fide assignment of the stock for value would effectually pass the transferrer's interest therein, so far as to supersede the right of an attachment or execution creditor to levy upon it for a debt due by the transferrer. For whether such assignment vest the legal or equitable interest of the assignor in the assignee, no property right of the assignor remains that is subject to legal process; and the provisions of corporate charters that no transfer of stock shall be valid or effectual until entered or registered upon the books of the corporation, are manifestly designed for the security of the corporation itself, and of third persons taking transfers of stock without notice of any prior equitable transfer, and are not made with reference to the rights of creditors of a stockholder.27 This is in accordance with the general principles applicable to all manner of equitable assignments of personal property; but there are cases which hold that there can be no valid transfer of stock as

25. Farmers' Bank v. Wasson, 48 Iowa, 338, and cases cited supra. 26. Farmers' Bank v. Wasson, 48 Iowa, 338, and cases cited supra.

27. Black v. Zacharie, 3 How. 483; Western v. Bear River, etc., Co., 6 Cal. 425; Newberry v. Detroit, etc., Iron Co., 17 Mich. 141; Commonwealth v. Watmough, 6 Whart. 139; Bank of Utica v. Smalley, 2 Cow. 770; Stebbins v. Phoenix Ins. Co., 3 Paige, 350; Gilbert v. Manchester Mfg. Co., 11 Wend. 627; Farmers' Bank v. Iglehart, 6 Gill, 50; Sargent v. Essex Marine R. Co., 9 Pick. 202; Continental Nat. Bank v. Eliot Nat. Bank, cited in 37 Am. Rep. 353; Dos Passos on Stockbrokers, 624, 628, and cases cited; Angell & Ames on Corporations, § 354; Plankinton v. Hilderbrand, 89 Wis. 209, 61 N. W. 839.

against a creditor of the transferrer, unless the regulations provided by the charter or general statutes are complied with.28

§ 1708f. (4) As between the transferee of a certificate of stock and a third party who has purchased the shares, the better opinion is that a bona fide transfer of the certificate carries with it the transferrer's interest in the stock, and that a subsequent purchaser who simply relies on the books of the corporation for information as to who are stockholders, and who buys the shares without taking the certificate, does so at his peril. The certificate is the muniment of title. It is generally dealt with as the representative of the proportionate interest it assures; and if not in possession of the party offering to sell the shares, a purchaser would be put upon inquiry to ascertain the true condition of things. And on the other hand, a purchaser of the certificate from one whom it testifies to be a shareholder, would have a right to suppose that no one would have bought the shares without taking the customary evidence of title.29 If the corporation should actually transfer the shares upon its books to a subsequent purchaser without surrender of the certificate, it would act wrongfully and would be bound to issue certificates to the prior purchaser, who had acquired the stock by transfer of the certificate in due course.

30

§ 1708g. Usual method of transferring stock; transfers under powers of attorney in blank.-Commercial corporations generally encourage the assignment of their shares, as their value is increased by the facility of transfer; and it is generally provided on the face of their certificates of stock by virtue of their charters, by-laws, or regulations, that the shares "are transferable on the books of the company, in person or by attorney, on the surrender of this certificate." And on the back of the certificates there is generally a printed form of sale and assignment, with an irrevocable power of attorney in blank, authorizing the

28. Sabin v. Bank of Worcester, 21 Me. 353; Pinkerton v. Manchester & L. R. Co., 42 N. H. 424; Foster v. Essex Bank, 5 Gray, 373 (but see Sargent v. Essex Marine R. Co., 9 Pick. 202); People's Bank v. Gridley, 91 Ill. 457.

29. Driscoll v. West Bradley & C. M. Co., 59 N. Y. 96. See also Holbrook v. New Jersey Zinc Co., 57 N. Y. 616; Bank v. Lanier, 11 Wall. 369; Dos Passos on Stockbrokers, 629. This does not seem to be the view taken in England. See Shropshire Union R. & C. Co. v. The Queen, L. R., 7 H. L. Cas. 496.

30. Cushman v. Thayer Mfg. Co., 76 N. Y. 267; Smith v. American Coal Co., 7 Lans. 317.

unnamed person to do all things requisite to perfect the transfer on the books of the corporation. When' such formal assignment, and power of attorney in blank, is signed by the shareholder, and the certificate is delivered therewith, an apparent ownership in the shares represented is created in the holder. And the general principle sustained by the great weight of authority, as well as of reason, is that when the owner of a certificate of stock with such a power of attorney in blank thereon written, or thereunto attached, intrusts it to an agent with power to deal therewith, a bona fide purchaser for value without notice will be protected in his acquisition of the certificate, although the agent to whom it has been intrusted has diverted it from the purposes for which it was put in his charge, or has been guilty of a fraud or breach of trust in reference thereto.31 This doctrine does not rest upon

31. Johnston v. Laflin, 103 U. S. (13 Otto) 800; Burton's Appeal, 93 Pa. St. 214; Wood's Appeal, 92 Pa. St. 379; Cushman v. Thayer Mfg. Co., 76 N. Y. 371; Burrall v. Bushwick R. Co., 75 N. Y. 220 (semble); Moore v. Metropolitan Nat. Bank, 55 N. Y. 41; McNeil v. Tenth Nat. Bank, 46 N. Y. 325; New York & N. H. R. Co. v. Schuyler, 34 N. Y. 30; Commercial Bank v. Kortright, 22 Wend. 348; Holbrook v. New Jersey Zinc Co., 57 N. Y. 616 (semble); Leitch v. Wells, 48 N. Y. 585; Moore v. Moore, 112 Ind. 151, citing the text; Chase v. Whitmore, 68 Cal. 547; Ambrose v. Evans, 66 Cal. 74; Prall v. Tilt, 28 N. J. Eq. 480; Bridgeport Bank v. New York, etc., R. Co., 30 Conn. 275; Mount Holly Turnpike Co. v. Ferree, 2 C. E. Green, 117; Duke v. Cahawba County, 10 Ala. 82; Thompson v. Toland, 48 Cal. 99; Fraser v. Charleston, 11 S. C. (N. S.) 486; Dos Passos on Stockbrokers, 600 et seq.; 2 Ames on Bills and Notes, 784; Lewis on Stocks, 43 et seq. In Taylor v. Great Ind. P. R. Co., 5 Jur. (N. S.) 1087, the blank transfers were blank as to the value and number of the shares, and on account, as it would seem, of their defective character, the doctrine of the text was not applied. In Rumball v. Metropolitan Bank, 2 Q. B. 194, 20 Moak's Eng. Rep. 279, a similar doctrine was applied where the scrip inured to bearer. The National Safe Dep. Sav. & Trust Co. v. Gray, 12 App. D. C. 276. In this case it was held that where a stock certificate, with a written transfer and power of attorney thereon in blank, signed by the person to whom the certificate was issued, is pledged by a person in possession thereof to secure an advance of money made to him at the time, and also to secure pre-existing debts, the pledgee is not chargeable with notice of any equities existing between the original owner and the pledgor, but the original owner of the pledge is entitled, under such circumstances, to redeem it by payment of the money advanced when the pledge was made, regardless of the pre-existing debts due the pledgee from the pledgor, unless the pledgee shows he changed his position to his prejudice in relation to such pre-existing debts on the faith that the pledgee was the real owner of the certificate. Where certificates of stock are transferred by owner thereof by signing blank forms of assignment with marginal note, giving assignee thereof authority to sell the stock if necessary to meet any indebtedness of the assignor, held,

the idea that the certificate of stock is a negotiable instrument; but upon the equitable principle that where a person confers upon another all the indicia of ownership of property, with comprehensive and apparently unlimited powers in reference thereto, he is estopped to assert title as against a third person, who, acting in good faith, acquires it for value from the apparent owner.

The like principles would apply if the certificates of stock were issued in favor of the bearer, and were intrusted to an agent who transferred them in breach of his trust.33

And where the owner of a certificate executes on the back of it absolute power to sell or transfer, and delivers it to a broker as collateral security and the broker surrenders it, takes out a new certificate in his own name, and pledges such new certificate for value to one who has no knowledge of the real ownership, such pledgee acquires a good title against the true owner.3

34

But if the certificate of stock were lost or stolen with a blank assignment and power of attorney, not being a negotiable instrument, a purchaser could not acquire title against the true owner. The doctrine of lis pendens has no application to corporate stock.

33

36

that having received this stock under said assignment, executed in blank, and conferring only a power to sell, the defendant was upon its inquiry as to the right of assignee to pledge the stock for his own debt, and must, therefore, be charged with full notice of the contract by which they held same. See German Sav. Bank of Baltimore City v. Renshaw, 78 Md. 475, 28 Atl. 281. 32. Moore v. Moore, 112 Ind. 151, citing the text; Neuhoff v. O'Reilly, 93 Mo. 764; Lee v. Turner, 89 Mo. 489.

33. In Rumball v. Metropolitan Bank, 2 Q. B. Div. 194, 20 Moak's Eng. Rep. 279, it appeared that scrip of the Anglo-Egyptian Banking Company had been issued, certifying that after payment of certain instalments per share, the bearer would be entitled to be registered as the holder of ten shares. After paying one instalment the plaintiff put the scrip in the hands of a stockbroker for certain purposes; and the broker fraudulently diverted them, and deposited them with the defendant as security for a loan. It was held that plaintiff could not recover his scrip in an action against the lender who took it as security, on the ground as stated by Miller, J., that "if a party possessed of a security purporting on the face of it to be transferable by delivery, chooses to leave such security in the hands of a third party, and the latter makes it over to a bona fide holder for value, the true owner must be taken to have brought about his own loss and cannot recover it back.

34. Westinghouse v. German Nat. Bank, 196 Pa. St. 249, 46 Atl. 380. 35. Bereich v. Marye, 9 Nev. 312; Burton's Appeal, 93 Pa. St. 214 (semble); Dos Passos on Stockbrokers, 601, note 1; Barstow v. Savage Mining Co., 64 Cal. 388.

36. Holbrook v. New Jersey Zinc Co., 57 N. Y. 627.

We have not considered the questions which arise when blank powers of attorney are executed under seal. They are elaborately discussed in the treatises on stocks.37

§ 1709. The corporation should require the surrender of the certificate issued to a shareholder before entering a transfer of the shares upon its books, in order to avoid liability to a bona fide transferee of such certificate without notice.38 The United States Supreme Court has held that a bank whose certificates of stock declared the stockholders entitled to so many shares of stock, which can be transferred on the books of the corporation, in person or by attorney, when the certificates are surrendered, but not otherwise, and which suffers a stockholder to transfer to anybody on the books of the bank his stock, without producing and surrendering the certificates thereof, is liable to a bona fide transferee for value of the same stock, who produces the certificates with properly executed power of attorney to transfer; and this is so, although no notice has been given to the bank of the transfer. The equities in this case were not allowed to be set up by the bank, because by its own act it had given implied assurance that there were none.

39

SECTION II.

OTHER QUASI NEGOTIABLE INSTRUMENTS.

§ 1710. Bills of lading constitute the most important of all varieties of documents of title which possess a quasi negotiable quality, and a special chapter is devoted to their consideration.40 There are a few other instruments which, except when so declared by statute, are not negotiable; and indeed do not approximate negotiability to the same extent as bills of lading or certificates of stock. But the tendency of modern usage is to increase the facility for their transfer, and a few words as to their general nature may not be out of place in this work.

37. See Lewis on Stocks, 46, 51.

38. Cushman v. Thayer Mfg. Co., 76 N. Y. 367; Dos Passos on Stockbrokers, 618; Bank of Atchison County v. Durfee, 118 Mo. 431, 24 S. W. 133, 40 Am. St. Rep. 396.

39. Bank v. Lanier, 11 Wall. 369. See Schouler on Personal Property, 631, 632, 633, 634; Hubbard v. Manhattan Tr. Co., 30 C. C. A. 520, 87 Fed. 51. 40. § 1727.

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