Opinion
Decided November 22, 1926.
Corporations — Transfer of title to shares of stock — Section 8673-1, et seq., General Code — Rights of pledgee bank superior to owner of stock — Stock certificate endorsed in blank deposited with broker — Wrongfully pledged by broker to secure his debt to bank.
Where a broker having in his possession a certificate of stock regularly issued to another, on the back of which is a blank assignment and power of attorney to transfer signed by such other, pledges such certificate in the usual course of business to secure his debt, the rights of the parties interested in such certificate are governed by the Uniform Stock Transfer Act (Sections 8673-1 to 8673-22, General Code); and where the pledgee receives such certificate "for value, in good faith without notice," within the meaning of those terms as defined in said act, his rights are superior to those of the owner, even though the pledging of the certificate by the broker was without authority and wrongful.
ERROR: Court of Appeals for Summit county.
Mr. C.F. Schnee and Mr. E.C. Housel, for plaintiff in error.
Messrs. Mather, Nesbitt Willkie, for defendant in error Ohio State Bank Trust Co.
The record in this case discloses that Leland C. Powell was a broker dealing in stocks and bonds, and that he borrowed money from the Ohio State Bank Trust Company, securing the loans by the deposit of certificates of stock made out in the names of persons other than himself and signed in blank by such owners.
Herbert O. Hazard, plaintiff in error, deposited with said broker certain certificates of shares of stock, made out in his name, or his wife's name, and signed in blank, which stock certificates were delivered to the broker to secure Hazard's account with the broker, with whom Hazard was dealing in stocks on margin. Powell, the broker, deposited the certificates with the bank to secure his indebtedness to the bank; the broker failed, and the bank sold the certificates of stock and applied the proceeds of such sale to the payment of the broker's indebtedness to it. This suit was brought against said broker and said bank, and the case was tried to the court, a jury being waived. Plaintiff recovered a judgment against the broker for the full amount claimed, but failed to recover against the bank. The controversy between the plaintiff and the bank is before this court upon petition in error. The broker, although named as a party defendant in this court, was not served with process, and therefore is not a party to this error proceeding.
It is claimed that at the time plaintiff delivered to said broker the certificates indorsed in blank, it was agreed and understood that the broker should retain the same, that his subsequent hypothecation of them with the bank was wrongful, and that at the time the bank received the certificates it knew that the broker was not the owner of the certificates and did not have authority to pledge same to secure his debt; in other words, that such transfer by said broker was wrongful and the bank knew it was wrongful.
We assume, without deciding the question, that the trial court would have been justified in finding that such transfer by the broker was wrongful, but counsel for plaintiff in error concede that the bank had no actual notice of that fact. It is claimed, however, that the circumstances were such as to show that the bank did not receive said certificates in "good faith."
The transactions under consideration are governed by the Uniform Stock Transfer Act (Sections 8673-1 to 8673-22, General Code). By that act the indorsement was sufficient to transfer title to the broker, Section 8673-1; the bank being a pledgee was a purchaser for value, Section 8673-22; it had no actual notice that the transfer to it was wrongful, and therefore the determining question of fact is: Did the bank receive said certificates in "good faith?" (Section 8673-7.)
Counsel for plaintiff in error admit that the above is the determining question in this case. The evidence on that question, to the effect that the broker, to the knowledge of the bank, was probably insolvent, and that the bank did not require a certificate of hypothecation from the registered owner of the stock, as was its custom in reference to similar transactions with persons other than brokers, tends to prove no more than that the bank may have been negligent in this transaction; there was no evidence tending to prove that the bank acted dishonestly, or that the transactions were other than in the regular course of business.
Section 8673-22, General Code, provides: "A thing `is done in good faith' within the meaning of this act, when it is in fact done honestly, whether it be done negligently or not."
On the issue of good faith, the trial court found in favor of the bank. We have examined the record and have reached the conclusion that such finding of the trial court is justified; that in any event it is not manifestly against the weight of the evidence.
Generally, on the questions involved, see Natl. Safe Deposit, S. T. Co. v. Hibbs, 229 U.S. 391, 33 S. Ct., 818, 57 L. Ed., 1241, and Jenkins v. Continental Trust Co. (Md.), 133 A. 610.
Finding no prejudicial error, the judgment will be affirmed.
Judgment affirmed.
PARDEE, P.J., and FUNK, J., concur.