Opinion
October 8, 1928.
November 22, 1928.
Criminal Law — False pretense — Evidence — Sufficiency.
In the trial of an indictment for false pretense it appeared that the defendant had obtained money from a building association for paid up shares of the building association stock which he claimed to own, although part of the stock had been assigned in blank as collateral security for a note. By way of defense the defendant claimed that he did not intend to transfer the stock by the assignment but considered it to be his property and capable of delivery at some subsequent time.
Under such circumstances the case was for the jury and a verdict of guilty will be sustained.
Appeal No. 267, October T., 1928, by defendant from judgment of Q.S., Philadelphia County, June T., 1927, No. 1162, in the case of Commonwealth of Pennsylvania v. R.C. Clement.
Before PORTER, P.J., HENDERSON, TREXLER, LINN, GAWTHROP and CUNNINGHAM, JJ.
Indictment for false pretense. Before McCULLEN, J.
The facts are stated in the following opinion of the court below:
Upon three bills of indictment, the defendant, R.C. Clement, has been convicted of the crime of false pretense, and he now moves for a new trial.
In Bills Nos. 1164 and 1165, he is joined with one Carapalotti in the charges laid which involved the obtaining by Clement of moneys from the R.C. Clement Building Association as loans upon certain shares of stock, the title to which it is alleged was not in him but was in others under his assignment by way of pledge for debt.
Bill No. 1162 names Clement alone as offender, and the charge laid involves the obtaining by him from said Association of moneys, not as a loan, but as payment for the cancellation and retirement of certain shares of paid-up stock, the title to which it is alleged Clement falsely represented to be in himself, whereas, the title thereto, under assignment made by him was in another as a pledged security for his indebtedness.
A consideration of the law and of the evidence bearing upon the charge laid in the last mentioned indictment, No. 1162, will enable us to properly dispose of the present motion.
The Building Association which figures herein appears to have been named for the defendant. He was its conveyancer, its meeting place was in his office and its stock certificate book and its other books and records were kept at that place.
At the suggestion of the defendant, one, Louis Carapalotti (a professional boxer) in January, 1925, became the secretary of the association and continued as such for about a year or a year and a half, until the affairs of the association were taken in charge by the State Banking authorities.
Carapalotti testified that he understood the making of the ordinary entries for the receipt of dues, and made such without aid or assistance from others, but that the other entries in the books of the association, including those made relative to cancellation or retirement of the paid-up stock, were made by him at the direction of the defendant, Clement.
Clement had owned twenty-one shares of the paid-up stock of the Building Association, of the par value of $200 per share, represented by seven certificates issued in his name during the year 1925. Four of these certificates dated April 1, 1925, representing fourteen shares of paid-up stock (par $2,800) are involved in this matter.
At a meeting held December 8, 1925, the Board of Directors of the Building Association resolved that certain funds of the corporation should "be applied to the reduction of borrowed moneys, cancellation of paid-up stock and withdrawals." Pursuant to this resolution, under date of December 15, 1925, a check for $4,200 was drawn by the officers of the Association to the order of the defendant, R.C. Clement, for the purpose of cancelling the twenty-one shares of paid-up stock for which certificates had been issued to him.
Clement presented to the officers of the Association three of these stock certificates for a total of seven shares of stock. He failed to present the four certificates representing the fourteen shares of stock, but represented himself, however, to be the owner of the entire twenty-one shares and in possession of the seven certificates therefor with the title to and the authority to surrender for cancellation and retirement the entire twenty-one shares and to receive the payment of $4,200 for the same, and he directed the secretary to make entry of "cancellation" upon the stubs of the stock certificate book for all said seven share certificates representing twenty-one shares.
Upon the faith and credit of this statement, the defendant obtained from the Association the $4,200, the full, par value of the twenty-one shares for the retirement and cancellation of the stock. At this time four of the certificates, representing fourteen shares, of the par value of $2,800, were in the possession of the Wharton Title and Trust Company, with an assignment of the same in blank executed by the defendant as a pledge to said Trust Company for an indebtedness of defendant on which $1,450 was then owing and unpaid.
There is no serious dispute about the material facts.
It was testified (page 112, Stenographic Notes) that Albert S.C. Millar, Esq., counsel for the State Banking Department, at his office, in the presence of the officers of the Building Association, asked the defendant "if he knew at the time that he did not have the stock, although he said he did, and he said he did know it, but that he expected to pay the loan off within a few days and then he would return the certificates."
The four certificates, representing fourteen shares of paid-up stock, are still outstanding with the Wharton Title and Trust Company as a pledge for Clement's indebtedness and have never been surrendered to the Building Association.
The defendant's story, told at the trial, and not credited by the jury, is that although he signed the form of assignment and left it and his shares certificates with the Wharton Title and Trust Company at the time he borrowed money from that Company, he never intended the paper to operate as an assignment, and that the document and the stock certificates were lodged by him with the Trust Company for use only in the event of his death, and that he always considered himself to be the owner of the shares of stock and the Trust Company without title therein or thereto.
In arguing for a new trial, the learned counsel for the defendant contends that proof of the crime of false pretense is lacking in the case, and that the defendant was not guilty of such crime "when he obtained $2,800 for his fourteen shares of paid-up stock, for by the payment of that money, the Association discharged a valid obligation and effectually cancelled an outstanding debt represented by that stock," that the possession of the certificates by the Wharton Title and Trust Company did not affect the situation, "since in order to make the assignment effective as regards the Association, and binding upon the latter, it was necessary, under the express terms of the certificate to register the assignment in the Association's books," that payment having been made to the registered owner, "the payment was effective and conclusive and the Association's obligation was completely wiped out," and therefore, "the prosecutor was not injured or prejudiced thereby and was in no way defrauded."
We have given careful consideration to this argument, and have reached the conclusion that it is not a sound one.
True it is that in Bank of Commerce Appeal, 73 Pa. 59 (1873), our Supreme Court said: "As between a corporator and the corporation, the records of the corporation or its stock book, as it is called, is the evidence of their relation....... The assignment of the certificate is only an equitable transfer of the stock, and to be made available must be produced to the corporation and a transfer demanded."
Referring to this case, Savidge, in his work on Pennsylvania Corporations, 2d Ed. Vol. 1, Page 440, says: "It is different, however, with respect to stock for which certificates have been issued since the Uniform Stock Transfer Act became effective January 1, 1912. The intent of this act, it seems, is to make the transfer of the certificate operate as a transfer of the shares."
Section 1 of the Uniform Stock Transfer Act of May 5, 1911, (P.L. 1911, Page 126; Supp., Stewart Purdon's Digest, 13th Ed. Vol. 5, pages 5708-5710) provides that the title to the stock certificate and to the shares represented thereby, is transferred by the delivery of the stock certificate accompanied by a written assignment in blank, such as here exists, and this provision is made applicable, although the corporate charter, by-laws or stock certificates provide that the shares shall be transferable only on the books of the corporation.
In referring to this provision of the Uniform Stock Transfer Act, it is said, in the Commissioner's Note, to be found in Uniform Laws Annotated, Vol. 6, at page 2: "The provisions of this section are in accordance with the existing law (see Cook on Corporations, section 373 et seq.), except that the transfer of the certificate is here made to operate as a transfer of the shares, whereas at common law it is the registry on the books of the company which makes the complete transfer. The reason for the change is in order that the certificate may, to the fullest extent possible, be the representative of the shares. This is the fundamental purpose of the whole act, and is in accordance with the mercantile usage. The transfer on the books of the corporation becomes thus like the record of a deed of real estate under a registry system."
It may be conceded that the assignment to the Wharton Title and Trust Company operated to transfer the title to that Company by way of pledge and security only, leaving certain interests in the pledgor, Clement, but as has been said, "the general property which the pledgor is said to retain is nothing more than a legal right to the restoration of the thing pledged on the payment of the debt." Wilson v. Little, 2 N.Y. 443; 51 Amer. Dec. 307. Moreover, the Uniform Stock Transfer Act expressly provides that a pledgee is to be deemed a "purchaser" within the meaning of the Act.
In permitting the exercise of voting power, in making the payment of dividends and in imposing assessments a corporation may act upon the registration of stockholders appearing upon its books as provided for in Section 3 of that Act, but it is still the law that a corporation is a trustee for its stockholders, — a trustee of both property and title — and bound to exercise proper vigilance and care that stockholders be not injured by unauthorized transfers of their stock. Bayard v. Bank, 52 Pa. 232; Pennsylvania Railroad Co.'s Appeal, 86 Pa. 80.
This principle should apply with full force to an unauthorized tranfer to the corporation itself by way of cancellation or retirement of the stock.
Where, by negligence, a corporation cancels one's stock it is said the owner "may call upon the corporation to do him right and justice by replacing his stock or paying him for its value." BRADLEY, J., in St. Romes v. Cotton Press Co., 127 U.S. 614 (619-620).
It was the obligation of the Building Association to require the production of the stock certificates when it undertook to make payment for the retirement and cancellation of the stock and it was lulled into negligence in this respect by Clement's falsely pretending to be the owner of the stock and to be in the possession of the certificates and able to surrender them as he promised to do.
The attempted cancellation of the stock is wholly ineffective as to the Wharton Title and Trust Company.
In Cook on Corporations, 8th Ed. Vol. 2, at pages 1326 and 1327, Secs. 360 and 361, there is a cogent statement of the law, supported by ample authority. The author there says:
"The outstanding certificate is a continuing affirmation by the corporation that no registry of a transfer of the stock represented by that certificate will be allowed until the certificate itself is presented and surrendered. This affirmation is sometimes declared in a by-law, and sometimes it is printed on the face of the certificate itself. The obligation of the corporation, however, to require a surrender of the old certificate upon obtaining a registry is the same whether there is a by-law or a statement on the certificate, or neither of these. It exists without any express declaration....... It is the duty and right of a corporation to refuse to allow a registry of a transfer of stock unless the outstanding certificate representing the stock is delivered up and cancelled. If it allows a transfer to be registered without the old certificate being produced and surrendered, it is liable to any person who, without notice, purchases or has purchased the outstanding certificate, except where the old certificate of stock was stolen or lost. This rule is well established, and is based on the usages and requirements of trade, and on public policy, which favor the protection of those who invest their money in certificates of stock, relying upon the corporation to protect the holder of such certificates."
Our conclusion is that under the law the evidence indicates the presence of all the elements of the crime of false pretense, charged in Bill of Indictment No. 1162. The Building Association has been defrauded, since upon Clement's false pretense of ownership of the stock and of possession of the certificates by him it paid him $2,800 (of the $4,200 he received) for a cancellation and retirement of the fourteen shares of stock, which cancellation has not been effected because of the outstanding title of the Wharton Title and Trust Company, a bona fide purchaser, under the terms of the Uniform Stock Transfer Act — an outstanding title the existence of which the defendant concealed from the Association.
Another reason urged by defendant for the granting of a new trial is that the district attorney should not have been permitted to read in evidence the testimony of Howard L. Zeigler, given on a former trial, because Zeigler's absence was not satisfactorily accounted for as required by Section 3 of the Act of May 23, 1887, P.L. 158.
The answer to this is two-fold: (1) It was testified that Zeigler could not be found by the county detective who undertook to serve him with a subpoena, and that when last heard from he had become a resident of Trenton, New Jersey; (2) Zeigler's testimony worked no harm to the defendant, since it simply went to indicate the signing by the defendant of the assignment left with the Wharton Title and Trust Company, and the signing of such document the defendant admitted to be true. There never was any dispute as to this fact as to which Zeigler testified.
The remaining two Bills of Indictment (Nos. 1164 and 1165) concern the obtaining of certain loans by Clement upon the security of current or installment stock in the Association, — shares originally issued to Clement, and which he had already borrowed upon from others to whom he had assigned the shares as collateral. These charges involve questions somewhat different from those bearing upon Bill No. 1162. It is not necessary, however, to go into discussion relative to them, since the Court does not intend to impose sentence upon said two bills. Judgment will be pronounced and sentence imposed upon Bill No. 1162 only.
The motion for a new trial is overruled.
Verdict of guilty on which judgment of sentence was passed. Defendant appealed.
B.D. Oliensis, for appellant. Franklin E. Barr, Asst. Dist. Attorney, and with him John Monaghan, District Attorney, for appellee.
Argued October 8, 1928.
The evidence offered by the Commonwealth supported the charge in the indictment that the defendant obtained money from The R.C. Clement Building Association for twenty-one shares of stock owned by him; that at the time the transaction took place he failed to produce the certificates representing fourteen shares of the stock; that he represented he was the owner of the shares for which the certificates were not produced, and that he had authority to surrender for cancellation all of the twenty-one shares and to receive the value thereof, $4,200, from the Association, and that he directed the secretary to make an entry of the cancellation of the shares on the stock book of the Association. On this statement the defendant obtained from the Association $4,200, the full value of the shares, at which time four of the certificates representing fourteen shares of the stock of the par value of $2,800 were held by the Wharton Title Trust Company, with an assignment thereof in blank, executed by the defendant as a pledge to that company for $1,450 then due and unpaid. The only allegation of fact presented by way of defense was that the defendant did not intend to transfer the title of the shares to the Trust Company, but considered them his property, and that his expectation was to take them up at a later time and thus carry out the cancellation arrangement. We do not regard the defense presented as a sufficient answer to the charge of the Commonwealth. It is unnecessary however to review the argument presented in support of the appeal. That has been fully done in the opinion of the trial court refusing a new trial. The verdict is well supported by the evidence and the law applicable to the facts was considered at length by the court below.
The judgment is affirmed on the opinion of Judge McCULLEN. It is further ordered that the defendant appear in the court below and that he be committed for such time as he had not served under the sentence when a supersedeas was allowed.