Opinion
14060.
APRIL 14, 1942.
Equitable petition. Before Judge Pomeroy. Fulton superior court. November 14, 1941.
Ezra E. Phillips, for plaintiff.
MacDougald, Troutman Arkwright, Dudley Cook, Arnold, Gambrell Arnold, Alston, Foster, Sibley Miller, and Moise Post, for defendants.
1. The petition does not allege such facts as will estop the defendant to whom was issued a stock certificate from denying the title thereto of the plaintiff bank, which bought the certificate for value from a son of that defendant, this son then being in possession of the certificate and representing to the bank that it had been given to him by his mother, the original owner; the certificate containing no indicia of ownership in the son, unless such indicia were shown by the indorsements thereon, fully quoted in the statement of facts, infra.
( a) These indorsements contain no such indicia as is contemplated by the Code, § 96-207.
( b) Such indorsements in the circumstances stated, do not furnish such external indicia of the right of disposing of the property as that a sale by the son to an innocent purchaser would divest the owner's title.
2. Nor does the petition present any case on which to base the prayer for reformation, no sufficient facts being averred to justify the relief sought.
No. 14060. APRIL 14, 1942.
Suit was brought by the Peoples Bank against Mrs. Annie Miller Jones, W. T. Jones, the Citizens and Southern National Bank, Thomaston Cotton Mills, and the Atlanta Journal Company. It was alleged that on September 5, 1928, the Thomaston Cotton Mills issued to Mrs. Annie Miller Jones ten shares of fully paid, non-assessable, first preferred cumulative stock of the par value of $100 per share. A copy of the certificate is attached to the petition as an exhibit. It was alleged that on June 16, 1939, W. T. Jones applied to petitioner for a loan of $800, offered as security for the same stock in the cotton mills, and represented that his mother, Mrs. Annie Miller Jones, had made a gift to him of the stock; that Mrs. Jones, previously to June, 1939, turned over the stock to her said son, to be used by him in connection with the giving of a bond to the Atlanta Journal Company for the faithful performance of his duties as an employee, and for the purpose of inducing that company to give her son a job; that when the employment of the son by the Atlanta Journal Company terminated, the stock certificate was delivered back to the son; that at the time the stock was pledged to the Atlanta Journal as security for the faithful performance of his duties, there was on the certificate an indorsement as follows:
"For value received I hereby sell, assign and transfer unto the Atlanta Journal Company. Mrs. Annie Miller Jones. 10 shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint Mrs. Annie Miller Jones attorney to transfer the said stock on the books of the within named company, with full power of substitution in the premises."
It was alleged that at the termination of the employment, "The Journal stamped an indorsement on the back of the certificate as follows:
"November 29, 1938. The Atlanta Journal Co. J. L. Williford, Sect'y Treas.
. . hereby irrevocably constitute and appoint .............. substitute to transfer the within-named stock under the foregoing power of attorney, with like power of substitution.
Date
Mrs. Annie Miller Jones
Witness, W. T. Jones. In presence of Carl G. Caldwell."
It was alleged as follows: The petitioner believed the representation of W. T. Jones that his mother had made a gift to him of said stock as represented by the certificate, and petitioner made to him a loan of $800, and took his note for it, a copy of which is attached to the petition. On September 28, 1939, petitioner received from W. T. Jones authority to sell the stock, and made arrangements to sell it, but was unable to do so because the Citizens and Southern National Bank, as transfer agent and registrar of the stock, refused to transfer it, because the indorsement and the execution of the assignment and appointment of attorney on the back of the certificate appeared to be irregular, and the transfer agent and registrar took the position that it would be necessary that the mother execute an appropriate transfer, having her signature guaranteed by an incorporated bank and trust company. The transfer agent required the petitioner to obtain a statement from the Atlanta Journal Company to the effect that it had no interest in the certificate. The petitioner went to the Atlanta Journal Company for the statement that it had no interest in the certificate; and while the Journal claimed it had no interest in the certificate, it would not make a written statement to that effect. Since the stock certificate is not valid until countersigned by the transfer agent, upon assignment or transfer or gift of said stock represented by said certificate it was the duty of the transfer agent to countersign, register, or transfer the same; and it was the duty of the Atlanta Journal Company to certify that it had no interest in said stock or the certificate thereof. Upon communicating with Mrs. Annie Miller Jones, she claimed ownership of the stock, and stated that her delivery of the stock certificate to her son was not for the purpose of borrowing money for herself or for her son, but for the sole purpose of placing the stock with the Georgian-American Company, and that the pledge of the stock to petitioner was without her knowledge and consent, and against her wish. This secret purpose in delivering the stock certificate to her son was not revealed to petitioner; and according to petitioner's information and belief, the mother intended to make said transfer valid, legal and binding, in compliance with the by-laws, charter and regulations of the corporation. Before learning of the contention of the mother, and before the question being raised as to the irregularity of the indorsement and appointment of attorneys to transfer and indorse said stock, petitioner made an additional loan of $100 to W. T. Jones; and no part of the indebtedness has been paid. Petitioner prays, that it have a judgment against W. T. Jones, who is absent from the State and whose whereabouts are unknown; that the gift of the stock, as represented by the certificate and made by Mrs. Jones to W. T. Jones, be reformed to comply with the charter, by-laws, and regulations of the corporation issuing it, so as to make said gift effectual, thus vesting petitioner with the right to dispose of and deal with said stock, as defendants intended when said indorsements were made, and when the stock was delivered to petitioner; that the Thomaston Cotton Mills, and the Citizens Southern National Bank as transfer agent and registrar, be required to transfer or cause said stock certificate to be transferred to petitioner upon its reformation, so that petitioner can sell or dispose of it and apply the proceeds on the indebtedness to secure which it was pledged by W. T. Jones; and that the defendants be restrained from changing or altering the status of said stock, except as prayed.
The Citizens Southern National Bank and Mrs. Jones demurred generally, and the Atlanta Journal Company and Thomaston Cotton Mills made motions to dismiss. The demurrers and the motions to dismiss were sustained, and the action was dismissed as to them, the court stating that it was "of the opinion that the forms of the indorsement were such as to at least put the plaintiff upon inquiry of Mrs. Jones as to the status of the title of this stock. The plaintiff having failed to make such inquiry, it is barred of recovery." W. T. Jones filed no answer, demurrer, or plea.
1. The stock certificate was issued on September 5, 1928. Therefore the uniform stock-transfer act, approved March 23, 1939 (Ga. L. 1939, p. 384), has no application, since section 23 of that act in effect declares that its provisions apply only to certificates issued after its approval. This case must be decided keeping in view the most peculiar character of the indorsement appearing on the certificate. It may well be doubted whether any court will ever be confronted again with similar facts. Met, as this court is, with the unusual conditions here shown, the problem nevertheless is to ascertain and apply certain underlying principles by which the decision must be governed.
The certificate was issued to Mrs. Annie Miller Jones. She turned the stock over to her son W. T. Jones, to be used by him as a pledge to the Atlanta Journal Company as security for the faithful performance by the son of his duties as an employee thereof in case he was employed. The employment was terminated, and the stock so pledged to the Journal by the son was delivered back to him. The Peoples Bank got possession of the certificate from the son, who represented to the bank that his mother had made to him a gift of the stock represented by said certificate, and on the faith of such representation it purchased from the son the stock represented by said certificate. Nothing in the petition or in the exhibits can be construed as alleging that the mother parted with her title, except the contention by the bank that the indorsement placed by Mrs. Jones on the certificate estopped her from asserting title thereto as against the plaintiff. The certificate carries in its face the statement that it is "transferable on the books of the company, in person or by duly authorized attorney, upon surrender of this certificate properly indorsed." The allegation is that at the time Mrs. Jones loaned the stock to her son for him to pledge it to the Journal as security for the faithful performance by him of his duties, if he were employed by the Journal, the certificate carried an indorsement by Mrs. Jones, reciting: "For value received I hereby sell, assign, and transfer unto the Atlanta Journal Company" the stock represented by the certificate. It is not charged that the evidence of this assignment to the Journal by Mrs. Jones was ever obliterated or marked out or otherwise stricken; and it must be assumed from the petition that on the subsequent date when the Peoples Bank had its dealings with the son the assignment remained as an indorsement on the certificate. At the time the son pledged it to the bank the only other indorsement that appeared thereon was that shown in the statement of facts, to wit, the rather curious attempt by Mrs. Jones to constitute and appoint some person whose name was left blank to transfer the stock. This latter paper, if we treat it as having been executed by Mrs. Jones, although the allegation is merely that the Journal stamped an indorsement on the certificate, was in the following language:
"November 29, 1938. The Atlanta Journal Co. J. L. Williford, Sect'y Treas.
"..... hereby irrevocably constitute and appoint ............. substitute to transfer the within named stock under the foregoing power of attorney, with like power of substitution.
Date
Mrs. Annie Miller Jones
Witness W. T. Jones. In presence of Carl G. Caldwell."
This was no transfer of her title to the stock, nor was it irreconcilable with the transfer to the Atlanta Journal Company, hereinbefore referred to. No issue is taken with the contention that ordinarily a power of attorney to have the stock transferred on the books of the company issuing the same may be valid although the name of the attorney be left blank. But that proposition is far from decisive of the issue here presented. "The assignment and the power of attorney are two separate things. The former operates to vest in the assignee the rights of the assignor as against everybody but the corporation. The power of attorney is an authorization to the corporation to recognize the assignment of said rights." Christy and McLean on Transfer of Stock (2d ed.), § 63. It might be, if there were standing alone a blank power of attorney to transfer stock, such as is usually found printed on the back of stock certificates, that this would carry with it the presumption that the person who executed the power of attorney intended it as an assignment and transfer of the stock itself, or at least an authorization to the one holding the power to transfer the same on the books, to sell and assign the stock itself. But no such case is made by this record: for it also appeared that Mrs. Jones had already sold and assigned the stock to the Atlanta Journal Company. If it could be said that, standing alone, such blank power of attorney to transfer the same on the books of the corporation furnished external indicia of ownership in the third person in possession of said property, and therefore the right of disposing of the owner's property, this could not follow in view of the fact that there was already indorsed on the certificate a sale and assignment thereof to some one else, except that it took with it what appeared on the back of the certificate. The Peoples Bank is an innocent party in this transaction. So is Mrs. Jones. "When one of two innocent persons must suffer by the act of a third person, he who put it in the power of the third person to inflict the injury shall bear the loss." Code, § 37-113. What did Mrs. Jones do to put it in the power of her son to inflict the injury on the bank? She lent him the stock for the purpose of pledging it to the Atlanta Journal Company. He did so pledge it; and to make the pledge effective, she signed on the back of the certificate a writing selling and assigning the same to the Journal. Her act in selling and assigning the same in writing to the Journal, and delivering the certificate to her son with that transfer written on its back, did not put it in the power of her son to inflict an injury on the Peoples Bank. This transfer indicated that the Journal, not the son, owned this certificate. "Where an owner has given to another such evidence of the right of selling his goods as, according to the custom of trade or the common understanding of the world, usually accompanies the authority of disposal, or has given the external indicia of the right of disposing of his property, a sale to an innocent purchaser divests the true owner's title." Code, § 96-207. What external indicia of the right of disposing of her property did she give to the son, aside from the fact that she delivered it into his possession at a time when it carried on its back a written transfer and sale thereof to the Atlanta Journal? If the Journal had transferred it to the Peoples Bank, a different situation would have arisen. It is argued that the fact that when the son presented the certificate to the bank the presence thereon of the blank power of attorney supplied the external indicia. We are of the contrary opinion. The blank power of attorney was only a part of what appeared on the certificate of stock. Taken in connection with the other indorsement by Mrs. Jones, it was insufficient to divest the true owner's title, even though a sale thereof had been made to an innocent purchaser. The case as made by the petition is not one where the owner left in blank the name of the person to whom the certificate was to be sold and assigned. The provision such as the one shown in the body of the certificate, that the stock is transferable only on the books of the company, is intended primarily for the protection of the corporation. Bank of Culloden v. Bank of Forsyth, 120 Ga. 575 ( 48 S.E. 226, 102 Am. St. R. 115). A decision bearing some of the features of the instant case was Howard v. National Copper Bank, 81 Utah, 493 ( 20 P.2d 610), where it was held that where a stock certificate was indorsed to a named person whose son subsequently pledged it with a bank, the bank was charged with notice that either the indorser or the indorsee was the owner, and that hence the bank's equity could not prevail against the indorser's legal title. The petition and exhibits did not make a case entitling the plaintiff to go to a jury.
2. There was a prayer, "That the gift of said stock as represented by said certificate by the defendant Mrs. Annie Miller Jones, to her son, W. T. Jones, be reformed to comply with the charter, by-laws, rules and regulations of the corporation issuing the same, to make said gift effectual, so that its transfer to petitioner will vest petitioner with the right to dispose of and deal with said stock as said defendants intended when said indorsements were made, and when said stock was delivered to petitioner." Treating this prayer as one to reform the indorsement appearing on the certificate, it does not save the petition from demurrer; for no facts are pleaded to justify a reformation. No fraud on the part of Mrs. Jones is alleged, nor are shown any facts constituting a mutual mistake. Helton v. Shellnut, 186 Ga. 185 ( 197 S.E. 287).
Judgment affirmed. All the Justices concur.