Merchants' National Bank v. Williams

Bubice, L, delivered the opinion of the Court. .Mrs. Maud S. Williams, the plaintiff,-who is the wife of Henry Williams, an officer in the United States Navy, purchased on April 19th, 1906, through the New York stock brokerage firm of Buckout, Davis & Co. 100 shares of the common capital stock of the Wabash Railroad Company, a body corporate, at twenty-one dollars-per share, and paid on account of said shares one thousand dollars. Prior to June 4th, 1907, she made another payment on account thereof of over eight hundred dollars. This stock was represented by a certificate, and that certificate was delivered by Buckout, Davis & Co. to her .on June 14th,-.1907. This stock certificate was in the ordinary form, and was issued to Sternberger, Sinn & Co., and certified that they were entitled to one hundred shares of the common capital stock of - the Wabash Railroad Company, and that the stock was transferable in person, or by attorney, only on the books of the company in New York upon the surrender of the certificate.

Mrs. Williams owed the New York brokers a balance of two hundred and sixteen dollars and forty-five cents on ac ³⁴⁵ count of this stock, and on June 4th, 1907, Henry Williams, her husband, who was a customer of Wilson, Colston & Co., bankers and brokers of Baltimore, wrote to that firm advising them that Mrs. Williams was carrying this stock and that she desired him to take it over; that it would require between two hundred and two hundred and fifty dollars to do so, and asking if they would be willing to allow him to overdraw his account to the extent required and to carry the stock for him on that margin, stating further that if that was agreeable he would draw his cheek on them for the necessary, amount, and that the securities they held- in his name should be amply sufficient to cover the draft, and that as soon as he could obtain the certificate he would forward it to them to hold against his debit account, together with the other securities. Wilson, Colston & Co. agreed to this proposal, and on June 12th, 1907, Mr. Williams drew a check on that firm to the order of the plaintiff for two hundred and sixteen dollars and forty-five cents, being the balance due on the purchase price of the stock, which check she endorsed and delivered to Buckoút, Davis & Co. This check was paid by Wilson, Colston- & Co. and charged to the account of Henry Williams. On June 15th, 1907, Mr. Williams sent the stock certificate to Wilson, Colston & 'Co. to be héld by them along with other securities belonging to him in pursuance of the understanding and' agreement contained in the correspondence to which we have referred. 'In his letter transmitting the stock he states that it “is the property of Mrs. Maud S. Williams, and should be held subject to her order in case of my absence or demise.” The stock certificate-contained the following blank assignment and powers of attorney endorsed on the back thereof: “Bor value received ’ ' have bargained, sold, assigned and transferred, and by these presents do bargain, sell, assign and transfer unto the capital Stock named in the within certificate,- and do hereby constitute and appoint Henry Sproul & Co. true and lawful attorney irrevocable, for and in • name and stead, hut to use, to ³⁴⁶ sell, transfer, assign and set over 'all or any part of said stock and for that purpose to make and execute all necessary acts of assignment and transfer, and one or more persons to substitute with like full power. Dated December 1 1904.

Sternberger, Sinn & Co. Signed and acknowledged in the presence of A. Guest. ij{ # # <«* •!' # # We hereby irrevocably constitute and appoint Whitehouse & Co. our substitute to transfer the within named stbck under the foregoing power of attorney, with like power of substitution. Dated September 28; 1905. '• Henry Sproue-&'Co. * >;« ❖ 'r / ❖ ■ ■ & We hereby irrevocably constitute and appoint R. J. Montgomery substitute to transfer tbe within named stock under the foregoing power of attorney, with like-power of substitution. Dated March 2nd, 1908. . Whitehouse- & Co." On September 17, 1907, Wilson, Colston, & Co. borrowed for their own use and benefit ten .thousand dollars from the Farmers and Merchants’ State Bank of Fredericksburg, Va., which bank acted through the Merchants’ National Bapk of Baltimore as its agent, and pledged, among other collateral to secure said loan, the Wabash stock belonging to Mrs. Williams, and which had .come into their possession under the circumstances mentioned.

Wilson, Colston & Co. thereafter became insolvent and receivers were appointed to take charge of the affairs of the firm, and on the 29th of February, 1908, the Merchants’ Bank acting for the Fredericksburg Bank sold the Wabash stock for seven hundred and eighty-seven dollars and fifty cents, and applied the proceeds to the loan made by the Fredericksburg Bank to-Wilson, Colston & Co., and on or about the 2nd day of March, 1908, the certificate was can-celled on the books of the Wabash Railroad Company, and new certificates for one hundred shares represented by said certificate were issued by that company, to wit, a certificate of twenty shares to Tracey & Co.; and a certificate of eighty ³⁴⁷ shares to DeCopet & Doremus. Neither Mr.. nor Mrs. Williams had any knowledge of the loan by the Eredericksbtirg Bank to Wilson, Colston & Co, until sometime after the failure of that firm, and believed, until after the failure, that the stock was held by them and was in their actual possession. Wilson, Colston & Co., from a date prior to June 14th, 1907-, had in their possession a certificate, or certificates for thirteen shares of the common capital stock of the Baltimore and Ohio Railroad' Company belonging to Henry Williams, but standing'in the name of Wilson, Colston & Co., until November 7th, 1907, at or about which time that firm, pledged said stock, with other securities, as collateral for loans made to that firm for their own benefit by other banks other than the defendant, and after the receivership of the-firm of Wilson, Colston'& Co., the banks-with which said stock had been pledged, sold the same. The-market value of the Wabash stock was from 11% to 11% dollars per share on September -17th, 1907, -when it was pledged with the .defendant, and on February 29th, 1908, when-it was sold by it the stock was worth- 7% -dollars per share.

It is a universal custom among banks and bankers in the city of Baltimore to require, from stock brokers offering stock as collateral for loans made to them, an express power- of rehypothication properly executed by the owner of such stock, whenever it appears on the face of the certificate that the stock was originally issued, or was at any time transferred, to any individual, firm or corporation, other than a bank, or broker; but- “street certificates,” that- is to say, certificates issued in the name of bankers or- brokers, are customarily transferred, sold or pledged-by endorsement in blank and delivered, as in the case -.of the certificate above set forth, and without an express power of hypothecation or rehypothecation. This custom has grown out of the usual manner of conducting the stock brokerage business in accordance with which certificates of stock issued to, or ■ standing in the name of bankers or brokers are treated as the property of such bankers or brokers so far as the power to sell, pledge or hypothecate ³⁴⁸ the same is concerned, and certificates of stock standing in the names of persons other than brokers or bankers are treated as the property of such persons and subject to their 'direction and control. Neither the Farmers & Merchants’ State' Bank, • nor the Merchants’ National Bank at the time of the pledge of the stock by Wilson, Colston & Co. had any actual knowledge of the existence • of either Mr. -or Mrs. Williams, or any right, interest or claim of either in or to the 100 shares of the Wabash stock, or any part thereof. It is contended by the plaintiff that, excluding the value of the Wabash stock in question, the firm of Wilson, Colston & Co. at the date of- its failure, was upon a'correct accounting in Mr. Williams’ debt.

On March 12th, 1908, Mrs. Williams sued out a non-resident attachment' against the Farmers & Merchants’ State Bank of Fredericksburg and laid the same in the hands of the Merchants’ National Bank of Baltimore. The Virginia Bank did not appear to the short note case; but the Merchants' Bank, as garnishee, appeared and filed a plea of nulla bona in its own behalf, and the general issue pleas in béhalf of the Fredericksburg Bank,- and issue was joined. It was subsequently agreed that the garnishee bank, at the time the attachment was laid, had and still has in its possession funds, or property belonging to the Virginia Bank and subject to attachment of at least thirteen hundred dollars. All errors of pleading were waived.

The case was tried before the Court, without a jury, and resulted in-a verdict and judgment for.the plaintiff, and both parties have appealed. These appeals present two questions: first, can the plaintiff, upon