
    The Farmers’ Bank et al. v. The Diebold Safe & Lock Co. et al.
    
      Certificate of stock not a negotiable instrument, when — Certificate issued to secretary of company — By him assigned and delivered to bona fide holder — But not transferred on books of company — Fraudulently reobtained and delivered to third party — First assignee held the real owner.
    
    1. A certificate of stock of a corporation expressed on its face to be transferable only on the books of the company at its office, personally, or by attorney, on surrender of this certificate, and transferred in blank upon its back, is not a negotiable instrument.
    2. Where such a certificate of stock is issued to the secretary of the company, the stock standing in his name upon the books, and such holder assigns the same to a bona fide taker thereof, by executing an assignment on the back blank as to the name of the assignee, and delivers the certificate so assigned to such assignee, and then afterwards fraudulently obtains possession of such certificate by abstracting . it from the president’s drawer in the safe of the company, where it had been placed by the president, and pledges it to another for his own debt, and the creditor accepts such pledge without inquiry, or attempt to have the stock transferred to him on the books, such first assignee will, in the absence of culpable negligence on his part proximately contributing to the deceit, be held to be the real owner of the certificate, although such second pledgee has acted in good faith and on the belief that his debtor was the real owner of the stock.
    (Decided June 10, 1902.)
    
      Error to the Circuit Court of Stark county.
    The present action is to reverse the judgment of the circuit court of Stark, where the cause was tried on appeal from the common pleas of that county. The record is voluminous and somewhat involved, but the statement following will be found sufficient to an understanding of the points considered:
    The controversy in this court concerns the ownership of certificate of stock No. 61, of the defendant in error, The Diebold Safe & Lock Company, an Ohio corporation with its principal office and place of business at the city of Canton, and of which William W. Clark was president and Dominick Tyler, secretary and treasurer. From the finding of facts made by the circuit court it is shown that on the 30th of April, 1881, the Company issued and delivered to Tyler its certificate of stock of the above number, signed by Clark as president and Tyler as secretary, and having the seal of the corporation legally affixed thereto, calling for fifty shares of stock therein, of one hundred dollars per share, which certificate at the time of its issue was legal, valid and regular in all respects. Tyler had been secretary and treasurer of the Company since 1876, and Clark had been its president during that time. The certificate was in words and figures as follows:
    “State of Ohio. Diebold Safe & Lock Co., No. 61, 50 shares. This is to certify that Dominick Tyler is entitled to fifty shares of the capital stock of the Die-bold Safe & Lock Company, of Canton, Ohio, transferable only on the books of said company at their offices at Canton, Ohio, personally, or by attorney, on the surrender of this certificate. In witness whereof, said company has caused this certificate to be signed by its president and secretary, and sealed with its corporate seal. Canton, O., April 30th, 1881.
    “W. W. Clark, President.
    “B. Tyler, Secretary. (Seal.)”
    Between the years 1882 and 1884, Tyler became-indebted to the Company by reason of overdrafts, and on August 20, 1884, on demand of Clark, for the purpose of securing the corporation on the indebtedness, which amounted to about $4,000, signed the following' endorsement on the back of the certificate and delivered it to the corporation for the purpose of securing the debt then owing:
    “For value received * * * do hereby sell and assign this certificate to * * * and authorize the stock represented therein to be transferred on the books of this company.
    “B. Tyler.”
    The certificate was then handed to Clark as president, who placed it in an unsealed envelope in an unlocked drawer in the safe of the Company which was situated in the office occupied by Clark as president and Tyler as secretary and treasurer, and which safe was used by them every day for the purpose of keeping papers of the corporation, and was accessible to Clark and Tyler, the drawer being used by Clark as president in which to keep the papers of the Company over which he as such president had individual and personal control, and in which Tyler as secretary each month put a check for the salary of said Clark. At this time there was marked on the stub of certificate No. 61, of the stock book, the following language: “8-20-’84. Left with the Company as collateral security.”
    
      On June 1, 1891, Tyler not having paid his indebtedness to the corporation for which the stock had been pledged as security, Olark agreed to purchase certificate No. 61 from Tyler, and after all arrangements had been made between them for the purchase, Clark went to the drawer of the safe to get the certificate, but did not find it, whereupon he made inquiries concerning its whereabouts of Tyler and of others, but they all disclaimed having seen the certificate, and not finding it in the safe, a new certificate No. 140, was, on June 1, 1891, issued therefor and delivered to Tyler and by him assigned to Clark, whereupon Tyler paid all his indebtedness to the Company from the money received from Clark on said purchase. And Clark kept certificate No. 140 until the 23rd day of June, 1892, without having the same transferred on the books of the Company, at which last date Clark surrendered certificate No. 140 and had certificate No. 151, for fifty shares of stock, issued directly to him; and Clark made no search or inquiry for certificate No. 61 after the issuance of certificate No. 140 until September 29, 1896.
    On June 1, 1891, when certificate No. 140 was issued, there was marked, in red ink, on the stub of the stock book from which certificate No. 61 had been issued the words: “Certificate lost and duplicate issued under No. 140, June 1, 1891.” But certificate No. 61 never had anything written upon it which would indicate that the same had been surrendered or canceled, although on June 1, 1891, it was intended and thought by the corporation and by Clark that certificate No. 61 had been canceled and surrendered, and it was then treated and considered by the Company and Tyler as canceled and surrendered. It has been and was the custom of the Company and of Clark, when any certificate of stock of the Company was canceled or surrendered, to attach such canceled or surrendered certificate to the stub of the stock certificate book from which it had been taken.
    It is distinctly found as matter of fact, by the circuit court, that certificate No. 61 was lost or mislaid without any fault or negligence on the part of Clark or of the Company, and it is further found that Clark became, by his purchase of said stock, and always thereafter continued to be, the actual owner thereof.
    From one to two years after June 1, 1891, Tyler, who was still the acting secretary of the Company, found said certificate No. 61 in an old envelope in the said drawer of the safe under other papers,- where it had been placed by Clark, and after so finding it, Tyler, without the knowledge or consent of Clark or of the Company, on April 29,1895, took the certificate and delivered it in the same condition as it was at the time of its delivery to Clark, as president, to the Farmers’ Bank, which having no knowledge as to how Tyler obtained the same, accepted it as collateral security for the sum of $2,500 then loaned by the bank to Tyler, personally, in which transaction neither the Company nor Clark had any interest, nor had either any knowledge concerning the same. Tyler was not the agent of the Company or of Clark in anything respecting said loan to him by the bank or respecting his possession of the certificate, or of his hypothecation of the same as security. Afterward Tyler pledged the same certificate to Adam C. McDowell, one of the plaintiffs in error, under like circumstances, for a debt due from Tyler to him.
    
      Messrs. McCarty, Craine & McDmoell and Mr. A. A. Thayer, for plaintiffs in error, cited and commented upon the following authorities:
    
      
      Railway Co. v. Bank, 56 Ohio St., 351; Knox v. Eden Musee American Co., 148 N. Y., 441; Jarvis v. Manhattan Beach Co., 148 N. Y., 652; Bank v. Railway Co., 21 Ohio St., 221; Cook on Stockholders, Secs. 415, 416; Railroad Co. v. Schuyler, 34 N. Y., 30; Titus v. Turnpike Co., 61 N. Y., 237; Bank v. Railroad Co., 137 N. Y., 231; Tome v. Railroad Co., 39 Md., 36.
    
      Messrs. Clark, Ambler & Clark, for defendants in error, cited and commented upon the following authorities :
    
      Eaton v. Davidson, 46 Ohio St., 355; Grever & Sons v. Taylor, 53 Ohio St., 631; Bank v. Wallace, 45 Ohio St., 152; Brownell v. Harsh, 29 Ohio St., 631; Holzworth v. Koch, 26 Ohio St., 33; Robinson v. Boyd, 60 Ohio St., 57; Dalrymple v. Wyker, 60 Ohio St., 108; Sec. 3255, Rev. Stat.; Railway Co. v. Bank, 56 Ohio St., 351; Knox v. Eden Musee American Co., 148 N. Y., 441; Moores v. Bank, 111 U. S., 156; Farrington v. Railroad Co., 150 Mass., 406; Insurance Co. v. Railroad Co., 139 N. Y., 146; Tome v. Railroad Co., 39 Md., 36; Hill v. Publishing Co., 154 Mass., 172; 1 Cook on Corp. (4 ed.), 359; Barstow v. Mining Co., 64 Cal., 388; Anderson v. Nicholas, 28 N. Y., 600; Land Co. v. Dennis, 85 Ala., 565; Swim v. Wilson, 90 Cal., 126; O’Herron v. Gray, 168 Mass., 573; Board of Education v. Sinton, 41 Ohio St., 504; Kimball v. Billings, 55 Me., 147; Hildyard v. South Sea Co., 2 P. Wms, 76; Simm v. Telegraph Co., 5 Q. B. D., 188; 2 Beach Modern Law of Contracts, Sec. 1952; 1 Cook on Corp., Sec. 293; Jarvis v. Manhattan Beach Co., 148 N. Y., 652.
   Spear, J.

The demand of the plaintiffs in error is, in substance, that the Company and Clark be held not to have title in certificate No. 61, and that title in the same he declared to be in them, and for full equitable relief.

It is manifest that if this relief be granted, the claims of the Company and of Clark must be denied them on the ground either—

1. On the doctrine of implied agency; or,

2. On the application of the principles of estoppel.

But Tyler, although secretary and treasurer of the Company, was not its agent to represent to one with whom he might be dealing on his own account, and away from its office, the fact as to who owned the stock of the corporation, or in whose name the stock stood on its books. Such representations were no part of his real or apparent authority. The transaction with the bank was one which did not concern his official duty in any respect, but was wholly for his own personal profit. The Company had no actual or apparent connection with it, nor did Tyler pretend to represent or act for the Company. Indeed it was apparent from the face of the certificate, that Tyler had exercised his authority as secretary for his own advantage. In other words, the case stands as to the question of agency, precisely as though the transfer had been made by one who had no relation whatever with the management of the Company, for it is of no materiality that Tyler was the agent of the Company for some purposes.so long as he was not its agent for the purpose of negotiating its certificates of stock as security for his individual debts, and so long as he did not pretend to have such authority, nor to act for the Company in any way.

True, the statute gives authority to the president and secretary, on demand, to execute and deliver to a stockholder a certificate showing the amount of stock owned by him, but it does not follow from this provision that the secretary could have authority, express or implied, to take possession of a certificate once owned by him, but which had been legally and formally transferred and manually delivered to the Company, and thus passed wholly out of his own possession, and later sold outright to a third party, and issue it anew. His act in abstracting the certificate from the safe, and uttering it as valid, had no relation to the authority with which he was actually clothed, nor in fact with any semblance of authority. It was, in fact, a criminal act, perpetrated for private gain and not connected with any official authority, real or apparent. At all times, after the transfer to the Company, the certificate was in the legal as well as manual possession of the Company until the purchase by Clark, and then and thereafter it was in his legal possession, and in his actual possession until abstracted by Tyler. Tyler’s access to the drawer where the certificate had been placed by Clark, and opportunity to possess himself of any of its contents was not, therefore by reason of any authority. His opportunity was that of a mere servant. The doctrine of implied agency would not seem to be applicable to the facts of this case.

Is the Company, or is Clark, estopped to make defense and set up title to the stock?

The ground urged by the plaintiff in error is that of culpable negligence. The finding of the trial court that certificate No. 61 was lost or mislaid without any fault or negligence on the part of Clark or of the Company, answers this claim of estoppel unless the law is that one may not leave his property where it may be found by a servant except at the peril of losing his title thereto if the servant steals and disposes of it to another. We know of no principle of law, nor of -any decision, which goes to this length. The facts do not make a case where the owner of property has put it in the possession of another with indicia of ownership so as to invoke the rule that where two innocent persons must suffer by the act of a third, he who has enabled the former to occasion the loss must sustain it. The Company, when it became the equitable owner of the stock, placed the certificate in the drawer of its president; it did not place it in the possession, real or constructive, of Tyler. Nor was there any reason existing for suspecting the integrity of Tyler. He had been an officer of the Company, trusted, and apparently deserving trust, since the year 1876. Nothing had occurred during all this time to cause the Company, or his fellow officers, to doubt his honesty and faithfulness, and so far as appears, the abstracting and using this surrendered cer-' tificate was his first act of malversation during his employment. If the Company had had reason to suspect the honesty of Tyler, a different question would be presented. It is not negligence, but ordinary care and prudence, to deal with one who has proven himself worthy of confidence in the belief that he remains honest, and trust him accordingly, even though it should turn out that he afterwards, yielding to temptation, has betrayed his trust. As remarked by Williams, J., in Ex parte Swan, 7 C. B. (N. S.), 447; “It is one thing to say that a man shall be answerable for such immediate consequences of his acts as a reasonable man might foresee and dread, and therefore shun. But it is another and very different proposition to maintain, that a man shall forfeit his property because he has done an act which will not be perilous unless others are guilty of misconduct which that act does not cause.” The injury to the Bank and to MeDowell was not the natural consequence of the leaving of the certificate in the president’s drawer, or one which might have been reasonably anticipated. The rule, and we believe the true rule, is stated by Blackburn, J., in Swan v. N. B. A. Co., 2 H. & C., 182, thus: “The neglect must be in the transaction itself, and be the proximate cause of leading the party into the mistake; and also, as I think, that it must be the neglect of some duty that is owing to the person led into that belief, or, what comes to the same thing, to the general public, of. whom the person' is one, and not merely neglect of what would be prudent in respect to the party himself, or even of some duty owing to third persons, with whom those seeking to set up the estoppel are not privy.”

It is urged that the Company ought, before issuing a new certificate to Clark, to have required a bond of indemnity from Tyler. But No. 61 was not a lost or destroyed certificate within the meaning of the statute ; nor was it outstanding. It was in the possession and custody of the Company; for the time mislaid, but still in its control. Tyler had already done respecting it all that he was to do, or could then have been required to do.

It is further insisted that, on the authority of Bank v. Railway Co., 21 Ohio St., 221, Clark having but an equitable title to the stock, cannot prevail against the Bank’s legal title. But this proposition assumes the very point in controversy, and the trouble with it is that the Bank got no title. It took its pledge from one who did not own the property; in other words, from a thief.

A review of the authorities we regard as unnecessary and content ourselves Avith the citation of the following cases: Moores v. Bank, 111 U. S. 156; Far rington v. Railroad Co., 150 Mass., 406; Insurance Co. v. Railroad Co., 139 N. Y., 146; Hill v. Jewett Pub. Co., 154 Mass., 172; Knox v. Eden Musee Co., 148 N. Y;, 441; 1 Cook on Corp., Sec. 359; Barstow v. Savage Mining Co., 64 Cal., 388; Birmingham Land Co. v. Dennis, 85 Ala., 565; Swim v. Wilson, 90 Cal., 126; O’Herron v. Gray, 168 Mass., 573; Shaw v. Spencer, 100 Mass., 382.

Much stress is laid by counsel for plaintiffs in error upon the case of Railway Co. v. Bank, 56 Ohio St., 351, and it is insisted that the case at bar is ruled in their favor by that case. We think not. That was a case of over.issue by an officer having apparent authority to issue. This is a case of a stolen certificate. The substance of the holding in the case cited is, as expressed in the third paragraph of the syllabus, that the company is charged with the duty of observing care in the issue of stock, and of supervising their agents charged with the performance of the duty, and the want of care found against the corporation was that it negligently permitted its secretary to have possession of certificates of stock, signed by its president and having thereon the corporate seal, in excess of its authorized capital, and thus afforded that officer the opportunity of fraudulently issuing certificates of stock. It is apparent that this case presents a radical distinction when placed in contrast with the case at bar. There the negligence of the company was an essential feature; here it is distinctly found that the Company was not negligent. Whether the language of the opinion and syllabus, in all particulars, is or not of too broad a character we need not discuss. Suffice to say that the law of the case is the judgment of the court upon the facts found, and that, and that alone, is what is binding as a precedent. The essential facts being different, the case does not apply.

The case at bar may be summed up in a paragraph. The secretary of the corporation was a holder of its stock represented by a valid certificate. He pledged the stock to the Company as security for a debt owing to it, and assigned the certificate in blank and delivered it so assigned to the Company. It was then placed by the president in his drawer in the Company’s safe. Later the secretary, by private agreement with the president, sold the certificate to him outright. Without fault of the Company, or of the president, the certificate had become mislaid. Some time after, the secretary found and fraudulently abstracted the certificate from the drawer and pledged it for a private debt to an innocent taker who accepted the security without inquiry. This pledgee took no title.

The judgment of the circuit court will be

Affirmed.

Williams, C. J., Burket, Davis, Shauok and Price, JJ., concur.  