
    URIAH HERRMAN, et al., Plaintiffs, v. JAMES R. MAXWELL, et al., Defendants.
    I. Pledge.
    1. Increase of pledged property is pledged with it.
    
      (a) Stock ; dividends on pledged stock.
    1. Title to them is in the pledgee.
    1. Non-transfer on the hooks.
    
    Does not prevent the passing of the legal and equitable title as between the parties.
    
      (6) Pledgor of stock not transferred on the books of thb
    COMPANY.
    1. Trustee of pledgee as to nominal title.
    1. Pledgor receiving dividends.
    
    Becomes trustee as to them for the pledgee.
    Before Sedgwick, Ch. J., Freedman and Truax, JJ.
    
      Decided May 2, 1881.
    By their complaint the plaintiffs alleged :
    That in December, 1877, they received from the firm of Netter & Co., bankers and brokers, a certificate representing two hundred shares of the capital stock of theU. S. Express Co., issued to A. C. Vogdes, with the usual blank power of attorney indorsed thereon, and that in good faith and without notice of any adverse claim thereto, they loaned to said Netter & Co. a sum exceeding the value of said stock, upon the credit thereof; that the loan became due shortly thereafter, but was not paid; that thereupon plain tiffs were about to sell or transfer to themselves said stock, but before so selling or transferring they received an order from Netter & Co. to deliver the stock to defendants, and a notice from defendants that they were the owners thereof; that defendants requested them not to sell the stock, representing that they would redeem it at full value; that relying thereon, plaintiffs retained the same ; that defendants thereafter collected and received the dividends, amounting to $400, and refused to pay them over to the plaintiffs on demand.
    At the trial the facts were proved as alleged, except that plaintiffs failed to establish any agreement or representation on the part of defendants to redeem the stock.
    Instead, the plaintiffs simply told defendants that they would not dispose of the stock for the present, until defendants should decide what to do.
    This was in deference to defendants’ notice, and to the order of Netter & Co. to deliver the stock to defendants.
    When the plaintiff rested, the defendants’ counsel moved to dismiss the complaint on the following grounds, viz. :
    1. That there was no specific and agreed pledge of the dividends, either by defendants to Netter & Co., or by Netter & Co. to plaintiffs, proved to have been made.
    2. That plaintiffs are not entitled to recover under the allegation set forth in the 4th section of the complaint.
    3. That as to the dividends, plaintiffs did not stand in the position of bona fide holders, or owners for value without notice, within the equity rule laid down as to shares of stock, that the more negligent of two innocent parties must suffer : for plaintiffs, before the declaration or payment of the dividends, had received notice as to the stock itself, and all of it, that defendants were the owners ; all subsequent occurrences took place with their full knowledge of these facts.
    4. That no contract is set forth in the complaint such as could be enforced, it lacking consideration, and being therefore void under the statute of frauds.
    5. That the corn plaint does not state facts sufficient to constitute a cause of action.
    6. That upon all the facts proven the plaintiffs are not entitled to recover.
    The motion was denied and defendants’ counsel duly excepted.
    The defendants offered no evidence, and the court thereupon, on motion of plaintiffs’ counsel, directed a verdict for the plaintiffs for $460, to which direction defendants’ counsel duly excepted.
    Finally, defendants’ exceptions were ordered to be heard at general term in the first instance, and the entry of judgment was suspended.
    
      
      Man & Parsons, attorneys, and Will. Man, of counsel, for the plaintiffs.
    
      George H. Fletcher, attorney, and of counsel, for the defendants.
   By the Court.—Freedman, J.

The position of the defendants towards the plaintiffs, at the time of the collection by them of the dividends, was the same as if the stock of the defendants had been voluntarily pledged by them to the plaintiffs for the debt of Setter & Co. for a larger amount, and the precise question presented for determination therefore is, whether, as between pledgor .and pledgee, a pledge of stock per se includes a pledge of the dividends which may be declared during the life of the pledge. It has been settled, by repeated adjudications, that, as between the parties, the delivery of the certificate, with blank-assignment and power indorsed, passes the entire title, legal and equitable, in the shares, notwithstanding that, by the terms of the charter or by-laws of the corporation, the stock is declared to be transferable only on its books ; that such provisions are intended solely for the protection of the corporation, and can be waived or asserted at its pleasure ; and that no effect is given to them except for the protection of the corporation (McNeil v. Tenth National Bank, 46 N. Y. 325 ; Leitch v. Wells, 48 Id. 585). This being so, and it being elementary law that the increase of property pledged is pledged with the property, the result is that while the plaintiffs, by omitting to register the transfer of the stock to them upon the books of the corporation, occupied in that respect a condition analogous to that of the holder of an unrecorded deed of land, they nevertheless possessed against the defendants a perfect title to the shares represented by the certificate in their possession and indorsed to them in blank (McNeil v. Tenth National Bank), and Netter & Co., and subsequently the defendants, who claim under Netter & Co., became trustees of the plaintiffs as to the nominal title (Johnson v. Underhill, 52 N. Y. 203). If, while this relation existed, the defendants collected dividends on the shares so pledged under a claim of beneficial interest in said shares, they became trustees as to such dividends, for the plaintiffs. They cannot deny plaintiffs’ title, nor can they be treated as adverse claimants, as in Peckham v. Van Wagenen (45 Super. Ct. 328), since affirmed by the court of appeals. The dividends follow the legal title in such a case as between the parties, for, until the corporation is wound up, all there is of a share is a right to future profits or dividends. So it has even been held that under a contract for the sale of stock which amounts to a sale in presentí, and charges the purchaser with interest on the purchase-money from the time of the sale to the time of the delivery, the vendor becomes a quasi trustee for the purchaser from the time of the sale, and the purchaser is entitled to all dividends accruing between the sale and the delivery (Currie v. White, 45 N. Y. 822).

I am therefore of the opinion that the rule as to past dividends applicable to executory contracts for the sale of stock, as laid down in Spear v. Hart (3 Robt. 420), does not apply to the present case; that the case at bar is to be governed by the principles of Bradley v. Root (5 Paige, 632), which is noticed and distinguished in Patrick v. Metcalf (37 N. Y. 332); and that consequently, and especially as the debt of Netter & Co. exceeded the value of the stock pledged, the plaintiffs are entitled to recover from the defendants the dividends collected by the latter.

True, there is an embarrassing feature, inasmuch as it does not clearly appear how the defendants were enabled to collect the said dividends, and from whom they were collected. Prom- the condition of the certifi•cate delivered to the plaintiffs, it would seem that the shares stood in the name of A. C. Yogdes on the books of the company. But whatever the fact may have been in these respects, it is sufficient to know that the defendants in some way collected moneys which they knew did not belong to them, but belonged to the shares of which the plaintiffs held both the possession and the legal title, and that the defendants never were in a position to disturb such possession or to deny such title.

The conclusion arrived at, was reached without xelying on the case of Hill v. Newichawanick Co. (48 How. Pr. 427), on which the plaintiffs laid great stress. In my judgment, the point here involved was not decided by that case. Under the facts of that case the dividends did pass to the pledgee, not by operation of law, but by the consent of the pledgor. This fails to clearly appear in the opinion rendered at special term, but it does appear from the opinion of the general term, reported in 8 Hun, 459.

The defendants’ exceptions should be overruled and judgment ordered for plaintiffs on the verdict, with costs.

Sedgwick, Ch. J., and Truax, J., concurred.  