THURBER V. CECIL NAT. BANK.

513

et al.

THuRBER

et al. v.

CECIL NAT. BA1'4'K

(Circuit Court, D. MU'/"l/1.and. October 15,1892.)

L

EQUITY-PLEADING-JURISDICTION-BILL OF DISCOVERy-QTHER RELIEI!'.

A bill filed as a bill of discovery, but containing a prayer for other specific and general relief, showed that certain goods pledged to complainants were stored in warehouses by their agent. who took stol"age receipts in hIS own name as "agent," lind afterwal"ds pledged them to defendant bank for his own benefit. Held that, whether or not the bill was sufficient as a bill of discovery, the facts alleged made a case cognizable in equity, since they showed that the goods were apparently impressed with a trust, and that there had been a breach of the trust participated in by the bank. The taking of testimony before a master was protracted and desultory because of the sickness and death of counsel, and of difficulty in obtaining the attendance of witnesses, and, by consent of parties, many orders wEl're obtained enlarging the time for taking testimony, and other orders for admitting testimony taken out of time as if orders for enlargement had been made. Held, that such orders could not be considered as an agreement to admit inadmissible testimony thus taken, and that one of the consenting parties could still invoke the rule requiring the suppression of depositions taken on the re-examination of witnesses who had been once examined and cross-examined as to the same mattel"s, unless an order for such reexainination had been first obtained for cause shown. ' An agent, pursuant to the order of his principal, loaned money on a of personal property, taking warehouse receipts therefor in his own name as "agent," wllich he pledged to secure his individual debts to a bank having knowledge of the business relations of the principal and agent and the operations in which they 1.""re engaged. Held, that this knowledge, together with the use of the word .. ag-ent" on the receipts, was sufficient to Jlut' the bank npon inquiry, and it was liable to the principal for the amount realized by it from the sale of the goods so pl"dged.

B.DEPoSITIONS-RE-EXAMINATION OF WITNESS BY (':ONSENT.

8.

PRINCIPAL AND AGENT-MISCONDUCT OF AGENT-RIGHTS OF THIRD PERSONS-NoTICE.

4.

SAME-POWER TO SELL-PLEDGE.

The fact that the agent had power to sell for his principal did not alfect the duty of the bank to make inquiry, for authority to sell does not include authority to pledge. The :Maryland factors' act, (Code, art. 2,) providing that any person intrusted with storekeepers' certificates or other similar documents showing possession may pledge the goods to anybody who is without notice that such person is not the actual owner, does not excuse the bank from liability, for the word "agent" and the circumstances charged it with notice. Md. Code, art. 14, declaring storage receipts to be negotiable instruments in the same manner as bills of lading and promissory notes, does not excuse the blmk from liability; for, when the fiduciary character of the holder is expressed on the face of a negotiable instrument, notice is thereby given to the indorsee that the holder prima facie has no right to pledge. The ap;ent took certain money due his principal, made advances to third parties, and purchased goods thereWith, which he warehoused in his own name as agent, thereafter pledging them to the bank by transfer of the storage receipts. He never intended his principal to have these goods. Held, that the title to such goods was never in the principal, and that the bank was not liable for the amounts advanced on them. The principal heard that A"oods which he suspected might be his were being sold by direction of the bank, but did not notify it of his claim until four months afterwards. During this period the bank had paid over to the agent certain sums remaining after the satisfaction of its loans, and cl'limed that the principal was guilty of laches. It did not appear, however, whether these sums were realized from the goods owned by the principai or from those owned by the agent. Hetd, that there was no presumption that they were the principal's goods, and the delay would therefore not defeat his right of recovery.

5.

SAME:""STORAGE CERTIFICATES-RIGHT TO PLEDGE.

6.

SAME.

7.

SAME.

8.

SAME-LACRES.

v.52F.no.6-33

REPORTER,

vol. 52··

In Equity. Bill by H. K. & F. B. Thurber & Co. against the CeciL National and A. M. H;qncock. Decree for complainants. Thomas G. Hayes, for com,plaipants.", " Robert H. Smith and Peter E. Tome, for Cecil Nat. Bank.
MORRIS, District is a bill filed as ,a bill of discovery, in which the cODlplainants, qUizens of New York, allege that Hancock was their to advance money to the of canned tomatoes in HarMd.,upbn thei>ecurity of the canned goods; that the warehbllse receiFlts for the ;goods npon which they so loaned money were made out in the name of A. M. Hancock, agent, and afterwards, ont them, Hancock,pledge\l the goods to t4e defendant bank, by indorsing to it for loans obtained from own use., JUs alleged, that the officers of the ,bank knew, the bank or had reasoD'to know, the complainants were the principals for w.bi>m the go,odswere in ,tbe, llame of A. M. Hancock, a,gent, and, in takiIlgthe warehonsereceiptsQs security forhis own debt, they acquired' no' title to the gqoqs. The prayer of the bill is for l\, discovery transl}ctions in which goods weresp of the pledged',andfor the delivery up of the goods in the, bank's possession, and an acoountof its' orders, and for other and further relief. It beh14f'6t'thedeflmdant bank that bill and tesUmonydo not disclose a case proper for a bill of discovery, for the reason that all the knowledge sought by it the complainants either already had, ,the ordinary processes and practice of courts or could oflaw. I do not find it necessary to determine this soni'ewhat difficult it does question; for, independently of discovery as a ground clearIyappear from the l!Jlegations of the bill and from the testimony that the goods in .controversy are goods which had pledged to tile comphtjnantB, and which in their behalf the defendant Hancock had placed in warehouses, taking the storage receipts in his name as ,that his of them to the bank was a breach of trust, agent, iJuvhicb the bank participated. Such a breach of trust as is alleged in the bill. preselltsa case of equity jurisdictiqn· very frequently recognized. National Bank v. Insurance Co., 104 U. Duncan v. Jaudon, 15 Wall. 165; Warner v. Martin, 11 How. 225; Taliaferro v. Bank, 71 Md. 208, 17Atl. Rep. 1086; Lowry Y. Bank, Taney, 310; Shaw v. Spencer, 100 Mass. 382;DiUon v. Insurance Co., 44 Md. 386. Upon the ground, therefore, that the allegations of the bill disclose that the goods in controversy were deposited in the name of Hancock, agent, and therefore apparently impressed with a trust, and that the dealings. between Hancock and the 'bank amounted to a bread) of that trust, I think sufficient appears to'.give a court of equity jurisdiction, without discussing the sufficiencyofthe bill as a billof discovery. . Another preliminary question raised by the bank is the admissibility of certain testiInony taken before the master. At the hearing, excep-

THURBER V. CECIL NAT. BANK.

515

tfons were filed,and a: niotionmade to exclude so much of the testimony efthe defendant Hancock and of Alexander Wiley as was taken upon their reJexaminatiori, after having been once called, examined, cross-exarnined, and dismissed, upon the same subject-matter, and upon the ground that no order of court was first obtained for such ,re-examination. It is urged by the complainants that the re-examination was by consent of the ing parties. By reason of difficulties in obtaining the attendance of witnesses, and by reason of the illness and death af the original counsel for the bank, and the illness and death of the original counsel for the complainants, the examination of witnesses before the master was protracted and desultory, and the time for examining witnesses on both sides was frequently enlarged by orders ofcourt upon consent of the and orders were obtained by which testimony was agreed to be admitted as if the orders enlarging the time had previously been obtained; but all these orders and agreements had reference solely to enlarging the time, and not to the admissibility of the testimony, and had no reference to any objections except those growing out oflapse of time. I think the objection urged by the ceptions comes entirely within the salutary rule that the depositions of witnesses previously examined as to the same matters will be suppressed, 'unless an order of court for cause shown has been first obtained for the re-examination, in which the terms on which the leave is granted and the interrogatories proper to be asked are specially settled. 3 Green!. Ev. § 336; Trustees, etc., v. 44 Md. 465; Girault v. Adams, 61 Md. 1. The objections to these portions of the testimony are sustained, and they will not be considered. The testimony properly before the court shows that Hancock, residing in a village in Harford coup.ty, in 1883, and for some years prior thereto, acted as a broker for the sale of canned goods canned by the farmers and packers in that county, and also for the sale of supplies required by the packers. In 1882 and 1883, as a broker, he negotiated sales from the complainants, who were merchants doing business in New York city, to Harford county packers, for cans, solder, and canning tools, for a commission. He also, for a commission, placed for the complainants, in the hands of certain packers, cans to be filled with tomatoes, at an agreed price, and then shipped to the complainants. He also negotiated some sales of canned goods to the complainants on behalf of the county packers. When the packers who had purchased supplies from complainants were unable to meet the notes given in payment, he appears occasionally to have negotiated discounts for such packers at the defendant bank, becoming indorser on their notes. He was, however, known to the bank officers to be a man of no capital and very little credit." Early in the tomato packing season of 1883, Hancock suggested to the complainants that as the price of canned tomatoes was very low, and the packers were anxious to hold on to their goods for better prices. the complainants might get the control of the selling of a large amount of these goods packed in Harford county, if they would make liberal advancf,s of money to the packers on pledge of the goods; that the complainants would get interest on their money and a c0mmission of .5 per cent. fo1' selling, of which com-

516

FEDERAL REPORTER,

vol 52.

mission the,y were to pay HanCQck a share for his services. To this the complainants consented, and agreed to advance from 70 to 75 cents a dozen on three-pound cans of tomatoes stored in warehouses in their names, with insurance payable to them. In pursuance of this agreement, the complainants furnished Hancock with large sums of money, which he deposited in the defend,ant bank in October, 1883, in the name of A. M. Hancock, agent, he having previouslv had an account there in the name of A. M. Hancock & Co. These sums so furnished and deposited in October, November, and December, .in 1883, amounted to over $93,000, and were loaned out throilgh .Hancock's agency to numerous packers; their notes for the loans to the order of the complainants, together with the warehouse receipts in complaiJlantsl names, being forwarded by Hancock to the complainants. The anticipated rise in the price of canned tomatoes did not take place, and they came to be worth hardly anything more than the amounts advanced upon them, and for thie and other reasons the loans were extended and carried over into the next year. One of the p_ackers becoming insolvent, litigation ensued, in which it was decided that the warehouse receipts issued by the packers for goods stored in their own warehouses, which was the character of many of the receipts taken by complainaj;lta as security, were inyalid against attaching creditors; and in August, 1;884, in orde.r that these goods might be warehoused in such manner that there be no question about complainants' title, all the receipts then ,in .!pe hands of the complainants, together with the notes secured by them, were sent by complainants to Hancock, in order that be might for them attend to having the goods properly warehoused fortheir security. These goods were so warehoused in several the storage receipts, by Hancock's direction, were storage plac(:l,S, made out in.the name of A. M. Hancock, agent. It was the intention ofthe complainants at that time that thegoodsshould be rapidly shipped t,o ,be sold, or shipped to the persons they should sell to, to and that H\lncock also should negotiate such sales on. their behalf as he c01,l.ld, and, ship the goods to the purchasers, the complainants paying hiin a part of their com.mission of 5 per cent. Although constantly written to imd urged, Ilancock forwarded the goods very tardily, and iJ;l September, .1884, he began borrowing money from the defendant pank upon pledges of these warehouse receipts, which had been made out in his name· as agent, and which he indorsed over to the bank. During September, October, November, and December, 1884, he obtained from th.e bank 15 loans, amounting to about $15,000, pledging as security 1(),6lH cases, .of two dozen cans each, of the tomatoes packed in 1883, and'aqout 5,000 cases of goods packed in the season of 1884. Without recourse to Hancock's excluded testimony, but with the light thrown upon the transaction by his first examination, and by other witnesses, and by the bank books, check books, letters, and documentary widence produced and not excluded, enough appears to show that the complainants held the title to the goods of the pack of 1883, which Hancock pledgedto the bank. It is true that in this first examination

THURBER V. CECIL NAT. BANK.

.517

Hancock does say of these goods that they were put into his hands by the packers, and were warehoused by them in his name as agent, in order that he might sell them to reimburse himself for money which he had advanced them; but from his own testimony, and bank book and the documents and letters he produces, it appears that all the advances originally made by him to these packers of the goods of 1883 had been repaid to him out of the loans subsequently marle to them by the complainants; and although he attempts to confuse the matter by speaking of his advances to these packers, and of their orders to him to sell their goods to pay the advances, it is perfectly obvious that the advances were the loans he had made for the complainants with complainants' money. Of the goods of the pack of 1883, all have been traced, and the testimony leaves no doubt that they were portions of the goods pledged to complainants, and held by them as security for their loans to the packers. These loans, with interest, storage, insurance, and commission, in most cases quite equaled, if they did not exceed. the value of the goods, and in October, 1884, the packers had no longer any beneficial interest in them. As to the goods of the pack of 1884, with regard to some of them, it appears that Hancock, from the sale of other goods pledged to complainants, had money of theirs in his hands, which he should have reported and paid over, but instead he used it in making advances to packers on the pack of 1884, and in purchasing goods of that year. These goods he also warehoused in the name of A. M. Hancock, agent, and they are the goods of 1884 pledged to the bank. Together with these, however, there were some goods of the pack of 1884 which Hancock had taken as security for sales he had made for complainants of cans and solder. As to the goods of the pack of 1883, the actual fact being that they were the goods of the complainants, and that Hancock had no title to them, and that the warehouse receipts were in his name as agent, unless there is some provision of the Maryland factors' act or of the Maryland warehouse act, or unless the complainants are in some way estopped, it is well-settled law that Hancock, although he had authority to sell, could not, without complainants' authority, pledge the goods, and that the bank, independently of all the other sources of knowledge, from the word "agent" on the face of the warehouse receipts, had notice that Hancock was not the actual owner, and that he was prima facie doing an unauthorized and unlawful act in pledging them, and that the bank in loaning money On them assumed the burden of ascertaining the actual fact of ownership and Hancock's authority to pledge. The cases already cited are authority for this rule oflaw, and many others might be cited. Beyond the significant fact that the warehouse receipt itself imported that Hancock was not the actual owner, there was much within the knowledge of the officers of the bank with regard to the large amount of money of the complainants passing through their bank in Hancock's account, as agent, and which they knew that Hancock was advancing for complainants on the security of canned goods placed in warehouses in the season of 1883, which should have put them upon inquiry as to

.518

,;FlW!ERAL REPORTER,

vol. 52,

,the,;a.ctualocwnership ofrtfte',goods. It is true :that when the account was opened in Noveiribei, i1BB3, the officers of the bank asked Hancock fO,l' whomrihe wasagentJ:, :andhe replied,lC,For my wife and children;" bllt: they (JQuld not escape knowing the nature of the transactions for which the account was used, and as to the ownership of these goods taken by them it. is not contended that they ever ,made any inquiry whatever. That the goods pledged to the complainants; stored in the different warehouses; should be warehoused in the name of Hancock, agent, under al1 the circumstances of the business, was natural. It enabled Hancock to attend to shipping them insllch lots as the complainants might make sales of, and as he might be, directed by them. The fact that Hancock ,had the authority from co.mplainants to sell and deliver such of them as he could find purchasers for at satisfactory prices does not help the bank's case at all, for an authority to sell does not include a power to pledge. .Allen v. Bank, 120 U. S. 32, 7 Sup. Ct. Rep. 460, and cases ther,ecited. Coming now to the goods of the pack of 1884,1 think most of them stand upon a different footing. The title to at least a considerable quantity of these goods was ,never' in the complainants. All that can be said in their behalf is that, as Hancock had converted complainants' money to his own use, and, had misapplied it in. obtain.ing these goods of the pack of 1884,instead of paying it over to them, that they might have an equitable lien on the goods to the extent that their ,money was used in paying .for them. But, with some exceptions, Han-· cock never considered these goods theirs. He did not obtain these goods for them, but for himself. In warehousing them in his name as agent, he may have intended to protect them from other creditors if occasion required; but he did not intend to give complainants a title to them, and never told them anything about them, and they knew nothing about them. If the officers of the bank had gone to the complainants, and aske<l if these goods were theirs, they would have been obliged to answer that to their knowledge they had no goods of the pack of 1884 warp-housed in Harford county. The money of the complainants has not been directly and distinctly traced to the payment for these goods, and I do not find the misappropriation of complainants' money, in purchasing, brought home to the officers of the bank, so as to affect them with knowledge of it. It seems not at all improbable that some of the loans from the bank went in part to pay for these goods. On behalf of the bank, it is urged that both by the Maryland factors' act, (Code, art. 2,) and the Maryland act with regard to storage receipts, (Code, art. 14,) the common-law limitations upon the right of one in-. trusted with goods to pledge them have been so altered as to protect the bank in its transactioDs, with Hancock. The Maryland factors' act provides that anyone intrusted with bills of lading, storekeepers' certificates, orders for the delivery of goods, or similar documents showing possession, shall be deemed the true owner of the goods described therein, and may sell orpledgA the same to any person: provided, that person

THURBER". CECIL NAT. BA:l\'K.

519

shall not have notice, by such documents or otherwise, that the person so intrusted is not the actual and bonafide owner. In the present case, however, it is plain that the bank, from the word "agent" appearing on the face of the warehouse receipt, had notice that Hancock was not the actual and bona fide owner. By the Maryland act with regard to storage receipts, they are declared to be negotiable instruments in the same manner as bills of lading and prOlriissory Dotes; but it still remains the law with regard to stora.ge receipts,as well as with regard to negotiable instruments, that the pledgee takestheni at his peril, if there is anything appearing on the face of the instrument which affects the holder's right to pledge it. The holder of a promissory note, made payable to him as trustee,executor, attorney, 01' agent, has not prima facie the right to pledge it. The fiduciary character of the holder being expressed on the face of the instrument, and giving notice that the holder is not the true owner, there is'nothing in any of the Maryland acts which relieves the pledgee from ascertaining the actual authority of the holder to pledge. Allen v. Bank, 120 U. S. 20, 7 Sup. Ct. Rep. 460. In iriyjudgment, the complainants have established their right to a. decree against the bank for the amount realized by it from the sales of 10,661 cases of canned tomatoes of the pack of 1883, pledged to it by Hancock. It is urged that there Was laches on the part of the complainants after they learned that their goods had been pledged and were being sold by direction of the bank, in delaying to notify the bank of their claim, and, in consequence of that delay, the bank paid to Hancock a considerable balance in cash which remained after sll;tisfying the bank's loans, and which, if timely notice had been given, they could have retained. From a letter from complainants to Hancock, dated November, 1885, they appear to have heard that goods were being sold by a commission merchant at Havre de Grace named Seneca, by direction of the bank, for money loaned, which they suspected might be their goods, and they asked Hancock for an explanation of it. What his explanation was I do not find, but, as they did not notify the bank of their claim until four months afterwards, there would appear to have been a remissness on their part; but as there were pledged to the bank by Hancock, besides the goods of 1883, which I have held to be the complainants', about 5,000 casea of the goods of 1884, which Hancock obtained in the manner hereinbefore mentioned, and as to some of which the testimony indicates that they were also held as security for debts due to complainants for goods sold the packers in 1884. and as it does not appear from which of these lots of goods the balance paid over was derived, I do not find that there is any presumption that the money paid over was derived from complainants' goods, rather than from the goods which were not complainants. Decree in favor of complainants for the amount realized from the sale.'i of the goods of 1883 sold by the bank, with interest from date of filing bill, and costs.

520

FEDERAL REPORTER,

vol. 52.

ROBINSON

LIGHT

&

POWER

Co. et aZ.v.

et al.

(Oircuit Oourt,D. Massach11i8etts. September 20, 1899.) No. 2,744.
1.CQB1'OIU.TIONS-TRANSFERS OF STOCK-UNAUTHORIZED SALE-INNOOENT PURCHASER.

tween the parties thereto, ,,'until the same has been entered on the bookS of the corporation, does not govern the rights of two persons, each claiming a certificate of litookwhich was transferl'Eld to one of them by a third person bymere indorsement and which the other acquired in good fai1:R:J, for a valuable consideration, frOm a stranger, who had it in his possession without authority. 2. BkME. NOr is !!uch a case controlled by Pub. Jilt. Mass. c.7S, § 6, which is. apparently aime'd. only at stock jobbing, or byActll ¥ass. 1884, 0.229, even if it reacbes stock of foreign corporations, as its only purpose 'appears to be to remove the necessity for the registration of of stock otlrtificates as against subsequent purohaser!!. ' 8. SAME-ESTOPPEL. The rule that where one of two innooent persons must su1fer through the fraud of a third person, he 1!1USy bear the loss who placed it in the power of the third person to commit the f!'aud, not apply to the case of two persons haVing a safety deposit box in oOmmon, and one' of them, willhout authority, abstracting therefrom, and transferring to an innocl3nt purchaser for. value, a certificate of stock indorsed in blank belonging to the bther.
4. SUlB-NEGOTIABILITY.

by indorsement and delivery, but that the transfer shall not be valid, "except be·

'l'l1e Maine statute providing that shares of corporate stock may be transferred

While, oertifioates indorsed .in blank have a certain quasi negotiable character, this quality does not inhere'ln them to the extent of depriVing the owner , of title when the certifieatMil stolen from him, and then transferred to an innocent purchaser for value. '

In Equity. Bill of interpleader brought by the Bangor Electric Light & Power Company, a Maine corporation, and Frederick M. Laughton, against Elizabeth R. Lee and president thereof, and a citizen oJ Augustus G. Robinsol1,both citizensofMr.ssachusetts, to determine the right to a certifioate of 100 shares of stock in the complainant corporation. Decree in favor .ofdefendant Robinson. The bill shows that c01;nplainant Laughton, in his individual capacity, sold to defendant Robinson the certificate of stock in question, and transferred the same to him by an indorsement in blank, that no transfer on the books of the company had ever been made, and that the stock had subselluently come into possession of defendant Lee, who still retainpd it, and clilimed a right to hold itascollateral security, and that Robinson also still .claimed to be the owner thereof, and had notified the company to that effect. From the separate answers of the defendants and the proofs, it appeared that Robinson had. certain business relations with one Williams, a broker, and that they had in common a safety deposit box, to which each had access; that Robinson placed the certificate therein, and that, without his authority or knowledge, Williams abstracted it therefrom, and transferred it to Mrs. Lee, as collateral security for a loan, and that he subsequently disappeared without repaying the money borrowed. The answer of Mrs. Lee averred, among other things, that Williams was introduced to . her by Robinson, who recommended him to her in high terms, repre-

BANGOR ELECTRIC LIGHT & POWER CO. V. ROBINSON.

521

sented tbat he was honest, and advised ber to buy stocks tbrough him and deal with him, and stated that he himself had employed Williams as his financial agent to buy and sell stocks, and intended to do so in future. She further averred that, believing these representations, she had various dealings with Williams, including that already mentioned. Charles G. Chick, for complainant. George C. Abbott, for defendant Lee. Charles L. Woodbury and Henry Walker, for defendant Robinson.
PuTNAM, Circuit Judge. In the view of the court, no statute, either of Maine or Massachusetts, affects tbis case. The statute of Maine applicable to certificates qfstock provides that they may be transferred by indorsement and delivery, but that transfers sballnot be valid, "except between the parties thereto, until the same is so entered on the books of the corporation," etc. The question under this statute cable to this case is:. Who are the" parties" with reference to wholli the statute by exception declares this transfer valid? In other words, whose name shall be inserted in the blank transfer, under the circumstances ofthis case, to make it complete? When this is ascertained, the transfer becomes perfect in favor of the person so ascertained as against the other "party," namely, F. M. Laughton, who indorsed-the certificate in blank. So far as this case is concerned, there are no -outstanding equities in strangers to be considered, and the statute has no controlling effect. Without a due consideration of this rule of construction of the Maine statute, Iron Co. v. Li.8sberger, 116 U. S. 8, 6 Sup. Ct. Rep. 241, could not have been decided as it was; because here the court held that the transfer was valid, under the particular circumstances, in favor of an unregistered transferee as against an attaching creditor of the stockholder of recora. When read together, the following cases in -the supreme court will be found to be entirely consistent with this conclusion, and to fully sustain it, namely: Baldwin v. Ely, 9 How, 580; CO'mbs v. Hodge, 21 How. 397; Bank v. Lanier, 11 Wall. 369; Vermilye v. Express Co., 21 Wall. 138; Parsons v. Jackson, 99 U. S. 434; Cowdrf!!J v. Vandenburg, 101 U. S. 572; Railway Co. v. Sprague, 103 U. S. 756, and Hammond v. Hastings, 134 U. S. 401,404,10 Sup. Ct. Rep. 727. Pub. St. Mass. c. 78, §6, is apparently aimed only at stock jobbing, as is shown by the reference in Brown v. Phelps, 103 Mass. 313, to Stebbins v. Leowolj,3 Cush. 137. Likewise the Massachusetts statute of 1884, c. 229, does not seem pertinent, whether it reaches certificates of stock of foreign corporations or not. Its only purpose appears to be to remove the necessity of the registration of transfers of stock certificates as against subsequent purchasers, and it does not touch the question of the effect of an, unauthorized sale of a ;certificate indorsed in blank. Fiske v. Carr, 20 Me., 301, turned on the very peculiar language of the statute cited in it, which unqualifiedly provided that the stock should not pass from the proprietor until the transfer had been recorded. So far as the question at bar is concerned, that statute was essentially different from the present. The latter, by implicatioq and uniform construction, an un-

522

FEDERA,ll REPORTER"

voL 52.

notooly asbefweenthe parties to it,.but also as v. Outler, 49 Me. 315; is the ordinary, application,of the.present statute, and in no way touches the quesThe court d()esnot perceive that any other Maine decision cited :hears on this case.Cn! the whole, the court is satisfied that this jurisprusuit is to be disposed of according to the general dence, applicable to certificates of corporate stocks indorsed in blank. Thacoutt is of the opinion that whatever took place personally between Robinson and Mrs. Lee was purely of a friendly character, in no sense allied tQ business transactions, entirely in good faith. and not to be held by thEdaw to prejudice either. The counsel Jar Mrs. Lee bring forward the proposition thAt when: one of two .innocent persons must suffer from the frliudofa third, tbe:loss must be ,borne by him whose negligence enabledi the third person to commit the fraud; and they cite on this poin,t 4llen. v.Railroad Co., 150 Mass. 200, 207, 22N. E. Rep. 917. It canllftfdly,be said thatthis[s a rule of the common Jaw;, but, if it were, application of: it is not helped by the general terms in which itisexpreased. The court is forced to the conclusion that it does riot apply to mlieve Mrs. Lee any more than it would an innocent purchaser fQrfuU:value, of jewelry stolen as the result of careless exposure by the owner"'J!\!rs.,Leeeither,purchased outright, or advanced money on a pledge: of the certificate; or both; but thedetai1s of this are of no consequence, becalUle, having advanced a valuable consideration in good faith, she stQ.nds ill the courts oithe United, States the same in either view. RobinS9n was, absent when the transaction took place; and, if he had been within teach, noncomtat that she would have inquired of him cancerningthecertificate;there being nothing on it to show that he had any interest in it. Indeed, there was no person of whom she could inquire, unless of Laughton,the indorser ofthe certificate. As he had parted with it long before,hecould not have aided her. She had no means of protecting herself. RobinS9n, with reasonable care, couid easily have protected all patties. If it were a mere question of balancing equities, thelloss on the innocent party, the court would have little or of difficulty,. and it regrets that the result of the case must be contrary to . what seems naturaljustice. The evidence,shows, and it is not dispnted, that the certificate ofstock was deposi,tedcbyRobinson in a box in the Boston Safe-Deposit & Trust Company, under su,ch ciroumstances that both Robinson and the broker of whom Ml'S' Lee purchased had access to it. The certificate, however, was not intrusted to the possession of the broker, either directly, indirectly, or impliedly; nor was he authorized to remove it frOm the box. His misdoing was not embezzlement or fraud, but criminal larceny at commOll law. ,The condition of things w8s1ike that of twopersons,.lawyers the same office; with a common sate or vault, and in: which each is accustomed to deposit to which eacl,1 which the court must his papers· or, securities. The follow hns,been stated as late as April of the current year by Lord HERSCHELL in Bank v.Simmons, [1892}App. Cas., 201, 215, as follows:

BANGOR ELECTRIC LIGHT &: POWER 00.

fl.

ROBINSON.

523

"The general rule of the law is that, where a person has obtained the property of another from ,O}l6 who is dealing with it without the authority of the true owner, no title is aqquired as against that owner, even though full value be Kiven, and the property be, taken in the belief that, an unquestionable title thereto is being obtained, unless the person taking it can show that the true owner has 80 acted as to mislead him into the belief that the person dealing with the property had authority to do so. If this can be shown, a good title is acquired by personal estoppel against the true owner. There is an exception to the general rule, however,in the case of negotiable instruments." Consider first the exception in behalf of negotiable instruments. This does not extend to bills of lading indorsed in blank, certificates of stock indorsed in blank, bonds or scrip payable to bearer or indorsed in blank and overdue, nor to instances like those in Par8on8 v. Jackson, u;1Ji supra,and Baxendale v. Bennett, 3 Q. B. Div. 525, where the negotiable paper had been drawn and signed, but never issued. In the view of the court" the rule concerning certificates of stock indorsed in blank is correctly stated in Daniel oil Negotiable Instruments, (4th Ed.) §§ 1708. 1709. They have a certain quasi negotiability, arising largely, if not entirely, from the fact that the holder has voluntarily made delivery tb some other person, and thus precluded himself by the general principles of estoppeljand more particularly by the fact that he has given an appllrently unrestricted authority, which cannot be limited to the injUry of others by undisclosed instructions. This latter proposition is the otdinary rule applicable to all agencies, and is thoroughly illustrated in Breckenridge v. Lewis, 84 Me. 349,24 Atl. Rep. '864: In thiscase'the defendant intrusted to a third person her signature in blank for a business purpose. It was used in violation of the undisclosed authority, and the court sustained the transaction. Certificates of stock 'indorsed in ,blank are so far of a negotiable character that they ordinarily pass from hand to hand, that they are not subject to lis pendens, 'and that, as stated by Daniel, in order to effectuate the ends of justice and the intention of the parties, the courts ordinarily decree a better title to the transferee than actually existed in the transferrer. Nevertheless, we do not find that any court of authority has ever gone so far as to hold that the holder, of them may the title to such as may be stolen from him, as he may of negotiable promissory notes, bilIs,scrip, or bonds, payable to bearer or indorsed in blank. Touching the other proposition found in the, foregoing ,oitation from Bank v. Simmons, namely, that the purchaser shows that "the true owner has soaated as to misltlad him into the belief that the person dealing with the property had authority to do so," the rule is stated generally, but its application is limited. The court need not refer to the wellknown cases in which a party stands by llilently, and permits his property to be disposed, of ,without a protest. The ,contest at bar relates to the mere negligence of the original holder, and how far this mhyprevent him from reclaiming his property. At first it 9ccurred to the court that; inasmuch aa Robinson had Been fit to leave thiscertific'ate' in such condition as to indicate that somebody was authol'ized to 8cq'uire it and fill in, the indorsement, he was barred i' but the court is unabre to find

524

;REPORTER,. vol. 52.

aUYll.1Jtporities sustaining this snggestion,and is compelled totreat this certificate, indorsed in blank and stolen, as it would .any other stolen aside from strictly negotiable securities. Thete has been at times a disposition to lay down broadly rules touching negligence in cases analogous to this. In Bank v. StoweU, 123 Mass. 196, these rules were largely discussed. The opinion pointed out that they apply only when there is some special duty or confidential relation between the parties, as between a depositor and the bank; and it was held that the maker of a note was not liable for the increased amount by which it raised, J?otwithstanding the careless manner in which he had drawn it. ,The same. principle was also discussed in Baxendale v. ubi 8upraj where it was held that, although the defendant had a hlank acceptance, and left it in the drawer of his writing was unlocked, from which it was stolen, and afterwards filled 'up apd purchased by an innoc,ent party, yet he was not liable . lp,; Abbott v. Rose. Me. 194,204, the broader rule was witp but it'WaI3:not material to the case, and iahot har,theprincipIes of the later decisions,-Breckenridge v. Le:wis, an<i othercp.ses already cited. In aU the cases in any Perth'wnt relied on by the counsel of Mrs. Lee there was voluntary ,illtruB;ti9gof actual posaession by the holder. On the whole, the find any principle of tb.ecommon law which will procourt is te,ct :herj and, the, ;case, at. bar, though in equity, involves only commonlaw, rights." ·Let there be .adecree. that the blank transfer on the certificate of stock in question in this case, deposited in the registry of the court, be filled, up in favor of defendant Robinson, and that the plaintiff him a new certificate in exchange therefor,and that comcorporation one half. of their costs from defendant Robinson and plainants nqe half from defendant Lee.

FINANCE CO.'tiF PENNSYLVANIA '!J. C. & C. R. Co. f)t al., (POOAHONTASCOAL Co. et al., Interveners.)
(Oirimit Oourt, D. South Oarolina. November 4, 1892.)
R.4ILROAD COMPANIBS-RBOJIlIVlllBIl-CLAIIIIS OIl' MATERIAL MEN-DIVERTED EARNINGS.

. A .diversion by a raiLro.ad C(llJlpany of $2,809 from tbe paym.ent of claims for material used in keeping the road a going concern, to the permanent improvement of .: tile road, ot to the payment of interest on, bonds, must be made good by the bondholders, and is so made. goot! by the issue of. receiver's certificates and the applica.\ion of their proceeds to sllch'Olaims. and the material men are entitled to no fur. preference from. theploceells of the sale. Fosdick v. Sc1"a,Z1., 1111 U. S. 235. fol' ,,:lowed.

Tn Equity. Bill bY: the Finance Company of Pennsylvania against IS/; Chicago Railroad Company and others. the Charleston, D. H. Qhalllberlain appointed receiver. 45 Fed. Rep. 436. The Poca-