The plaintiff furnished the consideration for the transfer of the shares of stock from Finch, the original owner, the same having been made in satisfaction of a debt due him from the assignor. The stock was transferred into the name of a son of the plaintiff, who was also a son-in-law of the defendant, without the knowledge or consent of the plaintiff, who had no knowledge that the transfer had been made in that form until some time in 1864, long after the transfer by the son to the defendant. The son, at the time of the transfer by Finch, was, in the language of the report of the referee, "to some extent the agent of the plaintiff in New York." *Page 288
The stock was transferred by the son of the plaintiff to the defendant in January, 1860, "in part payment of an indebtedness from said Llewellyn (the son) to defendant of over $2,500;" and "the defendant at the same time sold and delivered to said Llewellyn 280 pounds of butter, at twenty cents per pound, amounting to seventy dollars, which was a part of said indebtedness, paid in part as aforesaid." "Such purchases of said stock were made by defendant's son, acting as his agent; and the sum of $520, the amount agreed upon as the value of said stock, was, by the defendant, credited upon the indebtedness of said Llewellyn by the defendant."
The evidence is that the butter was sold to the assignor of the stock on the third of January, 1860, and the stock was transferred the day following.
The account between the defendant and Llewellyn Weaver was made an exhibit by the defendant, and discloses a long account, commencing in 1852; the last item on the debtor side of which is the charge of seventy dollars for the butter; and the first item on the credit side is the sum of $520 for the shares of stock.
The transaction was simply a transfer of the shares of stock by Llewellyn Weaver, and a subsequent entry by the defendant, in his books, of the credit for the purchase-price. No security was surrendered, and no voucher given.
The defendant parted with nothing as a consideration for the transfer.
The capital stock of an incorporated company is personal property; and it has not, neither has the certificate or other evidence of title or ownership, any of the qualities of commercial or negotiable paper.
As a rule, the purchaser or assignee of shares of the capital stock in a corporation acquires no other or better title than the seller or assignor has, and takes it subject to the legal and equitable rights of third persons. The rightful owner may be estopped by his own acts from asserting his title, as he may be in respect to other property of a like character. If he has invested another with the usual evidence of title, *Page 289 or an apparent authority to dispose of it, he will not be allowed to make claim against an innocent purchaser dealing upon the faith of such apparent ownership and jus disponendi. (Dustin v. Livingston, 9 J.R., 96; Howe v. Starkweather,17 Mass., 244; McNeil v. Tenth Nat. Bank, lately decided in this court and not reported [46 N.Y., 325 — Rep.]; Arnold v. Ruggles,1 R.I., 165.) The plaintiff, the owner in fact of the stock in controversy, did not give to another the external evidence of authority to dispose of it, and did not assent to placing the property, or the evidence of property, with his son.
Whatever was done in the way of divesting the plaintiff of his property, was done in fraud of his rights and without his consent.
An unauthorized sale, although for a valuable consideration and without notice, vests no higher title in the vendee than was possessed by the vendor. (Prescott v. Deforest, 16 J.R., 159;Wheelwright v. Depeyster, 1 id., 471; Williams v. Merle, 11 W.R., 80; Brower v. Peabody, 3 Ker., 121; Covill v.Hill, 4 Den., 323). The property in the capital stock of a corporation is not distinguishable from other personal property; and the owner cannot be divested of his property except by his own voluntary act and consent, or by some act which would be effectual to give title as against him to other movable property and choses in action.
The plaintiff is not estopped, as against the defendant, upon the evidence or the findings of the referee, from asserting his title to the stock and the dividends upon it. The original title of the plaintiff is conceded, and the defendant seeks to make title under one who had no legal title or authority to transfer, but the evidence of title acquired by fraud and without the authority or assent express or implied of the plaintiff. Such a title cannot avail against the rightful owner. (Pollock v.National Bank, 3 Seld., 274.) The only doubt or difficulty as to the right of the plaintiff to recover, conceding all that is claimed in behalf of the defendant, to wit, that he is a bonafide purchaser for value, *Page 290 without notice of the title and claim of the plaintiff, grows out of the fact that the legal evidences of title never were in the plaintiff, the title having been transferred without fault of the corporation directly from Finch to Llewellyn Weaver, and from the latter to the defendant. It is not the case of a transfer under a forged power of attorney or by a person of the same name as the rightful holder of the stock. A party could not be divested of the title to his property by such means, and would have a remedy over against the corporation permitting the transfer, or might follow his stock and reclaim it from the transferee. (See Davis v. Bank of England, 2 Bing., 393; Sewall v. Boston WaterPower Company, 4 Allen, 277; Duncan v. Luntley, 2 McN. G., 30.
The plaintiff here has no remedy against the corporation for permitting the transfer and issuing the new certificates to the son of the plaintiff. The corporation was not careless or negligent in the transaction, aud no wrongful act was commited by its officers.
At the time of the transfer to the defendant his assignor was insolvent and continued so until his death. The only remedy, therefore, of the plaintiff is to follow his stock into the hands of the defendant, and reclaim it, with the dividends, upon the strength of his superior title, and he is entitled to recover unless the defendant is a purchaser for a valuable consideration and in good faith. In Crocker v. Crocker, 31 N.Y., 507, the claimant and rightful owner of the stock had conferred the apparent right of property in bank stock upon a third party who had abused his confidence, and yet was allowed to recover except as against a purchaser in good faith and for a valuable consideration for an advance made on the faith and security of the stock.
The referee, upon the facts found, held that the defendant was the owner of the shares in good faith and for a valuable consideration paid by him therefor, and the complaint was dismissed on that ground.
The plaintiff was defeated on the ground that the defendant had acquired a title superior in equity to that of the plaintiff *Page 291 by a purchase in good faith without notice of the claim or of any defect in the title and for a valuable consideration paid. The referee was clearly right in his views that a purchase, without notice of the plaintiff's claim alone, would not protect the defendant, and that something more than a good consideration, a consideration which would be sufficient as between the parties to the transaction, was necessary to shield him against the claim of the plaintiff.
He recognized the rule that the consideration must be valuable and actually paid, and that the defendant must have parted with value upon the faith of the purchase, and his error was in regarding the credit of the purchase price in his books to the account of the assignor as a "valuable consideration paid."
In speaking of a consideration which is to protect against prior and latent equities, the terms "price paid" and "valuable consideration" are used as convertible terms. (Willoughby v.Willoughby, 1 T.R., 763, 767.) To entitle a purchaser to the protection of a court of equity, as against the legal title or a prior equity, he must not only be a purchaser without notice, but he must be a purchaser for a valuable consideration, that is, for value paid.
Where a man purchases an estate, pays part and gives bond for residue, notice of an equitable incumbrance before payment of the money, though after giving the bond, is sufficient. (Tourville v. Naish, 3 P. Wms., 306; Story v. Lord Windsor, 2 Atk., 630.) Mere security to pay the purchase price is not a purchase for a valuable consideration. (Hardingham v. Nicholls, 3 Atk., 304; Maundrell v. Maundrell, 10 Ves., 246-271;Jackson v. Cadwell, 1 Cow., 622; Jewett v. Palmer, 7 J.C.R., 65.) The decisions are placed upon the ground, according to Lord HARDWICKE, that if the money is not actually paid the purchaser is not hurt. He can be released from his bond in equity. Chancellor WALWORTH lays down the rule as follows: "To entitle a party to the character of a bona fide purchaser, without notice of a prior right or equity, such party must not only *Page 292 have obtained the legal title to the property, but he must have paid the purchase-money, or some part thereof, at least, or have parted with something of value upon the faith of such purchase before he had notice of such prior right or equity." (De Mott v. Stanley, 3 Barb. Ch. R., 403); and see Caldwell v.Bartlett, 3 Duer, 341; Keyes v. Hasbrouck, id., 373.) InRoot v. French (13 W.R., 570), it was held that while a transfer of goods by a fraudulent buyer to a purchaser in good faith, and who gave value for them, that is, paid for them at the time of the transfer, made advances upon them, incurred responsibilities upon the credit of them, or received them in pledge for money or property loaned upon the strength of them, might hold the goods against the seller, the original owner who had been defrauded of them, that a transfer of the goods to abona fide creditor of the fraudulent purchaser in payment of a pre-existing debt did not constitute the creditor a bona fide purchaser for a valuable consideration. Butler v. Harrison (Cowp., 565) was cited with approval, in which it was held that the mere passing money to the credit of another, where there is no new credit given, nor acceptance of new bills or sum advanced in consequence, it was not a payment. The situation of the party was not changed, and he had parted with nothing. That is all that was done by the defendant here. The same principle is affirmed inPadgett v. Lawrence (10 Paige, 170), the chancellor holding that the purchaser of the legal title to property who receives a conveyance thereof merely upon the consideration of a prior indebtedness of the grantor is not entitled to protection as abona fide purchaser, without notice of a prior equity of a third person therein. But the relinquishment of a valid security which the purchaser before held for his debt, and which cannot be recovered, so as to place him in the same situation substantially as to security as he was in prior to his purchase, may entitle him to such protection. This case is cited with approval inPeck v. Mallams (6 Seld., 545). This court, in Wood v.Robinson (22 N.Y., 564), held that a mortgagee who had taken a mortgage to secure a precedent debt was *Page 293 not entitled to protection against a prior latent equity. Nothing was advanced at the time, and no security was given up, neither was there any definite contract for extending the credit on the demands held by the creditor. Judge DENIO lays down the proposition broadly, and all the judges concurred: "When a conveyance is made, or a security taken, the consideration of which was an antecedent debt, the grantee or party taking the security is not looked upon as a bona fide purchaser;" and again, "it is well settled that a grantee or incumbrancer who does not advance anything at the time, takes the interest assigned subject to any prior equity attaching to the subject." The doctrine that a valuable consideration is necessary to create a defence against prior equities, is the doctrine of courts of equity in other States and in England, as applied to the transfer of real or personal property, and choses in action other than negotiable instruments. The only difficulty has been in determining what is a "valuable consideration."
It is generally admitted that the mere existence of a precedent debt is not a sufficient consideration to support a conveyance as against prior equities; but in some States it is held that when made in absolute payment and satisfaction of an antecedent debt, the purchase will be regarded as a purchase for value. But that is not the rule in this State. (Dickson v. Tillinghast, 4 Paige, 215.)
In this State the rule has been applied to the transfer of bills of exchange and promissory notes, and the party taking them in payment of or as security for an antecedent debt when no new credit is given, security surrendered or obligation incurred, has not been regarded as a bona fide holder for value as against third persons having prior equities, but the decisions have not been in entire harmony with those of the Supreme Court of the United States and some of our sister States. The rule as applied to negotiable instruments in this State has been criticised and quarreled with by individual judges, but whenever it has come directly in judgment, the doctrine, as first announced inCoddington v. Bay (20 J.R. 637), has been adhered to. The claim to distinguish between *Page 294 commercial instruments and other choses in action and property interests has been based upon the supposed interests of commerce and the necessity of giving the freest circulation to instruments so generally used in commercial transactions. Bills of exchange and promissory notes do constitute in a great measure the medium of exchange between merchants and take the place of money, and they pass from hand to hand transferable by indorsement or mere delivery, and many have thought that it would have been better if, in all cases of transfer of that class of instruments in good faith and in the ordinary course of business and upon a sufficient consideration as between the parties, the same had been held valid, and to have vested a good title in the transferree, Bay v. Coddington (5 J.C.R., 54), affirmed in the Court for the Correction of Errors (20 J.R., 637), was to the effect that to give title as against the rightful owner of commercial paper fraudulently transferred, it must be received by the transferree not only in the ordinary course of business and without notice, but also for a present value, for a fair and valuable consideration given or allowed at the time, that credit must be given to and value parted with on the strength of the identical paper, and that a past consideration or antecedent debt or liability was not sufficient. A mere receipt of a bill or note in payment of or as security for a precedent debt has never, in this State, been held sufficient to protect the title of the holder as against the equities of third persons, and some new credit must be given, new advance made, or some prior security parted with, or a debt absolutely satisfied and extinguished, in order to complete the title of the holder. (See cases cited inFarington v. Frankfort Bank, 24 Barb., 554.)
In this court the rule has not been departed from; on the contrary, it has been recognized and followed in Young v. Leo (2 Ker., 551); Boyd v. Cummings (17 N.Y., 101); Essex CountyBank v. Russell (29 N.Y., 673); Brown v. Leavitt (31 id., 113). BROWN, J., in Bank of New York v. Vandervorst (32 N.Y., 553), says: "The rule is, that if the *Page 295 holder parts with anything of value, money, property or existing securities, at the time he receives the note, and upon the faith of its being paid, he is ipso facto clothed with the attribute of a holder for value." In that case the plaintiff had taken the note in controversy as a collateral security for a loan made at the time upon another note and the bank was held to be a holder for value. In Lawrence v. Clark (36 N.Y., 128), it was decided that a party receiving a note on a precedent debt, without surrendering or relinquishing any security or right respecting it, is not a bona fide holder of the same. The note, before it fell due, had been transferred "by the payees to the plaintiff," who received and accepted it upon and in part payment of a prior existing indebtedness "of the payees to them."Coddington v. Bay; Farrington v. Frankfort Bank, supra;Rosa v. Brotherson (10 W.R., 85), and Payn v. Cutler (13 id., 605) were cited with approval, and the doctrine that a creditor receiving the transfer of a negotiable note in payment of a precedent debt without giving up any security, takes it subject to all equities existing between the original parties, reasserted. (See, also, Chrysler v. Renois, 43 N.Y., 209.) Here the defendant parted with or surrendered no security, and his situation was, in no respect, changed by the transaction, and if the title which he acquired is to be determined by the very liberal rules which, in view of the convenience if not the necessities of commerce, have been established in respect to negotiable instruments, the defendant is not to be regarded as a holder for value so far as the assignment was received in part payment of the precedent debt. If the butter was sold upon the faith of the transfer of the stock, the defendant would be entitled to be repaid that amount before reconveying the stock.
He would be entitled to a lien for the price of the butter.
The Supreme court properly reversed the judgment of the referee, but it was not a case for judgment absolute for the plaintiff. A new trial should have been awarded.
So much of the judgment of the Supreme Court as gives *Page 296 judgment for the plaintiff is reversed and a new trial is granted, costs to abide event.