Prince v. Childs Co., 23 F.2d 605 (2d Cir. 1928)

*606 *607 Reynolds & Goodwin, of New York City (John Reynolds, of New York City, of counsel), for plaintiff.

Barber, Fackenthal & Giddings, of New York City (Joseph Diehl Fackenthal, of New York City, of counsel), for Childs Co.

Charles Franklin, of New York City (Charles L. Minor, of New York City, of counsel), for Stone, Prosser & Doty.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge (after stating the facts as above).

We can discover no justification for the intervention of Stone, Prosser & Doty. The main suit was to compel the issue to the plaintiff of a certificate for her stock and the payment to her of all unpaid dividends. No alternative relief was asked to recover damages for conversion, and no attempt was made to ratify the sale of the forged certificate and follow the proceeds. The bill relied solely on an ownership, which had never been divested. Any liability of Stone, Prosser & Doty to Childs Company, because of a guaranty of the plaintiff's signature, made to Childs Company at the time the forged certificate was presented for transfer, was unrelated to plaintiff's claim, and a matter with which she had no concern. Her cause of action was founded on an assertion of a continuing title to her stock, which gave her a right to secure the proper muniments, as well as the earnings derived therefrom. Stone, Prosser & Doty had no interest in the stock. The rights of Childs Company against Stone, Prosser & Doty could not be asserted in a dependent bill, ancillary to the main suit, but had to be determined in an entirely separate action for breach of warranty, where lack of diverse citizenship between Childs Company and Stone, Prosser & Doty would be fatal to federal jurisdiction. The situation is quite different from that of Rickey Land & Cattle Co. v. Miller & Lux, 218 U.S. 258, 31 S. Ct. 11, 54 L. Ed. 1032.

The so-called cross-bill of Stone, Prosser & Doty is not a cross-bill at all. After intervention, and under plaintiff's protest, they proceeded to set up defenses to the complaint, based on estoppel and laches, in a suit in which there was no controversy between the plaintiff and themselves. Accordingly the bill must be dismissed as against Stone, Prosser & Doty for lack of equity, and the cross-bill of Childs Company against them must be dismissed for lack of jurisdiction.

The case is thus reduced to a cause of action against a single defendant for the restoration of the stock and dividends. The defenses relied upon are: (a) That the plaintiff has an adequate remedy at law; (b) that she has been guilty of such negligence as to debar her from equitable relief; (c) that she is barred from recovery by laches; (d) that she is not entitled to a decree for the recovery of 200 shares of stock, unless Childs Company has treasury stock to that extent available.

As for the first point it is perfectly settled that the plaintiff is entitled to a remedy in equity. Her rights to the advantages and earnings which may inhere in her stock are quite different, and may be very much superior to anything which she can obtain from *608 a mere decree for damages. An action at law would therefore be an inadequate remedy, and she is not bound to resort to it. A remedy in equity has been granted in numerous cases. Western Union Telegraph Co. v. Davenport, 97 U.S. 369, 24 L. Ed. 1047; Wilson v. Colorado Mining Co. (C. C. A.) 227 F. 721; Barton v. North Staffordshire Ry. Co., 38 Ch. 458; Taylor v. Midland Ry. Co., 8 H. L. C. 751; Citizens' Nat. Bank v. State, 179 Ind. 621, 101 N.E. 620, 45 L. R. A. (N. S.) 1075; Pratt v. Boston & Albany R. R., 126 Mass. 443; Pollock v. National Bank, 7 N.Y. 274, 57 Am. Dec. 520; Travis v. Knox Terpezone Co., 215 N.Y. 259, 109 N.E. 250, L. R. A. 1916A, 542, Ann. Cas. 1917A, 387; Penn Co. v. Franklin Fire Ins. Co., 181 Pa. 40, 37 A. 191, 37 L. R. A. 780.

The negligence relied upon to debar equitable relief is based upon giving Sweeney access to plaintiff's safe-deposit box; occasionally ordering purchases of stock through Sweeney, though plaintiff always paid the brokers by her own check; allowing Sweeney to deposit dividend checks and coupons in plaintiff's bank account; and acceding to the practice, which obtained in the Boston office, of having mail thought to contain checks for plaintiff opened by her father or Sweeney.

We do not regard such conduct as negligent, or as sufficient to clothe Sweeney with apparent authority to indorse plaintiff's certificates of stock for any purpose. That is an act very different from depositing checks in plaintiff's bank account, and even signing the latter's name for that purpose. It is common knowledge that scores of people are allowed to negotiate for the purchase of stocks, as well as houses and land, and to sign depositors' names on the backs of checks drawn to their order, without any authority, real or supposed, to draw checks, to sign deeds, indorse certificates, or take other steps which finally assume to sell and pass title to property. To hold the contrary would be by our decision in effect to clothe agents with authority which they do not have, and no one supposes them to possess. We can see no reason for taking such a revolutionary step, and are referred to no authority which would justify it. There seems to be no substantial difference between the present case and Telegraph Co. v. Davenport, supra, where a man had access to a box containing certain certificates of stock of the Western Union, forged the signatures of the owners, and converted the stock. It was held that the company must replace the stock. In Pollock v. Bank, supra, a brother intrusted with stock certificates, and with power to draw dividends, forged powers of attorney and transferred the stock. The company was held liable. The case of Penn Co. v. Franklin Fire Ins. Co., supra, is likewise indistinguishable.

The defense of laches in not discovering the theft at an earlier date is likewise unavailing. The plaintiff had no reason to distrust Sweeney. The latter had long been her father's employee, and the regular statements rendered of deposits of dividends and coupons appeared to reflect the true state of affairs. We know of no principle of law which requires the owner of property to be vigilant in protecting it from theft, or, if he fail, bear the loss as against all the world. The case is quite different where a holder of securities signs a power of attorney with the name of the transferee in blank and delivers it to his brokers. McNeil v. Bank, 46 N.Y. 325, 7 Am. Rep. 341. Here was no apparent authority, but a bare forgery.

It is not necessary to inquire whether the Childs Company should issue stock to the plaintiff at the risk of an over-issue, for their stock is listed on the Exchange and can be purchased in the open market. A suit requiring the corporation to procure stock for a shareholder, whose certificate had been transferred by means of a forgery, was upheld by the Supreme Judicial Court of Massachusetts in Pratt v. Boston & Albany R. R., 126 Mass. 443. See, also, Wilson v. Colorado Mining Co. (C. C. A.) 227 F. 721. But it is hard to see why the forged transfer in the present case should be regarded at all. It did not alter the status of the plaintiff, who still had all her rights as a stockholder and simply lacked indicia of ownership and the earnings derived from her shares in the company. She is entitled to new certificates and back dividends. Western Union Telegraph Co. v. Davenport, 97 U.S. 369, 24 L. Ed. 1047; Travis v. Knox Terpezone Co., 215 N.Y. 259, 109 N.E. 250, L. R. A. 1916A, 542, Ann. Cas. 1917A, 387; Citizens' National Bank v. State, 179 Ind. 621, 101 N.E. 620, 45 L. R. A. (N. S.) 1075. It is not for her to indicate how the Childs Company are to satisfy those who have succeeded Stone, Prosser & Doty, and now hold stock originating in Sweeney's forged transfer. Plaintiff can rest on the claim that she never parted with her interest, and is entitled to the certificate as a muniment of title.

The $240 which Sweeney deposited in the plaintiff's account was supposed by the latter to represent dividends from the stock in suit. It was in fact paid by Sweeney, who *609 converted the stock and other securities belonging to plaintiff, in order to conceal the theft. The plaintiff is not obliged to retain such a credit to her dividend account, when she accepted it without knowledge of the facts, and she may still claim her full dividends from the company, which has never paid them.

The decree is modified, by dismissing the suit against the defendants Stone, Prosser & Doty, and the cross-bill of Childs Company against said defendants, as above provided, and by directing Childs Company to record plaintiff's stock ownership (including stock dividends accrued between December 6, 1923, and the satisfaction of the decree), and to deliver certificates therefor; also by granting a money judgment for the amount of the various cash dividends accrued on the stock from December 6, 1923, with interest from the dates of their accrual. The alternative money judgment based upon conversion of the stock should no longer stand, as it was not prayed for in the bill.