Winter v. Belmont Mining Co.

By the Court, Crockett, J.: In Weston v. Bear River and Auburn W. and M Co. 6 Cal. 425, the action was a bill in equity, alleging that the plaintiff purchased at execution sale certain shares of the capital stock of the defendant corporation, which stood on the books of the corporation in the name of Lovell, the defendant in the execution. It wa| further alleged that the defendant Swift had possession of some, and the defendants Reese & Buckingham of others of the certificates, which they refused to surrender, and the prayer of the complaint was for a decree to compel the surrender of the certificates, and that the corporation issue new certificates to the plaintiff. It appeared from the answers that the certificates held by Swift had been hypothecated to him, and those held by Reese & Buckingham had been sold to them, before any lien had attached thereon in the suit in which the execution issued, under which the plaintiff jmrehased, and that when he purchased he had notice of such sale and hypothecation ; and further, that the certificates held by Reese & Buckingham had been surrendered, and new certificates issued to them. The Court found the facts to be as alleged in the complaint and answers, and entered a decree for the plaintiff. On appeal, it became necessary for this Court to pass upon the provisions of [431]the Corporation Acts of 1850 and 1853, regulating the transfer of the shares of a private corporation. These provisions were substantially the same as sec. 324 of the Civil Code, which provides that when the capital stock of a corporation is divided into shares, and certificates therefor are issued, such shares of stock are personal property, “ and may be transferred by indorsement by the signature of the proprietor, or his attorney or legal representative, and delivery of the certificate; but such transfer is not valid, except between the parties thereto, until the same is so entered on the books of the corporation as to show the names of the parties by and to whom transferred, the number or designation of the shares, and the date of the transfer.”

In construing similar provisions in the Acts of 1850 and 1853, the Court, in the Weston case, said: “ A party who purchases, at Sheriff’s sale, stocks of an incorporation, knowing that the certificates of such stock have been previously hypothecated, is chargeable with notice of such fact, and takes subject to the claim of the pledgee. Neither the Incorporation Law of 1850 or 1853 was intended to cover a case of this kind, hut apply only to transfers and purchases in good faith without notice.” 6 It therefore decided that the plaintiff was not entitled to equitable relief, and the judgment was reversed. The Court reached this conclusion solely on the theory that the statutes regulating the transfer of certificates of stock in a private corporation imparted to the certificates, as between third persons, the character of negotiable instruments. The effect of the decision was that if the certificates had been hypothecated before the attachment lien accrued, and if the purchaser at the execution sale took with notice of the prior hypothecation, he acquired no rights as against the pledgee. The reverse of the proposition would, of course, be true, and if he had purchased without notice, his title would have prevailed as against the pledgee j or as the Court expresses it, that the provisions of the statute “ apply only to transfers and purchases in good faith without notice.” In other words, that the statute had placed the certificates in so far on the footing of negotiable instruments, that if they had been hypothecated before the attachment lien accrued, nevertheless if the purchaser at the Sheriff’s sale to