Adams, J.,
after stating tbe facts: The verdict and the admissions of the defendants appearing in the judgment and the evidence establish these facts: The Aulander Building and Hardware Company was organized as a corporation in December, 1919, and the first meeting of the stockholders was held on 1 January, 1920, in which Jenkins was elected president; Burden, secretary and treasurer; White, vice president and assistant secretary and treasurer; and Montgomery, general manager. These four owned all the stock. When they paid their subscription they took a receipt from the company, showing the number of shares to be issued to each subscriber. Certificates of stock were not issued, however, until 15 May. On 19 February, 1920, the defendant Jenkins became indebted to the plaintiff in the sum of $1,800, and on that day pledged with the plaintiff twenty-five shares of stock in the corporation to secure this indebtedness, and the plaintiff thereby became the owner of such stock as pledgee. On 7 April, 1920, Jenkins assigned the same stock to Montgomery. On 15 May, 1920, the company, with knowledge of the plaintiff’s lien, wrongfully issued the certificate of stock to Jenkins, who immediately endorsed and transferred it to Montgomery and caused the transfer to be entered on the company’s books.
The appeal presents for decision the question of priority of claims to the stock formerly held by the defendant Jenkins, the plaintiff contending that, as pledgee, he has the preferred ownership, the defendant Montgomery contending that, as holder of the certificate of stock, he has the entire legal and equitable title. These contentions may be resolved by determining the legal relation existing with respect to the stock between the parties principally concerned, namely, the plaintiff, Montgomery, Jenkins, and the corporation. For this purpose we will first examine Montgomery’s alleged title to the stock,-and then ascertain in what way and to what extent, if any, it is affected by the plaintiff’s pledge.
What, then, are the nature and status of Montgomery’s interest in the stock represented by the certificate which he holds? While certificates of stock are the symbol of the stockholders’ incorporeal right and are not the stock itself, they constitute
prima facie
evidence of ownership as to the number of shares they represent, and, in fact, are regarded Such peculiar evidence that a written assignment of such certificates will ordinarily transfer the whole title, and a mere delivery thereof at least an equitable title. 4 Thompson on Corporations (2d Ed.), sec. 4203;
Meisenheimer v. Alexander,
162 N. C., 235. Strictly speaking, such certificates are not negotiable in the sense of the law merchant, but as they are framed in a way to invite the confidence of business men, they are dealt with as transferable by delivery, when properly endorsed, and
are often used as collateral security iu commercial transactions.' “It is a well-known fact that stock certificates frequently circulate in places far remote from the home of the corporation by which they were issued; that in all commercial centers they are commonly transferred from hand to hand, like negotiable paper, and that they are hypothecated for temporary loans by a simple endorsement and delivery thereof, the latter being perhaps the most common use to which such securities are put. In the great majority of cases, when stock is merely pledged for a loan, no record of the transfer is made on the books of the corporation, and, in the judgment of laymen, the making of such a record seems to be a needless formality. The trend of modern decisions has been to encourage the free circulation of stock certificates in the mode last indicated, on the theoiy that they are a valuable aid to modern transactions.” 4 Thompson Corp., sec. 3481;
Knox v. Eden Musee
Co., 148 N. Y., 441;
Bank v. Lanier,
11 Wall (U. S.), 369;
Weniger v. Success M. Co.,
227 Fed., 548;
Bank v. Dew,
175 N. C., 89.
For this reason, as suggested by
Justice Walker
in the case last cited, there is a growing disposition of the courts to allow certificates of stock the advantages of commercial paper, and to this end the methods of transfer have been somewhat relaxed. Hence, Thompson says: “The usual and perhaps the more generally employed method of transfering shares of stock is by the delivery of the certificate, with the assignment endorsed thereon, duly signed by the person named in such certificate. This is sufficient ordinarily to transfer the title of the original holder to the assignee. In other words, corporate stock is transferred as to the parties thereto by endorsement and delivery of the certificates. It is a good assignment of shares of stock to deliver the stock thereof, with a blank transfer on the back, to which the holder has affixed his name; and the party to whom it is delivered is authorized to fill such blank endorsement. It has been said that the possession of certificates, with a power to transfer them, was
prima facie
evidence of title; and where the possessor is given value, his title cannot be impeached, either by subsequent purchasers who did not receive the certificate, or by creditors of the transferrer. A transfer of stock by the delivery of the certificate, endorsed in blank, or with power of attorney, is sufficient to’ pass title without registry on the corporate books; and the purchaser is authorized to fill up the blank by inserting his own name, or it may be filled with the name of any remote transferee. A certificate of stock, with power of attorney to transfer, duly executed in blank as to the date and the name of the transferee, authorizes the holder to complete a sale by delivery of the certificate and transfer of the stock. The holder of a certificate of stock on which is a printed assignment and power of attorney to make the transfer, signed by the owner, is presumed to be
rightfully in possession thereof, and is
prima facie
authorized to fill in the blank assignment and cause a transfer to be made to himself on the books of the corporation.” Corporations, Yol. 4, sec. 4317. And in section 4320: “The passing of the title to stock by a mere delivery of the certificate is governed by the same principle that has been frequently applied to notes, bonds, certificates of deposit, life insurance policies, and ordinary written contracts generally. And on this theory it has been held that a stockholder may transfer to another a complete equitable title to his stock by mere delivery of the certificate, without complying with the forms required by the corporation. To this principle the Supreme Court of Pennsylvania said: 'Why may not a delivery of the certificates, coupled with words of absolute and present gift, invest the donee with an equitable title to the stock, which the donor or a volunteer cannot successfully assail? A stockholder may clothe another with the complete * equitable title to; his stock without compliance with the forms by the corporation.’ An assignment of a certificate of stock upon a valid consideration may be made by mere delivery; an endorsement or instrument in writing is not necessary to pass the title.” In
Havens v. Bank,
132 N. C., 223,
Walker, J.,
cites with approval
McNeill v. Bank,
46 N.
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Adams, J.,
after stating tbe facts: The verdict and the admissions of the defendants appearing in the judgment and the evidence establish these facts: The Aulander Building and Hardware Company was organized as a corporation in December, 1919, and the first meeting of the stockholders was held on 1 January, 1920, in which Jenkins was elected president; Burden, secretary and treasurer; White, vice president and assistant secretary and treasurer; and Montgomery, general manager. These four owned all the stock. When they paid their subscription they took a receipt from the company, showing the number of shares to be issued to each subscriber. Certificates of stock were not issued, however, until 15 May. On 19 February, 1920, the defendant Jenkins became indebted to the plaintiff in the sum of $1,800, and on that day pledged with the plaintiff twenty-five shares of stock in the corporation to secure this indebtedness, and the plaintiff thereby became the owner of such stock as pledgee. On 7 April, 1920, Jenkins assigned the same stock to Montgomery. On 15 May, 1920, the company, with knowledge of the plaintiff’s lien, wrongfully issued the certificate of stock to Jenkins, who immediately endorsed and transferred it to Montgomery and caused the transfer to be entered on the company’s books.
The appeal presents for decision the question of priority of claims to the stock formerly held by the defendant Jenkins, the plaintiff contending that, as pledgee, he has the preferred ownership, the defendant Montgomery contending that, as holder of the certificate of stock, he has the entire legal and equitable title. These contentions may be resolved by determining the legal relation existing with respect to the stock between the parties principally concerned, namely, the plaintiff, Montgomery, Jenkins, and the corporation. For this purpose we will first examine Montgomery’s alleged title to the stock,-and then ascertain in what way and to what extent, if any, it is affected by the plaintiff’s pledge.
What, then, are the nature and status of Montgomery’s interest in the stock represented by the certificate which he holds? While certificates of stock are the symbol of the stockholders’ incorporeal right and are not the stock itself, they constitute
prima facie
evidence of ownership as to the number of shares they represent, and, in fact, are regarded Such peculiar evidence that a written assignment of such certificates will ordinarily transfer the whole title, and a mere delivery thereof at least an equitable title. 4 Thompson on Corporations (2d Ed.), sec. 4203;
Meisenheimer v. Alexander,
162 N. C., 235. Strictly speaking, such certificates are not negotiable in the sense of the law merchant, but as they are framed in a way to invite the confidence of business men, they are dealt with as transferable by delivery, when properly endorsed, and
are often used as collateral security iu commercial transactions.' “It is a well-known fact that stock certificates frequently circulate in places far remote from the home of the corporation by which they were issued; that in all commercial centers they are commonly transferred from hand to hand, like negotiable paper, and that they are hypothecated for temporary loans by a simple endorsement and delivery thereof, the latter being perhaps the most common use to which such securities are put. In the great majority of cases, when stock is merely pledged for a loan, no record of the transfer is made on the books of the corporation, and, in the judgment of laymen, the making of such a record seems to be a needless formality. The trend of modern decisions has been to encourage the free circulation of stock certificates in the mode last indicated, on the theoiy that they are a valuable aid to modern transactions.” 4 Thompson Corp., sec. 3481;
Knox v. Eden Musee
Co., 148 N. Y., 441;
Bank v. Lanier,
11 Wall (U. S.), 369;
Weniger v. Success M. Co.,
227 Fed., 548;
Bank v. Dew,
175 N. C., 89.
For this reason, as suggested by
Justice Walker
in the case last cited, there is a growing disposition of the courts to allow certificates of stock the advantages of commercial paper, and to this end the methods of transfer have been somewhat relaxed. Hence, Thompson says: “The usual and perhaps the more generally employed method of transfering shares of stock is by the delivery of the certificate, with the assignment endorsed thereon, duly signed by the person named in such certificate. This is sufficient ordinarily to transfer the title of the original holder to the assignee. In other words, corporate stock is transferred as to the parties thereto by endorsement and delivery of the certificates. It is a good assignment of shares of stock to deliver the stock thereof, with a blank transfer on the back, to which the holder has affixed his name; and the party to whom it is delivered is authorized to fill such blank endorsement. It has been said that the possession of certificates, with a power to transfer them, was
prima facie
evidence of title; and where the possessor is given value, his title cannot be impeached, either by subsequent purchasers who did not receive the certificate, or by creditors of the transferrer. A transfer of stock by the delivery of the certificate, endorsed in blank, or with power of attorney, is sufficient to’ pass title without registry on the corporate books; and the purchaser is authorized to fill up the blank by inserting his own name, or it may be filled with the name of any remote transferee. A certificate of stock, with power of attorney to transfer, duly executed in blank as to the date and the name of the transferee, authorizes the holder to complete a sale by delivery of the certificate and transfer of the stock. The holder of a certificate of stock on which is a printed assignment and power of attorney to make the transfer, signed by the owner, is presumed to be
rightfully in possession thereof, and is
prima facie
authorized to fill in the blank assignment and cause a transfer to be made to himself on the books of the corporation.” Corporations, Yol. 4, sec. 4317. And in section 4320: “The passing of the title to stock by a mere delivery of the certificate is governed by the same principle that has been frequently applied to notes, bonds, certificates of deposit, life insurance policies, and ordinary written contracts generally. And on this theory it has been held that a stockholder may transfer to another a complete equitable title to his stock by mere delivery of the certificate, without complying with the forms required by the corporation. To this principle the Supreme Court of Pennsylvania said: 'Why may not a delivery of the certificates, coupled with words of absolute and present gift, invest the donee with an equitable title to the stock, which the donor or a volunteer cannot successfully assail? A stockholder may clothe another with the complete * equitable title to; his stock without compliance with the forms by the corporation.’ An assignment of a certificate of stock upon a valid consideration may be made by mere delivery; an endorsement or instrument in writing is not necessary to pass the title.” In
Havens v. Bank,
132 N. C., 223,
Walker, J.,
cites with approval
McNeill v. Bank,
46 N. Y., 325, in which it is said: “It has also been settled by repeated adjudications that, as between the parties, the delivery of the certificate with assignment and power endorsed 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; that they do not incapacitate the shareholder from parting with his interest, and that his assignment, not on the books, passes the entire legal title to the stock, subject only to such liens or claims as the corporation may have upon it, and excepting the right of voting at elections.”
Cox v. Dowd,
133 N. C., 537;
Bleakley v. Candler,
169 N. C., 21;
Bank v. Dew, supra.
Under these conditions it was not necessary to transfer the stock on the company’s books. Although shares of stock are personal property and are transferable on the books of the corporation as provided by the by-laws (O. S., sec. 1164), such provision, it is held, can be of no practical benefit to those not connected with the corporation, because they have “no means of knowing whether the transfer has been made or not.”
Bleakley v. Candler, supra.
From these authorities, especially when considered in connection with the verdict, we deduce the conclusion that Montgomery’s certificate is
at least
prima facie
evidence of bis title to the stock formerly beld and afterwards endorsed and transferred by the defendant Jenkins.
¥e are next to decide whether such title is subordinate to or in any way affected by the written agreement made by the plaintiff and Jenkins on 19 February, 1920. It will be observed in this connection that, although the answers to the second and third issues show the stock in question had been pledged to the plaintiff and he was the owner thereof as pledgee, the plaintiff testified that Jenkins executed “the written assignment” referred to as “Exhibit A” for the purpose of securing the loan; that it had never been registered or transferred on the books of the company, and that no certificate of stock had then been issued. This written assignment embodies the entire contract entered into by the and Jenkins at the time the loan was made, and in these circumstances the verdict should be construed in the light of the evidence and the charge of the court.
S. v. Snipes,
185 N. C., 747, and cases cited;
Moore v. Trust Company,
178 N. C., 126. When so construed, the verdict presents the specific question whether the holder’s written assignment as security for debt of shares of stock in a corporation for which no certificate has been issued has priority as a pledge over the
prima facie
title acquired by a subsequent purchaser for value without
notice, who receives from the holder the certificate for such shares subsequently issued, when the written assignment has not been registered or entered on the books of the corporation.
As we understand the controversy, it is not necessary to decide whether “Exhibit A” is technically a mortgage of the stock or an executory contract to deliver the certificate when issued, or an agreement that Jenkins should hold the stock for the plaintiff’s benefit, and whether it is valid
inter partes,
for by neither of these contingencies would the plaintiff acquire priority. So the ultimate question is whether the contract gave the plaintiff priority as pledgee of the stock.
Under both the civil and the common law the characteristic feature of a pledge is the possession by the pledgee of the pledged property. The transfer or delivery of such possession constitutes the very essence of the contract. It is true that the delivery of possession may be actual, constructive, or symbolic, as, for example, the contents of a warehouse by the delivery of a key or a warehouse receipt, or stock by the delivery of a certificate, but a bare agreement to deliver is never equivalent to a fictitious, constructive, or symbolic delivery. Schouler on Personal Property, 513; Cool on Stock and Stockholders, sec. 465; 4 Thompson on Corporations, sec. 4200,
et seep; Propst v. Roseman,
49 N. C., 130;
Thompson v. Andrews,
53 N. C., 453;
McCoy v. Lassiter,
95 N. C., 88;
Bank v. Johnston,
161 N. C., 509. In section 4200,
supra,
Thompson says: “A pledge of stock by an instrument in writing not accompanied
by a delivery of the certificate is not a pledge against third parties, nor is it good as against a judgment creditor of the pledger. Delivery is always essential to the creation of a pledge.” Among other authorities sustaining this position he' cites
Casey v. Cavaroc,
96 U. S., 467, in which
Mr. Justice Bradley,
holding that without possession there can be no privilege as against third persons in property claimed as a pledge, further observed: “Bad faith, it is true, would defeat the pledge, though the creditor had possession. But want of possession is equally fatal, though the parties may have acted in good faith. Both are necessary to constitute a good pledge, so as to raise a privilege against third persons. The requirement of possession is an inexorable rule of law, adopted to prevent fraud and deception; for, if the debtor remains in possession, the law presumes that those who deal with him do so oil the faith of his being the unqualified owner of the goods.”
We have not overlooked certain decisions in which it is suggested that since shares of stock are not capable of manual delivery, a transfer of possession may be made without delivery of the certificate, especially when no certificate has been issued; but even if the contract between the plaintiff and Jenkins is enforceable
inter partes,
it cannot in any event prevail as against the title of an innocent purchaser for value who has acquired ownership by the actual possession and proper endorsement of the certificate of stock. Exceptions 1, 2, 3, 4, 6, 21, 22 are, therefore, overruled.
The other exceptions relating to the instruction that as to the fourth issue the burden of proof was on the plaintiff, likewise are untenable. The burden of proof here is not determined by the priority of claims; nor is the plaintiff’s position similar to that of an innocent purchaser of a negotiable instrument, the execution of which was procured by fraud. His situation more nearly approximates that of a maker or other person who -seeks to impeach the validity of the instrument on the ground of fraud, and thereby assumes the burden of establishing his allegation.
Board of Education v. Makely,
139 N. C., 31;
Walker v. Carpenter,
144 N. C., 674;
Bowser v. Wescott,
145 N. C, 57;
Winslow v. Hardwood Co.,
147 N. C., 276;
Sanford v. Eubanks,
152 N. C., 697.
We find no sufficient cause for disturbing the judgment as rendered by the court.
No error.