This is a bill in equity brought by the complainants, who are the children of Allen O. Peck, deceased, and residuary legatees under his will, against their mother, Mary E. Peck, Benjamin W. Smith, her assignee, for the benefit of creditors, and the Providence Gas Company. By it the complainants seek to compel the Providence Gas Company to reinstate them in the title to one hundred and thirty shares of the capital stock of that company, or to reimburse them for its loss. The cause was heard on bill, answers, and an agreed statement of facts. The case, as it appeared upon the hearing, is as follows, viz.: Allen O. Peck died September 15, 1871, leaving a last will and testament, the residuary clause in which is as follows, to wit: "I give, devise, and bequeath all the residue and remainder of my estate of all kinds to my children, share and share alike, to have and to hold the same to them and their respective heirs, subject, however, to the following provision for my wife, Mary Elizabeth Peck: in lieu of her dower in my said estate, my said wife may
use, occupy, and enjoy such parts of my estate as she may at any time elect for the residence of herself and my children, and the income of all other parts of my said estate for the use and benefit of herself and my children during her life, and until the day of her marriage; but from the day of her marriage, and for the remainder of her life, she may have only the use and income of one half of my estate, including such part thereof as she may select for her residence and the household furniture." The will also contained the following power to wit: "My executrix is authorized to sell such part of my estate as she may judge necessary or desirable for the security of the same, and to reinvest the same according to her discretion." This will was duly proved in the Municipal Court in Providence, and Mary E. Peck, named therein as executrix, qualified herself to act, administered the estate, and filed two accounts of her dealings with it, the latter of which was allowed by the court August 18, 1874. By this account it appeared that there were remaining in her hands as executrix on July 30, 1874, the date of the account, besides other property, one hundred and sixty shares of the capital stock of the Providence Gas Company, which shares also stood at the date named on the books of that company in the name of the estate of Allen O. Peck. The gas company was not aware of the contents of the will, except in so far as it was chargeable with constructive notice from the record of it, at the dates of the transfers of its stock complained of, but were notified of the decease of the testator soon after it occurred, and that the respondent, Mary E. Peck, had been appointed executrix of his estate. It allowed one hundred and thirty of said one hundred and sixty shares to be transferred by one Henry C. Whitaker, the brother of said Mary E. Peck, acting under a power of attorney given to him by her, as follows, to wit: July 30, 1878, sixty shares to the National Exchange Bank; May 10, 1882, twenty-five shares to C.E. Lapham, Cashier; September 7, 1883, twenty shares to C.F. Sampson, Cashier; December 8, 1883, twenty-five shares to C.F. Sampson, Cashier; and also issued to each of the transferees of said shares memorandum certificates of the shares transferred. All of the shares so transferred were in fact pledged to the transferees, and in January, 1885, all of them were allowed by the gas company to be re-transferred to the
said Mary E. Peck, individually. Subsequently, from time to time, they were transferred by said Whitaker, under powers of attorney given to him by said Mary E. Peck, until at the time of his death seventy were held by one bank and sixty by another, in pledge, and have since been sold by the pledgees to satisfy the debts for which they were pledged. It was agreed that said Mary E. Peck would testify that she gave the powers of attorney to said Whitaker, through being misled by him and being ignorant of business matters; that neither she, nor the estate of Allen O. Peck, had any of the proceeds of the stocks pledged; that the complainants would testify that they had no knowledge of the transactions narrated until the death of Whitaker; that the gas company would testify that it had no knowledge of any imposition practiced upon said Mary E. Peck by said Whitaker, and allowed the transfers of the stock to be made with no other notice than that implied by the acts of transfer and the parties. The said Mary E. Peck was at all times, from 1868 down to 1888, a considerable owner of stock in the respondent gas company in her own right, and frequent transfers of such stock to and from her were from time to time made, and she was possessed, during the period mentioned, of means of her own outside of her interest in the estate of the testator, as the respondent gas company knew.
It may be regarded w well settled by the authorities that a corporation in relation to its stock stands upon the footing of a trustee towards its stockholders, and is bound to exercise reasonable care and diligence in protecting the title of an equitable or beneficial owner of its stock against an unauthorized transfer. Before permitting a transfer to be made, it may, therefore, require the production of authority to make it, and may permit, or refuse to permit, the transfer according as the authority is, or is not, sufficient. Being thus bound to the exercise of care and diligence, and having the right to require the production of authority to make a transfer, it follows that, if there be anything in the circumstances attending the proposed transfer which ought to excite suspicion in the mind of the officer of the corporation supervising the transfer, or, in other words, to put him upon inquiry into the authority to make it, he is bound to make that inquiry, and the corporation whole agent he is, is chargeable with notice of what such inquiry,
reasonably prosecuted, would have disclosed, and that if loss results to the equitable owner of the stock from a failure to make such inquiry, the corporation must make good the loss sustained. Lowry v. The Commercial Farmers' Bank ofBaltimore, Taney's Circuit Ct. Decis. 310; 3 Amer. Law Journal N.S. 111; Bayard v. Farmers' Mechanics' Bank, 52 Pa. St. 232; Stewart Duffy, Trustees, v. Firemen's Insur. Co.53 Md. 564; Covington v. Anderson, 16 Lea, Tenn. 310; Caulkins
v. Gas Light Co. 85 Tenn. 683; Peck v. Bank of America,16 R.I. 710; Hill v. Simpson, 7 Vesey Jun. 152.
The case shows that Allen O. Peck died September 15, 1871; that the executrix settled her second account August 18, 1874; that the first of the transfers of the one hundred and thirty shares was made July 30, 1878, the second, May 10, 1882, the third, September 7, 1883, and the fourth, December 8, 1883. The fact that these transfers were proposed to be made by an executrix was notice to the respondent company of the existence of the will, and the fact that nearly seven years had elapsed, prior to the first of such transfers, since the death of the testator, three years being the period limited by law for the settlement of the estates of deceased persons, was notice that such transfer was probably not in the ordinary course of administration for the purpose of raising money for the payment of debts or legacies. The respondent company, must, therefore, be held chargeable with notice of the will and its contents when it permitted the transfers to be made, and with notice that they were not in the ordinary course of administration.
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This is a bill in equity brought by the complainants, who are the children of Allen O. Peck, deceased, and residuary legatees under his will, against their mother, Mary E. Peck, Benjamin W. Smith, her assignee, for the benefit of creditors, and the Providence Gas Company. By it the complainants seek to compel the Providence Gas Company to reinstate them in the title to one hundred and thirty shares of the capital stock of that company, or to reimburse them for its loss. The cause was heard on bill, answers, and an agreed statement of facts. The case, as it appeared upon the hearing, is as follows, viz.: Allen O. Peck died September 15, 1871, leaving a last will and testament, the residuary clause in which is as follows, to wit: "I give, devise, and bequeath all the residue and remainder of my estate of all kinds to my children, share and share alike, to have and to hold the same to them and their respective heirs, subject, however, to the following provision for my wife, Mary Elizabeth Peck: in lieu of her dower in my said estate, my said wife may
use, occupy, and enjoy such parts of my estate as she may at any time elect for the residence of herself and my children, and the income of all other parts of my said estate for the use and benefit of herself and my children during her life, and until the day of her marriage; but from the day of her marriage, and for the remainder of her life, she may have only the use and income of one half of my estate, including such part thereof as she may select for her residence and the household furniture." The will also contained the following power to wit: "My executrix is authorized to sell such part of my estate as she may judge necessary or desirable for the security of the same, and to reinvest the same according to her discretion." This will was duly proved in the Municipal Court in Providence, and Mary E. Peck, named therein as executrix, qualified herself to act, administered the estate, and filed two accounts of her dealings with it, the latter of which was allowed by the court August 18, 1874. By this account it appeared that there were remaining in her hands as executrix on July 30, 1874, the date of the account, besides other property, one hundred and sixty shares of the capital stock of the Providence Gas Company, which shares also stood at the date named on the books of that company in the name of the estate of Allen O. Peck. The gas company was not aware of the contents of the will, except in so far as it was chargeable with constructive notice from the record of it, at the dates of the transfers of its stock complained of, but were notified of the decease of the testator soon after it occurred, and that the respondent, Mary E. Peck, had been appointed executrix of his estate. It allowed one hundred and thirty of said one hundred and sixty shares to be transferred by one Henry C. Whitaker, the brother of said Mary E. Peck, acting under a power of attorney given to him by her, as follows, to wit: July 30, 1878, sixty shares to the National Exchange Bank; May 10, 1882, twenty-five shares to C.E. Lapham, Cashier; September 7, 1883, twenty shares to C.F. Sampson, Cashier; December 8, 1883, twenty-five shares to C.F. Sampson, Cashier; and also issued to each of the transferees of said shares memorandum certificates of the shares transferred. All of the shares so transferred were in fact pledged to the transferees, and in January, 1885, all of them were allowed by the gas company to be re-transferred to the
said Mary E. Peck, individually. Subsequently, from time to time, they were transferred by said Whitaker, under powers of attorney given to him by said Mary E. Peck, until at the time of his death seventy were held by one bank and sixty by another, in pledge, and have since been sold by the pledgees to satisfy the debts for which they were pledged. It was agreed that said Mary E. Peck would testify that she gave the powers of attorney to said Whitaker, through being misled by him and being ignorant of business matters; that neither she, nor the estate of Allen O. Peck, had any of the proceeds of the stocks pledged; that the complainants would testify that they had no knowledge of the transactions narrated until the death of Whitaker; that the gas company would testify that it had no knowledge of any imposition practiced upon said Mary E. Peck by said Whitaker, and allowed the transfers of the stock to be made with no other notice than that implied by the acts of transfer and the parties. The said Mary E. Peck was at all times, from 1868 down to 1888, a considerable owner of stock in the respondent gas company in her own right, and frequent transfers of such stock to and from her were from time to time made, and she was possessed, during the period mentioned, of means of her own outside of her interest in the estate of the testator, as the respondent gas company knew.
It may be regarded w well settled by the authorities that a corporation in relation to its stock stands upon the footing of a trustee towards its stockholders, and is bound to exercise reasonable care and diligence in protecting the title of an equitable or beneficial owner of its stock against an unauthorized transfer. Before permitting a transfer to be made, it may, therefore, require the production of authority to make it, and may permit, or refuse to permit, the transfer according as the authority is, or is not, sufficient. Being thus bound to the exercise of care and diligence, and having the right to require the production of authority to make a transfer, it follows that, if there be anything in the circumstances attending the proposed transfer which ought to excite suspicion in the mind of the officer of the corporation supervising the transfer, or, in other words, to put him upon inquiry into the authority to make it, he is bound to make that inquiry, and the corporation whole agent he is, is chargeable with notice of what such inquiry,
reasonably prosecuted, would have disclosed, and that if loss results to the equitable owner of the stock from a failure to make such inquiry, the corporation must make good the loss sustained. Lowry v. The Commercial Farmers' Bank ofBaltimore, Taney's Circuit Ct. Decis. 310; 3 Amer. Law Journal N.S. 111; Bayard v. Farmers' Mechanics' Bank, 52 Pa. St. 232; Stewart Duffy, Trustees, v. Firemen's Insur. Co.53 Md. 564; Covington v. Anderson, 16 Lea, Tenn. 310; Caulkins
v. Gas Light Co. 85 Tenn. 683; Peck v. Bank of America,16 R.I. 710; Hill v. Simpson, 7 Vesey Jun. 152.
The case shows that Allen O. Peck died September 15, 1871; that the executrix settled her second account August 18, 1874; that the first of the transfers of the one hundred and thirty shares was made July 30, 1878, the second, May 10, 1882, the third, September 7, 1883, and the fourth, December 8, 1883. The fact that these transfers were proposed to be made by an executrix was notice to the respondent company of the existence of the will, and the fact that nearly seven years had elapsed, prior to the first of such transfers, since the death of the testator, three years being the period limited by law for the settlement of the estates of deceased persons, was notice that such transfer was probably not in the ordinary course of administration for the purpose of raising money for the payment of debts or legacies. The respondent company, must, therefore, be held chargeable with notice of the will and its contents when it permitted the transfers to be made, and with notice that they were not in the ordinary course of administration. An examination of the will, however, would have disclosed to the officer of the company the fact that the executrix was authorized to sell such part of the testator's estate as she should judge necessary or desirable for the security of the same, and to reinvest the same according to her discretion. The respondent company would, therefore, be justified, nothing else appearing to put it upon inquiry, in permitting a transfer or transfers in pursuance of a sale or sales by the executrix. The question then comes down to this, was there anything in either of the transfers under consideration which ought to have raised a suspicion in the mind of the officer of the respondent company supervising the transfers, that the transfer was unauthorized, or in fraud of the
rights of the complainants as residuary legatees of the stock under the will. The complainants' counsel contends that there was; that the fact that the first of these transfers was to a bank and the other three were to cashiers of banks was strong constructive, if not actual notice, that these transfers were by way of pledges of the stock and not sales, and that the executrix had no authority under the will to pledge the stock. Although it may be, as contended by the counsel for the gas company, that an executor has authority in the ordinary course of administration to pledge as well as sell the assets, we think that in a case like the present, the duties of administration having been completed, the executrix, though nowhere named as trustee in the will, must, nevertheless, in view of the duties remaining to be performed under the will, be deemed to have held the stock rather as a trustee than as executrix. Peck v. Smith, 16 R.I. 260;Pomroy v. Lewis, 14 R.I. 349; and that as such, in the absence of authority conferred upon her by the will, she had no power to pledge the stock. We do not think, however, that the fact that these transfers were to a bank and to bank cashiers was sufficient to charge the gas company with notice that such transfers were pledges by the trustee and not sales by her to other persons. The suggestion that these transfers, being to a bank and to bank cashiers, were notice to the gas company that they were pledges of the stock and not sales is based upon the idea that the business of a bank is to loan money, and to take stocks as security rather than to purchase them; but though this is doubtless true, it by no means follows that a bank may not sometimes invest its funds in the stock of other corporations. Be this as it may, however, it is a matter of every-day knowledge, or if not, it is easily conceivable that a purchaser of stock, not having sufficient funds to pay for it, may borrow money of a bank or others for that purpose, and that in such a case the seller of the stock may transfer it as security, by a transfer absolute on its face, directly to the lender of the money instead of the purchaser. For aught that appeared to the officers of the gas company, so far as the case shows, this might have been the nature of the transaction in the case of each of the transfers in question. This being so, there was nothing which ought necessarily to have led them to suspect that such transfers were not in pursuance of sales made by
the executrix under the power in the will, and, therefore, had they made inquiry into her authority, we do not think they would have been bound to go farther in their inquiry than to the will. It results that the company is not to be held liable for their failure to make inquiry, since, if the inquiry had been made, it does not appear that it would have disclosed the want of authority, and thereby prevented the loss which has been sustained.
The complainants contend that it was a wrong to them for the gas company to permit the stock to be re-transferred by the pledgees to the respondent, Mary E. Peck, individually, instead of requiring it to be transferred to her as executrix. The case shows that Mary E. Peck was, to the knowledge of the company, possessed of considerable means outside of her interest in the estate of the testator, and that transfers of stock to and from her had been frequently made during the whole period covered by the transactions in question. In this state of facts, unless it be conceded that the company ought to have known that the original transfers by her were pledges instead of sales, we do not see how it can be claimed that it was negligent in permitting the stock to be transferred to her individually, as it would any other stock which she had purchased.
Our conclusion is, that the bill should be dismissed, with costs.
The complainants then filed a petition for leave to reargue the case.
January 23, 1892.