Bonner, Associate Justice.
This case is one of first impression in this court, and we have endeavored to give it that full consideration in the light of authority, consistent with the pressure of other business, which its importance demands.
It involves the question of the liability of a railroad company for damages for having issued new shares of stock to one claiming under the first shareholder, when the original certificate is still outstanding in the hands of an innocent third party, but who had- not presented the .same, with his transfer, to the office of the company, previous to the issuance of the new stock.
To determine the liability of the company, to some extent necessarily involves the merits of the respective titles of the two claimants, though but one is before the court.
The original certificate of stock issued on April 1, 1861, to J. M. Browder, and reads as follows:
“ Houston & Texas Central Railway Company,
“No. 19. Four shares.
“This certifies that J. M. Browder, proprietor of share No. [167]*167917 in the capital stock of the Houston & Texas Central Railway Company, established by acts of incorporation passed by the legislature of the state of Texas, subject to which, and the by-laws, this certificate is transferable by assignment, and upon surrender hereof to the directors a new certificate of proprietorship of said share will be delivered to the assignee.”
, Plaintiff Strange holds possession of this original certificate for a valuable consideration, under the following chain of title:
1. A transfer from J. M. Browder, the original grantee, to E. S. Fletcher, dated March 14, 1862. 2. A transfer from E. S. Fletcher to J. R. Coryell, dated May 10, 1873. 3. A transfer from J. E. Coryell to plaintiff B. A. Strange, dated August 29, 1873.
The title under which Hutchins holds the new stock is as follows:
Browder sold and transferred said certificate of stock on May 6, 1868, for valuable consideration, to C. H. Merriman. In pursuance of said assignment from Browder, Merriman transferred the stock on the books of defendant’s company to A. S. Richardson, and certificate of the stock was issued to Richardson on July 27, 1868, and afterwards Richardson transferred the stock to W. J. Hutchins, on or about January 14, 1871. The certificate to Richardson was surrendered, and a new certificate for the same stock was delivered to Hutchins, who holds and represents the stock in defendant’s company.
The by-law of the company authorized by its charter, upon the subject of the transfer of stock, reads:
“ Section 4. The transfers of any share may be made by an instrument in writing signed by the owner, which writing may be indorsed on the certificate or made on a separate paper. The assignee must cause his transfer to be presented and delivered to the secretary of the company before it will entitle him to be recognized as the owner; and upon presentation of such transfer, with the certificate of stock, the secretary shall record the same in books to be kept for that purpose and called “ Report of Transfers,” and the president and secretary shall [168]*168issue new certificate or certificates to the assignee as he may he entitled, unless they have notice of fraud or invalidity of said transfer.”
Subsequently to the issuance of the new stock to Hutchins, a demand was made upon the company by the plaintiff", Strange, for the issuance of stock to him, he having presented the original certificate with the transfer to himself, which demand was refused. On the trial below a jury was waived and judgment rendered by the court for the defendant, the R. R. Co.
From the above statement, it will be seen that the original certificate of stock was transferable by assignment, either indorsed on the certificate itself or on a separate piece of paper, and was not required to be made, as in some cases, on the books of the company.
By the terms of the certificate and by-law, there was a continual affirmation made by the company, that they would hold, for the use and benefit of the rightful owner of the certificate, the amount of. stock therein specified, until it was presented at the office of the company for cancellation and new stock issued; and the company was estopped from denying this. Holbrook v. Zinc Co., 57 N. Y., 616; In re B. & San F. R’y Co., E. L. R., 3 Q. B., 584.
The company is to a certain extent the custodian of the rights of the stockholders, and is responsible for an illegal issuance of stock to their prejudice. Bayard v. Bank, 52 Pa. St., 234; Lowery v. Bank of Baltimore, Taney’s C. C. R., 310; Bank v. Lanier, 11 Wall., 369; Salisbury Mills v. Townsend, 109 Mass. 121; Pratt v. The Taunton Copper Co., 123 Mass., 110; Lorings v. Salisbury Mills, 125 Mass., 150; Bridgeport Bank v. R. R. Co., 30 Conn., 231; R. R. Co. v. Schuyler, 34 N. Y., 30.
It is not intended by this, however, to prescribe an arbitrary rule, that the company shall, in any event, without being in default as by negligence or fraud, be liable for the issuance of stock to any other party than the holder of the certificate, but that it takes the risk, if issued without due precaution, that the certificate may be presented by some one having the superior title.
[169]*169The non-production of the original certificate of stock was notice to the company that such superior title might be in a third party. R. R. Co. v. Schuyler, 34 N. Y., 81; Bayard v. Bank, 52 Pa. St., 235.
A provision for the record of the transfers of certificates, to be made upon the books of the company, as required by the act of December 19, 1857 (Pasch. Dig., art. 4909), was intended for the benefit of the company, so that it might know, by ready reference, who were legal shareholders, who were entitled to vote at its meetings, receive dividends, etc., and to whom it could safely issue new stock. Bank v. Kortright, 22 Wend., 362; Broadway Bank v. McElrath, 2 Beasley (N. J.), 26.
Although the certificate was not the share of stock itself, it was what the company constituted the visible representation of it; and as between the shareholder and his assignee, the equitable, if not the legal title to the stock, would pass by a transfer of the certificate, and this without it being recorded on the books of the company. Angell & Ames on Corp., §§ 353-4; id., § 564; R. R. Co. v. Schuyler, 34 N. Y., 30; McNeil v. Bank, 46 N. Y., 331; Latch v. Wells, 48 N. Y., 592; Bank v. Kortright, 22 Wend., 362; Turnpike Co. v. Ferree, 2 C. E. Green (17 N. J.), 118; Bank v. McElrath, 2 Beasley (13 N. J.), 24.
Such certificate and transfer is prima facie sufficient to authorize the holder to demand of the company the privileges and benefits to which the original holder would be entitled.
This construction of the legal effect of a certificate of stock and its transfer, is now required, almost as a matter of necessity, both for the benefit of corporations and of trade, since stocks in incorporated companies have become such an important basis for speculation and collateral security. To hold otherwise would virtually withdraw such stocks from all other than the home market.
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Bonner, Associate Justice.
This case is one of first impression in this court, and we have endeavored to give it that full consideration in the light of authority, consistent with the pressure of other business, which its importance demands.
It involves the question of the liability of a railroad company for damages for having issued new shares of stock to one claiming under the first shareholder, when the original certificate is still outstanding in the hands of an innocent third party, but who had- not presented the .same, with his transfer, to the office of the company, previous to the issuance of the new stock.
To determine the liability of the company, to some extent necessarily involves the merits of the respective titles of the two claimants, though but one is before the court.
The original certificate of stock issued on April 1, 1861, to J. M. Browder, and reads as follows:
“ Houston & Texas Central Railway Company,
“No. 19. Four shares.
“This certifies that J. M. Browder, proprietor of share No. [167]*167917 in the capital stock of the Houston & Texas Central Railway Company, established by acts of incorporation passed by the legislature of the state of Texas, subject to which, and the by-laws, this certificate is transferable by assignment, and upon surrender hereof to the directors a new certificate of proprietorship of said share will be delivered to the assignee.”
, Plaintiff Strange holds possession of this original certificate for a valuable consideration, under the following chain of title:
1. A transfer from J. M. Browder, the original grantee, to E. S. Fletcher, dated March 14, 1862. 2. A transfer from E. S. Fletcher to J. R. Coryell, dated May 10, 1873. 3. A transfer from J. E. Coryell to plaintiff B. A. Strange, dated August 29, 1873.
The title under which Hutchins holds the new stock is as follows:
Browder sold and transferred said certificate of stock on May 6, 1868, for valuable consideration, to C. H. Merriman. In pursuance of said assignment from Browder, Merriman transferred the stock on the books of defendant’s company to A. S. Richardson, and certificate of the stock was issued to Richardson on July 27, 1868, and afterwards Richardson transferred the stock to W. J. Hutchins, on or about January 14, 1871. The certificate to Richardson was surrendered, and a new certificate for the same stock was delivered to Hutchins, who holds and represents the stock in defendant’s company.
The by-law of the company authorized by its charter, upon the subject of the transfer of stock, reads:
“ Section 4. The transfers of any share may be made by an instrument in writing signed by the owner, which writing may be indorsed on the certificate or made on a separate paper. The assignee must cause his transfer to be presented and delivered to the secretary of the company before it will entitle him to be recognized as the owner; and upon presentation of such transfer, with the certificate of stock, the secretary shall record the same in books to be kept for that purpose and called “ Report of Transfers,” and the president and secretary shall [168]*168issue new certificate or certificates to the assignee as he may he entitled, unless they have notice of fraud or invalidity of said transfer.”
Subsequently to the issuance of the new stock to Hutchins, a demand was made upon the company by the plaintiff", Strange, for the issuance of stock to him, he having presented the original certificate with the transfer to himself, which demand was refused. On the trial below a jury was waived and judgment rendered by the court for the defendant, the R. R. Co.
From the above statement, it will be seen that the original certificate of stock was transferable by assignment, either indorsed on the certificate itself or on a separate piece of paper, and was not required to be made, as in some cases, on the books of the company.
By the terms of the certificate and by-law, there was a continual affirmation made by the company, that they would hold, for the use and benefit of the rightful owner of the certificate, the amount of. stock therein specified, until it was presented at the office of the company for cancellation and new stock issued; and the company was estopped from denying this. Holbrook v. Zinc Co., 57 N. Y., 616; In re B. & San F. R’y Co., E. L. R., 3 Q. B., 584.
The company is to a certain extent the custodian of the rights of the stockholders, and is responsible for an illegal issuance of stock to their prejudice. Bayard v. Bank, 52 Pa. St., 234; Lowery v. Bank of Baltimore, Taney’s C. C. R., 310; Bank v. Lanier, 11 Wall., 369; Salisbury Mills v. Townsend, 109 Mass. 121; Pratt v. The Taunton Copper Co., 123 Mass., 110; Lorings v. Salisbury Mills, 125 Mass., 150; Bridgeport Bank v. R. R. Co., 30 Conn., 231; R. R. Co. v. Schuyler, 34 N. Y., 30.
It is not intended by this, however, to prescribe an arbitrary rule, that the company shall, in any event, without being in default as by negligence or fraud, be liable for the issuance of stock to any other party than the holder of the certificate, but that it takes the risk, if issued without due precaution, that the certificate may be presented by some one having the superior title.
[169]*169The non-production of the original certificate of stock was notice to the company that such superior title might be in a third party. R. R. Co. v. Schuyler, 34 N. Y., 81; Bayard v. Bank, 52 Pa. St., 235.
A provision for the record of the transfers of certificates, to be made upon the books of the company, as required by the act of December 19, 1857 (Pasch. Dig., art. 4909), was intended for the benefit of the company, so that it might know, by ready reference, who were legal shareholders, who were entitled to vote at its meetings, receive dividends, etc., and to whom it could safely issue new stock. Bank v. Kortright, 22 Wend., 362; Broadway Bank v. McElrath, 2 Beasley (N. J.), 26.
Although the certificate was not the share of stock itself, it was what the company constituted the visible representation of it; and as between the shareholder and his assignee, the equitable, if not the legal title to the stock, would pass by a transfer of the certificate, and this without it being recorded on the books of the company. Angell & Ames on Corp., §§ 353-4; id., § 564; R. R. Co. v. Schuyler, 34 N. Y., 30; McNeil v. Bank, 46 N. Y., 331; Latch v. Wells, 48 N. Y., 592; Bank v. Kortright, 22 Wend., 362; Turnpike Co. v. Ferree, 2 C. E. Green (17 N. J.), 118; Bank v. McElrath, 2 Beasley (13 N. J.), 24.
Such certificate and transfer is prima facie sufficient to authorize the holder to demand of the company the privileges and benefits to which the original holder would be entitled.
This construction of the legal effect of a certificate of stock and its transfer, is now required, almost as a matter of necessity, both for the benefit of corporations and of trade, since stocks in incorporated companies have become such an important basis for speculation and collateral security. To hold otherwise would virtually withdraw such stocks from all other than the home market.
Thus it will be seen that the rights of a bona fide holder of . a certificate of stock are two-fold in their character. As against the shareholder, he would, whether his transfer be re[170]*170corded on the hooks of the company or not, have a good title; as against the company, to enable him to demand that he be recognized as a shareholder, and entitled to its rights and privileges, he should present his certificate and transfer for record in the office of the company. R. R. Co. v. Schuyler, 34 N. Y., 80.
. There is a class of cases in which it is held that shares- of stock cannot be assigned simply by delivery and transfer of .the certificate,unless made on the books of the company, so as to defeat the rights of an attachment or execution creditor without notice, by levy at the office of the company.
, These cases generally turn upon some particular provision of the charter or upon some statute providing for such levy.
. In the absence of some such positive provision, which would .make a transfer on the books of the company an essential condition, as between the. shareholder and his assignee, to pass title as against such creditor, it is believed that, by reason of the policy which favors the unrestrained transfer of shares of . stock, the interest of the creditor should be subordinate to that of such bonafide assignee; and particularly, as otherwise such assignee would virtually be without remedy, if the company could protect itself under the levy and sale. Broadway Bank v. McElrath, 2 Beasley (K*. J.), 24.
. Browder, the original shareholder, testified ■ that he placed his certificate of stock, with a blank transfer executed by him thereon, in the hands of Fletcher, for the purpose of effecting a sale.
Having thus given to Fletcher possession of the original certificate with the external indicia of ownership and the right of disposal, Fletcher’s subsequent sale of it, under, which plaintiff Strange claims, clothed him with the apparent legal title.
The rights of Strange, if bona fide, do not depend upon the actual title or authority of Fletcher to sell, but upon the act of Browder giving the apparent authority, and which would estop him and his assignee. Saltus v. Everett, 20 Wend., 278; Mc[171]*171Neil v. Nat. Bank, 46 N. Y., 325; Bridgeport Bank v. R. R. Co., 30 Conn., 231; Turnpike Co. v. Ferree, 2 C. E. Green (N. J.), 117; Holbrook v. Zinc Co., 57 N. Y., 617.
The title of Strange, however, was subject to be defeated by a superior title in. Browder or his assignee, if it could be shown that Strange purchased either with notice of it, or without paying a valuable consideration therefor.
It is uncontradicted both that Strange was a purchaser for value and without actual notice, and it remains to inquire whether he can be charged with constructive notice.
So far as it appears, either from any public statute or the charter or any authorized by-law of the company, the books of the company are not made to operate as notice of ownership further than for the use and benefit of the company itself.
As held by Chief Justice Taney, in Lowery v. Bank of Baltimore, a purchaser of stock is not bound to look beyond the certificate or to examine the books of the corporation, to ascertain the validity of a transfer, as a different rule would greatly impair the value of stock, and would seriously disturb the usages of trade and the established order of business. Taney’s C. C. R., 310; Salisbury Mills v. Townsend, 109 Mass., 115.
Hence these records are not constructive notice to third parties dealing in certificates of stock, and were not such notice to Strange.
-1 On the contrary, it may be said that the company, by the terms of the certificate to Browder and of their own by-law, were by the non-production of this certificate at the time they issued the new stock to Bichardson, and who seems to have been its secretary, charged with notice that the original certificate was outstanding and may have then already passed, or might subsequently pass, into the hands of an innocent holder for value. This, we think, was, under the evidence in this case, such a dereliction of duty on the part of the company, and such breach of its contract, as contained in the certificate which it had permitted to be thrown upon the market, and to which it had invited confidence, as to make the company [172]*172responsible to Strange, who held the possession of it, by the older title, for a valuable consideration and without notice of any defect.
We are of opinion that under the law as applied to the evidence, there was error in the judgment for which it should be reversed and the cause remanded.
Reversed and remanded.
Chief Justice Moore dissenting.
[Opinion delivered March 23, 1880.]