STATE v. BANK OF BATON ROUGE.

[125 La. 138, 51 South. 95.]

CORPORATE STOCK-Rights of Bona Fide Holder. The issuance by a corporation of a certificate for shares of its capital stock is a declaration to the world that the person named is the owner of the stock called for by the certificate; and a purchaser of the stock, who acquires in good faith, for value, and in the usual course of business, and to whom the certificate, properly indorsed, is delivered, is entitled to be recognized by the corporation as the owner of the stock, and cannot be required, as a condition precedent to such recognition, to litigate his title with a third person, who claims under a certificate which had previously been surrendered and canceled; the question whether the cancellation and the issuance of the new certificate were authorized being one which the corporation and such third person must settle between themselves. In such case mandamus will lie to compel the corporation to recognize the holder and owner of the outstanding certificate as the owner of the stock. (p. 338.)

(Syllabus by the court.)

Farrar, Jonas, Goldsborough & Goldberg and Lawson B. Aldrich, for the appellant.

Laycock & Beale and Saunders, Dufour & Dufour, for the appellee.

139

188 MONROE, J. Relator seeks to compel defendant to take up and cancel three of its certificates of stock, originally issued to Ben. R. Mayer, to wit, certificates Nos. 175 (for ten shares), 227 (for twenty shares), and 229 (for fifteen shares), and to issue other certificates therefor. Defendant answers that it has no objection to complying with relator's demand in so far as certificate No. 175 is concerned, but with reference to the others it objects, on the grounds (stated, in substance) that its capital stock is divided into one thousand shares, for all of which certificates have been issued; that from a certain record in the district court it appears that Louis F. Leury sued Ben. R. Mayer, claiming to be an owner, in indivision, of twenty of said shares, represented by certificate 127, and obtained judgment recognizing him to be the owner of an undivided interest, being the one-fiftieth of respondent's capital stock represented in said certificate, and ordering said interest to be sold to effect a partition; that respondent is informed and believes that "part of the certificates described and sued for in the petition herein, as being the property of the relator herein, were originally issued to represent the said undivided one-fiftieth interest; . . . . that it cannot issue the certificates herein claimed and the certificates for the undivided one-fiftieth interest referred to in the suit of Leury v. Mayer without thereby increasing its capital stock," which it cannot lawfully do; "that before it can be required

to issue the certificates herein claimed the several parties asserting conflicting claims to the ownership of the said fiftieth interest in said bank should be cited hereto and should be ordered to litigate between themselves, in order to determine who is the true and legal owner of the interest sued for by the said Leury in the suit above mentioned, and who is, justly and legally, entitled to claim and demand from respondent certificates for the stock representing said interest. Respondent is informed that besides the relator . . . . the Whitney Central National Bank of New Orleans also claims to be the owner of a portion of the undivided fiftieth interest sued for by said 140 Leury; . . . . that said Whitney Central National Bank and the said relator herein were not parties to the suit of the said Leury, and are not bound by the judgment therein. rendered, and the ownership of the said one-fiftieth interest can be determined only by citing herein the said Louis F. Leury, the said Louisiana State Bank, and the said Whitney Central National Bank and Benjamin R. Mayer, through whom said bank claims, in order that, by litigation and proper judicial proceedings between said parties, it may be determined to whom the certificates for the one-fiftieth interest should be issued. Respondent shows that it is ready and willing to issue said certificates to the parties entitled, but that it cannot issue certificates for a larger amount than the authorized capital stock. . . . . The premises considered, respondent prays that the Louisiana State Bank, relator herein, be ordered to litigate and determine, contradictorily with Louis F. Leury and the Whitney Central National Bank and with Benjamin R. Mayer, the question as to the real and true ownership of the said one-fiftieth interest, so as to determine the person who is really and legally entitled to claim the certificate for the said undivided one-fiftieth interest, and respondent prays for all general and equitable relief." On the trial of the case relator offered the certificates sued on, which are in the usual form, and bear, upon their backs, the usual transfers and powers of attorney, in blank, signed by Ben. R. Mayer, the person to whom the certificates were issued. Relator's president was then sworn as a witness, and testified as follows:

"I am president of the Louisiana State Bank. [Looking at certificates Nos. 175, 227, and 229.] This is Mr. Mayer's signature. The Louisiana State Bank owns these certificates. [It was then admitted that the certificates had been presented to defendant for cancellation, and new certificates demanded, and that the demand had been refused.] The certificates were pledged to us January 27, 1907, on pledge notes taken by us from the Whitney Central National, 141 which held as collateral to Mr. Mayer's notes (the certificates came to us from the Whitney Central), the original amount of which was

$22,500 on seventy-five shares, represented by certificate 227, for twenty shares, certificate 228, for twenty shares, 229, for fifteen shares, and certificate 31 for twenty shares. We acquired the ownership March 3, 1909. We closed out the collateral on March 3d, this year, and credited Mr. Mayer's note with the proceeds of the stock at $325 per share. This credit was against the original loan, made January 9, 1907, That was the $22,500 note. This was not the original note, but was a continuation of the loan.

"Q. Did the Louisiana State Bank hold the collaterals, and especially the shares of stock forming the basis of this suit during all the time from the date of the original loan, January, 1907, until the transfer of the stock, in part settlement of the pledged note of Mr. Mayer in March, 1909? A. Yes.

"Q. Look at this note [producing note], and see if that is the note of Ben. R. Mayer to secure the payment of which this stock was pledged? A. Yes, sir."

Relator's counsel then offered the note referred to, being the pledge note of Ben. R. Mayer for $20,500 secured by vari ous stock certificates, including those here sued on. Defendant then offered the "petition" in the suit of Leury v. Mayer, referred to in its answer (being No. 947 of the docket of the district court), and the decree of this (supreme) court, affirming the judgment, which were admitted over relator's objections. The evidence thus offered shows that in November, 1905, Louis F. Leury sued Ben. R. Mayer, alleging that he (plaintiff) was the son of J. Edgar Leury and Hannah Leury, his wife; that his parents were married and lived under the régime of the community; that both were dead and that he had been recognized as the sole heir of his mother; that while they were so living his father had acquired twenty shares of the stock of the Bank of Baton Rouge (defendant herein), represented by certificate No. 127; that after his mother's death his father sold to Ben. R. Mayer his half interest in the stock, and that he (plaintiff), as the heir of his mother and said Mayer, therefore owned the twenty shares in indivision; and he prayed that Mayer be cited, and after due proceedings that he be recognized as the owner and entitled to the community interest 142 of his said mother in and to the ownership in the said Bank of Baton Rouge, as evidenced by certificate No. 127, of twenty shares of the capital stock, together with dividends, etc., and that the same be sold, to effect a partition. And there was judgment in the district court, about as prayed for, which judgment, with an amendment relating to the dividends, was affirmed by this court: Leury v. Mayer, 122 La. 486, 47 South. 839. Defendant (in the present proceeding) then offered the "petition" in the matter entitled, "State ex rel. Louis F. Leury v. Bank of

Baton Rouge et al." (No. 906 of the docket of the district court), and the answer of the bank thereto, which were also admitted over objection, and in which petition Leury sets up his claim to stock (as stated in the petition in the other suit), and alleges that his father "sold, transferred and delivered unto one Ben. R. Mayer all his right, title and interest in and to the said certificate of stock, . . . . known as certificate No. 127, . and the said certificate was accordingly transferred on the books of the said Bank of Baton Rouge by order of the said Ben. R. Mayer, and a new certificate issued to the said Ben. R. Mayer in lieu thereof; . . . . that he is entitled to be recognized as the one-half undivided owner of the said certificate No. 127; . . . and that the said bank should be ordered to deliver, free from any claim of the said Ben. R. Mayer or of itself, a certificate of stock in the name of petitioner for ten shares of the capital stock of said bank,"

To the petition in question the Bank of Baton Rouge excepted and (in case the exception should be overruled) pleaded the general denial, and the proceeding seems then to have been abandoned, the suit No. 947 having been instituted some days later. Defendant (in this proceeding) then offered the testimony of its assistant cashier (which was also admitted over objection), in which he undertakes to trace the stock originally represented by the certificate No. 143 127 into the certificate Nos. 227, 228 and 229, as follows, to wit: No. 127 (twenty shares), issued to J. Edgar Leury, December 8, 1891; canceled November 9, 1894, and in lieu thereof, No. 161 (ten shares), issued to Ben. R. Mayer, and No. 162 (ten shares), issued to Joe Mendelsohn. No. 161 (ten shares), canceled May 6, 1902, and in lieu thereof, No. 210 (ten shares), issued to Ben. R. Mayer Grocery Company, Limited. No. 210 (ten shares), canceled April 9, 1904, and in lieu thereof and of No. 216, No. 227 (twenty shares), issued to Ben. R. Mayer. No. 162 (ten shares), canceled September 27, 1901, and in lieu thereof, and of Nos. 28 and 118, certificate No. 203, for seventeen shares, issued to Morris Wolf. No. 203 (seventeen shares), canceled May 6, 1902, and in lieu thereof, No. 211 (17 shares), issued to Ben. R. Mayer Grocery Company, Limited.

"No. 211, for seventeen shares [the witness says], was presented, properly indorsed by Ben. R. Mayer Grocery Company, Limited, and canceled April 9, 1904, and two shares of it issued to Ben. R. Mayer, in certificate No. 228, which certificate is for twenty shares, including certificates 214 and 215; certificate 228 still remaining in the name of Ben. R. Mayer. The other fifteen shares of certificate No. 211 were issued to B. R. Mayer April 9, 1904, in certificate No. 229, and is still standing in his name. .. Therefore [says the witness] the twenty shares represented by certificate No. 127

are now incorporated in Nos. 227, 228 and 229, being ten shares in certificate 227, two shares in certificate 228, and eight shares in certificate No. 229."

The judge a quo made the (alternative) writ of mandamus peremptory with respect to the certificate No. 175, and denied it in all other respects, and relator has appealed.

The certificates Nos. 227 (for twenty shares) and 229 (for fifteen shares) call for thirty-five shares, and, as defendant's witness succeeded in finding in them only eighteen of the shares originally represented by certificate 127, relator would from any point of view be entitled to a new certificate for seventeen shares. We are, however, 144 of opinion that it is entitled to the writ of mandamus as prayed for, the defense set up and the evidence admitted in its support being insufficient and irrelevant. Neither defendant nor relator were parties to the suit in which Leury obtained judgment, and hence are in no wise bound by that judgment; and relator was not made, nor asked to be made, a party to the other proceeding, and hence is in no wise bound by it. On the other hand, it (relator) is shown to have acquired the certificates sued on in good faith for value without notice, and in the usual course of business, and defendant is shown to have issued them to the world, thereby certifying that Ben. R. Mayer, the party from whom relator acquired them, was the owner of the shares of its stock which they represent. It is not asserted that anyone else pretends to own the certificates in question, or that there are any other certificates outstanding which represent the same shares, and, so far as we can see, the issuance of new certificates in place of those sued on will put defendant in no worse position than it now occupies, since the holders of such new certificates will simply stand in the shoes of the relators as holders of those sued on.

The trouble began when defendant permitted the surviving husband of Mrs. Leury or his transferee, Ben. R. Mayer, without proper authority, to cancel certificate No. 127, which represented stock that had belonged to the community, and issued new certificates for such stock to Mayer, who was then one of its officers, and who knew that the community had been dissolved by Mrs. Leury's death (Leury v. Mayer, 122 La. 486, 47 South. 839), after which defendant permitted the new certificates so issued to be canceled and replaced by others, and those others canceled and still others issued in their stead, and its present proposition is that the innocent holder of the certificates last issued who acquired them in good faith for value without notice 145 of any defect in title and in the usual course of business shall, as a condition precedent to being recognized as the owner of the property which it thus acquired on the faith of its (defendant's) certificate, issued to the world, seek out the heir of Mrs. Leury and liti