CHAPTER XVI. OF MORTGAGES OF STOCK AND SHARES. SECTION 1. MORTGAGES OF STOCK. SIR WILLIAM GRANT, when M. R., justly remarked that public Stocks are stocks or funds are, in fact, perpetual annuities granted for ever, annuities. perpetual redeemable by the public; that they are a mere right, and the circumstance that government is the debtor makes no difference; and that they constitute a mere demand of dividends as they become due, having no resemblance to a chattel moveable or coinmoney capable of possession and manual apprehension. He determined that if stock be transferred into the name of a married woman, and her husband die in her lifetime, without having accepted the stock in the bank books, or otherwise reduced it into possession, the stock will survive to the wife, although the husband and wife should in his lifetime have signed partial transfers of the stock (a). In another case (b) the M. R. remarked, there was a very untechnical expression used with regard to stock; there is literally no such thing as one hundred pounds stock: knowing, however, that in common parlance people, speaking of stock, will so express themselves, the Court will apply it. Stock in the public funds is transferable by the stockholder How stock is in person, or under the authority of a letter of attorney, accord- transferred. ing to the form prescribed by the Bank of England. Express powers were not formerly necessary in mortgages of Power of sale. stock, or in the instruments of defeasance executed by the transferee; nor need a mortgagee of stock now rely on his statutory power in order to realize his security by sale. (a) Wildman v. Wildman, 9 Ves. (b) Kirby v. Potter, 4 Ves. 748, 751. 174. CHAPTER XVI. Misdescription. If stock is itself made the security for money, and the day appointed for payment is passed, the mortgagee may at once proceed to sell the stock, and repay himself principal and interest, without any authority from the mortgagor, and without commencing an action of foreclosure (c). The rule is founded on considerations of mercantile usage and convenience. But the mortgagee will be decreed to account for the surplus (d). He may, however, foreclose if he prefer it, and that, too, although an express power of sale is given him by the mortgage deed, and whether his interest be legal or equitable (e); and the mortgagee of a reversionary interest in stock may have foreclosure if he desire that remedy (ƒ). Where reversionary stock was described as 3,000l. when really 5,0007., only 3,0007. passed (g). Mortgagee whether liable for unpaid calls. When mortgagee is liable as a con tributory. SECTION II. MORTGAGE OF SHARES IN A COMPANY. i. Introductory Remarks.-Where, by the rules of a company, shares are not to be transferred until all arrears of calls are paid, it would seem that a mortgagee by transfer cannot be recognized as transferee until payment of all arrears; but if the company recognize him as such, they cannot call upon him pay the arrears (h). to Where shares in a joint stock company are transferred as security for a debt, the transferee is in the position of legal owner of the shares, and becomes liable as a member to be placed on the list of contributories on the winding-up of the company (). But an equitable mortgagee, in whose name the shares have not been registered, is not a contributory, nor will the register be rectified by the insertion of his name (k); but if (c) Tucker v. Wilson, 1 P. Wms. 261; Lockwood v. Ewer, 2 Atk. 303. (d) Harrison v. Hart, Comyns, 393; Langton v. Waite, L. R. 4 Ch. A. 402. (e) Slade v. Rigg, 3 Ha. 35. (f) Slade v. Rigg, sup.; Wayne v. Hanham, 9 Ha. 62; Stamford, &c. Banking Co. v. Ball, 4 De G. F. & J. 310. (g) Woodburn v. Grant, 22 Beav. 483. (h) Watson v. Eales, 23 Beav. 294. (i) Re Land Credit Co. of Ireland, L. R. 8 Ch. A. 831. See Re Asiatic Banking Corporation, L. R. 4 Ch. A. 252; Re Patent Paper Manufacturing Co., L. R. 5 Ch. A. 294. (k) Newry Rail. Co. v. Moss, 14 Beav. 64 Re Joint Stock Discount Co., L. R. 3 Ch. A. 119. shares which have been deposited with creditors are exchanged by them for shares in their own names, they are liable as contributories, though known to the company as holding the shares on security only (1). Where shares may be forfeited if debts due by the holder are not paid, or where the holder cannot transfer the shares until the debts are paid, the debts are not charged on the shares (m). Where the holder cannot transfer shares until debts due to the company are paid, any debt will prevent the transfer, although it has nothing to do with the shares (n). ii. How Mortgages of Shares are effected.-Mortgages of fully paid up shares in joint stock companies are usually effected by a transfer of the shares to the mortgagee duly registered, accompanied by a deed of defeasance. If, however, the shares are not fully paid up it will generally be more prudent for the mortgagee not to take a complete registered transfer to himself, and so incur the liabilities of a shareholder (o). In such a case the mortgagee should require the certificates to be delivered to him, and also take a transfer to himself executed only by the mortgagor, which the mortgagee can at any time render complete by executing it himself and registering it. CHAPTER XVI. certificates. A valid security may be made by a deposit of the certificates Deposit of of shares; and such security will apparently operate as a mortgage by deposit of documents of title and not as a pledge of the shares (p). charge on Although the company are not bound to see to the execution Notice to of trusts, still it is important that notice should be given to the company of company of any charge upon shares, in order that the mort- shares. gagee, by giving such notice, may protect himself against any lien claimed by the company in respect of the mortgaged shares (2). transfer of A transfer of shares must be in the form prescribed by the Form of statute or by the regulations of the company; and the company shares. (1) Price and Brown's Case, 3 De G. & S. 147. (m) Re Dunlop, 21 Ch. D. 583, C. A. (n) Exp. Stringer, 9 Q. B. D. 436, C. A. (0) Newry Rail. Co. v. Moss, 14 Beav. 64; Re Land Credit Co. of Ireland, L. R. 8 Ch. A. 831. (p) Exp. Moss, 3 De G. & S. 599; Exp. Stewart, Re Shelley, 4 De G. J. & S. 543; Binney v. Ince Hall Coal Co., 35 L. J. Ch. 363; Re Tahiti Cotton Co., Exp. Sargent, L. R. 17 Eq. 273; Colonial Bank v. Whinney, 11 App. Cas. 426. See infra, p. 279. (a) See post, p. 1271. CHAPTER XVI. may refuse to register transfers not according to the prescribed form (r). Unless required by the regulations, a transfer of shares in a company governed by the Companies Act, 1862, need not be under seal (s). By the Companies Clauses Consolidation Act, 1845, transfers of shares and stock of companies incorporated for carrying on undertakings of a public nature are required to be by deed (t). Transfer by delivery. Transfers in blank. Transfers under seal. The Companies Act, 1867 (u), empowers companies to issue, with respect to fully paid up shares and stock, share warrants to bearer transferable by delivery, the effect of which warrants is to entitle the bearer to the shares or stock specified therein, and the shares or stock may be transferred by delivery of the warrants. Except under the provisions of this Act, there appears to be no power to issue shares transferable by delivery (x). If the shares are not fully paid up, and consequently the transfer is not registered, it has been a frequent practice for the mortgagee to take either a transfer in blank, or a mere deposit of the shares, together with a power of attorney to execute a transfer in the name of the mortgagor; the mortgagee's name would thus not appear on the register, and he would be enabled to transfer the shares directly to a purchaser. This practice is, however, attended by certain inconveniences and risks. Where, however, by the regulations of a company, transfers of shares must be by deed, the blanks in a transfer cannot be filled up so as to entitle the transferee or his assignee to be registered as holder, unless the transfer is re-executed and re-delivered by the transferor (y). So, where the certificate of trust stock, together with a deed of transfer, were given by a trustee to his bankers to secure his own overdraft; the deed was signed, sealed, and delivered by the trustee, but the name of the transferee was left in blank; the bankers subsequently filled in their own names as transferees and, holding the certificates, were registered as owners; it was held that the transfer, not having been executed to the bankers (r) Re General Cemetery Co., 6 E. & B. 415. (8) Re Tahiti Cotton Co., Exp. Sargent, L. R. 17 Eq. 273. See also sects. 14, 15 of the Companies Clauses Act, 1845, as to the transfer of shares in companies governed by the Act. (t) 8 & 9 Vict. c. 16, s. 14. (u) 30 & 31 Vict. c. 131, ss. 27, 28. (x) See Re General Co. for Promotion of Land Credit, L. R. 5 Ch. A. 363, affirmed in D. P., sub nom. Princess of Reuss v. Bos, L. R. 5 H. L. 176; McEwen v. West London Wharves Co., L. R. 6 Ch. A. 655. (y) Société Générale de Paris v. Walker, 11 App. Cas. 20. as transferees, did not pass to them the legal estate in the CHAPTER XVI. shares, and accordingly that the prior equity of the cestuis que trusts prevailed (≈). under seal. Where transfers may be by writing not under seal, the taking Transfers not of transfers in blank is attended with serious risks to all parties concerned. The transfers may come, by being stolen or otherwise, into the hands of a stranger, who may fill in the blanks in his own name, and sign the transfers, and dispose of them to a bonâ fide purchaser without notice, in which case either the mortgagee or the company must bear the loss, according to the circumstances of the particular case. On the other hand, the mortgagor runs the risk of improper dealing with the transfer by the mortgagee. The person who has signed a negotiable instrument in blank, or with blank spaces, is estopped from disputing any alteration made in the document after it has left his hands, by filling up blanks or otherwise, in a way not ex facie fraudulent, as against a bonâ fide holder without notice (a), unless the circumstances of the case are such as to put such holder on inquiry at the time he took the transfer (b). These principles appear to apply not only to negotiable instruments, but to all cases where the person taking property can show that the true owner has so acted as to mislead him into the belief that the person dealing with the property had authority to do so (c). Notice of a mortgage of shares by assignment in blank is binding on a company (d). iii.-Effect of Deposit of Certificates.-The question has some- Whether a times arisen whether a delivery of certificates of shares by way certificates deposit of of security operates as a pledge of the shares or as an equitable of shares mortgage by deposit of the documents of title to the shares. operates by way of pledge The distinction was formerly of considerable importance in view or equitable of the difference between the remedies incident to the two kinds of contract; for, as will be seen hereafter, the remedy of a pledgee is to sell the property, but the proper remedy of an equitable mortgagee was foreclosure. No doubt the practical (2) Powell v. London and Provincial Bank, (1893) 2 Ch. 555, C. A. (a) France v. Clark, 26 Ch. D. 257, at p. 262. See London Joint Stock Bank v. Simmons, (1892) A. C. 201, at p. 215; Fox v. Martin, W. N. (1895) 36. (b) Earl of Sheffield v. London & Joint Stock Bank, 13 App. Cas. 333; Colonial (c) Colonial Bank v. Whinney, 15 mortgage. |