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Welland Investment Corp. v. First National Bank of Jersey City

Decided: October 31, 1963.

WELLAND INVESTMENT CORPORATION, PLAINTIFF,
v.
THE FIRST NATIONAL BANK OF JERSEY CITY AND MERCURY PHOTO CORP., DEFENDANTS



Matthews, J.s.c.

Matthews

This matter comes before me on cross-motions for summary judgment brought by plaintiff on the one hand, and defendant The First National Bank of Jersey City on the other. Plaintiff's motion is actually for partial summary judgment, pursuant to R.R. 4:58, on the issue of liability. Defendant bank moves for summary judgment on the demands set forth in the complaint.

Plaintiff is an investment corporation engaged in the business of loaning monies. For the purpose of these motions the following facts are accepted as true. Commencing on June 14, 1962, one James Lane borrowed monies in varying amounts from plaintiff. To secure these loans he pledged certain certificates of stock as collateral. On November 7, 1962 Lane pledged 550 shares of class A common stock in defendant Mercury Photo Corp., a Delaware corporation, as security for a loan in the amount of $2,600. On November 26, 1962 he pledged 700 shares of the same stock as collateral for a loan in the amount of $4,000. On December 3, 1962 Lane delivered to plaintiff a certificate for 1,000 shares of class A common stock in Mercury, and received in return ten 100 shares of certificates of the same stock. The 1,000 share certificate had been duly endorsed by Nicholas Papadakos, the registered owner, and his endorsement was guaranteed by the Chase Manhattan Bank of the City of New York. On January 7, 1963, Lane pledged 1,000 shares of class A common stock in Mercury which was evidenced by a single stock certificate as collateral for a loan in the amount of $10,000. This certificate was endorsed by Bernard Karafa, the registered owner, whose signature was guaranteed by General Securities Co., Inc. and Eastern Investment Corporation.

On April 10, 1963 the class A common stock of Mercury, which was traded on the over-the-counter market, fell from 9 1/2 to 4. Lane having defaulted by failing to make payments on the loans, and further having failed to provide additional

collateral, plaintiff on April 25, 1963 presented the two certificates in question to defendant bank as transfer agent of defendant corporation for transfer of the shares into its name. When presented with the certificates for transfer, the bank refused to effect the transfer without approval of defendant Mercury. Such approval was not forthcoming, since it was the position of Mercury that the shares evidenced by the two certificates in question had been issued to Papadakos and Karafa for investment purposes only, and, not having been registered under the Securities Act of 1933 (15 U.S.C. , ยงยง 77a et seq.), could not be the subject of an unrestricted transfer. No mention of the unregistered status of the shares was placed on the two certificates.

The present action was then instituted by plaintiff seeking the jurisdiction of this court to compel the transfer and for damages against defendants for wrongful refusal to transfer. At the pretrial conference the court was informed that defendant Bank had since resigned as transfer agent for Mercury, effective September 10, 1963. Concededly, then, any order of this court directing a transfer can be directed solely to defendant Mercury. The parties recognize, however, that the resignation of the bank as transfer agent cannot insulate it from any liability to plaintiff occasioned by the bank's action as transfer agent during the period of time referred to in the complaint.

In its answer, the bank asserted a cross-claim for indemnification against defendant Mercury, and a consent judgment was entered on September 11, 1963 pursuant thereto, adjudging that Mercury was obligated to indemnify and reimburse the bank for any damage which might be obtained by plaintiff against it by reason of the refusal to transfer.

Plaintiff's motion for summary judgment seeks to establish the liability of defendants to respond in damages for the refusal to transfer, leaving the issue of the quantum of damages for hearing. The cross-motion asserted by defendant bank seeks adjudication of this court that, as a matter of law and

under the facts indicated, it cannot be required to respond in damages to plaintiff.

There is no dispute but that this court, as a court of general equity, has the jurisdiction to determine questions of title in an action instituted to compel registration of transfer of stock certificates. At law it is generally held that a proceeding in lieu of mandamus to compel the registration of a stock transfer should not be granted where the claimant's title or right to the stock is disputed or unclear. The question as to title must be settled before mandamus will lie. State ex rel. Bush v. Warren Foundry and Machine Co. , 32 N.J.L. 439 (Sup. Ct. 1868); Leff v. Kaufman's Inc. , 342 Pa. 342, 20 A. 2 d 786, 139 A.L.R. 267 (Sup. Ct. 1941); cf. Trad v. Hodes , 72 N.J. Super. 306 (Law Div. 1962). The right to equitable relief, however, is based on the assumption that plaintiff's title under the assignments constitutes an equitable right only as between it and the company, and, therefore, equitable relief is necessary to enable plaintiff to acquire legal title in the shares by transfer on the books of the company. Lockward v. Evans , 88 N.J. Eq. 530 (Ch. 1918); Morris v. Hussong Dyeing Machine Co. , 81 N.J. Eq. 256 (Ch. 1913); Reilly v. Absecon Land Co. , 75 N.J. Eq. 71 (Ch. 1908); State ex rel. Bush v. Warren Foundry and Machine Co., supra.

Under the facts that have been established here through the moving papers, I am satisfied that plaintiff's motion for summary judgment must be denied since one major issue of fact remains in dispute, that being plaintiff's status as a bona fide purchaser without notice. Since plaintiff's right to the relief sought from this court, i.e. , unrestricted transfer, clearly rests on its status as a bona fide purchaser without notice at the time that it acquired the certificates in question as collateral, the determination of the liability of defendants, or either of them, ...


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