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Buch.

Schlicher v. Trenton, Lakewood and Atlantic Rwy. Co.

corporation, allowing the claims of the appellants for money alleged to be due to them from the corporation. By the determination of the receiver, Schlicher was allowed $1,013.96 and Schmidt $3,641.66. From this conclusion Abel B. Haring, one of the stuckholders of the insolvent corporation, appealed to the court of chancery. The vice-chancellor disallowed both claims in toto, although in each case an item of $750 allowed by the receiver was not appealed from.

We think the court of chancery erred in refusing to allow to each of the claimants the sum of $750.

The Trenton, Lakewood and Atlantic Railway Company was incorporated for the purpose of constructing a railroad. The president of the company employed a contractor to grade portions of the right of way. After the work was done, the contractor demanded payment, but his claim was repudiated on the ground that it was unjust and that the work had not been authorized by the company. Furthermore, the company was without funds, and the contractor threatened to institute insolvency proceedings. To avoid this, the claimants, together with other directors of the corporation, paid the contractoi a part of his claim without prejudice to his right to recover the remainder from the company. Of the amount paid, each of the appellants advanced $750. We are of the opinion that this money was paid by these appellants for the benefit of the corporation, was properly allowed by the receiver, and should have been allowed by the vice-chancellor.

Although the record shows that no appeal was taken from the determination of the receiver allowing this claim, still we are of the opinion that the court of chancery has a right in a case of this character to review the action of its appointee, the receiver, even if there be no appeal from all the transactions.

Another item, amounting to $11.67, claimed by each of the appellants as an advance made by them to the company to pay the cost of printing bonds, was a proper claim against the corporation and should have been allowed by the vice-chancellor. We agree with the vice-chancellor that all the other claims were not debts against the corporation and should not have been allowed.

The order of the court below should be modified so as to suis

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tain, in each case, the claims of the appellants to the two items above mentioned amounting to $791.67. In other respects the decree of the vice-chancellor is affirmed.

On appeal of Peter Schlicher

For affirmance-- None.

For reversalTHE CHIEF JUSTICE, GARRISON, SWAYZE, TRENCHARD, PARKER, BERGEN, VOORHEES, MINTURN, BOGERT, VROOM, GRIY, DILL, CONGDON-13.

On appeal of William P. Schmidt

For affirmance-None.

For reversalTHE CHIEF-JUSTICE, GARRISON, SWAYZE, TRENCHARD, PARKER, BERGEN, VOORHEES, MINTURN, BOGERT, VROOM, GRAY, DILL, CONGDON—13.

WILLIAN GROFF et al., complainants-respondents,

V.

MARG.RET B. STITZER et al., defendants-appellants,

[Argued March Sth, 1910. Decided June 20th, 1910.]

A bank accepted stock standing in the name of a third party, endorsed in blank as security for a loan to one of its customers. It had notice that the owner of the stock was an invalid, and the cashier wrote asking her if the endorsement was genuine. He received a reply, signed by the invalid, confirming the signature. It subsequently appeared that the invalid was of unsound mind.-Held, notice to the bank that the owner was an invalid was not notice that the owner was of unsound mind. Under the circumstances, the bank was entitled to a lien upon the stock for the residue of the debt of its customer thereon, after first exhausting its remedy against other collateral for the same debt and against its customer individually.

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On appeal from a decree of the court of chancery advised by Vice-Chancellor Howell, whose opinion is reported in 75 N. J. Eq. (5 Buch.) 455.

Vessrs. Grey & Archer, for the appellants.

Mr. James Fisher, for the respondents.

The opinion of the court was delivered by

DILL, J.

This is an appeal from a decision of Vice-Chancellor Howell in an action by the executors of the will of Caroline Bowers, deceased, to set aside a transfer, made by her during her lifetime, of thirty-two shares of the capital stock of the Essex County National Bank.

These certificates were endorsed in blank by Mrs. Bowers and delivered to James H. Stitzer, Jr., the son of Margaret Stitzer, who was a stepdaughter of Mrs. Bowers. The transfer to James Stitzer was not absolute, but was merely for the purpose of enabling him to use the stock as collateral security for certain promissory notes which he proposed to have discounted at the Quaker City National Bank of Philadelphia. After receiving the certificates, Stitzer pledged them with the bank as collateral security for loans made by the bank amounting to $4,300. He also pledged with the bank, as collateral for these loans, four shares of stock of the Morristown National Bank, belonging to his mother, and loaned to him by her for that purpose.

While the stock in the name of Mrs. Bowers was in the possession of the bank, at the request of James H. Stitzer, Jr., and upon presentation of a power of attorney and assignment executed by Mrs. Bowers, the bank sent it for transfer from the name of Caroline Bowers to the name of Margaret Stitzer, and a new certificate in the name of Margaret Stitzer, endorsed by her, was returned to the bank in place of the old ertificates.

Margaret Stitzer now claims to be the owner of this stock by virtue of the transfer.

The vice-chancellor decided that, on the facts proved, Mrs. Bowers was so enfeebled, mentally and physically, as to be under

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the domination and control of Mrs. Stitzer and her son; and that, in order to sustain the transfer of this stock, any

interest therein, to them, the burden rested upon them to show that it was the voluntary, well-understood act of the donor.

He held that they had failed to bear this burden, that as to them the transfers were void, and that the complainants were entitled to the relief sought.

In this respect we concur in the vice-chancellor's conclusion and for the reasons stated in his opinion.

But the court below went further and decided that the Quaker City National Bank was chargeable with notice of the mental condition of Mrs. Bowers, and that the bank had no claim on the stock which could be asserted against the complainants.

The evidence was that when Stitzer offered Mrs. Bowers's stock as collateral for the loan which he sought, the bank, through its cashier, before accepting the same, wrote the following letter:

“THE QUAKER CITY NATIONAL BANK
OF PHILADELPHIA.

June 25th, 1907. "Mrs. Caroline Boirers,

Hackettstown, N. J.: "DEAR MADAM-Mr. James Herbert Stitzer, Jr., has left with us thirtytwo (32) shares of the Essex County National Bank, standing in your name and endorsed by you with the signature of Margaret B. Stitzer as witness.

"As is customary in such cases I wish to confirm the genuineness of your signature to the certificates, there being two of sixteen shares each. Mr. Stitzer advises me that you are quite an invalid. You can therefore have some one else write the letter, simply stating the signature is correct, if such is the case, then you sign it.

"Yours very truly,

“W. D. BRELSFORD,

Cashier."

Two days later Mrs. Stitzer wrote a reply to the bank, signed by Mrs. Bowers and herself, as follows:

“HACKETTSTOWY, June 27th, '07. "DEAR SIR--Your letter received. Mrs. Bowers is quite an invalid. But I will have her sign this letter same as the certificates which she signed. I hope it will prove satisfactory.

Yours, "JI. B. Stitser.

“CAROLINE BOWERS."

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The vice-chancellor held that because the bank knew that Mrs. Bowers was quite an invalid, so much so that she was unable to reply to the cashier's inquiry in a letter written by her own hand, and because it knew that the stock in question belonged to Mrs. Bowers, therefore the burden of inquiring into the extent, nature and character of Mrs. Bowers' invalidism was cast upon it. He further heid that if the bank had investigated this matter, it would have learned that Mrs. Bowers was a paralytic; that her mental powers were much impaired, and that she had been induced to part with her stock by undue influence exercised over her by the Stitzers.

Although the question is a close one, nevertheless it seems to us that this view of the situation works an injustice to the bank. Invalidism and mental incompetency are entirely different. Knowledge of the one does not, of necessity, carry with it notice of the other. The bank knew that Mrs. Bowers was an invalid, so much so that writing letters was a burden upon her, but there is nothing in the record to show that it knew, or ought to have anticipated, that her invalidism was anything more than an affection of the body. The bank was not required, merely because of this knowledge, to investigate the question of the mental capacity of Mrs. Bowers; it was justified in assuming that she was mentally normal until facts were brought to its notice which ought to have suggested the contrary. It seems to us, further, that the bank did everything it could in reason be asked to do to protect itself. Having in its possession the stock with a blank transfer in the ordinary form endorsed thereon, it wrote to the owner of the stock to verify the endorsement on the transfer. The letter, which it received in reply, contained nothing, we think, to suggest mental incapacity, but rather justified the bank in doing what it did.

The decree should be modified by providing that the bank is entitled to a lien upon the thirty-two shares of stock which it holds to the extent of the residue of the debt of James H. Stitzer, Jr., upon the loans which the bank made upon the faith of this collateral, but the rule of Shannon v. Marselis, 1 V. J. Eq. (Sar) 41.3, and the decisions which have followed it, should

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