Bache & Co. v. Walston & Co., 21 N.Y.2d 635, 281 N.Y.S.2d 94, 227 N.E.2d 584 (1967)
A party who obtains stock certificates through a transfer that does not comply with the relevant provisions of the Personal Property Law is liable for conversion, even if they acted in good faith.
Summary
Bache & Co. sued Walston & Co. for conversion of stock certificates. The certificates were not transferred in compliance with the Personal Property Law. Walston argued that it acquired the certificates in good faith, thus absolving it from liability. The court held that Walston’s good faith was irrelevant because the original transfer was not in compliance with the Personal Property Law, and therefore Walston was liable for conversion. The damages were measured by the cost of replacing the securities within a reasonable time after discovering the conversion.
Facts
Bache & Co. was the original owner of certain stock certificates. These certificates were transferred to Walston & Co. However, the transfer did not comply with former section 162 of the Personal Property Law. Bache & Co. discovered the conversion and replaced the securities within six business days, incurring a cost of $87,136.07.
Procedural History
The case initially went to the trial court, the result of which is not specified in the provided text. Upon appeal, the New York Court of Appeals initially ruled in favor of Walston & Co., as detailed in the dissenting opinion referenced (21 N.Y.2d 219, 229). However, the court granted reargument. Upon reargument, the Court of Appeals reversed its prior decision and directed judgment in favor of Bache & Co.
Issue(s)
Whether Walston & Co.’s good faith in acquiring the stock certificates absolves it from liability for conversion when the initial transfer of the certificates did not comply with the requirements of the Personal Property Law.
Holding
No, because the failure to comply with the Personal Property Law in the transfer of the certificates means Walston is not protected by sections 166 and 168 of that law, and its good faith does not absolve it from liability for converting Bache & Co.’s property.
Court’s Reasoning
The court reasoned that because the stock certificates were not transferred in compliance with former section 162 of the Personal Property Law, Walston was not protected by former sections 166 and 168 of the same law. The court cited Pierpont v. Hoyt, 260 N.Y. 26 and Casey v. Kastel, 237 N.Y. 305 in support of this proposition. Consequently, Walston’s good faith was not a relevant consideration. The court stated, “Since the transfer did not comply with the above-mentioned section Walston is not protected by former sections 166 and 168 of the Personal Property Law and its defense of good faith does not absolve it from liability for converting Bache & Co.’s property.”
Regarding damages, the court applied the rule that the measure of damages for conversion of stock certificates is the cost of replacement within a reasonable period after discovering the conversion. The court cited Mayer v. Monzo, 221 N.Y. 442, 446 and Jones v. National Chautauqua County Bank, 272 App. Div. 521, 528. Since Bache & Co. replaced the securities within six business days, the court awarded damages based on that cost.
The court emphasized the importance of strict compliance with the Personal Property Law in stock certificate transfers. This protects the integrity of the market and ensures that parties cannot inadvertently acquire ownership through faulty transfers, even if they act in good faith. The dissent, referenced from the original appeal, highlights a different interpretation of the applicable statutes, suggesting a greater emphasis on the good faith of the purchaser.