Tobin v Broadbent [1947] HCA 46;

Tobin v Broadbent [1947] HCA 46; - HCA 1947 case summary — Zoe

[23]

In Fuller v. Glyn, Mills, Currie & Co.[17] however, Pickford J. did hold that if a person placed in the hands of a stockbroker share certificates endorsed with a signed transfer form he was estopped from setting up his title as against persons with whom the sharebroker had pledged the certificates if the pledgee took them bona fide. This is, I think, the only actual decision that there is an estoppel in such a case. In Colonial Bank v. Cady[18] there is a statement to the effect that if a shareholder had executed a transfer of the shares and left them in the hands of his brokers he would have been estopped from asserting his title as against a person to whom they had disposed of them and who received them in good faith and for value. This statement was not necessary for the occasion of the case and was very plainly obiter dictum. In Mercantile Bank of India Ltd. v. Central Bank of India Ltd.[19] there is a reference to Fuller v. Glyn, Mills, Currie & Co.[20] and to a statement by Lord Watson in London Joint Stock Bank v. Simmons[21] that "brokers, in the ordinary course of business, are employed to sell, to buy, and to raise money upon as well as to keep in custody the securities of their customers," and that accordingly other persons were entitled to assume, in the absence of anything to indicate the contrary, that a broker had "full authority to deal with them." I should have thought that it was plain enough that the only justifiable assumption would be that the broker had authority either to sell or to buy or to raise money or to keep in safe custody. I cannot see how it can be said that because a broker may have been employed to do any one or more of four things that therefore other persons are "entitled to assume" that the broker has full authority to deal with the shares as he chooses. There can be no inference as to the actual extent of the broker's authority in a particular case. He may have no authority whatever. He may have acquired the certificates dishonestly, but upon any view there can be no reason for assuming that because he may have any one of several kinds of authority therefore he in fact has one of those particular kinds of authority.

[31]

Their attorney exercised complete control over their investments, bought and sold shares, took up options, speculated in gold shares and so forth. But he got into financial difficulties and proceeded to use his clients' securities fraudulently and for his own purposes. About July 1943 he obtained a loan of £1,500 from the respondent who was also a stock and share broker and a member of the Adelaide Stock Exchange. Hodgetts used the moneys for the purposes of his own business and not for any purpose of his principals. He deposited, en bloc, with the respondent, as security for the loan, various securities, some negotiable and some not negotiable, and some apparently belonging to himself and others to various clients including the shares of the appellants. The certificates for the shares of the appellants had transfers in blank endorsed on the back thereof and signed respectively, "J. R. Tobin by his attorney H. W. Hodgetts Transferor" and "A. T. Tobin by her attorney H. W. Hodgetts Transferor." On the transfer by the appellant, J. R. Tobin, the following endorsement also appeared: "Power of Attorney exhibited 26/9/38 Colton Palmer and Preston Ltd. per P. S. Hume" and on the transfer by the appellant, A. T. Tobin, the following endorsement also appeared: "Power of Attorney noted Harris Scarfe Limited L. Harris, Secretary." This deposit by Hodgetts of the appellants' shares with the respondent was in fraud of his principals, the appellants, but the respondent did not know that the loan was not for or on account of the owners of the shares and other securities deposited. He did not inspect either power of attorney given by the appellants or make any inquiry as to Hodgetts' authority to pledge their shares. He assumed that Hodgetts required the money for the purpose of financing the owners for the time being of the shares. And it was the practice amongst members of the Stock Exchange at Adelaide to accept as good delivery (without requiring production of a power of attorney) a transfer of shares signed by an attorney for the registered owner, duly witnessed and attached to the relevant share certificate, provided that such transfer was endorsed with a notation that the power of attorney had been exhibited at the office of the company in which the shares were owned and that such notation was by an officer of that company with the company's official certification to that effect. It was a condition of listing shares on the Stock Exchange of Adelaide that a company should endorse transfers on production of the necessary documents: "Power of Attorney Exhibited." According to this requirement, the companies made the endorsements on the transfers relating to the powers of attorney already mentioned.

[34]

The actual authority conferred upon Hodgetts is contained in the powers of attorney already mentioned, and in most comprehensive terms. They authorize the attorney to act in such manner as he thinks fit in relation to their affairs generally and the conduct and management thereof and in particular in relation to their investments, securities, moneys, bank balances, income and personal property of every description. And they authorize the attorney to exercise the fullest powers in relation to their real and personal property and their affairs and the conduct and management thereof including power to execute, sign, and do all deeds, instruments, cheques, acts and things in relation thereto as effectually as they could execute, sign and do the same and without prejudice to the generality of the foregoing powers which are to be given the fullest and widest interpretation and for the purpose of affording protection to persons or bodies corporate dealing with their attorney they expressly authorize their attorney in their name on their behalf to do and execute all or any of the acts, deeds and things specified in the schedule which includes the power to sell either by public auction or private contract or exchange any part of their freehold or leasehold lands or tenements personal property or chattels or other effects for such consideration and subject to such covenants as their attorney should think fit and to give receipts for all or any part of the purchase money or other consideration money and to sell all or any stock, shares, debentures, inscribed stock, bonds, obligations and other securities of a like nature and to give good receipts and discharges for all purchase money payable in respect of such sales and to execute all deeds and other instruments necessary and proper for transferring such stocks and other securities respectively to the purchaser and to exercise all rights and privileges and perform all duties which now or thereafter belonged to them as the holders of such stock and other securities and to deposit at their bank or such other bank as their attorney selected any moneys which came to the hands of their attorney and to withdraw any moneys standing to their credit at any bank whether solely or jointly with another or others and to invest the same in such stock, shares and other securities as their attorney should think proper.

[54]

Ostensible agency. The defendant in his pleading made the following allegation as an answer to the actions: - "It was in accordance with custom and/or the ordinary course of business for a broker to pledge or deposit by way of security, for a loan made to the broker, share certificates together with transfers thereof signed in blank, by or on behalf of the person who appeared to be the owner of the certificates; and the defendant acted in accordance with such custom and in accordance with the ordinary course of business in lending money to the broker, against and in accepting the said certificates and transfers as a pledge or deposit." I understand this to mean that, according to the established course of a sharebroker's business, he not only sells in his own name, or without disclosing his principal, the stock and shares of his client and completes the sale by delivery of the scrip intrusted to him, but he also mortgages or pledges scrip intrusted to him for loans raised in his own name. I presume that it was hoped to shew under this allegation that it is the custom in Adelaide for a sharebroker to hold his clients' securities, consisting in the case of shares of the scrip and a blank signed transfer, as cover for his clients' indebtedness to him and to lodge securities so held by him with the broker's own bankers, or with other persons making advances to him, as mortgages or pledges to the full value of the stock or shares independently of the broker's interest therein, that is his title to retain them against his client. If that had been shown, a foundation would have been made for an ostensible authority in the broker, Hodgetts, which nothing but notice in the defendant would displace. Speaking of the supposed course of business, practice or usage, though rather in connection with the interpretation of the powers of attorney, Ligertwood J. said: - "By the practice of brokers he" (Hodgetts) "would still be acting in the conduct and management of the plaintiffs' affairs, if he redeposited the certificates for the purpose of obtaining money for his own business, because that is one of the means by which brokers are able to finance their customers. On the authorities I am entitled to take judicial notice of this practice. It was recognized by several of the Law Lords in London Joint Stock Bank v. Simmons1(1892) A.C. 201. and by Pickford J. in Fuller v. Glyn, Mills, Currie & Co.2(1914) 2 K.B. 168.. Indeed it was largely the recognition of the practice which enabled the House of Lords in Simmons' Case1(1892) A.C. 201. to distinguish their previous decision of Sheffield v. London Joint Stock Bank3(1888) 13 App. Cas. 333.. Lord Halsbury referred to the course of business which brokers habitually pursue towards their own clients and for their own clients, when dealing with bankers with whom they deposit securities and he said, the deposit of securities as cover in a broker's business is as well-known a course of dealing as anything can possibly be1(1892) A.C., at p. 211.. And Lord Macnaghten said, The only objection alleged is that securities of different customers of the stockbrokers were pledged for one entire advance. ... But even so, if the bank had no reason to suppose that the stockbrokers were not at liberty to pledge each and all of the securities for their full value, I cannot see in what the supposed want of good faith consists. As was pointed out in Foster v. Pearson2(1835) 1 C.M. & R. 849 [149 E.R. 1324]. such a practice - and the practice prevails in the case of stockbrokers as much as in the case of bill-brokers - has advantages for the customers as a body, though it may occasionally operate hardly on an individual3(1892) A.C., at p. 225.. The advantage is that by pledging his customer's securities for his own business debt, the sharebroker may be able to give his customer a loan on more favourable terms than the customer could obtain by pledging his own securities (see per Lord Field4(1892) A.C., at p. 228.)"[57].

[60]

In the case of securities which are not negotiable but are in a condition in which they are transferable by delivery and serve as indicia of title, the course of business of stockbrokers in London is, perhaps, such as to make a broker an ostensible agent of his client to pledge his securities with a bank. For it is said that brokers in the ordinary course of business are employed to sell and to buy and to raise money upon as well as to keep in custody the securities of their clients and consequently the banker is entitled to assume, in the absence of indications to the contrary, that the broker has full authority to deal with the securities: Halsbury, Laws of England, 2nd ed., vol. 31, Stock Exchange, p. 584, par. 803. On this footing the fact that the client signs a blank transfer and hands the scrip and the transfer to the broker puts him in the same position as a merchant who entrusts the documents of title to his goods to a factor or mercantile agent. This is the explanation of Fry v. Smellie[62] where Vaughan Williams L.J. says: - "An owner who gives indicia" of title "to an agent and authorizes him to deal with such indicia either for the purpose of raising money or sale, owes a duty to the persons whom he intends to act on such authority to give them notice of any limit that he places on the authority." I take this to mean that the employment of an agent, who has ostensible authority to deal with transferable securities in his possession, precludes a principal, who places such securities in his hands, from denying his authority to deal with them in the ordinary course of his business. It is a curious thing that in Re Burge, Woodall & Co.; Ex parte Skyrme[63] Phillimore J., after hearing full evidence of the actual relation of a stockbroker to one of his clients, arrived at the conclusion that the broker could repledge the client's securities to the bank only to the extent of the indebtedness of the client to the broker. It does not appear that the matter was dealt with by proof of a general usage of the business. On the whole, there appears to be much support for the view that it is not because the course of a stockbroker's business includes the mortgaging or pledging of his client's interest in securities in his hands to support advances to him that a bank has been considered entitled to hold the securities as against the client. It is either because the securities have been negotiable instruments or because they have been indicia of title transferable by delivery placed in the broker's hands with authority to repledge or mortgage, though for a limited amount or interest.

At a glance

Court

Decision date

Before

Source

Judgment (89 paragraphs)

Tobin v Broadbent [1947] HCA 46; (1947) 75 CLR 378 (2 December 1947)

Parties

Legislation Cited (1)

Cases Cited (1)