CHAPTER 88 TRANSFER OF STOCK § 707. Transferability of stock. § 708. Method of transfer. § 709. By-laws and restrictions regulating transfer. § 710. Rights of transferee of stock sold without authority. § 711. Liabilities of transferee to corporation. § 712. Liability of transferee to creditors of corporation. § 713. Liability of transferor to transferee. §§ 707, 708. (Corporations, Secs. 71, 72.) Transferability of stock. Method of transfer. Case 671. Ernst v. Elmira Municipal Improvement Co., 54 N. Y. Sup. 116. Facts: Suit brought by owners of certain of the capital stock of Elmira Municipal Improvement Company to enjoin the issue of certain preferred stock by it to certain stockholders and to compel the company to recognize and register a transfer of stock to the complainants, purchased by them from registered stockholders. The complaint alleges that the corporation has no power to issue preferred shares against the dissent of common stockholders. Point Involved: The right of one acquiring stock from a shareholder to compel the company to recognize the transfer on its books, the right of such a one whom the company has refused to recognize to be considered a stockholder in fact; whether a corporation which has issued common stock can afterwards issue preferred stock without the unanimous consent of all the stockholders. LAUGHLIN, J.: The demurring defendants contend that the plaintiffs' only remedy is an action at law to recover the value of the stock as damages for the wrongful refusal to transfer the stock on the books of the company and to issue new stock to the plaintiffs. It is argued that the corporation owes no duty to the transferee of stock and that there is no privity between him and the company until he has become a stockholder on its books. I cannot agree with the contention. It has long since been settled that an equitable action may be maintained by a transferee of stock to compel the company to transfer the stocks upon its books, and that a wrongful refusal to transfer amounts to a waiver of the statutory requirement and the corporation will not be permitted to take advantage of its own wrong, but the transfer will be deemed complete, and the company will be bound to recognize it, precisely as if the entries had been made upon the company's books. * The plaintiffs are entitled to have the transfer entered on the books of the company and to have new certificates of stock issued to them in their own names, to the end that they may stand in the unquestionable position for the assertion and protection of their rights and interests in the corporation, whatever such rights and interests may be. 66* * In the absence of a statutory provision of law reserving such power, there can be no issue of preferred stock in a corporation to the prejudice and injury of the owners of the common capital stock without their unanimous consent. Each stockholder has a vested individual right in his proportionate share of the corporate property and of the profits of the business. Such action cannot be impaired by the action of the directors, or of any majority of the stockholders without his consent. * It is well settled by authority that a suit in equity will lie by a holder of common stock to enjoin any unlawful or unauthorized issue of preferred stock. * * * Question 671: Answer the questions suggested in the "Points Involved" in this case. Case 672. Brisbane v. D. L. & W. R. Co., 32 N. Y. Supreme, 438. Appeal from a judgment, entered upon the trial of this action at the Special Term. The plaintiff brought this action to compel the defendant to issue to him a certificate for ten of its shares to which he claimed to be entitled as the transferee of ten shares of the stock issued by a corporation to whose rights and obligations the defendant is shown to have since succeeded, or in case of the inability of the defendant to issue such certificate for damages to the extent of the value of such stock. This certificate, of which the plaintiff was the transferee, was a certificate issued to Samuel Benedict, and it contained the statement that he was entitled to ten shares of the capital stock of the corporation issuing it, transferable only on the books of the company upon surrender of the certificate. Benedict executed a power of attorney, indorsed upon the certificate, appointing the plaintiff his attorney irrevocable to sell and transfer to the plaintiff the whole or any part of the shares specified. This power was given on the 1st day of January, 1856, but no transfer of the shares was made under its authority during the lifetime of Benedict. After his decease and in the year 1876 his administrator procured a transfer of these shares upon the books of the defendant to himself. The certificate issued for the shares themselves was not and could not be by him produced, and according to its terms he was not entitled to the transfer of the shares which he caused to be made, and the defendant it was claimed made it without authority. It was for that reason held that the defendant was liable to that extent to the plaintiff in this action. In the intermediate time a stock dividend of fifty per cent had been declared in favor of these shares, and further dividends in cash had also been specifically credited to them on the books of the defendant. This stock dividend and the cash dividends, with the exception of one of them, were credited to Benedict, who appeared on the corporate books to be the owner of these shares, and they were accordingly paid over to his administrator at or about the time of the transfer of the shares themselves. The plaintiff insisted upon his right to recover the value of the stock dividend and the amount of the cash dividends paid to the administrator, but these portions of his claim were rejected as not well founded by the decision finally made in the action. The court at General Term said: "His title to the dividends rests upon a different basis from that of his right to the shares themselves, for those shares could not lawfully be transferred without the surrender of the certificate which had been issued to authenticate the right of the person named in it to them. But as long as the books of the company contained evidence that the person who received the certificate was still to be regarded as the owner of the shares it had an authentic record upon which it could lawfully act, and that determined the disposition which should be made of the dividends. Benedict stood upon the books of the company as owner of the shares. Nothing appeared to impeach his title; and as they were only transferable upon the surrender of the certificate, as long as that had not been done, no other alternative existed than to regard him as still the owner of the shares. To obtain the dividends upon the shares he was not bound to produce the certificate which had been issued for the stock, but he could do so upon the fact of his recorded title as long as no evidence appeared from which his right could be impeached or questioned. Payment to him under such circumstances would be a lawful and proper disposition of the dividends. This was the view which was taken of the subject in Smith v. American Coal Company (7 Lans. 317), and it is sustained by what was said upon the same subject in McNeil v. Tenth National Bank (46 N. Y. 325). And it was also considered to be a settled principle of law in Manning v. Quicksilver Mining Company, decided by the court in March, 1881. (24 Hun, 360.) "When Benedict died this right, as it appeared to exist in him, passed to his administrator, who by virtue of that relation, acquired the same title to the dividends that Benedict could have asserted in case he had lived. A payment to him was authorized by the evidence of title standing upon the books of the corporation, and his failure at the time it was claimed to present the certificate issued for the shares was not a circumstance subjecting his title to suspicion, or justly rendering it a subject of inquiry. "If notice had been given by the plaintiff of his right to receive the dividends accruing upon the shares, the case would undoubtedly require a different determination." Question 672: Why was the defendant corporation held to be liable to the plaintiff for issuing shares to the administrator and not liable for having paid the dividends on such shares to such administrator? Do you think the plaintiff could recover in a suit against such executor for the dividends received by or credited to him? § 709. (Corporations, Sec. 73.) By laws and regulations restricting transfer. Case 673. Brinkerhoff Trust and Savings Co. v. Home Lumber Co., 118 Missouri Reports 447. GANTT, P. J.: "In February, 1888, the BrinkerhoffFarris Trust and Savings Company loaned J. W. Cleland $13,000 and accepted as collateral security, two certificates of stock in the Home Lumber Company, each certificate calling for fifty shares, of the par value of $100 per share. One certificate was numbered 40 and bore the date of May 1, 1885, and the other was dated April 12, 1886. "The certificates were in the following form and were alike, save as to the number and date: State of Missouri, CERTIFICATE OF STOCK Home Lumber Company. No. 40. 50 Shares. |