Campbell v. American Zylonite Co. — 34 N.Y. St. Rep. 38

Majority

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George Campbell, App’lt, v. The American Zylonite Co., Resp’t.^[1]

(Court of Appeals, Second Division,

Filed December 2, 1890.)

Headnote

1. Corporations—Stockholders—Rights op assignees op stocks.

The rule that a corporation acting in good faith and without notice of the rights of others may treat registered shareholders as the actual owners of the shares standing in their names is only applicable to such transactions as are within the express or implied powers conferred upon the company or its shareholders.

3. Same.

Assignees of shares having possession of the certificates, though holding under unregistered transfers, are not bound by contracts between the registered shareholder, the corporation and all other shareholders, which are not within the express or implied powers of corporations, or of their shareholders.

(Vann, J., dissents.)

Appeal from a judgment of the general term of the New York superior court, which affirmed, with costs, a judgment entered on the decision of the special term.

The defendant was incorporated September 10, 1880, under chapter 40 of the Laws of 1848, and the acts amendatory thereof and supplementary thereto, with a capital of $750,000 divided into 7,500 common shares of the par value of $100 each. Of these shares Edwin M. Felt became the owner of 200, one-half of which he held under certificate No. 13, dated September 27, 1880, and the other half under certificates Nos.' 62 and 63, dated August 27, 1881, each being for fifty shares. The certificates were in the form following:

“ This certifies that * * * is the owner of * * * full paid shares of the capital stock of the American Zylonite Company, subject to the by-laws, transferable only by assignment on the back hereof, recorded in the books of said company, either in person or by attorney, and the surrender of this certificate.”

On the back of each certificate was printed the usual blank form

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of an assignment and power to transfer the shares on the books of the corporation. September 29,1880,-Edwin M. Felt executed the blank assignment and power endorsed upon the back of certificate lío. 13, the name of the assignee and attorney not being inserted, and May 4, 1885, he delivered the certificate with the assignment thereon so executed to Mr. Gadsden as security for a loan. On the 22d day of May, 1885, the corporation owed $300,000, and for the purpose of paying it all of the shareholders and the corporation executed under their hands and seals a contract by which the shareholders agreed to surrender to the corpioration without consideration forty per cent, of their stock, which amounted to the sum of $300,000, and authorized the corporation to pay upon shares to be issued and sold in the place of those surrendered ten per cent, per annum on the face value of the shares for five years, or such portion thereof as could be paid out of the annual net profits of the corporation. All of the shareholders, including Felt, assigned to the corporation forty per cent, of their holdings, Felt’s eighty shares being assigned out of those held under certificates líos. 62 and 63. On the certificates for the $3,000 shares issued under the agreement was endorsed the following statement:

“ Issued subject to agreement with stockholders dated May 22, 1885, on file in the treasurer’s office, entitled to first lien on net profits to the amount in such agreement provided.

“Edw. L. Wood, Treasurer

The shares so issued were sold at par and the debt of the corporation paid. The certificates for the remainder of the shares, except Bo. 13, were surrendered to the corporation and new ones issued on which was printed the following endorsement:

“Profits Assigned.”

“ Issued subject to agreement with stockholders dated May 22, 1885, on file in treasurer’s office and subject to a first lien on net profits to the amount in such agreement provided.

“ Edw. L. Wood, Treasurer.”

On the 4th of September, 1885, the debt due from Felt to Gadsden not being paid, the latter, pursuant to the terms of the pledge, sold to the plaintiff for $5,050 the shares held under certificate lío. 13, delivered to him the certificate and the blank assignment thereon endorsed, in which the name of the plaintiff as assignee was thereafter inserted together with the name of De B. Wilmot as attorney to execute the transfer. October 19, 1885, the certificate so assigned was presented to the defendant, a new certificate demanded, which was refused, and on the next day this action was begun to compel a transfer and the issuance of a new certificate. On the 13th of October, 1886, the defendant tendered to the plaintiff a certificate for 100 shares on which was endorsed the notice headed “ Profits assigned,” which was refused. At the trial the contest was whether the plaintiff was entitled to an unconditional certificate, and it was held that he was not, but the certificate not having been tendered until after action brought

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it was held that he was entitled to recover six cents damages and costs.

De B. Wilmot, for appl’t; Charles JB. Williams, for resp’t.

The rights and powers arising out of the ownership of corporate shares are those which belong to their owners as individuals, to be enjoyed and exercised in severalty, and those which are collective and are exercised in common with all of the shareholders pursuant to the powers conferred by the statute under which the corporation is organized or by its articles of association. The right to sell shares is a personal one, and so is the right to grant or withhold, assent to change the relative value of shares. The right to vote in corporate elections and to assent to mortgaging the property are collective, to be exercised in common with the other shareholders and in the mode prescribed by the statute or by the articles of association.

The articles of asssociation divided the capital of the corporation into 7,500 shares equal in amount and value. At the date of the agreement of May 22, 1885 (by which it was provided that 3,000 of the shares should have priority over the remaining 4,500), all of the shares save twenty had been sold and were then registered in the names of their purchasers. The right of every shareholder to his proportion of the profits of the corporation was vested, and in the absence of some power to change the relative value of the shares, conferred by statute or by the articles of association, no change could be made without the consent of all of the shareholders. Kent v. Quicksilver Mining Co., 78 N. Y., 159 . It is insisted by the defendant that the consent of Edwin M. Felt, a registered shareholder, was binding on Gadsden, his assignee, who held certificate No. 13 under an unregistered assignment, and to support its contention it relies on the rule that a corporation acting in good faith and without notice of the rights of others may treat registered shareholders as the actual owners of the shares standing in their names. This rule is only applicable to such transactions as are within -the express or implied powers conferred upon the company or its shareholders. Collective or corporate powers common to all stockholders may usually be exercised by a registered shareholder, though he has assigned all of his shares, and his action will bind his assignee holding under an unregistered transfer and all others. These powers being conferred on corporations and their shareholders, purchasers arc bound to know that they may be exercised by their assignors until the transfers are registered in their names. But the assignees of shares having possession of the certificates, though holding under unregistered transfers, are not bound ■ by contracts between the registered shareholder, the corporation and all other shareholders which are not within the express or implied powers of corporations or of their shareholders. It follows that the change in the relative value of the shares which this corporation and its registered shareholders sought to effect was not within the express or implied powers conferred upon the corporation or shareholders and that their action is not binding upon this

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plaintiff, who is entitled to an unconditional certificate for 100 shares.

The judgment should be reversed and a new trial granted, with costs to abide the event.

All concur, except Yanr, J., dissenting, and Haight, J., absent.