Case Name: In the Matter of the Petition to Set Aside the Elections of Directors of George Ringler & Company. George Ringler & Company and Others, Appellants, Respondents; Anna Hachemeister and J. Edward Jetter, as Administrators with the Will Annexed of Henry Hachemeister, Deceased, and Others, Petitioners, Respondents, Appellants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1911-06-09
Citations: 145 A.D. 361
Docket Number: 
Parties: In the Matter of the Petition to Set Aside the Elections of Directors of George Ringler & Company. George Ringler & Company and Others, Appellants, Respondents; Anna Hachemeister and J. Edward Jetter, as Administrators with the Will Annexed of Henry Hachemeister, Deceased, and Others, Petitioners, Respondents, Appellants.
Judges: Ingraham, E. J., McLaughlin and Clarke, JJ., concurred; Laughlin, J., dissented.
Reporter: Appellate Division Reports
Volume: 145
Pages: 361–377

Head Matter:
In the Matter of the Petition to Set Aside the Elections of Directors of George Ringler & Company. George Ringler & Company and Others, Appellants, Respondents; Anna Hachemeister and J. Edward Jetter, as Administrators with the Will Annexed of Henry Hachemeister, Deceased, and Others, Petitioners, Respondents, Appellants.
First Department,
June 9, 1911.
Corporation — directors — qualification — stockholder of record — stock held by estate — standing of administrators with will annexed to question eligibility of directors.
Where there is no evidence of a fraudulent intent a'person is qualified to be a director of a corporation, (other than a bank or insurance company) if he is a stockholder of record; it is not necessary for him to be also the beneficial owner of the qualifying stock.
The statutory provision that directors of corporations must be stockholders is satisfied if they are ■ stockholders of record, although • they have indorsed the certificates issued to them and delivered the same to the beneficial owner.
Where it appears that during a long period of time all parties interested in a company had recognized the eligibility of persons who were mere stockholders of record and had no beneficial interest in the qualifying stock to he trustees of the company, administrators with the will annexed of an estate owning one-half of the stock cannot , question the eligibility of trustees chosen at an election participated in by the executor of the estate, since deceased, and at which he voted the stock upon which the petitioners now move, in favor of the trustees whom they now seek to oust, unless it appears that the election was fraudulent or part of a scheme to injure the estate.
Under such circumstances the administrators with the will annexed cannot be said to be parties aggrieved by the election of the trustees.
Laug-hmw, J., dissented, with opinion.
■ Cross-appeal's by George Ringler & Company and others, and by the petitioners, Anna- Hachemeister and J. Edward Jetter, as administrators, etc., and others, from parts of an order of the Supreme Court, made at the Hew York Special Term and entered in the office Of the clerk of the county of New York on the 8th day of May, 1911. :
■ W. Ii. Van Benschoten [Charles H. Edwards with him on the brief], for George Ringler & Company .and others.
David Leventritt [Maxwell C. Katz with him on the brief], for the petitioners.

Opinion:
Scott, J.:
We have here presented cross-appeals from an order of the Special Term setting aside the election of Isaac' Kugeiman, Arthur'' Strauss and George F. Trommer as trustees of the corporation George Ringler & Company, and denying, for want of power, a motion to set aside the selection of John T. Wilson as trustee to fill a vacancy in the. board.' The application for the order was made by Anna Hachemeister and J. Edward Jetter, 'as administrators. cum testamento, annexo of Henry Hachemeister, deceased, and by J. Edward Jetter as substituted trustee under the will of said Henry Hachemeister, deceased, and by Anna Hachemeister individually. It is made under section 32. of the General Corporation Law (Consol. Laws, chap. 23; Laws of 1909, chap. 28) which authorizes the Supreme Court upon the application of any person or corporation aggrieved by or complaining ,of any election of any corporation, to summarily, inquire into the matters com plained of and establish, the election or order a new election or make such order and give such relief as justice may require. The particular cause of complaint was that the aforesaid Trom-mer, Strauss, Kugelman and Wilson, when elected trustees, were not bona fide beneficial owners of stock in the corporation, being merely the record holders of stock in which they had no beneficial interest. The essential facts, which are undisputed, are as follows: The corporation of G-eorge Ringler & Company was incorporated in the year 1889 under the Manufacturing Corporations Act of 1848 (Chap. 40, as' amd.). The certificate of incorporation provided that there should be five trustees, and the by-laws provided that no person should be a trustee "who is not the holder or owner of at least one share in the capital stock of this Company." As a matter of fact the whole capital stock, amounting to 6,000 shares, was wholly owned, in equal proportions, by Henry Hachemeister and Ceorge Ring-ler from 1904 until the death of Henry Hachemeister on July 5, 1907. Thereafter the whole capital stock was owned in equal proportions by William C. Ringler individually and by William G. Ringler as executor of and trustee under the will of Henry Hachemeister, until the death of William G. Ringler in January, 1910. During all this period, therefore, from 1904 to 1910, since there were never more than two bona fide beneficial owners of the stock, there were always three trustees who were nominal stockholders by virtue of stock transferred to them upon the books of the company, the beneficial ownership of which, however, rested in Ringler or Hachemeister or the estate of the latter. After the death of William G. Ringler in January, 1910, dissensions arose among the owners of the stock. Mrs. Hachemeister and Jetter were appointed administrators cum testamento annexo of the will of Henry Hachemeis-ter,- deceased, and Jetter was appointed substituted trustee under the will, George Ehret, Jr., and George F. Trommer were appointed and qualified as executors of the will of William G. Ringler, deceased.
The election which has been declared invalid was held on ' October 30, 1909, during the lifetime of. William G. Ringler. At that meeting Ringler voted 3,000 shares of stock held by him as executor of the estate of Henry Hachemeister, deceased, and 2,980 shares owned by him indivktually, and there were elected as trustees William G-. Ringler, George F. Trommer, Arthur Strauss, Anna Hachemeister and Isaac Kugehnan. Each of these persons, except Ringler, was the holder of record of 5 shares of stock, which concededly had been transferred to him solely to qualify him to become a trustee, hut, éxcept Anna, Hachemeister, none of them claimed to he the beneficial owners, of the shares, the certificates, for which they indorsed as soon as issued, and intrusted to Ringler, who placed them in his safe, where they were found when he died. Anna Hachemeister alone claims that the 5 shares were given to her, and that claim is the subject of another litigation, although she too had indorsed her certificate and had handed it to Ringler. The court below held that under the statute law of the State, whenever it is required that a trustee or director of a corporation must be a stockholder of the corporation, he must own the beneficial interest in the stock standing in his. name, and that the mere record ownership of what- are known as qualifying shares is not sufficient. (70 Misc. Rep. 581.) It is somewhat surprising that there are so few authorities dealing with this' question, because,, as every lawyer knows, it has long been the practice .to elect as directors of corporations persons whose sole ownership of stock was that of. qualifying shares standing in their names of record, but in which they had no beneficial interest. Especially has this been the case of late years where so. many business corporations have been formed which are in effect nothing more than incorporated partnerships. The statutes have uniformly provided down to 1901 that directors of .corporations must be stockholders, and still so provide unless it be otherwise specified in the certificate of- incorporation or the by-laws, but they cast little light upon what shall constitute a stockholder for the purpose of qualification. That he miist be a stockholder of record there is no doubt, because the stock book is the primary evidence to the corporation who its stock holders are. (New York & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30, 76.) This, however, does not answer the question whether or not he must also be the beneficial owner,' for the term " stockholder " is as appropriate a description of one who holds stock in which another has the beneficial interest, as it is of one who both, holds and owns the stock. The only indication we have of what the Legislature meant by the use of the word " stockholder " as a qualification for a director of an ordinary corporation, is the provision which has been made with reference to certain designated corporations. Thus by section 69 of the Banking Law (Consol. Laws, chap. 2; Laws of 190.9, chap. 10) it is provided that no person shall be eligible as a director "unless he is a stockholder ' owning in his own right an amount ⅜ ⅜ ⅞ of stock." So the Insurance Law (Consol. Laws, chap. 28 [Laws of 1909, chap. 33], § 110, as amd. by Laws of 1910, chap. 168), prescribing the qualifications of directors of fire insurance corporations, provides: "If a stock corporation," a majority of the directors must be " the owner in his own right of at least five hundred dollars of the stock," and a like provision is made as to directors of marine insurance companies by section 150 of the Insurance Law (as amd. by Laws of 1909, chap. 240, and' Laws of 1910, chap. 168). All of those provisions have been in force since prior to 1901. (See Banking Law [Gen. Laws, chap. 31; Laws of 1892, chap. 689], § 50, as- amd.; Ins. Law [Gen. Laws, chap. 38; Laws of 1892, chap. 690], § 110, 150, as amd.) It would seem that in making the foregoing special provisions respecting particular classes of corporations, the Legislature considered that merely requiring that a director must be a stockholder was not equivalent to requiring that he must own stock in his own right. And we are justified in referring to these particular requirements as shedding light upon the meaning in which the Legislature used the word ' ' stockholder " in other acts. (Smith v. People, 47 N. Y. 339. See, also, State of Nevada v. Leet, 16 Nev. 242.) In Matter of Argus Printing Co. (1 N. D. 434; 12 L. R. A. 781), a case which arose in North Dakota, the statute required directors to be stockholders and the court pointed out the distinction between a stock holder, who was a holder of record, and a stock owner who owned stock not registered in his name on the books of the corporation, holding that the first was eligible to be a director even if the transíer had been made to him solely for qualifying purposes, while the latter was ineligible. To the same effect is Matter of Leslie (58 N. J. L. 610) where the question was as to the eligibility of a registered, shareholder, who had parted temporarily with his stock certificate. The court said: "The registry of his stock is prima facie evidence of his qualification for the office of director, and his right to he a director can he impeached only hy showing that the title of the stock was put in him colorahly with a view to qualify him to he a director for some dishonest purpose, in furtherance of some fraudulent scheme touching the organization and control of the company." In Rosevelt v. Brown (11 N. Y. 148) it was attempted to hold the defendant liable as a stockholder for the debts of the com--pany. In undertaking to lay down a rule as to who should be considered stockholders the court said: "A corporation, although it is an artificial existence, - must 'be composed .of natural persons who manage and administer its affairs and receive its benefits. These persons are not generally named in the charter of incorporation, .and there must be some way of ascertaining who they are. In a joint stock company they are, and they necessarily must be, those who hold the evidence that they are the owners of the stock; they are called the stockholders, and not the stock owners, and they are generally those who appear upon the transfer books of the company to be stockholders. This must be so in the case of corporations which are subject to the provisions of the Revised Statutes. (1 R. S. 604, § 8.) As between himself and third parties, the person who appears upon the transfer books to be a stockholder may have parted with all his interest in .the stock, .but as between himself and the corporation, such person, and he only, is treated as a stockholder. This is his relation as regards- the-management of the company, and the benefits to be derived from it; and the question is presented here, whether he, is so as regards the liabilities of the company." '
The leading text book writers, or at-least many of them, are agreed in the opinion that the requirement that a director shall be a stockholder is satisfied if he is the registered owner of record, On the books of the company, of shares of stock, even if he is'not the real or beneficial owner of the stock. Oook on Corporations (§ 623) says: "If the charter or statutes require a director to be a stockholder, one who holds stock transferred to him in trust for the express purpose of qualifying him for the position may serve, and where a person has the right to vote as such a stockholder, he is eligible to any corporate office to which any stockholder is eligible, and accordingly may be elected a director, even if an assignee in bankruptcy has been appointed of his estate. He 'may obtain stock in any way and become thereby qualified. " Morawetz on Private Corporations (§ 506) says: "The directors of a corporation are generally required to be shareholders by express provision of the company's charter or articles of association. A person is a shareholder within the meaning of a provision of this description if he holds shares on the books of the company, but not if he is merely the holder of a certificate.' It has been held that a transferee on the books is eligible although he is not the real owner of the shares and the transfer was executed for the sole purpose of making him a director; a different rule might apply where the statute expressly requires directors to be the owners of shares." In Thompson on Corporations (2d ed. 1908), in discussing the question of stock transferred to a person to qualify him for a director, it is stated in section 919 as follows: "Sec. 919. Stock Transferred to Qualify a Person for Director— Effect. As a general proposition the only qualification or requirement of a person for the office of director is that he shall be a stockholder. If the statute, the articles of association or the by-laws provide any other or different qualification, this must be respected. But where it is required that a director shall be a stockholder, in the conduct of the election the inspectors or the persons holding the election are not required to look beyond the books of the corporation for the purpose of determining how the stock is held. If the transfer on the stock book shows that the person who is a candidate is the owner of the stock, this is sufficient so far as the inspectors are concerned. On this principle the holder of the stock which has been transferred to him in trust for the express purpose of qualifying him for the office of director is qualified. So, it has been held that stock may be given to a person to qualify him as director. This doctrine was carried to the extent of holding that shares transferred by the corporation itself to a person qualified him for the office of director where he agreed to return the shares on the expiration of his office." In Machen on the Modern Law of Corporations, section 1424 is in part as follows: " Sec. 1424. In General — Ownership as Trustee — Executor, etc. A regulation requiring directors to own one or more of the corporation's shares is satisfied, in the absence of express provision to the contrary, by an ownership as trustee without any beneficial-interest or even by ownership as executor, and conversely it is not satisfied by a mere unregistered equitable title to shares. But where the requirement is that a director shall own stock 'in. his own right,' it seems clear that a different result should be - reached and that beneficial ownership would be necessary. * ⅜ ⅜
"There is nothing illegal in transferring shares into another's name in order to - qualify the latter as director, but with the understanding that he shall hold for the benefit of the' transferror."
In Budd v. Monroe (18 Hun, 316) it appeared that stock in a corporation had been transferred to one Murray simply to qualify him as a director, and it was sought to obtain a ruling from the court that the loan of the stock to Murray simply to qualify him to become a director was against public policy. The court,however, declined to accept this view; but upheld the transfer as legal and proper. In State v. Ferris (42 Conn. 316) it was held that a stockholder of record was entitled to vote at a corporation meeting and to be elected to office, notwithstanding he had become a bankrupt and the ownership of his stock had passed to his assignee in bankruptcy, who had not yet caused a transfer to be made on the books. The court said: "It has been repeatedly held by this Court that the books and records of a cbrporation determine who are its stockholders for the time being, and who have the right to vote on the stock, although the same may have been sold or pledged as collateral security. In'such cases the party who appears to be the owner by the books of the corporation has the right to be treated as a stockholder and to vote on whatever stock stands in his name. ⅜ • ⅜ ⅜ He was a stockholder so far as the corporation was concerned, and §o was R. M. Ferris, inasmuch as the stock stood in their names on the books of the Company; consequently they were eligible to office."
The motion was decided at Special Term, principally upon the authority of Chemical National Bank v. Colwell (132 N. Y. 250), and there certainly are some expressions in the prevailing opinion in that case which, read without regard to the context, would seem to he opposed to the general trend of authority. The defendant had been a stockholder and director of a corporation holding eighty shares which stood in his name on the books. He wished to surrender all connection with the company, and to that end indorsed his certificate over to Jones, the secretary, stating that that ended his connection with the company. He asked for the transfer book in order to make the transfer oh the books, but was informed that'the company had none. In a few days a transfer book was obtained and the transfer made, but Jones, without Colwell's knowledge only transferred seventy-five shares to himself, taking out a certificate for five shares in Colwell's name. The company was then solvent. It afterwards became insolvent and the action was to hold Colwell liable as a director. The statute - required that the directors " at their election and throughout their term of office shall be stockholders in such corporation .to at least the extent of five shares." (See Laws of 1815, chap. 611, § 10, as amd. by Laws of 1881, chap. 422, and also by Laws of 1890, chap. 23.) The question was whether Colwell had disqualified himself and ceased to be a director when' he assigned the shares over to Jones, although he had not actually transferred them on the books. The court was of opinion that he had, and that his attempt to make a transfer on the books, which he was unable to do because there was no transfer book, coupled with his notification to the officers that he severed all relations to the company, presented a sufficient case of disqualification to relieve him of liability as a director. The general question whether the holding on the record of qualifying shares transferred to the holder only for the purpose of qualifying him was sufficient to render the holder eligible to be a director was not discussed or considered. In the fight of authority we are, therefore, of the opinion that where there is no evidence of a fraudulent intent it is a sufficient qualification of a person to be a director or trustee of a corporation (other than a bank or insurance company) if he is a stockholder of record, and that the court will not inquire whether he or some other person is the beneficial owner of the qualifying stock. We are, therefore,, of opinion that Trommer, Strauss, Kugel-man and Wilson, having been stockholders of record when they were elected trustees of the Ringler Company, were eligible to election and that their election was, therefore, valid.
Apart from the question thus far considered we are by no means satisfied that the petitioners should be heard to question the eligibility of the trustees whose title they attack. It appears that during a long series of years all parties, interested in the company had recognized the eligibility of trustees who were eligible only because they were stockholders of record, the-stock which stood in their name being beneficially owned by Hachemeister or his estate or by Ringler. Indeed in no other way could the corporation have had the necessary number _ of directors unless Hachemeister or Ringler had' departed from their evident policy of holding all the stock themselves. The trustees now sought to be' ousted were elected at the election of October, -1909, by the votes of the very same stock now held by the petitioners and upon the strength- of which they now move. Under the rule laid down in Matter of Syracuse, Chenango & New York Railroad Company (91 N. Y. 1) we do not think that the petitioners, representing the estate of Hachemeister, can be said to have been aggrieved by the election of the challenged' trustees, or can call in question the validity-of an election in which the representative , of the same estate-participated in 1909. If it appeared, that there had been any fraud about the election to the detrinient of the Hachemeister estate, or that the trustees whose election is challenged were elected as part of a scheme to injure that estate or the corporation, the new administrators might perhaps be heard to question the validity of the election, but\nothing of that sort appears, or is claimed. All that appears is a contest for the present and future control of the company, between two interests each owning an equal number of scares, and the contest as to the eligibility of the challenged trastees seems to be the first move in that contest. Even the petition makes no charge of fraud against William G-. Ringler or any of the challenged trustees, but. rests solely upon the supposed ineligibility of the latter to hold office. _ With the petitioners' contention in this regard we. are unable to agree.
It follows that the order, in so far as appealed from by the petitioners is affirmed, and in so far as appealed from by the defendants-appellants is reversed, with ten dollars costs and disbursements to said defendants-appellants.
Ingraham, E. J., McLaughlin and Clarke, JJ., concurred; Laughlin, J., dissented.