Case Name: In re GEORGE RINGLER & CO.
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1911-06-09
Citations: 130 N.Y.S. 62
Docket Number: 
Parties: In re GEORGE RINGLER & CO.
Judges: 
Reporter: West's New York Supplement
Volume: 130
Pages: 62–72

Head Matter:
In re GEORGE RINGLER & CO.
(Supreme Court, Appellate Division, First Department.
June 9, 1911.)
1. Corporations (§ 282 )—Trustees—Election—Qualifications—“Stock-holder.”
Under the statute providing that directors of a corporation shall be stockholders unless otherwise specified in the certificate of incorporation or by-laws, and under a certificate of incorporation providing that no person shall he a trastee of the corporation who is not a holder or owner of at least one share of the corporation’s capital stock, the word “stockholder” was not used in the sense of stock owner, and hence one who was a stockholder of record, though not a beneficial owner, was qualified to hold the office of trustee.
[Ed. Note.—For other cases, see Corporations, Cent. Dig. § 1189-1194; Dec. Dig. § 282.
For other definitions, see Words and Phrases, vol. 7, pp. 6667-G669; vol. 8, p. 7804.]
2, Corporations (§ 283 )—Trustees—Election.
Where for a series of years all parties interested in a domestic corporation had recognized the eligibility of trustees who were stockholders of record as distinguished from beneficial owners of stock, all the stock of the corporation being beneficially owned by two persons, and in no other way could the corporation have had the necessary number of directors, petitioners were estopped, in the absence of a charge of fraud, to object to the election of trustees by the votes of the same stock now held by them to claim that the trustees elected were disqualified because they were not beneficial owners of the stock.
[Ed. Note.—For other cases, see Corporations, Cent. Dig. §§ 1195-1235; Dec. Dig. § 283. ]
Laughlin, J., dissenting.
Appeal from Special Term, New York County.
Petition by Anna Hachemeister and another, as administrators with the will annexed of Henry Hachemeister, deceased, and by J. Edward Jetter, as substitute trustee under such will, and by Anna Hachemeister individually, to set aside the election of the directors of George Ringler & Co., a domestic corporation. Appeal by petitioners from so much of an order (70 Mise. Rep. 581, 127 N. Y. Supp. 938) of the Special Term as denied their application to set aside the election of certain of the trustees, and by the respondents from so much of the order as granted the application as to certain other trustees.
Order affirmed on petitioners’ appeal and reversed on respondents’ appeal.
Argued before INGRAHAM, P. J., and McRAUGHRIN, LAUGH-LIN, CLARKE, and SCOTT, JJ.
David Leventritt (Maxwell C. Katz, on the brief), for appellants.
W. H. Van Benschoten (Chas. H. Edwards, on the brief), for respondents Geo. Ringler & Co. and others.
For other cases see same topic & § number in Dec. & Am. Digs. 1907 to date, & Rep’r Indexes

Opinion:
SCOTT, J.
We have here presented cross-appeals from an order of the Special Term setting aside the election of Isaac Kugelman, Arthur Strauss, and George F. Trommer as trustees of the corporation George Ringler & Co., 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 c. t. a. 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 1909, c. 23), 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 complained of and establish the election or order a new election, or make such order or give such relief as justice may require. The particular cause of complaint was that the aforesaid Trommer, 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 George Ringler & Co. was incorporated in the year 1889 under the manufacturing corporations act of 1848. 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 George Ringler from 1904 until the death of Henry Hachemeister on July 5, 1907. Thereafter the whole capital stock was owned in equal proportions by William G. Ringler, individually, and by William G. Ringler as executor of and trustee under the will of Henry Hachemeister, until the death of said 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, dissentions arose among the owners of the stock. Mrs. Hachemeister and Jetter were appointed administrators c. t. a. of the will of Henry Hachemeister, deceased, and Jetter was appointed substituted trustee under the will. George Ehret, Jr., and George E. 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 individually, and there were elected as trustees William G. Ringler, George F. Trommer, Arthur Strauss, Anna Hachemeister, and Isaac Kugelman. 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, but, except Anna Hachemeister, none of them claimed to be 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 five 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. 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 provides 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 must be a stockholder of record there is no doubt, because the stock book is the primary evidence to the corporation who its stockholders are. N. Y. & N. H. 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 1909, c. 2), it is provided that no person shall be eligible as a director "unless he is a stockholder owning in his own right an amount of stock." So Fire Insurance Law (Con-sol. Laws 1909, c. 28) § 110, provides, "if a stock corporation," the director must be an "owner in his own right of five hundred dollars of the stock," and a like provision is made as to directors of marine insurance companies by section 110 of the insurance law. All of those provisions have been in force since prior to 1901. 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. Leete, 16 Nev. 242; In re Argus Printing Co., 1 N. D. 434, 48 N. W. 347, 12 L. R. A. 789, 26 Am. St. Rep. 639, a case which arose in North Dakota, the statute required directors to be stockholders, and the court pointed out the distinction between a stockholder, 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 transfer had been made to him solely for qualifying purposes, while the latter was ineligible. To the same effect is Re Leslie, 58 N. J. Law, 610, 33 Atl. 957, 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 be a director can be impeached only by showing that the title of the stock was put in him colorably with a view to qualify him to be 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 company. 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. Cook 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 of 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 th.e 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. 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. Munroe, 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. 560, 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 corporation 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. He was a stockholder so far as the corporation was concerned, and so 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, 30 N. E. 644, and there certainly are some expressions in the prevailing opinion in that case which, read without regard to the context, would seem to be opposed to the general trend of authority. The defendant had been a stockholder and director of a corporation holding 80 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 on 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 75 shares to himself, taking out a certificate for 5 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 shareholders in such corporation, to at least the extent of five shares." 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 w.as 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 light 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 Trommel", Strauss, Kugelman, 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 estáte 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 the 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 detriment 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 shares, and the contest as to the eligibility of the challenged trustees 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 petitioner's 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 $10 costs and disbursements to said defendants-appellants.
INGRAHAM, P. J., and McEAUGHLIN and CLARKE, JJ., concur.