Court Opinion

ID: 3578889
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:30:25.349789+00
Date Added: 2024-06-11T07:41:16.778138
License: Public Domain

The contract between the parties is an agreement for the sale of shares of stock, the shares to be delivered in the future, and the purchase-price then to be paid with interest. This contract was executory. (Kelley v. Upton, 5 Duer, 336.) But by virtue of it the vendor became a trustee, sub modo, of the shares, for the vendees, and they became the cestuis que trust, sub modo,
thereof. (Hill on Trustees, 259, 170, 171.) The rigid letter of the contract might perhaps be met by a delivery of 1,000 shares of capital stock, however changed in their proportion to the whole number issued by the company, from the time of the contract to the time of the delivery. But the parties meant more than this by their contract. The one meant to buy and the other agreed to deliver these shares, with all the rights which attached to them at the time of making the contract. One of these rights was to take new shares, upon any legitimate increase of the capital stock, which right attaches to the old shares, not as profit or income, but as inherent in the shares in their very creation. (Atkins v. Albree, 12 Allen, 359; Brander v. Brander, 4 Ves., 800, and notes, Sumner ed.)
When, on the 19th December, 1867, the defendant was ready to deliver the 1,000 shares, this right had been severed from them; it had been exercised and no longer attached, and could not be transferred with the shares to the plaintiffs. There had been but one mode of retaining or exercising it to the advantage of the shares. That was by subscribing for the new stock. But to do this required a deposit (we will allude but to one mode of making payment) of fifty dollars per share. This requirement was made by the directors of the company. We will for the present assume that they had the power to do this and the acts accompanying it; for, if they had not, then the issue of new stock is illegal, and there is no question upon this part of the case between the parties. Upon whom did the requirement place the burden of advancing the money for this payment or deposit?
It is held (Faulkner v. Hebard, 26 Vt., 452) that the vendee of stock in a corporation is bound to know what the *Page 832 
directors may do; and that what they may do, therefore, forms one of the contingencies of his purchase. And see Moore v. HudsonR.R.R. Co. (12 Barb., 156). All purchases of stock to be delivered at a future day must be understood to be made subject to the exercise of all the legal powers of the directors. (1 Redf. on Railways, 198, and cases there cited; Preston v.Gwynne, 10 Law Jour., N.S., Chanc., 72.) The vendees in this case were affected by this principle, and though they meant to buy the right to take new stock, they contracted for it, subject to the conditions which the directors might attach to its exercise. And if they wished to preserve for the shares which they had agreed to buy the right to the new shares, they should have enabled the defendant to have complied with the requirement. He was, doubtless, bound to deliver to them the shares. They were the substantial thing, and the right to new stock, though attached and inherent, was at the time of the contract contingent. He had no funds of theirs, no funds of his trust in hand. He was not bound, from his own funds, to make advances to preserve this right, when the contingency arrived. His position was not more onerous than that of a trustee expressly created. His duty was not to preserve the subject of the trust by an expenditure of his own means. (Lewin on Trusts, 605, margin, 764.) He may not by his act cause, nor by his neglect suffer from the act of another, detriment to be done. But where to preserve requires the use of money, he is not obliged to advance it from his own. See Murray v. DeRottenham (6 J.C.R., 52). It might be, that if the cestui que trust was ignorant of the emergency, it would be the duty of the trustee to notify of it. But where, as in this case, the cestui que trust was informed, and alive to the necessity, giving notice to the trustee, the duty is not upon the trustee either to advance or to ask for funds. In a case of a contract of sale of shares of stock, so far executed as that payment of the purchase-price has been made, but the certificate therefor still undelivered, the vendor is not bound to pay calls upon them, made by the directors of the company before *Page 833 
actual delivery. (Brigham v. Mead, 10 Allen, 245; and seeWeald of Kent Canal Co. v. Robinson, 5 Taunt., 801; Lindley on Part., 448, 449, margin, 544.) If then, it was not the duty of the vendor to advance the money to make good the subscription for the new stock, the plaintiffs could not hold him in default for not doing so. But they have proceeded upon the theory that it was. And in so doing they have failed in offering due performance on their part, without which they could not put him in default. Inasmuch as they did not furnish him the money with which to make the payment on the new stock, he is not in fault, that the stock, of which he was in a manner their trustee, has not been increased. He is able to render to them the subject of the trust, as it was received by him, not lessened in value by any act or neglect of his. But they demand of him more. To put him in default for not delivering the original 1,000 shares, it was incumbent on them to offer to him the purchase-money and interest, and to ask from him a delivery of the 1,000 shares with the profits on it which he had received. Had he refused, their right of action for so much would have been perfect. But they went beyond this; their demand was greater. They required of him the original stock; the profits upon it, being two dividends; the increase upon the shares of new stock issued, and the dividend upon that. To this they were not entitled. He had the right to decline. And so we perceive from the papers in the case, that the learned judge who tried the case, has not found in affirmative terms, that the plaintiffs ever performed the contract or offered to perform. He seems to have taken care to avoid so finding. He finds that, if there was any offer by them to perform, it was on the 19th or on the 31st of December, 1867, and at no other time or times. On the 19th December, the demand was the same. And there was no offer on either day to perform on any other basis. A compliance with this demand, on the part of the defendant, was asked for before they would pay him the purchase-price and the interest. *Page 834 
Unless as trustee, sub modo, the defendant was bound to advance the money to make effectual a subscription for the increased stock, then the plaintiffs required more of him than they were entitled to, and making his compliance with their demand the condition of performance of the contract by them, their right of action has not accrued. I hold, that the duty of defendant as trustee was fulfilled by preserving the subject of the trust in the condition in which it came into his hands, by receiving and accounting for all the profits which accrued from its ordinary use, but that he was not bound, with or without notice from the plaintiffs, to make advances from his own funds to add to the value of the subject, or to change its condition, or to avail of the benefit to it to be derived from the acts of others, of which payment of money was a condition. And in whatever aspect of the case it is viewed, this consideration is controlling. In no event, properly resulting from this contract, was this defendant bound to advance the money, to fulfill the condition on which a subscription for the increase of stock could be made. And as no offer of performance was ever made by the plaintiffs, which did not require the defendant to act as if he were so liable, and as an offer to perform on their part was needful to put the defendant in default, they have made no offer of performance which has made the defendant liable to them in this action. As this one position is decisive of this appeal, I do not present views on other important questions made in the case.
The judgments of the courts below should be affirmed, with costs to the respondent.