Court Opinion

ID: 7967440
Source: CourtListenerOpinion
Date Created: 2022-09-09 00:51:54.714013+00
Date Added: 2024-06-11T16:34:40.984017
License: Public Domain

Collins, J.
It was held by the court below, and stands undisputed here, that the sales of stock then owned by plaintiff’s assignors in defendant corporation were unlawful and indefensible, because the power to sell was improperly and defectively exercised. A by-law of defendant association, also made one of the terms and conditions of the stock certificates, as the same were printed and issued, requiring and providing for a sale at public auction, in case of a failure to meet the prescribed monthly payments for a period of six months, was ignored and disregarded, to the extent that the sale was in the directors’ room in the offices of the corporation, and no open, public, or general notice of the same was ever given. By the same by-law it was also provided that, whenever any stock was to be sold for arrear-ages in the monthly payments, a notice should be mailed to the owner of the stock ten days, at least, before the day of sale, stating the time and place of such sale. This express and important provision was also ignored and disregarded, and the sales made without any attempt to notify stockholders in default, by mail or in any other manner. Hence the conclusion of the trial court that the sales were irregular and unlawful. The defendant association bid in all stock for which no greater sum was offered than the amount due for monthly payments and fines, and, under the by-laws, this amounted to a cancellation of the stock thus sold; all money standing to the credit thereof, in what was styled the “ Loan Fund,” and which wa3 five sixths of the sums theretofore paid in by the stockholder, and all *548fines, immediately becoming profits for remaining members. As to this stock, it was held below that there still existed and remained with the derelict stockholders the right to make payment to defendant association of such sums of money as might be necessary to place the stock in good standing, thus reinstating the holders as completely as if the pretended sale had not been made; and that without such payment of arrearages, or a tender of payment, followed by a refusal or wrongful act of the association, no action to recover the stock or its value would lie.
When an amount was bid for the stock, at the sale before mentioned, in excess of the sums due for monthly payments and fines, the same was sold to an individual, and thereupon it was transferred, upon the books of the association, to the name of the purchaser. The association then sent its check to the. original stockholder by mail for the amount of such excess. These checks severally referred to the number of the certificate of the stock sold, and purported to be on account of what was due as excess or surplus arising from a sale at auction of the stock of the persons to whom the checks were made payable. They were received by the proper parties, who proceeded to collect the money thereon, and to retain the same, with a single exception. One stockholder declined to accept and promptly returned the cheek. It was determined below that, with the exception mentioned, the stockholders whose shares were purchased by individuals had expressly ratified the sale, waived its irregularities, and rendered it valid. The right of plaintiff, as the assignor of these stockholders, to recover as for a conversion of the stock shares, was denied, on the sole ground that the sale and its consequences, which under the by-laws was a transfer of the stock to the purchaser upon the defendant’s books, and the total exclusion of the original owner, had been acquiesced in and ratified by such of the stockholders as had received and kept sums of money derived at a sale of their stock for delinquencies well known to them; and this view was followed up and emphasized by directing a recovery against the defendant to the extent of the value, at the time of the sale, of the shares held by the party who refused to accept a check for the alleged surplus.
The first inquiry of consequence here is as to the rights of the *549plaintiff, solely as the assignor of persons whose stock was bid in by the association. His rights are those of his predecessors in interest, and, if an action for the conversion of their stock, or one in the nature of a special action on the case for a wrongful interference with their rights as stockholders, could have been maintained by them after the pretended sale, and prior to the assignment, that remedy is the plaintiff’s, and may be exercised by him. His counsel do not seriously contend that, in a case of this character, a payment or tender of the delinquent amounts could not have been made, and, in case of a refusal on the part of the association, an action would not lie to restore the stock and its owner to good standing in that body; but their contention is that as the association has asserted and insisted upon the regularity and validity of the sale of all the stock, and that by reason of the same the title has been absolutely divested, and the original owners deprived of all interest therein, or in the body corporate, they may take the latter, if they choose, upon the ground it has elected to occupy, and recover from it in the same manner and to the same extent as if the sales had been made and the title transferred upon the books to ■ a third party, as was the case with reference to a portion of the stock. This position would be unassailable if the property in question was anything but stock shares, and the defendant anybody but the corporation issuing the same; and we are unable to discover any good reason for saying that a valid distinction can be made between the situation here and any other in which an agent or a pledgee has improperly appropriated his principal’s property to his own use. The fact that the right to follow and recover the property itself can be exercised does not stand in the way of an action to recover its value, if the owner elects to pursue that remedy. He may have a choice of remedies, but we cannot see why he may not adopt the one selected by plaintiff as to that part of the stock bid in and appropriated by the association itself, if he has that power as to the stock which it caused and permitted to be bid in and appropriated by third parties. It is certainly immaterial to the corporation which course is followed, for in one case the stock itself would be recovered; in the other, its value only. When the ele*550ments exist which are essential to authorize or constitute an action for conversion of shares of stock, or one in’ the nature of a special action on the case, it must, on principle, be wholly immaterial who has become the purchaser at a sale, or whether it sold for the amount due as arrearages, and for which the corporation had a lien, or for more than that amount. The right of action, in either ease, is founded upon the fact that there has been a distinct act of dominion wrongfully exercised over the stockholder’s property, inconsistent with his right and in denial of it. The defendant practically deprived the owner of his stock, and the advantages accruing from its ownership, by bidding it in for itself. This was an act of interference, subversive of the right of the stockholder to enjoy and control the stock, and may be treated by him as a conversion of his property. See'Mor. Corp. §§ 208, 567; Cook, Stocks, § 576; and 1 Lawson, Eights, Rem. & Pr. § 466, with the cases cited on the subject.
Our next inquiry is in reference to the claim that such of plaintiff’s assignors as received and cashed defendant’s checks for the excess or surplus must be regarded as having acquiesced in and ratified the irregular sales. That, with knowledge of all material facts as to the irregularities, these delinquent stockholders might acquiesce in and ratify, and thereby estop themselves from questioning the validity of, the sales, is admitted by appellant’s counsel. Their contention is, however, that, from the undisputed facts, it clearly appears that the stockholders were ignorant of the invalid acts referred to, and that solely by reason of the remittances it cannot be held that the stockholders had constructive notice of the various irregularities of which the plaintiff complains, and with this notice accepted the defendant’s money. It is true that the stockholders knew, or should have known, that they were in arrears with their monthly payments, and that by reason thereof the right had accrued to the association to sell their stock. It is also true that when receiving the checks they were informed of the claim that this right had been exercised, and sales made, by means of which their stock had been disposed of by the corporation, and they, as stockholders, had been ousted from membership therein; and they were also aware of the fact that no notice had been received by them of the time and place *551of sale, as provided for in the by-laws, through the mails or otherwise. But there was nothing in this which suggested that the association had totally failed to observe the. very wholesome and essential requirements of the by-laws when the power to sell was exercised. The very natural presumption in such a ease would be that the officers of the corporation had properly performed their duty, and had conducted a public competitive sale in a place and in such a manner as would attract attention, and tend to promote competition; in a word, that the stock had not been sold in privacy, but at public auction. On this presumption the owners had a right to rely until the material facts which overthrew it came to their knowledge. The court below was in error when saying, as it did, in substance, that it was incumbent upon the stockholders, knowing, when they appropriated the proceeds of the checks, that the prescribed notice to which they were entitled had not come to their hands, to forthwith inquire into the manner and regularity of the sale; and that neglect and omission to make further inquiry amounted to a ratification of the sapae. The reception of these checks, with the knowledge before mentioned, did not impose the duty upon the stockholders of promptly investigating the proceedings of the defendant’s officers, when pretending to satisfy its liens upon the stock for arrearages and fines, nor can their acquiescence and ratification of the omissions and irregularities be presumed from the bare fact that they received and retained the money. Combs v. Scott, 12 Allen, 496; Story, Ag. § 239, note.
All this was done when there were no circumstances in the possession of the stockholders which would excite suspicion or suggest investigation, and when they were in ignorance of the material facts, knowledge of which was essential to a ratification. The trial court erred when it declared that, if the stockholders chose to treat the sale as valid, and to make no inquiries when receiving their cheeks, there was a ratification which would bind them in the absence of active concealment, misrepresentation, or artifice on the part of the association, calculated to deceive them and prevent scrutiny; and, as before intimated, it was error to hold that an action of the character of the present one could not be maintained as to the stock *552which was bid in, purchased, in effect, by the defendant itself. The remedies are cumulative in such cases.
Application for reargument denied June 29, 1892.
(Opinion published 53 N. W. Rep. 144.
By the counsel for respondent it has been argued that, upon discovering the unlawfulness of the sales, it was incumbent upon the stockholders, or the plaintiff, to promptly disaffirm, by returning, or offering to return, the defendant’s money paid over as alleged surplus; and that its retention, after learning the facts, amounted to a ratification. Retaining the money in silence, and without objection, for an unreasonable length of time, with knowledge of the material facts, might be regarded as a ratification by acquiescence. But this was a transaction between parties standing, as to the stock to be sold for delinquencies, in the relation of principal and agent, or pledgor and pledgee. Disregarding the obligation resting upon it as agent or pledgee, the association unlawfully and wrongfully converted the stock shares to its own use, under the pretense of a sale, and for this tort an action to recover damages has been brought. The amounts remitted to the stockholders, on account of this unauthorized sale of the stock, would simply serve, upon a proper showing, to reduce the amount of plaintiff’s recovery. Certainly the law would not require the absurd and idle ceremony of tendering or returning the amount of the remittances in order to avoid the charge of having ratified the transaction, and as a foundation or condition to the bringing of an action to recover it in the way of damages.
Judgment reversed, and case remanded, with directions to enter judgment for plaintiff against the American Building & Loan Association as demanded.