Court Opinion

ID: 5220666
Source: CourtListenerOpinion
Date Created: 2022-01-06 16:33:11.291337+00
Date Added: 2024-06-11T08:27:30.669328
License: Public Domain

Laughlin, J.
(dissenting):
This is a special proceeding instituted by petition pursuant to the provisions of section 32 of the General Corporation Law (Consol. Laws, chap. 23; Laws of 1909, chap. 28), which are as follows: “The Supreme Court shall, upon the application of any person or corporation aggrieved by or complaining of any election of any corporation or any proceeding, act or matter touching the same, upon notice thereof to the adverse party, or to those to be affected thereby, forthwith and in a summary way, hear the affidavits, proofs and allegations of the parties, or otherwise inquire into the matters or causes of complaint, and establish the election or order a new election, or make such order and give such relief as right and justice may require.”
The petitioners, in their representative capacity, hold and own three thousand shares of the capital stock of the corporation, which is one-half of the total issue of stock, and the petitioner Anna Hachemeister individually claims to be . the equitable owner of five additional shares, which, however, she permitted to be transferred on the books of the company to the respondents George E. Trommer and George Ehret, Jr., as executors of William G. Ringler, deceased, whereupon they surrendered up the certificate and caused a new one to be issued therefor to said Ehret. The ownership of said five shares of stock is the subject of an action now pending in the Supreme Court in Richmond county, brought' by said Anna Hachemeister against the corporation and others, the issues in which have been referred to Hon. Edward W. Hatch to. hear, try and determine. There can, therefore, be no question with respect to the *372standing of the petitioners to institute this proceeding, and I do not understand that their fight in that regard is questioned.
The three trustees whose election has been set aside were elected at the annual meeting of the stockholders on the 30th ■ day of October, 1909.- The validity of-their' election was challenged by the petitioners on the ground that they were not eligible for such election, in that they were not stockholders of the corporation at the time. The learned justice who heard the application at Special Term sustained this contention, and-1 fully agree with his determination with respect, thereto.
At the time of their said election as directors the record title to five shares of the capital stock, as shown by the books of the corporation,.stood in the name of each of them, but the uncon-troverted evidence shows that they never had any interest or equitable title or ownership therein, and that the only possible legal interest or title that they ever had in the stock was for a moment sometime prior to their election when at the instance of William G-. Kingler, who owned the stock, an attempt was made to pass the legal title through them with a view to having them appear as holders of record and back into' him again. With respect to Strauss and Kugelman, this occurred on the 30th day of July, 1907. William G-. Kingler, who owned stock in the corporation, surrendered ten shares to the company and directed Strauss, who was the bookkeeper, to issue five shares in place thereof hi the name of each of said- Strauss and Kugel-man. A certificate for five shares of the capital stock was thereupon issued to Strauss and a like certificate to Kugelman, and Kingler delivered the stock to them and they immediately executed an assignment thereof indorsed on the back of each certificate to him, and at once delivered the certificates thus indorsed back to him. They gave no consideration for the stock and never had possession thereof, except as stated. The transaction with respect to Trommer was similar, except that it occurred on the 21st day of September, 1909.
Under the well-settled law of this State the moment that Strauss, Kugelman and Trommer acquired the- legal title to the stock, if this transfer was effectual to transfer it to them, they- parted with all their right,, title and interest therein both legal and equitable, by the assignment and delivery of the per-*373tificate to Bingler, and he thereupon became the legal and eqnitabie owner of the stock, notwithstanding the fact that he did not require the corporation to transfer the. stock into his name again on its hooks. (Hill v. Newichawanick Co., 48 How. Pr. 427; McNeil v. Tenth National Bank, 46 N. Y. 325; Leitch v. Wells, 48 id. 585.). In McNeil v. Tenth National Bank (supra), Bapallo, J., writing for the court, said: “It has also been settled by repeated adjudications that, as between the parties, the delivery of the certificate, with ■ assignment and power indorsed, passes the entire title, legal and equitable, in the shares, notwithstanding that, by the terms of the charter or by-laws of the corporation, the stock is declared to be trans-ferrable only on its books; that such provisions are intended solely for the protection of the corporation, and can be waived or asserted at its pleasure, and that no effect is given to them except for the protection of the corporation; that they do not incapacitate the shareholder from parting with his interest, and that his assignment, not on the books, passes the entire legal title to the stock, subject only to such liens or claims as the corporation may have upon it, and excepting the right of voting at elections, etc.” In Leitch v. Wells (supra) the Court of Appeals, in deciding the nature of the title acquired by a purchaser of the capital stock of a corporation by a formal legal assignment thereof, without having a transfer made on the books of the company, say: “The assignment of those certificates and the delivery thereof to the company, with the said powers of attorney, vested the legal title to the stock in the company. A transfer on the books of the banks was not necessary for such purpose.” I doubt whether these transactions were effectual to constitute Strauss, Kugehnan and Trommer stockholders of the company, for the transfers manifestly were made with a view to circumventing the statute and enabling Bingler to elect dummy directors whose votes he would control (and there was no intention of vesting title in the transferees). (See Matter of Glen Salt Co., 17 App. Div. 234; affd., 153 N. Y. 688.)
But the broader question presented for a decision is as to whether these individuals, who once merely and momentarily held the legal title to the stock, but had long since parted with all *374title, were eligible for election as directors merely because the owner of the stock had failed to demand that it be transferred to his name oh the books of the company and permitted it to remain in their names where the passing of the legal title through them and permitting the stock to remain on record on the corporate books in their names was done solely with a view to qualifying them to act as directors. George Bingler'& Company was incorporated in 1889. At that time section 3 of chapter 40 of the Laws of 1848, as amended by chapter 232 of the Laws of 1883, provided that the stock, property and concerns of the company should “be.managed by not less than three nor more than thirteen trustees, who shall respectively be stockholders in such company,” and that annually after the first year they shall be elected “ by the stockholders,” and that “each stockholder shall be entitled to as many votes as he owns shares of stock in the said company.” In 1890 the act of 1848, under which the company was incorporated, was superseded by the Stóck -Corporation Law, being chapter 564, and, the particular provisions in question were substantially incorporated in section 20 thereof, with the additional -provision that if a director shall cease to be a stockholder his office shall become vacant. Said section 20 was amended by chapter 688 of the Laws of 1892, but the amendment made no material change with respect to the point now under consideration. It was again amended by chapter 354'of the Laws of 1901, and therein it was provided that “ Each director .shall be a stockholder unless otherwise provided in the certificate, or in a by-law adopted by a stockholders’ meeting.” (See also § 20, as amd. by Laws of 1906, chap. 238; now Stock Oorp. Law [Consol. Laws^ chap. 59; Laws of 1909, chap: 61], § 25.) The certificate of incorporation of this company contains no provision on the subject, and. manifestly a provision therein dispensing with the statutory requirement that the. trustees should be stockholders would have been a nullity. Doubtless since said amendment to the statute, made in 1901, it would have been competent for the corporation to have provided by its by-laws that other than stockholders might be trustees, but it has not adopted any by-laws to that effect, and on the contrary section 4 of article 4 of its by-laws, as originally adopted and never amended/expressly' *375provided that no person shall he a trustee who is not the holder or owner of at least one share in the capital stock of this company, and section 11 thereof provides that “ The transfer hy any trustee of his entire stock in the company shall cause the forfeiture hy such trustee of his rights as such, and such transfer shall be equivalent to a resignation of such trustee, and thereupon a new election shall- be held to fill the place of such trustee in the manner hereinafter designated. ” Of course these by-laws are to be construed in the light of the authority to make them as it then existed, and they cannot in view of the recent change in the law be deemed to authorize one not a stockholder to be a trustee. I am of opinion that by these statutory requirements the Legislature plainly manifested an intention that the corporation should be managed by trustees, each of whom in his own right or in a representative capacity should have a personal and pecuniary interest in the success of the corporation. (Matter of Elias, 17 Misc. Rep. 718; Chemical National Bank v. Colwell, 132 N. Y. 250; Sinclair v. Fuller, 158 id. 607.)
The provisions of section 25 of the act under which the brewery was incorporated, to the effect that no transfer of the • capital stock of the company shall be valid for any purpose except to render the person to whom it is transferred liable for the debts of the company according to the provisions of the act until it shall have been entered on the records of the company as therein provided, have, as already observed, no effect on passing the entire title between the assignor and assignee, and it was' so held by the Court of Appeals in construing this identical statutory provision. (Johnson v. Underhill, 52 N. Y. 203.) The only effect of a failure to have the transfer made on the books of the company is to regulate the rights and liabilities of the assignor- and assignee of the stock as between them and the corporation and its creditors, and to protect it in the payment of dividends and in the giving of notices of corporate meetings and in determining who are entitled to vote on the stock, although in such case the assignee could doubtless enjoin the assignor from voting on the stock. (Johnson v. Underhill, supra; McHenry v. Jewett, 26 Hun, 453; revd. on another point, 90 N. Y. 58; Commercial Bank of Buffalo *376v. Kortright, 22 Wend. 348; Matter of Long Island R. R. Co., 19 id. 37; New York & N. H. R. R. Co. v. Schuyler, 34 N. Y. 30, 76, 79; Shellington v. Howland, 53 id. 371; Sinclair v. Fuller, 158 id. 607; Elyea v. Lehigh Salt Mining Co., 169 id. 29.) Where' the eligibility of a director is called in question by this summary remedy which is in the nature of quo warranto he must, to sustain his right, show something more than that he was formerly for a moment the legal owner of stock.
I do not deem it necessary to consider at length the claim of estoppel, for where the Legislature has prescribed the qualifications essential to eligibility to the office of a director or trustee of a' corporation I think it is the duty of the court on the application of a stockholder to enforce the statute regardless of the prior conduct of the stockholders with respect to-like questions, for the courts should not assist parties in conducting a copartnership with only the liability of stockholders of a corporation. The beneficial owners of the stock now represented by the petitioners should not be held estopped by the action of William 'Gr. Bingler,- whose interest was adverse to theirs in voting their stock as executor.
I am of opinion, however, that the court erred in holding that it was without power to oust the trustees Ehret and Wilson, who were subsequently elected in the place of a deceased director, and in the place of one whom it is claimed ceased to be a director by the transfer of stock. Those two trustees were elected, and could only have been elected by the votes of the three directors whose election was void on the ground that they were -ineligible. The purpose of the statute was to authorize the court to inquire into a corporate election of directors, and to determine the validity thereof, “or any proceeding, act or matter touching the same.” I think that a subsequent election of a director by a board, the majority of whom were illegally elected at a corporate election, is an act or matter touching the corporate election of directors within the scope of said section 32 of the General Corporation Law. The two directors thus elected were ineligible for the reason that they had no right, title or interest, legal or equitable, in any stock of the corporation at the time, and were merely *377stockholders of record, the same as the others to whom reference has been made, for, the purpose of qualifying them as directors.
I, therefore, vote to reverse so much of the order as is appealed from by the petitioners, and to affirm that part of the order from which the other appellants appeal.
Order, in so far as appealed from by petitioners, affirmed, and, in so far as appealed from by defendants-appellants reversed, with ten dollars costs and disbursements to said defendants-appellants. Settle order on notice.