Court Opinion

ID: 5256032
Source: CourtListenerOpinion
Date Created: 2022-01-06 18:28:11.28438+00
Date Added: 2024-06-11T08:28:00.749500
License: Public Domain

Kelly, J.:
The learned trial judge filed an opinion with his decision and findings in this case in which he said of defendant Main, “ It is contended on behalf of Mr. Main that he is not hable in this action for two reasons, first,. that the stock is held as *193collateral security and is therefore not within the terms of the statute, and secondly, that he is not a stockholder in the Union Bank within the meaning of the statute. The statute undoubtedly means that persons, who hold stock in a bank as collateral security which stock was not transferred to the person or corporation who holds it as collateral security thereby incur no liability; but in the event that the holder of the collateral security causes it to be transferred he is then liable under the provisions of the statute which make a holder of record liable in an action against stockholders. If stock is transferred to one with his knowledge and consent he becomes a stockholder of record and is liable even though the holder of the stock has it as collateral security (Matter of Empire City Bank, 18 N. Y. 199; Richards v. Robin, 178 App. Div. 535). There is no distinction in principle between the holder of certificates issued by the voting trustees and the holder of the certificate of stock of a bank. The holder of the certificate enjoys all the rights and benefits as such holder except the right of voting. That right may be and frequently is delegated by means of a proxy. The effect of a voting trust certificate is nothing more or less than a proxy and entitles the trustee to vote the stock for a given period of time. The holder of the certificate in question is by the terms of the voting trust agreement entitled to all the dividends when declared and received by the trustees and is therefore within the meaning of the statute a stockholder.” And as to the defendant Home Bank of Brooklyn the learned judge said in his opinion: “ The Home Bank of Brooklyn held a number of shares of stock of the Merchants [sic] and Traders Bank as part collateral security for loans which it had made. The record discloses that the certificates of the trustees were issued to that bank with its knowledge and consent. It cannot therefore evade responsibility.” The conclusion of the learned trial judge thus stated is the foundation for the judgment appealed from. If these appellants were not “ such persons as appear by the books of the corporation to be stockholders,” or owners “ of stock, legal or equitable, although the same may be on such books in the name of another person,” they were not stockholders or responsible for the debts of the *194bank. And even though they were legal or equitable owners of stock which was upon the books of the corporation in the name of another person, still they were not responsible for the debts of the bank, if the stock was held as collateral security for the payment of a debt. (Van Tuyl v. Robin, 160 App. Div. 41; affd., 211 N. Y. 540.) The Banking Law at the date of the transactions in the ease at bar, and at the commencement of the litigation so provides in language concerning which there can be no doubt or controversy:
“ § 71. Individual liability of stockholders. Except as prescribed in the Stock Corporation Law, the stockholders of every such corporation shall be individually responsible, equally and ratably, and not one for another, for all contracts, debts and engagements of such corporation, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares.”
In Chase v. Lord (77 N. Y. 1) Judge Danforth, writing for the Court of Appeals concerning an act of the Legislature imposing liability for corporate debts upon stockholders, said: “ In the first place, it is clear that there was no common law liability on the part of the testator; and the legal presumption is that all statutory conditions have been complied with. * * * So far as it [the act under consideration] subjects the stockholder to .any responsibility for the corporate debts, it is manifestly in derogation of the common law (1 Parsons on Contracts, 143; Stedman v. Eveleth, 6 Mete. 114), and we are not at liberty to extend its effect beyond its literal terms, by enlarging or aggravating the liability of the stockholder. Says Chief Justice Shaw, in Gray v. Coffin (9 Cush. 199): * * * ‘ To create any individual liability of members for the debt of a corporation, a body politic, created by law, and regarded as a legal being, distinct from that of all the members composing it, and capable of contracting and being contracted with as a person, is a wide departure from established rules of law, founded in considerations of public policy, and depending solely upon provisions of positive law. It is, therefore, to belconstrued strictly, and not extended beyond the limits to which it is plainly carried by such provisions of statute.’ ”
In our effort to ascertain upon whom this liability, unknown *195to the common law, is placed by the provisions of section 71 of the Banking Law we find that the Legislature has left no doubt as to what is meant by the word “ stockholder ” as used in the act. The statute, section 2, provides: “ Stockholder.— The term ‘ stockholder/ when used in this chapter, shall apply not only to such persons as appear by the books of the corporation to be stockholders, but also to every owner of stock, legal or equitable, although the same may be on such books in the name of another person, but not to a person who may hold the stock as collateral for security for the payment of a debt.” This provision was re-enacted by chapter 126 of the Laws of 1910.* This language appears to be plain and unambiguous, and it has been interpreted by the courts. “ We believe, therefore, that the true meaning of section 2 of the Banking Law is to define stockholders as including (1) Every person who appears by the books of the corporation to be a stockholder; and (2) Every owner of stock, legal or equitable, though the same may be of record in the name of another, except a person who holds stock as collateral for security for the payment of a debt. Thus the first class is without exception; the second has but one exception. The second class is not a limitation of the first, • but an addition to it.” (Van Tuyl v. Robin, supra.)
It cannot be claimed in the case at bar that the defendants, appellants, are in the first class. They do not appear by the books of the corporation to be stockholders. The books of the corporation, whether we consider the Mechanics and Traders’ Bank, or the reorganized Union Bank, contain no entry or mention of the appellants as stockholders. “ The stock of every stock corporation shall be represented by certificates prepared by the directors and signed by the president or vice-president and secretary or treasurer and sealed with the seal of the corporation, and shall be transferable in the manner prescribed in this chapter and in the by-laws.” (Stock Corp. Law [Consol. Laws, chap. 59; Laws of 1909, chap. 61], § 50; former Stock Corp. Law [Gen. Laws, chap. 36; Laws of 1890, chap. 564; Laws of 1892, chap. 688], § 40, as amd. by Laws of 1902, chap. 601.) And by section 32 of the *196present Stock Corporation Law* stock corporations are required to keep at the office of the corporation “ a book to be known as the stock book, containing the names, alphabetically arranged, of all persons who are stockholders of the corporation, showing their places of residence, the number of shares of stock held by them respectively, the time when they respectively became the owners thereof, and the amount paid thereon.” And a penalty of fifty dollars per day is imposed upon the corporation for every day of neglect to keep the stock book, with a like penalty upon officérs or agents of the corporation who make improper entries therein or who refuse to exhibit it on demand during business hours to stockholders and judgment creditors of the corporation who are permitted to make extracts therefrom. (See, also, former Stock Corp. Law, § 29, as amd. by Laws of 1900, chap. 128, and Laws of 1901, chap. 354.) The stock of the borrowers who pledged it with the defendants, appellants, as collateral was duly entered on the stock book of the bank in the name of the owners, the borrowers. When pursuant to the request of such owners, made because “ The Superintendent of Banks of the State of New York has absolutely required, as a condition to the re-opening the Bank, that stockholders place their stock in a voting trust in order that for the next five years of its existence the affairs of the Bank may be managed by voting trustees, whose appointment is subject to the approval of the Banking Department of this State,” it was surrendered by the defendants to the trustees under the voting trust, it was not then in the names of the defendants. On the contrary, it was duly transferred on the books of the corporation from the names and ownership of the borrowers to the names and ownership of the three voting trustees, a new stock certificate was issued to the new owners and the stock stood in their names at the date of the trial. Surely, so far as the books of the corporation are concerned, there is no warrant for charging the defendants with this responsibility. The three trustees who thus acquired the record title to the stock upon the books of the corporation, and who at all times had in their possession the stock certificate issued *197by the corporation in accordance with law, issued receipts and certificates in their own names for the stock so surrendered. But these trustees had no power to issue stock certificates of the Union Bank or to transfer stock of the Union Bank and they did not assume to do so. That was something which could be done only by the corporation itself. They issued these certificates or receipts, indicating that in 1913, five years thereafter, if all went well, the owner of the stock would be entitled to receive stock certificates, but the trustees ’ certificates expressly declare upon their face that the stock so to be delivered is stock of the voting trustees. It is true that they assumed to issue their certificates in the name of defendant Main, and others in the name of defendant Home Bank. Neither defendant had transferred any stock to the trustees. The transfer was from the borrowers. But whether the certificates so issued to the defendants were valid or invalid as against the owners from whom the trustees derived title, there is no suggestion that the issuance of the trustees’ certificates was ever entered upon the books of the Union Bank. The entry may have been made upon the books kept by the trustees or upon the books of the Equitable Trust Company, the transfer agent of the trustees, but these were not books of the Union Bank, nor were they kept by, or at the office of, the Union Bank. So far as any liability is asserted against defendants upon the theory that they appeared to be stockholders upon the books of the bank, there is no evidence to justify the claim. The evidence shows that this identical stock never stood in the names of defendants but was actually in the name of the borrowers or of the voting trustees. And when we turn to the second class of persons described as stockholders in the statute (§2, supra), we find that the defendants fall clearly within the exception from liability therein expressly set forth. Because, so far as the stock in question or the certificates representing it ever were in possession of the National Park Bank, or defendant Main, or the Home Bank of Brooklyn, they were at all times held, in the words of the statute, “ as collateral for security for the payment of a debt.” The defendants held the stock originally as pledgees to secure the payment of their loans to Heinze and Sullivan and the other borrowers, owners of the stock. They had no *198other interest in it. When the Mechanics and Traders’ Bank became involved in difficulties in 1908, and the reorganization was attempted with the approval of the State Banking Department, the defendants, at the request of the owners of the stock and under the requirement of the Banking Department, surrendered it to the voting trustees, receiving in place and stead thereof the receipts or certificates of the trustees, which they continued to hold as collateral. The defendants did not appoint the trustees. They were not parties to the agreement entered into by the stockholders upon the absolute requirement of the State Banking Department. The voting trustees were not their agents. The defendants looked to their original borrowers for the payment of their demand, and their consent to accept one form of collateral for another did not enmesh them in the toils and difficulties and liabilities of the stockholders of the Union Bank. There is no suggestion in the case that either of the appellants holding the stock as collateral procured its transfer as did the defendant in the case of Van Tuyl v. Robin (supra) and the collateral holders in Matter of Empire City Bank (18 N. Y. 199); Anderson v. Philadelphia Warehouse Co. (111 U. S. 479), and Pauly v. State Loan & Trust Co. (165 id. 606, 615). These certificates of the voting trustees are' not stock certificates, they are not issued by or on behalf of the corporation. Standing by themselves, they confer no right to the issue of certificates of stock or the collection of dividends. Because they are issued not by the corporation itself, but by the trustees who are the stockholders upon the books of the corporation. They may be binding on the trustees, but the relation of the defendants to the Union Bank and its capital stock has not been changed.
These conclusions make it unnecessary to pass upon the additional point raised by the appellant Main, that the plaintiff failed to prove a cause of action under the Banking Law (§§ 19, 71) as in force at the date of the commencement of the action in 1912 and before the amendment (Laws of 1914, chap. 369, § 80) making the certificate of the Superintendent of Banks presumptive evidence of the facts therein stated, or to pass upon the exceptions taken by the appellants to the allowance of interest.
*199The judgment should be reversed, with costs, as to the defendants, appellants, Main and Home Bank of Brooklyn, and the complaint dismissed as against said defendants upon the merits, with costs. This court reverses the seventh finding of fact of the learned judge at Special Term in so far as it finds that the defendants, appellants, were prior to the 4th day of April, 1910, stockholders of the Union Bank of Brooklyn whether under that name or that of the Mechanics and Traders’ Bank. Also the fifty-eighth finding of fact in so far as it refers to said defendants, appellants. Also the first and second conclusions of law in so far as they declare liability upon the defendants, appellants, and direct judgment against them. This court finds as matter of fact that the defendants, appellants, were not stockholders in the Union Bank, and that so far as they had any interest in said stock it was as collateral for the security for the payment of a debt. And as matter of law that the defendants, appellants, are entitled to judgment dismissing the complaint upon the merits, with costs.
Rich, Blackmar and Jaycox, JJ., concur; Blackmar, J., in separate memorandum, with whom Rich, J., also concurs; Putnam, J., reads for affirmance.

 See Banking Law of 1914, § 120. Id. § 3, as amd. by Laws of 1917, chap. 433.— [Rep.

 Since amd. by Laws of 1916, chap. 127, and Laws of 1918, chap. 137. — [Rep.