Brinkerhoff-Farris Trust and Savings Company v. Home Lumber Company

• Decision Date: 07 December 1893
• Parties: Brinkerhoff-Farris Trust and Savings Company v. Home Lumber Company, Appellant
• Court: Missouri Supreme Court

24 S.W. 129

118 Mo. 447

Brinkerhoff-Farris Trust and Savings Company v. Home Lumber Company, Appellant

Supreme Court of Missouri, Second Division

December 7, 1893

Appeal from Vernon Circuit Court. -- Hon. D. P. Stratton, Judge.

Affirmed.

Harding & Buller for appellant.

(1) The defendant's by-law, making all transfers of stock subject to the lien of the company for indebtedness of the holder was valid as a proper restriction upon the transfer. Spurlock v. Railroad, 61 Mo. 319, and cases cited; 25 Mo.App. 642; Ins. Co. v. Goodfellow, 9 Mo. 49; Bank v. Bank, 45 Mo. 513. (2) Certificates of stock in a corporation are not negotiable paper, and a mere assignment without a full transfer on the books of the company, while good between the parties, does not make the assignee an innocent bona fide holder for value. Bank v Railroad, 13 N.Y. 623; Stebbins v. Ins. Co., 3 Paige, 350; Angell and Ames on Corporation [3 Ed.], p 352, 353; Hull v. Road Co., 70 Ill. 673; Shaw v. Spencer, 100 Mass. 382; Parsons on Contracts [6 Ed.], p. 290, note. (3) A person buying stock in a corporation ought to make inquiry to ascertain if there will be any objection to its transfer on the books of the company. Bank v. Bank, 63 Cal. 363. (4) And he merely becomes the holder of the equitable title who cannot be a innocent bona fide purchaser for value as against the superior equity of of the company. 76 Mo. 13; Jennings v. Bank, 79 Cal. 323; Tyler v. Weston, 77 Cal. 534; Bank v. Laird, 3 Wheat. 393; McReady v. Rumsey, 6 Duer 582; Beach on Private Corporations, sec. 646, p. 1019. (5) The condition requiring the transfer to be only on the books of the company is sufficient to put the purchaser upon inquiry. Jennings v. Bank, supra. (6) The plaintiff's declarations of law ought therefore to have been refused and defendant's first declaration ought to have been given. The fact that the by-law in question, purported to have been passed by the directors, did not invalidate it. They were also the holders of almost all of the stock. People v. Mfg. Co., 82 Ill. 457; Heintzelman v. Rel. Ass'n, 38 Minn. 138. (7) And such a lien may be created by mere usage without any by-law. Jennings v. Bank, 79 Cal. 323. (8) Or by a mere agreement among the shareholders or usage known to them. Vansards v. Bank, 26 Conn. 144; 11 American Decisions, 575. (9) The court erred in admitting the evidence as to statements alleged to have been made by Moore & Davis to Caldwell, Shields and others, giving their opinions of the value of the stock. The opinion of an agent is not to be taken as an admission by the principal. Ins. Co. v. Mahone, 21 Wall. 157; Packet Co. v. Clough, 20 Wall. 528; Hubbard v. Silver, 7 Wend. 446; Tuggle v. Railroad, 62 Mo. 425; Bank v. Bunk, 60 N.Y. 279. The statements of an agent are mere hearsay. Kelly v. Railroad, 88 Mo. 534; 1 Greenleaf on Evidence, sec. 113. (10) Besides which the alleged statements were mere loose talk, pending, and apparently intended to affect a bargain between other parties, and were not made to plaintiff, nor did they have any influence upon its action, and the talk with Mr. Brinkerhoff was long after the plaintiff had gotten hold of the stock. A corporation is a legal entity entirely distinct from its stockholders or officers. Thompson v. Allen, 86 Mo. 85. (11) The testimony of Farris as to the value of the stock was incompetent. He did not pretend to know its market value and had no means of knowing its intrinsic value. The value of a certificate of stock in a corporation is the market value of the shares, if they have a market value. Deck v. Feld, 38 Mo.App. 674; Ormsby v. Company, 56 N.Y. 623. (12) And where there is no market value the value of the shares must be found from an examination of the affairs of the company. Deck v. Feld, supra; Ice Co. v. Heinze, 14 S.W. 674; 102 Mo. 245; Sedgwick on Measure of Damages [8 Ed.], sec. 257. (3) Farris did not even pretend to be an expert as to the lumber business, and it was therefore error to permit him to testify as such. Mfg. Co. v. Phelps, 9 Circuit Court Rep. 601; 130 U.S. 520.

Johnson & Lucas for respondent.

(1) A mere rule of the bank could not affect the rights of third persons to whom certificates were sold or pledged for value in the regular course of business. Carrol v. Bank, 8 Mo.App. 254. A lien created by a by-law, in order to be effective must be brought to the knowledge of the transferee. Bank v. Pinson, 58 Miss. 421; 38 Am. Rep. 330; Driscol v. West Bradley, 59 N.Y. 97; Bank v. Bank, 6 Am. and Eng. Corp. Laws, 543; see, also, Bank v. Pinson, 38 Am. Rep. 335; Lowell on Transfer of Stock, sec. 166. (2) The question of the negotiability of corporate stock is an open one with tendency of modern decisions in favor of the affirmative. Boone on Corporation, sec. 122; Supply Ditch Co. v. Elliott, 3 Am. State Rep. 591; Bank v. Lanier, 11 Wall. 369; Johnson v. Laflin, 13 Otto, 800; Stinson v. Thornton, 56 Ga. 377; Bank v. Gifford, 47 Iowa 375; Lee v. Bank, 2 Tenn. 298. (3) Where a by-law of a bank provided that stock could only be transferred on the books of the company, the title to the stock (both legal and equitable) would pass without transfer on the books by assignment. Moore v. Bank, 52 Mo. 377; Bank v. Richards, 74 Mo. 77; O'Brien v. Cummings, 13 Mo.App. 197. (4) The provision in the by-law providing for the printed notice to purchasers must be held to mean that the lien would not be assessed against a person not having this notice. Bank v. Pinson, 58 Miss. 421; 38 Am. Rep. 335; Bank v. Bank, 63 Cal. 359; Bank v. Bank, 86 Tenn. 252; Cook on Stocks, secs. 50, 257. (5) There was no error in the admission of the evidence of the witness, Farris, as to the value of the stock. First. In actions for conversion of personal property, such as these shares are, the damages are not limited to the market value of the stock. Its actual value to be determined under all the circumstances, such as the dividend making capacity, the good will, etc., etc., is the measure of damages. Freon v. Carriage Co., 42 Ohio St. 794; Freon v. Carriage Co., 51 Am. Rep. 794. Second. It has been held that where there have been no actual sales of an article, a witness may give his opinion of its value. 1 Sutherland on Damages, p. 801; Simpkins v. Low, 49 Barb. 382; Erd v. Railroad, 41 Wis. 65; Whitfield v. Whitfield, 40 Miss. 352; Anson v. Dwight, 18 Iowa 241; Rogers v. Ackerman, 22 Barb. 134.

OPINION

Gantt, P. J.

In February, 1888, the Brinkerhoff-Farris Trust and Savings Company loaned J. W. Cleland $ 13,000 and accepted as collateral security, two certificates of stock in the Home Lumber Company, each certificate calling for fifty shares, of the par value of $ 100 per share. One certificate was numbered 40 and bore the date of May 1, 1885, and the other was dated April 12, 1886.

The certificates were in the following form and were alike, save as to the number and date:

"CERTIFICATE OF STOCK.

"State of Missouri.

"Home Lumber Company.

"No. 40. 50 Shares.

"This is to certify that J. W. Cleland is proprietor of 50 shares of the capital stock of the Home Lumber Company, transferable only on the books of the company by said stockholder or his attorney upon surrender of this certificate.

"Nevada, Mo., May 13, 1885.

"J. W. Cleland, President.

"B. H. McDonald, Secretary.

"Endorsed: J. W. Cleland."

Cleland having defaulted in the payment of the note for which the stock was security, the trust and savings company sold it and, through its president, became the purchaser thereof June 24, 1889, and afterwards, on June 28, 1889, presented the two certificates to the lumber company and asked to have the stock transferred to it on the books of the lumber company, which was refused because the lumber company asserted that Cleland was indebted to it in the sum of $ 13,000 and it had a lien on said stock by virtue of its "by-laws," and for the further reason, that it claimed that, by another by-law, Cleland was restricted from selling this stock to any outsider until he had first given the refusal to the board of directors and the purchase thereof had been refused by each and every member of the board.

The trust and savings company insisting that it had no notice of such by-laws, and that they were void as to it, brought this action as for a conversion of the stock alleging its value to be $ 11,000 on the twenty-eighth of June, 1889, the date of the alleged wrongful conversion.

The defendant, after a specific denial of the allegation of the petition, made the following additional defenses:

"Further answering, defendant says that by article 12 of the by-laws of defendant, adopted in the year 1881, it was provided, that no stockholder should sell or assign any of his or her certificates of stock to any person not already a stockholder unless he or she shall first have offered the same to the board of directors and the purchase thereof been refused by each and every member thereof at the prices offered by any other person, and that said Cleland never did offer said stock to said board of directors, nor gave them, nor any stockholder, the refusal thereof, and that plaintiff never was a stockholder of defendant.

"And further, that on the first day of July, 1884, the defendant duly adopted by-laws which provided, among other things, that the stock of the company should be transferred only on the books of the company, and any transfer of the stock shall be subject to the lien of the company thereon for any indebtedness due the company from the holder thereof.

"And that at the time of the alleged transfer of the said stock by said Cleland to plaintiff, he was and still is indebted to defendant to the amount of $ 5,000, now long overdue, and that he is insolvent, and if plaintiff ever procured said...