Cincinnati, N.O. & T.P. Ry. Co. v. Citizens' Nat. Bank

• Court: Ohio Supreme Court
• Writing for the Court: MINSHALL, J. (after stating the facts).
• Citation: Cincinnati, N.O. & T.P. Ry. Co. v. Citizens' Nat. Bank, 47 N.E. 249, 56 Ohio St. 351 (Ohio 1897)
• Decision Date: 11 May 1897
• Parties: CINCINNATI, N. O. & T. P. RY. CO. v. CITIZENS' NAT. BANK et al.

47 N.E. 249

56 Ohio St. 351

CINCINNATI, N. O. & T. P. RY. CO. v. CITIZENS' NAT. BANK et al.

Supreme Court of Ohio.

May 11, 1897

[Copyrighted Material Omitted]

Error to superior court of Cincinnati.

Suit by the Cincinnati, New Orleans & Texas Pacific Railway Company against the Citizens' National Bank and others to cancel certificates of stock. From a judgment for defendants plaintiff brings error. Affirmed.

At the time of his death, which occurred May 25, 1882, George F Doughty was the secretary of the plaintiff in error, and had been such from the time of its incorporation in October 1881. During this time he had fraudulently caused to be issued a large number of spurious certificates of the stock of the company, being shares in excess of its capital stock. These certificates were in the hands of various individuals, each of whom had either purchased what he held from Doughty, or taken it in pledge for money loaned him by the holder. Suits were brought by many of them against the company for the value of the stock, on its refusal to transfer the stock to them on the books of the company; and a judgment had been obtained in one case, and a verdict in another, when the suit below was commenced in the superior court, against all the individuals claiming to own such stock, asking that they should be required to set up their claims to the stock held by them, and the certificates should be delivered up and canceled. The defendants answered separately, each claiming that, whatever the character of certificates held by him, he was an innocent holder for value, and entitled to recover of the company the value of his stock. Two set up former adjudications in their favor. The case was tried in special term on the issues. The court, at the request of the defendants, made a separate finding of the facts and the law, and rendered judgment in favor of the railway company. On error to the general term the judgment was reversed, and judgments rendered in favor of the defendants respectively. The finding of facts, so far as material to the question here presented,-the right of the company to relief against innocent holders for value of the stock,-is as follows:

‘First. That the plaintiff was incorporated under the laws of Ohio, on October 8, 1881, with an authorized capital stock of $3,000,000, divided into 30,000 shares of $100 each, all of which shares were lawfully subscribed for by bona fide subscribers, paid in full in cash, and proper certificates therefor duly issued to such subscribers on or before October 12, 1881, which certificates were duly signed by Theodore Cook, as president, and by George F. Doughty, as the secretary, of the plaintiff, and were evidenced by the genuine seal of the plaintiff corporation. That Theodore Cook was elected and qualified as president of the plaintiff corporation at the date of its organization, and George F. Doughty was elected and qualified as secretary of the plaintiff corporation at the date of its organization, and that the said Theodore Cook and George F. Doughty were re-elected and qualified as president and secretary, respectively, of said corporation on the first Monday in January, 1882, and the said Theodore Cook continued to be president thereof until January, 1883, and the said George F. Doughty continued to be its secretary until his death on May 25, 1882. That the plaintiff's capital stock has never been increased by any express action of the directors or of the stockholders, as provided by the statutes of the state in that behalf. That upon its organization the plaintiff corporation adopted, among others, the following by-laws in reference to the issue of its certificates of stock, which continued in force until January, 1883. ‘Art. 8. Certificates of stock shall be issued to each subscriber for the number of shares which he may own, under the corporate seal of the company, signed by the president and secretary, setting forth the amount due upon each share. Art. 9. It shall be the duty of the secretary to keep the office of the company open during business hours. He shall be the custodian of the seal of the company, and shall affix the same with his attestation thereto whenever the official business of the company may require. He shall attend all meetings of the stockholders, directors, and executive committee, unless excused, and keep and record a full and true minute of their proceedings. He shall also attend the meetings of any committee appointed by the directors or stockholders, if requested, and keep a record of their proceedings. He shall keep the stock ledger of the company, and make transfers of stock upon the surrender, and properly indorse and cancel all stock certificates which may be presented for transfer. He shall give bond for fifty thousand dollars, with two good securities, to be approved by the executive committee.’

‘Second. All of the stock certificates of the plaintiff issued by it, and all the stock certificates of the plaintiff purporting to be issued by the plaintiff and held by the defendants, were in the same form, and were as follows, with the blanks for the number of shares and the party in whose favor they were issued filled in writing, to wit: ‘Form of Certificate. This is to certify that _____ is entitled to _____ shares of one hundred dollars each in the capital stock of the Cincinnati, New Orleans & Texas Pacific Railway Company, transferable only on the books of the company, in person or by attorney, on the surrender of this certificate. Witness the seal of the company and the signature of the president and secretary at Cincinnati this ___ day of _____. _____, Secretary. _____, President. [Corporate Seal.]’ That all of said certificates issued during the lifetime of George F. Doughty were filled out and signed by George F. Doughty as secretary. They all bear the signature of Theodore Cook as president, with the exception of two, which were signed by John Scott, the vice president; and all bore the seal of plaintiff corporation, affixed by George F. Doughty, its secretary.

‘Third. The certificates, before issue, were bound in two books called the ‘Certificate Books,’ with stubs, numbered from one to five hundred in the first and from five hundred to one thousand in the second. Each certificate bears the same number as its stub. The secretary, Doughty, was provided with a stock ledger and stock journal and register of transfers, and the books containing the blank certificates, regularly numbered, as above stated. There was no book designed to contain the actual transfer for the stock, but, instead of that, each certificate was indorsed with a blank form of assignment, to be filled out when assigned or surrendered, in form as follows: ‘For value received _____ sells to _____ the stock within mentioned, and authorize _____, _____ attorney, to transfer the same on the books of the company. Witness my hand and seal this ___ day of _____, A. D. 188 _. In presence of _____.’ The register of transfers was a book containing a regularly ruled page with numbers on it to correspond with the numbers of certificates, and was arranged with reference to each, so as to permit the bookkeeper to show both the certificate from which and the one into which it was transferred. The stock ledger simply kept a ledger account with each stockholder, and was posted from the stock journal in which the entries were journalized. The secretary's (Doughty's) mode of keeping the certificate books was to mark upon a stub of the new certificate the number of the certificate surrendered, in addition to the date, the names of the transferror and the transferee, and the number of shares. The stub had a place for the receipt of the transferee upon getting the new certificate.

‘Fourth. The president, Theodore Cook, gave but little, if any, personal attention to transfers of stock, except to sign the certificates. After the issue of the certificates to the original subscribers to the capital stock of the plaintiff, the president was in the habit of signing a number of certificates in blank, and leaving them with Doughty, as secretary, to be filled out when necessary upon the presentation to said Doughty, as such secretary, of outstanding certificates for transfer duly indorsed as above provided, and for no other purpose. When the said Doughty died, there had been signed by the president and secretary, with the corporate seal affixed, and removed from the book, certificates for 34,000 shares of stock which had not been canceled or surrendered by them. The authorized stock was 30,000 shares.

‘Fifth. Said George F. Doughty originally subscribed for 650 shares and received therefor certificates Nos. 86, 88, 87, 89, 90, and 91. Of these Nos. 87, for 250 shares, and 88, for 50 shares, belonged to others, who paid the subscriptions therefor, and the certificates therefor, indorsed by Doughty, were at once delivered to them, and never again came into his possession. The certificates Nos. 89 for 50 shares, 90 for 100 shares, and 91 for 100 shares, were subscribed for by said Doughty on the equal joint account of himself and defendants Herman Klein & Son, and issued in the name of George F. Doughty. The subscription therefor was paid with funds borrowed on a pledge of said certificates 89, 90, and 91, and on October 8, 1881, by said Doughty and Herman Klein & Son, and such certificates were never afterwards in the possession of said Doughty and said Herman Klein & Son until the same were redeemed and returned to said Doughty on May 17, 1882. On November 9, 1881, Doughty issued certificates Nos. 255 and 256 to himself, and noted upon the register of transfers that they had been issued upon the surrender of certificate No. 86. No. 86 was then in the bank of Kuhn & Sons, and pledged as above stated. On May...