Cornick v. Richards

• Decision Date: 30 September 1879
• Citation: 71 Tenn. 1
• Parties: T. R. Cornick, Jr., and other consolidated causes, v. David Richards, et al.
• Court: Tennessee Supreme Court

71 Tenn. 1

T. R. Cornick, Jr., and other consolidated causes,

v.David Richards, et al.

Supreme Court of Tennessee.

September Term, 1879.

FROM KNOX.

Appeal from the Chancery Court at Knoxville. O. P. TEMPLE, Ch.

CORNICK & CORNICK, GEORGE BROWN, LOGAN & LUCKEY, HENDERSON & JOUROLMON, A. S. PROSSER, W. P. WASHBURN and H. COOPER of Counsel.

FREEMAN, J., delivered the opinion of the Court.

The contest in this case is over the question of the right of priority on the part of various creditors of Richards who was a stockholder in the Knoxville Iron Company, as to shares of stock attached to satisfy debts due by said Richards. In one case, that of W. P. Washburn, some other additional questions, not raised as to the other parties, occur, which will be disposed of in a subsequent part of this opinion. Richards being a non-resident debtor, in most of the cases, attachments have been levied on his shares of stock in the company. The date of these liens is fixed in all the cases in the record, so that there is no question to be be decided on that aspect of the cases.

In a portion of the cases Richards had obtained money from parties and had deposited or handed over certificates of stock to such parties as collateral security, with a power of attorney authorizing a transfer of the stock and sale in case he failed to pay at maturity. In the case of the note held by Cornick, this agreement as to the stock being the collateral, is in the face of the note, and a separate power of attorney in blank is given on the back of the certificate expressing the fact of sale and transfer of the shares of stock, the blank for the party to whom sold being properly filled up to Mornick in accordance with the clear intention of the parties. Before commencement of his suit, Tuttle, the president of the company, was notified of the transfer, and requested to transfer the stock on the books of the company in order to a sale of the stock, he being informed that it was held as a collateral. He declined to transfer it on the ground that he was advised by counsel that he ought not to do so except to an absolute owner. Thereupon Cornick filed his bill seeking to have this transfer made and his right effectuated in payment of his debt by sale of the collateral. In addition, he alleged that the stock was only worth about twenty or twenty-five cents in the dollar, and that the amount of his collateral would not be sufficient to pay his debt. Richards being a non-resident, an attachment was prayed for and levied on $3,000 of additional stock to secure his debt. It is seen from this statement that Cornick's bill has two aspects, the one the enforcement of the collection of his debt, the other to compel the iron company to effectuate his title to his security, if necessary, in order to a sale by a transfer of the stock held by him on the books of the company. We may say here that in any view that may be taken of the question of transfer of stock as against the iron company, he has secured his priority to the pledged stock as the company had notice of his rights, and had refused to transfer the stock in pursuance of the contract between Cornick and the owner, Richards.

It has been correctly said by the Supreme Court of Indiana, in a well considered case, “that stock in a corporation held by an individual is his own private property, which he may sell or dispose of as he sees proper, and over which neither the corporation nor its officers have any control. It is the subject of daily commerce, and is bought and sold in market like any other marketable commodity.” See Commissioner v. Reynolds, 13 Am. Law Reg., 380. See also an elaborate review of the authorities by Judge Dillon; Thompson National Bank Cases, Johnson v. Laflin, 331. The character of this property, as the individual property of the holder, and the distinction between it, that is shares of stock, and the property of the corporation as the capital stock paid in, or other property owned by it, is well stated by Judge Nelson in the opinion of the Supreme Court of the United States in the case of Van Allen v. Assessors, 3 Wal., 573. He says, “The corporation is the legal owner of all the property of the bank, real and personal, and within the powers conferred upon it by the charter, and for purpose for which it was created can deal with the corporate property as absolutely as a private individual can deal with his own.” This is familiar law, as he says, found in any work that may be opened on the subject of corporations.

The interest of the holder of shares of stock in a corporation is a very different thing from this corporate propty. Its leading features are thus given in the above opinion by Judge Nelson. This interest of the shareholder entitles him to participate in the net profits earned in the employment of the capital by the corporation during the existence of the charter in proportion to the number of his shares; and upon its dissolution or termination, to his proportion of the property that may remain of the corporation after the payment of its debts. This is a distinct, independent interest or property held by the shareholder, like any other property that may belong to him. Numerous cases in our State announce these principles. In fact, they scarcely need the citation of authority to sustain them; they are now universally known as elementary on this branch of the law.

It follows from this, however, that the company could obtain no advantage by refusal to transfer on demand, nor make any objection to the transfer when proply sought by an assignee of the stock, whether the assignment was absolute or as a collateral to a debt. See authorities cited, and opinion of Judge Dillon, Thompson's cases, 340. The right to sell absolutely certainly carries with it the right to charge, pledge, or assign as a security for a debt, as the greater includes the less. In a word, the company had nothing to do with the terms of the sale or assignment, other things out of the way, when regularly made between the holder and his creditor, any more than it had the right to interpose a limitation upon the use or transfer of any other property owned by him. The company acted in its own wrong in refusing to transfer on demand, and can reap no advantage to itself from or by such wrong. What ought to have been done in this case must be considered as done so far as the company is concerned.

We now proceed to the discussion of the main question presented in this case. How can shares of stock owned by an individual be assigned or transferred, and under what circumstances is the transfer complete, so as to preclude creditors of an owner who attempts to assign or does hand over the certificate for shares of stock as collateral security for a debt, from fixing a lien upon the stock, or appropriating it by legal process to their debt?

This precise question as between creditors has not been adjudged by this court in any reported case. Certainly assuming as beyond question that the shares of stock are the individual property of the owner as any other property owned by him, it follows that the right of alienation, as an incident to the ownership of all property in this State, is complete in such owner, and no one could impose any restrictions upon the exercise of this right except by consent of the owner of the property. It is on this well established principle that by-laws of a corporation prohibiting or imposing restraints on alienation have been held inoperative as contrary to the general law of the land. See Field on Corp., sec. 110, p. 728. As a matter of course the transfer of such property in fact would depend on the nature of such property, so far as its formalities were concerned, in some of the elements held essential to the transfer of property passing from one to another, not being real estate, such as the matter of delivery, but the right to transfer would be, as we have said, untrammeled. The Legislature of the State would also, beyond question, have the power to regulate the formalities requisite to passing the title of this as well as all other property belonging to her citizens or under her jurisdiction.

So far as the nature of this property affects its transfer to an assignee, the general rule would ordinarily govern that such delivery as it is capable of should be made to complete the transfer, and when the property itself is incapable of manual delivery, the transfer and delivery of that which represents it in form, as in case of warehouse receipts, or bills of lading, or the like, where the property is not desired or convenient to be handled, or more definitely designated. But as the Legislature has complete control over the question of the forms of transfer of property, we inquire first whether our Legislature has fixed any rule on this subject, and if so to what extent applicable, and between what parties.

The Code, ch. 2, with its sub-divisions, contains the general provisions enacted by the Legislature regulating this question as applicable to this class of private corporations. Article 4 of this chapter, entitled “General provisions in relation to private corporations,” after providing various regulations for and defining rights and liabilities growing out of such corporate capacity, in sec. 1487 refers to stocks in the same, and is as follows: The stocks in all private corporations formed under this act (that is act of 1849-50, or to be hereafter created by special law) are personal property, and subject to levy and sale as such, the company in such case being required to make the proper entries in its stock or transfer book, but such sale will not relieve a stockholder from liabilities which had attached to him as such previous to the sale, neither will a voluntary sale.” It seems obvious that this section can only be held to fix the character of stocks in such companies definitely as personal property, and subject it to levy and sale, as such is the declared purpose that it...