Danaher v. C. N. Flagg and Co., Inc.

• Decision Date: 03 June 1980
• Citation: 181 Conn. 101,434 A.2d 944
• Court: Connecticut Supreme Court
• Parties: Francis R. DANAHER v. C. N. FLAGG AND COMPANY, INC.

Page 944

434 A.2d 944

181 Conn. 101

Francis R. DANAHER v. C. N. FLAGG AND COMPANY, INC.

Supreme Court of Connecticut.

Argued Feb. 14, 1980.

Decided June 3, 1980.

William R. Moller, Hartford, with whom was Thomas A. Weaver, Meriden, for appellant (plaintiff).

Kenneth W. Mango, Meriden, for appellee (defendant).

Before LOISELLE, BOGDANSKI, SPEZIALE, PETERS and HEALEY, JJ.

LOISELLE, Associate Justice.

The plaintiff brought this action to compel the defendant corporation to register a transfer of stock endorsed and delivered to him by a former owner and to issue a new certificate to him as transferee. The parties are in substantial agreement with the facts stated in the memorandum of decision and the briefs.

On July 24, 1925, the defendant corporation issued certificate No. 5 for two shares of its common capital stock to M. A. Boisvert and recorded her name on the books of the corporation as the record owner. On or about January 2, 1935, M. A. Boisvert endorsed the certificate in blank and delivered it to the plaintiff as payment for legal services rendered to her by the plaintiff. The plaintiff filed the certificate with other certificates in his law office. He did not request the corporation to transfer the stock to his name on its books at that time because he believed that the stock had little or no value, and that the defendant was in financial straits and could go bankrupt leaving him as a stockholder financially liable for the corporation's debts. M. A. Boisvert died on January 11, 1941.

On April 20, 1948, the defendant declared a four-for-one stock split, followed by a five-for-one stock dividend. This increased the two shares held in the name of M. A Boisvert and represented by certificate No. 5 to eight shares upon the stock split, then to forty-eight shares with the stock dividend. The stock split and stock dividend accrued to the account of each stockholder of record immediately. On April 30, 1948, the corporation issued certificate No. 12 for eight shares and certificate No. 6 for forty shares to M. A. Boisvert as the record owner of certificate No. 5.

Sometime in 1948, the defendant contacted Boisvert's heirs and informed them that its corporate records showed her to be the owner of two shares of stock together with accrued stock splits and stock dividends. On March 29, 1949, her heirs applied to the Meriden Probate Court for letters of administration on her estate. The only assets of the estate were forty-eight shares of the defendant's stock. The administratrix of the estate informed the corporation that certificate No. 5 for the two shares of stock was missing and requested that a new certificate be issued. The administratrix and all the heirs certified by affidavit to the loss, misplacement or destruction of the certificate. The corporation bought the forty-eight shares from the estate on April 14, 1949. These shares of stock became treasury stock and were retired in 1953.

On or about March 8, 1977, the plaintiff informed the corporation that he was in possession of certificate No. 5 and requested information with regard to the two shares of stock. This was the first time the plaintiff contacted the defendant regarding the stock since he obtained it in 1935. In September, 1977, the plaintiff requested the defendant to transfer the stock represented by certificate No. 5 to his name on the books of the corporation. He also demanded all stock splits and stock dividends which had been declared on the original certificate for two shares. The defendant refused and the plaintiff brought this action.

When Boisvert endorsed certificate No. 5 in blank and delivered it to the plaintiff, the plaintiff acquired title to the shares. General Statutes (Rev.1930) §§ 3429, 3433, 3434; ¹ 12 Fletcher, Cyclopedia of Corporations (Perm.Ed., 1971 Rev.) § 5497. Although the stock certificate provided on its face that the shares represented by the certificate could only be transferred "on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed," this was not a bar to the transfer of title between the parties. General Statutes (Rev.1930) § 3429; 12 Fletcher, supra, § 5496. The only right that the plaintiff with title has against the corporation, in the absence of waiver or estoppel, is to have a transfer registered on the books of the corporation. 12 Fletcher, supra, § 5506. See Fiala v. Connecticut Electric Service Co., 114 Conn. 172, 158 A. 211 (1932); 18 Am.Jur.2d, Corporations § 428; annot., 22 A.L.R.2d 74.

To determine the rights of the plaintiff in the shares issued April 30, 1948, the stock split and the stock dividend must be considered separately.

When the stock split four-for-one, the corporation did not issue six additional shares to the record holder of certificate No. 5, but issued certificate No. 12 for eight shares instead, despite the requirement printed by the defendant on certificate No. 5 that the certificate must be surrendered if another certificate is to be issued in its place. The requirement of surrender is binding on the corporation as a continuing assurance to any title holder that the stock will not be transferred on the corporation's books except on surrender of the certificate. Bona fide holders of certificates have a right to rely upon this assurance. Bridgeport Bank v. N. Y. & New Haven R. Co., 30 Conn. 231, 270-71 (1861); 12 Fletcher, supra, § 5540; 18 Am.Jur.2d, Corporations § 402. A corporation which disregards these provisions and issues a new certificate without surrender of the original one does so at its peril. 12 Fletcher, supra, § 5540. General Statutes (Rev.1930) § 3445 provides that a corporation may issue a new certificate in place of a certificate which is claimed to have been lost or destroyed, but §§ 3445 and 3446 make clear that the corporation does so subject to the right of the title owner to have the original certificate transferred to him. ²

When the defendant issued to M. A. Boisvert the certificate for eight shares in lieu of two shares on the stock split without return of the original certificate No. 5, it acted subject to the right of the plaintiff, the title owner, to require transfer of those two shares to his name. The defendant argues that the delay of forty-two years on the part of the plaintiff to demand transfer of these shares constitutes laches and he is therefore estopped from demanding a transfer of certificate No. 5 in his possession. " 'An estoppel rests on the misleading conduct of one party which operates to the prejudice of another.' " Bianco v. Darien, 157 Conn. 548, 555, 254 A.2d 898, 902 (1969); Ackley v. Kenyon, 152 Conn. 392, 397, 207 A.2d 265 (1965). The fact that forty-two years had passed before the plaintiff requested transfer does not in and of itself constitute laches. Bozzi v. Bozzi, 177 Conn. 232, 239, 413 A.2d 834 (1979); 27 Am.Jur.2d, Equity § 163. Laches consists of an inexcusable delay which prejudices the defendant. Bozzi v. Bozzi, supra, 239, 413 A.2d 834; Paiva v. Vanech Heights Construction Co., 159 Conn. 512, 519, 271 A.2d 69 (1970); Sarner v. Fox Hill, Inc., 151 Conn. 437, 444, 199 A.2d 6 (1964); Kurzatkowski v. Kurzatkowski, 142 Conn. 680, 684-85, 116 A.2d 906 (1955). The trial court concluded that the plaintiff was guilty of laches and that he was estopped to demand a transfer. A conclusion by the trial court that a party has been guilty of laches is one of fact for the trier and not one that can be made by this court, unless the subordinate facts found make such a conclusion inevitable as a matter of law. Bozzi v. Bozzi, supra, 239-41, 413 A.2d 834; Leary v. Stylarama of New Haven, Inc., 174 Conn. 217, 219, 384 A.2d 377 (1978); Kurzatkowski v. Kurzatkowski, supra, 684, 116 A.2d 906. The trial court's conclusion that the forty-two year delay was inexcusable cannot be attacked. It is difficult, however, to see any resulting prejudice.

When the corporation declared a stock split in 1948, it divided the outstanding number of shares by four and reduced their par value from $100 to $25. There was no change of substance in the corporation's capital structure, only a change in form. Each stockholder's proportional interest and the total value of his investment remained unchanged. Keller Industries, Inc. v. Fineberg, 203 So.2d 644, 646 (Fla.D.C.1967); Geier v. Mercantile-Safe Deposit & Trust Co., 273 Md. 102, 119-20, 328 A.2d 311 (1974); Egavian v. Egavian, 102 R.I. 740, 746, 232 A.2d 789 (1967); 11 Fletcher, supra § 5362.1; 12 Fletcher, supra, § 5418.14. The plaintiff's failure to request transfer of the shares of stock for forty-two years in no way prejudiced the defendant with regard to the stock split, because the split, unlike the stock dividend, did not affect the corporation's capital. No earnings were capitalized.

The corporation issued certificate No. 12 without surrender of certificate No. 5 at its peril. When it repurchased certificate No. 12 from Boisvert's estate, the corporation knew that it had been issued without the return of certificate No. 5 which the heirs claimed had been lost and knew that the purchase might be subject to the right of transfer by a purchaser for value. To the extent that the corporation changed its position, it did so with knowledge of these risks and of the statutory rights of a true owner. Under these circumstances, the plaintiff is not estopped from seeking and receiving the transfer of certificate No. 5 for eight shares of stock in the defendant corporation.

Other principles apply when reviewing the corporation's purchase of shares previously issued to M. A. Boisvert as a stock dividend. General Statutes (Rev.1930) § 3431 provided that "(n)othing in (the Uniform Transfer Act) shall be construed as forbidding a corporation to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends ...." The statute is consistent with the general rule...