Graham v. Commercial Credit Co.

• Decision Date: 21 May 1964
• Citation: Graham v. Commercial Credit Co., 41 Del.Ch. 580, 200 A.2d 828 (Del. 1964)
• Parties: , 16 A.L.R.3d 1009 William Axer GRAHAM, Plaintiff, Appellant, v. COMMERCIAL CREDIT COMPANY, a Delaware corporation, Defendant, Appellee.
• Court: Supreme Court of Delaware

Page 828

200 A.2d 828

41 Del.Ch. 580, 16 A.L.R.3d 1009

William Axer GRAHAM, Plaintiff, Appellant, v. COMMERCIAL CREDIT COMPANY, a Delaware corporation Defendant, Appellee.

Supreme Court of Delaware.

May 21, 1964.

Thomas J. Healy, Jr., of Metten, Healy & Collins, Wilmington, for plaintiff.

Robert H. Richards and E. Norman Veasey, of Richards, Layton & Finger, Wilmington, for defendant.

TERRY, C. J., and WOLCOTT and CAREY, JJ., sitting.

WOLCOTT, Justice.

This is an appeal from an order of the Vice Chancellor refusing to compel the issuance of stock certificates.

The appellant is a stockholder and director of Commercial Credit. He was the owner of 11,600 shares and as the result of a stock split became entitled to certificates for an additional 11,600 shares. The additional shares had a market value at the time in excess of $500,000.

Commercial Credit's transfer agent following its usual custom sent the appellant certificates for 11,600 shares by registered mail properly addressed to him but not requiring his personal signature for its receipt. On May 4, 1961 the envelope containing the certificates was delivered at the appellant's residence in Baltimore to a maid, one of two domestic servants, who receipted for the envelope. The envelope was then delivered by the maid receipting for it to the second maid who deposited it in a basket in the appellant's bedroom with other mail which had accumulated in his absence. The appellant at the time was visiting in California. At the time he left for California the appellant had not given any instructions either to Commercial Credit's transfer agent or the postal authorities concerning the authority of his domestic servants to receive and receipt for registered mail. Similarly, he had given no express instructions to his servants concerning the acceptance of mail.

Upon the appellant's return from California he learned that the new stock certificates had been issued. He made search for the envelope containing those sent him but was unable to find them.

The appellant notified Commercial Credit and its transfer agent that he had not received the new stock certificates, whereupon the transfer agent placed an immediate stop order on the transfer of these particular certificates. Since then the missing certificates have not been presented for transfer and none of the parties have any knowledge of their present location.

Appellant demanded that new certificates be issued to him but Commercial Credit refused to do so unless indemnified with a corporate surety bond against any loss resulting from the issuance of duplicate certificates. The cost of such a bond to the appellant would be approximately $20,000. The refusal to issue new certificates except upon indemnifcation was taken pursuant to a bylaw requiring an indemnity bond unless waived by the Board of Directors.

It appears that Commercial Credit's transfer agent readily issues new certificates for those lost if the value of the lost certificates is less than $100,000 but that an indemnity bond is required where the value is in excess of $100,000.

Based upon the foregoing, this action was brought to compel the issuance to the appellant of new certificates for 11,600 shares pursuant [41 Del.Ch. 583] to 8 Del.C. § 158, which provides that every holder of stock shall be entitled to have a certificate representing his stock.

The sole issue before us is whether or not the certificates for 11,600 shares mailed to the appellant and delivered to his home were issued. If they were not issued, then 8 Del.C. § 158, requires the issuance to the appellant of certificates representing the stock.

It is clear that the mere preparation of stock certificates by the company does not constitute the issuance of stock. Smith v. Universal Service Motor Co., 17 Del.Ch. 58, 147 A. 247. In this case the facts were that an employee of the company made out certificates in the name of the plaintiff but there was no proof that the certificates so made out were ever delivered to the plaintiff. It was held that under these circumstances the stock was not issued to the plaintiff since 'delivery, either actual or constructive, is essential before a certificate can be said to have been issued.' The Chancellor went on to say that no issuance of stock takes place until a certificate duly made out passes from the custody and control of the company into the possession of the stockholder or of some person as agent for him.

The ruling of the Chancellor...