Scherk v. Montgomery

• Decision Date: 23 February 1903
• Citation: 81 Miss. 426,33 So. 507
• Court: Mississippi Supreme Court
• Parties: RICHARD T. SCHERCK v. BLUCHER MONTGOMERY

33 So. 507

81 Miss. 426

RICHARD T. SCHERCK v. BLUCHER MONTGOMERY

Supreme Court of Mississippi

February 23, 1903

FROM the chancery court of Lincoln county. HON. HENRY C. CONN Chancellor.

Montgomery the appellee, was complainant in the court below; Scherck appellant, and the Brookhaven Progressive Cotton Oil Co. were defendants there. From a decree, overruling his demurrer to the bill, Scherck appealed to the supreme court. The opinion states the case.

Affirmed and remanded.

H Cassedy and A. C. McNair, for appellant.

The contention of the appellee is that the contract of sale was an executed one and that the bill was filed to force the oil mill company to recoznize Montgomery, who claims through Miazza, as a stockholder and to require it to issue the certificates for the twelve shares of stock subscribed for by Scherck.

The contention of the appellant is that the contract was executory and that the bill seeks to enforce specific performance.

The true controversy is between Scherck and Montgomery; the relief sought is the cancellation of Scherck's claim to the stock as owner, the quieting of complainant's supposed title, and that a specific performance of the contract be decreed by requiring the company to issue the certificates to complainant. The corporation may be a proper party to this suit, but Scherck is the necessary party.

Section 844 of the code, as amended by acts of 1894, p. 46, provides that "the stock in all corporations shall be transferable by the indorsement and delivery of the stock certificate and the registry of such transfer in the books of the company." We do not rely upon any by-law of the corporation. Similar provisions to the one quoted have been incorporated in the bylaws of corporations of this state and in other states, and it has been held that such provisions were only for the benefit of the corporation itself. This statute rises to a greater dignity than the mere by-laws of a private corporation. It is, in its nature, an addition to the statute of frauds with reference to the sale and transfer of the title to personal property and relates to a specific kind of chattel, to-wit, stock in all corporations. So in order to pass the legal title to stock in a corporation the two requisites are necessary, the endorsement of the stock certificate and the registry of the transfer in the books of the company. So it has been held that to pass the legal title it is necessary for the registry of the transfer in the books of the company. 2 Beach on Priv. Corp., sec. 647.

Beach says, "Where the charter or by-laws of a corporation provide that its stock shall be transferable only on the books of the company, the title to and ownership of the stock can only pass by a transfer on the books."

As to creditors, one and only one method of transferring his stock is permitted to the stockholder, and that method is pointed out in the statute. Krider v. Banks, 72 Miss. 469; Taylor on Priv. Corp. secs. 587, 590.

Up to the time of the issuance of the stock certificate, there is no method, under our statute, by which shares of stock in corporations can be legally and equitably transferred from one person to another. The statute was enacted for the protection of the corporation, the promoters, the stockholders, creditors and dealers and investors in this class of choses in action. The mere right, not evidenced by a certificate or other writing, is not legally transferable. The spirit of the law is manifest. It is intended that such commodities shall not be placed on the market until there is some tangible evidence of their existence. The usual method of transferring stock in corporations, i. e., investing the purchaser with the title thereto, both legal and equitable, is the indorsement of the certificate and the registry of the transfer on the books of the company. The stockholder only has the right to register the transfer in the absence of other provisions of the general law or some by-law of the corporation, or some other person properly authorized by power of attorney so to do by the owner. It is usually the custom of stockholders to give the transferee an irrevocable power of attorney, or sign such a power in blank.

There was no authority given to Montgomery or Miazza by Scherck. The note to Young did not authorize a transfer of the stock on the books of the company, and even if it be held that this was sufficient, it was revoked before the power was exercised. So we have here, not a sale and transfer of the legal title to the stock, but an agreement to sell, an executory contract with other essential acts to be performed, acts in which the corporation has or had no concern whatever. The legal title to the stock is still in Scherck, and before it can pass from him, the certificate must be issued to him, be indorsed by him and by him registered in the books of the company. The corporation has no interest in the controversy. It is a mere stakeholder and looks on, regarding Scherck as the owner of the stock. 2 Beach on Priv. Corp., § 682.

What will be the effect of a decree in favor of complainant? Simply the very same result as would follow by compliance with the statute. He seeks to have the legal title vested in him, which could be done by issuing the stock certificate to Scherck and by Scherck indorsing it and registering the transfer in the books of the company.

If the bill had sought such relief--that is, if the complainant had asked that the stock certificate be issued to Scherck, and that Scherck be required to indorse it and register such transfer on the books of the company, would it not be a bill to enforce specific performance of an executory contract?

We submit that the bill and exhibits show a mere executory contract to sell, no matter what counsel might call it. If this is true, then the effort of the complainant is to enforce the specific performance of this executory contract; in other words, to cause, by indirect means, the necessary, essential acts to be done to pass the legal title to the stock to complainant.

"It is a general rule that a court of equity will not decree a specific performance of a mere personal covenant sounding in damages, nor of a contract relating to personalty where compensation may be had at law. Such contracts will be enforced only where the property has some artificial nature, or where the breach of the personal indemnity would be productive of irreparable injury." Hoy v. Hansborough, Freeman's Chan. (Miss.), 533; Scott v. Billgerry, 40 Miss. 119.

Specific performance will not be decreed for the sale of corporate stock unless some advantage is to be obtained, some peculiar advantage not obtainable save in the possession of the specific stock. "If the stock contracted to be sold is easily obtained in the market, and there are no particular reasons why the vendee should have the particular stock contracted for, he is left to his action for damages." Cook on Stockholders, sec. 338. And further, same section, at page 463: "Specific performance may also be said to be granted where a corporation is ordered by a court to issue certificates of stock to its stockholders." Also sec. 63.

Specific performance of a contract to sell shares of stock will not be enforced where it appears that the shares were designed to give control of the bank. Folls' Appeal, 91 Pa. 434 (36 Am. Rep., 671, and note).

Nor will specific performance be decreed unless the stock has some peculiar value not possessed by other stock. Eckstein v. Downing, 64 N.H. 248 (10 Am. St. Rep., 404).

Specific performance of a contract for the sale of stock will not be decreed unless there are particular reasons why the purchaser should have the particular stock contracted for, but he will be left to his action for damages. Ryan v. McLane, 91 Md. 175 (50 L. R. A., 501, and exhaustive note).

"As stock and bonds of a corporation are mere chattel interests, specific performance of a contract to sell or purchase will not be decreed when the remedy at law is adequate, and no other ground for equitable interference exists, and the remedy at law is deemed adequate whenever the value of the stock is fixed and definite and the stock itself is for sale in open market; for then the would-be purchaser could secure it from others if he really desires it, and any loss he suffers will be readily compensated in pecuniary damages." 2 Am. & Eng. Dec. in Equity, 580, 581, 582, 584; Lawson on Contracts, sec. 476.

The Alabama case, relied upon by the appellee in the court below (Birmingham National Bank v. Roden, 11 South. Rep., 883), was a controversy between the bank and the original subscriber, and the bill was maintained upon the principle which accords compensation as alternative relief on bills filed for specific performance, which principle, the court says, is recognized in that state. The court says: "The overruling of respondent's demurrer to the bill of complaint was in accord with these principles and must be sustained."

This does not seem to be the rule in this state. See the principal case (Scott v. Billgerry, 40 Miss. 119).

Montgomery had no contract with the corporation, but with Scherck, and Scherck's contract is an executory one alone; and in this state, where the principle mentioned by the Alabama court is not carried so far in a court of equity, the demurrer should have been sustained. However, the bill in this case asks no alternative relief, unless such relief could be contained in the general prayer.

The other case relied upon, State v. Carpenter, 51 Ohio St. 83 (46 Am. St. Rep., 556), the controversy was between the subscriber for stock and the corporation, where the corporation refused to issue certificates, and while the court held that mandamus was not the remedy, it was for the reason...