Searles v. Bar Harbor Banking & Trust Co.

• Decision Date: 12 March 1929
• Citation: Searles v. Bar Harbor Banking & Trust Co., 128 Me. 34, 145 A. 391 (Me. 1929)
• Parties: SEARLES v. BAR HARBOR BANKING & TRUST CO.
• Court: Maine Supreme Court

145 A. 391

SEARLES

v. BAR HARBOR BANKING & TRUST CO.

Supreme Judicial Court of Maine.

March 12, 1929.

Report from Supreme Judicial Court, Hancock County, in Equity.

Suit by Thomas Searles against the Bar Harbor Banking & Trust Company. On report. Bill dismissed.

Argued before WILSON, C. J., and PHILBROOK, DUNN, BARNES, BASSETT, and PATTANGALL, JJ.

H. L. Graham, of Bar Harbor, for plaintiff.

Lynam & Rodick, of Bar Harbor, for defendant.

WILSON, C. J. A bill in equity brought, as the prayers set forth, to declare a by-law of the defendant company invalid and that the defendant be required to issue to the plaintiff stock free of any of the restrictions against free alienation imposed by the by-law.

The case is reported to this court on an agreed statement of facts.

The defendant is a trust company organized under a special charter granted by the Legislature in 1887. On March 14. 1927. its capital stock was $100,000, its surplus $300,000, with undivided profits of $214,973.49. On the above date, the plaintiff was the owner of 10 shares of the capital stock.

With a view of distributing its stock among a larger number of holders, it obtained from the Legislature in 1927, chapter 126 of the Private and Special Laws, an amendment to its charter under which it was authorized to increase its capital stock and determine the terms and manner of its disposition.

However, before this act went into effect on July 17, 1927, the officers of the bank proposed to its stockholders that the capital stock be increased to $200,000, as it has the power to do under its original charter, section 2, c. 196, Priv. & Sp. Laws 1887, and that 1,000 shares be issued to the stockholders in proportion to their holding and against the undivided profits.

A meeting of the stockholders was duly called on April 11, 1927, the call for which included only notice of a proposed increase in capital stock to $200,000. This meeting was continued to July 11th, and a call for another meeting to be held on the same date was duly issued to act on a proposed change in the by-laws, restricting the alienation of the new stock under certain conditions.

The plaintiff executed a proxy to attend the meeting called for April 11th to vote on the increase in the capital stock, but did not execute a proxy for the meeting called for July 11th to vote on the change in the bylaws.

On July 9th, however, he wrote to the treasurer of the defendant company, protesting against the proposed change in the bylaws, but did not attend the meeting or authorize any person to attend and vote his stock against the adoption of the proposed by-law.

At the meeting held on July 11, 1927, it was voted to increase the stock as proposed in the call for the meeting and that the new shares be issued to the old stockholders in proportion to their present holdings and charged to undivided profits, it being in the nature of a stock dividend, and also to adopt the following by-law restricting the alienation of the new stock when coming into the hands of any person by will, inheritance, or by a conveyance to take effect after death:

"Any person acquiring through will, or descent, or by conveyance to take effect at death, any stock of this corporation issued after the passage of this by-law shall be bound to offer the same for sale and transfer to any party appointed by the Trust Company Directors at a fair value of such stock as determined by said Directors, or if said value is not satisfactory to the estate; at the fair value of said stock as determined by three appraisers, one to be chosen by the estate, one chosen by the Directors and one chosen by those two, but any and all appraisers must be chosen from and be when chosen, stockholders in said Trust Company.

"Such obligation shall continue thirty days and no longer after such holder shall offer his stock for sale as above. If any such holder shall fail or refuse to sell and transfer his stock acquired as aforesaid at its fair value thus determined, no dividend shall be thereafter due or paid upon such stock until it shall be so offered for sale. Such stock shall have no right to vote until so offered. The passage of this by-law is to keep the stock, so far as may be, in the hands of persons whose patronage or influence may be helpful to the bank."

Certificates for 968 shares of the new stock were issued and accepted subject to the restrictions by nearly 100 stockholders, and a certificate for 10 shares was issued to the plaintiff August 24, 1927, with the above bylaw printed on the back. The plaintiff on September 1st following returned it to the defendant company, but not with an absolute refusal to accept, but "pending the determination of the right of the Trust Company to restrict the free transfer of the stock."

On January 1, 1928, the regular dividend was declared on all the outstanding stock of the company, including the new shares issued to the plaintiff as his share of the stock dividend; a check was sent to the plaintiff covering his dividend on both his former holdings and the 10 shares to which he was entitled as a stock dividend, which check he accepted and cashed without protest so far as the record shows.

No action was taken by the plaintiff to determine his rights until March 20, 1928, when this bill was brought. In the meantime not only all of the new stock, excepting 32 shares, had been issued and accepted by the persons entitled thereto without protest, but several transfers of the new stock by and to parties accepting it were recorded on the books of the company.

Of the bank's authority to declare the stock dividend there is no question in the absence of any statute prohibiting it (In re Heaton, 89 Vt. 550, 96 A. 21, L. R. A. 1916D, 201; 6 Fletcher Cyc. of Corporations, § 3682; Gen. Invest. Co. v. Beth. Steel Corp., 87 N. J. Eq. 234, 100 A. 347), and is not questioned by the plaintiff.

It is contended by the plaintiff, however, that such a by-law was not within the power of the defendant company to adopt; that it is contrary to public policy inasmuch as it constitutes a restraint upon the free alienation of his property, and is, therefore, void.

There is a seeming lack of harmony among the authorities on the question involved. As a general rule, the cases holding invalid bylaws restricting the alienation of stock are cases where alienation is made dependent on the consent of all the other stockholders or the board of directors or some official of the company (In re Klaus, 67 Wis. 401, 29 N. W. 582; Miller v. Farmers Milling & El. Co., 78 Neb. 441, 110 N. W. 995, 126 Am. St. Rep. 606; Chouteau Spring Co. v. Harris, 20 Mo. 383; Bank of Atchison Co. v. Durfee, 118 Mo. 431, 24 S. W. 133, 40 Am. St. Rep. 396; McNulta v. Corn Belt Bank, 164 Ill. 429, 447, 45 N. B. 954, 56 Am. St. Rep. 203; Bloede Co. v. Bloede, 84 Md. 129, 34 A. 1127, 33 L. R. A. 107, 57 Am. St. Rep. 373), or such restriction is held invalid by reason of lack of legislative authority to pass such a by-law (Ireland v. Globe Milling & Reduction Co., 19 R. I. 181, 32 A. 921, 29 L. R. A. 429, 61 Am. St. Rep. 756; Id., 21 R. I. 9, 41 A. 258, 79 Am. St. Rep. 769; Feckheimer v. Nat. Ex. Bank, 79 Va. 80, 83).

The cases in which a limited restriction upon alienation of stock issued after the passage of the by-law have been upheld have been either under by-laws adopted under legislative authority and providing only for an option to the corporation or other stockholders to purchase for a limited period (Nicholson v. Brewing Co., 82 Ohio St. 94, 91 N. E. 991, 37 Am. St. Rep. 764, 19 Ann. Cas. 699; Chaffee v. Farmers' Co-op. Elevator Co., 39 N. D. 585, 168 N. W. 616; Sterling Co. v. Litel, 75 Colo. 34, 223 P. 753), or where even without express legislative authority to enact, the acceptance of stock issued in pursuance of such a by-law is held to constitute an enforceable contract between the corporation and a stockholder if the by-law is reasonable and its purpose the promotion of the purposes of the corporation (New England Trust Co. v. Abbott, 162 Mass. 148, 38 N. E. 432, 27 L. R. A. 271; Barrett v. King, 181 Mass. 476, 63 N. E. 934; Longyear v. Hardman, 219 Mass. 405, 106 N. E. 1012, Ann. Cas. 1916D, 1200; Weiland v. Hogan, 177 Mich. 626, 143 N. W. 599; Farmers' M. & S. Co. v. Laun, 146 Wis. 252, 131 N. W. 366; Baumohl v. Goldstein, 95 N. J. Eq. 597, 124 A. 118; Model Clothing House v. Dickinson, 146 Minn. 367, 178 N. W. 957; Blue Mt. Forest Ass'n v. Borrowe, 71 N. H. 69, 51 A. 670; also see Sterling Co. v. Litel, supra).

Additional authorities pro and con may be found in 7 R. C. L 262, 263; 14 Cyc. 668; 1 Fletcher Cyc. of Corporations, § 513; volume 6, §§ 3761, 3762.

The by-law in this case is not objectionable on the ground that it imposes an absolute restriction on alienation without the consent of the officers or other stockholders. It does not even impose any restriction on present...