State SavINGS Ass'n v. Nixon-Jones Printing Co.

• Decision Date: 03 May 1887
• Citation: 25 Mo.App. 642
• Parties: STATE SAVINGS ASSOCIATION, Appellant, v. NIXON-JONES PRINTING COMPANY, Respondent.
• Court: Missouri Court of Appeals

25 Mo.App. 642

STATE SAVINGS ASSOCIATION, Appellant, v. NIXON-JONES PRINTING COMPANY, Respondent.

Court of Appeals of Missouri, St. Louis.

May 3, 1887

APPEAL from the St. Louis Circuit Court, DANIEL DILLON, Judge.

Affirmed.

H. D WOOD, for the appellant: The laws of this state (except in special instances which tend to show the general rule)--Revised Statutes, section 709--give no power to the directors to enact by-laws, and, without special authority the power resides in the corporation--that is, in the members, not in the board of directors. Carroll v Bank, 8 Mo.App. 253; Taylor on Corp., par. 582; Morton Gravel Road Co. v. Wysoney, 51 Ind. 4. Shares of stock are personal property; the right of alienation is an inseparable incident, as between the parties to a transfer, and there is no implied power in a corporation to pass a by-law which creates a lien upon its shares, or in any way interferes with their transferability. Carroll v. Bank, 8 Mo.App. 249; O'Brien v. Cummings, 13 Mo.App. 199; Moore v. Bank, 52 Mo. 377; Mobile Ins. Co. v. Cullom, 49 Ala. 558; Driscoll v. Railroad, 59 N.Y. 96; Bullard v. Bank, 18 Wall. 589; Railroad v. Allerton, 18 Wall. 233. The defendant had notice of the pledge of the stock to the plaintiff, and was bound to respect the plaintiff's equity, and could not, by giving F. H. Thomas & Company credit, after such notice, create a lien at the plaintiff's expense. Morawetz on Corp. [1 Ed.] par. 327; Jones on Pledges, par. 223; Bank of America v. McNeil, 10 Bush 54; Conant v. Reed, 1 Ohio St. 298; Nesmith v. Bank, 6 Pick. 324. The knowledge of F. O. Wellman, who was the president of the defendant at the time he pledged the stock for account of F. H. Thomas & Company, was the knowledge of the defendant. City of Columbus v. Phillips, 22 Mo. 86; Bank v. Levin, 6 Mo.App. 543; Bank v. Thomas, 2 Mo.App. 367-369; Hart v. Bank, 33 Vt. 252; Wade on Notice, par. 682, 683 b, 688; Company v. Belsworth, 30 Conn. 380; The Distilled Spirits, 11 Wall. 356; Rhodes v. Outcalt, 48 Mo. 370. Third persons are not bound to notice by-laws of a corporation. Angell & Ames on Corp., par. 359; Ten Brock v. Boiler Compound Co., 20 Mo.App. 19. Wellman (by virtue of his office as president), was held out by the defendant to the public, as intrusted with the management of its affairs. Minor v. Bank, 1 Peters 46-70. The declaration of F. O. Wellman, at the time he pledged the stock, on April 20, 1882, that it was free, was a waiver, on the part of the defendant corporation, of all right to claim a lien upon said stock, and the court erred in refusing to give the plaintiff's instruction, to the effect that such facts constituted a waiver. Moore v. Bank, 52 Mo. 378; Morawetz on Corp. [2 Ed.] par. 207. And the fact that the admission was made in a private business transaction is immaterial. Bank v. Hunt, 76 Mo. 439; Bank v. Bank, 105 U.S. 217. The indorsement in blank, and delivery, by F. H. Thomas & Company, of the stock certificate, passed their title to the stock to the plaintiff. Bank v. Richards, 6 Mo.App. 461; 74 Mo. 77; Morawetz on Corp. (1 Ed.) par. 328; O'Brien v. Cummings, 13 Mo.App. 197. When a corporation wrongfully refuses to transfer stock, the assignee of the stock may treat such refusal as a conversion of the stock, and he is entitled to recover the full value of the stock at the time of such refusal. The rule of damages is the same, whether he holds the stock as owner or pledgee. Morawetz on Corp. (1 Ed.) par. 338; Jones on Pledges, par. 433; Carroll v. Bank, 8 Mo.App. 249-254; Moore v. Bank, 52 Mo. 379; Bank v. Richards, 6 Mo.App. 464; Insurance Co. v. Goodfellow, 9 Mo. 155; The State v. Rombauer, 46 Mo. 155.

HITCHCOCK, MADILL & FINKELNBURG, for the respondent: A corporation has the right to make regulations concerning transfers of stock and to retain a lien thereon for their own protection. Perpetual Insurance Co. v. Goodfellow, 9 Mo. 49; Bank v. Bank, 45 Mo. 513; Spurlock v. Railroad, 61 Mo. 320; Kahn v. Bank, 70 Mo. 262; Goddard v. Merchants' Exchange, 9 Mo.App. 290; s. c., 78 Mo. 609. The by-laws of the defendant corporation, adopted at the meeting of April 18, 1882, were legally in force at the time of the transactions here in controversy. People v. Sterling Co., 82 Ill. 457. The mere fact that a member of the firm of Thomas & Company held the position of president of the defendant corporation, does not charge the defendant with constructive notice of business transactions between the plaintiff and said firm. The question was one of fact, whether the defendant had actual notice or knowledge. Innerarity v. Bank, 139 Mass. 332; Bank v. Schaumberg, 38 Mo. 228; Taylor on Corporations, 210; Story's Agency, 140; Barnes v. Trenton Gas Light Co., 27 N.J.Eq. 33; Peckham v. Hemdren, 76 Ind. 47; Wickersham v. Zinc Co., 18 Kan. 481; Bank v. Savey, 82 N.Y. 291, 307; Bank v. Chase, 72 Me. 226; Bank v. Christopher, 40 N.J. Law, 436; Bank v. Cunningham, 24 Pick. 270, 276; Bank v. Tinsley, 11 Mo.App. 501. For the purpose of this case, and to determine the plaintiff's right of lien as against this defendant, the note and collateral agreement of October 1, 1884, must be taken as the basis of the plaintiff's claim. All prior obligations of a similar nature, executed by Thomas & Company, were discharged and surrendered. Even a renewal of a note is a discharge of a prior one. Letcher v. Bank, 1 Dana (Ky.) 82; Slaymaker v. Gundaker, 10 Serg. & R. 75; Bank v. Croft, 3 McCord (S. C.) 522; Neff v. Clute, 12 Barb. (N. Y.) 466; Cornwall v. Gould, 4 Pick. 444.

OPINION

LEWIS P. J.

On April 20, 1882, F. H. Thomas & Company, a publishing firm, composed of F. H. Thomas and F. O. Wellman, borrowed from the plaintiff, twenty-five hundred dollars, giving their note, at six months, and delivering in pledge, to secure its payment, a certificate of twenty-five shares of stock in the defendant corporation, at the par value of twenty-five hundred dollars. The note was renewed at maturity, and the renewal was repeated from time to time, until December, 1884, when the debtor firm became insolvent. In March, 1885, the plaintiff demanded of the defendant, a transfer of the stock on the corporation books, in consummation of the intended pledge. This was refused by the defendant, on the ground that it held a lien on the stock for indebtedness due from the former stockholders. For this refusal, the plaintiff here claims damages in the amount of the par value of the stock. The court below gave judgment for the defendant.

When the stock was pledged to the plaintiff, Thomas & Company were not indebted to the defendant, but became so soon thereafter, and kept up a running and varying indebtedness until their insolvency, when they owed the defendant about thirty-six hundred dollars. The original loan was procured from the plaintiff, by Wellman, one of the borrowing partners, who was, at the same time, president of the defendant corporation. He then informed the plaintiff that the stock was free, unincumbered, and fully worth its par value. Outside of this connection of its president with the transaction, the defendant corporation had no notice of any pledge or transfer of Thomas & Company's stock, until December, 1884.

The certificate, pledged by Thomas & Company, was issued in their name, and was in customary form, containing a condition, that the stock should be " transferable only on the books of the company, in person or by attorney, on the surrender of this certificate." Across the face of the certificate were printed these words: " A clause of article 6, of the by-laws of this company, provides that ‘ no transfer of stock shall be made, so long as the owner thereof is indebted to this corporation." On the back was a power of attorney for transfer, on the books of the company, signed by Thomas & Company, with blanks left for the date, the name of the transferee, the number of shares, and the name of the attorney. All the blanks, except those for the date and the name of the attorney, were filled in March, 1885, when the demand for transfer was made by the plaintiff.

The plaintiff contends that the alleged by-law mentioned on the face of the certificate, was a nullity for every purpose because it was adopted only by the board of directors, who had no charter power to make a by-law. The history of its adoption is as follows: The articles of association, dated April 12, 1882, named six persons, whose signatures were appended, as being all the stockholders of the corporation, and provided that: " There shall be a board of directors which shall consist of six stockholders, and the six persons, named in the preceding article, shall constitute the board for the first year. * * * The board may make, amend, and enforce all such by-laws and regulations relating to the management and business of the corporation, and its government, as they may deem necessary; the same to be subject to repeal or modification by the stockholders, at any regular meeting." On April 18, 1882, the first meeting of the board was held, all of the six stockholders and directors being present. A code of...