West Nashville Planing-Mill Co. v. Nashville Sav. Bank

• Decision Date: 09 January 1888
• Parties: WEST NASHVILLE PLANING-MILL CO. v. NASHVILLE SAV. BANK.
• Court: Tennessee Supreme Court

6 S.W. 340

86 Tenn. 252

WEST NASHVILLE PLANING-MILL CO. v. NASHVILLE SAV. BANK.

Supreme Court of Tennessee.

January 9, 1888

Appeal from chancery court, Davidson county; A. J. MERRITT Chancellor.

The plaintiff, West Nashville Planing-Mill Company, brought suit against the Nashville Savings Bank, defendant, for a stock call of the subscription price of certain stock, standing on the stock-book of plaintiff. Judgment for defendant, and plaintiff appeals. The remaining facts are stated in the opinion.

Whitman & Gamble, for appellant.

John Ruhm, for appellee.

LURTON J.

The complainant, a manufacturing corporation created under the provisions of the general incorporation act of 1875, sues the defendant upon a stock call, duly made, for $25 of subscription price upon 45 shares of stock, now standing upon the stock-book of complainant in the name of Julius Sax, Sr. This stock was originally subscribed by one J. B. Franklin who paid one-half of the subscription price, but to whom were issued stock certificates, one of which was in the following words:

"Shares $100 each.

"WEST NASHVILLE PLANING-MILL & LUMBER COMPANY, NASHVILLE, TENNESSEE.

"This is to certify that J. B. Tucker is entitled to thirty-five shares of one hundred dollars each in the capital stock of the West Nashville Planing-Mill & Lumber Company, of Nashville, subject to all the conditions and stipulations contained in their articles of incorporation, transferable by him or his attorney only on surrender of this certificate.

"In testimony whereof the president and secretary of said company have hereto subscribed their names. T. O. TREANOR, Secty.

"R. F. WOODARD, Prest."

The defendant bank, without notice that the stock was not in fact paid up, and in good faith, made a lease to Tucker, and took his stock certificates as collateral security, with usual power of attorney to transfer the same. Subsequently the bank surrendered the original certificates and caused new certificates to issue to itself, identical in form with the original. Under these facts defendant must be treated as if an innocent purchaser for value, without actual notice of the fact that the stock was subject to future call for unpaid balance of subscription price.

A number of defenses to this suit have been very ably and earnestly pressed by the solicitor for the bank, but, in the view we take of the case, we need only deliver an opinion in one of these. The general rule concerning the effect of the transfer of shares in a corporation is that such transfer operates as a novation of the contract of membership. The transferer ceases to be a shareholder, and the transferee becomes one. The first is ordinarily relieved from all further liability to contribute capital, and loses all right to participate in the further profit or management. The transferee takes the place of the retiring member, and, by implication, assumes all the obligations which rested upon the former holder as a member of the company, and ordinarily becomes liable for calls to the same extent as the former owner before the transfer was made. Assuming the burdens he becomes likewise entitled to all the benefits attaching to ownership of the shares. In the absence of charter provisions or statutory regulations, the general rule is almost universally recognized. Mor. Corp. (2d Ed.) § 159, and authorities cited. It is clearly so settled in this state. Jackson v. Sligo, 1 Lea, 213; Moses v. Bank, Id. 398.

Stockholders become such in several ways, either by original subscription or by assignment of prior holders, or by direct purchase from the company. It is not at all essential that at the time there is an original subscription, that there shall be an express promise to pay the subscription price. Oftener than otherwise, there is none; the subscription being a simple agreement to take so many shares of stock. By necessary implication there arises from such a subscription a promise to pay the par value of such stock, upon which an action of assumpsit lies. Railroad Co. v. Gammon, 5 Sneed, 570. The Massachusetts and Maine cases holding an express promise necessary are...