Whitfield v. Nonpariel Consol. Copper Co.

• Decision Date: 23 February 1912
• Citation: 123 P. 1078,67 Wash. 286
• Parties: WHITFIELD v. NONPARIEL CONSOL. COPPER CO.
• Court: Washington Supreme Court

123 P. 1078

67 Wash. 286

WHITFIELD v. NONPARIEL CONSOL. COPPER CO.

Supreme Court of Washington

February 23, 1912

Department 1. Appeal from Superior Court, Snohomish County; W. P. Bell Judge.

Action by William Whitfield against the Nonpariel Consolidated Copper Company. From a judgment for defendant, plaintiff appeals. Affirmed.

Padgett & Bell, for appellant.

J. A Coleman, for respondent.

CHADWICK, J.

This action was brought praying for a decree asserting that plaintiff is the owner of certain shares in the defendant company. Upon the trial it developed that the stock claimed by him was overissued, and he asks damages to the extent or its value. From the agreed statement of facts it appears that on August 17, 1907, one Nicholas Rudebeck was president of the defendant company, and for the purpose of continuing himself in such office, wrongfully and contrary to certain outstanding contracts and resolutions of the company issued certificates for a large number of shares of the treasury stock, including a certificate to one R. H. Ramsey for 10,000 shares of the par value of $10,000. Ramsey's name was entered upon the books of the company as the owner of the certificate. After the stock had been issued Rudebeck, who was owing plaintiff a certain sum of money evidenced by a promissory note to which was attached as collateral security a certificate for a certain number of shares in another company, went to plaintiff, and made arrangements with him to turn over a certificate for 10,000 shares of the stock in the defendant company, in consideration of the surrender of his note and the collateral. He then procured the stock certificate that had been formally as well as fraudulently issued to Ramsey, which he caused Ramsey to indorse in blank, and this he turned over to plaintiff on August 21, 1907. Thereafter the machinations of Rudebeck becoming known to those interested in the corporation, a suit was begun by R. S. McCreery, the principal stockholder, and the holder of a contract made by the company, in which it was agreed that no further stock should be issued excepting under certain conditions for the cancellation of the shares wrongfully issued by Rudebeck. Rudebeck and Ramsey, who appeared as owners of the stock upon the books of the company, were made parties to the suit. Neither McCreery nor the company had any notice or knowledge of the claims of the plaintiff or his alleged ownership. The court entered a decree, directing that stock so issued by Rudebeck, including the Ramsey certificate, be canceled. Some few months thereafter plaintiff presented his certificate, and asked that it be transferred on the books of the company. This was several times refused, and he brought this action September 26, 1908. The only other fact that is material to a decision in this case is that it is provided on the face of the certificate that it is 'transferable only on the books of the corporation or by the holder hereof, in person or by attorney, upon the surrender of this certificate properly indorsed.' The court below entered a judgment that plaintiff take nothing, and that the certificate held by him be canceled.

It was contended in the court below and is here 'that the rule of law established by the decisions of the courts and by the application of just principles is that one who is the holder in good faith and for value of a certificate of stock, regular in form and issued and signed by the officers of a corporation who are authorized to sign and issue stock of such corporation by its by-laws, is entitled to be recognized as a stockholder and to have issued to him in his name the number of shares called for by the certificate upon surrender of the same and compliance with the by-laws of the corporation regulating the surrender and transfer of its capital stock; or when the circumstances are such that such relief cannot be had, as in this case, then to be indemnified by way of damages, although the certificate of stock held by such person was fraudulently issued by the officers of the corporation. Stated in another form, the rule appellant contends for is that when a certificate of stock of a corporation has been issued in regular form by the proper officers of the corporation acting fraudulently, but within the apparent scope of their official powers, the corporation is estopped to assert that the stock is void as against a holder of such certificate who has acquired the same for value and without notice, that the same was issued and put into circulation by a course of conduct on the part of the officers of the corporation that was fraudulent as to the latter.' But it does not follow that a recovery can be had under the facts before us when considered in the light of our statute governing transfers of stock. Shares of stock are but symbols of property. They may be assigned, but are not negotiable instruments. Such certificates are nonnegotiable, in the sense that a complete transfer of title good as against the corporation can only be made when the transfer is made in accordance with a governing statute. The general rule is that a stock certificate, fair on its face and issued by the officers thereof, is a continuing affirmation by the corporation of title and interest in the shareholder, and, although wrongfully or fraudulently issued, are, when in the hands of an innocent purchaser for value, valid and binding upon the company. 10 Cyc. 590.

This rule had been long established when the Legislature of this state passed the following statute: 'The stock of the company shall be deemed personal estate, and shall be transferable in such manner as shall be prescribed by the by-laws of the company; but no transfer shall be valid except between the parties thereto, until the same shall have been entered upon the books of the company, so as to show the names of the parties, by and to whom transferred, the numbers and designation of the shares, and the date of the transfer.' Rem. & Bal. Code, § 3693. Therefore we must hold that the statute was passed, not only to avoid the effect of fraudulent assignments, but to relieve the corporation of the hardship of the rule just stated, as well as to protect it from liability from fraudulently issued stock. If this is not so, no purpose was served by its passage. The case of Davies v. Ball, 64 Wash. 292 116 P. 833, does not militate against our conclusion here. In that case no question was raised as to the transfer of the stock upon the books of the corporation. In fact, it was inferable from the record that the transfers of stock were actually made by a surrender of the original certificates and a reissue to the various...