Rochester & Kettle Falls Land Co. v. Raymond , 39 N.Y.S. 145 ( 1896 )

Ward, J.:

By section 40 of chapter 564 of the Laws of 1890, being the act known as the Stock Corporation Law, the stock of every corporation “ shall be deemed personal property, and shall be represented by a certificate prepared by the directors and signed by the president and treasurer, and -sealed with the seal of the corporation, and shall be transferable in the-manner prescribed in this chapter and in the by-laws, but no share shall be transferable until all previous calls thereon shall have been fully paid in.”

• By section 43 of the same- act, “ subscriptions to the capital stock ■of, a corporation shall be paid at such times and in such installments ■as the board of directors juay, by resolution, require.” ■.

These sections are applicable to the case at bar.

. It is the settled law of this State that a stockholder in such a corporation as the plaintiff, lias the right to transfer his certificate .of. stock to another if done in good faith,, and if .the certificate so .surrendered is delivered to the corporation and, canceled by it and a new certificate issued to the transferee by the corporation, that ithe corporation thereby surrenders all claim upon the original stockkolder and accepts the transferee in his place. (Isham v. Buckingham, 49 N. Y. 216; Billings v. Robinson, 28 Hun, 122; S. C. in Court of Appeals, 94 N. Y. 415; Rice v. Rockefeller et al., 134 id. 174.)'

It is equally well settled that, although the provisions of the statute have been literally complied with,, the transfer made by the defendant will not be available to him as against the stockholders and creditors of the company, to pay the balance due on the shares which he held, unless the transaction was an honest one, entered into in entire good faith, with the intent and purpose of disposing of his entire interest in the shares and surrendering all dominion over them. (Billings v. Robinson, 28 Hun, 128, and cases cited, to which may be added Nathan, Receiver, etc., v. Whitlock, 9 Paige, 152; National Bank v. Case, 99 U. S. 632 and cases cited; Bowden v. Johnson, 107 id. 251.)

This is an action at law, brought by the corporation, and in no sense is it an action to impose any statutory obligation which the defendant may be under to a creditor of the company by reason of the provisions of the statute placing stockholders under a direct legal obligation to pay their debts against the corporation. (Billings v. Robinson, supra.)

It is strongly urged by the plaintiff upon this review that the fact that Yan Every paid but a nominal consideration for the stock under the circumstance's detailed in the evidence, coupled with the fact that he was not responsible pecuniarily, was such evidence of fraud in the transfer as would justify the plaintiff’s recovery in this action if the transaction were found fraudulent by the jury, and the plaintiff’s exception to the direction of a verdict for the defendant by the trial court brings the matter before us, and the only question we deem necessary to consider here is whether from the nature of this action'and upon the proof in this case that position is tenable.

■ The facts before the trial court and jury were substantially uncontradicted as appears in the foregoing statement of the case. If the transfer were fraudulent as against the plaintiff, like any other fraudulent transaction, the plaintiff could ratify and adopt it, waiving the fraud and standing upon the contract. The plaintiff received and canceled the original certificates of stock which it seeks to charge this defendant upon and still retains them.. It accepted Yan Every as its stockholder in the .place of the defendant, proceeded •against him .to collect assessments, prosecuted him in a court of justice and recovered a judgment, which last event occurred a year and eight 'months after the plaintiff had been advised of the transfer to Yan Every, and after ample opportunity had occurred for the plaintiff to ascertain the bonafides of the transfer and the responsibility of Yan Every, and it sought to enforce its judgment, and a year later satisfied it and attempted to rescind the transaction- in which it had been engaged with Yan Every and the defendant in the transfer of the stock, and brought this action at law without returning or offering to return what it had -received as the fruit of the transaction.

- This is not an equitable action to rescind-tlie contract; this is not a proceeding in which the rights of creditors are directly involved, as in the cases cited in opposition to the view here taken, and we do -not discover upon what jxrinciple the defendant’s contention can rest. It is true that upon the trial the secretary of the plaintiff testified that he had no knowledge of the insolvency of Yan Every -until after supplementary proceedings, had been taken upon the judgment against him. It was not claimed that there were any representations as to the responsibility of Yán Every made at. 'the time of the transfer of the stock, or that the plaintiff or its officers were induced , in any manner to' consent to such transfer by any .statements as to the responsibility of Yan Every, or as to the bona .fides of the transaction. The evidence- shows that the defendant, was at a restaurant where Yan Every was a waiter about the time •of the transfer, and a conversation arose as to this stock. One person offered the defendant a couple of dollars. Yan Every, standing-by, offered three dollars, which the plaintiff accepted, and the money -.was paid by Yan Every to the defendant.

The defendant indorsed his certificates to Yan Every, and desirqd ■the new ones issued to him. ' The plaintiff’s secretary required, a -.receipt' from Yan Every of the certificates of stock which he '.received before delivering them to Yan Every. Here • was 9b. • opportunity for the secretary to have investigated the circumstances .’of the transfer, and as to the insolvency of the transferee if he had any interest in doing so.- This was not done.

The plaintiff seeks to recover upon assessments of ten shares of stock that Zoller transferred to this defendant, and claims that the defendant is liable as transferee upon the contract implied by his becoming owner of the shares not fully paid up (citing Glenn v. Garth, 138 N. Y. 18, 42; Webster v. Upton, 91 U. S. 65), and yet the defendant paid but five dollars as the consideration of the transfer to him of that stock. The stock being worthless, substantially, the fact that but a slight consideration was paid for it by Van Every is of but little moment in determining the bona fides of the transaction. It is no concern of the plaintiff how much or how little Yan Every paid for this stock if the transfer was in good faith and absolute. There is nothing in the evidence but what the transfer was absolute as it appeared upon its face.

Whatever might be done to relieve the plaintiff in a proper action to rescind the whole transaction in behalf of creditors and shareholders who claim to have suffered loss by reason of the defendant substituting an irresponsible stockholder for a responsible one, making all parties interested parties to the action, and offering to restore what it had received in the transaction, need not be considered here. This action is simply upon the liability created or implied by or against the defendant by reason of his subscription to the twenty shares of the assessable stock, and by reason of his becoming the transferee of the ten shares of stock originally issued to Hannigan, and the plaintiff being met with the transfers of stock which relieve the defendant, so far as this action goes, of any liability and places it upon another, it necessarily follows that the .action of the trial court directing a verdict for the defendant should be sustained, and that judgment for the defendant should be ordered upon the verdict, with costs against the plaintiff and in favor of the ■defendant.

All concurred, except Hardin, P. J., and Adams, J., dissenting.