H. Seeligson & Co. v. Hobby , 2 Tex. L. R. 712 ( 1884 )

Opinion by

West, J.

This case bears evidence of having been very carefully and faithfully briefed by both parties. The appellants seem to have presented the merits of their case as fully and as satisfactorily as could be done, or as was desirable it should be done. We have ourselves given a great deal attention to the main question, and have considered it with more than usual care.

We have no time at present to give at length the reasons why we believe the judgment in the case should be affirmed. We must be content therefore with stating as briefly as possibly the conclusions on the subject that we have reached.

We are then of the opinion that the delivery of, and transfer iu good faith, for a valuable consideration, in the manner disclosed in the evidence, of the certificates in question, to the appellee, carried with it all the rights of the holder, Hobby, to them, and invested the appellee with the ownership, and entitled him to demand from the proper officers of the corporation, such action as was necessary for their books to show him to be the true owner.

In other words, by the delivery and transfer of the certificate, by Hobby to the appellee, as detailed in the evidence, the appellee became the owner of them, and Hobby was divested of any fuither right or interest in them,’at least so long as the debt they were intended to secure, remained unpaid.

Hobby then having no interest in the certificates that could be reached either by attachment or execution at the time the writ of e-arnishment was served, the appellants acquired no rights by the service of such writ, as against the prior claim of the appellee.

Speaking of the effects of these transfers of stock that, like the one under consideration, are not made regularly on the books of the corporation, in the last edition of Angelí & Arnes on Corporations the author says :

“The charter and by-laws frequently provide that the stock of the company shall be transferable on the books of the company only, or that to be valid and effectual the transfer must must be registered by the clerk or treasurer of the corporation on the company’s books; and where the charter required the transfer to be made on the books, the registration was considered satisfied by a by-law, requiring the transfer to be registered on the books of the company. A very literal construction has been given in connection to such clauses, either in the charter or by-laws of a corporation; the scope and object of such provisions being, in the view of the supreme court of that state, “to render the purchase of stock secure to any person, if at the. moment of his purchase, the company’s books did not furnish evidence that it had been previously transferred.” The settled law of Connecticut is that when such clauses are found in the charter or by-laws, or either, the transfer is invalid and of no effect for any purpose, unless made or registered on the books of the company. The registry is there deemed the originating act in the change of title, and an entry by the clerk on the deed, “received for record,” is not considered equivalent to a registry.

A more liberal construction, and one far more in accordance with their spirit and meaning', has been gi ven to such clauses in charters and by-laws of corporations by the courts of other states. As they are intended merely for the protection of the interests of the corporation, no effect is given to them further than is necessary to effect that purpose. It is necessary that an incorporated company should have the means of knowing who are the stockholders and members, in Order that they may know to whom dividends are to be paid, and who are entitled to vote upon the stock, and where the company has relied upon the stock for debts due to it from a stockholder, that it should have the means of preventing a transfer in derogation of its own rights. To secure this knowledge, and to enable corporations to avail themselves of their lien upon the stock of the conqjany, without danger to the rights of purchasers, these clauses are usually inserted in their charters, or form a part of their by-laws. Accordingly, where transfers of stock are made without conforming to the requisitions of the charter or by-laws in making them, or having-them registered on the books of company, the better opinion decidedly is, that the transfer passes to the purchaser all the right that the seller had; that such provisions were not intended to, and do not incapacitate the holder of the stock from transferring it at his pleasure by way of equitable assignment of his interest in it, subject to the charter rights of the'corporation, which all must notice of compel him to own it, unless the corporation allow him to sell against his will, and the only effect allowed to them seems to be that the purchaser cannot claim a certificate of, or a dividud upon the shares, unless he first applies for a transfer according to the charter and bylaws. Any other proper transfer is equally valid as between vendor and vendee, and qven as against a creditor of the vendor who attached the shares before he or the corporation through its officers had notice of the transfer. In other words, such provisions, whether by charter or by-law, apply solely to the relation between the corporation and its stockholders — to the question who shall vote; to whom dividends shall be paid; and enable corporation^ to protect any lien it may have upon the stock, or equity in it, as between itself and the stockholders transferring it. They constitute a privilege of the corporation which may be waived or asserted at the pleasure of the directors and president.” (Sections 353-354.)

This is now believed to be the rule most generally adopted. Judge Drake, in his fifth edition, (1878) of his new standard work on Attachment, endorses strongly the same doctrine. (Sections 527 and 608.) In the last edition (1882) of Daniels on Negotiable Instruments, the same rule is pronounced to be the best. (Vol. 2, Secs. 1708e, 1708f, pp. 720-1.) See also Stone vs. Brown, 54 Texas, 338; and Strange vs. H. & T. C. R’y, 53 Texas, 169; Iglehart vs. Moore, 21 Texas, 502; Le Gierse vs. Moore, 59, Texas, 471.

There are, no doubt, decisons of courts, the opinions of whose judges are entitled to the very highest respect, who seem to hold differently, yet we are satisfied that both, upon principle and authority, the rule above laid down, is more correct in point of law, and is the wiser and safer rule, to follow in practice.

We do not think it necessary to consider any of the other questions raised and discussed in the briefs of counsel.

We believe that the judgment, under all the circumstances of the case, Ought to be affirmed, and it is accordingly so ordered.

Chief Justice Willie did not sit in this case.