Baltimore City Passenger Railway Co. v. Sewell

Robinson, J., delivered the opinion of the Court. This is an action to recover damages for the refusal on the part of the appellant, to issue and deliver to the appellees certain certificates of its capital stock, to which they claim to he entitled, as set forth in the declaration. The plaintiffs obtained a verdict below, and the defendant filed motions for a new trial and in arrest of judgment, both of which were overruled by the Supremo Bench of Baltimore city, and this appeal is taken from the order overruling said motions. I. — The motion for a New Trial.

In Sauer vs. Schulenberg, 33 Md., 288 , and Merrick vs. Balt. & Ohio R. R. Co., 33 Md., 481 , it was held, that the granting or refusing a new trial by the Supreme Bench under section 33 of Article 4, of the Constitution, was a matter resting in the sound discretion of the Court, and its action thereupon was not the subject-matter of review upon ap ²⁵⁰ peal or writ of error. We find nothing in the case before us to exempt it from the operation of this well established rule. II. — The motion in Arrest of Judgment. The question on this motion is, whether the facts averred in the declaration and found to be true by the jury, constitute a sufficient cause of action to entitle the plaintiffs to a judgment.

If the cause of action be defectively stated, such defect is cured by the verdict, because to entitle the plaintiff to recover, “all the circumstances .necessary in form or substance to complete the title so imperfectly stated, must be proved at the trial, and it is therefore a fair presumption that they were proved.” Gould on Pleadings, 497; Coulter vs. Trustees of West. Theol. Sem., 29 Md., 74 . Where however, no cause of action is stated, such a defect is fatal, and the Court will on motion arrest the judgment.

It is contended, that the cause of action set forth in the pleadings, is defective, because although precedents may be found for an action by an assignee of shares against a corporation for wrongfully refusing to perfect an assignment or transfer of the same on its books, yet in this case the stock, of which a transfer is demanded, did not exist prior to May, 1862, when the company became incorporated, while the alleged acts of assignment all took place one or two years previously. We start then, with the concessum, that an action will lie against a corporation for wrongfully refusing to -issue certificates of stock to a party entitled. Let us see then, how far the case before us differs in principle from the one thus admitted. The appellees, it is true, do not sue as subscribers, nor in the character of assignees of stock of the appellant, but found their right to recover upon the fact, that Brock, whilst a member of the association, assigned to them certain shares of the latter, whereby they claim to be entitled upon its incorporation, to a given number of shares of the company. ²⁵¹ The declaration avers that Brock and others, being assignees of certain City Passenger Railway franchises acquired under an ordinance of the Mayor and City Council of Baltimore, constituted themselves into an association for the purpose of using and operating said railway franchises, and did by articles of association, provide, among other things, that the beneficial interest in the properties, rights and franchises of the association should be divided into forty thousand equal shares of the par value of $50 per share; that these shares were transferable on the books of the association; that provision was made for its incorporation; that in pursuance thereof it became duly incorporated, whereby all the property and rights and franchises of the association became vested in the new company; and that by the express terms of the Act of incorporation, the associates became entitled to the stock of the appellant, in proportion to their respective interests in the association.

Under these averments, the right of the associates to stock of the company in lieu of their shares in the association, is beyond all question, and wo think it is equally clear that, upon a refusal to issue the same, an action at law would lie. If so, why should a bona fide assignee stand upon a different footing? If the association, upon demand and presentation of his muniments of title, had refused to transfer the same upon its books, a Court of Equity would have enforced it, and if the association had in the meantime become incorporated, capable of suing and being sued at law, there is no reason why the assignee should be obliged to seek relief in equity. The right then, of an associate or his assignee to sue the appellant for its refusal to issue certificates of stock to which he is entitled, does not differ in principle from that of an ordinary assignee of stock.

If any equities existed at the time of the assignment, or have intervened subsequent thereto, and prior to the demand of the assignee, affecting the interest of the assignor in the shares thus assigned — if the latter was indebted to the association, and such indebtedness was under the articles of the associa ²⁵² tion or by-laws, a lien on the shares of the assignor, these and other like defences could be relied on in an action at law as well as in a suit in equity. But it was insisted, that if the appellees claim as assignees of shares of the association, the declaration upon its face shows that the transfer was not made on its books in pursuance of the articles and by-laws of the association. The legal effect of a provision in the charter or by-laws of a corporation, requiring a transfer of its stock to be made on its books, has often been the subject matter of controversy, and although a literal construction has been given in Connecticut to such clauses, yet in other States, and in the Supreme Court of the United States, a more liberal construction, and one far more in accordance with'their spirit and meaning, has been adopted. In regard to such provisions, says Angeli & Ames on Corporations, sec. 354: “ 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 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 a lien 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 company 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 the company, the better opinion decidedly is, that the transfer passes to the purchaser all the right that the seller had; and that such provisions do not incapacitate the owner of the stock from transferring it at his pleasure, by way of equitable assignment of his interest in ²⁵³ it, subject to the charter rights of the corporation. In other words, such provisions, whether by charter or by law, apply solely to the relation between the corporation and its stockholders — to the questions, who shall vote, to whom dividends shall be paid ; and enable the corporation to protect any lien it may have upon the stock, or equity in it, as between itself and the stockholder transferring it.” And in considering this question, Redfield on the Law of Railways, vol. 1, 113, says, “the assignee need only make his right known to the company, and require the transfer to be entered upon the books, and his title becomes perfected.” In accordance with these views, it has been repeatedly decided that an assignee may sue a corporation for refusing to issue or transfer certificates of stock, although the assignment was not made on its books, in pursuance of the charter and by-laws.

Bank of Utica vs. Smalley, 2 Cow., 770 ; Sargent vs. Franklin Ins. Co., 8 Pick., 90 ; Mechanics’ Bank vs. N. Y. and N. H. R. R. Co., 13 N. Y., 624 ; N. Y. and N. H. R. R. Co. vs. Schuyler, 34 N. Y., 80 ; Gilbert vs. Manchester Iron Manufacturing Co., 11 Wend., 628 ; Kortright vs. Buf. Com. Bk., 20 Wend., 91 .

In the cases relied on by the appellant, the question was whether such an assignment would pass title against a creditor of the assignor who had attached the stock in the hands of the company prior to a transfer on its books; or against a subsequent purchaser without notice; or against the lien of the company on the stock for an indebtedness of the stockholder. Fisher vs. Essex Bk., 5 Gray, 378 ; Blanchard vs. Dedham Gas Light Co., 12 Gray, 215 ; Union Bk. vs. Laird, 2 Wheat., 390 ; Pinkerton vs. Manchester and Lawrence R. R., 42 New Ham., 427. If such is the effect of a provision of this kind in the charter or by-laws of a corporation, we see no reason why the same effect should not be given to such a provision in the articles or by-laws of the association, and more particularly as the association was formed and the articles adopted with a view of being incorporated. It is not to be presumed that such a provision was intended to better the right of transfer by ²⁵⁴ unreasonable and unnecessary restraints, but on the contrary, in providing that the shares should be transferable, to afford