Real Estate Trust Co. v. Bird

Boyd, J., delivered the opinion of the Court. The appellant was incorporated by chapter 259 of the Acts of 1898, and by its charter was authorized to have a capital stock “ of four thousand shares at fifty dollars each, being two hundred thousand dollars, with the privilege of increasing the same, from time to time, up to the sum of two million dollars, by a vote of the stockholders at a special meeting to be called for that purpose.” The original stock of four thousand shares was subscribed for in full on or about November 1, 1898, by various parties, including fifty shares by W. B. Brooks, Jr. On the first day of December, following, a certificate was issued to Mr. Brooks for the fifty shares, in which it is stated that he had paid the sum of eighteen hundred and seventy-five dollars thereon, and that when the balance was paid, at such times and on such conditions as the board of directors should prescribe “ a full-paid certificate of stock will be given upon surrender of this certificate.” The above amount included fifty per cent, of the par value of the stock and a bonus, which was paid by all the subscribers—the stock being taken at seventy-five dollars per share. On December 10th the appellee purchased through a broker the stock of Mr. Brooks at a premium of thirteen • dollars per share. On or about November 1, 1898, the subscribers signed, under seal, an agreement as follows : “ We, the undersigned, being subscribers to the original stock of the Real Estate Trust Company, and having the right under the charter to subscribe pro rata to the proposed increase of. 8,000 shares, in accordance therewith, hereby agree to subscribe to the additional stock in the amounts set opposite our names, 50 per cent, of said subscription to be paid on ²⁴¹ February ist, 1899, and the balance when called for (after thirty days’ notice), and we hereby waive our right to subscribe to any other portion of the remainder of said issue to' which we would be entitled to subscribe, as shown below.

Subscriber. No. shares taken. No. shares waived.”' The number of shares of the proposed increase taken by Mr. Brooks was stated to be “none” and the number of shares waived “100.” Neither the broker nor the appellee knew of the waiver when the latter purchased the stock. On January 20, 1899, the stockholders, in meeting assembled, after due notice, adopted a resolution increasing the stock from four thousand to twelve thousand shares, and the company having refused to transfer to the appellee the shares originally subscribed for by Mr. Brooks, or to allot to him any of the increased stock, he filed this bill, in which, amongst other relief asked for, he prays that the appellant be required to transfer to him on its books the fifty shares of stock, and to accept his subscription for one hundred shares of the new stock, or in the event that that relief could not be granted that the defendant might be decreed to pay him such damages as he has suffered by reason of its wrongful acts.

The Court below passed a decree (l) requiring the defendant to transfer on its books, as of January xo, 1899, to the appellee, the fifty shares of its capital stock assigned to him by Mr. Brooks, and (2) allowing him damages for the defendant’s refusal to accept the plaintiff’s subscription for one hundred shares for the increased stock—it appearing that all of the eight thousand! shares authorized by its stockholders had been allotted and: issued by the company. From that decree this appeal was taken. 1. There is nothing on the certificate to indicate that it was not transferable. On the contrary, on its face is printed “Transferable only on the books of the company,” and on the back of it there is printed assignment, such as is generally found on certificates of stock, which was filled up by ²⁴² inserting the name of the appellee, the number of shares (fifty), and it was signed by Mr. Brooks—the name of the attorney to transfer the stock on the books of the company being left blank.

The assignment was dated December io, 1898. After the purchase by the appellee the broker seems to have made some effort to have the stock transferred on the books, but the evidence does not show that he saw the proper officer of the company, his messenger apparently having failed to find where the transfer-office was. The appellee testified that his first visit to the office of the company was January 10, 1899, and he wrote a letter of that date in which he notified the company of his purchase and concluded by saying “ as I am informed, that no transfer can be made on your books until stock be paid up, kindly notify me of second assessment on the same when it is called.” He said, in answer to question whether any request had been made by him on the defendant for the transfer of the certificate, “ An implied request was made upon my first call at the office of the company at the time already mentioned, and I was informed that the stock could not be transferred,” and that, between that time and January 20, 1899, he called with his attorney and made a request that the stock be transferred but was refused. On January 20th he again wrote stating “ I beg to herewith renew my application for a transfer to me on the books of your company of the certificate No. 25 in the name of W. B. Brooks, Jr.,” and insisted upon his right to a pro rata share of any increase of the stock.

On January 25th he made a formal offer to pay for the new stock, but on the 21st day of that month the company had allotted all the shares which had been authorized, some to the original stockholders and the others to new subscribers. There seem to have been no by-laws of the company regulating the transfer of stock—at least none were offered in evidence. A few days after this bill was filed the secretary of the company wrote to the appellee, stating that the executive committee had the day before determined to transfer certifi ²⁴³ cates of stock on which the first fifty per cent had been paid, and offering to transfer these shares to him. The president of the company testified that the first formal demand for the transfer made on him was at fifteen minutes before twelve o’clock on January 20, 1899 (the time the stockholders’ meeting was held), but we do not understand him to deny that the appellee had prior to that time requested the transfer, as he swore he did.

No valid reason for refusing to make the transfer is given. Under such circumstances it was the duty of the company to transfer the stock and inasmuch as it had refused to do so the appellee was entitled to relief. In 1 Cook on Stock and Stockholders, sec. 389, it is said that the transferee of stock, which it is the duty of the corporation to transfer, may pursue one of three remedies. “ He may apply to a Court of Law for a mandamus to the corporation to compel it to open its books and allow the registry; or he may bring a suit in equity, praying that the corporation be decreed to allow the registry, or to pay him damages, if registry is impossible ; or he may sue the corporation at law for damages, on the ground that by its refusal it has been guilty of a conversion of his stock.” In section 391 that author says that the preceding in equity is “ the surest, most complete and the most just remedy,” and it is fully recognized in this State. Kerr v. Uric, 86 Md. 77 ; Baltimore Retort and Fire Brick Co. v. Mali, 65 Md. 97 ; Swift v. Smith, ibid, 435.

Indeed we do not understand the appellant to deny that the appellee was entitled to such relief after the demand of January 20th, but the evidence sufficiently shows a refusal, at least as early as January 10th, and hence we think the Court below was right in the part of the decree we have been considering. 2. As the appellee was a bona fide holder of the stock for value and was entitled to have the transfer on the books 01 the company prior to the meeting of the stockholders at which the increase of the stock was ordered, but was prevented by the refusal of the company to do so, we must ²⁴⁴ consider the remaining questions in the case as if there had been an actual transfer on the books, as the appellant cannot profit by its own wrongful act. There can be no doubt that the general rule is that when the capital stock of a corporation is increased by the issue of new shares, authorized by the charter,. the holders of the original stock are entitled to the new stock in the proportion that the number of shares held by them bears to the whole number, before the increase. Gray v. Portland Bank, 3 Mass. 364 ; Eidman v. Bowman, 58 Ill. 444 ; 1 Cook on Stocks, etc., sec. 286; Angell and Ames on Corporations, sec. 554; Jones v. Morrison, 31 Minn. 140 ; Biddle's Appeal, 99 Pa. 278 ; Jones v. Concord and M. R. R., 67 N. H. 234; (s. c., 30 Atl.

Rep. 614 ). But that light of the original