Bleakley v. . Candler

AlleN, J. Tbe authorities are in conflict as to the rights of the holder of a certificate of stock deposited as a security for a loan, which has not been transferred on the books of a corporation, as against an attaching creditor, under statutes similar to our own (Rev., sec. 1168), which provides : “The shares of stock in every corporation shall be personal property, and shall be transferable on the books of the corporation in such manner and under such regulations as the by-laws provide; and whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.” It is held in some jurisdictions that the creditor acquires priority by the levy of the attachment, upon the ground that the statute is mandatory, and that it is equivalent to a requirement of registration, and the holder of stock which has not been transferred in accordance with the statute is treated as would be the holder of an unregistered mortgage as against one which has been registered. Bank v. Folsom, 7 N. M., 611; Sabin v. Bank, 21 Vt., 353; Bank v. Hastings, 7 Col. App., 129; In re Murphey, 51 Wis., 519. The weight of authority is, however, against this view, and in favor of the position that the purpose of the statute requiring a transfer upon the books of the corporation is to prevent fraudulent transfers and to protect the corporation in determining the question of membership, the right to vote, the right to participate in the management of the corporation, and the payment of dividends. 2 Cook on Corp., 1367-1389; 4 Thomp. on Corp., sec. 4335; 1 Machen Mod. Law Corp., sec. 886; 3 Ruling Case Law, p. 864; Masury v. Bank, 93 F., 605; Lund v. Mill Co., 50 Minn., 36; Bank v. McElrath, 13 N. J. Eq., 24; Wilson v. R. R., 108 Mo., 609; Tombler v. Ice Co., 17 Tex. Civ. App., 601; McNeill v. Bank, 46 N. Y., 331; Comeau v. Oil Co., 3 Daly (N. Y.), 219; Finney’s Appeal, 59 Pa. St., 398; Clark v. Bank, 61 Miss., 613; Bank v. Gas Co., 6 Wash., 600; Thurber v. Crump, 86 Ky., 418; Bank v. Standrod, 8 Idaho, 740; Lipscomb v. Condon, 56 W. Va., 416; McCluney v. Colwell, 107 Tenn., 592; Cooper v. Griffin, 1 Q. B., 740; Everett v. Bank, 82 Neb., 191; Bank v. R. R., 157 Cal., 573. In 2 Cook on Corporations, page 1367, the author says: “The decided weight of authority holds that he who purchases for a valuable consideration a certificate of stock is protected in his ownership of the stock, and is not affected by a subsequent attachment or execution levied on such stock for the debts of the registered stockholder, even though such purchaser has neglected to have his transfer registered on the corporate books”; and again at page 1389: “The decisions and statutes of the *20 various States show clearly tbat public policy and tbe legitimate demands of trade bave gradually caused tbe courts and legislatures of tbe various States to establish tbe rule tbat a sale or pledge of certificates of stock bas precedence over a subsequent attachment levied on tbat stock for tbe debt of tbe vendor or pledgor, and tbat tbe failure of tbe pledgee or purchaser of tbe certificate to obtain a registry on tbe corporate books is not fatal to bis interest in tbe stock.” Tbe ease cited from California is also reported in 21 A. and E. Anno. Cases, 139, to which there is a note, collecting tbe cases by States which fully support the' opinion of tbe editor, tbat in tbe absence of a statute which in express terms or by necessary implication gives priority to tbe attaching creditor, it is generally held tbat tbe bolder of tbe stock either as a purchaser or a pledgee bas tbe preference, although tbe transfer of tbe stock bas not been entered on tbe books of tbe corporation. We adopt tbe latter position, which is not only supported by tbe weight of authority, but also, in our opinion, rests upon reason and a sound public policy. Registration is for tbe purpose of giving notice, and is based upon tbe idea tbat tbe public bave tbe right to inspect tbe registry, and this condition does not prevail with us as to tbe stock book of a private corporation, which those who are not stockholders nor interested in tbe corporation bave no right to see. As was said in tbe case from Kentucky, speaking of a statute like ours: “But tbe section does not operate as a registration law in tbe interest of tbe creditors of tbe stockholders, for tbe reason tbat tbe books of tbe company are not required to be kept open for tbe inspection of tbe public. Tbe books are required to be kept open to tbe stockholders only; outsiders bave no right to demand an inspection of tbe books.” Tbe provision requiring a transfer upon tbe boobs of a corporation cannot be of any practical benefit to tbe outside creditor, because, as be cannot see tbe books, be can have no means of knowing whether tbe transfer bas been made or not; and in this respect tbe law as to tbe registration of mortgages furnishes no analogy, because tbe registry of mortgages is open to tbe public. Tbe other view would also unduly hamper commercial transactions and would bave a tendency to depreciate tbe value of stock, as do all restrictions upon its negotiation. If it should be held tbat a transfer upon tbe books of a corporation is necessary to vest tbe title in a purchaser or a pledgee, tbe owner of stock in order to secure a loan would bave to incur, tbe expense and trouble of having tbe stock transferred to tbe lender upon procuring a loan, and of having it retransferred upon payment, and if be borrowed in sections where tbe books of tbe corporation were not accessible, it would make it *21 difficult, if not impossible, to procure a loan, and one of tbe elements of value would be greatly impaired. It is true that in Morehead v. R. R., 96 N. C., 365, there is an intimation that a transfer of stock can only be effectual by a transfer upon the books of a corporation, but the later eases of Havens v. Bank, 132 N. C., 214, and Cox v. Dowd, 133 N. C., 537,. are in line with the current of authority. In the Havens case the Court quotes with approval from McNeill v. Bank, 46 N. Y., 523, that “The common practice of passing the title to stock by delivery of the certificate with blank assignment and power has been repeatedly shown and sanctioned in cases which have come before our courts. ... It has also been settled by repeated adjudications that, as between the parties, the delivery of the certificates with assignment and power indorsed passes the entire title, legal and equitable, in the shares, notwithstanding that by the terms of the charter or by-laws of the corporation the stock is declared to be transferable only on its books; that such provisions are intended solely for the protection of the corporation, and can be waived or asserted at its pleasure, and that no effect is given to them except for the protection of the corporation; that they do not incapacitate the shareholder from parting with his interest, and that his assignment, not on the books, passes the entire legal title to the stock, subject only to such liens or claims as the corporation may have upon it, and excepting the right of voting at elections.” The authorities and reasoning as to the effect of a public statute upon the rights of the parties have greater force when applied to the by-laws of a corporation, which are intended primarily to regulate dealings between the corporation and its stockholders. We are therefore of opinion, upon reason and authority, that his Honor was in error in holding that the attaching creditor has a priority. Reversed.