Newberry v. Detroit & Lake Superior Iron Manufacturing Co.

Graves J. The defendant is a corporation organized under the act of February 5, 1853, authorizing the formation of corporations for manufacturing and other purposes. On the 21st of November, 1861, there were standing on its books, in the name of George B. Bussell, 480 shares of stock. On the 27th of the same month he was largely insolvent, and made to Henry H. Le Boy a general assignment for the benefit of creditors. At some time before this, however, he had assigned to Julius A. Austin 200 shares of said stock, and to Philo Parsons the remaining 280 shares, as security for debts which he owed them, and which have never been paid. It does not appear that these transfers were entered on the books of the company, but it is admitted that the corporation had' notice of them before the 21st of January, 1862. Before the assignment to Le Boy, an indebtedness had accrued from Bussell to the company for a1 large amount, and alleged by the latter to exceed $9,000, for which the company claimed to have and retain a lien upon the stock. On the 11th of November, 1861, Henry W. Newberry and Walter C. Newberry, as executors of the last will of Oliver Newberry, obtained a judgment in the Circuit — 149 — Court for the County of Wayne against Bussell for $13,-400.14 damages and costs, and on the 21st of November, 1861, caused an execution to be issued on the judgment to the sheriff of Wayne County, returnable on the first Monday of February following. On the 21st of January, 1862, the sheriff called on the secretary and treasurer of the corporation, and received from him a certificate that there was standing on the books of the company, in the name of Bussell, 480 shares of stock, against which the company had a lien for indebtedness of Bussell to the company’ of about $9,000. The sheriff thereupon levied the execution on said stock, and took the steps required by the statute to effectuate a formal levy on property of that description. On the 17th of February, 1862, the sheriff, after regular notice, sold the stock pursuant to the levy to the complainant for $5, and, on the first day of March following, left with the proper officer a copy of the execution and the requisite return, and at the same time the complainant demanded of said officer a certificate of the shares of stock so purchased, and offered to pay the fees therefor, and for recording the shares, but the officer refused to give any such certificate. At the time of the purchase by complainant, he had no notice of the transfer by Bussell to any one, except by assignment to Le Boy. On the 3d of April, 1862, the directors of the company ordered the treasurer to notify Bussell that unless his indebtedness to the company was paid within sixty days after service of the notice, the company would advertise and sell the stocjc according to the act under which the corporation was organized. Such notice was accordingly given on the oth of April, 1862. Bussell failing to make payment within the time, the directors, on the 18th of June, 1862, resolved that the stock should be sold at public auction, at the office of the company, after giving thirty days previous notice by publication in the Detroit Daily Tribune, and that the treasurer should bid not to exceed eighty cents — 150 — oil the dollar of the nominal par value of said stock. A notice was accordingly published in said paper, for the sale of the stock on the 24th day of July, 1862, at 12 o’clock at noon, at the office of the secretary of the corporation, and at such time and place the directors offered the stock at public auction, and it was struck off to the treasurer for the use of the company at eighty cents on the dollar of the par value, that being the highest sum bid, and he being the highest bidder; and shortly after, a certificate for the stock was issued to the President of the company. This sale was made in good faith, and without collusion with Russell, but with his knowledge and assent, and the price mentioned was more than the stock was then actually worth. At the time last mentioned the whole amount of stock was $69,000, and the par value Was $25 per share. Soon after said proceeding, the stock so purchased, amount- ■ ing to $12,000, was cancelled, and in about a year thereafter a sufficient additional amount was purchased and cancelled to reduce the Alióle stock to $53,550. In 1864 the stock was raised to $100,000 by dividends of stock and new issues, when the old stockholders sold to persons from a distance $50,500 of said $100,000. Subsequently thereto, and before July 27th, 1866, there were many transfers, and most of the stock passed into the hands of parties who had purchased after the Russell stock was cancelled. On the 20th of July, 1865, a dividend of fifteen per cent, was made, and on the 11th of June, 1866, another of twenty per cent, but both of them were in stock. The dividends before mentioned are all which have'been made. On the 27th of July, 1866, the complainant demanded of the proper officer of the company an account of the stock bid off on the execution in February, 1862, of dividends, increase and profits on the same, and the issue to him of a certificate of said stock, and then offered to pay any lawful lien the company had thereon. — 151 — This request' being refused, the present bill was filed. It is claimed, on the part of the complainant, that at the time of the levy and sale in 1862, the defendant in the execution, Bussell, had an interest in the stock, which was subject to seizure and sale under the execution, notwithstanding any lien of the company, and which was susceptible of discrimination and protection, without injury to the interests of the company,-or embarrassment to its operations;' that, by the purchase on the execution sale in February, 1862, the complainant acquired a perfect title to the interest of Bussell in the stock, notwithstanding his transfer to Austin and Parsons, and his subsequent general assignment for the benefit of creditors; that the asserted foreclosure of the lien of the company was ineffectual, for the reason that the corporation could not become a purchaser at such sale, and that the complainant has not lost his right to have certificates of the stock issued to him by his delay in offering to discharge the lien upon the stock held by the corporation. The defendant insists that the stock sought by complainant has been so disposed of that it can not be traced and recovered; but if that could be done under any circumstances, the present suit is ineffectual for that purpose, since none of the innocent holders are parties, and the power of the company to issue more stock is not shown; that Bussell had no title which the complainant, with knowledge of the assignment to Le Boy, could acquire under the execution; but that if he had, the proceedings by complainant were not such as to give him any title, as he failed to discharge or offer to discharge the defendants’ lien within the time required by law, that .is, fourteen days; that if the complainant acquired anjr title by his purchase, it was lost by his delay to perfect it, and by the subsequent proceedings of defendant to enforce its lien; that as the complainant purchased for a nominal sum when the stock was not worth the amount of defendant’s lien, and neglected to assume the responsibilities of a stockholder, and — 152 — allowed the stock to pass into the hands of innocent holders without evincing any purpose to insist upon his right as purchaser for more than four years, and until after the stock was much increased in value, the equities are all against him. The view I take of this case makes it unnecessary to discuss several of the most important questions argued at ■the bar, although the foregoing summary has been thought advisable in order to obtain a complete understanding of the controversy. The sixteenth section of the act under which the company was organized, among other things, provides that the “corporation shall at all times have a lien upon the stock or property of its members invested therein for all the debts due from them to such corporation, which may be enforced by advertisement and sale in the manner” provided in the act for selling delinquent stock. The law in question is a public act, and all are charged with knowledge of its provisions. When the execution was issued and levied, and when the sale was made to the complainant by the sheriff, in 1862, Russell, the execution debtor, was apparently a member and stockholder of the corporation. He was then, and for some time after, so treated by the company. He has been so treated by the complainant. There were standing on the books in his name 480 shares of stock, which the company had not recognized as belonging to any other person. When the execution was issued, Russell was largely indebted to the company. This indebtedness continued until long after the sale on execution, and may possibly continue still. At the time of the levy the sheriff was notified of such indebtedness, and that the defendant claimed a lien on the stock therefor, and on the first of March, 1862, the company refused to give to the complainant a certificate of the shares purchased on the execution, and insisted upon the lien. It can not be doubted that the defendant possessed a lien upon the stock to the extent of — 153 — its debt against Russell, and if it lias ever been discharged, it must have been by the sale of the stock and attendant proceedings, at the instance of the company and with the assent of Russell, in the spring and summer of 1862. Certainly the complainant has never discharged it. If these proceedings were valid, then the lien was discharged thereby, and the same act that discharged it extinguished the right of complainant, since his purchase was necessarily subject to that lien, and to those proceedings appointed by law for the satisfaction of it. The statutory lien upon the stock possessed by the corporation was neither displaced, overreached or impaired by the institution of the lien, under the execution, or by the sale of the stock upon it; and the proceedings, of the complainant were not carried far enough to give him the right to require certificates of the stock, or to confer upon him the privileges, or cast upon him the burdens and liabilities of a stockholder. He took several steps, but did not take the final one. He neither paid or offered to pay the lien of the company. If the proceedings in 1862, to produce satisfaction of the lien, were invalid, then the right of the company still remained. It is admitted that when the sale on the execution took place the amount of the lien exceeded the value of the stock. This being so, there was nothing at that time to be transferred by the company to the complainant, except upon the payment by the latter of the claim of the former, and this, as already stated, was not offered. The demand, therefore, of certificates, which was then made, was wholly ineffectual. The company could not be required to furnish the complainant with the indicia of absolute or qualified ownership of the whole or any part of the stock. The lien covered the whole and every portion of it, and the only course — 154 — open to complainant was to satisfy the debt of the company. The defendant was justified in reposing upon the right which it possessed under the statute. It held the prior lien. That lien was more than equal to the value of the property. It held the only possession of which the subject of the lien was susceptible, and no right was vested in complainant to disturb that possession without satisfying the lien. Upon this ground, therefore, without stating others, I think the complainant, at the time of his purchase, was neither entitled to certificates of the Bussell stock, nor to any transfer of the same to him by the defendant. Whatever, if anything, the complainant obtained at the time, by his purchase under the execution, it was certainly subordinate to the right of the defendant under the lien, and could only be made completely available by discharging such lien. By the general law under which the defendant ivas organized, each share of stock is entitled to a vote; the transfers of stock must be made on the books of the company, and the stockholders are individually liable for all labor performed for the corporation. The design of these provisions would be defeated if the purchaser, on execution of stock, bound by a lien of the corporation, could retain indefinitely all the advantages of ownership without being subjected to any of the burdens, risks or liabilities of an actual stockholder; and it would, therefore, seem reasonable that he should be required to be active in taking all the steps necessary to become entitled to the position of stockholder. The defendant insists that it was incumbent on complainant to discharge, or at least offer to discharge the lien, within fourteen days from the sale on the execution. The complainant denies this, and maintains in substance that he acquired, by his purchase, a right to redeem by payment of the lien, and that such right was and is incapable of being lost or destroyed by any delay; and, at the — 155 — same time, he maintains that the company could not enforce the lien by becoming purchaser of the stock. If it was competent for the company to purchase, then the proceeding adopted in order to enforce the lien was valid, and the complainant is concluded thereby. If, however, the company was disabled from purchasing, and no delay of the complainant could impair his right, it would follow that the lien might continue, and the stock be tied up indefinitely, since there would be-no adequate means for the company to compel satisfaction. If this view should be adopted, it would extensively impair the interests and embarrass the operations of corporations organized under the law in question, if it did not tend to disorganize them. It must be remembered that the property - right of the party as a claimant of an interest in the stock is not the only right to be attended to; but the right, of the corporation and actual stockholders that the ownership of stock shall involve the duties and liabilities of corporate membership is also to be kept in view. This circumstance is important and should have its proper influence. Considering the nature of this case, and in its equitable aspect, I think the complainant was required to be active and diligent; and that he could not stop short of offering to pay the debt due to the company and still retain the right to pay it or not at any time thereafter as the company should be successful or unsuccessful; that, he could not for an indefinite period preserve his middle position and be all the time entitled to ask or not ask the aid of the court to help him, as the one course or the other should ultimately turn out to be for his interest; and much more, that he could not lie by while the affairs of the-company to his knowledge were undergoing such changes as would make the interests of the company and the rights of new stockholders incompatible with the enforcement of his claim, and still be entitled to ask the court to aid him in -.rich enforcement. — 156 — Whether or not, therefore, he was required to discharge the lien in fourteen days from the sale on execution, it appears to me that, in order to aslc the assistance of equity, he should have offered satisfaction within such reasonable time as the circumstances of the case suggested. Did he do so? At the time of the execution sale, as already stated, the stock was worth less than the amount of the lien, and he made no offer of payment. The company advertised the stock for sale to satisfy the lien, pursuant to a public jtatute, and it ivas struck off in July, 1862, for eighty cents on the dollar, which ivas above its value, and the complainant remained silent and inactive. The company adopted measures to cancel this and other stock, and still nothing ivas heard from complainant. Finally a large amount of neAV stock Avas issued; the capital was enlarged to $100,000; and very extensive changes in the ownership of the stock from time to time made; and nevertheless the complainant continued silent until July, 1866, a period of more than four years, Avhen he offered for the first time to pay any lawful lien held by the company. Under these circumstances and after such lapse of time the .complainant asks the aid of a court of equity, in order to give to the title or right he acquired by his purchase on the execution, AvhateArer it was, the effect it Avould have had, if he had discharged or offered to discharge the lien of the company at or soon after his purchase. I think, hoAvever, that his long and unexplained silence and delay, the fact that the stock Avas worth less than the amount of the lien, that the sum bid by complainant Avas a mere nominal one, and that his course, coupled with these and other circumstances, Avas such as to lead the company to suppose that he did not intend to discharge the lien but meant to abandon his purchase; the consequent changes wrought in the affairs of the company, the suppression of the stock in question, the creation of new stock, the enlargement of the capital and introduction of the new — 157 — interests, ought now to be deemed sufficient to deprive the complainant of the right to the interference of a court oi eunity.— McCready v. Rumsey, Pres’t of Suffolk Bk. 6 Duer, 574; Brent v. Bank of Washington, 10 Pet. 596; Tash v. Adams, 10 Cush. 252; Fuller v. Inhabitants of Melrose, 1 Allen, 166; Inhabitants of Plymouth v. Russell Mills, 7 Id. 438; Pendergast v. Turton, 1 Young and C. 98; Reimers v. Druce, 23 Beav. 145; Nicholson v. Hooper, 4 Myl. and C. 180; Parrott v. Palmer, 3 Myl. and K. 632, 640; Duke of Leeds v. Earl of Amherst, 2 Phil. 117; Shapley v. Rangeley, 1 Wood, and M. 213; Manufacturers and Traders Bk. v. Hazard, 30 N. Y. 226. As this view disposes of the case, it is unnecessary to inquire whether the stock, as subject to the lien of the corporation could be seized and sold on execution, or whether, if it could be, such lien would have to be paid in fourteen days, or whether the assignments to Austin, Parsons and LeRoy or either of them could be set up by the company against the claim of the complainant, or whether the proceedings to enforce the lien were valid, or to decide upon the construction of the statutes as to transfers on the corporation books. It is sufficient that the complainant could not invoke the aid of the court to invest him with the absolute right to the stock without his discharging the lien; that under the most favorable view for him he was bound to exercise reasonable diligence in discharging that lien, and in the pursuit of his claim, and required to avoid a course naturally leading the company to adopt measures wholly inconsistent with the existence of his right, and which would make the establishment of his claim, in a very high degree, injurious to the interests of the present actual stockholders. I am, therefore, of opinion that the decree of the court below should be affirmed, with costs. Cooley Oh. J. I agree in the result to which my brother, Graves, Las arrived; but I put my concurrence on the ground solely — 158 — that, when .Newberry’s levy was made, Russell had no interest in the stock levied upon, and the levy was, therefore, entirely ineffectual. The clause in the statute on which complainant relies — that transfers of stock shall not be valid, except as between the parties thereto, until duly entered upon the books of the corporation — is á clause for the protection of parties having equities; and without inquiring whether it can be applied in any case to the pro1 tection of other assignees who take assignments with knowledge of a prior transfer, it is very clear, I think, that a judgment creditor who buys with full knowledge can get, by his levy and purchase, nothing that the debtor himself could not claim. I, therefore, express no opinion upon the questions,' discussed by my brother, Graves. .