State ex rel. Rankin v. Leete

By the Court, Leonard, C. J.: The Orr Water Bitch company is a corporation, duly incorporated under the laws of this state, for the purpose of — 244 — constructing, keeping in repair, maintaining, and operating a ditch for the conducting of water from the Truckee river, in Washoe county, to farming lands therein, for irrigating and domestic purposes. On and prior to January 8, 1881, respondent was a stockholder in said corporation, and the duly elected trustee and secretary thereof. On the date just mentioned an election was held by the stockholders of the corporation, for the purpose of electing five trustees for the period of one year from February 1, 1881. There were two hundred and forty-eight votes in the corporation, and at that election two hundred and thirty-four votes were cast, of which, respondent, Frazer, and Manning received one hundred and nine votes each,.and Charles Gulling, James Galt, and A. J. Smith one hundred and twenty-five each, one hundred and seven of which respondent admits were legal, but denies the legality of eight votes cast by Smith for himself, Galt, and Gulling, and ten votes cast for the same persons by Haydon, proxy for Lee, executor of the estate of Larcombe, deceased. Plaintiff admits that the one hundred and nine votes cast for respondent were legal. If the eight votes cast by Smith, or the ten votes by Haydon were legal, it follows that respondent was not elected, and that Smith, Galt, and Gulling were elected. The five persons declared elected directors were Haydon, Powell, Galt, Smith, and Gulling. As to the first two, there is no contention. After the election the five persons just named met as trustees, and Gulling was elected secretary of the board. He demanded of respondent the books, papers, and property belonging to the secretary’s office, but compliance was refused, and this proceeding by information in the nature of a quo warranto was instituted in this court. Plaintiff demands judgment to the effect that respondent, is not entitled to the offices of trustee and secretary of said corporation; that he be ousted therefrom, and that Gulling be put in possession thereof, and of all books, papers, and property of the corporation appertaining to said offices of trustee and secretary, together with his costs. After the filing of respondent’s answer, and upon an agreed statement of special issues of fact, the case — 245 — was sent to the second judicial district court in and for Washoe county, to be tried by a jury. The jury found for plaintiff, and thereupon judgment was entered in this court, according to the prayer of the complaint. Respondent asks for a new irial on the ground of several alleged errors in the court below. It is claimed that, in the sense of the statute, Gulling was not a stockholder, and, consequently, was not eligible to the office of trustee. The statute provides that, “the corporate powers of the corporation shall be exercised by a board of not less than three trustees, who shall be stockholders in the company.” If Gulling was not a stockholder, he was ineligible, and has no right to the office, or the books, papers, and property appertaining thereto, and respondent is entitled to retain the same until his successor, a stockholder in the corporation, is elected in his place. The first question for our consideration, then, is this: Upon the facts admitted, is Gulling a stockholder in the corporation ? We have carefully examined the statutes and decisions of the different states upon this question, and have come to the conclusion that the answer depends entirely upon a proper construction of our statute, for the reason that the incorporation law, under which this corporation was formed, provides that, “said incorporation, and the members thereof, shall be subject to all the conditions and liabilities herein imposed and tó none others:” and the statutes of other states, which have been construed by the courts, differ so materially from ours, that the decisions thereon furnish but little light for our guidance. The point of contention under consideration arises upon an exception taken by the respondent to the action of the court below in striking out all of Gulling’s testimony except, that which showed that eight shares of the stock of the corporation stood in his name upon the books of the company at the.time of the election. We shall concede that the testimony struck out tended to show that Gulling’s father owned sixteen shares of the stock; that he handed the certificate to his son, Charles Gulling, and requested the latter to have eight shares- put in a new certificate in his name — 246 — and transferred to him upon the books of the company for the purpose of making him a stockholder and eligible to the office of trustee, and that he never paid anything for the stock. Did such an ownership or holding of stock make Charles Gulling a stockholder according to the legislative intent? Counsel for respondent claim that the testimony struck out tended to show that his ownership was only colorable, while under the statute he must be a stockholder holding and owning the stock in his own right, in order to be eligible to the office of trustee; and that respondent had the right to go behind the book title to ascertain if he was a stockholder in the sense above stated. The court below took a different view, and held that Gulling, who undoubtedly had all the muniments of a perfect legal title to the eight shares, and who acted according to his father’s wishes, was a stockholder under the statute. "We think the court was right. The word ‘ ‘ stockholder” is not defined by the statute, nor is it required, in terms, at least, that a person to be eligible to the office of director shall be a bona fide stockholder, or that he shall own stock absolutely in his own right. He must, however, be “a stockholder in the company.” ■ Counsel for respondent say: “If the mere fact that the stock stands on the books in the name of one, makes him eligible to the office of trustee, irrespective of the question whether or not he has any interest in it, the object of the statute is so readily evaded that it becomes a dead letter.” It is a part of the history of corporations in this state, that under the statute of 1862, in force at the time our general incorporation law was passed (March 10,1865), a person was considered and.treated as a stockholder by corporations, if he appeared as such upon the books of the company. Except as to the liabilities of stockholders for their proportion of the debts of the corporation, the present statute is similar to the former one; and as to the qualifications of directors, no change was made. If the legislature intended that a director should own stock absolutely in his own right, it ought, at least under such circumstances, to — 247 — have so declared in unmistakable language. But other legislation of the session of 1865 tends to show that the construction contended for by counsel for respondent was not intended. In the statute providing for the incorporation of railroad companies, etc., approved March 22, 1865, only twelve days after the approval of the general incorporation law (Oomp. L. 3425), it is»enacted, in section 3429, that “ no person shall be a director, unless he shall be a stockholder owning stock absolutely in his own right, and qualified to vote for directors at the election at which he may be chosen;” and to vote he must own stock ten days before election. To my mind it is significant, that, in the face of a known custom contrary to respondent’s theory, the general incorporation law was re-enacted in respect to the qualification of directors, while in the railroad law, it was specially declared that every director should be a stockholder owning stock absolutely in his own right. The fact that in the railroad law the legislature, ex industria, made absolute ownership the test of eligibility, is strong evidence that in the general law, where that test was excluded, the same rigor was not intended. . But why is it unreasonable to suppose that, our legislature intended to recognize as stockholders those persons who should hold certificates of stock in their own names, and in whose names the stock should stand upon the books of the company, although, as between themselves and outside parties, there might be private agreements and peculiar equities, when state after state, noticeably New York and New Jersey, in terms, enacted the same thing? (See 1 Rev. Stats. N. Y. for 1829, p. 603, sec. 6, and for 1836, p. 605, sec. 6; Nixon’s Dig. of Laws, N. J. 1809-1861, p. 153, sec. 13. In the latter state it is enacted that, the books “shall be the only evidence who .are stockholders of such company entitled * f * to vote in person or by proxy, at any election for directors of said company. The charter of the Providence and New York steamship company provided that, only stockholders were eligible as directors, and the by-laws provided that, only those stockholders should be entitled to vote at meetings as should, — 248 — according to tlie company’s stock ledger, have been holders of stock for ten days next preceding such meeting. In Hoppin et al. v. Buffum et al., 9 R. I. 517, it appears that a certain number of shares in the corporation, owned by Edward P. Taft and Cyrus Taft, were pledged to Earl P. Mason, as security for debts due to himself and others, but neither the ownership nor pledge appeared on the books, where the stock had, from the formation of the corporation, stood in the name of “Earl P. Mason, trustee.” The certificate was so issued in 1867, and he voted until 1870, without objection. The court said: “A person who pledges stock has the right to vote upon it, until the title of the pledgee to the stock is perfected. If Taft had appeared on the books as owner, and the books had shown the pledge, Mr. Taft’s right to vote could not have been disputed. The object of the stock book and of requiring transfers of stock to be recorded by the corporation, is for the protection of the corporation, to enable it to know who are its members, who are entitled to dividends, and for no purpose is it more important than to enable it to know who are entitled to vote in case of an election. This doctrine is recognized by many authorities directly, and by many impliedly. * * * ” If the real owner wishes to have his name, or the true state of facts, appear on the books, he has his remedy in equity to compel a proper transfer, or to compel the pledgee to give a proxy, as was done in the case of Vowell v. Thompson, 3 Crunch, C. C. 428. * * * In the present case, the stock stood in the name of “Earl P. Mason, trustee.” The books did not disclose the nature of the trust. If any other person was the equitable owner of the stock, and entitled to have it transferred to him, he should, if his right was disputed, assert it in seasou, and take the proper measures to enforce it. But if the trust was of such a nature that the trustee has the control and management of the property, and is to exercise his discretion concerning it, then he is the proper person to represent and vote upon it, and the corporation can not be required to examine into the nature of the trust with a view to decide as to the right to vote.” — 249 — But the intent of the legislature must be gathered from the law itself. Let it be remembered that Charles Gulling held the entire legal title to eight shares; the certificate was in his name and the transfer was entered upon the company’s books. If he is not a stockholder, it is because such ownership or holding of .stock does not satisfy the statute. It is just as true that stockholders and none others can vote, as it is that directors must be stockholders. If Gulling was a stockholder he could vote and act as director; otherwise he-could do neither. Section 3393, Comp. L.,provides that, "each stockholder, either in person or by proxy, shall be entitled to as many votes as he or she may ‘ own,’ or represent by proxy, shares of stock;” and it is argued therefrom that an absolute-owner in his own right only is a stockholder or can vote. It will be seen that the words " own” and " hold” are used in the statute in the same sense. For instance: Shares of stock "held or owned” by a married woman "may be transferred by her without the signature of her husbandand all dividends payable upon shares " held” by a married woman may be paid to her in the same manner as if she were unmarried; and any proxy given by a married woman touching any share of stock “ owned” by her shall be valid and binding. (Comp. L. 3397.) "If, after such notice has been given, any stockholder shall make default in the payment of the assessment upon the shares held by him, so many of such shares may be sold as will be necessary for the payment of the assessment upon all the shares held by him, her, or them.” (Comp. L. 3398.) "It shall be the duty of the trustees of every company incorporated under this act to keep a book containing the names of all persons, alphabetically arranged, who are, or shall become, stockholders of the corporation, and showing the number of shares of stock held by them respectively and the time when they became the oioners of such shares.” (Id. 3404.) • So, it is evident, that one who " holds” shares of stock is recognized as a stockholder as well as one who " owns” them; and in the portion of section 3393, before quoted, the — 250 — word''‘hold” may be substituted for “owu,” when it would read thus: “ Each stockholder, either in person or by proxy, shall be entitled to as many votes as he or she may hold, or represent by proxy, shares of stock.”' It must be admitted that the legislature intended, either that all who, as to third parties, “hold” stock in the sense of the statute — that is, by certificate in their own names, with proper transfer upon the books — should also own it absolutely'in their own right, in order to be stockholders, or that all should be considered such Avho hold it as above stated, notwithstanding there are private agreements and equities between them and others. As before stated, we think the latter view is correct. Section 3397 provides, that the capital stock of a corporation, when it is divided into shares, shall be personal estate, and that “such shares may be transferred by indorsement and delivery of the certificate thereof, * * * but such transfer shall not be valid, except between the parties thereto, until the same shall have been so entered upon the books of the corporation as to show the names of the parties by and to whom transferred, the number or designation of the shares, and the date of the transfer.” Under that statute, the whole title passes to the transferee so far as the transferrer is concerned, Avithout an entry upon the books; but, ,as to everybody else, the legal title remains Avhere it Avas before the transfer. (Bercich v. Mayre, 9 Nev. 316; State v. Pettinelli, 10 Id. 144; Weston v. The Bear River and Auburn Water and Mining Company, 5 Cal. 186.) In the absence of other provisions modifying their natural import, those last quoted, in connection Avith other sections of the statute, and especially 3404 and 3398, sIioav conclusively to my mind that, as to the. corporation and other third parties, the legislature intended to have the books show the names of stockholders, and that, as to such third parties, persons holding the legal title and having control of the stock should be considered stockholders, except in cases where the same may- have been obtained by fraud or other unfair means. It Avill not be denied that delinquent stock can not be — 251 — sold for assessments without notice to stockholders holding the same; yet section 3398 provides■ that, notice may be given personally or by publication, and if, after notice, any stockholder shall make default in the payment of the assessment upon all the shares held by him, so many of such shares may be sold as will be necessary to pay the whole assessment due. Personal notice is as effective as notice by publication. The secretary has no means of knowing who are stockholders, except by an examination of the books, and he has a right to rely upon them as giving him correct information. If he gives personal notice to a party appearing to own shares upon the books, or if he publishes the delinquent stock in the name of such party, and the assessment is not paid, the necessary number of shares may be sold, although they may have b^en transferred by in-dorsement and delivery only, before the assessment was levied or the notice given. How, then, can it be said that , the legislature did not intend to regard as stockholders persons appearing upon the books and holding stock as such? In this case the whole stock is held, probably, by persons residing in Washoe county, and in case of assessment they may all be served personally with notice. Charles Gulling holds the legal title to eight shares, and appears, upon the books, to be the absolute owner. Either he or his father had the right to cast eight votes upon them, because one or the other was, as to them, a stockholder. Those shares may be assessed, regardless of the stockholder, and notice may be given, as before stated, to Charles Gulling; but if counsel for respondent are right in claiming that the father is the stockholder, then, before sale, notice should be served upon him, because “notice shall be given to the stockholders, personally or by publication.” If it be said in answer that the father would be estopped to deny his own voluntary transfer, still, in that view, the intention of the legislature is not less apparent. The case cited by counsel for respondent (State v. Hunton, 28 Vt. 595) is not opposed to our interpretation. The general banking law of that state enacted that no stockholder residing out of the state should, either personally or by proxy, — 252 — vote in the meetings of the corporation; and that a stockholder of four shares should have four votes; six votes for eight shares; seven votes for ten shares, and one vote for every five shares above ten; provided, that no stockholder should be entitled to more than twenty votes. (Comp. Stats. of Vermont for 1850, p. 489, sec. 54.) Prentiss, a citizen of New Hampshire, advanced to Dan-forth and others, citizens of Yermont, a large sum of money, which was expended in the purchase of a major part of the stock of the White river bank; and conveyances of the stock were made to citizens of Yermont', and by them parceled out to other citizens, giving generally, to each, four shares. More than five hundred shares were thus distributed. The court decided, upon ample proof, that Prentiss was the real owner, and that the pretense that it belonged to any one else was altogether colorable; that if the stock had stood in his name he could not have voted upon it; that to allow him to do so, would be a fraud upon the law, which should not be outwitted by cunning devices. In other words, it was decided that Prentiss could not do by indirect means, what the .law declared should not be done directly. The court said the statute showed a marked intention on the part of the legislature that the banks should be controlled only by citizens of the state. And We say, if our statute had declared that none should be directors but stockholders holding or owning stock absolutely in their own right, or had used language indicating such intention, upon a fair consideration of the entire statute, we should have no difficulty in arriving at the conclusion of the Vermont court. Stewart v. Mahoney M. Co., 54 Cal. 149, and the decision of Judge Sullivan upon the application of Dewey to set aside the election of directors of the California Mining Company, in one of the superior courts of San Francisco, are also cited. We think neither case is authority for respondent under our statute. When the first was decided, section 298 of the civil code provided as follows: “ The owners of shares in a corporation which has a capital stock are called stockholders. If a corporation has no — 253 — capital stock the corporators and their successors are called members.” And section 312 provided that, “Every person acting therein (elections), in person or by proxy, or by representative, must be a member thereof, or a bona fide stockholder having stock in his own name on the books of the corporation at least ten days prior to the election. Any vote or election had other than in accordance with the provisions of this article is voidable at the instance of absent stockholders or members, and may be set aside. * * *” That is to say, under the statute, no person could vote who was not a bona fide owner of shares of stock, or a member; and an. election carried by the votes of other persons could beset aside. One thousand shares of the stock voted, stood in the name of “ H. P. Bush, trustee.” They were owned by three other parties, neither of whom authorized Bush to represent them, or, in fact, knew of the meeting. The stock had been issued in the name of Bush, trustee, without the knowledge or authority of the owners. After citing-section 312 of the civil code, the court said: “ Bush was not the proxy or representative of either of the owners of the stock, nor was he a member of the corporation, nor was he a bona fide stockholder; therefore he had no legal right to vote the stock.” The court evidently took the view that there was a statutory prohibition against the voting of any but bona fide owners of stock, and that therefore, Bush’s votes were illegal — a conclusion with which we cordially agree, under the statute, and, especially, under the circumstances shown. At the time of Judge Sullivan’s decision the statute was as follows: “At such election the stock of said corporation shall be voted by the bona fide owners thereof, as shown by the books of said corporation, unless the certificate of stock, duly indorsed, be produced at such election, in which case said certificates shall be deemed the highest evidence of ownership, and the holder thereof shall be entitled to vote the same.” (Cal. Stat. 1880, 132, sec. 3.) It was claimed that the books of the company were the highest and only evidence of ownership. Judge Sullivan held that pi-oof of ownership could be “made outside of the — 254 — books under the last statute as well as tbe first. The case being appealable, it would be in bad taste for us to comment upon the decision, and we refrain from so doing. 0 The conclusion arrived at in relation to the status of Gulling, renders it unnecessary to consider at length the alleged erroneous rulings of the court concerning the validity of the votes cast by Haydon, proxy for Lee, executor of the estate of. Larcombe. As to the corporation and other third parties, Lee held the legal title to ten shares, and the stock issued in his name was held by him, although it belonged in fact to the estate of which he was executor. He was a stockholder, and being such, had the right to vote in person, or by proxy. The errors complained of touching the validity of Smith’s votes need'not, therefore, be considered. As to the alleged error in ruling that the burden of proof was upon respondent, it is sufficient to say that, if it was erroneous, it was, under the admissions, without injury. We have considered this case upon the facts presented, and intimate no opinion as to what the result would have been if Gulling, the father, had demanded the right to vote the eight shares held by, and in the name of, his son. New trial denied.