Hall v. Lay

27 Misc. 602, 59 N.Y.S. 638

• Court: New York Supreme Court
• Decided: May 15, 1899
• Status: Published

Opinion

Scott, J.

This action arises out of a controversy between two stockholders of á corporation as to the ownership of 375 shares of the capital stock, and,- as it-happens, the control of the company depends upon the ownership of those shares. They stand on the books of the company in the name of the plaintiff, who claims to be their lawful owner, and have so stood in his name since some time prior to June, 1898. It appears that when the company was organized the common stock was issued for certain patents and patent rights, and, subsequently, a portion of it Was returned to the treasury of the company to be used as working capital. A certain amount of preferred stock was also issued, and the company offered commissions in treasury common stock for subscriptions to the preferred stock. There now stands in the name of the plaintiff altogether 449 shares, which he claims were acquired by him partly as -commissions for obtaining subscriptions to preferred stock, partly in payment of salary, and partly by purchase. Ho question seems to be made as to' his ownership of 74 shares, but one Andrew McLean, who was a subscriber to the preferred stock, claims that 375 of the shares standing in plaintiff’s name should have been issued to him (McLean) as a bonus upon his subscription to the preferred stock.. This claim the plaintiff controverts. The president of the company, being about to go abroad in December, 1897, signed certain certificates in blank, and says that it was understood between himself and plaintiff, who was secretary of the company, that a certificate for 375 shares should be made out in McLean’s name and given to him. A certificate was made out in McLean’s name for 375 shares, but the plaintiff asserts that this was done by an error. At all events, the certificate was never delivered to McLean, and was re-pasted in the stock-book, and marked canceled. The plaintiff then made out a certificate to himself for 449 shares, which included the 74 shares as to which no question seems to be made, and the 375 shares now claimed- by McLean. This occurred some time during the president’s absence from the country, which extended from December,'1897, until June, 1898, so that for nearly a year the. 375 shares of stock have stood in plaintiff’s name, and until very recently no question seems to have been raised as to the ownership of them. In April of the present year one of the • directors, named Tweddle, in examining the stock-book found, as he says, that a stock certificate (Ho. 14) had been cut out of the stock-book, and that .certificates 13 and 15 had been pasted together, apparently for the purpose of concealing the extraction of Ho. 14. Just what pertinency the . absence of certificate Ho. 14 had to the dispute-between plaintiff 'and McLean • does not appear, since the. certificate made out in McLean’s ñame, but not issued to him, was numbered 19, and the certificate issued to plaintiff -was numbered 22. The alleged mu-: tilation of the stock-book, however, was made the occasion for a meeting' of the board of directors. The meeting was called, as the president swears, to request the plaintiff to explain; the matter of the missing certificate 14, and- the.pasting together of .numbers. 13 and 15. The only notice given to plaintiff, who was, a.director, either of the meeting itself or of the business ■ intended-to- be transacted thereat, was that the. president asked him to be. present at the meeting, and told him- that his absence could only be construed as cowardly, and might be construed as an. admission, of guilt. It- does not appear that the,meeting was called to pass upon the. dispute between Mr. McLean and plaintiff as to the owner-, ship of the 375 shares, or that plaintiff-was notified that that matter. ■ would be taken up at-the meeting.. The meeting was held on April; 27th, whereupon a most extraordinary resolution was proposed Ty. McLean,' and adopted by the. board, as follows: “ Moved that all: stock issued to O. I). Hall, issued in excess of what he is entitled ¡to,, and what he claims due him as commission, for certain sale of stock to Andrew McLean, is .hereby declared void, -as the said Andrew. McLean, in Buying'stock, claim's his purchase .was made direct -from , the company or its agent, and any commissions going with the. stock are 'due to said Andrew McLean, and not to' O. D. Hall, and furthermore, in view of-the-very unsatisfactory- condition of'the. stock-book, which shows that.certificate number 14 and others, with, the' stubs, aré missiñg and unaccounted for, the same -having been in the custody of O. D. Hall, -and it is further moved that all of O. D. Hall’s stock is declared void, and not- in good standing, until ' the said certificate number 14 and-others are returned.'to the company or properly accounted for to the board of directors of this company.” By this resolution the board' of directors, under the leadership of McLean,,-one. of the parties to- this controversy, constituted itself judge,- jury and executioner. It .undertook to. settle and determine out of hand the controversy between McLean and the plaintiff in favor of the former, and to make assurance doubly 'sure, it undertook to cancel and annul the 14 shares as to the ownership of which by plaintiff no question is raised. That this attempted action was utterly illegal, void and of no effect whatever is too plain for argument. The stock had stood in plaintiff’s name for nearly a year, during which time plaintiff’s title to it could readily have been tested by a proper action. Hothing was done, however, until a few days before the annual meeting at which a board of directors was to be elected. The stock standing in plaintiff’s name constituted the controlling power, and McLean and his adherents in the board adopted this summary method of declaring the plaintiff’s stock void, and thus, as they hoped, secured their own reelection as directors. They were properly prevented from carrying out their plan by the temporary injunction, and the motion to-continue it during the pendency of the action must be granted, with $10 costs.

Motion granted, with $10 costs.