McSherry, C. J.,
delivered the opinion of the Court.
The bill of complaint which was filed in Circuit Court No. 2, of Baltimore City, by the appellee against the appellant, a body corporate, prayed that a decree might be passed enjoining and requiring the appellant to transfer upon its stock-books, to the appellee, nine shares of its capital stock that were then and still are standing in the name of Louis Yakle; but \vhich are claimed by the appellee to belong, to and to be owned by him. It is averred in the bill that upon the formation of the Victor G. Bloede Company of Baltimore, which is the party appellant in this cause, the appellee became entitled to a large part of the company’s capital stock, and believing that Louis Yakle intended to purchase from him nine shares thereof, he instructed the treasurer to make out' a certificate in the name of Yakle for that number of shares, which was accordingly done. That the appellee then tendered the certificate to Yakle, who declined to receive or to [137]*137pay for it, because, as he insisted, its issue to him was unauthorized and erroneous, and because he claimed no interest in or title to it. That the certificate remained and still is in the possession of the appellee. That the issual of the certificate to Yakle was a mistake on the part of both the appellant and the appellee, and that the nine shares of stock represented thereby are the property of the appellee. The bill further alleges that the appellee made a demand upon the company for a transfer of these shares to himself, but that the demand was refused upon the ground that a by-law of the company regulating transfers had not been complied writh. The by-law in question reads as follows: “ If any stockholder shall desire to dispose of his stock, he shall, at least thirty days before a transfer shall be made, notify the president, in writing, of his intention to sell and of the price he can obtain, which notice the president shall communicate to the other stockholders, who thereupon shall have the option to purchase the stock at the price named, in amounts pro rata to the stock held by them respectively, and the corporation shall have the option to take any such stock as may not be taken by any stockholder individually.”
The answer relies on this by-law and insists that the stock certificate was regularly issued to Louis Yakle and that the nine shares were properly placed in his name, and that the certificate cannot be transferred to the appellee except in accordance with the provisions of the by-law just transcribed. The answer further goes into a detailed statement as to the' method in and by which the appellant company was formed; sets forth the substance of an agreement alleged to have been entered into between the appellee and the Joseph Bancroft and Son’s company, a Delaware corporation, whereby as a condition precedent to the latter corporation becoming a large stockholder in the yet unformed appellant company, a list of stockholders, including Yakle, with the number of shares which each was to hold, was arranged, and then insists that the nine shares in controversy were issued to Yakle pursuant to this agreement and not by error or mistake at all.
[138]*138A large mass of testimony was taken, much of which, as ,is usual in such controversies, is irrelevant. After'a hearing the Court below signed a decree granting the relief prayed. From that decree this appeal has been taken.
It appears that the appellee, who is a chemist, has for some years past been conducting a large business in Baltimore City as a manufacturer of dyes and colors made according to his own secret processes. ' The Joseph Bancroft and Son’s Company of Wilmington, a body corporate, engaged in dyeing cloth, was one of the appellee’s largest customers and dependent, to a considerable extent, upon him for some of the dyes and colors used by it. With a view of more closely identifying the interests of the two industries it was proposed that the appellee should cause a corporation to be formed to take over his entire business, and that the Joseph Bancroft and Son’s Company should be' allowed to have a part of the capital stock of the new corporation in exchange for an equal amount of the stock of the Wilmington Company. Thus the appellee would receive in the Bancroft Company an interest equal in value to the interest which' the latter corporation would obtain in the business of the appellee. It is not material who proposed this scheme and we need not discuss this controverted question. After several interviews and som"e negotiations the scheme was finally consummated. There is wide and abrupt conflict in the evidence as to the results reached in these negotiations ; but it would serve no useful purpose to enter into an analysis thereof,' or to set forth the reasons or the lines of reasoning which influence and sustain the conclusions to which we have come in respect thereto ; and hence we proceed, not to discuss the testimony bearing thereon, but after weighing it as we have carefully done, to state the deductions of fact, which a due consideration of all its details, in our opinion, warrants and justifies.
• When the Victor G. Bloede Company was formed for the purpose of taking over the business of the appellee the articles of association fixed the capital stock at one hun[139]*139dred and fifty thousand dollars; fifty thousand of which was retained in the company’s treasury; six shares were issued to six of the incorporators and nine hundred and ninety-four shares in one certificate to the appellee in payment for the plant and business turned over to the appellant company. Of the nine hundred and ninety-four shares the appellee transferred to the Joseph Bancroft & Son’s Company in exchange for an equal amount in value of its stock, four hundred and seventy-four shares ; he sold and transferred to John Hutton, an employee of the Bancroft Company, twenty shares; and he caused certificates to be made out in the name of Glaeken for ten shares, and in the name of Brown for five shares, under a special agreement with these parties as to the method of payment, and one additional share to Nowlin and nine to Yakle, leaving four hundred and seventy-five in his own name. He thereupon surrendered up and had the original certificate for nine hundred and ninety-four shares cancelled. Yakle had not subscribed for these nine shares, nor did he authorize the appellee to have them issued to him. He was, at that time, associated with the appellee in another business enterprise. When the two certificates issued in the name of Yakle— one for one share as an incorporator and one for the nine shares now in controversy—were sent to Yakle, he declined to accept or to pay for the nine shares on the ground that he had never subscribed for them; and the certificate for these shares was at once returned to the appellee, who thereafter kept possession of it; and when he and Yakle dissolved their other business connection Yakle signed upon the certificate a transfer of the nine shares to the appellee. Yakle never claimed to own these nine shares; he never paid for them or had them in his possession. It is these nine shares that the appellant now refuses to transfer on its books to the appellee.
From this statement it is obvious that these nine shares were originally part of the nine hundred and ninety-four shares issued in the first instance to the appellee by the ap[140]*140pellant for value.
Free access — add to your briefcase to read the full text and ask questions with AI
McSherry, C. J.,
delivered the opinion of the Court.
The bill of complaint which was filed in Circuit Court No. 2, of Baltimore City, by the appellee against the appellant, a body corporate, prayed that a decree might be passed enjoining and requiring the appellant to transfer upon its stock-books, to the appellee, nine shares of its capital stock that were then and still are standing in the name of Louis Yakle; but \vhich are claimed by the appellee to belong, to and to be owned by him. It is averred in the bill that upon the formation of the Victor G. Bloede Company of Baltimore, which is the party appellant in this cause, the appellee became entitled to a large part of the company’s capital stock, and believing that Louis Yakle intended to purchase from him nine shares thereof, he instructed the treasurer to make out' a certificate in the name of Yakle for that number of shares, which was accordingly done. That the appellee then tendered the certificate to Yakle, who declined to receive or to [137]*137pay for it, because, as he insisted, its issue to him was unauthorized and erroneous, and because he claimed no interest in or title to it. That the certificate remained and still is in the possession of the appellee. That the issual of the certificate to Yakle was a mistake on the part of both the appellant and the appellee, and that the nine shares of stock represented thereby are the property of the appellee. The bill further alleges that the appellee made a demand upon the company for a transfer of these shares to himself, but that the demand was refused upon the ground that a by-law of the company regulating transfers had not been complied writh. The by-law in question reads as follows: “ If any stockholder shall desire to dispose of his stock, he shall, at least thirty days before a transfer shall be made, notify the president, in writing, of his intention to sell and of the price he can obtain, which notice the president shall communicate to the other stockholders, who thereupon shall have the option to purchase the stock at the price named, in amounts pro rata to the stock held by them respectively, and the corporation shall have the option to take any such stock as may not be taken by any stockholder individually.”
The answer relies on this by-law and insists that the stock certificate was regularly issued to Louis Yakle and that the nine shares were properly placed in his name, and that the certificate cannot be transferred to the appellee except in accordance with the provisions of the by-law just transcribed. The answer further goes into a detailed statement as to the' method in and by which the appellant company was formed; sets forth the substance of an agreement alleged to have been entered into between the appellee and the Joseph Bancroft and Son’s company, a Delaware corporation, whereby as a condition precedent to the latter corporation becoming a large stockholder in the yet unformed appellant company, a list of stockholders, including Yakle, with the number of shares which each was to hold, was arranged, and then insists that the nine shares in controversy were issued to Yakle pursuant to this agreement and not by error or mistake at all.
[138]*138A large mass of testimony was taken, much of which, as ,is usual in such controversies, is irrelevant. After'a hearing the Court below signed a decree granting the relief prayed. From that decree this appeal has been taken.
It appears that the appellee, who is a chemist, has for some years past been conducting a large business in Baltimore City as a manufacturer of dyes and colors made according to his own secret processes. ' The Joseph Bancroft and Son’s Company of Wilmington, a body corporate, engaged in dyeing cloth, was one of the appellee’s largest customers and dependent, to a considerable extent, upon him for some of the dyes and colors used by it. With a view of more closely identifying the interests of the two industries it was proposed that the appellee should cause a corporation to be formed to take over his entire business, and that the Joseph Bancroft and Son’s Company should be' allowed to have a part of the capital stock of the new corporation in exchange for an equal amount of the stock of the Wilmington Company. Thus the appellee would receive in the Bancroft Company an interest equal in value to the interest which' the latter corporation would obtain in the business of the appellee. It is not material who proposed this scheme and we need not discuss this controverted question. After several interviews and som"e negotiations the scheme was finally consummated. There is wide and abrupt conflict in the evidence as to the results reached in these negotiations ; but it would serve no useful purpose to enter into an analysis thereof,' or to set forth the reasons or the lines of reasoning which influence and sustain the conclusions to which we have come in respect thereto ; and hence we proceed, not to discuss the testimony bearing thereon, but after weighing it as we have carefully done, to state the deductions of fact, which a due consideration of all its details, in our opinion, warrants and justifies.
• When the Victor G. Bloede Company was formed for the purpose of taking over the business of the appellee the articles of association fixed the capital stock at one hun[139]*139dred and fifty thousand dollars; fifty thousand of which was retained in the company’s treasury; six shares were issued to six of the incorporators and nine hundred and ninety-four shares in one certificate to the appellee in payment for the plant and business turned over to the appellant company. Of the nine hundred and ninety-four shares the appellee transferred to the Joseph Bancroft & Son’s Company in exchange for an equal amount in value of its stock, four hundred and seventy-four shares ; he sold and transferred to John Hutton, an employee of the Bancroft Company, twenty shares; and he caused certificates to be made out in the name of Glaeken for ten shares, and in the name of Brown for five shares, under a special agreement with these parties as to the method of payment, and one additional share to Nowlin and nine to Yakle, leaving four hundred and seventy-five in his own name. He thereupon surrendered up and had the original certificate for nine hundred and ninety-four shares cancelled. Yakle had not subscribed for these nine shares, nor did he authorize the appellee to have them issued to him. He was, at that time, associated with the appellee in another business enterprise. When the two certificates issued in the name of Yakle— one for one share as an incorporator and one for the nine shares now in controversy—were sent to Yakle, he declined to accept or to pay for the nine shares on the ground that he had never subscribed for them; and the certificate for these shares was at once returned to the appellee, who thereafter kept possession of it; and when he and Yakle dissolved their other business connection Yakle signed upon the certificate a transfer of the nine shares to the appellee. Yakle never claimed to own these nine shares; he never paid for them or had them in his possession. It is these nine shares that the appellant now refuses to transfer on its books to the appellee.
From this statement it is obvious that these nine shares were originally part of the nine hundred and ninety-four shares issued in the first instance to the appellee by the ap[140]*140pellant for value. It is equally obvious that as between Yakle and the appellee there never was a purchase by the one or a sale by the other of these nine shares, or the semblance of a negotiation for the acquisition of them by Yakle in any way. This is one of the undisputed features of the controversy. It is manifest, then, that in so far as Yakle and the appellee are concerned, the latter never parted with his ownership of these shares, and certainly Yakle never supposed or contended that he, Yakle, had purchased them. There was no gift of them to Yakle; there was no sale of them to him; he paid nothing for them, refused to take them when tendered to him, and after-wards endorsed the certificate over to the appellee.
There are two conflicting contentions as to how the certificate for nine shares came to be made out in the name of Yakle. The appellee insists that he directed the treasurer of the company to so make it out, not because Yakle had agreed to take the stock, but because the appellee wished to give Yakle an opportunity to acquire it, though he did not then know whether Yakle would purchase the shares or not; whilst the appellant maintains that the certificate was made out in the name of Yakle pursuant to an agreement between the appellee and the Bancroft Company, so that neither the appellee nor the Bancroft Company, by having a majority of the stock, could control the corporation ; but that the control might be in the hands of a neutral third party. Each denies the contention of the other. Yakle was confessedly no party to the understanding set up by the appellant, and unless it be assumed that the appellee, for the purpose of preserving an equilibrium between himself and the Bancroft Company in the management of the Victor G. Bloede Company, deliberately agreed to gratuitously give away nine shares of his own stock for which he had paid value, the theory of the appellant cannot be adopted. The probabilities are all against it and the flat denials of the appellee and other witnesses are sufficient to justify its rejection.
[141]*141If, then, the stock issued in the name of Yakle was not issued under the agreement which the appellant sets up, these nine shares undoubtedly continued to be the property of the appellee ; and if they continued to be his property a re-transfer of them to him was not a sale of them within the meaning of the by-law hereinbefore set forth; even if that by-law be conceded to be valid ; and consequently that by-law furnishes no ground for refusing the relief sought by the appellee. The mere statement of this proposition is tantamount to its demonstration. If the shares belong to the appellee and have always belonged to him though a certificate was erroneously made out in the name of Yakle, then, if the by-law be valid and controls the transfer, each shareholder would be entitled to a pro rata proportion of these nine shares, even though the appellee did not desire to sell any of them. An attempt to re-transfer these shares would result in a forced sale of part of them to the other shareholders, though he wished to sell none of them. The transfer on the back of the certificate and the delivery of the certificate to the appellee completed his equitable title to the stock without a transfer on the books of the company, even if Yakle had ever had any interest in the nine shares. As between Yakle and the appellee the equitable title to the shares was complete upon the execution of the transfer; and, all other considerations out of view, the right to the shares then vested in the appellee. The entry of the transfer on the books of the company is required, not for the translation of the title, but for the protection of the parties and others dealing with the company; and to enable the company to know who are its stockholders entitled to vote at meetings and to receive dividends when declared. Gemmell & Sinclair v. Davis & Co., 7 Md. 552; Noble v. Turner, 69 Md. 519; Johnston v. Lafflin, 103 U. S. 800.
But the by-law itself can, when invoked by the company, interpose no obstacle to the transfer of these shares for the reason that it is invalid. It is an unreasonable and a pal[142]*142pable restraint upon the alienation of property. As a general rule stockholders indisputably have the right to sell their shares at pleasure. Trisconi v. Winship, 43 La. Ann. 45. That the power to regulate transfers of stock does not include authority to control its transferability by prescribing to whom the owner may sell and to whom not, or upon what terms ; and that the mere power to regulate transfers does not authorize a refusal to allow a transfer of shares to even an insolvent is decided in Choutsan Spring Co. v. Hanis, 20 Mo. 383. And so a by-law prohibiting the alienation of shares of stock or imposing any restrictions on its exercise is declared to be in restraint of trade and against public policy and void in Moore v. Bank of Commerce, 52 Mo. 377; Re Klaus, 67 Wis. 401; Brinkerhoff Farris Trust & Sav. Co. v. Home Lumber Co., 118 Mo. 447; Feckheimer v. Nat. Ex. Bk. of Norfolk, 79 Va. 80. And in Am. Nat. Bk. v. Oriental Mills, 17 R. I. 551, in considering a similar by-law it was held without passing on its validity, that no one but the stockholders could take advantage of the noncompliance with the by-law, and that they had the power to waive it. And in Ireland v. Globe Milling & Reducing Co. (R. I.) 29 L. R. A. 429, it was decided that a by-law giving the corporation the first right to purchase stock which is for sale by any of its members, is not valid under a statute specifying several subjects upon which by-laws may be enacted, but making no reference to the question of stock-transfers. See also Farmers' Bk. v. Wasson, 48 Iowa, 339; Sargent v. Franklin Ins. Co., 8 Pick. 90.
(Decided June 18th, 1896).
The cases in 36 Md. 491, and 48 Md. 473, and others cited are distinguishable, for there the invalidity relied on by the stockholders was invoked to defeat, the claim of a creditor.
As we shall affirm the decree appealed from, we have not thought it worth while to consider the motion madfe to dismiss the appeal.
Decree affirmed with costs above and below.