Opinion
Argued June 22, 1927
Decided July 20, 1927
Appeal from the Supreme Court, Appellate Division, First Department.
David T. Smith and Nicholas A. Heymsfeld for appellant. Louis Ehrenberg and Samuel Okin for respondents.
Action to compel defendants to surrender stock certificates for cancellation.
In June, 1920, Polish Mechanics Co., a foreign corporation, sought to purchase five hundred shares of the treasury capital stock of plaintiff, a domestic corporation, of the par value of $10 a share. It requested Anthony Misiewicz to purchase the stock and take the same in blocks of one hundred shares in the names of himself and four other persons to hold it for and on behalf of the purchasing corporation and gave him $5,000 which he agreed to use for that purpose. He made the purchase. The number of distributees was increased to six. One certificate, No. 111, was issued to him for ninety shares, and one, No. 112, to his wife, the defendant Sophie Misiewicz for seventy-one shares, without consideration and merely to hold for the corporation. Defendant Louis Ehrenberg as receiver of Anthony Misiewicz now holds the certificate for ninety shares. The wife still holds the certificate issued to her. In the following November the Polish Mechanics Co., desiring to make a new arrangement as to the form of its stock holdings, requested Misiewicz to retransfer the stock so held in his name and that of his wife and to surrender the certificates. He promised but failed to do so. The other persons to whom certificates had been issued surrendered their certificates and plaintiff issued to certain other persons designated by Polish Mechanics Co., five hundred shares of its capital stock in place of all the first set of certificates including the certificates in suit. Misiewicz still failed and refused to surrender the certificates. As a result there are now outstanding both the Misiewicz certificates and the certificates issued in their place. Polish Mechanics Co. has meantime transferred its stock to a purchaser with knowledge of the facts.
The complaint has been dismissed on the ground that defendants were under no duty to plaintiff. The principle has been relied on that a corporation may not, where it has issued and recognized two certificates for the same holding, be heard to assert the validity of one and the invalidity of the other and that the rights of two holders may not be properly settled in the suit, particularly as they are not here parties. ( N.Y. Eastern T. T. Co. v. Gt. Eastern Tel. Co., 74 N.J. Eq. 221; 75 id. 297.) I think that this principle has no application to this case. The plaintiff corporation should, for its own protection, have refused to issue the new stock without the surrender of the old certificates ( McNeil v. Tenth Nat. Bank, 46 N.Y. 325, 331), but its failure to do so does not prevent equity from taking hold of the case. Polish Mechanics Co. clothed the Misiewiczs with the indicia of title of stock which it owned. As a result defendants now have it in their power to commit a wrong against the plaintiff by transferring the certificates to bona fide purchasers for value. If plaintiff should refuse to recognize such transferees as stockholders, it would be liable in damages to them. Cancellation on the books is not enough to protect it. When certificates of stock contain apparently all the essentials of genuineness a bona fide holder thereof has a claim to recognition as a stockholder, if such stock can legally be issued, or to indemnity if this cannot be done. ( Holbrook v. N.J. Zinc Co., 57 N.Y. 616; Bean v. Am. Loan T. Co., 122 N.Y. 622; F.A. Bank v. F.S.S. G.S.F.R.R. Co., 137 N.Y. 231, 242.) To remove this menace, action is brought. The defendants are not bona fide holders of the certificates nor has Polish Mechanics Co. any further interest therein. It had its stock and has parted therewith. While the transferee doubtless has a cause of action to compel the surrender of the outstanding certificates, the plaintiff has a right to prevent the defendants from clinging to something to which they have no title.
The contention is made that the proper remedy for plaintiff is to bring an action to compel the holders of the new certificates to surrender them and to cancel them until the first outstanding certificates are surrendered. But the Misiewiczs are committing a wrong against the plaintiff in refusing to surrender their certificates. As Chancellor KENT said in Hamilton v. Cummings (1 Johns. Ch. 517, 522): "It is every day's practice * * * to order instruments to be delivered up, of which a bad use might be attempted to be made at law." In the hands of defendants the certificates, valid on their face, are from their nature liable to abuse. The stock has become fictitious. They have no true ownership therein but only the indicia of ownership. While their certificates were not fraudulently issued, they now hold them without right. It is against conscience and equity that the certificates should be kept outstanding and they ought to be canceled to protect the corporation and its genuine stockholders. ( N.Y. N.H.R.R. Co. v. Schuyler, 17 N.Y. 592.) Mrs. Misiewicz pleads no equities and stands in the same position as her husband.
The judgment of the Appellate Division and that of the Special Term should be reversed and judgment ordered in favor of plaintiff for relief demanded in the complaint, with costs in all courts.
CARDOZO, Ch. J., CRANE, LEHMAN, KELLOGG and O'BRIEN, JJ., concur; ANDREWS, J., absent.
Judgment accordingly.