Opinion
February 17, 1911.
Hector M. Hitchings, for the appellant.
Paul Grout [ Chauncey E. Treadwell with him on the brief], for the respondent.
The question to be determined upon this appeal is, which of the two parties have prior and superior right to a fund paid as dividends upon ten shares of the capital stock of the defendant standing on its books in the name of Harris L. Feldman.
The undisputed facts are that on March 28, 1907, the defendant transferred ten shares of its capital stock of the par value of $100 each to Feldman, and issued a certificate therefor which provided that the stock was transferable only on the books of the bank, in person or by power of attorney and surrender of the certificate. The same day that the certificate was issued Feldman obtained a loan from the plaintiff of $1,000 upon his promissory note, which was secured by an assignment of this stock and the delivery of the certificate to plaintiff as collateral. This note was paid June twenty-fourth, and four days later another loan of $1,000 was made by plaintiff to Feldman upon his promissory note, payable in three months, which recites the possession of the stock (which plaintiff had retained) as collateral. This note was subsequently renewed for one month, and the stock was retained as collateral at Feldman's request. This last note remains unpaid. Six months after the transfer of the stock to the plaintiff the defendant discounted promissory notes for Feldman amounting to $4,600, which were not paid at maturity and remain unpaid. Subsequently the defendant went into voluntary liquidation, and after the payment of all of its debts there remained a surplus for distribution among its stockholders, and dividends amounting to seventy-three per cent have been paid. Checks were made payable to the order of Feldman for dividends upon the stock standing in his name (which had not been transferred). These checks were not delivered, and at the time of the trial were in the possession of defendant. No notice was given to plaintiff of the dissolution proceeding or of any dividends. On May 14, 1909, the plaintiff gave the defendant notice of its ownership of the stock and demanded its share of the dividends.
The defendant contends that the ownership and legal title to the stock, notwithstanding the assignment to plaintiff, was in Feldman, and that, after the commencement of dissolution proceedings, some time prior to May 1, 1908, the stock had no legal status as such, and could not be transferred; that Feldman was the owner for the purposes of the distribution; that he could collect no dividends until his indebtedness was paid, and that plaintiff's legal status was no better than Feldman's. This contention is based upon the assumption that a valid transfer of the stock could not be made except by transfer upon the books of the bank. I find myself unable to concur in this view.
I think it is the well-settled law of this State that the delivery of a stock certificate by assignment in blank and a power of attorney indorsed passes the entire title, both legal and equitable, notwithstanding that by the terms of the charter or by-laws of the corporation the stock is declared to be transferable only on its books. ( McNeil v. Tenth National Bank, 46 N.Y. 325, 331.) The defendant had no claim or lien upon the stock until after its transfer to the plaintiff. There is no proof that the stock of defendant is made transferable only on its books, by either its charter or by-laws, and in the absence of such a provision in the charter or by-laws the provision in the certificate of stock could not have the effect of limiting the unconditional right of transferring it. ( Kinnan v. Sullivan County Club, 26 App. Div. 213.) The defendant had no lien upon the stock and no right to offset the indebtedness of Feldman against the dividends declared thereon. At common law a corporation has no lien upon its stock, and this rule is applied in this State, in the absence of statutory authority, to banks ( Bank of Attica v. Manufacturers' Traders' Bank, 20 N.Y. 501) and to business corporations ( Driscoll v. West Bradley C.M. Co., 59 id. 96). Section 51 of the Stock Corporation Law (Consol. Laws, chap. 59; Laws 1909, chap. 61) is the only statutory authority I am able to find giving a corporation the right to refuse to consent to a transfer of his stock by a stockholder until his indebtedness is paid, and this right is only given when the provisions of the section are written or printed upon the certificate of stock. The section is not applicable to the case at bar, because no reference to the provision of the section appears upon the certificate issued to Feldman.
The rights of the plaintiff became fixed and vested before the defendant went into liquidation, and the distributive share of its assets to which the plaintiff as a stockholder was entitled is not subject to any set-off on account of the indebtedness of Feldman at the time of its dissolution. ( Bridges v. National Bank of Troy, 185 N.Y. 146, 151; Pearsall v. Nassau Nat. Bank, 74 App. Div. 89. )
The record discloses no errors, and the judgment must, therefore, be affirmed, with costs.
JENKS, P.J., BURR, THOMAS and CARR, JJ., concurred.
Judgment affirmed, with costs.