pledging, as collateral security for payment, shares of stock, viz.: Twenty-five shares owned by Eaton, twenty shares owned by Southwick, fifteen shares owned by Stevens and nine shares owned by Barnes, were assigned and pledged to L. A. Becher, and forty shares owned by Thombs were assigned and pledged to E. G. Becher. The Southwick shares, by the terms of the pledge, became absolutely the property of L. A. Becher on failure to pay his obligations.

It is objected that these affidavits should not be received to vary or change the absolute assignment of the shares expressed in writing on the certificates. Whatever the rule may be as between the assignors and assignees, I think the corporation can show the true character of the contract of assignment, and thus determine the relation of these assignees of stock certificates. If the shares of stock are merely pledged by the assignment of the certificates, the holders would not be entitled to the rights, nor subject to the liabilities, of the owners of shares; they could only become owners by a sale and purchase of the stock pledged on failure of the pledgors to pay the debt.

§ 505. Liability of corporation for assignment of pledged stock. The pledgees holding the certificates, and the corporation having notice thereof, it will be liable for any transfer upon the books of the company of the pledged stock without their consent. The bill charges that the defendants propose to increase the indebtedness of the company wrongfully and unnecessarily, but the opposing affidavits controvert this allegation. It is clear that the stockholders have a right to increase the stock or indebtedness of the corporation, if such policy is regarded necessary for the interests of the company. See Minn. R. S., 396, § 121; Laws Minn. 1875, p. 53.

§ 506. When equity will interfere with the policy of a corporation.

A court of equity will not interfere with the internal policy of a corporation unless it is manifest that the proposed act is ultra vires. I am not satisfied, from the affidavits read at the hearing, that an increase of stock will cripple the corporation and make it insolvent, or that an increase of indebtedness may not be proper. There is no fraud or conspiracy on the part of the defendants, who are stockholders, to injure the complainants. I have not considered the question whether the complainants are entitled to any equitable relief, but, for the purposes of this motion, concede it.

An injunction is refused, and the restraining order is dissolved.

HUBBELL v. DREXEL.

(Circuit Court for Pennsylvania: 11 Federal Reporter, 115-118. 1882.)

STATEMENT OF FACTS.- Bill to compel the transfer to plaintiff of one thousand seven hundred and two shares of railroad stock. The stock was deposited with defendants as collateral security for loans of money. Upon account stated, in July, 1877, it appeared that defendant held one thousand six hundred and two shares of stock as security for an indebtedness of $46,472, for which a note was given. The bill charged that defendants had one hundred shares more of stock than their account showed. The stock was transferred to the name of defendants, and was ultimately sold, failing to pay out by about $1,600. Opinion by BUTLER, J.

The plaintiff's case falls short of the measure of proof necessary to support a decree in his favor. While every material averment of the bill is specifically denied by the answer, we have nothing in reply but the plaintiff's own statements as a witness.

It is very earnestly urged that the answer admits an agreement to carry the loan and stock so long as the collaterals should remain sufficient to protect the defendants against loss, and that this agreement has been violated by the sale of the stock. The language invoked to establish this alleged admission, however, must be regarded as referring to the written contract contained in the several notes, which clothed the defendants with authority to decide when the collaterals ceased to be sufficient, and to sell on plaintiff's failure to heed a call for further deposit, or to pay the debt at maturity.

It is also urged that the answer, in connection with the defendants' previous written admission, supports the allegation that one hundred shares of stock are not accounted for. Paragraph 4 of the answer, and the entry of April 14th on the $33,000 note, are referred to in support of this position. Standing alone and unexplained they would seem to sustain the allegation. The paragraph specified plainly states that on the 11th of April the defendants held one thousand eight hundred and three shares as collateral for two notes of $33,000 and $19,550 respectively one thousand one hundred and forty shares on account of the former, and six hundred and sixty on account of the latter; and the indorsement on the $33,000 note shows a receipt indorsed for "one hundred shares, as additional collateral, added April 14, 1877." If this one hundred shares is additional to the one thousand eight hundred and three, as here indicated, the plaintiff is correct. It appears, however, that a few days prior to the 14th (the exact date is uncertain), the defendants received two hundred shares on account of this note, which were not indorsed upon it. These two hundred shares are included in the statement contained in paragraph 4, showing a credit of one thousand eight hundred and three shares, as before stated. It is quite probable, in view of other facts about to be alluded to, that the indorsement on the note, a few days later, has reference to a part of these two hundred shares. Indeed it seems impossible to avoid such a conclusion. It is not only consistent with all other statements and entries of the defendants respecting the transactions and account, but is fully sustained by repeated admissions of the plaintiff, one only of which need be particularly noticed. When the two notes referred to were consolidated on July 17, 1877, and merged in one for $46,472.81, the balance of the stock then held as collateral was stated in the body of this note to be one thousand six hundred and three shares, the amount accounted for by the defendants. The plaintiff's explanation of this statement and admission cannot, of course, be accepted. It is not only denied by the answer, but shown to be erroneous by the testimony of a disinterested witness as well.

507. The pledgee of stock has a right to have it transferred into his own Shares of stock have no ear marks."

name.

The allegation that the defendants procured a transfer of part of the stock to themselves, on the books of the company, immediately on receiving the certificates from him, is immaterial. It was plainly their right to do so. If he desired to avoid this he should have contracted accordingly. When thus transferred it was unnecessary and impossible to distinguish between these shares and others held by the defendants. It is of no consequence, therefore, that in selling stock they may have disposed of these particular shares. They at all times had in hand an amount greatly in excess of the shares received from the plaintiff, and were, therefore, constantly prepared to keep their contract with him. A share of stock is without "ear marks," and cannot, therefore, be distinguished, as has just been said, from others of the same corporation and

issue. The certificates, bearing dates and numbers, are but evidence of title. On payment of his debt the plaintiff would have been entitled to a return of the number of shares which the defendants had received, nothing more.

Such

was the effect of his contract. Nourse v. Prime, 4 Johns. Ch., 490; Allen v. Dykers, 3 Hill, 593; Gilpin v. Howell, 5 Barr, 41. For these reasons the bill must be dismissed with costs.

MCKENNAN, J., concurred.

$508. Liability of transferee.- Transferees of shares issued as full paid, who take them with no notice of the fact that they are not in reality full paid, are not liable for the balance unpaid upon them. Foreman v. Bigelow, 4 Cliff., 541. See §§ 452-454.

$509. If a certificate expressed in the name of A. B., trustee, is by him pledged to secure his own debt, the pledgee is by the terms of the certificate put on inquiry as to the character and limitation of the trust, and if he accepts the pledge without inquiry does so at his peril. Duncan v. Jaudon, 15 Wall., 165. See §§ 443, 463–466.

§ 510. A trustee of certificates of stock has no right to pledge them to secure his own indebtedness, or to raise money upon them for, his own benefit. Ibid.

§ 511. Rights and liabilities of transferrer.- After entering a transferee's name on its books as a shareholder, a company is estopped from collecting unpaid balances due on the stock from the transferrer. Upton v. Burnham,* 3 Biss., 520.

§ 512. Notice.-Notice to a board of directors of a corporation of a transier of stock is notice to a subsequent board. Mechanics' Bank v. Seton, 1 Pet., 299.

§ 513. Notice to the board of directors of a bank that certain shares of its stock are held by a certain person as trustee is notice to the bank. Ibid.

$514. A bank is bound by notice communicated to its cashier that certificates of stock were held in trust. Duncan v. Jaudon, 15 Wall., 165.

§ 515. To be made on the books.- By-laws and regulations of a company providing that transfers of stock shall be made only upon its books are made by it for its own protection, and may be waived by it. Upton v. Burnham,* 3 Biss., 520. See SS 439–441. $516. A mere request to an officer of a corporation to make a transfer of certain shares of its stock does not operate as a transfer, which must be actually made upon the books of the bank. Brown v. Adams,* 5 Biss., 181.

$517. If a company knows that a person has its stock and assents to his becoming a stockholder by placing his name on its stock book, this amounts to a waiver of the clause in the by-laws and certificate requiring the transfer to be made only on the books of the company. Upton v. Burnham,* 3 Biss., 520.

$518. Entry of a person's name on the stock book is evidence of a waiver of a right to require the stock to be transferred on the books of the company. Ibid.

$519. No transfer by one indebted to company.- The charter of a bank authorized it to make by-laws, not inconsistent with existing law, for the management of its property, the regulation of its affairs and the transfer of its stock. A by-law of the bank allowed stock to be assigned by the indorsement of the certificates and a transfer on the books of the bank, but provided that no transfer should be allowed to be made by any stockholder who was at the time indebted to the bank. It was held, (1) that this by-law was proper and reasonable; (2) that unpaid subscriptions constituted a debt to the bank within the by-law; (3) that the officers of the bank could not waive the provision of the by-law, by entering the transfer on the books of the bank and surrendering to one assigning his stock, and who was indebted to the bank, his notes for unpaid subscriptions, so as to affect his liability to the bank and its creditors; (4) that the fact that a general statute provided that no stock should be transferred until all previous calls thereon had been paid, did not prevent the board from extending the limit to the whole amount of unpaid stock. In re Bachman,* 2 Cent. L. J., 119. See § 442

446.

$520. The third and twenty-first sections of the act of congress incorporating the Mechanics' Bank of Alexandria, and providing that "it is hereby expressly understood that all the subscriptions and shares obtained in consequence thereof shall be deemed and held to be for the sole and exclusive use and benefit of the persons, etc., subscribing, or in whose behalf the subscriptions shall be declared to be made at the time of making the same;" that "the shares of capital stock shall be transferable at any time, etc., but no stock shall be transferred, the holder thereof being indebted to the bank, until such debt be satisfied," etc. Held, not to authorize a construction that the stock shall be deemed to belong to the person in whose name it stands upon the books of the bank; and that the bank is not bound to recognize the

interest of any cestui que trust, and may refuse to permit the stock to be transferred, while the nominal holder is indebted to the bank. Mechanics' Bank v. Seton, 1 Pet., 299.

§ 521. Under a bank charter providing that "its board of directors shall have power to define and regulate, by by-laws not inconsistent with the provisions of this act, the manner in which its stock shall be transferred," the board of directors of the bank have authority to provide by a by-law that "no transfer of the stock of this bank shall be made without the consent of the board of directors, by any stockholder who may be liable to the bank, either as principal debtor or otherwise." In re Dunkerson, 4 Biss., 229.

§ 522. Such by-law is valid against the stockholder or his assignee. Ibid.

§ 523. Under a provision, in the charter of a banking corporation, that all debts due and payable to the bank, by a stockholder requesting a transfer of stock, must be satisfied before such transfer shall be made, the bank may refuse to make the transfer until the debt is paid, though the amount of stock is much larger than the debt due. Brent v. Bank of Washington, 3 Cr. C. C., 363.

§ 524. Where the act of incorporation provides that shares shall be transferable only on the books of the bank, according to rules to be made by the officers of the bank, and that all debts due the bank from a shareholder requesting a transfer shall be paid before a transfer shall be made; and the certificate issued purports to be transferable at the bank, etc., held, that no person can acquire a legal title to any shares, except by a transfer according to the rules of the bank; and that if any person takes an equitable assignment, he does so subject to the rights of the bank under the law, of which he must take notice. Union Bank v. Laird,* 2 Wheat., 390.

§ 525. Lien.- The lien of a bank upon its stock for a shareholder's debt to it is not extinguished by its taking additional security. Ibid.

§ 526. Under a by-law of a bank providing that "no transfer of the stock of this bank shall be made without the consent of the board of directors by any stockholder who shall be liable to the bank either as principal debtor or otherwise," held, that this by-law was intended to create a lien on the stock of every debtor of the bank for the payment of his debt, and could only be effectuated by being so construed. In re Dunkerson, 4 Biss., 229. See §§ 297,

442-446.

§ 527. A provision in the articles of association of a banking corporation, that no stockholder can transfer his stock while his notes are lying over unpaid, is held to give the bank a lien on the stock. Buford v. Crandall, 2 Cr. C. C., 86.

§ 528. Where a lien is given by the charter of a bank upon the stock of its shareholders, by means of a power to refuse to permit a transfer to be made on the books of the bank until the debt due by the stockholder is paid to the bank, the bank has no specific lien on the dividends of its stockholders. Brent v. Bank of Washington, 2 Cr. C. C., 517.

§ 529. A banking corporation may forbid the transfer of its stock until the transferrer pays his debts to the bank. After the debts are due and unpaid the bank has a lien on the stock for them, even though they mature after the stockholder's death. And this lien takes precedence over an unsecured debt due the United States. Brent v. Bank of Washington,* 10 Pet., 596.

§ 530. Transferable at the bank.- Where the owner of shares of stock in a banking corporation receives a certificate from the bank therefor, which recites that he “has standing to his credit on the books of the bank ten shares of the capital stock thereof, which is transferable at the bank in person or by attorney," the stock is transferable at the bank only, under the official cognizance of the officers of the institution. A transfer of the certificate, with the power of attorney in a third person to transfer the stock, does not of itself transfer the stock. Williams v. Mechanics' Bank of New Haven, 5 Blatch., 59.

§ 531. Certificates stating that stock is "transferable at the bank” indicate the place where the transfer must be made to be effectual. Ibid.

§ 532. One who takes, as collateral security for a note, stock that is transferable only at the office of the company, and which is subsequently attached by a third party, to whom it is afterwards transferred by the corporation without notice of the pledgee's rights, has no remedy against the company. The pledgee, in order to protect himself, must at least give notice to the corporation of his claim. Ibid. 228

SUMMARY

V. RIGHTS OF STOCKHOLDERS.

- Dividends, §§ 533, 534.— Net earnings, §§ 534, 536.— Bonds surrendered for stock, § 535.- Preferred stock, §§ 534, 535, 537.- Priority of stockholders, §§ 535, 537, 538, 539, 544.- Right to sue, §§ 540-546, 549–556.- May be sued, when, § 542.- Contest as to priority of liens, § 544.- Right to intervene, §§ 545, 549, 550.- May become a party, when, § 546.- Relative rights of corporation and members, § 547.- Rights generally, § 548.May prevent collection of illegal tax, §§ 555–557.

$533. Where the charter of a savings bank did not require the corporators to contribute any capital, did not authorize the creation of any capital stock, nor contemplate the existence of any capital save that created by deposits, and only provided for a division of profits among depositors, it did not authorize dividends of profits among corporators. Huntington v. Savings Bank, $$ 558-560. See §§ 326, 327, 587.

§ 534. A bankrupt railway company reorganized into a new company, of which creditors of the old company became preferred stockholders, entitled to dividends out of the net earnings, "after payment of mortgage interest and delayed coupons in full." Then the new company made a new loan and leased new roads, and after paying interest on the old debts, rent on the new leases, and interest on the new loan, it could pay no dividends on the preferred stook. Held, that net earnings meant such sum as was left from gross earnings after paying all charges and expenses, including interest on the new loan and rent on the new leases; and that the holder of preferred shares was not entitled to dividends before such rent and interest should be paid. St. John v. Erie R'y Co., §§ 561, 562.

§ 535. Creditors who surrender their bonds and take stock instead become stockholders with no preferences except such as they have stipulated for. Ibid.

§ 536. Net earnings denotes gross earnings minus all lawful charges, expenses and demands, including rent on leased roads. Ibid.

$537. Where a company is reorganized, and a class of preferred shareholders created who are given a priority over the indebtedness of the company, such priority does not apply to an indebtedness created subsequently to the reorganization. King v. Ohio & Mississippi Railway Company, SS 563, 564.

§ 538. Stockholders are only to be paid after the claims of other lien holders. Ibid. $539. Where stockholders claim a priority of payment over mortgage creditors, a specific lien beyond all doubt must be shown to exist in their favor. Ibid.

$540. A court of equity will entertain a suit by a stockholder on behalf of a corporation on refusal of the corporation to sue in its own behalf, after proper request to its board of managers so to do. Dodge v. Woolsey, § 565-573. See § 622.

§ 541. All remedies for injuries to the property or rights of the company must be prosecuted in the name of the company, and all demands against the company must be prosecuted against the company by name, unless its officers or agents, by fraud or misrepresentation, have rendered themselves personally liable. Forbes v. Memphis, El Paso & Pacific R. R., §§ 578–584. $542. A shareholder in his character of shareholder cannot sue, nor, unless specially made liable by the charter, can he be sued upon any of the company's transactions. Ibid. See $620.

§ 543. Stockholders and creditors of the company may interpose by suit in their own name and upon their own behalf, when the officers and managers of the company, by fraud and collusion with third persons, are sacrificing, or are about to sacrifice and betray, the interests of the corporation. Ibid.

§ 544. On a bill for a receiver of a corporation, rival creditors, by proceedings, before the master, may contest the priority of their respective liens, and creditors or shareholders may contest the validity of the claims of other creditors and shareholders; but only in subordination to the general object and purposes of the suit, to obtain an administration of the company's assets and property. Ibid.

$545. Where a bill was filed by a stockholder against corporate officers for fraud and embezzlement, and to compel the appointment of a receiver for the company, held, that the right to be allowed to intervene as a general defendant and contestant in such suit can be admitted only in favor of one who has an interest in the result of the suit as a stockholder or otherwise, and who is able to show fraud and collusion between the plaintiffs in the suit and the officers in the company having charge of its interests; but quære, whether even in such case an original bill would not be the proper mode of proceeding. Ibid.

§ 546. It is in the discretion of the court whether or not to permit a stockholder to become

a party in any case where he is not made such by the bill. Ibid.

§ 547. A commercial or other business corporation is constituted for a specific purpose of