
    Nicholson v. Franklin Brewing Company.
    
      A statute authorising' a corporation — To adopt by-laws regulating issue of stock• — Gives validity to a by-law, when — -Stockholder in transferring stock, bound by said by-laws — Laws governing corporation slock.
    
    1. A statute which expressly authorizes a corporation formed under it to adopt by-laws regulating the issuance and transference of shares in its capital stoclc and aiding in the promotion of its business gives validity to a by-law which requires a stockholder who desires to sell and transfer his stock, before doing so, to notify the directors of such desire and to give them a reasonable time to sell the stock to classes of persons designated in the by-laws because of the belief that their -occupations would render them efficient promoters of the business of the corporation.
    2. A suit cannot be maintained against the corporation to compel it, to register stock which 'a holder has attempted to transfer in violation of such by-law.
    (No. 11118
    Decided April 12, 1910.)
    Error to the Circuit Court of Franklin county.
    Plaintiff brought suit in the court of common pleas to compel the brewing company, a corporation of the state of Delaware, to accept the surrender of two certificates of its capital stock which he had received by assignment and. transfer from former owners thereof and issue to him a new certificate therefor. The judgment of the court of common pleas was in favor of the plaintiff, and the defendant appealed the cause to the circuit court, where, at the request of plaintiff, the facts were found and stated separate from the court’s conclusions of law. The finding of facts being appropriate to the issues joined and evidence adduced may be taken as a full statement of the case. It is as follows:
    1. On the 25th day of May, 1903, the defendant, Franklin Brewing Company, was duly organized and incorporated under.and by virtue of the laws of the state of Delaware, and has ever since continued to be and exist as such corporation.
    2. The defendant, Franklin Brewing Company, has ever since its organization conducted a general brewing business at Columbus, Franklin county, Ohio, with its entire property and holdings located at said place.
    3. Said defendant company has a capital stock of $225,000.00, divided into 2,250 shares, of the par value of $100.00 each.
    4. On or about the first day of February, 1905, plaintiff purchased, paying therefor a full and valuable consideration, twenty-five shares of the capital stock of said Franklin Brewing' Company from one M. H. Neil, who was then and there the owner and holder thereof and a stockholder in said defendant company, said shares of stock being represented by stock certificate No. 437. The said M. FT. Neil thereupon endorsed upon said certificate of stock his written assignment thereof to plaintiff, and delivered said certificate to plaintiff, who has ever since been the owner and holder thereof.
    The face of said certificate No. 437 reads as follows:
    “Incorporated under the laws of the State of Delaware.
    “No. 437. Shares 25.
    “Franklin Brewing Company.
    “Capital Stock, $225,000.00.
    “The Franklin Brewing Company has a lien upon the stock represented by this certificate for any and all indebtedness owing to it by the holder hereof, as shown upon the books of the company.
    “This certifies that M. H. Neil is the owner of 25 shares of the capital stock of Franklin Brewing Company, fully paid up, transferable only on the books of the corporation by the holder hereof in person, or by attorney, upon surrender of this certificate properly endorsed.
    “In witness whereof, the said corporation has caused this certificate to be signed by its duly authorized officers and to be sealed with the seal of the corporation, at Columbus, Ohio, this 10th day of January, A. D. 1905.
    Henry Seibert,
    “ [ Corporate Seal. ] PresidentA
    “Leonard Moi-ir, Secretary.
    
    The assignment of the said M. H. Neil on the back of said certificate No. 437 reads as follows:
    “For value received I hereby sell, assign and transfer unto James C. Nicholson twenty-five shares of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint - to transfer the said stock on the books of the within named corporation with full power of substitution in the premises.
    “M. H. Neil.
    “Dated-
    “In presence of: W. L. McLaughlin/'’
    5. On or about the first day of February, 1905, plaintiff purchased, paying therefor a full and valuable consideration, two shares of the capital stock of said Franklin Brewing Company from one John E. Crooks, who was then and there the owner and holder thereof, and a stockholder in said defendant company, said shares of stock being represented by stock certificate No. 395. The said John E. Crooks thereupon endorsed upon said certificate of stock his written assignment thereof to plaintiff, and delivered said certificate to plaintiff, who has ever since been the owner and holder thereof.
    The face of said certificate No. 395 reads as follows:
    “Incorporated under the laws of the State of Delaware.
    “No. 395. Shares 2.
    “Franklin Brewing Company.
    “Capital Stock, $225,000.00.
    “The Franklin Brewing Company has a lien upon the stock represented by this certificate for any and all indebtedness owing to it by the hol'der hereof, as shown upon the books of the company. ' “This certifies that John E. Crooks is the owner of two shares of the capital stock of Franklin Brewing Company, fully paid up, transferable only on the books of the corporation by the holder hereof in person, or by attorney, upon surrender of this certificate properly endorsed.
    “In witness whereof, the said corporation has caused this certificate to be signed by its duly authorized officers and to be sealed with the seal of the corporation, at Columbus, Ohio, this 5th day of December, A. D. 1904.
    
      urr. , „ , , ' Henry Seibert, [Corporate Seal.] President” “Leonard Mohr, Secretary. rresiaem.
    
    The assignment of the said John E. Crooks on the back of said certificate No. 395 reads as follows:
    “For value received I hereby sell, assign and transfer unto James C. Nicholson two shares of the capital stock represented by. the within certificate, and do hereby irrevocably constitute and appoint- to transfer the said stock on the books of the within named corporation with full power of substitution in the premises
    “John E. Crooks.
    “Dated-=-
    “In presence of: Besse M. Baker/’’
    6. At the time plaintiff purchased said certificates'Nos. 437 and 395 there was printed on the back of each the following provision, together with the blank form for the written consent of the directors and president:
    “The stock represented by this certificate is not transferable except with the consent of at least two-thirds' of the directors of the corporation indorsed upon the back hereof and signed by said directors and the president of this corporation, naming the person to whom the same may be transferred, and bearing the corporate seal.
    “We hereby consent to the transfer of -
    shares of the stock represented by this certificate
    to- Signed by us this-day of
    -, 190 — .”
    “President.
    
      “Directors.”'
    
    
      7. On the 23d day of March, 1905, plaintiff presented each of said certificates, Nos. 437 and. 395, at the office of the defendant company, to. Leonard Mohr and Henry Seibert, who were at-the time secretary and president, respectively, of ■ said defendant company, and who were the proper officers of said company to make transfers of all stock certificates which had been sold and assigned and to accept a surrender of the old certificates and to- issue new certificates, at which time plaintiff offered to surrender said certificates Nos. 437 and 395, and demanded of said officers that they transfer to plaintiff said shares of stock and issue to him a new certificate therefor.
    Afterwards, on the 30th day of March, 1905, plaintiff presented each of said certificates, Nos. 437 and 395, at the office of the defendant company to its board of directors, which board of directors was then in session, and offered to surrender said certificates Nos. 437 and 395, and demanded of said board of directors that they cause said shares of stock to be transferred to plaintiff and a new certificate therefor to be issued to him. No further or other action in this matter was taken by the plaintiff, or by John E. Crooks or by Moses H. Neil, except the institution of this action.
    Said defendant company and said officers and board of directors at said times refused, and have ever since refused to accept a surrender of said certificates Nos. 437 and 395, and to transfer said shares of stock to plaintiff and to issue to him a new certificate therefor.
    8. On or about the 1st day of April, 1905, plaintiff requested the defendant company, through its proper officers, to allow him to inspect the books and records of said corporation and to fix a reasonable time for said inspection, which request was refused.
    9. Said defendant company has at all times refused to admit plaintiff as a member or stockholder of said corporation, and has denied him the fight to vote or to be voted for at any and all of its stockholders’ meetings, and has denied him the .right to exercise any of the rights or privileges of a stockholder.
    10. On the 25th day of May, 1903, at the first meeting of the incorporators and subscribers to the capital stock of said defendant company, held at the office of the Delaware Charter Guarantee and Trust Company, at Wilmington, Delaware, a set of by-laws was adopted. Section 19 of said bylaws reads as follows:
    “Section 19. In case’ any member of this company desires to sell all or part of the stock held by him, he shall notify the secretary of this company in writing, stating the amount of stock he desires to sell and the market value of same, when this company shall have an option on said stock for thirty days following such notice. The directors in turn shall first offer it for sale to saloonkeepers who are not stockholders; second, to saloonkeepers who are stockholders, and, third, to stockholders who are not saloonkeepers. The meaning of the word 'saloonkeepers/ as applied in this section, is held to be all men actually engaged in the saloon business/’
    Said Section 19 has not been changed, amended or affected in any manner by other or subsequent action.
    11. Paragraph 6 of Section 2 of the corporation laws of the state of Delaware provides that every corporation shall have the power—
    “To make by-laws, not inconsistent with the constitution or laws of the United States or of this state, fixing and altering the number of its directors for the management of its property, the regulation and government of its affairs, and for the certification and transfer of its stock, with penalties for the breach thereof not exceeding twenty dollars.”
    12. Section 3 of the corporation laws of the state of Delaware reads as follows:
    “Section 3. In addition to the powers enumerated in the second section of this act, every cor.poration, its officers, directors and stockholders shall possess and exercise all the powers and privileges contained in this act, and the powers expressly given in its charter or in its certificate under which it was incorporated, so far as the same are necessary or convenient to the attainment of the objects set forth in such charter or certificate of incorporation; and shall be governed by the provisions and be subject to the restrictions and liabilities in this act contained, so far as the same are appropriate to and not inconsistent with such charter or act under which such corporation was formed; and no corporation shall possess or exercise any other corporate powers, except such incidental powers as shall be necessary to the exercise of the powers so given.”
    13. Section 12 of the corporation laws of the state of Delaware reads as follows:
    “Section 12. The power to make and alter bylaws shall be in the stockholders, but any corporation may, in the certificate of incorporation, confer that power upon the directors. By-laws made by the directors under power so conferred may be altered or repealed by the directors or stockholders.”
    
      14. Section 16 of the corporation laws of the state of Delaware reads as follows:
    “Section 16. The shares of stock in every corporation shall be deemed personal property and transferable on the books of the corporation in such manner and under such regulations as the by-laws provide; provided, however, that no stock or bonds issued by any corporation organized under this act shall be taxed in this state when the same shall be owned by non-residents of this state, or airy foreign corporation. Whenever any transfers of shares shall be made for collateral security and not absolutely, it shall be so expressed in the entry of the transfer.”
    15. The section of the corporation laws of the state of Delaware, referred to in these findings of facts, were in full force and effect during the time of the matters and questions involved in this action.
    16. The plaintiff had no actual knowledge or notice of the provisions of the by-laws of the defendant company, except such knowledge and notice as he is chargeable with by reason of the provisions and recitations in and on the certificates. of stock, as the same are set forth in paragraphs 4, 5 and 6 of this findings of facts.
    17. The plaintiff had no actual knowledge of the provisions of the statutes of the state of Delaware.
    18. The plaintiff was at all times a citizen and resident of the state of Ohio.
    Upon this finding of facts the circuit court rendered judgment in favor of the defendant.
    
      
      Mr. John J. Chester and Mr. James C. Nicholson, for plaintiff in error.
    If the true lega* construction of the printed provisions of the certificate of stock was to vest in the directors and president the absolute discretion and determination as to whom a stockholder might sell and to whom not, it must be conceded at once that with such an interpretation, the provision was an unreasonable and unauthorized restraint on alienation as to be utterly void, and might be ignored. In such a case the majority of directors could absolutely control forever the trust property, and make worthless and valueless anyone’s stock and raise to high value another’s. 2 Thompson on Corporations, Section 2360, et seq.
    
    Even a by-law made and properly passed, giving such power, would be void as against its own members unless authorized by express statute or charter. 2 Thompson on Corporations, Sections 2310, 2311; In re Klaus, 67 Wis., 401.
    But even in case of express authority, while binding among each other (i. e., the stockholders), a different question is presented as to third persons. Bank v. Wasson, 48 Ia., 336.
    The fact that the charter of a corporation, or the general law under which it is formed, expressly confers upon it, or its directors, the power to regulate transfers of stock, does not give unlimited power to refuse to recognize transfers. It merely gives the power to prescribe such regulations as may be reasonably necessary to protect the corporation. Under the pretense of prescribing the manner of the transfer the association cannot clog the transfer with useless restrictions, or make it dependent upon the consent of the directors or other stockholders. Bloede Co. v. Bloede, 84 Md., 129, 57 Am. St., 379; Spring Co. v. Harris, 20 Mo., 383; Bank v. Pinson, 38 Am. Rep., 330; 3 Clark & Marshall on Private Corporations, Section 560; Johnston v. Laflin, 103 U. S., 800; Bank v. Wasson, 48 Ia., 336; Rice v. Rockefeller, 134 N. Y., 174; Kinnan v. Sullivan County Club, 26 App. Div., 213; Bullard v. Bank, 18 Wall., 589; Driscoll v. Manufacturing Co., 59 N. Y., 96; Bank v. Bank, 20 N. Y., 501; Carroll v. Bank, 8 Mo. App., 249; Moore v. Bank, 52 Mo., 377; McNulta v. Bank, 164 Ill., 427; Morgan v. Struthers, 131 U. S., 252; Purdy’s Beach on Private Corporations, Section 170.
    It is a well established principle of law that citizens of one state are not charged with knowledge of the laws of another state. 2 Purdy’s Beach on Private Corporations, Section 871; Hoyt v. Thompson’s Exr., 19 N. Y., 207.
    Even our courts will not take judicial notice of the laws of other states. When relied upon they must be proved by competent evidence, like any other fact material to the case. Williams v. Finlay, 40 Ohio St., 342; Pelton v. Platner, 13 Ohio, 209; Evans v. Reynolds et al., 32 Ohio St., 163.
    Ignorance of the law of a foreign government is ignorance of fact. And in this respect the statute laws of other states of this Union are foreign laws. Bank v. Dodge, 8 Barb., 233; Haven v. Foster, 9 Pick., 112; Norton v. Marden, 18 Me., 45.
    
      ,, While a certificate of stock is not strictly a negotiable instrument, yet where they have been assigned in blank, with an • irrevocable power of attorney, the rules of agency and estoppel are applied so as to give to the transaction practically the same effect as if it were a transfer of commercial paper, and by the operation of estoppel have acquired a quasi-negotiable character.
    From the character of the certificate the company must be held to contemplate and know that persons relying upon it will purchase the certificate in- the market and meet with loss if the conditions and restrictions were other than those recited therein. It must therefore be held to care in regard to this-, and answer for any loss the result of its negligence or of its agents or officers.
    If the statements contained in a certificate of stock, made by a company, cannot be relied on by a purchaser in the market, without further inquiry, it may well be asked what real purpose does the certificate subserve. Bank v. Railway Co., 11 W. L. B., 87; Railway Co. v. Bank, 56 Ohio St., 351; Krebs v. Forbriger, 21 W. L. B., 313; Bank v. Blakesley, 42 Ohio St., 645; Watch Case Co. v. Dougherty, 62 Ohio St., 589; Lee v. Bank, 2 C. S. C. R., 298; 1 Purdy’s Beach on Private Corporations, Sections 272, 273; Bank v. Lanier, 11 Wall., 369; Taylor on Private Corporations, Section 795; Beach on Private Corporations, Section 678; Holbrook v. Zinc Co., 57 N. Y., 616; Railroad, Co. v. Bank, 60 Md., 36; Willis v. Fry, 13 Phila. (Pa.), 33; Fitzhugh v. Bank, 19 Ky., 126; Bank v. Bank, 63 Cal., 359; Driscoll v. Manufacturing Co., 59 N. Y., 96; Salisbury Mills v. Town
      
      send, 109 Mass., 115; Shepaug Voting Trust Cases, 60 Conn., 553; Bank v. Railroad Co., 30 Conn., 231; McNeil v. Bank, 46 N. Y., 325; Moore v. Bank, 55 N. Y., 41.
    The provision on the back of the certificate recites that “ the stock represented by this certificate is not transferable except with the consent of at least two-thirds of the directors of the corporation,” was relied upon by the defendant in the court below, but, as hereinbefore stated, it was entirely ignored by the circuit court in arriving at its final decree.
    As stated by Judge Dillon, the provision was such an unreasonable and unauthorized restraint on alienation as to be utterly void and might be ignored. To this effect are the following authorities: 2 Thompson on Corporations, Section 2360, et seq.; 3 Clark & Marshall on Private Corporations, 1728; 2 Cook on Corporations, Sections 621, 622; Bloede Co. v. Bloede, 33 L. R. A., 107; Ireland v. Milling Co., 19 R. I., 180; Moses v. Scott, 84 Ala., 608; Feckheimer v. Bank, 79 Va., 80; In re Klaus, 67 Wis., 401; Fassler v. Whiteley, 17 W. L. B., 141; Marshall on Private Corporations, 135, 136, 146; 2 Beach on Private Corporations, Sections 612, 616, 309, 315; 1 Wilgus on Private Corporations, 1159; 10 Cyc., 359; Moore v. Bank, 52 Mo., 377; Morgan v. Struthers, 131 U. S., 253; Insurance Co. v. Waters, 1 W. L. B., 172; State v. Bank, 10 Ohio, 92; Trust Co. v. Lumber Co., 118 Mo., 447; Weston’s Case, 4 L. R. Ch„ 20; Insurance Co. v. Smith, 11 Pa. St., 120; Sargent v. Insurance Co., 8 Pick., 90; Trust Co. v. Abbott, 27 L. R. A., 271; 23 Am. & Eng. Ency. Law (1 ed.), 637; Herring v. Ruskin, 52 S. W. Rep., 327.
    
      A reason why the by-laws should have been rejected is that third persons are not chargeable with knowledge, nor presumed to be cognizant of the special provisions of the by-laws. Fay v. Noble, 12 Cush., 1; Ten Broek v. Boiler Co., 20 Mo. App., 19; Kingsley v. Insurance Co., 8 Cush., 403; Bank v. Smith, 19 Johns. (N. Y.), 115; Bank v. Bank, 63 Cal., 359; Walker v. Railroad Co., 26 S. Car., 80.
    
      Messrs. Williams, Williams & Taylor, for defendant in error.
    A purchaser of stock is charged with constructive notice of the statutes which give life to the corporation issuing the stock. Taylor on Private Corporations (5 ed.), Sections 28, 118; Relfe v. Rundle, 103 U. S., 222; Hammond v. Hastings, 134 U. S., 401, 33 L. Ed., 960; Bank v. Laird, 2 Wheat., 390.
    The plaintiff in error being charged with notice of the Delaware statutes, is also charged with notice of all by-laws authorized by those statutes.
    The language of the statute “transferable in such manner and under such regulations as the by-laws provide,” authorized a restrictive by-law. 26 Am. & Eng. Ency. Law (2 ed.), 618; Pancoast v. Ruffin, 1. Ohio, 381; Turley v. Turley, 11 Ohio St., 173; Bloom v. Richards, 2 Ohio St., 387; In re Klaus, 67 Wis., 401; Laws of Wisconsin, 1872, Chap. 144, page 195.
    The by-law is reasonable and necessary to the protection of the interests of the corporation. Carter v. Oil Co., 182 Pa. St., 551, 39 L. R. A, 100.
    
      Such a by-law is held to be valid. Barrett v. King, 181 Mass., 476, 63 N. E. Rep., 934; Trust Co. v. Abbott, 162 Mass., 148.
    Certificates of stock are not negotiable. Bank v. Safe & Lock Co., 66 Ohio St., 367; Bank v. Manufacturing Co., 67 Ohio St., 306; Hammond v. Hastings, 134 U. S., 401, 33 L. Ed., 960.
   Shauck, J.

There is no occasion to doubt that the defendant in refusing to transfer the shares of stock acquired by the plaintiff, in view of the failure to give an option to the directors for thirty days in order that they might have opportunity to sell it to persons whose business would aid in. promoting the welfare of the corporation, is strictly within section nineteen of its by-laws. The question of doubt in the case concerns the validity of the by-law and its binding obligation upon the plaintiff. Separate analysis of the very numerous cases cited in the briefs of counsel is impracticable and unnecessary. A few generalizations will meet the requirements of most of the cases and materially narrow the field of inquiry. The • corporation being organized under the laws of the state of Delaware, although its principal place of business is in Ohio where the plaintiff resides and where these transactions in stock were conducted, he had actual knowledge that he was acquiring the stock of a Delaware corporation and l^e is deemed to know all restrictions which the laws of that state or by-laws not inconsistent with them imposed upon its alienation. Relfe v. Rundle, 103 U. S., 222; Hammond v. Hastings, 134 U. S., 401. Effective regulations of the transfer of stock in a corporation must be prescribed in statutes or in by-laws of the corporation which are not inconsistent with the statutes. A corporation may not refuse to transfer stock because of the motive which may have prompted the transferee to acquire it, this being upon the well established ground that however important may be the motive ' which prompts one to the commission of a wrong, the motive which prompts him to the exercise of a legal right .can never be the subject of judicial inquiry.

By-laws of a corporation, to be valid, must not contravene the policy defined in the statute of its creation, and this renders it entirely unnecessary to consider further the cases in which it has been held that corporations formed under the national banking laws may not provide for liens upon their stock to secure the debts of their stockholders, since the laws provide expressly that they may not loan money upon the security of their stock. When statutes under which corporations are formed authorize them to make by-laws upon specifically named subjects there is an implied denial of authority to make by-laws upon subjects not named.

In very many cases it has been held that a bylaw imposing a restrictive regulation upon the transfer of stock is invalid unless it is expressly authorized by statute. Quite uniformly when that conclusion is reached it is placed upon the ground that such regulations impose a restraint upon the alienation of property and that they are therefore inimical to public policy. It does not appear to have been deemed necessary in these cases to- demonstrate that the right to alienate property should be more highly regarded than the right to make contracts respecting it. By the assumption that it should be, a task of much obvious difficulty has been avoided. In a few cases the opposite conclusion has been reached and supported by reasons of much strength. In New England Trust Co. v. Abbott, 162 Mass., 148 (27 L. R. A., 271), a by-law differing in no essential respect from that relied on by the defendant here was enforced although it was wholly without express- statutory sanction. The court did not consider whether the by-law was technically valid so as to impress upon property in the stock of the company a restricted alienability, but placed the decision upon the ground that the terms of the bylaw became a contract between the corporation and the subscriber for its stock. In the later case of Barrett v. King, 181 Mass., 476, which arose out of the refusal of the Continental Brewing Company to enter a transfer of its stock, the refusal being' for non-compliance with a by-law not distinguishable from this, the rights of the parties were determined by the same view.

What may be the effect of a by-law of this character upon the transferability of stock.when the question is not affected by any provision of the statute under which the corporation is formed, we need not determine in the present case. • The different conclusions with respect to that question result from different views of the policy involved. To define and establish rules of public policy is a recognized function of legislation. The statute of the state of Delaware, under which this corporation was formed, expressly authorized it to make by-laws “for the management of its property, the regulation and government of its affairs, and for the certification and transfer of its stock.” It also provides expressly that “the shares of stock in every corporation shall be deemed personal property and transferable on the books of the corporation in such manner and under such regulations as the by-laws provide.” The third section of the act further provides generally that the corporation shall have such powers not inconsistent with law as may be necessary or convenient to the attainment of the objects of the corporation. Certainly power to regulate transfers of stock could not properly be regarded as power to prohibit the transfer, and it may be that in the interpretation of acts conferring such power it would be the duty of courts to see that prohibition is not accomplished under the guise of regulation, and that restrictions would not be permitted if foreign to the purpose for which the corporation is formed. The by-law here called in question contains no suggestion of a purpose to prevent the alienation of stock nor to restrict it beyond reasons suggested by a consideration of the welfare of the corporation and the express provisions of the statute. It interposes no permanent impediment to the transfer, providing only for an option in the directors for thirty days as a reasonable opportunity to them to dispose of stock to persons deemed desirable as holders. The statute having recognized the lawfulness of the purpose for which the corporation is formed and having' empowered it to make by-laws in furtherance of that purpose, expressly including the issuance and transfer of stock within the subjects for regulation by by-laws, we find no reason for saying that the by-law is invalid.

Judgment affirmed.

Summers, C. J., Crew, Spear, Davis and Price, JJ., concur.  