
    Ralph W. Booth, Jr., Respondent, v. The Consolidated Fruit Jar Company, Appellant.
    (Supreme Court, Appellate Term,
    February, 1909.)
    Corporations: Stock — Dividends — Eight to dividends — To whom
    dividends should be paid: Eights of stockholders and actions
    by them — In general — Eight to inspect books of corporation — Who are stockholders.
    Pledge — Eights and liabilities created — Effect on title.
    The owner of shares of corporate stock does not divest himself of Ms general property therein by a pledge of the same to the corporation, but, subject to the lien of the pledgee, he remains the owner of the stock.
    Under section 20 of the General Corporation Law as amended in 1901, providing that the record holder of stock pledged as security shall issue to the pledgor upon proper demand a proxy to vote thereon, and section 54 of the Stock Corporation Law as amended in 1901, providing that nb person holding stock as collateral shall he personally liable as a stockholder, the pledgor of corporate stock is a stockholder within the meaning of section 29 of the Stock Corporation Law which imposes a penalty for refusal by the corporation to permit a stockholder to inspect its stock-books.
    A pledgee of corporate stock is entitled to receive and retain dividends thereon as an increment thereof to he accounted for later.
    Appeal by the defendant from two judgments of the Municipal Court of the city of Hew York, first district, borough of Manhattan, entered upon the decision of a- trial justice after a trial without a jury.
    Chas. P. & Wm. W. Buckley (Wm. W. Buckley, of counsel), for appellant.
    Julius Fischer, for respondent.
   Giegerich, J.

The facts in the two cases are practically identical and by stipulation the second case was decided upon the evidence taken in the trial of the first one.

The first action was brought under section 29 of the Stock Corporation Law, to recover the sum of fifty dollars as a penalty for the defendant’s refusal to permit the plaintiff to inspect its stock-books.

There was no dispute as to the material facts. In March, 1907, the plaintiff g’ave to the defendant, as collateral security for the payment of a note payable on the 3d day of January, 1909, which he and another man, named Ileyman, had given to the defendant, two shares of the defendant’s own stock. The plaintiff at the time indorsed the certificate in blank. The defendant continued to let the stock stand in the plaintiff’s name on its stock-book, and he received notice of and acted as an inspector of election at a stockholders’ meeting held January 16, 1908. At this meeting the plaintiff criticised the way the corporation was being managed and, fearing some trouble from the plaintiff, the officers of the defendant, either on the same day or early on the seventeenth, had this stock transferred on its books to two of its directors to hold it as trustees for the defendant until the matter of the note was settled. Thereafter, on the seventeenth, the plaintiff called at defendant’s office and asked to inspect the stock-book. This was refused on the ground that he was not a stockholder.

Section-29 of the Stock Corporation Law (Laws of 1890, chap. 564, as amd. by Laws of 1892, chap.- 688, Laws of 1900, chap. 128, and Laws of 1901, chap. 354), upon which this action is based, provides that every stock corporation shall keep a stock-book which shall be open to the inspection of its stoclcholders and judgment creditors and, if it shall neglect or refuse to exhibit the same, it shall pay a penalty of fifty dollars for every such refusal.

By pledging the shares of stock in question the plaintiff did not divest himself of his general property therein. He still remained the owner of the shares, subject to the lien of the pledgee. 22 Am. & Eng. Ency. of Law (2d ed.), 864; Garlick v. James, 12 Johns. 146; Wheeler v. Newbould, 16 N. Y. 392, 398; Farwell v. Importers & Traders Nat. Bank, 90 id. 483, 488; Smith v. Savin, 141 id. 315, 326.

The above cases all hold that the right of property, or the general ownership, as it is variously styled, remains in the pledgor.

The paramount interest and right of the pledgor over the pledgee is also recognized in the statute, section 20 of the General Corporation Law (Laws of 1890', chap. 563, as amd. by Laws of 1892, chap. 687, and Laws of 1901, chap. 355) providing that the record holder of stock which shall be held by him as security shall issue to the pledgor, upon proper demand, a proxy to vote thereon. With this right goes the corresponding liability, section 54 of the Stock Corporation Law (Laws of 1890, chap. 564, as amd. by Laws of 1892, chap. 688, and Laws of 1901, chap. 354) providing that no person holding stock as collateral security shall be personally subject to liability as a stockholder, but that the person pledging such stock shall be considered the holder thereof and shall be liable as a stockholder.

Brom the decisions and statutes mentioned, I think it is clear that the pledgor, retaining as he does the general ownership of the stock and the right to vote upon it and thus participate in the control of the corporation, is entitled to the information which the law provides that stockholders may demand, through an inspection of the books.

We do not in this case have to pass upon the right of a pledgor to an. inspection of the books where the pledgee has caused the stock to be transferred into his own name, without knowledge on the part of the corporation officer of whom an inspection is afterward demanded of the real situation as between the pledgor and the pledgee. In such a case it may well be that the corporate officer thus applied to is entitled to and ought to rely upon the records of the corporation and permit an inspection only to persons duly registered as stockholders. As was said in Pray v. Todd, 71 App. Div. 391, the stock-book of the corporation which contains the names of the stockholders, and in which all transfers of stock are required to be entered, is ordinarily, at least, the treasurer’s guide and authority in furnishing statements pursuant to the provisions of section 52 of the Stock Corporation Law.

The appellant relies upon the line of decisions of which McNeil v. Tenth National Bank, 46 N. Y. 325, is typical, holding that as between the parties the delivery of a certificate of stock with the assignment and power indorsed thereon passes the entire title, legal and equitable, in the shares; which is undoubtedly the rule where the rights of third persons are involved. But that is not this case. Here the corporation itself was the pledgee and knew fully the entire transaction and that the plaintiff was still vested with the general ownership and right of property in the stock.

I am, therefore, of the opinion that the judgment for the penalty was right.

The second action was brought to recover the sum of ten dollars which was the amount of a dividend declared and paid on the two shares of stock after they were pledged to the defendant. As to such dividend it would seem to be well established that the pledgee is entitled to receive and retain it as an increment of the thing pledged, to be accounted for later. Herman v. Maxwell, 15 J. & S. 347; 22 Am. & Eng. Ency. of Law (2d ed.), 907; Gemmell v. Davis, 75 Md. 546; Gatz v. Holliday, 8 Mo. App. 118.

The judgment in the first action should, therefore, be affirmed, with costs; while the judgment in the second action should be reversed and a new trial ordered, with costs to the appellant to abide event.

Gildersleeve and Seabury, JJ., concur.

Judgment in first action affirmed, with costs; judgment in second action reversed and new trial ordered, with costs to appellant to abide event.  