
    Rochester and Kettle Falls Land Company, Plaintiff, v. William O. Raymond, Defendant.
    
      A corporation has no claim against the original stockholder after a bona fide transfer of Ms stock — what constitutes a waiver of any right to attack a fraudulent transfer—Laws of 1890, chap, 664, §§ 40, 48.
    In an action brought by a corporation, formed under the General Manufacturing Act (Chap. 40 of the Laws of 1848), to recover assessments made 'by it upon its stock, it appeared that the corporation was created to deal in real estate in a • foreign State, and that the defendant subscribed for twenty shares, and that a . person named George Hannigan subscribed for ten shares of its stock, both of . whom made cash payments of thirty per cent. Hannigan’s stock was subsequently assigned for a consideration of five dollars to the defendant, to Whom ; the plaintiff issued a new certificate for this stock. On March 4, 1892, the defendant, assigned the thirty shares which he then owned to Frank Van Every for -the sum of three dollars, and on the surrender of defendant’s certificates a new certificate for this stock was issued by the plaintiff to Van, Every, who was irresponsible; At the time of this transfer all. previous - calls upon the stock had been fully paid, although the stock was worthless and the corporation was hopelessly insolvent. Van Every having failed to :■ pay a subsequent assessment levied ripon his stock, the plaintiff brought , suit therefor in October, 1893, and recovered a judgment against him, w'hich subsequently, in September,. 1894, the plaintiff, by a resolution,, directed should: be satisfied, although Van Every had paid nothing upon it.
    Thereafter this action was brought to recover assessments made in July, 1892, and in the fall of 1893 upon the thirty shares of stock at one time held by the defendant. .-
    
      Held, that the action could -not be maintained;
    That a stockholder had a right to transfer his certificate. of stock to another, provided the transaction was absolute and done in good faith, and that where the certificate so surrendered was delivered to the corporation and canceled by it and a new certificate was issued to the transferee, the corporation by that act surrendered all claim Upon the original stockholder and accepted the transferee in his place;
    That, even if the transfer was made in bad faith, the plaintiff could, and in this case did, Waive the fraud by receiving and canceling the original certificates of stock, accepting VanEvery as a stockholder in the place of the defendant, prosecuting him for an assessment upon the stock, and recovering a judgment ■ against him moré than eighteen months after the plaintiff had been advised of. the transfer of the stock to him.
    
      Semble, that the situation might be different if the action had been brought by ' creditors of the corporation instead of the corporation itself.
    Hardin, P. J., and Adams, J., dissented.
    
      Motion by the plaintiff, the Rochester and Kettle Falls Land Company, for a new trial on a case containing exceptions, ordered to be heard at the General Term in the first instance upon the verdict of a jury in favor of the defendant, rendered by direction of the court after a trial at the Monroe Circuit on the 16th day of October, 1895.
    The action was brought to recover assessments upon assessable stock issued by the plaintiff. The plaintiff is a domestic corporation incorporated pursuant to the provisions' of the act of 1848 (Chap. 40) authorizing the formation of corporations for manufacturing, mining, mechanical or chemical purposes, and of the several acts amending the same.
    In contemplation of the incorporation of the plaintiff, in the month of August, 1890, the defendant and certain other persons, being desirous of forming a corporation for the purpose of purchasing and dealing in real estate, made an agreement whereby the capital stock of the proposed company should be $500,000 in shares of $100 each, $200,000 of said stock to be assessable and the balance non-assessable.
    The purpose of the incorporation was to purchase from John W. Goss, of Spokane Falls, Washington, the town site and lands controlled by him at Kettle Falls, Washington, consisting of about 1,000 acres, and pay therefor the sum of $450,000, $30,000 to be paid in cash and the balance to be paid in the stock of said company secured by bond and mortgage on the property.
    In pursuance of said agreement the defendant and certain other persons, being subscribers to the agreement, on the 22d day of November, 1890, did organize the plaintiff as such corporation as specified and for the purposes aforesaid; the defendant subscribed for twenty shares of said assessable stock; one George Hannigan subscribed for ten shares of the same; this was done in August or September, 1890.
    The defendant and Hannigan made the cash payment of thirty per cent, and the plaintiff also a further assessment of seven and one-half per cent made prior to the transfer of the certificates of stock as hereinafter stated; Hannigan duly assigned his stock to one Fred W. Zoller and surrendered his certificate to the plaintiff, and the plaintiff issued to said Zoller its certificate for ten shares of its assessable stock, certifying that the said Zoller was the owner of such ten shares of - its • assessable stock. Zoller paid an assessment of seven and one-half per cent on the par value of said ten shares made by the plaintiff; and after such payment Zoller, by an indorsement • in writing on such certificate, so issued_ to him, duly. sold, transferred and assigned the said shares of stock to .the defendant on the 27th day of February,. 1892,.for a consideration of five dollars and the said certificate was surrendered to the plaintiff - and canceled and the said . ten shares were at. the defendant’s request duly transferred on the books of the plaintiff to the defendant, and the plaintiff issued and delivered- to the, defendant its certificate of such ten shares of its assessable stock, certifying that the defendant was the owner of the same, which.was: duly registered on the plaintiff’s books. - .......
    On the 4th of March, 1892, the defendant duly sold-,, assigned, transferred and delivered to one Frank Yan-Every each and every of the certificates of stock mentioned above* and on.the same day the said Yan Every surrendered the said certificates of stock to- the plaintiff to be canceled by the plaintiff, and the plaintiff ' duly-accepted and canceled the same, and thereafter and on the said day duly issued to the said Frank Yan Every its proper certificates of stock, showing that the said Yan Every was and should :be from and after the said 4th day of March, 1892, the owner and holder of. all of- said shares of stock. At that, time all previous calls upon the stock had been fully paid in. Thereafter an assessment was made upon the said stock as against the said Yan Every, and upon his failure to pay such assessment the plaintiff brought, an action to recover the same in the-' Municipal Court of the city of Rochester, which court had jurisdiction of the subject-matter of the said action and of'the person of the said Yan Every and obtained a judgment for $439.65, which judgment was duly docketed in. Monroe: county. The last-mentioned action was commenced the latter part of October, 1893. Yan Every received notice from the plaintiff after the assignment- of the stock to him to attend its annual meeting and notices of assessment upon the stock assigned to him.
    In September, 1894, the plaintiff, by a resolution qf its trustees, directed that the president be directed to satisfy the said judgment against Van Every, which was done prior to the commencement of this action, although in fact nothing was paid by Van Every upon the judgment.
    At the time of the transfer of the stock to Van Every the corporation was hopelessly insolvent and its stock worthless. The con7 sideration in fact paid by Van Every to the defendant for the stock assigned to him was three dollars. Van Every was-irresponsible. It does not appear that any representations were made by the defendant at the timé of the transfer of the stock to Van Every as to his responsibility or as to the bona fides oí the transfer of the. stock from defendant to Van Every. The transfers of stock alluded to herein were made as prescribed by statute -and were a complete and perfect transfer upon the face thereof and upon the books of the plaintiff, and the certificates, that were surrendered upon the several assignments were marked “ canceled.”
    The following is a copy in blank of the certificates referred to i
    “Incorporated under the laws of the State of New York.
    “Number...... ......Shares.
    “ Rochestee & Kettle Falls Land Co., of Rochestee, N. Y,
    “ Capital, $500,000 5,000 shares. $100 each.
    •“ This certifies that................is the owner of........ shares, of $100 each, assessable, in the 'capital stock of Rochester &. Kettle Falls Land Co., of Rochester, N. Y. Transferable only in person or by attorney, on the books of said company on the surrender of this certificate properly indorsed.
    “ Rochestee, N, Y.,............, 1890.
    “ GEORGE W. WEAVER, President.
    
    “W. C. WAIT, Secretary.”
    Indorsed across face : “ Canceled — W. C. Wait, Secretary.”
    
    Indorsed on back:
    “For value received ......hereby sell, transfer and assign unto-....................shares of stock within mentioned, and authorize................to make the necessary transfer on the books of the company.
    “Witness: ............ hand and seal this ...... day of ..........,189..”
    
      The plaintiff seeks to recover in this action two assessments (being, twenty-two and one-half per cent on the par value of the stock), one made in July, 1892, and the other in the fall of 1898, made upon the said twenty shares of stock originally held by the ■defendant, and also upon the ten shares of stock that was originally ■assigned to the defendant by Hannigan. The plaintiff now claims (though it is not set forth in the-complaint) that the transfer- of the stock to Van Every was fraudulent and void as against the plaintiff, as the transfers to Yan Every were not made in good faith,, and he being irresponsible, and 'the plaintiff not having discovered the fraud jiracticed upon it 'until after it had obtained the judgment against Yan Every, which the plaintiff satisfied, and which it now ■seeks to repudiate.
    
      James G. Greene, for the plaintiff.
    
      William A. Sutherland, for the defendant.
   Ward, J.:

By section 40 of chapter 564 of the Laws of 1890, being the act known as the Stock Corporation Law, the stock of every corporation “ shall be deemed personal property, and shall be represented by a certificate prepared by the directors and signed by the president and treasurer, and -sealed with the seal of the corporation, and shall be transferable in the-manner prescribed in this chapter and in the by-laws, but no share shall be transferable until all previous calls thereon shall have been fully paid in.”

• By section 43 of the same- act, subscriptions to the capital stock ■of, a corporation shall be paid at such times and in such installments ■as the board of directors juay, by resolution, require.” ■.

These sections are applicable to the case at bar.

. It is the settled law of this State that a stockholder in such a corporation as the plaintiff, lias the right to transfer his certificate .of. stock to another if done in good faith,, and if .the certificate so .surrendered is delivered to the corporation and, canceled by it and a new certificate issued to the transferee by the corporation, that ithe corporation thereby surrenders all claim upon the original stockkolder and accepts the transferee in his place. (Isham v. Bucking ham, 49 N. Y. 216; Billings v. Robinson, 28 Hun, 122; S. C. in Court of Appeals, 94 N. Y. 415; Rice v. Rockefeller et al., 134 id. 174.)'

It is equally well settled that, although the provisions of the statute have been literally complied with,, the transfer made by the defendant will not be available to him as against the stockholders and creditors of the company, to pay the balance due on the shares which he held, unless the transaction was an honest one, entered into in entire good faith, with the intent and purpose of disposing of his entire interest in the shares and surrendering all dominion over them. (Billings v. Robinson, 28 Hun, 128, and cases cited, to which may be added Nathan, Receiver, etc., v. Whitlock, 9 Paige, 152; National Bank v. Case, 99 U. S. 632 and cases cited; Bowden v. Johnson, 107 id. 251.)

This is an action at law, brought by the corporation, and in no sense is it an action to impose any statutory obligation which the defendant may be under to a creditor of the company by reason of the provisions of the statute placing stockholders under a direct legal obligation to pay their debts against the corporation. (Billings v. Robinson, supra.)

It is strongly urged by the plaintiff upon this review that the fact that Yan Every paid but a nominal consideration for the stock under the circumstance's detailed in the evidence, coupled with the fact that he was not responsible pecuniarily, was such evidence of fraud in the transfer as would justify the plaintiff’s recovery in this action if the transaction were found fraudulent by the jury, and the plaintiff’s exception to the direction of a verdict for the defendant by the trial court brings the matter before us, and the only question we deem necessary to consider here is whether from the nature of this action'and upon the proof in this case that position is tenable.

■ The facts before the trial court and jury were substantially uncontradicted as appears in the foregoing statement of the case. If the transfer were fraudulent as against the plaintiff, like any other fraudulent transaction, the plaintiff could ratify and adopt it, waiving the fraud and standing upon the contract. The plaintiff received and canceled the original certificates of stock which it seeks to charge this defendant upon and still retains them.. It accepted Yan Every as its stockholder in the .place of the defendant, proceeded •against him .to collect assessments, prosecuted him in a court of justice and recovered a judgment, which last event occurred a year and eight 'months after the plaintiff had been advised of the transfer to Yan Every, and after ample opportunity had occurred for the plaintiff to ascertain the bonafides of the transfer and the responsibility of Yan Every, and it sought to enforce its judgment, and a year later satisfied it and attempted to rescind the transaction- in which it had been engaged with Yan Every and the defendant in the transfer of the stock, and brought this action at law without returning or offering to return what it had -received as the fruit of the transaction.

- This is not an equitable action to rescind-tlie contract; this is not a proceeding in which the rights of creditors are directly involved, as in the cases cited in opposition to the view here taken, and we do -not discover upon what jxrinciple the defendant’s contention can rest. It is true that upon the trial the secretary of the plaintiff testified that he had no knowledge of the insolvency of Yan Every -until after supplementary proceedings, had been taken upon the judgment against him. It was not claimed that there were any representations as to the responsibility of Yán Every made at. 'the time of the transfer of the stock, or that the plaintiff or its officers were induced , in any manner to' consent to such transfer by any .statements as to the responsibility of Yan Every, or as to the bona .fides of the transaction. The evidence- shows that the defendant, was at a restaurant where Yan Every was a waiter about the time •of the transfer, and a conversation arose as to this stock. One person offered the defendant a couple of dollars. Yan Every, standing-by, offered three dollars, which the plaintiff accepted, and the money -.was paid by Yan Every to the defendant.

The defendant indorsed his certificates to Yan Every, and desirqd ■the new ones issued to him. ' The plaintiff’s secretary required, a -.receipt' from Yan Every of the certificates of stock which he '.received before delivering them to Yan Every. Here • was 9b. • opportunity for the secretary to have investigated the circumstances .’of the transfer, and as to the insolvency of the transferee if he had any interest in doing so.- This was not done.

The plaintiff seeks to recover upon assessments of ten shares of stock that Zoller transferred to this defendant, and claims that the defendant is liable as transferee upon the contract implied by his becoming owner of the shares not fully paid up (citing Glenn v. Garth, 138 N. Y. 18, 42; Webster v. Upton, 91 U. S. 65), and yet the defendant paid but five dollars as the consideration of the transfer to him of that stock. The stock being worthless, substantially, the fact that but a slight consideration was paid for it by Van Every is of but little moment in determining the bona fides of the transaction. It is no concern of the plaintiff how much or how little Yan Every paid for this stock if the transfer was in good faith and absolute. There is nothing in the evidence but what the transfer was absolute as it appeared upon its face.

Whatever might be done to relieve the plaintiff in a proper action to rescind the whole transaction in behalf of creditors and shareholders who claim to have suffered loss by reason of the defendant substituting an irresponsible stockholder for a responsible one, making all parties interested parties to the action, and offering to restore what it had received in the transaction, need not be considered here. This action is simply upon the liability created or implied by or against the defendant by reason of his subscription to the twenty shares of the assessable stock, and by reason of his becoming the transferee of the ten shares of stock originally issued to Hannigan, and the plaintiff being met with the transfers of stock which relieve the defendant, so far as this action goes, of any liability and places it upon another, it necessarily follows that the .action of the trial court directing a verdict for the defendant should be sustained, and that judgment for the defendant should be ordered upon the verdict, with costs against the plaintiff and in favor of the ■defendant.

All concurred, except Hardin, P. J., and Adams, J., dissenting.

Hardin, P. J. (dissenting):

Inasmuch as the trial court directed a verdict in favor of the •defendant “ the plaintiff is entitled to the most favorable inferences ■deducible from the evidence, and all contested facts are to be •deemed established in his favor.” (Rehberg v. Mayor, 91 N. Y. 141; Bond v. N. Y. C. & H. R. R. R. Co., 69 Hun, 476.)

Upon all the evidence presented at the trial a question of fact arose as to whether the transfer by the defendant of the shares of stock was made by him in good faith. If the transfer was made in good faith and without fraudulent intent, his liability by reason of having held the ten shares of stock may have been discharged. As the case was situated the burden was upon the defendant to establish that the transfer was in good faith.

In Cutting v. Damerel (88 N. Y. 410), relied upon by the defends ant, the court reached the conclusion that the transfer was made in good faith, and, therefore, a recovery was not allowed.

In the case of Tucker v. Gilman (121 N. Y. 189) it was held that stockholders may divest themselves of the liabilities incident to their relation to the corporation, when they have actually, and in good faith, transferred their stock in the manner provided by law.” In that case it was held error to reject evidence tending to show that a transfer had been made of the stock in good faith.

In Billings v. Robinson (28 Hun, 122) it was held that the stockholder would be hable “ unless it appears that he sold the stock in good faith, and with the intent and purpose of disposing of liis entire interest in the shares and surrendering all dominion over them.” The prevailing opinion in that case discusses the facts, and reaches the conclusion that the sale in that case was in good faith. / Barker, J., who delivered the prevailing opinion, expressly disavows any intent “ to infringe upon the general legal proposition that it is essential for the seller of shares, to make the same available and to exempt himself from liability to pay future calls, that the sale should be absolute in terms, and, in fact, without any right in law or equity remaining in the transferrer to demand a return of the shares from the transferee, and thus to share in the future prosperity of the corporation.”

. (2) In August, 1890, the defendant executed an agreement, wherein, he subscribed for twenty shares of the assessable stock of the proposed company. The agreement subscribed by him contained the following language: “ We, the undersigned, hereby agree to form a company to be duly incorporated under the laws of the State of New York, for the purpose of purchasing and dealing in real estate. * "x" * And that we hereby subscribe for the numher of shares of the assessable stock of the said, proposed, company set .opposite our respective names. * "" w To meet the first payment on purchase price of property and for necessary expenses, and improvements, we hereby agree to pay thirty per cent on the amount of the assessable stock subscribed for by us.” Subsequent to the agreement so subscribed, and in September, 1890, the defendant, and other subscribers, organized the plaintiff as a corporation under the manufacturing statute of 1848 (Chap. 40), and the acts amending the same. The defendant became a director in September, 1891, and was a member of the finance committee of the board, and attended numerous meetings and conferences had in respect to the affairs of the company prior to March 4, 1892, the time of the alleged transfer of his'shares of stock. At some of the meetings-the question of making assessments upon the assessable stock, and ■other questions relating to the financial condition and policy of the plaintiff, were discussed.

Defendant’s transfer to Van Every was of the ten shares before mentioned, as well as the twenty shares, and at the same time two shares that stood in the name of his son. The son took the shares to the office, and had them transferred on the books to Van Every. There is some conflict in the evidence as to some of the circumstances attending the transfer to Van Every, who was a waiter in a restaurant where the defendant took his dinner, and the evidence indicates that Van Every never had any property, and that the transfer to him was for a small sum. Van Every only kept the stock some two weeks when he called upon the defendant, who told him he had found a purchaser, and Van Every was introduced to the supposed purchaser, and offered to sell the stock for five dollars, and, apparently, upon receiving the five dollars, assigned the stock and delivered the certificates as evidence of it, although no actual transfer seems to have taken place upon the books of the company. Defendant relied upon the alleged transfer to Van Every as a defense to both claims made by the plaintiff, and in considering whether that position was maintainable or not, it was important at the trial to have the fact determined that the transfer was bonco fide, and that question, upon the evidence presented in this case,' was one of fact which should have been submitted to the jury.

Note —The other, cases of this term will be found in the next volume; 5 App. Div.— [Ébp. '.

At the close of the evidence a motion was made by thé defendant that a verdict be directed in his favor, and the motion was granted and an exception was taken. Thereupon it ivas'-ordered that the exceptions taken by the plaintiff upon the trial be heard in an appellate court in the first instance.

The foregoing views lead to the conclusion that-' the': exceptions should be sustained and the verdict set aside' and a- new trial ordered,.-with costs to abide the event. ' ; "

Adams, J., concurred.

Motion, denied, with' costs, and judgment on the verdict ordered' for the defendant, with costs. .  