Craig v. Hesperia Land & Water Co.

California Supreme Court May 23, 1896 No. L. A. No. 2Published

Before: Haynes

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Holding. A corporation cannot refuse to transfer shares of stock on its books simply because an assessment on those shares is delinquent, as the corporation's lien attaches to the shares themselves rather than the certificate.

Issues

Whether a corporation may refuse to transfer stock on its books because an assessment on said stock is delinquent.
Whether a transfer of stock on corporate books affects the corporation's right to enforce a lien for delinquent assessments.

Disposition. reversed

Quotations verified verbatim against the opinion

“The lien, however, is upon the shares, and not upon the certificate.”

“The identity of the stock is not affected by the transfer.”

“If, then, the transfer of plaintiff’s shares upon the books of the corporation, and the issuance of new certificates, would not have affected the power of the corporation to collect the delinquent assessment on such shares by a sale thereof, such delinquency did not justify the refusal to make the transfer”

Synopsis

Corporations—Transfer of Certificates of Stock—Delinquent Assessments—Lien upon Shares—Identity of Stock—Transfers Subject to Lien.—-A corporation has a lien upon the shares of stock for the payment of delinquent assessments thereon; but it has no lien upon the .certificates of stock, which are merely evidence of ownership of the shares, and has no right to prevent a transfer of such certificates, on account of a delinquent assessment upon the shares; but the shares remain subject to the lien, and the new owner takes subject thereto; nor is the identity of the stock affected by the transfer; and the corporation can enforce its delinquent assessment upon the shares liable therefor, no matter how many transfers have been made subsequent to the assessment.

Id.—Certificate of Stock not Negotiable — Transfer Subject to Equities — Bona Fide Purchaser not Protected.—A certificate of stock is not a negotiable instrument; and, in analogy to other non-negotiable instruments, a purchaser would take subject to all equities in favor of the corporation; nor does the fact that the purchaser did not know of a delinquent assessment at the time of demanding the transfer affect the validity of the assessment, nor the liability of the stock therefor.

Id.—Conversion of Stock—Refusal of Transfer—Liability of Corporation— Evidence of Value—Delinquent Assessments.—A corporation is liable for a conversion of stock which it refuses to transfer on the books of the corporation to a purchaser thereof; and the existence of unpaid delinquent assessments upon the stock is no defense to an action for such conversion, though proof of them is admissible as affecting the value of the stock,

Haynes, C. Action for the conversion of stock in a corporation.

Defendant is a corporation organized under the laws of this state. On November 18, 1893, plaintiff was the owner of fifty sharés of stock in the defendant corporation, represented by certificates numbered 72 and 79, each for twenty-five shares. These certificates were in defendant’s possession. On the day above mentioned, plaintiff, having agreed to sell forty of said shares to one Kaelin, offered to indorse and deliver said certificates to the corporation, and demanded that forty shares thereof be transferred to said Kaelin, and new certificates issued, one to Kaelin for forty shares, and one to himself for the remainder. This demand was refused for reasons about which there was some controversy, though it is reasonably clear that the only reason given for not complying with the demand was that the stock was “in litigation.”

On November 20th, two days after the demand, this action was brought.

The defense to the action is based upon the claim that the stock in question is liable for certain unpaid assessments. The court refused all the instructions requested by the plaintiff, and instructed the jury to return a verdict for the defendant. This appeal is from the judg[10]ment and an order denying plaintiff’s motion for a new trial.

A chronological statement of the assessments made, and of the holdings of the shares in question, will simplify the facts and the questions made.

In 1890 an informal or voluntary call was made of seven dollars per share, and all the stockholders paid except Samuel Merrill, who then owned fifty shares represented by certificate No. 26.

On December 9, 1892, assessment No. 4 was made of ten dollars per share. This assessment was made to cover and include the voluntary assessment of seven dollars per share, Samuel Merrill not having paid his proportion, amounting to three hundred and fifty dollars, the intention being to credit all the others with the voluntary payment, and requiring them to pay three dollars per share in addition, and the Merrill stock to pay ten dollars per share.

Prior to that assessment, on November 23, 1892, Samuel Mekrill sold and .transferred twenty-five shares of his stock to the plaintiff, John W. Craig, and twenty-five shares to J. H. Merrill, and certificate No. 71 was issued to Craig and certificate No. 72 was issued to J. H. Merrill. After that assessment became delinquent Craig and Merrill brought an action to cancel said assessment No. 4, and obtained a restraining order to prevent the sale. Afterward a nonsuit was granted in that action, and plaintiff’s motion for a new trial thereof was denied on November 17, 1893.

Craig v. Hesperia Land & Water Co.

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