| Ala. | Jan 15, 1843
The questions in this case are — 1. Is the by-law enacted by the defendant, which inhibits a stockholder from transferring his stock, while he is indebted to the company, within the scope of its legislative powers? 2. Does the indebtedness of Toulmin come within the prohibition of that by-law.
1. It is said to be essential to the validity of a by law, that it should conform to the constitution of the United States and the acts of Congress pursuant thereto, to the constitution and statutes of the State in which it is located, and to the generaL principles aud policy of the common law as it is there acknowledged. [Ang. and Ames on Corp. 182, et post. Hence it is held, that it must be reasonable, and while it may regulate trade it must not restrict it, so as injuriously to affect the interest of those who are not corporators. [Id. 193-8.]
The common law annexes to a corporation certain incidental rights, among which are enumerated by-laws, as private stat-tutes for its government. [Ang. and Ames on Corp. 58; Kyd on Corp. 69.] But it has been said, where the charter expressly declares the power of the Company to make by-laws in certain cases and for certain purposes, its power of legislation is limited to the cases and objects specified; all others being impliedly excluded. [Ang. and Ames on Corp. 177.]
In Sargent et al v. The Franklin Insurance Co. [8 Pick. Rep. 90,] the Court held, that the Company had no implied lien on the shares of the stockholders, as a security for its demands against them; that it was bound to enter on its books a transfer of shares, in pursuance of an assignment; and that it was Nliable in damages to the assignees of the shares for refusing to do so. [See also Bates v. The New York Insurance Co. 3 Johns. Cases, 238.] But if the charter provides, that all the debts due the Company from a stockholder, shall be paid before any transfer shall be made of stock, this would prevent the assignee from demanding an assignment before the lien of the Company was satisfied. [Union Bank of Georgetown v. Laird, 2 Wheat. 390" court="SCOTUS" date_filed="1817-03-15" href="https://app.midpage.ai/document/union-bank-of-georgetown-v-laird-85210?utm_source=webapp" opinion_id="85210">2 Wheat. Rep. 390.] By the charter of the Hudson’s
In the case of Waln’s Assignees v. The Bank of North America, [8 Serg. & R. Rep. 73,] it appeared that Wain was a stockholder and had been a director of the Bank; that he was legally indebted to the corporation, and made a general assignment, including his stock, for the benefit of his creditors, although he was aware,at.the time his indebtedness was incurred, that there was a usage of the corporation not to permit a transfer of stock while the holder is indebted to the bank. The
The charter of the Union Bank of Georgetown, enacted, “That the shares of the capital stock, at any time owned by any individual stockholder, shall be transferable only on the books of the bank, according to such rules as may, conforma-bly to law, be established in that behalf, by the President and Directors; but all the debts actually due and payable to the bank, (days of grace for payment being passed,) by a stockholder, requesting a transfer, ’ must be satisfied before such transfer shall be made, unless the President and Directors shall direct to -the contrary.” Upon a certificate issued for fifty shares to one Patton, declaring that the same shall be “ transferable at the said bank, by the said Patton, or his attorney, on surrendering this certificate;” the question was, whether as against an assignee, the bank was entitled to a lien upon the stock, for the payment of the debts of the assignor. It was held, that no person can acquire a legal title to any shares, except under a regular transfer, according to the rules of the bank; and if any person takes an equitable assignment, it must be subject to the rights of the bank under the act of incorporation, of which he is bound to take notice. The President and Directors of the Bank expressly deny that they have waived,
Let us now notice so much of the charter by which the defendant was created a body corporate as is material, and consider the question before us with reference to the principles we have stated. The second section of the act, among other powers conferred, authorizes the Company to make contracts involving the interest or use of money; to receive monies in trust and to accumulate the same at such rate of interest as may be obtained or agreed on, or to allow such interest thereon as may be agreed on. The sixth section provides that no bond or other collateral security shall be required from the said Company, when appointed trustee, guardian or receiver, but all investments of money received by the Company, in either of these characters, shall be at the sole risk of the corporation; and for all losses of such monies, the capital stock, property and effects
The charter does not confer the power to make by-laws for any specific purpose, and consequently that power is not subject to any implied restriction, to a greater extent than are corporations generally. It cannot be pretended that the by-law ' in question is opposed to any constitutional or statutory prb-vision ; and we cannot conceive that it is unreasonable or in restraint of trade. The seventeenth section expressly authorizes' the transfer of stock on the books of the Company; -but in- ' vests the trustees'with the authority to establish the regula- ‘ lions under which the transfer shall be made. By the term “ regulations,” we understand nothing more than “ rules,” for ■the transaction of the business to which they relate.. These rules must be pertinent to the subject and reasonable-in them- ■ selves.
The stock of a corporation, or rather its capital, is joint pro'perty; the certificate that is -issued to the person who has contributed thereto certifying his interest, is not the-'capital, but is 4 evidence of the number and nominal value of his shares. To ‘some extent the stock is subject to the legislation of the Company, as we have seen was determined in Child v. Hudson’s Bay Company. That case, which has been frequently cited with approbation, and always, so far as we háve observed, 'without objection, fully maintains the right of a corporation to declare, by a by-law, that the dividends on stock may behiade under particular restriction^ or terms; and that the stock of members shall be liable to their debts due the corporation, in preference to other creditors or assignees. That the defendant was fully authorized to become both a debtor and creditor, very sufficiently appears from the sections of the chartér we have cited — in fact, the Company could not carry out the pur- ' poses of its creation without sustaining both relations. It cóüld not become the receiver of money in trust, and pay interest-oh it, unless it could be allowed to lend at as high, or a highér rate of interest. But it is needless to say more, as the duties
From what we have said it will follow that the by-law in question is in conformity to the charter, and dictated by expediency. It is calculated to enable the stockholders to obtain accommodations from the trustees, upon security less satisfactory than th,e trustees would advance upon, if the stock of members was not pledged for their individual indebtedness. And so much as it restricts the transfer of the stock, probably to an. equal or greater extent does it facilitate the obtaining of money by the stockholders, and thus adds to the capital actively employed; so that the inconveniences which result from such a by-law so far as the public is concerned, is entirely neutralized by the private as well as public benefit which proceeds fropi it.
The certificate of stock, notwithstanding the terms in which it is expressed, cannot be regarded as a negotiable security, so as to vest in an assignee a legal title to the stock, without any further act. The transfer being, by the terms of the charter, to. be made on the books of the Company, the assignee receives but a mere equitable interest until the assignment is consummated ; and for a refusal to carry out the contract between the assignor and himself, he cannot maintain an action against the Company until its lien has been discharged. This is very satisfactorily shown by several of the cases cited.
2. In respect to the second question, it may be quite enough to say, that the debt for which the lien is claimed, appears to be due by note to the corporation, and for any thing appearing to the contrary, comes within both the letter and spirit of the by-law.
It will follow from what we have said, that the judgment of the Circuit Court is correct; and it is consequently affirmed.