Johnson v. Laflin.

is settled beyond all question by numerous decisions in the English, and the Federal and State courts. Black v. Zacharie, 3 How. 483; Union Bank v. Laird, 2 Wheat. 390; Webster v. Upton, 1 Otto, 65, 71; Bank v. Lanier, 11 Wall. 369; St. Louis, etc., Ins. Co. v. Goodfellow, 9 Mo. 149; Chouteau Spring Co. v. Harris, 20 id. 382; Moore v. Bank, 52 id. 377; Hill v. Pine River Bank, 45 N. H. 300; Re London, etc., Tel. Co., Law Rep., 9 Eq. 653.

The general subject of the right to transfer shares has been much discussed in the cases in England arising under the various Companies' Acts. Some of these acts give the directors express power to refuse to assent to or register transfers of shares, and some do not. The result of the English cases is that the directors cannot refuse to register a bona fide transfer of stock unless the power to do so is expressly given in the act of Parliament or the articles of association. The leading authority on this point is Weston's case, Law Rep., 4 Ch. App. 20. See, also, Gilbert's case, Law Rep., 5 Ch. App. 559. In Weston's case, Law Rep., 4 Ch. App. 20, Lord Justice PAGE-WOOD, in considering this subject, said:

"I have always understood that many persons enter these companies for the very reason that they are not like ordinary partnerships, but that they are partnership from which members can retire at once, and free themselves from responsibility at any time they please, by going into the market and disposing of and transferring their shares without the consent of directors or shareholders, or anybody, provided only it is a bona fide transaction; by which I mean an out-and-out disposal of the property, without retaining any interest in them. But if it is desired by a company that such unlimited power of assignment shall not exist, then a clause is inserted in the articles by which the directors have powers of rejection of members. Shortridge v. Bosanquet, 16 Beav. 84, which went to the House of Lords, was a case of that kind. In the absence of any such restriction, I think it is perfectly plain that the Companies Act, 1862, in the 22d section gives a power of transferring shares. I think there is no such power given to the shareholders, and that the shares are at once transferable under the statute, unless something is found to the contrary in the articles of association. * It would be a very serious thing for the shareholders in one of these companies, to be told that their shares, the whole value of which consists in their being marketable and passing

* *

Johnson v. Laflin.

freely from hand to hand, are to be subject to a clause of restriction, which they do not find in the articles. And I may add that if we were to hold that such powers were vested in the directors it would be a very serious thing for them, and would impose upon them much more onerous duties than any which are really imposed upon them by this clause." In Gilbert's case, Law Rep., 5 Ch. App. 559, 565, Lord-Justice GIFFARD said: "I agree that according to Weston's case, and according to what I have always considered to be the law, there is no inherent power in the directors, apart from the provisions of the articles of association, to refuse to register a proper and valid transfer, if that proper and valid transfer is submitted to them."

And although there is express power to the directors to refuse to assent to or register a transfer, this power must be exercised in a reasonable manner and bona fide, and they must have some valid and lawful reason for refusing to register. Ex parte Penny, Law Rep., 8 Ch. App. 446; Nation's case, Law Rep., 3 Eq. 77; Lowe's case, Law Rep., 9 Eq. 589; Allin's case, Law Rep., 16 Eq. 449, 559; Weston's case, Law Rep., 5 Ch. App. 620; Ex parte Elliott, Law Rep., 2 Ch. Div. 104.

In a case where the directors had power to approve or reject the transfer of shares, one of the vice-chancellors, speaking of the right of a shareowner to dispose of his shares, said: "One of the incidents (of this class of property) is the right to transfer it-a right to make a present and complete transfer of it. of the directors to receive and register the transfer or to furnish some (valid and sufficient) reason for refusing to transfer." In re Stranton, etc., Co., Law Rep., 16 Eq. 559, per BACON, Vice-Chancellor.

It is the duty

Similar observations are made by the Supreme Court of the United States in the Bank v. Lanier, supra. Mr. Justice DAVIS then says: "The power to transfer their stock is one of the most valuable franchises conferred by Congress. * * It enhances the value of the stock. Although neither in form nor character negotiable paper, they (the share certificates) approximate to it as nearly as possible."

It would be a new, and I apprehend, a startling doctrine to proclaim that the holder of shares in a corporation, where the only. provision on the subject of transfers was one requiring them to be made on its books, had no right to make a complete and effectual

Johnson v. Laflin.

disposition of them without the consent of the directors or other shareholders. No such power over the right of transfer has been given in the National Banking Act. Such a power is so capable of abuse and so foreign to all received notions and the universal practice and mode of dealing in these stocks that it cannot in the absence of legislative expression, be held to exist.

For these reasons and upon these authorities the proposition must be considered as established that a shareowner in a National bank, while it is a going concern, has the absolute right in the absence of fraud to make a bona fide and actual sale and transfer of his shares at any time, to any person capable in law of purchasing and holding the same, and of assuming the transferor's liabilities in respect thereto, and that this right is not, in such cases, subject to the control of the directors or other stockholders.

Our second proposition is that Laflin did make a complete and effectual sale and transfer of his shares to James H. Britton individually, and that as to Laflin, it was not a sale and transfer of the stock to the bank. Laflin sold through the broker or agent, Keleher and the latter dealt with Britton as an individual, without knowledge that Britton intended to turn over the shares to the bank, and he received in payment for the shares the personal check of Mr. Britton, and delivered to him at the same time the certificates of stock assigned, in blank, with powers of attorney in blank thereon indorsed, authorizing the transfer of the shares on the books of the bank.

As between Laflin and Britton, the transfer was complete by the sale, assignment, delivery and payment, without registration, and this whether it gave Britton before the registration, the legal title to the shares as against Laflin, or only a complete equitable title. Union Bank v. Laird, 2 Wheat. 390; Webster v. Upton, 1 Otto, 65, 71; Black v. Zacharie, 3 How. 483; Bank v. Lanier, 11 Wall. 369, 377; Chouteau Spring Co. v. Harris, 20 Mo. 382; Moore v. Bank, 52 id.; N. Y., etc., R. R. Co. v. Schuyler, 34 N. Y. McNeil v. Bank, 46 id. 325; Grymes v. Howe, 49 id. 17; Bank of Utica v. Smalley, 2 Cowen, 778; Bank of Commerce's Appeal, 73 Penn. St. 59; Ross v. S. W. R. R. Co., 53 Ga. 514; Hoppin v. Buffum, 9 R. I. 513; Bank of America v. McNeil, 10 Bush (Ky.), 54; Davis v. Lee, 26 Miss. 505; German, etc., Ass. v. Sendsmeyer, 50 Penn. St. 67; Leavitt v. Fisher, 4 Duer, 1.

30;

That the transaction is complete as between seller and purchaser

Johnson v. Laflin.

of stock by the assignment and delivery of the certificate, with the power to transfer, and the receipt of payment is fully shown by these cases, and is also evident from the fact that thereupon each of them has the legal right to have a transfer of the shares made on the books of the bank. The seller of the shares, for his protection against creditors of the bank in case of insolvency, may transfer the same on the books to the vendee, the purchase being the authority to the seller to do this. Webster v. Upton, 1 Otto, 65.

And for like reason the seller of shares who has done all that is necessary to enable the purchaser to transfer the shares on the books may file a bill to compel the vendee to record the transfer. Shaw v. Fisher, 2 De Gex & S. 11; Cheale v. Kenward, 3 De Gex & J. 27; Wynne v. Price, 3 De Gex & S. 310; Webster v. Upton, 1 Otto, 65, 71.

So, also, the vendee of the shares, where the vendor has done all that is necessary to enable the transfer to be registered, may for his own protection compel the bank to register the transfer, or hold it liable in damages for a wrongful refusal. Bank v. Lanier, 11 Wall. 369; Hill v. Pine River Bank, 45 N. H. 300; Bank of Utica v. Smalley, 2 Cowen, 770; Commercial Bank v. Kortright, 22 Wend. 348.

The delivery of the share certificates and blank transfèrs will entitle the bona fide vendee to have the transfer registered. "Whoever in good faith buys the stock, and produces to the corporation the certificates regularly assigned, with power to transfer, is entitled to have the stock transferred (per DAVIS, J., Bank v. Lanier, 11 Wall. 369), unless there exists some valid and legal reason in favor of the bank for refusing to register the transfer as in the case of the Union Bank v. Laird, 2 Wheat. 390. In that case the charter gave the bank a lien for the shareholders' debt to it, and provided that "stock shall be transferable only on the books of the bank." Under these circumstances, the bank was held to have a lien on the shares to secure the shareowner's indebtedness to it, which was superior to the right of the unregistered transferee of the stock. Black v. Zacharie, 3 How. 483.

If the foregoing propositions are sound, Britton against Laflin had the right immediately on delivery and payment to register the transfer of the shares, and had the power to fill up the blank transfers, and have the transfer registered. Re Tahiti Cotton Co., Law Rep., 17 Eq. 273; German Union Ass. v. Sendmeyer, 50 Penn. St.

Johnson v. Laflin.

67; Leavitt v. Fisher, 4 Duer, 1; Commercial Bank v. Kortright, 22 Wend. 348. Nothing more was required to be done by Laflin or needed to enable Britton to make his title complete. And Laflin could have compelled Britton to register the transfer. If Laflin had proceeded against Britton he could have forced him to have accepted a transfer of the stock in his own name or in the name of some person capable of taking and holding the same. Maxted v. Faine, Law Rep., 6 Exch. 132. It would have been no answer to Laflin for Britton to have said: "I bought this stock, not for myself, but for the bank." Laflin could have rejoined, "You purported to act for yourself. I suppose you were so acting, and you had no authority, and could have had none, to act for the bank."

It is held in England under the Companies Acts that the transferor of shares is liable to be treated as a stockholder, until he transfers to one who is in law capable of holding, and liable in respect of the shares, and whose purchase is registered, unless, perhaps, where the neglect to register is entirely the fault of the corporation or its officers. Fyfe's case, Law Rep., 4 Ch. App. 768; Lowe's case, Law Rep., 9 Eq. 589; Shropshire, etc., Railway and Canal Co. v. The Queen, Law Rep., 7 House of Lords Cases, 496, 513; McEuen v. West London Wharves, etc., Co., Law Rep., 6 Ch. App. 655; Weston's Case, Law Rep., 5 Ch. App. 614, 620; Gooch's case, Law Rep., 8. Ch. App. 266; Gilbert's case, Law Rep., 5 Ch. App. 559; Master's case, Law Rep., 7 Ch. App. 292; Nickalls v. Merry, Law Rep., 7 House of Lords Cases, 530; Symon's case, Law Rep., 5 Ch. App. 298; Heritage's case, Law Rep., 9 Eq. 5.

Assuming without deciding, that this principle applies in all its force under the National Banking Act, if Laflin had sold to an infant, his liability would remain, notwithstanding the transfer was registered.

Nickalls v. Merry, Law Rep., 7 House of Lords Cases, 530; Symon's case, Law Rep., 5 Ch. App. 298. If he had sold to the bank, he would remain prima facie if not actually liable, if the bank should so elect. And if the seller of shares remains liable under the National Banking Act until there is a registered valid transfer that is, until some person succeeds to the stock who is capable of holding it and liable in respect to it this principle will not make Laflin liable under the facts of the present case. Here the transfer was registered, but Britton, instead of registering it in his