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[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] *Page 30 This action rests upon contract. Its foundation is an express agreement between the corporation, the National Express and Transporation Company, on the one side and the defendants on the other. It depends upon a created and existing contract-relation, from which, and from which alone, can spring the liability alleged. (McMahon v. Macy, 51 N.Y. 155; Matter ofReciprocity Bank, 22 id. 9; Keyser v. Hitz, 133 U.S. 138.)
To establish that relation it must appear that the minds of the parties met, that the defendants agreed to be and become stockholders in the corporation with the privileges and responsibilities of that relation, and that the corporation accepted them as such. The former could not be put in that position against their will, without their consent, by the unauthorized and unratified act of a third person; for in such case there would exist no contract-relation, no mutuality of agreement, but simply a mistake or a wrong which the defendants might ratify and condone, or repudiate and reject. The judgment of the General Term, which reversed that rendered by the trial court in favor of the plaintiff, rests upon this doctrine, and holds that the defendants never took upon themselves the contract-relation of stockholders in the Virginia corporation, and we are to determine whether that fact appears without either proof or admissible inference to the contrary, *Page 32 since the reversal was for error of law and founded upon exceptions.
The facts established were the following: The corporation was created under the laws of the state of Virginia, with a capital stock fixed at five millions of dollars, of which but twenty per cent had been actually paid in. The remaining eighty per cent was payable by the stockholders whenever called for by the company, and upon such call became a debt and due in accordance with the terms of the lawful demand. That corporation supplanted and superseded a prior organization of similar plan and purpose, but with a much smaller capital stock; and among the corporators of the earlier company was one Ficklin, who may be supposed to have known and understood the financial condition and prospects of each company. He desired to purchase some of the stock of the new corporation, but, lacking the necessary funds, applied to the defendants to buy it and carry it for him. The latter were bankers and brokers, in the daily habit of carrying stocks upon a margin, and conducting such business in one uniform and customary manner. Buying for others, and not for investment, they never caused the stock purchased to be transferred to themselves upon the corporate books, and never intended to be and never became stockholders in the companies whose securities or certificates they handled. What they bought, or held as collateral, was always the certificate of some stockholder, assigned in blank, and which might pass through many hands before a transfer on the books of the companies. By this process they bought and held the right to become stockholders; the potential authority and opportunity to assume that relation; but were equally at liberty not to do so; at least in all cases where the corporate law recognized no transfer except upon the corporate books. Before such transfer the defendants were in one sense holders of stock, but not, in relation to the corporations, stockholders. To these brokers doing business in this manner Ficklin applied to buy for him the stock of the transportation company and carry it for him upon a margin; and they assented, knowing the stock to be assessable *Page 33 and not listed; and both parties contemplating an ownership by the customer and a lien or hypothecation as the interest of the broker. Whatever purchase was made by the latter was meant to be as agent for the customer, and not as owner. It was at Ficklin's suggestion that the stock was picked up in Baltimore, and most of it through the agency of McKim. Who directed him to buy is not entirely certain. The strong probabilities are that it was Ficklin, but whoever it was the order was given to buy the stock for the account of the defendants and send the certificates and bill to them. There is no pretense that any direction or authority was given by anybody to McKim to cause the stock to be transferred upon the books of the company. Whether the order was given by one of the defendants or by Ficklin, it did not extend to such a transfer, and could not have done so without violating the actual contract made and the proved intention of the parties.
But at this point McKim made a mistake, without which the present litigation would have been impossible, and upon which the whole claim of the plaintiff rests. He caused the stock purchased to be transferred to the defendants upon the books of the company. He did so honestly enough, but without authority or direction and solely by reason of his ignorance of the actual facts and his misinterpretation of the purpose of the parties. His act did not make the defendants stockholders. He was not empowered to make any such contract or establish any such relation, and could not impose it upon them by an act which was in no sense theirs. The defendants could only become responsible for it by estoppel or ratification. There never was any basis for an equitable estoppel. Neither the company nor any of its creditors did anything or forbore anything upon the faith or because of the appearance of ownership in the defendants. The case is bare of any such proof. The question raised, however, is one of ratification, and grows out of the subsequent action of the defendants. When the certificate reached them they discovered McKim's mistake. Garth wrote to him repudiating the transfer and denying his authority to make it, and directing him, as *Page 34 a means of undoing the mischief, to sell and transfer the whole four hundred and ninety shares. To enable him to do so, in accordance with established forms, the defendants signed and executed an assignment in blank of the stock transferable by delivery and McKim sold it, but it was not transferred upon the corporate books. Before that could have been done, or at all events before it was done, the corporation failed and made a general assignment to trustees for the benefit of creditors, and no transfer on the books having been accomplished, the defendants are sought to be charged as stockholders with the whole eighty per cent remaining unpaid upon the stock subscriptions. The question, therefore, culminates in the legal effect of the conduct of the defendants, and becomes an inquiry whether their act, intended as a repudiation, meant to undo what had been done and so declared and described at the time must, nevertheless, because of its form be deemed evidence of an assent never in truth given. In considering that question we may proceed upon the actual facts and unhampered by any equities founded upon their false appearance since none such existed.
It is first said that the defendants paid McKim for the stock after they had received the certificates and with full knowledge of their form. I think the evidence makes reasonably possible such an inference, and so accept it as a fact. But such payment it was the duty of the defendants to make and the right of McKim to require, notwithstanding the mistake made. His fault was not in buying the stock, he was authorized to do that, and the defendants were bound to reimburse him. The mistaken form of the certificates justified a demand for correction, but not a refusal to pay as between defendants and McKim, and such a correction would be consistent with the purchase by the agent and the payment by the principal. That payment was a confirmation of the authorized purchase, but not a ratification of the unauthorized act which followed it. That was repudiated at the very time of the payment and consistently with it, both to McKim the broker and Ficklin the general owner. *Page 35
But greater reliance is placed upon the action which followed. As has been explained, the defendants instead of returning the certificates to McKim with a demand that their form be changed, assigned them in blank and required him to sell them. Unexplained, the act recognized an ownership and the existing transfer to the defendants, and was imprudent exactly for that reason. Why they did so we can easily see. They must have realized that McKim might be unable to procure a cancellation of the transfer on the books, or meet with delay and possibly litigation in the effort; and that if the certificates were delivered to Ficklin to be registered in his name and then be assigned by him in blank to defendants they would be left without security in the interim. Both methods of procedure, although acts of disaffirmance and repudiation, would require an assignment by the defendants of the formal record title in them. The company would naturally require it for their safety and to preserve the regularity of their books if a cancellation was sought; and it would be equally necessary in order to put title in Ficklin. In carrying out those methods of correction and disaffirmance the formal assignment of the formal title instead of proving ownership would be an element in the disclaimer of ownership. The method of an immediate sale involved in the same way a transfer of the same formal legal title, and when done, not as a confirmation of ownership, but as a method of changing the registry of the company with a view of correcting the false appearance of ownership I can see no reason for deeming it a confirmation or ratification. For what is a ratification where no rights of third persons are involved? It implies a conscious and intended approval of the act done. It rests upon the actual and existing purpose to make such approval. Hence, the courts say, that it must occur with full knowledge of all the facts. It rests in the intention, where the question is between the original parties and depends upon the facts and not upon appearances. In this case we know that the intention was to disaffirm and repudiate the apparent contract-relation seemingly established by the mistaken action of McKim, and that the assignment in blank for *Page 36 purposes of sale was not meant to affirm the apparent ownership, but to transfer the formal legal title put in the defendants against their will. The facts show without contradiction that the defendants never entered into the contract-relation with the corporation of stockholders therein, but on the contrary refused to be put in that position, and acted with a view to undo and alter the appearances in such direction which accrued without their consent. As between the original parties that could not be deemed a ratification which was accompanied by a refusal to ratify, and a declared purpose to undo the unauthorized act. The form adopted, by itself and unexplained, would tend to an inference of ratification, but it is not left unexplained. The actual truth is established, and that truth must prevail over the form adopted as between parties who have not been misled, to their harm, by the form of the transaction as distinguished from its substance.
But it is further claimed that under the statutes of Virginia, as expounded by their courts, the transfer upon the books of the company is conclusive upon the defendants, and makes them stockholders at least as to creditors, irrespective of the circumstances of the registry. It is obvious that any enactment which enabled a wrong-doer to load upon a stranger the heavy responsibilities of a stockholder without his knowledge or assent would be an outrage upon the rights of the individual not to be expected. The statutes of Virginia accomplish no such wrong, but operate reasonably within certain well-defined limits. We are referred to the Code of 1860, chapter 57 and section 7. That regulates the rights of the assignor of stock, appearing as owner upon the corporate books relatively to his assignee who does not so appear and to the creditors of and subsequent purchasers from the former, and vests the title in the assignee, not, let it be observed, for all purposes, but "so far as may be necessary to effect the purpose of the sale, pledge or other disposition," and subject to the provisions of the 25th section. That is in these words: "A person in whose name shares of stock stand on the books of the company shall be deemed the owner thereof as regards the company." *Page 37 The plain meaning is that the corporation which has acknowledged the ownership and accepted its evidence and admitted it upon its records shall not be at liberty to dispute it. Its meaning is not that it shall be conclusive against the alleged stockholder. Indeed, in Vanderwerken v. Glenn (85 Va. 9), the court state the rule to be that the record upon the corporate books is primafacie evidence of the ownership, and after examining all the cases referred to I find none which venture any further. InMagruder v. Colston (44 Maryland, 350), the pledgee of stock had himself caused it to be registered in his own name as owner, and became a stockholder by his conscious and voluntary act and assent as respected the company and its creditors. And in McKim v. Glenn (66 Maryland, 482), reliance was put upon the transfer on the books largely upon the ground that there was no foundation for saying that the transfer was made without authority.
If in some of the cases there were expressions indicating an approach to the idea of an equitable estoppel upon the ground that creditors might be presumed to have trusted the company upon the faith of the apparent ownership, they did not in the end rest upon it, because in every instance the transfer on the books was shown to be the defendant's conscious, voluntary and intended act, and not the representation of a falsehood. Here the trustee who sues represents the corporation and the whole body of its creditors. I cannot find even that any creditor became such after the transfer by McKim, or with knowledge of the names of the stockholders, or that anybody up to the moment of the failure and of the trust deed which fixed all the creditors' rights, did anything or forebore anything upon the faith of an ownership of stock by the defendants. We may stand, therefore, as did the General Term, upon the truth of the transaction as proved and established. The presumption which might have flowed from the form of the transaction disappears upon the explanation made, and in view of the substantial truth proved by the evidence.
The order should be affirmed, with costs, and with judgment absolute against the plaintiff upon the stipulation. *Page 38
All concur.
Order affirmed and judgment accordingly.