The appellant was incorporated by chapter 259 of the Acts of 1898, and by its charter was authorized to have a capital stock "of four thousand shares at fifty dollars each, being two hundred thousand dollars, with the privilege of increasing the same, from time to time, up to the sum of two million dollars, by a vote of the stockholders at a special meeting to be called for that purpose." The original stock of four thousand shares was subscribed for in full on or about November 1, 1898, by various parties, including fifty shares by W.B. Brooks, Jr. On the first day of December, following, a certificate was issued to Mr. Brooks for the fifty shares, in which it is stated that he had paid the sum of eighteen hundred and seventy-five dollars thereon, and that when the balance was paid, at such times and on such conditions as the board of directors should prescribe "a full-paid certificate of stock will be given upon surrender of this certificate." The above amount included fifty per cent, of the par value of the stock and a bonus, which was paid by all the subscribers — the stock being taken at seventy-five dollars per share. On December 10th the appellee purchased through a broker the stock of Mr. Brooks at a premium of thirteen dollars per share.
On or about November 1, 1898, the subscribers signed, under seal, an agreement as follows: "We, the undersigned, being subscribers to the original stock of the Real Estate Trust Company, and having the right under the charter to subscribe prorata to the proposed increase of 8,000 shares, in accordance therewith, hereby agree to subscribe to the additional stock in the amounts set opposite our names, 50 per cent. of said subscription to be paid on *Page 241 February 1st, 1899, and the balance when called for (after thirty days' notice), and we hereby waive our right to subscribe to any other portion of the remainder of said issue to which we would be entitled to subscribe, as shown below.
Subscriber. No. shares taken. No. shares waived."
The number of shares of the proposed increase taken by Mr. Brooks was stated to be "none" and the number of shares waived "100." Neither the broker nor the appellee knew of the waiver when the latter purchased the stock. On January 20, 1899, the stockholders, in meeting assembled, after due notice, adopted a resolution increasing the stock from four thousand to twelve thousand shares, and the company having refused to transfer to the appellee the shares originally subscribed for by Mr. Brooks, or to allot to him any of the increased stock, he filed this bill, in which, amongst other relief asked for, he prays that the appellant be required to transfer to him on its books the fifty shares of stock, and to accept his subscription for one hundred shares of the new stock, or in the event that that relief could not be granted that the defendant might be decreed to pay him such damages as he has suffered by reason of its wrongful acts. The Court below passed a decree (1) requiring the defendant to transfer on its books, as of January 10, 1899, to the appellee, the fifty shares of its capital stock assigned to him by Mr. Brooks, and (2) allowing him damages for the defendant's refusal to accept the plaintiff's subscription for one hundred shares for the increased stock — it appearing that all of the eight thousand shares authorized by its stockholders had been allotted and issued by the company. From that decree this appeal was taken.
1. There is nothing on the certificate to indicate that it was not transferable. On the contrary, on its face is printed "Transferable only on the books of the company," and on the back of it there is printed assignment, such as is generally found on certificates of stock, which was filled up by *Page 242 inserting the name of the appellee, the number of shares (fifty), and it was signed by Mr. Brooks — the name of the attorney to transfer the stock on the books of the company being left blank. The assignment was dated December 10, 1898. After the purchase by the appellee the broker seems to have made some effort to have the stock transferred on the books, but the evidence does not show that he saw the proper officer of the company, his messenger apparently having failed to find where the transfer-office was. The appellee testified that his first visit to the office of the company was January 10, 1899, and he wrote a letter of that date in which he notified the company of his purchase and concluded by saying "as I am informed, that no transfer can be made on your books until stock be paid up, kindly notify me of second assessment on the same when it is called." He said, in answer to question whether any request had been made by him on the defendant for the transfer of the certificate, "An implied request was made upon my first call at the office of the company at the time already mentioned, and I was informed that the stock could not be transferred," and that, between that time and January 20, 1899, he called with his attorney and made a request that the stock be transferred but was refused. On January 20th he again wrote stating "I beg to herewith renew my application for a transfer to me on the books of your company of the certificate No. 25 in the name of W.B. Brooks, Jr.," and insisted upon his right to a pro rata share of any increase of the stock. On January 25th he made a formal offer to pay for the new stock, but on the 21st day of that month the company had allotted all the shares which had been authorized, some to the original stockholders and the others to new subscribers. There seem to have been no by-laws of the company regulating the transfer of stock — at least none were offered in evidence. A few days after this bill was filed the secretary of the company wrote to the appellee, stating that the executive committee had the day before determined to transfer certificates *Page 243 of stock on which the first fifty per cent had been paid, and offering to transfer these shares to him. The president of the company testified that the first formal demand for the transfer made on him was at fifteen minutes before twelve o'clock on January 20, 1899 (the time the stockholders' meeting was held), but we do not understand him to deny that the appellee had prior to that time requested the transfer, as he swore he did. No valid reason for refusing to make the transfer is given. Under such circumstances it was the duty of the company to transfer the stock and inasmuch as it had refused to do so the appellee was entitled to relief. In 1 Cook on Stock and Stockholders, sec. 389, it is said that the transferee of stock, which it is the duty of the corporation to transfer, may pursue one of three remedies. "He may apply to a Court of Law for a mandamus to the corporation to compel it to open its books and allow the registry; or he may bring a suit in equity, praying that the corporation be decreed to allow the registry, or to pay him damages, if registry is impossible; or he may sue the corporation at law for damages, on the ground that by its refusal it has been guilty of a conversion of his stock." In section 391 that author says that the preceding in equity is "the surest, most complete and the most just remedy," and it is fully recognized in this State. Kerr v. Urie, 86 Md. 77; Baltimore Retort and FireBrick Co. v. Mali, 65 Md. 97; Swift v. Smith, ibid, 435. Indeed we do not understand the appellant to deny that the appellee was entitled to such relief after the demand of January 20th, but the evidence sufficiently shows a refusal, at least as early as January 10th, and hence we think the Court below was right in the part of the decree we have been considering.
2. As the appellee was a bona fide holder of the stock for value and was entitled to have the transfer on the books of the company prior to the meeting of the stockholders at which the increase of the stock was ordered, but was prevented by the refusal of the company to do so, we must *Page 244 consider the remaining questions in the case as if there had been an actual transfer on the books, as the appellant cannot profit by its own wrongful act. There can be no doubt that the general rule is that when the capital stock of a corporation is increased by the issue of new shares, authorized by the charter, the holders of the original stock are entitled to the new stock in the proportion that the number of shares held by them bears to the whole number, before the increase. Gray v. Portland Bank,3 Mass. 364; Eidman v. Bowman, 58 Ill. 444; 1 Cook onStocks, etc., sec. 286; Angell and Ames on Corporations, sec. 554; Jones v. Morrison, 31 Minn. 140; Biddle's Appeal,99 Pa. 278; Jones v. Concord and M.R.R., 67 N.H. 234; (s.c., 30 Atl. Rep. 614).
But that right of the original stockholders may be qualified or regulated by the terms of the charter. For example, in OhioInsurance Company v. Nunnemacher, 15 Ind. 294, where the charter of a company gave the directors power to make by-laws for the management and disposition of the stock and to increase the stock to an amount named, on such terms and conditions and in such manner as to them should seem best, it was held that the original stockholders did not have the exclusive right to the new stock, in case of an increase. In the charter of this company (sec. 2), it is provided "and should the capital stock be at any time increased, the stockholders at the time of such increase shall be entitled to a pro rata share of such increase, upon the payment of not less than the par value of the same." That provision is, in substance, just what the cases above referred to decided, for none of them go to the extent of holding that one who was an original stockholder was entitled to a proportion of the increased stock, notwithstanding he had disposed of his stock before such increase was made. The charter certainly did not mean to confer on the original subscribers the right to the increased stock, irrespective of the question whether they retained their stock, for it expressly said that "the stockholders at the timeof such increase" shall *Page 245 be entitled, etc. Mr. Brooks' right to the new stock was, therefore, dependent upon his holding his original stock until the capital was increased. When the agreement of November 1, 1898, was executed the directors had not even been elected and no payment had been made on account of the stock. The charter provides that "the incorporators, or a majority of them, named in this Act, shall have power to open books for subscriptions at such times and places as they may deem expedient, and when said four thousand shares have been subscribed and when fifty percent thereon has been paid in, the stockholders may elect twenty directors, or a less number of directors, not less than twelve, however, to serve until the ensuing annual election." It was a condition precedent to the organization of the company, for the transaction of business, that the four thousand shares be subscribed and the fifty per cent be paid. It cannot therefore be said that November 1, 1898, was "the time of such increase" of stock, as they were not then in condition to even take the preliminary steps to make the increase — to call the meeting of stockholders for that purpose. The fifty per cent was paid on the four thousand shares on or about December 1, 1898, and not until the 20th of that month did the directors hold the meeting at which they decided to call the stockholders together. The only way by which it could be increased under the charter was "by a vote of the stockholders at a special meeting to be called for that purpose," and that meeting was held at twelve o'clock on January 20, 1899. That was, therefore, the "time of such increase," and the appellee was then a stockholder, and by the terms of the charter was entitled "to a pro rata share of such increase."
But it is said, on the part of the appellant, that an original subscriber has the right to the proposed increase from the time of his subscription, and the act of the stockholders informally determining upon the increase only brings the pre-existingright into action. We can only adopt that view in a qualified sense, for, especially with a provision in the *Page 246 charter such as we have before us, that right must be dependent upon the question whether the subscriber continues to hold his stock until the time of the increase. It is not the originalsubscriber, but the then holder of the original stock that is entitled to the increase. It is not the person who was stockholder when the increase was proposed, but the one who was such when it was determined on in the method required by the charter. If Mr. Brooks had agreed on November 1, 1898, to take the one hundred shares, instead of waiving his right to do so, can it be said that he, and not the appellee, would have been entitled to the increase? Most assuredly not. He could not have demanded it from the company, for it was an incident to the stock which the appellee then owned and the right to the increase belonged to the latter by reason of the fact that he owned the stock at the time of such increase, and Mr. Brooks' act could not deprive the appellee of the right to exercise his option. The company was not a party to the agreement of November 1st, and was in nowise bound by it, even if we leave out of consideration the question of its power under the charter to let one who was not a stockholder, at the time, have the new stock to the detriment of one who was.
3. Much of the argument of the respective counsel was addressed to the question as to how far a bona fide assignment of stock, without notice of any existing equities, is affected by them. After what we have already said, it would serve no good purpose to enter into an extended discussion of this branch of the case. The authorities, with great unanimity, do hold that certificates of stock are not, strictly speaking, negotiable instruments, and the term "quasi negotiable" is not considered altogether satisfactory, although, as said in Daniel on NegotiableInstruments (sec. 1708) "it describes better than any other short-hand expression the nature of those instruments which, while not negotiable in the sense of the law merchant, are so framed and so dealt with as frequently to convey as good a title to the transferee as if they were negotiable." In 1 Cook on *Page 247 Stocks, etc., sec. 416, the author in discussing the law of estoppel, as applicable to transfers of stock, says "indeed to such an extent has the law of estoppel been applied to protect abona fide purchaser of stock that he is protected now in almost every instance where he would be protected if he was purchasing a promissory note or other negotiable instrument. The Courts are steadily extending the application of the law of estoppel herein and in the course of time it is possible that certificates of stock may become more negotiable than negotiable instruments themselves." Without intending to unite in the prophecy of the learned author as to what may yet be done, the fact is that Courts have felt called on, ex necessitate rei, to free certificates of stock from many of the burdens that most non-negotiable instruments are required in law to carry. If a negotiable instrument is, as has been said of it by a distinguished jurist, "a courier without luggage" a certificate of stock in the form now usually followed might at least be said to be "a courier without much luggage." If, as was decided inFarmers' Bank v. Iglehart, 6 Gill, 50; Reese v. Bank ofCommerce, 14 Md. 271, and Hammond v. Hastings, 134 U.S. 401, corporations are protected by reason of provisions in their charters of which the purchasers of stock must take notice, upon what principle should the purchasers be denied the protection and rights the charters give them? There was not only no provision in this charter which gave a purchaser notice that the company had the right to accept of a stockholder such a waiver of the increase of stock as would bind those who became purchasers of that stock before the increase was made, but the charter limited the right to the stockholders "at the time of the increase," and a purchaser might well assume that such right would be preserved. This certificate was issued after the alleged waiver by Mr. Brooks, and if the company desired, or had the power to protect itself against that provision in the charter, it should have noted the fact of the waiver on the certificate. As the company was aware of the purchase by the appellee before *Page 248 its actual allotment of the new stock — before it could allot it — and as he was a bona fide purchaser of the fifty shares of the original stock, for value, and without any notice of the attempted waiver by Mr. Brooks (even if it be conceded that he could waive it so as to bind himself when he signed that agreement), the appellee was not bound by that act of Mr. Brooks, but took the stock without in anywise being affected by such attempted waiver. Grafflin v. Woodside, 87 Md. 152; Brandt v. Ehlen, 59 Md. 25; Knox v. Eden Musee, 148 N.Y. 454, and other cases might be cited in support of this conclusion.
The jurisdiction of a Court of Equity to grant the relief given by the decree is fully sustained by the authorities referred to in the first part of this opinion, and as the amount of damages to be allowed, in the event of the case being determined in favor of the appellee, was fixed by agreement, it is unnecessary for us to discuss those questions and the decree will be affirmed.
Decree affirmed, the appellant to pay the costs.
(Decided December 6th, 1899).