§ 397. The corporation may refuse registration to both of two claimants

-Interpleader.

§ 398. Whether the company may inquire into the purpose of the transfer.

§ 399.

§ 400.

Liability of the corporation for failure or refusal to register.
The rights and remedics of holders of outstanding certificates as
against the transferrer.

§ 401. The rights and remedies of holders of outstanding certificates as against the corporation.

§ 402. The rights of a transferree, the certificates outstanding.
§ 403. The remedy of a transferree, the certificates outstanding.

2

§ 371. Registration-For what purposes requisite.-Registration upon the books of the corporation is said to be an essential part of a valid transfer of shares of stock; and it is generally provided, either by the charters of the companies, or by general statutory enactments of the States, that no transfer shall be valid or effectual until registration has been made. But these provisions are not construed to affect the validity of the transaction as between the parties themselves. Indeed, the enactments themselves, declaring unregistered transfers invalid, frequently contain the saving clause, 'except as between the parties thereto." "3 And they are generally construed as similar in purpose to statutes requiring deeds conveying interests in real estate to be lodged for record, under which it has been uniformly held that the title passes to the grantee, as between the parties to the conveyance, notwithstanding that the deed may remain unrecorded.* In like manner, the object of having transfers of shares recorded upon the books of the company, is to give notice to the public and to any third party claiming an interest in the stock, that a transfer has been made. For this reason an un

66

registered transfer of shares of stock is binding not only upon the parties, but also as against all persons having actual knowledge thereof."

The sense in which an unrecorded transfer is invalid, and the purposes for which registration is essential, are considered in the following sections.

1 Topeka Manuf. Co. v. Hall (1888), 39 Kan. 23. And many general statements to that effect will be found scattered throughout the opinions treating the subject of transfers of shares.

2 Johnson v. Laflin, 103 U. S. 800, 804; Baldwin v. Canfield, 26 Minn. 43; Noyes v. Spaulding, 27 Vt. 420.

3 For example, see Ky. Gen. Stat. ch. 56, § 11; re-cited in Thurber v. Crump (1853), 26 Ky. 403.

4 Noyes v. Spaulding, 27 Vt. 420.

5 Noyes v. Spaulding, 27 Vt. 420. See also Continental National Bank v. Eliot National Bank, 7 Fed. Rep. 369; Merchants' etc. Bank v. Richards, 6 Mo. App. C51.

6 Noyes v. Spaulding, 27 Vt. 420. Acc. United States v. Cutts, 1 Sumner, 133; Johnson v. Underhill, 52 N. Y. 203; Bank of Utica v. Smalley, 2 Cowen, 770; 14 Am. Dec. 526; First National Bank v. Gifford, 47 Iowa, 575. Cf. Baldwin v. Canfield, 26 Minn. 43, "solely for the protection and benefit of the corporation."

§ 372. (a). To relieve the transferrer from liability to the corporation and to its creditors.—An unregistered transfer of shares is invalid as between the transferrer and the corporation with respect to the unpaid balance of the original subscription to the stock; unless the company has accepted the transferree as a stockholder by some act equivalent to a formal registration; in which case, it can no longer hold the transferrer liable for calls. But with this exception, the person in whose name the shares stand recorded upon the corporate stockbook, continues liable to the company for calls, and to the corporate creditors for the whole balance remaining unpaid upon the original subscription to the stock. And it does not avail the transferrer that he has in good faith attempted to have the

6

transfer registered, if in fact it has not been done.3 No contract between him and his transferree, by which the latter may undertake to assume this liability, will deprive the corporation or its creditors of the right to look to him for payment. It has become a part of the statutory law of England that until the deed of transfer is delivered to the secretary of the company for registration, the vendor remains liable for calls.5 On the other hand, a tranfer of shares made in good faith and duly registered upon the books of the company, releases the transferrer absolutely from all liability upon the stock, whether a part or the whole of the subscription price remains unpaid; although the registration be made by the company against the protest of the transferree." But the registration of a transfer to an infant, or an insolvent person, or to any one against whom the corporate creditors could have no recourse, made for the purpose of evading liability upon the stock and in contemplation of the impending insolvency of the company, will be ineffectual to relieve the transferrer of his liability; and in Pennsylvania, an original subscriber to the stock of companies formed under the General Railroad Act of 1849 continues liable upon the unpaid balance of the subscription, notwithstanding a transfer made in good faith to a solvent transferree; so also in Maryland.10 In England, however, a contrary rule prevails with respect to transfers to infants and irresponsible parties, provided only that the transfer be absolute, with no secret trust between the parties for the benefit of the transferrer in the event that the contemplated insolvency does not occur."

1 Vide infra, § 335.

9

8

2 Shellington v. Howland, 53 N. Y. 371; Rosevelt v. Brown, 11 N. Y.

148; Worrall v. Judson, 5 Barb. 210; Kellogg v. Stockwell, 75 Ill. 68; Dane v. Young, 61 Me. 160; Sayles v. Blane, 19 Law J. Q. B. 19; S. C. 6 Eng. R'y Cas. 79; London etc. Ry Co. v. Fairclough, 2 Man. & G. 674; Midland etc. R'y Co. v. Gordon, 16 Mees. & W. 864; McEuen v. West London etc. Co. 6

Ch. 655.

3 In re Bachman, 12 Nat. Bank. Reg. 223; Johnson v. Laflin, 5 Dill. 65; Cartmell's Case, Law R. 9 Ch. 691; Heritage's Case, Law R. 9 Eq. 5; Midland Counties Ry Co. v. Gordon, 16 Mees. & W. 801; Ex parte Hell, 5 R'y & Canal Cas. 624. Contra, Bargate v. Shortridge, 5 H. L. Cas. 2.7; Evans v. Smallcombe, Law R. 3 H. L. 249; Hill's Case, Law R. 4 Ch. 709, ncte; Fufe's Case, Law R. 4 Ch. 768; S. C. Law R. 9 Eq. 589; Ward and Garfield's Case, Law R. 4 Eq. 183; Nation's Case, Law R. 3 Eq. 99; Ward's Case, Law R. 2 Eq. 226; Ex parte Henderson, 19 Beav. 107; Shortridge v. Bosanquet, 16 Beav. 84, overruling S. C. 4 Ex. 699. Cf. White's Case, Law R. 3 Eq. Ɛ6. 4 Bell's Appeal (1887), 115 Pa. St. 88; 2 Am. Rep. 532.

5 8 Vict. ch. 16, § 15.

6 Webster v. Upton, 91 U. S. 65; Johnson v. Laflin, 5 Dill. 65; Billings v. Robinson, 94 N. Y. 415; S. C. 28 Hun, 122; Wakefield v. Fargo, 90 N. Y. 213; Johnson v. Underhill, 52 N. Y. 203; Isham v. Buckingham, 49 N. Y. 216; Moss v. Oakley, 2 Hill, 265; Cole v. Ryan, 52 Barb. 168; Cowles v. Cromwell, 25 Barb. 413; Haynes v. Palmer, 13 La. An. 240; Allen v. Montgomery R. R. Co. 11 Ala. 437; Bend v. Susquehanna Bridge etc. Co. 6 Har. & J. 128; 14 Am. Dec. 201; McClaren v. Franciscus, 43 Mo. 452; Hartford etc. R. R. Co. v. Boorman, 12 Conn. 530; Weston's Case, Law R. 4 Ch. 20; Aylesbury R'y Co. v. Mount, 5 Scott N. R. 127; Huddersfield Canal Co. v. Buckley, 7 Term R. 36; McKenzie v. Kittridge, 24 Up. Can. C. P. 1; Grissell v. Bristowe, Law R. 3 Com. P. 112; Mayhew's Case, 5 De Gex, M. & G. 837; Croxton's Case, 1 De Gex, M. & G. 600; Sutton's Case, 3 De Gex & S. 262; Birmingham etc. R'y Co. v. Locke, 1 Q. B. 256; London etc. R'y Co. v. Graham, 1Q. B. 271; London etc. R'y Co. v. Freeman, 2 Man. & G. 606; Sheffield R'y Co. v. Woodcock, 2 Rail. C. 522.

7 Webster v. Upton, 91 U. S. 65; Upton v. Burnham, 3 Biss. 520; London etc. R'y Co. v. Fairclough, 2 Man. & G. 674, 706.

8 Veiller v. Brown, 18 Hun, 571; West Chester etc. R. R. Co. v. JackBon, 28 Pa. St. 339; Roman v. Fry, 5 Marsh. J. J. 634. Vide cases cited infra in the chapter on STOCKHOLDERS' LIABILITIES.

9 Graff v. Pittsburgh etc. R. R. Co. 31 Pa. St. 489; Pittsburgh etc. R. R. Co. v. Clarke, 29 Pa. St. 146. Contra, as to stockholders not original subscribers: Dunn's Appeal, 105 Pa. St. 49; Aultman's Appeal, 98 Pa. St. 505. Cf. West Philadelphia Canal Co. v. Innis, 3 Whart. 198, decided before the enactment of that statute.

10 Hagar v. Cleveland, 36 Md. 476.

11 In re Taurine Co. 25 Ch. Div. 118; Chynoweth's Case, 15 Ch. Div. 13; King's Case, 6 Ch. Div. 196; Williams' Case, 1 Ch. Div. 576; Regina v. Midland Counties etc. R'y Co. 15 Ir. Ch. 525; and cases cited infra in the chapter on STOCKHOLDERS' LIABILITIES.

§ 373. The transferrer may recover calls paid by him from his transferree.—When a transfer has not been registered, and the transferrer has been compelled to meet liabilities arising after the sale of the shares, he may recover the amount paid by

6

him from his transferree.1 If the shares have been again transferred, the first transferrer may have recourse upon either the immediate 2 or the ultimate transferree. Likewise a vendor of shares for future delivery, who to save them from forfeitu e has paid calls thereon, may decline to deliver until reimbursed by the vendee.* There are a few cases from which it would appear that a call made before, but payable after, a transfer has been completed, should be paid by the transferrer; 5 but other cases hold the transferree liable. The question is one to which an a priori answer cannot be confidently given. It must be determined by the circumstances of the case, the contract between the parties, and the statutes of the State." In New York, under the General Railroad Act of 1850, no share is transferable "until all previous calls thereon shall have been fully paid in. Accordingly, it would seem that in this State the transferrer must before making the transfer pay any call made prior thereto, although not paya' le until after. A similar statute has been enacted in California, with respect to shares of railway companies."

1 Johnson v. Underhill, 52 N. Y. 203; Lord v. Hutzler (1886), 64 Md. 534; Hutzler v. Lord, 64 Md. 534; Brigham v. Mead, 10 Allen, 245; Kellogg v. Stockwell, 75 Ill. 68; Castellar v. Hobson, Law R. 10 Eq. Cas. 47; Kellock v. Enthoven, Law R. 9 Q. B. 241; S. C. Law R. 3 Q. B. 453; Bowring v. Shepherd, Law R. 6 Q. B. 309; Davis v. Haycock, Law R. 4 Ex. 373; Grissell v. Bristowe, Law R. 3 Com. P. 112; Chapman v. Shepherd, Law R. 2 Com. P. 228; Walker v. Bartlett, 18 Com. B. 845; IIumble v. Langsdon, 7 Mees. & W. 517; Morawetz on Corporations (2nd ed.) § 175. Cf. Shaw v. Fisher, 2 De Gex & S. 11; S. C. 5 De Gex, M. & G. 596.

2 Kickalls v. Eaton, 23 Law T. N. S. C89.

3 Hawkins v. Maltby, Law R. 3 Ch. 188.

4 Whitney v. Page, N. Y. Daily Reg. March 31, 1885.

5 Schenectady etc. Plank Road Co. v. Thatcher, 11 N. Y. 102, 113; North American etc. Association v. Bentley, 19 Law J. Q. B. 427.

6 West Philadelphia Canal Co. v. Innes, 3 Whart. 198; Aylesbury R'y Co. v. Mount, 4 Man. & G. 651; S. C. 5 Scott's N. R. 127.

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