Story Case

Mr. H. J. Jackson was the registered owner of ten shares of stock in the Central Railway Company, for which certificates of stock had been issued to him by the corporation. He sold this stock to Mr. Jones and assigned to the latter the certificate of stock. There was a statute in force which provided that a transfer of stock is not valid, except as between the parties, until it has been regularly entered upon the books of the company. Mr. Jones did not enter his transfer upon the books of the company immediately. Several days later, the stock was levied on by creditors of Mr. Jackson. It was contended by Jones that the levy did not take precedence over his ownership. It was contended by the creditors, that, by virtue of the statute, his transfer was not effectual until registered.

Under the facts as stated, what should be the decision of the Court?

Ruling Court Case. Lund Vs. Wheaton Roller Mill Company, Volume 50 Minnesota, Page 36; Same Case, Volume 36 American State Reports, Page 623

The Wheaton Roller Company is a corporation created under the general laws of the state of Minnesota. Howell owned and held forty shares of stock in the corporation, certificates for which had been issued to him. Thereafter, for a valuable consideration, he sold and transferred his stock to the Grant County Bank. But no entry of such transfer was made in the books of the Roller Mill Company. After this transfer, Lund began an action, against Howell, and recovered judgment. Lund, still having no notice of the fact that Howell had transferred his stock, caused the stock to be levied upon as the property of Howell. The Grant County Bank objected to the sale of the stock; they claimed that the transfer, though not registered, was effectual to give them the best legal right to the stock, and the attachment by Lund was ineffectual.

On the other hand, Lund claimed that the failure of the Grant County Bank to register his stock postponed his claim to the claims of those who acquired rights for value, without notice of prior rights. He based this claim upon a statute which provided: "The transfer of shares is not valid, except as between the parties thereto, until it is regularly entered on the books of the company.

Decision

The purpose of the statute quoted above was to protect the corporation and not to incapacitate the holder of stock from transferring the same. Therefore, the transfer by Howell to the Grant County Bank was sufficient to give the bank all legal right thereto; and the subsequent attachment by Lund did not take precedence over the prior right of the bank.

Mr. Justice Dickinson, who delivered the opinion of the Court, said in part:

"The Court in Baldwin vs. Canfield, 26 Minnesota, referring to the statute in question, said: 'Provisions of this kind are intended solely for the protection and benefit of the corporation; they do not incapacitate a shareholder from transferring his stock without an entry upon the corporation books. Except as against the corporation, the owner and holder of shares of stock, may as an incident of this right of property transfer the same as any other personal property of which he is the owner.' "

Judgment was, accordingly, given that Lund had no right to have the stock in question sold as the property of Howell.

Ruling Law. Story Case Answer

A stockholder's interest in a corporation, as pointed out heretofore, is in the nature of a chose-in-action. It is a right on the part of the stockholder to ask for a part of the dividends made by the corporation. This right he may freely transfer as any other personal property. Laws which require transfers to be made on the books of the company do not deprive the owner of the right to so freely transfer his stock. Such laws are made for the protection of the corporation. They have no effect as between the owner of the stock and his transferee. Consequently, in the Story Case, as between the owner, Mr. Jackson and the transferee, Mr. Jones, the transfer was complete. The creditors could acquire no rights in respect to the stock thereafter. Judgment should, therefore, be given for Mr. Jones as against the creditors.