Cleveland City Railway Co. v. First National Bank (68 Ohio St. 582, 1903)

Davis, J.

This case was orally argued before one division of the court; but it has been fully considered by the whole court. Only one of the assignments of error will be noticed in this opinion because, on the conceded facts, we are. of the opinion that the court ■of common pleas should have directed a verdict and rendered a judgment in favor of the defendant; and failing to do this it was the duty of the circuit court to reverse the judgment of the court of common pleas and to render a judgment for the plaintiff in error. This conclusion results directly from the considerations following.

By Section 3381, Revised Statutes, the directors of the constituent companies of a proposed consolidation are authorized to “enter into a joint agreement, under the corporate seal of each company, for the consolidation of the companies, and prescribing the terms and conditions thereof, the mode of carrying the same into efect, the name of the new company, the number of directors and other officers thereof, and their places of residence, the amount of capital stock of the new company agreed upon, the number of shares of capital stock, the amount-of each share and the manner of converting the capital stock of each of the constituent companies into that of the new company, with such other details as they may deem necessary to perfect the new organization and the consolidation of the companiesIn prescribing the terms and conditions of the consolidation it is entirely competent for the directors to agree that the constituent companies shall come into the new organization free from debt, although if they do not do so the liabilites of such companies will attach to the new company as provided in Section 3384, Revised Statutes; and the directors are expressly authorized to agree upon the mode of carrying into effect the terms of the consolidation which shall be agreed upon. And further, the directors are not only expressly empowered to agree upon the manner of converting the capital stock of each of the constituent companies into that of the new company, but they are invested with the widest discretion as to the details of the consolidation, which may not be specifically included in the words of the statute.

It was therefore lawful for the directors of the two constituent companies which were consolidated into the Cleveland City Railway Co. to agree, as they did agree, as part of the terms and conditions of the proposed consolidation, that the constituent companies should come into the consolidated company free from debt and that of the stoclr apportioned to the Cleveland City Cable Railway Co., enough should be sold to pay the floating indebtedness of that company, the remainder to be distributed among the holders of the common and preferred stock of the Cable Co., in proportion to the relative value of such preferred and common stock. The directors were also clearly acting within the powers conferred upon them by the statute when they made it a part of the terms and conditions of consolidation that as to all property matters between the two companies which were not specifically adjusted in the agreement of consolidation, they should “be adjusted pursuant to a memorandum of agreement entered into by the holders of more than a majority of the stock of said constituent companies, bearing date May 10,1893;” because not only was it a certain and proper term or condition which might be stipulated for by the parties to the agreement, but it provided “the mode of carrying into effect” the terms and conditions, and it provided “the manner of converting the capital stock of each of the constituent companies into that of the new company,” and because it specifically pointed out and prescribed “other details” which, in the judgment of the directors, were necessary in perfecting the consolidation of the two companies. The agreement by the stockholders, dated May 10, 1893, was thereby read into and made part of the agreement of consolidation by the directors. So that whoever signed the latter agreement as directors must necessarily be held to have been cognizant of, and to have assented to, the agreement by the stockholders; and that is the position in this action of Taintor & Holt, from whom the defendant in error claims to have acquired title to the shares in the Cable Railway Co. which it alleges that the plaintiff in error wrongfully converted to its own use.

In prescribing the proceedings to effect a consolidation of two or more companies, the statute requires a ratification of the agreement for consolidation by the stockholders; and it virtually defines the term “stockholders” by requiring due notice of the time and-place of the meeting and the objéct thereof, to be given “to each of the persons in whose names the capital stock of the company stands on the books thereof.” Section 3381, Revised Statutes. There is no provision for notice to or requirement of participation by, a person who has a concealed equity in stock. A person who holds shares of .stpck in pledge, assigned in blank by the registered owner, may protect himself by having the stock transferred to him on the books of the company. Until he does so he does not become a stockholder. Henkle v. Salem Manufacturing Co., 39 Ohio St., 547. “If the shares of stock are merely pledged by the assignment of the certificates, the holders would not be entitled to the rights, nor subject to the liabilities of the owners of the shares; they could only become owners by a sale and purchase of the stock pledged, on failure of the pledgee to pay the debt.” Per Nelson, J. Becher v. Wells Flouring Mill Co., 1 McCrary (U. S.), 62. The jury specially found in this case that on June 29, 1893, after the consolidation, Taintor & Holt were still the owners of the stock and that on that date they received from the plaintiff in error all of the stock which they were entitled to receive by reason of their ownership of the Cable Co. stock. It appears therefore, the plaintiff in error having performed its agreement as to the registered and actual owners of the stock, that it is now sought to compel it to perform again, or account for the value of the stock, to a pledgee, who has not shown that it was entitled to more than a mere lien upon the stock at the time of the consolidation.

We return now to the stockholders’ agreement, which contains the following stipulations:

“The undersigned stockholders of the Cleveland City Cable Railway Co. hereby appoint, and irrevocably designate, Frank DeH. Robison and John J. Shipherd as their agents and proxies to carry out this agreement and perfect said consolidation, and they are hereby authorized to attend any and all stockholders’ meetings of the Cleveland City Cable Railway Co. called for the purpose of carrying out the terms of this agreement, and to vote all the stock standing in the name of each of the undersigned, in such manner as they shall find necessary to carry out and ratify all of the purposes of this agreement, and each of the undersigned stockholders in said company hereby agrees to deliver to said two persons, or their chairman, at such time as they may designate, all of the stock held by him, to be exchanged 'for stock of the consolidated company, in proportion to the respective holdings of each as each shall be entitled to receive the same.

“The method of organization of the consolidated company, and all of the details with reference to it, and the working out of the settlement and adjustment of the details of this agreement, are left by all of the undersigned to said * * * Frank DeH. Robison and John J. Shipherd, committee for the stockholders of the Cleveland City Cable Railway Co., to be agreed upon and to be to the satisfaction of each of said committees.”

These stipulations being incorporated by reference in the agreement of consolidation, which was signed by all of the members of the firm of Taintór & Holt, they and their firm must be held to have assented to the appointment of Robison and Ship herd. “as their agents and proxies” for all the purposes therein named, and thereby agreed “to deliver to said two persons, or their chairman, at such times as they may designate, all of the stock held by them, to be exchanged for stock of the consolidated company, in proportion to the respective holdings of each as each shall be entitled to receive the same.” The stock certificates which were pledged by Taintor & Holt to the defendant in error, contained a provision that they were transferable on the books of the company only on surrender of the certificates. The utmost that can be claimed from this is that the duty was imposed on the Cable Co. to not transfer on its books without surrender of the certificates. But transfer on the books of that company was not asked for, nor was such a transfer by that company made. It was agreed by the directors of the constituent companies that 18,250 shares of the capital stock of the consolidated company should be distributed to the Cable Co. to be disposed of by that company, so far as necessary to liquidate its floating indebtedness, the remainder to be distributed among the holders of the stock of the company. The agreement was lawful, it was assented to by Taintor & Holt,, and on the part of the plaintiff in error it was fully performed by the issue of the 18,250 shares of stock to Robison and Ship-herd as “agents and proxies” for the Cleveland City Cable Railway Co. and its stockholders to carry out the agreement of consolidation in regard, thereto. The designation of Robison and Shipherd in the certificate as “trustees” instead of “agents and proxies,” does not alter the legal consequences of the transfer. Hence if there was any conversion of the shares belonging to Taintor & Holt it was not by the plaintiff in error and it is not liable therefor.

It is not for us to determine in this action whether the defendant in error has a cause of action against Robison and Shipherd or either of them, or against Taintor & Holt, or against the Cleveland City Cable Railway Co. It is sufficient now to determine that the plaintiff in error is not liable for the alleged conversion.

Judgments of the circuit court and that of the court of common pleas are reversed and judgment for plaintiff in error.

Burket, C. J., Spear, Shauck, Price and Crew, JJ., concur.