In the Matter of the Petition to Set Aside the Elections of Directors of GEORGE RINGLER & COMPANY. GEORGE RINGLER & COMPANY and Others, Appellants, Respondents; ANNA HACHEMEISTER and J. EDWARD JETTER, as Administrators with the Will Annexed of HENRY HACHEMEISTER, Deceased, and Others, Petitioners, Respondents, Appellants.
CROSS-APPEALS by George Ringler & Company and others, and by the petitioners, Anna Hachemeister and J. Edward Jetter, as administrators, etc., and others, from parts of an order of the Supreme Court, made at the New York Special Term and entered in the office of the clerk of the county of New York on the 8th day of May, 1911.
W. H. Van Benschoten [Charles H. Edwards with him on the brief], for George Ringler & Company and others.
David Leventritt [Maxwell C. Katz with him on the brief], for the petitioners.
We have here presented cross-appeals from an order of the Special Term setting aside the election of Isaac Kugelman, Arthur Strauss and George F. Trommer as trustees of the corporation George Ringler & Company, and denying, for want of power, a motion to set aside the selection of John T. Wilson as trustee to fill a vacancy in the board. The application for the order was made by Anna Hachemeister and J. Edward Jetter, as administrators cum testamento annexo of Henry Hachemeister, deceased, and by J. Edward Jetter as substituted trustee under the will of said Henry Hachemeister, deceased, and by Anna Hachemeister individually. It is made under section 32 of the General Corporation Law (Consol. Laws, chap. 23; Laws of 1909, chap. 28) which authorizes the Supreme Court upon the application of any person or corporation aggrieved by or complaining of any election of any corporation, to summarily inquire into the matters complained
of and establish the election or order a new election or make such order and give such relief as justice may require. The particular cause of complaint was that the aforesaid Trommer, Strauss, Kugelman and Wilson, when elected trustees, were not bona fide beneficial owners of stock in the corporation, being merely the record holders of stock in which they had no beneficial interest. The essential facts, which are undisputed, are as follows: The corporation of George Ringler & Company was incorporated in the year 1889 under the Manufacturing Corporations Act of 1848 (Chap. 40, as amd.). The certificate of incorporation provided that there should be five trustees, and the by-laws provided that no person should be a trustee 'who is not the holder or owner of at least one share in the capital stock of this Company.' As a matter of fact the whole capital stock, amounting to 6,000 shares, was wholly owned, in equal proportions, by Henry Hachemeister and George Ringler from 1904 until the death of Henry Hachemeister on July 5, 1907. Thereafter the whole capital stock was owned in equal proportions by William G. Ringler individually and by William G. Ringler as executor of and trustee under the will of Henry Hachemeister, until the death of William G. Ringler in January, 1910. During all this period, therefore, from 1904 to 1910, since there were never more than two bona fide beneficial owners of the stock, there were always three trustees who were nominal stockholders by virtue of stock transferred to them upon the books of the company, the beneficial ownership of which, however, rested in Ringler or Hachemeister or the estate of the latter. After the death of William G. Ringler in January, 1910, dissensions arose among the owners of the stock. Mrs. Hachemeister and Jetter were appointed administrators cum testamento annexo of the will of Henry Hachemeister, deceased, and Jetter was appointed substituted trustee under the will. George Ehret, Jr., and George F. Trommer were appointed and qualified as executors of the will of William G. Ringler, deceased.
The election which has been declared invalid was held on October 30, 1909, during the lifetime of William G. Ringler. At that meeting Ringler voted 3,000 shares of stock held by him as executor of the estate of Henry Hachemeister, deceased,
and 2,980 shares owned by him individually, and there were elected as trustees William G. Ringler, George F. Trommer, Arthur Strauss, Anna Hachemeister and Isaac Kugelman. Each of these persons, except Ringler, was the holder of record of 5 shares of stock, which concededly had been transferred to him solely to qualify him to become a trustee, but, except Anna Hachemeister, none of them claimed to be the beneficial owners of the shares, the certificates for which they indorsed as soon as issued, and intrusted to Ringler, who placed them in his safe, where they were found when he died. Anna Hachemeister alone claims that the 5 shares were given to her, and that claim is the subject of another litigation, although she too had indorsed her certificate and had handed it to Ringler. The court below held that under the statute law of the State, whenever it is required that a trustee or director of a corporation must be a stockholder of the corporation, he must own the beneficial interest in the stock standing in his name, and that the mere record ownership of what are known as qualifying shares is not sufficient. (70 Misc. 581.) It is somewhat surprising that there are so few authorities dealing with this question, because, as every lawyer knows, it has long been the practice to elect as directors of corporations persons whose sole ownership of stock was that of qualifying shares standing in their names of record, but in which they had no beneficial interest. Especially has this been the case of late years where so many business corporations have been formed which are in effect nothing more than incorporated partnerships. The statutes have uniformly provided down to 1901 that directors of corporations must be stockholders, and still so provide unless it be otherwise specified in the certificate of incorporation or the by-laws, but they cast little light upon what shall constitute a stockholder for the purpose of qualification. That he must be a stockholder of record there is no doubt, because the stock book is the primary evidence to the corporation who its stockholders are. (New York & N. H. R. R. Co. v. Schuyler, 34 N.Y. 30, 76.) This, however, does not answer the question whether or not he must also be the beneficial owner, for the term 'stockholder' is as appropriate a description of one who holds stock in which another has the beneficial interest, as it is of
one who both holds and owns the stock. The only indication we have of what the Legislature meant by the use of the word 'stockholder' as a qualification for a director of an ordinary corporation, is the provision which has been made with reference to certain designated corporations. Thus by section 69 of the Banking Law (Consol. Laws, chap. 2; Laws of 1909, chap. 10) it is provided that no person shall be eligible as a director 'unless he is a stockholder * * * owning in his own right an amount * * * of stock.' So the Insurance Law (Consol. Laws, chap. 28 [Laws of 1909, chap. 33], § 110, as amd. by Laws of 1910, chap. 168), prescribing the qualifications of directors of fire insurance corporations, provides: 'If a stock corporation,' a majority of the directors must be 'the owner in his own right of at least five hundred dollars of the stock,' and a like provision is made as to directors of marine insurance companies by section 150 of the Insurance Law (as amd. by Laws of 1909, chap. 240, and Laws of 1910, chap. 168). All of those provisions have been in force since prior to 1901. (See Banking Law [Gen. Laws, chap. 37; Laws of 1892, chap. 689], § 50, as amd.; Ins. Law [Gen. Laws, chap. 38; Laws of 1892, chap. 690], § § 110, 150, as amd.) It would seem that in making the foregoing special provisions respecting particular classes of corporations, the Legislature considered that merely requiring that a director must be a stockholder was not equivalent to requiring that he must own stock in his own right. And we are justified in referring to these particular requirements as shedding light upon the meaning in which the Legislature used the word 'stockholder' in other acts. (Smith v. People, 47 N.Y. 339. See, also, State of Nevada v. Leets, 16 Nev. 242.) In Matter of Argus Printing Co. (1 N.D. 434; 12 L. R. A. 781), a case which arose in North Dakota, the statute required directors to be stockholders and the court pointed out the distinction between a stockholder, who was a holder of record, and a stock owner who owned stock not registered in his name on the books of the corporation, holding that the first was eligible to be a director even if the transfer had been made to him solely for qualifying purposes, while the latter was ineligible. To the same effect is Matter of Leslie (58 N. J. L. 610) where the question was as to the eligibility of a
registered shareholder, who had parted temporarily with his stock certificate. The court said: 'The registry of his stock is prima facie evidence of his qualification for the office of director, and his right to be a director can be impeached only by showing that the title of the stock was put in him colorably with a view to qualify him to be a director for some dishonest purpose, in furtherance of some fraudulent scheme touching the organization and control of the company.' In Rosevelt v. Brown (11 N.Y. 148) it was attempted to hold the defendant liable as a stockholder for the debts of the company. In undertaking to lay down a rule as to who should be considered stockholders the court said: 'A corporation, although it is an artificial existence, must be composed of natural persons who manage and administer its affairs and receive its benefits. These persons are not generally named in the charter of incorporation, and there must be some way of ascertaining who they are. In a joint stock company they are, and they necessarily must be, those who hold the evidence that they are the owners of the stock; they are called the stockholders, and not the stock owners, and they are generally those who appear upon the transfer books of the company to be stockholders. This must be so in the case of corporations which are subject to the provisions of the Revised Statutes. (1 R. S. 604, § 8.) As between himself and third parties, the person who appears upon the transfer books to be a stockholder may have parted with all his interest in the stock, but as between himself and the corporation, such person, and he only, is treated as a stockholder. This is his relation as regards the management of the company, and the benefits to be derived from it; and the question is presented here, whether he is so as regards the liabilities of the company.'
The leading text book writers, or at least many of them, are agreed in the opinion that the requirement that a director shall be a stockholder is satisfied if he is the registered owner of record, on the books of the company, of shares of stock, even if he is not the real or beneficial owner of the stock. Cook on Corporations (§ 623) says: 'If the charter or statutes require a director to be a ...