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Keywords

equityinjunctionwillcorporation
defendantattorneyequityinjunctionwillpower of attorneycorporation

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Allen v. Stewart, 7 Del.Ch. 287, 44 A. 786

Facts

Charles William Edwards, the president of the Journal Printing Company, assigned 200 shares of stock to Jehu L. Allen as collateral for a debt of $16,000. Although the assignment was not recorded on the company's books, Edwards notified the company of the assignment. Subsequently, Theodore Stewart, a creditor of Edwards, sought to attach the stock to satisfy a judgment against him. Allen filed for an injunction to prevent the sale of the stock, arguing that he was the rightful owner due to the assignment.

Charles William Edwards, being the owner of 200 shares of the capital stock of the Journal Printing Company, a corporation under the laws of the state of Delaware, represented by the certificates of said company numbered 11, 12, and 13, respectively, and being indebted to the complainant in a large sum of money, to wit, $16,000, did on the 4th day of September, A. D. 1894, execute an assignment of the said 200 shares of the said capital stock unto the said complainant as security for said indebtedness, with a power of attorney, in blank, to sell, assign, transfer, and set over all or any part of said stock, and to make and execute all necessary acts or assignment and transfer thereof, and did deliver said certificates of stock into the possession of the complainant, who now holds them.

Issue

Did the assignment and delivery of the stock certificates by Edwards to Allen create a title superior to the rights of Stewart, the attaching creditor, despite the assignment not being recorded on the corporation's books?

The only question that I shall consider in disposing of this rule is the one involving the effect of the transfer of the shares of stock by Edwards to the complainant, independently of the agreement contemporaneous therewith, upon the rights of Stewart, the attaching creditor, one of the defendants in this cause; or, in other words, did the simple assignment and delivery by Edwards to the complainant of the certificates of the 200 shares of stock vest in him a title superior to any rights which the attaching creditor, Stewart, gained by his process, or was it necessary that the assignment of the shares should have been made upon the books of the Journal Printing Company?

Rule

The shares of stock in a corporation are deemed personal property and are transferable without being recorded on the corporation's books unless specifically required by the corporation's charter or by-laws.

The shares of stock in every corporation in this state shall be deemed personal property, and shall be transferable on the books of the corporation in such manner as the by-laws may provide, and whenever any transfer of shares shall be made for collateral security, and not absolutely, the same shall be so expressed in the entry of such transfer.

Analysis

The court analyzed the statutory provisions regarding the transfer of stock and concluded that the absence of a requirement in the Journal Printing Company's charter or by-laws for recording stock transfers on the books meant that the assignment was valid. The court noted that the books of a corporation are private and not open to public inspection, thus creditors like Stewart had no notice of the assignment. The court further reasoned that the assignment was effective as an equitable transfer, which could be enforced in equity.

The court analyzed the statutory provisions regarding the transfer of stock and concluded that the absence of a requirement in the Journal Printing Company's charter or by-laws for recording stock transfers on the books meant that the assignment was valid. The court noted that the books of a corporation are private and not open to public inspection, thus creditors like Stewart had no notice of the assignment. The court further reasoned that the assignment was effective as an equitable transfer, which could be enforced in equity.

Conclusion

The court granted the injunction, ruling that Allen was the rightful owner of the stock and that the assignment was valid despite not being recorded on the corporation's books.

The rule is therefore made absolute, and a preliminary injunction as prayed for is ordered.

Who won?

Jehu L. Allen prevailed in the case because the court found that the assignment of stock was valid and enforceable, despite the lack of public notice.

Jehu L. Allen prevailed in the case because the court found that the assignment of stock was valid and enforceable, despite the lack of public notice.

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