which is a record of each of the 1,000 shares issued by the trustees, to whom issued, and giving the book out of which they were is sued, and giving the number of each certificate and date of respective issuance. This stockholders' meeting of April, 1838, also directed the trustees to deed the league and labor of land, the capital of the joint-stock company, to the directors of the company, and this order was complied with by deed of date April 12, 1839, in which is fully set out that the deed is in compliance with the terms of the trust and commission instrument of June 15, 1837, and orders of the stockholders. Under the instructions of the stockholders, the secretary and agent of the Galveston City Company promptly opened a book for transfer of stock called "Stock Ledger," on which is registered each and every share of the trustee stock, when the trustee certificate representing the share was presented for a transfer, and renewal certificate given in renewal of the trustee certificate. The stock ledger now shows that 991 of the 1,000 shares have had their original trustee certificates surrendered and renewed certificates entered on the stock ledger, leaving still outstanding nine trustee certificates that have never been presented for renewal, and the sales of lots journal shows that the 9 shares represented by the outstanding trustee certificates have never been bought up by the Galveston City Company for lots sold, and the 9 shares stand as originally issued. One of the three trustees, Levi Jones, was, in 1838, made, by vote of stockholders, agent and secretary of the Galveston City Company. Annual elections were held by the stockholders in general stockholders' meetings, and the joint-stock unincorporated company, Galveston City Company, was conducted from its formal organization for business on April 13, 1838, to date of incorporation, February 5, 1841, just as if the company had been incorporated; and on that day the "stockholders of the Galveston City Company were incorporated under same name and style by the Congress of the Republic." At date of incorporation, the stock ledger contained less than one-third of the 1,000 shares, as no share goes on the ledger until the trustee certificate is presented for renewal, and over two-thirds of the trustee certificates had not been presented for renewal. The directory, elected by stockholders in 1840, continued on after incorporation until the annual election in 1841. The Galveston City Company, incorporated, continued on. The stockholders, owners of the 1,000 shares, or so many of these shares as had not been canceled by the Galveston City Company in buying lots, voted at election of directors, at the annual meeting of the corporation. The sole business of the corporation was selling its land, its capital, in town lots. As the deed from the owners of the league Jones, and Johnson, trustees, of date June 15, 1837, and the deed from those trustees to the directory of the Galveston City Company, of date April 12, 1839, had not been recorded, to simplify title of record in dealing with third parties, a deed was, on January 1, 1842, taken direct from M. B. Menard, the president of the corporation, to the corporation and duly recorded, and is the record title as between the corporation and third parties, although as between the stockholders and the corporation the title is as above set out. The stock of the corporation, the Galveston City Company, was for many years sold as low as $125 to $200 a share. Lots were paid for almost universally in stock when the corporation sold, until about 1875. In 1855, the annual stockholders' meeting passed a resolution, and had it published in newspapers in the cities of New Orleans, Richmond, Va., and New York, to the effect that there were 40 shares of the stock of the Galveston City Company, the trustee certificates for which were still outstanding, and giving notice that, until the trustee certificates were renewed, the owners of the shares could neither vote their shares nor draw dividends when due thereon. In 1876, it was stated by the Galveston City Company, in an agreed statement of facts for appeal in suit of Galveston City Company v. Sibley, 56 Tex. 269, on one of the shares, the trustee certificate of which had been lost, that the Galveston City Company had canceled by sale of lots all but 50 shares of its stock, and, of these 50, 10, including the Sibley shares, were represented by trustee certificates still outstanding. To avoid any misunderstanding, the Galveston City Company in that agreed statement of facts said "that these trustee certificate shares are perfectly valid shares." In 1876, the Galveston City Company made its first distribution of net proceeds of sales, and in doing so put aside for the 9 shares represented by the outstanding trustee certificates their pro rata. Some years later, when next distribution or dividend was made, under advice of eminent lawyers, it was decided that, after so great a lapse of time, chance of owners of the 9 shares turning up was so remote, and the capital of the corporation was so ample, that all the money in hand could safely be distributed to and paid to the renewed certificate shares, leaving the 9 lost certificate shares to get their shares of proceeds of sales of lots, when the owners of these 9 shares demanded same. This policy was pursued by the corporation up to July 7, 1909, when, as accumulation of sales of several years, the corporation had on hand cash and bills receivable equivalent to $222,609.88, and the unsold land, its capital, assessed by the corporation for 1909 taxes at $187,000, and the stockholders not in directory were clamoring for a distribution to the 24 shares, all the remaining stock represented by renewal cer tively issued, and all 9 shares stand on the books of the Galveston City Company as valid shares, part of the 1,000 original shares, and, after the trustee certificates representing same have been outstanding 60-odd years, there is presumption that these 9 certificates are lost or destroyed. The petition alleges search by plaintiffs for the 5 certificates and failure to find, application to the defendant corporation, and denial of the president of any knowledge of there being any shares but those he owned. Petition alleges full knowledge of all facts by the defendant Stewart, and that he bought the controlling stock of the voting shares, his 15 in number, with full knowledge of all facts, and that one of the inducements of the sale of stock by the former president of the corporation made to Stewart was to avoid the responsibility of any personal liability as to the cash on hand; and petition alleges that Stewart bought the controlling interest to get control of said cash and intending to apply all the assets and capital to use of his shares and to deprive the 9 lost certificate shares of all property rights. the attorney representing the corporation, certificates have never been renewed, 5 (and also secretary and agent of the corpora- belong to the plaintiffs, the heirs of Robtion), the directory refused to make such dis-ert Triplett, deceased, and the other 4 tribution, as each of the 24 renewed certifi- shares to the respective heirs of the origcate shares had received $32,500, distrib- inal persons to whom they were respecuted to them out of proceeds of sales of the capital, not counting in the 9 trustee certificate shares, to whom nothing had been paid; and the further payment to the 24 shares until the same amount had been paid to the 9 might make the directors personally liable to the owners of the 9 shares. This being the situation, and with full knowledge of all the facts, the defendant Stewart, at meeting of stockholders, July 7, 1909, reported he had bought out the president's stock and others at $10,000 a share, and voted as owner of 15 shares of the 24 shares entitled under by-laws to vote as the renewed certificate shares represented on the stock ledger; elected himself and his office force, a share transferred to each to qualify as director, and was elected president by his directory; and the president had passed resolutions (over protest of minority of the said voting shares) that the shares should be taken for property at a valuation of $10,000 a share; that the land, unsold, of the capital of the corporation, should all be sold in four parcels at private sale on a day named less than 10 days off, and adjourned the stockholders' meeting to that day; and on that day re- Prayer is that the deed of the capital, the ported that there was but one bid, and that land of the corporation, to defendant Stewart was his own of $40,000; had the sale con- be canceled as unlawful, because considerafirmed by the vote of his majority stock tion is inadequate, and sale of all the capital (over protest of minority); had deed made, was made over protest of the then voting paid into the corporation for the property 4 shares of other than those the president conshares of the stock, leaving in his (the de- trolled, and because a president cannot buy fendant Stewart's) name, and the names of from a corporation except by unanimous conhis directory, 11 shares, and that the majori-sent, and because the corporation was organty of the stock and the directory, dominated ized to sell 4,605 acres of land at retail in by the president, then passed a resolution to liquidate and dissolve the corporation on August 28, 1909, and to distribute to the then remaining 11 shares of renewed certificate stock all the cash and bills receivable, which constituted all the remaining assets of the Galveston City Company. The president then, through his directory, bought up the shares of stock represented by renewed certificates with 90-odd thousand dollars of the cash on hand of the corporation, leaving the 11 shares owned or controlled by the president the only shares of the capital stock, other than the 9 outstanding trustee certificate shares. Petition alleges that the books of the Galveston City Company show that, of its original capital stock of 1,000 shares, 980 shares have been canceled by the company for lots sold, and that the remaining 20 shares are represented, 9 shares by original trustee certificates (or were, and the certificates are lost), and the other 11 shares are represented by renewed certificates, and are owned or controlled by the defendant Stewart, the president of the corporation; that of the 9 town lots, and the remaining land cannot, except by unanimous consent of stock, be sold as a whole (total capital) in bulk. Injunetion is prayed as to paying any part of cash on hand to the 11 renewed certificate shares until all the 9 trustee certificate shares have received an amount equal to the amount that has been paid to each of the 11, to wit, $32,500, and that the dissolution of the corporation be enjoined; that the 5 shares, and the other 4 of the 9, be protected in their rights, and certificates issued to plaintiff for the 5 shares standing on the books of the corporation in the name of Robert Triplett; and that have stood there for nearly 70 years and no adverse claim there asserted. To this petition appellee interposed a general demurrer and 28 special exceptions, the nature of which will be hereafter indicated. The trial court sustained all of the special exceptions, and, plaintiffs declining to amend, their suit was dismissed. The briefs filed in this case are lengthy and discuss with much learning and ability the various points presented by defendant's exceptions to plaintiffs' petition. We shall cide in detail all of the questions presented, but will content ourselves with a general statement of our conclusions upon the material questions raised by the exceptions. Many of the assignments of error are not presented in appellants' brief in accordance with the rules, but the points hereinafter discussed are sufficiently presented to require our consideration. One of the objections to the petition, raised by the exceptions presented by defendant which goes to the foundation of plaintiffs' cause of action, is: That the petition shows that the five trustees' certificates issued to Robert Triplett do not represent shares of stock in the joint-stock company known as the Galveston City Company, nor in its successor, the defendant corporation, but each of said certificates only conferred upon said Triplett title as a tenant in common to a 1/1000 interest in the league and labor of land and the right to become a stockholder in said joint-stock company and its successor corporation by surrendering such trustees' certificate and receiving therefor a renewal certificate issued by the stock company or corporation; and that the demand of plaintiffs for renewal certificates in lieu of the five lost trustees' certificates, made shortly before the filing of this suit, is a stale demand, and plaintiffs are barred in such demand by their laches and by the statute of limitation. [1] If the contention that the trustees' certificates issued under the provision of the trust agreement before set out were not certificates of stock in the joint-stock company, and that the holders of such certificates did not become stockholders in the corporation subsequently chartered, unless they surrendered such certificates and received in lieu thereof certificates issued by the stock company on the corporation, is sound, we think the pleas of stale demand and limitation precluded plaintiffs from now asserting the right to become stockholders in defendant corporation by having issued to them certificates of stock in the corporation in lieu of the trustees' certificates. We understand appellants concede this to be true. The important question, then, for us to determine, is whether the trustees' certificates issued to Robert Triplett made him a stockholder in the joint-stock company and in its successor, the defendant corporation. We think this question should be answered in the affirmative. In reaching a different conclusion, the learned trial judge was doubtless controlled by the opinion of the Supreme Court in the case of Galveston City Co. v. Scott, 42 Tex. 535. That he did regard the decision in that case as conclusive of the question here presented is stated in appellants' brief, and the statement is not questioned by appellees. We think the facts of that case distinguish it from this. The certificate owned by Scott, and upon which his suit was brought, was set out, but was one issued by David White under an agreement between him and Menard for the formation of a stock company having for its object the building of a city on the league and labor of land on Galveston Island, granted to Menard, the subdivision and sale of said land for this purpose. The certificate held by Scott was as follows: "This is to certify that I, Michael B. Menard, by my thereunto legally constituted attorney in fact, David White, for and in consideration of the sum of five hundred dollars to me in hand paid before the sealing and delivering hereof, do hereby grant, bargain and sell to Andrew J. Yates, his heirs and assigns, one thousandth part of my estate and interest in the league and labor of land situated on and including the east end of Galveston Island, and granted to me by the government of Texas, by act of Congress, passed on the 9th day of December, Anno Domini 1836. And I do hereby include and nominate and create the said Andrew J. Yates my associate, under the provisions of the said act, and lawfully authorize him by all necessary means, by the use of my name or otherwise, to pursue and receive from the said government of Texas, according to the provisions of the said act, a said Andrew J. Yates or his assigns shall and perfect title to the same; provided, that the do well and truly pay, or cause to be paid to me or my lawful attorney, or my executors, administrators, or assigns, the further sum of And in default of any of such payments that the said estate and interest hereby granted shall revert to me as of my first and former estate; and provided, also, that the said interest and estate, under and subject to said Andrew J. Yates, shall have and hold the the articles of covenant and association made and entered into by and between me and my other associates, purchasers of my former and remaining interest in the said land. "In witness whereof, witness my hand and seal this second day of February, A. D. 1837. "[Signed] David White. [L. S.]” The Supreme Court held that this certificate was in the nature of a deed and conveyed a 1/1000 part of the league and labor of land "to be held subject to certain articles of agreement and association with other persons who should hold similar deeds for shares in said land, which articles were at tached to and made a part of the deed and described the terms and conditions upon which such association was afterwards to be formed and put into action." Chief Justice Roberts, who wrote the opinion in the case, then discusses the facts which show that no association or joint-stock company was ever organized in pursuance of the agreement under which this certificate was issued; that the contract with White was repudiated by Menard, who thereafter entered into the agreement with Triplett and others, before set out, under which the Galveston City Company was organized. The conclusion necessarily followed from these facts that the holders of the White certificates did not, by virtue of such ownership, become stockholders in the Galveston City Company, which was formed by different parties and under a different agreement from that under which the White certificates were issued. It was further held that if the trust agreement be pany was formed, should be construed as tificates of stock will be issued to the subscribgiving the holders of the White certificates ers, and a general meeting called to make arthe right to exchange them for trustees' cer- hundred shares having been disposed of withrangements for the sale of lots, etc.; four tificates, and thus become stockholders of out the agency of the trustees, they can sell the Galveston City Company, that right ceas-only six hundred, and if more be taken priority ed to exist when all of the stock authorized of date in subscription will give preference. to be issued under said agreement had been site having been adjusted, the title is offered The conflicting claims to this valuable townissued to other parties, and, in the language with entire confidence as unquestionable. of the opinion, the "door closed" through "Levi Jones, which the holders of the White certificates "Wm. R. Johnson, "Thomas Green. might have become stockholders in the company. The certificates issued to Triplett, and upon which this suit is based, including the preamble and notation at the beginning of the certificates, were in the following form: "City of Galveston in One Thousand Shares. "The proprietors, M. B. Menard, Robert Triplett, Sterling Neblett and Wm. Fairfax Gray, conveyed to the undersigned, as trustees, by their deed of the 15th of June, 1837, a league and labor of land containing 4,605 acres, on the east end of Galveston Island, to be sold as joint stock in 1,000 shares. "By the terms of said deed certificates of shares when issued are to be assigned by indorsement under hand and seal, in the presence of two witnesses, before any justice of the peace or notary public. "The trustees, any two of whom may act, are to call a general meeting of the shareholders when deemed advisable. "In the proceedings of the stockholders in general meeting each share to be entitled to one vote, and to be represented in person or by proxy, and a majority in interest to determine all questions which may arise. The company may prescribe such rules and regulations for its government and management, and give such orders and directions to the trustees for the sale of lots, or any other purpose, as it may think promotive to the general interest." "Certificate of Stock. Book ...... No. ..... his "Richmond, June 20, 1837." These certificates purport to be certificates of shares of stock in a stock company, and cannot be regarded as mere deeds of conveyance to an undivided interest in the land upon which the city of Galveston was located. They refer to the trust agreement under which they were issued, and by the terms of that agreement the holders of the certificates issued thereunder were made stockholders in the joint-stock company thereafter to be organized. It was expressly provided in the trust agreement that each share represented by said certificate should be entitled to one vote in the organization of the stock company, and that such shareholder might vote by proxy. It was further expressly provided that so many of the 400 shares set aside to Jones for the purposes stated in the trust instrument as remained unsold should be voted by Menard, and that of the unsold portion of the 600 shares provided for in said instrument two-thirds should be voted by Menard and one-third by Triplett. On the 13th day of April, 1838, these stockholders met and perfected the organization of the company by the election of officers. This meeting was called and held in accordance with the provisions of the trust instruheirs and assigns forever, one share No. ment. The trustees made report to the in the city of Galveston, to be holden and en- stockholders of the number of shares sold, joyed by him and his assigns upon the terms and the stockholders represented at the meetprescribed in the deed bearing date the 15th of June, 1837, of M. B. Menard, Robert Trip-ing proceeded to elect a president, and secrelett, Sterling Neblett and William Fairfax Gray, constituting us the trustees, and in the agreement entered into between us and the stockholders in said City, as set forth in the proposals for subscription. "Witness our hands this 66 "Trustees." The proposal for subscription referred to in the certificate was as follows: "Proposals for Sale of Stock in Galveston City. "This property lying on the east end of Galveston Island, in Texas, consisting of 4.605 acres of land, has been conveyed by the proprietors to the undersigned, Levi Jones, William R. Johnson and Thomas Green, to be sold as joint stock, in one thousand shares. "As trustees they offer six hundred shares for sale, at $1,500 each, and when the whole shall be subscribed, ten per cent. on each share shall be payable, and the residue in six, twelve and eighteen months from that date, in equal payments. So soon as the ten per cent. shall be paid, and satisfactory assurances be given tary, and board of directors for the company which they named "Galveston City Company." At a meeting of stockholders held December 31, 1838, it was directed that a charter be applied for and obtained as soon as possible, and that as soon as same could be had the secretary should open a book for the transfer and registration of stock of the kind used in the transfer of bank stock, "in order that the dividends of the company might be correctly disbursed." If no charter could be obtained from the Congress then in session, the secretary was directed to procure said stock registration book at once, and it was declared to be the duty of the holders of trustees' certificates to file and register them and secure in lieu thereof a certificate under the seal of the company, which would be transferable only on the books of the company, "and shall be necessary in every case to enable the shareholders to receive the dividends due him." A "journal" was also lots should be recorded. These books were opened and kept as directed, and are now in the possession of the defendant corporation, and show a complete record of all the stock transactions and the sale of all lots since the organization of the company. It is thus seen that there was no "failure of the scheme" for the organization of this company, as there was of the scheme to organize the company contemplated by the agreement between Menard and White, under which the certificate sued on in the Scott Case was issued. The holders of the trustees' certificates issued under the trust agreement before set out became original stockholders in the company organized under such instrument, and were not, as were the holders of the White deeds or contracts, required to "take steps to force themselves into the organization." They became stockholders of the company by virtue of their ownership of the trustees' certificates, and we do not think there is anything in this record which shows that they have lost their original standing as such shareholders. [2] We will here dispose of another point made by appellees, which is that, whatever might be the rights of the owners of trustees' certificates issued before the conveyance of the land by the trustees to the board of directors elected by the stock company, said trustees had no authority to issue certificates after they had conveyed the property to the board of directors, and, the certificates sued on in this case having been all issued after that time, the holders of such certificates did not by such ownership become stockholders in the company. Menard. Neither the company nor the corporation as such ever had any shares of stock for sale, and neither could therefore issue original certificates of stock. The only character of certificates ever issued by either was one in renewal of a canceled trustees' certificate. If any one desired to purchase stock in the company or the corporation, he could only purchase from a prior holder or from the trustees authorized by Menard and Triplett to sell the shares set apart to them by the trust agreement. The conveyance of the land to the company in no way affected the trustees' authority to act for Menard and Triplett in the sale of their stock. The ownership of the unsold stock being in Menard and Triplett, and the certificates therefor having been prepared and placed with the trustees appointed by the trust instrument to be disposed of by them for the benefit of the owners, the right of said trustees to sell the stock and issue certificates in accordance with the provisions of the trust deed, after they had conveyed the title to the land to the company, cannot be doubted. The arrangement might have been changed after the conveyance of the land to the directors of the company so as to provide that the unsold stock thereafter issued should be issued by the company; but, as all of such stock was owned by Menard and Triplett, the company would have been required to account to said owners for the proceeds of its sale, and it tended to simplify matters to allow the authority to dispose of such stock to remain with the trustees appointed by the trust instrument. This was the course pursued, and the validity of the stock thus issued and the standing of the owners thereof as shareholders in the company and subsequent corporation were never questioned until shortly before this suit was filed. This contention, at first blush, seems plausible; but, when the trust instrument and the manner in which the company was formed and the purpose of its organization are considered, its unsoundness is apparent. The stock company was really formed when the trust agreement was made. That instrument is the charter of the company, and all that was lawfully done thereafter in completing and perfecting the organization of the company was done under its authority, and the rights and liabilities of the shareholders and the powers of the company or the corporation in acts affecting such rights and liabilities are to be measured by its provisions. The parties who executed that instrument owned the land which was to be the capital of the company which they agreed to form. They agreed that 1,000 shares of stock should be issued, each share to represent a 1/1000 interest in the capital of the company, the land, and these shares were divided among them in proportion to their interest in the land. At the time the stock company completed its organization and elected its board All stockholders in the joint-stock company of directors, all of the unsold shares in the were, by the express terms of the act of incompany, except those remaining of the 400 corporation passed by the Congress of the set apart for the redemption of certificates Republic of Texas in 1841, made stockholdissued under a prior trust agreement, belong-ers in the corporation. This act is as foled one-third to Triplett and two-thirds to lows: [3] The method adopted in the formation of the company and the issuance of the stock may have been crude and irregular, but this could not affect the rights of the parties as between themselves. The rights of third parties have not intervened. All of the present stockholders acquired their stock with full notice of the rights of the holders of trustees' certificates as shareholders in the corporation. These rights have been expressly recognized and acquiesced in by the corporation ever since its organization, and it cannot at this late day take advantage of any technical defect in the method adopted for the issuance of the stock, and on this account deny to its holders the rights of stockholders in the corporation. |