CORPORATIONS-RESTRAINTS ON ALIENATION OF STOCK AS AGAINST PLEDGEES WITH NOTICE

The charter and a by-law of the plaintiff corporation contained provisions which stipulated that before a stockholder could sell or transfer any stock, he must first offer the stock to the corporation. The relevant by-law appeared on every certificate of stock. The defendant Kiernan borrowed money from the defendant corporation for which he gave a collateral note secured by the pledge of his-stock in the plaintiff corporation. The stock certificate was delivered to the defendant corporation as pledgee.

After the default of Kiernan, the plaintiff corporation brought a bill in equity to enjoin the sale of the pledged stock at auction under the power conferred by the pledge. The trial court granted the plaintiff the injunction restraining the sale. Held, affirmed. Since the main purpose of the restrictive stipulation was to prevent undesired persons from gaining a right to share in the management of the plaintiff corporation, it was not the intent of those who adopted the stipulation that it should be circumvented by the device of a pledge and the subsequent sale of a pledgee.

Monotype Composition Co., Inc. v. Kiernan, 319 Mass. 456, 66 N.E. (2d) 565 (1946).