A company can convert stock by ceasing to acknowledge an existing shareholder's ownership. It can also convert stock by continuing to acknowledge a shareholder's ownership after he ask sold the stock to another person. Under conversion tort law, the transferree has a cause of action for stock conversion.
Probably the most common fact situation in reported conversion tort case law is where the plaintiff has acquired shares, typically purchased from another shareholder, and the corporation, for whatever reason, refuses to issue the share certificates or to recognize the transfer on his books. In Rio Grande Cattle Co. v. Burns, the Texas Supreme Court held that the stock the plaintiff had acquired “was clearly assignable, and his assignment thereof to the appellee, under the circumstances, vested at least the equitable title to the stock or interest of [the transferring stockholder] in the appellee, and entitled it to demand recognition at the hands of the corporation.” “A refusal to transfer record ownership of corporate stock in the circumstances here presented results in liability as for a conversion thereof, at election of the complaining party.” “Thus, the unreasonable refusal to transfer stock ownership in a corporation amounts to the wrongful assumption of and exercise of dominion and control over that stock. Once a presentment of the stock and request for change of ownership has been made, coupled with some proof of ownership, then the unreasonable refusal to transfer is a conversion of the stock.”
In Arthur W. Tifford, PA v. Tandem Energy Corp., the Fifth Circuit, applying Texas conversion tort law, reversed a summary judgment in favor of the defendant in a stock conversion case. The case involved stock issued by a Nevada corporation to a promoter in consideration for his assistance in a deal. The deal did not go as expected, and the corporation cancelled the stock, claiming that it had been issued as a result of fraud and without consideration. The plaintiff recovered one of the cancelled certificates in
satisfaction of an unrelated judgment against the promoter, and requested that the stock be transferred and reissued in the plaintiff’s name, which request the corporation refused. “It is well-established that an unreasonable refusal to acknowledge a lawful transfer of corporate stock is conversion.” The Fifth Circuit held that the plaintiff had raised a valid claim for conversion of the stock because refusal to transfer the shares constituted “a corporate act that destroys or impairs the stock’s value.”
|About the author: Houston Business Lawyer Eric Fryar is a published author and recognized expert in the field of shareholder oppression and the rights of small business owners. Eric has devoted his practice almost exclusively to the protection of shareholder rights over the last 25 years. Learn more||
This post represents our opinion regarding the relevant shareholder oppression and minority ownership rights law. However, not everyone agrees with us, and the law is changing quickly in this area. This page may not be up to date. Be sure to consult with qualified counsel before relying on any information of this page. See Terms and Conditions.