Fahrney v. Kelly

• Decision Date: 21 May 1900
• Citation: 102 F. 403
• Parties: FAHRNEY v. KELLY et al.
• Court: U.S. District Court — Western District of Arkansas

102 F. 403

FAHRNEY v. KELLY et al.

United States Circuit Court, W.D. Arkansas, Texarkana Division.

May 21, 1900

Rose Hemmingway & Rose, for complainant.

Scott &amp Jones and E. D. Owen, for defendants.

ROGERS District Judge.

The facts in this case which are important to its decision are these: In the year 1896 the complainant, William H. Fahrney by various transfers from the defendant W. J. Kelly, became the owner of $287,500 of the capital stock of the White Cliffs Portland Cement & Chalk Company, one of the defendants in this suit. It appears that this stock had been transferred as a bonus by William J. Kelly to the complainant, William H Fahrney, and other members of the Fahrney family, and others, who had become purchasers of certain bonds of the defendant company, and the proceeds of the bonds had gone into developing and improving the plant of the defendant company, situate in the Texarkana division of the Western district of Arkansas. This stock was transferred in writing by the said William J. Kelly to the aforesaid purchasers of the bonds, as above stated. On the 29th of April, 1898, the defendant, D. B. Coulter, who was familiar with these transfers of stock at the time they were made and up to that date, instituted a suit by attachment against W. J. Kelly and John Kelly in the circuit court of Little River county, Ark., and caused an attachment to be issued and levied on said stock as the property of W. J. Kelly. Afterwards he recovered a judgment against the said defendants William J. Kelly and John Kelly, and said stock was condemned to be sold to satisfy said judgment, which was accordingly done, and the sale approved by the Little River circuit court. At that sale D. B. Coulter, the judgment creditor, became the purchaser of all of said stock, which was, at his request, sold in a lump for the sum of $1,000. He paid no money, but his judgment was credited with that amount. As stated, he knew when the attachment was levied that W. J. Kelly had assigned this stock, and was not the real owner thereof. He also was notified at the sale, and before the sale was made, that the complainant was the owner,-- a fact which it is fair to say, from the proof in the case, he knew beforehand. It is not found that there were any irregularities in the levying of the attachment on the stock. This bill is filed to vacate that sale, to quiet complainant's title to said stock, to cause the title of the said Coulter to be canceled, and to enjoin the corporation and its secretary from transferring said stock on the corporate books to the said Coulter, and to register the same as the stock of the complainant, and for other proper relief.

On the 12th of April, 1869, the legislature of Arkansas passed an act entitled 'An act to provide for the creation and regulation of incorporated companies,' the twelfth section of which is in the following words:

'The president and secretary of every corporation, organized under the provisions of this act, shall annually make a certificate showing the condition of the affairs of such corporation, as nearly as the same can be ascertained, on the first day of January or of July, next preceding the time of making such certificate, in the following particulars, viz.: The amount of capital actually paid in; the cash value of its real estate; the cash value of its personal estate; the cash value of its credits; the amount of its debts; the name and number of shares of each stockholder; which certificate shall be deposited on or before the fifteenth day of February or of August, with the county clerk of the county in which said corporation transacts its business, who shall record the same at length in a book to be kept by him for that purpose; and whenever any stockholder shall transfer his stock in any such corporation, a certificate of such transfer shall forthwith be deposited with the county clerk, as aforesaid, who shall note the time of said deposit, and record it at full length in a book to be kept by him for that purpose; and no transfer of stock shall be valid as against any creditor of such stockholder until such certificate shall have been so deposited.'

This section of that act has been divided by the digester into two sections, namely, sections 1337, 1338, Sand. & H. Dig. Ark. At the time said attachment was levied that provision of the section of the statute above quoted, which is as follows: 'Whenever any stockholder shall transfer his stock in any such corporation, a certificate of such trans?er shall forthwith be deposited with the county clerk aforesaid, who shall note the time of said deposit, and record it at full length in a book to be kept by him for that purpose; and no transfer of stock shall be valid as against any creditor of said stockholder until such certificate shall have been so deposited,'-- had not been complied with by the complainant. In other words, from the time of the transfer of this stock, in the year 1896, down to the institution of the attachment suits, in the year 1898, the certificate required by the statute which is quoted had not been filed with the county clerk of Little River county, Ark., where said corporation transacts its business and its properties are located.

The question, therefore, arises whether, under the facts of this case, the defendant Coulter acquired any title to said stock as against the complainant in this suit. In view of the elaborate briefs and oral arguments and the exhaustive examinations of the decisions of the various state and federal courts throwing light upon this subject by the eminent counsel interested therein, if time permitted it would be an unprofitable work for the court to enter upon the discussion, either upon principle or upon authority, of the numerous cases which have been cited, or to review the able and exhaustive arguments, oral and written, have been made upon the subject. The court in this case must content itself with stating its conclusions.

It may be admitted that the very able and persuasive arguments of the eminent counsel for the plaintiff, if addressed to a legislative body, would be well-nigh conclusive of the manifest impropriety of permitting the section of the statute quoted above to continue longer upon the statute books without amendment. A literal interpretation of that statute practically paralyzes the handling of the stocks of corporations, organized under the statutes referred to, by the commercial world, and the statute itself is entirely out of harmony with the great mass of statutory law of the different states in this country, and is hostile to that free transfer of corporate stocks found essential to the commerce of the country at this day. But, while this is true, it is the province of the court, not to amend the statute, but to interpret and enforce it.

An effort was made in two cases (Deutschman v. Byrne, 64 Ark. 111, 40 S.W. 780, and Batesville Tel. Co. v. Myer Schmidt Grocer Co. (Ark.) 56 S.W. 784) to secure an interpretation of this statute by the supreme court of Arkansas. The first case passed off upon an irregularity in the levy of the attachment, and the second was disposed of, as was also the case of Masury v. Bank, 35 C.C.A. 476, 93 F. 603, decided by the United States circuit court of appeals for the Eighth circuit, in both of which cases it was held that the word 'transfer,' found in the statute, did not embrace stock assigned as collateral security; so that the precise question now presented in this case, of an absolute sale of stock, has never been passed upon either by the supreme court of this state, or by any other appellate tribunal. There is little in either of these decisions from which the court can obtain any light as to what construction this statute should have, except that in Batesville Tel. Co. v. Myer Schmidt Grocer Co. there was a dissenting opinion by two of the judges, who held that the word 'transfer' embraced not only stock absolutely sold, but also that which had been transferred as collateral security.

After the most careful consideration which I am capable of giving this case, I have reached the conclusion that the language of this statute is so plain as to forbid the court to place any interpretation upon it which would have the effect of interpolating into it any change whatever. It states in so many words that 'no transfer of stock shall be valid as against any creditor of such stockholder until such certificate shall have been so deposited. ' It limits the provisions of the statute to a creditor. By its terms it makes it applicable to all creditors of such stockholder. To uphold the contention of the complainant, the court would be compelled to interpolate into this statute language so as to make it read: 'And no transfer of stock shall be valid as against any creditor of such stockholder until such certificate shall have been so deposited, unless such creditor had notice before or at the time the attachment was levied (or at some subsequent time that the court must arbitrarily adopt) that the judgment debtor had made a transfer of the stock attached. ' It is insisted that this is precisely what the supreme court of Arkansas did in the case of Byers v. Engles, 16 Ark. 543. This is not strictly true, because the statutes are worded differently, although the court did import, by construction, into the terms of that statute, language equivalent to that which is now contended for with reference to this. The statutes, however, are different. It is, however, a difficult thing, notwithstanding the difference in the terms of the statutes, to draw a well-defined distinction, upon any well-recognized principle, between the construction which should be placed upon the statute under consideration and the one which was under consideration in Byers...