Figuers v. Sherrell

• Decision Date: 04 March 1944
• Citation: 178 S.W.2d 629,181 Tenn. 87
• Parties: FIGUERS v. SHERRELL et al.
• Court: Tennessee Supreme Court

178 S.W.2d 629

181 Tenn. 87

FIGUERS v. SHERRELL et al.

Supreme Court of Tennessee.

March 4, 1944

Appeal from Chancery Court, Lincoln County; R. E. Lee, Chancellor.

Suit in equity by Horace Howard Figuers against Howard M. Sherrell executor of the estate of Horace E. Sherrell, deceased, to establish title to shares of stock in a national bank. To review a decree of the Court of Appeals for complainant on his appeal from the chancery court's adverse decree defendants bring certiorari.

Chancery court's decree affirmed, and decree of Court of Appeals reversed.

Pride Tomlinson, of Columbia, for complainant.

Seay Stockell & Edwards, of Nashville, for defendants.

GREEN Chief Justice.

The bill in this case was filed to establish title to certain shares of stock in a national bank. From an adverse decree the complainant took the case to the Court of Appeals where there was a decree in his favor. This Court has granted petition for certiorari and the case has been ably argued and briefed here.

In our view of the case some questions discussed by the lower courts are immaterial and certain controverted issues of fact are removed from our consideration by the concurrent finding of the two courts and the facts thus found are these.

Horace E. Sherrell, deceased, a resident of Lincoln County, upon the organization of the Union National Bank of Fayetteville, subscribed for 125 shares of its capital stock and a certificate was duly issued to him. Defendant H. M. Sherrell is the executor of the will of Horace E. Sherrell. Horace Howard Figuers, the complainant, is a nephew of Horace E. Sherrell and also a nephew of the executor, the two Sherrells having been brothers.

On January 9, 1936, Sherrell surrendered his certificate for 125 shares of stock to the bank and had that corporation issue in lieu three certificates, among which was one certificate for 25 shares issued in the name of the complainant. All the new certificates were receipted for and delivered to Sherrell on February 13, 1936. In 1938 a stock dividend was declared by the bank and a certificate for 12 shares of stock was issued in the name of complainant but was delivered to Sherrell at his request, he receipting therefor in the name of his nephew. Another stock dividend has been declared by the bank and 12 additional shares of stock written up on the stock book of the bank in the name of complainant but a certificate for these additional 12 shares has not been delivered to anyone yet.

On June 30, 1936, a three per cent semiannual dividend was declared by the bank and a dividend check made out payable to the complainant and sent to him. This dividend check was cashed by complainant but no other dividend check his ever been sent to him. On learning that the dividend check had been sent to his nephew, Sherrell notified the bank not to send any other dividend checks to the young man but to send them to him (Sherrell). All subsequent dividend checks, though made payable to the nephew, were delivered to Sherrell and he indorsed the checks with his nephew's name and used the proceeds.

Before each meeting of the bank's stockholders Sherrell would execute a proxy, signing his nephew's name thereto, authorizing the holder of the proxy to vote the stock recorded as his nephew's. The nephew knew nothing of the use of his name by Sherrell in the indorsement of the dividend checks and in the execution of the proxies.

Sometime before his death, Sherrell hypothecated the certificate for 25 shares and later the certificate for 12 shares as collateral security for loans at the American National Bank at Nashville, one of these loans having been made to a concern in which Sherrell was interested and another loan having been made directly to Sherrell. In so using the stock issued in the name of his nephew, Sherrell indorsed the certificates with his nephew's name and also executed the usual power of attorney in his nephew's name authorizing the transfer of the stock. It does not appear that the young man knew of this use of his name.

As we read the record, there is no evidence of any word ordeed on the part of Sherrell at any time, except procuring the issue of the stock in the nephew's name, indicating that Sherrell considered himself to have parted with ownership of the shares of stock or to have given them to his nephew. Up until the time of his death, Sherrell apparently looked upon the stock as his own to do with as he pleased.

Sherrell did not stand in loco parentis to his nephew. The nephew was named for his two uncles--Horace and Howard. Horace being the name of the deceased uncle and Howard being the name of the defendant uncle, the executor. The nephew lived with his mother in Columbia, she being a sister of the Sherrell brothers. The proof shows that he would visit his uncle Horace at times when he was a young boy and that the uncle would sometimes make small gifts to the nephew. At the time the stock was issued in his name, the complainant was a young boy in a preparatory school. Later he received an appointment to the Naval Academy and upon his graduation from that institution was commissioned as an officer in the Marines. Since going to the Naval Academy he has been in Tennessee at infrequent intervals when he was able to obtain leave.

The question presented for decision is whether there is a completed gift to another when a stockholder turns in his certificate of stock and has the corporation issue and record a new certificate in the name of another, but the holder of the old certificate has the new certificate delivered into his own hands and retains possession thereof until his death, nothing else being said or done by him tending to show a gift. Is there here such intention and delivery as is necessary to perfect a gift inter vivos? The chancellor answered this question in the negative. The Court of Appeals answered the question in the affirmative. Each court sustained its conclusion by a well reasoned opinion supported by authorities. In fact the authorities are rather evenly divided on the question.

Leading cases sustaining the judgment of the Court of Appeals are Reed v. Roberts, 85 Pa. 84; Chicago Title & T. Co. v. Ward, 332 Ill. 126, 163 N.E. 319; Phillips v. Plastridge, 107 Vt. 267, 179 A. 157, 99 A.L.R. 1074.

Leading cases supporting the judgment of the chancellor are Besson v. Stevens, 94 N.J.Eq. 549, 120 A. 640; Hudgens v. Tillman, 227 Ala. 672, 151 So. 863; Southern Industrial Institute v. Marsh, 5 Cir., 15 F.2d 347, writ of certiorari denied 273 U.S. 747, 47 S.Ct. 449, 71 L.Ed. 872.

Other cases tending the one way or the other are collected in a note in 99 A.L.R. 1077, 1080. Of course the facts in each of the cases cited differ slightly as they differ slightly from the facts before us but these small differences are not important.

Reed v. Roberts, supra, sometimes referred to as Roberts' Appeal, may be called the parent of those cases ruling that a gift is completed by the transfer to the donee of shares of stock on the books of the corporation and the issue of a certificate to the donee although the donor retains possession of the certificate. The Roberts case is cited and followed in the others. The basis of the decision in the Roberts case is the following statement of the law in Pennsylvania:

'But here the gift is complete by the delivery of the thing itself, for transferring the shares to her upon the books of the company is putting her in complete possession of the thing assigned, and clothing her with the complete legal title. It stands in the place of a delivery. Such an act performs precisely the office which an actual delivery would perform if it were a chattel. It is as complete a delivery as the nature of the thing will admit of. There can be no clearer evidence of a design to part with the right of property in favor of another than an absolute transfer of the legal title to her for her own use. Retaining in his possession the certificates which are in her name, and which he could not use without her consent, cannot undo or qualify the decisive ownership with which he had invested her by the actual transfer to her on the books of the company. The best evidence of her ownership is the transfer on the books of the company. The certificates were but secondary evidence of her ownership, and only useful for purposes of transfer. They were nothing more than the official declaration by the company of what already appeared on their books.' 85 Pa. 86, 87.

Similar expressions are contained in Chicago Title & T. Co. v. Ward, supra, Phillips v. Plastridge, supra, and other decisions in this line.

Such is not the law in Tennessee. Since Cornick v. Richards, 71 Tenn. 1, this Court has held that the title to shares of stock, both legal and equitable, follows lawful possession of the certificate and has refused in so many words to give the stock books of a corporation any such force as is given the public records in the register's office in determining questions of title.

Following Cornick v. Richards and subsequent cases cited, this Court in Smith v. Railroad, 91 Tenn. 221, 231, 18 S.W. 546, 549, said:

'The title of the purchaser upon the assignment of the certificate was complete without registration or transfer on the stock-books of the corporation. The rule requiring transfer on the books of the company, by the well-settledline of decisions in this state, and by the great weight of authority in the courts of America, is a rule made solely for the benefit of the company. By it the company is enabled to know who are entitled to vote, and to whom it may pay dividends.'

The Court then goes on to say that a complete equitable and legal title is passed by the act of the owner in assigning a ...