Beal v. Carpenter

• Decision Date: 02 August 1916
• Docket Number: 4548,4549.
• Citation: 235 F. 273
• Parties: BEAL et al. v. CARPENTER. CARPENTER v. BEAL et al.
• Court: U.S. Court of Appeals — Eighth Circuit

235 F. 273

BEAL et al. v. CARPENTER.

CARPENTER v. BEAL et al.

Nos. 4548, 4549.

United States Court of Appeals, Eighth Circuit.

August 2, 1916

Syllabus by the Court.

Certificates of shares of the capital stock of a joint-stock association or partnership, the articles of which contain provisions that the capital stock shall be divided into shares of the par value of $100 each, that certificates of shares shall be issued to each partner of the number of shares to which he is entitled, that the certificates and the interests they represent shall be transferable by written assignments on their backs, that they may be levied upon by writs of execution, or other legal process, in the same manner as shares of stock in corporations, and that the purchaser at any sale of shares of a partner under such process, or by virtue of any contract made by the partner, shall be entitled to have issued to him a certificate or certificates of such shares, are valuable personal property, and their presence in a state is sufficient to sustain the jurisdiction of a court of that state to subject the certificates and the interests in the property of the joint-stock association, which they represent, to adjudication and sale upon substituted service on the owner thereof, although he is not a resident of the state, and neither he nor any of the property of the association is within the state.

In a suit upon a judgment or decree of another state the same credit, faith, and validity must be given to it by the court in which the suit upon the judgment is brought as would be given to it in the state in which the judgment was rendered and this, although it is founded upon a contract, transaction or action which, though good in the state in which the judgment or decree was rendered, was and is contrary to the public policy of and forbidden under penalties by the laws of the state in which the suit upon it is brought.

Henry M. Armistead and Ashley Cockrill, both of Little Rock, Ark (John R. Abney, of New York City, on the brief), for plaintiff.

C. C Reid and J. M. Moore, both of Little Rock, Ark., for defendants.

Before SANBORN, Circuit Judge, and REED and BOOTH, District Judges.

SANBORN Circuit Judge.

This is an appeal from a decree against Beal, McDonnell & Co., a joint-stock association or partnership, and their members, to the effect that they transfer two certificates or shares of the capital stock of the company from J. S. McDonnell, the former owner, and issue certificates thereof to Nathaniel L. Carpenter, the plaintiff below. The reasons urged by the defendants below for the reversal of this decree are: First, that the Supreme Court of the state of New York acquired no jurisdiction by substituted service to render the decree of foreclosure of the pledge by McDonnell, and of the sale of these certificates of shares under which Carpenter claims title; and, second, that the decree of the New York court was not enforceable in the state of Arkansas, because the debt, to secure which the pledge on which it was founded was made, although valid and actionable in New York, was illegal and void in the state of Arkansas, because it arose out of transactions and contracts forbidden by the laws of Arkansas for the sale of cotton futures, which the parties intended to settle according to the differences between the contract and the market prices without the delivery or receipt of any cotton whatever.

It was indispensable to the acquisition by the New York court by substituted service on McDonnell of jurisdiction to decree the foreclosure of his pledge and the sale of his pledged certificates that those certificates should constitute property having a situs in the state of New York, and the contention on which the first ground for the reversal of the decree rests is that they were not property, but were, like deeds of land, mere evidences of title to the interest of McDonnell in the property of the association. But certificates of shares of stock in a corporation are not only evidences of interests in the property of the corporation, but representatives of those interests having a situs wherever they are present to such an extent that they are property of value which will sustain the jurisdiction of a court to decree the sale and transfer of both the certificates and the interests they represent by its judgment or decree founded on substituted service upon the owner, although he is not a resident of the state in which the judgment or decree is rendered, and neither he nor any of the property of the corporation is present within its jurisdiction. Merritt v. American Steel Barge Co., 79 F. 228, 231, 24 C.C.A. 530; Blake v. Foreman Bros. Banking Co. (D.C.) 218 F. 264, 266. Why are not certificates of shares of the capital of a joint-stock association in the same class? A joint-stock association is a partnership, but the members of such an association are free to make and to estop themselves from denying every lawful contract regarding their interests in the partnership property, regarding the representation of those interests by certificates of shares in the company and regarding the pledge, levy upon, transfer, and sale of such interests by means of the pledge, levy upon, sale, and transfer of the certificates evidencing and representing them.

The members of this joint-stock association, by virtue of the articles of partnership, made with each other and with the association these agreements: That the capital of the firm should be $300,000, divided into 3,000 shares, of the par value of $100 each; that the business of the firm should be managed by an executive committee chosen by the shareholders, who should ordain and establish all by-laws and regulations necessary to the management of their business; that the shareholders should also elect a president, first, second and third vice presidents, a secretary and treasurer; that there should be issued by the president and secretary, under the seal of the firm, certificates to each partner showing the number of shares he is entitled to, 'which certificates and the interests they represent shall be transferable by assignment in writing upon the certificate and surrender of the same to the secretary of the firm, whereupon he shall issue a new certificate or certificates to the transferee,' and 'the transferee shall be entitled to all the rights and privileges of an original purchaser'; that the secretary shall keep a certificate book and register, and register the issuance and transfer of the certificates, and that none but those appearing by his record to be holders of certificates shall be entitled to dividends or to vote at any meeting of the members of the firm; that the certificates shall provide (and they did provide) that by accepting the certificates the persons to whom they should be issued respectively should become, as would also any who should become transferees or lawful holders thereof, parties to the articles of partnership, that the certificates might be transferred by assignment on the back and a surrender thereof to the secretary, and the obtaining of new certificates from the firm in the names of the respective transferees.

The articles of partnership also contained contracts that the death of any member of the firm should not dissolve the firm, or have any effect upon it, or its operations, or mode of business, except that the person or persons who should become the owner or owners of the interest of the decedent should succeed to his interest, and upon surrender of his certificate should receive a new certificate or certificates for the respective interests owned by the decedent; that the death of a member of the firm should not entitle the legal representatives to an accounting, or to any action in the courts or otherwise against the firm; that the owner of certificates 'shall have the right to transfer, sell, or hypothecate the same without the consent of the other owners of certificates, or the officers or executive committee of the company'; that 'the certificates may be levied upon by writs of execution, or other legal process, in the same manner as shares of stock in corporations may be levied upon in the state of Arkansas, and the purchaser at such sale of the shares of a partner in said business, or at any sale in pais by virtue of any contract made by the partner, shall be entitled to have issued to him upon producing proper authority of his accession to the shares of the partner in said firm, a certificate or certificates of such shares, and shall thereupon become in all respects subject to the terms and provisions of these articles.'

The presence of certificates of the shares of a corporation in one state when all its property is in another is sufficient to sustain the jurisdiction of the courts of the former state to subject the certificates and the interests in the property of the corporation which such certificates represent to adjudication and sale by the courts of the former state on substituted service upon the owner of the certificates because the certificates not only evidence, but also represent, the interests of their owner in the property of the corporation, because they are bought and sold as chattels, and because they may be hypothecated and sold, have an inherent market value, and are generally classified as personal property. Cowles Electric Smelting & Aluminum Co. v. Lowrey, 79 F. 335, 24 C.C.A. 616. But there are none of these attributes of certificates of stock in corporations which the members of this joint-stock association have not by their partnership agreement given to the certificates of shares in their company. These certificates evidence and represent the interests of their owners in the property of the joint-stock association as completely...