Ashley v. Ashley

• Decision Date: 08 November 1978
• Citation: 393 A.2d 637,482 Pa. 228
• Parties: , 25 UCC Rep.Serv. 843 Helen ASHLEY, Appellant, v. Joseph ASHLEY, Ashley Machine & Tool Co. and Wipco, Inc., Appellees.
• Court: Pennsylvania Supreme Court

Page 637

393 A.2d 637

482 Pa. 228, 25 UCC Rep.Serv. 843

Helen ASHLEY, Appellant, v. Joseph ASHLEY, Ashley Machine & Tool Co. and Wipco, Inc., Appellees.

Supreme Court of Pennsylvania.

Argued Jan. 13, 1978.

Decided Oct. 5, 1978.

Reargument Denied Nov. 8, 1978.

Winkler, Danoff, Lubin & Toole, Sol Lubin, Peter B. Broida, Wilkes-Barre, for appellant.

Rosenn, Jenkins & Greenwald, Joseph J. Savitz, Wilkes-Barre, for appellees.

Before EAGEN, C. J., and O'BRIEN, ROBERTS, POMEROY, NIX, MANDERINO and LARSEN, JJ.

OPINION

MANDERINO, Justice.

On October 8, 1971, appellant, Helen Ashley, commenced an action in equity in the Court of Common Pleas of Luzerne County, seeking to partition assets held as tenants by the entireties by her and her husband, appellee, Joseph Ashley, and to recover certain shares of stock in WIPCO, Inc. and in Ashley Machine and Tool Co. Following an extended hearing, the chancellor ordered an accounting and partition of all the entireties property held by Helen and Joseph Ashley. The Chancellor concluded, however, that appellant was not a shareholder of either WIPCO, Inc., or Ashley Machine and Tool Co. Exceptions filed by both appellant and appellee were denied by the court en banc. Appellee took no appeal from the court ordered accounting and partition of the property held by him and appellant as tenants by the entireties.

Appellant appealed that portion of the Court's decree denying her exceptions to the court's adjudication that she had no stock interest in WIPCO, Inc.; her exception to that portion of the adjudication denying her any stock interest in Ashley Machine and Tool Co. was withdrawn. The Superior Court affirmed the court en banc, Ashley v. Ashley, 240 Pa.Super. 702, 360 A.2d 233 (1976). We granted appellant's petition for allowance of appeal, and this appeal followed.

Appellant argues that she is entitled to 50 shares of WIPCO stock. She bases her argument upon the following facts about which there is no dispute. On January 6, 1964, appellant and her husband, appellee Joseph Ashley, entered into a subscription agreement with the newly formed WIPCO, Inc. The agreement, which was approved by the Board of Directors of WIPCO, Inc., stated that appellant and appellee were each to purchase 50 shares of WIPCO stock at a purchase price of $5,000.00 for each block of 50 shares. On March 5, 1964, individual stock certificates in the amount of 50 shares each to appellant and appellee, Joseph Ashley, were prepared by an attorney who handled appellee's legal matters. The stock certificates were signed by the Secretary of WIPCO, Inc., Helen Ashley. Stock certificate "Number 1" purported to show that Joseph Ashley was the owner of 50 shares of WIPCO stock; certificate "Number 2" indicated that Helen Ashley owned 50 shares of WIPCO stock. The certificates were receipted for in WIPCO's stock certificate registry book, but they were not signed by the president of WIPCO as required by WIPCO's by-laws and by the Business Corporation Law, Act of May 5, 1933, P.L. 364 art. VI, § 607, as amended 15 P.S. § 1607(B). Appellant placed the certificates in a filing cabinet in the office of Ashley Machine and Tool Co., a corporation wholly owned by appellee, Joseph Ashley, and for whom appellant worked as office manager. Consideration for the subscription offer was provided by Ashley Machine and Tool Co., which transferred assets totalling $10,000.00 to WIPCO in March, 1964.

In May, 1972, subsequent to the commencement of the proceedings which culminated in this appeal, appellee authorized his accountant to mark "void and not issued" on the receipt stubs in WIPCO's stock registry book for the stock certificates indicating that Helen and Joseph Ashley each owned 50 shares of WIPCO stock. The receipt stubs were also crossed out with an "X." No notice was given to appellant that the shares certificate receipt stub indicating her ownership in 50 shares of WIPCO stock was being voided. At the same time that he "voided" the stock certificate receipt stubs above, appellee's accountant filled in WIPCO stock certificate "Number 3" to indicate that 100 shares of WIPCO stock were owned by Ashley Machine and Tool Co. Stock certificate "Number 3" was back-dated to March 11, 1964, pursuant to appellee's directions. In May, 1972, at the time of the above transactions, appellant was a judicially declared incompetent, having been declared so by the court on April 28, 1971, because of alcoholism. Her competency was judicially restored on June 5, 1972.

Appellant presents several theories in support of her contention that she is entitled to 50 shares of WIPCO stock. We agree with appellant that the chancellor erred in concluding that appellee made no gift to appellant. Because the order of the Superior Court affirming the equity court's decree must be reversed on this ground, we need not discuss the other issues raised by appellant.

To establish a valid inter vivos gift, it is essential that the two elements of a gift be shown. These elements are (1) an intention to make an immediate gift, and (2) such actual or constructive delivery to the donee as will divest the donor of dominion and control of the subject matter of the gift. Wagner v. Wagner, 466 Pa. 532, 353 A.2d 819 (1976); King Estate,387 Pa. 119, 126 A.2d 463 (1956).

"Donative intent is the intention to make an 'immediate gift.' " Wagner v. Wagner, supra., 466 Pa. at 537, 353 A.2d at 822, quoting from Parkhurst Estate, 402 Pa. 527, 531, 167 A.2d 476, 478 (1961). The evidence presented at trial clearly shows that at the time WIPCO was incorporated, appellee possessed the required "donative intent" to give 50 shares of the WIPCO stock to his wife, appellant here, and the equity court's conclusion that appellant had failed to establish that element of a valid, inter vivos gift was erroneous. At trial, appellee testified that, as early as January 6, 1964, he intended to give appellant 50 shares of WIPCO stock. He also testified that at the time WIPCO was incorporated in March, 1964, he intended to give appellant half of the WIPCO stock, and that his attorney prepared stock certificates Numbers One and Two, and put the federal tax stamps on them, in order to effectuate the intended gift. Appellee stated that at that time March, 1964 he assumed that the stock had been issued. Subsequently, according to appellee, it appeared that the issuance had not been completed because the attorney was "having problems." For reasons not revealed at trial, certificates Numbers One and Two were never signed by the president of WIPCO. Additionally, the trial court found as a fact that from 1964 until 1968, at least, appellee made both oral and written representations that appellant owned WIPCO stock.

The second element that must be shown to establish a valid inter vivos gift is "delivery." Wagner v. Wagner, supra. Delivery of a share of stock may be effectuated by a physical delivery of the stock certificate, with or without written endorsement or assignment, Connell's Estate, 282 Pa. 555, 128 A. 503 (1925), and regardless of whether there has been an actual transfer of the stock on the books of the corporation (even when the corporation's by-laws make the certificates transferable only upon the books of the corporation.) 12 A. Fletcher, Private Corporations, § 5653 (rev. ed. 1957); 17 P.L.E. Gifts § 25 (1959). See also Wagner v. Wagner, 466 Pa. 532, 353 A.2d 819 (1976).

In Connell's Estate, supra, 282 Pa. 555, 128 A. 503 (1925), the Court held that a gift of stock had been made even though delivery of the certificates was made without endorsement as required by the Uniform Stock Transfer Act. The Court stated that the statute was enacted to protect the corporation so that it could safely pay dividends to the persons registered on its books as the owners of the stock. The Act was not intended to control the rights of parties transferring stock.

The Uniform Stock Transfer Act has been replaced by Article 8 of the Uniform Commercial Code. Section 8-307 states that

"(w)here a security in registered form has been delivered to a purchaser without a necessary indorsement he may become a bona fide purchaser only as of the time the endorsement is supplied, But against the transferor the transfer is complete upon delivery and the purchaser has a specifically enforceable right to have any necessary endorsement supplied." (Emphasis added.)

The reasoning of Connell Estate, and section 8-307 of the Code is implicit in Brightbill v. Boeshore, 385 Pa. 69, 122 A.2d 38 (1956). Prior to his death, the decedent in Brightbill assigned stocks to his daughter and delivered the certificates to her, making no changes on the books of the corporation. The certificates were placed in a safe deposit box to which both had equal access. The donor received and retained dividends from his securities; he voted on the stock; his tax returns represented that he owned the stocks; finally he asked his daughter to put the stocks up for collateral. In spite of the fact that the donor continued to exercise certain rights incidental to the ownership of the stock, we found a valid inter vivos gift. Significantly, in Brightbill, the court did not discuss whether the transfer complied with the provisions of the Uniform Stock Transfer Act or the Uniform Commercial Code.

As we more recently said in Wagner v. Wagner, supra, 466 Pa. 532, 539, 353 A.2d 819, 822-23 (1976),

"(t)he essence of delivery of a gift is relinquishment by the donor of dominion and control of the subject matter of the gift. The clearest form of a delivery of a gift of corporate shares is registration of the shares in the name of the donee on the stock ledger of the company coupled with physical delivery to the donee of stock certificates in the name of the donee representing the shares so registered. But less formal modes of delivery have also been held to be sufficient." (citations omitted) (emphasis added).

We believe that the instant case...