Bank of Mill Creek v. Elk Horn Coal Corp.

• Decision Date: 03 August 1951
• Docket Number: No. 10331,10331
• Parties: BANK OF MILL CREEK, v. ELK HORN COAL CORP. et al. ALLERS et al. v. ELK HORN COAL CORP. et al.
• Court: West Virginia Supreme Court

Page 892

65 S.E.2d 892

136 W.Va. 36

BANK OF MILL CREEK, v. ELK HORN COAL CORP. et al.

ALLERS et al. v. ELK HORN COAL CORP. et al.

No. 10331.

Supreme Court of Appeals of West Virginia.

Submitted April 24, 1951.

Decided June 5, 1951.

Rehearing Denied Aug. 3, 1951.

Syllabus by the Court.

1. One who pledges personal property, to secure the payment of his debt, remains the owner of the title to the property pledged, which, on his death, passes to his personal representative, and subject to his pledge, becomes primarily liable for the payment of his debts.

2. Subject to such liens as may be created by the act of a decedent in his lifetime, or which attach by processes of law, the entire estate of a decedent becomes, on his death, assets for the payment of his debts, and his personal estate becomes primarily liable for such debts. Debts of each class shall be paid ratably and without preference as to any class of indebtedness.

3. Personal property pledged to secure specific indebtedness, as well as indebtedness which may thereafter accrue to the pledgee from the pledgor, cannot be made to cover indebtedness of the pledgor to third persons, acquired by the pledgee after the death of the pledgor.

4. Where a sale of intangible personal property under a collateral pledge to secure specific indebtedness to the pledgee, and subsequent indebtedness of the pledgor to the pledgee, is, by the decree of a court, set aside to the extent only that it operates to the prejudice of the creditor pledgee in respect to the collection of his debt or debts, the purchaser of the pledged property at the sale so set aside, to the limited extent aforesaid, is, upon the payment in full to the creditor and pledgee of the indebtedness for which such property was pledged, with interest, entitled to have the same released unto him, free from all claims of the pledgee for whose benefit the said property was pledged.

Robert S. Spilman and Rummel, Blagg & Stone, all of Charleston, for appellant.

Jackson, Kelly, Morrison & Moxley, Thomas B. Jackson, W. Goodrich Sale, Jr. and David D. Johnson, all of Charleston, Crisona Brothers, James J. Crisona, all of New York City, for appellees.

FOX, President.

This appeal is the aftermath of a decision rendered in these causes on February 14, 1950, reported in W.Va., 57 S.E.2d 736, and pertains generally to the character of the decree which the lower court should have entered in carrying out the mandate of this Court based on that decision. At the cost of considerable repetition of matters stated in said decision, it will be necessary to trace certain transactions between The Elk Horn Coal Corporation, Clarence W. Watson and Arthur B. Koontz, individually and as personal representative of Patrick D. Koontz, deceased, who will be hereafter referred to in this opinion as 'Elk Horn', 'Watson' and 'Koontz'.

Following the decision of February 14, 1950, the causes were remanded to the Circuit Court of Ohio County for the entry of a proper decree based upon that decision. After the remand, and prior to the decree entered, there were filed in the causes the petition of Sam G. Polino Company, a corporation, and the joint petition of James E. Watson, III, and W. H. Toothman, as committees, asserting certain claims against the estate of C. W. Watson, deceased, and particularly asserting such claims against the same property on which Elk Horn bases its claim. Separate objections to the filing of the said petitions were entered by Elk Horn and Koontz, and their separate demurrers were interposed thereto. There has been no ruling on such demurrers, and the petitions filed were not permitted to operate to delay the entry of the final decree as to the claim of Elk Horn against the Watson estate, the result of all of which was that on July 6, 1950, the said circuit court entered the decree complained of, and on October 2, 1950, at the instance of Koontz, we granted this appeal.

The Elk Horn Coal Corporation is the successor of Elk Horn Coal Corporation, which was organized about the year 1915. The original company acquired in excess of 150,000 acres of coal, with some surface, located in the State of Kentucky, and from the beginning C. W. Watson appears to have been the ruling spirit in the organization. In 1931, Elk Horn Coal Corporation was placed in the hands of a receiver in a suit prosecuted in Letcher County, Kentucky; and in 1935, said company was adjudged bankrupt in the United States District Court for the Southern District of Ohio, Western Division, and the said Watson was appointed its trustee. In the year 1937, a plan of reorganization, under Section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, was adopted and approved and from that proceeding emerged, in February, 1937, the present corporation under the name of 'The Elk Horn Coal Corporation'.

C. W. Watson became president of the reorganized corporation, The Elk Horn Coal Corporation, at a salary of $18,000.00 per annum. At that time, Watson was indebted to the corporation, as reorganized, in a sum then fixed at $219,000.00, and under his contract of employment that indebtedness was to be reduced by Elk Horn in the sum of $3,333.00 per month so long as he continued his employment as president. He continued that employment until his death, and applying the agreed monthly reduction, the amount due from Watson to Elk Horn at the date of his death, on May 24, 1940, was approximately $85,825.50. At the time of the reorganization of Elk Horn, in 1937, it was agreed by Elk Horn that as a further consideration for Watson's employment, he be given Voting Trust Certificates, hereinafter referred to as 'certificates', representing 40,000 shares of the corporation's common stock and certain options to purchase stock, which will be hereafter referred to. These 40,000 certificates include the 38,000 certificates owned by Watson at the time of his death, 28,000 of which were held by him in the State of Ohio, and there administered as a part of his estate, and 10,000 shares which were held by him in West Virginia, and administered in this State by his personal representative. By this same agreement, dated June 10, 1937, Elk Horn granted to Watson the right at any time during the calendar year of 1938 to purchase all or any part of 20,000 additional certificates of the common stock of Elk Horn at ten cents per share, and the right, in 1939, 1940 and 1941, to purchase further certificates, representing all or any part of 40,000 shares of such common stock at the same price. Under this option, Watson, on December 29, 1938, purchased 20,000 shares of certificates of the common stock of The Elk Horn Coal Corporation for the sum of $2,000.00, and in payment therefor executed his note, dated December 29, 1938, and payable to The Elk Horn Coal Corporation on demand after sixty days notice, with interest at three per cent per annum, and deposited as collateral security 'for payment of this or any other liability or liabilities of _____ to said _____ due or to become due, or that may be hereafter contracted, the following property, viz.; 20,000 shares Voting Trust Certificates of Common Stock of The Elk Horn Coal Corporation.' The only indebtedness of Watson to Elk Horn, other than the $2,000.00 note then executed, was the balance due on the $219,000.00 obligation aforesaid. On December 16, 1939, Watson exercised his option to purchase 40,000 certificates, in payment for which he executed his note bearing the same date, payable to Elk Horn on demand after sixty days notice, the sum of $4,000.00, with interest at three per cent per annum, and pledged the said 40,000 certificates as collateral surety for the payment of said note, the pledge not covering any indebtedness other than the $4,000.00 for which the note was given. Both of these collateral notes contained the usual provision for the sale by the pledgee in case of default in the payment thereof.

As stated above, Watson died on the 24th day of May, 1940, owning 98,000 certificates which entitled him to that number of shares of the common stock of Elk Horn, 60,000 of which certificates were pledged as collateral for indebtedness to Elk Horn, as indicated above, and 38,000 of which certificates were unpledged. Watson in effect, died intestate, although he had executed a will by which he devised his estate to his sister, Lucy Watson, and appointed her as executrix of his will. She preceded him in death, and Ernest Hutton was appointed administrator of his estate, and into his hands the 10,000 certificates passed. An ancillary administrator was appointed in the State of Ohio, and 28,000 certificates, along with other securities owned by Watson, passed into his hands, and were administered in that state. While Watson held the legal title to the 60,000 certificates pledged with Elk Horn as collateral, Elk Horn retained the possession of said certificates.

In this connection, it is well to state that the pledging of the 60,000 certificates to Elk Horn did not affect Watson's title to such shares. The title to said shares remained in Watson, subject, of course, to his pledge. We find this proposition of law clearly stated in First Nat. Bank of Parkersburg, v. Harkness, 42 W.Va. 156, 24 S.E. 548, 552, 32 L.R.A. 408, in which this Court, in the body of the opinion, quotes with approval the following statement from Jones, Chat.Mort. § 4:

"The chief distinction between a mortgage and a pledge is that by a mortgage the general title is transferred to the mortgagee, subject to be revested by the performance of the condition; while by a pledge the pledgor retains the general title in himself, and parts with the possession for a special purpose.' And the same author in his work on Pledges (section 7) says: 'A pledge differs from a mortgage of personal property in being a lien upon property, and not a legal title to it. The legal title to the property pledge remains in the pledgor, while a mortgage passes the legal title of...