Benson v. Saffert-Gugisberg Cement Const. Co.

• Decision Date: 04 April 1924
• Docket Number: No. 23930.,23930.
• Parties: BENSON et al. v. SAFFERT-GUGISBERG CEMENT CONST. CO. et al.
• Court: Minnesota Supreme Court

159 Minn. 54

198 N.W. 297

BENSON et al.

v.SAFFERT-GUGISBERG CEMENT CONST. CO. et al.

No. 23930.

Supreme Court of Minnesota.

April 4, 1924.

Appeal from District Court, Brown County; I. M. Olsen, Judge.

Action by Olaf Benson and others against the Saffert-Gugisberg Cement Construction Company and others. From an order denying a new trial, plaintiffs appeal. Affirmed.

Syllabus by the Court

The statutory lien of a corporation on its own stock is a creature of statute. It is for the benefit of the corporation alone. It is not assignable by the corporation.

A surety, paying his principal's debt to a corporation, will not be subrogated to the corporation's lien on stock which the principal held in it, but which he had transferred to a third party, for a valuable consideration, before the surety became bound.

The prior transfer of the stock, although not made on the books of the corporation, vested the legal title in the transferee so as to make applicable the maxim, ‘Where there is equal equity, the law must prevail.’ Geo. A. & C. H. MacKenzie, of Gaylord, for appellants.

Frank Hopkins, of Fairfax, and Thompson, Hessian & Fletcher, of Minneapolis, for respondent Citizens' State Bank of Fairfax.

Einar Hoidale, of Minneapolis, for respondent Construction Co.

Albert Hauser, of Sleepy Eye, for respondent Geo. Saffert.

Somsen, Dempsey & Flor, of New Ulm, for respondents Pless and Oswald.

STONE, J.

After a trial by the court, this case comes here on appeal of the plaintiffs from the order denying them a new trial.

Plaintiffs, on April 17, 1920, became sureties on the bond of Wm. H. Gugisberg, to secure the performance of his contract for the construction of a ditch. There was default by Gugisberg, and plaintiffs have been compelled to pay some of the debts incurred by him in connection with the ditch contract. Among others, they paid the respondents, Saffert-Gugisberg Cement Construction Company (hereinafter referred to as the cement company), a considerable item representing the price of cement tile.

During all of the time in question, Gugisberg was a stockholder in the cement company. To secure his indebtedness to it, that company had the statutory lien upon his stock which a Minnesota corporation has to secure its claims against stockholders.

The purpose of this suit is to subrogate plaintiffs, as sureties of the contractor, to the lien of the cement company on his stock. That purpose was frustrated below to the extent that respondents, Citizens' State Bank of Fairfax (hereinafter referred to as the bank), was held to have a superior lien on 40 shares.

That lien arises from the pledge of those shares by the owner, Gugisberg, to the bank on December 31, 1919, to secure a loan of $3,500.

The only question for review is as to the propriety of the decision below as to the 40 shares in question. Who should have priority-plaintiffs, the sureties of the contractor, who claim under the cement company, or the bank, to which the stock certificates were pledged by the contractor?

The sequence of events is important: (1) Gugisberg borrowed the money from the bank, and pledged the 40 shares as security on December 13, 1919; (2) the ditch contract was let to Gugisberg, and the plaintiffs became sureties on his bond April 17, 1920; (3) the tile was purchased from the cement company by Gugisberg January 8, 1921, and on that date the lien of the corporation on Gugisberg's stock attached to secure the purchase price of the tile.

The stock certificates so pledged were assigned and the certificates delivered to the bank, but the transfer was never made on the books of the cement company. Neither was any notice given to it of the transfer to the bank. It acquired no knowledge of that transaction until long after it sold the tile to Gugisberg.

[1] The lien of a corporation on its stock arises under section 6176, G. S. 1913. That statute has been construed in several cases, among others, Dorr v. Life Ins. Clearing Co., 71 Minn. 38, 73 N. W. 635,70 Am. St. Rep. 309;U. S. & Canada Land Co. v. Sullivan, 113 Minn. 27, 128 N. W. 1112, Ann. Cas. 1912A, 51.

For present purposes, we assume that the cement company, by reason of its lack of notice of the pledge to the bank, could have enforced its lien on all of the Gugisberg stock, including that held by the bank. Prince Investment Co. v. St. Paul Land Co., 68 Minn. 121, 70 N. W. 1079.

The problem is one of priority and to be determined by the appropriate principles of equitable jurisprudence. In the event of equality of equity otherwise, the interest first to attach must be given priority pursuant to the maxim, ‘Where there are equal equities, the first in order of time shall prevail.’

Unless, therefore, the equity of plaintiffs is inherently so superior to that of the bank that the latter's advantage as to time is overcome, the bank should prevail. Priority of time alone does not solve such a problem, and we must therefore examine and compare the two equities and determine their respective merits.

Plaintiffs are not asserting a legal right. Subrogation is a pure equity, and therefore to be enforced only according to equitable principles. Here it must yield to the right of the bank, which has the advantage in point of time, unless it is found to be clearly superior because of its intrinsic equitable merit.

The lien of a corporation on its own stock, to secure its claim against stockholders, is a creature of statute. It exists for the benefit of the corporation alone. It is enforced solely by the corporation's possession and control of its transfer books. It cannot be assigned. Bank of Ky. v. Bonnie, 102 Ky. 343, 43 S. W. 407; 4 Thompson, Corporations, § 4016; Boyd v. Redd, 120 N. C. 335, 27 S. E. 35,58 Am. St. Rep. 792. It would be an unheard of thing for a corporation, when transferring a promissory note or other money demand against one of its stockholders, to attempt to pass also the lien on the debtor's stock which secured the demand as long as the corporation remained the creditor. The original creditor, the corporation, being disabled from transferring the lien, it is difficult to see how the law, operating for the occasion as equity, can make the transfer. The law is not much in the habit of doing for contracting parties what it does not permit them to do for themselves.

Yet that is what it is desired to have done here. The cement company could not have transferred its lien on Gugisberg's stock to plaintiffs. Still they are here asking that the law make the transfer for them.

Plaintiffs became bound as sureties on April 17, 1920. They did not become so bound on the faith of Gugisberg's cement company stock. They did not contract with special reference to any of it. Nor can they be considered, as against the bank or otherwise, to have contracted with general reference to it, or on the faith of it, as a part of Gugisberg's assets. That was impossible because the stock was already in pledge to the bank.

So much for the equity of plaintiffs-which is not to be advanced beyond its proper deserts simply because it goes by the meritorious name of subrogation. It remains...