Carpenter v. Beal-McDonnell & Co.

• Decision Date: 04 March 1915
• Citation: 222 F. 453
• Parties: CARPENTER v. BEAL-McDONNELL & CO. et al.
• Court: U.S. District Court — Eastern District of Arkansas

222 F. 453

CARPENTER v. BEAL-McDONNELL & CO. et al.

United States District Court, E.D. Arkansas, Western Division.

March 4, 1915

This is a bill in equity against the defendants, composing the copartnership of Beal-McDonnell & Co., to compel them and their officers to make a transfer to the plaintiff of certain certificates of membership in said firm.

The facts as set out in the bill are: That the defendants are members of the joint-stock company or copartnership engaged in the wholesale dry goods business in the city of Little Rock. That it was organized by written agreement providing that the interests of each member or partner should be represented and evidenced by certificates showing the number of shares owned by such partner of a total of 3,000 shares of the par value of $100 each. That the business should be conducted under the firm name of the defendants, and that there should be issued by the president of the firm, attested by the secretary, certificates to each member or partner showing the number of shares he is entitled to, which certificates and the interest they represent shall be transferable by assignment in writing upon the certificates and surrender of the same to the secretary of the firm whereupon new certificates shall be executed to the transferees in the same manner as the original certificate and that such transferee shall be entitled to all the rights and privileges of an original holder, and subject to all the liabilities of the firm that shall accrue after such transfer, and that the secretary shall keep a certificate book and register the issuance and transfer of such certificates, and none but those appearing by said records as being holders of certificates shall be entitled to dividends or to vote on the officers of such partnership. The articles also provide for a certain form of certificate to be issued with a blank certificate of assignment on the back thereof. The agreement further provides that the owner of such assignment shall have the right to transfer, sell, or hypothecate the same without the consent of the other owners of certificates or the officers, but that no person shall be entitled to exercise the rights of a partner or share in the dividends, unless his certificate has been recorded in the registry book of the firm. It further provides that such certificates may be levied on by writs of execution or other legal process in the same manner as shares of stock in a corporation may be levied upon, and that the purchaser at such sale of the shares of a partner in such business, or at any sale by virtue of any contract made by the partner, shall be entitled to have issued to him, upon producing proper authority of such purchase, the certificate or certificates of such shares. Provision is made for the management of the business of the copartnership by an executive committee, and for the election of certain officers, and that the profits of the business shall be divided annually among the certificate holders according to their several interests. That upon the organization of the firm J. S. McDonnell became the owner and holder of certificates Nos. 15 and 16, each representing 100 shares; the whole being of the par value of $20,000. That this plaintiff and certain other persons mentioned in the bill were partners doing business as brokers in the city of New York under the firm name of N. L. Carpenter & Co. That the said McDonnell, being indebted to them in a large sum of money, over $23,000, had pledged these certificates with said firm, having properly indorsed them as required by the articles of copartnership; that on October 20, 1913, N. L Carpenter & Co. instituted an action in the Supreme Court of the State of New York, for the county of New York, which is a court of general jurisdiction of said state, against J. S mcDonnell, the pledgor, asking for a foreclosure of the certificates which they had in their possession in the city of New York. That the said McDonnell being a nonresident of the state of New York, no personal service could be had on him in that state, an order was made by that court for substituted service to be made in the city of Little Rock, Ark., in accordance with the laws of the state of New York. That such personal service was made on the said McDonnell in the city of Little Rock, state of Arkansas, and due proof thereof made in conformity with the laws of the state of New York. That on the return day said McDonnell failed to appear or plead to said complaint, and thereupon, on the 14th day of April, 1914, the case being duly reached, a judgment by default was rendered in said cause, decreeing that the pledged certificates be sold at public auction in the city of New York by a referee appointed for that purpose, in conformity with the laws of the state of New York, and that the said referee execute to the purchaser of such certificates a transfer and conveyance thereof and all the right, title, and interest of the defendant J. S. McDonnell in and to the same and in and to the share of the capital of Beal-McDonnell & Co., and that his equity of redemption be forever foreclosed. That out of the proceeds the costs of the action be paid, and the sum of $23,315, with interest be paid to the plaintiffs; that being the amount found due them on the transaction for which the certificates were pledged. That on May 8, 1914, the referee, in pursuance of said judgment, sold said certificates at public sale, and Nathaniel L. Carpenter, the plaintiff in this action, became the purchaser thereof. That on the 21st day of May, 1914, the referee having reported to the court his action and sale in pursuance of the decree, the sale was confirmed by the court, and thereupon the said referee made the transfers of the certificates to this plaintiff in conformity with the decree of the court.

Exemplified copies of all the proceedings in the Supreme Court of the state of New York are filed as exhibits with the bill.

The complaint then charges that plaintiff caused said certificates, with said transfers, assignments, and conveyances to him, to be presented to the president and secretary of said Beal-McDonnell & Co. at their office in the city of Little Rock, Ark., together with a properly exemplified copy of the record of proceedings had in the Supreme Court of the state of New York, and requested cancellation of said certificates and the issuance to him of new certificates representing the said transfer, and also the payment to him of all dividends which had been earned and declared on said shares of J. S. McDonnell, which they refused to do.

The defendants filed an answer to this complaint, admitting the organization of the firm of Beal-McDonnell & Co., as set out in the complaint, and alleged that since then the name had been changed to Beal-Burrow & Co., but denied all other allegations in the complaint, and denied the jurisdiction of the New York court to enter the decree mentioned in the complaint on substituted service. They also pleaded that, prior to the institution of this suit, the said J. S. McDonnell had sold his interest in the firm of Beal-McDonnell & Co. to the defendant James L. Dibrell, who requested the officers of said firm to transfer to him the certificates issued to the said McDonnell, including those set out in the complaint; that he was unable to surrender said certificates Nos. 15 and 16, and said firm declined to issue him new certificates, but made entries of said sale and transfer of the interests of the said J. S. McDonnell to James L. Dibrell upon the proper books of the firm.

The defendant James L. Dibrell, in addition to the answer which was filed by him and all the other defendants as aforestated, filed a separate answer, in which he sets up a purchase of the certificates in controversy from McDonnell, and further charges that if the proceedings in the Supreme Court of the state of New York, as alleged in the complaint, were had, they were founded on a demand which grew out of agreements for the sale of cotton on margin, commonly called 'dealings in futures,' which were made and to be performed wholly or in part in the state of Arkansas, in which dealings it was never intended by the parties thereto, or either of them, that an actual delivery of cotton should be made, but, on the contrary, it was the intention of one or both of the parties to said transaction to receive or pay the difference between the agreed price and the market price at the time fixed for settlement, and that the said dealings were gambling contracts and are expressly prohibited and made illegal and void under the laws of the states of Arkansas and New York, and any judgment thereon is void under the laws of Arkansas and New York.

The plaintiff has filed a motion to strike out that part of the additional answer of the defendant Dibrell which pleads that the consideration of the transaction between McDonnell and N. L. Carpenter & Co. arose out of a gambling transaction.

Cockrill & Armistead, of Little Rock, Ark., for plaintiff.

Mehaffy, Reid & Mehaffy and Moore, Smith & Moore, all of Little Rock, Ark., for defendant.

TRIEBER, District Judge (after stating the facts as above).

There are two contentions made by counsel for plaintiff which can be disposed of without incumbering this opinion with a large number of citations: (1) That the contract alleged to have been a mere wager, having been fully executed by the delivery of the certificates, cannot be disturbed; (2) that if the plaintiff does not require the aid of an illegal transaction to establish his claim he may recover, although the consideration of his claim was unlawful.

These rules are no doubt correct in a certain class of cases, but are clearly inapplicable when the action is to enforce a note or security given...