Elmer v. Elmer, 2703

• Decision Date: 04 October 1967
• Docket Number: No. 2703,2703
• Citation: 203 So.2d 391
• Parties: Joseph C. ELMER v. Oscar B. ELMER.
• Court: Court of Appeal of Louisiana — District of US

Page 391

203 So.2d 391

Joseph C. ELMER v. Oscar B. ELMER.

No. 2703.

Court of Appeal of Louisiana, Fourth Circuit.

Oct. 4, 1967.

Rehearing Denied Nov. 6, 1967.

J. B. Kiefer and Charles M. Lanier, New Orleans, for plaintiff-appellee.

Coe, Nowalsky & Lambert, John D. Lambert and Sydney J. Parlongue, New Orleans, for defendants-appellants.

Before SAMUEL, CHASEZ and HALL, JJ.

HALL, Judge.

Joseph C. Elmer, the pledgor of 700 shares of the capital stock of Elmer Candy Corporation brought this proceeding against Oscar B. Elmer, the pledgee thereof, seeking to set aside the sale and/or adjudication of the pledged stock by Oscar B. Elmer unto himself, and seeking the return of the pledged stock upon depositing in the registry of the court a sum equal to the amount of his obligation to Oscar B. Elmer, pledgee. Plaintiff also prayed for an injunction against Oscar B. Elmer and Elmer Candy Corporation which, generally speaking, would have the effect of restoring the status quo which existed between plaintiff and Oscar B. Elmer, as of September 23, 1964, with regard to their rights and privileges in Elmer Candy Corporation.

Following an extensive trial on the merits judgment was rendered annulling and setting aside the sale of the pledged stock by Oscar B . Elmer unto himself and declaring same to be of no effect. The judgment further ordered that Oscar B. Elmer transfer to plaintiff the 700 shares of stock acquired by him at such pretended sale and return to plaintiff the note held by him against which the stock was pledged, upon payment by plaintiff to Oscar B. Elmer of the full amount of said note plus the interest due thereon according to its terms (but without attorney's fees). The judgment further ordered in detail the steps by which this was to be accomplished by Oscar B. Elmer and Elmer Candy Corporation, and permanently enjoined them from doing anything to alter the rights of any of the shareholders of record of the corporation as of September 23, 1964, until plaintiff and Oscar B. Elmer shall have been restored to the status quo which existed between them in regard to their rights and privileges in Elmer Candy Corporation prior to September 23, 1964.

Oscar B. Elmer and Elmer Candy Corporation appealed. Elmer Candy Corporation filed brief and made no appearance in this Court (although its attorneys were physically present in the courtroom during the argument). Its appeal is hereby dismissed under the provisions of Section 5(b) of Rule VII of the Uniform Rules of the Courts of Appeal.

The record reveals the following:

Elmer Candy Company, an old established New Orleans business, underwent reorganization in July 1964 and as a result thereof a new corporation was formed styled 'Elmer Candy Corporation', with a total authorized capital stock of 7,500 shares having a par value of 100.00 each, of which 2,000 shares were allotted to plaintiff, Joseph C. Elmer and 2,000 shares were allotted to Supreme Broadcasting Co., Inc., a corporation wholly owned by Roy Nelson and/or his wife, Mrs. Flora S. Nelson.

In order to complete payment for his shares Joseph C. Elmer borrowed the sum of $70,000.00 from Oscar B. Elmer, his uncle, and as evidence of said loan Joseph C. Elmer and his wife, Ruth M. Elmer, executed a promissory note dated September 15, 1964, payable to the order of Oscar B. Elmer in the principal sum of $70,000.00 bearing interest at the rate of 6% Per annum from September 15, 1964 until paid, payable in five annual installments of $14,000.00 each, the first installment being due on September 15, 1965. This note was secured by 700 shares of the capital stock of Elmer Candy Corporation represented by certificate no. 5 issued in the name of Joseph C. Elmer and by him endorsed in blank.

As of September 23, 1964 there were only two stockholders of Elmer Candy Corporation viz. Joseph C. Elmer and Supreme Broadcasting Co., Inc., each owning 2,000 shares of the stock. The stock owned by Joseph C. Elmer was represented by two certificates to wit: certificate no. 5 for 700 shares (held in pledge by Oscar B. Elmer) and certificate no. 6 for 1,300 shares.

Prior to the due date (September 15, 1965) of the first installment of the note Joseph C. Elmer requested an extension of time for payment. The extension was not granted, the installment fell due, and was not paid. At the close of business on September 15, 1965 Harry Nowalsky (attorney for Oscar B. Elmer) sent a letter of default to Mr. and Mrs. Joseph C. Elmer demanding 'immediate payment' of the full amount of the note together with interest and attorney's fees as therein provided.

Thereafter additional requests for extensions were made as hereinafter noted. On Saturday, September 18, 1965, Oscar B. Elmer instructed his attorney to exercise his rights under the pledge. The end result was the acquisition by Oscar B. Elmer of the 700 shares of pledged stock as, and in the manner, hereinafter set forth .

Practically the entire record is devoted to an attempt by plaintiff to prove that an extension of time for payment was granted by Oscar B. Elmer and/or that Oscar B. Elmer was estopped from selling or disposing of plaintiff's pledged stock without giving him prior notice of his intention to do so. Other issues were presented to the Trial Court and argued before us, such as whether the transfer of the stock to Oscar B. Elmer violated certain restrictions on the sale and transfer of stock contained in the charter of Elmer Candy Corporation and certain other restrictions contained in a 'Buy and Sell Agreement' entered into between Joseph C. Elmer and Supreme Broadcasting Co., Inc., the only two stockholders of the corporation. We find it unnecessary for us to discuss either the testimony concerning these matters or the conclusions to be drawn therefrom because the view we take of the sale and/or adjudication of the pledged stock by Oscar B. Elmer to himself is dispositive of the case.

The note contains the following provisions:

'In the event that this note is not paid at its maturity or in the event that the makers, endorsers or any party hereto, should fail in business or become insolvent or should apply to be adjudged a bankrupt or proceedings in involuntary bankruptcy be filed against them, or the appointment of a receiver should be filed against them, or any one of them, or application for respite be made, this note shall immediately become due and payable without demand or notice or putting in default.

'In case of non-payment of this note or any of its installments at its maturity, or when otherwise due, as herein provided, the holder hereof is hereby irrevocably authorized to sell said securities or property or any part thereof, at public or private sale without recourse to judicial proceedings, and without either demand, appraisement, advertisement or notice of any kind, and, at its option, to become the purchaser at said public or private sale, or to acquire said securities or property, or any part thereof, at their market value, and holder hereof is hereby irrevocably authorized to make any transfers or deliveries to the purchaser or purchasers at such public or private sale of any securities or property herein pledged, and to apply the proceeds thereof (1) to the payment of all costs and commissions for selling; (2) to the payment of this note in principal, interest and ten per cent (10%) attorneys fees (with a minimum of $50.00), or to any other debt, liability or obligation, direct or contingent up to the amount hereinabove stated, then due or thereafter to become due by parties hereto, or any of them.'

Such provisions in a note authorizing the holder, in the event of a default in payment thereof, to sell securities held in pledge thereunder at private sale without recourse to judicial proceedings and without demand or notice, and authorizing the holder to become the purchaser at such sale are not in themselves invalid. (See LSA-C.C. Art. 3165; In re: Liquidation of Hibernia Bank & Trust Co., 205 La. 890, 18 So.2d 330; Berry v. American White Lead & Color Works, 107 La. 236, 31 So. 733; Hiscock v. Varick Bank of New York, 206 U.S. 28, 27 S.Ct. 681, 51 L.Ed. 945; 41 Am.Jur. § 93 p. 651; See also annotation, 76 A.L.R. at p. 716.) However such provisions may not be used as a cloak for what amounts to an appropriation or forfeiture by the pledgee of the subject of the pledge (See Alcolea v. Smith, 150 La. 482, 90 So. 769. See also 33 Tulane Law Review at page 114.)

A mere literal compliance with the terms of the pledge is not in itself sufficient to render valid the sale and purchase by the pledgee of the subject of the pledge, since the pledgee occupies a fiduciary relation to the pledgor, being regarded as a trustee or agent of the pledgor in making the sale, owing the pledgor the duty of acting fairly and in good faith. (See 72 C.J.S. Pledges § 60(3), p. 123; Dibert v. Wernicke, 214 F. 673; State Trust & Savings Bank v . Dunn, 5 Cir., 24 F.2d 477, reversed on other grounds in 278 U.S. 582, 49 S.Ct. 184, 73 L.Ed. 518; Wade v. Markwell & Company, 118 Cal .App.2d 410, 258 P.2d 497, 37 A.L.R.2d 1363....