First Nat. Bank v. Pittsburgh, FW & C. Ry. Co.

• Decision Date: 18 July 1939
• Docket Number: No. 9647.,9647.
• Citation: 31 F. Supp. 381
• Parties: FIRST NAT. BANK OF BIDDEFORD v. PITTSBURGH, F. W. & C. RY. CO.
• Court: U.S. District Court — Western District of Pennsylvania

31 F. Supp. 381

FIRST NAT. BANK OF BIDDEFORD v. PITTSBURGH, F. W. & C. RY. CO.

No. 9647.

District Court, E. D. Pennsylvania.

July 18, 1939.

Edward C. Clark, of Boston, Mass., and Francis F. Burch, of Philadelphia, Pa., for plaintiff.

Barnes, Myers & Price, of Philadelphia, Pa., for defendant.

KALODNER, District Judge.

This is a suit in equity brought by the plaintiff, substituted trustee, against the defendant corporation, praying for a restoration of stock which is alleged to have been transferred by the prior trustee in violation of his trust.

From the evidence, and the stipulation filed by counsel, I make the following special findings of facts:

1. Plaintiff, the First National Bank of Biddeford, trustee under the will of Susan L. Thompson, deceased, is a corporation organized and chartered under the laws of the United States with its place of business at 208 Main Street, Biddeford, County of York and State of Maine.

2. The defendant is a corporation duly formed and organized under the laws of the States of Pennsylvania, Indiana and Illinois, with a place of business in the Broad Street Station Building, 1617 Pennsylvania Boulevard, Philadelphia, County of Philadelphia, and Commonwealth of Pennsylvania.

3. The amount involved in this controversy, exclusive of interest and costs, exceeds the sum of $3,000.

4. Susan L. Thompson, late of Kennebunk, Maine, died on February 2, 1930 leaving a will dated February 15, 1919, which said will provides, inter alia, as follows:

"Sixth: I give my twenty (20) shares of Guaranteed Stock of the Pittsburgh, Fort Wayne and Chicago Railroad and my four (4) shares of Common Stock of the Boston & Maine Railroad unto Perley Gardner, Esquire, of Exeter, New Hampshire, in trust, nevertheless for a period of ten years from my decease, the net income therefrom to be paid over to said Harry T. Burbank, and at the termination of said period I give the same unto said Harry T. Burbank absolutely in fee.

"If, however, said Harry die before me or before the lapse of said period of ten years, then said trust shall terminate and I give the same to his issue in fee, if there be any, and otherwise to my niece Olive T. Lunt and James L. Thompson or the survivor of them."

5. Harry T. Burbank, the nephew of said testatrix, mentioned in the said paragraph of her will, is now living and confined in the State Hospital for the Insane at Concord, New Hampshire.

6. Perley Gardner, the trustee mentioned in said paragraph of said will, declined to act as such trustee, whereupon the Probate Court for the County of York, Maine, on November 19, 1930, appointed Edwin C. Burbank, of Malden, County of Middlesex, Massachusetts, trustee under said will for the benefit of Harry T. Burbank and others.

7. A certificate of stock, Number A 7677, for twenty shares of the preferred capital stock of defendant company, dated January 23, 1931, was issued and delivered to the said "Edwin C. Burbank, Trustee under the will of Susan L. Thompson."

8. The said Edwin C. Burbank, trustee aforesaid, filed a petition of resignation as trustee under the will of Susan L. Thompson with the said Probate Court for the County of York, Maine, which resignation was dated April 12, 1934, and the said resignation was accepted by decree of the Probate Court of Maine on December 31, 1934.

9. The plaintiff, the First National Bank of Biddeford, was appointed trustee under the will of Susan L. Thompson of the estate given in trust for the benefit of Harry T. Burbank, formerly of Exeter in the County of Rockingham and State of New Hampshire, by the said Probate Court for the County of York, Maine, by decree dated December 31, 1934.

10. Defendant's said stock certificate Number A 7677 sometime prior to October 24, 1934, was presented to defendant's transfer office in New York City to be transferred to the name of F. T. Sutton & Co., to permit the cestui que trust, Harry T. Burbank, to transfer the said twenty shares of stock in order to invest the proceeds in a business enterprise in which he was interested and such transfer was refused by defendant's transfer agent, whereupon the defendant cancelled said certificate Number A 7677 under date of October 24, 1934, and issued a new certificate, Number A 9803, for twenty shares of defendant's preferred stock, to "Edwin C. Burbank, Trustee under the will of Susan L. Thompson," under date of October 24, 1934.

11. Thereafter on December 18, 1934 said certificate Number A 9803, endorsed by Edwin C. Burbank, trustee under the will of Susan L. Thompson, with a power of attorney to transfer said shares to Weston & Co., brokers, was forwarded by a Boston broker to the defendant together with a certified copy of the will of Susan L. Thompson and a certified copy of the appointment of Edwin C. Burbank as trustee under said will.

12. Said certificate Number A 9803 was cancelled by the defendant on December 19, 1934 and on said date defendant issued in exchange therefor a new certificate for twenty shares of its preferred capital stock to Weston & Co.

13. The defendant refused written demands to reinstate the plaintiff on the books of the defendant corporation as a stockholder for twenty shares of preferred stock and for the payment of dividends payable between the date of the transfer to Weston & Co., and the date of such demands.

14. The defendant has failed to reinstate the plaintiff as a stockholder of said twenty shares of preferred stock.

15. The defendant has failed to pay to the plaintiff sixteen quarterly dividends of $35 each which are due and payable from the Tuesday after the first Monday of April to the Tuesday after the first Monday in January, 1939, inclusive, or a total of $560.

Discussion

Where a corporation permits an erroneous or wrongful transfer of stock, it may be compelled to replace it. The aggrieved person may resort either to a legal or equitable remedy. He may take the wrongful transfer as a conversion and maintain an action at law against the corporation for damages or, if he so elects, compel the corporation to recognize him as a stockholder and issue to him a certificate for the shares wrongfully transferred. 14 Corpus Juris 776; Pennsylvania Company, etc., v. Franklin Fire Insurance Co., 181 Pa. 40, 37 A. 191, 37 L.R.A. 780; Egan, Adm'r v. United Gas Improvement Co., 319 Pa. 17, 178 A. 683; Thompson on Corporations, sections 4428 and 4435. In addition to having this stock restored, he is entitled to the dividends of which he was deprived with interest thereon; 14 Corpus Juris 777.

In the case at issue, the plaintiff substituted trustee, has chosen the remedy in equity for the restoration of the stock and payment of the dividends. The defendant corporation conceded the propriety of plaintiff's procedure, but contends, first, that the plaintiff has proved no loss, and second, that it, the defendant, was not put on notice that the prior trustee was violating the obligations of his trust in assigning the stock.

The defendant further maintains that the plaintiff has failed to prove whether the prior trustee received the proceeds of the transfer of stock, and if so, what disposition was made of the same, or the extent of the loss to the beneficiary.

The answer to this contention is that the nature of the relief sought is not damages, but specific restoration. The plaintiff makes out his case in equity if he pleads and proves the violation of the trust and the wrongful transfer by the corporation. He is entitled to the equitable relief he seeks even without demanding alternative relief in damages.

Of course, it is true that "He who seeks equity must do equity," but it is not incumbent upon the plaintiff as part of his case to prove that he has not failed to do equity. The case of Chicago Edison Co. v. Fay, 164 Ill. 323, 45 N.E. 534, 537, is illustrative. There the fiduciary actually deposited the proceeds in the trust estate, and the beneficiary enjoyed the benefits thereof. It was held that the beneficiary was entitled to the restoration of the stock in absence of proof that the beneficiary acted with knowledge in taking and retaining the proceeds. In that case, the defendant corporation also sought to interplead the transferee, but the court said: "Its the corporation's duty was to repair the injury it had done, and then seek redress from those, if any, liable to it."

As to the defendant's second contention, it is well to keep the following facts clearly in mind:

Susan L. Thompson died on February 2, 1930. Under her will she bequeathed twenty shares of the preferred stock of the defendant corporation to a trustee in trust to pay the income to one Harry T. Burbank for the period of ten years from the date of her death and at the expiration of the ten years the stock was to become his absolutely.

Harry T. Burbank is now living. The trustee named in the will renounced, and Edwin C. Burbank was substituted as trustee. A certificate for twenty shares of defendant's stock was issued in the name of "Edwin C. Burbank, trustee under the will of Susan L. Thompson." The trustee endorsed this certificate in blank some time prior to October 16, 1934. On the latter date, the certificate was presented to the transfer office of the defendant to be transferred and a new certificate issued to F. T. Sutton & Co., brokers. The assignment was to permit the cestui que trust, Harry T. Burbank, to invest the proceeds from the sale of the stock in a private business in which he was interested. At that time, in October, 1934, the defendant requested a certified copy of the will. The request was complied with. The defendant then refused to honor the assignment and to issue a certificate to F. T. Sutton & Co. The assigned certificate being mutilated, a new certificate was issued to "Edwin C. Burbank, trustee under the will of Susan L. Thompson," the same holder as described in the mutilated certificate.

The new certificate was dated October 24, 1934. Subsequently, on ...