Hudson v. Belzoni Equipment Co.

• Decision Date: 09 February 1948
• Docket Number: 36663.
• Citation: 33 So.2d 796,203 Miss. 212
• Court: Mississippi Supreme Court
• Parties: HUDSON v. BELZONI EQUIPMENT CO. et al.

33 So.2d 796

203 Miss. 212

HUDSON v. BELZONI EQUIPMENT CO. et al.

No. 36663.

Supreme Court of Mississippi

February 9, 1948

Green & Green, Edwin R. Holmes, and Julia Griffin, all of Jackson, for appellant.

V. B. Montgomery, of Belzoni, for appellees.

ROBERDS, Justice.

On April 28, 1941, appellant Hudson borrowed from the Citizens Bank & Trust Company of Belzoni, Mississippi, $779.17. He executed two notes therefor payable on demand, or if there be no demand, on January 28, 1942. He pledged to the Bank, as collateral security for said notes, thirty-one shares of stock in appellee, Belzoni Equipment Company, a corporation, domiciled at Belzoni. After maturity of the notes the Bank transferred and delivered them, with the stock, to the Equipment Company. The Equipment Company claims to be the absolute legal ownerof the stock. Hudson contends the Company is a pledgee holding the stock as security for a debt he owes it and that he has the right to pay the debt with interest, and redeem the stock. He filed the bill in this cause for that purpose and made proper tender. The Chancellor dismissed the bill. Hudson appeals.

The Equipment Company contends the Bank itself acquired the legal title, as owner, to the stock. A number of reasons might be stated which disprove that contention, but it is sufficient without more, to say that the record discloses an agreement of counsel that the stock was deposited with the Bank as collateral security for the notes.

The Equipment Company next asserts that it acquired such absolute title when the Bank transferred the stock to it. It says the notes and stock certificates, as well as a letter written by Hudson to the Bank, vested in the Bank the power to sell, and in the Equipment Company the right to buy, the exclusive ownership of the stock, and that such was the agreement it had with the Bank. These are the facts pertinent to that question: In June, 1942, Hudson was, and had been since its organization in 1940, the President of the Equpment Company and Chairman of its Board of Directors. Nothing had been paid upon the notes. There is evidence of an oral agreement to pay $25 per month on the notes. Just when that was to begin is uncertain. However, it is immaterial because it is admitted the notes were in default. He also owed the Company an unsecured open account of $965.76. He was leaving Belzoni to enter upon war work for the Government. On June 6, 1942, he wrote the Bank the following letter:

'This is your authority to, after the thirty-one shares of Belzonio Equipment Company stock in my name which you have as collateral is paid for, turn this stock over to Belzoni Equipment Company or hold same as their collateral for money I owe them, in case this money has not been repaid before my stock is paid for.

'In case anything should happen that I do not finish paying for my stock as agreed, I would like for you to agree by endorsing this letter to notify Belzoni Equipment Company and give them the privilege of paying out the stock on the same basis as my agreement with you.

'Thanking you for all past courtesies, I am,

'Yours very truly,

'Signed W. C. Hudson.'

Following that, and on July 17, 1942, the Bank, through Mr. Paul Townsend, its Active Vice-President, wrote the Equipment Company this letter:

'We have a letter dated June 6th, 1942, from W. C. Hudson asking us to deliver stodk in your company to you after the amount due us by him was paid, however, Mr. Hudson has made no payments on this indebtedness which has been past due since January 28th, 1942.

'Mr Hudson owes us two notes one for $516.67 and one for $262.50, with interest at $6% from April 28th, 1941, against which we hold 31 shares of stock in your company.

'If you care to take up this indebtedness we will be glad to deliver the stock to you, otherwise we are going to have to sell the stock and liquidate the amount due us, as we cannot carry this in the present form.'

The Directors of the Equipment Company met on July 24, 1942, and adopted a resolution, the part pertinent hereto being:

'On motion made by B. S. Reed, and seconded by T. L. Reed, Jr., it was unanimously resolved that as W. C. Hudson was no longer connected with the Company in an active capacity that he be removed from his offices as President, Chairman of the Board and Director. * * * It being brought before the Board that the Citizens Bank and Trust Company, Belzoni, Mississippi, was holding in trust thirty-one shares of stock issued to W. C. Hudson, and that said stock was being held by the Citizens Bank & Trust Company as collateral for an amount due them by W. C. Hudson, which amount was now in arrears, and that the thirty-one shares of stock had been declared forfeited by the Citizens Bank and Trust Company, on motion made by B. S. Reed and seconded by T. L. Reed, Jr., it was unanimously resolved that C. L. Hooker be empowered to negotiate with the Citizens Bank and Trust Company for the purchase of the stock by the Company and that said stock be retired. It being further resolved that said W. C. Hudson will be eligible to repurchase his stock from the company only after his account owing to the company, as reflected on the Company's books, be paid in full. It being further resolved that copies of these minutes be forwarded to W. C. Hudson and the Citizens Bank and Trust Company, Belzoni, Mississippi.'

On July 25, 1942, the Equipment Company paid the debt Hudson owed the Bank and the Bank transferred and assigned to the Company, without endorsement and without recourse, the two Hudson notes and the thirty-one shares of stock. Thereupon the Equipment Company retired and cancelled the stock. It sent Hudson a copy of this resolution. That was the first Hudson knew of that transaction or of any negotiations leading thereto. In reply Hudson wrote the Equipment Company protesting any attempt to 'foreclose' his stock. That letter is not in the record, so we do not know its exact wording. He sent a copy of that letter to the Bank. In reply, and on August 19, 1942, and Bank wrote Hudson the following letter:

'We are in receipt of a copy of your letter to the Board of Directors of the Belzonie Equipment Co., and note that you say we foreclosed your stock. What we did was to sell your note to the Belzoni Equipment Co., without recourse on us. In view of the fact that you had given us a letter to deliver the stock to them, we considered that they had a second mortgage, so to speak, on the stock anyway, and the man with a second always has the right to take up the first in order that he may have the collateral.

'We are sorry that you bfell that we are wrong in this and if we can be of assistance to you in working this out with the Company, will be glad to do so.'

Later the Bank wrote attorneys for Hudson that it had simply sold to the Equipment Company the notes 'without recourse on us.'

The notes provide that upon, or after, default the Bank had the power to sell, assigned and deliver all, or any part, of the pledged stock at any broker's board, or at public or private sale, without advertisement or notice, at which sale the Bank had the right to purchase, the proceeds of the sale to be applied to the payment of the secured debt, and any balance to be paid to the pledgor of the stock. The stock certificates conferred upon the corporation the right to purchase the stock 'at the contemplated sale or alienation price' if the owner desired to sell, and obligated the owner to give the corporation notice of 'such fact of sale or alienation.'

It will be noted the Bank gave no notice of the contemplated sale of the stock and made no effort to procure competitive bids therefor. The proof discloses the pledged stock was worth more than twice the Bank debt. In fact, Hudson used the money he borrowed from the Bank with which to purchase five shares of stock from Mr. Townsend and ten shares from Townsend's brother-in-law, Mr. Allen Pepper. He pledged thirty-one shares. However, we deem it unnecessary for us to decide whether under the law applicable to pledges the method here adopted could have constituted a legal sale so as to vest absolute ownership title in the Equipment Company for the reason the evidence establishes the fact the Bank did not intend or attempt any such sale. The letters...