Masury v. Arkansas Nat. Bank

• Decision Date: 02 June 1898
• Citation: 87 F. 381
• Parties: MASURY v. ARKANSAS NAT. BANK et al.
• Court: U.S. District Court — Eastern District of Arkansas

87 F. 381

MASURY v. ARKANSAS NAT. BANK et al.

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

June 2, 1898

This cause is before the court on a demurrer to the bill and amended bills. The material facts necessary to a determination of the demurrer are: Hogaboom was the owner and holder of shares of stock of the Park Hotel Company, a corporation existing under the laws of the state of Arkansas and having its domicile in the county of Garland. That, of the shares thus owned by him, he held 400 shares evidenced by certificate No. 36. That the fact value of each share was $25. That in January, 1891, he borrowed the sum of $10,000 from the complainant, and executed his note therefore; and as security for this loan, he assigned and delivered to complainant certificate No. 36. That the loan was made and the shares assigned in the city of New York. and that bus a small part of the loan has been paid off. That complainant was not advised as to the laws of this state, which require transfers of corporate stocks to be recorded in the office of the county clerk of the county in which the corporation has its domicile. That in 1896 the defendant bank instituted a suit by attachment against the said Hogaboom for a large indebtedness due it from him, and that these 400 shares of stock evidence by certificate No. 36, assigned and delivered to complainant as security as aforesaid, were, with other stock standing in the name of said Hogaboom on the books of the corporation, seized by the sheriff under and by virtue of said writ of attachment issued and directed to him out of the circuit court of Garland county, in which court said suit was pending, as the property of said Hogaboom. That before making said levy the secretary of the Park Hotel Company, at the request of said sheriff, gave him a certificate that these 400 shares evidence by said certificate No. 36 appeared, with other stock, which it is unnecessary to mention here, on the books of the corporation in the name of said Hogaboom; and thereupon said shares were seized by the sheriff, under said writ, as the property of Hogaboom, the defendant in said writs, in the manner prescribed by the laws of the state, and a proper return made of the facts to the court. In due time said bank recovered a judgment against said Hogaboom, the attachment sued out at the beginning of the suit was sustained, and the sheriff ordered to sell the same. That in conformity with that order of the court the sheriff sold said 400 shares of stock, and the bank, the attaching creditor became the purchaser thereof; the complainant giving notice at the sale, and before the purchase of the bank, that she held the same as a pledge for the indebtedness due her from Hogaboom. The sale was duly reported to the court by the sheriff, and confirmed. That before the sale complainant applied to the secretary of the corporation for a transfer thereof, and a certificate of such transfer, in order that she might have it recorded; but he refused to make such transfer, or issue her a certificate, for the reason, as stated by him, that this stock had before then been attached by the sheriff as the property of Hogaboom, under the writ of attachment aforesaid. That complainant did not know that the laws of Arkansas required a transfer of corporation stock to be recorded, but through an assignment and delivery thereof sufficient to pass title. The prayer of the bill is that the sheriff's sale be canceled; that the corporation be compelled to execute to her a proper certification of transfer, in order that the same may be filed by her record; and that she have a foreclosure of her lien.

Rose, Hemmingway & Rose and John M. Moore, for complainant.

George G. Latta and Jacob Trieber, for defendants.

WILLIAM District Judge.

The only questions involved are whether, under the statutes of Arkansas, a seizure of shares of the capital stock of a corporation existing under the laws of that state, by virtue of a writ of attachment, or under execution, takes precedence over a prior transfer or pledge, not transferred on the books of the corporation, nor filed for record in the office of the county clerk of the county in which the corporation transacts its business, and whether the laws of this state govern such a transfer, if made in another state. As to the last proposition, learned counsel for complainant claim that Black v. Zacharie, 3 How. 483, is conclusive that the laws of New York, where the transfer was made, and not the laws of Arkansas, of which state the company was a corporation, control. The question involved in that suit was not that of a transfer of shares, but an assignment of the equity of redemption in stock previously assigned and delivered as a pledge. The court say:

'We admit that the validity of this assignment to pass the right to Black in the stock attached depends upon the laws of Louisiana (the domicile of the corporation), and not upon that of South Carolina (where the assignment was made). From the nature of the stock of a corporation, which is created by and under the authority of a state, it is necessarily, like every other attribute of the corporation, to be governed by the local law of that state, and not by the local law of any foreign state.'

Judge Lowell, speaking of the same subject, says:

'Whatever the general principles of international law in relation to assignments of personal claims may be, the validity of a transfer of stock is governed by the law of the place where the corporation is created. ' Lowell, Stocks, Sec. 50; Hammond v. Hastings, 134 U.S. 401, 10 Sup.Ct. 727; Green v. Van Buskirk, 7 Wall. 140.

I am therefore of the opinion that, unless the transfer of this stock is valid under the laws of Arkansas, the state which created the corporation, the laws of the state where the transfer was actually made cannot control. The statutes of this state regulating private corporations, and specially the transfer of stocks, are peculiar, and different from those of any state except Connecticut, from which state this statute was evidently taken. In that state it has always been held-- and it is the settled rule of that state-- that a transfer of corporation stock is void, against attaching creditors, unless made in strict conformity with the charter and by-laws of the corporation. Manufacturing Co. v. Smith, 2 Conn. 579; Northrop v. Turnpike Co., 3 Conn. 544; Turnpike Co. v. Bunnel, 6 Conn. 552; Dutton v. Bank, 13 Conn. 493; Shipman v. Insurance Co., 29 Conn. 253; Colt v. Ives, 31 Conn. 35; Platt v. Axle Co., 41 Conn. 255; First Nat. Bank of Hartford v. Hartford Life & Annuity Ins. Co., 45 Conn. 22.

Learned counsel for both sides have cited a large number of authorities as to the construction of charters which merely provide that 'no transfer of stock shall be valid, until transferred on the books of the corporation. ' The same provision is found in our statutes, and in section 1342, Sand. & H. Dig.; but counsel for defendants do not rely on this provision of the law, but base their demurrer on section 1338. As to the effect to be given to section 1342, the authorities are very conflicting; some holding that this provision is for the benefit of the corporation solely. In view of the legislature of this state having enacted section 1338 in addition to section 1342, it is only important to notice the fact that the courts holding that the latter section is only for the benefit of the corporation, in order that they may know who are its stockholders, entitled to vote at corporate elections and receive dividends, base their opinions principally on the fact that a creditor of a stockholder not a shareholder of the corporation has no access to the stock books, and no means to find out who are stockholders. No doubt, to meet these objections, and to leave no room for doubt, the legislature enacted the statutes now in force. Section 1338, Sand. & H. Dig., provides:

'Whenever any stockholder shall transfer his stock in any such corporation, a certificate of such transfer shall forthwith be deposited with the county clerk aforesaid, who shall note the time of said deposit and record it at full length in a book to be by him kept for that purpose; and no transfer of stock shall be valid against any creditor of such stockholder until such certificate shall have been so deposited.'

The language used is so clear and unambiguous that there is really nothing to construe. It shows, as clearly as language could express it, that this provision is intended for the benefit of the creditors of the stockholders. The requirement that the transfers shall be recorded in the county clerk's office meets the objection that the creditor,-- unless a stockholder,-- having no access to the stock books of the corporation, cannot know who are the stockholders; for, that being a public office, every citizen can at all times ascertain from the public records whether his debtor is a stockholder or not.

There is no doubt that the tendency of modern legislation is to make this class of instruments as near negotiable as possible; but the legislature of this state has seen proper to restrict their negotiability, and, under the laws of this state, the stock may have been canceled, although the certificate thereof is still outstanding. Section 1342 gives the corporation a lien on the stock for all debts due it from the stockholder, and this lien is superior to the rights of any purchaser or pledgee, even without notice. Oliphint v. Bank, 60 Ark. 198, 29 S.W. 460; Bank of Commerce v. Bank of Newport, 27 U.S.App. 486, 11 C.C.A. 484, and 63 F. 98. By the provisions of section 1353, the stock of one indebted to the corporation may be sold for such...