McClung v. Colwell

• Decision Date: 26 October 1901
• Citation: 64 S.W. 890
• Parties: McCLUNG et al. v. COLWELL et al.
• Court: Tennessee Supreme Court

64 S.W. 890

McCLUNG et al. v. COLWELL et al.

Supreme Court of Tennessee.

October 26, 1901.

Appeal from chancery court, Knox county; Joseph W. Sneed, Chancellor.

Attachment by C. M. McClung & Co. and others against B. S. Colwell and others. Decree for defendants, and complainants appeal. Affirmed.

Green & Shields, for appellants. Webb, McClung & Baker, for appellees.

McALISTER, J.

Complainants, as creditors of B. S. Colwell, are seeking by this attachment bill to subject to the satisfaction of their claim 165 shares of stock in the Southern Car & Foundry Company, standing in the name of the defendant B. S. Colwell. The attachment was levied on the stock while in the hands of defendant W. P. Chamberlain, and notice of the attachment given to Colwell and the Southern Car Company. On the 14th of May, 1901, J. D. Case intervened in said cause by petition, asserting title to said stock under a pledge made to him by defendant Colwell. Case, it appears, had become the indorser of Colwell on notes amounting to $5,070; and, to indemnify Case, Colwell had delivered to him, as collateral security, 90 shares of the preferred stock of the Lenoir Car Company, represented by 9 certificates, each for 10 shares. Some of these shares Case had held for some time prior to that date. All of these certificates had been properly indorsed by Colwell and delivered to Case. It further appears that in December, 1900, the Lenoir Car Company was consolidated with the Southern Car & Foundry Company, and new stock was issued by the Southern Car & Foundry Company in lieu of stock of the Lenoir Car Company. The court of chancery appeals found that Colwell had informed Case of the proposed exchange, and the latter agreed that the stock which Case held as collateral security should be exchanged for new stock in the Southern Car & Foundry Company, into which the Lenoir Car Company had become merged. It was agreed between Colwell and Case that the 165 shares of preferred stock to be issued by the Southern Car & Foundry Company for the 90 shares in the Lenoir Car Company would be turned over to Case, and that the cash paid as dividends on the old stock should be received by Case. It was then agreed that Case should turn over to Colwell for exchange the old stock which the former held as collateral, and that, in effecting the exchange, Colwell should act as the agent of Case. It appears that at this time the old stock was standing on the books of the Lenoir Car Company in the name of Colwell, never having been transferred, but the shares had been signed and indorsed by Colwell. It was further agreed that the new stock in the Southern Car Company was to be issued in Case's name. Case, with the understanding as already stated, turned over the 90 shares of stock in the Lenoir Car Company to Colwell for exchange for the new stock. One hundred and sixty-five shares of preferred stock in the new company were then issued in the name of Colwell, covered by certificate No. 49. This stock while in the hands of W. P. Chamberlain, president of the new company, was attached in this suit by complainants McClung et al. as creditors of Colwell. The Southern Car & Foundry Company and the Lenoir Car Company had no notice of Case's claim on the stock at the time of the attachment. So that upon this statement the legal question presented is the superiority of the claim of the attachment creditor or the pledgee of the stock.

The court of chancery appeals held that the stock in the Lenoir Car Company had by the pledge and arrangement of the parties become the property of Case; that the certificates of stock issued by the new company were paid for by the surrender of the stock of the old company, which was the property of Case, and the understanding was that the title of these new certificates or shares should at once vest in Case, to be held under the same arrangement and pledge that the stock of the old company had been held. It was accordingly held: First, that in contemplation of law the title to the new stock passed, as between Case and Colwell and the creditors of Colwell, to Case; second, that, if the first proposition be not sound, the new stock was impressed with a resulting or constructive trust by operation of law in the hands of Colwell, and that the rights of Case thereunder were superior to those of attaching creditors. Complainants appealed, and their first assignment of error is that the court of chancery appeals erred in holding as a conclusion from the facts stated in their opinion that J. D. Case turned over the stock of the Lenoir Car Company to the defendant B. S. Colwell as agent for the purpose of having the Southern Car & Foundry Company stock substituted therefor; second, that said court erred in holding that the principle of resulting and constructive trusts applies to certificates of stock, and that the stock of the Southern Car & Foundry Company was impressed with such a trust in the hands of the defendant Colwell; third, that said court erred in holding that the rights of said J. D. Case to the stock of the Southern Car & Foundry Company were superior to those of the complainants.

It is argued on behalf of appellant that when complainants attached the said stock of the Southern Car & Foundry Company it was standing on the books in the name of the defendant Colwell, who was the ostensible owner of it, and clothed with all the indicia of title, and that complainant's right to the stock under its attachment cannot be defeated by a secret pledge or agreement between the debtor and another party. Counsel cite in support of this position Young v. Iron Co., 85 Tenn. 189, 2 S. W. 202, 4 Am. St. Rep. 752; Cates v. Baxter, 97 Tenn. 447, 37 S. W. 219. It is conceded in the case at bar that if the new stock had been indorsed to Case, or if its transfer had been made on the books of the company, and it had been actually delivered to him, his title would prevail. But there being no indorsement and delivery of the new stock to Case, and no transfer to him on the books of the company, his claim is subordinate to that of complainants. It is argued that there was simply an unperformed executory agreement between Colwell and Case that the new stock, when...