Morris v. Kaiser

• Decision Date: 22 August 1974
• Citation: 299 So.2d 252,292 Ala. 650
• Parties: , 15 UCC Rep.Serv. 469 Bobby A. MORRIS v. Herbert KAISER et al. SC 501.
• Court: Alabama Supreme Court

Page 252

299 So.2d 252

292 Ala. 650, 15 UCC Rep.Serv. 469

Bobby A. MORRIS v. Herbert KAISER et al.

SC 501.

Supreme Court of Alabama.

Aug. 22, 1974.

Kenneth L. Funderburk, Phenix City, for appellant.

Smith & Smith, Phenix City, Hatcher, Stubbs, Land, Hollis & Rothschild, Columbus, Ga., for appellees.

McCALL, Justice.

This is an action in detinue instituted by the appellant Bobby A. Morris initially against the Farmers and Merchants Bank or Russell County, a corporation (Bank), to recover in specie fifteen separate securities in bearer form of a total face value of $77,000, consisting of United States Treasury Bonds and Federal National Mortgage Association Capital Debentures, each identified by a specific number.

Through its president, the defendant Bank filed an affidavit disclaiming title to the property sued for and deposing that the appellees, who then were not parties to the suit, claimed these securities. The appellees voluntarily came in and made themselves defendants to the suit, claiming the securities which the Bank had deposited with the clerk of the circuit court. The Bank was thereupon discharged by the court as a defendant. See Code of Ala., Tit. 7, § 933.

The trial of the case proceeded against the present appellees before the judge who heard the oral testimony of the witnesses and the evidence that was presented in open court without the intervention of a jury. At the conclusion of the evidence, the court found that the issues were triable under the provisions of the 'Uniform Commercial Code-Investment Securities,' Code of Ala., Tit. 7A, § 8--101 et seq., and entered judgment for the appellees-defendants, holding that the court was satisfied that the appellant did not receive delivery of the bearer bonds, the subject matter of the suit, and that the appellant never acquired both possession and transfer of title to the bearer bonds prior to the death of Dr. Irving R. Kaiser, the person through whom the appellant claimed. The court further held that the appellees, who were the two brothers and sister of Dr. Kaiser, were entitled to the securities and ordered the clerk of the circuit court to deliver them to the appellees' attorney upon his filing in court releases from his clients and the First National Bank of Commerce in New Orleans, Louisiana. The releases were to run in favor of the circuit clerk.

The appellant's assignment of errors 1 through 7 charge in essence that the court erred in dismissing his suit. Assignment 4 asserts error in holding that the appellant did not receive delivery of the securities, and assignment 5, in holding that the appellant did not receive both delivery and transfer of the title to the securities.

The appellant's first contention is that he became a bona fide purchaser for value of the securities and received delivery of them, the concept being that a constructive or symbolic delivery occurred when Dr. Irving R. Kaiser executed and delivered a written bill of sale to him on November 15, 1971, in which Dr. Kaiser warranted and guaranteed his titles to the securities to be clear and free of all claims and encumbrances. The appellant argues that the bill of sale, executed by Dr. Kaiser, treated the securities in the same manner that Dr. Kaiser would have treated a conveyance of a T.V. set or an automobile. The several securities were not actually delivered in physical form to the appellant with the bill of sale. They, at that time, were physically in the custody of the Farmers and Merchants Bank of Russell County where they remained until the Bank deposited them with the circuit clerk. Dr. Kaiser died on December 29, 1971, and the appellant filed this action on January 4, 1972, to recover the securities in specie.

The appellant's correlated argument is that his constructive possession of the securities, with his right to have actual delivery of them, equated their physical delivery to him, and, being without notice of any adverse claim by the appellees, he was a bona fide purchaser for value, free from any adverse claim on the part of the appellees. See Code of Ala., Tit. 7A, § 8--302, defining a bona fide purchaser of a security in bearer form. He asserts that the appellees' defense, setting up an adverse claim, was and is therefore meaningless, and that the entire question of the interpretation of the documents which the appellees introduced at the trial for the purpose of showing their interest or estate in the securities is not material since the total thrust of the appellees' interpretation is an attempt to show that Dr. Kaiser had no title in the securities to convey to the appellant.

As found and held by the trial court, we also are of the opinion that the Uniform Commercial Code-Investment Securities, Code of Ala., Article 8 of Tit. 7A, is applicable and governs this case. The instruments involved are admittedly bearer bonds. A bearer bond is a security which is defined in Section 8--102 as an instrument which is issued in bearer form, is of a type commonly dealt in or recognized as a medium for investment, is of a class or series of instruments, and evidences, an obligation of the issuer. A 'security' is in 'bearer form' when it runs to bearer according to its terms and not by reason of any endorsement. A 'bearer' means the person in possession of an instrument, document of title, or security payable to bearer or endorsed in blank. Section 1--201. In order to be a 'bona fide purchaser' so as to acquire the rights of his transferor, and in addition, the security free of any adverse claim, the purchaser must be one who purchased the security for value in good faith and without notice of any adverse claim, and, he must take delivery of the security. See Section 8--302. 'Delivery' is defined in Section 1--201 as follows: "Delivery' with respect to instruments, documents of title, chattel paper or securities means voluntary transfer of possession.' Delivery to a purchaser occurs when he, or a person designated by him, acquires possession of the security. Section 8--313(1)(a).

Contrary to the appellant's insistance that investment securities are to be treated in the same manner under Article 2 as one would deal with a T.V. set or an automobile, Article 2 of the Uniform Commercial Code-Sales expressly excludes securities from its operation. See Section 2--105. We cannot agree therefore that a bill of sale of the securities is sufficient to constitute delivery within the purview of the statute defining a bona fide purchaser of securities.

Article 8, Uniform Commercial Code-Investment Securities, Code of Ala., Tit. 7A, § 8--302, provides as follows:

'A 'bona fide purchaser' is a purchaser for value in good faith and without notice of any adverse claim who takes delivery of a security in bearer form or of one in registered form issued to him or indorsed to him or in blank.'

With respect to the appellant's position, it is essential that he must have taken delivery of the securities in bearer form. The delivery alluded to in Section 8--302 means voluntary transfer of possession of the securities. See Code of Ala., Tit. 7A, § 1--201, which contains definitions having applicability to those words or terms therein whenever they are used throughout the Uniform Commercial Code, including Article 8, which deals with Investment Securities. See Sections 8--102(6).

The applicable portion of Section 8--313 of the Code prescribes when delivery occurs. It states:

'(1) Delivery to a purchaser occurs when

'(a) he or a person designated by him acquires possession of a security; or

'(d) with respect to an identified security to be delivered while still in the possession of a third person when that person acknowledges that he holds for the purchaser; * * *'

It is quite clear to us that the appellant never became a bona fide purchaser because he never took delivery of the securities by acquiring actual physical possession of them. They remained in the possession of the Bank, and the Bank did not at any time acknowledge that it held the securities for the purchaser. The appellant acquired possession of the purported bill of sale to the securities, but he did not acquire delivery and possession of the securities themselves. Delivery to a purchaser only occurs when he or a person designated by him acquires actual physical possession of a security. See Section 8--313(1)(a).

We think that the case of Kaufman v. Diversified Industries, Inc., 2 Cir., 460 F.2d 1331, 1334, cert. den. 409 U.S. 1038, 93 S.Ct. 517, 34 L.Ed.2d 487, is an appropriate authority for our conclusion. In Kaufman, the court held there could be no delivery of investment securities where physical delivery was not made to the purchaser or to one designated by him. In the opinion the court said:

'(1) The threshold question is whether, as a matter of law, Diversified breached its contractual obligations. There is no dispute that physical delivery of shares did not occur until August 1. Diversified contends that the May 5 letter and other actions it took in preparation for physical delivery constituted 'delivery' of shares for purposes of the agreement. Judge Levet, however, excluded evidence that Diversified took immediate steps to perform including evidence that it notified the New York Stock Exchange (with whom a listing was pending) that additional shares had been reserved for issuance to the former Datatron shareholders.

'None of the excluded evidence, however, would have turned the issue of delivery into a jury question. Section 1--201 of the Uniform Commercial Code (McKinney 1964), the general definitional section, defines delivery with respect to securities as 'voluntary transfer of possession.' More specifically, § 8--313(1)(a) provides that delivery occurs when a person acquires possession of a security. Although § 8--313(1)(d), relied upon by Diversified, broadens delivery to include possession by a third person for the account of another, that is obviously not the case here. It was...