Shinsaku Nagano v. McGrath

• Decision Date: 04 April 1951
• Docket Number: No. 10005.,10005.
• Parties: SHINSAKU NAGANO v. McGRATH, Atty. Gen.
• Court: U.S. Court of Appeals — Seventh Circuit

187 F.2d 753 (1951)

SHINSAKU NAGANO v. McGRATH, Atty. Gen.

No. 10005.

United States Court of Appeals Seventh Circuit.

February 26, 1951.

Rehearing Denied April 4, 1951.

C. Lysle Smith, Edward R. Johnston, Chicago, Ill., for appellant.

Harold I. Baynton, Department of Justice, Office of Alien Property, Washington, D. C., Otto Kerner, Jr., U. S. Atty., Chicago, Ill., James L. Morrisson, Geo. B. Searls, Attys., Department of Justice, Washington, D. C., for appellee.

Before DUFFY, FINNEGAN and LINDLEY, Circuit Judges.

LINDLEY, Circuit Judge.

Plaintiff, a Japanese alien resident of the United States since 1906, appeals from a judgment dismissing his action, brought under Section 9(a) of the Trading with the Enemy Act, 50 U.S.C.A.Appendix, § 9(a), for the return of 8780 shares of the common stock of The Fuji Trading Company, an Illinois corporation. The stock had been seized by the Alien Property Custodian on February 2, 1943, pursuant to authority conferred on him by the aforementioned Act and Executive Order No. 9095, 50 U.S.C.A.Appendix, § 6 note, 7 F.R. 1971, on the basis of his finding that the shares were the property of plaintiff's wife, Kaku Nagano, whom he found to be a national of a designated enemy country, i. e., Japan. The complaint was drawn on the theory that plaintiff was entitled, as owner, to recover 3105 of the 8780 shares seized, and, as bailee for his wife, to have returned to his possession the remaining 5675 shares. This appeal, however, involves only plaintiff's right to the shares which he claims as his own property, for his right to the possession of the balance of the stock as bailee for his wife is totally dependent on her rights as owner, and those rights have been made the subject of a separate appeal from the dismissal of her independent action for the return of the stock owned by her, decision upon which accompanies this opinion.

Plaintiff was admitted to the United States as a permanent resident in 1906 and has resided continuously since that date in Chicago, where he has engaged in the manufacture and sale of oriental food products. Though in 1912, he caused to be incorporated The Fuji Trading Company, he continued to conduct his business as an individual proprietorship until 1920, at which time it was transferred to the corporation, which has become one of the leading companies in its field. In 1914, the plaintiff visited Japan and was there married. Mrs. Nagano did not immediately return with him to the United States but remained in Japan until after the birth of their daughter, Masako, and then, in 1915, came to the United States, entering as a permanent resident and joining her husband in Chicago, where their son, Shigeo, was born in 1916. A second daughter, Takako, was born in Japan while the Naganos were there on a visit in 1919.

With the passage of the Immigration Act of 1924, 43 Stat. 153, 8 U.S.C.A. § 145 et seq., which made it impossible for plaintiff's daughters, born in Japan and never previously admitted to the United States as permanent residents, to join their parents in this country, it was decided that plaintiff's wife should go to and remain in Japan to care for the daughters, their grandmother, with whom they were then lodged, having become ill, until such time as their marriages could be arranged, and, at the same time, to supervise the schooling of their son, plaintiff being of the opinion that a Japanese education was essential in preparing the son for management of the business which would eventually be his. Plaintiff, meanwhile, remained in Chicago, although he made annual visits to Japan to see his family and to arrange for the importation of supplies and materials to meet the needs of his company during the succeeding year.

In the years subsequent to plaintiff's transfer of the business to The Fuji Trading Company, the corporation's issued stock was from time to time increased until, at the beginning of 1932, there were 10,000 shares outstanding, 6210 owned by plaintiff, 3780 by his wife, and 10 by Mrs. Nagano's brother, Miya, the company's production manager. On January 3, 1932, the corporation declared a 50% stock dividend, directing that 5000 shares be distributed to the stockholders of record in proportion to their respective holdings. This would have entitled plaintiff to a distribution of 3105 additional shares, his wife to 1890 shares and Miya to 5 shares, thus increasing their holdings to 9315, 5670 and 15 shares respectively. The stock was not, however, issued in accordance with the terms of the resolution, but plaintiff, who dominated the corporation to such an extent that the trial court found that "The corporation was for all practical purposes the alter ego of the plaintiff," caused a single certificate for 5000 shares to be issued in the name of his wife, who was then in Japan, thus making her the record owner of 8780 shares. The certificate was never actually delivered to the wife, but was kept by plaintiff, at first in his office safe and later in his safe deposit box. Mrs. Nagano was never informed of the issuance of the certificate and testified that she never knew of its existence. In 1936, the corporation declared a cash dividend of 20 cents per share and, in conjunction with the dividend, the company's journal reflects the payment to Mrs. Nagano of $1756 (20 cents per share on 8780 shares). Her income tax return for 1936 reported the receipt of that amount, but plaintiff testified that the dividend was actually paid in one $3000 check which he deposited in his personal bank account.

At the time of the outbreak of the war with Japan, Mrs. Nagano having not yet returned to this country, the Alien Property Custodian vested the 8780 shares of stock of which she was the record owner, these shares representing the majority of the company's outstanding stock. The vesting order was issued subsequent to plaintiff's filing of an application for a license for the transfer to him of the 5000 shares represented by the certificate issued in his wife's name in 1932.

At the trial, plaintiff testified that, in 1932, he had no intention of making an immediate gift to his wife of the shares represented by the stock certificate issued in her name and argued that the fact that the certificate had never been delivered to his wife was further evidence that there had been no completed gift to her, but the court, relying on the rule announced in Chicago Title & Trust Co. v. Ward, 1928, 332 Ill. 126, 163 N.E. 319, held that the issuance of the certificate in the wife's name constituted effective delivery and, rejecting plaintiff's testimony on the question of donative intent, concluded that plaintiff had made an effective gift of the 3105 shares he now claims as his own. The court further indicated that, because there were discrepancies in certain statements made by plaintiff in his affidavit submitted in connection with his application to the Treasury Department for transfer of the shares issued in his wife's name and the position he has taken in this litigation, it was of the opinion that he should be denied relief. Finally, the court concluded that plaintiff had no right to the possession of the shares admittedly owned by his wife, — a conclusion which, in view of the wife's assertion of her own claim and plaintiff's abandonment, on oral argument, of his claim asserted as bailee for her, we need not review on this appeal.

While it is true that the Illinois court, in Chicago Title & Trust Co. v. Ward, 332 Ill. 126, 134, 163 N.E. 319, 322, stated that "So far as the question has been considered, this court is committed to the doctrine that a transfer of shares on the books of the corporation passes the legal title to the person named in the stock certificate," it should be noted that the Ward case, although decided more than ten years after the adoption in Illinois of the Uniform Stock Transfer Act, Smith-Hurd Ann.St. Ch. 32, Sec. 416 et seq. (1917), involved a transfer which had taken place in 1895, long prior to the passage of the Act, and that the decision, which contains not a single reference to the statute, does not purport to be one under the Act. And while there is, apparently, no authoritative decision considering the statute's effect on the doctrine of the Ward case,¹ the plain language of the statute itself makes it obvious, we think, that the rule announced in that case is no longer the law of Illinois. Section 1 of the Act provides that title to a certificate of stock and to the shares represented thereby can be transferred only by delivery of the certificate properly endorsed or by delivery of the certificate and a separate written assignment or power of attorney, and these provisions are declared to be applicable even though the corporation's articles or by-laws expressly provide that the shares are transferable only on the books of the corporation. Section 10 provides that an attempted transfer of title to a certificate or to the shares represented thereby, without delivery of the certificate, shall have the effect only of a promise to transfer, the enforceability of which is to be determined by the law of contracts. These provisions of the Act are utterly irreconcilable with the statement, in the Ward case, that "a...