Stuart v. Sargent

• Decision Date: 05 July 1933
• Citation: 186 N.E. 649,283 Mass. 536
• Parties: STUART et al. v. SARGENT.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

283 Mass. 536

186 N.E. 649

STUART et al.

v.SARGENT.

Supreme Judicial Court of Massachusetts, Suffolk.

July 5, 1933.

Appeal from Superior Court, Suffolk County; A. R. Weed, Judge.

Bill by Earl G. Stuart and another against Ledyard W. Sargent, to which defendant filed a counterclaim. From a decree for defendant on his counterclaim, plaintiffs appeal.

Affirmed.

D. Greer, of Boston, for appellants.

R. S. Wilkins, of Boston, for appellee.

LUMMUS, Justice.

The plaintiffs having waived their claim, made in their bill, to fifty shares of stock of the American Telephone & Telegraph Company, the only question argued is whether the defendant can maintain his counterclaim, included in his answer under Rule 32 of the Superior Court (1932), for the amount of dividends received by the plaintiffs on that stock while it stood on the books of the corporation in the names of the plaintiffs.

The plaintiffs had a margin account with the banking and brokerage firm of Curtis & Sanger, and as security therefor the firm held two certificates, of said stock, of forty-four shares and six shares respectively, in the names of the plaintiffs and indorsed by them in blank. So far as appears the plaintiffs owned no other stock in that company.Between September 15, 1931, and September 22, 1931, the firm sold for the account of the plaintiffs upon their order fifty shares of said stock for the net price of $7,091.38, which sum was then and still remains credited to the account of the plaintiffs, according to the books of the firm and to statements then sent to the plaintiffs. This credit extinguished the indebtedness of the plaintiffs to the firm, and gave the plaintiffs a net credit balance of $950.40. The firm never delivered the certificates to the purchaser, who like the firm was member of the Boston Stock Exchange, because it was found that their accounts were in balance without such delivery. The firm, therefore, had the right to retain the fifty shares.

The defendant was entitled to receive from the firm one hundred and twenty-five shares of stock of said company, among other securities, which had been bought by him in June, 1931, through the firm, and fully paid for. On September 24, 1931, the defendant directed the firm to have all the securities transferred into his name. As to the one hundred and twenty-five shares, the firm did not have the shares transferred, but did segregate certificates of said stock to the amount of one hundred and twenty-five shares and put them away, marked with the name of the defendant, in a special box which also was marked with the name of the defendant. Two of the certificates so segregated, marked and put away were the certificates in the names of the plaintiffs, already described.

Upon an involuntary petition, filed October 5, 1931, the firm was adjudicated bankrupt on October 19, 1931. On June 13, 1932, on a reclamation petition brought by the present defendant, the referee in bankruptcy, after an uncontested hearing, ordered said certificates turned over to the defendant, and this order was obeyed. Shortly after June 22, 1932, a new certificate including those fifty shares was obtained in the name of the defendant.

After the sale of the fifty shares at the order of the plaintiffs in September, 1931, and before the shares were transferred on the books of the company into the name of the defendant in June, 1932, dividends on those shares became due, and were received by the plaintiffs, to the amount of $348.75. The final decree dismissed the plaintiffs' bill, and ordered the plaintiffs to pay that sum to the defendant with interest from July 16, 1932, the date of demand upon the plaintiffs, and the plaintiffs appealed. The plaintiffs claim no right to the dividends, but contend that no title to the certificates or the shares passed to the defendant until the delivery of the certificates to the defendant upon the order of the referee in June, 1932, and that the trustee in bankruptcy and not the defendant is the proper claimant of the dividends received in the meantime. It is asserted by the defendant in his brief, although the record does not disclose the fact, that the object of the plaintiffs in making this contention is to require a new action to recover the dividends, brought by the trustee in bankruptcy, and then to declare in set-off for the balance due to the plaintiffs from the firm. Whether such a set-off could be allowed is not before us. See Remington, Bankruptcy (3d Ed.) §§ 1454, 1458.

The referee in bankruptcy, on the reclamation petition of the defendant, had authority to determine the title to the stock. Weidhorn v. Levy, 253 U. S. 268, 271, 272, 40 S. Ct. 534, 64 L. Ed. 898;Daniel v. Guaranty Trust Co., 285 U. S. 154, 52 S. Ct. 326, 76 L. Ed. 675;McDonald v. Plymouth County Trust Co., 286 U. S. 263, 52 S. Ct. 505, 76 L. Ed. 1093;Mitchell v. Mitchell (C. C. A.) 59 F.(2d) 62, 65. The plaintiffs urge, however, that they are not bound by that adjudication because they were not parties to it, and, further, that it did not extend to the dividends. We need not consider whether a determination of the title to the stock on which the dividends accrued, made between the only possible claimants (the plaintiffs having abandoned their claim), can be ignored by the plaintiffs, who seek to attribute rights to the trustee in bankruptcy which the tribunal having jurisdiction over his rights has decided to be nonexistent. See Hannaford v. Charles River Trust Co., 241 Mass. 196, 134 N. E. 795; Id., 248 Mass. 225, 142 N. E. 822. The present case can be rested on the merits of the original transaction, without reliance on res judicata or any cognate doctrine.

We assume that until the transfer of the stock to the defendant was registered on its books, the corporation was entitled to pay dividends to the plaintiffs. G. L. (Ter. Ed.) c. 155, § 29(a); New York Personal Property Law (Consol. Laws N. Y. c. 41) § 164(a). But the plaintiffs, having transferred their stock, were not entitled to retain the dividends received. Such dividends belonged to the real owner of the stock, in the absence of contract to the contrary. Richter & Co. v. Light, 97 Conn. 364, 116 A. 600;Jermain v. Lake Shore & Michigan Southern Railway, 91 N. Y. 483;Hopper v. Sage, 112 N. Y. 530, 20 N. E. 350,8 Am. St. Rep. 771;Ford v. Snook, 205 App. Div. 194, 199 N. Y. S. 630, affirmed 240 N. Y. 624, 148 N. E. 732. See, also, Nutter v. Andrews, 246 Mass. 224, 227, 142 N. E. 67; Ward v. Blake, 247 Mass. 430, 433, 142 N. E. 52;Anderson v. Bean, 272 Mass. 432, 444, 172 N. E. 647, 72 A. L. R. 959;Union & New Haven Trust Co. v. Watrous, 109 Conn. 268, 146 A. 727; note, 60 A. L. R. 703. If the defendant in this case was entitled to the dividends, either at law or in equity, an action of contract upon a common count for money had and received to his use afforded the natural remedy. Sherman v. Werby, 280 Mass. 157, 160, 182 N. E. 109, and cases cited. When sued in equity for the stock, the defendant, if entitled to the dividends, could claim them by counterclaim under Rule 32 of the Superior Court (1932). It is immaterial, as it was with a cross-bill under the earlier equity practice, whether the right set up by counterclaim is legal or equitable, where it arises out of the transaction which is the subject-matter of the suit. Francis v. Hazlett, 192 Mass. 137, 144, 78 N. E. 405,116 Am. St. Rep. 230;North British & Mercantile Ins. Co. v. Lathrop (C. C. A.) 70 F. 429;Weathersbee v. American Freehold Land Mortgage Co. (C. C.) 77 F. 523;Howard v. Leete (C. C. A.) 257 F. 918;Clifton v. Tomb (C. C. A.) 21 F.(2d) 893, 898.

The decisive question is, therefore, whether by the act of the firm in segregating the certificates and marking them with the name of the defendant, he acquired title to them and to the shares represented by them, either at law or in equity. The corporation was created by the laws of New York, but the certificates were in Massachusetts. The question which law governs a transfer in such case has been the subject of fairly recent discussion. Direction der Disconto-Gesellschaft v. United States Steel Corp. (D. C.) 300 F. 741, 745, affirmed 267 U. S. 22, 28, 29, 45 S. Ct. 207, 69 L. Ed. 495; Guaranty Trust Co. of New York v. Fentress (C. C. A.) 61 F.(2d) 329, 333, 334; Husband v. Linehan, 168 Ky. 304, 181 S. W. 1089, Ann. Cas. 1917D, 954. See, also, First National Bank v. Maine, 284 U. S. 312, 52 S. Ct. 174, 76 L. Ed. 313. No difficulty on that score arises, however, because in both states the Uniform Stock Transfer Act has been adopted in identical terms in all material respects. G. L. (Ter. Ed.) c. 155, §§ 22-44, and especially the definitions of ‘Certificate’ and ‘Shares' in section 26; New York Personal Property Law, §§ 162-185; Barstow v. City Trust Co., 216 Mass. 330, 334, 103 N. E. 911;Boston Safe Deposit & Trust Co. v. Adams, 224 Mass. 442, 446, 113 N. E. 277, L. R. A. 191...