Martha Kight Dutcher v. Dutcher-Phipps Crane & Rigging, Inc., 510 S.W.3d 592

Background

Dutcher-Phipps Crane & Rigging, Inc. was owned equally by two family limited partnerships; Dutcher FLP held 2000 shares. In 1998 Paul K. Dutcher transferred his company shares to Dutcher FLP and received partnership interests, holding those interests as trustee of two living trusts.
Over time Paul gifted limited partnership interests to his four children so that by 2011 the two trusts held 20% of Dutcher FLP (400 shares) and the children held 80%.
To convert the corporation to S-corp status, the partnership conveyed its 2000 shares to partners pro rata by a written instrument dated December 13, 2011; the instrument instructed the corporate secretary to transfer shares accordingly. The 400 shares attributable to the trusts were listed to Paul (but not identified as trustee) on a stock certificate.
The stock certificate was issued to Paul personally, was in Martha Dutcher’s possession when Paul died in 2013, and was corrected six months later to show Paul as trustee of Trust One; corporate records were also corrected.
Martha (surviving spouse) sued claiming the 400 shares were part of Paul’s residuary estate because the certificate named him individually; appellees (company, Kenneth, Robin) argued the shares vested in Paul as trustee and the individual designation was a mistake or ineffective to transfer to him personally.
The trial court declared the shares were owned by Paul in his capacity as trustee; the court of appeals affirmed.

Issues

Issue	Plaintiff's Argument (Martha)	Defendant's Argument (Appellees)	Held
Who owned the 400 shares after the December 2011 transfer?	The stock certificate and conveyance instrument named Paul individually, so he owned the shares and they passed to Martha as residuary beneficiary.	The partnership transfer and surrounding circumstances show the 400 shares vested in Paul only as trustee; the individual designation was inconsistent with parties’ intent.	Court held the shares vested in Paul as trustee based on overall intent and instruments; certificate alone did not control.
Does Article 8 UCC control so possession of the certificated stock gave Paul individual ownership?	Because Paul (individually) possessed the certificated security, Article 8 makes him the purchaser and owner; corrected certificate cannot divest Martha.	Article 8 is not exclusive; common-law rules on intent and transfer can govern; Paul was not a purchaser of the shares in his individual capacity.	Court held Article 8 did not defeat the common-law and factual showing that the transfer was intended to vest the shares in Paul as trustee.
Did appellees need to prove mutual mistake or reformation to prevail?	Appellees alleged scrivener’s error but failed to obtain findings of mutual mistake or sufficient evidence of mistake.	There was no agreement to transfer the shares to Paul individually, so reformation/mutual mistake was unnecessary; the original transfer never intended individual ownership.	Court held no underlying agreement to transfer to Paul individually existed, so appellees did not need to prove mutual mistake; trial court’s factual findings supported intent.

Key Cases Cited

Bakke v. Harvison, 417 S.W.3d 645 (Tex. App.—El Paso 2013) (stock certificate is only evidence of ownership; courts may look to overall facts to determine ownership)
Hydroscience Tech., Inc. v. Hydroscience, Inc., 401 S.W.3d 783 (Tex. App.—Dallas 2013) (formal certificate is not dispositive of share ownership; intent controls)
Krainz v. Kodiak Res., Inc., 436 S.W.3d 325 (Tex. App.—Austin 2013) (ownership determined from parties’ nature, relationship, and representations)
Greenspun v. Greenspun, 194 S.W.2d 134 (Tex. Civ. App.—Fort Worth 1946), affirmed, 198 S.W.2d 82 (Tex. 1946) (title to stock may pass without delivery of certificate; courts examine intent and symbolic delivery)
Cherokee Water Co. v. Forderhause, 741 S.W.2d 377 (Tex. 1987) (reformation corrects writing that does not reflect parties’ actual agreement)
Simpson v. Curtis, 351 S.W.3d 374 (Tex. App.—Tyler 2010) (mutual mistake requires both parties to share the same misconception)