168 Ky. 304 | Ky. Ct. App. | 1916
Opinion of the Court by
— Affirming.
The appellee, J. J. Lineban, and one C. J. Warnock, both residents of Pennsylvania, on January 8, 1909, borrowed from the State Bank & Trust Company, of Kieh-mond, Kentucky, $5,000.00, for which they executed their joint and several note, payable three months after date. Collateral security for its payment, consisting of a certificate for fifty shares of stock 'in the Big Hill Coal Company, issued to Linehan and Warnock jointly, was placed by them with the bank. Warnock died in August, 1909, testate, and his widow, Minnie C. Warnock, qualified as the executrix of his will. The note, which matured before Warnock’s death* not having been paid, suit was brought thereon by the State Bank & Trust Company in the Madison circuit court against Linehan, and War-nock’s executrix, September 7, 1909. Personal service of summons was obtained on Linehan, but Warnock’s. executrix was only constructively summoned. The bank recovered in the action a personal judgment against Linehan for $5,000.00, the amount of the note, with interest, and for the enforcement of its lien upon the collateral pledged by the makers as security for its payment,- the judgment directing a sale of the fifty shares
On July 6-, 1910, the State Bank & Trust Company instituted a second action in the Madison circuit court against Linehan and Warnock’s executrix, seeking to enforce the payment of the balance due on its judgment obtained in the first action; it being alleged in the petition that Linehan owned 625 shares of stock in and $3,100.00 of the bonds of the Wallsend Coal & Coke Company — a Kentucky corporation — which, by reason of the non-residence and insolvency of Linehan, should be subjected to the bank’s judgment. To this end the bank caused an attachment to be issued, which was attempted to be. levied on the stock and bonds in question by delivering a copy thereof, by way of process of garnishment, to the Wallsend Coal & Coke Company. Linehan and Warnock’s executrix w'ere only constructively sum-' moned in this action. The court seems to have adjudged in this case that the State Bank & Trust Company was entitled to a lien on the 625 shares of stock in and $3,100.00 of the bonds of the Wallsend Coal & Coke Company described in the petition, for the payment of the balance due on its judgment against Linehan, which it directed its master commissioner to sell for the purpose of discharging the unpaid balance of its judgment. The commissioner advertised the sale of the stock and bonds for December 29, 1910, but before the sale the State Bank & Trust Company sold and assigned, in writing, all its interest in the unpaid judgment and all of its rights and equities acquired in the second action to the appellant, P. M. Husband. After his purchase of the judgment mentioned appellant discontinued the proceeding for the 'sale of the stock and bonds by the master commissioner and same were never sold by the latter.
Matters remained in this condition until May 17,1911, on which date F. M. Husband instituted in the Madison circuit court, against Linehan and the Wallsend Coal & Coke Company the present action,' stating in the petition the facts involved and steps taken in the two actions brought by the State Bank & Trust Company first men
The Wallsend Coal & Coke Company, answering as garnishee, in substance, alleged' that on the date of the service of the attachment and for some time prior to the institution of the action, Linehan held, as shown by its books, 625 shares of its capital stock, of the par value of ten dollars a share; that on each of the certificates of stock there appeared the following printed statement: “Transferable only on the books of the corporation by the holder hereof in person, or by attorney, upon surrender of this certificate properly endorsed,” and that this stock had nót, to its knowledge, been sold or assigned. That at the time the attachiñent was served Linehan owned, as shown by its books, certain of its bonds to the amount and value of $3,100.00, exclusive of unmatured coupons; and finally, that it, the Wallsend Coal & Coke Company, had no interest in' the litigation and had sold all of its property and assets to a corporation knówn as the New Continental Coal Company, with a view to going out of business, and that the latter company had paid a part of the agreed consideration on such purchase.
After the filing of the answer of the Wallsend Coal & Coke Company, on the motion of the plaintiff, Husband, an order was entered by the circuit court requiring the defendant, Wallsend Coal & Coke Company, to hold enough of the purchase price of its property and assets to satisfy any judgment that might be awarded against Linehan or it in the case. Linehan filed an
Shortly after the filing of Linehan’s answer, the ap--pellees, J. B. Garden, Richard Robertson, C. W. Welty, George E. House and Samuel Noyes filed an intervening petition and by virtue thereof were made defendants to the action.. In the intervening petition they, in substance, alleged that they were all residents and citizens of West Virginia ;' that they became the owners of the stock and bonds in controversy by their purchase from Linehan and assignment and delivery thereof by him to them in October, 1909, such purchase having been made in due course and for value, and that Husband knew of their purchase thereof “ prior to his alleged purchase of the judgment of the State Bank & Trust Company.” Subsequently the interveners filed an amended petition, in which they withdrew so much of the original petition as alleged that the certificates of stock and bonds of the Wallsend Coal & Coke Company sought to be subjected by Husband, as the property of Linehan, to the payment of his judgment, were purchased by them in October, 1909, and alleged that their purchase of the stock and bonds from Linehan was made “between the first of August, 1909, and 31st of October, 1909;” and further, that at the time of such purchase Linehan was owing $28,000.00 to the Frozen Creek Lumber Company, a corporation of West Virginia, in which the interveners were stockholders and officers and which had shortly theretofore dissolved and quit business, but in doing so, by consent of all its stockholders, sold and delivered to the interveners all its assets, including, the $28,000.00 claim on Linehan, in consideration of their agreeing to assume and pay all the corporation debts; and that in August, September or October, 1909, Linehan sold, assigned and delivered to them the stock and bonds in
The affirmative matter of the answer of Linehan and of the' original and amended petitions of Garden and others was controverted of ■ record by a consent order of the circuit court. Following the taking of evidence and submission of the case the circuit court, by the judgment rendered, dismissed the plaintiff’s.petition, declared appellees, the interveners, to be the legal owners of the stock and bonds in controversy, and awarded the latter their costs. From that judgment Husband has appealed.
Appellant asks a reversal of the judgment upon the following grounds: (1) That the transaction had by Linehan with the interveners was no sale at all; (2) that the transaction was at most only an attempted preference, was fraudulent, and, therefore, is void as against the alleged attachment lien; (3) that the transaction being a foreign, partial assignment by a debtor io certain of his creditors of a portion of his estate, will not be given effect in Kentucky, because to do so would result in detriment to a local creditor; and because, also, a recognition of same would not be in accord with the spirit or policy of the laws of the latter State.
As to the first proposition advanced, it may be remarked that whatever may have been the character of the transaction by which the interveners, Garden and others, claimed to have acquired, by purchase from Line-han, ownership of the 625 shares of stock in and $3,100.00 of the bonds of the Wallsend Coal & Coke Company, it conclusively appears from the evidence that such transaction occurred prior to the institution of the second action by the State Bank & Trust Company, in which it was first attempted to subject to the payment of its judgment these stocks and bonds, also prior to appellant’s purchase of the judgment rendered therein. This is shown by the depositions of Garden, House and Noyes, three of the interveners, and the appellee, J. J. Linehan.
Although both Linehan and the executrix of Warnock were non-residents and only constructively summoned in the second action brought against them by the State Bank & Trust Company, the circuit court, despite the
The testimony of the appellees, Carden, House and Noyes, is to the effect, that prior to 1909 they and their co-interveners, Robertson and Welty, constituted all the stockholders of a corporation known as the' Frozen Creek Lumber Company; that Linehan, as a lumber dealer in Pittsburg, Pennsylvania, had become indebted to the Frozen Creek Lumber Company to the amount of $28,000.00; that the latter company went out of business prior to 1909, and that the interveners, as-individuals, had paid all of its debts and taken over to themselves its • assets, among which assets was the claim against Linehan; that in the fall of 1909 and more than a year before the institution of the action by the State Bank &• Trust Company to subject to the payment of its judgment -the stock in and bonds 'of the Wallsend Coal & Coke Company, therein alleged to be owned -by Linehan, they, the interveners, in endeavoring to obtain from Linehan the payment of the' claim'they held against him and to enable him, so far as he could, to pay same, purchased of him the stock and bonds in question, and such stock and bonds were‘then received by them of Linehan, by his endorsement and delivery thereof, in discharge pro tanto of his indebtedness to them; and that by such endorsement and delivery of the stock and bonds they became the owners thereof and have ever since had possession of them.
It also appears from the testimony of J. B. Garden and S. M. Noyes that before F. M.' Husband purchased from the State Bank & Trust Company the judgment against' Linehan, certain conferences were held between them and the appellant, F. M. Husband, thé latter’s brother, John Husband, being present at the time and assisting 'him, in which both were advised that appellees, the interveners, were the owners of the stock and bonds; and such information on' the part' of F; M. Husband before'his- purchase- of- the: judgment' is further shown-by certain letters' that passed between him or his brother John and' S.'M-. Noyes, -one ■ of the interveners. These
The only contradiction attempted of the evidence referred to was furnished by certain letters from Linehan to Mrs. Warnock, executrix, with respect to the business of the Wallsend Coal & Coke Company, and meetings to be held to consider this business. It will be found, however, that these letters of Linehan are not contradictory of his having made the sale of the stock and bonds to appellees, Garden and others, interveners. They were written prior to the institution of the second action by the bank and contain no claim that he was then the owner of the. stock or bonds.
In view of what has been said of the testimony we think it safe to say that it shows beyond doubt the bona fides of the transaction between Linehan and the inter-veners; in other words, that there was a sale in good faith by the former to the latter of the stock in and bonds of the Wallsend Coal & Coke Company owned by him, attended by the endorsement and delivery of same; and that such sale passed to the interveners the title to the stock and bonds, which must have the legal effect to defeat the attachment of appellant unless, as contended by his counsel, the sale of both the stock and bonds was a fraudulent preference.
If the evidence here could be regarded sufficient to establish such fraudulent preference, it is manifestly too late for the transfer of the stock and bonds to be successfully attacked by appellant. An action for that purpose must be brought within six months of the date of the preferential transaction. Kentucky Statutes, section 1911; Citizens’ Life Ins. Co. v. Owensboro Savings & Trust Co., 146 Ky., 118; Turner v. Farmers’ Bank, 148 Ky., 692; Gransberry, et al. v. Pierce, et al., 151 Ky., 795. Such attack is not made by the petition in this case, nor was it made in either of the actions instituted by the State Bank & Trust Company against Linehan and others, and as more than six months elapsed between the sale and transfer of the stock and bonds and the institution of the second action of the bank by the attachment and judgment in which appellant claims to have
What has been said equally applies to appellant’s contention that the failure of appellees, Garden and others, to cause the stock certificates to be transferred to them on the books of the Wallsend Coal & Coke Company, as provided by the writing on the back of each, prevented the title to the stock from passing to them. In this jurisdiction the validity of the sale and transfer in good faith of stock in a corporation cannot be attached by a creditor, by virtue of an attachment levied after such transfer was made, on the ground that the transfer of the stock was not made on the books of the corporation; it being held that this provision is mainly for the benefit of the corporation, and to enable it to identify the holders of its stock. As between the parties to the contract the question of title cannot be affected by the non-appearance of the transfer on the books of the corporation. Bushnell v. Hall, 9 R., 684; Thurber v. Crump, 86 Ky., 408; American Wire Nail Co. v. Bayless, 91 Ky., 94. It is true the sale and transfer took place in West Virginia, but that fact does not, as claimed by appellant, make it necessary for its validity to be tested by the law of that State. As neither the common law of that State nor any statute thereof that would make the transfer invalid, was pleaded or proved by the appellant, its validity must be determined by the laws of Kentucky. This is also true as to such rights, if any, as may be asserted by appellant on account of the attachment in this case. At the common law stock in a-corporation is not subject to attachment, for which reason there is no common law on the subject. Cook on Corporations, vol. 2, 481; Lipscomb v. Condron, 56 W. Va., 416, 57 L. R. A., 670. The right to attach stock, as here attempted, is a remedy given by the Civil Code of this State (sections 202-236, inclusive), and necessarily the remedy and all rights incident thereto must be governed by the laws of this State. Bowman v. Breyfogle, 145 Ky., 443. Moreover, it is a well recognized rule that the method of transferring stock in a corporation is governed by the law of the State under which it was incorporated, although the transfer is made in another State. 10 Cyc., 593; Horton v. Sherrill-Russell Lbr. Co., 147 Ky., 226; Masury v. Arkansas Nat’l Bank, 83 Fed., 381; Yellow Poplar Lbr. Co. v. Ford, 141 Ky., 5.
“Where there is no statute expressly or impliedly forbidding a sale of stock without registration, it is generally, if not universally, held that the purchaser takes the legal title without a transfer of the stock on the books. Even in those jurisdictions in which the statute declares that the stocks shall be transferable only on the books of the corporation it is held that an unregistered transfer or assignment gives the purchaser a perfect equitable title as between him and the assignor and any person claiming under the latter.”
As the contentions of appellant with reference to fhe sale and transfer from Linehan to appellees apply only to the stock, further discussion as to the validity of the sale and transfer of the bonds is unnecessary, except to say that it seems well settled that an attachment cannot be levied upon negotiable, mortgage, coupon bonds, or a lien acquired thereon by process of garnishment served upon the corporation owing but not holding them. The corporation is not the custodian of the bonds, and the bonds here involved were not in the possession of the Wallsend Coal & Coke Company when the attachment of appellant was served upon it. Such bonds, like a negotiable note or money, pass by delivery and can only be attached by actually locating them and serving the attachment upon the person having possession of them. In Cook on Corporations, 5th Ed., vol. 3, section 765, it is said:
“Bonds after issue may be taxable, attachment may be levied on them at the 'place where they actually are, although not at the place where the corporation is and they are not. * * * Negotiable bonds held outside of the jurisdiction of the court cannot be attached by serving the attachment on the corporation which issued the bonds. Von Hesse v. McKay, 55 Hun., 365; affirmed, 121 N. Y., 694. The garnishee process does not lie against a non-resident company on bonds, since the debtor may have sold them. Junction R. R. Co. v. McCleneray, 13 Ind., 161.”
We discover no merit in appellant’s final contention that the evidence shows the Frozen Creek Lumber Com
As we concur in the conclusions reached by the circuit court, the judgment is affirmed.