73 Ark. 78 | Ark. | 1904
Lead Opinion
1. Can a transferee of corporate stock, whose transfer has not been deposited with the county clerk, hold the stock as against an attaching creditor with notice prior to the completion of his levy, and prior to a sale under judgment rendered in the attachment suit?
This question, decisive of the ownership of about 600 shares of stock in the Park Hotel Company, calls for a construction of section 1338, Sandels & Hill’s Digest, which is as follows: “Whenever any stockholder shall transfer his stock in any such corporation, a certificate of such transfer shall forthwith be deposited with the county clerk aforesaid, who shall note the time of such deposit and record it at full length in a book to be kept by him for that purpose; and no transfer of stock shall be valid as against any creditor of such stockholder until such certificate shall have been so deposited.”
It is insisted, on the one hand, that this section be construed as the court construed section 728, Sandels & Hill’s Digest, in Byers v. Engles, 16 Ark. 543, reading into it, to effectuate its purpose, that actual notice dispensed with record notice; and, on the other hand, that it be construed as section 5091, Sandels & Hill’s Digest, was in Main v. Alexander, 9 Ark. 112; there the court refusing to permit actual notice to dispense with record notice. Each of these cases has been repeatedly followed, if not always indorsed, by the court, until each is a rule of property.
For a review of the cases following each, Tennant v. Watson, 58 Ark. 252, and Fort Smith Milling Co. v. Mikles, 61 Ark. 123, are instructive.
These lines of authority run parallel, not at angles, with each other, and each construes a different statute, giving it the force and efficacy intended by the Legislature, and in that way must this statute be tested.
The language in section 728 regarding creditors is closely analogous to the language in this statute; and Byers v. Engles, Tennant v. Watson, and others like it must have great, if not controlling, weight, if the purposes of the statutes were the same, the mischief to be remedied identical, and the reason for adding words to those actually used necessary in order to effectuate the legislative intent. Therefore it is necessary to turn to Byers v. Engles, and ascertain the controlling reason; and it is thus stated by Mr. Justice Walker for the court:
“As the Sole purpose of the statute was to prevent fraud by secret conveyances, any notice given at any time before the fraud is perpetrated, as it accomplishes all that the statute was intended to accomplish, shall be held an equivalent to registry notice.” Byers v. Engles, 16 Ark. 561. Is this reasoning applicable to this statute? The Court of Appeals of this (the Eighth) Federal Circuit and this court have found other objects and purposes for this statute beyond a registry statute to prevent fraud by secret conveyances. The question arose in the transaction now before the court in regard to some of the stock of this corporation which had been pledged as collateral security, and the contest was whether the pledgee could hold it without a certificate of transfer having been deposited with the county clerk. Judge John A. Williams, then United States District Judge for- the Eastern District of Arkansas, decided that it could not be held by the pledgee without first complying with the statute in question. Masury v. Arkansas National Bank, 87 Fed. Rep. 381. The case was carried to the Circuit Court of Appeals, and the opinion handed down by Judge Thayer, and is reported as Masury v. Arkansas National Bank, 93 Fed. Rep. 603. The decision of Judge Williams was reversed, the court drawing a distinction between the holder of collateral security and an absolute transferee, and applying the statute only to the transfer of ownership. The same question arose afterwards in the State courts, and, coming here tor decision, was decided the same way. Batesville Tel. Co. v. Myer-Schmidt Gro. Co., 68 Ark. 115. In that case Mr. Justice Battle, for the court, said: “It is evident that the object of the certificate of the president and secretary as to the name and number of shares of each stockholder and that of the transfer of the stock by the stockholder are the same; and that the latter is intended to carry into effect the intention of the former; and the object of both is to make known the names of the stockholders and the number of shares owned by each of them. This being true, it is obvious that the transfer of stock referred to was the absolute transfer of the legal and equitable title to stock, and not pledges or liens. This section does not undertake to regulate the creation or protection of liens, and hence does not affect those transactions by which liens are created without the transfer of stock, or any indorsement and delivery of stock which do not transfer, and create only a lien.” Then the Masury case is referred to, and this part of Judge Thayer’s opinion is incorporated into the opinion of this court:
“Rooking at the two sections (sections 1337 and 1338 in Sandels & Hill’s Digest) in the form in which they were originally enacted, the inference is a reasonable one that the Legislature had in mind transfers whereby a shareholder parted with his entire legal and equitable title to the stock transferred, when it declared, in the concluding clause of the section, that whenever a stockholder transferred his stock a certificate of such transfer should be deposited with the county clerk. While the act does not in terms prescribe by whom the certificate of transfer shall be filed, whether by the corporation or by the person securing a transfer of stock, nor what the certificate shall contain, yet it is fair to presume that the lawmaker intended to say that a person purchasing stock should obtain a certificate from the proper corporate officer to the effect that he had acquired certain shares of stock from a certain person or persons, and cause the same to be deposited with the county clerk as one of his muniments of title. The object of the legislature in requiring the county clerk to receive and record semiannual reports .from the officers of corporations, showing their financial condition and who were their shareholders, and to register transfers of stock made in the meantime in a book kept for that purpose, would seem to have been to provide a convenient record which might be consulted for the purpose of taxation, or for the purpose of ascertaining who had control of a corporation, and were responsible for its management, or who might be proceeded against as shareholders to enforce a stock liability in case a corporation became insolvent. All of these objects will be substantially subserved by holding that the section of the act now in question has reference to absolute sales of stock, and that it does not comprehend transfers which are effected by a simple indorsement and delivery of stock certificates as collateral security, inasmuch as creditors who thus hold stock in pledge which has not been transferred on the books of the corporation are not entitled to vote the stock, or take part in the management of the corporation, and ordinarily can not be proceeded against as stockholders to enforce a stock liability.” (Citing authorities.)
Dissenting Opinion
dissented; they entertaining the same view held by Judge Williams that the statute applied to pledges as well as absolute sales.
The reasoning of Judge. Thayer, incorporated into the opinion of this court, is accepted as indicating the objects and purposes of this statute. Analyzing it, there are found these purposes: (a) To provide a place of record for stock transfers to show of record the muniment of title of the purchaser; (b) to provide, in connection with another statute, a convenient record of the shareholding in the corporation as a basis for' taxation (and it may be added for the information of the assessing officer); (c) to provide a convenient record for ascertaining who have control of a corporation, and who are responsible for its management; (d) to provide a record of stockholders from which information can be obtained to enforce liability, in cases where stockholders are liable when a corporation becomes insolvent.
Therefore, it cannot be said of this statute, as it was of section 728 in Byers v. Engles, that it was a registry statute whose sole purpose was to prevent fraud by secret conveyance; subject-, ing it to a liberal construction,, and enabling the court to look beyond the mere letter of the act, and incorporate into it a meaning not appearing on its face, in order to effectuate its sole purpose. This act has objects and purposes beyond a registry act to prevent fraud by secret conveyances, and these objects are par.t of the corporation system of the State. The dominant thought in the corporation' system of this State is publicity in all corporate affairs.
The initial action to form a corporation consists in public record of its object, its capital, the stockholders, and amount owned by each, and the amount paid into the treasury. Annually it must file a full statement of its financial condition, its stockholders and amounts owned by each, and this must be spread at length on the county records. The books of the corporation shall be open in the county in which it does business for the inspection of any stockholder, who shall have access to the same, and shall have the right to examine them at least once a year. The stock is only transferable on the books of the corporation. As an integral and harmonious part of this system, all transfers of stock are to be certified, and the certificate deposited with and recorded by the county clerk, and no transfer shall be valid against, creditors of a stockholder until it is so deposited. This' latter clause serves another useful purpose in enabling creditors to ascertain the holding of their debtors, and establishing a basis of credit for the stockholder. Real estate ownership is easily ascertained and difficult of concealment, and the necessity of ownership of corporate stocks being fixed by public record is apparent.
The,argument is strongly pressed that public policy requires a construction analogous to Byers v. Engles to enable corporate stocks to circulate freely, like commercial paper. The court can only deal with questions of public policy as they may be discernible in the legislation under construction. It seems clear that the public policy in regard to corporation affairs is in favor of absolute publicity of all corporate business. This insures immunity from secret infirmities, and vests the title on a public record, instead of an uncertain question of fact in each case, and thereby gives these securities á value commensurate with their worth, and not depreciated by the uncertainty of the title.
Therefore it is held that section 1338 must be construed as it reads, and creditors of a stockholder will prevail over unregistered transfers, even when knowledge of them is actually possessed by the creditor.
2. The sufficiency of the levy on the shares in controversy is questioned. In Deutschman v. Byrne, 64 Ark. 111, the court laid down the governing rule for liens on corporate stocks, and held there could be no valid levy without a substantial compliance with the statute. The court held on the facts herein that there was at the time of the levy a substantial compliance with the statute, and there is no error in that finding. The creditors attempted persistently to have a literal compliance, and the action of the secretary alone prevented it. As soon as the secretary could be brought into court, he was required to disclose the information he should have given in the first instance, and then the general levies were made definite and certain before the order of sale. The same certainty is not required in an attachment levy as is required in an execution levy and sale, because the attached property is subject to further orders of the court before exposed to sale, and a levy sufficiently definite to identify it will hold it until the court can act.
3. The Park Hotel Company was organized with a capital stock of $200,000, of which Hogaboom subscribed for all" except sixteen shares, and paid in $50,000. Subsequently there were increased issues of stock, $200,000 in all, and Hogaboom subscribed and paid for all of it. About the time of the organization subscription lists for stock therein were signed by various parties, some of whom are appellees here. They did not appear in the articles, but shortly after the organization paid the corporation pursuant to their agreements, and the corporation issued stock direct to them. It was levied on here as Hogaboom’s, but the court set aside the levy, and these creditors appeal on this branch of the case. Whoever signs an unconditional subscription list, which is accepted as such, that party becomes a stockholder, entitled to the privileges and subject to the liabilities of a shareholder. He can be compelled by the corporation, its creditors, or the other subscribers, to comply with his agreement, and he has a right, when he pays pursuant to his agreement, to the status of a stockholder, and to have his stock issued to him. 1 Thompson, Corporations, §§ 1136-1141. These parties paid their money, and were entitled to and did receive their stock as original issue. They could not have been compelled to have taken stock assigned them by Hogaboom, if it had been offered that way, and it was not assigned by him actually or constructively, and therefore the statute in question can not affect this stock. What the effect of the subscription of Hogaboom to all the unpaid stock had as between the stockholders or the corporation are not questions here. There was no transfer, and the statute is inapplicable.
F. J. Allen, Moses P. Hays and Abner Gile purchased direct from the hotel company certain stock, and paid to the hotel company the face value thereof. This is evidenced by certificates numbered 18, 39 and 41. The company evidently treated the stock which appeared in the articles in Hogaboom’s name, above the $50,000 he paid for, as treasury stock, and issued it to its subscribers as they paid in their subscriptions and to these purchasers thereof. It is manifest that this was not a regular way of proceeding, and it presents questions of difficulty as to Hogaboom’s status if the corporation sought to compel him to pay in the subscription to this stock, and it presents questions as to the status of these parties as stockholders. Those are not questions for decision here. The only question here is whether these parties acquired their stock through a transfer from Hogaboom which was not recorded as required by statute. The trial court found these particular certificates were issued direct to these parties on direct payment to the company therefor, and not derived from any transfer from Plogaboom. That takes them ■ without this statute.
Jackson had 160 shares transferred to him, and sent certificate of transfer to the circuit clerk’s office, where it was recorded. No record was made in the count}»- clerk’s office. In Garland County the offices of circuit and county clerk are separate. The rule in Oats v. Walls, 28 Ark. 244, that where a party seeks the advantage of the registry laws, and takes his instrument to the proper officer, and deposits it with the proper fees for recording with the person in charge of the office, he will be protected against defaults of the officer, is invoked. It is clearly inapplicable. The duties and functions of the clerks are defined by statute, and one clerk has no more authority in the other office than the sheriff or assessor. Such filing is wholly ineffectual.
The case is reversed as to sustaining the levy on certificates 18, 39 and 41, and in all other things is affirmed.
Dissenting Opinion
(dissenting.) Can a transferee of corporate stock, whose transfer has 'not been registered in the county clerk’s .office, hold the stock as against an attaching creditor, with notice of such transfer received by him prior to a sale under a judgment rendered in the attachment proceeding?
The answer to this question depends upon section 1338 of Sandels & Hill’s Digest, which is as follows: “Whenever any stockholder shall transfer his stock in any such corporation, a certificate of such transfer shall forthwith be deposited with the county clerk aforesaid, who shall note the time of said deposit and record it at full length in a book to be by him kept for that purpose; and no transfer of stock shall be valid as against any creditor of such stockholder until such certificate shall have been so deposited.”
What is the object of the deposit and record of the certificate of transfer? In Batesville Telephone Company v. MyerSchmidt Grocer Company, 68 Ark. 115, this court said that its object “is to make known the names of the stockholders and the number of shares owned by each of them.” To make known to whom? Obviously, creditors. If it had any other object, why does the statute declare that “no transfer of stock shall be valid as against any creditor of such stockholder until such certificate shall have been so deposited?” The deposit and record were intended for the protection of the creditor by giving him notice of the transfer. The statute provides that it shall be invalid as to creditors, and not to any one else, “until such certificate shall have been so deposited.” When deposited, the transfer shall become valid as to creditors, thereby showing that the deposit and record are required for the protection of the creditor. If such is not its object, why declare the effect of the failure to deposit the certificate of the transfer with the county clerk to be to render it invalid as to creditors, and as to them only so long as such failure continues? Under no circumstances is the transfer declared void as to any other persons. The question suggests its answer. Its object is to give notice to creditors. Such is the object generally of recording acts.
Notice being the object of recording acts, it has been held, with few exceptions, that actual notice is equivalent to registration to all persons who have received it. While a record of an instrument of writing is constructive notice to all the world that comes after, any other notice is equally as good so far as it goes. Such doctrine has been maintained undér statutes “which declare without qualification.that an unacknowledged or unrecorded deed shall be void as against purchasers; or as against all persons who are not parties to the conveyance.” In Massachusetts a statute provided that a conveyance shall not “be good and effectual against any other person than the grantor and his heirs unless acknowledged and recorded.” “But,” said Parsons, C. J., in Norcross v. Widgery, 2 Mass. 506, “if the second purchaser, had notice of the first conveyance, the intent of the statute is answered, and his purchase afterwards is a fraudulent act.” The same construction was placed upon a similar statute in Rhode Island. In Westerly Savings Bank v. Stillman Manufacturing Co., 16 R. I. 497, the court, in speaking of this statute, said: “We understand that it has always, notwithstanding the absoluteness of its language, been construed to be subject to an exception, implied from its purpose as a provision for the protection of bona fide purchasers and creditors, to the effect that any deed, valid between the parties and their heirs, though neither acknowledged nor recorded, shall likewise be valid as to other persons having actual notice of it; "so that if any other person having such notice take a conveyance of the land covered by the prior deed, he will take it subject to any right, title or interest therein created by the prior deed as fully as if the prior deed had been duly acknowledged and recorded. * * * This construction is confirmed by numerous decisions under similar statutes in other States, some of which follow: Norcross v. Widgery, 2 Mass. 506; State of Connecticut v. Bradish, 14 Mass. 296; Trull v. Bigelow, 16 Mass. 406; Jackson, dem. Gilbert v. Burgott, 10 Johns. Rep. 457; Van Rensselaer v. Clark, 17 Wend. 25; Rogers v. Jones, 8 N. H. 264; Emmons v. Murray, 16 N. H. 412; Hart v. Farmers & Mechanics Bank, 33 Vt. 252; Ohio Life Ins. Co. v. Ledyard, 8 Ala. 866; Rupert v. Mark, 15 Ill. 540; Correy’s Lessee v. Caxton & Rees, 4 Binney, 140. * * * This construction finds countenance in the wording of the statutes of some of the States; but the construction is the same, generally, even when the statute declares unqualifiedly that unregistered conveyances shall be void as against purchasers, or as against all persons who are not parties to the conveyance. LeNeve v. LeNeve, Ambler 436, 2 White & Tudor, Lead, Cas. Eq. 4th Am. Ed. 109, and cases cited in American notes on pages 213, 214.”
The reason for this rule is forcibly stated by Judge Redfield in Hart v. Farmers & Mechanics Bank, 33 Vt. 252. He says: “Where a party proposes to take advantage of the literal application of the provisions of the registry system to perpetrate a fraud by levying upon the land, or purchasing it, after he has knowledge of .an unregistered deed, the law interferes by mere construction, and engrafts an exception, not named in the statute, but which it is necessary to imply, in order to defeat the fraudulent use of the provisions of the statute, which it is always safe to presume that the Legislature did not intend.”
The same construction was placed by this court upon the following statute:
“No deed, bond, or instrument of writing, for the conveyance of any real estate, or by which the title thereto may be affected in law or equity, hereafter made or executed, shall be good or valid against a subsequent purchaser of such real estate for a valuable consideration without actual notice thereof; or against any creditor of the person executing such deed, bond or instrument, obtaining a judgment or decree, which by law may be a lien upon such real estate, unless such deed, bond or instrument, duly executed and acknowledged, or proved, as is or may be required by law, shall be filed for record in the office of the clerk and ex officio recorder of the county where such real estate may be situated.” Sand. & H. Dig. § 728. In Byers v. Engles, 16 Ark. 543, this court, ixx speaking of this statute, said: “It will be seen that the 30th section makes deeds, etc., filed for record, constructive notice from the time they are filed. And the 31st section makes actual notice equivalent to registry notice as against purchasers, but does not, in express terms, extend to judgment lien creditors; thus leaving the latter clause of the section, which relates to judgment lien creditors, to be construed in view of the whole statute, and its obvious intent according to precedent and authority. Considering the statute as, in terms, declaring unregistered deeds, etc., void as against subsequent judgment liens, the question is, shall we give this statute a literal construction, by which judgment lien creditors will override incumbrances or conveyances not of record at the time judgment is obtained, wholly irrespective of any actual notice which the judgment creditor may have; or shall we place this class of creditors upon the same general footing of creditors who contract for liens, and hold actual notice equivalent to registry notice in all cases?” This court held in that case that notice of an instrument of writing, at any time before, or at the time of, a sale under execution would in all respects, as to execution or attaching- creditors, be equivalent to registration under the statute; “and that actual notice, or the filing for record of an instrument affecting real estate, at any time before sale, would be sufficient to protect the rights of the vendee as against the creditor of the vendor.”
After reviewing a long line of decisions, and finding them to the effect it held, this court said :
“Upon general principles, therefore, the construction of the registry acts may be said to be well and firmly established, and it is but fair to suppose that the language of our statute, being like that of the English, and most of the American States, was adopted with reference to the uniform construction which these statutes had received. And so permanently has this construction been settled, as well as a like liberal construction of the statute of frauds, and some others, that to change the construction given by the courts would, in effect, be changing the law itself.”
Again, it said, in the same connection, in the same case: “In view of the object intended to be effected, * * * and the almost uniformly liberal construction which the courts have given to them (the registry acts), we do not feel at liberty to depart from the spirit of these decisions, wnich look beyond the mere letter of the act, and give it such an interpretation as to protect the innocent purchaser and creditor from fraud, but at the same time never to allow a fraud to be perpetrated under cover of the statute. Should we go back to a literal construction of this act, we might, with the same propriety, indulge in a like limited construction of our statute of frauds, to which, like those of other States and of England, we have given a liberal construction; indeed, so uniformly has this construction been given to both these statutes, and also, to some others of like class that the law and its judicial interpretation are so delicately interwoven, and rights so spring into life under them, that a change in the decisions would be, in effect, a repeal of the act itself?”
The ruling in Byers v. Engles has been approved and followed, without any exception, in every subsequent case that has come before this court involving the construction of our registry acts. Hornor v. Hanks, 22 Ark. 580; Peay v. Capps, 27 Ark. 164; Doswell v. Adler, 28 Ark. 85; Shinn v. Taylor, 28 Ark. 528; Stirman v. Cravens, 29 Ark. 561; Jackson v. Allen, 30 Ark. 115; Pindall v. Trevor, 30 Ark. 267; Apperson v. Burgett, 33 Ark. 336; Williams v. McIlroy, 34 Ark. 92; Atkinson v. Ward, 47 Ark. 540; Watson v. Murray, 54 Ark. 508; Tennant v. Watson, 58 Ark. 258.
But in Main v. Alexander, 9 Ark. 112, it was held that a mortgage is no lien upon the mortgaged property as against strangers until it is filed for record, “even, though they may have actual notice of its existence.” That decision was based upon a statute which provides: “Every mortgage, whether for real or personal property, shall be a lien on the mortgaged property from the time the same is filed in the recorder’s office for record, and not before, which filing shall be notice to all persons of the existence of such mortgage.” (Sand. & H. Dig. § 5091.) The ruling in that case is based upon the peculiar language of the statute, and is an exception to the equitable rule of construction that is usually applied to statutes upon the subject of registration ; and this court, in following it, has yielded obedience to what it deemed the “unbending and imperious requirements of a legislative enactment,” and has never extended it to facts that do not fall within the language of the statute. Fort Smith Milling Co. v. Mikles, 61 Ark. 127; Martin v. Schichtl, 60 Ark. 595; Moore v. Little Rock, 42 Ark. 69; Mitchell v. Wade, 39 Ark. 386.
There is no similarity in the language of the statute upon the registration of mortgages and that upon the transfer of corporate stock. But there is a strong similarity in the language of the statute as to the recording of deeds and the latter statute. For the purpose of comparison, I insert the provisions of the statutes made for the benefit of creditors in parallel columns:
“No deed, bond or instrument of writing, for the conveyance of any real estate, or by which the title thereto may be affected in law or equity * * * shall .be good or valid against * * * any creditor of the person executing such deed, bond or intrument * * * unless such deed, bond or instrument * * * shall be filed for record in the office of the clerk and ex officio recorder of the county where such real estate may be situated.” Sec. 728.
“Every mortgage * * * shall be a lien on the mortgaged property from the time the same is filed in the recorder’s office for record, and not before.” Sec. 5091.
“Whenever any stockholder shall transfer his stock in any such corporation, a certificate of such transfer shall forthwith be deposited with the county clerk * * * and no transfer of stock shall be valid as against any creditor of such stockholder until such certificate shall have been so deposited.” Sec. 1338.
This comparison shows that Byers v. Engles, supra, and the numerous cases that have followed it are decisive of the question propounded in the beginning of this opinion. In view, therefore, of the object intended to be effected by the statute that requires the transfer of corporate stock to be filed for record, “and the almost uniformly liberal .construction which the courts have given” such statutes, I do not think it wise to depart, from the spirit of these decisions, but, on the contrary, for the purpose of protecting the innocent purchaser and creditor from fraud, and preventing the statute becoming an instrument or cover of fraud, and for the purpose of preserving the symmetry of our laws, I think that we should adhere to them.
I answer the question first propounded in the opinion in the affirmative.