189 P. 686 | Cal. | 1920
The plaintiff in this action sued to establish an equitable lien on certain personal property, alleged to have been created pursuant to the provisions of a parol agreement of the parties thereto, and to have the same declared to be prior and paramount to other liens which had been imposed upon the same personal property. Briefly *532 stated, the undisputed facts of the case as revealed by the pleadings and proof are these: In the month of September, 1916, one McCullough was indebted, for money loaned, to Smitton, the plaintiff, in the sum of $20,125. During said month of September, 1916, Smitton threatened McCullough with suit upon said indebtedness and subsequently agreed with McCullough not to sue, the consideration for Smitton's agreement to forbear to sue on the original indebtedness being McCullough's execution of a promissory note to Smitton, dated September 13, 1916, in the sum of $20,125, and McCullough's promise to give Smitton a lien on twenty-eight thousand five hundred shares of certain specified corporate capital stock as security for the payment of the note. For the purpose of perfecting said promised lien, McCullough, at the time of the execution of the note and the promise to give the lien, further agreed orally to forthwith transfer by assignment to Smitton twenty thousand shares of the said stock and hold in trust for Smitton the remaining eight thousand five hundred shares of said stock and, as trustee for plaintiff, to sell said remaining shares and apply the proceeds to the satisfaction and discharge of an existing lien in the sum of $8,250, which had been previously imposed upon all of McCullough's shares of said capital stock. McCullough died without transferring to the plaintiff any of said shares of said capital stock and never, by the sale of any portion thereof or otherwise, satisfied and discharged in whole or in part the pre-existing lien. Just before his death, on May 27, 1917, McCullough executed a written assignment of his interest in all of the said shares of stock to Della E. Faber by way of pledge to secure the payment of an antecedent indebtedness evidenced by a promissory note dated January 27, 1917, and executed to her by McCullough in the sum of $3,850. Della E. Faber intervened in this action, pleading her claim of lien and praying that it be decreed to be a lien on said shares of stock prior and paramount to any and all other claims or liens thereon save that of defendant Phillips. It appears beyond dispute that defendant Phillips came into and held possession of twenty-five thousand shares of said stock as pledgee pursuant to the provisions of a perfected pledge which was executed as security for and simultaneously with the execution of a promissory note to Phillips in the sum *533 of fifteen thousand dollars. As a part of the same transaction, and for the purpose of consummating the pledge, McCullough delivered to Phillips two certificates of the stock in question representing an aggregate of twenty-five thousand shares of said stock, which then stood in the name of McCullough, unencumbered, on the corporation's books, and at the same time, and as a part of the same transaction, McCullough by an instrument in writing authorized and empowered Phillips to cause said stock to be transferred to him as pledgee on the corporation's books. Accordingly, and thereafter, there was issued to Phillips, in his name as pledgee, a stock certificate representing twenty-five thousand shares of said stock and the same was thereupon delivered into the possession of Phillips and all the while thereafter stood in his name on the books of the corporation. Coupled and executed simultaneously with the contract of pledge, McCullough gave in writing to Phillips an option to purchase the said twenty-five thousand shares of stock at any time prior to the maturity of the promissory note for fifteen thousand dollars, which was the basis and consideration of the pledge, at the specified price of twenty-five thousand dollars, and, by the same agreement, McCullough was given an option to require the purchase by Phillips of the said stock at the same price. The latter option, the evidence shows, was subsequent to the death of McCullough exercised by the defendant Virginia McCullough, as executrix, and Phillips accordingly purchased said stock at the price stipulated, which was ten thousand dollars in excess of the sum due and owing to Phillips. It is an admitted fact in the case that the lien of said defendant Phillips is superior to the claims of the plaintiff, Smitton, and the intervener, Faber. The defendant, Virginia McCullough, has no personal interest in the subject matter of the litigation, and evidently was made a party to the action merely because of the fact that she, as executrix of the estate of McCullough, rejected the plaintiff's claim based upon the promissory note of the deceased which had been presented against the estate of the deceased. The trial court rendered and entered its judgment, based upon appropriate findings, establishing three liens upon the shares of stock in question in favor of (1) the defendant Phillips, (2) the intervener Faber, (3) the plaintiff Smitton, giving *534 Preference by way of priority in the execution and satisfaction of each lien in the order stated. The plaintiff alone appeals, and only from that portion of the judgment which declares that the plaintiff's lien "is inferior and subordinate to the lien of said intervener," and which further declares "that the proceeds of said shares of capital stock be applied to a discharge of said respective liens in accordance with and as ranked by the terms of the judgment." The record shows, and counsel for plaintiff concedes, that but a single question is involved in the appeal and that "the question is simply one of priority."
Admittedly the claims of lien in question were not perfected in accordance with the formalities required for the creation of statutory liens, but, apparently by the application of the doctrine of equitable liens, the trial court found that the claims in question had ripened into subsisting securities. This, of course, must have been upon the theory that every express executory agreement which contains a promise, or sufficiently indicated intention, to make some definitely described or identified property security for a debt or other obligation will be regarded in equity as creating an enforceable charge upon and against the specified property. (3 Pomeroy's Equity Jurisprudence, 4th ed., secs. 1233-1235.) Assuming, as we must upon the record before us, but not deciding, that both claims are entitled to enforcement as equitable liens, plaintiff's claim of lien is subordinate and inferior to that of intervener Faber.
The fact that plaintiff's lien is prior in point of time is not, under the circumstances of this case, decisive of the question of priority. [1] True, where successive conflicting interests, purely equitable in nature, are in all other respects equal, the equity prior in time prevails. (Civ. Code, sec.
Interests are equal in equity when each is entitled to the same recognition and protection by reason of possessing to an equal degree those elements of right and justice which are recognized and aided by courts of equity. [2] Since equity regards substance rather than form, if equitable interests *535
in a subject matter have been created, no inequality will arise based upon their form or mode of creation and, therefore, in the present case, if, as the trial court found, plaintiff has an equitable lien upon the subject matter thereof, the mere fact that it was created by a parol agreement will not render it inferior to an interest created in favor of the intervener by an assignment in writing. Nor does the fact that the intervener acquired a subsequent interest without notice of the plaintiff's prior claim in and of itself give the intervener any right to preference. (2 Pomeroy's Equity Jurisprudence, 4th ed., secs. 683, 684.) [3] Where, however, a person entitled thereto assigns a fund in the hands of a third person, the rule is established in this state that notice to the holder of the fund is necessary to render the assignment valid and effectual as against subsequent assignees without notice and for a valuable consideration. (Graham Paper Co. v. Pembroke,
[4] Of course, there must be a specific fund, actually existing or to come into existence in the future, upon which the assignment may operate, but, "the fund need not be actually in being if it exists potentially — . . . if it will in due course of things arise from a contract or arrangement already made or entered into" when the assignment is made. (3 Pomeroy's Equity Jurisprudence, 4th ed., secs. 1280, 1283.) Defendant Phillips held the stock in question subject to certain options, previously noted, and the option to require the purchase of the stock by said defendant Phillips was exercised and consummated in due course in keeping with the purport of the pledge agreement. [5] Clearly, the fund resulting from this purchase had a potential existence at the time of the assignment by McCullough to plaintiff and intervener and, therefore, defendant Phillips was not a mere bailee, but the holder of a "fund" within the meaning of the above rule. [6] Under the facts of this case notice to the corporation was unnecessary. By virtue of section 324 of the Civil Code, when certificates of stock are transferred, the name of the transferee must be *536
entered upon the books of the corporation to render the transfer valid as to subsequent purchasers without notice. (National Bank of Pacific v. Western Pac. Ry. Co.,
It is conceded that neither plaintiff nor intervener had, prior to McCullough's death, any notice of each other's claim of lien, but appellant contends that, since the assignment to intervener was made and executed merely by way of security for a pre-existing debt, intervener cannot claim the benefit of the above-mentioned equity, for the reason, it is urged, that, while an antecedent debt may be valuable as a consideration between the parties, it is not a valuable consideration within the meaning of the equitable rule affording protection tobona fide purchasers and encumbrancers for value. (The Elmbank,
72 Fed. 610; Citizens' etc. Bank v. Judy,
[10] The policy of the law is against upholding secret liens and charges to the injury of innocent subsequent purchasers and encumbrancers. (Palmer v. Howard,
The judgment is affirmed.
Angellotti, C. J., Shaw, J., Kerrigan, J., pro tem., Wilbur, J., Lawlor, J., and Olney, J., concurred.
Rehearing denied.
All the Justices concurred, except Shaw, J., and Wilbur, J., who were absent.