116 N.J. Eq. 315 | N.J. Ct. of Ch. | 1934
Lead Opinion
Complainant Edward Maxson, on January 3d 1931, caused a writ of attachment to be issued out of the supreme court directing the sheriff of the county of Essex to attach the rights and credits, moneys and effects, goods and chattels, lands and tenements of one Charles Burnham Squier, a non-resident of this state, to make the sum of $46,081.05, representing an indebtedness of said Squier to said Maxson, and divers proceedings were had thereon, with respect thereto, resulting in the entry of a judgment on June 8th, 1931, in favor of Maxson and against Squier, upon which judgment a writ of execution issued by virtue whereof said sheriff sold to George C. Warren, Jr., one of the complainants herein, *317
all of the right, title and interest of said Squier as a stockholder of the New Jersey Zinc Company, one of the defendants herein, evidenced by a certificate representing shares of the capital stock of said company, a domestic corporation, standing in the name of said Squier on the books of said company. The sheriff, in said attachment proceedings, did not obtain physical possession of Squier's stock certificate. On January 5th, 1931, said Maxson, auxiliary to the issue of the aforesaid writ of attachment, filed a bill of complaint in this court against Squier, praying an injunction enjoining and restraining him from transferring certificates representing shares of the capital stock of the New Jersey Zinc Company standing in his name as owner on the books of said company, and on said date an order was made by this court requiring said Squier to show cause, at a time and place therein stated, why he should not be restrained and enjoined according to the prayer of said bill, and pendentelite from transferring or from permitting the transfer of such certificates of stock. Thereafter, by orders of this court, the return day in the aforesaid order to show cause was extended from time to time, and by order dated April 22d 1931, was extended and made returnable on May 25th, 1931. The order of April 22d 1931, provided for service upon Squier of a copy of said order, a copy of the bill of complaint and a copy of the order of January 5th, 1931, all of which in the manner provided by said order. Such proceedings were had in said cause that on May 25th, 1931, the day to which the aforesaid order of April 22d 1931, was extended, an injunction was granted as prayed by the complainant Maxson, which injunction is still in force and effect. The defendant Squier did not enter an appearance in said suit, although copies of the aforesaid orders and bill of complaint were served upon him as directed by the court. Such service is evidenced by proofs filed herein. A decree pro confesso was entered against the defendant Squier on said bill. On November 2d 1931, the complainants George C. Warren, Jr., and Edward Maxson filed their bill of complaint in the case sub judice
praying inter alia that the New Jersey Zinc Company be *318
ordered, upon presentation to it of a bill of sale or other transfer by the sheriff of Essex county to complainant George C. Warren, Jr., of the shares of stock mentioned in said bill, to transfer said shares to said Warren, or his assignee, and that said company also be directed to pay to said Warren, or his assignee, the dividend mentioned in said bill of complaint and any other dividend thereafter declared by said company upon such shares of stock; that in the meantime, and until the further order of the court, said company be enjoined and restrained from paying such dividend to any person other than the sheriff of the county of Essex, or the said George C. Warren, Jr.; that it also be enjoined and restrained from transferring upon its books any of the shares of stock mentioned in said bill of complaint to any person other than said sheriff, or said Warren, or his assignee. Complainants, by their aforesaid bill, also pray that they may have such other and further relief as may be proper. The bill of complaint in the case sub judice was ostensibly intended to compel a transfer of the shares of stock in question to said Warren on the theory that by virtue of the aforesaid sheriff's sale Warren became the equitable owner of all right, title and interest of Squier as stockholder in the New Jersey Zinc Company. Upon the filing of the bill of complaint herein a subpoena was issued and served upon the defendant New Jersey Zinc Company. A subpoena was also issued against the defendant Squier which was returned non est. On the date of the filing of said bill an order was made by the court requiring the defendants New Jersey Zinc Company and Charles Burnham Squier to show cause why the relief prayed by complainants should not be granted; and said order contained an ad interim restraint against said defendants transferring the aforesaid shares of stock to anyone other than complainant Warren or his assignee. On the return of said order to show cause the ad interim restraint was continued pendentelite. On December 14th, 1931, the defendant New Jersey Zinc Company filed an answer to complainants' bill in which interalia it set out that the National City Bank of New York held as collateral *319
security for an indebtedness owing to it by said Squier certificate No. X537, issued by said company to said Squier on March 7th, 1930, representing the ownership by said Squier of seven thousand shares of the common stock of said company, and it alleged in its said answer that the right of said bank in and to said certificate and the shares of stock represented thereby was prior to any right of the complainants Warren and Maxson with respect thereto. Thereafter, by order dated December 28th, 1931, complainants were granted leave to amend their bill of complaint by making the National City Bank of New York a party defendant, and on the same date an amendment to the bill was filed in accordance with such leave. Thereupon a subpoena was issued on said amended bill. Such subpoena was served upon the defendant New Jersey Zinc Company; it was returned non est as to the defendants Charles Burnham Squier and the National City Bank of New York. By order of the court subtsituted service by mail, and by publication in the "Newark Evening News," a newspaper printed and published in Newark, New Jersey, was directed against the defendants Squier and the National City Bank of New York. Proof of compliance with such direction has been filed herein. Thereafter the National City Bank of New York filed an answer to complainants' amended bill in and by which it prayed inter alia
that its interest in certificate No. X537 issued by the New Jersey Zinc Company representing shares of stock owned by the defendant Squier, pledged with said bank by said Squier as security for a loan made by it to him, be determined to be prior and superior to any interest of the complainants, or either of them, with respect thereto. On May 6th, 1932, a decree proconfesso was entered against the defendant Squier on complainants' bill, as amended. On May 24th, 1932, the New Jersey Zinc Company filed a supplement to its answer to the complainants' bill as amended. Replications were filed to the aforesaid answers. The proofs herein show that on February 24th, 1931, a suit was instituted in the New York supreme court by the defendant Squier, as plaintiff, against the complainant Maxson and the defendant New *320
Jersey Zinc Company, as defendants, praying an injunction restraining Maxson from proceeding with the action referred to in Squier's said complaint, or in any suit, action or proceeding based on a claim of said Maxson for professional services rendered to said Squier, and for an injunction restraining the New Jersey Zinc Company from in any way interfering with transfer by Squier of shares of stock of said company standing in his name on its books. The proofs show that the New York supreme court denied Squier's aforesaid application for injunction. Squier's aforesaid suit against Maxson and the New Jersey Zinc Company, and the pleadings and proofs therein, manifest that Squier was fully aware of the attachment proceedings against him in the supreme court of New Jersey at the suit of Maxson, and that he was aware also of the suit pending against him in this court auxiliary thereto; also that he was aware of the ad interim
restraint made by this court against transfer by him of certificates of shares of stock of the New Jersey Zinc Company standing in his name on the books of said company as owner. The ostensible purpose of Squier's aforesaid New York supreme court suit was an attempt upon his part to thwart the purpose of the complainant Maxson in the attachment suit commenced by him on January 3d 1931, and the bill of complaint filed by Maxson January 5th, 1931, as auxiliary to such attachment proceeding. Notwithstanding Squier was fully aware of the proceedings against him in this court and of the orders made against him therein, he tacitly acquiesced in the activities of the complainants against him. He knew that the complainants sought to establish a trust relation as between him and the National City Bank of New York with respect to the certificate representing shares of the capital stock of the New Jersey Zinc Company owned by him which said bank was holding as collateral security for an indebtedness owing by him to said bank, and that it was the purpose of said complainants through the medium of this court to obtain possession of such moneys in excess of the amount owing to said bank as would be realized from a sale of said security to obtain satisfaction of the indebtedness *321
owing to the bank which was secured thereby. The defendant Squier is chargeable with knowledge that the court of chancery had jurisdiction of the suit by which it was intended by complainants to effectuate the aforesaid purpose, notwithstanding Squier was not served with process within this state, but, in lieu thereof, service of process having been made upon him as an absent defendant by appropriate proceedings authorized by law against absent defendants. The case of Amparo Mining Co. v. FidelityTrust Co.,
"No attachment or levy upon shares of stock for which a certificate is outstanding shall be valid until such certificate be actually seized by the officer making the attachment or levy, or be surrendered to the corporation which issued it, or its transfer by the holder be enjoined. Except where a certificate is lost or destroyed, such corporation shall not be compelled to issue a new certificate for the stock until the old certificate is surrendered to it."
Section 14 of said act provides:
"A creditor whose debtor is the owner of a certificate shall be entitled to such aid from courts of appropriate jurisdiction, by injunction and otherwise, in attaching such certificate or in satisfying the claim by means thereof as is allowed at law or in equity, in regard to property which cannot readily be attached or levied upon by ordinary legal process."
The restraint granted by this court in the suit instituted January 5th, 1931, by the complainant Maxson against the defendant Charles Burnham Squier auxiliary to the attachment suit instituted by said Maxson against said Squier on January 3d 1931, and the restraint granted by this court in the suit instituted November 2d 1931, by complainants Maxson and Warren against defendants Charles Burnham Squier and the New Jersey Zinc Company to prevent transfer of Squier's stockholding interest in the New Jersey Zinc Company pendente lite is tantamount to an injunction as comprehended within provisions of sections 13 and 14 of the New Jersey Stock Transfer act, supra, and perches upon all right, title or interest of the defendant Squier as a stockholder in the New Jersey Zinc Company, and all rights or interests of said Squier in and to shares of stock issued to him by said company, standing in his name on the books of said company, so as to make all the right, title and interest of Squier as a stockholder of the New Jersey Zinc Company, *324 and the certificate representing the number of shares of stock owned by him in said company, which certificate is held by the National City Bank of New York as security for an indebtedness owing to it by said Squier, subject to the equitable claim of the complainants herein thereto.
Counsel for all parties appearing herein stated and conceded in argument in the matter sub judice that the shares of stock in question are of a present market value considerably in excess of the indebtedness owing by Squier to the National City Bank of New York. In view thereof it is manifest that the bank can be made whole by a sale of said stock. It has ample authority to make sale of said stock by virtue of an assignment thereof made to it by Squier, and also by virtue of a power of attorney made to it by him auxiliary to such assignment. I am of the opinion that said bank should be required to sell the shares of stock represented by certificate No. X537, which it holds, to make satisfaction from the amount realized from such sale the amount owing to it by the defendant Squier, as evidenced by promissory notes which it holds against him, and as security for payment of which it holds, as pledges, the aforesaid stock certificate. The amount of excess or surplus moneys realized by said bank over and above the amount required to satisfy its own claim against Squier should be turned over by said bank to the clerk of this court, subject to the further order of the court. I have in mind that Frank Hendrick, who is said to be a New York judgment creditor of the defendant Squier, is not a party to the instant suit, or to the suit between Maxson, as complainant, and Charles Burnham Squier, as defendant, which precedes the instant suit in point of time, and that said Hendrick may consider himself warranted in urging a claim to such excess or surplus moneys. In expressing my opinion in this respect I have in mind that rights of all parties in interest in and to such excess or surplus moneys may be appropriately inquired into and determined by this court in substantially the same manner in which the rights of parties who consider themselves entitled to an interest in surplus moneys arising *325 out of mortgage foreclosure proceedings may be inquired into and determined.
A certificate of corporate stock is merely a convenient evidence of stock ownership; it is not necessary to constitute one a stockholder. Lask v. Bedell, Inc.,
Section 20 of the Corporation act states that shares of stock are personal property. Therefore, in equity, an attachment creditor, and a judgment creditor, may by resorting to this court auxiliary to proceedings at law obtain an injunction whereby such creditors may assert rights against an attachment debtor or a judgment debtor who is a stockholder of a corporation in instances where such creditors may not be able to lay hold of the certificate evidencing the number of shares of corporate stock owned by such debtor. Squier, in pledging his stock certificate with the National City Bank of New York, did not divest himself of absolute ownership of his stock; he retained an equitable interest therein to such extent that the shares were greater in value than the amount of loan which they were pledged to secure payment of. Notwithstanding such pledge Squier had an undoubted right to sell his shares of stock subject to the claim of the bank against same for a loan less than the value of the shares. If it were a mortgage the bank held as security, instead of shares of stock, and the amount of the mortgage was in excess of the amount of the loan payment of which was secured by the mortgage, assignment of which it held as collateral, there is no doubt that the assignor of the mortgage would have a right to dispose of the mortgage subject to the bank's claim. Such an instance would be comparable to Derechinsky v. Epstein,
In Wallach v. Stein,
The situs of stock is in the state of the corporation's domicile. Andrews v. Guayaquil and Quito Railway Co.,
The National City Bank of New York, as the possessor of the certificate of stock issued to the defendant Squier, which it holds in due course of law, and which it has a right to make sale of to satisfy the indebtedness owing to it by the defendant Squier, and as security for which indebtedness it holds said certificate, is warranted in law in making sale thereof; and the purchaser from the bank of the aforesaid certificate of stock will acquire good title thereto. See Uniform Stock Transfer act,supra. See, also, Iowa Securities Corp. v. Ridgewood NationalBank,
If the New Jersey Zinc Company has not paid the dividends declared by said company upon the shares of stock in question, such unpaid dividends should be paid by said company to the clerk of this court, subject to the further order of the court herein, in order that the moneys represented by such dividends may be dealt with by this court together with such moneys as shall be paid to the clerk of the court by the National City Bank of New York, as hereinabove mentioned.
Counsel for the defendants New Jersey Zinc Company and National City Bank of New York has stressed, in argument, in support of claims made by him in behalf of the defendants *330
represented by him, the case of Brimberg v. Hartenfeld BagCo.,
I will advise a decree in favor of the complainants and against the defendants in accordance with the conclusions hereinabove expressed.
Addendum
An order will be made in conformity with the advice contained in the conclusions of Advisory Master Fallon, which are hereby adopted as the opinion of the court.
LUTHER A. CAMPBELL, C. *331