Bank of Napa v. Ferguson Burns Estate, Inc.

The action was brought to recover judgment: (1) That plaintiff is the owner and entitled to the possession of 30,000 shares of the capital stock of the defendant corporation, standing on the books of said corporation, on ther twenty-third day of June, 1915, in the name of Dorothy A. Lawson, formerly Dorothy A. Burns; (2) That defendant be ordered and directed to cancel the certificate for said 30,000 shares and to issue a new certificate therefor to this plaintiff; (3) That in the event said stock cannot be transferred on the books of the company, plaintiff have judgment against defendant for $30,000, the value of said shares of stock. Judgment was rendered in favor of defendant for costs and this appeal is prosecuted by plaintiff from said judgment.

It was alleged in the complaint that, on January 30, 1915, in an action pending in the superior court in and for the county of Sacramento, a judgment was recovered by plaintiff against Dorothy A. Lawson for the sum of $9,485.56; that, on June 21, 1915, an execution was issued out of said court directed to the sheriff of Sacramento County, who, on the 23d of June, levied said execution upon defendant corporation, garnishing all of the capital stock of said corporation owned by and standing on the books of said corporation in the name of Dorothy A. Lawson. Plaintiff alleged, on information and belief, that at the time of the levy of said execution Dorothy A. Lawson was the owner of 30,000 shares of the capital stock of said corporation, represented by stock certificate No. 2. It was then alleged that, on the 10th of November, 1915, the sheriff gave due notice of the sale of said stock at public auction on November 19, 1915, at which time said stock was sold to plaintiff for $3,000, which was the highest, best, and only bid therefor; that, in December, 1915, demand was made upon defendant to cancel said old certificate and to issue a new one to plaintiff for. said 30,000 shares of stock, which defendant refused to do. The value of said stock was alleged to be $30,000.

The court found “(I) That, on the 23d of June, 1915, Dorothy A. Lawson was the owner of 30,000 shares of the capital stock of the defendant as evidenced by certificate No. 2, and had been such owner since the fourteenth day of November, 1914, and remained such owner until the

“ (II) That on the fourteenth day of November, 1914, the said Dorothy A. Lawson was the owner of an undivided one-fifth interest in certain real and personal property, some of the same belonging at that time to the estate of Ferguson Burns, deceased, and some to the estate of Mary Burns, deceased, the said Dorothy A. Lawson being an heir at law and devisee of both Ferguson Burns and Mary Burns, she being a daughter of them, they having been her parents, and at such time her interest in said properties was mortgaged to sundry persons for the purpose of securing the indebtedness owing by her to them, in the sum of $6,986,21, with interest thereon,• as was agreed to be paid. That the co-owners of the said Dorothy A. Lawson at said time, who were likewise, heirs and devisees in the same character as aforesaid averred, were her four sisters, Charlotte M. Flood, Irene E. Cochran, Myrtle T. Caldwell, and Elinor Burns.” That the interests of Irene E. Cochran and Myrtle T. Caldwell were likewise mortgaged to secure indebtedness owing by them to sundry persons. “That it became necessary, before the estate above referred to could be closed, that an additional sum of money be borrowed for the purpose of paying.debts and claims against each of said decedents, as well as the expenses of administration, and, therefore, on or abput the ninth day of November, 1914, it was agreed among the said five heirs at law and devisees that a corporation should be formed, to be known as Ferguson Bums Estate, Inc., to which corporation all of the respective interests of the said persons named be transferred, and that the said corporation in consideration of such transfer should borrow a sufficient sum of money to pay the existing claims against each of said decedents, as well as the expenses of administration remaining unpaid, and also the indebtedness of said Dorothy A. Lawson, Irene E. Cochran, and Myrtle T. Caldwell, and thereupon, thirty thousand shares of stock should be issued to each one of the incorporators,” and that each of the last three named would then be indebted to said corporation for the sum of money owing by her and mort

Finding III was that the capital stock of defendant consisted of 150,000 shares of the par value of one dollar each, all of which were issued on November 14, 1914.

“ (IY) On the twentieth day of October, 1915, the said Dorothy A. Lawson was in default in the payment of her obligation to the said corporation, and on the twentieth day of October, 1915, the corporation served upon the said Dorothy A. Lawson, a demand for the performance of said obligation,” which she refused and neglected to- pay, and on said twentieth day of October the defendant gave notice of the time and place of the sale of said 30,000 shares of stock, which was posted in three public places and personally served upon said Dorothy A. Lawson; that, on the twenty-ninth day of October, 1915, at the time and place named, said shares of stock were sold at public auction to Irene E. Cochran, Myrtle .T. Caldwell, and Elinor Burns for the sum of $7,067.71, “the same being the amount of the pledge indebtedness then owing from said Dorothy A. Lawson to the said corporation, and they being the highest and best bidders therefor,” whereupon said certificate No. 2 was canceled and a new certificate, numbered six, was issued to the purchasers, who since said twenty-ninth day of October, 1915, have been the owners of said shares, and who immediately pledged the new certificate to the corporation to

In Finding V it was found that “plaintiff never has had, and does not now have, any right, title, interest, lien or claim therein of any kind whatsoever."

Finding VI: “ That at the time of the levy of the writ of execution referred to in the complaint and at the time of the alleged sale under said writ, plaintiff knew that certificate No. 2 for 30,000 shares of stock was held by defendant corporation as a pledge and had knowledge of the sale of said stock by the corporation' to Irene E. Cochran, Myrtle T. Caldwell, and Elinor Burns; that, on November 19, 1915, plaintiff knew that certificate No. 2 had been canceled and a new certificate issued in .lieu thereof to the three parties last above named."

Finding VII: “That the said stock, or any stock, or the right, title and interest of Dorothy A. Lawson therein, was never levied upon or attached,” as alleged in the complaint, “and no lien of any kind in favor of the said plaintiff, or in favor of the sheriff of the county of Sacramento, attached to the said, or any, shares of stock of Dorothy A. Lawson, or any of her right, title and interest in and to the same.”

[1] As shown above, the court found that the attempted levy by appellant was ineffectual and invalid, but we may forego a consideration of that question since it is admitted in the opening brief that, if there was a pledge of said stock to said corporation, as found by the court, the judgment must be affirmed. Furthermore, it is conceded that the validity and sufficiency of the pledge must be determined by the answer to the question whether the promise by the corporation to pay the debts of Dorothy A. Lawson was absolute or conditional; in other words, whether it created an obligation or expressed a mere option. We may quote from appellant’s brief as follows: “The question then arises, When did defendant’s alleged pledge lien attach, on November 11, 1914, or on August 25, 1915, when the money was paid? If the former, it was a superior lien to plaintiff’s. If the latter it was a lien subsequent to that of plaintiff. . . . The pledge must rest, if at all, upon the proposition that on November 11, 1914, the corporation entered into an obligatory contract with Dorothy to make future advances on

If it was a mere optional agreement, as claimed by appellant, then the conclusion would follow, of course, that it could not operate to defeat a valid lien created by the levy of an execution made before the option was exercised. The authorities upon this point are cited by appellant, but the legal principle is not controverted by respondent. The trouble is, though, that in the testimony of the.two distinguished members of the bar, who were witnesses for defendant, is found support for the theory that the corporation, at the time of the creation of the pledge, obligated itself to make such future advances; and the finding, based upon such testimony, cannot and should not be set aside by this court. It may be admitted that certain expressions may be found therein, which, apart from the context, lend some color to appellant’s contention, but a fair consideration of the whole of the testimony leads to the conviction that the deduction therefrom made in the court below is not irrational.

Herein we may call attention to a portion of the testimony of Mr. Butler. After detailing a proposed arrangement for an adjustment of the financial affairs of the two estates in which the incorporators were the devisees and legatees, and which scheme, after further consideration, was abandoned as impracticable, the witness said: “The plan of operation was practically reversed. Instead of the corporation giving notes to those that" had not borrowed upon their equities, and those that had borrowed, were to have their debts paid by the corporation, and were to reimburse—to make the corporation secure by giving the corporation notes for the

We have no reason to question the good faith of the parties to the transaction or the entire ingenuousness of said testimony; and, we think, it cannot be doubted that the court below was legally justified in finding that the pledge was made and that the corporation obligated itself to pay said indebtedness. Since the obligation was incurred before appellant’s lien was perfected, the advances might be made thereafter and yet relate to the prior date of the agreement and thus be effective and take precedence over appellant’s lien.

The judgment is affirmed.

Nicol, P. J., pro tem., and Hart, J., concurred.

A petition to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on August 23, 1920.

All the Justices concurred.