California Supreme Court Oct 17, 1903 No. Sac. No. 1002.Published
Before: Angellotti
Synopsis
APPEAL from a judgment of the Superior Court of Plumas County. C. E. McLaughlin, Judge.
The facts are stated in the opinion of the court.
ANGELLOTTI, J.—
This is an action upon two claims against Phillip Doray, deceased, which were duly presented for allowance to the executor of his will, and which, because of the neglect and failure of such executor to indorse his allowance or rejection thereon within ten days after such presentation, plaintiff elected to consider rejected.
One of the claims was based upon a promissory note of the deceased. The action was commenced on the twenty-fourth day of May, 1900, and on the next day the said claim, having been allowed by the executor, was delivered by him to the judge, allowed by him, and on May 26, 1900, filed with the clerk of the court. The allowance of the claim is alleged by the answer, and the allegation is found to be true by the court. The other claim was also based upon a promissory note, the same being for $3,200, which was given by deceased to plaintiff for a former note for $2,669 and interest, given by deceased to the husband of plaintiff, who afterwards died, and from whom plaintiff had acquired the note as heir to his estate. At the time of giving such original note deceased delivered to the payee named therein a certificate for nineteen hundred
[15]
shares of the capital stock of the Pacific Gold Mining Company, as collateral security for the payment of the note, said certificate then bearing the following indorsement, viz.:—
“$2669.00.
“The within nineteen hundred (1900) shares of stock are hypothecated to secure the payment of a certain promissory note, made and executed the 13th day of September, A. D. 1886, by Phillip Dor ay, to Robert Hall, for the sum of two thousand six hundred and sixty-nine dollars, due July 1, 1888.. John K. Wall, Secretary,”
said Wall then being the secretary of the- corporation. Plaintiff’s husband retained said note and the said certificate of stock to the time of his death, when plaintiff succeeded, as his heir, to said note and to the possession of said certificate of stock, and when deceased executed the $3,200 note, he left with plaintiff the certificate of stock, to be held by her as collateral security for the payment of said note.
There was never any writing or memorandum between the deceased and either plaintiff or her husband as to said collateral security, or showing the purpose for which the certificate was delivered by deceased, except the indorsement already recited, signed by the secretary of the corporation, and neither the transfer nor anything tending to show that the certificate was held by plaintiff or her husband as collateral security or otherwise was ever entered upon the books of the corporation.
The foregoing facts are shown by the findings and such allegations of the complaint as are admitted by the answer. The trial court decided as to the first claim that, as the claim had been allowed after the commencement of the action, and the plaintiff thereby secured in all her rights, she was not entitled to judgment therein-. As to the second claim, it decided that plaintiff was not entitled to a lien upon the certificate of stock, or the shares represented thereby, or a decree of sale therefor, but that she was entitled to judgment thereon for $4,441.15, and interest from May 12, 1900, and her costs of suit, payable in due course of administration.
Judgment was entered accordingly, and plaintiff appeals upon the judgment-roll from that portion of the judgment denying her relief on the first claim, and from that portion thereof adjudging that she has no lien on the certificate of
[16]
stock or the shares represented thereby, and adjudging that she is not entitled to judgment directing the sale thereof to satisfy her demand. No brief has been filed by counsel for respondent, and we are therefore without the benefit of his views on the questions presented by this appeal.
1. As to the first claim, the judgment was not erroneous. The sole object of an action upon a rejected claim for money is to place it among the allowed claims against the estate. A judgment rendered against ah executor or administrator upon any claim for money against the deceased only establishes the claim in the same manner as if it had been allowed by the executor or administrator and the judge (Code Civ. Proc., sec. 1504), and such a judgment is no more effectual as an estoppel than an allowance of the claim would be, for it can be contested by the heirs on the settlement of an account in the same manner as a claim allowed by the executor or administrator and judge can be contested. (Code Civ. Proc., see. 1636;
Estate of 'More,
121 Cal. 635.) If having been found, in accordance with the allegations of the answer, that the claim had been regularly allowed, approved, and filed after the commencement of the action, the plaintiff was not entitled to an additional allowance thereof, and consequently was not entitled to judgment thereon, except possibly for her costs, which were awarded her.
2. The action of the trial court in adjudging that plaintiff has no lien upon the certificate of stock, or upon the shares of stock represented thereby, to secure the note on which the second claim is founded, and in refusing her an order for the sale thereof, was undoubtedly based upon the fact that there was no written transfer of the stock on the part of deceased, and no transfer in the manner provided by section 324 of the Civil Code. That section provides that shares of stock are personal property, “and may be transferred by indorsement by the signature of the proprietor, his agent, attorney, or legal representative, and the delivery of the certificate; but such transfer is not valid, except as to the parties thereto, until the same is so entered upon the books of the corporation as to show the names of the parties by whom and to whom transferred,” etc. In this case there was no delivery of the possession of the stock other than such as was accomplished by
[17]
the mere delivery of the certificate, with the indorsement of the secretary of the corporation as to the purpose thereof.
It is well settled in this state by decisions construing this statutory provision that the entry upon the books of the corporation is not essential to the validity of the transfer, except as to purchasers and transferees “in good faith, for value and without notice.”
(Spreckels
v.
Nevada Bank,
113 Cal. 272;
1
Farmers’ Bank
v. Wilson, 58 Cal. 600;
Winters
v.
Belmont Min. Co.,
53 Cal. 428;
People
v.
Elmore,
35 Cal. 653.) The rights of any such third parties not being here involved, the provision of the statute as to entry on the books of the corporation is not applicable, and the finding thereon is immaterial.
There remains to consider the effect of the absence of indorsement by signature, or other writing signed by the owner of the stock. In considering this question it must be borne in mind that the defendant executor occupies the same position that the deceased would have occupied had he lived, and that there is no question in the case as to the rights of any third party. The intent of the deceased to hypothecate the shares of stock as collateral security is very clearly shown by his delivery of the certificate therefor, with the certificate of' the secretary of the corporation, indorsed thereon, which certificate fully stated the object of the delivery, and which he, by his delivery, practically-adopted as his own statement.
It appears to be well settled that incorporeal property, such as shares of stock in a corporation, cannot, technically speaking, be pledged without a written transfer of title or its equivalent. The theory underlying this rule is, that as such property,—viz., the shares of stock, as distinguished from the certificate therefor; which is but the muniment or evidence of title of the holder to a portion of the property of the corporation—is incapable of manual delivery, and as delivery of possession is essential to the validity of a pledge, a delivery of the certificate without a transfer in writing which will enable the holder to make a transfer of the stock to his own name on the books of the corporation is not a complete delivery, for it does not place the stock in the full control of the
[18]
pledgee. While the authorities generally recognize the necessity of an indorsement or other writing to effectuate a transfer of the title to the shares, and to create a valid pledge, it will be found upon examination that the mere delivery, by way of pledge, of the certificate without indorsement is acknowledged by the various text-writers to have been held to vest in the pledgee an equitable title to the shares, which may be enforced
as between the parties.
(Cook on Stocks and Stockholders, sec. 465; Jones on Pledges and Collateral Securities, sec. 152; 18 Am. & Eng. Ency. of Law, 1st ed., 611.) The various cases cited to support the doctrine enunciated as to the necessity of a writing to create a valid pledge will be found to be eases where the rights of third parties were involved. (See
Cumming
v.
Prescott,
2 Younge & C. 488;
Nisbit
v.
Macon Bank etc. Co.,
12 Fed. 686;
Wagner
v.
Marple,
10 Tex. Civ. App. 505.) The decisions in
Cumming
v.
Prescott,
2 Younge & C. 488, and
Wagner
v.
Marple,
10 Tex. Civ. App. 505, both recognize the doctrine that where there is a delivery of the certificate with the clear intent thereby to pledge the stock, an equitable right is created in the person to whom the delivery is made, which may be enforced in equity, as between the parties. (See, also,
Rice
v.
Gilbert,
173 Ill. 349.) In no case that we have been able to find, where the controversy was between the original parties, and the rights of third parties had not intervened, has a contrary doctrine been enunciated. The precise question appears never to have been decided by this court. In some of the cases to be found in our reports it is apparent that there was nothing beyond a mere delivery of the certificate, but the question in each of these cases was as to the rights of third parties, and in the case of
Brewster
v.
Hartley,
37 Cal. 15,
1
the question was not involved.
We can see no reason why the well-established rule “that an agreement in writing to give a mortgage, or a mortgage defectively executed, or
an imperfect attempt
to create a mortgage, or
to appropriate specific property to the discharge of a particular debt,
will create a mortgage in equity, or a specific (equitable) lien on the property intended to be mortgaged”
(Daggett
v.
Rankin,
31 Cal. 321;
Higgins
v.
Manson,
126 Cal. 467
2
) is not applicable to the case at bar. Mr. Pome
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roy, in his Equity Jurisprudence, says that a merely verbal agreement may create such a lien on personal property, enforceable against the property in the hands not only of the original contractor, but of his heirs, administrators, executors, voluntary assignees, and purchasers or encumbrancers with notice; and that equity looks at the final intent and purpose rather than the form, and if the intent appear to pledge certain property as security for an obligation, the lien follows. (Pomeroy’s Equity Jurisprudence, secs. 1235-1237.) There was here a clear attempt to hypothecate the shares of stock represented by the certificate delivered to the creditor as security for the note. The debtor undoubtedly intended, in placing the certificate of ownership of his shares in the possession of his creditor, to pledge these shares as security for the performance of his obligation, and the creditor received the certificate with the understanding that the shares were to be retained as such security. If the attempt to appropriate these shares as such security was imperfect by reason of the absence of indorsement or other writing signed by the debtor, equity will, in the absence of intervening rights of third parties, looking at the intent rather than the form, “treat the subject-matter as to collateral consequences and incidents in the same manner as if the final acts contemplated by the parties had been executed exactly as they ought to have been.”
(Daggett
v.
Rankin,
31 Cal. 321.) It will, as between the parties, treat the property as pledged, and allow the creditor to enforce in this proceeding the lien attempted to be created.
(Higgins
v.
Manson,
126 Cal. 467.
1
)
We are of the opinion that upon the findings of fact the plaintiff should be held entitled to a lien upon the shares of stock evidenced by the certificate and to an order of sale thereof to satisfy the claim embraced in her second cause of action.
As to the first cause of action, the judgment is affirmed. As to the second cause of action, the portion of the judgment appealed from is reversed, with directions to the court below to enter judgment in accordance with the views herein expressed.
Shaw, J., and Van Dyke, J., concurred.
1
54 Am. St. Rep. 348.
1
99 Am. Dec. 237.
2
77
Am.
St. Rep. 192.
1
77
Am. St. Rep. 192.
AI Brief
AI-generated · verify before citing
Holding. The court held that a claim already allowed by an executor after the commencement of an action is not entitled to a separate judgment, and that a delivery of a stock certificate with the intent to pledge it creates an equitable lien enforceable between the original parties despite the lack of a formal written transfer.
Issues
Whether a plaintiff is entitled to a judgment on a claim that was allowed by the executor after the commencement of the action.
Whether the delivery of a stock certificate without a formal written transfer creates an enforceable equitable lien between the original parties.
Disposition. Affirmed in part and reversed in part.
Quotations verified verbatim against the opinion
“The sole object of an action upon a rejected claim for money is to place it among the allowed claims against the estate.”
“the mere delivery, by way of pledge, of the certificate without indorsement is acknowledged by the various text-writers to have been held to vest in the pledgee an equitable title to the shares, which may be enforced as between the parties.”