Thum v. Pyke

SHLLIYAN, J. — This case was before this court on appeal at its November, 1898, term, and is reported in 55 Pac. 864. This action was brought by C. E. Thum, the receiver of C. Bunting & Co., Bankers, hereinafter referred to as the “Banking corporation,” against F. A. Pyke, receiver of C. Bunting & Co., Merchants, hereinafter referred to as the “merchants corporation,” in which action the Ogden Savings Bank, a corporation, intervened. C. Bunting & Co., bankers and merchants, are corporations organized and existing under the laws of the state of Utah, and doing business exclusively in Idaho; and the Ogden Savings Bank is also a Utah corporation, doing business at Ogden, Utah. The Bunting Company corporations wrere organized in 1892, and all of the business of each of said corporations was in and conducted in the state of Idaho. The capital stock of the merchants corporation consisted of $75,000, divided into 750 shares of the par value of $100 each. Its capital stock was all issued to C. Bunting, George Y. Wallace, and C. W. Lyman, except two shares, one of which was issued to John Flowers and one to F. A. Pyke, evidently for the purpose of organization. Flowers was elected secretary of each of said corporations, and as such he had in — 17 — Lis custody the books and records of the corporations, other than the ordinary books of account. He continued to act as secretary of the two corporations until Lyman and Wallace sold their interests in said corporations to C. Bunting, which was in 1893. The only business transacted by Flowers, as secretary, was making and signing stock certificates, and allotting them to the different holders, with the exception of one meeting of the directors, when Mr. Bunting was appointed manager. He did not thereafter do anything, or act in any way, as secretary of those corporations. The issuance of the stock was practically all that he did as secretary. He transferred his one share of stock to Lyman and Wallace early in 1893. After Lyman and Wallace had sold their interest and all of their stock in said corporations to C. Bunting, in 1893, Flowers sent the books, minutes, and records of said corporations to him (Bunting), at his request, to Blaekfoot, Idaho. Flowers has not had charge of any of the books of either of said corporations, and has not acted in any official capacity for either of them, since the fall of 1893. C. Bunting became the sole owner of all of the capital stock of both of said corporations, and the stock in the merchants corporation was by Bunting delivered to and was carried by the banking corporation as a part of its assets. On the thirtieth day of June, 1894, the banking corporation executed two promissory notes to MeComick & Co., of Salt Lake City, Utah, for $5,000 each, and delivered to said payees, as collateral security for the payment thereof, 500 shares of the capital stock of said merchants corporation. On the thirteenth day of August, 1897, there remained due and unpaid on said promissory notes between $6,000 and $7,000, as shown by the allegations of the complaint in an action to foreclose said pledge. On the last-named date it is alleged that McCornick & Co. duly assigned said promissory notes and 500 shares of stock to the Ogden Savings Bank, the intervener. On February 15, 1897, in proper suits commenced in the fifth judicial district of this state, C. E. Thum was duly appointed receiver of said banking corporation, and F. A. Pyke receiver of said merchants corporation. The latter company was solvent, and had a surplus of assets, estimated at $60,000, remaining, after paying — 18 — all of its debts. Thereupon the receiver of the banking corporation commenced proceedings in which he claimed that the banking corporation was the owner of all of the capital stock of said merchants corporation, and demanded that said surplus be turned over to him by the receiver of said merchants corporation, to be distributed to the creditors of said insolvent bank. Thereupon, under an order of the court, said surplus or remaining assets of the merchants corporation was turned over to the receiver of the banking corporation. In that proceeding the Ogden Savings Bank intervened, and set up and claimed in its complaint in intervention that it was the owner of the said 500 shares of stock which said McCornick & Go. held as collateral, and that the appellant, as receiver, was the owner of the remaining 250 shares of said capital stock, and prayed for judgment adjudging it to be the owner of said 500 shares of stock, and entitled to' two-thirds of said assets, the value of which is estimated to be $60,000. It appears that the merchants corporation had no officers at the date the court ordered the receiver of that corporation to turn over the assets of said corporation then remaining in his hands to the receiver of the banking corporation, and, as above stated, the banking corporation was the absolute owner of all of the stock of the merchants corporation, subject to pledge of said 500 shares as aforesaid. In the original petition in intervention the intervener relied solely upon the title to said 500 shares of capital stock it had acquired by virtue of an execution sale in an attachment proceeding in the courts of the state of Utah by the intervener against C. Bunting & Co., Bankers, which sale took place prior to the date of filing said petition in intervention. The intervener purchased said shares of stock at such execution sale. Said execution was based-upon a judgment rendered in an action brought by the Ogden Savings Bank against 0. Bunting & Co., Bankers, on the second day of March, 1897, upon a promissory note for $15,000, executed by the banking corporation in favor of the Ogden Savings Bank. After the appeal above referred to was remanded by this court to the trial court, the intervener amended his petition, and in it does not refer to the title acquired to said stock by virtue of said execution — 19 — sale. It appears that some time after the intervener had submitted itself to the jurisdiction of the district court of the fifth judicial district of this state by filing its petition in intervention therein, and after having appeared in this court as a respondent in said appeal, it commenced an action in the courts of Utah, in which action judgment was entered, and said 500 shares of stock were again sold under an execution issued upon said judgment, at which sale the intervener became the purchaser of said 500 shares of stock on a bid of $100. It had evidently concluded that this title it had acquired under the purchase at the first execution sale above mentioned ought to be strengthened, or that it was not effective. The answer puts in issue the ownership of said 500 shares of stock. The cause was tried by the court without a jury, which resulted in a judgment in favor of the intervener. A motion for a new trial was denied. This appeal is from the judgment and order denying a new trial. The assignment of errors involves the sufficiency of the legal proceedings above referred to in the courts of the state of Utah, and the rights of the intervener to come into the courts of this state and demand and recover two-thirds of the assets of said merchants corporation on shares of stock obtained in the legal proceedings in the courts of Utah, above stated. Counsel for respondent concede that the purpose of this proceeding is to receive the benefits of the stock certificates that it purchased at the execution sales in Utah, above referred to. The question presented is, Will the title thus acquired to said paper shares of stock entitle the intervener to recover in the courts of this state two-thirds of the assets of said merchants corporation? The intervener evidently claims title to said 500 shares of stock by reason of having purchased them at said execution sales, and asks the courts of this state to assist it in securing $40,000 worth of property which had been in the hands of the receiver of the court of the fifth judicial district of this state long before either of the actions were commenced on which said executions were based. Said property was placed in the hands of a receiver on the fifteenth day of February, 1897, and the first suit by the Ogden Savings Bank was commenced in a — 20 — IJtah court on March 2, 1897, and the second action was commenced on the eleventh day of October, 1897. The latter action was brought some time after the Ogden Savings Bank had submitted itself to the jurisdiction of the courts of this state. It appears from the record that the jurisdiction of the Utah court is questioned in the cases of the Ogden Savings Bank against Bunting & Co., Bankers, commenced on the second day of March, 1897, and on the eleventh day of October, 1897, respectively, and in the latter case on the ground 'that no service of summons in said suit was had. It appears that the summons was served on one John Mowers, who was one of the incorporators of said banking corporation, and who held one share of its capital stock, and was its-secretary, up to the fall of 1893, when he sold and transferred said share of stock, and sent all of the books and records of said corporation to C. Bunting, at Blackfoot, Idaho, and never acted as secretary thereafter. Said Flowers, when the summons was served on him, informed the officer that he was not the secretary of C. Bunting & Co.; that he had nothing whatever to do with them, and had no connection with C. Bunting & Co/s business. The record shows that the intervener knew that said Flowers was not the secretary of either of said Bunting & Co. corporations at the time said summons was served on said Flowers, as it had already intervened in this proceeding, and knew that said banking corporation had no managing agent or officers, and had had none since the death of C. Bunting, which occurred in May, 1897, and also knew that all that property of both of said corporations was in the hands of said receivers. The intervener knew that Eeceiver Thum was interested in defending said suit in the Utah court, and it did not attempt to make service of summons on him, but sought service on one who had no interest in said matter whatever, and thereafter pressed said suit to judgment without any notice whatever to the receiver; and judgment was entered, execution issued, and said 500 shares of stock — being two-thirds of the capital stock of said corporation — was bid in by the intervener for the trifling sum of $100. It well knew that two-thirds of the assets of said merchants corporation was of the value of $40,000. The record clearly shows that Flowers had — 21 — not been secretary of said banking corporation since the latter part of the year 1893, and the Utah court got no jurisdiction by the service of summons on him, and the judgment entered therein is absolutely void, so far as the courts of this state are concerned. But it is contended by counsel for the intervener that full faith and credit must be given by the court of this state to the judgments of the courts of the state of Utah. While that is true, it is also true that the jurisdiction of every court is open to inquiry when its judgments and decrees are produced in the court of a sister state, and it is there sought to give them effect. (Pendleton v. Russell, 144 U. S. 640, 12 Sup. Ct. Rep. 743, 36 L. ed. 574; Reynolds v. Stockton, 140 U. S. 254, 11 Sup. Ct. Rep. 773, 35 L. ed. 466; Beach on Beeeivers, sec. 460; High on Beeeivers, sees. 47a, 349; Smith on Beeeivers, par. 237; Rust v. Waterworks Co., 17 C. C. A. 16, 70 Fed. 129.) We recognize the constitutional rule enunciated by the provisions of section 1, article 4, of the federal constitution, that full faith and credit shall be given in each state to the public acts, records, and judicial proceedings of every other state, and we insist that the intervener must recognize said rule. Long before it brought either of the suits above mentioned in the Utah courts, all of' the assets of said merchants and banking corporations were in ■the hands of the receiver of the district court of the fifth judicial district of this state. It was in custodia legis, and the courts of Utah, as well as the intervener, should give full faith and credit to the judicial proceedings of the courts of this state. The intervener did not get any title to said 500 shares of stock by virtue of the execution Sale made under the judgment of the Utah court entered in the suit brought on March 2, 1897, for at that time said stock was held by McComick & Co. in pledge, and was not assigned to the intervener until the thirteenth day of August, 1897, and it acquired nothing by its execution sale thereof. The record fails to show when the sale of said stock took place under the execution issued^ on said judgment, and, so far as the decision of this ease is concerned, makes no difference. That stock was not pledged to secure the payment of the $15,000 note due from Bunting & Co., Bankers, to the Ogden — 22 — Savings Bank, on which said suit was based; and i£, instead of filing and proving its said claim in the court by which C. E. Thum was appointed receiver, it concluded to recover its claim in the courts of Utah, it no doubt has a right to what it got by that suit, but the courts of Idaho will not assist it in making the shares of stock so obtained valuable, to the detriment of the creditors who have filed and proved their claim in said Idaho court. No citizen of this state would have been permitted to •bring suit in this state, or in any other state, against C. Bunt-in & Co., Bankers, after that corporation had been declared insolvent, and its assets placed in the hands of a receiver. Had he done so, no doubt he would have been punished for contempt of court. Comity between states does not go to the extent of giving citizens of other states an advantage over citizens of our own in recovering debts due them from an insolvent whose assets are in the hands of our own courts. Such creditors may come into this state, and share equally with our own citizen creditors, but they cannot, by suing in another state and getting possession of shares of stock that represent property that is in the custody of the law in this state, thereafter come into our courts, and demand and get what the law would not permit our own citizens to obtain; and that rule applies with great force to citizens of other states who have submitted themselves to the jurisdiction of our courts, and thereafter sue in their own state, .and attempt thereby to obtain an advantage over domestic creditors. ! It is shown that the intervener had a claim against C. Bunting & Co., Bankers, for about $16,000 at the time said banking corporation was declared insolvent, and a receiver appointed. The complaint shows that McCorniek & Co. also had a claim against said banking corporation for about $6,000, for the payment of which last sum McCorniek & Co. held in pledge 500 shares of the capital stock of the merchants corporation, all of which stock was owned by the insolvent banking corporation; and after the intervener had submitted itself to the jurisdiction of the courts of this state, it procured an assignment of said ' 500 shares of stock to itself, and on the eleventh day of October, ' 1897, commenced' suit, which resulted in the sale of said stock — 23 — to itself for $100. Conceding that there were $7,000 dne to Mc-Cornick & Co. and $16,000 to the intervener — a total of $23,-000 — the intervener asks that the courts of this state deliver to it property worth $40,000 in payment of said $23,000. Under the facts of this case, comity does not require the courts of this state to commit such an act of injustice to the creditors of said insolvent resident in this and other states. Comity between states requires our courts to treat citizens of other states the same as our own, but no better. The courts of Idaho first took possession of the property of said insolvent banking corporation, and a part of that property was the assets of the mercantile corporation; and, if the above-cited provision of the federal constitution has any application in this matter, it applies to the courts of Utah and to the intervener. But, as a matter of fact, the courts of Utah only entered judgment in favor of the intervener, and knew nothing of the action that had been taken by the courts of Idaho, and have not attempted in any manner to evade said provisions of the federal constitution. Said 500 shares of stock have no value in themselves except as evidence, and, apart from the assets which they represent, are utterly worthless. Certificates of stock are not the stock itself. They are but evidences of stock, and. the stock itself cannot be attached by a levy of attachment on the certificates. Stock cannot be attached by attaching the certificate any more than lands can be attached by attaching the title deeds to such land: Cook on Stock and Stockholders, 3d ed., sec. 485. And at section 867 that author says: “It is a settled rule that each state will favor its own litigants who are creditors of a corporation as against a receiver of that corporation appointed in another state. Hence an attachment, execution, or garnishee process levied in the state on assets in the state belonging to a foreign corporation will take precedence , over the title of a receiver appointed prior thereto in another state. But there is a certain danger connected with such proceeding. If the court that appointed the receiver can reach the creditor who has obtained such a precedence of the receiver, it will compel such creditor to release his advantage, or will commit him for contempt.” Under the rule there laid down, if the intervener — 24 — obtained any advantage by its proceedings in the courts of Utah, the courts of this state must compel it to release such advantage. If the intervener were a resident of this state, it could prove its claim in the court that appointed the receiver, and receive its dividends the same as other creditors, and under no circumstances could it receive more than the amount due on its claim; and the same might have been done by it as a nonresident, for resident and nonresident creditors stand on the same footing in this state after they have presented and proved their claims. But the intervener, by refusing to come in on an equality with resident creditors, seeks to recover its debts by the aid of the courts of its own state, in the first instance, by getting possession of shares of stock, and then comes into the court of this state that has possession of the assets represented by said stock certificate, and asks the aid of that court to make its certificates of value by turning over to it $40,000 worth of assets— nearly double the amount of its claim against the insolvent corporation. The demand must not be allowed. No such injustice should be done to home creditors. To permit that to be done would be saying to the intervener: “You refused to come into the state court that first took possession of the property of the insolvent, and share equally with the domestic and other creditors. -You acted wisely. You have purchased at execution sales under judgments procured by you in another state. The paper certificates of stock are evidence of property, which are not worth the paper on which they are written unless the court of this state, having possession of the property, aid you in making them valuable, and by so doing prevent the resident creditors from realizing on their claims against the insolvent. The courts of this state will permit you to recover about twice the amount of your claims simply because you obtained the stock certificates in a manner that would have been a contempt of court on the part of any resident creditor.” No such a wrong should be perpetrated upon resident creditors, and comity between states does not require it. It must be borne in mind that the intervener is a creditor of the banking corporation, and not a creditor of the merchants corporation. If the intervener could have gotten full relief in the courts of Utah, and realized sufficient — 25 — to pay its claims, "the creditors residing in this state could not legally complain. But, as the facts show, it required the aid of the courts of Idaho to make the proceedings of the courts of Utah of any benefit whatever to the intervener, and in that case it is the duty of the courts of this state to refuse to allow the intervener to obtain any advantage over resident creditors. The intervener may enjoy what it got by its actions in the courts of Utah, but the courts of Idaho will not assist it in making its paper shares of stock valuable to the detriment of the other creditors of said insolvent banking institution. Counsel for the intervener admit, in their brief, as follows: "The purpose of the action here is to receive the benefits of the stock to which the Ogden Savings Bank had established ownership in Utah.” As the Ogden Savings Bank attempted to procure title to said 500 shares of stock long after the property represented by said shares had been in the' custody of the courts of Idaho, and after a resident creditor could have brought suit to enforce his claim against the insolvent, the courts of this state will not assist it in getting possession of assets belonging to the insolvent that are in the custody of the courts, and thus give a foreign creditor a decided advantage over resident creditors. Even if it he conceded that the intervener got title to the shares of stock under the execution sales in Utah, the courts of this state will not assist it in getting possession Of assets to make its paper stock valuable, when it would not assist creditor citizens of this state in doing so, had they procured title to the paper stock in the same manner that the intervener did. No doubt equity would require the payment of the debt due to McComick & Co. in full, if anything be found to be due them on the claim for the payment of which said 500 shares of stock were pledged, if the assets represented by said shares amount to that sum; and the Ogden Savings Bank may come in and file and prove its claim against said insolvent estate, and share with other creditors in its assets, provided the time has not expired for filing and proving such claims against said insolvent estate. The judgment is reversed, and the cause remanded, with instructions to dismiss the complaint in intervention, and to — 26 — enter judgment in favor of the appellant receiver. Costs of this appeal are awarded to the appellant. Stocks! ager, J., concurs.