Scott v. Houpt

Hilt, C. J. 1. Can a transferee of corporate stock, whose transfer has not been deposited with the county clerk, hold the stock as against an attaching creditor with notice prior to the completion of his levy, and prior to a sale under judgment rendered in the attachment suit? This question, decisive of the ownership of about 600 shares of stock in the Park Hotel Company, calls for a construction of section 1338, Sandels & Hill’s Digest, which is as follows: “Whenever any stockholder shall transfer his stock in any such corporation, a certificate of such transfer shall forthwith be deposited with the county clerk aforesaid, who shall note the time of such deposit and record it at full length in a book to be kept by him for that purpose; and no transfer of stock shall be valid as against any creditor of such stockholder until such certificate shall have been so deposited.” It is insisted, on the one hand, that this section be construed as the court construed section 728, Sandels & Hill’s Digest, in Byers v. Engles, 16 Ark. 543, reading into it, to effectuate its purpose, that actual notice dispensed with record notice; and, on the other hand, that it be construed as section 5091, Sandels & Hill’s Digest, was in Main v. Alexander, 9 Ark. 112; there the court refusing to permit actual notice to dispense with record notice. Each of these cases has been repeatedly followed, if not always indorsed, by the court, until each is a rule of property. For a review of the cases following each, Tennant v. Watson, 58 Ark. 252, and Fort Smith Milling Co. v. Mikles, 61 Ark. 123, are instructive. These lines of authority run parallel, not at angles, with each other, and each construes a different statute, giving it the force and efficacy intended by the Legislature, and in that way must this statute be tested. The language in section 728 regarding creditors is closely analogous to the language in this statute; and Byers v. Engles, Tennant v. Watson, and others like it must have great, if not controlling, weight, if the purposes of the statutes were the same, the mischief to be remedied identical, and the reason for adding words to those actually used necessary in order to effectuate the legislative intent. Therefore it is necessary to turn to Byers v. Engles, and ascertain the controlling reason; and it is thus stated by Mr. Justice Walker for the court: “As the Sole purpose of the statute was to prevent fraud by secret conveyances, any notice given at any time before the fraud is perpetrated, as it accomplishes all that the statute was intended to accomplish, shall be held an equivalent to registry notice.” Byers v. Engles, 16 Ark. 561. Is this reasoning applicable to this statute? The Court of Appeals of this (the Eighth) Federal Circuit and this court have found other objects and purposes for this statute beyond a registry statute to prevent fraud by secret conveyances. The question arose in the transaction now before the court in regard to some of the stock of this corporation which had been pledged as collateral security, and the contest was whether the pledgee could hold it without a certificate of transfer having been deposited with the county clerk. Judge John A. Williams, then United States District Judge for- the Eastern District of Arkansas, decided that it could not be held by the pledgee without first complying with the statute in question. Masury v. Arkansas National Bank, 87 Fed. Rep. 381. The case was carried to the Circuit Court of Appeals, and the opinion handed down by Judge Thayer, and is reported as Masury v. Arkansas National Bank, 93 Fed. Rep. 603. The decision of Judge Williams was reversed, the court drawing a distinction between the holder of collateral security and an absolute transferee, and applying the statute only to the transfer of ownership. The same question arose afterwards in the State courts, and, coming here tor decision, was decided the same way. Batesville Tel. Co. v. Myer-Schmidt Gro. Co., 68 Ark. 115. In that case Mr. Justice Battle, for the court, said: “It is evident that the object of the certificate of the president and secretary as to the name and number of shares of each stockholder and that of the transfer of the stock by the stockholder are the same; and that the latter is intended to carry into effect the intention of the former; and the object of both is to make known the names of the stockholders and the number of shares owned by each of them. This being true, it is obvious that the transfer of stock referred to was the absolute transfer of the legal and equitable title to stock, and not pledges or liens. This section does not undertake to regulate the creation or protection of liens, and hence does not affect those transactions by which liens are created without the transfer of stock, or any indorsement and delivery of stock which do not transfer, and create only a lien.” Then the Masury case is referred to, and this part of Judge Thayer’s opinion is incorporated into the opinion of this court: “Rooking at the two sections (sections 1337 and 1338 in Sandels & Hill’s Digest) in the form in which they were originally enacted, the inference is a reasonable one that the Legislature had in mind transfers whereby a shareholder parted with his entire legal and equitable title to the stock transferred, when it declared, in the concluding clause of the section, that whenever a stockholder transferred his stock a certificate of such transfer should be deposited with the county clerk. While the act does not in terms prescribe by whom the certificate of transfer shall be filed, whether by the corporation or by the person securing a transfer of stock, nor what the certificate shall contain, yet it is fair to presume that the lawmaker intended to say that a person purchasing stock should obtain a certificate from the proper corporate officer to the effect that he had acquired certain shares of stock from a certain person or persons, and cause the same to be deposited with the county clerk as one of his muniments of title. The object of the legislature in requiring the county clerk to receive and record semiannual reports .from the officers of corporations, showing their financial condition and who were their shareholders, and to register transfers of stock made in the meantime in a book kept for that purpose, would seem to have been to provide a convenient record which might be consulted for the purpose of taxation, or for the purpose of ascertaining who had control of a corporation, and were responsible for its management, or who might be proceeded against as shareholders to enforce a stock liability in case a corporation became insolvent. All of these objects will be substantially subserved by holding that the section of the act now in question has reference to absolute sales of stock, and that it does not comprehend transfers which are effected by a simple indorsement and delivery of stock certificates as collateral security, inasmuch as creditors who thus hold stock in pledge which has not been transferred on the books of the corporation are not entitled to vote the stock, or take part in the management of the corporation, and ordinarily can not be proceeded against as stockholders to enforce a stock liability.” (Citing authorities.)