Opinion
No. 26761.
April 9, 1928. Suggestion of Error Overruled May 14, 1928.
1. ATTACHMENT. Execution. Legislature may fix situs of stock of domestic corporation at its domicile for purposes of execution and attachment ( Hemingway's Code 1927, sections 132, 3177).
Legislature has power to fix situs of shares of stock of domestic corporation at its domicile for purposes of execution and attachment as was done under Code 1906, sections 140, 3966 (Hemingway's Code 1927, sections 132, 3177).
2. ATTACHMENT. By attachment of nonresident's shares in resident corporation, court acquired jurisdiction to render decree against nonresident condemning shares for sale to satisfy indebtedness; "effects" ( Hemingway's Code 1927, section 307).
Where attachment in chancery was issued against nonresident's shares of stock in resident corporation, court acquired jurisdiction to render decree against nonresident condemning his shares for sale to satisfy his indebtedness to plaintiff, since shares of stock held by nonresident shareholder in resident corporation are "effects" of nonresident in hands of resident corporation within meaning of Code 1906, section 536 (Hemingway's Code 1927, section 307), in view of Code 1906, sections 140, 3966 (Hemingway's Code 1927, sections 132, 3177), subjecting shares of stock of domestic corporation, whether owned by residents or nonresidents, to execution and attachment.
APPEAL from chancery court of Grenada county; HON. N.R. SLEDGE, Chancellor.
Green, Green Potter, for appellant.
The question involved under the pleadings were confined within a very narrow scope under section 359, Hemingway's Code 1927; Sec. 344, Hem. Code 1917, sec. 584, Code of 1906. Unless the answer of the defendants specifically deny the allegations of the bill, such allegations, as are not denied, are taken as uncontrovertible facts.
Insofar as the case against the Lee E. Glass Lumber Company was concerned, the gravamen of the bill was that through fraud, Lee E. Glass has borrowed ten thousand dollars from the Grenada Bank. That this sum was used in acquiring the property described, in the bill for and on behalf of the Lee E. Glass Lumber Company, a corporation, to be subsequently organized. That the loan was made on a basis of certain false and fraudulent statements as to the financial worth of Lee E. Glass, and the money thus secured by this loan, was sued for the purchase of the property, and the property was now held by the corporation — the Lee E. Glass Lumber Company. As the only facts denied by the answer were that the money obtained by Glass was used in the purchase of the property described in the bill, and that Glass had no authority to bind the corporation, these were the facts at issue. Sec. 359, Hem. Code 1927, has been construed a number of times by our courts, the leading cases on the subject being Hooper v. Overstreet, 79 Miss. 241. See, also, Jones v. Fox, 120 Miss. 798, 83 So. 241; Reynolds v. Wilkinson, 119 Miss. 590, 81 So. 278.
The evidence conclusively shows that the money borrowed by Glass from the bank was used in the purchase of the property described in the bill, title coming from the Phoenix Chair Company, to Glass, Thorne and Mitchum, and from Glass, Thorne and Mitchum to the defendant corporation. And that the corporation was not a bona-fide purchaser for value, only selling its stock to the three parties above named, in return for the property. As this money was obtained by fraud and as the Lee E. Glass Lumber Company was the beneficiary of this fraud it is liable to the complainant for the full amount of the loan for the full value of the property out of which the Grenada Bank was defrauded. 27 C.J. 11; Young v. Barcroft, 168 S.W. 392; Bailey v. London Guarantee Accident Co., 121 N.E. 128; Green v. Waddington, 103 N.E. 964; Bringham v. Judy Investment Co., 186 S.W. 15. There is only one Mississippi case on this subject, that being Planters' Bank v. Neely, 7 How. 80, 40 Am. Dec. 51, the syllabus reading as follows: "It seems that the loss of a bill of exceptions taken in a cause, is not a good ground for a rehearing, after the elapse of the term at which the judgment was rendered. The probate court has power to set aside an administrator's sale on the ground of fraud, where by the fraud and deceit of the administrator the property of the estate did not bring more than one-fifth of its appraised value at the sale, and the purchaser had paid out no money for the property, the court of probate set the sale aside." And further going on to say that a person, innocent himself of fraud, cannot hold property or an advantage gained by him by the fraud of another. So, in this case, where it is proven beyond all peradventure that the money was borrowed from the Grenada Bank by Lee E. Glass, by means of fraudulent misrepresentations as to his worth, that this money was used for the purpose of purchasing property from the Phoenix Chair Company, for a corporation to be formed, as was agreed at the time of the loan. That this corporation obtained title to the property that was purchased with the money secured by the fraud of Glass, and the corporation was not the bona-fide purchaser for value and where Glass was used by the incorporators and stockholders of the corporation to borrow money for this purpose, the corporation itself is liable for all of the acts of Glass, and cannot retain the benefits of his fraud without also accepting the burdens thereof.
S.C. Mims, Jr., for appellees.
Appellant charged that the proceeds of the note sued on was used in acquiring the property of appellee, and the appellee denied the allegation. Thus an issue of facts was squarely presented to the chancellor to determine. The chancellor found in favor of the appellee, and its finding of facts will be affirmed by this court unless he was manifestly wrong. Coffee v. Coffee, 24 So. 262; Bank of Lauderdale v. Cole, 111 Miss. 39; Plantation Co. v. Heading Co., 104 Miss. 131; Brooks-Scanlon Co. v. Stogner, 114 Miss. 736. We do not agree with appellant's construction of sec. 359 of Hem. Code 1927. It is our idea that the section means what it says and that is "all matters of fact averred in the bill and not denied by the answer otherwise than by the general traverse, may be taken at the hearing as admitted." This "may be" is one of the prerogatives of the trial court, and one that the trial court, in this instance, did not exercise favorable to appellant. We do not find any case where the chancellor has been reversed for not taking at the hearing an undenied allegation as true, where there was any evidence in the record that the court was called upon to pass. In view of the failure of appellant to establish, by the necessary proof, the essential averments of its bill, and in view of the policy of this court heretofore followed in reference to the decrees of the trial courts, as follows: "The presumption in favor of a decree includes conclusions both of law and fact. It will not be disturbed unless shown to be clearly wrong, being analogous in this respect to a verdict of a jury." Partee v. Bedford, 51 Miss. 84.
We respectfully submit that the cause and decree of the chancellor should be affirmed.
S.C. Mims, Jr., for cross-appellant.
The only assignment of error filed by the cross-appellant is that the trial court had no authority to enter a decree against Lee E. Glass, the co-defendant of cross-appellant, for the reason that Lee E. Glass was not in court by any authority or authorized proceedings of law or equity. In Werner v. Sheffield, 89 Miss. 18, where the answer denied that the co-defendant had any effects of the nonresident in its possession, the burden was on the complainant to establish the fact, and if not established the court was without jurisdiction to entertain the suit. While the answer of cross-appellant does not deny possessing effects of Lee E. Glass, the bill does not charge the co-defendants with having in its possession or hands any effects, and the court did not so find. It must be remembered that the jurisdiction of the court in proceedings of this nature is purely statutory, and one who invokes this remedy must bring himself squarely within the terms of the statute — Scruggs v. Blair, 44 Miss. 406; Statham v. N.Y. Life Ins. Co., 45 Miss. 581, 7 Am. Rep. 737; Delta Ins. Co. v. Nat. Bank, 137 Miss. 871. This question of whether or not shares of stock held by a nonresident stockholder in a resident corporation are "effects of the nonresident in the hands of the resident corporation, within the meaning and intent of section 307, Hemingway's Code 1927, has never been passed upon by our court as far as I can find." The only case that I find that throws any light on the attitude of this court on this question is Barnes v. James, 129 Miss. 675, in which case this court held that shares of stock in a foreign corporation held by a resident stockholder was personal property, and its situs was in this state and subject to taxation here. If this is a correct holding, and unquestionably it is, the natural deduction to be made from it is that the situs of the shares and stocks of a resident corporation are with the nonresident stockholders and not effects of the stockholder in the hands of the resident corporation. The only case passing on this identical question that I can call to the attention of the court is that of Lambert v. Huff, 1 A.L.R. 650. The court said: "A corporation is clearly not a debtor of its stockholders in respect of his shares of stock or their value, nor are such shares effects or estate of the stockholder in its hands within the meaning of the statute. A share of the capital stock of a corporation is an entity, though intangible and incapable of manual possession and delivery. Both the title and possession thereof, as far as it is susceptible of possession, are in the stockholder. His share is an interest in the corporation itself, not something held by the corporation. It is an estate, of course, but it is manifestly not an estate of the debtor in the hands of the corporation."
Would it be just and equitable to cross-appellant to be compelled to abide the decree of the lower court while it is possible and very probable that Lee E. Glass has hypothecated the very stock in controversy in this lawsuit for value without notice, in which event under the holding of the United States courts in Pennoyer v. Neff, 95 U.S. 714, and our own court in Cocke v. Brewer, 68 Miss. 778, the res or thing not being within the jurisdiction of the court — cross-appellant would be called upon to account to the pledgee in the Federal court for these seventy shares of stock. The same principal involved in the Delta Ins. Co. v. Nat. Bank, 137 Miss. 855, is involved in this case and is controlling.
Green, Green Potter, for cross-appellee.
The single question presented by this cross-appeal, is whether or not the shares of stock in the Lee E. Glass Lumber Company, a domestic corporation, were impounded by the cross-appellee in the lower court, so as to give the chancery court of Grenada county jurisdiction over Lee E. Glass in order to authorize it to enter an in rem judgment against him.
The answer of the resident defendant admitted that the said nonresident defendant was the owner of seventy-five shares of the capital stock of said domestic corporation, and as Glass did not answer the bill, a decree pro confesso and final was taken against him, subjecting the shares of stock to the demands of the complainant. We have no quarrel to make with the lumber company as to its right to take this cross-appeal, but we do deny that shares of stock of a domestic corporation, owned by a nonresident, cannot be reached by an attachment proceedings, so as to subject them to the demands of a complainant. The statutes in this case giving these rights are full and clear. Sec. 307, Hem. Code 1927, sec. 293, Hem. Code 1917, and sec. 536, Code of 1906.
In the chapter on process, it specifically provides that shares of stock in a domestic corporation can be reached by attachment, the same being found as sec. 3177, Hem. Code 1927; sec. 2973, Hem. Code 1917; and sec. 3966, Code of 1906; while in the chapter on Attachment at Law it specifically provides for the attachment of shares of stock in a domestic corporation, the same being found as sec. 132, Hem. Code 1927; sec. 132, Hem. Code 1917, and sec. 140, Code of 1906. We thus find ample statutory authority to the effect that a share of stock of a domestic corporation can be reached by chancery attachment, so as to subject it to the demands of the complainant in the chancery court, when owned by a nonresident defendant. The statute itself gives the right to reach this property by attachment, and the supreme court of Mississippi, in Aetna Insurance Company v. Robertson, 126 Miss. 387, 88 So. 883, held that the word "effects" was a word of the widest import, and that is broad enough, at least, to cover all personal property.
In Union National Bank v. Byram, 131 Ill. 92, 22 N.E. 842, the supreme court of Illinois held that the word "effects" covers shares of stock in a domestic corporation. In the note to the case cited by the opposing counsel said note beginning on 1 A.L.R. 654, cases are cited from practically every jurisdiction in America, to the effect that shares of stock in a domestic corporation, can be reached by attachment under statute. Nor can there be any question as to the situs of shares of stock being at the domicile of the corporation, except for purposes of taxation and like purposes. The supreme court of the United States in Jellenik v. Huron Copper Mining Co., 177 U.S. 1, 44 L.Ed. 647, so holds. See 7 R.C.L. 197.
We therefore take it as plain that the situs of the shares of stock of a domestic corporation, for all purposes except for purposes of taxation, are at the domicile of the corporation. That under the statutes and decisions of the state of Mississippi, such shares of stock owned by a nonresident defendant may be reached by attachment. That Lee E. Glass was a nonresident defendant of the state of Mississippi, and the owner of seventy-five shares of stock of a domestic corporation. That the bill sought to subject the shares of stock of said nonresident, to the demands of the complainant, and the answer of the domestic corporation admitting such ownership by such nonresident defendant, conferred full jurisdiction on the chancery court of Grenada county to render the decree against Lee E. Glass complained of by the cross-appeal.
By an attachment in chancery, the Grenada bank instituted this suit against Lee E. Glass, a nonresident of this state, and the Lee E. Glass Lumber Company, a domestic corporation, and from a decree dismissing the bill of complaint in so far as it sought to hold the Lee E. Glass Lumber Company liable to complainant, a direct appeal was prosecuted, while the Lee E. Glass Lumber Company prosecuted a cross-appeal from so much of the decree as subjected the stock of Lee E. Glass in said company to the payment of his personal liability to the complainant.
The bill of complaint alleged that Lee E. Glass was indebted to the complainant in the sum of fifteen thousand two hundred sixty-seven dollars and thirty-three cents, together with interest and attorney's fees, evidenced by two notes, one for five thousand one hundred thirty-four dollars, and the other for ten thousand one hundred thirty-three dollars and thirty-three cents, which were past due and unpaid; that Lee E. Glass is a nonresident who owns a large amount of property located in the state of Mississippi, consisting of stock in the Lee E. Glass Lumber Company; that being a nonresident of and absent from this state, the complainant is entitled to have an attachment issued against said shares of stock so belonging to the said Lee E. Glass, and to have the same impounded and subjected to its demands; that the said Lee E. Glass Lumber Company is but a corporation in name, in that the said Lee E. Glass is in equity and good conscience the sole and only owner of said corporation, and of its assets, and thereunder and thereby, being thus a one-man corporation, the assets of the said corporation have become, and are liable for the debts of the said Lee E. Glass, and especially the debts sued on; that the money borrowed from the complainant, evidenced by the notes sued on, was used and employed in purchasing certain particularly described property now owned by said corporation; that the money of the complainant so thus borrowed went directly into this land, with the improvements thereon, and can be so traced, and being so traceable, the complainant thereby acquired a first and paramount lien for purchase money against said property, and is entitled to assert and enforce the same; that the said money so thus traceable, and to be traced into said property, was borrowed from the complainant by the said Lee E. Glass for the specific purpose of acquiring said property for and on behalf of the said Lee E. Glass Lumber Company; and that said money was obtained by representations that the said Lee E. Glass was amply solvent and thoroughly capable of paying the said money when and as due.
It was further averred, upon information and belief, that the said statements so rendered to complainant were untrue; that the said Lee E. Glass was not solvent and able to pay the amount so thus borrowed; that the statements upon which complainant relied in that regard were false and untrue; and that by reason thereof, the complainant was entitled to trace the said money so thus received for the purchase of said property, and to subject the property so acquired to the payment of the money borrowed from complainant to purchase the same.
The bill prayed that an attachment be issued against all of the property of the defendant, Lee E. Glass, in the state of Mississippi, including the said shares in the Lee E. Glass Lumber Company; that a decree be rendered against the said Lee E. Glass for the amount of money so obtained from complainant; and that the property therewith purchased and acquired be charged with a lien for the satisfaction and payment of said decree.
Upon this bill of complaint, publication was made for the nonresident defendant, Lee E. Glass, and upon his failure to answer the bill or otherwise enter his appearance thereto, a decree pro confesso and a final decree were entered against him adjudging that he was personally liable to the complainant for twenty-three thousand eight hundred twenty dollars and ninety cents, and condemning for sale the shares of stock owned by him in the Lee E. Glass Lumber Company for the purpose of satisfying the decree against him.
The Lee E. Glass Lumber Company answered the bill and denied that Lee E. Glass was the sole owner of the corporation and its assets, or that the assets of said corporation were liable in any respect for the debts of the said Lee E. Glass; and averred that said corporation was legally organized under the laws of this state, and that the defendant, Lee E. Glass, owned only seventy-five shares out of the total of two hundred fifty shares of the capital stock of said corporation. It denied that the money evidenced by the notes sued on was used and employed in acquiring any part of the property described in the bill of complaint, or that the money thus loaned to the said Lee E. Glass went directly into said property or any part of same, or that the complainant had a first and paramount lien, or any other kind of lien, on such property which it was entitled to assert or enforce.
As to the misrepresentations alleged to have been made to complainant by Lee E. Glass, the answer averred that if such misrepresentations were made, they were not authorized by the defendant corporation, and were not within the scope of any authority that the said Lee E. Glass possessed from said corporation; that the said Lee E. Glass had no title, interest, or equity in the property owned and held by it, other than as a shareholder; and that the defendant, the Lee E. Glass Lumber Company, was not in any manner or form indebted to the complainant.
Conceding for the purpose of this decision only, the correctness of the appellant's position that one who accepts the fruits of fraud is liable therefor, not only when he knew of and consented to the fraud at the time it was perpetrated, but also when he was personally innocent, and had neither authorized nor known of the fraud at the time of its commission, still we are of the opinion that, on the direct appeal, the decree of the court below must be affirmed. There was proof offered in an attempt to trace the original ten thousand dollars, loaned to Lee E. Glass, and with which certain property now owned by the corporation was acquired, into the note for ten thousand one hundred thirty-three dollars and thirty-three cents, sued upon; but upon this point the testimony was in conflict, and we are unable to say that the holding of the court below that the proof failed to establish the allegations of the bill of complaint upon this point is manifestly wrong. There is some contention on the part of counsel for the appellant that the record of this cause contains an agreement of counsel that this original ten thousand dollar loan had been traced into the notes sued on, but in this we think counsel are in error. The record referred to in this agreement is manifestly the cash book of the appellant, and not the record of this cause as made in the court below.
On the cross-appeal, the contention of the cross-appellant is that, by this attachment proceeding, the court below did not acquire jurisdiction to render a decree against the nonresident, Lee E. Glass, condemning his shares of stock in the resident corporation for sale to satisfy his indebtedness to the cross-appellee, for the reason that the shares of stock held by a nonresident shareholder in a resident corporation are not effects of the nonresident in the hands of the resident corporation, within the meaning and intent of section 536, Code 1906 (section 307, Hemingway's 1927 Code).
This suit was begun, in so far as it affects Lee E. Glass, by an attachment proceeding in the chancery court of Grenada county, the bill alleging that Lee E. Glass was a nonresident of the state of Mississippi, and a resident of the state of Tennessee, and that the Lee E. Glass Lumber Company had effects of the said Lee E. Glass in its possession, in that the said Lee E. Glass was the owner of certain shares of stock in said resident corporation. The answer of the resident defendant admitted that the said nonresident defendant was the owner of seventy-five shares of capital stock of the said domestic corporation, and as the said Glass did not answer the bill, a decree pro confesso and final was taken against him, subjecting the shares of stock owned by him in the Lee E. Glass Lumber Company to the demands of the complainant.
The statute conferring upon the chancery court jurisdiction of attachment proceedings against nonresident, absent, or absconding debtors, is found in section 536, Code 1906 (section 307, Hemingway's 1927 Code), which reads as follows:
"The chancery court shall have jurisdiction of attachment suits based upon demands founded upon any indebtedness, whether the same be legal or equitable, or for the recovery of damages for the breach of any contract, express or implied, or arising ex delicto against any nonresident, absent or absconding debtor, who has lands and tenements within this state, or against any such debtor and persons in this state who have in their hands effects of, or are indebted to, such nonresident, absent or absconding debtor. The court shall give a decree in personam against such nonresident, absent or absconding debtor if summons has been personally served upon him, or if he has entered an appearance."
The shares of stock of a domestic corporation are, by statute, expressly made subject to attachment and execution for the debts of any owner thereof, the statute authorizing the attachment of such stock being section 140, Code 1906 (section 132, Hemingway's 1927 Code), which provides that an officer receiving a writ of attachment shall "levy on the stock, shares, or interest of the defendant in any corporation, joint-stock company, or copartnership;" while section 3966, Code 1906 (section 3177, Hemingway's 1927 Code), provides a specific method by which an execution or attachment may be levied on the stock, shares, or interest of a defendant in any corporation or joint-stock company, and further provides that the shares, stock and interest of the defendant in the corporation or company, including all dividends that may accrue after such levy, shall be bound by the lien of such execution or attachment.
A state creating a corporation may determine the basis of organization and fix the liability of shareholders, and it may, for the purpose of taxation, fix the situs of the shares of stock at the domicile of the corporation, and provide for the taxation of all of its shares of stock, whether owned by residents or nonresidents. Corry v. Baltimore, 196 U.S. 466, 25 S.Ct. 297, 49 L.Ed. 556; Rogers v. Hennepin County, 240 U.S. 184, 36 S.Ct. 265, 60 L.Ed. 594. It is also very generally held that for the purpose of suits to determine the rightful ownership of stock, the situs of such shares is at the domicile of the corporation, the cases so holding being illustrated by the case of Jellenik v. Huron Copper-Mining Co., 177 U.S. 1, 20 S.Ct. 559, 44 L.Ed. 647, in which the supreme court of the United States said:
"The stock held by the defendants residing outside of Michigan who refused to submit themselves to the jurisdiction of the circuit court being regarded as personal property, the act of 1875 [18 U.S. Stat. 470] must be held to embrace the present case, if the stock in question is `within the district' in which the suit was brought. Whether the stock is in Michigan so as to authorize that state to subject it to taxation as against individual shareholders domiciled in another state, is a question not presented in this case, and we express no opinion upon it. But we are of opinion that it is within Michigan for the purposes of a suit brought there against the company — such shareholders being made parties to the suit — to determine whether the stock is rightfully held by them. The certificates are only evidence of the ownership of the shares, and the interest represented by the shares is held by the company for the benefit of the true owner. As the habitation or domicile of the company is and must be in the state that created it, the property represented by its certificates of stock may be deemed to be held by the company within the state whose creature it is, when ever it is sought by suit to determine who is its real owner."
It is also within the legislative power to fix the situs of shares of stock of a domestic corporation at its domicile, for the purposes of execution and attachment; and by the statutes above referred to (sections 140 and 3966, Code 1906, sections 132 and 3177, Hemingway's 1927 Code), the legislature has expressly subjected shares of stock to execution and attachment at the domicile of the corporation. Under the above-quoted section 536, Code 1906 (section 307, Hemingway's 1927 Code), the chancery court may acquire jurisdiction of an attachment suit against a nonresident debtor by joining a resident defendant who has in his hands effects of such nonresident.
In the case of Ætna Insurance Co. v. Robertson, 126 Miss. 387, 88 So. 883, it was said that "the word `effects' is a word of very broad signification, and is broader than the word `goods,' and is broad enough at least to cover all personal property," and it embraces within the scope of its signification the shares of a stockholder in an incorporated company; and in view of the statutes subjecting all the shares of stock of a domestic corporation, whether owned by residents or nonresidents, to execution and attachment, thereby fixing the situs of such shares for these purposes at the domicile of the corporation, we have reached the conclusion that such shares are effects in the hands of the corporation within the meaning and intent of the statute conferring jurisdiction of attachments on the chancery court, and, therefore, that the court below committed no error in condemning the shares of stock of the nonresident defendant for sale for the satisfaction of his indebtedness to the complainant.
The decree of the court below will, therefore, be affirmed on both direct and cross-appeal.
Affirmed.