Court Opinion

ID: 8828996
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:56:35.835355+00
Date Added: 2024-06-11T17:04:52.038511
License: Public Domain

DENISON, Circuit Judge
(after stating the facts as above).  We have no doubt that, in spite of the withdrawal of the certificate from the court files, the state court retained jurisdiction over the subject matter sufficiently to decree a foreclosure sale valid as between the parties, and for the purpose of this opinion, and without undertaking to decide the questions involved, we assume that the foreclosure of the lien upon the stock was so completely valid that, as against both Eschmann and purchasers pendente lite, Mackenzie acquired the legal title to the stock, and that in an action at law against the corporation for its refusal to reissue the stock to him, he would be entitled to recover full damages. Mackenzie has not brought such an action. He has applied to a court of equity for what would be, in effect, a mandatory injunction compelling the issuing of the stock certificate to him, and asking in the alternative that if a new certificate cannot be lawfully issued to him, the value of the stock should be ascertained and the Company directed to pay him that value. His primary effort is to get the specific article, the stock, which on account of prospective earnings, or voting power, may seem worth to him much more than its market value. It is fundamental that a plaintiff who does not rely upon his strict legal rights, but asks special relief from a court of equity, subjects himself to the equitable discretion of that court, and may be denied some measure of his legal rights, if to grant them all would be distinctly inequitable. Levy v. Kress, (C. C. A. 8) 285 Fed. 836, 839. We think this case is one for the application of this principle; and this for reasons which depend upon the peculiar facts of the case, and which we proceed to develop. ®
The surrender and reissue of the certificate did not occur under circumstances which made the act wrongful as against Mackenzie in the manner and degree to which such an act is ordinarily wrongful as against the true owner. On the contrary, while Mackenzie did not directly acquiesce in the withdrawal of the certificate, he contributed to create the situation attending the withdrawal, surrender, and reissue. To obtain a supersedeas would apparently have been no burden, and would have avoided all later complications, and, while it may be assumed that the lien upon the stock was in law reinstated ab initio when the judgment was reversed, yet the intermediate transfer and reissue *816would not have occurred, if Mackenzie had taken the customary precautions to preserve his interests.
In any event, and even if Mackenzie had retained possession of the certificate, but lacking legal title thereto, Eschmann would have been entitled to surrender and require reissue thereof to his nominees, provided the security interest of Mackenzie was protected. In view of the pending litigation as to. the existence of Mackenzie’s interest, and the undisputed existence of substantial interest in Eschmann, it would seem that a court would have compelled the issue of a new certificate to Eschmann’s nominees, if that certificate should have indorsed upon it a memorandum that it was subject to whatever lien Mackenzie might establish. The wrong done to Mackenzie was therefore the issuing of the new certificate in such a way that it might reach a bona fide purchaser and so perhaps cut off Mackenzie’s lien, but the wrong did not extend to the entire value of the stock, since Mackenzie had therein no interest to be injured except to the extent of his lien.
In this situation the parties came to the foreclosure sale of the stock. Its value was $17,000; the lien was about $10,000. It was quite evident that no sale could be had at which any fair value could be realized. No counsel would undertake to advise with certainty what title would pass. The books of the corporation showed no interest to sell. No stranger would pay a substantial price, because he would be buying only a lawsuit. Eschmann and his vendees would not bid, because they were advised, and doubtless in good faith believed, that no title would pass. The actual result was inevitable, viz. that Mackenzie would buy in the $17,000 of stock for a nominal price (he paid $100), and still leave his whole claim against Eschmann for the debt practically unimpaired. This would be and was a grossly inequitable result. The situation could have been easily clarified, and'it was Mackenzie’s duty to procure that clarification before going to sale, if he expected to seek the aid of a court of equity in enforcing his rights as purchaser. An appropriate proceeding could have been taken in the equity court, where the case was pending, and probably as ancillary or supplemental to that case, whereby it would have been adjudicated, as between Mackenzie, the corporation, Eschmann, and the purchasers pendente lite, just what title would pass by the expected sale. After such an adjudication the sale would have been fair to áll concerned, and all suitable equitable enforcement remedies could have been asked without embarrassment!
In the strongest light in which the situation could be stated for plaintiff, it would be as if the reissued certificates had borne, in words, the qualification that they were subject to Mackenzie’s interest, and by assuming that, even then, a foreclosure sale would absolutely cut off the title, not only of the parties, but of all who had purchased since the suit was commenced, and hence that there could have been no equitable obligation to clear up the title before proceeding to sale. However, such a statement does not meet the full facts. In no such ordinary foreclosure would it appear that steps had been taken, pursuant to the decree against plaintiff and while unreversed, and under which new parties had become entitled to be heard as to whether their title was *817cut off — in other words, as to whether they were purchasers pendente lite within the meaning of that phrase in the rule which puts such purchasers in the position of their vendors.
The rule which shapes the relief given by a court of equity in circumstances where equitable considerations make that relief contingent upon plaintiff’s acceptance of less than full legal rights, must vary in its application with every case. We have not found any application precisely similar to that which we now make, but we think it is required by the inevitable effect of similar rules.
We therefore conclude that, as against the corporation, which in some measure represents its stockholders of record, and for the purposes of the decree which the court below, sitting in equity, ought to have rendered, it must be considered that, at the time of plaintiff’s demand upon the corporation for a transfer of stock, he had only a lien for his debt and interest, so that his measure of damages against the corporation in this equitable proceeding should be limited to the amount necessary to discharge such lien. The lien would, we think, include the costs of the state court proceedings up to the time of the decree of the trial court directing a sale, but not thereafter.
Defendant has interposed no claim that a court of equity was without jurisdiction because the remedy at law was adequate; and there is, to say the least, no such clear lack of jurisdiction that the court should raise that question. The fact that the relief given turns out to be a money judgment only, does not necessarily control; nor yet the fact that, though plaintiff appealed to a court of equity to get more than strict legal rights, he gets less than they would have been if, as we have assumed merely for the purposes of this opinion, the full legal title passed by the sale.
It is urged that, even though there was a wrong done to plaintiff by the transfer arid reissue of the stock without saving his lien, yet that no damage has resulted to him, because the lien still exists, as against purchasers with knowledge, and that it is plaintiff’s duty to pursue the purchasers, bring them into court, and enforce his lien, unless they can prevail against him. As an original proposition, this would be forceful; but, to the majority of the court, the contrary seems to be settled. Whether the corporation is held as for a conversion, or on the ground of negligence as a trustee, it is liable to the rightful owner in damages, and he is not obliged to pursue the purchaser. Telegraph Co. v. Davenport. 97 U. S. 369, 371, 24 L.Ed. 1047; St. Romes v. Cotton Press Co., 127 U. S. 614, 620, 8 Sup. Ct. 1335, 32 L. Ed. 289.
The decree must be set aside, and the case remanded, for the entry of a new decree in accordance with this opinion, with costs to the company.