Court Opinion

ID: 3591345
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:39:57.529647+00
Date Added: 2024-06-11T07:42:10.037631
License: Public Domain

The Appellate Division of the Supreme Court, in the first department, has certified the following question of law to this court: "Whether, where the certificates of stock of a foreign corporation belonging to a non-resident of the state are in possession of a resident of this state, as pledgee, the interest of the owner and pledgor can be levied upon under a warrant of attachment against such owner, made by service of a notice on the pledgee in the manner prescribed by subdivision 3 of section 649 of the Code."
The circumstances out of which the question arose were *Page 195 
these: The plaintiffs, commencing an action against the defendant, a foreign corporation, to recover for professional services, procured a warrant of attachment to be issued and the levy to be made upon its interest in certain shares of the capital stock of the New Jersey and Pennsylvania Telephone Company, a foreign corporation, which belonged to it and the certificates for which it had delivered to the Produce Exchange Trust Company of the city of New York, as security for the payment of a note. The levy was made pursuant to the provisions of subdivision 3 of section 649 of the Code of Civil Procedure and if the interest of the defendant constituted property, which was the subject of attachment under our laws, then there is no question but what the levy was properly made and that the property was impounded. Section 649 provides, in its first and second subdivisions, for a levy upon real property and upon personal property "capable of manual delivery, including a bond, promissory note, or other instrument for the payment of money" and, then, in its third subdivision, it provides for a levy "upon other personal property, by leaving a certified copy of the warrant, and a notice showing the property attached, with the person holding the same; or, if it consists of a demand, otherthan as specified in the last subdivision, with the person against whom it exists," etc.
The argument of the appellant is, in effect, that this was an attempt to levy an attachment on its shares of stock and that the legal principles, which underlie the ownership of capital stock, preclude the idea that jurisdiction could be obtained in that manner. It is insisted that "the stock of a foreign corporation is not property within the state subject to levy of attachment against a non-resident owner." Thus generally stated, and within such a state of facts as is shown in the case cited of Plimpton
v. Bigelow, (93 N.Y. 592), the proposition may be true. In that case, the plaintiffs were non-residents of the state; but they brought an action therein against the defendant, who was, also, a non-resident. It was attempted to attach shares of stock of a foreign corporation, which were owned by the defendant and the certificates of which were in *Page 196 
his possession at his domicile, by causing the sheriff to make a levy upon an officer of the corporation in the city of New York, under the provisions of section 649 of the Code. It was held that the section did not apply, for the reason that the fundamental condition of an attachment proceeding did not exist, viz.: that the res must be within the jurisdiction of the court for an effectual seizure. The right which the shareholder has by reason of his ownership of corporate shares is not a debt, or duty, of the corporation, existing in a foreign jurisdiction, wherever its officers may be found engaged in the prosecution of the corporate business. The decision was, manifestly, correct. A corporation is incapable of leaving the place of its domicile; whatever may be its offices and agencies in other states. As it was said: it "is not here because its agents are here." That case differs materially; but it was pointed out in the opinion that intangible rights, or interests, or choses in action, are made by the statute susceptible of seizure by attachment, when they can be said to be constructively present within the jurisdiction. It was said that where a debtor "is out of the jurisdiction and the debt or duty owing to him, or the right he possesses, exists against some person within the jurisdiction, attachment laws fasten upon that circumstance, and by notice to the debtor or person owing the duty, or representing the right, impound the debt, duty or right, to answer the obligation which the attachment proceeding is instituted to enforce. In the case supposed, the debt, duty or right, for the purpose of attachment proceedings, is deemed to have its situs or locality in the jurisdiction."
This foreign defendant, in order to secure the payment of its indebtedness to the trust company in New York, pledged with it the shares of stock in the foreign corporation of which it was the owner and, as we must assume, by an assignment of the certificates representing the same in some form of transfer, which conferred apparent title and which would enable the assignee, or pledgee, to enforce the security by its sale and transfer. Thus, the defendant's interest in the stock was held by a title and with a right which authorized the trust company *Page 197 
to possess it until the indebtedness was paid, and, in the event of non-payment, to sell it in satisfaction of its claim. The relation of the parties was that of pledgor and pledgee and the special property which the latter had in the pledge entitled it to its possession against all the world. It stood accountable to the former for its acts with respect to the security. It could be compelled to pay over any surplus realized upon a sale, or to return any of the stock not sold for payment of the debt. (Wheeler v. Newbould, 16 N.Y. 392; Warner v. FourthNational Bank, 115 ib. 251.) It is true that the corporate property represented by the shares of stock was not within this jurisdiction; but how is that a controlling consideration and can it, reasonably, be said that this defendant had no property here, whether we regard it as in the transferred certificates of stock, or as in the claim or demand which it had against the trust company? What is the reasonable view and, therefore, the one which the law should take? Jurisdiction, certainly, is founded upon the presence of the thing, in respect to which it is exercised. The action is in rem and the question seeks the place rei sitæ. That the defendant had conditionally parted with its interest in the stock to the trust company is true. That it had transferred to it the possession of the certificates evidencing that interest — its muniments of title — with the right to transfer the same, upon a sale in satisfaction of the debt secured, is true. That the defendant's interest in the pledge was of a residuary nature and constituted a claim upon the pledgee is true. The defendant had, to the extent of its ability, transferred to the trust company, as security for the payment of its indebtedness, whatever was its interest in the foreign corporation as evidenced by the delivery of the certificates of stock. Did it not, therefore, clearly, have property rights, or interests, within this state, which could be impounded by our courts to abide the result of the litigation over the plaintiff's claim? I think so. The distinctions sought to be drawn are, largely, artificial. The truth is that it did have property here, in the common acceptation of the term, as well as in the eye of the law. Certificates of *Page 198 
stock are treated by business men as property for all practical purposes. They are sold in the market and they are transferred as collateral security for loans, and they are used in various ways as property. They pass by delivery from hand to hand and they are the subject of larceny. (See In re Whiting, 150 N.Y. 27.)
I think that the case of Warner v. Fourth National Bank,
(115 N.Y. 251), is much in point. In that case a New York bank, having a claim against a Pennsylvania bank, attached certain promissory notes and bills of exchange, which the latter had pledged with another New York bank to secure a loan of money. The case turned upon the effectiveness of the levy made under the warrant; that is to say, whether the sheriff should have taken the property into his actual custody, or whether he had sufficiently acted under the warrant in serving a certified copy of it and a notice showing the property attached, with a demand for a certificate, etc. It was held that the pledgee was entitled to the possession of the property as against the sheriff and his form of levy was upheld; and it was observed that "what was the subject of the attachment was the right of the Penn bank, (the debtor), to compel its pledgee to account to it as to the pledged paper and to receive the surplus of the proceeds of collection, after satisfying the pledgee's claim for advances. That right is a chose in action, and, in the nature of things, is intangible. It is the subject of attachment as a demand against the person, within the spirit of the language of the Code." It was, further, observed, that "while the debt remains undischarged the pledge belongs to the pledgee and the title is subject to the pledgee's lien and right of possession; but the pledgor's residuary interest in the pledge constitutes a claim, or demand, upon the pledgee, which is property and, hence, may become the subject of attachment."
The Bronson Case, (150 N.Y. 1), is suggested as negativing the idea that an attachment could lie in this case. The question there considered related to the interest which a non-resident shareholder in a domestic corporation might be said to *Page 199 
have for the purposes of taxation under our Inheritance Tax Act. It was said that a share of capital stock represents an undivided interest in the whole of the corporate property and the certificates of stock evidence the number of shares owned by the stockholder; that the right of a stockholder to share in the corporate property is a chose in action, which follows the shareholder's person, and that the property represented has its legal situs either at the domicile of the corporation, or at that of the holder of the shares. It is difficult to see how that case, in defining the general understanding of the law with respect to the ownership of shares of stock in a corporation, can have any authoritative application to the present question. That question is not, whether the property of the corporation can be said to be within the state for jurisdictional purposes through attachment proceedings; but whether, the certificates of stock being here under a transfer by their owner to the trust company in pledge to secure an indebtedness of the former, there was not present property of the debtor which was capable of effectual seizure by the court's process.
But it is further argued, in support of the proposition that the court was without jurisdiction, that a judicial sale of the defendant's property or interests, here, would be ineffectual; because a transfer of the shares upon the corporate books could not be effectuated through any order of the court. The argument, again, rests upon Plimpton v. Bigelow; where it was observed in the opinion that "it could scarcely be expected that the courts of another state would recognize a title to corporate stock in one of its own corporations, founded upon a sale under an attachment issued by our courts against a non-resident, when the only semblance of jurisdiction over the property was the service of notice in the attachment proceedings, upon an officer or agent of the corporation here." The facts of that case, as I have already intimated, make it inapplicable here. It is an incorrect idea that the managing agents of the corporation, or joint stock company, might have some discretionary authority to refuse a proposed transfer. Such a proposition is not sanctioned by the common law, and *Page 200 
could not stand the test of reason. The presumption is that, if the stock of the defendant was sold at a judicial sale to another, the right of the purchaser to a transfer would be recognized and his ownership of the stock be given effect upon the books of the corporation. The managing agents of a corporation may prescribe reasonable rules and formalities, regulating the transfer of shares; but they could have no discretionary power to refuse to register a proposed transfer. (Morawetz on Corporations, sees. 164, 165; Commercial Bank v.Kortright, 22 Wend. 348.) We are not to assume, in the event of a judicial sale of the defendant's interest in this stock for the purpose of applying upon the plaintiffs' judgment any surplus remaining after satisfaction of the pledgee's demands, that it will be ineffectual to transfer to the purchaser a right to the ownership of the stock and to a transfer of the title upon the books of the corporation, as valid as though the trust company had sold it at a public sale and delivered the certificates in its possession to a purchaser. The presumption with respect to the effect of a judicial sale of the stock is quite the other way from that which is suggested. It is not that our courts could effectuate a transfer of the stock upon the books of the foreign corporation; but that the corporation itself will recognize and give effect to the purchaser's title.
For the reasons which I have given, I think that the question certified to us should be answered in the affirmative and, therefore, that the order appealed from should be affirmed, with costs.