Court Opinion

ID: 3584452
Source: CourtListenerOpinion
Date Created: 2016-07-05 23:34:54.27047+00
Date Added: 2024-06-11T13:54:53.517975
License: Public Domain

The stocks in question do not appear to have belonged to Daniel Kellogg in his lifetime. They belonged to George F. Leitch, who transferred them to the executors in 1847 and 1849. In May, 1850, the executors were ordered to transfer all the assets of the estate of Daniel Kellogg to Leavenworth, who was appointed receiver. In October of the same year they did transfer all the assets to the receiver, excepting and reserving a certain fund of $25,000, consisting of shares of capital stock in the Tompkins County Bank, amounting to $12,700, and shares of capital stock in the Bank of Syracuse, amounting to $7,300, and shares of capital stock in the Onondaga County Bank, amounting to $5,000, making the sum of $25,000, which fund they declared to have been set apart, designated and appropriated by the executors, as and for the sum of $25,000 given to them in and by the will of Daniel Kellogg, deceased, in trust for Mrs. Leitch and her children. The stocks of the two banks first named only are in controversy in this action.
The will contained no direction as to the investment of the fund of $25,000, and hence the trustees were bound to invest it in such securities as were authorized by law, and they had *Page 607 
no right to invest it in bank stocks. (Diven v. Lee,36 N.Y., 302; King v. Talbot, 40 id., 76.) This investment was wholly inoperative as to the cestuis que trust, unless they assented to or adopted it. It does not appear that they ever assented to or adopted it, or acquiesced in it until they served their supplemental complaint in the action against John Kellogg and wife; and they never received the dividends upon the stock.
The legal title to the stocks was in the trustees, and they could sell and transfer them so as to give a perfect title to a purchaser taking them for value and without notice of the trust. (Story's Eq. Jur., §§ 977, 1,264; Oliver v. Piatt, 3 How. U.S.R., 333.) A purchaser from a trustee, with knowledge of the trust, takes the property purchased charged with the same trust.
In 1858, John Kellogg, the surviving executor and trustee, transferred these stocks to his wife, and certificates of stock were then issued to her by the two banks, and thereafter the stocks stood in her name upon the books of the banks. This transfer was valid as against John Kellogg, and gave his wife, as against him, good title to the stocks. He surrendered his certificates of stock and caused the bank to issue certificates to her, and this transfer was as valid, as against him, as if he had gone to the banks and paid his money for the stocks and had the certificates made out in her name and given to her. As, however, she paid no value for the stocks, and took them with either actual or constructive notice of the trust, she took and held them subject to the equities of the cestuis que trust.
After the certificates were given to her, she gave a blank transfer, with blank power of attorney, to her husband, and on the 30th day of May, 1862, he pledged the stock of the Bank of Syracuse, and on the 25th day of March, 1864, the stock of the Tompkins County Bank, to the American Express Company, to secure loans made to him at the two dates. These pledges were perfectly good as against John Kellogg and his wife, and they were valid against the plaintiffs, unless the express company can in some way be charged with notice of the trust. The express company had the same right to *Page 608 
take the stocks in pledge, and, to the extent of its interest as pledgee, will be as thoroughly protected, as if it had purchased them for value and without notice.
If it had thus purchased them, it would have taken the absolute legal and equitable title to them, although they were not transferred on the books of the bank. (Kortright v. CommercialBank of Buffalo, 22 Wend., 362; McNeil v. Tenth NationalBank, 46 N.Y., 325.)
There is no pretence that the express company, at the time of either of the loans, had any actual notice of the trust; but it is claimed that it had constructive notice by the pendency of the suit of Mrs. Leitch and these plaintiffs against John Kellogg and his wife.
That suit resulted in a judgment in favor of the plaintiffs therein, declaring their interests in and title to the stocks in question. It is a rule in equity, long established and acted on, that a purchase made of property actually in litigation pendentelite, although for a valuable consideration and without any express or implied notice, affects the purchaser in the same manner as if he had such notice, and he will accordingly be bound by the judgment or decree in the suit.
This rule is said to rest upon the presumption that every man is attentive to what passes in the courts of justice of the State or sovereignty where he resides, and to be founded upon public policy; for otherwise alienations and transfers of title made during the pendency of a suit might defeat its whole purpose, and there would be no end to litigation. (Story's Eq. Jur., §§ 405, 406; Murray v. Ballou, 1 John. Ch., 566; Murray v.Lylburn, 2 John. Ch., 441; Green v. Slayter, 4 John. Ch., 38; Hopkins v. McLaren, 4 Cow., 667; Murray v.Blatchford, 1 Wend., 583; Jaekson v. Andrews, 7 Wend., 152;Parks v. Jackson, 11 Wend., 442; Griffith v. Griffith, 1 Hoff. Ch., 153; Jackson v. Losee, 4 Sand. Ch., 381; White
v. Carpenter, 2 Paige, 217, 252; Hayden v. Bucklin, 9 Paige, 572; Comyn's Digest Chancery, "Lis Pendens.")
It will be seen by an examination of the cases cited that *Page 609 
the rule has always been considered a very hard one in its application to bona fide purchasers for value, and it has only been tolerated by learned judges from a supposed necessity. Chancellor WALWORTH, in Hayden v. Bucklin, said: "This common-law rule of requiring purchasers, at their peril, to take notice of the pendency of suits in courts of justice for the recovery of the property they are about to purchase, although it is really impossible that they should actually know that such suits have been commenced, has always been considered a hard rule, and is by no means a favorite with the Court of Chancery." This rule has most frequently been applied to purchasers of an interest in real estate, and very rarely, so far as I can learn from reported cases, to purchasers of personal property. As to real estate, it has long since been abrogated by statute in this State, unless a lis pendens has been filed in the proper clerk's office. As to personal property, in this age and country of great enterprise and rapid circulation of such property, it is capable of working more mischief than good, and can hardly claim to be founded on necessity or public policy. By injunctions and receivers, transfers of the subject of an action can be prevented during its pendency; and since parties can be examined as witnesses, actual notice, when it exists, of the action or outstanding equities can more readily be shown than formerly. But the rule has existed for centuries, and we cannot dispense with it in a case where it is fairly applicable. As it is, however, a hard rule, and not a favorite with the courts, a party claiming the benefit of it must clearly bring his case within it; and it is said that if he makes a slip in his proceedings the court will not assist him to rectify the mistake. (3 Sugden on Vendors, 460;Sorrell v. Carpenter, 2 P. Wms., 482.)
When must a suit, within the meaning of the rule, be deemed pending? I answer, not until the summons has been served, and the complaint filed. (Hayden v. Bucklin, 9 Paige, 512, 514.) In chancery, the subpœna performed the office of a summons under our present practice; and prior to the statute of Anne (4 Anne, ch. 16, § 22), the subpœna was *Page 610 
issued before the bill was required to be filed, and the suit, as against the defendant himself, was then considered as commenced from the date of the subpœna. But after that statute the bill was required to be first filed, and for many purposes the suit was deemed to be commenced from the filing of the bill. (Hayden v.Bucklin, 1 Barb. Ch. Pr., 33, supra; Webb v. Pell, 1 Paige, 564.)
There could not, however, be a lis pendens, so as to bind strangers to the suit, until both the bill was filed and the subpœna served, and such has been the uniform holding of the courts since that time. It has sometimes been said, and it is now claimed by the learned counsel for the plaintiffs, that when a suit in chancery was commenced by the issuing and service of a subpœna, the bill being filed afterwards, the lis pendens was not complete until the bill was filed, but that then it related back and dated from the service of the subpœna. This claim has its sole foundation, so far as I have been able to learn, upon an anonymous case decided in 1685, before the statute of Anne, and reported in 1 Vernon, 319. The whole of that case as reported is as follows:
"That a subpœna served, bill filed is a lis pendens against all persons; but the service of a subpœna without a bill being actually filed makes no lis pendens; but the bill being filed, the lis pendens comes from the service of the subpœna, though it be not returnable till the next term, and though the party lives never so remote; otherwise a man, upon the service of a subpœna, might alien his lands and prevent the justice of the court; but that being by the counsel observed to be a hard fiction in equity to bind purchasers, it was proposed that some course might be taken by having some public record or calendar kept, whereunto purchasers might have resort, and see what lands are in demand in this court, as they may at law in cases offines. Curia advisare vult." I am unable to see that anything was decided by this case, but the question was held for further consideration; and yet this case has been cited by some elementary writers and by some judges, as establishing the rule as claimed. But there is no *Page 611 
reported case which I have been able to find, since that one, which lays down the rule as claimed.
Suits in equity may now be commenced by the service of the summons alone; but it would be quite monstrous to hold that the suit shall be deemed pending from the time of such service, so as to be "constructive notice" to all the people of the State of its pendency. No record is kept of the issuing of the summons, and it is not required to be filed. It may be issued by any one of several thousand lawyers in the State, or by any one of several hundred thousand persons in the State competent to be plaintiffs in a suit, and it might not be possible for a stranger to the suit, by any degree of diligence, to learn that it had been issued or served; and if he did perchance learn of it, it would give him no notice whatever of the subject-matter of the litigation. If, therefore, the mere service of a summons should be a lis pendens, so as to bind strangers, it would introduce great uncertainty and embarrassment into transactions in reference to personal property, provided the rule of lispendens were extended as broadly as claimed for the plaintiffs in this case. I therefore hold that there is no lis pendens, so as to give constructive notice to strangers, until a summons has been served, and a complaint, distinctly stating the subject of the litigation and specifying the claim made, has been filed in the proper clerk's office. The rule as thus stated is sufficiently hard and unreasonable.
We come, then, to the inquiry in this case, as to when the suit of Mrs. Leitch and others against John Kellogg and wife was pending, within this rule.
The summons in that suit was served December 4, 1861, and there is no proof that either the original or supplemental complaint was filed before the judgment was entered, September 12, 1864. They may both have been filed before, and it is quite probable that at least the supplemental complaint was filed before. But they may not have been, and there is no proof upon the subject. The stock of the Bank of Syracuse was pledged May 30, 1862, and the stock of the *Page 612 
Tompkins County Bank March 25, 1864, both before the suit, as I hold the rule to be, was pending so as to give constructive notice. It is claimed, on the part of the plaintiffs, that this defect in their proof was not pointed out on the trial. It was not necessary for the defendant to do this. It was incumbent on the plaintiff to show actual or constructive notice of their equities to the defendant. If they relied upon this constructive notice, they should have shown that the complaint was filed before the stocks were pledged. It does not appear that the plaintiffs claimed that the complaint was filed before the pledge of the stocks, and it may be that they relied upon the literal pendency of the action, by the simple service of the summons, to give the constructive notice. When the judgment roll, in that action, was offered in evidence, the defendant objected, on the ground that it was not a party to the action, and had no notice thereof, and that it was not, therefore, bound by the adjudication therein; and there was a distinct exception to the findings of law by the court, that the express company was concluded by the judgment in that action, because they took the stocks in pledge during its pendency. Hence the question is properly before us, and we must hold that the express company was not, upon the proof produced at the trial, charged with notice of the pendency of that action, or of the equitable claims of the plaintiffs to the stocks in question.
The certificate of the stock of the Bank of Syracuse bore date August 2, 1858, and was pledged May 30, 1862, long before there can be any pretence that the supplemental complaint was filed. The original complaint does not contain sufficient allegations to show that this stock was in any way set apart as a portion of the trust fund of $25,000, or that the plaintiffs in that action had any equitable claim thereto. Hence, as to this stock, for this reason also, there was no lis pendens as to the express company at the time it took the same in pledge.
But I have a still broader ground, unaffected by any form of pleading or defect in proof, upon which I must also base *Page 613 
my conclusion adverse to the plaintiffs. Stocks are articles of commerce, and the dealings in them every business day of the year far surpass in value the dealings in any other species of personal property. They pass from hand to hand in commercial transactions, like negotiable notes or bills of exchange. They are sold and pledged, and in many ways form the basis of credit.
Since the decision of the case of McNeil v. Tenth NationalBank, above cited, certificates of stock, with blank assignments and powers of attorney attached, must be nearly as negotiable as commercial paper. The doctrine of constructive notice by lispendens has never yet been applied to such property. This doctrine must have its limitations. It could not be applied to ordinary commercial paper, nor to bills of lading, nor to government or corporate bonds payable to bearer. Indeed, I do not find that it has ever been applied, and I do not think it ought to be applied, to any of the articles of ordinary commerce. Public policy does not require that it should be thus applied. On the contrary, its application to such property would work great mischief and lead to great embarrassments. As I have before stated, it has generally been applied to real estate, and but rarely to any species of personal property. I have in mind but one case (there are doubtless others) where it has been applied to personal property, and that is the case of Murray v.Lylburn (2 Johnson's Ch., 441), where it was held to apply to a bond and mortgage. In that case, the learned chancellor, however, says: "If he possess cash as the proceeds of the trust estate, or negotiable paper not due, or perhaps movable personal property, such as horses, cattle, grain, etc., I am not prepared to say the rule is to be carried so far as to affect such sales. The safety of commercial dealings would require a limitation of the rule; but bonds and mortgages are not the subject of ordinary commerce." And this language of the chancellor is cited with approval by Senator Seward in Parks v. Johnson (11 Wend., 458).
I have, therefore, reached the conclusion that the American *Page 614 
Express Company was, at the time the stocks were pledged, unaffected with notice of plaintiffs' equities, and hence that its claim as pledgee is good as against them.
The judgment must be reversed and new trial granted, cost to abide event.
All concur.
Judgment reversed.