Opinion
Hearing Granted June 22, 1960.
Opinion vacated 7 Cal.Rptr. 737.
Pillsbury, Madison & Sutro, Francis N. Marshall, G. H. Eckhardt, Jr., Robert F. Miller, James B. Atkin, San Francisco, for appellants.
Courtney L. Moore, San Francisco, for respondent.
TAYLOR, Justice pro tem.
This is an appeal from judgments for plaintiff in two actions, both of which arose out of the earlier divorce case of Reynolds v. Reynolds.
The divorce action, after personal service was obtained on the defendant Robert Reynolds in Denver, Colorado, was heard on default and plaintiff Charlotte Reynolds was granted an interlocutory decree of divorce and one-half of the community property. Her share included $689.03 in cash, 243 shares of the common capital stock of the Standard Oil Company of California, 204 shares of the common capital stock of the California Western States Life Insurance Company, and 7 shares of the common capital stock of the Pacific Telephone and Telegraph Company. She was also allowed $500.00 per month alimony, and her attorney, Courtney L. Moore, a fee of $1250.00.
The defendant, whose whereabouts are unknown, had all the stock shares registered in his name and had possession of the stock certificates. All three corporations refused to issue new certificates to plaintiff for the amount of stock granted her in the divorce decree unless the original certificates were surrendered.
Mrs. Reynolds then obtained a judgment, in an action brought against her husband and the three corporations, quieting title to the shares awarded her in the divorce action, ordering the companies to register these shares in her name and issue her stock certificates therefor and also decreeing a lien on the remaining shares in Reynolds' name to secure the future payment of her alimony. The trial court's conclusion of law makes it clear that the lien was to be on the stock remaining in Reynolds' name on the corporate books after Mrs. Reynolds received her share of the community. The form of judgment is clerically erroneous in this regard and should be corrected to commply with the conclusion of law. Reynolds was served by publication in this action.
Mrs. Reynolds and her attorney also had writs of execution served on Standard Oil for accumulated alimony, the money judgment in the amount of $689.03 and the attorney's fee. Standard returned that it did not have possession or control of the shares and the sheriff proceeded to sell 48 shares to Mrs. Reynolds and 29 shares to Mr. Moore at public auction, and issued them certificates of sale. Standard refused to issue new stock certificates without the surrender of the originals and Mrs. Reynolds and Mr. Moore obtained a judgment in an action to compel the company to do so.
From these two judgments, one quieting title and imposing a lien, and the other arising out of the execution and sheriff's sale, defendant Standard Oil now appeals. The other two defendants appeal from the judgment quieting title in Mrs. Reynolds to the shares in their respective companies. It was stipulated that the two cases could be considered together on appeal. Defendant's main contention is that under section 2477 of the Corporations Code, it can not be compelled to issue new certificates of shares until the old certificates are surrendered.
Section 2477 of the Corporations Code provides: 'A corporation shall not be compelled to issue a new certificate for shares until the old certificate is surrendered to it, except when a certificate has been lost or destroyed, or the shares evidenced by a certificate have been sold for a delinquent assessment or nonpayment of the subscription price. In case any part of the delinquent shares represented by an outstanding certificate are sold or forfeited, the certificate shall be surrendered to the corporation before the holder is entitled to a new certificate for the unsold or unforfeited shares.' Defendants argue that the adoption of the Uniform Stock Transfer Act in 1931, and more particularly sections 2462 to 2473 of the Corporations Code, did, in effect, make the stock certificate evidence of ownership rather than registry on the corporate books, and thus gave the certificate characteristics of ready negotiability; that unless section 2477 is strictly adhered to and the original certificates surrendered before issuance of new ones to Mrs. Reynolds the corporation might be required by section 2408 of the Corporations Code to issue additional certificates to innocent assignees from Reynolds; and that this would result in litigation and possible damages, a dilution in the value of the stock, generally, and a weakening of the corporate structure.
We agree with defendant's analysis of the effect of the adoption of the Uniform Stock Transfer Act. As stated in East Coalinga Oil Fields Corp. v. Robinson, 86 Cal.App.2d 153, 159, 194 P.2d 554, 557, 'due to the peculiar characteristics of negotiable instruments, into which class stock certificates have been placed by the Uniform Stock Transfer Act, an unimpeachable title may be transferred and vested in an innocent purchaser for value and without notice by one having no title himself.' In Clark v. Western Feeding Co., 10 Cal.App.2d 727, 52 P.2d 991, the court in a quiet title action commented on the change in the law since the adoption of the Uniform Stock Transfer Act in 1931, and held that a prior bona fide assignee of an endorsed stock certificate prevailed over a creditor who received a new certificate after a sheriff's execution sale.
In the light of the above discussion we first consider the claim for the issuance of new stock certificates based upon the sheriff's execution sale. Sections 541, 542, 688, and 699 of the Code of Civil Procedure do now, and did prior to 1931, permit attachment and execution of corporate stock. When the Legislature adopted the Uniform Stock Transfer Act, including what is now section 2477, Corporations Code, they pointedly excluded therefrom section 13 which provided '[n]o attachment or levy upon shares of stock for which a certificate is outstanding shall be valid until such certificate be actually seized by the officer making the attachment or levy, or be surrendered to the corporation which issued it, or its transfer by the holder be enjoined.'
We can only conclude in applying accepted rules of statutory construction that the Legislature had some purpose in this omission and that the specific sections on attachment and execution contained in the Code of Civil Procedure constitute an additional exception to the general rule in section 2477 that a corporation need not issue a new certificate until the original is surrendered. Rose v. State of California, 19 Cal.2d 713, 723, 724, 123 P.2d 505; Whittemore v. Seydel, 74 Cal.App.2d 109, 120, 168 P.2d 212. 'In this state the location of the certificate is of no consequence. Under section 699 of the Code of Civil Procedure it is not necessary for the sheriff to take physical possession of the cerificates in order to hold a valid sale on execution of the shares.' Partch v. Adams, 55 Cal.App.2d 1, 5, 130 P.2d 244, 247. As stated by Professor Ballentine in 19 Cal.L.Rev., page 481, 'It was also decided with some reluctance to omit section 13 restricting the rights of creditors by way of attachment or execution of shares to seizure of the certificate. This seriously mars the policy of facilitating transfer by making certificates reliable evidence of title. Organizations of creditors and also many attorneys were, however, opposed to the requirement of seizure of share certificates on the ground that this would seldom be possible. It was contended that shares of stock now enjoy many privileges and should not be placed in the class of property which cannot readily be levied upon.' (Emphasis added.)
Defendant argues that the attachment or execution provisions of the Code of Civil Procedure would be effective even though new certificates were not issued, in that the execution sale would still convey the right, title and interest of the judgment debtor. We conclude that notwithstanding the possibility that a bona fide assignee of the original certificates may appear sometime in the future with valid title to his shares, new certificates must issue where there has been a valid execution sale.
We now consider the judgment quieting title to the stock representing plaintiff's share of the community in the divorce decree, ordering the company to issue new certificates therefor and placing a lien on Reynolds' remaining shares to insure payment of future alimony. Plaintiffs, relying on Corporations Code, section 2416, contend that a judgment ordering the corporation to issue new certificates, invokes still another exception to the general rule enunciated in Corporations Code, section 2477. We think section 2416 not applicable to the instant case. That section merely defines the liability of a corporation which has transferred 'a certificate for shares' on its register and has issued a new certificate therefor, pursuant to a court order which is subsequently changed, modified or reversed. It does not concern the authority of the court to order the issuance of a new certificate while one remains outstanding.
However, inherent within the exception to Corporations Code, section 2477, which permits a levy of execution on shares of stock without seizing the originals, is the recognition that the court has the authority to order the issuance of new certificates though the originals be unavailable, where it is necessary to carry out or execute its own judgments or decrees.
A writ of execution in the broad sense of the term can issue and be levied as a result of the court's judgment in the quiet title action, which, in essence, orders the defendant Standard Oil Company to deliver to Mrs. Reynolds possession of her community interest in the Standard stock. Section 684, Code of Civil Procedure, under the general title of Execution of Civil Judgments, provides 'When the judgment is for money, or the possession of real or personal property, the same may be enforced by a writ of execution * * *' (Emphasis added.)
In fact, the service of a copy of the court's judgment in the quiet title action ordering defendant to issue and deliver certificates of stock to plaintiff Charlotte Reynolds is the equivalent of the levy of a writ of execution under this same section as a means of enforcing the court's judgment. The section further provides, '[w]hen the judgment requires the sale of property, the same may be enforced by a writ reciting such judgment, or the material parts thereof, and directing the proper officer to execute the judgment, by making the sale and applying the proceeds in conformity therewith; when the judgment requires the performance of any other act than as above designated, a certified copy of the judgment may be served upon the party against whom the same is rendered, or upon the person or officer required thereby or by law to obey the same, and obedience thereto may be enforced by the Court.' (Emphasis added.)
Although the facts were not comparable to those in the instant case we agree with the general principle laid down in Hausfelder v. Security-First Nat. Bank, 77 Cal.App.2d 478, 485, 176 P.2d 84, 88, that '[t]he Civil Code sections [sections now in Corporations Code] were designed for the protection of corporations. But where the right and title of a donee of corporate securities have been established by judicial decree the statute is not applicable.' (Emphasis added.) Defendant Standard Oil cites section 53 of the Restatement of Conflict of Laws and contends that jurisdiction over corporate shares lies only in the state of incorporation, which in this instance would be Delaware. We do not agree. The Standard Oil Company of California has its offices and conducts its business in this state.
In Partch v. Adams, supra, the court said in discussing the situs of stock for attachment or execution purposes, 'there are many situations in the law where, for purposes of venue and jurisdiction, a corporation has been held to be present in any county where it conducts its operations.' At page 6 of 55 Cal.App.2d, at page 247 of 130 P.2d. The court relied on Wait v. Kern River Mining, ect., Co., 157 Cal. 16, 21, 106 P. 98, 100. In the Wait case the court said in referring to the right to attach or execute in California on stock of an Arizona corporation doing its business and owning its property in this state, 'Under such circumstances its residence in Arizona, or anywhere else outside of California is the merest fiction. As to such a corporation, so organized and situated in regard to all its business and property, we can see no good reason why, as was said in the case last cited, 'the fiction as to the situs of the corporation entity ought not to yield in the interest of justice to the actual facts,' to an extent sufficient to warrant the holding that the corporation is sufficiently a resident of this state to bring it within the rule applicable to domestic corporations as to the situs of its stock.' We are not here concerned with the court's jurisdiction over Mr. Reynolds' actual certificates, since we have concluded that defendant Standard Oil Company must issue Mrs. Reynolds' new certificates even though the originals be not surrendered.
Defendant Standard contends that a claimant of ownership of shares must submit to its corporate by-laws (Oakland Scavenger Co. v. Gandi, 51 Cal.App.2d 69, 81, 124 P.2d 143) and that Standard's bylaws provide, 'Transfer of the shares of stock shall be made on the books of the company only by the person named in the certificate or by an attorney lawfully constituted in writing and upon the surrender of the certificate therefor.' (Emphasis added.) In our opinion the corporate bylaws do not affect the authority of the courts to order a transfer of stock in execution of its own judgment.
We see merit in defendant Standard's contention that the plaintiffs should be required to file indemnity bonds to protect the company in the issuance of new certificates. Section 2409 of the Corporations Code provides that either a foreign or domestic corporation may require an indemnity bond if there is reasonable doubt as to a claimant's right to have stock transferred on the corporate books and certificates issued. If the parties cannot agree on the amount of the bond it can be established in a court proceeding.
In view of the negotiability of stock certificates since the adoption of the Uniform Stock Transfer Act in 1931, there is a real possibility that Reynolds may have endorsed some if not all of his certificates to bona fide purchasers who could make enforceable claims against the Standard Oil Company. In fact, had Reynolds so transferred all the shares before the interlocutory decree was executed, the stock would not be subject to the court's order disposing of the community property. Obviously the corporation is subjected to possible litigation, expense, and damages. For these same reasons, where certificates are stolen or lost, section 2420 of the Corporations Code provides the protection of an indemnity bond before new certificates are issued.
We conclude that the judgments of the trial court in ordering defendant Standard Oil Company to issue the stock certificates to plaintiffs Reynolds and Moore should be affirmed in both cases on appeal with the modification that adequate indemnity bonds be posted by plaintiffs as provided in section 2409 of the Corporations Code. The judgment in the quiet title action should The California Western States Life Insurance Co. and Pacific Telephone and Telegraph Co. joined with the Standard Oil Co. in this appeal, and the decision and all rulings herein also apply to these two defendants with reference to the judgment from which they appeal.
The judgments as modified are affirmed.
BRAY, P. J., and TOBRINER, J., concur.
Hearing granted; DOOLING, J., not participating.