Opinion
May 25, 1931.
June 27, 1931.
Partnership — Accounting — Pledge of securities — Res adjudicata.
On a bill for an accounting against a surviving partner by representatives of a deceased partner, where, on exceptions to the account, the chancellor found that certain corporate stock owned by the partnership had been pledged but with an agreement that the dividends accruing on it were not included in the pledge but were received and used by the pledgors, and a decree against the defendant based on such finding was affirmed on appeal, such finding is conclusive in separate proceedings on a supplementary account filed by the surviving partner, showing the receipts of dividends by him on the pledged stock subsequent to the period covered by the first account.
Argued May 25, 1931.
Before FRAZER, C. J., WALLING, SIMPSON, KEPHART, SCHAFFER and MAXEY, JJ.
Appeal, No. 209, March T., 1930, by the First National Bank of Johnstown, from decree of C. P. Cambria Co., sitting in equity at No. 4, Dec. T., 1923, Equity Docket, on bill in equity for an accounting, in case of Margaretta K. Murdock, executrix of Wilbert F. Murdock, deceased, Margaretta K. Murdock in her own right, Casper Herbert Wertz, administrator of estate of Maud Wertz, deceased, v. J. M. Murdock, surviving partner of J. M. Murdock Brother, a partnership consisting of J. M. Murdock and Wilbert F. Murdock, and First National Bank of Johnstown, intervening defendant. Affirmed.
Bill against surviving partner for accounting.
The facts appear in Murdock v. Murdock, 300 Pa. 280, and in the opinion by the court below by EVANS, P. J., which, as to its material parts, is as follows:
The second exception is that the accountant has failed to charge himself with the dividends received by him since February 2, 1926, on the stock found to be pledged to the First National Bank of Johnstown, Pennsylvania. We are of the opinion that this exception is well taken. It has been settled and finally determined in this case that there was a pledge of the stocks referred to in this exception by the partnership to the First National Bank of Johnstown, Pennsylvania, the intervening defendant, but with an agreement that the pledgors might have and receive the dividends during the term of the pledge. It seems to us that this precise question was raised in the appeal to the Supreme Court and squarely passed upon by that court. Mr. Justice SADLER, in discussing this feature of the case [in 300 Pa. 280, 286, 150 A. 599, 602], says: "The conduct of the parties clearly showed the pledgor firm was to have the benefit of such sums actually paid to and received as accruing income. The conclusion was therefore properly reached that such dividends, already appropriated, should not be taken from the firm balance and applied in part payment of the debt for which the stocks were validly held. It follows that defendants' claim, now asserted that such amounts, received after the date of the last distribution, and the time of bringing suit, is without merit, and the decree below so holding must be sustained." The second exception, therefore, is sustained.
The sixth exception is that the defendant has failed to account for 24.25 additional shares of the stock of the Johnstown Telephone Company purchased by him with partnership funds subsequent to February 2, 1926. The eighth exception makes the same complaint as to twelve additional shares of stock of the Pittsburgh-Johnstown Telephone Company purchased by the surviving partner with the partnership funds subsequent to February 2, 1926. The seventh and ninth exceptions complain of the failure of the accountant to account for the dividends received on the 24.25 shares of Johnstown Telephone Company stock and the 12 shares of the Pittsburgh-Johnstown Telephone Company stock.
"As between the pledgor and pledgee of stock, the former is entitled to the privilege [of subscribing to a new issue of stock]": Fletcher, Cyclopedia Corporations, volume 5, page 5698, note 54; McCandless v. Window Glass Machine Co., 52 Pitts. L. J. 298, 299; Savidge on Pennsylvania Corporations, volume 1, page 468, section 584; 4 Thompson on Corporations (2d ed.) 221. The right to subscribe for additional stock having accrued while the property was still pledged and unsold or [undisposed] of by the pledgee, the right to subscribe for additional stock remained vested in the surviving partner for the benefit of the partnership. The mere fact that this litigation may have made it inadvisable for the intervening defendant, First National Bank of Johnstown, Pennsylvania, to attempt to sell and dispose of the pledged stock until the determination thereof is no different from any other contract which parties may enter into, and the exercise of rights thereunder may be deferred or interfered with by reason of litigation. So that, as we understand the law, so long as the pledgee has not proceeded properly to dispose of the pledged assets [or to] sell and dispose of the same, the right of the pledgor to subscribe for new issues of stock belongs to the pledgor and, as a result thereof, the accountant must account to the plaintiff for the shares of stock in the two corporations mentioned in the exceptions. In reaching this conclusion, we have considered the letters sent out by counsel for the plaintiffs to the First National Bank of Johnstown and the other corporations whose stocks were pledged as collateral, in which they were notified not to transfer the stock of the partnership to any other person. This, however, did not prevent the First National Bank of Johnstown, Pennsylvania, if they had so desired, from proceeding to sell and dispose of the pledged stock. As matters turned out, they might have safely proceeded to do this, but with the question in litigation as to whether or not the stock had been pledged, they wisely refrained from taking any chances whereby they might possibly subject themselves to damages. This new stock being the property of the partnership, paid for with partnership funds, the dividends therefrom must be accounted for.
We therefore enter the following decree:
And now, August 4, 1930, after argument and due consideration, it is ordered, adjudged and decreed that the first exception filed by the plaintiffs be and is hereby overruled; the second exception sustained; the third exception overruled; the fourth exception overruled; the fifth exception sustained to the extent of five hundred ($500) dollars; and the sixth, seventh, eighth and ninth exceptions sustained; and the defendant accountant is directed to make settlement with the plaintiffs in accordance with the conclusions reached hereinabove and this decree, including thereunder any dividends received on the stock of the Johnstown Telephone Company and the Pittsburgh-Johnstown Telephone Company, stock acquired by virtue of the partnership being the owners of stock in said company and having the right to purchase a new issue of stock, as well as the dividends on the stocks pledged as collateral; and that the costs be paid by the accountant.
First National Bank of Johnstown, intervening defendant, pledgee of the stock, appealed.
Error assigned, inter alia, was decree, quoting record.
J. Earl Ogle, Jr., with him A. Lloyd Adams, for appellant.
I. Morton Meyers, of Graham, Yost Meyers, for appellees.
The decree is affirmed upon the opinion of the president judge of the court below; costs to be paid by the appellant.