Opinion
No. 75-151.
Argued November 30, 1976. —
Decided January 6, 1977.
APPEAL from a judgment of the circuit court for Waukesha county: CLAIR VOSS, Circuit Judge. Affirmed.
For the appellant there was a brief by Hippenmeyer, Reilly Arenz, and oral argument by Dale. W. Arenz, all of Waukesha.
For the respondent there was a brief by Johnson Brendemuehl, and oral argument by William A. Swendson, all of Oconomowoc.
FACTS.
Plaintiff-appellant Lowell Wolf commenced this action against defendant-respondent James Sachse, to collect on two promissory notes dated February 1, 1972. These were in the principal amounts of $1,080 and $1,160 and were given in exchange for two hundred shares of corporate stock in Kettle Moraine Landscaping, Inc., a corporation in which plaintiff and his brother Leland Wolf each owned 50 percent of the outstanding shares.
Plaintiff and defendant entered into a sales agreement whereby defendant purchased two hundred shares of stock in the closely held landscaping services corporation, in which defendant had been an employee. Plaintiff represented the two hundred shares to be a 50 percent interest in the corporation. The trial court held, however, since 600 shares of stock were outstanding or authorized, the two hundred shares did not represent such 50 percent interest. The shares of stock owned by plaintiff were never endorsed over or actually delivered to the defendant.
Plaintiff claims there was "constructive delivery" of the stock certificates. The basis of this claim is the "corporate book" of the corporation which contains certificates for 200 shares of capital stock in the name of James Sachse, dated January 29, 1972. These certificates of stock are unsigned and unsealed. The book was located at the office of the attorney for the corporation.
There is a factual dispute concerning whether or not there was a stockholders' meeting on January 29, 1972. Plaintiff claims there was such a meeting and that defendant was elected to the board of directors of the corporation. Defendant concedes he was presented minutes of a corporate meeting, prepared by the company attorney, which he was asked to sign and did in fact sign. According to these minutes, defendant was elected secretary of the corporation, which he claims was a surprise to him. In fact, Sachse asserts that no meeting of directors was actually held on January 29, 1972.
When the promissory notes became due two years later, plaintiff made demand for payment. Defendant refused, alleging nondelivery of the stock certificates as a defense. Whereupon plaintiff commenced this action. The trial court found no delivery of the stock certificates within the meaning of sec. 408.313(1), Stats., and therefore no consideration for said notes. Judgment was entered for defendant, and plaintiff appeals.
The sole question to be answered is whether or not there was delivery of the stock certificates to this defendant within the meaning of the relevant statute. If there was such required delivery, valid consideration exists for defendant's promises to pay and the trial court judgment must then be reversed. If, however, there was not such required delivery, then there was no consideration given for the two promissory notes and the trial court judgment must be affirmed.
The relevant and controlling statute as to stock transfers in this state is art. 8 of the Uniform Commercial Code entitled "Investment Securities," adopted in 1963 as ch. 408 of the Wisconsin Statutes. That chapter governs the transfer of "securities," including the 200 shares of stock involved in this appeal. Additionally, this chapter places the duty to deliver transferred stock certificates upon the transferor, providing that such delivery to a purchaser occurs when:
Sec. 408.102(1) (b), Stats., provides: "A writing which is a security is governed by this chapter and not by ch. 403 even though it also meets the requirements of that chapter. This chapter does not apply to money." (Ch. 403, entitled "Commercial Paper," governs negotiable instruments other than securities.)
Sec. 408.102(1) (a), Stats., provides: "(a) A `security' is an instrument which:
"1. Is issued in bearer or registered form; and
"2. Is of a type commonly dealt in upon securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment; and
"3. Is either one of a class or series or by its terms is divisible into a class or series of instruments; and
"4. Evidences a share, participation or other interest in property or in an enterprise or evidences an obligation of the issuer."
Sec. 408.314(2), Stats., provides that: "Except as otherwise provided in this section and unless otherwise agreed, a transferor's duty to deliver a security under a contract of purchase is not fulfilled until he places the security in form to be negotiated by the purchaser in the possession of the purchaser or of a person designated by him or at the purchaser's request causes an acknowledgment to be made to the purchaser that it is held for him. . . ."
"(a) He or a person designated by him acquires possession of a security; or
". . .
"(d) With respect to an identified security to be delivered while still in the possession of a third person when that person acknowledges that he holds for the purchaser."
Sec. 408.313(1), Stats.
It is clear that the duty to effect delivery was upon the plaintiff-seller here. Such duty was not discharged until such plaintiff-seller either "places the security in form to be negotiated by the purchaser in the possession of the purchaser or of a person designated by him or at the purchaser's request causes an acknowledgment to be made to the purchaser that it is held for him."
Sec. 408.314(2), Stats. (n. 3).
The plaintiff claims the existence of the stock certificates in the corporate book discharges this burden. The book was located at the office of the company attorney. We agree with the trial court that this does not constitute placing the securities "in the possession of the purchaser or of a person designated by him," as the statute requires. Moreover, the trial court specifically found that the certificates in the corporate book were not endorsed by the plaintiff. So, as an additional imperfection, they were not, as the statute also requires, "in form to be negotiated by the purchaser."
The alternative method of effecting delivery under the statute, where one "at the purchaser's request causes an acknowledgment to be made to the purchaser that it is held for him" was not here attempted, much less completed. There is no evidence that defendant requested such procedure be followed, and no evidence that, in the words of the statute, an acknowledgment was "made to the purchaser that it [the certificate] is held for him."
Plaintiff Wolf puts some additional arrows to the bow in seeking to find, on the facts and under the circumstances here, a completed delivery of the stock certificates by the plaintiff to the defendant. One is the contention that the plaintiff "gave up legal and physical possession to the stock at the moment when he resigned from the Board of Directors and as an officer of Kettle Moraine Landscaping, Inc." The short answer is that the statute requires transfer of the securities, not resigning from a board or officership.
Plaintiff-Appellant's Brief, at page 5.
Wolf stresses that plaintiff's stock certificates were ". . . with the corporate book. The corporate book was located at the office of the attorney for the corporation." That fact falls far short of meeting the transferor's duty to effect a transfer. Plaintiff in his brief contends that the certificates in the attorney's possession had been "endorsed by the previous owner." The trial court found to the contrary, and our examination of the corporate book supports that ruling. Accordingly, that finding is not overturned on appeal. Even if the certificates had been so endorsed, unless the attorney was a person designated by the purchaser to receive possession or had acknowledged holding the stock for the purchaser, and was requested by the purchaser so to do, the statutory requirements for delivery are not met.
Id. at 5.
Id. at 12.
Sec. 408.313(1), Stats. See: McCorquodale v. Holiday, Inc., 90 Nev. 67, 70, 518 P.2d 1097, 1098, 14 U.C.C. Rep. 199, 201 (1974), the Nevada court holding: "The record is devoid of evidence of delivery to McCorquodale or his agent. The fact that the stock was issued in McCorquodale's name is alone insufficient to establish delivery. Without delivery McCorquodale had no rights in the stock nor would he receive any rights in the form remedies. . . ." (Citing U.C.C., sec. 8-313, the language identical to sec. 408.313(1), Stats.) See also: James v. Thurn, 265 Md. 501, 508, 290 A.2d 490, 494, 10 U.C.C. Rep. 1228, 1232 (1972); Morris v. Kaiser, 292 Ala. 650, 299 So.2d 252, 15 U.C.C. Rep 469 (1974); Kaufman v. Diversified Industries, Inc., 460 F.2d 1331, 1334 (2d Cir. 1972), cert. denied 409 U.S. 1038, 93 S. Ct. 517, 34 L.Ed.2d 487 (1972).
Finally, plaintiff-appellant contends that the election of defendant as secretary-treasurer of the corporation gave defendant complete control so that at any time he could have completed the stock transfer. Since the stock certificates were not endorsed or signed, that would hardly seem to follow. In any event, the statute provides that it is the duty of the transferor, not the transferee, to complete the delivery. The burden or duty to deliver is by statute placed upon the seller not the purchaser, and here, as the trial court found, that duty was not met.
Plaintiff-Appellant's Brief at page 12.
Sec. 408.314(2), Stats. See also: Sec. 401.201(14), Stats. providing: "Delivery with respect to . . . securities means voluntary transfer of possession."
By the Court. — Judgment affirmed, with costs.