The opinion of the court was delivered by: HERLANDS
Unless the United States Marshal levying by execution on a judgment-debtor's property obtains physical possession of the debtor's corporate stock certificate, the levy is ineffective as against a bona fide purchaser for value of the certificate to whom the duly endorsed certificate has been regularly delivered in the normal course of business. Under the stated circumstances, the levy does not invalidate the purchaser's title notwithstanding that the stock represented by the certificate had been purchased and the certificate delivered after the date when the execution was served on the corporation whose register at the time recorded the debtor as the owner of the stock.
The Nature of the Motions at Bar
This proposition of law is the crux of the controversy between the judgment-creditor, Claude Neon, Inc., now Dynamics Corporation of America ('Dynamics') and the bona fide purchaser for value, Levien, Greenwald & Co. ('Levien').
The judgment-debtor is Lowell M. Birrell. The judgment dated, entered and filed February 27, 1958, is for $ 3,256,639.40. The relevant execution was issued on December 30, 1958. The stock certificate involved is Certificate No. CU69, for 100 shares of common stock in Reeves-Ely Laboratories, Inc., a New York corporation ('Reeves').
On April 7, 1959, Levien purchased 100 shares of Dynamics preferred stock from The Dominion Securities Corporation (of New York). Under a plan of merger, the common stock of Reeves was exchangeable, share for share, for Dynamics preferred stock.
On April 13, 1959, Levien paid the purchase price to The Dominion Securities Corporation. On April 21, 1959, The Dominion Securities Corporation delivered Certificate No. CU69 to Levien. On April 23, 1959, Levien delivered Certificate No. CU69 to Marine Midland Trust Company of New York ('Marine'), as transfer agent of Dynamics, for exchange and transfer for 100 shares of the $ 1 par value preferred stock of Dynamics, to be registered in Levien's name.
The issue of the legal effect of the execution of December 30, 1958, vis-a-vis the title of Levien to Certificate No. CU69 is raised by two motions: (1) an application by Dynamics to require Marine to turn over and deliver to the United States Marshal Certificate No. CU69; and (2) a cross-application by Levien to compel Marine to redeliver said stock certificate to Levien.
Marine does not claim a beneficial interest in the certificate, which it holds only in its capacity as transfer agent of Dynamics. Marine seeks an order permitting it to deposit the certificate in the registry of this court, there to abide the judgment of the court, discharging Marine of all liability in the premises and dismissing it from the present proceeding.
Dynamics had instituted supplementary proceedings against Birrell as judgment-debtor. A subpoena duces tecum (F.R.Civ.P., rule 69(a), 28 U.S.C.A.) having been served upon Livien, Livien has become a third party respondent in the supplementary proceedings.
A chronology of the relevant events and transactions is essential.
According to the files and records of this Court, an execution dated June 23, 1958, required the United States Marshal to satisfy, out of Birrell's property, $ 3,256,639.40 in satisfaction of a judgment (Judgment No. 62-054) recovered in this Court by Claude Neon, Inc., against Birrell, as appears by the judgment filed on February 27, 1958. The execution was filed in the office of the Marshal on June 27, 1958. A typewritten notice attached to the execution by the attorneys for the judgment-creditor and dated June 26, 1958, was addressed to Dynamics. This notice stated 'that the within execution is levied upon all dividends due or to become due and all other monies due or to become due to the judgment debtor herein, Lowell M. Birrell, upon stock hold by him in Dynamics Corporation of America; and any and all other monies due or to become due to said judgment-debtor from Dynamics Corporation of America.'
This execution was returned on August 22, 1958 and marked 'Judgment partially satisfied.' The Marshal's notation indicates that he 'collected the sum of $ 50,00 from the Marine Midland Trust Co. (Dividend pay. 6/30).' This execution was filed in this Court on August 28, 1959. Apparently, the judgment-creditor attaches no significance to the execution of June 23, 1958, for purposes of the present proceedings.
Another execution was issued under date of December 30, 1958. This execution was received in the Marshal's office on the same day. It was issued for the purpose of satisfying the judgment (Judgment No. 62-054) already referred to.
On December 31, 1958, the execution was served on Dynamics. According to the moving affidavit (Affidavit of Levy, sworn to July 21, 1959, p. 2), the Marshal levied the said execution 'on the property of the judgment debtor by serving the execution upon Dynamics and among the property being levied on was the aforesaid 100 shares of common stock in Reeves-Ely Laboratories, Inc.'
The Marshal's return, dated January 14, 1959, stated that he 'collected the sum of $ 50.00 from the Marine Midland Trust Co.,' and the Marshal's notation reads: 'Judgment partially satisfied.'
Under date of March 25, 1959, the signature of Birrell appears on the signature line on the printed form of assignment appearing on the reverse side of Certificate No. CU69. The date, 'March 25, 1959,' is stamped in the blank space provided for that purpose in the form of assignment (Affidavit of Straat, Jr., sworn to August 11, 1959).
On or about April 7, 1959, Dominion Securities Corp. Limited (a Canadian corporation) received Certificate No. CU69 'in the ordinary course of its business as a dealer in securities' to be sold 'for the account of one of its customers,' an attorney named Harry Blank, of 1255 University Street, Montreal. Dominion Securities Corp., Limited, instructed The Dominion Securities Corporation (of New York) to sell the said shares over-the-counter in New York (Affidavit of Gerald E. Bennett, dated August 7, 1959; Affidavit of J. R. Clarke, sworn to August 7, 1959).
On April 7, 1959, Levien purchased, for the price of $ 2,225, 100 shares of Dynamics preferred stock, at $ 22.25 per share. This purchase was for Levien's own account in the regular course of business and was from The Dominion Securities Corporation in the over-the-counter market. The Dominion Securities Corporation purchased 100 shares of Reeves common stock for the account and risk of Levien and sold the same shares for the account and risk of Dominion Securities Corp. Limited, a Canadian affiliate of The Dominion ...