MacKenzie v. A. Engelhard & Sons Co.
Headline: Ruling restores a creditor’s full ownership of stock bought at a court sale, reverses the lower court’s limit, and requires the company to deliver shares or pay their value, affecting creditors and corporations.
Holding: The Court reversed the lower court and held that a creditor who bought stock at a court-ordered sale during the litigation is absolutely entitled to those shares, and the company must deliver them or pay their value.
- Lets a buyer who buys stock during a pending suit keep it despite later transfers.
- Requires a company that knew of the claim to deliver the stock or pay its value.
- Makes reissuing or canceling certificates ineffective to defeat a later court-ordered sale.
Summary
Background
Mackenzie, a creditor holding a $7,500 note, claimed 130 shares of company stock that had been represented by certificate No. 24 and filed that certificate in a Kentucky suit against the maker and the corporation. The state courts initially ruled for the defendants, Eschmann withdrew the certificate and later had new certificates issued to his wife and attorney. After an appeal, the Court of Appeals reversed and the trial court entered judgment for Mackenzie, recognizing his lien and ordering the shares sold. At a July 15, 1918 sale Mackenzie bought the stock for $100 and the sale was confirmed in October 1918, but the corporation refused to issue a new certificate to him.
Reasoning
The Supreme Court examined whether that sale and final judgment gave Mackenzie absolute title despite his not obtaining a supersedeas or pursuing the assignees. The Court held the sale was effective against the parties, the plaintiff acquired absolute rights to the shares, and the corporation — which had notice of the claim — must either deliver the stock or pay its value. The Court rejected the lower appellate court’s decision to limit Mackenzie’s relief to debt and costs and therefore reversed the decree.
Real world impact
The decision protects buyers at court-ordered sales who acquire property during pending litigation. Companies that knew of a creditor’s claim cannot defeat that claim by canceling or reissuing stock certificates. Creditors can look to the corporation for delivery or the monetary value of shares when a court sale gives them title.
Dissents or concurrances
Three Justices dissented from the majority and would have upheld the lower court’s narrower relief.
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