BOBBY MESHEW, ADMINISTRATOR OF THE ESTATE OF ROBERT JETER (DECEASED) v. JAMES ALAN WHITLOCK
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RENDERED: DECEMBER 23, 1999; 2:00 p.m.
TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1998-CA-001435-MR
AND
CROSS-APPEAL NO. 1998-CA-001486-MR
BOBBY MESHEW, ADMINISTRATOR
OF THE ESTATE OF ROBERT
JETER (DECEASED)
APPELLANT/CROSS-APPELLEE
APPEALS FROM CARLISLE CIRCUIT COURT
HONORABLE WILLIAM L. SHADOAN, JUDGE
ACTION NO. 95-CI-000040
v.
JAMES ALAN WHITLOCK
APPELLEE/CROSS-APPELLANT
OPINION
AFFIRMING IN PART, REVERSING IN PART, AND REMANDING
** ** ** ** **
BEFORE:
COMBS, JOHNSON, AND KNOPF, JUDGES.
KNOPF, JUDGE:
Bobby Meshew, administrator of the estate of
Robert Jeter (deceased), appeals from a May 15, 1998, judgment of
the Carlisle Circuit Court.
The trial court concluded that
certain shares of bank stock are property of the estate rather
than survivorship property passing directly to Jeter’s widow,
Louise Jeter.
Appellee James Whitlock, Jeter’s son, cross-
appeals from the same judgment.
He maintains that the trial
court erroneously excluded certain other assets from the
decedent’s estate.
Agreeing with the administrator that the
trial court misconstrued the statutes pertaining to the bank
stock, we reverse the judgment on that issue, but finding no
other error, we affirm the judgment in all other respects.
The Administrator’s Appeal
In December 1984, the Carlisle BanCorp, Inc. (a holding
company of the Citizens Deposit Bank of Arlington (the bank))
issued to Robert Jeter, in his name alone, stock certificate
number 47 evidencing his ownership of one hundred (100) shares of
the corporation’s stock.
Jeter died intestate in December 1994.
Shortly after Jeter’s death, the stock certificate was found in
his lock box at the bank, and the owner’s line had been altered.
Whereas originally it had read simply “Robert Jeter,” it then
read “Robert Jeter or Louise Jeter.”
It is undisputed that the
bank’s president, at Jeter’s request, had the corporation’s
secretary alter the certificate in this manner.
She made a
similar alteration to the corporation’s transfer ledger.
Neither
the bank’s president nor the corporate secretary could recall
when they had made these changes, but both testified (during
depositions) that they had done so prior to Jeter’s death.
The administrator of Jeter’s estate (the appellant),
believing that Jeter’s alteration of his certificate had effected
the transfer of a survivorship interest in the stock to his wife,
did not seek to include the shares of stock in the estate.
Jeter’s son objected.
In August 1995, he brought the current
action against the administrator.
His complaint alleged that
Jeter’s estate comprised both real and personal property and that
he (Whitlock) was entitled to an intestacy share thereof.
By
subsequent motion, Whitlock alleged specifically that the one
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hundred (100) shares of Carlisle BanCorp, Inc. stock should have
been included in Jeter’s estate.
The trial court agreed.
Although it found that Jeter had intended to give a survivorship
interest in the stock to his wife and that the bank’s president
and the corporation’s secretary had altered the stock ownership
documents in the manner described above, it held that, under KRS
Chapter 355 (Kentucky’s Uniform Commercial Code (UCC)), Jeter’s
failure to indorse the certificate was fatal to his attempt to
effect a transfer.
We disagree.
The facts with respect to this issue having been
stipulated, the trial court’s judgment was based strictly on its
construction of KRS Chapter 355.
We note the familiar rule that
the construction and application of a statute is a matter of law
and is to be reviewed de novo by an appellate court.
Louisville
Edible Oil Products, Inc. v. Revenue Cabinet Commonwealth of
Kentucky, Ky. App., 957 S.W.2d 272 (1997).
We note, too, for
reasons soon to be apparent, that KRS Chapter 355 is “intended as
a unified coverage of its subject matter, no part of it shall be
deemed to be impliedly repealed by subsequent legislation if such
construction can reasonably be avoided.”
KRS 355.1-104.
The trial court’s task in determining the effect of
Jeter’s having altered his stock certificate was complicated by
the fact that KRS 355.8, the article of the UCC concerned with
investment securities, had undergone a significant revision
between the advent of this controversy and its arrival before the
court.
Our duty, as was the trial court’s, is to construe the
statutory provisions as they existed at the time of Jeter’s
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attempted transfer.
That attempt occurred between 1987 and 1996,
the last two times the pertinent portions of KRS Chapter 355 were
revised.
We are concerned primarily, therefore, with the 1987
version of the statute.
We are persuaded, however, and hope to
show, that the 1996 revision, at least with respect to the issue
raised here, was intended to clarify rather than amend the UCC
and thus that the current version of the pertinent sections of
the statute is consistent with and supports our construction of
the earlier version.
Democratic Party of Kentucky v. Graham,
Ky., 976 S.W.2d 423 (1998).1
To simplify our comparison of the
two versions, we have laid out related sections side-by-side.
1
The 1996 revision of Kentucky’s UCC article 8 adopted the
American Law Institute’s uniform revisions of 1994. According to
the Institute’s prefatory comments, those revisions were intended
to clarify the distinction between the traditional system of
direct securities holding, whereby an investor may obtain
securities issued in his or her own name, and the evolving system
of indirect holding, whereby the investor holds through a broker
or other intermediary. As the revisors explained, “[w]ith
respect to securities held directly, Revised Article 8 retains
the basic conceptual structure and rules of present law. . . .
Part 3 deals with transfer for securities held directly. One of
its principal purposes is to apply to investment securities the
principles of negotiable instruments law that protect purchasers
of negotiable instruments against adverse claims. . . . Although
the basic concepts of the direct holding system rules have been
retained, there are significant changes in terminology,
organization, and statement of the rules.” “Uniform Commercial
Code Revised Article 8. Investment Securities. Proposed Final
Draft,” prefatory note § II B (April 5, 1994).
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It is well to note at the outset that the stock shares
at issue are securities as defined at KRS 355.8-102(o)2 and that
the stock certificate is a “security certificate.”3
We are concerned with both the acquiring (Did Louise
acquire?) and the transferring (Did Robert transfer?) of
interests in securities.
The UCC provided and provides as
follows:
2
“Security,” except as otherwise provided in KRS 355.8-103,
means an obligation of an issuer or a share, participation, or
other interest in an issuer or in property or an enterprise or an
issuer: 1. Which is represented by a security certificate in
bearer or registered form, or the transfer of which may be
registered upon books maintained for that purpose by or on behalf
of the issuer; . . .
3
KRS 355.8-102(p): “Security certificate” means a
certificate representing a security.
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1987 Version
1996 Version
355.8-313(1) Transfer of a
security or a limited interest
(including a security
interest) therein to a
purchaser occurs only: (a) At
the time he or a person
designated by him acquires
possession of a certificated
security; . . . (e) With
respect to an identified
certificated security to be
delivered while still in the
possession of a third person,
not a financial intermediary,
at the time that person
acknowledges that he holds for
the purchaser; . . .
355.8-104(1) A person acquires
a security or an interest
therein, under this article,
if: (a) The person is a
purchaser to whom a security
is delivered pursuant to KRS
355.8-301; . . .
355.1-201(32) “Purchase”
includes taking by sale,
discount, negotiation,
mortgage, pledge, lien, issue
or re-issue, gift or any other
voluntary transaction creating
an interest in property.
355.1-201(33) “Purchaser”
means a person who takes by
purchase.
355.1-201(32) “Purchase”
includes taking by sale,
discount, negotiation,
mortgage, pledge, lien, issue
or re-issue, gift or any other
voluntary transaction creating
an interest in property.
355.8-301(1) Delivery of a
certified security to a
purchaser occurs when: (a) The
purchaser acquires possession
of the security certificate;
(b) Another person, other than
a securities intermediary,
either acquires possession of
the security certificate on
behalf of the purchaser or,
having previously acquired
possession of the certificate,
acknowledges that it holds for
the purchaser; . . .
355.1-201(33) “Purchaser”
means a person who takes by
purchase.
355.8-301(1) Upon transfer of
a security to a purchaser (KRS
355.8-313) the purchaser
acquires the rights in the
security which his transferor
had or had actual authority to
convey unless the purchaser’s
rights are limited by KRS
355.8-302(4). (2) A
transferee of a limited
interest acquires rights only
to the extent of the interest
transferred. . . .
355.8-302(1) Except as
otherwise provided in
subsections (2) and (3) of
this section, upon delivery of
a certificated or
uncertificated security to a
purchaser, the purchaser
acquires all rights in the
security that the transferor
had or had power to transfer.
(2) A purchaser of a limited
interest acquires rights only
to the extent of the interest
purchased.
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Although the 1987 version of the UCC does not define
the delivery requirement as clearly as does the 1996 version, it
is apparent that, under both versions, the transfer of an
interest in a security requires that the transferor intend the
transfer (as evidenced by a sale, gift, or some other
transaction) and that the transfer be completed by some manner of
delivery.
The delivery, however, need not be directly to the
transferee, but can be to a qualifying third person (including
the transferor him or herself).
This third person, however, must
clearly acknowledge that he or she holds for the transferee.
It
was entirely proper, therefore, for Jeter to give his wife an
interest in his shares of stock and to deliver them to her by
holding them for her himself, provided that he acknowledged he
was doing so.
His alteration of the stock certificate to include
Louise and the similar alteration of the corporate records, we
believe, was a suitable acknowledgment.4
See Andrews v. Troy
Bank and Trust Company, 529 So.2d 987 (Ala.1988) (discussing the
4
Consider the comment in Anderson, Ronald A., Anderson on
the Uniform Commercial Code, [Rev] § 8-302:8 (1994): “A common
form of transfer of a limited interest in securities is the
creation of a cotenancy by the sole owner of the securities.
Thus when A, the owner of securities[,] creates a joint tenancy
in which A and B are the joint tenants, B has acquired a limited
interest.
“Local pre-Code property law will determine the mechanics of
such a transfer. In some states it may be necessary for A to
transfer the securities to X who then transfers them to A and B
as joint tenants. In other states, A may make the transfer
directly from A to A and B as joint tenants. Regardless of the
mechanics required to effect the result, the result is still the
same as far as the Code is concerned. That is, B has the rights
and only the rights that A intended.” Kentucky law permits the
transfer of personal property directly from A to A and B as joint
tenants. Saylor v. Saylor, Ky., 389 S.W.2d 904 (1965);
Scherzinger v. Scherzinger, 280 Ky. 44, 132 S.W.2d 537 (1939).
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delivery requirement under Alabama’s very similar version of the
U.C.C.).
Whitlock cites numerous pre-code cases indicating that,
in other contexts, this manner of delivery would not be
sufficient.
In light of the express delivery provisions in the
UCC, however, Whitlock’s reliance on pre-code authority is
unavailing.
Much of this authority, moreover, is factually
distinguishable.
In Biehl v. Biehl’s Adm’x, 263 Ky. 710, 93
S.W.2d 836 (1936), for instance, following the brother’s death,
an alleged inter vivos transfer of stock from him to his sister
was disallowed, in favor of the brother’s widow, because the
sister had failed to prove that the endorsed certificates had
been delivered.
The sister’s testimony was the only evidence of
delivery, and our highest Court ruled that she was incompetent to
give evidence on that point.
In the case before us, however,
competent evidence of delivery came from the bank president and
the corporate secretary, who both testified that Jeter had
acknowledged the gift to his wife and the fact that, thenceforth,
he held the certificate on behalf of his wife and himself
jointly.
Sufficient evidence of delivery distinguishes this case
from Biehl.
But what about Jeter’s failure to indorse the
certificate?
Did that failure negate, as the trial court
believed, what might otherwise have been a valid transfer?
are persuaded that it did not:
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We
1987 Version
1996 Version
355.8-307: If a certificated
security in registered form
has been delivered to a
purchaser without a necessary
indorsement he may become a
bona fide purchaser only as of
the time the indorsement is
supplied; but against the
transferor the transfer is
complete upon delivery and the
purchaser has a specifically
enforceable right to have any
necessary indorsement
supplied.
355.8-304(4): If a security
certificate in registered form
has been delivered to a
purchaser without a necessary
indorsement, the purchaser may
become a protected purchaser
only when the indorsement is
supplied. However, against a
transferor, a transfer is
complete upon delivery and the
purchaser has a specifically
enforceable right to have any
necessary indorsement
supplied.
355.8-309: An indorsement of
a certificated security,
whether special or in blank,
does not constitute a transfer
until delivery of the
certificated security on which
it appears or, if the
indorsement is on a separate
document, until delivery of
both the document and the
certificated security.
355.8-304(3): An indorsement,
whether special or blank, does
not constitute a transfer
until delivery of the
certificate on which it
appears or, if the indorsement
is on a separate document,
until delivery of both the
document and the certificate.
While the trial court is correct to insist that an
indorsement accompanied by a request for the issuance of a new
certificate is the preferred manner of transferring a direct
interest in an investment security, and is further correct to the
extent that an indorsement is necessary if the transferee is to
enjoy the status of a protected purchaser (‘bona fide purchaser’
under the 1987 version of the UCC), nevertheless, the statute,
both now and in 1987, plainly contemplates that transfers will
sometimes occur without an indorsement.5
An indorsement is thus
5
The official comment to section 304(d) of article 8 reads
in part as follows:
Subsection (d) deals with the effect of delivery
(continued...)
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neither a necessary nor a sufficient condition for the transfer
of an interest in an investment security.
What is necessary, as noted above, is the clear
expression of an intent to transfer and, at least in the case of
certificated securities, a delivery to the transferee or to an
eligible third person on the transferee’s behalf.
The trial
court found on the basis of substantial evidence that Jeter
intended to give his wife a survivorship interest in his shares
of bank stock.6
We believe, moreover, as discussed above, that
his alteration of the security certificate and the accompanying
alteration of the corporation’s transfer ledger sufficiently
acknowledged delivery to himself on behalf of his wife.
The lack
of an indorsement, therefore, does not defeat Louise’s claim to
the stock.
Nor is her claim defeated by the fact that the
certificate was altered.
The trial court’s invocation of KRS
355.8-206, which concerns, among other things, the effects of
improper alterations to certificates, is not apt.
As explained
5
(...continued)
without indorsement. As between the parties the
transfer is made complete upon delivery, but the
transferee cannot become a protected purchaser until
indorsement is made.
6
It is not seriously disputed that Jeter intended Louise to
have a survivorship interest rather than some other interest,
such as that of a tenant in common. We agree with the trial
court that the evidence of Jeter’s giving Louise a survivorship
interest in other securities, the testimony of the bank president
and corporate secretary to the effect that Jeter intended a
survivorship interest with respect to the bank stock, and the
fact that the certificate was altered to say Jeter “or” Louise
adequately supports this conclusion. Saylor v. Saylor, Ky., 389
S.W.2d 904 (1965).
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by Liebson and Nowka in their treatise on Kentucky’s UCC, the
alteration provision in article 8, like the comparable provision
in article 3 (KRS 355.3-407), is primarily intended to protect
the original contracting parties, not strangers, such as
Whitlock, who are only indirectly affected by the agreement.7
Here, however, it was the original contracting parties
themselves, Jeter and the issuing corporation, who consented to
and participated in the alteration of the certificate.
circumstances, KRS 355.8-206 does not apply.
In these
Louise thus
acquired a survivorship interest in the bank shares, and, as
Jeter’s survivor, is entitled to an order directing the
corporation to issue her a new certificate.
Whitlock’s Cross-appeal
Whitlock testified that, within nine (9) months prior
to Jeter’s death, he, Whitlock, had seen in his father’s
possession two certificates of deposit worth at least $70,000.00.
The certificates had been issued in Robert Jeter’s name alone.
Whitlock argued that those certificates should have been included
in Jeter’s estate.
Following Jeter’s death, however, no such
certificates were discovered, nor were bank records documenting
the issuance of such certificates produced.
The trial court
ruled, in essence, that Whitlock had failed to meet his burden of
proof on this issue.
Accordingly, it denied his claim for a
share of the alleged $70,000.00.
Whitlock cross-appeals from
this portion of the trial court’s judgment.
7
He argues that there
See Liebson, David J. and Richard H. Nowka, The Uniform
Commercial Code of Kentucky, 2nd ed., § 9.3(F) (1992, supp.
1998).
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is still a genuine factual dispute concerning the existence of
the certificates and, thus, that summary judgment on the issue
was pre-mature.
The problem with Whitlock’s argument is that the trial
court ruled not by way of summary judgment (CR 56), but by way of
trial upon the facts without a jury (CR 52).
To be sure, the
appellee had moved for summary judgment, and, on at least two
occasions, that motion had been addressed by the trial court as
such.
In its final judgment, however, the trial court
determined the issues could better be decided
on the merits than in the framework of a
motion for summary judgment; further, the
parties having agreed to allow the Court to
proceed to make factual findings in this
case, and the Court having considered the
entire record, including the affidavits and
pleadings of the parties, the Court finds as
follows: . . .
There is no record of Whitlock’s having moved for a new
trial following this judgment or for additional findings on the
missing-certificates-of-deposit issue.
the summary judgment motion moot.
This omission rendered
Transportation Cabinet, Bureau
of Highways, Commonwealth of Kentucky v. Leneave, Ky. App., 751
S.W.2d 36 (1988).
Accordingly, our standard of review is not, as
Whitlock suggests, whether the trial court erred in determining
that proof of Whitlock’s claims would be virtually impossible at
trial.
Rather, we must ask whether the trial court clearly erred
in finding that Whitlock had failed to prove the existence of the
non-survivorship property he alleged.
CR 52.01.
The trial court was not clearly erroneous in so
finding.
Noting that Whitlock had failed to offer any concrete
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proof that the certificates existed, the trial court ruled that,
if there had been any such mature certificates of deposit, Jeter
had probably converted them to cash and added the cash to one of
Louise’s survivorship accounts.
Whitlock maintains that, during
the final nine (9) months of his life, Jeter was incompetent to
make such a gift.
Whitlock did not prove this at trial, however,
and there was competent testimony to the contrary.
Proof on this
issue was unnecessary, moreover, because Whitlock failed to
establish that the certificates had ever existed to be given
away.
In sum, we agree with the appellant/administrator that,
under article 8 of the UCC, Jeter validly transferred to his wife
a survivorship interest of one hundred (100) shares of Carlisle
BanCorp, Inc. stock.
We therefore reverse the portion of the
trial court’s May 15, 1998, judgment holding to the contrary and
remand for issuance of an order consistent with this opinion.
Otherwise, we affirm the judgment of Carlisle Circuit Court, in
particular that portion of it denying for lack of proof crossappellant Whitlock’s claim for an intestacy share of
approximately $70,000.00 alleged to have been improperly diverted
from the decedent’s estate.
ALL CONCUR.
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BRIEFS AND ORAL ARGUMENT FOR
APPELLANT/CROSS-APPELLEE:
BRIEF FOR APPELLEE/CROSSAPPELLANT:
Michael W. Hogancamp
Bardwell, Kentucky
Thomas L. Osborne, P.S.C.
Paducah, Kentucky
ORAL ARGUMENT FOR
APPELLEE/CROSS-APPELLANT:
Matthew F. Coogle
Whitlow, Roberts, Houston &
Straub
Paducah, Kentucky
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