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PETRI v. RHEIN

September 18, 1957

MARTHA M. PETRI, ADMINISTRATRIX WITH THE WILL ANNEXED OF THE ESTATE OF LEO F. PETRI, ALSO KNOWN AS LEO PETRI, DECEASED
v.
MINNIE RHEIN, THE NORTHERN TRUST COMPANY, A CORPORATION, UNION CARBIDE AND CARBON CORPORATION, A CORPORATION, GREAT LAKES DREDGE & DOCK COMPANY, A CORPORATION, FITZ SIMONS & CONNELL DREDGE & DOCK COMPANY, A CORPORATION.



The opinion of the court was delivered by: Julius J. Hoffman, District Judge.

  The plaintiff, Martha M. Petri, Administratrix with the Will Annexed of the Estate of Leo F. Petri, deceased, has brought this action for a declaratory judgment as to the ownership of certain shares of corporate stock currently in the possession of the defendant, Minnie Rhein.

The three corporations which issued the stock involved in this suit — Union Carbide and Carbon Corporation, Fitz-Simons & Connell Dredge & Dock Company and Great Lakes Dredge and Dock Company — as well as The Northern Trust Company, which held some of the stock involved as collateral for loans, were also named as defendants in this action. However, on a motion to dismiss agreed to by all parties, an order of dismissal was entered at the commencement of the trial with respect to these corporations.

Jurisdiction is based upon diversity of citizenship. The plaintiff is, and the decedent was, a resident of the State of Wisconsin. The defendant, Minnie Rhein, is a resident of the State of Illinois. The amount in controversy exceeds, exclusive of interest and costs, the sum of $3,000. The case was tried to the court without a jury.

The plaintiff claims the stock in question as a part of the estate of Leo Petri. The defendant, on the other hand, alleges that she and the decedent held the stock during the latter's lifetime as joint tenants with right of survivorship and that upon the death of the decedent she became the sole owner of the stock.

In resolving the questions raised in this action, the stock with which the case deals has been separated into two groups:

(1) The first block consists of the following shares which were originally owned by Leo Petri but which were subsequently transferred by him to Minnie Rhein and himself as joint tenants with right of survivorship.

      Corporation                       Shares   Date of Transfer
      -----------                       ------   ----------------
Union Carbide and Carbon Corporation
(hereinafter called Union Carbide)       400       July 31, 1948
Union Carbide                            150       March 17, 1950
Fitz Simons & Connell Dredge & Dock
Company (hereinafter called Fitz
Simons & Connell)                        305       March 17, 1950

(2) The second block consists of 340 shares in the Great Lakes Dredge and Dock Company. The certificates for these shares were issued on December 21, 1949, in the names of Leo Petri and Minnie Rhein as joint tenants with right of survivorship and were never in the name of Leo Petri alone.

I.

Union Carbide and Fitz Simons & Connell Stock

The plaintiff challenges the validity of the transfers of the Union Carbide and Fitz Simons & Connell stock by Leo Petri to Minnie Rhein and himself as joint tenants, contending (a) that the common law unities of time and title required for the creation of joint tenancies were not satisfied and (b) that the donative intent and surrender of dominion and control required for a valid gift of personal property were lacking.

Inasmuch as the plaintiff's contentions concern the validity of stock transfers, an initial question is presented with respect to the Union Carbide shares as to whether these issues should be resolved in accordance with the law of the place of the transfers involved (Illinois) or the law of the corporation's domicile (New York). In regard to the Fitz Simons & Connell stock, no such question arises, since Illinois is both the place of transfer and the state of incorporation.

On the basis of cases decided under the doctrine of Erie R. Co. v. Tompkins, 1938, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, the question regarding the Union Carbide stock is to be decided in accordance with applicable Illinois rules on conflict of laws, Klaxon Co. v. Stentor Elec. Mfg. Co., 1941, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477; Griffin v. McCoach, 1941, 313 U.S. 498, 61 S.Ct. 1023, 85 L.Ed. 1481, or, in the absence of such rules, from an independent determination based upon an examination of other authorities, Linkenhoger v. Owens, 5 Cir., 1950, 181 F.2d 97, McClaskey v. Harbison-Walker Refractories, 3 Cir., 1943, 138 F.2d 493.

An examination of Illinois authorities has failed to disclose any relevant decisions on the choice of laws question here presented. However, cases decided elsewhere on this point uniformly draw a distinction between the transfer of stock certificates and the transfer of the shares represented thereby: The validity of transfers of title to certificates is held to be governed by the law of the place where the certificates are transferred, Direction der Disconto-Gesellschaft v. United States Steel Co., 1925, 267 U.S. 22, 45 S.Ct. 207, 69 L.Ed. 495; Warner v. Florida Bank & Trust Co., 5 Cir., 1947, 160 F.2d 766; Pennsylvania Co. etc. v. United Rys., D.C.S.D.Me. 1939, 26 F. Supp. 379; but the validity of transfers of title to the shares themselves is held to be controlled by the law of the place of incorporation, United Cigarette Mach. Co. v. Canadian Pac. Ry, 2 Cir., 1926, 12 F.2d 634; Morson v. Second Nat'l Bank, 1940, 306 Mass. 588, 29 N.E.2d 19, 131 A.L.R. 189. The law of the place where a certificate is transferred will also govern the transfer of the shares themselves, if the law of the corporate domicile provides that transfer of the certificate also accomplishes transfer of the shares. Direction der DiscontoGesellschaft v. United States Steel Co., supra; Strout v. Burgess, 1949, 144 Me. 263, 68 A.2d 241, 12 A.L.R.2d 939; Beale, 2 Conflict of Laws § 192.4 (1935); Restatement, Conflict of Laws §§ 53, 104.

Applying these rules to the facts of this case, Illinois law governs not only the transfer of the Union Carbide certificates, but also the transfer of the shares themselves. This conclusion is based upon the fact that the Uniform Stock Transfer Act, in effect in New York, the place of Union Carbide's incorporation, and the cases decided thereunder, provide that delivery anywhere of a stock certificate of a New York corporation, accompanied by a written endorsement, transfers title to the shares represented by the certificates, as well as to the certificates themselves. McKinney's Consol.Laws, c. 41, Personal Property Law, §§ 162-185; Morson v. Second Nat'l Bank, supra; see also Direction der Disconto-Gesellschaft v. United States Steel Co., supra.

Having concluded that Illinois law governs the disposition of the questions here presented, we now turn to the plaintiff's first contention, that the transfers failed because of lack of the unities of time and title.

A general requirement of Illinois at the time of the transfers in question was that in order to create a valid joint tenancy, there had to be present the common law unities of time, title, interest and possession, that is, the several tenants were required to "have one and the same interest accruing by one and the same conveyance commencing at one and the same time and held by one and the same undivided possession." Hood v. Commonwealth Trust & Savings Bank, 1941, 376 Ill. 413, 423, 34 N.E.2d 414, 420. Under the unities rule, it was held that the unities of time and title, the unities here in question, were lacking where a grantor transferred property to himself and another as joint tenants, for the reason that the grantor traced his title in the property to the original conveyance to himself, while the other tenant traced his title to the purported transfer into joint tenancy.*fn1 Deslauriers v. Senesac, 1928, 331 Ill. 437, 163 N.E. 327, 62 A.L.R. 511.

Turning then to the question as to whether the unities of time and title have been satisfied by the transfers in question, it is clear that these requirements have been met. See Hood v. Commonwealth Trust & Savings Bank, supra. In the Hood case, an action was brought to enforce the superadded liabilities of a bank's shareholders. One of the defendant shareholders, Otto E. Lucius, had acquired shares of the bank's stock in February, 1930, which he transferred in March, 1930, to Belle M. Lucius and himself as joint tenants with right of survivorship. The stock certificate originally acquired by Lucius was surrendered to the corporation, and a new certificate was issued in the joint names of Otto and Belle Lucius. In fixing the liability of the defendant, it was held that the transfer by Lucius to his wife and himself started a new period of stock ownership. The court stated:

    "To create an estate in joint tenancy it is necessary that
  there be unity of interest, unity of title, unity of time and
  unity of possession. * * * [W]hen Otto E. Lucius surrendered
  the first certificate and caused the second to issue to him
  and his wife as joint tenants, he thereby terminated all
  title in the stock evidenced by the first certificate and
  thereafter held as a joint tenant with his wife. To create
  the joint estate it was essential that his interest as a
  joint tenant be created at the same time as that of his
  ...

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