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Cohen v. Schlossberg

APRIL 28, 1958.




Appeal from the Circuit Court of Cook county; the Hon. JOHN T. DEMPSEY, Judge, presiding. Order reversed and cause remanded with directions.


This is an appeal from an order sustaining a motion to strike the complaint and dismissing the suit on the ground that it was barred by prior adjudication. The controversy is over the ownership of 33 1/3 shares of stock in the Lincoln Park West Corporation (corporation), being one-third of the total stock issued. Defendant Norman Schlossberg (Schlossberg) holds a certificate for this one-third. The remaining two-thirds is owned by plaintiffs Joseph and Meyer Cohen (Cohens), who also claim to be the equitable owners of the one-third held by Schlossberg. In the instant suit the Cohens seek to establish their equitable title.

In the prior case (Schlossberg v. Lincoln Park West Corp., 10 Ill. App.2d 318, 134 N.E.2d 661), Schlossberg was successful in maintaining a suit for mandamus to compel the Lincoln Park West Corporation to issue a certificate in his name for 33 1/3 shares. His petition in that case simply alleged that he acquired the stock from one Sherow and that, the same having been properly assigned, he was entitled to have the stock issued in his name. The only defendant was the Lincoln Park West Corporation. The amended answer filed by the corporation denied the assignment by Sherow; alleged that the certificate was never delivered to Schlossberg; that there was no valuable consideration passing from Schlossberg to Sherow; that the Cohens were the legal and equitable owners of the stock; that the stock certificate in question had been issued originally to one Amelita Griebel and later to Sherow, as nominee for Henry Beutel, one of the defendants in the instant case; that it was so issued to secure loans made to the Cohens by Schlossberg, Beutel, and a bank with which Beutel was connected; that these loans had been paid and in accordance with an oral agreement between the Cohens and Beutel, the stock now belongs to the Cohens. The reply by Schlossberg was a denial of the substantial facts alleged and a reiteration of his legal position that these defenses could not be made in a suit for mandamus to compel the corporation to transfer the stock.

This presented to the court in the mandamus suit a legal issue and an issue of fact. The case was tried on these issues and at its conclusion the court made no specific findings but found the issues for Schlossberg and ordered a writ of mandamus to issue. That judgment was affirmed in Schlossberg v. Lincoln Park West Corp., 10 Ill. App.2d 318. We will later consider the scope and effect of those decisions.

Schlossberg's defense in the instant case is made by way of a motion supported by affidavit, in accordance with Section 48 of the Civil Practice Act. The motion states that "the cause of action is barred by a prior judgment . . ." That could be either res judicata or estoppel by verdict, sometimes characterized as "collateral estoppel by judgment." We will use the latter term, which appears to us to be more apt and has now been adopted by the Restatement of the Law, under the title, "Judgments," Sec. 68, Comment a (1942). See also Scott "Collateral Estoppel by Judgment," 56 Harv. L. Rev. 1 (1942); Cleary "Res Judicata Reexamined," 57 Yale L.J. 339 (1948); Polasky "Collateral Estoppel — Effects of Prior Litigation," 39 Iowa L. Rev. 217 (1954).

The doctrine of res judicata rests on the principle that questions directly in issue or those which might have been submitted to a court of competent jurisdiction in a particular controversy ought not to be relitigated in a future controversy arising out of the same cause of action between the same parties or their successors in interest, either in the same court or any other court of concurrent jurisdiction. Gillies v. Little Vermilion Drain. Dist., 401 Ill. 344, 349 (1949); Leitch v. Hine, 393 Ill. 211, 220 (1946). This not only protects the parties but serves the public interest in the termination of litigation. In res judicata, as distinguished from collateral estoppel, the cause of action must be the same in both suits. In such a case the judgment in the prior suit concludes not only those issues which were actually litigated, but all those which might have been presented to support or defeat the claim. But where the second action between the parties or their privies is based on a different claim or demand, the judgment in the prior action operates as a bar only to those matters in issue or points controverted upon the determination of which the finding or verdict was rendered. City of Elmhurst v. Kegerreis, 392 Ill. 195, 201, 202 (1946); Normal State Bank v. Killian, 386 Ill. 449, 456 (1944); Barry v. Commonwealth Edison Co., 374 Ill. 473, 478 (1940); Wright v. Griffey, 147 Ill. 496, 498 (1893).

Schlossberg in his brief contends that the doctrine of res judicata is applicable. We must therefore consider whether the cause of action and the parties are the same or are in privity. We will first consider whether the cause of action is the same. In the prior suit the remedy Schlossberg sought was to have the corporation honor the assignment of the certificate of stock he had acquired from Sherow and to issue a certificate in his name. This would have given him two things — additional proof of the ownership of the stock and the right to receive dividends declared thereon. The statute (Ch. 32, Sec. 416, et seq., Ill. Rev. Stat. 1955), known as the Uniform Stock Transfer Act, provides for the circumstances under which the assignee of a certificate of stock is regarded as the owner thereof for the purpose of having the certificate transferred to his name. It further provides the specific grounds upon which the certificate may be reclaimed if it has not been transferred to a purchaser for value in good faith without notice.

Mandamus is the proper remedy to compel a corporation to issue a new certificate, and the defenses to such an action would be those grounds enumerated in the statute as the basis for reclaiming the certificate. These are as follows: If the endorsement or delivery of a certificate (a) was procured by fraud or duress, or (b) was made under such mistake as to make the endorsement or delivery inequitable; or, if the delivery of a certificate was made, (c) without authority from the owner, or (d) after the owner's death or legal incapacity, the possession of the certificate may be reclaimed and the transfer thereof rescinded, unless (1) the certificate has been transferred to a purchaser for value in good faith without notice of any facts making the transfer wrongful, or (2) the injured person has elected to waive the injury, or has been guilty of laches in endeavoring to enforce his rights. It will be noted that these defenses relate to matters affecting the transfer of the certificate. In such a suit title to the stock, as distinguished from title to the certificate, is not in issue. ("The Transfer of Stock," Christy & McLean, 2d Ed. p. 128, 1954 supplement.)

Courts have agreed that title is not involved in a mandamus suit, but there has been disagreement as to whether a corporation has the right to refuse to issue a new certificate on the ground that there was a controversy over ownership of the stock between the holder of the old certificate and a third person. In Leff v. N. Kaufman's, Inc., 342 Pa. 342, 20 A.2d 786, the right of the plaintiff Leff to a writ of mandamus was questioned by Ray and Kaufman, who claimed to be the owners of the stock represented by the certificate. The court said:

"The issue of title to the stock was not involved in this action. The only question involved was whether plaintiff had a clear, legal right to the transfer of the certificate, and whether the corporate officers had breached a clear, legal duty. Sufficient evidence was presented to show that a substantial and material dispute existed as to the right of transfer, and, consequently, that the corporation could not be compelled, by a writ of mandamus, to close its eyes to this dispute and register the stock in plaintiff's name. The trial judge was therefore justified in directing a verdict in defendant's favor.

"As the court below pointed out, no judgment could have been entered in these proceedings which would have concluded the rights of Ray and the intervening defendant, Kaufman, individually, to the certificate or the shares represented."

In Luitwieler v. Luitwieler Pumping Engine Co., 192 N.Y.S. 891 (118 Misc. Rep. 192) a similar issue was involved. The plaintiff sought to obtain an order directing the corporation to transfer the shares pursuant to a certificate of stock which he held. The defendant sought to obtain evidence by deposition with respect to the real ownership of the stock although the certificate on its face appeared to have been proper. The court there said, p. 893:

"A corporation may refuse to register a transfer of stock when it has reasonable grounds for so doing (14 C.J. 759), such, for instance, as that the signature of the transferor is a forgery, or that the certificate shows a bad title on its face (Spellissy v. Cook & Bernheimer Co., 58 App. Div. 283, 68 N.Y. Supp. 995); but these grounds do not go to the extent of justifying a corporation in arbitrarily refusing to register a transfer of a certificate which is authentic and regular. A corporation may not go back of a genuine and regular certificate offered for transfer, and raise questions, after the presentation of the certificate and refusal to register, relating to the issue of the original certificate, or private disputes between the transferor and the transferee of the certificate. These are matters that should be tried in appropriate actions, wherein the issues can be presented without involving the validity of stock transfers and interfering with the negotiable character of stock."

The two cases before quoted, both of which were cited and discussed by Schlossberg in his brief in the prior case, while reaching different conclusions, are reconcilable. Both stand for the proposition that a mandamus suit of the kind in question is not a forum in which to try a dispute over title to stock. One would limit the defense of the corporation to the genuineness of the certificate. The other would permit it to show that a substantial controversy over title to stock exists and would require the solution of that controversy in a proper forum before a new certificate is issued. In both cases a distinction is made between the right to ...

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