Lynch v. Lynch

Supreme Court of South Carolina

Decided July 31, 1942

Supreme Court of South Carolina · decided 1942-07-31

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Decided 1942-07-31

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Cited by 10 later decisions — most recently May 2012

10 state decisions

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Per curiam.

¶1 Upon mature consideration of the record and the issues presented by the appeal, we are satisfied that the Circuit Court reached the correct conclusion. The decree of the lower Court is adopted as the judgment of this Court. Judgment affirmed.

• Mr. Chiee Justice Bonham, "Messrs. Associate Justices Eishburne. and Stukes, and Circuit Judge Gas-ton, Acting Associate Justice, concur.

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Case posture

Posture: Before L.D. LIDE, J., Florence County, July, 1941. Affirmed.Suit by W.S. Lynch, Jr., as administrator of the estate of Essie B. Lynch, and another, against W.S. Lynch and another, to subject corporate stock to debts of named defendant. From judgment for defendants Mr. A.L. Hardee, as surviving partner of the law firm of Willcox Hardee, which firm was assignee of an interest in debts of W.S. Lynch, was permitted to prosecute this appeal, and Mr. Hardee is the appellant here. The decree of Circuit Judge L.D. Lide, adopted as the opinion of the Court, follows: The subject-matter of this suit is 200 shares of the capital stock of J.C. Lynch Realty Company, a South Carolina corporation. There are three causes of action set up in the (amended) complaint, all arising out of the same alleged state of facts, to wit: That on or about the 14th day of April, 1932, J.C. Lynch, late of the county and State aforesaid, owning considerable real estate and personal property, conveyed all of the same to the corporation above mentioned, which had been organized for that purpose, and that he gave the capital stock therein to his five children in certain proportions, the defendant W.S. Lynch being one of his children; and that on or about the 28th day of April, 1932, W.S. Lynch caused to be organized a South Carolina corporation known as the Lynch Real Estate Company, unto which in accordance with the design and purpose and direction of the said defendant W.S. Lynch 200 shares of the capital stock of J.C. Lynch Realty Company were issued; and it is further alleged on information and belief that the stock issued to the former corporation was in fact the sole property of W.S. Lynch and that its attempted transfer to this corporation was planned and effected by W.S. Lynch to hinder, delay and defraud his creditors. And it is further alleged that before and at that time, and thereafter, the plaintiff, who is the wife of W.S. Lynch, held judgments against him, entered from time to time, amounting in the aggregate to a large amount, upon which executions had been issued and returned nulla bona. These allegations in the first cause of action, as above indicated, purport to allege a violation of the Statute of Elizabeth (Section 8696, Code 1932). The other two causes of action contain substantially the same factual allegations and also allege that the issuance of the stock to the defendant corporation amounted to a preferential transfer by W.S. Lynch in violation of the Assignment Act (Section 9106, Code 1932). And the prayer of the complaint in substance is that the stock in question be adjudged to be the property of W.S. Lynch and hence subject to his debts. The answers deny the allegations of the complaint which are material to the controversy. And issue having been joined the cause was by order of the Court dated November 9, 1939, referred to C.W. Muldrow, Esq., Master, to take the testimony and report the same to the Court, which in due course he did. The cause was argued before me at chambers by counsel for the respective parties on May 30, 1941, and the matter has had my very careful consideration. As alleged in the complaint, J.C. Lynch, late of the county and State aforesaid, owned considerable property, principally real estate, containing, according to the testimony, about 10,000 acres. About two years before his death he determined, for reasons satisfactory to himself, and evidently acting upon the advice of counsel, to convey all his property to a corporation to be formed; and on April 14, 1932, this corporation, named J.C. Lynch Realty Company, was chartered under the laws of the State of South Carolina with an authorized capital stock of $150,000.00, the five children of J.C. Lynch, including his son W.S. Lynch, being named as directors thereof; and pursuant to the plan decided upon J.C. Lynch conveyed all his property to this corporation. It was a part of his plan to give the stock in the corporation, all of which was owned by him, to those whom he wished to have his property; and it appears that on April 14, 1932, an instrument in writing was signed by his five children, including the defendant W. S. Lynch (hereinafter sometimes called Dr. Lynch). The original of this instrument appears to have been lost, but I think the testimony establishes that it was in fact executed by the five children, and it is in the following form: Cowards, S.C. April 14, 1932. WHEREAS, instead of making a will or executing deeds for the distribution of his property among those to whom he desires to give the same, J.C. Lynch has had procured the incorporation of J.C. Lynch Realty Company and is about to convey his real estate to the said Corporation and have the stock issued to the undersigned. NOW, THEREFORE, We the undersigned do hereby agree and consent to take and accept such number of shares of the capital stock of J.C. Lynch Realty Company as the said J.C. Lynch shall designate. In the presence of __________________ __________________ __________________ __________________ __________________ This instrument was not signed by J.C. Lynch, and cannot be said to impose any legal obligation on him. It appears to be merely a written statement that the signers agreed to accept such number of shares of the capital stock of the corporation as the said J.C. Lynch shall designate. Four days after the execution of this instrument, to wit: On April 18, 1932, J.C. Lynch executed the following instrument: I hereby direct the President and Secretary of J.C. LYNCH REALTY COMPANY to issue the stock in said Corporation to each of the following named parties in the number of shares and amount set opposite the respective names: W.S. Lynch 202 $ 20,200.00 Z.C. Lynch 135 13,500.00 Mrs. Minnie L. Scott 474 47,400.00 F.M. Lynch 374 37,400.00 Troy J. Lynch 315 31,500.00 ___________ $150,000.00 Dated this 18th day of April, A.D., 1932 J.C. Lynch. In the presence of: Amelia Hanks M.L. Meadors The present controversy centers around the instrument just quoted. If the effect of this instrument was to make a complete and irrevocable gift to W.S. Lynch of 202 shares of the capital stock of J.C. Lynch Realty Company, then the evidence is sufficient in my opinion, to warrant the Court in granting plaintiff the relief for which she prays. On the other hand, if this did not constitute a complete and irrevocable gift, I am of opinion that the plaintiff would not be entitled to recover. Hence before discussing the other facts in the case we may pause to consider the law relating to a gift inter vivos. It will be borne in mind in the consideration of this case that J.C. Lynch, the father, owned all the property, real and personal, which he conveyed to the corporation in question, and therefore upon the conveyance of the same he was the absolute owner of all the capital stock of that corporation. Obviously he was under no legal obligation to give this stock, or any of it, to his son W.S. Lynch, nor was he under any legal obligation to make any provision for the indebtedness due by W.S. Lynch to his wife, the plaintiff Essie B. Lynch. The following, which is quoted with approval in the case of Ott v. Ott , 182 S.C. 135 , 188 S.E., 789 , 792 , is an accurate statement of the essential elements of a gift inter vivos: `A gift inter vivos as its name imports, is a gift between the living. It is a contract which takes place by the mutual consent of the giver, who divests himself of the thing given in order to transmit the title of it to the donee gratuitously, and the donee who accepts and acquires the legal title to it. It operates, if at all, in the donor's lifetime, immediately and irrevocably; it is a gift executed; no further action of the parties; no contingency of death, or otherwise, is necessary to give it effect.' 28 C.J. 621, 622. As will appear from the foregoing quotation, a gift to be operative must be executed and must take effect immediately and irrevocably, for the obvious reason that if anything remains to be done the title to the property does not pass, and an executory agreement to make a gift could not be enforced, for the same is gratuitous and without any valuable consideration. As is said in 24 American Jurisprudence, 741: * * * Thus, mere intention to give without delivery is unavailing; the intention must be executed by a complete and unconditional delivery. In other words, to have the effect of a valid gift inter vivos , the transfer of possession and title must be absolute and go into immediate effect, so far as the donor can make it so by intent and delivery. It must be so complete that if the donor again resumes control over the property, without the consent of the donee, he will become liable as a trespasser. If the instrument signed by J.C. Lynch, dated April 18, 1932, had been acted upon and the stock issued and delivered as therein directed, it is true that W. S. Lynch would then have irrevocably acquired 202 shares of the capital stock of J.C. Lynch Realty Company, which includes the 200 shares involved in the instant suit. But this order or request on the part of J.C. Lynch was never acted upon, and the capital stock was not issued in accordance therewith; and as will appear from the foregoing quotation from 24 American Jurisprudence, 741, the intention to give must be executed by a complete and unconditional delivery. Hence it is the settled law of this State, and of practically all the states, that there must be an actual or constructive delivery of property to a donee in order to constitute a valid gift inter vivos. 24 American Jurisprudence, 742. As was held in the case of Hall v. Howard's Adm'rs , Rice 310, 33 Am. Dec., 115: To constitute a valid gift, either inter vivos or causa mortis , the donee must have an immediate right to the dominion of the chattel; in the latter case defeasible, on the recovery of the donor. In other words, the donee must be vested with immediate dominion and control. In the case of Copeland v. Craig , 193 S.C. 484 , 8 S.E.2d 858 , 863 , relating to a gift of certain stock of a corporation, the Court held that under the North Carolina law the transfer on the books of the corporation was sufficient delivery to make a gift of the corporate stock complete, although the donor retained in his possession the stock certificate. As I have just stated, this decision is based on the North Carolina law (and necessarily so), and statutes and decisions of that state were introduced in evidence and considered by our Supreme Court, which held that under the law of the State of North Carolina transfer on the books of the corporation remains the most efficient and effectual manner of transfer and is the final and culminating step in the process of changing the title to the stock from one person into another. No South Carolina cases have been cited to me which would indicate whether this would be accepted as the rule in this State or not; and as will appear by reference to 24 American Jurisprudence, 770-773, there is considerable diversity of opinion on this subject among the several states. See also the annotation in 99 A.L.R., 1077. Of course, the ultimate test is whether the gift is so complete as to give the donee immediate and absolute dominion and control. And it may be mentioned that as appears from 24 American Jurisprudence, 772, the general rule is that the delivery of a separate written instrument assigning or transferring corporate stock to the donee is sufficient to complete a gift thereof without the manual delivery of the certificate, although there is authority contra. Of course the authorities above referred to involve cases where a stock certificate had already been issued, while in the case at bar no capital stock of the corporation whatever had been issued at the time the paper dated April 18, 1932, was signed by J.C. Lynch. But I am of opinion that even before the issuance of any capital stock the owner thereof might by a good and sufficient instrument in writing containing proper words of conveyance irrevocably transfer by gift to another, in whole or in part, his right to the issuance of such stock, and that upon the execution and delivery of such an instrument to that effect the gift would be complete. On the other hand, however, I think it is indisputable that a mere written order to the officers of the corporation to issue the stock, unless and until it has been acted upon, cannot be considered as an assignment of stock to the person or persons mentioned in such order. The whole subject of making gifts by instruments in writing is treated at large in the valuable annotation found in 63 A.L.R., 537, from which it appears that practically the universal rule, supported by South Carolina cases, is that a gift by instrument in writing is good without a delivery of the property, where the instrument is a deed or is under seal; and I think the same rule ought to apply where there is a formal instrument such as an assignment purporting to transfer the title to the donee. This conforms to the reasoning contained in the case of Jaggers v. Estes , 2 Strob. Eq., 343, 49 Am. Dec., 674, relating to a gift of slaves, where the Court says that a deed of gift would be valid without manual delivery if it appears from the construction of the whole instrument that the donor intended to do an irrevocable act, and to pass a present title to the property. The following statement contained in the annotation above mentioned seems to be sound and is supported by many authorities, although no South Carolina case is cited: It is generally held, where the paper is neither a deed, a sealed instrument, nor a formal instrument purporting to pass title, but is only an informal instrument, such as a letter, order, or memorandum, that the instrument is ineffective as a gift without a delivery of the property. It will be observed that in a Missouri case ( Foulke v. Hickman. Mo. App., 259 S.W. 496 ) cited in support of this statement it was held that a mere order to pay to donee, directed to an attorney having money of donor in his possession, would not constitute a valid gift, because it was of course subject to revocation. It certainly cannot be questioned that the order or direction given by J.C. Lynch with reference to the issuance of the stock, executed by him April 18, 1932, was in no sense irrevocable, but obviously could be revoked by him either in whole or in part, for he had not incurred any legal obligation whatever to donate the stock or any of it. It seems to me that a conclusive test would be: Suppose J.C. Lynch had thereafter said to W.S. Lynch, I have decided not to give you any of this stock but to give it to others; could W.S. Lynch have then gone into Court and obtained an injunction (or other judicial relief) to prevent J.C. Lynch from causing the stock to be issued to others? The answer, manifestly, must be in the negative. The rule is well stated in the Oregon case of Liebe v. Battmann , 33 Or., 241 , 54 P., 179 , 180 , 662 , 72 Am. St. Rep., 705, as follows: There must be a parting with the dominion over the subject-matter of the pretended gift, with a present design that the title shall pass out of the donor and to the donee, and this so fully and completely, to all intents and purposes, that, if the donor again resumes control over it without the consent of the donee, he becomes a trespasser, for which he incurs a liability over to the donee except after revocation of a gift causa mortis. And so essential is delivery as a factor in the transaction that it is said: `Intention cannot supply it; words cannot supply it; actions cannot supply it. It is an indispensable requisite, without which the gift fails, regardless of the consequences.' It appearing to me that the order signed by J.C. Lynch directed to the officers of the corporation with reference to the issuance of the stock, dated April 18, 1932, was not effective to transfer title, and was not acted upon, but was in fact revoked by a later direction. we shall now consider what was subsequently done by the parties. The stock of J.C. Lynch Realty Company was actually issued on April 30, 1932, and instead of 202 shares being issued to W.S. Lynch, 2 shares were issued to him, and 200 shares were issued to The Lynch Real Estate Company; and it further appears that the remainder of the stock was not issued pursuant to the paper dated April 18, 1932, but that the entire stock of the corporation was issued pursuant to a subsequent order on the part of J.C. Lynch in writing, dated April 30, 1932, which is as follows: Cowards, S.C. J.C. Lynch. I hereby direct the President and Secretary of The J.C. Lynch Realty Company Inc., to issue the stock in said Company to each of the following named parties in the number of shares and amount set opposite their respective names: W.S. Lynch 2 $ 200.00 The Lynch Real Estate Company 200 20,000.00 Troy J. Lynch 2 200.00 John Caleb Lynch 101 10,100.00 Troy Josiah Lynch, Jr. 101 10,100.00 Esther Webber Lynch 111 11,100.00 Z.C. Lynch 3 300.00 J.H. Lynch 132 13,200.00 Mrs. Minnie L. Scott 58 5,800.00 Mrs. Minnie L. Scott 58 5,800.00 Mrs. Minnie L. Scott 58 5,800.00 Mrs. Minnie L. Scott 300 30,000.00 F.M. Lynch 62 6,200.00 F.M. Lynch 62 6,200.00 F.M. Lynch 250 25,000.00 ___ ____________ 1500 $150,000.00 J.C. Lynch. In the presence of: J. Harvey Atwill Mrs. J. Harvey Atwill. It further appears that the issuance of the entire capital stock pursuant to the direction of J.C. Lynch dated April 30, 1932, was incorporated in the minutes of the Board of Directors held May 2, 1932, which was attended by all the directors and also by J.C. Lynch. The Lynch Real Estate Company, one of the defendants herein, and the corporation to which the 200 shares of the capital stock of J.C. Lynch Realty Company in question here was issued, is a South Carolina corporation which was chartered April 28, 1932; and on May 3, 1932, its capital stock was issued as follows: W.S. Lynch, 2 shares; W. S. Lynch, Jr., (son) 3 shares; Mary Webster Lynch (wife of son) 20 shares; J. Carlisle Lynch (infant son of W.S. Lynch, Jr.,) 25 shares; and W.S. Lynch, 3d (infant son of W.S. Lynch, Jr.,) 50 shares. And it is earnestly contended by the plaintiff that although the stock involved here was issued to this corporation it was really owned by Dr. W.S. Lynch and he adopted the corporate scheme to defeat his creditors, having the stock of his own corporation issued to members of his family while continuing to control it. But it must be borne in mind that J.C. Lynch had the right to do what he wished with his own property, and if he made the gift to this corporation, or if he had made the gift to his grandson and his grandson's wife and children directly, he had the absolute right so to do. And while the testimony is quite indefinite, yet even if Dr. Lynch does obtain some incidental benefit from the corporation, of which he is the secretary and treasurer, and in which he is a small stockholder, it does not follow that his creditors can complain. Cantey v. Edward L. Summersett Co. , 149 S.C. 513 , 147 S.E., 635 . But perhaps the point most earnestly stressed by counsel for the plaintiff is that the instrument of April 18, 1932, shows what was really intended by J.C. Lynch, and that the changes made as contained in the instrument of April 30, 1932, were made solely at the request of his children and really amounted to transfers by the children themselves. If the children had acquired the legal right to the stock under the paper dated April 18, 1932, the contention of the plaintiff would perhaps be sound, but since they acquired no such legal right the mere fact that they may have requested their father to have the stock issued as was done could not affect the title to the same. Dr. Lynch testified that he did not make any request in connection with the matter, but two of his brothers testified that the final method of issuance of the stock was at the request of the children. Troy J. Lynch says: It was divided as they asked my father to do. However, in my opinion, as already stated, this is wholly immaterial, for at that time J.C. Lynch remained in full control of his property and could do what he pleased with it, including the right to comply with the requests of his children, or any of them, if he saw fit to do so. But the crux of the matter is that no title passed to any donee unless and until the gift became complete and effective, so as to be irrevocable, by the issuance and delivery of the stock. The plaintiff offered in evidence a letter signed by J.C. Lynch and his five children written to A.C. Hinds, Esq., March 28, 1932, before the corporation was chartered, and which relates to certain lands in which Z.C. Lynch (one of the sons of J.C. Lynch) apparently had some sort of interest. But while this letter refers to the five children, including Dr. Lynch, as being the stockholders of the proposed corporation, it certainly cannot be construed as imposing any legal obligation to his children on the part of J.C. Lynch with regard to the issuance of the stock (of which he was the sole owner) when the charter was granted. Even if we should assume that when this letter was written J.C. Lynch intended to give all the stock to his children, this would not amount to a complete or effective gift. It takes more than a mere unexpected intention to consummate a gift. However, there is other evidence in the case which strongly indicates that the stock in question here was actually issued pursuant to the original intention of J.C. Lynch. As tending to show that such issuance of the stock was truly in accordance with the intention of J.C. Lynch, a memorandum signed by him, dated December 18, 1927, was introduced in evidence by the defendants. Some question was made as to the signature to this writing, but the paper appears to me to be genuine in all respects, and I am satisfied was actually signed by J.C. Lynch, upon comparing the signature with his admittedly genuine signature to many other instruments introduced in evidence for the purpose of comparison. The paper bears all the earmarks of being a bona fide paper and does definitely indicate that the issuance of the stock to The Lynch Real Estate Company was in accordance with the preconceived purpose of Mr. J.C. Lynch. The case of Lynch v. Lynch , 161 S.C. 170 , 159 S.E., 26 , 80 A.L.R., 997, involved certain real estate conveyed in 1929 by J.C. Lynch to his son W.S. Lynch, trustee, and the Court held that the property so conveyed vested in W.S. Lynch, Jr., because Essie B. Lynch, as a creditor of W.S. Lynch, attempted to levy thereon; and it appears from the record in the instant case that the real estate which was thus acquired by W.S. Lynch, Jr., was afterwards conveyed by him to The Lynch Real Estate Company. This matter does not relate directly to the instant case, but it does tend to show that it was not the intention of J.C. Lynch to make any gift of his property for the benefit of the creditors of his son Dr. W.S. Lynch. A debtor is under a legal as well as a moral obligation to make no transfer of his property which will hinder, delay or defraud his creditors, no matter how devious the scheme may be; and also to make no preferential transfer of his property; but on the other hand, he is not under any legal obligation, however strong the moral obligation may be, to acquire property as a gift that would benefit his creditors. The principle, it seems to me, is based on sound reasoning, and I am interested to find that it appears to have been applied in other jurisdictions in the few instances where the question has come up. I quote the following from the Iowa case of Gottstein v. Hedges , 210 Iowa, 272 , 228 N.W., 93 , 94 , 67 A.L.R., 1218: The provision made in the deed in favor of the judgment debtor was as to her a gift. We need not pause to discuss the question of who would take the gift in the event of renunciation by the donee. A gift, however created, whether by will or inter vivos , is wholly inoperative unless accepted by the donee. Cases post; 28 C.J., 643. A creditor of the donee has no such interest, legal or equitable, as to enable him to control the right of the donee to refuse acceptance or renounce the gift. See also the annotation to this case and the previous annotation in 27 A.L.R., 477. After mature reflection upon all the evidence before the Court, I am unable to escape the conclusion that there was never an executed gift by J.C. Lynch, to his son W.S. Lynch of the 200 shares of stock in question, and hence that the same never became subject to any claim on the part of the plaintiff or any other creditor of Dr. Lynch, but is and was at all times the property of The Lynch Real Estate Company. It is, therefore, ordered, adjudged and decreed, that the complaint herein be, and it is hereby, dismissed on the merits, with costs against the plaintiff.

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Supreme Court of South Carolina

Parallel citations

21 S.E.2d 569