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GULF MORTGAGE AND REALTY INVESTMENTS (NOW KNOWN AS GMR PROPERTIES) v. EUGENE J. ALTEN (10/31/80)

filed: October 31, 1980.

GULF MORTGAGE AND REALTY INVESTMENTS (NOW KNOWN AS GMR PROPERTIES)
v.
EUGENE J. ALTEN, JAMES E. MENESES AND IRVING PEARLMAN, APPELLANTS. APPEAL OF JAMES E. MENESES



No. 2020 October Term 1979, Appeal from the Order of the Court of Common Pleas of Montgomery County, Civil Action, Law, No. 76-10621

COUNSEL

Gregory J. Dean, King of Prussia, for appellants.

Stanley R. Krakower, Philadelphia, for appellee.

Spaeth, Brosky and Van der Voort, JJ.

Author: Spaeth

[ 282 Pa. Super. Page 232]

This is an appeal from an order granting supplementary relief in aid of execution.*fn1 The question presented is whether a judgment creditor may execute upon the shares of stock of a professional corporation.

On July 2, 1976, appellee, Gulf Mortgage and Realty Investments (now known as GMR Properties), entered judgment for $257,014.80 against appellant, James E. Meneses, and two other individuals, Eugene J. Alten and Irving Pearlman (now deceased). On May 16, 1977, the lower court denied a motion to strike the judgment, and on June 28, 1978, we affirmed. See Gulf Mortgage and Realty Investments v. Alten, 257 Pa. Super. 634, 390 A.2d 307 (1978). On September 7, 1978, Gulf filed a praecipe for a writ of execution. In the course of depositions in aid of execution, pursuant to Pa.R.C.P. 3117, Gulf discovered that appellant owned 75% of the stock of a Pennsylvania professional

[ 282 Pa. Super. Page 233]

    corporation known as Meneses & Dean, P.C. On February 5, 1979 Gulf, filed a petition for supplementary relief in aid of execution, requesting the lower court to order appellant to "deliver to the Sheriff with appropriate endorsement, or otherwise make available for execution, the stock certificate representing [appellant's] ownership interest in Meneses and Dean, P.C." (R. 1a, 3a-4a) On September 12, 1979, the lower court granted Gulf's petition, "so that the Sheriff shall have possession of the share certificate or certificates standing in the name of Mr. Meneses. At that time, any person or corporation asserting a title or interest in the shares may file a property claim under Pa.R.C.P. 3258." (Slip op. at 4.)*fn2

1

The petition for supplementary relief recited that one ground for the relief requested was Section 8-317 of the Uniform Commercial Code. Section 8-317 provides:

1. No attachment or levy upon a security or other share or other interest evidenced thereby which is outstanding shall be valid until the security is actually seized by the officer making the attachment or levy but a security which has been surrendered to the issuer may be attached or levied upon at the source.

2. A creditor whose debtor is the owner of a security shall be entitled to such aid from Courts of appropriate jurisdiction by injunction or otherwise, in reaching such security or in satisfying the claim by means thereof as is allowed at law or in equity in regard to property which cannot be readily attached or levied upon by ordinary legal process.

12A P.S. 8-317.

Section 8-102 of the Uniform Commercial Code defines "security" as follows:

A security is an instrument which

[ 282 Pa. Super. Page 234]

(i) is issued in bearer or registered form; and

(ii) is of a type commonly dealt upon securities exchanges or markets or commonly recognized in any area in which it is issued or dealt in as a medium for investment; and

(iii) is either one of a class or series or by its terms is divisible into a class or series of instruments; and

(iv) evidences a share, participation or other interest in property or in an enterprise or evidences an obligation of the issuer."

12A P.S. 8-102(1)(a).

It is apparent that the shares of Meneses and Dean, P.C., do not qualify as "securities" within this definition. As shares of a closely held professional corporation, they are not commonly dealt in upon securities exchanges or markets. Neither are they commonly recognized in any area in which they are issued or dealt in as a medium for investment. This is so for two reasons. First, Pennsylvania law restricts the issuance and transfer of shares of a professional corporation to persons licensed to practice the profession engaged in by the corporation. 15 P.S. ยง 2910, 2911. Second, the shares of Meneses and Dean are further restricted by a private agreement entered into by both members of the corporation. The agreement provides:

1. Each shareholder agrees that he will not transfer, assign, hypothecate, or in any way alienate any of his shares, or any right or interest therein, whether voluntarily or by operation of law, by gift or otherwise, unless in a transfer which meets the requirements of this Agreement. Any purported transfer in violation of any provision of this Agreement shall be void and ineffectual, and shall not operate to transfer any interest or title in the purported transferee, and shall give the company and the stockholders an option to purchase such shares in the manner and on the terms and conditions provided for herein.

[ 282 Pa. Super. Page 235]

Accordingly, we agree with appellant that Section 8-317 of the Uniform Commercial Code does not support the lower court's order.

2

The petition for supplementary relief recited that another ground for the relief requested was ...


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