{ "id": 6137312, "name": "J.M. PRODUCTS, INC. v. ARKANSAS CAPITAL CORPORATION", "name_abbreviation": "J.M. Products, Inc. v. Arkansas Capital Corp.", "decision_date": "1995-12-06", "docket_number": "CA 94-1039", "first_page": "85", "last_page": "100", "citations": [ { "type": "official", "cite": "51 Ark. App. 85" }, { "type": "parallel", "cite": "910 S.W.2d 702" } ], "court": { "name_abbreviation": "Ark. Ct. App.", "id": 13370, "name": "Arkansas Court of Appeals" }, "jurisdiction": { "id": 34, "name_long": "Arkansas", "name": "Ark." }, "cites_to": [ { "cite": "242 Ark. 678", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 8722872 ], "weight": 3, "year": 1967, "pin_cites": [ { "page": "682" } ], "opinion_index": 0, "case_paths": [ "/ark/242/0678-01" ] }, { "cite": "466 F. Supp. 1133", "category": "reporters:federal", "reporter": "F. Supp.", "case_ids": [ 4062868 ], "year": 1979, "opinion_index": 0, "case_paths": [ "/f-supp/466/1133-01" ] }, { "cite": "Ark. Code Ann. \u00a7 4-8-101", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "year": 1991, "pin_cites": [ { "page": "et seq." } ], "opinion_index": 0 }, { "cite": "11 S.W.2d 483", "category": "reporters:state_regional", "reporter": "S.W.2d", "year": 1928, "opinion_index": 0 }, { "cite": "178 Ark. 669", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1397164 ], "year": 1928, "opinion_index": 0, "case_paths": [ "/ark/178/0669-01" ] }, { "cite": "Ark. Code Ann. \u00a7 4-9-112", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "year": 1991, "opinion_index": 0 }, { "cite": "Ark. Code Ann. \u00a7 4-1-201", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "year": 1993, "pin_cites": [ { "page": "(44)(a)" } ], "opinion_index": 0 }, { "cite": "Ark. Code Ann. \u00a7 4-8-305", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "year": 1991, "opinion_index": 0 }, { "cite": "250 Ark. 214", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1636949 ], "weight": 4, "year": 1971, "pin_cites": [ { "page": "218" }, { "page": "580" } ], "opinion_index": 0, "case_paths": [ "/ark/250/0214-01" ] }, { "cite": "Ark. Code Ann. \u00a7 4-26-202", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "year": 1991, "opinion_index": 0 }, { "cite": "561 F. Supp. 106", "category": "reporters:federal", "reporter": "F. Supp.", "case_ids": [ 3553903 ], "weight": 2, "year": 1983, "opinion_index": 0, "case_paths": [ "/f-supp/561/0106-01" ] }, { "cite": "113 Cal. Rptr. 494", "category": "reporters:state", "reporter": "Cal. Rptr.", "weight": 2, "year": 1974, "pin_cites": [ { "page": "498-99" } ], "opinion_index": 0 }, { "cite": "38 Cal. App. 3d 607", "category": "reporters:state", "reporter": "Cal. App. 3d", "case_ids": [ 4468472 ], "year": 1974, "opinion_index": 0, "case_paths": [ "/cal-app-3d/38/0607-01" ] }, { "cite": "860 F.2d 1407", "category": "reporters:federal", "reporter": "F.2d", "case_ids": [ 655742 ], "weight": 3, "year": 1988, "pin_cites": [ { "page": "1413-14" } ], "opinion_index": 0, "case_paths": [ "/f2d/860/1407-01" ] }, { "cite": "Ark. Code Ann. \u00a7 4", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "opinion_index": 0 }, { "cite": "238 Ark. 962", "category": "reporters:state", "reporter": "Ark.", "case_ids": [ 1734163 ], "weight": 4, "year": 1965, "opinion_index": 0, "case_paths": [ "/ark/238/0962-01" ] }, { "cite": "25 Ark. App. 27", "category": "reporters:state", "reporter": "Ark. App.", "case_ids": [ 6136728 ], "weight": 2, "year": 1988, "opinion_index": 0, "case_paths": [ "/ark-app/25/0027-01" ] }, { "cite": "Ark. Code Ann. \u00a7 4-8-202", "category": "laws:leg_statute", "reporter": "Ark. Code Ann.", "weight": 2, "year": 1991, "pin_cites": [ { "page": "(2)" }, { "page": "(4)" } ], "opinion_index": 0 } ], "analysis": { "cardinality": 1064, "char_count": 27894, "ocr_confidence": 0.832, "pagerank": { "raw": 6.781037949176996e-08, "percentile": 0.41515045857885924 }, "sha256": "9adb3094706c2909b9d7cf39d981feea4eda621f787b0462e8d920e7557a4b38", "simhash": "1:6fc648434e277b12", "word_count": 4538 }, "last_updated": "2023-07-14T22:00:35.333550+00:00", "provenance": { "date_added": "2019-08-29", "source": "Harvard", "batch": "2018" }, "casebody": { "judges": [ "Jennings, C.J., and Cooper, J., agree." ], "parties": [ "J.M. PRODUCTS, INC. v. ARKANSAS CAPITAL CORPORATION" ], "opinions": [ { "text": "John Mauzy Pittman, Judge.\nThis appeal is from a summary judgment that granted appellee a mandatory injunction requiring appellant, J.M. Products, Inc., to issue a stock certificate for 250 of its shares to appellee. In contending that the trial court erred in awarding summary judgment, appellant asserts that a number of questions of fact remained for the trial court\u2019s determination. We find no merit to any of its arguments and affirm.\nIn March 1990, defendant Anthony Riney pledged a stock certificate for 250 shares of stock in J.M. Products, Inc., to appellee as collateral for a $100,000.00 loan. Appellee made the loan to defendant R.J. Productions, Inc., a corporation solely owned by Riney, and the loan was personally guaranteed by Riney and his wife, Helen Riney. After R.J. Productions, Inc., and the Rineys defaulted on their payments under the note, appellee requested appellant to reissue the stock certificate in appellee\u2019s name. Appellant, however, refused, claiming that the Pulaski County Circuit Court, in Riney v. J.M. Products, Inc., No. 90-5273 (Sept. 5, 1991), had found that Riney improperly obtained the stock certificate. Appellee was not a party to that lawsuit.\nAppellee then filed suit against R.J. Productions, Inc., the Rineys, and appellant, seeking judgment jointly and severally in the amount of $102,501.00 together with attorney\u2019s fees. It also requested the court to declare it to have a first lien against the collateral described in the complaint, to grant it possession of such collateral, and to order appellant by mandatory injunction to issue a stock certificate in the name of appellee representing ownership of 250 shares of stock of J.M. Products, Inc. Appellee attached to its complaint the loan agreement between appellee and appellant, the promissory note for $100,000.00, the guaranty agreement signed by the Rineys individually, the stock pledge and security agreement, the stock power transferring the stock certificate to appellee\u2019s name, and a copy of the stock certificate representing 250 shares of common stock made out in favor of Anthony Riney, dated April 16, 1982, and bearing the signatures of Ernest P. Joshua as president of appellant and Thelma L. Joshua as secretary thereof.\nIn the pleadings and depositions filed with the court, appellant admitted the validity of the signatures on the stock certificate. Appellant also admitted that it received a letter dated March 20, 1990, from appellee\u2019s attorney, requesting that the corporate stock records of appellant be amended to reflect the Stock Pledge, Security Agreement, and Stock Power executed by Tony Riney and Helene Chariot Riney to appellee. On April 19, 1990, appellant responded, advising appellee that appellant had the first right to purchase the common stock of Mr. Tony Riney should R.J. Productions, Inc., or Mr. Riney default on any of the terms or provisions of their loan agreement with appellee and that it be given immediate notification if such default occurs. Appellant\u2019s response made no mention of its claim that Riney had wrongfully obtained the stock certificate. Appellant also admitted that it had no communication of any kind with appellee concerning the status of the stock certificate prior to March 6, 1990; that its president, Ernest P. Joshua, testified in Pulaski County Circuit Court Case No. 90-5273, Riney v. J.M. Products, Inc.; that he \u201ctold the Board that [Riney] owned Twenty Five Percent of [appellant] in 1990\u201d; and that appellant had not filed suit against Riney until October 17, 1990.\nBased on these pleadings and appellant\u2019s admissions, appellee moved for summary judgment. Attached to its motion were the affidavits of Sam Walls and George Eagen, executive vice presidents of appellee. Walls\u2019 affidavit stated:\nBased on a diligent review of ACC\u2019s books and records, Defendants, R.J. Productions, Inc., as primary obligor and Anthony Riney and Helene Chariot Riney as guarantors, are currently indebted to ACC, as of July 26, 1993, in the amount of $105,129.27, with interest accruing per diem at the rate of $30.21. A true and correct copy of the loan payment record is attached hereto as Exhibit \u201c1\u201d.\nEagen\u2019s affidavit stated:\n2. At no time during the loan evaluation process and prior to closing was I made aware of any deficiency in the validity of the stock in J.M. Products, Inc. that was pledged by Anthony Riney as partial collateral for the loan from ACC to R.J. Productions, Inc.\n3. Mr. Riney represented himself as an officer of J.M. Products. Mr. Riney had copies of audited financial statements of J.M. Products, a closely held corporation, supporting the contention that he was in fact a shareholder.\nAppellee was granted summary judgment against separate defendant R.J. Productions, Inc., in the amount of $124,913.64. Appellee was later awarded summary judgment against appellant, J.M. Products., Inc. In that judgment, the chancellor found that the affidavit of George H. Eagen of appellee made a prima facie showing that appellee was a subsequent purchaser for value of the Stock Certificate, that appellee had no knowledge of any defect with respect to the Stock Certificate at the time that it was pledged by Riney, and that the affidavit of Ernest P. Joshua of J.M. Products did not contain any factual assertions negating appellee\u2019s prima facie showing of appellee\u2019s status as a purchaser for value of the Stock Certificate or appellee\u2019s prima facie showing that it had no knowledge of any defect with respect to the Stock Certificate at the time the Stock Certificate was pledged to appellee. The chancellor concluded that, under Ark. Code Ann. \u00a7 4-8-202(2) (Repl. 1991), appellee is entitled to and is the lawful owner of 250 shares of the common stock of appellant, and that appellee is entitled to a stock certificate evidencing such ownership and all the attendant rights of being a stockholder of appellant. The judgment ordered appellant to issue a stock certificate in appellee\u2019s name on or before June 10, 1994.\nMotions for summary judgment are governed by Rule 56 of the Arkansas Rules of Civil Procedure, which provides that a judgment may be entered if the pleadings, depositions, answers, interrogatories, and admissions on file, in addition to affidavits, if any, show that there is no genuine issue as to a material fact and the moving party is entitled to judgment as a matter of law. Summary judgment is an extreme remedy which should be allowed only when it is clear that there is no genuine issue of fact and the moving party is entitled to a judgment as a matter of law. Although affidavits and documents in support of motions for summary judgment are construed against the moving party, once a prima facie showing of entitlement to summary judgment is made, the responding party must discard the shielding cloak of formal allegations and meet proof with proof by showing a genuine issue as to a material fact. Mathews v. Garner, 25 Ark. App. 27, 751 S.W.2d 359 (1988).\nFor its appeal, appellant argues that summary judgment was in error because questions of fact existed for the trial court\u2019s determination. Appellant first argues that the trial court should not have considered the affidavit of George Eagen in awarding appellee summary judgment because the trial court did not have the opportunity to assess Eagen\u2019s credibility. Appellant, however, has not cited any authority for this argument, nor do we know of any.\nAppellant next claims that the trial court erred in finding that appellee was a bona fide purchaser without notice of appellant\u2019s claim. Arkansas Code Annotated \u00a7 4-8-302(1) (Repl. 1991) states that \u201c[a] \u2018bona fide purchaser\u2019 is a purchaser for value in good faith and without notice of any adverse claim ....\u201d The burden was on appellee to prove that it was a bona fide purchaser. See Gwatney v. Allied Companies, Inc. of Arkansas, 238 Ark. 962, 385 S.W.2d 940 (1965).\nThe evidence attached to appellee\u2019s motion demonstrated that Riney had possession of the stock certificate when it was given to appellee, that there was nothing on the face of the certificate to give appellee notice that it was invalid, that the signatures on the certificate were valid, and that Riney had copies of the audited financial statements of appellant supporting his claim that he was a shareholder. Based on this evidence, the trial court found that appellee made a prima facie case that it was a bona fide purchaser for value in good faith and without notice of appellant\u2019s claim. It also found that appellant failed to rebut appellee\u2019s case with any evidence.\nAppellant refutes this finding and contends that appellee had constructive notice of appellant\u2019s defense to the stock certificate and, therefore, whether appellee was without notice of appellant\u2019s adverse claim was a question of fact. The evidence on which appellant relies for its argument is the affidavit of its president, Ernest Joshua, which states: \u201c[Appellee] had knowledge of the litigation between J.M. and Riney concerning Riney\u2019s ownership of J.M. stock but did not intervene in the litigation.\u201d Assuming that Joshua\u2019s statement is true, appellant still has not presented any evidence of appellee\u2019s knowledge at the time it accepted the stock certificate as collateral. The litigation to which Joshua refers in his affidavit did not occur until seven months after appellee accepted the certificate as collateral.\nAppellant also argues that appellee failed to make any effort to establish the validity of the stock certificate prior to accepting it as collateral and, therefore, appellee\u2019s failure to make such an effort operated as knowledge of appellant\u2019s defense as defined by Ark. Code Ann. \u00a7 4-l-201(25)(c) and (27) (Supp. 1993), which provides:\n(25) A person has notice of a fact when:\n(c) From all the facts and circumstances known to him at the time in question he has reason to know that it exists.\n(27) Notice, knowledge, or a notice of notification received by an organization is effective for a particular transaction from the time when it is brought to the attention of the individual conducting that transaction, and in any event from the time when it would have been brought to his attention if the organization had exercised due diligence. An organization exercises due diligence if it maintains reasonable routines for communicating significant information to the person conducting the transaction and there is reasonable compliance with the routines. Due diligence does not require an individual acting for the organization to communicate information unless such communication is part of his regular duties or unless he has reason to know of the transaction and that the transaction would be materially affected by the information.\nIn support of its argument that appellee had a duty to ascertain the validity of the stock certificate prior to accepting it as collateral, appellant cites First National Bank of Cicero v. Lewco Securities Corp., 860 F.2d 1407 (7th Cir. 1988); Hollywood National Bank v. International Business Machine Corp., 38 Cal. App. 3d 607, 113 Cal. Rptr. 494 (1974); and Insurance Co. of N. Am. v. United States, 561 F. Supp. 106 (E.D. Pa. 1983). We find that these cases are distinguishable from the case at bar and lend no support to appellant\u2019s arguments.\nIn First National Bank of Cicero, supra, the appellant, who alleged it was a bona fide purchaser, admitted that its agent had not contacted the securities information center as was its normal practice to determine whether the securities were stolen. The district court held:\nUnder sections 1-201(25) and 8-302, a purchaser of securities will be charged with notice of those adverse claims which were discoverable through adherence to reasonable commercial standards of business conduct. In the present case, compliance with federal regulations requiring the verification of collateral is necessary to support a finding that a bank satisfied reasonable commercial standards.\nFirst National Bank of Cicero v. Lewco Securities Corp., 860 F.2d at 1413-14. In the case at bar, appellant has not cited any regulation that required appellee to check the validity of the stock certificate with appellant.\nIn Hollywood National Bank v. International Business Machine Corp., 113 Cal. Rptr. at 498-99, the court held that, where no attempt was made to reconcile the transferee\u2019s prior credit record with his possession of a $70,000.00 stock certificate, the circumstances amounted to more than \u201cmere suspicion\u201d and were sufficient to place appellant on notice. The court held that mere knowledge of facts sufficient to put a prudent man on inquiry, without actual knowledge, or mere suspicion of an infirmity or defect of title, would not preclude a transferee from occupying the position of a holder in due course, unless the circumstances or suspicions were so cogent and obvious that to remain passive would amount to bad faith. Here, appellant has not come forward with any evidence that should have made appellee suspicious of Riney\u2019s possession of the stock certificate.\nInsurance Company of North America v. United States, supra, concerned the appellant\u2019s subrogor\u2019s failure to follow several industry practices in the subject transaction. No such practices exist in the case at bar.\nAppellant also argues that appellee would have discovered that Riney was not a stockholder of appellant if it had investigated the filings in the Secretary of State\u2019s office. Appellant produced a copy of its amended articles of incorporation filed with the Secretary of State on April 5, 1983, which showed there were 800 shares of outstanding stock owned by the Joshuas. Appellant, however, did not produce any evidence to show that it would have been a reasonable business practice for appellee to have checked these filings to look for this evidence. Arkansas law does not require a corporation to file the names of its stockholders with the Secretary of State\u2019s office. See Ark. Code Ann. \u00a7 4-26-202 (Repl. 1991).\nFurthermore, appellant\u2019s December 31, 1988, audited financial records upon which appellee relied in accepting appellant\u2019s stock certificate as collateral shows that 1,050 shares of stock were outstanding. Appellant also admitted in response to appellee\u2019s request for admission that its president, Ernest Joshua, told \u201cthe Board [Riney] owned Twenty Five Percent of [appellant] in 1990.\u201d\nAppellant\u2019s argument here is similar to the argument rejected by the supreme court in Byrd v. Security Bank, 250 Ark. 214, 464 S.W.2d 578 (1971):\nAppellants say that if the Security Bank had checked in the office of the Circuit Court Clerk, it would have found that the Kennett Bank had filed financing statements from appellants as security, said statements covering substantially the same property which had been covered in the financial statements securing appellee\u2019s indebtedness; that appellee would accordingly have been put on notice that \u201csomething was wrong\u201d. We disagree. The evidence reflects that appellee did not learn until June that Parsons had released the financing statements, and that Kennett had a lien on the properties. The Kennett financing statements were not filed until March 30, and it will be recalled that the Security financing statements had been filed in January. Appellee could not possibly have known about the latter filing unless it checked the clerk\u2019s records each day, week, or month to determine if the original financing statements were still in effect. Under the circumstances of this case, we cannot see where there was any duty on appellee to go over and check the records regularly to see if it still held effective security. There simply wasn\u2019t any reason for this to be done. Of course, this litigation could not have arisen except for appellants signing blank notes. The one fact that contributed most to the situation in which appellants now find themselves, is that they imprudently signed these blank instruments, and in doing so, failed to act as prudent persons.\nId. at 218, 464 S.W.2d at 580.\nAppellant for its third point argues that appellee also had constructive notice by way of the \u201cstaleness\u201d of its claim. For this proposition, it cites Ark. Code Ann. \u00a7 4-8-305 (Repl. 1991), which provides:\nAn act or event that creates a right to immediate performance of the principal obligation represented by a certificated security or sets a date on or after which a certificated security is to be presented or surrendered for redemption or exchange does not itself constitute any notice of adverse claims except in the case of a transfer:\n(a) After one (1) year from any date set for presentment or surrender for redemption or exchange; or\n(b) After six (6) months from any date set for payment of money against presentation or surrender of the security if funds are available for payment on that date.\nAppellant\u2019s argument, however, does not demonstrate how this section is applicable to Riney\u2019s stock certificate except to state that appellee\u2019s \u201cclaims should have been made not more than six months after default.\u201d It appears from the undisputed evidence that appellee did bring its claim within six months of Riney\u2019s default. According to appellee\u2019s complaint, R.J. Productions, Inc., made payments on appellant\u2019s note until October 22, 1992. Under the terms of the loan agreement, the borrowers had thirty days to remedy any default. Therefore, the lawsuit filed by appellee on May 6, 1993, was made within six months.\nAppellant also contends that appellee did not prove that it was a \u201cpurchaser for value,\u201d which it was required to prove in order to be a bona fide purchaser under section 4-8-302. Appellant admitted in its answer to appellee\u2019s complaint that, \u201con March 6, 1990, Anthony Riney pledged the Stock Certificate to [appellee] as collateral for a loan from [appellee] to R.J. Productions, a corporation in which Anthony Riney and his wife, Helene Chariot, are the sole shareholders.\u201d This undisputed evidence was sufficient to show appellee was a purchaser for value. See Ark. Code Ann. \u00a7 4-1-201(44)(a) (Supp. 1993).\nAlso under this point, appellant argues that appellee should not be allowed to be unjustly enriched at the expense of appellant, even if appellee is a bona fide purchaser. We do not address this argument because appellant has failed to produce any evidence to show that appellee has been unjustly enriched. Furthermore, the summary judgment awarded appellee by the court specifically provides:\n[Appellee] shall deal with such J.M. Products stock in accordance with the rights of a secured party under the Uniform Commercial Code with the proceeds if any applied to the judgment, costs, and attorney\u2019s fees awarded to [appellee] against R.J. Productions, Inc., in this proceeding with any remaining proceeds, after payment in full to [appellee], placed into escrow account for further determination by the court of any other party\u2019s interest in said proceeds.\nAppellant also argues that Ark. Code Ann. \u00a7 4-9-112 (Repl. 1991) required appellee to notify appellant of the status of the collateral, which it contends appellee never did. We disagree. Appellee wrote appellant on two occasions, notifying appellant it held the stock certificate as collateral. Appellant responded to appellee\u2019s March 1990 letter but wrote nothing to indicate its adverse claim or to put appellee on notice that Riney was not the owner of the certificate. On January 21,1992, appellee again wrote appellant regarding the stock certificate, stating:\nThis letter is to remind your clients; J.M. Products, Inc., Ernest P. Joshua and Thelma L. Joshua; that Arkansas Capital Corporation (\u201cACC\u201d) has relied and continues to rely on the validity of the Stock Certificate attached hereto. As your clients know, ACC received the Stock Certificate as collateral for a $100,000 loan to R.J. Productions, Inc.\nR.J. Productions\u2019 debt to ACC has not been accelerated at this time. However, ACC continues to rely on the attached Stock Certificate as the primary collateral for the repayment of R.J. Productions\u2019 loan. Your clients should conduct their affairs accordingly until such time as R.J. Productions\u2019 debt is repaid in full.\nThere is no evidence that appellant responded to the letter.\nAppellant\u2019s final point concerns its contention that the events at issue violate Article XII, Section 8, of the Arkansas Constitution. This section provides:\nNo private corporation shall issue stocks or bonds, except for money or property actually received or labor done, and all fictitious increase of stock or indebtedness shall be void; nor shall the stock or bonded indebtedness of any private corporation be increased, except in pursuance of general laws, nor until the consent of the persons holding the larger amount in value of stock shall be obtained at a meeting held after notice given for a period not less than sixty days, in pursuance of law.\nAppellant argues that, although the stock was exchanged for value, it did not receive the value, and, therefore, the transaction runs afoul of Article XII, Section 8. We do not agree.\nIn Gwatney v. Allied Companies, Inc., 238 Ark. 962, 385 S.W.2d 940 (1965), the supreme court held that, if one is a bona fide purchaser for value of stock certificates, then the certificates cannot be canceled and a corporation cannot claim the invalidity of the original issue of a stock certificate as against a person who, subsequent to the original issue, acquired the stock as a bona fide holder. The court in Gwatney relied on Park v. Bank of Lockesburg, 178 Ark. 669, 11 S.W.2d 483 (1928). There, the court held that one who in good faith lent money represented by a note and took the stock certificate as collateral, which was regular in form and carried no notice of any infirmity upon its face, was entitled to enforce its lien as against the claim of the bank for the purchase money of the stock. Appellant argues that Park v. Bank of Lockesburg is not controlling in the case at bar because the bank had some responsibility in the outcome as the stock certificate issued by the bank carried no notice whatever of any infirmity on its face. This same argument, however, can be made of appellant. This lawsuit could have been avoided if appellant\u2019s officers had not signed the certificate.\nAppellant also argues that the stock certificate was not a \u201csecurity\u201d under Ark. Code Ann. \u00a7 4-8-101 et seq. (Repl. 1991). Section 4-8-102(l)(a)(i) provides that: \u201c[a] \u201ccertificated security\u201d is a share, participation, or other interest in property of or an enterprise of the issuer or an obligation of the issuer which is . . . [represented by an instrument issued in bearer or registered form . . . .\u201d Appellant argues that, in order to be a \u201csecurity\u201d as defined by Sections 4-8-102(l)(a)(i) et seq., the stock certificate had to be \u201cissued,\u201d and the undisputed evidence here proved that the stock certificate in question was never issued.\nIn support of its argument, appellant cites Bankhaus Hermann Lampe KG v. Mercantile-Safe Deposit and Trust Co., 466 F. Supp. 1133 (S.D.N.Y. 1979), where the court ruled that, since the certificates were stolen en route from the engraver to the issuer and subsequently forged, they could not meet Article 8\u2019s definition of securities. In doing so, the district court held that a stock certificate that has never been issued as defined by section 3-102(a) of the Uniform Commercial Code is not a security covered by Article 8. Section 4-3-105 states that \u201cissue means the delivery of an instrument by the maker or drawer, whether to a holder or nonholder, for the purpose of giving rights on the instrument to any person.\u201d\nHere, appellant concludes that, because the stock certificate in question was never delivered by appellant to Riney, the certificate is not a security and appellee cannot be a bona fide purchaser. We disagree that the district court\u2019s opinion in Bankhaus controls the situation at bar. In that case, the \u201csecurities\u201d at issue were blank certificates stolen en route from the engraver to the issuer. Here, the stock certificate in question that was received by the appellee provided:\nThis certifies that Anthony Riney is the owner of Two Hundred and Fifty Shares of the Capital Stock of . . . transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed. In witness whereof the said Corporation has caused this Certificate to be signed by its duly authorized officers and to be sealed with the Seal of the Corporation.\nThe certificate in question was originally in the hands of the issuer, appellant, where it was dated April 16, 1982, signed by Ernest P. Joshua as president and Thelma L. Joshua as secretary, and stamped with the seal of the corporation.\nWe do not find the fact that appellant did not physically deliver the stock certificate to Riney controlling as to whether the stock certificate was a \u201csecurity\u201d in appellee\u2019s possession. In First American National Bank v. Christian Foundation Life Insurance Co., 242 Ark. 678, 408 S.W.2d 912 (1967), the appellee questioned the validity of certain bearer bonds that were ostensibly issued by the First Methodist Church. The evidence reflected that the church\u2019s agent had duplicate bonds printed that he gave to the appellant for collateral. The appellee attempted to dishonor the bonds because they were fraudulently issued, but the appellant claimed it was a good faith purchaser for value. The court stated that there was no good basis for questioning the appellant\u2019s standing as a good faith purchaser for value as the term is defined in the Uniform Commercial Code. In that case, the supreme court stated:\nWe think the chancellor should have found all bonds held by bona fide purchasers to be binding obligations of the church. It is plain enough that the church was careless in entrusting its treasurer\u2019s facsimile signature to Institutional Finance and in failing to take the precaution of requiring authentication of the bonds by a manual signature. By contrast, the holders of the bonds acquired then in the ordinary course of business and in circumstances entitling them to the protection afforded to bona fide purchasers.\nThe case is controlled by the pertinent provisions of the Uniform Commercial Code. Before the adoption of the Code the church might have been held liable by contract to one purchaser and in damages to the other, but the draftsmen of the Code point out in their Comment to our 85-8-202 that the Code simply validates most defective securities in the hands of innocent purchasers, refusing to prefer one such purchaser over another.\n242 Ark. at 682, 420 S.W.2d at 914-15.\nFurthermore, Ark. Code Ann. \u00a7 4-8-202(4) (Repl. 1991) provides that \u201c[a]ll other defenses of the issuer of a certificated or uncertificated security, including nondelivery and conditional delivery of a certificated security, are ineffective against a purchaser for value who has taken without notice of the particular defense.\u201d (Emphasis added.)\nIn conclusion, we agree with the court\u2019s holding that appellee made a prima facie case that it was a bona fide purchaser and that it did not have any knowledge of appellant\u2019s adverse claim. The burden then shifted to appellant to rebut appellee\u2019s evidence, and it failed to do so. None of the exhibits or statements made in its affidavits were controverted by appellant, nor did appellant present any evidence to create a question of fact as to whether appellee knew of any wrongful taking at the time it received the stock certif\u00edcate as collateral.\nAffirmed.\nJennings, C.J., and Cooper, J., agree.", "type": "majority", "author": "John Mauzy Pittman, Judge." } ], "attorneys": [ "Mays & Crutcher, P.A., by: Richard L. Mays and Michael A. LeBoeuf, for appellant.", "Rose Law Firm, by: Stephen N. Joiner, for appellee." ], "corrections": "", "head_matter": "J.M. PRODUCTS, INC. v. ARKANSAS CAPITAL CORPORATION\nCA 94-1039\n910 S.W.2d 702\nCourt of Appeals of Arkansas Division II\nOpinion delivered December 6, 1995\nMays & Crutcher, P.A., by: Richard L. Mays and Michael A. LeBoeuf, for appellant.\nRose Law Firm, by: Stephen N. Joiner, for appellee." }, "file_name": "0085-01", "first_page_order": 107, "last_page_order": 122 }