Summary
In Smith v. Savin (supra) it was stated, but not necessarily decided, that from May fourteenth to June twenty-first would have been an unreasonable time.
Summary of this case from Burhorn v. LockwoodOpinion
Argued January 24, 1894
Decided February 27, 1894
Thaddeus D. Kenneson for defendants. J.A. Dennison for plaintiff.
John Notman for defendant Wheeler.
The defendants Savin Co. make a preliminary objection to the maintenance of this judgment on the ground that the plaintiff has elected by the form of his original complaint to treat the sale of the stocks as a valid and regular sale, and assuming its validity he has asked to recover from defendants Savin Co. only the amount which they received from such sale. The present form of the action the defendants say is inconsistent with the original, for the reason that the cause of action as now set up is based upon the alleged illegal character of the sale of the plaintiff's stock and the consequent liability of the defendants to pay him the damage he has thereby suffered.
The plaintiff at the time of the commencement of the action supposed that the defendants had realized enough upon the sale of the other stocks to repay them the amount of the call loan, and that the only claim they made upon his stock was the right to apply it on other indebtedness. He also supposed his stock had sold for $9,000, and he demanded that sum from Savin Co. It seems he was mistaken as to these facts; the other stocks did not realize upon their sale enough to pay the debt due defendants, nor did his stock sell for $9,000, and the defendants claimed the right to hold his stock for the balance of the call loan debt, and then to hold what was left as payment on account towards other indebtedness of Bogart Co. to them. The plaintiff was also ignorant of the fact that the sale of the stocks was made without notice and in violation of the rules of the stock exchange. As the plaintiff commenced his action in ignorance of these material facts, he ought not to be held as conclusively ratifying these alleged illegal sales, simply because while thus ignorant his complaint proceeded upon the ground of the validity of such sales and asked for the proceeds arising therefrom so far as his own stock was concerned.
When he became informed of the facts, after the action had been referred, we do not think that he lost his right to repudiate the validity of the sale by going on under the original complaint. It is evident, from the finding of the referee, that the plaintiff supposed he could then, and under the original complaint, prosecute the defendants for their wrongful and illegal sales, which he had then discovered, and to that end he gave evidence of the rules of the stock exchange, and upon appeal to the General Term the plaintiff still entertained such belief and claimed such right. When the courts decided against him upon that view, he then asked for an amendment, and, upon payment of all the costs incurred by all the defendants up to the time of the motion, he was permitted to amend his complaint. Under these circumstances we are of the opinion that there was no such election, with knowledge of all the facts proved in this case, as would preclude the plaintiff from insisting, under his amended complaint, upon the invalidity of the sale of his stock.
We must come, therefore, in this case to a consideration of its merits.
The defendants Savin Co. must be treated as bona fide pledgees of the stock as a portion of their collateral security for the payment of the $50,000 call loan. Some criticism was made upon the argument based upon the fact that the scrip for the 100 shares of Missouri Pacific had been issued in the name of the plaintiff, and the power of attorney to transfer the same was a detached paper, and the plaintiff's signature thereon was not acknowledged by plaintiff before a notary public, as required by the rules of the stock exchange, in order to make a good delivery upon a sale under those rules. This fact we regard as wholly immaterial for the purpose of charging the pledgees with notice of any defect in the title to the scrip on the part of the sub-pledgors. The power of attorney was full and complete for the purpose of transferring the right to the pledgees to demand of the railroad company a transfer of the scrip upon its books to the pledgees. A failure to comply with some rule of the stock exchange, in order to constitute a good delivery of the stock under the rule, has no significance upon the question of the good faith of the pledgee, and constitutes no notice to him which should put him upon inquiry as to the right or title of the pledgor.
There is no other evidence in the case that the defendants Savin Co. were not bona fide pledgees, and we must hold that they were such with all the rights which such a position gave them. It would appear to be also immaterial whether the loan and the pledge of the securities were made under the rules of the stock exchange or subject to the ordinary rules appertaining to a pledge as collateral security for a loan of money. In either case the sale was in violation of the law upon the subject. The question before us is what are the rights of the plaintiff in the light of the circumstances above set forth?
When the pledge was made to them the defendants were entitled to regard Bogart Co. as the owners of all the stock which was pledged, but when the plaintiff (being in fact the owner of the stock) notified the defendants of his rights before any sale was made by them, the plaintiff then stood, with reference to that stock, as a simple surety for the payment of the loan and with the right on his part to compel Savin Co. to apply the proceeds of the other securities held by them before resorting to the stock owned by him. ( Farwell v. Importers', etc., Nat. Bank, 90 N.Y. 483.) The right of property in the stock did not pass to Bogart Co. by the deposit made of it with them by plaintiff as security, and of course it it did not pass to Savin Co. by reason of the deposit thereof by Bogart Co. This right of property remained with the plaintiff, subject to the lien of Bogart Co., and after their pledge to defendants, subject to defendants' lien also. ( Wheeler v. Newbould, 16 N.Y. 392, 398.)
This action is in effect an action to recover damages for the conversion of the 100 shares of plaintiff's stock. After his notice to defendants of his ownership of that stock, the plaintiff had the right simply to demand that the other stock for which his own was security, should be sold for its full value. He stood in no such position with regard to the other stock, of which he was not the owner, as would entitle him to complain that it had not been sold in accordance with the stock exchange rules, so long as it was in fact sold for its full value on the day of its sale. If the rules had been observed the stock might even then have been sold on that day and at that place. So long as it was in fact sold for its full value the plaintiff cannot complain.
There is no finding and no proof that this stock was not so sold.
So far as appears the only difference between the sale that actually took place and that which might have taken place if the stock had been sold "under the rule," is that in the latter case the sale would have been made by one of the officers of the exchange at a certain hour of the day and at public auction.
The price actually received was as high as the price of any stock of that kind reached that day; at least there is no evidence that it was not, and it would appear that the price actually received for the stock was its market value at that time. This was all that the plaintiff could require in regard to stock which he never owned or had possession of.
If the defendants, by reason of the violation of the stock exchange rule, laid themselves open to a charge of conversion as in favor of Bogart Co. or their assignee, with reference to the stock owned by them, such cause of action was a matter of no legal interest to plaintiff so long as that stock then sold for its full value, and he could not, at any rate in such an action as the one he has brought, insist upon charging Savin Co. with the highest price of stock which he never owned, as he now claims is his right. Whatever cause of action Bogart Co. might have for an illegal sale belongs to them and cannot be set up by plaintiff as an affirmative claim on his part. ( Gillespie v. Torrance, 25 N.Y. 306.)
In regard to the stock owned by plaintiff, however, he had the right, by reason of his ownership and because of the wrongful act of Bogart Co. in pledging such stock, to insist that the defendants Savin Co. should abide by their contract of pledge, and that they should sell his stock in strict accordance with the law, and in case of a violation of duty on the part of defendants which resulted in an illegal sale of the plaintiff's stock, he had the right to complain of such violation and to sue to recover damages therefor.
The plaintiff in fact was not indebted to Bogart Co. when they unlawfully pledged his stock, and they had no right as against plaintiff to claim or take possession of his stock from the hands of Savin Co. The latter had their lien on it as security, and subject to that lien the plaintiff was the owner. The defendants Savin Co. having violated the law in selling the stock as they did, without notice to their original pledgors or their assignee, the plaintiff, by reason of his ownership of the stock, could thereafter treat such sale as a conversion, and after the proceeds of the sale of the other stock were applied towards the payment of the debt of Bogart Co. to defendants, the plaintiff had the right to claim the highest price which his stock reached within a reasonable time after its illegal sale by defendants ( Wright v. Bank, etc., 110 N.Y. 237), and from that sum should be deducted the balance of the debt due from Bogart Co. to Savin Co. I should say that in general the time elapsing between the 14th of May and the 21st of the following June was much more than a reasonable time in which to purchase back stock of this kind when it had been illegally sold, but the fact appears that the plaintiff was not aware of such sale until about near the latter date, and in such case the time allowed to take the highest price is of course not unreasonable.
The defendants cite the case of Thompson v. St. Nicholas Natl. Bank ( 113 N.Y. 325) as conclusive in their favor and as showing entire absence of all liability on their part to plaintiff. I do not think the case is in point. The pledgee had by the contract in question in that case full power to sell at public or private sale and without notice, and power to apply the proceeds in payment of the indebtedness for which the pledge was security. This right was not affected by notice from the original plaintiff that he owned the bonds, and he had no right to forbid defendant to part with the stock in the manner which it was authorized to do by its contract with the pledgor. The defendant did sell in a valid manner in the Thompson case, while in this case the defendants sold in an illegal manner and were thus techically guilty of a conversion. We may assume here that the plaintiff in the Thompson case obtained no right by his notice to the defendant to insist that it should only sell after notice to him. The defendant was a bona fide pledgee for value of the bonds, and at the time when the loan was made and the bonds pledged, the contract was made providing for a sale without notice and at private sale or by auction. This privilege was part of the security, and the plaintiff could not by any notice impair that security or alter the right which defendant had obtained by its contract made at the time when the loan was effected and the securities pledged. But the fact that the defendant in that case had the right originally under its contract to make and did make a valid sale without notice to the plaintiff therein, furnishes no ground for permitting the defendants here to make an illegal sale of the plaintiff's stock without responding in damages to him on account of such illegal act. The illegal sale by these defendants consists (aside from the question of a lack of a proper demand of payment on Bogart Co., or their assignee) in an omission of any notice of sale to Bogart Co., or their assignee, and also of a sale in violation of the rules of the stock exchange. And the plaintiff by reason of his ownership can take advantage of that violation of law on the part of the defendants and sue for this conversion of his stock. The Thompson case was not decided in favor of the defendant bank while assuming that it had sold the bonds in violation of the rights of Capron and Merriam, their pledgors. On the contrary, the reasoning of the case shows it was assumed the sale had been properly made so far as their rights were concerned. And therein lies the important difference in the facts in the two cases. In the Thompson case the sale was proper and in this case it was not.
The deduction of the balance of the indebtedness of Bogart Co. to defendants Savin Co., from the price allowed for plaintiff's stock, is proper because the stock was originally pledged for that debt, and although the defendants by their mode of sale were guilty of a technical conversion of the stock to their own use, yet the result of such conversion resolves itself into a question of damage; what damages has the plaintiff suffered by reason of this conversion? And, we think, upon that question it is proper to deduct what remains of the debt for which the plaintiff's stock originally stood as security, from the highest amount for which the stock sold within a reasonable time after its conversion. ( Wright v. Bank of Metropolis, 110 N Y, supra, and cases cited; Minor v. Beveridge, decided at this term.)
As to the defendant Wheeler, the assignee of Bogart Co., we think he has no cause of complaint in this case. The judgment bars him of all right to the stock in question or to any portion of the proceeds thereof. After Bogart Co. ceased to be creditors of the plaintiff, neither they nor their assignee had any further interest in this stock. The referee finds that plaintiff was not equitably indebted to Bogart Co. in any sum whatever after the 8th day of May, 1884. They were not in fact creditors after that date.
The judgment should be affirmed as against all appellants, without costs in this court in favor of any one.
All concur.
Judgment affirmed.