Allen v. Dykers & Alstyne — 3 Hill & Den. 593

Majority

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Allen vs. Dykers & Alstyne.

Headnote

A. borrowed money of D., a stock broker, on a promissory note dated January 19th, 1839, payable in sixty days ; the note stating that the former had deposited with the latter two hundred and fifty shares of the stock of a certain bank as collateral security, with authority to sell the same in case the note was not paid at maturity. In an action by A. against D., after the note fell due, alleging an illegal disposition of the stock, it appeared, that upon the giving of the note the stock was immediately entered on the books of the bank in D.’s name, without any mark distinguishing it from other stock owned by him in the same institution; that, on the 25th of February, 1839, D. had but seventy-two shares of stock standing in his name upon the books of the bank, the residue being pledged as collateral security for loans made by him; that stock of the same kind was then selling for $99,50 per share, though previously, and ever since, the market price was considerably less; and that, after the note fell due, the seventy-two shares were sold and the proceeds applied upon it. Held, that A. was entitled to recover for all the stock deposited by him, except the seventy-two shares, at the rate of $99,50 per share; and this, though he hhd neither paid nor tendered the balance due on the note.

D. proposed to prove that, where stock was deposited with a broker as collateral security, it was the general usage for the latter to hypothecate or dispose of it at pleasure ; and, on payment or tender of the principal debt, to return an equal nmn. ber of shares of the same kind of stock. Held, that the evidence was inadmissible as tending to contradict the legal import of the note.

Whether evidence of this kind would be admissible in the case of a simple pledge of stock as collateral security, without any further agreement, quere.

Assumpsit, tried at the New-York circuit, in March, 1842, before Kent, C. Judge. The action was upon a promissory note in these words :

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“ New-York, Jan. 19, 1839.

$21,000. Sixty days after date I promise to pay to Dykers & Alstyne, or order, twenty-one thousand dollars, for value received, with interest at the rate of seven per centum per annum ¡ having deposited with them as collateral security, with authority -to sell the same on the non-performance of this promise, two hundred and fifty shares North American Trust and Banking Company stock. Sale to be made at the board of brokers. Notice waived, if not paid at maturity.

Wm. Paxson Hallett.”

This note was given on a loan of $21,000 to the plaintiff, and was executed by Hallett as his agent j the stock being in fact the property of the plaintiff, though standing on the books of the company in the name of Hallett. The plaintiff claimed to recover the difference between the value of the stock and the money loaned, on the ground that the defendants had sold the stock before the note became due. At the trial it appeared, on the part of the plaintiff, that the stock in question was assigned to the defendants and the transfer entered upon the books of the company on the day the note was given. The stock was entered in the names of the defendants, without any mark distinguishing it from other shares belonging to them. The plaintiff proved that, on the 25th of February, 1839, the defendants had no stock standing in their names upon the books of the company, except seventy-two shares; but on the 20th of ■March, about the time the note fell due, they held two hundred and twelve shares. It appeared from a book kept by the defendants as stock brokers, purporting to contain the prices at Which the shares of stock of the said company had been sold at various times, that, on the 22d and 23d of January, 1839, the defendants sold for $96,50 per share ; that, on the 25th of February, they sold for $99,50, and in March, when the note fell due, for $95. These were admitted to be the regular market prices of the stock. The plaintiff here resting, the defendants’ counsel moved for a nonsuit, on the ground, 1. That no con

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tract.had been shown by which the defendants were required to retain the specific stock pledged, or any of it; 2. That they could not be rendered liable, unless, on tender of payment of the note, they failed to deliver to the plaintiff the amount of stock pledged by him ; and 3. That no sale by the defendants of the specific two hundred and fifty shares in question, had been shown. The circuit judge denied the motion, and the defendants’ counsel excepted. The defendants’ counsel offered to prove that, where brokers took assignments of stock as collateral security for money loaned, it was not the custom to retain the stock in specie, but to transfer it by hypothecation or otherwise if they thought proper ; and, on payment or tender of the principal debt, to return to the debtor an equal quantity of the same kind of stock. The defendants’ counsel further offered to prove, that such custom was general and known to Hallett when the note in question was given. It was objected that the evidence offered was inadmissible, and the circuit judge so ruled ; whereupon the defendants’ counsel excepted. The defendants then called one Jarvis as a witness, who testified that, from the date of the note, until after it fell due, the defendants had, standing in their own names and in the names of others, a large quantity of stock of the North American Trust and Banking Company, amounting to more than twice the number of shares transferred to them by Hallett. It turned out, however, on a further examination of this witness, that all the stock of which he spoke, except the seventy-two shares before mentioned, stood in the names of persons to whom it had been pledged as collateral security for various loans made by the defendants; and that the amount for which it stood pledged was within ten per cent, of its market value. It appeared that in July, 1839, the defendants sold the seventy-two shares of stock at $75,25 per share, and applied the proceeds upon the note. The circuit judge decided that, as to all the stock except the seventy-two shares, the plaintiff was entitled, under the circumstances, to be allowed for it at the price for which it was selling on the 25th of February, 1839. The defendants.excepted. The circuit judge

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further held, that the seventy-two shares should be allowed at the price for which the defendants sold them. An estimate of the two hundred and fifty shares was then made accordingly; and the jury, under the direction of the circuit judge, gave a a verdict in favor of the plaintiff for the balance found due after deducting the amount of the note. The defendants now moved for a new trial on a bill of exceptions.

S. Beardsley, for the defendants.

A. Crist, for the plaintiff.

It is not pretended that a pledgee, as such, has a right to dispose of the pledge before the pledger fails to comply with his engagement; on the contrary, it is conceded that such right, if it exist at all, must be conferred by an express or implied agreement. In this case, as the agreement between the parties was in writing, the question as to the defendants’ right to sell the stock before the note became due, must be determined, as in other cases depending upon the construction of written instruments, by consulting the terms and provisions of the agreement, and thus endeavoring to ascertain the understanding and intent of the parties. Bringing the question down to this test, and assuming that the parties expressed and intended to express their mutual understanding of the terms upon which the loan was made, it seems to me impossible to raise a doubt upon the true meaning and character of the transaction. The plaintiff applies to the defendants to borrow $21,000 for sixty days, offering as collateral security the 250 shares of stock in question. The defendants agree to the proposition, advance the money, and take a note for the amount; stating therein the deposit of the stock, and that the defendants are authorized to sell the same on non-payment of the loan. The note contains no consent, express or implied, that the defendants may sell or dispose of the stock before the loan becomes due. On the contrary, it contains a

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strong implied prohibition against selling, except in a single event, viz. non-payment of the money at the day specified. There is not only no authority to sell before the happening of this event—which of itself is enough to refute the pretension of the defendants, and subject them to the consequences of a breach of trust—but, having provided for the sale at a given period and on a specified condition, all idea of authorizing one previous to that time is necessarily negatived upon the familiar maxim, expressio unius est exclusio alterius.

The defendants being stock-brokers and dealers in stock, their counsel offered to prove on the trial that it was the usage, when stock was transferred to such dealers by way of collateral security, not to hold it specifically, but to transfer it by hypothecation or otherwise, at pleasure, and, on payment or tender of the money advanced, to return an equal quantity of the same kind of stock; also, that this usage was general, and known to the agent who made the loan in question. The object of the offer was, to lay the foundation for insisting that the usage should be regarded as incorporated in and forming part and parcel of the agreement; thus making the latter import a consent on the part of the plaintiff, that the defendants might use the stock during the running of the loan the same as if they were the absolute owners. It is not necessary to determine what effect would be due to such proof in the case of a simple pledge as collateral security, without any further agreement. Possibly the known usage in like cases might be considered as attaching itself to the transaction, and constituting a part of it. But where the parties have chosen to prescribe for themselves the terms and conditions of the loan, they must be held to abide by them ; and we are especially bound to refuse effect to any general or particular usage, when in direct contradiction to the fair and legal import of a written contract.

The counsel for the defendants' relied mainly upon Nourse v. Prime, (4 John. Ch. Rep. 490, S.

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the ruling of the circuit judge in the case before us. The contract there, it may be conceded, was substantially like the one under consideration; and there too, as here, the shares of stock deposited were not defined and designated so as to be distinguishable from other stock of the defendants in the same institution. Beyond this, however, it is difficult to discover the least analogy between the two cases. It appeared in JYourse v. Prime, that the defendants had at all times after the date of the note, a sufficient amount of stock standing in their own names, and subject to their absolute control, to have enabled them to restore the shares deposited by the complainant. The learned chancellor therefore held, that, such being the facts, the defendants had done nothing which entitled the complainant to the relief sought. Under the circumstances, he said, it was sufficient 11 that the defendants always had the requisite quantity of shares on hand, and the law will presume that the shares so on hand, from time to time, were the shares deposited, because the parties have not reduced the shares to any more certainty.”

Now, in the case before us, it does not appear that the defendants, during the running of the loan, kept on hand and under their absolute control, a number of shares equal to the amount deposited. On the contrary, for a part of the time they had but 72 shares in their own names. These, therefore, according to the doctrine of Nourse v. Prime, may perhaps be regarded as a part of the identical shares deposited ; and so indeed they were treated at the circuit. Having been kept on hand, the plaintiff was allowed only the price which they actually brought in the market on a sale after the note fell due. All the other stock of the defendants stood pledged for loans and advances to within ten per cent, of its market value.

I do not perceive any ground for interfering with the verdict in this case because of the rule of damages adopted by the circuit judge.

New trial denied.