Minneapolis Trust Co. v. Mather

This action was brought to recover upon a note for $5,000 and interest, and the sum of $2,298.60 for moneys loaned and advanced. The defendant does not dispute her indebtedness upon the note, nor for moneys loaned, but seeks an accounting, and sets up a counterclaim of $14,000 and interest. There is very little, IS any, dispute as to the facts in the case; the error alleged, however,, being based upon the conclusions of law by the referee.

The defendant is a resident of this state, and the plaintiff is a corporation organized and doing business in the state of Minnesota, In December, 1886, the defendant received from, one Whitney, of St, Paul, Minn., several notes, aggregating $20,100, and secured by five several mortgages made by said Whitney upon lands situate in the state of Minnesota. On the 24th of October, 1889, the defendant left the notes and mortgages above described, and of which she was-still the owner, with the plaintiff, for the purpose of collection and remittance to the defendant by the plaintiff. The interest was collected by the plaintiff and remitted to the defendant down to April, 1891. On the 18th day of December, 1890, the plaintiff loaned to the defendant $5,000, taking therefor her note for that amount; and on the same day the defendant assigned and transferred to the plaintiff, as collateral security for said notes, the five mortgages above mentioned, together with the notes and obligations therein described —the assignment being the usual one, by which the defendant constituted the plaintiff her attorney to collect, and take all lawful means for the recovery of, the money and interest—and said assignment was duly recorded in the proper county in the state of Minnesota. The plaintiff collected at different times interest on the notes of Whitney j the same being paid by two persons, Sumbardo and Horr, who had purchased the property covered by the mortgages, or some part thereof. In June, 1890, Whitney, the mortgagor of the premises, conveyed the lands covered by the mortgages, together with other lands, to one James Van Dyke, subject to the said mortgages and the notes secured thereby, and which James W. Van Dyke thereby agreed to pay, according to the respective tenors thereof, as part of the purchase money for the property. That conveyance was duly recorded,

Sumbardo and Horr having failed to pay the interest on the notes, no interest having been received for some time, and there being a

There is in this case an element of conyersion; that is, of placing the property where it cannot be restored to defendant, and where plaintiff has the benefit of its sale. This is quite different from, a case in which defendant might disaffirm, and recover her property. Scott v. Rogers, 31 N. Y. 676 ; Laverty v. Snethen, 68 N. Y. 522 , 23 Am. Rep. 184 ; Comley v. Dazian, 114 N. Y. 161 , 21 N. E. 135 . Plaintiff, acting for itself, had the right to buy at any price, but its action deprived defendant of all right in the property mortgaged, and all remedies against the makers of the notes. She cannot be restored to her former position, and is left to her accounting with or proceeding against plaintiff as her remedy. The referee found, as a conclusion of law, that there had been a conversion of the Whitney notes and mortgages by the plaintiff, and rendered judgment against the plaintiff in favor of the defendant for the amount of the securities, less the sum of $6,699.31, due from- defendant to plaintiff upon her note, and for moneys advanced, together with the interest on said sum from September 5, 1894.

Although the record is a voluminous one, the controlling facts upon which the case may be said to depend are within a narrow compass ; and, in order to deduce the proper conclusion, it will be profitable to consider briefly the relations of the parties, and their legal rights and duties.

During the time that the plaintiff held the securities for collection, its duties were clearly that of an agent of the defendant for the purpose of receiving the interest due upon the notes and mortgages, and remitting to the defendant; and, had this been the only relation which the plaintiff had borne to the defendant, the questions now under consideration would, in all probability, never have arisen. But when the loan was made by the plaintiff to the defendant, and it received as collateral security for that loan the mortgages and notes which it had formerly held as agent, a new relation was created, in which the plaintiff had the further right to handle the securities for its own benefit, to the extent of protecting its own interest as pledgee of the property. On the other hand, it owed to defendant the duty of caring for the property to such an extent as not to jeopardize or injure her interest therein, beyond the extent that it might be necessary to conserve and enforce its own interests and rights in the property. And beyond its own interest in the property, it had the further duty to see that the defendant was not injured by its act in reference to the property. Its interest being satisfied out of the property, it was subject to an accounting to the defendant, and any balance remaining after the satisfaction of its claim was held by it in trust for the benefit of the defendant. In either ca

The plaintiff, so far as it can be claimed that it was acting under the direction of the defendant, must find its authority in the instructions of Atwater on the 20th of June, 1894. While the finding of the referee is as to- the fact as to what occurred, without drawing conclusions, and perhaps the deduction might be made that there was simply a conference, and the conclusion that, in the interests of all of the parties, the course there stated was the best one to pursue, yet, assuming that the statements then made were sufficient to authorize the plaintiff to act as the agent of the defendant at that time, it must be held to have authority only in accord with the instructions there given; and, if it is to be construed as an instruction, that instruction would be to “foreclose the mortgages as soon as possible, bid in the property for somewhere near its present value, and take judgment against the makers of the notes for any deficiency there may be.” This certainly could not be construed into an authority to bid in the property for the full amount of the notes, and thereby discharge the maker, and the person who had assumed the payment of the notes as a consideration for his deed. While there can be no adverse criticism upon the plaintiff’s action in bidding off the property—for it had the right to make itself the purchaser, and to> bid such sum as it saw fit upon such purchase—yet, if it did elect so to do, it must stand upon its rights as a purchaser; and, having exercised its election to become a purchaser, or neglected to follow the instructions of, or agreement with, the defendant, it cannot, after the consummation of the sale and the receipt of the benefits, repudiate that position, and revert to the one of agent of the defendant. It is not upon the plaintiff to make the election, after the deed, as to its position, but, having departed from instructions, and apparently to the detriment of the defendant, the election is in the defendant; and it is the defendant who has the right to say whether the agent who has departed from her instructions, or the trustee who has gone beyond its duty, shall occupy the. position of purchaser, or not. It will make but little difference how the transaction may be characterized —whether it be called a conversion, or a departure from authority, under a mistaken idea of the rights of the parties. In either event, the injury to the defendant is the same, and the rule of responsibility is to be applied, rather to the act itself, than to the name which may be given to it.

We conclude that the plaintiff, having the right either to follow the plan suggested at the conference with Atwater, or to act independently and purchase the property itself, and account to the defendant for the proceeds, having elected to purchase the property, and having bid a price in excess of the one suggested or agreed upon,

The judgment should be affirmed, with costs.

MCLENNAN, P. J., and WILLIAMS, J., concur.

I am unable to concur in the conclusion reached by a majority of my associates that the judgment appealed from should be affirmed. The action was brought by plaintiff to recover against.defendant upon a note for $5,000 and interest, and also the sum of $2,298.60 for moneys loaned and advanced. Defendant, not disputing much of her indebtedness upon said claims, sought to hold plaintiff liable for the sum of about $24,000 and interest— being the amount at which, upon the foreclosure of certain mortgages, it had bid in certain real property—and to recover judgment for the balance of said sum, over and above her indebtedness. The referee before whom the case was tried found in favor of her demand; and hence the judgment appealed from, which includes a large amount of interest upon the principal sum found due to defendant. I think such judgment was not authorized either by the pleadings or by the proofs upon the trial, and should be reversed.

Defendant is a resident of this state. Plaintiff, as its name implies, is a corporation organized and doing business in the state of Minnesota. In December, 1886, one Whitney, at St. Paul, in said state, executed and gave to defendant 10 several notes, aggregating $20,100, and executed upon lands situate in said state five several mortgages securing said notes. These securities have become the source of the trouble and present litigation between the parties hereto. Several years before this action was commenced, defendant deposited the same with plaintiff for collection and care. Subsequently she assigned them to it as security for moneys borrowed and already referred to. The lands covered by the mortgages were transferred by Whitney to other parties, who failed to make proper payments upon the notes and to pay taxes. These defaults occasioned much correspondence between defendant and plaintiff and one Atwater,who, as attorney and friend, represented defendant in Minneapolis. Finally it was decided by defendant that it was necessary to have plaintiff foreclose the mortgages. It is claimed in her behalf that the final instructions by her upon this subject were embodied in directions given by Atwater to the plaintiff on or about July 5, 1894. As the exact nature and tenor of these instructions has been made a matter of importance under the defendant’s claim-, we shall quote them, as repeated in a letter by Atwater to defendant. The former says:

“I have talked over your matters with Mr. Lindley [one of plaintiff’s officers] and told him that there was no other course except to proceed to foreclose the Sumbardo [Whitney] mortgages as soon as possible, bid in the property for somewhere near its present value and take a judgment against the makers of the note for any deficiency there might be.”

Having before dur mind these simple and practically undisputed' facts, it may be remarked at the outset that it is interesting, if not a-trifle perplexing, to note the various theories upon which those stand who have advocated or approved defendant’s right to the judgment which she recovered. Her counsel, in her answer, as his theory, alleges:

“That plaintiff, at its own option and volition, without any request or direction of defendant, * * * by its own attorney, * * * caused proceedings for foreclosure; * * * and on such sale [of the premises] said plaintiff bid off and purchased and obtained title to each and all the parcels of land covered by said five mortgages, for its own use and benefit, and * * * has ever since held and now holds title to said lands in its own right absolutely, free and clear from any claim of this defendant therein or thereto, * * * and by said foreclosure sale and purchase * * * all claims, sums, and demands alleged to have been then owing to plaintiff by defendant became and were thereby paid and satisfied.”

The learned referee, in his report—especially in findings of fact numbered 31, 32, 35, and 49—disavows this theory, and by controlling inference, at least, finds that plaintiff, in instituting said foreclosure, acted at the request and in the interest of the defendant, and that it “was negligent in the collection of the said collateral notes and mortgages, in causing the mortgaged premises to be sold at the full amount due on their respective securities, and thus releasing from all liability on the same the said Whitney, maker of the said notes, and the said Van Dyke, the grantee of the premises, who had assumed the payment of the same,” and then holds, as a matter of law, that “plaintiff, having obtained title to the mortgaged premises, and released the parties who were personally liable, and secured the deeds thereof, has thereby converted the pledged securities,” and must account to defendant for the full value thereof. I have .no doubt whatever that the referee was correct in refusing to adopt the theory set forth in the defendant’s answer, that plaintiff had proceeded of its own volition and upon its own account in foreclosing the mortgages. The

The learned counsel for the respondent, in his elaborate and able brief, has, as it seems to me, thought best not to adopt the views either of the counsel or of the referee. As I study his argument, he does not anywhere seem to seriously claim that plaintiff, as an actual fact, so acted in its own interests, and in intentional hostility to the rights and equities of defendant in these securities, as to have been guilty of a conversion of the same to its own use. Neither does he appear to much urge that this judgment can be sustained upon the finding of negligence made by the referee, but, in the complete analysis of all of his argument, it seems to urge upon our consideration that this judgment for conversion by plaintiff of defendant’s securities may be affirmed because the former acted in disregard of its instructions to bid in said lands at their actual value; that, having disregarded these instructions, and caused loss to defendant, in the cancellation of the personal liability of certain parties, it cannot claim any authorization for anything which it has done in the foreclosure of the mortgages, and therefore its acts, being without authority, gave to defendant the right to treat it as a wrongdoer, and the election to charge it, as a purchaser for itself, with the full amount at which it has bid off the property.

By the findings of fact, this court is limited to an affirmance of the judgment upon the ground that plaintiff, acting in behalf of defendant, and being authorized to foreclose these mortgages for her, was negligent, in that it bid in the property for about $24,000 instead of $20,000. That is the interpretation of the facts by which the trial court has arrived at the judgment before us, and this court must be guided and controlled thereby, unless upon this appeal it shall not only disregard the facts found, but also' find others in their place.

The first, and, in my mind, apparently insuperable, obstacle to affirming the judgment, is the impossibility of bringing the findings of the referee within the limits of any issue presented by the pleadings. The defendant’s answer, setting forth her cause of action against plaintiff, not only in its affirmative allegations already quoted, but by its denials of authority and agency alleged in the complaint, is framed broadly and unequivocally upon the lines that plaintiff, acting as pledgee of the securities, upon its own responsibility and of its o-wn motion foreclosed the same, and bid in the property at a certain price, at and for which it is to be held accountable. This was a perfectly proper and logical attitude to assume towards a pledgee which has foreclosed its securities, and become chargeable with the amount realized on their sale. There is no suggestion of any obligation to defendant in the course of those proceedings by virtue of any relationship of agent or representative, with any resulting liability by reason of negligence or defiance of authority. The action was tried upon those pleadings, without amendment. Nothing occurred in the course of the trial which could fairly apprise the plaintiff of a change

' Of course, unless the error committed by plaintiff in bidding in the property at the full amount, of about $24,000, due upon the securities, rather than at its actual value, of $20,000, and which error was due to negligence, did make the plaintiff a trespasser ab initio, and so guilty of conversion, it is impossible to see how the judgment can be sustained at its present amount in any event. The only damages suffered by defendant as the result of plaintiff’s negligent conduct was the loss of personal liability of the makers of the notes for the difference between the actual value of the property and the amount bid, and being about $4,000. It may be urged that this court has power upon this appeal to so amend the pleadings as to conform to the findings, and sustain the judgment. Both the authorities and the rules ■of fairness to litigants forbid that such an amendment should be made, upholding a judgment upon charges substantially different from those ■alleged in the findings, and which the parties have never had a chance intelligently to contest. The appellant in this case did not have an opportunity upon the .trial to object to such an amendment, because there was nothing to indicate that it was contemplated. Southwick v. First Nat. Bank of Memphis, 84 N. Y. 420 .

Passing from this discussion of the pleadings, I come to the consideration upon the merits of the question whether the proofs and findings of fact by the referee, which I must assume to be binding upon the defendant and this court, authorized any such conclusions of law and judgment as was reached. As was stated at the beginning, defendant’s judgment ultimately rests upon two acts performed by plaintiff in the foreclosure, as essential elements of its alleged liability to her. These are the bidding in of the property in its own name, and the disregard of instructions, in bidding the full amount due upon the securities, rather than the actual value of the lands. It is to one of these things that the argument for defendant’s claim always reverts. In considering them, we must not fail to remember that the referee has, by necessary implication, found that, although plaintiff bid in the property in its own name, it was acting for defendant, and that its overbid was due to negligence, and not to any inten

While the exigencies of sustaining defendant’s judgment apparently are deemed to require utilization of the fact of plaintiff’s bidding off the premises in its own name, it, perhaps, is to be stated that not so much importance seems to be attached to that as to the other one— that plaintiff bid a higher price than it. was authorized to. The learned counsel for the respondent argues, and the prevailing opinion seems to hold, that that amounted to a conversion, which destroyed plaintiff’s agency, and made it liable for the full amount of its bid, as having acted for its own interest. This view suggests the general inquiry whether a person acting for another, who discharges his engagement with perfect fidelity down to the final act, and then negligently, but without intentional misconduct, departs from his instructions, not in the general nature and character of the act performed, but only in some detail of its execution, thereby destroys and loses all protection of his original authority, and becomes in effect a wrongdoer, acting upon his own responsibility, and constructively for his own benefit. Applied to the facts of this particular case, the view so urged and adopted suggests the query whether plaintiff, because, in discharging the contemplated duty of selling and bidding off the property, it negligently bid $4,000 too much, has thereby become deprived of all authority from defendant to act in her behalf, and may be treated as a purchaser in its own right, and charged with the entire purchase price of the premises. If this is the rule—that an agent who adheres with fidelity to his instructions as regards the substantial character of the acts which he performs, and the general manner of performance thereof—is to lose the authority and indemnity of his principal, and become personally responsible for all engagements, because through mere negligence he has erred in some detail, it needs

“The cases most strongly relied upon by the counsel for the appellant are Dufresne v. Hutchinson, 3 Taunt. 117, and Sarjeant v. Blunt, 16 Johns. 74 , holding that a broker or agent is not liable in trover for selling property at a price below instructions. The distinction in the two classes of cases, I apprehend, is that in the latter the broker or agent did nothing with the property but what he was authorized to do. He had a right to sell and deliver the property. He disobeyed instructions as to price, only, and was liable for misconduct, but not for conversion of the property—a distinction which, in a practical sense, may seem technical, but it is founded probably upon the distinction between an unauthorized interference with the property itself and the avails or terms of sale. At all events, the distinction is fully recognized and settled by authority. * * * The result of the authorities is that, if the agent parts with the property in a way or for a purpose not authorized, he is liable for a conversion, but if he parts with it in accordance with his authority, although at a less price, or if he misapplies the avails, or takes inadequate for sufficient security, he is not liable for a conversion of the property, but only in an action on the case for misconduct.”

There would seem to be no difference in principle between the case where an agent authorized to sell has sold for too little, and the case where an agent authorized to buy has bid too much.

In Sarjeant v. Blunt, 16 Johns. 74 , 75, Judge Spencer, writing in behalf of the court, says:

“If every departure from instructions is to expose a party to an action of conversion, I should consider it as introducing a new rule, which might operate injuriously. There is no need of this refinement. An action on the case is well calculated to redress any injury arising from a breach of instructions. In this case the defendant was authorized to sell the chronometer for a particular price. The complaint is not that he sold, but that he sold it for a less sum, and thus violated his orders. The selling was not a conversion, but selling for a less price was a breach of duty.”

While the referee has based his report definitely and solely upon the proposition that plaintiff was guilty of conversion, there seems to be some disposition, if necessary, to abandon this ground, and to

Something is said in behalf of defendant, that there is in this case ' an element of conversion, in that the property has been placed where it cannot be restored to defendant, and that plaintiff’s action in bidding in the property deprived her of all right in the mortgaged property, and of all remedies against the makers of the notes, and that she cannot be restored to her former position. Of course, if this means that defendant could not have her mortgages foreclosed, and at the same time retain them, the proposition must be conceded. Otherwise, and outside of a loss of the right to recover a judgment for deficiency for $4,000, which has been fully discussed, I fail to see how the defendant has lost any rights in her property, or has been placed in any different position than was to be anticipated. Her mortgages, by the process of foreclosure, have necessarily been exchanged into real estate, to which, under the findings of the referee in this case, the plaintiff now holds title as her agent.

In addition to the main questions involved upon this appeal, various exceptions to rulings made by the referee upon the trial are urged upon our attention, and there is at least one which seems to deserve attention. Upon the examination of one Uindley, who was one of plaintiff’s witnesses, and also one of its officials having charge

For the various reasons discussed, I think that the judgment should be reversed, and a new trial granted.

SPRING, J., concurs.