Majority
p. 470William H. Sistare and George K. Sistare, App’lts, v. Frederick P. Olcott, Receiver, Resp’t. (Supreme Court, General Term, First Department, Filed March 31, 1887.)
Headnote
1. Stocks and bonds—Re-hypothecation—Right of possession.By the re-hypothecation of securities, special relations are established, which are entirely distinct from those created by the hypothecation of the same property. The party re-hypothecating the securities has the right of possession, of which he cannot lawfully be deprived by the party with whom they are re-hypothecated, even though the person who originally hypothecated them pay the loan for which they were re-hypothecated.
3. Trover—Unlawful delivery op re-hypothecated securities— Measure of damages.
In an action brought by the re-hypothecating party after the liquidation of the first loan, for the conversion of the property pledged, caused by its delivery by the party with whom it was" re-hpothecated, to the person who originally hypothecated it, on the payment of the second loan, if the property was not worth more than the loan for which it was re-hypothecated, the conversion would be damnum absque injuria, while, if it was worth more, the damages recoverable would be the difference between its value and the sum paid. .
Appeal from a judgment entered upon a verdict on a trial before Mr. Justice Van Brunt and a jury. The action was originally brought against Charles J. Osborn, as receiver of the Wall Street Bank. Mr. Osborn died during the pendency of this suit, and the action was continued against his successor. The suit was brought for the conversion of 105 shares of stock of the American Printing Company and 250 shares of stock of the Youghioghenv River Coal Company. These shares were hypothecated with the Wall Street Bank as collateral for a loan of $30,-000, made May 14, 1884, by the bank to the plaintiffs. On May 16, 1884, the plaintiffs paid the bank on account of the loan, -10,000. The bank failed in August, 1884, and the plaintiffs thereupon tendered to the receiver $20,000 and interest, and demanded of him the whole collateral which had been originally pledged to the bank, and for the refusal to deliver this collateral the action was brought.
The original defense was that the whole of this stock really belonged to William J. Hutchinson, who had hypothecated it to the plaintiffs as security for his general balance, and the plaintiffs had then re-hypothecated it to
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the bank. That Hutchinson, with the consent of the plaintiffs, had received from the bank the coal stock, had sold it and had paid the plaintiffs $10,000 on account of the price (thus returning to them the $10,000 which they paid to the bank on account of the loan), and paid the bank $10,000 more on account of the loan, leaving only $10,000 due upon it. That the defendant had always been ready to deliver the printing company stock, to the plaintiffs, upon the payment of the balance remaining due upon the loan, after the two payments of $10,000 each.
After the original answer was served, the defendant interposed a supplemental answer, setting up that after the commencement of the action, Hutchinson, who was the real owner of the stock sued for, entered into an agreement with the plaintiffs, by which they accepted certain payments made to them by Hutchinson and his wife, in full satisfaction and discharge of all indebtedness from them, or either of them, to the plaintiffs, and by which they agreed to release Hutchinson and his wife from all claims, causes of action or demands which the plaintiffs, or either of them, had against Hutchinson or his wife by reasons of any loans or advances theretofore made by the plaintiff to them.
The conceded facts of the case are as follows: The stock in question did belong to Hutchinson; he was buying and selling stocks through the medium of plaintiffs as brokers, ‘ and hypothecated the stock in question to them as collateral security for his general balance; they re-hypothecated the stock to the bank after the loan of $30,000, and on the demand of the bank they paid on account of this loan May 16, 1884, $10,000. About the time of this payment the bank delivered to Hutchinson the coal company’s stock, which had been pledged to the bank by plaintiffs, and 250 other shares of the coal company’s stock which also belonged to him. On May 20,1884, these stocks were sold by Hutchinson’s direction and delivered to E. S. Chapin & Co. for $40,-000. Out of the proceeds Hutchinson paid to the plaintiffs $10,000 and the bank $10,000, and the bank credited the latter payment on the loan of $30,000.
William H. M. Sistare, one of the plaintiffs, testified that this delivery to Hutchinson was without his consent; that when he learned of it he protested against it, and that he did not know that the $10,000 which Hutchinson paid him on May 20, 1884, was part of the proceeds of the coal company’s stock. On the other hand, Hutchinson testified that the stock was delivered to him with the consent of the plaintiffs, and that they knew that the entire proceeds of the stock went to their credit—$10,000 by direct payment and $10,000 by payment to the bank, which was credited on the loan.
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In fact, there seems to be little doubt that the entire proceeds of the stock did go to their credit, whether they knew of it or not. The checks which were put in evidence show this beyond all question it would seem. The transfers of the stock were put in evidence, and the check for $40,000 which Hutchinson received for the entire lot. The stock note which the plaintiff gave to the bank upon obtaining the loan in question, May 14, 1884, authorized a sale of the stock at public or private sale at the option of the bank.
The facts proved under the supplemental answer were as follows: _ °
_ On February 19, 1885, these plaintiffs brought an action against William J. Hutchinson and his wife, the complaint in which alleged that those defendants had conspired to place all Hutchinson’s property in his wife’s name; that Hutchinson had represented to the plaintiffs that the property still belonged to him, and that on the faith of this representation they had advanced for his account in a11 $88,716.11.
On the same day the plaintiff William H. M. Sistare made an affidavit for the purpose of obtaining an attachment in the action, in which, after repeating the statements •of the complaint, he alleged that the defendants had absconded for the purpose of defrauding their creditors, and that part of Hutchinson’s property, which had been transferred to the name of his wife, was the house No. 4 West Fifty-eighth street, in the city of New York, of an estimated value of nearly $400,000.
On this and other papers an attachment was obtained by the plaintiffs against the house No. 4 West Fifty-eighth street and other property. On March 15, 1885, an agreement was made between the plaintiffs and Mr. Hutchinson which, after reciting the pendency of the action against the Hutchinsons to recover over $88,000, the attachment levied upon the real estate standing in the name of Mrs.' Hutchinson, and other matters, provided as follows, by separate paragraphs:
1. That the Hutchinsons should pay to the Sistares $27, - 500, which was then paid.
2. That the action brought by the Sistares against the Hutchinsons should be immediately discontinued, and the attachment and its lien on Mrs. Hutchinson’s real estate discharged.
3. Immaterial as to this appeal.
4. That this instrument should not operate to approve, ratify or acquiesce in any of Hutchinson’s acts, individually or as director, with respect to the securities for the conversion of which this suit is brought. That the plain
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tiff’s rights to such securities should remain unimpaired by the agreement, and that the agreement itself should not interfere with the rights of the plaintiffs to prosecute the action against the Wall Street Bank.
5. That the Hutchinsons shall pay to the Sistares $10,000 upon the delivery to Mrs. Hutchinson of 105 shares of American Printing Company stock sued for in this case.
6. That after the fulfillment of the foregoing provisions, each party should give to the other a general release, except only as to one matter having nothing to do with this case.
Pursuant to this agreement, an order was entered upon the consent of both parties, vacating the attachment and discharging the premises 4 and 6 West Fifty-eighth street from the lien thereof.
These facts being undisputed, the judge at trial ruled that they constituted a complete defense, and refused to permit the plaintiffs to go to the jury on the issues, and verdict was therefore directed for the defendant; and from the judgment entered thereon this appeal has been taken.
The plaintiffs duly excepted to these rulings.
H. A. Bennett, for app’lts; Thomas Q. Shearman for resp’t.
The settlement between the plaintiffs and the Hutchinsons did not embrace the claim against the bank. It was expressly reserved by the plaintiffs’ agreement of settlement, and it is equally clear that as to the stock not sold, the Hutchinsons regarded the plaintiffs°as the owners, Mrs. Hutchinson, by the terms of the settlement made, securing its delivery to her on the payment by her or $10,000. The whole stock hypothecated with the bank was indeed treated in that settlement, and properly so, as an indemnity in part for the advances made to Hutchinson and wife by the plaintiffs, and as the property of the latter. • The inference to be drawn, therefore, from the settlement made, as put in writing, is that the claim against the bank arising out of the hypothecation was a part of the sum or property given the plaintiffs in liquidation of their claim. If it were otherwise it is beyond comprehension that Mrs. Hutchinson would agree to pay the plaintiffs $10,000 for the American Printing Campany’s stock, when they obtained it as the result of the action commenced by them against the bank, a circumstance which must be regarded as a distinct and unmistakable recognition of the plaintiffs’ title to the stock and all things appertaining to it.
The counsel for the receiver of the bank seems to consider the plaintiffs’ interest in it, limited to the $30,000
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loaned upon it by the bank, they having a special interest only; but this is an error inasmuch as it was deposited with them as security upon the general account of Hutchinson, and was applicable to any balance due from him, whatever it might be. The only special relations in reference to it indeed were created by the loan and existed between the bank and the plaintiffs. The plaintiffs in any view held the right of possession, of which they could not be deprived lawfully, even by Hutchinson’s payment of the entire loan, although if the stock were not worth more than the loan the conversion would be damnum absque injuria, while, if worth more than the loan, they would be entitled to the excess to be applied on general account. The bank cannot, therefore, avoid the responsibility by resort to any act of Hutchinson individually, or in combination with the cashier. The delivery of the stock to Hutchinson was unauthorized, and the appropriation of the proceeds by him would not protect the bank unless, as suggested, the stock was not worth more than the loan. The only theory eliminated from the facts detailed in favor of the defendant is that, by the settlement mentioned, the debt due the plaintiffs from Hutchinson was paid. This springs from the construction placed upon the agreement between the parties by which there was a surrender of the hens acquired by the attachment issued against Hutchinson in an action by the plaintiffs against him and his wife. It could not have the effect suggested, however, inasmuch as the claim against the bank is reserved, and the agreement provides for releases only after the decision in this action, and by which it was supposed the plaintiffs might recover the American Printing Company’s stock, which was to be delivered to Mrs. Hutchinson as we have seen on the payment of $10,000.
The settlement as suggested seems to have contemplated - the payment of a sum of money, to which any recovery against the bank was to be superadded, both parties pledg- • ing good faith to each other in observing and carrying out its provisions. The Hutchinsons had no claim against the, bank for the conversion of the stock or any fact or circumstance growing out of its hypothecation, but the plaintiffs had, for they were the owners, pro hac vice, not only for the purpose of the loan made but as security for any indebtedness of - Hutchinson to them. The transaction with the bank had nothing whatever to do with the dealings between the plaintiffs ana Hutchinson, and as already shown the bank cannot resort to them for protection unless it can show a settlement by which the account was closed, and the debt due the plaintiffs paid or discharged. The rules of law governing the facts disclosed are too familiar to require
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illustration or authority. The ingenious brief submitted on behalf of the respondents, though full of points strategical, does not require particular dissection, for the reason that the various theories so ably discussed have no basis in the facts. The rights of the plaintiffs to apply any surplus to the account of Hutchinson which might have resulted from a sale of the stocks by them after the payment of the loan made to them, seems to be overlooked by the defendant’s counsel; but this is really the pivotal point in the case. It is urged,it is true, that the plaintiffs were so financially embarassed that they could not pay the loan, but this is strongly denied. Indeed, many contradictions were presented by the evidence, but in considering the propriety of a direction to the jury to find a verdict the facts in dispute as well as those conceded must be considered for the appellant’s benefit unless completely overcome by paramount evidence, which is not the case here. The plaintiffs, for these reasons, . had the right to go to the jury on the issues and disputed questions, and it was error to deny the motion made for that purpose.
The judgment must, therefore, be reversed and a new trial ordered, with costs to abide the event.
Daniels and Bartlett, JJ., concur.