Thompson v. Toland

In the view we take of this case, it will be unnecessary to consider many of the points which have been elaborately discussed by counsel. There is no conflict in the evidence to the effect that when the stock certificates in controversy were delivered to Sime & Co., as collateral security for the indebtedness of Tilden & Breed, they were properly en*112dorsed, so as to pass by delivery. There was nothing on the face of them to raise a suspicion that they were not the property of Tilden & Breed; and the jury finds, on evidence substantially conflicting, that Sime & Co. received the certificates in good faith, and without notice of King’s alleged equities. We, therefore, cannot disturb the verdict on this point. The jury also finds that the certificates were delivered to Sime & Co. with the consent of Tilden & Breed, as collateral security for the indebtedness of the latter firm to the former, for a sum exceeding thirty-five thousand dollars, no portion of which has been paid or tendered. We think the evidence warranted this finding, and that Tilden & Breed assented to the delivery of the certificates and their hypothecation, as above stated. King had permitted the certificates to remain in the hands of Tilden & Breed, indorsed in such manner that they would pass by delivery, and with nothing on their face to indicate that he had any interest in them,' or that they were not the property of Tilden & Breed, whom he has clothed with all the usual indicia of the ownership of mining stocks. He had placed them in a position to deal with the stocks as though they were the absolute owners. They could at any time have caused them to be transferred on the books of the respective mining corporations into their own names, and any purchaser or pledgee holding under them could also have done so. If they had no right under the contract between them to sell or hypothecate the stocks except with his consent, he nevertheless clothed them with such an apparent ownership as to mislead the public, and to enable Tilden & Breed to hold themselves out as the owners, and thus defraud innocent persons dealing with them in good faith. Under such circumstances, the party w'ho places another in a position to enable him to practice the fraud should suffer the loss rather than an innocent person who deals with him on the faith of the usual indicia of ownership with which the true owner has invested him.

If King had desired to preserve his alleged rights, and to prevent an abuse by Tilden & Breed of the secret trust on which it is claimed they, held the stocks, he should have *113seen to it that the nature of the trust appeared on the face of the certificates, or in some other method have placed it out of their power to deal with the stocks as their own. In this State, mining stocks, properly indorsed, pass by delivery almost as currently as bank notes; and if the true owner places them, or knowingly allows them to remain in that condition in the hands of another, on some secret trust between them, he, and not an innocent purchaser or pledgee, must bear the loss resulting from a breach of the trust.; This point was substantially decided in Brewster v. Sime, 42 Cal. 139, and we see no reason to doubt the correctness of the proposition. We are, therefore, of opinion that the transaction between Sime & Co. on the one side, and Tilden & Breed on the other, is to be treated, for the purposes of this action, as though the latter had the absolute right as against King, to pledge the stocks on the 31st of August, 1868, when they were hypothecated. It appears, however, that the District Court of the United States, in an action between the assignee in bankruptcy of Tilden & Breed as plaintiffs and Sime & Co. as defendants, held the hypothecation to the latter, under the circumstances, to be a fraud upon the bankrupt law, and, therefore, void as against the other creditors of Tilden & Breed. It, therefore, compelled Sime & Co. to account to the assignee for the value of the stocks. But this cannot improve the status of the plaintiff in this action*. Though void under the bankrupt law as against the other creditors of Tilden & Breed, the transaction was valid as against King and every one else; and when Sime & Co. paid to the assignee of Tilden & Breed the value of the stocks, they thereby acquired whatever title the assignee had to them. The effect of the satisfaction of that judgment was-to vest the title of the assignee in Sime & Co. But so far as King’s rights are concerned, they are no greater than they were before. The case then resolves itself into this: that Sime & Go., in good faith and without notice of King’s alleged equities, received these stocks from Tilden & Breed, who were the apparent owners, with the usual indicia of ownership, as a pledge to secure the payment of a subsisting debt, which has never been paid or *114tendered. Under these circumstances, King’s alleged rights, founded on the secret trust between himself and Tilden & Breed, are subordinate to those of the pledgee’s. It remains to be considered to what extent, if at all, King’s rights are affected by the fact that Sime & Co. sold a portion pf the stocks and converted them to their own use,, without a previous demand and notice. As we have seen, the stocks are to be deemed as against King, to have been held by Sime & Co. under a valid pledge to secure a debt due from Tilden & Breed.

If Sime & Co. have unlawfully sold and converted the stocks without a previous demand and notice, it was the rights of Tilden & Breed, the pledgors, and not those of King, wliich were injuriously affected. The contract of pledge was between Sime & Co. and Tilden & Breed; and the right of action for violation of the contract or a breach of duty by the pledgee, was in the pledgors and not in a stranger to the transaction.

It is a sufficient answer to any action by King founded on his supposed rights, if any he has outside of the contract of pledge between Sime & Co. and Tilden & Breed, that the stocks were held under a pledge which was valid as against him, and to which he was a stranger, and that the debt, for which they were pledged has not been paid or tendered.

Among the numerous rulings of the Court below, which ■ the plaintiff claims to have been erroneous, we discover no error which could injuriously affect the plaintiff in the view we have taken of the case.

Judgment and order affirmed.

A rehearing is asked on the ground that by the uncontradicted testimony of Bewcomb, when -Sime & Co. received the stocks, and particularly those pledged to Livingstone, Sime had express notice that they. belonged to King. The jury found otherwise; and it is insisted that the verdict on this point is not only wholly unsupported by any evidence in the cause, but is directly con*115trary to the testimony of Newcomb. It is to be observed, however, that Sime died pending the action, and his testimony was not obtained. The only evidence of express notice to Sime is to be found in the testimony of Newcomb, relating to a conversation between them, at which no one else was present. The conversation occurred on the day of the failure of Tilden & Breed, and amidst the confusion and excitement naturally attending such an event. It was a conversation between a clerk of the bankrupt firm and one of its creditors -for a, large sum, eagerly in search of information as to its assets. Evidence of a conversation, resting only in the memory of a single witness, is ordinarily the most unsatisfactory of all evidence. Conversations are so easily misunderstood, particularly under circumstances of excitement, and the human 'memory is so treacherous, that testimony of this character is held by all courts to be the weakest of all evidence. Moreover, Newcomb was contradicted by Hastings in respect to some of the circumstances attending the giving of the check to redeem the stocks from Livingstone, and on his cross-examination he testified that Sime & Co. “knew from me that the stocks in Livingstone’s possession belonged to King, or a portion of them, anyway; but I don’t testify, and I have not testified that I told them in so many words that they were King’s stocks.” Under these circumstances, while there is nothing to impeach his integrity, we cannot say that the jury was not authorized to distrust the accuracy of Newcomb’s recollection of the conversation. It was incumbent on the plaintiff to prove notice to Sime & Co. of King’s equities; and, under the circumstances already stated, it was for the jury to determine whether the evidence on this point was sufficiently satisfactory to establish affirmatively the fact of the notice. Their finding being in the negative, we would not be justified in setting aside the verdict on the ground that it is unsupported by the evidence. But, waiving this question, we think the judgment ought to be affirmed on another ground. There can be no doubt that Tilden & Breed were entitled to hold, the stocks as collateral security for King’s note. The note *116itself, and the stocks as collateral security for its payment, were delivered to Sime & Co.-, as ¡collateral security for the indebtedness of Tilden &■ • Breed. It cannot -be doubted that Tilden & Breed, the holders of King’s note, had the right to pledge it to Sime & Co., and to deliver to them, as collateral" security for the note, the stocks held in pledge to secure its payment. Though this transaction was held to be a fraud on-the Bankrupt Law as against the creditors of Tilden & Breed, and void as against them, it was nevertheless, valid as against King., As to him, Sime & Co. became the lawful holders of. the note, and of the stocks, as collateral security for it. As pledgee of the stocks, .holding them for the security for King’s- note, it would not have been incumbent on them, upon a redemption of the pledge, to return to the pledgor the same identical certificates which they had received, but it would have been a sufficient- discharge of their duty as pledgees to have kept on hand, and to have been ready at ail times, on a redemption of the pledge, to restore to the pledgor certificates of stock corresponding to those received of the pledgor. (Atkins v. Gamble, 42 Cal. 86; and cases there cited.) The mere fact, therefore, that Sime & Co. had sold these particular certificates, did not of itself render them liable as for a conversion of the, pledge. If they had continued to be the holders of King’s note, he could not have put them in default, except by a tender of payment and a demand for the stocks; and they would not have been in default, if upon such tender and demand they had offered to restore to them other similar certificates, and had shown that they had at all times been ready to do so. But he could not have maintained the action without a tender and demand. It appears, however, the District Court of the United States held the transaction between Sime & Co., and Tilden & Breed, to be void as, against the creditors of the latter, and compelled Sime & Co. not only to surrender the note, but to account for the value of the stocks. The effect of this decree was to adjudge that as between the asr signee of Tilden & Breed and Sime & Co. there had been no valid pledge of King’s note, and the stocks as collateral *117security for its payment, ‘ In other words, it restored the note to the assignee with the same rights as though Tilden & Breed had never attempted to pledge it to Sime & Co. But in the meantime, Sime & Co. had disposed of the stocks and converted the proceeds to their own use. In whom was the right of action for the conversion? Was it in King, or in the assignee of Tilden & Breed as the holder of King’s note, and as pledgee of the stocks to secure its payment? In Treadioell v. Davis, 34 Cal. 606, we had occasion to consider the question, whether the pledgee, in an action against a stranger for a conversion- of the pledge, was entitled to recover the value of the pledge, or only the value of his special interest in it. We say, “the rule appears to be well settled that in an action by the pledgee against a stranger for the conversion of goods, the plaintiff is entitled to recover the full value of the goods, because he is answerable over to the pledgor for the surplus. But if the goods be converted by the owner, or by any one acting in privity with him, the pledgee can recover only the value of his special interest in the pledge;” and we cite in support of this proposition, Story on Bailment, Sec. 352; Lyle v. Barber, 5 Bin. 457; Heyden & Smith's Case, 6 Coke, 486; Ingersoll v. Van Bokkelen, 7 Cow. 670; Pomeroy v. Smith, 17 Pick. 85, to which many other authorities might be added. Assuming this to be the correct rule (of which we have no doubt), the assignee of Tilden & Breed, as pledgee of the stocks, was entitled to_recover their full value from Sime & Co., who, on the plaintiff’s theory, were strangers to King, and not acting in privity with him. The complaint charges them to be naked wrong doers, who wrongfully and fraudulently obtained possession of the stocks, without the knowledge or consent either of King or Tilden & Breed; and the plaintiff now contends that they wrongfully and unlawfully obtained possession of the stocks, and converted them to their own use, with full notice of King’s rights. If this be so, they were wrong doers, and could not have acted in privity with King. In an action against them, the assignee of Tilden & Breed, as pledgee of the stocks, was therefore entitled to recover their full *118value, as he appears to have clone. The effect of this recovery and the satisfaction of it by Sime & Co., was to vest in them a title to the stocks or their proceeds. In any event, it cannot be doubted that the assignee of Tilden & Breed, as pledgee of the stocks, was entitled to recover the value of his special interest in them; and it appears that the stocks, at the time of their conversion, were worth much less than the debt for which they were pledged to Tilden & Breed. This value was ascertained By the judgment of,the Court, and was paid by Sime & Co. to the assignee of Tilden & Breed. No interest was left in King on which he or his assignee could maintain an action against Sime & Go. The point is made that the proceedings in the Bankruptcy Court were not admissible in evidence under the pleadings; but we are of a contrary opinion.

The petition for a rehearing is denied.

Mr. Justice McKinstry did not express an opinion on the application for a rehearing.

Mr. Chief Justice Wallace, being disqualified, did not participate in the decision of this case.