Case ID: ny_36/html/0395-01.html
Source: Caselaw Access Project
Author: {"author": "Scrugham, J. Davies, Ch. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

James M. Lewis, Plaintiff and Appellant, v. Henry A. Mott, and Joseph B. Varnum, Jr., surviving executors, etc., of Joseph B. Varnum, deceased, Defendants and Respondents.
    Where collateral security for the payment of a note is given to the payee or holder thereof by the maker, and authority is given to sell such collaterals if the note is not paid at maturity, and, on failure to pay the note, the collaterals are sold, the purchaser thereof does not stand in the relation of pledgee, nor is there any privity between the pledgor and such purchaser.
    The purchaser of such collaterals does not assume the duties or responsibilities of a trustee in respect to the same, but he acquires the title of the pledgor. Where the complaint alleges facts as the basis of the cause of action which assume the legal transfer of property to the defendant, the plaintiff cannot, on trial, treat the transfer as tortious, and claim to recover as for a wrongful .conversion of such properly.
    Where property pledged as collateral security for the payment of a note has been sold or transferred to a third party, who has a lien thereon for the payment of such note, the holder of such collaterals cannot be required to deliver them up until there has been a tender of the amount due.
    Appeal from a judgment rendered at a General Term of the Court of Common Pleas of the city and county of New York.
    On the 22d of May, 1845, Nathaniel J. Brown was indebted to Calvin W. How in $548.48, upon a promissory note of that date in his favor, payable at twelve months; and to Swift & Hurlbut in $151.52, upon a like note in their favor.
    On the same 22d May, Brown “left” with How, “as collateral security for the payment of ” the said two notes, sundry Illinois canal certificates, to the nominal amount of $2,000, and afterward, in June, 1846, two other certificates for $132.50 each. Both notes remaining unpaid, and having become the property of How, he, on the 21st April, 1848, by indenture between him and Yarnum, the original defendant, and the present respondent’s testator, sold and assigned to Yarnum, for $800, all the said collateral securities, by an instrument which recites that certificates of stock were transferred to Yarnum by Brown as collateral security for the payment of certain notes of Brown held by him, and recites that the sale is made by Varnum by virtue of the power and authority to him given by Brown, in case of default in the payment of said notes, and Varnum covenants to indemnify How against liability on account of the transfer of the securities.
    This instrument does not transfer the two notes, but the complaint alleges that on or about the said 21st day of April, the whole interest of How in them and in the collateral securities was duly assigned and had fully and effectually passed to Varnum. And the answer denies the assignment of the securities as alleged in the complaint, and avers that Varnum purchased them, but is silent as to the notes.
    The notes still remaining unpaid, Vamum, on 5th May, 1848, after an advertisement of ten days, put up the securities at public auction and bid them in himself. Ho demand of payment had been made on Brown, nor had any notice of the sale been given to Mm. During the years 1848 to 1853 some of the securities were paid off by the State of Illinois.
    . Afterward, in January, 1854, Brown, in writing, offered to Varnum to pay the notes, and demanded the securities. The latter refused to comply with the demand. Brown then assigned all Ms claims and demands in the premises to the plaintiff.
    The complaint alleged as a cause of action the assignment of the notes and collateral as aforesaid; that some of the sums secured by the collateral had subsequently been received by Varnum; and that on or about the 20th of January, 1854, Brown offered to pay him the amount due on the note; and at the same time demanded from him the collateral securities, and demanded judgment for an accounting, and, upon payment of whatever balance might be found due on .the notes, a return of the unpaid securities; or for a sale of the securities; or for a sale of the securities and the return of any residue of their proceeds wMch might remain after payment of the notes; and for further or other relief.
    The cause was brought on for trial before one of the, judges of the court below, without a jury. There was no express waiver of a jury nor was any request for a jury made nor exception taken to the cause being tried or having been tried without one.
    The court below at Special Term held that the transaction between Brown and How was a pledge and not a mortgage; that the sale by How to Yamum was invalid for want of any demand upon Brown for payment or notice of the sale; but that it was a sale and not an assignment, because the notes were not transferred along with the securities; that Brown, therefore, or his assignee, the plaintiff, was not entitled to redeem from Yarnum nor to have an accounting from him.
    The court proceeded, however, to give judgment for the plaintiff as for a conversion of the securities, holding that, the sale from Howto Yarnum being invalid, Yarnum wrongfully refused to deliver the securities to Brown on demand, and was liable, therefore as in an action of tort.
    The defendant appealed to the General Term, which reversed the judgment and ordered final judgment for the defendant, dismissing the complaint.
    
      H. P. Fessenden, for the appellant.
    
      W. F. Allen, for the respondents.
   Scrugham, J.

The liability of the defendants to account to the plaintiff, would have been established if it had been shown that the transaction between their testator and How had placed him in the same relation to the debtor which How held. The complaint alleges that the whole interest How and Swift & Hurlburt had in the two promissory notes and in the securities, was duly assignable, and had fully and effectually passed to him. This allegation is not as to the notes distinctly denied by the answer, and the rule that every material allegation -of the complaint not controverted by the answer must be taken as true, is invoked to establish the fact on this appeal that the notes were transferred with the securities.

But this fact is not among those found by the court on the trial, on which the decision was founded, and to which we must be confined in determining this appeal.

The appeal to this court is upon the law, and we are not to examine what conclusions of fact might have been adduced from the pleadings or testimony, but only whether those declared as found will support the judgment rendered. (Cady v. Allen, 18 N. Y., 573.)

If the plaintiff deemed this fact essential, he should have requested the court to incorporate it in the findings, and the defendants would then have had an opportunity to move to amend their answer if the failure to deny the transfer of the notes was inadvertent; and such motion would doubtless have been granted, as the defense set up, resting upon the right of How to sell the securities and upon the purchase of them from him by the defendant’s testator, in good faith, was tantamount to a denial of the existence of such circumstances as would establish privity between him and Brown.

Under the facts found, it was properly held that no such privity was established, and therefore that the plaintiff was not entitled to an accounting from the defendants. The court, however, before which the action was tried, decided' that the defendant’s testator wrongfully converted the securities, and awarded the plaintiff damages for such conversion.

We need not consider whether the facts warranted this conclusion if we find that the nature of the action did not admit of such a judgment. This therefore is the principal question presented on this appeal.

The case stated in the complaint is such as would entitle the plaintiff to equitable relief, and such is demanded in the complaint, while the judgment was such as is only applicar ble to an action at law.

It is provided by section 275 of the Code, that, in an action in which an answer had been interposed, the court may grant the plaintiff any relief consistent with the case made by the complaint and embraced within the issue; and it has accordingly been held by this court in Morgnat v. Morgnat (2 Kernan, 336), Barlow v. Scott (24 N. Y., 40), that if a complaint states facts showing a legal right in the plaintiff and its infringement by the defendant, and issue is taken upon this, a judgment in accordance with these facts may be given, although it be not such as the complaint is framed to obtain, and the relief granted be different from that demanded.

In such cases it is always apparent before trial that the issue upon which such judgment is given is one of the issues presented by the pleadings, and if either party desire its trial by a jury he should demand it, for by proceeding without objection to a trial by the court of the whole case, he waives his right to the trial by jury of any of the issues it presents. (Barlow v. Scott, 24 N. Y., 40.)

The difficulty with the case now under consideration is, that the facts upon which the judgment proceeded were not among those stated in the complaint and were not necessary to or consistent with the case made by it.

They are in effect that the securities being pledged by Brown to How were sold by him to Yarnum unlawfully, and that Yarnum, having no title as against Brown, wrongfully refused to surrender them to him on demand.

The complaint does not contain any such allegations, but, on the contrary, proceeds upon the assumption that the transaction between How and Yarnum was lawful, and effectually passed to him all the interest which How had in the securities, with the right to hold them as against Brown until the payment of the debt which they were intended to secure.

It cannot, therefore, be successfully contended that a judgment, based upon a tortious transfer of the securities to Yarnum is consistent with the case made by the complaint.

The judgment of the General Term of the Court of Common Pleas of the city and county of New York reversing that of the Special Term was correct and should be affirmed.

Davies, Ch. J.

H. J. Brown, the plaintiff’s assignor, being indebted to one Calvin W. How in the sum of $548.48, and to the firm of Swift & Hurlbut, all of the city of New York, in the sum of $151.52, and which indebtedness was secured by the notes of said Brown, said Brown, on the 22d of May, 1845, left with said How, as collateral security for the payment thereof, $2,000 of canal scrip of the State of Illinois. At the same time, it was agreed that if said notes were not paid at maturity, or within thirty days thereafter, said How was authorized to sell said scrip and apply the avails thereof pro rata to the payment of said notes. The notes not having been paid, How sold and assigned the canal scrip stock to Joseph B. Varnum, the defendant’s testator, in consideration of the sum of $800, paid by Varnum to How, and Varnum sold the same at auction, and realized therefor the sum of $500. In 1854 Brown offered to Varnum to pay the amount due upon these two notes, and demanded the said certificates from him. That demand not being complied with, this action was commenced, Brown having assigned his claim to the plaintiff. The complaint prayed that an account be taken between him and the defendant, and that upon payment of the balance (if any) which might be found due to the defendant upon the two promissory notes, or either of them, the defendant be adjudged to pay him such sum of money as upon such accounting he may be found entitled, or that, upon such accounting being had, the said collateral securities be sold, under the direction of the court, and the proceeds thereof, after payment out of the same of the balance aforesaid, and after payment of plaintiff’s costs, be paid to him.

The learned first judge of the New York Common Pleas, before whom this action was tried, correctly held that the defendant Varnum stood in no relation of pledgee to this plaintiff, and that there was no privity between them. That he occupied the position of a purchaser from How, and that upon no principle could he be held to account to the plaintiff, as his trustee, for the administration of this trust. It did not appear that any thing was sold and transferred to the defendant, but the stock deposited with How as security for the payment of the two notes mentioned. By the terms of the assignment from Brown to How, the latter was fully authorized to sell the said canal scrip upon non-payment of the notes, and was to apply the avails thereof to the payment of said notes pro rata. This defendant, by becoming the purchaser of the said scrip, did not assume the responsibilities, or did there devolve upon him the duties of trustee to administer the trust in the place of How. If How had been guilty of any violation of his duties as trustee, he was responsible to the plaintiff’s assignee, and was liable to account either to him or to his cestui que trusts for the manner in which he had discharged these duties. The court very properly held, therefore, that there was no ground upon which the defendant could be held liable to an account, or upon which the defendant’s .right to redeem could be enforced against the defendant Yarnum. The judge having arrived at this conclusion, it followed that the complaint should have been dismissed. But the court held that there had been an illegal conversion of the scrip0 by the defendant Yarnum, and that he was liable as in an action of tort for the value of the property converted, and thereupon gave judgment against the defendant for the value of said scrip, with interest. This judgment was reversed by the General Term of the New York Common Pleas, and judgment given for the defendant that the complaint be dismissed with costs. From this judgment the plaintiff appeals to this court.

There is a conclusive objection to the plaintiff’s assignee recovering in this action as for a tort or illegal conversion. How, clearly, had a lien upon these securities for the payment of the amount of the two notes and interest. It must be conceded that Yarnum, by the purchase of these securities from How, acquired at least the interest and lien of How, whatever that may have been; and plaintiff’s assignee, to have entitled himself to a redelivery of these securities, must have tendered the amount of the lien. There was simply an offer to pay to Yarnum the amount due upon these notes. It was unaccompanied by any tender of the amount due, and was insufficient to extinguish the lien and thus entitle Brown to the possession of the notes. He could not, clearly, maintain an action for conversion unless he was entitled to such possession. Until a wrongful detention after a demand and refusal were shown, there"was"Ho"evidence of a "Conversion. •The possession of Yarnumin this aspect was lawful, and its character could not he changed until some act was done which made it " unlawful longer for him to retain these securities. "(Hall v. Robinson, 2 Comst., 293.) A tender of the amount due on the two notes, assuming Yamum held them as the substitute of How, might-have entitled Brown to the possession of the securities. But, clearly, on no' theory was he entitled to them, except upon payment of the amount of the lien, or a "tender" and refusal. "Such tender has not been made. >■ The offer to pay is not the equivalent for "an actual tender. (Bateman v. Poole, 15 Wend., 637; Strong v. Black, 46 Barb., 222.) Judgment final Was properly given. (Edmondston v. McLeod, 16 N. Y., 543.)

The judgment appealed'from should be affirmed, with costs.

All concur.

Affirmed.