Case ID: ohio-st_53/html/0588-01.html
Source: Caselaw Access Project
Author: {"author": "Williams, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Glidden v. The Mechanics’ National Bank.
    
      Collateral security — Pledge of property — Pledgee cannot become purchaser, when — Express agreement as to sale — Respective rights of pledgor and pledgee — What a conversion of property by pledgee.
    
    1. In the absence of express agreement authorizing it, a pledgee cannot become the purchaser of the pledged property at his own sale; and if the property be bid off by him the contract of pledge is not hereby terminated’, nor the relations of the parties changed, unless the pledgor elects to treat the transaction as a valid sale, in which event the pledgee will be accountable for the net proceeds of the sale.
    • 2. If the pledgor do not so elect, the pledgee, while he retains the possession and control of the property with the ability . to perform his part of the contract by restoring the property to the pledgor, cannot be held for its conversion, without demand for its return accompanied with an offer by the pledgor to perform his part of the agreement.
    3. When, however, the pledgee puts it out of his power to perform his part of the agreement, by an unauthorized disposition of the property, he will be liable for its conversion without demand and offer of performance by the pledgor; and when he has so disposed of a part of the property, he may be held for the conversion of all of it, as of the time of such disposition.
    (Decided December 17, 1895.)
    Error to the Circuit Court of Cuyahoga county.
    The original action was brought by the Mechanics’ National Bank, against John N. Glidden, in the court of common pleas of Cuyahoga county, on the following written oblig’ation: •
    “$14,524.00.
    “Pittsbdrg, Pa., August SO, 1883.
    
    “On October 10th after date, I promise to pay to the order of the Mechanics’ National bank, fourteen thousand five hundred and twenty-four dollars, without defalcation, for value received, having pledged to the said bank as collateral security, in lieu of an endorser, nine warrants of the Union Storage company numbers as follows; 655,656,657, 658, 659, 660, 661, 662, 663, for 108 (2268) tons each, 972 tons in all, with authority to sell the same on the non-performance of this promise, in such manner as they in their discretion may think proper, without notice, either at public or private sale, and to apply the proceeds hereon holding1 me responsible for the deficency if any should occur.
    (Signed) “John N. Glidden.”
    The petition alleges that the iron referred to in the above obligation, “remained in storage at the price agreed upon by said Glidden, with the Union Storage company under the said warrants described in said instrument until February 7, 1887, when the said plaintiff sold fifteen tons of said iron at $20 a ton, $300; and on August 20, 1888, it sold 524 tons at $16 per ton, on paper runing four months, without interest, $8,398.97; and on September 11, 1888, it sold 108 tons at $16 per ton on time, at four months without interest, $1,728; and on September 20, 1888, it sold 324 tons at $16 per ton, on four months paper without interest, $5,184. All said iron was sold by said plaintiff in the exercise of the power given by said instrument of writing, and amouuted to the sum of $15,610.97. The plaintiff further says that to reduce said time sales to cash required the payment of $306.21, leaving the balance that it received on the sale of said iron $15,304.76, less charges, which the plaintiff alleges that it paid, as follows:
    “Storage to the Union Storage company under and by virtue of the terms of said warrants, which the defendant agreed to pay to said Storage company at the time that he placed said iron in their storage:
    
      From March 9, 1883, to September 20, 1888, 5 yrs., 6 mos. and 10 dys................$3,223.80
    Freight on iron from Newcastle to Pitts-burg’, where said iron was sold, at 70c. a ton............................................................................... 677.64
    Commission paid to auctioneer for selling iron at 25c. per ton.............................................. 243.00
    Total charges..........................................................$4,144.44
    Which being taken from $15,304.76, leaves $11,-160.32, which the plaintiff realized upon the sale of said iron, and no more.
    “The plaintiff further says that the freight paid by it on said iron from Newcastle to Pittsburg where the same was sold, was but the ordinary and reasonable freight over the line of railroad between said places; and the commission for selling the iron was the ordinary and customary price for the sale of the same.
    “The plaintiff says that after deducting said amounts so received by it on the sale of said iron, to wit, $11,160.32, as of the date of the last sale, to wit, September 20, 1888, from the amount due on said note, there is due the plaintiff the sum of $7,708.73 thereon, with interest from said 20th day of September, 1888, no part of which has' been paid.
    “Wherefore the plaintiff prays .judgment against the said defendant in the. said sum of $7,708.73, with interest thereon from the 20th day of September, 1888.”
    The answer, after admitting the execution of the written instrument sued ,on, and the corporate character of the plaintiff, and denying the other allegations of the petition, avers, by way of counterclaim, that “at the maturity of said note this defendant was so embarrassed that be could not and did not therefore pay the same; and that thereafter on or about the 5th day of November, 1883, the said plaintiff proceeded to advertise and sell at public auction, the said iron at Pittsburg, though the iron itself was all still at Newcastle, about fifty miles away. And at said auction sale said plaintiff bid in all the iron named in said nine receipts, and all the iron covered thereby; and proceeded from that time forward to claim it and to manage and control it as its own, and did then and there convert it to its own use; and has ever since until the time of filing said amended petition controlled and claimed as its own, said iron, by virtue of said public sale of November 5, 1883.
    “And this defendant says that at the time when said plaintiff so converted said iron to its own use, the same was of the value of $17 per ton, and of the total value of $18,360, for which sum plaintiff then and there became and was liable to account to this defendant. And that when sufficient is applied therefrom to pay the amount then due on said note, there remains the sum of $3,780.33 for which said plaintiff is indebted to this defendant, with interest from November 5,1883, for which amount this defendant asks judgment against said plaintiff.”
    The reply controverts, generally, the allegations of the counterclaim, but “admits and avers that just prior to November 5, .1883, the plaintiff advertised said iron for sale at public auction in newspapers of general circulation in the vicinity where said iron was located, that said sale would occur on the 5th day of November, 1883. The plaintiff further admits that on said day it offered for sale at public auction the iron covered by said receipts or warrants, and there being’ no one present that was willing- to give as much therefor as one. W. H. Carr, who was president of the ■ plaintiff, he, the said Carr, bid for portions of said iron about $10 per ton, and for some other portions about $11 per ton, he being the highest bidder for the same at said sale; and the said Carr purchased the same for said plaintiff, in the belief that he had the right to do so; but the plaintiff says that.the said defendant Glidden repudiated the said sale, because of the fact that said plaintiff could not be both seller and buyer, and refused to recognize the validity of the sale and has ever since, and now does repudiate said sale and refuse to recognize its validity. The plaintiff especially denies that it converted said iron to its own use, but alleges that the said iron was kept and retained in. said storage where placed by said Glidden until the time stated in said petition, when the same was sold for the price and in the manner therein stated.”
    Upon the trial of the issues to a jury, the court charged that the purchase of the iron by Carr for the bank constituted a conversion of the iron as of the date of November 5, 1883; and that the defendant could hold the “bank to an account for that iron for what it was reasonably worth on November 5, 1883, in the market where the iron was sold.”
    A verdict was returned finding the issues for the defendant, and assessing the balance due him, after deducting- the debt due the bank from the value of the iron on the 5th day of November, 1883; and, after the overruling of a motion for a new trial filed by the plaintiff, judgment was rendered on the verdict. A bill of exceptions, containing all the evidence, was duly allowed and filed, and on error prosecuted to the circuit court, the judgment was reversed, upon the ground, as stated in the journal entry, “that said court of common pleas erred in holding that the sale by the plaintiff in error of November 5, 1883, of the iron held by it as collateral security, was a conversion at that time;” and the cause was remanded for a new trial. Error is prosecuted here to obtain the reversal of the judgment of the circuit court, and the affirmance of that of the common pleas. A further statement of facts is contained in the opinion.
    
      Burke & Ingersolls, for plaintiff in error.
    What is a conversion? Cooley’s Torts, 448. Any distinct act of dominion wrongfully exerted by one on the property of another is a conversion.
    2. Greenl. on Evidence, par. 642; One who exercises dominion over property in defiance of the owner’s rig’ht is g'uilty of conversion.
    1 Add. Torts, 438, note 3, same doctrine; 4 American and English Encyclopedia, 108, same doctrine. Jones’Pledges, section 571. It is optional with the pledgor to treat such act as a conversion.-
    
      Baldwin v. Cole, 6 Mod. Rep., 212. The very assuming to oneself the right to dispose of another’s goods is conversion. Dodge v. Myer, 61 Cal., 405; 104 Mass., 173; 60 N. H., 426; 15 N. H., 494; 1 Handy, 532 ; 6 Wend., 603; 31 N. Y., 489; 45 N. Y., 718 ; 61 N. Y., 477; 68 N. Y., 522. This we say fully covers our case. McCorrick v. Railroad Co., 99 N. Y., 67; 102 N. Y., 681; 114 N. Y., 161. No demand is necessary where the party has not the means to comply with it. Story’s Bailments, par. 107; 5 Ameriean and English Encyclopedia, 528; Jones’ Pledges, par. 748; 5 Ind., 146 ; 3 Gray, 347 ; 80 Ala., 459; 1 Ala.. 423.
    Some of the cases put the doctrine on this ground, that a wrongful conversion terminates the bailment. 2 American and English Encyclopedia, 58; 5 Ind., 222; 5 Ired. NIC., 213; Story’s Bailments, par., 413. A pledger has a choice of several remedies; 4 Denio, 227 ; 45 N. Y., 718; 101 N. Y.,252. The question whether the pledgee acts in good faith or-not, .is not material.' 31 N.'Y.-, 493; 68 N. Y., 527; 61 Cal., 420.- The courts do not hesitate where an attempted sale has been at a very low price to comment on this as an act of oppression against the real owner. 16 N. Y., 401.
    The rational of the' doctrine of conversion we think may be fairly summed up about as follows :
    If you have any property for a specific purpose and exceed the authority given you for the control of that property and treat it as your own, I shall have the right to take you at your act; and hold j^ou as accountable to me for the fair value of that property. If you have a lien upon it for a certain amount when that lien is' deducted you owe me for the balance. We do not see how this is any injustice to a party intrusted with property. If he does not wish to make it his, let him keep his hands off.
    Boynton, Rale <& Rorr, for defendant in error.
    The circuit court reversed the judgment of the common pleas and remanded the cause for a new trial, placing’ its decision upon the ground that Glidden could not blow hot and blow cold; that he could not say that the sale of November 5, was valid for some purposes and void for others; that he must either stand by it or he must repudiate it, and having repudiated it, that it was to be treated to all intents and purposes as a void sale. Bryan v. Baldwin, 7 Lans., 174; Duncomb v. Railroad Co., 84 N. Y., 205; Roach v. Duckworth, 95 N. Y., 402; Insurance Co. v. Dalrymple, 25 Md., 242; Canfield v. Minneapolis A. & M. Association, 4. McCrary, 646; Field’s Lawyers’ Briefs, vol. 5, title “Pledges,” section 120; Cooley on Torts, section 453; Jones on Pledges, section 637.
    A pledgee cannot directly or indirectly purchase at a sale of the pledge under a power, unless it is specially provided by the terms of the power that he may do so. Nothing passes by the. form of a sale, and the pledgee still holds the., property under his original lien as collateral security. Middlesex Bank v. Minot, 4 Met., 326; Chicago Artesian Well Co. v. Corey, 60 Ill., 73; Killian v. Hoffman, 5 Bradw., Ill., 200; Baltimore v. Dalrymple, 25 Md., 269; Morgan v. Dodd, 3 Colo., 551; Bank v. Railway Co., 8 Iowa, 277; Railway Co. v. McKeran, 24 Ind., 62; Dana v. Coal Co., 38 Ill. App., 371; Canfield v. Minneapolis, etc., 14. Fed. Rep., 801.
    As a further answer to the position of the plaintiff in error we claim the law to be that the plaintiff could not maintain an action for conversion until the lien created by the pledge was discharged, and the lien could not be discharged until payment or tender of payment of the debt for which the pledge was made. The reason of this proposition is obvious. Until Glidden’s debt was paid by him he had no right to a return of the iron, and he could not maintain an action against the pledgee for a conversion of the iron, so long as he was in default in the payment of his debt. Whelan’s Exr. v. Kinley’s Admr., 26 Ohio St., 139; 
      Lewis v. Mott, 36 N. Y., 401; Cumnock v. Newburyport Savings Inst., 142 Mass., 342; Day v. Holmes, 103 Mass., 306; Halliday v. Holgate, L. R., 3 Exch., 299; Thompson v. Toland, 48 Cal., 99; Ralty v. Bank, 93 U. S., 326; Smith v. Bunting, 86 Pa. St., 116; Bank v. Boyse, 78 Ky., 42; McCulla v. Clarke, 55 Ga., Colbrooke, on Collateral Securities, section 344.
    The judgment of the circuit reversing that of the common pleas was clearly right on another ground. We asked the court to charge the jury that if they found from the evidence that the iron was advertised for sale in the public prints of Pittsburg for a few times before it was sold on November 5, 1883, and that it was cried at public auction and sold at $10.00 and $11.00 per ton, as the highest figure to be obtained for it at the time, that that fact might be taken into consideration among others in determining its value. This instruction the court refused to give and we excepted to the refusal. Although the evidence may not be very strong it is clearly settled by the authorities that what property brings at public auction is some evidence of its market value. Hooven, Owens, Rentschler & Co. v. Scott et al., 22 W. L. B., 168; Campbell v. Woodworth, 20 N. Y., 499; People v. McCarthy, 102 N. Y., 639; Dickson v. Buck, 42 Barb., 74; Gray v. Walton, 107 N. Y., 259; Gill v. McNamee, 42 N. Y., 44; Hoffman v. Connor, 76 N. Y., 121; Lawton v. Chase, 108 Mass., 238.
   Williams, J.

The record discloses that at the time of the execution of the written instrument on which the action below was founded, the maker, Glidden, had in store with the Union Storage Company, at Newcastle, Pennsylvania, 972 tons of pig iron, for which, he held the company’s nine storage warrants mentioned in the instrument. Each warrant bound the company to deliver the iron represented by it to the order of Glidden at the place of storage, upon payment of the -charges and surrender of the warrant properly indorsed. When the instrument sued on was executed by Glidden, he duly transferred the nine warrants to the bank for the purpose of pledging the iron as collateral security for the debt so contracted. On the 5th day of November, 1883, the debt having-then becomedue, and beingunpaid, the bank offered the ironforsale at public auction, after having published notice to that effect in some of the newspapers of Pittsburg; and the president of the bank, in its behalf, made a bid of ten dollars per ton for part of the iron, and eleven dollars per ton for the remainder, and all of it was struck off to him at those prices. Thereupon, the cashier of the bank notified the storage company of the purchase, and requested the ownership of the iron to be transferred at once to the president of the bank. That company made the transfer on its books, and thereafter from time to time, rendered its accounts for storage, against the bank,' which were paid by it. No demand of the debt was made of Glidden before the sale, nor was any notice of the sale given him, before or after it occurred; the first information he had with respect to it was when the action below was commenced in 1888. In the meantime, however, he had made no effort to pay his debt, and no inquiry concerning it, or the situation of the iron pledged for its security, for the reason, as he states, that he had become embarrassed. and was unable to pay the debt. At the time of the auction sale, the iron was worth in the market from sixteen to seventeen dollars per ton, and the defendant sought, by way of counterclaim, to compel the bank to account for the market value of the iron, as of that date, upon the ground that the sale constituted a conversion of it. An account upon that basis leaves a balance due Glidden. ■ After that sale the iron remained in store, as it had been before, at the same place, subject to the same charges, and without change in any respect, except the transfer of ownership on the books of the storage company to the president of the bank, and the entry of the storage charges against it, until February 7, 1887, when the bank sold fifteen tons of the iron at $20 per ton, and thereafter, in August and September, 1888, sold the balance for $16 per ton; and an account stated upon the basis of those sales, after deducting storage charges, leaves a balance due the bank. In making these sales, the officers of the bank believing in good faith it had become the owner of the iron at the auction sale, assumed to sell it as the property of the bank, and not under or in execution of the power of sale' contained in the instrument by which it was pledged; but it claims the sales were within the power thus given. ' The case here turns upon the question whether the first sale constituted a conversion.

The right of the pledgee to sell the article pledged, upon the non-performance of the pledg- or’s obligation, is the one characteristic which distinguishes a pledge from a common law lien; and, while the former is always accompanied with an implied power of sale, if none be expressed, it is often declared in the contract of pledge, and the exercise of the power may, of course, be regulated and controlled, and the rights and obligations of the parties with respect to the sale be specifically defined, by the express agreement of the parties. Where the power rests upon implication, the pledge cannot be sold without reasonable notice to the pledgor of the time and place of sale, for the reason that he is entitled to redeem up to the very time of sale, and should be afforded opportunity to be present at the sale to see that it is fairly conducted, and procure bidders, if he should so desire. This requirement of notice may be waived by the pledgor, either in the contract of pledge, or afterward; and by the agreement between the parties in this case, the bank was expressly authorized to sell the property pledged to it by Glidden, without notice. But there was no agreement that the bank might become the purchaser at any sale which should be made, and it is well settled, that in the absence of an express agreement to that effect, a pledgee cannot, directly or indirectly, become a purchaser at his own sale, for the satisfactory reason that he holds the property in a fiduciary capacity, which forbids the disposition of it for his personal benefit, and requires good faith and fidelity to the interests of the pledg-or in making a sale of it. His duty as a seller is inconsistent with his interests as a purchaser; and the principle that a trustee cannot be a purchaser at his own sale is applicable. Story on Bailments, section 319 — Torrey v. Bank, 9 Paige, 649-663; Chouteau v. Allen, 70 Mo., 290, 335.

The purchase for the bank, by its president, at the auction sale of November 5, 1883, was there-’ fore unauthorized, and its subsequent assumption of proprietorship unwarranted, unless ratified in some way by Glidden, which is not claimed; the sale was repudiated by him soon after he became aware of it, and ratification could not be presumed from his silence, for he was ignorant of the sale, and it was manifestly against his interest, having been made at a price much below the market value of the property. If the sale had been ratified, his right would have been to charge the bank with the price at which the property was so sold, and require the application of the proceeds, as of the daté of the sale, toward the satisfaction of his debt and the charges against the property; and in that case, he would have remained liable for the balance due on his debt. And, it appears to be established by the great weight of authority, that such a sale, when repudiated by the pledgor, is not a conversion, where no change has occurred in the actual condition and situation of the property. The relation of the parties remains the same as before the sale, the pledgee continuing to hold under the contract of pledge, leaving the title to the property and rights of the parties unaffected, as though no sale had been attempted. Indeed, in such case, it is said there is no sale for want of a competent purchaser. Bryan v. Baldwin, 52 N. Y., 232; Bank v. Minot, 4 Met. (Mass.), 325; Stokes v. Frazier, 72 Ill., 428; Killian v. Hoffman, 6 Bradw. Ill., 200; Insurance Co. v. Dalyruple, 25 Md., 242; Bank v. Railroad Co., 8 Clark (Iowa), 277; Canfield v. Minneapolis A. & M. Ass’n, 4 McCrary, 646; Duncomb v. R. R. Co., 84 N. Y., 205; Halliday v. Holgate, L. R., 3 Exch., 297; Day v. Holmes, 103 Mass., 307, 311; Donald, v. Sukling, L. R., 12 B., 585.

The rule results from the nature of the contract between the parties. Under a contract of pledge, the right of the pledgee to retain possession of the property continues until the debt or engagement for the security of which it was pledged has been discharged by payment or performance, or a tender, and demand for its return; and his obligation is, to keep the article pledged, with due care, and restore it to the pledgor upon the performance of his agreement. On the other hand, in the absence of any stipulation to the contrary, it is the duty of the debtor to seek the creditor at the proper place and pay the debt, or tender its payment, before he is entitled to receive back the pledge. These obligations of the parties are reciprocal, and neither can require performance by the other without himself being able and ready to perform on his part; so that, the possession of the pledgee being lawful as long as he retains the actual control and custody of the pledge, with the ability to perform his obligation by restoring it, he is not in default, until a demand, accompanied by a tender of the debt is made. If he then refuse or fail to restore the pledge, he may be • charged with its value. The action for its recovery, though treated as one for conversion is, in reality founded on the breach of the contract; and hence, the creditor is entitled to recoup his debt.' Until the breach occurs, no right of action accrues in favor of the pledgor; suffering the debt to run unsatisfied after maturity, does not destroy the pledgee’s lien, or the pledgor’s right to redeem. Wheelan v. Kingsley, 26 Ohio St., 131; Jones on Pledges, sections 543, 566, 571.

The pledgor may, undoubtedly, refuse to recognize a sale made by the pledgee to himself when such a sale is not expressly authorized; but he cannot affirm it in part and .reject it in part; he cannot adopt it so far as to make it effectual to transfer the title to the pledgee, and at the same time reject it as to the price, and terms of the sale; nor, can his rejection, which has the effect of defeating the -pledgee’s title under the sale, at the same time destroy the lien of the latter under the contract of pledge. The sale must be either accepted or rejected as an entirety; and when so rejected, and the pledgee remains in the possession and control of the property, with the ability to perform his contract by restoring it to the pledgor on demand, the contract of pledge continues in force, and the pledgee’s possession, being referable to the contract, is as lawful as before the sale: and, therefore, he can be charged with a conversion of the property only upon his refusal or failure to return it on the performance, or tender of performance of the pledgor’s obligation. The observation sometimes met with in the opinions of judges, and in text books, that the pledgor is at liberty to treat an unauthorized sale of the pledged property as a conversion -by the pledgee, must be taken to refer to such a sale as puts the property bej^ond the control of the pledgee. In cases of that kind the pledgor may charge the pledgee as for a conversion of the property without demand or tender of performance though he is not bound to do so, but may, by subsequent tender and demand, require the pledgee to account for the market value of the property at that time. And of course, it is not the right of the pledgee to insist that his wrongful sale constitutes a conversion, for that would enable him, if he were allowed to do so, to take advantage of his own wrong’, and by his own violation of the contract determine the time, and thus the measure of his liability for its breach. As has already been stated, no offer was made by Glidden, at any time, to pay the debt he owed the bank, nor was any demand made for the return of the iron held in pledge; and, after it was bid off by the president of the bank, on the 5th day of November, 1883, it remained in the control of the bank, as it had been before, without change in any respect, up to the 7th day of February, 1887, when, under the sale that day made, part of the iron passed into other hands; so that, until that time, the bank’s possession was lawful, and it was able to perform its obligation to • Glidden by returning the iron to him, upon payment of his debt. It had, up to that time, exercised no actual dominion or control over the property inconsistent withGlidden’s right to redeem; and the saleof November 5, 1883, being ineffectual to transfer the title, did not, we think, constitute a conversion of the property, which, in legal contemplation was still held under the contract of pledge:

But, by the sale of February 7, 1887, a part of the property pledged, passed beyond the control of the bank, and it was thereafter no longer able to perform its contract with Glidden by making return of the iron to him; and if that sale was unauthorized by the terms of the pledg-e, he might rightfully claim there was then a conversion of the whole of the property, without tender or demand by him. The obligation of the pledgee being to return all of the property pledged, a conversion of part may, at the election of the pledgor, be treated as a conversion, of all, for he is entitled to the return of the very thing pledged, and is not obliged to accept a part of it only. Nor is a tender of payment, and demand for the property necessary where the pledgee has put it out of his power to comply with the demand, and make restoration of the pledge, in order to entitle the pledgor to maintain an action for its wrongful sale. Such tender and demand, when the pledgee has thus incapacitated himself to perforo, his part of the contract, are ex-excused because the act would be a useless ceremony which the law never requires. Cortelyon v. Lansing, 2 Caine’s cases, 200; Alden v. Pearson, 3 Gray, 342, Fletcher v. Dickinson, 7 Allen (Mass.), 23; Wilson v. Little, 2 N. Y., 443.

Whether the sale of February 7, 1887, was made in violation of the agreement between the parties, so as to render the bank liable for the market value of the property at that date, or whether that, and the subsequent sales were made in pursuance of the power conferred by the contract, which, if so made, would limit the bank’s liability to the amount of the net proceeds of those sales, are questions not now before us, and upon which we express no opinion. Issues of fact are joined by the pleadings concerning them, upon which the parties are entitled to have a .trial by jury. In the decision of the question, upon which the judgment below was reversed, the circuit court, we think, committed no error; and its

Judgment is affirmed.