Case Name: CALEB HYATT, Respondent, v. FELIX ARGENTI, Appellant
Court: Supreme Court of California
Jurisdiction: California
Decision Date: 1853-04
Citations: 3 Cal. 151
Docket Number: 
Parties: CALEB HYATT, Respondent, v. FELIX ARGENTI, Appellant.
Judges: 
Reporter: California Reports
Volume: 3
Pages: 151–167

Head Matter:
CALEB HYATT, Respondent, v. FELIX ARGENTI, Appellant.
A party depositing'gecurities for securing the payment of a debt, or advancements made thereon, may agree that they shall be sold, at the option or pleasure of the creditor.
And where the plaintiff drew several drafts upon the defendant, who held the deposit, directing him to pay them “ from the proceeds of the securities in his hands,” this was held to give an authority to the plaintiff to sell the securities deposited to meet the drafts.
An order to pay “ when in funds, from the proceeds,” makes the deduction conclusive, that other sales had yet to be made by the defendant.
A sale made under such authority, is good without notice to the plaintiff of the time and place of sale, or previous demand of payment.
Personal property may be pledged, mortgaged, hypothecated, or placed in trust,, upon such terms and conditions as the parties may agree upon, and courts of law will be governed by the language of the contract in each particular case.
When such contract is absolute upon its face, the party asserting a condition or limitation, must show it.
Appeal from the Fourth Judicial District.
The complaint set forth, that plaintiff, being the owner of city scrip of the City of San Francisco, to the nominal amount of' $45,215 60, bearing interest at the rate of 3 per cent, per month, and requisitions of the Comptroller upon the City Treasurer for moneys due to plaintiff for planking streets, to the nominal amount of $94,748 62, and bonds of the city to the nominal amount of $90,000, bearing 10 per cent, interest per annum, deposited the same with the said defendant, to hold as his agent, and charges that defendant had fraudulently converted the same to his own use, in the course of his employment as agent as aforesaid, to the damage of plaintiff $60,000, and prays judgment, &e., which complaint was sworn to, and filed by defendant 21st January, 1852.
Defendant, in his answer, denies specifically every allegation of the complaint, and avers that plaintiff is not the party in interest; and then admits that certain securities, being a portion of those mentioned in the complaint, were hitherto hypothecated with him by the plaintiff, and others connected with him, and pledged as collateral security for the prompt payment by him of certain advances made by defendant to plaintiff, and for debts and accounts then due from plaintiff to defendant; and for such other advances as should be afterwards made to plaintiff by defendant, and to cover all subsequent advances made upon his account; and that, by an agreement made between them, at the time of the hypothecation aforesaid, the defendant had the right to sell without notice, any or all of said pledges or securities, in the event of any of the said advances being unpaid, and to apply the net proceeds of such sales to the payment of such unpaid debts and advances, &c.; and avers that there were and are still existing, debts and advances due from plaintiff to defendant. And that under the power conferred on him by plaintiff, he did sell the said securities so hypothecated, from time to time, and applied the proceeds to the payment or part payment of said outstanding debts, &c.; and after the entire application of said net proceeds as aforesaid, there is still due and unpaid from plaintiff to defendant, the sum of $12,750, with interest at the rate of 5 per cent, per month; and defendant makes the said debts, advances, and the balance due, a counter claim in this action, and prays judgment in his favor, &c.
This answer was sworn to by M. Berri, the attorney in fact for defendant.
This cause occupied much of the time of the court below, and the testimony taken in the course of the trial is very voluminous. The facts, so far as they are deemed material, in reference to the view taken of the case by this court, appear to be as follows :—-
The firm of Hyatt, Cox & Sheldon had a contract with the City of San Francisco, for planking certain streets of the city, and applied to the defendant Argenti for aid, who agreed to assist them, and with whom they opened an account, giving first to the defendant their endorsed note for $5000, which the defendant passed to their credit; this note bore interest at the rate of 7 per cent, per month.1 Without taking up the note when it fell due, the firm arranged' with the defendant for further credits, by transferring to him their claims under their contract with the city (specified in the complaint), which transfer was absolute upon its, face. These.claims were in the form of what was called “requisitions,” which were estimates of work done, certified by the Street Commissioner, and otherwise authenticated. By these transfers, defendant .claimed to be invested with the whole legal title to, and control over, the said securities, subject to the equitable interest of the said firm in the premises. Upon the securities thus transferred, the defendant proceeded to make advances to the firm, and also agreed to reduce the interest with which the account commenced, from 7 to 5 per cent. The “requisitions” were all transferred in October and November, 1850, and the money nearly all advanced in October and November. Up to that time the whole amount of cash advanced was $43,590 ; the amount of requisitions transferred to defendant was $ which wére partly collected in cash by him, part in scrip, and part were funded. On the 18th February, the defendant rendered an account current to the firm, in which they are credited with the cash received by him, except about $4000, the scrip and requisitions to be funded, remaining in defendant’s hands. This account showed a balance due defendant of $19,993 63. On the 22d February, defendant paid a judgment against the firm of some $3400; and on the 31st July, rendered another account current, showing a balance then due him of $24,011 45. It does not appear that any exception was taken by the firm or by defendant to either of these accounts.
It appears that the accounts between the parties stood thus till September 6th, 1851, when defendant sold part of the scrip, and continued to make sales down to January 5th, 1852, when he closed up the account. As the sales were effected, the proceeds were carried to the credit of the firm on defendant’s books, which, it is in evidence, Hyatt, the plaintiff, had access to, and frequently examined. On the 5th January, another account was rendered by defendant, crediting the entire sales, and leaving a balance due to him of $2677 28. It does not appear that any direct notice was given by plaintiff to defendant, or the firm, of the sales of the securities made by him, which appear to have been private, or made through brokers selected by the defendant. It was in evidence, however, that in October (24th), 1850 (the arrangement between the parties having been made in September preceding), that the firm drew upon defendant, first for $8000, and then for several other sums, of $2000, $6000, $3086 61, and other sums, directing him to pay the same in each of the drafts, “ from the proceeds of the securities now in your hands, and such other securities as will hereafter be placed in your hands by us.” And on the 27th December, the firm drew another draft upon defendant for near $8000, made payable “ when in funds, from the proceeds of the securities placed in your hands by us, after deducting the amount due you for cash advanced, and the interest on the same.”
It was in evidence, that on the 13th March, 1851, Cox & Sheldon, two members of the firm, had assigned all their interest therein to defendant Hyatt.
The case was submitted to the court without a jury, who found the amount of scrip hypothecated to be $80,636 75, which was payable two-thirds in cash, and one-third in city scrip; the amount of scrip received by defendant upon the requisitions; and that the scrip had been converted by the defendant to his own use (after the assignment of Cox & Sheldon to plaintiff, and prior to November 1st, 1851), in part by private sale, without notice to plaintiff, and in part by funding them, mixed with other scrip, with the commissioners of the funded debt of the city, without the knowledge or consent of the plaintiff; and also, that the requisitions had been converted in like manner; and also, that the scrip had been sold in the market (the highest rate), November 2d, 1850, at 10 per cent, premium, and requi sitions, January 8th, 1851, at 5 per cent, discount; and that, taking these sales as data, the damage sustained by plaintiff by the conversion, amounted to $53,840.
Several other facts were found by the court, which do not appear to have any bearing upon the case, as considered by the Supreme Court.
The facts and data thus found, together with an open account of plaintiff against defendant, were referred to the clerk of the court, to state an account between the parties, who reported a balance due to the plaintiff from the defendant, of $86,977 98, for which judgment was entered by order of the court.
A motion was made by defendant for a new trial, which was overruled, and this appeal was taken.
M’Dougal, for appellant.
The defendant was in no respect the plaintiff’s agent, nor was he a pledgee : 2 Bouvier, Pledge, 3, 4 ; Story’s Bailment, 286; Jones on Bailment, 117; nor mortgagee : Bouvier, Pledge, 6. The distinction between a pledgee and a mortgagee is, that it is created by a grant by which the whole legal title passes conditionally. The securities were transferred in writing, without any condition. Defendant held them in trust to pay his debt, and account for the surplus. 2 Bouv. 605; Levin Trustees, 15; Saund. 6.
If defendant was a trustee, he is amenable only to the equitable jurisdiction of chancery; and proof of this will not sustain a proceeding in tort, based upon legal title to the thing converted, and charging agency, or a naked bailment for safe keeping.
But the defendant was a trustee, with power to sell for the purpose of reimbursing himself. He had the right to do with them what was necessary and proper for his own protection, doing it in good faith, and using prudence. The assignments are absolute on their face, and carry with them the full jus disponendi. There is no testimony showing that this power was qualified, and this can only be gathered by defendant’s answer, and this asserts the power to sell also, and these must be taken together.
That the trust was to be executed by a sale of the securities, is shown by defendant’s conduct throughout. The firm drew on defendant a great number of sight drafts, when they had no money in his hands, “payable out of the proceeds of securities held by him.” If defendant had been a mere agent, and held securities for the purpose of providing funds, and such a draft had been presented and refused, he having undertaken to provide funds out of the proceeds of sale, which fact the drafts assume, he would have been liable in damages.
Hyatt examined the books of defendant frequently, which contained the entries of the sales, and never objected.
But, if there were no original power to sell, the conduct of plaintiff amounts to an acquiescence, and he will be held to have approved the sales; his examination of the books, knowledge of the facts, and receipt of accounts current without disapproval, is a virtual approval. Levin, 639, 640-1; 17 Veng. 326.
The rendition of the accounts current was a liquidation and settlement of the accounts, no objection being made. 10 Barb. 215; 2 lb. 586; 2 Greenleaf Ev. 127, 8; 4 Bing. 459; 3 Cor. & Payne, 236; 2 Brod. & Bin. 99; 13 Earl, 249.
The argument of the counsel embraced other points made in the case not considered by this court.
Brooks, for respondent.
The requisitions and their proceeds, were pledged with defendant by plaintiff, and could not be sold without demand of payment, and notice of the time and place of sale. 4 Den. 227.
Such sale is a conversion, and the rule of damage is the highest value between the time of conversion and the time of trial. 3 Con. 82; 7 lb. 681; 1 lb. 240; 3 Comstk. N. Y. Rep. 78; 1 Sanford, 361; 20 Wen. 94; 22 lb. 348, 366-7; Paine, 626; Sto. Bail, sec. 122, 191, 269, 290, 308, 318, 321, 322, 396.
A note may be pledged, and the transfer of the legal title is necessary to carry the possession, but this does not alter the character of the transaction, and cited Wheeler v. Wheeler, 9 Cow. 24; see, also, 1 Sandfd. S. O. Rep. 248. Abuse of lawful possession is breach of trust, and amounts to a conversion. 3 Johns. 432; Salk. 130, 154; 2 Bos. & Pul. 453.
An absolute transfer of a promissory note may be shown to he collateral. 2 Hill, 140; Sto. Prom. Notes, sec. 284; 20 Johns. 634, 640, et seq.; 1 Bos. & Pul. Collins v. Martin; Chitty on Bills, 74, n. 2, and page 198, n. 2; 19 Johns. 66; 10 New Hamp. R. 264.
If the court áre satisfied that the transaction is a pledge, there is then no error in the ruling of the court below.

Opinion:
The opinion of the court was delivered by
Heydenfeldt, Justice.
This is an action of trover for the wrongful conversion of certain securities, called scrip, requisitions, and bonds.
The defendant was to make advances of money from time to time to the firm of Hyatt, Cox & Sheldon (who, in this action, are represented by the plaintiff Hyatt), and Hyatt, Cox & Sheldon were to place the securities, as fast as received, in the possession of defendant, accompanied by an absolute assignment in writing.
Various amounts were drawn by Hyatt, Cox & Sheldon from defendant, and the securities, placed in the hands of the latter, were sold at different times for their market value, and placed to the credit of the firm.
These securities subsequently appreciated in value in a great degree. The plaintiff now insists that the defendant had no right to sell them without notice to him, and is, therefore, guilty of a conversion. Upon the facts set out in the bill of exceptions, the court below decided, that by the rules of law, the defendant had no legal authority to sell or dispose of the securities, and was therefore guilty of converting them to his own use.
Much argument and authority has been displayed upon the question, whether the holder of a mortgage or pledge of securities or personal property can sell when the debt becomes due, without notice to the mortgagor. From the evidence contained in the bill of exceptions, we think the consideration of that question is unnecessary. It will not be doubted that a party depositing such securities may agree that they shall be sold at the option or pleasure of the creditor. And we can come to no other conclusion, than that such was the contract in the present case. It appears, according to the hill of exceptions, that the engagement between the parties took place in September, 1850.
On the 24th October following, the firm of Hyatt, Cox & Sheldon, drew a draft on defendant directing him to pay, on the 30th October, to the order of- H. Meigs, eight thousand dollars, "from the proceeds of the securities nowin your hands, and such other securities as will hereafter be placed in-your hands by us."
On the same day, another draft was drawn by them for two thousand dollars, payable on the 26th, using the same language.
On the same day,'another, payable at sight, for two thousand dollars, and in the same terms.
On the same day, a third draft, payable the 20th November following, for six thousand dollars, at sight, and in the same terms.
On the 8th November, another draft, at sight, for $3086 61, in the same terms.
And-on 29th December, a draft is drawn by them for $7952 03, payable "when in funds from the proceeds pf the securities placed in your hands by us, after deducting the amount due you for cash advanced and the interest on the same, and also the amount due McCoudray." An express stipulation in writing could not exhibit more clearly the authority of the defendant to sell the securities, than does the language of these drafts. The money drawn for, was to be paid from the proceeds; proceeds can only be obtained by sale, and the language of the last-mentioned draft, "when in funds from the proceeds," makes the deduction conclusive, that other sales had yet to be made by the defendant.
It appeals, moreover, from the evidence of Meigs, one of the plaintiff's witnesses, that he informed the plaintiff of the sale of the bonds, and the price for which they sold, at which he says, " Hyatt objected to the price at which the bonds were sold, and said it was eating him up." This is the language of a man complaining of hard fortune, but certainly not of breach of contract, or of bad faith, and it is pregnant with the admission of the right of the defendant to sell.
This view of the case renders it unnecessary to consider the Other assignments of error. It is clear to our minds that the defendant is not guilty of conversion, and the plaintiff has mistaken his action. If the defendant is indebted to him, his proper remedy is within the equitable jurisdiction of the coqrt by bill for an account.
The judgment is reversed, and a nonsuit against the plaintiff is ordered with costs.