Court Opinion

ID: 6413796
Source: CourtListenerOpinion
Date Created: 2022-06-25 11:54:37.933417+00
Date Added: 2024-06-11T15:51:28.008351
License: Public Domain

Chapman, J.
It appears that on the 21st of December 1857 the plaintiff, having two notes against Gardner Morse, which were secured by mortgages of real estate, transferred the same to the defendant. The defendant gave him a receipt therefor, specifying that they Were received as collateral security to certain notes which the defendant then held against the plaintiff, and agreeing that when the plaintiff’s notes were paid “ said *25notes and mortgages are to be assigned to said Fletcher, or the proceeds received accounted for.”
By a private agreement, of which the plaintiff had no notice, the defendant sold these securities to Marshall for a sum much less than the amount due upon them. The object of Marshall was to discharge the mortgages for the purpose of relieving the estate from the incumbrance, and the defendant knew this when he made the sale.
The question arising in the case is, whether one who thus holds securities by pledge or mortgage, without any special agreement as to the way in which he may dispose of them, has a right to dispose of them in this manner.
The holder of stocks and bonds of a corporation as collateral may sell them, because that is the usual method of turning such securities into money; but it is held that the sale must be at public auction, after demand of payment and due notice of the sale. Cortelyou v. Lansing, 2 Caines’ Cas. 203. Brown v. Ward, 3 Duer R. 660. See also Washburn v. Pond, 2 Allen, 474. But in Wheeler v. Newbould, 16 N. Y. 392, it was held that the pledge of commercial paper as security for a loan of money does not, in the absence of a special power for that purpose, authorize the pledgee, upon the non-payment of the debt, and upon notice to the pledger, to sell the securities pledged, either at public auction or private sale; but he is bound to hold and collect the same as they fall due, and apply the money to the payment of the loan. A usage among the brokers in New York city to dispose of notes held as collateral by making sale of them was held to be void, because it was in opposition to a rule of law. The ground of the decision is, that notes, not being usually marketable at their fair value, must generally be sold at a sacrifice, and so injustice would be likely to be done to the debtor, even if the sale were at public auction and with notice.
In the present case, the terms of the defendant’s receipt bind him to reconvey the notes and mortgages when his debt is paid, or to account for the proceeds if collected; but there is nothing that imports a right to sell the notes. It is not necessary *26to decide whether they might have been legally assigned, in case the assignment had reserved all the legal rights of the plaintiff. For the defendant made the sale and transfer to a party who purchased them for the purpose of discharging the mortgages. The knowledge of this purpose by the defendant made him a participator in the act of destruction, and a party to the injury that has been done to the plaintiff. The sale had also the objectionable features that it was private and without notice, so that even if the securities had been stocks it would have been illegal.
In Cortelyou v. Lansing, ubi supra, it was held that after the sale by the pledgee the pledger need not make a tender of the amount due, nor a demand of the securities, before bringing his action. In the present case, all was done by the plaintiff that could be useful. The defendant had sold the notes and the mortgages had been discharged when the plaintiff called upon him with his counsel. He had obtained a sufficient amount to pay the plaintiff’s notes to him, and the plaintiff" could only claim the balance due on the securities, and covered by the mortgages. A formal tender of the amount of the notes would have been a useless ceremony, such as the law never requires. The plaintiff is entitled to recover the sum of two thousand dollars, with interest from March 12, 1863, the time when the plaintiff’s demand was made.