Court Opinion

ID: 5428958
Source: CourtListenerOpinion
Date Created: 2022-01-08 16:48:44.964809+00
Date Added: 2024-06-11T08:31:33.259316
License: Public Domain

Hecht, J.
Plaintiff appeals from a judgment of the City Court, New York County, dismissing his complaint on the merits at the close of the case. Defendant Provident Loan Society had been permitted, with plaintiff’s, consent, to present its testimony before the close of plaintiff’s case.
The action was brought for conversion of a diamond bracelet wrist watch owned by plaintiff. Plaintiff entrusted this wrist watch to one Diamond, with instructions to pawn it with the defendant Provident and obtain a loan of about $5Q0 on it. Diamond turned it over to one Goldman with "the same instructions. On August 18,1941, a few days after it had been entrusted by plaintiff to Diamond, Goldman pledged the watch with defendant Provident as collateral for a loan of $415, which was paid to him in cash.
Provident used a form of signature card on which the pawnor was required to state whether he was the owner of the collateral pledged or whether hé was the authorized agent for the owner. Goldman certified that he was the owner and signed the- signaturc card in that capacity. Thereupon Provident delivered *901to Goldman its usual pawn ticket containing the information required by section 43 of the General Business Law, and made out in the name of Goldman.
Diamond testified that Goldman gave Mm the pawn ticket enclosed in the usual Provident folder, together with $415 in cash, and that later the same day he gave the folder and the cash to plaintiff without observing that the pawn ticket was made out in Goldman’s name, and without informing plaintiff that the watch had been pledged by Goldman and not by Diamond.
Plaintiff testified that during the period of over iMrteen months while the pawn ticket was in his possession, he never once took it out of the folder and therefore did not know that the ticket was made out in Goldman’s name instead of Ms own. While this story seems incredible, we must accept it as true for the purpose of this appeal, inasmuch as the complaint was dismissed at the close of plaintiff’s case. In any event, plaintiff concedes that he did not notify Provident that the watch belonged to him until October 6, 1942, which was after the events complained of herein had occurred.
The General Business Law contains the following provisions g
“ § 43. Certain entries to he made m hooK Every such ¿pawnbroker shall keep a hook in which shall he fairly written, at the time of such loan, an account and description of the goods, articles or things pawned or pledged, the amount of money loaned thereon, the time of pledging the same, the rate of interest to he paid on such loan, and the name and residence of the person pawning or pledging the said goods, articles Of tMngs.
“ § 44. Memorandum to he given. Every such pawnbroker shall at the time of each loan deliver to the person pawning ©r pledging any goods, article or thing, a memorandum or note signed by him containing the substance of the entry required to he made in Ms book by the last preceding section ° ^ The holder of such memorandum or note shall he presumed to he the person entitled to redeem the pledge and the pawnbroker shall deliver such article to the person so presenting1 such memorandum or note on payment of principal and interest. Should such ticket be lost or mislaid the pawnor shall at oaee apply to the pawnbroker, in which case it shall be the duty of the pawnbroker to permit such person to examine Ms books, and on finding the entry for said ticket, note or memorandum so lost and upon his giving to the pawnbroker an exact description of the article pawned the pawnbroker shall issue a second *902or stop ticket for the same. In case such pawnor neglects to so apply and examine said books and receive such memorandum or note in the manner above stated, the pawnbroker will be bound to deliver the pledge to any person producing such ticket for the redemption thereof. This article is not to be construed as in any manner limiting, or affecting such pawnbroker’s common law liability in cases where goods are stolen or other legal defects of title exist in the pledgor.”
On June 6, 1942, Goldman appeared at Provident’s office and signed a statement certifying that the pawn ticket was lost and that the collateral belonged to him, and therefore .requested Provident to stop delivery of the collateral. Such a stop ticket is issued only to the pledgor of record. Provident satisfied itself that Goldman was the pledgor by (a)' comparing his signature in the statement with the signature on the signature card, and (b) having him give an oral description of the collateral to a clerk, who then compared it with the collateral, which had not been shown to the pledgor. After doing this, Provident issued to Goldman its second or stop ticket, containing the date of the loan, the recital that the original ticket had been issued to M.. Goldman, and the following statement: “ This ticket is issued to the person representing himself or herself to be the pawnor and present owner of original ticket. It is issued in accordance with the provisions of Section 44s of the General Business Law upon the representation that the original ticket is lost, destroyed or stolen. The issuance of this ticket confers no rights on the holder.”
Provident’s practice was not to release the collateral upon presentation of the stop ticket. That ticket was not accepted as evidence of ownership, but was treated only as a warning not to surrender the collateral to anyone presenting the original pawn ticket. Once a stop is placed on an article, only the pledgor of record may redeem it by proving his ownership. Therefore, when Goldman tried to obtain the collateral two months after the stop ticket had been issued, he was required to sign an affidavit stating that he was then the sole and absolute owner of the collateral pledged. The affiant further deposed: “ * * * that the ticket issued to affiant in evidence of the loan above mentioned has been lost, destroyed or stolen, so that affiant is unable to find or produce the same; that' he has not sold, transferred, assigned or in any manner disposed of the said ticket to any person whatsoever; that he has never authorized or empowered any person to redeem the said loan or in any manner to obtain possession of the article pawned *903or pledged as aforesaid, unless by authorization accompanying this affidavit.”
Goldman’s signature on this affidavit was compared to the signature upon the original signature card; thereupon the watch was released to Goldman upon his payment of the principal and interest due on the loan. No bond was required from Goldman because it was Provident’s practice to permit redemption without a bond where there was no dispute as to ownership. The watch was released on August 26,1942 — more than a year after the original pledge. It was not until October 6th that plaintiff notified Provident that he was the owner.
Defendant C. Scholar Diamond Co., Inc., offered no testimony, but portions of the examination before trial of its president were offered as part of plaintiff’s case. From this it appeared that Goldman came to Scholar’s office apparently before August 26th, and offered to sell á watch which he had pawned with Provident. Scholar sent a representative with Goldman to Provident, with $453.17 to redeem the watch, and then paid Goldman an additional $162.50 on his delivery of the watch to it.
Defendant Provident relies upon subdivisions 1 and 3 of section 43 of the Personal Property Law (commonly known as the Factors’ Act), the pertinent parts of which follow:
“ 1. Every factor or other agent, * * * who shall be intrusted with the possession of any merchandise for the purpose of sale, or as a security for any advances to be made or obtained thereon, shall be deemed to be the true owner thereof, so far as to give validity to any contract made by such agent with any other person, for the same or disposition of # * * such merchandise and any 5 * * chose in action created by sale or other disposition of such merchandise, for any money advanced, or * * * obligation in writing given by such other person upon the faith thereof.”
“ 3. Nothing contained in the preceding subdivisions of this section shall be construed to prevent the true owner of any merchandise * * * from demanding or receiving the same, upon prepayment of the money advanced * *
The purpose of this legislation has thus been described in Freudenheim v. Gutter (201 N. Y. 94, 99-100): “ At common law the true owner could reclaim the property when sold or pledged by the agent for his own benefit, even though he had possession thereof and was apparently the actual owner. This hampered trade, deranged business and frequently caused great loss to innocent persons acting in good faith. Merchants would not purchase property and bankers would not lend. money, *904although the terms and security were satisfactory, because they were afraid that the person offering the property for sale or as security might not be the real owner thereof, and ordinarily there was no way to find out with certainty. Thus the evil to be remedied was the danger of dealing in personal property with one who had it in his possession and was apparently the owner thereof. * Sf * [The statute] made possession, under certain circumstances, conclusive evidence of ownership to the extent necessary to protect a purchaser or a lender who acted in good faith and without notice. * * * It relieved the purchaser by throwing the responsibility upon the one who appointed the agent. * * The main circumstance is the act of the principal ip employing an agent and intrusting him with the possession of merchandise for the purpose of sale. Possession is the controlling word in the statute and the controlling fact in nearly all cases. Possession is evidence of ownership, and the statute malees it conclusive evidence that the agent in possession as the apparent owner is the real owner so far as necessary to protect tona fide purchasers from his fraud. It makes the owner vouch for the honesty of his agent. The real theory of the act is that the selection of the faithless agent and intrusting him with the property is the cause óf the loss and, hence, that loss is placed not upon the third party who is wholly innocent, but upon the owner, because by appointing and trusting a dishonest agent he brought about the loss.” (Italics supplied.)
Plaintiff argues that the Factors’ Act does not apply in this case, because he entrusted the watch to Diamond, while the actual pledge was made by Goldman to whom it had been entrusted by Diamond without the plaintiff’s authority. This contention is unavailing, in view of the express holding to the contrary in Freudenheim v. Gutter (201 N. Y. 94, 102-104, supra) where an identical situation existed.
The effect of the contract made between Goldman and Provident is explained in Mann v. Simpson & Co. (286 N. Y. 450, 457), where the court said, per Conway, J.: “We read them [subdivisions 1 and 3 of the Factors’ Act] to mean this: One such as Gouldon who has been entrusted with the possession of a ring for the purpose of sale shall be deemed to be the true owner thereof so far as to give validity to any lawful contract made by Gouldon with any person for money advanced upon the ring. That means that when Gouldon entered into a contract with the pawnbroker defendant, that contract had validity whether it gave a pawnbrokers’ lien with pawnbrokers’ rates of interest or whether there were other and different provisions • *905in it. Validity was given to that contract and the defendant may hold the ring under that valid contract and enforce it as against all except the true owner. As to the true owner it is a valid contract but he has a right not given to any one else. The contract between Gouldon and the defendant is still valid bnt it is not enforceable against the true owner if the latter takes advantage of subdivision 3 of the Factors5 Act and,6 upon prepayment of the money advanced/ demands the return of the ring. It would be valid and enforceable even against the true owner if he failed to make * prepayment5 within © reasonable time after knowledge of , the contract(Italics in last sentence supplied; other italics in original.)
The lawful contract between Goldman and Provident, to which validity was given by the Factors’ Act, was a contract of pledge, which is governed by the established common-law role that the pledgee must release the collateral to the pledgor upon receiving payment of the- loan for which the collateral was pledged as security. As was said in Ocean National Bank of N. Y. v. Fant (50 N. Y. 474, 476): “ * * * the court below was clearly right in holding that an agreement to restore these collaterals to the maker, on payment of the note, is to be implied from the transaction as stated in the instrument itself, and that the acts should be simultaneous. The right of the maker to receive these collaterals when he should pay the note stood, upon the same footing as Ms right to the surrender of the note itself * 8 e.”
And in Schlesinger v. Wise (106 App. Div. 587, 590) the Appellate Division of this Department said; 6 6 * ° 0 the law seems to he well settled that where a party delivers to the holder of a note personal property as collateral security for its payment, when the note is paid the collateral security must be returned * *
It is true that the pawnbroker has no personal claim against the pawnor and is confined to satisfying his claim out of the article pawned (Stephens v. Simpson, 94 App. Div. 298); but tMs does not diminish the pawnor’s right to demand return of the pawn upon payment of the debt.
“ Performance or tender of performance to the proper person of the obligation secured by the pledge terminates the pledge and entitles the pledgor to the possession of the pledged chattel 55 (Bestatement, Security, § 37, subd. [1]) and in this respect a pawn involving no personal liability on the part of the pawnor is no different from any other pledge (Bestatement, Security, § 1, comments b, g).
*906This established common-law principle that the pledgor is entitled to possession of the pledged chattel upon payment of the debt, has not been affected by section 44 of the General Business Law, quoted (supra). That statute merely protects a pawnbroker, if he surrenders the pledge to someone other than the pawnor, if such other person presents the pawn ticket, unless the pawnbroker has previously issued a second or stop ticket on application of the pawnor in the manner prescribed in the section. (See Johnson v. Praeger, 59 App. Div. 339.) Because of such limited right attaching to possession of the ticket, this court has held that a delivery of the pawn ticket to another transfers the pawnor’s right of redemption of the pledged article (Stone v. Demarest, 95 Misc. 543, 545). But a pawn ticket being issued in the name of the pawnor, lacks the essential requisite of a negotiable instrument, which “ Must be payable to order or to bearer ” (Negotiable Instruments Law, § 20, subd. 4).
The Factors’ Act gives the contract between Goldman and Provident exactly the same effect as if Goldman were the true owner of the watch. Plaintiff, by entrusting the watch to Diamond, who in turn entrusted it to Goldman, had made Goldman his agent, “ # * * and the statute makes it conclusive evidence that the agent in possession as the apparent owner is the real owner so far as. necessary to protect bona fide purchasers from his fraud.” (Freudenheim v. Gutter, 201 N. Y. 94, 100, supra.)
“ Intrusted with the disposing control, he can exercise that control; and if he misappropriates the property or its avails, his principal must suffer — not the person who has dealt with the factor ‘ on the faith ’ of the position, in which the principal has placed him. ” (Cartwright v. Wilmerding, 24 N. Y. 521, 531.)
Treating Goldman as the true owner of the watch, Provident was required to return the article to him upon his payment of the debt, for which it had been pledged as collateral. That was one of the provisions of the contract between Goldman and Provident which had been given validity by the Factors’ Act (Mann v. Simpson & Co., 286 N. Y. 450, supra). Provident was not relieved of this obligation by Goldman’s failure to produce the pawn ticket. Treating him as the owner, Provident was obliged to dispense with this requirement when he as owner had complied with the provisions of section 44 of the General Business Law by identifying himself as the pawnor and by giving an exact description of the article pawned, and when Provident, not having received any notice that anyone else had the pawn ticket, had destroyed its efficacy by issuing *907the stop ticket prescribed by that section. That was the only effect of the stop ticket in this case: the watch was returned to Goldman not in reliance upon his possession of the stop ticket, but because he was a pawnor and was therefore treated by Provident as the owner. The contract of pledge between them was valid and enforcible against plaintiff as the true owner, because he failed to make prepayment or even to notify Provident of his ownership within a reasonable time after knowledge of the contract (Mann v. Simpson & Co., supra) ; he did not offer prepayment until October 6, 1942, after the expiration of the period of one year during which the pawnbroker was prohibited from selling the pledge (General Business Law, § 48).
This result, which imposes the loss caused, by Goldman’s dishonesty upon plaintiff, rather than upon Provident, carries out the purposes of the Factors’ Act. “ The real theory of the act is that the selection of the faithless agent and intrusting him with the property is the cause of the loss and, hence, that loss is placed not upon the third party who is wholly innocent, but upon the owner, because by appointing and trusting a dishonest agent he brought about the loss.” (Freudenheim v. Gutter, 201 N. Y. 94, 100, supra.)
The foregoing disposes of plaintiff’s contention that Provident should be held liable to plaintiff because they failed to require an indemnification bond from Goldman upon surrendering the watch to him. Since Provident treated Goldman as the true owner, it had no justification for demanding a bond from him when there was no notice of any adverse claim. Subdivision 3 of section 238 (formerly § 248, subds. 2, 3) of the Banking Law specifically provides that a savings bank shall not pay nor shall a depositor or anyone claiming through him be entitled to receive any deposit unless the passbook be produced. It was only because of this specific statutory authorization that a savings bank was held justified in requiring a bond where the passbook cannot be produced (Krupp v. Franklin Savings Bank, 255 App. Div. 15). But the rigor of this rule led to a subsequent amendment authorizing payments to be made upon court order. (Myers v. Albany Savings Bank, 270 App. Div. 466, affd. 296 N. Y, 562.)
Section 44 of the General Business Law contains no such requirement, but specifically provides that the effectiveness of the pawn ticket shall be destroyed by issuance of a stop ticket on the application of a pawnor in the prescribed manner. We would not be justified in reading into the statute *908a provision like that contained in the Banking Law, which would frequently cause grave hardship to pawnors who were unable to obtain a bond, in order to protect one like plaintiff from the consequences of his own gross negligence in retaining the pawn ticket for over a year without noticing that it had been issued in Goldman’s name (cf. Thomson v. New York Trust Co., 293 N. Y. 58, 68-69).
The decision of this court in Simpson v. Pilpoul (77 Misc. 108) relied upon by plaintiff, has no bearing on the case at bar. There one Brodsky had pawned rings with Simpson, who issued the pawn tickets to him. Thereafter Pilpoul, who was Brodsky’s sister, represented that she was the owner of the rings and had lost the pawn ticket. Simpson issued a stop ticket to her, then delivered the rings on presentation of the stop ticket. Here, however, Provident delivered the pledge to the original pawnor, whom plaintiff’s conduct had clothed with all the indicia of ownership. Defendant Scholar stands in a different position. The Factors’ Act is not a defense for it in respect of the advance of $453.17 which it made on the strength of Goldman’s statement that he owned a watch which had been pawned with Provident, “ But as the possession intended by the act is that which may enable a fraud to be perpetrated upon one acting on the faith of it as evidence of ownership, it is self-evident that actual possession is required as distinguished from constructive possession.” (Howland v. Woodruff, 60 N. Y. 73, 81.)
Scholar is in no better position if Goldman actually exhibited the stop ticket to it. Though the act protects those who advance money to one “ * # * entrusted with the possession of any bill of lading, custom-house permit, or warehouseman’s receipt for the delivery of any merchandise * * * ” (Cartwright v. Wilmerding, 24 N. Y. 521, supra), the document relied on must be one of those three which are specifically mentioned (Soltau v. Gerdau, 119 N. Y. 380, 393). When Scholar advanced the balance of $162.50 to Goldman on the faith of the possession of the watch, he had obtained such possession through common-law larceny by trick or device, and in such case the Factors’ Act does not apply (Sweet & Co. v. Provident Loan Society, 279 N. Y. 540, 544-545; Soltau v. Gerdau, supra, pp. 388-392). Scholar is thus in a different position from Provident, which surrendered the watch to Goldman in accordance with pre-existing contract which was valid when made, because at that time he had rightfully acquired possession.
*909Scholar also relies on section 104 of the Personal Property Law, which reads as follows % 611. Subject to the provisions of this article, where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to selL” (Italics supplied.)
This statute has been held to preclude the owner from denying the seller’s authority to sell even though he acquired possession through larceny by trick, provided that the owner had done an affirmative act which put it in the seller’s power to defraud the ■ purchaser. In Island Trading Co. v. Berg Brothers (239 N. Y. 229) defendant sold goods to one Murat Bey for cash, and at his instructions mailed them to plaintiff, and delivered the postal receipts to Murat Bey on his assertion that he would get the cash and pay defendant ¡ on the strength of the parcel post receipts and certified invoices Murat Bey collected on a letter of credit issued by plaintiff, but did not pay defendant, who then obtained the return of the goods from the post office. In affirming the judgment for plaintiff for conversion, the court said, per Ponsro, J. (p. 233) % <e * * possession of the postal receipts was obtained by trick. In other words, that Murat Bey stole defendant’s goods, that it was entitled to possession of them, did not assent to the transfer of ownership by him, and had the right to retake them (Williston on Sales [2d ed.], § 346), except for the circumstances of the sale to the subpurchaser, the plaintiff. Plaintiff and defendant are strangers to each other. No question arises as to the bona fldes of plainitff. It bought the goods from Murat Bey and paid for them. Defendant put it into Murat Bey’s power to obtain plaintiff’s money to pay for the goods. It assented to the resale by shipping the goods to the subpurchaser and allowing Murat Bey to take the postal receipts to obtain the money from the subpurchaser which paid for them. As .between two innocent victims of the fraud, the one who made possible the fraud on the other should suffer. (Personal Property Law, § 104 i, Dows v. Kidder, 84 N. Y. 121, 1281 Parker v. Baxter, 86 N. Y. 586, 591.) ”
Upon this record plaintiff can be said to have put it in Goldman’s power, by an affirmative act, to obtain Scholar’s money to pay for the watch. The original entrusting to Diamond was terminated as to all except Provident by the pledge of the watch with the latter. Plaintiff’s failure to observe that *910the pawn ticket was made out in Goldman’s name, even though grossly negligent, would not he enough to preclude him, hut if plaintiff did observe Goldman’s name on the ticket and failed to take any steps to obtain the watch or at least to notify Provident that he was the owner, that would be analogous to defendant’s allowing Murat Bey to take the postal receipts in the cited case.
Accordingly, the action must be severed and the judgment dismissing the complaint against defendant Scholar must be reversed and a new trial granted.
The judgment in favor of defendant Provident Loan Society of New York should be affirmed, with costs, and the judgment in favor of defendant Scholar Diamond Co., Inc., should be reversed, action severed and a new trial ordered, with costs to appellant to abide the event.