Opinion
Argued June 1, 1896
Decided October 6, 1896
Charles W. Pierson for plaintiffs. George Hoadly for defendants.
The plaintiffs were co-partners, doing business in London, England, under the firm name of H.S. Lefevre Company. Irving A. Evans Company were bankers and brokers, doing business in Boston, Massachusetts. The defendants, Moore Schley, were engaged in the business of bankers and stockbrokers in the city of New York. Evans Company and Moore Schley were correspondents of each other, and purchased stocks for each other, both on their own account and that of their customers.
On the 25th day of September, 1891, the plaintiffs cabled Evans Company to buy for them two hundred shares of the capital stock of the St. Paul, Minneapolis Manitoba Railway Company, at 109. The plaintiffs had an account with Evans Company, with an amount to their credit more than sufficient to pay for the stock. Evans Company thereupon ordered the defendants to buy the stock, and they made the purchase on the 28th day of September, at the price named, notified Evans Company of the purchase, and charged the same upon their books to the account of Evans Company. In making the order for the purchase, the names of the plaintiffs were not disclosed to the defendants. At that time Evans Company had an account with the defendants, with an amount to their credit, but not sufficient to pay for the stock in full, and the defendants retained the stock as collateral security for the balance then due on their general account. Evans Company, after receiving notice from the defendants of the purchase of the stock, on the same day cabled the plaintiffs that they had purchased the stock at the price named, and thereupon the plaintiffs cabled Evans Company to mail the stock to them as soon as registered in ten share certificates.
On the first day of October Evans Company cabled the plaintiffs that the transfer books of the company would not be opened until the twelfth proximo, and asked if they should "transfer then," to which the plaintiffs replied "yes."
On the 22d of October Evans Company wired the defendants to deliver to the Bank of British North America one hundred shares of the stock, to be held for H.S. Lefevre Company, of London, and the defendants, pursuant to such instructions, delivered one hundred shares of the stock to that bank to the credit of the plaintiffs, thus leaving in their hands undelivered one hundred shares of the stock.
On the 24th of October Evans Company made a general assignment for the benefit of creditors.
At that time the plaintiffs were ignorant of the fact that one hundred shares of the stock were in the hands of the defendants, and the defendants were unaware of the claim of the plaintiffs to the stock.
On the 27th the plaintiffs ascertained the facts and caused their representative to call upon the defendants, who stated that the plaintiffs were the owners of the one hundred shares of stock in question, and inquired whether the defendants would deliver the stock to them, and requested information with regard to any charges or claims which the defendants might have against the stock, and requested that in any sale of collaterals which the defendants might make for account of Evans Company that they should not sell the stock in question until the last of the stock held by them as collateral, and that they should give the plaintiffs notice of the time and place of such sale and should account to them for the proceeds thereof. The defendants declined to deliver the stock to the plaintiffs and declined to impart any information or make any statement upon the subject. Thereupon the plaintiffs caused a notice in writing to be served upon the defendants, of which the following is a copy:
"NEW YORK, October 28 th, 1891.
"Messrs. MOORE SCHLEY,
"New York City:
"GENTLEMEN: — We hereby notify you that we claim, as agents of our clients, Messrs. H.S. Lefevre Company, one hundred shares of St. Paul, Minneapolis Manitoba Railway stock, * * * held by you subject to instructions from I.A. Evans Company.
"Yours respectfully, "KIDDER, PEABODY CO., "By BARING, MAGOUN Co., " Attys., Agents for H.S. Lefevre Co."
The defendants made no response to the notice, and have never recognized the plaintiffs' claim to the stock, but, without notice to the plaintiffs, proceeded, under instructions from the assignee of Evans Company, to sell the securities held by them and apply the proceeds in settlement of the indebtedness of Evans Company to them. The stock in question was sold last, and, after canceling the remaining indebtedness of Evans Company, produced a balance of $5,324.66, which balance, together with twenty-five shares of Ensley Land and eleven hundred shares of Boston Air Line stock, of the value of eleven hundred dollars, they turned over to the assignee of Evans Company.
On the first day of June, 1892, the plaintiffs, with full knowledge of all the facts, filed proofs of their claim against the insolvent firm of Evans Company, in the Court of Insolvency of Massachusetts, except as to the aforesaid sum of $5,324.66.
The pivotal question upon which the rights of the parties depend is that of the ownership of the stock in question. The transaction in its essential features is not different from numerous others of daily occurrence. The chief market for corporate stocks is in the city of New York. It is the common practice of persons desiring to purchase or deal in stocks in other parts of the country to go to their banker and make their order, who makes the purchase or sale, as the case may be, through his correspondent in that city. That is what was done in this case. Lefevre Company ordered Evans Company, their bankers in Boston, to purchase the stock in question. Evans Company might have refused compliance with the order. Had they done so that would have been an end of the transaction, but as soon as they complied with the order, made the purchase and notified the plaintiffs of such purchase, the transaction was then completed so far as the title to the stock was concerned. The plaintiffs could not thereafter repudiate the purchase or refuse to accept the stock. Neither could Evans Company disaffirm and retain the stock as their own. The rights of the parties, so far as the title was concerned, then became fixed, independent of the question of payment. If the stock had not been paid for, Evans Company, doubtless, would be entitled to hold it as pledgee until payment was made; but, inasmuch as the plaintiffs had to their credit with Evans Company more than sufficient to pay for the stock, the law would apply the amount thereof as an offset to any claim for payment that Evans Company could make as against the plaintiffs.
It is contended, however, that no title to the stock passed to the plaintiffs, for the reason that Evans Company did not purchase and take into their possession the stock. What they did do was to order the defendants, their correspondents in New York, to purchase the stock on their account. This was done, and the amount paid therefor was charged to Evans Company, and the defendants so reported to Evans Company. Evans Company did not forward the money to the defendants to pay for the stock, but allowed the amount thereof to be charged against them and the stock to remain in the hands of the defendants as collateral security for any balance that might be owing on their general account. This was their customary course of dealing. Evans Company then became the owners; the defendants the pledgees in possession.
After this had occurred, Evans Company cabled the plaintiffs that they had purchased the stock in compliance with their order, thus transferring to the plaintiffs their title to the stock. The wrong to the plaintiffs, perpetrated by Evans Company, was in leaving the stock in the hands of the defendants pledged for the payment of their indebtedness. But this fact does not operate to prevent the title vested in Evans Company from passing to the plaintiffs. They became vested with the title, subject only to the lien of the defendants. The title being in the plaintiffs, it did not and could not pass to the assignee under the assignment of Evans Company.
The learned counsel for the defendants has, in an able argument, questioned the plaintiffs' title to the stock upon the ground that there was no privity of contract or contractual relation between the plaintiffs and the defendants; that the defendants were the agents of the plaintiffs' agents, and were only bound to account to their principal in the transaction. Our attention has been called to the case of Allen v. Merchants' Bank (22 Wend. 215), reversing the case reported in 15 Wend. 482, and following it a long line of authorities holding in substance that a bank receiving for collection a bill of exchange drawn upon a person residing at another place, is liable for any neglect occurring in its collection, whether arising from the default, misconduct or insolvency of its officers, its correspondents, or of the agents employed by such correspondents to make the collection.
These cases, however, all have reference to negotiable paper transmitted for collection, and to our minds have no application to the question involved in the case under consideration.
These cases have been considered by BRADLEY, J., in Naser v. First National Bank ( 116 N.Y. 492-499), in which he concludes:
"But it does not follow that the correspondent of the collecting agent, unless he has made advances to the latter in good faith upon the paper, can, as against the owner, retain the proceeds of it. The latter may revoke the agency he has conferred, and seek the paper or its proceeds in the hands of such correspondent, or he may follow it and reach them until it or they have found their way into the hands of a bona fide holder, for value, who has taken it from the party clothed with the apparent title. This is an equitable right, not necessarily resting in privity of contract with the party from whom such relief is sought. The occasion for it usually arises from the insolvency of its collecting agent, or some other cause rendering such remedy desirable for his protection."
The plaintiffs are not seeking to establish their right to the stock through the sub-agency of the defendants, or because of any privity or contractual relation existing between them. Their claim is prosecuted upon the theory that the defendants had purchased the stock for Evans Company; that Evans Company had become the owners thereof, subject to the defendants' lien as pledgee, and that Evans Company had thereafter transferred their title to the stock to the plaintiffs, who are now seeking to follow the property and recover it, or the proceeds thereof.
In Roca v. Byrne ( 145 N.Y. 182-186), GRAY, J., says:
"The general and well-recognized rule is, and has been, that a principal is entitled, in all cases, when he can trace his property, whether it be in the hands of the agent, or of his representatives, or of third persons, to reclaim it and it is immaterial that it may have been converted into money; so only that it is in condition to be distinguished from the other property or assets of the agent." (See, also, Markham v. Jaudon, 41 N.Y. 235-239; Willard v. White, 56 Hun, 581; Van Alen v. Am. Nat. Bank, 52 N.Y. 1; Importers', etc., Bank v. Peters, 123 N.Y. 272; Skiff v. Stoddard, 63 Conn. 198.)
Treating the plaintiffs as the owners, with the stock in the possession of the defendants as pledgees of Evans Company for the payment of their indebtedness to the defendants, the plaintiffs had the right to demand, and a court of equity would require the defendants to first satisfy their claim out of the other securities in their hands belonging to Evans Company before resorting to the property of the plaintiffs. The defendants, as pledgees, were entitled to regard Evans Company as the owners until they were notified of the plaintiffs' rights. Thereafter they were bound to recognize the plaintiffs' claim, and deal with the stock accordingly. The plaintiffs, as owners, had the right to have timely notice of any sale of their stock and to have the other stocks or securities in the hands of the defendants belonging to the pledgor first applied. ( Smith v. Savin, 141 N.Y. 315; Hazard v. Fiske, 83 N.Y. 287.)
Ordinarily the plaintiffs would be entitled to recover the value of the Boston Air Line stock, or to have had that stock sold and the proceeds applied upon the indebtedness of Evans Company before the sale of the plaintiffs' stock. But, as we have seen, the plaintiffs, with full knowledge of all the facts, have proved and filed their claim against the assigned estate for the full amount, less only the surplus derived upon the sale of the plaintiffs' stock.
It is stated in the submission of the controversy that this was done after the commencement of this action. The submission is dated the 14th of March, 1894. The proof of the claim is dated June first, 1892.
We are unable to understand how a claim could be proved after the submission of a controversy, and still the facts of such proof be incorporated in the submission. It is possible that an action had been previously brought, but we find no mention of it in the facts agreed upon. We cannot assume the existence of facts not incorporated in the submission for the purpose of reversing or adding to a judgment, neither can we determine whether or not the plaintiffs have received a dividend through the assignee upon their claim.
We are, therefore, of the opinion that the plaintiffs have waived their right to recover the value of the Boston Air Line stock.
The judgment should be affirmed, without costs to either party.
All concur.
Judgment affirmed.