
    DAVID LEVY et al., Respondents, v. SOLOMON LOEB et al., Appellants.
    
      Conversion of collateral—does not bar pledgee’s right of recovery.— Contract by broker to purchase and hold government bonds— obligation to deliver identical bonds purchased.
    
    Conversion of the collateral security by the pledgee does not prevent his recovery of what is due him, but only entitles the pledgor to ofíset or recoup his damage.
    A., a broker, purchases for account of B., at his request, certain United States coupon bonds, and after settlement of accounts between them, makes a loan to B., retaining the bonds as collateral security therefor;-whether A., the pledgee, is bound to deliver the identical bonds originally purchased by him, quaere.
    
    Before Speir and Russell, JJ.
    
      Decided December 30, 1880.
    Appeal by the defendants from a judgment in favor of the plaintiff for $1,063.67, recovery and costs, entered upon the findings of the court without a jury.
    The action was brought to set aside a purchase of $200,000 in United States bonds, made by the defendants, as brokers for the plaintiffs, and to recover the sum of $10,746.74, with interest, on the ground of fraud. The findings of the court were as follows:
    “First. That on the 16th day of February, 1876, defendants, as the agents and brokers of plaintiffs, purchased $100,000 of bonds of the United States, known as 1881s, and on the next day rendered plaintiffs an account sales, placing the cost price of said bonds at $123,687.50, in United States currency, and a commission of $62.50.
    “ That said amount included a charge for insurance on said bonds, which had not been paid or incurred by defendants, amounting to 1691.65 reich marks, and a charge for commissions for purchasing said bonds in Frankfort, called “ courtage,” amounting to 205 reich marks, in all 1896.65 reich marks, equal to $577.82 United States currency. That the sum of $577.82 was in excess of the sum actually due defendants, or lawfully advanced by them oh the purchase of said bonds.
    “Second. That defendants on the same day entered a loan to plaintiffs for the sum of $123,750, and for the payment of four per centum thereon agreed to carry the original bonds purchased for plaintiffs’ account.
    “Third. That on the 2d day of June, 1876, defendants, as the agents and brokers of plaintiffs, purchased for their account $1,000,000, United States bonds known as 1867s, and rendered plaintiffs an account sales for said purchase of $121,500 currency, and commissions thereon, amounting to $62.50, and thereupon entered a loan to plaintiffs of $121,562.50 ; and for the payment thereon by plaintiffs of 3% per cent, defendants agreed to carry the original 1867s bonds so purchased for plaintiffs’ account.
    “That the actual price paid by defendants for said bonds.was $121,468.75.
    “Fourth. That both lots of said bonds were coupon bonds, bearing 6 per cent, interest in gold, numbered separately, and liable to call and redemption by the government; and defendants collected the semiannual interest on said bonds as the coupons matured, and applied the proceeds thereof to the payment of. said loans and interest thereon, and rendered accounts thereof to plaintiffs from time to time, extending the original loans with accrued interest added to the date of each account until the 13th day of March, 1877, when defendants rendered an account current to plaintiffs on said loans, claiming the sum of $240,746.74, to be then due them thereon, which amount included the erroneous and illegal items of $577.82, and 31.25 and interest, in all $635.89.
    
      “That plaintiffs relying npon said account as correct (which account I find was then stated between the parties), thereupon paid defendants on account the sum of $10,746.74, and defendants, in consideration thereof, agreed to carry said original bonds for plaintiffs to the 30th of June, 1877, for which defendants entered a new loan to plaintiffs of $230,000, at four per cent.
    “That on the 30th of June, 1877, a new loan was entered for $226,040,81, for the same purpose, to January 2, 1878, at 3M per cent.
    ‘1 Fifth. That defendants,- on the 9th day of January, 1878, demanded payment from plaintiffs of the sum of $223,989.35, or that in default of said payment defendants would sell the bonds on January 10,1878, at public auction, for account and risk of plaintiffs, and hold them liable for any deficiency.
    ‘ ‘ Sixth. That said sum of $223,989.35, so demanded, was excessive, in that it included the aforesaid erroneous illegal items, amounting to $635.89, and interest thereon from 30th March, 1877.
    “ That plaintiffs did not discover said items were included in any of said accounts or statements, or that any erroneous or illegal items were included in said accounts or demand until after January 10, 1878.
    “Seventh. That after the 30th of March, 1877, and before the 2d day of January, 1878, defendants, for their own account, without the knowledge or consent of plaintiffs, sold the whole of both lots of said original bonds, and plaintiffs did not discover the fact until after the 10th day of January, 1878.
    “Eighth. That on the 10th of January, 1878, defendants sold $100,000 1881s- and $100,000 1887s at public auction, for the sum of $212,575, but these bonds were not bonds purchased or carried for account of plaintiffs, nor were they liable for any deficiency arising from the price realized on the sale thereof.
    “Ninth. That the plaintiffs never paid defendants anything further on account of the said loans, except the coupons collected, and that the same still remain unpaid.”
    And as conclusion of law:
    ‘6 Defendants are not entitled to recover any part of their counter-claim.”
    Judgment was directed for the plaintiffs, for the sum of $713,77, with interest thereon from January 9, 1879, being the amount over paid March 30, 1877, by plaintiffs to defendants, and interest thereon to the date of trial; together with an allowance of $150, and costs.
    
      William Mann, for appellant.
    
      Lewis Sanders, for respondent.
   By the Court.—Hobace Russell, J.

The following extract from the opinion of the court below states the proposition of law to be considered on this appeal:

1 ‘ In the absence of an express agreement that the defendants might part with the bonds, or use them, provided a sufficient amount of like bonds were always kept on hand for the defendants, I am of opinion that the defendants were bound to keep in their possession the identical bonds bought for the plaintiffs. I do not see that government bonds have the same kind of equivalency between themselves that measures of grain or undivided interest in capital stock of corporations, evidenced by certificates, have between themselves. Bonds of a government have the characteristic individuality that promissory notes of natural persons have, and a contract in reference to the bonds is to be held, by force of the contract, to refer only to the very bonds.
“ As to whether the express agreement relieves the defendants from their obligations, the defendants, under the circumstances of this case, have to prove it by a preponderance of evidence. On the whole, the conclusion that best satisfies me is that nothing was said on the subject that would amount to an agreement.
. “If the agreement were that the defendants might use the bonds, it would be broken by an absolute disposition of them, even if an equal amount were always kept for the plaintiffs, and the inference in this case is that the defendants have absolutely disppsed of or parted with the bonds.
“ The effect of this is such a breach of the original contract, that the defendants are not entitled to recover any damages against the plaintiffs on their counterclaim.”

The learned judge who tried this case justified his finding of law that the defendants were not entitled to recover any part of their counter-claim, upon the theory that they unlawfully and improperly sold, in March, 1877, the bonds which they had agreed to carry for the plaintiffs, in such a manner as to constitute a conversion by them, and that the effect of such conversion was to destroy their claim for interest on the loan originally made.

Whether or not, under the law, the defendants were bound to keep on hand for the plaintiffs the identical bonds originally purchased, I do not feel prepared to express an opinion. Conceding that their failure to do so was a wrong, and conceding that the defendants technically converted the bonds remaining with them as a collateral security upon their loan to the plaintiffs —I think the judge’s view of the law, as to the effect of such conversion, incorrect.

In Gruman v. Smith (9 Reporter, 748), substantially the same question of law was before the court of appeals. In that case, the assignee of Fitch & Co., stockbrokers, brought an action to recover $1,596.29, a balance due growing out of a stock transaction. Fitch '& Co. had sold the stock in such a manner as to amount to a technical conversion. The court below nonsuited the plaintiff because of the broker’s conversion. The plaintiff claimed that his cause of action grew out of the original purchase of the stock, and not out of its wrongful conversion after it became a collateral. The general term sustained the defendant’s view that the conversion by the broker was a bar to an action by his assignee for brokerage and interest up to the time of such conversion. The court of appeals (Chubch, Ch. J., writing the opinion) held that the conversion did not operate as an extinguishment of the entire claim of the broker against his customer, but simply gave the customer a cause of action for the damages which he sustained by reason of the conversion, which could be offset against any sum found due the brokers.

In the case at bar the counter-claim was for the debt due the defendants from the plaintiff for advances and interest thereon ; and so this case, in this respect, is precisely similar to that of Gfruman -o. Smith. The effect of the conversion was not to extinguish the just claims of the defendants for their loans with interest up to the time of the conversion, but simply to give the plaintiffs an offset or counter-claim for any damages which they suffered by reason of the sale which was held to amount to a conversion.

The judgment must be reversed and a new trial ordered, with costs to abide the event.

Speir, J., concurred.  