
    Clark Robinson Griggs, Respondent, v. Melville C. Day and Daniel E. Garrison, as Surviving Executors, etc., of Cornelius K. Garrison, Deceased, Appellants.
    
      Pledgor and pledgee—measure of damages when promissory notes are converted by a pledgee thereof -r- duty of the pledgee of stock upon a reorganization of the corporation— ratification of the act of an agent.
    
    A pledgee of promissory notes who, without .the consent of the pledgor, surrenders them to the maker, a railroad corporation, receiving therefor second mortgage ■bonds at the rate of seventy-five cents on the dollar, is guilty of a 'conversion; the measure of the pledgor’s damages, however; is the actual and not the face value of the notes.
    Promissory notes which a pledgee has converted by surrendering them to the maker, a corporation, without consideration, do not derive any special value from the fact that the pledgee being a stockholder of the corporation was subject to a contingent statutory liability for its debts—-the indebtedness represented by the notes not being extinguished by the surrender, hut being available to the pledgor upon the redemption of the pledge.
    Executors of a pledgee of stock of a corporation, for the reorganization of which- ■ a proposition has been submitted, are under no legal obligation to the pledgor, whose debt is unpaid, to make any arrangement by which he may use his hypothecated stock in the reorganization, nor to delay the reorganization because of his demand for his stock or for an accounting.
    A party who is called upon to ratify or repudiate an act assumed to he done on his behalf, must, if he elects to ratify it, ratify it as performed by the assumed agent; having once elected to repudiate it, his election is binding, and he cannot thereafter ratify it. - ■ -
    Appeal by the defendants, Melville C. Day and another, as surviving executors, etc., of Cornelius II. Garrison, deceased, from a judgment of the Supreme Court in favor of the plaintiff for the sum of $685,240.50, entered in the office of the clerk of the county, of New York on the 10th day of March, 1896, upon the report of a referee.
    
      Elihu Root, Horace Russell, Charles B. Alexander, Melville C. Day and William R. Bronk, for the appellants.
    
      Joseph H. Choate, for the respondent.
   Patterson, J.:

This action, brought in the Superior Court of the city of New York, has been tried three times with widely different results. It was' begun originally against Cornelius K. Garrison as the principal defendant, to compel an accounting by him of certain extensive and complicated financial transactions had by the plaintiff Avith him, and groAving out of the construction and equipment of a railway for the Wheeling and Lake Erie Railroad Company j an Ohio corporation. The plaintiff was the contractor for building the road and Garrison was his banker; that is to say, advanced all the money necessary for and that was used in the performance of the. contract Avith the corporation. The plaintiff, by the terms of the contract, was to have: been paid in bonds and stock of the corporation at certain fixed amounts per mile, but the company, by reason of various changes-of plans and increased expenditure caused to the contractor, became, during the progress of the Avork, indebted to him for large sums of money in excess of the original contract compensation. In December, 1880, Garrison received an assignment of the contract and of' all the bonds and stock the plaintiff would be entitled to thereunder. He took that assignment as security for loans then amounting to but $40,000, but afterwards the rights and things assigned became-pledged to him for money advances made by him to the extent of millions of dollars. A large amount of the bonds (being first mortgage-bonds) Garrison purchased from the plaintiff under an option and at an agreed ¡Drice, and large quantities of stock were transferred to him as a bonus in connection with his purchase of bonds. Afterwards he-also became the owner of other shares by assignment or transfer from the plaintiff. The first mortgage bonds and stock owned by Gar.rison were necessarily drawn into the accounting, but as the case is-now presented it is not required that detailed reference should be-made to them. In March and in November, 1882, instruments were-executed and delivered by- the plaintiff to Garrison in form vesting the latter with the apparent ownership of all the plaintiff’s interest in and under the contract and some other property, but notwithstanding the absolute character of the instruments it has been, satisfactorily shown that they were only security given to Garrison for plaintiff’s indebtedness to him and for a specific purpose, which was not attained. It must be held that the relations existing-between the plaintiff and Garrison were those of pledgor and pledgee, except as to such securities as became the property of the-latter by transfer expressly intended to operate a change of ownership, or by specific agreement.. The representatives of Garrison have not established their contention that he was the actual "owner of all the plaintiffs- interest in the enterprise.

The amended and supplemental complaints of the plaintiff pro- ■ need altogether upon the theory that the relation between himself and Garrison was that stated above and no other. The defendants, in their answer, denied their liability to account and set up a large demand, by way of counterclaim against the plaintiff. Garrison died pending the first trial. The executors of his will were substituted as defendants. Garrison’s wife was a party defendant, but is now' out of the case. The referee, on the first trial, stated the account between the plaintiff and Garrison, and found that the former was indebted to the latter on the counterclaim in over $2,000,000. . Both parties appealed to the General Term of the Superior Court from the judgment entered on that' decision, and such judgment was reversed by a divided court on a question of fact, which now again becomes a crucial one in the case. On a ■second- trial, before another referee, it was held, on a restating of the account, that the plaintiff was entitled to recover against the Garrison executors the sum of $170,000. That conclusion was ■arrived' at in consequence of the second referee considering himself bound by the decision of the General Term, there being no essential difference in the evidence on the first and second trials as to that question of fact. The second judgment was affirmed by the General Term, but on appeal to the Court of Appeals was reversed on a ground which will be ad verted to hereinafter, and a new trial was •directed. In denying a motion for a reargumerit the Court of Appeals, with great vigor of expression, repeated its reason for the reversal of the judgment. A third trial was had before still another referee, who ordered the judgment now appealed from, and who found that in the account as stated by him there existed an indebtedness of Mr.. Garrison’s estate to the plaintiff of $670,116.30. That was reached by fixing the amount of all the advances made by Garrison at the sum of $4,414,156.40, and charging him with various items aggregating enough to leave a debit balance against him of the amount found in the plaintiff’s favor.

Included in the items so charged against Garrison are two concerning which the principal contest has been waged between-- the parties. One is of $2,062,643.14, the amount of certain promissory notes of the Wheeling and Lake Erie Railroad Company, which, were used by Garrison, and the other of $348,394.47, an alleged loss to the plaintiff caused by his being prevented from using hypothecated stock on the reorganization of the railroad, after a sale under decree of foreclosure of the first mortgage on the property of the company. As the referee puts it in his opinion, the two main questions to be determined are, first, the effect upon the stating of the accounts, of the use made by Garrison of promissory notes executed by the railroad company to the plaintiff, the contractor, for advances and extra work amounting to about $2,000,000; and, second, the liability of Mr. Garrison’s estate for certain shares of stock which were hypothecated, and were not absolutely assigned by the plaintiff to Garrison. The consideration of the case as the referee’s decision bears upon it will be confined to those two items, for, if they were improperly credited to the plaintiff, the balance of the account, in its final adjustment, must be largely in favor of the defendants, and, on thorough and repeated examinations of the whole record, I cannot escape the conviction that the evidence does not warrant the conclusion the referee on the last trial reached, respecting either of those items.

The initial fact to be considered respecting the promissory notes is that, prior to the 18th of April, 1883, Garrison had them in his possession as collateral security. Their issuance had been previously authorized by a resolution of the directors of the railroad company passed in December, 1881, by which, among other things, a committee was appointed to audit the claim of the plaintiff for moneys advanced for right of way, materials and labor, and the president was directed, on the approval of the report of the committee, to issue to the plaintiff, or “ the' assignee of his contract,” non-nego^ tiable certificates for the amount reported due. It is unnecessary to refer to the separate amounts or dates of issue or other details of these notes. Contrary to the resolution, they were emitted in negotiable form, were indorsed by the plaintiff and delivered to Garrison. On the 18th of April, 1883, Garrison sent a communication, in writing, to the railroad company, asking for the settlement of the cash advances he had made, and which were enumerated in a statement forming part of the communication, and in which were included the amounts of those promissory notes. At a meeting of the directors of the company held the following day, Garrison and the plaintiff were present. . The former proposed to take in partial liquidation of his claim second mortgage bonds of the company at seventy-five cents on the dollar, whereupon Mr. Wick-ham, a director, moved, and his-motion was adopted, that the president of the company be authorized “to sell and deliver to C. K. Garrison second mortgage bonds to the amount of * * * $2,280,000 at the rate of seventy-five (75) per cent on a dollar, and interest accrued from March 1st, 1883, the same to be delivered * * * in part payment of his claim against this company amounting to * * * $2,449,912.68, as this day specified in his communication to this company.” In May, 1883, the transaction contemplated and provided for by the resolution was consummated, and "Garrison received second mortgage bonds upon giving up all the promissory ■ notes held by him, except to an amount of $326,043.13, which he retained for some time, and afterwards, and without receiving any consideration for them, also surrendered to the company, and they were canceled.

The inquiry, upon the answer to which the case at this point depends, is : What was the real nature of this transaction between Garrison and the railroad' company, as distinguished from the mere formal expression of. its character as stated in the resolution, or does the language of the resolution correctly state what that'transaction was ? Whatever it was it was -made with the plaintiff’s knowledge. He claimed neither to have approved of nor objected to it at the time, but to have remained passive while "it was in negotiation and until its completion. ' His position with respect to it now is, that by means of it Garrison became the purchaser individually of the second mortgage bonds; that he" bought and paid for them by the promissory notes at an agreed price, and that that effected the payment of the plaintiff’s debt to him,, to the amount of the face value of the notes for which the bonds.were given. The defendants contend, on the other hand, that the transaction was nothing but the exchange of one form or kind of evidence of indebtedness for another, :and that the second mortgage bonds came info the possession of Garrison, and were held by him only as security, and, in the-same way and subject to the same arrangements and conditions upon, which he had possession of the promissory notes..

Oil the first trial the referee held that Garrison was not a purchaser from the company of the second mortgage bonds, or, rather, that he was unable to find that Garrison was such a purchaser. The majority of the General Term judges considered that “the manner in which the arrangement * . * * was carried out, according to evidence which the defendants cannot controvert, shows that, so far as Garrison was concerned, and so far as he could bind the plaintiff by his acts, he bought the notes of the plaintiff and then used them to buy the bonds for his own and individual benefit,” (58 N. Y. Super. Ct. 385.) The referee on-the second trial could not do otherwise than follow the decision of the General Term on that question of fact. On the appeal to the Court of Appeals that tribunal did not, in its opinion as reported, consider or discuss that question, but held that, in the most favorable aspect of the case to the plaintiff, it was only shown that Garrison had wrongfully converted the notes, and that as there was no proof of their value the judgment' must be reversed. On the third trial the referee passed upon the question anew, placing his decision upon what he regarded as new proof of the character of the transaction and of the value of the notes. That assumed new proof, it may be said, consists.in reality only of the testimony of Wickham, the director who offered the resolution at the meeting, and his testimony, apart from his own characterization and conclusion as to the nature of the transaction, is, in substance, nothing more than is contained in the language of the resolution itself. There is no vital change in the proofs brought about, by the so-called new evidence, for the affidavit of G-erau and the testimony of Wilson add nothing to the strength of the plaintiff’s case on. this point. The plaintiff was present at the directors’ meeting when the resolution was passed and did not object to the transaction. To escape from the inevitable effect of the decision of the Court of Appeals, it was incumbent upon the plaintiff to show on the third trial, at least, that some new relationship was established of Garrison with reference to these notes. The referee’s summing up of the matter, stated in his own words, is, that Garrison caused the “plaintiff’s claim to be reimbursed by his principals for advances, to be reduced to negotiable form and took it as collateral security for plaintiff’s obligations to pay him. He then presented it as his own claim against the compaüy for advance's and extinguished it in consideration of payment in a new and more favorable form of security payable to himself. He thus in legal effect collected from the company the advances which he had made through plaintiff, and the liability of the agent-was extinguished with that of the principals. The detriment to plaintiff appears plain. He stood charged for the company’s indebtedness and his power to collect over from them was taken from him as collateral and used to extinguish that very indebtedness. So far as he stands charged with what was company indebtedness he is discharged by this use of the collateral even if Mr. Garrison did not realize so much from the new obligations as expected.” It will thus be seen that the referee did not put his decision on the ground that Garrison first bought the notes from the plaintiff and then the bonds from the company, making payment by or with the notes,, as the General Term had held, but that Garrison bought the bonds directly from the company, with the notes and thereby extinguished the company’s debt to the plaintiff. The legal relation of the parties as described in the statement quoted from the referee’s opinion is not the situation I find on the facts existed between them. A critical study of all the evidence, that taken on the first and second (and it is all before us) as well as on the third trial, induces me to form an entirely different conclusion as to that relation and situation.

The beginning of the history of the second mortgage bonds and the project of using the promissory notes in connection with them, antedates by some time the day of the passage of the resolution at the directors’ meeting. Those bonds were in their origin designed and intended to take up or fund the general indebtedness of the railroad company including the very promissory notes in question. ■There seems to be no doubt of that, and the plaintiff knew it to be' so and was one of the originators of the scheme. Mr. Noah Swayne testified that he was present at a conversation between the plaintiff and Garrison relating to the manner in which, the account should be settled with the company. He was a lawyer in consultation with both the plaintiff and Garrison on that subject. He advised waiting until second mortgage bonds could be prepared. The question of the price at which they should be taken was discussed. Garri- ■ son preferred not to wait until bonds could be in readiness; he wanted notes made for the purpose, or to stand as a statement of account. “It was only having notes temporarily until the mortgage could be issued ; * * * it was just as a mere temporary expedient under the contract;” and McDonald swears to-a conversation between himself and the plaintiff relating to the giving of notes or certificates, and that they “were to come first and there was some means to be gotten up — a mortgage to. retire them.” In the very inception of the purpose of issuing second mortgage bonds the feature of substituting them . for notes was, in the contemplation of the plaintiff, a part of the scheme. He so testifies. He says the second mortgage bonds were intended to supplant the general indebtedness of the company or the indebtedness to him, and that such was the fact when the bonds were, issued and that that arrangement never was disturbed, and he stated in an affidavit made in July, 1883, that Garrison held the bonds in lieu of the notes. There was also evidence that that was the nature of the transaction as it came before the directors’ meeting. Wood-ford says that at that meeting the most important subject spoken of “ was the exchange of some notes of the company which Com. Garrison held for second mortgage bonds.” Garrison’s action in taking the bonds is altogether consistent and in conformity with the original purpose of issuing them. It seems to me that the whole arrangement at the directors’ meeting took on the mere form of a purchase and sale. It was necessary to fix a price. The bonds could not be issued at a lower rate than seventy-five cents on the dollar under the law of Ohio. The plaintiff knew that the indebtedness was to be funded. Garrison’s communication refers to his advances to the.railroad company, but with the exception of $304,000, those advances were made to the plaintiff, not to the company, and Garrison was dealing, with the notes in the . same way Swayne says they were intended to be used. I think the proof fails to justify the referee’s finding, and would authorize one that, as between Garrison and the company, the transaction was-only a. change in the form of the evidence of indebtedness and the amount thereof, and as between the plaintiff and Garrison the proof fails to convince me that it was anything more' than that. ■ It was- made with or without the assent of the plaintiff. In the former event he is not entitled to the credit the referee has given, him; in the latter, there would be, as the Court of Appeals held, a conversion of the plaintiff’s notes, leaving Garrison liable for their value, and there is no new evidence of value that would justify charging his estate with the enormous sum the referee has found against it. The notes when they were used were worthless as obligations upon which anything could then be realized; and after that the second mortgage bonds were of no more intrinsic value than the notes.

In deciding that the bonds were purchased by the notes, the referee has apparently ignored all the important evidence taken upon the previous trials and put in by the defendants. He seemingly was influenced by the following considerations, viz.: First, his construction of the conduct and attitude of the parties viewed from the plaintiff’s shifting standpoint alone; second, a supposed inducement impelling Garrison to make the transaction in substance as a purchase and not an exchange of securities; and, third, entries contained in Garrison’s books of account. But those considerations neither singly nor collectively are sufficient. It is perfectly plain that Garrison never became the owner of the notes. The plaintiff’s position all through the litigation before the last trial has. been directly opposed to the idea that the notes themselves were ever sold to Garrison. There is not a word of evidence to justify the belief that there ever was any understanding on the part of the plaintiff that Garrison had bought them. The whole claim that he purchased anything must depend simply, as the last referee distinctly saw, on the use made by Garrison of .them and his acts in connection with them. In my judgment the referee was not justified on .the whole evidence relating to this subject of the acts and relations .of the parties, in finding, as he has done in his decision, that “the directors sold and delivered to Mi. Garrison, and Mr. Garrison bought from them, second niortgagehonds of the face value of $2,280,000, at the price of seventy-five cents on the dollar,” and that “ this sale and delivery to him was in part payment of the claim he had presented against the company for advances made, represented by the notes.” If the form of the resolution alone controls, he is right; but the whole subject being open, if the entire history of the matter is considered, he is wrong.. On the whole proofs on this branch of the case, it is nothing less than grievously unjust to treat this transaction as an extinguishment of so much of the. plaintiff’s indebtedness to Garrison as equalled in amount the sums for which the notes were drawn. .

But it is further assumed that there existed a very potent reason for Garrison becoming a purchaser' of. these second mortgage bonds. He was in control of the Wheeling and Lake Erie Company. The majority of the directors were in his interest and of his selection. Negotiations, which resulted in nothing, were on foot for the sale of the road to what is called a Vanderbilt syndicate. One of the proposed terms of the anticipated sale was the guaranty by that syndicate of the mortgage securities of the Wheeling and Lake Erie Company. It would, undoubtedly, have been of great advantage to Garrison to have the unsecured and really worthless notes transmuted into securities that would become at once accredited and made valuable by such a guaranty. A purpose to buy the bonds with the notes is, therefore, claimed to be- apparent. But the inference is ■inconclusive. No agreement.of guaranty was ever made;, and that hoped for would have been quite as effectual whether Garrison held the bonds as securities or as their owner. If his object were as claimed, how is it to be explained that only $1,736,600 of the notes were used in the transaction and not the remaining $326,000 which Garrison subsequently surrendered without any consideration whatever? •

But again, the bookkeeping entries were regarded as fixing the real nature of the transaction. I agree with the referee on the first trial, that altogether too much importance has been given to those entries. In Garrison’s journal, under date of May 1, 1883, is an entry crediting the plaintiff with $1,546,982.35 on his indebtedness to Garrison. There is also in the same book, on the same date, after a statement of the notes and interest, the following entry, this amount of notes and interest taken from the Contractor at 75%P- There is also an entry on Garrison’s books against the company for the full amount of the notes and interest, and a credit of the amount at seventy-five per cent of the notes turned in for bonds. These entries, standing alone, purport to show that Garrison first took the notes from the plaintiff at seventy-five cents on the dollar and then took for them at their face value the second mortgage bonds of the company-at seventy-five cents. .Now, nothing is plainer or clearer in this case than that such a transaction never occurred. Garrison never took the notes from the plaintiff by purchase or agreement at any price. Why the entry was made can- only be conjectured. The entry relating to the company is but a mere record of the bare transaction. It is sufficient without further comment to repeat what the Court of Appeals said as to those entries, viz., that they have very little bearing on the controversy between the parties. They were private entries made by Garrison without-the knowledge of the plaintiff and without his authority. “They show that Garrison intended to take the notes at seventy-five cents on the dollar, and that he was willing to allow the plaintiff that sum for them, but there was no actual purchase of them. If that entry had come to the knowledge of the plaintiff, and he had adopted it and so notified Garrison, he could probably have held him to a purchase of 'the notes for that sum. * * * He cannot use that entry to fasten upon him a purchase of the notes at their face value. The minds of the .parties never met-upon such a contract.” (136 N. Y. 152.) There was,, therefore, no purchase of the notes from the plaintiff. As stated before, there was a purchase from the company with consequences and a legal situation such as was assumed to exist by the referee on the last trial, or there was a mere exchange of the notes for the bonds,' with those bonds held by Garrison in precisely the same way in which he held .the notes, and I am compelled to believe the latter was the real situation. There never was, during Garrison’s lifetime, a ratification of the entry in his journal concerning the notes. All the way through the controversy, until the last trial, the1 plaintiff has insisted that the entry was not authorized. He repudiated the idea of a sale at that figure. How his position is changed and he declared at the last trial that he then ratified and adopted the transaction. It was too late. He had long before made bis election to repudiate it. He cannot now take the attitude that Garrison should be held liable as a purchaser even at the price' stated in the entry (which is the only amount he could in any event claim, for he would be obliged to ratify it as made or not" at all), for he had elected not to ratify it, and is bound by his choice.

There is but one thing more to be said on this topic, and that relates to the acquiescence of the plaintiff in the exchange. The ' referee on the last trial states in his decision that “ the plaintiff was present on the occasion of the meeting when these transactions' were had, and the act of Mr. Garrison in so using that amount of the notes was with the plaintiff’s knowledge and acquiescence, and Mr. Garrison was not guilty of an actual or technical conversion of that part of the notes.” In this conclusion of the referee (the real nature of the transaction being ascertained) I entirely agree. The evidence is convincing that the plaintiff did know of and did acquiesce in what was done' at the directors’ meeting,, in the act by which the exchange was accomplished, and he knew that the purpose and intent of that act ■ was merely to effect an exchange, and thus the subject of the conversion of those notes disappears from the case.

But with regard to the $326,043.13 of notes delivered to the company without consideration there indubitably was a wrongful conversion by Garrison. The last referee has charged against his estate the whole face value of those notes and interest. It was held by the referee on the second trial that their surrender operated the substitution of the railroad company in the place of the plaintiff, as Garrison’s debtor on an open account, or, in other words, a novation was brought about. The referee on the last trial held that the effect was to transfer the amount to an open account against the company in favor of and controlled exclusively by Mr. Garrison, thus precluding the plaintiff from subsequently making any claim against the company, and to extinguish the legal liability of Mr. Garrison as a stockholder to any other person wdiile preserving the entire indebtedness of the company to him, nearly all of it being represented by securities of the company owned by him and which he could.negotiate without danger of liability; ” and he further held •that “ this dealing with the securities entitles the pledgor to be credited with the entire amount against the indebtedness.” I am unable to find any new evidence changing in any way the character of the transaction of the surrender of the $326,000 of notes so far as the general question of value is concerned. Irrespective of the particular consideration of there being a special value to them, we are bound, I think, by what the Court of Appeals said concerning them, viz., they had no value as obligations against the company, and it is preposterous to suppose that Garrison intended by the surrender to chai’ge himself for their full face value against an indebtedness of the plaintiff to him for money actually loaned. By the surrender he did not intend to release the company from its-indebtedness evidenced by the notes-; but he intended and elected still to hold the indebtedness evidenced by his charge in open account upon his books. The obligation of the company was not impaired or lessened by the transaction, and it owed just as much after as before.' Even if he made the notes his own by surrendering them there was simply a conversion of them. * * * He did not take a new debtor,' but he retained and intended to retain the same debtor. Here' there was no. novation and nothing resembling it.” I see nothing in the entire case that changes the character ascribed to this feature of. it by the Court of Appeals. It was a conversion and nothing else, and, as that court said, the damages recoverable are “ the value of the notes converted. There can be no other measure, as that measures the entire damage of the plaintiff absolutely.” But. the referee has decided in substance that the •benefit to Garrison by his being relieved of a contingent statutory liability to creditors of the company to the amount of these surrendered notes is evidence of a special value which maybe awarded as damages. The Court of Appeals did not .comment on that particular phase of the subject. It is claimed that Garrison by changing the form of indebtedness extinguished his liability. But what value exclusively pertained to the notes by reason of Garrison’s .statutory liability that would not belong to an indebtedness of the company in any other form ? He was so liable by statute for all the debts of the company, as well those resting in open account, as those evidenced- by promissory notes.. If the surrender of the notes and their cancellation destroyed the company’s liability on them, that liability still remained for the amount charged in account. Garrison’s act and the entry in his books did not necessarily pay the company’s debt to the plaintiff. On the redemption by the' plaintiff of that which . Garrison held as pledgee, the claim against the company would revert to the plaintiff by operation of law, and there would not even be a question of compelling an assignment. The plaintiff or his successor in interest would have been quite as able to enforce the stockholders’ liability for the debt in the shape . of an account against the company as in the form of promissory notes. There was nothing, therefore, of value capable of being reduced to a money standard in this transformation of the indebtedness, and the. referee was in error in allowing any part of the item of the promissory notes.

The referee’s allowance to the plaintiff of the sum of $348,394.47 for the stock was based upon several considerations. He decided that at the time a reorganization, of the 'railway was effected, in October, 1886, the plaintiff’s debt to Garrison had been paid; from which it would follow that Garrison’s executors had no right . to further detain from the plaintiff his collaterals. He also decided that the plaintiff had made demands for an accounting and other efforts to get back his securities, and that, had they been released as should have been done, he could have used the shares of stock' in such a way under the reorganization scheme as would have entitled him to other shares in a new company, which other shares he could have sold at a figure which would have produced the sum allowed.' The referee also decided that Garrison’s executors failed to perform an agreement their testator had made with' the plaintiff, to refrain ■from foreclosing the first mortgage until th.e road was completed according to the terms of the plaintiff’s contract with moneys to be advanced by Garrison, for that purpose, and that- Garrison had broken his agreement to advance such moneys. ' The referee also decided, but made no practical application of it, that Garrison’s executors were liable for discriminating in the reorganization against the plaintiff’s stock in the old company, which to the extent of 24,342 shares they held as collateral. The finding that the plaintiff’s debt was paid was the consequence of the credit given for the amount of the promissory notes. The referee in the schedule annexed to his report gives that credit of $2,062,643.13, and finds a balance due plaintiff as of May 1, 1883, of $347,276.12. We have seen that the large credit was improperly given, and hence the foundation of the referee’s finding now referred to is removed.

The reorganization was accomplished pursuant to the terms of a proposition-submitted by the persons who were the executors of Garrison’s will, and who, as such executors, held the shares as collateral. They were acting for or in the interest of the estate, but as simple pledgees they were under no legal obligation to make any allowance or arrangement for the benefit of their debtor, the pledgor, nor was he entitled to arrest or delay the reorganization by his demands either for the securities or for an accounting. The executors proceeded at their peril, and if the estate of their testator were indebted to the plaintiff, or if they were wrong in refusing to give him his hypothecated shares, the result reached by the referee would have been justified. But the plaintiff’s debt was not paid, and the executors were not bound to give him participation for those shares in the new scheme. He was still debtor to a very large amount to Garrison’s estate, and they are not liable merely because they refrained from putting those shares in the reorganization.

But the referee has held that Garrison and his executors were under an agreement, which was broken, to furnish all the money necessary to complete the original-road and put it in operation, and not to foreclose the first mortgage until the road ivas finished and earned income sufficient to pay interest. Upon that finding the referee has built up an equity, by means of which he has seen his ■ way to allowing this item of damage for the shares of stock. That alleged agreement is claimed by the plaintiff to have rested altogether in mere verbal declarations of Garrison. Hot one word of writing is produced to substantiate or give color to it. According to the amended complaint, a part of it had its origin in December, 1880, when the assignment of the plaintiff’s' contract and stock was made to Garrison. It is alleged that Garrison then “ agreed to furnish the necessary means as they were required by plaintiff to complete his said contract.” Subsequently (the complaint alleges) Garrison, from time to time, made new demands for more stock under threats of ceasing to advance more money, and in September, 1881, threatened to foreclose the road under the first mortgage unless the plaintiff would give him many thousand more shares of stock. It is also alleged that the plaintiff complied with that request, and those allegations are the bases of the plaintiff’s claim and of the referee’s finding that there existed a collateral agreement between the plaintiff and Garrison that the latter wás to complete the road, put it in paying condition, and that, notwithstanding any future contingency or new situation, he bound himself to the completion of an immense undertaking, from which he would be content to receive only his advances and six per cent interest on the amount thereof. The inference is, of course, intended that Garrison would also profit by making his stock valuable. The referee fixes the time at which he states the agreement was made. He says : “About the time of Hr. Garrison’s approval of the contract and taking the transfer assignment and option, he told plaintiff that if he undertook the enterprise he wanted to build a first-class road to heep, and not for speculation; that he was able to pay for the increased expense of building the road better than was required by the contract, and that he would carry the interest coupons tmtil the road was huilt and had ea/rned its interest; and I find that in consideration of this promise, and of his undertaking to finance the enterprise by making advances to the plaintiff for that purpose,” the plaintiff undertook the course of dealing that was carried on between the parties. He subsequently in his decision refers to the promise as one “to carry the bonds and prevent foreclosure until the road should be built, and thus maintain the value of the bonds and the stock.” He, therefore, found, in effect, that this alleged verbal agreement survived all the changes made in the carrying out of the enterprise; that it was to be binding. on Garrison and his estate, no matter what checks or disasters or financial reverses or modifications of the undertaking might happen in the future. As said before, there is not one word of written evidence to establish such a contract, and, so far as proof of its existence depends upon the unsupported statement of the plaintiff, or upon casual declarations said to have been made by Garrison of his intentions and purposes, I attach no weight to the testimony. There is corroboration of the plaintiff’s statement that at some time prior to Hay, 1882, Garrison had made some kind of a promise to the plaintiff in connection with building the road as it was provided it should be built by the plaintiff’s contract with the company. On the last trial Hr. Oliver, who had been the general manager of the company, gave new testimony on the subject. He says that in Hay, 1882, on the occasion of a trip for inspection over a railway he had a conversation with Garrison, who stated that “ he felt very secure in carrying the bonds until such time as the road would develop such a business as he knew it would do, and take his chances of getting his pay from the earnings to make good the deficit which might accrue during the time when the road would not pay its way, and that he had agreed to do this, and felt no doubt about the result. He said in the same conversation that he had promised Hr. Griggs that he would do this.” This witness also swore that Garrison said he had agreed with the plaintiff ■to furnish the money to complete the road, and that the plaintiff and himself were the owners of nearly all of the stock -of the road. Even giving full effect to Oliver’s testimony, the sweeping and radical agreement found hy the referee to have been made is not established. I have no confidence, in the plaintiff’s testimony as to the terms of the alleged agreement, not because that testimony is deliberately false, but for the reason that any observant person reading the record cannot fail to perceive how his narrative grew and expanded from day to day; how-one suggestion led to another, the wish being father to the thought, and the thought bringing forth the imagined memory until the perfected tbrms became evolved from three separate conversations, one had about the time the referee-fixes, another on the occasion of Garrison objecting to the plaintiff receiving his ten per cent contractor’s profit, and still another at the time Garrison required the road to be built in a superior and more-costly method of construction to that originally intended. Everitt’stestimony on this-point relates to a conversation had with' Garrison in ¿881, and Jenkins was shown, on cross-examination, to have so poor a memory that his recollection of dates is not tobe relied upon.

But, assuming some vague or even definite promise was made by Garrison to complete the road according to the contract and to furnish the money for it, his failure to do so does not make his estate liable for the shares held in pledge by the executors in the manner or to the extent the referee has held them to be liable. The promise was to complete the road as projected between the terminal ¡mints provided for in the contract and in three branches or divisions. One of those branches between Bowerstown and Wheeling was not built. The promise to build that portion was made by Garrison, the plaintiff says, in the winter of 1881 or 1882, or during those years. ■ Whatever Garrison’s intention and promise may have been, it is clear that, in the summer of 1882, it was abandoned. The plaintiff says Garrison “told me as he had purcliased the Cleveland and Marietta road it would furnish all the' coal traffic that was required for that portion of the Wheeling and Lake Erie road that was built, and that it was unnecessary to continue it on to Wheeling.” That purchase of the Cleveland and Marietta road was of a substantially parallel line to that projected from Bowerstown to. Wheeling and answered all the purposes and supplied the place of that branch, and the evidence shows that the plaintiff so understood it and he acquiesced in the purchase, knowing why it was' made, and that upon the acquisition of the purchased property it would not be necessary to complete the whole road, as provided for in his contract. By his conduct he waived the performance of so much of Garrison’s promise as would have required him to furnish the money to complete that branch of the road. But assume he did not, and what would be the consequence ? Merely a breach of the contract to build or to furnish the money to build which would have entitled the plaintiff to recover the contractor’s profits on that branch of the road (which profits the referee had refused to allow) and damages for the breach of the contract to prevent foreclosure, which would be the value of the shares, and they did not have any value whatever prior to the foreclosure, and had no value in the reorganization except on payment of thirty-five dollars a share, which he never offered to pay and which the defendants were under no sort of obligation to pay for him.

The two items discussed must, therefore, be expunged from the account, thus leaving an apparent balance in favor of the defendants on the account of over $2,000,000. But the evidence is not in such condition as to enable, us to determine what credit, if any, should be given the plaintiff on that balance. The use, if any were made by the defendants, of the second mortgage bonds in the reorganization would materially affect that subject. That matter is not before us, and, hence, we cannot direct a judgment upon the counterclaim.

The judgment must be reversed, with costs, and the complaint dismissed- on the merits, with costs.

Van Brunt, P. J., Williams and Ingraham, JJ., concurred.

Judgment reversed, with costs, and complaint dismissed on the merits, with costs.  