
    DAVID OGDEN, Plaintiff and Appellant, v. GEORGE A. LATHROP, Defendant and Respondent.
    A general authority in a stock note to use, transfer, or hypothecate” the pledged property, does not authorize a sale by the pledgee for his own account, before maturity of the note. Held, That a sale of such pledged property by the pledgee, before the maturity of the note, was a conversion for which an action would lie.
    How the interest of a pledgor is to be foreclosed: the rights and authority of a pledgee over the pledge: construction of a contract of pledge: what notice required in selling a pledge—considered. Per Fithian, J.
    Before Monell, McCunn, and Fithian, JJ.
    
      [Decided December 4, 1869.]
    This is an appeal from a judgment entered upon the report of a referee. The action was brought to recover the value of fifty shares of the capital stock of the Columbian Insurance Company, alleged to have been the property of plaintiff and wrongfully converted by the defendant to his own use. The facts found and conclusions of law were:
    That, on the thirtieth day of December, 1865, the plaintiff was the owner of fifty shares of the capital stock of the Columbian Insurance Company. That, on said day, he borrowed from the said defendant, upon the pledge and security of said fifty shares of stock, the sum of twenty-five hundred dollars, and thereupon made and delivered to the defendant his certain note or obligation, in the words and figures following, to wit:
    $2,500. New York, Dec. 30, 1865.
    At one week’s notice, I promise to pay, to the order of George A. Lathrop, twenty-five hundred dollars, for value received, with interest at the rate of seven per cent, per annum, having deposited with the payee, as collateral security, fifty shares of Columbian. Insurance Co. stock of the City of New York; and in case tMs note shall not be paid within one week after demand due, I give the said payee, or order, authority to sell the said security, or any part thereof, for my account, on. the maturity of this note, or at any time thereafter at the Brokers’ Board, or at public sale, at the payee’s discretion, and with authority to use, transfer, or hypothecate the same, at payee’s option, payee being required, on payment or tender, at the proper time, of the amount loaned and interest, to return an equal quantity of said security, and not the specific stock deposited, and to apply so much of the proceeds of said security to the payment of this note as may be necessary to pay the same, with all interest due thereon, and also to the payment of all expenses attending the sale of the said security ; and in case the proceeds of the said security shall not cover the principal, interest, and expenses, I hold myself bound to pay the balance.
    DAVID OGDEN.
    That afterward, and on or about the third day of January, 1866, the defendant sold the said fifty shares of stock at public auction, in the city of Hew;, York, without notice to the plaintiff, and received the proceeds thereof.
    The conclusions of law were :
    
      First. That, by the terms of the said note, the said defendant was authorized to use, transfer, or- hypothecate the stock so pledged at any time, so long, as said note remained unpaid, being • required, on payment or tender, at the proper time, to return an equal quantity of said security, and not the specific’ stock deposited.
    
      Second. That the sale at public auction, so made by the defendant, was not a conversion of the said fifty shares of stock.
    
      Third. That the defendant is entitled to a judgment that the complaint be dismissed, and that he recover his costs in this action against the plaintiff.
    The plaintiff’s counsel excepted to such findings and conclusions, and appealed.
    
      
      Mr. Elbridge T. Gerry for appellant.
    By the clear terms of the contract, if the note was not paid within one weeh after demand, the respondent had authority to sell the stock then, or at any time thereafter, at the Brokers’ Board, or at "public sale, in his discretion; or to use, transfer, or hypothecate the same.
    The sale of the stock by the respondent, without notice to the appellant, almost immediately after the execution of the note, and without any demand, was an unlawful conversion, and authorized this action. ■
    By the general law of pledge, the pledgee cannot sell without .demand of the debt and notice of sale to the pledgor (Stearns v. Marsh, 4 Denio, 227; Cortelyou v. Lansing, 2 Caine’s Cas., 200 ; Wilson v. Little, 2 Coms., 443; Lewis v. Graham, 4 Abb. Pr., 106; Castello v. City Bank, 1 N. Y. Leg. Obs., 25).
    This must be a notice of the time and place of sale (Wheeler v. Newbold, 16 N. Y. R., 392.)
    Both by these rules, and by the fact that the parties erased a clause allowing the pledgee to make a sale “ without advertising the same or giving any notice,” it is clear that, in exercising the authority to sell, the pledgee was bound to give notice (Millikin v. Dehon, 10 Bosw., 325.)
    Inasmuch as the instrument contains provisions authorizing a forfeiture of a pledgor’s right in the thing pledged in a manner-less favorable than the general rules of the law of pledge would secure to him, the rule of construction is, that such provisions, must be construed strictly against the pledgee or lender, and favorably to the pledgor or borrower. The forfeiture will not be fmored or helped by construction (Jackson v. Topping, 1 Wend., 388).
    The instrument being partly written and partly printed, the wi-itten portions must control the construction rather than the printed, if there is an inconsistency. And by cancelling portions of the printed blank, and executing the paper leaving such portions standing cancelled in it, the parties showed a clear intent that whatever was stated in those portions should he excluded from the contract (Leeds v. Mechanics’ Ins. Co., 4 Seld., 351; Harper v. Albany Mut. Ins. Co., 17 N. Y., 194; Weisser v. Maitland, 3 Sand., 318 ; Woodruff v. Commercial Mut. Ins. Co., 2 Hilt., 122; Benedict v. Ocean Ins. Co., 31 N. Y., 389).
    
      Mr. Charles H. Van Brunt for respondent.
    It is clear that the defendant did not sell this stock under the authority contained in the note to sell in case of default in payment of the note, because no default could have occurred, the sale taking place within four days from the date of the note.
    It is evident, then, that the sale was made by the defendant, under" the supposition that the clause contained in the note, “ and with authority to use, transfer, and hypothecate, &c., at payee’s option,” applied to the time during which the note was running.
    This clause gave the payee, at Ms option, the right to use, transfer, and hypothecate the stock.
    The authority to' sell at his option, in this clause, is given in contradistinction to the authority to sell upon default, contained in the previous clause, and the words at Ms option must mean something different from a sale upon default. Without this construction the last clause would be entirely meaningless.
    The referee, in his opinion, says it is apparent that this authority was intended to operate before any default, for the pledgeeundertakes to return an equal amount of stock.
    The payee, upon payment or tender at the proper time of the amount loaned and interest, is to return not the specific stock but a like amount.
    The obliteration does not affect the relation of the clause in question to the rest of the note in any respect.
    The rule is that in a contract, partly written and partly printed, where there is a conflict between the written and printed portions, the written must prevail.
   By the Court:

Fithian, J.

Two questions only arise in this case, and both must depend for solution upon the construction to be given to the contract of pledge before set forth. First, does the authority to use, transfer, or hypothecate ” the stock in the contract named, authorize a sale of the stock by the pledgee for his own account before the note matures or becomes due ? If so, can such sale be private, and without notice to the pledgor ?

Formerly, at common law, before a pledge could be sold, the pledgee wa°s required to bring a suit in. equity and obtain authority to sell by judicial proceeding. Subsequently the rule was so far modified that now (in, the absence of any special agreement on the subject) the pledgee may resort to his bill in equity and have a judicial sale, or he may (after the pledgor has made default) sell at public auction without judicial process, having first demanded payment of the debt from the pledgor, and given him reasonable personal notice of the time and place of sale. In case such personal notice could not be given, then resort must be had to a suit in equity (Stearns v. Marsh, 4 Denio, 227).

If the pledgee sell without such demand and .notice, the 'pledgor may have his action to recover the value of the pledge, without tendering the amount of the debt, because by such wrongful sale the pledgee has incapacitated himself from returning the pledge on tender of the debt (2 Caine’s Cases in Error, 204; 10 John. R., 472). This is the extent of the pledgee’s rights and authority in the premises, in the absence of any express contract on the subject. In this case it is conceded the pledgee sold the pledge and applied the proceeds to his own use before the debt became due, and without any demand of, or any notice of sale to the pledgor; and he claims the right thus to do by virtue of the provisions of the contract in evidence. On the trial of the case, the plaintiff’s counsel put in evidence a facsimile of the contract of pledge as it was executed and delivered by the parties, from which it appeared that the promise to pay (or npte), and the agreement as to the pledge, were in one instru ment, which was drawn or prepared for execution by filling up in writing certain blanks and erasing certain printed words, from a printed form previously prepared for use in such cases. The form, as printed, contained an authority to the pledgee to sell at “public or private sale.” The words, “or private ” were erased. So, likewise, the form as printed contained these words, viz., “hereby giving the payee or assignees authority to be the purchasers of the whole or any part of said security, without advertising the same or giving any notioe,” all which were erased before execntion, as were also the words in the body of the note, leaving the contract finally agreed upon between the parties, as hereinbefore set forth. It becomes necessary carefully to analyze this contract, to see if there can be found in it an authority to sell the pledge without demand or notice, and before default made in the payment of the note. First. The contract contains a promise on the part of plaintiff to pay to defendant two thousand five hundred dollars, with interest, at a time to be fixed by defendant, viz., “ one week after demand or notice to plaintiff,” from the defendant, to pay. Second. The contract acknowledges the receipt by defendant, from the plaintiff, of fifty shares of stock as “ collateral security ” for the performance of the promise to pay. Third. The contract then proceeds to specify the power which the pledgee shall have over the pledge, and when that power shall vest and be exercised. And, in that respect, it will be seen that no power or authority whatever is granted over the pledge (unless found in words hereinafter mentioned), except in a certain contingency, viz., “ in case the note shall not be paid ” at maturity, then and only then is the pledgee clothed with authority to sell the pledge “ on the maturity of the note, or at any time thereafter,” at public sale, at the Brokers’ Board, for account of the pledgor, and out of the proceeds to pay the note and net expenses of sale, and if there be a deficiency the pledgor to be liable for it. Thus far the contract is plain and unequivocal. If this were all, there could be no pretence of any authority to sell the pledge, or use or dispose of it in any manner before maturity of the note, or without demand and notice first made and given. But the contract of pledge contains' another provision. Following the first clause, authorizing a sale after defaudt, and which concededly could only be upon notice to the pledgor, and previous to the provision directing the application of the proceeds of a sale, there is inserted in the body of the contract these words: “And with aurthority to use, transfer, or hypothecate the same, at payeds option, payee being required, on payment or tender, at the proper time, of the amount loaned, and interest, to return an equal quantity of said security, and not the specific stoch deposited?

It will be seen that in this provision there are no express, exclusive words of sale, but only such as are claimed to be equivalent words. Assuming for the present that the words “ to use, transfer, or hypothecate,” are broad enough to include an authority to sell, then when can the sale take place ? It will he seen that in all the clauses of the instrument, when a power of sale is 'expressly and in explicit terms given, the pledgor has been sedulous to protect himself against any sale before the maturity of the note, and any whatever, except such as shall he open and public, and on due personal notice to him. He has stricken the negotiable words from his note even, and deprived the holder of' the power to transfer that as an ordinary negotiable instrument. Are we to conclude, then, that in the next sentence the pledgor, knowingly and intentionally, permitted the insertion of a clause which rendered all these precautions substantially useless, and conferred on the pledgee authority to deal with the pledge in all respects as if it were his own, free and clear from any rights or z interests of the pledgor? Clearly such a construction should not be given to the provision unless the language of the instrument absolutely demands it, which it does not. Again, if the words use ” and “ transfer ” be equivalent to a power of sale, in what manner is that power to he exercised? The pledgee claims it gives him the right to sell at once, privately and without any notice to the pledgor, he being- required, in case he so sells, to produce similar stock “ at the proper time? Such a construction is in derogation of the rules of the common law, and contrary to the general scope and spirit of the contract of pledge as a whole, and should not be adopted unless compelled by the explicit and specific words which admit of no other meaning. There are no such words in this provision. There is no explicit or other direction specifying when or in what manner, as it respects notice, the authority to “ use, transfer, or hypothecate” is to be exercised. And I am of opinion that if that use or transfer ” take the form of a sale, it can only be exercised in the manner provided by law by a notice to the pledgor.

But is the authority to use, transfer,” &c.,. stated in the contract, to be construed as authorizing any “ sale ” of the stock other or different from the one first provided for in the instrument? It is claimed .by defendant’s counsel that the provision of the contract authorizing the pledgee, on payment or tender of the debt at the proper time, to return other similar, and not the specific stock deposited, evidences an intent to permit a sale other and different from the public sale expressly provided for in the first part of the contract, and that such intent should determine the'kind of disposition intended by the words to “ use and transfer.” I am of opinion, however, that in endeavoring to ascertain the specific or particular disposition of this pledge, intended to be authorized by the words “ authority to use, transfer&c., regard must be had as well to the words which were erased from the printed form before execution of the contract, as to those provisions now included in the instrument. By the printed form, as originally prepared, it is clear that the person drafting it intended and did provide for two distinct modes or methods of dealing with pledges to be deposited under such proposed agreements, either mode to be at the option of the pledgee. First. That the pledgee might safely keep the pledge until after a breach of the obligation, for the performance of which it was a security, and then sell the same at public auction, without notice or demand, or at the Brokers’ Board. Second. Or he might, at his option, at any time, sell at private sale, without advertisement or “ any notice,” with authority to himself to become the purchaser. That is to say' he might sell, use, transfer, hypothecate,” and in all respects deal with the pledge ess if it was his sole property. How, in this case, it is clear that the pledgor refused to acquiesce in this latter method of dealing with his pledge. He has erased from the form all words authorizing ány “private ” sale, or any sale without full advertisement and notice to him. The court ought not, therefore, to permit a construction to be put upon any general words left in the contract which would have the effect to thwart and subvert this clear and manifest intent of the pledgor. Accordingly, the words “ use and transfer” must be held to mean some “use or transfer” other than an absolute sale. I am confirmed in this view of the case by a consideration of the effect of a construction claimed by the counsel for the pledgee. It is a reasonable presumption that when a creditor requires and a debtor deposits collateral security by way of pledge, it will be something having a market value at least equal to the. amount of the debt. Ordinarily, I believe it is more. In which case, under an agreement, such as claimed by the defendant here, the pledgee may immediately sell the pledge privately and without notice, and reimburse himself for the full amount of his debt, while at the same time he holds his debtor’s note for the full a'mount on interest unsatisfied, and due only at the pledgee’s option. But that is not all, after such sale, if, as in this case, the pledge be stock, and the market value depreciate, the pledgee may buy it in, call for his debt, and collect the full amount, thus making a clear profit of the difference between the depreciated amount at which the stock was purchased and the face of the debt, as well as double interest. If, upon the other hand, the pledge rise in value, after a sale, and the pledgor should tender the amount of the debt and demand an equal quantity of stock, it is, to say the least, questionable whether under the terms of the contract the pledgee would be bound to deliver stock until after the maturity of the note, which occurs only at the option of the pledgee. The pledgee is only bound to deliver stock on “ the payment or tender ” of the full amount of the debt and interest “ at the proper time.” If “ the proper time ” means after default, or at maturity of the note, then it is just such time as suits the pledgee’s convenience. When a pledgee claims such power and authority over his pledge the contract therefor should be clear auT explicit, and nothing be left to interpretation.

The judgment should be reversed, order of reference vacated, and a new trial granted, costs to abide the event.  