
    Emil Greeff, Bernhard Greeff and Philip E. Gallagher, Pl’ffs and App’lts, v. Emil Dieckerhoff, Louis Raffloer, Adolph Erbsloh and Emil Cuntz, Assignees of L. Christian Meyer, Def’ts and Resp’ts.
    
      (New York Common Pleas, General Term,
    
    
      Filed February 4, 1889.)
    
    1., Bills and notes—Bonds—Loan of money—Collateral security— Property of another—Hypothecation of securities, property of
    ANOTHER FOR LOANS TO HOLDER OF—BONA FIDE HOLDERS.
    One Meyer, a banker, borrowed of the defendants (except the defendant Cuntz) $20,000, and at the time agreed to send them collaterals. Some-days afterwards he sent them fifteen one thousand dollar bonds of the Phcenix Manufacturing Company and three one thousand dollar bonds of the Milwaukee and St. Paul Railroad Company, to hold as collateral! security for the loan. These bonds were the property of the plaintiffs,, and were at the time of the loan held by Meyer as collateral for the balanee of a loan previously made by him to the plaintiffs. It appeared that the plaintiffs knew at the time of delivering them to Meyer that he expected to hypothecate the bonds for loans to himself if he found it necessary. Meld, that the defendants are Iona fide holders of the securities in question for value—that the mere lapse of time, under the circumstances, would not convert the loans into debts without security, so that the subsequent giving of the bonds would be giving of the securities for an antecedent debt, nor would it cut off the title of the pledges, there being no proof that the defendants knew that the securities did not belong to Meyer.
    ■3. Same—Collaterals given after loan—Subsequent substitution of
    OTHER SECURITY—EFFECT OF.
    Where a loan was made to the defendants on the promise of the bar row.er that he would give collaterals to secure it, and he afterwards gave the collaterals, the defendants are in the same position that they would have been if the securities had been given at the time the money was loaned, and the subsequent substitution of another security for one pledged would not change the transaction nor impair the nature of the loan or its security.
    Appeal from a judgment in favor of defendants in a suit in equity brought to redeem certain securities belonging to the plaintiffs which are in possession of the defendants (except the defendant Cuntz), who were brokers and copartners, doing business as Dieckerhoff, Raffloer & Co.
    • L. Christian Meyer was a private banker from January, 1878, to July 7, 1884, when he made an assignment for the benefit of his creditors.
    Greeff & Co., the plaintiffs, are merchants. From April 1, 1878, to July 7, 1884, they kept a bank account with Meyer, depositing money with him and borrowing from him.
    The result of these transactions was that in July, 1884, at the time Meyer failed, the plaintiffs owed Meyer $9,000, and Meyer had, or should have had, in his possession fifteen Phoenix Manufacturing Company bonds and three Milwaukee and St. Paul Railroad Company bonds of $1,000 each, as collateral security for what plaintiffs owed him.
    After Meyer’s failure, plaintiffs ascertained that such securities had been placed in the hands of the defendants.
    On the 8th of May, 1884, the defendants loaned Meyer $20,000. Meyer, at the time of this loan, agreed to send the defendants collaterals. The plaintiffs’ securities did not come into Meyer’s possession, and were not delivered to defendants by him, until three or four days after the loan was made. None of the securities belonging to the plaintiffs were delivered to the defendants by Meyer until some time after defendants made the loan to Meyer, when they were delivered as collateral security for the loan.
    The action was tried at an equity term of the court, before Mr. Justice Bookstaver, on the 19th and 21st days of December, 1887, who, after hearing, delivered the following opinion:
    
      Bookstaver, J.—This is an action brought by the plaintiffs to enable them to redeem certain securities "held by the-defendants on a loan made by the latter to L. Christian Meyer, formerly a banker.
    The securities consist of three Milwaukee and St. Paul Railroad Company bonds of the par value of $1,000 each, and fifteen bonds of the Phoenix Manufacturing Company, of Paterson, N. J., of the par value of $1,000 each. They were all negotiable and passed by delivery.
    Meyer made a general assignment in July, 1884, and. prior to his failure had delivered the bonds to the defendants as security for loans made by them to him.
    The case presents two questions for determination:
    
      First. Did L. Christian Meyer have any right or authority to pledge or re-hypothecate the bonds of"the plaintiffs; and
    
      Second. Did defendants loan their money upon the faith, of the bonds in controversy, so as to become bona fide holders of them, as against the plaintiffs? As to the first question, it appears that L. Christian Meyer was a banker and broker from about 1864 to July, 1884.
    The plaintiffs were an importing and commission house. About the beginning of 1878 they opened a bank account with Meyer, the latter allowing interest on plaintiffs surplus money deposited with him.
    In February, 1878, the plaintiffs were called upon to-make heavy advances to their consignors, and asked Meyer permission to overdraw their account, if necessary, to the-amount of $20,000, to which Meyer assented.
    At the time the three Milwaukee and St. Paul bonds were-left with Meyer, as Mr. Greeff says, in order that if the $20,000' was overdrawn a little, Meyer might feel secure-about it.
    He then gave plaintiffs a receipt for those bonds, in which he recited that he held them as “ collateral security against overdraft.” Mr. Meyer says that.when he received them he told plaintiffs that whenever he had not sufficient money . he would have a right to borrow upon them.
    This, plaintiffs deny.
    In 1879, the plaintiffs wishing to continue the right to-overdraw to the extent of $20,000, asked Meyer to continue that privilege. He, at that time,, said it was not convenient, and he did not care to do the business; but after two or three interviews agreed to: do so, and then the Phoenix bonds were delivered to him. Mr. Meyer says that when they were given to him, he told plaintiffs they were-of House to him, because he could not raise money on them,, and this is not denied by plaintiffs.
    I think this fact significant as tending to show that. Meyer intended to use the bonds for the purpose of borrowing money upon them, and that plaintiffs knew, or had. good reason to suppose that he would so use them, especially when taken in connection with the fact that these bonds were subsequently returned to the plaintiffs, although the right to overdraw was continued without any other security than the three Milwaukee and St. Paul bonds, which he could use for the purpose of borrowing money.
    In 1882, plaintiffs desired an additional extension of credit to the amount of $30,000, making a right to overdraw, in all, to the amount of $10,000; they then brought-forty-five of the Phoenix bonds to Meyer and asked him whether he could do anything with those bonds, to which Meyer replied that he would try. Plaintiffs admit that at that time he said he had loaned out all his money, and that he could not loan them $30,000 more, and he would have to look around to see whether some friends would loan him the money. Within a few days Meyer reported that he could place their loan at ninety days at six per cent, but that they would have to pay one-quarter of one per cent commission on the transaction; and this was assented to by plaintiffs. It is also shown by the receipt dated June 17, 1882, which, in addition, shows that the loan was to be continued on call, after five days’ notice. No notice to close the loan was ever given. This transaction clearly shows that Meyer had then placed these bonds, and that plaintiffs knew it, and assented to and ratified such use of the bonds. Now, the plaintiffs do not testify, and there is no evidence to show that Meyer was ever forbidden by plaintiffs to make a similar use of the bonds in the future. If they did not wish such use made of their property, I think it was their duty to have so informed Meyer, and to have taken some measures to have prevented it.
    Plaintiffs claim that this loan was subsequently paid; but. I do not think the evidence justifies such a contention. It is true Mr. Emil Greeff testifies that in September, 1882, when it became due, this loan was paid off; but the accounts in evidence do not sustain him, for long after that time these accounts show that plaintiffs were still credited with $50,000 over and above their deposits; and interest was regularly charged upon the whole amount. No check was ever drawn as far as plaintiffs show in payment of this-loan; nor was any deduction made for its payment upon the accounts.
    Mr. Meyer’s version of that transaction is, that Avhen the-ninety days were about expiring, he said to Mr. Greeff: “ Your loan expires now; you have plenty of money to your credit. Do you wish to pay it off?” Mr Greeff replied: “I would rather let the loan stand, or have the money to my credit; the time may come when I will want-money, and I want to be easy to know that I can always get money.”
    Mr. Emil Greeff says Mr. Meyer asked him, at the time, whether he wanted the securities back, and he said: “No, Mr. Meyer; all I want is to have the privilege, at any time, To draw up to $50,000; keep the bonds and let us go on the ¡same way with an account current.”
    From these facts, I have no hesitation in arriving at the -conclusion that the loan was not paid off at the time plaintiffs claim it was. But the plaintiffs knew that the Phoenix bonds had been pledged by Meyer to some one for a loan of .$30,000. That loan was made by Hagemeyer & Brunn.
    At the time of Meyer’s assignment only $10,000 upon it had been repaid them, and they held thirty of the Phoenix bonds -as security for the balance of the loan. The right of Meyer to pledge these bonds to Hagemeyer & Brunn was recognized by plaintiffs after Meyer’s assignment, by their redeeming These bonds and satisfying the unpaid balance of $20,000 due upon that loan. When Meyer paid the $10,000 on account of that loan-, he received from Hagemeyer & Brunn fifteen of the Phoenix bonds, which he subsequently pledged and repledged as his necessities required.
    Mr. Meyer says that in December, 1883, or January, 1884, he again called plaintiffs’ attention to the credit of 450,000, and said to him: “Mr. Greeff, you have all this money to your credit, is it inconvenient for me to continue the loan of $20,000, for which I have, no collateral. If I give you a loan, I must always be prepared when you want the money, and I would rather cancel it, because That will make me easy. I can use my money to better .advantage.”
    That Mr. Greeff did not wish to have it canceled and ¡shortly after brought the seven Long Island City and Blushing bonds, and said he wished the loan of $20,000 to zremain, and that these bonds would be additional security; To which he replied: “If you wish them, I have $45,000 .Phoenix, $7,000 Long Island and $3,000 Milwaukee, and that will enable me to raise about $50,000.”
    Mr. Greeff denies this; but the reason he gives for leaving these Long Island bonds with Meyer at that time, I think wholly inadequate. He says he wanted to make Mr. Meyer feel entirely sute about loaning them the money. Now, before that time, he knew the forty-five Phoenix bonds had been pledged for the loan of $30,000, and it nowhere appears that he knew, or had reason to suppose, That loan had been paid. The 3.000 Milwaukee and St. Paul bonds, and the Long Island bonds, were wholly inadequate as a security for the loan of $20,000.
    I think, in. view of these facts, greater weight should be given to the testimony of Mr. Meyer, and that the seven Long Island bonds were given to him to be used as he testifies. _
    _ A number of other circumstances appearing in the testimony might be referred to in support of defendants’ view of this question; but I think I have stated enough to justify me in the conclusion to which I have arrived, which is, that Meyer had the right to re-hypothecate the securities.
    As to the second question, the testimony offered by defendants is uncontradicted: that each of the loans made by them to Meyer, was made on the faith of collateral securities, either given at the time of the loan, of to be given, within a short time thereafter; and in no instance on a credit to Meyer merely.
    Were one to borrow money on a proviso to secure the loan, by a real estate mortgage, I apprehend a court of equity would regard such a promise as creating a lien on any real estate which the borrower might have, and enforce it accordingly. So, in this case, the defendants had a right to demand, and it was Meyérs’ duty to give the securities promised; and when he did actually give them, I think the defendants are in the same position they would have been if the securities had been given at the very time the seven checks were handed Meyer.
    He and Mr. Triacca satisfactorily explain the lapse of time between the delivery of the checks for the loans to Meyer, and the sending of the securities by him, and the mere lapse of time, under the circumstances, would not „ convert the loans into debts without security, so that the subsequent giving of the bonds would be the giving of securities for an antecedent debt, as claimed by the plaintiffs, nor would it cut off the title of the pledges. They were not. given to pacify a clamorous creditor, but in pursuance of a, pre-arranged agreement.
    Besides, in most instances, the very securities to be given-were designated by Mr. Meyer at the time he received the checks. In one instance 100 shares of the Chicago and 1ST. W. stock was withdrawn, and the Phoenix bonds substituted by agreement between defendants and Meyer. I do. not think that this, in anyway, changes the transaction. It was merely substituting one security for another, without-impairing the nature of the loan or its security.
    There is no claim made by plaintiffs that defendants, knew or had any reason to believe, or even to suspect, that the securities did not belong to Meyer.
    I am, therefore, of opinion, that the defendants are bona fide owners of the securities in question for value.
    As the amount of the loan made by defendants to Meyer-is greater than the value of all of plaintiff’s securities, the complaint should be dismissed with costs,”
    
      
      Larned & Warren, for app’lts.
    The defendants are not holders for value of these bonds. They received these securities as collateral for a pre-existing debt. Lawrence v. Clark, 36 N. Y., 128; Weaver v. Barden, 49 id., 286; Turner v. Treadway, 53 id., 650; Moore v. Ryder, 65 id., 438; Comstock v. Hier, 73 id., 269; Coddington v. Bay, 20 John., 637; Stalker v. McDonald, 6 Hill, 93; Small v. Smith, 1 Denio., 583.
    The defendants did not receive these bonds until four •days after the loan of $20,000 to Meyer.
    Meyers’ promise to deliver them could not create a lien ■on these securities. Barnard v. Campbell, 58 N. Y., 73.
    Possession is essential to the validity of every pledge of personal property to make the pledgee a bona fide holder in" the sense required to support this judgment. Ceas v. Bramley, 18 Hun, 187; Langdon v. Buel, 9 Wend., 80; Parshall v. Eggart, 52 Barb., 367; Brownell v. Hawkins, 4 Barb., 491.
    
      Blumenstiel & Hirsch, for resp’ts.
    The bonds in question were negotiable and passed by delivery. The plaintiffs parted voluntarily with them to Mr. Meyer, and they ■did not, by any express agreement, restrict Meyer in their, use. The defendants advanced their money in good faith on the strength of collaterals to be delivered to them, and they had no notice that they did not belong to Meyer. If there was no restriction as to their use, Meyer could have passed them away even to secure an old debt. Cont. Nat. Bank v. Townsend, 13 Week. Dig., 295; Merch. Nat. Bank v. Comstock, 55 N. Y., 24; Nat. Bank of Gloversville v. Wells, 79 id., 498; Brooks v. Hey, 23 Hun, 372; Schepp v. Carpenter, 51 N. Y., 602; Nat. Bank v. Franklin, 55 id., 231; Goodwin v. Conklin, 85 id., 21.
    Where negotiable security is taken in good faith, even though it was diverted, the holder gets a good title. Dos Passos on Stock-brokers, 564; Leitch v. Wells, 48 N.Y., 585; Dutchess Co. Ins. Co. v. Hachfield, 73 id., 226; Seybel v. Nat. Cur. Bank, 54 id., 288; People v. Bank of North Am., 75 id., 547.
    Where one permits another to be clothed with apparent' -authority to act for him, he is estopped. Comstock v. Hier, 73 N. Y., 274.
    Possession of negotiable bonds creates the presumption in favor of the holder that his possession is lawful. Dalrymple v. Hillenbrand, 62 N. Y., 6; Harger v. Worrall, 69 id., 370; First Nat. Bank v. Green, 43 id., 298; Case v. Mechanics’ Bkg. Ass’n, 4 id., 166.
    The title of a bona fide holder of negotiable security before maturity, is not affected by the fact that the person from whom he received it had possession of it for a specific purpose and misappropriated it. Collins v. Gilbert, 94 U. S., 753; Park Bank v. Watson, 42 N. Y., 490; Welch v. Sage, 47 id, 143; Seybel v. Nat. Cur. Bank, 54 id., 288; Budsall v. Russell, 29 id., 220; Colson v. Arnot, 57 id., 253.
   Per Curiam.

—The judgment appealed from should be affirmed upon the opinion of Bookstaver, J., at equity term.  