
    Frederick H. Smith, Jr., App’lt, v. Francis W. Savin et al., Resp’ts.
    
      (Supreme Court, General Term, First Department,
    
    
      Filed February 14, 1890.)
    
    1. Stocks—Hypothecation—Surplus on sale not applicable to deficiency IN OTHER DISTINCT TRANSACTIONS.
    The plaintiff had been a customer of B. & Co., stock brokers, and in May had with them a large amount of securities, to provide for overdrafts, etc. On the 13th, he owed them §48,170.79. On the 8th, B. & Co., without plaintiff’s knowledge, hypothecated to the Q. T. Co. §55,000 of his bonds and received §55,000 cash, which plaintiff subsequently had to pay to redeem the bonds. On the 13th, B. & Co. made a call loan from the defendants, Savin & Vanderhoff, for $50,000, and deposited certain stocks, as collateral. The same day they made another loan for the same sum with the same persons, and deposited further stocks, among which was plaintiff’s certificate in suit. All these hypothecations were without plaintiff's knowledge. On the 14th B. & Co., made a general assignment to the • defendant, Wheeler. Notice of this was read at the Stock Exchange at. 10:30. Immediately Savin went to B. & Oo. and demanded payment of the loans. This not being made, he went to the Exchange and sold' out the stocks, but without notice to B. & Co., or to the assignee, or to plaintiff. Upon attempting to deliver plaintiff’s certificate, objection was made to the power of attorney, and this sale was not perfected until June 31. After closing out, there was a surplus on the first loan for $50,000 of $4,393.05, and on the second, which in part was made up of plaintiff’s certificate, there was a surplus of $3,.'.11.81. There had been other transactions between B. & Co. and Savin & Vanderboff. On the same day the latter closed them out, and on them there was a deficiency of $5,131.35. In this action to reach the proceeds of plaintiff’s certificate alleged to be. in the hands of the defendants, Savin & Vanderhoff, the referee held that the latter could deduct from the total surplus upon the sales above, the: amount of said deficiency. Held, error.
    3. Same.
    B. & Co. had no legal claim against plaintiff for advances on the 14th. Since they had, without his knowledge or consent, pledged his securities for their own indebtedness, the rights of the parties in said surplus are to be considered entirely free from considerations which might arise had B. & Co. not converted plaintiff’s certificate.
    3. Same.
    It was error to mingle the surplus arising from the closing out of the different loans and to deduct from their total the debt of B. & Co. to Savin & Vanderhoff, it appearing that in some of their loans plaintiff had. no interest.
    4. Same—Rights oe owneb oe convebted security.
    The claim of B. & Co.’s assignee that plaintiff should have only such-proportion of the surplus as his stock bore to the whole amount of securities pledged cannot be sustained, since B. & Co. had converted plaintiff’s, securities and as to him were wrong-doers.
    5. Same—Regularity oe sale.
    The plaintiff seeking to make Savin & Vanderhoff account for the proceeds of his stock in their hands cannot now question the regularity of the-sales, without notice, made by them on the stock exchange.
    6. Same—Bona eide holder.
    The fact that the power of attorney attached to plaintiff’s certificate was: defective does not affect the legal right of Savin & Vanderhoff to hold the security, as between them and plaintiff; and they must be held to be dona fide holders of the certificate.
    Appeal by the plaintiff and one of the defendants from a judgment entered upon the report of a referee in favor of the-plaintiff.
    
      Leslie W. Russell, for pl’ff, app’lt; Jno. Notman, for def’t Wheeler, app’lt; Thaddeus D. Kenneson, for resp’ts.
   Van Brunt, P. J.

This action was brought to reach the proceeds arising from the sale of 100 shares of the stock of the Missouri Pacific Railroad Company alleged to be in the possession of the defendants Savin and Vanderhoff. The action having been referred to a referee the following facts appeared: For many years prior to the dates mentioned in the complaint the plaintiff had been doing a banking business with the firm of O. M. Bogart & Oo. In the fore part of May, 1884, he deposited with them a. large amount of stock and United States bonds as security for any overdrafts he might make. On the 13th day of that month he was indebted to that firm in the sum of $48,170.79. O. M. Bogart & Co., without the plaintiff’s knowledge and consent, pledged the stock and bonds of the plaintiff as security for certain moneys which they had borrowed from divers persons.

On the 8th- of May they had hypothecated to the General Trust Company §55,000 of United States bonds belonging to the plaintiff and received therefor §55,000 in cash, which the plaintiff subsequentíy, on the 26th of May, had to pay to said trust company in order to redeem said bonds. On the 13th of May the firm of Bogart & Co. negotiated a call loan with the defendants Savin & Yanderhoff of $50,000 and as collateral security therefor deposited a large amount of stocks.' Subsequently on the same day they negotiated another loan of $50,000 with Savin & Yanderhoff and deposited as collateral therefor a large quantity of stocks among, which was a certificate No. 9728 for 100 shares of Missouri Pacific stock belonging to the plaintiff, being the stock mentioned in the complaint. These hypothecations were made without the knowledge and consent of the plaintiff. It further appeared that there were also certain other transactions between Bogart & Co. and Savin & Yanderhoff which had taken place prior to the 13th of May, 1884.

On the 14th of May, Bogart & Co. made a general assignment for the benefit of creditors to the defendant W heeler, notice of which assignment was read off in the Stock Exchange at about 10:30 A. M. of that day.

Upon hearing the announcement of the failure, Savin, with the securities for the two loans, went to the office of Bogart & Co. and there made a demand for the payment of the loans. They not being paid he went to the Stock Exchange and sold out the stocks. No notice of such sale was ever given to Bogart & Co., to Wheeler, the assignee, or to the plaintiff. Under this sale the defendant, Savin, undertook to deliver the stock so sold, but the purchaser refused to accept the 100 shares of Missouri Pacific standing in the plaintiff’s name, because of some irregularity in reference to the power of attorney attached to the certificate of stock. Savin & Yanderhoff attempted to have said stock transferred to their names, but in consequence of a notice which the plaintiff had given to the company, the company refused to make such transfer until they were indemnified, and said transfer was not perfected until about the 21st of June, when they delivered the said stock upon the sale made by them.

Upon the sale of the stock hypothecated for the first §50,000 loan there resulted a surplus of $4,293.05, and on the sale of the stock hypothecated for the second loan for which the plaintiff’s 100 shares of Missouri Pacific were also pledged, there resulted a surplus of $3,511.81. On the same day the defendants Savin & Yanderhoff undertook to close out their other transactions with Bogart & Go. by the purchase and sale of stocks and there resulted a deficiency of $5,131.35 on these transactions, leaving Bogart & Go. indebted to them in that amount, which sum the defendant Savin claimed the right to deduct from the surplus arising upon the sale of stocks mentioned leaving a balance in their hands after deducting commissions amounting to the sum of $2,733.61. The referee sustained their claim and gave judgment for the plaintiff for said amount and to the defendants Savin & Yanderhoff for their costs.

It would seem to be clear that the firm of Bogart & Co. had no-enforceable claim on the 14th of May, 1884, against the plaintiff for their advances to him, because they had without the plaintiff’s knowledge or consent pledged the securities belonging to him to secure their own indebtedness. If upon the day in question Bogart & Co. had made any claim upon the plaintiff because of their advances to him, the fact of their conversion of his securities would have been a complete defense to any such claim; and we must, therefore consider the rights of the parties in reference to the proportion of the surplus arising on the sale of these stocks by Savin & Vanderhoff entirely independent of and free from any claim that Bogart & Co. might have had against Smith had they not misappropriated the collaterals which he had deposited with them.

It would appear that the various transactions between Bogart & Co. and the defendants Savin and Vanderhoff were separate and distrinct and that the collaterals deposited as security for one transaction had no relation to the collaterals deposited as security for the other transactions, and therefore, as against parties who are the true owners of the securities which were pledged upon these various loans, the firm of Savin & Yanderhoff are holders for value only to the extent of the particular loans made upon the particular securities.

It appears from the evidence that upon the sale of the securities pledged upon the first loan of $50,000 a surplus arose of $4,293.05, and that upon the sale of the securities pledged upon the second loan, including the 100 shares of Missouri Pacific stock, a surplus was realized of $3,511.81, and that upon the closing out of the other stock transactions between Bogart and Savin & Yanderhoff, Bogart remained indebted to Savin & Yanderhoff in "the sum of $5,131.25, as has already been stated.

The learned referee in settling the rights of the parties under this state of facts, commingled the surplus arising upon the sale of the stocks into one fund, and deducted the indebtedness due to Savin from Bogart therefrom, giving the plaintiff judgment for the balance.

We do-not see how any such commingling of those funds can be supported. Neither can the claim made upon the part of the plaintiff that he is entitled to the surplus arising from the sale of the stocks pledged as collateral to both loans, because upon the first loan made on the 14th of May there does not seem to have been any stock of the plaintiff pledged, and it is only in the second loan that his 100 shares of Missouri Pacific stock were pledged. Savin & Yanderhoff would have no right to charge their general indebtedness against any portion of this surplus to the detriment of the rights of the plaintiff; but the plaintiff would have a right to recover the $3,511.81, the surplus arising from the sales of the. stocks amongst which were the plaintiff’s shares in the absence of other claims and the proof of other rights to this fund.

The claim made upon the part of the assignee that the plaintiff should only have such proportion of this surplus as his stock boro to the whole of the securities pledged cannot be sustained. Bogart & Co. were wrongdoers, as far as the plaintiff was concerned, and their representative can claim no rights in any portion of this surplus because under such circumstances equity would require the loan to be paid out of the other securities pledged before resort could be had to the stock belonging to the plaintiff which had been wrongfully appropriated. But we cannot see any reason for the allowance of any claim upon the part of the plaintiff for the surplus, remaining after the sale of the securities pledged upon the first loan as none of the plaintiff’s stocks were contained in such pledge and he consequently could have no interest in their proceeds.

As to the claim that Savin and Vanderhoff should be charged with the value of the Missouri Pacific stock as of the 21st of June, 1884, we do not think it can be sustained. These shares were sold on the 14th of May, and because of the peculiar power of attorney attached to the certificate they were not a good delivery upon the Stock Exchange, and because of the notice given by the plaintiff not to transfer the same Savin and Vanderhoff were unable to transfer the same as authorized to do by the power ■ of attorney which the plaintiff had attached to the certificates. They, therefore, borrowed the stock to deliver under the sale of the 14th of May, until they were enabled by indemnifying the company to place themselves in a position to transfer the stock standing in the name of the plaintiff and thus return the stock borrowed.

Under this state of facts the legal result would seem to be that the stock was sold on the 14tli of May, but the delivery of the same, in consequence of the circumstances which have been adverted to, was not made until the 21st of June.

It does not seem to us that there is any question in regard to the regularity of the sales of the stocks by Savin and Vanderhoff which can be raised by the plaintiff now because no such claim is set up in the complaint. The relief asked for is that Savin & Vanderhoff account for the proceeds of the sale thereof, and the theory upon which the cause of action is there stated is that the plaintiff is entitled to the proceeds of the sale of this stock.

Ueither can the objection be sustained that Savin & Vanderhoff were not bona fide holders of this 100 shares of Missouri Pacific stock because of the peculiar character of the power of attorney attached to the certificate. The mere fact that a certificate with such power of attorney attached was not a good delivery upon the Stock Exchange unless acknowledged, etc., in no way affected their legal right to hold the security to which the plaintiff had attached this power of attorney for the purpose of enabling the holder of that certificate to transfer the shares thereby represented upon the books of the company.

it has not been deemed necessary ujion this appeal to consider the question as to the money remaining in the hands of the Stock Exchange, as for the reasons already stated the judgment-must be reversed and a new trial had. We, therefore, express no-opinion as to the propriety of the position taken by the referee in reference to the claim as made by the defendant, the assignee of Bogart & Co., in that respect.

Eor the reasons already stated, the judgment appealed from must be reversed and a new trial ordered, with costs to the appellant to abide the event.

Daniels, J., concurs ; Brady, J., concurs in the result.  