
    Lewis Fatman and others v. William Lobach and another.
    (Before Oakley, Ch. J., and Bosworth, J.)
    Nov. 10th:
    Dec. 11th, 1851.
    A person who in good faith advances money to the holder of a certificate of stock to which a power of attorney is annexed, which is expressed to be for value received, and on its face is irrevocable, although the power is in blank as to the name of the attorney, acquires by the delivery to him as collateral security of the certificate and power, a valid title against the person by whom the power was executed, and in whose name the stock is standing.
    The lender in such a case has the right to believe that the holder of the certificate and power is the owner of the stock, and has an absblute right to hypothecate as well as to sell it.
    He is therefore not bound to surrender the certificate and power to the -original owner of the stock, unless upon the repayment with interest of his whole advance, although such owner may have satisfied the debt for which he had himself pledged the stock.
    
      'Held, upon these grounds, .that the defendants were entitled to judgment.
    This was an action to compel the return and delivery to the plaintiff of certain certificates of stock, or in default thereof, the payment by the defendants, as the value of the stock, of $15 25, with interest.
    The cause was tried before Mr. Justice Campbell, and a jury, on the 21st of June, 1852. In order that the application of the evidence given on the trial may be properly understood, it will be necessary to state the substance of the pleadings.
    The complaint stated that the plaintiffs were partners under the name and firm of S. Fatman & Co., and on or about the 16th of August, 1851, were the owners of ten shares of the capital stock of the Columbia Insurance Company, a corporation under the laws of Pennsylvania, worth the sum of $400 ; of twenty-five shares of th'e Astor Insurance Company, á corporation under the laws of Hew York, worth the sum of $625, and of scrip of the Atlantic Insurance Company, also a Hew York Corporation, for and worth the sum of $500, for the first two of which stocks they held a certificate in their own names; for the third a certificate in the name of Joseph Fatman, trustee. That on the day above-named, they borrowed, of one F. Esenwein, the sum of $3000, and as a security for the repayment of the loan with interest, transferred to him a promissory note of R. ■ H. Arkenburgh, dated the 12th of May, 1851, payable four months after date, for $l,620T„ff, another promissory note of C. R. Donaldson, dated May 10th, 1851, payable four months after .date, for $686x\\, and also delivered to him, the said Esenwein, the certificates of stock above-mentioned, with power of attorney to transfer the same, such power being in blank as to the names of the attorney and of the’ transferee; that the said Esenwein, without notice to the plaintiffs, and without demanding of them repayment of the said loan, on or about the same day, handed over the said certificates, power of attorney, and promissory notes to the defendants, partners, under the firm of Lobach & Schepeler, as security, it was alleged, for a loan made by them to the said Esenwein.
    The complaint further alleged, that as soon as the plaintiffs heard of the transaction between Esenwein and the defendants, they tendered to the latter the sum of $3000, and demanded from them a return of the said notes, certificates, and powers, with which demand the defendants refused to comply.
    The complaint further stated, that the said promissory notes had been duly paid at their maturity, and said that after such payment, the plaintiff duly tendered to the defendants the sum of BílS^/g-, being the balance with interest, due from them, on their loan of $3000, b.ut that the defendants had refused to accept the tender and deliver up the certificates. The plaintiffs therefore demanded judgment—that the defendants, on the payment to them of $715t'/7, should be adjudged to return to the plaintiffs the said certificates, and to deliver up the said powers of attorney to be cancelled, or in default thereof, to pay to the plaintiffs the value of the certificates, being the sum of $1,525, with interest.
    The defence set up in the answer was, that the defendants, on or about the 15th of August, 1851, lent and advanced to Esenwein the sum of $5000, upon the pledge and hypothecation by him of the shares of stock mentioned in the complaint, and upon the further security of the following promissory notes, one paid by R. H. Arkenburgh, due 15th September, 1851, for $1620TYX; another made by one Charles ■ R. Donaldson, due 13th September, 1851, for $686TW, both of which were endorsed by plaintiffs, and a third, made by one Henry C. Stevenson, due 12th December, 1851, for $1,661tul. That in consideration of such loan, and to secure its repayment, the said F. Esenwein, by his duly authorized attorney, Charles Esenwein, simultaneously therewith, executed and delivered to the defendants the following promissory note, commonly called a stock note.
    $5,000. Hew York, August 16,1851.
    On demand, I promise to pay to Messrs. William Lobach & Schepeler or order five thousand dollars for value received, with interest at the rate of 7 per cent, per annum, having deposited with them as collateral security (with authority to sell the same on the performance of this promise) $1525 in three insurance stocks and 3968.28 3 notes.
    Feedeeick Esenwein,
    per Chas. Esenwein.
    And at the same time delivered to the defendants the certificates of stock mentioned in the complaint, and also separate powers of attorney to transfer the same, two of which were duly executed by the plaintiffs, and the third by Joseph Fatman, trustee. The answer set forth the powers, each of which was in the following form:
    Know all men by these presents, that we, the undersigned, for value recei/oed, do hereby irrevocably constitute and appoint to be our true and lawful attorney, for and in our name and behalf, to sell, assign, and transfer unto or any other persons or persons, twenty-five shares in the capital stock of the Astor Fire Insurance Company. And further, one or more persons under us to substitute with like power.
    
    In witness whereof, we have hereunto set our hand and seal, this 14th day of August, 1851.
    Lewis Fatman & Co.
    Sealed and delivered in the ) presence of f
    The answer then alleged that these powers had been filled up with the names of the defendants, as attorneys and transferees, and transfers demanded on the books of the said companies before any tender was made to them by the plaintiff. It then proceeded, as follows
    “ And the said defendants further show, that such stock assignments or powers to transfer stocks, are and were at the time hereinbefore mentioned, by usage and custom within this state, negotiable instruments, vesting the bearer or holder thereof for the time being with the title and ownership of the stocks and scrip which they represent, and authorizing such bearers or holders thereof to fill up the blanks therein with the names of such transferees of the said stocks, and of scrip, and of such attorney to transfer the same as they might elect, that the said defendants advanced the said sum of five thousand dollars upon the pledge and hypothecation of the said stocks and scrip in good faith, in the ordinary course of business, and without any notice that the said Frederick Esenwein was not the full and absolute owner thereof, for a valuable consideration.
    “ And the said defendants further say, that the whole amount of the said loan so made by them to the said Frederick Esenwein still remains, and is due and unpaid, with the exception of the amounts of the said two promissory notes of R. H. Arkenburgh and Charles R. Donaldson, which have been paid, leaving due and unpaid to the said defendants a balance of the said loan, amounting to the sum of twenty-six hundred and ninety-two TW dollars, besides interest, for which amount and interest the said defendants are advised and respectively insist that they have a lien upon the said stocks and scrips, and a right to sell and transfer the same, and apply the proceeds to the payment of the balance due on the said loan, with interest and charges.” »
    The reply took issue upon the material allegations in the answer.
    Upon the trial the following facts were admitted by the respective parties:—
    “That on the sixteenth day of August, one thousand eight hundred and fifty-one, the plaintiffs borrowed of one F. Esenwein the sum of three thousand dollars, and as collateral seenrity therefor, delivered to Esenwein the certificates of stock and the scrip, with the blank powers of attorney, and note of E. A. Arkenburgh, for one thousand six hundred and twenty dollars and twenty-four cents, and of C. E. Donaldson for six hundred and eighty-six dollars and eighty-eight cents, all described in the complaint; and that, on the same day, Esenwein, adding to these securities the note of Stephenson, described in the pleadings, borrowed from the defendants the sum of five thousand dollars, for which he gave them his own note for five thousand dollars, as mentioned in the pleadings, and as collateral thereto, handed over said securities and note to the defendants, with the stock certificates, and scrip, and powers of attorney for the transfer of said stock and scrip, the same being still in blank. It was also admitted by defendants’ counsel that the Stephenson note was not paid. It was also admitted by said counsel that the said stock and scrip were not transferred by the companies to Esenwein, and also, that .the blank powers were not filled up to him, but that said blank powers were filled up by the defendants with their own names as the transferees and attorneys to transfer, after the first demand had been made wpon them by Joseph Eatman, and the said powers presented, to the said companies with the certificate and scrip, and transfers demanded in pursuance thereof, which the companies refused, such transfers having been forbidden by the plaintiffs.”
    The value of the stock was admitted to be $1,525, subject to, adjustment. It was also admitted that F. Esenwein was insolvent to a large amount. Several witnesses were then examined on the part of the defendants to prove the usage set up in the answer. Their testimony was objected to by the counsel for the plaintiffs, and as it was disregarded in the opinion of the court, it is unnecessary to be stated.
    The evidence was then' closed, and, under a charge of the court, the jury found a xerdñct for the jplaintiffs for the full amount claimed and interest, subject, however, to the opinion of the court at general term, on a case to be made, with liberty to turn same into a bill of exceptions, and subject to adjustment as to amount, with liberty to the court to order a nonsuit or judgment for defendants, the case to be heard in the first instance at a general term.
    
      
      E. S. Van Winkle, for plaintiffs,
    insisted that they were entitled to judgment upon the verdict, upon the following grounds:
    I. The delivery of the powets in blank to Esenwein, can only be held to be an implied authority to him to fill up the blanks therein, when it was rightful and proper for him to do so—that is, upon the plaintiffs’ failure to repay their loan; but that exigency never having arisen, Esenwein never had any rightful authority, express or implied, to fill the blank. (Ex parte Decker, 6 Cowen, 60.)
    II. But whatever implied authority rested in Esenwein to fill in the blanks in the executed powers, none such was ever vested in the defendants.
    HI. The certificates were not negotiable, and did not pass by delivery; and there was no power ever given, even to Esenwein, to pledge or hypothecate the stocks, but merely to sell, assign, and transfer them. (2 Kent’s Commentaries, 579; 4 Kent’s Commentaries, 138; Allen v. Dykers, 7 Hill’s Rep. 501; Daley on Agency, 213, 218; De Bouchout v. Goldsmid, 5 Ves. p. 211.)
    IY. The courts will not complete a defective security, except to carry out the purposes of the instrument.
    Y. Ho usage or custom can control a rule of law. (Thompson v. Ashton, 14 Johns. Rep. 316; Hinton v. Locke, 5 Hill, 437; Allen v. Dykers, 3 Hill, 593, affd. 7 Hill, 497.)
    YI. Judgment should be for the plaintiffs according to the prayer of the éomplaint, either that the defendants return the securities and cancel the powers, or pay plaintiffs the value thereof as fixed by the verdict.
    
      J. Larocque, contra.
    The powers to transfer in this case are powers coupled with an interest. They, express a valuable consideration on their face. A valuable consideration was in fact given for them. They are irrevocable by their express terms, and contain the fullest possible power of substitution. Independently, therefore, of any consideration of custom or usage, in regard to the mode of transferring and passing the title to stocks, the defendants acquired a good title by the pledge of the securities and transfer of the certificates and powers of attorney to them, to the full extent of the $5,000 advanced upon such pledge and interest. 1. The words “ value received,” in the powers to transfer, by fair construction, mean that the plaintiffs had received full value for the stocks from the person to whom the certificates and powers were originally given, and that inference the defendants were justified in drawing from the language used. 2. The powers to transfer being irrevocable on their face, and containing an unlimited power of substitution, vested in Esenwein an absolute control over the stocks, and would entitle the defendants, in any event, to hold the stocks as the substituted attorneys of the plaintiffs, under the power of substitution, and as security for the repayment of their value, the receipt of which by the plaintiffs from the original agent, the power acknowledged on its face, and which the defendants were accordingly justified in repaying to the agent on being substituted. (Story on Agency, § 476-7: Hunt v. Rousmaniere, 2 Mason, 244; Hancock v. Byrne, 5 Dana, 514; Angell and Ames on Corporations, 2d ed. p. 445; Gilbert v. The Manchester Iron Manufacturing Co., 11 Wend. 627.) The rule of law, that where one of two innocent parties is to suffer by the act of an agent, he who appointed the agent, and put.it in his power to defraud, should be the loser, applies in the full force, in this case, against the plaintiffs and in favor of the defendants. (North River Bank v. Aymar, 3 Hill, 268, and cases cited.) The testimony as to custom and usage, in the transfer of stocks, offered by the defendants, was properly admitted, stands entirely uncontradicted, and is conclusive upon the rights of the parties in this case. (Commercial Bank of Buffalo v. Kortright, in Court of Errors, 22 Wend. 348; same case m Supreme Court, 20 Wend. 91.) This being not an- action of trover, but the plaintiffs having chosen to appeal to the equitable powers of the court to compel the return of the certificates to them, and the cancellation of the powers to transfer, the rule that he who seeks equity must do equity, is fairly applicable ; and the rule of equity in this case is, the repayment of the whole balance of the five thousand dollar loan and interest. There should, therefore, be judgment for the defendants with costs.
   By the Court. Oakley, Ch. J.

The question is, whether the defendants, having advanced their money in good faith to Esenwein, upon the pledge of the stocks, are entitled to retain them, until the balance still due to them shall be satisfied, and we are clearly of opinion that they are so entitled, both in law and in equity. ' «

As each certificate was accompanied by a power of attorney which was expressed to be given for value received, and, on its face, was irrevocable, the defendants were fully justified in believing that Esenwein was the equitable owner of the shares, and had a perfect right to make an absolute or conditional transfer, to sell, or hypothecate them. Such a certificate annexed to or accompanying a blank power of attorney, we cannot doubt, not only according to the understanding of men in business, but upon well settled principles of law, passes by delivery an equitable title to a bond, fide purchaser; nor can such purchaser be justly prevented from converting his equitable into a legal title, by filling up and exercising the power, whenever he is entitled to do so by the nature or terms of the contract under which the certificates were delivered to him. Where the stock is sold absolutely, his. right thus to perfect his title is immediate ; where it is hypothecated, the right accrues when the debt meant to be secured becomes due and remains unpaid. Whether in the present case the powers of attorney were filled up before the plaintiffs made their tender, and demanded a return of the certificates, is, in our judgment, wholly immaterial. Fo tender short of the whole debt due to the defendants, could deprive them of their right to use the powers for the purpose for which they received them.

It was admitted by the counsel for the plaintiffs, that had the stocks been sold absolutely to the defendants, their title to retain them could not be questioned, but we cannot admit the distinction between a sale and a pledge which the counsel urged us to adopt. As the certificates and powers in the hands of Esenwein were presumptive evidence of his ownership, he had the same apparent right and authority to hypothecate the stocks, as to sell them.

There is no rule of law of which the equity is more manifest, or which is better sustained by reasons of public policy, than that which casts a loss, resulting from the fraud of a third person, upon the party who by employing and trusting such person enabled him to commit it (White v. Springfield Bank, 3 Sandford, 229, and eases there cited). And we doubt whether a case is to be found' in the books to which it is more evident that the rule ought to be applied. Had the plaintiffs placed their notes and certificates, with an ordinary power of transfer, in the hands of Esenwein merely as their agent, and broker, with instructions 'to procure upon them, in his own name, but upon their account; a loan of $5,000 ; and had Esenwein, after obtaining such a loan from the defendants, converted the whole sum to his own yse, it cannot for a moment be doubted, that a loss resulting from his subsequent flight or insolvency, must have been borne wholly by the plaintiffs. It will not be pretended that in such a case they could have claimed a return of the stocks, upon any other terms than the full payment of tire debt for which they were pledged.- The case before us not only rests upon the same principle, but is far stronger in its circumstances. Here Esenwein was not a mere agent, but a holder for value. The papers placed in his hands were evidence, not only of his authority, but of his ownership, and the plaintiffs have received from him $3,000 of the $5,000 which the defendants "advanced. It is with far less reason therefore that the plaintiffs can apply to a court of justice, to be relieved, at the expense of the defendants, from the consequences of the fraud, which, by their misplaced confidence, they enabled Esenwein to commit.

As we do not found our decision at all upon the usage that was proved upon the trial, it is unnecessary to say whether in our opinion the evidence was properly admitted. It may be considered as stricken fromthe case.

The verdict for the plaintiff must be set aside, and a verdict and judgment thereon, with costs, be entered fort the defendants.  