
    GEORGE V. B. FROST, Appellant v. WILLIAM E. D. STOKES, Respondent. WILLIAM E. D. STOKES, Respondent v. GEORGE V. B. FROST, Appellant.
    
      Usury—Laws 1882, Ch. 237—Call Loans—Stock Certificates, negotiability of—Demand, when good.
    
    It was not the intention of the legislature to limit the application of Ch. 237, L. 1882, to call loans upon negotiable instruments only, but said act also applies to like loans upon the securities therein specifically enumerated.
    The mere fact that certificates of stock are deposited with trustees under • certain agreements does not make them non-negotiable, and a demand loan thereon.,of not less than $5,000, the transaction being evidenced by written agreement and accompanied by the delivery to the loaner of the usual power of attorney to transfer the stock, comes under the provisions of the above statute, and the transaction constitutes a valid pledge.
    A demand of repayment accompanied by a valid tender of the collateral security is good, though not made at the place named in the contract between the parties.
    
      Before Sedgwick, Ch. J., Freedman and Truax, JJ.
    
      Decided June 13, 1887.
    Appeal from judgment entered in favor of defendant in the first above entitled action, and from judgment entered in favor of the plaintiff and against the defendant in the second above entitled action.
    The plaintiff in the first action sought to recover for alleged conversion by the defendant of certain shares of stock. The second action was brought to recover for certain advances made by the plaintiff in that action to the defendant.
    Both actions were tried together before the same referee.
    Further facts appear in the opinion.
    
      Melville Egleston, for appellant:
    I. The whole transaction is usurious and void, and no title was ever acquired by Stokes.
    II. The Kiernan Act, so-called (chap. 237, L. 1882), has no application to the cases at bar. The loan by Stokes to Frost was not made upon any of the classes of securities to which the act alone applied and was limited. The title of the act is as follows: “ An act in relation to advances of money upon warehouse receipts, bills of lading, certificates of stock, certificates of deposit, and other negotiable instruments.” By this the application of the body of the statute must be strictly limited. Brick v. Ganner, 36 Hun, 52, 55. The act clearly applies only to loans upon instruments which were negotiable at the time of the loan, and thus was of no effect as regards the transaction now in question. This view is supported by well-settled rules of statutory construction. Hudson Iron Co. v. Alger, 54 N. Y., 173. Seeking then the legislative intention in the language of the act, we find that both by its title, and in the body of the act, the loans authorized are restricted to certain specified “ and other negotiable instruments.” Wakefield v. Fargo, 90 N. Y, 213; McGaffin v. City of Cohoes, 74 Ib. 387. Now it is true that of all the particular securities specifically mentioned in the title or body of the Kiernan Act, none but bills of exchange (Dos Passos, 502) are by law or statute strictly negotiable. The others, however, all belong to a class akin, and are known as quasi-negotiable instruments. Such instruments pass by endorsement and delivery, and are in common parlance, as in the Kiernan Act, termed “ negotiable.” In construing the act, the principle of “ noseitur a soeiis ” is to be applied to the enumerated and other a negotiable ” securities. Thus it appears that the word “ negotiable ” was used in the act in its popular and generally understood sense, and was not restricted to securities strictly and in law known as negotiable. The Kiernan Act therefore required, by its language, that the securities upon which the advances might be made, should be, at least at the time of the advancements, negotiable in this sense in their character. The usury laws limit with all possible strictness the rate of interest to six per cent, per annum, and the Kiernan Act, in allowing a higher rate, must be rigidly confined to the particular cases enumerated by it as authorizing such rate. Brainard v. Hoppock, 32 N. Y, 571; Mark v. State, 97 Id., 572 ; Livingston v. Harris, 11 Wend., 329 ; Landis v. Landis, 10 Vroom, 274; Ruckman v. Ransom, 6 Ib. 565.
    III. The evident and well understood object of the Legislature in enacting, the Kiernan Law, was to enable those who from the nature of their business or from particular necessity might have occasion to borrow considerable sums for short periods, or “ on call,” to escape the penalty of usury, and the higher rate' of interest which that penalty caused the loaner to demand. To protect both the borrower and lender, the statute explicitly restricted the securities to be loaned upon thereunder to such as are known as “ negotiable,” i. e., such as pass by endorsement or delivery, can be readily tested by some recognized standard of value, and are bought and sold in open market. At the time of the loan 'and when Frost’s stock in the Mutual District Telegraph and Messenger Companies was pledged therefor, Stokes and Hartley were, and from the incorporation of the companies had been, stockholders therein. All the certificates of this stock and all legal title of the stockholders thereto, was from December 14, 1880, to March 12, 1884, and now is held by Messrs. Butler, Stillman & Hubbard as trustees, under successive syndicate agreements, signed by Frost, Stokes and Hartley, and all the other stockholders, and sales of any interest in the stock to any outsider, worked a forfeiture of the stock, and all the right of the selling stockholder thereto. The clear intent and purpose of all the stockholders and of Frost the borrower, of Stokes the lender, and Hartley the purchaser of the stock, was to render it and every share of it utterly unnegotiable.
    IY. There was no transfer of the manual possession of these certificates from Frost to Stokes. There was no symbolical delivery even of the possession, as for instance, by giving up the key of a safe; not even so much as an order, written or verbal, upon the persons in whose possession they were, for the delivery of anything to any one. The precise words of the statute are to be noted, and it will be observed that a pledge of shares generally is not spoken of at all. It is a pledge of certtfi,cates, and by this can be meant nothing less than the actual placing of the certificates themselves— the paper writings—in the possession and under the control of the leader. Moreover, quite apart from the effect of the syndicate agreement upon the negotiability of the certificate itself, it is to be observed that the cases which hold that stock certificates are negotiable or quasi-negotiable, are all cases in which there had been an actual delivery of the certificate, and we have discovered no case where it has been sought to give to the transfer or attempted transfer of stock without delivery of certificates the effect of a transfer of a negotiable instrument by endorsement and delivery. McNeil v. Tenth Nat. Bk., 46 N. Y. 325; Daniels on Neg. Instr.; Dos Passos, Stockbrokers. The two things are radically distinct, as are, we submit, the so-called deposit in the case before us, and the deposit of certificates required by the statute.
    V. The sale of the stock was unauthorized, and therefore a conversion, even though the loan and note were valid. Payment of the note was not demanded “ at the house of William E. D. Stokes, 37 Madison avenue, New York City.” Edwards on Bills, 157.
    
      Butler, Stillman & Hubbard and William Allen Butler and Wilhelmus Mynderse, of counsel, for respondent.
    I. The advance of $6,500 made by W. E. D. Stokes to George Y. B. Frost, October 2,1883, having been re-payable on demand, and having been made on certificates of stock pledged as collateral security for such repayment, it was lawful for the parties to the transaction to contract for the receipt and collection, as compensation for making such advance, of the sum agreed upon in the written instrument. Chapter 257, Laws of 1882.
    II. The certificates of stock were lawfully pledged as collateral security for the repayment of the advance, although not delivered into the manual possession of the lender. The note and agreement recites that the borrower has “ deposited with said W. E. D. Stokes, as collateral security,”.....Coupled with the note and agreement, and delivered simultaneously therewith, were irrevocable stock powers of attorney from the borrower to the lender to transfer the shares. This constituted a valid pledge, and was the equivalent of a deposit of the stock. Stokes by the duly authorized transfer “ surrendered ” the certificates and procured the issue of new certificates, which he could not have done if he did not have the control of them, and this was what the pledge gave him in fact, as well as by its terms. The essence of a pledge is the transfer of the actual control over the thing pledged. The statute does not call for a “ deposit ” but a “ pledge,” and it is the settled law that a pledge is valid without delivery of the subject of the pledge where the specific property is designated and appropriated to the pledgee. Parshall v. Eggert, 54 N. Y. 18; Macauley v. Hopkins, 35 Hun, 556; Wilson v. Little, 2 N. Y. 443 ; Bank of Rochester v. Jones, 4 Ib. 497. Even where the pledged property remains in the possession of the pledgor the pledge will be upheld according to the intent of the parties. Macauley v. Hopkins, 36 Hun, 556 ; Kingsbury v. Thomas, Ct. of Appeals, May, 1887.
    HI. The contention of the appellant’s counsel that the Act of 1882 permits the pledge only of securities negotiable at the time of the advance, and that the certificates of stock described in the note and agreement of October 2, 1883, were not on that date negotiable, but were by the trust agreement made non-negotiable, is untenable. “ Certificates of stock ” are expressly named in the Act of 1882, as permitted subjects of pledge. The words “ or other negotiable instruments ” are words of description, designating instruments which may, in addition to those particularly mentioned, be pledged under the act. Neither warehouse receipts nor bills of lading are negotiable in the same sense as bonds of corporations payable to bearer, because they do not pass by mere delivery, but they, as well as stock certificates, are negotiable by the commercial law, and Avithin the category of negotiable instruments, and- the certificates of stock in question were none the less negotiable instruments because the stockholders had chosen to agree not to place them on the generalmarket.
    These agreements were (first) those of December 14, 1880, and August 10, 1881, providing for tlm holding' of the shares of the parties interested in the telegraph and messenger companies, respectively, in trust as therein provided; and {second), the agreement of March 12, 1883, providing for distribution of the stock according to the several interests of the stockholders and the issuing of certificates of stock in the respective names of the stockholders, which was done. It was expressly provided by the last mentioned agreement, to which Frost was a party, as follows : “ And we do further severally agree, each signer of this instrument with each other signer hereof, not to sell, transfer or hypothecate the said stock of the said companies issued in our respective-names or our interest in the same, at any time before? the said twelfth day of March, 1884, to any person other than to some one of the parties to this agreement, except with the consent in writing of the other signers thereof.” The pledge of the stock by Frost to Stokes was made October 2, 1883. His certificates of stock then outstanding in his name were negotiable instruments, although subject to the agreement which restricted the market for their sale or hypothecation. But they were certificates of stock within the description of the statute. They were negotiable by their terms, and they were, in fact, negotiated by the transaction between Frost and Stokes.
    IV. There was no error in the finding of the referee as to the sufficiency of the demand. As against the maker of a note the place of demand is not material, or, if material, it must be pleaded and the plea supported by proof. Edwards on Bills, § 182; Hills v. Place, 48 N. Y. 520.
   By the Court.—Truax, J.

In October, 1883, Mr. Stokes, at the request of Mr. Frost, lent him the sum of $6,200.

At the time this loan was made, Mr. Frost gave to Mr. Stokes a certain paper, in and by which he promised to pay to Mr. Stokes or order, at the house of Mr. Stokes, 37 Madison Avenue, $6,200, on demand, with interest at 12 per cent, per annum.

This paper also recited that the said Frost had deposited with the said Stokes, as collateral security, one hundred shares of Mutual District Telegraph Company stock, and ten shares of Mutual District Messenger Company, limited, stock, which was then in the hands of Butler, Stillman & Hubbard, trustees, and it authorized the said Stokes to sell said stock without notice, at the Board of Brokers, or at public or private sale, at the option of the said Stokes, in case of non-payment by said Frost, and to apply the net proceeds of the sale to the payment of the indebtedness, including interest.

Mr. Frost did not pay the note on demand, and thereupon Mr. Stokes, at private sale, disposed of the col-, lateral, but not for a sum sufficient to pay the amount of Frost’s indebtedness to him.

It is to recover the amount due him that Mr. Stokes brings his action, while Mr. Frost brings his action to recover the value of the stock which he alleges has been converted by Mr. Stokes.

■ Mr. Frost claims that the transaction between himself and Mr. Stokes was usurious and void, because of the agreement to pay more than the legal rate of interest, while Mr. Stokes says that the said transaction is within chapter 237 of the Laws of 1882, and therefore is not usurious and void.

That chapter provides that “ in any case hereafter in which advances of money, re-payable on demand, to an amount not less than $5,000, are made upon warehouse receipts, bills of lading, certificates of stock, certificates of deposit, bills of exchange, bonds, or other negotiable instruments, pledged as collateral security for such repayment, it shall be. lawful to receive, or to contract to receive and collect, as compensation for making such advances, any sum to be agreed upon in writing by the parties to the transaction.”

The loan made by Mr. Stokes was rc-payable on demand,'and was for more than $5,000. It was made upon certain certificates of stock which were pledged with the lender as collateral security for such repayment.

The appellant contends that it was the intention of the legislature to protect only instruments that are negotiable, and he also contends that the certificates pledged by him were not negotiable, because they were then in the hands of trustees, and that therefore the transaction was not protected by the Act above referred to.

It is to be noticed that none of the securities mentioned in the statute, except bills of exchange, are strictly negotiable, and therefore the statute must be construed to mean that a loan may be made upon warehouse receipts,.....bonds, or other instruments which are negotiable. But if it was intended to class certificates of stock with negotiable instruments, then the mere fact that these certificates had been deposited with trustees, under certain agreements, did not make them non-negotiable.

On the execution of the agreement between the appellant and the respondent, the certificates came into the constructive possession of the respondent, for the trustees then became the agents of the respondent and held the stock for him.

At the time the pledge was made the appellant gave to the respondent the usual powers of attorney to transfer the stock.

On the 6th day of February, through those powers of attorney, the respondent surrendered the two stock certificates which were then standing in appellant’s name, and procured to be issued to him new certificates in his own name.

' This was more than a month prior to the time of the respondent’s demand for the repayment of the loan,, and was, so the appellant claims, a conversion of the stock-at that time.

But it is to be noticed that in his complaint the plaintiff does not allege that the conversion was made on the 6th day of February, 1884. He alleges that the conversion was made at the time that the respondent sold the certificates of stock, after the demand was made by him on the appellant, for the repayment of the loan. Nor does the appellant allege in his complaint any demand by him before the bringing of his action for said certificates of stock. Moreover, the evidence shows that the respondent had the certificates of the shares with him at the time he made the demand for repayment on the appellant, and then, if the appellant had complied Avith the demand, and had repaid the money, the certificates would have been returned to him. But the appellant refused so to do. He refused to pay any more than six per cent., which he claimed was the legal rate of interest. The appellant also claims that there Avas no legal demand made on him for the repayment of the money, and he bases this claim on the provision in the note that the money should be repaid at the house of the respondent.

There is no evidence that any demand was made at the house of the respondent, but we are of the opinion that this place Avas not a place fixed as the only place where a demand could be made.

A demand was made, and at the time of the demand the note, and stock collateral to it, were tendered. This is all that was required by the contract between the parties. °

The vieAV that we have taken renders it unnecessary for us to discuss, the alleged errors as to the rulings of the referee on the evidence relating to the measure of damages.

The judgments appealed from are affirmed, Avith costs and disbursements.

Freedman, J., concurred.

Sedgwick, Ch. J.

In my opinion the judgments should be affirmed with costs.  