Wells, Justice, delivered the following opinion, concurring with the opinion of Mr. Justice Heydenfeldt.
The city scrip and requisitions, alleged to have been fraudulently converted by the defendant to his own use, were transferred to him by assignments in writing, absolute on their face, for value received, and carrying with them the jus disponendi. But it is insisted, on the part of the plaintiff, that notwithstanding the absolute transfer of the property and legal title in these securities, still they were, in truth and in fact, only held by the defendant in pledge, as collateral security; and being so held, that the sale of them by defendant without demand of payment, and notice of the time and place of sale, was a conversion, and a fraud upon the plaintiff.
The rule of law as stated is doubtless correct as applied to a proper case, and the point here is, whether such a case is presented as renders the rule applicable ?
It will not be denied that collateral security may be held in as many various ways and subject to as many different conditions, as there is variety in the objects and character of contracts; thus: personal property, merchandize, or stock, may be held as collateral security, in the nature of a mortgage, in which the parties could agree that in case of non-payment, the right of property should become absolute, and that, without notice or foreclosure ; or, it may be held as a pledge, the right of restoration upon the payment of the debt, being reserved to the debtor; and it is competent for the parties to contract, that the goods or stock thus pledged as collateral may be sold with or without notice, and upon non-payment without demand of payment. So, also, goods or stock, or other securities, may be held by the creditor under an absolute transfer, in trust for the debtor, with the power in the creditor to sell and reimburse himself for advances made, or to provide himself from time to time with funds to meet the additional demands of his debtor, and to pay his drafts, or in other [160]words, it is competent for parties to form these contracts to suit themselves, and courts of law will be governed by the plain import of the language of the contract in each particular case.
The transfers of the property in the present case were, as we ^have seen, absolute upon their face, and carried with them the undoubted and unrestricted right in the defendant to sell, and convey, and convert at his pleasure; and if that right was qualified or limited in any manner, or controlled by an agreement between the parties to the contract, that fact must be established. It is conceded by the defendant in his answer, and upon the argument, that he was intrusted with these securities for the purpose of indemnifying himself for advances made, and that he had the right to do with them whatever might be necessary or proper for his own protection ; and he especially sets up, that it was distinctly understood that if the moneys advanced should remain unpaid, after becoming due, he should have the right to sell without demand and without notice ; beyond this admission of defendant, there is no proof whatever to show that the transfer of the property to him was in any degree qualified or conditional, and if taken as evidence against him, must be taken in connection with the allegation of his right to sell. It is said by the court below, that this is a pledge in its strictest sense, and upon this assumption, it rules that therefore the creditor had no legal authority to sell; but this assumption cannot be maintained. I do not question, that if this were merely a pledge on deposit of the securities, to secure the payment of a certain sum of money upon a future day, without the power of sale, that the right to redeem and to a restoration of the property would be reserved to the creditor, and that sale could not be made without previous demand of payment and notice; but this cannot be assumed in this case in the face of the absolute transfer and power to sell; and upon the state of facts shown, the legal presumption cannot be raised. On the contrary, the legal presumption is, that the transfer being absolute, the right to sell and dispose of the property was perfect; and even though it could be said that this was strictly a pledge, yet the pledge was accompanied by the unqualified power to sell without demand and without notice. And who shall say that such was not the intention of the parties ? It was perfectly com[161]petent for the plaintiff to agree that the defendant should have the right to sell and dispose of the scrip, to convert the requisitions into bonds, and to dispose of them at such times and at such places, and in such manner as he should deem best and most prudent for the interests of all parties; and, indeed, it was consistent with the defendant’s interest that he should have such power for his own protection, and to reimburse himself for advances made, and equally so with the plaintiff’s object to reduce the amount of interest, which he complained was “ eating him up;” and it was consistent also with the terms of the contract, and with the employment and occupation of the defendant in connection therewith. Moreover, no proof of any character whatever is adduced to establish the fact, that this full and complete power of sale was not intended to be given. The position of the court below, and the respondent here, is based solely upon the rule of law that in case of a naked pledge as collateral security, the authority to sell, when not expressly given, cannot be exercised without demand of payment and notice. As I have already stated, this is not such a case, and the rule is therefore inapplicable. An examination of the cases cited by the respondent, and relied upon by him as authority, will show wherein the rule fails to apply. In the case of Wilson v. Little, 2 Comstock, p. 443, the plaintiff, through his broker, negotiated a loan of ¡$2000 with Little & Co., and gave, as collateral security, fifty shares of Erie railroad stocks The contract was in writing, in the shape of a promissory note, which set forth that the plaintiff had deposited the stock described with the defendant, as collateral security, with authority to sell the same on the non-performance of the promise, without notice; and at the same time he made a transfer of the stock on the books of the company to the defendant. In deciding the case, the court, per Rügsm¡s, Justice, says, “In the present case, the note for the repayment of the loan and the transfer of the stock were parts of the same transaction, and are to be construed together. The transfer, if regarded by itself, is absolute, but its object and character are qualified and explained by the contemporaneous paper, which declares it to be a deposit of the stock as collateral security for the payment of $2000and it was there held, that the creditor [162]could not sell the same until he had first demanded payment of the debtor ; but it will be observed also, that there the creditor sold before demand, and that the note was payable on demand, and the authority to sell was given only in case of non-performance. So also in Allen v. Dickens & Allstyne, 3 Hill, 594. In that case there was a loan of money, and a promissory note for the payment of the amount, in which it was stated that the borrower had deposited with the lenders, as collateral security, with authority to sell the same on non-performance of the promise, 250 shares of a certain stock therein mentioned. The money in that case was payable in sixty days; the sale was to be made at the board of brokers, and notice waived if not paid at maturity. The court held, that the sale was a conversion, for the reason that the defendants had not demanded payment of the plaintiff before selling; but the ruling of the court was placed upon the ground that the power to sell was expressly restricted by the terms of the contract, and was granted only in case of non-performance, and therefore that demand of payment was necessary. It will be borne in mind, also, that in that case the stock was converted before the maturity of the note. The rule in the case of Stearns v. Marsh, 4 Davis', 227, also cited and relied upon by the respondent, is based upon the same principle, and depends upon the written contract of the parties. It was where a number of cases of boots and shoes were pledged as security for a debt coming due, and payable at a future day; it was held that the creditor could not sell the same until he first called upon the debtor to redeem the pledge; and that he must also give him notice of the time and place of sale. These decisions are based upon the principle, that where personal things are pledged for the payment of a debt, the general property and the legal title always remain in the pledger; the special property and the possession, or right of possession, being in the pledgee; the pledger having the right to restoration of the property on payment of the debt. In the cases of the transfers of stock, the courts say, that the special property only passed; that the contemporaneous paper, or note in writing, showed that the transfer, although absolute on its face, did not convey tho general property, or the legal title to the property, but it was resorted to from [163]necessity, arising from the by-laws of the corporations of whose capital stock these shares were a part, which required the transfer of the certificate to be made upon their books; and that this absolute transfer was necessary to give the creditor possession of the- stock, and for his own protection, go in the matter of the cases of boots and shoes, the general property and the legal title to the property remained in the debtor. The character of the several transfers in each of these cases is qualified, and this is shown by the contracts in writing; and in each case the right to sell was restricted and denied, except in case of non-performance; and undoubtedly the decisions were governed by the written contract in each case; none of them can therefore be said to be analogous to the case at bar. The decision in Wilson v. Little, by. the New York Court of Appeals, and which reviews both of the other cases, is placed distinctly upon the written contract. The court says, in addition to what has been above quoted, “The general property which the pledger is said usually to retain, is nothing more than a legal right to the restoration of the thing pledged, on payment of the debt. Upon’ a fair construction of the note and the transfer, taken together, this right was in the plaintiff,” &c. The transfer in that case being absolute, it was qualified and explained only by the contemporaneous papers, which declared it to be a deposit, and restricted the right to sell. In the present case, the transfer is absolute, and there is nothing adduced on the part of the plaintiff to qualify or explain it, except the drafts, which were drawn, at or about the time of the transfer by Hyatt, Cox & Sheldon, on the defendant: these drafts we will examine presently. The answer, it is true, as we have already seen, admits that the securities were held as collateral, but the admission is coupled with the averment that the defendant had the full power to sell; they cannot be separated,—the admission and averment, if taken at all, must be taken together; and giving the parol testimony of the witness, Squiers, the fullest weight that can be asked for it, viz., that the defendant held the scrip, &c., as collateral, and yet it by no means follows that the defendant has not the right to sell. The plaintiff had yet something more to do to maintain his suit, than merely to establish that the securities were held as collateral, for, as I have already said, the [164]holding as collateral was not inconsistent with having the. power to sell; the vital point was, to show that this power, so absolute in terms, had been restricted in fact, in order to bring the case within the ruling above cited, and to sustain the charge of a fraudulent conversion; for, as the case stands at this stage of the examination, the defendant held the scrip as collateral, but with the full, absolute, and unrestricted right to sell, or convey, or convert, at his pleasure, and to the best of his judgment, being answerable only for the surplus of the proceeds after reimbursing himself, and for his diligence and good faith in the performance of his trust.
The court below may have regarded the parol testimony alone as sufficient to establish the fact, that the defendant received the scrip and requisitions as collateral security, and to justify the conclusion as a conclusion of law, that being so received, the defendant had not legal authority to sell without demand of payment and notice. Such would be a correct conclusion in case of a strict pledge, where no power to sell had been given, or where it was restricted; but it would be neither safe nor sound where an express and unrestricted power had been given by an absolute transfer. I have not attempted to consider the question of the admissibility of the parol testimony to give effect to the supposed intention of the parties to the contract, for the reason that I attach no importance to it; it simply establishes, if it establishes anything, what the defendant fully concedes.
I have carefully examined the other authorities cited by the respondent, viz., Coddington v. Bay, 20 Johns. 640; Chitty on Bills ; Bristol v. Sprague, 8 Wendell, 424; Wardwell and others v. Howell, 9 Wend. 170; Stulken v. M’Donald and others, 6 Hill, 98; Brissel v. Drake, 19 Johns. 66; Jenners v. Bean, 10 New Hamp. R. 264; Williams v. Little, 11 New Hamp. 71; Presdt. Wash. Bk. v. Lewis, &c., 22 Pick. J. 24. The majority of these cases are to the effect, “ that to protect the holder of a negotiable security, which has been improperly transferred to him in fraud of the prior legal or equitable rights of others, it is not sufficient that it has been received by him merely as a security, or nominally in payment of a pre-existing debt, where he has parted with nothing of value, nor relinquished any security [165]upon the faith of the paper thus improperly transferred to him, without any fault on his part.” These cases all follow the rule laid down in Goddington v. Bay, which is regarded as the leading case, and in which the English authorities upon the point in controversy are fully considered. In most of the cases, the notes in question were strictly pledged as collateral security. I cannot see for what purpose they are quoted. In none of them was the point decided as to whether the pledging of the collateral security gave the right to sell; and none of them consider the character of a pledge, further than to say, as in Tenners v. Bean, “ that where a negotiable promissory note is endorsed in pledge as a collateral security for a debt due from the endorser to the endorsee, the endorsee takes it like a chose in action, not negotiable, subject to all defences to which it would be subject in the hands of the endorser at the time when notice is given of the endorsement.”
This doctrine is a familiar one, and however correct, can have no bearing here, unless it is to show that a note endorsed over as a collateral security, is a pledge, that the reporter calls it a pledge, the counsel calls it a pledge, and the court calls it a pledge; but all that don’t make it a pledge; and if it were a pledge, the right of sale is not raised or questioned. These authorities are not even serviceable to show that parol testimony may be introduced to prove, as between the parties endorser and endorsee, that a promissory note is held as collateral. In those cases, the defence went to the want of consideration, and parol testimony was admitted, to show the want of valuable consideration set up in defence; and the rule is, that where a note is thus passed to secure a pre-existing debt, it is taken by the endorsee, subject to all defences.
The case of Hays & St. John v. Riddle, 6 Sandford, S. C. p. 249, was an action in trover for the conversion of a bond payable to bearer. The bond in suit, with two others, was left to secure an advance of ¡¡>23,000 due from the defendant to plaintiffs. The defendant received the bond from the plaintiffs for the purpose of getting it exchanged for Erie Railroad Stock» He was to bring the stock back as a substituted security. It was held, that where the pledger of a bond delivers it to the [166]pledgee for a particular purpose, as to be exchanged for stock, and to return the latter, and the pledgee converts the bond to his own use, the pledger may maintain trover for the bond. Surely there is no kind of analogy between that case and this; besides, the only point decided was, that the plaintiff could maintain his action without making a demand.
None of these last-cited authorities, therefore, throw any light upon the particular point in issue here, which is as to the authority of the defendant to sell. And for additional light upon this subject, I now turn to the drafts drawn by Hyatt, Cox & Sheldon, on the defendant, and cashed by him. A careful and deliberate examination of the language of these drafts has fully satisfied my mind that they contemplated the selling, and recognized the right of selling in the defendant, of the securities placed in his hands. What other construction shall be placed upon it ? What other sense or meaning can be fairly attributed to the words employed? What did Hyatt, Cox & Sheldon intend to convey to the mind of the defendant, when they directed him to pay their drafts “ when in funds from the proceeds of the securities placed in your hands ?” And how was the defendant to be in funds from the proceeds of t,he securities, unless from sale of them ?
These drafts were the contemporaneous papers in the transaction which qualified and explained the transfer of the securities, and they should be taken and construed together, according to the rule laid down in Wilson v. Little, and upon a fair construction of the language of the drafts, and the transfers, taken together, construing the words employed in the drafts according to their legal signification, and their plain, sensible, and practical import, it is impossible for me to arrive at any other conclusion, than that authority was given -to the defendant to sell, and convert the securities into cash. Taking the drafts, or the transfers and assignments, together, and there is no longer any doubt, mystery, or obscurity in this case. The intention of the parties is made transparent; the authority of the defendant to sell is rendered perfectly clear and unclouded; and the reason why the plaintiff did not dissent to, or question, the correctness of the defendant’s books in which the proceeds of the sales of the secu[167]rities were carried to his credit, and which accounts and books he frequently inspected, is made manifest.
The reason and justice of this case seem to me, also, to be in harmony with this view, and I cannot but yield my concurrence and assent to the opinion and conclusion of my learned associate, to the effect, “ that an express stipulation in writing could not exhibit more clearly the authority of the defendant to sell the securities, than does the language of these drafts.”