Conyngham's Appeal

The opinion of the court was delivered, by Sharswood, J. The demurrer to the bill was properly over- ruled by the court below. It may be that in the case of a simple pledge of merchandise, stock or securities for an existing debt, or an advance made upon them at the time, the remedy of the pledgor at law is full, complete and adequate: 2 Story’s Eq., § 1032. But when the pledge is, as in this case, collateral security for the payment of all claims, liabilities and demands, which the pledgee then held or might thereafter hold against the pledgor, and these claims and liabilities are alleged to consist of a large number of items of moneys loaned, notes discounted on the endorsements of others for his accommodation, and endorsements by him for the accommodation of others, it is evident that the case comes within the jurisdiction of a court of equity under the head of account. Besides that, we have here the additional circumstance ' that the stock pledged became in the hands of the pledgee entitled not only to dividends in money, but to accretions by the distribution of new stock in the shape of stock dividends. Judge Story has accurately stated the received doctrine on this subject: 1 Eq. Jur., § 506: “Liens also give rise to matters of account......As no suit is maintainable at law for the property of the owner, until the lien is discharged, and as the nature and amount of the lien often are involved in great uncertainty, a resort to a court of equity to ascertain and adjust the account seems, in many cases, absolutely indispensable for the purposes of justice. . . Cases of pledges present a similar illustration, whenever they involve indefinite and unascertained charges and accounts.” It is clear that without an account, as well of the items of charge as of the dividends received in money and stock, the pledgor could not know what amount to tender, and this is an indispensable condition to his right to maintain any action at law. There are many precedents in the equity reports of bills to re [480] deem the pledge and for an account under similar circumstances : Tucker v. Wilson, 1 P. Wms. 261; Demambray v. Metcalf, 2 Vern. 691, 698; Kemp v. Westbrook, 1 Ves. Sr. 278; Vanderzce v. Willis, 3 Brown’s Ch. Rep. 21; Jones v. Smith, 2 Ves. Jr. 372; Hart v. Ten Eyck, 2 Johns. Ch. R. 100; Diller v. Brubaker, 2 P. F. Smith 498. In none of these cases indeed was the question of jurisdiction raised, but it was assumed both by bench and bar as incontrovertible. But we are of opinion that upon the answer and proofs the complainant below is entitled to a decree for an account, and that the court was in error in dismissing the bill upon the merits. It is to be remarked that no opinion was given, nor was the case referred to a master. The consequence is that the full examination of the pleadings and proofs has been devolved upon us, just as if it had been a case of original jurisdiction. We must be allowed to-express our decided disapprobation of such a course. On what ground the decree below was made we are left to conjecture as we best can. We need not, indeed, in this case, go beyond the answer itself to justify the result at which we have arrived. It admits distinctly that as additional security, the complainant did deposit with the defendants certificates for sixty shares of the Thomas Iron Company, and forty-nine shares of the capital stock of the corporation defendants themselves, and at the same time delivered to them the necessary powers of attorney authorizing the transfer and sale of the said shares, and executed and delivered to them a declaration, a copy of which is annexed to the answer, that such deposit was intended “ as collateral security for all claims, liabilities and demands of any nature whatsoever, that said bank (the defendants) may now or hereafter have against the undersigned (the complainant) for notes drawn or endorsed by him, or for any other claims, demands or liabilities that said bank may now or hereafter have against the undersigned.” It is true that they set up that by these powers the complainant gave to defendants full control and authority over the stocks pledged, whenever it should become necessary to use them to protect themselves from loss, and they admit that, it having so become necessary, they were subsequently sold without notice to the complainant. But this is a matter of law in which they are clearly wrong. It is sufficient to cite the case of Diller v. Brubaker, 2 B. F. Smith, in which it was ruled by this court that a holder of collateral security cannot appropriate it in satisfaction of the debt at his own option, unless especially authorized to do so by the terms of the bailment. Nor can he sell it without first giving notice to the pledgor of his intention to do so, in order that he may have an opportunity to redeem it if he desires. The sale must be public when it is made, and the notice must specify both time and place. “ That this is the law of this species of [481] bailment,” says the present Chief Justice, in that case, “admits of no doubt.” Even the amended answer does not distinctly aver that the complainant had given any express authority to sell without notice, but even if it can be strained so to mean, as it was not responsive in this respect to the bill, it should have been supported by proofs, of which none were given that we can discover. The understanding of the directors that the bank had entire control of the collateral amounts to nothing. No proposition can be plainer than that the powers of attorney to transfer the stock implied no such agreement. They were necessary to authorize an assignment on the books of the respective corporations, and thus give a perfect legal title to the purchasers. As to such purchasers, bon& fide and for valuable consideration, the want of notice of the sale to the complainant would not affect them. But as between the pledgor and the pledgee, the question is entirely different. Had the defendants given dae notice, as they were bound to do according to law, these powers of attorney were still necessary to enable them to transfer the legal title to the stocks. It was essential to their security that they should hold them. Nor did the defendants, when they transferred the stocks to their president, for their own use, vary thereby their relations to the complainant. They did not become the absolute owners. The equity of redemption was still in him. The stocks were still a mere pledge; their dividends and accretions belonged to the pledgor. After the unauthorized sale of them to third persons, they are also in equity chargeable with what would have been received had they retained them, as they ought to have done, until the equity of redemption in the complainant was foreclosed by a sale after notice in the manner prescribed by law. It follows that they must account to the plaintiff and appellant for the value of the stock at the highest rate which it has at any time since attained in the market: Bank of Montgomery v. Beese, 2 Casey 143. We are unable to perceive that the official position which the complainant held as president of the corporation defendants, at the time of the pledge, made any difference. Standing in that confidential relation, all his transactions with the bank for his own benefit should be closely scrutinized; but we cannot infer from that relation alone that he gave a special power to sell the pledge without notice. The officers of banks ought never to be borrowers ; but when they become so, we can only apply to them the principles of law applicable to others. Though the complainant may have taken advantage of his place and influence improperly to procure loans beyond what his means justified, and thus involved the bank in embarrassment and loss, the responsibility of that rests upon the directors, who, in dealing with their own [482] officer, ought to have been especially careful to secure the bank from loss. The decree of the court below dismissing the bill is reversed; and now it is ordered and decreed that defendants do account to the plaintiff of and concerning the matters set forth in the bill, and that it be referred to a master to take and state such account.