E. F. Hallack Lumber & Manufacturing Co. v. Gray

Mr. Justice Goddard delivered the opinion of the court. We have fully set out the evidence introduced on the trial of this cause in the court below, because the principal contention of appellant is that the verdict of the jury is not sustained thereby. In other words, it is insisted that the evidence discloses a legitimate transfer of the collateral in question to A. A. Grant, and does not justify the conclusion that it was surrendered to the Water Company. We think, when tested by the well settled rules fixing the rights- and duties of a pledgee of collateral security, the facts disclose a transaction that, under the circumstances, constitutes a conversion of the collateral in question. While it is well settled that a pledgee may, when not restrained by statute or agreement, sell and transfer his debt against the pledgor, and transfer therewith the collateral held by him to secure its payment to the assignee, yet he must act fairly, and in doing so must not prejudice the rights of the pledgor or impair his right to redeem upon payment of the original debt. He cannot, except by special agreement, sell the collateral either at public or private sale, but must collect it when due, and, after applying the proceeds to the satisfaction of his debt and the costs and expenses incurred,- pay over the surplus, if [159] ar^, to the pledgor. Joliet Iron Company v. Sciota Fire Brick Company, 82 Ill. 548; Zimpleman v. Veeder, 98 Ill. 613. Neither can he, except in very extreme cases, compromise with the maker of the collateral and surrender the same for less than the amount due thereon. If he does so, he will be compelled to account to the pledgor for its full value. Union Trust Co. v. Rigdon, 93 Ill. 458; Depuy v. Clark, 12 Ind. 427. As was said in the case of Wheeler v. Newbould, 16 N. Y. at page 398: “ His character is that of trustee for the pledgor, first, to pay the debt, and second, to pay over the surplus, and he cannot so deal with the trust property as to destroy or even impair its value.”' Looking not only to the form of this transaction, but as well at the substance, considering the relation <jf Grant to the Water Company and the knowledge that Hallack had of his connection therewith, the conclusion is irresistible that the collateral in question was, to all intents and purposes, surrendered to the Water Company. That it was the purpose of Grant to obtain it for the company is evident from his testimony. He says: “I have been president of the Albuquerque Water Company since May, 1886. I have in my possession a certain promissory note for $5,441.66 executed by the Albequerque Water Company to Gray Brothers. * * * I received said note in October, 1888. It was bought from E. E. Hallack or the E. Fi Hallack Lumber Company, I do not know which. I am the owner of the note. I had my attorney buy it with my own money, and hold it still, but in the interest of the Water Company. I have not yet turned it over to the Water Company, as they are not in shape to settle with me for it. * * * I was acting on behalf of the Water Company, but with my own money; as president of the company I was looking out for the interests of the company. The consideration was, in round numbers, about $3,100, a little over. It was the face of the Gray Brothers’ note with interest, less $100 commission. I hold it against the Albuquerque Water [160] Company until they are able to pay me for it. Whenever the company is able to take it ujd and pay me, with interest, I will surrender it to them. I am holding with a view of turning it over to them.” It is also evident, from the testimony of Hallack, the president of the defendant company, that he knew he was dealing with an officer of the Water Company, and made the sale and transfer with knowledge that he was virtually placing the collateral in the hands of the maker, or, at least, in the hands of a party whose purpose was to relieve the maker from its payment and enable it to cancel and discharge it for a sum less than its face value, to the prejudice of the pledgors. Such a transaction cannot be sustained. But it is insisted that, notwithstanding such a transfer of collateral security may be wrongful, still the appellees cannot maintain this action until they have made a tender of the amount of their debt and demanded a return of the collateral. Under the facts of this case no tender was necessary. The appellant has realized the amount of its claim against them, and therefore a tender of the amount would be a useless ceremony. Fletcher v. Dickinson, 7 Allen, 23. We think, upon the facts disclosed in this record, the appellees can maintain the action, and the measure of their recovery should be the difference between the face value of the collateral note and their indebtedness to appellant at the time of its conversion. Fletcher v. Dickinson, supra; Garlick v. James, 12 Johns. 145; Fowler v. Gilman, 13 Met. 267; Shaw v. Ferguson, 78 Ind. 547; Work v. Bennett, 70 Pa. St. 484; The Baltimore Marine Ins. Co. v. Dalrymple et al., 25 Md. 269; Brierly v. Kendall et al., 79 Eng. C. L. 937; First Nat. Bank of Louisville v. Boyce, 78 Ky. 42; Baker v. Drake, 53 N. Y. 211. Appellees contend that the measure of damages should be the full amount of the collateral note, because it does not appear that they are relieved from the payment of their original note ; and for the further reason that appellant, having insisted that there was no conversion, it has “ cut itself off [161] from this defense.” Neither of these positions is tenable. The note of Gray Brothers & Company was, at the time of its sale, long past due, and was purchased by Grant with full knowledge of the fact that it was secured and its payment provided for out of the collateral. Being past due paper, a purchaser from him would take it subject to the same equities. The right to have the amount of the original note deducted from the value of the collateral is not a matter of defense. Whatever the form of action, whether in contract or tort, the party injured is entitled to recover an adequate indemnity for the loss suffered. The interest of Gray Brothers & Company in the converted collateral was the balance due thereon after deducting the amount of their indebtedness to appellant. The loss of this sum is the injury they have suffered through the delict of the appellant, and a recovery of this sum is the relief to. which they are entitled, and is an essential element of, and must affirmatively appear from, a statement of their cause of action ; and the fact that appellant relied on a denial qf their right to recover at all could not enhance the measure of this relief. We find no error in the giving or refusing instructions. While some of those refused correctly state the law, they are fully covered by the instructions given, and, as a whole, the instructions given fully an.& correctly state the law of the case. The assignments of error based upon the admission of evidence are, we think,, without merit; in view of all the circumstances of the case, the evidence complained of was relevant, and tended to throw light upon the real nature of the final transaction. The case was fairly submitted to the jury upon both the facts.and the law, and the only error that intervened upon the triad in the court below was in the assessment of the amount of damages. The amount for which judgment should have been rendered is easily ascertainable by mathematical calculation. The amount is arrived at by deducting the amount due on the principal note from the amount of principal and interest [162] due on the Water Company’s note at the date of transfer. The judgment will therefore be reversed, with direction to the court below to enter judgment accordingly. Reversed.