Thomas v. Gilbert

Mr. Justice Bean delivered the opinion of the court. 1. The petitioners claim that the purchase of the stock by Mr. Bush, at the sale made by the Moscow Bank, was void as to the receiver and the creditors of Gilbert, because Ladd & Bush, of which firm he was a member, was, at the time, pledgee of such stock, and therefore neither the firm nor any of its members could purchase the same, and that the sale was invalid on account of irregularities in the proceedings under which it was attempted to be made; but, assuming both of these positions to be sound, we do not think that, under the facts as presented by this record, plaintiffs are entitled to the relief demanded. There is no charge of fraud or unfair dealing by Mr. Bush, or the firm of which he was a member, in the matter of the sale or purchase of the stock. The petitioners rely on the rule of law that prohibits a [20] pledgee of property from purchasing the pledged property without the consent of the pledgor. Where the pledgee of property purchases the same at a sale made by him,-or by his authority, or under his direction, and without the consent of the pledgor, it is void, or at least voidable. It is generally held that nothing passes by such a sale, and that the pledgee still holds the property under his original lien. The title is still in him, and he is liable to account for the property and deliver it upon payment of the debt, and this inability applies to a general partner of a firm holding property in pledge: Jones, Pledges & Collateral Securities, §§ 635, 636; Bryson v. Rayner, 25 Md. 242 (90 Am. Dec. 69) ; Bank of Old Dominion v. Railroad Co. 8 Iowa 277 (74 Am. Dec. 302). 2. There is a real or apparent conflict in the authorities as to whether the pledgee of property can purchase the same at a sale made under a paramount lien; but, in any event, if such sale is at a public auction, after notice, it is not void, but only voidable. It may be ratified by the pledgee, and such ratification will be implied from circumstances, as where the pledgor, with full knowledge of the facts, accepts the proceeds of the sale as a credit on the indebtedness, or when the sale is made with his consent and acquiescence: Jones, Pled. & Coll. § 638; Guinzburg v. Downs Co. 165 Mass. 467 (43 N. E. 195: 52 Am. St. Rep. 525) ; Downer v. Whittier, 144 Mass. 448 (11 N. E. 585), or where conditions of the pledge or the increase in value of the pledged property have so changed since the sale as to render it inequitable or unjust for the pledgor to be permitted to disaffirm it. And an unreasonable delay after notice of the sale in redeeming the property will be regarded as an affirmance thereof: 22 Ency, 89 note; Jones, Pled. & Coll. §§ 637, 637b; Cook, Stock, §479; Colebrooke, Coll. § 343; Carroll v. Mullanphy Sav. Bank, 8 Mo. App. 249; Swann v. Baxter, 36 Misc. Rep. 233 (73 N. Y. Supp. 336). What [21] constitutes such a delay will, of course, depend upon the circumstances of each case. Thus, on the sale of pledged mining stock, a delay of two months after being notified of the sale, and until the stock had largely increased in value, was held, in Hill v. Finigan, 77 Cal. 267 (19 Pac. 494: 11 Am. St. Rep. 279) to be an unreasonable delay as a matter of law, and in Hayward v. National Bank, 96 U. S. 611 (24 L. Ed. 855) four years was considered to be unreasonable. 3. Now in this case the sale and purchase was not only made with the knowledge and acquiescence of the receiver, who represented the pledgor and his creditors; but there was a delay of almost five years before an attempt was made to repudiate or disaffirm it. In the meantime the stock, which was practically worthless at the time of the sale, had largely increased in value, so that it seems to us it would be inequitable and unjust to permit it now to be disaffirmed or repudiated. The decision of the Comptroller of the Currency, as to the impairment of the capital stock of the Moscow Bank, was conclusive and final on the stockholders and the courts: Aldrich v. Yates [C. C.] 95 Fed. 80; Kennedy v. Gibson, 8 Wall. 505 (19 L. Ed. 476) ; Casey v. Galli, 94 U. S. 677 (24 L. Ed. 168), and it left no alternative to the bank but to make up the deficiency or go into liquidation. The, assessment on the stock was levied by the bank to meet the requirements of the Comptroller. Ladd & Bush, as pledgee, was under no duty to protect the stock from forfeiture or sale for nonpayment of the assessment, but as between them and the pledgor it was the duty of the latter or his representative, the receiver, to pay such assessment: 3 Clark & Marshall, Corp. § 623b, p. 1892. Fraud cannot therefore be fairly imputed to Ladd & Bush because they failed to pay such assessment. 4. The sale of the stock was made in 1901, at public [22] auction, after due notice and with knowledge and acquiescence of the receiver of the pledgor, and of the court appointing him. At that time the Moscow bank was in a precarious condition, and the stock was not regarded of sufficient value, either by the receiver or the court, to justify the receiver in paying the assessment thereon from the funds belonging to the estate, thus reducing the-amount which would be for distribution among the creditors. The fact that the sale had been made was reported to the court by Ladd & Bush in September, 1902, and no steps were taken by the pledgor or his receiver or any of the creditors to redeem the pledged property or repudiate or disaffirm the sale. On the contrary, almost four years thereafter the receiver was authorized and directed by the court appointing him to settle and compromise the claim of Ladd & Bush against the estate, and to assign and transfer to them the equities of the estate in the collateral on the delivery to him by Ladd & Bush of a receipt in full for their claim and the payment of $600 in money. It is true the stock was not specificially included in this settlement, but it was made with full knowledge that the stock had been purchased by Mr. Bush and without asserting any claim thereto, thus substantially ratifying and affirming the purchase and, surrendering all right the estate had against Ladd & Bush on account of such stock. It was not until after this settlement, and after the stock had, under the management of Mr. Bush and his associates, largely increased in value, that an attempt was made by any one to assert any claim thereto or contend that the sale was not valid. It may be true that all the creditors of the Gilbert estate did not have notice or knowledge of the purchase of the stock by Mr. Bush, or the circumstances under which such purchase was made; but the receiver, who represented the pledgor, as well as his creditors, and the court appointing him, were advised in the premises, and their [23] act in acquiescing in and, in effect, ratifying and affirming the sale by subsequently settling with Ladd & Bush, is binding and conclusive upon all parties interested in the estate. Decided November 15,1909. [104 Pac. 888.] It follows from these views that the decree of the lower court should be reversed, and the petition dismissed. Reversed. Mr. Justice Slater, being one of the petitioners, did not sit in this case nor take any part in its decision.