Rush v. First Nat. Bank

THAYER, Circuit Judge, after stating the case as above, delivered the opinion of the court. That the bank had no right to purchase the hypothecated stock in the manner alleged in the answer, nor in any other manner or form, admits of no doubt. Being the pledgee of the stock, it could not lawfully become a purchaser thereof at a sale made by itself. Easton v. Bank, 127 U. S. 532, 537, 8 Sup. Ct. 1297; Maryland Fire Ins. Co. v. Dalrymple, 25 Md. 242, 265; Baltimore Marine Ins. Co. v. Dalrymple, Id. 269, 302; Stokes v. Frazier, 72 Ill. 428; Parsons, Cont. (7th Ed.) § 120. This proposition is not controverted by counsel for the hank. It is conceded that the sale and purchase of the securities in the mode described in the defendant’s answer was a tortious act. But, notwithstanding that concession, it is insisted that the defendant could not maintain his counterclaim without first tendering- the amount due on his note, and demanding a return of the hypothecated stocks. Incidentally, the plaintiff also contends that the first answer which was filed by the defendant contained averments [104] which' made' the Counterclaim a suit in trover for the conversion'of the shares of stock, whereas it is said that the second or amended counterclaim is in the nature of a suit ex contractu. On this ground it is urged that the trial court properly sustained the demurrer. We need not stop, however, to consider the latter contention; for, even if it be true that the second counterclaim did state a cause of action different from that alleged in the first answer, still the question now argued was not raised by the demurrer, and is not available in this court. Even if the plaintiff was privileged to demur to the amended answer on the ground that it was a departure from the original pleading, it did not do so. ' The point that there was a departure is raised for the first time in this court,, and for that reason it cannot be noticed. The important question in the case is whether the defendant beiow should have pleaded a tender of the debt due to the bank, and a demand for the return of the securities held in pledge, and whether the counterclaim is bad for that reason. Numerous cases have been cited in support of the proposition that a wrongful sale by the pledgee of property held in pledge does not, ipso facto, determine the contract of pledge; that the contract still remains in force; and that the pledgee must in every instance be given an opportunity to comply with his contract, by a tender of payment on the part of the pledgor, and by a demand of the property held in pledge, before the pledgor can maintain an action against the pledgee for conversion, or any other action based on the tortious act of the pledgee. Prominent among the cases thus cited, which are supposed to support the foregoing proposition, are the following: Talty v. Trust Co., 93 U. S. 321; Donald v. Suckling, L. R. 1 Q. B. 585; Lewis v. Mott, 36 N. Y. 395, 401; Hopper v. Smith, 63 How. Prac. 34, 38; Day v. Holmes, 103 Mass. 306, 311. On the other hand, it has been frequently decided that after the pledgee has wrongfully sold and disposed of the pledged property, so that a demand for the return thereof would be a nugatory act, no antecedent tender of the amount due, nor demand for a return of the property, is necessary, to enable the pledgor to maintain an action against the pledgee. Cortelyou v. Lansing, 2 Caines, Cas. 200, 214; Fletcher v. Dickinson, 7 Allen, 23, 26; Baltimore Marine Ins. Co. v. Dalrymple, 25 Md. 269, 306; Work v. Bennett, 70 Pa. St. 484, 488; Booth v. Powers, 56 N. Y. 27; Read v. Lambert, 10 Abb. Prac. (N. S.) 428; Manufacturing Co. v. Gray, 19 Colo. 149, 160, 34 Pac. 1000. It is unnecessary at present to enter upon a critical review of the foregoing cases, and many others of a like character that have been cited, with a view of ascertaining whether they can be reconciled. It is doubtless true that, where property which is held in pledge has been sold or transferred to an innocent third party, the pledgor will not be permitted to maintain an action againsl the innocent transferee without tendering the amount of the debí for which the property was originally pledged, or so much thereof as remains unpaid. Such was the state of facts disclosed in the cases of Talty v. Trust Co. and Donald v. Suckling, supra. Under some circumstances, the same rule would doubtless be enforced in a suit brought by the pledgor against the pledgee, as appears to have [105] been done in Day v. Holmes, 103 Mass. 306, 310, whore it was held that the transfer of the property by the pledgee to a third party was not made under such circumstances as amounted in law to a conversion. On the other hand, it is doubtless true that when the tortious net of the pledgee clearly amounts to a conversion, — as where he has surrendered pledged securities to a third party to he canceled, or where he has placed them beyond bis reach, and is unable to restore1 them, — -an action maybe maintained by the pledgor against the pledge without an antecedent tender, or a demand that they he returned to him. Fletcher v. Dickinson, 7 Allen, 23; Manufacturing Co. v. Gray, 19 Colo. 149, 34 Pac. 1000; Read v. Lambert, supra. Bur even in such cases the pledgee, when sued for conversion, may, as it seems, recoup, as against the pledgor, any balance of the debt that is duo to him from the pledgor. Work v. Bennett, 70 Pa. St. 484. The case at bar is clearly distinguishable from all the cases to which' our attention has been directed, in this important respect, namely, that the pledgee is the moving party. The plaintiff bank sues to recover a balance alleged to be due on the pledgor’s note. It avers that it has made a valid sale of the pledged securities, and has credited the proceeds on the defendant’s note. It accordingly prays for a judgment for the amount of the note, less the amount of the alleged credit. It does not by its petition concede that the sale of the stocks was illegal, and offer to restore them on payment of the nove. The defendant:, on the other hand, pleads that the alleged s;ile was unlawful, and that, inasmuch as the plaintiff has wrongfully appropriated the stocks left in pledge, he is entitled to a credit for their full value. On this state of facts, we are of opinion that the defendant was not. bound to tender the amount due on his note as a condition precedent to making the aforesaid defense. The defendant’s position is that he owes nothing on the note, because the stocks which were wrongfully converted by the plaintiff were of greater value than the face of the note. He was under no obligation, therefore, when sued' by the pledgee, to make a tender, or to demand a restoration of the stocks. The Code of Kansas provides, in substance, that a counterclaim may be pleaded by a defendant when it arises out of “the contract or transaction set forth in the petition as the foundation of the plaintiff’s claim, or [is] connected with the subject of the action.” Gen. St. Kan. 1889, par. 4178. There can be no reasonable doubt, we think, that the wrongful acts complained of in the defendant’s answer were so connected with the transaction set: forth in the plaintiff’s petition as to constitute a valid counterclaim. In the action on the note the defendant was entitled to recoup the damages which he had sustained in consequence of the wrongful appropriation of the stocks which were pledged to secure the payment of the note, even though the counterclaim did sound in tort, rattier than in contract. It results from these views that the action of the circuit court in sustaining the demurrer to the amended answer was erroneous. Its judgment is therefore reversed, and the case is remanded to that court with directions to grant: a new trial.