Dibert v. D'Arcy

• Decision Date: 28 February 1913
• Citation: 248 Mo. 617,154 S.W. 1116
• Parties: DIBERT v. D'ARCY.
• Court: Missouri Supreme Court

154 S.W. 1116

248 Mo. 617

DIBERT v. D'ARCY.

Supreme Court of Missouri, Division No. 1.

February 28, 1913.

Rehearing Denied March 15, 1913.

1. PLEDGES (§ 22) — DEBTOR'S OWN BONDS OR NOTES.

The pledge of a debtor's own bonds or notes as additional promises to pay cannot be considered as collateral security for the debt, but, when secured by mortgage, both may be treated as collateral so far as is necessary to give the creditor the benefit of the mortgage lien nominally created as security for the collateral.

2. PLEDGES (§ 18) — CONSTRUCTION OF CONTRACT.

A contract of pledge, like all contracts, must be construed with reference to its subject-matter; and, where two constructions are equally available, that which is most favorable to the pledgee ought not to be adopted.

3. EVIDENCE (§ 22) — JUDICIAL NOTICE — NATURE OF EXCHANGE.

The stock exchange is so much a part of the financial method of our time that the courts will take judicial notice of its general nature.

4. PLEDGES (§ 56) — SALE OF COLLATERAL.

A sale of collateral on a stock exchange where the only public available as purchasers are brokers involves all the elements of commercial negotiation included in an honest attempt of the seller to procure a purchaser at the best price attainable.

5. TRUSTS (§ 30½) — POSSESSION AND CONTROL OF PROPERTY — DUTY OF TRUSTEE.

A person coming into possession and control of property of another, or in which another has an interest, is a trustee with reference thereto, and is legally as well as morally charged to exercise such control with due regard to the interests of the beneficiary.

6. TRUSTS (§ 112) — EXPRESS TRUST — CONSTRUCTION OF CONTRACT.

Where a trust is created and defined by contract, it will be construed, in cases of doubt, favorably to preserve the interest of the beneficiary.

7. PLEDGES (§ 18) — TRUST RELATION BETWEEN PARTIES.

Between the parties to a pledge of collateral securities, a trust relation exists with its consequent duties to protect the debt, and the creditor holds the collateral as the trustee and agent of the debtor for that purpose.

8. PLEDGES (§ 28) — DUTIES AND LIABILITIES OF CREDITOR — EFFECT OF EXPRESS CONTRACT.

In dealing with collateral securities, the creditor is charged with the duties and subjected to the liabilities of agents acting for their principals; and, if their duties are defined by contract, that determines the nature and extent of the trust, but limitations on the liability implied by law must be plainly expressed, and fraud cannot be authorized.

9. TRUSTS (§ 171) — JUDGING ACTS OF TRUSTEE.

The acts of a trustee must be judged in each case by the facts and circumstances.

10. PLEDGES (§ 29) — SALE OF COLLATERAL BY BANK PRESIDENT — RELATION TO PLEDGOR.

When the president of a bank took possession of collateral by putting it through a form of a sale to give the bank more perfect control thereof, he was the trustee and agent for the pledgor.

11. PLEDGES (§ 56) — INSOLVENCY OF PLEDGOR — RIGHTS AND DUTIES OF PLEDGEE.

A pledgor being totally insolvent, nothing remains for the pledgee to do but to execute his trust, but to realize as much as he can from the pledge, and, in the absence of special power to do otherwise, to proceed as a prudent owner would with his own.

12. PLEDGES (§ 38) — TRANSFER AS FOLLOWING OWNERSHIP OF DEBT.

The transfer of collateral necessarily follows as incident to the ownership of the principal debt.

13. PLEDGES (§ 56) — ASSIGNMENT OF NOTES AND COLLATERAL — EFFECT.

The absolute assignment by a bank of notes and collateral mortgage bonds of the maker, a corporation, which the bank took to secure the notes, and afterwards bid in at a sale thereof on the maker's default, placed the assignee, a syndicate organized to purchase the same, squarely in the shoes of the bank as to the entire transaction between it and its debtor, and the assignee not only became owner of the debt, but trustee and agent of the debtor as to the collaterals.

14. PLEDGES (§ 56) — SALE OF PLEDGE — DUTIES OF PLEDGEE.

If the pledgee sells the property pledged, in the absence of special power to do otherwise, he must proceed as a prudent owner would with his own, and it is incumbent on him to obtain the best possible price, and use every reasonable means to obtain its full value.

15. CONTRACTS (§ 144) — WHAT LAW GOVERNS — DUTIES AND LIABILITIES OF PARTY.

The duties and liabilities of a party to a contract made in another state must be judged by the standards of the unwritten law of the forum, where no other rule of the loci contractus has been pleaded and proved.

16. PLEDGES (§ 18) — DEBTOR'S OWN OBLIGATION — RULES APPLICABLE.

The ordinary rules which apply between the parties to a pledge of a note of a third person apply as well to collaterals which are the obligations of the debtor himself secured by a mortgage foreclosed by action against him.

17. PLEDGES (§ 56) — FORECLOSURE — LIABILITY OF PLEDGEE TO ACCOUNT.

Where a creditor holding a mortgage against his debtor's property as collateral security foreclosed the same, and, in association with others interested therein, bid the property in for their joint account at much less than he agreed with them to pay therefor to protect himself, he should be held in equity to account to the debtor for his profits based on the amount he agreed to bid, if necessary, and he cannot be relieved because he did not elect to hold the property unconditionally, but for 16 months thereafter endeavored to sell it for what it had cost in a purchase of the claim against the debtor from a bank, with interest and subsequent expenses, and made the same offer to counsel for the debtor's trustee for creditors, but without keeping the offer good.

18. CORPORATIONS (§ 472) — TRANSFER OF PROPERTY AS INCLUDING BONDS.

A transfer of all the property and rights of property of one corporation to another does not include its bonds, except in the sense of the material of which the unissued obligations are composed.

19. PROPERTY (§ 1) — DEBTS AS CONSTITUTING "PROPERTY."

Debts are not the "property" of a debtor.

20. PRINCIPAL AND SURETY (§ 9) — RELATION BETWEEN PARTIES TO PLEDGE.

A company whose property is pledged to pay the notes of a subsidiary company which it owns and controls is prima facie the surety of the latter to the extent of the collateral.

21. PRINCIPAL AND SURETY (§ 1) — DEFINITION OF "SURETY."

A surety is simply one who is bound to pay the debt of another.

22. JUDGMENT (§ 668) — RES JUDICATA.

A party sought to be bound by a former judgment must not only have been a party to both actions, but he must have appeared in both in the same character or capacity.

23. ESTOPPEL (§ 110) — PLEADING AS DEFENSE — NECESSITY.

The defense of estoppel against the assertion of title to property is not available in an equity suit otherwise than by pleading.

24. CORPORATIONS (§ 123) — PLEDGE OF CORPORATE STOCK — LIABILITY OF PLEDGEE TO ACCOUNT FOR PAR VALUE.

A pledgee cannot be required to respond in money equal to the par value of stock in a corporation at the time he received it in exchange for the property pledged, where there is no proof of the actual value of the stock other than indefinite statements relating to negotiations for a sale of the property, which was of such a nature that there could be no presumption that its value would continue through any considerable period.

Appeal from St. Louis Circuit Court; Mat G. Reynolds, Judge.

Suit by John Dibert against Edward D'Arcy, surviving trustee of the F. H. Smith Lumber Company. From a judgment for plaintiff, defendant appeals. Reversed, with directions to dissolve an injunction in favor of plaintiff, and dismiss his petition.

This is a proceeding by the plaintiff and appellee to subject the property of the F. H. Smith Lumber Company in the hands of Edward D'Arcy, the surviving trustee under a conveyance by the company for the benefit of its creditors, to the payment of certain notes. The conveyance under which appellant holds the property is called by both parties a common-law assignment. As there is no question raised as to the liability of the assignee for the debts of the Lumber Company, it is not necessary to inquire further what this may mean. The original assignees under this instrument were Charles E. Fritsche and Patrick B. Little. At the time of the institution of this suit in March, 1906, Charles E. Fritsche was made a party defendant as the sole surviving trustee under the assignment. D'Arcy succeeded him, and was on December 4, 1906, the date of the trial, substituted in his stead. On December 11, 1906, the plaintiff, by leave of court, filed the amended petition, which is described in the record as the "fifth amendment," and is the one on which the cause is proceeding. It is founded on three promissory notes executed October 16, 1903, to the Interstate Trust & Banking Company of New Orleans, La., signed by the Hardwood Export Company, as follows: One for $5,000, payable on or before November 15th after date, with interest at the rate of 7 per cent. per annum; one for $5,000, payable on or before December 15th, bearing the same rate of interest; and one for the sum of $35,000, payable on or before December 27th, with interest at the same rate. All these notes were indorsed by the F. H. Smith Lumber Company, and the one last described by O. H. L. Wernicke. All were secured by the pledge of 90 first-mortgage 5 per cent. gold bonds, each of the denomination of $1,000, dated March 17, 1902, executed by the Hardwood Export Company and secured by its deed of trust to the Northern Trust Company and Arthur Hurtley of Chicago, Ill., covering all its property. These notes were written on the "regular form of collateral note" of the payee bank, and contained the following contract of pledge: "The undersigned have deposited with and pledged to the Interstate Trust & Banking Company and assigns (with the privilege of subpledging or repledging same) as collateral security for ...