Learock v. Paxson

• Decision Date: 11 April 1904
• Docket Number: 80
• Citation: 208 Pa. 602,57 A. 1097
• Parties: Learock v. Paxson, Appellant
• Court: Pennsylvania Supreme Court

57 A. 1097

208 Pa. 602

Learock v. Paxson, Appellant

No. 80

Supreme Court of Pennsylvania

April 11, 1904

Argued March 21, 1904

Appeal No. 80, Jan. T., 1903, by defendant, from judgment of C.P No. 2, Phila. Co., Dec. T., 1899, No. 206, on verdict for plaintiff in case of George F. Learock v. William B. Paxson and Mahlon B. Paxton, trading as Frederick Paxson & Company. Affirmed.

Trespass to recover damages for alleged conversion of stock. Before SULZBERGER, J.

The facts are stated in the opinion of the Supreme Court.

The court charged in part as follows:

The plaintiff was the manager of a theater, and apparently, from the results, a capable and competent manager, with a certain degree of thrift, as is evidenced by his savings bank books and a certain degree of success, as shown by the fact that he had at least $7,000 in cash apparently from savings, or other receipts. His occupation as manager of a theater appears to have allowed him a certain amount of leisure, and this leisure he proposed to employ by going into a kind of merchandising. He began by dealing in the great agricultural staple of the country, wheat, and then he dealt in the shares of a trading company that was concerned with another great staple, tobacco. According to the account presented, his sagacity respecting the production and marketing of wheat seems to have been at fault, and on the whole he was a loser in that matter. He bought 300 shares, Philadelphia standard of the stock of the American Tobacco Company, at an average price of about $60.00 a share, in November, 1899, being a total price of about $18,000. First and last he paid on account of this purchase what was accepted as cash, and therefore is cash, the sum of $6,000, or thereabouts, and thereupon he had to raise $12,000 more, and this he raised -- theoretically, of course, but still he raised it -- by depositing these 300 shares, which both parties agree existed, with Paxson & Company, who loaned him $12,000 on it. The relations of the parties were therefore these: Paxson &amp Company, besides being his brokers, had become money lenders and had loaned him $12,000 -- I suppose at six per cent, since no other rate was mentioned -- upon the implied condition, evidenced by their acceptance of the security, that they would hold the collateral as security for the payment of the loan. It is undoubtedly usual in transactions of this kind where dealings are in securities liable to fluctuate rapidly in the market, to make an agreement whereby the lender of so large a sum of money as $12,000, upon such securities, may, when he is in peril of loss, secure himself against actual loss, by a sale of the collateral in the market. In the absence of any special agreement respecting the rights of the pledgee, the man who advances the money on the collateral, however, they stand merely on the ordinary footing of pledgor and pledgee, and that ordinary footing is this: When a man has borrowed money on a pledge of collateral security, with the implied understanding that the collateral security is to be effectually used so as to protect the lender against loss on that loan, the lender must give the borrower reasonable notice of his intention to sell the collateral. [It is conceded in this case that no reasonable or other notice was given to the borrower, and that this collateral was, contrary to the law of pledges, sold without any notice whatever being given to the man who was the borrower of the money and the owner of the collateral. That was, in law, a breach of the contract of the lender, and for that breach he is liable in damages.

There must, therefore, if there be any damage, be a verdict for the plaintiff, and that there is damage is claimed by the plaintiff and conceded by the defendants.

The plaintiff, however, claims that the damages suffered by him exceed the sum of $14,000, whereas the defendants contend that the whole damage suffered by the plaintiff was $744, less $36.00 which would be $708.

There are certain patent facts which you must not leave out of your minds, namely, that at the time of the sale of this pledged security the whole amount of money that the plaintiff ever put into that security was $5,600, according to the evidence. That is all he had in it. The rest had been put in by the defendants. Now a man cannot conceivably lose more than $5,600 on $5,600. That is all he can lose -- that is the whole of it -- unless that $5,600 is in a shape that it enhances in value. There is no evidence before us that at the moment when Mr. Learock was notified that his property was sold, the property had at all advanced in value. On the contrary, it had gone down in value over $5,000. I think there is no evidence before us of its having in a short time afterwards enhanced considerably, perhaps for a month -- certainly for some weeks.

The point of the case appears to me to be this, and that is what I leave to you: I take it that the calculation of the defendants is not quite correct. According to their statement, the sale at $80.00 produced $224 in favor of the plaintiff, and the sale at $85.00 necessarily produced $750 more. Therefore, there would have been in their hands on the 19th of December, $974, and that, with interest to date, nearly three years, which would make pretty nearly $180, would make the plaintiff's claim about $1,150 to date, roughly calculating it. To that amount, accurately calculated, I take it the plaintiff is entitled anyhow.

There are complications in the case. The first complication is that the defendants sold this collateral without any order and without any legal authority. The second complication is that after the defendants had sold it for $85.00 a share, they sent the plaintiff an account in which they alleged that they had sold it for $80.00 a share. Where a man in a confidential relation like that of a pledgee sells, without notice to the pledgor and in his absence, the pledgor's property, the highest good faith is required. If, therefore, the defendants wilfully made the return at $80.00 then it is for the jury to consider whether this intent to defraud the plaintiff, if it existed, was not older than the making of the account, was not in their minds when they made the sale, and would not be one of the reasons why they had made the sale.

You are therefore to determine whether the defendants had in their minds a fraudulent intent when they made the sale. If you find that they acted merely from error and that they had at that time no fraudulent intent, then the recovery of the plaintiff is limited to the amount I have stated.

If, however, you find that there was a fraudulent intent in the sale, then you are at liberty to add to that amount such reasonable sum as may serve as punishment to the defendants for this fraudulent act. That sum is not to be ascertained by finding the highest price that the stock sold for in the market since, as counsel for the plaintiff contends. That is not the law which is to govern you in finding the amount of that smart-money. You are to view the transaction as a whole; you are to view the degree of turpitude, if any, in the conduct of the defendants; and you are to give an approximate amount, in addition to the amount really due on the account, as a punishment to the defendants and a deterrent to other people. You are not to impart into that consideration feelings of vindictiveness or malice, or general prejudice. You are to bear yourselves as judges who know neither malice nor wrath, but who sit calmly and deliberate, and who, if they must punish, punish with requisite severity, but with judgment and with reason.]

Verdict and judgment for plaintiff for $7,000. Defendant appealed.

Error assigned among others was (2) portion of charge as above, quoting it.

The assignments of error are not sustained and the judgment is affirmed.

Ruby R. Vale, with him, Alexander & Magill and Alfred Moore, for appellants. -- In cases of the conversion of stock certificates or bonds of similar securities, in the absence of a breach of trust or disregard of an obligation to deliver certain stock at a specified time, the measure of damages is the market value at the time and place of conversion with interest thereon to the time of trial, deducting therefrom, by way of recoupment, any moneys advanced by the pledgee on account of the purchase price of the stock or for expenses incurred: Neiler v. Kelley, 69 Pa. 403; Work v. Bennett, 70 Pa. 484; R.R. Co. v. English, 86 Pa. 247; Wilson v. Whitaker, 49 Pa. 114; Montg. County Bank v. Reese, 26 Pa. 143; Reitenbaugh v. Ludwick, 31 Pa. 131; Musgrave v. Beckendorff, 53 Pa. 310; Persch v. Quiggle, 57 Pa. 247; Jennings v. Loeffler, 184 Pa. 318.

Gavin W. Hart, with him Edward D. McLoughlin, for appellee. -- The Pennsylvania decisions divide the cases of conversion of stock in which the highest price is the measure of damages into three classes:

1. Where there is a breach of fiduciary relations, as in Montg. County Bank v. Reese, 26 Pa. 143.

2. Where there is an obligation to deliver specific stock at a certain time, as in Reitenbaugh v. Ludwick, 31 Pa. 131, and Musgrave v. Beckendorff, 53 Pa. 310.

3. Where there are circumstances of fraud, malice, oppression, or other aggravation attending the conversion or detention, as pointed out in Montg. County Bank v. Reese, 26 Pa. 143; Conyngham's Appeal, 57 Pa. 474; Neiler v. Kelley, 69 Pa. 403, and other cases.

The plaintiff's case falls within the first and third classes because a pledgee is a trustee and because of the fraud...