Atlantic Nat. Bank of Boston v. Korrick

• Decision Date: 27 January 1926
• Docket Number: Civil 2391
• Citation: 29 Ariz. 468,242 P. 1009
• Parties: THE ATLANTIC NATIONAL BANK OF BOSTON, a Corporation, Appellant, v. CHARLES KORRICK, J. J. GOULD and H. F. HUNTER, Copartners Doing Business Under the Name and Style of KORRICK, GOULD & HUNTER, Appellees
• Court: Arizona Supreme Court

242 P. 1009

29 Ariz. 468

THE ATLANTIC NATIONAL BANK OF BOSTON, a Corporation, Appellant, v. CHARLES KORRICK, J. J. GOULD and H. F. HUNTER, Copartners Doing Business Under the Name and Style of KORRICK, GOULD & HUNTER, Appellees

Civil No. 2391

Supreme Court of Arizona

January 27, 1926

APPEAL from a judgment of the Superior Court of the County of Maricopa. F. C. Struckmeyer, Judge. Judgment reversed and cause remanded, with directions that judgment be entered for plaintiff.

Messrs Kibbey, Bennett, Gust, Smith & Lyman and Mr. Harold Baxter for Appellant.

Messrs Hayes, Stanford, Laney & Allee, for Appellees.

OPINION

ROSS, J.

Our attention being called to some inaccuracies of statement, and an entire omission to pass upon appellees' cross-assignments, this opinion and decision is in lieu of the former one.

This case is very similar to the case of the Atlantic National Bank of Boston v. Moore, ante, p. 346, 241 P. 601. It involves the same parties plaintiff and the same kind of transaction. It is different in the detail of parties defendant, the amount of cotton sold, size and date of notes, etc.; but the transactions were the same in essence. As in that case, the plaintiff and its predecessor in ownership of notes sold the pledged cotton under the powers given in collateral notes, and, after crediting amount realized over and above expenses, applied the balance on notes, and defendants failing and refusing to pay balance, brought this suit to recover the same. (As in the Moore case, so in this, when we speak of the "plaintiff," we mean the Atlantic National Bank of Boston.)

The defendants set up several defenses to the complaint and also a counterclaim. The court, in submitting the case to the jury, either because they were without support in the evidence or the law, omitted all such defenses and counterclaims except one.The issue raised by the answer and submitted to the jury was whether the plaintiff in exercising the power of sale in notes had been guilty of fraud and negligence in the handling and disposition of the cotton; it being alleged, in substance, that plaintiff had wilfully, designedly and negligently retained the cotton until such time as plaintiff could have opportunity to sell it on a weak market in order to favor its customers, and, further, that the cotton was sold at a price far below the market price.

The court refused to grant plaintiff's motion for a directed verdict at the close of the whole case; said motion being based upon a failure of evidence to support the defenses of fraud and negligence. Whereas the plaintiff's demand was for about a thousand dollars, the jury's verdict was for only one hundred dollars.

Plaintiff has appealed and assigned as error the court's refusal to direct a verdict in its favor; the admission in evidence of a copy of the "Daily News Record" to prove the value of Pima cotton during the year 1923, said issue being dated January 15, 1924, and purporting to carry a summary of the weekly average market value of such cotton for 1923; the misdirection of the jury as to the law; and the refusal of certain requested instructions.

The status of the parties hereto with reference to the cotton was that of pledgor and pledgee. That is made to appear from the pledge agreement in note. (See copy of note as set out in opinion in Moore case.)

It is assumed in the pleadings, and was so treated in the trial. Although defendants in their answer and counterclaim alleged fraud and false representations on the part of the plaintiff in the inception of the pledge contract, and offered evidence in support thereof, all such questions, as before stated, were taken from the jury because of failure of proof. The only questions presented by plaintiff's assignments for our consideration are the ones based on the issue of fraud and negligence in the handling and disposition of the pledged property. It is therefore settled beyond cavil that defendants signed collateral notes for the amounts alleged and in the same instrument turned over to the plaintiff the cotton mentioned as collateral security, with the right and power to sell and dispose of the same at any time or times after notes became due, either at private or public sale, and without notice to the defendants. It doubtless was in the contemplation of the parties that plaintiff might use that power of sale even before the cotton reached the eastern market, since the notes are all demand notes.

And there is no law forbidding a private sale of pledged property by the pledgee without notice to the pledgor if they so agree, as they have here. The method provided by paragraph 4143 of the Civil Code of 1913, of giving notice of the sale to the pledgor and by posting and publication does not purport to interdict agreements for sales without notice. It is, we think, well settled that the parties may by their written agreement dispense with notice of the sale to the pledgor, unless the statute law otherwise provides. Ardmore State Bank v. Mason, 30 Okl. 568, 39 L.R.A. (N.S.) 292, 120 P. 1080; In re Mertens, 144 F. 818, 75 C.C.A. 548; Jones on Collateral Securities, 3d ed., §§ 617a, 611, 611a, and 611b. It is undisputed that the price of cotton declined from the date of the consignment, and that when it reached the eastern market it was not worth as much by several points as when shipped. It is also undisputed that plaintiff had asked defendant to put up additional collateral in October, 1921, on the ground that the cotton had declined so much as not to be adequate security for advances made, and that defendant paid no attention to such request. The purpose of providing for additional security was twofold: First, to keep the value of the pledge equal or greater than the loan or advancement for the protection of the pledgee; and, second, to prevent the sacrifice of the pledge upon a weak market for the protection of the pledgor. Plaintiff did not sell any of the pledged cotton, although it had the right to do so, until October, 1922, and then it sold only four bales. The rest, six bales, was sold in October and November, 1923. That sold in 1922 went for 34 1/2 cents, and two bales of that sold in 1923 went for 32 cents, two bales for 32 1/2 cents, and two bales for 34 1/2 cents. Immediately after each sale a complete itemized statement of the amount realized and expenses was mailed to defendants, so that they were fully informed as to what the plaintiff was doing with the pledge.

That there existed between the parties a trust relation, and that pledgee in exercising the power of sale owed a duty to the defendants to act in good faith, cannot be questioned.

"But where the pledgee makes the sale in the manner provided by law, and in accordance with the conditions of the contract, and it is not shown that he did, or caused to be done, anything for the purpose of preventing a fair sale, the pledgor has no right to complain. Under such circumstances the pledgee may take the market as he finds it and exercise his power of sale accordingly." Williams v. Parker, 30 Cal.App. 71, 157 P. 550.

There is affirmative evidence that the pledged property was sold at the prevailing or market price on the dates it was so sold. This was testified to by the broker who sold the cotton and the purchasers thereof. The rule is that the pledgor questioning the validity or good faith of a sale of the pledge under a power of sale, or asserting that the pledged property was worth more than it sold for, must establish his contention. It is stated in Hiscock v. Varick Bank, 206 U.S. 28, 51 L.Ed. 945, 27 S.Ct. 681, as follows:

"We are at a loss to understand how fraudulent conduct can justly be imputed to a pledgee when it appears that whatever was done in executing the power of sale was done in full compliance with the terms of the pledge, and when there is no evidence that any unconscionable advantage was taken of the pledgor or his creditors. Doubtless the pledgee cannot avail himself of his authority, however unlimited, to sacrifice the property wantonly, or to purchase it himself at a valuation so inadequate as to suggest a fraudulent purpose. If the valuation in this case was unfair, the burden was on the trustee [of pledgor] to prove the fact."

A close search of the record fails to show any evidence whatever tending to impeach the sales of cotton, aside from that contained in the "Daily News Record," and that goes to the 1923 sales only. There was timely and proper objection made to this evidence, and we are satisfied the objection should have been sustained. We have stated in the Moore case, supra, what the published item in the "Daily News Record" was that defendant wished to get before the court and jury. For the lack of a better description, counsel have called it a summary of the weekly range of prices of twelve varieties of cotton during 1923 including Arizona Pima. We wish to add to what we said in the Moore case upon the question only a suggestion or two. We think in order to qualify a newspaper as evidence it should be published for the enlightenment of persons dealing in the articles to prove whose value it is offered, and that persons generally were in the habit of dealing in such commodity in reliance upon its market quotations. In order that a newspaper be of any use to...