B. C. Jennings v. S. R. Gallagher

• Decision Date: 07 January 1931
• Citation: 152 A. 802,103 Vt. 169
• Parties: B. C. JENNINGS v. S. R. GALLAGHER
• Court: Vermont Supreme Court

152 A. 802

103 Vt. 169

B. C. JENNINGS v. S. R. GALLAGHER

Supreme Court of Vermont

January 7, 1931

November Term, 1930.

Pledges---Property of Pledgee in Thing Pledged---Necessity of Delivery of Possession---Loss of Lien by Loss of Possession---Effect of Pledgee Permitting Pledgor To Use Pledged Property for Special or Limited Purpose---Effect on Possession and Special Property of Loan of Pledged Property for Special Purpose---Jury Question---Right of Pledgee To Recover for Conversion of Pledged Property---Effect on Pledgee's Special Property Where Pledgor Obtains Possession of Property by Fraud---Constructive Trustee---Application of Equitable Doctrine of Constructive Trust in Law Court---G. L 5440---Effect on Pledge of Disqualification of Pledgor as Director by Pledging Stock---Validity of Contract When Connected with Acts Done in Violation of Law, but Collateral to and Independent Thereof.

1. Pledgee of personal property takes special property therein general property remaining in pledgor.

2. It is essential to validity of pledge of personal property, that possession be delivered to pledgee.

3. Pledgee has lien on pledged property only so long as he retains possession, his special property therein being lost by surrender of thing pledged to pledgor.

4. Pledgee may permit pledgor to take and use pledge for any special or limited purpose, and, there being no unconditional delivery sufficient to revest title, possession and special property as between them remain unchanged.

5. Where pledgee of pledged stock certificate loaned certificate to Pledgor for special purpose upon latter's agreement that pledgee's lien should be preserved, it was not an unconditional delivery sufficient to revest title and possession in pledgor.

6. Where evidence tended to show that pledgee of pledged stock certificate loaned certificate to pledgor for special purpose, upon latter's agreement that pledgee's lien should be preserved, intent of pledgee in making loan was question of fact for jury.

7. Pledgee, by virtue of his special property in thing pledged may recover in trover for conversion thereof by pledgor although pledged property may have come lawfully into pledgor's hands by pledgee's consent.

8. Special property of pledgee is not divested where pledgor has obtained possession of thing pledged by fraud or other wrongful means.

9. Although pledgor of pledged stock obtained loan thereof from pledgee without fraudulent intent, its delivery to him by pledgee in reliance upon pledgor's undertaking to keep it safely for pledgee with lien unimpaired, imposed such obligation upon pledgor as made him constructive trustee when agreement was violated by him to his advantage.

10. Where pledgor of pledged stock obtained loan thereof from pledgee for special purpose, under agreement that lien was to remain unimpaired, and subsequently pledgor, by converting loaned pledge, made pledgee's title forever unavailing law court will apply doctrine of a constructive trust to avert a fraudulent result, and allow recovery for damage caused by wrongful and fraudulent act.

11. While pledging of stock in trust company by director thereof disqualified pledgor to hold such office, unless he still owned requisite amount of stock absolutely unpledged as prescribed by G. L. 5440, such disqualification did not affect validity of pledge or pledgee's special property in stock.

12. Contract which is collateral to and independent of, though in some measure connected with, acts done in violation of law, is not void.

13. Where director of trust company pledged stock therein, and pledgee thereafter loaned stock to pledgor to enable him to conceal fact that pledgor by such pledge had disqualified himself, by reason of G. L. 5440, to be director in such trust company, upon understanding that lien was to remain unimpaired, pledge was valid, and transaction not rendered void by such concealment, because contract itself was collateral and independent.

ACTION OF TORT for conversion of pledged stock certificate. Plea, not guilty. Trial by jury at the April Term, 1930, Franklin County, Sturtevant, J., presiding. Verdict and judgment for the plaintiff. The defendant excepted. The opinion states the case.

Judgment affirmed.

Theriault & Hunt for the defendant.

F. L. Webster and M. H. Alexander for the plaintiff.

Present: POWERS, C. J., SLACK, MOULTON, WILLCOX, and THOMPSON, JJ.

OPINION

MOULTON

This is an action of tort. The declaration is in two counts. The verdict was for the plaintiff, and the case is here on the defendant's exceptions. The questions for review arise under the first count, by which recovery is sought for the conversion of 10 shares of the capital stock of the Hardwick Savings Bank & Trust Company.

The defendant moved for a directed verdict on this count. The motion was denied, and he excepted. Taken in the light most favorable for the plaintiff, the evidence tended to show the following facts: Both plaintiff and defendant were directors of the Hardwick Savings Bank & Trust Company. The defendant owned 10 shares of the capital stock of that institution, of the par value of $ 1,000, which he pledged to the plaintiff to secure him for certain obligations which he had incurred on the defendant's behalf, and for certain anticipated future indebtedness. The certificate representing the stock was indorsed in blank by the defendant and delivered to the plaintiff. While it was in the latter's possession the defendant learned that the treasurer of the bank had seen it there, and thereupon be thought himself of G. L. 5440, which, in its then form and before its amendment by No. 92, Acts 1929, provided that: "An officer of a trust company shall own not less than one thousand dollars' worth of stock in such company, absolutely unpledged." So he told the plaintiff that the certificate had been seen in the latter's possession and that it would endanger his own standing as a director if it were allowed to remain there. Therefore he asked the plaintiff to loan him the certificate, and promised that he would put it in his safe at home, that the plaintiff would be protected in his lien and that even in the event of the defendant's death the plaintiff would still be protected because the defendant's wife knew all about the transaction. In reliance upon this undertaking, the plaintiff loaned him the certificate, without any intention of giving back his title, but when, at a later date, the obligations being unpaid, the plaintiff demanded the certificate, it appeared that the defendant had pledged it as security for a loan at another bank.

The first ground for the motion was that by the delivery of the certificate to the defendant the plaintiff's lien as pledgee was waived and terminated.

Where there is a pledge of personal property the pledgee takes a special property therein, the general property remaining in the pledgor. Lamoille County Sav. Bk. & Tr. Co. v. Hanson, 93 Vt. 486, 488, 108 A. 396. It is essential to the validity of the pledge that possession be delivered to the pledgee, and he has a lien on the property only so long as he retains possession. Samson v. Rouse, 72 Vt. 422, 426, 48 A. 666. His special property therein is lost by a surrender of the thing pledged to the pledgor. Russell v. Fillmore, 15 Vt. 130, 135; Fletcher v. Howard, 2 Aik. 115 117. But a pledgee may permit the pledgor to take and use the pledge for any special or limited purpose, and if there is no unconditional delivery sufficient to revest the title the possession and special property as between them remain unchanged. Harding v. Eldridge, 186 Mass. 39, 42, 43, 71 N.E. 115; Way v. Davidson, 78 Mass. 465, 467, 74 Am. Dec. 604; Macomber v. Parker, 31 Mass. 497, 508; Hickok v. Cowperthwait, 210 N.Y. 137, 103 N.E. 1111, 1112, Ann. Cas. 1915B, 1002; Fairbanks v. Sargent, 117 N.Y. 320, 22 N.E. 1039, 1042, 6 L.R.A. 475; Casey v. Cavaroc, 96 U.S. 467, 24 L.Ed. 779, 784; Hutton v. Arnett, 51 Ill. 198, 201; Clare v. Agerter, 47 Kan. 604, 606, 28 P. 694; Thompson v. Colvin, 53 Ore. 488, 489, 490, 101, P. 201; First Nat. Bank v. Bradshaw, 91 Neb. 210, 135 N.W. 830, 39 L.R.A. (N.S.) 886, 890, 891; New Albany Nat. Bk. v. Brown, 63 Ind.App. 391, 114 N.E. 486, 489; Reeves v. Capper, 5 Bing. (n.s.) 136, 140, 141. Accordingly, in Samson v. Rouse, supra, it was held that where a pledgee of certain promissory notes delivered them back to the pledgor for purposes of collection, the delivery was for a special purpose, and did not in law interrupt the possession of the pledgee so long as the notes remained uncollected.

So also, "the pledgor may be the agent of the pledgee after the original delivery, to retain the property pawned, and in such case the intention of the parties controls, and the legal title does not change, for the reason that the pledgor holds as the agent of his principal." Harding v. Eldridge, supra, page 43 of 186 Mass. 39, 71 N.E. 115, 116; Casey v. Cavaroc, ...