Carpenter v. Wilijams

• Court: Georgia Court of Appeals
• Writing for the Court: BELL, J
• Citation: Carpenter v. Wilijams, 154 S.E. 298, 41 Ga.App. 685 (Ga. App. 1930)
• Decision Date: 21 July 1930
• Docket Number: No. 20050.,20050.
• Parties: CARPENTER. v. WILIJAMS.

41 Ga.App. 685

154 S.E. 298

CARPENTER.

v.WILIJAMS.

No. 20050.

Court of Appeals of Georgia, Division No. 2.

July 21, 1930.

Syllabus by the Court.

As against the interests of creditors or innocent third persons, actual delivery of property is essential to a pledge or pawn; but this common requisite may be dispensed with as between the immediate parties, and where the rights of others are in no way affected. Thus, where a corporation executes an agreement whereby certain notes payable to it are to be regarded as pledged as collateral security to one of its creditors, but under which the corporation is to retain the possession of the notes for the purpose of collection only, the creditor will be deemed to be a pledgee as against a mere wrongdoer who intermeddles and commits a conversion of the notes. The president of such corporation may be held liable in damages to the creditor for such conversion, if committed by him.

Syllabus by the Court.

Moreover, in the instant suit against the president of the corporation which had executed such agreement of pledge, if the allegations were true the defendant was liable to the plaintiff as for willfully and maliciously causing a breach of the contract between the plaintiff and the corporation of which the defendant was president, where with knowledge of such contract he made a conversion of the notes and placed them beyond the power of the corporation to apply them as promised, to the injury and damage of the plaintiff as a creditor, for whose use and benefit the notes were to be collected and applied. The petition set forth a cause of action, and was not subject to the demurrers interposed.

Error from Superior Court, Richmond County; A. L. Franklin, Judge.

Suit by R. S. Williams against William Carpenter. Judgment for plaintiff, and defendant brings error.

Affirmed.

In a suit by R. S. Williams against William Carpenter, a demurrer to the petition was overruled, and the defendant excepted.

The plaintiff's case was based upon the theory that the defendant was president of a corporation which had pledged or agreed to pledge certain notes as collateral security for an indebtedness to the plaintiff, but which notes were allowed to remain in the possession of the corporation for the purpose of collection, and that, while the notes were thus held in trust for the plaintiff, the defendant, with full knowledge of the agreement, wrongfully disposed of the notes, to the plaintiff'sdamage in the sum sued for. The demurrer was based upon general and special grounds, but raised only the one question of whether the petition showed that the plaintiff had such title or interest in the notes as would authorize the kind of suit brought; the contention of the defendant being that the petition can be construed only as a suit in trover, or for a conversion, and that the facts did not show a pawn or pledge by the corporation, or such other right in the plaintiff as is necessary to support such an action.

The petition alleged that on December 14, 1927, Penny Savings Loan & Investment Company, being indebted to the plaintiff in the sum of $22,450, agreed to issue to him a certificate of deposit in the sum of $5,000, and to execute a note for the balance of $17,450, due one year from date and bearing interest at a rate specified, which note was to be secured by a mortgage on a described brick building and "certain collateral notes or bills receivable on property of the Steed Street and 15th Street subdivisions which said company now hold, and which notes aggregate a principal amount of around $13,000." Petitioner accepted this contract, relying upon the stipulations thereof as being made in good faith on the part of the company. The note for $17.450 and the security deed to the brick building were executed as provided in the contract. It was agreed between the plaintiff and the savings company that the collateral notes or bills receivable on the property situated in the subdivision which the company then held, as well as the note for $17,450, should remain in the possession of the company for the purpose only of collecting the collateral purchase-money notes aforesaid as they should mature, and to place the collections when and as made to the credit of petitioner and to credit the company's note aforesaid with like amounts placed to the credit of petitioner from that source." All of the collateral notes described above were purchase-money notes representing unpaid purchase money for real estate sold to the several makers by the company, and consisted of 39 notes payable to the company, variously and specifically described, and aggregating the sum (face value) of $12,373.43 principal, besides interest from their respective dates.

Penny Savings Loan & Investment Company was adjudicated a voluntary bankrupt on February 10, 1928, and its assets, upon administration by a trustee in bankruptcy, proved insufficient to pay any dividend other than to secured creditors, and the plaintiff has received nothing except the sum of $5,000 representing the value of the building described above, which was released to him by the trustee in bankruptcy at this valuation. The plaintiff did not know of the insolvency of the company until it instituted proceedings to have itself declared a bankrupt. Petitioner then demanded that the company deliver him its own note for $17,450 and also the 39 other notes pledged by the company as collateral thereto, when he was informed that none of the notes were in the possession or control of the company. None of such notes have been produced or delivered to the plaintiff "although often demanded of the officers of said company."

The defendant was the president of Penny Savings Loan & Investment Company during the time of the transactions hereinbefore described, and "was present as a director and presided as president, and participated in its action" authorizing the contract whereby the company agreed to pledge and execute, respectively, the notes herein referred to. The defendant thereafter, without the plaintiff's knowledge or consent, took the 39 collateral notes "from the possession and custody of said company, when and while said company held said notes in trust for petitioner as is hereinbefore alleged, and as said William Carpenter [the defendant] well knew, and wilfully, intentionally and wrongfully disposed of said notes in a way beyond the power of petitioner to recover the same, and * * * by reason of said unlawful conversion of said notes by defendant petitioner has sustained injury and damage to the extent of the value of said notes, to wit: $12,373.43."

Hammond & Kennedy, of Augusta, for plaintiff in error.

Callaway & Howard, of Augusta, for defendant in error.

BELL, J. (after stating the foregoing facts).

1. We think the court was right in overruling the demurrer to the petition. We cannot agree that under the allegations the plaintiff had no such property or right of possession in the notes as would entitle him to sue for their conversion. The Civil Code (1910) § 352S provides that delivery of the property is essential to a pledge or pawn, and in First National Bank v. Nelson, 38 Ga. 391, 95 Am. Dec. 400, it is said that delivery is the very essence of the bailment, and that this cannot be dispensed with by an agreement between the parties to the effect that the party making the pledge will become the bailee of the other; the rule as to constructive delivery as in the case of a sale being inapplicable to a pledge or pawn. That case was followed in National Exchange Bank v. Graniteville Mfg. Co., 79 Ga. 22, 3 S. E. 411, and was cited with approval in the case of Commercial Bank v. Flowers, 116 Ga. 219, 42 S. E. 474. However, in each of these cases the rights of creditors or of innocent third persons were involved; whereas, in the present case the contest is solely between the party claiming the pledge and the alleged tortfeasor, and this fact should undoubtedly make a difference. The distinction was pointed out in Maryland Casualty Co. v. Washington Loan & Banking Co., 167 Ga. 354 (1), 360, 145 S. E 761, 764, 61 A. L. R. 323, and in that case it was also observed that "in Citizens' Banking Co. v. Peacock, 103 Ga. 171, 29 S. E. 752, some of the remarks in National Exchange Bank v. Graniteville Mfg. Co., supra, were declared to be mere dicta."

It may be that a pledge necessarily connotes the idea of an actual deposit of the property involved, but there would seem to be no reason why the parties may not, by special agreement, dispense with this common requisite, where the interests of third persons do not intervene. They may agree that with respect to each other and the property they will occupy the same status as though an actual deposit had been made, and the rights of themselves and mere intermeddlers should be governed accordingly. Ruff v. Anderson, 145 Ga. 83 (1), 88 S. E. 545; 49 C. J. 910-917.

We think this conclusion is a necessary deduction from the decisions of our own Supreme Court, and, in this view, it is unnecessary to discuss in this opinion the cases from other jurisdictions. See, in this connection, Casey v. Cavaroc, 96 U. S. 467, 24 L. Ed. 779; Easton v. German-American Bank, 127 U. S. 532, 8 S. Ct. 1297, 32 L. Ed. 210; Robertson v. Robertson, 186 Mass. 308, 71 N. E. 571; Mahoney v. Hale, 66 Minn. 463, 69 N. W. 334; Succession of Lanaux, 46 La. Ann. 1036, 15 So. 708, 25 L. R. A. 577; Geilfuss v. Corrigan, 95 Wis. 651, 70 N. W. 306, 37 L. R. A. 166, 60 Am. St. Rep. 143; Buffalo German Ins. Co. v. Third National Bank, 162 N. Y. 163, 56 N. E. 521, 48 L. R. A. 107; American Exchange National Bank v. Federal National Bank of...