Colonial Trust Co. v. Central Trust Co.

• Decision Date: 05 January 1914
• Docket Number: 162,146
• Citation: 243 Pa. 268,90 A. 189
• Parties: The Colonial Trust Co., Appellant, v. The Central Trust Co. and Clara J. Kirkland, Appellant
• Court: Pennsylvania Supreme Court

90 A. 189

243 Pa. 268

The Colonial Trust Co., Appellant, v. The Central Trust Co. and Clara J. Kirkland, Appellant

Nos. 146, 162

Supreme Court of Pennsylvania

January 5, 1914

Argued October 27, 1913

Appeals, Nos. 146 and 162, Oct. T., 1913, by plaintiff and cross plaintiff, from decree of C.P. Allegheny Co., Jan. T 1911, No. 360, in equity, dismissing bill and cross-bill in equity in case of The Colonial Trust Company, a corporation Receiver of John A. Wood, Jr., bankrupt, v. The Central Trust Company, a corporation, and Clara J. Kirkland. Affirmed.

Bill in equity to set aside the sale of pledged securities and cross-bill in equity for the return of certain stock to the cross plaintiff alleged to have been secured from her by fraud. Before HAYMAKER, J.

From the record it appeared that plaintiff had filed a bill in equity praying that a sale to itself by the Central Trust Company of securities pledged to it by John A. Wood, Jr., be declared void and that the excess over his indebtedness to it, which it realized on subsequent sales of the said securities, be awarded to his trustee in bankruptcy. The cross-bill was filed by a customer of Wood, who had left with him for sale, a certain stock certificate. He hypothecated this for his indebtedness to the Central Trust Company, and it was sold with the other securities enumerated in the bill. The prayer of the cross bill was that the surplus claimed by Wood's receiver in bankruptcy be awarded to her.

In dismissing the bill the court found the following facts:

1. The Colonial Trust Company and The Central Trust Company are corporations of the State of Pennsylvania, domiciled in the City of Pittsburgh, and lawfully engaged in the banking business.

2. John A. Wood, Jr., was a stock and bond broker, with offices in said city, and at one time had in his employ H. M. Ilyus as bookkeeper.

3. On January 14, 1910, The Colonial Trust Company, the plaintiff in the original bill filed, was appointed receiver in bankruptcy of the estate of John A. Wood, Jr., and soon thereafter it was appointed trustee in bankruptcy of that estate.

4. On October 13, 1909, John A. Wood, Jr., borrowed from the Colonial Trust Company $1,500.00 and gave his collateral promissory note, and delivered therewith 100 shares of preferred stock of the Independent Brewing Company as security for the payment thereof. That note, with the terms of hypothecation appended, is as follows:

"$1,500.00

PITTSBURG, PA., October 13, 1909.

"On demand after date I promise to pay to the order of myself at the Central Trust Company of Pittsburgh, Fifteen Hundred Dollars, without defalcation, for value received, having deposited herewith as collateral security for the payment of this or any other liability or liabilities of mine to the holders hereof, now due or to become due or may hereafter be contracted, the following property, viz:

"100 Shares Independent Brewing pfd.

"The market value of which is $ , with further right to the holder hereof to call for additional security should there be a decline in the market value, or on failure to respond, this obligation shall be deemed to be due and payable without demand or notice, with full power and authority to the said holder to sell, assign and deliver the whole or any part of said security, any substitute therefor, or any addition thereto, at any Broker's Board, public or private sale, at the option of the holder, on the non-performance of this promise, or of the terms hereof, at any time hereafter, without demand, advertisement or notice, with the right to the holder of becoming the purchaser and absolute owner thereof, free of all claims and trusts.

"After deducting all legal or other costs and expenses of collection, storage, custody, sale and delivery, the residue of the proceeds of any such sale or sales to be applied to the payment of any or all of the liabilities aforesaid, due or to become due said holder, returning the overplus, if any, to the undersigned; and in case of any deficiency holding me responsible therefor."

On November 1, 1909, Wood borrowed from the same company ten thousand dollars, and gave a similar note, with the same terms, of hypothecation, and delivered therewith the following securities:

5

shares of Westinghouse Electric seconds.

25

shares of Independent Brewing Company, com-

pany common,

40

shares of Westinghouse Machine Company.

25

shares of Crucible Steel preferred.

100

shares of Crucible Steel common.

5

shares of National Fireproofing common.

65

shares of Sewer Pipe.

Pittsburgh & Allegheny Telephone Company

Bond, face value $1,000.00.

At the time said loans were made by the Central Trust Company to Wood it was in possession of said securities and made the same on the strength of that possession, and in the belief that Wood was the legal owner of said securities, and had no notice that any of said securities were owned or claimed by any other person.

5. The maker of said notes made various payments on account of the larger note, whereby it was reduced to the sum of $6,300.00. The smaller note was for $1,500.00, and on this indebtedness there was interest due of $20.00, making a total claim of $7,820.00.

6. On Friday, January 14, 1910, in the forenoon, Mr. Hetzel, the secretary and treasurer of the Central Trust Company, went to the office of the maker of the notes to demand payment and to deliver the notes and collateral, but finding the office closed put the notice through the letter hole in the door. From there he went to the Colonial Trust Company, where he presented the notes to F. F. Brooks, the trust officer, for payment, about eleven o'clock, and being informed by that officer that the company did not have the funds with which to pay the notes, he said that the collateral would have to be sold, but did not at that time designate any time of sale. Between three and four o'clock of the same day Mr. Hetzel notified Mr. Brooks by 'phone that the collateral would be sold at the office of the Trust Company the next morning, Saturday, at 9:30, to which Mr. Brooks objected on the ground that the notice was too short. This verbal notice over the 'phone was followed by a written notice sent to Mr. Brooks about four o'clock on Friday evening, but was not received by him until about nine o'clock on Saturday morning, less than half an hour before the time fixed for the sale. The following is a copy of that notice:

"Central Trust Co., Pittsburgh, Pa., January 14, 1910.

Colonial Trust Company, Receiver of John A. Wood, Jr., Pittsburgh, Pa.

Gentlemen:

We beg to notify you that we have this day demanded payment on the notes of John A. Wood, Jr., held by this company, and said notes not being paid we will offer the collateral for sale Saturday morning, January 15, 1910, at 9:30 o'clock, in the above office.

H. G. HETZEL, Treasurer."

The trustee of Wood's estate protested against the sale, principally on the ground that the securities were all marketable, that there was a substantial equity in the loan and that they should be sold on the exchange or at a certain office where public sales at that time were being made.

7. On Saturday morning, January 15, 1909, at ten o'clock the collateral securities were sold in the office of the secretary-treasurer of the pledgee, in a room adjoining the banking room, and were purchased by the pledgee, represented by its president, at a price or sum equal to the then indebtedness of the pledgor. The only persons present at the sale were certain officers and counsel for the pledgee, and Mr. Jennings, counsel for Mrs. Kirkland. Mr. Jennings before the day of sale and at the time of the sale, protested against the sale of the twenty-five shares of Crucible Steel on the ground that the pledgor had no title thereto at the time of pledging, and that they were then the property of Mrs. Kirkland.

8. When the pledgee learned of the failure of the pledgor it made immediate investigation of the character of the securities in its hands, with a view to protection against loss. The market value of some of the pledged stock was at times of little value; some were speculative and nondividend paying, and at the time of the sale the market was on a decline, and had the sale been delayed for a month longer the pledgee would have sustained a loss. The Westinghouse stocks were of companies then in financial difficulties.

9. On the same day that the pledged securities were purchased by the pledgee they were placed in the hands of a broker for sale, and some of them were sold on the same day, and all were sold not later than the following Wednesday, the 19th, the pledgee realizing $1,582.29 over and above the pledgor's indebtedness to the pledgee and the expenses of sale.

10. The pledgor, John A. Wood, Jr., has at no time complained of the action of the pledgee in selling the pledge, and the only objection is on the part of his trustee in bankruptcy, and that principally on the ground that the securities should have been sold on the stock exchange or some public place where there might be competition. Neither the pledgor nor his trustee in bankruptcy offered at any time to redeem the pledge, and the trustee was at no time in possession of sufficient funds to do so.

11. The pledgor made no representations to the parties interested in the sale of the securities, nor is it claimed by anyone that the pledgee practiced any deception on the pledgor or his trustee in bankruptcy at any time previous to or at the time of the sale of the pledged securities, or that the pledgee did not have the legal right to sell the same.

12. There was no proof that the securities as a whole were worth, on the day of the sale, more than the amount of the pledgee's claim.

In refusing the prayer of the cross-bill the...