Commonwealth v. Althause

• Decision Date: 22 November 1910
• Parties: COMMONWEALTH v. ALTHAUSE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

207 Mass. 32

93 N.E. 202

COMMONWEALTH v. ALTHAUSE.

Supreme Judicial Court of Massachusetts, Suffolk.

November 22, 1910

The indictment alleged that accused did steal one negotiable receipt of the value of $2,000, one piece of paper of the value of $2,000, of the property of Charles A. Powers. The commonwealth filed a bill of particulars as follows:

'Now comes the commonwealth in the above-entitled action and in compliance with the defendant's motion therefor files the following bill of particulars:

'On or about the 3d day of February, 1909, the defendant told one Charles A. Powers that he would loan the said Powers the sum of five hundred dollars ($500) for three (3) months at six (6) per cent. interest, and take from the said Powers, as collateral security for the payment of such loan, a negotiable receipt of one C. H. Venner for two (2) six (6) per cent. bonds of the Urbana Waterworks Company and the defendant falsely and fraudulently represented to the said Powers that the defendant intended either to keep the said certificate in his possession, or to place the same as collateral security with some bank or banking company for a loan to be made by such bank or banking company to the defendant, or to the firm or person by whom the defendant was employed. Thereupon, upon the same date the said Althause loaned to the said Powers the sum of five hundred dollars ($500), and received a note for the said amount, dated February 3, 1909, for three (3) months, at the rate of six (6) per cent. per annum, signed by Charles A. Powers, and the defendant also received as collateral security for the payment of the liability evidenced by said note the said receipt of said C. H. Venner. On or about the 3d or 4th day of February, 1909, the said Althause sold and delivered the said receipt through the office of Wesley A. Gove & Co., and has never since held any control over the said receipt, or retained any title or interest in the said receipt, but parted with title thereto absolutely. Thereafter, and after the maturity of the said note, the said Powers made repeated demands upon the said Althause for the return of the said receipt, or of a receipt similar in kind and amount to the said receipt, and has made tender of the amount of the note due from the said Powers to the said Althause, with interest at six (6) per cent. from the date of the making of the said note, but the said Althause has declined and refused to deliver to the said Powers the said receipt or any receipt of the same amount and kind as the said receipt.

'The said defendant never intended to retain possession of the said receipt, or to place the said receipt in any loan to be made to him by a bank or banking company, but at the time of making the aforesaid representation to the said Powers, and at the time of receiving the said receipt from the said Powers, and at the time of the defendant's selling the same, he intended to dispose of the same, and to divest himself of all title to the said receipt, and any lien thereon that the said defendant might have.'

COUNSEL

Arthur H. Weed, for the Commonwealth.

Clarence W. Rowley and Lewis Marks, for defendant.

OPINION

LORING, J.

The defendant contended that under the note held by him signed by Powers he had the right to sell the property held under it as collateral security at any time if he thought it wise to do so. But the presiding judge instructed the jury that the note did not authorize the holder to sell the collateral until the maker of the note was in default under some one of the promises or conditions stated therein. The difference between the two views lies at the foundation of this case and we take it up in the first instance.

The provision to be construed is in these words: 'The right to make such use of the collateral security named herein * * * as they may desire, subject only to their obligation to deliver to the said borrower or order collateral of the same amount and kind as that mentioned above.'

Were it not for the decision in Ogden v. Lathrop, 65 N.Y 158, we should have had no hesitation as to the true construction of this provision. It is doubtless competent for a pledgor and pledgee to agree that securities pledged for payment of a note (in which the pledgor has the general property and the pledgee a special property or lien for payment of the debt due to him from the pledgor) may be sold by the pledgee and the proceeds used by him (the pledgee) as if he alone had been the owner of the securities, leaving to the pledgor (in whom was the general property in those securities) nothing but the unsecured personal obligation of the pledgee to account to him for the value of the securities at the date of the payment of the note. Such an agreement, if made, is not an incident to a pledge of securities. It is an agreement authorizing the pledgee to end the pledge and all the rights of the pledgor in the securities pledged.

It follows that if it is found in a writing by which securities are pledged it must, to have that effect, be couched in terms which do not admit of doubt, as was the case in the note in question in Wilson v. Hawley, 158 Mass. 250, 33 N.E. 522. For if the provision is found in a writing pledging the securities it should be construed, if that be possible, to be an agreement declaring the terms of the pledge and not an agreement authorizing the pledgee to end the pledge and all interest of the pledgor in the securities pledged.

It is plain therefore that the 'use' authorized in this note should be construed to be a 'use' as collateral security unless the provision so construed would be meaningless. But that is far from the fact. It is a matter of common knowledge that, in lending money, banks and bankers require the pledge en bloc of the securities put up as collateral. That means that, if a lender of money on security wishes to be able to put himself in funds (in connection with the advances made by him) through a rehypothecation of the securities pledged to him, he must have authority to separate the securities received by him from the debts due to him for which they were respectively pledged. That is a right which he does not have in the absence of an agreement authorizing that to be done. Not only that, but such a use of securities pledged to him as collateral is, in the absence of an agreement authorizing it, a criminal offense. Rev. Laws, c. 208, § 71.

Where A. borrows of B., and pledges to B. securities for the repayment of the loan so made, and as part of the agreement authorizes B. to pledge those securities en bloc with other securities owned by him (B.) for money borrowed by him, a use of those securities is authorized which is incidental to the pledge of them and not directly destructive of it. We say not directly destructive of the pledge because it is evident that all the securities pledged en bloc might be sold to pay the new debt, and in that way the right of redemption which the original pledgor had might be extinguished.

The provision that the 'right to make such use of the collateral security * * * as they may desire' is to be 'subject only to their obligation to deliver to the said borrower or order collateral of the same amount and kind' does not lead to a different conclusion. The obligation to keep sufficient securities of the same amount and kind on hand in place of the identical securities delivered is one of not uncommon occurrence in the methods of carrying on business which now obtain. Its most common occurrence is in case stocks are carried on margin in jurisdictions where the stock bought and carried on margin belongs to the customer. See Richardson v. Shaw, 209 U.S. 365, 28 S.Ct. 512, 52 L.Ed. 835, where the cases are collected.

Ample reason therefore for the provision here in question is found in authorizing the pledgee of the pledged securities to repledge them en bloc (as was done in Wilson v. Hawley, 158 Mass. 250, 33 N.E. 522), and such a 'use' is a 'use' incidental to a pledge and not destructive of it. For these reasons we should not have hesitated to limit the word 'use' in this agreement to 'use' as collateral security were it not for the case of Ogden v. Lathrop, 65 N.Y. 158. It was assumed in the opinion in that case, and assumed without argument, so far as that opinion goes, that no force could be given to the clause there in question unless a sale was authorized. The clause there in question gave the pledgee 'authority to use, transfer or hypothecate' the securities pledged to him. However it may be with those words, we cannot believe that when a pledgor gives to the pledgee authority to 'use' securities pledged to him he intends to authorize the pledgee to end his (the pledgor's) property in the securities pledged at his (the pledgee's) will, substituting therefor his (the pledgee's) unsecured obligation to account for whatever may be the value of the securities upon payment of the note by the pledgor. For these reasons we are of opinion that the decision in Ogden v. Lathrop, 65 N.Y. 158, should not be extended to the clause in the note here in question.

The case of First Nat. Bank of Chicago v. Caperton, 74 Miss. 857, 22 So. 60, is not an authority for the construction of the note put forward by the prisoner in the case at bar. Where a right to use is given to a mortgagor and the mortgage is a mortgage of the product of a factory or the contents of a store, it would be hard not to construe a right given to the mortgagor to use the mortgaged property to be a right to sell it. But where the right to use is given not to a mortgagor but to a pledgee, and the property to be used by the pledgee consists of securities pledged as collateral for a debt due from the pledgor, it is not possible (in our opinion) to construe a right...