Endicott v. Marvel

• Decision Date: 16 November 1914
• Docket Number: No. 15.,15.
• Citation: 92 A. 373,83 N.J.Eq. 632
• Parties: ENDICOTT v. MARVEL et al.
• Court: New Jersey Supreme Court

92 A. 373

83 N.J.Eq. 632

ENDICOTT

v. MARVEL et al.

No. 15.

Court of Errors and Appeals of New Jersey.

Nov. 16, 1914.

(Syllabus by the Court.)

Appeal from Court of Chancery.

Suit by Mordecai F. Endicott against Philip Marvel and others. From decree for complainant in 81 N.J.Eq. 378, 87 Atl. 230, defendants appeal. Affirmed.

Robert H. McCarter, of Newark, and George A. Bourgeois, of Atlantic City, for appellants.

Joseph H. Gaskill, of Camden, and Allen B. Endicott, of Atlantic City, for respondent.

SWAYZE, J. We think this case presents little difficulty. In 1898, five out of seven directors of St. Leonard's Land Company loaned about $1,500 each to the company for its immediate and pressing needs. Each was given a collateral note in the ordinary form, pledging 30 shares of stock of the company as collateral, and authorizing a sale in default of payment at maturity at private sale, without notice to the company, and with the right to the pledgee of becoming the purchaser. There seems to be no question that the transaction was a proper one and for the benefit of the company at a time when it was otherwise impossible for it to secure needed funds. There was default in payment. Nothing further seems to have been done. There was no demand for payment, no sale, no foreclosure, no notice to redeem. The stock became very valuable, and upon liquidation of the company much more was realized than sufficed to pay the notes. The five directors, however, retained the money, including the excess after payment of the notes, and do not seem even to have returned the notes to the corporation. Thereupon a stockholder filed this bill, seeking an account, and praying that the five directors accept each the amount due, with interest, and pay into the treasury of the company all dividends and profits.

This presents a plain case of a pledgee who seeks to retain the pledge without calling upon or giving the pledgor a chance to redeem or pursuing the remedy by sale specially pointed out in the notes. It was no doubt a breach of the duty of the defendants, as directors, to fail to redeem, for the benefit of their company, the stock pledged as soon as the company was in funds, but the complainant's rights do not rest upon this breach. He may properly insist that the rights of the pledgor corporation shall be protected against the pledgees. The directors seem to have thought that, under the resolution, the stock became their absolute property at the end of the year. The language of the resolution is:

"The company to have the privilege of redeeming the stock in one year from date, with interest at 6 per cent., otherwise to revert to the borrower." (The use of the word "borrower" is explained by the fact that each of the five directors was to borrow the money he was to loan the company.)

The language is not apt to express an intent to foreclose automatically, without notice or sale, the ordinary right of a pledgor to redeem, even though there has been default in payment when the loan was due; but, if we assume that apt language for that purpose had been used, the case of the defendants would not be helped....