Haas v. Haas
| Decision Date | 29 December 1955 |
| Citation | 119 A.2d 358,35 Del.Ch. 392 |
| Parties | Are E. HAAS, Plaintiff, v. Leon V. HAAS, General Motors Corporation, a corporation of the State of Delaware and Grace Haas, Defendants. Central Bank and Trust Company, a banking corporation of the State of Florida, Intervening Defendant. |
| Court | Court of Chancery of Delaware |
Thomas Herlihy, Jr., and Herman Cohen, Wilmington, for plaintiff.
Caleb S. Layton (of Richards, Layton & Finger), Wilmington, for defendant General Motors Corp.
James R. Morford (of Morford & Bennethum), Wilmington, for intervening defendant.
Leon V. Haas and Grace Haas failed to appear and default judgments were entered against them.
SEITZ, Chancellor.
On February 17, 1955, plaintiff instituted this action against her husband, Leon Haas ('Leon') and General Motors Corporation. Her complaint showed that until November 1949, certificates for 200 shares of General Motors Corporation stock were registered in the names of plaintiff and her husband as joint tenants with right of survivorship and not as tenants in common. In November 1949, at the request of Leon, plaintiff endorsed such stock certificates so that Leon might deposit them with Equitable Trust Company, Wilmington, as collateral security for a loan. When the loan was paid and the certificates returned to Leon, he fraudulently had them transferred on the books of General Motors to his own name alone. She prayed that the two certificates, each for 100 shares of General Motors stock, registered in Leon's name alone, be re-registered as before. On the same date a restraining order was issued preventing Leon and General Motors from transferring the shares. However, the Court did not then obtain actual control of the certificates.
A default judgment was subsequently entered against Leon and against Grace Haas, his sister, determining that--as between plaintiff and these parties at least--the certificates should be re-registered as plaintiff requested. However, Central Bank and Trust Company ('Bank'), a Florida bank, was subsequently granted leave to intervene and assert a claim because the certificates for the 200 shares of General Motors stock were in its possession. It deposited the certificates in this Court.
This brings us to a statement of the Bank's connection with the two certificates and its claim, the sufficiency of which is here being decided. I should say that the parties have made it extremely difficult to state the Bank's claim precisely because they have filed so many papers. I shall expect counsel to advise me if they feel that my statement of facts exceeds the necessities of the present determination.
On May 12, 1954, Leon borrowed $10,000 from the Bank represented by a demand note. He pledged as partial collateral security (later constituting the only collateral) certificates for 200 shares of General Motors stock. The parties agree that these were the same shares which he had theretofore fraudulently caused to be transferred to his own name. The certificates bore an assignment to Grace or Leon Haas. Because of this assignment (never registered with General Motors) the Bank required both parties to sign the note and submit separate blank stock powers for each certificate with signatures guaranteed by a responsible bank. These conditions were met. The demand note contained the usual provisions including a power to sell any and all of the pledged collateral upon default.
Leon became in default and the Bank made demand for payment of both principal and unpaid interest. On March 25, 1955, the date of the Bank's last demand, and after the date of the restraining order, Leon directed the Bank to sell the entire 200 shares of General Motors stock. The written direction by Leon to the Bank reads as follows:
'Acting upon my own initiative and own suggestions I hereby request you to enter my order to SELL for my account and risk, on street or exchange subject to the rules and regulations of the exchange in which this order is placed, the securities listed below at (market) (or better). This order holding good until cancelled.
200 Gen Motors Mkt.
95 1/2 19100--
Postage .54
Transfer Tax 8.60
Commission Broker 89.10
Service Charge 5.00
Total charges 103.24
Net Amount 18,996.76
Pay Loan of $7000 Balance to be credited to Reg. a/c L. V. Haas and Grace Haas.'
On the same day, March 25, the Bank directed its broker, as its agent, to sell the 200 shares of General Motors stock. The broker presumably made the sale on the same date because on that day the certificates and powers were delivered by the Bank to the broker and the Bank received the broker's check for the net sales price. After deducting the amount due it from Leon, the Bank had a surplus of $11,974.88 which it deposited in the checking account of Leon in the Bank.
On March 28, 1955, Leon withdrew all but a few dollars of this balance. The Bank had no actual knowledge of plaintiff's claim prior to the sale and I assume for present purposes that the same was true of the broker. Several days after the withdrawal by Leon, the Bank's broker reported to the Bank that it had submitted the stock certificates to General Motors for transfer and General Motors had refused to make the transfer because of this Court's restraining order. The Bank then repaid its broker for the stock and the certificates were returned to the Bank with the assignment to the broker erased. Thereafter the Bank inserted its name on the certificates as assignee. The certificates are now on deposit with this Court awaiting this Court's determination of the Bank's claim against such stock.
The Bank's Pleading asserts ownership of the certificates. However, at oral argument its counsel conceded that the Bank never in fact purchased the shares. This renders it unnecessary to consider plaintiff's argument that the Bank could not have purchased the stock under Florida law. The Bank now claims that it should be treated 'as though' it were an innocent purchaser for value up to its full loss arising from the 'sale'. I therefore assume that such is its claim for relief rather than the original prayer requesting a declaration of absolute ownership. Plaintiff makes no point of the Bank's change in position.
This then is the decision on plaintiff's defense that the Bank has not stated a claim entitling it to relief. If the Bank has stated a claim entitling it to relief under any theory then plaintiff's present defense must fall.
Since this transaction took place in Florida, I assume the laws of that state control except as to the problems surrounding the negotiability of the stock. General Motors being a Delaware corporation, Delaware law would appear to govern the question of negotiability. Both Florida and Delaware have the Uniform Law.
Plaintiff's argument goes like this: There were two certificates for 100 shares each deposited with the Bank to secure the loan; admittedly the sale of 74 shares of one certificate would have been sufficient to satisfy the loan; the sale of the remainder of the shares by the Bank at Leon's direction made the Bank Leon's agent with respect thereto; as to the proceeds received over and above the amount necessary to satisfy the loan the Bank acquired no greater rights than those possessed by Leon; Leon had no exclusive right to sell and his agent, the Bank, was in no better position as to the excess proceeds and so must bear the loss occasioned by the fraud of its principal.
As stated, the Bank had no actual knowledge of plaintiff's claim either when it made the loan or when it caused the stock to be sold. Plaintiff concedes that the Bank has stated a claim which would give it a lien on the certificates up to the unpaid amount of the loan and I proceed on that concession.
I next consider the Bank's contention that it has stated a claim entitling it to be treated as though it were a bona fide purchaser for value as to the full amount received from the sale of both certificates.
Preliminarily, I agree with plaintiff's counsel that ordinarily a pledgee has a duty to limit the sale of divisible collateral to the amount necessary to cover the obligation. Restatement of the Law of Security, § 53; Turk v. Grossman, 176 Md. 644, 6 A.2d 639. The pledge-Bank as such therefore had a right to sell only 74 shares because that number would, to the Bank's knowledge, have been sufficient to satisfy its claim. The power given the Bank in the note to sell all collateral relates in my opinion to the necessities of satisfying the loan. It cannot constitute justification for the present sale of all the stock.
We thus have a situation where the Bank, insofar as its pledge agreement and the known facts were concerned, had no right to sell 126 shares. However, it did so on the pledgor's instructions and for the pledgor's account. This it could of course do but as to the sale of...
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