Urling v. Fink
| Decision Date | 16 February 1944 |
| Docket Number | No. 8164.,8164. |
| Citation | 141 F.2d 58 |
| Parties | URLING et al. v. FINK et al. |
| Court | U.S. Court of Appeals — Third Circuit |
Louis Caplan, of Pittsburgh, Pa. (Sachs & Caplan, of Pittsburgh, Pa., on the brief), for appellants.
Oliver K. Eaton and Harry F. Stambaugh, both of Pittsburgh, Pa., for appellees.
Before MARIS, JONES, and GOODRICH, Circuit Judges.
The plaintiffs brought suit against the defendants in the District Court for the recovery, in kind, of certain shares of stock which the plaintiffs, as the owners thereof, had pledged as collateral security for a note owing by them to the defendants, or, in the alternative, for damages said to have been suffered by the plaintiffs through the defendants' alleged unlawful sale of the collateral to one Richard T. Jennings, Jr. A trial of the case to the court below without a jury resulted in a judgment for the defendants from which the plaintiffs have appealed. Federal jurisdiction of the case rests upon the diversity of the citizenship of the parties.
The trial court made extensive and comprehensive findings of fact which it is unnecessary for us to restate in detail. The matter whereof the appellants principally complain is the trial court's conclusion of fact that the defendants' sale and Jennings' purchase of the collateral was bona fide. It is their contention that the purported sale to Jennings was in fact a subterfuge whereby the defendants in reality became the purchasers of the pledged stock at their own sale, contrary to law, and that the trial court's findings of fact based upon the direct evidence rightly call for a conclusion that the pledgees' sale of the collateral was fictitious. Accordingly the appellants argue that the trial court's conclusion with respect to the ultimate fact of good faith, being but an inference, may be set aside by us, upon review, if we should conclude on the basis of the supportable findings that the sale was not bona fide. This raises the principal legal question involved on this appeal. There is also a preliminary question as to the extent to which the trial court permitted the defendants, over the plaintiffs' objection, to cross-examine Jennings when he was on the stand as a witness for the plaintiffs.
An appellate federal court's power to reverse a finding of fact made by a trial court, sitting without a jury, is to be determined in keeping with the provisions of Rule 52 of the Rules of Civil Procedure, 28 U.S.C.A. following section 723 c. On the other hand, the substantive rights of the parties in respect of the pledged stock and the defendants' sale thereof are to be determined (this being a diversity case) by local law. The place of contracting also having been Pennsylvania, as determined by the law of the forum from the instrument containing the pledge, the local law applicable is the substantive law of contracts of Pennsylvania. See Restatement, Conflict of Laws (1934) §§ 311, 346.
The substantive law applicable to the case injects no difficulty. The appellees concede that under the law of Pennsylvania a pledgee may not purchase pledged property at his own sale unless the instrument creating the pledge expressly authorizes him to do so. Cf. Rosenblatt v. Weinman, 230 Pa. 536, 539, 79 A. 710; Diller v. Brubaker, 52 Pa. 498, 502, 91 Am.Dec. 177. Nor do the appellees assert that there was any such authority in this case. They maintain that the unquestioned rule of local law just referred to has no applicability here in the light of the trial court's finding that the sale of the pledged stock by the defendants and its purchase by Jennings was real and in good faith in consequence whereof no question of a purchase of the collateral by the pledgees is present. As the court below drew its conclusion as to the good faith of the transaction from findings based on testimony given by Jennings as a result of the cross-examination to which the plaintiffs objected, we turn at once to the question raised by the appellants in that connection.
The collateral in controversy consisted of shares of stock in seven motion picture theatre companies (all close corporations) in six of which both the plaintiffs and the defendants, as well as Jennings, owned stock. Neither the defendants nor Jennings owned any stock in the remaining company. Jennings was an executive officer of each of the companies in which he owned stock and, as such, he had charge of the company stock certificate and transfer books. The plaintiffs called him to testify to the percentage of the outstanding stock of the theatre companies owned by the plaintiffs on June 16, 1939, as shown by the respective company books in Jennings' charge. He so testified to the plaintiffs' stock ownership on the date specified as shown by the books of the companies. However, June 16, 1939, was the date of the defendants' alleged sale of the collateral, and on cross-examination Jennings was asked whether he had purchased the plaintiffs' hypothecated stock at a sale thereof on that date. To this, counsel for the plaintiffs objected on the ground that it was not proper cross-examination. The trial judge, commenting that the question was a close one, overruled the objection and permitted the witness to answer. Then followed further inquiry into the sale on redirect examination by the plaintiffs and consequent recross-examination by the defendants to the end that the circumstances attending the sale were fully developed from the witness Jennings.
In ascribing error to the trial court's overruling of the plaintiffs' objection to the question first asked of Jennings on cross-examination, the appellants rely upon the rule of evidence that a party on whose behalf a witness is called has a right to restrict the witness' cross-examination to the subjects about which he was interrogated on direct examination. That this procedural rule is applicable to trials in federal courts is hardly open to question. One of the leading cases is Resurrection Gold Min. Co. v. Fortune Gold Min. Co., 129 F. 668, 674, where Judge Sanborn, speaking for the Court of Appeals for the Eighth Circuit, cited a long line of authority in support of the rule, as above stated, and said that a violation of the right constituted reversible error. Since then the rule has been reiterated and followed in federal courts a number of times without deviation or qualification. De Soto Motor Corporation v. Stewart, 10 Cir., 62 F.2d 914, 917; Farley v. Norfolk & W. Ry. Co., 4 Cir., 14 F.2d 93, 97; Tucker v. United States, 8 Cir., 5 F.2d 818, 823; Heard v. United States, 8 Cir., 255 F. 829, 833; Hales v. Michigan Cent. R. Co., 6 Cir., 200 F. 533, 538.
But the question whether the rule has been violated recurs each time it is asserted that cross-examination, over due objection, transgressed its permissible scope. We do not think that the cross-examination in the present instance so offended. The plaintiffs had sought by direct examination of the witness to establish their ownership of the pledged stock on a day certain according to the books of...
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