Conyngham's Appeal

1. When a pledge is collateral security for all claims, &c., which the pledgee held or might hold against the pledgor, consisting of a number of items, money loaned, notes, &c., it comes within the jurisdiction of equity under the head of account. 2. Without an account the pledgor could not know the amount to tender, which is an indispensable condition to his right to maintain an action at law. 3. The holder of a collateral security cannot appropriate it in satisfaction of the debt at his own option, unless authorized to do so. by the terms of-the bailment. 4. The holder of a collateral security cannot sell it without first giving notice to the pledgor that he may have an opportunity to redeem it. 5. The sale of a collateral security must be public, and there must be notice of the time and place of sale. 6. When a power of attorney to transfer is delivered to the pledgee with stock pledged, want of notice of the sale to the pledgor would not affect bong, fide purchasers for a valuable consideration. 7. After an unauthorized sale by a pledgee of a collateral security, he is chargeable with what would have been received had he retained it, until the equity of redemption had been foreclosed by notice according to law. 8. Stock pledged and improperly sold by the pledgee, must be accounted for at the highest price it attained in the market at any time afterwards. 9. When officers of a bank become borrowers from it, — which they should not be, — their transactions for their own benefit should be closely scrutinized, but the same principles of law are to be applied to them as to others.

Appeal from the Court of Common Pleas of Northampton county: In Equity: Of January Term 1868. The proceeding in this case was a bill in equity by Peter S. Michler against The Farmers’ and Mechanics’ Bank of Easton, filed February 11th 1865. The plaintiff died after the answer had been filed and an examiner appointed, and on the 12th of November 1866, Thomas D. Conyngham, his administrator, was substituted. The bill averred the following facts: — On the 16th of January 1861, Michler was considerably indebted to the bank on his own account and was liable as endorser for others. On that day he deposited with the bank, certificates for 60 shares of the stock of the Thomas Iron Company and 49 shares of the stock of the bank itself, “ as collateral security for the payment of all claims, liabilities and demands” which the bank then held or thereafter might hold against him, and gave the bank powers of attorney to transfer the shares. On the next day he delivered to the bank the following paper: “ This is to certify, that the undersigned has deposited with the cashier of The Farmers’ and Mechanics’ Bank of Easton, certificates for 60 shares of the stock of the Thomas Iron Company, and 49 shares of the stock of the Farmers’ and Mechanics’ Bank of Easton, as collateral security for the payment of all claims, liabilities and demands of any nature whatsoever, that said bank may now or hereafter have against the undersigned, for notes drawn or endorsed by him, or for any other claims, demands, or liabilities, that said bank may now or hereafter have against the undersigned, and further that two letters of attorney of date January 1st 1861, have been duly executed by the undersigned, for the transfer of said stock upon the books of the respective companies for the purposes aforesaid. In witness whereof I have hereunto set my hand and seal, the second day of January, a. d. 1861. “ P. S. Michler, [seal.]” The bank, on the 2Sd of October 1861, transferred the Iron Company stock to their president for their own use; this stock was increased by a stock dividend of 9 shares on January 20th 1862; by another of 6] shares August 5th 1862. On the 26th of January 1863, the bank, without the knowledge of Michler or notice to him to redeem, sold and transferred the Iron Company stock to Derrick Hulick. On the 1st of May 1864, there was another stock dividend made by the company, increasing the whole number to 100] shares. Michler was ignorant what had been done with the shares of the bank stock. After the transfer of the stocks had been made, cash dividends had been paid on both, amounting to $2328.31. On the 4th of November 1864, Michler was indebted to the bank in the sum of $13,525.78, which he on that day tendered to the bank in payment of his indebtedness, and demanded a surrender of his notes and obligations and of the shares of stock with its increase and an account and payment of the cash dividends. At that day the Iron Company stock was worth $10,526.25, and bank stock $3430. The bill prayed relief as follows: “ That an account be taken between the parties as of November 4th 1864, and up to the time of the final decree in the case; that defendant be charged with the full value of the 100]- 'shares of Thomas Iron Company stock and of the 49 shares of bank stock as they were on November 4th 1864, also with all the cash dividends declared on all the shares aforesaid up to the final decree, and that defendant he ordered to pay to plaintiff whatever balance should be found due upon such account; that defendant be restrained from proceeding with any actions at law on any of the notes held by them:” and general relief. Fourteen interrogatories as to the matters charged in the bill were appended. The bank demurred to the bill: 1. That the matters in the bill could be tried at law; 2. That the bill does not show such a case as entitles the plaintiff to the discovery or relief prayed for, and that it does not show any equity. They filed an answer, with the demurrer, containing these averments. Michler had been president of the bank since its organization until July 1st 1861; he was interested in many business enterprises himself and aided others, his relatives, in their business. In consequence he asked from the bank more discounts than the directors considered safe with the endorsements they then had: on the 1st of January 1861, Michler being liable to the bank for $19,168.41, the directors asked him for further security ; and he deposited with the bank, as additional security, the certificates of stock and powers of attorney mentioned. The bank considered that the powers of attorney gave them full control over the stock when it became necessary to use it for their protection, and the directors understood that such control had been verbally given to them by Michler. The affairs of Michler, and those of his relatives with whom he was connected in business, and who with him were liable to the bank, became much embarrassed in January 1861, executions were issued against them, and Michler’s creditors threatened to attach his stocks: to protect themselves; they transferred the stocks, and made the transfer publicly known, and they believe Michler knew it. The Iron Company stock increased by stock dividends till it reached 75J shares; it was sold on the 26th of January 1863, without privacy or secrecy, to Derrick Huliek for $70 per share, which was the highest price at which it was selling; the sale was not kept from the knowledge of Michler, who never made inquiry about it, having removed to Philadelphia in 1861; but no special notice was given him of the sale. The bank stock was, on the 23d of October 1861, taken by the bank, and in 1862, sold and transferred to other parties for $50 per share, which was the highest price for which it was selling. The bank is not required to answer as to dividends and accretions since October 1st 1861. The large expenditures of the Government and the suspension of specie payments, made a great nominal increase in the value of stocks, which is not to be considered the true value. There were a number of cash dividends declared upon the stock up to 1862 (which are stated in the answer), some of which, that were specifled, had been paid to the purchasers of the stock. On the 28d of April 1862, Michler was credited with a dividend of $73.60' on the bank stock, with 60 shares of the Iron Company stock at $50 per share, 49 shares of bank stock at $45 per share, which left him indebted to the bank $208.72 on his overdrawn account, besides his indebtedness on notes, &c., which the answer specifies, amounting to $6100, besides costs and interest. The tender and refusal as stated in the bill were admitted. The bank did not know the value of the stocks on the 4th of November 1864, and are not bound to ascertain. Exceptions were filed to the answer. The court overruled the demurrer, and required the bank to make further answer. The bank further answered as follows: They could not state whether the Iron Company stock was or not sold to Huliclc without the knowledge or consent of Michler further than had been stated in their answer; they believed that the defendant gave them full authority to sell and transfer the stock as they should desire; Michler verbally agreed that the bank might use the stocks as they might desire to protect themselves; they gave Michler no special notice of the sale, nor asked his consent, nor did they give him notice to redeem, not being required to do so. The stocks were not exposed to sale at public auction, nor were there any written or printed notices of the sale. They “ gave out word as to their desire to sell the stock to the best advantage and made inquiry to ascertain who desired to purchase such stock, thus offering it to public competition, and sold the same for the best price they could procure, obtaining from the said Derrick Ilulick a higher price than stock of said company had theretofore brought as far as they could ascertain.” An examiner was appointed, and a large amount of evidence taken as to the transactions of the directors with regard to the stocks and as to the value of the stocks. The court below, without delivering an opinion, made this decree: “ The bill is dismissed on the merits at the cost of the plaintiff.” Conyngham appealed, and assigned for error the decree and that the court had not decreed an account between the parties.