The respondents, holding a quantity of securities hypothecated
as collateral for an indebtedness due them from an insolvent bank,
sold them by public auction, in the manner stated in the opinion of
the court, for less than the debt and proved the balance of the
debt. When the judgment declaring a dividend was entered, it was
stated in it, both parties consenting, that all the rights of both
touching damages resulting from the sale of the bonds were
expressly reserved.
Held that this could not be construed
into an admission of the liability of the respondents, or that a
just cause of action existed against them.
On the facts established, the Court holds: (1) that the
complainants, in endorsing the bonds which are the subject of
controversy as payable to bearer after the sale which is objected
to, and in delivering them in that condition to the respondents
with the knowledge that they had been or were to be sold again by
them, and for the purpose of enabling the respondents to transfer
the bonds with a good title, must be considered to have waived any
right to sue on the first sale; (2) that, conceding the first sale
to have been invalid, it was nevertheless the respondents' duty to
sell the bonds at as early a time as possible and to place the
proceeds in the hands of their principals in payment of the debt
for which the bonds were pledged, and that they had done this with
the consent and aid of the complainants, and (3) that, on the
complainants' theory of the relief to which they were entitled,
their remedy was at law, and not in equity.
Bill in equity. Decree dismissing the bill. Complainants
appealed. The case is stated in the opinion of the Court.
Page 123 U. S. 563
MR. JUSTICE MILLER delivered the opinion of the Court.
This is an appeal from the decree of the Circuit Court of the
United States for the Eastern District of Louisiana dismissing the
bill of the complainants, who are appellants here. The appellants
are commissioners of the Mechanics' & Traders' Bank, a
corporation organized under the laws of the State of Louisiana,
which being in liquidation, they were appointed as such by one of
the state courts of New Orleans. Before the failure of the bank,
which was declared to be insolvent on the nineteenth day of March,
1879, there had been placed by it in the hands of Edmund J.
Forstall's Sons, as agents of Baring Bros. & Co., a very
considerable amount of public securities, bonds of the City of New
Orleans, and coupons, under an agreement that they should hold them
as security for the indebtedness of the bank to Baring Bros. &
Co., an English
Page 123 U. S. 564
banking house. It is said that these securities, at the time the
bill was filed, were of the value of $336,400.
It is alleged in the bill that shortly after the bank was
declared to be insolvent, to-wit on or about the 22d day of May,
1879, the said E. J. Forstall's Sons fraudulently pretended to sell
said bonds, and thereby attempted to deprive the complainants of a
large portion of the assets of the bank, which was a great wrong
and detriment to the creditors and depositors. The fraud alleged in
regard to this pretended sale was that, offering the bonds without
any advertisement at a private sale and without notice to
complainants, the defendants employed one firm of brokers to sell
the securities and instructed another to buy them in on account of
said Forstall's Sons, as agents of Baring Bros. & Co., and that
they were not sold according to the well known usage in the City of
New Orleans in such cases, nor according to the terms of the
contract of pledge. They insist that this sale was made contrary to
law and equity, and is therefore void as against the bank and its
creditors; they protested against said sale and that thereafter,
to-wit, about the 3d of March, 1880, their right to sue for said
bonds and any damages arising from said illegal sale was expressly
reserved in an agreement and settlement with said Forstall's Sons,
as such agents, as well as by judgment rendered by the Fifth
District Court in a suit entitled
State ex Rel. Wogan v.
Mechanics' & Traders' Bank. They further say that the
bonds, which were sold for a very small amount, less than fifty
percent of their face value, are now worth in the market fully such
face value, if not more.
The bill requires an answer from the defendants under oath, and
appends six specific interrogatories to be answered. The relief
prayed is that the pretended sale of the bonds may be decreed to be
null and void and the complainants to be their owners, and that the
defendants, Edmund J. Forstall's Sons, be ordered to return them to
complainants, and that in default thereof they be decreed to pay
their full value of $336,400, subject to the claim of Baring Bros.
& Co. against the bank of about $120,000, and for such other
and further relief as the nature of the case may require.
Page 123 U. S. 565
The answer to this bill sets out a copy of the agreement under
which Forstall's Sons held the securities, as follows:
"NEW ORLEANS, March 11, 1876"
"Whereas, Messrs. Baring Bros. & Co., of London, have
continued in favor of the Mechanics' and Traders' Bank of New
Orleans a credit of forty thousand pounds sterling, in accordance
with the terms of the letter of Messrs. Baring Bros. & Co.
dated 24th May, 1873, and addressed to the said bank, and confirmed
by their cable of October 27, 1873, to Edm. J. Forstall & Sons,
now, in order to secure the full and punctual payment of such
amount as may be or become due on account of said credit, the
Mechanics' and Traders' Bank does hereby pledge to Messrs. Baring
Bros. & Co., and place in the hands of Edm. J. Forstall's Sons,
as their representatives, the property described on the list
annexed to the present. And it is hereby agreed that in the event
of the nonpayment of the amount due as above stated, Edm. J.
Forstall's Sons are hereby authorized, as agents of Messrs. Baring
Bros. & Co. and of the bank, to cause said pledged property to
be disposed of for cash at public or private sale at the option of
said Edm. J. Forstall's Sons, and the proceeds of said sale shall
be applied to the payment of the amount due as aforesaid, with
interest accrued thereon, and all commissions, costs, and charges
attending said sale, the obligation of the bank for any balance
that may be left uncovered by the proceeds of said sale remaining
in full force."
"H. GALLY, President"
"MOSES HARRIS, Cashier"
"EDM. J. FORSTALL's SONS, Agents"
The defendants deny any fraud in the sale of the securities, but
admit that, finding it necessary on the failure of the bank to sell
the bonds held under the foregoing agreement, they put them into
the hands of a broker to be sold on the market in the usual way,
and instructed another broker to see that they were not sacrificed,
authorizing him to say that they would pay one-eighth of one
percent more for them to the purchaser than they would sell for.
They claim that in this
Page 123 U. S. 566
way, the securities were returned to them, and that this was
done without any fraudulent purpose, but to secure the highest
market price for the bonds at the sale. They further deny that they
ever made any agreement by which they recognized the right of
complainants in the bonds after this sale. They admit that in one
or two settlements made in the Fifth District Court in the course
of the liquidation of the bank, certain reservations were made in
regard to the rights of the commissioners to assert further claims
on those bonds by litigation, but that they never admitted the
existence of any right of recovery against these defendants. They
say, however, that whatever right complainants may have had to call
these defendants to account for any value in the bonds beyond that
for which they were sold was abandoned and expressly given up by
the act of the complainants in endorsing the bonds under an order,
obtained on the application of said commissioners, from the said
Fifth District Court of the Parish of Orleans, under whose
jurisdiction the bank was being liquidated, and that thereafter, on
or about the 20th day of May, 1880, the complainants did endorse
all said bonds to bearer under the certification and seal of office
of A. Abat, a notary public, for the purpose of giving authenticity
to such action. And complainants did then deliver said bonds so
endorsed by them to Forstall's Sons, to be by them sold and
disposed of at their free will and pleasure, without any further
notice to complainants or accountability or responsibility of
Baring Bros. & Co.
They further say that the said bonds were duly and regularly
sold and disposed of to strangers by said Edmund J. Forstall's
Sons, in good faith and in accordance with the usual and customary
course of such business in New Orleans at the dates and for the
prices stated in Exhibit No. 3, annexed thereto, and that such
prices were the full and fair values of said bonds at the time of
sale, and the utmost and best prices that could be had or obtained
for the same. Accompanying this is a schedule of the sales, with
the dates, and the prices which the bonds brought. This amount was
considerably less than the debt due by the bank to Baring Bros.
& Co.
Page 123 U. S. 567
There is very little contradiction in regard to the facts of the
case, as shown by the testimony and the pleadings. As to the
question of intentional fraud in the first sale of the bonds, it is
repelled by the testimony of the members of the firm of Forstall's
Sons, and yet the transaction is one which it might be difficult to
sustain in a court of equity. We do not feel, however, called upon,
in view of other facts in the case, to decide this question. Nor do
we think it necessary to pass upon the effect of what is called in
the bill of complaint the right reserved to the complainants to sue
the defendants on account of that transaction.
In the course of the administration of the affairs of the bank
in the Fifth District Court of Orleans, it became necessary to
declare dividends, and Baring Bros. & Co. asserted a claim to a
share of such dividends, on account of the difference between the
amount of their debt and the amount for which the securities had
been sold. This difference was about $49,000. In submitting to the
payment of these dividends, the defendants and the complainants
agreed to a judgment by the Fifth District Court which contained
the following clause:
"It is further ordered, adjudged, and decreed that all the
rights of both the opponents and the bank in liquidation touching
the value of 180 missing coupons, and any damages resulting from
the sale of the bonds of the bank in pledge by said opponents, are
expressly reserved."
It is asserted by defendants that by subsequent settlements and
proceedings in that court, this reservation was abandoned, and that
a judgment of the court on that subject is a bar to the present
suit. For a reason presently to be seen, we do not think it
necessary to decide this question either. Whatever the reservation
of a right to sue may mean, it cannot be construed into an
admission of a liability of the defendants, or that a just cause of
action existed, and it may be conceded that up to the time of the
endorsement of these bonds to bearer on the 20th of May, 1880, of
which there is no denial, they were still in the possession of
Forstall's Sons under such circumstances that if the amount of the
debt to Baring Bros.
Page 123 U. S. 568
& Co. had been tendered to them and a demand made of the
bonds, the plaintiffs would have been entitled to have them
delivered up. No such tender was made. No such demand was made. The
bonds at that time were but little, if any, more valuable than they
were at the time of the first sale by Forstall's Sons.
We are of opinion that the action of the present claimants in
endorsing these bonds as payable to bearer and delivering them in
that condition to Forstall's Sons with the knowledge that they had
been or were to be sold again by that firm and for the purpose of
enabling them to transfer them with a good title must be considered
a waiver of any right to sue on account of the first sale. This
endorsement, and the subsequent sale by Forstall's Sons, were in
fact a waiver on both sides of the previous sale and of any rights
accruing under it, as well as a consent by both parties to the
second sale. The sales appear to have been made at different times
and to different persons, each of whom became therefore innocent
purchasers for value of the bonds which are the subject of
controversy. No attempt is made to impeach the fairness of these
sales. It is not even charged that the prices obtained were less
than the market value of the bonds sold. If the right to sell these
bonds for the debt due to Baring Bros. & Co. at that time be
conceded, as we think it must be, then no just complaint can be
made of the sales or of the proceedings attending them. A full
report of those sales, with the amounts received and a statement of
the account as thus adjusted, is set out by the answer as an
exhibit.
If the complainants had chosen to stand upon their rights or the
rights of the bank growing out of the fraud in the first sale, it
may be well to consider what course they should have pursued.
Treating the first sale as a fraud, they might have tendered the
amount due on the bonds and brought an action of replevin or
sequestration. But there were two reasons why they could not do
this: first, they did not have the money to tender to Forstall's
Sons for the debt to Baring Bros. & Co., and second, the bonds
were not worth any more in the market
Page 123 U. S. 569
than they had been sold for by Forstall's Sons and the amount
credited on the debt to Baring Bros. & Co. They might also have
brought an action in the nature of tort for conversion, in which
case, if they had succeeded, the value of the bonds would have been
the measure of their recovery, after deducting the amount due to
Baring Bros. & Co.
It is obvious, as the testimony clearly shows, that the bonds
were worth but little more in a fair market at the time this
endorsement was made than when they were first sold by Forstall's
Sons, and that there was no right of action at law by which any sum
could have been recovered worth the litigation. It is therefore
easy to conceive that when these commissioners of the bank in
liquidation asked of the court in which that liquidation was
pending for power to endorse these bonds and deliver them to
Forstall's Sons for sale, that they were doing the wisest thing
that could be done at that time for the creditors of the bank, for
by such sale the bank would get the benefit of all that the pledged
securities were worth then in the market, and by any action at law
which they could bring, they could recover no more.
The complainants in this case seek to avoid all considerations
of this kind by bringing a bill in equity. And, ignoring all the
transactions that have taken place about the disposition of the
bonds, they ask that the defendants shall be decreed to deliver up
these bonds to them, and if they fail to comply with that order,
that they shall be held liable for the present market value, which
has increased during the continuance of this controversy, and since
their last sale by Forstall's Sons, to the sum of $336,400, being
the par value of the various bonds and coupons.
It is clear that complainants, when they brought this action,
knew very well that they could not have the relief asked for in the
first part of their claim, because by their own endorsement of the
bonds they had been transferred under valid sales to numerous
persons who either held them as innocent purchasers for value or
had parted with them to others who held them in the same character.
Their only efficient prayer for relief, therefore, was for a decree
against the defendants for
Page 123 U. S. 570
the value of the bonds, which they now insist must be estimated
as of the time of the decree.
The first objection to this relief is that it is simply what
they could recover, if they could recover at all, in an action at
law. It is the damages which, on their theory, are due for an
unlawful conversion of the bonds. It is so spoken of by counsel in
the argument, and the authorities referred to as furnishing the
measure of damages are all in cases of actions at law for what is
equivalent to a conversion of property held for another's use. We
see no reason why a court of equity should be resorted to for this
remedy, nor is there anything in the nature of the transaction,
since no actual fraud on the part of Forstall's Sons is proved, why
an action at law should not have been the appropriate one to
recover these damages. The case is by no means a complex or
difficult one. The facts are few and easily proved. The
transactions are open and patent to everybody, and an action at law
would afford complete and ample remedy for the wrong complained
of.
But if we suppose that the nature of the case is one of which a
court of equity has jurisdiction as equity is administered in the
circuit courts of the United States, then other considerations seem
to forbid the relief prayed for, or any equitable relief
whatever.
he first of these considerations is that the complainants, as
representing the bank and its creditors, have not only never made
any tender for the purpose of redeeming these bonds, but have
received their full market value as a credit on the debt to Baring
Bros. & Co., to the payment of which they were devoted, as well
as permitted the transaction by which these bonds were sold, and
the proceeds so appropriated, to stand from May, 1880, when the
sale was made, until May, 1882, when the present suit was brought,
without any further effort to reclaim the bonds, and without any
further protest against that sale, and without payment of any
dividend on the sum for which they sold. It is obvious that during
the greater part of this time, the value of these bonds was rising
in the market, and the persons who had purchased them at open sale
for a fair consideration were receiving the benefit of this
Page 123 U. S. 571
increase in price, but they were not responsible in any way to
the complainants who had endorsed those bonds and thus enabled them
to purchase them.
The proposition now made by complainants that, after waiting
during all this time and seeing the bonds rise in value, they could
elect to bring suit in equity when their price had risen to par,
and they were worth, with the accumulated interest and coupons,
nearly three times what they were sold and accounted for, is one
which does not commend itself to a court of equity. It may be true
that it was the misfortune of the bank that it had no money during
this time to tender for the redemption of these bonds, but it is
equally true that if they had made such tender, they well knew that
they could not get them, because they had passed from the
possession of the present defendants. Nothing hindered them from
bringing their action at law at any time. To say that they could
delay for any length of time within the period of prescription and
bring this suit in equity when the securities bore the highest
price in the market would be very unjust, even if they had given no
consent and taken no part in the sale of the bonds. But when we
consider, in addition, that the sale could not have been made
without their consent, that they themselves procured an order of
the court authorizing them to consent, and actually placed upon
them the endorsement without which they could not have been sold at
all, it is idle to say that they were not bound by that sale and
that they now retain a right to go upon the trustees of this pledge
to recover of them the increase in the value of the securities
between that time and the present.
This attempt to play fast and loose with a supposed right of
action against parties who were mere agents or trustees, and who
had no interest in the cause, while through a series of years the
value of the matter in contest went up and down in the scale of
public market prices does not commend itself to the conscience of
anyone. The truth is that, conceding the first sale to have been
simply void and ineffective, the bonds remaining in the hands of
Forstall's Sons, it became
Page 123 U. S. 572
their duty to sell those bonds at as early a time as possible,
and place the proceeds in the hands of Baring Bros. & Co., in
payment of the obligation of the bank to them. That this has been
done faithfully, and with the consent and aid of the complainants,
is a sufficient answer to all that is alleged in the bill.
The decree of the circuit court dismissing the bill is
therefore
Affirmed.