Gaynor, J.c.c., Temporarily Assigned.
Plaintiff seeks to recover the value of securities which were erroneously and inadvertently registered in defendant's name and delivered by plaintiff to defendant. The complaint sounds in unjust enrighment, conversion and wrongful possession. Defendant does not deny the receipt of the higher-valued securities but contends that there was no conversion or wrongful possession, that plaintiff's claim is barred by the statute of limitations or laches, and further, that plaintiff's loss is the result of its own mistake and negligence which precludes recovery.
There is no dispute as to the factual pattern giving rise to the present litigation. The uncontroverted facts disclose that in 1967 defendant maintained a brokerage account with plaintiff and in November of that year requested plaintiff to purchase 100 shares of the common stock of Engelhard Minerals and Chemical Corporation. The purchase was made at a price of 41-7/8 a share, or a total of $4,187.50, which was paid by defendant. In pursuance of this purchase for defendant, plaintiff sent a 100-share certificate to the transfer agent with instructions to register the certificate in the name of defendant. Through plaintiff's inadvertence the certificate forwarded to the transfer agent was a 100-share certificate of the higher-valued Engelhard Minerals and Chemicals Corporation $4.25 cumulative convertible preferred stock. This certificate was registered in defendant's name, and on December 4, 1967 plaintiff delivered it to defendant. In September 1972, as the result of an independent audit, the error was discovered by plaintiff, and defendant was thereupon requested to return the certificate for the 100 shares of preferred stock or its money equivalent. However, defendant had sold the stock in February 1972 and refused to accede to plaintiff's demand for the return of the stock or its money value. Defendant had sold the stock at a price of $141 a share, thereby realizing the gross amount of $14,100. The dividends paid on the preferred stock while in the possession
of defendant totaled $1,806.25. Defendant was notified of the error by a telephone message on or about September 12, 1972 and a confirming letter mailed on September 20, 1972. The market value of the 100 shares of common stock on those dates was $6,077 and the cash dividends paid from December 1967 to that date on the common stock amounted to $390.95. All of the factual evidence was submitted by plaintiff, no testimony being offered by defendant.
Plaintiff contends that, under these facts, there was a conversion by defendant of the preferred stock and, as the injured party, it is entitled to recovery of the stock certificate, if defendant still has it, or money damages for the wrongful conversion. If the latter remedy is applicable, plaintiff asserts that the damages recoverable is the highest intermediate value of the securities between the date of delivery of the certificate to defendant, being the alleged date of conversion, and the date of judgment, plus the dividends received by defendant during this period. Plaintiff acknowledges that defendant would be entitled to a setoff for the value of the common stock and accumulated dividends thereon. Alternatively, plaintiff contends that it is entitled to recover under the concept that defendant has been unjustly enriched as a result of the mistake committed by plaintiff, thereby giving rise to a constructive trust in favor of plaintiff as to the money realized from the sale of the securities.
Defendant contends that he was not guilty of converting the subject securities inasmuch as he obtained them lawfully and had divested himself of their possession prior to the demand made by plaintiff. Further, that plaintiff was not the owner of the securities nor did it have such other interest in the property as to support a claim of conversion. Defendant also asserts that plaintiff's action is one for breach of contract and therefore barred by the four-year limitation set forth in N.J.S.A. 12A:2-725. Additionally, defendant claims that the defenses of waiver, estoppel and laches are applicable and preclude any recovery by plaintiff.
We have not been directed to, nor has our research disclosed, any New Jersey decision involving circumstances similar to the present case. This may be due to a scarcity of such inadvertent mistakes on the part of brokerage houses, or the accepted realization on the part of their customers that they are not entitled to a windfall because of such inadvertencies. However, the question has been presented in cases arising in other jurisdictions. In National Security Corp. v. Hochman , 313 S.W. 2d 776 (Mo. Ct. App. 1958), a subrogated surety sought to recover the amount paid to a stockbroker because of the delivery to a customer of a wrong certificate of stock. The customer had placed an order for the purchase of 300 shares of 1 cents par value stock of Federal Uranium Corporation which was executed by the broker. By a clerical error the broker caused to be issued and delivered to the customer 300 shares of 25 cents par value stock of the company. The broker made demand for the return of the mistakenly issued stock, which was refused even though still in the possession of the customer. In affirming a judgment for plaintiff, the court held that the refusal of the customer to return the securities after being notified of the error constituted a conversion. It was also suggested that the brokers would have a right in equity to recover possession of the stock.
Similarly, in Firemen's Fund Ins. Co. v. Trippe , 402 S.W. 2d 577 (Mo. Ct. App. 1966), the court upheld a verdict in favor of a broker who had inadvertently transferred and delivered to defendant a security of higher value than that ordered. In that case defendant customer placed an order for the purchase of 500 shares of American Investors Corporation at a price of $1.50 a share. The order was consummated and in the process of causing a certificate to be transferred to defendant a clerk mistakenly forwarded a certificate for 500 shares of American Investment Corporation, a higher priced stock. Upon discovering the error the broker demanded the return of the stock. Although the stock had been sold by defendant prior to such demand, the court found that the evidence
supported the inference that defendant knew that he had received the wrong stock prior to its sale. The act of disposing of the stock with the knowledge that it was not that which was originally ordered was deemed to be such an unauthorized act of dominion over the stock as to constitute a conversion thereof.
In the earlier case of Newburger v. Weaver , 300 Pa. 163, 150 A. 298 (Sup. Ct. 1930), the equitable right of a broker to recover stock mistakenly delivered to a customer was upheld. The customer had ordered the broker to purchase 100 shares of the "new" stock of Cities Service Company and paid the purchase price to the broker. The purchase was made as directed; however, through a mistake 100 shares of the higher priced "old" stock of the company was delivered to the customer. Upon discovering the mistake the broker demanded the return of the stock which was refused. The court affirmed an ...