MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., PLAINTIFF-APPELLEE,
v.
DAVID B. CLAYTON, DEFENDANT-APPELLANT
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The court held that an innocent gratuitous transferee is liable for the value of the property at the time of sale if it exceeds the value at the time of receipt, up to the amount of unjust enrichment.
Appellant received stock as an innocent gratuitous transferee and later sold it for a higher price than its value at receipt. Appellee sought to recov…
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. At time of receipt the stock was worth $10,656. Appellant later sold it for $24,788. Appellee ultimately had to expend $52,260 to replace the stock, but did not seek to recover in excess of the amount of appellant’s unjust enrichment. The district court did not award interest on the $24,788, and appellee has not cross-appealed from this ruling.
. This would occur if, for example, the owner replaced his stock at a price lower than that at which the gratuitous transferee sold it.
. We are bolstered in this conclusion by the statement in Comment a that this rule is the same as is applicable where property is transferred by a trustee in breach of trust to an innocent donee. See Restatement of Trusts, Second § 292, Comment h, which states that the value at date of sale is controlling. Further, this interpretation is consistent with Restatement of Restitution § 202 (that an owner may recover from a conscious wrongdoer either his own loss or the wrongdoer’s unjust enrichment, whichever is greater), and § 203 (that an owner’s recovery from an innocent converter is the amount of his loss, regardless of whether this is more or less than the converter’s unjust enrichment).
RONEY, Circuit Judge
(concurring):
A gratuitous transferee must return the original stock if he retained it. Under 204, if he has exchanged the original stock for other property, he may either (a) surrender the property received in exchange, or (b) pay the true owner whatever value the original stock has attained. The choice of repayment method is left in the hands of the gratuitous transferee. Thus he does not incur a loss if his exchange worked out badly and the exchanged property is worth less than the original stock. On the other hand, if the exchanged property has increased, and is worth more than the original stock has become worth, he may retain the increase. This is the meaning of Comment a to Section 204: “If the innocent donee makes a profit, he can keep the profit; if he incurs a loss, he need not make it good.”
If indeed Section 204 is applicable at all, the facts must be construed as Clayton’s having “exchanged” the original stock for $24,788. Thus, the Court was correct in permitting Clayton “to surrender the property which he acquired in exchange” for the original stock, the $24,788, rather than the value of the property which he originally received, which had become worth $52,260.