J77 (Jortif U ilam ^rliaol ffitbrarg Cornell University Library KF 1060.J77 1912 A treatise on the law of collateral secu 3 1924 019 250 962 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924019250962 A TREATISE ' ON THE LAW OF COLLATERAL SECURITIES AND PLEDGES »>■., , -f u* 5> BY ^c^O'^' LEONARD A. JONES Author of "Legal Forms," "Mortgages," "Real Property" THIRD EDITION REVISED BY EDWARD M. WHITE INDIANAPOLIS THE BOBBS-MERRILL COMPANY 1912 COPYEIGHT 1883 BY LEONARD A. JONES Copyright 1901 BY LEONARD A. JONES Copyright 1912 BY THE BOBBS-MERRILL COMPANY PREFACE TO THE THIRD EDITION Many new statutes have been enacted and many important de- cisions have been rendered by the courts on the subject of collateral securities and pledges since the publication of the second edition of this work more than ten years ago. It is the purpose of the editor of the present edition to inserJ;, ^^§p enactments and set forth the principles enunciated in these decisions^ In doing this it has been necessary to add many new sections and to add clauses to old sec- tions of the work as well as to add a great many notes and citations. Old section numbers have been retained in order to facilitate the finding of the great number of references to former editions cited in decisions of the courts. Where new sections have been added they have been designated by letters following the old section numbers. Since the publication of the original edition of this work, the vol- ume, the number and the importance of business transactions involv- ing the use of incorporeal personalty as security, denominated col- lateral security, have increased to such an extent and become of so much more seeming importance than the use of mere corporeal personalty as security, denominated pledges, that I have deemed it proper to change the name of the work to "Collateral Securities and Pledges", and have set forth fully the law applying pecuharly to collateral security, and at the same time have included all the law applying to mere corporeal property as security. EDWARD M. WHITE. Indianapolis, October i, 1912. lU TABLE OF CONTENTS CHAPTER I. THE NATURE OF COLLATERAL SECURITY OR PLEDGE. 1. Collateral security defined. 2. Pledge more than a lien. 3. Pledge less than a mortgage. 4. Pledge differs from mortgage. 5. The pledge contract. 6. Contract need not be recorded. 7. Lien but not title. 8. Form of contract important. 9. When conveyance of title will not constitute a mortgage. 10. Pledge held by trustee. 11. Instrument pledging property. 12. The use of the term "mortgage." 13. Contracts construed as mort- gages or pledges. 14. The law favors the conclusion that a transaction is a pledge. 15. Bill of sale sometimes a pledge. 16. A receipted bill of parcels a pledge. 17. Assignment of securities pre- sumed to be as collateral se- curity. 18. A conditional bill of sale a mortgage. 19. A bill of sale a pledge. 20. Whether a pledge or sale is for the jury. 21. Construction of a pledge con- tract is for the court. 22. Statutory pledge. 23. Necessity of delivery of posses- sion. \ 24. Distinction between mortgage and pledge. 25. Property in hands of pledgee as collateral. 26. Pledge of part of goods not complete. 27. Agreement to pledge not a pledge. 28. Agreement not a pledge. 29. No lien from contract to deliver possession. 30. Pledge of future property. 31. Estoppel of pledgor. 32. Increase of pledged property. 33. Unfinished goods. 34. Possession may be held by a third person. 35. Delivery to employe.. 3Sa. Pledged property mixed with unpledged. 36. A symbolical or constructive de- livery is sufficient. 37. Delivery by written instrument. 38. Contract rendered valid by de- livery. 39. Subsequent delivery. 40. Surrender of pledge. 41. Wrongful possession by pledgor. 42. Possession not conclusive evi- dence of fraud. 43. Pledgor agent of pledgee. 44. Possession of pledgor that of pledgee. VI TABLE OF CONTENTS. § 45. Pledgee njay maintain action of § 47. Title of bona fide purchaser. trover against pledgor. 48. Pledgor cannot defeat the rights 46. The civil law makes same ex- of pledgee where property is ceptions. in the hands of pledgee. CHAPTER II. THE SUBJECT-MATTER OF AND THE PARTIES TO PLEDGES. §49. Kind of property that may be , pledged. 49a. Description of property pledged. 50. Property exempt from execu- tion pledged. 51. Some kinds, of property cannot be pledged. 52. Pledgor warrants his ownership of property. 53. Not necessary that property should belong to pledgor. 54. Mere possession not title. 55. Possession of stolen chattels. 56. Pledge of property obtained by fraud. 57. Possession presumptive evidence of title. 58. May pledge without being sole owner. 59. Owner of pledge. 60. Limited interest pledged- of pledgee. 61. Administrator may pledge. 62. Vendor may pledge property. 63. Vendee in possession under con- ditional sale. 64. Common carrier or bailee of goods cannot pledge them. life interest may -Rights § 65. Joint owner cannot pledge inter- est of his co-owner. 65a. Agent to sell cannot pledge. 66. Married woman may make con- tracts. 66a. Valid pledge cannot be made between husband and wife. 67. Married woman's property pledged. 68. Pledge of insurance policy by married woman. 69. Pledge by one partner. 70. Corporation has power to pledge its property. 71. Corporation may pledge its un- issued stock. 72. Corporation may pledge its stock to its officers. 73. Manufacturing corporation may pledge its bonds. 74. Railroad company may pledge its bonds. 75. Corporation may take pledge. Id. When corporation Cannot take pledge. n. National bank may take pledge. 78. Bank may take pledge of stork of real estate corporation. 19. National bank cannot loan on its own stock. CHAPTER III. NEGOTIABLE PAPER AS COLLATERAL SECURITY. 80. Delivery and possession of ne- gotiable paper. 81. Statutory provisions. § 82. Parol evidence admissible. 83. Delivery need not always be actual. TABLE OF CONTENTS. Vll 83a. Delivery of promissory notes. 84. Subsequent delivery. 85. Possession of negotiable paper required to make title of a bona fide holder. 86. Redelivery to debtor for collec- tion. 87. Redelivery to debtor destroys pledgee's lien as against third persons. 88. Debtor estopped from asserting that pledgee has lost his lien upon redelivery for special purpose. 89. The holder of negotiable paper as collateral is its owner. 90. Negotiable paper passing by de- livery. 91. Possession of negotiable paper not endorsed. 92. Note pledged by delivery only. 93. Mere deposit as collateral of commercial paper not en- dorsed. 93a. Where the debt secured is usurious. 94. Pledgee of negotiable paper can give good title to it. 95. Transfer of note of third per- son. 96. An agent may pledge note he holds for collection for his own debt. '^. Misapplication by debtor's agent. 98. Statute making it a crime for pledgee to assign collateral before debt due has no effect on innocent assignee. 99. Note on consideration made il- legal by statute. 100. Notice of equity. 101. No indorsement of interest paid. 102. Note stating that it is to be held as collateral is not negotiable. 103. Recitals in negotiable note. 104. Gross negligence of one taking negotiable paper not sufficient to defeat his lien. § 105. Knowledge of want of author- ity. 106. For future advances. 107. Previous debt sufficient to con- stitute a holding for value of collateral negotiable paper. 107a. Difference between pledge of negotiable paper and chattels. 108. The rule in federal courts. 109. Doctrine of United States Su- preme Court. 110. An existing debt a valuable and sufficient consideration. 111. The preponderance of author- ity. 112. Grounds upon which the holder of negotiable paper Is a hold- er for value. 113. Forbearance by a creditor is a good consideration. 114. Taking negotiable paper as col- lateral is in the usual course of trade and business. 115. Distinction between note taken in payment and one indorsed as security. 116. The distinction seems shadowy and pernicious. 117. Statement of doctrine that pledgee of negotiable paper ;as collateral for pre-existing debt is not a holder for value. 118. This doctrine rests upon two objections. 119. Sufficient consideration to up- hold pledge where no agree- . ment for time can be implied. 120. In conclusion. 121. Uniformity of rule is impor- tant. 122. Exception as to accommodation paper. 123. That the pledgee of negotiable paper has notice that it is ac- commodation paper is not im- portant. 124. Accommodation note may be pledged for antecedent debt. VUl TABLE OF CONTENTS. i 12S. Equities between original par- ties. 126. Equities arising from independ- ent transactions. 127. When a pledgee of a collateral note is a holder for value. 128. Where there is a change in the rights of parties the creditor is a holder for value. 129. Agreement for further time. § 130. Merely taking collateral secur- ity does not suspend the right of action upon the debt. 130a. A legal extension of the time of payment of a debt must be supported by sufficient con- sideration paid. 131. Usurious agreement for exten- sion. 132. Negotiable paper as conditional ^ payment. 133. The law of the place. CHAPTER IV. NON-NEGOTIABLE CHOSES IN ACTION AS COLLATERAL SECURITY. ! 134. Non-negotiable securities sub- ject to existing equities. 135. Bona fide purchaser for value. 13Sa. A contract may be assigned in pledge. 136. Assignment of choses in action as security. 136a. Assignment by contractor. 137. A mortgage may be pledged. 138. Form of assignment. 139. Legal transfer of mortgage or other lien as collateral. 140. Assignment of mortgage as se- curity for debt is a pledge. 141: Assignment of mortgage as col- lateral security. 142. Equitable pledge of note, bond or mortgage. . 143. A mortgage note or bond may be pledged without the mort- gage. § 144. Debtor's own note and mort- gage as collateral security. 145. Life insurance policies as col- lateral. 146. A life policy payable to married women may be pledged. 146a. Insurance policy on husband's life payable to wife. 146b. Certificate of membership can- not be pledged as collateral. 147. A fire insurance policy may be pledged as collateral. 147a. Pledge of fire insurance policy may be made by assignment. 147b. Pledgee's insuring pledged property. 148. Delivery of savings bank's books as collateral. 149. Judgment as collateral security. 150. Land certificates as collateral. CHAPTER V. CORPORATE STOCKS AS COLLATERAL SECURITY. § 151. Corporation stock as collateral § 152. Written transfer essential in a security. pledge of stock. TABLE OF CONTENTS. IX § lS2a. Stock pledged by separate as- signment. 153. Transfer of legal title. lS3a. Chattel mortgage of corporate stock not valid as against transferee without notice. lS3b. Pledge by husband of wife's corporate stock. 154. Option to sell not a pledge. 155. An absolute transfef of stock' may be shown by parol evi- dence to be a pledge. 156. Sale of stock with an option to repurchase. 157. Parol evidence not admissible to contradict a pledge con- tract. 158. Transfer of stock at common law. 159. Transfers of stock governed by common law. 160. Statutes of doubtful meaning . relating to transfers of stock. 161. Convenience of unrestricted transfers of- stock. 162. Unauthorized rules of a corpo- ration cannot affect the rights of a purchaser of pledged stock. 163. A transfer of stock may be made in blank, 164. Decisions of the English courts. 165. Power of attorney to transfer stock may be executed in blank. 166. Death of pledgor who has in- dorsed stock in blank does not revoke the pledgee's au- thority. 167. Signing of transfer of stock is a warranty of its genuine- ness. 168. Transfer of stock by delivery with power of transfer. 169. Delivery of stock indorsed in blank passes the title as be- tween the parties. § 170. The delivery of an assigned stock certificate held to pass the legal and equitable title. 171. The holder of assigned stock certificates takes on an equi- table title. 172. Stock not transferred on the books of the corporation is not binding upon it. 173. Actual transfer on books neces- sary to make complete title. 174. That stock can only be trans- ferred on the books of the corporation, is to protect the corporation. 175. As against the corporation a transfer upon its books is necessary to confer a legal title. 176. A transfer on the corporation's books without a surrender of the certificates is ineffectual. 176a. Shares of stock are taxable to a pledgor in whose name they stand upon the books of the corporation. 177. Decisions not in harmony. 178. Effect of sale of registered stock on execution. 179. An equitable transfer of stock is good against a creditor having notice. 180. Transfers of stock regulated by statute. 181. Alabama.. 181a. Arizona. 182. Arkansas. 183. California. 184. Colorado. 185. Connecticut. 186. Delaware. 187. District of Columbia. 188. Florida. 188a. Georgia. 188b. Hawaii. 189. Idaho. 190. Illinois. 190a. Indiana. TABLE OF CONTENTS. § 191. Iowa. 192. Kansas. 192a. Kentucky. 193. Louisiana. 194. Maine. 195. Maryland. 196. Massachusetts. 197. Michigan. 198. Minnesota. 199. Mississippi. 200. Missouri. 201. Montana. 202. New Hampshire. 203. Nevada. 204. New Jersey. 205. New Mexico. 206. New York. 207. North Carolina. 207a. North Dakota. 208. Ohio. 208a. Oklahoma. /209. Pennsylvania. 210. Rhode Island. 211. South Carolina. §211a. South Dakota. 212. Tennessee. 213. Texas. 214. Utah. 215. Vermont. 216. Virginia and West Virginia. 217. Washington. 218. Wisconsin. 219. Wyoming.. 219a. Transfer of stock without transfer on corporation's books is generally effective. 220. Review of the statutes. 221. A corporation may have a lien on its shareholder's stock. 222. Rule in Connecticut. 223. Corporation with notice that stock has been pledged. 224. National banks cannot claim such a lien. 225. A . corporation may waive its lien upon a member's stock. 226. Damages for refusing to make transfer. CHAPTER VI. BILLS OF LADING AS COLLATERAL SECURITY. i 227. In general. 228. Delivery of bills of lading as collateral is delivery of the goods shipped. 229. Delivery of bill of lading is a constructive delivery of the property. 230. Bills of lading represent the property. 231. Indorsement of delivery of bill of lading passes a special property. 231a. Bill of lading delivered as col- lateral without indorsement. 232. Previous debt consideration for delivery of bill of -lading. 233. Bill of lading quasi-negotiable. 234. California, Montana, North Da- kota, Oklahoma, South Da- kota, Washington. § 234a. Louisiana. 235. Maryland. 236. Minnesota. 237. Missouri. 238. New York. 239. Pennsylvania. 240. Wisconsin. 241. Bills of lading do not have all the qualities of notes and bills as negotiable instruments. 242. Pledgee's rights as holder of bill of lading indorsed or de- livered. 243. Indorsement by shipper of bill of lading assigns his rights and title. 244. Advances to one not the owner of the property represented by the bill of lading. TABLE OF CONTENTS. XI 5245. Bills of lading represent the goods to be in possession of the carrier. 246. Carrier not bound by bill of lading signed by an agent when goods not delivered. 247. Statutory enactments. 248. Master or agent of a vessel cannot bind its owner by signing bill of lading when goods not received. 249. No distinction between bills ot- lading given by carrier on land or water. 250. Custom alone cannot make bills of lading negotiable in- struments. 251. Carrier not estopped from de- nying receipt of the goods for which bill of lading was given. 252. Rule in New York.. 253. Bill of lading not binding on the carrier may operate be- tween pledgor and pledgee. 254. Possession of goods received through spurious bill of lad- ing will not defeat the pledgee of the true bill. 255. Assignment of bill of lading conclusive of the shipper's in- tention. 256. Bill of lading as security for acceptance of time draft. 257. Agent to whom bill of lading with time draft has been sent may give up the bill on pay- ment of draft. 258. Agreement that the bill of lad- ing shall secure payment of time draft, rather than its ac- ceptance. 259. Agreement between shipper and pledgee may be shown by parol. 260. Title of the holder of bill of lading for payment of a draft is conditional. §261. Bills of lading— How pledged as collateral? 262. Bill of lading drawn to the shipper's order may be trans- ferred by delivery. ■ 263. A bill of lading not drawn to order or bearer may be pledged by delivery. 264. Third persons who pay drafts drawn against bills of lading have lien. 265. One discounting draft on bill of lading can maintain re- plevin for the goods shipped. 266. Bona fide holder of bills of lad- ing. 267. Vendor's right of stoppage in transitu. 268. Title of the shipper of goods. 269. Consignee's rights and liabili- ties. 270. The pledgee's rights. 271. Intention of consignor and pledgee. 272. Effect of agreement between consignor and consignee. 273. Liability of carrier for deliver- ing goods to one not holding the bill of lading. 274. Goods transferred from one carrier to another. 275. Where bill of lading is made to consignee, the carrier may deliver to him without the bill being presented. 276. Valid delivery of goods under bill of lading. 277. What the lien or pledgee of a bill of lading includes. 278. Rule when several parts of a bill of lading is delivered to different persons. 279. Carrier may deliver goods to consignee upon the produc- tion of one of a set of bills of lading. Xll TABLE OF CONTENTS. CHAPTER VII. WAREPIOUSE RECEIPTS AS COLLATERAL SECURITY. i 280. Warehouse receipts represent property described in them. 280a. A contract of storage is an es- sential element of a ware- house receipt. 280b. Warehouse receipts. 281. Warehouse receipt not a nego- tiable instrument at common law. 282. Quasi-negotiability of ware- house receipts. 283. Warehouse receipts made nego- tiable by statutes. 283a. Alabama. 283b. Arizona. 284. California. 284a. Colorado. 285. Connecticut. 28Sa. Delaware. 28Sb. Florida. 28Sc. Georgia. 285d. Idaho. 286. Illinois. 287. Indiana. 288. Iowa. 289. Kansas. 290. Kentucky. 290a. Louisiana. 291. Maine. 292. Massachusetts. 293. Maryland. 293a. Michigan. 293b. Minnesota. 293c. Missouri. 293d. Mississippi. 293e. Nebraska. 293f. New Jersey. 293g. New Mexico. 294. New York. 294a. North Carolina. 294b. Oklahoma. 294c. Oregon. § 294d. Rhode Island. 2p4e. South Carolina. 294f. Tennessee. 294g. Texas. 294h. Utah. 294i. Virginia. 294j. Vermont. 294k. Washington. 295. Wisconsin. 296. Warehouse receipts only stand in lieu of property. 297. Warehouse receipt evidence of ownership or of a pledge. 298. A warehouse receipt need not be in a particular form. 299. Delivery of warehouse receipt without indorsement. 300. Decision in Massachusetts. 301. Warehouse receipt providing that the property is delivera- ble to bearer. 302. Notice of transfer of ware- house receipt. 303. A fraudulent purchaser of a warehouse receipt may make good title to innocent pur- chaser. 304. A fraudulent or felonious transfer of a warehouse re- ceipt passes no title as against the true owner. 305. Possession obtained in good faith protects pledgee. 306. Title of innocent pledgee of warehouse receipt. 307. An order on warehouseman a sufficient delivery of goods. 308. Title by estoppel. 309. Estoppel — How created. 310. Estoppel by false representa- tion. 311. Estoppel of warehouseman. TABLE OF CONTENTS. Xlll §311a. Liability of warehouseman for delivering property without presentation of receipt. 312. Warehouseman may deny state- ments in his receipt not with- in his knowledge. 313. Warehouseman not estopped to dispute a receipt issued by mistake. 314. Statutory provisions against is- sue of receipts when goods not in warehouse intended to protect persons dealing in the property. 314. Warehouseman's receipt for goods not in his warehouse. 316. Warehouseman not bound by receipt issued by agent act- ing without authority. 316a. An officer of a warehouse company cannot issue receipts and pledge them for a loan to himself. 317. Warehouse receipts for a part of goods stored in bulk. 318. Exception to the rule. 318a. Right of the holder of ware- house receipt for goods not entitled to be stored in bulk to call for identical goods. § 319. Rights of warehouse receipt holders when receipts are is- sued for more property than is held. 320. By issuing a receipt a ware- houseman does not guarantee the title. 321. Owner of goods cannot give warehouse receipt for them, etc. 322. Statutory provisions in a few states. 323. Rule in Kentucky. 324. Receipt of servant of owner is no better than owner's re- ceipt. 325. A writing in the form of a warehouse receipt issued by the debtor on his own prop- erty is not a warehouse re- ceipt. 32Sa. Public warehouseman has no power to issue receipts upon his own property. 326. Distinction in cases of sales and cases of pledges. CHAPTER VIII. PLEDGES BY AGENTS OR FACTORS. §327. Agent had no power at com- mon law to pledge principal's goods. 328. Agent or factor authorized only to sell has no power at common law to pledge. 328a. At common law principal is bound by acts of his agent either where he directs the agent or ratifies his acts. §329. Not material that the agent is not known as a factor. 330. Factor not allowed to take ad- vantage of his own wrongful act. 331. Assignment of factor's or broker's lien as security. 332. No substantial difference be- tween pledge made by factor or a pledgee. XIV TABLE OF CONTENTS. 1 333. Purpose of factors' acts. 333a. California. 334. Louisiana. 335. Maryland. 336. Massachusetts. 337. New York and Ohio. 338. Pennsylvania. 339. Rhode Island. 340 Wisconsin. 341. Common law rule still prevails where not changed by stat- ute. 342. Factor at common law could not pledge bill Of lading by indorsement. 343. Power of factor to pledge bill of lading or warehouse re- ceipt , made negotiable by statute. • 344. Agent not having power to sell is not a factor within factors', acts. 345. Agent who can pledge or sell under factors' acts, must be one whose business ends with a sale of the goods. <§ 346. Broker not authorized to pledge goods entrusted to him in an- other capacity. 347. Agent whose authority is re- voked. 348. Factor acts apply only where the relation of principal and agent exists. 349. Mere possession of a bill of lading will not create the re- lation of principal and fac- tor. 350. Liability of pledgee who takes property with knowledge that agent is acting contrary to principal's instructions. 351. Factor is bound to follow his principal's instructions as to terms of sale. 352. Factor may make successive pledges of the same property. 353. Provision of factors' act, etc. CHAPTER IX. THE DEBT SECURED. \ 354. The debts secured by collateral must be founded on a good consideration. 355. The debts secured by a pledge is determined by the contract of the parties. 355a. A pledge secures any renewal of the debt. 355b. Rule where collateral security is given for various debts. 355c. Present liability is presumed where no time of payment is fixed. 356. Pledgee cannot hold a pledge to secure any debt except ac- cording to pledge contract. § 357. Lien for balance of account. 358. Contract of parties may provide that property pledged for a specific debt may be security for other debts. 358a. Partner's pledge may by agree- ment secure firm indebted- ness. 359. A pledge as continuing security. 360. Banker's lien for general bal- ance due him. 360a. A pre-existing debt' is not a sufficient consideration to constitute a pledgee a holder for value. TABLE OF CONTENTS. XV §361. Pledge may secure future in- §362. How to determine what debts debtedness. are secured. 361a. Pledge may secure future lia- 363. Pledge secures interest as well bilities. as principal. 361b. Agreement for continuing se- curity should be liberally con- , strued. CHAPTER X. THE pledgor's RIGHTS AND LIABILITIES BEFORE DEFAULT. \ 364. Pledged property may be trans- ferred by the owner. 365. The assignee of pledgor's con- tract acquires only the lat- ter's rights. 366. Right reserved by pledgor to sell the pledged property. 367. Notice to purchaser that pledgee holds a lien. 368. Pledgee liable if he returns goods to pledgor after notice that the property has been transferred. 369. Where pledgee has converted the property before the pledg- or assigns it the assignee can- not sue pledgee in his own name. 370. Pledgor's assignee entitled to redeem the pledge. 371. Pledge of corporate bonds does not affirm their genuine- ness. 372. At common law goods held in pledge cannot be taken on ex- ecution in an action against pledgor. § 373. Property held in pledge not subject to attachment or gar- nishee process. 374. Statutes of various states. 375. Alabama. 37Sa. Arizona. 376. Cahfomia. 377. Colorado. 378. Georgia. 378a. Illinois. 379. Indiana. 380. Louisiana. 381. Maine. 382. Massachusetts. 383. Michigan. 384. Minnesota. 385. New Hampshire. 386. New Jersey. 387. New York. 387a. North Dakota. 387b. Oregon. 388. Pennsylvania. 389. Tennessee. 390. Texas. 391. Vermont. 391a. West Virginia. 392. Wisconsin. 392a. Wyoming. CHAPTER XL THE pledgee's RIGHTS AND LIABILITIES BEFORE DEFAULT. 5 393. All collateral security is held § 394. Pledgee has no right to injure in trust. pledged property. XVI TABLE OF CONTENTS. § 395. Expense of caring for pledged property. 396. Pledgee must account for profits from use of pledged property. 397. Pledgee must account for inter- est received. 398. Dividends accruing on pledged stock belong to pledgee. 399. Pledgee of bonds entitled to collect the interest. 400. Expenses in keeping pledged property. 401. Pledged property in unfinished condition. 402. Pledgee has no right to manu- facture goods from new ma- terial. 403. Diligence in caring for pledged property. 404. Taking care of pledged prop- erty. 405. Pledgee not liable if pledged property is destroyed without fault on his part. 406. Pledgee's duty to care for pledged property may be modified by contract. 407. Parties to a pledge may agree to a different degree of lia- bility than that fixed by the law. 408. Contract between pledgor and pledgee. 409. Liability in case of loss by theft. 410. The holder of collateral secur- ity is bound to take only or- dinary care of it. 411. What ordinary care of pledged securities consists of. 412. Ordinary diligence a relative term. 413. Burden of proof — Negligence not presumed. 414. National bank taking collateral assumes the ordinary liabil- ity of a pledgee. § 415. Bank liable for conversion of collateral securities by its of- ficers. 416. Pledgee continues liable for lack of care of pledged prop- erty after the debt is paid. 417. Measure of damages. 418. Pledgee may assign his interest in a pledge. 419. The pledge cannot be trans- ferred or assigned independ- ently of the debt secured. 420. The pledge contract is not de- stroyed by the repledging of the property pledged. 421. There is ordinarily no implica- tion in law that the pledgee shall keep the pledge in his own exclusive possession. 422. Pledgor cannot maintain trover against one receiving pledged property from pledgee. 423. Pledgee caa ordinarily assign no greater right than he has. 424. The pledgee of negotiable pa- per before maturity can give good title to it. 425. Payee of negotiable note, hold- ing collateral notes may transfer such collateral notes to one indorsing the princi- pal note. 426. Release of a portion of the goods pledged. 427. Effect of the death of the pledgee. 428. Criminal offense to sell or re- pledge collateral securities in some states. 429. Pledgee's right to replevin chattels wrongfully taken from him. 430. Pledgee is entitled to the ex- clusive possession of the pledged property. 431. A bill in equity will not lie by pledgee against one intrusted with pledged property. TABLE OF CONTENTS. XVll 5432. Measure of damages. 433. Action by pledgee for conver- sion against third party. 434. Injury or conversion by stran- ger. § 435. Action for money had and re- ceived. 436. Replevin by pledgor against pledgee. CHAPTER XII. RIGHTS AND LIABILITIES OF A PLEDGEE OF STOCK. §437. Liability of pledgee as stock- holder. 438. The holder of stock as collat- eral cannot escape liability by transferring the stock to irre- sponsible person. 439. Pledgee not liable as stockhold- er where stock is held by trustee. 440. Sale of stock by pledgee on de- fault is not in fraud of cor- poration creditors. 441. Right to vote upon stock be- longs to person whose name is registered. 442. The registered owner of stock has prima facie right to vote. 443. Pledgee or his trustee will not be restrained from voting. 444. Pledgee by voting upon pledged stock does not thereby com- mit it to his own use. 445. Statutes of some states exempt pledgees from liability as stockholders. 44Sa. United States. 44Sb. California. 446. Colorado. 446a. District of Columbia. 446b. Florida. 447. Idaho. 447a. Illinois. 448. Indiana. 448a. Kentucky. 448b. Maine. 449. Maryland. i 450. Massachusetts. 450a. Minnesota. 451. Missouri. 451a. New Hampshire. 451b. New Mexico. 451c. Nevada. 452. New York. 452a. North Carolina. 4S2b. North Dakota. 453. Ohio. 453a. Oklahoma. 453b. South Carolina. 4S3c. South Dakota. 454. Washington. 454a. West Virginia. 455. Wisconsin. 456. Wyoming. 457. Creditor of corporation receiv- ing its stock as collateral is entitled to statutory exemp- tion against liability. 458. Pledgee of corporation's own stock is entitled to statutory exemption from liability even ■though he has voted upon the stock. 459. Decisions under other statutes. 460. Pledgee not exempt after the debt is paid. 461. Certificate of stock not a nego- tiable instrument. 461a. Bad faith in taking stock as collateral. 462. Usage of brokers in treating certificates of stock as nego- tiable paper. XVlll TABLE OF CONTENTS. ! 463. Some authorities give a bona fide holder of stock for value some rights as though they were negotiable instruments. 464. Title of certificates of stock not changed by involuntary transfer. 465. Negligence of owner of stock in executing transfer in blank. 466. Rights of one taking in good faith certificates of stock from apparent owner. 466a. Sale of certificate of stock where transfer of power of attorney was forged. 467. Rule a sound one. 467a. Rule as. to an assignment of life insurance policy. 468. Legal or equitable title passes by delivery of certificate of stock with power of transfer. 469. Precedent debt. 470. Collaterals taken in exchange for other collaterals are taken for value. 471. Pledge taken to secure usuri- ous contract. 472. Actual notice. 473. Stock repledged by the pledgee. 474. One holding stock as trustee has prima facie no right to pledge 'it. 475. Stock issued to estate of a de- ceased person. 475a. Guardian's indorsement of his ward's fertificate ©f stock in blank. 476. One of two trustees cannot pledge trust property without the other's consent. All. Liability of corporation whose stock is transferred upon its books by trustee. 478. Pledgee of stock with notice that it is held in trust can- not hold it as against the owner. § 478a. Negotiable bonds taken in good faith without notice may be held as against the owner. 479. One taking stock as collateral is not bound to examine cor- porate books where nothing appears on face of stock in- dicating that it belongs to an- other. 480. Rule in Maryland and Cali- fornia. 481. Distinction between pledges by executors or administrators and pledges by other trustees. 482. Title of executor is absolute. 483. One of several executors has power to pledge decedent's property. 484. Trustee of insolvent debtor. 485. Knowledge that an executor or administrator is misappropri- ating securities. 486. Knowledge that an executor is converting assets of the es- tate to his own use may be imputed to a pledgee. 487. What constitutes notice to the pledgee that an executor is procuring the money for his individual benefit. 488. The same facts that are deemed a notice to an individual will be notice to a corporation. 489. Pledgee not bound to see that an executor properly applies funds. 490. One taking collateral from per- sons occupying fiduciary rela- tions with notice that they are using trust property for private purposes are bona fide purchasers. 491. Same principles applied to the case of pledge of municipal bonds by president of rail- road company. 492. Rule in Georgia as to sales by administrator. TABLE OF CONTENTS. XIX §493. Authority of agent to pledge stock cannot be inferred when he is known to be an agent. 494. Broker buying stock on order from another broker. 494a. Broker buying stock for undis- closed principal must hold it for owner upon receiving no- tice. 494b. Repledge of stock which car- ries notice to second pledgee that first has no authority to pledge. 494c. Notice by advertisement of theft of negotiable bonds or stock indorsed in blank will not defeat title of pledgee. 495. Relation of pledgor and pledgee is created where stocks are carried on margin. 496. Relation of a broker to his cus- tomer. 497. Carrying stocks on margin. 498. Rule in Massachusetts as to stock broker and customer. 499. Decision introduces a new doc- trine as to the relation be- tween broker and customer. 500. Stockholder cannot recover for a fictitious purchase. SOOa. Securities pledged under a wagering contract. 501. Authority "to use collateral stock. 502. Authority in pledgee of stock to repledge it for his own debt may be inferred from circumstances. § 503. Custom is valid which allows a broker to pledge his custo- mer's stock to raise money to carry it. 504. Stock pledged by a broker to a bank, if the bank knows that the broker is not the owner is not subject to a general bankers' lien for m,oney borrowed by the broker. 505. Use which pledgee may make of pledged stock must be con- sistent with general ownership of pledgor. 506. Where by contract a broker is authorized to hypothecate pledged stock he is not guilty of conversion by doing so. 507. It is conversion for pledgee of stock to repledge it for his own debts when the contract gives him no such authority. 508. Return of identical stock. 509. Rule when there is no contract to keep shares of stock sepa- rate from other shares. 510. Pledgee of stocks must keep on hands enough to deliver the pledgor on demand. 511. Pledgee must be able to show that he has always had suf- ficient stock to return the pledgor. 512. Securities belonging to several persons. CHAPTER XIII. THE RIGHTS OF A SURETY. §513. Rights of subrogation. §515. Discharge of surety by release 514. Pledged property is a trust for of collateral. the benefit of all parties to SlSa. Surety not injured by release the compact. .of collateral is not dis- charged. XX TABLE OF CONTENTS. § S16. The loss of collateral dis- charges the surety to the ex- tent of the loss. 517. Surety may recover from the creditor the amount of the released security. S17a. One stands in the relation of surety who pledges his prop- erty for another. 518. Proof is admissible to show that one debtor is surety for another. 518a. Rights of third person who buys collateral without knowl- edge of equitable rights of surety. 518b. Discharge of surety by exten- sion of time of payment. 519. Surety not discharged by the creditor taking collateral. 520. Release of surety because of false statement as to collat- eral security. 521. Rights of a surety to show in- ducements which caused him to become surety. 522. Surety not entitled to be sub- rogated until he has paid the debt. 523. Securities placed in the hands of a surety is a trust in favor of the creditor. 524. A creditor may have the bene- fit of securities even when he did not know about them when he became a creditor. 525. Rule in some states. 526. Distinction between cases where the security has been given to the surety for payment of the debt and where given as indemnity. § 527. Distinction between creditor's equitable lien and his right of subrogation. 528. The creditor's right to control securities. 529. Where the creditor's right is one of substitution only he cannot assert it until the surety's liability has become fixed. 530. Surety's discharge does not bar the creditor's right to claim securities. 531. Surety holding collateral may transfer it to the principal creditor. 532. One may hold a pledge both as creditor and as surety. 533. Dividends received in bank- ruptcy by one whose. claim is in part secured by a pledge given by a surety, should be applied ratably to the whole demand. S33a. Surety not released by substi- tution of one collateral se- curity for another. 534. Mutual equity between co-sure- ties. 535. Creditor is not entitled to the benefit of securities placed by one surety in the hands of another iof his indemnity. 536. Duty of debtor to pay a surety not changed on account of one surety pledging his own property to another surety. 537. When a suret/s right of sub- rogation arises. 538. Surety's subrogation. 539. Effect of misapplication of property delivered to a surety. TABLE OF CONTENTS. XXI CHAPTER XIV. PAYMENT AND REDEMPTION. i 540. Payment of the debt discharges the pledge. 541. Renewal of note does not ex- tinguish the debt or release collateral. 541a. Substitution of other collateral for that first pledged. S41b. Payment made by surrender of pledged note and a transfer of collateral to pledgee. 542. Tender of amount due. 543. It is conversion for pledgee to refuse a tender properly made. 544. Creditor has no power oyer collateral except to hold it after his debt has been paid, 545. A tender to be effective must be absolute. 545a. Tender must be made in good faith. 546. When a tender need not include interest. 547. Discharge of surety upon ten- der made. 548. A pledge covering several dis- tinct debts. 548a. Right of pledgee where a pledge secures two notes, one better secured than the other. 549. Application of general pay- ment. 550. Proceeds of pledged property must be applied to the pay- ment of the debt secured. S50a. Creditor holding collateral and also accommodation indor- see's note must apply collat- eral first to relieve the ac- commodation indorser. 5S0b. Pledgee of the surplus after satisfying the principal debt. § 551. Creditor cannot apply collateral for any other purpose than that for which it is held. S51a. Does the application of the proceeds of collateral secur- ity to the principal debt con- stitute part payment which interrupts the statute of lim- itation ? 55 lb. Payments made from proceeds of sale of collateral security. 552. In general. 553. The right to redeem attaches to every pledge. 554. An agreement by pledgor that title to pledged property shall vest on default will not be enforced. 555. A pledge may be accepted in satisfaction of the debt if agreed upon after pledge is created. 556. Generally a bill in equity will not lie to redeem property from a ' pledgee. 557. Where an account is wanted a bill in equity may be main- tained. 558. Rule where shares of stock in a corporation are pledged. 559. A court of equity may compel specific delivery to the pledg- or. 560. Right to redeem may be en- forced by a representative of a deceased pledgor. S60a. Upon redemption a pledgee is entitled to charge payments he has made to keep the pledge alive. 561. Action to redeem is not pledgor's only remedy. XXll TABLE OF CONTENTS. § 562. Trover may be maintained for the conversion of bank bills specially pledged. 563. Sale by pledgee for non-com- pliance with unjustified de- mand. 564. Pledge obtained by false repre- sentations. 565. Principal liable for misappro- priation of negotiable collat- erals, by his agent. 566. Refusal of a proper tender is conversion. 567. Pledgee's refusal to return property to pledgor after the payment of the debt because sued by third person claim- ing title may be guilty of con- version. 568. Pledgee may show as a reason for not returning pledged property that the title and right of possession is in a third person. 569. Burden of proof where pledgee sets up title in a third per- son. 570. A tender is generally necessary to a recovery of the . securi- ties. 571. Unauthorized sale of pledge by pledgee not conversion. 571a. It is conversion for pledgee by unauthorized sale to put a pledge beyond his control. 571b. Not conversion where pledge transferred is not placed be- yond pledgee's control. § 572. When tender or demand un- necessary before action by pledgor for conversion. 573. A wrongful conversion by the pledgee may be waived by the debtor. 573a. Pledgee does not forfeit his lien by unauthorized sale of pledged property. 574. Measure of damages. 575. Conversion of negotiable paper. 576. What may be shown in mitiga- tion of damages. 577. Pledgee is an action for con- version may recoup or set off the debt secured. 578. Counterclaim. 579. Right of pledgor to recover pledge from pledgee if pledgee be paying pledgor's debt to first pledgee. 580. Recovery by pledgor in assump- sit when pledgee has sold pledged chattels. 581. Pledgee cannot claim pledge on account of the debt due him being barred by the statute of limitations. 582. Debtor cannot recover back pledged security because his debt is barred by the statute of limitations. 583. Running of the statute of limi- tations. 583a. Collections on collateral re- garded as payments. CHAPTER XV. BANKRUPTCY AND INSOLVENCY. ! 584. Bankruptcy of pledgor. 585. An assignee for the benefit of creditors holds the property subject to same equities as existed against assignor. § 586. Securities collected by the as- signee must be applied for the benefit of the pledgee. TABLE OF CONTENTS. xxm ! 587. Pledgee must prove his whole claim against the estate of a bankrupt without deducting the value of his securities. S87a. A creditor is only entitled to prove his claim and cannot collect from assignee divi- dends on the amount of his claim plus his collateral. 587b. Rule in different states as to basis of calculating what is due on pledgee's claim against a bankrupt. 587c. Rule in other states. 588. Creditor holding a pledge may receive dividends on bal- ance of his debt after de- ducting value of his security. § 588a. Rule in Massachusetts. S88b. Under bankruptcy and insolv- ent laws property held in pledge may be sold by order of court when creditor re- quires it. S88c. A creditor holding collateral may waive his right to par- ticipate in general assets of the bankrupt. S88d. Creditor holding notes of his debtor as security for other notes of same debtor can make only a single proof. S88e. When a pledgeholder becomes a bankrupt the pledge does not go to his assignee. CHAPTER XVI. REMEDIES OF THE PLEDGEE AFTER DEFAULT. § 589. In general. 590. Right of action on debt not sus- pended by the holding of col- lateral securities. 591. Taking judgment on principal debt does not affect pledgee's security. 591a. No mere change in the form of the debt secured releases the collateral securing it. 592. Debt may be enforced even though pledge has been dis- charged. 593. Pledgee not required to return pledge at time of payment of secured debt. 594. Set-off or recoupment set up in defense of suit on debt se- cured. 595. Rule in some states permits pledgor to sue for conversion of the pledge as a defense to action on secured debt. § 596. Rule in some states requires pledgee to restore collateral in action on the secured debt. 597. Suit for deficiency after col- lateral is applied in payment of secured debt. 598. When pledgee not required to present his claim against ad- ministrator of pledgor's- es- tate. 599. Pledgee waives his lien by at- taching or levying on pledged property. 600. One who holds pledged prop- erty in the hands of an agent attaches such property, there- by releasing the pledge. 601. Attachment of same goods on another demand is not waiver of lien. 602. In general. 603. At common law a pledgee upon default may sell the pledge at public sale. XXIV TABLE OF CONTENTS. i 604. Pledgee can sell only the inter- est of the pledgor in the pledged property. 604a. Pledgee of corporate stock is guilty of conversion by sell- ing it in violation of pledge contract. 605. Rights of assignee of pledgee same as his assignor to sell pledged property. 606. Pledgee not obliged to sellthe pledge. 607. Notice required to be given to pledgor. 608. Demand of payment necessary. 608a. Default determined by terms of pledge contract. 608b. Waiver of right to insist on default. 608c. Sale of pledged securities be- fore default. 609. Debt due at certain time does not dispense with necessity of notice. 610. Sale of pledge can only be made after notice. 611. Waiver of notice. 611a. Pledgee under a contract per- mitting him to sell pledge at public or private sale, may do so without notice. 6llb. Waiver of notice may be made by parol. 612. The notice must be given to the general owner of the pledge or to his agent. 613. Formal notice not required where there is actual notice. 614. Defective notice. 615. Extension of time of payment. 616. Statutory rules in several states. 617. Alabama. 617a. Arizona. 618. California, Idaho and South Dakota. 619. Georgia. 620. Iowa. § 621. Louisiana. 622. Maine. 623. Massachusetts. 624. Michigan. 625. Montana. 626. New Hampshire. 627. North Dakota. 627a. Ohio. 628. Rhode Island. 629. South Carolina. 629a. Texas. 630. Wisconsin. 631. Power of sale is an authority coupled with an interest. 631a. A default under the terms of the pledge must be shown. 631b. Private sale or sale at public auction. 632. Authority to sell collateral. 633. Subject-matter of a pledge di- visible. 634. Rule when pledgor mixes the articles pledged with others belonging to himself. 635. Purchase by pledgee at a sale of pledged property. 635a. Where pledgee is authorized to purchase at a sale. 636. Partner cannot purchase at a partnership sale of a pledge. 637. Pledgee not chargeable with conversion. 637a. Reason for the rule. 637b. Delay regarded as an affirm- ance of the sale. 638. Election by the pledgor. 639. Pledgee not estopped to show that a sale was made only to fix value of the securities. 639a. Title of purchaser of pledged property. 640. Common-law rule. 641. Equity has jurisdiction when an account must be stated. 642. Foreclosure and sale of shares of a land association. 643. Pledge of title deeds. 644. Lien of factor enforced. TABLE OF CONTENTS. XXV 1645. Contract for summary sale of pledged property will not pre- vent right to resort to judi- cial proceedings. 646. Foreclosure for default in pay- ment of interest. 646a. Receiver of pledgor corpora- tion should be made party in foreclosure of the pledge. 646b. A pledge may be foreclosed in a proceeding in rem. 646c. A creditor holding bonds of an insolvent corporation se- cured by mortgage as collat- eral must enforce his rights in equity. § 647. There can be no decree of strict foreclosure of a pledge. 648. Court may authorize pledgee to bid when pledge is sold. 649. When pledgee's debt is paid the pledgor's right to the surplus becomes absolute. 650. The pledgor may collect the surplus due him by suit at law. CHAPTER XVII. REMEDIES UPON PLEDGES OF NEGOTIABLE PAPER. S 651. Negotiable collateral paper can- not be enforced by sale. 652. Pledgee and pledgor may agree that negotiable paper pledged may be sold. 653. Promissory note may be sold by pledgee- under power of sale. 654. Contrary rule. 655. Sale under decree in equity. 656. Rule in Texas. 657. Ordinary note, mortgage, or bond cannot be sold. 657a. Securities having a long time to run may be sold by pledgee. 658. A mortgagee of a note and mortgage may sell his secur- ity. 659. Mortgage held as collateral may be foreclosed. 6S9a. The pledgee of a mortgage when he has foreclosed it must account for surplus if any. § 659b. Pledgee of a mortgage may re- lieve himself of any trust of the pledgor by serving him with a notice. 660. A pledgee's interest by fore- closure of the mortgage be- comes a mortgagee's interest. 661. Pledge of choses in action other than stocks and bonds should be enforced by col- lection. 662. Pledge of savings bank book. 663. Remedies of a creditor. 664. Pledgee is not required to make demand on pledgor be- fore suing on. collateral. 665. Pledgee may enforce payment of collateral paper upon its maturity. 666. In what cases suit cannot be maintained on collateral note until both notes are due. 667. Pledgee not bound to collect collateral upon its maturity before the maturity of prin- cipal debt. XXVI TABLE OF CONTENTS. § 668. Pledgee may collect coupon in- terest notes as they fall due. 669. Pledgee may collect the collat- eral in his own name. 670. Pledgee may sometimes main- tain suit in name of pledgor. 671. Pledgee of collateral paper in suing on it is not subject to defenses that pledgor may have upon the secured debt. 672. Payment to pledgor with knowledge that the note has been pledged is a nullity as to pledgee. 673. Right of pledgee to enforce ac- commodation paper. 674. Measure of recovery of pledgee on collateral paper. 675. Rule where paper held as col- lateral is subject to equities in favor of the maker. 676. Measure of recovery by a pledgee on accommodation paper. 677. A pledgee of negotiable paper has no better title to the pro- ceeds collected than he had to the paper itself. 678. Duty of pledgee to credit on debt payments received on collateral. 679. Marshalling. 680. Counsel fees. 681. Pledgee may enforce debt by suit without surrendering col- lateral securities. 682. Where the pledgee has sold or transferred the collateral he cannot recover on the debt without accounting for the collateral. 683. No defense to pledgee's suit on secured debt that he has fore- <■ ^closed mortgage held as col- lateral irregularly and be- come the purchaser. § 684. Judgment upon the collateral does not satisfy the principal debt. 685. Pledgee not required to apply collateral before enforcing payment of debt. 686. Pledgee cannot be forced by a surety on the principal note to proceed to collect on col- lateral before suing the surety. 687. Defense that pledgee has agreed to .take collateral security as payment to be effective must be established by positive evi- dence. 688. Distinction between note taken for antecedent debt and one taken for property sold. 689. By express agreement parties may make a third party's note a payment of a, debt. 690. Courts inclined to regard obli- gation of third person as col- lateral. 691. Transfer of third person's note presumed to be payment. 692. Pledgee of negotiable paper bound to use reasonable dili- gence in collecting. 693. Reasonable diligence upon the part of the creditor to pre- serve liability of indorsers. 694. Delay in presenting draft for payment. 695. Pledgor not entitled to strict notice of dishonor of collat- eral note. 696. Collateral security should be in hand in making demand. 697. Neglect of government officer. 698. Question of fact for the jury. 699. Insolvency of the maker of col- lateral note. 700. What constitutes negligence is a question of fact. TABLE OF CONTENTS. XXVI 1 §701. Creditor's negligence. 702. Loss to pledgor determines the liability of pledgee for negli- gence in collecting collat- erals. 703. Extraordinary diligence not re- quired. 704. Demand by pledgor for prompt collection of collateral secur- ity. 705. Burden is on pledgor to show that loss was sustained be- cause of negligence of pledgee in collecting collat- eral. 706. Delay in bringing suit on col- lateral. 707. Delay with debtor's consent. 708. Bad faith or faulty discretion of pledgee must be shown. 709. Pledgee receiving note of third person as conditional pay- ment not required to bring suit on it. 710. Pledgee of a judgment liable for loss by allowing judg- ment lien to expire. 711. Right of a surety to have pledgee of collateral to be diligent in making collection. § 712. Creditor entitled to the benefit of collateral security given by debtor to surety. 713. Assignee of judgment or claim as collateral chargeable for loss caused by his negligence. 713a. What is reasonable diligence is ordinarily a question for the jury. 714. Pledgee required to use ordi- nary diligence to collect in- terest on a mortgage held as collateral. 715. Return of execution unsatis- fied. 716. Pledgee has no right to com- promise with the maker of collateral note. 717. Pledgee has no right to sur- render a collateral note to the maker without payment. 718. Pledgee may exchange negotia- ble collateral security. 719. By extending the time of pay- ment the creditor holding a collateral note makes it his CHAPTER XVIII. REMEDIES UPON PLEDGES OF STOCKS. § 720. Remedies of the holder of col- lateral. 721. Pledgee of corporate stocks may sell them. 722. Remedies of stock broker, who purchases stock for custo- mers. 723. Custom of brokers unreasona- ble and void. 723a. Equities of a broker's custo- mer. § 724. Pledgee may sell stock upon de- fault notwithstanding the bankruptcy of pledgor. 725. Notice and public sale neces- sary to apply collateral secur- ity in satisfaction of debt. 726. Rules as to demand and notice before sale of pledged chat- tels apply to sales of stocks held as collateral. XXVlll TABLE OF CONTENTS. I 727. Bonds and stocks held as col- lateral may be sold like other pledges. 728. Pledgee of stocks or bonds not required to sell them. 729. Pledgee of stock not liable for loss on account of his failure to sell. 730. In general. 731. A power of sale may be im- plied from the terms of the pledge. 732. Waiver of notice. 733. A minor may revoke his waiv- er of notice of sale upon coming of age. 734. Valid sale without notice. 735. Inadequate price not enough to make pledgee liable to pledg- or. 736. Demand of payment sometimes necessary before sale of the collateral. 737. Sale at broker's board. 738. Sale at broker's board is a pri- vate sale. 739. Separate lots. 740. Creditor cannot purchase bonds or stocks sold by him upon default except when author- ized to do so by agreement. 740a. When an agent buys pledged stocks for himself in good faith his title is good. 741. Rights of pledgor when stock held as collateral is sold ille- gally. 742. Pledgee by a wrongful sale or pledge of the pledgor's stock is not precluded from recov- ering his debt. 743. Pledgor may waive his right to question a sale of collateral by failing to sue to impeach the sale. § 744. A customer whose stock has been sold irregularly should object without unreasonable delay. 745. The pledgor by accepting sur- plus proceeds of sale waives any irregularity in the sale. 746. Waiver by pledgor. 747. Payment of deficiency of debt ' by pledgor after wrongful sale by pledgee is evidence of acquiescence in the sale. 748. Pledgor must tender pajTnent of the debt before he can maintain trover to recover the value of stock wrongful- ly sold. 749. Pledgor of stock must pay or tender the debt secured be- fore he is entitled to have the stock re-transferred to him. 749a. Pledgee not liable for loss by depreciation in stock pledged occasioned by his delay in re- turning it when pledgor has not tendered the debt. 750. The measure of damages in actions at law for a wrongful conversion of stock by pledgee is the value of the stock at the time. 751. Demand for return of pledged stock. 752. Suit in equity to redeem pledged stock. 753. Measure of damages in Eng- land and some American states. 754. Origin of exception. 755. Rule in some courts allows re- covery of an amount equal to the highest market value of converted stock up to time of trial. TABLE OF CONTENTS. XXIX § 756. This rule of damages should only apply in exceptional cases. 7S6a. Rule established in Wright v. Bank of the Metropolis. 756b. Rule of measure of damages followed by Supreme Court of the United States. § 7S6c. Measure of damages where pledgee converts pledge by mistake but in good faith. 7S7. Measure of damages caused by a broker's authorized sale. 7S7a. Pledgor sometimes held en- titled to have specific per- formance. TABLE OF CASES [References are to Sections.] Abbett V. Frederick, 404, 409 Abbott V. Reeves, 485 Abels V. Planters' & Merchants' Ins. Co., 181 Abercrombie v. Mosely, 681 Abrahams v. South Western R. Bank, 562 Acer V. Westcott, 478 Adams v. Merchants' Nat. Bank, 287, 325, 326 V. Messiiiger, 757a V. O'Connor, 277, 433 V. Sturges, 356 Adderly v. Storm, 153, 437 Adier v. Sargent, 142 Adone v. Hutches, 606 Adoue V. Seeligson, 229, 246, 253 Mtna. Ins. Co. v. Bank of Wilcox, 372 Agawam Bank v. Strever 122 Agnew V. Johnson, 54 Agricultural Bank v. Burr, 194 Ainsworth v. Bowen, 150, 571a, 574, 610 Alabama Gold L. Ins. Co. v. Gar- many, 540 Alabama Nat. Bank v. Massasoit- Pocasset Nat. Bank, 56 Alabama State Bank v. Barnes, 301, 321, 326 Alabama &c. R. Co. v. Clark, 324 Albany Fire Ins. Co. v. Bay, 65a, 481 Albert v. Savings Bank, 480, 485 Alden v. Camden &c. Mach. Co., 578 Alderman v. Eastern R. Co., 255, 273 Aldrich V. Goodell, ' 692, 702 V. Hapgood, 534 Alexander v. Alexander, 685 V. Bank of Lebanon, 111 V. Springfield Bank, 115, 117 Alexandria, L. & H. R. Co. v. Burke, 603, 657a, 727 Allaire v. Hartshorne, 111, 672, 675, 676 Allen V. Clark, 681 V. Dallas & Wichita R. Co., 668 V. Danielson, 587 Allen V. Dubois, 507, 610 V. Dykers, 151, 508, 509, 510, 730, 755 V. King, 89 V. Megguire, 355, 356 V. St. Louis Bank, 237, 333 V. Williams, 231a, 233, 260, 261, 262, 269 Altoona Second Nat. Bank v. Dunn, 117 Amann v. Lowell, 303 Amarillo Nat. Bank v. Harring- ton, 612, 631b Ambler v. Ames, 595, 685 Ambrose v. Evans, 466 American Bank v. Baker, 515 American Bonding Co. v. Pueblo ' Inv. Co., SIS American Can Co. v. Erie Pre- serving Co., 23, 28, 29, 35 American Exch. Bank v. Corliss, 117 American Exch. Nat. Bank v. Fed- eral Nat. Bank, 80, 89 V. New York Belting & P. Co., 89, 127 American Nat. Bank v. Minor 89 V. Nashville Warehouse & El. Co., 398 American Railway-Frog Co. v. Haven, 441 American Wire Nail Co. v. Bay- less, 192a American &c. Bank v. Federal Nat. Bank, 89 American &c. Warrant Co. v. German, 23, 30, 39, 41,' 84, 283a Ames V. Brooks, 129a Ammon v. Gamble-Robinson Corn Co., 303, 305 Amory v. Francis, 588, 588a Amos V. Sinnott, 570 Anderson v. Blood, 478 V. McAleena, 327 V. Pacific Bank, S88e V. Phila. Warehouse Co., 439 V. Waco State Bank, 153b, 466 XXXI XXXI 1 TABLE OF CASES. [References are to Sections.] Andrews v. Marrett, 681 V. Worcester, Nashua & Roch- ester R. Co., 168, 196 Androscoggin R. Co. v. Auburn Bank, 399, 721 Anonymous, 104 Apperson v. Wilbourn, 538 Appleton V. Donaldson, 124, 542, 547 V. Parker, 681 V. Turnbull, 635, 638 Aibouin v. Anderson, 104 Archer v. WiUiams, 753 Archibald v. Argall, 590 V. Insurance Co., 145 Arendale v. Morgan, 5, 55, 56, 599, 640 Arent v. Squire, 409 Armour v. McMichael, 111 V. Mich. Cent. R. Co., 246, 252 Armstrong v. McLean, 550 V. National .Bank, 90 Arnold v. Johnson, 466 V. Rock River Valley Union R. Co., , 103 V. Sprague, 123 V. Suffolk Bank, 753 Ash V. Savage, 24 Ashton's Appeal, 117, 124, 418, 469 Ashton V. Atlantic Bank, 474, 485 Assets Realization Co. v. Howard, 540 Atchison v. Davidson, 115 Atherton Co. v. Ives, 550 Athill, In re, 1 Atkins v. Gamble, 461, 508, 757a Atkinson v. Atkinson, 479, 490 V. Brooks, 94, 111, 113, 116, 132 v. Foster, 23, 38, 80, 152 V. Maling, 37 Atlanta Guano Co. v. Hunt, 47, 113, 117 Atlanta Sav. Bank v. Downing, 146 Atlanta Trust & Banking Co. v. Nelius, 643 Atlantic F. & M. Ins. Co. v. Boies, 144, 651, 687 Atlantic Nat. Bank v. Franklin, 129 Atlas Bank v. Doyle, 673, 676 Atwater v. Mower, 13 Atwood V. Vincent, 522 Auge V. Variol, 5, 380 August V. O'Brien, 545, 574 Aull V. Colket, 462, 464, 466 Aultman's Appeal, 437 Austin V. Belknap, 513 V. Curtis, 113, 132 V. Dye, 353 Automobile Livery Service Co., In re, 23, 28, 38 Ayers v. South Australian Bank- ing Co., 30 Ayres v. Leypoldt, 115 B Babcock, In re, 588 Babcock v. Jordan, 111 V. Lawson, 304, 305 V. People's Savings Bank, 311a Bache v. Phillips, 261 Bacon v. Bacon, 360, 550 V. Lamb, 540 Badlam v. Tucker, 372, 373, 606 Bahia & San Francisco R. Co., In re, 461 Bailey v. American &c. Co., 145, 146a V. Colby, 418, 422 V. Godfrey, 576 Baines v. Swainson, 348 Baker v. Arnot, 371 V. Briggs, 515, 520 V. Burkett, 704, 709 v. Drake, 495, 496, 510, 578, 611, 736, 756 V. Pottle, 38 V. Woolston, 444 Bakewell v. Ellsworth, 387 Baldwin v. Bradley, 355, 356, 433, 553, 576 V. Canfield, 78, 163, 168, 198 Ball V. Stanley,. 355, 542, 543 Ballard v. Burgett, 94, 353 Ballingall v. Hunsberger, 400 Balme v. Wambaugh, 541 Baltimore and Ohio R. Co. v. Trim- ble. 523 v. Wilkins, 235, 241, 246 Baltimore City Passenger R. Co. V. SeweU, 168, 750, 751 Baltimore Mar. Ins. Co. v. Dal- rymple, 418, 560, 561, 573, 578, 579, 635, 731, 732, 737, 740, 750 Baltimore Retort & Fire Brick Co. V. Mali, 195 Banco de Lima v. Anglo-Peruvian Bank, 269 Bane v. Houck, 664 Bange v. Flint, 115 Bangor Electric Light & P. Co. v. Robinson, 461 Bangs V. Mosher, 681 Bank v. Boisseau, 525 V. Burgwyn, 90 V. Carrington, 114, 115 V. Chattanooga Pulley Co., 667 V. Lanier, 79, 168, 176, 221, 224, 466 TABLE OF CASES. XXXIU [References are to Sections.] Bank v. McNeil, 192a V. Mann, ' 664 V. Railroad Co., 635 V. Smalley, 168 V. Stockell, 89 V. Wood Bros. & Co., 588 V. Woodruff, 590 Bankers' Nat. Bank v. Western Union Cold Storage Co., 286 Banking Co. v. Atlantic & N. C. R. Co., 90 Bank of Albion v. Burns, S17a Bank of Alexandria v. Herbert, 585 Bank of America v. McNeil, 168, 171, 179, 210, 221, 223 Bank of Attica v. Manufacturers' Bank, 162 Bank of British Columbia v. Mar- shall, 10, 14, 406, 408, 595 Bank of Cerulean Springs v. Gard- ner, 6311) Bank of Chadron v. Anderson, 92 Bank of Charleston v. Chambers, 111 Bank of Claflin v. Rowlinson, 674 Bank of Comniierce's Appeal, 173, 209 Bank of Cullodan v. Bank of For- syth, 152, 179, 221 Bank of England v. Newman, 688 Bank of Forsyth v. Davis, 418, 425 Bank of Kentucky v. Schuylkill Bank, 461 Bank of Lafayette v. Bruff, 669 Bank of Metropolis v. N. E. Bank, 107 Bank of Montgomery v. Reese, 755 Bank of Newport v. Hirsch, 280 Bank of New York v. Vander- horst, ' 89, 122, 127 Bank of New York Nat. Banking Assn. V. American Dock & T. Co., 316a Bank of the Old Dominion v. Du- buque & Pacific R. Co., 740 Bank of Republic v. Carrington, 111, lis, 116 Bank of Rochester v. Jones, 229, 262, 268 Bank of Rome v. Haselton, 317, 318 Bank of Rutland v. Buck, 122 V. Woodruff, 681 Bank of St. Albans v. Gilliland, 115 Bank of Sandusky v. Scoville, 115 Bank of Sparta v. Butts, ' 285b, 302, 307, 311 Bank of Staten Island v. Silvie, 680 Bank of the United States v. Pea- body, 405, 596, 692, 707, 711 Bank of the University v. Tuck, 671, 675 Bank of Utica v. Ives, 130 V. Smalley, 206 Bank of Woodland v. Duncan, 142 Barber v. Ellingwood, 577, 578 v. Hathaway, 15, 17, 137, 560, 572, 574, 610 V. Meyerstein, 228, 229, 266, 278 Bardsley v. Delp, 115 Barfield v. Cole, 7, 18 Baring v. Corrie, 329 Barker, Ex parte, 441, 442 Barmby v. Wolfe, 671, 675 Barnard v. Backhaus, 500a V. Campbell, 233, 309, 341, 349, 353 v. Hawks, 38 Earned's Banking Co., In re, S87b Barnes v. Bradley, 591, 595 V. Mott, ■ 517a v. Smith, SOOa Barnhart v. Fulkerth, 545 Barr v. Kane, 663 Barre Nat. Bank v. Hingham Mfg. Co., 450 Barrett v. Cole, 6, 40 Barrow v. Paxton, 5, 7, 18, 23, 24 V. Rhinelander, 692, 716 V. Shields, 515 Barse Live Stock Co. v. Range Val. Cattle Co., 151, 179, 214 Barstow v. Savage M. Co., 54, 183, 461, 464 Bartlett v. Johnson, 558, 560a Bast V. First Nat. Bank, 667, 710 Batchelder v. Jennings, SIS Bates, In re, 587 Bates V. Stanton. 568 V. Wiles, 7, 610, 730, 755 Bath Gas Light Co. v. Daffy, 135a Bath Sav. Inst. v. Sagadahoc Nat. Bank, 398 P.augh V. Kirkpatrick, 388 Baxter v. Sherman, 328, 329 Bay V. Coddington, 107 V. Gunn, 664 Bavard v. Farmers' & Mechanics' Bank, 479, 481, 482, 484 V. Shunk, 688, 691 Beacon Trust Co. v. Robbins, 517 Eeale v. Bank, ' 693, 713 Bealle v. Southern Bank, 89 Beatty v. Sylvester, 555, 557 Beaver County v. Armstrong, 91 Becher v. Wells Flouring Mills Co., 172, 175, 441 XXXIV TABLE OF CASES. [References are to Sections.} Becker v. Hallgarten, 231a, 262, 266 V. Sandusky City Bank, 117, 125 Beckhaus v. Commercial National Bank, 111, 673, 676 Beckwith v. Burrough, 168, 210 V. Sibley, 590 Beecher v. Ackerman, 354 Beeman v. Lawton, 23, 27 Beers v. Culver, 117 Beidler v. Crane, 541 Beken v. Kingsbury, 5Z7, 338 Belanger v. Robert, 89 Belden v. Perkins, 418, 422, 573, 576, 577, 610, 611 Bell V. Bank of California, 495, 501, 508, 509, 571 V. Bean, 673, 675 V. Bell, 66, 68, 89 V. Farmers' Deposit Nat. Bank, 485 V. Fleming, 587, 588 V. Lafferty, 398 V. McQellan, 23 V. Mills, 618 V. MulhoUand, 471 Bell & Coggeshall Co. v. Kentucky Glass Works Co., 280b Belloni v. Freeborn, 522 Belmont -Branch Bank v. Hoge 89, 104, 127 Belshaw v. Bush,' 115 Bement v. Smith, 722 Bendel v. Crystal Ice Co., 603, 618 Benjamin v. Stremple, 433 Benning v. Simpson, 588 Benny v. Pegram, 327 V. Rhodes, 327 Benoir v. Paquin, 104 Bentall v. Burn, 300 Bentley v. Standard F. Ins. Co., 674 Bercich v. Marye, 203, 464 Berenbroick v. Stephens, 676 Berlin v. Eddy, 507, 509 Berney Nat. Bank v. Pinckard, 181 Bernstein v. Weinstein, 633 Berry v. American White Lead & Color Works, 635, 639a Bertrand v. Barkman, 117 Best V. Crall, 89 Betterton v. Roope, 694 Bevan v. Cullen, 743 Bibb V. Martin,' 525, 530 Bickell V. Colton, 750 V. Waterman, 688 Biddle v. Bayard, 461, 465 . V. Bond, 52, 568 Bidstrup v. Thompson, 38 Biebinger v. Continental Bank, 86, 540 Bigelow, In re, 221 V. Walker, 595 V. Young, 542 Birket v. Elward, 107, 111 Birmingham Trust & Sav. Co. v. Louisiana Nat. Bank, 181, 223 Bishop V. Fulkerth, 280a Bissell V. Steel, 262, 265 Black V. Bogert, 44, 430 V. Kaiser, 524, 526 V. Zacharie, 171, 179, 193, 210 Blackmore v. Granbery, 518, 548 Blackwood v. Brown, 393 Blair v. Childs, 331 Blake v. Buchanan, 94 V. McCosh, 146 V. Traders' Nat. Bank, 475 Blakely Ordnance Co., In re, 588 Blakeman v. Puget Sound Iron Co., 179, 183 Blanchard v. Page, 242 V. Stevens, 90, 111, 113 Blane v. Germania Nat. Bank, 290a, 299 Blanton v. Chambers, 132, 328a, 330 Blodgett V. Blodgett, 15 Bloede Co, v. Bloede, 195 Blood V. Erie Dime Sav. & L. Co., 614, 741, 750 V. Hayman, 635 V. Shepard, 140, 647 Bloomer v. Sturges, 659b V. Waldron, 65a Blouin V. Hart, 163, 193, 210, 692 Blydenburgh v. Bingham, 51Sa V. Thayer, 665, 676 Boardman v. Holmes, 155, 362 V. Spooner, 300 Board of Commissioners v. Rey- nolds, 159 Boatman's Saving Inst. v. Hol- land, 111 Boatmen's Ins. Co. v. Able, 174 Bobb V. Letcher, 90 Bodenhammer v. Newsom, 40, 44, 47, 88 Body V. Jewsen, 117, 129 Bohler v. Tappan, 69 Bohmer v. City Bank, 221 BoUand v. Bygrave, 360 Bonaud v. Genesi, 89, 110, 111 Bond v. Central Bank, 111 ■ V. Fitzpatrick, 675 TABLE OF CASES. XXXV [References are to Sections.'\ Bond V. Wiltse, Bone V. Tharp, Bonney v. Bonney, Bonsey v. Amee, Bonta V. Curry, Boody V. Goddard, Boone v. Van Gorder, 89, 96, 675 lis SIS 11, 23 692 402 190a Booth V. Atlantic Clearing House Assn., 692 V. Powers, -''•' Borland v. Nevada Bank, S, 445b Bosanquet v. Dudman, HI Boston Music Hall Assn. v. Cory, 160, 196 Bostwick V. Dodge, 111 Boswell V. Thigpen, 651 Bott V. McCoy, 327, 329, 330 Boughton V. United States, 356 Bowditch V. Green, 538 V. New England L. Ins. Co., 89, 91 Bowery Bank v. Gerety, 135a Bowman v. Hoffman, 542 V. Millison, 111 V. Van Kuren, 117 V. Wood, 669 Boyd V. Beck, 117 V. Conshohocken Worsted Mills, 398, 541 V. Cummings, 122, 127 V. Kennedy, 90 V. Parker, 526 V. Rockport Steam Cotton Mills, 196 Boylan v. Huguet, 509, 750 Boynton v. Payrow, 27, 148, 640, 662 V. Payson, 84 V. Woodbury, 156 Boyson v. Coles, 342, 344 Bradford v. Arnold, 692 Bradley v. Parks, 422, 542 Bragg V. Meyer, 329 Brainard v. New York and Har- lem R. Co., 90 V. Reavis, 111 Bramhall v. Beckett, 117, 122 Branch v. Augusta Nat. Bank, 90 Brandao v. Barnett; 96, 163, 357 Brand, In re, 588 Branning v. Markham, 103 Brass v. Worth, 495, 738, 756 Breckinridge v. Moore, 117 Breed v. Cook, 688 Breedlove v. Stump, 523 Breier v. Weier, 90 Brent v. Miller, 229, 242, 364 Brewster v. Hartley, , _ 33, 151, 152, 153, 442, 480, 581 V. Sime, 183, 466, 480 V. Van Liew, 750 Brick V. Brick, 155 V. Freehold Nat. Banking Co., 519, 686 Bridge Co. v. Savings Bank, 692, 693 Bridgeport Bank v. New York & New Haven R. Co., 163, 461, 466 Bridgeport City Bank v. Welch, 111 Bridgman, In re, 588 Briggs V. Earl, 146b V. Oliver, 640 V. Rice, ' 141 V. Walker, 372 Brigham v. Mead, 152a Bright V. Carter, 681 v. Judson, lis V. Wagle, 15, 20 Brightman v. Reeves, 603, 652, 654 Brinkerhoff v. Marvin, 679 Bristol County Sav. Bank v. Woodward, 588 Brittan v. Oakland Bank, 75, 168, 169 Britten v. Harvey, 23, 40 Broadway Bank v. McElrath, 163, 204, 210, 463 Broadwell v. Howard, 280, 297, 325a Bronson v. McCormick Harv. Mach. Co., SIS Bronston v. Robinson, S23 Brooklyn Bank v. Barnaby, 721 V. DeGrauw, S4S Brookman v. Metcalf, 89, 651 Brooks v. Whitson, 117 V. Wright, 681 Brother v. Saul, 640 Brotherton v. Anderson, 99 Brough's Estate, 587 Brown v. Adams, 196 V. Bement, 3, 7, 18, 19, 602 v. Bronson, 52, 583 V. Callaway, 89, 675 V. Equitable Life Assn. Soc, 467a V. First Nat. Bank, 515, 516, 560 V. Hiatt, 687, 707 V. Hotel Assn., 364 V. James, 84, 89, 355, 361 V. Latham, SSla V. Leary, 560, S71b V. Leavitt, 115, 127 V. McGran, 331, 351 V. Merchants' & Farmers' Nat. Bank, 587 XXXVl TABLE OF CASES. [References are to Sections.'] Brown v. Powell Duffryn Steam Coal Co., 246 V. Rathburn, 515 V. Ray, 532, 534 V. Runals, 559 V. San Francisco Gas-Light Co., 183 V. Spofford, 90 V. Thompson, 111 V. Tyler, 551a, 657a, 6S9b, 660 V. Ward, 603, 610, 651, 657a, 721, 727, 738 V. Warren, 25, 34, 36, 83 V. Wiggins, 38 Browne v. Bixby, 67 Brownell v. Hawkins, 7, 8, 23, 429, 602 Bruce v. Smith, 171 Bruley v. Rose, 41, 44 Brush V. Scribner, 111 Bryan v. Baldwin, 571, 610, 612, 635, 637, 637b, 756 Bryans v. Nix, 280 Bryant v. Pollard, 541 Bryon V. Carter, 221 Bryson v. Rayner, 558, 611, 635, 731, 732, 740 Buchanan v. International Bank, 89, 106, 358, 361 V. Provident Loan Soc, 560, 568 Bucher v. Commonwealth, 280a, 280b, 325 Buck V. IngersoU, 599 Buckingham v. Payne, 692, 700 Buckmaster v. Consumers' Ice Co., 757a Budd V. Munroe, 474 Buena Vista &c. Bank v. Grier, 378 Buffalo Commercial Bank v. Kortright, 163 Buffalo German Ins. Co. v. Third Nat. Bank, 221 Euffington v. Curtis, 261 Buffinton v. Chase, S51a, 583 Buhrman v. Baylis, 115 Bulkeley v. Welch, 418 BuUard v. Bank, 79, 224 V. Billings, 418 Bunting v. Saltz, 23 Burdick v. Sewell, 231 Burford v. Crandell, 221 Burgess v. Chapin, 691 V. Deposit Bank of Sadieville, 515 V. Seligman, 155, 445, 451, 457, 458, 459 Burhans v. Squires, 592 Burke v. Cruger, 130 Burks V. Hubbard, 750 Burlingame v. Goodspeed, 15, 147b V. Parce, 657 Burlington Gas-Light Co. v. Greene, 687 Burnap v. National Bank of Pots- dam, - 5 17a Burnett v. Thompson, 715 Burnham v. Windram, 663 Burnheimer v. Hart, 684 Burrows v. Bangs, 690 Burt V. Horner, 706 Burton's Appeal, 466 Burton v. Curyea, 280, 281, 303 V. Peterson, 461, 467 Bush V. Adams, 635a V. Export Storage Co., 280 V. Lathrop, 135 V. Peckard, HI Butler V. Greene, 406 V. Haight, 687 V. Price, 551a V. Rockwell, 15, 17, 13Sa Butters v. Haughwout, 111, 116 Butterworth v. Kennedy, 590 Buttrick V. Nashua & L. R. Co., 202 Butts V. Burnett, 566, 571, 573 Buxton V. Alton-Dawson Mercan- tile Co., 702 Byxbie v. Wood, 135a Caffin V. Kirwan, 27, 139 Cagwin v. Town of Hancock, 91 Cahn V. Ford, 84 Cahoon v. Marshall, 23 California Nat. Bank v. Ginty, 548, 548a Calkins v. Lockwood, 361, 418 Callanan v. Smart, 540 Callen v. Nelson, 111 Callonan v. Keeseville &c. R. Co., 104 Calvo V. Davies, 681 Camden v. Alkire, 581 Camden Nat. Bank v. Fries-Bres- lin Co., . 674 Cameron v. Marvin, 12 Cameron v. Orleans &c. R. Co., 27, 28, 39 Campbell v. Alford, 231a V. Fourth Nat. Bank, 89 V. Parker, 137, 561 V. Reeves, 327 V. Woodstock Iron Co., 153 Camp's Appeal, 148 TABLE OF CASES. XXXVll [References are to Sections.] Canadian Bank v. McCrea, 37, 281, 286 Canfield v. Minneapolis Agricul- tural & Mechanical Assn., 635, 637, 720, 721, 741 V. State Nat. Bank, 414 Canning v. Owen, 560 Cantwell v. Johnson, 8, 20 Capron v. Thompson 742 Cardin v. Jones, 692, 700 Cardinell v. Bennett, 27 Carhsle v. Hill, 131 V. Wishart, 116 Carlos F. Roses, The, 230 Carlyon v. Lannan, 750 Carpenter v. Bowen, 525 V. Hale, 54 V. King, 518, 520 V. Longan, 105 V. National Bank of Republic, 117 V. Providence Washington Ins. Co., 109 V. Sanborn, 702 Carrington v. Ward, 367, 595 Carroll v. Mullanphy Savings Bank, 162, 168, 169, 174, 638 Carson v. Buckstaff, 681 V. Iowa City Gas-Light Co., 608, 611, 735 Carter v. Arguimbau, 270 V. Lehman, 44, 89 V. Manufacturers' Nat. Bank, 61, 481, 482, 485, 487 V, Wake, 647, 648 V. Willard, 300 Cartwright v. Wilmerding, 37, 333, 337, 344 Gary v. White, 681 Case V. Bank, 221, 223, 226 v. Fant, 541 Casey v. Cavaroc, 23, 80, 86, 93, 585 Casey v. La Societe de Credit Mobilier, 193, 585 V. National Bank, 80 V. National Park Bank, 23 V. Schneider, 94 V. Schuchardt, 80 Casgrain v. Hammond, 67 Cass V. Higenbotam, 52, 542, 545, 566, 567, 595 Castello V. City Bank, 737, 738 Castikyan v. Sloan, 327, 341 Castle V. Smith, 169 Castoriano v. Dupe, 557 Caswell V. Putnam, 509 Cates V. Baxter, 153a Cathcart v. Snow, 280a Caulkins v. Gas-Light Co., 168 Cayuga Co. Nat. Bank v. Daniels, 229, 257, 260, 262 Ceas V. Bramley, 23, 27 Cecil Bank v. Heald, 111 Central Nat. Bank v. Williston, 196 Central Nebraska Nat. Bank v. Wilder, 398 Central Railroad v. First National Bank, 100 Central Savings Bank v. Garrison, 237, 283, 302 v. Smith, 113 Chamberlain v. Greenleaf, 502, 506, 508, 510, 512 v. Martin, 1 Chamberlyn v. Delarive, 702 Chambers v. Hubbard, 334 V. Kunzman, 552 Chambersburg Ins. Co. v. Smith, . 1, 209, 221, 663 Champion v. Buckingham, 146a Champlain Const. Co. v. O'Brien, 12 Chapman v. Benedict, 540 V. Brooks, 425 V. Clough, 593, 681 V. Gale, 631 V, Mcllwrath, 147 Charles v. Coker, 362, 591 Chartered Bank of India v. Hen- derson, 107a, 360a Charter Oak Life Ins. Co. v. Brant, 68 V. Smith, 692, 705 Chase v. Boston, ' 450 Cheesman v. Exall, 52, 568, 569 Cheever v. Meyer, 179, 215 Chemical Nat. Bank v. Arm- strong, 587 Cheney v. Stone, 90 Cherry v. Frost, 113, 117, 168, 212, 423, 466, 468, 469, 470 V. Miller, 704 Chesapeake S. S. Co. v. Merchants' Nat. Bank, 229, 235, 241 Chesley v. St. Clair, 434 Chester v. Hill, 6S9a V. Kingston Bank, 515, 517 Chicago Artesian Well Co. v. Corey 635 Chicago Dock Co. v. Foster, 286, 303 Chicago Taylor Printing Press Co. V. Lowell, 341 Chicopee Bank v. Chapin, 111, 675 Child v; Hugg, 638, 737, 746 Chitwood V. Lanyon Zinc Co., 23, 28 C. H. Larkin Co. v. Dawson, 692, ?00 XXXVIU TABLE OF CASES. [References are to Sections.'] Chorn V. Zollinger, 663 Chouteau v. Allen, 72, 424, S06, 581, 610, 635, 638, 730 Chouteau Spring Co. v. Harris, 162, 174 Christian v. Atlantic & N. C. R. Co., 13 Christmas v. Mitchell, 485 Christner v. Brown, S17a Chrysler v. Griswold, 115 Cincinnati Iron Store Co., In re, 12, 27, 35, 36, 37 Citizens' Bank v. Cotton Press Co., 22 V. Dows, 599 V. Gray, 22 V. Janin, 23 V. Patterson, 587 V. Shaw, 692 Citizens' Banking Co. v. Peacock, 285b Citizens' Bank & Trust Co. v. Thornton, 21, 541, 631a Citizens' Nat. Bank v. Dayton, 541 Citizens' Nat. Bank of Ft. Scott v. Bank of Commerce, 6, 10, 10a, 12, 34, 83a, 365 V. Hooper, 40, 86, 87, 104, 105 y. Third Nat. Bank, 110, 111, 126 Citizens' &c. Bank of Savannah v. Mixon, 89 City Bank v. Babcock, 612, 734 V. Barrow, 327, 345 V. Perkins, 84, 89 V. Rome, W. & O. R. Co., 229, 231a, 262 V. Taylor, 89 City Fire Ins. Co. v. Olmsted, 28, 152 City Loan & Trust Co. v. Sterner, 664 Claflin V. South Carolina R. Co., 89 Clark V. Bank of Montreal, 257 V. Bouvain, 634 V. Costello, 23, 25, 65 V. Dearborn, 277, 382 V. Ely, 528, 531 V. Equitable Life Assur. Soc, 145 V. German Security Bank, 199 V. Gilbert, 643 V. Henry, 18, 553, 554 V. Iselin, 80, 86, B41a V. Mundal, 688 V. Pinney, 753 V. Seagraves, 581 V. Simmons, 726 V. Spence, 413 V. Young, 132, 681, 702 Clarke v. Adam 146a, 147a V. Meigs, 495 V. National Citizens' Bank, 38 Cleghorn v. Minnesota Title Ins. & Trust Co., 651, 655 Clement v. Leverett, 96 Cleveland v. Shoeman, 327, 337, 343 V. State Bank, 117 Cleverly v. Brackett, 390 Clews V. Friedman, 382, 450 Clinton Nat. Bank v. McKennon, 570 Clodfelter v. Cox, 212 Clothier v. Adriance, 115 Clymer v. Paterson, 9 Coal Consumers' Assn., In re, 588 Coates V. Coates, 515a Cobb V. Doyle, 99, 111 Cochran v. Ripy, 290, 315, 321, 323, 325 Cocke V. Chaney, 95, 682 Coddington v. Bay, 117 Coe V. Cayuga Lake'R. Co., 90 Coffin V. Chicago Northern Pacific Construction Co., 645 Coggs V. Bernard, 1, 7, 394, 395, 400, 403, 405, 420, 542 Coit V. Humbert, 94, 128, 424 Colbert v. Sutton 186 Colburn v. Riley, 556 Colby V. Cressy, 23, 40 V. McOmber, 659 Cole V. Bank of Montreal, 418 V. Dalziel, 606, 611, 651, 652 V. North Western Bank, 328, 333, 344, 345, 346, 348 V. Saulpaugh, 122 Coleman v. Anderson, 418 V. Lewis, 692 V. Riches, 246 V. Shelton, 431 V. Spencer, 190a Colket V. Ellis, 723, 744 Collateral Loan Co. v. Sallinger, 623 Collins' Appeal, 23 Collins V. Buck, 23, 26, 27, 44 V. Dawley, 68, 145, 541 V. Gilbert, 1, 90 V. Martin, 96 V. Ralli, 304 V. State ex rel. Hutchinson, 379 Collinson v. Lister, 485, 488 Colonial Bank v. Cady, 473, 487 Colonial Trust Co. v. Hoffstot, 556 Colquitt V. Stultz, 692, 728, 729 Colt V. Ives, 185 TABLE OF CASES. XXXIX [References are to Sections.] Colt V. Lasnier, 485 V. Owens, 495, 756, 757 Colton V. Oakland Bank of Savings, 418, 422, 610, 637b, 745 Combes v. Chandler, 135, 304 Combination Trust Co. v. Weed, 71, 72 Combs V. Tuchelt, 23, 35 Comeau v. Guild Farm Oil Co., 168, 206 Comings v. Leedy, 541 Commercial Bank v. Davy, 12 V. Flowers, 310 V. Hurt, 283a, 304 V. Kortright, 168, 206 V. Lee, 283a, 304 V. Martin, 700 V. Pfeiffer, 200 V. Pritchard, 19 v. Rochester City Bank, 528 V. Shuart, 89 V. Western Reserve Bank, 515a Commercial Nat. Bank v. Bemis, 296 Commercial & Savings Bank v. Hornberger , 680, 685 Commissioners v. BoUes, 91 Commonwealth v. Butterick, 428 V. Cooper, 500 V. Schwartz, 623 V. Watmough, 174, 209 Compton V. Jones, 540 Comstock V. Hannah, 104 V. Hier, 107, 117, 677 V. Smith, 664, 681, 685 Conant v. Reed, 179 Conard v. Atlantic Ins. Co., 268 Conde v. Rodgers, 641 Conger v. New Orleans, 80 Conkling v. Vail, 115 Connecticut &c. Deposit Co. v. Fletcher, 10, 10a, 34, 83a V. Trumbo, 89, 127 Conner v. Banks, 541 v. Carpenter, 4, 13 Connerlv v. Planters & Mer- chants' Ins. Co., _ 117, 122 Connor v. Kimball, 23 Conrad v. Fisher, 280, 299, 300, 325 Constant v. Matteson, 526 Continental National Bank v. Bell, 550 v. Eliot Nat. Bank, 163 Converse v. Sharpe, 71 Conway v. John, 184 Conyngham's Appeal, 610, 641, 725, 727, 741, 742, 755 Cook v. Beal, 64, 349 Cook V. Helms, 89, 115, 117 V. Norwood, 100, 674, 676 V. Satterlee, 103 V. TuUis, 585 Cook County National Bank v. United States, 587 Cool V. Phillips, 297 Cooley V. Minnesota Transfer R. Co., 44 Cooper V. Ray, 23, 40, 44, 45, 48, 364, 570 V. Simpson, 606, 652 Y. Thompson, 90 Copeland v. Barnes, 15, 28 V. Manton, 117 Copis V. Middleton, 513 Corbett v. Underwood, 23, 497, 499 Corcoran v. Powers, 471 Corn Exchange Bank v. American Dock & T. Co., 316a Cornick v. Richards, 159, 161, 168, 212, 220 Corning v. Bridgewater Gas Co., 40 Cornwall v. Gould, 590 Cornwell's Appeal, 523 Cornwell v. Baldwin's Bank, 135a Cortelyou v. Lansing, 5, 7, 560, 603, 721, 748 Costelo V. Crowell, 71, 102, 588, S88d Cothran v. Ellis, 500a Cottam V. Eastern Counties R. Co., 476 Cotton v. Arnold, 29, 139 V. Atlas Nat. Bank, 355a, 541 V. Watkins, 387 Cottrell V. Watkins, 123 Coty V. Barnes, , 13 Courtright v. Deeds, 168 Covell V. Hill, 349 V. Loud, 498, 623, 723, 730 Covely V. Fox, 705 Coventry v. Gladstone, 257, 258 Covile v. Hill, 54 Covin v. Hill, 244, 349, 353 Cowan v. Pennsylvania Plate Glass Co., 72 Cowdrey v. Vandenburgh, 134, 311a, 466 Cowell V. Loud, 495 Cowling V. Beachum, 356 Cox V. Albert, 560 V. Central Vt. R. Co., 232 V. McGuire, 54 Craighead v. Wells, 117 Grain v. Paine, 142, 145 Crandall v. Vickery., 122 Crane v. Gough, ' 142 xl TABLE OF CASES. [References are to Sections.] Crawford v. Richeson, 517a V. Spencer, 500a, 541, 671, 674 Crease v. Babcock, ■ 437 Creighton .v. Scranton Mfg. Co., 72 Crescent City v. S. & M. W. Mfg. Co., 193 Crescent City Bank v. Carpenter, 635 Crews V. Yowell, 669 Crimp V. McCormick Const. Co., 154 Crisp V. Miller, 23 Crocker v. Crocker, 478, 479 Cromwell v. Rankin, 515 V. Sac County, 675 Cronise v. Kellogg, 673 Crosby v. Crafts, 530 V. Roub, 669 V. Stratton, 515 V. Woodbury, 515 Cross V. Eureka L. & Y. Canal Co., 581 V. Zellerbach, 152 Crossman v. Griggs, 50 Crowell V. Van Bibber, 234 Cruikshank v. DufBn, 482 Cud V. Rutter, 755 CuUum V. Branch Bank, 523, 530 Culver V. Benedict, 111, 132 V. Wilkinson, 685, 704, 728 Cumber v. Wane, 702 Gumming v. McDade, 418 V. Prescott, 152 V. Williamson, 65a Gummings v. Boyd, 117y 124 V. Little, 515 V. Webster, 221 Cumnock v. Institution for Sav- ings, 748, 749a V. Newburyport Sav. Inst., 570 Cunningham v. Ala. Life Ins. & Trust Co., 221 v. Jones, 541b Gurrie v. Bowman, 94 V. Misa, 107a, 111, 113, 115, 132, 360a Currier v. Howard, 145 Curtis V. Mohr, 89, 669, 675 V. Tyler, 524, 712 Gushing v. Breed, 317 Cushman v. Hayes, 580, 590, 603, 610, 611, 640 V. Thayer Mfg. Jewelry Co., 165, 170, 176, 466, 757a Cutting V. Damerel, 206 V. Marlon, 415 D Dahill V. Booker, 573 Dalton V. Smith, 659 Daly V. Spiller, 5, 581 Uamon v. Waldteufel, 406 JJando's Appeal, 66 Danforth v. Denny, 34 v. McElroy, 283a, 299 Danis v. Hardwick, 571b Danison, In re, 657a Darnell v. Dolan, 515, 516 Darst v. Bates, 590, 681 Daubigny v. Duval, 327, 341, 418 Davenport ■{. City Bank, 29 V. State Banking Co., 515 Davenport Nat. Bank v. Homeyer, 231a, 233, 262 Davidson v. Cooper, 164 Daviess County Bank & Trust Go. V. Wright, 517a Davis v. Alston, 700 v. Bank of England, 464 V. Bigler, 542 V. Bowsher, 357, 360 V. Bradley, 280 V. Carson, - 117 V. Funk, 603, 610, 654, 725 V. Gray, 89 V. Miller, 107, 117 V. Randall,' 106 V. Russell, 111, 284, 299, 333 V. Strohm, 117 Davy V. Bangs, 500a Day V. Holmes, 507, 571b, 635 V. Kenton, 700 V. Leal, 130 V. Proffet, 524 V. Saunders, 115 V. Swift, 5, 23, 40 Davton Nat. Bank v. Merchants' Nat. Bank, 77, 106, 151, 541, S41a, 584 Dean v. Howell, ' 471 v. King, 246 v.- La wham, 62 Dearborn v. Washington Sav. Bank, 221 Dearie v. Hall, 136 V. Union Nat. Bank, 25, 410, 411 De Benoise v. H. & W. Co., 556 De Bernales v. Fuller, 356 De Blois V. Reiss, 5 De Bouchout v. Goldsmid, 327 Decker v. Mathews, 561 De Clark v. Bell, 392a, 566 V. Waters, 716 Deering v. Bank, 145 V. Russell, 522, 524 Deitz V. Field, 561 Delaware County Trust &c. Ins. Go. V. Haser, 17, 20, 115, 665, 673 TABLE OF CASES. xli [References are to Sections.'] Delaware, The, 246 De Lisle v. Priestman, 603, 610. Deniainbray v. Metcalfe, 418 Demars v. Hudon, S80 D'Meza's Succession, 29, 80, 139 Dempsey v. Gardner, 300 Denison v. Boas, 618 Dennison, Ex parte, 509 Denny v. Cole, 646a V. Lyon, 165, 173, 462, 465, 472 V. Seeley, 515, 522 Denton v. Jackson, 495 Depeau v. Waddington, 117, 124 Depuy V. Clark, 7-19 Dering v. Winchelsea, 534 De Ronge v. Elliott, 68 Desdoity, Ex parte, 441 Des Moines Nat. Bank v. Chisholm, 89, 541a V. Lisson, 550 Detroit Motor Co. v. Third Nat. Bank, 105, 550a Dewey v. Bowman, 9, 19, 140, 581, 608, 610 De Witt V. Perkins, 115 De Wolf V. Gardner, 265 D'Wolf V. Harris, 13, 361 Dexter v. Citizens' Nat. Bank, 63 Dey V. Dey, 485 De Zeng v. Fyfe, 122 Dickey v. Pocomoke City Nat. Bank, 142, 147 V. Porter, 52 Dickinson v. Cent. Nat. Bank, 168, 196 V. Dudey, 466 V. Metacomet Nat. Bank, 588d Dickson v. Chorn, 588 V. Merchants' Elev. Co., 230 V. Thomas, 500a Diller V. Brubaker, 603, 610, 725, 727 Dilworth v. McKelvy, 436 Dimick v. Grand Island Banking Co., ISO V. United States Nat. Bank, 7S6b Dirigo Tool Co. v. Woodruflf, 35 Ditson V. Randall, 303 Divver v. McLaughlin, 355 Dix V. Smith, 599 V. Tully, 89, 664 Dixon V. Dixon, 111, 122 V. National L. Ins. Co., 145 V. Yates, 568 Doak V. Bank of the State, 5, 6, 23, 153, 556 Doane v. Russell, 1 Dobson, Ex parte, 168 Dodds V. Hills, 494 Dodge V. County of Platte, 91 V. Meyer, 23, 229, 233, 260, 262, 333, 333a, 566, 568 V. Stanton, 709 Dodgson V. Henderson, 518b Dodson V. Simpson, 485 Dole V. Olmstead, 317, 319 Dolhonde, Succession of. 111, 621 Dome City Bank v. Barnett, 365 Donald v. Suckling, 2, 23, 231. 332, 418, 420, 421, 422, 494b, 570, 579, 635, 748 Donnally v. Hearndon, 168, 216, 727 Donnell v. Wyckofif, 7, 571b, 592, 595, 685 Donohoe v. Gamble, 655 Donoven v. Travers, 23, 28 Doolittle V. Cook, 111 Dorrill v. Eaton, 554 Douglas- V. Carpenter, 509, 510, 571a V. People's Bank, 228, 232, 241 Douglass V. Mundine, 685, 702 Dovey's Appeal, 115, 466, 469 Dowler v. Cushwa, 372,. 584 Downer v. Whittier, 614, 637b Downes v. Back, 753 Dows V. Cobb, 242 V. Erkstrone, 319 V. Greene, 230, 266 V. Nat. Exch. Bank, 31, 229, 230, 255, 256, 258, 262, 265, 271 V. Perrin, 230 V. Rush, 266 Drake v. Cloonan, 482 V. Pueblo Nat. Bank, 571, 608 V. White, 408 Draper v. Cowles, 115 V. Saxton, - 89, 98, 103 Driscoll V. Bradley Mfg. Co., 2?1 V. West &G. Mfg. Co., 206 Dubois V. Spinks, 23, 36, 38 DuBrutz V. Bank of Visalia, 145 Ducasse v. Keyser, 193 V. McKenna, 621, 664, 669 Duden v. Waitzfelder, 635 Dudley v. Abell, 674 V. Miner, 674 Duell V. Cudlipp, 55, 368, 369 Duffield V. Miller, 657a Dugan V. Sprague, 590, 681, 705 Duggan v., London & Canadian Loan & Agency Co., 474 Duke V. Cahawba Co. Nav. Co., 181 Dumont v. Fry, 533 Duncan v. Brennan, 356, 550 V. Gilbert, 673, 675, 676 xlii TABLE OF CASES. [References are to Sections.] Duncan v. Jaudon, 474, 478, 481 Duncomb v. N. Y. Housatonic & Northern R. Co., 71, 72, 74, 75, 77, 89, 142, 635 Dungan v. Mut. Benefit Life Ins. Co., 9, 137, 138, 145, 153 Dunham v. Jackson, 545 Dunn V. Meserve, 93 V. Train, 23, 35 Dupee V. Blake, 540 Dupre V. Fall, 370, 425 Dupuy V. Clark, 716 V. Gibson, 641 Durant v. Einstein, 556, 557, 641, 735 Durpee v. Harper, 43, 370, 552 Dutton V. Connecticut Bank, 185 Dwight V. Singer, 652 Dyer v. Pearson, 344 Dykers v. Allen, 510, 730 Dyott's Estate, 700 Eagleton v. Gutteridge, 164 Earle v. Grant, 603, 608, 610, 637b V. New York Life Ins. Co., 649 Early & Lane's Appeal, 209 East Birmingham Land Co. v. Dennis, , 464 Easter v. Minard, 93, 675 Eastman v. Avery, 7, 8, 15 V. Bank of Montreal, S87b V. Foster, 523, 526, 530 Easton v. German American Bank, 28 V. Hodges, 325a East River Bank v. Butterworth, 122 East Texas F. Ins. Co. v. Coflee, 147a Ejjy V. Guest, 209 V. Hoopes, 17 Eddy V. Fogg, 58, 60, 664 Ede V. Johnson, 153, 183 Edward P. AUis Co. v. Madison Electric Light &c. Co., 1 Edwards v. Brown, 153b, 466 Ehrlich v. Ewald, 591 Eichbaum v. Sample, 153, 154 Eichelberger v. Murdock, 360 Einstein v. Dunn, 432, 433 Eisendrath v. Knauer, 574 Elder v. Rouse, 590 Ellershaw v. Magniac, 255 Ellis's Appeal, 485, 486 Ellis v. Conrad Seipp Brewing Co., 540 V. Kreutzinger, 145, 147 Elwell V. Dodge, 125 Elwood V. Deifendorf, 130, 681 Ely V. James, 541 Ely-Walker Dry Goods Co. v. Colbert, 400 Embrey v. Jemison, 500a Emery v. Irvin Nat. Bank, 229, 231a Emes V. Widdowson, 130, 590 Emly V. Lye, 688 Emmeluth v. Cook, 145 Empire City" Bank, In re, 437 Engles V. Marshall, 23 English Bank v. Barr, 270 Enochs V. Newton, 66, 354 Enthoven v. Hoyle, 164 Eplan V. Wheat, 7, 40, 44, 45, 47, 86, 88 Erb v. Great Western R. Co., 246 Erie & Pacific Dispatch v. St. Louis Cotton Compress Co., 299, 301 Frskine v. Lowenstein, 460 Essex Co. Bank v. Russell, 122, 127 Estes v. Perkins, 603 Esty V. Graham, 418 Etchepare v. Aguirre, 23 Evans v. Darlington, 1, 4, 153, 610 V. Goodwin, 641 V. Potter, 422, 579 V. Truman, 350 V. Warren, 599 Evansville Nat. Bank v. Metro- politan Nat. Bank, 224 Everly v. Rice, SIS Evertson v. Booth, 679, 712 Exchange Bank v. Butner, 89, 675, 676 Exchange Nat. Bank v. Coe, 89 Exeter Bank v. Gordon, 716 Factors & Traders' Ins. Co. v. Dry Dock Co., 193 Fairbank v. Merchants' Nat. Bank, 398, 541, 591, 591a Fairbanks v. Sargent, 136a Falk V. Decon, 12 Fall River Nat. Bank v. Slade, 69, 355a, 358a, 549 Falls City Shirt Mfg. Co., In re, 588 Fancourt v. Thome, 103, 730 Fant V. Miller, 425 V. Sprigg, 521 Farber v. National Forge & Iron Co., 90 Fareira v. Gabell, SOOa Farina v. Home, 300 TABLE OF CASES. xliii [References are to Sections.] Farlow v. Ellis, 40 Farmer v. Gregory, 323, 325 Farmers' Loan & Trust Co. v. Toledo &c. R. Co., 635 Farmers' & Mechanics' Nat. Bank V. Atkinson, 270 V. Hazeltine, 270 V. Lang, 280b, 325, 326 V. Logan, 229, 270 V. Wayman, 466 Farmers' & Merchants' Bank v. Bennett & Co., 36, 44, 280 V. Copsey, 618 Farmers' Nat. Bank v. McCall, 107, 111, 116, 117 V. Vermer, 635 V. Wilson, 183 Farmers' Bank of Maryland v. Iglehart, 221 Farmers' State Bank v. Blevins, 89, 671, 675, 678 Farmers' &c. Bank v. Wood, 588 Farmers' &c. Trust Co. v. Madison Mfg. Co., 56 Farm Inv. Co. v. Wyoming College & Normal School, 80, 574, 575, 665, 680, 692, 701, 702, 713, 719 Farnsley v. Anderson Foundry & Mach. Works, 550 Farnsworth v. Hammer, SCO Farnsworth, Ex parte, 588, 588d Farnum v. Boutelle, 588 Farr v. Kilgour, 372 Farrar v. Paine, 573, 610 Farrington v. Frankfort Bank, 117 V. South Boston R. Co., 461 Parson v. Gilbert, 1, 25, 36, 83 Farwell v. Importers' & Traders' Nat. Bank, 89, 96, 664, 665, 675, 677 Fatman v. Lobach, 461, 466, 467 Faulkner v. First Nat. Bank, 34 V. Hill, 426 Fay V. Gray, 502, 503, 507, 509 Fearon v. Bowers, 279 Feige v. Burt, 577, 610, 725, 727, 748 Fellows V. Harris, 111 V. Prentiss, 132, 681 Felt V. Heye, 179, 418, 471, 473, S71a, 741 Felton V. Brooks, 393, 396 Fennel! v. McGowan, 672, 711 Fenouille v. Hamilton, 117, 129 Ferdon v. Jonts, 688 Ferguson v. Northern Bank, 317, 318, 323, 325 Fettyplace v. Dutch, 364 Fickett, In re, 529 Fidelity Insurance T. & S. D. Co. v. Roanoke Iron Co., 26 Fidelity Mut. L. Ins. Co. v. Ger- mania Bank, , 359 Fidelity & Deposit Co. v. Johnson, 123, 608a, 665 Field V. Holland, 548a V. Leavitt,. 606 V. Schieffelin, 490 V. Sibley, 560, 571, 659, 665 Fifth Nat. Bank v. Providence Warehouse Co., 318, 318a, 574 Fifth Ward Sav. Bank v. First Nat. Bank, 90 Finch Mfg. Co. v. Stirling Co., 72 Findlay v. Hosmer, 587 Finn v. Donahoe, 12 Finney's Appeal, 163, 179, 209 Firemen's Ins. Co. v. Wilkinson, 681 First National Bank v. Adams, «6, 90, 91 V. Bacoti, 25, 36, 152, 168 V. Bates, 280, 311a, 541 V. Boyce, 281 V. Busch, 89 V. Caldwell, 86 V. Crocker, 229, 260, 263, 268 V. Dearborn, 229, 231a, 260 V. Dusy, 646 V. Emmitt, 90 V. Ferguson, 403 V. Finck, 548, 550 V. Fowler, 89, 675, 676 V. Germania Safety Vault & Trust Co., 356, 357, 540, 551 V. Gillord, 152a V. Goodman, 146 V. Gunhus, 541, 591a V. Hall, 122 V. Harkness, 1, 2, 6, 7, 33, 34, 36, 37, 139, 229, 280 V. Harris, 52, 517a, 518b V. Hartford Life & Annuity Ins. Co., 185, 222 V. Illinois T. & S. Bank, 2 V. Johnson, 513, 515 V. Johnston, 115 V. Kelly, 260 V. Kittle, 515, 692 V. National Broadway Bank, 61," 474, 478, 481, 482 V. Nelson, 23, 29, 40, 327, 328 V. Northern R. Co., 229, 242, 273 V. Ocean Nat. Bank, 415 V. O'Connell, 592, 685, 701 V. Oskaloosa Packing Co., 500a V. Pettit, 389 xliv TABLE OF CASES. [References are to Sections.^ First National Bank v. Root, 366 V. Rush, 571a, 637b, 748 V. Schween, 328 V. Scott, SSO V. Shaw, 333, 341, 348, 349, 353 V. Southworth, 67 V. Speece, 145 V. Taliaferro, 503, 504 V. Waddell, 606 V. Werst, 676 V. YounR, 280a First Nat. Bank of Birmingham v. First Nat. Bank of Newport, 403 First Nat. Bank of Cincinnati v. Kelly, 37, 228 First Nat. Bank of Green Bay v. Dearborn, 263, 265 First Nat. Bank of Louisville v. Boyce, 296, 332, 422, 571, 574, 579 First Nat. Bank of Wellsburg v. Kimberlands, 651, 657, 713 Fishback v. Van Dusen, 325, 325a Fisher v. Brown, 474, 494 V. Essex Bank, 196 V. Fisher, 89, 94, 111, 673, 675, 676 V. Geo. S. Jones Co., 574 V. Jones, 181 V. Meek, 599 V. National Bank, 80 V. Seligman, 451, 457, 458 V. Sharpe, 115 V. Weaver, 534 Fisher, Ex parte, 613 Fitchburg Savings Bank v. Rice, 494, 520 V. Torrey, 168, 515, 517 Fitz, Ex parte, IS, 42 Fitzgerald v. Barker, 90 V. Blocher, 566, 633, 638, 732, 739, 745 Fitzpatrick v. Bank of Forest City, 603 Flanagin v. Hambleton, 540 Flarty v. Odium, 51 Flash V. Schwabacker, 268 Fleming v. Northampton Nat. Bank, 409 Fletcher v. Chase, 117 V. Dickinson, , , 651, 657, 657a, 721, 748 V. Harmon, 577, 580 V. Howard, 4, 40 Florsheim v. Howell, 334 Flower v. Elwood, 591a Flowers v. Sproule, 556, 561, 566 Fluker v. Bullard, 81 Flynn v. Washburn Brewing Co., 591 P'olmar v. Leehman-Durr Co., 419 Folsom v. McCague, 150 Foltier v. Schroder, 23 Foltz V. Hardin, 716 Foote V. Brown, 692 V. Utah Commercial & Sav. Bank, 631b Forbes v. Boston & Lowell R. Co., 228, 229, 242, 261, 263, 273, 275, 277 v. Fitchburg R. Co., 274, 317 Fordyce v. Peper, 331 Forrester v. Spencer, , 395 Forstall v. Consolidated Assn., 22 v. Fussell, 519, 676 Fortitude, The, 64 Fort Madson Lumber Co. v. Bata- vian Bank, 191 Fortunato v. Patten, 136a Forwood's Claim, 587b Forty-Acre Spring Live Stock Co. V. West Texas Bank & Trust Co., 684 Foster v. Berg, 649 V. Bringham, 379 v. Esssex Bank, 415 v, Purdy, 593, 681 Fottrell V. Kavanagh, 587b Fourth Nat. Bank v. Blockmelder, 413, 703 v. St. Louis Cotton Compress Co., 280, 283, 301, 303, 306 Fowle V. Ward, 750, 752 Fowler v. Dane, 355 Fowler Cycle Works v. Western Ins. Co., 343 Foy V. Blackstone, 115 Foye, In re, 529 Fraker v. Reeve, 18, 140, 652, 657, 658 France v. Clark, 507, 720, 726, 736 V. Gaudet, 755 Francia v. Joseph, 117 Francisco v. Aguirre, 365 Franklin v. Neate, 364, 370 Franklin Bank v. Commercial Bank, 76 V. Harris, 361a Franklin Co. v. Lewiston Inst. for Savings, 76 Franklin Co. Nat. Bank v. First Nat. Bank, 588, 646c Franklin Life Ins. Co. v. American Nat. Bank, 145 Franklin Nat. Bank v. Newcombe, 735 TABLE OF CASES. xlv [References are to Sections.} Franklin Nat. Bank v. Whitehead, 280a, 287, 325, 32Sa Franklin Sav. Inst. v. Preetorius, 729 Frans v. Young, 65 Frasch, In re, 588 Fraser v. Charleston, 166, 168, 174, 466 V. Hilliard, 307 Freeman v. Benedict, 719 V. Bristol Sav. Bank, 61, 475 V. Buckingham, 246, 248 V. East India Co., 64 V. Harwood, 750 V. Rich, 135a Freiburg v. Dreyfus, 5 Friedlander v. Slaughter-House Co., 193 French v. McCarthy, 590, 591 V. Northwestern Laundry, 191 Frese v. Mutual Life Ins. Co., 618 Fretwell v. Carter, 89 Freund v. Importers' and Traders' Nat. Bank, 122 Frey v. Clifford, 111 Frost V. Shaw, SO Frothinghara v. Morse, 435, 750 Fuentes v. Montis, 344, 347 Fuller V. Hooper, S88d Fullerton v. Chatham Nat. Bank, 550 V. Sturges, 135 Furber v. National Metal Co., 609 Furness v. Union Nat. Bank, 400, 560, 587, 587b, 588, 606, 680 Furniss v. Gilchrist, 117, 125 Gage v., McDermid, V. Punchard, Gahn v. Niemcewiez, Gainsford -v. Carroll, Galbraith v. Weber, Gale V. Ward, Galena & Southern Wis. Stahl Galigher v. Jones, Gallaher v. Cohen, Galland, In re, Gallinger v. Pomeroy, Galway v. Fullerton, Gambling v. Haight, Gammon v. Huse, Gardiner v. Suydara, Gardner v. Gager, V. 'Maxwell, , Garlick v. James, • 153, 575, 603, 608, 610, 540 716, 719 129 753 328, 343, 344 27 R. Co. V. 71 756b, 757 54 598 84, 142 69, 142 663 89, 671, 675 318 98, 111 89, 675 651, 665, 716 Garrard v. Pittsburgh & Connels- ville R. Co., 124, 490, 491 Garth v. Howard, 52 Garton v. Union City Nat. Bank, 102, 675 Gass V. Hampton, 466 Gaston v. Am. Exch. Nat. Bank, 474, 481 Gaty V. HoUiday, 398 Gay V. Moss, 7, 9, 21, 140, 610, 651, 661, 662, 727 Gebhart v. Sorrels, 117 Geddes v. Bennett, 40, 321 Gedye v. Matson, 517 Geffcken v. Slingerland, 551 Geilfuss V. Corrigan, 4, 7, 23, 36, 280b, 325 Gemmell v. Davis, 179 Genet v. Howland, 556, 608, 611, 612, 726, 727, 732, 736 Genin v. Isaacson, 508 Gedrge v. Pierce, 23, 27, 37, 365, 585 Gerard v. McCormick, 478 Gerard F. & M. Ins. Co. v. Marr, 541a German American St. Bank v. Spokane-Columbia River R. & Nav. Co., 635a German Savings Bank v. Ren- shaw, 494b, 503, 504, 505, 509 German Security Bank v. Jeffer- son, 221 German State Bank v. Northwest- ern Water & Light Co., 354 German Union Building Assn. v. Sendmeyer, 163, 165, 168 Geron v. Geron, 396 Geyer v. Western Ins. Co., 221 Giblin v. McMullen, 415 Gibson v. Chillicothe Bank, ~ 280, 297, 325, 326 V. Conner, 111, 116 V. Lenhart, 84, 89, 90 V. Stevens, 262, 263, 265, 268, 280, 299, 325, 325a, 326 V. Warden, 585 Gilbert v. Marsh, 702 Gilbert, In re, 659b Gile V. Hutchinson, 304 Gill V. Cubitt, 104 V. Frank, 300 V. Kymer, 327 Gillet V. Bank of America, 359, 361b Gillett V. Whiting, 495 Gilliat V. Lynch, 355 Gilman v. Curtis, ■ 145 V. Fleitman, 620 xlvi TABLE OF CASES. [References are to Sections.'] Gilmer v. Morris, Gilpen v. Leksell, Gilpin V. Howell, Gilson V. Martin, Ginz V. Stumph, 151, 153, 581 540 151, 508, 509 32, 397 155 Giovanovich v. Citizens' Bank, 111, 116 Girard Fire & Marine Ins. Co. v. Marr, 403, 516, 541, 692, 705, 718 Girard Trust Co v. Mellor, 152a Gittings V. Nelson, 30 Glanville v. Strachan, 588 Glasscock V. Hamilton, 538 Glazier v. Douglass, 513 Gleason v. Drew, 13, 23 Glenn v. Smith, 687 Glidden v. Lucas, 229, 262 V. Mechanics' Nat. Bank, 570, 571, S71a, 637, 637a Globe National Bank v. Ingalls, 639, 724 Glover v. Austin, ' 33 Glyn V. East & West India Dock -Co., -231, 279 Godchaux v. Mulford, 23 Godin V. London Ins. Co., 147 Goff V. Hankins, 66 Gold Mining Co. v. Nat. Bank, 17, 91 Goldsmith v. First Methodist Church, 610, 614, 631b, 653 Goldstein v. Hort, 31, 52, 350 V. Nunan, 44 Goll V. Fehr, 66, 68 Goodall V. Richardson, 706, 729 Goodbar v. Locke, 365, 585 Goodenough v. City Bank, 257 Goodenow v. Dunn, 30 Goodman v. Harvey, 96, 104 V. Simonds, 90, 104, 105, 107, 111, 127, 131, 675 Goodwin v. Am. Nat. Bank, 482, 489 V. Massachusetts Loan & Trust Co., 107a, 111, 336, 360a, 517, 550a V. Scannell, 318 Gordon v. Adams, 90 V. Ware Nat. Bank, 145 Gorgier v. Mieville, 96 Goshen Nat. Bank v. Bingham, 94 Gosling V. Griffin, 89 Goss v. Emerson, 418, 422, 425 Gottberg v. United States Nat. Bank, 485, 487 Gottlieb V. Hartman, 54 Gould V. Central Trust Co., 512 V. Farmers' Loan & Trust Co., 469, 512 Gould V. Robson, 129 V. Seegee, 115 Goyer Cold Storage Co. v. Wild- berger, 199 Graeff's Appeal, 587 Graham v. Dyster, 327 V. Light, 618 V. Smith, 89, 107, 111, 116 Grand Ave. Bank v. St. Louis Union Trust Co., 735, 280a, 280b Grandin v. LeRoy, 122 danger v. Fidelity Ins. Trust & Safe-Deposit Co., 610 Granite Bank v. Ayers, 612 V. Richardson, 728 Grant v. Burr, 582 V. Ellicott, 122 V. Holden, 716 V. Kidwell, 111, 675 V. King, 571 a V. Kline, 145 V. Mechanics' Bank, 221 V. Norway, ' 246 V. Taylor, 357 V. Vaughan, 104 Gratitudine, The 64 Gray v. Agnew, 328 V. Armistead, 61 V. Coffin, 588 V. Portland Bank, 750 Greeg v. Bank of Columbia, 560 Greeley, In re, 588 Greeley v. Reading, 12 Green v. Clarke, 434 V. Dougherty, 515 V. Russell, 541 Greenbaum v. Megibben, 296, 323 Greenfield Bank v. Leavitt, 750 Greenfield School Dist. v. First Nat. Bank, 94 ■ Greening v. Wilkinson, 753 Greenleaf v. Dows, 317 Greenwell v. Haydon, 90, 115, 541a Greenwood v. Taylor, 588 Greer v. Lafayette County Bank, 635, 637b Gregory v. Morris, 18 V. Pike, 680 V. Van Ee, 680 V. Wendell, SOOa Greiner v. Greiner, 513 Greneaux v. Wheeler, 111 Griffen v. Henry, 37 Griff^eth v. Moss, 515 Griggs V. Day, 494b, 575, 692, 718, 756a, 756c V. Howe, 680 TABLE OF CASES. xlvii [References are to Sections.] Grimm v. Warner, 364 Grinnell, In re, 724 Griswold v. Davis, 89 V. Haven, 246, 310 V. Jackson, 543 V. Seligman, 451, 457, 458 Grocers' Bank v. Penfield, 122 Groeltz v. Cole, 602 Gross v. Whiteley, 66, 68 Grossman v. Lindemann, 145 Grove v. Brien, 229 V. Roberts, 702 Gruman v. Smith, 508, 573, 577, 742, 756, 757 Grymes v. Hone, 168, 170, 206, 210 Guarantee Company v. East Rome Town- Co., 179, 398 Guaranty Trust Company v. Gal- veston City R. Co., 631 Guichard v. Morgan, 342 Guild V. Butler, 513, 515, 517, 518 Guinzburg v. H. W. Downs Co., 603, 610, 614, 721, 726 Guion V. Doherty, 687 Gurley v. Reed, 163, 450 Gurney v. Behrend, 230, 257, 258 Gusdorf V. Ikelheimer, 588 H Haas V. Bank of Commerce, 671, 674, 675, 718, 719 Habenicht v. Lissak, 370 Haber v. Brown, 682 Hackett v. Ottawa,, 90 Hadwin v. Fisk, 334 Hagan v. Contineneal Nat. Bank, 602 Hagar v. Union Nat. Bank, 79, 224, 398 Haggerty v. Pittman, 524 Haile v. Smith, 542 Haille v. Smith, 263 Halderman v. German Security Bank, 550 Hale V. Leatherbee, 588, 588a, 588d V. Milwaukee Dock Co., 232, 280a, 282, 299, 312, 313 V. Walker, 437 Hall V. Bile, 630 V. Cayot, 151 V. Green, 692 V. Hoxsey, 711 V. Keller, 230 V. Marston, 356 V. Rose Hill & Evanston R. Co., 176, 461 Hallack Lumber & Mfg. Co. v. Gray, 651 Halle V. National Park Bank, 19, 640 Hallgarten v. Oldham, 263, 300 Halliday v. Bank of Stewart County, 7, 619 v. Holgate, 3, 418, 420, 422, 571, 573, 579, 635, 748 Hallowell v. Blackstone Nat. Bank, 69, 358a Ham V. Ham, ' 474, 475, 476 Hamburg Bank v. George, 560, 574 Hamilton, In re, 588 Hamilton v. "Hamilton, 692 V. Schaack, 637b V. State Bank, 611, 638, 732, 745 V. Wagner, 4, 6, 8, 362 Hampton v. Phipps, 514, 522, 534, 535, 537 Hanchett v. Buckley, 280 Hancock v. Franklin Ins. Co., 542, 543, 545, 551a, 570, 581, 582, 583a, 657a, 746 v. Hodgson, 111 Handy v. Sibley, 651, 673, 676 Hanks v. Drake, 495, 496, 736 Hanna v. Holton, 693, 702, 710, 713 Hanover National Bank v. Amer- ican Dock & T. Co., 316a V. Brown, 361b, 584, 680, 702 Hapgood V. Wellington, 522, 673 Hardaway v. Semmes, 181 Hardie v. Wright, 89 Harding v. Commercial Loan Co., 144 V. Eldridge, 4, 8, 23, 40, 42, 43, 44, 45, 83a, 86, 88, 604 V. Hawkins, 673 Hardman v. Booth, 348 Hardy v. Citizens' Nat. Bank, 61 V. Jaudon, 508, 510, 566 Harper v. Fairley, 551a V. Godsell, 40 V. T. N. Hays Co., 66, 68 Harrall's Case, 67 Harrell v. Citizens' Banking Co., 574 Harrington v. Dorr, 122 Harris' Appeal, 152a Harris v. Birch, 6 V. Bradlejr, 280, 298 v. Brooks, 518 V. Johnston, 95, 682 Harrison v. Clerk, 8 V. Harrison, 753, 755 V. Mora, 229 xlviii TABLE OF CASES. [References are to Sections.] Harrison jNIachine Works v. Tem- pleton, SIS Harshaw v. McKesson, 681 Hart V. Burton, 21, SS3 V. Ten Eyck, 557, 603, 610, 640 V. Tyrrell, 566 Hartman v. Dowdel, 124 Hartman Steel Co. v. Hoag, 6S9a Hartop V. Hoare, 54 Hartrauft's Estate, 581 Hartwell v. Whitman, 534 Harvey v. Merrill, 500a Hasbrouck v. Vandervoort, 151,- 153, 556, 558 Haskell v. Africa, 405, 595 V. Lambert, 102 V. Read, 441, 442, 444 Haskins v. Kelly, 137, 542 V. Patterson, 11, 24, 631b V. Warren, 40 Hass V. Prescott, 392 Hatch V. Douglas, 495 Hatcher v. Independence Nat. Bank, 675 Hatfield v. Phillips, 228 Hathaway v. Fall River Nat. Bank, 355, 356, 542, 543, 544, 570, 576 V. Haynes, 229, 231a, 255, 260, 261 Hauselt v. Harrison, 18 Haven v. Foley, 526 V. Hathaway, S51a V. Low, 24 Havens v. Foudry, 523, 526 Haverhill Loan & Fund Assn. v. Cronin, S88 Hawkins v. Fourth Nat. Bank, 541 Hawks V. Hinchcliff, 681, 682, 684 Hawley v. Brumagim, 508 Hawley Bros. Hardware Co. v. Brownstone, 692, 701 Hawxhurst v. Rathgeb, 328a Hayden v. Davis, 568 V. Lincoln City Electric R. Co., 89 Haydon v. Nicoletti, 89, 94, 671, 675 Haynes v. Forshaw, 485 Hays V. Riddle, 44, 432 Hayward v. National Bank, 637, 743 V. Rogers, 509 Hazard v. Abel, 303 V. Fiske, 353 V. Loring, IS V. Wells, 692, 700 Hazzard v. Duke, 82, 516, 575, 651 Heath v. Griswold, 507, S71b V. Hand, 523 Heath v. ^Mahoney, 733 V. Silverthorn Lead Min. & Smelting Co., 115, 444, 687 Hebblethwaite v.' Flint, 635, 637b Hedges v. Sealy, 93 Heffron v. Cunningham, 111 Helm V. Meyer, 5, 334 V. Swiggett, 172 V. Young, 523, 530 Helmer v. Commercial Bank, 89, 90 Hemmy v. Hawkins, ' 482 Hendrix v. Harman, 591a Henkle v. Salem Mfg. Co., 453 Hennessey v. Stempel, 574 Henry v. Davis, 137 V. Eddy, 427, 540, 570, 631 V. Phila. Warehouse Co., 333 V. State, 45, 88 Hentz V. Miller, 304 Herber v. Thompson, 25 Herman v. Gunter, 111 Herman Goepper & Co. v. Phoenix Brewing Co., 540 Hermann v. Central Car Trust Co., 608b Herrick v. Borst, 702 Herrman v. Maxwell, 398 Hess's Estate, 538 Hesthal v. Miles, 23 Hestonville, etc., R.-Co., v. Shields, 635 Hetzel V. Sawyer, 70 Hewins v. Baker, 145 Hewitt V. Williams, 709 Heyman v. Flewker, 345 Hey wood v. Watson, 111 Hibblewhite v. M'Morine, 164 Hickok v. Cowperthwait, 40, 43, 44, 45, 47, 87, 88 Hickson &c. Co; v. Pollock, 400 Hieskell v. Farmers & Mechanics' Xat. Bank, 260, 261, 265, 276, 278 Higgins V. Fidelity Ins. Trust & Safe Deposit Co., 437 V. Lansingh, 557 Hight V. Taylor, 587 Hiiigsberg's Succession, 23, 149 Hill V. Finigan, 637b, 638 V. Moore, 153b, 466 V. Xewichawanick Co., 170, 206, 398 V. Simpson, 485 Hilliker v. Kuhn, 44 Hillman v. Stanley, 664 Hills V. Smith, 400, 750 V. Stevenson, 148 TABLE OF CASES. xlix [References are to Sections.^ Hilton V. Sims, V. Tucker, V. Vanderbilt, V. Waring, Hinckley v. Colvin, V. Pfister, Hines v. Strong, Hinton's Case, Hirsch v. Mayer, V. Norton, Hitchcock V. Hassett, Hoard v. Garner, Hoare v. Parker, 362 23, 37, 38 351 664, 669 513 604a 20, 546 104 649 190a 28, 29 693, 713 59 Hobbs V. Western Nat. Bank, 482 Hodge V. United States Steel Corp., 441 Hodges V. Nash, 123 Hodgson V. Shaw, 513 Hoffman v. Carow, 56 V. Johnson, 700 V. Noble, 303, 327 V. Schover, 286 Hoffman House v. Foote, 534 V. Stokes, 534 Hogan V. Continental Nat. Bank, 723, 741 Holbrook V. Baker, _ 372 V. New Jersey Zinc Co., 170, 206, 461, 466 Holden v. Metropolitan Nat. Bank, 461a V. Upton, 91 Holland v. Johnson, 515 Holland Banking Co. v. See, 663 Holland Trust Co. v. Waddell, 541, 669 Holliday v. Holgate, 422 Holmes v. Bailey, 231a, 262 V. Beniss, 123 V. German Security Bank, 229, 231a, 262 V. Lykins, 687 Holton V. Smith, 327 Holyoke Bank v. Burnham, 437, 440 Homer v. Savings Bank of New Haven, 418, 640 Homes v. Crane, 18, 23 V. Smyth, lis Hook V. Ayers, 28, 80, 152a Hooker v. Olmstead, 588a Hooper v. Ramsbottom, 52 Hope V. Lawrence, 502, 563 Hopewell v. Cumberland Bank, 525, 530 Hopkins v. Hemm, 659a Hopper V. Smith, 421, 571 Hopper-Morgan Co., in re, 89, lis, 127 Hoppin V. Buffum, 168 Home V. Bod well, 518 Horner v. Dennis, 380 V. Missouri Pac. R. Co., 243 V. Savings Bank, 418 Horr V. Barker, 280, 299 Horton v. Morgan, 508, 509, 510 Hotchkiss V. Fitzgerald Plaster Co., Ill Houser v. Houser, 664, 669 V. Kemp, 8 Houston &c. R. Co. v. Conner, 543, 544, 566 Houton V. Holliday, 396 Howard v. Brigham, 729 V. Card, 373 Howell V. Dimock, 728 Howland v. Woodruff, 304, 337 Hoyt V. Baker, 303 V. Hartford F. Ins. Co., 326 V. Hoyt, 115 Hubbard v. Mosely, 424 Hubbell V. Blandy, 507 V. Drexel, 418, 507, 509 Hubbersty v. Ward, 246 Hudson V. Hunt, 372 V. Richardson, 398 V. Wilkinson, 582 Huff V. Wagner, 675 Hughes V. Hunner, 550 V. Johnson, 553 V. Littlefield, 513 Huiskamp v. West, 730 Humble v. Langston, 164 Hunsaker v. Sturgis, 32, 398 Hunt V. Bessey, 25, 86, 418 V. Bode, 36, 83 V. Holton, 372 V. Laconia & Lakeport Street R. Co., 398 V. Mississippi Cent. R. Co., 241 V. Nevers, 89 Hunter v. First Nat. Bank, 5, 571b V. Hamilton, 652, 654 V. Harris, 90 V. Moul, 115, 695, 702, 718 Hunterdon Co. Bank v. Nassau Bank, 204 Huntingdon v. Broad Top R. & Coal Co., 755 Huntington v. Clemence, 382 V. Mather, 153 V. Sherman, 23, 28, 36 Hurd V. Little, 130 TABLE OF CASES. [References are to Sections.'] Hurd V. Spencer, SIS Hurst V. Coley, 4S, 86, 432 Hutchins v. Gilchrist, 36 V. State Bank, > 482 Hutchinson v. Boogs, 124 V. Bours, 329, 350 V. Le Ray, 649 Hutton V. Arnett, 44, 4S Huyler v. Dahoney, S98, 6S6 Hyaras v. Bamberger, 4, 7, 542, 543, 545, 545a, 637b Hyatt V. Argenti, 731 Hyman v. Bogue, 9 I Idaho, The 244, 349, 568 Her V. Baker, 561, 574 Imperial Ins. Co. v. Wolf, 82 Indianapolis Brewing Co. v. Behnke, 66, 68 Indiana & 111. Cent. R. Co. v. Mc- Kernan, 603, 610, 635, 640, 727 Inglis V. Kennedy, 122 Insurance Co. v. Bruce, 90 V. Goodfellow, 174 V. Kiger, 320, 334 International Bank v. German Bank, 91, 135 International Trust Co. v. Union Cattle Co., S87a V. West Rutland Marble Co., 588 Interurban Const. Co. v. Hayes, 53, 418, 750 Iowa College v. Hill, 94, 104, 115, 117 Iowa Nat. Bank v. Copper, 191, 400 Irwin V. Bailey, 89 V. Tabb, 124 V. Williar, 500a Ives V. Bank of Lansingburgh, 515 Jack V. Morrison, 523 Jackson y. American Cigar Box Co., 400 V. Ehrsam, 663 V. Erkins, 540 V. Kincaid, 1, 23 V. Polack 117 V. Shawl, 616 Jacobs V. Latour, 599 Jacoby v. Jacoby, 612 Jacquet V. Creditors, 80 James's Appeal, 355, 550, 551 James v. Badger, 130 V. Hamilton, 750 Jamison's Estate, 574, 577, 587, 750 Janvrin v. Fogg, 12 Jaroslauski v. Sanderson, 610 Jarvis v. Rogers, 52, 56, 57, 355, 356, 357, 418, 422, 466, 467, 568, 570, 57l, 577, 578 Jaudon v. Nat. City Bank, 474, 481, 490 Jeanes's Appeal, HXb, 611 Jefferson v. Century Savings Bank, 393 Jeffersonville, Madison & Indi- anapolis R. Co. v. Irvin, 231a, 273 Jenckes v. Rice, 418 Jenkins v. Gunnison, 686 v. International Bank, 591, 659 v. National Village Bank, 409, 410 V. Schaub, 89, 117 V. Smith, 735 Jenkyns v. Brown, 255, 260, 268 Jenness v. .Bean, 89, 96, 117 Jennings v. Moore, 728 V. Wyzanski, 550, 571b, 635a Jennison v. Parker, 692, 701, 702 Jerome v. McCarter, 90, 584, 603, 724 Jervis V. Smith, 587, 663 Jessel v. Bath, 246 Jessup V. Witherbee &c. Improve- ment Co., 578 Jesup V. City Bank, 675 Jewett V. Warren, 36, 111 John W. Cannon, The 53 Johnson v. Barney, 115 V. Bartlett, 513 V. County of Stark, 90 V. Credit Lyonnais, 344 V. Dexter, 720 V. Grayson, 107, 111, 117, 123, 471 V. Laflin, 168, 169, 174, 176, 437 V. Smith, 23, 34, 418 V. Stear, 418, 422, 494b, 573, 577, 578, 579 V. Underbill, 169, 437 V. Way, 104 V. Weed, 687 V. Zweigart, 82 Johnston v. Charlottesville Nat. Bank, 77 v. Frederick Stearns & Co., 558 V. Huston, 82 V. Whittemore, S71a Joliet Iron & Steel Co. v. Scioto Fire Brick Co., 651, 721 Jones V. Baldwin, 4, 307 V. Benedict, 548 TABLE OF CASES. [References are to Sections.] Jones V. Guaranty & Indemnity Co., 75, S41 V. Hawkins, 664, 669 V. Hibbert, 676 V. Johnson, 17 V. Merchants' Bank, S82 V. Quinnipiack Bank, 526, 529 V. RahiUy, 15 V. Scott, 50, 590, 591, 599 V. Smith, 3, 7 V. Thurmond, 583 V. Tincher, 522 V. Witter, 142, 669 Jordan v. Hudson, 513 Joslyn V. Grand Trunk R. Co., 264 V. St. Paul Distilling Co., 198 Judson V. Corcoran, 212 Just V. State- Sav. Bank, 113, 127 K Kahn v. Hayes, 379 V. Walton, SOOa Kamena v. Huelbig, 142, 143 Kase V. Burnham, 581 Kauffman v. Klang, 54 V. Robey, 111 Kaufman's Appeal, 359 Kaufman v. Loomis, 611 Kavanaugh v. Brodball, 142, 669 Kearslake v. Morgan, 132 Keating v. Wilbert, 66, 68 Keel V. Levy, 522 Keeler v. Goodwin, 317 Keifer v. Myers, 540 Keiser v. Topping, 23, 27, 28 Kellock's Case, 587b Kellogg V. Miller, 587 V. Stockwell, 168, l79, 437 V. Tompson, 45, 89, 90, 91 Kelly V. Ferguson, 82, 106, 675 V. Matlock, 659a V. Murphy, 23 V. Richardson, 58 Kelsey v. Rosborough, 687 Kelty, Ex parte, 676 Kemmil v. Wilson, 590 Kemp V. Falk, 267 V. Westbrook, 370, 556, 557, 581, 603 Kendall v. Equitable Life Assur. See, S60a Kendrick v. Loraax, 129 Kennedy v. Pierce Loan Co., 584 V. Rosier, 702 V. Whitwell, 750 Kenniston v. Avery, 405 Kent V. Ginter, 753 Kenton Ins. Co. v. Bowman, 192a Kentucky Furnace Co.'s Trustee V. City Nat. Bank, 36, 42 Kentucky Nat. Bank v. Avery, 192a Keokuk Co. State Bank v. Hall, 115 Kephart v. Butcher, 687, 692, 702 Kergin v. Dawson, 373 Kern v. Day, 193 Kerr v. Corry, 90 V. Cowen, 106, 675 v. Urie, 195 Ketchum v. Bank of Commerce, 371 V. Packer, 478a Key V. Fielding, 663 Keys V. Brush, 524 Keystone Watch Case Co. v. Fourth Street Nat. Bank, 20 Kibbe, In re, 598 Killian v. Hoffman, 635 Kilpatrick v. Dean, S71a, 748 Kimball v. Hildreth, 15, 19, 23, 40 Kimberly v. Patchin, 317 Kimbro v. Lytic, 117 Kimbrough v. J. K. Orr Shoe Co., 373 Kiramel v. Stoner, 755 Kinder v. Shaw, 327, 329 King V. Doane, 541 V. Doolittle, 117 V. Green, 354 V. Sullivan, 659a V. Texas Banking & Ins. Co., 603, 727 Kingsbury v. Kirwan, SOOa V. Phelps, 554 Kingsford v. Merry, 348 Kinney v. Kruse, 89, 669 Kinsey v. McDearmon, 523 Kinsman v. Fisk, 72 Kirkpatrick v. Hawk, 515 v. Kansas City, St. Jo. & C. R. Co., 230 v. Muirhead, 115, 117, 124 Kirsch v. Tozier, 478 Kiser V. Ruddick, 687, 692, 700, 70S Kisterbock's Appeal, 461 Kitchell V. Vanadar, 64 Kittera's Estate, 681 Kittler v. Dodge, 55 V. Studabaker, S6, 57, 90 Klee V. Trauerman, 667 Klopp V. Lebanon Bank, 513, S22 Knapp V. Mayer, 90 Knickerbocker Trust Co. v. Pena- cook Mfg. Co., ■ 6S9a Hi TABLE OF CASES. {References are to Sections.'] Knight V. Beckwith, 67 Knights V. Wiffen, 308 Knott, In re, 588 Knowles, Petitioner, 587 Knox V. Clifford, 115 V. Eden Musee American Co., 461 Koehler v. Dodge, 89 Kortright v. Cady, 542 V. Commercial Bank, 163, 170, 755 Kraft V. Fancher, 503 Kramer's Appeal, 523, 524 Kramer v. Farmers' Bank, 525 Kraus v. Arnold, 545 Kreling v. McMuUen, 673 Krouse v. Woodward, 757a Kullman v. Greenebaum, 540 Kunkel v. Fitzhugh, 523, 526 Kyle V. Sigur, 50 Laclede Nat. Bank v. Richardson, 635a, 653 Lacombe v. Forstall, 168, 748 Lacroix v. Derbigny, 675 Ladd V. Myers, 25, 36, 83 Laing v. Burley, • 172 Lake v. Brutton, 513 V. Little Rock Trust Co., 728, 729 Lakenan v. North Mo. Trust Co., 515 Lallande v. Ingram, 152, 193 Laloire v. Wiltz, 575 Lamb v. Attenborough, 341, 345 Lamberton v. Windom, 413, 692, 693, 702 Lanaux's Succession, 35, 83a, 152 Lanckton v. Wolcott, S88a Land Title & Trust Co. v. Asphalt Co Lane v. Bailey, V. Padelford, V. Stacy, Lanfear v. Blossom, V. Sumner, Langdon v. Buel, Langton v. Waite, V. Waring, Lapping v. Duffy, Lashmett v. Prall, Late V. Security Trust Co., Lathrop v. Morris, Latta V. Tutton, Laucks V. Michael, Lauckton v. Wolcott, Lauman's Appeal, Lawler v. Kell, 646 357, 360, 422 106 534 257, 265 263, 300 11, 13, 23, 590 507 44 540 89 540 122 542, 646 541 588 154, 155 151 Lawrence v. Clark, V. McCalmont, V. Maxwell, 394, 501, 502, 503, 505, 542, 561 V. Minturn, Lawson v. Weston, Lawton v. Newland, Lazier v. Nevin, Leahy v. Lobdell, Lear v. Friedlander, Learned v. Foster, V. Geer, Leas V. James, Leask v. Scott, 107a, 231, 266, 360a Leavitt v. Fisher, 163, 166, 168, 461, 463 Le Breton v. Pierce, Le Croy v. Eastman, Lee V. Baldwin, V. Bradlee, V. Citizens' Nat. Bank, 208, 221 V. Smead, 115, 117 Leet V. Wadsworth, 328 Lee Wilson & Co. v. Crittenden County Bank &c. Co., Legg V. Evans, V. Willard, Leggat V. Palmer, 367, 393, 395 Leggett V. Bank of Sing Sing, Lehman v. Tallassee Mfg. Co., 75, 117, 142 Lehmeyer v. Provident Loan So- ciety, 542 Leighton v. Bowen, 82 V. Burkham, 571, 637 Leinkauf Banking Co. v. Grell, 228, 229, 262 Leitch v. Wells, 66, 168, 170, 206, 481, 4«2 Le Marchant v. Moore, 494a Lenheim v. Wilmarding, 117 Lesassier v. Southwestern R. Co., 107a, 232, 360a Levy V. Chicago Nat. Bank, 587b, 588 V. Loeb, 500, 508, 577 V. Scott, 23 Lewis V. Commissioners, 13Sa V. De Forest, 527, 529 V. Dillard, 33 V. Graham, 8, 151, 153, 570, 610, 636, 727, 748 V. Mott, 8, 421, 422, 570, 579, 725, 748 V. Palmer, 522 V. Springville Banking Co., 231a V. Stevenson, 58 115, 117 692 723 275 104 593 663 610 687 637 726 17 466 111 509 707 23 23 418 599 397 221 TABLE OF CASES. liii [References are to Sections.] Lewis V. United States, 587, 685 V. Varnum, 418, 665 Lexington v. Butler, 90 Leyman v. State Bank of Ran- dolph, 479 Libby v. Cushman, 599 Lickbarrow v. Mason, 2, 7, 228, 231, 266 Liddell V. Grain, 89, 111 Lidderdale v. Montrose, 51 Lightner's Appeal, 168 Liles, Succession of, 692 Lilienthal v. Ballou, 23, 34 Lincoln v. Linde, 591, 599 Lindsay v. Chase, 664 Lineker v. Ayeshford, 242 Linnard's Appeal, 107a, 360a Lippitt V. Am. Wood Paper Co., 210 Lishy V. O'Brien, 692 Litchfield, In re, 651 Little V. Barker, 603, 727, 741 V. Berry, 28, 36, 37 Lloyd V. Sigourney, 96 V. Western Nat. Bank, 587 'Lobban v. Garnett, 4 Lobdell V. Merchants & Manufac- turers' Bank, 669, 675 V. Stowell, 755 Lockwood V. Ewer, 603, 610 V. Mechanics' Nat. Bank, 210 V. Muhlberg, 619 Loeb V. German Nat. Bank, 692 V. Peters, 232, 360a Loew V. Austin, 550 Loewenthal v. McCormick, 143 Loftus V. Agrant, 618 Logan V. Anderson, 587 V. Cassell, 664, 671, 674 V. Smith, 89, 117, 127, 143, 671 London & County Banking Co. V. London & River Plate Bank, 461 V. Ratcliffe, 279 London, Windsor & Greenwich, Hotel Co., In re, 588 Long V. Johnson, 89 ' V. Meriden Britannia Co., 584 V. SpruiU, 688 Look V. Comstock, 40 Loomis V. Reinerd, 403 V. Stave, 574, 576, 611, 650, 730, 732, 750 Loon, The, 246 Loop V. Summers, 515 Lord V. Hartford, 635, 637, 659a V. Ocean Bank, 117, 124, 685 Loring v. Brodie, 474, 478, 481, 486 V. Salisbury Mills, 474, 477, 479 Lormer v. Bain, 590 Loud V. Burke, 425, 60S, 610, 613, 727 Loughborough v. McNevin, 9, 542, 543, 545, 561, 566, 567 Loughridge v. Bowland, 522 Louisiana National Bank v. La- veille, 246 Louisiana State Bank v. Gaien- nie, 88, 111, 664, 675 Louisiana-Texas Oil &c. Co. v. Atlanta Oil &c. Co., 393, 395 Louisville Banking Co. v. W. H. Thomas & Son's Co., 130a, 615, 639a, 646 Love v. Export Storage Co., 35 V. Harvey, 500a Loveridge v. Cooper, 136 Low V. DeWolf, 44 Lowden v. Schohari Nat. Bank, 90 Lowe V. Ozman, 417, 578, 618 Lowrie v. Salz, 280a Lowry v. Bank of Baltimore, 466 V. Commercial & Farmers' Bank, 477, 479, 481 V. Dillman, 500a V. Inman, 136a Loyd V. Lynchburg Nat. Bank, 550 Lucketts V. Townsend, 14, 423, 553, 571a, 603, 610 Luckey v. Gannon, 561, 566, 571a Ludwig V. Highley, 124 Lumpkin v. Mills, 513 Lund v. Wheaton Roller Mill Co., 198 Lyle v. Barker, 62, 433 Lyman v. State Bank, 89 Lynde v. Newark Fire Ins. Co., 147a Lyndonville Nat. Bank v. Folsom 205 Lyon V. Coburn, 382 v. Culbertson, SOOa V. Denison, 197 V. Ewings, 89 V. Huntington Bank, 692, 693 V. Martin, 90 Lyons v. Coe, 500a Lytle's Appeal, 541 M Mabb V. Stewart, 400 McArthur v. Howett, 394 V. Magee, 142, 618, 658, 659a v. Seaforth, 753 McAulay v. Moody, 398 liv TABLE OF CASES. [References are to Sections.^ McBride v. Potter-Lovell Co., 89, 96 McCabe v. McKinstry, 236 McCalla v. Clark, 400, 542, 566 MdCants v. Wells, 229 McCarthy v. Crawford, 328, 341, 343, 344 V. Goold, 51 McCarty v. Clark, 664 V. Roots, 107 McClintock v. Central Bank, 163, 200, 372, 573 M'Combie v. Davies, 2, 58, 327, 329, 331, 418, 422 McCombie V. Spader, 303,314 McConeghy v. McCaw, 357 McConnell v. Scott, 525 V. Stettinius, 687 McCormick v. Falls City Bank, 1 V. Irwin, 522 McCoy V. Lassiter, 4 V. Wilson, 513 McCrea v. Yule, 367, 393, 396, 397, 398, 399 McCready v. Gaines, 327, 328, 329 V. Haslock, 6, 10, 34 McCutcheon v. Dithman, 727 McDaniels v. Flower Brook Mfg. Co., 441, 444 McDonald v. Birss, 9 Mac Donnell v. Buffalo &c. Deposit Co., 372, 560 McDougall V. Hazelton Tripod- Boiler Co., 73, 605, 611, 680 McDowell V. Bank of Wilmington, 221 V. Chicago Steel Works, 603, 610, 611, 611a, 631b, 637b McEweni v. Railroad Co., 273 McFall V. Buckeye Grangers Ware- house Assn. 40, 44, 183 McFerrin v. White, 93a McHenry v. Jewett. 443 Machinists' Nat. Bank v. Field, 153b, 464, 466 Mclntire v. Yates, 110, 111 Mack V. Baker, 110 Mackay v. Commercial Bank, 246 McKee v. Bernheim, 513 V. Judd, 13Sa, 369 V. Smith, 726 McKenzie v. Branch Bank, 117 McKie V. Gregory, 135a McKnight v. Kinsley, 111 McKusick V. O'Gorman, 718 Macky v. DiUinger, 338 McLean v. Buffalo and Lake Hu- ron R. Co., 246 McLean v. Charles Wright Med- icine Co., 179, 197, 472 V. Fleming, 246 M'Lean v. Walker, 5, 8 McLemore v. Hawkins, 651, 693 V. Louisiana State Bank, 403 M'Lughan v. Bovard, 692 McMahon v. Macy, 155, 452, 458, 459 McMullan v. Dickinson Co., 7 McMullen v. Neal, 523, 524 M'Neil V. Hill, 280, 311a McNeil V. Tenth Nat. Bank, 54, 56, 94, 168, 169, 170, 206, 466, 495, 725 M'Neilly v. Richardson, 356 Macomber v. Parker, 30, 34, 42, 44 McRady v. Thomas, 117, 524 Macredie, Ex parte, _ 588, 588d McSpedon v. Troy City Bank, 125 Maffat V. Greene, 513 Magee v. Leggett, 522 Magruder v. Colston, 437, 440 Magwood V. Railroad Bank, 477 Mahaska County State Bank v. Crist, 541a Mahoney v. Caperton, 739 V. Hale, 23 Mairs v. Taylor, 52 Maitland v. Citizens' Nat. Bank, 90, 104, 105, 106, 111, 122, 124, 671, 673, 675 Malone v. Wright, 545a Mandlebaum v. North American Mining Co., 153b, 197, 466, 472 Manhattan Co. v. Reynolds, 89 Manhattan Sav. Inst. v. New York Nat. Exch. Bank, 494c Mann v. Shiffner, 418 Manning v. McClure, 111, 113 V. Quicksilver Mining Co., 172 V. Shriver, 608a, 631a, 635, 652, 735, 740 Manns v. Brookville Nat. Bank, 153, 153a Manton v. Robinson, 145 Manufacturer's Commercial Co. v. Rochester R. Co., 23 Maples V. Medlin, 474 Mapleton Bank v. Standrod, 372 Marberry v. Farmers' & Mechanics' Nat. Bank, 685 Marfield v. Goodhue, 351 Marine Bank v. Fiske, 229, 254 V. Wright, 257, 260, 262 Markham v. Jaudon, 495, 496, 610, 723, 7i6, 738, 755 TABLE OF CASES. Iv [References are to Sections.] Marlborough Mfg. Co. v. Smith, 172, 185 Marquam v. Sengfelder, 3, 23 Marschuetz v. Wright, 413, 703 Marsellus v. Simpson, 337 Marsh v. Keating, 362 V. Lawrence, , 372 V. Whitmore, 635, 743 Marshal v. Williams, 553 Marshall v. Otto, -600 Marshall Field & Co. v. Evans, 437 Martin, In re, 523 Martin v. Casey, 5 V. Creditors, 296 V. German Am. Nat. Bank, 89 V. Reid, 23, 28, 44, 603, 615 V. Sedgwick, 494 Martini v. Coles, 327, 328, 329, 342 Mary Ann Guest, The, 266 Maryland Fire Ins. Co. v. Dal- rymple, 635, 640, 732, 737, 740 Marziou v. Pioche, 64, 550 Mason v. Bogg, 587 V. Great Western R. Co., 255 V. Hickox, 122 V. Waite, > 94 Masonic Savings Bank v. Bangs, 356 Massachusetts Loan & Trust Co. v. Fitchburg R. Co., • 274 Massasoit-Pocasset Nat. Bank, In re 56 Master v. Miller, 164 Masury v. Arkansas Nat. Bank, 182 Mathews v. Aikins, 513 V. Switzler, 548 Matthews v. Albert, 449, 458,459 V. Coe, 756 v. Massachusetts Nat. Bank, ■163, 167 V. Rutherford, 5, 94, 106 Matthewson v. Caldwell, 44, 83a Mattson v. Dent, ■* 422 Mauge V. Heringhi, 597, 603 Maugham v. Sharpe, 3 Maure v. Harrison, 523 Maury v. Coyle, 403, 409, 417 Maxwell v. Home F. Ins. Co., 660 May V. Cleland, 179, 197, 472 v. McGaughey, 228 V. Martin, 134, 135 V. Quimby, 115, 117 V. Sharpe, 692 Maybee v. Tregent, 243 Mayberry v. Morris, 115 May Flower, The, 246 Maynard v. Sixth Nat. Bank, 117 Mayo v. Knowlton, 509 V. Moore, 89, 111, 675 ■Mead v. Bunn, , 564 Meadow v. Bird, 111, 116 Means v. Bank of Randall, 229, 268 Mears v. Waples, 257 Mechanics' & Traders' Bank v. Barnett, 676 V. Livingston, 673, 675, 676 Mechanics' Bank v. Merchants' Bank, 162, 221 Mechanics' Bank v. New York & New Haven R. Co., 170, 461 Mechanics' Building & Loan Assn. V. Conover, 151, 153, 386 Mechanics' Building Assn. v. Ferguson, 143 Mechanics' Nat. Bank v. Comins, 134, 135 Mechanics' Trust Co. v. Dandridge, 325 Medewe's Trust, In re, 357, 360 Medina Gas &c. Co v. Buffalo Loan &c. Deposit Co., 372, 560 Meeker v. Waldron, 355a, 541 Melchert v. American Union Tel. Co., 500a Melvin v. Lamar Ins. Co. 154 Memphis Bethel v. Bank, 91, 93a Memphis City Bank v. Smith, 551 Mendenhall v. Lenwell, 681 Mercantile Nat. Bank v. Peabody, 649 Mercantile Trust Co. v. Atlantic Trust Co., 25 v. Grinbernat, 136 Merced Bank v. Price, 40, 137 Merchants' & Farmers' State Bank v. Sheridan, 658 Merchants & Manufacturers' Bank V. Hibbard, 317, 321, 325a Merchants & Manufacturers' Nat. Bank v. Cumings, 522 Merchants & Planters' Nat. Bank V. Masonic Hall, 57, 575 Merchants' Bank v. Cook, lS3, 441, 444 v. Livingston, 65,a, ,467, 493 v. New York & N. H. R. Co., 464 V. State Bank, 223 V. Union R. & Trans. Co., 231a, 242, 262, 273 Merchants' Ins. Co. v. Abbott, 94, 107a, 360a Merchants' Nat. Bank v. AUema- nia Bank, 94 V. Bangs, 228 V. Bank of Commonwealth, 44 V. Comstock 122 V. Demere, 358 Ivi TABLE OF CASES. [References are to Sections.] Merchants' Nat. Bank v. Eastern R. Co., S88, S88d V. Greene, 588b, 646c V. Hall, 106, 3S9, 361, 541 V. Haverhill Iron Works, 111 V. Richards, 161, 163, 168, 169, 174, 179, 200, 398 V. Thompson, 642, 727 V. Trenholm 327, 422 Meredith Village Sav. Bank v. Marshall, 202, 398 Merriam v. Granite Bank, 111 V. Kellogg, 722 Merrifield v. Baker, 396, 540 Merrill v. Colonial Mut. F. Ins. Co., 147a V. Grinnell, 135a V. Houghton, 557 V. Nat. Bank, _ 587 V. New England Mutual Life Ins. Co., 145 V. Parker, 67 Mertens, In re, 631b Metcalf V. Scholey, 372 V. Williams, 328a Metz V. Commercial Bank, 550 Meux V. Bell, 136 Meyer, In re, 587 Meyer v. Colvin, 692 V. Mathews, 417, 560, 571a V. Moss, 40, 82, 141, 418, 421 V. Peck, 246, 252 Meyerstein v. Barber, 57, 22%, 231, 276, 278 Michigan Central R. Co. v. Phil- lips. 37, 63, 229, 231a, 262, 268 Michigan State Bank v. Gardner, 342 V. Leavenworth, 111, 132 Mida V. Geissmann, 286, 298 Middlesex Bank v. Minot, 588, S88a, 610, 635 Midgeley v. Slocomb, 587 Miles v. Walther, 436 Milius v. Kauffmann, 107, 111, 117,127 Miller's Appeal, 587 Miller v. Boykin, 89 V. Carpenter, 141, 155, 157 v. Gettysburg Bank, 692, 713 V. Hannibal & St. Jo. R. Co., 252 V. Lamed, 123 V. Ord, 513 V. Pollock, 89 V. Race, 104 V. Schneider, 334 V. Williamson, 485 Miller's River Nat. Bank v. Jef- ferson, 588 Millhiser Mfg. Co. v. Gallego Mills Co., 280 Milliken v. Dehon, 18, 608, 610, 611, 631b, 730, 732, 736 Millot V. Conrad, 5 Mills, In re, 330 Mills V. Gilbreth, 410, 413 v. Gould, 681 Mims V. Mims, 581 Minchin v. Minchin, 82, 155 Minneapolis & N. Elevator Co. v. Betcher, 606 Minneapolis Assn. v. Canfield, 637 Minor v. Beveridge, 757 Mirsky v. Horowitz, 540 Missouri Pac. R. Co. v. Heiden- heimer, 231, 232, 267 V. McLiney, 230 Mitchell V. Ede, 255 v. Levi, 707 V. McLeod, > 341 V. Roberts, 1, 541, 542, 543, 545, 592, 602 V. Winslow, 585 Mitford V. Mitford, 585 Mix V. National Bank, 111 Mofifatt V. Corning, 1 V. Van Doren, 51 Moflfett v.- Parker, 142 Mohawk & Hudson R. Co., In re, 442 Mohawk Bank v. Corey, 115 Monett State Bank v. Eubanks, 89 Monk V. Whittenbury, 344 Monroe v. Hoff, 690 Montague v. Boston and Albany R. Co., 660 Montgomery v. American Trust & Sav. Bank, 280, 296, 314 Montross v. Clark, 122 Moodie v. Seventh Nat. Bank, 466, 467, 469 Moody V. Andrews, 89, 651, 664 Moore v. Baird, 124 V. Bank, 162, 168, 174 V. Jones, 437 V. Marshalltown Opera House, Co., 191 V. Metropolitan Nat. Bank, 135, 466 V. Miller, 94, 466, 666 V. Moberly, 523, 532 V. Moore, 534 V. Norman, 541 V. Prentiss Tool & Supply Co., S71a V. Robinson, 242, 244, 349 TABLE OF CASES. Ivii [References are to Sections.] Moore v. Rodewald, 53, 429, 466, 49S V. Ryder, 117, 122 Moores v. Citizens' Nat. Bank, 461 Moors V. Jagode, 239, 321 V. Kidder, 44 V. Reading, 23, 3Sa V. Washburn, 358, 360, 361, 367 V. Wyman, 33, 35, 37, 44 Morehead v. Citizens' Deposit Bank, 3S5a, 541 V. Western N. C. R. Co., 207 Mores v. Conham, 395, 418 Morgan v. Bank of North Amer- ica, 221 V. Dod, 15, 531, 603, 610, 635 V. Jaudon, 495, 496 V. Preston, 96, 97 Morgan-Gardner Electric Co. v. Brown, 20 Morganstein v. Commercial Nat. Bank, 49a, 524 Morganstern v. Davis, 19 Morphy v. Garrett, 656 Morrell v. Kelley. 163 Morris v. East Side R. Co., 70, 71, 133 V. Olwine, 587 V. Preston, 96, 97 Morris Canal & Banking Co. v. Fisher, 71, 143, 144, 151, 463, 657 V. Lewis, 151, 463, 651, 721, 727 Morrison v. Citizens' Nat. Bank, 548, 548a Morsch V. Lessig, ' 328, 341 Morse v. Woods, 590, 593 Morton v. Dillon, 513, 515, 517 V. Grafflin, 195 V. New Orleans & Selma R. Co., 89, 142, 669, 674 V. Preston, 507 Moses V. Grainger, 608 V. Murgatroyd, 523, 524, 712 V. Ranlet, 587 V. St. Paul, 581, 584 V. Thomas, 587 V. Trice, 541 Mosley v. Floyd, 689 Moss V. Craft, 515a V. Pettingill, 515a Mould V. Importers' & Traders' Nat, Bank, 741 Mount Holly L. & M. Turnpike Co. V. Ferree, 163, 168, 171, 204, 463, 466 Mount Holly Paper Co.'s Appeal, 221, 461 Mower v. Stickney, 372 Mowrey v. Walsh, 56 Mowry v. First Nat. Bank, 632 V. Wood, ISO, 611 Moyce v. Newington, 304 Moyer v. Leavitt, 542 Moynahan v. Moore, 542 Mueller v. Nichols, 606, 692 Muhlenberg v. Tacoma, 637, 646a Muirhead v. Kirkpatrick, 115, 692, 718, 719 Muldon V. Whitlock, 687 Mulford V, MuUer, 149 Muller V. Pondir, 85 Mulligan v. Wallace, 490 Mulliner v. Florence, 2, 577 Hunger v. Albany City Nat. Bank, 686 Munn V. Barnum, 168, 206 Munroe v. Bonanno, 270 V. Holmes, 482 Murdock v. Clarke, 548a V. Columbus Ins. Co., 11, 18, 151, 611 Mure, Ex parte, 692, 693 Murphy v. Bartsch, 692, 70S V. Hardee, 645 V. Mulgrew, 23 Murray v. Butte &c. Mining Co., 155 V. Lardner, 104 Murrell v. Scott, 513, 516, 711 Musgrave v. Beckendorff, 755 Mutual Bank v. Burrell, 669 Mutual Life Ins. Co. v. Twyman, 145 Myers v. Moulton, 15 V. Welles, 132, 681 Myerstein v. Barber, 23 N Nabring v. Bank of Mobile, 153, 610 Naef V. Potter, 57, 605 Naglee v. Lyman, 111, 128 V. Pacific Wharf Co., 183 Napier v. Elam, 117 Nash V. Norment, 12 Nashville Trust Co. v. First Nat. Bank, 4, 23 National Bank v. Atlanta & Char- lotte Air Line R. Co., 241 V. Baker, 608, 608c, 610, 631b V. Bruhn, 702 V. Case, 77, 437 V. Cheeney, 541 V. Jennings, 86 V. Matthews, 75, 91 V. Merchants' Bank, 265 V. Philadelphia & Read. R. Co., 273 Iviii TABLE OF CASES. [References are to Sections.] National Bank v. Watsontown Bank, 168, 169, 221, 225 V. Whitney, 91 V. Winston, 389, 422 National Bank of Chicago v. Bay- ley, 265 National Bank of Commerce v. Chicago B. & N. R. Co., 29.1a V. Merchants' Nat. Bank, 257 National Bank of Green Bay v. Dearborn, 229 National Bank of North America V. Kirby, , 101 National Bank of the Republic v. Brooklyn City and Newtown R. Co., 110 National Exch. Bank v. Berry, . 110, 111, 121 V. Graniteville Mfg. Co., 328 V. Kilpatric, 729 V. Wilder, 37, 317, 325, 325a National Hudson River Bank v. Chaskin, 364 National Revere Bank v. Morse, 111 National Safe Deposit, Sav. & Trust Co. v. Gray, S4a, 168 National Security Bank v. Mc- Donald, ,102 National Union Bank v. National Mechanics' Bank, 588 Neff's Appeal, 515, 515a Neiler v. Kelley, 422, 509, 579, 750, 755 Neill v. Rogers Bros. Produce Co., 228, 229, 231, 260 Neimcewicz v. Ghan, 681 Nelson v. Eaton, 89, 658, 664 v. Edwards, 84, 117, 610, 658, 664 v. First Nat. Bank, 718 V. Owen, 466, 556 V. Wellington, 89, 651, 669 Neponset Bank v. Leland, 356 Nevan v. Roup, 23, 36 Nevius V. Moore, 557, 683 New Bedford Institution for Sav. V. Fairhaven Bank, 526 v. Hathaway, 538 Newberry v. Detroit & Lake Su- perior Iron Mfg. Co., 179, 197, 221, 472 Newbold v. Boraef, 123 v. Wright, 327 Newcomb v. Baskett, 574 V. Boston & Lowell R. Co., 264, 273 V. Cabell, 280, 283, 325 Newell \. Williston, 196 New England Trust Co. v. New- York Belting & Packing Co., 518a, 675 Newhall v. Central Pac. R. Co., 233 New Hampshire Sav. Bank v. Col- cord, SIS V. Gill, 541 Newland, In re, 588 New London Bank v. Lee, 515 New Orleans Nat. Banking Assn. v. Wiltz, 163, 194, 221 Newport & Cinn. Bridge Co. v. Douglass, 6S7, 6S7a, 741 Newsom v. Thornton, 228, 232, 342 Newsome v. Davis, 729, 739 Newton v. Cardwell &c. Supply Co., 55 V. Fay, 15, 151, 155 New York & N. H. R. Co. v. Schuyler, 170, 176, 206, 461 New York, Lake E. & W. R. Co. V. Davies, 748 New York Security & Trust Co. v. Lipman, 33, 337, 348 Nexsen v. Lyell, 719 Nichol V. Bate, 89, 117 Nichols V. Smith, 588b Nicholls V. Peak, 485 Nickerson v. Darrow, 341, 344 Niles V. Edwards, 356, 561, 566 Nisbit V. Macon Bank & Trust Co., 27, 28, 152 Noble V. Turner, 195 Nobles V. Christian & Craft Gro- cery Co., 34 Noel V. Murray, 687, 688, 691 Nolan V. Hazen, 198 Noland V. Clark, 692, 706, 707 Noles V. Marable, 429 North V. Phillips, 757 Northern Nat. Bank v. Lewis, 548 Northrop v. Curtis, 185 V. Newton & Bridgeport Turn- pike Co., 185 Northrup v. Buffington, 500a Northwestern Bank v. Pojmtner, 43 Northwestern Nat. Bank v. J. Thompson & Sons Mfg. Co., 713 Northwest Thresher Co. v. Hul- burt, 671 Norton v. Baxter, 542, 543 V. Eastman, 130, 519 V. Norton, 208 V. Piscataqua Ins. Co., 142, 145 V. Plumb, 358 V. Waite, 115 Norwood V. Guerdon, 145, 146 TABLE OF CASES. lix [References are to Sections.] Nott V. State Nat. Bank, 113 Nottebohm v. Maas, 43, 367 Nourse v. Prime, 508, 509 Noyes v. Landon, 111 V. Spaulding, 168, 215, 507, 509 Nutter V. Stover, 117 Nutting V. Thomason, 466, 481, 492 O Oakford v. Johnson, 117 Oakley, In re, 582 Gates V. First National Bank, 93a, 107, 109, 110, 131 O'Brien v. Gilchrist, 246 Ocean Nat. Bank of N. Y. v. Fant, 596, 696 O'Conner v. Hurley, 541 Odd Fellows' Beneficial Assn. v. Diebert, 146b Odiorne v. Maxcy, 327 O'Dougherty v. Railroad Co., 275 Ogden V. Lathrop, 501, 510, 610, 631b, 640, 727 Ogg V. Shuter, 271 Ogle V. Atkinson, 568 O'Herron v. Gray, 461, 465, 474, 475a Ohio & Miss. R. Co. v. Kerr, 63 Ohio Life Ins. Co. v. Ledyard, 523 Ohio Loan & Trust Co. v. Reeder 525 Ohio Nat. Bank v. Central Const. Co., 611a, 635a, 641 Okie V. Spencer, 132 Old Second Nat. Bank v. Will- iams, 383 Oliver v. Great Western R. Co., 246 Olvey V. Jackson, 663 O'Meara v. North American Min- ing Co., 550, 751 Oneida Bank v. Ontario Bank, 13Sa O'Neill y. Whigham, 728, 729 Oppenheimer v. Bank, 93a Orange & Alexandria R. Co. v. Fulvey, 750 Oregon v. Jennings, 90 Oregon and Transcontinental Co. v. Kilmers, 503 Oriental Commercial Bank, In re, 588, 588d Ormsby v. Fortune, 692 Orr V. Bigelow, 168, 206 Orrick v. Fidelity & Deposit Co.,. 513 Osborn v. Noble, 525, 530 V. Payne, 471 Osgood V. Thompson Bank, 111 Otis V. Gardner, 163, 168, 172, 466, 473 V. Von Storch, 515 Ottawa V. National Bank, 90 Outhwite V. Porter, 111 Overlock v. Hills, 667, 700, 707 Overstreet v. Nunn, 664 Owen v. Routh, 753, 755 Owens V. Kinsey, 23, 30 v. Miller, 523 Owenson v. Morse, 688 Oxford Turnpike Co. v. Bunnel, 172, 185 Paddock v. Bates, 587 Paddon v. Taylor, lis. 303 Page V. Boggess, 431 v. Fowler, 756 V. Smith, 441 Paige V. Chapman, 90 Paine v. Furnas, 111 664 Palmer v. Merrill, 145 v. Mutual Life Ins. Co. of New York, 4, 7, 8, 11, 18, 145, 608c Palmtag v. Doutrick, 40, 52, 568, 569 Pailnell v. Hurley, 475 Pardee v. Markle, 548 Paris V. Hulett, 526 Park Bank v. Watson, 122 Parker v. Bethel Hotel Co., 168, 174, 212 V. Brancker, 351, 610 v. Patrick, 56 Parrott v. Byers, 183, 210 Parshall v. Eggert, 4, 23, 38, 39, 321 Parsons v. Martin, 510 V. Overmire, 36 Parsons Natural Gas Co. v. Rock- hold, 172, 176a Partee v. Bedford, 687, 691 V. Corning, 93a, 585 Partridge v. Williams, 89, 541, 671, 673 Pattberg v. Pattberg, 588 Patten's Appeal, 587 Patterson v. Deering, 94, 100, 105 V. Harland, 373 v. Johnston, 541 V. Tash, 327, 328, 341 Pattison v. Culton, 232 V. Hull, 548 Patton V. Joliflf, 54 Pauly V. State Loan & Trust Co., 44Sa Pavey v. Stauffer, 94 Ix TABLE OF CASES. [References are to Sections.] Payne v. Bensley, 111, 128 V. Commercial Bank, 515 V. Cutler, lis V. Woodhall, 51 Peacock, In re. 30, 603 Peacock v. Phillips, 117; 551 V. Pursell, 692, 693, 702 V. Rhodes, 104 Pease v. Gloahec, 258 Peeberg v. Brown, 680 Peebles, In re. 221 Peet V. Baxter, 327 Pence v. Gale, 716 Pendergast v. Bank of Stockton, 221 Pendleton v. Fay, 485 Penfield v. Thayer, 148 Penney v. Lynn, 135a Pennsylvania R. Co.'s Appeal, 465, 466, 467 People V. American Loan & T. Co., 485 V. Elmore, 183 V. German Bank, 1 V. Remington, 8, 19, 587, 587a, 588d V. Tioga, 135a People's Bank v. Gayley, 280b, 316 V. Gridley, 190 People's Nat. Bank v. Clayton, 111, 123, 124 V. Stewart, 255, 258, 268, 271, 273 People's Sav. Bank v. Bates, 306 V. Hutty Mfg. Co., 570 Percival v. Frampton, 111 Perit V. Pittfield, 17 Perkins v. Applegate, 635a Perlhefter, In re, 4, 30 Perrine v. Mobile Ins. Co., 513 Perry v. Bigelow, 157 V. Parrott, S88c, 671 Persch v. Quiggle, 163, 165, 467 Perth Amboy Mut. &c. Assn. v. Chapman, 91, 94 Peters v. Elliott, 231, 232, 262, 263, 265 Petersburg Sav. & Ins. Co. v. Lumsden, 221 Petitt V. Memphis First Nat. Bank, 4, 7, 228, 229, 231a, 260, 262 Petrie v. Clark, 117, 124, 482 Pettee v. Dustin, 12 V. Prout, 90 Pettigrew v. Chave, 122 Pettingill v. Pettingill, 487 Petty v. Overall, 375, 404, 409 Peugh V. Davis 552 Phares v. Barbour, 516 Philadelphia Warehouse Co. v. Anniston Pipe Works, 588 V. Winchester, 29, 34, 35, 35a Philbrooks v. McEwen, 515 Phillip's Appeal, 755 Phillips V. Huth, 329, 333 V. Thompson, 355, 531, 551, 712 Phillips Estate, In re, 635 Phcenix Ins. Co. v. Allen, 701 V. Church, 115 Pickens v. Yarborough, 692 Pickering v. Busk, 327, 344, 466 Picquet v. Swan, 372 Pierce v. Boston Sav. Bank, 148 Pigot v. Cubley, 603, 614, 615 Pinkerton v. Manchester & Law- rence R. Co., 23, 202, 750, 751 Pinney v. Kimpton 541 Pitot v. Johnson, 163, 193 Pitt V. Albritton, 568 Pitts V. Foglesong, 117, 122, 124 Pittsburg & Connelsville R. Co. v. Barker, 124, 129 Pittsburgh Industrial Iron Works, In re, 133 Pittsburg Locomotive & Car Works V. State Nat. Bank, 63, 77 Place V. Mcllvain, 681 Plankinton v. Hildebrand, 168, 218 Planters & Merchants' Mut. Ins. Co. V. Selma Sav. Bank, 181, 221 Planters' Rice Mill Co. v. Mer- chants' Nat. Bank, 311a Plant's Mfg. Co. v. Falvey, 663, 684 Piatt V. Beebe, 1^2 V. Birmingham Axle Co., 152 V. Hawkins, 152, 185 Pleasant Hill Lumber Co., In re, 29, 30; 49, 139 Plucker v. Teller, 635, 659b Plunkett V. State Nat. Bank, 663 Plymouth County Bank v. Gilmanf 702, 70S Polhemus v. Prudential Realty Corp., 663 Pollak V. Janney, 556 Pollard V. Vinton, 230, 246, 248, 253, 273 Pollock V. National Bank, 479 Pomeroy v. Manhattan Life Ins. Co., 68 V. Smith, 62, 372, 382, 433 Ponce V. McElvy, 7, 425, 566 Porier v. Morris, 111 Portalis v. Tetley, 84, 352 Porter v. Blood, S51a V. Frazer, . 640, 657a TABLE OF CASES. Ixi [References are to Sections.] Porter v. Parks, 472, 736 V. Patterson, 743 V. Pittsburg Steel Co., 90 V. Wakefield, 66a Port Townsend Nat. Bank v. Port Townsend Gas & Fuel Co., 217 Post V. Springsted, 541 V. Union Nat. Bank, 718 Pothonier v. Dawson, 1, 2, 231, 603 Potter V. Ketterlinus, 571 V. Merchants' Bank, 575 V. Thompson, 612, 654 Potts V. Mayer, 115_ Poughkeepsie IBank v. Hasbrouck, 89 Powder Company v. Burkhardt, 18 Powell, Ex parte, 540, 548 Powell V. Henry, 413, 702 Powers V. French, 122 V. Woolfolk, 113 Prall V. Hamil, 485 Prather v. Young, 519, 539 Pratt's Appeal, 117 Pratt V. Adams, 524 V. Coman, 115, 681 V. Maynard, 89 V. Parkman, 44, 268 V. Taunton Copper Mfg. Co., 153b, 464, 466, 479 V. Tilt, 463, 466, 481, 485 Prentice v. Zane, 117 Prentiss v. Graves, 117 Prescott V. Hull, ' 142 V. Prescott, 11, 366 Preston v. Witherspoon, 311a, 317 Prettyman v. Barnard, 687 Price V. Bank, 471 V. Dime Sav. Bank, 129, 517a, S18b, 541 V. Cover, 507, 509 V. Price, 111 V. Reed, 541 V. Wisconsin Marine & Fire Ins. Co., 282, 340, 343 Prim V. Hammell, 107, 111, 122 Prince v. Boston & Lowell R. Co., 228 Pring V. Clarkson, 130 Proctor V. Baldwin, 142 V. Shotwell, 23 Propst V. Roseman, 23, 29 Prosser v. Leatherman, 486 Protzman v. Joseph, 141 Prout V. Lomer, 673 Prouty V. Barlow, 38 Providence Thread Co. v. Aldrich 83 Puckhaber v. Henry, 581, 618 Pullman v. Upton, 437 Purchase v. Mattison, 115, 122 Putnam v. Rowe, 382 v. Russell, 587 Pyke V. Crebs, 590 Q Queioz V. Truman, 327 Quick V. Milligan, 311a Quimby v. Williams, 143 Quinn v. Hard, 111, 122 R Raben v. First Nat. Bank, 635 Radigan v. Johnson, 571b, 608b, 610 RahiUy v. Wilson, 235 Railroad Company v. National Bank, 1, 89, 90, 104, 107, 109, 112, 118, 119, 120 V. Thomason, 168 Raley v. Ross, 400 Ramboz v. Stansbury, 419 Ramsdell v. Morgan, 471 Rand v. Cutler, 518a v. White Mountains R. Co., 750 Randall v. Persons, 4 Randolph v. Merchants' Nat. Bank, 716, 718 Randon v. Barton, 753 Rankin v. McCuIlough, 603, 730, 738 V. Wilsey, 527, 529 Ransdell v. Morgan, 93a Raper v. Harrison, 23 Raphael v. Bank of England, 104 Rasch V. His Creditors, 727 Ratcliff V. Davis, T, 405, 418, 422, 542 V. Vance, 364, 541, 542,-566 Ratterman v. Ingalls 176a Rawls V. Deshler, 266 Read v. Lambert, 495, 571a, 580, 748 Reardon v. Patterson, 748, 750 Reddick v. Jones, 111, 117 Redhead v. Wyoming Cattle Ins. Co., 590 Reeves v. Capper, 40, 44, 231 V. Plough, 692 V. Smith, S3 Register v. Sellers, 635 Reichenbach v. McKean, 388 Rew V. Barber, 688 Reynes v. Dumont, SSO Reynolds v. Crawfordsville Nat. Bank, 91 V. Cridge, 743 V. Louisville, New Albany & Chicago R. Co., 13Sa Ixii TABLE OF CASES. [References are to Sections.] Reynolds v. Witte, 565, 574 Rezner v. Hatch, 117 Rhinelander v. Barrow, 716 Rice's Appeal, 523 Rice V. Benedict, 704, 709 V. Cutter, 301 V. Dewey, 523 V. Gilbert, 153, 165, 168, 190, 378a V. Nixon, 317 V. Raitt, 117 V. Southern Pa. Iron & R. Co., 664 Rice & Bullen Malting Co. v. In- ternational Bank, 37, 44 Rich V. Boyce, 503, 512 Richards v. Davis, 610, 654, 657a Richardson v. Abendroth, 437 V. Ins. Co., 729 V. Mann, 635, 740 V. Nathan, , 231a, 260 V. Turner, 724 V. Washington Bank, 355a, 358a, 513, 515, 549 V. Wyman, 588, 588a Richie v. Burke, 571b Rickard v. Major, 429 Ridgway v. Bacon, 135a Riley V. Anderson, 116 V. Hampshire County Nat. Bank, 67, 155 Ringling v. Kohn 91 Ripley v. Greenleaf 130 Ritchie v. McMullen, 354, 372 Ritter v. Cushman, 736 Riverside Bank v. Jones, 89, 106, 122 Rives V. M'Losky, 716 Roach V. Woodall, 89 Robbins v. Richardson, 122, 673, 676 Roberts v. Colvin, 530 V. Ely, 650 V. Farmers' Bank, 692 V. Hall, 111, 114 V. Sykes, 581 V. Thompson, 651, 652, 692, 700 V. Wyatt, 45 Robertson v. Hay, 304 V. Robertson, 23 V. Wilcox, 4, 60, 604 Robins v. May, 102 Robinson v. Blood, 137, 149 V. Frost, 355, 356 V. Hawksford, 405 V. Hurley, 152, 574, 590, 603, 606, 611, 640, 704, 720, 727, 728, 732, 750 V. Lair, 111 Robinson v. Memphis & Charles- ton R. Co., 246, 249, 250, 251 V. National Bank, 206 V. Nevada Bank, 328 V. Ralph, 341 V. Smith, 94, 111, 128 V. Stiner, 355a, 541 V. Stuart, 261 Robson V. Swart, 312 Roche V. Ladd, 675 Rochester Bank v. Jones, 231a Rock V. Nichols, 196 Rodger v. Comtoir d'Escompte de Paris, 266, 360a Rodgers v. Grothe, 542 Rodriguez v. Heffernan, 328 Roehm v. Harsh 495 Rogers v. Barnes 637 V. Heath 588 v. New Jersey Ins. Co. 204 V. School Trustees, 591a Rolirbough v. Johnson 6 Rohrer, In re, 23 Roland v. Lancaster County Nat. Bank 556 Romaine v. Van Allen 5, 755 Roosevelt v. Drever, 354 Root v. French, 304 Roots v. Mason City S. & M. Co., 581 Rosa v. Brotherson, 115 Roscoe v. Hale, 551a Rose V. Lewis 701 Rosenback v. Bank, 162 Rosenzweig v. Frazer, 571a, 572, 577, 610 Ross V. Barker, 635, 659, 659a, 660 V. Bedell, 122 V. South Western R. Co., 168, 492 V. Whitfield, 122 V. Wilson, 526, 532 Rothermel v. Marr, 42, 43 Rothschild v. Allen, 495, 722 V. Swope, 23 Rowan v. Sharpe Rifle Mfg. Co., S17a V. State Bank, 401 Rowe V. Haines, 111 Rowell V. Claggett, 28, 38 Rowley v. Bigelow, 233, 245 Roxborough v. Messick, 117 Royal Bank v. Grand Junction R. Co., 90 Royer v. Keystone Nat. Bank, 117 Rozet v. McClellan, 590, 594, 610, 728, 729 TABLE OF CASES. Ixiii [References are to Sections.] Ruddick v. Lloyd, Rudd, In re, Ruggles V. Patten, Rumball v. Metropolitan Rumsey v. Berry, V. Laidley, Runals v. Harding, Runyan v. Mersereau, Russell V. Am. Bell Tel V. Buck, V. Hadduck, V. Hester, V. La Roque, V. O'Brien, V. Plaice V. Splater, Ryall V. Rolle, V. Rowles, Ryan v. Chew V. Stowell, Co., lis, 117 540 130 Bank, 466 .SOOa 692 707 142 450 133 104 692 522 300 482 111 7, 27, 40 542 117, 126 328 Sabin v. Bank of Woodstock, 215 Sackett v. Johnson, HI Safe-Deposit Co. v. Fletcher, 422 Safely v. Gilmore, 750 St. John V. O'Connel, 356, 575 V. Purdy, 689 St. Losky V. Davidson, 407 St, Louis National Bank v. Ross, 262, 280, 299, 301, 350 St. Louis Perpetual Ins. Co. v. Goodfellow, 162, 221 St. Paul Nat. Bank v. Cannon, 89, 671 St. Paul &c. Grain Co., In re, 133, 293a Salinas City Bank v. Graves, 37 Salisbury Mills" v. Townsend, 479 Salt V. Northampton, 145 Salters v. Genin, 508 Saltmarsh v. Tuthill, 131 Saltus V. Everett, 353 Sample v. Cochran, 515 Sampson v. Fox, 713 Samuels v. Gorham, 38 San Antonio Nat. Bank v. Blocker, 550 Sanborn v. Colman, S71a Sanderban, In re, 515 Sanders v. Davis, 4, 6, 364 V. Essex R. Co., 196 V. Franklin Ins. Co., 168, 196, 221 V. Metcalf, 94 V. Reed, SIS 641 720 372 387 466 663 588 75 398, 590, 591 675 S41a 671, 674, 675 523, 526 82, 681 Sandford Fork & Tool Co. v. Hovife, 71 Sands v. Church, 93a,, 471 San Pedro Lumber Co. v. Rey- nolds Sargent, Ex parte, Sargent v. .Carr, Saul V. Kruger Savage v. Smythe, V. Stevens, V. Winchester Savannah Bank & Trust Co. v. Hartridge, 91, 606, 729 Savings Bank v. Bates, 111 V. Burns, v. Middlekaufif, Sawyer v. Moran, V. Turpin, Saylor v. Daniels, Saylors v. Saylors, Sayre v. King, Scandinavian American Bank Appleton, 673 Scarry v. Bennett, 12 Schaaf v. Fries, 393, 560, 635a, 726 Schaeffer v. Fowler, 117 Schane v. Atlanta, 619 Scharfif v. Meyer, 231a Scharman v. Scharman, 150 Schepeler v. Eisner 496, 738 Schepp V. Carpenter, 122 Scherer v. Everest, 89 Schiffer v. Feagin, 356 Schlesinger ■ v. Wise, 593 Schneider v. Kirkpatrick, 591 Schnitzler v. Fourth Nat. Bank 1 Schotsmans v. R. Co. 255 Schroeppell v. .Shaw 519 Schuchardt v. Hall 257, 258 Schwab V. Oatman, 52, 64, 94, 337, 344 Schwartz v. Clark, 52 Schwerin v. McKie, 410 Scotland County v. Hill, 90 Scott v. Betts, 117 V. Crews, 409, 412, 595 V. First Nat. Bank, 692, 700 V. Nat. Bank of Chester Valley, 415 V. Owen 327 V. Parker 593, 681 V. Reid, 394 V. Rogers, 756 V. Scholey, 372 V. Tyler, , 482 Scottish Union & National Ins. Co. V. Field, 145 Ixiv TABLE OF CASES. [References are to Sections.] Scribner v. Taggart, i 23 Scripture v. Soapstone Co., 179, 202 Scrivner v. Woodward, 572, 750 Scudder v. Bradbury, 40 Searight v. Carlisle Dap. Bank, S41a Sears v. Lantz, 89 V. Wingate, . 246 Second National Bank v. Heming- ray, 675, 680 V. National State Bank 224 V. Ocean National Bank 409 V. Smith, 410, 411, 417 V. Sproat, 369 V. Walbridge, 280, 281, 296, 313 V. Werner, 89 Security Bank v. Kingsland, 105, 675 V. Luttgen, 229, 255, 257, 259 Security Loan & Trust Co. v. Bos- ton & South, Riverside Fruit Co., 646 Security Warehousing Co. v. Hand, 35 Seeley v. Wickstrom, 674 Seeligson v. Brown, 168, 213 Seibert v. Thompson, 523 V. True, 523 Selden v. Vermilya 649 Seligman v. Charlottesville Nat. Bank 77 Selleck v. Phelps 392 Sellers v. Jones 692, 698, 700, 705 Sellick V. Manhattan, 137 Selraa Bridge Co. v. Harris, 160, 355a, 541 Semple &c. Mfg, Co. v. Detwiler, 413 Seneca County Bank v. Neass, 122 Sensenbrenner v. Matthews, 599 Sequeira v. Collins 12, 18, 23, 30, 33, 35, 38, 44 Sestare v. Best, 76 Sevin v. Caillouet 139 Sewall V. Boston Water Power Co., 163 Sexton V. Graham 321 Seymour v. Colburn 23 V. Hendee 27, 80 V. Ives, 750 V. Lewis, 144 V. Van Slyck, 697 Shafer v. Lacy, 54, 64 Sharmer v. Mcintosh, 92 Sharp V. Rose, 650 Sharpe v. National Bank, 603, 610, 637b, 747 Shattuck &c. Warehouse Co. v. Gillelen. 155 Shaver v. Hardin, 748 Shaw v. Clark, 541 v. Ferguson ' 577 v. Foster, 279 V. Railroad Co., 230, 235, 237, 241, 283, 461 V. Saranac Horse N. Co., 65a V. Silloway, 15, 27 V. Spencer, 461, 464, 474, 478 V. Wilshire, IS, 16, 40 Sheehan v. Taft, 534 Shelbury v. Scotsford, 568 Sheldon v. Raveret, 680 Shelton v. French, 57, 418 Shepardson v. Cary, 280a, 280b, 282, 325, 326 v. Green, 282, 325, 326 Shepherd v. Hampton 753 V. Harrison, 257, 269 V. Johnson, 753 Sheppard v. Union Bank, 348 Sheraden v. Parker, 516 Sheridan v. New Quay Co., 568, 569 V. Presas, 7, 394, 571a, 748 Sherman v. Mutual Life Ins. Co., 553 Sherwood v. Meadow Valley Min- ing Co., 183, 461 Shinkle v. Vickery 364, 365 Shipman v. Aetna Ins. Co., 185 V. Cook, 687, 689 Shirk V. North, 66 Shoemaker v. National Mechan- ics' Bank, 77, 414 Sholes V. Asphalt Co., 26 Shreeves v. Allen, 104 Shrewsbury Sav. Inst. Appeal, 541 Shufeldt V. Pease, 115 Shunk's Appeal, 587 Sibley v. Quinsigamond Nat. Bank, 168, 169, 196 Sickles v. Richardson, 599 Sigourney v. Lloyd, 96 V. Wetherell, 130, 519 v. Zellerbacli 152 Silva V. Turner, 637 Silverman v. Bush, 328 V. McGrath, 23, 29 Simmons v. Hill, 200 V. London Joint Stock Bank, lS3b Simons v. South West Railway Bank, 474 Simonton v. Sibley, 606 Simpson v. Hall, 94 Sims V. Canfield, 7 Sinsheimer v. Whitely, 280a, 325 TABLE OF CASES. Ixv ' [References are to Sections.} Sitereaves v. Farmers' & Mechan- ics' Bank, 117, 173, 361, 472, 640, 72S, 727, 736 Skenandoa Cotton Co. v. Lefferts, IS Skiff V. Stoddard, 501, 507, 508, 509, 512 Skilding v. Warren, 117 Skilling V. Bellman, 229, 230, 231, 231a, 232, 262, 278 Skowhegan Bank v. Cutler, 194 Skunk's Appeal, 587 Slagle V. Pow, 518b Slee V. Manhattan Co., 137 Sleeper v. Davis, 107a, 360a Slevin v. Morrow, 692, 693, 700 Small V. Older, 548 V. Smith, 117 Smart v. Sandars, 327 Smith, Ex parte, 588 Smith V. American Coal Co., 170, 206 V. Atkins, 30 V. Ayer, 482, 485, 486 V. Becker, 634 V. Bibber 117 V. Bunting 683 V. Burgess 474 V. Crescent City Stock Land- ing Co., 168 V. Dennison 69, 358 V. First Nat. Bank of West- field, 415 V. Hall, 578 V. Hiles-Carver Co. S41a V. Isaacs, 89, 111 V. Jennings, 143 V. Lee, 365, 727, 735, 743, 757 V. Livingston, 104 V. Mariner, 150 V. Miller, 694, 719 V. Moore, 319 V. Mott, 6, 113 V. Quartz Mining Co., 153, 155 V. Railroad, 91, 174 V. Reeves, 573 V. Rockwell, 596 V. Ryan, SSla V. Sasser 23, 40, 47 V. Savin, 723, 723a, 756a V. Shippers' Oil Co., 522, 540, 607 V. Slaughter-House Co. 161, 174, 193 V. Strout, 591, 663, 678, 684 Smithhurst v. Edmunds, 30 Smouse v. Bail, 704 Smyth V. Craig, 27 Snow V. Fourth Nat. Bank, 9i V. Thopiaston Bank, 681 Soffe V. Gallagher, 689 Sohier v. Loring, 588, 588d Solomon v. Bushnell, 281 Soltau V. Gerdau, 304, 337 Sonoma Valley Bank v. Hill, 590, 591, 593 Soule V. Union Bank, 145, 147 V. White, 372, 433 Southcote's Case, 7 Southerin v. Mendum, 518 Southern Mich. Nat. Bank v. Byles, 587 South Sea Co. v. Duncomb, 590 Southwestern R. Co. v. Thoma- son 188a Southwick v. Sax, 719 Spalding v. Bank of Susquehanna County, 596, 682 V. Paine, 153a V. Ruding, 267 Sparhawk v. Drexel 652, 730, 737 Spaulding v. Kendrick, 94, 111 Spect V. Spect, 582 Spencer v. Ballou, 122 V. Piano Mfg. Co., 706 v. Sloan, 110, 111, 121 Spires v.. Southern States Phos- phate &c. Co., 692 Sprague v. Cocheco Mfg. Co., 474 Spratt V. First Nat. Bank 588 Spreckles v. Macfarlane, 151, 163 V. Nevada Bank, 168, 183 Springer v. Toothaker, 515 Springfield Co. v. Ely, S3, 54 Spurlock V. Pacific R. Co., 162 Srodes v. Caven, 372, 388 Stafford V. Whitcomb, 89 Stalker v. McDonald, 107, 115, 117 Stamford Bank v. Ferris, ISS Stapp V. Phelps, SS7 Star Fire Ins. Co. v. Palmer, 740 Starrett v. Barber, 400, 680 State V. Bryant, 325 V. Ferris, 441 V. First Nat. Bank, 190a V. Jeffersonville Nat. Bank, 163 V. Nebraska Savings Bank, S87c, 588 V. North American Land Co., 152 V. Pettineli, 203 V. Suwannee Co. 188 State Bank v. Cox, 466 V. Frame, 107a V. Holland 89, 116 V. Schlamp, Sis Ixvi TABLE OF CASES. [References are to Sections.'] State Bank v. Smith, SlSa, S33a State Ins. Co. v. Gennett, 2l2 V. Sax, 171, 210, 212 State Nat. Bank v. Bryant, 318 V. Syndicate Co., 403, 589 V. United States, 3S6 State Savings Assn. v. Hunt, 89, 361 Steamboat Missouri v. Webb, 246 Steamship Dock Co. v. Heron, 162, 221 Stearns v. Bates, 418, SIS V. Marsh, 361, S71a, 577, 578, 595, 603, 609, 610', 640 Steaubli v. Blaine Nat. Bank, 321 Stebbins v. Phoenix Fire Ins. Co., 170, 221 Stedman v. Gooch, 132 Steele v. Lord, 540 Steelman v. Weiskittel, 740a Steger v. Bush, 702 Stegmaier v. Keystone Coal Co., 664 Steiger v. Third Nat. Bank, 327, 342, 422 Stenton v. Jerome, 495, 496, 736, 747 Stephens v. Hartley 650 V. Simpson 633 Stephenson v. Price 753 Sterling' v. Jaudon 495, 496 Stern v. Simons, 603 Stetson V. Exchange Bank, 544 V. Gurney, 334 Stettheimer v. Meyer, 115 Stevens v. Blanchard, 541a V. Brennan, 117 V. Campbell, 115 V. Dedhara Inst, for Savings, 660 V. Hurlbut Bank 610, 732 V. Irwin, 23 V. Wiley, 82, 541, 651 V. Wilson, 337, 350 Stewart v. Brown 541 V. Davis 515 V. Drake, 508, 727, 736 V. Givens, 89 V. Phoenix Ins. Co., 280, 311, 318, 321a V. Small, 117 Stief V. Hart, 372, 387 StinsOn v. Thornton, 481, 492 Stocking v. Conway, 699 Stockwell V. St. Louis Mercantile Co., 172 Stoddard v. Courthright, 548 V. Kimball, 89, 90, 94, 111, 675, 676 Stoker v. Cogswell, SS4 Stokes V. Dimmick, 35Sc, 617, 640 v. Frazier, 610, 635, 638, 640, 720, 721, 727, 740 StoUenwerck v. Thacher, 232, 241, 242, 258, 342, 344, 349 Stone V. Brown, 90 v. Marve 466 V. Mulvaine, 540 V. Owens, 13Sa V. Swift, 228 V. Wabash, St. Louis & Pacific R. Co., 229, 246 Storts V. Mills, 25, 49, 310 Story V. Saloman, 500a Stothfang, In re, 25, 36 Stotts V. Byers, 117 Stout V. Yaeger Milling Co., 17 Stowe V. First Nat. Bank, 355, 550 Strange v. Houston & Tex. C. R. Ca, 163, 168, 176, 179, 213, 466 Straughan v. Fairchild, 110, 111, 121 Straus V. Wessel, 275 Streeper v. McKee, 588 Streeter v. Summer, 495 Street Grading Dist. v. Hagadorn, 23 Strickland v. Magoun, 418, 496 Strong V. Bowes, 675 v. Nat. Mechanics' Banking Assn., 571, 612, 727 V. Wooster, 540 Strout V. Natoma Water & Mining Co., 183 Struthers v. Kendall, 115 Stuart V. Bigler, 508, 596 Stults V. Silva, 103 Sturges V. Keith 750, 754 V. Metropolitan Nat. Bank, 104 Sturtevant v. Jaques,, 474 Suarez v. De Montigny, 478 Sublett V. McKinney, 513 Sumner v. Hamlet, 33, 35 Supply Ditch Co. v. Elliott 184 Sutherland v. Mead, 107, 111, 117, 123 Suydam v. Jenkins, 750, 756 Swan, Ex parte, 164 V. North British Australasian Co., • 464, 465 V. Produce Bank, 474 Swann v. Baxter, 544, 581 Swasey v. North Carolina R. Co., 646 Swedish-American Nat. Bank v. Davis, 588 Sweeney v. Provident Loan Society S2, S7 TABLE OF CASES. Ixvii [References are to Sections.] Sweet V. Barney, 275 Swett V. Brown, S3, 67, 600 Swift, In re, 495 Swift V. Smith, 195 V. Tyson, 89, 107, 108, 110, 111, 118 Swire v. Leach, 433 Swofford Bros. Dry Goods Co. v. Randolph, 554, 649 Swope V. Leffingwell, 143 Sykes v. The People, 286 Syred v. Carruthers, 404 Taft V. Bowker 148 V. Church, 196, 616, 623, 631b Taggard v. Curtenius, 577, 728 Taggart v. Packard 19, 365 Tahiti Cotton Co., In re, 164 Taliaferro v. First Nat. Bank, 504 Talmadge v. Third Nat. Bank, 504 Talty V. Freedman's Savings and Trust Co. 135, 421, 422, 494, 570, 579, 748 Tarbell v. Sturtevant, 89, 669, 675 Tateum v. Ross, 145, 649 Tatham v. Andree, 37 V. Wilson, 89 Taver v. Hamlin, 541 Tedesco v. Oppenheimer, 7 Telegraph Co. v. Davenport, 479 Telford & F. Turnpike Co. v. Ger- hab, 209 Telgner v. Slinglogg, 145 Tenant v. Dudley, 550 Ten Eyck v. Holmes, 532 Tennent v. Union Cent. Life Ins. Co., 1, 133, 137, 556, 566, 631, 635 Terry v. Birmingham Nat. Bank, 507, 612, 750 Teutonia Nat. Bank of New Or- leans V. Loeb, 356, 676 Texas Banking & Ins. Co. v. Turn- ley, 89, 91, 361 Textor v. Orr, 23 Thacher v. Moors, 346 v. Pray, 94 Thalmann v. Capron Knitting Co., 37, 40 Thames Iron Works Co. v. Patent Derrick Co., 1, 2, 641 Thames, The, 271, 273, 278 Thayer v. Daniels, 136 v. Dwight, 43 V. Finnegan, 517 V. Manley, 575 Third Nat. Bank v. Boyd, 90, 403, 409, 411, 414, 416, 417 V. Eastern R. Co., 71, 587a, 588, 588d V. Harrison, V. Haug, V. Lanahan, V. Shields, Thomas v. Blanchard, V. Cleveland, V. Evans, v. Gilbert, V. Waterman, Thomason v. Dill, Thomasson v. Brown, Thompson v. Andrews, V. Colvin, V. Dolliver, V. Dominy, V. Holladay, V. Onley, V. Patrick, V. Perrine, 651, 658, 664 587 587c, 588 515 19 515a 545 636, 637 575 405 486 23 37 44 4, 15, 16! 40 242 151 90 394, 395, 418, 422 90 V. St. Nicholas Nat. Bank, 611 V. Stevens, 372 V. Toland, 183, 466, 480, 495, 508, 509, 510 Thorns V. Southard, 6, 12, 65 Thorndike v. Bath, 36 Thorne v. First Nat. Bank, 321, 325, 326 v. Tilbury, 568 Thornton v. Exchange Bank, 523 635 725, 730 641 Thorp V. Woodhull, 152a Thrall v. Spencer, 526 Thurber v. Crump, 192a V. Oliver, 8, 23, 36 Tibbetts v. Flanders, 24, 34 Tiedeman v. Knox, 231, 235, 241, 264 Tiffany v. Boatmen's Inst., S41a Tilden v. Minor, 260, 261 Tillinghast v. Wheaton, 148 Tison v. Howard, 229 Titcomb v. McAllister, 549 Tobey v. Barber, 687 Tod V. Kentucky Union Land Co., 587, 588 Toler V. East Tenn., Va. & Ga. R. Co., 153a Tom Boy Gold Mines Co. v. Green, 543 Tompkins County Nat. Bank v. Bunnell & Eno Inv. Co., 718 Toms v. Whitmore, 37 V. Irwin, v. Martin, V. Thornton, Ixviii TABLE OF CASES. [References are to Sections.] Toner v. Citizens' Bank, 287 Tooke V. Newman, 674 Topeka Mfg. Co. v. Hale, 192 Toplitz V. Bauer, 130a, 145, 610, 611, 611b Taussig V. Hart, 508, 510 Tayler v. Great Indian Peninsular R. Co., 464 Taylor v. Atchison, 104 V. Cheever, 590, 593 V. Chester, 354 V. Conner, 687 V. Cox, ' 413 V. Jones, 5 V. Ketchum, 723 V. Page, 99 V. Tompkins, 641 V. Turner, 37, 229, 268, 272, 430, 431, 650 Toulmin v. Hamilton, 523 Towle V. Bannister • 588a Towne v. Rice, 103 Town of Ontario v. Union Bank, 91 Town of Solon v. Williamsburg Sav. Bank, 91 Townsend v. Newell, 601 Tracy, In re, 47 Traders' Bank v. Bradner, 117 Tradesmen's Nat. Bank v. Thos. Kent Mfg. Co., 321 Travers v.i Leopold, 155, 721 Treadwell v. Clark, 163, 741 V. Davis, 40, Z76, 433, 532 Tregear v. Etiwanda Water Co., 153 Treuttel v. Barandon, 96 Troendle v. Highleyraan, 66, 68, 146 Trost V. Hinman, 90 Trotter v. Crockett, 681 V. Shippen, 124 True V. Manhattan Fire Ins. Co., 147 Trust Co. of St. Louis County v. Markee, 107, 110, 111, 115, 117, 122, 673, 724 Tucker v. Aiken 176a V. BufSngton, 27 V. Conwell, 591a V. Jenckes, 123 V. New Hampshire Sav. Bank, 90, 96 V. Wilson, 603, 610 Turner v. Liverpool Docks, 255 V. Richardson, 724 V. Treadway, 115, 117 Tuttle V. Robinson, 28 Tuxworth V. Moore, 300, 364 Twelves v. Williams, 124 Twin-Lick Oil Co. v. Marbury, 71 Twopenny v. Young, 130 i'yrrell v. Morris, 61, 482 U UUman v. Barnard, 433 Uncle Sam's Loan OfiBce v. Emery, 629a Underwood v. Bass 515 Union Bank v. Elliott 417, 540 Union Bank of Georgetown v. Laird, 172, 221 Union Bank of Tennessee v. Smiser, 688, 689 Union Brewing Co. v. Interstate &c. Trust Co., 5, 9, 13, 355, 361 Union Cattle Co. v. International Trust Co., 71, 588, S88d, 603, 721, 727 Union Institution for Savings v. Hill, 517 Union Ins. Co. v. Central T. Co., 646b Union Nat. Bank v. Barber, 115 v. Forsyth, 611 V. Hartwell, 66 v. Post, 649, 692, 716, 718 V. Roberts, 671, 675 Union Savings Assn. v. St. Louis Grain Elevator Co., 320 Union Trust Co. v. Hasseltine, 645, 137, 740 V. Preston Nat. Bank, 649 V. Ridgon, 4, 7, 393, 405, 516, 603, 611, 651, 652, 716, 717 V. Trumbull, 37, 315, 325 V. Wilson, 35, 298 Union & Planters Bank v. Smith, 40 United Ins. Co. v. Scott, 64 United States v. Cutts, 163 v. Hodge, 130, 681 v. Kirkpatrick, 518 V. New Orleans, 22 v., Vaughan, 168, 171,. 209, 210 United States Express Co. v. Meints, 429, 433 Upham V. Barbour, 507 Upton V. Burnham, 221 V. Sturbridge Cotton Mills, 40 Urquhart v. M'lver, 331 Uther v. Rich, 104 Vail v. Foster, V. Hamilton, 523, 687 441 TABLE OF CASES. Ixix [References are to Sections.'] Valentine v. Donohoe-Kelly Bank- ing Co., '■^' Valette v. Mason, 94, HI, 675 Valle V. Cerre, 268 Valley Nat. Bank v. Frank, 325 V. Jackaway, 600 Van Amringe v. Peabody, 327 Van Arsdale v. Joiner, 67, S71a Van Blarcom v. Broadway Bank, 2S, 83, 358, 370 Vance v. English, 515 Van Cise v. Merchants' Nat. Bank, 163, 168, 179, 211a Vanderveer v. Conover, 587 Vanderzee v. Willis, 357, 360, 366, 557 Vane v. Rigden, 482 Van Eman v. Stanchfield, 419 Van Etten v. Troudden, 681 Vanhorn v. Gilbough, 503 Vanliew v. Second Nat. Bank, 673, 675 Van Mater v. Ely, 587 Vann v. Marbury, 115, 129 Van Pelt v. Otter, 82 Van Riper v. Baldwin, 92 Vansafids v. Middlesex County Bank, 221 Van Schaick v. Ramsey, 573 Vanuxem v. Burr, 663 Van Voorhis v. Rea, 507 Van Wart v. Woolley, 702 Varnado v. W. B. Thompson & Co., 541 Vaughan, The 273 Vaughn v. Rhode Island Mortgage &c. Co. 35a V. Wood, 755 Vaupell V. Woodward , 151, 603, 640, 721 Vere v. Smith, 404 Vest V. Green, 522 Vickers v. Battershall, 554 V. Hortz, 304, 306, 348 Vincent v. Conklin, 610 Vinton v. King, 101 Violett V. Horbach, 743, 744 Virginia Carolina Chemical Co. v. McNair, 49a Vogelsang v. Fisher, 306 Volieri v. Boyland, 247 Voorhis v. Olmstead, 308 Vose V. Yulee, 705 Voss V. Chamberlain, 89, 107, 111, lis, 117, 127 V. Robertson, 232 W Waddell-Entz Co., In re, 1, 588, 588d Wadlinger v. First Nat. Bank, 161, 166 Wadsworth v. Thompson, 563, 615 Wagner v. Marple, 151, 152 V. Peterson, 743, 745 Wait V. Green, 266 Wakefield v. Farnum, SOOa Wakeman v. Gowdy, 692, 693, 700, 706 Walcott V. Keith, 7, 23, 40 Walden v. Downing, 89, 116 Waldie V. Doll, 42, 58 Waldron v. McComb, 65a V. Murphy, 541 Walker v. Abt, 360 V. Barker, 587 V. Bartlett, 164 V. Detrot Transit R. Co., 163, 197, 466 V. Harris, 89 V. Kee, 106 V. Staple? 15, 23, 40 Walklin V. Horswill, 618 Wallace v. Agry, 130 V. Berdell, 721 V. M'Connell, 693 Waller v. Hanger, 52 Walley v. Deseret Nat. Bank, 571a, 748 Walsh V. Stille, 474 Walter v. Brewer, 246 V. Smith, 3 Waltham Bank v. Waltham, 176a Walton V. Davis, 548, 550 Wanzer v. Cary, 142 Warburton v. Trust Co., 593, 692 Ward V. Evans, 688, 702 V. Fellers, 577 V. Smith, 693 V. Sumner, 13 V. Ward, 540 Warden v. Howell, 117 V. Railroad Co., 635 Ware v. Barnard &c. Mfg. Co., 356, 357, 540 V. Otis, 550 v. Russell, 95 V. Squyer, 408, 413 Waring, Ex parte, 523 Waring v. Cox, 242 V. GaskiU, 571a, 610, 748, 750 Warner v. Martin, 232, 327, 328, 418 V. Rising Fawn Iron Co., 668 V. Sauk County Bank, 435 Ixx TABLE OF CASES. [References are to Sections.] Warner v. Watson, 398 Warrior Coal &c. Co. v. Nat. Bank, 541, 559 Washburn v. Pond, 603, 610, 612, 6S7a, 721, 750 V. Tisdale, 588 Wasson v. Hodshire, 516 Waterman v. Brown, 581 Water Power Co. v. Brown, 536, 727 Watson V. Lane, 568 V. Smith, 658 Watzlauzick v. Oppenheiraer, 89, 116 Way V. Davidson, 44, 45, 47, 88 V. Richardson, 90 V. Smith, 424 Wayland v. Mosely, 246 V. Tucker, 522 Weakly v. Bell, 130, 132 Weaver v. Barden 115, 117, 127, 206, 466, 469 Webb V. Graniteville Mfg. Co., 486, 490 Weber v. Orten, 94 Weems v. Delta Moss. Co., 34 Weik V. Pugh, 5-15 Weiler v. Dreyfus, 5 Weir V. Dwyer, 637 Weirick v. Mahoning County Bank, 135 Weiscopt V. Newman, 40 Wells V. Archer, 147 V. Smith, 531 V. Wells, 657, 660, 707 Wendell v. New Hampshire Bank, 140 Wert V. Naylor, 107a, 360a West V. Bank of Rutland, 587 V. Beach, 5 V. Carolina Life Ins. Co., 591, 681 V. Pritchard, 753 V. Wentworth, 753 West Branch & Susquehanna Canal Co.'s Appeal, 466 Western Bank & Trust Co. v. Gibbs, 515 Western Nat. Bank v. Yost Silk Mfg. Co., 685 Western Union R. Co. v. Wagner, 63, 231a, 242, 266, 280, 281, 303 Westervelt v. Scott, 97 Westinghouse v. German Nat. Bank, 472, 504 West Nashville Planing-Mill Co. V. Nashville Sav. Bank, 168 Weston V. Bear River & Auburn Water & Mining Co. 179, 183 Weston V. Jordan, 495, 509 Westphal v. Ludlow, 702, 703 Westzinthus, In re, 267 Wetherell v. Johnson, 635 Wetmore v. Porter, 478 Whalen v. Goldman, 145, 367 V. Stephens, 9 Wharton v. Duncan, 515 V. Lavender, 43 Wheat V. Dingle, 588 Wheeler v. Breslin, 429 V. Guild, 94 V. Newbould, 603, 610, 614, 651, 664, 723 V. Pereles, 573 V. Wheeler, 483 Wheelock v. Kost, 437 Wheelwright v. St. Louis. N. O. & O. Canal Transp. Co., 735 Whelan v. Kinsley, 581, 583, 637a V. Lynch, 756 Whigham v. Fountain, 571a Whipple v. Blackington, 86, 551a, 657a V. Dutton, 573 Whitaker v. Sumner, 15, 364, 418, 590, 599, 600, 601 Whitbeck v. Van Ness, 687, 688 Whitcher v. Dexter, 111, 405 White V. Ault, 517a V. Board of Assessors, 726 v. Garden, 56, 304 V. Coin, 129, 687 V. Peay, 418 V. Phelps, 610, 651, 664, 669, 675 V. Piatt, 86, 88, 151 V. Rankin, 181 V. Salisbury, 174 V. Schuyler, 757a V. Simmons, 588 V. Springfield Bank, lis, 122, 127, 467 V. State Bank, ISO V. Tibbits, 36, 299 V. White, 588, 646a, 646c White Mountain R. Co. v. Bay State Iron Co., 556, 577 White River Savings Bank v. Cap- ital Sav. Bank &c. Co., 560, 663 Whitesides v. Hunt, 500a Whitin V. Paul, 693, 700, 714 Whitlock V. Hay, 321a V. Heard, 563 Whitman v. Horton, 644 V. Seaboard Nat. Bank, 512 Whitney v. Dean, 373 Whittaker v. Amwell Nat. Bank, 513, 587, 649 TABLE OF CASES. Ixxi [References are to Sections.'] Whitteker v. Charleston Gas Co., 651, 657, 670, 713 Whittemore v. Gibbs, 143, 418 Whitten v. Wright, 701 Whittle V. Skinner, 7 Whitwell V. Brigham, 590, 599 Wichita Sav. Bank v. Atchison, Topeka & Santa Fe R. Co., 246 Wicks V. Hatch, 7Z6, 727 Wilcox V. Fairhaven Bank, 69, 355, 3S8a, 549 Wildman, Ex parte, 587b Wiley, In re, 83, 111, 586 V. First Nat. Bank, 415 Wilhelm v. Schmidt, 590, 681, 687 Wilkes V. Ferris, 299, 372 Wilkie V. Day, _ 20, 40 Wilkins v. Redding, 540, 542, 543, 545 V. Usher, 107, 111, 117 Wilkinson v. Culver, 728 V. Misner, 5, 540 Willcocks, Ex parte, 441 Willets V. Hatch, 44 William Frantz & Co. v. J. S. Winehill & Co., 6Sa Williams v. Cheney, 675 V. Gillespie, 23 V. Hahn, 591, 603, 611 V. IngersoU, 136a V. Keyes, 90 V. Little, _ 89, 96, 111, 115, 117 V. Lumpkin, 656 V. Mechanics' Bank, 178 V. National Bank, 540, 541 V. Norton, ' 675 V. Price, 692, 693 V. Smith, 106, 675 V. Tilt, 93a V. United States Trust Co., 611 WilHamson v. Branch Bank, 485 V. Culpepper, 21 V. McClure, 729 V. Morton, 485 V. New Jersey R. Co., 153 'Willis V. Fry, 461 V. Phila. & Darby R. Co., 171, 466, 479 Willoughby v. Comstock, 103, 577, 7i7 V. Spear, 681 Wilmington & Phila. Turnpike Co. V. Bush, 186 Wilson V. Allen, 548 V. Anderton, 568 V. Brannan, 603 V. Bryant, 517 Wilson V. Denton, V. Doster, V. Foot, V. Force, V. Hawley, V. Johnson, V. Knapp, 90 61 518 691 501 630 12 V. Little; 9, 151, 153, 509, 560, 608, 610, 665, 736, 748, 755 V. Moore, 485 V. Nason, 350 V. Shocklee, 540 V. Whitaker, 755 Winchester v. Ball, 7 V. Joslyn, 635, 637b Wing V. Hayford, 726 V. Holland, 44 Winkler v. Magdeburg, 550b Winne v. McDonald, 266 Winslow V. Harriman Iron Co., 44 V. Norton, 261 V. Vermont & Mass. R. Co., 273 Winter v. Belmont Mining Co., 183, 461, 480 V. Montgomery Gas Light Co., lS3b, 181, 466, 479 Winthrop Savings Bank v. Jack- son, 409, 410, 413, 594 Wirgman v. Miller, . 146 Wisconsin M. & F. Ins. Co. v. Bank, 257 Wise V. Charlton, 103 v. Chase, 688 V. Williams, 355a Wisp V. Hazard, 333 Wittenberg Vaneer v. Panel Co., 145 Wolf V. Wolf, 361 Wolford V. Cook, 551a Wood V. Callaghan, 548, 548a V. Dudley, 18 V. Ellis, 485 V. Hayes, ' 498, 507 V. Matthews, 82, 717 V. Rowcliffe, 345 V. Seitzinger, 110 Woodard v. Fitzpatrick, 396 Woodruff V. Halsey, 429 V. Hill, 111 Woods V. Bugbey, 23 Wood's Appeal, 466, 481, 482, 483 Wood's Sons Co. v. Schaefer, 728, 729 Woodward v. Crump,. 31 V. Echols, 541 Woodworth v. Hascall, 610 Wookey v. Pole, 96 Woolcocks V. Hart, 679 Wooldridge v. Holmes, 599 Ixxii TABLE OF CASES. [References are to Sections.] Woolfolk V. Bank of America, Wooster v. Sherwood, Worcester County Bank v. Dor- chester & Milton Bank, Worcester National Bank v. Cheeney, Word V. Kase, V. Morgan, Work V. Bennett, V. Brayton, V. Tibbits, Wormley v. Lowry, 104 19 104 111 124 692, 700 422, 571a, 579, 748 111 S60a 117 Worthington v. Tormey, 495, 507, 508, 509, 612, 727 Wright V. Bank of Metropolis, 756, 756a, 757 V. Bircher, 13 V. Crockery Ware Co., 687 V. Mississippi Valley Trust Co., 303, 429, 515 V. Ross, 5, 7, 137, 140, 740 V. Solomon, 333 Wurtz V. Hart, 587, 588 Wyckoff V. Anthony, 356, 357, 360, 550 V. Riverside Bank, 615 Wyeth V. National Market Bank, 40, 87 Wyman v. Arnerican Powder Co., 750 Wyoming College &c. School v. Farm Inv. Co., 575 Wyoming Fair Assn. v. Talbott, 219 Xenia Bank v. Stewart, 602 Yarwood v. Happy, 283 Yates Co. Nat. Bank v. Baldwin, 86 Yeatman v. Savings Inst, 584 Yellowstone Nat. Bank v. Gagnon, 675, 678 Yenni v. McNamee, 280, 280b, 324, 325, 326 \ork V. Landis, Young V. Lambert, V. MacNider, V. Scott, V. Upson, V. Vough, Youngs V. Lee, V. Stahelin, 522 280 494c 334 231a 513 115, 122, 127 678, 687 Zabriskie v. Smith, 13Sa Zeis v. Potter, . 104, 105 Zellerbach v. Allenberg, 582 Zellweger v. Caffe, 89 Zimmerman v. Chelsea Sav. Bank, SIS Zimpleman v. Veeder, 516, 651, 653, 716 Zollman v. Jackson Trust & Sav- ings Bank, 716, 718 Zulick V. Markham, 466 THE LAW OF COLLATERAL SECURITIES AND PLEDGES CHAPTER I. THE NATURE OF COLLATERAL SECURITY OR PLEDGE. 1. Collateral security defined. 2. Pledge more than a lien. 3. Pledge less than a mortgage. 4. Pledge differs from mortgage. 5. The pledge contract. 6. Contract need not be recorded. 7. Lien but not title. 8. Form of contract important. 9. When conveyance of title will not constitute a mortgage. 10. Pledge held by trustee. 11. Instrument pledging property. 12. The use of, the term "mortgage." 13. Contracts construed as mort- gages or pledges. 14. The law favors the conclusion that a transaction is a pledge. 15. Bill of sale sometimes a pledge. 16. A receipted bill of parcels a pledge. 17. Assignment of securities pre- sumed to be as collateral se- curity. 18. A conditional bill of sale a mortgage. 19. A bill of sale a pledge. 20. Whether a pledge or sale is for the jury. 21. Construction of a pledge con- tract is for the court. i 22. Statutory pledge. 23. Necessity of delivery of posses- sion. 24. Distinction between mortgage and pledge. 25. Property in hands of pledgee as collateral. 26. Pledge of part of goods not complete. 27. Agreement to pledge not a pledge. 28. Agreement not a pledge. 29. No lien from contract to deliver possession. 30. Pledge of future property. •31. Estoppel of pledgor. 32. Increase of pledged property. 33. Unfinished goods. 34. Possession may be held by - a third person. 35. Delivery to employe. 3Sa. Pledged property mixed with unpledged. 36. A symbolical or constructive de- livery is sufficient. il . Delivery by written instrument. 38. Contract rendered valid by de- livery. 39. Subsequent delivery. 40. Surrender of pledge. 1— CoL. Sec. § I COLLATERAL SECURITIES. 2 § 41. Wrongful possession by pledgor. § 46. The civil law makes same ex- 42. Possession not conclusive evi- ceptions. dence of fraud. 47. Title of bona fide purchaser. 43. Pledgor agent of pledgee. 48. Pledgor cannot defeat the rights 44. Possession of pledgor that of ' of pledgee where property is pledgee. in the hands of pledgee. 45. Pledgee may maintain action of -<-- trover against pledgor. § 1. Collateral security — Defined. — The term "collateral / security" or "collateral" means a pledge of incorporeal property assigned or transferred and delivered by a debtor of some one for him to a creditor as security for the payment of a debt or the fulfilment of an obligation. It stands by the side of the principal obligation as an addi- tional means to secure the payment of the debt or fulfilment of the obligation.^ The terms "collateral security" and "collateral" are used to designate a pledge of negotiable paper, shares of corporate stocks, or other incorporeal personalty, as distinguished from a pledge of corporeal chattels. In a broad sense "collateral secur- ity" is one, side by side with, or in addition to, the first, or in addition to the debtor's own obligation;"^ and in this sense might apply to a mortgage whether of real or personal property, or to a pledge of a chattel, or of a chose in action as well. However, the customary use of these terms to designate a pledge of incor- poreal personal property is now well established; and it is con- venient to have such terms to distinguish a pledge of such property from an ordinary pledge of chattels, because many ^Moffatt V. Corning, 14 Colo. 104, contract to guarantee its perform- 24 Pac. 7 ; Edward P. AUis Co. v. ance ; by Webster, as security for the Madison Electric Light &c. Co., 9 performance of covenants, or the pay- S. Dak. 459, 70 N. W. 650; McCor- nient of money besides the principal mick v. Falls City Bank, 57 Fed. 107, security, by Worcester, as security 6 C. C. A. 683. for the fulfilment of a contract, or a ^ Chambersburg Ins. Co. v. Smith, pecuniary obligation in addition to 11 Pa. St. 120, 127, "Collateral secur- the principal security. "Where the ity" is defined by Bouvier as a sepa- thing pledged is a chose in action, rate obligation attached to another the term 'collateral security' is now NATURE. rules of law applicable to the one pledge are not applicable to the other; and therefore the use of such terms is here adopted and adhered to.' The term "collateral security" necessarily implies the transfer to the creditor of an interest in, or lien on, property, or an obligation which furnishes a security in addition to the responsibility of the debtor; therefore, the executioif and delivery by the debtor of additional unsecured evidences of his own indebtedness does not in any legal sense constitute collateral security.* A pledge may be defined to be a deposit of personal property as security, with an implied power of sale upon default.^ Lord Holt," who was the first to make a systematic statement of the general law of bailment, defined a pawn to be that sort of bailment "when goods or chattels are delivered to another as a pawn, to be a security to him for money borrowed of him by the bailor." Sir William Jones' defined it to be "a bailment of goods by a debtor to his creditor to be kept till the debt be discharged." The definition given it by Judge Story* is "a bail- most commonly applied to the trans- action." Mitchell V. Roberts, 17 Fed. 776, 778. ' Story on Bailments, § 288, note by Schouler. And see, further, upon the present use of this term, Schouler's Bailments and Carriers, § 164; In re Athill L. R. 16 Ch. D. 211, 223; Brooklyn City &c. R. Co. v. National Bank, 102 U. S. 14, 26 L. ed. 61; Col- lins V. Gilbert, 94 U. S. 753, 24 L. ed. 170. 'In re Waddell-Entz Co., 67 Conn. 324, 35 Atl. 257; Schnitzler v. Fourth Nat. Bank, 1 Kan. App. 674, 42 Pac. 496. The note given as collateral se- curity was signed by the maker of the principal note, and indorsed by three others, and it is difficult to see any. good reason why this note should not have been regarded as collateral se- curity. The indorsed note may have had the effect of extending the time of payment of the principal note if the latter matured before the collat- eral note. °An implied power of sale always accompanies a deposit of property in pledge, though there may also be an express power of sale. This implied power of sale is a feature which dis- tinguishes a pledge from a lien; Pothonier v. Dawson, Holt N. P. 383; Doane v. Russell, 3 Gray (Mass.) 382; Jackson v. Kincaid, 4 Okla. 554, 561, 46 Pac. 587; First Nat. Bank v. Harkness, 42 W. Va. 156, 164, 24 S. E. 548, 32 L. R. A. 408, quoting text; Thames Iron Works Co. v. Patent Derrick Co., 1 Johns. & H. 93; and though the usual definitions of a pledge do not allude to this charac- teristic, it seems that no definition is complete which does not include it. *Coggs v. Bernard, 2 Raym. Ld. 909, 913. 'Jones on Bailments, 117. 'Story on Bailments, § 286. For § 2 COLLATERAL SECURITIES. 4 ment of personal property, as a security for some debt or engagement." In a few states there is a statutory definition of a pledge. Thus, in California,' North Dakota," South Dakota" and Mon- tana^ ^ a pledge is defined to be a deposit of personal property by way of security for the performance of another act. Every contract by which the possession of personal property is trans- ferred as security only is to be deemed a pledge.^* In Georgia,^* a pledge or pawn is declared to be property deposited with another as security for the payment of a debt. In Louisiana,^' a pledge is declared to be a contract by which a debtor gives something to his creditor as a security for his debt. § 2. Pledge more than a lien. — A pledge is something more than a mere lien and something less than a mortgage. In an early English case Chief Justice Gibbs said:^° "Undoubtedly, as a general proposition, a right of lien gives no right to sell the goods. But when goods are deposited, by way of security, to indemnify a party against a loan of money, it is more than a other definitions in line with that Townsend, 49 Am. Dec. 723, and note given by Judge Story, see People v. on pages 730 to 738. German Bank, 126 App. Div. (N. ' Civil Code 1906, § 2986. Y.) 231, 110 N. Y. S. 291; Cham- >°Rev. Code 1905, §§ 6193, 6194. berlain v. Martin, 43 Barb. (N. Y.) "^ Rev. Civ. Code 1903, § 2104. 607; Evans v. Darlington, 5 Blackf. "1 Codes 1895; Civ. Code, §§ 3890, (Ind.) 320; Parson v. Gilbert, 114 3891. ' 111. App. 17. "A contract of pledge is '' Pirst Nat. Bank v. Harkness, 42 a legal obligation effectuated by the W. Va. 156, 165, 24 S. E. 548, 32 L. pledgor depositing with the pledgee R. A. 408, quoting text, personal property as security for an " 1 Code 1911, § 3528. indebtedness or other engagement, ''2 Rev. Civ. Code 1900, art. 3133. with an implied power of sale in the " Pothonier v. Dawson, Holt N. P. pledgee on default. In such circum- 383, 385. "It may be inferred, there- stances the pledgor remains possessed fore, that the contract was this : 'If of a general ownership in the prop- I (the borrower) repay the money, erty pledged, subject only to the lien you must redeliver the goods; but if of the indebtedness existing in favor I fail to repay it, you may use the se- of the pledgee." Tennent v. Union curity I have left to repay yourself.' &c. Ins. Co., 133 Mo. App. 345, 112 I think, therefore, the defendant (the S. W. 754. See also Lucketts v. lender) had a right to sell." 5 NATURE. § 2 lien." The lender's rights are more extensive than such as accrue under an ordinary lien in the way of trade."' Both in a pledge and in a lien the general . property remains in the debtor and the creditor has only a special property. But the nature and extent of this special property in the two cases is quite different. A lien gives only a personal right to retain possession.^' The creditor holding this security cannot trans- fer it to any other person, nor can he himself enforce it by sale of his own motion, without the aid of judicial proceedings.^' A creditor holding a pledge may, on the other hand, transfer his interest to another, and he may himself enforce his security by sale without the aid of a court. "The right of the pledgee to sell the article pledged, upon the non-performance of the pledgor's obligation, is the one characteristic which distinguishes a pledge from a common-law lien; and, while the former is always accompanied with an implied power of sale, if none be expressed, it is often declared in the contract of pledge, and the exercise of the power may, of course, be regulated and con- trolled, and the rights and obligations of the parties with respect "In the report the word "pledge" which is merely the right to retain is used; but, as suggested by Mellor, possession of the chattel, and which J., in Donald v. Suckling, 2 B. 1 L. R. right is immediately lost on the pos- 585, 60S, 619, this is obviously a mis- session being parted with, unless to a take for the word "lien." person who may be considered as an " M'Combie v. Davies, 7 East 6, agent of the party having the lien for Lord Ellenborough there declared the purpose of its custody. In the that "'nothing could be clearer than contract of pledge, the pawnor in- that liens were personal and could vests the pawnee with much more not be transferred to third persons by than the mere right of possession. He tortious pledge." Mr. Justice Duller, invests him with a right to deal with in', his celebrated judgment in Lick- the thing pledged as his own, if the barrow v. Mason, 6 East 21, note, debt be not paid and the thing re- says that he who has a lien only on deemed at the appointed time." See, goods has no right to sell or dispose also, First Nat. Bank v. Illinois T. & of the goods ; he can only retain them S. Bank, 84 Fed.' 34. till the price is paid. In Don- " Thames Iron Works Co. v. Patent aid v. Suckling, 2 B. 1 L. R. Derrick Co., 1 Johns. & H. 93; Mul- 585, 617, Cockburn, C. J., said : "We liner v. Florence, 3 Q. B. D. 484. are not dealing with a case of lien. § 3 COLLATERAL SECURITIES. 6 to the sale be specifically defined, by the express agreement of the parties.'""" § 3. Pledge less than a mortgage. — On the other hand, a pledge is something less than a mortgage, or, in other words, "a mortgage is a pledge and more; for it is an absolute pledge to become an absolute interest, if not redeemed at a certain time."^ A pledge is a deposit of personal effects, not to be taken back but on payment of a certain sum, by express stipulation or the course of trade, to be a lien upon them." The legal title to the property passes by the mortgage, and not merely the pos- session, or the right of possession; while the mortgagor has merely an equitable right to redeem.''^ A pledge, therefor differs from a mortgage, and from a lien as well. As said by Mr. Justice Willes, in delivering a judgment in the Exchequer Cham- ber : "There are three kinds of security : the first, a simpl e lien ; _ the second, a mortgage, passing the property out and out; the third, a security intermediate between a lien and a mortgage — viz., a jJsdg;e — ^where by contract a deposit of goods is made a security for a debt, and the right to the property vests in the pledgee so far as is necessary to secure the debt."^^ § 4. Pledge differs from mortgage'. — A pledge differs from a chattel mortgage in three essential characteristics, i. It may be constituted without any contract in writing, merely by delivery of the thing pledged,''* 2. It is constituted by a delivery of the thing pledged, and is continued only so long as the possession remains with the creditor.^" 3. It does not generally pass the " Glidden v. Mechanic's Nat. Bank, " § 5. S3 Ohio St. 588, 598, 42 N, E. 995. "^ § 23. It is stated by Sir William '^ Jones V. Smith, 2 Ves. Jr. 372, Jones that "the distinction between 378; Brown v. Bement, 8 Johns. (N. pledging, where possession is trans- Y.) 96; Marquam v. Sengf elder, 24 f erred to the creditor, and hypoth- Ore. 2, 32 Pac. 676. ecation, where it remains with the "Walter v. Smith, S B. & Aid. debtor, was originally Attic; but 439; Maugham v. Sharpe, 17 C. B. N. scarce any part of the Athenian laws S. 443. on this subject can be gleaned from ""Halliday v. Holgate, L. R. 3 the ancient orators, except what re- Exch. 299, 302. lates to bottomry, in five speeches of NATURE. §4 title to the thing pledged, but gives only a lien to the creditor, while the debtor retains the general property.^" While the dis- tinction between these two forms of security is well defined, yet. owing to the haste with which transactions are often made, and to the meagerness or abbreviations of the written papers which accompany them, it is not easy always to determine what charac- ter is properly to be attributed to them."^^ Demosthenes.'' Bailments, 84. Where one furnished the money used in pur- chasing goods under an agreement that the goods should be delivered to another for resale, but' should re- main the property of him who fur- nished the money and that the pro- ceeds of the resale should be paid over to him until he should be fully repaid, the transaction was held not to create a pledge of the goods but in the nature of a chattel mortgage. In re Perlhefter, 177 Fed. 299. ""il 7-17; Jones on Chattel Mort- gages, i 4; Hyams v. Bamberger, 10 Utah 3, 36 Pac. 202; Jones v. Bald- win, 12 Pick. (Mass.) 316; Thomp- son V. DoUiver, 132 Mass. 103; Pars- hall V. Eggart, 52 Barb. (N. Y.) 367; Robertson v. Wilcox, 36 Conn. 426, 430, 431 ; Fletcher v. Howard, 2 Aik. (Vt.) lis, 16 Am. Dec. 686; Conner V. Carpenter, 28 Vt. 237 ; Union Trust Co. V. Rigdon, 93 111. 458; Lobban v. Garnett, 9 Dana (Ky.) 389; Petitt v. First Nat. Bank, 4 Bush (Ky.) 334; Hamilton v. Wagner, 2 Marsh. (Ky.) 331; Sanders v. Davis, 13 B. Mon. (Ky.) 432; Luckett v. Townsend, 3 Tex. 119, 49 Am. Dec. 723n; Evans v. Darlington, S Blackf. (Ind.) 320; Geilfuss V. Corrigan, 95 Wis. 651, 665, 70 N. W. 306, 60 Am. St. 143, 37 L. R. A. 166; McCoy v. Lassiter, 95 N. Car. 88. So declared by statute. Georgia Code 1911, § 3532. In a few exceptional cases it has been declared that the legal title to property pledged by chattel mortgage remains in the mortgagor until it is divested by foreclosure sale. Randall v. Persons, 42 Neb. 607, 60 N. W. 898. As stated by Brown, J., "A chattel mortgage is a present transfer of title to the mortgaged property, with a de- feasance. Upon the payment of the debt or the performance of the ob- ligation secured, the title to the prop- erty reverts to the mortgagor. A pledge is a transfer of the posses- sion of personal property, not the ti- tle, as security for the performance of some act by the pledgor, with pro- visions for the sale of the property or other disposition thereof by the pledgee upon the pledgor's default." Palmer v. Mutual Life Ins. Co. of New York, 114 Minn. 1, 130 N. W. 250. The pledgor does not part with anything more than possession and the special property interest given the pledgee until foreclosure or sale. Nashville Trust Co. v. First Nat. Bank, — Tenn. — , 134 S. W. 311. The general right of property re- mains in the pledgor and only a spe- cial ownership passes to the pledgee by its delivery. Harding v. Eldridge, 186 Mass. 39, 71 N. E. 115. " Thompson v. DoUiver, 132 Mass. 103, 104. § 5 COLLATERAL SECURITIES. 8 § 5. The pledge contract. — The contract of pledge is in general a contract wholly implied in law. No written contract is necessary, and generally none is made. If there be a written contract, it is generally made either to show that the transaction is a pledge and not a sale, or to provide a special mode for enforcing the lien.^* A mortgage under the registry laws must necessarily be made by a written transfer, while a pledge, though it may be constituted by writing, is ordinarily made by a delivery of the property without any writing, the contract of the parties being wholly implied in law."" A delivery of property as secur- ity for a debt without a written conveyance cannot be a mort- gage, but must be a pledge.'" But in Louisiana the contract of pledge of movable property, other than promissory notes, bills of exchange, stocks, or claims, in order to affect third persons, must be by a written act; and the amount of the debt and the nature of the thing pledged must be mentioned in the act.'^ The Code'^ declares that the pawn invests the creditor with the right of causing his debt to °° Cortelyou v. Lansing, 2 Cai. Cas. though he may have notice that their (N. Y.) 200; West v. Beach, 3 Cow. market value will likely decline. Hun- (N. Y.) 82; Barrow v. Paxton, 5 ter v. First Nat. Bank, 172 Ind. 62, Johns. (N. Y.) 258, 260, 4 Am. Dec. 87 N. E. 734. 3S4; M'Lean v. Walker, 10 Johns. '"Jones on Chattel Mortgages, § 2; (N. Y.) 471 ; Romaine v. Van Allen, Arendale v. Morgan, 5 Sneed (Tenn.) 26 N. Y. 309; Wright v. Ross, 36 Cal. 703. 414, 429; Doak v. Bank of the State, "Day v. Swift, 48 Maine 368. 6 Ired. L. (N. Car.) 309. The Ian- ^De Blois v. Reiss, 32 La. Ann. guage of a contract pledging goods 586; Matthews v. Rutherford, 7 La. for a debt must be construed Ann. 225; Martin v. Casey, 15 La. in the sense in which it was Ann. 165; Freiburg v. Dreyfus, 135 understood by the parties to it. Union U. S. 478, 34 L. ed. 206, 10 Sup. Ct. Brewing Co. v. Interstate &c. Trust 716, affirming Weiler v. Dreyfus, 26 Co., 240 111. 454, 88 N. E. 997. A Fed. 824. As against third persons a contract of pledge may be implied contract purporting to sell movable from the circumstances. Wilkinson v. property on a plantation for a cash Misner, 158 Mo. App. 551, 138 S. W. price will not be held to be a pledge 931. When no special agreement is to secure a contingent liability on a made providing what the pledgee may bond. Millot v. Conrad, 114 La. 193, do with the collateral securities, he 38 So. 139. may remain passive and not watch the " 2 Rev. Civ. Code 1900, arts. 3157, markets for such collateral even 3158, as amended by Acts 1900, p. 239. g NATURE. 8 5 be satisfied by privilege and in preference to the other credit- ors of his debtor, out of the product of the movable, corporeal or incorporeal, w^hich has been thus burdened. But this privi- lege shall take place against third persons only in case the pledge is proved by some written instrument in which shall be stated the amount of the debt intended to be secured thereby, and the species and nature of the thing given in pledge; or the de- scription of the thing pledged may be contained in a list or state- ment annexed to the instrument of pledge and giving its number, weight or descriptive marks. All pledges may be made by private writing of any kind if only the intention to pledge be shown in writing, but all pledges must be accompanied by actual delivery; the delivery of property on deposit in a warehouse, cotton press, or on storage with a third person, or represented by a bill of lading, shall pass to the pledgee by the mere delivery of the warehouse receipt, cotton press re- ceipt, bill of lading or storage receipt, showing the number, quan- tity or weight of the thing pledged; and such pledge so made, without further formalities, shall be valid as well against third persons as against the pledgor thereof, if made in good faith. Such receipts shall be valid and binding in the order of time in which they are issued for the number, quantity or weight of the things pledged, if there should not be enough to meet all receipts so issued.^' There must, however, be a contract, either express or implied, to constitute a pledge. The mere retaining of the property of another without his consent does not constitute a pledge of such property as security for a debt of the owner of the prop- erty. 84 "2 Rev. Civ. Code 1900, art. 31S8, pledgee. Auge v. Variol, 31 La. Ann. as amended by Acts 1900, p. 239. 865. There is no occasion to record a The act of pledge which states the pledge when the property comes into amount of the debt, and the nature of the actual possession of the pledgee the thing given in pledge, need not, it before any conflicting lien attaches to seems, state that the property was de- it. Helm v. Meyer, 30 La. Ann. 943. livered to the pledgee. This fact may " Taylor v. Jones, 3 N. Dak. 235, 55 be proved by parol evidence, such, for N. W. 593. Wilkinson v. Misner, 158 instance, as the testimony of the Mo. App. 551, 138 S. W. 931. § 6 COLLATERAL SECURITIES. lO But if shares of corporate stock are delivered to a bank by a debtor of the bank, and the parties do not, by any words or instrument, attempt to define the relation which they shall hold to the property so delivered, the transaction cannot be regarded as a sale or a payment of the indebtedness, but the deposit of the stock will be presumed to have been intended as collat- eral security for the debt.'° In Alabama it is provided by statute that all corporations, bankers and brokers engaged in making discounts or loaning money, when receiving collateral must, if demanded, give to the borrower, or to his agent or attorney a receipt in writing designating or describing the collateral and stating the character of the debt, the time of its maturity, and amount. If negotiable bonds are taken as collateral, the receipt must, if such bonds are numbered, state the series number thereof. No title to such collateral shall pass if there be a wilful neglect or refusal to give such receipt.^* , § 6. Contract need not be recorded. — Though a pledge be evidenced by a writing it need not be recorded if the writing constitute a pledge and not a mortgage.^' Thus a written instru- ment given by the purchaser of a stock of drugs to indemnify a surety upon his purchase note, and to secure him for rent of the premises where the stock was kept for sale, provided that a third person as receiver should take and hold possession of the stock, furniture and fixtures, keep "the books, superintend the business, secure the money, and pay, at the end of each week, to the surety, all the moneys received, until his claims should be satisfied ; and possession was taken by such receiver accordingly. " Borland v. Nevada Bank, 99 Cal. payment of the debt, it was sufficient- 89, 33 Pac. 737, 37 Am. St. 32. ly shown that the lender held the pol- Where the insured in a life insur- icy as collateral security and not as ance policy executed his note for a a purchaser. Daly v. Spiller, 222 111. debt and at the same time assigned 421, 78 N. E. 782. the policy by an absolute conveyance ""2 Code 1907, § 3301. thereof to his creditor, using terms " First Nat. Bank v. Harkness, 42 showing that the debtor was entitled W. Va. 156, 168, 24 S. E. S48, 32 L. to a reassignment of the policy on the R. A. 405, quoting text. II NATURE. It was held that the transaction was a pledge, and not a mort- gage, and, therefore, required no registration to render the agree- ment valid against creditors of the pledgor. '^ The transaction was a pledge because the written instrument did not undertake to sell, transfer, or convey the stock in question to the surety, but merely to transfer the possession of it to a third person for his benefit, to be held till the debt should be discharged, the general property remaining all the while in the debtor. There is nothing in an act requiring the registry of mort- gages of personal property from which an inference can be drawn that a pledge must be recorded in order to be valid. In the absence of direct legislation affecting pledges, these are to be regarded as contracts at common law, requiring no registra- tion to give them effect.^" § 7. Lien but not title. — A pledge differs from a mortgage of personal property in being a lien upon property and not a legal title to it ; and the pledgee's special property in the pledge is not enlarged by the pledgor's default in paying the debt secured at its maturity.*" The legal title to property pledged remains in the pledgor, while a mortgage passes the legal title of the property itself to the mortgagee, subject to be revested in the mortgagor, upon the performance by him of an express condition subsequent.*^ \ "McCready v. Haslock, 3 Tenn. Am. Dec. 467; Hamilton v. Wagner, Ch. 13. And see Rohrbough v. John- 2 Marsh. (Ky.) 331 ; Sanders v. son, 107 Cal. 144, 40 Pac. 37; Smith Davis, 13 B. Mon. (Ky.) 432. V. Mott, 76 Cal. 171, 18 Pac. 260. "Jones v. Smith, 2 Ves. Jr. 372, And though in writing, the instru- 378; Ryall v. Rplle, 1 Atk. 165; Cor- ment when ^ pledge need not bear a telyou v. Lansing, 2 Cai. Cas. (N. Y.) mortgage stamp. Harris v. Birch, 9 200-; Winchester v. Ball, 54 Me. 558; M. & W. 591. The law requiring a Walcott v. Keith, 22 N. H. 196; mortgage to be recorded does not ap- Whittle v. Skinner, 23 Vt. 531 ; Ponce ply to a pledge. Citizens Nat. Bank v. McElvy, 47 Cal. 154; Wright v. V. Bank of Commerce, 80 Kan. 205, Ross, 36 Cal. 414; Gay v. Moss, 34 101 Pac. 1005. Cal. 125; Donnell v. Wyckoff, 49 N. "Doak V. Bank of the State, 6 Ired. J. L. 48, 7 Atl. 672. L. (N. Car.) 309; Barrett v. Cole, 4 "Jones on Chattel Mortgages, (5th' Jones, L. (N. Car.) 40; Thoms v. ed.), § 426; Jones v. Smith, 2 Ves. Southard, 2 Dana (Ky.) 475, 479, 26 Jr. 378; Lickbarrow v. Mason, 6 East § 7 COLLATERAL SECURITIES. 12 It is true that Lord Coke has said that the pledgee has a property in the thing pledged;*^ and again that he has a prop- erty in it, and not a custody only.*^ But he is understood to mean by this a special property, and not a property in the gen- eral sense of the word. Lord Holt said the pawnee has a spe- cial property giving him security for the repayment of the debt, and power to compel the pawnor to pay him.** Chief Justice Fleming in an early d^se_jaid :*° "There is difiference between a mortgage of land and pledging of goods; for the mortgagee hath an absolute interest in the land, but the other hath but a special property in the goods, to detain them for his security." Accordingly, it was properly held that an employe who was by contract entitled to a certain salary so long as he should 22, 25, note ; Tedesco v. Oppenheimer, IS Misc. (N. Y.) S22, 37 N. Y. S. 1073; Sheridan v. Presas, 18 Misc. (N. Y.) 180, 41 N. Y. S. 451 ; Brown V. Bement, 8 Johns. (N. Y.) 96; Brownell v. Hawkins, 4 Barb. (N. Y.) 491; Bates v. Wiles, 1 Handy (Ohio) 532; Union Trust Co. v. Rig- don, 93 111. 458; Barfield v. Cole, 4 Sneed (Tenn.) 465; Sims v. Canfield, 2 Ala. 555 ; Petitt v. First Nat. Bank, 4 Bush (Ky.) 334; Eastman v. Avery, 23 Me. 248; Cortelyou v. Lansing, 2 Cai. (N. Y.) Cases 200. Kent, C. J., during an argument of Barrow v. Paxton, 5 Johns. (N. Y.) 258, 4 Am. Dec. 354, says this case was never de- cided, and that the opinion, though written by him, was never filed ; Hy- ams V. Bamberger, 10 Utah 3, IS, 36 Pac. 202; First Nat. Bank v. Hark- ness, 42 W. Va. 156, 166, 24 S. E. 548, Til L. R. A. 166, quoting text; Geil- fuss V. Corrigan, 95 Wis. 651, 665, 70 N. W. 306; Palmer v. Mutual &c. Ins. Co., 114 Minn. 1, 130 N. W. 250. " Co. Litt., 89 a. *° Southcote's Case, 4 Rep. 83 b. A pledgor's title is not divested by pledging his property. He merely transfers to the pledgee a qualified interest in it for the purposes of the pledge. Halliday v. Bank of Stewart County, 112 Ga. 461, Zl S. E. 721. The property interest of the pledgee in personal property pledged is a special one for the purposes of the bailment. Eplan V. Wheat, 134 Ga. 511, 68 S. E. 78. " Coggs V. Bernard, 2 Ld. Raym. 909, 916, 917. When an absolute title to personal property is not trans- ferred but possession only is given with power to sell if default is made in the payment of the note secured by such transfer of possession, the trans- action is not a sale or mortgage but is a pledge. Grand Ave. Bank v. St. Louis Union Trust Co., 135 Mo. App. 366, 115 S. W. 1071. " Ratcliff V. Davis, Yel. 178, 1 Bulst. 29, Cro. Jac. 244. 13 NATURE. § 8 continue to own certain stock in the corporation, did not for- feit his right to his salary by pledging his stock.*^ § 8. Form of contract important. — The form of the trans- action is therefore important in determining its character.*' Whenever there is a conveyance of the legal title to personal property upon an express condition subsequent, whether con- tained in the conveyance or in a separate instrument, the trans- action is a mortgage.** Thus, if a bill of sale of a horse be made, and at the same time a defeasance be given back by the purchaser, engaging that on the payment of the purchase-price within a specified time he will redeliver the horse, the transaction is a mortgage and not a pledge of the horse.*' An instrument in writing which recites a debt, and declares that the debtor does thereby deliver certain property to his creditor to secure the debt, is a pledge and not a mortgage, be- cause there is no transfer of the title to the property, but only a deposit of it. Although such an instrument contains a cov- enant to warrant and defend the title, such as is usual in a mortgage, the character of the instrument is not thereby changed. °° The covenant is not a present conveyance, but an executory stipulation. A delivery of personal property by a debtor, in security for a debt, accompanied by a written agreement, whereby the debtor agrees that if he does not pay the debt by a certain time the creditor may dispose of the property to pay the debt, is a pledge and not a mortgage ; for the agreement does not show any inten- tion to transfer a title to the property absolutely or conditionally, but only to deliver the property as security, with a right in the creditor to sell it if the debt be not paid by a certain time." A "McMuUan v. Dickinson Co., 63 130 N. W. 250; Harding v. Eldridge, Minn. 405, 65 N. W. 661, 663. 186 Mass. 39, 71 N. E. 115; Cantwell' "Jones on Chattel Mortgages, § 8. v- Johnson, 236 Mo. 575, 139 S. W. "People V. Remington, 59 Hun. 365; Harrison v. Clark, 74 Conn. 18, (N. Y.) 282, 287, 12 N. Y. S. 824, 49 Atl. 186. 14 N. Y. S. 98, quoting text. '"Hamilton v. Wagner, 2 Marsh. "To same effect see also Palmer v. (Ky.) 331. Mutual &a Ins. Co., 114 Minn. 1, ""Brownell v. Hawkins, '4 Barb. § 9 COLLATERAL SECURITIES. I4 delivery of such property to a creditor upon an oral agreement in like terms is, of course, a pledge/^ In fact, an ordinary pledge implies an agreement by the parties in effect the same as that which in the cases above referred to the parties expressed in their virritten or verbal agreements. Whatever may be the form of an express agreement upon which property is delivered as security for a debt, if this be in effect the same that is implied in an ordinary pledge, the transaction is a pledge. An agreement whereby certain certificates of stock are de- livered as collateral security, with a stipulation that if the debt is not paid at maturity the securities shall be under the control of the holder, who is authorized to dispose of them, and apply the proceeds to the credit of the maker, is a pledge of the stocks and not a mortgage; for the instrument contains no words of sale, whereby the title to the stocks passes to the creditor. The title remains in the pledgor, with merely an authority in the pledgee to sell in case of default. The clause giving the cred- itor control of the property after default gives him no other or further right than any pledgee has to sell the pledge, accord- ing to law, to obtain payment.^* § 9. When conveyance of title will not constitute a mort- gage. — Though the title must be conveyed to constitute a mortgage, yet the transaction is not necessarily a mortgage be- cause the title is conveyed. There is a qualification of the gen- eral distinction between a mortgage and a pledge that a mortgage is a transfer of title, while a pledge is a mere lien, with respect to choses in action; for in most cases these cannot be pledged without transferring the title.^* Thus, in a pledge of negotia- (N. Y.) 491 ; Houser v. Kemp, 3 Pa. see M'Lean v. Walker, 10 Johns. St. 208; Thurber v. Oliver, 26 Fed. (N. Y.) 471.. 224, 226, quoting text. " Chapters III and V; Jones on ""Eastman v. Avery, 23 Maine 248. Chattel Mortgages, § 4; Wilson v. ■"Lewis V. Graham, 4 Abb. Pr. (N. Little, 2 N. Y. 443, 51 Am. Dec. 307n; Y.) 106; affirmed upon this point in Dewey v. Bowman, 8 Cal. 145, 152; Lewis V. Mott, 36 N. Y. 395, 400; and Loughborough v. Nevin, 74 Cal. 250, je NATURE. § 9 ble paper, the title necessarily passes by a delivery of the paper if this does not require indorsement; or if it does require indorsement, then by delivery after such indorsement. To make the pledge an effectual security, it is necessary that the pledgee should have the legal title. The same is true in general as to other transfers of choses in action, such as transfers of corporate stocks. A transfer of the title to such incorporeal property is generally an essential part of the delivery of it in pledge. An absolute transfer of such property as security for a debt is a pledge and not a mortgage."^ The general property may be regarded as remaining in the debtor, though the legal title be transferred to the creditor. A transfer of such property by an assignment which is not in form or substance a mortgage will constitute a pledge of it. "Thus, a transfer of stock may be absolute, but still if its object and character are qualified and explained by a contemporaneous paper which forms a part of the contract, and declares it to be a deposit of the stock as collateral security for the payment of a loan, and there be noth- ing in the contract to work a forfeiture of the right to redeem or otherwise defeat it, except by a lawful sale under the power expressly conferred in the agreement, the transaction will be regarded as a pledge. It is also well said that here, as in other cases, the intention of the parties and the real effect of their agreement are to be considered and respected in its enforcement : the purport and substance of the contract determines whether it shall be considered a mortgage or a pledge.""^ It is true that there may be a mortgage of such property; but to consti- tute a mortgage of it, the conveyance must be made substantially in the form of a mortgage ; that is, it must be a conveyance upon a condition or defeasance expressed in the instrument of con- veyance or by a separate instrument which would be construed 14 Pac. 369, IS Pac. IIZ, S Am. St. Marsh v. Wade, 1 Wash. St. 538, 20 435. Pac. 578. "Clymer v. Paterson, 52 N. J. Eq. °°Dungan v. Mutual &c. Ins. Co., 38 188, 27 Atl. 645. See McDonald v. Md. 242, 254. See also Union Brew- Birss, 99 Mich. 329, 58 N. W. 359; ing Co. v. Interstate &c. Trust Co., 240 111. 454, 88 N. R 997. § lO COLLATERAL SECURITIES. 1 6 as part of the conveyance. Thus, if a policy of insurance be assigned, and the instrument of assignment or a separate de- feasance provides that the assignment shall be null and void upon the payment of the debt secured, but otherwise shall con- tinue in full force, the transfer constitutes a mortgage and not a pledge. "The purport and substatice of the contract, and the intention of the parties as disclosed by the language they have made use of to express it, clearly indicate a sale or mortgage rather than a pledge.""^ An assignment by one of the beneficiaries of a trust fund held by trustees of his interest under the trust as security for a debt is a pledge rather than a mortgage, although the prop- erty held in trust is land which the trustees are to sell and divide the proceeds among the beneficiaries; as the assignment afifects only the distributive share of the beneficiary after the execution of the trust.^^ ■ An assignment of a contract absolute in form, as collateral security, is a pledge rather than a mortgage of it. The fact that the title passes in form does not make the transaction a mortgage. A transfer of title is necessary in order that the creditor may have full control of the contract, and the means of promptly enforcing it.^" § 10. Pledge held by trustee. — If property be deposited in the hands of a third person to secure a creditor, without trans- ferring the title to either the one or the other, the transaction will be a pledge and not a mortgage.^" " Dungan v. Mutual &c. Ins. Co., 38 °' Hyman v. Bogue, 135 111. 9, 26 Md. 242, 2S4. The Supreme Court of N. E. 40. Illinois in construing the language in ™ Gay v. Moss, 34 Cal. 125. a pledge contract, speaking through ""McCready v. Haslock, 3 Tenn. Judge Carter, said : "The contract is Ch. 13. A pledge may be delivered to to be taken in the sense in which it a third party as trustee to secure a was in fact understood by the par- debt and such a delivery is just as ties." Union Brewing Co. v. Interstate effective for all purposes as where &c. Trust Co., 240 111. 545, 88 N. E. made directly to the creditor. Citi- 997. See also Whalen v. Stephens, zens Nat. Bank v. Bank of Commerce, 193 111. 121, 61 N. E. 921. 80 Kan. 205, 101 Pac. 1005; Connect!- 17 NATURE. § lOa A written contract to secure advances upon wheat by the de- livery of warehouse receipts, and to give a lien not only upon the securities then in the creditor's hands, but also upon all such as might be thereafter delivered to him, with a power of sale in case of default, followed by a delivery of such receipts, (constitutes a pledge and not a mortgage of the wheat. It is also immaterial in this respect that the receipts contain a clause that in case of a flood — the warehouse being situated on the bank of a river — ^the property should be at the risk of the owner. "There was no sale of the property or transfer of the title to the plaintiff, but a deposit thereof with the warehouseman of the Pacific docks as a security for money loaned to the defendants. The term 'mortgage' is not used in the contract, neither does it contain any language which indicates in the least a sale or transfer of title. The stipulation for a lien, though unnecessary in case of a pledge, is in harmony with the idea of one, of which it is an essential feature; but inconsistent with the idea of a mortgage, which goes further and passes the legal title. The power of sale is also consistent with the purpose to constitute a pledge, of which it is a legal incident, although not an unusual provision in a mortgage. The issue and delivery of the receipt was only a mode of furnishing the plaintiff with the evidence of the deposit of the pledge at the place agreed upon, and the right to the possession of the same and to dispose of it according to the terms of the bailment. But from the nature of things it was a pledge qualified by the situation and subject of the con- tract and the conduct of the parties under it, so that the custody of the property, instead of being actually or absolutely in the plaintiff, remained in the warehouseman, subject to its control for the purposes of the contract,xand while there at the risk of the 'owners' — the defendants — in case of flood."" § 10a. Assignment to a trustee. — An assignment of securi- ties to a trustee with power to sell at his discretion and to dis- cut &c. Deposit Co. v. Fletcher, 61 " Bank of British Columbia v. Mar- Neb. 166, 85 N. W. 59. shall, 11 Fed. 19, 27. 2 — Col. Sec. § II COLLATERAL SECURITIES. l8 charge an obligation due from the assignor to a third person creates a trust and tiot a pledge. The assigiior is not in such case entitled to notice of a sale of the securities by the trustee. "In a case of 'strict and simple' pledge the law applicable to pledges must govern the rights of the parties to it, but to apply these rules to the transfer made by the assignor to the trustee would be to disregard the plain terms of the written contract, and fritter away the rights of the parties in a too close adhesion to rules established by the courts to govern the transaction known as a mere pledge or pawn, in which the subject of the pledge is delivered to the pledgee as a security, and to be rede- livered when it has served its purpose."'^ An assignment of securities to a trustee with power to sell and discharge an obligation due from the assignor to a third person . creates a trust and not a pledge, for in that case the trustee does not hold possession as the agent of the creditor and possession is an essential in the creation of a pledge, but a pledge may be created by an agreement between the creditor and debtor and the pledgor's collateral be delivered to and held by a third person as trustee."' § 11. Instrument pledging property. — An instrument which in terms pledges property creates only a lien upon it, and is a pledge, whereas one which in terms conveys it absolutely as a security is in legal effect a mortgage."* Yet the use of the word "pledge" . does not of itself conclusively determirie the character of the transaction; for even when the word "pledge" is used, if it is clear that the intent of the parties was that the ''Murdock v. Columbus Ins. Co., 59 "Jones on Chattel Mortgages, § 11; Miss. 152, 160. Prescott v. Prescott, 41 Vt. 131. It is •"By agreement between the credi- held that an instrument which is a tor and debtor collateral security may present transfer with a defeasance so be transferred to a third party as .that wlien the debt is paid the title trustee. Connecticut &c. Deposit Co. to the property reverts to the debtor V. Fletcher, 61 Neb. 166, 85 N. W. 59 ; is a mortgage and not a pledge. Pal- Citizens Nat. Bank of Ft. Scott v. mer v. Mutual &c. Ins. Co., 114 Bank of Commerce, 80 Kan. 205, 101 Minn. 1, 130 N. W. 250. Pac. 1005. 19 NATURE. § 12 possession of the goods should remain in the debtor, and the possession does so remain, the transaction will be regarded as a mortgage, and not a pledge/" "But where the word 'pledge' is used and the nature of the transaction is in conformity with the character of a pledge, in this material respect, that the pos- session is to be in the creditor, the word is accurately used, and must control, both as expressive of the intent of the parties and of the legal efifect of their agreement. "°° § 12. The use of the term "mortgage." — The use of the term "mortgage" in an instrunient whereby security is given does not necessarily make the transaction a mortgage."' An instrument whereby a debtor acknowledges his indebted- ness in a certain sum, "and in guaranty of said sum, and all interest that may accrue thereon, I hereby give this guaranty mortgage on the British barque, 'Trait d'Union', her apparel, ballast, chains, and all goods, furniture and appurtenances ap- pertaining to said vessel, all being my property as per register," possession being delivered to the creditor, is not a mortgage but a pledge."' In such case the vessel goes toward the dis- charge of the debt, and the. pledgee's possession is consistent with the legal title of the owner, and his right to regain pos- session upon satisfying the debt. Expenses incurred by the pledgee, for repairs upon the vessel while in his charge, are to be deducted from the receipts for her earnings. If a mortgagee under a mortgage void as against creditors takes possession of the mortgaged property, under an agree- ment with the debtor that he shall hold possession until the debt is paid, his title will be good as against subsequent at- tachments and executions by other creditors, by virtue of the contract of pledge, and of the possession under it, though his mortgage be defective because it is not recorded."" *°Langdon v. Buel, 9 Wend. (N. '"Jones on Chattel Mortgages,' Y.) 80; Haskids v. Patterson, 1 Edm. §12; Thorns v. Southard, 2 Dana Sel. Cas. 120; and see Bonsey v. (Ky.) 475, 26 Am. Dec. 467. Amee, 8 Pick. (Mass.) 236. '" Wilson v. Knapp, 70 N. Y. 596. "" Haskins v. Patterson, 1 Edm. Sel. * Scarry v. Bennett, 2 Ind. App. C^s. 120. 167, 28 N. E. 231; Falk v. Decou, 8 § 12 COLLATERAL SECURITIES. 20 If property not in exitsence or not owned by the mortgagor be mortgaged, the mortgage is invalid at law as against third persons, who may acquire an interest in it, or a lien upon it, before possession be delivered by the mortgagor to the mort- gagee. The mortgage is simply an executory contract binding upon the parties, but void as to third persons who have no notice of it. But if the mortgagee, before a third person has obtained any specific interest in it, takes possession of the after- acquired property, he holds the property by way of pledge, but in the same manner as though the mortgage had been executed at the time he takes possession, and in the same man- ner as though he had taken the property under and by virtue of a chattel mortgage covering the property.'" A pledge of goods by a mortgagor to the mortgagee, when the mortgage is fraudulent against the creditors of the former, because the mortgage was of a stock of goods which the mort- gagor was allowed to sell in the usual course of business, is ef- fectual, and protects the pledgee against a subsequent attach- ment by a creditor of the pledgor, although the pledgee leaves the pledgor in possession under an agreement that the latter shall sell the goods and pay the proceeds to the former.'^ Kan. App. 765, 61 Pac. 760; Finn v. "Cameron v. Marvin, 26 Kan. 612, Donahoe, 83 Mich. 165, 47 N. W. 125 ; 629. Commercial Bank v. Davy, 81 Hun "Pettee v. Dustin, 58 N. H. 309; (N. Y.) 200, 62 N. Y. St. 681, 30 N. Janvrin v. Fogg, 49 N. H. 340. In Y. S. 718 ; Greeley v. Reading, 74 Mo. New Hampshire a mortgage of a 309; Nash v. Norment, 5 Mo. App. stock of goods which the mortgagor 545; Jones on Chattel Mortgages, may sell in the usual course of trade §§ 167, 178. An instrument of pledge is invalid, unless it provides that the is not required to be recorded. Citi- proceeds of all sales shall be paid to zens Nat. Bank v. Bank of Com- the mortgagee, and they are actually merce, 80 Kan. 205, 101 Pac. 1005. so paid. But this rule does not apply Although a contract is not executed to pledges. In support of this propo- in a manner so as to make it a valid sition see also, In re Cincinnati Iron mortgage it may be valid as a pledge Store Co., 167 Fed. 486, 93 C. C. A. after possession is secured. Champ- 122 ; Sequeira v. Collins, 153 Cal. 426, lain Const. Co. v. O'Brien, 104 Fed. 95 Pac. 876. 930. 21 NATURE. § 13 § 13. Contracts construed as mortgages or pledges. — Con- tracts substantially the same in terms may be construed either as mortgages or pledges under different circumstances, accord- ing as the one security or the other will best effectuate the in- tentions of the parties, and subserve the purposes of justice.'^ If it appears that the parties intended that their contract should have the legal effect of a mortgage, the fact that they used words denoting a pledge will not necessarily make it a pledge.'^ Thus, an instrument using the words, "I hereby pledge and give a lien upon," may be construed to be a mortgage ;'* and a writing in the following words, "Turned out and delivered to A, one white and red cow, which he may dispose of in fourteen days to satisfy an execution," was held to be a mortgage with a power of sale, chiefly for the reason that the cow was left in the possession of the debtor, and effect could be given to the instrument only by regarding it a mortgage.'^ An instrument which would be a pledge if possession of the property be given to the creditor may be a mortgage if possession be retained by the debtor.'" Thus, where a conveyance of chattels was made upon condition that it should be void if the grantor should hold the grantee harmless from certain indorsements made by him, the fact that there was no delivery of the property was held to be decisive that the transaction was a mortgage and not a pledge. '^ § 14. The law favors the conclusion that a transaction is a pledge. — The law favors the conclusion that a transaction is a pledge when there is doubt whether it is a pledge' or a mort- " Ward V. Sumner, S Pick. (Mass.) "Langdon v. Buel, 9 Wend. (N. 59; Wright V. Bircher, S Mo. App. Y.) 80. 322. See Jones on Chattel Mort- " Atwater v. Mower, 10 Vt. 7S. See gages, I 14. also, Coty v. Barnes, 20 Vt. 78, for a " Christian v. Atlantic &c. R, Co., similar case. 133 U. S. 233, 242, 10 Sup. Ct. 260, "Conner v. Carpenter, 28 Vt. 237; 33 L. ed. 589. A pledge contract will and see Gleason v. Drew, 9 Me. 79, a be construed to mean what the parties questionable decision ; D'Wolf v. to it understood it to be. Union Harris, 4 Mas. (U. S.) 515. Brewing Co. v. Interstate &c. Trust "Ward v. Sumner, 5 Pick. (Mass.) Co., 240 111. 454, 88 N. E. 997. 59. § 15 COLLATERAL SECURITIES. 22 gage. "Whether a transaction amounts technically to a mort- gage or a pledge is sometimes a nice question; but the ultimate object of the inquiry is not so much to name the transaction as to ascertain what was the intention and understanding of the parties to it; and therefore such intent, when ascertained, ought to control. In the case of a pure pledge the creditor , / tak€s the possession, actual or constructive, of the goods, while in that of a mortgage there is a transfer of the title to him, but not the possession. * * * in all cases then, where personal property is given as a security for a debt or engagement, accom- panied by a change of possession, either actual or constructive, the transaction better comports with the character of a pledge than a mortgage; and where the transaction imports nothing more than giving a security without a sale or change of title of the property, the law favors the conclusion that it was in- tended as a pledge and not a mortgage. * * * But the rights and obhgations of the parties to a pledge may be modified indefinitely by special contract between them, as that the pledge shall be kept, until the default of the pledgor, at some partic- ular place, or by some particular person."^* § IS. Bill of sale sometimes a pledge. — A bill of sale abso- lute in terms, or a receipted bill of parcels intended only as V collateral security, is a pledge if accompanied by a delivery of the property to the creditor.'^ A bill of sale is a mere bill of parcels, subject to explanation by parol evidence.*" A bill of parcels, tending upon its face to show an absolute sale, may be " Bank of British Columbia V. Mar- (Mass.) 399; Hazard v. Loring, 10 shall, 11 Fed. 19. Cush. (Mass.) 267; Kimball v. Hil- ""Burlingame v. Goodspeed, 1S3 dreth, 8 Allen (Mass.) 167; Ex parte Mass. 24, 26 N. E. 232, 10 L. R. A. Fitz, 2 Low. (U. S.) S19; Bright v. 495; Thompson v. DoUiver, 132 Mass. Wagle, 3 Dana (Ky.)- 252, 257; 103 ; Shaw v. Silloway, 145 Mass. 503, Myers v. Moulton, 71 Cal. 498, 12 14 N. E. 783 ; Butler v. Rackwell, 14 Pac. 505. See Jones on Chattel Mort- Colo. 125, 135, 23 Pac. 462, quoting gages, § 14. text; Morgan v. Dod, 3 Colo. 551; '"Walker v. Staples, 5 Allen . Walker v. Staples, 5 Allen (Mass.) (Mass.) 34; Newton v. Fay, 10 Allen 34; Whitaker v. Sumner, 20 Pick. (Mass.) 505. 23 NATURE. § l6 shown by parol evidence to have been executed by way of security merely, and, therefore, to be a pledge." Although a delivery of goods be accompanied by an absolute bill of sale the transaction will, in equity, be regarded as a pledge merely, where it is shown that it was intended as a se- curity for a debt or indemnity for a liability ; and it is immate- rial that the bill of sale provides that the pledge shall be irre- deemable.*^ But there are cases where the courts have regarded such an absolute transfer as a mortgage and not a pledge. Thus, in Vermont it has been held that if chattels be delivered by a debtor to his creditor as security for a debt, accompanied by a bill of sale, the transaction is a mortgage; for although the bill of sale contain no defeasance and be not accompanied by a separate defeasance, the law gives effect to the intention of the parties, and a verbal defeasance may be proved or implied. The title to the property is transferred to the creditor, subject to be defeated by payment of the debt secured.*' If a purchaser of goods gives, as security to one who loaned him the purchase-money, a bill of sale made by the seller to the purchaser, the lender supposing it to be a mortgage, the transaction amounts to no more than an agreement for a pledge or mortgage.** § 16. A receipted bill of parcels a pledge. — A receipted bill of parcels of chattels, which on its face purports to be a security for a debt, is a pledge and not a mortgage.*^ "A bill of parcels given as collateral security only, under which the articles trans- ferred are at once delivered, has all the characteristics of a ''Jones V. Rahilly, 16 Minn. 320; ''Blodgett v. Blodgett, 48 Vt. 32. Shaw V. Wilshire, 65 Me. 485; East- "Copeland v. Barnes, 147 Mass. man v. Avery, 23 Me. 248. In sup- 388, 18 N. E. 65. port hereof see also Barber v." Hath- "Thompson v. DoUiver, 132 Mass. away, 169 N. Y. 575, 61 N. E. 1127. 103; and see Shaw v. Wilshire, 65 " Skenandoa Cotton Co. v. Lefferts, Maine 485. 36 N. Y. St. 63, 13 N. Y. S. 33 ; Mor- gan V. Dod, 3 Colo. 551. § 17 COLLATERAL SECURITIES. 24 pledge. The only property intended to be passed is the special property which the pledgee derives from possession. The form here used was not that of a mortgage; there was no defeasance or agreement to reconvey connected with or forming a part of it."*" § 17. Assignment of securities presumed to be as collateral security. — An assignment of securities by a debtor to his creditor is presumed to be as collateral security and not in pay- ment of the debt, in the absence of evidence tending to show an intention that the securities should be applied in satisfaction of the debt, in whole or in part." If the debtor does not show that the assignment was so made in satisfaction of the debt, the law makes a positive inference that the assignment was only as collateral security.'* That the assignment is absolute in form is of no consequence as regards the question of intention.*' § 18. A conditional bill of sale is a mortgage. — A bill of sale conditional in form is a mortgage and not a pledge."" An absolute bill of sale with a separate defeasance is in like manner a mortgage."^ In like manner a bill of sale, which in express terms secures a debt and authorizes the creditor to sell the prop- erty after a given time to pay the debt, if this be not paid before that time, is in legal effect a mortgage."^ *■ Thompson v. DoUiver, 132 Mass. 175; Butler v. Rockwell, 14 Colo. 125, 103. 23 Pac. 462; Barber v. Hathaway, " Butler V. Rockwell, 14 Colo. 125, 169 N. Y. 575, 61 N. E. 1127. 135, 23 Pac. 462, quoting text; Dela- ""Wood v. Dudley, 7 Vt. 430; ware County &c. Ins. Co. v. Haser, Homes v. Crane, 2 Pick. (Mass.) 199 Pa. 17, 48 Atl. 694, 85 Am. St. 607; Barrow v. Paxton, 5 Johns. (N. 763. Y.) 258, 4 Am. Dec. 354. "Leas V. James, 10 S. & R. (Pa.) '"Brown v. Dement, 8 Johns. (N. 307, 315; Perit v. Pittfield, 5 Rawie Y.) 96; Clark v. Henry, 2 Cow. (N. (Pa.) 166, 171; Jones v. Johnson, 3 Y.) 324; Palmer v. Mutual &c. Ins. W. & S. (Pa.) 276, 278, 38 Am. Dec. Co., 114 Minn. 1, 130 N. W. 250. 760; Eby v. Hoopes, 1 Penny. (Pa.) "Barfield v. Cole, 4 Sneed (Tenn.) 175; Delaware County &c. Ins. Co. 465. It has, however, been held that V. Haser, 199 Pa. 17, 48 Atl. 694, 85 an instrument, purporting to transfer Am. St. 763. the property where the transferor ""Eby V. Hoopes, 1 Penny. (Pa.) should continue to own it until the 25 NATURE. § l8 A written assignment of stocks and bonds to a trastee, who is empowered to sell at discretion, and required to dispose of enough to discharge a note due a third person if the interest thereon is not paid at a specified date, does not constitute a pledge, and the assignor is not entitled to demand or notice before sale. It is manifest that the parties to such agreement intended to place the control of the securities in the trustee, and to arm him with the fullest power to dispose of them. The interest transferred to the trustee is not a mere pledge, but something more. The title is vested in the trustee with a power to sell and pay certain debts, and with a requirement to sell and pay in a certain contingency. Such a contract is to be construed according to its terms and the circumstances at- tending it."^ Whether the contract be a mortgage or not, it is certainly more than a pledge, under which the pledgor would be entitled to notice to redeem, and notice of the time and place of sale. An assignment by a debtor to his creditor of a note secured by a mortgage, with condition that upon default in payment of the principal debt the creditor should have authority to col- lect the collateral note, or to negotiate it for the purpose of liquidating the principal debt, vests the creditor with the legal title to the collateral note, and the transaction is a mortgage rather than a pledge; although both the debtor's assignment and the creditor's receipt refer to the note and mortgage as col- lateral security.'* A contract to secure the purchase-money of a herd of cattle whereby the vendor appoints an agent to accompany the cattle and retain possession of them, with power to enforce the secur- ity by sale is in the nature of a mortgage rather than a pledge. payment of all sums due him, was in- ken v. Dehon, 27 N. Y. 364, which, tended as security only and that it if a pledge in a legal sense, was de- created a pledge. Sequeira v. Collins, clared to be a peculiar contract in- 153 Cal. 426, 95 Pac. 876. eluding more than a pledge, and con- "Murdock v. Columbus Ins. Co., ferring rights according to the lan- 59 Miss. 152. For cases bearing a guage used, strong resemblance to this, see Milli- °* Fraker v. Reeve, 36 Wis. 85. § 19 COLLATERAL SECURITIES. 26 because the lien, as between the parties, is not made to depend altogether upon possession, but upon a contract which defines the rights of the parties, and provides for its enforcernent.°° § 19. A bill of sale a pledge. — An absolute bill of sale, and delivery of property with an agreement that the original owner shall have the property back again after a fixed day, upon re- paying the price, with an additional sum for trouble in trying to sell the property, amounts to a pledge,"" which is lost by giving possession to the general owner."^ A bill of sale of goods to the cashier of a bank, stating that the goods are to be held as collateral security for a note of the vendor, and that they are stored in the warehouse of a third party, not accompanied by delivery, is a mortgage and not a pledge."* A contract by a tenant with his landlord, whereby he agreed to cut the hay on the premises, and to put it into the barn where it should remain the property of the landlord, unless the tenant should, before a specified date, pay a certain sum for the hay less than its value, when it should become his property, was properly held to be a pledge. °° In like manner a lease of real estate, assigned as security for a debt, is a pledge rather than a mortgage. The creditor has the right to collect the rents, and apply them on the debt. The creditor's title to the lease would not become absolute in ™ Gregory v. Morris, 96 U. S. 619, rights of third persons have inter- 24 L. ed. 740; Powder Company v. vened, it is good absolutely." Burkhardt, 97 U. S. 110, 24 L. ed. ""Halle v. National Park Bank, 140 973 ; Hauselt v. Harrison, 105 U. S. 111. 413, 29 N. E. 727. 401, 26 L. ed. 1075. In the latter case °' Kimball v. Hildreth, 8 Allen Mr. Justice Matthews said: "Such (Mass.) 167. a lien is good between the parties, °" People v. Remington, 59 Hun without a change of possession, even (N. Y.) 282, 36 N. Y. St. 282. And though void as against subsequent see 12 N. Y. S. 824, 14 N. Y. S. 98, purchasers in good faith without no- Thompson v. Blanchard, 4 N. Y. 303; tice, and creditors levying executions Brown v. Bement, 8 Johns. (N. Y.) or attachments; and if followed by a 96; Wooster v. Sherwood, 25 N. Y. delivery of possession, before the 278. "• Taggart v. Packard, 39 Vt. 628. 27 NATURE. § 20 law Upon the debtor's default in payment of the debt; but the creditor has merely a lien upon the rents, the ownership of the lease remaining with the debtor.^ In an action to redeem corporate stock alleged to be held by the defendants as collateral security, it appeared that the de- fendants indorsed the plaintiff's note given to raise money to pay an assessment on the stock, which note the defendants were afterward compelled to pay. At the time of sudi indorse- ment plaintiff executed an agreement by which she sold said stock to defendants, the agreement reciting the indorsement of the note and providing that if she did not pay the note at maturity, and defendants did so, they should own the stock absolutely. There was no proof of deception or mistake ex- cept evidence of a previous conversation between plaintiff's agent and one of the defendants that they would receive the stock as collateral security, and it appeared that the agreement was read to plaintiff before she signed it. It was held that plaintiff was bound by the contract, and that it constituted a sale and not a pledge of the stock.^ § 20. Whether a pledge or sale is for the jury. — Whether a particular transaction be a pledge or a sale and agreement to purchase, upon contradictory evidence respecting the terms of the agreement, is a question for the jury, and the court will not disturb its verdict when it is justified by the evidence. Thus, where the transaction was the sale of a watch for eighty-two dollars, with an agreement that the seller should have it back again upon the payment of eighty-seven dollars, upon evidence tending to show that the watch was really a pledge for a loan, the jury was entitled to find that it was a pledge and not a sale.^ If goods are delivered by one person to another under a con- ' Dewey v. Bowman, 8 Cal. 145. Y.) 97. As to what is held to be a Contra: Commercial Bank v. Pritch- sale and not a pledge see Cantwell v. ard, 126 Cal. 600, 59 Pac. 130. Johnson, 236 Mo. 575, 139 S. W. 365 ; 'Morganstern v. Davis, 37 N. Y. Delaware County &c. Ins. Co. v. St. 819, 14 N. Y. S. 31. Haser, 199 Pa. 17, 48 Atl. 694, 85 Am. ' Hines v. Strong, 46 How. Pr. (N. St. 763. § 21 COLLATERAL SECURITIES. 28 tract which provides for the retention of the legal title by the party delivering the goods until notes given for the goods are paid and there is no provision for the return of the goods upon such payment, the transaction will be regarded as a condi- tional sale/ In determining whether a transaction in the form of a sale is a pledge or a sale, either absolute or conditional, inadequacy of price is a circumstance which indicates that it was only a pledge.' A statement that certain property is to be held as a guaranty for the payment of a debt may constitute a pledge if the cred- itor is put in possession of the property. The owner of a wood lot executed a lease of it for the term of two years, giving the lessee the privilege of cutting and removing the wood and timber during that time, the lessee giving his promissory note for the same. The lease contained an agreement that the wood and timber on the described premises should be held by the lessor as guaranty for the payment of the note. When the note became due it was not paid and the parties agreed that it might lie on interest. The lessor afterward permitted the lessee to cut and remove some of the wood and timber. It was held that the transaction was not a conditional sale but was in the nature of a pledge.* § 21. Construction of a pledge contract is for the court. — The construction of a transaction evidenced by a writing is a matter of law for the court. A writing reciting a loan for which the borrower has placed in the lender's hands certain property, and providing that if the loan should not be repaid by a certain time the property should be the lender's absolutely, and that the borrower would give a bill of sale on demand, is not a conditional sale but a pledge or mortgage ; for the writing * Morgan-Gardner Electric Co. v. "Bright v. Wagle, 3 Dana (Ky.) Brown, 193 Pa. St. 351, 44 Atl. 459. 252. See Keystone Watch Case Co. v. " Wilkie v. Day, 141 Mass. 68, 6 N. Fourth St. Nat. Bank, 194 Pa. St. E. 542. 535, 45 Atl. 328. I 29 NATURE. § 22 shows that the consideration was a loan of money, and that the property was delivered as collateral security.'' And so a writing whereby a borrower transfers, as collateral security for the payment of a loan, the note of a third person for double the amount of the sum borrowed, with a provision that in case of default in payment the lender "is to hold the note as his own property," the transaction is a pledge or mortgage and not a con- ditional sale.* That an absolute transfer of a chose in action as collateral security is a pledge, and not a mortgage, is a conclusion of law." § 22. Statutory pledge. — There may be a statutory pledge in the same way that there may be a statutory mortgage. Thus a statute which provides that a railroad company, which is to receive bonds of a city to aid its construction, shall issue to the city certificates of stock of the company, for an amount equal to the amount of the bonds received, and that the stock should remain forever pledged for the redemption of the bonds, creates a pledge of the stock to the city.^" The holders of the bonds issued have primarily nothing to do with the stock. They are to look to the obligation of the city upon the bonds; and if they have any claim to the security held by the city, they are certainly not obliged to have recourse to that in the first instance. They are not compelled to look to the security even if the city holds it for their benefit. § 23. Necessity of delivery of possession. — To constitute a j pledge the pledgee must take possession; and to preserve it he v must retain possession." An actual or symbolical delivery of 'Hart V. Burton, 7 J. J. Marsh. Consolidated Assn., 34 La. Ann. 770; (Ky.) 322; Citizens' &c. Trust Co. v. Citizens' Bank v. Cotton Press Co., 7 Thornton, 174 Fed. 752, 98 C. C. A. La. Ann. 286; Citizens' Bank v. Gay, 478. 47 La. Ann. 551, 17 So. 148. •Williamson v. Culpepper, 16 Ala. "Thurber v. Oliver, 26 Fed. 224, 211, SO Am. Dec. 175. 227, quoting text ; Meyerstein v. Bar- •Gay V. Moss, 34 Cal. 125. ber, L. R. 2 C. P. 38; Hilton 'v. "United States v. New Orleans, 98 Tucker, L. R. 39 Ch. D. 669, 673. U. S. 381, 25 L. ed. 225; Forstall v. § 23 COLLATERAL SECURITIES. 30 property capable of personal possession is essential. The de- livery must be such as would be requisite to transfer the property in the same chattels in case of a sale of thetn.^" While there "Casey v. Cavaroc, 96 U. S. 467, 490, 24 L. ed. 119; Casey v. National Park Bank, 96 U. S. 492, 24 L. ed. 789; Thurber v. Oliver, 26 Fed. 224; Adams v. Merchants' Nat. Bank, 2 Fed. 174; Dodge v. Meyer, 61 Cal. 405, 429; George v. Pierce, 123 Cal. 172, 55 Pac. 775, 56 Pac. 53; Lilien- thal V. Ballou, 125 Cal. 183, 57 Pac. 897; Stevens v. Irwin, 15 Cal. 503, 76 Am. Dec. SOD; Engles v. Marshall, 19 Cal. 320; Cahoon v. Marshall, 25 Cal. 201; Godchaux v. Mulford, 26 Cal. 316, 323, 85 Am. Dec. 178; Woods v. Bugbey, 29 Cal. 466; Hesthal v. Miles, 53 Cal. 625; Bell v. McClellan, 67 Cal. 283, 7 Pac. 699; Kelly v. Murphy, 70 Cal. 560, 12 Pac. 467; Bunting v. Saltz, 84 Cal. 168, 172, 24 Pac. 167; Etchepare v. Aguirre, 91 Cal. 288, 295, 27 Pac. 668, 929, 25 Am. St. 180; Murphy v. Mulgrew, 102 Cal. 547, 36 Pac. 857, 41 Am. St. 200; Rothschild v. Swope, 116 Cal. 670, 48 Pac. 911; Levy V. Scott, 115 Cal. 39, 46 Pac. 892; Dubois v. Spinks, 114 Cal. 289, 46 Pac. 95; Huntington v. Sherman, 60 Conn. 463, 22 Atl. 769; First Nat. Bank V. Nelson, 38 Ga. 391, 95 Am. Dec. 400; Silverman y. McGrath, 10 Bradw. (111.) 413; Corbett v. Under- wood, 83 111. 324, 25 Am. Rep. 392; Cooper V. Ray, '47 111. 53 ; Keiser v. Topping, 72 111. 226 ; Atkinson v. Fos- ter, 134 111. 472, 25 N. E. 528; Nevan V. Roup, 8 Iowa 207; Raper v. Har- rison, il Kan. 243, 15 Pac. 219; Lee V. Bradlee, 8 Mart. (La.) (N. S.) 20; Citizens' Bank v. Janin, 46 La. Ann. 995, 15 So. 471; Propst v. Roseman, 4 Jones (N. Car.) 130; Britton v. Harvey, 47 La. Ann. 259, 16 So. 747 ; Hiligsberg's Succession, 1 La. Ann. 340; Foltier v. Schroder, 19 La. Ann. 17, 92 Am. Dec. 521 ; Collins v. Buck, 63 Me. 459; Beeman v. Lawton, 37 Me. 543; Day v. Swift, 48 Me. 368; Gleason v. Drew, 9 Me. 79; Textor v. Orr, 86 Md. 392, 397, 38 Atl. 939; Moors V. Reading, 167 Mass. 322, 45 N. E. 760, 57 Am. St. 460; Kimball V. Hildreth, 8 Allen (Mass.) 167; Walker v. Staples, 5 Allen (Mass.) 34; Homes v. Crane, 2 Pick. (Mass.) 607; Bonsey v. Amee, 8 Pick. (Mass.) 236; Harding v. Eldridge, 186 Mass. 39, 71 N. E. 115; Combs v. Tuchelt, 24 Minn. 423; Mahoney v. Hale, 66 Minn. 463, 69 N. W. 334; Codes (Mont.) 1895, Civ. Code (Mont), § 3892; Walcott v. Keith, 22 N. H. 196; Colby v. Cressy, 5 N. H. 237, 239; Pinkerton v. Manchester R. Co., 42 N. H. 424, 428; Ceas v. Bramley, 18 Hun (N. Y.) 187; Barrow v. Pax- ton, 5 Johns. (N. Y.) 258, 4 Am. Dec. 354; Langdon v. Buel, 9 Wend. (N. Y.) 80; Parshall v. Eggert, 52 Barb. (N. Y.) 367; Brownell v. Hawkins, 4 Barb. (N. Y.) 491; Clark v. Cos- tello, 79 Hun (N. Y.) 588, 61 N. Y. St. 556, 29 N. Y. S. 937; Manufactjir- ers' Commercial Co. v. Rochester R. Co., 126 N. Y. S. 1051, 142 App. Div. (N. Y.) 249; Owens v. Kinsey, 7 Jones L. (N. Car.) 245; Doak v. State Bank, 6 Ired. (N. Car.) 309; Smith V. Sasser, 4 Jones (N. Car.) 43; Thompson v. Andrews, 8 Jones (N. Car.) 453; Jackson v. Kincaid, 4 Okla. 554, 46 Pac. 587; Marquam v. Sengf elder, 24 Ore. 2, 32 Pac. 676; Collins' Appeal, 107 Pa. St. 590, 52 Am. Rep. 479; Crisp v. Miller, 5 oi NATURE. § 23 must be delivery and continued possession to constitute a valid pledge, such delivery and possession may be made to and kept by an agent of the pledgee." What constitutes a sufficient delivery and possession is often a matter of considerable nicety.^* In many cases this is a matter of law for the determination of the court.^^ Notwith- standing the fact that a contract of pledge may have been made prior to delivery, the pledge takes effect at the time of delivery and not before that time.^° The modern civil law is also very careful in denouncing the danger of losing the right of pledge, by parting with anything like permanent or continued possession to the pledgor.^^ The Louisiana Code," adopting an article of the Code Napoleon," in regard to the possession of the pledge, provides : "In no case does this privilege subsist on the pledge except when the thing pledged, if it be a corporeal movable, or the evidence of the credit, if it be a note or other instrument under private signa- ture, has been actually put and remained in the possession of Heisk. (Tenn.) 697; Johnson v. Lanyon Zinc Co., 93 Mo. App. 22S; Smith, 11 Humph. (Tenn.) 396; Wil- In re Rohrer, 186 Fed. 997. Hams V. Gillespie, 30 W. Va. 586, 5 "Martin v. Reid, 11 C. B. N. S. S. E. 210; Seymour v. Colburn, 43 730; Donald v. Suckling, L. R. 1 Q. Wis. 67; Geilfuss V. Corrigan, 95 Wis. B. 585, 587; Sequeira v. Collins, 153 651, 670, 70 N. W. 306; Dunn v. Cal. 426, 95 Pac. 876; Manufacturers' Train, 125 Fed. 221, 60 C. C. A. 113. Commercial Co. v. Rochester R. Co., See also Street Grading Dist. v. Hag- 142 App. Div. (N. Y.) 249, 126 N, adorn, 186 Fed. 451, 108 C. C. A. 429; Y. S. 1051; American . Can Co. v. Connor v. Kimball, 186 Fed. 458, 108 Erie Preserving Co., 183 Fed. 96; C. C. A. 436. Robertson v. Robertson, 186 Mass. "A pledge is of no validity when 308, 71 N. E. 571; Proctor v. Shot- not accompanied by possession either well, 105 Mo. App. 177, 79 S. W. 728; actual or constructive. American Can Scribner v. Taggart, 123 Iowa 321, 98 Co. V. Erie Preserving Co., 183 Fed. N. W. 798. 96, 105 C. C. A. 388; In re Automo- "= Story Bailm. 297. bile Livery Service Co., 176 Fed. "America &c. Warrant Co. v. Ger- 792. To same effect see also, Wilson man, 126 Ala. 194, 28 So. 603, 85 Am. & Co. V. Crittenden County Bank &c. St. 21. Co., — Ark. — , 135 S. W. 885 ; Nash- " Casey v. Cavaroc, 96 U. S. 467, ville Trust Co. v. First Nat. Bank, 24 L. ed. 779. 134 S. W. 311; Donoven v. Trauers, "2 Rev. Civ. Code 1900, art. 3162. 122 La. 458, 47 So. 769; Chitwood v. "Art. 2076. § 24 COLLATERAL SECURITIES. 32 the creditor, or of a third person agreed on by the parties." And the Louisiana Code further declares:^" "It is essential to the contract of pledge that the creditor be put in possession of the thing given to him in pledge, and consequently that actual delivery of it be made to him, unless he has possession of it already by some other right. But this delivery is only neces- sary with respect to corporeal things; as to incorporeal rights such as credits, which are given in pledge, the delivery is merely fictitious and symbolical." The Code of Georgia"^ declares that delivery of the property is essential to this bailment. The Codes of California," North Dakota,^' South Dakota" and Montana^' declare that the lien of a pledge is dependent on possession, and no pledge is valid until the property pledged is delivered to the pledgee, or to a pledge-holder. § 24. Distinction between mortgage and pledge. — The re- quirement of delivery constitutes another practical distinction be- tween a mortgage and a pledge of personal property; for while a delivery must always accompany a pledge, a mortgage of igoods is often good without a delivery.''" No formal delivery is necessary. It is sufficient if the prop- erty is present so that the pledgee can take possession of it, and he does take possession, and either retains it himself or leaves it in the control of a third person.^' § 25. Property in hands of pledgee as collateral. — Prop- erty already in the hands of a pledgee as collateral security may be pledged for a further loan without any further delivery of '"2 Rev. Civ. Code 1900, arts. 3152, ^ 1 Codes 1895, Civ. Code, § 3892. 3153- " Barrow v. Paxton, 5 Johns. (N. =^1 Code 1911, § 3528. Y.) 258, 260, 4 Am. Dec. 354; Has- '' Civil Code 1906, § 2988; Lilien- kins v. Patterson, Edm. Sel. Cas. thai V. Ballou, 125 Cal. 183, 57 Pac. 120; Haven v. Low, 2 N. H. 13, 9 897 ; George v. Pierce, 123 Cal. 172, Am. Dec. 25 ; Ash v Savage, 5 N. H. 55 Pac. 775, 56 Pac. 53. 545. =" Rev. Code 1905, § 6195. " Tibbetts v. Flanders, 18 N. H. "Rev. Civ. Code 1903, § 2106. 284. 33 NATURE. § 25 it.''' Thus, the customer of a bank being asked for security on his application to have the proceeds of a draft on a distant place placed to his credit, he replied : "The bank holds all my stocks, and they are security for all my discount and this draft." Upon this he was credited with the proceeds of the draft, and it was held that the stocks referred to were a pledge for the draft as well as for the discounts previously made on this security.^' A pledge of a life insurance policy as security for a definite sum of money may be enlarged by agreement gf the parties to secure other obligations of the pledgor to the pledgee, and the agreement may be either written or oral.^° ''Dearborn v. Union Nat. Bank, of Brunswick, 61 Me. 369; Van Blarcom V. Broadway Bank, 9 Bosw. (N. Y.) 532; affirmed, 37 N. Y. S40; Brown v. Warren, 43 N. H. 430; Herber v. Thompson, 47 La. Ann. 800, 17 So. 318; Clark v. Costello, 79 Hun (N. Y.) 588, 61 N. Y. St. 556, 29 N. Y. S. 937. When the pledgee is already in possession of the property pledged for any purpose no other delivery is required to create a pledge. Farson V. Gilbert, 114 111. App. 17. Where warehouse receipts are held by one creditor as collateral for a debt owing to him by the pledgor, a request from such pledgor to the pledgee to de- liver such collateral to another cred- itor upon the pledgee's debt being paid, will constitute a sufficient deliv- ery and possession to create a pledge in favor of the second creditor. Hunt V. Bode, 66 Ohio St. 255, 64 N. E. 126. To the same effect see Ladd v. Myers, 4 Cal. App. 3S2, 87 Pac. 1110; In re Stothfang, 20 Ohio Cir. Ct. 275, 11 Ohio Cir. Dec. 103. Where collateral is not in the possession either of the pledgee or pledgor, it cannot be so delivered as to create a pledge. Possession is essential to a pledge. Storts v. Mills, 93 Mo. App. 3 — Col. Sec. 201. Where collateral is delivered to a bank to secure the payment of a debt and afterward the collateral was by the pledgor pledged to another creditor subject to the bank's lien, the possession of the collateral by the bank is regarded as the possession of the second creditor for whom the bank becomes his agent after the pay- ment of the debt to the bank. First Nat. Bank v. Bacon, 113 App. Div. (N. Y.) 612, 98 N. Y. S. 717. ™ Van Blarcom v. Broadway Bank, 9 Bosw. (N. Y.) 532. "Very little is necessary to constitute a pledge. It is only essential that the property be, or be placed by the owner, in the hands of the creditor or trustee, with an intention on the part of both par- ties that it should be retained as se- curity for a certain debt or claim. In this case the stocks were already held by the bank. Suppose they had not been, but that, when the debtor said, 'The bank holds all my stocks, and they are security for all my dis- counts and this draft,' he had at the same time handed the stocks to the bank, would that have made the case any stronger?" =" Peck V. Goff, 18 R. I. 94, 25 Atl. 690. § 26 COLLATERAL SECURITIES. 34 Where a pledge is in the hands of the pledgee, and the pledgor and pledgee make alterations in the terms of the pledge, the pledgee, having no notice of the intervention of any other rights, does not lose his lien upon the pledge/^ § 26. Pledge of part of goods not complete. — A pledge of a part of a quantity of goods is not complete until such part is separated and set apart. Thus, a pledge of thirty cords of bark in a pile containing much more than that quantity is ineffectual until the particular thirty cords have been measured and set apart ;^^ unless, perhaps, the part of the pile to be held in pledge be designated by agreement of the parties,, so that the pledgee could take the number of cords pledged without any further act on the part of the pledgor. An iron company^ in order to secure a warehouse company for advance of money, gave to it, from time to time, written instru- ments stipulating that the warehouse company should have a first lien on certain specified quantities 'of iron. All the iron manufactured by the iron company was stored in yards leased by the warehouse company, and kept in its possession. All sales made by the iron company were filled by taking iron from these yards, but, if the amount on hand ever fell below the amount stated as security for the loans, it was at once made good, and an amount greater than that so held as security was usually kept on hand. It was held, that though no specific iron was set apart to the warehouse company, as it was in possession of the whole, ■the transaction constituted a valid pledge of the amounts of iron stated as security for the loans.'* § 27. Agreement to pledge not a pledge. — A mere agree- ment of parties is not equivalent to an actual or symbolical de- livery.'* The maker of a note, to induce a surety to continue •"Mercantile Trust Co. v. Atlantic 183 Pa. St. 528 (In re Johnson, 38 Trust Co., 69 Hun (N. Y.) 264, S3 Atl. 1029). N. Y. St. 374, 23 N. Y. S. 496. >» Fidelity Insurance &c. Co. v. Ro- °" Collins V. Buck, 63 Me. 459; anoke Iron Co., 81 Fed. 439. Sholes V. Western Asphalt &c. Co., "Caffin v. Kirwan, 7 La. Ann. 221; 35 NATURE. § 27 his liability upon it for a year, verbally agreed to turn over to him a horse, and that the horse should be the surety's property, and he should have the right to go and take it in case the debtor did not pay the note. The horse was not present at the time of this agreement, nor was it ever delivered to the surety; but the latter being compelled to pay the note, went upon the debtor's premises and took the horse. In an action for the recovery of the horse, it was held that the agreement conferred no lien upon it by way of pledge, and no title by way of mortgage.^" A debtor being pressed for payment agreed that certain molasses in his distillery should stand as collateral security for the debt, which was thereupon extended by time notes. He pointed out four hundred hogsheads of molasses, to be taken from a particular place from a larger quantity on storage. It was agreed that the debtor should send the rum to be distilled from the molasses to the creditor, who should sell it, and apply the proceeds to the payment of the debt. It was held that there was no pledge of the molasses, because there was no delivery of possession. Re- tention of possession by the debtor was in fact a necessary part of the agreeriient.^^ The owner of a ranch kept upon it a large number of dairy cows which he owned. Another person lived upon the ranch, Collins V. Buck, 63 Me. 459; Gale v. Cameron v. Orleans &c. R. Co., 108 Ward, 14 Mass. 352, 7 Am. Dec. 223 ; La. 83, 32 So. 208. Tucker v. Buffington, IS Mass. 477; =° Smyth v. Craig, 3 W. & S. (Pa.) Reiser v. Topping, 72 111. 226; Nisbit 14. It was held where a bridge com- V. Macon &c. Trust Co., 12 Fed. 686 ; pany, being in debt to a bank, pledged Cardinell v. Bennett, 52 Cal. 476. a quantity of iron to the bank and "Ceas V. Bramley, 18 Hun (N. Y.) placed a part of the iron in piles each 187; and see Beeman v. Lawton, 37 marked by numbers and the bank em- Me. 543. Where one borrows money ployed one of the employes of the iron and with it buys personal property company as its agent to hold posses- to ship, promising to deliver the bill sion, the transaction being in good of lading as collateral security to the faith, that the possession of the bank lender, but retains the bill by consent was sufficient to create a pledge and of his creditor until seized at the suit that it could hold the iron as against of another creditor, the lender has no a trustee in bankruptcy. In re Cin- hen because he has no possession, cinnati Iron Store Co., 167 Fed. 486, 93 C. C. A. 122. § 28 COLLATERAL SECURITIES. 36 and cared for the cows and milked them. The milk was de- livered to the owner, who sold it and divided the net proceeds with the person in charge of the ranch. The owner borrowed a large sum of money and gave, or undertook to give, the cattle in pledge. By direction of the pledgor the cattle were driven into a corral and counted by him and the pledgee and then they were passed back into the pasture. A bill of sale was then given by the pledgor to the pledgee, who gave a lease of the cattle to the person already in charge of them. The relations between the pledgor and the person in charge of them remained the same, except that the latter afterward refused to give the pledgor any of the cattle for beef as had been the custom. It was held that these facts failed to disclose that actual and con- tinued change of possession demanded in cases of pledge in order that the pledgor's creditors may not successfully attack the trans- action.^' An agreement to deliver property in pledge cannot be enforced after all legal liability upon the debt has ceased. Thus, where a debtor executed a collateral agreement to deliver, on demand, certain property as security for the payment of a debt, a demand made after the debt- is barred by the statute of limitations is too late.''^ A mere understanding between a principal and a surety that a part of certain bonds of the principal held by a bank shall be held for the security of the surety does not operate as a pledge when none of the bonds are delivered for that purpose either to the bank for the surety, or to the surety.^' §28. Agreement not a pledge. — An agreement to pledge as distinguished from an actual pledge creates no lien as against a creditor of the pledgor, or as against his assignee in bank- " George v. Pierce, 123 Cal. 172, 176, be an open and visible change of cus- 55 Pac. 775, afifirmed 56 Pac. 53. The tody of the property." court, Garoutte, J., said : "to sustain ^ Shaw v. Silloway, 145 Mass. 503, the validity of a pledge, as against 14 N. E. 783. creditors of the pledgor, there must " Seymour v. Hendee, 54 Fed. 563. 37 NATURE. § 28 ruptcy/** Equity will not regard as done that which one has agreed to do, when to so regard it would be to the injury of third persons who have acquired rights before the execution of the agreement. An agreement to make a pledge will not avail as against the pledgor's assignee in bankruptcy, when the pledge is not actually made in pursuance of the agreement until within four months before the adjudication in bankruptcy, and is then made with a view of giving the pledgee a preference, and he has reasonable cause to believe the pledgor to be insolvent.*^ An intent to pledge does not constitute a pledge, but there must be delivery to the pledgee; and, therefore, where bonds held by the president of a railroad company for the company never passed from his control, there was not a pledge of them to a syndicate of which he was a member, though he may have intended to pledge them to secure loans made by the syndicate to the company, there being no actual delivery of them to the trustee of the syndicate who held the notes of the company. *- An agreement was made by a debtor to pledge a horse and carriage which were in the care of a third person, the debtor giving an order on such person for the delivery of the property. Before the order was presented the property was attached by another creditor of the debtor. It was held that the agreement was of no effect as a pledge, as the pledge was not completed by a delivery.*^ An executory contract to deliver certain shares of stock as "Hitchcock V. Hassett, 71 Cal. 331, Fed. 686; Copeland v. Barnes, 147 12 Pac. 228. An agreement or oral Mass. 388, 18 N. E. 6S. transfer of ore where the creditor *= Hook v. Ayers, 80 Fed. 978, 26 C. fails to take possession does not create C. A. 287. Cameron v. Orleans &c. R. a pledge of the ore. Chitwood v. Co., 108 La. 83, 32 So. 208. As to ne- Lanyon Zinc. Co., 93 Mo. App. 225. cessity of delivery see Little v. Barry, A promise to put up collateral secur- — Ky. L. — , 113 S. W. 902; Dono- ity for money borrowed when posses- ven & Daley v. Travers & Hermann, sion of the collateral is not taken by 122 La. 458, 47 So. 769. the lender will not create a pledge of '^ Rowell v. Clagett, 69 N. H. 201, 41 such collateral. Cameron v. Orleans Atl. 173. American Can Co. v. Erie &c^R. Co., 108 La. 83, 32 So. 208. Preserving Co., 183 Fed. 96; In re "Nisbit V. Macon B. & T. Co., 12 Automobile Livery Service Co., 176 Fed. 792. § 29 COLLATERAL SECURITIES. 38 collateral security for a debt will not be enforced by a court of equity after the debtor has died insolvent, when his other cred- itors would be injured by the enforcement of the contract."* As between the parties themselves an actual delivery may not be necessary. The possession may be regarded, constructively, where the contract places it.*^ Upon this point Mr. Justice Loomis said: "We have observed, however, for several years a growing laxity on the part of judges and jurists in the applica- tion of the principles of constructive pledge delivery, until now it must be confessed there are authorities of great weight and respectability that hold that, as between the parties themselves, an actual delivery may not be necessary, and that the possession may be regarded constructively where the contract places it."*° § 29. No lien from contract to deliver possession. — An en- gagement to deliver property in pledge amounts to nothing as security. The pledgee acquires no right of property until deliv- ery is actually made.*'' A delivery cannot be dispensed with by a written agreement that the party making the pledge will hold it as the bailee of the pledgee.** The cashier of a bank, to secure a creditor who had accom- modated it, sealed up a package of its own bank bills and left them in its vault, indorsing thereon that the package was in- tended as such security; but no entry of the transaction was made upon the books of the bank, and the package remained under the absolute control of the officers of the bank. Conse- "City Fire- Ins. Co. v. Olmsted, 33 Jones (N. Car.) 130; D'Meza's Sue- Conn. 476. cession, 26 La. Ann. 35. In order for " Keiser v. Topping, 72 111. 226. a pledgee to maintain the priority of *° Huntington v. Sherman, 60 Conn, his lien over the lien of a subsequent 463, 467, 22 Atl. 769, citing Keiser v. mortgagee he must prove that his pos- Topping, 72 111. 226; Tuttle v. Robin- session accompanied the pledge. Cot- son, 78 111. 332; Martin v. Reid, 11 C. ton v. Arnold, 118 Mo. App. 596, 95 S. B. (N. S.) 730; Easton v. German W. 280; In re Pleasant Hill Lumber American Bank, 127 U. S. 532, 31 L. Co., 126 La. 743, 52 So. 1010. ed. 210, 8 Sup. Ct. 1297. "First Nat. Bank v. Nelson, 38 Ga. "Silverman v. McGrath, 10 Bradw. 391, 95 Am. Dec. 400; Hitchcock v. (111.) 413; Propst v. Roseman, 4 Hassett, 71 Cal. 331, 12 Pac. 228. 39 NATURE. § 30 quently it was held that the creditor acquired no legal nor equi- table lien upon the bills.*' Where a warehouse company took notes of a corporation and it was agreed it should receive certain personal property as a security for their payment, but such property was left on the premises of the debtor corporation under an agreement that a custodian who was also an employe of the debtor should take possession, which he did, and put up and maintained placards showing the creditor's interest in the property, it was held that the 'creditor, through the custodian, held such property as a pledge and could enforce its lien against the debtor and a receiver afterward appointed for all its property.^" § 30. Pledge of future property. — Obviously a pledge of future property is not effectual until the property comes into existence, and is delivered to the pledgee. As to such property there can only be an agreement to pledge it, because there can be no delivery to make the pledge effectual. ^^ There can be no valid pledge of a runaway^ slave, or of an anchor lost overboard in the bay, because there can be no de- livery in such case, though there might be a valid mortgage of such property." Although there cannot be a pledge, technically speaking, of a chattel not in existence, there may be a contract in the nature of an agreement to pledge, which .will attach to the "Davenport v. City Bank, 9 Paige for, the bills remaining in the control (N. Y.) 12. The transaction was evi- of the bank, the hypothecation was dently made for the purpose of evad- merely fictitious. ing a statutory provision limiting the "" Philadelphia Warehouse Co. v. amount of bills which a bank could Winchester, 156 Fed. 600 (U. S. C. C, issue. Where the bills of a bank are Del. 1907). To the same effect see legally pledged for the security of a American Can Co. v. Erie Preserving debt due another, so as to entitle him Co., 171 Fed. S48. to hold and use such bills for his in- " Gittings v. Nelson, 86 111. 591 ; demnity, they must be considered as Smithurst v. Edmunds, 14 N. J. Eq. issued and in circulation within the 408; In re Pleasant Hill Lumber Co., true intent of the statute limiting such 126 La. 743, 52 So. 1010. issues, as in such a pledge the bills are °° Owens v. Kinsey, 7 Jones (N. no longer under the control of the Car.) 245; In re Perlhefter, 177 Fed. bank. But in the present case there 299. was a mere attempt to evade the law ; § 31 COLLATERAL SECURITIES. 4O chattel as soon as it is produced. Thus, where it was stipulated by a brick-maker that the lessees of a brickyard should retain the bricks to be made by him as security for their advances to the brick-maker, the bricks were held to be pledged as fast as they were manufactured."' § 31. Estoppel of pledgor. — The pledgor of future prop- erty upon subsequently acquiring it is estopped as against his pledgee from asserting that he did not own it when he pledged it." If the pledgor at the time of the pledge made a delivery of the property, which would be efifectual had the pledgor owned it at that time, such delivery may' enure to the benefit of the pledgee upon the pledgor's subsequently acquiring title, so as to make the pledge efifectual. Thus, a person who had verbally bargained for a quantity of flour which was then stored in a warehouse obtained a loan on a pledge of it by pointing it out, and delivering a warehouse receipt to the lender. At that time he had not acquired title to the flour, but afterward, upon pay- ing the price of the flour, did acquire title, and received from the vendor an order for it upon the warehouseman. In the mean- time a third person having become possessed of it without right, ' the pledgee resorted to an action of replevin to recover it. It was held that he was entitled to recover, on the ground that the pledgor's subsequent acquisition of title enured to the benefit of the pledgee, and that since he had the warehouse receipt which entitled him to possession, there was no occasion for a new de- livery or any other ratification of the pledge."" § 32. Increase of pledged property. — The increase of prop- erty pledged is pledged with the property ;" for although it does " Macomber v. Parker, 14 Pick, fective upon such delivery and not be- (Mass.) 497; and see Smith v. At- fore. American Pig Iron Storage kins, 18 Vt. 461 ; Goodenow v. Dunn, Warrant Co. v. German, 126 Ala. 194, 21 Maine 86; Ayers v. South Austra- 28 So. 603; In re Peacock, 178 Fed. Han Banking Co., L. R. 3 P. C. S48; 851. Sequeira v. Collins, 153 Cal. 426, 95 "Woodward v. Crump, 95 Tenn. Pac. 876. A contract may be made to 369, 371, 32 S. W. 195. furnish a pledge as security for a " Goldstein v. Hort, 30 Cal. 372. debt and the pledge will become ef- " So provided by statute in Califor- 41 NATURE. § 33 not come into existence until after the pledge is made, it is an incident of the thing pledged, and with that is in the pledgee's possession. § 33. Unfinished goods. — That the goods are unfinished when given in pledge, and are to be finished afterward at the ex- pense of the pledgor, is no obstacle to confirming and maintain- ing the pledge." § 34. Possession may be held by a third person. — But pos- session may be held by a third person for the pledgee, when such person will be considered as the pledgee's agent.°' And so if two or more persons be jointly in possession of the property of another, the latter may pledge it to one of such joint holders, and the pledge will be good if both or all of them have knowl- edge of the pledge, and assent to hold the property for the pledgee."" A delivery of property in pledge to one person as security for a debt due him, and also as security for debts due nia : Civ. Code 1906, I 2989. North trol over them. For evidence held in- Dakota : Rev. Code 190S, § 6196. sufficient to show a delivery, see case South Dakota: Rev. Code 1903, § of Sequeira v. Collins, 153 Cal. 426, 2107. Montana: 1 Codes 1895, Civ. 95 Pac.'876. Code, § 3893. Georgia: Code 1911, § "'Brown v. Warren, 43 N. H. 430; 3537. Hunsaker v. Sturgis, 29 Cal. Tibbetts v. Flanders, 18 N. H. 285; 142. See Jones on Chattel Mortgages, McCready v. Haslock, 3 Tenn. Ch. § 149. Gilson V. Martin, 49 Vt. 474. 13; Johnson v. Smith, 11 Humph. "Sumner v. Hamlet, 12 Pick. (Tenn.) 396; Weems v. Delta Moss (Mass.) 76; and see Glover v. Austin, Co., 33 La. Ann. 973; First Nat. Bank 6 Pick. (Mass.) 209; Moors v. Wy- v. Harkness, 42 W. Va. 156, 166, 24 man, 146 Mass. 60, 15 N. E. 104; S. E. 548, quoting text. Lewis v. Dil- Brewster v. Hartley, 37 Cal. 15, 99 lard, 76 Fed. 688, 22 C. C. A. 488. "A Am. Dec. 237. Where articles are in transfer of collateral security may be an infinished state, labor being re- made to a third party as trustee by quired to make them ready for use, agreement." Connecticut Trust &c. it is not required that they shall be Co. v. Fletcher, 61 Neb. 166, 85 N. W. removed from the premises of the 59. In support of above holding see pledgor to constitute their delivery to also, case of Citizens Nat. Bank of the pledgee. Nor is such delivery nee- Ft. Scott v. Bank of Commerce, 80 essarily incoftiplete because the pledg- Kan. 205, 101 Pac. 1005. or is permitted to exercise some con- " Brown v. Warren, 43 N. H. 430. § 34 COLLATERAL SECURITIES. 42 several other creditors, the terms of the pledge having been as- sented to, is a good pledge for all of them^and gives them all a lien upon the property."" In California," North Dakota,"' South Dakota,'* and Mon- tana,"* it is provided by statute that a pledgor and pledgee may agree upon a third person with whom to deposit the property pledged, who, if he accepts the deposit, is called a pledge-holder. A pledge-holder for reward cannot exonerate himself from his undertaking; and a gratuitous pledge-holder can do so only by giving a reasonable notice to the pledgor and pledgee to appoint a new pledge-holder, and, in case of their failure to agree, by depositing the property pledged with some impartial person, who will then be entitled to a reasonable compensation for his care of the same. A pledge-holder must enforce all the rights of the pledgee, unless authorized by him to waive them. A pledgee, or a pledge-holder for reward, assumes the duties and liabilities of a depositary for reward. A gratuitous pledge-holder assumes the duties and liabilities of a gratuitous depositary. A trustee or pledge-holder may secure and hold property in pledge as security for debts of the pledgor to several persons, all of whom will have a lien upon the property according to the terms of the pledge."' °° Macomber v. Parker, 14 Pick, stored in my oil tank in Parkersburg, (Mass.) 497; Danforth v. Denny, 25 W. Va., as collateral security for the N. H. 155. return of $7,500, borrowed and re- " Civil Code 1906, §§ 2993-2998. ceived of them, and oblige, truly, Wm. "''Rev. Code 1905, §§ 6200, 6202- W. Harkness." This paper was in- 6205. dorsed : "Accepted, Parkersburg, W. ""Rev. Civ. Code 1903, § 2111. Va., May 23rd, 1888, signed — ." Said " 1 Codes 189S, Civ. Code, § 3897. was at the time the agent of said '" Macomber v. Parker, 14 Pick. Harkness in possession of said oil. It (Mass.) 497; Danforth v. Denny, 25 was held that the acceptance of such N. H. 155. In First National Bank v. order transferred the possession of Harkness, 42 W. Va. 156, 24 S. E. ihe oil to said trustees, and the oil 548, a party residing in Philadelphia was thereby pledged for the payment gave the following order to his agent of said borrowed money, and that an in the city of Parkersburg: "Will attachment subsequently -levied upon please hold to the order of trustees said property as the property of said of the estate of Samuel Simes, de- Harkness would be subject to the lien ceased, my stock of lubricating oil created by said pledge. Under the 43 NATURE. 8 34 A lumber man, in consideration of advances to be made to him, agreed to ship to the merchant making such advances all the timber he should cut upon certain lands, the merchant agree- ing to sell the timber and apply the proceeds toward the payment of such advances, and to pay the balance t© the lumber man. It was further stipulated that the lumber should be delivered, as fast as it should be ready for shipment, to raftsmen, such deliv- ery to be regarded as a delivery to the merchant. It was held that such delivery of the timber constituted a valid pledge. The owner of the land upon which the timber was cut sold it to the lumber man, taking a note for the purchase-price, with an agree- ment that he should have a lien for the payment of the note upon all timber in the purchaser's possession at the date of the matur- ity of the note. It was held that such lien was subordinate to the pledge as to all the timber delivered to the raftsmen before the maturity of the note, and that the owner of the land could not maintain a bill to enforce his lien upon timber so delivered, without an offer to discharge the pledge.*" Where a partnership undertook to pledge a stock of merchan- dise to trustees as security for the claims of certain creditors, and the agreement between the parties was that the managing partner should be continued in employment, at a salary, subject to the supervision of the trustees, who did not take personal pos- session, and the business was continued under the control of the same manager, and with the same employes as before, and the conspicuous signs of the partnership were allowed to remain, with a small and less conspicuous sign added, containing the names of the trustees designated as successors to the firm, and the business continued to be advertised extensively in the name of the firm, there was no sufficient change of possession to pre- Civil Code of California (§ 2996) collateral notes held by him and which making it the duty of a pledge holder he wrongfully turned over to the to enforce the pledgee's rights when pledgor. Faulkner v. First Nat. Bank, not waived by the pledgee, it was 130 Cal. 258, 62 Pac. 463. held that a pledgee may recover "Nobles v. Christin & Craft Gro- from the pledge holder the value of eery Co., 113 Ala. 220, 20 So. 961. § 35 COLLATERAL SECURITIES. 44 vent seizure of the property under attachment by another cred- itor of the firm." § 35. Delivery to employe. — A delivery of goods to a work- man or clerk employed by the pledgor, and possession by such workman in behalf of the pledgee, are sufficient to create and continue the lien."* Thus, a manufacturer of cloth, having agreed to give a creditor security on goods in process of manufacture, authorized the finisher employed by him to select and hold a cer- tain number of pieces of cloth for the use of the creditor, and the workman at the creditor's request selected the goods and re- moved them to another room in the factory, where he worked, and gave notice of the fact to the manufacturer and to his own attendants. The selection and appropriation of the goods were regarded as creating a lien as effectual as if the manufacturer himself had selected and set them apart. Moreover, the relation of the workman to the manufacturer did not affect his possession of the goods in behalf of the creditor under his special authority. To constitute an effectual possession it was not necessary that the goods should be removed from the premises of the manufac- turer. It was sufficient that they were so far in the custody of the " Lilienthal v. Ballou, 12S Cal. 183, the pledgor's dominion over the prop- S7 Pac. 897. But see in this connec- erty otherwise removed." And in the tion case of Philadelphia Warehouse same case the court further said, Co. V. Winchester, 156 Fed. 600. "Nor is the fact that the custodian '"Combs V. Tuchelt, 24 Minn. 423; was an employe of the bridge com- Lanaux's Succession, 46 La. Ann. pany, and in its sole pay, necessarily 1036, IS So. 708. A bridge company inconsistent with his lawfully and ef- became indebted to a bank and fectually acting as the representative pledged to the bank quantity of iron of the bank (pledgee), and with his which it placed in piles on its prem- possession being regarded in law as ises and which were taken possession that of the bank." In re Cincinnati of by an employe of the debtor as Iron Store Co., 167 Fed. 486. See agent of the creditor and the transac- also to the same effect Love v. Export tion was in good faith. In deciding Storage Co., 143 Fed. 1, 74 C. C. A. the case the court said, "The mere 15S; Union Trust Co. v. Wilson, 198 fact that the iron was stored on the U. S. 530, 49 L. ed. 1155, 25 Sup. Ct. premises of the pledgor company did 766; Sumner v. Hamlet, 12 Pick, not invalidate the pledge, provided (Mass.) 76; Moors v. Wyman, 146 the possession was actually changed Mass. 60, 15 N. E. 104; Dunn v. from the pledgor to the pledgee and Train, 125 Fed. 221, 60 C. C. A. 113. 45 NATURE. § 35 workman that he could at all times have legal control of them, and give notice of the lien to any one interfering with his cus- tody of them, and remove them, if necessary for the protection of the pledgee." A manufacturing company gave to a creditor a paper acknowl- edging that it had pledged to him certain machinery, tools and goods in its factory, and the superintendent of the factory was requested and assented to hold possession of the chattels for the pledgee. These remained in the factory, and the superintendent exercised the same control over them after as he had before the pledging. Subsequently another creditor of the company, with- out knowledge of this transaction, and having been informed • by the superintendent that there were no liens upon the machin- ery, tools and goods in the factory, took a mortgage upon them to secure a debt and a loan. It was held that the pledge was in- valid as against the mortgage. Mr. Justice Reed, delivering the opinion of the court, said: "The chattels pledged, as we have seen, consisted of the machinery and tools used in the manu- facture of tools, and of the manufactured goods. They were, before the alleged pledging, in the factory of the owners. After the alleged pledging, they were still in the factory of the owners. * * * But it is said that the superintendent was there, and he had promised to hold possession of the chattels for the pledgee. The superintendent was and had been the superintendent of the owners. In exercising control over the operations of the factory, "Sumner v. Hamlet, 12 Pick, principal, it was held, notwithstand- (Mass.) 76. .American Can Co. v. ing the goods were not removed from Erie Preserving Co., 171 Fed. 548; the pledgor's premises but were kept Sequeira v. Collins, 153 Cal. 426, 95 in the basement of the mill, that prop- Pac. 876; Security Warehousing Co. erty so delivered was from the date V. Hand, 206 U. S. 415, 51 L. of such delivery pledged and that the ed. 1117, 27 Sup. Ct. 720. Where pledgee could enforce his pledge as a paper company became indebted against the pledgor or his assignee in for advances made to it and it insolvency. Dunn v. Train, 125 Fed. agreed with its creditor that the prod- 221, 60 C. C. A. 113. See to same ef- ucts of its mill as soon as finished feet Grand Ave. Bank v. St. Louis should be turned over to a person Union Trust Co., 135 Mo. App. 366, agreed upon as agent of the pledgee 115 S. W. 1071. who should hold possession for his § 35^ COLLATERAL SECURITIES. 46 of its machinery and of its products, he was probably the most conspicuous representative of the company. The pledgee left the company in possession without any visible change in the position of the chattels. The pledgee left the chattels in the very position calculated to lead any person dealing with them to the belief that the company held toward them the same relation it had always held. "While this condition of things existed, the superintendent asserted to the agent of the complainant that there was no lien upon the chattels, and upon the faith induced by that assertion, and of what he saw, the complainants made their loan and took their mortgage. The defendant is responsible for the condition of affairs and the occurrences which misled the complainants. The selection of the superintendent, occupying the place he did, was such as to impose upon the pledgee responsibility for his conduct. He was placed where his words were in accordance with his surroundings and his interests. "There were no means for a creditor or purchaser to ascertain the true posture of affairs by any visible feature, and the person selected by the pledgee to represent him, instead of asserting, repudiated his claim to possession."'" § 35a. Pledged property mixed with unpledged. — But if the clerk or other employe of the pledgor allows the pledged goods to be confused and intermixed with his employer's un- pledged goods, so that the two classes become indistinguishable, the pledgee fails to retain such possession of the goods as enables him to maintain the lien of his pledge. Thus a banker loaned money to a merchant, carrying a stock of goods in his store, taking an agreement that all the goods transferred by the latter to the former should be held only as security for the loans made, whether present or future. About once a month the merchant executed to the banker a bill of sale of the goods in his store. Soon after the date of each bill, the banker took possession of '° Dirigo Tool Co. v. Woodruff, 41 Philadelphia Warehouse Co. v. Win- N. J. Eq. 336, 344, 7 Atl. 125. See Chester, 156 Fed. 600. also in support of this proposition, 47 NATURE. § 36 the goods, by touching some of them, by appointing the mer- chant's clerk as his agent to take and hold possession, and by his acceptance of such agency. As new bills of sale were received the banker gave written orders to the clerk to deliver to the merchant in gross amounts portions of the goods included in former bills of sale. The merchant made sales from all the goods in the store without regard to whether or not they had been released by the banker, and this was permitted by the clerk, who, when- ever he thought the amount of the order had been fully drawn, would get a new one. No separation of the goods covered by these orders was made, and new goods as they came in, sometimes between the date of the bill of sale and the day of taking posses- sion, were mingled with the old. The proceeds of the sales went to the banker, who paid the clerk solely. The merchant finally went into insolvency, and his assignee took possession of the goods. It was held, in an action of replevin by the banker, that he had failed to retain such possession of the goods as to enable him to maintain his lien.''^ The court regarded the arrangement as one made with the obvious purpose, or, at any rate, with the effect of enabling the merchant to carry on his business in the usual manner and without exciting suspicion; and there never was a day, so far as it appears, when he might not have sold any particular piece or parcel of goods in his store without his violating his understanding with the banker. * * * There was no attempt to keep distinct and separate any specific portions of the stock of goods as those which were subject to the pledge. This course of business was inconsist- ent with the view that the banker retained possession of any specific part of the goods. § 36. Symbolical or constructive delivery. — A symbolical or constructive delivery is sufficient, wherever such a delivery would be sufficient in case of a sale of the same property. Such a delivery may be made of all property incapable of manual " Moors V. Reading, 167 Mass. 322, Fed. 600 ; Vaughn v. Rhode Island 45 N. E. 760. But see Philadelphia Mortgage &c. Co., 24 R. I. 350, 53 Atl. Warehouse Co. v. Winchester, 156 125. § 36 COLLATERAL SECURITIES. 48 delivery. Thus logs in a boom may be effectually pledged by going in sight of them and pointing them out to the pledgee. It is not necessary that the pledgee should place any one in charge over such property, or that he should immediately take any other possession of it than the possession constructively given. If the pledgee is already in possession of the thing pledged, though for another purpose, the pledge immediately becomes effectual without any further delivery.'" A tenant occupying a shop agreed w^ith the owner, who was his landlord, that a quantity of tools in the shop, of which a list was made, should be pledged to the owner for an overdue rent bill, the tools to remain in the shop and to be used by the pledgor in his business. Afterward the landlord gave the tenant notice to quit possession of the shop, and the latter did quit possession and removed the tools to his residence, where he con- tinued to carry on his business until they were replevied by the landlord claiming them under his pledge. The court held that there had been no actual delivery of the tools to the pledgee, and that as he had no right to the immediate possession of the prop- erty he could not maintain his action.'^ "The circumstances ordinarily furnishing a basis for con- structive delivery are wholly wanting; the goods are not at sea, nor in a warehouse, nor were they too ponderous to be readily moved, nor were they placed within the power and control of the plaintiffs. It is true the plaintiffs owned the shop where the goods were, but the defendant as lessee held lawful posses- '- Jewett V. Warren, 12 Mass. 300, 7 for. In re Cincinnati Iron Store Co., Am. Dec. 74; Nevan v. Roup, 8 Iowa 167 Fed. 486; Little v. Berry, — Ky. 207; Whitney v. Tibbitts, 17 Wis. 359; — , 113 S. W. 902; In re Stothfang, 20 First Nat. Bank v. Harkness, 42 W. Ohio Cir. Ct. 27S, 11 O. C. D. 103; Va. 156, 166, 24 S. E. 548, quoting Farmers & Merchants Bank v. Ben- text; Hutchins v. Gilchrist, 23 Vt. 82, nett & Co., 120 Ga. 1012, 48 S. E. 398; 86; Dubois v. Spinks, 114 Cal. 289, First Nat. Bank v. Bacon, 113 App. 294, 46 Pac. 95. ' See Thorndike v. Div. (N. Y.) 612, 98 N. Y. S. 717; Bath, 114 Mass. 116, 19 Am. Rep. 318, Kentucky Furnace Co.'s Trustee v. a case of sale ; Geilfuss v. Corrigan, City Nat. Bank, 25 Ky. L. 28, 75 S. W. . 95 Wis. 651, 670, 70 N. W. 306. The 848. transfer of a warehouse receipt will "Brown v. Warren, 43 N. H. 430; be a delivery of the property receipted Parsons v. Overmire, 22 111. 58. 49 NATURE. § Z1 sion, and how long he would or could so hold was uncertain. The pledge agreement contemplated no time for surrendering the possession of the shop to the plaintiffs.'"* A delivery of samples of goods is not a symbolical delivery of the goods themselves sufficient to constitute a delivery in pledge.^'' § 37. Delivery by written instrument.— A delivery of a document of title, which serves to put the pledgee in possession of the goods, is equivalent to an actual delivery of them." A delivery of a bill of lading,^^ of a warehouse receipt'' or wharf- inger's certificate, is as effectual a delivery of the goods repire- sented by such document as would be a delivery of the goods by actual manual delivery." The delivery of the keys of a warehouse may be made an effectual delivery of the goods that are in it.'" A delivery of goods to a carrier, with intent on the part of the owner to pass the property to the consignee, who has made advances upon them, is an effectual delivery. The carrier is then the bailee of the person to whom, and not of the person by whom, the goods are sent.'^ A delivery of a savings bank book to a third person, for delivery to a creditor as security for a debt, creates a valid pledge of the book and deposit.*'' '* Huntington v. Sherman, 60 Conn. ™ Dows v. National Exch. Bank, 91 463, 466, 22 Atl. 769; Parson v. Gil- U. S. 618, 23 L. ed. 214; First Nat. bert, 114 111. App. 17; Hunt v. Bode, Bank v. Kelly, 57 N. Y. 34; Cartwright 66 Ohio St. 25S, 64 N. E. 126 ; Ladd v. v. Wilmerding, 24 N. Y. 521 ; Rice &c. Myers, 4 Cal. App. 352, 87 Pac. 1110. Malting Co. v. Bank, 185 111. 422, 56 "Thurber v. Oliver, 26 Fed. 224. N. E. 1062, affirming 86 111. App. 136; "Ryall V. Rolle, 1 Atk. 165, 176; Union Trust Co. v. Trumbull, 137 111. First Nat. Bank v. Harkness, 42 W. 146, 27 N. E. 24; Taylor v. Turner, 87 Va. 156, 168, 24 S. E. 548, quoting 111. 296 ; Michigan Cent. R. Co. v. Phil- text, lips, 60 111. 190; Canadian Bank v. Mc- " Meyerstein v. Barber, 36 L. J. C. Crea, 106 III. 281. P. 48, affirmed H. 289, L. R. 2 C. P. '" Ryall v. Rolle, 1 Atk. 165, 171 ; At- 38, 661 ; Moors v. Wyman, 146 Mass. kinson v. Maling, 2 T. R. 462 ; Tat- 60, IS N. E. 104. ham v. Andree, 1 Moore P. C. (N. S.) " National Exchange Bank v. Wil- 386 ; Hilton v. Tucker, 39 Ch. D. 669. der, 34 Minn. 149, 24 N. W. 699; In "Toms v. Whitmore, 6 Wyo. 220, re Cincinnati Iron Store Co., 167 Fed. 44 Pac. 56. 486; Little y. Berry, — Ky. L. — , 113 »' Boynton v. Payrow, 67 Maine 587 S. W. 902. 4— CoL. Sec. § 38 COLLATERAL SECURITIES. 50 When a mill company transfers warehouse receipts for grain to a bank as collateral security for the repayment of advances, the bank has a lien dependent on possession and while the grain remains in the warehouses of third parties and the bank holds the receipts, it has sufficient possession to keep its lien valid ; but when the receipts are indorsed and delivered, together with the grain, to the mill company, in order that it may crush the grain, the lien of the bank as against creditors of the mill company is extinguished.*' But writings pertaining to a transfer of property in pledge, not accompanied by an actual and continued charge of posses- sion, do not constitute a pledge valid as against the pledgor's creditors.** ^ § 38. Contract rendered valid by delivery. — A pledge or contract for a pledge, ineffectual for want of delivery, may be rendered valid by a subsequent delivery, even as against an inter- mediate creditor at large of the pledgor. Of course such sub- sequent delivery would not prevail against a creditor who had, between .the time of the making of the contract and taking possession under it, acquired a specific lien upon the thing pledged by attachment or levy of execution. The only other obstacle which could prevent such a transaction from being effec- tual would be the intervention of fraud. But such a transaction is not fraudulent in itself, and fraudulent intent in it is a ques- tion for the jury.*° '" Salinas City Bank v. Graves, 79 the pledge contract, which must be ac- Cal. 192, 21 Pac. 732. The lien is lost knowledged and recorded, that the by delivering the pledged property to pledgor is to retain possession. Grif- the pledgor's purchaser. Thalmann v. fin v. Henry, 99 111. App. 284. Capron Knitting Co., 182 N. Y. 525, '^ Hilton v. Tucker, 39 Ch. D. 669; 74 N. E. 1126. But see Thompson v. Parshall v. Eggert, 54 N. Y. 18; re- Calvin, S3 Ore. 488, 101 Pac. 201. versing 52 Barb. (N. Y.) 367; Prouty " George v. Pierce, 123 Cal. 172, 176, v. Barlow, 74 Minn. 130, 76 N. W. 946; 55 Pac. 775, affirmed 56 Pac. 53. Un- Baker v. Pottle, 48 Minn. 479, 51 N. der a statute in Illinois a pledgor may W. 383 ; Clarke v. National Citizens' retain pledged property and the pled- Bank, 74 Minn. 58, 76 N. W. %5, 1125. gee's rights will not be affected by Where there is an agreement to such retention when it is provided in pledge brick not yet burned, a deliv- 51 NATURE. § 39 Under a statute requiring an immediate delivery of the pledge, what constitutes such a delivery is a question of fact. The character of the property, and its situation, and all the circumstances, must be taken into consideration in determin- ing whether there was a delivery within a reasonable time so as to meet the requirements of the statute.^" An agreement of a debtor authorizing his creditor to take and sell certain property in the hands of a third person, upon whom he gives an order for the same, is a mere executory agree- ment for a pledge, and is ineffectual unless the creditor obtains possession of the property.'^ § 39. Subsequent delivery. — A subsequent delivery, if made before other rights have intervened, is effectual. Thus, a mer- chant obtained from a banking house a discount of his note, having attached to it a receipt headed with his name, place of business and the date, in the following words : "Received in store, for the account of A (the bankers), subject to their order, the following named property, as security to my note, given this day for fourteen hundred and eighty dollars, for twenty days from date," with a description of the property. The receipt was signed by the merchant, but the property was not immediately delivered to the bankers, nor until after the note became due and was dishonored. The merchant had in the meantime ab- sconded. But one of the pledgees went to the store where the property was, and demanded possession of it from the clerk in charge, and received from the latter the kej^s of the building. An hour afterward the property was seized by the sheriff upon an attachment in favor of a creditor of the pledgor. In a suit by the bankers against the sheriff to recover the property, the ery after the brick are burned will be " Bidstrup v. Thompson, 45 Fed. valid as between the pledgor and 452; Rowell v. Claggett, 69 N. H. 201, pledgee. Sequiera v. Collins, 153 Cal. 41 Atl. 173 ; Brown v. Wiggins, 16 N. 426, 95 Pac. 876. H. 312; Atkinson v. Foster, 134 111. *■ Samuels v. Gorham, 5 Cal. 226; 472, 25 N. E. 528. And see Barnard Dubois V. Spinks, 114 Cal. 289, 293, 46 v. Hawks, 111 N. Car. 333, 16 S. E. Pac. 95; Sequeira v. Collins, 153 Cal. 329; In re Automobile Livery Service 426, 95 Pac. 876. Co., 176 Fed. 792. § 40 COLLATERAL SECURITIES. 52 Supreme Court held the delivery of the property, or rather the possession of it gained by the pledgees, was not sufficient as against the attaching creditor. But upon appeal this decision was reversed, and it was held that a contract for a pledge, in- effectual for want of delivery, may be made valid by a subse- quent delivery; and that nothing but the intervention of fraud, or the acquiring by a creditor of a specific lien upon the thing pledged, will prevent the perfecting of the pledgee's right.'' "Certainly there is no rule of law," say the court, "which requires a pledge in writing to be filed as a chattel mortgage; nor is it consonant with any rules for the construction of statutes to borrow such a requirement as to pledges from the positive provisions which, when enacted, were introductive of a new rule, and which declared unfiled chattel mortgages abso- lutely void as against creditors; nor is there any warrant for saying that because a chattel mortgage unfiled could not be afterward filed with the effect to cut off the right of an inter- mediate creditor to avoid it as under the statute conclusively fraudulent, therefore, a pledge of undelivered goods cannot be made effectual against an intermediate creditor by delivery, in the absence of fraud. Though a contract of pledge should be regarded, when unaccompanied by delivery, as within the other provisions of the statutes in regard to fraudulent conveyances and contracts as to personal property, the question of fraud then arising would be a question of fact upon which the party would have a right to go to the jury. In the absence of any inter- mediate right, the parties could perfect a written contract of pledge by subsequent delivery." § 40. Surrender of pledge. — It is a well-settled principle that a delivery back of the possession of the thing pledged ter- " Parshall v. Eggert, 54 N. Y. 18, A pledge of property can only take reversing 52 Barb. (N. Y.) 367. If effect upon delivery, notwithstanding possession is not taken until after the that the pledge contract was entered property is seized at the suit of an- into and the money advanced by the other creditor the pledge is invalid for pledgee before that time. American the want of delivery. Cameron v. Or- &c. Warrant Co. v. German, 126 Ala. leans &c. R. Co., 108 La. 83, 32 So. 208. 194, 28 So. 603. S3 NATURE. § 40 minates the pledgee's title, unless such redelivery be for a tem- porary purpose only, or be to the pledgor in a new character, such as special bailee, or agent.^" Thus, a pledgee of a carriage loses his lien by permitting the pledgor to retain possession, and let it for hire for his own benefit. The pledgor's possession in such case is absolute and unqualified, although the pledgee ™ Ryall V. RoUe, 1 Atk. 165 ; Reeves V. Capper, 5 Bing. N. C. 136, 140, 141 ; Harper v. Godsell, L. R. 5 Q. B. 422; Citizens' Nat. Bank v. Hooper, 47 Md. 88; Kimball v. Hildreth, 8 Allen (Mass.) 167; Farlow v. Ellis, IS Grdy (Mass.) 229; Scudder v. Bradbury, 106 Mass. 422; Haskins v. Warren, 115 Mass. 514; Upton v. Sturbridge Cotton Mills, 111 Mass. 446; Wilkie V. Day, 141 Mass. 68, 6 N. E. 542; Thompson v. DoUiver, 132 Mass. 103 ; Wyeth V. National Bank, 132 Mass. 597; Walcott v. Keith, 22 N. H. 196j Look V. Comstock, 15 Wend. (N. Y.) 244; Fletcher v. Howard, 2 Aik. (Vt.) 115, 16 Am. Dec. 686; Day v. Swift, 48 Maine 368; Shaw v. Wilshire, 65 Maine 485; Barrett v. Cole, 4 Jones (N. Car.) 40 ; Smith v. Sasser, 4 Jones (N. Car.) 43; Bodenhammer v. New- som, 5 Jones (N. Car.) 107, 69 Am. Dec. 775, First Nat. Bank v. Nelson, 38 Ga. 391, 95 Am. Dec. 400; Geddes V. Bennett, 6 La. Ann. 516; Treadwell V. Davis, 34 Cal. 601, 94 Am. Dec. 770; McFall V. Buckeye &c. Warehouse Assn., 122 Cal. 468, 55 Pac. 253; Palm- tag V. Doutrick, 59 Cal. 154, 43 Am. Rep. 245; Britton v. Harvey, 47 La. Ann. 259, 267, 16 So. 747; Atlanta Guano Co. v. Hunt, 100 Tenn. 89, 98, 42 S. W. 482, quoting text. Where the pledgor secures the possession from the pledgee for a special pur- pose only, the pledgee does not part with the legal possessicin and his rights in the property are not lost. Harding v. Eldridge, 186 Mass. 39, 71 N. E. 115; Hickok v. Cowperthwait, 137 App..Div. (N. Y.) 94, 122 N. Y. S. 78. Nor will pledgee as against a pledgor part with the legal possession by subpledging the property. Meyer V. Moss, 110 La. 132, 34 So. 332. By taking possession of the property of a debtor corporation a creditor does not waive his lien on property pledged to him by a stockholder to secure the identical debt. Weiscopt v. Newman, 24 Ky. L. 36, 65 S. W. 808. Where a surety on a note paid it by giving his own note and delivered the note on which he had been surety to the hold- ; er of his individual note as collateral security and the notes were purchased by a third party who returned the col- lateral to the surety who put it up, it was held that the return of such note extinguished the surety's obligation and the holder of the individual note of such surety had no valid claim on such collateral. Union & Planters Bank v. Smith, 107 Tenn. 476, 64 S. W. 756. Where stock in a corpora- tion is put up as collateral security and by consent of the parties such stock is cancelled, it cannot thereafter be available as collateral. Its cancel- lation amounts to a surrender of it as collateral. Corning v. Bridgewater Gas Co., 100 111. App. 221. See also Thalmann v. Capron Knitting Co., 182 N. Y. 525, 74 N. E. 1126. § 41 COLLATERAL SECURITIES. 54 restricted its use to the pledgor's most careful drivers."" But a pledgee of a carriage would not afifect his lien by temporarily putting it into the hands of the pledgor for the purpose of having repairs made upon it. The owner is but a special bailee for the creditor in such case, and his possession for this purpose does not amount to an interruption of the pledgee's possession. A temporary loan of a carriage by the pledgee to the pledg- or would not invalidate the pledge, and the pledgee may re- cover it of the pledgor, if he refuses to return it, by an action of replevin."^ But where a horse was pledged, and was imme- diately delivered back to the owner upon an agreement that he should" keep and use the horse until the ensuing autumn, when the pledgee was to sell the horse and pay himself out of the proceeds, it was held that the horse in the owner's hands was liable to be seized and sold upon execution by a creditor of his.'^ And so where a horse taken in pledge was returned to the pledgor that he might have the horse to use, it was held that the lien of the pledge- was thereupon destroyed, and a pur- chaser of the horse from the debtor would acquire a good title as against the pledgee ;°^ or that a creditor of the pledgor might attach the horse and hold it against the pledgee."* § 41. Wrongful possession by pledgor. — Possession and control of the pledge obtained by the wrongful act of the pledgor, without the assent of the pledgee, will not create a forfeiture of the lien, nor defeat his right to recover damages for an injury to the pledge, or for a conversion of it."' The pledgee " Walker v. Staples, 5 Allen Eplan v. Wheat, 134 Ga. 511, 68 S. E. (Mass.) 34; Merced Bank v. Price, 78. 9 Cal. App. 177, 98 Pac. 383. « Barrett v. Cole, 4 Jones (N. Car.) " Cooper V. Ray, 47 111. 53. Where 40. a pledgee returns pledged property to " Day v. Swift, 48 Maine 368. the pledgor to allow him to sell it un- °' Colby v. Cressy, 5 N. H. 237. der his agreement that he will return "" Walcott v. Keith, 22 N. H. 196. it on a certain day or pay a sum of The wrongful act of the pledgor in money and he does neither, the procuring possession of pledged prop- pledgee does not lose' his interest in erty from the pledgee and disposing the property and he may sue the of it will not defeat the pledgee, pledgor in trover for the property. American Pig-iron Storage-Warrant 55 NATURE. § 42 cannot be deemed to have released his Hen when the possession of the pledge has been obtained by the pledgor through deception and false pretenses."" A pledgor may be guilty of stealing the pledge from the pledgee, although the pledgor is the general owner, and the pledgee has no title to it but only a special prop- erty. The property, in an indictment for larceny, may be laid . in the special owner. *^ § 42. Possession not conclusive evidence of fraud. — Pos- session of the property by the pledgor after it is pledged is not conclusive evidence of fraud, but is prima facie evidence of it. Such possession may be explained and proved to be a possession by the pledgor as agent or servant of the pledgee."' If the cir- cumstances make out a good reason for giving the custody and apparent control of the property to the pledgor, who undertook to act as the pledgee's agent, there may not -even be any evidence of fraud; and at most the pledgor's possession will only be evidence, either that the pledge has been abandoned, or that the transaction was fraudulent."" Where a wagon-maker and a blacksmith entered into an arrangement for building wagons, whereby the former was to do the wood-work and the latter the iron-work, and also to furnish the materials for the wood-work, and as security therefor was to have a lien upon the wagon- maker's interest in the wagons, upon an attachment of the wagons as the property of the latter by another creditor, it was held that the arrangement constituted a pledge of the wagon-maker's interest in the property to the blacksmith, and that when wagons came into the possession of the latter, he Co. V. German, 126 Ala. 194, 28 So. ion will not affect the pledgee's rights. 603. Harding v. Eldridge, 186 Mass. 39, 71 '" Bruley v. Rose, 57 Iowa 651, 11 N. N. E. 115. W. 629. " Ex parte Fitz, 2 Low. (U. S.) "Bruley v. Rose, 57 Iowa 651, 11 519; and see Rothermel v. Marr, 98 N. W. 629. Pa. St. 285. In support of this princi- " Macomber v. Parker, 14 Pick, pie, see Kentucky Furnace Co.'s Trus- (Mass.) 497. Where a pledgor is the tee v. City Nat. Bank, 25 Ky. L. 28, agent of the pledgee and as such re- 75 S. W. 848. tains pledged property, such possess- § 43 COLLATERAL SECURITIES. 56 became a pledgee in possession, and was entitled to retain pos- session until his claim was paid.^ At the time of the attach- ment it appeared that the pledgee was in exclusive possession of the wagons, which were upon his own premises, and were marked with his name as maker. The pledgor was, however, at that time engaged in painting one of the wagons. But it was con- sidered that this fact, when viewed in its relation to the subject, and to the attending circumstances, did not show any surrender on the part of the pledgee of the actual possession of the prop- erty.' § 43. Pledgor agent of pledgee.— A pledgee may employ the pledgor as his agent to sell goods held in pledge, and he does not lose his lien by allowing the pledgor to contract in his own name for their sale, or by delivering the goods on his order to the purchaser.' By allowing the pledgor to contract in his own name the pledgee takes the usual risk of such an authority; and if the purchaser has paid the agent in full, the pledgee cannot reclaim the goods nor recover the price ; but will be compelled to look only to his agent for the proceeds. But he also retains the rights of a principal; and, by notifying the purchaser of these rights he becomes entitled to receive the unpaid purchase-money in preference to his agent.* If the pledgee employs the owner to sell the goods pledged, and the latter sells with notice to the purchaser of the pledgee's lien, and moreover renders bills of sale in the latter's name, and the purchaser agrees to pay the price to him, it is wholly clear that the pledgee's rights are fully protected, and in a suit by the pledgee for the price of the goods,' the purchaser cannot set off a claim against the owner. ' Waldie v. Doll, 29 Cal. SSS. to sell pledged property. Harding v. ''Waldie V. Doll, 29 Cal. 555. Eldridge, 186 Mass. 39, 71 N. E. 115. 'Thayer v. Dwight, 104 Mass. 254; * Thayer v. Dwight, 104 Mass. 254. Rothermel v. Marr, 98 Pa. St. 285; 'Nottebohm v. Maas, 3 Robt. (N. Durfee v. Harper, 22 Mont. 354, 369, Y.) 249. See Wharton v. Lavender, 56 Pac. 582. The pledgor may be 14 Lea (Tenn.) 178. employed by the pledgee as his agent ^7 NATURE. 8 44 The pledgors of a bill of lading representing a specific cargo were under contract to sell a larger quantity of like goods to third parties. The pledgees returned the bill of lading to the pledgors to enable them to obtain delivery of the , merchandise and sell on the pledgee's behalf, and account for the proceeds toward satisfaction of the debt. It was held that the pledgees' security was not affected, and they were entitled to the proceeds of the cargo as against the diligence of general creditors of the pledgors.' §44. Possession of pledgor that of pledgee. — A pledgee does not lose his lien by permitting the pledgor to have pos- session of the property for a special and limited purpose, and not merely for his own use and benefit.' Thus the master of a ship having pledged his chronometer to the owners, they permitted him to keep it on board their ship, and use it for the purpose of navigating the ship for a limited period without losing their lien.' In like manner if the pledgee of a convertible railroad bond deliver it to the pledgor to be exchanged for stock of the same company, which is to be returned to the pledgee and sub- stituted for the bond in pledge, but the pledgor neither returns "Northwestern Bank v. Poyntner property remains unchanged where [1895], A. C. 56. See also, Hickok the pledgee allows the pledgor to V. Cowperthwait, 137 App. Div. (N. have possession of the property for Y.) 94, 122 N. Y. S. 78. some special purpose only. Harding 'Martin v. Reid, 11 C. B. N. S. 730; v. Eldridge, 186 Mass. 39, 71 N. E. Moors V. Wyman, 146 Mass. 60, IS N. 115. E. 104; Merchants' Nat. Bank v. 'Reeves v. Capper^ 5 Bing. N. C. Bank, 139 Mass. 513, 2 N. E. 89; 136; Langton v. Waring, 18 C. B. N. Wing V. Holland T. Co., 5 N. Y. S. S. 315; Way v. Davidson, 12 Gray 384; Matthewson v. Caldwell, 59 (Mass.) 465, 466, 74 Am. Dec. 604; Kan. 126, 134, 52 Pac. 104; Cooley Bruley v. Rose, 57 Iowa 651, 654, 11 V. Minnesota Transfer R. Co., S3 N. W. 629; Hutton v. Arnett, 51 111. Minn. 327, 55 N. W. 141. Where the 198- Cooper v. Ray, 47 111. S3; Black pledgee delivers the pledged property v. Bogert, 65 N. Y. 601; Collins v. back to the pledgor for some special Buck, 63 Maine 459. See, however, purpose he does not thereby lose his Bodenhammer v. Newsom, 5 Jones right. Hickofe v. Cowperthwait, 137 (N. Car.) 107, 69 Am. Dec. 775, not App. Div. (N. Y.) 94, 122 N. Y. S. in accord with the best authorities. 78. The legal possession of pledged § 44 COLLATERAL SECURITIES. 58 the bond nor the stock, he is liable in trover for the value of the bond. The pledgor receives back the bond in a new character, namely, that of special bailee or agent of the pledgee to exchange it for stock, and the possession of the latter was not thereby impaired.' A banker made advances to leather merchants on hides, for which bill of parcels were given to him, or bills of lading taken to his order or indorsed to him, with power to take pos- session and sell for his security or reimbursement. He in- dorsed the bills of lading to the firm to get the hides from the carriers, and gave it the custody upon its express agreement to hold as his agents and to redeliver the identical hides when tanned. It was held that the banker took the title to the hides and did not divest it by his indorsement or release of custody.^" In case the pledged property is delivered to a third person as pledge-holder for the parties the mere fact that the pledgor either with or without the knowledge or consent of the pledgee, for a time, assists the pledge-holder in taking charge of the property, does not necessarily render the holding of it as .a pledge void as to creditors of the pledgor. In such a case there is a sufficient delivery and continuous change of possession to preserve the lien of the pledgee.^^ The delivery of a warehouse receipt by the pledgee to the pledgor, to enable the latter to carry out a contract of sale as the pledgee's agent, does not affect his right to the proceeds ° Hays V. Riddle, 1 Sandf. (N. Y.) lie against him. Eplan v. Wheat, 134 248. The pledgor contended that un- Ga. 511, 68 S. E. 78. der the arrangement between the par- " Moors v. Wyman, 146 Mass. 60, ties,, whereby he was to return stock IS N. E. 104 ; Pratt v. Parkman, 24 for the bond, the creditor's special Pick. (Mass.) 42; Low v. DeWolf, 8 property was lost, and changed into a , Pick. (Mass.) 101; Moors v. Kidder, mere right of action upon the debtor's 106 N. Y. 32, 12 N. E. 818; Hickok promise to substitute stock, upon v. Cowperthwait, 137 App. Div. (N. which only an action of assumpsit Y.) 94, 122 N. Y. S. 78; Harding v. could be maintained. The pledgee Eldridge, 186 Mass. 39, 71 N. E. US. does not lose his lien by delivering "Hilliker v. Kuhn, 71 Cal. 214, 16 back to the pledgor the pledged prop- Pa'c. 707 ; Goldstein v. Nunan, 66 Cal. erty for a specified time and if the 542, 6 Pac. 451. pledgor refuse to return it trover will 59 NATURE. § 44 of the sale as between the parties or as against the purchaser, where the latter was notified of the pledgee's rights before making payment.^^ And so where the proprietors of a brick-yard contracted it out on shares to a brick-maker, agreeing to advance the money requisite for the making of bricks, and to divide with him the profits, after repayment of the advances, it was further agreed that the bricks, so fast as made, should be pledged to the owners of the yard as security for their advances; but the brick-maker was to keep them in his charge, and sell them at retail, and as often as he got the amount of one hundred dollars from the sales he was to deposit it in bank to the credit of the owners. The bricks were afterward attached at the suit of a creditor of the brick-maker; but the court held that the owners of the yard had not, by leaving the bricks in the hands of the maker, lost their lien as pledgees of the entire property. This limited authority to sell at retail, in small sums, was no waiver of the possession of the residue by the owners. ^^ A redelivery of a certificate of stock by a pledgee to his pledgor for the purpose of having it sold by the latter has been held not to terminate the pledge.^* A delivery by the pledgee of a promissory note indorsed in blank to the pledgor's attorney or agent for the purpose of collection, who has knowledge of the pledge, does not invali- date the title of the pledgee, who may maintain trover against one who with knowledge of the pledgee's rights purchases the note of the attorney or agent and collects it." As between the parties a pledge of shares of corporate stock may be affected by indorsement and transfer of the stock cer- ""Rice &c. Malting Co. v. Interna- Collins, 1S3 Cal. 426, 95 Pac. 876; tional Bank, 185 111. 422, 56 N. E. Thompson v. Calvin, S3 Ore. 488, 101 1062, affirming 86 111. App. 136; Hard- Pac. 201. ing V. Eldridge, 186 Mass. 39, 71 N. "Winslow v. Harriman Iron Co. E. 115; Farmers' & Merchants' Bank (Tenn. Ch. App.), 42 S. W. 698; Ep- V. Bennett & Co., 120 Ga. 1012, 48 S. Ian v. Wheat, 134 Ga. 511, 68 S. E. E. 398. 78. " Macomber v. Parker, 14 Pick. " Carter v. Lehman, 90 Ala. 126, 7 (Mass.) 497. See also, Sequeira v. So. 735. § 45 COLLATERAL SECURITIES. 6o tificates, but the transfer, to avail against the creditors of the pledgor, must be accompanied by delivery and continued change of possession; and if the possession of the certificate by the pledgee is only momentary, and it is at once returned to the pledgor, no valid pledge is constituted as against the creditors of the pledgor, and the shares may be attached and sold under execution against him.^" § 45. Pledgee may maintain action of trover against pledg- or. — A pledgee may maintain an action of trover against his pledgor, for a conversion of collaterals vi'hich the former has returned to the latter for a special purpose. Thus if a creditor . has redelivered to his debtor notes and mortgages held as col- lateral security, in order that they may be collected for the creditor's account, and the debtor fails to return them upon demand, he is liable in trover, or in a statutory action, which is a substitute for trover.^' The measure of damages in such case is the plaintiff's interest in the collaterals, which cannot exceed the amount of the debt secured. In like manner the pledgee of a promissory note, who has delivered it back to the pledgor under an agreement to return it, or another note, may maintain an action against him for the conversion of the note, although he obtained it without fraud.^^ After the special and temporary purpose for which a pledge has been redelivered to the pledgor has been accomplished, the pledgee may recover it or its value by action.^" If a promissory note, held in pledge, is delivered by the "McFall V. Buckeye Grangers "Way v. Davidson, 12 Gray Warehouse Assc, 122 Cal. 468, 55 (Mass.) 465, 74 Am. Dec. 604; Eplan Pac. 253. V. Wheat, 134 Ga. 511, 68 S. E. 78; "Hurst V. Coley, 15 Fed. 645; Hickok v. Cowperthwait, 137 App. Eplan V. Wheat, 134 Ga. 511, 68 S. E. Div. (N. Y.) 94, 122 N. Y. S. 78. 78; Henry v. State, 110 Ga. 750, 36 "Roberts v. Wyatt,.2 Taunt. 268; S. E. 55; Harding v. Eldridge, 186 Cooper v. Ray, 47 111. S3; Hutton v. .Mass. 39, 71 N. E. 115; Hickok v. Arnett, 51 111. 198; Eplan v. Wheat, Cowperthwait, 137 App. Div. (N. Y.) 134 Ga. 511, 68 S. E. 78. 94, 122 N. Y. S. 78. 6 1 NATURE. § 46 pledgee to the pledgor for the purpose of procuring it to be discounted, and a third person advances money upon the note, in good faith, and in ignorance of the pledgee's title, he can retain the note as against the pledgee, as security for the ad- vance; but if such person knew, at the time the note came into his possession, of the pledgee's title, he cannot hold it, as against the latter, either for an advance of money upon it as a loan to the pledgor, or as security for any former indebtedness of the pledgor to him/" § 46. The civil law makes same exceptions. — The civil law makes practically the same exceptions as the common law, in regard to a delivery to the pledgor for a temporary and special purpose, although in general the civil law is more strict than the common law, in requiring permanent and continued pos- session in the pledgee. Thus Troplong, commenting upon the articles of the Code Napoleon, respecting the pledgee's possession, says :^^ "Though the merchandise be deposited in the creditor's storehouse, it may still need the care of the debtor. Then it is not fotbidden to stipulate that he shall continue to attend to it in the interest of the creditor. The important thing is that this clause does jiot cover a fraud. Aside from this, the possession of the creditor is not incompatible with a certain co-operation of the debtor, — being for the conservation of the thing, — he still being tfie owner. The creditor does not any the less continue exclusive possessor of the thing. The debtor is none the less dispossessed of it." He instances the pledge of a large quantity of sparkling Burgundy which was delivered to an agent of the creditor, and deposited in a vault of which the agent was to keep the keys, but it was agreed that the debtor should give the wine all necessary care. It sometimes happened that the agent gave the keys to the debtor, and once the latter removed some of the bottles of wine to his own premises. The debtor having failed, his assignee insisted that the pledge was null and void, be- " Kellogg V. Tompson, 142 Mass. " Nantissement, No. 309. 76, 6 N. E. 860. § 47 COLLATERAL SECURITIES. 62 cause the debtor was not dispossessed of the wine. But it was held that there were sufficient reasons for the creditor's em- ploying the debtor to attend to the wine, and that the agent's allowing him to take the keys was a mere matter of conve- nience, to facilitate the operations of the workmen. But a dif- ferent result was reached in a case where wines were pledged and the debtors reserved the care of them, and though stored in vaults leased to the creditors, these vaults communicated by open doors with other vaults of the debtors, where their work- men were employed on the wines, and there was nothing to indicate which were pledged and which were not, and nothing to prevent a substitution of other wines; so that the debtors appeared in possession and kept up their credit thereby, which they could not otherwise have done. § 47. Title of bona fide purchaser. — A pledgor in posses- sion can give a good title to a bona fide purchaser. If pledged property which has been redelivered to the pledgor for a special purpose be sold by him, in violation of the agreement under which possession was redelivered to him, the purchaser having acted in good faith can maintain his title against the pledgee.^^ Thus, the fact that the pledgor of a horse obtained possession for a special purpose, such as to drive for a few miles, to visit a relative, upon the promise to return it in a day or two, and while upon the visit traded this horse for another, does not enable the pledgee to recover the horse from the purchaser.^' The decisions in these cases rest upon the general principle that one who voluntarily allows personalty to pass into the possession of another, conferring upon him at the same time all the indicia of ownership, is bound by the fraudulent acts '''Smith V. Sasser, 4 Jones (N. thwait, 137 App. Div. (N. Y.) 94, Car.) 43; Bodenhammer v. Newsom, 122 N. Y. S. 78; In re Tracy, 185 Fed. S Jones (N. Car.) 107; Way v. Dav- 844. idson, 12 Gray (Mass.) 46S, 74 Am. '^ Bodenhammer v. Newsom, 5 Jones Dec. 604; Eplan v. Wheat, 134 Ga. (N. Car.) 107, 69 Am. Dec. 775. 511, 68 S. E. 78; Hickok v. Cowper- 63 NATURE. § 48 of the latter, and cannot reclaim the property in the hands of an innocent purchaser for value without notice."* § 48. Pledgor cannot defeat the rights of pledgee when property is in the hands of pledgee. — But a pledgor cannot defeat the lien of the pledgee by disposing of the property after it has been restored to the latter. Thus, if the pledge be de- livered back to the pledgor for a temporary purpose, and after this is served it be restored to the pledgee, while it is in his pos- session the pledgor cannot mortgage or sell the property, except subject to the interest of the pledgee. The lien of a mortgage made under such circumstances would be subordinate to the interest of the pledgee, and the mortgagee could obtain possession only after paying or tendering the pledgee the amount of the debt secured after its maturity.''" "Atlanta Guano Co. v. Hunt, 100 "Cooper v. Ray, 47 111. 53. Tenn. 89, 98, 42 S. W. 482, quoting text. CHAPTER II. THE SUBJECT-MATTER OF AND THE PARTIES TO PLEDGES. ] 49. Kind of property that may be pledged, 49a. Description of property pledged. 50. Property exempt from execu- tion pledged. 51. Some kinds of property cannot be pledged. 52. Pledgor warrants his ownership of property. 53. Not necessary that property should belong to pledgor. 54. Mere possession not title. 55. Possession of stolen chattels. 56. Pledge of property obtained by fraud. 57. Possession presumptive evidence of title. 58. May pledge without being sole owner. 59. Owner of life interest may pledge. 60. Limited interest pledged — Rights of pledgee. 61. Administrator may pledge. 62. Vendor may pledge property. 63. Vendee in possession under con- ditional sale. 64. Common carrier or bailee of goods cannot pledge them. § 6S. Joint owner cannot pledge inter- est of his co-owner. 6Sa. Agent to sell cannot pledge. 66. Married woman may make con- tracts. 66a. Valid pledge cannot be made between husband and wife. 67. Married woman's property pledged. 68. Pledge of insurance policy by married woman. . 69. Pledge by one partner. 70. Corporation has power to pledge its property. 71. Corporation may pledge its un- issued stock. 72. Corporation may pledge its stock to its officers. 73. Manufacturing corporation may pledge its bonds. 74. Railroad company may pledge its bonds. 75. Corporation may take pledge. 76. When corporation cannot take pledge. 77. National bank may take pledge. 78. Bank may take pledge of stock of real estate corporation. 79. National bank cannot loan on its own stock. § 49. Kind of property that may be pledged. — Any kind of personal property may be pledged, provided it be in existence, and be capable of actual or symbolical delivery.^ ' In re Pleasant Hill Lumber Co., pledgor or pledgee cannot be pledged 126 La. 743, 52 So. 1010. Collaterals as security for an exitsing debt, not in the possession of either the Storts v. Mills, 93 Mo. App. 201. 64 gg SUBJECT-MATTER AND PARTIES. § 49a In olden times ordinary goods and chattels formed the subject- matter of nearly all pledges; but at the present time negotiable instruments, choses in action, shares of the capital stock of incorporated companies, bills of lading and warehouse receipts are the subject of the greater number of business transactions coming under the designation of collateral or pledges. The application of the general principles of the old law of pledges to these modern transactions, in which the paper evi- dences of value and property, or the documentary titles to prop- erty, are chiefly used has brought about a new and great devel- opment of the law of this subject ; and renders it necessary in a work of this kind to treat separately each of the general classes of these incorporeal things which now are so frequently delivered as collateral security. Therefore, while this chapter is devoted to the subject-matter of pledges in general, the chapters follow- ing this are devoted respectively to the consideration of pledges of negotiable instfuments, of choses in action, of corporate stocks, of bills of lading and of warehouse receipts. § 49a. Description of property pledged. — In a written con- tract of pledge the property agreed to be delivered as collateral security or as a pledge must be described and the pledgor is only bound to deliver such property to the pledgee as falls within that described. It is held where property is described as "iron, juiik, hides, etc.," that a quantity of rock salt and a set of scales were not included and need not be delivered.^ • It is, however, held that a delivery of' bonds to a pledgee by one who has contracted to deliver them as collateral, cures defects in the contract by reason of the failure to specify the particular bonds to be delivered.' § 50. Property exempt from execution pledged. — Prop- erty exempted by law from attachment and levy of execution 'Morganstein v. Commercial Nat. McNair, 139 N. Car. 326, 51. S. E. Bank, 12S 111. App. 397. 949. 'Virginia-Carolina Chemical Co. v. S — CoL. Sec. § 51 COLLATERAL SECURITIES. 66 may be pledged by the owner, who by such act waives the benefit of the exemption so far as the incumbrance extends.* Such exemption is no abridgment of the right of an owner of property to deal with it voluntarily as he may please, either in selling or pledging it; it is only a protection which he may avail himself of as against the adverse action of his creditors. Moreover the fact that the owner has pledged property exempt from execution does not subject his interest in it to execution in favor of a gen- eral creditor. Where a trade-mark and trade-name, property not subject to execution, is sought in a suit to be sold as pledged property, a creditor of the defendant having no interest in such mark or name is not a proper party and it was held to be error to admit him as a party.^ § 51. Some kinds of property cannot be pledged. — There may be a statutory prohibition of the pledging of a particular species of property. Thus, a pledge of a pension certificate is wholly void whatever be the purpose for which it is made.* This prohibition rests upon principles of general public policy. The Roman law prohibited the pledging of the debtor's neces- sary appar'fel and furniture, beds, utensils and tools ; his ploughs, and other utensils for tillage ; things esteemed sacred ; the benev- olence, or pension, or bounty of a monarch; and the pay and emoluments of officers and soldiers.^ In English-speaking coun- tries, although such property is generally exempt from attach- ment and execution, the debtor is left free to use it as he may choose for the purpose of obtaining loans or securing debts. * Frost V. Shaw, 3 Ohio St. 270 ; of Moses, forbade the giving in pawn Jones V. Scott, 10 Kan. 33; Kyle v. certain implements of husbandry and Sigur, 121 La. 888, 46 So. 910. a widow's raiment. Sir William ° Grossman v. Griggs, 186 Mass. Jones Bailm., 84. It has been decided 275, 71 N. E. S60. on principles of public policy that the "Act of Gongress July 29, 1848, R. half-pay of an officer is not assign- S., 1901, § 474S; Payne v. Woodhall, able or attachable. McGarthy v. 6 Duer (N. Y.) 169; Moffatt v. Van Goold, 1 Ball & B. 387, 389; Lidder- Doren, 4 Bosw. (N. Y.) 609. dale v. Montrose, 4 T. R. 248; Flarty ' Story Bailm., I 293. So, also, the v. Odium, 3 T. R. 681. Code of Jewish law, bearing the name 67 SUBJECT-MATTER AND PARTIES. § 52 § 52. Pledgor warrants his ownership of property. — A pledgor by the act of pledging impliedly warrants that he is the general owner of the property pledged f and he is liable to the pledgee in damages if the property, or any part of it, is taken from the latter under a superior title.* The pledgor cannot, on the ground that he has no title to the pledge, recover in an action against the pledgee. The pledge is valid between the parties, and invalid only as against the true owner of the property. But the fact that the pledgor has no title to the property authorizes the pledgee to deHver it to the real owner, and exempts the pledgee from all liability to the pledgor for its return to him.^" But it would seem that the pledgee should not be allowed to set up the title of a third person against the pledgor until such third person has given him authority so to do, or has enforced his own superior right of property.^^ A pledgor who has no title to the thing pledged at the time he pledges it, but afterward acquires title, cannot set up such title against his pledgee. '^^ Of course, if the pledgor has no title to the property, the pledgee will acquire no title by the pledge. The pledgee can take no greater right than the pledgor can confer.^' A pledgor as the owner of pledged property has title sufficient 'Goldstein v. Hort, 30 Cal. 372; who pledges impliedly undertakes Mairs v. Taylor, 40 Pa. St. 446. that the property pledged is his own ; "Cass V. Higenbotam, 27 Hun (N. and if it turns out not to be so, the Y.) 406. pledgee may restore it to the lawful '"Jones on Bailment, p. 83; Chees- owner." Parke, B., said: "I think man v. Exall, 6 Ex. 341 ; Jarvis v. that a person with whom property is Rogers, 13 Mass. lOS. In Cheesman pledged may set up the jus tertii, un- V. Exall, 6 Ex. 341, Pollock, C. B., less he has entered into an engage- said: "It may be that a person with ment with the person who pledged it whom property is pledged may con- to return the property to him." tract absolutely, and in all events, to "Story Bailm., § 291; Biddle v. deliver back the property to the Bond, 6 Best & S. 225; Garth v. pledgor; in which case I agree that Howard, 5 Car. & P. 346, 350; Palm- the former would be answerable in tag v. Doutrick, 59 Cal. 154, 43 Aim. damages for the breach of such a Rep. 245. contract, though the damages might '' § 31; Goldstein v. Hort, 30 Cal. be nominal only. That, however, is 372. not the ordinary result of the common ^ Waller v. Hanger, 3 Bulst. 1 ; contract. In that case, the person Hooper v. Ramsbottom, 4 Campb. § S3 COLLATERAL SECURITIES. 68 to enable him to bring an action in his own name to enforce the collection of a tax bill pledged as security for a loan prior to default in payment of the secured debt.^* § 53. Not necessary that property should belong to pledg- or. — But it is not indispensable in all cases that the pledge should belong to the pledgor. One may make a valid pledge of property belonging to another if he has the owner's consent to use it in this way.^° Such consent may be either express or implied. But his authority to pledge cannot be inferred merely from his possession of the property. Thus, a person to whom a debtor, on leaving the state on account of his pecuniary em- barrassments, has given a verbal direction to assist in the settle- 121 ; Cheesman v. Exall, 6 Ex. 341 ; First Nat. Bank v. Harris, 7 Wash. 139, 34 Pac. 466. One who takes property as a pledge from one in pos- session but without title or authority, has no lien as against the real owner. Sweeney v. Provident Loan Society, 65 Misc. (N. Y.) 580, 120 N. Y. S. 967; Clay v. Sullivan, 156 Ala. 392, 47 So. 153. A bailee having the posses- sion of personal property cannot le- gally pledge it for his own benefit and the pledgee in such a case secures no lien as against the real owner or his vendee. Schwab v. Oatman, 56 Misc. (N. Y.) 393, 106 N. Y. S. 741, 129 App. Div. (N. Y.) 274, 113 N. Y. S. 910. The title to property pledged is in the pledgor until default and sale or until the pledgee is guilty of con- version. Brown v. Bronson, 93 App. Div. (N. Y.) 312, 87 N. Y. S. 872. If the pledgor has embezzled the property he pledges the pledgee ac- quires no lien upon it, but the real owner may recover it or its value. Schwartz v. Clark, 136 111. App. ISO. "Dickey v. Porter, 203 Mo. 1, 101 S. W. S86. " Story Bailm., § 291 ; The John W. Cannon, 24 Fed. 392. This is per- mitted under Civil Code of Louisiana, art. 3142. Interurban Const. Co. v. Hayes, 191 Mo. 248, 89 S. W. 927. Where a married woman gave her husband property to use for margins for his use and upon his account and this was known to the broker and he pledged such property to the broker to raise money for margins required, the wife asquiescing therein, the broker has a valid lien on such prop- erty, which he could enforce by sale upon notice. Moore v. Rodewald, 142 App. Div. (N. Y.) 741, 127 N. Y. S. 725. Where an agent is authorized to pledge another's stock as collateral for a specific debt of his own, and also pledges it for other debts with- out authority, the validity of the au- thorized pledge will not be affected by his unauthorized act in pledging such stock for such other debts. Springfield Co. v. Ely, 44 Fla. 319, 32 So. 892. 69 SUBJECT-MATTER AND PARTIES. § S3 ment of his affairs, has no authority to transfer any property in pledge as security for a debt.^° In Louisiana the code provides that a debtor may give in pledge whatever belongs to him. But with regard to those things in which he has an ownership which may be divested, or which is subjected to incumbrance, he cannot confer on the creditor, by the pledge, any further right than he had himself. To know whether the thing given in pledge belonged to the debtor, reference must be had to the time when the pawn was made. If at the time of the contract the debtor had not the ownership of the thing pledged, but has acquired it since, by what title soever, his ownership shall relate back to the time of the contract, and the pledge shall stand good. .One person may pledge the property of another, provided it be with the express or tacit consent of the owner. But this tacit consent must be inferred from circumstances so strong as to leave no doubt of the owner's intention, as if he was present at the making of the contract, or if he himself delivered to the creditor the thing pawned. Although the property of another cannot be given in pledge without his consent, yet so long as the owner refrains from claiming it, the debtor who has given it in pledge cannot seek to have it restored until his debt has been entirely discharged. Tutors of minors and curators of persons under interdiction, curators of vacant estates and of absent heirs, testamentary executors, and other administrators named or confirmed by a judge, cannot give in pledge the property confided to their ad- ministration without being expressly authorized in the manner prescribed by law. An attorney cannot give in pledge the property of his prin- cipal without the consent of the latter, or an express power to that effect.^' Nevertheless, where the power of attorney con- tains a general authority to mortgage the propery of the prin- cipal, this power includes that of giving it in pledge. "Swett V. Brown, 5 Pick. (Mass.) "Reeves v. Smith, 1 La. Ann. 379. 178. § 54 COLLATERAL SECURITIES. 70 The property of cities and other corporations can only be given in pledge according to the rules and subject to the re- strictions prescribed on that head by their respective acts of incorporation/' In California^' and North Dakota^* it is provided by statute that one who has allowed another to assume the apparent owner- ship of property for the purpose of making any transfer of it cannot set up his own title to defeat a pledge of the property made by the other to a pledgee who received the property in good faith, in the ordinary course of business, and for value. § 54. Mere possession not title, — Mere possession of a chattel, though indicative of title, is not title; and one taking a pledge of it is bound to satisfy himself that the pledgor is the owner; and if he relies solely upon the pledgor's possession, he takes the risk of having to surrender the property to the true owner.^^ Thus, if one puts a chattel into the hands of a mechanic to repair it, the latter cannot by force of his possession, though this be lawful, give any effectual lien upon it by way of pledge.^" If one holding goods for safe-keeping pledges them with in- tent to convert the proceeds to his own use, he, in effect, com- mits a larceny, and the pledgee acquires no title as against the owner, although he deals with the pledgor in good faith.^' Mere possession of a chattel is not evidence of authority to pledge it, even under a statute which provides that one who "2 Rev. Civ. Code 1900, arts. 4 Denio (N. Y.) 323; McNeil v. 3142-3150. This is in effect a state- Tenth Nat. Bank, 46 N. Y. 325, 7 ment of the civil law upon this part Am. Rep. 341 ; Fatten v. Joliff, 44 W. of the subject of pledges. Va. 88, 92, 28 S. E. 740, quoting text. " Civil Code 1906, § 2991. '^ Gallaher v. Cohen, 1 Browne "Rev. Code 190S, § 6198. (Pa.) 43. "* Agnew v. Johnson, 22 Pa. St. 471, " Cox v. McGuire, 26 111. App. 315; 62 Am. Dec. 303; Kauffman v. Klang, Shafer v. Lacy, 121 Cal. 574; Patton 16 Misc. CN. Y.) 376, 38 N. Y. S. 56; v. Joliff, 44 W. Va. 88, 92, 28 S. E. Shafer v. Lacy, 121 Cal. 574, 577, 54 740, quoting text ; Hartop v. Hoare, Pac. 72, quoting text; Barstow v. 3 Atk. 44; Gottlieb v. Hartman, 3 Savage Min. Co., 64 Cal. 388, 1 Pac. Colo. S3. 349, 49 Am. Rep. 705 ; Covile v. Hill, 71 SUBJECT-MATTER AND PARTIES. § 55 has allowed another to assume the apparent ownership of prop- erty for the purpose of making any transfer of it cannot set up his own title to defeat a pledge of the property made by the other, to a pledgee who received the property in good faith, in the ordinary course of business, and for value.^* The words of the statute, "for the purpose of making a transfer of it," are words of limitation upon the power of the apparent owner to make the pledge ; and that section has no application, where no apparent ownership is conferred for the purpose of sale or transfer, but the property is merely entrusted to another for safe keeping.^' \ If chattels are pledged without authority by a person to whom they have been entrusted by the owner for a special purpose, the pledgee, after notice of the true ownership, and a demand by the owner, which he refuses, is liable to a subse- quent purchaser of the owner's rights, in trover, after a de- mand by such purchaser, although he has sold the chattels since the first demand, and before the second.^" )\ Where one authorized to pledge another's property to secure his own specific debt, also wrongfully pledges such property for other debts when not authorized so to do, the illegality of the one pledge will not affect the validity of the authorized pledge.^' § 55. Possession of stolen chattels. — One in possession of stolen chattels can ordinarily give a pledgee no better claim to them than he himself had. Though the pledge be taken in good faith for a valuable consideration, the title of the proper owner is not affected, and he can take the property wherever he can find it.''' But there is a well-settled distinction between the case of chattels acquired by felony, and the case of chattels acquired by fraud, as regards the title which the possessor may confer.^" "California Civ. Code 1906, § 2991. ^Duell v. Cudlipp, 1 Hilt (N. Y.) " Shafer v. Lacy, 121 Cal. 574, 54 166. Goods that have been embezzled Psc. 72. by the pledgor cannot be pledged so "Carpenter v. Hale, 8 Gray as to defeat the claim of the real (Mass.) 157. owner. Schwartz v. Clark, 136 111. "Springfield Co. v. Ely, 44 Fla. 319, App. 150. 32 So. 892. =» Arendale y. Morgan, 5 Sneed § 56 COLLATERAL SECURITIES. 'J2 It is everywhere admitted that the title to stolen goods remains in the proper owner, and continues in him through whatever transfers of possession the goods may pass, except the sales be in market overt under the doctrine of such sales at common law, which doctrine, however, has not been adopted in this country. § 56. Pledge of property obtained by fraud. — But the con- sequences of a sale or pledge of property held under a contract or transfer duly executed by the proper owner, though obtained from him by fraud, are very different. The contract or transfer between , the immediate parties may be avoided by reason of the fraud, and the defrauded vendor may recover the property from the fraudulent purchaser, or from any one who has received it from him with knowl- edge of the fraud. But if the fraudulent purchaser has sold or pledged the property to another, who has taken it in good ■faith for value, the latter can hold it as against the defrauded vendor."" In other words, while one holding possession of goods without the title can confer upon a pledgee no rights which the proper owner is bound to respect, one who holds not only the possession but also the indicia of title, though acquired by fraud, can confer upon a pledgee acting in good faith a lien which must be respected by the defrauded vendor."^ "As, for example, if a (Tenn.) 703. When the possession individual use, he is guilty of larceny of notes is procured by fraud by one and his pledgee acquires no title, who pledges them as collateral for a Newton v. Cardwell &c. Supply Co., debt of his own, the pledgee in order 41 Colo. 492, 92 Pac. 914. to hold the notes as against their '" Parker v. Patrick, S T. R. 17S ; owner must show that he took the White v. Garden, 10 C. B. 919, 926; notes in good faith before they were Jarvis v. Rogers, 13 Mass. 105; Mow- due without notice, for value, and in rey v. Walsh, 8 Cow. (N. Y.) 238; the usual course of business, but Hoffman v. Carow, 22 Wend. (N. Y.) where such notes were by the owner 285; Kittler v. Studabaker, 113 111. indorsed in blank this constitutes App. 342, 352; White v. Dodge, 187 prima facie evidence that the pledgor Mass. 449, IZ N. E. 549. has title to them. Kittler v. Studa- "McNeil v. Tenth Nat. Bank, 46 baker, 113 111. App. 342, 352. See N. Y. 325, 7 Am. Rep. 341. One hav- also, White v. Dodge, 187 Mass. 449, ing possession of bonds with the in- Ti N. E. 549. Where the bailee of dicia of title, may pledge such bonds goods puts them up as collateral with even though he is not their owner intent to convert the proceeds to his and the pledgee without notice of -J 2, SUBJECT-MATTER AND PARTIES. § 57 man purchases and obtains possession of a specific chattel, and pays for it with a fictitious bill of exchange, or by a check on a banker where he has no funds, and then pledges the article with a party who advances money upon it without any knowledge of the fraud, the pledgee will have a lien for his advances against the vendor who has been defrauded. But if the article has been stolen and then pledged, the pledgee will have no lien upon it as against the owner."^^ § 57. Possession presumptive evidence of title. — Posses- sion alone of a security negotiable by delivery before due is pre- sumptive evidence of title, ^' "but when such security is proven to have been stolen or otherwise appropriated in fraud of the rights of the owner, then the burden of proof is upon the possessor to show that he took it in good faith and for value. Upon mak- ing such proof, his title will prevail, unless the true owner can show bad faith on the part of the possessor ; that is, that the pos- sessor has notice, actual or constructive, of the title of the true ownerJ'* § 58. May pledge without being sole owner. — But one need not be the sole and absolute owner of a chattel in order to make pledge of it ; for one having a partial interest may pledge that interest, if he be in a position to make an effectual delivery of the thing pledged. Thus, by statute in California,^^ North Da- facts that indicate such lack of own- Loan Soc, 85 Misc. (N. Y.) 580, 120 ership has a lien thereon which he N. Y. S. 967. may enforce. Farmers' &c. Trust Co. " Merchants' &c. Bank v. Masonic V. Madison Mfg. Co., 153 Fed 310, Hall, 62 Ga. 271 ; Shelton v. French, (C. C. 1906). In re Massasoit-Po- ZZ Conn. 489; Kittler v. Studabaker, casset Nat. Bank, 153 Fed. 310 (C." C. 113 111. App. 342, 352. It is held that 1906) ; Alabama Nat. Bank v. Mas- the pledgor of collateral security is sasoit-Pocasset Nat. Bank, 158 Fed. not required to investigate to see 1019, 85 C. C. A. 654. whether there exist any restrictions "Arendale v. Morgan, 5 Sneed placed upon its use. Naef v. Potter, (Tenn.) 703. 127 111. App. 106, affirmed 226 111. 628,' "Jarvis v. Rogers, 13 Mass. 105, 15 80 N. E. 1084, 11 L. R. A. (N. S.) Mass. 389; Sweeney v. Provident 1034n. =" Civ. Code 1906, i 2990. § 58 COLLATERAL SECURITIES. 74 kota^° and South Dakota/'' one who has a lien upon property may pledge it to the extent of his lien. But inasmuch as the contin- uance of a lien depends upon the continued possession of the person claiming it, it would follow that, in order to pledge such interest at common law, the person claiming the lien must em- power his pledgee to continue his possession as his servant for the preservation of the lien.'' If an agent or broker having a lien on goods for a general balance tortiously pledges them as his own to secure his own debt, his pledgee cannot hold them as against the principal for even the amount of the lien which the agent had upon the goods.^' A mortgagor left in possession of the mortgaged goods, under a mortgage not recorded, may effectually pledge them to one who is ignorant of the mortgage, and has no cause of sus- picion or inquiry as to the pledgor's title.*" If the mortgage be recorded, the mortgagor can pledge his equitable interest or right to redeem. A pledgor need not be the absolute owner of the property pledged. Thus, a mortgagor of personal property may pledge his interest in the property subject to the mortgage, or the mortgagee may pledge his interest subject to the right of re- demption. And so one owning property subject to a lien may pledge his interest, provided he can make a sufficient delivery of it, and the holder of the lien may pledge the property to the extent of his lien upon it." A legatee or distributee may pledge his interest in the estate of the deceased by giving his pledgee an order upon the execu- tor or administrator for the sum secured by the pledge.*^ =°Rev. Code 1905, § 6197. "Lewis v. Stevenson, 2 Hall (N. "Rev. Civ. Code 1903, § 2108. Y.) 63. " M'Combie v. Davies, 7 East S. "■ Waldie v. Doll, 29 Cal. S5S ; Ed- The holder of a note which is secured dy v. Fogg, 192 Mass. 543, 78 N. E. by collateral may legally pledge such 549. note and collateral. Eddy v. Fogg, " Kelly v. Richardson, 100 Ala. 584, 192 Mass. 543, 78 N. E. 549. 13 So, 785. °° M'Combie v. Davies, 7 East 5. 75 SUBJECT-MATTER AND PARTIES. § 59 § 59. Owner of life interest may pledge. — One having only a life interest in a chattel can pledge that interest, but only that interest. Thus, certain plate was left to trustees for the use of the testator's wife during her widowhood, and she pledged it for value to one who had no notice of her limited interest. At her death the pledgee refusing to deliver the plate to the trustees, who claimed it on behalf of the remainder-man, it was held in an action by them that the pledgee had no valid title after the death of the tenant for life, and that he must restore the plate.*' § 60. Limited interest pledged, rights of pledgee. — When the pledgor has only a limited interest in the thing pledged, the pledgee cannot, upon default, sell the property; but if he can sell any right or title to it, it is only the right or title that he derived from the pledgor. "The right of a pledgee to sell the property pledged on giving reasonable and proper notice to the pledgor of the time and place of sale, depends upon circumstances. Some- times the pledgor has only a limited title to the property pledged. He may have only an interest for life, or for a term of years, or he may have simply, a lien, or a right by former pledge; still he may pledge the property to the extent of his interest. But the pledgee in all such cases has no right to sell the property on the non-fulfilment of the contract, although he 'rtiay pur- sue the proper course for the purpose, for the pledgor has no such right to confer. The pledgee must content himself, in such cases with holding the possession of the property till his debt is paid, or the interest of his pledgor in the property has expired."" § 61. Administrator may pledge. — An administrator may pledge personal property belonging to the estate, and the pledgee dealing with him in good faith will obtain a good title, for the legal title to such property is in the administrator, and the pur- poses of the estate may require such a use of it.*" But if the ad- " Hoare v. Parker, 2 T. R. 376. " Carter v. Manufacturers' Nat. "Robertson v. Wilcox, 36 Conn, Bank, 71 Me. 448, 36 Am. Rep. 338. 426, 430; Eddy v. Fogg, 192 Mass. 543, 78 N. E. S49. § 62 COLLATERAL SECURITIES. 76 ministrator violates his trust in so dealing with the property, and the pledgee has knowledge of such violation, his title may be im- peached ; and he has knowledge of a misapplication of the trust property when the administrator uses it to secure his own debt to the pledgee.*^ A guardian cannot, however, bind his ward by a pledge of the ward's property. He has only a naked authority without title to such property. If a guardian needs to use his ward's property, the statute points out the way in which he may use it. If a guardian pledges a negotiable note payable to his order as guardian, the pledgee has notice from the note itself that it is trust property and he is charged with knowledge that the guard- ian had no right to pledge it.*' And so a trustee, having a power to sell and reinvest, has no power to pledge even for the benefit of the trust estate, and certainly no power to pledge for his own benefit.** § 62. Vendor may pledge property. — A' vendor in posses- sion of property may pledge it, though he is under contract to deliver it to a purchaser upon the payment of the purchase-money. Upon the payment of the debt for which the pledge is made in such case, the pledgee is bound to deliver the property back to the pledgor ; and he cannot lawfully deliver the goods to any one else, as, for instance, to one who claims to be a purchaser from the pledgor, unless the latter so direct.*" The pledgor is entitled to a return of the goods, and a delivery of them to any one else, though he has a contract for their purchase, may defeat the pledgor's rights and deprive him of his security for the pur- chase-money. Not only is the -pledgee bound to return the goods " See Chapter XII ; Wilson V. Dos- "First Nat. Bank v. National ter, 7 Ired. Eq. (N. Car.) 231; Gray Broadway Bank, 156 N. Y. 459, 51 N. V. Armistead, 6 Ired. Eq. (N. Car.) E. 398, 42 L. R. A. 139, modifying 22 74; Tyrrell v. Morris, 1 D. & B. Eq. App. Div. (N. Y.) 24, 47 N. Y. S. (N. Car.) 559, 560; Freeman v. Bris- 880. See §§ 474, 478. tol Sav. Bank, 76 Conn. 212, S6 Atl. "Dean v. Lawham, 7 Ore. 422; 527. Lyle v. Barker, S Binn. (Pa.) 457. "Hardy v. Citizens' Nat Bank, 61 N. H. 34. 'J'J SUBJECT-MATTER AND PARTIES. § 63 to the pledgor, but he is equally bound to defend the interests of the latter in an action brought by a stranger to recover the property, when he is not entitled to the possession of it." § 63. Vendee in possession under conditional sale. — A vendee, in possession of chattels under a conditional sale cannot make a valid pledge of them, because he is not the owner until he has complied with the condition. But if the sale be subject to a statute, such as exists in several states, which requires con- tracts for conditional sales to be recorded in order to be valid against creditors and subsequent purchasers without notice, the vendee, holding possession under a contract of conditional sale not recorded, can convey a right by pledge superior to that of the vendor. Thus, a manufacturer in Pennsylvania leased a loco- motive to a railroad corporation in Iowa, where such a statute was in force, by an instrument in writing not recorded, for a sum equal to its value, to be paid in nine months, whereupon a bill of sale should be executed; otherwise, the manufacturer had the right to repossess the locomotive. The locomotive was taken to Iowa, and was there pledged by the railroad corporation as security for a loan. It was held that the pledgee's right, was superior to that of the manufacturer." But the general rule of law, when not affected by statutory provisions, is, that while an agreement between the vendor and vendee of personal property, that the title shall not pass until the property is paid for, is legal and binding between the parties themselves, though possession of- the property is delivered to the vendee, yet as to purchasers and creditors of the vendee such agreement is void, and as to them the property must be considered as belonging to the vendee in possession. And if the vendee in possession pledges the property to one who loans him money bona fide, without notice, the latter will acquire a valid and binding lien on the property for the payment of the money loaned, and he will be protected against the vendor's claim for the '" Pomeroy v. Smith, 17 Pick. " Pittsburg &c. Car Works v. State (Mass.) 85; Dean v. Lawham, 7 O'e. Nat. Bank, 21 Int. Rev. Rec. 349. 422. § 64 COLLATERAL SECURITIES. 78 purchase-money. A notice of defective title in the pledgor comes too late to affect the pledgee after he has advanced money secured by the pledge. To be operative, such notice should be. prior to the payment of the money."^ § 64. Common carrier or bailee of goods cannot pledge them. — A common carrier or other bailee of goods cannot pledge them.^^ Thus, where carriers on their way purchased a boat in order to ascend a river to the place of destination of their goods, and deposited, as security for the boat, a portion of the goods, the owner was held to be entitled to recover against the pledgee.'* A master of a ship may, however, hypothecate a por- tion of his cargo, when this is necessary to enable him to con- tinue the voyage ;'' but in doing this he is regarded, under the general maritime law, as acting as an authorized agent over the cargo, and not in the capacity of a carrier. Moreover to justify such hypothecation the necessity must be extremely clear. It must appear that the vessel was in a foreign port ; that the voyage was unfinished; and that the pledge was indispensable to enable the ship to complete the voyage.'* § 65. Joint owner cannot pledge interest of his co-owner. — One joint owner of a chattel, though in possession of it, cannot pledge the interest of his co-owner without his consent, and the fact that the pledgee acts upon the supposition that he is acquiring a lien upon the entire interest does not avail to give him such a lien.'^ One joint owner of a chattel may, how- " Michigan Cent. R. Co. v. Phillips, Div. (N. Y.) 274, 113 N. Y. S. 910, 60 111. 190; Western Union R. Co. v. judgment affirmed, 198 N. Y. S4S, 92 Wagner, 65 111. 197; Ohio &c. R. Co. N. E. 1101. V. Kerr, 49 111. 458. A vendee of "Kitchell v. Vanadar, 1 Blackf. chattels left in the possession of the (Ind.) 356, 12 Am. Dec. 249. vendor has title superior to the lien " Freeman v. East India Co., 1 of a creditor who subsequently takes Dow. & Ry. 234, 5 B. & Aid. 617; the goods in pledge to secure a pre- The Gratitudine, 3 Rob. Adm. 240; existing debt. Dexter v. Citizens' The Fortitude, 3 Sumn. (U. S.) 228; Nat. Bank, 4 Neb. 380, 94 N. W. 530. United Ins. Co. v. Scott, 1 Johns. (N. ""Shafer v. Lacy, 121 Cal. 574, 54 Y.) 106. Pac. 72; Cook v. Beal, 1 Bosw. (N. "Marziou v. Pioche, 8 Cal. 522. Y.) 497; Schwab v. Oatraan, 129 App. "Frans v. Young, 24 Iowa 375. 79 * SUBJECT-MATTER AND PARTIES. § 6Sa ever, pledge his own inteYest without the consent of his co- owner, and if the pledgor had the right of possession the pledgee will take the same right of possession as against the other owner; and in such case the latter cannot maintain replevin against the pledgee for the thing pledged; nor can both joint owners jointly maintain the action without paying the debt se- cured/* One of two joint owners of a chattel, both being in posses- sion, may pledge his share to the other joint owner, and he, by dbntinuing in possession and control has a valid pledge." § 65a. Agent to sell cannot pledge. — An agent having au- thority only to sell cannot make a valid pledge.*" The board of directors of a manufacturing corporation authorized the issuing of coupon bonds secured by a mortgage on its real estate "for the purpose of raising money to pay off the floating debts of the company," and an agent was authorized to negotiate the bonds at a price not less than par and accrued interest. Some of the bonds issued pursuant to the resolution were sold by the agent in precise accordance with such authority and the proceeds received by the corporation ; others were pledged as collateral security for prior debts. The corporation became insolvent, the mortgage was foreclosed and the property sold. In proceedings to deter- mine as to the application of the proceeds, it was held that the agent had no authority to pledge the bonds, but was bound to sell them for money, or at least so to dispose of them as to pay debts of the company, and, therefore, that the holders of the bonds so pledged were not entitled to share in the proceeds.**^ •"Frans v. Young, 24 Iowa 375, (N. Y.) 7, 29 N. Y. S. 254; Cumming Chief Justice Dillon delivering the v. Williamson, 1 Sand. Ch. (N. Y.) decision and citing numerous authori- 17; Waldron v. McComb, 1 Hill (N. ties. See Jones on Chattel Mortgages, Y.) Ill; Bloomer v. Waldron, 3 Hill §§_^47, 48. (N. Y.) 361; Albany Fire Ins. Co. v. '"' Thorns V. Southard, 2 Dana Bay, 4 N. Y. 9; Merchants' Bank v. (Ky.) 475, 26 Am. Dec. 467; Clark v. Livingston, 74 N. Y. 223; Frantz & Costello, 79 Hun (N. Y.) S88, 61 N. Co. v. J. S. Winchell & Co., 124 La. Y. St. 556, 29 N. Y. S. 9ZT. 680, 50 So. 650. ""Shaw v. Saranac Horse N. Co., "Shaw v. Saranac Horse N. Co., 144 N. Y. 220, 39 N. E. n, 78 Hun 144 N. Y. 220, 39 N. E. n. § 66 COLLATERAL SECURITIES. 80 § 66. Married women may make contracts. — Married women, under the statutes now in force in most of the states in regard to their property rights, can make contracts affecting their separate personal property as freely as single women can. The statutes of the several states are not the same, and do not confer the same powers of independent control; but generally they enable a married woman to hold and dispose of her personal property in the same manner as if she were sole."^ She may make a valid pledge of such property to secure a debt of her own, her husbands' debt or the debt of another person. She may pledge her stock in a corporation to secure such a debt, and may confer upon the pledgee a valid power of sale without notice upon a default in payment of the debt secured.^' A certificate of °^Upon the general powers of mar- ried women at common law and by statute to charge their own property for their own debts, or the debts of others, see 1 Jones on Mortgages, §§ 106-118; Enochs v. Newton, 65 Miss. 86, 3 So. 141. "Dando's App., 94 Pa. St. 76. In Indiana, however, it is provided by statute that "a married woman shall not enter into any contract of surety- ship, whether as indorser, guarantor, or in any other manner; and such contract, as to her, shall be void." Rev. Stat. 1908, § 7855. Whenever the result of a transaction is such as to impose upon the wife's property a liability to answer for the debt of another, she must be regarded as the surety and entitled to the protection of the statute, whether she be a party to any written contract or not. When- ever a married woman either pledges or mortgages her separate property to secure the debt of another, she occu- pies the position of a surety within the statute. Goff v. Hankins, 11 Ind. App. 456, 39 N. E. 294. See Shirk v. North, 138 Ind. 210, 37 N. E. 590; Harper v. T. N. Hays Co., 149 Ala. 174, 43 So. 360. A married woman cannot bind her separate estate by a contract of suretyship for her hus- band. Gross v. Whiteley, 128 Ga. 79, 57 S. E. 94. In Indiana a married woman cannot bind herself as surety. Indianapolis Brew. Co. v. Behnke, 41 Ind. App. 288, 81 N. E. 119. Under art. 2398, 2 Rev. Civ. Code 1900, La., a married woman cannot be- come surety for the debt of her husband. Keating v. Wilbert, 119 La. 461, 44 So. 265. In Wis- consin where a wife and her hus- band joined in a note for his debt and executed a mortgage on her sep- arate real estate to secure it, it was held that the mortgage could be en- forced but that the wife was not lia- ble personally on such collateral mortgage note. Goll v. Fehr, 131 Wis. 141j 111 N. W. 235. When a life insurance policy of the husband is payable to the wife, she has a sep- arate property in it, and where there is a statute authorizing a married woman to dispose of her own estate she may pledge such interest and the pledge is enforcible. Troendle v. Highleyman (Ky.), 113 S. W. 812. 8l SUBJECT-MATTER AND PARTIES. § 66a shares standing in the name of a married woman is evidence of her absolute ownership of it; and in case there is nothing in it or connected with it indicating a trust in favor of another person, one loaning money upon her pledge of the shares as security is warranted in making the loan upon the assumption of such ownership. He is not bound to inquire and ascertain how she obtained it." The validity of a pledge by a married woman of her sepa- rate personal property is governed by the law of the state of the husband's domicil. If by the law of such domicil, a married woman cannot pledge her separate property for the debt of her husband, a pledge by her of corporate stock owned by her as security for his debt is void, though made in a state by the law of which such a pledge is valid.°° § 66a. Valid pledge cannot be made between husband and wife. — A valid contract of pledge cannot be made between husband and wife. A husband gave to his wife jewelry to the value of six hundred dollars, and she afterward delivered the jewelry to him in pledge for money advanced by him to her. Subsequently he obtained a divorce from her. In an action by a creditor against the woman, in which the former husband was summoned as trustee, he admitted that the jewelry belonged to his former wife, and set up a pledge of it to himself. It was held that the pledge was invalid, and that the trustee was properly charged."* § 67. Married woman's property pledged. — A married woman who has pledged, or allowed her husband to pledge, her separate property for his own benefit, is entitled to have the pledge redeemed by him or out of his estate. If her husband be- In Missouri when a feme covert com- a mortgage is invalid. Bell v. Bell, plies virith the statutes she may mort- 133 Mo. App. 570, 113 S. W. 667. gage her real estate to secure the debt "Leitch v. Wells, 48 N.'Y. 585. of her husband, but where the debt " Union Nat. Bank v. Hartwell, 84 is a pre-existing one and is not sup- Ala. 379, 4 So. 156. ported by a new consideration, such " Porter v. Wakefield, 146 Mass. 25, 14 N. E. 792. 6 — Col. Sec. § 67 COLLATERAL SECURITIES. 82 come insane and his estate is ample, she may require his guardian to redeem her jewelry and other articles pawned to pay his per- sonal expenses." A pledge of a married woman's personal property made by her husband without her authority is of course not binding upon her;°* but such a pledge becomes effectual upon her sub- sequent ratification of it."" If a married woman authorize her husband to pledge a chattel belonging to her, the presumption is that his authority was to pledge it in the usual manner of making pledges; and mere authority to raise money on the property does not authorize him to consent to a sale without notice upon default, or to consent to a sale in any manner except that specified by statute.^" If a married woman indorses a promissory note given by her husband to a bank for a loan to him, and pledges to the bank shares of stock owned by her as collateral security for the note, the fact that she subsequently indorsed other notes of her husband discounted at the same bank, without demand- ing the delivery to her of the certificate of stock, does not show an agreement on her part that the stock should be security for the general indebtedness of her husband to the bank. It is com- petent for her to show, upon a bill in equity to redeem the stock, that her husband had no express authority to write upon another note, given by him to the bank for the amount to which his account had been overdrawn, a statement that the stock is collat- eral security for that note also, and that the transaction was with- out her knowledge ; and it is also competent for her to show that she never knew that he had overdrawn his account.''^ "Harrall's Case, 31 N. J. Eq. 101. evidence deemed sufficient to show When the wife signed a note and ex- that a husband was agent of his wife ecuted a mortgage on her real estate in pledging her stock for his individ- as surety for her husband, after her ual debt, see Casgrain v. Hammond, husband's death she is entitled to be 16S Mich. 61S, 131 N. W. 122. repaid out of his estate. Browne v. °° Merrill v. Parker, 112 Mass. 250. Bixby, 190 Mass. 69, 76 N. E. 454. ™ Van Arsdale v. Joiner, 44 Ga. 173. " Knight V. Beckwith Commercial " Riley v. Hampshire County Nat. Co., 6 Wyo. 500, 46 Pac. 1094. For Bank, 164 Mass. 482, 41 N. E. 679. 83 SUBJECT-MATTER AND PARTIES. § 68 The wife of a debtor has no implied authority, in his absence, to pledge any property of his for the payment of his debt.^" A husband and wife as joint owners of a note may join in a pledge of it as collateral security for a present debt and for future" advances to be made, but such collateral can only bfe held and enforced as security for demands against both husband and wife and not for the payment of a note executed only by the hus- band." § 68. Pledge of insurance policy by married woman. — A married woman may pledge a policy of insurance for her benefit upon the life of her husband as security for a debt of his.''* It has been objected that such a policy cannot be transferred by a married woman, even with the consent of her husband, because the fund itself, not being payable in the lifetime of the husband, is a reversionary interest belonging to the wife, which cannot be lawfully transferred by the husband and wife so as to bar her right of survivorship. But the principle involved in this objec- tion has no application, where the reversionary interest secured to the wife is her sole and separate property; and therefore her assignment of such a policy, as collateral security for her hus- band's indebtedness, is valid." This is only true in states where the statutes do not prohibit a wife from encurnbering her property or otherwise becoming security for her husband." § 69. Pledge by one partner. — One member of a copart- nership may make a valid pledge of a chose in action, or other "Swett V. Brown, S Pick. (Mass.) '"Harper v. T. N. Hays Co., 149 178. Ala. 174, 43 So. 360; Gross v. White- " First Nat. Bank v. Southworth, ly, 128 Ga. 79, 57 S. E. 94; Indianap- 117 111. App. 143; judgment affirmed, olis Brew. Co. v. Behnke, 41 Ind. App. 215 111. 640, 74 N. E. 771. 288, 81 N. E. 119; Troendle v. High- "CoUins V. Dawley, 4 Colo. 138, 34 I'eyman (Ky.),113 S. W. 812; Keat- Am. Rep. 72; Pomeroy v. Manhattan ing v. Wilbert, 119 La. 461, 44 So. Life Ins. Co., 40 III. 398. 265 ; Bell v. Bell, 133 Mo. App. 570, "De Ronge v. Elliott, 23 N. J. Eq. 113 S. W. 667; GoU v. Fehr, 131 Wis. 486. And see Charter Oak Life Ins. 141, 111 N. W. 235. Co. V. Brant, 47 Mo. 419, 4 Am. Rep. 328. § 70 COLLATERAL SECURITIES. 84 property of the firm, to secure a partnership debt.^^ A sole sur- viving partner may also transfer in pledge a chose in action or other personal property of the partnership, to secure a partner- ship debt, and the pledge, if made in good faith, will be effectual against other creditors of the partnership, as well as against the representatives of the deceased partner.''* A partner entrusted with winding up the business of his firm, and authorized to trade any part of the assets, and to do all and everything he might deem expedient for settling its affairs, may pledge notes belonging to the firm, to secure not only a loan obtained to meet a partnership liability, but also a prior indebted- ness of the firm to the same creditor.''' But under the Code of Louisiana*" a partner cannot for his own concerns give in pledge the partnership property without the consent of his associates. He cannot do it even for the partnership concerns without such consent, unless he be vested with the management of the copartnership. This rule admits of exception in matters of commercial partnership. § 70. Corporation has power to pledge its property. — As a general rule a corporation has the power to pledge any chattel belonging to it, unless expressly restrained by statute, or im- pliedly restrained by the nature of its undertaking. A corpora- tion has at least the same power to pledge its property that it has to mortgage it; and this power is unlimited, except in case of corporations which have been given special rights and privi- leges, from the exercise of which it is expected the public will derive an advantage. Railroad corporations are of this nature. Accordingly it is held that such corporations cannot, without legislative authority, mortgage their corporate franchises, or " Galway V, Fulferton, 17 N. J. Eq. E. 843 ; Richardson v. Washington 389. See Jones on Chattel Mortgages, Bank, 3 Met. (Mass.) S36; Wilcox v. §§ 4S, 46. Hallowell v. Blackstone Fairhaven Bank, 7 Allen (Mass.) 270. Nat. Bank, 154 Mass. 359, 363, 28 N. " Bohler v. Tappan, 1 Fed. 469. E. 281. See also, Fall River Nat. " Smith v. Dennison, 101 111. 531. Bank v. Slade, 153 Mass. 415, 26 N. "2 Rev. Civ. Code 1900, art, 3151. 85 SUBJECT-MATTER AND PARTIES. § 7I property which is essential to the exercise of such franchises.*^ This restriction upon the right of alienation by such companies applies with much more force to transfers by way of mortgage than to tranfers by way of pledge; for there is but little property essential to maintaining the business of such a corporation which could be delivered by way of pledge. So far as concerns a pledge of the rolling-stock of a railroad corporation, the same considera- tions would apply that are applicable to mortgages of such roll- ing-stock.*^ A corporation may pledge its bonds as collateral security and may deliver them to an agent for such purpose and such agent has implied authority to pledge such stock on usual terms as to sales upon default.'* § 71. Corporation may pledge its unissued stock. — ^A cor- poration may pledge its unissued stock or bonds which have been left in the hands of its directors to be applied to the advancement of its best interests. The directors have in such case the right to determine how it can be mpst advantageously used, and it is no proper subject of complaint on the part of any one that they apply it to raising money for the company.** A transaction whereby directors, in good faith and in the be- lief that the corporation was solvent, made a loan to it and ac- cepted an assignment of securities from it as collateral, pursu- ant to a plan to relieve it of its financial difficulties, is not con- " Jones on Corporate Bonds and a debtor's own obligation could be Mortgages, §§ 1-25; Jones on Mort- held in pledge for his debt. But there gages, § 124. can be no question now that such a '^See Jones on Corporate Bonds pledge can be made; arid, as a matter and Mortgages, §§ 122-168. of fact, such pledges are very fre- " Morris v. East Side R. Co., 104 quent. Since this was written this Fed. 409, 43 C. C. A. 60S; Hetzel v. doubt has been removed by the deci- Sawyer, 10 Pa. Dist. 29. sions in Union Cattle Co. v. Interna- " Combination Trust Co. v. Weed, tional Trust Co., 149 Mass. 492, 501, 2 Fed. 24. In Morris &c. Banking 21 N. E. 962, citing text; Costelo v. Co. V. Fisher, 9 N. J. Eq. 667, 64 Crowell, 134 Mass. 280; Morris v. Am. Dec. 423, and in Third Nat. Bank East Side R. Co., 104 Fed. 409, 43 C. V. Eastern R. Co., 122 Mass. 240, it C. A. 605. seems to have been doubted whether § 72 COLLATERAL SECURITIES. 86 trary to public policy, and is valid, although the corporation was, in fact, insolvent at the time the loan was made.^^ Upon the payment of a debt of a corporation secured by a pledge of its own bonds, and the surrender of the bonds to an officer of the corporation, tliey are not property of the corpora- tion liable to be reached by garnishment against the officer f° for upon the payment of the debt the bonds, which were merely the corporation's own collateral promises, were discharged. The obligation of the corporation, as witnessed by its bonds, is dis- charged by payment as much as the corporation's note is dis- charged by the same payment. § 72. Corporation may pledge its stock to its officers. — A corporation may, moreover, pledge its unissued stock, or nego- tiable bonds, to its president or to one of its directors, as security for a loan ; and although the transaction will be looked upon with suspicion, it will be enforced when it is shown to have been made for the benefit of the corporation, and to be just." Although a director stands in a fiduciary relation to the corporation, and is ■° Converse v. Sharpe, 161 N. Y. be good law, and to be supported by 571, S6 N. E. 69; 37 App. Div. (N. the reasoning of the court. Y.) 399, SS N. Y. S. 1080, affirmed; "Combination Trust Co. v. Weed, Duncomb v. New York &c. R. Co., 88 2 Fed. 24; Kinsman v. Fisk, 83 Hun N. Y. 1; Twin-Lick Oil Co. v. Mar- (N. Y.) 494, 65 N. Y. St. 75, 31 N. bury, 91 U. S. 587, 23 L. ed. 329; Y. S. 1045. In Chouteau v. Allen, 70 Sandford &c. Tool Co. v. Howe, 157 Mo. 290, 338, where the directors of a U. S. 312, 39 L. ed. 713, 15 Sup. Ct. corporation pledged a large amount 621. of its assets to themselves, the court '" Galena &c. R. Co. v. Stahl, 103 said : "Even if the order by which III. 67. In this case, however, the the officers and directors of the corn- bonds were not actually in the officer's pany pledged to each other nearly a hands, though he had receipted for million dollars in bonds to secure an thera. The creditor had proved them indebtedness of less than four per before a master appointed in fore- cent of the face of the collaterals, can closure proceedings, and had left the be imagined, considering the great bonds in the master's hands. The re- disproportion between the amount of ceipt by the officer was a mere for- the debt and the value of the pledge, mality to free the creditor from his to have been made bona fide, still the obligation to return the bonds. But fact that the pledge was made in favor aside from this circumstance, the of themselves, by the fiduciaries of principle stated in the text seems to the company's interests, is enough to 87 SUBJECT-MATTER AND PARTIES. § 73 within the rule disenabling one entrusted with powers to be exer- cised for the benefit of others from dealing in his own behalf, in respect to matters involving the trust, yet such a transaction can- not be avoided by the corporation without restoring what it has received ; and it is immaterial in this respect whether the pledge was taken for a present or a precedent debt.^* A director receiv- ing bonds or other property of a corporation, as collateral secur- ity for a debt honestly due him, is not within the rule/" "Where the trustee's act consists, not in possessing himself of the prop- erty of the beneficiary as owner, but in taking collateral security for a debt honestly due him, or a liability justly incurred, the rule can have no application, since the payment of the debt or the discharge of the liability is an essential prerequisite of the avoid- § 73. Manufacturing corporation may pledge its bonds. — A manufacturing or commercial corporation may pledge its mort- gage bonds as collateral security for existing debts, and this power is not limited or restrained by a resolution of its stock- holders authorizing the use of the bonds in payment, at par value, of any indebtedness of the company, or to raise money for con- ducting its business. One of the implied powers of such a cor- poration is to deal on credit, for any proper corporate purpose, in the usual and ordinary mode of conducting its business. Such bonds, whether hypothecated as a security for antecedent debts or applied directly to their satisfaction, are used in paying the cause the order to be scrutinized with v. Pennsylvania Plate Glass Co., 184 the most rigorous and jealous obser- Pa. St. 1, 38 Atl. 107S. vation. A transaction of this nature °°Duncomb v. New York &c. R. is viewed with greater odium than a Co., 84 N. Y. 190. "To cling to the dealing between a trustee and his fruits of the trustee's dealing while beneficiary." seeking to avoid his act; to take the ''Duncomb v. New York &c. R. benefit of his loan, and yet avoid and Co., 84 N. Y. 190. reverse its security, would be grossly '"Creighton v. Scranton &c. Mfg. inequitable and unjust. It would turn Co., 191 Pa. St. 231, 43 Atl. 134; a rule designed as a protection into a Finch Mfg. Co. v. Stirling Co., 187 weapon of offense and injustice." Pa. St. 596, 41 Atl. 294; Cowan § 74 COLLATERAL SECURITIES. 88 debts, for the benefit of the corporation, and for the objects specified in the resolution."^ Such a corporation may in like manner pledge any chose in action, though not negotiable. When it has empowered its presi- dent to pledge a contract, under which money is due, as collateral security for money borrowed, it cannot claim that the terms of the pledge made by the president are in excess of the authority conferred on him, when at the time of the pledge it was cogni- zant of all the facts concerning the pledge, and received the money borrowed, and gave no sign of repudiating the transac- tion.'' § 74. Railroad company may pledge its bonds. — ^A railroad corporation having power to borrow money for completing or operating its road, and to issue its bonds to secure the payment of any debt contracted for that purpose, may make a valid pledge of its bonds, not only for money borrowed at the time, but also for a precedent debt incurred for money borrowed for the pur- poses specified, unless some statute requires that the borrowing and issuing of the bonds shall be simultaneous.'^ Such a cor- poration may make a valid pledge of its bonds to its president to secure a sum of money fairly due him upon his salary. It may also make a valid pledge of its bonds to secure the rent of offices used in its business ; for such an expenditure is embraced within the authority conferred upon it to issue its bonds.'* § 75. Corporation may take pledge. — A corporation whether private or municipal, may take a pledge of any property, unless the pledge come within some positive statutory prohibi- tion. A pledge to a corporation which is prohibited from doing a banking business may be enforced, though the transaction was a discount of a note secured by pledge. The note may be void, but the loan and the security are valid."* "' Lehman Bros. v. Tallassee Mfg. " Duncomb v. New York &c. R. Co., Co., 64 Ala. 567. 84 N. Y. 190. "" McDougall V. Hazelton Tripod- " Duncomb v. New York &c. R. Co., Boiler Co., 88 Fed. 217, 31 C. C. A. 84 N. Y. 190. 487. °' Duncomb v. New York &c. R. Co., 84 N. Y. 190. 89 SUBJECT-MATTER AND PARTIES. § 7^ A statutory provision of statute that no director of a savings bank shall borrow its funds, and that upon so doing his office shall become vacant, cannot be availed of to defeat a pledge made by such director for money borrowed from the bank, especially after the transaction is executed. The violation of the provision can only be availed of by the sovereign power. The bank may sue to recover the money loaned, and can hold the pledged stock, or its proceeds, in a suit for the recovery of the same, until the money lent on faith of the pledge is repaid."' § 76. When corporation cannot take pledge. — A corpora- tion prohibited by statute from becoming the holder of the stock of another corporation cannot take a pledge of the stock of such other corporation from one of its stockholders. If it attempt to do so, the corporation whose stock is sought to be pledged, by refusing to transfer the stock upon its books, does not make itself liable to the pledgee for such refusal, because the pledgee, in such case, is not entitled to a trans fer.°^ Though a corporation take in pledge security which it is prohibited by its charter from hold- ing, the contract of the pledge is not void, but, at most, only voidable. The title to the security vests in the corporation as pledgee."' "° Brittan v. Oakland Bank, 124 Cal. organized. In the above case there 282, 57 Pac. 84, 71 Am. St. 58; Sav- is a dictum of the court that "there ings Bank v. Burns, 104 Cal. 473, 38 would seem to be little doubt, either Pac. 102. And see Jones v. Guaranty upon principle or authority, and inde- &c. Co., 101 U. S. 622, 628, 25 L. ed. pendently of express statutory prohi- 1030; National Bank v. Matthews, 98 bition of the same, that one corpora- U. S. 621, 25 L. ed. 188. tion cannot become the owner of any "' Franklin Bank v. Commercial portion of the capital stock of another Bank, 36 Ohio St. 350, 38 Am. Rep. corporation, unless authority to be- 594. Such a statutory prohibition is come such is clearly conferred by founded upon the reason that if one statute." The same view was ex- corporation could acquire the stock of pressed by the Supreme Court of another, it might obtain a controlling Maine in the case of Franklin Com- intercst in the stock of that corpora- pany v. Lewiston Inst, for Savings, tion, and thus not only interfere with 68 Me. 43, 28 Am. Rep. 9n, where the internal management of the affairs other cases to the same effect are of that corporation, but enlarge its cited. own franchise by engaging in busi- "^ Sestare v. Best, 88 N. Y. 527. ness foreign to that for which it was § 77 COLLATERAL SECURITIES. QO § 77. National bank may take pledge. — A national bank may take a pledge of chattels as security for a loan of money. The authority conferred by the banking act to make loans on personal security does not restrict them to the security afforded by the names of indorsers or personal sureties, but they may take pledges of bonds, choses in action, bills of lading, or other personal chattels; and this is the universal usage. "^ The words "personal security" seem to be used in contradistinction to real estate security. A pledge to a national bank is valid although taken in violation of a provision of the National Banking Act, prohibiting a loan to one individual exceeding one-tenth part of the capital of the bank. The penalty for such a violation of the law consists in proceedings against the franchise of the bank, and a liability for damages of its offending officers.^ A national bank may hold in pledge, as collateral security for a loan made, or to be made, shares in the capital stock of another national bank.^ A national bank has no authority to lend its credit on personal security; and therefore one who knowingly takes as collateral security drafts of a national bank drawn for the accommodation of a customer, cannot recover in a suit against the bank in the hands of a receiver.' § 78. Bank may take pledge of stock of a real estate corpo- ration. — National banks may take a pledge of the stock of corporations whose property is solely real estate, without violat- ing the provisions of the National Banking Act, under which it is held that such banks cannot loan money upon mortgages of real estate, if such mortgages are taken as security for loans made "Pittsburg &c. Car Works v. State 628, 2S L. ed. 448; Dayton Nat. Bank Nat. Bank, 21 Int. Rev. Rec. 349; v. Merchants' Nat. Bank, 37 Ohio St. Shoemaker v. National Mechanics' 208, 215. Bank, 2 Abb. (U. S.) 416. "Johnston v. Charlottesville Nat. 'Gold Mining Co. v. Nat. Bank, 96 Bank, 3 Hughes (U. S.) 657; and see U. S. 640, 24 L. ed. 648; Duncomb v. Seligman v. Charlottesville Nat. New York &c. R. Co., 84 N. Y. 190. Bank, 3 Hughes (U. S.) 647. "National Bank v. Case, 99 U. S. 91 SUBJECT-MATTER AND PARTIES. § 79 at the time, or for future advances f for a pledge of stock of such corporations is in no sense a mortgage of the corporate prop- erty.° The stock of such corporations is personal property. § 79. National bank cannot loan on its own stock. — A na- tional bank cannot make a valid loan on the security of its own stock." It cannot become a holder in any way of its own shares, unless this is absolutely necessary to prevent a loss on a debt pre- viously contracted.'' It cannot acquire a lien on its own stock held by persons who are not debtors, even by force of direct by- laws, or articles of association framed for that purpose. Such a lien is against the spirit and policy of the statute, and a bank has no right to make a by-law giving such a lien.' ' Jones on Mortgages, § 134. 369, 20 L. ed. 172 ; Hagar v. Union ° Baldwin v. Canfield, 26 Minn. 43, Nat. Bank, (& Me. 509. 1 N. W. 261, 276. » BuUard v. Bank, 18 Wall. (U. S.) ' Act of June 3, 1864. 589, 21 L. ed. 923. ' Bank v. Lanier, 11 Wall. (U. S.) CHAPTER III. NEGOTIABLE PAPER AS COLLATERAL SECURITY. 80. Delivery and possession of ne- gotiable paper. 81. Statutory provisions. 82. Parol evidence admissible. 83. Delivery need not always be actual. 83a. Delivery of promissory notes. 84. Subsequent delivery. 85. Possession of negotiable paper required to make title of a bona fide holder. 86. Redelivery to debtor for collec- tion. 87. Redelivery to debtor destroys pledgee's lien as against third persons. 88. Debtor estopped from asserting that pledgee has lost his lien upon redelivery for special purpose. 89. The holder of negotiable paper as collateral, is its ovirner. 90. Negotiable paper passing by de- livery. 91. Possession of negotiable paper not endorsed. 92. Note pledged by delivery only. 93. Mere deposit as collateral of commercial paper not en- dorsed. 93a. Where the debt secured is usurious. 94. Pledgee of negotiable paper can give good title to it. 95. Transfer of note of third per- son. § 96. An agent may pledge note he holds for collection for his own debt. 97. Misapplication by debtor's agent. 98. Statute making it a crime for pledgee to assign collateral before debt due has no effect on innocent assignee. 99. Note on consideration made il- legal by statute. 100. Notice of equities. 101. No indorsement of interest paid. 102. Note stating that it is to be held as collateral is not negotiable. 103. Recitals in negotiable note. 104. Gross negligence of one taking negotiable paper not sufficient to defeat his lien. 105. Knowledge of want of author- ity. 106. For future advances. 107. Previous debt sufficient to con- stitute a holding for value of collateral negotiable paper. 107a. Difference between pledge of negotiable paper and chattels. 108. The rule in federal courts. 109. Doctrine of United States Su- preme Court. 110. An existing debt a valuable and sufficient consideration. HI. The preponderance of author- ity. 112. Grounds upon which the holder of negotiable paper is a hold- er for value. 92 93 NEGOTIABLE PAPER. § 80 i 113. Forbearance by a creditor is a good consideration. 114. Taking negotiable paper as col- lateral is in the usual course of trade and business. 115. Distinction between note taken in payment and one indorsed as security. 116. The distinction seems shadowy and pernicious. 117. Statement of doctrine that pledgee of negotiable paper as collateral for pre-existing debt is not a holder for value. 118. This doctrine rests upon two objections. 119. Sufficient consideration to up- hold pledge where no agree- ment for time can be implied. 120. In conclusion. 121. Uniformity of rule is impor- tant. 122. Exception as to accommodation paper. 123. That the pledgee of negotiable paper has notice that it is ac- commodation paper is not im- portant. § 124. Accommodation note may be pledged for antecedent debt. 12s. Equities between original par- ties. 126. Equities arising from independ- ent transactions. 127. When a pledgee of a collateral note is a holder for value. 128. Where there is a change in the rights of parties the creditor is a holder for value. 129. Agreement for further time. 130. Merely taking collateral secur- ity does not suspend the right of action upon the debt. 130a. A legal extension of the time of payment of a debt must be supported by sufficient con- sideration paid. 131. Usurious agreement for exten- sion. 132. Negotiable paper as conditional payment. 133. The law of the place. § 80. Delivery and possession of negotiable paper. — De- livery and possession are essential to a valid pledge of negotiable paper, in the same way that they are essential to a valid pledge of a corporeal chattel. In a case before the Supreme Court which arose in Louisiana, and was governed by its code, it was held that a pledge of negotiable paper without an actual transfer or delivery of it to the pledgee, it never having been out of the pledgor's actual possession, but always subject to his disposal by way of collection, sale, substitution, or exchange, was not valid as against the pledgor's creditors.^ A bank of New Or- ' Casey v. Cavaroc, 96 U. S. 467, 24 494, 24 L. ed. 790; Hook v. Ayers, 80 L. ed. 779; followed in Casey v. Na- Fed. 978, 26 C. C. A. 287; Seymour v. tional Bank, 96 U. S. 492, 24 L. ed. Hendee, 54 Fed. 563 ; Jacquet v. Cred- 789; Casey v. Schuchardt, 96 U. S. itors, 38 La. Ann. 863; Conger v. New § 8o COLLATERAL SECURITIES. 94 lean^, organized under the National Banking Act, obtained a loan of a million francs from the Credit Mobilier of Paris, upon an agreement to deposit bills and notes with the president of the bank and his pai "Grocers' Bank v. Penfield, 7 Hun 542, 51 N. Y. 602; Freund v. Import- (N. Y.) 279, afif'd 69 N. Y. 502, 25 ers' &c. Nat. Bank, 76 N. Y. 352, 358; Am. Rep. 231 ; Cole v. Saulpaugh, 48 Pitts- v. Foglesong, 37 Ohio St. 676, Barb. (N.Y.) 104; East River Bank v. 680, 41 Am. Rep. 540; Prim v. Ham> Butterworth, 45 Barb. (N. Y.) 476, 30 mel, 134 Ala. 652, 32 So. 1006; Tfust How. Pr. (N. Y.) 444, 51 N. Y. 637; Co. v, Markee, 179 Fed. 764; River- Grandin v. LeRoy, 2 Paige (N. Y.) side Bank v. Jones, 75 App. Div. CN. 509; Bank of Rutland v. Buck, S Y.) 531, 78 N. Y. S. 325; In the case Wend. (N. Y.) 66; White v. Spring- of Powers v. French; 1 Hun (N. Y.)- field Bank, 3 Sandf. (N. Y.) 222; La- 582, 4 T. & C. 65, holding that one tak- throp V. Morris, 5 Sandf, (N. Y.) 7; ing accommodation paper, knowing it DeZeng V. Fyfe, 1 Bosw. (N. Y.) 335; to be such, and without parting' witli Robbins v. Richardson, 2 Bosw. (N. anything upon the faith of the trans- Y.) 248; Grant v. ElUcott, 7 Wend, fer, cannot recover, there was no an- (N. Y.) 227; Agawam Bank v. Stre- tecedent debt to support the transfer, ver, 18 N. Y. 502; Youngs v. Lee, 12 ""Moore v. Ryder, 65 N. Y. 438; N. Y. 551 ; Ross v. Bedell, 5 Duer (N. Spencer v. Ballou, 18 N. Y. 327, 331 ; Y.) 462, 467; Purchase v. Mattison, 6 Bank of Rutland v. Buck, S Wend'. Duer (N. Y.) 587; Harrington v. (N. Y.) 66; Atid see Crandallv. Vick- Dorr, 3 Rob. (N. Y.) 275; Ihglis v; ery, 45- Barb. (N. Y.) 1S6, and Suth-- Kennedy, 6 Abb. Pr. (N. Y.) 32; Sen- erland v. M'ead, 80 App. Div. (N. Y ) eca. County Bankv Neass, 5 Denio (N. 103, 80 N. Y. S. 504; Johnson v. Gray- Y.) 329, 3 N. Y. 442; Ross v. White- son, 230 Mb. 380, 130 S. W, 673; field, 1 Sweeny (N. Y.) 318; Pettigrew § 123 COLLATERAL SECURITIES. ISO with a valuable consideration for it, the mere fact that it has been fraudulently diverted from the purpose for which it was made is no defense to his action upon it ; to make such defense avail- able, it must be shown that the holder had notice of the restric- tion imposed in 'regard to the use of the note/' § 123. That the pledgee of negotiable , paper has notice that it is accommodation paper is not important. — It does not matter that the person who takes negotiable paper as collateral security has notice that it was made for the debtor's accommo- dation. Upon this point the Supreme Court of Illinois said: "Accommodation paper is made for the express purpose that it may be sold or negotiated for the benefit of the person accom- modated, and after it has been sold or negotiated in the usual course of business for value, the maker will not be listened to if he asserts it was without consideration. It is a reasonable rule that one who puts his note or bill in the hands of another to be sold or negotiated, after it is done, will not be permitted to answer the holder, who has taken it in good faith for value, that he does not owe the note or bill. The very purjpose of making accommodation paper is, that the party favored may dispose of it, and unless restricted he may transfer it either before or after maturity, and the maker will be equally bound. The usage in this regard is sanctioned by the practice that has prevailed in mercantile transactions everywhere, in this coun- try and in England. That usage has now the consistence of law. Any other rule would permit the maker of such paper to prac- tice a fraud on persons who should take paper he had put out to be negotiated in the usual course of business. The only safe rule is, that where a bill or note is given, with no restriction as to the mode or time of using it by the party accommodated, •'Merchants' Nat. Bank v. Com- 490; Mason v. Hickox, 11 Abb. Pr. stock, 55 N. Y. 24; Boyd v. Cum- (N. S.) (N. Y.) 127; Piatt v. Beebe, mings, 17 N. Y. 101; Essex Co. Bank 57 N. Y. 339; Quinn v. Hard, 43 Vt. V. Russell, 29 N. Y. 673; Bank v. Van- 375, S Am. Rep. 284; Dixon v. Dixon, derhorst, 32 N. Y. 553; First Nat. 31 Vt. 450, 76 Am. Dec. 129; Maitland Bank v. Hall, 44 N. Y. 395, 4 Am. Rep. v. Citizens' Nat. Bank, 40 Md. 540, 698; Park Bank v. Watson, 42 N. Y. 561, 17 Am. Rep. 620. IJI NEGOTIABLE PAPER. § 124 and the same has been transferred in good faith in the usual course of business, the holder, if he paid a valuable considera- tion for it, will be entitled to recover the full amount, although he may have had full knowledge it was accommodation paper. The authorities on this branch of the law are consistent and numerous."" § 124. Accommodation note may be pledged for antece- dent debt. — An accommodation note may be effectually pledged for an antecedent debt. "When a person gives another an accommodation note, it contains an authority to use it in the payment of an existing debt, to sell or discount it; or if more to his interest, to pledge it as a collateral security for money advanced at the time, or before advanced, or on a running account between the parties, for money advanced before, at the time, or afterward. In short, he has the complete control to use it, as the name imports, for his own benefit or accommo- dation, in any manner he may judge best calculated to advance his own interest. If he can prevent a suit against him, by pledging the note intentionally drawn in the usual commercial form, and intended to be used without restriction, and by this means preserve his credit and save himself from utter ruin, there is nothing that I can see either in law or morals to. prevent him. Of what consequence is it to the maker whether he sells the note, gives it as a collateral security for a debt already contracted, or for money advanced at the time of the transaction? Accom- modation paper, I take it, is a loan of the credit of the maker to the extent of the value of the note for the benefit of the payee without restriction."^^ '' Miller V. Lamed, 103 111. 562, 570; old v. Sprague, 34 Vt. 402. Where a Tucker v. Jenckes, S Allen (Mass.) note of a third person is payable to 330; Holmes v. Beniss, 25 111. App. the maker and by him indorsed in 232, 124 111. 453, 17 N. E. 42 ; Hodges blank to a pledgor, he may pledge it V. Nash, 43 111. App. 638, 141 111. 391, without indorsing it. Fidelity and De- 31 N. E. 151; Newbold v. Boraef, 155 posit Co. v. Johnson, 117 La. 880, 42 Pa. St. 227, 26 Atl. 305; Cottrell v. So. 357. Watkins, 89 Va. 801, 17 S. E. 328, 19 " Appleton v. Donaldson, 3 Pa. St. L. R. A. 754; People's Nat. Bank v. 381. Clayton, 66 Vt. 541, 29 Atl. 1020; Arn- § 125 COLLATERAl, SECURITIES. 1 53 The maker ol accommodation paper must abide his Jiability, and has no more right to complain that tht payee accommo- dates himself by pledging it for an old debt, than he has if he uses it in any other way.'* The ground upon which accommodatioH; paper may be pledged as collateral for an existing debt is declared in the Pennsylva- nia cases to be merely because it is a loan of credit without re- striction/' and not because the pledgee is a purchaser for value, for he is not such a purchaser ;'° therefore, such paper may be im- peached in his hands for fraud in its making or procurement, — such, for instance, as a false and fraudulent representation by the payee for whose accommodation the note was made, that he was worth, above all liabilities, a hundred thousand dollars or more, when, in fact, he was insolvent ; or his fraud in prom- ising to fill up an accommodation note signed in blank, for a, sum not exceeding six hundred dollars, but actually making it fourteen hundred dollars.^' A pledgee of accommodation paper, taking it with knowledge of an agreement between the parties to it that it should be dis- counted and the proceeds used in a specified way, is bound by such agreement.*" § 125. Equities between original parties. — Equities aris- ing between the original parties subsequently to the indorsement "Lord V. Ocean Bank, 20 Pa. St. v. Williams, 3 Whart. (Pa.) 48S, 31 384, 59 Am. Dec. 728; Work v. Kase, Am. Dec. 542; Depeau v. Waddington, 34 Pa. St. 138; Moore v. Baird, 30 Pa. 6 Whart. (Pa.) 220, 36 Am. Dec. 216; St. 138; Maitland v. Citizens' Nat. Trotter v. Shippen, 2 Pa. St. 358 ; Lud- Bank, 40 Md. 540, 562, 17 Am. Rep. wig v. Highley, 5 Pa. St. 132, 139; 620; Pitts V. Fpglesong, 37 Ohio St. Kirkpatrick v. Muirhead, 16 Pa. St. 676, 681, 41 Am. Rep. 540. 117, 123, 21 Pa. St. 237; Garrard v. " Cummings v. Boyd, 83 Pa. St. 372; Pittsburgh. &c. R. Co., 29 Pa. St. 154, Ashton's Appeal, 73 Pa. St. 153 ; 160,; Pittsburgh &c. R. Co. v. Barker, Hutchinson v. Boggs, 28 Pa. St. 294. 29 Pa. St. 160. "^ Cases in preceding note, and Pe- "Cummings v. Boyd, 83 Pa. St trie V. Clark, 11 S. & R. (Pa.) 372. 377, 14 Am. Dec^. 636; Irwin v. Tabb, "People's Nat. Bank v. Clayton, 66 17 S. & R. (Pa.) 419; Hartman v. Vt. 541, 29 Atl. 1020. Dowdel, 1 Rawle (Pa.) 279; Twelves 153 NEGOTIABLE PAPER. § 126 of paper to a creditor cannot be set up as a defense to his action against the maker.*^ The test to determine whether the note is subject to an equity set up by the maker is found in the in- quiry whether the payee, at the time he transferred the note, could have maintained a suit upon it against the maker had it then matured." § 126. Equities arising from independent transactions. — Under this rule, all equities between the parties to the collateral note are not let in against a creditor who has taken it as se- curity for a pre-existing debt; but only such as pertain to the collateral note itself. Equities arising from other than inde- pendent transactions are not available to the maker against such assignee."- § 127. When a pledgee of a collateral note is a holder for value.^-If the creditor at the time of receiving a collateral note parts with anything of value, either money, property, or existing securities, upon the faith of such note, he thereby be- comes a holder for value.** Of course a surrender of collateral securities previously given, or affording increased indulgence as to time, is a sufficient ton- sideration for an assignment of negotiable paper by way of new coUateral.*° A note transferred to a judgment creditor as se- " Becker v. Sandusky City Bank, 1 ticut &c. Deposit Co.. v. Trumbo Minn. 311; McSpedon v. Troy City (Neb.), 90 N. W. 216. Bank, 2 Keyes. (N. Y.) 35, 3 Abb. Dec. '' Goodman v. Simonds, 20 How. (N. Y.) 133. (U. S.) 343, IS L. ed. 934; Park Bank "Furniss v. Gilchrist, 1 Sandf. (N. v. Watson, 42 N. Y. 490, I Am. Rep. Y.) S3; Elwell v. Dodge, 33 Barb. (N. S73; Brown v. Leavitt, 31 N. Y. 113; Y.) 336. White v. Springfield Bank, 3 Sandf. "Ryanv. Chew, 13 Iowa 589. (N. Y.) 222; American Exchange "Bank v. Vanderhorst, 32 N. Y. Nat. Bank v. New York &c. Co., 148 553; Weaver v. Barden, 49 N. Y. 286, N. Y. 698, 43 N. E. 168; Milius v. 293; Belmont Bank V. Hoge, 35 N. Y. Kauffmann, 104 App. Div. (N. Y.) 65; Brown v. Leavitt, 31 N. Y. 113; 442, 93 N. Y. S. 669; Voss v. Cham- Essex County Bank v. Russell, 29 N. berlain, 139 Iowa 569, 117 N. W. 269, Y. 673; Boyd v. CummJngs, 17 N. Y. 19 L. R. A. (N. S.) i06n. It is held in 101; Youngs v. Lee, 12 N. Y. 551; the federal, court under the Negotia- Logan V. Smith, 62 Mo. 455 ; Connec- ble Instrument Law of New York § 128 COLLATERAL SECURITIES. 1 54 curity for the payment of the judgment, and in consideration of his discontinuing proceedings supplementary to execution then pending against the debtor, is supported by a sufficient consid- eration.*" § 128. Where there is a change in the rights of parties the creditor is a holder for value. — The authorities concur in the rule that, where there is any change in the legal rights of the parties in relation to the antecedent debt, the creditor taking the collateral security is considered a holder for value, and the paper is not subject to equities existing between the original parties.*^ Upon this ground it was held in California that a statute which deprived the holder of collateral security of his remedy against the principal debtor by attachment, so changed the legal right of the creditor in respect to the antecedent debt as to make him a holder for value, and protect him from equitable defenses;" al- though in that state, upon general principles of mercantile law, commercial paper, transferred before maturity as collateral se- curity for a pre-existing debt, is not subject to the defenses open to the maker against the payee.*' § 129. Agreement for further time. — Under this doctrine, although the real purpose of a debtor in giving collateral secur- ity be to gain further time for the payment of his debt, this pur- pose will not avail as a consideration, unless there be a definite agreement for delay. Thus, where paper was pledged as addi- tional security for a loan already due, for the purpose of ob- taining further time, but no definite extension was agreed upon, and there was no valid agreement for forbearance, the creditor (Laws 1897, p. 727, ch. 612) that one *" Boyd v. Cummings, 17 N. Y. 101. to whom an accommodation note is " Naglee v. Lyman, 14 Cal. 450, 454. indorsed before maturity without no- "Naglee v. Lyman, 14 Cal. 450; tice of any defense, in good faith, as Payne v. Bensley, 8 Cal. 260; 68 Am. collateral for a pre-existing debt of Dec. 318. the indorser is a holder for value al- " Robinson v. Smith, 14 Cal. 94, 24 though he surrendered no right re- Am. Dec. 212 ; Coit v. Humbert, 5 Cal. garding the ori^nal debt even where 260, 63 Am. Dec. 128. the note was invalid. In re Hopper- Morgan Co., 154 Fed. 249. 155 NEGOTIABLE PAPER. § 129a was held not to be a bona fide; holder for value.^" The mere fact that the creditor, after receiving collateral security, grants indulgence, or forbears to enforce his demand, does not prove that such indulgence or forbearance was an element of the con- tract, or was the consideration for giving the security. For- bearance without any agreement to forbear is a voluntary act, and is not a consideration for the giving of security.^^ The right to enforce the original debt is regarded as sus- pended when the creditor, taking collateral security, expressly agrees to keep the original obligation until the collateral is paid or becomes due.'*'' Such an agreement is in effect one not to en- force the original bill in the meantime. And such, also, is the •effect of receiving a second bill or note in renewal of the first; for the creditor then virtually undertakes not to enforce the first."' § 129a. Time the essence of the contract. — Time becomes of the essence of the contract for an extension of the time of payment, when the terms of the extension are definite. A debtor and his creditor executed a written agreement, by which certain securities were to be placed in the hands of a trustee for collec- tion, with a provision that if a certain sum with interest, less than the amount of the debt secured, should be paid by a day named, the trustee was to apply the sums collected on the securities to the payment of the amount due upon the notes, and account to the debtor for the surplus. The creditor also covenanted that, if said sum was paid to him on or before the day named, he would not sue the debtor upon the notes. The debtor did not ™ Atlantic Nat. Bank v. Franklin, °' Fenouille v. Hamilton, 35 Ala. 319, 55 N. Y. 235; reversing 64 Barb.'(N. 323; Vann v. Marbury, 100 Ala. 438, Y.) 449; Gahn v. Niemcewiez, 11 14 So. 273; Pittsburgh &c. R. Co. v. Wend. (N. Y.) 312; Whitney v. Goin, Barker, 29 Pa. St. 160. 20 N. H. 354 ; Body v. Jewsen, 33 Wis. °' Gould v. Robson, 8 East 576 ; Price 402. An extension of time in consid- v. Dime Sav. Bank, 124 111. 317, 15 N. eration of a pledge makes the creditor E-. 754. a bona fide holder for value. Just v. " Kendrick v. Lomax, 2 Crompt. & State Sav. Bank, 10 Detroit Leg. N. J. 405. 36, 132 Mich. 600, 94 N. W. 200. § 130 COLLATERAL SECURITIES. 1 56 pay the sum named in the agreement within the tisne therein specified. Afterward the trustee collected a certain sum upon the securities held by him, and paid to the creditor ^ sum which was less than the amount due upon the notes. It was held on a bill in equity by the creditor against the debtor and trustee to enforce the trust created by the agreement, that time was of the essence of the contract, that oral evidence was inadmissible to show any intention or understanding of the parties other than that expressed in the contract ; and that the creditor had not lost his right to have the money collected upon the securities applied in payment of the notes, by not demanding jMjment of the debtor or bringing suit against him upon the notes/* § 130.' Merely taking collateral security does not suspend the right of action upon the debt. — Aside from the doctrine that an antecedent debt is not a valid consideration for a trans- fer of collateral security, it is held, with reference tO: the dis- charge of a surety or indorser upon the original debt» that no bindiiag agreement to delay the collection of the debt can be implied from the creditor's taking a promisso'ry note, or other obligation payable at a future time, as collateral security; and therefore, the taking of such security does not have the effect to discharge the surety, unless there be a binding contract to suspend the right of action upon the original debt.°° § 130a. A legal extension of the time of payment of a debt must be supported by sufficient consideration paid. — ^The mere indulgence on the part of a pledgee by a promise to extend "Ames V. Brooks, 143 Mass. 344, 9 wood v. Deifendorf, S Barb. (N. Y.) N. E. 737. 398, 409; James v. Badger, 1 Johns. ■" Pring V. Clarkson, 1 B. & C. 14 Twopenny v. Young, 3 B. & C. 208 Emes V. Widdowson, 4 C. & P. 151 United States v. Hodge, 6 How. (U, S.) 279, 12 L. ed. 681; Wallace v. Agry, 4 Mas. (U. S.) 336; Ripley v. Cas. (N. Y.) 131; Hurd v. Little, 12 Mass. S02 ; Ruggles v. Patten, 8 Mass. 480; Sigourney v. Witherell, 6 Met (Mass.) 553, 564; Weakly v. Bell, 9 Watts (Pa.) 280, 36 Am. Dec 116; Burke v. Cruger, 8 Tex. 66, 58 Am. Greenleaf, 2 Vt. 129; Day V. Leal, 14 Dec. 102; Norton v. Eastman, 4 Johns. (N. Y.) 404; Bank of Utica Greenl. (Me.) 521. V. Ives, 17 Wend. (N. Y.) 501; El- 157 NEGOTIABLE PAPER. § 13' the time of the principal debt, or by his conduct in regard to it, does not effect a change in the duties and obligations of the parties to each other as prescribed by the original contract of pledge. But the extension of the time for the payment of a debt, which must be supported by a sufficient consideration, must not be confused with a waiver of the right to forfeit the pledge without previous notice to the pledgor or those who represented him, or were interested in the pledge. The right to sue upon the debt may not have been affected by the negotiations, but it does not follow that this is true with respect to the right to dispose of the pledge without notice. Thus where the original contract, under which a policy of life insurance is pledged as collateral security for the payment of a promissory note, per- mits a sale, public or private, or otherwise, or a surrender of the policy to the company issuing it, without notice to the pledgor, the right of the pledgee to so dispose of it upon default in pay- ment of the note, may be waived by any agreement, declaration or course of conduct on his part which leads the pledgor to be- lieve that a forfeiture will not be insisted upon without an oppor- tunity given him to redeem, and no nevO' or independent consid- eration is required to support the waiver; and if, having waived his right to a strict performance of the contract, the pledgee sur- renders the policy to the company, without notice, he is liable for the damages occasioned thereby in an action of conversion ; and in such an action, the plaintiff is not obliged to show affirmatively that he could have raised the money to pay the note at the time of the conversion if notice had been given.^" § 131. Usurious agreement for extension. — A creditor who takes a negotiable note before maturity, so indorsed that he " Toplitz V. Bauer, 161 N. Y. 325, SS is not true when such extension is on N. E. 10S9, affirming 34 App. Div. (N. condition that interest be paid and it Y.) 526. Where the holder of a note is not paid and notice is given him as collateral security having the riglit that he has not paid the interest, to sell the collateral without notice Louisville Banking Co. v. W. H. grants an indefinite extension, he can- Thomas &c. Co., 24 Ky. L. 811, 69 S. not thereafter sell the collateral ex- W. 1078. cept upon demand and notice, but this § 132 COLLATERAL SECURITIES. 1 58 becomes a party to the instrument, as collateral security for a pre-existing debt, under a binding contract for indulgence, is, according to the law merchant, a holder for value, and his rights cannot be affected by equities between antecedent parties, of which he had no notice."'' When there is such a consideration, it does not matter that there enters into the consideration for the extension a payment of usurious interest, for the period of extension, so that the consideration becomes in part legal, and in part vicious. The former is itself sufficient to sustain the con- tract of extension and transfer of the collateral note, and to constitute the creditor a holder for value. Upon this point the Supreme Court of the United States will not follow the decisiofis of the courts of the state in which the case arose, holding that one taking a note in violation of the statute against usury shall not be regarded as a bona fide holder for value ;°' for the ques- tion is one of general commercial law, upon which the courts of the United States are not bound by the decisions of the local court.'* ' A contract for the extension of the time of payment of a debt is none the less binding because it was induced by a payment of usurious interest in advance. Although the taking of usu- rious interest may subject the creditor to certain forfeitures prescribed by law, and to an action by the debtor for the re- covery of the amount so paid by him, it does not enable the creditor to avoid the contract for indulgence."" § 132. Negotiable paper as conditional payment. — Cases in which negotiable paper is taken by a. creditor as conditional payment of a precedent debt have sometimes been distinguished from those in which it is taken merely as collateral security." " Gates V. First Nat. Bank, 100 U. S. 239, 25 L. ed. 580, 12 Chicago L. N. S. 239, 25 L. ed. 580, 12 Chicago L. N. 119. 119, 9 Rep. 97; Goodman v. Simonds, " Salttnarsh v. Tuthill, 13 Ala. 390, 20 How. (U. S.) 343, 353, 15 L. ed. 410; Carlisle v. Hill, 16 Ala. 398, 406. 934. »' Kearslake v. Morgan, 5 T. R. 513 ; " Dates V. First Nat. Bank, 100 U. Clark v. Young, 1 Cranch (U. S.) 181, S. 239, 25 L. ed. 580, 12 Chicago L. N. 2 U ed. 74— the latter not consistent 119, 9 Rep. 97. with Weakly v. Bell, 9 Watts (Pa.) ■'» Dates V. First Nat. Bank, 100 U. 273, 36 Am. Dec. 116. Where plaintiff 159 NEGOTIABLE PAPER. § 132 If, for instance, the holder of a promissory note at its maturity accepts from the maker a check, dated ahead, and drawn by the maker's firm, with the agreement that the check, if paid at maturity, is to be in full satisfaction of the note, the remedy against the maker is thereby suspended, and an accommodation indorser is discharged."^ "The law is clear," said Lord Ken- yon,°^ "that if in payment of a debt the creditor is content to take a bill or note payable at a future day, he cannot legally commence an action on his original debt, until such bill or note becomes payable." The distinction between the two classes of cases above referred to is well stated by Judge Bennett in Austin v. Curtis."* "As I understand the cases, there is a class of secur- ities, payable on time, the taking of which on an antecedent debt implies an agreement for the suspension of the antecedent debt, but that class of cases is confined to those where the creditor accepts the note or bill for and on account of the antecedent debt, and the new security, for the time being, at least, is to take the place of and represent the original debt. That class is distin- guishable from, and not to be confounded with the class where the creditor has accepted simply a new additional or collateral security for an antecedent debt. In the former transaction, an agreement to give time may be implied, but not out of the latter transaction. There the new security is held only as a pledge, leaving the creditor with the right to enforce the old security whenever he shall see fit to withdraw any expected indulgence delivered shares of stock as a guar- is open to objection. See Austin v. anty of indebtedness and defendant Curtis, 31 Vt. 64.- And see Myers v. had to pay the debt and thereafter ap- Welles, 5 Hill (N. Y.) 463; Fellows propriated the stock to his own use v. Prentiss, 3 Denio (N. Y.) 512, 45 and claimed the same as his own, it Am. Dec. 484. See Currie v. Misa, L. was held in a suit brought by such R. 10 Ex. 153, for the case of a con- plaintiff three years thereafter for ac- ditional- payment by check on account, counting and to declare the stock to "' Stedman v. Gooch- 1 Esp. 3. have been a pledge and not a sale, "31 Vt. 64, 75; overruling the cases that plaintiff was guilty of laches, of Atkinson v. Brooks, 26 Vt. 569, 62 E'^^nton V. Chambers, 158 Fed. 907. Am. Dec. 592, and Michigan State '"Okie V. Spencer, 2 Whart. (Pa.) Bank v. Leavenworth, 28 Vt. 209, so 253, 30 Am. Dec. 251. The reasoning far as. they conflict, of Kennedy, J., in giving the decision. § 133 COLLATERAL SECURITIES. l6o to the principal, and at the same time leaving to the surety the right of coming into a court of equity at any time for relief. * * * I apprehend the distinction in the cases is well taken, and that while an agreement to give time may be implied in the case where the new security takes the place of, and stands, for the time being, in lieu of the old security, yet, if the new security is but additional and collateral to the old, I think it may well be said that the fact of taking the new security on time does not prove a promise to give time, but doubtless may furnish ground for an expected indulgence which the principal debtor is bound to treat as being at all times countermandable at the will of the creditor." § 133. The \scw of the place. — The transaction is governed by the law of the place where the pledge is made. Thus, if a broker in New York, to whom negotiable securities are entrusted to raise money upon for the owner, deliver them, as security for a pre-existing debt of his own, in Massachusetts, or any other state, by the law of which the receiving of a negotiable note as security for a pre-existing debt excludes all equities between the original parties, the transfer must be dealt with according to the law of Massachusetts, or such other state ; and the pledgee taking such securities in good faith before maturity obtains a good title to them to the amount of the debt for which they are pledged."^ If, on the other hand, a negotiable note be delivered in New York as collateral security for a precedent debt, the transac- tion is governed by the law of that state; and in a suit upon such note in another state, where the rule is that one taking paper as security for a precedent debt is a holder for value in the usual course of business, the law of New York, that such a transfer does not constitute one a holder for value, must be applied."" " Culver V. Benedict, 13 Gray Side R. Co., 104 Fed. 409, 43 C. C. A. (Mass.) 7; Tennent v. Union &c. Ins. 60S. Co., 133 Mo. App. 345, 112 S. W. 754; "Russell v. Buck, 14 Vt. 147; In re In re Pittsburgh Industrial Iron St. Paul &c. Grain Co., 89 Minn. 98, Works, 179 Fed. 151; Morris v. East 94 N. W. 218; Morris v. East Side R. Co., 104 Fed. 409, 43 C. C. A. 603. CHAPTER IV. NON-NEGOTIABLE CHOSES IN ACTION AS COLLATERAL SECURITY. I. The effect of such pledges, 134- 136a. § 134. Non-negotiable securities sub- ject to existing equities. 135. Bona fide purchaser for value. 13Sa. A contract may be assigned in pledge. 136. Assignment of choses in action as security. 136a. Assignment by contractor. 11. Pledges of mortgages, 137-144. 137. A mortgage may be pledged. 138. Form of assignment. 139. Legal transfer of mortgage or other 'lien as collateral. 140. Assignment of mortgage as se- curity for debt is a pledge. 141. Assignment of mortgage as col- lateral security. 142. Equitable pledge of note, bond or mortgage. 143. A mortgage note or bond may be pledged without the mort- gage. 144. Debtors own note and mort- gage as collateral security. III. Insurance policies as collateral, 14S-147b. § 145. Life insurance policies as col- lateral. 146. A life policy payable to married woman may be pledged. 146a. Insurance policy on husband's life payable to wife. 146b. Certificate of membership can- not be pledged as collateral. 147. A fire insurance policy may be pledged as collateral. 147a. Pledge of fire insurance policy may be made by assignment. 147b. Pledgee's insuring pledged property. IV. Pledges of savings bank books, 148. 148. Delivery of savings bank's books as collateral. V. Pledges of judgments, 149. 149. Judgment as collateral security. VI. Pledges of land certificates, 150. 150. Land certificates as collateral. § 134. Non-negotiable securities subject to existing equi- ties. — Non-negotiable securities are always subject in the hands of a pledgee to existing equities. Thus, a pledgee of a non-negotiable demand, such as a certificate of the amount due a person on account, can transfer to another only the same rights as the owner parted with when he assigned it; he trans- fers it subject to all the rights and equities of the owner, un- i6i 11— Col. Sec. § 135 COLLATERAL SECURITIES. 1 62 less the latter is by his acts estopped from asserting them. If the owner of such a demand indorse in blank a certificate of the amount, and pledge it for a loan, and the pledgee sells the certificate in this form to another, the purchaser takes only the interest of the pledgor, and must surrender the claims upon re- ceiving the amount of such loan.^ But in this same case it would seem that if the pledgee had written an absolute assignment of the demand to himself over the blank indorsement of the owner, as he was virtually au- thorized to do by an indorsement in this form, and had then himself sold the demand in this form to a purchaser for value in good . faith, the latter would have acquired a good title to the whole demand. The owner would have been estopped by his own act from asserting any title as against such purchaser. This estoppel arises from the well-settled principle that when the owner of property in any form clothes another with the apparent title or power of disposition, and third persons are thereby induced to deal with him, they are entitled to full pro- tection.^ § 135. Bona fide purchaser for value. — A bona fide pur- chaser for value of a non-negotiable chose in action, from one upon whom the owner has, by assignment, conferred the apparent absolute ownership, obtains a valid title as against the real owner, who is estopped from asserting a title in hostility thereto. Al- though the pledgor in such case has not transferred a legal title, having conferred the apparent ownership, he is precluded from asserting his title against a bona fide purchaser from such appar- " Cowdrey v. Vandenburgh, 101 U. App.), Ti S. W. 840. The beneficiary S. S72, 25 L. ed. 923. of a life insurance policy, where it ^ Cowdrey v. Vandenburgh, 101 U. has been assigned as collateral was S. 572, 25 L. ed. 923. Where the own- held estopped from asserting its re- er of a note by written assignment lease from the pledge by renewal of and delivery of possession has in- the note secured where such benefi- vested a bailee with apparent owner- ciary assented to such renewal. Me- ship, he cannot be heard to assert that chanics' Nat. Bank v. Comins, 72 N. such bailee's pledging of the note was H. 12, 55 Atl. 191, 101 Am. St. 650. invalid. May v. Martin (Tex. Civ. 163 NON-NEGOTIABLE CHOSES. § I3S ent owner; for, the purchase having been made upon the faith of the title which the owner had apparently given^ it would be contrary to justice and good conscience to permit him to assert his real title against the purchaser. Moreover, it would open the door for fraud upon purchasers of such property, if the owner, after transferring it by an absolute written transfer, were per- mitted to come in and assert his title against one dealing upon the faith of such transfer; the dishonest might combine and prac- tice the grossest frauds." Again, the maxim that, where one of two innocent parties must sustain a loss from the fraud of a third, such loss should fall upon the one whose act has en- abled such fraud to be committed, is applicable in such Cases.* If the payee of a non-negotiable certificate of deposit iiidorse it in blank, and deliver it as security for a loan, the pledgee may make a valid pledge of the certificate to an innocent party, who will hold it without reference to the equities between the payee and his pledgee. The last pledgee is authorized to infer absolute ownership in full right in the holder to pledge the certificate; though, as against the payee, his recovery would be . limited to the amount of his loan upon the certificate.^ A recital, however, in an assignment of a chose in action by the apparent owner, that it was made for value received, is not evidence in favor of the assignee against the real owner that it was for value, although he himself introduce the assignment in 'Moore v. Metropolitan Nat. Bank, within described amount, say ten S5 N. Y. 41, 14 Am. Rep. 173; over- thousand dollars." May v. Martin ruling Bush v. Lathrop, 22 N. Y. 535. (Tex. Civ. App.), 73 S. W. 840. Question raised but" not passed upon ' Moore v. Metropolitan Nat. Bank, in__Talti_3tFreedm^:jL^SaTit^^ 55 N. Y. 41, 14 Am. Rep. 173; FuUer- CoTSllJ. S/J2J/23 L. ed~886. The ton v. Sturges, 4 Ohio St. 529; Me- chose in action in Moore v. Metropol- chanics' Nat. Bank v. Comins, 72 N. itan Nat. Bank, 55 N. Y. 41, 14 Am. H. 12, 55 Atl. 191, 101 Am. St. 650. Rep. 173, was a certificate of indebt- "International Bank v. German edness of the state of New York for Bank, 71 Mo. 183, 36 Am. Rep. 468; $10,000, assigned as follows: "For Weirick v. Mahoning Co. Bank, 16 value received, I hereby transfer, as- Ohio St. 296; and also Combes v. sign and set over to Isaac Miller the Chandler, 33 Ohio St. 178. § 1353- COLLATERAL SECURITIES. .164 evidence. The assignee must prove affirmatively that he is a bona fide purchaser for value.* § 135a. A contract may be assigned in pledge. — A con- tract for the construction of a sea-wall and vfha.ri assigned by the contractor as collateral security, accompanied by a power of attorney to the assignee to collect the money to beconiie due under. the contract, is merely a pledge of the contract, creating a lien thereon, subject to which the title and general property in the pledge remains in the pledgor; and such pledge and lien imply no obligation on the part of the pledgee to perform or to pay for the work which the pledged contracts required to be performed by the pledgors, and the pledgee is not liable to an action of assumpsit by employes of the pledgors for work and labor performed.' A cause of action for the recovery of the value of property entrusted to a carrier is assignable and may therefore be pledged," and this is so in an action for the recovery of money ob- tained by false pretenses or wrongfully converted.' One having a lien upon property may assign the lien as col- lateral security, and may maintain an action for its enforce-, ment, making the assignee of the lien a party; or the assignee may enforce it in the name of the assignor.^" Book accounts may be pledged- by an assignment of them, but a mere statement of the accounts is not a pledge of them." ° Moore v. Metropolitan Nat. Bank, McKie v. Gregory, 175 Mass. SOS, 56 55 N. Y. 41, 14 Am. Rep. 173. N. E. 720. ' Stone V. Owens, 105 Cal. 292, 38 ' Merrill v. Grinnell, 30 N. Y. 594. Pac. 726. So a contract for the sale " Byxbie v. Wood, 24 N. Y. 607; Mc- of land. Butler v. Rockwell, 14 Colo. Kee v. Judd, 12 N. Y. 622, 64 Am. Dec. 125, 23 Pac. 462. So an order for 515. wages due the pledgor. Lewis v. Com- "Ridgway v. Bacon, 72 Hun (N. missioners, 14 Colo. 371, 23 Pac. 338. Y.) 211, 25 N. Y. S. 651, 55 N. Y.' St. So a contract for the construction of 345. a railroad. Reynolds v. Louisville &c. " Cornwell v. Baldwin's Bank, 12 R. Co., 143 Ind. 579, 40 N. E. 410. A App. Div. (N. Y.) 227, 43 N. Y. S. lease of real property for a term of 771 ; Freeman v. Rich, 64 Hun (N. years. Penney v. Lynn, 58 Minn. 371, Y.) 478, 19 N. Y. S. 498, 46 N. Y. St. 59 N. W. 1043. A legacy or an inter- 731. est in the estate of a deceased person. 1 65 NON-NEGOTIABLE CHOSES. § 1 36 The fact that one who has made a loan upon an indorsed note is induced by the maker or indorsers to take further collateral security which is forbidden by a rule of public policy, such as an assignment by the maker of future fees to accrue from the county to him as a public officer, does not affect the lender's right to enforce the note against the maker or the indorsers. The latter are not discharged because the collateral was illegal.^^ A cause of action for a personal tort cannot be assigned, and therefore cannot be pledged." § 136. Assignment of choses in, action as security. — The assignment of a chose in action as security is valid without notice to the debtor of the assignment. The assignment is complete upon the mutual assent of the parties to it, followed by delivery ; and it does not gain additional validity as against third persons by notice to the debtor." § 136a. Assignment by contractor. — An assignment by a contractor as security for a debt of all moneys to become due to him from a city, is not rendered void by a provision in the con- tract against assignment, such as a provision that neither the con- tract nor any of the moneys payable under it shall be assigned without the consent of the city in writing, but is for the protec- tion of the city, and can be availed of only- by the city; a junior assignee of the moneys cannot avail himself of this provision to obtain a more favorable position in the order of payment. When an assignment, in form an absolute assignment of all the contract- or's rights and interest under such a city contract, is in fact made as collateral security for a debt, the assignee, in the distribution " Bowery Bank v. Gerety, 153 N. Y. Otherwise in England : Dearie v. Hall, 411, 47 N. E. 793, affirming 91 Hun 3 Russ. I ; Loveridge v. Cooper, 3 (N. Y.) 539, 36 N. Y. S. 254. See Russ. 30; Meux v. Bell, 1 Hare 73. Oneida Bank v. Ontario Bank, 21 N. The assignor in assigning a chose in Y. 490 ; Bath &c. Light Co. v. Claffy, action as collateral security retains an ■ ^^i ^' ^' ^^' ^^ ^- ^- ^^°- interest in it that he may affirm in an '' Zabriskie v. Smith, 13 N. Y. 322, action. Mercantile Trust Co. v. Grin- 334, 64 Am. Dec. 5Sln; People v. bernat, 143 App. Div. (N. Y.) 305, 128 Tioga, 19 Wend. (N. Y.) 73. N. Y. S. 751. "Thayer v. Daniels, 113 Mass. 129. § 137 COLLATERAL SECURITIES. 1 66 of the fund payable under the contract and where no claim is made against the city, comes within the rule that, as between different assignees of a chose in action by express agreement from the same person, the one prior in point of time will be protected, although he has given no notice of such assignment to either the subsequent assignee or the debtor.^^ § 137. A mortgage may be pledged. — A mortgage with the note or bond secured by it may be the subject of a pledge by the mortgagee or holder. Though the transfer be by an absolute assignment, yet if it be accompanied by the debtor's note, which gives his creditor authority to sell the mortgage upon the debtor's default in paying his debt, the transaction is a pledge of the mortgage, and not a sale or mortgage of it.^° The assignee iri such a case has only a special property in the mortgage, and is subject to all the duties, and obligations of a pledgee. Thus, if such assignee without demand or notice transfer .the mortgage to a third person for a grossly inadequate price, and the latter cancels it, the creditor is liable to his debtor in trover for a con- version of the mortgage.^' In some early cases an assignment of a bond or note and mortgage is spoken of as in itself a mortgage.^' "Whether a "= Fortunato v. Patten, 147 N. Y. 277, only. Robinson's Ex'rs v. Blood's 41 N. E. 572; Lowry v. Inman, 46 N. Heirs, 64 Kan. 290, 67 Pac. 842. See Y. 119; Williams v. IngersoU, 89 N. also Sellick v. Manhattan Fire Alarm Y. 508; Fairbanks v. Sargent, 104 N. Co., 117 N. Y. S. 964. Y. 108, 9 N. E. 870, 58 Am. Rep. 490, " Campbell v. Parker, 9 Bosw. (N. 117 N. Y. 320, 22 N. E. 1039, 6 L. R. Y.) 322. The pledgor of a note and A. 475. mortgage is still the owner subject to '" Campbell v. Parker, 9 Bosw. (N. pledgee's lien and may sue upon it. Y.) 322; Raskins v. Kelly, 1 Rob. (N. Merced Bank v. Price (Cal.), 98 Pac. Y.) 160; 1 Abb. Pr. N. S. 63. An ab- 383. But it is proper to prosecute the solute transfer in form of a mortgage suit in the name of both pledgor and as collateral will not prevent the as- pledgee. Tennent v. Union Cent. Life signer from claiming and showing it Ins. Co., 133 Mo. App. 345, 112 S. W. to be a pledge only. Barber v. Hath- 754. away, 169 N. Y. 575, 61 N. E. 1127. "Henry v. Davis, 7 Johns. Ch. (N. Parol evidence is admitted to prove Y.) 40, 2 Cow. (N. Y.) 324; Slee v. that an absolute assignment of a Manhattan Co., 1 Paige (N. Y.) 48. judgment was as collateral security l67 NON-NEGOTIABLE CHOSES. § 1 38 particular transaction is a mortgage or a pledge is often a very nice question; and being a question of difficulty, Courts have in many instances used the terms 'mortgage' and 'pledge' indiffer- ently, when not necessary to observe the distinction between them. But when the real character of the transaction is mani- fested by the language of the parties to the contract disclosing their purpose and intention, all that a Court has to do is to recog- nize its real and true character, and to carry into effect by an appropriate decree the parties' declared intention."" Accord- ingly a note and mortgage may be the subject of either a, pledge or a chattel mortgage. § 138. Form of assignment. — If the form of the assign- ment of a chose in action be that of a mortgage of it with a con- dition of defeasance, the transaction, in the absence of any other decisive characteristic, should be regarded as a mortgage rather than a pledge. Thus, if a life insurance policy be assigned by an instrument having throughout the form of a mortgage, or if the assignment on the one side and the receipt on the other, taken together, are such in form, the purport and substance of the contract, and the intention of the parties as disclosed by the language used to express it, indicate a mortgage rather than a pledge.^** § 139. Legal transfer of mortgage or other lien as col- lateral. — To institute a valid pledge of a mortgage or other lien, there must be either a legal transfer by signing and de- livering a written assignment of it, or there must be some other actual or symbolical delivery of possession; such for instance as the delivery of the mortgage and note, or the note alone. A mere agreement of the parties that there shall be a pledge of the " Wright V. Ross, 36 Cal. 414, 429, corporation, such mortgage is a pledge and see Dungan v. Mutual &c. Ins. and the stockholder is a surety for Co., 38 Md. 242, 252. Under the Civil the corporation. Valentine v. Dono- Code of Cal., § 2986-7 and 2992, hoe-Kelly Banking Co., 133 Cal. 191, where a mortgage is assigned to a 65 Pac. 381. bank as collateral by a stockholder of '° Dungan v. Mutual &c. Ins. Co., 38 a corporation to secure a debt of the Md. 242. § 140 COLLATERAL SECURITIES. 1 68 mortgage, without any such transfer or delivery, is insufficient." The same rule applies to the pledge of any other like security; such for instance as a policy of insurance. A contract or prom- ise to transfer or deliver it in pledge does not avail to make it a pledge unless it be transferred, or delivered in pursuance of such contract or promise.^^ § 140. Assignment of mortgage as security for debt is a pledge. — An ordinary absolute assignment of a mortgage with the note, made by way of security for another debt, is a pledge rather than a mortgage. Probably such a transfer would generally, in the absence of controlling circumstances, be re- garded as a pledge. ^^ But there may be a mortgage of a^mort- gage, and this is the legal effect of an assignment of a mortgage, upon the express condition that the assignment shall be void, if default be made by the assignor in the payment of the draft secured by the assignment. An assignment of a note and mort- gage of real property made in the usual form of a chattel mort- gage, expressed to be for the purpose of securing a sum of money, and providing that if the assignee collects the money he is to account for any surplus there may be, may be regarded as a chattel mortgage, especially if the instrument be so denominated in the terms of it.^* § 141. Assignment of mortgage as collateral security. — Generally the fact that a mortgage is assigned as collateral se- ""Sevin V. Caillouet, 30 La. Ann. "* Wright v. Ross, 36 Cal. 414. And 528 ; Caffin v. Kirwan, 7 La. Ann. 221 ; see Dewey v. Bowman, 8 Cal. 14S, ISO ; D'Meza's Succession, 26 La. Ann. 35; Wendell v. New Hampshire Bank, 9 Cotton V. Arnold, 118 Mo. App. 596, N. H. 404. When the pledgee of a 95 S. W. 280 ; In re Pleasant Hill real estate mortgage forecloses it upon Lumber Co., 126 La. 743, 52 So. 1010. default and thereby secures title '^ Succession of D'Meza, 26 La. through sheriff's deed and takes pos- Ann. 35. See also First Nat. Bank v. session the title is Held by him in lieu Harkness, 42 W. Va. 156, 168, 24 S. E. of the mortgage and is governed by 548, 32 L. R. A. 408. the law of pledges and the pledgee ^ Fraker v. Reeve, 36 Wis. 85. See may have his legal title quieted, also Gay v. Moss, 34 Cal. 125, where Blood v. Shepard, 69 Kan. 752, 77 an absolute assignment of a contract Pac. 565. was so regarded. 169 NON-NEGOTIABLE CHOSES. § I42 curity does not appear on the face of the assignment. If the assignment be absolute in form, the fact that it was made as col- lateral security may be shown by parol evidence, just as an abso- lute conveyance of real property may by such evidence be shown to be a mortgage; or as an absolute bill of sale may be shown to be a mortgage or pledge of personal property.^*" In an assignment of a mortgage as collateral security, a recital of the consideration is not alone constructive notice that the assignee holds the mortgage as security for that sum. Thus where a mortgage, securing a promissory note, not due, for fifteen hundred dollars, was assigned absolutely as security for a loan of three hundred dollars, and this sum was recited as the consideration for the assignment, and subsequently the assignee pledged the mortgage for a loan of twelve hundred dollars, it was held that the first pledgor could not redeem the mortgage from the last assignee, except upon payment of the sum which the latter had advanced upon it.^^ The recital in the first assign- ment, of the consideration, was not sufficient to put the last as- signee on inquiry, or to prove fraud on his part. § 142. Equitable pledge of note, bond or mortgage. — A delivery of a note or bond and mortgage as collateral security, ""a Where an issue is raised as to 68 App. Div. (N. Y.) 346, 74 N. Y. S. whether certain mortgage notes were 231. An absolute assignment of a life delivered as a pledge to secure a debt insurance policy, may be shown by or as an accommodation loan, a writ- parol evidence to have been made a^ ten contemporaneous contract agree- a trust and as collateral security, ing to deliver such notes as collateral Protzman v. Joseph, 65 W. Va. 788, 65 is very strong evidence that they were S. E. 461. delivered as a pledge. Meyer v. Moss, " Briggs v. Rice, 130 Mass. SO, 51. 110 La. 132, 34 So. 332. When shares "As a prudent man taking a note not of stock are assigned by written in- yet due, it was sufficient for the as- strument providing that defendant signee to know that the assignment should pay certain obligations of transferred to him a good title to the plaintiff and pay over to him certain mortgage security. It is not enough sums of money, such instrument is that an over prudent and cautious not a mere assignment, but is a writ- person, if his attention had been called ten contract and oral evidence cannot to the circumstance in question, would be admitted to show that the stock have been likely to seek an explana- was assigned as collateral security tion of it." and not a sale. Miller v. Carpenter, § 142 COLLATERAL SECURITIES. I70 without any written assignment, is a valid equitable pledge of those securities, which courts of law will take notice of and pro- tect.^" A negotiable note may be pledged by delivery without indorsement, in which case the legal title will remain in the payee, but he will hold this title for the benefit of the pledgee, so long as the latter retains possession of the note as security. The payee may, while the note is so held, indorse it, and thereby transfer the legal title to another, who will then Jiold such title as it was before held by the payee, that is, subject to the equitable claim of the pledgee.^^ Non-negotiable paper may, like that which is negotiable, be effectually pledged by indorsement and delivery by the payee or owner^^ of such paper, or by delivery without indorsement. A pledgee of bonds of a corporation which are secured by a mortgage is entitled to a proportionate part of the security; and though the pledge was made by the corporation itself, the pledgee is entitled, upon a foreclosure of the mortgage, to prove the whole amount of his bonds, and to share in the distribution up to the amount of his debt, and is not limited to proof of an amount simply equal to the amount of his debt.^° A promissory note or a corporate bond made negotiable in form, and delivered before maturity, confers upon the holder a title which is not subject to equities existing between the orig- inal parties; and if such note or negotiable corporate bond ^ Grain v. Paine, 4 Cush. (Mass.) linger v. Pomeroy, 3 Greene (Iowa) 483, 50 Am. Dec. 807; Dickey v. Poco- 178, 54 Am. Dec. 496. moke &c. Bank, 89 Md. 280, 43 Atl. "Proctor v. Baldwin, 82 Ind. 370; 33; Crane v. Gough, 4 Md. 316; Ka- Kavanaugh v. Brodball, 40 Neb. 875, mena v. Huelbig, 23 N. J. Eq. 78; Gal- 59 N. W. 517. way V. FuUerton, 17 N. J. Eq. 389; ^Norton v. Piscataqua Ins. Co., HI Prescott V. Hull, 17 Johns. (N. Y.) Mass. 532; Jones v. Witter, 13 Mass. 284; Runyan v. Mersereau, 11 Johns. 304. (N. Y.) 534, 6 Am. Dec. 393 ; Bank of ^ Duncomb v. New York &c. R. Co., Woodland v. Duncan, 117 Cal. 412, 49 84 N. Y. 190; Lehman Bros. v. Tallas- Pac. 414; McArthur v. Magee, 114 see Mfg. Co., 64 Ala. 567; Morton v. Cal. 126, 130, 45 Pac. 1068; Adler v. New Orleans &c. R. Co., 79 Ala. 590, Sargent, 109 Cal. 42, 41 Pac. 799; Gal- 622; Dickey v. Pocomoke City Nat. Bank, 89 Md. 280, 43 Atl. 33. 171 NON-NEGOTIABLE CHOSES. § I43 be secured by a mortgage, the mortgage being but an incident of the debt, the negotiable character of the latter is imparted to the former, to the extent that the assignee of a mortgage securing such a negotiable debt, taking it in good faith before maturity, takes it free from any equities existing between the original parties.'" But if the debt be not negotiable, the pledgee of the mort- gage will take it subject to the equities between the original parties. An ordinaiy mortgage bond being non-negotiable, a pledgee of a mortgage and mortgage bond will hold his pledge subject to existing equities between the original parties. Thus, a mortgage and bond executed to secure a vendor under a con- tract for a purchase of land, and not in payment of an instal- ment of the purchase-money, not being negotiable securities, are subject in the hands of an assignee to the equities existing between the original parties; and upon a rescission by them of the contract of sale, the principal indebtedness is extinguished, and the validity of the bond and mortgage destroyed.'^ § 143. A mortgage note or bond may be pledged without the mortgage. — A mortgage note or bond without the mort- gage may be the subject t>f a pledge, and will give the pledgee the benefit of the mortgage security.^^ It would seem that ordina- rily a simple transfer in absolute form of a mortgage note to a creditor, as security for a debt, is to be regarded as a pledge rather than a mortgage. Such a transfer carries the legar title to the note and the equitable title to the mortgage property. It '"Jones on Mortgages, § 834. In a 139, 142, 73 N. W. 850, 70 Am. St. decision in Minnesota it was said : "It 319. The grounds of this decision are is the settled law of this state that a not apparent, mortgage has none of the privileges " Wanzer v. Gary, 76 N. Y. 526. of negotiable paper, but is a mere ^' Morris &c. Banking Co. v. Fisher, chose in action; hence an assignee 9 N. J. Eq. 667, 64 Am. Dec. 423n; thereof takes it subject to any defense Loewenthal v. McCormick, 101 111. that exists between the original par- 143; Logan v. Smith, 62 Mo. 455; ties, unless they are equitably es- Whittemore v. Gibbs, 24 N. H. 484; topped by their acts, or otherwise, Quimby v. Williams, 67 N. H. 489, from asserting it as against the as- 493, 41 Atl. 862, 68 Am. St. 685. signee." Moffett v. Parker, 71 Minn. § 144 COLLATERAL SECURITIES. 1 72 carries with it the mortgage lien, as an accessory to the debt; and it carries with it any other lien which secures such principal obligation.^' The first pledgee of a mortgage note or bond may repledge it with like effect; or he may by agreement with the mortgagor transfer the mortgage note to another who advances or pays to the first pledgee the amount due him upon the security, where- upon the latter transferee is subrogated to the rights of the former, and will hold the note and mortgage as security for the money advanced.'* Where one borrowed money from bank, purchased land there- with, sold the same, giving a bond for title and taking the note of his vendee payable to his order, and subsequently deposited with the bank, as collateral security for his debt, this note with- out indorsement and the deed which he had taken to 'him- self, the bank stood in the position of a purthaser of the note, and its equity to hold the land subject for the loan was su- perior to the lien of any judgment rendered against its debtor after the deposit of the note and deed as collateral.'^ § 144. Debtor's own note and mortgage as collateral se- curity. — A debtor may give his own note and mortgage as collateral security for another note made by him, or for any dis- tinct debt. But there must be a debt to be secured distinct from that created by the note and mortgage, otherwise these create the principal debt. Thus if a note and deed of trust be given, on the purchase of land, for a portion of the purchase- money, they are not collateral- security, but the principal debt; and they are not converted into collateral security by the ven- dor's giving the purchaser a written agreement to accept a less sum if paid within a short period, instead of the period ex- pressed in the note, and to assign the note and mortgage to en- able the purchaser to borrow the money. The note and niort- " Kamena v. Huelbig, 23 N. J. Eq. " LcEwenthal v. McCormick, 101 111. 78; Mechanics' Building Assn v. Per- 143. guson, 29 La. Ann. 548 ; Swope v. " Smith v. Jennings, 74 Ga. SSI. Leffingwell, 72 Mo. 348. 173 NON-NEGOTIABLE CHOSES. § 145 gage in such cases are merely evidence of the original indebt- edness." § 145. Life insurance policies as collateral. — A life insur- ance policy may be effectually pledged by delivery either with or without a written assignment/' although the policy contains a " Harding v. Commercial Loan Co., 84 111. 251. See Morris &c. Banking Co. V. Fisher, 9 N. J. Eq. 667, 685, 701, 64 Am. Dec. 423n; Seymour v. Lewis, 19 Wend. (N. Y.) 512. But see Atlantic F. & M. Ins. Co. v. Boies, 6 Duer (N. Y.) 583. " Collins V. Dawley, 4 Colo. 138, 34 Am. Rep. 72; Norwood v. Guerdon, 60 111. 253 ; Tateutti v. Ross, ISO Mass. 440, 23 N. E. 230; Oilman v. Curtis, 66 Cal. 116, 4 Pac. 1094; Hewins v. Baker, 161 Mass. 320, 37 N. E. 441; Norton v. Piscataqua Ins. Co., Ill Mass. 532; Currier v. Howard, 14 Gray (Mass.) 511; Palmer v. Merrill, 6 Cush. (Mass.) 282, 52 Am. Dec. 782; Grain v. Paine, 4 Cush. (Mass.) 483, SO Am. Dec. 807 ; Ellis v. Kreutzinger, 27 Mo. 311; Grant v. Kline, 115 Pa. St. 618, 9 Atl. 150. In England, poli- cies of life assurance are frequently the subjects of mortgages. The mort- gage is formally drawn with full and elaborate recitals, covenants, and pow- ers. It assigns the policy, with a pro- viso for redemption upon the payment of the debt secured. It contains cov- enants that the mortgagor will keep up the assurance and will pay the premiums, and provides that if the mortgagor fails to do so, the mort- gagee may advance the moneys for this purpose, and the policy shall stand charged for the payment of such advances. A power is given to the mortgagee in case of default to sell the policy at public auction or pri- vate sale, or to surrender it to the of- fice which issued it. Frequently a surety joins in all the covenants of the mortgage. Such a mortgage of a pol- icy affords a much better security than a pledge, especially if this be made without writing. For a form of such a mortgage, see Davidson's Prec- edents in Conveyancing, 4th ed. 1881, vol. 2, pt. 2, p. 490; and for observa- tions upon such mortgages, see same, pp. 122-136. Where a fire insurance policy is pledged as collateral by writ- ten clauses in a mortgage also secur- ing a debt from the pledgor but the policy is left in the hands of the in- surance agent from whom procured and who held it for the purpose of re- newing it, it was held no further de- livery was necessary and that the mortgagee had an equitable lien on the proceeds of the policy. Witten- berg Vaneer v. Panel Co., 108 Fed. 593. One taking property as collat- eral security is an owner of it with- in the meaning of the word "owner" as used in an insurance policy. Whe- len v. Goldman, 62 Misc. (N. Y.) 108, 115 N. Y. S. 1006. A creditor by as- signment may take an interest in a life policy of the debtor limited to the amount of liability at the time of the debtor's death and this is true where the policy is assigned either as collat- eral or absolutely. First Nat. Bank V. Speece, 3 Va. 125, 37 S. E. 843. Where one holds a life policy as- signed to him as collateral the con- tract providing that he might on the failure of the pledgor to pay premi- § I4S COLLATERAL SECURITIES. 1 74 condition that it shall be void if assigned without the written consent of the insurers/* The condition does not prevent the transfer or pledge of the policy. It reserves to the insurers the right to give or refuse their consent to such transfer; and the insurers may at their election avoid the policy if it be transferred without their consent. The effect of the condition is to defeat the policy ; not to defeat the transfer. "The same reasoning ap- plies to provisions requiring that assignments should be in writ- ing, or requiring a duplicate or certified copies to be delivered to the company at any particular place." ^° Under such provisions it seems that the issuing of a paid-up policy by the insurance company in place of the original policy after an assignment of the latter without its consent is a waiver of the requirements.*" Such a pledge having been made to a person residing in the state in which the insurers were chartered as a corporation, he may in his own name by a bill in equity, or in the name of the administrator of the insured, enforce his claim, if the company see fit to waive the condition, and the administrator could not defeat the prosecution of the suit. If an administrator be ap- pointed in Illinois, where the deceased had his domicil, and he urns pay them himself and receive a ing it the right to cancel the policy, paid-up policy instead of the one held upon such default, under the statutes as collateral, the pledgee may treat of Kentucky (Ky. St. 1903, § 653) the such paid-up policy as so much money company must bring its action in and apply it on his debt without mak- equity to enforce its rights and show ing a sale of it as pledged property, its surrender value as provided by Du Brutz V. Bank of Visalia, 4 Cal. such statute and the excess of value App. 201, 87 Pac. 467, 469. When a over the debt secured will be ordered fire policy is held by a pledgee as col- paid to the insured. Mutual Life Ins. lateral, which provides that a loss un- Co. v. Twyman, — Ky. — , 28 Ky. L. der the policy should be estimated by 1153, 92 S. W. 335. the insured and the company the " Merrill v. New England &c. Ins. pledgee is not bound by the action of Co., 103 Mass. 245, 4 Am. Rep. 548; the company and the insured as to Hewins v. Baker, 161 Mass. 320, 37 amount of the loss. Scottish &c. Ins. N. E. 441. Co. V. Field (Colo. App.) 70 Pac. 149. "Hewins v. Baker, 161 Mass. 320, Where a paid-up policy authorizes the 37 N. E. 441. insured to change the beneficiary and " Hewins v. Baker, 161 Mass. 320, he borrows money from the company, 37 N. E. 441. assigning the policy as collateral, giv- 175 NON-NEGOTIABLE CHOSES. § I45 ■brings suit there against the insurers, and obtains an injunc- tion against the company's paying the poHcy to a creditor hold- ing the poHcy in pledge, the pledgee having been appointed an- cillary administrator in Massachusetts, where the insurance com- pany was incorporated, may maintain a suit there upon the policy, the pendency of the suit by the general administrator be- ing no bar; for the pledgee, having the equitable interest and immediate possession of the policy, is entitled to its control and collection in preference to the principal administrator of the estate,.*^ It is not necessary that the pledgee or assignee should have an interest in the life insured, either as between him and the insurance company, or as between him and his assignors.*" If the assignment of a life policy be made by an instrument which is in form and substance a mortgage, the transaction will be a mortgage and not a pledge of the policy.*' A creditor who takes a policy of insurance upon his debtor's life as collateral security, and charges the premium for a term of years as a part of the principal of the loan, is bound to keep the -policies alive ; and i-f he fails to do so, he is either regarded "Merrill v. New England &c. Ins. not the same easily ascertained mar- Co., 103 Mass. 245, 4 Am. Rep. 548. ket value as personl chattels or shares " Dixon V. National &c. Ins. Co., of stock in banks or other corpora- 168 Mass. 48, 46 N. E. 430. A cred- tions. They are not ordinary articles itor has an interest in the life of his of sale in market-overt or at the stock debtor sufficient to enable him to take boards. The power of sale incident and hold a life insurance policy on his to a pledge could not be readily exer- life as collateral security. Gordon v. cised, if at all, in case of default, and Ware Nat. Bank, 65 C. C. A. 580, 132 hence no one would be inclined to ac- Fed. 444, 67 L. R. A. SSO. cept them as securities for loans and Dungan v. Mutual &c. Ins. Co., 38 advances with no more interest or Md. 242, 253. In this case. Miller, J., title in, or control over them than that delivering the opinion of the court, which the law of bailments confers." thought there was reason to regard In England, life insurance policies are the transfer as a mortgage rather mortgaged as security more frequent- than a pledge, not only by reason of ly than pledged. Salt v. Northamp- the form of the transfer, but also ton [1892], L. R. App. Cas. 1; Deer- from consideration of the . subject- ing v. Bank [1887], L. R. 12 App. Cas. matter of the transfer. "Continuing 20. life policies, if they have any, have § 145 COLLATERAL SECURITIES. 1 76 as making himself the insurer, or he is made hable for negli- gence in not keeping the insurance in force/* The pledgor of a life insurance policy, in the absence of an agreement to the contrary, impliedly undertakes to keep the certificate alive so long as it remains as security, and if he fails to pay the assessments as they become due the pledgee may do so and recover the amounts so paid from the pledgor in assumpsit, even though the payments were made by the pledgee after a repudiation of responsibility by the pledgor.*" A pledgee of a life insurance policy has no right without the consent of the pledgor to surrender the policy to the insurance company and receive its cash value.*° The rule of damages in such a case would, it seems, be the cost of replacing the policy on the same terms in a perfectly sound company at the time of the surrender; but where it appears that at that time the in- sured was suffering from a fatal disease, from which he subse- quently died, and that he had ceased to be an insurable risk, and the company, having canceled the obligation, refused to reinstate it, the damages are the face value of the policy, less what it would cost to carry it by payment of another premium, which fell due before the death of the insured, with interest from the date of the conversion.*^ " Soule V. Union Bank, 45 Barb, the insured's death and the measure (N. Y.) Ill, 30 How. Pr. (N. Y.) lOS. of damages is the face of the policy, The pledgee of a life insurance policy, less the sum due the pledgee. Bailey upon default of the pledgor may dis- v. American &c. Loan Co., 165 N. Y. pose of it in the manner agreed upon 672, 59 N. E. 1118. Where the holder in the pledge contract. Palmer v. of a paid-up life policy pledges it to Mutual Life Itis. Co., Ti App. Div. the company as collateral security for (N. Y.) 494, 38 Misc. (N. Y.) 318, 11 a debt and agrees that on default, the N. Y. S. 869. pledgee may cancel the policy, pay " Emmeluth v. Cook, 10 Hawaii 125. itself out of the value of the policy " Manton v. Robinson, 19 R. I. 405, and pay the excess value to the pledg- 34 Atl. 148. Grossman v. Lindemann, or, such agreement is valid and binds 123 N. Y. S. 108, 67 Misc. (N. Y.) 437. the pledgor. Palmer v. Mutual &c. One holding a life policy as collateral, Ins. Co., 38 Misc. (N. Y.) 318, 11 N. liaving waived the right to surrender Y. S. 869. it to the company and receive its value " Toplitz v. Bauer, 161 N. Y. 325, SS without notice is guilty of conversion N. E. 1059 ; Bailey v. American &c. when he does so a few days before Loan Co., 165 N. Y. 672, 59 N. E. 177 NON-NEGOTIABLE CHOSES. § 146 § 146. A life policy payable to married woman may be pledged. — A policy of life insurance payable to a married woman may be pledged by a delivery of it with an indorsement of it by her in blank which her husband has filled up by an assign- ment.*' By indorsing the policy and delivering it to her hus- band, she clothes him with all necessary evidence of a power to pledge the instrument, and she cannot afterward claim that her husband had no authority to assign it. "They are also of daily occurrence in the way of collateral security, and where a policy is made payable to the wife, and she indorses it in blank, and the husband pledges it, we are wholly at a loss to conceive on what ground it can be claimed that such an assignment is not valid in a court of equity. The husband and the wife are the only parties interested, and they have both participated in the as- signment. The law provides no particular mode by which the wife is to manifest her consent, as in the case of a conveyance of lands, and if such an assignment as was made in the present case is not valid, then a policy payable to a married woman is not assignable at all. * * * She gave to the public, however,' 1118. Where a mortgagee holds an assignment of an endowment policy as collateral and unnecessarily delays in collecting it he is chargeable with interest on the amount collected from the time when he should have col- lected it. Feigner v. Slingluff, 109 Md. 474, 71 Atl. 978. The pledgee of a life policy has title sufficient to en- able him to collect it upon default. Clark V. Equitable Life Assur. 'Soc, 133 Fed. 816; Gilman v. Curtis, 66 Cal. 116, 4 Pac. 1094; Archibald v. Mutual Life Ins. Co., 38 Wis. 542. But such an assignee takes the policy subject to the rules and by-laws of the company. Franklin Life Ins. Co. v. American Nat. Bank, 74 Ark. 1, 84 S. W. 789. "Wirgman v. Miller, 98 Ky. 620, 33 S. W. 937; First Nat. Bank v. Good- man, 5S Neb, 409, 419, 75 N. W. 846, 58 Neb. 701, 79 N. W. 1062. 12 — Col. Sec. Under a statute of Kentucky permit- ting a married woman to dispose of her separate f state which has been set- tled upon hef for her separate use it is held that when a life policy on the life of a husband is payable to the wife such interest is "settled" upon her and that she may legally assign the same as collateral. Troendle v. Highleyman (Ky.), 113 S. W. 812. Where a life policy is pledged as col- lateral and on surrender of the policy and it is agreed by the pledgee that the first check received should be paid to the insured and that the pledgee is to have the remainder of the surren- der value as payment of his debt, the insured cannot give a valid lien to another on such balance so as to de- feat the pledgee's lien thereon. At- lanta SaV. Bank v. Downing, 122 Ga. 692, 51 S. E. 38. § 146 COLLATERAL SECURITIES. 1 78 the evidence of her consent by. endorsing the policy in blank — an act which could be interpreted as done for no other purpose than an assignment — and the same consequences must be attached to this act against her as would follow from such an act per- formed by any other person. When innocent parties have ad- vanced money to her husband on the faith of such blank assign- ment, she cannot be permitted to repudiate the transaction. She cannot be permitted to enable her husband to perpetrate a fraud."'' Where a life insurance policy is pledged to secure a debt also secured by a mortgage on a homestead, an agreement by the assured that premiums advanced by the pledgee shall be a first lien in the policy is valid without the wife's consent, and does not increase the burden on the homestead.^" § 146a. Insurance policy on husband's life payable to wife. ■ — where a policy of insurance on the husband's life, payable to his wife, was assigned by both to a creditor of the husband "as collateral security for the amount of his demands subsisting against [the husband] at his decease, as creditor or as surety," and the husband subsequently received a discharge in bankruptcy, his creditor proving a part of his claim and assenting to the debtor's discharge, it was held that upon the death of the hus- band without having satisfied the balance of his debt the creditor was entitled to enforce his security under the assignment of the policy, he having a subsisting demand within the meaning of the assignment. The word "creditor" in such case does not neces- sarily mean a person having a claim capable of legal enforcement. To give it that meaning would be to hold that the parties con- templated that the security should coiitinue if the debtor re- mained solvent, but not if he became bankrupt and got a dis- charge.^^ *" Xorwood V. Guerdon, 60 III. 253, icy on the life of the husband is as- 257. signed as collateral by the hus- ™ Blake v. McCosh, 91 Iowa 544, 60 band and wife and an action by the N. W. 127. pledgee to recover on the policy, the "' Champion v. Buckingham, 165 wife asserts in her answer that she is Mass. 76, 42 N. E. 498. Where a pol- the owner and that she had assigned \ \ \ \ \ \ 179 NON-NEGOTIABLE CHOSES. § 146b § 146b. Certificate of membership cannot be pledged as collateral. — A certificate of membership in a beneficiary as- sociation cannot be pledged, in case the rules of association pro- vide that upon the death of a member the amount due on his cer- tificate shall be payable to his widow, children and other relatives in a designated order. A member cannot direct the payment of the amount due upon his certificate to any person other than the beneficiaries so named and in the order named. ^^ Such a certificate in a beneficiary association organized for the purpose of assisting widows and other dependents of de- ceased members, is protected by a statute declaring that the beneficiary fund shall not be liable to attachment or to the claims of creditors. "It is not contemplated by the statute that the right to the assistance secured by membership shall be as-, signable to creditors during the member's life. The statute in- tends a particular and special method of assistance tO' the desig- nated classes of persons after the member's death; and the purpose of the statute would be defeated by allowing an assign- ment, during the member's life, to his creditors, as collateral security."^' § 147. A fire insurance policy may be pledged as collateral. — A policy of fire insurance may be effectually pledged by de- livery without a formal assignment. Thus when the directors of a manufacturing corporation placed the company's fire in- surance policies in the hands of two directors without any formal the same to E. & Co. as collateral se- waived when the pledgee by letter curity for her husband's debts and E. after default gave the debtors a few & Co. was not shown to be a creditor, days' extension on the debt and such but E. was, it was held that such vari- pledgee will be required thereafter to ance was immaterial and that E. might give notice before taking action, recover. Clarke v. Adam, 30 Tex. Civ. Bailey v. American &c. Loan Co 165 App. 66, 69 S. W. 1016. The-right of N. Y. 672, 59 N. E. 1118,' See 'also a pledgee of an insurance policy, as- 52 App. Div. (N. Y.) 402, 65 N. Y. S. signed as collateral security to secure 330. the debt of the insured and benefi- == Odd Fellows' Beneiicial Assn. v. ciary, giving him on default the right Diebert, 2 Ohio Cir. Ct. 462. to surrender the policy and receive "= Briggs v. Earl, 139 Mass. 473, 476 the surrender value without notice, is 1 N. E. 847. I 147 COLLATERAL SECURITIES. l8o assignment, to secure loans made and to be made by such direct- ors and others to the corporation, it was held there was a suffi- cient delivery of the policies to sustain the pledge." Judge Treat, in delivering the judgment in this case, said: "It is a matter of daily occurrence that creditors require their debtors to insure their property and assign or pledge the same as security. They are not willing to trust the event of the debtor's solvency if his property is destroyed by fire, and hence exact such security in addition to his personal liability. In the absence of such an ar- rangement the creditor may well be supposed to rely upon his debtor's ability to meet his liabilities, irrespective of the con- tingency by fire. The debtor was not bound to insure, and if he did not, the creditor had no recourse except upon his remaining assets. If he did insure, and the proceeds thereof became a part of his general estate, they became subject to the demands of his creditors, equally with other assets. But if the insurance was made, not for the general benefit, but solely or primarily for the security, of a specified class of creditors, by agreement with them, why should not the transaction be upheld, and by what legal or equitable right could the unsecured creditors claim that they should share in such securities ? "The iquestion, however, in this case is as to, the pledge of the policies and their renewals for the purposes alleged. There was no formal assignment, and no consent of the insurance companies to such assignments. * * * When the fire occurred and the amount of losses was collected, the sums so collected would nec- essarily have to be paid over to the pledgors, to the amount of their demands secured. The fact that the creditors were di- rectors, and the company, pledgor, and directors were the trustees for the benefit of said creditors, cannot affect the good faith of the transaction, if the agreement to pledge existed at the time of the advances, and the creditors were within the terms of the pledge. Other or general creditors who had not taken such securities have no ground of complaint. There was no prefer- " Stout V. Yaeger Milling Co., 13 Fed. 802. l8l NON-NEGOTIABLE CHOSES. § I47a ence, within the admitted rule, but merely an enforcement oi securities." The deposit of a policy of insurance with a creditctr of the assured, as collateral security, gives the creditor a lien on the proceeds of the policy, which is binding upon the underwriters and upon the assured, and upon all persons who take an interest from the assured with notice of such lien." Even a clause in the policy which prohibits a transfer of it without the consent in writing of the insurers does not apply to a deposit of the policy by way of pledge."" The interest of the insurefs cannot be affected by any transfer which does not also transfer the title to, and a control over, the property assured; and therefore such restrictions have not been understood to apply to assignments in which the underwriters can have no interest, and to control which they can have no motive."' § 147a. Pledge of fire insurance policy may be made by assignment. — ^A pledge of a fire insurance policy may be made by an assignment of it without a transfer of the property insured, unless a by-law of the insumace company or the policy itself provides that the policy shall not be assignable for purposes of collateral security. The consent of the company to such assign- ment given in the form used for an assent to an absolute trans- fer and without inquiry whether the property had been trans- ferred to the assignee is valid and binding. Proof of loss may be made by the insured for the benefit of the pledgee." "A policy of insurance against loss by fire, issued to G, pro- vided that 'this policy is not assignable for purposes of collateral " Godin V. London Ins. Co., 1 Burr. &c. Ins. Co., 100 N. Y. 417, 3- N E 489, 494; Wells v. Archer, 10 S. & R. 309, S3 Am. Rep. 202; True v. Man- (Pa.) 412, 13 Am. Dec. 682; Dickey v. hattan &c. Ins. Co., 26 Fed 83. Pocomoke City Nat. Bank, 89 Md. 280, "Ellis v. Kreutzinger, 27 Mo. 311, 43 Atl. 33; Soule v. Union Bank, 45 72 Am. Dec. 270. Barb. (N. Y.) Ill; Chapman v. Mcll- "Merrill v. Colonial &c Ins Co wrath, 77 Mo. 38, 46 Am. Rep. 1. 169 Mass. 10, 47 N. E. 439, 61 Am St' n,^ o„*^^ ''• Poconioke &c. Bank, 89 268; East Texas &<:. Ins: Co. v. Coffee' Md. 280, 43 Atl. 33 ; Ellis v. Kreutzin- 61 Tex. 287. ' ger, 27 Mo. 311; Griffey v. New York § 147b COLLATERAL SECURITIES. 1 82 security ; but for such purpose it is to be made payable in case of loss, etc., by indorsement on its face. In cases of actual sale and transfer of title, leave having been previously obtained, the form subjoined may be used, which must be executed at the time of said transfer.' Then followed an assent,' signed by an agent of the company. * * * 'pj^ig -^^as in turn followed by an assign- ment by G of 'all [G's] title and interest in this policy, and all advantages to be derived therefrom.' " The assignment in fact was made as collateral security for a debt, which was also se- cured by a mortgage of the insured property executed a few days after the policy was assigned. The agent who signed the assent had no authority to assent to an assignment by way of collateral security, and neither knew that this was such an assignment, nor gave the assignee any reason to suppose that he knew it. It was held that the assignee could not maintain an action upon the policy. "*° Evidence is admissible to show the purpose of an assignment of a fire insurance policy and that an absolute assignment was so made because one reciting the real purpose and that it was made as collateral security would not be accepted by the insurance company.^''' § 147b. Pledges insuring pledged property. — If a pledgee at his own expense and without any agreement or understanding ■with the pledgor insures the property pledged and after a loss collects the money from the insurer,, he is not bound to account for it to the pledgor. This rule was afifimied in Massachusetts in a case where one as "trustee" took a bill of sale of an interest in a schooner as security for a debt, agreeing in writing as "trustee" to reconvey the same when the debt should be paid. After the debtor's death the creditor took charge of the vessel, and without any agreement with the debtor or his representative, insured such interest as "trustee," and after a loss collected insurance money " Lynde v. Newark &c. Ins. Co., 139 °°a Clarke v. Adam, 30 Tex. Civ. Mass. 57, 29 N. E. 222. App. 66, 69 S. W. 1016. 183 NON-NEGOTIABLE CHOSES. § 1 48 in excess of the debt, and he was held not to be accountable to the debtor's representative for any part of the insurance money."" § 148. Delivery of savings banks books as collateral. — The delivery of a savings bank book as collateral security for a debt, although unaccompanied by a written assignment, transfers an equitable title to the deposit represented by the book, which will prevail against a creditor subsequently attaching the deposit."* "A savings bank book has a peculiar character. It is not a mere passbook, or the statement of an account ; it is issued to the per- son in whose name the deposit is made, and with whom the bank has made its contract; it is his voucher, and the only security he has, as evidence of his debt. The bank is not obliged to pay the de- positor the money in its hands except upon presentation of the book; and if in good faith and without notice it pays the money deposited to the person who presents the book, although the book has been obtained fraudulently by him, the bank is not liable to the' real depositor. * * * "The book is the instrument by which alone the money can be obtained, and its possession is thus some evidence of title in the person presenting it at the bank. It is in the nature of a security for the payment of money ; it discloses the existence and amount of the fund to the person receiving it, and affords him the means of obtaining possession of the same.""^ The delivery of a savings bank book by a debtor to a third person for delivery to his creditor as security for a debt, creates a valid pledge of the book and of the deposit represented by it."' An heir cannot make an effectual pledge of a savings bank book or of the deposit, as against the administrator of the de- positor's estate."* °° Burlingame v. Goodspeed, 153 inter vivos. Hill v. Stevenson, 63 Me. Mass. 24, 26 N. E. 232. 364, 18 Am. Rep. 231 ; Tillinghast v. ""Taft v. Bowker, 132 Mass. 277; Wheaton, 8 R. I. 536, 5 Am. Rep. 621; Boynton v. Payrow, 67 Me. S87. Camp's Appeal, 36 Conn. 88, 4 Am. "^ Pierce v. Boston Sav. Bank, 129 Rep. 39; Penfield v. Thayer, 2 E. D. Mass. 425, i1 Am. Rep. 371 ; where it Smith, 305. was held that a delivery of a savings =' Boynton v. Payrow, 67 Me. 587. bank book makes a valid gift mortis °* Boynton v. Payrow, 67 Me. 587. causa. It also constitutes a good gift § 149 COLLATERAL SECURITIES. 1 84 § 149. Judgment as collateral security. — An assignment of a sum due on a judgment, stipulating that when collected it shall be applied on a bond and mortgage held by the assignee against the assignor with a covenant by the latter not to collect it, is on its face an assignment as collateral security, and parol evidence to show this is not required.''^ A claim in suit may be pledged by the owner of it, but the evi- dence of the debt should be delivered to the pledgee, who should prosecute the action, though he may be obliged to do this in the pledgor's name.°° ' § 150. Land certificates as collateral. — Land certificates issued by a state, such as certificates of school lands in the state of Wisconsin, though by statute made transferable by written as- signment, are not a proper subject of pledge."^ If such certificates be deposited by a debtor with his creditor as security for a note, which provides that the creditor may sell them on the non-pay- ment of the note, the debtor's interest in the land and certificates cannot be extinguished or converted by a sale as in the case of a pledge of goods. A deposit of them under such an agreement is not a pledge of personal property, but an equitable mortgage of the debtor's interest in the lands; and the only mode in which the creditor can enforce the security is by a suit in equity for the purpose."* Therefore, in case such certificates be deposited as collateral security with a power to sell them upon default, a sale under the power is ineffectual. Moreover, as such certificates are not negotiable instruments, " Mulf ord V. MuUer, 3 Abb. Dec. ity of a land contract issued by a rail- (N. Y.) 330; 1 Keyes (N. Y.) 29. road company for the conveyance of °° Hiligsberg's Succession, 1 La. specific land, was regarded as a mort- Ann. 340. Parol evidence may be ad- gage in Scharman v. Scharman, 38 mitted to show that a judgment abso- Neb. 39, S6 N. W. 704. See Dimick v. lutely assigned was in fact intended as Grand &c. Banking Co., 37 Neb. 394, collateral security only. Robinson v. 55 N. W. 1066; Folsom v. McCague, Blood, 64 Kan. 290, 67 Pac. 842. 29 Neb. 124, 45 N. W. 269. " Whitney v. State Bank, 7 Wis. "^ Mowry v. Wood, 12 Wis. 413 ; in 620; Smith v. Mariner, 5 Wis. 551, 68 effect overruling Ainsworth v. Bowen, Am. Dec. 73n. See Jones on Mort- 9 Wis. 348. gages, § 176. An assignment as secur- 185 NON-NEGOTIABLE CHOSES. § ISO and the indorsement thereof is not conclusive evidence of the holder's ownership, an agent cannot effectually pledge them unless he has express authority to make such pledge; therefore, if such certificates have been placed in his hands to sell, and he pledges them to secure his own debts, his pledgee acquires no title to them as against the real owner. A general agent has no au- thority to pledge his principal's property, unless this be in the form of negotiable securities standing absolutely in his own name, as security for his own debts; and though the agent be clothed with the insignia of title, any one taking such certificates in pledge is bound to inquire as to the agent's authority."" "Whitney v. State Bank, 7 Wis. 629. CHAPTER V. CORPORATE STOCKS AS COLLATERAL SECURITY. i 151. Corporation stock as collateral security. 152. Written transfer essential in a pledge of stock. lS2a. Stock pledged by separate as- signment. 153. Transfer of legal title. lS3a. Chattel mortgage of corporate stock not valid as against transferee without notice. 153b. Pledge by husband of wife's corporate stock. 154. Option to sell not a pledge. 155. An absolute transfer of stock may be shown by parol evi- dence to be a pledge. 156. Sale of stock with an option to repurchase. 157. Parol evidence not admissible to contradict a pledge con- tract. 158. Transfer of stock at common law. 159. Transfers of stock governed by common law. 160. Statutes of doubtful meaning relating to transfers of stock. 161. Convenience of unrestricted transfers of stock. 162. Unauthorized rules of a corpo- ration cannot affect the rights of a purchaser of pledged stock. 163. A transfer of stock may be made in blank. 164. Decisions of the English courts. § 165. 166. 167. 168. 169. 170. 171. 172. 173. 174. 175. 176. Power of attorney to transfer stock may be executed in blank. Death of pledgor who has in- dorsed stock in blank does not revoke the pledgee's au- thority. Signing of transfer of stock is a warranty of its genuine- ness. Transfer of stock by delivery with power of transfer. Delivery of stock indorsed in blank passes the title as be- tween the parties. The delivery of an assigned stock certificate held to pass the legal and equitable title. The holder of assigned stock certificates takes on an equi- table title. Stock not transferred on the books of the corporation is not binding upon it. Actual transfer on books neces- sary to make complete title. That stock can only be trans- ferred on the books of the corporation, is to protect the corporation. As against the corporation a transfer upon its books is necessary to confer a legal title. , A transfer on the corporation's books without a surrender of the certificate is ineffectual. 1 86 i87 CORPORATE STOCKS. § 151 176a. Shares of stock are taxable to a pledgor in whose pame they stand upon the books of the corporation. 177. Decisions not in harmony. 178. Effect of sale of registered stock on execution. 179. An equitable transfer of stock is good against a creditor having notice. 180. Transfers of stock regulated by statute. 181. Alabama. 181a. Arizona. 182. Arkansas. 183. California. 184. Colorado. 185. Connecticut. 186. Delaware. 187. District of Columbia. 188. Florida. 188a. Georgia. 188b. Hawaii. 189. Idaho. 190. Illinois. 190a. Indiana. . 191. Iowa. 192. Kansas. 192a. Kentucky. 193. Louisiana. 194. Maine. 195. Maryland. 196. Massachusetts. 197. Michigan. 198. Minnesota. 199. Mississippi. 200. Missouri. §201. Montana. 202. New Hampshire. 203. Nevada. 204. New Jersey. 205. New Mexico. 206. New York. 207. North Carolina. 207a. North Dakota. 208. Ohio. 208a. Oklahoma. 209. Pennsylvania. 210. Rhode Island. 211. South Carolina. 211a. South Dakota. 212. Tennessee. 213. Texas. 214. Utah. 215. Vermont. 216. Virginia and West Virginia. 217. Washington. 218. Wisconsin. 219. Wyoming. 219a. Transfer of stock without transfer on corporation's books is generally effective. Review of the statutes. A corporation may have a lien on its shareholder's stock. 222. Rule in Connecticut. 223. Corporation with notice that stock has been pledged. National banks cannot claim such a lien. A corporation may waive its lien upon a member's stock. Damages for refusing to make transfer. 220. 221. 224. 225. 226. § 151. Corporate stock as collateral security. — Whether stock of a corporation can be the subject of a pledge was for- merly doubted, for the reason that, in order to constitute a pledge, possession must be given of the thing pledged, and possession of shares in a corporation cannot be transferred except by a written tranfer, which apparently passes the legal title and general prop- erty in the stock, which are the characteristics of a mortgage, § 152 COLLATERAL SECURITIES. l88. and not merely a special property, which is the characteristic of a pledge. A delivery of a certificate merely does not transfer the stock, but a written transfer is necessary.^ Yet a transfer of stock as collateral security is now generally regarded as a pledge rather than a mortgage, because this view is considered to be more in accordance with the intention of the parties," and it is no objection that the transfer passes the legal title and general property in the stock. § 152. Written transfer essential in a pledge of stock. — A written transfer of some kind which shall pass the legal title is essential in a pledge of stock, though this transfer may be in- formal, such as a blank indorsement of the certificate, or a power of attorney signed in blank. There must be a transfer on the books of the company, or a power of attorney authorizing a transfer, or some assignment or contract in writing by which the holder may assert title, and compel a transfer when desired.' ^ Wagner v. Marple, 10 Tex. Civ. App. SQS, 31 S. W. 691. See Lawler V. Kell, 6 Ohio Dec. 311. Where shares of stock are delivered as col- lateral security and are not indorsed except that there was indorsed on them that they were delivered to se- cure a debt and this was signed by the secretary of the stock company, such indorsement and delivery created a valid pledge as between the parties. Hall V. Cayot, 141 Cal. 13, 74 Pac. 299. "Newton v. Fay, 10 Allen (Mass.), 505, 507; Wilson v. Little, 2 N. Y. 443, 1 Sandf. (N. Y.) 351, 51 Am. Dec. 307n; Allen v. Dykers, 3 Hill (N. Y.) 593, 7 Hill (N. Y.) 497, 42 Am. Dec. 87; Vaupell v. Woodward, 2 Sandf. Ch. (N. Y.) 143; Hasbrouck V. Vandervoort, 4 Sandf. (N. Y.) 74; Lewis V. Graham, 4 Abb. Pr. (N. Y.) 106; Gilmer v. Morris, 80 Ala. 78, 60 Am. Rep. 85 ; Spreckels v. Macfarlane, 9 Hawaii 166 ; White v. Piatt, S Denio (N. Y.) 269; Gilpin v. Howell, 5 Pa. St. 41, 45 Am. Dec. 720; Morris Canal & Banking Co. v. Fisher, 9 N. J. Eq. 667; Morris Canal & Banking Co. v. Lewis, 12 N. J. Eq. 323, 64 Am. Dec. 423 ; Mechanics' Building & Loan Assn. V. Conover, 14 N. J. Eq. 219; Mur- dock v. Columbus Ins. Co., 59 Miss. 152; Dayton Nat. Bank v. Merchants' Nat. Bank, 37 Ohio St. 208; Brewster v. Hartley, 37 Cal. IS, 99 Am. Dec. 237; Thompson v. HoUaday, 15 Ore. 34, 14 Pac. 725; Barse &c Co. v. Range &c. Co., 16 Utah 59, 50 Pac. 630. "Gumming v. Prescott, 2 Young & C. 488; Nisbit v. Macon &c. Trust Co.> 12 Fed. 686; Succession of Lanaux, 46 La. Ann. 1036, 15 So. 708; Lallande v. Ingram, 19 La. Ann. 364 ; Wagner v. Marple, 10 Tex. Civ. App. 505, 31 S. W. 69L When it is stated in a stock certificate that it is trans- ferable only on the company's books, on surrender of the certificate one taking an assignment of it as col- 1 89 CORPORATE STOCKS. § 152 A delivery of a certificate of stock without a transfer or a writing which will enable the holder to make a transfer of the stock to his own name, is not a complete delivery; it does not place the stock in the full control of the pledgee. But a mere delivery of a certificate of stock without any transfer of it is not regarded as a sufficient transfer of it to constitute a pledge,* though such a delivery has in a few cases been held to be suffi- cient to vest an equitable title." Where two members of a banking firm were also president and cashier of a bank and trust company, and the firm being indebted to the company, they agreed with the directors of the company to deposit certificates of stock to secure such indebted- ness, and accordingly certificates standing in the firm's name, not indorsed or accompanied by any power to transfer, were deposited with the cashier, and it appeared that the firm re- tained and exercised the right to withdraw such certificates and lateral is not chargeable with notice of what the books of the company contain. Bank of Culloden v. Bank of Forsyth, 120 Ga. 57S, 48 S. E. 226. One not the owner of pledged stock cannot become the owner in any man- ner not provided in the pledge con- tract, and such a holder of stock as collateral cannot compel the transfer of such stock to himself on the corpo- ration books. State v. North Amer- ican Land &c. Co., 112 La. 441, 36 So. 488. 'Wagner v. Marple, 10 Tex. Civ. App. 505, 31 S. W. 691. Corporate stock is not such property as can be delivered, bUt it may be pledged as collateral by a written transfer inde- pendently of a delivery of the script. First Nat. Bank v. Bacon, 13 "App. Div. (N. Y.) 612, 98 N. Y. S. 717. ^ ' Brewster v. Hartley, 37 Cal. 15, 99 Am. Dec. 237; Robinson v. Hurley, 11 Iowa 410, 79 Am. Dec. 497n; City Fire Ins. Co. V. Olmsted, 33 Conn. 476, 480; Piatt v. Hawkins, 43 Conn. 139; Piatt V. Birmingham Axle Co., 41 Conn. 255. The civil code of Louis- iana apparently authorizes a pledge of stock by the mere delivery of the cer- tificate. It provides that "when a debt- or wishes to pledge promissory notes, bills of exchange, bills of lading, stocks, bonds, , or written obligations of any kind, he shall deliver to the creditor the notes, bills of exchange, bills of lading, stocks, bonds, or other written obligations, so pledged, and such pledge so made, without further formalities, shall be valid as well against third persons as against the pledgors thereof if made in good faith, provided that where the pledge is of instruments not negotiable, the debtor must be notified thereof." 2 Rev. Civ.. Code 1900, art. 3158, as amended by Acts 1900, p. 239. 8 IS2a COLLATERAL SECURITIES. IQO substitute others, without consulting the directors of the bank, it was held that there was no such delivery of the stock as would constitute a pledge of it, because the firm had full control of it and could transfer it without consulting the bank, and the bank, not holding any transfer of the stock, could not control it with- out the consent of the firm, and the execution by them of a power of transfer/ § 152a. Stock pledged by separate assignment. — A pledge of corporate stock made by a written assignment on a separate paper, the certificate remaining in the possession of the pledgor, is ineffectual as against the pledgor's receiver who takes posses- sion of the certificates.^ If, however, no certificate has been is- sued such assignment by a separate instrument is sufficient to create a pledge.* A declaration in writing by a debtor placed in a tin box in a safe deposit vault that certain securities owned by him are held as collateral security for the benefit of a certain creditor to secure a debt described does not create a pledge of the se- curities for the payment of such debt." § 153. Transfer of legal titles. — A transfer of the legal title is not inconsistent with the existence of a pledge.^" On the contrary, it is true that incorporeal property, being incapable of manual delivery, cannot generally be pledged without a written transfer of the title. Collateral securities, such as negotiable in- struments, stocks in incorporated companies, and choses in ac- tion generally, are pledged in this mode. "Such transfer of the title performs the same office as the delivery of possession does in case of a pledge of corporeal property. The transfer of the title ° Nisbit V. Macon Bank & Trust Co., Sandl Ch. (N. Y.) 411. And see 12 Fed. 686. See also Cross v. Zel- Brigham v. Mead, 10 Allen (Mass.) lerbach, 10 Pac. Coast L. J. 123; Si- 245. gourney v. Zellerbach, SS Cal. 431. » Qirard Trust Co. v. Mellor, 156 ' Atkinson v. Foster, 134 111. 472, 25 Pa. St. 579, 27 Atl. 662, See Hook N. E. 528. 'v. Ayers, 80 Fed. 978, 26 C. C. A. 287. 'First Nat. Bank v. Gifford, 47 "Wilson v. Little, 2 N. Y. 443, 51 Iowa 575; Harris's Appeal (Pa.), 12 Am. Dec. 307; overruling Huntington Atl. 743; Thorp v. Woodhull, 1 v. Mather, 2 Barb. (N. Y.) 538. 191 CORPORATE STOCKS. § 153 in writing constitutes the evidence of the pledgee's right of prop- erty in the thing pledged."" In such case, although the pledgee receives the apparent legal title, the general property in the se- curity remains in the pledgor." Whenever it appears by the terms of the contract that the debtor has a legal right to the restoration of the security, on payment of the debt, he may be said to have the general property in it. This general property is nothing more than a legal right to the restoration of the thing pledged on payment of the debt.^^ Thus, an absolute transfer of stock in a corporation as collateral security for the payment of a note, which states that the stock was so deposited, is a pledge and not a mortgage; for, by a fair construction of the transfer and note, taken together, the general property in the stock remains in the pledgor.^* Such was also held to be the effect of a trans- fer by a corporation of its own stock as security for a debt, upon an agreement that the stock should be transferred back upon pay- ment of the debt.^^ In general, it may be said that any trans- fer as collateral security of shares in a corporation, made in the ordinary form of an indorsement of a certificate, or by delivery of it with a power of attorney to make a transfer upon the books of the corporation, or by an actual transfer upon the books, is a pledge and not a mortgage; and it is immaterial in this respect whether such transfer appear to be absolute, or is expressed to be made as security; though a transfer made in " Rice V. Gilbert, 173' 111. 348, 50 N. on payment of the debt. Eichbaum E. 1087; Brewster v. Hartley, 37 Cal. v. Sample, 213 Pa. 216, 62 Atl. 839. IS, 25, 99 Am. Dec. 237. "Wilson v. Little, 2 N. Y. 443, 448, "Garlick v. James, 12 Johns. (N. 51 Am. Dec. 3Q7n; Hasbrouck v. Van- Y.) .146, 7 Am. Dec. 294n; Evans v. dervoort, 4 Sandf. (N. Y.) 74; Lewis Darlington, 5 Blackf. (Ind.) 320. v. Graham, 4 Abb. Pr. (N. Y.) 106; " Wilson V. Little, 2 N. Y. 443, 448, Mechanics' &c. Loan Assn. v. Con- 51 Am. Dec. 307n. When bank stock over, 14 N. J. Eq. 219; Merchants' is assigned under an agreement that Bank v. Cook, 4 Pick. (Mass.) 405; it is to be transferred back to the as- Doak v. Bank of the State, 6 Ired. L. signor on the payment by him of a (N. Car.) 309. debt, the owner, whether the transac- " Brewster v. Hartley, 2,1 Cal. 15, 99 tion be a conditional sale or as col- Am. Dec. 237. lateral security, has a right to redeem § 153^ COLLATERAL SECURITIES. I92 the usual form of a mortgage, with a defeasance, would doubt- less be regarded as a mortgage.^' A chattel mortgage of corporate shares is valid between the parties though there is no transfer of the certificates, and as against the mortgagor the mortgagee upoh a foreclosure of the ' mortgage may compel a transfer of the certificates to himself.^' § 153a. Chattel mortgage of corporate stock not valid as against transferee without notice. — A chattel mortgage of corporate stock is not effectual as against a transferee of the cer- tificate without notice, nor as against the mortgagorfs creditor attaching the stock in the usual manner, nor as against the cor- poration without actual notice of the mortgage. That such a mort- gage, though duly recorded, is of no avail as against a bona fide purchaser or pledgee of the certificate of stock is well shown by a decision of the Supreme Court of Kentucky in which Prior, J., for the court, said : "Much of the business of the country is con- ducted on the faith of the pledge of such stock as collaterals, and to adjudge that the holder of the stock, by transfer on the books of the cocporation, or by indorsement and delivery by the owner, is subordinate in his claim to the mortgage upon the doctrine of constructive notice, would paralyze trade, and open a wide field for the fraudulent disposition of such valuable inter- ests at the expense of honest and confiding purchasers."^^ The recording of a chattel mortgage of shares of stock is not notice to a creditor of the owner such as to prevent his at- "Hasbroiick v. Vandervoort, 4 Iron Co., 83 Ala. 351, 3 So. 369; Gil- Sandf. (N. Y.) 74; Nabring v. Bank mer v. Morris, 80 Ala. 78, 60 Am. of Mobile, S8 Ala. 204; Brewster v. Rep. 85. A few early cases to the Hartley, VI Cal. 15, 99 Am. Dec. 237; contrary are not to be regarded, as: Dungan v. Mutua,l &c. Ins. Co., 38 Huntington v. Mather, 2 Barb. (N. Md. 242;.Ede v. Johnson, 15 Cal. 53; Y.) 538; Adderly v. Storm, 6 Hill Smith V. Quartz Mining Co., 14 Cal. (N. Y.) 624. 242; Gilmer v. Morris, 80 Ala. 78, 85, "Campbell v. Woodstock Iron Co., 60 Am. Rep. 85; Williamson v. New 83 Ala. 351, 3 So. 369;. Tregear v. Jersey R. Co., 26 N. J. Eq. 398; Etiwanda Water Co., 76 Cal. 537, 18 Manns v. Brookville Nat. Bank, Ti Pac. 658. Ind. 243 ; Campbell v. Woodstock " Spalding v. Paine, 81 Ky. 416. 193 CORPORATE STOCKS. § ISSb tachment of the shares in the form provided by statute from tak- ing effect and having precedence of the mortgage/" A chattel mortgage of corporate stock is effectual if the cer- tificate is indorsed and delivered to the mortgagee or to a trustee for his use.'"' * § lS3b. Pledge by husband of wife's corporate stock. — A pledge by a husband of corporate stock, which he purchased with his wife's money, but in his own name contrary to her directions, is valid as against the wife, where the certificate recites that he is the owner and the pledgee accepted the stock as collateral se- curity for a loan to the husband, and, at the time of the loan, had no notice that the stock had been purchased with the wife's money, or that she claimed it as her separate property. For the purpose of security the pledgee held both the legal and the equitable title to the stock. The wife, at most, had only a right in equity to compel her husband to transfer the stock to her ; therefore, the bank and she each having an equity, and the bank having, in ad- dition, secured the legal title as collateral for its loan, its claim must prevail over hers.^^ § 154. Option to sell not a pledge, — But if the original contract was not in substance and in fact a security for a loan, but an option to resell, it cannot be held to be a pledge." Thus, if a contract with an insurance company b? to subscribe for cer- tain shares of its stock, and to pay therefor in certain instal- ments, the company giving the subscriber the option to resell the stock to it within a given time, the transaction is an actual "Gates V. Baxter, 97 Tenn. 443, 37 Co., 123 Mass. 110, 25 Am. Rep. 37; S. W. 219. See, however, Manns v. Mandlebaum v. North American Min. Brookville Nat. Bank, 73 Ind. 243. Co., 4 Mich. 465 ; Hill v. Moore, 62 " Toler V. East Tennessee &c. R. Tex. 610 ; Edwards v. Brown, 68 Tex. Co., 67 Fed. 168, 178. 329, 4 S. W. 380, 5 S. W. 87. ''Anderson v. Waco State Bank, 92 "" Simmons v. London Joint Stock Tex. 506, 71 Am. St. 867, 49 S. W. Bank (1891), L. R. 1 Ch. 270; Crimp 1030, citing Winter v. Montgomery v. McCormick Const. Co., 71 Fed. &c. Co., 89 Ala. 544, 7 So. 773; Ma- 356, 18 C. C. A. 595.. See also Eich- chinists' Nat. Bank v. Field, 126 Mass. baum v. Sample, 213 Pa. 216, 62 Atl. 345; Pratt v. Taunton Copper Mfg. 837. 13^CoL. Sec. § 1 55 COLLATERAL SECURITIES. I94 subscripti6n for stock, and not a loan upon the stock as collateral security. The option is a right secured by contract, and a right in addition to the absolute title to the stock taken by the sub- scriber. The latter cannot, therefore, after taking the stock and paying certain instalments, surrender the stock to the company, and reclaim the payments made thereon, thus avoiding re- sponsibility' as a stockholder to the detriment of the other stock- holders of the company and of its creditors.^^ And where a customer of a bank having overdrawn his account, and having transferred stock at a fair price "in payment" of the debt, "subject to his right of redemption in two years," it was held that the transaction was neither a pledge nor a mort- gage, but a sale of the stock in discharge of the debt. The overdraft was not a loan, and the stock was not transferred as security; and so the transaction did not come within the rule which prevents the conversion of a security for a loan into a Sale. After the expiration of the two years the title of the bank tothe stock was absolute.^* § 155. An absolute transfer of stock may be shown by pa- rol evidence to be a pledge. — An absolute transfer of stock may be shown by parol evidence to be really a pledge if it is collateral security for a debt,^' but the evidence in such case should be clear and convincing.^' An informal transfer not un- der seal may generally be, shown by parol evidence to have been so intended, even in an action at law, just as a bill of parcels, as distinguished from a formal bill of sale under seal, may be shown " Melvin v. Lamar Ins. Co., 80 111. establish that fact by proof. Murray 446, 22 Arji. Rep. 199. v. Butte &c. Mining Co., 41 Mont. 449, " Lauraan's Appeal, 68 Pa. St. 88. 110 Pac. 497, 112 Pac. 1132. Where the "* Brick V. Brick, 98 U. S. 514, 25 instrument is not a mere assignment, L. ed. 256; Ginz v. Stumph, 73 Ind. but is "a contract in writing, oral evi- 209; McMahon v. Macy, 51 N. Y. dence is not admissible to show that 155; Burgess v. Seligman, 107 U. S. the transfer was intended as col- 20, 27 L. ed. 359, 2 Sup. Ct. 10 ; Shat- lateral security. Miller v. Carpenter, tuck &c. Warehouse Co. v. Gillelen, 68 App. Div. (N. Y.) 346, 74 N. Y. 154 Cal. 778, 9? Pac. 348. Where a S. 231. transfer is absolute on its face, one ""Travers v. Leopold, 124 111. 431, claiming it to be a mere pledge must 16 N. E. 902. 195 CORPORATE STOCKS. § 1 55 in an action at law to have been intended only as collateral se- curity.^' But however this may be, it is a settled rule in equity that oral proof as to the consideration and purpose of an abso- lute transfer of stock is admissible."* The rule which excludes such evidence to contradict or vary a written instrument has ref- erence to the language of the parties; it does not forbid an inquiry into the object of the parties in executing and receiving the in- strument. For this purpose a court of equity will look beyond the terms of the instrument to the real transaction."" Conse- quently, upon proof that an absolute transfer was intended only as collateral security, a bill' in equity may be maintained to re- deem the stock. ^° But, while this rule of equity protects a debtor from loss in consequence of an apparent sale which was really only a "transfer to secure a loan, it will not be applied to defeat an absolute or conditional sale of stock when the trans- action is dearly established to be of that character.'^ A statute requiring the collateral character of a transfer of stock to be expressed in the transfer itself, or in the certificate issued to the holder of such stock, does not exclude other evi- dence that the transfer was intended merely as collateral secu- rity.^" The purpose of such a provision is to enable the pledgee to hold the security without being liable for the debts of the corporation or to taxation for the property. Though the by-laws of a corporation or the rules of an asso- ciation require all transfers to be made absolute in terms, a "Newton V. Fay, 10 Allen (Mass.) of transfer contained a provision that 505 ; Minchin v. Minchin, 157 Mass; the sale should be absolute if the bor- 265, 32 N. E. 164; Boardman v. rower failed to repay the loan when Holmes, 124 Mass. 438, 442; Riley v. the same should become due; but it Hampshire County Nat. Bank, 164 was held that the lender did not get Mass. 482, 41 N. E. 679. See § 16. an absolute title to the stock by mere '' Newton v. Fay, 10 Allen (Mass.) default in the payment of the debt. 505 ; Stamford Bank v. Ferris, 17 It would be immaterial in this respect Conn. 259. whether the instrument be regarded Brick V. Brick, 98 U. S. 514, 25 L. as a mortgage or a pledge. ^\'^^^: "Lauman's Appeal, 68 Pa. St. 88. bmith V. Quartz Mining Co., 14 == Newton v. Fay, 10 -Allen (Mass.) Cal. 242. In this case the instrument SOS. § 156 COLLATERAL SECURITIES. 1 96 transfer so made may be shown by parol evidence to have been made as collateral security.^' § 156. Sale of stock -with an option to repurchase. — A sale of stock accompanied by an agreement on the part of the vendor to repurchase the same within a specified time, differs very little from a loan of money upon a pledge of the property as collateral security. If stock of a corporation be sold upon such an agree- ment to repurchase within a year upon the written request of the vendee, his option to regard the stock merely as collateral se- curity for a loan is sufiSciently exercised by causing a written notice that he requested the vendor to buy back the shares accord- ing to the terms of the agreement, to be left at the vendor's house before the end of the year. In a suit upon such agree- ment, after the end of the year, it is sufficient to entitle the plaintiff to recover, that, from the time of giving such notice, he had the shares in his control and possession, and was ready to transfer them before taking judgment.'* § 157. Parol evidence not admissible to contradict a pledge contract. — Parol evidence is not admissible to con- tradict the contract of pledge such as a statement in a promissory note.that certain stock had been transferred as collateral security. It cannot be shown that the note was a mere memorandum; . and that it was agreed between the parties to it that the stock described as collateral security should operate as payment of the note at its maturity, if it were not previously paid.'° The rule that oral evidence cannot be admitted to alter a written con- tract is applicable and must prevail. § 158. Transfer of stock at common law. — What consti- tutes an effectual transfer of stock is one of the first questions that concerns one who is taking it as security. May he safely " Ginz V. Stumph, 73 Ind. 209. ing, oral evidence cannot be admitted "Boynton v. Woodbury, 101 Mass. to vary its terms and show that it 346. was intended as collateral security "Perry v. Bigelow, 128 Mass. 129. only. Miller v. Carpenter, 68 App. Where an instrument is not a mere Div. 346, 74 N. Y. S. 231. assignment, being a contract in writ- 1 97 CORPORATE STOCKS. § IS'9 hold a certificate issued to his debtor with a transfer indorsed upon it, or accompanied by a power of attorney authorizing a transfer upon the company's books; or is it essential that the shares be actually transferred upon the books before the security is complete? By general statute, or by provision of charter, or by-law of business corporations, it is generally declared in some form that stock is transferable only on the books of the com- pany. While it is generally conceded that under such a provi- sion a valid transfer of stock may be made as between the parties themselves, by merely delivering a certificate properly indorsed, or accompanied by a power of attorney, authorizing a transfer upon the company's books, there is a wide difference of opinion as to the effect of such a transfer as against the assignor's creditors. § 159, Transfers of stock governed by common law, — In the absence of legislative regulation transfers of stock are gov- erned by the general principles of the common law. Shares of stock are the private property of the owner, and he may sell them or transfer them as security in any way he chooses, provided he makes such a delivery of them as the common law requires.^' The by-laws of the corporation may provide that all transfers shall be made upon its books, and shall not be complete, or shall not pass the title until so made, but they do not control the legal effect of an assignment and delivery of the certificate by the owner. The legal effect of the owner's assignment may be con- trolled by legislative enactment ; for the legislature has the right to declare what forms shall be observed in the transfer' of prop- erty. But in the absence of any legislative regulation, either by general law or by special charter, the mode of transferring stock should be determined by general principles of law based upon sound reason and public policy. "The right to dispose of and transfer the title being a recognized and universal incident to ownership of property, the exercise of that right should not be '•Cornick V. Richards, 3 Lea v. Reynolds, 44 Ind. S09, 13 Am. L. (Tenn.) 1; Board of Commissioners Reg. (N. S.) 376, IS Am. Rep. 24S. § l6o COLLATERAL SECURITIES. 1 98 trammeled by any restrictions except such as grow out of the na- ture of the property or the demand of a sound pubHc policy.'"' § 160. Statutes of doubtful meaning relating to transfers of stock.— Statutes of doubtful meaning relating to transfers of stock in corporations will not be construed to control the rec- ognized rules of the common law in regard to the mode of transfer of such property. Thus in a case in Massachusetts it was contended that by force of various statutes author- izing the attachment of shares, requiring returns to the sec- retary of the commonwealth, and imposing a personal lia- bility on stockholders for the debts of the corporation, there could be no transfer of stock valid against an attaching cred- itor, unless the transfer had been recorded in the books of the corporation; that although the statutes have not provided in express terms that transfers shall not be valid as to creditors until they are so recorded, yet such is the necessary implica- tion, for otherwise the design of the statutes, requiring regis- tration, and making the shares liable for debts, would be de- feated. But the court overruled this objection, saying:'* "This " Cornick v. Richards, 3 Lea the stock is so purchased, however, (Tenn.) 1. The learned judge con- as we have seen, it is his private in- tinuing, said: "The books are not dividual property, and he may sell it public records in any proper sense of as such, or assign it with or without our law. Why one private individ- a consideration, and no one can ob- ual should be required to effectuate ject, creditors and innocent purchas- the sale of the property of another ers under other-rules of law not being in which he has no title 'or interest affected for reasons of public policy as property by entering the fact in in case the transfer is voluntary with- his books, it is not easy to see, not out value paid for it. It would seem even if the fact be that the party sell- to follow that whenever the title ing had originally purchased the passed out of the party himself by a property from him. Yet this fairly fair contract of transfer, no registra- represents the fact in the case of tion law being in the case, and no stock in a corporation. The original fraud purposed as against a creditor owner purchases it from the corpo- of the party selling, that his right as ration by paying or agreeing to pay against the property ought to end." what it calls for, receiving a certificate ^ Boston Music Hall Assn. v. Cory, of the fact of such purchase and own- 129 Mass. 435. ership from the corporation. When 199 CORPORATE STOCKS. § l6l consideration is not sufficient to control the law as long since settled by the decisions of this court. It requires a clear pro- vision of the charter itself, or of some statute, to take from the owner of such property the right to transfer it in accordance with known rules of the common law. And by those rules the delivering of a stock certificate, with a written transfer of the same to a bona fide purchaser, is a sufficient delivery to transfer the title as against a subsequent attaching creditor. * * * it would not be in accordance with sound rules of construction to infer, from the provisions of several different statutes passed for the purpose of obtaining information needed to secure the taxation of such property, or for the purpose of subjecting stockholders to a liability for the debts of a corporation, or for protecting the corporation itself in its dealings with its own stockholders, that the legislature intended thereby to take from the stockholder his power to transfer his stock in any recognized and lawful mode. If a change in the mode of transfer be de- sirable, for the protection of creditors, or for any other reason, it is for the legislature to make it by clear provisions, enacted for that purpose." ' § 161. Convenience of unrestricted transfers of stock. — The convenience of unrestricted transfers of stock is so great that it may be said that such transfers are now a neces- sity. Transfers of stock, not only for purposes of specula- tion but also for the purposes of security, have now become so important an element in the business transacted every day in all the centers of commerce and trade that it is almost a mat- ter of necessity that the mere delivery of the certificate with a power of transfer should be effectual, not only as between the parties to the transaction, but also as against the assignor's creditors. This practical necessity for an unrestricted transfer of shares of stock has been generally recognized by the courts, in the absence of statutes making a transfer upon the books of the company requisite to the validity of the transfer. Thus, in § l6l COLLATERAL SECURITIES. 200 a case in Louisiana the court says:^° "There is an immense amount of the wealth of the country invested in stocks of the numberless corporations which have sprung into existence within a few years past. These stocks afiford a most convenient and valuable basis of credit; and they are sold to a large amount daily, at all the great commercial centers. The holder who does not wish to sell may pledge his certificates for loans and dis- counts to an amount approximating their market value, with a reasonable margin for possible depreciation. The pledgee does not desire to become the owner of the stock; and he would not think it necessary, nor would he have the right, to surrender the pledged certificates and have the stock transferred to him on the books of the corporation. Nor do we think the validity of the pledge could be made to depend on the giving of notice to the corporation, because the corporation has no power or authority to dispose of the stock, or to transfer it, so long as the certificates are not produced and surrendered. If the pledgee were required to have the transfers made on the books of the corporation, or to give notice, the value of these certificates as a basis of credit would be greatly impaired, particularly where the pledge is made at a distance from the domicil of the corporation." There is a very great convenience, not only to persons dealing in stocks, but to merchants and bankers who have occasion to use them as collateral, to be able to give or take an indisputa- ble title without an actual transfer of the shares upon the books of the corporation.^" The office of the corporation may be far away from the place at which the transaction is had; or the transaction may be one for a temporary purpose, such as a loan for a few days upon stock as security. Then, again, it is customary with all large corporations to close the transfer books whenever dividends are declared, and to keep them closed, perhaps, for weeks at a time; and consequently, during such periods, all transactions must necessarily be had without an ac- tual transfer of the shares. "° Smith V. Slaughter House Co., 30 " Cornick v. Richards, 3 Lea La. Ann. 1378, 1383. (Tenn.) 1. 201 CORPORATE STOCKS. § 1 62 The latest decisions, as well as those having the highest au- thority, establish the rule, that in the absence of legislative en- actment restricting the transfer of stock to a particular mode, a transfer is complete on delivery of the certificate with a power to transfer, not only between the parties themselves, but when the corporation has unjustifiably refused to make the transfer on its books, against a creditor of the vendor, who, without notice of the transfer, has attached the stock.*^ § 162. Unauthorized rules of a corporation cannot affect the rights of a purchaser of pledged stock. — A mere rule of a corporation not authorized by statute cannot affect the rights of purchasers or pledgees of stock. Thus an unauthorized by- law of a corporation, forbidding a transfer of stock when the holder is indebted to the corporation, does not relieve the cor- poration from the duty of making a transfer upon its books upon the request of one to whom the certificate, accompanied by a power of attorney, has been assigned.*" "There is no presump- " Merchants' Nat. Bank v. Richards, case the by-law under which the cor- 74 Mo. 77, affirming 6 Mo. App. 454; poration refused to make the transfer and cases cited in §§ 1S9-161. Where was one adopted by the directors, and corporate stock is pledged as col- not one made by the corporation, lateral and the pledgee given power The by-law was considered as of no" of attorney to transfer it on the books effect, because the power to make by- of the corporation and the owner, the laws ordinarily resides solely in the pledgor collects the dividends thereon corporation. It would be otherwise for a number of years thereafter, where the charter of the corporation after which the pledgee took judg- gives express power to the directors ment on his debt after the lapse of to make by-laws for the transfer of thirty years from the date of the its shares of stock; Mechanics' Bank pledge and after the death of the v. Merchants' Bank, 45 Mo. 513, 100 pledgor, the pledgee will not be al- Am. Dec. 388; or where a company's lowed to maintain a bill in equity charter provided that its stock should against the corporation to compel a be transferable according to such re- transfer of the stock without making strictions as the board of directors the heirs and representatives of the should establish, subject to the laws deceased owner parties thereto. Wad- of the state; -St. Louis Ins. Co. v. linger v. First Nat. Bank, 209 Pa. Goodfellow, 9 Mo. 149. And see 197, 58 Atl. 359. Spurlock v. Pacii^c R. Co., 61 Mo. "Carroll v. Mullanphy Savings 326, where the power to make by- Bank, 8 Mo. App. 249, 252. In this tews was general. § 163 COLLATERAL SECURITIES. 202 tiori in favor of the right of a corporation to refuse to transfer on its books stock of the company which the shareholder has sold to a bona fide purchaser. The certificate represents the prop- erty, and if any secret lien upon the property exists, such lien must be shown. The burden is on him who asserts the peculiar privilege to prove it, as restrictions on the free transfer of per- sonal property are not favored, especially as against an innocent purchaser who has paid for the certificate. At common law, and independently of positive provisions of the legislature granting or authorizing the exercise of the power, a corporation cannot prohibit the transfer of its shares on account of the indebtedness of the shareholder to the corporation. Where the stock is personal property, restrictions upon its transfer must have their source in legislative action, and the corporation itself cannot create these impediments."*' § 163. A transfer of stock may be made in blank. — By general commercial usage a transfer of a stock certificate may be made in blank. An indorsement in blank of a certificate, or a signing in blank a power of attorney to make a transfer upon the company's books, authorizes any subsequent holder to fill up the assignment or the power of attorney.** This right to fill up 'the blank is not limited to the first taker of the instrument, but may be exercised by any one into whose hands the certificate may come in this way. The blank in the assignment or power may be subsequently filled up by the holder with his own name, " Carroll v. Mullanphy Savings Leavitt v. Fisher, 4 Duer (N. Y.) Bank, 8 Mo. App. 249, citing Chou- 1; Persch v. Quiggle, 57 Pa. St. 247; teau Spring Co. v. Harris, 20 Mo. Finney's App., 59 Pa. St. 398; United 382, 387; Moore v. Bank, 52 Mo. 377, States v. Cutts, 1 Sumner (U. S.) 379 ; Bank of Attica v. Manufacturers' 133 ; Continental Nat. Bank v. Eliot Bank, 20 N. Y. 501, 505; Rosenback Nat. Bank, 7 Fed. 369; New Orleans V. Bank, S3 Barb. (N. Y.) 495; Nat. Banking Assn. v. Wiltz, 10 Fed. Steamship Dock Co. v. Heron's 330; German Union Building Assn. Adm'x, 52 Pa. St. 280.' v. Sendmeyer, 50 Pa. St. 67; Mount " Kortright v. Buffalo Commercial Holly Turnpike Co, v. Ferree, 17 N. Bank, 20 Wend. (N. Y.) 91; Buffalo J. Eq. 117; Broadway Bank v. Mc- Commercial Bank v; Kortright, 22 Elrath, 13 N. J. Eq. 24; Otis v. Gard- Wend. (N. Y.) 348, 34 Am. Dec. 317; ner, 105 111. 436, 15 Rep. 332. 203 CORPORATE STOCKS. § 1 63 SO as to entitle him to a transfer upon the books af the company, although the assignment or power be executed under seal." The commercial usage to this effect is well established and judicially recognized in this country.** But even without the aid of this usage, assignments in this form would doubtless be upheld by some courts. In a leading case upon this subject it appeared that the owner of certain shares of bank stock, which were transferable only upon the books of the bank, sent his certificate with a blank power of attorney under seal, and his own promissory note, to an agent to use in obtaining a loan. Subsequently this agent obtained, a large loan upon these securities and absconded with the money. The pledgee filled up the blank transfer and power of attorney and demanded a transfer of the shares to himself upon the books of the bank; but the bank refused to allow this. In a suit by the pledgee against the bank for such refusal the pledgee was held to be entitled to recover. Chief Justice Nelson, in denying a motion for a new trial, said that the filling of the blanks in the transfer and in the power of attorney was in strict conformity with the universal usage of dealers in the negotiation and transfer of stocks, according to the proof on trial.*^ "Even without the aid of this usage there could be no great difficulty in upholding the assignment: the execution in blank, must have been for the express purpose of enabling the " Bridgeport Bank v. New York &c. State v. Jeffersonville Nat. Bank, 89 R. Co., 30 Conn. 231, 273 ; Strange V. Ind. 302; Merchants' Nat. Bank v. H. & T. C. R. Co., S3 Tex. 162 ; Sew- Richards, 74 Mo. 11, affirming 6 Mo. all V. Boston Water Power Co., 4 Al- App. 454 ; Baldwin v. Canfield, 26 len (Mass.) 277, 81 Am. Dec. 701; Minn. 43, 1 N. W. 261; McClintock Walker v. Detroit Transit R. Co., 47 v. Central Bank, 120 Mo. 127, 24 S. Mich. 338, 11 N. W. 187. W. 1052; Van Cise v. Merchants' Nat. "When a general usage has been Bank, 4 Dak. 485, 33 N. W. 897; judiciously ascertained and estab- Spreckels v. Macfarlane, 9 Hawaii lished, it becomes a part of the law 166. merchant "which courts of justice are "Kortright v. Buffalo Commercial bound to know and recognize." Bran- Bank, 20 Wend. (N. Y.) 91 ; ap- dao V. Barnett, 12 CI. & F. 787, 80S Pitot V. Johnson, 33 La. Ann. 1286 Blouin V. Hart, 30 La. Ann. 714 proved in Matthews v. Massachusetts Nat. Bank, 1 Holmes (U. S.) 396, 407. § 164 COLLATERAL SECURITIES. 204 holder, whoever he might be, to fill it up. If intended to have been filled up in the name of the first transferee, there would have been no necessity of its execution in blank; the owner might have completed the instrument. The usage, however, is well established, and was fully understood by the owner, as he made the transfer in conformity to it ; and he, • or those setting up a claim under him, should not now be permitted to deny its validity. The filling up, is but the execution of an authority clearly conveyed to the holder, is lawful in itself and convenient to all parties, as it avoids the necessity of need- lessly multiplying transfers upon the books."** If the owner of shares of stock indorses the certificate in blank and entrusts it to an agent to obtain a loan upon a pledge of the certificate as collateral security, one dealing with the agent without knowledge of the principal's instructions would doubtless be justified in purchasing the shares;, and if the trans- action as between the agent and the purchaser was an absolute sale, the principal would doubtless be estopped to set up his secret instructions to his agent, and would not be allowed to redeem the stock as held upon a pledge.*' § 164. Decisions of the English courts. — The decisions of the English courts to the contrary have been influenced chiefly by a rigid adherence to the technical rules of the common law in relation to instruments under seal, though the policy of the stamp laws is said to have had some influence in the same direction. It is an ancient rule of the common law that an instrument under seal must be wholly written before sealing and delivering it. No " Buffalo Commercial Bank v. the owner to an agent for a debt due Kortright, on appeal, 22 Wend. (N. his principal and the agent was not y.) 348. clothed with indicia of title it was '" See Morrell v. Kelley, 157 Mass. held that those purchasing such stock 126, 31 N. E. 755. In this case it was from the agent were put on inquiry found as a fact that the transaction and that the owner had not estopped was a pledge, so that the question of himself from claiming title as against law was not considered. See also such purchaser. Treadwell v. Clark, Gurley v. Reed, 190 Mass. 509, 77 N. 114 App. Div. (N. Y.) 493, 100 N. Y. E. 642. Where stock was pledged by S. 1. 205 CORPORATE STOCKS. § 1 64 blanks in any essential part of such an instrument can be filled in after the delivery of it. Lord Mansfield attempted to break down this rule in the case of Texia v. Evans ;°'' but half a century afterward this case was overruled, and the ancient rule re- established. This still remains the rule in England, and is adopted in the greater number of states in this country." But while in this country, even in those states in which this rule of common law prevails, transfers of shares by assign- ments or powers of attorney in blank are allowed by virtue of the general commercial usage, in England no general exception in regard to such transfers has been made. The case in which Lord Mansfield's new doctrine was finally repudiated 'arose in regard to the validity of a transfer of shares by an assignment in blank, which was afterward filled up by inserting the pur- chaser's name.^^ The charter of the corporation required a conveyance of its shares to be made by an instrument under seal. Baron Parke, delivering the judgment of the court, said : "There is no authority that shows that an instrument, which when executed, is incapable of having any operation, and is no deed, can afterward become a deed, by being completed and delivered by a stranger in the absence of the party who executed, and unauthorized by instrument under seal." In a later case the owner of various securities, who kept his certificates in his broker's safe at a London bank, was fraudu- lently induced by the broker to execute and deliver to him several deeds of transfer in blank. The broker filled up two of the deeds, making each of them transfer to a confederate five hundred shares of stock in the defendant railway com- pany. The company having transferred the shares to the trans- feree named, the owner brought suit against the company; and it was held that the transfers were void, and the company was " Cited and stated by Wilson, J., in has been aiiSrmed in Davidson v. Master v. Miller, 1 Anstr. 225. Cooper, 11 M. & W. 778, 793; Entho- "See, on this subject, 1 Jones on ven v. Hoyle, 13 C. B. 373; Humble v Mortgages, § 90. Langston, 7 M. & W. S17; Eagleton "Hibblewhite v. M'Morine, 6 M. & ' v. Gutteridge, 11 M. & W. 465. W. 200. The principle of this decision § 165 COLLATERAL SECURITIES. 206 held liable, though the plaintiff had been guilty of culpable neg- ligence/' But if the company's articles of association do not require transfers to be made by deed, they may be executed in blank and the holder may afterward fill them up.°* The validity of transfers in blank seems also to be recognized, so far as to impose upon the holder the obligation to pay calls upon the shares."^ § 165. Power of attorney to transfer stock may be exe- cuted in blank. — A power of attorney to transfer stock, though under seal, may be executed in blank just as the assign- ment upon the back of the certificate may be executed in this way. Such a power of attorney, delivered with the certificate, is evi- dence of an implied authority to fill up the power with the name of an attorney to make the transfer upon the books of the corpo- ration. It is customary to make the power in this form, and there is no question in regard to the validity of such a power, when it has been filled up according to the intention of the owner.°° But when the blank has been once filled, the instru- ment becomes complete; and the holder of the power has no authority to alter or erase the name inserted and insert an- '" Swan V. North British Australian commercial usage. It was probably Co., 8 Jur. (N. S.) 940. originated by the banks. If not, they " In re Tahiti Cotton Co., L. R. 17 have countenanced it, and thus Eq. 273; Ex parte Swan, 7 C. B. (N. brought people to practice it. And S.) 400. yet it is a vicious usage, which no " Walker v. Bartlett, 18 C. B. 845. considerations of convenience are suf- " German Union Building Assn. v. ficient to justify. Malus usus abolen- Sendmeyer, 50 Pa. St. 67; Persch v. dus est. A power of attorney signed, Quiggle, 57 Pa. St. 247; Rice v. Gil- generally sealed, and duly delivered, bert, 173 111. 348, 351, 50 N. E. 1087. what is it but a finished legal instru- In an earlier case in this state, how- ment? Who may alter that paper writ- ever (Denny v. Lyon, 38 Pa. St. 98), ing to the prejudice of another, with- this commercial usage was con- out incurring liability to the charge demned. Woodward, J., saying : "The of forgery ? If commercial usage per- cashier of the bank swears that the mit the insertion, erasure, and subse- name of the transferee is usually not quent reinsertion here, what other le- inserted in the power of attorney, and gal instrument may not commercial that it is more convenient not to have usage tamper with in like manner?" it inserted. We know that this is 207 CORPORATE STOCKS. § 1 66 Other. Thus, if the owner of a certificate of stock entrusts it to another, with a power of attorney in blank, to enable him to make a specific loan, and the loan is made and afterward is paid, and the stock is returned to the borrower, who then erases the name of the pledgee, and inserts the name of a cred- itor to whom he was already indebted to a large amount, upon the application of the original owner of the shares, the creditor was enjoined from transferring the shares to his own name.^' An assignment of the certificate, and a power of attorney to transfer the stock, may both be executed in blank; and if the owner of the certificate insert his name in that, and in the power the name of another, an effectual demand upon the cor- poration for a transfer of the stock can be made by the owner, without the attorney's joining in it.°* § 166. Death of pledgor who has indorsed stock in blank does not revoke the pledgee's authority. — The death of the pledgor of a certificate indorsed by him in blank does not revoke the authority of the pledgee to fill up a written transfer of the certificate to himself or to another; and it does not matter in this respect that the certificate by its terms is transferable only at the office of the corporation by appearance of the holder in person, or by attorney.^" § 167. Signing of transfer of stock is a warranty of its genuineness. — The signing of a transfer in blank on a cer- tificate of stock is a warranty of the genuineness of the certificate: The rule is the same, and rests upon the same grounds, as that es- tablished with reference to negotiable instruments, to the effect that every indorser holds himself out as possessing a clear title to the paper, and as conferring such a title upon his indorsee. "Denny v. Lyon, 38 Pa. St. 98, 80 Y.) 1. But after the death of the Am. Dec. 463. pledgor the pledgee in an action in " Cushman v. Thayer Manufactur- equity to compel the transfer of stock ing Jewelry Co., 76 N. Y. 365, 32 Am. on the books of the corporation must Rep. 315. join as parties the representatives of ""Fraser v. Charleston, 11 S. Car. the deceased. Wadlinger v. First 486; Leavitt v. Fisher, 4 Duer (N. Nat. Bank, 209 Pac. 197, 58 Atl. 359. § 167 COLLATERAL SECURITIES. 2o8 It becomes of importance, therefore, that one taking a cer- tificate in his own name, as security for a loan, should know the genuineness of the certificate, not only with a view to the security of the loan, but with a view to avoiding a loss greater, perhaps, than the whole of the loan, through putting the cer- tificate in circulation after the payment of the loan, by indors- ing a transfer of it in blank. This point is forcibly illustrated in the case of Matthews v. Massachusetts National Bank."" This- bank made a loan upon a certificate of stock issued as collateral directly to the bank for two shares of the stock of the Boston and Albany Railroad Company, which certificate the borrower, before delivering to the bank, fraudulently altered, so as to purport to be for two hundred shares. The bank re- ceived the certificate in good faith as security for a loan, and upon the payment of the loan the bank, by its cashier, signed a transfer in blank upon the back of the certificate, and deliv- ered it to the borrower. A short time afterward the same bor- rower obtained from a third person another and larger loan, upon a pledge of the certificate, still having the bank's assign- ment in blank upon it. This lender took the certificate in good faith, supposing it to be genuine, but very soon discovered the fraudulent alteration, and brought suit against the bank for the recovery of the damages he had sustained. The question pre- sented was whether the bank had, by signing the blank transfer, so far warranted the genuineness of the certificate that it was estopped from setting up the forgery as a defense to the action, and the bank was held liable. It was contended in behalf of the bank that the transfer created no liability to any subsequent holder of the certificate, because the circumstances under which it was taken and sur- rendered indicated that the transfer was made solely for the purpose of restoring the pledge to the borrower after he had paid this loan. But the court replied that there was nothing to show that the subsequent lender had any knowledge of any "°1 Holmes (U. S.) 396. See note to this case, 14 Am. Law Reg. (N. S.) 153. 209 CORPORATE STOCKS. § 1 67 such intention on the part of the bank; that although the cer- tificate purported that the bank held the shares as collateral, it did not show for whose debt they were collateral; that such a certificate, with a transfer in blank, might, in the ordinary course of dealing, pass through the hands of many successive purchasers, and the possession of it would afiford no indication that the holder of it was the person who had originally trans- ferred it to the bank as collateral; that if the bank had enforced payment of the loan by a sale of the stock, and had assigned the certificate in this form, the purchaser would have been in the same condition as the subsequent pledgee; and if this pledgee had dealt with the purchaser, he would have received no better evidence of title against the bank than he in fact received from the borrower himself. The mere words "as collateral" in the instru- ment do not tend to put the purchaser on inquiry, except so far as relates to the authority of the bank to dispose of the collateral as .between the bank and its debtor. If inquiry has been made of the bank, it would only have resulted in the information that the bank had made a loan upon the certificate, and the loan hav- ing been paid, the assignment was made in blank by the joint act and consent of the debtor and the bank. There would have been nothing in this information to lead the inquirer to doubt the genuineness of the certificate to which the bank had given cur- rency by its signature. Neither could the bank contend, with any show of reason, that the subsequent pledgee was negligent in not inquiring at the office of the railroad corporation. If the duty of making such inquiry was incumbent on any one, it was incum- bent on the bank to ascertain the genuineness of the instrument before giving currency to it, and lulling suspicion and doubt by the responsibility of its signature. One taking the certificate in this form might reasonably suppose that the bank had obtained the certificate itself from the railroad company in the usual way, thus preventing the possibility of fraud or forgery. The bank, in fact, negligently placed confidence in the borrower to obtain a transfer from the railroad company, instead of obtaining it di- rectly. But the negligent act, which especially imposed upon the bank a liability in this case, was that it delivered the forged in- 14— Col. Sec. § 1 68 COLLATERAL SECURITIES. 2IO strument to the borrower, assigned in blank, and authenticated by the signature of its proper officer, thus giving it a currency which it would not have possessed had the transfer been made directly to the borrower. If the bank had intended merely to revest in the borrower whatever it acquired from him, it would have been perfectly easy to have limited the transfer to that extent only. If the conditions upon which the apparent right of control which the bank conferred upon the borrower were not expressed upon the face of the instrument, but remained in confidence between the bank and the borrower, the case is not distinguishable in principle from that of an agent who receives secret instructions qualifying or restricting an apparently ab- solute power. One of two innocent parties must suffer; and the courts have repeatedly held that the party must suffer who has exhibited the greater degree of negligence. § 168. Transfer of stock by delivery with power of trans- fer. — The effect of a transfer of stock by delivery of the cer- tificate with a power of transfer is, therefore, to be considered: I. As between the parties to the transfer; 2. As between them and the corporation itself; and 3. As between them and attach- ing creditors. Whatever be the view taken of the necessity of a transfer upon the books of a corporation in order to protect the title of such assignee as against subsequent attaching creditors of the assignor, it is agreed that, as between the parties themselves, the title passes by indorsement and delivery of the certificate, without any entiy of the transfer upon the books of the cor- poration ;°^ or even without filling up the transfer, where this has been signed in blank."'' " Johnston v. Laflin, 103 U. S. 800, Fitchburg Savings Bank v. Torrey, 26 L. ed. 532; Bank v. Lanier, 11 134 Mass. 239, Mass. Law Rep., May Wall. (U. S.) 369, 20 L. ed. 172; Nat. 3, 1883; Cherry v. Frost, 7 Lea Bank v. Watsontown Bank, 105 U. S. (Tenn.) 1. A pledge of corporate 217, 26 L. ed. 1039 ; Ex parte Dobson, stock may be created by written trans- 2 Mont. D. & De G. 685 ; Dickinson fer without delivery of the scrip. V. Central Bank, 129 Mass. 279, 37 First Nat. Bank v. Bacon, 113 App. Am. Rep. 3Sln; Sibley v. Quinsiga- Div. 612, 98 N. Y. S. 717. mond Nat. Bank, 133 Mass. 515; "'Otis v. Gardner, 105 111. 436, 15 211 CORPO&ATE STOCKS. § i68 A by-law requiring a transfer to be made upon the books of a corporation does not restrict the owner in his right to trans- fer his stock, or give the corporation the power to refuse to register a bona fide transfer. As between the parties,, the sale is complete when the certificate is assigned with power to make a transfer upon the bo9ks of the corporation.*^ Rep. 332; Ross v. Southwestern R. Co., 53 Ga. 514; Comeau v. Guild Farm Oil Co., 3 Daly (N. Y.) 218; Smith V. Crescent City Stock Land- ing Co., 30 La. Ann. 1378. =" Johnston v. Laflin, 5 Dill. 65, 103 U. S. 800, 17 Abb. L. J. 146, 26 L. ed. 532; Thompson's Nat. Bank Cases 343; Bank v. Lanier, 11 Wall. (U. S.) 369, 20 L. ed. 172; Lacombe v. For- stall, 123 U. S. 562, 31 L. ed. 255, 8 Sup. Ct. 247; Brittan v. Oakland Bank, 124 Ca'l. 282, 57 Pac. 84, 71 Am. St. 58; Spreckels v. Nevada Bank, 113 Cal. 272, 45 Pac. 329; 54 Am. St. 348, 33 L. R. A. 459; Van Cise V. Merchants' Nat. Bank, 4 Dak. 485, 33 N. W. 897; National Safe Dep. Sav. & Trust Co. v. Gray, 12 D. C. App. Cas. 276; Ross v. Southwest- ern R. Co., 53 Ga. 514; Southwestern Railroad Co. v. Thomason, 40 Ga. 411 ; Rice V. Gilbert, 173 111. 348, 50 N. E. 1087; Kellogg v. Stockwell, 75 111. 68; Otis V. Gardner, 105 111. 436; Des Moines Nat. Bank v. Warren County Bank, 97 Iowa 204, 66 N. W. 154; Courtright v. Deeds, 37 Iowa 503; Bank of America v. McNeil, 10 Bush (Ky.) 54; Baltimore City Pas- senger R. Co. V. Sewell, 35 Md. 238, 6 Am. Rep. 402 ; Andrews v. Worces- ter, N. & R. R. Co., 159 Mass. 64, 33 N. E. 1109; Dickinson v. Cent. Nat. Bank, 129 Mass. 279, 37 Am. Rep. 351n; Sibley v. Quinsigamond Nat. Bank, 133 Mass. SIS; Sargent v. Franklin Ins. Co., 8 Pick. (Mass.) 90, 19 Am. Dec. 306; Fitchburg Savings Bank v. Torrey, 134 Mass. 239, Mass. Law, May 3, 1883 ; Baldwin v. Can- field, 26 Minn. 43, 1 N. W. 261 ; Mer- chants' Nat. Bank v. Richards, 6 Mo. App., 454; Moore v. Bank, S2 Mo. 377 ; Carroll v. MuUanphy Sav. Bank, 8 Mo. App. 249; Mount Holly L. & M. Tump. Co. v. Ferree, 17 N. J. Eq. 117; Leavitt v. Fisher, 4 Duer (N. Y.) 1 ; Leitch v. Wells, 48 N. Y. 585 ; Commercial Bank v. Kortright, 22 Wend. (N. Y.) 348, 34 Am. Dec. 317; Munn v. Barnum, 24 Barb. (N. Y.) 283; Orr v. Bigelow, 20 Barb. (N. Y.) 21; Bank v. Smalley, 2 Cow. (N. Y.) 770, 14 Am. Dec. 526n; McNeil V. Tenth Nat. Bank, 46 N. Y. 325, 7 Am. Rep. 341 ; Grymes v. Hone, 49 N. Y. 17, 10 Am. Rep. 313; German Union Assn. v. Sendmeyer^ 50 Pa. St. 67 ; United States v. Vaughan, 3 Binn. (Pa.) 394; Lightner's App., 82 Pa. St. 301 ; Hoppin v. Buflfum, 9 R. I. 513, 11 Am. Rep. 291; Beckwith v. Burrough, 13 R, I. 294; Eraser v. Charleston, US. Car. 486; Parker v. Bethel Hotel Co., 96 Tenn. 252, 284, 34 S. W. 209, 31 L. R. A. 706; Cor- nick V. Richards, 3 Lea (Tenn.) 1, 25; West Nashville Planing-Mill Co. V. Nashville Sav. Bank, 86 Tenn. 252, 6 S. W. 340, 6 Am. St. 83Sn; Caul- kins V. Gas Light Co., 85 Tenn. 683, § 169 COLLATERAL SECURITIES. 212 § 169. Delivery of stock indorsed in blank passes the title as between the parties. — By a delivery of a stock certificate with an indorsement in blank or with a power of transfer, the title passes as between the parties to the transaction ; and in this respect, it matters not whether such transfer be deemed to pass a legal or an equitable title.'* In a case relating to such a transfer of shares of a national bank, Mr. Justice Field, in delivering ths judgment of the Supreme Court of the United States, said:" "The entry of the transaction on the books of the bank, where stock is sold, is required, not for the translation of the title. but for the protection of the parties and others dealing with the bank, and to enable it to know who are its stockholders, entitled to vote at their meetings and receive dividends when declared. It is necessary to protect the seller against subse- quent liability as a stockholder, and perhaps also to protect the purchaser against proceedings of the seller's creditors. Pur- chasers and creditors are only bound to look to the books of reg- istry of the bank. ,But as between the parties to a sale, it is enough that the certificate is delivered with authority to the purchaser, or any one he may name, to transfer it on the books of the company, and the price is paid." When the owner of corporate stock has indorsed his certifi- cate in blank, and delivered it as security for a pledge, he has 4 S. W. 287, 4 Am. St. 786; Seelig- son v. Underhill, S2 N. Y. 203; Me- son V. Brown, 61 Tex. 114; Strange Neil v. Tenth Nat. Bank, 46 N. Y. V. Houston &c. Cent. R. Co., S3 Tex. 325, 7 Am. Rep. 341 ; Castle v. Smith, 162, 10 Rep. 28; Noyes v. Spauld- 7 Hawaii 579. Where stock is ing, 27 Vt. 420; Donnally v. Hearn- pledged as collateral to secure the don, 41 W. Va. 519, 23 S. E. 646; payment of a described debt and after Plankinton v. Hildebrand, 89 Wis. its payment certain other indebted- 209, 61 N. W. 839. ness the stock passes' as security for " National Bank v. Watsontown all such debts. Selma Bridge Co. v. Bank, 105 U. S. 217, 26 L. ed. 1039, Harris, 131 Ala. 179, 31 So. 508. 4 Morrison's Trans. 400; Johnston v. "Johnston v. Laflin, 103 U. S. 800, Laflin, 103 U. S. 800, 26 L. ed. 532; 26 L. ed. 532; and see National Bank Carroll v. Mullanphy Savings Bank, v. Watsontown Bank, 105 U. S. 217, 8 Mo. App. 249; Merchants' Nat. 26 L. ed. 1039; Sibley v. Quinsiga- Bank v. Richards, 6 Mo. 454; John- mond Nat. Bank, 133 Mass. 515. 213 CORPORATE STOCKS. § 17° put it in the power of the pledgee to negotiate the stock for value, and if the first pledgee transfers the certificate to another in pledge the original owner cannot recover the stock from the last pledgee without refunding, or offering to refund, the amount advanced upon it by the last pledgee." Where the true owner holds out another, or allows him to appear, as the owner of, or as having full power of disposition over the property, and innocent third parties are thus led into dealing with such ap- parent owner, they will be protected. Their rights in such cases do not depend upon the actual title or authority of the party with whom they deal directly, but are derived from the act of the real owner, which precludes him from disputing, as against them, the existence of the title or power which, through negli- gence or mistaken confidence he caused or allowed to appear to be vested in the party making the conveyance.*^' § 170. The delivery of an assigned stock certificate held to pass the legal and equitable title. — Some authorities hold that, as between the parties, the delivery of the certificate, with assignment and power indorsed, passes the entire title, legal and equitable, in the shares, notwithstanding that, by the terms of the charter or by-laws of the corporation, the stock is declared to be transferable only on its books j"' that such provisions are intended solely for the protection of the corporation, and can be waived or asserted at its pleasure, and that no eflfect is given to them except for the protection of the corporation ; that they do not incapacitate the shareholder from parting with his interest, and that his assignment, not on the books, passes the entire legal "McNeil V. Tenth Nat. Bank, 46 N. Co., 7 Lans. (N. Y.) 317; Hill Y. 325, 329, 7 Am. Rep. 341 ; Brittan v. v. Newichawanick Co., 48 How. Pr. Oakland Bank, 124 Cal. 282, 57 Pac. (N. Y.) 427; Leitch v. Wells, 48 N. 84, 71 Am. St. 58; Y. 585 ; Grymes v. Hone, 49 N. Y, " McNeil V. Tenth Nat. Bank, 46 N. 17, 10 Am. Rep. 313, In Holbrook v. Y. 325, 329, 7 Am. Rep. 341. New Jersey Zinc Co., 57 N. Y. 616, "Cushman v. Thayer Manufactur- 623, it is declared that "one who ing Jewelry Co., 76 N. Y. 365, 371, 32 takes an assignment of a stock certifi- Am. Rep. 315; McNeil v. Tenth cate, as between him and the trans- Nat. Bank, 46 N. Y. 325, 7 Am. ferrer, takes the whole title, both le- Rep. 341; Smith v. American Coal gal and equitable." § 170 COLLATERAL SECURITIES. 2I4 title to the stock, subject only to such Hens or claims as the cor- ' poration may have upon it, and excepting the right of voting at elections. In the case of Kortright v. Commercial Bank of Buffalo,"" Chancellor Walworth, in a dissenting opinion, stren- uously maintained, in conformity with his previous decision in Stebbins v. Phenix Ins. Co.,'" that by a transfer not on the books, the transferee acquired only an equitable right to or lien on the shares, and that, having but an equitable right or lien, he took subject to all prior equities which existed in favor of any other person from whom such assignment was obtained. But his view was overruled by a majority of the court. The action was at law in assumpsit, brought by the holder of the certificate and power, for a refusal to permit him to niake a transfer on the books, and the question of his legal title was necessarily in- volved in the case. The judgment therein must therefore be regarded as a direct adjudication that, as between the parties, the legal title in the shares will pass by delivery of the certificate and power. This was reasserted in the New Haven Railroad case,'' notwithstanding what was said in the Mechanic's Bank case.'^ The Court of Appeals of New York, in a case already cited, say:''' "By omitting to register his transfer, the holder of the certificate and power fails to obtain the right to vote, and may lose his stock by fraudulent transfer on the books of the com- pany, by the registered holder, to a bona fide purchaser;'* but in this respect he is in a condition analogous to that of the holder of an unrecorded deed of land, and possesses a no less perfect title as against the assignor and others. He would have an action against the corporation, for allowing such a transfer in violation of his rights.'^ He also takes the risk of the collection of the '"20 Wend. (N. Y.) 91; 22 Wend. "McNeil v. Tenth Nat. Bank, 46 (N. Y.) 348. N. Y. 325, 332, 7 Am. Rep. 341. "3 Paige (N. Y.) 350, 356. '*New York &c. R. Co. v. Schuyler, '^ New York &c. R. Co. v. Schuyler, 34 N: Y. 30, 80. ^ee also Smith v. 34 N. Y. 30, 80. American Coal Co., 7 Lans. (N. Y.) " Mechanics' Bank v. New York &c. 317. R. Co., 13 N. Y. 597. " See also Cushman v. Thayer Man- 215 CORPORATE STOCKS. § 1 71 dividends by his assignor, or of any lien the corporation may have on the shares. But in other respects his title is complete." § 171. The holder of assigned stock certificates takes on an equitable title. — But on the other hand other courts hold that the delivery of a certificate with a power of transfer, gives the holder nothing more than an equitable title.'" Such a trans- fer makes the holder presumptively the equitable owner of the ' shares, and if he has given value for them without notice of any intervening equity, his title as such owner cannot be im- peached. "The certificate of stock, accompanied by the power of attorney authorizing the transfer of the stock to any person, is prima facie evidence of equitable ownership in the holder, and renders the stock transferable by the delivery of the certifi- cate. And when the party in whose hands the certificate is found, is shown to be a holder for value, and without notice of any intervening equity, his title as such owner cannot be im- peached. The holder of the certificate may insert his own name in the power of attorney and execute the power, and thus obtain the legal title to the stock, whenever the loan for which it was hypothecated becomes due, or whenever, by the terms of his con- tract, he becomes entitled to the stock. And such a power is not limited to the person to whom it was first delivered, but enures to the benefit of each bona fide holder, into whose hands the cer- tificate and power may pass."" § 172. Stock not transferred on the books of the corpora- tion is not binding upon it. — But as against the corporation ufacturing Jewelry Co., Id N. Y. 36S, 44 Ind. 1, S. In Bank of America v. 371, 32 Am. Rep. 315. McNeil, 10 Bush (Ky.) 54, the court " Black v.- Zacharie, 3 How. (U. spoke of an assignment of the certifi- S.) 483, 2 L. ed. 690; Mount Holly cate, with a power to transfer, where &c. Turnpike Co. v. Ferree, 17 N. J. the corporation's charter provides for Eq. 117; Bank of America v. Mc- a transfer upon its books, as a sym- Neil, 10 Bush (Ky.) 54. See State bolical delivery of the stock, eflfectual Ins. Co. V. Sax, 2 Tenn. Ch. 507; against persons having actual notice United States v. Vaughan, 3 Binn. of it. (Pa.) 394, 5 Am. Dec. 375; Willis v. "Mount Holly &c. Turnpike Co.. v. Philadelphia &c. R. Co., 6 Weekly Ferree, 17 N. J. Eq. 117. Notes of Cases 461; Bruce v. Smith, § 173 COLLATERAL SECURITIES. 2l6 itself a transfer not entered upon the books of the company is, as a general rule, not binding upon it.'* The corporation is not bound to recognize as stockholders any persons who do not ap- pear to be such upon the corporation's books. Thus an assignee of shares cannot at law recover a dividend declared by the com- pany until his ass'ignment has been entered upon the company's books, as required by its charter and by-laws." On the other hand, until an assignment has been made and entered in the man- ner prescribed, the assignee does not become liable to pay assess- ments laid upon the shares.*" A lien given by the charter and by-laws of a corporation upon the shares of its stockholders, may be enforced by it against the stockholder of record,'^ and cannot be enforced against an equitable assignee, no transfer having been executed upon its books.'^ § 173. Actual transfer on books necessary to make com- plete title. — An actual transfer upon its books is necessary as against the corporation to make an available and complete title; and such a transfer is necessary even in the absence of any pro- vision in the charter, or in the stock certificate requiring such a transfer.*' This was the case in Bank of Commerce's Appeal.** A shareholder in a building association obtained from this, bank a loan upon his certificate of stock, accompanied by a power of attorney to transfer it. By the articles of association the shareholder was entitled to a loan from the association of a certain sum upon each share, and he subsequently borrowed from the association the full amount to which he was entitled, and "Stockwell V. St. Louis Mercantile ural Gas Co. v. Rockhold, 79 Kan. Co., 9 Mo. App. 133; Becher v. Wells 661, 100 Pac. 639. Flouring Mill Co., 1 Fed. 276; Laing "^ Marlborough Mfg. Co. v. Smith, V. Burley, 101 111. S91 ; Otis v. Card- 2 Conn. 579. ner, lOS 111. 436, IS Rep. 332; Man- ''Union Bank v. Laird, 2 Wheat, ning V. Quicksilver Mining Co., 24 (U, S.) 390, 4 L. ed. 269. Hun (N. Y.) 360. ""Helm v. Swiggett, 12 Ind. 194. '° Oxford Turnpike Co. v. Bunnel, 6 " Denny v. Lyon, 38 Pa. St. 98, 80 Conn. 552. It is also held that the Am. Dec. 463 ; Sitgreaves v. Farmers' owner of stock as shown by the cor- & Mechanics' Bank, 49 Pa. St. 359, poration's books and not the holder 365. should pay taxes on it. Parsons Nat- " 73 Pa. St. 59. 217 CORPORATE STOCKS. § 174 transferred his stock to it, although the bank s.till held his certifi- cate. The charter of the association expired while this state of facts continued, and the assets were distributed by the officers amongst the stockholders shown to be such by its books, includ- ing the association itself as pledgee of the stock of this share- holder, without notice from the bank. It was held that the bank had no claim under its certificate. The court, by Agnew, Justice, says: "The assignment of the certificate is only an equitable transfer of the stock, and to be made available must be produced to the corporation and a transfer demanded. As between ad- verse claimants of the certificate, the possession of it with the transfer upon it is often the test of the title. But when the cor- poration itself is not dealing with its stockholder on the security of his stock, and is merely performing a corporate duty, its own record is all it needs to consult, for whoever would demand the privileges of a stockholder should produce the evidence of his title and ask to be permitted to participate. The defendants acted officially as the trustees of the expired corporation, to settle its affairs under the powers conferred by the law, and in doing so made their distribution, according to the record of the corpora- tion, which exhibited the membership of the corporation. In doing this, without any notice from the bank of its equitable as- signment of the stock, clearly they were not guilty of any negli- gence, while the loss of the bank was attributable to its own neg- ligence, and negligence on their part is the only ground of its bill." § 174. That stock can only be transferred on the books of the corporation, is to protect the corporation. — A provision that a certificate of stock shall be transferable only upon the books of the corporation is designed primarily for the safety and security of the corporation, and incidentally only for the safety of purchasers.'^ Upon this point the Supreme Court of Louis- *'Fraser v. Charleston, 11 S. Car. Johnston v. Laflin, 103 U. S. 800, 26 486; Merchants' &c. Bank v. Richard, L. ed. S32; Carroll v. MuUanphy Sav. 6 Mo. App. 454; St. Louis Perpetual Bank, 8 Mo. App. 249; Chouteau Ins. Co. V. Goodfellow, 9 Mo. ISO; Spring Co. v. Harris, 20 Mo. 382; §175 COLLATERAL SECURITIES. 2l8 iana says : "The by-law which requires transfers of stock to be recorded on the books of the corporation regulates merely the respective rights of the corporation and the individual stock- holders. No one can claim to be a stockholder, and to exercise the rights of a corporator, in virtue of a sale of stock to him, until the corporation has taken cognizance of the sale, and, by transfer on its books, has substituted the purchaser for the seller. Whether one has acquired the character and the rights of a cor- porator, is a question to be determined by the laws of the corpo- ration. Whether a purchaser has acquired a good and perfect title to any property or thing, tangible or intangible, is a question to be solved by the general laws of the state applicable to the sale and transfer of such objects."*" It has been argued that an actual transfer upon the books of a corporation is not the only and essential evidence of ownership, except for the corporation itself, because the books of a cor- poration are of a private nature and are not open to public in- spection. "It is not, therefore, to apprise the world and pre- vent it from giving a false credit to the apparent owner of stock that the transfer thereof is required to be made on the books of the bank in the presence of one of its officers. The great object of requiring transfers to be made in this manner, is to prevent all difficulty that othei'wise might arise with those who have the direction and management of the corporation in ascertaining the persons who are to be regarded and treated by them as the own- ers of the stock and as corporators. No persons, therefore, are to be regarded by thern as such, excepting those in whose names the stock is entered and holden."*' § 175. As against the corporation a transfer upon books is necessary to confer a legal title. — The mere tr its mere trans- Moore V. Bank, 52 Mo. 377, 379; Ins. Co. v. Able, 48 Mo. 136, are not Parker v. Bethel Hotel Co., 96 Tenn. considered as law. 2S2, 284, 34 S. W. 209; Smith v. Rail- "^ Smith v. Slaughter-House Co., 30 road, 91 Tenn. 221, 238, 18 S. W. S46. La. Ann. 1378, 1382. Dicta to the contrary in White v. "Commonwealth v. Watmough, 6 Salisbury, 33 Mo. ISO, and Boatmen's Whart. (Pa.) 117, 139. 219 CORPORATE STOCKS. § i76 fer of the certificate, although accompanied by a written direction to the secretary of the corporation to make the necessary trans- fer upon the books, gives the assignee an equitable title only, so far as the corporation is concerned, until the transfer is actually made upon the books.** "The certificates do not constitute prop- erty in the corporation ; they are the muniments of title, but it is the shares of stock which constitute the property, and the persons whose names appear upon the books of the corpoiration are pre- sumed to be the stockholders; they have the right to vote and participate in directing the policy of the company."*" Until the transfer is made upon the books the corporation does not recog- nize an assignee as a stockholder. If an assignee having the proper muniments of title should make a demand upon the proper officers of the corporation for a transfer upon the books, and the corporation should neglect or refuse to make it, relief could be had by proper legal proceedings. § 176. A transfer on the corporation's books, without a surrender of the certificate is ineffectual. — A transfer of shares upon the books of a corporation without a surrender of the outstanding certificate is ineffectual when the certificate issued by the corporation formally provides that the shares are trans- ferable on the books of the corporation, in person or by attorney, only on the surrender of the certificate. A national bank having issued such certificates, made a loan to a stockholder upon a transfer of shares to the bank without his producing or surren- dering his certificate, which he had already sold and assigned to a purchaser for value with a power of attorney to transfer; but the purchaser delayed obtaining a transfer upon the books of the bank until the bank in the meantime made the loan to the stock- holder and in fact sold a part of the stock upon the borrower's default. In a suit by the purchaser of the stock against the bank for refusing to transfer the stock to him upon the books, the ''Becher v. Wells Flouring Mill "Becher v. Wells Flouring Mill Co., 1 Fed. 276. Co., 1 Fed. 276. § 176 COLLATERAL SECURITIES. 220 Supreme Court of the United States held the bank liable."" The bank in allowing a transfer to itself of the stock upon its books while the certificate was outstanding in the hands of a bona fide purchaser, was guilty of a breach of corporate duty, and must render satisfaction to the purchaser. "He is told, under the seal of the corporation," said Mr. Justice Davis, delivering the opinion of the court, "that the shareholder is entitled to so much stock, which can be transferred on the books of the corporation, in person or by attorney, when the certificates are surrendered, but not otherwise. This is a notification to all persons interested to know, that whoever in good faith buys the stock, and produces to the corporation the certificates, regularly assigned, with power to transfer, is entitled to have the stock transferred to him. And the notification goes further, for it assures the holder that the corporation will not transfer the stock to any one not in posses- sion of the sertificates." This decision was made not upon the ground of the negotia- bility of the certificate, but upon the ground that the corpora- tion was guilty of a breach of corporate duty in allowing a transfer to be made without a surrender of the certificate which in terms provided that the shares should be transferable on the books of the bank, in person, or by attorney, only on the surrender of the certificate. "The power to transfer their §tock," says the court," "is one of the most valuable franchises conferred by congress on banking associations. Without this power, it can readily be seen the value of the stock would be greatly lessened, and, obviously, whatever contributes to make the shares of the stock a safe mode of investment, and easily convertible, tends to enhance their value. It is no less the inter- est of the shareholder, than the public, that the certificate repre- "Bank V. Lanier, 11 Wall. (U. S.) ston v. Laflin, S Dill. (U. S.) 65, af- 369, 20 L. ed. 172. And see New firmed, 103 U. S. 800, 26 L. ed. 532; York & New Haven R. Co. v. Schuy- Strange v. Houston & Tex. Cent. R. ler, 34 N. Y. 30 ; Cushman v. Thayer Co., 53 Tex. 162. Manufacturing Jewelry Co., 76 N. Y. " Bank v. Lanier, 11 Wall. (U. S.) 365, 32 Am. Rep. 315; Hall v. Rose 369, 377, 20 L. ed. 172. Hill &c. Road Co., 70 111. 673; John- 221 CORPORATE STOCKS. § ^7^^ senting his stock should be in a form to secure public confidence, for without this he could not negotiate it to any advantage. "It is in obedience to this requirement, that stock certificates of all kinds have been constructed in a way to invite the confi- dence of business men, so that they have become the basis of commercial transactions in all the large cities of the country, and are sold in open market the same as other securities. Although neither in form or character negotiable paper, they approximate* to it as nearly as practicable." § 176a. Shares of stock are taxable to a pledgor in whose name they stand upon the books of the corporation. — Al- though the shares have been pledged as collateral security for loans, with power in the pledgee to transfer them to his own name, and in case the loans are not paid, to sell them, so long as they stand in the name of the pledgor on the books of the com- pany, they are properly taxable to him.°^ It is not the policy of the law to have taxes upon pledged property assessed to the pledgee, even when transferred to him.°^ § 177. Decisions not in harmony. — Whether an unregis- tered transfer passes the legal title to the stock as well as the equitable, is a question upon which the decisions are not in har- mony. This question is one of practical importance, because upon the answer to this depends the solution of the practical question whether such a transfer is efifectual against the creditors of the assignor before the transfer is recorded upon the books of the company. If the legal as well as the equitable title passes by a delivery of the certificate, with a power of transfer, then of course the stock is not subject as the property of the assignor to attachment or levy of execution. But if such a transfer passes only the equitable title, while this may be good as between the parties, it is not good as against creditors of the assignor "Ratterman v. Ingalls, 48 Ohio St. Met. (Ky.) 334; Tucker v. Aiken, 7 468, 28 N. E. 168; Parsons Natural N. H. 113; Parsons Natural Gas Co. Gas Co. V. Rockhold, 79 Kan. 661, 100 v. Rockhold, 79 Kan. 661, 100 Pac Pac. 639. 639. "Waltham Bank v. Waltham, 10 § 178 COLLATERAL SECURITIES. 222 until the transfer is registered upon the books of the corporation, or at least until notice has been given it of such transfer. § 178. Effect of sale of registered stock on execution. — What is the effect of a sale of stock on execution against the registered owner, and the issuing of a certificate by the corpora- tion to the purchaser at such sale without notice that the regis- tered owner had alread}' transferred his certificate in pledge for a loan ? Such a case was before the Circuit Court of the United States for the Southern District of New York, which held that the corporation was not liable for the value of the stock to the prior pledgee of the certificate. Stock of a bank in Connecticut was registered in the name of a resident of New York, who pledged it to a bank in the latter state for a loan made to him by an unregistered transfer of the certificate. A creditor of the registered owner attached the stock and sold it on execution in proceedings regularly conducted in Connecticut. The stock was by the terms of the certificate "transferable at the bank, in person or by attorney." These words were held to mean that the stock was transferable only at the bank; and the' transfer of the cer- tificate was held not to operate as a transfer of the stock, ex^ cept as against the registered owner. The pledgee could obtain a valid title to the stock, except as against the pledgor, only by having it transferred, or, at least, by giving notice to the corpo- ration of the transfer of the stock before it was sold on execution, and a new certificate issued to the purchaser.'* But while in some states a requirement by by-law of the corporation that stock shall be transferred only upon the books of the corporation is deemed sufficient to make that mode exclu- sive, except as between the parties themselves, in other states nothing less than a provision of the company's cliarter, having the force of a public statute, is deemed sufficient to prevent an un- registered transfer from being complete and effectual against every one but the corporation itself. "Williams v. Mechanics' Bank of New Haven, S Blatchf. (U. S.) 59. 223 CORPORATE STOCKS. § 179 § 179. An equitable transfer of stock is good against a creditor having notice.— ^As against creditors attaching stock with knowledge of a prior assignment of the equitable title by- transfer of the certificate, there is no doubt that such equitable transfer will prevail.'^ Mr. Justice Story upon this point said :'" "Courts of law, as well as courts of equity, are constantly, in all states where the common law prevails, in the habit of holding a prior assignment of the equitable interest in stock as supersed- ing the rights of attaching creditors, who attach the same with a full knowledge of the assignment." It is immaterial in such case that the charter of the corporation provides that no transfer of stock shall be valid until it is entered or registered in a book to be kept by the corporation for that purpose. This is manifestly a regulation designed for the security of the corporation itself, and of third persons taking transfers of the stock without notice of any prior equitable transfer. It relates to the transfer of the legal title, and not of any equitable interest in the stock subordi- nate to that title. And so a judgment creditor buying stock at an execution sale, which he then knows has been previously trans- ferred by an unrecorded assignment of the debtor, acquires no better title than the debtor himself had.'' " Black V. Zacharie, 3 How. (U. " Newberry v. Detroit &c. Manu- S.) 483, 2 L. ed. 690; Scripture v. facturing Co., 17 Mich. 141; 'May v. Soapstone Co., SO N. H. 571; Van Cleland (Mich.), 44 L. R. A. 163; Cise V. Merchants' Nat. Bank, 4 Dak. McLean v. Charles Wright Medicine 485, 33 N. W. 897; Barse Live Stock Co., 96 Mich. 479, 56 N. W. 68; Wes- Co. V. ' Range Valley Cattle Co., 16 ton v. Bear River Co., 6 Cal. 425, 5 Utah 59, 50 Pac. 630. A corporation Cal. 186, 63 Am. Dec. 117n; Blake- cannot acquire a lien upon the shares man v. Puget Sound Iron Co., 72 of a stockholder of record after re- Cal. 321, 13 Pac. 872; Cheever v. ceiving notice of an equitable assign- Meyer, 52 Vt. 66; Kellogg v. Stock- ment of the shares. Bank of Amer- well, 75 111. 68 ; Gemmell v. Davis, 75 ica v. McNeil, 10 Bush (Ky.) 54; Md. 546, 23 Atl. 1032, 32 Am. St. 412 ; Conant v. Reed, 1 Ohio St. 298 ; Bank Guarantee Co. v. East Rome Town of Cullodan v. Bank of Forsyth, 120 Co., 96 Ga. 511, 23 S. E. 503, 51 Am. Ga. 575, 48 S. E. 226, 102 Am. St. St. 150; Finney's Appeal, 59 Pa. St. 115. 398. "Black V. Zacharie, 3 How. (U. S.) 483, 512, 2 L. ed. 690. § . l80 COLLATERAL SECURITIES. 224 The mere fact that a certificate of stock, when offered in pledge, is in the name of another person, is not sufficient to charge the pledgee with notice that the stock belongs to the person in whose name it stands, when the latter has made an assignment of the certificate in blank, or has delivered it with a power of attorney in blank."* Such a transfer is moreover complete as against a creditor of the pledgor when the corporation has unjustly refused to make the transfer on its books, and the creditor without notice of the transfer has attached the stock.'" § 180. Transfers of stock regulated by statute. — As al- ready intimated, transfers of stock are in many states regulated by statute. These statutes are quite dissimilar in their terms. They were not all enacted for the same purpose. In some states transfers are made invalid except as between the parties, unless recorded upon the books of the corporation; while in other states transfers by indorsement and delivery of the certificates are made valid, not only between the parties, but as against attaching cred- itors and the corporation itself. Conflicting decisions in differ- ent states are in many cases to be accounted for by dissimilar statutes with reference, to which these decisions were made; though it is true that the decisions upon transfers of stock and their effect cannot always be reconciled in this way. Similar provisions are not always construed in the same way. It is necessary, therefore, in order to determine the validity and efifect of transfers of stock in the dififerent states, to examine the statutes as well as the decisions of these states. For this reason the statutes relating to the transfers of stock which have been en- acted in several states, and the judicial interpretation of these statutes are stated in detail for the several states. § 181. Alabama.' — When, by the charter, articles of asso- ciation, or by-laws and regulations of a private corporation, the °'Feltv. Heye, 23 How. Pr. (N. Y.) ards, 6 Mo. App. 4S4; Strange v. 359. Houston &c. R. Co., S3 Tex. 162. "Merchants' Nat. Bank v. Rich- 'Code 1896, §§ 1262, 1263; 2 Code 1907, § 3471. ■225 CORPORATE STOCKS. ' § l8l transfer of the stock is required to be made upon the book or hooks of the corporation, no transfer of stocks shall be valid as against bona fide creditors, or subsequent purchasers, without notice, except from the time that such transfer shall have been registered, or made upon the book or books of such corporation. It is the duty of every private corporation to require the trans- fer of its stock to be made or registered on the books of the corporation; and persons holding stock not so transferred or registered, or holding any stock under hypothecation, mortgage or other lien, must have the transfer, hypothecation, mortgage or other lien made or registered on the books of the corporation, or upon failing to do so within fifteen days, all such transfers, hy- pothecations, mortgages, or other liens shall be void as to bona fide creditors, or subsequent purchasers without notice. In this state it is held that the by-laws of a corporation re- quiring transfers of stock to be entered upon its books in the presence of its president or secretary, and declaring a lien in favor of the corporation for all debts of the stockholder to it, are intended for the protection of the corporation, and of third persons who may in good faith acquire its stock; but, while the legal title to stock can only be acquired by a transfer made in the mode prescribed, a complete equitable title may be ac- quired by a transfer in any form or manner appropriate to pass property of this kind, divesting the stockholder of all right and interest, and entitling the trans ferree to demand that he be in- vested with the legal title. The statute makes unregistered transfers void as against bona fide creditors and purchasers with- out notice.'' Planters' &c. Ins. Co. v. Selma whose name the stock is registered is Sav. Bank, 63 Ala. 585; Duke v. Ca- the true owner in the estimation of hawba Co. Nav. Co., 10 Ala. 82, 44 the statutes, and it is subject to exe- Am. Dec. 472; Abels v. Planters' & cution against him. White v. Ran- M. Ins. Co., 92 Ala, 382, 9 So. 423. kin, 90 Ala. 541, 8 So. 118; Winter Actual notice of an unregistered v. Montgomery G. L. Co., 89 Ala. 544, transfer is binding and protects the 7 So. 773; Berney Nat. Bank v. transferee. Birmingham Trust & Pinckard, 87 Ala. 577, 6 So. 364; Sav. Co. y. Louisiana Nat. Bank, 99 Hardaway v. Semmes, 38 Ala. 657; Ala. 379, 13 So. 112. The person in Fisher v. Jones, 82 Ala. 117, 3 So. 13. IS — Col. Sec. § l8ia COLLATERAL SECURITIES. 226 Shares or interest in the stock of corporations herein pro- vided are personal property, transferable on the books of the corporation.' § 181a. Arizona.* — Transfer of the stock shall not be valid except as between the parties thereto, until the same are regu- larly entered upon the books of the company so as to show the names of the persons by whom and to whom the transfer is made, the number or other designation of the shares, and the date of the transfer. Shares of stock shall not be transferred unless at least twenty per cent, has been paid thereon, and cer- tificates issued therefor, until the same is approved by the board of directors. Any stockholder transferring his shares as pre- scribed in compliance with the by-laws of the company with the approval by the board of directors shall from the date of such approval cease to be a stockholder and shall not be liable to future calls from the directors nor for debts contracted thereafter.' § 182. Arkansas. — Stock of every corporation shall be deemed personal property, and be transferred only on the books of such corporation, in such form as the directors shall prescribe; and such corporation shall at all times have a lien upon all the stock or property of its members invested therein for all debts due from them to the corporation." This section has not been passed upon by the Supreme Court of the state, but was interpreted by the Circuit Court of Ap- peals of the United States in a recent decision ; in which it was held that a provision that stock shall be transferable only on the books of the corporation, is intended to prescribe a mode of transfer as between the corporation and a stockholder, in all mat- ters relating to the internal government and management of the corporation, rather than between the stockholder and third par- ties; and, notwithstanding such provision, a stockholder may divest himself of all beneficial interest in his stock by an assign- ment and delivery of his certificate, although no transfer is made on the books of the corporation. °2 Civil Code 1907, § 3470. 'Rev. Stat. 1901. § 853. *Rev. Stat. 1901, § 773. 'Dig. of Stats. 1904, § 853. 227 CORPORATE STOCKS. § 183 Where a stockholder in a corporation has pledged his stock as collateral security, by an indorsement and delivery of his certificate, a creditor by the levy of an attachment and execu- tion, can only reach the interest of the pledgor therein, and is not aided, except in favor of purchasers at a sale under execu- tion who purchase for value and without notice, by a statute providing that stock shall be transferred only on the books of the company.' § 183. California/ — Whenever the capital stock of any cor- poration is divided into shares, and certificates therefor are issued, such shares of stock are personal property, and may be transferred by indorsement by the signature of the propri- etor, his agent, attorney, or legal representative, and the de- livery of the certificate ; but such transfer is not valid, except as to the parties thereto, until the same is so entered upon the books of the corporation as to show the names of the parties by whom and to whom transferred, 'the number of the certificate, the num- ber or designation of the shares, and the date of the transfer; provided, however, that any corporation organized for, or en- gaged in the business of selling, distributing, supplying, or de- livering water for irrigation purposes or for domestic use may in its by-laws provide that water shall only be so sold, distributed, supplied, or delivered to owners of its capital stock. The courts construing this provision have held that although stock may be attached as the property of the registered owner, after the certificate has been pledged by him, yet if the purchaser at the execution sale buys with notice of the prior hypothecation, he acquires no rights as against the pledgee; if, on the other hand, the purchaser has no notice of the prior hypothecation, his title will prevail against the pledgee." The provisions of the statute, ' Masury v. Arkansas Nat. Bank, 93 transfer on the books of the company, Fed. 603, 35 C. C. A. 476. as is required by Act of 1853, relative ' Civil Code 1906, § 324, as amended to pledges of stock by delivery of cer- Stat. and Amend, to Codes 1907, p.. tificates. Ede v. Johnson, IS Gal. S3. 854, § 324; Winter v. Belmont Min- 'Weston v. Bear River & Auburn ing Co., S3 Cal. 428. A mortgage of Water & Mining Co., 5 Gal. 1S6, 6 shares of stock is valid without a Gal. 425, 63 Am. Dec. 117n; Strout v. § 183 COLLATERAL SECURITIES. 228 in the language of the court, apply only to transfers and pur- chases in good faith without notice. The result is that while an assignment of shares of stock by a mere delivery of the certifi- cate without a transfer upon the books of the corporation is in- valid as against an attaching creditor of the registered owner, yet the rights of the latter may be defeated by giving him notice of such prior transfer of the certificate after his lien has attached, or by giving bidders at the sale such notice. This illogical con- struction, though nott fully approved by later cases, has been ac- quiesced in upon the principle of stare decisis.^" As against all the world, except subsequent purchasers for value in good faith and attaching creditors without notice, a transfer not entered upon the books is valid.^^ Under this provision a transfer of stock upon the books of the corporation is not essential to the creation of a valid pledge of the stock; but the pledgee has the right to cause a proper entry of the transaction between himself and his pledgor to be entered upon the books of the corporation for his protection, though he is not authorized to divest the pledgor of the rights incident to his ownership of the pledge, by surrender and can- Natoma Water and Mining Co., 9 called to the foregoing decisions, nor Cal. 78. to the statute regulating the transfer "Naglee v. Pacific Wharf Co., 20 of stocks in private corporations. Cal. 529, 533; People v. Elmore, 35 Without referring to these decisions Cal, 653 ; Winter v. Belmont Mining or to the statute on which they were Co., 53 Cal. 428, 432; Brewster v. founded, counsel in the Sherwood Sime, 42 Cal. 139; Thompson v. To- case discussed the sole proposition land, 48 Cal. 99, 112; Farmers' Nat. whether a certificate of this charac- Bank v. Wilson, 58 Cal. 600; Brown ter, on general principles of commer- V. San Francisco Gas-Light Co., 58 cial law, was negotiable in the sense Cal. 426; Barstow v. Savage M. Co., in which bills of exchange and other 64 Cal. 388, 1 Pac. 349, 49 Am. Rep. simikr instruments are negotiable, 705 ; Blakeman v. Puget Sound Tran. and we held they were not, which Co., 72 Cal. 321, 13 Pac. 872; was the only point decided in that Spreckels v. Nevada Bank, 113 Cal. case." 272, 276, 45 Pac. 329, 54 Am. St. 348, " Parrott v. Byers, 40 Cal. 614; 33 L. R. A. 459. In Winter v. Bel- Spreckels v. Nevada Bank, 113 Cal. mom Mining Co., 53 Cal. 428, 432, 272, 45 Pac. 329, 54 Am. St. 348, 33 L. Crockett, J., said: "In the case of R. A. 459; McFall v. Buckeye Gran- Sherwood V. Meadow Valley Mining gers' Warehouse Assn., 122 Cal. 468, Co., SO Cal. 412, our attention was not 55 Pac. 253. :229 CORPORATE STOCKS. § 184 celation of the pledged certificate, and the issuance of a new certificate in the name of the pledgee." § 184. Colorado.^' — Corporations other than railroad and telegraph companies are required to keep a book containing the names of all persons, alphabetically arranged, who are, or shall within one year have been, stockholders, and showing their place of residence, the number of shares of stock held by them, and the time when they respectively became the owners of such shares, and the time when they ceased to be such stockholders, and the amount of stock actually paid in, and what proportion has been paid in cash; which book shall, during the usual business hours of the day, be open for the inspection of the stockholders and creditors of the company, and their personal representatives, at the office or principal place of business of such company, in the county where its business operations shall be located; and no transfer of stock shall be valid for any purpose whatever, except to render the person to whom it shall be transferred liable for the debts of the company, unless it shall have been entered upon such book, within sixty days from the date of such transfer, by an entry showing to and from whom transferred ; or, in case of the pledge of any such stock, a memorandum be made upon the books of the said company, showing to whom and for what amount the stock has been pledged. This statute takes from the owner of stock the right to trans- fer it in accordance with the known rules of the common law. Under it the title to stock in a corporation can only pass against creditors by transfer on the books of the company." § 185. Connecticut.^" — The stock of every corporation, ex- cept when otherwise provided in the charter of a specially char- ""Spreckels v. Nevada Bank, 113 Pac. 170; Supply Ditch Co. v. Elliott Cal. 272, 45 Pac. 329, 54 Am. St. 348, 10 Colo. 327, IS Pac. 691, 3 Ath. St' 33 L. R. A. 459; McFall v. Buckeye 586. Grangers' Warehouse Assn., 122 Cal. " Pub. Acts 1903, §§ 20, 21. See 468 55 Pac. 253. First Nat. Bank v. Hartford &c. Ins ^^Rev. Supp. 1905, § 508. Co., 45 Conn. 22. "Conway v. John, l4 Colo. 30, 23 § l8S COLLATERAL SECURITIES. 23O tered corporation, shall be personal property, and, with the treas- urer's receipt for payments on stock subscriptions, shall be trans- ferable on its books in such form as the by-laws shall prescribe. Whenever any transfer of stock shall be made for collateral se- curity, the entry of the transfer on the books of the corporation shall state that it is made for collateral security. Every corpora- tion shall at all times have a lien upon all of its stock owned by any person for all debts, including instalments duly called in, due to it from him, and may sell the debtor's interest in said stock, or in so much thereof as may be necessary to discharge such in- debtedness and the expense of such sale, at public auction at any time after the debt secured thereby becomes due and payable, upon giving to the stockholder, his executor, or administrator, and if there be none, his heir-at-law, a written notice, by mail, of at least twenty days and advertising such sale at least twice in a newspaper of this state having a circulation in the town where such corporation is located, not less than one week prior to the date of sale. Any surplus arising from such sale shall be paid to the stockholder. Shares of stock in any corporation organized under the laws of this state or of the United States, or treasurer's receipts for payment or subscription to the stock of any corporation organ- ized under the laws of this state, may be pledged by delivering the certificate of such stock or such receipt to the pledgee, with a power of attorney for its transfer ; but no such pledge shall be effectual to hold such stock against any person other than the pledgor, his executor, or administrator, unless there shall be an actual transfer of the same upon the books of the corporation, or unless a copy of such power of attorney shall be filed witli the corporation. A pledge of stock is ineffectual where a certificate is merely handed over without a power to transfer the stock, although there be a written declaration attached to the certificate, that the stock was thereby pledged for a debt described.^" "Piatt V. Hawkins, 43 Conn. 139; 13 Conn. 493; Shipman v. ^tna Ins. and see Dutton v. Connecticut Bank, Co., 29 Conn. 245. 231 CORPORATE STOCKS. § 185 Before the passage of this statute it was held in actions at law that the legal title to stock in a corporation could be trans- ferred only in the mode prescribed by the company's charter or by its by-laws; and if the stock was made transferable only on the books of the corporation, a transfer upon the books was es- sential, not merely as giving notice, but as the act itself which changes the title;" so that even an entry by the clerk of the cor- poration upon the deed of assignment that it has been received for record was not sufficient to protect the stock from attachment as the property of the assignor/' But in equity the construction of this rule at law was some- what modified. If a good reason for failure of an assignee of stock to procure a transfer on the books of a corporation could be shown, and he had done all that it was possible for him to do by giving notice of the assignment to the corporation, he was protected against subsequent attachments of the stock as the property of the assignor. It was said that the ground upon which stock sold but not legally transferred was open to attach- ment by the creditors of the vendor, was the same as that upon which personal chattels sold, but retained in the possession of the vendor, are liable to attachment as the property of the latter; and that the same circumstances which would excuse fail- ure to take possession in the one case, would excuse a failure to perfect the transfer in the other. Therefore, where a secretary of a company refused to allow a transfer of shares upon the company's books because the shares were already subject to at- tachment, and the owner made in good faith a written assignment of the stock, and lodged the instrument with the company, it was held that the title of the vendee was good against later attach- ments of the stock by the vendor's creditors.^^ "Marlborough Manufacturing Co. "Northrop v. Newton &c. Turn- V. Smith, 2 Conn. 579; Northrop v. pike Co., 3 Conn. 544; Button v. Con- Curtis, 5 Conn. 246 ; Oxford Turnpike necticut Bank, 13 Conn. 493. Co. V. Bunnel, 6 Conn. 552 ; Dutton " Colt v. Ives, 31 Conn. 25, 81 Am. V. Connecticut Bank, 13 Conn. 493, Dec. 161. 498; Shipman v. yEtna Ins. Co., 29 Conn. 245. § 1 86 COLLATERAL SECURITIES. 232 § 186. Delaware.^" — The shares of stock in every corpora- tion shall be deemed personal property and transferable on the books of the corporation in such manner and under such regula- tions as the by-laws provide. * * * Whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer. § 187. District of Columbia." — A person in whose name shares of stock stand on the books of a company shall be deemed the owner thereof as regards. the company but if any such person shall in good faith sell, pledge, or otherwise dispose of any of ■his shares of stock to another and deliver to him the certificate for such shares, with written authority for the transfer of the same on the books, the title of the former shall vest in the latter so far as may be necessary to effect the purpose of the sale, pledge, or other disposition not only as between the parties themselves, but also as against the creditors of and subsequent purchasers from the former. No shares shall be transferable until all previous calls thereon shall have been fully paid in or the shares shall have been declared forfeited for non-payment. § 188. Florida.^^ — ^The stock of every corporation shall be deemed personal estate. The stock shall be transferable in the manner prescribed in the by-laws of the company; but no stocks shall be transferred until all previous assessments thereon have been fully paid in. § 188a. Georgia.^' — Except as against the claims of the corporation, a transfer of stock does not require a transfer on the books of the company. § 188b. Hawaii." — Whenever the capital stock of any corporation is divided into shares, and the certificates thereof '''' 22 Laws, ch. 166, § 16. See Colbert ""Gen. Stat. 1906, §§ 26SS, 26S6; V. Sutton, S Del. Ch. 294; Wilming- State v. Suwannee Co., 21 Fla. 1. ton & Phila. Turnpike Co. v. Bush, 1 =' 1 Code 1911, § 2219; Southwestern Har. (Del.) 44. R. Co. v. Thomason, 40 Ga. 408, 411. "•Garges" Code 1905, §§ 614, 629. "Rev. Laws 190S, § 2549. 233 CORPORATE STOCKS. § 1 89 are issued, transfer of the shares may be made by indorsement and delivery of the certificate. The indorsee shall be entitled to a new certificate upon surrendering the old one. And no such transfer shall be valid, except between the parties thereto, until such new certificate shall have been obtained, or the transfer shall have been recorded on the books of the corporation, so as to show the date of the transfer, the parties thereto, their places of abode, and the number and description of the shares trans- ferred. The shares of several members in the stock of any incorpo- rated company, whether owning real estate or otherwise, shall be deemed in law personal property. § 189. Idaho.^" — Whenever the capital stock of any cor- poration is divided into shares, and certificates therefor are issued, such shares of stock are personal property, and may be trans- ferred by indorsement by the signature of the proprietor, or his attorney, or legal representative, and delivery of the certificate; but such transfer is not valid except between the parties thereto, until the same is so entered upon the books of the corporation as to show the names of the parties by and to whom transferred, the number and designation of the shares, and the date of the entry. § 190. Illinois. — In Illinois it was formerly held that a transfer in pledge of certificates of stock in a company, whose by- laws provide that a transfer of stock shall only be made upon the books of the secretary on the presentation of the stock certificate, was not effectual as against a levy of execution by a creditor of the pledgor, made before the pledgee had obtained a transfer to himself upon the company's books. The decision was based upon a requirement of statute, that, in levying upon the shares of a stockholder, the sheriff should leave with the clerk, treasurer, or cashier of the company a copy of the execution; for unless the books of the company determined who is the owner of the stock, this provision would be useless.^^ " Rev. Laws 1905, § 2SS3. " People's Bank v. Gridley, 91 III " 1 Rev. Code 1908, § 2747. 457, 11 Chicago L. N. 332. § IpOa COLLATERAL SECURITIES. 234 The law was changed by an amendment of the statute in 1883, and now a pledge of a certificate of stock indorsed in blank and delivered is valid as between the parties and as against third per- sons having actual or constructive notice of the transaction, al- though the transfer of the title to the pledgee is not made on the books of the corporation.^' Any attachment is subject to an un- registered certificate held in pledge.''' § 190a. Indiana.'" — Although the statutes do not expressly declare that transfers of shares of stock shall be invalid except as between the parties unless recorded in the books of the com- pany, it is held that a delivery of bank stock, by a mere delivery of the certificates of stock in pledge, is insufficient to consti- tute an effectual assignment of the stock, but that it must be transferred upon the books of the company. Stock in a corporation is deemed personal property and when fully paid in shall be transferable in such manner as the by-laws may prescribe. Such company shall not use its funds in the pur- chase of stock in any other corporation only upon the written consent of all the stockholders of the company desiring to pur- chase and also the written consent of the stockholders of the cor- poration whose stock is sought to be purchased. § 191. lowa.'^ — A transfer of shares is not valid, except as between the parties thereto, until regularly entered upon the books of the company, showing the name of the person by and to whom transferred, the numbers or other designation of the shares, and the date of the transfer; but such transfer shall not exempt the person making it from any liability of said corpora- tion created prior thereto. Its books must be so kept as to show the original stockholders, their interests, the amount paid on their shares, and all transfers thereof; which books, or a copy ='Rice V. Gilbert, 173 III. 348, affirm- 197; Hirsch v. Norton, US Ind. 341, ing 72 111. App. 649. 17 N. E. 612; Boone v. Van Gorder, '^ See § 378a, infra. 164 Ind. 499, 74 N. E. 4, 108 Am. St. "Burns' Rev. Stat. 1908, § 76S; 314. State V. First Nat. Bank, 89 Ind. 302; ''Code 1897, § 1626. Coleman v. Spencer, 5 Blackf. (Ind.) 235 CORPORATE STOCKS. § I92 thereof, so far as the items mentioned in this section are con- cerned, shall be subject to the inspection of any person desiring the same. When any shares of stock shall be transferred to any person, firm or corporation as collateral security, such person, firm or corporation may notify in writing the secretary of the corporation whose stock is transferred as aforesaid, and from the time of such notice, and until written notice that said stock shall have ceased to be held as collateral security, said stock so trans- ferred and noticed as aforesaid shall be considered in law as transferred on the books of the corporation which issued said stock, without any actual transfer on the books of such corpora- tion of such stock. In such case, it shall be the duty of the secre- tary or cashier of the corporation or of the person or firm to which such stock shall have been transferred as collateral secur- ity at once, upon its ceasing to be so held, to inform the secre- tary of the corporation issuing such stock of such fact. The secretary of the company whose stock is transferred as collateral shall keep a record showing such notice of transfer as collateral, and notice of discharge as collateral, subject to public inspection. No holder of stock as collateral security shall be liable for assess- ments on the same.^^ § 192. Kansas.^^ — The stock of any corporation created under this act shall be deemed personal estate, and is transfer- able only on the books of the corporation, in such manner as the by-laws may prescribe ; and no person shall at any election be en- titled to vote on any stock, unless the same shall have been stand- "Code 1897, § 1626. Except as pro- helped to levy an assessment on such vided above, a transfer of stock is not pledged stock and requested the valid as against the levy of an execu- pledgee to pay such assessment he tion until it is regularly entered upon was warranted in paying it. Iowa the books of the company. Moore v. Nat. Bank v. Cooper (Iowa), 107 N. Marshalltown Opera House Co., 81 W. 625. See also French v. North- Iowa 45, 46 N. W. 750; Fort Madison western Laundry (Iowa), 107 N. W. Lumber Co. v. Batavian Bank, 71 430. Iowa 270, 32 N. W. 336, 60 Am. Rep. ==Gen. Stat. 1909, § 1743; Topeka 789. It is held where the pledgors of Mfg. Co. v. Hale, 39 Kan. 23, 17 Pac. certificates of stock were directors of 601. the corporation issuing the stock and § 192a COLLATERAL SECURITIES. 236 ing in the name of the person so claiming to vote, upon the books of the corporation, at least thirty days prior to such electi6n; but no shares shall be transferred until all previous assessments there- on shall be fully paid. § 192a. Kentucky.^* — The shares of stock shall be trans- ferred on the books of the corporation in such manner as the by- laws thereof may direct, and every person becoming a stock- holder by such transfers shall, in proportion to his shares, suc- ceed to all the rights and liabilities of prior stockholders. Under this provision a transfer of stock is valid, not only between the parties, but as against creditors, although not entered upon the books of the company; the provision of the statute requiring the transfer to be made on the books of the company being for the protection of the corporation and purchasers, and not creditors.^* § 193. Louisiana. — In Louisiana it is provided by the code that promissory notes, bills of exchange, bills of lading, stocks, bonds, or written obligations of any kind may be pledged by de- livery of the notes, bills of exchange, bills of lading, stocks, bonds, or other written obligations so pledged ;'° and it is accord- ingly held that shares of stock cannot be pledged, unless they be evidenced by certificates, which must be transferred and delivered to the pledgee.^^ It seems that it is not essential that a note or bill payable to order be indorsed by the payee, if it be delivered, and the pledge be made by notarial act.^* "* Stat. 1909, § 545. son, 33 La. Ann. 1286; Factors' & ""Thurberv. Crump, 86 Ky. 408, 6 Traders' Ins. Co. v. Dry Dock Co., 31 S. W. 145; American Wire Nail Co. La. Ann. 149; Smith v. Slaughter- V. Bayless, 91 Ky. 94, IS S. W. 10. House Co., 30 La. Ann. 1378; Kern And see Bank v. McNeil, 10 Bush v. Day, 45 La. Ann. 71, 12 So. 6; (Ky.) 54; Kenton Ins. Co. v. Bow- Blouin v. Hart, 30 La. Ann. 714; man, 84 Ky. 430, 1 S. W. 717; Ken- Crescent City &c. Mfg. Co. v. De- tucky Nat. Bank v. Avery, 30 Am. blieux, 40 La. Ann. 155, 3 So. 726. L. Rev. 234n. ^Ducasse v. Keyser, 28 La. Ann. ^2 Rev. Civ. Code 1900, art. 3158, 419. The statute law of the state left as amended by Acts 1900, p. 239. this matter in doubt. Casey v. La "Lallande v. Ingram, 19 La. Ann. Societe de Credit Mobilier, 2 Woods 364; Friedlander v. Slaughter-House (U. S.) 77,83. Co., 31 La. Ann. 523; Pitot v. John- 237 CORPORATE STOCKS. § 1 94 The legal title to stocks in corporations whose charters provide that transfers shall, not be valid and effectual until registered upon the books of the corporation, does not pass until such re- quirement is complied with ; but the equitable title passes without such registration.'" But a sale or pledge of the stock of an incor- porated company is complete, even as to third persons, by the de- livery to the vendee or pledgee of the certificates of stock, with a power of attorney to transfer it on the books of the company; and it is not necessary to the perfection of the sale or pledge, or to protect the stock from seizure by the vendor's creditors, or from other rights of third persons arising subsequently to the sale or pledge, that notice thereof should be given to the corporation, or that an actual transfer of the stock be made on the books.*" Even a by-law of a corporation providing that its stock shall not be transferred while the holder is indebted to the corporation does not prevent an effectual pledge by delivery of the certificate.*^ By a recent statute it is provided that title to a certificate and to the shares represented thereby can be transferred by indorse- ment and delivery or by assignment. ''^^ § 194. Maine." — The delivery of a certificate of stock of a corporation to a bona fide purchaser or pledgee for value, to- gether with a written transfer of the same or a written power of attorney to sell, assign and transfer the same, signed by the '"Black V. Zacharie, 3 How. (U. within the power of either party to S.) 483, 11 L. ed. 690. protect himself. The corporation "Blouin V. Hart, 30 La. Ann. 714; when about to permit a debt to be Smith V. Slaughter-House Co., 30 La. contracted by a holder of its stock for Ann. 1378; Factors' & Traders' Ins. which it desires the protection of the Co. V. Dry Dock Co., 31 La. Ann. 149; clause in its charter, may secure the Pitot V. Johnson, 33 La. Ann. 1286; same by requiring the holder to pro- New Orleans Nat. Banking Assn. v. duce his certificates of stock. The Wiltz, 10 Fed. 330; Freidlander v. pledgee, when about to advance on Slaughter-House Co., 31 La. Ann. the pledge and delivery of the certifi- 523; Crescent City &c. Mfg. Co. v. cates, may apply to the corporation Deblieux, 40 La. Ann. 155, 3 So. 726. for information as to the indebted- " Blouin V. Hart, 30 La. Ann.' 714 ; ness of the pledgor to it." Pitot V. Johnson, 33 La. Ann. 1286; "■a Acts 1910, p. 26S. Fenner, J., said: "Practicallyi it lies ""Rev. Stat. 1903, p. 440, § 34. § 195 COLLATERAL SECURITIES. 238 owner of the certificate, shall be a sufficient delivery to transfer the title against all parties. Previous to the statute, a delivery of a certificate of stock, to- gether with an assignment and blank power of attorney from the assignor, did not constitute a transfer effectual against an at- tachment of the stock made by one who had no notice of the transfer, although notice of the transfer had been given to the bank before the attachment. No transfer of stock secured it from attachment, until it was entered upon the books of the corpora- tion in the manner prescribed by the statute.*' § 195. Maryland.** — The stock of any corporation of this state shall be deemed personal estate and shall be transferable on its books in such manner as may be prescribed by the stock cer- tificate or the by-laws, but no share shall be transferable until all previous calls thereon shall have been paid in. An execution or attachment issued or levied on corporate stock shall not affect the right, title, or interest of any bona fide purchaser or pledgee for value without actual notice of such execution or attachment, who shall have received the certificate of stock with a written transfer thereof indorsed thereon (or with a written power of attorney to sell, assign, or transfer the same) , signed by the per- son named as stockholder in such certificate. And such purchaser or pledgee shall have power to name any person as attorney to transfer the shares to him on the books of the corporation; and upon and after the production and delivery of the original certificate to the corporation, he shall be entitled to a new certificate for said shares and the rights of a lawful holder thereof.*' *■ Skowhegan Bank v. Cutler, 49 534, 57 Am. Rep. 336 ; Baltimore &c. Me. 315, 52 Me. 509; Agricultural Brick Co. v. Mali, 65 Md. 93, 3 Atl. Bank v. Burr, 24 Me. 256; Fiske v. 286, 57 Am. Rep. 304; Morton v. Carr, 20 Me. 301. Grafflin, 68 Md. 545, IS Atl. 298; "Laws 1908, p. 39, § 37. Bloede Co. v. Bloede, 84 Md. 129, 34 "Laws 1908, p. 43, § 46; Kerr v. Atl. 1127, 57 Am. St. 373n. These Urie, 86 Md. 72, 37 Atl. 789, 63 Am. cases were decided under the statutes St. 493, 38 L. R. A. 119; Noble v. of 1904, p. 699, § 391, repealed by the Turner, 69 Md. 519, 16 Atl. 124; laws of 1908 above cited. Swift V. Smith, 65 Md. 428, 5 Atl. 239 CORPORATE STOCKS. § 1 96 § 196. Massachusetts.*" — The delivery of a certificate of stock by the person named as the stockholder in such certificate or by a person entrusted by him with its possession for any pur- pose to a bona fide purchaser or pledgee for value, with a written transfer thereof, or with a written power of attorney to sell, as- sign or transfer the ^ame, signed by the person named as the stockholder in such certificate, shall be a sufficient delivery to transfer title as against all persons; but no such transfer shall affect the right of the corporation to pay any dividend due upon the stock, or to treat the holder of record as the holder in fact until it has been recorded upon the books of the corporation, or until a new certificate has been issued to the person to whom it has been so transferred. Such purchaser, upon delivery of the former certificate to the treasurer of the corporation, shall be en- titled to receive a new certificate. Stock shall not be transferred upon the books of the corporation if any instalments thereon re- main overdue and unpaid. A pledgee of stock transferred as col- lateral security shall be entitled to a new certificate if the instru- ment of transfer substantially describes the debt or duty which is intended to be secured thereby. Such new certificate shall ex- press on its face that it is held as collateral security, and the name of the pledgor shall be stated thereon, who alone shall be liable as a stockholder and entitled to vote thereon. A power of attorney signed in blank is a sufficient assignment of a stock certificate. Such a power may be filled up by the person to whom the certificate and power of attorney are delivered.*' A previous statute,*' in force from 1881 to 1884, provided that no sale, assignment, or transfer of stock in a corporation shall "Mass. Supp. Rev. Laws 1908, p. business interests that it was super- 873, § 1 ; p. 884, § 28 ; p. 970, § 41 ; p. seded by the present statute in 1884. 884, § 29; p. 1023, § 22. For decisions under the former stat- " Andrews V. Worcester &c. R. Co., utes, see Newell v. Williston, 138 159 Mass. 64, 33 N.. E. 1109; Taft v. Mass. 240; Boyd v. Rockport Steam Church, 162 Mass. 527, 39 N. E. 283. Cotton Mills, 7 Gray (Mass.) 406; "P. S. 1882, ch. 105, § 24, and ch. Rock v. Nichols, 3 Allen (Mass.) 342; 106, § 30; Act of 1881, ch. 302, I 1. Central Nat. Bank v. Williston, 138 This statute was in such conflict with Mass. 244. § 196 COLLATERAL SECURITIES. 24O affect the right of the corporation to pay any dividend due upon the same, or affect the title or rights of an attaching creditor, un- til it is recorded upon the books of the corporation or a new cer- tificate is issued to the person to whom it has been transferred; but no attachment of such stock as the property of the vendor, made after such sale, assignment, or transfer, shall defeat the title or affect the rights of the vendee, if such record is made or a new certificate issued within ten days after such transfer is made. Previous to the enactment of this statute of 1881 it had been determined by the Supreme Court of the state that a sale of stock in a corporation is valid against a subsequent attaching creditor of the seller, although no transfer of stock is made. on the books of the corporation, in the absence of an express provision of stat- ute, or of the charter of the corporation, requiring such transfer to be made." When, however, the charter of a corporation, and not merely its by-laws, provided that its shares should be transferable only at its banking-house and on its books, it has been held that the mode of transfer pointed out by the company's charter was the only mode of passing the legal title to its shares, or of transfer- ring the attachable interest in it.^" It is to be observed, however, " Boston Music Hall v. Cory, 129 particular act would constitute such a Mass. 435; Dickinson v. Central Nat. transfer, whether it must be actually Bank, 129 Mass. 279, 37 Am. Rep. entered on the books, or whether the 35 In. See § 160. delivery of the certificate by the ™ Fisher v. Essex Bank, 5 Gray holder ready to transfer, or with a (Mass.) 373, 381. One of the ques- written transfer executed, so that tions discussed in this case was what nothing remains but the mere execu- effects a change of legal title, — tive act of the clerk, is sufficient. In whether it occurs when the instru- either case, it would show who is at ment of transfer is received for record any time the actual owner by the by the clerk of the corporation, which books, and inform a creditor, or other seems to have been the view taken in person having occasion to know and Brown v. Adams, 5 Biss. (U. S.) 181, right to inquire. It is necessary to or whether this occurs only when an fix some act, and some point of time assignment has actually been made at which the property changes and upon the company's books. Chief vests in the vendee; and it will tend Justice Shaw, upon this point, said : to the security of all parties concerned "I do not stop to ask precisely what to make that turning point consist in 241 CORPORATE STOCKS. § 197 that this decision turns upon the language of the charter of the corporation which in Massachusetts is regarded as a pubhc act. In an earlier case in this state, where the by-laws of a corpora- tion required all transfers of shares to be made on the books of the company by the treasurer, it was held that an assignment by deed, accompanied by a delivery of the shares, was valid without a transfer on the books of the company, not only js between the parties, but as against the creditor of the vendor who attached the shares before any notice of the sale had been given to himself or to the treasurer of the company. ^^ And in a later case in this state this distinction between a requirement of the charter and a re- quirement of the by-laws of a corporation is adopted ; and it was held that a pledge of its stock by delivery of the certificate with a power of attorney authorizing the pledgee to transfer it, was good as against the pledgor's assignee in bankruptcy, although the by-laws of the corporation provided that its stock should be assignable only on its books.°^ § 197. Michigan.^^ — Whenever the capital stock of any corporation is divided into shares, and certificates thereof are is- sued, such shares may be transferred by indorsement and delivery of the certificate thereof, such indorsement being by the signature of the proprietor, or his attorney or legal representative; but such transfer shall not be valid, except between the parties there- to, until the same shall have been so entered on the books of the corporation as tO show the names of the parties by and to whom an act which, whilst it may be easily (Mass.) 202; Sargent v. Franklin Ins. proved, does at the same time give Co., 8 Pick. (Mass.) 90, 19 Am. Dec. notoriety to the transfer. It would 306. seem to us to be going beyond the "'' Dickinson v. Central Nat. Bank, rules of just exposition, to hold that a 129 Mass. 279, 37 Am. Rep. 3Sln. See plain provision of statute laws, calcu- also Sibley v. Quinsigamond Nat. lated to promote the security of im- Bank, 133 Mass. 515. portant legal rights of parties in im^ "3 Compiled Laws 1897, § 8533, as portant particulars, should be con- amended; Pub. Acts 1905, p. 495 strued to be a regulation made for the [No. 317]. See also Mich. Pub. Acts convenience and protection of banks." 1903, p. m, § 27. Also Acts 1903, p "Sargent v. Essex R. Co., 9 Pick. 375, § 16. 16 — CoL. Sec. § 198 COLLATERAL SECURITIES. 242 transferred, the number and designation of the shares, and the date of the transfer. This provision is declared to be for the protection of parties having equities. It is accordingly held that a judgment creditor buying at an execution sale with knowledge of a prior transfer of the stock by the debtor, whether such transfer be recorded or not, obtains no better title than his debtor had. A transfer by in- dorsement and delivery is valid. The entry upon the company's books is necessary only for the benefit and security of the com- pany and not to the validity of the holder's title. Such transfer is valid against creditors of the registered holder of the stock, if, before sale by the sheriff upon execution, the purchaser at such sale has notice of the unregistered transfer.^* Shares of stock are deemed personal property and shall be transferred only on the books of the corporation in such manner as their by-laws shall prescribe.^^ § 198. Minnesota/" — The transfer of shares is not valid except as between the parties thereto, until it is regularly entered on the books of the company, so far as to show the names of the persons, by and to whom transferred, the number or other desig- nation of the shares, and the date of the transfer; but such trans- fer shall not in any way exempt the person making such transfer from any liabilities of said corporation which were created prior to such transfer. The books of the company shall be so kept as to show intelligibly the original stockholders, their respective in- terests, the amount which has been paid in on their shares, and all transfers thereof, and such books, or a correct copy thereof, so far as the items mentioned in this section are concerned, shall be subject to the inspection of any person desiring the same. A pledgee of stock transferred as collateral security shall be entitled to a new certificate, if the instrument of transfer substan- " Newbury v. Detroit &c. Iron Mfg. W. 358; McLean v. Charles Wright Co., 17 Mich. 141 ; Walker v. Detroit Medicine Co., 96 Mich. 479, 56 N. W. &c. R. Co., 47 Mich. 338, 11 N. W. 68; May v. Cleland, 117 Mich. 45, 75 187 ; Mandlebaum v. North American N. W. 129, 44 L. R. A. 163. Mining Co., 4 Mich. 465. See Lyon '"2 Comp. Laws 1897, §§ 6168, 6169. V. Denison, 80 Mich. 371, 379, 45 N. " Rev. Laws 1905, §§ 2863, 2864. 243 CORPORATE STOCKS. § 1 99 tially describe the debt intended to be secured thereby. Such new certificate shall state on its face that it is held as collateral secur- ity, and the name of the pledgor, who alone shall be liable as a stockholder and entitled to vote thereon. A statutory provision that stock of a corporation shall be trans- ferable only on the books of the corporation, in such form as the directors may prescribe, is held to be intended solely for the pro- tection and benefit of the corporation. It does not incapacitate a shareholder from transferring his stock, in pledge or otherwise, without any entry upon the corporation books. Except as against the corporation, the owner and holder of shares of stock may, as an incident of his right of property, transfer them in the same way that he may transfer any other personal property of which he is owner." A transfer not entered upon the books of the cor- poration takes precedence of a subsequent attachment by a cred- itor of the holder of record."^ § 199. Mississippi. ^° — Stock in all corporations shall be transferable by the indorsement and delivery of the stock, cer- tificate and the registry of such transfer in the books of the cor- poration. Under this statute it is held that an equitable transferee by transfer of the certificate without an entry upon the books is pre- ferred to an attaching creditor."" §200. Missouri." — In Missouri it is provided: the stock of every company formed under this article shall be deemed per- sonal estate, and shall be transferable in the manner prescribed by the by-laws of the company; but no shares shall be transferred until all previous calls thereon shall have been fully paid in. It is held that inasmuch as the statute does not restrict the " Baldwin v. Canfield, 26 Minn. 43, ™ Code 1906, § 909. IN. W. 261. «° Clark v. German Security Bank, ""Lund V. Wheaton &c. Mill Co., SO 61 Miss. 611; Goyer &c. Storage Co. Minn. 36, 52 N. W. 268, 36 Am. St. v. Wildberger, 71 Miss. 438, IS So. 623; Nolan v. Hazen, 44 MinA. 478, 23S. 47 N. W. ISS; Joslyn v. St. Paul &c. °M Rev. Stat. 1909, § 2984. Co., 44 Minn. 183, 46 N. W. 337. § 20I COLLATERAL SECURITIES. 244 transfer of stock to a particular mode, a transfer by delivery of a certificate with a power to transfer, is sufficient, not only as between the parties themselves, but also as against creditors of the assignor who have seized the shares after such transfer, and before the transfer has been entered upon the books of the cor- poration.®'' § 201. Montana."' — The delivery of a stock certificate of a corporation to a bona fide purchaser or pledgee for value, to- gether with a written transfer of the same, or a written power of attorney to sell, assign and transfer the same, signed by the owner of the certificate, shall be a sufficient delivery to transfer the title as against the creditors of the transferrer and subsequent purchaser; but no such transfer shall afifect the right of the cor- poration to pay any dividend due upon the stock, or to treat the holder of record as the holder in fact, until such transfer is re- corded upon the books of the corporation, or a new certificate is issued to the person to whom it has been so transferred. No transfer of mining stock shall be made except upon surrender and cancelation so to be transferred and all bearer certificates shall be delivered to and be receipted for on the books of the company by the stockholder or his agent at whose request such transfers shall be made. Certificates of stock to bearer may be issued by corporations organized in whole or in part for mining purposes with capital stock non-assessable and full paid. These may be converted into registered certificates upon the surrender of the bearer's cer- tificate." § 202. New Hampshire."^ — Shares of stock may be trans- ferred by the proprietor by a writing upon the back of the cer- "'McClintock v. Central Bank, 120 ""11 Civ. Code 189S, § 472, as Mo. 127, 24 S. W. 1052; Merchants' amended by Laws 1907, p. 371, § 472; Nat. Bank v. Richards, 74 Mo. 11, Laws 1897, p. 69. affirming 6 Mo. App. 454 ; Simmons v. °* Laws 1897, p. 69. Hill, 96 Mo. 679, 10 S. W. 61, 2 L. R. " P. S. 1901, ch. 149, §§ 13, 14, 15. A. 476. 245 CORPORATE STOCKS. § 202 tificate by him signed, or by a deed under seal ; and the purchaser, upon producing and surrendering the former certificate so trans- ferred or the certificate accompanied by such deed, shall be en- titled to a new certificate if no liens upon the stock against the former proprietor have attached. The delivery of a stock certificate to a bona fide purchaser or pledgee for value, together with a written transfer or a deed of the same, or a power of attorney to sell, assign, and transfer the same, signed by the owner of the certificate, shall be a sufficient delivery to transfer the title as against all parties except the cor- poration; but no such transfer shall affect the right of the cor- poration to treat the stockholder of record as the stockholder in fact, until the old certificate is surrendered and a new certificate is issued to the person entitled thereto. No corporation shall make any by-law to restrain the free sale of shares of its stock ; every such by-law shall be void. No person holding stock as executor, administrator, guardian or trustee, and no person holding stock as collateral security,, shall be thereby personally subject to any liabilities as a stockhold- er ; but the person pledging the stock shall be so liable, and the es- tate and funds in the hands of such executor, administrator, guardian or trustee shall be liable to the same extent as a holder thereof in his own right would be liable.*" In this state it was formerly held that a transfer upon the books of the corporation is requisite to make a pledge of \ stock effectual against creditors of the pledgor, although there be noth-. ing either in the charter or by-laws of the corporation prescrib- ing or regulating the mode of making a transfer." " P. S. 1891, ch. ISO, § 20. transferred by a simple delivery of "Pinkerton v. Manchester & Law- the evidence of indebtedness, with an rence R. Co., 42 N. H. 424, 1 Am. L. indorsement thereon, in certain cases ; Reg. (N. S.) 96, and note by Red- but it will be observed that, in these field. The certificates issued by the cases, all such changes in the indica- corporation were expressed to be tions of ownership as the nature of transferable by assignment on the the case will admit, are required. If, books of the corporation. "We are therefore, upon the transfer of a bond aware," says the court rendering this or bill of exchange, it be retained by decision, "that choses in action may be the assignor, a subsequent purchaser. § 202 COLLATERAL SECURITIES. 246 A transfer agent is sometimes appointed to act at a distance from the office of the corporation in which its records are kept. He may have' authority to receive old certificates- and issue new ones; but the transfer is not ordinarily complete till he has sent proper evidence of it to the keeper of the stock record at the home office of the corporation. If such evidence be transmitted by the earliest mail, it would seem that the transfer would be effectual though an attachment had intervened. But if a cred- itor taking stock as collateral security do not use due diligence in obtaining a proper transfer of the stock, an intervening attach- ment. will take precedence.^* "It seems too clear for argument," say the Supreme Court,"" "that the ownership of the shares passes from the seller to the buyer by force of the contract of sale, and not by operation of law ; and if that be so, the buyer's title, so far as the seller is concerned, attaches the moment this contract is fully consummated between them. "This kind of property, being an intangible right, somewhat akin to the right to receive money due upon a bond or other chose in action, is incapable of actual manual delivery. All the seller can do, that corresponds at all to the delivery of personal chattels in other cases of sale, is, to hand over to the buyer his certificate, with a sufficient assignment by deed or otherwise to entitle him to a transfer of the shares on the books of the com- pany. When the seller has done this, his power and duty in the matter are ended and it is the option of the purchaser whether the transfer shall be recorded or not. If the purchaser omits to without notice, would acquire a good credit, and to deceive both creditors title. Indeed, it may be laid down and purchasers." See also Scripture as a general principle governing the v. Soapstone Co., 50 N. H. 571 ; But- transfer of every species of personal trick v. Nashua & L. R. Co., 62 N. H. property, that, to be good against in- 413, 13 Am. St. 578; Meredith &c. nocent third persons, such transfer Sav. Bank v. Marshall, 68 N. H. 417, must be accompanied with such 44 Atl. 526. change of possession and indications "* Pinkerton v. Manchester & Law- of ownership as the nature of the rence R. Co., 42 N. H. 424. thing is capable of ; otherwise the °° Scripture v. Soapstone Co., SO N. seller is enabled, by means of an ap- H. 571. parent ownership, to obtain a fictitious 247 CORPORATE STOCKS. § 2O3 have the record made, he can claim no rights as a member of the corporation ; and he also incurs the further risk of having his title defeated by a subsequent attachment or sale to a bona fide purchaser." § 203. Nevada.^" — Whenever the capital stock of any cor- poration is divided into shares, and certificates thereof are issued, the stock of the company shall be deemed personal estate. Such shares may be transferred by indorsement and delivery of the certificate thereof, such indorsement being by the signature of the proprietor, or his or her attorney, or legal representative; but such transfer shall not be valid, except betw^een the parties thereto, until the same shall have been so entered upon the books of the corporation as to show the names of the parties by and to whom transferred, the number or designation of the shares, and the date of the transfer, and the old certificate surrendered and canceled which must be done in all cases, except in case of loss or destruction of the original, before a new one is issued. In all cases in which shares of stock in corporations now exist- ing, or hereafter incorporated under any law of this state, are held or owned by a married woman, such shares may be trans- ferred by her, her agent or attorney, without the sigiiature of her husband, in the same manner as if such married woman were a feme sole. All dividends payable upon any shares of stock of a corporation held by a married woman may be paid to such married woman, her agent, or attorney, ^n the same manner as if she were unmarried. And it shall not be necessary for her husband to join in receipt therefor; and any proxy or power given by a married woman, touching any share of stock of any corporation owned by her shall be valid and be binding, without the signature of her husband, the same as if she were unmar- ried. Any stockholder may pledge his stock, by a delivery of the certificates, or other evidence of his interest, but may nevertheless represent the same at all meetings and vote as a stockholder. "Comp. Laws 1900, §§ 874, 875; cich v. Marye, 9 Nev. 312 ; Stats. 1903, State V. Pettineli, 10 Nev. 141; Ber- p. 131, § 27. § 204 COLLATERAL SECURITIES. 248 §204, New Jersey/^ — The shares of stock in every cor- poration shall be deemed personal property, and shall be trans- ferable on the books of the corporation in such manner as the by-laws provide; and whenever any transfer of shares shall be made for collateral security, and not absolutely and under such regulations, it shall be so expressed in the entry of the transfer. In this state it is held that shares in a corporation, whose char- ter provides that the capital stock of the company shall be deemed personal estate, and "be transferable upon the books of the cor- poration," can be effectually transferred as collateral security for a debt, as against a creditor of the pledgor, who afterward attaches them without notice of any transfer, by a delivery of a certificate with a blank power of attorney, or with an assignment in blank." Upon the policy of so construing this provision. Chan- cellor Green, of New Jersey, says :'' "The pledge of stock as collateral security has become a prevalent, and to the borrower, especially, an advantageous mode of effecting loans. In manu- facturing companies especially, where the business of the com- pany is carried on by the stockholder, and where his capital is mainly or exclusively vested in the stock, and employed in the active operations of business, the pledge of stocks aflfords the most ready and advantageous mode of efifecting loans for the demands of business. To require a transfer of the stock to the lender as security for the loan against the right of attaching or execution creditors will at once destroy the value of the security, or compel the borrower* to divest himself of his character as cor- porator to forfeit his control of the business of the corporation, of his right to dividends, and of all his other rights as a stockholder in the corporation. Why should the owner of stocks be deprived of the privilege of mortgaging or pledging his stock for the se- curity of a loan, without stripping himself of all his rights of ownership, more than the owner of any other property?" "2 Comp. Stat. 1910, p. 1610, § 20. ree, 17 N. J. Eq. 117; Rogers v. New " Broadway Bank v. McElrath, 13 Jersey Ins. Co., 8 N. J. Eq. 167. N. J. Eq. 24; Hunterdon Co. Bank v. "Broadway Bank v. McElrath, 13 Nassau Bank, 17 N. J. Eq. 496; N. J. Eq. 24. Mount Holly L. & M. T. Co. v. Per- 249 CORPORATE STOCKS. § 205 §205. New Mexico.'* — The stock of the company shall be deemed* personal estate and shall be transferable in such man- ner as shall be prescribed by the by-laws of the company, but no transfer shall be valid, except between the parties thereto, until the same shall be so entered on the books of the company, as to show the names of the parties by and to whom transferred, the number and designation of the shares, and the date of the transfer. Whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer." § 206. New York. — In New York it is held that a provi- sion in a certificate of stock, though in accordance with the by- laws of the corporation, that the shares are transferable only upon the books of the company, means that the company will not recognize any one as owner of the stock, unless it be so trans- ferred; but that it does not affect the rights which another per- son may acquire as against the stockholder, by the delivery of the certificate in pledge.'" A transfer by delivery of the cer- tificate is nevertheless valid against an attaching creditor of the pledgor, when the attachment is made after such transfer, but "Comp. Laws 1897, §§ 424, 427. 48 N. Y. 585, 587, 606 ; Hill v. Newich- See Lyndonville Nat. Bank v. Folsom, awanick Co., 48 How. Pr. (N. Y.) 7 N. M. 611, 38 Pac. 253. 427; DriscoU v. West &c. Manufac- "Laws 1905, ch. 79, § 21. turing Co., 36 N. Y. Super. Ct. 488; "McNeil V. Tenth Nat. Bank, 46 De Comeau &c. Oil Co., 3 Daly N. Y. 325, 7 Am. Rep. 341; Smith v. (N. Y.) 218; Cutting v. Damerel, 88 American Coal Co., 7 Lans. (N. Y.) N. Y. 410; Robinson v. National 317; New York &c. R. Co. v. Bank, 95 N. Y. 637. Under a con- Schuyler, 34 N. Y. 30; Bank of Utica tract to deliver stock, a tender of a V. Sraalley, 2 Cow. (N. Y.) 770, 14 certificate with a blank power to Am. Dec. S26n; Commercial Bank v. transfer is sufficient without an ac- Kortright, 22 Wend. (N. Y.) 348, 34 tual transfer to the name of the pur- Am. Dec. 317, 20 Cow. (N. Y.) 91 ; chaser. Orr v. Bigelow, 20 Barb. (N. Holbrook v. New Jersey Zinc Co., 57 Y.) 21 ; Munn v. Barnum, 24 Barb. N. Y. 616, 623; Weaver v. Barden, 49 (N. Y.) 283; Driscoll v. West &c. N. Y. 286; Grymes v. Hone, 49 N. Y. Manufacturing Co., 36 N. Y. Super. 17, 10 Am. Rep. 313; Leitch v. Wells, Ct. 488, 59 N. Y. 96. § 206 COLLATERAL SECURITIES. 2^0 before there has been any transfer made on the books of the company." "It has also been settled by repeated adjudications that, as between the parties, the delivery of the certificate, with assign- ment and power indorsed, passes the entire title; legal and equi- table, in the shares, notwithstanding that by the terms of the charter or by-laws of the. corporation the stock is declared to be transferable only on its books ; that such provisions are intended solely for the protection of the corporation, and can be waived or asserted at his pleasure, and that no efifect is given to them except for the protection of the corporation; that they do not incapacitate the shareholder from parting with his interest, and that his assignment, not on the books, passes the entire legal title of the stock, subject only to such liens or claims as the corpora- tion may have upon it and excepting the right of voting at elec- tions."" No transfer of stock shall be valid as against the corporation, its stockholders and creditors for any purpose except to render the transferee liable for the debts of the corporation to the ex- tent provided for by law, until it shall have been entered on the books of the corporation, by an entry showing from and to whom transferred and the stock book and books of account of every bank shall be presumptive evidence of the facts therein stated in favor of the plaintiff against said corporation or any of its of- ficers, directors or officers and every such corporation refusing " Smith V. American Coal Co., 7 in the stock of a corporation. If, pre- Lans. (N. Y.) 317; De Comeau v. vious to the issuing of the attachment, Guild Farm Oil Co., 3 Daly (N. Y.) the defendant has assigned all his in- 218. By § 647 of Code of Civil Pro- terest in the rights or shares, and de- cedure 1880, and § 234 of the previous livered over the certificate with trans- Code, it is provided that the rights or fer and power, it is thenceforth the shares which a defendant may have in holder of these indicia oi title who is the stock of any corporation shall be possessed of the property in the liable to be attached and levied upon, shares, and not the original stock- and sold to satisfy the judgment and holder." Smith v. American Coal execution. "But this provision of law Co., 7 Lans. (N. Y.) 317. cannot aid an attachment against a " McNeil v. Tenth Nat. Bank, 46 defendant who has no rights or shares N. Y. 325, 331, 7 Am. Rep. 341. 251 CORPORATE STOCKS. § 20/ or neglecting to keep such books or to keep them open to inspec- tion shall forfeit to the people fifty dollars for each day of such neglect, and the officers of any such corporation are subject to a forfeiture in the sum of fifty dollars for failure to keep or ex- hibit such books and are made liable for damages resulting from such failure.''' § 207. North Carolina.*" — The shares of stock in every corporation shall be personal property, and shall be transferable on the books of the corporation in such manner and under such regulations as the by-laws provide; and whenever any transfer of shares shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer. § 207a. North Dakota." — Whenever the capital stock of any corporation is divided into shares, and certificates thereof are issued, such shares of stock are personal property and may be transferred by indorsement by the signature of the proprietor or his attorney or legal representative, and delivery of the cer- tificate; but such transfer is not valid except between the par- ties thereto, until the same is so entered upon the books of the corporation as to show the names of the parties by and to whom transferred, the number or designation of the shares and the date of the transfer. § 208. Ohio.'^ — It is provided by statute that shares of stock in any company shall be personal property, and when fully paid up shall be subject to levy and sale upon execution against the owner. It seems that a pledge by delivery of the certificate is effectual, though the certificate, in accordance with a by-law and with the articles of association of the corporation, is expressly made "transferable only on the books of the bank, in person or by at- torney."*^ "Laws 1909, p. 5758, § 32. ^Rev. Code 1905, § 4194. ™1 Revisal of 190S, § 1168. See '^2 Gen. Code 1910, § 8682. Morehead v. Western N. C. R. Co., ==Lee v. Citizens' Nat. Bank, 2 96 N. Car. 362, 2 S. E. 247. Super. Ct. 298. § 208a COLLATERAL SECURITIES. 252 The interest of a stockholder in the property of a private cor- poration represented by certificates of shares registered in his name, may be reached by garnishee process served upon the corporation. Where, prior to the service of such process, the shareholder has pledged the certificates as security for a debt, and has delivered them to the pledgee, with an absolute power of sale and transfer upon the books of the corporation, indorsed thereon, upon default of payment of the debt thereby secured, the attachment reaches only the surplus after payment of the debt to the pledgee. If, after this interest in the corporation has been thus attached, the pledgee does not exercise the power of sale and transfer vested in him, and the stock remains in the name of the pledgor on the books of the corporation, the court may, proper parties being before it, order the sale of the stock, ascer- tain such surplus and order its application to the satisfaction of the judgment in attachment. Such an attachment has precedence over a later one when it is sought to reach this surplus, by gar- nishee process served upon the pledgee, who has never exercised the power of sale and transfer.** § 208a. Oklahoma.*^ — Whenever the capital stock of any corporation is divided into shares, and certificates therefor are issued, such shares of stock are personal property, and may be transferred by indorsement by the signature of the proprietor, or his attorney or legal representative, and delivery of the cer- tificate ; but such transfer is not valid except between the parties thereto, until the same is so entered upon the books of the cor- poration as to show the names of the parties by and to whom transferred, the number or designation of the shares, and the date of the transfer. No shares are transferable until all previous calls thereon shall have been fully paid. § 209. Pennsylvania. '° — The title to a certiticate and to the shares represented hereby can be transferred only — "Norton v. Norton, 43 Ohio St. "Laws 1911, p. 126, § 1 (a), (b), 509, 3 N. E. 348. § 4. ""Comp. Laws 1909, §§ 1284, 1346. 253 CORPORATE STOCKS. ' § 2O9 (a) By delivery of the certificate, indorsed either in blank or to a specified person, by the person appearing by the certificate to be the owner of the shares represented thereby, or (b) By a delivery of the certificate and a separate document containing a written assignment of the certificate or a power of attorney to sell, assign, or transfer the same or the shares rep- resented thereby, signed by the person appearing by the cerr tificate to be the owner of the shares represented thereby. Such assignment or power of attorney may be either in blank or to a specified person. The provisions of this section shall be applicable although the charter or articles of incorporation, or code of regulations or by-laws, of the corporation issuing the certificate, and the cer- tificate itself, provide that the shares represented thereby shall be transferable only on the books of the corporation, or shall be registered by a registrar, or transferred by a transfer agent. The title of a transferee of a certificate under a power of attorney or assignment not written upon the certificate, and the title of any person claiming under such transferee, shall cease and determine if, at any time prior to the surrender of the cer- tificate to the corporation issuing it, another person, for value in good faith, and without notice of the prior transfer, shall pur- chase and obtain delivery of such certificate and the written as- signment or power of attorney of such person, though contained in a separate document. A substantial compliance with a by-law requiring a transfer of stock to be made on the books of the company, and attested by the secretary, is all that is necessary. Thus, when a stock- holder empowered the secretary of the company to transfer cer- tain shares, and the secretary, in pursuance of such power, en- tered on the books that the stock was transferred, adding "see paper filed," and wafered the power of attorney to the book and attested the entry of transfer as secretary, the transfer was held to be good, although the secretary signed no transfer as attorney under the power." "The practice was to permit the " Chambersburg Ins. Co. v. Smith, 11 Pa. St. 120, 125. § 209 » COLLATERAL SECURITIES. 254 transfers in the presence of the secretary, who attested them. Everything was done which the by-laws and usage of the com- pany required, except that he did not sign the transfer twice over, as attorney, and then attest his own signature as secretary. But he no doubt thought that attaching the sign manual of the holder, appehded to the authority or power, to the books and en- try, was higher evidence of the transfer than his own signature would be. The law looks more to the substance of things than to the mere form." In this state an attachment of stock is made in the manner of a proceeding against a trustee or garnishee in a foreign at- tachment, and it is held that an assignment of stock- by delivery of the certificate with a power to transfer, conveys the real own- ership of the stock, so that an attachment afterward made of the stock, as the property of the assignor, before a transfer is made upon the books of the corporation, is ineffectual.*^ The assignee in such case is the equitable owner, or the real owner, and must be treated as such when known, by all the world, ex- cepting the corporation itself, which, for certain purposes, may refuse to do so. The effect of such an assignment of stock is the same as that of an assignment of a chose in action prior to the service of a trustee or garnishee process upon the supposed trustee ; although the trustee may then have had no notice of the assignment, this will prevail against the subsequent attachment. In one case it appeared that the Duchess of Cumberland bought at London, in 1794, ten shares of the Bank of the United States, and received therefor a certificate with a blank power ''Finney's Appeal, 59 Pa. St. 398; operation of a foreign attachment in- Eby V. Guest, 94 Pa. St. 160 ; Telford stituted against the party, whose name & F. Turnpike Co. v. Gerhab (Pa.), must necessarily be used at law for 13 Atl. 90; Commonwealth v. Wat- the recovery of the demand; and that mough, 6 Whart. (Pa.) 117; United an attaching creditor can stand on no States V. Vaughan, 3 Binn. (Pa.) 394, better footing than his debtor." And 5 Am. Dec. 375. In the latter case see Early & Lane's App., 89 Pa. St. Yeates, J., said : "It can not be de- 411 ; Bank of Commerce's Appeal, 73 nied, that a mere chose in action, equi- Pa. St. 59. tably assigned, is not subject to the 255 CORPORATE STOCKS. § 2IO to transfer.*" She held the certificate and power until 1804. In 1803 the United States attached the stock, which still stood in the seller's name, for a debt due from him. It was proved, under objection, that it had been the course of business in relation to the sale of this stock in England, for the vendor to deliver the certificates to the vendee, together with a power of attorney from him in whose name the stock stood, to a third person, usually an assistant cashier of the bank, authorizing him to transfer the same to some person not named, and that by the delivery of the certificate and the blank power of attorney, the shares passed from hand to hand, the blank never being filled up until it was forwarded to the United States for transfer. It was held that the purchaser's title was superior to that of the attaching cred- itor."" § 210. Rhode Island."^ — The shares into wh'ich the capi- tal stock of any corporation shall be divided shall be deemed to be personal estate, unless otherwise provided in the act creating the corporation, and shall be transferable in such manner as shall be prescribed by the by-laws of the corporation. The delivery of a certificate of stock of a corporation, trans- ferable only on the books of the corporation on surrender of the certificate, to a bona fide purchaser or pledgee for value, to- gether with a written transfer of the same or a written power of attorney to sell, assign, and transfer the same, signed by the owner of the certificate, shall be a sufficient delivery to transfer the title against all parties ; but no such transfer shall affect the right of the corporation to pay any dividend due upon the stock, or to treat the holder of record as the holder in fact, until such transfer is recorded, or presented for record, upon the books of the corporation, or a new certificate is issued to the person to whom it has been so transferred.*^ ■" An assignment of the stock of a him. Eby v. Guest, 94 Pa. St. 160. corporation to itself, as collateral se- ■" United States v. Vaughan, 3 Binn. curity for a loan, divests the title of (Pa.) 394, S Am. Dec. 27S. the assignor so far as to prevent a ™ Gen. Laws 1909, ch. 213, § 2. sale of it under a fieri facias against »'Gen. Laws 1909, ch. 213, § 20. § 2IO COLLATERAL SECURITIES. 256 In one case in this state" it appeared that a person own- ing certain corporate shares, transferred them on the books of the corporation as collateral for a loan which he had negotiated for. The arrangements for the loan having fallen through, the person in whose name the certificate had been taken out, at the request of the owner of the shares, indorsed and transferred the certificate of stock to a creditor of the owner. Before "a transfer was made on the books of the corporation to this creditor, the shares were attached by another creditor. The charter of the corporation contained no provision as to the transfer of stock, but the by-laws provided that "all transfers of stock shall be made in the books of the company." On a bill in equity brought to establish the lien of the attachment, it was held that, in the ab- sence of any fraudulent intent on the part of the debtor in the transfer of the stock, the attachment could not be sustained. Chief Justice Durfee, delivering the opinion of the court, said : "Where the legal and the equitable titles unite in the same person, it is well settled that such a transfer carries at least the. equitable title, even when, by statute, charter or by-law, the stock is de- clared to be transferable only on the corporation books."* In the case at bar, however, the legal title was in one person and the equi- table in another, and the question is, what, in such a case, is the effect of such a transfer. It may be that in such a case the equita- ble title would not always pass; as, for instance, if the transfer were made by the legal owner to pay a debt of his without the consent of the equitable owner. But we have no case like that here. Here the transfer was made not in violation of the trust, but in fulfilment of it. It was made under the direction of the equitable owner to secure or pay pro tanto his debt, and when "Beckwith v. Burrough, 13 R. I. Vaughan, 3 Binn. (Pa.) 394; Grymes 294; Lippitt v. American Wood Pa- v. Hone, 49 N. Y. 17, 10 Am. Rep. 313; per Co., 15 R. I. 141, 23 Atl. Ill, 2 Black v. Zacharie, 3 How. (U. S.) Am. St. 886. 483, 11 L. ed. 690; Parrott v. Byers, "Lockwood V. Mechanics' National 40 Cal. 614; Blouin v. Hart, 30 La. Bank, 9 R. I. 308, 331, 11 Am. Rep. Ann. 714; Bank of America v. Mc- 253; Broadway Bank v. McElrath, 13 Neil, 10 Bush (Ky.) 54. N. J. Eq. 24; United States v. 257 CORPORATE STOCKS. § 211 made was delivered by him personally to the transferee. We think the equitable title must be held to have passed. An equita- ble assignment may be made without deed or writing, by any act intended to operate as such, a delivery of the evidences of title being particularly significant of such an intent. * * * Without deciding, therefore, whether an unrecorded transfer would avail against an attaching creditor where the stock stood in the name of the debtor, we decide, for the reasons above given, that the complainant has not, independently of his charges of fraud, made out a case which entitles him to relief." §211. South Carolina.®^ — The shares in the capital stock of such corporations shall be deemed personal estate, except in the case of manufacturing companies, the stock in which shall be deemed realty, and the mode of issuing the evidence of stock, and the manner, terms, and conditions of assigning and transfer- ring shares, shall be prescribed by the by-laws of each corpora- tion. §211a. South Dakota.'" — Whenever the capital stock of any corporation is divided into shares, and certificates therefor are issued, such shares of stock are personal property, and may be transferred by indorsement by the signature of the proprietor, or his attorney or legal representative, and delivery of the cer- tificate; but such transfer is not valid except between the parties thereto, until the same is so entered upon the books of the corpo- ration as to show the names of the parties by and to whom trans- ferred, the number or designation of the shares, and the date of the transfer. § 212, Tennessee. — According to the earlier decisions in this state, the title of one taking certificates of stock as collateral "1 Code 1902, § 1843 (D), as fer of the legal title, and not to an amended by Acts 1905, p. 843, § 1843 equitable lien. ' A transfer on the '^)- books is not essential to validity of " Rev. Civ. Code 1903, § 423, as pledge of stock in a corporation. Van amended by Sess. Laws 1907, p. 154, Cise v. Merchants' Nat. Bank, 4 Dak. § 423. The statute relates to trans- 485, 33 N. W. 897. 17 — Col. Sec. § 213 COLLATERAL SECURITIES. 258 security was not regarded as complete against the owner's credit- ors until notice of the transfer had been given the corporation. If, before such notice was given, such creditor attached the stock, or levied execution upon it, he had the better right to it.*^ This rule was based upon .the English doctrine, that notice is neces- sary to perfect an assignment of any chose in action f^ and the policy of the rule, as applied to transfers of stock, was regarded as obvious, because it afforded a ready means of ascertaining the title to stock, and of preventing the setting up of fraudulent claims under secret transfers of certificates. By giving such notice to the company, the assignee acquired an equity superior to the right of a subsequently attaching creditor, although there be a valid by-law that stock is transferable only on the books of the company."® But it is now held that an assignment of a certificate of stock with a blank power of attorney to make the transfer upon the books of the corporation passes a complete legal title, and is ef- fectual against the assignor's creditors without any registry upon the books of the corporation, and without notice to it of the assignment.^ § 213. Texas.^ — The stock of any corporation created in this state shall be deemed personal estate, and shall be transfer- able only on the books of the corporation in such manner as the by-laws may prescribe. In the absence of a charter or statutory provision requiring a transfer of stock on the books of the company, as between the shareholder and his assignee, to pass title as against a credit- or, the interest of the creditor is regarded as subordinate to that " State Ins. Co. v. Sax, 2 Tenn. Ch. "" State Ins. Co. v. Gennett, 2 Tenn. 507; Clodfelter v. Cox, 1 Sneed Ch. 100. (Tenn.) 330, 60 Am. Dec. 157; and 'Parker v. Bethel Hotel Co., 96 see dissenting opinions of McFarland Tenn. 252, 34 S. W. 209; State Ins. and Cooper, JJ., in Cornick v. Rich- Co. v. Sax, 2 Tenn. Ch. ,507 ; Cornick ards, 3 Lea (Tenn.) 1. v. Richards, 3 Lea (Tenn.) 1; Cherry ■"Judson V. Corcoran, 17 How. (U. v. Frost, 7 Lea (Tenn.) 1, 21 Am. L. S.) 612, IS L. ed. 231. Reg. (N. S.) 57. See § 159. ' 1 Civ. Stat. 1897, § 666. 259 CORPORATE STOCKS. § 214 of a bona fide assignee.' The true policy of the law is to favor unrestricted transfers of stock. An assignee or purchaser should not be bound to look beyond the certificate, or to examine the books of the corporation, to ascertain the validity of a transfer, as a different rule would impair the value of stock, and seriously disturb the usages of trade and the established order of business. § 214. Utah.* — The stock shall be deemed personal prop- erty, and the delivery of the stock certificate of a corporation, together with a written transfer of the same, signed by the owner, to a bona fide purchaser or pledgee for value, shall be deemed a sufficient transfer of the title as against any creditor, of the' transferrer and all other persons whomsoever; provided, that for the purpose of voting, and of receiving dividends, and of levying and collecting assessments, and wherein the corpora- tion is otherwise interested, the holder of record, as shown by its books, shall be treated and considered as the holder in fact, and the transferee shall have no rights or claims as against the cor- poration until transfer thereof be made upon the books of the cor- poration or a new certificate be issued to him. But although the by-laws of a corporation provide for the transfer of stock upon the books of the- com^pany, a judgment creditor buying stock which he knows his debtor has pledged by a transfer of the certificate by indorsement in blank, acquires no title as against the pledgee.^ § 215. Vermont. ° — The capital stock of a private corpo- ration shall be personal estate, and may be transferred as pro- vided by its by-laws. The transfer by assignment and delivery of certificates of stock in a corporation in this staie, as collateral security, shall be a valid transfer of the shares of stock repre- sented by such certificate, when made to secure a valid debt or ' Strange v. Houston &c. R. Co:, S3 Val. Cattle Co., 16 Utah S9, SO Pac. Tex. 162; Seeligson v. Brown, 61 630. "^^^•114. =Pub. Stat. 1906, §§ 4264, 4266, Comp. Laws 1907, § 330. 4377. "Barse Live Stock Co. v. Range § 2l6 COLLATERAL SECURITIES. 260 obligation, as against the party so transferring the same, his heirs, executors, administrators and assigns ; and when notice of the assignment and deHvery is given the clerk, cashier or treas- urer of such corporation, and a memorandum thereof made upon the stock ledger of the corporation, such assignment shall be valid against subsequent attaching creditors of the assignors, provided the same is made in good faith ; but nothing herein shall change the evidence of ownership of such stock so far as the corporation is concerned. It is held in this state that a delivery of a certificate, with a power of transfer, vests the title in the transferee; that the object of having the transfer recorded on the books of the cor- poration is notice, and only that; and consequently that such a transfer, though unrecorded, is good against the party hiinself, and all those who have notice of the fact of the transfer. But such a transfer seems to be regarded as ineffectual as against creditors of the assignor. The stock, while standing in the assignor's name, after his transfer by delivery of the certificate, with a power of transfer upon the books of the company, is prob- ably subject to any attachment at the suit of his creditors, if they have no notice in fact of the transfer.'' "We entertain no rea- sonable doubt," says Redfield,* "that the mode of transfer of stock pointed out in the charter is the only mode which the public are bound to regard as conveying the title. All persons un- affected with notice to the contrary are at liberty to act upon the faith of the title being where it appears upon the books of the corporation to be. This view we do not think inconsistent with the notion that any other mode of conveyance may be perfectly good, between the parties to it, and to all others having notice of it, the same as unrecorded deed, or notice of a mere equity." § 216. Virginia" and West Virginia." — If any person shall, for a valuable consideration, sell, pledge, or otherwise dis- 'Noyes v. Spaulding, 27 Vt. 420, Vt. 353, 362; Cheever v. Meyer, 52 426. Vt. 66. "Sabin V. Bank of Woodstock, 21 ' Va. 1 Code 1904, § llOSe (59). "W. Va. 1 Code 1906, §2266. 26l CORPORATE STOCKS. §217 pose of any of his shares of stock to another, and deliver to him the certificate for such shares, with a power of attorney authoriz- ing the transfer of the same on the books of the corporation, the title of the former (both at law and in equity) shall vest in the latter, so far as may be necessary, to effect the sale, pledge or other disposition, not only as between the parties themselves, but also as against the creditors of, and subsequent purchasers from the former. The shares of stock in every corporation shall be personal property, and shall be transferable on the books of the corpora- tion in such manner and under such regulations as the by-laws may pr'ovide.^^ § 217. Washington." — The stock of the company shall be . deemed personal estate, and shall be transferable in such manner as shall be prescribed by the by-laws of the company; but no transfer shall be valid except between the parties thereto, until the same shall have been entered upon the books of the company, so as to show the names of the parties, by and to whom trans- ferred, the numbers and designation of the shares, and the date of the transfer. Any stockholder may pledge his stock by a delivery of the certificate or other evidence of his interest, but may, neverthe- less, represent the same at all meetings, and vote as a stock- holder. §218. Wisconsin."— The capital stock of every corpora- tion divided into shares, shall be deemed personal property, and when certificates thereof are issued, such shares may be trans- ferred by ind6rsement of the owner, his attorney or legal rep- resentative and delivery of the certificate. The delivery of a " Donnally v. Hearndon, 41 W. Va. Washington Sav. Bank, 18 Wash 8 519, 23 S. E. 646. SO Pac. 575; 2 Codes and Stat! -Va. 1 Code 1904, § llOSe (IS); §§3693, 3696. W. Va. Code 1906, § 2512. »1 Stat. 1898, §§ 17S1, 1825; Plank- Port Townsend Nat. Bank v. inton v. Hildebrand, 89 Wis. 209, 61 Port Townsend Gas & Fuel Co., 6 N. W. 839. Wash. 597, 34 Pac. 155; Dearborn v. § 219 COLLATERAL SECURITIES. 262 stock certificate of a corporation to a bona fide purchaser or pledgee for value, together with a written transfer of the same signed by the owner of the certificate, his attorney or legal rep- resentative, shall be sufficient delivery to transfer the title as against all persons, but no such transfer shall affect the right of the corporation to pay any dividend due upon the stock or to treat the holder of record as the holder in fact until such transfer is recorded upon the books of the corporation or a new certificate is issued to the person to whom it has been so trans- ferred. No shares shall be transferable until all previous calls thereon shall have been fully paid in. § 219. Wyoming/^ — The stock of such company shall be deemed personal property, and shall be transferable in such manner as shall be prescribed by the by-laws of the company.^^ § 219a. Transfer of stock without transfer on corporation's books is generally effective. — The tendency of legislation is now strongly in the direction of making a transfer of the certifi- cate without registration upon the company's books effectual as against creditors attaching the stock as the property of the person who had assigned his certificate ; and the tendency of adjudication is also strongly in the same direction, in case the statute under con- struction does not in terms make a transfer without registra- tion invalid for any purpose. A summary of the law as it now is in the different states may be found in the accompany- ing note.^'' • " Comp. Stat. 1910, § 3983. name it stands on the company's " See Wyoming Fair Assn. v. Tal- books : bott, 3 Wyo. 244, 21 Pac. 700. Alabama, § 181. " In the following named states a Arizona, § 181a. registration of a transfer of stock Colorado, § 184. upon the books of the company is es- Connecticut, § 185. sential to protect a pledgee or other Delaware, § 186. transferee against bona fide creditors District of Columbia, § 187. without notice attaching the stock as Florida, § 188. the property of the person in whose Hawaii, § 188b. 263 CORPORATE STOCKS. § 220 § 220. Review of the statutes. — Upon a review of the stat- utes and decisions upon this subject it appears that the courts have taken a much more Hberal view of the poHcy that should govern in the matter of transfers of shares of stock than have the legislatures of the different states ; for it appears that where there has been legislation upon this subject the legislation has generally been for the purpose of restricting transfers of stock by making a registry upon the books of the corporation requisite to the va- lidity of such transfers for any purpose. The courts, on the other hand, have been disposed to allow the utmost freedom in such transfers, when they have not been restricte,d by public statutes, or by charters having the force of such statutes. The judicial interpretation of the common law rights of the parties respecting such transfers seems to have had in view the con- venience of owners of corporate stocks, and that of those who purchase them, or take them as security; while legislation upon this subject has served rather for the protection of the creditors of stockholders. The judicial view of this matter is well stated by Idaho, § 189. Kentucky, § 192a. Indiana, § 190a. Louisiana, § 193. Iowa, § 191. Eflfectual if notice of Maine, § 194. it be given to the company. Maryland, § 195. Kansas, § 192. Massachusetts, § 196. Michigan, § 197. Unregistered Minnesota, § 198. transfer effectual against execution Mississippi, § 199. creditor having notice. Missouri, § 200. Montaria, § 201. New Hampshire, § 202. Nevada, § 203. New Jersey, § 204. New Mexico, § 205. New York, § 206. North Carolina, § 207. Ohio, § 208. North Dakota, § 207a. Pennsylvania, § 209. Oklahoma, § 208a. Rhode Island, § 210. South Carolina, § 211. Tennessee, § 212. South Dakota, § 211a. Texas, § 213. Vermont, § 215. Utah, § 214. A transfer is valid against creditors, Virginia, § 216. though not entered upon the books in : Washington, § 217. Arkansas, § 182. " West Virginia, § 216. California, § 183. Wisconsin, § 218. Georgia, § 188a. Wyoming, § 392a. Illinois, §§ 190, 378a. § 221 COLLATERAL SECURITIES. 264 the Supreme Court of Tennessee/' "We know, as a matter of well accredited current history, that stocks are used every day in the transactions of our business men, as collaterals, as well as sold, and that the universal practice is to transfer or assign the certificate of the stock, with a power of attorney in blank, to be filled up, authorizing a transfer by the corporation on its books to the purchaser, on the presentation of which power, properly authenticated, the corporation transfers the stock to the pur- chaser or holder, and when the sale is absolute, it is usual to issue new certificates to the party taking up the old. Such a practice facilitates the easy use of this property in commercial transac- tions. The requirement that the title could alone be transferred on the books of the corporation, or by notice to the corporation, would greatly tend to trammel this use, and, as far as we can see, notice to the corporation can serve no practical end, and has no appropriate place in the transaction, so far as passing the title from a holder to a purchaser, or the right of a creditor as to a purchaser, for he can, as he will always do, protect himself by requiring an assignment of the certificate and then a transfer on the books of the corporation. The rule requiring a transfer on the books of the corporation can only serve to give a creditor who has a judgment or attachment a legal advantage, who has never given credit on the faith of the stocks over the other who has advanced his money on them, and taken the evidence of his security by a transfer of the certificate. In such cases alone will the contest be likely to arise, as the party who intends to trust to the security of such property will always take the assignment. In such a contest the equities are altogether in favor of the as- signee who has advanced his money on the faith of the collat- erals." § 221. A corporation may have a lien on its shareholder's stock. — That a corporation may itself have a lien by statute upon the shares of a stockholder is everywhere conceded; and "Cornick v. Richards, 3 Lea (Tenn.) 1, 23. 265 CORPORATE STOCKS. § 221 for this reason, also, no one is entitled to regard his security upon stock complete until it has actually been transferred to him upon' the company's books. For instance, if the charter of a corporation not only provides that no assignment of stock shall be valid unless made upon the books of the company, but also pro- vides that the corporation shall have a lien upon the stock of any shareholder indebted to the company for the payment of his debt, any pne taking a transfer of the stock by delivery of the certificate, without a transfer upon the company's books, takes it subject to all the equitable rights of the company against the ap- parent owner of the stock." But the corporation has no lien upon the stock of a shareholder merely by virtue of a provision that the stock shall be transferable on the books of the company. Such a lien cannot be implied : it must be expressly created f and there is authority for holding that, under a by-law providing that the shares of a stockholder indebted to the corporation shall not be transferable, and that the certificates should contain notice of this provision, a pledge of certificates containing merely a notice that the stock is only transferable upon the books of the corpora- "' Union Bank v. Laird, 2 Wheat. Ins. Co. v. Goodfellow, 9 Mo. 149; (U. S.) 390, 4 L. ed. 269; Pendergast Cunningham v. Alabama Life Ins. & V. Bank of Stockton, 2 Sawyer (U. Trust Co., 4 Ala. 652; Farmers' Bank S.) 108; Stebbins v. Phenix Fire Ins. of Md. v. Iglehart, 5 Gill (Md.) SO; Co., 3 Paige (N. Y.) 350; National Burford v. Crandell, 2 Cranch C. C, Bank v. Watsontown Bank, 105 U. S. 86 ; Bank of America v. McNeil, 10 217, 26 L. ed. 1039; In re Bigelow, 2 Bush (Ky.) 54; In re Peebles, 2 Ben. (U. S.) 469; Grant v. Me- Hughes (U. S.) 394. As to marshal- chanics' Bank of Phila., IS S. & ing as between a corporation having a R. (Pa.) 140; Geyer v. Western lien upon stock by charter, and the Ins. Co., 3 Pitts. (Pa.) 41; Mount general creditors of an insolvent Holly Paper Co.'s Appeal, 99 Pa. debtor, see German Security Bank v. St. 513; Bohmer v. City Bank, 77 Jefferson, 10 Bush (Ky.) 326. Va. 445; Petersburg Sav. & Ins. Co. ^"Bank v. Lanier, 11 Wall. (U. S.) V. Lumsden, 75 Va. 327; Vansands v. 369, 20 L. ed. 172; Sargent v. Franklin Middlesex Co. Bank, 26 Conn. 144; Ins. Co., 8 Pick. (Mass.) 90, 19 Am. Planters' & Merchants' Mut. Ins. Co. Dec. 306; Bryon v. Carter, 22 La. Ann. V. Selma Sav. Bank, 63 Ala. S8S; 98; Case v. Bank, 100 U.S. 446, 25 L. Newberry v. Detroit & Lake Superior ed. 695. As to the effect of a known Iron Co., 17 Mich. 141 ; Mechanics' usage, see Morgan v. Bank of N. A., Bank V. Merchants' Bank, 45 Mo. 513, 8 S. & R. (Pa.) 73, 11 Am. Dec. 575 100 Am. Dec. 388; St. Louis Perpetual § 221 COLLATERAL SECURITIES. 266 tion gives to one taking such certificates, without notice of the owner's liabiHty to the corporation or of such by-law, a title par- amount to the equities of the corporation.^^ It may well be ques- tioned, however, whether any notice of the by-law would be necessary, unless the by-law itself made it so. No lien upon stock exists at common law : it exists only by statutory authority, either expressed by general law, or by the act of incorporation, or by-laws made under such authority. ^^ Of course a corporation cannot, under such a provision, main- tain a lien for a liability of a stockholder accruing after the service of an attachment or a levy of an execution upon the stock f ^ and no lien can be created by force of a by-law adopted subsequently to the issuing of the stock.^* The taking of collateral security by a corporation is no waiver of a lien which the corporation has by its charter or by-laws upon the debtor's shares in such corporation. Therefore, the lien of the corporation upon the debtor's shares in such case is superior to any which the debtor can give by a transfer to another. ^^ But where a by-law required the consent of the directors to a trans- fer of stock by one indebted to the company, but in the practice of the company this requirement was never enforced, a transfer by a stockholder, attested in the usual way by the secretary of the company, was held good, although he was indebted to the com- pany.^" A by-law which is not expressly authorized by general law, or by the act of incorporation, is not notice of a lien thereby de- '^ Lee V. Citizens' Nat. Bank, 2 Ciri. mington, 2 Del. 1 ; Cummings v. Web- (Ohio) 298; Bank of CuUoden v. ster, 43 Me. 192; Dearborn v. Wash- Bank of Forsyth, 120 Ga. 575, 48 S. ington Sav. Bank, 18 Wash. 8, 50 Pac. E. 226. 575. ^ Steamship Dock Co. v. Heron's '" Geyer v. Western Ins. Co., 3 Adm'x., 52 Pa. St. 280; Leggett v. Pitts. (Pa.) 41. Bank of Sing Sing, 24 N. Y. 283 ; '' Bryon v. Carter, 22 La. Ann. 98. DriscoU V. Bradley Mfg. Co., 59 N. '"Union Bank v. Laird, 2 Wheat. Y. 96; Union Bank v. Laird, 2 Wheat. (U. S.) 390, 4 L. ed. 269; In re Pee- (U. S.) 390, 4 L. ed. 269; New Or- bles, 2 Hughes 394. leans Nat. Banking Assn. v. Wiltz, 10 " Chambersburg Ins. Co. v. Smith, Fed. 330; Bryon v. Carter, 22 La. 11 Pa. St. 120. And see Upton v. Ann. 98; McDowell v. Bank of Wil- Burnham, 3 Biss. (U. S.) 431. 267 CORPORATE STOCKS. § 222 dared upon the stock of any stockholder indebted to the corpora- tion." A provision incorporated into a certificate of stock of a na- tional bank stating that "no transfer of the stock of this asso- ciation shall be made, without the consent of the board of direct- ors, by any stockholder who shall be liable to the association, either as principal debtor or otherwise, which liability shall be a lien upon the said stock and all profits thereof and divi- dends," is effective to create a lien in favor of the bank, as against a party to whom an instrument of assignment of the stock has been duly executed by the owner thereof, to secure an indebtedness, created at the time and in consideration thereof in favor of the assignee.^^ § 222. Rule in Connecticut. — In Connecticut under the provisions of the statute of 1875 it was provided that every cor- poration shall at all times have a lien upon all stock owned by any person therein for all debts due to it from him,^° and under this statute it was held that a lien was created in favor of a corpora- tion for an old debt, upon stock which had previously been pledged as collateral to a third person, if such pledge was made merely by delivery of the stock certificate, with a power of attor- ney for its transfer, and no copy of the power of attorney had been filed with the corporation or other notice given it. After the statute came in force it was not necessary that the corporation in order to be able to claim the benefit of it should issue certifi- cates containing notice of any right of lien on the part of the cor- poration.^" By the present statute" it is provided that every corporation " See 59 N. Y. 96. tachment upon the stock in behalf of °° Buffalo German Ins. Co. v. Third the corporation ; it publicly recorded Nat. Bank, 29 App. Div. (N. Y.) 137, a completed lien for its security, and 51 N. Y. S. 667. that would have been the precise ef- ■* Gen. Stat. 1888, § 1923. Tljis stat- feet of an attachment. ute went into operation the first day "First Nat. Bank v. Hartford &c. of January, 1875. First Nat. Bank v. Ins. Co., 45 Conn. 22. Hartford &c. Ins. Co., 45 Conn. 22. "■ Pub. Acts 1903, ch. 194, § 21. Practically, the statute placed an at- § 223 COLLATERAL SECURITIES. 268 shall at all times have a lien upon all of its stock owned by any person for all debts including instalments duly called in, due to it from him. § 223. Corporation with notice that stock has been pledged. — But a corporation having notice that the stockholder has pledged his stock, by a delivery of the certificate with a power to transfer the stock upon the books of the corporation, cannot have a lien upon the stock for a credit afterward extended to him upon the faith of its charter right to a lien to secure a stockholder's indebtedness. Such an equitable assignment of the stock affects one who has knowledge of it equally as much as if the transfer had been made upon the books. Notice to the execu- tive officer of a corporation, such as the cashier of a bank, engaged in the active discharge of his duties, is notice to the corporation itself of such an equitable transfer ; and such officer, knowing of the pledge of the stockholder's certificate to secure a promissory note, is presumed to know that it remains in pledge for a renewal of the original note. Knowledge of the original transaction should put the officer upon inquiry as to the state of the stock- holder's shares before the corporation gave him credit upon the faith of his having stock upon which a lien could attach in favor of the corporation.^^ '"' Case V. Bank, 100 U. S. 446, 454, complete as is his right so to dispose 25 L. ed. 695; Merchants' Bank v. of or encumber any other personal State Bank, 10 Wall. (U. S.) 604, 650, property he may own. He cannot 19 L. ed. 1008; Birmingham Trust & pass the complete legal title to his Savings Co. v. Louisiana Nat. Bank, stock except by a transfer entered 99 Ala. 379, 13 So. 112; Bank of upon the books of the bank, nor can America v. McNeil, 10 Bush (Ky.) he by any arrangement not made 54. "The indebtedness this lien is in- known to the bank deprive it of the tended to secure," said Lindsay, J., right to look to his stock as an ulti- delivering the opinion of the court, mate security for the payment of any "is such as may exist at the time the indebtedness it may innocently permit stockholder attempts to dispose of his him to incur; but he may, by bargain stock. It is manifest that the lien and sale, by gift, devise, or pledge, cannot become effectual for any pur- divest himself of title, and when he pose until the stockholder contracts a has done so, and notice has been given debt to the bank. Until this is done to the bank, it has no right to extend his power to sell, give, devise, or en- credit to him upon the faith, of its cumber his stock is as perfect and charter lien upon his stock.'' 269 CORPORATE STOCKS. § 224 § 224. National banks cannot claim such a lien. — Such banks are prdhibited from loaning upon the security of their own stock, and from holding or purchasing their own stock, ex- cept when necessary to prevent loss on a debt previously con- tracted in good faith.'^ It is inconsistent with the policy of this act for a bank, by virtue of its articles of association or by-laws, to have a lien upon the shares of a stockholder for his indebted- ness to the bank."* But such a bank iriay hold a cash dividend upon shares of its stock, as a pledge for the indebtedness of a stockholder to the bank; and a bank may attach the shares of a stockholder for his debt to the bank.^^ § 225. A corporation may waive its lien upon a member's stock. — A statute of the state of Pennsylvania provides that the stock of a bank shall be transferable on the books of the corporation only in such manner as the by-laws shall ordain; but that stockholders indebted to the bank shall not transfer their stock without paying or securing the debt.^° Certain shares of the stock of a state bank were transferred by a banking firm as collateral security, and the pledgee sent the certificate to the cashier, and requested a new certificate. The cashier of the bank, who was also a member of the banking firm, replied by letter, agreeing to transfer the stock in a short time, and credited the pledgee with the stock on the books of the bank. The firm shortly afterward failed, with a large indebtedness to the bank, which thereupon refused to transfer the stock. On a bill in equity to compel such transfer, it was held that the act of the cashier, which was within his customary duties, was binding upon the bank, and effected a waiver of its lien upon the stock." '"IS Stat, at Large, p. no, §35; Act '"Hagar v. Union Nat. Bank, 63 of June 3, 1864. Me. 509; Thompson's Nat. Bank "Bank V. Lanier, 11 Wall. (U. S.) Cases, 523. 369, 20 L. ed. 172; Bullard v. Bank, ""Act of April 10, 1850, Bank Act, 18 Wall. (U. S.) 589, 20 L. ed. 172, p. 483, § 10, art. 10, 1 Purdon's Dig., and see Evansville Nat. Bank v. Met- 1903, p. 427, § 86. ropolitan Nat. Bank, 2 Biss. (U. S.) "National Bank v. Watsontown 527; Second National Bank V. Nation- Bank, 105 U. S. 217, 26 L. ed. 1039, al State Bank, 10 Bush (Ky.) 367. 4 Morrison's Trans. 400, 14 Rep. 23o! § 225 COLLATERAL SECURITIES. 270 Mr. Justice Matthews, delivering the opinion of the court, said : "A complete transfer of the title to the stock upon the books of the bank, it is not doubted, would have the effect to vest it in the transferee, free from any claim or lien of the bank. The consent of the bank, made necessary to such transfer, is the waiver of its right, as its refusal would be the assertion of it. The transfer when thus consummated, destroys the relation of membership between the corporation and the old stockholder, with all its incidents, and creates an original relation with the new member, free from all antecedent obligations. This legal relation and proprietary interest, on which it is based, are quite independent of the certificate of ownership, which is mere evi- dence of title. The complete fact of title may very well exist without it. All that is necessary, when the transfer is required by law to be made upon the books of the corporation, is, that the fact should be appropriately recorded in some suitable register or stock list, or otherwise formally entered upon its books. For this purpose the account in a stock ledger showing the names of the stockholders, the number and amount of the shares belong- ing to each, and the sources of their title, whether by original subscription and payment, or by derivation from others, is quite suitable, and fully meets the requirements of the law." Even on the supposition that not the legal title, but only an equity based on an executory contract for a transfer, passed to the pledgee, it was further held, in the case last referred to, that, the bank had, by its own laches, lost the legal right to assert its lien, for if the bank had intended to insist on its legal rights, and assert its lien, the time to do this was when the pledgee made his claim for a transfer of the stock; but, so far from doing this, it permit- ted the pledgee to rest in the belief that the right to transfer the stock would not be questioned, its action being equivalent to a declaration that it had no adverse claim. Therefore, upon the failure of the stockholder, the bank cannot be permitted to assert a lien, the enforcement of which would operate as a fraud upon the pledgee. 271 CORPORATE STOCKS. § 226 § 226. Damages for refusing to make transfer. — If a pledgee of the stock of a bank applies to the cashier to have a transfer made to himself upon the books, and this officer refuses to allow the transfer, on the ground that the pledgor is indebted to the bank, and it appears that the bank is not entitled to such a lien, upon its failure, and the appointment of a receiver, the pledgee may recover damages for the loss sustained by him.°* "" Case V. Bank, 100 U. S. 446, 25 L. ed. 695. CHAPTER VI. BILLS OF LADING AS COLLATERAL SECURITY. i 227. In general. 228. Delivery of bills of lading as collateral is delivery of the goods shipped. 229. Delivery of bill of lading is a constructive delivery of the property. 230. Bills of lading represents the property. 231. Indorsement or delivery of bill of lading passes a special property. 231a. Bill of lading delivered as col- lateral without indorsement. 232. Previous debt consideration for delivery of bill of lading. 233. Bill of lading quasi-negotiable. 234. California, Montana, North Da- kota, Oklahoma, South Da- kota, Washington. 234a. Louisiana. 235. Maryland. 236. Minnesota. 237. Missouri. 238. New York. 239. Pennsylvania. 240. Wisconsin. 241. Bills of lading do not have all the qualities of notes and bills as negotiable instruments. 242. Pledgee's rights as holder of bill of lading indorsed or de- livered. 243. Indorsement by shipper of bill of lading assigns his rights and title. § 244. Advances to one not the owner of the property represented by the bill of lading. 245. Bills of lading represents the goods to be in possession of the carrier. 246. Carrier not bound by bill of lading signed by an agent when goods not delivered. 247. Statutory enactments. 248. Master or agent of a vessel cannot bind its owner by signing bill of lading when goods not received. 249. No distinction between bills of lading given by carrier on land or water. 250. Custom alone cannot make bills of lading negotiable in- struments. 251. Carrier not estopped from de- nying receipt of the goods for which bill of lading was given. 252. Rule in New York. 253. Bill of lading not binding on the carrier may operate be- tween pledgor and pledgee. 254. Possession of goods received through spurious bill of lad- ing will not defeat the pledgee of the true bill. 255. Assignment of bill of lading conclusive of the shipper's intention. 272 273 BILLS OF LADING. § 227 !2S6. Bill of lading as security for acceptance of time draft. 257. Agent to whom bill of lading with time draft has been sent may give up the bill on pay- ment of draft. 258. Agreement that the bill of lad- ing shall secure payment of time draft, rather than its ac- ceptance. 259. Agreement between shipper and pledgee may be shown by parol. 260. Title of the holder of bill of lading for payment of a draft is conditional. 261. Bills of lading — How pledged as collateral? 262. Bill of lading drawn to the shipper's order may be trans- ferred by delivery. 263. A bill of lading not drawn to order or bearer may be pledged by delivery. 264. Third persons who pay drafts drawn against bills of lading have lien. 265. One discounting draft on bill of lading can maintain re- plevin for the goods shipped. 266. Bona fide holder of bills of lad- ing. S267. Vendor's right of stoppage in transitu. 268. Title of the shipper of goods. 269. Consignee's rights and liabili- ties. 270. The pledgee's rights. 271. Intention of consignor and pledgee. , 272. Effect of agreement between consignor and consignee. 273. Liability of carrier for deliver- ing goods to one not holding the bill of lading. 274. Goods transferred from one carrier to another. 275. Where bill of lading is made to consignee, the carrier may deliver to him without the bill being presented. 276. Valid delivery of goods under bill of lading. 277. What the lien of a pledgee of a bill of lading includes. 278. Rule when several parts of a bill of lading is delivered to different persons. 279. Carrier may deliver goods to consignee upon the produc- tion of one of a set of bills of lading. § 227. In general. — Bills of lading or receipts for goods by common carriers have become a very important, as well as a very common form of collateral security. Such bills or re- ceipts represent the goods themselves, and their delivery as col- lateral security generally amounts to a symbolical delivery in pledge of the goods themselves; yet the use of bills of lading and shippers' receipts as security gives rise to many questions and considerations wholly different from those that arise under pledges of goods in the ordinary mode of an actual delivery of the goods to the pledgee ; and therefore, this use of the docu- mentary evidence of property in the possession of the carrier is 18— CoL. Sec. § 228 COLLATERAL SECURITIES. 274 entitled to treatment as a separate branch of the subject of col- lateral securities. § 228. Delivery of bills of lading as collateral is delivery of the goods shipped. — An effectual delivery of goods may be made in pledge, by a transfer of a bill of lading, or shipping re- ceipt.^ The. transfer of a bill of lading as collateral security is regarded not only As passing the legal title to the property, but as constituting an actual delivery and change of possession of the property.^ Such bill of lading or receipt may be made out" di- rectly to the pledgee, or may be indorsed to him. If not made out directly to him, it should be indorsed to him, for sending it unindorsed by letter containing no words of transfer, might give the person receiving it no claim to the property.^ A bill of lading properly indorsed to the consignee who has made ad- vances, is evidence of a delivery of the property, although it be signed by one who was not in fact the master of the vessel, and had no authority to sign it, but was supposed by the con- signor to be the master, and was personally acting as such.* § 229. Delivery of bill of lading is a constructive delivery of the property. — The delivery of a bill of lading is a con- structive or symbolical delivery of the property represented by it.^ ' Lickbarrow v. Mason, 1 H. Bl. ° Stone v. Swift, 4 Pick. (Mass.) 357; 1 Smith's Lead. Cas. 8th Eng. 389, 16 Am. Dec. 349; and see Mer- ed. 753; Newsom v. Thornton, 6 East chants' Nat. Bank v. Bangs, 102 Mass. 17, 41 ; Hatfield v. Phillips, 9 M. & W. 291 ; Forbes v. Boston &c. R. Co., 133 647; Meyerstein v. Barber, 2 L. R. C. Mass. 154. P. 38; Barber v. Meyerstein, L. R. 4 'Prince v. Boston &c. R. Co., 101 H. L. 317; Douglas v. People's Bank, Mass. 542, 100 Am. Dec. 129. 86 Ky. 176, 5 S. W. 420, 9 Am. St. ' Barber v. Meyerstein, L. R. 4. H. 276; Petitt v. First Nat. Bank, 4 L. 317, L. R. 2 C. P. 38, 661; Bank of Bush (Ky.) 334; May v. McGaughey, Rochester v. Jones, 4 N. Y. 497, 55 60 Ark. 357, 30 S. W. 417; Neill v. Am. Dec. 290n; Cayuga Co. Nat. Rogers Bros.' Produce Co., 41 W. Va. Bank v. Daniels, 47 N. Y. 631 ; Har- 37, 23 S. E. 702. So by statute in rison v. Mora, 150 Pa. St. 481, 24 Atl. Georgia: 1 Code 1911, § 3528. 705; Skilling v. Bollman, 6 Mo. App. ' First Nat. Bank v. Kelly, 57 N. Y. 76 ; National Bank of Green Bay v. 34; Leinkauf Banking Co. v. Grell, 62 Dearborn, 115 Mass. 219, IS Am. Rep. App. Div. (N. Y.) 27, 70 N. Y. S. 92 ; Forbes v. Boston & Lowell R. Co., 1083. 133 Mass. 154; First Nat. Bank v. 275 BILLS OF LADING. § 229 The person who takes a bill of lading for a valuable considera- tion, whether this arises at the time, or rests lupon a previously existing debt, has the right to the property without taking actual possession of it, or doing any further act to perfect this title." The bill of lading stands in place of the property covered by it. It represents the property. "When the right of posses- sion is changed by a sale or pledge of the property itself, the transfer of the bill of lading operates as a change of possession of the property, the carrier in the meantime being the custodian for the real owner or party in interest. While a bill of lading is not a negotiable instrument in the sense in which a bill of exchange or promissory note is negotiable, yet as the repre- sentative of a valuable commodity it is assignable to the party entitled to control the possession of that commodity, to the same extent and for the same purposes as the property itself would be if corporeally present. Inasmuch, therefore, as these instruments are capable of performing very important functions in commercial transactions, innocent holders thereof for value Dearborn, US Mass. 219, IS Am. Rep. Ala. 309, 8 So. 219; Glidden v. Lucas, 92; Hathaway v. Haynes, 124 Mass. 7 Cal. 26; Tison v. Howard, S7 Ga. 311; First Nat. Bank v. Crocker, 111 410; Michigan Cent. R. Co. v. Phil- Mass. 163; McCants v. Wells, 4 S. C. lips, 60 111. 190; First Nat. Bank v. 381; Adoue v. Seeligson, 54 Tex. 593; Harkness, 42 W. Va. 156, 168, 24 S. Taylor v. Turner, 87,111. 296; Petitt v. E. 548, 32 L. R. A. 408, quoting text; First Nat. Bank, 4 Bush. (Ky.) 334; Neill v. Produce Co., 41 W. Va. 37, First Nat. Bank v. Northern R., 58 56, 23 S. E. 702; Leinhauf Banking N. H. 203; Farmers' & Mechanics' Co. v. Grell, 62 App. Div. (N. Y.) Nat. Bank v. Logan, 74 N. Y. 568; 275, 70 N. Y. S. 1083. Means v. Bank of Randall, 146 U. S. = Dows v. Nat. Exch. Bank, 91 U. 620, 627, 36 L. ed. 1107, 13 Sup. Ct. S. 618, 23 L. ed. 214; Skilling v, Boll- 186; Dows v. Nat. Exch. Bank, 91 U. man, 6 Mo. App. 76; Farmers' &. Me- S. 618, 23 L. ed. 214; Marine -Bank v. chanics' National Bank v. Logan, 74 Fiske, 71 N. Y. 353; City Bank v. N. Y. 568; Grove v. Brien, 8 How. Rome, W. & O. R. Co., 44 N. Y. 136; (U. S.) 429, 12 L. ed. 1142; Adoue v. Security Bank v. Luttgen, 29 Minn. Seeligson, 54 Tex. 593; Forbes v. Bos- 363, 13 N. W. 151; Holmes v. Ger- ton & Lowell R. Co., 133 Mass. 154- man Security Bank, 87 Pa. St. 525; First Nat. Bank v. Northern R., 58 N Emery v. Irving Nat. Bank, 25 Ohio H. 203; Chesapeake S. S. Co. v. Mer- St. 360, 366, 18 Am. Rep: 299; Dodge chants' Nat. Bank, 102 Md. 589 63 V. Meyer, 61 Cal. 405, 416, 10 Pac. Atl. 113. Coast L. J. 169; Brent v. Miller, 81 § 230 COLLATERAL SECURITIES. 276 ought to receive the same protection as if they held possession of the property itself.'" A cotton factor in Galveston procured an advance of money from a banker on certain cotton in press, for which he gave his order to, deliver the cotton to a vessel then in port loading for Liverpool. Notice of the order was given to the press, and the master of the vessel made and delivered to the cotton fac- tor, a bill of lading for the cotton, which the factor indorsed and delivered to the banker, with a bill of exchange on Liver- pool attached. While the cotton was still in press an execu- tion against the factor was levied upon it; but it was held that there had been a constructive delivery of it by the factor to the banker, and that the delivery of the bill of lading was as effect- ual to transfer the cotton as a manual delivery of it would have been." The delivery in this case was held to meet the special requisite of an effectual pledge, which is, that no matter in whose hands the property may be deposited, it shall no longer be subject, in fact or in law, to the dominion, possession or control of the pledgor, but to that of tljie pledgee. The execu- tion of the delivery order by the factor to the vessel for the cot- ton in press, and the recognition and acceptance of it by the press, constituted a delivery of the cotton to the vessel; and therefore the execution of the bill of lading by the master of the vessel, and the delivery of this to the banker, completed the transfer to him. § 230. Bills of lading represents the property. — A bill of lading merely represents the property ; and a transfer of the bill of lading operates merely to transfer the same rights of prop- erty that would arise from a transfer of the property itself. One in possession of the property can transfer no greater rights than he possesses; and so one in possession of a bill of lading can transfer no greater rights than he has in that* 'Stone V. Wabash &c. R. Co., 9 App. Div. (N. Y.) 275, 70 N. Y. S. Bradw. (111.) 48. 1083. • Adoue V. Seeligson, 54 Tex. 593; 'Dows v. National Exch. Bank, 91 Leinkauf Banking Co. v. Grell, 62 U. S. 618, 23 L. ed. 214; Skilling v. 277 BILLS OF LADING. § 23O "Bills of lading stand as the substitute and representative of the goods described therein, and while quasi negotiable instru- ments, are not negotiable in the full sense in which that term is applied to bills and notes. The transfer of the bill passes to the transferee the transferrer's title to the goods described, and the presumption as to ownership arising from the bill may be explained or rebutted by other evidence showing where the real ownership lies. A pledgee to whom a bill of lading is given as security gets the legal title to the goods and the right of possession only if such is the intention of the parties, and that intention is open to explanation. Inquiry into the trans- action in which the bill originated is not precluded because it came into the hands of persons who may have innocently paid value for it."" A bill of lading is not like a negotiable instrument which passes by delivery to a bona fide transferee for value without regard to the title of the person who makes the transfer.^* "In the hands of the holder it is evidence of ownership, special or general, of the property mentioned in it, and of the right to receive said property at the place of delivery. Notwithstand- ing it is designed to pass from hand to hand, with or without indorsement, and it is efficacious for its ordinary purposes in the hands of the holder, it is not a negotiable instrument or obligation in the sense that a bill of exchange or a promissory Bollman, 73 Mo. 665, 39 Am. Rep. Ct. 803, citing Pollard v. Vinton, 537; Kirkpatrick v. Kansas City &c. liOS U. S. 7, 26 L. ed. 998; R. Co., 86 Mo. 341 ; Missouri Pac. R. Shaw v. Railroad Company, 101 U. S. Co. V. McLiney, 32 Mo. App. 166; 557, 25 L. ed. 892. In Georgia it is Dickson v. Merchants' Elevator Co., provided by statute that delivery of 44 Mo. App. 498. Where there is a property is essential to this bailment, failure of title of property, neither but promissory notes and evidences the payee nor the bank collecting a of debt, warehouse receipts, elevator draft drawn by one consigning grain, receipts, bills of lading or other com- accompanying a bill of lading, is lia- mercial paper symbolic of property, ble to the consignee who accepts , and may be delivered in pledge. The de- Pays the draft. Hall v. Keller, 64 livery of title deeds creates no pledge Kan. 211, 67 Pac. 518, 91 Am. St. Code 1895, § 2956. ^"fo"™^^ ^- ^- ^- ^^^- '^Gurney v. Behrend, 3 El. & Bl The Carlos F. Roses, 177 U. S. 622; Dows v. Perrin, 16 N. Y 325- 655, 665, 44 L. ed. 929, 20 Sup. Dows v. Greene, 24 N. Y. 638 § 231 COLLATERAL SECURITIES. 278 note is. Its transfer does not preclude, as in those cases, all inquiry into the transaction in which it originated, because it has come into hands of persons who have innocently paid value for it. The doctrine of bona fide purchasers only applies to it in a limited sense."^^ § 231. Indorsement or delivery of bill of lading passes a special property. — An indorsement or delivery of a bill of lad- ing as collateral security passes a special property in the goods, and not an absolute legal title to them, or the whole and complete ownership of them, but the delivery is as complete as if the goods themselves had been delivered.^' The transaction is or- dinarily a pledge and not a mortgage, because it is ordinarily the intention of the parties to such a contract, either as expressed or to be implied from the transaction itself, that such shall be its effect. The effect of such a transaction is well described by Mr. Justice Field in a case in the Queen's Bench Division." " Pollard V. Vinton, 105 U. S. 7, 8, 26 L. ed. 998. ^' Missouri &c. R. Co. v. Heiden- heitner, 82 Tex. 195, 17 S. W. 608, 27 Am. St. 861; Neill v. Rogers Bros.' Produce Co., 41 W. Va. 37, 23 S. E. 702. " Burdick v. Sewell, L. R. 10 Q. B. D. 363, 366. The learned judge criti- cizes the language of Brett, L. J., in the case of Glyn v. East and West In- dia Dock Co., 6 Q. B. D. 475, 480, where he says that the legal effect of the indorsement of the bill of lading as security for advances was to transfer the legal property in the goods to the indorsee, and a consequent right in law of immediate actual possession against all the world, unless some one has an independent superior right of temporary possession; and that such indorsement has the same effect as a bill of sale has by the common law to pass the legal property in goods; and that the right of the indorser is an equity merely, though this may be recognized by the common law courts. Upon this Mr. Justice Field remarks: "I apprehend, however, that the lan- guage of the learned lord justice in that case, must be read as applied to the facts of that particular case, and as I, on the hearing of that case, which was tried before me without a jury, came to the conclusion that the intention of the parties and the impli- cation of law from the dealings was that the whole and entire property did pass, I agree in the view of the lord justice thus limited and under- stood." Bramwell, L. J., however, considered the transaction in that case as not amounting to anything more than a pledge, giving the in- dorser of the bill of lading a special property and right of possession. Mr. Justice Field then proceeds to review some of the cases as to the effect of an indorsement of a bill of lading as collateral security, from the leading 279 BILLS OF LADING. § 23 1 "Now advances against deposit of goods are probably some of the most ordinary transactions either of common or commercial life, and if there is delivery, and there are no terms expressed either verbally or in writing giving any larger effect to the contract, the latter is known as a contract by way of 'pawn or pledge,' the legal effect of which is that only a special property passes from the borrower to the lender, although coupled with the power of selling the pledge and transferring the whole property in it on default in payment at the stip- ulated time, if there be any, or at a reasonable time after demand and non-payment, if no time for repayment be agreed upon." Moreover, until such default, although the lender may assign the pledge to another to the limited extent of his own interest in it, i. e., as a security for the amount due, he cannot pass the whole and entire property in the goods to another, for by the contract the ^general property re- mains in the pawnor, who by virtue of that general property may determine the special property by tender of the secured amount, and may immediately recover the pledge on refusal in a possessory action'. Delivery is however an essential ele- ment of every contract by way of pledge. Such delivery may be actual, as in the every-day life transaction with the pawn- broker, or it may be constructive, either by making the cus- tody of the pledgor that of the pledgee'," or (if the goods are still under the operation of a bill of lading) by indorsement of case of Lickbarrow v. Mason, 1 Sra. than that sufficient property passed to L. C, 7th Eng. ed., p. 7S6, down to enable the pledgee to maintain an ac- Meyerstein v. Barber, L. R. 4 H. L. tion for conversion, and that the in- 317. In regard to the latter case he dorsement, per se, amounted to a de- says that while in the court of com- livery. He comes to the conclusion mon pleas and in the Exchequer as stated in the text that by such an Chamber everybody treated the trans- indorsement the parties intend, noth- action as a pledge, Lord Hatherly and ing more than a pledge ; and this is Lord Westbury in the House of Lords the generally accepted doctrine, used expressions which appear to be '^ Pothonier v. Dawson, Holt N. P. to the effect that by the indorsement 383; Donald v. Suckling, L. R. 1 Q. the whole property passed. But he B. 585. doubts whether these expressions "Reeves v. Capper, 5 Bing. N. C. were intended to mean anything more 140. § 231a COLLATERAL SECURITIES. 280 the bill, and it is the latter form of the transaction which is one very commonly adopted in commerce. As, however, in the case of land, by a conveyance by way of mortgage, so also in that of goods, a more effective security may be created by bill of sale, and by the usual terms of such an instrument the whole and entire property in the goods is assigned and passes to the lender subject to usual stipulations as to possession and sale, but leaving nothing in the way of legal property in the borrower, only an equitable right to redeem. This latter form of security, although very usual in money lending transactions of a mere individual character, is not, I believe, usually adopted in those purely commercial transactions where advances are obtained against goods represented either by warrants or bills of lading; these being two of the ordinary modes by which goods are made a security for an advance and within one of which the transaction now in question must be ranged. The question in the present case resolves itself into whether the security was intended to operate, or by implication of law arising upon the undisputed facts did operate, in the same way as an assignment by bill of sale or as a mere pledge." In this case it was determined that the shipper of goods does not, by simply indorsing the bill of lading, and delivering it to the indorsee, by way of security for money advanced by him, pass the property in the goods to such indorsee, so as to make him directly liable to the shipowner for freight under a statute which transfers the liability for freight from the ship- per to the indorsee of a bill of lading. § 231a. Bill of lading delivered as collateral without in- dorsement. — Even a delivery of a bill of lading. as security for a loan, without any indorsement, is held to be a valid pledge, and tp operate as a symbolical delivery, of the goods represented by such bill of lading. Chief Justice Shaw stated the law to this effect, saying: "Even a sale or pledge of the property without a formal bill of lading, by the shipper, would operate as a good assignment of the property, and the delivery of an in- formal or unindorsed bill of lading, or other documentary evi- 28l BILLS OF LADING. § 22,2 dence of the shipper's property, would be a good symbolical de- livery, so as to vest the property in the plaintiffs."" This is the rule, although the bill of lading contains no words of negotiability," or even contains the words, "This receipt is not transferable."" § 232. Previous debt consideration for delivery of bill of lading. — A previously existing debt is a sufficient considera- tion for the delivery of a bill of lading.^" There are authori- ties which hold that a consideration paid at the time of the indorsement or delivery of the bill of lading is essential for passing the title to the property as against the consignor's right to stop the goods in transitu, or as against a subsequent pur- chaser of the goods for a new consideration.^^ But the prevailing rule is, that a delivery of a bill of lading as security for a past debt is equally effectual with a delivery for a present advance to vest the property in the creditor. "Allen V. Williams, 12 Pick, (Mass.) 297, 302; followed in Hatha- way V. Haynes, 124 Mass. 311; First Nat. Bank v. Dearborn, US Mass. 219, 228, 15 Am. Rep. 92; Lewis v. Springville Banking Co., 166 111. 311, 46 N. E. 743; Michigan Cent. R. Co. V. Phillips, 60 111. 190; Western &c. R. Co. V. Wagner, 65 111. 197; Scharff V. Meyer, 133 Mo. 428, 34 S. W. 858, 42 Cent. L. J. 367, 54 Am. St. 672; Skilling V. Bollman, 6 Mo. App. 76; Petitt V. Memphis First Nat. Bank, 4 Bush (Ky.) 334; Jeflfersonville, Madi- son &c. R. Co. V. Irvin, 46 Ind. 180; Becker v. Hallgarten, 86 N. Y. 167; Merchants' Bank v. Union R. & T. Co., 69 N. Y. 37Z, 376; Rochester Bank V. Jones, 4 N. Y. 497, 55 Am. Dec. 290n; Richardson v. Nathan, 167 Pa. St. 513, 31 Atl. 740; Holmes v. Bailey, 92 Pa. St. 57; Holmes v. Ger- man Security Bank, 87 Pa. St. 525; Campbell v. Alford, 57 Tex. 159; Young V. Upson, 115 Fed. 192. "Emery v. Irvin N'at. Bank, 25 Ohio St. 360, 18 Am. Rep. 299; Roch- ester Bank v. Jones, 4 N. Y. 497, 55 Am. Dec. 290n; City Bank v. Rome, W. & O. R. Co., 44 N. Y. 136; Dav- enport Nat. Bank v. Homeyer, 45 Mo. 145, 100 Am. Dec. 363. " Peters v. Elliott, 78 111. 321. '"L^ask V. Scott, 2 Q. B. D. 376; Skilling V. Bollman, 6 Mo. App. 76; Tiedeman v. Knox, 53 Md. 612 ; Peters V. Elliott, 78 111. 321. See, however, Loeb V. Peters, 63 Ala. 243, 35 Am. Rep. 17 ; Lesassier v. Southwestern R. Co., 2 Woods (U. S.) 35. See §§ 107- 13-3. '^Parsons on' Shipping, 193. The cases cited by the learned author in support of this view arose out of at- tempts on the part of factors to pledge their principals' goods for their own debts, and do not support his text. Newsom v. Thornton, 6 East 17, was decided, not upon the ground that an assignment for prior § 233 COLLATERAL SECURITIES. 282 § 233. Bill of lading quasi-negotiable. — A bill of lading whereby the carrier engages to deliver goods to the shipper or his order is quasi-negotiable; but not negotiable in the manner that bills of exchange and promissory notes are negotiable.^" They are not negotiable in this sense, even when made nego- tiable in terms by statute/' unless in express terms made nego- tiable in the same sense that bills of exchange and promissory notes are negotiable, as is the case in several states."* As the statutes of several states introduce an important qual- ification of the common law doctrine upon this subject, and as they are enacted in different terms, a full statement of the stat- utes is here given. §234. California,"' Montana,"" North Dakota,"' Oklaho- ma,"' South Dakota,"' Washington.'"— All the title to the freight which the first holder of a bill of lading had when he re- ceived it passes to eveiy subsequent indorsee thereof in good advances passed no title to the bill of waukee Dock Co., 29 Wis. 482, 9 Am. lading, but that a factor had no right Rep. 603; Douglas v. People's Bank, to pledge the bill. The case was, that 86. Ky. 176, 5 S. W. 420, 9 Am. St. the holder of a bill of lading, the fac- 276 ; Missouri Pacific R. Co. v. Heid- tor of the consignor, attempted to enheimer, 82 Tex. 195, 17 S. W. 608, pledge the bill of lading on condition 27 Am. St. 861; Voss v. Robert- of advances to be made ; the advances son, 46 Ala. 483 ; Pattison v. Culton, were not made; the pledgee claimed 33 Ind. 240, 5 Am. Rep. 199; Daven- to hold the goods for former ad- port Nat. Bank v. Homeyer, 45 Mo. vances made by him to the factor, and 145, 100 Am. Dec. 363 ; Barnard v. it was held that the factor had no Campbell, 55 N. Y. 456. power to pledge the goods of his " See § 241. principal by indorsement and deliv- "* See §§ 234, 235. ery of the bill of lading. Warner v. == Civil Code 1906, §§ 2127, 2128; Martin, 11 How. (U. S.) 209, 13 L. Newhall v. Central Pac. R. Co., 51 ed. 667, is a similar case and turns al- Cal. 345, 21 Am. Rep. 713; Dodge v. together upon the question of the Meyer, 61 Cal. 405. power of a factor to pledge. Skill- ^ 1 Annot. Codes, p. 1204, §§ 2831, ing V. BoUman, 6 Mo. App. 76. 2832. "" Rowley v. Bigelow, 12 Pick. "Rev. Code, 1905, § 5647. (Mass.) 307, 23 Am. Dec. 607; Allen =* Corap. Stats. 1893, ch. 11, §§ 14, v. Williams, 12 Pick. (Mass.) 297; 15. Cox v. Central Vt. R. Co., 170 Mass. " Rev. Code 1903, §§ 1552, 1553. 129, 49 N. E. 97; StoUenwerck v. ™ 2 Annot. Codes, §§ 3378, 3379. Thacher, 115 Mass. 224; Hale v. Mil- 283 BILLS OF LADING. § 234a faith and for value, in the ordinary course of business, with like effect and in like manner as in the case of a bill of exchange. When a bill of lading is made to "bearer," or in equivalent terms, a simple transfer thereof, by delivery, conveys the same title as an indorsement, § 234a. Louisiana. — All receipts, bills of lading, vouchers or other documents, issued by any cotton press owner or les- see, wharfinger, forwarder or other person, boat, vessel, railroad, transportation or transfer company, as by this act provided, shall be negotiable by indorsement in blank or by special in- dorsement, in the same manner, and to the same extent, as bills of exchange and promissory notes now are.'^ § 235. Maryland.^^ — All bills of lading and all receipts, vouchers or acknowledgments whatsoever in writing, in the na- ture or stead of bills of lading for goods, chattels or commodities of any kind, to be ■ transported on land or water, or on both, which shall be executed in this state, or being executed elsewhere, shall provide for the delivery of goods, chattels or commodi- ties of any kind within this state, and all warehouse, elevator or storage receipts whatsoever for goods, chattels or commodities of any kind stored or deposited, or in said receipts stated ' or acknowledged to be stored or deposited for any purpose in any warehouse, elevator or other place' of storage or deposit in this state, shall be and they are hereby ^constituted and declared to be negotiable instruments and securities, 'unless it be provided "Rev. Laws 1897, § 248S. But it is passed, the Supreme Court of Mary- held that bills of lading are also land had decided that the law does transferable by delivery. Crowell v. not regard bills of lading as negotia- Van Bibber, 18 La. Ann. 637. ble in the same sense in which a bill '' 1 Pub. Gen. LaWs 1904, p. 358, § of exchange and promissory note is 1. This statute is more comprehen- so, Baltimore &c. R. Co. v. Wilkens, sive and sweeping in its phraseology 44 Md. 11, 27, 22 Am. Rep. 26, and the and effect than the statutes of Mis- statute was evidently passed in order souri and Pennsylvania construed by to change the law as fixed by the de- the Supreme Court in Shaw v. Rail- cision, and uses the very language of road Co., 101 U. S. SS7, 25 L. ed. 892. the decision. Tiedeman v. Knox, S3 Shortly before this statute was Md. 612. § 236 COLLATERAL SECURITIES. 284 in express terms to the contrary on the face thereof, in the same sense as bills of exchange and promissory notes, and full and complete title to the property in said instruments mentioned or described, and all rights and remedies incident to such title, or arising under or derivable from the said instrument, shall inure to and be invested in each and every bona fide holder thereof for value, altogether unaffected by any rights or equities whatsoever, of or between the original or any other prior holder of or parties to the same, of which such bona fide holder for value shall not have had actual notice at the time he became such. Under this statute an antecedent debt is sufficient to con- stitute a purchase for value of a bill of lading, and a party re- ceiving it in payment of, or as security for, such a debt, becomes a purchaser and bona fide holder for value as effectually as if it had been a bill of exchange or promissory note.*^ § 236. Minnesota.^* — Warehouse receipts and bills of lad- ing for property in transit, unless the words "Not negotiable" are plainly written or stamped on the face thereof, may be trans- ferred by indorsement, and such indorsement shall transfer to the indorsee the title to the property and all rights of the in- dorser in respect thereto.^' § 237. Missouri.^' — Bills of lading, transportation re- ceipts, and contracts of affreightment, issued or given by any person, boat, railroad or transportation or transfer company, for ''Tiedeman v. Knox, S3 M6. 612. ="3 Rev. Stat. 1909, §§ 11956, 119S7. It is also held where a consignee See Central Savings Bank v. Garri- pledged bills of lading for a loan or son, 2 Mo. App. 58. As to the nego- in exchange for warehouse receipts tiability of bills of lading under this held as collateral that the new pledge statute, see decision of the Supreme was based on a sufficient considera- Court of tha United States passing tion. Chesapeake S. S. Co. v. Mar- upon this statute, Shaw v. Railroad chants' Nat. Bank, 102 Md. 589, 63 Co., 101 U. S. 557, 25 L. ed. 892, Atl. 113. stated in § 241, infra. In another case " Rev. Laws 1905, § 2097. the same court, passing upon this stat- "" For construction of the act, Gen. ute, held that the indorsement must Stat. 1894, § 7649, see McCabe v. Mc- be in writing. Allen v. St. Louis Kinstry, 5 Dill. (U. S.) 509; RahiUy Bank, 120 U. S. 20, 7 Sup. Ct. 460, 30 V. Wilson, 3 Dill. (U. S.) 420. L. ed 573. 28s BILLS OF LADING. § 238 goods, wares, merchandise, grain, flour or other produce, shall be and are hereby made negotiable by written indorsement thereon, and delivery in the same manner as bills of exchange and prom- issory notes; and no printed or written conditions, clauses or provisions inserted in or attached to any such receipts, bills of lading or contracts, shall in any way limit the negotiability or affect any negotiation thereof, nor in any manner impair the right and duties of the parties thereto, or persons interested therein; and every such condition, clause or provision purport- ing to limit or affect the rights, duties or liabilities created or de- clared in this act, shall be void, and of no force or effect. Bills of lading and transportation receipts of every kind, given by any carrier, boat, vessel, roalroad, transportation or transfer company, may be transferred by indorsement in writing thereon, and the delivery thereof so indorsed; and any and all persons to whom the same may be so transferred shall be deemed and held to be the owners of such goods, wares, merchandise, grain, flour or other produce or commodity, so far as to give validity to any pledge, lien, or transfer given, made or created thereby, as on the faith thereof, and no property so stored or deposited,, as specified in such bills of lading or receipts, shall be delivered, except on surrender and cancelation of such receipts and bills of lading : provided, however, that all such receipts and bills of lad- ing, which shall have the words "not negotiable" plainly written or stamped on the face thereof, shall be exempt from the pro- visions of this act. § 238. New York." — A negotiable bill may be negotiated by delivery where, by the terms of the bill, the carrier undertakes to deliver the goods to the order of a specified person, and such person or a subsequent indorsee of the bill has indorsed it in blank. A negotiable bill may be negotiated by the indorsement of the person to whose order the goods are deliverable by the tenor of the bill. Such indorsement may be in blank or to a specified "Laws 1911, ch. 248, §§ 214, 215. § 239 COLLATERAL SECURITIES. 286 person. If indorsed to a specified person, it may be negotiated again by the indorsement of such person in blank or to another specified person. Subsequent negotiation may be made in like manner. § 239. Pennsylvania.'* — Every bill of lading must embody within its written or printed terms — (a) The date of its issue. (b) The name of the person from whom the goods have been received. (c) The place where the goods have been received. (d) The place to which the goods are to be transported. (e) A statement whether the goods received will be delivered to a specified, person, or to the order of a specified person. (f) A description of the goods or of the packages containing, them, which may, however, be in such general terms as are re- ferred to in section twenty-three of this act, and (g) The signature of the carrier. A negotiable bill shall have the words "order of" printed thereon, immediately before the name of the person upon whose order the goods received are deliverable. A bill in which it is stated that the goods are consigned or des- tined to a specified person is a non-negotiable or straight bill. A bill in which it is stated that the goods are consigned or destined to the order of any person named in such bill is a nego- tiable or order bill. Any provision in such a bill that it is non-negotiable shall not affect its negotiability within the meaning of this act. A non-negotiable bill shall have placed plainly upon its face, by the carrier issuing it, "non-negotiable" or "not negotiable." § 240. Wisconsin.*" — Bills of lading or railroad receipts given for any goods, wares, merchandise, lumber, timber, grain, flour or other produce or commodity stored, shipped or deposited ''Laws 1911, p. 838, §§2, 4, 5,8. "2 Stat. 1898, §§ 4194, 442S, as " Moors V. Jagode, 19S Pa. St. 163, amended by Laws 1909, ch. 291. 45 Atl. 723. 287 BILLS OF LADING. § 24I with any warehouseman, wharfinger, vessel, boat or railroad com- pany or other person on the face of which shall not be plainly written the words "not negotiable," may be transferred by deliv- ery with or without indorsement thereof; and any person to whom the same may be so transferred shall be deemed and taken to be the owner of the goods, wares and merchandise therein spe- cified so far as to give validity to any pledge, lien or transfer made or created by such person or persons ; but no such property shall be delivered except on surrender and cancelation of said original receipt or bill of lading or the indorsement of such deliv- ery thereon in case of partial delivery. Any such receipt, bill of lading, voucher or other document as is mentioned in the preceding section shall be transferable by delivery thereof without indorsement or assignment, and any person to whom the same is so transferred shall be deemed and taken to be the owner of the property therein specified so far as to give validity to any pledge, lien or transfer made or created by such person unless such receipt, bill of lading, voucher or other document^ shall have the words, "not negotiable," plainly written or stamped on the face thereof. § 241. Bills of lading do not have all the qualities of notes and bills as negotiable instruments.: — A statute declaring bills of lading negotiable, does not give them all the qualities of nego- tiable bills and notes.*^ Negotiation primarily means a transfer by indorsement and delivery, giving the indorsee a right to sue upon the contract in his own name. In regard to bills and notes, Shaw V. Railroad Co., 101 U. S. change and promissory notes. In this 557, 565, 25 L. ed. 892, 37 Leg. Int. respect the statute changes the law as 135, 10 N. Y. Weekly Dig. 263, 10 it had just previously been established Rep. 129; Hunt v. Mississippi Cent, by the Supreme Court of that state in R. Co., 29 La. Ann. 446; National Baltimore & Ohio R. Co. v. Wilkens, Bank V. Atlanta &c. R. Co., 25 S. Car. 44 Md. 27, 22 Am. Rep. 26. See Tiede- 216; Douglas v. People's Bank, 86 Ky. man v. Knox, S3 Md. 612, where this 175, 5 S. W. 420, 9 Am. St. 276. In change is commented upon. See also Maryland the statute is broader in Chesapeake S. S. Co. v. Merchants' terms, and makes bills of lading nego- Nat. Bank, 102 Md. 589, 63 Atl. 113. tiable in the same sense as bills of ex- § 241 COLLATERAL SECURITIES. 288 certain other consequences generally follow negotiability, such as the liability of the indorser after due demand and notice, and the right of a holder in good faith and for value before maturity to full protection against even the true owner, so that nothing short of mala fides on his part will defeat his right. Bills 'of exchange and promissory notes are contracts exceptional in their char- acter, and have been given their exceptional character because the interests of trade require that they should be fully protected in favor of bona fide holders. But this reason does not apply to bills of lading. "Bills of lading," says Mr. Justice Strong, of the Supreme Court,*^ "are regarded as so much cotton, grain, iron, or other articles of merchandise. The merchandise is very often sold or pledged by transfer of the bills which cover it. They are, in commerce, a very different thing from bills of ex- change and promissory notes, answering a different purpose and performing different functions. It cannot be, therefore, that the statute which made them negotiable by indorsement and de- delivery, or negotiable in the same manner as bills of exchange and promissory notes are negotiable, intended to change totally their character, put them in all respects on the footing of instru- ments which are the representatives of money, and charge the ne- gotiation of them with all the consequences which usually attend or follow the negotiation of bills and notes. Some of these conse- quences would be very strange if not impossible. Such as the liability of indorsers, the duty of demand ad diem, notice of non- deliveiy by the carrier, etc., or the loss of the owner's property by the fraudulent assignment of a thief. If these were intended, surely the statute would have said something more than mere- ly make them negotiable by indorsement. No statute is to be construed as altering the common law, farther than its words import. It is not to be construed as making any innovation upon the common law which it does not fairly express. Espe- cially is so great an innovation as would be placing bills of lading on the same footing in all respects with bills of ex- " Shaw V. Railroad Co., 101 U. S. 557, 565, 25 L. ed. 892. 289 BILLS OF LADING. § 242 change not to be inferred from words that can be fully satis- fied without it. The law has most carefully protected the own- ership of personal property, other than money, against misap- propriation by others than the owner, even when it is out of his possession. This protection would be largely withdrawn if the misappropriation of its symbol or representative could avail to defeat the ownership, even when the person who claims under a misappropriation had reason to believe that the per- son from whom he took the property had no right to it." There- fore it was held, where a bill of lading of certain cotton was assigned by indorsement to a bank as collateral security, and without negligence on the part of the bank, was stolen from it, and indorsed to a third person for an advance made under cir- cumstances which afforded him reason to believe that the bill of lading had already been pledged to secure the payment of an outstanding draft, that the person sO' taking it was not entitled to hold the merchandise covered by the bill against its true owner.*' § 242. Pledgee's rights as holder of bill of lading indorsed or delivered. — The rights of a pledgee of a bill of lading by indorsement or delivery are the rights of a pledgee of the prop- erty itself by a delivery of it. A bill of lading, though nego- tiable in form, is not a negotiable instrument, like a bill of exchange, but a symbol or representative of the goods to which it relates; and the rights arising from a transfer of a bill of lading correspond, not to those arising from the transfer of a negotiable instrument, but to those arising from a delivery of the property under like circumstances.** "I never heard it argued," said Parke, B., in Thompson v. Dominy,*= "that a contract was transferable, except by the law merchant, and there is nothing to show that a bill of lading is transferable under any "Shaw V. Railroad Co., 101 U. S. R. Co. v. Wagner, 65 111. 197; First S57, 2S L. ed. 892; Stollenwerck v. Nat. Bank v. Northern R., 58 N. H. Thacher, 115 Mass. 224. 203; Lineker v. Ayeshford, 1 Cal. 75; "Stollenwerck v. Thacher, 115 Moore v. Robinson, 62 Ala. 537; Mass. 224; Forbes v. Boston &c. R. Brent v. Miller, 81 Ala. 309, 8 So. 219. Co., 133 Mass. 154 ; Western Union " 14 M. & W. 403. 19— Col. Sec. § 243 COLLATERAL SECURITIES. 29O custom of merchants. It transfers no more than the property in the goods; it does not transfer the contract." In the same case, Alderson, B., added: "I am of the same opinion. This is an- other instance of the confusion, as Lord Ellenborough, in War- ing V. Cox,*" expresses it, which 'has arisen from similitudinous reasoning upon this subject.' Because in Lickbarrow v. Mason,*' a bill of lading was held to be negotiable, it has been contended that the instrument possesses all the properties of a bill of ex- change; but it would lead to absurdity to carry the doctrine to that length. The word 'negotiable' was not used in the sense in which it is used as applicable to a bill of exchange, but as pass- ing the property in the goods only." While generally an indorsee for value, of a bill of lading may bring an action in his own name for the goods, he cannot generally maintain an action in his own name on the instrument itself.*' § 243. Indorsement hy shipper of bill of lading assigns his rights and title. — The indorsement of a bill of lading by the shipper only assigns his rights and the title to the property called for by the bill. It involves no duty on his part to do anything toward forwarding the property, and therefore he is not liable in assumpsit for failure to ship and deliver the property. If the bill of lading be fictitious, or if there was any fraud prac- ticed in obtaining advances upon a transfer of it, any remedy that the pledgee may have is one for that special wrong. He cannot imply from the indorsement of the bill of lading a prom- ise to perform what the carrier had agreed, or purported to have agreed, to do.*° An indorsement of a bill of lading by stamping the name of " 1 Camp. 369. procedure the real party in interest is " 1 H. Bl. 357. authorized to sue on any contract or " Thompson v. Dominy, 14 M. & chose in action which has been trans- W. 403 ; Dows v. Cobb, 12 Barb. (N. f erred to him in his own name. Mer- Y.) 310; Blanchard v. Page, 8 Gray chants' Bank v. Union &c. Trans. Co., (Mass.) 281, 298. This, of course, is 69 N. Y. 373, 380. a statement of the common law of " Maybee v. Tregent, 47 Mich. 495, the subject. Under modern codes of UN. W. 287. 291 BILLS OF LADING. § 245 the assignor on the back of it, and a delivery of it so indorsed, is a sufficient compliance with a statute requiring assignments of bills of lading to be in writing.^" § 244. Advances to one not the owner of the property rep- resented by the bUl of lading. — One making advances upon a bill of lading to one who is not the owner of the property therein described, acquires no right of property therein. Although pos- session is prima facie evidence of ownership, yet that alone does not deprive the true owner of his title. "Taking possession of the property, shipping it, obtaining bills of lading from the car- riers, indorsing away the bills of lading, or even selling the property and obtaining a full price for it, can have no effect upon the right of the owner. Even a bona fide purchaser ob- tains no right by a purchase from one who is not the owner, or not authorized to sell."" Therefore, if an owner of cotton authorizes another person to ship it, but gives the agent no authority to ship in his own name, the latter, by shipping in his own name, and taking a bill of lading accordingly, cannot, by negotiating this, charge the cotton with the payment of advances made on the faith of such bill of lading.^^ § 245. Bills of lading represents the goods to be in posses- sion of the carrier. — A bill of lading represents the goods to be in the hands of the carrier. If, through inadvertence or other- wise, the bill of lading is signed before the goods have come to "Horner v. Missouri Pac. R. Co., transfer a better title than he has 70 Mo. App. 28S. himself, or than he has been author- "'The Idaho, 93 U. S. 575, 583, 23 ized by the owner to grant. Excep- L. ed. 978. And so in Covill v. Hill, tions in favor of trade are allowed in 4 Den. (N. Y.) 323, 327, it was said: the case of money and negotiable in- "It is a principle of the common law struments. But as to other personal which has but few exceptions, that a chattels, the mere possession, by man cannot be divested of his prop- whatever means it may have been ac- erty without his consent. And al- quired, if there be no other evidence though possession is one of the most of property, or authority to sell, from usual evidences of title to personal the true owner, will not enable the chattels, yet, as a general rule, mere seller to give a good title." possession will not enable a man to "' Moore v. Robinson, 62 Ala. 537. § 246 COLLATERAL SECURITIES. 292 hand, but they are afterward received and shipped, the bill of lading operates upon the goods by way of relation and estoppel ; and one who accepts or discounts drafts on the security of such bill of lading, obtains a title to the goods as valid and effectual as he could obtain by an actual delivery to. him of the goods themselves. ^^ § 246. Carrier not bound by bill of lading signed by an agent when goods not delivered. — A carrier is not bound by a bill of lading signed by an agent without an actual delivery of the goods to the carrier, although the bill of lading be assigned to a person who in good faith discounts' a draft attached to it. It has long been the prevailing rule that the master of a ship can- not bind the owners by issuing bills of lading for goods not ac- tually delivered on board the ship.^* The same rule applies with greater force in the case of an agent of a railroad company.''^ In other words, a bill of lading, whether issued by the master of a vessel or by the agent of any carrier, is not a commercial or ne- gotiable paper in the hands of an innocent party, which precludes or estops the owner from denying that the freight was received ■^^ Rowley v. Bigelow, 12 Pick, son v. Memphis &c. R. Co., 9 Fed. (Mass.) 307, 312, 23 Am. Dec. 607. 129. For the rule in Canada, see Erb °' Brown v. Powell Duflfryn Steam v. Great Western R. Co., 42 U. C. Q. Coal Co., L. R. 10 C. P. S62; Grant v. .B. 90; 3 Tupper's App. 446; Oliver v. Norway, L. R. 10 C. B. 665 ; Coleman Great Western R. Co., 28 U. C. C. P. V. Riches, L. R. 16 C. B. 104; Hub- 143; McLean v. Buffalo &c. R. Co., tersty v. Ward, L. R. 8 Exch. 330; 23 U. C. Q. B. 448, 24 U. C. Q. B. 271, McLean v. Fleming. L. R. 2. H. L. but the latter case seems to be over- 128, by statute; Mackay v. Commer- ruled by that first cited. There are a cial Bank, L. R. S P. C. 394; Jessel v. few cases which seem to be opposed Bath, L. R. 2 Ex. 267 ; Schooner Free- to the general rule supported by the man v. Buckingham, 18 How. (U. S.) weight of authority; Griswold v. Ha- 182, IS L. ed. 341; The May ven, 25 N. Y. S9S, 82 Am. Dec. 380; Flower, 3 Ware (U. S.) 300; Armour v. Michigan Cent. R., 65 N. The Loon,. 7 Blatchf. (U. S.) Y. Ill, 22 Am. Rep. 603; Wichita Sav. 244; Pollard v. Vinton, lOS U. S. Bank v. Atchison &c. R. Co., 20 Kan. 7, 13 Rep. 545, 26 L. ed. 998; Walter 519. V. Brewer, 11 Mass. 99; Sears v. Win- "'Baltimore &c. R. Co. v. Wilkens, gate, 3 Allen (Mass.) 103; Dean v. 44 Md. 11, 22 Am. Rep. 26; Robinson King, 22 Ohio St. 118; Louisiana Nat. v. Memphis &c. R. Co., 9 Fed. 129. Bank v. Laveille, 52 Mo. 380; Robin- 293 BILLS OF LADING. § 247 as therein admitted.'"' In a case before the Supreme Court of the United States, involving the point under consideration, Mr. Justice Miller said:" "A bill of lading is an instrument well known in commercial transactions, and its character and effect have been defined by judicial decisions. * * * It is an in- strument of a twofold character. It is at once a receipt and a contract. In the former character it is an acknowledgment of the receipt of property on board his vessel by the owner of the vessel. In the latter it is a contract to carry safely and deliver. The receipt of the goods lies at the foundation of the contract to carry and deliver. If no goods are actually received, there can be no valid contract to carry or to deliver. § 247. Statutory enactments. — This matter has become the subject of statutory enactments. Thus in England"*^ it is pro- vided that: Evei-y bill of lading in the hands of a consignee or indorsee for valuable consideration representing goods to have been shipped on board a vessel or train shall be conclusive evi- dence of such shipment as against the master or other person signing the same, notwithstanding that such goods or some part thereof may not have been so shipped, unless the holder of the bill of lading has actual notice at the time of receiving the same that the goods had not in fact been laden on board, but the mas- ter or other person so signing, may exonerate himself in re.spcct to such misrepresentation, by showing that it was caused with- out any default on his part, and wholly by the fraud of the shipper, or of the holder, or some person under whom the holder claims. In Maryland'^" it is provided by statute that all bills of lading '"Adoue V. Seeligson, 54 Tex. 593, Delaware, 14 Wall. (U. S.) 579, 20 L. 604; Stone v. Wabash &c. R. Co., 9 ed. 779. Bradw. (111.) 48. =» 18 and 19 Vict, ch. Ill, § 3. For "■ Pollard V. Vinton, 105 U. S. 7, 26 a case under this act, see Volieri v. L. ed. 998. See to the same effect Boyland, L. R. 1 C. P. 382. There is Wayland v. Mosely, 5 Ala. 430; Meyer a similar statute in Ontario 1 Rev V. Peck, 33 Barb. (N. Y.) 532; Steam- Stat. 1897, ch. 145, § 5, subsec. 3. boat Missouri v. Webb, 9 Mo. 193; ^1 Pub. Gen. Laws 1904, p. 361 § 6 O'Brien V. Gilchrist, 34 Me. 554; The § 248 COLLATERAL SECURITIES. 294 shall be conclusive evidence in the hands of any bona fide holder for value of such instrument, who shall have become such without actual notice to the contrary, that all of the goods, chattels and commodities in said instrument mentioned or de- , scribed had been actually received by and were actually in pos- session and custody of such person or corporation at the time of issuing the said instrument according to the tenor thereof, and for the purposes and to the effects therein stipulated or pro- vided, notwithstanding that the fact may be otherwise, and that such agent or officer may have had no authority to issue any such instrument on behalf of his said principal, except for goods, chattels or commodities actually received and in possession at the time of such issue."" § 248. Master or agent of a vessel cannot bind its owner by signing bill of lading when goods not received. — Neither the master of a vessel nor its shipping agent can bind it or its owner by signing a bill of lading for goods not received. Such a bill of lading is not only void in the hands of a person to whom it is issued, but also in the hands of a pledgee in good faith and for value."^ The question is one of agency. The Supreme Court of the United States upon this point say -.^^ "Even if the master °° In Missouri, 3 Rev. Stat. 1909, § in such bill of lading, receipt or other 11955, 119S8, it is provided by statute voucher or document." A violation that "no master, owner or agent of of this provision is punishable by a any boat or vessel of any description, fine in any sum not exceeding five forwarder, or officer or agent of any thousand dollars, or imprisonment in railroad, transfer or transportation the penitentiary of this state not ex- company, or other person, shall sign ceeding five years, or both. The per- or give any bill of lading, receipt or son aggrieved by such violation may other voucher or document for any also recover in an action at law of merchandise or property, by which it the person guilty thereof all damages shall appear that such merchandise or he has sustained. There are statutes property has been shipped on board similar to this in several states, this of any boat, vessel, railroad car or being given only as an example, other vehicle, unless the same shall " Pollard v. Vinton, 105 U. S. 7, have been actually shipped and put 26 L. ed. 998. on board, and shall be at the time ""The Schooner Freeman v. Buck- actually on board or delivered to such ingham, 18 How. (U. S.) 182, IS L. boat, vessel, car or other vehicle, to ed. 341. be carried and conveyed as, expressed 295 BILLS OF LADING. § 249 had been appointed by the claimant, a wilful fraud committed by him on a third person by signing false bills of lading, would not be within his agency. If the signer of a bill of lading was not the master of the vessel, no one would suppose the vessel bound ; and the reason is because the bill is signed by one not in privity with the owner. But the same reason applies to a signature made by a master out of the course of his' employment. The taker assumes the risk, not only of the genuineness of the sig- nature, and of the fact that the signer was master of the vessel, but also of the apparent authority of the master to issue the bill of lading. We say the apparent authority, because any Secret instructions by the owner, inconsistent with the authority with which the master appears to be clothed, would not affect third persons. But the master of a vessel has no more apparent unlim- ited authority to sign bills of lading, than he has tO' sign bills of sale of the ship. He has an apparent authority, if the ship be a general one, to sign bills of. lading for a cargo actually shipped ; and he has also authority to sign a bill of sale of the ship, when, in case of disaster, his power of sale arises. But the author- ity, in each case, arises out of, and depends upon, a particular state of facts. It is not an unlimited authority in one case more than in the other ; and his act, in either case, does not bind the owner, even in favor of an innocent purchaser, if the facts upon which his power depended did not exist ; and it is incumbent upon those who are about to change their condition, upon the faith of his authority, to ascertain the existence of all the facts upon which his authority depends." § 249. No distinction between bills of lading given by car- rier on land or water. — There is no distinction in this respect between a bill of lading given by a carrier on land and one given by a carrier on water. The exemption of the owner of a ship from liability for the fraud of the master in issuing a false bill of lading does not grow out of the peculiarities of the laws of the sea, and is not founded on the principle that the ship is § 250 COLLATERAL SECURITIES. 296 bound to the freight and the freight to the ship."^ The exemp- tion of the carrier from Habihty in such case is founded upon the common law principle, that one is not bound by the acts of an agent when acting outside the scope of his authority. So far as the agency of a master of a ship is implied, it is more compre- hensive than that of a station or freight agent of a railroad com- pany ;"* and if any argument is to be drawn from the difference of the agency in the two cases, it is that inasmuch as the master has no authority, actual or apparent, to issue bills of lad- ing until the goods are delivered to the ship, much less has the freight agent of a railroad company, whose agency is less com- prehensive, any authority to bind the railroad company by is- suing bills of lading for goods not actually delivered to the com- pany. It is not essential, however, that the agent of the car- rier, or the master of the vessel, should have actual possession of the goods, if he has potential possession of them, before executing a bill of lading. Thus he may issue a valid bill of lading upon receiving a warehouse receipt for the goods properly issued, as this places the goods within his control. § 250. Custom alone cannot make bills of lading negotiable instruments. — Neither a general nor a local custom to use bills of lading as collateral security can constitute them nego- tiable instruments as against the carrier, and make him liable to the indorsee in the same way that he would be if he had drawn negotiable bills of exchange. A bill of lading is merely a receipt by the carrier for the merchandise received for transportation and evidence of a con- tract with the shipper to carry the merchandise to its destina- tion. The carrier's liability would be the same if he received the goods and undertook to transport them without issuing a bill of lading. The carrier's contract is with the shipper and with no one else. If the shipper indorses his contract to any one else, the indorsee acquires only the rights of the shipper, and it "Robinson v. Memphis &c. R. Co., "Robinson v. Memphis &c. R. Co., 9 Fed. 129. 9 Fed. 129. 297 BILLS OF LADING. § '25O is not for the interest of commerce that he should acquire any- other rights. The common law makes it no part of the duty of a carrier to issue bills of lading which shall have the effect of negotiable securities as against him; though it holds him rigidly to the performance of his contract as a carrier. While mer- chants have from time immemorial treated bills of lading as con- venient symbols or instruments of title, which they have trans- ferred by indorsement, and have thus given them a quasi-nego- tiability or capacity to pass from hand to hand, this custom of merchants is one wholly for their own benefit, and is one which does not benefit the carrier or in any way concern him, unless it be to make him liable to the indorsee, instead of the shipper, for the delivery of the goods. Upon this point Judge Hammond, delivering the judgment of the circuit court of the United States in the case of a fraud- ulent bill of lading which an indorsee had taken as security for the discount of a draft drawn against it, said i"^ "It seems to me, with all deference, that it is a misapprehension of the true character of this instrument, and of the true relation of' the parties to it, to treat it as if the maker were engaged in the busi- ness of issuing negotiable securities, which he is bound to pro- tect at all hazards in the hands of a bona fide purchaser for value; or, as it is expressed in argument here, to protect those who innocently and in good faith deal with it. This entails a liability dehors the contract. It makes the carrier an insurer or guarantor of strangers to the Contract against loss, incurred by a use of the instrument in which the carrier has no interest, and binds him to a liability for which he is not- paid ; for the com- paratively small sum he receives as compensation for carriage will not, and is never intended to, cover or insure him against loss incurred by such a liability as that. The consideration he receives is not commensurate with the liability sought to be im- posed, and if it is determined to exist carriers must necessai-ily add to the freight a sum sufficient to indemnify them, as insur- "" Robinson v. Memphis &c. R. Co., 9 Fed. 129, 133. § 251 COLLATERAL SECURITIES. ' 298 ance companies are ; and this for the protection of outside parties dealing in matters not pertaining to the carriage of goods. More- over, it obstructs the carrier in his proper business, and entails upon him the selection of agents possessing not only the or- dinary mental and moral qualifications essential to the receiving, handling, and carriage of merchandise, but those having the relatively higher qualifications required of bank cashiers or other agents entrusted with the duty of issuing, signing, and handling bank notes, negotiable bonds, or like securities. It does not seem to me in the interest of commerce to compel carriers either to so increase the rates of, compensation or to confine them to the selection of agents as banks and trust companies are confined." § 251. Carrier not estopped from denying receipt of the goods for which bill of lading was given. — The carrier is not estopped to deny that he has received the goods specified in the bill of lading, when this has been issued by a common agent, such as a station agent, freight receiver, or conductor of a rail- road company, without actually receiving the goods, and has passed into the hands of an innocent indorsee for value. Such agent in issuing a fictitious bill of lading is not acting within the scope of his authority, or even within the apparent scope of his authority. He is authorized to receive merchandise for trans- portation, and to give a receipt for it and a contract for its trans- portation. "It was not within the apparent scope of this author- ity to sign and issue documents for the mere purpose of having them attached to drafts or -otherwise pledged as collateral secur- ity, irrespective of the actual possession of the goods to be car- ried. It may well be doubted whether the directory itself, or the body of stockholders even, could authorize the company to issue bills of lading without the merchandise in hand to be used for any purpose. The charter does not authorize such a business, and the company is not engaged in it. Therefore it seems to me plain that the agent's authority, actual and apparent, was limited to issuing bills of lading on goods in hand, and all else was out- side the agency, unless we are to treat these documents as against the carrier just as if they were as negotiable in this respect as 299 ^^^^^ °^ LADING. § 252 bills and notes, which we have seen we are not authorized to do."°= § 252. Rule in New York. — In New York an exceptional doctrine prevails, that the carrier is estopped to claim that the bill of lading does not cover the goods described in it. A bona fide indorsee of a bill of lading, who has advanced his money upon it, is entitled to rely upon the quantity and kind of goods ac- knowledged therein, and he may compel the carrier to account for that quantity, whether it was actually shipped or not. The carrier is estopped by signing the bill from settling up his own want of care at the expense of the indorsee who has thus been induced to give credit to the shipment." "There is, no doubt, an established distinction in favor of a bona fide indorsee, grounded upon the doctrine of estoppel. By signing the bill of lading, acknowledging the receipt of a given quantity of merchandise, the master has enabled his shipper to go into market and obtain money on the credit of the shipment, and cannot be permitted, as against a person so advancing, to set up his own or the ipas- ter's want of care at the expense of the indorsee. This results from the qualified negotiability of these instruments."^' A rail- road company which has issued a bill of lading for a certain num- ber of barrels of eggs, when in fact the barrels contained nothing but sawdust, is liable to an indorsee of the bill of lading who has advanced money thereon, for the injury sustained through the falsity of the bill of lading."" The carrier can always protect himself either by inspecting the packages received so as to know what they contain, or else by issuing bills of lading in such form that an indorsee would not be misled in regard to the quantity or kind of goods thereby covered. If he chooses to issue receipts for barrels or packages containing specified articles, it is not enough to deliver to a bona fide indorsee who has advanced ^ Robinson v. Memphis &c. R. Co., " Meyer v. Peck, 28 N. Y. 590, 598. 9 Fed. 129, 137. ™ Meyer v. Peck, 28 N. Y. 590, 598. "Armoui' v. Michigan Cent. ,R., 65 N. Y. Ill, 22 Am. Rep. 603. § 253 COLLATERAL SECURITIES. 3OO money on the faith of the bill of lading, packages containing articles altogether different and of no value/" But the better doctrine is that the carrier is not estopped by any error or misstatement in the bill of lading unless this was within his knowledge or should have been within his knowl- edge/^ § 253. Bill of lading not binding on the carrier may oper- ate between pledgor and pledgee. — A bill of lading may be operative between the pledgor and pledgee, though not binding upon the carrier. Thus, if a bill of lading is not binding upon the carrier, because the goods are not in fact delivered to the car- rier, it does not follow that the bill of lading may not operate as a valid transfer as between the person to whom it is issued and his pledgor, if the goods are at the time in the hands of a third person. Moreover, a bill of lading may be operative between the owner of the goods and his pledgee before the goods are actually received by the carrier. Thus, where a master of a vessel issued a bill of lading of cotton upon receiving an order therefor upon a cotton press which was duly accepted, and the shipper obtained advances upon a draft with the bill of lading annexed, it was held that the bill of lading was effectual to pass the property to the pledgee, as against a creditor of the pledgor who levied an execution upon cotton after such pledge, but before the cotton was delivered from the press to the vessel.'^ § 254. Possession of goods received through spurious bill of lading will not defeat the pledgee of the true bill. — Posses- sion of goods obtained under a spurious bill of lading will not '° Miller v. Hannibal &c. R. Co., 24 less the goods are actually shipped, Hun (N. Y.) 607, 12 N. Y. Weekly added that "in saying this we do not Dig. 272. mean that the goods must have been " See this subject in Chapter vii, actually placed on the deck of the ves- §§ 314-320. sel. H they come within the control '" Adoue V. Seeligson, 54 Tex. 593. and custody of the officers of the boat In Pollard v. Vinton, 105 U. S. 7, 26 for the purpose of shipment, the con- L. ed. 998, Miller, J., after stating tract of carriage has commenced, and the general rule that a bill of lading the evidence of it in the form of a is not a contract upon the carrier un- bill of lading is binding.'' 301 BILLS OF LADING. § 255 avail against a pledgee of the true bill of lading. The general own- er of goods having obtained advances upon the security of bills of lading representing the goods, has no right to the possession, disposal, or control of the goods, and any possession obtained, or dominion exercised by him, without the pledgee's assent, is tor- tious and confers no title. Thus, genuine bills of lading having been obtained at Chicago, of wheat shipped on board a propeller for Buffalo, and drafts having been discounted on the security of such bills of lading, the general owner afterward obtained false bills of lading of the wheat as shipped upon certain canal boats at Buffalo, before the wheat had arrived there, although the wheat was afterward shipped upon the canal boats named in the false bills of lading. Against the latter bills of lading the owner also drew drafts which were paid by the consignees, relying upon the security of these bills. They afterward obtained possession of the wheat. In an action against them by the holder of the first bill of lading and a draft drawn against it, it was held that the plaintiff was entitled to recover ; that not having clothed the gen- eral owner with any authority to dispose of the wheat or to obtain new bills of lading, the latter represented no value, and the plaintiff was not estopped from reclaiming the property.''^ § 255. Assignment of bill of lading conclusive of the ship- per's intention. — The assignment of a bill of lading drawn to the shipper's own order as security for the discount of a draft drawn against it may be regarded as conclusive of the shipper's intention that the property shall not pass to the drawer except upon his payment or acceptance of the draft.'* A bill of lading so drawn shows an intent on the part of the shipper to reserve to himself the dominion over the goods shipped; and when he as- signs such bill to another as security, his intention is conclusively "Marine Bank v. Fiske, 71 N. Y. v. Eastern R. Co., US Mass. 233; Se- 353. curity Bank v. Luttgen, 29 Minn. 363, "Dows V. National Exch. Bank, 91 13 N. W. ISl; Mason v. Great West- XT. S. 618, 23 L. ed. 214; Jenkyns v. ern R. Co., 31 U. C. Q. B. 7i; Peo- Brown, 14 Q. B. 496; Mitchell v. Ede, pie's Nat. Bank v. Stewart, 3 Pug. & 11 Ad. & E. (N. S.) 888; Alderman Bur. (N. B.) 268. § 256 COLLATERAL SECURITIES. 3O2 shown that such assignee shall have a special property in the goods and the full control of them until the draft is accepted or paid; and it is immaterial whether such assignee holds the bill of lading as security for the payment or acceptance of the draft.'® The intention that such assignment shall confer a special property in the goods arises even when the goods have been shipped in a vessel belonging to the person upon whom the draft is drawn.'* It is likewise so even if the goods be delivered to the drawer as a mere warehouseman, and not as' a purchaser; and a subsequent sale by him to another would confer no title against the holder of the draft or the shipper. § 256. Bill of lading as security for acceptance of time draft. — A bill of lading is regarded as security for the ac- ceptance of a time draft drawn against it rather than as security for the payment of such draft, in the absence of any express stip- ulation , about it. It was urged in behalf of a bank which discount- ed certain drafts that the bills of lading were taken as security for the principal obligation, namely, the payment of the draft. But the court replied that this is an assumption of the very thing to be proved : to wit, that the transfer of the' bills of lading was made to secure the payment of the drafts." "The opposite of this, as we have seen, is to be inferred from the bills of lading and the time drafts drawn against the consignments unexplained by ex- press stipulations. The bank, when discounting the drafts, was bound to know that the drawees on their acceptance were entitled to the cotton, and of course to the evidences of title to it. If so, they knew that the bills of lading could not be a security for the ultimate payment of the drafts. Payment of the drafts by the drawees was no part of the contract when the discounts were made. The bills of exchange were then incomplete. They needed acceptance. They were discounted in the expectation "Hathaway v. Haynes, 124 Mass. &c. R. Co., L. R. 2 Ch. App. 332; El- 311, 313; Security Bank v. Luttgen, lershaw v. Magniac, 6 Exch. 570. 29 Minn. 363, 13 N. W. ISl. " Dows v. National Exch. Bank, 91 '" Turner v. Liverpool Docks, 6 U. S. 618, 23 L. ed. 214. Exch. S43; Schotsmans v. Lancashire 303 BILLS OF LADING. § 257 that they would be accepted, and that thus the bank would obtain additional promisors. The whole purpose of the transfers of the bills of lading to the bank may therefore well have been satis- fied when the additional names were secured by acceptance, and when the drafts thereby became completed bills of exchange. We have already seen that whether the drafts and accompanying bills of lading evidenced sales on credit on requests for advance- ments on the cotton consigned, or bailments to be sold on the con- signor's account, the drawees were entitled to the possession of the cotton before they could be required to accept; and that if they had declined to accept because possession was denied to them concurrently with their acceptance, the effect would have been to discharge the drawers and indorsers of the drafts. The de- mand of acceptance, coupled with a claim to retain the bills of lading, would have been an insufficient demand. Surely the pur- pose of putting the bills of lading into the hands of the bank was to secure the completion of the drafts by obtaining additional names upon them, and not to discharge the drawers and indors- ers, leaving the bank only a resort to the cotton pledged."'^ § 257. Agent to whom bill of lading with time draft has been sent may give up the bill on payment of draft. — A bank or other agent, to whom a bill of lading with a time draft has been forwarded for collection, may surrender it to the consignee upon his acceptance of the draft, if the drawer has not expressly directed that the bill' of lading shall not be surrendered till the draft is paid."" It is immaterial also whether the draft be in- dorsed "for collection" or not; for these words simply rebut the inference that the indorsee is the owner of the draft. The agent receiving a time draft accompanied by a bill of lading, by the " National Bank v. Merchants' Nat. Co. Bank v. Bank of British N. A., 21 Bank, 91 U. S. 92, 23 L. ed. 208. U. C. Q. B. 284; affirmed 2 U. C. Er- ''» National Bank v. Merchants' ror & Appeal, 282; Goodenough v. Nat. Bank, 91 U. S. 92, 23 L. ed. 208; City Bank, 10 U. C. C. P. 51; Clark Lanfear v. Blossman, 1 La. Ann. 148, v. Bank of Montreal, 13 Grant's 45 Am. Dec. 76; Mears v. Waples, 4 (Canada) Ch. 211; Wisconsin Marine Houst. (Del.) 62; affirming 3 Houst. & F. Ins. Co. Bank v. Bank of British (Del.) 581; Wisconsin M. & F. Ins. N. A., 21 U. C. Q. B. 284. § 257 COLLATERAL SECURITIES. 304 terms of which the property is deliverable to the consignee, is entitled to infer either that the merchandise specified has been sold on credit, in accordance with the terms of the draft, or that the draft is a request for an advance upon a consignment of goods to be sold on account of the shipper. If the transaction be the former, then the consignee, being a purchaser, is entitled in the absence of any express arrangement to the contrary, to the possession of the goods on his accepting the bill.''' If on the other hand the inference to be drawn is that advances are re- quested upon a consignment of the goods, the consequence is the same. In such case it is plain that the acceptance is asked for on the faith of the consignment, and not on the credit of the drawer. To refuse the consignee the bill of lading would be to withhold from him the very security upon which he is asked to accept the draft. An agent for collection cannot be permitted, by declining to surrender the bill of lading on the acceptance of the draft, to disappoint the obvious intentions of the parties, and deny to the acceptor a substantial right which is assured to him by his contract. This in brief is the reasoning of the Supreme Court of the United States in the leading case upon this subject. This rea- soning is supported by other rational considerations. "In the absence of special agreement, what is the consideration for ac- ceptance of a time draft drawn against merchandise consigned? Is it the merchandise? or is it the promise of the consignor to deliver? If the latter, the consignor may be wholly irresponsi- ble. If the bill of lading be to his order, he may, after accept- ance of the draft, indorse it to a stranger and thus wholly with- draw the goods from any possibility of their ever coming to the hands of the acceptor. Is, then, the acceptance a mere purchase of the promise of the drawer? If so, why are the goods for- warded before the time designated for payment? They are as much, after shipment, under the control of the drawer as they '° National Bank of Commerce v. doubted, if, instead of an acceptance. Merchants' Nat. Bank, 91 U. S. 92, 23 he had given a promissory note for L. ed. 208. "This would not be the goods, payable at the expiration of 305 BILLS OF LADING. § 257 were before. Why incur the expense of storage and of insur- ance? And if the draft with the goods or with the bill of lading be sent to a bank for collection as in the case before us, the stipulated credit. In such a case, it is clear that the vendor could not re- tain possession of the subject of the sale after receiving the note for the price. The idea of a sale on credit is that the vendee is to have the thing sold on his assumption to pay, and be- fore actual payment. The considera- tion of the sale is the note. But an acceptor of a bill of exchange stand? in the same position as the maker of a promissory note. If he has purchased on credit, and is denied possession un- til he shall make payment, the trans- action ceases to be what it was in- tended, and is converted into a cash sale. Everybody understands that a sale on credit entitles the purchaser to immediate possession of the prop- erty sold, unless there be a special agreement that it may be retained by the vendor; and such is the well- recognized doctrine of the law. The reason for this is, that very often, and with merchants generally, the thing purchased is needed to provide means for the deferred payment of the price. Hence it is justly inferred that the thing is intended to pass at once with- in the control of the purchaser. It is admitted that a different arrangement may be stipulated for. Even in a credit sale, it may be agreed by the parties that the vendor shall retain the subject until the expiration of the credit, as a security for the payment of the sum stipulated. But, if so, the agreement is special, something su- peradded to an ordinary contract of sale on credit, the existence of which is not to be presumed. Therefore, in a case where the drawing of a time 20— Col. Sec. draft against a consignment raises- the implication that the goods consigned have been sold on credit, the agent to whom the draft to be accepted and the bill of lading to be delivered have been entrusted cannot reasonably be required to know, without instruction, that the transaction is not what it pur- ports to be." He has no right to as- sume and act on the assumption that the vendee's term of credit must ex- , pire before he can have the goods, and that he is bound to accept the draft, thus making himself absolutely responsible for the sum named there- in, and relying upon the vendor's en- gagement to deliver at a future time. This would be treating a sale on credit as a mere executory contract to sell at a subsequent date." That the drawee in such a case is not bound to accept the draft except upon sur- render to him of the bill of lading, see also dicta in Shepherd v. Harri- son, L. R. 4 Q. B. 493, L. R. 5 H. L. 116; Coventry v. Gladstone, L. R. 4 Eq. 493; Gurney v. Behrend, 3 El. & Bl. 622; Schuchardt v. Hall, 36 Md. 590, 11 Am. Rep. 514; Marine Bank v. "Wright, 48 N. Y. 1 ; Cayuga Bank v. Daniels, 47 N. Y. 631 ; Security Bank v. Luttgen, 29 Minn. 363, 13 N. W. 151. In National Bank of Commerce V. Merchants' National Bank, 91 U. S. 92, 23 L. ed. 208, after a review of the authorities, Mr. Justice Strong said : "We feel justified in saying, that, in our opinion, no respectable case can be found in which it has been decided that when a time draft has been drawn against a consignment to order, and has been forwarded to § 258 COLLATERAL SECURITIES. 306 can it be incumbent upon the bank to take and maintain custody of the property sent during the interval between the acceptance and the time fixed for payment? * * * Meanwhile, though it be a twelvemonth, and no matter what the fluctuations in the mar- ket value of the goods may be, are the goods to be withheld from sale or use ? Is the drawee to run the risk of falling prices with no ability to sell until the draft is due ? If the consignment be of perishable articles, — such as peaches, fish, butter, eggs, etc., — are they to remain in the warehouse until the term of credit shall ex- pire? And who is to pay the warehouse charges? Certainly not the drawees. If they are to be paid by the vendor or one who has succeeded to the place of the vendor by the indorsement of the draft and bill of lading, he fails to obtain the price for which the goods were sold."*" § 258. Agreement that the bill of lading shall secure pay- ment of time draft, rather than its acceptance. — It may be expressly agreed that the bill of lading shall secure the payment of a time draft rather than the acceptance of it. If the holder of a bill of lading as security for a time draft drawn against it be expressly authorized to hold it until the draft be paid, he is, of course, under no legal obligation to surrender the security upon the acceptance of the draft, and to trust to the personal liability of the acceptors for payment; and the drawer in such case is not entitled to require a formal presentment of the bill of exchange for acceptance, and notice of its non-acceptance." A custom of trade not to deliver the bill of lading till pay- ment of the acceptance, is exceptional.*^ But an agent receiv- ing a time draft and a bill of lading attached, with instructions to hold the goods until payment, has no power prior to such pay- an agent for collection with the bill Merchants' Nat. Bank, 91 U. S. 92, of lading attached, without any fur- 97, 23 L. ed. 208. ther instructions, the agent is not jus- " Schuchardt v. Hall, 36 Md. 590, 11 tified in delivering over the bill of Am. Rep. 514; People's Nat. Bank v. lading on the acceptance of the Stewart, 3 Pug. & Bur. (N. B.) 268. draft." ^Gurney v. Behrend, 3 El. & Bl. ™ National Bank of Commerce v. 622, 629 ; Coventry v. Gladstone, L. R. 4 Eq. 493, 6 Eq. 44. 307 BILLS OF LADING. § 259 ment, to make a delivery of the goods to the consignee which will divest the ownership of his principal.*' Thus, if one who had discounted a draft drawn against a bill of lading of wheat, for- ward the draft with the bill of lading attached, to an agent, with instructions by special indorsement and by letter, to hold the wheat until payment of the draft, the agent has no power prior to such payment, to make a delivery which will divest the ownership of his principal." § 259. Agreement between shipper and pledgee may be shown by parol. — Parol evidence is admissible of an agree- ment made between a shipper and a pledgee of a time draft with a bill of lading attached, that the bill of lading should not be delivered until the draft should be paid. The indorsement and delivery of the bill of lading do not constitute a written contract having a fixed definite meaning in the law presumably complete in itself, and of a nature to exclude from consideration all ex- press parole agreements as to the conditions annexed to the trans- fer. The indorsement and delivery of a bill of lading have no such fixed legal effect as flows from the indorsement and delivery of negotiable paper, but operate only as a delivery of the mer- chandise represented in the bill of lading.*^ If, therefore, a merchant ships goods and takes a bill of lading to his own order, and drawing a bill of exchange payable thirty days after sight, attaches it to the bill of lading and obtains a discount of it at a bank, the transaction legally interpreted does not import a sale of the goods upon credit, or determine that the drawer is entitled to the bill of lading upon his acceptance of the draft without payment; and if the bank surrenders the bill of lading to the con- signee upon his acceptance of the draft, and the latter becomes insolvent without paying the draft, the bank must bear the loss, and cannot recover of the drawer the amount of the draft.*" " Dows V. Nat. Exch. Bank, 91 U. "* Dows v. Nat. Exch. Bank, 91 U. S. 618, 23 L. ed. 214; Stollenwerck v. S. 618, 23 L. ed. 214. Thacher, 115 Mass. 224; Gurney v. '" Security Bank v. Luttgen, 29 Behrend, 3 El. & Bl. 622; Pease v. Minn. 363, 13 N. W. 151. Gloahec, L. R. 1 P. C. 219. «■ Security Bank v. Luttgen, 29 Minn. 363, 13 N. W. 151. § 260 COLLATERAL SECURITIES. 308 § 260. Title of the holder of bill of lading for payment of a draft is conditional. — The title of one who holds a bill of lad- ing for a draft upon the consignee is subject to the condition that it shall be divested upon the consignee's acceptance or payment of the draft, when the title to the property vests in the latter. Thus, if the draft be a time draft, so that the consignee is entitled to the goods upon acceptance of the draft, the title passes to him upon his acceptance, and the security of the holder of the draft is transferred to the personal liability of the consignee as ac- ceptor; but if he refuses to accept, the title continues unimpaired in the holder of the draft.'^ On the other hand, if the holder of the draft is entitled to retain the bill of lading until the draft is paid, his right of property and possession passes to the consignee only upon the condition of his paying the bill of exchange.*' "It thus appears to be established as a correct rule that a person purchasing a draft drawn by the shipper of the goods with a bill of lading accompanying it, has a special property in the goods covered by the bill of lading ; usually in the case of a time draft this special property vests in the purchaser of the draft as security for its acceptance. It may be, if so agreed between the shipper and the purchaser of the draft, that the purchaser will have a right to retain the bill of lading, and thus retain his special prop- erty in the goods shipped, not only for the acceptance but for the payment of the draft."*" § 261. Bills of lading — How pledged as collateral? — A bill of lading drawn to the order of the consignor is properly as- signed by his indorsement. His pledge of it in this way passes " First Nat. Bank v. Kelly, 57 N. titt v. First Nat. Bank, 4 Bush (Ky.) Y. 34, 37; Commercial Bank v. Pfeif- 334; Richardson v. Nathan, 167 Pa. fer, 108 N. Y. 242, 15 N. E. 311; Ma- St. S13, 31 Atl. 740; Neill v. Rogers rine Bank v. Wright, 48 N. Y. 1 ; Bros. Produce Co., 41 W. Va. 37, 23 Cayuga Bank v. Daniels, 47 N. Y. 631 ; S. E. 702. First Nat. Bank v. Crocker, 111 Mass. "' Jenkyns v. Brown, 14 Q. B. 496; 163; Allen v. Williams, 12 Pick. Hieskell v. Farmers' & Mechanics' (Mass.) 297; First Nat. Bank v. Nat. Bank, 89 Pa. St. ISS, 33 Am. Rep. Dearborn, 115 Mass. 219, 15 Am. Rep. 745. 92; Hathaway v. Haynes, 124 Mass. »° Dodge v. Meyer, 61 Cal. 405, 10 311; Tilden v. Minor, 45 Vt. 196; Pe- Pac. Coast L. J. 169. 309 BILLS OF LADING. § 262 to the assignee the title to the goods it represents."" But a mere indorsement of it, without a delivery, does not transfer the prop- erty in the goods." The consignor having indorsed and delivered the bill of lading, the carrier is bound to deliver the goods to the person holding this evidence of title, and cannot deliver them to any other person without violating his contract and making himself responsible for the loss that the holder of the bill of lading may thereby suffer."'' A bill of lading with the name of a particular consignee, or bearer, may be transferred by delivery merely,"^ unless there be a statute imperatively requiring indorsement. Such an indorsement and delivery transfers a special property in the goods to the holder of the draft drawn against them, both as against the consignor, and as against any creditor of his."* § 262. Bill of lading drawm to the shipper's order may be transferred by delivery. — A bill of lading drawn to the ship- per's order may be transferred by delivery merely without any indorsement so as to transfer the property represented thereby."* "The rule is well settled that property or goods shipped by a bill of lading drawn to order, may be transferred by delivery to a third person without any indorsement. * * * Bills of lading are choses in action, and no rule is better established than that instruments of this character may be transferred for a valuable consideration by delivery only. Although the plaintiff was not "Tildenv. Minor, 45 Vt. 196; Hies- "Hathaway v. Haynes, 124 Mass. kell V. Farmers' & Mechanics' Nat. 311; Forbes v. Boston & Lowell R. Bank, 89 Pa. St. ISS, 33 Am. Rep. 745 ; Co., 133 Mass. 154. Robinson v. Stuart, 68 Me. 61 ; Wins- "" Bank of Rochester v. Jones, 4 N. low V. Norton, 29 Me. 419, SO Am. Y. 497, 55 Am. Dec. 290n; Merchants' Dec. 601; Bache v. Phillips, 155 Pa. Bank v. Union R. & Transportation St.^103, 25 Atl. 891. Co., 69 N. Y. m; Marine Bank v. "Buffington v. Curtis, IS Mass. 528, Wright, 46 Barb. (N. Y.) 4S; Michi- 8 Am. Dec. 115. gan Central R. Co. v. Phillips, 60 111. Forbes v. Boston & Lowell R. Co., 190; Davenport Bank v. Homeyer 45 133 Mass. 154. Mo. 145, 100 Am. Dec. 363. Allen V. Williams, 12 Pick. (Mass.) 297. § 262 COLLATERAL SECURITIES. 3 10 a party to the bill of lading, it cannot affect his right to the contract contained in the same, if he acquired it lawfully.""' Such a transfer does not, like the delivery of an unindorsed note, transfer a merely equitable title; but it gives as valid and effec- tual a title to the goods represented by the bill of lading as could be obtained by an actual delivery of the goods themselves, if there was an intent to pass the title by such delivery. °' Such in- tent may be shown by the circumstances attending the transac- tion."* The fact that the bill of lading is delivered by the shipper as security to one who discounts a draft drawn against it, is well nigh conclusive of the shipper's intention to transfer the prop- erty in the goods."" In a case where a bank discounted a draft on the security of a bill of lading, which was delivered to it without indorsement, and the consignee refused to pay the draft, but sold the prop- erty and applied the proceeds to an old debt due him from the consignor, it was held that the bill of lading was evidence of an appropriation of the proceeds of sale of the property con- tained in the bill of lading, whether it was indorsed or not; and that the consignee having notice of the draft and bill of lading before selling the goods, was informed of the appropria- tion of the proceeds of sale, and could not apply them to an old debt due to himself.^ "Merchants' Bank v. Union R. & R. Co. v. Phillips, 60 111. 190; Peters Trans. Co., 69 N. Y. 373; and see Gib- v. Elliott, 78 111. 321, 326; Davenport son V. Stevens, 8 How. (U. S.) 384, Bank v. Homeyer, 45 Mo. 145, 100 400, 2 L. ed. 1123. Am. Dec. 363; Skilling v. BoUman, 6 " Becker v. Hallgarten, 86 N. Y. Mo. App. Id. See, hovvrever, Bissell v. 167, 175; Glidden v. Lucas, 7 Cal. 26; Steel, 67 Pa. St. 443. Allen V. Williams, 12 Pick. (Mass.) "Merchants' Bank v. Union R. & 297, 301 ; Holmes v. Bailey, 92 Pa. St. Transportation Co., 69 N. Y. 373. 57 ; Holmes v. German Security Bank, °° Dows v. Nat. Exch. Bank, 91 U. 87 Pa. St. 525 ; City Bank v. Rome, W. S. 618, 23 L. ed. 214; Cayuga Bank v. & O. R. Co., 44 N. Y. 136; St. Louis Daniels, 47 N. Y. 631; Merchants' National Bank' v. Ross, 9 Mo. App. Bank v. Union R. & Trans. Co., 69 399 ; Petitt v. First Nat. Bank, 4 N. Y. 373. Bush (Ky.) 334; Dodge v. Meyer, 61 ^Holmes v. German Security Bank, Cal. 405, 10 Pac. Coast L. J. 169; 87 Pa. St. 525 ; approved and foUowred Bank of Rochester v. Jones, 4 N. Y. in Holmes v. Bailey, 92 Pa. St. 57. 497, 55 Am. Dec. 290n; Michigan Cent. 311 BILLS OF LADING. § 263 In a Kentucky case a bank had discounted drafts drawn against bills of lading which were deposited with the bank with- out indorsement or other writing, and, without actual delivery of the cotton represented by the bills of lading. The cotton was subsequently attached while in transitu by creditors of the ship- per. It was held that the bank had a lien upon the cotton para- mount to that created by the levy of the attachment.^ § 263. A bill of lading not drawn to order or bearer may be pledged by delivery. — An informal bill of lading, or one not drawn to order or bearer, may be effectually pledged by delivery without indorsement. A delivery of any documentary evidence of property with an intent that the transferee shall hold the prop- erty in pledge, is a good symbolical delivery of it, so as to vest a special property in the transferee.' The policy of the law in this matter was well expressed by Chief Justice Eyre in the last century; and this policy certainly should not be less liberal now. He says:* "I see no reason why we should not expound the doctrine of transfer very largely upon the agreement of the parties, and upon their intent to carry the substance of that agreement into execution." In an Illinois case the railroad shipping receipt delivered in pledge simply acknowledged the receipt of certain goods from the consignor, without naming any consignee, and stated that "this receipt is not transferable." It was contended that the ° Petitt V. First Nat. Bank, 4 Bush tent ; and a valuable and executed (Ky.) 334; and see to like effect, consideration in the discounting of the Skilling V. Bollman, 6 Mo. App. 16. draft. The fact that the goods were To the satae effect, see Leinkauf in the custody of the defendants would Banking Co. v. Grell, 62 App. Div. (N. not prevent this arrangement from Y.) 275, 70 N. Y. S. 1083. having the effect to transfer the title ' Gibson V. Stevens, 8 How. (U. S.) of consignors to the plaintiffs. * * * 384, 12 L. ed. 1123; First Nat. Bank v. Whether it should be regarded as a Crocker, 111 Mass. 163, 169. The court sale, a pledge or a mortgage, there in the latter case says : "We have then was a sufficient delivery to give to the in this case an intent of the general plaintiffs a special property, which owners of the flour to make use of it they could enforce by suit against any as a security for an advance of money wrongdoer." from the plaintiffs ; a delivery of the ' Haille v. Smith, 1 B. & P. 563, 571. bill of lading in pursuance of that in- § 263 COLLATERAL SECURITIES. 312 delivery of this receipt without indorsement did not pass any right to the goods in course of transportation, as against a creditor of the consignor who attached the goods in the hands of the railroad company. But the court held that such delivery of the receipt vested in the pledgee a special property in the goods sufficient to maintain replevin against the ofificer who made the attachment. As to the provision that the receipt was not transferable, the court say:° "It is enough to say, that, whatever the reason of this provision, it must have been, for some purpose, in the interest of the railroad company. As the company intended and undertook to carry and deliver the flour to the consignees, the delivery of the shipping receipt to them, or for their benefit, was only to the strengthening of their right to have the delivery of the flour made to them, and it is not perceived how plaintiffs', the consignees, assertion of right to the property, through a delivery of the receipt, should interfere with any interest of the railroad company, or any object of this provision in the shipping receipt. We do not conceive that it has any significance in its bearing upon the rights of the parties in this suit." In a Massachusetts case it was held that the delivery of a carrier's receipt not negotiable in form, as security for advances, with the intention to transfer the property in the goods, is a symbolical delivery of the goods themselves, and vests in the person making the advance a special property sufficient to enable him to maintain replevin against an officer who afterward at- taches them as the property of the general owner." Mr. Justice ° Peters v. Elliott, 78 111. 321, 324. goods were attached as the property "First Nat. Bank of Green Bay v. of the general owner. It was held Dearborn, US Mass. 219, 222, 15 Am. that enough had not been done to Rep. 92. This case is referred to in give the pledgee a good title as against the subsequent case of Hallgarten v. the attaching creditor. Holmes, J., Oldham, 135 Mass. 1, 46 Am. Rep. referring to First Nat. Bank of Green 433, which arose upon a pledge of a Bay v. Dearborn, said : "In that case warehouse receipt not drawn to order the plaintiff discounted Parks & Co.'s or bearer, v^hich was transferred in draft on Harvey, Scudder & Co. pledge by indorsement and delivery, against a railroad receipt, of which Before any notice of the transfer had the following were the material been given to the warehouseman, the words : 'Received from R. G. Parks 313 BILLS OF LADING. § 264 Ames, delivering the opinion of the court, said : "It is true that a receipt of this Icind does not purport on its face to have the qua- si-negotiable character which is sometimes said to belong to bills of lading in the ordinary form ; neither does it purport in terms to be good to the bearer. But independently of any indorsement, or formal transfer in writing, the possession and production of it would be evidence indicating to the carrier that the bank was entitled to demand the property, and that he would be justified in delivering it to thfem. There are cases in which the delivery of a receipt of this nature, though not indorsed or formally trans- ferred, yet intended as a transfer, has been held to be a good symbolical delivery of the property described in it." § 264. Third persons who pay drafts drawn against bills of lading have lien. — A third person by paying a draft drawn & Co., one hundred barrels of flour consigned to Harvey, Scudder & Co., Boston.' This was delivered to the plaintiff in Wisconsin, on the under- standing that the property was there- by transferred as security for the ad- vances. Scudder & Co. declined to accept the draft, and the goods were attached by the defendants. The plaintiff brought replevin and was held entitled to recover. It will be observed that the document did not run to order, and was not indorsed, so that it could not be argued that the railroad company had attorned in ad- vance, and there was no notice to the company, so that it had not made itself the plaintiff's bailee subsequent- ly, if ordinary principles were to be applied. It was said, however, that the carrier become the plaintiff's bailee from the time its receipt was delivered. A carrier does stand dif- ferently from other bailees in one re- spect. He has no delectus personarum, but is bound to carry for any one who takes proper steps to make him do so. There is, too, the further circum- stance, that the usual mode of ship- ping grain is to draw against it, and to get a bank to discount the draft. But it may be doubted whether the sugges- tion was warranted that a carrier would not ordinarily give up the goods except upon a production and surrender of the receipt. Forbes v. Boston & Lowell R., 133 Mass. 154, 158. And, so far as the language might seem to imply that the mere passing of the property, as between the parties, made the carrier bailee for the plaintiff by the general law of bailment, it seems to us too broad. * * * But whatever the scope of Green Bav National Bank v. Dear- born, we cannot apply it as a prece- dent in the present case, so long as Lanfear v. Sumner stands." For the case of Hallgarten v. Oldham, see §§ 298-302. It seems hardly probable that the narrow doctrine of delivery laid down in Lanfear v. Sumner, and followed in Hallgarten v. Oldham, will be adopted elsewhere. § 265 COLLATERAL SECURITIES. 3I4 against a bill of lading, and receiving the latter as security, be- comes vested with the title to the goods represented thereby,' though the bill of lading be drawn to the consignee's own order, and it be delivered without indorsement to the person paying the draft. And if the carrier delivers the goods without his order to the consignee upon whom the draft was drawn, the delivery is wrongful, and the carrier becomes liable for the goods to the holder of the bill of lading.* § 265. One discounting draft on bill of lading can maintain replevin for the goods shipped. — One who discounts a draft on the faith of a bill of lading delivered with the draft has such a property in the goods that he can maintain replevin against an officer who afterward attaches them upon a suit against the gen- eral owner,' or against any other person who holds the goods. It is not necessary for this purpose that the plaintiff should be the absolute owner of the property; it is enough that he has a right of property and of possession to secure payment of the draft.^" The right of the shipper is divested by his pledge of the property by delivery of the symbol of it, leaving him only a right in the surplus money which may remain after payment of the draft." § 266. Bona fide holder of bills of lading. — A bona fide holder of a bill of lading put into circulation with the consent of the shipper has a title to the goods freed from the equitable rights of the unpaid shipper to stop the goods in transitu. ^^ ' Tiedeman v. Knox, S3 Md. 612. ics' Nat. Bank, 89 Pa. St. ISS, 33 Am. ' Joslyn V. Grand Trunk R. Co., 51 Rep. 745. Vt. 92 ; Newcomb v. Boston & Lowell " De Wolf v. Gardner, 12 Cush. R. Co., 115 Mass. 230. (Mass.) 19, 24, 59 Am. Dec. 165n; ' First National Bank v. Dearborn, Fifth National Bank v. Bayley, 115 115 Mass. 219, 15 Am. Rep. 92; Fifth Mass. 228; Dows v. Nat. Exch. Bank, National Bank v. Bayley, 115 Mass. 91 U. S. 618, 23 L. ed. 214; National 228; Gibson v. Stevens, 8 How. (U. Bank v. Merchants' Bank, 91 U. S. S.) 384, 12 L. ed. 1123; Peters v. El- 92, 95, 23 L. ed. 208; Lanfear v. Bloss- liott, 78 111. 321. See, however, Bissell man, 1 La. Ann. 148, 153, 45 Am. Dec. V. Steel, 67 Pa. St. 443. 76. " Hieskell v. Farmers' and Mechan- " Lickbarrow v. Mason, 2 T. R. 63, 315 BILLS OF LADING.^ § 266' The vendor's right of stoppage in transitu is defeated by his indorsement and delivery of a bill of lading of the goods to a bona fide indorsee for a valuable consideration, such as a loan of money, without notice of facts on which such right would otherwise exist; for such indorsement and delivery of the bill of lading passes the property to the lender.^^ Thus a purchaser of a shipment of nuts, to be paid for at three months, indorsed the bills of lading as security for a loan made in good faith upon the security. At the time of the application for the loan the borrower was already indebted to the lender, who said he would make the further advance desired, but the borrower must first cover his account. The borrower promised to do this, though he did not name any particular securities, and the lender at once made the further advance. On the subsequent arrival of the ship with the nuts the vendor sought to stop them in transitu, the purchaser having stopped payment; but it was held that the pledgee had a good title as against the vendor." This is the general rule, even when the consideration for the indorse- ment of the bill of lading is an antecedent debt, and in no part arose at the time the bill of lading was handed to the transferee by the lawful holder.^^ 6 East 21; Mason V. Lickbarrow, 1 H. hjLS always a present operation. It Bl. 357, 362 ; Barber v. Meyerstein, L. stays the hand of the creditor. If the R. 4 H. L. 317 ,' The Mary Ann Guest, plaintiff had agreed on the day the Olcott (U. S.) 498; Dows v. Greene, bill of lading was handed to him to 24 N. Y. 638 ; Dows v. Rush, 28 Barb, give a week's time, there would have (N. Y.) 157; Rawls v. Deshler, 1 been a present consideration. Is it Sheldon (N. Y.) 48; Winne v. Mc- necessary there should be a formal Donald, 39 N. Y. 233 ; Wait v. Green, agreement in lieu of that which, 36 N. Y. 556; Western Union R. Co. whether it would support legal pro- V. Wagner, 65 111. 197. ceedings, as was contended by the " Becker v. Hallgarten, 86 N. Y. 167. plaintiff, or not, was, no doubt, such " Leask v. Scott, 2 Q. B. D. 376. an understanding that, if the plaintiff "Leask v. Scott, 2 Q. B. D. 376, had taken proceedings against the dissenting from Rodger'v. Comptoir borrower the day after he had re- d'Escompte de Paris, L. R. 2 P. C. ceived the security, he would have 393. Bramwell, L. J., in delivering the committed a breach of faith? * * * judgment of the court, said on this If the borrower, in this particular point: "Practically such a past con- case, had said this bill of lading was sideration as is now under discussion coming forward, and they would § 267 COLLATERAL SECURITIES. 316 § 267. Vendor's right of stoppage in transitu. — The ven- dor's right of stoppage in transitu is not discharged absolutely by his indorsement of the bill of lading by way of security or pledge, but that right must be exercised subject to the charge in favor of such indorsee, who must be paid off before the vendor can assume full control of the goods. After the pledgee has been paid, the- vendor stands in exactly the same position as to everybody else, as if there had been no indorsement of the bill of lading by way of security or pledge. The vendor's right of stoppage is not defeated by the pledging of the bill of lading, ex- cept as against the pledgee.^" § 268. Title of the shipper of goods. — A shipper of goods does not lose his title to them by inserting the name of the con- signee in a bill of lading of them.^^ If a time draft be drawn against the bill of lading the consignee acquires the title to the goods only in case he accepts the draft. In the meantime if the draft be discounted on security of the bill of lading the title to the goods vests in the holder of the draft. The assignee of the bill of lading obtains a title to the goods not only as against the consignor but as against the consignee, although the former is indebted to the latter in a sum greater than the value of the goods.^* Thus the owner of a quantity of flour having consigned hand it to the plaintiff, then value that the goods are unpaid for, and would have been obtained by means the purchaser insolvent, is protected of the bill of lading; so if he had said in his title against the seller's right of generally that he had securities com- stoppage in transitu, ing forward and would deposit them ; " Bank of Rochester v. Jones, 4 N. and what is the difference between a Y. 497, 55 Am. Dec. 290n; Michigan promise with such a statement and a Cent. R. Co. v. Phillips, 60 111. 190; promise without it?" Taylor v. Turner, 87 111. 296; First '"Kemp v. Falk, L. R. 7 App. Cas. Nat. Bank v. Crocker, 111 Mass. 163; 573 ; affirming In re Westzinthus, S B. Pratt v. Parkman, 24 Pick. (Mass.) & Ad. 817; Spalding v. Ruding, 6 42; Valle v. Cerre, 36 Mo. 575, 88 Beav. 376 ; Missouri Pacific R. Co. v. Am. Dec. 161 ; Jenkyns v. Brown, 14 Heidenheimer, 82 Tex. 195, 17 S. W. Q. B. 496. 608, 27 Am. St. 861. In Georgia it is " Bank of Rochester v. Jones, 4 N. provided by statute that a bona fide Y. 497, 55 Am. Dec. 290n; People's assignee of a bill of lading for a valu- Nat. Bank v. Stewart, 3 Pug. & Bur. able consideration, and without notice (N. B.) 268. 317 BILLS OF LADING. § 269 it to his factor in another city drew upon the factor against the flour and obtained a discount of the draft upon a delivery of the bill of lading as security. The consignor being already indebted to the factor for previous consignments, the latter refused to ac- cept the draft; but detached and retained the bill of lading, and thereby obtained possession of the flour. In a suit against him by the holder of the draft, he was held liable for a conversion of the flour. He could acquire title to the flour only upon the condi- tion of accepting the draft, and he became a wrong-doer by taking possession of the flour without such acceptance.^" Upon the delivery of the bill of lading to the consignee, the title passes to him from the consignor, so that he has no con- trol of the property and his creditors cannot seize or attach it.^° § 269. Consignee's rights and liabilities. — If a consignee obtains the goods from the carrier without accepting drafts se- cured by the bills of lading, and sells the goods, he is liable to the holder of the drafts for the proceeds of the sale. He obtains no title or authority under a bill of lading if he refuses to comply with the terms upon which he is made consignee, namely, the acceptance of payment of the drafts drawn against it. The title to the property and the right of possession are both in the holder of the drafts." Even if a bill of lading be sent directly to the consignee with a draft upon him attached, or enclosed in the same letter,^^ the consignee cannot retain the bill of lading and under it take pos- session of the goods without accepting the draft.^^ If the con- signee retains the bill of lading without accepting the draft he acquires no right of property.^* " Bank of Rochester v. Jones, 4 N. "' Allen v. Williams, 12 Pick. Y. 497, 55 Am. Dec. 290n; Gibson v. (Mass.) 297. Stevens, 8 How. (U. S.) 384, 12 L. ed. '^ Shepherd v. Harrison, L. R. 5 H. 1123; Cortard v. Atlantic Ins. Co., 1 L. 116, 123. Pet. (U. S.) 386, 7 L. ed. 189; Means ^ Shepherd v. Harrison, L. R. 5 H. V. Bank of Randall, 36 L. ed. 1107, L. 116, 123; Banco de Lima v. Anglo- W6 U. S. 620, 627, 13 Sup. Ct. 186. Peruvian Bank, 8 Ch. D. 160, 171. "■ Flash V. Schwabacker, 32 La. Ann. " Shepherd v. Harrison, L. R. 5 H. 356. L. 116, 123. § 270 COLLATERAL SECURITIES. 318 § 270. The pledgee's rights. — A pledgee may even deliver possession of the goods to the consignee upon whom the draft secured is drawn without losing his security, if such delivery be made by a special indorsement to the effect that the goods are pledged for the payment of the draft, and are placed in the con- signee's custody "in trust for this purpose, and is not to be di- verted to any other use until the draft is paid." In such a case the property pledged and delivered was a boat-load of wheat, which on arrival the consignee placed in a warehouse, and after- ward sold and delivered to the purchaser by an order on the ware- houseman. The purchaser obtained advances upon the wheat from the warehouseman, who had seen a copy of the bill of lading and of the indorsement thereon. In an action by the pledgee against the warehouseman for a conversion of the wheat it was held that such delivery of the bill of lading did not vest in the consignee a title to the wheat or confer upon him authority to sell it ; but simply vested him with the possession to hold in trust for the pledgee, whose title could not be divested by any act of the consignee until he had paid his acceptance. ^^ § 271. Intention of consignor and pledgee. — When a bill of lading has been taken by the consignor, making the goods deliver- able to his order, or to some person designated by him, the in- ference is that it was not intended that the property should pass to the consignee, except by subsequent order of the person holding the bill. Such intention is almost conclusive, although when there are circumstances indicating an intent to pass the ownership im- mediately, notwithstanding the bill of lading, or, in other words, where there is anything to rebut the effect of the bill, it is a question for the jury whether the property passed.^" If, how- ever, there are no circumstances to rebut the intent to retain == Farmers' & Mechanics' Nat. Bank C. (N. Y.) 1, 28 N. Y. S. i75 ; Carter V. Hazeltine, 78 N. Y. 104, 34 Am. v. Arguimbau, 31 Abb. N. C. (N. Y.) Rep. 518; following Farmers' & Me- 3; English Bank v. Barr, 31 Abb. N. chanics' Nat. Bank v. Logan, 74 N. Y. C. (N. Y.) 7. 568; and Farmers' & Mechanics' Nat. ^'Dows v. Nat. Exchange Bank, 91 Bank V. Atkinson, 74 N. Y. 587; and U. S. 618, 23 L. ed. 214; Ogg v. Shu- see Munroe v. Bonanno, 31 Abb. N. ter, L. R. 10 C. P. 159. 319 BILLS OF LADING. § 27I the ownership exhibited in the bills of lading, and confirmed by the indorsements on the bills, there is no occasion to sub- mit the question to a jury whether there was a change of owner- ship. A bank discounted a draft drawn upon the consignee of a quantity of turpentine and rosin, bills of lading of which were delivered to the bank as security. The bank forwarded the draft to their agent, with instructions not to deliver the bill of lading until the draft was paid. The consignee accepted the draft, but did not pay it, and it was retained by the agents of the bank. The master of the vessel, however, delivered the goods to the consignee, without his producing the bill of lading. Subse- quently the consignee delivered part of the goods to an auctioneer, who made advances upon them without notice that the consignee had not possession of the bill of lading. The auctioneer sold these goods at public auction, and, after deducting their advances and charges, paid the balance to the consignee. After this the bank demanded the goods of the auctioneer, and brought an action of trover for their conversion. It was held that the bank was entitled to recover.^^ A ship which has issued a bill of lading to the consignor's order is bound to deliver the goods to such order, and may be libeled for a misdelivery. Thus, a inember of a New York firm having purchased certain cotton, put it on board a steamer for New York, and received a bill of lading which he indorsed to a bank as collateral security for drafts drawn upon the firm and discounted by the bank. Upon the arrival of the vessel in New York the firm demanded the cotton, and obtained it with- out producing the bill of lading, which was still held by the bank. The drafts not being paid at maturity, the bank, through its cashier, libeled the steamer in admiralty, and obtained a decree, which was affirmed by the Supreme Court.^^ Mr. Justice Strong said : "By issuing bills of lading for the cotton, stipulating for a delivery to order, the ship became bound to deliver it to no one who had not the order of the shipper, and this obligation was dis- " People's Nat. Bank v. Stewart, 3 ''The Thames, 14 Wall. (U S ) 98 Pug. & Bur. (N. B.) 268. 107, 20 L. ed. 804. § 272 COLLATERAL SECURITIES. 320 regarded instantly on the arrival of the ship. And it is no ex- cuse for a delivery to the wrong persons that the indorsee of the bills of lading was unknown, if indeed, he was, and that notice of the arrival of the cotton could not be given. Diligent inquiry for the consignee, at least, was a duty, and no inquiry was made. Want of notice is excused when a consignee is unknown, or is ab- sent, or cannot be found, after a diligent search. And if, after inquiry, the consignee or the indorsees of a bill of lading for delivery to order cannot be found, the duty of the carrier is to retain the goods until they are claimed, or to store them prudently for, and on account of, the owner. He may thus relieve himself of a carrier's responsibility. He has no right, under any circumstances, to deliver to a stranger." It was claimed that the pledgee delayed in presenting the bills of lad- ing for some weeks until the drafts had fallen due, and load been dishonored. But the court said that this delay could not justify the ship's delivery of the cotton, on the day after its ar- rival, to persons who had no bill of lading, and no authority whatever to receive it. Had the delay been instrumental in caus- ing the wrongful delivery, a different case might possibly have been presented. But, at inost, the laches of the pledgee was mere inaction, and the wrong delivery was in no degree due to it. § 272. Effect of agreement between consignor and con- signee. — An agreement between a consignor and consignee that the proceeds of all shipments shall be applied to the pay- ment of previous advances made by the latter, has no effect as against one who has in good faith taken a bill of lading from the consignor, as security for the purchase-money of the goods consigned, or for advances obtained by the consignor upon such goods. Thus, where a purchaser of grain agrees with the seller that the latter shall ship the grain in the purchaser's name to his commission merchant for sale, and the purchaser draws drafts upon the commission merchant for part of the price, and delivers the same with the bills of lading of the grain to the seller, the commission merchant acquires no greater interest in it than his consignor had, although the latter is indebted toTiim. 321 BILLS OF LADING. § 273 and has agreed that the proceeds of all consignments should be applied to the consignor's credit on account.^" In such case, the neglect of the original seller of the grain and holder of the bills of lading to notify the consignee of his rights until the latter, having obtained possession of the grain without producing the bills of lading, has sold the grain and applied the proceeds to the consignor's credit on such indebtedness, does not interfere with tjie seller's right to recover of the consignee in an action for money had and received, the proceeds of the sale of the grain to the extent of the seller's interest in it.^" § 273. Liability of carrier for delivering goods to one not holding the bill of lading. — If the carrier deliver the goods to any other person than the indorsee and holder of such bill of lading, he becomes liable to such indorsee and holder for a con- version of the goods unless he can show some valid excuse. It does not matter that the carrier is ignorant of the fact that the bill of lading is not held by the consignee. One who has dis- counted a draft drawn against a bill of lading is entitled to rely upon the fact that he holds the bill of lading through the con- signor's indorsement, and that, according tO' the ordinary course of business, the goods cannot be obtained from the carrier ex- cept upon the surrender of the bill of lading. If the carrier delivers them to the consignee without requiring him to pro- duce it, relying upon his representation that he is the holder of it, he takes upon himself the risk of the truthfulness of this representation, and if deceived is liable to the indorsee of the bill of lading for the value of the goods.^^ If a bank discounts a draft attached to a bill of lading, but ''Taylor V. Turner, 87 111. 296. Trans. Co., 69 N. Y. 373; People's "Taylor v. Turner, 87 111. 296. Nat. Bank v. Stewart, 3 Pug. & Bur. "Forbes v. Boston & Lowell R. Co., (N. B.) 268; The Thames, 14 Wall. 133 Mass. 154; Newcomb v. Boston & (U. S.) 98, 20 L. ed. 804; Pollard v. Lowell R. Co., 115 Mass. 230; Alder- Vinton, 105 U. S. 7, 26 L. ed. 998. The man v. Eastern R. Co., 115 Mass. 233; Vaughan, 14 Wall. (U. S.) 258, 20 L. First Nat. Bank v. Northern R., 58 N. ed. 807 ; Jeffersonville, Madison & H. 203 ; Winslow v. Vermont & Mass. Ind. R. Co. v. Irvin, 46 Ind. 180 ; Mc- R. Co., 42 Vt. 700, 1 Am. Rep. 365; Ewen v. Railroad Co., 33 Ind. 368, 5 Merchants' Bank v. Union R. & Am. Rep. 216. 21— CoL. Sec. § 274 COLLATERAL SECURITIES. 322 does not notify the carrier of its possession of the bill of lad- ing, and the carrier, without knowledge of its existence, by the direction of the consignee, delivers the goods to another, the carrier is not liable for the goods to the bank/^ / § 274. Goods transferred from one carrier to another. — Where goods have been transferred from one carrier to another the last carrier is bound to deliver the goods to the holder of the bill of lading issued by the first carrier. This point is illustrated in a case in Massachusetts.^^ The indorsee of a bill of lading who had taken it as security for advances upon a bill of exchange attached thereto, brought suit against a railroad company for a conversion of a quantity of grain through a delivery of it to the consignee without requiring him to produce the bill of lading. "By the bills of lading in this case the grain, was shipped by a ves- sel at Chicago, deliverable to the order of the consignor at Buf- falo. The defendant contends that, upon the arrival of the ves- sel at Buffalo, the bill of lading became functus officio. If this were so, it would not affect the result, because the bill of lading was transferred before the vessel arrived at Buffalo. But it is clear that, upon the facts agreed, the bill of lading remained as the representative of the property, at least until the transit was completed by the arrival at Boston. By the usual course of business in forwarding grain from Chicago to Boston, where the shipment is partly by water and partly by rail, a bill of lad- ing is issued by the vessel at Chicago; the grain is transferred from the vessel to the cars at some intermediate point, usually at Buffalo, and the railroad company issues a receipt similar in form to those issued in this case. This receipt contains a mem- orandum like the one in this case, 'Ex. Sch. Gallatin,' which in- dicates 'that the grain was received from a vessel arriving at Buffalo from Chicago, and that a bill of lading has been issued by that vessel and is outstanding. The vessel's bill of lading is re- garded as transferring the property, and that alone is used in pro- " National Bank v. Philadelphia & "Forbes v. Fitchburg R. Co., 133 Read. R. Co., 163 Pa. St. 467, 30 Atl. Mass. 154, 159. 228. 323 BILLS OF LADING. § 2/5 curing the goods from the carrier.' It is clear that in such cases the parties contemplate a continuous transit from Chicago to Boston, and that the bill of lading is regarded as the representa- tive of the grain during the whole of the transit. So far as any question in this case is concerned, the bill of lading has the same effect as if it had been a bill from Chicago to Boston." The rail- road was accordingly held liable for the value of the grain, less the freight, storage and other expenses. In a later case in the same state, the question of freight un- der similar circumstances was considered, and in an action by a pledgee holding bills of lading issued by a railroad company, for the conversion of the goods by an unauthorized delivery of them to the pledgor, who paid the freight upon them, it was held that the measure of damages is the market value of the goods, less the freight, with interest from the date of the con- version. In both cases it was the duty of the consignee, by vir- tue of his agreement with the pledgee of the bills of lading, to pay the freight charges; but it was held that the only interest which the pledgee had in the goods was in their market value, less the freight ; that this was not increased by his agreement with the consignee; and that such payment by the consignee, for the purpose of fraudulently obtaining the goods, could not be con- sidered as a payment by the pledgee, so as to entitle him to re- cover the amount thereof,. as a part of the value of the goods wrongfully delivered.'* § 275. Where bill of lading is made to consignee the car- rier may deliver to him without the bill being presented. But if the bill of lading makes the goods deliverable to the con- signee and not to the consignor's order, the carrier may be jus- tified in delivering the goods to the consignee without requiring him to produce the bill of lading. ='= The Supreme Court of Mas-' sachusetts so decided in a case where it was found that it was the "Massachusetts &c. Trust Co. v. (U. S.). 100, 15 L. ed. S8; Sweet v Fitchburg R. Co., 143 Mass. 318, 324 Barney, 23 N. Y. 33S; O'Dougherty v. ^ ^- ^- ^5- Railroad Co., 1 Thomp. & C. (N. Y.) Lawrence v. Minturn, 17 How. 477. § 276 COLLATERAL SECURITIES. 324 custom of the railroads terminating in Boston to deliver to the consignee goods "billed straight," as it is termed, that is, billed to a particular person, not to order, when they were satisfied of the identity of the consignee, without requiring the production of the bills of lading, and to rely upon the way-bills to determine the consignee and the form of the consignment. It was declared that the holder of the bill of lading who discounted a bill of ex- change attached to it, either knew or ought to have known of this custom. Although it does not affect the question of the pledgee's title as against the consignee, it qualifies the carrier's duties as to the delivery of the goods. It justified him in delivering the goods to the consignee, at least at any time before notice that the prop- erty had been transferred. Under it there was no laches in not calling for the bill of lading, and in thus delivering there was no violation of any of the terms of its contract, express or implied. Such delivery, therefore, was not a misdelivery which would amount to a conversion, and render the carrier liable to the pledgee for the value of the goods.^" A debtor shipped goods to his creditor on account of advances upon them, and sent an invoice of the shipment with a letter stating that the shipment was made on his indebtedness. He took a bill of lading in his own name which was not forwarded to the consignee. It was held under these circumstances that the delivery to the carrier was equivalent to a delivery to the con- signee, and although the consignor retained the bill of lading he had no such interest in the goods as could be subjected to at- tachment at the suit of a creditor of his.^^ § 276. Valid delivery of goods imder bill of lading. — A complete and valid delivery of goods under a bill of lading is only made when they come into the hands of the person who has a right to the possession under it/*' In an English case in- " Forbes v. Boston & Lowell R. Co., P. 37 ; Hieskell v. Farmers' & Me- 133 Mass. 154. chanics' Nat. Bank, 89 Pa. St. 155, 33 " Straus V. Wessel, 30 Ohio St. 211. Am. Rep. 745. " Meyerstein v. Barber, L. R. 2 C. 325 BILLS OF LADING. § 277 volving this point, Chief Justice Erie said:^" "If it were estab- lished that a bill of lading, — one of the most frequent securities for advances amongst mercantile men, — becomes exhausted and extinguished and ceases to be a security when the ship has reached her destination and the goods which it represents have been landed and warehoused, what a wide door would be opened for fraud? It is scarcely possible to exaggerate the evil conse- quences which would be likely to result from such a doctrine. There is no authority for it." § 277. What the lien of a pledgee of a bill of lading in- cludes. — The lien of a pledgee of a bill of lading covers freight paid by him on the goods pledged.*" But as against a carrier who has delivered the goods wrong- fully to the' consignee upon his paying the freight, and falsely representing that he held the bill of lading, the pledgee is not entitled to recover the amount paid for freight in addition to the value of the goods. At the time 'of the conversion, the goods were subject to a lien for the freight. The only interest which the pledgee had in them was their market value less the freight. The interest was not increased by the fact that the pledgee and the consignee had agreed, as between themselves, that the latter should pay the freight. The payment by the" consignee cannot be considered as a payment by the pledgee. It was a payment by the consignee as a part of his scheme of fraud. If the pledgee can recover the full value of the goods and the freight, he is a positive gainer by the fraud, and will receive more than the value of his interest at the time the fraud was committed. Under the circumstances of such a case it has been held that it is just and equitable that the reclamation by the carrier from the consignee, of a part of the proceeds of the fraud, should inure to the benefit of the carrier ; and that the plaintiff is entitled to recover a sum equal to the market value of the goods less the freight, with interest thereon from the time of the conversion.^^ "■Meyerstein v. Barber, L. R. 2 C. ""Clark v. Dearborn, 103 Mass. 335. • " Forbes v. Boston & Lowell R. Co., § 278 COLLATERAL SECURITIES. 326 But one who has made advances upon goods pledged to him by indorsement of the bill of lading, in demanding them of one who had contracted to purchase them and had obtained possession of them upon paying the freight and storage, but not in good faith, need not tender the amount of such freight and storage as a condition precedent to receiving the goods. In a suit by such a pledgee for a conversion of the goods, the amount so paid would be deducted from the value of the goods in the assessment of damages, only because the payment inured to his benefit, by discharging the goods from a lien to which they were subject, and without the payment of which he could not have obtained possession of the property.*^ § 278. Rule where several parts of a bill of lading is deliv- ered to different persons. — If the several parts of a bill of lading be delivered to different persons, the property passes by the bill of lading first delivered for a valuable consideration, un- less another has a superior equity.*' Thus if a bill of lading ac- companied by drafts upon the consignee be delivered as security for prior advances, the title vests in him as against a subsequent innocent purchaser for value to whom a duplicate of the bill of lading, or the goods themselves are delivered.** And so if the goods before arrival at their destination be reshipped, and a new bill of lading be issued therefor while the original bill of lading is outstanding, and in the hands of one who has taken it as security for advances, the property remains in the latter, al- though the goods be delivered to the consignee under the new bill of lading. The holder of the original bill of lading may in such case recover the property in an action of replevin, as 133 Mass. 154. The text follows in Meyerstein, L. R. 4 H. L. 317, L. R. 2 part the language of Morton, C. J., C. P. 38, 661 ; Skilling v. BoUman, 6 who delivered the decision. Mo. App. 76; The Thames, 14 Wall. " Adams v. O'Connor, 100 Mass. (U. S.) 98, 20 L. ed. 804. SIS, 1 Am. Rep. 137. "Skilling v. BoUman, 6 Mo. App. "Kent's Comm. 308; Barber v. 76. 327 BILLS OF LADING. § 278 against the consignee or as against one who has made advances to him upon the goods. *^ Cotton was shipped in India for London, the master of the vessel signing a bill of lading in three parts. On the arrival of the cotton in London, the consignee having received from the consignor's bankers the three parts of the bill of lading, de- livered two of them as security for advances upon the cotton, and afterward fraudulently deposited the third with another person for another advance. The latter obtained possession of the cotton, whereupon the first pledgee brought an action of trover against him for converting the cotton, and it was held that he was entitled to recover against such second pledgee.^' Upon the argument the plaintiff claimed that the indorsement to him was by way of pledge, and that it passed to him a sufficient right of property to enable him to maintain this action; and the defendant contended that while his claim was also by way of pledge, he had the better title because he had obtained actual pos- session of the property. In the court of common pleas, and also in the exchequer chamber, it was held that the mere indorsement of the bill of lading was such a delivery of the goods as amounted to a valid pledge, and gave the plaintiff a sufficient property to enable him to maintain the action against the defendant ; and this judgment was affirmed by the House of Lords. To the objections urged against this conclusion the Lord Chancellor, giving his opinion in the House, said : "It is said that a frightful amount of fraud may be perpetrated if persons are allowed to deal in this way with bills of lading drawn in sets, if you allow effi- cacy to be given to the first assignment of one of those bills, to the detriment of persons who may take, for value, subsequent assignments of the others. All we can say is, that such has been the law hitherto, and that the consequences of the sup- posed evil, whatever they may be, have not been considered to be such as to counterbalance the great advantages and facilities afforded by the transfer of bills of lading. There is no authority " Hieskell v. Farmers' & Mechanics' *° Meyerstein v. Barber, L. R. 2 C. Nat. Bank, 89 Pa. St. ISS, 33 Am. Rep. P. 38, 661, affirmed Barber v. Meyer- 745. stein, L. R. 4 H. L. 317, 331. § 279 COLLATERAL SECURITIES. 328 or reason for holding that the person who first obtains the as- signment of a bill of lading, and has given value for it, shall not acquire the legal ownership of the goods it represents. It seems to be required by the exigencies of mankind. It may be a satisfaction to be told by Mr. Justice Willes (though it is a matter upon which I put no reliance) that other nations concur with us in holding that (whatever inconveniences there may be attending it) the person who gets the first assignment for value is the person to be preferred." In the same case Lord Westbury, in regard to the obligation of the first pledgee, to give notice of his rights to the wharf- inger in charge of the cargo, said : "It was contended at the bar that he had been guilty of laches, because he did not fol- low up the title he had acquired by giving notice of it to the wharfinger. But that is quite immaterial when a man has got both the right of property and the right of possession, passing, by a symbol, the bill of lading, which is at once both the sym- bol of the property and the evidence of the right of possession. When his title is thus complete, there is no obligation on him to give notice to any one. There was, therefore, no laches on his part, nor was there any ground of complaint that he failed in ordinary prudence, or that he did not in law and equity complete his security." § 279. Carrier may deliver goods to consignee upon the production of one of a set of bills of lading. — But the carrier is justified in delivering the goods to the consignee on his pro- ducing one of a set of bills though there has been a prior indorse- ment of another part as security for a loan, provided the carrier has no notice or knowledge of such prior indorsement. Thus goods having been shipped for London, the shipmaster signed a set of three bills of lading marked "First," "Second," and "Third," respectively, making the goods deliverable to the con- signees, or their assigns, "the one of the bills being accomplished, the others to stand void." During the voyage the consignees indorsed the bill marked "First" to a bank in consideration of a loan. Upon the arrival of the ship in London the goods were 329 BILLS OF LADING. § 279 placed in the custody of a dock company, to whom the consignee produced the bill of lading marked "Second," and the dock com- pany in good faith and without notice of the bank's claim deliv- ered the goods. It was held by the House of Lords, affirming the decision of the court of appeal, that the dock company had not been guilty of a conversion, and that the bank could not maintain any action against them.*' Lord Chancellor Selborne, in delivering judgment, said : "Every one claiming as assignee under a bill of lading must be bound by its terms, and by the contract between the shipper of the goods and the shipowner therein expressed. The primaiy office and purpose of a bill of lading, although by mercantile law and usage it is a symbol of the right of property in the goods, is to express the terms of the - contract between the shipper and the shipowner. It is for the benefit of the shipper that the right to take delivery of the goods is made assignable, and it is for the benefit and security of the shipowner that when several bills of lading, all of the same tenor and date, are given as to the same goods, it is provided that 'the one of these bills being accomplished the others are to stand void.' It would be neither reasonable nor equitable, nor in accordance with the terms of such a contract, that an assign- ment, of which the shipowner has no notice, shoulci prevent a bona fide delivery under one of the bills of lading, produced to him by the person named on the face of it as entitled to delivery (in the absence of assignment), from being a discharge to the shipowner. Assignment, being a change of title since the con- tract, is not to be presumed by the shipowner in the absence of notice, any more than a change of title is to be presumed in any other case when the original party to a contract comes forward and claims its performance, the other party having no notice of anything to displace his right. He has notice indeed that an as- signment is possible, but he has no notice that it has taken place. There is no proof of any mercantile usage putting the shipowner, " Glyn V. East & West India Dock London and County Banking Co. v. Co., L. R. 7 App. Gas. 591; and see Ratcliffe, 6 App. Cas. 722, 729; Fearon Shaw V. Foster, L. R. 5 H. L. 321 ; v. Bowers, 1 Sm. L. C, 8th ed., 782. § 279 COLLATERAL SECURITIES. 330 in such a case, under an obligation to inquire whether there has in fact been an assignment or not; and, in the absence of such usage, I am of opinion that it is for the assignee to give notice of his title to the shipowner, if he desires to make it secure, and not for the shipowner to make any such inquiry." CHAPTER VII. WAREHOUSE RECEIPTS AS COLLATERAL SECURITY. § 280. Warehouse receipts represent property described in them. 280a. A contract of storage is an es- sential element of a ware- house receipt. 280b. Warehouse receipts. 281. Warehouse receipt not a nego- tiable instrument at common law. 282. Quasi-negotiability of ware- house receipts. 283. Warehouse receipts made nego- tiable by statutes. 283a. Alabama. 283b. Arizona. 284. California. 284a. (^olorado. 285. Connecticut. 28Sa. Delaware. 285b. Florida. 285c. Georgia. 285d. Idaho. 286. Illinois. 287. Indiana. 288. Iowa. 289. Kansas. 290. Kentucky. 290a. Louisiana. 291. Maine. 292. Massachusetts. 293. Maryland. 293a. Michigan. 293b. Minnesota. 293c. Missouri. 293d. Mississippi. 293e. Nebraska. 293f. New Jersey. § 293g. New Mexico. 294. New York. 294a. North Carolina. 294b. Oklahoma. 294c. Oregon. 294d. Rhode Island. 294e. South Carolina. 294f. Tennessee. 294g. Texas. 294h. Utah. 294i. Virginia. 294 j. Vermont. 294k. Washington. 295. Wisconsin. 296. Warehouse receipts only stand in lien of property. 297. Warehouse receipt evidence of ownership or of a pledge. 298. A warehoue receipt need not be in a particular form. 299. Delivery of warehouse receipt without indorsement. 300. Decision in Massachusetts. 301. Warehouse receipt providing that the property is delivera- ble to bearer. 302. Notice of transfer of ware- house receipt. 303. A fraudulent purchaser of a warehouse receipt may make good title to innocent pur- chaser. 304. A fraudulent or felonious transfer of a warehouse re- ceipt passes no title as against the true owner. 331 § 28o COLLATERAL SECURITIES. 332 i 305. Possession obtained in good faith protects pledgee. 306. Title of innocent pledgee of warehouse receipt. 307. An order on warehouseman a sufficient delivery of goods. 308. Title by estoppel. 309. Estoppel — How created. 310. Estoppel by false representa- tion. 311. Estoppel of warehouseman. 311a. Liability of warehouseman for delivering property without presentation of receipt. 312. Warehouseman may deny state- ments in his receipt not with- in his knowlege. 313. Warehouseman not estopped to dispute a receipt issued by mistake. 314. Statutory provisions against is- sue of receipts when goods not in warehouse intended to protect persons dealing in the property. 315. Warehouseman's receipt for goods not in his warehouse. 316. Warehouseman not bound by receipt issued by agent act- ing without authority. 316a. An officer of a warehouse company cannot issue receipts and pledge them for a loan to himself. § 317. Warehouse receipts for a part of goods stored in bulk. 318. Exception to the rule. 318a. Right of the holder of ware- house receipt for goods not entitled to be stored in bulk to call for identical goods. 319. Rights of warehouse receipt holders when receipts are is- sued for more property than is held. 320. By issuing a receipt a ware- houseman does not guarantee the title. 321. Owner of goods cannot give warehouse receipt for them, &c. 322. Statutory provisions in a. few states. 323. Rule in Kentucky. 324. Receipt of servant of owner is no better than owner's re- ceipt. 325. A writing in the form of a warehouse receipt issued by the debtor on his own proper- ty is not a warehouse re- ceipt. 325a. Public warehouseman has no power to issue receipts upon his own property. 326. Distinction in cases of sales and cases of pledges. § 280. Warehouse receipts represent property described in them. — Warehouse receipts by custom have long been considered as representing the property mentioned in them; and the assignment or indorsement of such instruments has long been regarded as equivalent to the delivery of such property.^ ' Young V. Lambert, L. R. 3 P. C. bridge, 19 Ohio St. 419, 2 Am. 142; M'Neil v. Hill, 1 Woolw. (U. S.) Rep. 408; Gibson v. Chillicothe Bank, 96; Stewart v. Phoenix Ins. Co., 9 Lea 11 Ohio St. 311; Newcomb v. Cabell, (Tenn.) 104; Horr v. Barker, 8 Cal. 10 Bush (Ky.) 460; Hanchett v. 603, 614; Second Nat. Bank v. Wal- Buckley, 27 111. App. 159; Conrad v. 333 WAREHOUSE RECEIPTS. § 280 The transfer of the certificate transfers to the vendee or pledgee the legal title and constructive possession of the property, and the warehouseman from the time of the transfer becomes his bailee. The delivery of the evidence of title is equivalent to a delivery of the property itself, and it sufficiently manifests the intention of the parties that the title and possession shall pass.^ Thus, receipts issued by storage and forwarding merchants for Wool to be forwarded to consignees named, were sent by the owner to the consignees, who, relying upon such receipts, ac- cepted drafts drawn against the wool. The wool was attached while in the hands of the storage merchant as the property of the consignor. But it was held that the delivery of the receipts to the consignees vested the title and the possession of the wool in them, and that the wool was not liable for the consignor's debts, or if so liable, was first subject to the consignee's lien for advances.' The delivery of the symbol of the property was as effectual as an actual delivery of the property itself. Of course the assignee of a warehouse receipt having both title and possession, has the right to maintain an action for the conversion of the property, or for the recovery of it* Even if the person issuing a receipt for merchandise is not a public warehouseman, the delivery of his receipt is by cus- tom a symbolical delivery of the goods described in it, and Fisher, 37 Mo. App. 352, 367 ; Western struction delivery of the property de- &c. R. Co. V. Wagner, 65 111. 197 ; Bur- scribed in it. Farmers' &c. Bank v. ton V. Curyea, 40 III. 320, 325, 89 Am. Bennett & Co., 120 Ga. 1012, 48 S. E. Dec. 3S0; St. Louis Nat. Bank V.Ross, 398; Millhiser Mfg. Co. v. Gallego 9 Mo. App. 399; Fourth Nat. Bank v. Mills Co., 101 Va. 579, 44 S. E. 760. St. Louis &c. Compress Co., 11 Mo. ''Davis v. Bradley, 28 Vt. 118, 24 App. 333; First Nat. Bank v. Hark- Vt. 55, 65 Am. Dec. 226; Bryans v. ness, 42 W. Va. 156, 168, 24 S. E. 548, Nix, 4 M. & W. 775, is a similar case, quoting text ; Bush v. Export Storage Also Broadwell v. Howard 11 111 Co., 136 Fed. 918. 305. 'Gibson v. Stevens, 8 How. (U.-S.) . 'Harris v. Bradley, 2 Dill. (U. S.) 384, 400, 12 L. ed. 1123; Yenni v. Mc- 284; M'Neil v. Hill, 1 Woolw. (U S ) Namee, 45 N. Y. 614; Bush v. Export 96; First Nat. Bank v. Bates, 1 Fed. Storage Co., 136 Fed. 918. Pursant to 702; Bank of Newport v. Hirsch 59 Civil Code of Ga. 1895, § 2956, the de- Ark. 225, 27 S. W. 74. livery of a warehouse receipt is con- § 28oa COLLATERAL SECURITIES. 334 the possession of it is equivalent to the possession of such goods so far as they are in esse at the time the receipt is given." § 280a. A contract of storage is an essential element of a warehouse receipt. — ^This receipt can only be issued by per- sons who pursue the calling of storing goods as a business of profit. The receipt is a written contract between the owner of goods and a warehouseman, whereby the latter is to store the goods and the former is to pay for that service." The contract need not be formally complete, for some of its terms may be implied, but the instrument must in some way show or indicate clearly that a contract of storage has been entered into.^ Weigh- ing tags given by a company that makes no charge for storage, which only show the weight and number of sacks of beans weighed on the company's scales, for the person named therein, are not warehouse receipts, and the transfer of such weighing tags to a pledgee thereof does not transfer possession of the beans, and they may be attached by a creditor of the pledgor." § 280b. Warehouse receipts. — Receipts issued by a ware- houseman or other person not openly engaged in the storage of goods for hire are not warehouse receipts which by custom repre- sent the property described therein, and the assignment or in- dorsement of which is regarded as a delivery of the property itself.' The fact that a receipt which is to have the effect of a ° Montgomery v. American Trust Lowrie v. Salz, 75 Cal. 349, 17 Pac. &c. Bank, 71 111. App. 20. 232; Bishop v. Fulkerth, 68 Cal. 607, ° Hale V. Milwaukee Dock Co., 29 10 Pac. 122. Wis. 482, 9 Am. Rep. 603; Shepard- 'Sinsheimer v. Whitely, 111 Cal. son V. Cary, 29 Wis. 34; Bucher v. 378, 43 Pac. 1109, 52 Am. St. 192; Commonwealth, 103 Pa. St. 528, 534; Carthcart v. Snow, 64 Iowa 584, 21 Franklin Nat. Bank v. Whitehead, N. W. 94. In this case the weighmas- 149 Ind. 560, 49 N. E. 592, 63 ter's ticket had the word "stored" Am. St. 302, 39 L. R. A. 725. The re- written upon its face. See also First ceipt of one not a warehouseman is Nat. Bank v. Young, 20 Wash. 537, 55 not a warehouse receipt. Grand Ave. Pac. 215. Bank v. St. Louis &c. Trust Co., 135 » Bell &c. Co. v. Kentucky &c. Works Mo. App. 366, lis S. W. 1071. Co., 20 Ky. L. 1089, 48 S. W. 440; ' Sinsheimer v. Whitely, 111 Cal. Geilfuss v. Corrigan, 95 Wis. 651, 70 378, 43 Pac. 1109, 52 Am. St. 192; N. W. 306, 60 Am. St. 143, 37 L. R. A. 335 WAREHOUSE RECEIPTS. § 281 warehouse receipt was executed by a person or company en- gaged in the business of storing property for a compensation, must be affirmatively shown by evidence." The deHvery of stor- age certificates representing pig iron by a furnace company en- gaged in smelting iron ore and making pig iron, and not engaged in storing such iron for others, is not a constructive delivery of the iron described in the certificates to one who has in good faith taken the certificates in pledge." § 281. Warehouse receipt not a negotiable instrument at common law. — A warehouse receipt, at common law, is not, in a technical sense, a negotiable instrument, although the prop- erty be made deliverable to "order" or "assigns." The re- ceipt merely stands in place of the property it represents, and the delivery of it has the same effect in transferring the title to the property as the delivery of the property itself. The de- livery of the receipt does not transfer the contract so as to en- able the assignee or indorsee to maintain an action upon it in his own name. There is no privity- of contract between the warehouseman and the assignee. The assignee occupies no bet- ter position, as regards the warehouseman, than his assignor had." Therefore where a warehouseman by mistake issued to the owner at different dates, two receipts for the same property, both of which he assigned as security for loans, and the assignee of the receipt first issued having recovered the property in re- 166; Shepardson v. Gary, 29 Wis. 34; pledge effectual in the absence of a Bucher v. Commonwealth, 103 Pa. St. delivery of the property either actual 528; People's Bank v. Gayley, 92 Pa. or constructive. To the same effect St. S18; Farmers' &c. Nat. Bank v. see Grand Ave. Bank v. St. Louis &c. Lang, 87 N. Y. 209; Yenni v. McNa- Trust Co., 135 Mo. App. 366, 115 S. mee, 45 N. Y. 614; Union Trust Co. W. 1071. v. Trumbull, 137 111. 146, 23 N. E. 355, " Burton v. Curyea, 40 111. 320, 89 27 N. E. 24; Grand Ave. Bank v. St. Am. Dec. 350; Western Union R. Co. Louis &c. Trust Co., 135 Mo. App. v. Wagner, 65 111. 197; Solomon v. 366, 115 S. W. 1071. Bushnell, 11 Ore. 277, 3 Pac. 677, 50 " Shepardson v. Gary, 29 Wis. 34. Am. Rep. 475 ; Shaw v. Railroad Co., "Geilfuss V. Corrigan, 95 Wis. 651, 101 U. S. 557; First Nat. Bank v 70 N. W. 306, 60 Am. St. 143, 37 L. R. Boyce, 78 Ky. 42, 39 Am. Rep. 198; A. 166. That the pledgee acted in Canadian Bank v. McCrea, 106 111. good faith does not avail to make a 281. § 282 COLLATERAL SECURITIES. 336 plevin from the assignee of the other receipt to whom the ware- houseman had delivered it, in a suit by the last named assignee against the warehouseman to recover the value of the property, it was held that he could show the mistake as a defense to the ac- tion.^'' The owner acquired no rights against the warehouseman by virtue of the second receipt, and he could give no rights by an assignment of that receipt. In another case a warehouse receipt was delivered to a pur- chaser of the goods, who subsequently, for the purpose of having the goods repacked by the seller, indorsed the receipt in blank and delivered it back to him. The latter thereupon, in contravention of the purpose for which the receipt was delivered to him, pledged it to a bank for a loan ; but it was held that although the bank acted in good faith it did not acquire title to the property represented by the receipt, as against the purchaser, who might, notwithstanding such transfer, maintain replevin for the prop- erty." §282. Quasi-negotiability of warehouse receipts. — There is a distinction between the quasi-negotiability of such receipts given by custom, and the full and complete negotiability given in some states by statute. Under such a statute warehouse re- ceipts are, for the purposes of title, as negotiable as promissory notes or bills of exchange. Under all ordinary circumstances there is an imperative presumption of title and power of disposal " Second Nat. Bank v. Walbridge, it, or if he is a bailee merely, and is 19 Ohio St. 419, 2 Am. Rep. 408. attempting to make a fraudulent use " Burton v. Curyea, 40 111. 320, 332, of the property intrusted to his keep- 89 Am. Dec. 350, Lawrence, J. said : ing, a person purchasing or receiving "It is asked what security there is in the property as security, does so in loaning money upon a pledge of ware- subordination to the title of the true house receipts? We answer, precisely owner. These are risks which men the same security as in loaning upon engaged in business must be content the pledge and delivery of the prop- to encounter, and against which the erty itself. If the person pledging law can afford them no protection, the property is the owner, the security The law can punish roguery, but it is good to the extent of its value, and cannot secure innocent persons so of the warehouse receipts. But if against losses from its multiform de- he is not the owner, if he has stolen vices." 337 WAREHOUSE RECEIPtS. § 283 in the holder. A factor holding such receipts in his own name or as indorsee is conclusively presumed to hold them as owner, with unlimited power of disposal. He can bind his principal, con- trary to his instructions, by pledging them, exactly as at common law he might bind his principal by pledging securities negotiable at common law.^° § 283. Warehouse receipts made negotiable by statutes. — In several states warehouse receipts are declared by statute to be negotiable, and transferable by indorsement in blank or by special indorsement, in the same manner and with like ef- fect as bills of exchange, and with like remedy thereon." Un- der such statutes negotiability cannot be extended beyond the express terms of the provisions of the statutes. Thus, warehouse receipts made payable to bearer, and not trans- ferred by indorsement as provided by statute, are not negotia- ble." In general it may be said that the negotiability of warehouse receipts as conferred by statute extends only to making them effective to transfer the interests of the holders in the property represented by the receipts.^^ The Missouri, Pennsylvania and Wisconsin statutes in regard to the negotiability of warehouse receipts apply also to bills of lading, and these statutes have al- ready been given in the preceding chapter." The statutes of other states relating exclusively to the negotiability of warehouse receipts are stated in the following sections. § 283a. Alabama." — The receipt of a warehouseman, on which the words "not negotiable" are not plainly written or "Price V. Wisconsin Marine &c. (Ky.) 460; Central Savings Bank v. Ins. Co., 43 Wis. 267. The cases of Garrison, 2 Mo. App. 58. Hale V. Milwaukee Dock Co., 29 Wis. " Fourth Nat. Bank v. St. Louis &c. 482, 9 Am. Rep. 603, and Shepardson Compress Co., 11 Mo. App. 333. V. Green, 21 Wis. 539, in which ex- " Shaw v. Railroad Co., 101 U. S. pressions to the contrary are criti- 557, 25 L. ed. 892 ; Yarwood v. Happy, cized. The decision in the latter case 18 Wash. 246, 51 Pac. 461. was modified in Shepardson v. Gary, ^"Missouri, § 237; Pennsylvania § 29 Wis. 34. 239. "Newcomb v. Cabell, 10 Bush ="2 Code 1907, § 6135. See, as to 22 — CoL. Sec. § 283b COLLATERAL SECURITIES. 338 stamped, may be transferred by the indorsement thereof, and any person to whom the same is transferred must be deemed and taken to be the owner of the things or property therein specified, as far as to give validity to any pledge, lien, or trans- fer made or created by such person; the warehouseman must not deliver the things or property therein specified except on the delivery and cancelation of the receipt; or in case of par- tial delivery, without an indorsement thereon of such partial delivery; in the event of the loss or destruction of such receipt, the warehouseman, not having notice of the transfer thereo'f by indorsement, may make delivery of the things or property to the rightful owner thereof; if the things or property, or any part thereof, be claimed or taken from the custody or possession of the warehouseman under legal process, the surrender thereof may be made without the delivery or cancelation of such receipt, or without indorsement thereon. § 283b. Arizona.^^ — All checks and receipts given by any person operating any warehouse for any produce or commodity stored or deposited are hereby declared negotiable, and may be transferred by indorsement of the party to whose order such check or receipt was given or issued, and such indorsement shall be deemed a valid transfer of the commodity represented by such receipt, and may be made either in blank or to the order of an- other. When a warehouse receipt is made to "bearer" or in equivalent terms, a simple transfer thereof by delivery conveys the same title as an indorsement. § 284. California." — Warehouse receipts may be issued by any warehouseman. They need not be in any particular form unauthorized or fraudulent pledge of So. 840; American Pig-iron &c. Co. such receipt, Commercial Bank v. v. German, 126 Ala. 194, 28 So. 603, Hurt, 99 Ala. 130, 12 So. 568, 42 Am. 85 Am. St. 21. St. 38, 19 L. R. A. 701 ; Commercial ^ Rev. Stat. 1901, §§ 4161 and 4163. Bank v. Lee, 99 Ala, 493, 12 So. 572, == Stat, and Amend, to Codes 1907, 19 L. R. A. 705. As to negotiability, ch. 290. Danforth v. McElroy, 121 Ala. 106, 25 339 WAREHOUSE RECEIPTS. § 284a but every such receipt must embody the location of the ware- house, the date of issue, its consecutive number, a statement whether the goods will be delivered to bearer, to a specified per- son or his order, the rate of storage charges, description of the goods or packages, the signature of the warehouseman, which may be made, by his agent, and if the receipt is issued for goods owned by the warehouseman either solely or jointly or in com- mon the fact of such ownership must be stated and a statement of advances made and liabilities incurred for which the ware- houseman claims a lien. A warehouseman is liable to any per- son injured for all damages caused by the omission from a nego- tiable receipt of any of the above terms. A warehouseman may insert in a receipt any other terms pro- vided they shall not be contrary to the above requirements and do not impair his obhgation to care for and safely keep the goods entrusted to him as a reasonably careful man would care for goods of his own. A receipt in which it is stated that the goods will be delivered to the depositor or to any other specified person is nonnegoti- able but one in which it is stated that the goods received will be delivered to bearer or to the ordef- of any person named in such receipt is a negotiable receipt. When more than one negotiable receipt is issued for the same goods the word "duplicate" shall be plainly placed on the face of every such receipt except the one first issued and the ware- houseman is liable for damages caused by his failure to so make a receipt. A nonnegotiable receipt must be marked upon its face "nonnegotiable" by the warehouseman issuing it and if the ware- houseman fails to so mark such- receipt the holder purchasing it for value supposing it to be negotiable may at his option treat it as imposing upon the warehouseman the same liability he would have incurred had the receipt been negotiable. § 284a. Colorado.^^ — A negotiable receipt may be nego- tiated by the indorsement of the person to whose order the goods ""Laws 1911, p. 664, §§ 38, 39. § 285 ' COLLATERAL SECURITIES. 34O are, by the terms of the receipt, deliverable. Such indorsement may be in blank, to bearer or to a specified person. If indorsed to a specified person, it may be again negotiated by the indorse- ment of such person in blank, to bearer or to another specified person. Subsequent negotiations may be made in like manner. A receipt which is not in such form that it can be negotiated by delivery may be transferred by the holder by delivery to a pur- chaser or donee. § 285. Connecticut.^* — Warehouse receipts need not be in any particular form, but every such receipt must embody with- in its written or printed terms (a) the location of the warehouse where goods are stored, (b) the date of issue of the receipt, (c) the consecutive number of the receipt, (d) a statement whether the goods received will, be delivered to the bearer, to a specified person, or to a specified person or his order, (e) the rate of stor- age charges, (f) a description of the goods or of the 'packages containing them, (g) signature of the warehouseman, which may be made by his authorized agent, (h) if the receipt is issued for goods of which the warehouseman is owner, either solely or jointly or in common with others, the fact of such ownership, and (i) a statement of the amount of advances made and of lia- bilities incurred for which the warehouseman claims a lien. A receipt in which it is stated that the goods will be delivered to the depositor, or to any other specified person, is a non-nego- tiable receipt, but a receipt in which it is stated that the goods will be delivered to the bearer, or to the order of a person named in such receipt, is a negotiable receipt. A non-negotiable receipt shall have plainly placed upon its face by the warehouseman is- suing it "non-negotiable" or "not negotiable." In case of the warehouseman's failure so to do, the holder who purchased it for value supposing it to be negotiable, may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities he would have incurred had the receipt been negotiable. =' Pub. Acts 1907, ch. 220, §§ 2, 4, S, 7. 341 WAREHOUSE RECEIPTS. § 285a § 28Sa. Delaware."" — Warehouse receipts given for any goods, wares, merchandise, grain, flour,, produce, petroleum, or other commodities stored or deposited with any warehouseman, wharfinger or other person in this state, or bills of lading or receipts for the same when in transit by cars or vessels to any such warehouseman, wharfinger, or other person, shall be nego- tiable and may be transferred by indorsement and delivery of said receipt or bill of lading; and any person to whom the said bill of lading or receipt may be transferred shall be deemed and taken to be owner of the goods, wares, merchandise therein specified, so as to give security and validity to any lien created on the same, subject to the payment of freight and charges there- on; and no property on which such lien may have been created shall be delivered by said warehouseman, warfinger or other per- son, except on the surrender and the cancelation of said original receipt or bill of lading, or in case of partial sale or release of the said merchandise by the written consent, of the holder of said receipt or bill of lading indorsed thereon ; provided, that all ware- house receipts or bills of lading which shall have the words 'not negotiable' plainly written or stamped on the face thereof shall be exempt from the provisions of this act. § 28Saa. District of Columbia.""'' — Warehouse receipts may be issued by any warehouseman. They need not be in any par- ticular form, but every such receipt must embody the location of the warehouse, the date of issue, its consecutive number, a statement whether the goods will be delivered to bearer, to a specified person or his order, the rate of storage charges, descrip- tion of the goods or packages, the signature of the warehouse- man, which may be made by his agent, and if the receipt is is- sued for goods owned by the warehouseman either solely or jointly or in common the fact of such ownership must be stated and a statement of advances made and liabilities incurred for which the warehouseman claims a lien. A warehouseman is lia- J'Rev. Code 1893, p. S30; Laws of ^a Stat, at Large, vol. 36, ch. 167. Del., vol. 19, ch. 177. § 285b COLLATERAL SECURITIES. 342 ble to any person injured for all damages caused by the omission from a negotiable receipt of any of the above terms. A warehouseman may insert in a receipt any other terms pro- vided they shall not be contrary to the above requirements and do not impair his obligation to care for and safely keep the goods entrusted to him as a reasonably careful man would care for goods of his own. A receipt in which it is stated that the goods will be delivered to the depositor or to any other specified person is nonnegotiable but one in which it is stated that the goods received will be de- livered to bearer or to the order of any person named in such re- ceipt is a negotiable receipt. When more than one negotiable receipt is issued for the same goods the word "duplicate" shall be plainly placed on the face of every such receipt except the one first issued, and the warehouse- man is liable for damages caused by his failure to so make a re- ceipt. A nonnegotiable receipt must be marked upon its face "nonnegotiable" by the warehouseman issuing it and if the ware- houseman fails to so mark such receipt the holder purchasing it for value supposing it to be negotiable may at his option treat it as imposing upon the warehouseman the same liability he would have incurred had the receipt been negotiable. § 285b. Florida.^^ — Warehouse receipts are negotiable by indorsement which shall transfer to the indorsee the title, right of possession and remedies of each prior indorsee. Such receipt may be deposited as collateral security ; provided, that, nothing herein shall be construed as making any such bailee a warrantor of title. § 285c. Georgia.^^ — Every such warehouseman shall ex- cept as hereinafter provided, give to each person depositing prop- erty with him for storage a receipt therefore, which shall be ^ Gen. Stat. 1906, § 3129. property in his possession will not be "Laws 1899, p. 84, § 4; Citizens' allowed to injure the value of such Banking Co. v. Peacock, 103 Ga. 171, receipts by secret contracts or ad- 29 S. E. 7S2. A warehouseman issu- vancements. Bank of Sparta 'v. Butts ing negotiable warehouse receipts for 4 Ga. App. 308, 61 S. E. 298. 343 WAREHOUSE RECEIPTS. § 285d negotiable in form; provided, however, that every such ware- houseman shall, upon request of any person depositing property with him for storage, give to such person his non-negotiable receipt therefor, which receipt shall have the words "non-nego- tiable" plainly written, printed or stamped on the face thereof; and provided, that no assignment of such non-negotiable receipt shall be effective until recorded on the books of the warehouse- man issuing it; provided further, that the non-negotiable receipt may be surrendered at any time by the owner thereof, and a ne- gotiable receipt issued in lieu of the same. '§ 285d. Idaho.^^ — AH checks or receipts given by any person operating any warehouse, commission house, forwarding house, mill, wharf or other place of storage for grain, flour, wool or other produce or commodity stored or deposited, and all bills of lading and transportation receipts of every kind, are hereby declared negotiable, and may be transferred by indorsement of the party to whose order such check or receipt was given or issued, and such indorsement shall be deemed a valid transfer of the commodity represented by such receipt, and may be made either in blank or to the order of another. § 286. Illinois.^' — Warehouse receipts for property stored in any class, of public warehouses, as herein described, shall be transferable by the indorsement of the party to whose order such receipt may be issued, and such indorsement shall be deemed a valid transfer of the property represented by such receipt, and may be made either in blank or to the order of another. All warehouse receipts for property stored in public warehouses other than those used for storing grain in bulk shall distinctly state on their face the brand or distinguishing marks upon such prop- erty. '' 1 Rev. Code 1908, § 1491. 111. 598, 28 N. E. 823 ; Sykes v. The ""Rev. Stat. 1908,' ch. 114, § 156. People, 127 111. 117, 19 N. E. 70S, 2 L. See Chicago Dock Co. v. Foster, 48 R. A. 461. This statute has no appli- III. 507 ; Candian Bank v. McCrea, 106 cation to bills of lading. Bankers' III. 281; Mida v. Geissmann, 17 III. Nat. Bank v. Western Union -Cold App. 207; Hoffman v. Schoyer, 143 Storage Co., 73 111. App. 410. § 287 COLLATERAL SECURITIES. 344 § 287. Indiana.'" — All receipts issued by any warehouse- man, as provided in this act, shall be negotiable and transferable by indorsement in blank, or by special indorsement, and with like liability as bills of exchange now are, and with like remedy thereon. When any warehouse receipt is pledged as collateral security, the pledgee shall have power to sell the same and transfer title thereto, in such manner and on such terms as may be agreed to in writing by the parties at the time of making the pledge." This statute^^ does not apply to a receipt issued by a private warehouseman for his own property in his own warehouse. Thus, a trader being about to purchase a large quantity of apples applied to a bank for a loan, and the bank agreed to make it, provided the trader would convert his storehouse into a public warehouse, by taking out a permit therefor under the statute, and would place the apples therein, and would issue warehouse receipts therefor and have them transferred to the bank as collateral security. This was accordingly done. The trader became bankrupt, and his assignee having taken possession of the apples, it was held that the proceeds belonged to the general estate of the bankrupt. There was nothing to indicate that the bankrupt used his ware- house as a warehouse under the statute in any other way than for the purpose specially intended by the bank; or that the property of any other person than that of the bankrupt was stored in it. The property was not stored "for a consideration," as the statute provided respecting warehouses of the kind for which the permit was procured. The receipt therefore gave the bank no priority of title or claim to the property. The receipt did not amount to a delivery of the property itself.'^ *°3 Burns' Rev. Stat. 1908. § lOSOl. houses where property of any kind is " 3 Burns' Rev. Stat. 1908, § 10S08. stored for a consideration. The per- '^ The statute was enacted March 9, mit applied for and issued in this 187S, 3 Burns' Rev. Stat. 1908, § 10484. case was for a storehouse of the lat- It divides warehouses into two ter kind. classes, A & B; the former embrac- "'Adams' v. Merchants' Nat. Bank, ing those for storing grain stored in 2 Fed. 174, 9 Biss. (U. S.) 396. And bulk, and belonging to different own- see Franklin Nat. Bank v. White- ers ; and the latter embracing ware- head, 149 Ind. 560, 49 N. E. 592, where 345 WAREHOUSE RECEIPTS. § 288 § 288. Iowa/* — A negotiable receipt may be negotiated by the indorsement of the person to whose order the goods are, by the terms of the receipt, deliverable. Such indorsement may be in blank, to bearer or to a specified person. If indorsed to a specified person, it may be again negotiated by the indorsement of such person in blank, to bearer or to another specified person. Subsequent negotiation may be made in like manner. § 289. Kansas.'" — All receipts for grain issued by any warehouse shall be negotiable by indorsement in' blank, or by special indorsement, in the same manner and to the same extent as bills of exchange and promissory notes. § 290. Kentucky." — In Kentucky warehouse receipts are made negotiable and transferable by indorsement in blank, or by special indorsement, and with like liability, as bills of exchange now are, and with like remedy thereon. And it is provided that any of such warehousemen may in such receipts agree and bind themselves to pay the person rightfully holding the same and en- titled thereto the value of the property described therein, in the event of loss or damage from any cause while in the possession of such warehousemen. When any receipt or voucher shall have been issued as pro- vided by this article, and used or pledged as collateral security or otherwise for the loan of money, the bank or person to whom the same may be pledged, hypothecated or transferred shall have power and authority to sell the same, and transfer title thereto in such manner and on such terms as may be agreed upon in writing by the parties at the time of making the pledge.'^ the subject is fully considered and the ^ Iowa Supp. 1907, p. 792, § 3138a- authorities are cited. Where a ware- 38; Iowa Laws 1911, p. 173, § 29. house receipt is transferred by delivery 'M Gen. Stat. 1897, ch. 67, i 11; without indorsement the assignee Kan. Gen. Stats. 1909, §§ 3402, 3403. takes it subject to any defense exist- ^ Stat. 1909, § 4770, as amended by ing at the time of transfer or before Acts 1910, ch. 1. notice thereof to the warehouseman. " Stat. 1909, § 4776. Toner v. Citizens' Bank, 25 Ind. App. 29, 56 N. E. 731. § 290a COLLATERAL SECURITIES. 346 § 290a. Louisiana.''^ — Warehouse receipts may be issued by any warehouseman. They need not be in any particular form but every such receipt must embody the location of the ware- house, the date of issue, its consecutive number, a statement whether the goods will be delivered to bearer, to a specified person or to a specified person or his order, the rate of storage charges, description of the goods or packages, the signature of the ware- houseman, which may be made by his agent, and if the receipt is issued for goods owned by the warehouseman either solely or jointly or in common the fact of such ownership must be stated and a statement of advances made and liabilities incurred for which the warehouseman claims a lien. A warehouseman is liable to any person injured for all damages caused by the omis- sion from a negotiable receipt of any of the above terms. A warehouseman may insert in a receipt any other terms pro- vided they shall not be contrary to the above requirements and do not impair his obligation to care for and safely keep the goods entrusted to him as a reasonably careful man would care for goods of his own. A receipt in which it is stated that the goods will be delivered to the depositor or to any other specified person is non-negotiable but one in which it is stated that the goods received will be de- livered to bearer or to the order of any person named in such re- ceipt is a negotiable receipt. When more than one negotiable receipt is issued for the same goods the word "duplicate" shall be plainly placed on the face of every such receipt except the one first issued and the warehouse- man is liable for damages caused by his failure to so make a re- ceipt. A non-negotiable receipt must be marked upon its face "non-negotiable" by the warehouseman issuing it and if the warehouseman fails to so mark such receipt the holder purchas- ing it for value supposing it to be negotiable may at his option treat it as imposing upon the warehouseman the same liability he would have incurred had the receipt been negotiable. A debtor wishing to pledge promissory notes, bills of exchange, '" Acts 1908, No. 221. 347 WAREHOUSE RECEIPTS. § 29I bills of lading, stocks, bonds, or written obligations of any kind, shall deliver such property and such pledge shall without further formalities be valid as well against third persons as against the pledgor thereof if made in good faith, but where the pledge is of instruments not negotiable, the debtor must be notified thereof.^' § 291. Maine.*^ — The title to merchandise stored in a public warehouse, or on the whai-ves and premises of the ware- houseman, and in his possession, passes to a purchaser or pledgee, in good faith, by the indorsement to such purchaser, or pledgee, but not in blank, of the warehouseman's receipt therefor, signed by the person to whom the receipt was originally given, or by an indorsee of the receipt, and recorded in the books of the ware- houseman with whom such merchandise is stored. § 292. Massachusetts.*^ — The title to property stored in a public warehouse under a warehouseman's negotiable receipt therefor, shall pass to a purchaser or pledgee by the indorsement and delivery to him of such receipt signed by the person to whom such receipt was originally given or by an indorsee thereof ; and if so stored under a warehouseman's non-negotiable receipt, shall pass by assignment of such receipt when recorded on the books of the warehouseman issuing it. § 293. Maryland.** — Every acceptance of an order and every other voucher whatsoever, for any goods, chattels or com- modities as on storage or deposit, whereby the custody or posses- sion of such goods, chattels or commodities shall be acknowl- edged or certified by any warehouseman, wharfinger or other person or corporation within this state, and which acceptance or voucher shall not on its face provide or stipulate in terms that it shall not be negotiable, shall be held and taken when issued to be "°2 Rev. Civ. Code 1900, § 3158, as Blanc v. Germania Nat. Bank, 114 amended by Acts 1900, p. 239. There La. 739, 38 So. S37. need not be any writing to pledge a ^'Rev. Stat. 1883, ch. 31, § 4. warehouse receipt, but such pledge " 1 Rev. Laws 1902, ch. 69, § S. may be created by a mere delivery. " 1 Pub. Gen. Laws 1904, p. 361, § 7. § 293a COLLATERAL SECURITIES. 348 a negotiable receipt and instrument to all intents and effects with- in the meaning and operation of this article. § 293a. Michigan.*' — Warehouse receipts are not required to be in any particular form but there must be contained in them (a) the location where goods are stored, (b) the date the receipt is issued, (c) its number, (d) a statement whether the goods received will be delivered to the bearer, to a specified person, or to a specified person or his order, (e) the rate of storage charges, (f) description of the goods or packages, (g) signature of the warehouseman, which may be made by his agent, (h) if issued for goods owned by the warehouseman either solely or jointly or in common with others, the fact of such ownership and (i), a statement of the amount of advances made and liabilities in- curred for which the w^irehouseman claims a lien. A receipt in which it is stated that the goods will be delivered to the depositor or to any other specified person is a non-nego- tiable receipt, but a receipt in which it is stated that the goods will be delivered to the bearer or to the order of a named person is a negotiable receipt and the warehouseman is required to stamp or write on the face of a non-negotiable receipt the word "non-nego- tiable" or "not negotiable" and if he fails to do so the holder who purchased it for value supposing it to be negotiable may, at his option, treat it as imposing on the warehouseman the same liabilities he would have incurred had it been negotiable. § 293b. Minnesota.** — Warehouse receipts and bills of lading for property in transit, unless the words "not negotiable" are plainly written or stamped on the face thereof, may be trans- ferred by indorsement, and such indorsement shall transfer to the indorsee the title to the property and all rights of the indorser in respect thereto. Warehouse receipts issued by one having elevators and own- ing grain in various states are valid as to grain stored in this state but invalid as to grain in Iowa, Nebraska and South Dakota "Pub. Acts 1909, p. IZl, §§ 2, 4, "Rev. Laws 1905, § 2097. 5, 7. 349 WAREHOUSE RECEIPTS. § 293C because in those states a warehouseman is not authorized to issue receipts for his own grain to secure his own obhgation." § 293c. Missouri. — Warehouse receipts are not required to be in any particular form but there must be contained in them (a) the location where goods are stored, (b) the date the receipt is issued, (c) its number, (d) a statement whether the goods re- ceived will be delivered to the bearer, to a specified person or his order, (e) the rate of storage charged, (f) description of the goods or packages, (g) signature of the warehouseman, which may be made by his agent, (h) if issued for goods owned by the warehouseman either solely or jointly or in common with others, the fact of such ownership, and (i), a statement of the amount of advances made and liabilities incurred for which the ware- houseman claims a lien. A receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person is a non-negotiable receipt but a receipt in which it is stated that the goods will be delivered to the bearer or to the order of a named ■person is a negotiable receipt and the warehouseman is required to stamp or write on the face of a non-negotiable receipt the word "non-negotiable" or "not negotiable" and if he fails to do so the holder who purchased it for value supposing it to be negotiable may, at his option, treat it as imposing on the warehouseman the same liabilities he would have incurred had it been negotiable. § 293d. Mississippi.^^ — Every warehouse receipt or other instrument in the nature or stead thereof acknowledging the re- ceipt of property for storage or safe keeping shall be conclusive evidence in the hands of a bona fide holder for value, whether by assignment, pledge, or otherwise, as against the person or corpo- ration issuing the same, that property has been so received and shall entitle such bona fide holder for value of such receipt, to a "In re St. Paul &c. Grain Co., 89 "a Laws 1911, p. 432, §§ 2, 4, S, 7. Minn. 98, 94 N. W. 218, 99 Am. St. "Miss. Code 1906, § 2295. 549. § 293e COLLATERAL SECURITIES. 35O delivery of the property, so stored or deposited, or to the value thereof. § 293e. Nebraska/' — A negotiable receipt may be nego- tiated by the indorsement of the person to whose order the goods are, by the terms of the receipt, deliverable. Such indorsement may be in blank, to bearer or to a specified person. If indorsed to a specified [person], it may be again negotiated by the indorse- ment of such person in blank, to bearer or to another specified person. Subsequent negotiation may be made in like manner. § 293f. New Jersey/" — All warehouse receipts or other vouchers given for any goods, wares, merchandise, ' provisions, grain, flour or other produce or commodity stored or deposited with any warehouseman, wharfinger, corporation or other person or persons, may be transferred by indorsement or delivery there- of, and any person to whom the same may be transferred shall be deemed and taken to be the owner of the goods, wares and merchandise therein specified without notice of such transfer, or an actual delivery, or change of possession of the goods, wares, merchandise, grain, flour or other produce or commodity named therein, so far as to give validity to any pledge, security, lien or transfer made or created by any person or persons, corporation or corporations ; but no property shall be delivered except in sur- render and cancelation of said original receipt or the indorsement of such delivery thereon, in case of partial delivery; all ware- house receipts, however, which shall have the words "not nego- tiable" plainly written, printed or stamped on the face thereof, shall be exempt from the provisions of this section; provided, however, that the person or persons, corporation or corporations, to whom such receipts or vouchers are indorsed and delivered, shall be subject to the same conditions as the person or persons, corporation or corporations, to whom the same were originally delivered. "Ann. Stat. 1911, § 12187. "4 Comp. Stat. 1910, p. 5788, § 65. 351 WAREHOUSE RECEIPTS. § 293g § 293g. New Mexico." — Warehouse receipts need not be in any particular form, but every such receipt must embody with- in its written or printed terms (a) the location of the warehouse where the goods are stored, (b) the date of issue of the receipt, (c) the consecutive number of the receipt, (d) the statement whether the goods received will be delivered to the bearer, to a specified person, or to a specified person or his order, (e) the rate of storage charges, (f ) a description of the goods or of the pack- ages containing them, (g) the signature of the warehouseman, which may be made by his authorized agent, (h) if the receipt is issued for goods of which the warehouseman is owner, either solely or jointly or in common with others, the fact of such own- ership, and (i) a statement of the amount of advances made and of liabilities incurred for which the warehouseman claims a lien. A receipt in which it is stated that the goods received will be delivered to the depositor, or to any other specified person, is a non-negotiable receipt. A receipt in which it is stated that the goods received will be delivered to the bearer, or to the order of any person named in such receipt, is a negotiable receipt. A non-negotiable receipt shall have plainly placed upon its face by the warehouseman issuing it "non-negotiable" or "not nego- tiable". In cases of the warehouseman's failure so to do, a holder of the receipt who purchased it for value supposing it to be negotiable, may, at his option, treat such receipt as imposing upon the warehouseman the same liabilities be would have in- curred had the receipt been negotiable. § 294. New York.''^ — Warehouse receipts are not required to be in any particular form but there must be contained in them (a) the location where goods are stored, (b) the date the receipt IS issued, (c) its number, (d) a statement whether the goods re- ceived will be delivered to the bearer, to a specified person or to a specified person or his order, (e) the rate of storage charges, (f ) description of the goods or packages, (g) signature of the ware- "Laws 1909, p. 88, §§ 2, 4, 5, 7. '^2 Consol. Laws 1909, p. 1823, §§ 91, 92, 94. § 294a COLLATERAL SECURITIES. 352 houseman, which may be made by his agent, (h)' if issued for goods owned by the warehouseman either solely or jointly or in common with others, the fact of such ownership, and (i) a state- ment of the amount of advances made and liabilities incurred for which the warehouseman claims a lien. A receipt in which it is stated that the goods will be delivered to the depositor or to any other specified person is a non-nego- tiable receipt, but a receipt in which it is stated that the goods will be delivered to the bearer or to the order of a named person is a negotiable receipt and the warehouseman is required to stamp or write on the face of a non-negotiable receipt the word "non- negotiable" or "not negotiable" and if he fails to do so the holder who purchased it for value supposing it to be negotiable may, at his option, treat it as imposing on the warehouseman the same liabilities he would have incurred, had it been negotiable. § 294a. North Caroliria.^^ — A warehouse receipt having the words "non-negotiable" written or stamped on its face, its assignment will not be effective until recorded on the books of the warehouseman issuing it, but such receipts shall be valid in the hands of all bona fide holders for value without registration. The title to cotton goods, merchandise and chattels stored in public warehouses shall pass to a purchaser or pledgee by the in- dorsement and delivery to him of the warehouseman's receipt therefor, signed by the person to whom such receipt was origin- ally given, or by the indorsee of such receipt, unless such receipt is non-negotiable. § 294b. Oklahoma." — Warehouse receipts for property stored in warehouses shall be transferable by the indorsement of the party to whose order such receipt may be issued, and such in- dorsement shall be deemed a valid transfer of the property represented by such receipt, and may be made either in blank or to the order of another. ■"North Car. 1 Rev. Stat. 1905, §§ "Laws 1909, § 8841. 3032, 3033. 353 WAREHOUSE RECEIPTS. § 294c § 294c. Oregon.=^^ — All checks or receipts given by any per- son operating any warehouse, commission house, forwarding house, mill, wharf, or other place of storage for any grain, flour, pork, beef, wool, or other produce or commodity stored or» de- posited, and all bills of lading and transportation receipts of every kind, are hereby declared negotiable, and may be transferred by indorsement of the party to whose order such check or receipt was given or issued, and such indorsement shall be deemed a valid transfer of the commodity represented by such receipt, and may be made either in blank or to the order of another. § 294d. Rhode Island.^* — A negotiable receipt may be ne- gotiated by delivery where by its terms the warehouseman un-. dertakes to deliver the goods to the order of a specified person or a subsequent indorsee of the receipt has indorsed it in blank or to be?irer. Any holder may indorse the same to himself or to any other specified person and in such case the receipt shall thereafter be negotiated only by the indorsement of such indorsee. § 294e. South Carolina." — Every warehouseman shall, ex- cept as hereinafter provided, give to each person depositing property with him for storage a receipt therefor, which shall be negotiable in form, and shall describe the property, distinctly stating the brand or distinguishing marks upon it, and if such property is grain the quantity and inspected grade thereof.; pro- vided, however, that every warehouseman shall, upon request of any person depositing property with him for storage, give to such person his non-negotiable receipt therefor, which receipt shall have the words "non-negotiable" plainly written, printed or stamped on the face thereof; and provided, that assignment of such non-negotiable receipt shall not be effective until recorded on the books of the warehouseman issuing them. The title to cot- ton, goods, merchandise and chattels stored in a public warehouse shall pass to a purchaser or pledgee by the indorsement and deliv- ery to him of the warehouseman's receipt therefor, signed by the "'2 Bellinger and Cotton's Codes °° Rhode Island Gen. Laws 1909 p and Stat. 1902, § 4606. 942, §§ 1 and 2. " 1 Code 1902, §§ 1715, 1720. 23 — Col. Sec. § 294f COLLATERAL SECURITIES. 354 person to whom such receipt was originally given or by an in- dorsee of such receipt. § 294f. Tennessee." — Warehouse receipts are not required to be in any particular form, but there must be contained in them (a) the location where goods are stored, (b) the date the receipt was issued, (c) its number, (d) a statement whether the goods received will be delivered to the bearer, to a specified person, or to a specified person or his order, (e) the rate of storage charges, (f) description of the goods or packages, (g) signature of the warehouseman, which may be made by his agent, (h) if issued for goods owned by the warehouseman either solely or jointly or in common with others, the fact of such ownership, and (i) a statement of the amount of advances made and liabilities in- curred for which' the warehouseman claims a lien. A receipt in which it is stated that the goods will be delivered to the depositor or to any other specified person is a non-nego- tiable receipt, but a receipt in which it is stated that the goods will be delivered to the bearer or to the order of a named person is a negotiable receipt and the warehouseman is required to stamp or write on the face of a non-negotiable receipt the words "not negotiable" and if he fails to do so the holder who purchased it for value supposing it to be negotiable may, at his option, treat it as imposing on the warehouseman the same liabilities he would have incurred had it been negotiable. § 294g. Texas/° — A warehouse receipt shall be negotia- ble and transferable by indorsement in blank or by special in- dorsement and delivery in the same manner and to the same ex- tent as bills of exchange and promissory notes now are, without other formality, and the transferee or holder of such pubhc ware- house receipt shall be considered and held as the actual and ex- clusive owner, to all intents and purposes, of the property therein described subject only to the lien and privilege of the public ware- houseman for storage and other warehouse charges; provided, however, that all such public warehouse receipts, as shall have the "Acts 1909, p. 1226, §§ 2, 4, S, 7, ™ Texas Supp. 1906, p. 566, § 7. 355 WAREHOUSE RECEIPTS. § 294h wQrds "not negotiable" plainly written or stamped on the face thereof, shall be exempt from the provisions of this section ; and provided, further, that no public warehouseman shall issue ware- house receipts against his own property in his own warehouse, but upon sale of such property in good faith, may issue to the purchaser his public warehouse receipt in form and manner as herein provided, which issue and delivery of the receipt shall be deemed to complete the sale, and shall constitute the purchaser full owner, as aforesaid, of the propei^ty therein described. § 294h. Utah."" — Warehouse receipts are not required to be in any particular form but they must embody within their written or printed terms (a) the location where goods are stored, (b) the date the receipt is issued, (c) its number, (d) a state- ment whether the goods received will be delivered to the bearer, to a specified person, or to a specified person or his order, (e) the rate of storage charges, (f) description of the goods or pack- ages, (g) signature of the warehouseman, which may be made by his agent, (h) if issued for goods owned by the warehouseman either solely or jointly or in common with others, the fact of such ownership, and (i) a statement of the amount of advances made and liabilities incurred for which the warehouseman claims a lien. A receipt in which it is stated that the goods will be delivered to the depositor or to any other specified person is a non-nego- tiable receipt, but a receipt in which it is stated that the goods will be delivered to the bearer or to the order of a named per- son is a negotiable receipt and the warehouseman is required to stamp or write on the face of a non-negotiable receipt the word "non-negotiable" or "not negotiable," and if he fails to do so the holder who purchased it for value supposing it to be negotiable may, at his option,' treat it as imposing on the ware- houseman the same liabilities he would have incurred had it been negotiable. § 294i. Virginia." — Warehouse receipts are not required to be in any particular form, but there must be contained in them ""Laws 1911, p. 271, §§ 2, 4, S, 7. «^Acts 1908, p. 508, §§ 2, 4, 5, 7. § 294J COLLATERAL SECURITIES. 356 (a) the location where goods are stored, (b) the date the receipt is issued, (c) its number, (d) a statement Whether the goods re- ceived will be delivered to the bearer, to a specified person, or to a specified person or his order, (e) the rate of storage charges, (f ) description of the goods or packages, (g) signature of the ware- houseman, which may be rnade by his agent, (h) if issued for goods owned by the warehouseman either solely or jointly or in common with others, the fact of such ownership, and (i) a state- ment of the amount of advances made and liabilities incurred for which the warehouseman claims a lien. A receipt in which it is stated that the goods will be delivered to the depositor or to any other specified person is a non-nego- tiable receipt but a receipt in which it is stated that the goods will be delivered to the bearer or to the order of a named person is a negotiable receipt and the warehouseman is required to stamp or write on the face of a non-negotiable receipt the word "non- negotiable" or "not negotiable," and if he fails to do so the holder who purchased it for value supposing it to be negotiable . may, at his option, treat it as imposing on the warehouseman the same liabilities he would have incurred had it been negotiable. § 294j. Vermont."^ — A warehouse receipt given for prop- erty stored with a warehouseman may be transferred by indorse- ment thereof; and a person to whom it is transferred shall be deemed to be the owner of the property therein specified, so far as to give validity to a pledge, lien or transfer, made or created by such person ; but no property shall be delivered except on sur- render of the original receipt, or the indorsement of such de- livery thereon in case of partial delivery. Warehouse receipts which have the words "not negotiable" written or printed on their faces are exempt from above provisions. § 294k. Washington."' — All checks or receipts given by any person operating any warehouse, commission house, forward- ing house, mill, wharf or other place of storage, for any grain, flour, pork, beef, wool or other produce or commodity, stored "'Vermont Pub. Stat. 1906, § S003. °'2 Codes and Stat. 1910, I Zm. 357 WAREHOUSE RECEIPTS. § 295 or deposited, and all bills of lading, and transportation receipts of every kind, are hereby declared negotiable, and may be trans- ferred by indorsement of the party to whose order such check or receipt was given or issued, and such indorsement shall be deemed a valid transfer of the commodity represented by such receipt, and may be made either in blank or to the order of another. § 295. Wisconsin."* — Every warehouse receipt on which the words "not negotiable" shall not be written or stamped upon the face thereof, shall be deemed negotiable, in like manner as inland bills of exchange according to the custom of merchants. The payees or indorsees of such receipt payable to them or their order, and the holders of every such receipt payable to bearer, may maintain actions thereon in like manner as in cases of inland bills of exchange, and not otherwise. Any such receipt, bill of lading, voucher, or other document as is mentioned in the preceding section shall be transferable by delivery thereof without indorsement or assignment, and any person to whom the same is so transferred shall be deemed and taken to be the owner of the property therein specified so far as to give validity to any pledge, lien or transfer made or created by such person, unless such receipt, bill of lading, voucher or other document shall have the words "not negotiable" plainly written or stamped on the face thereof."^ § 296. Warehouse receipts only stand in lieu of property. —A warehouse receipt, though it be made negotiable by statute, stands in lieu of the property. The holder of a warehbuse re- ceipt takes no better title than he would if he held the goods themselves.'^° The negotiability of the receipt serves only to cut 'M Stat. 1898, §§ 1676, 1678. "not negotiable" holds no greater 2 Stat. 1898, § 4425, as amended rights as against the real owner than by^Laws 1909, ch. 291. if he took the goods themselves and First Nat. Bank v. Boyce, 78 Ky. if the pledgor had no title or no au- 42, 9 Rep. 405, 39 Am. Rep. 198; thority to sell or pledge such prop- Greenbaum v. Megibben, 10 Bush erty such pledgee can only hold such (Ky.) 419. A pledgee taking a ware- receipt until a sum equal to the debt house receipt indorsed on its face for which such property was pledged § 297 COLLATERAL SECURITIES. 358 off any defense the warehousekeeper may have. "Any other construction would enable any one, fraudulently depositing the goods of another, to pass title, as against the true owner, by ob- taining a warehouse receipt in his own nanie.""^ Where two or more warehouse receipts for the same property have been delivered to different persons, that which was first delivered will prevail."* § 297. Warehouse receipt evidence of ownership or of a pledge. — Whether a warehouse receipt is evidence of owner- ship or of a pledge depends not merely upon its terms, but upon the facts of the transaction. Thus, where the owner of an ele- vator purchased grain for another with money furnished by the latter for that purpose, and after the purchase gave to the person who had advanced the money a warehouse receipt, stating that he had received the grain upon storage, and agreeing to hold the same subject to the order of the holder of the receipt, "for all advances of money on the same," these words were held not to convert the receipt into a mere pledge ; but in accordance with the facts of the transaction, the grain was held to be the prop- erty of the person who advanced the money for its purchase."" The receipt in this form was properly used as a memorandum, or acknowledgment by the warehouseman, that the holders of the receipt had advanced the money with which the grain was pur- chased. It was competent to show by evidence that the receipt was so used. And so where a warehouse receipt was given for merchandise to be held subject to the holder's order, "they having a lien thereon for the full cost of the same," it was held that the legal effect of the receipt was to pass to the holders the general prop- erty and tliie right of possession, and not merely a special prop- erty. The inference to be drawn from this recital in the receipt be paid. Commercial Nat. Bank v. 19 Ohio St. 419, 2 Am. Rep. 408; Bemis, 177 Mass. 9S, 58 N. E. 476. Montgomery v. American Trust &c. " First Nat. Bank v. Boyce, 78 Ky. Bank, 71 III. App. 20. 42, 39 Am. Rep. 198. "Cool v. Phillips, 66 111. 216; also "^ Martin v. Creditors, 14 La. Ann. Broadwell v. Howard, 11 111. 305. 393 ; Second Nat. Bank v. Walbridge, 359 WAREHOUSE RECEIPTS. § 298 was declared to be, either that the property had been purchased and procured by the money of the persons to whom the receipt was given, and so the legal title passed to them in accordance with their equitable rights; or that they, being the owners of the merchandise, were to retain the general ownership until the warehouseman should pay them the full cost or agreed purchase- price of the same. In either case the warehouseman had not the general property in the goods, and his interest was not subject to levy of execution by any of his creditors. ''" § 298. A warehouse receipt need not be in a particular form. — An instrument intended simply as a memorandum of the amount of goods on storage, if signed by the warehouseman, has an assignable quality, and an indorsement and delivery of it to one who makes advances upon the faith of it, renders the warehouseman liable to the holder of it for the goods it repre- sents. Thus, a paper which recites that a certain quantity of corn had been received in store for the account of a firm named is a, warehouse receipt, and not a mere memorandum, although the words "or order" are not used, nor are any words used to sig- nify that the corn would be delivered on return of the receipt. The indorsement and delivery of such a receipt to a third person for value passes the title to the corn.^^ An indorsement in blank authorizes the person to whom the goods are sold or pledged to write over such indorsement an as- signment of the legal title." § 299. DeUvery of warehouse receipt without indorsement. — Even the delivery of a warehouse receipt without indorsement, though it be not written to bearer, if the delivery be with intent to pass the title, is effectual." Thus a warehouse receipt de- " Gibson V. Chillicothe Bank, 11 ''Gibson v. Stevens, 8 How. (U. Ohio St. 311. S.) 384, 12 L. ed. 1123 ; Wilkes v. Fer- " Harris v. Bradley, 2 Dill. (U. S.) ris, S Johns. (N. Y.) 335, 4 Am. Dec. 284; Union Trust Co. v. Wilson, 198 364n; Conrad v. Fisher, 37 Mo. App. U. S. 530, 49 L. ed. 1154, 25 Sup. Ct. 352, 367; Danforth v. McElroy, 121 "'^ Ala. 106, 25 So. 840 ; Horr v. Barker, "Mida V. Geissmann, 17 III. App. 8 Cal. 609, 613, where the court say, "the delivery of a warehouse receipt 766. 207, § 299 COLLATERAL SECURITIES. 360 livered without indorsement is a sufficient delivery of the prop- erty to sustain a pledge as against subsequent attaching creditors of the pledgor, although the receipt does not make the property deliverable to bearer, but "deliverable only on return of the re- ceipt;" for the mere delivery of the receipt to the pledgee en- ables him to take control of the property. Any delivery which gives the pledgee the immediate actual control of the property, is sufficient to sustain the pledge.'^* It has already been noticed that a bill of lading may be ef- fectually pledged by delivery without indorsement.'^^ It is well said by the Supreme Court of California,^' that "upon principle, reason and convenience, it is difficult to draw any substantial difference between a bill of lading and a warehouse receipt. If without assignment is sufficient, prima facie, to pass the title." In St. Louis Nat. Bank v. Ross, 9 Mo. App. 399, where there had been a pledge of cot- ton by delivery of the warehouse re- ceipt without indorsement, the court says. "The delivery of the ware- house receipt would be as effectual as the delivery of the cotton itself, and it could make no difference that the warehouse receipt was not indorsed by the pledgor. There is nothing in this at variance with anything de- cided or said by this court in Erie '& Pacific Dispatch v. St. Louis Cotton Compress Co., 6 Mo. App. 172. The transfer of a warehouse receipt not made negotiable by indorsement and delivery can convey to the transferee no greater rights than would be ac- quired by a transfer of the goods which the receipt represents. That we have said. But it does not follow from that, that one may not pledge cotton by delivering the unindorsed cotton note, as effectually as by deliv- ering to the pledgee the bales them- selves." "Whitney v. Tibbits, 17 Wis. 369; Hale V. Milwaukee Dock Co., 29 Wis. 482, 9 Am. Rep. 603; Blanc v. Ger- mania Nat. Bank, 114 La. 739, 38 So. 537. '=§§ 261, 262. '"Horr V. Barker, 8 Cal. 609, 613. In Davis v. Russell, 52 Cal. 611, 28 Am. Rep. 647, the same court says : "It was held in many cases in the English courts that an assignment of such a receipt does not amount to a constructive delivery of the goods un- til the warehouseman is notified there- of, and agrees to hold the goods for the assignee. Benjamin on Sales, § 815. No substantial reason is offered for giving to the assignment of such an instrument an effect differing ma- terially from that of an assignment of a bill of lading." Referring to the case of Horr v. Barker, 8 Cal. 609, the court continue : "The doctrine of that case has not been questioned, so far as we are aware, by the courts of this state. If an assignment of the receipt will transfer the title to the goods, it must necessarily follow that the possession of the receipt, indorsed in blank, is presumptive evidence of 361 WAREHOUSE RECEIPTS. § 3OO the delivery of the one can pass the title to the property described therein, the delivery of the other should have the same effect. There is no substantial difference between the two cases." § 300. Decision in Massachusetts. — Contrary to the gen- eral rule that a complete delivery of property represented by a warehouse receipt or bill of lading may be made by merely de- livering this document, though it be not negotiable in form, is a decision of the Supreme Court of Massachusetts." The owner of goods stored at a private warehouse took a receipt whereby the warehouseman promised to deliver them to him, and not to his order, upon the payment of charges. The owner indorsed this re- ceipt in blank and delivered it to a creditor as collateral security. Before the latter had given any notice of the transfer to the ware- houseman the goods were attached as the property of the general owner. It was held that there had not been a sufficient delivery of the goods to the pledgee to protect him against the attaching creditor. This decision is based upon the rule laid down in an earlier decision of the court," that an actual delivery of property, that is, a change of possession, is essential to protect a purchaser, as against an attaching creditor. Mr. Justice Holmes, delivering the opinion of the court, said: "The question is then how the transfer of any document can have that effect. The goods are in the hands of a middleman and they remain there. A true change of possession could only be brought to pass by his becoming the servant of the purchaser for the purpose of holding the goods so that his custody should become the possession of his master. But this is not wha^. happens, and it has been held that less would satisfy the law. A carrier or the warehouseman in this case is not the servant of either party quoad the possession but a bailee holding in his own name, and asserting a lien for his charges against all parties. He alone has possession of the goods whether the ownership of the goods by the App. 352, 368. Followed in Gill v. holder of the receipt." Frank, 12 Ore. 507, 8 Pac. 764, S3 " Hallgarten v. Oldham, 135 Mass. Am. Rep. 378. 1, 46 Am. Rep. 433. See contra, §§ "Lanfear v. Sumner, 17 Mass. 110, 263, 299, and Conrad v. Fisher, 37 Mo. 9 Am. Dec. 119. ■ § 300 COLLATERAL SECURITIES. 362 the document is transferred or not. But it has been held that the principle of the rule requiring a delivery is satisfied, although the letter of it is not, if the possessor of the goods becomes the pur- chaser's bailee.'''' Now it is obvious that a custodian cannot be- come the servant of another in respect of his custody except by his own agreement, and a fortiori when that custodian does not yield but maintains his own possession, it is clear that his custody cannot inure to the benefit of another as if it were possession of that other, unless the bailee consents to hold for him subject to his own rights. The only way, therefore, in which a document can be a symbol of the goods in a bailee's hands, for the purpose of delivery to a purchaser is by showing his consent to become the purchaser's bailee. It may or may not be that if a warehouse re- ceipt contains an undertaking to deliver to order, that undertak- ing is to be regarded as an offer by the warehouseman to any one who will take the receipt on the faith of it, and that it will make him warehouseman for the indorser without more, on ordinary principles of contract.^" * * * The appeal to commercial usage cannot help the plaintiff's case. If there be any usage to treat such documents as this as symbols of property in the sense of the argument for the plaintiffs, it is simply a usage to disre- gard well settled rules of law affecting the rights of third per- sons. But we doubt if a prudent merchant would advance on the ™ Tuxworth V. Moore, 9 Pick, wise than by his consent. The neces- (Mass.) 347, 20 Am. Dec. 479; Rus- sity for notice in those cases when sell V. O'Brien, 127 Mass. 349, 354; notice is necessary, stands on the Dempsey v. Gardner, 127 Mass. 381, same ground. If the custodian has 383, 34 Am. Rep, 389. not assented in advance he must as- ™"That is the argument of Benja- sent subsequently; and the principle niin on Sales, 1st ed., 676, et seq., criti- is the same whether an express ac- cizing Farina v. Home, 16 M. & W. ceptance of a delivery order be re- 119, and Blackburn on Sales, 297. But quired or it is held sufficient if he the criticism and the case agree does not dissent when notified, in the assumption that the only way Boardman v. Spooner, 13 Allen jn which the indorsement of a docu- (Mass.) 353, 357, C. J., 90 Am. Dec. ment or title can have the effect of a 196; instructions of Shaw, C. J., to delivery is by making the custodian the jury in Carter v. Willard, 19 bailee for the holder of the document. Pick. (Mass.) 1, 3; Bentall v. Burn, and that he cannot be made so other- 3 B. & C. 423." 363 WAREHOUSE RECEIPTS. § 3OI indorsement of a private warehouse receipt not running to order before he had made sure of the warehouseman's assent. We are confirmed in the view which we take by observing that the legis- lature in dealing with public warehousemen and providing that the "title to property stored, etc. * * * shall pass to a pur- chaser or pledgee by the indorsement and delivery to him of the warehouseman's receipt,"^^ as a preliminary to that result ex- pressly requires that the receipt "shall be negotiable in form." § 301. Warehouse receipt providing that the property is deliverable to bearer. — A warehouse receipt which recites that the property therein mentioned is deliverable to bearer, may be transferred by the owner without indorsement so as to pass the title to the property, if the transfer be made with that intent." A statute which provides that warehouse receipts may be trans- ferred by indorsement does not operate to prevent the passing of title by delivery without indorsement, if the language of the stat- ute be permissive only and not imperative; for the right exists without the statute. The object of such a statute is not to prevent the owner of the property from passing the title in any manner previously effectual for that purpose, but to protect those who deal with persons who are entrusted with such evidences of title only as factors or agents.** Under the statute of Missouri it is held that there must be both indorsement and deliveiy to confer negotiability upon a ware- house receipt. A warehouse receipt payable to bearer is not ne- gotiable unless indorsed by the owner and delivered. The statute makes such receipt negotiable by indorsement and delivery; not by indorsement without delivery, nor by delivery without indorse- ment.'** But it is not to be inferred from this decision that an ef- fectual pledge of such a receipt cannot be made without indorse- "1 Rev. Laws 1902, ch. 69, §§ 5, 4. Co., 6 Mo. App. 172. It would have '^Alabama &c. Bank v. Barnes, 82 been easy for the legislature to say- Ala. 607, 2 So. 349. that warehouse receipts should be ne- ''Rice V. Cutler, 17 Wis. 362, 84 gotiable in the same manner as bills Am. Dec. 747n; Alabama &c. Bank V. of exchange, and then the statute Bajnes, 82 Ala. 607, 2 So. 349. would be susceptible of the interpre- Erie &c. Dispatch v. St. Louis &c. tation sought to be given to it. § 302 COLLATERAL SECURITIES. 364 ment; but only that a transfer not made negotiable by indorse- ment and delivery can convey to the transferee no greater rights than would be acquired by a transfer of the goods which the re- ceipt represents. A pledge by delivery of the receipt unindorsed is as effectual as a pledge by delivery of the goods themselves.*^ § 302. Notice of transfer of warehouse receipt. — An ac- knowledgment of notice of the transfer of a warehouse receipt, signed in blank, by the warehouseman, the name of the transferee being omitted, makes the warehouseman responsible to a pledgee holding the receipt, whose name may afterward be inserted ; and it is immaterial whether the warehouseman had actual knowledge of the person to whom the transfer was made or not.*" § 303. A fraudulent purchaser of a warehouse receipt may make good title to innocent purchaser. — A fraudulent pur- chaser who has obtained a warehouse receipt for the property may give a good title to it, by transferring the receipt to bona fide pledgee before the seller has taken any step to disaffirm the sale on account of the fraud.*^ The transfer of the receipt passes the title as effectually as would the actual handing over the prop- erty which is the subject of the receipt.** Thus, the owner of a ^ St. Louis Nat. Bank v. Ross, 9 dall, 33 Me. 202 ; Chicago Dock Co. v. Mo. App. 399, 411 ; Fourth Nat. Bank Foster, 48 111. 507 ; Fourth Nat. Bank V. St. Louis Cotton &c. Co., 11 Mo. v. St. Louis Cotton Comp. Co., 11 App. 333. Mo. App. 333 ; Amann v. Lowell, 66 '" Central Savings Bank v. Garri- Cal. 306, 5 Pac. 363. For evidence son, 2 Mo. App. S8. One holding a held sufficient to show that one was a warehouse receipt as collateral is not bona fide purchaser for value of a legally required to notify the ware- warehouse receipt see Ammon v. houseman. Bank of Sparta v. Butts, Gamble-Robinson Com. Co., Ill Minn. 4 Ga. App. 308, 61 S. E. 298. The title 452, 127 N. W. 448. It was held that of a bona fide pledgee of a warehouse a pledgee was not a bona fide holder receipt for value has title to the of a warehouse receipt as collateral property represented in the receipt securing a pre-existing debt. Wright which cannot be encumbered by act v. Mississippi Valley Trust Co. (Mo. of the pledgor or warehouseman. App.), 129 S. W. 407. Bank of Sparta v. Butts, 4 Ga. App. ** Western Union R. Co. v. Wagner, 308, 61 S. E. 298. 6S 111. 197; Burton v. Curyea, 40 111. "Hoffman v. Noble, 6 Met. (Mass.) 320, 89 Am. Dec. 350. 68, 39 Am. Dec. 711; Ditson v. Ran- 365 WAREHOUSE RECEIPTS. § 304 cargo of corn having agreed to sell it, sent the cargo to a ware- house designated by the purchaser to have the corn discharged. The warehouseman made out and delivered a receipt to the pur- chaser, who immediately pledged it as security for a loan made on the faith of it. The purchaser was insolvent at the time, and failed to pay the price of the corn, and the seller replevied it. It was held that the buyer's possession of the receipt was equivalent to his possession of the corn, and that the pledgee having, in good faith, made advances on the receipt, he was entitled to protection. The seller claimed that the warehouseman should have sent the receipt to him, instead of giving it to the buyer ; but it was held, under the circumstances of the case, that, inasmuch as the seller had not informed the warehouseman of his claim to hold the corn until it was paid for, the latter was not bound tO' protect the seller.^' But, even if the warehouseman had been chargeable with omission or mistake in delivering the receipt to the purchaser, the latter, having the apparent title and right of possession, could effectually pledge the property, and the seller would be left to his remedy against the warehouseman. "^ § 304. A fraudulent or felonious transfer of a warehouse receipt passes no title as against the true owner." — There is an obvious distinction between cases where goods or non-nego- tiable securities have been obtained by fraud and felony against the will of the owner, and cases where the owner has voluntarily, although induced by false pretenses or representations, delivered possession. In the one case, the owner has no intention of part- ing with his property, in the other he has.°^ In the one case, the "Hoyt V. Baker, IS Abb. Pr. (N. 99 Ala. 493, 19 L. R. A. 70S, 12 So. S.) (N. Y.) 405; McCombie v. S72; Soltau v. Gerdau, 119 N. Y. 380, Spader, 1 Hun (N. Y.) 193; Paddoti 23 N. E. 864, 16 Am. St. 843; Hentz V. Taylor, 44 N. Y. 371. v. Miller, 94 N. Y. 64; Collins v. Ralli, "Hoyt V. Baker, IS Abb. Pr. (N. 8S N. Y. 637, affirming 20 Hun (N. S.) (N. Y.) 405; Hazard v. Abel, 15 Y.) 246; Howland v. Woodruff 60 Abb. Pr. (N. S.) (N. Y.) 413. N. Y. n. " Commercial Bank V. Hurt, 99 Ala. "'White v. Garden, 10 C. B. 919; 130, 19 L. R. A. 701, 12 So. 568, 42 Ammon v. Gamble-Robinson Com! Am. St. 38; Commercial Bank v. Lee, Co., Ill Minn. 452, 127 N. W. 448. § 304 COLLATERAL SECURITIES. 366 property having been feloniously taken f ro.m the owner, no title passes from him; but in the other, the owner having voluntarily invested another with the power of disposal, he is estopped as against an innocent third person, dealing upon the faith of such power, from claiming title himself. "When, however, one person arms another with a symbol of property he should be the sufferer, and not the person who gives credit to the operation and is mis- led by it.""^ This subject is well illustrated by a comparatively recent case in England before the Queen's Bench Division."* Advances were obtained upon a pledge of sundry lots of flour, which were W5.re- housed in the pledgee's name ; and subsequently the owner, upon a pledge of the same flour, obtained advances from another per- son, who was in ignorance of the prior transaction; the owner, by fraudulent representations, having procured from the first pledgee a delivery order for the flour, which he gave to the second pledgee, who obtained possession of the flour, and sold it. In an action by the first pledgee against the second pledgee, it was held that the former must be taken to have intended, by giving the owner the delivery order, to revest the whole property in the flour in him, although the order was given to enable the owner to sell the flour upon his agreement to pay over to this pledgee the proceeds of the sale; and that, although this pledgee might have revoked the delivery order, as having been procured by fraud, so long as the flour remained in the owner's hands, yet when it had been transferred to the second pledgee, the title of the latter was indefeasible to the extent of the advances made in good faith. The pledgor having been allowed by the prior pledgee to appear as the ostensible owner of the flour, and to exercise un- controlled dominion over it, it would be in the highest degree unjust and inequitable that the subsequent pledgee, who had inno- cently advanced money on the goods in the ordinary course of commercial dealing, should suffer through the improvident con- duct of the prior pledgee, or from want of proper caution on his " Vickers v. Hortz, L. R. 2 H. L. °* Babcock v. Lawson, 4 Q. B. D. 394. Sc. 113, lis. 367 WAREHOUSE RECEIPTS. § 305 part."' Upon appeal, this decision was affirmed, Bramwell, Lord Justice, saying: "The plaintiffs had only a special property as pledgees, that property they gave up under a fraud, and had the pledgors still retained the goods, they could have resumed them. They might have said. You the pledgors have got these goods by a fraud, and our special property in them is not divested; but they cannot say that against a person who has obtained posses- sion of them from the pledgors bona fide. The case is somewhat analogous to that where a person is induced to part with his goods by fraud, the contract is voidable and he can recover back the goods; but if the person who has fraudulently obtained the goods part with them to a bona fide purchaser, the purchaser can hold the property against the person defrauded. ""^ § 305. Possession obtained in good faith protects pledgee. — Possession obtained in good faith by a pledgee protects him against the claim of a prior pledgee, whom the owner fraudu- lently induced to part with possession. Thus a party lent a mer- cantile firm his acceptances, taking from them a memorandum in this form : "As security for the due fulfilment on our part of this undertaking, we have warehoused in your name sundry lots of flour, and in consideration of your delivery to us or our order said flour as sold, we farther undertake to specifically pay you proceeds of all sales thereof, immediately on their receipt." Sub- sequently another party in ignorance of this fact, and believing the flour to be the property of the general owners, agreed to ad- vance money on the security of the flour on the terms that he should have absolute possession of the flour and power to sell it. The owners then fraudulently represented to the first pledgee that they had found a purchaser for the flour, and would hand over to him the amount received as the price, and thus induced him to part with the possession of the flour. The second pledgee "Babcock v. Lawson, 4 Q. B. D. Weekly Notes of Cases 546; Gill v. 394, citing Moyce v. Newington, 4 Q. Hutchison, . 7 Weekly Notes Cases B. D. 32, 35, a case involving the same 545 ; Combes v. Chandler, 33 Ohio St. principle, and Root v. French, 13 178. Wend. (N. Y.) 570, 28 Am. Dec. "Babcock v. Lawson, 5 Q. B. D. 482n. See also Robertson v. Hay, 7 284, 286. § 306 COLLATERAL SECURITIES. 368 having obtained possession of the flour sold it, whereupon the first pledgee brought an action against him to recover its value ; but it was held that the defendant having obtained possession of the flour bona fide the transfer to him was valid, and the plaintiff had no property which would entitle him to recover."^ § 306. Title of innocent pledgee of warehouse receipt. — An innocent pledgee of a warehouse receipt takes a title superior to the lien of a vendor who permits the receipt to pass into the hands of the vendee, in such a way as to enable him to pledge it.'* A dealer in cotton was in the habit of selling cotton to a cot- ton buyer under an arrangement which was intended to insure the seller payment for the cotton, before he should part with pos- session of it. This arrangement was that when the purchaser was ready to ship a parcel of cotton the seller should deliver the cot- ton notes, which represented the cotton in a warehouse, to the agent of a freight line, who thereupon was to give a receipt for the cotton notes, declaring that bills of lading should be issued on return of the receipts. The purchaser was then to pay the pur- chase-money for the cotton before the seller should part with the carrier's receipts. This course of dealing was continued for some time, but the carrier disregarded one feature of it, by dehvering the bills of lading to the purchaser without requiring a surrender of the receipts given to the seller for the cotton notes. Finally the seller delivered to the agent of the freight line, certain cotton notes representing cotton sold to this purchaser, and took the agent's receipt therefor in the usual form. The purchaser took these cotton notes and substituted them at a bank for certain other cotton notes, upon which the bank had made advances as col- lateral security. The purchaser immediately afterward failed and absconded. The seller of the cotton thereupon took posses- "Babcock v. Lawson, S Q. B. D. "'The vendor's lien is not affected 284, 42 L. T. (N. S.) 289. As to evi- unless the warehouse receipt is nego- dence held sufficient to show pledgee tiable. Vogelsang v. Fisher, 128 Mo. to be a bona fide holder of warehouse 386, 31 S. W. 13. See also People's receipt for value see Amnion v. Gam- Sav. Bank v. Bates, 120 U. S. 556, 564, ble-Robinson Com. Co., Ill Minn. 452, 7 Sup. Ct. 679, 30 L. ed 754; Vickers 127 N. W. 448. V. Hortz, L. R. 2 H. L. Sc. 113, 115. 369 WAREHOUSE RECEIPTS. § 2)°7 sion of the cotton sold, which was still in the warehouse, and thereupon the bank which had taken it in pledge brought a writ of replevin to recover possession of it, and it was held to be en- titled to recover. "^ Bakewell, J., delivering the opinion of the court, said : "A sale and delivery of a chattel, so far as a bona fide purchaser from the first vendee is concerned, without any notice of reserved claims or rights on the property, ought to be sufficient for his protection. The general rule, of course, is, that where the vendor surrenders to the vendee, or to the agent of the vendee, the possession of the subject-matter of the sale, whether by a manual and actual, or by a symbolical, delivery, the lien is defeated, provided that the vendor does entirely and voluntarily resign possession of the goods. But there are cases in which the vendor, as between vendor and vendee, may retain a lien which he will not be entitled to as against interests of third persons which may intervene. By delivering the warehouse receipts to the freight line, the vendor in the present case seems to have changed the control and dominion of the property, and he put it in the power of the vendee to do what he actually did, that is, to take the symbol of the property, which, so far as the rights of third persons are concerned, was the property itself, and to pledge it for value, under such circumstances as would naturally lead the most vigilant to believe that the property was. his own to sell or pledge; we do not see, therefore, how it can be said that, as to third persons, as the plaintiff in this case, the vendor retained his lien." § 307. An order on warehouseman a sufficient delivery of goods. — An order upon a warehouseman accepted by him is a sufficient delivery of goods in pledge to the holder of the or- der.^ The words "value received" contained in such order are sufficient notice to the warehouseman of such lien, and a fraudu- lent representation to him by the owner of the goods, made with- " Fourth Nat. Bank v. St. Louis ^ Jones v. Baldwin, 12 Pick. (Mass.) Cotton Compress Co., 11 Mo. App. 316; Frazer v. Hilliard, 2 Strobh. (S. ^33, 342. Car.) 309. 24— CoL. Sec. § 308 COLLATERAL SECURITIES. 37O out the pledgee's knowledge that the lien of the pledge had been extinguished, would not affect his rights.^ § 308. Title by estoppel. — In the foregoing sections it has been shown that one who advances money to another upon his presentation of a warehouse receipt, stands in the position of a purchaser for value of the property therein described; and that he can hold the property, even as against the real owner, who has invested the pledgor with an apparent title, because the pledgee has parted with value on the faith of that title. There is another class of cases where the pledgee does not stand in this position, but has parted with his money on the promise of the borrower to pledge property to which he is about to acquire title, and yet may claim the goods as against the owner because the latter has by his acts or statements induced him to repose upon the security he has received, and to refrain from any attempt to recover his money or to obtain other security. The owner is in such cases estopped by his acts or declarations from claiming the property, as against one whose position has been altered by relying on the evidence of title with which the owner invested the pledgor after the loan was made. This point is illustrated in the following case : The owner of a quantity of cotton, in store, contracted to sell it upon the terms that payment should be made upon delivery. The purchaser, be- fore obtaining possession of the cotton, borrowed a sum of money of a banking company, giving as security an invoice and written pledge of the cotton, and an order upon the warehouseman. The vyarehouseman, with the owner's consent, also delivered a ware- house receipt to the purchaser. This loan was on Saturday. On Tuesday following the pledgor failed without having paid for the cotton. In an action by the original owner to recover posses- sion of the cotton, it was held, that although upon the occasion of the loan the banking company acquired no title to the cotton as against the original owner, inasmuch as it parted with its ° Jones V. Baldwin, 12 Pick. (Mass.) quired to give notice of that fact to 316. One holding a warehouse re- the warehouseman. Bank of Sparta ceipt as collateral security is not re- v. Butts, 4 Ga. App. 308, 61 S. E. 298. 371 WAREHOUSE RECEIPTS. 8 3O9 money solely upon the engagement of the borrower, and upon his order, and although the company acquired no title at the time of the delivery of the warehouse receipt, because it parted with no value upon the .faith of it, yet, that upon receiving the receipt, the company had a right to repose upon it, as a ratification of the prior pledge ; and that having relied upon it, and thereby having been induced to refrain from any attempt to recover the loan or to obtain security, for it, the original owner was estopped from claiming title. ^ The rule prevails in such a case, that where one of two innocent persons must suffer by the fraud or wrongful act of another, the loss shall fall upon him by whose act or neglect the fraud or wrongful act has become possible. The original owner gave credit to the purchaser and enabled him to deal with the cotton as his own, by investing him with the possession and the indicia of ownership. The banking company risked their money upon the faith of the promise of the purchaser to procure and deliver the warehouse receipt for the property ; but upon the receipt of that they had a right to repose upon it as evidence of the purchaser's title, and a ratification of the prior pledge of the cotton for the loan ; and .the original owner, having consented to the issuance of the receipt by the warehouse, must be held to have assented to the transfer or other use of it by the purchaser, and that faith should be given to it as to like instruments. Had the company not obtained the warehouse receipt, they might have re- sorted to some process for the recovery of their loan or other indemnity against loss.* § 309. Estoppel — How created. — Two things must concur to create an estoppel by which an owner may be deprived of his property, by the act of a third person, without his assent, under the rule now considered : i. The owner must clothe the person as- suming to dispose of the property with the apparent title to, or au- thority to dispose of it ; and, 2. The person alleging the estoppel must have acted and parted with value upon the faith of such apparent ownership or authority, so that he will be the loser if 'Voorhis V. Olmstead, 66 N. Y. 113, Knights v. Wiffen, L. R. 5 Q. B. 660. affrming 3 Hun (N. Y.) 744. See * Voorhis v. Olmstead, 66 N. Y. 113. 8 3IO COLLATERAL SECURITIES. 372 the appearances to which he trusted are not real. In this respect it does not differ from other estoppels in pais. The elements of an estoppel are thus stated by Judge Allen, of the Court of Ap- peals of New York, in a case which differed from the principal case stated in the foregoing section in that the person who as- sumed to dispose of the property in controversy had neither the possession nor the right of possession of the property, nor any documentary evidence of title, or any indicia of ownership, or of dominion over the property of any kind.^ In further elucidation of the principle which distinguishes the one case from the other, Judge Allen says : "There is a manifest equity in holding the owner of property estopped from asserting title as against one who, for value actually paid, has purchased it from one having, by the voluntary act or negligence of the owner, the apparent title with right of disposal, but with this limitation there is no hard- ship in holding to the rule that the right of property in chattels cannot be transferred unless on the ground of authority or title. Public policy requires that purcliasers of property should be vigi- lant and cautious, at least to the extent of seeing that their ven- dors have some and the usual evidence- of title, and if they are content to rest upon their declarations they may not impose the loss, which is the result of their own incautiousness or credulity, on another. The payment for or parting with value for the goods by the purchaser from the fraudulent vendee lies at the founda- tion of the estoppel, for, if he has parted with nothing, he can lose nothing by the retaking of the goods by the original owner, and that payrrient must be occasioned by the acts or omissions of such owner. It is the payment that creates the estoppel, and if that is not made in reliance on the acts of the owner, the latter is not and cannot, in the nature of things, be estopped." § 310. Estoppel by false representation. — An estoppel arises against a warehouseman by reason of a false representation that the property mentioned in a receipt is in store when it is not, " Barnard v. Campbell, 55 N. Y. 456, 463, 14 Am, Rep. 289. 373 WAREHOUSE RECEIPTS. § S^^ SO that he will be liable for advances made upon the property upon the faith of such representation." §311. Estoppel of warehouseman. — A warehouseman is estopped as against an assignee of his receipt, to deny that he has the identical goods mentioned in the receipt. "The stipulation upon the face of the receipt that the articles mentioned will be delivered only upon the return of the receipt, is a contract upon which the assignee has a right to rely, upon the faith of which he has acted, and for the breach of which he has his action against the warehouseman. It is, therefore, as between the makers of the receipt and an assignee who has in good faith, taken it as security for money advanced, not simply a receipt subject to be explained and contradicted by parol proof, but a Contract, and subject to the rules applicable to other contracts. This is not upon the ground that they are negotiable strictly, but they are sui generis, and stand upon grounds applicable to that class of paper.'"^ Therefore, where a warehouseman gave a receipt for forty bales of cotton, guaranteeing a valuation of fifteen hundred dollars, he then having on hand more than a hundred bales belonging to the owner, it was held that he could not show by parol evidence that it was agreed at the time the receipt was given that he could hold the forty bales then in his warehouse, or any other forty bales that might afterward come in, of the value stipulated, subject to the receipt. The parol proof offered in this case contradicts the writing, and is therefore not admissible.^ "The transfer of the warehouse receipt," say the court, "had the effect of an actual delivery of the cotton to the assignee, to be held as a pledge, and therefore the identical cotton should be designated, and it ap- 'Griswold V. Haven, 25 N. Y. 595, (Tenn.) 104, 111. It is also held 82 Am. Dec. 380. When property rep- where a war6hoseman issues receipts resented by a warehouse receipt is which are in a way negotiable instru- not in possession of the warehouse- raents for property in his possession man the pledgee of such receipt has he cannot destroy the commercial no lien on such goods. Commercial value of the receipts by any secret Bank V. li'Iowers, 116 Ga. 219, 42 S. advances. Bank of Sparta v. Butts £-/74; Storts v. Mills, 93 Mo. App. 4 Ga. App. 308, 61 S. E. 298. Stewart v. Phoenix Ins. Co., 9 Lea 201 'Stewart v. Phoenix Ins. Co., 9 Lea (Tenn.) 104, 111. § ^lla. COLLATERAL SECURITIES. 374 peai'ing that defendants had a large number of bales on hand, and the receipt not distinguishing the forty mentioned from the others, parol proof would have been admissible for this purpose, that is, to designate the sales actually embraced in the receipt. But it does not follow that parol proof is therefore admissible for all purposes. In other words, the ambiguity or uncertainty arising upon the proof as to the identical bales embraced in the receipt, may be met or removed by parol testimony, but this does not open the door for the admission of parol proof generally, or for any other purpose. We need not inquire in this case whether the parol proof would have been sufficient to designate the par- ticular cotton ; it is probable the defendants would, in any event, have been liable for the value. They, as we have seen, would have been estopped as against an assignee of the receipts to deny that they had the cotton, and their inability to show that any particular bales were agreed upon to be included in the receipt, would prob- ably be no defense for them." § 311a. Liability of warehouseman for delivering property without presentation of receipt. — Where w^arehouse receipts were issued, providing that the property described therein should be delivered only on return of the certificates properly indorsed, and the warehouseman delivered the property without the return of the warehouse receipts, he was liable to an indorsee of the ware- house receipts who in good faith loaned money upon them. He will not be heard to dispute the indorsee's title, nor to aver that he did not receive the property on the terms specified in the re- ceipts. The receipts in such case represent as true two very es- sential things : i . That the warehouseman received the property mentioned in the receipts as warehouseman. 2. That the prop- erty will be delivered only on the return of the certificates, prop- erly indorsed. The warehouseman and not an innocent third party who has relied on his representations must bear the loss." ° Babcock v. People's Savings Bank, National Bank v. Bates, 1 Fed. 702 ; 118 Ind. 212, 20 N. E., 732; Planters' Whitlock v. Hay, 58 N. Y. 484; Stew- . Rice Mill Co. v. Merchants' Nat. art v. Phoenix Ins. Co., 9 Lea (Tenn.) Bank, 78 Ga. 574, 3 S. E. 327; M'Neil 104; Quick v. Milligan, 108 Ind. 419, 9 V. Hill, 1 Woolw. (U. S.) 96; First N. E. 392, 58 Am. Rep. 49; Preston v. 375 WAREHOUSE RECEIPTS. § 3 12 § 312. Warehouseman may deny statements in his receipt not within his knowledge. — But a warehouseman is not es- topped to deny statements in his receipt which are not within his knowledge, and of the truth of which he should not be required to have knowledge. Thus if he receives wheat upon storage, and describes it in his receipt as "No. 2 wheat," an assignee of the receipt can only be required to deliver him the identical wheat received, though this be of a quality inferior to that stated in the certificate, and though the assignee received the certificate with no knowledge of the quality of the wheat except that de- rived from this statement. The warehouseman is not estopped by this statement.^" And so a warehouse receipt for a number of barrels of mess pork only binds the warehouseman, in the absence of fraud or wilful or negligent misrepresentation on his part in respect to the description of the property, to deliver the same barrels and the contents thereof ; and although the barrels in fact do not con- tain mess pork, but salt, the warehouseman is not liable to a pledgee who has advanced money relying upon the receipt as security. ^^ Witherspoon, 109 Ind. 457, 9 N. E. of the warehouseman, or that he so 585, 58 Am. Rep. 417; Cowdrey v. states or represents to any person Vandenburgh, 101 U. S. 572, 25 L. ed. purchasing the property by taking de- 523. livery of the receipt. Neither do they "Robson V. Swart, 14 Minn, 371, signify that he has any actual knowl- 100 Am. Dec. 238n. See §§ 248-252. edge or information upon the subject, " Hale V. Milwaukee Dock Co., 29 or that he so states or represents, ex- Wis. 482, 488, 9 Am. Rep. 603. "The cept so far as the barrels themselves, words 'mess pork' in this receipt, are by their external appearance, size, clearly words of description. They weight, marks, &c., indicate such to are descriptive of the barrels re- be their contents. He receipts them ceived, and inserted for the purpose upon the representation of the bailor, of identification. They signify no and their external appearance corre- more in that connection than that the spending therewith as to contents. He fifty-four barrels received and which does not, and is not supposed to have are to be delivered to the bearer on any actual knowledge of their contents, return of the receipt and payment of and the language of the receipt is not storage, are described, marked or so to be understood. It is no war- known as barrels of mess pork. They ranty on his part as to the actual do not signify that the barrels actually contents, but only that the barrels are contam that article to the knowledge so represented and so appear to him, § 313 COLLATERAL SECURITIES. 376 § 313. Warehouseman not estopped to dispute a receipt issued by mistake. — A warehouseman who issues a receipt by mistake and not intentionally, is not estopped to dispute the receipt, though this has been taken from the holder by a pledgee as security for a loan, in the belief that its representations are true.^^ The estoppel which creates responsibility for a false re- ceipt arises not from the instrument itself, which has not the qualities of negotiable paper, but from the acts and conduct of the party issuing the receipt wholly aside from the instrument itself. "The receipt of a warehouseman or wharfinger, and the receipt or bill of lading, of a common carrier, are contracts of precisely the same general nature and effect, and should obviously be gov- erned by the same rules and principles as to the application of the doctrine of estoppel or negotiability, which, with respect to such contracts, mean one and the same thing. They are or may be said to be negotiable or conclusive, in the hands of a bona fide assignee or holder for value, so far as the party executing them, ware- houseman or carrier, has made, or is bound by, the representa- tions contained in them. They are negotiable or conclusive and valid in the hands of such a holder, because the signer, or party by whom they are executed, is estopped, or not permitted to deny the existence of the facts represented in or by them, and which are presumed to have been within his knowledge at the time of their execution. Negotiability or quasi-negotiability, as it has sometimes been more properly called, and estoppel, when spoken of with respect to such instruments, mean, therefore, one and the same thing. A bill of lading or carrier's receipt for goods to be transported, and the receipt of a warehouseman or wharfinger to the extent of his knowledge or not do this, or insist on its being means of information on the subject; done, before signing the receipt or and as they are represented and ap- bill of lading; and the usages and pear to him, so he represents or de- course of the business with ware- scribes them to others in his receipt, housemen are the same.'' A warehouseman, like a common car- " Second Nat. Bank v. Walbridge, rier, is not authorized to open and in- 19 Ohio St. 419, 2 Am. Rep. 408; and spect barrels or packages delivered to see Bigelow's Estoppel, 480. him for safe keeping. A carrier can 377 WAREHOUSE RECEIPTS. § 314 for goods in store or to be forwarded, are both contracts of bailment."^' § 314. Statutory provisions against issue of receipts when goods not in warehouse intended to protect persons dealing in the property. — A statutory provision that a warehouseman shall not issue a receipt for goods unless they are actually in store upon his premises, and in his control, is intended to protect per- sons dealing in the property, and should be so construed as to promote that end. Therefore, if a receipt be issued and pledged by the holder when part of the goods mentioned in it have been received in store, and a part had not been so received, the receipt is not wholly void but void only as to the part not in store at the time the receipt was taken by the pledgee. If a warehouseman gives such a receipt to one who had fraudulently purchased the goods, and he transfers it to another who makes advances on the strength of it without notice of any fact calculated to awaken suspicion, the pledgee is entitled to hold so muclj of the property as was in the warehouse at the time he made the advances and took the receipt, but no more." Of course a warehouse receipt is of no validity as to goods not in esse at the time it is given. ^^ § 315. Warehouseman's receipt for goods not in his ware- house. — A warehouseman's receipts for goods not in his warehouse at the time of giving the receipt, under a statute which provides that such a receipt shall not be issued until the goods have been received into possession and store, does not pass any right or title to the holder of the receipt to the prejudice of inno- cent third persons.^" It would seem that if the goods are after- ward received into the warehouse the receipt so issued would be ratified and made good from that time ; though the intervening " Hale V. Milwaukee Dock Co., 29 " Union Trust Co. v. Trumbull, 137 Wk 482, 486, 9 Am. Rep. 603. 111. 146, 27 N. E. 24. So by statute in "McCombiev. Spader, 1 Hun (N. several states. Kentucky: Gen Stat Y.) 193, 3 Thomp. & C. (N. Y.) 690. 1899, § 4772. Virginia: Supp. to Code " Montgomery v. American T. & S. 1898, ch. 82. Bank, 71 111. App. 20. § 3l6 COLLATERAL SECURITIES. 3/8 rights of innocent third persons would not be affected. But it is clear that if the warehouseman thereupon executes a new receipt, which is given in pledge to secure the liability for which the orig- inal receipt was given, the new receipt takes effect at the tiifie of its execution and delivery; but does not as against intervening rights relate back to the time of giving the original receipt, though its date be made to correspond with that.^' The validity of the new receipt is not affected in the hands of one who acted in good faith in taking the original receipt, by the fact that in giving the original receipt for goods not then in his warehouse and under his control, the warehouseman violated the statute and incurred the penalty it imposed. The penalty was intended for the security of innocent third persons, and the punishment will not be extended to them by declaring the contract void, although prohibited." § 316. Warehouseman not bound by receipt issued by agent acting without authority.. — A warehouseman is not bound by a receipt issued by an officer or agent acting without authority.^' One dealing with an agent having limited powers, is bound to inquire as to the extent of these powers and to take the risk upon himself.^" "If, indeed, any servant could bind his mas- ter by issuing a receipt for goods committed to his charge, the condition of things would be sufficiently serious, and the statute would be pregnant with more harm than good. In this very case we have an example of what would result froni such a construc- tion of the act. A crafty agent obtains a receipt from a servant, intended only as a memorandum, pledges it to an innocent party, then obtains another receipt from the owners of the wharf, and passes that to a like innocent party, and thereby these wharfingers are liable for double the value of the property. But we may easily suppose a case in which a dishonest clerk or other employe, in connection with one or more accomplices, might, in a month's "Cochran v. Ripy, 13 Bush (Ky.) '" For the like rule in regard to car- 495. riers, see §§ 245-254. "Cochran v. Ripy, 13 Bush (Ky.) =° People's Bank v. Gayley, 92 Pa. 495. St. 518. 379 WAREHOUSE RECEIPTS. § 3i6a time, bring to ruin the wealthiest warehouseman in this city. But this will not do; such results were never intended by the makers of the statute, and a construction such as this is warranted nei- ther by the letter nor spirit of that statute."^^ § 316a. An officer of a warehouse company cannot issue receipts and pledge them for a loan to himself. — Where an officer of a warehouse company fraudulently issued the company's negotiable receipt in favor of himself and pledged it to a bank as collateral for a loan, and it turned out that the officer had no goods on deposit with the company it was held that while the of- ficer had express authority to issue the company's negotiable warehouse receipts in favor of third parties for goods deposited by them, he had no authority to issue such receipts to himself, and it seems that he could not issue such receipts to himself, even for goods which he had actually deposited with the warehouse company. ^^ In another case upon similar facts it was held that the bank could hold the company liable as for a conversion of the goods mentioned in the certificate only by showing that the certificate was valid as to a holder thereof for value, by reason of implied authority having been conferred upon the officer to issue certifi- cates in his own favor for goods deposited by him and not by merely showing that statements made to the bank by a repre- sentative of the company in charge of its warehouse, that the goods mentioned in the certificate were on deposit, were false; and a recovery based solely upon the falsity of such statements, and not upon the validity of the certificate by reason of implied authority to issue it, is untenable. ^^ ^'Peoples' Bank v. Gayley, 92 Pa. president of the warehouse company St- 518. and that the loan was a personal one. ^^ Bank of New York Nat. Banking ^^ Corn Exchange Bank v. American Assn. V. American Dock & T. Co., 143 Dock & T. Co., 149 N. Y. 174, 43 N. E. N. Y. SS9, 38 N. E. 713, affirming 70 915, reversing 78 Hun (N. Y.) 400, Hun (N. Y.) 152, 24 N. Y. S. 406. 29 N. Y. S. 158; Hanover National The bank's officers knew when the Bank v. American Dock & T. Co., loan was made that the borrower was 148 N. Y. 612, 43 N. E. 72, 51 Am. St. 721. § 317 COLLATERAL SECURITIES. 380 But if an officer of a warehouse company having express au- thority to issue negotiable warehouse certificates to others for goods deposited, but having no such authority to issue certificates to himself, does issue warehouse certificates in his own favor, to the knowledge, express or implied, of the company's directors, their acquiescence in such acts, after having had a reasonable time to put an end thereto, will permit the inference that the act of certifying in his own favor was within the officer's acti:ial au- thority, and will estop the company from denying, as to purchas- ers for value, that the power to so certify in fact existed.^* § 317. Warehouse receipt for a part of goods stored in bulk. — A warehouse receipt for a part of certain goods stored in bulk passes no title until such goods are separated, set apart, or marked, so as to distinguish them from the general mass, un- less the receipt provides the means of making such separation.^* This general doctrine of the common law is in some states em- bodied in the statutes governing warehouse receipts ; but a special exception is in some states made for the case of grain stored in bulk. In other states the courts have recognized and enforced a general usage to store in bulk grain of like quality belonging to different persons who become owners in common of the whole mass, each being entitled to such a proportion as the quantity placed in store by him bears to the whole mass. This usage has necessarily followed the introduction and use of elevators for the storage of grain; and the courts have modified the common-law doctrine to meet the necessities of this innovation.^° Thus, in a °' Hanover National Bank v. Ameri- this enactment only followed the es- can Dock & T. Co., 148 N. Y. 612, 43 tablished rule of the common law. N. E. 72, 51 Am. St. 721, 75 Hun (N. =« Gushing v. Breed, 14 Allen Y.) 55, 26 N. Y. S. 1055. (Mass.) 376, 92 Am. Dec. W ; Keeler '"'Furguson v. Northern Bank, 14 v. Goodwin, 111 Mass. 490; Forbes v. Bush (Ky.) 555, 29 Am. Rep. 418. In Fitchburg R. Go., 133 Mass. 154; Dole this state it is provided by statute th^t v. Olmstead, 36 111. 150, 41 111. 344, 85 the receipt shall set forth the quality. Am. Dec. 397,89 Am. Dec. 386; Green- quantity, kind, and description of the leaf v. Dows, 3 McCrary 27, (U. S.) property, which shall be designated Bank of Rome v. Haselton, 15 Lea by some mark. But it was declared (Tenn.) 216, 243; Merchants' &c. by the court, in the case cited, that Bank v. Hibbard, 48 Mich. 118, 11 N. 381 WAREHOUSE RECEIPTS. § 318 case in Massachusetts, a pledgee of a bill of lading representing a shipment of grain, brought suit against a railroad company for a conversion of the grain, which the company had stored in its elevator, where it was mixed with other grain of a like quality, and the company, having wrongfully delivered the quantity of grain called for by the bill of lading to the consignee, contended that, because it was impossible to deliver the identical grain re- ceived, it was not liable in an action of tort, in the nature of trover, for its conversion. But it was held that this objection could not be sustained. Chief Justice Morton, in delivering the ' judgment of the court, said :" "When the grain was put in the elevator, the plaintiffs . and the other owners of grain stored therein became tenants in common, in proportion to their respect- ive interests. * * * ^j^^j ^ tenant in common of personal property may maintain trover against a stranger who converts the property, or his interest in it. * * * At the time of the delivery to the consignefe, the plaintiffs were the owners of the grain entitled to the immediate possession. Such a delivery was a separation of their grain from the bulk of the grain, and a mis- appropriation of it, and was a conversion for which the appro- priate remedy is an action of tort in the nature of trover." §318. Exception to the rule. — But this exception to the general rule embraces only such property as grain, which is cus- tomarily stored in bulk, or other goods, the constituent particles of which are alike, and not distinguishable. It does not extend to such property, as flour in barrels, ailthough all the flour in store be of the same brand, of the same quality, and of uniform value f^ or to such property as hams;^" or bales of cotton,^" or cases of eggs." E. 834, 42 Am. Rep. 465 ; Kimberly v. " Ferguson v. Northern Bank, 14 Patchin, 19 N. Y. 330, 75 Am. Dec. Bush (Ky.) 555, 29 Am. Rep. 418. 334n ; Preston v. Witherspoon, 109 "" Stewart v. PhcEnix Ins. Co., 9 Lea Ind.4S7, 9N. E. 585, 58 Am. Rep.417; (Tenn.) 104, 110. See State Nat. Rice V. Nixon, 97 Ind. 97, 49 Am. Rep. Bank v. Bryant, 49 La. Ann. 467, 22 430; National Exchange Bank v. So. 89. Wilder, 34 Minn. 149, 24 N. W. 699. ''Fifth Nat. Bank v. Providence "Forbes v. Fitchburg R. Co., 133 Warehouse Co., 17 R. I. 112, 20 Atl. Mass. 154. 203, 9 L. R. A. 260. '^ Gardiner v. Suydam, 7 N. Y. 357. § 3l8a COLLATERAL SECURITIES. 382 But if a warehouseman issues his receipt for goods not ordi- narily stored in bulk, such as barrels of pork, without identify- ing the particular barrels, or setting them apart from other bar- rels of pork in storage, he may be estopped as against the holder of the receipt from setting up the want of segregation of the goods receipted for from other goods. "By their receipt, they have charged themselves and are estopped. If a warehouseman would protect himself from liability in such cases, he can do so by describing the goods as part of a larger lot and unseparated, or in bulk, with, the goods of others. Such a description would give notice to any transferee of the warehouse receipt, of the con- ■ dition of the goods, and enable him to use the necessary diligence in obtaining the title to specific property."^^ Where storage receipts had been given for 50,000 pounds of bar iron and pledged by the owner as security for loans, the warehouseman had allowed the owner to take a part of the iron, and afterward to restore the quantity taken. In a suit between the creditors of the owner and the holders of the receipts, the lat- ter claimed title to all the 50,000 pounds of iron, and the claim was allowed upon the ground that the iron loaned by the ware- houseman had been returned before the rights of creditors inter- vened, and inured to the benefit of the receipt holders, who had the right to ratify and adopt the unauthorized act.^^ § 318a. Right of the holder of warehouse receipt for goods not entitled to be stored in bulk to call for identical goods. — The holder of a warehouse receipt for goods not entitled to be stored in bulk has the right to call for the identical goods, and is not obliged to accept other goods of a similar description. The owner of a large number of cases of eggs stored them and re- ceived warehouse receipts which he delivered to a bank as security for a loan. The cases bore no distinguishing mark. The ware- houseman in violation of his duty delivered these cases to the de- positor. The loan for which the receipts were pledged not being paid, the bank brought suit against the warehouseman. It was "" Goodwin v. Scannell, 6 Cal. 541. ^ Bank of Rome v. Haselton, 15 Lea (Tenn.) 216, 249. 383 WAREHOUSE RECEIPTS. § 319 held the latter was not entitled to deliver to the bank other cases of eggs in place of those for which the receipt was given. There was a conversion of the property by the warehouseman and the bank could maintain assumpsit without proof of a previous de- mand. The measure of damages was declared to be the amount of the loan secured by the receipts, it appearing that the value of the property at the time of the conversion exceeded that amount."'' § 319. Rights of warehouse receipt-holders when receipts, are issued for more property than is held. — If a warehouse- man issues receipts for property in bulk, such as wheat, to sev- eral depositors, for a greater quantity than he has in store, or if, having received the wheat, he fraudulently disposes of a part of it, so that there is not enough to satisfy all the receipt-holders, they are entitled to share in what remains, according to the equi- table interest of each, to be ascertained by an accounting.^" If a warehouseman has in store the grain of various persons, for which he has given receipts, and also grain of his own, the whole being stored in one common bulk, and he transfers all the grain to secure a creditor of his own, to be held subject to the rights of the different owners, the assignee will hold the property as trustee for the benefit of all parties in interest. He will be bound to deliver to the receipt-holders all the grain which belonged to them, but he will have the right to retain and apply to his own debt whatever grain there was in store at the time of the assign- ment belonging to the warehouseman.^** § 320. By issuing a receipt a warehouseman does not guar- antee the title. — A warehouseman does not, by issuing his re- ceipt, 'become a guarantor of the title of the property mentioned Fifth Nat. Bank v. Providence with that of another so that no par- Warehouse Co., 17 R. I. 112, 20 Atl. ticular part could be identified as hav- 203, 9 L. R. A. 260. ing been derived from the sale of the '"Dows V. Ekstrone, 3 Fed. 19; pledge of either and the total fund Dole V. Olmstead, 36 111. ISO. is not sufficient to discharge both "Dole V. Olmstead, 36 111. ISO, 8S debts it should be pro rated between Am. Dec. 397. Where a pledgee puts them. Smith v. J. B. Moors & Co., the proceeds of wool of one pledgor 215 Pa. 421, 64 Atl. 593. § 321 COLLATERAL SECURITIES. 384 therein to the holder of the receipt, but merely a custodian of it. His duty is performed when he gets actual possession of the property before issuing his receipt, and by delivering possession upon demand to the lawful holder of the receipt.'^ But, if a warehouseman negligently issues two receipts for the same property, and both are taken in good faith in pledge, he is liable upon both. Thus, a warehouseman having issued a re- ceipt for a quantity of corn, the holder of the receipt pledged it to a bank, and then directed the warehouseman to ship the corn, which he did, taking a receipt from the carrier, and delivering it to the person who took the former receipt, who thereupon ob- tained a bill of lading from the carrier, and attaching this to a draft, obtained a discount of it from the bank which received the first receipt in pledge. The bank had no notice that the receipt and bill of lading were for the same corn. It was held that the bank was entitled to recover of the warehouseman the value of the corn.^' § 321. Owner of goods cannot give warehouse receipt for them, etc. — The owner of goods cannot give a warehouse re- ceipt for them, which will be an effectual pledge of them, as against an attaching creditor, unless it be accompanied by an actual or symbolical delivery of the goods,^° though the pledge is valid between the parties.*" A commission merchant on ap- plying to a banker for a discount of his promissory note, attached thereto, as collateral, a receipt by him, as follows : "Received in store, for account of P. & S. (the bankers), subject to their or- der, the following named property, as security to my note, given this day." The goods remained in the owner's store, and he con- " Insurance Co. v. Kiger, 103 U. S. Atl. 723 ; Tradesmen's Nat. Bank v. 352, 26 L. ed 433. Thos. Kent Mfg. Co., 186 Pa. St. SS6, ^ Union Savings Assn. v. St. Louis 40 Atl. 1018, 665 Am. St. 876. Grain Elevator Co., 11 Mo. App. 596. "Alabama State Bank v. Barnes, 82 "Thome v. First Nat. Bank, 37 Ala. 607, 2 So. 349; Merchants' & Ohio St. 254; Geddes v. Bennett, 6 M'f'g Bank v. Hibbard, 48 Mich. La. Ann. 516; Steaubli v. Blaine Nat. 118, 11 N. W. 834, 42 Am. Rep. 465; Bank, 11 Wash. 426, 39 Pac. 814; Cochran v. Ripy, 13 Bush (Ky.) 495; Moors v. Jagode, 195 Pa. St. 163, 45 Parshall v. Eggert, 54 N. Y. 18. 385 WAREHOUSE RECEIPTS. § 321 tinued to keep it open and transact business as he had done before the pledge, and the bankers did not even look at the goods. In -a suit by the bankers to recover the property from a sheriff, who had attached the property in favor of a creditor of the merchant, it was urged that the receipt showed upon its face that the mer- chant received the goods from the plaintiffs, and that he held them thereafter in a new capacity, as agent and factor for the pledgees. To this suggestion the Supreme Court of New York reply:" "So far as creditors are concerned, if this be a pledge, the writing is to them of no moment whatever ; it is only, at the furthest, evidence of the pledge, which would have been just as valid if it had been left in parol. The true and only essential in- quiry in this case is, has there been in fact a delivery; none ac- companied the transaction; and this disposes of all the argument made upon the suggestion that this paper on its face amounts to a warehouse receipt ; for the plaintiffs cannot, by any fiction, avoid meeting the undisputed fact that the. subject of the pledge was not delivered to him until their debt had matured, and after the claim of the attaching creditor had become prior and superior."''^ But whatever weight these views may have in themselves, their authority is subject to the declaration of the commission of ap- peals in deciding this case, that the receipt might be considered as showing conclusively against pledgor, that the property was de- livered by him to the pledgee, and by the latter redelivered to him to be held as security for the pledgee, according to the terms of the receipt.*^ The case was, however, decided upon another ground.** And so a warehouse receipt issued by a warehouseman upon his own grain as collateral security, is invalid as against a prior purchaser who holds a valid receipt therefor.*^ Even a delivery of the keys of the warehouse to the holder of the invalid receipt "Parshall v. Eggert, 52 Barb. (N. •'Parshall v. Eggert, 54 N. Y 18 Y.) 367, 376. 23. '' The decision upon this point of " See § 39. deUvery was reversed upon appeal. " Sexton v. Graham, 53 Iowa 181, 4 Parshall V. Eggert, 54 N. Y. 18. N. W. 1090. 25 — Col. Sec. § 322 COLLATERAL SECURITIES. 386 does not amount to a valid delivery of the grain to him as against such prior purchaser. § 322. Statutory provisions in a few states. — In one or two states it is provided by statute that the owner of a private ware- house may issue receipts for his own property which shall have the effect of receipts issued by a public warehouseman to other persons storing property therein. In Wisconsiri a warehouse receipt issued by any person or per- sons, keeping, running and managing a public warehouse, on goods, wares or merchandise owned by him or them, and which he or they have, at the time of issuing such warehouse receipt, actually stored in the said warehouse, shall have the same force and effect to protect the owner and holder thereof on any loan or advance of money he may have made on the same, as a ware- house receipt issued by the keeper and manager of a public ware- house to any other person who brings goods, wares or merchan- dise to be stored in such public warehouse.*" § 323. Rule in Kentucky. — In Kentucky,*^ a warehouse- man is impliedly authorized by statute to give receipts or vouch- ers for his own goods, when stored and' under his control and kept in his own warehouse or a warehouse kept by him. If the goods are at the time in his possession, his receipt vests in the holder a right to the property, and no one without his written consent or transfer, and the production of the receipt, can gain any title thereto.*' This statute also requires that the receipt should show upon its face any lien or encumbrance that might exist upon the property in favor of the warehouseman. There- fore, if a warehouseman himself sells goods upon credit and gives a receipt for the same, to be delivered on return of the receipt and payment of the storage and charges, and the purchaser in- dorses the receipt to an innocent holder as collateral to secure a *° Laws 1899, ch. 146. See also ch. « Cochran v, Ripy, 13 Bush (Ky.) 251. 495 ; Ferguson v. Nothern Bank of "Act of March 6, 1869, amended by Ky., 14 Bush (Ky.) 555, 29 Am. Rep. Act July 6, 1893. Stat. 1909, ch. 133. 418. 387 WAREHOUSE RECEIPTS. § 324 loan obtained on the faith of the receipt, the latter has a right to have the property applied in the first place to the payment of the loan; and it is immaterial that the purchaser of the property acted fraudulently in the transaction.*" A provision of the statute for- bidding the issuing of a second receipt without the written con- sent of the holder of the prior receipt, is intended to protect the holder of the second receipt, and does not allow the holder of the first receipt to repudiate his oral agreement that the holder of the property might sell it. He is as much estopped to deny the au- thority to sell, and the title of the innocent purchaser, as he would be if he had stood by in person, and acquiesced in the sale without asserting claim to the property.''" § 324. Receipt of servant of owner is no better than own- er's receipt. — A receipt signed by the agent or servant of the owner has no more effect than the owner's own receipt. If such a receipt be transferred by the owner as collateral security for a loan, and the property remains upon the owner'^ premises, it af- fords no protection to the creditor, but the property may be taken in execution by the creditors of such owner. As between the owner and his agent such a receipt is a nullity, and as between the owner and his pledgee it is wholly ineffectual as a pledge." § 325. A writing in the form of a warehouse receipt issued by the debtor on his own property is not a warehouse receipt. — An instrument in the form of a warehouse receipt executed by a debtor to his creditor, on the debtor's own property, is not a warehouse receipt. ''^ A receipt issued by a private warehouseman "Grenbaum v. Megibben, 10 Bush °= Thorne v. First Nat. Bank, 37 (Ky.) 419; and see Cochran v. Ripy, Ohio St. 254; Bucher v. Common- 13 Bush (Ky.) 495. wealth, 103 Pa. St. 528; Shepardson '° Farmer v. Gregory, 78 Ky. 475. v. Gary, 29 Wis. 34; Sinsheimer v. "Yenni v. McNamee, 45 N. Y. 614. Whitely, 111 Cal. 378, 52 -Am. St. 192, Warehouse receipts signed by another 43 Pat 1109;Gelifuss v. Corrigan, 95 in the name of the warehouseman and Wis. 651, 70 N. W. 306, 60 Am. St. under his supervision are admissible 143, 11 L. R. A. 166; Conrad v. Fish- in evidence to prove title in the per- er, i1 Mo. App. 352, 8 L. R. A. 147, son holding such receipts. Alabama 152, 153; National Exchange Bank v! &C. R. Go. v. Clark, 136 Ala. 450, 34 Wilder, 34 Minn. 149, 24 N. W. 699; ■ ^^^- Fishback v. Van Dusen, 33 Minn. Ill', § 325 COLLATERAL SECURITIES. 388 for his own property, in his own warehouse, and delivered by him as collateral security for his own debt, vests no title to the property in the holder as against other creditors, and in bank- ruptcy proceedings against the debtor the holder of such a re- ceipt has no. preference. Such a receipt confers no possession, actual or constructive, which is essential to a pledge. ^^ Neither does it amount to a mortgage of the property, because no posses- sion is conferred upon the mortgagee, nor does it, in fact, amount to a written mortgage. Even if it did amount to a mortgage, it would not be valid without record, according to the statute. The receipt might constitute a valid contract between the parties, but it amounts to nothing as against the creditors of the person who makes it.^* A private warehouseman having issued receipts for his own property, in his own warehouse, and delivered them as security for his indebtedness, it was held that the person taking such re- ceipts acquired rip title to the property described as against other creditors, and in bankruptcy proceedings was not entitled to any preference. It did not appear that the bankrupt used his ware- house as a warehouse under the statute, in any other way than for the purpose specially intended by the bankrupt. It did not appear that the property of any other person than that of the bankrupt was stored in the warehouse. The case was one, there- 22 N. W. 244; Union Trust Co. v. fore, never any valid pledge by the Trumbull, 137 111. 146, 27 N. E. 24; borrower, nor any actual warehouse State V. Bryant, 63 Md. 66 ; Conrad receipt. What was so-called operated V. Fisher, 37 Mo. App. 352, 368; Val- in each instance to transfer the title ley Nat. Bank v. Frank, 12 Mo. App. of the property described, as between 460. Under the Kentucky statute re- the borrower and the bank, and such lating to warehouse receipts, it seems transfer, being collateral to the pay- that a private warehouseman may is- ment of a debt, could operate only as sue receipts upon his own property, a mortgage." • Also, Franklin Nat. Cochran v. Ripy, 13 Bush (Ky.) 495; Bank v. Whitehead, 149 Ind. 560, 49 Ferguson v. Northern Bank, 14 Bush N. E. 592, 63 Am. St. 302, 39 L. R. A. (Ky.) 555, 29 Am. Rep. 418; New- 725; Mechanics' Trust Co. v. Dand- comb V. Cabell, 10 Bush. (Ky.) 460; ridge (Ky.), 37 S. W. 288. Farmer v. Gregory, 78 Ky. 475. "Adams v. Merchants' Nat. Bank, =» Farmers' & Mechanics' Nat. 2 Fed. 174, 9 Biss. (U. S.) 396; Yenni Bank v. Lang, 87 N. Y. 209, 215. \-. McNamee, 45 N. Y. 614. Finch, J., said : "There was, there- 389 WAREHOUSE RECEIPTS. § 325a fore, where the bankrupt, having purchased and taken possession of property, stored it in his warehouse, for which a permit under the statute had been obtained, and issued receipts for the same, and transferred them, through a third person to whom they were issued, to the bank as collateral security for the loan made. There' was consequently no pledge, for there was no delivery of possession. Neither was there any valid mortgage of the prop- erty, because there was no possession in the mortgagee, nor was there, in fact, any written mortgage.^" It was claimed that the assignee took no greater rights than the bankrupt had, and that this contract, being valid between the par- ties, was valid against the assignee. But the court declared that the rule did not apply to cases of this kind ; but that the assignee had the right of a judgment creditor, where the mortgage or pledge is invalid in consequence of wanting any element requisite under the law or under the statute.^" § 325 a. Public warehouseman has no power to issue re- ceipts upon his own property. — Even a public warehouseman has no power to issue a warehouse receipt upon his own property in his warehouse as security for a debt, unless authority to do so be expressly given by statute.^' An exception to this rule has been established by decisions in several courts, the Supreme Court of Minnesota holding that the owner of goods, if a warehouseman, can pledge the same by issuing and delivering his own warehouse receipt to the pledgee."^ In the Minnesota case, Mitchell, J., said : "The tendency of the later authorities (although the proposition has been sometimes doubted or denied) is to hold that the owner "" Adams v. Merchants' Nat. Bank, 149 Ind. 560, 49 N. E. 592, 63 Am. St. 2 Fed 174, 9 Biss. (U. S.) 396; Gib- 302, 39 L. R. A. 725. son V. Stevens, 8 How. (U. S.) 384, '"National Exchange Bank v. Wil- 12 L. ed. 1123 ; Gibson v. Chillicothe der, 34 Minn. 149, 24 N. W. 699. Dis- Bank, ll Ohio St. 311; Yenni v. Mc- tinguished from Fishback v. Van Du- Namee, 45 N. Y. 614; Shepardson v. sen, 33 Minn. Ill, 22 N. W. 244; Mer- Green, 21 Wis. 539. ' chants' and Manufacturers' Bank v. °° Adams v. Merchants' Nat. Bank, Hibbard, 48 Mich. 118, 11 N. W. 834, 2 Fed. 174, 9 Biss. (U. S.) 396. 42 Am. Rep. 465. " Franklin Nat. Bank v. Whitehead, § 32t) COLLATERAL SECURITIES. 39O of goods, if a warehouseman, can pledge the same by issuing and delivering his own warehouse receipt to the pledgee.'" The power of a warehouseman to make a delivery in this way, in case of a sale, is well settled."" And we are unable to see any good reason founded on principle for any distinction in this regard between a sale and a pledge. * * * There is no good reason in the na- ture of things why a delivery which is sufifijcient in case of a sale should not be so in case of a pledge. When the pledgor or the vendor is a warehouseman, the public has notice from that fact that the title and legal possession of property in his warehouse may be in others, although the actual physical possession is in himself."" § 326. Distinction in cases of sales and cases of pledges. — There is a distinction between cases of sales and cases of pledges, as regards the effect of the delivery of receipts for the property. When a vendor delivers to the purchaser his own receipt for the property sold, the vendor may be regarded as bailee of the prop- erty for the purchaser, so that the title may be regarded as in the purchaser by virtue of the receipt. When the receipt is given by the owner of the goods merely as collateral security, and not for the pui'pose of carrying out an absolute sale, it comes within the principle of a mortgage of chattels, which must, to be valid as against third persons, be made and recorded in compliance with statutory law. Yet, as between the parties themselves, such a re- ceipt is a lawful contract, and effects a valid transfer of the prop- erty according to its terms. "^ Thus a pledgee holding such a re- °° Citing Easton v. Hodges, 18 Fed. the latter distinguished from Thorne 677; Merchants' &c. Bank v. Hibbard, v. First Nat. Bank, Z1 Ohio St. 2S4; 48 Mich. 118, 11 N. W. 834, 42 Am. Hoyt v. Hartford F. Ins. Co., 26 Hun Rep. 46S. (N. Y.) 416; Farmers' & Mechanics' "Citing Gibson v. Stevens, 8 How. Nat. Bank v. Lang, 87 N. Y. 209; (U. S.) 384, 12 L. ed. 1123; Broad- Yenni v. McNamee, 45 N. Y. 614; well V. Howard, 11 111. 305. Adams v. Merchants' Nat. Bank, 2 " National Exchange Bank v. Wil- Fed. 174, 178, referring to the cases der, 34 Minn. 149, 155, 24 N. W. 699. of Shepardson v. Green, 21 Wis. 539, °° Gibson v. Stevens, 8 How. (U. and Shepardson v. Cary, 29 Wis. 34, S.) 384; 12 L. ed. 1123; Gibson v. and the language of the court in the Chillicothe Bank, 11 Ohio St. 311; last named case critized as not con- 391 WAREHOUSE RECEIPTS. § 326 ceipt is entitled, as having the title to the property designated, to recover upon an insurance policy upon such property assigned to him for further security. °' sistently following the distinction '^ Hoyt v. Hartford F. Ins. Co., 26 above taken. Alabama State Bank v. Hun (N. Y.) 416. Barnes, 82 Ala. 607, 2 So. 349. CHAPTER VIII. PLEDGES BY AGENTS OR FACTORS. i 327. Agent had no power at com- mon law to pledge principal's goods. 328. Agent or factor authorized only to sell has no power at common law to pledge. 328a. At common law principal is bound by acts of his agent either where he directs the agent or ratifies his acts. 329. Not material that the agent is not known as a factor. 330. Factor not allowed to take ad- vantage of his own wrongful act. 331. Assignment of factor's or broker's lien, as security. 332. No substantial difference be- tween pledge made by factor or a pledgee. 333. Purpose of factors' acts. 333a. California. 334. Louisiana. 335. Maryland. 336. Massachusetts. 337. New York and Ohio. 338. Pennsylvania. 339. Rhode Island. 340. Wisconsin. 341. Common law rule still prevails where not changed by stat- ute. 342. Factor at common law could not pledge bill of lading by indorsement. § 343. Power of factor to pledge bill of lading or warehouse re- ceipt made negotiable by statute. 344. Agent not having power to sell is not a factor within factors' acts. 345. Agent who can pledge or sell under factors' acts, must be one whose business ends with a sale of the goods. 346. Broker not authorized to pledge goods entrusted to him in an- other capacity. 347. Agent whose authority is re- voked. 348. Factor acts apply only where the relation of principal and agent exists. 349. Mere possession of a bill of lading will not create the re- lation of principal and fac- tor. 350. Liability of pledgee who takes property with knowledge that agent is acting contrary to principal's instructions. 351. Factor is bound to follow his principal's instructions as to terms of sale. 352. Factor may make successive pledges of the same property. 353. Provision of factors' act, &c. § 327. Agent had no power at common law to pledge prin- cipal's goods. — By the common law a factor or agent had no 392 393 AGENTS OR FACTORS. § 327 power to pledge goods which his principal had entrusted to his possession, although the factor or agent had made 'advances to his principal upon the goods, and had a lien thereon for the ad- vances.^ Although the principal had drawn upon his factor for the value of the property consigned, he was not authorized to pledge the goods even to raise funds to meet the bills. ^ The rights of the principal and factor whenever this relation existed, and whatever might be the circumstances, were regarded as de- pending on the law merchant, which was a part of the common law. By this law a factor was but the attorney of his principal, and he was bound to pursue the powers delegated, and could not go beyond them.'' An agent to sell goods, though being the ap- parent owner by reason of having possession by permission of the principal, could not pledge them for his own debt, or that of his consignor. No usage of trade allowed this. The agency was to sell only. A creditor to whom a factor offered goods in pledge was bound at his jperil to inquire and know the extent of the fac- tor's title to the goods, or of his authority to deal with them. Lord Chancellor Selborne stated the law to this effect, say- ing: "It is manifest that when a man is dealing with other 'Patterson v. Tash, 2 Str. 1178; chants' Nat. Bank v. Trenholra, 12 Daubigny v. Duval, S T. R. 604; Gill Heisk. (Tenn.) S20; Van Amringe v. V. Kymer, 5 Moore 503; JM'Combie v. Peabody, 1 Mas. (U. S.) 440; Hoff- Davies, 7 East 5; Martini v. Coles, 1 man v. Noble, 6 Met. (Mass.) 68, 39 M. & S. 140; Queiroz v. Truemen, 3 Am. Dec. 711; Newbold v. Wright, 4 B. & C. 342, 348; De Bouchout v. Rawle (Pa.) 195; Wright v. Solo- Goldsmid, 5 Ves. 210; Pickering v. mon, 19 Cal. 64; Cleveland v. Shoe- Busk, 15 East 38, 43; Peet v. Baxter, man, 40 Ohio St. 176, 182; Anderson 1 Stark. 472; Warner v. Martin, 11 v. McAleenan, 15 Daly (N. Y.) 444, How. (U. S.) 209, 13 L. ed. 667; First 29 N. Y. St. 406, 8 N. Y. S. 483; Cos- Nat. Bank V. Nelson, 38 Ga. 391, 95 tikyan v. Sloan, 33 App. D. C. 420. Am. Dec. 400; Bott v. McCoy, 20 Ala. = Graham v. Dyster, 2 Stark. 21, 6 578, 56 Am. Dec. 223; McCreary v. :M. & S. 1, 14. Gaines, 55 Tex. 485, 13 Rep. 797; 'Kinder v. Shaw, 2 Mass. 398; Benny V. Rhodes, 18 Mo. 147, 59 Am. Odiorne v. Maxcy, 13 Mass. 178; Dec. 293; Benny v. Pegram, 18 Mo. Scott v. Owen, Wils. 400, 405. See 191, 59 Am. Dec. 298; Steiger v. article on Unauthorized Sales and Third Nat. Bank, 6 Fed. 569; Holton Pledges by Agents, by William Evans, V. Smith, 7 N. H. 446; Campbell v. Esq., 63 Law Times 333, 357, 377, 390, Reeves, 3 Head (Tenn.) 226; Mer- 402. § 328 COLLATERAL SECURITIES. 394 people's goods, the difference between an authority to sell, and an authority to mortgage or pledge, is one which may go to the root of all the motives and purposes of the transaction. The object of a person who has goods to sell is to turn them into money, but when goods are deposited by way of security for money borrowed it is a transaction of a totally different char- acter. If the owner of the goods does not get the money, his object and purpose are simply- defeated; and if on the other hand, he does get the money, a different object and different purpose are substituted for the first, namely that of borrowing money and contracting the relation of debtor with a creditor, while retaining a redeemable title to the goods, instead of ex- changing the title to the goods for a title, unaccompanied by any indebtedness, to their full equivalent in money."* The cases which in England established the doctrine that a factor could not effectually pledge for his own debts goods placed in his hands for sale, although he had made advances upon them, proceeded upon the ground that the interest of the factor was merely a lien and not a pledge; and inasmuch as a lien is a per- sonal right of detention, which can not be assigned to another, it followed that a factor had no interest of his own which he could pledge; and as he could not pledge his principal's interest without direct authority to do so, he could transfer no interest whatever by delivery of his principal's goods in pledge. Where money has been advanced on goods consigned for sale, the char- acter of the transaction is that of a lien, and not of a deposit, by way of pledge." § 328. Agent or factor authorized only to sell has no power at common law to pledge. — A factor or agent with power to sell only has at common law no power to pledge his principal's goods for his own debt or that of his principal." A power to sell, * City Bank v. Barrow, L. R. S by his principal to sell the latter's App. Cas. 664, 670. goods, he has no authority to pledge " Smart v. Sandars, 3 C. B. 380, 400, the property as security for his own 401, S C. B. 895, 917. debt. Morsch v. Lessig, 45 Colo. 168, ° Where an agent is only authorized 100 Pac. 431. 395 AGENTS OR FACTORS. § 328 such as is possessed by a factor appointed for that purpose, can only be exercised by way of sale.^ The fact that goods were invoiced to the person making the pledge, as purchaser, and not as factor, does not estop the owner from claiming the goods as against the pledgee, in case the pledgee had no knowledge of this fact at the time of the pledge, and hence could not claim that he was misled.* "At common law, a person in possession of goods could not confer on another, either by sale or by pledge, any better title to the goods than he himself had. To this general rule there was an exception of sales in market overt, and an ap- parent exception where the person in possession had a title de- feasible on account of fraud. But the general rule was that, to make either a sale or a pledge valid against the owner of the goods sold or pledged, it must be shown that the seller or pledgor had authority to sell or pledge as the case might be. If the owner of the goods had so acted as to clothe the seller or pledgor with apparent authority to sell or pledge, he was at common law precluded, as against those who were induced bona fide to act on the faith of that apparent authority, from denying that he had given such an authority, and the result as to them was the same as if he had really given it. But there was no such pre- clusion as against those who had notice that the real authority was limited. And the possession of bills of lading or other docu- ments of title to goods did not at common law confer on the '2 Kent Com. 625; Patterson v. 434, 76 N. W. 211, 72 Am. St. 631; Tash, 2 Str. 1178; Martini v. Coles, Ryan v. Stowell, 31 Neb. 121, 47 N. 1 M. & S. 146; Warner v. Mar- W. 637. tin, 11 How. (U. S.) 209, 13 L. ed. * Gray v. Agnew, 95 111. 315; Mc- 667 ; Rodriguez v. Heflfernan, 5 Johns Creary v. Gaines, 55 Tex. 485, 13 Rep. Ch. (N. Y.) 429; First Nat. Bank v. 797, 40 Am. Rep. 818. In Leet v. Schween, 127 111. 573, 20 N. E. 681, Wadsworth, 5 Cal. 404, however, 11 'Am. St. 174; Gray v. Agnew, 95 111. where the factor had purchased goods 315; First Nat. Bank v. Nelson, 38 in his own name, had stored them in Ga. 391, 95 Am. Dec. 400; Nat Ex- his own name, and had paid the stor- change Bank v. Graniteville Mfg. Co., age for eighteen months, it was held 79 Ga. 22, 25, 3 S. E. 411 ; Robinson v. that he had such apparent ownership Nevada Bank, 81 Cal. 106, 22 Pac. of the goods that he was entitled to 478; Silverman v. Bush, 16 111. App. pledge them. 437; Baxter v. Sherman, Ti Minn. § 328a COLLATERAL SECURITIES. 396 holder of them any greater power than the possession of the goods themselves. The transfer of a bill of lading for goods in transitu had the same effect in defeating the unpaid vendor's right to stop in transitu that an actual delivery of the goods themselves, under the same circumstances, would have had. But the transfer of the document of title, by means of which actual possession of the goods could be obtained, had no greater effect at common law than the transfer of the actual possession."" Where a factor, warehouseman and commission merchant who had in his warehouse certain cotton belonging to a customer, on which he had made advances and on which he claimed a factor's lien, transferred and constructively delivered, by warehouse re- ceipt in usual form, not his lien, but the cotton itself, to a bank, as a pawn or pledge for the payment of a certain sum advanced by the bank to him, the cotton not being removed from the ac- tual custody of the warehouseman or its location changed, the bank had neither title to the cotton nor such possession as would give it a right to maintain an action of trover against a bona fide purchaser who subsequently bought, paid for, took posses- sion of and removed the cotton without notice of the pledge made by the factor to the bank.'" § 328a. At common law principal is bound by acts of his agent either where he directs the agent or ratifies his acts. — But at common law the principal is bound by the acts of an agent making a pledge either by previous direction or subsequent rati- fication. A woman bought one hundred shares of stock in a cor- poration through an agent who acted for her as a friend, without pay. One month later the agent ordered a broker to buy one hun- dred shares more on sixty days' credit, and deposited the first ° Cole V. North Western Bank, L. agent out to the, public as possessing. R. 10 C. P. 354, 362. A principal is Galbraith v. Weber, 58 Wash. 132. 107 bound by the acts of his agent which Pac. 1050, 28 L. R. A. (N. S.) 341n; are within authority actually given McCarthy v. Crawford, 238 111. 38, 86 and also those acts within the appar- N. E. 750, 128 Am. St. 95n, 29 L. R. ent authority which the principal A. (N. S.) 252n. knowingly allows his agent to assume " National &c. Bank v. Graniteville or which by his own acts he holds the Al'f'g Co., 79 Ga. 22, 3 S. E. 411. 397 AGENTS OR FACTORS. § 329 purchased shares as security. Ten days afterward the principal asked the agent how she should know, if anything happened to him, that she had any stock. He said he would give her some- thing to show her title, and wrote, signed, and delivered tO' her the following order, addressed to the broker: "The one hundred shares of stock you purchased for me" on a day named, "for which you have been paid, and the one hundred shares you pur- chased for me" on a later day named, "buyer 60, receiving from me the one hundred shares of stock as collateral security, were bought by me for (the principal, naming her). Please deliver the stock to her, if she calls for it at any time." Six months afterward the principal ordered the agent to sell her stock, sup- posing that she had the original shares ; and a hundi^ed shares re- garded as hers by the agent were sold at a loss. The principal subsequently attempted to repudiate the transaction set forth in the above order, and brought an action against the agent for the conversion of the first one hundred shares of stock. It was held that the principal must be presumed to have understood the con- tents of the written order; that her silence ratified the purchase, and consequently the pledge; and that the action could not be maintained.^^ A power of attorney authorizing the attorney in fact to sell, transfer, and release certain mortgages specified, and to indorse and transfer the notes thereby secured, and to sell and transfer the claims of the principal for said notes and mortgages against the estate of the deceased mortgagor, confers only a power to sell and transfer the title to the securities absolutely, and no power is conferred thereby to hypothecate the mortgages as se- curity for borrowed money, and such hypothecation, being in excess of authority, is void, and vests no right in the person to whom the hypothecation is made.^^ § 329. Not material that the agent is not known as a fac- tor. — It does not matter that the agent is not known as a "Metcalf V. Williams, 144 Mass. sonable time before taking action. 452, UN. E. 700. Principal may be Blanton v. Chalmers, 158 Fed. 907. guilty of laches by waiting an unrea- " Hawxhurst v. Rathgeb, 119 Cal. 531, 51 Pac. 846, 63 Am. St. 142. § 33° 'COLLATERAL SECURITIES. 398 t factor, or that he puts his principal's goods among his own, and exposes both for sale in the same way. Thus, if one place goods in custody of a retail dealer to sell upon commission, and he places such goods in his shop, and exposes them for sale with his own goods, and then having need for a loan of money obtains it upon a pledge of his principal's goods together with his own, the pledgee, though acting in good faith and relying upon the apparent ownership of the borrower, obtains no lien upon the goods held for sale upon commission.^^ It is really immaterial whether or not the pledgee knew that he was dealing with a factor; for if he knew he was dealing with a factor he is bound to know that by law the factor had no right to pledge his principal's goods, without the direct authority of the latter, of which the pledgee must at his peril satisfy himself.^* If, on the other hand, he did not know that he was dealing with a factor, his want of knowledge of this fact does not extend the factor's authority over his principal's goods. In short, he is in any event bound to know at his peril whether the person with whom he is dealing is the real owner of the goods offered in pledge. The fact that one who is notoriously an agent or factor some- times acts as a general merchant, or deals on his own account, does not exempt him from the general rule that a factor cannot pledge for his own use goods with which he has been entrusted to sell.^^ § 330. Factor not allowed to take advantage of his own wrongful act. — The factor himself is estopped from taking '" Kinder V. Shaw, 2 Mass. 398, and JM'Combie v. Davies, 6 East 538; a similar case, McCreary v. Gaines, Bragg v. Meyer, McAllister 408. Con- 5S Tex. 485, 40 Am. Rep. 818. trary to the general rule, see Hutch- " Bott V. McCoy, 20 Ala. 578, 56 inson v. Bours, 6 Cal. 383, where the Am. Dec. 223 ; Baxter v. Sherman, IZ court, while recognizing the general Minn. 434, 76 N. W. 211, 72 Am. St. rule, say that "where the party pledg- 631. ing is technically a factor, where his " Phillips V. Huth, 6 M. & W. 572 ; only business is to sell goods con- Martini V. Coles, 1 M. & S. 140; Bar- signed to him for that purpose,'' he ing V. Corrie, 2 B. & Aid. 137; has no power to pledge them; and 399 AGENTS OR FACTORS. § 331 advantage of his wrongful act, in pledging his principal's goods for his own debt. Every pledgor impliedly warrants his own title, or that he has full authority to make the pledge. He cannot therefore bring trover or detinue in his own name, against the pledgee, on the ground that he had tortiously violated his authority in pledging his principal's goods. The latter is the person injured, and he can ratify or disaffirm the act of his agent at his pleasure." § 331. Assignment of factor's or broker's lien as security. — But it seems that a factor's or broker's lien might at common law be assigned as security for an amount not exceeding that secured by the lien, provided 'the assignment was expressly so limited. In M'Combie v. Davies,^^ it -appeared that a broker had pledged for his own debts goods of his principal upon which he had a lien. Lord Ellenborough, after saying "nothing could be clearer than that liens were personal, and could not be trans- ferred to third persons by any tortious pledge of the principal's goods," added, "he would have it fully understood that his ob- servations were applied to a tortious transfer of the goods of the principal by the broker undertaking to pledge them as his own ; and not to the case of one who intending to give a security to an- other to the extent of his lien, delivers over the actual possession of the goods, on which he has the lien, to that other, with notice of his lien, and appoints that other as his servant to keep pos- session of the goods for him." And even where the assignment in pledge has not been expressly limited to the amount of the they deny its application to the case 315, 107 N. Y. S. 1057; Modified, In in hand, because the pledgor was not rt Mills, 125 App. Div. (N. Y.) 730, a technical broker, whom they define 110 N. Y. S. 314. to be one whose only business is to " 7 East 5, 7. A factor who has sell goods consigned to him. made advances on the credit of the " Bott V. McCoy, 20 Ala. 578, 56 goods consigned to him for sale, has Am. Dec. 223. The principal may clearly a right to sell enough to re- ratify acts of a bailee in pledging the imburse his advances, unless re- principal's goods and will be estopped strained by some agreement with his by his laches in waiting too long in consignor. Fordyce v. Peper, 16 Fed. bringing his action. Blanton v. dial- 516; Brown v. M'Gran, 14 Pet. (U. mers, 158 Fed, 907 Order, 57 Misc. S.) 479, 10 L. ed. 550. § 332 COLLATERAL SECURITIES. 4OO factor's advances, it has been held that his pledge of his prin- cipal's goods is valid to the extent of such interest, provided he retains the power to control the sale of the goods. ^* Chief Justice Kent, in an opinion in which he referred with approval to the case of M'Combie v. Davies, held that a factor may deliver the possession of goods, on which he has a lien, to a third person, with notice of the lien, and with a declaration that the transfer is to such person as agent of the factor, and for his benefit.^" In such case there is in effect a continuance of the factor's possession. § 332. No substantial difference between pledge made by factor or a pledgee. — At common law there is no substantial difference between the effect of a pledge made by a factor and one made by a i>ledgee.^° A distinction has sometimes been taken between a pledge by the one and a pledge by the other on the, ground that a factor has only a lien for his advances, whereas a pledgee has a special property in the pledge. But a factor is generally regarded as holding in pledge the goods upon which he has made advances. He is regarded as having a special prop- erty in such goods, and not merely a lien upon them. A dis- tinction may properly be drawn between the rights of a pledgee or factor and those of a mere lien-holder, in regard to pledging the projjerty. The former has the right of possession accom- panied by the right to exercise acts of ownership in the dis- position of the property, for the factor has a general power to sell, while a pledgee has the right to sell upon the pledgor's mak- ing default in payment of the debt secured. But the holder of a mere lien has no right to exercise acts of ownership in the dis- " Blair v. Childs, 10 Heisk. (Tenn.) goods entrusted to him and his prin- 199. cipal has been held not distinguish- "Urquhart v. M'lver, 4 Johns. (N. able, or barely distinguishable, in its Y.) 103, 116. legal incidents, from the relation be- '"° First Nat. Bank v. Boyce, 78 Ky, tween pawnee and pawnor." Judge 42, 39 Am. Rep. 198. In Donald \-. Story, writing in regard to this mat- Suckling, L. R. 1 Q. B. 585, 597, Shee. ter, says "it is not easy to point out J., said : "In all the decisions on pledges any substantial distinction between by factors the relation between a fac- the case of a pledgee and the case of tor who has made advances on the a factor." Bailm., § 327 401 AGENTS OR FACTORS. § 333 position of the property. It is only by the intervention of a court of equity, or by the use of some statutory process that he can divest the owner of his title in satisfaction of the lien. In a leading EngHsh case upon this subject Mr. Justice Mellor said -.^^ "1 think that when the true distinction between the case of a de- posit, by way of pledge, of goods, for securing the payment of money, and all cases of lien, correctly so described, is considered, it will be seen that in the former there is no implication, in gen- eral, of a contract by the pledgee to retain the personal possession of the goods deposited ; and I think that, although he cannot con- fer upon any third person a better title or a greater interest than he possesses, yet, if nevertheless he does pledge the goods to a third person for a greater interest than he possesses, such an act does not annihilate the contract of pledge between himself and the pawnor; but that the transaction was simply inoperative as against the original pawnor, who upon tender of the sum secured immediately becomes entitled to the possession of the goods, and can recover in an action for any special damage which he may have sustained by reason of the act o"f the pawnee in repledging the goods." The legal effect of a pledge by a factor is therefore the same as that of a pledge by a pledgee. Neither the one nor the other is tortious to such an extent as to render the pledge absolutely void ab initio; but the pledge is good to the extent of the pledgor's interest in the property.^^ § 333. Purpose of factors' acts. — The purpose of the fac- tors' acts is to avoid the inconveniences to trade and commerce which" were found to attend the general rule of the common law, that he who deals with one ex mandato, can obtain from him no better title than his mandate enables him to bestow.^'' "Before the passing of the factors' act," says Baron Parke,^* "it was clear- "" Donald v. Suckling, L. R. 1 Q. B. ■" First Nat. Bank v. Shaw, 61 N. 585, 610. Y. 283 ; Cartwright v. Wilmerdirlg, 24 ■"§§ 418-423; Story Bailra., § 327; N. Y. 521, 529. Donald v. Suckling, L. R. 1 Q. B. 585, "Phillips v. Huth, 6 M. & W. 572, 610- 596. 26 — Col. Sec. § 333^ COLLATERAL SECURITIES. 402 ly settled, that a factor, or agent for sale, had no power to pledge, whether he was in possession either of the goods themselves or of the symbol of the goods, and even though the symbol might bear on the face of it some evidence of the property being in him- self, as in the case of a bill of lading, in which he was consignee or indorsee." The several factors' acts, though not all in the same terms, agree in their general purpose, which is to enable third persons to deal with an agent entrusted with goods, or with the docu- ments of title to goods, for sale, as though he were the absolute owner of the goods.^' "The general rule of law is, that, where a person is deceived by another into believing that he may safely deal with property, he bears the loss, unless he can show that he was misled by the act of the true owner. The legisla- ture seem to us to have wished to make it the law, that, where a third person has entrusted goods or the documents of title to goods to an agent who in the course of such agency sells or pledges the goods, he should be deemed by that act to have misled any one who bona 'fide deals with the agent and makes a purchase from or an advance to him without notice that he was not authorized to sell or to procure the advance."^* § 333a. Calif omia.^A factor has actual authority: 1. To insure property consigned to him uninsured. 2. To sell, on credit, anything entrusted to him for sale, except such things as it is contrary to usage to sell on credit; but not to pledge, mortgage, or barter the same ; and, 3. To delegate his authority to his partner or servant, but not to any person in an inde- pendent employment.''' =" Allen V. St. Louis Bank, 120 U. S. Y. 521 ; New York &c. Trust Co. v. 20, 37, 30 L. ed. 573, 7 Sup. Ct. 460; Lipman, 157 N. Y. 551, 52 N. E. 595, Henry v. Philadelphia Warehouse affirming 91 Hun (N. Y.) 554, 36 N. Co., 81 Pa. St. 76; Wisp v. Hazard, Y. S. 355. 66 Cal. 459, 6 Pac. 91 ; Wright v. Sol- " Cole v. North Western Bank,- L. omon, 19 Cal. 64, 79 Am. Dec. 196; R. 10 C. P. 354, 372. Davis V. Russell, 52 Cal. 611, 28 Am. "Civ. Code 1906, § 2368; Dodge v. Rep. 647; Dodge v. Meyer, 61 Cal. Meyer, 61 Cal. 405, 429. 405 ; Cartwright v. Wilmerding, 24 N. 403 AGENTS OR FACTORS. § 334 § 334. Louisiana.^' — All merchants, factors and others who may have a general balance of accounts, or any sum of money due them by any consignor or other person sending them cot- ton, sugar, or other agricultural products for sale at the port of New Orleans, or at any other town or city in the state, for the purpose of paying such balance of account or sum of money due, shall have a pledge upon all such property consigned or sent to them by ship, vessel, railroad, or other carrier, from the time the bill of lading or receipt therefor by the carrier, is deposited in the mail or given to 'the carrier for transmission, which pledge shall be perfect, with the right of sale of said property, which shall be fully vested in said consignee, with the right to ap- propriate the proceeds of sale to the payment of the amount due such consignee ; provided, that nothing herein shall be so con- strued as to defeat or lessen the privilege of the laborers and landlords in this state for wages and rent, as now existing by law, nor as defeating or lessening any other valid existing privi- leges or liens. Under a statute giving a consignee a lien by way of pledge upon goods consigned to him for his advances upon them, if he has control of the goods, "or if before their arrival he can show by a bill of lading or letter of advice, that they have been despatched to him,"^° the consignee, after receiving such letter of advice, or a bill of lading, has a lien which cannot be de- feated by the consignor's drawing a draft against the goods, obtaining a discount of it, and using the proceeds for the pur- chase of the goods so consigned.^" " Rev. Laws 1897, p. 685, § 3. Un- for it, and shipped it to New Orleans, der the acts of 1874, No. 66, as it was held that the consignee had a amended Rev. Laws 1897, p. 685, it pledge of the cotton from the time was held that a consignee of goods the bill of lading was given to the has possession from the moment the carrier for transmission, superior to bill of lading is given to the carrier the vendor's lien under the code for for transmission, and from that mo- the unpaid purchase-money. Flor- ment they are effectually pledged to sheira v. Howell, 33 La. Ann. 1184. him. Therefore, when one purchased ^ 2 Rev. Civ. Code 1900, art, 3247. cotton at Shreveport without paying ™ Helm v. Meyer, 30 La. Ann. 943. § 334 COLLATERAL SECURITIES. 4O4 By a statute'^ in this state, it is provided that parties who may borrow money on the faith of warehouse receipts representing property in store, shall file their affidavits with the pledges that such property is theirs, the pledgors', personal property, or that it is the property of some party for whom the pledgor is acting as agent, factor, commission merchant, or in any other fiduciary capacity, and that said party is justly and truly indebted to the pledgor in an amount equal in value to the value of the property pledged, as specified in the warehouse receipt, for moneys paid to him, or paid by his order, and for his account, by the party or consignee making the pledge. The vendor's lien of five days' privilege, now allowed in com- mercial transactions for the payment of the purchase price, shall not be affected by the provisions of this act, except in cases in which a warehouse receipt has been pledged as collateral for money borrowed. The holder of the warehouse receipt shall be considered and held as the actual owner of the property de- scribed in the receipt, and no clause of this act shall operate to the detriment or injury of the holder of a warehouse receipt, to the extent of the value of the property specified, made and is- sued in accordance with, and under the provisions of this act, provided that where the factor, agent, or pledgor may have wrongfully pledged, in violation of this act, any property, the lien of the owner shall be valid, even against the third holder of the warehouse receipt. Before the enactment of this latter statute,'^ a factor could not pledge for his own debts the property of his principal.'^ This act makes warehouse receipts the representatives of prop- erty in store, and provides for their use to borrow money upon ; but the implication is clear that their use in that way by a fac- tor for more than the value of his interest in the property would "'Acts of 1876, p. 114, §§ 4, 5; Rev. "Stetson v. Gurney, 17 La. 163, 166; Laws 1897, p. S89, §§ 4, 5, as amended Hadwin v. Fisk, 1 La. Ann. 43; Miller by Acts 1902, p. 329. v. Schneider, 19 La. Ann. 300, 92 Am. ='Acts 1876, p. 113, No. 72, Rev. Dec. 535 ; Young v. Scott, 2S La. Ann. Laws 1897, p. 589, §§ 4, 5, as amended 313; Insurance Co. v. Kiger, 103 U. by Acts 1902, p. 329. S. 352, 26 L. ed. 433. 405 AGENTS OR FACTORS. § 335 be wrongful and invalid against the owner. Therefore, where a factor has no interest in the consigned property, he cannot now pledge it for his own debt any more than he could before the enactment of the statute. His pledge of such property, though accompanied by a warehouse receipt setting forth that the property is deliverable to the pledgee, is invalid, and con- fers no title adverse to that of his consignor. The factor's pledge to his creditor is good to the extent of his advances to his principal, and only to that extent.^* § 335. Maryland.^^ — Any person intrusted with and in pos- session of any bills of lading, storekeeper's or inspector's cer- tificate, order for the delivery of goods, or other document showing possession, shall be deemed the tioie owner of the goods, wares, or merchandise described therein, so far as to give validity to any contract thereafter to. be made by such person with any other person or body corporate for the sale or disposal of the said goods, wares, or merchandise, or for the pledge or deposit thereof as security for any money or negotiable instrument ad- vanced or given on faith of such documents, or any of them; provided, that such person or body corporate shall not have no- tice, by such document or otherwise, that the person so entrusted is not the actual and bona fiide owner of such goods, wares, and merchandise. If any person or body corporate shall take any goods, wares, or merchandise, or any document mentioned in the foregoing clause, in deposit or pledge from any person so entrusted with the same, or to whom the same may be consigned, or who may be entrusted with and in possession of any such bill of lading, storekeeper's or inspector's certificate, order for the delivery of goods, or other such document showing possession, without notice as aforesaid as a security for any debt or demand existing before the time of such deposit or pledge, then such person shall acquire such right, title, or interest as was possessed and might "Chambers v. Hubbard, 51 La. Ann. ="1 Pub. Gen. Laws 1904, p. 204, § 887, 25 So. 536. 3 ; p. 205, § 5 ; p. 206, § 6 ; p. 208, § 13. § 336 COLLATERAL SECURITIES. 406 have been enforced by the person from whom he received the same, and no more. Any person or body corporate may take any goods, wares, or merchandise, or any such document as aforesaid, in deposit or pledge as a security for a pre-existing debt or demand from such agent or factor, knowing him to be such, but with such notice such person or body corporate shall only acquire the right or interest therein which was possessed by such agent or factor at the time of the deposit or pledge; but if such person or body corporate shall have notice that such agent or factor had no au- thority from his principal to pledge or deposit the same, or to part with the possession thereof, in such case such person or body corporate shall acquire no right or interest therein. Every mortgage, pledge, deposit, or other disposal by said commission merchant, factor, agent, bailee, or consignee of ag- ricultural productions, consigned for sale alone, unless with the consent of the grower, producer, or other owner, expressly given, shall be null and void ; and no title to said articles, or any of them, shall pass to the person receiving the same, but the title thereto shall remain in the grower, producer, or other con- signor thereof, as if no such mortgage, pledge, deposit, or other disposal had been made. § 336. Massachusetts.^® — A shipper who is in lawful pos- session of merchandise at the time of shipment and in whose name it is shipped for sale shall be deemed the true owner thereof, so far as to entitle the consignee to a lien thereon for money ad- vanced or securities given to the shipper for or on account of such consignment, unless the consignee, at or before the time when he made the advances or gave the securities, had notice by the bill of lading or otherwise that the shipper was not the actual and bona fide owner. A factor or other agent who is entrusted with the possession of merchandise or of a bill of lading consigning merchandise to him with authority to sell the same shall be deemed the true owner '" 1 Rev. Laws 1902, ch. 68, §§ 2, 1, 3-6. 407 AGENTS OR FACTORS. § 336 of such merchandise, so far as to give vahdity to any bona fide contract of sale made by him. If a person entrusted with merchandise has authority to sell or consign the same, a consignee to whom he consigns it shall have a lien thereon for any money or merchandise advanced or for any negotiable security given by him on the faith of such consignment, to or for the use of the person in whose name the consignment or delivery was made, and for any money, nego- tiable security or merchandise, received for the use of the con- signee by the person in whose name the consignment or delivery was made, if such consignee had, at the time of such advance or receipt, probable cause to believe that the person in whose name the merchandise was shipped, transmitted, or delivered, was the actual owner thereof, or had a legal interest therein to the amount of said lien. If a consignee or factor, having possession of merchandise with authority to sell the same, or having with such authority possession of a bill of lading, permit, certificate, or order, for the delivery of merchandise, deposits or pledges such merchandise or any part thereof or such document with any other person as a security for money or merchandise advanced or for a negotiable instrument given by him upon the credit thereof, such other per- son, if he makes such loan, advance, or exchange, in good faith and with probable cause to believe that the agent making the deposit or pledge had authority so to do, and was not acting fraudulently against the owner of such merchandise, shall, not- withstanding he has notice of such agency, acquire the same in- terest in and authority over such merchandise and documents as he would have acquired if the agent had been the actual owner thereof. If such merchandise or document is accepted in deposit or pledge for an antecedent debt due from such consignee or factor, the person receiving the same shall thereby acquire no other or further right, or interest in, or authority over, or lien upon, the same than the consignee or factor might have enforced against the actual owner. § 336 COLLATERAL SECURITIES. 408 These provisions shall not affect the lien of a consignee or factor for the expenses and charges attending the shipment, transportation and care of merchandise entrusted to him; nor prevent the actual owner from recovering such merchandise from the consignee or factor previous to any pledge thereof, or from his assignees in case of his insolvency; nor prevent such owner from recovering any merchandise or document so deposited or pledged, upon tender of the money and restoration of the negotiable security or property so advanced to such consignee or factor, and upon tender of such further amount of money and restoration of such negotiable instrument or property as may have been advanced or given by the consignee or factor to the owner, or upon tender of an amount of money equal to the amount or value of such merchandise, nor prevent him from re- covering from the person with whom such merchandise has been so deposited or pledged, any balance of money remaining in his hands as the proceeds of the sales thereof, after deducting the amount or value of the money or negotiable security so ad- vanced thereon.'^ Under the Massachusetts statute if a pledgee has knowledge that the pledgor is a factor or consignee and is pledging the goods of his principal for loans beyond the amount of his ad- vances, and that he was not authorized to pledge them for loans beyond that amount, he is not protected as a holder for value beyond that amount. '^ ''' A consignee or factor who, in vio- like intent, disposes of or applies to lation of good faith and with intent his own use money which has been to defraud the owners thereof, depos- raised or a negotiable instrument its or pledges, as security for money which has been acquired by the sale borrowed by him, a negotiable instru- or other disposition of such property ment received by him, merchandise or evidence of property, shall be pun- consigned or entrusted to him, or a ished by a fine of not more than five bill of lading, cerificate or order for thousand dollars and imprisonment the delivery of merchanidse, or who, for not more than five years. 2 Rev. in like violation and with like intent, Laws 1902, ch. 208, § 74. disposes of or applies such property ^ Goodwin v. Massachusetts &c. or evidence of property to his own Trust Co., 152 Mass. 189, 25 N. E. use ; or who, in like violation and with 100. 409 AGENTS OR FACTORS. § 337 § 337. New York^" and Ohio." — A person in whose name any merchandise shall be shipped shall be deemed the true owner thereof, so far as to entitle the consignee of such merchan- dise to a lien thereon: i. For any money advanced or nego- tiable security given by such consignee, to or for the use of the person in whose name such shipment is made; and, 2. For any money or negotiable security received by the person in whose name such shipment is made to or for the use of such consignee. Such lien does not exist where the consignee has notice, by the bill of lading or otherwise, when or before money is advanced or security is given by him, or when or before such money or security is received by the person in whose name the shipment is made, that such person is not the actual and bona fide owner thereof. Every factor or other agent entrusted with the possession of any bill of lading, custom-house permit, or warehouseman's receipt for the delivery of any such merchandise, and every such factor or agent not having the documentary evidence of title, who shall be entrusted with the possession of any merchandise for the purpose of sale, or as a security for any advances to be made or obtained thereon, shall be deemed to be the true owner thereof, so far as to give validity to any contract made by such agent with any other person for the sale or disposition of the whole or any part of such merchandise, for any money advanced or negotiable instrument or other obligation in writing given by such other person upon the faith thereof.*^ Every person who shall hereafter accept or take any such merchandise in deposit from any such agent as a security for any antecedent debt or demand, shall not acquire thereby or enforce any right or interest in or to such merchandise or docu- "3 Consol. Laws 1909, p. 3232, § " See New York Security &c. Co. v. 182. Lipman, 157 N. Y. 551, 52 N. E. 595 ; "2 Gen. (jode 1910, §§ 8358-8362. Marsellus &c. Co. v. Simpson, 143 The first factors' act in New York App. Div. (N. Y.) 383, 128 N. Y. S. was passed in 1830. That in Ohio in 587. 1844. See Cleveland v. Shoeman, 40 Ohio St. 176. § 337 COLLATERAL SECURITIES. 4IO ment, other than was possessed or might have been enforced by such agent at the time of such deposit. Nothing contained in the foregoing provisions shall be con- strued to prevent the true owner of any merchandise so depos- ited from demanding or receiving the same, upon prepayment of the money advanced, or on restoration of the security given on the deposit of such merchandise, and upon satisfying such lien as may exist thereon in favor of the agent who may have deposited the same; nor from recovering any balance which may remain in the hands of the person with whom such mer- chandise shall have been deposited as the produce of the sale thereof, after satisfying the amount justly due to such person by reason of such deposit.*^ It will be noticed that under this statute a pledgee, in dealing with an agent or factor, is not protected if he has knowledge that the factor is not the actual and bona fide owner of the goods pledged. If the factor or agent is rightfully in the pos- session of his principal's goods enti^usted to him, his pledgee is protected, but if it happen that the agent or factor obtained possession of the goods by fraudulent means, his pledgee of such goods, knowing that he is dealing with an agent or factor, is not protected.*' "The obvious meaning is," say the Supixme Court of New York, "that the factor or other agent who has been entrusted with certain documentary evidence of title, or with the possession and ostensible ownership of the property, shall be deemed the true owner, so far as may be necessary to protect those who have dealt with him 'upon the faith thereof;' that is, upon the faith induced by the usual indicia of title, that he was the true owner of the property. The second section of the British statute, which answers very nearly to the third section of our :?own, contains a proviso which expressly saves, the rights of the true owner where the pledgee had notice that he was dealing with an agent ; and our statute, though framed in a different man- "4 Consol. Laws 1909, p. 4214, § Y. 521; Stevens v. Wilson, 6 Hill (N. 43 ; Beken v. Kingsbury, 113 App. Div. Y.) 512 ; Rowland v. WoodruiT, 60 N. (N. Y.) 555, 100 N. Y. S. 323. Y. 73. " Cartwright v. Wilmerding, 24 N. 411 AGENTS OR FACTORS. § 338 ner, was evidently designed to produce the same result. It is impossible to suppose that the legislature intended to enable the factor to commit a fraud upon his principal, by pledging or ob- taining advances upon the goods for his own purposes, when the pledgee or person making the advances knew that he was not dealing with the true owner."** The factors' act has no application when a factor or agent has obtained goods which have been taken by a common-law larceny from the true owner.*'' § 338. Pennsylvania,* ° — Whenever any person entrusted with merchandise, and having authority to sell or consign the same, shall ship or otherwise transmit the same to any other per- son, such other person shall have a lien thereon: ist. For any money advanced or negotiable security given by him on the faith of such consignment to, or for the use of the person in whose name such merchandise was shipped or transmitted. 2d. For any money or negotiable security received for the use of such consignee by the person in whose name such merchandise was shipped or transmitted. But such lien shall not exist for any of the purposes aforesaid, if such consignee shall have notice, by the bill of lading or otherwise, before the time of such advance or receipt, that the person in whose name such merchandise was shipped or transmitted is not the actual owner thereof. Whenever any consignee or factor having possession of mer- chandise, with authority to sell the same, or having possession "Stevens v. Wilson, 6 Hill (N. Y.) sell such goods except at public sale, S12. Where goods are left with a sell- as provided by law, and if he sells ing agent until called for, left neither them at private sale he will be liable for sale nor as security for advances for conversion. Beken v. Kingsbury, to be obtained on them, and the agent 113 App. Div. (N. Y.) SSS, 100 N. Y. pledges such goods, the same cannot S. 323. be enforced as against the owner'.. *° Soltau v. Gerdau, 119 N. Y. 380, Schwab V. Oatman, 56 Misc. (N. Y.) 23 N. E. 864, 16 Am. St. 843, 48 Hun 393, 106 N. Y. S. 741. Where a factor (N. Y.) 537, 1 N. Y. S. 168. pledged goods to a pledgee to secure "2 Purdon's Dig. 1903, pp. 1608- advancements, the pledgor having 1610. Act construed in Macky v. Dil- notice that the factor was not the linger, 73 Pa. St. 85. owner, such pledgee has no right to § 33^ COLLATERAL SECURITIES. 412 of any bill of lading, permit, certificate, receipt, or order for the delivery of merchandise with the like authority, shall deposit or pledge such merchandise, or any part thereof, with any other person, as a security for any money advanced or negotiable in- strument given by him on the faith thereof, such other person shall acquire, by virtue of such contract, the same interest in, and authority over, the said merchandise, as he would have acquired thereby, if such consignee or factor had been the actual owner thereof ; provided, that such person shall not have notice by such document or otherwise, before the time of such advance or re- ceipt, that the holder of such merchandise or document is not the actual owner of such merchandise. If any person shall accept or take such merchandise or docu- ment from any such consignee or factor, in deposit or pledge for any debt or demand previously due by or existing against such consignee or factor, and without notice as aforesaid, and if any person shall accept or take such merchandise or document from any such consignee or factor, in deposit or pledge, with notice or knowledge that the person making such deposit or pledge is a consignee or factor only, in every such case, the per- son accepting or taking such merchandise or document in deposit or pledge, shall acquire the same right and interest in such mer- chandise as was possessed or could have been enforced by such consignee or factor against his principal, at the time of making such deposit or pledge, and no further or other right or interest. Nothing in this act contained shall be construed or taken: 1st. To affect any Hen which a consignee or factor may possess at law for the expenses and charges attending the shipment or transmission and care of merchandise consigned or otherwise entrusted to him. 2d. Nor to prevent the actual owner of mer- chandise from recovering the same from such consignee or fac- tor, before the same shall have been deposited or pledged afore- said, or from the assignees or trustees of such consignee or factor in the event of his insolvency. 3d. Nor to prevent such owner from recovering any merchandise so as aforesaid depcs- ited or pledged, upon tender of the money, or of restoration of 413 AGENTS OR FACTORS. § 339 any negotiable instrument so advanced or given to such con- signee or factor, and upon tender of such further sum of money or of restoration of such otlier negotiable instrument, if any, as may have been' advanced or given by such consignee or factor to such owner, or on tender of a sum of money equal to the amount of such instrument. 4th. Nor to prevent such owner from recovering from the person accepting or taking such mer- chandise in deposit or pledge, any balance or sum of money re- maining in his hands as the produce of the sale of such mer- chandise after deducting thereout the amount of money or the negotiable instrument so advanced or given upon the security thereof as aforesaid.*^ § 339. Rhode Island.*^ — The consignee of merchandise shipped shall have a lien thereon for any money or negotiable security by him advanced upon the faith of such shipment to or for the use of the person in whose name the shipment shall have been made, in the same manner and to the same extent as if such person were the true owner thereof; provided, at the time of the advance, the consignee shall have had no notice or knowledge that the shipper was not the true owner of such mer- chandise. Every person entrusted with and in the possession of goods '" If any consignee or factor having like fraudulent intent, apply or dis- the possession of merchanise with au- pose of to his own use any money or thority to sell the same, or having negotiable instrument, raised or ac- possession of any bill of lading, per- quired by tile sale or other disposition mit, certificate, receipt or order for of such merchandise, such consignee the delivery of merchandise with the or factor in every such case shall be like authority, shall deposit or .pledge guilty of a misdemeanor, and be sen- such merchandise or document, con- tenced to pay a fine not exceeding signed or intrusted to him as afore- two thousand dollars, and undergo an said, as a security for any money imprisonment not exceeding five borrowed or negotiable instrument years. Brightly's Purdon's Dig. 1873, received by such consignee or factor, p. 349, § 178. See also for construc- and shall apply or dispose of the same tion of New York Statute similar to to his own use, in violation of good above, Beken v. Kingsbury, 113 App. faith, with intent to defraud the own- Div. (N. Y.) SS5, 100 N. Y. S. 323. er of such merchandise,, and if *' Gen. Laws 1909, ch. 187. any consignee or factor shall, with § 339 COLLATERAL SECURITIES. 4I4 for the purpose of sale, or of any bill of lading, receipt or certifi- cate of a warehousekeeper or inspector, or of any warrant or order for the delivery of goods, shall be deemed the true owner of the goods so by him possessed or described in either of said instruments in favor of the purchaser or pledgee of such goods for money or negotiable security; provided, such purchaser or pledgee at the time of payment or advance as aforesaid shall have had no notice or knowledge that the possessor of such goods or instrument was not the true owner of such goods by him pos- sessed or in such instrument described. Nothing in the preceding section shall be construed as to authorize a common carrier, warehousekeeper or other person to whom merchandise or other property may have been com- mitted for transportation or storage only, to sell or pledge the same; nor shall any person taking in deposit or pledge mer- chandise or goods described in either of the instruments therein mentioned, from any agent for sale, warehousekeeper or in- spector, for an antecedent debt, be entitled to any greater interest in such goods or instrument than was possessed by such agent, warehousekeeper or inspector at the time of such deposit or pledge. All purchases and contracts for the purchase of goods made with, and all payments for goods made to, any agent entrusted therewith, or with or to the consignee thereof, in the ordinary course of business, shall bind the owner of such goods in favor of the purchaser, contractor or payee, although knowing of the agency or consignment; provided, he had at the time of such purchase, contract or payment, no notice or knowledge that such agent or consignee was not authorized to sell or receive payment for such goods. Nothing herein contained shall be construed as to prevent the true owner of any goods shipped, entrusted, deposited or pledged as hereinbefore described, from demanding the same from his factor, agent or consignee, before the saine shall have been so sold, contracted to be sold, deposited or pledged; nor to pre- vent such owner from demanding and receiving from any such 415 AGENTS OR FACTORS. § 34^ purchaser the sum agreed to be paid for the purchase of such goods, subject to any right of set-off on the part of such pur- chaser against such agent or factor; nor to prevent any such owner from demanding and recovering such goods from any person with whom the same may have been so deposited or pledged as a security for any money or other property advanced or any negotiable security or obligation in writing given as afore- said, upon repayment of such money or restoration of such other property and satisfaction of such security or obligation in writing so advanced, together with such further sum as shall, with the amount so advanced by such depositary or pledgee, be equal to the money or other property and security or obligation in writing, if any, advanced by such agent or factor to such owner or to the amount for which such agent or factor has a lien on the same goods; nor to prevent such owner from recovering from such depositary or pledgee any balance or sum of money remaining in his hands as the produce of the sale of such goods after de- ducting therefrom the amount of the money or other property or security in writing so advanced ; and the amount so set off and retained by such purchaser or paid by such owner on redeeming such goods or in any manner allowed by him on recovering the same or the produce of the sale thereof, shall be deemed and taken as so much paid by him to and for the use of such agent or factor." § 340. Wisconsin.'*'' — Every consignee of property shall have a lien thereon for any money advanced or negotiable secur- ity given by him to or for the use of the person in whose name "Every agent or factor who shall shall apply or dispose of the proceeds deposit or pledge any goods, wares or thereof to his own use, in violation merchandise or any bill of lading, re- of good faith, and with intent to de- ceipt or certificate of a warehouse- fraud any such owney of such goods, keeper or inspector, or any warrant shall be deemed and taken to be guilty or order for the delivery of goods of a misdemeanor and shall be fined with which he shall have been en- not exceeding one thousand dollars or trusted or which shall have been con- be imprisoned not exceeding five signed to him as a security for any years. Gen. Laws 909, ch. 345, § 21. money or other property borrowed or ""2 Stat. 1898, §§ 3345-3347. received by such agent or factor, and § 340 COLLATERAL SECURITIES. 416 the shipment of such property is made, and for any money or negotiable security received by such person for his use, unless he shall, before advancing any such money, or giving such se- curity, or before it is so received for his use, have notice that such person is not the actual owner thereof. Every factor, broker or other agent entrusted by the owner with the possession of any bill of lading, custom-house permit, warehouse receipt, or other evidence of the title to personal property, or with the possession of personal property for the purpose of sale, or as security for any advances made or liabil- ity by him incurred in reference to such property, shall have a lien upon such personal property for all such advances, lia- bility incurred, or commissions or other moneys due him for services as such factor, broker or agent, and may retain the possession of such property until such advances, commissions or moneys are paid, or such liability is discharged. ^^ Every person having a lien given by either of the above pro- visions, or existing in favor of any bailee for hire, carrier, ware- houseman or pawnee, or otherwise by the common law, may in case such debt remain unpaid for three months, and the value of the property affected thereby does not exceed one hundred dollars, sell such property at public auction, and apply the pro- ceeds of such sale to the payment of the amount due him, and the expenses of such sale. Notice in writing of the time and place of such sale, and of the amount claimed to be due, shall be given to the owner of such property personally, or by leaving the same at his place of abode, if a resident of this state, and if not, by publication thereof once in each week for three weeks successively, next before the time of sale, in some news- paper published in the county in which such lien accrues, if there be one, and if not, by posting such notice in three public places in such county. If such property exceed in value one hundred °' This statute applies to receipts which that of Wisconsin was taken ; given by private warehouses, and not for in the latter state there are no merely to bonded warehouses. In this bonded warehouses. Price v. Wiscon- respect the statute is construed differ- sin &c. Ins. Co., 43 Wis. 267. ently from the New York statute from 417 AGENTS OR FACTORS. § 34I dollars, then such lien may be enforced against the same by ac- tion in any court having jurisdiction. § 341. Common-law rule still prevails where not changed by statute. — So far as the factors' acts have not changed the law, the common law rule still prevails ; and a factor holding the goods of another, even with documentary evidence of title, has no power to pledge them, unless such power has been conferred upon him by the owner." Even under the factors' act an agent has no power to pledge goods in his possession, unless they have been entrusted to him for the purpose of sale. To make the pledge of an agent in possession of goods valid, he must have had at the time of the pledge power to sell therri. Authority subsequently given him by his principal to sell the goods, with- out knowledge of the pledge, will not make the title of the pledge valid. "^^ The effect of the factors' acts will not be ex- tended beyond their terms. A mere consignee who is not a factor, and has not possession of the goods, nor any indicia of title, cannot pledge them. Thus, if a consignee, having only a letter of instruction from the owner, "to keep these consignment goods as such — as my prop- erty until sold, and well insured," obtains a loan upon a pledge of the goods from one who is ignorant of the letter, and makes no inquiry concerning the ownership of the pledgor or his au- thority over the goods, the pledgee cannot hold them as against the owner."* "Patterson v. Tash, 2 Stra. 1178; "Chicago &c. Press Co. v. Lowell, Daubigny v. Duval, 5 T, R. 604; Lamb 60 Cat. 454, 9 Pac. Coast L. J. 498. V. Attenborough, 1 Best. & S. 831; Where an agent or factor holds prop- First Nat. Bank v. Shaw, 61 N. Y. erty of his principal for sale, and an 283; Barnard v. Campbell, 55 N. Y. intending purchaser advances money 456, 14 Am. Rep. 289 ; Marsch v. Les- to pay the freight, and no sale is sig, 45 Colo. 168, 100 Pac. 431 ; Casti- made, the agent may pledge the prop- kyan v. Sloan, 33 App. Cas. (D. C.) erty for the freight advanced and the 420; McCarthy v. Crawford, 238 III. pledgee's lien is good to that extent. 38, 86 N. E. 750, 128 Am. St. 95n, 29 Robinson v. Ralph, 74 Neb. 55, 103 N. L R. A. (N. S.) 2S2n. W. 1044. See also to same effect ■" Nickerson . v. Darrow, 5 Allen Mitchell v. McLeod, 127 Iowa 733, (Mass.) 419. 104 N. W. 349. 27 — CoL. Sec. § 342 COLLATERAL SECURITIES. 418 § 342. Factor at common law could not pledge bill of lad- ing by indorsement. — At common law a factor could not make a pledge by indorsement and delivery of a bill of lading or other document of title representing his principal's goods, al- though the indorsee was ignorant of the fact that he held the goods as a factor or agent to sell." He could not pledge them unless his principal had given him such authority over them that he could deal with them as his own."" The rule is otherwise under statutes which give to bills of lad- ing a negotiable character; or under statutes which make special provision for the protection of indorsees of factors in posses- sion of bills of lading, with power to sell the goods ; but under the factors' acts, an agent who is not authorized to sell the goods represented by a bill of lading or warehouse receipt in his pos- .session cannot pledge the goods by transfer of such documentary title." The statute of Missouri on this subject makes a warehouse receipt or bill of lading transferable by indorsement and declares the transferee to be the owner of the goods "so far as to give validity to any pledge, lien or transfer" made on the faith thereof, but at the same time impliedly restricts any pledge which a factor can make of such receipt or bill of lading to the case of a pledge for the amount of his advances and charges, or to one authorized in writing by his consignor. ^^ Judge Treat, delivering the opinion of the court to this effect, said : "It may be urged that a practical difficulty will arise in ascertaining the coiTect amount of advances and charges ; but if that be so, the consignor may reply with greater force that his property ought not to be pledged for more than the factors' lien thereon. The pledgee is not obliged to loan money and receive the pledge as collateral. If he is willing to lend to the factor he can receive as collateral a °'Newsom v. Thornton, 6 East 17; " Stollenwerck v. Thacher, US Martini v. Coles, 1 M. & S. 140; Mass. 224. Guichard v. Morgan, 4 Moore 36. "' Steiger v. Third Nat. Bank, 6 Fed. •"Boyson v. Coles, 6 M. & S. 14; 569, 577. Michigan State Bank v. Gardner, IS Gray (Mass.) 362. 419 AGENTS OR FACTORS. § 343 warehouse receipt to the extent that the factor has a Hen on the goods represented'; in other words, the factor can pledge what belongs to him, — his lien, — and not his principal's interest or rights of property. This may be questionable legislation, inas- much as it enables the pledgee to sell the goods if not redeemed, instead of the agent, in whose personal skill and judgment alone the consignor confided. * * * If a stranger will take a pledge of goods from a factor without inquiry, the consignor is not to suffer. Whether he knows or not that the person from whom he takes the pledge is a mere factor does not change the rule. A con- signor's property cannot be taken from him without his consent. A pledgee is bound, at his peril, to inform himself of the facts. The rule as to sales in the ordinary course of business is one thing, and as to pledges entirely different. * * * The factor cannot pledge the goods of his principal, except to the amount and in the manner stated. He has no authority, either at common law or by statute, to borrow money generally on the pledge of the warehouse receipt; nor can the pledgee protect himself against the demand of the consignor, except to the extent of such advances and charges. The pledgee may receive a transfer of the factor's lien, and nothing more." § 343. Power of factor to pledge bill of lading or ware- house receipt made negotiable by statute. — A factor has power to pledge a bill of lading or warehouse receipt made nego- ■ tiable by statute, where he has taken the receipt in his own name, and indorsed it, so that one dealing with him on the faith of his apparent legal title will acquire a good title as against the prin- cipal ; and notice to the pledgee that the factor holds the receipt for his principal, is not notice of any limitation of his power to pledge it; though a pledge of it would not bind the principal if the pledgee had notice that the pledge was made in violation of the principal's instructions.'" In great commercial commu- "" Price V. Wisconsin &c. Ins. Co., ^pal however is bound by the acts of 43 Wis. 267; Rice v. Cutler, 17 Wis. his agent performed within the au- 362, 84 Am. Dec. 747n; Cleveland v. thority of the agent, or by the agent's Shoeman, 40 Ohio St. 176. A princi- acts performed within the apparent § 344 COLLATERAL SECURITIES. 420 nities the rules of the common law with reference to pledges by factors have gradually yielded to the necessities of modern trade and new methods of conducting business. But legislation has been necessary to effect a change of the law, and so strong has been tlie judicial preference for the rules of the common law that the legislation intended to change them has sometimes been con- strued so as to defeat the object intended to be accomplished by it. But in England, and in several of the more important commercial states of our own country, legislation has effected an important change in respect to the powers of factors, in favor of persons dealing with them in good faith. The rule has become quite gen- erally established that a factor entrusted with the insignia of title, may sell or pledge the property and effectually bind his principal. In reference to warehouse receipts, legislation has in several states in another way protected bona fide holders of such receipts, and that is by making them negotiable, with the qualities of nego- tiable paper. § 544. Agent not having power to sell is not a factor with- in factors' acts. — An agent not entrusted by his principal with the power to sell is not a factor within the factors' acts.*" A tobacco manufacturer bought of a dealer in tobacco a large quan- tity of tobacco then lying in bond in the latter's name. The price authority which the principal know- ance or of having the form of the pol- ingly allows his agent to assume, or icies changed he has no implied au- which he himself holds the agent out thority from his mere possession to to the public as having. Galbraith v. cause cancelation of the policies. Weber, 58 Wash. 132, 107 Pac. 1050, Fowler Cycle, Works v. Western Ins. 28 L. R. A. (N. S.) 341n; McCarthy v. Co., Ill 111. App. 631. Crawford, 238 111. 38, 86 N. E. 750, "Cole v. North Western Bank, L. 128 Am. St. 95n, 29 L. R. A. (N. S.) R. 9 C. P. 470; affirmed, L. R. 10 C. 2S2n, The mere possession by a P. 354; Fuentes v. Montis, L. R. 3 C. broker of an insurance policy gives P. 268 ; affirmed, 4 C. P. 93 ; Monk v. him implied authority to procure its Whittenbury, 2 B. & Ad. 484; Cart- cancelation except where the insur- wright v. Wilmerding, 24 N. Y. 521, ance company is informed that such 528; Nickerson v. Darrow, 5 Allen agent has ceased to be the agent of (Mass.) 419; Stollenwerck v. Thach- the owner of the policy. And when* er, 115 Mass. 224; Schwab v. Oatman, the agent is in possession only for the 106 N. Y. S. 741, 56 Misc. (N. Y.) purpose of securing additional insur- 393. 421 AGENTS OR FACTORS. § 344 was paid, but tbe tobacco was allowed to remain in the dock, to be forwarded as the purchaser might want it for the purposes of his business, with an understanding that the tobacco was to be cleared by the seller, and despatched to the purchaser free of any charge for commission, the latter remitting to the seller the amount of the duty and dock charges. This was the usual way of dealing in the tobacco trade. For this purpose the tobacco was allowed to remain in the name of the seller in the dock books, and he retained the dock-warrants. The seller afterward repre- senting the tobacco to be his, own property, pledged it as security for a loan, handing to the pledgee the dock-warrants, and causing the tobacco to be transferred to the pledgee's name in the dock- books. The seller shortly afterward absconded and was ad- judged bankrupt. The purchaser demanded' the tobacco of the pledgee, who claimed to retain it, either on the ground that the purchaser had armed the pledgor with an ostensible authority to deal with the goods as his own, or that he was entrusted with the tobacco, or the documents of title, with authority to pledge or sell it within the factors' acts. But it was held that the pledgor was not entrusted with the tobacco, as factor or agent, for sale, but only to clear and forward it to the purchaser when required, and, consequently, that he had no authority to sell or to pledge it ; and it was further held, that, looking at the usage of the trade, the plaintiff had not given any ostensible authority to the pledgor to pledge the tobacco." This decision was affirmed on appeal,*^ Chief Justice Cock- burn,, in delivering judgment, saying : "The case for the plaintiff rests on the general proposition of law — which, as a general "Johnson v. Credit Lyonnais, '2 C. 128 Am. St. 9Sn, 29 L. R. A. (N. S.) P. D. 224. But see the following 2S2n. cases where it is held that a principal "^3 C. P. D. 32. As soon as this, de- ls liable for the acts of his agent cision appealed from was made public, where he has knowingly permitted the the legislature, by statute (40 & 41 agent to assume authority to pledge Vict., ch. 39), at once proceeded to his principal's goods. Galbraith v. settle the law to the contrary, by ap- Weber, 58 Wash. 132, 107 Pac. lOSO, plying the protection given by the fae- 28 L. R. A. (N. S.) 341ri; McCarthy tors' arts to persons acquiring title V. Crawford, 238 111. 38, 86 N. E. 750, from agents, to innocent parties pur- § 345 COLLATERAL SECURITIES. 422 proposition cannot be contested — that the mere possession of the property of another, without authority to deal with the thing in question otherwise than for the purpose of safe custody, as was the case here, will not, if the person so in possession takes upon himself to sell or pledge to a third party, divest the owner of his rights as against the third party, however innocent in the trans- action the latter party may have been." After referring to sev- eral cases, •"* which at first appear to favor the view that the plaintiff, by leaving the possession of the goods in the hands of the seller, had enabled him to pledge them as his own, and there- fore was estopped from denying his right so to deal with them, the learned judge continued : "Sitting here in a court of appeal, I feel myself at liberty to say that these authorities fail to satisfy me that at common law the leaving by a vendee of goods bought, or the documents of title, in the hands of the vendor till it suited the convenience of the former to take possession of them, would, on a fraudulent sale or pledge by the party so possessed, divest the owner of his property, or estop him from asserting his right to it. If this had been so, there would have been, as it seems to me, no necessity for giving effect by statute to the unauthorized sale o.f goods by a factor." § 345. Agent who can pledge or sell under factors' acts, must be one whose business ends with a sale of the goods. — An agent who can pledge or sell under the factors' acts must be one whose business properly ends in a sale of goods, or in receiving payment therefor. If an agent of this kind is entrusted in that capacity with goods, he can make an effectual pledge of them, in the absence of bad faith on the part of the pledgee. Thus, a merchant in London agreed with a tanner in Canada to pay him a stipulated price for tanning hides to be forwarded to him by the merchant, and to be sent back to him when tanned. The merchant accordingly sent him a large number of hides, which he tanned, and then pledged to the Toronto Bank for ad- ' chafing or making advances in such Boyson v. Coles, 6 M. & S. 14 ; Dyer ca^es as the. present. v. Pearson, 3 B. & C. 38. "Pickering v. Busk, 15 East 38; 423 AGENTS OR FACTORS. § 345 varices obtained on his own account, the bank acting in ignorance of the above agreement. The merchant having tendered the amount due the tanner under the agreement, brought suit against the banker to recover the possession of the goods. The defense was that the tanner carried on the business of a factor, ware- houseman, and consignment agent as well as that of a leather tanner, and that in the former character he had pledged the goods in question. The construction of the contract depended upon Canadian law, and the factors' clause of the Canadian Code, which contains some peculiar provisions ; but the House of Lords held that, under the circumstances of the case, the tanner could not, under any law, English or Canadian, claim to be a factor or agent of the merchant, entitled to pledge his goods, and that, consequently, the bankers could not set up any title to the goods, as derived from him, against the merchant who was the real owner."* The Lord Chancellor in delivering judgment said : "It is admitted that, as long as the tanning operation was going on, there was no agency, at all within the meaning of these factors' clauses. But it is contended, that because the tanner, who had a lien on the goods for his labor, also undertook to pro- cure freights and send the leather home, which he did, taking for his own security bills of lading made out in his name, which he sent to his agents in Liverpool, this made him, in that stage of the transaction, after the tanning was done, and when he was sending the goods home under his contract to the owner in England, an agent within the meaning of these factors' clauses. My Lords, it appears to me that such a view of the word 'agent' would be directly at variance with the authorities, which, as far as I can see, are for this purpose quite as applicable upon the construction of the words in the Canadian Code as upon the con- struction of the corresponding words in the English Acts. The authorities are thus summed up by Mr. Justice Willes in the case " City Bank v. Barrow, L. R. 5 App. f erred to and approved by Lord Cas. 664. The case of Cole v. North Blackburn, delivering a confirmatory Western Bank, L. R. 9 C. P. 470, af- opinion, firming L. R. 10 C. P. 354, was re- § 346 COLLATERAL SECURITIES. 424 of Heyman v. Flewker.^^ He says, after referring to certain cases, 'All that these cases decide applicable to the present purpose may be stated thus : that the term "agent" does not include a mere servant or caretaker, or one who has possession of goods for car- riage, safe custody, or otherwise, as an independent contracting party, but only persons whose employment corresponds to that of some known kind of commercial agent like that class (factors) from which the act has taken its name.' " A person entrusted with furniture to store in his own house, though in one sense an agent of the owner, is not an agent within the meaning ©f the factors' act, who can make a good pledge of the property."" A clerk who is in possession of de- livery orders belonging to his employer is not an agent so en- trusted with goods, or with the documentary title to them, that he can make a valid pledge of them."' § 346. Broker not authorized to pledge goods entrusted to him in another capacity. — One is not by virtue of his general employment as a broker authorized to pledge goods entrusted to him in another capacity. Thus, if one who is a broker, and is usually employed to sell goods, also carries on an independent business as a warehousekeeper, and he is entrusted with goods for the purpose of warehousing only, he is not "entrusted" with them as an agent within the meaning of the factors' act."* Mr. Jus- tice Blackburn, in delivering judgment upon appeal with refer- ence to the purpose of the factors' act, said : "We do not think that it was wished to make the owner of goods lose his property if he trusted the possession to a person who in some other capac- ity made sales, in case that person sold them. If such was the wish of those who framed the act, we think they have not used language sufficient to express an intention so to enact." Thus, where a consignee of wool for sale entrusted it to an- ""IS C. B. (N. S.) 519; 321. J. (C. ™Cole v. North Western Bank, L. P.) 132. R. 9 C. P. 470; affirmed on appeal 10 " Wood V. Rowcliffe, 6 Hare 183. C. P. 354, 372. "Lamb v. Attenborough, 1 B. & S. 831. 425 AGENTS OR FACTORS. § 346 other as a warehouseman for the purposes of sale, and with authority as broker to receive offers for and to negotiate sales of the same, to be reported to and settled by the consignee, but with no authority to make and conclude sales himself, it was held that he could not make a valid pledge of the wool for his own purposes; for he was neither a "factor or other agent entrusted with the possession of merchandise or of a bill of lading con- signing merchandise to him with authority to sell the same," nor "a person entrusted with merchandise and having authority to sell or consign the same," within the meaning of the factors' act."" The Supreme Court of Massachusetts so deciding said:'" "A warehouseman who is also a broker, with authority only to re- ceive offers for merchandise stored with him as a warehouseman, and report them to his principal, who concludes the sale, if any is rnade, is not within the provisions of either of these sections." A pledge made by such warehouseman without any authority from the consignee and without any acts done by the plaintiff, whereby the pledgee was misled into the belief that the pledgor had any such authority, whether as owner or otherwise, is in- vaHd. The fact that the pledgee found the wool in the pledgor's store, which he knew was used by the pledgor "to store wool as a warehouseman for other persons, and also wool belonging or consigned to himself," does not bring the case within the deci- sions upon ostensible or apparent ownership. Neither the rail- road receipt nor the invoice was delivered to the pledgor, but both were retained by the consignee, and the pledgor, so far as it ap- peared to the pledgee, was no more the ostensible owner of this wool than of any other wool stored with him as warehouseman. The assertion of the pledgor that he owned the wool was incom- petent as evidence of ownership against the consignee, and could not enlarge the pledgor's authority as agent." In a suit by the consignee against such pledgee for a conversion of the wool, it was further held that the consignee's rights were not effected by ""l Rev. Laws 1902, ch. 68, §§ 1, 3. "Thacher v. Moors, 134 Mass. 156. "Thacher v. Moors, 134 Mass. 156, Mass. Law,- April 19, 1883. § 346 COLLATERAL SECURITIES. 426 the fact that the pledgor was, without the knowledge of the con- signee a general owner of the property. The wool was orig- inally bought by another person, upon joint account with the pledgor under an arrangement between them by which the for- mer bought the wool of farmers in Vermont with money fur- nished by the pledgor, who was to have control of the sale of it, and the profits were to be divided between them. Under this arrangement the pledgor procured the advances from the con- signee, and furnished other money of his own with which to pay for the wool. Under the circrunstances the pledgor was re- garded as estopped by his acts from setting up against the plain- tiff any title to the wool inconsistent with the validity of the lien acquired by' the plaintiff as consignee. "The interest of the plaintiff in this merchandise," say the court.^^ "was that of a consignee for sale who had made advances upon it, and his rights and duties in most respects are well defined in the law. The possession of a wai^ehouseman, although he has a lien for his charges, is not inconsistent with the possession of the con- signee, and it is in accordance with the usage of commission mer- chants to store merchandise consigned to them in warehouses. A consignee's rights in the merchandise are not lost by putting the merchandise in the warehouse of another person, to be stored until it can be sold. The plaintiff never intended to relinquish his lien, or even to put the property into the possession of the owner; but it is argued that, as he did intend to put it into the possession of the pledgor, who was the owner, although the plain- tiff did not know it, this union of possession and general property in the pledgor enabled him to convey a good title to an innocent pledgee for value. No decided case has gone so far as this. * * * To hold that the union of possession and general property in the same person, however acquired, necessarily destroys the spe- cial property of a consignee of merchandise, would enable ware- housemen, who hold merchandise in store for commission mer- chants, to buy in the title of their consignors, and thus obtain full control over the disposition of the merchandise stored, without " Thacher v. Moors, 134 Mass. 156. 427 AGENTS OR FACTORS. § 347 the authority or knowledge of • the consignees; * * * The plaintiff cannot be held to have intended that the pledgor should exercise any of the rights of ownership over the merchandise on account of his delivery of it to him, because he did not know that he was the owner, and it is not a consequence naturally to be ex- pected from delivering the merchandise to him to be stored, that it would come into the possession of the general owner ; and in no legal sense can the plaintiff be said to have voluntarily deliv- ered the merchandise into the hands of the general owner." § 347. Agent whose authority is revoked. — An agent whose authority to sell has been revoked was not within the former factors' acts of England, "entrusted with and in the possession of goods, or of the documents of title to goods." He could not make a valid pledge of goods which had been entrusted to him for sale, but which he had wrongfully retained against the will of his principal.'^ But under the recent factors' act'* the revoca- tion of authority does not prejudice the rights of bona fide pur- chasers without notice. § 348. Factor acts apply only where the relation of princi- pal and agent exists. — The statutes apply only where the re- lation of principal and factor or agent exists between the real owner of the bill of lading and the person having the bill in pos- session; where the latter obtains the bill by or with the consent of the owner, and where the factor is made the consignee. More- over they apply only where the third person who has advanced money to the factor or agent, has done so on the faith of such bill of lading." One who is entrusted with the lawful evidence of title to merchandise, to enable him to sell it and remit the proceeds, becomes an agent, within the meaning of the factors' act; and the fact that he is called a trustee in a secret agreement under which he is entrusted with the evidence of ownership does not " Fuentes v. Montis, L. R. 3 C. P. '^ First Nat. Bank v. Shaw, 61 N. Y. 268; affirmed L. R. 4 C. P. 93. 283. "40 and 41 Vict., ch. 39, § 2. § 349 COLLATERAL SECURITIES. 428 make him a trustee as to the third parties having no notice of the agreement."" These acts have no appHcation in cases where either goods or documents of title have been obtained from the owner by fraud, for the trickster is not "an agent entrusted with the possession.""^ But if the owner has in fact entrusted goods or the documents of title to one as his agent to sell, though be has been induced to do so by fraud, a pledge by the agent is good.'* § 349. Mere possession of a bill of lading will not create the relation of principal and factor. — The relation of princi- pal and factor is not created by the mere possession of a bill of lading in the name of a third person, though that circumstance may raise a presumption of such relation. The fact of the re- lation is to be proved aliunde.'^ In this as in other cases while possession is prima facie evidence of ownership, yet any one dealing with a person in possession of personal property upon the mere evidence which possession affords, takes upon himself the risk that the property really belongs to another; and the burden rests upon him to prove that the true owner had authorized the person in possession to sell or pledge the property.^" "It is hardly necessary to say that the title of the true owner of per- sonal property cannot be impaired by the unauthorized acts of one not the owner. Taking possession of the property, shipping it, obtaining bills of lading from the carriers, indorsing away the bills of lading, or even selling the property and obtaining a full price for it, can have no effect upon the right of the owner. Even a bona fide purchaser obtains no right by a purchase from one who is not the owner, or not authorized to sell."*^ Posses- " New York Security &c. Co. v. Cole v. North Western Bank, L. R. Lipman, 1S7 N. Y. SSI, 52 N. E. 595. 10 C. P. 354, 374. " Kingsford v. Merry, 1 H. & N. ™ First Nat. Bank v. Shaw, 61 N. Y. 503; Hardman v. Booth, 1 H. & C. 383; Cook v. Heal, 1 Bosw. (N. Y.) 803. 497. "Sheppard v. Union Bank, 7 H. & "* Moore v. Robinson, 62 Ala. 537; N. 661 ; Baines v. Swainson, 4 B. & S. Barnard v. Campbell, 55 N. Y. 456, 270. See, in this connection, Vickers 14 Am. Rep. 289. V. Hertz, L. R. 2 H. L. § 113, and re- ''The Idaho, 93 U. S. 575, 583, 23 marks upon it by Blackburn, J., in L. ed. 978. 429 AGENTS OR FACTORS. § 349 sion of a bill of lading does not constitute title, nor does it of itself affect the operation of the general rule that property in chattels cannot be transferred except by the owner or by one having authority from him/^ If, therefore, an intermediate consignee named in a bill of lading having power simply to receive and forward the property, without authority issues a new bill of lading to one not the con- signee named in the original bill, the person so receiving such new bill does not thereby become the factor or agent of the owner, and the title of the latter is not affected by any contract made by such a holder of the bill of lading for advances made on the faith of it/= Accordingly, if the owner of cotton authorize a person to ship it in the owner's name, and in his name only, the agent cannot, by shipping the cotton and taking a bill of lading in his own name, and negotiating it, charge the cotton with the payment of advances made on the faith of it.^* If a bill of lading indorsed in blank be sent by the owner of the goods to a special agent with positive instructions to hold the bill of lading until the draft drawn against it be paid, he can- *' Barnard v. Campbell, SS N. Y. observance of reasonable diligence 456, 14 Am. Rep. 289. and the obligation to make reasona- '" First Nat. Bank v. Shaw, 61 N. ble inquiry, and enables owners of Y. 283, 304. "Considerable stress was property on the great transportation laid at the argument, by counsel on lines of inland commerce to secure it either side of the case, on the great from the frauds and depredations of consequences to commerce of a de- mere custodians and bailees, in whom cision in this cause adverse to their no special confidence is reposed, respective views. Finding the princi- While commercial convenience must pies of law clearly settled, we are be respected, the rights of property bound to administer them as they must not be sacrificed. * * * The have come down to us from our pred- true interests of commerce demand ecessors. We, however, believe that that the claims under bills of lading a decision cannot, on the whole, be and other such instruments should be adverse to commercial interests, scrupulously protected, ' since com- which, while it recognizes the con- merce will not flourish where the venience of merchants and the great rights of property are not respected." value and importance . of the factors' "Moore v. Robinson, 62 Ala. 437; act, requires of those who advance and see Covill v. Hill, 4 Denio (N. money on commercial documents the Y.) 323. § 35° COLLATERAL SECURITIES. 43O not, by transferring the bill of lading to another, confer upon him any title in the goods as against the principal.*^ § 350. Liability of pledgee who takes property with knowl- edge that agent is acting contrary to principal's instructions. — One taking a pledge from a factor with knowledge that he is acting contraiy to his principal's instructions, and making a wrongful use of the money so obtained, is responsible to the principal for such wrongful application of the money.*" Thus, where a principal executed to his factor his promissory notes, and shipped goods to him under instructions to sell the goods and apply the proceeds to the payment of the notes, and the factor pledged the notes, together with the goods, as collateral for ad- vances to a bank which had notice that the pledgor was the factor of the maker of the notes, it was held that' the bank was bound to apply the proceeds of the goods to the payment of the notes; and that in an action by the bank, against the maker, the fact that the misapplication of the loans obtained was known to the bank, constituted a good defense.*' Under the factors' act,'* one dealing with a factor with notice that he is not the actual owner of the goods offered in pledge is not entitled to the protection of the act. He is not only de- barred of such protection by positive knowledge of such fact, but also by knowledge of circumstances from which he must, as a reasonable man, have known that the goods did not belong to the factor. *° § 351. Factor is bound to follow his principal's instructions as to terms of sale. — A factor is bound to follow the instruc- tions of his principal as to terms of sale, although he has made advances upon the goods, unless the principal, after reasonable == Stollenwerck v. Thacher, 115 "St. Louis Nat. Bank v. Ross, 9 Mass. 224. Mo. App. 399. ""Covell V. Hill, 6 N. Y. 374; Stev- ^ As for instance that of 6 Geo. 4, ens V. Wilson, 3 Denio (N. Y.) 472, ch. 94, § 2; but otherwise under act of affirming 6 Hill (N. Y.) S12; Wilson 1842, S & 6 Vict., ch. 39, § 1. V. Nason, 4 Bosw. (N. Y.) ISS ; Gold- '» Evans v. Truman, 1 Moo. & R. 10. stein V. Hort, 30 Cal. 372; Hutchinson V. Bours, 6 Cal. 383. 431 AGENTS OR FACTORS. § 352 notice, fails to pay such advances."" But if the consignor, after such notice and a reasonable time, neglects or refuses to repay the advances, the consignee has a right to reimburse himself by selling the goods at a fair market price, though this be below the price originally limited."^ §352. Factor may make successive pledges of the same property. — A factor may make successive pledges of the same property, until its full value is exhausted, provided he make suffi- cient delivery of the property, or of the evidence of title to it. The factors' act as a general rule protects all persons who deal with a factor, while he is acting within the usual and recognized course of dealing of such an agent. A factor after depositing goods, or a bill of lading representing the goods, as security for advances, may pledge the balance of the net proceeds of the goods by delivering an order in writing upon the first pledgee; and such order, when assented to by the first pledgee, makes the pledge effectual against the consignor. The validity of such a pledge was objected to as not being within the .factors' act, for two reasons: (i) that it was not a pledge of the goods in the hands of the factor, but only of the surplus moneys arising from the sale; and (2) that the factor had not, at the time of the sec- ond pledge, possession of either the goods or documents of title, both being in the hands of the first pledgee. The Vice Chancel- lor in reply to this argument said that the factors' act plainly intended to give the amplest power of binding the goods by °° Hilton V. Vanderbilt, 82 N. Y. 591 ; it would enable the plaintiff to impair Marfield v. Goodhue, 3 N. Y. 62. See the defendant's security, at his own Brown v. M'Gran, 14 Pet. (U. S.) will and pleasure for an unlimited 479, 495, 10 L. ed. 550. time, if he were disposed so to do. "' Parker v. Brancker, 22 Pick. To sanction such a right would oper- (Mass.) 40, 46. In this case, Wilde, ate injuriously on the interests of con- J., speaking of the power claimed by signees, and would check the contin- the consignor to control the pledgee's uance of those large advances, by the right of sale to his prejudice, said: aid of which a flourishing trade has "Such a power would be inconsistent been carried on, for years past, to the with the understanding of the parties, great profit of the mercantile com- as it must be presumed to have been munity." when the advances were made: and § 353 COLLATERAL SECURITIES. 432 pledging them ; that if a factor pledges goods for half their value, and then pledges them again for the remainder of their value, it would be an exceedingly narrow construction to say that he is not at the time of the latter pledge in possession of the documents and goods, both of them being in his control as against his princi- pal until the principal withdraws them; and that the plain inter- pretation of the act is that when the first pledge does not ex- haust the whole value of the goods they are in the factor's con- trol, being in the possession of another person on his behalf, to the extent to which they are not exhausted by the previous pledge ; for he may redeem the first pledge at any time, and the goods must be regarded as in his possession and under his con- trol, subject only to the payment of the debt secured by the prior pledge. °^ § 353. I*rovision of factors' act, etc. — A provision of a fac- tors' act that the consignor shall be deemed the true owner, so far as to give the consignee a lien for advances made, applies only to cases in which the consignor is the owner of the property, or consents to the shipment in the name of another person.'' Unless the owner has conferred upon the consignee the usual in- dicia of ownership, he is not prevented from pursuing his title even as against a bona fide purchaser or pledgee.'* The mere neglect of the true owner to fortify his position by taking all possible precautions against a fraud upon his rights and title, is not equivalent to a voluntary consent on his part to a sale or pledge of the property by a consignee who fraudulently assumes to sell or pledge it.'^ " Portalis V. Tetley, L. R. S Eq. 140. "" Barnard v. Campbell, 55 N. Y. ■"Hazard v. Fiske, 18 Hun (N. Y.) 456, 14 Am. Rep. 289; Ballard v. Bur- 277; First Nat. Bank v. Shaw, 61 N. gett, 40 N. Y. 314; Austin v. Dye, 46 Y. 283; Covin v. Hill, 4 Den. (N. Y.) N. Y. 500. 323; Saltus v. Everett, 20 Wend. (N. °» Hazard v. Fiske, 18 Hun (N. Y.) Y.) 267, 32 Am. Dec. 541n. 277. CHAPTER IX. THE DEBT SECURED. i 354. The debts secured by collateral must be founded "on a good consideration. 355. The debts secured by a pledge is determined by the contract of the parties. 3SSa. A pledge secures any renewal of the debt. 3SSb. Rule where collateral security is given for various debts. 35Sc. Present liability is presumed where no time of payment is fixed. 356. Pledgee cannot hold a pledge to secure any debt except ac- cording to pledge contract. 357. Lien for balance of account. 358. Contract of parties may provide that property pledged for a specific debt may be security for other debts. i 358a. Partner's pledge may by agree- ment secure firm indebted- ness. 359. A pledge as continuing security. 360. Banker's lien for general bal- ance due him. 360a. A pre-existing debt is not a sufficient consideration to constitute a pledgee a holder for value. 361. Pledge may secure future in- debtedness. 361a. Pledge may secure future lia- bilities. 361b. Agreement for continuing se- curity should be liberally con- strued. 362. How to determine what debts are secured. 363. Pledge secures interest as well as principal. § 354. The debt secured by collateral must be founded on a good consideration. — The debt secured must be founded on a good and valuable consideration in order to sustain a pledge. If the debt be without consideration the pledge cannot be en- forced. If the consideration of the debt be an illegal or im- moral one, no court will lend its aid to either party to give effect to the contract. If a pledge has been made to secure such a debt, the maxim, in pari delicto est conditio possidentis is applied ; so that the pledgor cannot recover the pledge on account of such illegality of the debt, because to do so he must first show the true character of the deposit, and when it appears that this se- 433 28— CoL. Sec. § 354 COLLATERAL SECURITIES. 434 cures a debt founded on an illegal consideration to which the pledgor was himself a party, he is precluded from obtaining the assistance of the law to recover it back.' A pledge voluntarily made to secure an illegal demand cannot be reclaimed without payment. Thus, the owner of a watch having given it in pledge to secure payment for a debt which he is not legally liable to pay, as, for instance, a debt for the use of a horse and wagon on Sunday in violation of the statute, cannot recover it without payment of the debt, any more than he could recover money used in paying such a debt. "In all such cases, the maxim, potior est conditio possidentis, is applicable."^ In Louisiana^ the code provides that eveiy lawful obligation may be enforced by the auxiliary obligation of pledge. If the principal obligatioi^ be conditional, that of the pledge is con- firmed or extinguished with it. If the obligation is null, so also is the pledge. The obligation of pledge annexed to an obligation which is purely natural, is rendered valid only when the latter is confirmed and becomes executory. Pledge may be given, not only for an obligation consisting in money, but also for one hav- irig any other object ; for example, a surety. Nothing prevents one person from giving a pledge to another for becoming his surety with a third. A person may give a pledge, not only for his own debt, but for that of another, also. One who pledges property as security for the obligation of another cannot withdraw the property pledged otherwise than as a pledgor for himself might, and if he receives from the debtor a consideration for the pledge he cannot withdraw it without his consent.* 'Taylor v. Chester, L. R. 4 Q. B. velt v. Dreyer, 12 Daly (N. Y.) 370. 309. In this case the pledgor brought ^King v. Green, 6 Allen (Mass.) an action to recover the half of a 501. 139. bank note pledged to secure a debt '2 Rev. Civ. Code 1900, arts. 3136- contracted for wine and suppers sup- 3141. plied to the plaintiff by the defendant ' So by statute in California, Civ. in a brothel kept by the latter, to be Code 1906, § 2994; and in North Da- there consumed. Beecher v. Acker- kota, Rev. Codes 190S, § 6201 ; Enochs man, 1 Abb. Pr. (N. S.) (N. Y.) 141 ; v. Newton, 65 Miss. 86, 3 So. 141. Curtis V. Leavitt, 15 N. Y. 9; Roose- 435 DEBT SECURED. § 355 But where a stockholder in a corporation pledged his stock to another person to secure the payment of a debt due by the corporation, it was held that he might withdraw the stock pledged, even against the objection of the corporation.'' § 355. The 'debt secured by a pledge is deteirmined by the contract of the parties. — The particular contract determines their rights. The debt secured may be one already existing, one arising at the time of the transaction, or one to arise in the future. The mere existence of a previous debt from the pledg- or to the pledgee does not make the pledge a security for that debt, if the agreement upon which the pledge was made was that it should secure a debt created at the time, or one to arise from future advances.^ On the other hand, a pledge m,ade for a definite loan made at the time, cannot be held as security for an antecedent debt, nor for advances which the pledgee may afterward make to the pledgor, unless it be agreed that the security shall be so applied.' Thus, where on pledges goods for the repayrhent of a sum of money borrowed, and afterward pledges another lot of sim- ilar goods to the same person for another loan, if there is noth- ing to show that either pledge was dependent upon the other, or that when the first pledge was made a future loan was antic- ipated, or that when the second loan was made the first was al- luded to, each pledge is a security for the loan made at the time, and not in any respect for the other loan.* ' German State Bank v. Northwest- 263 ; Phillips v. Thompson, 2 Johns, ern &c. Light Co., 104 Iowa. 717, 74 Ch. (N. Y.) 418, 7 Am, Dec. 535; N. W. 685. Divver v. McLaughlin, 2 ,Wend. (N. "Baldwin v. Bradley, 69 111. 32; Y.) 596, 20 Am. Dec. 65Sn; Furber v. Jarvis v. Rogers, 15 Mass. 389; Allen Dane, 203 Mass. 108, 89 N. E. 227; V. Megguire, 15 Mass. 490; Union Stowe v. First Nat. Bank, 1 Ohio Cir! Brewing Co. v. Interstate &c. Trust Dec. 292 ; Union Brewing Co. v. Inter- Co., 240 111. 454, 88 N. E. 997. state &c. Trust Co., 240 111. 454, 88 N. ' Wilcox V. Fairhaven Bank, 7 Allen E. 997. (Mass.) 270; Hathaway v. Fall River 'Baldwin v. Bradley, 69 111. 32. A Nat. Bank, 131 Mass. 14; James' Ap- contract of pledge providing that cer- peal, 89 Pa. St. 54; Robinson v. Frost, tain. notes were put up as security for 14 Barb. (N. Y.) 536; Ball v. Stanley, a named debt and any other liability 5 Yerg. (Tenn.) 199, 26 Am. Dec. hereafter coming due or thereafter § 3553- COLLATERAL SECURITIES. 436 § 355a. A pledge secures any renewal of the debt. — A pledge ordinarily secures any renewal of the debt. When a promissory note secured by a pledge becomes due and a new note is given in renewal, the pledge remains as security for the new note, in the absence of anything showing that the parties intended that the original debt should be regarded as paid or discharged. When it appears that it will be for the benefit of the creditor that the old debt should be kept alive, the presumption of pay- ment, by the taking of a new note for the old note, does not arise, and the original debt is not discharged." § 355b. Rule where collateral security is given for various debts. — When collateral security is equally given for various debts, the pledgee may hold and apply the security to the pay- ment of any of the debts secured. Thus, where one was in- debted to a bank for several loans made at different times, and at the times when two of the loans were obtained he pledged certain notes as collateral security under an agreement declar- ing, "that for the punctual payment of this or any other sum which I have obtained, or may hereafter obtain, on loan or dis- count from said bank, these notes are hereby pledged and made liable ; and the directors of said bank are hereby authorized, after said loan or loans have become due and payable, and shall remain unpaid, to sell the said notes," it was held that the bank was under no obligation first to apply the security to the payment of the loan obtained when the security was given, that the lan- guage of the contract could not be construed as giving a prefer- ence or priority to any particular debt, and that the creditor had a right to apply the proceeds of the security as he saw fit.^" And so if shares of stock are pledged to a bank by the maker of a contracted was held not to secure Selma Bridge Co. v. Harris, 132 Ala. money collected by the pledgor for 179, 31 So. 508; Wise v. Williams, 162 pledgee as agent and unlawfully con- Fed. 161 ; Robinson v. Stiner, 26 Okla. verted. Brown v. James, 80 Neb. 475, 272, 109 Pac. 238; Morehead v. Citi- 114 N. W. 591. zens' Deposit Bank, 130 Ky. 414, 113 ' Cotton V. Atlas Nat. Bank, 145 S. W. 501. Mass. 43, 12 N. E. 850; Meeker v. "Richardson v. Washington Bank, Waldron. 62 Neb. 689, 87 N. W. 539; 3 Met. (Mass.) 536. 437 DEBT SECURED. § 355c promissory note given in renewal of earlier notes, "as collateral security for the payment of this note, or any of my liabilities to said bank, due or to become due, now or hereafter contracted or incurred," with authority "on the non-payment of this note or any other of the liabilities above mentioned" to sell the stock, the proceeds above all sums due the bank, including its expenses, to be credited to such maker, no special pledge of the stock exists for the payment of the note above any other indebtedness of the maker to the bank at the time of a lawful sale thereof." § 3S5c. Present liability is presumed when no time of pay- ment is fixed. — When no time is named when payment of a debt secured by a pledge is to be made the law will presume a present liability." § 356. Pledgee cannot hold a pledge to secure any debt ex- cept according to pledge contract. — The mere existence of another debt from the pledgor to the pledgee, does hot authorize the latter to detain the pledge for that debt, when the debt or trust which it was put into his hands to secure has been discharged, unless there be some just presumption that such was the intention of the parties. '' When the contract of pledge is not in writing, the debt secured is determined by the verbal contract of the parties or the circumstances of the transaction. If this contract, expressly made or implied from the circtunstances, connects the pledge with a particular debt, another debt, whether prior or sub- sequent, can be made to share in the security by a like contract, but only upon proof of such a contract. A creditor cannot, upon payment of the debt for which he "Fall River National Bank v. Schiffer v. Feagin, 51 Ala. 335; Gilliat Slade, 153 Mass. 415, 26 N. E. 843, 12 v. Lynch, 2 Leigh (Va.) 493; Niles v. L. R. A. 131n. Edwards, 90 Cal. 10, 27 Pac. 159; Ma- ^ Stokes V. Dimmick, 157 Ala. 237, sonic Savings Bank v. Bangs, 84 Ky. '^^ So. 66. 135, 4 Am. St. 197n; Ware v. Barnard "Jarvis v. Rogers, IS Mass. 389; &c. Mfg. Co., 94 111. App. 498; First Baldwin v. Bradley, 69 111. 32; Adams Nat. Bank v. Germania &c. Trust Co., V. Sturges, 55 111. 468; Teutonia Nat. 112 Ky. 734, 23 Ky. L. 2123, 66 S w' Bank v. Loeb, 27 La. Ann. 110; St. 716. John V. O'Connel, 7 Port. (Ala.) 466; § 357 COLLATERAL SECURITIES. 438 holds a pledge, retain the pledge as security for a prior or other debt/* He has no lien upon specific articles of personal prop- erty of his debtor which happen to be in his hands. To obtain a lien upon them, except through an agreement with his debtor, he must attach them for his debt, just as any other creditor would." If a negotiable note be indorsed by the payee to a bank as collateral security for one only of several demands on which he is liable, the bank has no lien on such' note for any other demand against such debtor. If the bank bring suit against the maker of such note, after the demand for wliich it was pledged has been paid, the maker, acting under the authority of the indorser, may successfully defend against the right of the bank to recover." § 357. Lien for balance of account. — A general lien for a balance of account upon collaterals pledged for a specific loan cannot be claimed in the absence of an express agreement or gen- eral usage." If there be a usage giving to persons engaged in discounting, buying, advancing on, or selling bills or notes,, a lien for a general balance against their customer, such usage should be proved. Courts have taken notice, judicially, of the lien of bankers who are strictly such, and who are dealers in money; " Cowling V. Beachum, 7 Moore Mfg. Co., 94 111. App. 498 ; First Nat. 46S; De Bernales v. Fuller, 14 East Bank v. Germania &c. Trust Co., 112 590, note; Hathaway v. Fall River Ky. 734, 23 Ky. L. 2123, 66 S. W. 716. Nat. Bank, 131 Mass. 14; Jarvis v. " Allen v. Megguire, IS Mass. 490. Rogers, IS Mass. 389; Hall v. Mars- "Neponset Bank v. Leland, S Met. ton, 17 Mass. S7S; Robinson v. Frost, (Mass.) 2S9. 14 Barb. (N. Y.) S36; M'Neilly "Vanderzee v. Willis, 3 Bro. C. C. V. Richardson, 4 Cow. (N. Y.) 607; 21; Davis v. Bowsher, 5 T. R. 488; Duncan v. Brennan, 83 N. Y. 487; In re Medewe's Trust, 26 Beav. S88; Wyckoff V. Anthony, 90 N. Y. 442, 9 Jarvis v. Rogers, IS Mass. 389 ; Lane Daly (N. Y.) 417, 27 Alb. L. J. 94; v. Bailey, 47 Barb. (N. Y.) 395; Wye- Baldwin v. Bradley, 69 111. 32. This koff v. Anthony, 9 Daly (N. Y.) 417, rule applies as well in cases in which 90 N. Y. 442, 27 Alb. L. J. 94, IS N. the United States, or one of its rev- Y. Weekly Dig. 461 ; First Nat. Bank enue officers, is pledgee, as in cases v. Germania &c. Trust Co., 112 Ky. between individuals. Boughton v. 734, 23 Ky. L. 2123, 66 S. W. 716; United States, 12 Ct. Claims 330 ; Ware v. Barnard &c. Mfg. Co., 94 111. State Nat. Bank v. United States, 10- App. 498. Ct. Claims 519, 545; Ware v. Leas 439 DEBT SECURED. § 358 but even the lien of a banker does not exist in any case where the circumstances are inconsistent with such a lien/^ "When there is no existing right to detain the possession of the collateral, after a specific loan upon it is paid, no lien can exist upon it after pay- ment. The right of the debtor to pay the advance, and take up a collateral before its maturity, is not reconcilable with the exist- ence of a right in the creditor to hold on, and keep the collateral, after the payment of such advance, for any general balance due him from the debtor for other indebtedness."^" § 358. Contract of parties may provide that property pledged for a specific debt may be security for other debts. — Collateral security taken for a specific loan may by agreement of the parties be made to cover other loans made at other times. ^'' The fact that a subsequent loan was made upon the security of the same collaterals already held by the creditor for a previous loan, may be shown not merely by the written contract of the parties, but by proof of the conversation and circumstances at- tending the making of the subsequent loan. The parties may agree upon making a loan upon collaterals that these may also be held as security for a previous loan, whether that be secured or not. If such an agreement be proved the security applies as much to the pre-existing debt as tO' that which was incurred at the time of the transaction.^^ An agreement to allow a judgment given as security for notes to continue after the notes are paid as security for other notes may be made by an agent under parol authority. ^^ If one is indebted to another in several distinct obligations, and transfers property in pledge, without particularly desig- nating the debts which it shall secure, it would seem that the "Grant v. Taylor, 3 J. & S. (N. Y.) S40; Smith v. Dennison, 101 111. 531; 338, 350; Brandao v. Barnett, 3 C. B. Moors v. Washburn, 147 Mass. 344, 17 519. N. E. 884. " Grant V. Taylor, 3 J. & S. (N. Y.) "Smith v. Dennison, 101 111. 531; 338, 350. Merchants' Nat. Bank v. Demere, 92 * Buchanan v. International Bank, Ga. 735, 19 S. E. 38. 78 111. 500; Van Blarcom v. Broadway ''Kaufman's App., 161 Pa. St. 469, Bank, 9 Bosw. (N. Y.) 532, 37 N. Y. 29 Atl. 1. § 35^^ COLLATERAL SECURITIES. 44O creditor would be entitled to apply it as he would a payment made, under like circumstances, to secure such debt or debts as he might himself choose. A pledge given to a surety to secure him for several liabilities, without any designation of the liabil- ity to which it shall be first applied, may be applied to the security and payment of those liabilities in such order as he pleases.^^ § 358a. Partner's pledge may by agreement secure firm in- debtedness. — A pledge made by one partner to a bank to se- cure a loan to him may by agreement secure an indebtedness of his firm, and such an indebtedness is covered by the words "any other note or claim against me held by said bank." Shares of stock were pledged by a member of a firm to secure a loan to him from a bank, then holding the firm's acceptances. He gave the bank a demand note, made out upon a printed form furnished by it, reciting that "on the non-performance of this promise" the bank might sell the stock and apply "the net proceeds to the payment of this note," accounting to him "for the surplus, if any," and that "such surplus, or any excess of collaterals upon this note," should be applicable "to any other note or claim against me held by said bank." Upon a demand he made partial payments, but failed to pay the residue, requesting the bank to make the balance a time loan, which the bank refused, it being understood, however, that the demand should not be pressed without further notice. This notice the bank gave, and, upon non-payment, sold the stock for an amount sufficient to pay what was due on the note and leave a balance in its hands. It was held that there was a non-performance of the promise contained in the note, which entitled the bank to sell the' shares ; and that the bank could apply the balance in its hands to the payment of the finn acceptances remaining unpaid.^* ' '''Norton v. Plumb, 14 Conn. 512, would have been used by the bank 517. equally in a case where the borrower " Hallowell v. Blackstone National was the principal man in his firm and Bank, 154 Mass. 359, 363, 28 N. E. the only one known to the bank, was 281, 13 L. R. A. 315. Mr. Justice borrowing for his firm daily, and had Holmes in _his opinion said : "The never borrowed for himself but in this printed form, it may be assumed, instance, and in a case where the bor- 441 DEBT SECURED. § 359 § 359. A pledge as continuing security. — A pledge of col- lateral may be a continuing security, if so made in terms.'" In that case an extension of time upon the principal debt, or a re- newal of that debt in the ordinaiy course of business, will not discharge the lien of the pledge. Thus, a pledge of stock by a married woman to a bank "as security for the payment of any demands the bank may from time to time have or hold against" her husband, clearly applies to any future indebtedness of his to the bank. Such a pledge is as wide in limits as jt could well be. "It specifies no kind of demand, no amount, no length of time of any indebtedness, no length of time for which the stock might be liable." The pledgor might afterward by notice to the bank limit the liability to debts then existing ; but so long as the pledge remains unlimited, it will cover any new obligation within the terms of the agreement.'^ § 360. Banker's lien for general balance due him. — A banker may have a lien for a general balance due him upon all the securities of his customer which may come into the banker's hands for any purpose, unless there be evidence to show that he rower's membership in a firm whose any claim against him, and there is notes the bank held was unknown, nothing to cut down the literal mean- This being so, in the opinion of a ma- ing of the words, he must be taken jority of the court there is no suffi- to include claims against him as part- cient reason for not giving the words ner." See also Fall River Nat. Bank their full legal effect. The clause v. Slade, 153 Mass. 415, 26 N. E. 843, pledging the property for any other 12 L. R. A. 131n; Richardson v. claims against the debtor is not in- Washington Bank, 3 Met. (Mass.) serted with a view to certain specific 536 ; Wilcox v. Fairhaven Bank, 7 Al- debts, but as a dragnet to make sure len (Mass.) 270. that whatever comes to the creditor's ^ Merchants' Nat. Bank v. Hall, 83 hands shall be held by the latter until N. Y. 338, 38 Am. Rep. 434. its claims are satisfied. Cory on Ac- ^° Merchants' Nat. Bank v. Hall. 83 counts and Lindley on Partnership N. Y. 338, 38 Am. Rep. 434, affirming have made it popular to refer to a 18 Hun (N. Y.) 176, 38 Am. Rep. mercantile distinction between the firm 434; Gillet v. Bank of America, 21 and its members. But we have no App. Div. (N. Y.) 392, 47 N. Y. S. doubt that our merchants are perfect- 558 ; Fidelity Mut. L. Ins; Co. v. Ger- ly aware that claims against their mania Bank, 74 Minn. 154, 76 N. W. firms are claims against them, and 968. when a merchant gives security for § 360a COLLATERAL SECURITIES. 442 received any particular security under special circumstances which would take it out of the common rule." But here, as in other cases of lien, says Judge Story, the right to retain for the general balance of accounts may be controlled by any special agreement which shows that it was not intended by the parties. Thus, for example, if securities have been deposited with a banker as a pledge for a specific sum, and not generally, that will repel the inference that it was intended to give a lien for the general ac- count or balance between the parties.^* Under an agreement that all collaterals given by a debtor to a bank should be held and applied for the payment of any bal- ance due from him to the bank, a surplus arising from the sale of a pai^ticular security belongs to the bank.^" Where a debtor by letter directed a bank to which he had pledged certain stock as collateral security for a specific debt, "to hold the stock as a general collateral security for all his liabilities to the said bank, at present existing or which may hereafter be incurred by him," the bank was authorized to ap- ply the surplus of the stock, after payment of the specific debt, pro rata to all such liabilities.'" § 360a. A pre-existing debt is not a sufficient consideration to constitute a pledgee a holder for value. — "Whatever may be the law in the case of a transfer of chattels in payment of a pre-existing debt, when the debt is thereby discharged, we think that by the weight of authority a pledging of chattels as security for a pre-existing debt, when there is no present consideration whatever for the pledge, does not constitute the pledgee a holder of value.'"^ The rule is dififerent, however, in regard to nego- " Davis V. Bowsher, 5 T. R. 488, v. Washburn, 147 Mass. 344, 17 N. E. 491; Bolland v. Bygrave, Ry. & M. 884. 271. ™ Eichelberger v. Murdock, 10 Md. =' Story on Agency, § 381 ; In re Me- 373, 69 Am. Dec. 140. See Bacon v. dewe's Trust, 26 Beav. 588; Vander- Bacon, 94 Va. 686, 27 S. E. 576. zee V. Willis^ 3 Bro. C. C. 21 ; Lane v. " Goodwin v. Massachusetts Loan Bailey, 47 Barb. (N. Y.) 395; Wye- & Trust Co., 152 Mass. 189, 199, 25 koff V. Anthony, 90 N. Y. 442. N. E. 100, citing Loeb v. Peters, 63 =° Walker v. Abt, 83 111. 226; Moors Ala. 243, 35 Am. Rep. 17; Wert v. 443 DEBT SECURED. § 361 tiable paper. In the same case from which the above quotation is made, tlie court say: "In this Commonwealth, it is held that taking a negotiable promissory note before maturity as security for a pre-existing debt, is a taking for value, and that any equities which may exist between the maker and the person from whom it is taken cannot be set up against such a holder, if he took the note in good faith, and without knowledge of these equities.'"*^ § 361. Pledge may secure future indebtedness. — A pledge may secure a futui'e indebtedness, as well as an indebtedness existing at the' time. ^' It may be made as a continuing security for all advances the pledgee might make to the pledgor; and in such case the pledge will be a security for all advances made prior to the time that some third person acquires an interest in the col- laterals pledged.^* A general security for all advances that the creditor may make applies not only to unsecured advances, but also to those for which a special security is also taken ; and in that case the creditor may rely upon either security or both ; and it lies solely with him, and not with the debtor or any one claiming under him, to determine in any instance which security he will enforce.''^ Whether a pledge covers existing debts or is limited to those that may thereafter arise, depends upon the terms of the agreement of hypothecation. Thus a pledge of stock to a bank "as security for the payment of any demands it may from time to time hold against" a debtor named, in terms includes all de- Naylor, 93 Ind. 431; Sleeper v. Davis, Am. Dec. 143; Wolf v. Wolf, 12 La. 64 N. H. 59, 6 Atl. 201, 10 Am. St. Ann. 529; D'Wolf v. Harris, 4 Mason ill; Linnard's Appeal (Pa.), 3 Atl. (U. S.) SIS; Stearns v. Marsh, 4 840; Merchants' Ins. Co. v. Abbott, Denio (N. Y.) 227, 47 Am. Dec. 248; 131 Mass. 397, 400; Lessassier v. The State Sav. Assn. v. Hunt, 17 Kan. 532; Southwestern, 2 Woods (U. S.) 35; Buchanan v. International Bank, 78 Currie v. Misa, L. R. 10 Ex. 153 ; 111. 500 ; Texas Banking & Ins. Co. v. Leask V. Scott, 2 Q. B. D. 376 ; Rod- Turnley, 61 Tex. 365; Brown v. ger V. Comptoir d'Escompte de Paris, James, 80 Neb. 475, 114 N. W. 591. L. R. 2 C. P. 393 ; Chartered Bank v. " Buchanan v. International Bank, Henderson, L. R. 5 C. P. 501. ' 78 111. 500. "" See §§ 107-112. =' Buchanan v. International Bank, •^ Sitgreaves v. Farmers' & Me- 78 111. 500 ; Moors v. Washburn, 147 chanics' Bank, 49 Pa. St. 359; Calkins Mass. 344, 17 N. E. 884. V. Lockwood, 16 Conn. 276, 288, 41 § 36 1 a COLLATERAL SECURITIES. 444 mands the bank held against him at that time, as well as those that might arise afterward.'" "The agreement does not in terms name or describe debts made before the pledge. It does not in terms name or describe acts that were done or could have been done, only before the pledge. It does speak of acts which, though done before the agreement, could be continued and thus be acts done after its making. When it provides for demands that the plaintiff may from time to time have and hold against Hall, it speaks of the act of having and holding a demand; and that is an act that could be done after the making of the agree- ment, though the demand arose before, and though as an act of having and holding it, it was begun before. If Hall had, before the date of the agreement, made his note to a stranger, and after that date the plaintiff had become the assignee of the note, the plaintiff would have had and held it after the making of the pledge. The demand thereon would have fallen within the lan- guage of the agreement; whether within the intention of the parties to the agreement is another question. It would have been a demand had and held by the plaintiff from time to time (^that is, at any or some time during the running of the agreement), against Hall, and so would have been literally one of the demands spoken of by the instrument. It is plain then that the date of origin of the demand is not the test whether the pledge applies to it. The act of having and holding is."^^ § 361a. Pledge may secure future liabilities. — The pledge may secure in addition to a specific debt the pledgor's future lia- bilities to the pledgee, but not a past or prior liability. Thus, one borrowed a sum of money from a bank, for which he exe- cuted and delivered to the bank a demand note, depositing at the same time as collateral security for its payment, certain stocks and bonds. The note contained this provision : "It is also agreed that if I shall come under any other liability, or enter into any " Merchants' Nat. Bank v. Hall, 83 "' Merchants' Nat. Bank v. Hall, 83 N. Y. 338, 38 Am. Rep. 434; affirming N. Y. 338, 341, 38 Am. Rep. 434. 18 Hun (N. Y.) 176, 178, 38 Am. Rep. 434. 445 DEBT SECURED. § 361b other engagement, with said bank, while it is the holder of this obligation, that the net proceeds of sale of the above secu- rities may be applied either on this note or any other of my liabil- ities or engagements held by said bank, as its president or cashier may elect." The pledgor afterward became insolvent, and made an assignment of his property to trustees for the benefit of his creditors. The assignees of the pledgor tendered the amount of the note, with interest to the date of tender, and demanded the note and the securities which had been deposited as collateral. The bank, however, refused to make a surrender of the secur- ities, claiming to hold them as collateral for a demand note of a third person indorsed by the pledgor, several months before this transaction. In an action of trover brought by the assignees of the pledgor against the bank, it was held that the plain and ob- vious meaning of the contract, and that which was contemplated by the parties at the time of its execution, was to cover liabilities made after the execution of the note, and those entered into at the time of its delivery, and the stock could not be held as security for a responsibility incurred by the pledgor nearly five months prior to the depositing of the stock.^* , § 361b. Agreement for continuing security should be liber- ally construed. — An agreement for a continuing security in a note by a customer to his bank prepared by the bank is to be lib- erally construed in favor of the customer. Thus, where an agreement, in a printed form of note furnished by the bank and signed by the customer on obtaining a loan for the amount of the note, by which the customer pledged certain property as collateral security for the payment of the note "or any other liability or liabilities of the undersigned to the said bank, due or to become due, or which may hereafter be contracted or exist- ing," is properly construed, in accordance with the reasonable in- tention of the parties, as referring only to liabilities of the cus- tomer to the bank in the ordinary course of its banking business, the bank is not entitled to retain the pledged property for the pur- '^ Harris v. Franklin Bank, 11 Md. v. Interstate &c. Trust Co., 240 111. 423, 26 Atl. S23 ; Union Brewing Co. 4S4, 88 N. E. 997. § 362 COLLATERAL SECURITIES. 446 pose of applying it upon a note of the customer to a third party, which, although drawn payable at the customer's bank, was not paid by it or charged to the customer's account, but was. dishon- ored, and then purchased, by the bank. The Court of Appeals of New York so deciding, said : "It seems clear, when this agree- ment is construed in the Hght of the principles and authorities cited, -and in view of the circumstances and transactions existing between the parties, that the most the defendant can properly claim for this provision is that it was intended to secure the lia- bilities of the assignors to the bank arising out of the business transactions or relations existing, or which should subsequently exist, between them as bank and customer, or which came into its hands in the ordinary course of its banking business, whether past, present or future. Under this language the bank could not hold the property pledged as security for a claim, unless it was a liability of the assignors to the bank, or obtained in the usual course of business. The agreement was obviously intended to include those liabilities only."!"" § 362. How to determine what debts are secured. — In de- termining what debts are secured by an absolute assignment of property as collateral security, the whole transaction between the parties is to be looked to.*° A general assignment may cover all claims of the assignee against the assignor, although a previous special assignment was limited to securing liabilities incurred for the consignor's accommodation.*^ If a pledge be made by a written instrument for a loan of a definite amount then made, the pledgee cannot by parol evidence show that it was agreed between the parties at the time of making " Gillet V. Bank of America, 160 N. ^ Boardman v. Holmes, 124 Mass. Y. 549, 5S6, 55 N. E. 292, reversing 21 438; Charles v. Coker, 2 S. Car. 122; App. Div. (N. Y.) 392, 47 N. Y. S. Hilton v. Sims, 45 Ga. 565. A valid 558. The term "any other liabilities" pledge may exist although there is of the pledgor includes rediscounts of less certainty as to the debt than is other notes previously discounted for required in case of a mortgage. Marsh the pledgor by the pledgee. Hanover v. Keating, 78 Conn. 13, 60 Atl. 689. Nat. Bank v. Brown (Tenn. Ch. "Boardman v. Holmes, 124 Mass. App.),53 S. W. 206. 438. 447 DEBT SECURED. § 363 the pledge that the property should be held as security, not only for that sum but also for such further advances as the pledgee might afterward make; for a written agreement cannot be en- larged by parol.*^ § 363. Pledge secures interest as well as principal. — A pledge which secures an interest-bearing debt, secures the interest as much as the principal of the debt. The parties may as be- tween themselves increase the rate of interest, just as they may in any other way increase the debt secured by the pledge. But as against a subsequent pledgee or purchaser, the prior pledgee, after notice of subsequent rights in the property, cannot as against them increase the rate of interest, any more than he could increase the principal of the debt secured.*^ ■'" Hamilton v. Wagner, 2 Marsh. '^ Jones on Mortgages, § 361. (Ky.) 331, 332. CHAPTER X. THE PLEDGOR S RIGHTS AND LIABILITIES BEFORE DEFAULT. § 364. Pledged property may be trans- ferred by the owner. 365. The assignee of pledgor's con- tract acquires only the latter's rights. . 366. Right reserved by pledgor to sell the pledged property. 367. Notice to purchaser that pledgee holds a lien. 368. Pledgee liable if he returns goods to pledgor after notice that the property has been transferred. 369. Where pledgee has converted the property before the pledg- or assigns it the assignee can- not sue pledgee in his own name. 370. Pledgor's assignee entitled to redeem the pledge. 371. Pledgee of corporate bonds does not affirm their genuine- ness. 372. At common law goods held in pledge cannot be taken on ex- ecution in an action against pledgor. § 373. Property held in pledge not subject to attachment or gar- nishee process. 374. Statutes of various states. 375. Alabama. 37Sa. Arizona. 376. California. Zn. Colorado. 378. Georgia. 378a. Illinois. 379. Indiana. 380. Louisiana. 381. Maine. 382. Massachusettsr 383. Michigan. 384. Minnesota. 385. New Hampshire. 386. New Jersey. 387. New York. 387a. North Dakota. 387b. Oregon. 388. Pennsylvania. 389. Tennessee. 390. Texas. 391. Vermont. 391a. West Virginia. 392. Wisconsin. 392a. Wyoming. § 364. Pledged property may be transferred by the owner. — Property under pledge .may be transferred by the general own- er, subject only to the lien, by a proper contract and upon a good consideration.^ "In such case, as the actual custody and posses- ' Franklin v. Neate, 13 M. & W. 481 ; Whitaker v. Sumner, 20 Pick. (Mass.) 399; Tuxworth v. Moore, 9 Pick. (Mass.) 347, 20 Am. Dec. 479; Fetty- 448 449 pledgor's rights and liabilities. § 365 sion of the goods for the time being, is in the hands of the party having the lien, it follows that a constructive or symbolical de- livery is sufficient to pass the property. An order by the vendor upon the keeper, or if the contract of sale or conveyance be in writing, proper and satisfactory notice of the conveyance by the vendee to the holder, constitutes such constructive delivery. Where goods are lying in a warehouse, although subject to a lien for keeping, notice to the warehousekeeper, where all the other requisites of a sale are proved, is equivalent to a delivery. After such notice the keeper ceases to be the agent of the vendor, and becomes the agent of the vendee, and thus the goods are placed under the effective control of the vendee, as they would be by an active delivery."^ If a creditor hold a collateral note under a blank indorsement of the payor, the latter may before maturity of the note sell and assign it with the creditor's knowledge without further indorse- ment, or without filling up the blank ; and such assignee will ac- quire it free from all equities other than the lien of the pledgee, although it be not delivered by the latter to such assignee until after maturity.' § 365. The assignee of a pledgor's contract acquires only the latter's rights. — One taking an assignment from the pledgor of his contract of pledge, acquires only the latter's rights, inasmuch as he is chargeable with notice of all that he might learn upon inquiry in respect to the contract and the rights of the parties under it.* place V. Dutch, 13 Pick. (Mass.) 388, the pledgee. Shinkle v. Vickery, 130 23 Am. Dec. 688; Cooper v. Ray, 47 Fed. 424, 64 C. C. A. 626. 111. S3 ; Sanders v. Davis, 13 B. Mon. ' Whitaker v. Sumner, 20 Pick. (Ky.) 432; Bush v. Lyon, 9 Cow. (N. (Mass.) 399. Y.) 52; Ratcliff v. Vance, 2 Mill ' Grimm v. Warner, 45 Iowa 106. Const. (S. Car.) 239; Brent v. Miller, " Taggart v. Packard, 39 Vt. 628; 81 Ala. 309, 8 So. 219; National &c. Smith v. Lee, 84 Fed. 557. Where River Bank v. Chaskin, 28 App. Div. stock is held as collateral to secure (N. Y.) 311, 51 N. Y. S. 54; Brown the pledgee for money advanced, his \: Hotel Assn., 63 Neb. 181, 88 N. right is superior to the assignee of W. 175. The transfer of property such stock. Shinkle v. Vickery, 130 pledged will not defeat the rights of Fed. 424, 64 C. C. A. 626. Where a 29 — CoL. Sec. § 366 COLLATERAL SECURITIKS. 45O An assignee for the benefit of ci-editors of the pledgor has only the rights of the pledgor, and cannot rightfully t^ake pos- session of the pledged property." ' He cannot attack the suffi- ciency of the possession of the pledgee, if that was sufficient as against the pledgor.' § 366. Right reserved by pledgor to sell the pledged prop- erty. — A right reserved by the pledgor to sell the thing pledged, to be exercised at any time upon payment of the debt secured, gives him no right to sell it until he has first paid the debt. If the pledgor obtain possession of the property and sell it without the pledgee's consent, he is liable for a conversion of it.^ The pledgor's assignee may enforce in his own name or in the name of his assignor such rights in the pledge as he does acquire. Where bonds and stocks are pledged as collateral se- curity, under a contract stipulating that in the event of the re- duction of the indebtedness, the pledgor should be entitled to select and withdraw from the securities so pledged an amount' equal to the reduction, one to whom the pledgor has sold and trans- ferred a part of such securities can maintain his right to them, as against the pledgee, where it is shown that prior to such trans- fer the pledgor had paid, or caused to be paid, on such indebted- ness, a sum in excess of the value of the securities so trans- ferred.^ § 367. Notice to purchaser that pledgee holds a lien. — No- tice to a purchaser of goods of a pledgee's lien thereon for ad- vances, charges the purchaser with its payment, if he 'has such pledgor transfers pledged property or 495. See Goodbar v. Locke, 56 Ark. where such property is attached in a 314, 19 S. W. 924; Dome City Bank v. suit against the pledgor, the pledgee's Barnett, 184 Fed. 607, 106 C. C. A. right is superior to that of the trans- 611. ferree or attachment plaintiff. Citi- ' George v. Pierce, 123 Cal. 172, 55 zens' Nat. Bank v. Bank of Com- Pac. 775; affirmed 56 Pac. 53. merce, 80 Kan. 205, 101 Pac. 1005. ' Prescott v. Prescott, 41 Vt. 131. " George v. Pierce, 123 Cal. 172, 55 ' First Nat. Bank v. Root, 107 Ind. Pac. 775 ; affirmed 56 Pac. 53 ; Fran- 224, 8 N. E. 105. Cisco V. Aguirre, 94 Cal. 180, 29 Pac. 451 pledgor's rights and liabilities. § 368 notice before or at the time of accepting the goods.* Thus, if the purchaser receives the goods upon the order of the general own^ er, which directs the delivery of the goods upon the payment of a certain sum to the pledgee, who is authorized to give the pur- chaser credit therefor, and the pledgee delivers the goods accom- panied by a bill or invoice charging the amount due him, in an action therefor, the purchaser cannot offset a claim he has against the general owner." And so, if on^e holding a fund against which he knows a claim is made by another as pledgee, although not aware that the pledge extends beyond a specific loan, which has been paid, pays over the fund to the genei'al owner, he does so at his peril.'^ The holder of a fund against which he knows that a claim is made by another as pledgee, is chargeable with interest if he has used the fund, or has not kept it as a separate trust fund." § 368. Pledgee liable if he returns goods to pledgor after notice that the property has been transferred. — If the pledg- or's assignee give notice of his ownership to the pledgee, the lat- ter is liable if he afterward delivers the property to the pledgor or to any one else, without the assignee's consent. ^^ By agreement of a pledgor and pledgee the latter may hold ° Nottebohm v. Maas, 3 Robt. (N. which, in its contents, was a written Y.) 249. claim for fifteen dollars per barrel. "Carrington v. Ward, 71 N. Y. 360, The defendants took the oil with that 363, affirming 10 J. & S. 572. Folger, claim. They were bound to make in- J., in the court of appeals, said : quiry, or to refuse and return the oil, "Thus we have beyond dispute, the or to take it with the obligation on existence of the lien, and the defend- their part to make payment of that ants' knowledge or binding notice sum at a proper time." thereof, or notice enough to obligate " Moors v. Washburn, 159 Mass. inquiry. It is beyond dispute that • 172, 34 N. E. 182. the plaintiffs never gave up their lien, " Moors v. Washburn, 159 Mass. nor did anything to lead the defend- 172, 34 N. E. 182; McCrea v. Yule, 68 ants to suppose that they meant to, or N. J. L. 465, 53 Atl. 210; Leggat v. to induce action in the defendants in Palmer, 39 Mont. 302, 102 Pac. 327; reliance upon a, belief that the plaint- Whalen v. Goldman, 62 Misc. (N. Y.) iffs meant to relinquish it. The act 108, 115 N. Y. S. 1006. of delivery of the oil to the defend- " Duell v. Cudlipp, 1 Hilt. (N. Y.) ants was accompanied by an invoice, 166. § 369 COLLATERAL SECURITIES. 452 the security pledged for the benefit of another creditor, of the pledgor; and in that case any sum received by the pledgee from the security above the amount necessary to satisfy his claim should be applied on the pledgor's debt to such other creditor. The agreement of the parties operates as an equitable assignment of such surplus, should there be any." § 369. Where pledgee has converted the property before the pledgor assigns it the assignee cannot sue pledgee in his own name. — For a conversion of the pledge which has taken place before the pledgor's assignment of it, the assignee cannot recover against the pledgee or other person in his own name. A demand for the chattel by such assignee upon the pledgee, and his refusal to give it up, because he had already parted with its possession, does not constitute a conversion. Neither can such assignee claim by virtue of a previous demand by the pledg- or.^* But if the pledgor has assigned not merely the property but also his cause of action for a conversion already made by the pledgee, tlien the assignee could maintain an action either in his own name or that of his assignor, according to the code of pro- cedure under which the action is brought, for such prior conver- § 370. Pledgor's assignee entitled to redeem the pledge. — A pledgor's assignee is entitled to redeem the pledge, or to re- cover judgment for a subsequent conversion of it by the pledgee or other person.^' The assignee is at all times entitled to redeem the pledge, by paying such a sum as would have canceled and dis- charged the pledgee's claim at the time of the assignment. If the pledgee sell the pledge, the prior assignee is entitled to the surplus money, and in a suit to recover it the pledgee can set off "Second Nat. Bank v. Sproat, SS "Kemp v. Westbrook, 1 Ves. Sr. Minn. 14, 56 N. W. 254. 278; Franklin v. Neate, 13 M. & W. '•Duell V. Cudlipp, 1 Hilt. (N. Y.) 481; Dupree v. Fall, 10 Cal. 430; Dur- 166. fee V. Harper, 22 Mont. 354, 368, 56 "Duell V. Cudlipp, 1 Hilt. (N. Y.) Pac. 589. 166; McKee v. Judd, 12 N. Y. 622, 64 Am. Dec. 515. 453 pledgor's rights and liabilities. § 371 no claim which he has against the pledgor other than the specific debt, to secure which the pledge was made.^° If the pledgor sells the pledged property while it is in the hands of his pledgee and the purchaser does not redeem it, but the pledgee sells it at auction at a sale fairly conducted for less than the price agreed upon between the pledgor and "his vendee, the latter, if purchasing with notice of the pledge, is liable to an ac- tion to recover the difference between the contract price, less the amount paid, and the proceeds of sale realized by the pledgee. ^'' §371. Pledgee of corporate bonds does not affirm their genuineness. — A pledgee of corporate bonds or other like coir lateral securities does not affirm their genuineness, by delivering them to one purchasing from the owner, although he receives the purchase-money directly from the purchaser, and after de- ducting the amount of the debt secured pays over the residue to the owner. In the absence of fraud the purchaser cannot re- cover back the purchase price in case the securities prove to have been forged. A pledgee upon receiving payment is bound to deliver the securities to whomsoever the pledgor may direct, and the fact that the whole proceeds are paid to him, and that he pays over only the surplus to the pledgor, does not change the charac- ter of the transaction from a payment to the pledgee to a sale by him. Nor does the circumstance that the original transaction was in the form of a purchase of bonds by the pledgee at the re- quest of the pledgor, with an agreement that the former would within a definite time sell the bonds to the latter' for the amount of the loan applied for and made, change -the character of the transaction, though this form was given to it to avoid the usury laws. The pledgee may, notwithstanding, show the real transac- tion, and avoid all responsibility for the genuineness of the bonds.'" Nor is there any such responsibility on the part of a creditor ■'Van Blarcom v. Broadway Bank, 19 Pac. 260; Civ. Code of California, 37 N. Y. 540. § 3311. "Habenicht v. Lissak, 11 Cal. 139, ""Baker v. Arnot, 67 N. Y. 448; af- firming 5 T. & C. 215. § 372 COLLATERAL SECURITIES. 454 who, upon the order o£ his debtor, transfers the debtor''s note and pledge of a spurious certificate of stock to another upon re- ceiving the amount of the note, both parties being ignorant of the spuriousness of the certificate. The person so taking the cer- tificate cannot recover back the purchase-money from the pledgee, as upon the sale of the note and stock, for the transaction viras not a sale.''^ "The case then is strictly this: the Schuylers owe the defiendant money, and they procure the plaintiffs to pay that money. As security for such payment, or upon some other con- sideration not disclosed, they at the same time procure the de- fendant to transfer to the plaintiffs a certificate of stock, of which the defendant held the formal title, but which belonged wholly to the Schuylers, and was subject to their control. Both the plain- tiffs and the defendant though the certificate valuable, but it is in truth worthless, and the plaintiffs have lost their money. With whom did the plaintiffs deal for the stock? Not with the defend- ant, who did not have or did not profess to have any beneficial title to it, but with the Schuylers, who, when their debt to the de- fendant was paid, were the owners. The defendant assumed nothing, warranted nothing. What he had received on the loan to the Schuylers he was bound and was willing, the loan being paid, to give back to them, if they chose to take it, or if not, to the parties whom they should name to be the recipients of the title. They named the plaintiffs, and the defendant made the transfer to them. I can see no reason why such an act should involve any responsibility on the part of the defendant."" § 372. At common law goods held in pledge cannot be taken on execution in an action against pledgor. — At com- mon law goods held in pledge cannot be attached or taken in execution in an action against the pledgor.^^ While the debt ^Ketchum v. Bank of Commerce, 389, 11 Am. Dec. 202; Pomeroy v. 19 N. Y. 499. Smith, 17 Pick. (Mass.) 85; Hunt v. '^ Ketchum v. Bank of Commerce, Holton, 13 Pick. (Mass.) 216, 221 19 N. Y. 499. Holbrook v. Baker, 5 Me. 309, 17 Am. "^ Scott V. Scholey, 8 East 467; Met- Dec. 236; Soule v. White, 14 Me. 436 calf V. Scholey, S Bos. & Pull. 461; Thompson v. Stevens, 10 Me. 27; Badlam v. Tucker, 1 Pick. (Mass.) Wilkes v, Ferris, S Johns. (N. Y.) 455 pledgor's rights and liabilities. § 372 which the pledge was made to secure remains unpaid no part of, the property pledged can be awarded to another creditor of the pledgor solely on the ground that the remainder would probably be sufficient to pay the debt secured.^* The pledgee's possession cannot be disturbed, because the pledgor's creditor, or the officer acting for him in making the attachment or levy, can acquire no greater interest in the property and no greater control over it than that possessed by the pledgor, against whom ran the process of the court. "A mere equitable interest cannot be taken and sold on execution; for where there is no legal right thefe is no legal remedy."^^ This statement is strictly applicable to mort- gages of chattels." But in the case of a pledge, though the pledgor has the general ownership, and, in general, the legal title, yet the possession being in the pledgee, the pledgor has strictly only a right to redeem ; and neither he nor any one in his right can regain possession, or a right to it, except upon payment, or tender of payment, of the amount for which the property is held in pledge.^' A creditor of the pledgor could not compel the pledgee to accept payment of the debt before its maturity, even if he could compel such acceptance in any case. It is only by a bill in euqity^* or by statute that this can be done. Though it has been intimated in a few cases that possi- bly an attachment of pledged property might be sustained, upon payment or tender to the pledgee of the amount due him; yet it is doubtful whether this can be done without express statutory authority therefor. A resort to this expedient seems to have been 335, 4 .Am. Dec. 364 ; Marsh v. Law- " JEtna. Ins. Co. v. Bank, 48 Neb. rence, 4 Cow. (N. Y.) 461 ; Stief v. S44, 67 N. W. 449. Hart, 1 N. Y. 20, 28; Srodes v. Caven, == Badlam v. Tucker, 1 Pick. (Mass.) 3 Watts (Pa.) 258; Briggs v. Walker, 389, 11 Am. Dec. 202. 21 N. H. 72, 77 ; Hudson v. Hunt, 5 " Jones on Chattel Mortgages, § N. H. 538; Dowler V. Cushwa, 27 Md. 555. 354, 366; ^tna Ins/Co. v. Bank, 48 " Picquet v. Swan, 4 Mason (U. S.) Neb., 544, 67 N. W. 449; Mapleton 443,464; McClmtock v.' Central Bank, Bank v. Standrod, 8 Idaho 740, 71 120 Mo. 127, 24 S. W. 1052. Pac- 119. ^ Ritchie v. McMuUen, 79 Fed. 522, 25 C. C. A. 50. § 373 COLLATERAL SECURITIES. 456 generally regarded as too hazardous to attempt, in the absence of any direct authority to sustain it.^' If, however, the pledgee voluntarily surrenders possession of the pledge upon receiving payment of the debt secured by it, it seems that the property thereupon is subject to levy and sale upon execution against the pledgor/" Perhaps, also, a creditor of the pledgor may, with the consent of the pledgee, attach the property pledged and take possession of it, holding it as a repre- sentative of the pledgee and by virtue of the attachment." « § 373. Property held in pledge not subject to attachment or garnishee process. — Neither is property held in pledge generally subject to attachment by trustee or garnishee process, except by virtue of statutory provisions. ^^ This is upon the prin- ciple that a garnishee is not liable in respect to such property of the defendant in his hands as is not capable of being seized and sold under, execution. A garnishee or trustee, in the absence of any agreement that he shall sell the property held by him in pledge, cannot be compelled to do so ; but if he does sell it under a power, and there is a surplus in his hands after paying the debt secured, such surplus may be reached by this process.^' -° Sargent v. Carr, 12 Me. 396. A that is a matter which concerns the surrender by a pledgee or bailee of pledgee alone, and if he deliver the pledged bonds belonging to a corpor- property to the officer, we cannot see ation under an attachment issued that the pledgor has any right to com- against said corporation's secretary plain; nor why it may not be levied for his personal debt, when the sur- upon and sold subject to the claim of render is made under an invalid pro- the pledgee." cess, amounts to conversion. Medina " Farr v. Kilgour, 117 Mich. 227, 75 Gas &c. Co. V. Buffalo Loan &c. De- N. W. 457. posit Co., 104 N. Y. S. 625, 119 App. '" Drake on Attachment, § 539, Div. (N. Y.) 245; Mac Donnell v. Whitney v. Dean, 5 N. H. 249; How- Buflfalo &c. Deposit Co., 193 N. Y. 92, ard v. Card, 6 Me. 353 ; Kergin v. 85 N. E. 801. Dawson, 1 Gilm. (111.) 86; Patterson ""Mower v. Stickney, 5 Minn. 397, v. Harland, 12 Ark. 158. See as to 404. In this case Emmett, C. J., said : Michigan, § 383 ; Kimbrough v. J. K. "If property be pledged by the owner, Orr Shoe Co., 98 Ga. 537, 25 S. E. 576. his creditors may not be able to de- ^ Badlam v. Tucker, 1 Pick, prive the pledgee of his possession (Mass.) 389, 11 Am. Dec. 202; How- without first satisfying his claim ; yet ard v. Card, 6 Me. 353. 457 pledgor's rights and liabilities. § 374 § 374. Statutes of various states. — Statutes have been en- acted in several of the states to enable creditors of the general owner to reach and apply his interest in pledged property to their claims by process of attachment and execution. Full protection, however, is always given to the pledgee. § 375. Alabama. — There is no special statute respecting the mode of attaching or levying execution upon the interest of a pledgor in the pledge; but it seems that such interest may be attached by process of garnisliment under the general statute."* It seems, also, that an exectition might be levied upon such in- terest, for it is held that the interest of a mortgagor of chattels or of one who has conveyed personal property by a bill of sale absolute on its face, as a mere security for a debt, may be sold under execution, and that the sheriff has the right to take the property into his possession for the purpose of making the levy."" § 375a. Arizona."" — All goods, chattels, moneys and other property and rights of property seized and held under attachment in the action are liable to execution. Shares and interest in any corporation or company, and debts and credits, choses in action, and all other property, both real and personal, or any interest, legal or equitable, in either real or personal property not capable of manual delivery, may be levied upon and sold under execution. § 376. California. — The interest of a pledgor in a pledge may be reached by garnishment. It is provided that all goods, chattels, moneys, and other property, both real and personal, or any interest therein of the judgment debtor, not exempt by law, and all property and rights of property, seized and held un- der attachment in the action, are Hable to execution."' It is further provided that debts, credits, and other personal property not capable of manual delivery, may be attached by garnishee process. The garnishee may be examined respecting the prop- " Petty V. Overall, 42 Ala. 145, 94 =' Rev. Stats. 1901, § 2565. Am. Dec. 634. =' Code of Civil Procedure 1885, § '"McConeghy v. McCaw, 31 Ala. 688. 447. § 2i77 COLLATERAL SECURITIES. 458 erty, and the court or judge may, after such examination, order personal property, capable of manual delivery, to be delivered to the sheriff on such terms as may be just, having reference to any liens or claims against the same.'* Whilst, therefore, the inter- est of the pledgor may be reached by a general creditor, this can only be done by serving a garnishment upon the pledgee, and not by a seizure of the pledge. The interests of the pledgee are pro- tected by the court under the discretionary power conferred by the statute." § 377. Colorado.*" — When it shall appear that the goods, chattels, choses in action, or effects in the hands of a garnishee are mortgaged or pledged, or in any way liable for the payment of a debt to him, the plaintiff may be allowed, under an order of the court or justice of the peace for that purpose, to pay or tender the amount due to the garnishee; and he shall thereupon deliver the goods, chattels, choses in action, and effects to the officer who holds the execution. § 378. Georgia.*^ — Property in pawn may be seized and sold under exectition against the pawnor, but upon notice by the pawnee to the levying officer, the court, in distributing the pro- ceeds, will recognize his lien according to its dignity, and give such direction to the funds as sh?ill protect his legal rights. § 378a. Illinois.*' — The share or interest of a stockholder in any corporation may be taken on execution, and sold as here- inafter provided, but in all cases where such share or interest has been sold or pledged in good faith for a valuable consider- ation, and the certificate thereof has been delivered upon such '" Code of Civil Procedure 1885, § provided by the statute he is entitled 545. to have his lien enforced as provided "Treadwell v. Davis, 34 Cal. 601, by the statute and need not formally 607, 94 Am. Dec. 770. foreclose his lien. Buena Vista &c.. "Mills' .'Vnnot. Stats. 1891, § 2738. Bank v. Grier, 114 Ga. 398, 40 S. E. •=1 Code 1911, § 3524. When 284. pledged property is levied upon un- " Rev. Stat. 1908, ch. 11, § 52. See dor an execution against the pledgor Rice v. Gilbert, 173 111. 348, SO N. E. and tlie pledgee follows the remedy 108/, affirming 72 111. App. 649. 459 pledgor's rights and liabilities. § 379 sale or pledge, such shares or interest shall not be liable to be taken on execution against the vendor, or pledgor, except for the excess of the value thereof over and above the sum for which the same may have been pledged and the certificate thereof de- livered. § 379. Indiana.** — Goods and chattels pledged, assigned or mortgaged as security for any debt or contract may be levied upon and sold on execution against the person making the pledge, assignment, or mortgage subject thereto, and the purchaser shall be entitled to the possession, upon complying with the conditions of the pledge, assignment or mortgage. § 380. Louisiana. — Property held in pledge is subject to attachment and to levy of execution in a suit against the pledg- or, subject, however, to the pledgee's claim.*'^ In a recent case the Supreme Court of the state say:" "It is now well settled in our jurisprudence, that the property of any nature, held in pledge by a creditor, may be seized from his possession by another cred- itor of the common debtor, and sold subject to the pledgee's claim. "The only right which the law secures to the pledgee is to satisfy his debt 'by privilege and in preference to other creditors of his debtor, out of the product of the movable, cor- poreal, or incorporeal, which has been thus burdened.'" Noth- ing in the nature of the contract can authorize the pledgee to hold indefinitely the property pledged, which is usually far in excess of the amount thereby secured, and to thus deprive other creditors of their recourse on the debtor's property." " 1 Burns' Rev! Stat. 1908, § 764. nothing having the effect to diminish See Jones on Chattel Mortgages, § the value of such security. Collins v. 578. Under this statute for the pur- State, 3 Ind. App. 542, 30 N. E. 12, 50 pose of levy and sale the officer hold- Am. St. 298; Foster v. Bringham, 99 ing an execution against the pledgor Ind. 505; Kahn v. Hayes, 22, Ind. App. may take possession as against both 182, 53 N. E. 430. the pledgor and pledgee as mortgagor ■" Auge v. Variol, 31 La. Ann. 865. and mortgagee but he must exercise " Horner v. Dennis, 34 La. Ann. due care to protect the interest of the 389. pledgee or mortgagee and can do "2 Rev. Civ. Code 1900, art. 3157. § 3^1 COLLATERAL SECURITIES. 460 § 381. Maine.^* — Personal property not exempt from at- tachment, mortgaged, pledged, or subject to any lien created by law, and of which the debtor has the right of redemption, may be attached, held and sold as if it were unincumbered, if the at- taching creditor first tenders or pays to the mortgagee, pledgee, or holder, the full amount unpaid on the demand so secured thereon. When personal property, attached on a writ or seized on execution, is claimed by virtue of such mortgage, pledge, or lien, the claimant shall not bring an action against the attaching officer therefor until he has given him at least forty-eight hours' written notice of his claim and the true amount tliereof ; and the officer or creditor may, within that time, discharge the claim by paying or tendering the amount due thereon, or he may restore the property. The officer may give the claimant written notice of his attachment ; and if he does not, within ten days thereafter, deliver to the officer a true account of the amount due on his claim, he thereby waives the right to hold the property thereon ; and if his account is false, he forfeits to the creditor double the amount of the excess to be recovered in an action on the case. If the creditor redeems such property, and it is subsequently sold by the officer, he shall from the proceeds, first pay to the creditor the amount with interest paid by him to redeem, and apply the balance, if any, to the debt on which it was attached or seized on execution. Life and accident policies, and the money due thereon are exempt from attachment, and from all claims of creditors, dur- ing the life of the insured, when the annual cash premium paid does not exceed one hundred and fifty dollars, but when it ex- ceeds that sum, and the premium has been paid by the debtor, his creditors have a lien on the policies for such sum over one hun- dred and fifty dollars a year, as the debtor has paid for two years subject to any pledge or assignment thereof made in good faith. When a trustee'"' states in his disclosure that he had, at the "Rev. Stat. 1903, p. 726, §§ 44-47. arising under mortgages. Maine Rev. See Jones on Chattel Mortgages, § Stats. 1903, § 106. 581, for notes to this statute of cases "Rev. Stat. 1903, p. 777, § SO. 461 pledgor's rights and liabilities. § 382 time the process was served on him, in his possession, prop- erty not exempted by law from attachment, mortgaged, pledged, or delivered to him by the principal defendant to secure the payment of money due to him, and that the principal defendant has an existing right to redeem it by payment thereof, the court or justice before which the action is pending shall order that on payment or tender of such money by the plaintiff to said trustee within such time as the court orders, and while the right of re- demption exists, he shall deliver the property to the officer serv- ing the process, to be held and disposed of as if it had been at- tached on mesne process; and in default thereof that he shall be charged as the trustee of the principal debtor. This order shall be entered on the records of the court or justice. On the return of the scire facias against such trustee, if it appears that the plain- tiff has complied with the order of the court or justice, and that the trustee has refused or neglected to comply therewith, the court or justice shall enter up judgment against him for the amount due and returned unsatisfied on the execution, if there appears to be in his hands such an amount of the property mort- gaged over and above the sum due him, but if not, then for the amount of said property exceeding that sum, if any; and this amount of excess shall, on the trial of scire facias, be determined by the court or jury. § 382. Massachusetts.''" — Personal property of a debtor which is subject to a mortgage, pledge, or lien, and of which the debtor has the right of redemption, may be attached and held ""2 Rev. Laws 1902, ch. 167, §§ 69- previously attached on mesne process. 73. See Jones on Chattel Mortgages, Lyon v. Coburn, 1 Cush. (Mass.) 278. § 583, for notes of cases arising un- A pledgee is entitled to recover of an der mortgages. The provisions au- oiEcer who ha^ unlawfully attached thorizing the attachment of personal the goods pledged, not merely the property subject to a mortgage or amount of the debt secured by the pledge do not authorize the seizing of pledge, but the full value of the such property on execution in the first goods. The rule is founded upon the instance. The remedy of a judgment consideration, that for all beyond the creditor is by attachment or trustee debt, for which the goods are process. The property cannot be pledged, the pledgee is responsible to taken on execution unless it has been the pledgor. Pomeroy v. Smith 17 § 382 COLLATERAL SECURITIES. 462 as if it were unencumbered, if the attaching creditor pays or ten- ders to the mortgagee, pledgee or holder of the property the amount for which it is so liable within ten days after demand as hereinafter provided. The mortgagee, pledgee or holder shall, when demanding pay- ment of the money due to him, state in writing a just and true acpount of the debt or demand for which the property is liable to him and deliver it to the attaching creditor or officer. If the same is not paid or tendered to him within ten days thereafter the attachment shall be dissolved, and the property shall be re- stored to him, and the attaching creditor shall be liable to him for any damages he has sustained by the attachment. If he de- mands and receives more than the amount due to him, he shall be liable in an action by the attaching creditor for money had and received for the excess, with interest thereon at the rate of twelve per cent, a year. If property which has been attached and redeemed as aforesaid is sold on mesne process or on execution, the proceeds thereof, after deducting the charges of the sale, shall be first applied to repay to the attaching creditor the amount so paid by him with interest. If the attaching creditor after having redeemed the property, does not recover judgment, he may nevertheless hold the property until the debtor repays to him the amount which he paid for the redemption, or as much thereof as the debtor would have been obliged to pay to the mortgagee, pledgee or holder of the prop- erty, if they had not been attached, with interest from the time when it was demanded of the debtor. Under this statute one to whom the pledgee of goods has with the pledgor's consent consigned them for sale, can make demand in his own name for the payment of the amount for Pick. (Mass.) 8S. An attachment of Mass. 28. Certificates may be trans- property conveyed by a bill of sale ab- ferred by indorsement in blank and solute in form, but really given as delivery without inquiring as to the collateral security, can be dissolved rights of third parties. Clews v. only by a demand in accordance with Friedman, 182 Mass. S5S, 66 N. E. the statute. Putnam v. Rowe, 110 201. 463 pledgor's rights and liabilities. § 383 which they were pledged, upon an officer who has attached them on a writ against the pledgor; and, on refusal of the officer to pay the amount or release the attachment, can in his own name maintain an action against him for conversion."*^ Such consignee has the right of possession; and prima facie that is sufficient to enable him to maintain an action for the possession, or for any injury to the goods. As against trespassers, and those showing no title or right, such possession is sufficient for all purposes. ^^ A contract by which a debtor undertakes to give collateral security to certain of his creditors, by agreeing to hold personal property purchased with money borrowed from them, in trust for their security, does not protect the property from being seized upon attachment or execution by the general creditors of such debtor. Such a trust is an evasion of the general policy of the laws respecting pledges and mortgages.^^ § 383. Michigan."* — When goods or chattels shall be pledged, by way of mortgage or otherwise, for the payment of money or the performance of any contract or agreement, such goods or chattels may be levied upon and sold on execution against the person making such pledge, subject to the lien of the mortgage or pledge existing thereon; and the purchaser at such sale shall be entitled to pay to the person holding such mortgage or pledge the amount actually due thereon, or otherwise perform the terms and conditions of the pledge, at any time before the ■ actual foreclosure of such mortgage or pledge ; and on such pay- ments or performances, or a full tender thereof, shall thereupon acquire all the right, interest and property which the defendant in execution would have had in such goods or chattels if such mort- gage or pledge had not been made. There are also provisions for the attachment of property subject to a mortgage or pledge by the process of garnishment. When it appears that a garnishee holds property of the principal defendant subject to any pledge, lien or mortgage, the court may •^ Clark V. Dearborn, 103 Mass. 335. "' Huntington v. Clemence, 103 °' Clark V. Dearborn, 103 Mass. 335. Mass. 482. "3 Comp. Laws 1897, § 10,318. § 384 COLLATERAL SECURITIES. 464 order him to deliver such property to a commissioner or receiver, to be by him disposed of under the direction of the court. The surplus proceeds, after paying the amount of such encumbrance, are applied upon any execution that may be obtained in favor of the plaintiff against the garnishee. The plaintiff may also, by order of court, be allowed to pay or tender the amount due to the garnishee.^^ § 384. Minnesota/" — When personal property is pledged for the payment of money or the performance of any contract or agreement, the right and interest of the pledgor in such property may be sold on execution against him, and the purchaser shall acquire all his right and interest therein, and be entitled to the pos- session of such property, on complying with the terms and condi- tions of the pledge. If it appear that the garnishee has a lien on such garnished property, or that it is in any way liable for the payment of a debt due to him, the plaintiff, on motion, may be permitted to pay the amount thereof, and the amount so paid shall be repaid to plain- tiff, with interest, out of the proceeds of the sale of such property. If the garnishee refuses or neglects to comply with any order of the court in the premises, he may be punished for a contempt, and also shall be liable to the plaintiff for the value of such property, less the amount of his lien : provided, that he may sell the prop- erty to satisfy the lien, if a sale be authorized by his contract, at any time before such payment or tender. § 385. New Hampshire." — Any personal property not ex- empt from attachment, subject to any mortgage, pledge, or lien, may be attached as the property of the mortgagor, pledgor, or general owner, the attaching creditor or officer paying or tender- ing to the mortgagee, pledgee, or holder the amount for which the property is holden. The creditor or officer may demand of the mortgagee, pledgee, or holder an account on oath of the "'3 Comp. Laws 1897, § 10,607. See ""Rev. Laws 1905, §§ 4302, 4249. Old Second Nat. Bank v. Williams, "' Pub. Stat. 1901, ch. 220, §§ 17, 18. 112 Mich. 564, 71 N. W. 150. 46s pledgor's eights and liabilities. § 386 amount due upon the debt or demand secured by such mortgage, pledge, or hen, and the officer may retain the property in his custody, without tender or payment, until the account is given. If the account is not given within fifteen days after demand, or if a false account is given, the property shall be holden discharged from such mortgage, pledge, or lien. It is also provided that personal property subject to any mort- gage, pledge, or lien, may be taken on execution in the same man- ner that it may be attached, and may be sold in ;the same manner as other personal property, and the creditor and officer shall have the same right to demand an account of the amount due, and to hold the property, if no account or a false account is given, as in case of an attachment. The proceeds of the sale shall be applied to pay the sum paid or tendered to the mortgagee, pledgee, or holder, and interest and the residue to the satisfaction of the exe- cution on which it is holden. The debtor's right to redeem such property may be taken on execution and sold as in other cases, without such payment or tender.'^* § 386. New Jersey. — Goods held in pledge may be taken in execution by a creditor of the pledgor, subject to the rights of the pledgee. If the pledgee does not object to the levy and his claim be satisfied, it would seem that a third party could not object to it. But however this may be, the claim of an execution creditor is good in equity.''^ § 387. New York.'" — The interest of the judgment debtor in personal property, subject to levy, lawfully pledged for the payment of money, or the performance of a contract or agree- ment, may be sold in the hands of a pledgee, by virtue of an execution against property. The purchaser at the sale acquires all the right and interest of the judgment debtor, and is entitled to the possession of the property on complying with the terms and conditions upon which the judgment debtor could obtain posses- "Pub. Stat. 1901, ch. 232, §§ 3-S. "2 Ann Code Civ. Proc. 1902, § "' Mechanics' &c. Loan Assn. V. Con- 1412; Laws of New York, 1911, vol. over, 14 N. J. Eq. 219. 2, § 647. 30 — CoL. Sec. § 387a- COLLATERAL SECURITIES. 466 sion thereof. This section does not apply to property of which the judgment debtor is unconditionally entitled to the possession. Even before the enactment of this statute it was held that the interest of a pledgee might be attached or taken in execution in an action against him. The purchaser, however, only obtained his interest."^ This was asserted upon the ground that the pledgee in possession is armed with the whole power and all the remedies of the law to protect his possession and support his claim. The sheriff in levying an execution upon the interest of a pledgor may take actual possession of the goods, and hold them until he sells them. But after the sale the pledgee is entitled to possession until the purchaser redeems them from the pledge."^ § 387a. North Dakota."' — When property is pledged or mortgaged for the payment of money or the performance of any contract or agreement, the right and interest in such property of the person pledging or mortgaging the same may be attached and sold on execution, and the purchaser at such sale shall acquire all the right and interest of the defendant therein. § 387b. Oregon/* — The stocks in all private corporations are deemed personal property, and subject to attachment, execu- tion, levy and sale as such, the corporation in case of such sale, is required to make necessary transfer to the purchaser upon the stock book. § 388. Pennsylvania. — Property held in pledge may be sold on execution against the pledgor, but the sale must be subject to the rights and interests of the pledgee."^ The property cannot rightfully be taken from the possession of the pledgee either by the sheriff before the sale or by the purchaser after the sale; and if it be so taken the pledgee may recover the property in re- plevin or its value in trover. »'Saul V. Kruger, 9 How. Pr. (N. "North Dakota Rev. Code 1905, § Y.) 569. 6949. "'Bakewell v. Ellsworth, 6 Hill (N. "Oregon 2 Codes and Stats. 1902, Y.) 484; Stief v. Hart, 1 N. Y. 20; § 5064. Cotton V. Watkins, 6 Wis. 629. " Reichenbach v. McKean, 95 Pa. 467 pledgor's rights and liabilities. § 389 Goods held in pledge may also be attached by the process of foreign attachment, or garnishment ; but in such case the pledgee's right to sell the pledge upon default, or even before that, if by law or custom he has a right to sell before, is not impaired. Thus, if a factor make advances upon goods sent him by his con- signor, and they are attached by process of foreign attachment by a creditor of the consignor, the attachment does not arrest the power of the factor to sell, leaving the goods tied up in his hands. The factor having an interest in the goods, with a right to sell them, cannot be affected by an after attachment. "The attach- ing creditor stands upon no higher footing than his debtor in relation to the garnishee. What right would the debtor him- self have to say to the garnishee, 'you shall not sell,' without tendering him his advances and making him whole? Even an execution cannot be levied of goods in pawn, so as to take them out of the pawnee's possession, without tendering him the money for which he holds them in pledge. So here the garnishee, as factor to sell, having made advancements, had a power coupled with an interest which was irrevocable except upon a tender of his charges. Added to the injuiy to him by protracted storage, a fall in price might leave his advances partially unprotected. If the plaintiff was desirous to retain the goods for an advance in price it was his duty to furnish the money to relieve them of the lien of the garnishees, and to direct the sheriff to take them into custody.""" § 389. Tennessee. — Property held in pledge may be taken in execution, or attached in a suit against the pledgor; but the creditor cannot so take the property without first discharging the debt secured by the pledge."' The fact that a creditor procures a. transfer of property held in pledge in another state to a person residing in his own state, St. 432; Srodes v. Caven, 3 Watts ""Baugh v. Kirkpatrick, 54 Pa. St. (Pa.) 2S8; Baugh v. Kirkpatrick, 54 84, 93 Am. Dec. 675. Pa. St. 84, 93 Am. Dec. 675 ; Penn. 1 >" First Nat. Bank v. Pettit, 9 Heisk. Purdon's Digest, p. 1520, § 21. (Tenn.) 447; Tennessee Code 1896, § 2066. § 390 COLLATERAL SECURITIES. 468 and thereupon levies an attachment upon it in a suit against the pledgor, is not such a fraudulent device to get the property within the jurisdiction of the court as will avoid the attachment."* The pledgee may lawfully assign his interest in the pledge without the knowledge or consent of the pledgor, and the assignee may take possession of the property and hold it, wherever he may be. Such a transfer is not fraudulent as against the pledgor, unless the intention and effect of the transfer are to conceal the prop- erty from the debtor or to prevent his redeeming it. § 390. Texas/" — Goods and chattels pledged, assigned or mortgaged as secured for any debtor or contract may be levied upon and sold on execution against the person making the pledge, assignment, or mortgage subject thereto; and the purchaser shall be entitled to the possession, when it is held by the pledgee, as- signee or mortgagee, on complying with the conditions of the pledge, assignment, or mortgage. § 391. Vermont. — Personal property, not exempt from at- tachment, subject to a mortgage, pledge or lien, may be attached, taken in execution and sold as the property of the mortgagor, pledgor or general owner, in the same manner as other personal property, except as herein otherwise provided. The officer making such attachment or taking such property on execution, may make a written demand of the mortgagee, pledgee or the holder of such lien for an account in writing, un- der oath, of the amount due upon the debt secured by such mort- gage, pledge or lien, and may retain such property in his custody until the same is given without tender or payment. Upon re- ceiving such demand, the account shall be rendered within fifteen days by a resident of the state and within thirty days by a non- resident. If the account is not rendered within the time afore- said, or if a false account is rendered, such property may be holden and sold discharged from such mortgage, pledge or lien. If such debt is due at the time of rendering the account, the " National Bank v. Winston, S Baxt. "■ 1 Civ. Stat. 1897, art. 2353. (Tenn.) 685. 469 pledgor's rights and liabilities. § 391 creditor so attaching or causing such property to be taken on execution, may, within ten days after such account is rendered, pay or tender the amount so rendered to the mortgagee, pledgee or holder of such lien, and retain and sell such property free and clear of such mortgage, pledge or lien. If such debt is not due at the time of rendering the account, but becomes due before the time fixed by the officer making such attachment or levy of execution for the sale of the property, such creditor, within ten days after the debt becomes due and before the sale, may pay or tender the amount thereof to such mort- gagee, pledgee or holder of such lien, and retain and sell such property as is provided in the preceding section. If such debt is not due at the time fixed by the officer for sale of the property, the creditor may offer to pay the debt to the mortgagee, pledgee or holder of the lien, and, if such pay- ment is accepted, the same proceedings may be had as is provided in the preceding section. If such creditor pays or tenders such, debt as is provided in the three preceding sections to the mortgagee, pledgee, or holder of such lien, he shall be subrogated to all the rights of such mort- gagee, pledgee or holder, and may cause the same to be sold in the same manner that unencumbered personal property may be sold on mesne or final process; and the proceeds of such sale shall be applied : first, in payment of the sum paid by such cred- itor to such mortgagee, pledgee or holder; second, to satisfy the execution. If the mortgagee, pledgee or holder of a lien duly renders such account, the attaching creditor may, whether or not the debt is due, cause the property to be sold subject to the mort- gage, pledge or lien, without first paying or tendering the amount due on the debt secured thereby. If a mortgagor, pledgor or conditional vendee of property sold on execution under the provisions of this chapter fails or refuses to discharge such lien after it becomes due and payable, and within ten days after written notice so to do is served upon him by the purchaser of the whole or part thereof, the person so purchasing may tender § ^gia. COLLATERAL SECURITIES. 470 and pay to the holder of such mortgage, pledge or lien, or said conditional vendor, the amount due such creditor upon the whole of said property, and upon such tender or payment shall be sub- rogated to all the rights of such original mortgagee, pledgee or conditional vendor, and may hold the same as security for the amount so paid in discharge of such original claim, together with the sum paid by him on the execution sale, with interest upon such sums, and shall have the same benefit of foreclosure, sale and disposition of such property that the original mortgagee, pledgee, or conditional vendor would have had under his claim.'" § 391a. West Virginia.'^ — Shares of stock are deemed per- sonal estate, and as such shall pass to the legal representative or transferee of the stockholder and be subject to legal process. § 392. Wisconsin.''^ — When goods and chattels shall be jdedged or mortgaged for the payment of money, or the perform- ance of any contract or agreement, the right and interest in such goods of the person making such pledge or mortgage may be sold on execution against him, and the purchaser shall acquire all his right and interest, and shall be entitled to the possession of such goods and chattels on complying with the terms and con- ditions of the pledge or mortgage; but the officer shall not take Such property out of the possession of the pledgee or mortgagee when the judgment debtor is not entitled to the possession there- of, unless the judgment creditor or purchaser shall have first com- plied with the terms ^nd conditions of such pledge or mortgage. § 392a. Wyoming.'^ — In all cases where the share or shares of the capital stock of any corporation shall have been pledged in good faith, or hypothecated as collateral security to any loan or debt, and the certificate thereof shall have been delivered upon ™Pub. Stat. 1906, §§ 1768-1775 and ''Comp. Stat. 1910, § 4754. The 1779. holder of notes held as collateral se- " West Virginia 1906, § 2249. curity surrendered them to a justice " 2 Stat. 1898, § 2988 ; Hass v. Pres- in response to garnishment proceed- cott, 38 Wis. 146 ; Selleck v. Phelps, ings against the owner when the prin- 11 Wis. 380. cipal note had not been paid and the 471 PLEDGOR S RIGHTS AND LIABILITIES. § 392a such pledge or debt, such share or shares shall not be liable to be taken on execution against the pledgor, except for the excess of value thereof over and above the suiri for which the same may have been pledged, and the certificate thereof delivered. collateral notes were afterwards paid and out of the proceeds from such notes the debt they secured was paid. After this the pledgor made a tender of the debt and demanded the return of the collateral notes but the court held that the pledgee was not liable for conversion because of his failure to return them. De Clark v. Bell, 10 Wyo. 1, 65 Pac. 852. CHAPTER XL THE PLEDGEE S RIGHTS AND LIABILITIES BEFORE DEFAULT. i393. All collateral security is held §409. in trust. , 410. 394. Pledgee has no right to injure pledged property. 395. Expense of caring for pledged 411. property. 396. Pledgee must account for 412. profits from use of pledged property. 413. 397. Pledgee must account for inter- est received. 414. 398. Dividends accruing on pledged stock belong to pledgee. 399. Pledgee of bonds entitled to 415. collect the interest. 400. Expenses in keeping pledged property. 416. 401. Pledged property in unfinished condition. 402. Pledgee has no right to manu- 417. facture goods from new ma- 418. terial. 403. Diligence in caring for pledged 419. property. 404. Taking care of pledged prop- erty. 420. 405. Pledgee not liable if pledged property is destroyed without fault on his part. 421. 406. Pledgee's duty to care for pledged property may be modified by contract. 407. Parties to a pledge may agree 422. to a different degree of lia- bility than that fixed by the law. 423. 408. Contract between pledgor and pledgee. 472 Liability in case of loss by theft. The holder of collateral secur- ity is bound to take only or- dinary care of it. What ordinary care of pledged securities consists of. Ordinary diligence a relative term. Burden of proof — Negligence not presumed. National bank taking collateral assumes the ordinary liabil- ity of a pledgee. Bank liable for conversion of collateral securities by its of- ficers. Pledgee continues liable for lack of care of pledged prop- erty after the debt is paid. (Measure of damages. Pledgee may assign his interest in a pledge. The pledge cannot be trans- ferred or assigned independ- ently of the debt secured. The pledge contract is not de- stroyed by the repledging of the property pledged. There is ordinarily no implica- tion in law that the pledgee shall keep the pledge in his own exclusive possession. Pledgor cannot maintain trover against one receiving pledged property from pledgee. Pledgee can ordinarily assign no greater right than he has. 473 pledgee's rights and liabilities. § 393 i424. The pledgee of negotiable pa- per before maturity can give good title to it. 425. Payee of negotiable note, hold- ing collateral notes may transfer such collateral notes to one indorsing the princi- pal note. 426. Release of a portion of the goods pledged. 427. Efftct of the death of the pledgee. 428. Criminal offense to sell or re- pledge collateral securities in some states. 429. Pledgee's right to replevin chattels wrongfully taken from him. § 430. Pledgee is entitled to the ex- clusive possession of the pledged property. 431. A bill in equity will not lie by pledgee against one intrusted with pledged property. 432. Measure of damages. 433. Action by pledgee for conver- sion against third party. 434. Injury or conversion by stran- ger. 435. Action for money had and re- ceived. 436. Replevin by pledgor against pledgee. § 393. All collateral security is held in trust. — All collateral security, of whatever it may consist, is held in trust, first to apply the proceeds of it toward the payment of the debt ; and secondly, upon the payment of the debt in full from other funds, to restore the property, or any proceeds thereof which may have been re- ceived, to the pledgor.^ Upon this subject the Code of Louisiana well expresses not only the civil law but the common law as well. It declares that until the debtor be divested of his property he remains the proprietor of the pledge, which is in the hands of the creditor only as a deposit to secure his privilege on it. The creditor is answerable for the loss or decay of the pledge which may happen through his fault. On his part the debtor is bound to pay to the creditor all the usual and necessary expenses which the latter has made for the preservation of the pledge. The 'Felton V. Brooks, 4 Cush. (Mass.) 203 ; and see Blackwood v. Brown, 34 Mich. 4; Union Trust Co. v. Rigdon, 93 111. 458; McCrea v. Yule, 68 N. J. L. 465, 53 Atl. 210. In the sale of the pledged property the pledgee is required to get the highest price he can. S chaaf v. Fries, 90 Mo. App. Ill; Jefterson v. Century &c. Bank, 143 Iowa 83, 120 N. W. 308. The pledgee of oil machinery cannot be required to pay rental for the pledged property when he has not used it or rented it to others. Louisiana-Texas Oil &c. Co. v. Atlanta &c. Gas Co., 124 La. 385, 50 So. 409. See also to same effect, Leggat v. Palmer, 39 Mont. 302, 102 Pac. 327. § 394 COLLATERAL SECURITIES. 474 fruits of the pledge are deemed to make a part of it, and there- fore they remain, like the pledge, in the hands of the creditor; but he cannot appropriate them to his own use; he is bound, on the contrary, to give an account of them to the debtor or to de- duct them from what may be due to him. If it is a credit which has been given in pledge, and if this credit brings interest, the creditor shall deduct this interest from that which may be due to him ; but if the debt for the security of which the claim has been given brings no interest itself, the de- duction shall be made on the principal of the debt. If the credit which has been given in pledge becomes due before it is redeemed by the person pawning it, the creditor, by virtue of the transfer which has been made to him, shall be justified in receiving the amount and in taking measures to recover it. When received, he must apply it to the payment of the debt due to himself, and restore the surplus, should there be any, to the person from whom he held it in pledge.^ § 394. Pledgee has no right to injure pledged property. — A pledgee has no right to use the pledged chattel, if his use of it will wear or injure it, so as to lessen its value.' Thus if clothes be pawned the pawnee cannot wear them, because they will be the worse for the wearing. And so if the thing held in pawn be peculiarly liable to loss, though with careful use its value might not be impaired, the use of it by the pledgee is prac- tically prohibited, because he can only use it at his peril.* Thus jewels held in pawn may be worn, if the pawnee takes care not to lose or injure them.° But the pawnee woiild be responsible °2 Rev. Civ. Code 1900, arts. 3166- not impair their real value. Scott v. 3170. Reid, 83 Minn. 203, 85 N. W. 1012. 'McArthur v. Howett, 72 111. 358 * Story on Bailm., § 330; Scott v. (case of a sewing machine) ; Thomp- Reid, 83 Minn. 203, 85 N. W. 1012. son v. Patrick, 4 Watts (Pa.) 414 "Jones on Bailm., 81. Judge Story (case of a harness). See Lawrence doubts whether there is any founda- V. Maxwell, S3 N. Y. 19. The Code tion for the doctrine that in case of a of the State of Georgia, 1911, § 3531, deposit of things which are not hurt provides that the pawnee may use the by use, the depositary may, at his goods pawned, provided the use does peril, use them. Bailm., § 330. 475 PLEDGEE S RIGHTS AND LIABILITIES. § 395 for a loss through theft or otherwise, which might happen in the wearing ; for a pawn is so far in the nature of a depositum, that it cannot be used but at the peril of the pawnee." A pledgee of diamond rings, whether he has the right to wear them or not, certainly has no right to change the setting.'' But the property may be of such a nature that a reasonable use of it by the pledgee may be not only justifiable, but necessary for the proper care of it; and in that case a use of it will be a duty on his part.' § 395. Expense of caring for pledged property. — If the pledge be of such a nature that it is an expense to the pledgee to keep it, says Chief Justice Holt, as if it be a horse or a cow, he may use the horse, or milk the cow, by way of recompense for the keeping." But although such use of the pledge is spoken of as a recompense for the keeping, the consistent course is to re- quire the pledgee to account to the pledgor for the use he has made of the pledge, and at the same time to allow the pledgee to charge the pledgor for the reasonable expense of keeping and maintaining the pledge.^" ° Coggs V. Bernard, 2 Ld. Raym. 909, 917. Chief Justice Holt said: "If the pawn be such as it will be the worse for using, the pawnee cannot use it, as clothes, &c. ; but if it be such, as will be never the worse, as if jewels for the purpose were pawned to a lady, she might use them. But then she must do it at her peril, for whereas, if she keeps them locked up in her cabinet, if her cabinet should be broke open, and the jewels taken from thence she would be excused ; if she wears them abroad, and is there robbed of them, she will be answer- able. And the reason is, because the pawn is in the nature of a deposit, and as such is not liable to be used." Judge Story criticizes this reasoning, saying that instead of showing that a pawnee may lawfully use the jewels, it shows that he has no right to do so. Bailm., § 330. 'Sheridan v. Presas, 18 Misc. (N. Y.) 180, 41 N. Y. S. 451. ° Jones on Bailm., 81 ; Story on Bailm., § 329. " Coggs V. Bernard, 2 Ld. Raym. 909, 917; Mores v. Coriham, Owen 123, Bac. Abr. Bailments (B), Salk. 522; Thompson v. Patrick, 4 Watts (Pa.) 414. ^° Such is the Roman and French law, according to Sir William Jones, who declares this rule to be more agreeable to principle and analogy than that laid dowrl by Lord Holt. Bailments, 82. In Hawkins v. Hub- bard, 2 S. Dak. 631, 51 N. W. 774, the statutes of South Dakota were re- garded as prohibiting the use of pledged property, either as compensa- tion for its keeping or otherwise. In Forrester v. Spencer, 3 U. C. Q. B. (O. S.) 47, it appeared that A., having been arrested at the suit of a third § 396 COLLATERAL SECURITIES. 476 In Georgia it is provided by the code that the pawnor must pay all necessary expenses and repairs upon the property, but if the pawn itself has been profitable, or if the pawnee has used it to his own advantage, the pawnor may require him to account for such profits.^^ § 396. Pledgee must account for profits from use of pledged property. — The pledgee is accountable for whatever profit may accrue to him from the use or possession of the pledge. Thus he is accountable for the value of the labor of a slave held in pledge. ^^ A pledgee is entitled to hold the natural increase of the thing pledged.^" Thus if he has taken in pledge domestic animals, he will hold in pledge the young of such animals afterward bom. He is accountable also for any moneys he may receive or collect by virtue of his holding the pledge. Thus, if a policy of insur- ance upon mortgaged property be assigned to the mortgagee as further security for the mortgage debt, upon the payment of person, placed a mare in B.'s hands would be at an end by paying the on an agreement that B. should go debt, but there could be no reason surety, and if the party arresting why the pawnee should not continue proved a demand against A. by his to use the horse if he continued to own oath or by that of others, B. was keep him for no other reason than to pay it and keep the mare until re- that the pawnor did not come and de- paid. B. did pay 10 pounds, but with- mand him." To same effect, see Leg- out showing he did so in consequence gat v. Palmer, 39 Mont. 302, 102 Pac. of oath of any one; and the mare re- 327. maining with him, he used her once " 1 Code 1911, § 3S36. Where the in the plow. A. thereupon, without pledgee has not used pledged property demand, brought trover, alleging this for his own benefit or received any use of the mare was a conversion, and income from it he cannot be charged obtained a verdict. The court granted with its rental value. Louisana-Texas a new trial. Per Robinson, C. J. : "It Oil &c. Co. v. Atlanta &c Gas Co., seems to be clearly settled that the 124 La. 385, SO So. 409. pawnee may use moderately a horse " Geron v. Geron, IS Ala. SS8, SO pawned to him in recompense for his Am. Dec. 143; Houton v. HoUiday, 2 meat. If a pawnor of a horse were Murph. (N. Car.) Ill, S Am. Dec. to remit money to the pawnee and S22; Woodard v. Fitzpatrick, 9 Dana pay his debt, but neglect to call for '(Ky.) 117, 120. his horse, leaving him to the pawnee " Georgia Code 1895, § 2965. to keep, it may be that the bailment 477 pledgee's rights and liabilities. § 397 that debt, the policy reverts to the original owner; and if the assignee of the policy afterward collects a return premium there- on, the pledgor may recover the amount from him." § 397. Pledgee must account for interest received. — If money be pledged, and the pledgee loan it, he is accountable for the interest received therefor. Although the pledgee has given his receipt in writing for the money received in pledge, if this contains no provision in regard to interest, parol evidence is ad- missible to show the facts that create such liability. Such evi- dence does not vary the written contract, for the receipt of the interest is subsequent to the contract, and the pledgee's obligation to pay it does not rest upon the contract or upon any agreement contemporaneous with it. He is liable for the interest because it is an incident of the pledge, and as a matter of law he is bound to restore to the pledgor the increment of the pledge as much as the pledge itself. "* § 398. Dividends accruing on pledged stock belong to pledgee. — Dividends accruing upon pledged stock belong to the pledgee." A pledgee is entitled to collect a cash dividend upon stock, and to hold it as he holds the stock itself." If he omits to obtain a transfer upon the books of the corporation, the corporation is of course justified in paying the dividends to the pledgor; but he is a trustee of the pledgee therefor, and must account to him.^' "The dividends follow the legal title in such "Felton V. Brooks, 4 Cush. (Mass.) Hunsaker v. Sturgis, 29 Cal. 142; Mc- 203; Merrifield v. Baker, 9 Allen Crea v. Yule, 68 N. J. L. 465, S3 Atl. (Mass.) 29. The pledgee must ac- 210. count to the pledgor for dividends " Hagar v. Union Nat. Bank. 63 collected, upon redemption of the Me. S09 ; McCrea v. Yule, 68 N. J. L. pledged collateral. McCrea v. Yule, 465, 53 Atl. 210. 68 N. J. L. 465, S3 Atl. 210. '= Fairbanks v. Merchants' Nat. "Gilson V. Martin, 49 Vt. 474; Leg- Bank, 30 III. App. 28, quoting text, gat V. Palmer, 39 Mont. 302, 102 Pac. 132 111. 120, 22 N. E. 524; Merchants' 327; McCrea v. Yule, 68 N. J. L. 465, Nat. Bank v. Richards, 6 Mo. App. 53 Atl. 210. 454; Gaty v. HoUiday, 8 Mo. App. '"Herrman v. Maxwell, IS J. & S. 118; Bell v. Lafferty, 1 Pennypacker (N. Y.) 347; Boyd v. Conshohocken (Pa.) 454; Herrman v. Maxwell, IS &c. Mills, 149 Pa. St. 363, 24 Atl. 287; J. & S. (N. Y.) 347. The court do § 398 COLLATERAL SECURITIES. 478 a case as between the parties, for, until the corporation is wound up, all there is of a share is a right to future profits or divi- dends." If the pledgor collects the dividends, he holds them in trust for the pledgee, and an action to recover them may be maintained by the pledgee.^' If a corporation unjustifiably re- fuse to make a transfer of stock upon its books of stock which the owner has pledged by delivery of the certificate with a power to transfer, the pledgee may recover of the corporation by suit any dividends accruing upon the stock while he held it in pledge.^" It is not only the right of the pledgee to collect the dividends in such case, but his duty to his pledgor to do so.^^ This rule applies to an issue of new stock in the nature of a stock dividend." A pledgee is of course accountable for any not rely upon Hill v. Newichawanick Co., 48 How. Pr. (N. Y.) 427, 8 Hun (N. Y.) 459, 71 N. Y. 593, because under the facts in that case the divi- dends passed to the pledgee, not by operation of law, but by the consent of the pledgor. " Guarantee Co. v. East Rome Town Co., 96 Ga. 511, 23 S. E. 503, 51 Am. St. 150; Central &c. Nat. Bank v. Wilder, 32 Neb. 454, 49 N. W. 369; Boyd V. Conshohocken &c. Mills, 149 Pa. St. 363, 24 Atl. 287 ; Meredith &c. Sav. Bank y. Marshall, 68 N: H. 417, 44 Atl. 526; Merchants' Nat. Bank v. Richards, 6 Mo. App. 454; Hill v. Newichawanick Co., 8 Hun (N. Y.) 459, 71 N. Y. 593; Herrman v. Max- well, 15 J. & S. (N. Y.) 347; Gaty v. Holliday, 8 Mo. App. 118, 120. Bake- well, J., said. "The action for money had and received cannot be main- tained where no legal ground what- ever can be shown for inferring a contract to pay over to the plaintiff the money received. But in the case at bar, these dividends, as we have seen, by contract between plaintiff and defendant, belonged to plaintiff as pledgee of the stock on which they were paid; and if received by defend- ant from the company, it must be re- garded that they were received by him to plaintiff's use. Lord Ellen - borough says broadly, in Hudson v. Richardson, 4 M. & S. 478, that 'an action for money had and received is maintainable wherever the money of one man has, without consideration, got into the pocket of another.' How- ever this may be, it is certain that in many such cases the law implies a promise to pay the money to the real owner." In support of same proposi- tion, see McCrea v. Yule, 68 N. J. L. 465, 53 Atl. 210. '"Merchants' Nat. Bank v. Rich- ards, 6 Mo. App. 454; Hunt v. Laco- nia &c. R. Co., 68 N. H. 561, 39 Atl. 437 ; Meredith &c. Sav. Bank v. Mar- shall, 68 N. H. 417, 44 Atl. 526; Bath &c. Inst. V. Sagadahoc Nat. Bank, 89 Me. 500, 36 Atl. 996; Boyd v. Con- shohocken &c. Mills, 149 Pa. St. 363, 24 Atl. 287; American Nat. Bank v. Nashville &c. El. Co. (Tenn.) 36 S. W. 960. ^'Gaty V. Holliday, 8 Mo. App. 118. "Fairbanks v. Merchants' Nat. 479 pledgee's rights and liabilities. § 399 profits he may make from a sale and purchase of stock while he holds it in pledge.^" If the pledgee fraudulently sells pledged stock to a bona fide purchaser, after a declaration of a dividend on the stock but be- fore the time it is made payable, the pledgor is entitled to the dividend.^* A dividend was declared on certain stock, which, with a cash payment made by the pledgor would have been sufficient, if paid, to cancel a note due the pledgee, who held the stock as collateral for the note. The dividend was not paid, however, to pledgee, as directed by pledgor, because of a dispute between the pledgor and the corporation as to a set-off claimed by the latter against plaintiff as to a part of the dividend. The note not being paid when due, the pledgor caused the stock to be sold, after due no- tice, at public auction, and bid in the same as the highest bidder. It was held that the pledgee was entitled to sell the stock. "It thus appears that the dividend was never paid to or collected by defendant. After it was declared, it was the property of the plaintiff, the same as was the stock. Defendant, as pledgee of the stock, had the right to it, and to collect it, if he could do so, but his failure to collect it did not cast upon him the duty of cred- iting it upon the note.^° The defendant certainly was not required to await the result of litigation between the plaintiff and the cor- poration as to the amount the plaintiff was entitled to upon the dividend. All the defendant was required to do was done."^" § 399. Pledgee of bonds entitled to collect the interest. — In like manner a pledgee of bonds with interest coupons attached is entitled to collect the interest as it becomes payable, and if the principal debt be not due he will hold the money on the same terms that he holds the bonds.-' If a corporation pledge its own negotiable bonds with interest coupons attached, and the Bank, 132 111. 120, 22 N. E. 524, 30 111. == Savings Bank v. Middlekauff, 113 App. 28. Cal. 463, 45 Pac. 840. '' Hunsaker v. Sturgis, 29 Cal. 142. =» McAuIay v. Moody, 128 Cal. 202, "Warner v. Watson, 4 Misc. (N. 60 Pac. 778, 780. Y.) 12, 23 N. Y. S. 922. "Androscoggin R. Co. v. Auburn Bank, 48 Me. 335. He should also § 400 COLLATERAL SECURITIES. 480 pledgee collects from the agents of the corporation the coupons that fall due, his act is not a conversion of the bonds.^' The pay- ment by the corporation is a voluntary one made with knowledge or with means of knowledge of the whole matter; and though the principal debt had not matured, the pledgee would be pre- sumed to have the right to collect the maturing coupons in the absence of any express agreement that he should not do so; for the interest is payable by the terms of the collateral bonds, and a part of the value of the collateral arises from this fact. A pledgee of any interest-bearing securities is entitled to col- lect and receive the interest as it becomes payable, and he will hold the sums collected on the same terms as he holds the securi- ties themselves." It is immaterial in this respect whether the collateral security be a promissory note, a corporate bond, or shares in a corporation. § 400. Expenses in keeping pledged property. — A pledgee is entitled to all reasonable expenses incurred in keeping and caring for the pledge.'" He is also entitled to be reimbursed for all payments made to protect the property from prior liens or en- cumbrances, and for all necessary payments made in any other way to preserve or protect the security. Thus, if a pledgee of a policy of insurance advances money for the payment of pre- miums during the continuance of the pledge, he is entitled to be credited the amount of such payments in his account with his debtor.'^ Assessments rightfully paid by a creditor upon stock collect dividends on stock. McCrea Y.) 195, 126 N. Y. S. 58; Hickson &c. V. Yule, 68 N. J. L. 465, S3 Atl. 210. Co. v. Pollock, 139 N. Car. 174, 51 S. '^ Androscoggin R. Co. v. Auburn E. 855. Bank, 48 Me. 335. ='Raley v. Ross, 59 Ga. 862. It is " Androscoggin R. Co. v. Auburn the duty of the pledgee to protect his Bank, 48 Me. 335. collateral and it is legitimate expense "Coggs V. Bernard, 2 Ld. Raym. to employ attorneys. Ballingall v. 909, 917; Starrett v. Barber, 20 Me. Hunsberger, 16 Pa. Super. Ct. 117; 457; Hills v. Smith, 28 N. H. 369; Ely-Walker Dry Goods Co. v. Col- Furness v. Union Nat. Bank, 147 111. bert, — Tex. Civ. App. — 124 S. W. 570, 35 N. E. 624; Jackson v. Ameri- 70S. But the law will not allow the can Cigar Box Co., 141 App. Div. (N. pledgee any unreasonable expense 481 pledgee's rights and liabilities. § 402 pledged to him as collateral security are charges in the nature of expenses, and must be refunded by the debtor, as a condition precedent to reclaiming the pledge.**^ § 401. Pledged property in unfinished condition. — Where the property . pledged comes into the creditor's possession in an unfinished state, such that a court of chancery would order it fin- ished by a receiver, and the creditor does in that respect what the court would have ordered a receiver to do, while the creditor is properly chargeable with the avails of the finished goods, although finished with his property and by his means, he is nevertheless entitled to have such avails applied in the first place to the pay- ment of his disbursements upon the property, before any appli- cation is made upon the debt; and any equity acquired by an attachment of such unfinished property by another creditor of the pledgor as the property of the latter, is subordinate to such equity of the pledgee.^' § 402. Pledgee has no right to manufacture goods from new material. — A pledgee has no right to manufacture fin- ished goods from new material pledged to him, and charge the pledgor with the cost of manufacture, except by virtue of an express contract. Thus, one who has made advances to a lum- berman, and taken as security a lien, by written contract, upon lumber to be forwarded by the lumberman "until the same is finally marketed and payment received therefor," is not author- ized to manufacture the lumber at the risk of the debtor, and to account only for the net proceeds, provided the proceeds do not amount to the market value of the lumber at the time the creditor received possession of it under the contract.^* § 403. Diligence in caring for pledged property. — A pledgee is bound to use ordinary diligence in the care and custody of the thing pledged.'^ What diligence is required in any particular bills in protecting the pledge. Iowa the pledgee being required to pay as- Nat. Bank v. Coper (Iowa), 101 N. sessments on such stock. Mabb v. W. 459. Stewart, 147 Cal. 413, 81 Pac. 1073. "^ McCalla v. Clark, 55 Ga. 53. ^ Rowan v. State Bank, 45 Vt. 160. Pledgee of stock is entitled to be re- " Boody v. Goddard, 57 Me. 602. imbursed by pledgor on account of ^^ Coggs v. Bernard, 2 Ld. Raym. 31 — CoL. Sec. § 404 COLLATERAL SECURITIES. 482 case depends upon the character of the thing pledged, and the circumstances attending it. In general, it may be said that a pledgee is bound to exercise the degree of care which an ordi- narily prudent man usually bestows upon his own property of a like nature under like circumstances; and he is liable for any loss or injury resulting to the pledge from a failure to use such care. § 404. Taking care of pledged property. — That a pledgee takes the same care of the pledge that he does of his own prop- erty is not, however, the test of his liability for its loss or destruc- tion. It is true that Sir Edward Coke laid down this rule, say- ing : "If goods be delivered to one as a gage or pledge, and they be stolen, he shall be discharged, because he hath a property in them; and, therefore, he Ought to keep them no otherwise than his own.'""' Sir William Jones, referring to this statement, said : "I deny the first proposition, the reason, and the conclusion." Thereupon he proceeds to state the true rule of diligence re- quired from a pledgee f "Since the bailment is beneficial to the 909; McLemore v. Louisiana State 397, 75 Atl. SSI. Where a pledgee of Bank, 91 tJ. S. 27, 23 L. ed. 196; bank stock after consultation with Third Nat. Bank v. Boyd, 44 Md. 47, his lawyer and following his advice 22 Am. Rep. 35 ; Maury v. Coyle, 34 and what he in good faith believed to Md. 23S ; Girard Fire and Marine Ins. be right refused to defend a replevin Co. V. Marr, 46 Pa. St. S04; First action to take the stock from him, it Nat. Bank v. First Nat. Bank, 116 was held that he was not liable for Ala. 520, 22 So. 976; Georgia Code the loss of the stock even where the 1895, § 2963; State Nat. Bank v. Syn- action of replevin was barred by the dicate Co. of Eureka Springs, Ark., statute of limitations. Loomis v. 178 Fed. 3S9. It was however held Reimers, 116 Iowa 169, 93 N. W. 95. where a bank was the owner of the ■" Southcote's Case, 4 Rep. 83b. greater part of the stock of a corpor- '" Bailments, 75. "This is expressly ation and it took as collateral, stock holden by Bracton; and, when I rely of the same corporation and the value on his authority, I am perfectly aware of the stock was destroyed by change that he copied Justinian almost word in business made by the order of the for word." Bract., 99b. See, in this directors before the bank took the connection, the criticism of Judge collateral, that the bank's claim was Story, both upon the conclusion of enforcible even though it could have Sir Edward Coke and some of the prevented the change in business, statements of Sir William Jones, First Nat. Bank v. Ferguson, 224 Pa. Story on Bailm., §§ 334-337. 483 pledgee's rights and liabilities. § 405 pawnee by securing the payment of his debt, and to the pawnor by procuring him credit, the rule which natural reason prescribes, and which the wisdom of nations has confirmed, makes it requi- site for the person to whom a gage or pledge is bailed to take ordinary care of it; and he must consequently be responsible for ordinary neglect." If he takes less care of the pledged property than he does of his own he is answerable for its loss. Thus, if he puts his own goods into an iron chest or safe, and leaves prop- erty of the same kind, held in pledge, without this protection from theft, and it is stolen, he is responsible for the loss.'* Of course, if through the pledgee's negligence his own property, as well -as that held in pledge, be stolen, he is not absolved from responsibility for the latter. The fact that he has taken the same care of the pledged goods that he did of his own, while both are lost by theft, may furnish, prima facie, a presumption of ordinary diligence on his part.'' A pawnbroker holding jewelry in pawn kept it in a drawer, locked, underneath his counter. His shop was broken into by burglars, and this, together with other property, was stolen. In an action by the owner of the property against the pawnbroker, the only question of fact was whether the defendant exercised ordinary diligence in the care of the property, and this fact hav- ing been found in favor of the defendant, judgment was rendered for him." § 405. Pledgee not liable if pledged property is destroyed without fault on his part. — In the case of an ordinary pledge, the pledgee is not liable, if the property be destroyed without fault or neglect on his part. If the common-law contract of a pledge were reduced to writing, it would contain, among other things, a stipulatiori that the pledgee should not be responsible for the loss of the property, unless some want of reasonable and ordinary care on his part were the cause of the loss. ^'Vere v. Smith, 1 Vent. 121; Syred Petty v. Overall, 42 Ala. 145, 94 Am. V. Carruthers, El. B. & E. 469; Petty Dec. 634. V. Overall, 42 Ala. 145, 94 Am. Dec. " Abbett v. Frederick, 56 How. Pr. 634. (N. Y.) 68. " Story on Bailm., § 225. See also § 40S COLLATERAL SECURITIES. 484 The pledgee is in effect a trustee for the pledgor, to return the property, on payment of the debt secured, and if this be not paid, then to dispose of the thing pledged, and after paying the debt secured, to pay over the surplus to the debtor. While the prop- erty is in the possession of the pledgee he should treat it as trust property, and not deal with it so as to impair or destroy its value, or incur the loss of it.*^ If the pledge be lost while rightfully in the pledgee's hands through any unavoidable accident, the loss falls upon the pledgor. But the case is otherwise if such a loss happens after it has be- come the pledgee's duty to return the property, and he is holding it without right. "If the money for which the goods were pawned, be tendered to the pawnee before they are lost, then the pawnee shall be answerable for them; because the pawnee, by detaining them after the tender of the money, is a wrongdoer, and is a wrongful detainer of the goods, and the special property of the pawnee is determined. And a man that keeps goods by wrong, must be answerable for them at all events, for the detain- ing of them by him, is the reason of the loss."*^ If perishable goods be pledged the pledgee is bound to ordi- nary diligence in the care of them; but if the pledgor leave them in pledge until they perish naturally the loss will fall upon him, and the pledgee may maintain an action for his loan.** If one of several things pledged be lost without the pledgee's fault, the rest of the things remain liable for the whole debt.** The holder of collateral security upon the payment of the debt secured is not chargeable with the value of the collateral securi- ties not returned unless it is shown that through his negligence their value has been lost or impaired.*^ An indorsee of a negotiable note which recites a deposit of "■ Union Trust Co. v. Rigdon, 93 111. « Robinson v. Hawksf ord, 9 Q. B. 4S8. 52; Whicher v. Dexter, 61 N. H. 91; " Coggs V. Bernard, 2 Ld. Raytn. Kenniston v. Avery, 16 N. H. 117, 909, 917. 120; Haskell v. Africa, 68 N. H. 421, '" Thotnason v. Dill, 30 Ala. 444. 41 Atl. 73 ; Bank of United States v. "Ratcliff V. Davis, Yel. 178, 1 Bulst. Peabody, 20 Pa. St. 454. 29, Cro. Jac. 244. 485 pledgee's rights and liabilities. § 406 stock as collateral is not liable to, the pledgor for the value of the stock, the certificates of which were never in his possession.*' § 406. Pledgee's duty to care for pledged property may be modified by contract. — The pledgee's obligation to care for the pledge may be modified by the express contract of the parties ; and then his obligation in this regard is to be measured and ascertained by the particular intent of the parties, and not by the general rule applicable to a simple and unqualified pledge; and such intent is to be gathered not only from the express agree- ment, but from the circumstances of the case, including the con- duct of the parties during the continuance of the pledge. Thus, where advances were made to wheat dealers in Portland, Ore- gon, upon wheat stored by the pledgor in warehouses situated on the river front, and the receipt contained a clause that in case of a flood the property was to be at the risk of the owner; and the wheat was injured by a flood while the pledgor was as- suming the care of it, it was held that the pledgee was not re- sponsible for the loss. The pledgor was regarded as taking upon himself the risk of floods while the wheat was owned by him and stored in these warehouses.*' The pledgee's liability for due care of the subject of the pledge is modified by the express consent of the pledgor to the mode of care from which injury to the property resulted. Where a piano was pledged as security for a note, and the pledgor consented that it should be stored with friends, who might use it as compensa- tion for the storage, he cannot complain of negligence on the part of the pledgee in thus storing it, and permitting it to be used, though it may have been injured by negligent use on the part of those with whom it was stored, nor can he recover dam- ages for such negligent use by way of counterclaim in an action upon the note after sale of the piano by the pledgee.*^ " Haskell v. Africa, 68 N. H. 421, if he could be regarded as an unqual- 41 Atl. 73. ified pledgee, and as such bound to *' Bank of British Columbia v. Mar- use ordinary care and diligence to shall, 11 Fed. 19. There was also a prevent injury by a flood, finding in this case that the pledgee " Damon v. Waldteufel, 99 Cal. 234, was not guilty of any negligence, even 33 Pac. 903. § 407 COLLATERAL SECURITIES. 486 And so, if the pledgee contracts to keep the property in a particular place, as, for instance, in the safe and vault of a par- ticular bank, he is liable for a loss or injury resulting from his failure to do so, though he was compelled by the officers of the bank to remove the property. If he had no right to keep the property in the vault, that was his affair and not the pledgor's. The contract was not to keep it in the vault if the bank permitted it, but it was absolute ; and it was the pledgee's business to see that he had authority to keep it there.*" § 407. Parties to a pledge may agree to a different degree of liability than that fixed by the law. — It is competent for the parties to stipulate for a different degree of liability from that which would attach in the absence of an express contract. Thus if the pledgor places the goods he has pledged in a warehouse selected by himself, and stipulates that they are stored at his risk, and expense, the pledgee is relieved of his usual responsibility so long as the goods remain stored in the place designated. But in a case of this kind, where the keeper of the warehouse, on account of some injury to it, removed the goods without the knowledge of the pledgee to another place which was unfit for their storage, and damage resulted to the goods, the pledgee was held responsi- ble for it, on the ground that the keeper of the warehouse was the pledgees' agent, and that it was his duty to see that the goods were kept stored in the place agreed upon, or, if their removal became necessary, to have them stored in a secure and proper place.^" § 408. Contract between pledgor and pledgee. — Some- times a pledgee by contract makes himself liable for the property, though its loss or destruction be accidental and without fault or neglect on his part. Thus, if a creditor gives a receipt for a chat- tel held by him as collateral security, in which he promises, on payment of the debt, to deliver the property to the debtor, or its equivalent in money, he is liable for the value of the chattel, though it be destroyed by fire without his fault or negligence. " Butler V. Greene, 49 Neb. 280, 68 "" St. Losky v. Davidson, 6 Cal. 643. N. W. 496. 487 pledgee's rights and liabilities. § 409 His promise is that he will either return the property or pay its equivalent. "The fact that one part of this alternative promise has become impossible of fulfilment does not relieve them from the other."" He accepts the security upon terms which make him responsible for the return of the property in any event. Omitting to attach to his liability for the property any limitation whatever, he places himself in the position of an insurer of its safety, and upon its destruction without his fault is liable for its value. If there is a special agreement in respect to the care or cus- tody of the property, the rights of the parties are governed by the agreement, rather than any general rules.^^ § 409. Liability in case of loss by theft. — In case of a loss by theft from the pledgee, the rule of his liability is the same as in case of a loss in any other manner ; he is liable if he has failed to exercise ordinary care.^' It has already been noticed that Sir Edward Coke declared that if goods be stolen from one who holds them in pledge, he is discharged; and that Sir William Jones denies this proposition.^* The latter even asserts the con- trary, namely that one who has suffered the goods to be stolen from him cannot be considered as using ordinary care. But the better authority is to the effect that while theft does not relieve the pledgee from responsibility it does not of itself afford a pre- sumption of negligence on his part.^'* Upon payment or tender of payment by the pledgor, the failure of the pledgee to return the pledge throws upon him the burden of showing a good reason for not returning it, or else renders him liable for a conversion of it. To this extent the loss of the pledge by theft, like the loss of "Drake v. White, 117 Mass. 10. 58 Me. 275; Winthrop Bank v. Jack- °' Bank of British Columbia V. Mar- son, dl Me. 570, 24 Am. Rep. 56; shall, 11 Fed. 19. Fleming v. Northampton Nat. Bank, ''Maury v. Coyle, 34 Md. 235; 9 Fed. Cas. 264, 62 How. Pr. (N. Y.) Third Nat. Bank v. Boyd, 44 Md. 47, 177. 22 Am. Rep. 35 ; Second Nat. Bank v. " § 404. Ocean Nat. Bank, 11 Blatchf. (Ind.) "^ Story on Bailm., §§ 334-338; 2 362; Scott v. Crews, 2 S. Car. 522; Kent's Comm. 580; Schouler on Abbett V. Frederick, 56 How. Pr. (N. Bailm., 191. Y.) 68; Jenkins v. Nat. Village Bank, § 410 COLLATERAL SECURITIES. 488 it in any other way, makes the pledgee prima facie responsible for the loss. But in the c^se of theft, as well as in case of a loss in any other way, the pledgee when called upon to return the pledge may show in defense that the loss occurred while he was in the exercise of due and ordinary care. The exercise of ordinary diligence in the care and protection of the thing pledged is the requirement made of the pledgee by the common law.^" It is the same requirement in this respect that is made of a warehouseman. If the property pledged has been taken by burglars who have broken into the pledgee's place, of business, the question of the pledgee's liability is one of fact whether he exercised ordinary diligence in his care of the prop- erty." § 410. The holder of collateral security is bound to take only ordinary care of it. — If bonds payable to bearer be de- posited with a bank as collateral security for a loan, and the bank using reasonable care and oversight places the bonds in its safe or vault, with other bonds and valuable papers of its own, and the vault is broken open by burglars, who remove its contents, including the collateral bonds, the bank is not liable for the loss. This general rule of the law of pledges is not changed by the giving of a receipt for the bonds by the bank to the debtor, "to be returned to him on the payment of his note." Such a re- ceipt amounts to no more than would be implied by law. It does not make the bank insurers of the bonds, and bound to keep and return them, whatever may happen. The common law liability is not changed, and that requires only ordinary care of the secur- ities pledged.^' '^ Petty V. Overall, 42 Ala. 145, 94 is that the stolen property has not Am. Dec. 634. been recovered by the pledgee. Ware " Abbett V. Frederick, 56 How. Pr. v. Squyer, 81 Minn. 388, 84 N. W. 126, (N. Y.) 68; Arent v. Squire, 1 Daly 83 Am. St. 390n. (N. Y.) 34>. When a pledgee in de- '"Jenkins v. Nat. Village Bank, 58 f ense of an action by the pledgor for Me. 275 ; Winthrop Bank v. Jackson, the value of goods pledged, shows 67 Me. 570, 24 Am. Rep. 56; Mills v. that the property has been stolen from Gilbreth, 47 Me. 320, 74 Am. Dec 487; him without any fault on his part the Second Nat. Bank of Erie v. Smith, 8 presumption in the absence of proof Phila. (Pa.) 68, 3 Brewst. (Pa.) 9, 13. 489 pledgee's rights and liabilities. § 411 § 411. What ordinary care of pledged securities consists of. ■ — What the ordinary care required of a pledgee of such securities is, depends upon a great variety of circumstances, and is to be determined by a consideration of all the facts. The question is materially affected by the value of the securities, the liability to loss by fire or theft, and the precaution taken against these.°° It is not enough for the creditor to say that he took the same care of the securities held in pledge that he took of like securities of his own; nor that he lost at the same time, by the same fire or theft, similar securities of his own to a larger amount. There is, however, in the absence of all evidence upon the subject, a pre- sumption in his favor that he has used ordinary diligence as to his own goods; but when evidence to the contrary is introduced he must go farther, and show affirmatively that he used ordinary diligence and care in protecting the lost securities, both his own, and those pledged to him.°° Where a loan was secured by the delivery of a warehouse receipt for certain wet-salted calfskins, in an action by the pledgee to recover the loan the pledgor sought as a counterclaim Judge Sharswood, in this case, said: pawnee. It is like any other loss. If "It was at one time supposed, and it the theft is occasioned by any neg- had a very eminent jurist to sustain ligence, the bailee is responsible; if it (Sir William Jones) that private without any negligence on his part, theft (theft as distinguished from he is discharged from responsibility, public robbery, taking by violence or Ordinarily diligence is not disproved force) — private theft was presumptive even presumptively, by theft, but the evidence of ordinary neglect; that proper conclusion must be drawn by the pawnee, for instance, could not weighing all the circumstances of a come in and say : 'my pocket was particular case. And see Dearborn v. picked,' or 'this article was stolen out Union Nat. Bank of Brunswick, 61 of my house.' He must prove dis- Me. 369; Schwerin v. McKie, 51 N. tinctly and positively that he could Y. 180, 10 Am. Rep. 581. not help it, and that he had taken ™ Third Nat. Bank v. Boyd, 44 Md. every precaution. That doctrine, 47, 22 Am. Rep. 35. however, has been repudiated ; and it ™ Second Nat. Bank v. Smith, 8 may be stated now as the rule at pres- Phila. (Pa.) 68, 3 Brewst. (Pa.) 9; ent received and acted upon, that Dearborn v. Union Nat. Bank, 58 Me. theft per se, or the mere fact of theft, 273, 61 Me. 369. See this last' case as establishes neither responsibility nor to form of action, whether trover or irresponsibility in the bailee or assumpsit. § 412 COLLATERAL SECURITIES. 49O damages resulting from a deterioration of the calfskins while in the warehouse, alleged to have been caused by the pledgee's neglect to care for them. "It appeared that the plaintiff gave no personal attention to the skins while in the warehouse and ex- ercised no supervision over them; that the defendant had free access to them and frequently went to the warehouse and exam- ined them. The skins were all piled together and the injury was caused by the heating of those in the center of the pile; this did not appear upon the surface of the pile. When the defendant discovered that the skins were injured he called the plaintiff's attention to it and advised that they be resalted or tanned; the plaintiff declined to do either ; the defendant also proposed to take them to his own warehouse and treat them. The plaintiff did not consent, but suggested that the defendant pay the debt and take the skins. Held, that while the legal title to the property was vested in the plaintiffs and the warehousemen were their bailees, defendant had at least an equal interest in the preservation of the property, the bailment being for the mutual benefit of the parties, and no duty devolved upon the former to cause it to be handled over and inspected ; that the plaintiffs were not required to permit the defendant to take it to his own warehouse, and whether, un- der the circumstances, it was their duty to take some action for its preservation after being advised of its deterioration, for neg- lect to perform which he was liable, was properly submitted to the jury."" § 412. Ordinary diligence a relative term. — Ordinary dili- gence is a relative term, and as applied to the care of a pledge de- notes that care which men of common prudence generally take of like articles of their own, at the time and in the place where the question arises. This point was discussed in a case^^ where bank bills pledged to bankers were deposited by them in their safe, and were stolen by robbers who broke open the safe at night and car- ried away the bills. The pledgor when sued for the debt set up " Willets V. Hatch, 132 N. Y. 41, 30 " Scott v. Crews, 2 S. Car. S22, S3S. N. E. 251, 17 L. R. A. 193n. 491 pledgee's rights and liabilities. § 413 by way of counterclaim the value of the pledge not returned, and claimed that the pledgees could not be said to have exercised ordinary care, unless it should be found that they had availed themselves of all the means for securing the safety of the pledge when deposited in their safe. The court, in i-efusing to require this degree of diligence, said: "If the law requires the bailee of a pledge to provide himself with all the mechanical improve- ments of the age, to protect him from the consequences of a loss of the property by theft, then, instead of being bound to ordinary care, he would be held to extraordinary diligence, which is only required in a bailment for the sole benefit of the bailee. * * * Where one holds himself out to the community as a banker, the public is to assume that he has the means of protect- ing the property confided to his care by the nature of his business, and that he is furnished with all that is necessary to enable him to use ordinary diligence in the charge which he has invited. The appliances necessary to the diligence must have a relative reference to the community in which he lives. The safety of the article confided to him might possibly be better secured by watch- fulness and vigilance than by bars and bolts. It is a common practice in large cities for banking houses to employ a watchman, and yet it would scarcely be contended that these plaintiffs were guilty in such omission, if not a single bank in the place in which they lived thought it necessary to avail itself of such a security. * * * If ordinary negligence is to be inferred from the absence of the appliances which the mechanical skill of the age has in- vented, without regard to the place, there would be no discrimi- nation between a loss by a bailee through theft in an extensive city or a secluded village. * * * There is no doubt that ordinary diligence must be measured, at this day, by a different standard from that which would -have been applied twenty years ago, but looking to the period and the place the jury are to determine if it was properly exercised under the surrounding circumstances." § 413. Burden of proof — Negligence not presumed. — In regard to the burden of proof of negligence on the part of the § 414 COLLATERAL SECURITIES. 492 pledgee in the care of the property when suit is brought by the pledgor to charge him with the loss, it would seem that at the outset the pledgee would be presumed to have acted in accordance with his trust, until the contrary is shown. The law will not presume negligence. But when the pledgor has proved the con- tract of pledge and the delivery of the goods to the pledgee, the burden is upon the latter to show the loss of them and the man- ner of the loss; for with him rests a knowledge of the facts, and circumstances attending the loss. "If, when these facts and circumstances are thus disclosed, and the evidence bearing upon the question of negligence is all out, the scale is evenly balanced, the presumption that the bailee does his duty will leave the case with him."^* Thus where one has pledged to a bank a negotiable bond, and claims damages for the bank's failure to return secur- ity, after the latter, has proved the loss of it through larceny by persons not connected with the bank, the burden of proof to show negligence on its part lies with the pledgor.'* § 414. National bank taking collateral assumes the ordi- nary liability of a pledgee. — A national bank in taking col- lateral security for a loan assumes the ordinary liability of a pledgee for the care of the collaterals. The taking of stocks and bonds as collateral security is incident to conducting a general banking business, and is therefore a power incident to banks or- ganized under the National Banking Act. Such a bank having the power to take such collaterals is liable, as an ordinary bailee, for " Mills V. Gilbreth, 47 Me. 320, 326, Marschuetz v. Wright, SO Wis. 17S, 74 Am. Dec. 487; and see Clark v. 6 N. W. 511; Lamberton v. Windom, Spence, 10 Watts (Pa.) 335. Where 18 Minn. 506; Powell v. Henry, 27 the pledgor seeks to avoid payment Ala. 612; Taylor v. Cox, 32 W. Va. because of the failure of pledgee to 148, 9 S. E. 70. But see Semple &c. pursue collateral security he must Mfg. Co. v. Detwiler, 30 Kan. 386, 2 show that a suit thereon would have Pac. 511. availed. Fourth Nat. Bank v. Black- "'Winthrop Bank v. Jackson, 67 welder, 81 Mo. App. 428. The holder Me. 570, 572, 24 Am. Rep. 56. As to of collateral security is not bound to burden of proof where pledged prop- sue on it if he be certain that a suit erty is stolen, see Ware v. Squyer, 81 would be fruitless. Smith v. Felton, Minn. 388, 84 Nj W. 126, 83 Am. St. 85 Ind. 223. See also to same effect, 390n. 493 pledgee's rights and liabilities. § 415 failure to exercise proper and ordinary care to prevent their loss.''^ § 415. Bank liable for conversion of collateral securities by its officers. — A bank is liable for a fraudulent conversion by its officers of collateral securities pledged to it for loans, if the want of ordinary care and vigilance affords the opportunity for such conversion. The receiver of the Bankers' and Brokers' Association having brought an action to recover the amount of a loan made by the association, the defendant admitted the loan, but showed that he had deposited with the association, as col- lateral security, certain railroad bonds and bank stocks, and that he had tendered the amount of the loan and demanded a return of the collaterals before the commencement of the action. It appeared that the president of the association had taken these col- laterals, pledged them for his own debts, and subsequently ab- sconded. The charter of the association committed the manage- ment of it to thirteen trustees, who by the by-laws were required to hold monthly meetings. Its property and securities were in the charge of a manager, who was one of the trustees. For sev- eral months prior to his default the president of the association, who was a broker, and a large borrower of money, had been in the habit of sending to the office of the association, and, against the objection of the manager, taking away and using its securi- ties, and returning such of them as from time to time the man- ager sent for. The defendant's securities were taken in this way. The trustees did not hold meetings, as provided for by the by- laws, made no examinations of the securities, and took no sub- stantial oversight of the affairs of the association, and no meas- ures for the safe custody of its property. It was held that the association was liable for the securities, and that the defendant might set off their value in this action. Chief Justice Church,^' °° Third Nat. Bank v. Boyd, 44 Md. Thompson's Nat. Bank Cases, 169. 47, 22 Am. Rep. 35; Canfield v. State " Cutting v. Marlor, 6 Abb. (N. C.) Nat. Bank of Minneapolis, Fed. Cas. (N. Y.) 388, 17 Hun (N. Y.) 573; af- 2,382 ; Thompson's Nat. Bank Cases, firmed by Court of Appeals, 78 N. Y. 312; Shoemaker v. National Mechan- 454, 19 Am. Law Reg. (N. S ) 176 ics' Bank, 2 Abb. (U. S.) 416; § 4^5 COLLATERAL SECURITIES. 494 delivering the judgment of the Court of Appeals of New York in this case, after referring to several cases cited by the plaintiff, which were cases of special deposit, without contract or reward,"'^ said : "With the doctrine of these cases no fault can be found. If a loss occurs even through the larceny of agents or employes, the depositary is not liable unless gross negligence is shown. The distinction between those cases and this, is manifest. This was not a special deposit. The corporation occupied at least the position of bailee for hire, and was under obligation to exer- cise at least ordinary care. The finding that such care was not exercised was justified by the evidence. The president was a no- torious dealer and speculator in stocks. He had been engaged for many months in abstracting securities held by the bank for his private purposes^ and he had done this not secretly, but openly and publicly. The manager, who was also a trustee, knew that these acts were being done, and it is difficult to see why his knowledge and neglect are not imputable to the corporation it- self. If all the trustees or a majority had known of these trans- actions, and had not at once removed the president or prevented their recurrence, they would have been guilty of culpable dere- liction of duty. A corporation is represented by its trustees and managers; their acts are its acts, and their neglect its neglect. The employment of agents of good character does not discharge their whole duty. It is misconduct not to do this, but in addi- tion they are required to exercise such supervision and vigilance as a discreet person would exercise over his own affairs. The bank might not be liable for a single act of fraud or crime on the part of an officer or agent, while it would be for a continuous course of fraudulent practices, especially those so openly com- mitted and easily detected as these are shown to have been. Here were no supervision, no meetings, no examination, no inquiry. There was actual knowledge on the part of the managing trustee, and his silence and inaction without adopting any measures of "'These cases were: Foster v. Es- C. Cas. 317; Scott v. Nat. Bank of sex Bank, 17 Mass. 479, 9 Am. Dec. Chester Valley, 72 Pa. St. 471, 13 Am. 168n; Giblin v. McMullen, L. R. 2 P. Rep. 711. 495 pledgee's rights and liabilities. § 416 prevention amounted to acquiescence in the wrong, and it would not be a strained inference, from the business of the president and the publicity of the acts, and other circumstances, that the other trustees either had reason to suspect what was going on, or if not that they were grossly negligent of their duties. We concur with the learned trial judge, 'that a system of manage- ment of a banking house, in which such conduct of its officers was permitted, was a breach of duty, and grossly negligent to- ward its dealers, and persons having stocks and bonds in its keeping.' It is argued that the negligence shown was not the proximate cause of the loss, and that with the utmost vigilance it would have been possible for the president who had access to the vault, to have' abstracted the securities. This may be true, but the position is not tenable. The exercise of ordinary care would have discovered the wrongful practices, because they were not secret, and were actually known to the managing trustee, and if known, the trustees had the power, and it would have been their duty, to have effectually prevented it, and the presumption is that they would have done so. The negligence related to the cause of the loss, viz., the abstraction of collaterals for private use, which ordinary vigilance would have discovered and prevented.""* A banking company managed so negligently by its directors or trustees as to tempt and allow an officer of the company to con- vert to its own use bonds and stocks pledged to it by a customer for a loan, will be held liable to the customer therefor. Such a company is bound to conduct its bvisiness with ordinary circum- spection, and so that securities pledged to it shall be reasonably protected against misapplication by its servants and agents.^" § 416. Pledgee continues liable for lack of care of pledged property after the debt is paid. — A creditor once having be- come liable for collaterals received on deposit continues liable for them even after the debt has been paid, if the contract of °° See also similar cases : First Na- First Nat. Bank of Brattleboro, 47 tional Bank v. Ocean Nat. Bank, 60 Vt. 546; Thompson's Nat. Bank N. Y. 278, 19 Am. Rep. 181 ; Smith v. Cases, 90S, and note, 19 Am. Rep. 122. First Nat. Bank of Westfield, 99 " Cutting v. Marion, 6 Abb. (N. C."» Mass. 60S, 97 Am. Dec. 59; Wiley v. (N. Y.) 388, 57 How. Pr. (N. Y.) 56. § 41 6 COLLATERAL SECURITIES. 496 bailment remains unchanged. A customer of the Third National Bank of Baltimore- voluntarily deposited with the bank a large amount of bonds as security for his existing and future indebt- edness to it. The customer kept a large deposit account with the bank, but sometimes obtained discounts on the security of the collaterals; and sometimes, when he wanted money for a very short time, he obtained call loans by checks on the security of these collaterals. Sometimes he owed the bank nothing, but left the bonds with it on deposit. The bank considered the account a desirable one, and the arrangement by which every liability was secured by these collaterals a very advantageous one. This ar- rangement had continued several years, when the vault and safe of the bank were broken into by burglars and robbed of a large amount of money and securities. The burglars obtained entrance through the walls of an adjoining building, and through the walls of the vault and safe by the use of appropriate and ingenious tools. Among the valuables stolen were money belonging to the bank, securities belonging to the family of the president of it, and the bonds deposited as collateral security by the customer before spoken of. At the time of the robbery the customer was not indebted to the bank, having paid his last debt a few weeks previously. He had, however, left the bonds in the bank under the original agreement, as collateral security for any indebted- ness he might thereafter incur to the bank. In a suit by the cus- tomer to recover the value of the bonds, upon the question of fact whether there had been any want or omission of ordinary care and diligence on the part of the bank, from which the loss resulted, the jury found against the bank. The Court of Ap- peals of Maryland^" held, as matters- of law, that the original con- tract of bailment was valid and binding, and that the obligation of the bank for the safe custody of the collaterals did not cease when the plaintiff's debt had been paid ; that the jury were rightly instructed that the bank was responsible for the bonds, if they were stolen, in consequence of its failure to exercise such care " Third Nat. Bank v. Boyd, 44 Md. 47, 22 Am. Rep. 35. 497 pledgee's rights and liabilities. § 4^7 and diligence in their custody or keeping, as, at the time, banks of common prudence, in Hke situation and business, usually be- stowed in the custody and keeping of similar property, and that the care and diligence ought to have been such as was properly adapted to the preservation and protection of the property, and should have been proportioned to the consequence likely to arise from any improvidence on its part. § 417. Measure of damages. — In relation to the measure of damages there has been some difference of opinion, whether the value of the securities should be taken as of the time when they were lost, or as of the time when a demand is made for their return. Inasmuch as the value of collateral securities such as stocks and bonds is liable to large fluctuations, the time fixed for ascertaining it, may become of much importance, and has been the subject of considerable discussion. The rule of damages in actions of trover is generally applied by analogy to cases of the loss of the collateral securities through want of care on the part of the creditor; but the rule of damages in trover is by no means uniform in the different states. In Maryland the courts, following the rule of damages pre- vailing in that state in actions of trover, making the measure of damages the value of the property at the time of conversion, hold that the true measure of damages for the failure of a cred- itor to exercise due care in the custody of bonds deposited with him as collateral security is their market value at the time of their loss. The legal obligation of the creditor in such case is declared to be to keep the bonds safely, and to return them when the debt secured was paid.''- "Strictly," say the court, "this ob- ligation could not be discharged by the payment of their value in money; after the bonds had been lost, and it had become im- possible to return them, there was no necessity for a demand, and " Third Nat. Bank v. Boyd, 44 Md. or account for them at their face 47, 66, 22 Am. Rep. 35. The case of value, when there is no proof to show Maury v. Coyle, 34 Md. 235, is dis- them uncollectible. Union Bank v. tinguished. A pledgee when the debt Elliott, 14 Man. 187. is paid must return collaterals held 32 — Col. Sec. § 41 8 COLLATERAL SECURITIES. 498 when made, it could have no significance or effect in detennining the rights of the parties. These had become fixed when the breach occurred by the loss of the bonds, and in our judgment the proper measure of damages is their value computed at that time." According to other authorities, if securities be lost through the negligence of the creditor, the rule of damages is their value at the time their return is properly demanded.^^ § 418. Pledgee may assign his interest in a pledge. — ■The pledgee may assign his interest in the pledge and the assignee will stand in his place." The lien of a pledge cannot be sepa- " Second Nat. Bank v. Smith, 8 Coleman v. Anderson (Tex. Civ. Phila. (Pa.) 68, 3 Brewst. (Pa.) 9. In App.), 82 S. W. 10S7, affirmed 86 S. an action by the pledgor against a W. 730 ; Cumming v. McDade, 118 Ga. pledgee for conversion of bonds 612, 45 S. E. 479. Pledgee does not where the facts justify it there should lose possession of projierty by repledg- be judgment for the value of the ing it. Meyer v. Moss (La.), 34 So. bonds when converted less the amount 332. A pledgee's pledgee may hold of the debt at the date of conversion, chattels as against his pledgor. Inter- Lowe V. 0.'.mun, 3 Cal. App. 387, 86 urban Const. Co. v. Hayes, 191 Mo. Pac. 729. See also as to measure of 248, 89 S. W. 927; Whitney v. Peay,24 recovery from pledgee for conver- Ark. 22; Williams v. Ashe, 111 Cal. sion. Meyer Bros. Drug Co. v. Ma- 180, 43 Pac. 595; Brittan v. Oakland thews, 69 Ark. 483, 64 S. W. 264. Bank of Savings, 124 Cal. 282, 57 Pac. " Mores v. Conham, Owen 123 ; 84, 71 Am. St. 58 ; Dewey v. Bowman, Johnston v. Stear, IS C. B. (N. S.) 8 Cal. 145; Colton v. Oakland Bank of 330; Donald v. Suckling, L. R.'l Q. Savings, 137 Cal. 376, 70 Pac. 225; B. 585, 618; Ratcliff v. Davis, Yel. Bulkeley v. Welch, 31 Conn. 339; Cal- 178, 1 Bulst. 29, Cro. Jac. 244; De- kins v. Lockwood, 17 Conn, 154, 174, mainbray v. Metcalfe, 2 Vernon 690; 42 Am. Dec. 729; Shelton v. French, Mann v. Shiffner, 2 East 523; Mc- 33 Conn. 489; Stearns v. Bates, 46 Combie v. Davies, 7 East 6, 7; Halli- Conn. 306; Belden v. Perkins, 78 111. A^y t. TTf^ lo-ate. T- R. 3 Exch."^: 449; Hawkins v. Fourth Nat. Bank, Tdty V. Freedman'sSav.& Trust Co., ISO Ind. 117, 49 N. E.. 957; Rand v. 93 U. S. 321, 23 L. ed. 886; Warner v. Barrett, 66 Iowa 731, 24 N. W. 530; Martin, 11 How. (U. S.) 209, 13 L. Jenckes v. Rice, 119 Iowa 451, 93 N. ed. 667; Oregon & Transcontinental W. 384; Baltimore Ins. Co. v. Dal- Co. V. Kilmers, 20 Fed. 717; Philler v, rymple, 25 Md. 269; Jarvis v. Rogers, Yardley, 62 Fed. 645, 649, 10 C. C. A 15 Mass. 408; Whitaker v. Sumner, 562; Hunt v. Bessey, 96 Me. 429, 52 20 Pick. (Mass.) 399; Drake v. Cloo- Atl. 905. Consent of pledgor not re- nan, 99 Mich. 121, 123, 57 N. W. quired before pledgee can repledge. 1098; Boswell v. Thigpen, 75 Miss. 499 PLEDGEE S RIGHTS AND LIABILITIES. § 418 rated either from the possession of the pledge, or from the debt, so that to make an" effectual sale both must pass to the assignee." Therefore if the pledge alone be assigned, unless it be negotiable paper or a chose in action having the legal qualities of such paper, payment or tender may be made to the original pledgee who re- tains the debt, and then the assignee of the pledge is liable in trover for the pledge.''^ As the security, however, is a mere in- cident of the principal debt, just as a mortgage is a mere incident 308, 317, 22 So. 823; Waddle v. Owen, 43 Neb. 489, 61 N. W. 731; Gass v. Hampton, 16 Nev. 185; Qoss y. Emer- son, 23 N. H. 38j Bailey " v. Co'lby;' 34 5f%~^,~T3rT56 "ST Dec. 7S2n; Esty V. Graham, 46 N. H. 169; Mc- Neil V. Tenth Nat. Bank, 46 N. Y. 325, 7 Am. Rep. 341; Bush v. Lyon, 9 Cow. (N. Y.) 52, 56; Chapman v. Brooks, 31 N. Y. 75; Bennett v. Aus- tin, 81 N. Y. 308; Duncomb v. New York &c. R. Co., 84 N. Y. 190, 208. But see Strickland v. Magoun, 190 N. Y. 545, 83 N. E. 11.32; Thompson V. Patrick, 4 Watts (Pa.) 414; Ash- ton's Appeal, 73 Pa. .St. 153 ; National Bank v. Winston, 5 Baxt. (Tenn.) 685; Bullard v. Billings, 2 Vt. 309. "There is a great difference in this respect between a pledge and a lien. The authorities are clear that a right of lien, properly so called, is a mere personal right of detention, and that an unauthorized transfer of the thing does not transfer that personal right. The cases which established in Eng- land before the factors' act, that a pledge by a factor gave his pledgee no right to retain the goods even to the extent to which the factor was in advance, proceed on this ground." Note to Hubbell v. Drexel, 21 Am. Law Reg. (N. S.) 452, citing Dau- bigny v. Duval, 5 T. R. 604, 606, where BuUer, J., said that "a lien is a personal right and cannot be trans- ferred to another," and Leg v. Evans, 6 M. & W. 36, 42, where Parke, B., said : "A lien is a per- sonal right which cannot be parted with, and continues only so long as the possessor holds the goods;" and McCombie v. Davies, 7 East 6, where Lord Ellenborough remarked, that "nothing could be clearer than that liens were personal, and could not be transferred to third persons by any tortious pledge of the principal's goods." See § 331. "Whitney v. Peay, 24 Ark. 22; Johnson v. Smith, 11 Humph. (Tenn.) 396; Bullard v. Billings, 2 Vt. 309. See also Lewis v. Varnum, 12 Abb. Pr. (N. Y.) 305. "Ratcliff V. Davis, Yel. 178, and see Felt v. Heye,/23 How. Pr. (N. Y.) 359, 362; Sheridan v. Presas, 18 Misc. (N. Y.) 180, 41 N. Y. S. 451; Usher v. Van Vranken, 48 App. Div. (N. Y.) 413, 63 N. Y. S. 104. The payee of a negotiable note receiving other notes from the maker as col- lateral, may transfer the collateral notes to the assignee of the principal note and where such assignee is guilty of converting the collateral to his own use, the payee in the princi- pal note cannot be held liable in tro- ver for the conversion. Bank of For- syth V. Davis, 113 Ga. 341, 38 S. E. 836, 84 Am. St. 248. § 419 COLLATERAL SECURITIES. 500 of the debt secured/® an assignment of the debt passes either a legal or equitable interest in the pledge, unless it is otherwise agreed between the parties/^ § 419. The pledge cannot be transferred or assigned inde- pendently of the debt secured. — The pledge is not a distinct and independent right of property which is capable of being as- signed by itself aside from the debt. The pledgee cannot sepa- rate his special property in the pledge from the debt secured by it, so that the debt shall be owned by one person and the pledge by another; and therefore it is held that the assignee of the pledge cannot maintain an action to enforce the lien, unless he shows that he also owns the debt secured by the pledge.^* In some states it is provided by statute that pledges and col- lateral securities shall not be transferred separate from the debts secui-ed.^* ■"Jones on Mortgages, §§ 813-822; Southerin v. Mendum, 5 N. H. 420; Whittemore v. Gibbs, 24 N. H. 484. " Cole V. Bank of Montreal, 39 U. C. Q. B. 54, 74; Esty v. Graham, 46 N. H. 169 ; Stearns v. Bates, 46 Conn. 306, 312; Homer v. Savings Bank, 7 Conn. 478; Hawkins v. Fourth Nat. Bank, ISO Ind. 117, 49 N. E. 957; Waddle v. Owen, 43 Neb. 489, 61 N. W. 731. See to the contrary, how- ever, Johnson v. Smith, 11 Humph. (Tenn.) 396, where it was declared by the court that the analogy between a mortgage and a pledge does not hold in this matter. "The essential distinction is, that in the case of a mortgage, the right passes by the con- veyance, and possession of the prop- erty is not essential to create or sup- port the title. But, in the case of a pledge, the right is created and passes only by delivery or possession of the property pledged; and as the lien can- not exist in favor of the pawnee, without possession of the pledge, so neither can it pass to the assignee of the debt, without being accompanied by the pledge." But would not the original pledgee ordinarily be re- garded as holding possession of the pledge as the agent of his assignee? "Van Eman v. Stanchfield, 13 Minn. 75 ; Williams v. Ashe, 111 Cal. 180, 43 Pac. 595. When a note, evi- dencing a debt secured by collateral is indorsed and transferred it carries the collateral with it as provided by Civ. Code Cal.,§ 1084, and where the pledgee retains the collateral he holds it as trustee for the holder of the note. Ramboz v. Stansbury, (Cal.), 110 Pac. 472. Under the Code of 1896, § 947, of Alabama if the note secured by collateral is transferred without the transfer of the collateral the transferee must exhaust the col- lateral before collecting anything on the note of the pledgor. Folmar v. Lehman-Durr Co., 147 Ala. 472, 41 So. 750. "Alabama: 2 Code 1907, §§ 3302. 50I pledgek's rights and liabilities. § 420 But the severance of the security fi-om the debt and the as- signment of the security for the purpose of enabling the assignee to bring an action upon it for the benefit of the pledgee are not unlawful, as the substantial interest in such case remains in the pledgee.^" § 420. The pledge contract is not destroyed by the repledg- ing of the property pledged. — The original contract of pledge is not put an end to by repledging the thing pledged, and there- fore the original pledgor cannot recover it without having first paid or tendered the amount of his debt secured by the pledge. This subject was very fully and learnedly discussed in Donald v. Suckling before the court of queen's bench.^^ The earlier au- thorities were examined in detail by the several judges delivering separate opinions and a distinction recognized between a pledge and a lien, as regards the powers of a person entitled to the one or the other security, Mellor, J., saying : "I think that when the true distinction between the case of a deposit, by way of pledge, of goods, for securing the payment of money, and all cases of > lien, correctly so described, is considered, it will be seen that in the former there is no implication, in general, of a contract by the pledgee to retain the personal possession of the goods de- Such assignment operates as a dis- having been repledged, the pledgor charge of the pledge restoring the sought to recover them in detinue title to the pledgor. See Dexter v. with damages for their detention; McClellan, 116 Ala. 37, 50, 22 So. 461, but having made no tender of his where the assignment was not within debt secured by the debentures, it was the prohibition of the statute. The held that he could not recover by assignment is not utterly void, but Cockburn, C. J.', Blackburn and Mel- the owner is armed by the statute lor, JJ., Shee, J., dissenting. The with an election to affirm or disaffirm ruling of the majority of the court in the transfer, and by affirming it the this case was reaffirmed by the unani- title to the securities is fully vested mous judgment of the Exchequer in the assignee. Pollak v. Janney, Chamber i n Halliday v Kol p ratP^ T 100 Ala. 561, 13 So. 661; 1 Code 1911, R. 3 Ex. 299. Also, see, supporting ^ ^5^3. the text, Drake v. Cloonan, 99 Mich. ™Easton v. Hodges, 18 Fed. 677. 121, 57 N. W. 1098, 41 Am. St. 586; " L. R. 1 Q. B. 585, 610. The sub- Reardon v. Patterson, 19 Mont. 23l', ject of pledge in this case was deben- 234, 47 Pac. 956. tures of a joint-stock company. These § 420 COLLATERAL SECURITIES. 502 posited; and I think that, although he cannot confer upon any third person a better title or a greater interest than he possesses, yet, if nevertheless he does pledge the goods of a third person for a greater inteirest than he possesses, such an act does not annihilate the cqtitract of pledge between himself and the pawnor ; but that ihe transaction is simply inoperative as against the original pawnbr, who upon tender of the sum secured im- mediately becomes entitled to the possession of the goods, and can recover in an action for any special damage which he may have sustained by reason of the act of the pawnee in repledging the goods ; and I think that such is the true effect of Lord Holt's definition of a 'vadium or pawn' in Coggs v. Bernard f^ although he was of opinion that the pawnee could in no case use the pledge if it would thereby be damaged, and must use due diligence in the keeping of it, and says that the creditor is bound to restore the pledge upon payment of the debt, because, by detaining it after the tender of the money, he is a wrongdoer, his special property being determined; yet he nowhere says that the mis- use or abuse of the pledge before payment or tender annihilates the contract upon which the deposit took place. If the true dis- tinction between cases of lien and cases of deposit by way of pledge be kept in mind, it will, I think, suffice to determine this case in favor of the defendant, seeing that no tender of the sum secured by the original deposit is alleged to have been made by the plaintiff; and considering the nature of the things depos- ited, I think that the plaintiff can have sustained no real damage by the repledging of them, and that he cannot successfully claim the immediate right to the possession of the debentures in ques- tion." In the same case Chief Justice Cockburn to like effect said :" "The question here is, whether the transfer of the pledge is not only a breach of the contract on the part of the pawnee, but operates to put an end' to the contract altogether, so as to entitle the pawnor to have back the thing pledged without payment of the debt. I am of opinion that the transfer of the pledge does "2 Ld. Raym. 916, 917. *= L. R. 1 Q. B. 585, 617. 503 pledgee's rights and liabilities. § 421 not put an end to the contract, but amounts only to a breach of contract, upon which the owner may bring an action, — for nomi- nal damages if he h^s sustained no substantial damages ; for sub- stantial damages, if the thing pledged is damaged in the hands of the third party, or the owner is prejudiced by delay in not having the thing delivered to him on tendering the amount for which it was pledged. We are not dealing with a case of lien, which is merely the right to retain possession of the chattel, and which right is immediately lost on the possession being parted with, unless to a person who may be considered as the agent of the party having the lien for the purpose of its custody. In the contract of pledge, the pawnor invests the pawnee with much more than the mere right of possession. He invests him with a right to deal with the thing pledged as his own, if the debt be not paid and the thing redeemed at the appointed time. It seems to me that the contract continues in force, and with it the special property created by it, until the thing pledged is redeemed or sold at the time specified. The pawnor cannot treat the contract as at an end, until he has done that which alone enables him to di- vest the pawnee of the inchoate right of property in the thing pledged, which the contract has conferred on him." § 421. There is ordinarily no implication in law that the pledgee shall keep the pledge in his own exclusive posses- sion.** — The pledgor may stipulate that the pledgee shall not assign the pledge ; and the fact that the pledgor places a special value upon the article pledged, and has personal confidence in the pledgee, would be inducements for making such a stipulation so as to insure the safety and return of that particular article. It has been suggested that an obligation on the part of the pledgee to keep the pledge in his own personal care may in some cases be inferred from the nature of the thing pledged, as in the case of a valuable work of art, which the pawnor may be per- " Edwards on Bailm., § 267; 2nd Co., 93 U. S. 321, 23 L. ed. 886; Eop.- €d. Cooley on Torts, 453; Donald v! per v. Smith, 63 How. Pr. (N. Y.) Suckling, L. R. 1 Q. B. 585, 618; Tal- 34; Lewis v. Mott, 36-N. Y. 395.' ty V. Freedman's Saving & Trust § 422 COLLATERAL JCURITIES. 504 fectly willing to entrust to the custody of the pawnee, but would not have parted with on the terms that it should be passed on to others, and committed to the custody of 4wiigers.*^ But ordinarily all that the pledgor can require is that the prop- erty shall be returned to him in good condition upon the payment of the debt secured to the holder of the pledge, whether the holder be the pledgee or any one who has acquired his interests.*" § 422. Pledgor cannot maintain trover against one receiv- ing pledged property from pledgee. — A pledgor cannot, therefore, upon an assignment of the pledge by the pledgee with the debt secured, maintain an action of trover against him as for a conversion of the property, though/his assignee may have con- verted the pledge to his own use ;^nor can the pledgor maintain replevin or detinue for the thing pledged in the hands of the pledgee's assignee without paying or tendering the debt secured by the pledge.'* Such an action assumes an immediate right of " Donald v. Suckling, L. R. 1 Q. B. 585, 618. * The pledgee acquires no new title to pledged property by repledging the same and redeeming the property from his pledgee. Meyer v. Moss, 110 La. 132, 34 So. 332. "_Goss_v. Emerson, 23 N. H. 38; Bailey v. ColJoyrU'N." H. 29, 66 Am. Dec. 752n; Steiger v. Third Nat. Bank, 6 Fed. 569. Where a creditor receives bonds from a pledgor under a contract between them authorizing the creditor to repledge them and the creditor pledges the bonds for his own benefit, when the debtor has paid his debt he may recover the bonds from the second pledgee. Mattson v. Dent, 112 Iowa 551, 84 N. W. 710. See also Connecticut &c. Safe-De- posit Co. V. Fletcher, 61 Neb. 166, 85 N. W. 59, where it is held that by agreement collateral security may be transferred to a third party as trus- tee. =' Halliday v. Holgate, L. R. 3 Ex. 299 ; Jonnson v. btear, 15 U B. (N. S.) 330; Evans v. Potter, 2 Gall. 13; Lewis V. Mott, 36 N. Y. 395 ; Lane v. Bailey, 47 Barb. (N. Y.) 395. There are some cases not in accord with this general rule. Thus, in Neiler v. Kelley, 69 Pa. St. 403, and Work v. Bennett, 70 Pa. St. 484, trover was maintained for an illegal conversion of the thing pledged by selling or repledging it, though the defendant was allowed to recoup from the dam- ages for the conversion the amount due him secured by the pledge. These cases do not, however, seem to be consistent with the earliei;.case, in the same state, of Thompson v. Patrick, 4 Watts (Pa.) 414. Trover was also sustained in Merchants' National Bank v. Trenholm, 12 Heisk. (Tenn.) 520. In First Nat. Bank v. Boyce, 78 Ky. 42, 19 Am. Law Reg. (N. S.) 503, 39 Am. Rep. 198, the pledgor was allowed to maintain an action against 505 pledgee's rightWand liabilities. § 422 possession in the pledgor; but he has no such right without first paying off the debt. "But it is a contradiction in fact, and would be to call a thing trfpt which it is not, to say that the pledgee consents, by his act, to revest in the pledgor the immediate in- terest or right in the pledge, which by the bargain is out of the pledgor and in the pledgee."^" A pledgee may sell or assign the thing pledged, and the pledgor cannot recover the property of the purchaser without paying or tendering him the sum due thereon.'" The pledgee may also transfer his interest in the pledged property conditionally by way of a mortgage or pledge to another, and the transferee will hold the pledge in the same right as the original pledgee, until the debt of the original pledgor is paid.°^ If in any case the pledgor is entitled to an action against the pledgee making a sale or repledge, that is wholly inconsistent with the contract of pledge, his proper remedy is not an action of detinue or conversion, but an action upon the case for the in- juiy done to his legal right."^ "If the pledgee deals with the pledge in a manner other than is allowed by law for the payment of his debt, then in so far as by disposing of the reversipnary interest of the pledgor, he causes to the pledgor any difficulty in obtaining possession of the pledge on payment of the sum due, a sub-pledgee without first tendering L. ed. 886; Thotnpson v. Patrick, 4 or paying the original debt; but the Watts (Pa.) 414; Bradley v. Parks, sub-pledgee was allowed a right of 83 111. 169; Belden v. Perkins, 78 111. set-oiT against the original pledgor. 449; Steiger v. Third Nat. Bank, 6 '"Holliday v. Holgate, L. R. 3 Ex. Fed. 569; Van Schaick v. Ramsey, 90 299, 302. Any right the pledgor has Hun (N. Y.) S50, 35 N. Y. S. 1006, 70 to recover from his pledgees' pledgee N. Y. St. 666; Gruman v. Smith, 81 must be based on the assumption that N. Y. 25. the original pledgee converted the "M'Combie v. Davies, 7 East 6; pledge by repledging it and the title Ratcliff v. Davis, 1 Bulst. 29, Yel. of the first pledgor is reinvested in 178, Cro. Jac. 244; Jarvis v. Rogers, him by his payment of the debt to his 15 Mass. 389; National Bank v. Win- pledgee. Colton V. Oakland Bank of ston, S Baxt. (Tenn.) 685; Lewis t. Savings, 137 Cal. 376, 70 Pac. 225. Mott, 36 N. Y. 395. "See § 571a; Talty v. Freedman's "Donald v. Suckling, L. R. 1 Q. B. Savings & Trust Co., 93 U. S. 321, 23 585, 618. ' § 423 COLLATERAL SECURITIES. 506 and thereby does him any real damage, he commits a legal wrong against the pledgor."®' If a pledgee of a negotiable instrument sells or trades it to an- other for bank stock, the conversion takes place at the time of the absolute trade and wrongful disposition and notice thereof to the pledgor." A pledgee who exchanges the property pledged for other prop- erty exceeds his authority, and it is optional with the pledgor either to adopt or repudiate the exchange."^ § 423. Pledgee can ordinarily assign no greater right than he has. — But the pledgee can ordinarily assign no greater right than he himself possesses. This is always the case when the pledge is a chattel which has been pledged in the usual way by delivery without a formal conveyance of the legal title. The rule is otherwise, however, when the thing pledged is a chose in action like a certificate of stock which is pledged by a transfer of the legal title; the rule generally prevailing being that a pur- chaser from the pledgee, or his subpledgee, may acquire a better title to such property than the original pledgee had, so that the pledgor is precluded from redeeming upon paying the amount of his debt secured by the pledge. This is upon the ground that the pledgor has entrusted to his pledgee not merely the possession of the property, but also the complete title thereto, and that the pledgor is thereby estopped to say that such pledgee is not the owner, and has not the power to transfer a complete and uncon- ditional title to any one else.°° If the pledge be stock in a coi^poration, the pledgee's assignee can claim as against the corporation no greater interest in the stock than the owner had at the time of the assignment. Thus, if the stock is only partly paid -tip, and the corporation holds the owner's note for the residue payable on call, such pledgee can only claim, as against the owner, the proportion of the stock paid " Halliday v. Holgate, L. R. 3 Ex. "' Strong v. Adams, 30 Vt. 221, 12> 299. Am. Dec. 305. " Walley v. Deseret Nat. Bank, 14 °" Luckett v. Townsend, 3 Tex. 119, Utah 305, 47 Pac. 147. 49 Am. Dec. 723n. 507 pledgee's rights and liabilities. § 424 up at the time he received the certificate, though the owner may have afterward completed the payment."' § 424. The pledgee of negotiable paper before maturity can give good title to it. — A pledgee of negotiable paper can always, until its maturity, give a good title to it, discharged of the equities of the pledgor."^ If the pledge be nonnegotiable paper it is subject to the same defenses in the hands of the as- signee that it was in the hands of the' pledgee."" A reservation in a bond or note of the right to pay the same at any time before maturity, by taking from it the element' of certainty as to time of payment, which is one of the essentials of negotiability, makes the paper non-negotiable/ § 425. Payee of negotiable note, holding collateral notes may transfer such collateral notes to one indorsing the prin- cipal note. — A payee of a negotiable note holding other notes as collateral security, may lawfully transfer the collateral notes to an indorsee of the principal note,^ although he has given his debtor a written undertaking to redeem the collaterals ; and if the indorsee to whom the securities are transferred, wrongfully converts them to his own use, the original payee is not liable inU trover for such conversion.* The assignee of the principal debt and the collateral securities holds the latter upon the same terms that the original pledgee held them.* So long as nothing is done to deprive the pledgor of his right to redeem, on payment of the amount due on the principal debt, he is not injured, and cannot complain of the assignment. ° An accommodation indorser of a promissory note agreed with "'Cherry v. Frost, 7 Lea (Tenn.) 1. W. 731; Bank of Forsyth v. Davis, ™See § 94; Coit v. Humbert, 5 Cal. 113 Ga. 341, 38 S. E. 836, 84 Am. St. 260, 63 Am. Dec. 128. 248. "" Chouteau v. Allen, 70 Mo. 290. ' Goss_v,.&n grson^ 23 N. H. 38. 'Chouteau v. Allen, 70 Mo. 290; 'Ponce v. McElvy, 47 Cal. 154; Way V. Smith, 111 Mass. 523; Hub- Dupre v. Fall, 10 Cal. 430; Loud v. bard v. Mosely, 11 Gray (Mass.) 170, Burke, 22 Gratt. (Va.) 254; Fant v. 71 Am. Dec. 698n; Miller, 17 Gratt. Shaw v. Spencer, 100 Mass. 382, 1 "See §§ 169-171, 219, 220. Am. Rep. 115, 97 Am. Dec. 107; Lor- 36 — Col. Sec. § 474 COLLATERAL SECURITIES. 562 of stock issued in the name of "A B, trustee," be pledged by him to secure his own debt, the pledgee is, by the terms of the cer- tificate, put upon inquiry as to the character and limitations of the trust! The effect of the word "trustee" is the same as if it had been A B, trustee for C D.^° "Where one known to be a trustee is found pledging that which is known to be trust prop- erty, to secure a debt due from a firm of which he was a member, the act is one prima facie unauthorized and unlawful, and it is the duty of him who takes such security to ascertain whether the trustee has a right to give it. The appropriation of corporate stock held in trust, as collateral security for the trustee's own debt, or a debt which he owes jointly with others, is a transac- tion so far beyond the. ordinary scope of a trustee's authority and out of the common course of business, as to be in itself a suspicious circumstance, imposing upon the creditor the duty of inquiry. This would hardly be controverted in a case where the stock was held by 'A B, trustee for C D.' But the effect of the word 'trustee,' alone, is the same. It means trustee for some one whose name is not disclosed ; and there is no greater reason for assuming that a trustee is authorized to pledge for his own debt the property of an unnamed cestui que trust, than the prop- ing V. Salisbury Mills, 125 Mass. 138; 546; Ham v. Ham, 58 N. H. 70. See Smith V. Burgess, 133 Mass. 511 ; Lor- Ashton v. Atlantic Bank, 3 Allen ing V. Brodie, 134 Mass. 453; O'Her- (Mass.) 217, for a case decided on its ron V. Gray, 168 Mass. 573, 47 N. E. own peculiar facts, but still going too 429, 60 Am. St. 411, 40 L. R. A. 498; far, perhaps, in protecting the lender Duggan V. London &c. L. & A. Co., from liability arising from a presump- 19 Ontario 272, 278; Jaudon v. Na- tion of his knowledge that the pledge tional City Bank, 8 Blatchf. (U. S.) was made in violation of the trustee's 430 ; Duncan v. Jaudon, 15 Wall. (U. duty. In connection with this case, S.) 165, 21 L. ed. 142; Gaston v. see Loring v. Salisbury Mills, 125 American Exch. Nat. Bank, 29 N. J. Mass. 138, and Shaw v. Spencer, 100 Eq. 98; and see Sprague v. Cocheco Mass. 382, 391, 97 Am. Dec. 107, 1 Mfg. Co., 10 Blatchf. (U. S.) 173; Am. Rep. 1 IS. Swan V. Produce Bank, 24 Hun (N. "Shaw v. Spencer, 100 Mass. 382, 1 Y.) 277; First Nat. Bank v. National Am. Rep. 115; Sturtevant v. Jaques, Broadway Bank, 156 N. Y. 459, 51 N. 14 Allen (Mass.) 523; and see Fisher E. 398, 42 L. R. A. 139; Budd v. Mun- v. Brown, 104 Mass. 259, 6 Am. Rep. roe, 18 Hun (N. Y.) 316; Simons v. 235. S. W. Railway Bank, 2 Am. L. Reg. 563 RIGHTS AND LIABILITIES. § 474 erty of one whose name is known. In either case, it is highly improbable that the right to do so exists. The apparent differ- ence between the two springs from the erroneous assumption that the word 'trustee' alone has no meaning or legal effect."^'' This case, and the principles therein announced, are approved by the Chancellor of New Jersey. There it was held that the fact that a certificate of stock is indorsed to a person as "trustee" is suf- ficient notice of the existence of the trust, whatever that may be ; and that one who loans money to such person, on a pledge of such stock, has notice that the trustee is abusing his trust, and applying the money to his own purposes, when the loan is ap- parently for the private purposes of the borrower, and that fact would be revealed by inquiry.^' "In this case," said the chan- cellor, "one of two innocent parties must suffer, the bank (which made the loan) or the cestuis que trust, and it is but just that the loss should fall on the former, which might, by the exercise of reasonable care, have protected itself. In such cases reasonable care is a duty. The trustee proposed to borrow money on his individual account for his own use, and to secure the repayment of it by the pledge of stock, which on its face bore evidence that it was not his own, but the property of some one else, for whom he held it in a fiduciary capacity, and that he had no right to pledge it for his own debt. The bank, without a question even to him, so far as appears, as to his right so to pledge the stock, and without any inquiry whatever on the subject, lent him the money and accepted the security. One hundred shares of the stock still stood on the books of the company in the name of the trustee's immediate predecessor in the trust. As to all of the stock, the fact that it was held in trust was known to the bank. It was not misled by any statement or representation. It chose to assume that inquiry was unnecessary and to rely on the_ char- acter of the trustee as a guaranty for the lawfulness of the trans- action and the propriety of his conduct in dealing with the trust " Shaw V. Spencer, 100 Mass. 382, 1 '" Gaston v. American Exch. Nat. Am. Rep. 115. Bank, 29 N. J. Eq. 98. § 475 COLLATERAL SECURITIES. 564 property. The loss should, as before remarked, in equity fall on it rather than on the cestuis que trust" There was a similar case in Pennsylvania of a lender advanc- ing his money on certificates of stock, expressed on their face as held by the borrower in trust for some other party, and mak- ing no effort either to ascertain who that party was, or whether the funds proposed to be raised on the securities were bona fide intended to be applied for the purposes of the trust. "A loan made under such circumstances," say the court,^° "is at the peril of the lender. In Maples v. Medlin,^" on the soundest principles it was ruled, that to make a purchaser of the legal estate a trustee, for the cestui que trust it is not necessary that he should have notice of the particular cestui que trust. It is sufficient if he has notice that the person from whom he purchased is a trustee." § 475. Stock issued to estate of a deceased person. — A cer- tificate of stock issued to "the estate of" a deceased person is notice to a pledgee that the stock is affected by a trust. If, there- fore, in order to carry out the provision of a will giving the in- come of certain real estate to the testator's wife for life, by agree- ment of all the parties interested they sell the real estate, and the executors invest the proceeds in certain stock, taking the certifi- cate in the manner indicated, inasmuch as the executors really hold the shares in trust, and not in their capacity as executors, one of them cannot make an effectual pledge of the shares to " Walsh V. Stille, 2 Pars. Eq. (Pa.) raanded by what authority he pro- 17, 23. "In the first place it was man- posed making use of them, and for ifest, from the face of the certificates, what purpose, consistent with his that Stille did not hold the stocks in duty as trustee, he intended to use the his own right, but in a fiduciary char- money raised from them. Nor would acter for some other person. In the a cautious lender have been satisfied answer, Bridges (the lender) does not with the mere say-so of the trustee, say that he ever made any inquiry of He would and ought to have applied Stille on the subject, a circumstance to the corporations, in order, if prac- in itself suspicious. One would sup- ticable, to ascertain from that source pose that any prudent man, when such who was the true party interested ben- securities were offered to him by a eficially in them." party whose character was so dis- "' 1 Murphy (N. Car.) 219, 3 Am. tinctly expressed, would have de- Dec. 687. 565 RIGHTS AND LIABILITIES. § 47Sa secure a debt of his own, by indorsing the certificate in his own name as executor. ^^ One taking shares of stock from a trustee as security for his own debt is affected by any notice of the /fact that the shares are held in trust, whether such notice be contained in the certificate or the assignment of it, or be derived from information outside the papers in the transaction.^^ § 475a. Guardian's indorsement of his ward's certificate of stock in blank. — In like manner if a guardian indorse his ward's certificate of stock in blank, "A by B, Guardian," any one taking it in pledge is put upon inquiry as to the guardian's au- thority. A guardian deposited a certificate of stock owned by and stand- ing in the name of his ward in a bank for safe keeping, and sub- sequently borrowed money from the bank for his personal use, for which he gave his note and indorsed his ward's certificate as above and deposited it as collateral security for the payment of his note. The note was afterward paid by the guardian, but before its payment the cashier of the bank fraudulently pledged the certificate for his personal debt to one who took it without notice of the cashier's want of authority to pledge it, and sup- posing him to be in rightful possession thereof. The pledgee then took the certificate to the office of the company issuing it, and asked for a transfer of the stock and for a certificate thereof in his own name, and upon the refusal of the company to make the transfer without the authority of the probate court, the cashier, at the request of the pledgee, on a petition signed "B, guardian, by C," the cashier, of which neither the guardian nor ward had any knowledge, by publication or otherwise, procured such a decree, and the stock was transferred and a new certificate ^Ham V. Ham, 58 N. H. 70; and loan, even though the pledge was in- see Pannell v. Hurley, 2 Coll. 241. valid, the pledgee cannot be held Ha- ^ Blake v. Trader's Nat. Bank, 14S ble for conversion of said security Mass. 13, 12 N. E. 414. It is held without repayment of the loan. Free- where a loan is made in good faith man v. Bristol Sav. Bank, 76 Conn. for the benefit of an estate, and stock 212, 56 Atl. 527. is taken as collateral to secure such § 476 COLLATERAL SECURITIES. 566 thereof issued to the pledgee. It was held, that the ward was entitled to a decree against the pledgee for the transfer and de- livery of the certificate of stock, and the payment of all the divi- dends received thereon, by him, and since there was no privity between the bank and the pledgee, the fact that the bank was paying the expenses of the plaintiff's litigation is immaterial.^' § 476. One of two trustees cannot pledge trust property without the other's consent. — One of two trustees cannot, without the consent of his co-trustee, pledge the trust property; and a person taking such a pledge with notice of the trust acquires no title to the property.^* The fact that a certificate of stock is issued to "the estate of" a person deceased is notice of the trust to one who takes it in pledge from one of two executors.^^ § 477. Liability of corporation whose stock is transferred upon its books by trustee. — A corporation whose stock is transferred upon its books by a trustee or executor to secure a loan to himself may be liable /for permitting the transfer, when its officers have good reason to know that the trustee or executor is violating his trust.^' In a case in the Circuit Court of the United States for Maryland, holding a bank liable for permit- ting such a transfer. Chief Justice Taney said :^^ "Undoubtedly, the mere'act of permitting this stock to be transferred by one of the executors, furnishes no ground for complaint against the bank, although it turns out that the executor was, by the act of transfer, converting the property to his own use ; for an executor may sell or raise money on the property of the deceased, in the regular execution of his duty ; and the party dealing with him is '^ O'Herron v. Gray, 168 Mass. 573, ^' Lowry v. Commercial &c. Bank, 47 N. E. 429, 60 Am. St. 411, 40 L. R. Taney (U. S.) 310, 330. In this case A. 498. the transfer was not made until after " Ham V. Ham, SB N. H. 70 ; Cot- the lapse of eight years after the tes- tam V. Eastern Counties R. Co., 1 tator's death, at which time the bank Johns. & H. 243. was bound to presume that the testa- - '^ Ham V. Ham, 58 N. H. 70. tor's debts had been paid, and was " Magwood V. Railroad Bank, S S. bound to know that the executor had Car. 379 ; Loring v. Salisbury Mills, no implied authority to sell the testa- 125 Mass. 138. tor's stock. 567 RIGHTS AND LIABILITIES. § 47^ not bound to inquire into his object, nor liable for his misapplica- tion of the money. * * * And if these officers, at the time of the transfer, had reason to believe that the executor, by the act of transfer, was converting this stock to his own use, in vio- lation of his duty, then the bank, by permitting the transfer knowingly, enabled the executor to commit a breach of his trust, and upon principles of justice and equity, is as fully liable as if it had shared in the profits of the transaction. The object of the executor could not have been accomplished without the co-opera- tion of the bank in permitting the transfer to be made on its books." ' § 478. Pledgee of stock with notice that it is held in trust cannot hold it as against the owner. — One who takes in pledge shares of stock knowing that the pledgor holds them in trust and that he is using them to secure his own debt, cannot hold them as against the beneficial owner, though there is noth- ing upon the face of the certificate to indicate such trust.^' If a trustee without authority under the trust but at the re- quest of the sole beneficiary for life, and for his benefit, pledges stock certificates belonging to the trust estate, made out in the name of the trustee, the pledgee being bound to investigate the trustee's power to pledge, is not entitled, on default in the pay- ment of the loan, to the stock, but he may be entitled to the divi- dends accumulated and to be declared thereon during the life of the beneficiaiy who authorized the pledge and whose business was benefited thereby, if the beneficiary was not incapable of alienating his interest.^" The Court of Appeals of New York in the case cited said : "Knowledge of the trustee's violation of the trust conditions will be chargeable to the person dealing with him, if the facts were such as, in reason, to put him upon inquiry and to require him to make some investigation, as the result of which the true title and authority of the trustee might have been dis- "* Crocker v. Crocker, 31 N. Y. 507, Broadway Bank, 156 N. Y. 459, 51 N. •88 Am. Dec. 291 ; Loring v. Brodie, E. 398, 42 L. R. A. 139, 22 App. Div. 134 Mass. 453. (N. Y.) 24, 47 N. Y. S. 880. "" First Nat. Bank v. National § 478a COLLATERAL SECURITIES. 568 closed. He will, then, be regarded as having constructive notice of the terms of the trust, whence the trustee derives his power to act. Reference may be had to the following text-books and decisions, as showing the general rule under which those dealing with trustees are affected with notice of the terms of the trust."'* § 478a. Negotiable bonds taken in good faith without no- tice may be held as against the owner. — If a pledgee takes ne- gotiable bonds as collateral security in good faith and without notice that the pledgor held them in trust and had no right to pledge them, a purchaser or assignee of the bonds from such pledgee may take the bonds discharged of all equitable claims un- der the trust, although such purchaser or assignee had notice of the trust at the time he took them." But where one knowing the trust character of certain bonds, and that the trustee held them and had pledged them to certain banks in violation of the trust, agreed with the trustee to procure him money to pay the bank loans, and to receive from him the bonds as collateral, and thereupon gave the banks his own note in payment of the trustee's note, and repledged to them the bonds as collateral, it was held that the rule which protects the purchaser with knowledge, pro- yided he buys from a bona fide holder for value and without notice, had no application, as the last pledgor must be regarded as having received the bonds from the trustee rather than from the banks.'^ § 479. One taking stock as collateral is not bound to ex- amine corporate books where nothing appears on face of stock indicating that it belongs to another. — A person in good ™ Citing 1 Story Eq. Jur., § 400; 2 St. SIS; Duncan v. Jaudon, 15 Wall. Perry on Trusts, § 831; Acer v. West- (U. S.) 16S, 21 L. ed. 142; Shaw v. cott, 46 N. Y. 384, 7 Am. Rep. 3SS; Spencer, 100 Mass. 382, 1 Am. Rep. Wetmore v. Porter, 92 N. Y. 76; Ge- IIS; Suarez v. De Montigny, 1 App. rard v. McCormick, 130 N. Y. 261, 29 Div. (N. Y.) 494, 37 N. Y. S. 503. N. E. lis, 14 L. R. A. 234n; Kirsch v. =' 1 Perry on Trusts (4th ed.), § Tozier, 143 N. Y. 390, 38 N. E. 375, 222. 42 Am. St. 729; Anderson v. Blood, "Ketchum v. Packer, 6S Conn. 544, 152 N. Y. 285, 46 N. E. 493, 57 Am. 33 Atl. 499. 569 RIGHTS AND LIABILITIES. § 480 faith loaning money upon certificates of stock which do not in- dicate any trust, is not bound to examine the books of the cor- poration, or to look beyond the certificate assigned to him to ascertain the validity of former assignments ; and his title is not affected by the fact that the stock was originally held by the borrower as "trustee" for a third person, and that the borrower had by mesne conveyances fraudulently obtained a transfer to himself, making the pledge in question to secure his own debt.''' The corporation itself is liable in damages to the cestui que trust for negligently recording a transfer by the trustee, when it has knowledge that the present' holder is a trustee, and also has knowledge of the name of the cestui que trust.'* § 480. Rule in Maryland and California. — But contrary to the better and prevailing rule, it has been held in Maryland and California, that the addition of the word "trustee" in a certificate of stock does not show that the person to whom it is issued has not the full right to pledge it as his own, nor give the person dealing with him notice that any other person has any interest in the same.'° "All that is intended to be decided is, that the mere addition of the word 'trustee' after the name in the certifi- "" Salisbury Mills v. Townsend, 109 State Bank of Randolph, 80 N. Y. S. Mass. 115; Atkinson v. Atkinson, 8 901. Allen (Mass.) 15; Crocker v. Crocker, ^'Loring v. Salisbury Mills, 125 31 N. Y. 507, 88 Am. Dec. 291; Win- Mass. 138; and see Salisbury Mills v. ter V. Montgomery Gas-Light Co., 89 Townsend, 109 Mass. 115; Pratt v. Ala. 544, 7 So. 773; Bayard v. Farm- Taunton Copper Co., 123 Mass. 110, 25 ers' & Mechanics' Bank, S2i Pa. St. Am. Rep. 37; Pollock v. National 232; Lowry v. Commercial &c. Bank, Bank, 7 N. Y. 274, 278, 57 Am. Dec. Taney (U. S.) 310. It is also held 520; Telegraph Co. v. Davenport, 97 that when it is provided by a bank's U. S. 369, 24 L. ed. 1047 ; and see Wil- articles of association that the bank lis v. Philadelphia &c. R. Co., 6 Week- should have a lien on the stock of ly Notes Cas. 461. one who is its debtor but nothing ap- " Albert v. Savings Bank of Balti- pears on the stock certificate show- more, 1 Md. Ch. 407, affirmed 2 Md. ing such provision and the holder 159; Thompson v. Toland, 48 Cal. 99; pledges his stock, the pledgee, having Winter v. Belmont Mining Co., S3 no knowledge of such provision, is a Cal. 428. See, however, Brewster v. bona fide holder and his lien is supe- Hartley, 37 Cal. 15, 99 Am. Dec. 237. rior to that of the bank. Lyman v. § 481 COLLATERAL SECURITIES. 57O cate is not, in this state, of itself, nothing more appearing, to be deemed constructive notice of the equities of a secret owner of the stock. If it is intended that the so-called trustees shall not have power to sell or hypothecate the stock, without the express consent of .the equitable owner, it is an easy matter to limit his authority by apt words in the certificate. "^° Moreover, it is de- clared that if the word raises a presumption that some one else is the owner, it may be inferred that the latter, in clothing the trustee with. the legal title, invested hixn with authority to sell in the usual course of business. "Considerations of public policy and common justice demand that, when stock is placed in the name of a 'trustee' under these circumstances, the secret owner shall be bound by the acts of his 'trustee' dealing with persons who have no actual notice of the relations between the parties. "^^ § 481. Distinction between pledges by executors or ad- ministrators and pledges by other trustees. — There is a ma- terial distinction between pledges by executors or administrators and pledges by trustees ; for a sale and transfer of stock is ordi- narily in the line of duty for the former ; but trustees presump- tively hold trust property as an investment for their cestuis que trust.^' Therefore, while mere knowledge that an executor or administrator is dealing in a fiduciary capacity with assets of the estate is not enough to raise a suspicion or to put one dealing with '" Brewster v. Sime, 42 Cal. 139, 144. the latter for administration. The ^' Brewster v. Sime, 42 Cal. 139, 144. latter has a necessary incidental " Prall V. Tilt, 28 N. J. Eq. 479, 484; power of disposal which the former Gaston v. American Exch. Nat. Bank, does not. And as a consequence when 29 N. J. Eq. 98, 102; Bayard v. one purchases of the latter stocks or Farmers' &c. Bank, 52 Pa. St. 232 ; other securitiesi bearing on their face Leitch V. Wells, 48 N. Y. 585 ; Jaudon the revelation of a trust, he may do V. Nat. City Bank, 8 Blatchf. (U. S.) so safely in the absence of notice or 430 ; and see Nutting v. Thomason, 46 knowledge of any intended breach of Ga. 34 ; Stinson v. Thornton, 56 trust on the part of the executor ; but Ga. 377 ; Carter v. National Bank, if he purchase like trust property of 71 Me. 448, 453, 36 Am. Rep. 338. In an ordinary trustee, the law imposes this case the court says : "The law upon him the duty of inquiring into recognizes a distinction between an the right of the trustee to change the ordinary trustee and an executor. The securities." former has possession for custody and 571 RIGHTS AND LIABILITIES. § 482 him upon inquiry, such knowledge affects one dealing with a trustee with notice of the terms of the trust. One taking stock in pledge from a trustee deals with it at his peril, for there is no presumption that the trustee has a right to dispose of it, as there is in the case of an executor.^" It is negligence in one tak- ing stock in pledge for loans to a trustee to act without inquiry ; and certainly if the pledgee has reasonable ground for believing that the trustee intends to apply the money obtained upon such loans to his private uses, he will be regarded as co-operating in a breach of trust.*" The fact that a trustee has power to sell the trust property, and to change investments, gives him no authority to pledge it.*^ A direction in a trust instrument, for the reinvestment of the proceeds of sales of trust securities, implies that the settler did not intend that the securities should be pledged.*^ § 482, Title of executor is absolute. — For the purposes of administration \he title of an executor is absolute, and a purchaser or pledgee from him of personalty of the estate is. neither required to notice the provisions of the testator's will, nor made liable for the executor's misapplication of the pur- chase-money.** To require evidence of authority beyond the " Wood's Appeal, 92 Pa. St. 379, 37 Am. Rep. 694. "Jaudon v. National City Bank, 8 Blatchf, (U. S.) 430; Duncan v. Jau- don, IS Wall. (U. S.) 16S, -21 L. ed. 142; Lowry v. Commercial &c. Bank, Taney (U. S.) 310. "Loring v. Brodie, 134 Mass. 453; First Nat. Bank v. National Broadway Bank, 156 N. Y. 459, 471, 51 N. E. 398, 42 L. R. A. 139, 22 App. Div. (N. Y.) 24, 47 N. Y. S. 880; Albany Fire Ins. Co. V. Bay, 4 N. Y. 9, 19. *" First Nat. Bank v. National Broadway Bank, 156 N. Y. 459, 51 N. E. 398, 42 L. R. A. 139. "Russell V. Plaice, 18 Beav. 21; Cruikshank v. Duffin, L. ' R. 13 Eq. 555; Tyrrell v. Morris, 1 Dev. & B. Eq. (N. Car.) 559; Vane v. Rigden, L. R. 5 Ch. App. 663. In the latter case Lord Hatherly said : "As long ago as the case of Scott v. Tyler, 2 Dick. 712, 725, Lord Thurlow ex- pressed his opinion clearly to be that the executor is at liberty either to sell or pledge the assets of the testator. In fact he has complete and absolute control over the property, and it is for the safety of mankind that it should be so; and nothing which he does can be disputed, except on the ground of ffaud or collusion between him and the creditor." And Sir W. M. James in the same case said : "It seems to me to be settled on princir pie, as well as by authority, that an executor has full right to mortgage as § 482 COLLATERAL SECURITIES. 572 letters testamentary, might greatly delay and. embarrass the- ex- ecutor in the discharge of his duties.** The executor has an in- herent right to sell the personal assets of the estate, and the same right to pledge them; and the purchaser in the one case, or the creditor in the other has no concern with the purpose for which the executor makes the sale or pledge. The executor is liable to those interested in the estate for any misapplication of the assets ; but the purchaser or pledgee is not bound to know whether the money obtained is required for the payment of debts of the estate, or in fact to know anything about the estate beyond the executor's appointment.*^ The same rule applies to administrators. "The law casts the legal ownership of personal property of a deceased well as to sell, and it would be very inconvenient and very disastrous if the executor were obliged immedi- ately to convert into money by sale every part of the assets of the testa- tor. It is a very common practice for an executor to obtain an advance from a banker for the immediate wants of the estate by depositing securities. It would be a strange thing if that could not be. done." The American cases are to the same effect. Smith v. Ayer, 101 U. S. 320, 25 L. ed. 9SS; Drake v. Cloonan, 99 Mich. 121, 57 N. W. 109S, 41 Am. St. 586; Hemmy v. Hawkins, 102 Wis. 56, 78 N. W. 177, 72 Am. St. 863. "Bayard v. Farmers' & Mechanics' Bank, 52 Pa. St. 232 ; Wood's Appeal, 92 Pa. St. 379, -27 Am. Rep. 694; Goodwin v. American Nat. Bank, 48 Conn. 550, 13 Rep. 268; Carter v. Na- tional Bank of Lewiston, 71 Me. 448, 36 Am. Rep. 538. Mr. Justice Virgin in that case said : "As a necessary in- cident to the execution of the will and the administration of the estate, the power to dispose of the personal estate is given to the executor. And no gen- eral proposition of law is better es- tablished than that an executor has an absolute control over all the per- sonal effects of his testator. * * * While it is the duty of an executor to use reasonable diligence in convert- ing assets into money for the general purposes of the will, the law permits him to exercise a sound discretion as to the time, within a limited period, when he will sell. And high authority has declared that circumstances may exist in which it is certainly not wrong in him, although it may not be a posi- tive duty, to make advances for the benefit of the estate and reimburse himself therefrom. Munroe v. Holmes, 13 Allen (Mass.) 110. If he may ad- vance his own money for the general purposes of the will, and may sell the personal effects for the like object, it is difficult to see why, in the absence of any prohibitory provision in the will, he may not mortgage or pledge the assets for the same purpose, and the great weight of authority so holds." *=Leitch v. Wells, 48 N. Y. 585; Hutchins v. State Bank, 12 Met. (Mass.) 421 ; and see Petrie v. Clark, 11 S. & R. (Pa.) m, 14 Am. Dec. 636n ; Drake v. Cloonan, 99 Mich. 121, 57 N. W. 1098, 41 Am. St. 586. 573 RIGHTS AND LIABILITIES. § 483 intestate upon his administrators. They are sometimes said to be trustees, but they are such for administration. Their primary duty always is to dispose of the personal property, and therewith pay the debts of the intestate arid make a distribution among his next of kin. A sale and transfer of stock by them is therefore in the line of their duty. There is no cestui que trust having a right to interfere and prevent such a transfer. Hence letters of administration are always sufficient evidence of authority."" A foreign executor or administrator can generally make a valid transfer of shares of stock. For this purpose there is not the occasion that there is when an executor or administrator assigns a mortgage that his authority to act should appear by letters granted in the state where the land is situated.*^ By statute in Pennsylvania foreign executors and adminis- trators are invested with authority over shares of stock of in- corporated companies within that state standing in the names of decedents; and therefore, in the absence of any provision in the by-laws or articles of association of a national bank to the contrary, such a bank is bound to recognize a transfer of its stock by a foreign executor only appointed in another state.** § 483. One of several executors has power to pledge de- cedent's property. — One of several executors has the same power to dispose of his testator's personalty that all the execu- tors have jointly. One executor may pledge a note belonging to the estate of his testator, or may pledge stock belonging to it as collateral security for a debt of the estate;*" and the pledgee is not bound to inquire or to know in any particular case whether the executor is obtaining the money for that purpose or for his own benefit. "Co-executors are regarded in law as an indi- vidual person; and the acts of any one of them, in respect to the administration of the effects, are deemed to be the acts of "Bayard v. Farmers' &c. Bank, 52 "Hobbs v. Western Nat. Bank, 8 Pa. St. 232, 235. The above case led Weekly Notes Cas. 131. to the passage of Stat. 23, May, 1874, "Wheeler v. Wheeler, 9 Cow. (N. Purdon 1942. Y.) 34. "Jones on Mortgages, § 797. § 484 COLLATERAL SECURITIES. 574 all; as where one releases a debt or settles an account of a per- son with the deceased, or surrenders a term, or sells the goods and chattels of the estate, his act binds the others."^" One of four executors placed in the hands of his brokers certain cer- tificates of stock which belonged to the estate of his testator. These certificates were pledged as collateral security for the personal indebtedness of this individual executor, and .were ac- companied by a blank bill of sale and a power of attorney signed by him as acting executor. The brokers in turn pledged the stock to one who advanced money to them in the belief that the brokers were the real owners of the stock. Upon a bill in equity filed by the remaining executors to recover the stock, it was held that the same principle which prevails in the case of an absolute owner applies in the case of an executor who invests the holder of certificates of stocks with apparent ownership, and that there could be no recovery of the stock until the advances made thereon were paid.^^ § 484. Trustee of insolvent debtor. — A trustee of an in- solvent debtor, whose duty is like that of an executor or admin- istrator, to dispose of the property and distribute it, would prob- ably stand upon the same footing.^^ He does not hold the prop- erty for custody but for administration. § 485. Knowledge that an executor or administrator is misappropriating securities. — An exception, however, has been made in respect to cases in which an executor or administra- tor personally borrows money upon the security of a certificate of stock belonging to the estate in his charge, in such a way that the person dealing with him knew, or might have known, that such representative was using the securities of the estate for his own debts; and in such cases it has been held that a person having knowledge of the representative's fraudulent conversion ™ Wood's Appeal, 92 Pa. St. 379, il " Bayard v. Farmers' & Mechanics' Am. Rep. 694. Bank, 52 Pa. St. 232, 235. " Wood's Appeal, 92 Pa. St. 379, 37 Am. Rep. 694. 575 RIGHTS AND LIABILITIES. § 485 of stock belonging to the trust fund, can acquire from him no title to it.'' The distinction between a case where one dealing with an executor has knowledge that he is abusing his trust in using for himself or for another stock belonging to the estate, and a case where one dealing with an executor or administrator in rela- tion to such stock is led to believe that he is using it legitimately, is well illustrated by two cases in New Jersey arising out of the administration of the same estate. In the one case''^ the execuT trix, who was the widow of the testator, assigned certain stock belonging to the estate as collateral security for the debt of two of her sons, who with other children of hers were interested in the estate. The will gave a life estate in the property to the widow, with power of sale and reinvestment; and after her death the property was to go to all the children ; although in a certain con- tingency the executrix was authorized to advance a certain sum to each of the sons whose debts she secured. The certificates of stock so assigned Stood in the name of the testator, and the sons' creditor knew at the time of the tiransfer that the stock belonged to the estate. The sons were in business, and the stock was as- signed to give them credit for goods to be purchased. The cred- itor may very likely have thought that the executrix had a legal '" Smith V. Ayer, 101 U. S. 320, 326, 25 L. ed. 9SS; Wood v. Ellis (Court of Com. Pleas Pa.), 31 Leg. Int. 140; affirmed in the Supreme Court 'in Ellis's Appeal, 8 Weekly Notes Cas. (Pa.) 538; Williamson v. Morton, 2 Md. Ch. 94; Albert v. Savings Bank of Baltimore, 2 Md. 159; Ashton v. Atlantic Bank, 3 Allen (Mass.) 217; NichoUs V. Peak, 12 N. J. Eq. 69; Dey V. Dey, 26 N. J. Eq. 182; Abbott V. Reeves, 49 Pa. St. 494, 88 Am. Dec. 510; Pendleton v. Fay, 2 Paige (N. Y.) 202; Bell v. Farmers' Deposit Nat. Bank, 131 Pa. St. 318, 18 Atl. 1079; Gottberg v. United States Nat; Bank, 131 N. Y. 595, 30 N. E. 41; People v. American Loan & T. Co., 2 App. Div. (N. Y.) 193, 37 N. Y. S. 780. And see Hill v. Simpson, 7 Ves. 152, 168; Collinson v. Lister, 7 DeG. M. & G. 633; Dodson v. Simpson, 2 Rand. (Va.) 294; Christmas v. Mit- chell, 3 Ired. Eq. (N. Car.) 535; Williamson v. Branch Bank, 7 Ala. 906, 42 Am. Dec. 617; Haynes v. For- shavir, 11 Hare 93; Wilson v. Moore, 1 Mylne & K. 337; Colt v. Lasnier, 9 Cow. (N. Y.) 320; Miller v. William- son, 5 Md. 219; Carter v. Manufac- turers' Nat. Bank, 71 Me. 448, 36 Am'. Rep. 338. " Prall v. Hamil, 28 N. J. Eq. 66. \ \ § 4^6 COLLATERAL SECURITIES. 5/6 right to pledge the stock as security for the credit to be given the sons. But that was held not to be enough to protect him in the possession of the stock; for he knew that the executrix was not disposing of it in the course of administration, but was pledg- ing it as executrix, to secure credit for her sons in their private business; a purpose obviously and confessedly not connected with her trust as executrix, and it was his duty to inquire as to her authority so to deal with the stock. Having disregarded this duty he could not successfully claim protection on the ground of bona fides and ignorance. In the other case the same sons obtained credit with another person by pledging stock as collateral security. The creditor undoubtedly knew that the stock had belonged to the testator, and that at the time of the negotiation it still stood in his name on the books of the company, as appeared by the certificates, for these were delivered to him by the sons with a power of at- torney in blank for the transfers, dAily executed by the execu- trix. The circumstances distinguishing this case from the other are that the application for credit was made by one of the sons, who represented that the stock in question belonged to himself and his brother, and had been acquired by them on account of their interest in the estate. This statement was corroborated by the executrix in delivering to her sons the certificates and her blank power of attorney to transfer the stock. The creditor in this case dealt with the sons, who held the certificates and dealt with them as their own property, by virtue of a title valid upon its face, although derived from the executrix; while the creditor in the other case received and dealt with the stock as the property of the estate.^^ § 486. Knowledge that an executor is converting assets of the estate to his own use may be imputed to a pledgee. — Knowledge that an executor is perverting the personal assets of the estate in his hands to his own use is imputed to a pledgee, from knowledge that he is using a promissory note belonging " Prall V. Tilt, 28 N. J. Eq. 479, af- firming 27 N. J. Eq. 393. 577 RIGHTS AND LIABILITIES. § 487 to such estate as collateral security for money borrowed for the use of a commercial firm of which the executor was a member.°° The pledgee dealing with the executor is bound to look into his authority, and is held to a knowledge of all the limitations there- on imposed by law or by the will under which he acts. Such knowledge of the trust as should put the pledgee upon inquiry will charge him with actual knowledge of the trust. ^^ Stocks, promissory notes, or other personal assets taken by a pledgee with knowledge that the executor or administrator is acting in violation of his trust, and in disregard of its obliga- tions, may be followed and recovered of such pledgee.'** § 487. What constitutes notice to the pledgee that an ex- ecutor is procuring the money for his individual benefit. — The fact that an executor pledges a certificate of stock issued to him as executor, to secure his own note, is not conclusive notice to the pledgee that the executor is procuring the money for his own private use. On the contrary, if the pledgee makes a loan upon such note and security in good faith, and relying upon the executor's affirmation that the money is wanted for the settlement of the estate, the pledge is valid. ^^ Where, therefor, in an action against a bank to recover cer- tain railroad bonds registered originally in the names of the executors of an estate, which had been pledged by one of the executors as security for a loan, the only facts proved aside from the registering were that the note given for the loan was signed by the borrower individually, without adding the word "Smith V. Ayer, 101 U. S. 320, 25 ^"Carter v. Manufacturers' Nat. L. ed. 955; Thomasson v. Brown, 43 Bank, 71 Me. 448, 36 Am. Rep. 338. . Ind. 203 ; Prosser v. Leatherman, 4 "The note could not be collected How. (Miss.) 237, 34 Am. Dec. 121; against the estate for it was the per- Loring v. Brddie, 134 Mass. 453. sonal note of the executor. * * * He " Ellis's Appeal, 8 Weekly Notes could not create a debt in that manner Cas. 538; Webb v. Graniteville Mfg. against the estate. And if the money Co., 11 S. Car. 396, 32 Am. Rep. 479. was thereby procured for his own pri- " Smith V. Ayer, 101 U. S. 320, 25 vate use and the bank knew it at the L. ed. 955 ; Thomasson v. Brown, 43 time, the transfer of the stock would Ind. 203. be a devastavit and could not be up- 37— Col. Sec. § 488 COLLATERAL SECURITIES. 578 "executor," and that the check given for the loan was drawn to his individual order, it was held that the evidence failed to charge defendant with notice of an intent on the part of the co-executor to misappropriate the money loaned, and so that the action was not maintainable.'"' § 488. The same facts that are deemed a notice to an indi- vidual will be notice to a corporation. — The same facts that are notice to an individual are notice to a corporation that an ex- ecutor or administrator borrowing money of him is. committing a breach of trust. "If a banking company has what is called a branch bank managed or superintended by a local agent who in that character advances money of the banking company by way of loan, knowing at the time facts which render the loan an improper transaction, and would prevent the agent from sustain- ing it were the transaction his own — as in the instance of a trustee borrowing money in that character, who by the very act of so borrowing commits a breach of trust, having sought and ob- tained the money for the sole purpose of misapplying it, and the circumstances being all known at the time to the agent lending^ — I apprehend it to be clear that the banking company acquire no better title than the agent would have done had the case been his own, or than the trustee.""^ held. If the note had been given to the loaned in good faith by the bank and bank for a private debt due to the bank upon the statement made by Cook that from the executor, created before or the same was wanted in the settle- during his executorship, but inde- ment of the estate.' The presump- pendent thereof, it would come with- tion is that he was acting faithfully. in the principle of the numerous There is no evidence to the contrary cases before cited where the transac- and the presumption must stand." tion itself would speak and conclude The doctrine of this case is recog- the bank. But if given as a voucher nized in Pettingill v. Pettingill, 60 Me. for money obtained for a legitimate 412, 425. See Colonial Bank v. Cady,. purpose connected with a bona fide L. R. IS App. Cas. 267. administration of the will, then °° Gottberg v. United States Nat. though the executor alone was made Bank, 131 N. Y. 595, 30 N. E. 41, 42 liable for its payment, the transaction N. Y. St. 883, affirming 40 N. Y. St. would be legitimate and the estate 910. would have no reason for complaint. "' CoUinson v. Lister, 7 De G. M. & The case finds 'that the money was G. 634. 579 RIGHTS AND LIABILITIES. § 489 § 489. Pledgee not bound to see that an executor properly applies funds. — A pledgee is not bound to see -to the proper application of the proceeds of a loan obtained by an executor. Thus, an executor having power either to pay certain legacies or to hold a portion of the estate in trust, and to pay the income thereof to the legatees during their lives, represented to a bank that he desired to pay the legacies, and that it would be to the advantage of the estate to obtain a loan upon a pledge of cer- tain stock, so as not to be obliged to sell this until there should be a more favorable condition of the market. The loan was made upon his note as executor, secured by the stock, and the proceeds were placed to his private account in the bank. Shortly afterward he transferred a part of the proceeds to another ac- count kept by him in the bank as town treasurer. The note was renewed from time to time for four years, when the executor left the state a defaulter. It was held that no knowledge of actual fraud, either accomplished or intended, was to be imputed to the bank from these circumstances, and that there was no duty laid upon the bank to see to the application of the money. The declared purpose of the loan was one for which the bank could safely make the loan.*^ The money obtained upon the loan be- came so far his own that he was entitled to take possession of it, or place it to his own private account, to transfer it from one ac- count to another, or to draw it out, without imposing upon the bank any obligation to know or suspect that he was committing a fraud in his trust. Neither was any knowledge of fraud, accom- plished or intended, imputed to the bank from the fact that the executor transferred money from his own account to his account as treasurer, and drew checks upon the latter account payable to himself or bearer. The bank was "not required to assume the hazard of correctly reading in each check the purpose of the drawer." Nor was the continuance and renewal of the loan a circumstance from which the bank should be charged with knowl- " Goodwin V. Am. Nat. Bank, 48 Conn. SSO. § 490 COLLATERAL SECURITIES. 580 edge of the executor's fraudulent purpose. The reason for bor- rowing was algo a reason for continuing the loan. § 490. One taking collateral from persons occupying fidu- ciary relations, with notice that they are using trust property for private purposes are not bona fide purchasers. — The same rule is applied to dealings with persons occupying other fiduciary relations, which prima facie give them no power of disposal of the trust property, such as guardian, receiver, master in chancery or officer of a corporation. One dealing with persons occupying such positions of trust, with notice that they are using trust property for their private use, is not entitled to protection as a bona fide purchaser.''^ "It is an undoubted principle of equity," says the Supreme Court of Pennsylvania,"* "that the owner of property may follow and reclaim it wherever he can find and identify it, until arrested in the pursuit by the countervailing equity of a bona fide purchaser, for a valuable consideration paid. A purchaser with notice that the sale is a breach of trust, or a fraud upon the rights of the real owner, is particeps criminis with the fraudulent vendor, and his purchase cannot protect him against the owner, because such a purchase is not bona fide. Notice is either actual or constructive. Constructive notice is in its nature no more than evidence of notice, the presumption of which is so violent that the court will not even allow of its being controverted. * * * Whatever is sufficient to put a party upon inquiry, is in equity held to be good notice to bind him. Where a purchaser cannot make out a title but by a deed which leads him to another fact, he shall be presumed to have knowledge of that fact; * * * so he is supposed to have knowledge of the instrument under which the party with whom he contracts as executor, or trustee, or appointee, derives his power." "'Atkinson v. Atkinson, 8 Allen Wallace, 3 Rich. Eq. (S. Car.) Ill; (Mass.) IS; Jaudon v. National City Webb v. Graniteville Mfg. Co., 11 Bank, 8 Blatchf. (U. S.) 430; Field S. Car. 396, 32 Am. Rep. 479. V. Schieffelin, 7 Johns. Ch. (N. Y.) "Garrard v. Pittsburgh &c. R: Co., ISO, 11 Am. Dec. 441; Mulligan v. 29 Pa. St. 154. 581 RIGHTS AND LIABILITIES. § 49 1 § 491. Same principles applied to the case of pledge of mu- nicipal bonds by president of railroad company. — These prin- ciples have been applied to the case of a pledge of municipal bonds by the president of a railroad company, to which the bonds were issued and to which they belonged, as collateral security for the president's own debt; and it appearing upon the face of the bonds that they were issued to the railroad company; and that they were indorsed in blank by the president in behalf of the company, it was held that one taking the bonds as security for an existing individual debt of the president himself, was bound to inquire into his authority to make the transfer; and the inquirer would have found that the president had authority merely to negotiate the bonds for the benefit of the company. The court says that one purchasing the bonds from the president for a money consideration would have purchased in pursuance of the power, and would not have been affected by any subsequent mis- application of the funds by the president. But when a creditor of the president's took- the bonds as collateral security for his individual debt, the creditor became a party to the misapplication and the breach of trust. Even if the blank left for the name of the assignee had been filled up with that of the president himself, at the time his creditor took it, there would still have been suffi- cient to put him upon inquiry, because the president had no right to sell to himself as an individual. But the' blank in the assignment was sufficient to show any man of ordinary prudence that it was an unfinished -paper, placed in his hands as a convenient mode of executing the power to sell for the benefit of the company. When the chief officer of a corporation is found in possession of its securities, his possession is, as a general rule, presumed to be the possession of the corporation. The pledgee in this case was accordingly held to be affected with constructive notice of the rights of the corporation in the bonds so pledged."' § 492. Rule in Georgia as to sales by administrator. — In Geergia it is provided by the code that all sales by an adminis- "= Garrard v. Pittsburgh &c. R. Co., 29 Pa. St. 1S4. § 493 COLLATERAL SECURITIES. 582 trator shall be public. In violation of this, an administrator sold at private sale certain stock belonging to the estate of the intes- tate, and the purchasers resold the same to the defendants, who were bona fide purchasers. Whether the intermediate transfer of the stock was or was not registered upon the books of the com- pany does not clearly appear. "The question is," said the court, "if the administrator of the estate does collude with the pflr- chaser of the stock, and sells it to him at private sale, and such purchaser of the stock at private sale afterward sells it to a bona fide purchaser for value, without notice that it was purchased of the administrator at private sale in fraud of the rights of the parties interested therein, will such bona fide purchaser of the stock be protected in a court of equity? "This is an important question to the purchasers of stock in railroad companies. It was said on the argument of this case,- that the bona fide purchaser of this stock stood in no better condi- tion than the bona fide purchaser of stolen property; that inas- much as the thief had no title to the property stolen, those who purchased it from him, or derived title under or through him, acquired no better title than he had, and he having none, the bona fide purchaser would acquire none." But the court admit- ting that, as between the original parties, the transaction was undoubtedly invalid to divest the title of the legatees, held that the analogy had no application whatever as to subsequent pur- chasers, and that the latter were entitled to the protection of the court, when they have purchased in good faith for value, without notice of the fraud in the sale by the administrator."" § 493. Authority of agent to pledge stock cannot be in- ferred, when he is known to be an agent. — One taking a pledge of stock from another who is professedly acting as an agent cannot infer the agent's authority to pledge the stock as collateral from the fact that he holds a certificate with irrevo- cable power of attorney to transfer it, signed by the owner. Such °° Nutting V. Thomason, 46 Ga. 34. 377 ; Ross v. Southwestern R. Co., S3 See also Stinson v. Thornton, 56 Ga. Ga. 514. 583 RIGHTS AND LIABILITIES. § 493 a certificate and power of transfer confer upon the holder the ap- parent legal and equitable title "only when he appears to be the real owner of the stock." One dealing with a person whom he knows to be only an agent, or with a person who professes to be only an agent, is bound to inquire and to know what his authority is. Thus, a person holding a certificate of stock as collateral for a loan of $3,000, applied to a bank for a loan of $8,QOO upon this certificate, stating that he wanted it for a client. The bank agreed to make the loan if the applicant would procure a proper power of attorney to be attached to the certificate. The holder of the certificate by representing to the owner that he ought to have the instrument to secure his loan, procured from the owner a transfer and irrevocable power of attorney to make a transfer executed in blank. The pledgee filled up the blanks, save the name of the transferee and attorney, and delivered it with the cer- tificate to the bank, which thereupon made the loan. The pledgee had no authority from the owner to repledge the stock, and the latter never received any part of the money procured from the bank upon the stock. In an action by the bank to foreclose the pledge it was held that the owner was not estopped from asserting his title to the stock, and that the bank could assert a lien only for the amount for which the owner had pledged the stock ; that while the transfer and power of attorney would have given to the first pledgee an apparent ownership in case he had claimed title, or an apparent authority to sell 'as agent, it did not hold hini out as authorized to make a loan or to pledge the stock, or at most it only indicated that he could pledge the stock for an authorized loan. All the evidence the bank had of his a;uthority to obtain a loan upon the stock was his naked assertion ; and upon this asser- tion it relied at its own risk. The owner did not hold him out as authorized to borrow money for himself ; and hence the' owner' is not estopped from denying such authority."' "Merchants' Bank v. Livingston, second trial it was shown to be worth 74 N. Y; 22i Pending the appeal iii twelve per cent, more; but it was held this case the stoclc was sold by con- that as the owner had consented to sent of parties ; but at the time of the the sale the bank viras only chaigea- § 4943- COLLATERAL SECURITIES. 584 § 494. Broker buying stock on order from another broker. — A broker who buys stock on an order from another ^broker, knowing or having reason to know that the latter is acting only as an agent for an undisclosed principal, has no right in con- sequence of the omission to name the principal, to presume that he has authorized his broker to pledge the stock for his own debt. It is wholly -immaterial that the name of the real owner was not disclosed. The stock is held in trust for him as much as it would be had his name been given. "^ Of course, when there is nothing upon a certificate of stock, or upon the company's record of it, to indicate a trust on the part of the holder, one dealing with him in relation to the stock, without reason to know that it is held in trust, is not affected by a secret, undisclosed trust."* A memorandum of "Framingham and Lowell Railroad bonds as collateral," on a joint and several note, signed by one as prin- cipal and by others as sureties, is not notice to the payee that the bonds mentioned should accompany the note for the protection of the sureties. The payee is under no obligation in consequence of the memorandum to take care of the interests of the sureties by refusing to lend money on the note, and a different security from that named ; and does not lose any rights against them by taking notes of the railroad company, instead of its bonds, as collat- eral.'" § 494a. Broker buying stock for undisclosed principal must hold it for owner upon receiving notice. — A broker who buys stocks on the order of the banker who acts for an undisclosed cus- tomer must hold them for the customer upon receiving timely no- tice. Thus, if a customer orders his banker to buy certain shares of stock for him, and the banker, without disclosing the name of his customer, thereupon instructs a stockbroker, who is his corre- spondent and with whom he has an account, to buy the stock on ble with the amount for which the °° Martin v. Sedgwick, 9 Beav. 333 ; stock was sold. Merchants' Bank v. Dodds v. Hills, 2 Hem. & Mil. 424. Livingston, 17 Hun (N. Y.) 321. ""Fitchburg Sav. Bank v. Rice, 124 " Fisher v. Brown, 104 Mass. 259, 6 Mass. 72. Am. Dec. 235. 585 RIGHTS AND LIABILITIES. § 494b his account, and the broker buys the stock accordingly, and the banker, instead of forwarding the money, allows the amount paid for the stock to be charged against him, and the stock to remain with the broker as collateral security for any balance that may be owing on his general account, the banker becomes the owner, and the broker the pledgee in possession, of the stock, and if the banker then notifies his customer that the stock has been bought, as ordered, the banker's title to the stock thereby passes to the customer subject (where the customer has a balance to his credit with the banker sufficient to pay for the stock) only to the lien of the broker, and cannot thereafter pass by the banker's as- signment in insolvency to his assignee. In such a case, the bank- er's customer, on notifying the broker of his ownership of the stock, is entitled to have timely notice of any sale thereof, and to have other stocks or securities in the broker's hands belonging to the banker first sold and applied on the banker's indebtedness ; and if any balance from the sale of the customer's stock is turned over by the broker to the assignee in insolvency of the banker, the customer may recover the amount thereof from the broker. '^^ § 494b. Repledge of stock which carries notice to second pledgee that first has no authority to pledge. — Where a pledgee of a stock certificate has repledged it in such form that the second pledgee is charged with notice that the first pledgee had no authority to pledge it, the pledgor may pay or tender his debt to his pledgee, and need not make any tender or payment to the second pledgee with notice. The second pledgee taking the stock with notice that the pledgor would be entitled to a return of the stock upon the discharge of his obligation, must restore the stock to the pledgor upon tender or payment of the obliga- tion." In Talty v. Trust Co.," Swayne, J., said : "A tender to " Le Marchant v. Moore, 150 N. Y. 32 Am. St. 704n, 18 L. R. A. 120 ; Don- 209, 44 N. E. 770, affirming 79 Hun aid v. Suckling, L. R. 1 Q B. 585; (N. Y.) 352, 29 N. Y. S. 484. Johnson v. Stear, 15 C. B. (N. S.) "German Sav. Bank v. Renshaw, 330, and Talty v. Freedman's Sav. & 78 Md. 475, 28 Atl. 281 ; Griggs v. Trust Co., 93 U. S. 321, 23 L. ed. 886. Day, 21 App. Div. (N. Y.) 442, 47 N. "93 U. S. 321, 23 L. ed 886 Y. S. 609, 136 N. Y. 152, 32 N. E. 612, § 494C COLLATERAL SECURITIES. 586 the second pledgee of the amount due from the first pledgor to the first pledgee extinguishes ipso facto the title of the second pledgee ;" and, citing from Story on Bailments, the learned judge, in the same opinion, lays down this rule : "If the pawnee should undertake to pledge the property (not being negotiable securities) for a debt beyond his own, or to make a transfer thereof, as if he were the actual owner, it is clear that in such a case he would be guilty of a breach of trust, and his creditor would acquire no title beyond that held by the pawnee." In German Bank v. Renshaw," the court said : "When the amount due from-the first pledgor to the first pledgee is not discharged, the condi- tion upon which the former is entitled to the return of his property, has not been complied with. These cases decide that under such circumstances this condition may be met by a tender to the re-pledgee ; and the necessity for this follows from the fact that the right of the original pledgor to have back his property can only arise upon the discharge of the indebtedness on account of which the pledge was made." § 494c. Notice by advertisement of theft of negotiable bonds or stock indorsed in blank will not defeat title of pledgee. — Notice by advertisement of the theft of negotiable bonds or of stock indorsed in blank is not sufficient to defeat the title of a pledgee after the lapse of some years. Thus, where negotiable municipal bonds were stolen, and notice of loss was given by advertisement, they were eighteen years after- ward taken by a bank as a collateral for a loan. The borrower's account with the bank stood in his name as trustee, and the loan was so made to him ; and he had been previously convicted of crime, and served a sentence therefor. It was held, that such facts were insufficient to defeat the bank's title to the bonds, be- cause constituting notice of, or putting it on inquiry as to, the ownership of the bonds, where the borrower's account with the bank was opened as trustee, and with commissions earned by him in a sale of stocks through the bank's agency, the boods contain- " 78 Md. 47S, 28 Atl. 281. 587 RIGHTS AND LIABILITIES. § 495 ing nothing to show a trust relation, and no knowledge was shown of such conviction and sentence, which occurred five years before, and between which and the bond transactions such bor- rower had numerous dealings with the bank, presenting and dis- counting papers of a firm having large capital and credit, of which his brother was' a member, which was promptly cared for, and doing the usual business of a customer of the bank in the usual manner.'^ The question of notice to a pledgee of defects in the pledgor's title was passed upon by the Supreme Court of Canada which is of interest in this connection although the subject of the pledge was bonds transferable by delivery. The bonds in question, which belonged to the estate of a deceased person, had been used in a hearing and marked as exhibits in the case, but were after- ward lost and were advertised for in a newspaper. About ten years afterward a person who was the agent and administrator of the estate, and had the bonds in his possession as such, pledged them to a broker for advances on his own personal account. In a suit by parties beneficially interested in the estate against the broker, it was held that neither the advertisement, nor the marks upon the bonds, nor the broker's knowledge of the agent's insol- vency, were notice to the pledgee of defects in the pledgor's title.'" § 495. Relation of pledgor and pledgee is created where stocks are carried on margin. — The carrying of stock by a broker for a customer upon a margin creates the relation of pledgor and pledgee between the parties, unless there be some ex- press agreement between the parties which would constitute the transaction a mortgage." The stock purchased is the property of '^ Manhattan Sav. Inst. v. New York 59, overruled on other points in 46 N. Nat. Exch. Bank, 65 N. Y. S. 757. Y. 325, 7 Am. Rep. 341 ; Brass v. "Young V. MacNider, 25 Canada Worth, 40 Barb. (N. Y.) 648; Clarke Sup. Ct. 272. V. Meigs, 22 How. Pr. (N. Y.) 340; " Baker v. Drake, 66 N. Y. 518, 23 Morgan v. Jaudon, 40 How. Pr. (N. Am. Rep. 80; Stenton v. Jerome, 54 Y.) 366; Read v. Lambert, 10 Abb. N. Y. 480; Vaupellv. Woodward, 2 Pr. (N. S.) (N. Y.) 428; Gillett v. Sandf. Ch. (N, Y.) 143; McNeil v. Whiting, 120 N; Y. 402, 24 N. E. 790.; Tenth Nat. Bank, 55. Barb. (N. Y.) Colt v. Owens, 90 N. Y. 368; Thomp- § 495 COLLATERAL SECURITIES. 588 the customer, and is in efifect pledged to the broker as security for the payment of the advances made by him in the purchase of the stock. Therefore a sale of the stock by .the broker at the broker's board, without notice, upon the failure of the customer to keep the margin good, is a conversion of the stock; and evidence of a usage that stocks so held might be sold in this manner is inadmis- sible.'^ Thus, if a stock-broker undertakes to buy certain stock for a customer, the latter advancing ten per cent, of the market value, and agreeing to keep good such proportionate advance ac- cording to the fluctuations of the market, the result of the agree- ment, as stated by Chief Justice Hunt,'" is as follows : "The broker undertakes and agrees — "i. At once to buy for the customer the stocks indicated. "2. To advance all the money required for the purchase, be- yond the ten per cent, furnished by the customer. "3. To carry or hold such stocks for the benefit of the customer so long as the margin of ten per cent, is kept good, or until notice is given by either party that the transaction must be closed. An appreciation in the value of the stocks is the gain of the customer, and not of the broker. "4. At all times to have in his name or under his control, ready for delivery, the shares purchased, or an equal amount of other shares of the same stock. "5. To deliver such shares to the customer when required by son V. Toland, 48 Cal. 99; Worthing- 233. Bell v. Bank of California, 153 ton V. Torraey, 34 Md. 182; Hatch v. Cal. 234, 94 Pac. 889. The contract Douglas, 48 Conn. 116, 12 Rep. 744, of a broker in Massachusetts is to 40 Am. Rep. 154. deliver shares of stock on payment of " Markham v. Jaudon, 41 N. Y. 235, the purchase price and he is allowed overruling Sterling v. Jaudon, 48 to pledge the stock for his own debt Barb. (N. Y.) 459; Hanks v. Drake, or sell it without it being conversion, 49 Barb. (N. Y.) 186. When a pur- until a demand is made upon him by chaser of stock through a broker fails his customer and refused. In re to pay margins after notice to do so. Swift, 105 Fed. 493, citing Covell v. the broker, pledgee, may, by giving a Loud, 135 Mass. 41, 46 Am. Rep. 446; reasonable notice of the time and Roehm v. Horst, 178 U. S. 1, 44 L. ed. place, sell the same. Rothschild v. 953; Streeter v. Sumner, 11 Fost. (N. Allen, 180 N. Y. 561, 73 N. E. 1132. H.) 542. But see Weston v. Jordan, " In Markham v. Jaudon, 41 N. Y. 168 Mass. 401, 47 N. E. 133. 589 RIGHTS AND LIABILITIES. § 496 him, upon the receipt of the advances and commissions accruing to the broker ; or, "6. To sell such shares upon the order of the customer, upon payment of the like sums to him, and account to the customer for the proceeds of such sale. "Under this contract the customer undertakes — "i. To pay a margin of ten per cent, upon the current market value of the shares. "2. To keep good such margins according to the fluctuations of the market. "3. To take the shares so purchased on his order, whenever re- quired by the broker, and to pay the difference between the per centage advanced by him and the amount paid therefor by the broker." In the absence of any express contract or any custom or usage in relation thereto, a broker employed to purchase pork and lard on the board of trade upon a margin has no right to sell or close out the contracts made for the customer before their maturity unless the customer so directs, or unless he fails to keep his margins good, and in case he does so the customer can recover back of the broker the money deposited as margins, and the loss, if any, occasioned by the closing out of such contracts.*" § 496. Relation of a broker to his customer. — The broker acts in a threefold relation : first, in purchasing the stock he is an agent; then, in advancing money for the purchase, he becomes a creditor; and, finally, in holding the stock to secure the advances made, he becomes a pledgee of it. It does not matter that the actual possession of the stock was never in the customer. The form of a delivery of the stock to the customer, and a re-delivery by him to the broker, would have constituted a strict formal *' Denton v. Jackson, 106 111. 433. lien on such securities for the hus- Where a wife entrusted her securities band's debt and might "sell them after to her husband to use for margins notice to the wife. Moore v. Rode- upon his account and they were used wald, 142 App. Div. (N. Y.) 741, 127 up and the husband was unable to N. Y. S. 725. furnish more, the broker had a valid § 496 COLLATERAL SECURITIES. 59O pledge. But this delivery and re-delivery would leave the parties in precisely the same situation they are in when, waiving this for- mality, the broker retains the certificates as security for the ad- vance. The contract is in spirit and effect, if not technically and in form, a contract o.f pledge, and is governed by the law of pledges.*^ <• In Stenton v. Jerome,^^ the effect of a, -contract for the pur- chase of stock upon a margin was carefully considered by the New York Court of Appeals. The agreement between a firm of stock-brokers and their customer provided that the latter should furnish a specified margin as security, and keep the same good whenever called upon to do so ; and in the event of noncompliance with such demand, the brokers were authorized to close the account without notice, by purchase or sale, at public or private sale, or at the brokers' board, or otherwise. In an ac- tion against the brokers by the customer for a sale of stock with- out making demand for more margin, or for payment, the court says ;*' "Under this agreement the defendants were not obliged to carry the stock indefinitely. * * * Whenever they' desired to close the transaction in reference to any stocks, it was their duty to tender the certificates thereof to the plaintiff and demand payment for them; then, if within a reasonable time he did not take and pay for the stocks, they had a right to sell them to sat- isfy their lien, after first giving her notice of the time and place "' Markham v. Jaudon, 41 N. Y. 235. succeed to their rights as assignee. See, however, dissenting opinions of Strickland v. Magoun, 119 App. Div. Grover and Woodruff, JJ.; Morgan (N. Y.) 113, 104 N. Y. S. 42S. V. Jaudon, 40 How. Pr. (N. Y.) 366. "54 N. Y. 480, approved in Baker Where brokers of stock holding the v. Drake, 66 N. Y. 518, 23 Am. Rep. stock of a customer hypothecated it 80. Expressions not in accord with as collateral for a call loan and the these cases, in Hanks v. Drake, 49 brokers becoming unable to meet their Barb. (N. Y.) 186; Sterling v. Jau- debts, one of their creditors took the don, 48 Barb. (N. Y.) 459, and Schep- stock from the brokers as collateral for eler v. Eisner, 3 Daly (N. Y.) 11, af- money he advanced and he knew the firmed 54 N. Y. 675, cannot be consid- stock did not belong to the brokers, ered law; and, in fact, are overruled it was held that his contract was sep- in Markham v. Jaudon, 41 N. Y. 235. arate from that of the brokers with ™ 54 N. Y. 480. their customer and that he did not 591 RIGHTS AND LIABILITIES. § ^497 of sale. There was only one contingency on which they could, under the agreement, sell the stock without notice, and that was, if the plaintiff's margin fell below twenty per cent, and she failed, upon demand, to make the margin good; then, by the express stipulation in the agreement, they could sell without notice. Here no demand was made for more margin, and hence there was no right to sell on account of the insufficiency of the margin; and there was no tender of the stock, and no demand that the plaintiff should pay for the same ; and hence the defendants had no right to sell for the purpose of closing their accounts with her. The sale of the stocks was, therefore, wrongful and unauthorized, and rendered the defendants liable to the plaintifif for such damage as the rules of law entitled her to." § 497. Carrying stocks on margin.— There is a distinction between the carrying of stocks upon a margin and a like carry- ing of executory contracts for the future delivery of grain or other like property; and the ground of the distinction is, that while the broker may well be considered the pledgee of the stocks which he has purchased for his customer, because he has actual possession of -them, the holder of an executory contract for the delivery of grain cannot be so considered, because he has neither the actual possession of the grain nor the constructive possession of it, by means of a warehouse receipt or bill of lading. There- fore it is held that if a commission merchant or broker contracts in his own name for the purchase of grain for a customer, to be delivered at a future time, the latter making an advance on the purchase, and agreeing to keep the margin good up to the time of delivery, the relation of pledgor and pledgee is not created, so as to require a notice of the time and place of sale of the grain, on the customer's failure to keep up the margins.** § 498. Rule in Massachusetts as to stock-broker and cus- tomer. — A different view of the contract of a stock-broker and his customer in such case is taken by the Supreme Court of " Corbett V. Underwood, 83 111. 324, 25 Am. Rep. 392. § 498 COLLATERAL SECURITIES. 592 if Massachusetts.^'' The contract is not regarded as creating the relation of pledgor and pledgee between the parties, but as being merely an executory agreement, under which the broker may, upon the default of the customer, sell the stock without notice. In the case before the court a stock-broker had purchased certain shares of stock for a customer, under an agreement to carry the stock for him upon the payment of a certain "margin," which the customer was to keep good. The stock having declined, the broker requested the customer to make his margin good ; and the latter failing to do so, the broker, after a few days, sold the stock at the brokers' board in New York, at the market price, without notice. The sale left the customer indebted to the broker, but the latter made no demand for the payment of the balance due him until some four months afterward, when, the stock having risen in price above that originally paid for it, the customer demanded the stock, and offered to pay the balance of the purchase-money and interest. In a suit by the customer against the broker for the value of the stock the trial court held that he was entitled to re- cover, upon the ground that the relation of the parties was that of pledgor and pledgee, and that the usage of brokers, which was proved, to sell stock so held at the brokers' board, as soon as the margin was exhausted, without notice, was illegal. Exceptions to these rulings were sustained by the Supreme Court. Mr. Jus- tice Devens, delivering the opinion, said : "The relation of the parties existed by force of a mutual and dependent contract, by which the defendants agreed to purchase and hold, or carry for the plaintiff a certain number of shares of stock, he paying a cer- tain sum of money at the time, and agreeing to pay interest on the sums advanced by the defendants, and, in case the stock depre- ciated, to make what is termed a margin of $io per share in ex- cess of the market price of the stock, as that might change from time to time. As the plaintiff failed to perform his part of the contract by making the necessary advances upon demand, the stock having rapidly depreciated in value, he has no ground of " Covell V. Loud, 135 Mass. 41, 16 Cent. L. J. 471, 46 Am. Rep. 446. 593 RIGHTS AND LIABILITIES. § 499 complaint that the defendants ceased to hold and carry it for him, and thereafter disposed of it. "We are aware that transactions of this nature have sometimes been held to make the broker who purchases the stock an agent for the customer, and to treat him as holding it, thereafter as a pledgee for the money advanced for its purchase. * * * But in Wood V. Hayes,*" it was held that a broker who advanced money to buy stock for another, and held it in his own name, might, so long as he had not been paid or tendered the amount of his advances, pledge it as security for his own debt to a third person, without making himself liable to an action by his employer, and this upon the ground that the contract was conditional to deliver the shares upon the payment of the money. It cannot make any difference that, in this case, a small portion of the money necessary for the original purchase was advanced by the customer." § 499. Decision introduces a new doctrine as to the rela- tion between broker and customer. — This decision introduces a new doctrine as regards the relation of a stock-broker and cus- tomer, which has heretofore always been regarded as that of "" 15 Gray (Mass.) 375. There conditional, to. deliver the pledge on seems to be nothing in this case to the payment, or tender of payment, of show that the' contract between the the debt secured. The return of the broker and the customer was not re- pledge cannot be asked for, except garded by the court as a pledge. The upon the condition of payment of the statement of facts clearly made it debt secured. A sale or pledge of the such; for it appeared that the broker property by the pledgee does not bought the stocks, and that after- amount to a conversion by him, un- ward the parties settled an account, less the pledgor tenders payment of and found a certain balance due from the debt and demands the return of the customer to the broker, for which the property. In this case before the the customer gave his promissory court the debt was neither paid nor note, and, as security for its payment, tendered. The customer, therefore, the broker acknowledged that he held had no right of action against the certain shares of stock. The state- broker. Besides, on general princi- ment by the court that the contract pies governing the contract of pledge, was strictly conditional, to deliver so the broker had the right to pledge many shares on payment of so much the stock for a debt of his own, to money, is not inconsistent with this the extent of his advances upon it. view. The pledgee's contract is always See §§ 331, 418-423. 38— Col. Sec. § 500 COLLATERAL SECURITIES. 594 pledgor and pledgee. And such, in fact, is the relation, in all ordinary cases where the broker has purchased stocks for a cus- tomer and carries them for him upon the payment of a portion of the purchase-money. The broker holds the stock as collateral security for the remainder of the purchase-money, and should be subject to the established rules of law governing the contract of pledge. The case is wholly different from that where a broker simply .makes a contract with another for the future delivery of grain, which is not delivered into the broker's actual possession. In the latter case there is no pledge, for no property of the cus- tomer is delivered to the broker. This distinction was pointed out in an Illinois case, in which it was decided that a broker holding for a customer an executory contract for the future de- livery of corn which never came into his possession did not stand in the relation of a pledgee of his customer. The court in that case say that if the corn purchased had been delivered to the broker, and he had paid for the same, and held the possession of it as security for the money advanced, then it might, with propri- ety, be claimed that the relation of pledgor and pledgee existed, and that notice of the time and place of sale should be given.*' § 500. Stock-broker cannot recover for a fictitious pur- chase. — A broker cannot recover for a purchase which is fic- titious, or which he has charged to his customer at an enhanced price. In such case he fails to perfoiTn the contract of pur- chase.*' A usage of bi^okers that one, on receipt of an order to buy stocks on a margin, may assume the contract himself, instead of making it with a third person, is illegal. The broker has no right to put himself in a position antagonistic to the interests of his employer. He cannot make himself both buyer and seller. A broker purchased for a customer certain United States bonds, under an agreement that the broker should advance the purchase price and should carry the original bonds purchased at a specified rate of interest. In the purchase the broker overcharged for a " § 497 ; Corbett v. Underwood, 83 Mass. 285 ; Farnsworth v. Hemmer, 111. 324, 327, 25 Am. Rep. 392. 1 Allen (Mass.) 494, 79 Am. Dec. 756. "^ Commonwealth v. Cooper, 130 595 RIGHTS AND LIABILITIES. § 500 part of the bonds, and for another part charged a commission for buying and received a commission for selling. Before the ma- turity of the loan the broker sold the" bonds without the knowledge of the customer. The latter made a payment on account of the supposed loan. At the maturity of the loan the broker demanded payment of the customer, and notified him that in case of default he would be sold out. Payment was not made, and the broker thereupon sold other bonds of a like amount. In an action by the customer to recover the money he had paid on this transac- tion, the broker set up a counterclaim for a deficiency arising on such sale. It was held that the counterclaim was properly re- jected; that the substantial performance of his contract was a condition precedent to. the broker's right of recovery, while in es; sential elements he had not performed it.^" In a subsequent suit by the customer against the broker to " Levy V. Loeb, 85 N. Y. 365. Mr. Justice Finch, delivering the opinion of the court, said : "The contract was not merely for the loan of so much money. That was but a single ele- ment in an entire and much broader agreement. The defendants were to buy the bonds as agents of the plaint- iffs. They were to make the purchase in that capacity, with the skill and abiUty which their business and ex- perience indicated and in entire good faith to their clients, without any ad- verse or hostile interest ; and the iden- tical bonds thus bought they agreed to carry, advancing the money for that purpose and holding the bonds as collateral. That contract * * * was not performed by the defendants in any of its essential elements. They did not buy for their clients in good faith as agents, but on the con- trary, buying, without disclosing their agency, sought to transfer the bonds to the plaintiffs at a larger price, con- cealing the profit intended to be real- ized. They broke their contract by taking commissions from both sides. They broke it again by not carrying the original bonds as agreed, and the deficiency upon which they rely sprang f r.om a sale of their own bonds and not plaintiffs'. Not only was there thus a total failure to perform on the part of defendants, but it is entirely possible that the sale which they did make of the original bonds, * * * brought their full cost and left no deficiency. The defendants choose not to disclose either the date or terms of that sale. Doing so they cannot sell their own bonds at a sacrifice and claim that deficiency of the plaintiffs. The rule might be otherwise if the defendants had not specially agreed to carry the original bonds. It is that fact, as found by the trial judge, which is fatal to the counterclaim alleged. The agreements were mutual and the acts to be done concurrent. Since no directions to sell the bonds were given by plaintiffs, upon the expiration of the contract by the lapse of the stipu- lated time, it was the duty of the de- § 500a COLLATERAL SECURITIES. 596 recover the moneys he had paid in this transaction, it was held that upon obtaining knowledge of the facts he was entitled to re- pudiate the purchase and to recover back the moneys paid."" § 500a. Securities pledged under a wagering contract. — One pledging securities to a stock-broker under a wagering con- tract as to the purchase and sale of stocks or of commodities is entitled to recover from him the value of the securities lost in such transactions. A statute in Massachusetts"^ provides that : Whoever upon credit or upon margin contracts to buy or sell, or employs another to buy or sell for his account, any secur- ities or commodities, intending at the time that there shall be no actual purchase or sale, may sue for and recover in an action of contract from the other party to the contract, or from the per- son so employed, any payment made, or the value of anything delivered, if such other party to the contract or the person so em- ployed on account thereof, had reasonable cause to believe that said intention existed ; but no person shall have a right of action under the provisions of this section if, for his account, such other party to the contract or the person so employed, makes, in ac- cordance with the terms of the contract or employment, per- sonally or by agent, an actual purchase or sale of said securities, or commodities, or a valid contract therefor. At the trial of an action under this statute relative to wagering contracts in secur- ities and commodities, to recover the value of stock deposited fendants to deliver the original bonds livery impossible. They did not even which had been carried, at the price offer similar bonds at the price actu- actually and in truth paid for them, ally paid, but demanded a greater one. and the duty concurrently of plaintiffs There was no element of performance to pay that price with the interest, or readiness to perform in the case. The defendants, therefore, could not Not a single stipulation of the con- put the plaintiffs in default without a tract was fairly and in good faith ful- tender of performance, or at least filled and no valid counterclaim was proof of a readiness and willingness established." to perform. No such proof was given. "" Levy v. Loeb, 89 N. Y. 386, IS N. No bonds were tendered. The origi- Y. Weekly Dig. 176, reversing 15 J. nal bonds could not be, since the brok- & S. 61. crs had sold them by their own un- " 1 Rev. Laws 1902, ch. 99, § 4. authorized act, and rendered their de- 597 RIGHTS AND LIABILITIES. § 500a with the defendant, a broker, as collateral security on account of the agent of the plaintiff, who, as such agent, bought and sold stock on margin, with no intention on the part of either himself or the plaintiff of performing the contract of purchase or sale by the actual receipt or delivery of the stock the judge properly ruled that the plaintiff would be entitled to recover, if he proved that neither he nor his agent intended to perform the contract by the actual receipt and delivery of the stock and the payment of the price, and that the defendant had reasonable cause to believe that no intention to actually perform existed; but that he could not recover unless he proved both these facts, nor if either he or his agent intended such performance to be made by either of them, or by the defendant as the agent of either of them ; and that if the plaintiff was entitled to recover, the measure of damage would be the value of the stock when demand for it was made.°^ In Irwin v. Williar,^^ the Supreme Court of the United States says of wagering contracts : "In England, it is held that the con- tracts, although wagers, were not void at common law, and that the statute has not made them illegal, but only nonenfprcible, Thacker v. Hardy," while generally, in this country, all wager- ing contracts are held to be illegal and void as against public policy."'" "'Davy V. Bangs, 174 Mass. 238, 243, 544 N. E. 536; Lyons v. Coe, (Mass, 1901), Banker & Tradesman for Jan. 23, 1901 ; Northrup v. Buf- fington, 171 Mass. 468, 51 N. E. 7. See also Barnes v. Smith, 159 Mass. 344, 34 N. E. 403 ; Harvey v. Merrill, ISO Mass. 1, 10, 22 N. B. 49, 15 Am. St. 159, 5 L. R. A. 200; Wakefield v. Farnum, 170 Mass. 422, 49 N. E. 640; Embrey v. Jemison, 131 U. S. 336, 33 L. ed. 172, 9 Sup. Ct. 776; Irwin v. Williar, 110 U. S. 499, 510, 28 L. ed. 225, 4 Sup. Ct. 160 ; Cothran v. Ellis, 125 111. 496, 16 N. E. 646; White- sides V. Hunt, 97 Ind. 191, 49 Am. Rep. 441 ; First National Bank v. Os- kaloosa Packing Co., 66 Iowa 41, 23 N. W. 255 ; Rumsey v. Berry, 65 Me. 570; Crawford v. Spencer, 92 Mo. 498, 4 S. W. 713, 1 Am. St. 74Sn; Kahn v. Walton, 46 Ohio St. 195, 20 N. E. 203 ; Fareira v. Gabell, 89 Pa. St. 89; Lowry v. Dillmann, 59 Wis. 197, 18 N. W. 4. "" 110 U. S. 499, 510, 28 L. ed. 225, 4 Sup. Ct. 160. " 4 Q. B. D. 685. ■^ Citing Dickson v. Thomas, 97 Pa. St. 278 ; Gregory v. Wendell, 40 Mich. 432; Lyon v. Culbertson, 83 111. 33, 25 Am. Rep. 349; Melchert v. American Union Telegraph Co., 3 McCrary (U. S.) 521, 11 Fed. 193 and note; Bar- nard V. Backhaus, 52 Wis. 593, 6 N W. 252, 9 N. W. 595; Kingsbury v. § 50I COLLATERAL SECURITIES. 598 § 501. Authority to use collateral stock. — In the absence of an agreement on the part of the pledgor, either express ot ira- pHed, the pledgee has no right to use a thing held in pledge. It is not a common-law right."" A general authority to a creditor holding corporate stock as collateral security "to use, transfer, or hypothecate the same," at his option, he being required, on payment or tender of the amount of the loan, to return an equal quantity of the stock, but not the specific stock deposited, au- thorizes the pledgee to sell it for his own benefit before maturity ; and' such a sale is not a conversion of the stock for which an ac- tion will lie."' The object of such a clause is to enable the cred- itor, if he finds it inconvenient to carry the loan, to obtain the money upon the stock, by sale or otherwise. It was doubtless an inducement to him to make the loan. In selling the stock, by virtue of the contract, he simply took upon himself the burden of returning to the debtor, upon demand, when the loan should be made, the same quantity of stock. One borrowed money of a broker, pledging shares of stock under such a contract allowing the pledgee to hypothecate the stock, and at the maturity of the loan paid the debt, the broker saying the certificate was at a bank, and that he would return it to the pledgor immediately. The broker had pledged the stock to a. bank the same day he received it from the customer and it was still held by the bank on the broker's pledge when the cus- tomer paid his debt. The broker two days after the customer paid his debt and demanded the return of his stock, filed his petition in insolvency and secured his discharge, the customer proving his claim for the stock, which the bank had sold. In a suit \}y the customer against the broker to recover the money paid, or for a conversion of the stock, it was held that the broker had acted within his authority in hypothecating the stock, that Kirwan, 77 N. Y. 612 ; Story v. Salo- " Ogden v. Lathrop, 65 N. Y. 158, man, 71 N. Y. 420; Love v. Harvey, reversing 1 Sweeny 643, 3 J. & S. 73, 114 Mass. 80. where it was thought that the power °° Lawrence v. Maxwell, S3 N. Y. 19 ; "to use," &c,, did not authorize a sale. Skifif v. Stoddard, 63 Conn. 198, 218, Bell v. Bank of California, 153 Cal. 26 Atl. 874, 28 Atl. 104. 234, 94 Pac. 889. 599 RIGHTS AND LIABILITIES. § 5°^ his pledge of the stock was not fraudulent and that the plaintifif's claim was barred by the discharge in insolvency. °* § 502. Authority in pledgee of stock to repledge it for his own debt may be inferred from circumstances. — Authority in the pledgee of sto,ck to hypothecate it for his own debts may be inferred from the circumstances of the transaction, and the course of dealing between the parties. Thus, a broker having bought gold for a customer, upon his agreement to furnish a margin of ten per cent, for the accommodation of the latter, accepted cer- tain stock instead of money; and an intent that the broker should use the stock as he might have used the money was inferred."" In a conflict of testimony as to the broker's authority to use the stock, it is within the province of the jui"y to decide what the contract between the parties was ; and evidence may be given to show that, in previous transactions between the parties, the broker had, with the knowledge of the customer and without objection on his part, hypothecated stock deposited for a margin.^ Parol evidence of an agreement, made at the time of a pledge of stock of a corporation, that the pledgee might use the stock, is inadmissible when the pledgee has given a receipt for the stock, stating that he holds it as collateral security, and providing that he may sell "on one day's notice." The tendency of sudi evi- dence would be to show that the contract made when the stock was pledged was different from that set forth in writing at the time.^ § 503. Custom is valid which allows a broker to pledge his customer's stock to raise money to carry it. — A general cus- tom that a broker may pledge his customer's stock for the pur- pose of raising money to carry it, is valid,^ if such custom is "' Wilson V. Hawley, 1S8 Mass. 250, ' Lawrence v. Maxwell, 58 Barb. 33 N. E;. 522. (N. Y.) 511. "" Lawrence v. Maxwell, 58 Barb. "■ Fay v. Gray, 124 Mass. 500. (N. Y.) 511, 6 Lans. (N. Y.) 469, 53 'Vanhorn v. Gilbough, 21 Am. Law N. Y. 19, 64 Barb. (N. Y.) 102; Hope Reg. (N. S.) 17L The referee, whose V. Lawrence, 1 Hun (N. Y.) 317; conclusions were adopted by the Su- Chamberlain v. Greenleaf, 4 Abb. (N. preme Court, said : "I can perceive no C.) (N. Y.) 178. ' real objection to the validity of a gen- § 504 COLLATERAL SECURITIES. 60O known to and acquiesced in by the customer. It is not unreason- able that a broker who is carrying stock for a customer upon a margin, or small payment by him, should have the right to use the stock by way of pledging it for the purpose of enabling him to carry the stock for the customer. Probably this is the gen- eral custom in such transactions, and a knowledge of such cus- tom would be imputed to one who purchases stock of a broker to be carried in this manner. Authority in the pledgee to sell stock held in pledge is incon- sistent with the contract of pledge, and a custom or usage for a broker holding stock in pledge to sell it will not avail to vary the terms of the implied agreement.* The contract of pledge recog- nizes the general property of the bailor and his right to redeem and have the thing pledged. A custom or usage for a pledgee to sell the thing pledged is not consistent with the contract be- cause such sale would put it. out of his power to return it to the pledgor upon payment of the debt secured. § 504. Stock pledged by a broker to a bank, if the bank knows that the broker *s not the owner is not subject to a general banker's lien for money borrowed by the broker. — If a broker pledges his principal's stock to a bank for a specific loan, and the bank is informed of the ownership of the stock, and of the purpose for which it is obtained, the stock is not subject to a general banker's lien for moneys subsequently borrowed by the brokers from the bank. A tender by the owner of the stock, eral usage that a broker may use his As to the effect of stock exchange customer's stock as collateral to carry usages in general, see note to above it for the customer. Such usage con- case by Francis A. Lewis, Jr., Esq., travenes no statute or principle of • pp. 176-181. public policy. The customer can, of * Lawrence v. Maxwell, 53 N. Y. course, avoid all trouble in this re- 19; German Savings Bank v. Ren- spect by paying for his stock in full ; shaw, 78 Md. 475, 28 Atl. 281 ; First but where, as here, he only pays a Nat. Bank v. Taliaferro, 72 Md. 164, small percentage of its value, while 171, 19 Atl. 364; Rich v. Boyce, 39 his agent, the broker, must provide Md. 314; Kraft v. Fancher, 44 Md. for the balance, it would not seem un- 204, 215 ; Fay v. Gray, 124 Mass. 500 ; reasonable, that the broker should for Oregon & Transcontinental Co. v. Hil- that purpose pledge it as collateral." mers, 20 Fed. 717. 60I RIGHTS AND LIABILITIES. § 505 made with a view to settling the matter without suit, the bank claiming a lien upon the stock for subsequent loans, is not con- clusive upon him or his assignee as an admission that the bank had a lien on the stock for the amount so tendered. ° A bank making a loan to a broker on corporate stock as col- lateral security, with knowledge that the ownership of the stock is not in the broker, is bound to make inquiry whether the broker had authority to pledge the stock, and if he had no such author- ity, the owner may recover the stock from the bank." The more difficult question in such case is what facts are suf- ficient to charge the bank with knowledge that the person pledg- ing the stock to the bank has no authority to make the pledge. It has been held that where the original pledgor indorsed to his broker as security for other stock to be purchased on margins, certain certificates of stock without filling in the names of the assignor or assignee or the date of transfer, and the broker re- pledged them to a bank for a loan made to himself, the bank was put upon inquiry as to the right of the broker to pledge the cer- tificates for his own debt, and therefoce acquired no better title than the broker had, and was bound to restore the certificates to the original pledgor upon his paying the debt for which he pledged them to his broker.^ Signature in blank of the assignment and power of attorney to bargain, sell and transfer, on the back of stock certificates delivered as a pledge, has been held to be notice to third persons of the pledgee's lack of authority to repledge them for his own debt.« § 505. Use which pledgee may make of pledged stock must be consistent with general ownership of pledgor. — The use which the pledgee may make, of the property pledged must be 'Talmadge v. Third Nat. Bank, 91 Bank v. Taliaferro, 72 Md. 164, 19 N. Y. 531, 16 N. Y. Weekly Dig. 487. Atl. 364; Taliaferro v. First Nat. ° Westinghouse v. German Nat. Bank, 71 Md. 200, 17 All. 1036. Bank, 188 Pa. St. 630, 41 Atl. 734, 43 ' German Savings Bank v. Renshaw, W. N. Cas. 349. 78 Md. 475, 28 Atl. 281, following ' German Savings Bank v. Renshaw, Taliaferro v. First National Bank, 71 78 Md. 475, 28 Atl. 281 ; First Nat. Md. 200, 17 Atl. 1036. § 506 COLLATERAL SECURITIES. 602 consistent with the general ownership of the pledgor, and con- sistent with his ultimate right to redeem. The right to use the pledge ceases the instant the debt is paid or tendered, and the creditor must at his peril be in condition to restore the property to the debtor." "Conceding the right to use the stock pledged, by way of hypothecation, or otherwise, as claimed, and that it was at the time of the tender and demand lawfully out of the actual possession of the defendant, it was his duty at once to re- gain the possession and restore the same to the plaintiff. A neg- lect or refusal to do so gave to the plaintiff an action as for a conversion of the property. It is immaterial whether the stock was hypothecated by the defendant upon a loan of money for the benefit of plaintiff's transactions or for his own purposes. In either case the duty and the obligation were the same. The de- fendant conceded his inability to redeem the stock from his pledge or hypothecation, so that it was lost to the plaintiff by the act of the defendant, which was not a use consistent with a pledge,, or the legal rights of the pledgor. It was not a mere temporary use of the pledge. No use of a pledge which could be authorized consistent with such a bailment could justify such a dealing with it as to destroy the property or deprive the general owner of his property in it. If the pledgee may use the thing pledged he must do so at his peril, and so use it as not to affect the ultimate right and ability of the pledgor to have it again when the lien shall be discharged. It follows that upon the undis- puted facts in this case the evidence offered and rejected was wholly immaterial, for at the time of the demand and the re- fusal to deliver the stock pledged, the lien of the defendant was discharged, the relation of pledgor and pledgee had ceased to exist, and the right of the defendant further or longer to use or detain the stock was gone."^° § 506. Where by contract a broker is authorized to hy- pothecate pledged stock he is not guilty of conversion by do- " Lawrence v. Maxwell, S3 N. Y. shaw, 78 Md. 475, 488, 28 Atl. 281, 19 ; German Savings Bank v. Ren- quoting text. " Lawrence v. Maxwell, 53 N. Y. 19. 603 RIGHTS AND LIABILITIES. § 507 ing SO. — If, however, there is an agreement or understanding that a broker may hyppthecate stocks which he is carrying for a customer upon a margin', according to the usual course of busi- ness, such use of them does not of itself amount to a conversion of them." § 507. It is conversion for pledgee of stock to repledge it for his own debts, when the contract gives him no such au- thority. — The pledgor may treat as a conversion a transfer of a certificate of stock as collateral security by the pledgee to a creditor of his own in the absence of sjpecific authority ;^^ and the fact that the pledgee had a greater number of shares stand- ing to his credit on the books of the company at -all times during the transaction is immaterial. The pledgor may recover the market value of the stock at the time of the conversion.^' When the very certificates pledged are transferred by the pledgee to his own creditor there is an identification of the shares, so that there is no room for the presumption that any shares the pledgee had on hand during the continuance of the pledge were the shares deposited with him in pledge.^* Where a pledgee had an option to purchase the stock pledged at a specified price, it was held that the pledgor might consider his obtaining a cancelation of the certificate pledged and an issue of the stock to a third party as an exercise of the option, and might sue to recover the price. ^'^ If, however, a pledgee transfer the collateral stock in such a way that he retains control of it and is able to deliver it at once whenever the pledgor should call for it, there is no conversion of it. Such was the case where the pledgee assigned the col- " Chamberlain v. Greenleaf, 4 Abb. Upham v. Barbour, 65 Minn. 364, 68 N. C. (N.Y.) 178; Chouteau V.Allen, N. W. 42; Hubbell v. Blandy, 87 70 Mo. 290. See § 503. Mich. 209, 49 N. W. 502, 24 Am. St. "Van Voorhis v. Rea, 153 Pa. St. 154. See Langton v. Waite, L. R. 6- 19, 25 Atl. 800; Skiff v. Stoddard, 63 Eq. 165, 18 L. T. N. S. 80; France v. Conn. 198, 26 Atl. 874, 28 Atl. 1.04, 21 Clark, 22 Ch. D. 830. See, however, L. R. A. 102. § 508. "Fay V. Gray, 124 Mass. 500; Allen "Allen v. Dubois, 117 Mich. 115, 75 V. Dubois, 117 Mich. 115, 75 N. W. N. W. 443, 72 Am. St. 557. 443, 72 Am. St. 557; Morton v. Pres- '"Upham v. Barbour, 65 Minn. 364, ton, 18 Mich. 60, 100 Am. Dec. 146; 68 N. W. 42. § 508 COLLATERAL SECURITIES. 604 lateral stock to third persons, in order not to injure his credit by appearing to own too much of it, taking back from the trans- ferees assignments in blank, so that the stock remained actually in his control and ready for delivery to the owner. The pledgor's rights were not violated or injuriously affected.^' And such also was the case where a pledgee of corporate shares transferred them to another person to hold for him in order to protect himself against personal liability. There was no real conversion of the stock by the pledgee because by such transfer he did not apply it to his own use. He did not exercise any dominion over it in defiance of the rights of the owner. He put it into the hands of a third laerson to hold for him, in order that what was intended for a security might not be a burden. The stock remained under his control.^* § 508. Return of identical stock. — A broker carrying stock upon a margin, according to the usual custom, is not bound to keep the stock separate from other stock of the same kind owned by himself, but only to keep in possession and ready for delivery on demand an amount of stock equal to that purchased.^' Ordi- narily, a pledgor of personal property is entitled to have the spe- cific property pledged returned to him upon payment of the debt, and cannot be compelled to accept other property of the same kind and equal value in place of it; but shares in a corporation "Day V. Holmes, 103 Mass. 306; Stewart v. Drake, 46 N. Y. 449; Fay V. Gray, 124 Mass. 500; Terry v. Worthington v. Tormey, 34 Md. 182; Birmingham Nat. Bank, 93 Ala. 599, Chamberlain v. Greenleaf, 4 Abb. N. 9 So. 299, 30 Am. St. 87. C. (N. Y.) 178; Genin v. Isaacson, 6 ''Heath v. Griswold, 5 Fed. 573. N. Y. Leg. Obs. 213; Salters v. Ge- " Horton V. Morgan, 19 N. Y. 170, nin, 7 Abb. Pr. (N. Y.) 193, 3 75 Am. Dec. 311n; Nourse v. Prime, Bosw. 250; Taussig v. Hart, 58 N. Y. 4 Johns. Ch. (N. Y.) 490, 8 Am. Dec. 425, 49 N. Y. 301; Price v. Gover, 40 606, 7 Johns. Ch. 69, 11 Am. Dec. 403; Md. 102; Worthington v. Tormey, 34 Gruman v. Smith, 81 N. Y. 25, 9 Rep. Md. 193; Hubbell v. Drexel, 11 Fed. 748; Levy v. Loeb, 15 J. & S. 61, 6 115; Noyes v. Spaulding, 27 Vt. 421; Duer 56, 85 N. Y. 365; Thompson v. Wood v. Hayes, 15 Gray (Mass.) Toland, 48 Cal. 99; Allen v. Dykers,.3 375; Berlin v. Eddy, 33 Mo. 426, 430; Hill (N. Y.) 593; Hardy v. Jaudon, Bell v. Bank of California, 153 Cal. 1 Robt. (N. Y.) 261; Gilpin v. How- 234, 94 Pac. 889. ell, 5 Pa. St. 41, 45 Am. Dec. 720; 605 RIGHTS AND LIABILITIES. § 5°^ Stand upon a different footing, because one share represents the same interest in the business of the corporation that another does, and, all the shares being of equal value, there can be no reason for preferring one from another, or for distinguishing one from another.^" The reasons for this distinction are obvious. Two visible, tangible chattels, though apparently precisely similar, may yet, in fact, be of different values. Moreover, the owner of a specific article of personal property may attach a peculiar value to it beyond the value of other articles of a precisely similar kind ; and, having pledged it, he cannot be compelled to take back any other article of the same kind and equal value, in lieu of that which was converted.^^ The rule in regard to the return of the identical stock pledged has been stated by the Supreme Court of Connecticut : "Shares of stock have no individuality, no earmarks. One share does not differ from another share of like stock, in form, characteristic or value. Each share represents simply an undivided, propor- tionate interest in the ownership of the corporation. It entitles its owner to a certain right in the management, profits and ulti- mate assets of the corporation, precisely like that which every other share-owner enjoys. Certificates of stock, which have ear- "° Atkins V. Gamble, 42 Cal. 86, 10 as the former certificate. Each would Am. Rep. 282; Hawley v. Brumagin, be a precise equivalent of the other, 33 Cal. 394: Bell v. Bank of Calif or- and it is certain he could suffer no nia, 153 Cal. 234, 94 Pac. 889. pecuniary loss by the transaction; '"' Atkins V. Gamble, 42 Cal. 86, 101, whilst the nature of the property, or 10 Am. Rep. 282. "It is impossible rather of his interest in it, forbids that any sane person should have the idea that it could be the object of centered his affections upon a partic- personal attachment, or have a pecu- niar stock certificate, or that any vio- liar value in his estimation as contra- lence could be done to his feelings by distinguished from any other equal requiring him to accept another cer- number of shares in the same com- tificate of precisely similar character, pany." There may be a stipulation in in lieu of it. His own certificate a pledge of stock expressly excusing was only the evidence that he owned the pledgee from returning the iden- an undivided interest in the capital tical certificate. Hardy v. Jaudon, 1 and business of the corporation. An- Robt. (N. Y.) 261. But such a stipu- other certificate of the same kind, for lation is only useful by way of abun- the same amount of stock, would en- dant caution, title him to precisely the same rights § S09 COLLATERAL SECURITIES. 6o6 marks, are not the stocks. They are only the evidence of the ownership of the stocks. They are muniments of title, like title deeds. They have no value save as evidence of the thing owned, which has nothing individual, distinguishable or peculiar about it. Courts have therefore said that no good reason existed for re- quiring that a pledgee of stocks should at all times preserve a careful separation of distinguishable certificates connected with each transaction of pledge, and maintain the identity of each cer- tificate distinct and unbroken. They have said that the essential thing was that he hold at all times the required shares of stock ready to be delivered when called for, and in recognition of this fact and of the right enjoyed by the pledgee to transfer the stocks held by him in pledge into his own name, they have held that a pledgee fully preserves the rights of the pledgor if he at all times until the termination of the pledge retains similar stock in amount equal to that pledged. This has been held of pledges in their ordinary forms as well as of those incidental to margin transac- tions."^^ For the same reason it would seem that a pledgee of negoti- able bonds of a private or municipal corporation, or of govern- ment bonds, would not be required to retain the identical bonds deposited with him, if he has always had other bonds of precisely the same kind which he could return to the pledgor on demand.^^ § 509. Rule when there is no contract to keep shares of stock separate from other shares. — When shares of stock are pledged without any agreement that they shall be kept separate from other shares of the same stock, and no certificate is deliv- ered to the pledgee expressing the trust upon its face, the pledgee may properly have the stock placed to his credit upon the transfer books of the company; and it does not matter that he has other shares of the same stock, or that he buys and sells such stock, and is afterward unable to identify the shares received in pledge, "^ Skiff V. Stoddard, 63 Conn. 198, =" Stuart v. Bigler's Assignees, 98 218, 28 Atl. 104, 26 Atl. 874, 21 L. R. Pa. St. 80; Bell v. Bank of California, A. 102. 153 Cal. 234, 94 Pac. 889. 6o7 RIGHTS AND LIABILITIES. § 509 provided that at all times he has shares of the stock standing in his name or under his rightful and absolute control to an amount equal to the number held in pledge, and is ready and able at any time to redeliver the shares on payment of the debt for which they were pledged.-^ If he sells all the stock standing in his own -' Nourse v. Prime, 7 Johns. Ch. (N. Y.) 69, 11 Am. Dec. 403, 4 Johns. Ch. (N. Y.) 490, 8 Am. Dec, 606; Allen V. Dykers, 3 Hill (N. Y.) 593, affirmed 7 Hill (N. Y.) 497, 42 Am. Dec. 87; Caswell v. Putnam, 12Q N. Y. 153, 24 N. E. 287; Douglas v. Car- penter, 17 App. Div. (N. Y.) 329, 45 N. Y. S. 219; Horton v. Morgan, 19 N. Y. 170, 75 Am. Dec. 311n; Mayo V. Knowlton, 134 N. Y. 250, 31 N. E. 985; Gilpin v. Howell, 5 Pa. St. 41, 45 Am. Dec. 720; Neiler v. Kelly, 69 Pa. St. 403 ; Boylan v. Huguet, 8 Nev. 345; Fay v. Gray, 124 Mass. 500; Weston v.. Jordan, 168 Mass. 401, 47 N. E: 133; Price v. Cover, 40 Md. 102; Skiff V. Stoddard, 63 Conn. 198, 26 Atl. 874, 28 Atl. 104, 21 L. R. A. 102; Hay- ward V. Rogers, 62 Cal. 348, 54 Am. St. 297; Thompson v. Toland, 48 Cal. 99; German Sav. Bank v. Renshaw, 78 Md. 475, 28 Atl. 281; Noyes v. Spaulding, 27 Vt. 420; Worthington V. Tormey, 34 Md. 182; Hubbell v. Drexel, 21 Am. Law Reg. (N. S.) 452, 11 Fed. 115. In the latter case But- ler, J., said : "A share of stock is without 'ear-marks,' and cannot, there- fore, be distinguished, as has been said, from others of the same corpo- ration and issue. The certificates, bearing dates and numbers, are but evidence of title. On payment of debt the pledgor is entitled to a return of the number of shares which the pledgee had received — nothing more." In Gilpin v. Howell, 5 Pa. St. 41, 45 Am. Dec. 720, Bell, J., said : "It is, in general, true, that where the pledge is distinctive in its character, and therefore capable of being recognized among other things of a like nature, or where a mark is set upon it with a view to its discrimination, the pledgee is bound to redeliver the identical ar- ticle pledged, and cannot substitute something of a like kind, unless so au- thorized by the contract. But I think there is a manifest difference, c-v necessitate, where the thing pledged, from its very nature, is incapable, in itself, of identification, if once min- gled with other things of the same kind. In such case, it is the duty of the pledgee to put a mark upon it, by which it may be distinguished, for, as is said in Nourse v. Prime, 7 Johns. Ch. (N. Y.) 69, 11 Am. Dec. 403, 4 Johns. Ch. (N. Y.) 490, 8 Am, Dec. 606, if a person will suffer his prop- erty to go into a common mass with- out making some provision for its identification, he has no right to ask more than that the quantity he put in should always be there and ready for him. By a just fiction of law, that residuum shall- be presumed to be the portion he put in." The case of ex parte Dennison, 3 Ves. 552, is not in conflict with the rule above stated, for this case was decided with reference to a rule of the stock exchange on this subject; and moreover, it is evi- dent that the pledgee in that case did not keep on hand a sufficient number of shares to enable him to return the security at any time on demand. Bell v. Bank of California, 153 Cal 234 94 Pac. 889. § 5IO COLLATERAL SECURITIES. 6o8 name, but has stock sufficient to meet the demand of the pledgor standing in the name of another person, but absolutely within the pledgee's control, he is not liable for a conversion of the stock.^'" If a pledgee of corporate shares be himself the owner of other shares in the same corporation, it does not matter that, in selling the shares under a power to satisfy the debt, he is unable to tell whether the stock sold be the identical shares delivered to him as collateral security; such shares not being distinguishable from each other, a sale of one parcel answers the purpose of crediting the debtor with the proceeds of the stock as well as the sale of the specific shares." But, of course, if there be different kinds of stock of the same corporation, the pledgee is bound to keep within his control, and to restore upon payment, the same kind of stock as that received in pledge. If, for instance, he has received in pledge "consoli- dated" Erie, he cannot fulfil his obligation by keeping on hand and returning "converted" Erie, a stock of a different kind and value.^' § 510. Pledgee of stock must keep on hands enough to de- liver to pledgor on demand. — But it is essential that the pledgee of stock should always have enough of the stock on hand ready for delivery.^* In a suit for the conversion of stock pledged by a collateral note, which authorized the creditor to sell the stock on the nonpayment of the note, the defendant, being a stock-broker and dealer in stock, offered to prove that it was a usage with stock-brokers having such collateral not to hold it specifically, but to transfer it by hypothecation or otherwise, at '=Le Croy v. Eastman, 10 Mod. 499. Hill (N. Y.) 593; Baker v. Drake, 66 =° Berlin v. Eddy, 33 Mo. 426. N. Y. 518, 23 Am. Rep. 80; Douglas =' Wilson V. Little, 2 N. Y. 443, 51 v. Carpenter, 17 App. Div. (N. Y.) Am. Dec. 307n. 329, 45 N. Y. S. 219; Taussig v. Hart, =' Chamberlain v. Greenleaf, 4 Abb. 58 N. Y. 425 ; Hardy v. Jaudon, 1 N. C. (N. Y.) 178; Horton v. Mor- Robt. (N. Y.) 261, affirmed, 41 N. Y. gan, 19 N. Y. 170, 75 Am. Dec. 311n, 619; Thompson v. Toland, 48 Cal. 99; 6 Duer (N. Y.) 56; Allen v. Dykers, Parsons v. Martin, 11 Gray (Mass.) 7 Hill (N. Y.) 497, 42 Am. Dec. 87, 3 111. 609 RIGHTS AND LIABILITIES.' § 511 pleasure, and on payment of the debt to, return an equal quantity of the same kind of stock ; and" that this usage was general and known to the pledgor. Without determining what effect would be due to such proof in the case of a simple pledge as collateral security without any further agreement, it was held that the evi- dence was inadmissible, as tending to contradict the legal import of the note; that the parties having prescribed in the note the terms of the loan and the conditions under which the collateral might be disposed of, no usage could be incorporated with the agreement of the parties, so as to make the latter import a con- sent by the debtor that the creditor might use the stock during the running of the loan the same as if he were the absolute owner of it.^° The pledgor may, however, waive this right.'" § 511. Pledgee must be able to show that he has always had sufficient stock to return to pledgor. — Moreover it is in- cumbent upon the pledgee to show that he has always had suf- ficient stock of the kind deposited to enable him to return it at any time, for otherwise it might happen that he has made a profit in selling the stock when the price was high, and buying it again when the price had declined. The pledgor in that case would be entitled to take advantage of the pledgee's sale of the stock, al- though it was wrongful. Therefore, if the pledgee has not the identical certificate of stock which was pledged to him, or the stock issued to himself by the corporation on surrender of that certificate, he should be prepared to show that he has had all the while other shares of the same stock on hand sufficient to meet this and every other obligation resting upon him to deliver that stock. In a suit brought by him upon the debt secured by such stock, it would seem that his inability to return the certificate pledged, or the stock issued to him by the corporation upon a surrender of that certificate, would be evidence tending to show a conversion of the stock by him, and that the burden would be upon him to show that he had always had during the continuance of the pledge other shares of the same stock not required to meet '"Allen V. Dykers, 3 Hill (N. Y.) =°Ogden v. Lathrop, 65 N. Y.'lSS. 593. 39— Col. Sec. § 512 . COLLATERAL SECURITIES. 6lO other obligations which he could have returned to the pledgor at any time upon payment/^ § 512. Securities belonging to several persons. — When se- curities belonging to several persons have been rehypothecated to- gether as security for a single loan, the pledgee taking them should proceed pari passu in applying the securities to the satis- faction of the loan, so that each of the several Qwners of the se- curities shall bear his just proportion of the common burden. If such pledgee, without notice of the claims of the true owners, sells the securities belonging to one, and therefrom satisfies the claim for which he holds all the securities, leaving the others undisposed of, a court of equity will order the remaining securi- ties to be disposed of, and the proceeds applied in such a manner that the burden of the loan will be borne in equitable proportions by all.^^ "'See §§ 421, 422. 23 Hun (N. Y.) 322; Skiff v. Stod- =' Gould V. Central Trust Co., 6 Abb. dard, 63 Conn. 198, 26 Atl. 874, 28 Atl. N. C. (N. Y.) 381; and see Chamber- 104, 21 L. R. A. 102; Whitlock v. Sea- lain V. Greenleaf, 4 Abb. N. C. (N. board Nat. Bank, 29 Misc. (N. Y.) Y.) 178; Rich v. Boyce, 39 Md. 314; 84, 60 N. Y. S. 611. Gould V. Farmers' Loan & Trust Co., CHAPTER XIII. THE RIGHTS OF A SURETY. i 513. Rights of subrogation. § 523. 514. Pledged property is a trust for the benefit of all parties to the compact. 524. 515. Discharge of surety by release of collateral. 515a. Surety not injured by release of collateral is not dis- 525. charged. 526. 516. The loss of collateral dis- charges the surety to the ex- tent of the loss. 517. Surety may recover from the creditor the amount of the 527. released security. 5 17a. One stands in the relation of surety who pledges his prop- S28. erty for another. 518. Proof is admissible to show 529. that one debtor is surety for another. 518a. Rights of third person who buys collateral without knowl- edge of equitable rights of 530.. surety. 518b. Discharge of surety by exten- tion of time of payment. 531. 519. Surety not discharged by the creditor taking collateral. 520. Release of surety because of 532. false statement as to collat- eral security, 533. 521. Rights of a surety to show in- ducements which caused him to become surety. 522. Surety not entitled to be sub- rogated until he has paid the debt. 6ii Securities placed in the hands of a surety is a trust in favor of the creditor. A creditor may have the bene- fit of securities even when he did not know about them when he became a creditor. Rule in some states. Distinction between cases where the security has been given to the surety for payment of the debt and where given as indemnity. Distinction between creditor's equitable lien and his right of subrogation. The creditor's right to control securities. Where the creditor's right is one of substitution only he cannot assert it until the surety's liability has become fixed. Surety's discharge does not bar the creditor's right to claim securities. Surety holding collateral may transfer it to the principal creditor. One may hold a pledge both as creditor and as surety. Dividends received in bank- ruptcy by one whose claim is in part secured by a pledge given by a surety, should be applied ratably to the whole demand. 513 COLLATERAL SECURITIES. 6l2 i S33a. Surety not released by substi- tution of one collateral se- curity for another. 534. Mutual equity between co-sure- ties. 535. Creditor is not entitled to the benefit of securities placed by one surety in the hands of another for his indemnity. § 536. Duty of debtor to pay a surety not changed on account of one surety pledging his own property to another surety. 537. When a surety's right of sub- rogation arises. 538. Surety's subrogation. 539. Effect of misapplication of property delivered to a surety. § 513. Rights of subrogation. — A surety upon paying the debt of his principal is subrogated to the benefit of any collateral security which the creditor holds for the payment of the debt; and to the benefit of all rights and remedies which, the creditor had against the principal debtor.^ This right is strictly one of subrogation. It arises, however, from a natural equity and not out of any express or implied contract.^ It does not become fixed and positive until the surety has paid the debt. Before payment he has no control over the creditor's securities ; and after payment his right is strictly one of subrogation. His claim arises only when he has extinguished the creditor's claim by pay- ing it. He is then by substitution entitled to stand in the cred- itor's place, in respect to the securities held by him for the pay- ment of the debt.^ The surety is entitled to the benefit of the creditor's securities,^ though in becoming a surety he did not rely upon them, or know of their existence.* It is immaterial, also, ' Richardson v. Washington Bank, 3 Mete. (Mass.) 536; Guild v.' But- ler, 127 Mass. 386; Johnson v. Bart- lett, 17 Pick. (Mass.) 477; Murrell V. Scott, 51 Tex. 520; Sublett v. Mc- Kinney, 19 Tex. 438; Jordan v. Hud- son, 11 Tex. 82; Greiner v. Greiner, 58 Cal. 115; Glazier v. Douglass, 32 Conn. 393, 398; Miller v. Ord, 2 Binn. (Pa.) 382; Sheldon on Subrogation, § 86; Maffat v. Greene, 149 Mo. 48, SO S. W. 809; Austin v. Belknap, 54 Vt. 495; First Nat. Bank v. Johnson, 65 Vt. 382, 26 Atl. 634; McKee v. Bernheim, 130 App. Div. (N. Y.) 424, 114 N. Y. S. 1080, affirmed, 198 N. Y. 575, 92 N. E. 1091; Orrick v. Fi- delity & Deposit Co., 113 Md. 239, n Atl. 599. A guarantor's adminis- trator is entitled to receive pledged property from pledgee's receiver when such administrator has paid the debt guaranteed by hith. Hinckley v. Col- vin, 233 111. 139, 84 N. E. 174. " Hodgson V. Shaw, 3 M. & K 183. 'Whittaker v. Amwell Nat. Bank, 52 N. J. Eq. 400, 29 Atl. 203 ; Morton V. Dillon, 90 Va. 592, 19 S. E. 654. * Lake v. Brutton, 8 DeG., M. & G. 440. 6l3 ' EIGHTS OF SURETY. § 5I3 whether the debtor -placed the securities in his creditor's hands at the time when the obligation was contracted or subsequently. Neither does it matter that, the surety became such without any contract with the principal debtor, and without his knowledge.'^ A surety is subrogated to a lien which the creditor has upon his debtor's property. Thus, where a corporation has a lien upon the stock of any stockholder for the payment of any debt due from him to the corporation, a surety for such debt upon paying it is subrogated to this lien.* If the lien does not exist by statute in all cases, but depends upon the voluntary act of the corpora- tion, unless the corporation has claimed the lien, none exists, and there is nothing to which the surety can be subrogated.'^ In this country, moreover, the surety is generally entitled to be substituted to the creditor as to the very debt itself, and to have that assigned to him;* though in England the judicial rule was finally settled otherwise, on the ground that when the debt has been paid by the surety, it is technically discharged, and therefore cannot be regarded as surviving for the benefit of the surety.' This rule was applied to all obligations which are ex- tinguished by the act of payment, such as a bond or other spe- cialty, or a judgment. A similar rule has been adopted by a few courts in this country." A statute in England, however, enacts the rule of equitable subrogation to the debt.^^ One who has become a surety on the promise of the principal debtor to transfer to the creditor stock as collateral for the debt, may afterward compel the debtor to make such trans fef.^^ But after being subrogated to the securities held by his princi- pal, the surety is not required to exhaust those securities before ° Mathews v. Aikin, 1 N. Y. S9S; 'Copis v Middleton, Turn. & R. Hughes V. Littlefield, 18 Me. 400. 224; Hodgson v. Shaw, 3 M. & K. 'KIopp V. Lebannon Bank, 46 Pa St. 88; Young v. Vough, 23 N. J. Eq 325. ' Perrine v. Mobile Ins. Co., 22 Ala 575. 'Sheldon on Subrogation, § 87: Sublett V. McKinney, 19 Tex. 438; Lumpkin v Mills, 4 Ga. 343. ■ 183, 190. "As in Massachusetts, Vermont, Alabama and Nevada; Sheldon on Subrogation, § 138. " 19 & 20 Vic, ch. 97, § 5. " McCoy V. Wilson, S8 Ind. 447. § 5^4 COLLATERAL SECURITIES. 614 obtaining judgment against his principal for the amount of the debt paid by him.^^ § 514. Pledged property is a trust for the benefit of all parties to the compact. — The foundation of this equity is that any fund placed by the principal debtor in the hands of the cred- itor or of any surety is a trust to be administered for the benefit of all the parties to the compact. In a case before the Supreme Court, Mr. Justice Matthews admirably stated the principle and its application.^* "Many sufficient maxims of the law conspire to justify the rule. To avoid circuity and multipHcity of actions; to prevent the exercise of one's right from interfering with the rights of others; to treat that as done which ought to be done; to require that the burden shall be borne by him for whose ad- vantage it has been assumed ; and to secure equality among those equally obliged and benefited, are perhaps not all the familiar adages which may legitimately be assigned in support of it. It is, in fact, a natural and necessary equity which flows from the relation of the parties, and though not the result of contract, is nevertheless the execution of their intentions. For, when a debtor, who has given personal guaranties for the performance of his obligation, has further secured it by a pledge in the hands of his creditor, or an indemnity in those of his surety, it is con- formable to the presumed intent of all the parties to the arrange- ment, that the fund so appropriated shall be administered as a trust for. all the purposes which a payment of the debt will ac- complish; and a court of equity accordingly will give to it this effect. All this, it is to be observed, as the rule verbally requires, presupposes that the fund specifically pledged and sought to be primarily applied is the property of the debtor, primarily liable for the payment of the debt ; and it is because it is so, that equity impresses upon it the trust, which requires that it shall be appro- priated to the satisfaction of the creditor, the exoneration of the surety, and the discharge Of the debtor. The implication is that "= Maffat V. Greene, 149 Mo. 48, SO " Hampton v. Phipps, 108 U. S. 260, S. W. 809. 27 L. ed. 719, 2 Sup. Ct. 622, 624. 6l5 RIGHTS OF SURETY. § 515 a pledge made expressly to one is in trust for another, because the relation between the parties is such that that construction of the transaction best effectuates the express purpose for which it was made." § 515. Discharge of surety by release of collateral. — It fol- lows that if a creditor holding collateral security surrenders it to the principal debtor without the knowledge or consent of a surety of the debt, he thereby discharges him to the extent of the value of the property surrendered.^'' But, of course, he may do "Stearns v. Bates, 46 Conn. 306; Det. Leg. N. 66, — Mich. — , 125 N. New London Bank v. Lee, 11 Conn. W. 424, 17 Det. Leg. N. 517, — Mich. 112, 27 Am. Dec. 713; Griff eth v. — , 127 N. W. 351; Payne v. Com- Moss, 94 Ga. 199, 21 S. E. 463; Un- mercial Bank, 6 Sm. & M. (Miss.) derwood v. Bass, 1 Ga. App. 623, 57 24; Green v. Dougherty, 55 Mo. App. .S. E. 953. See also Davenport v. 217; Lakenan v. North Mo. Trust State Banking Co., 126 Ga. 136, 54 Co., 147 Mo, App. 48, 126 S. W. 547; S. E. 977, 115 Am. St. 68n, 8 L. R. A. Bronson v. McCormick &c. Mach. (N. S.) 944n; Kirkpatrick v. Hawk, Co., 52 Neb. 342, 72 N. W. 312; New 80 111. 122 ; Brown v. First Nat. Bank, Hampshire Sav. Bank v. Colcord, 15 112 Fed. 901, 50 C. C. A. 602, 56 L. N. H. 119, 41 Am. Dec. 685; Sanders R. A. 870 ; Stewart v. Davis, 18 Ind. v. Reed, 12 N. H. 558, 560 ; Chester v. 74; Philbrooks v. McEwen, 29 Ind. Kingston Bank, 17 Barb. (N. Y.) 347; Holland v. Johnson, 51 Ind. 346; 271, 16 N. Y. 336; Third Nat. Bank Sample v. Cochran, 84 Ind. 594; v. Shields, 55 Hun (N. Y.) 274, 8 N. Weik V. Piigh, 92 Ind. 382; Vance v. Y. S. 298; Denny v. Seeley, 34 Ore. English, 78 Ind. 80; Bonney v. Bon- 364, 55 Pac. 976; Brown v. Rath- ney, 29 Iowa 448; State Bank v. burn, 10 Ore. 1S8; Neff's Appeal, 9 Schlamp, 30 Ky. L. 473, 99 S. W. W. & S. (Pa. St.) 36; Everly v. 216; Cromwell v. Rankin, 30 Ky. L. Rice, 20 Pa. St. 297; Wharton v. 123, 97 S. W. 415; Burgess v. De- Duncan, 83 Pa. St. 40; Otis v. Von posit Bank of Sadieville, 30 Ky. L. Storch, 15 R. I. 41, 23 Atl. 39; Har- 177, 97 S. W. 761 ; Barrow v. Shields, rison Machine Works v. Templeton, 13 La. Ann. 57; Springer v. Tooth- 82 Tex. 443, 18 S. W. 601; Darnell v. aker, 43 Me. 381, 69 Am. Dec. 66; Dolan, — Tex. Civ. App. — , 132 S. Cummings v. Little, 45 Me. 183; W. 857; Western Bank & Trust Co. Richardson v. Washington Bank, 3 v. Gibbs (Tex. Civ. App.), 96 S. Mete. (Mass.) 536, 540; Guild v. But- W. 947; Hnrd v. Spencer, 40 Vt. 581; ler, 127 Mass. 386; Baker v. Briggs, First Nat. Bank v. Johnson, 65 Vt. 8 Pick. (Mass.) 122, 19 Am. Dec. 382, 26 Atl. 634; Morton v. Dillon, 311; American Bank v. Baker, 4 90 Va. 592, 19 S. E. 654; Loop v. Mete. (Mass.) 164; Ives v. Bank of Summers, 3 Rand. (Va.) 511. Neg- Lansingburg, 12- Mich. 361. But see ligence of a creditor in collecting col- Zimmerman V. Chelsea Sav. Bank, 17 lateral securities will release a surety § 515 COLLATERAL SECURITIES. 6:6 it with such consent/' A bank upon discounting a note received as collateral security from a surety an assignment of certain shares of stock of a rail- road company, the principal debtor having previously caused a certificate of the shares to be issued to the surety. Subsequently the railroad company was consolidated with another company, and the former company issued to its stockholders coupon bonds to the full amount of its capital stock, and the consolidated com- pany also issued one share of new stock for each share of the old stock. At this time the collateral stock stood upon the books of the company in the name of the surety. The transfer to the bank was executed by an indorsement of the certificate in blank, and no new certificate was taken out by the bank. The bank, however, allowed the principal debtor to receive the bonds issued to the extent of his injury. First Nat. Bank v. Kittle, — W. Va. — , 71 S. E. 109. Where it is stated in a note signed by principal and surety that certain certificates of stock were pledged also to secure the debt, the surety after maturity may demand the sale of the collateral or pay the note and take possession of it, but where he fails to- do either he can- not contend that he is only liable for the deficit after sale of the collateral. Cromwell v. Rankin, 30 Ky. L. 123, 97 S. W. 41S. As to effect of conduct of creditor in foreclosing lien of pledge and thus preventing surety from paying debt and becoming sub- rbgated to the rights of the creditor, see Crosby v. Stratton, 17 Colo. App. 212, 68 Pac. 130; Crosby v. Wood- bury, 37 Cnlo. 1, 89 Pac. 34. Where a surety signs a note under a promise that the payee would employ the principal and apply his salary to the payment of the note and the creditor fails to so credit such salary, but pays it to the principal, the surety will be released. Underwood v. Bass, 1 Ga. App. 623, i7 S. E. 9S3. The wrong- ful surrender of collateral security will discharge the surety when the surrender is without his consent. American Bonding Co. v. Pueblo Inv. Co., ISO Fed. 17, 80 C. C. A. 97; In re Sanderson, ISO Fed. 236. A bank owning a note on which there is a surety does not release the surety by its failure to take the principal's deposit account and pay the note. Davenport v. State Banking Co., 126 Ga. 136, S4 S. E. 977, 115 Am. St. 68n, 8 L. R. A. (N. S.) 944n. Where, in an action to recover possession of property pledged to plaintiff, it is shown that it was pledged by a surety of the debtor and the surety had been discharged by the altera- tion of the contract, the defendant is entitled to the defense shown even though he had not pleaded it. Wright Steam Engine Works v. McAdam, 190 N. Y. SSO, 83 N. E. 1135. "" Batcheldor v. Jennings, 83 IlL App. 569; Darnell v. Dolan, — Tex. Civ. App. — 132 S. W. 8S7. 6l7 RIGHTS OF SURETY. §5153- upon the collateral stock without obtaining the consent of the surety. In an action by the bank against the surety upon the note, it was held that the bank having authorized the railroad company to deliver the bonds to the debtor, or having consented to such delivery, the surety was relieved from his liability upon the note to the extent of his loss by reason of the delivery of the bonds to the debtor.^^ § 515a. Surety not injured by release of collateral is not discharged. — A surrender or release of collateral security does not discharge a surety if he is not injured, and his liability is not affected thereby, as where the security released has only a nominal or imaginaiy value.^^ In State Bank v. Smith,,^" the Court of Appeals of New York say : "The release of part of cer- tain real estate, in order to make a title to one who purchased it for full value, upon condition that the purchase-money should be applied to the extinguishment of a mortgage that was a prior lien upon the whole estate, was not held to release a surety, be-- cause the transaction bettered his condition rather than other- wise.^" So the surrender of a life policy, held as collateral, upon receipt of its present value, after the principal had become bank- rupt, and it was doubtful whether he would keep up the policy, did not discharge the surety." Where a creditor released a levy on property of the principal debtor worth $90, in consideration of an order worth $100, that could not have been reached by the execution, it was held that the surety was not discharged because he was benefited by the transaction."^^ § 516. The loss of collateral discharges the surety to the extent of the loss. — If the creditor loses collateral security given him by the principal debtor, the surety is discharged to the " Fitchburg Savings Bank v. Tor- °^ Coates v. Coates, 33 Beav. 249. rey, 134 Mass. 239. "" Thomas v. Cleveland, 33 Mo. 126, '* Blydenburgh v. Bingham, 38 N. 82 Am. Dec. ISS. See also Commer- Y. 371, 98 Am. Dec. 49. cial Bank v. Western Reserve Bank, "155 N. Y. 185, 200, 49 N. E. 680. 11 Ohio 444, 38 Am. Dec. 739; Moss "Neff's Appeal, 9 Watts & S. v. PettingiU, 3 Minn. 217; Moss v. (Pa.) 36. Craft, 10 Mo. 720. § 5^7 COLLATERAL SECURITIES. 6l8 extent of the value of the security lost.^^ If, however, such col- lateral security is placed, not in the hands of the creditor, but in the hands of a trustee, who is the common agent of both the debtor and the creditor, the latter is not responsible for a loss or mismanagement of the security, unless he connives at it. A trustee, such as a trustee in a mortgage of a stock of horses or other, personal property made for the security of the creditor, is not an agent of the creditor, to such an extent as to render the latter responsible for his want of diligence in executing the trust, nor will his subsequent assent to what the trustee has wrongfully done, or neglected to do, relate back and make the creditor re- sponsible for a loss that has already occurred.^* § 517. Surety may recover from the creditor the amount of the released security. — A surety may even recover from the creditor the amount of the released security, in case the stfrety, in ignorance of the creditor's surrender or discharge of the col- ■ lateral security, has paid the debt or suffered judgment for it to be entered against him.^° "If the principal debtor has himself paid part of the debt and the surety the residue, when once the creditor is fully satisfied, the same principle of equity which, substitutes the surety who has paid the whole debt to the place of the creditor will equally extend and apply to the surety paying a part thereof, to the extent of his payment. A partial payment is sufficient to establish the surety's right against the principal debtor. It is only the creditor who can insist that the debt shall be paid in full.-'^ And when the debt has been fully paid the right "'Girard Fire & Marine Ins. Co. v. 112 Fed. 901, 50 C. C. A. 602, 56 L. Marr, 46 Pa. St. 504, 507; Union R. A. 870. Surety is not discharged Trust Co. V. Rigdon, 93 111. 458; when he consents to the release of Union Nat. Bank v. Post, 64 111. App. collateral. Darnell v. Dolan, — Tex. 404; Zimpleman v. Veeder, 98 111. Civ. App. — , 132 S. W. 857. 613, 617; Hazzard v. Duke, 64 Ind. ='Murrell v. Scott, 51 Tex. 520. 220; Wasson v. Hodshire, 108 Ind. == Morton v. Dillon, 90 Va. 592, 19 26, 8 N. E. 621; Murrell v. Scott, 51 S. E. 654; Chester v. Bank of Kings- Tex. 520; Phares v. Barbour, 49 ton, 16 N. Y. 336. 111. 370; Sherraden v. Parker, 24 =° Gedye v. Matson, 25 Beav. 310. Iowa 28; Brown v. First Nat. Bank, 6l9 RIGHTS OF SURETY.' § 517a of the surety is established to the extent of the payment made by him."" The maker of a promissory note who has notified the holder of it as a pledgee that it was given for accommodation only, is entitled to require the holder, before resorting to the note, first to credit actual payments upon other notes for which this was collateral, and also the amount of any other collateral security which he has surrendered without the maker's consent after no- tice that the latter was only a surety, and to have no judgment rendered against him in an action on the note in excess of the balance of the whole debt for which the ndte was pledged reduced by the sum of all payments which the plaintiff has actually re- ceived and of the collateral security surrendered without the_ de- fendant's consent after knowledge that he asserted that he was merely a surety. "° § 517a. One stands in the relation of surety who pledges his property for another. — A person pledging his property as security for the payment of the debt of another stands in the position of a surety of the debtor, and any change in the contract of the principal which would discharge a surety, will operate to release and discharge the property so held as collateral. This rule also applies to mortgages made by one person to secure the debt of another.^' If the maker of a promissory note pays to the holder the amount of it before it ^s due and receives the note, a surety of " Morton v. Dillon, 90 Va. S92, 19 '° Price v. Dime Sav. Bank, 124 111. S. E. 654. 317, IS N. E. 754, 7 Am. St. 367; "Beacon Trust Co. v. Robbins, 173 Crawford v. Richeson, 101 111. 351; Mass. 261, S3 N. E. 868. Citing Guild Rowan v. Sharpe &c. Mfg. Co., 33 V. Butler, 127 Mass. 386; Thayer v. Conn. 1; Burnap v. National Bank, Finnegan, 134 Mass. 62, 45 Am. Rep. 96 N. Y. 125; Bank of Albion v. 285; Fitchburg Savings Bank v. Tor- Burns, 46 N. Y. 170; Barnes v. Mott, rey, 134 Mass. 239; WilsoH V. Bryant, 64 N. Y. 397, 21 Am. Rep. 62S; 134 Mass. 291, 297; Union Institu- Christner v. Brown, 16 Iowa 130; tion for Savings v. Hill, 139 Mass. White v. Ault, 19 Ga. 551; Daviess 47, SO, 29 N. E. 219. Goodwin v. &c. Trust Co. v. Wright, 33 Ky. L. Massachusetts Loan & Trust Co., 152 457, 110 S. W. 361. Mass. 189, 25 N. E. 100. § 5^8 COLLATERAL SECURITIES. 62O the debt is discharged, although the principal and the holder of the note may not have intended that the transaction should have the effect of payment ; and a subsequent pledge of the note by the maker will not bind the surety.^" § 5 18. Proof is admissible to show that one debtor is surety for another. — When the fact that one debtor is a surety for another does not appear upon a written instrument, this collateral fact of the relation between debtors and notice of it to the cred- itor may be proved by extrinsic evidence. The right of the surety does not depend upon the form of the contract but upon equities arising out of his relation to the other parties to it ; and the creditor is affected with knowledge of this relation, acquired at any time before he does any act which alters the position of the surety.'^ § 518a. Rights of third person who buys collateral without knowledge of equitable rights of surety. — If a third person without knowledge that a surety has any equitable rights in col- lateral security takes a transfer of such security, the surety's equitable right of subrogation must yield to the right of the as- signee who has taken title without notice of any intervening right. A father and son gave their note to a savings bank in pay- ment of prior indebtedness of the son, the father giving a mort- gage upon his land to secure the note, and at the same time the son's wife also giving a mortgage upon her land, but not sign- ing the note. The son and his wife agreed to indemnify the father, but there was nothing to show that this agreement was known to the bank. Several years later the son's wife gave a second mortgage on her lot to a third person, and still later a third mortgage to another, who took assignments of the two ""First Nat. Bank v. Harris, 7 (Mass.) 285; Home v. Bodwell, 5 Wasli. 139, 34 Pac. 466. Gray (Mass.) 457; Blackmore v. =' Guild V. Butler, 127 Mass. 386; Granbery, 98 Tenn. 277, 282, 39 S. Harris v. Brooks, 21 Pick. (Mass.) W. 229; United States v. Kirkpat- 195, 32 Am. Dec. 254; Carpenter v. rick, 9 Wheat. (U. S.) 720, 6 L. ed. King, 9 Met. (Mass.) 511, 43 Am. 199. Dec. 405; Wilson v. Foot, 11 Met. 621 RIGHTS OF SURETY. § 518b mortgages to the bank and of the second mortgage given by the son's wife. On a bill in equity brought by the father to redeem his mortgage, and to be subrogated to the benefit of the first mortgage given by the son's wife to the bank, it was held that he was not entitled to such subrogation as against the Assignee of the mortgage. If the plaintiff were allowed by way of subro- gation to have the benefit of the mortgage given by the son's wife to the bank, it would impair the security of the other mortgages given by her which the defendant held. It would not be equi- table to allow this to happen as against the defendant who had taken title on the faith of what was to be gathered from the records.'^ § 518b. Discharge of surety by extension of time of pay- ment. — A surety on a note which is the principal debt is dis- charged by an extension of the time of payment of that note, without the surety's consent., A surety on the collateral note is not so discharged if the collateral note is an independent obli- gation resting on a distinct consideration; but if the considera- tion of the principal note and of the collateral are the same an extension of the principal note without the consent of the surety discharges him. "In the ordinary case of holding one note or contract as collateral to another, each note or contract rests upon a distinct consideration. The extension of time on a principal note or contract, which would release sureties upon it, would not affect a note or contract belonging to the principal debtor upon a distinct and different consideration held as collateral to it. When the principal and collateral contracts are upon separate and dif- ferent considerations, if the collateral matures after the principal, it survives and may be enforced after the principal has become barred by limitation. In such cases also where the collateral ma- tures before the principal it may be enforced before the principal debt is due. The right of action on the collateral is in no way dependent upon the principal debt, except that the principal must remain unpaid to give the right to enforce the collateral. * * * " Rand v. Cutler, ISS Mass. 451, 29 v. New York Belting & Packing Co., N. E. 1085; New England Trust Co. 166. Mass. 42, 43 N. E. 928. §.519 COLLATERAL SECURITIES. 622 While the payment of the principal might have been extended without affecting the collateral, if the agreement for the exten- sion had reserved the right to proceed on the collateral notwith- standing the extension, where no such right was reserved the extension of time for the payment of the debt extended the time on all notes or contracts held by the creditor for it, which were not supported' by a consideration different from the one for which the principal note was given. "^^ § 519. Surety not discharged by the creditor taking col- lateral. — A creditor taking collateral security from a debtor, without giving time, does not discharge a surety of the debt.'* Mere delay by the creditor to sue the principal debtor does not discharge the surety, for the obvious reason that the surety may at any time discharge his obligation to the creditor, and thus make the principal his debtor.''^ For the same reason the law implies no contract on the part of a creditor holding collateral security to proceed to enforce such security before he can sue a surety of the debt after its maturity. Neither is it any defense for the surety that the collateral has depreciated between the time of the maturity of the debt and the commencement of suit against the surety.^' § 520. Release of surety because of false statement as to collateral security. — A surety is released by any false state- ment made by the creditor as to the existing condition of the collateral security, which puts the surety off his guard, and causes him to lose the opportunity to protect himself, although the state- ment be innocently made." Thus, if a creditor informs a surety "' Slagle V. Pow, 41 Ohio St. 603, Maine 521 ; Prather v. Young, 67 Ind. 605. Also Price v. Dime Sav. Bank, 480. 124 111. 317, 15 N. E. 754, 7 Am. St. '^Forstall v. Fussell, 50 La. Ann. 367; Dodgson v. Henderson, 113 111. 249, 23 So. 273; Schroeppell v. Shaw, 360; First Nat. Bank v. Harris, 7 3 N. Y. 446, 5 Barb. (N. Y.) 580. Wash. 139, 34 Pac. 466. '° Brick v. Freehold Nat. Banking '■" Sigourney v. Wetherell, 6 Met. Co., 37 N. J. L. 307. (Mass.) 553; Norton v. Eastman, 4 "Baker v. Briggs, 8 Pick. (Mass.)- 122, 19 Am. Dec. 311. 623 RIGHTS OF SURETY. § 5^1 that the principal debtor has paid the debt, and the surety there- upon reUnquishes security which he has received from the prin- cipal, this is a good defense to an action by the creditor against the surety, though the creditor did not intend to mislead hirn.'* But where a loan was made upon a note having a memorandum that railroad bonds to a certain amount were- collateral to it, but, in fact, notes of railroad company to the same amount were de- posited as collateral, sureties upon the note were not discharged in consequence of a statement to one of them by the payee, that the bonds were deposited with the note, when the inquiry made of him did not direct his attention to the question whether the securities deposited were of the kind named in the memorandum or not ; but the inquiry was such that the creditor would naturally suppose it was directed to the point of ascertaining whether he held the securities which he had taken when the loan was made, or had surrendered them.^" § 521. Rights of a surety to show inducements which caused him to become surety. — As between a surety and a creditor to whom the principal debtor has given collateral secur- ity covering also other obligations, the surety is not precluded from showing that he was induced to become a surety for the debtor upon the faith of a parol agreement between him and the creditor to the effect that the collateral security should be applied primarily to the payment of the obligation signed by the surety, even though such parol agreement might be inconsistent with the agreement in regard to the collateral made between the principal debtor and the creditor. Such parol agreement being established, the creditor is bound to apply the proceeds of a sale of the collateral in accordance therewith. Such evidence is not liable to objection on the ground that it contradicts such written agreement, because this objection could only apply to the parties to the agreement.^" ""Carpenter V. King, 9 Met. (Mass.) "Fant v. Sprigg, SO Md. 551. 511, 43 Am. Dec. 405. Whether sureties upon other obliga- '"Fitchburg Savings Bank v. Rice, tions secured by the same collateral 124 Mass. 72. might not object to such application § 522 COLLATERAL SECURITIES. 624 § 522. Surety not entitled to be subrogated until he has paid the debt. — A surety's right of subrogation to the cred- itor's securities does not arise until the surety has paid the debt.*^ But immediately upon such payment this equity arises in favor of the surety, and he is entitled to have the securities held by the creditor turned over to him.*^ Payment itself operates as an equitable assignment of such securities to the surety. The whole debt must, however, be paid before the right of subrogation will arise ; a partial satisfaction of the debt gives the surety no right to claim the benefit of any part of the securities. A pledgee is not obliged to exhaust his collateral securities be- fore proceeding against a surety or guarantor, nor is the surety or guarantor entitled to be credited with the value of such col- laterals, but only to be subrogated to the rights of the pledgee when the debt has been paid.*^ A surety may apply securities which the debtor has placed in his hands for his indemnity as soon as the pledgor's debt falls due." § 523. Securities placed in the hands of a surety, is a trust in favor of the creditor. — On the other hand, any security for of it, was a question which was not Gratt. (Va.) 267, SO Am. Dec. 76; considered in this case, because they York v. Landis, 65 N. Car. 535 ; Den- were not parties to the controversy. ny v. Seeley, 34 Ore. 364, 55 Pac. 976 ; " Hampton v. Phipps, 2 Sup. Ct. Keel v. Levy, 19 Ore. 450, 24 Pac. 253. 622, 626. When the holder of a note For the distinction between- a con- to secure which he holds collateral, tract to indemnify against liability, sells the collateral for enough to pay and a contract to indemnify against the debt secured, the debt is paid and damage resulting from a liability, see the note cannot again be put in circu- Merchants' & Manuf's Nat. Bank v. lation. Smith v. Shippers Oil Co., Cumings, 149 N. Y. 360, 44 N. E. 173, 120 La. 640, 45 So. 533. affirming 79 Hun (N. Y.) 397, 29 N. " Klopp V. Lebanbn Bank, 46 Pa. Y. S. 782 ; Belloni v. Freeborn, 63 N. St. 88; Loughridge v. Bowland, 52 Y. 383, 390; Russell v. La Roque, 11 Miss. 546 ; MpCormick v. Irwin, 35 Ala. 352 ; Hapgood v. Wellington, 136 Pa. St. Ill; Magee v. Leggett, 48 Mass. 217. Miss. 139; Jones v. Tincher, 15 Ind. " Deering v. Russell, 5 N. Dak. 319, 308, 77 Am. Dec. 92 ; Atwood v. Vin- 65 N. W. 691. cent, 17 Conn. 575; Lewis v. Palmer, "Vest v. Green, 3 Mo. 219. 28 N. Y. 271 ; Wayland v. Tucker, 4 625 RIGHTS OF SURETY. § 523 the payment of the debt placed in the hands of a surety is a trust in favor of the creditor, which he may avail himself of at any time after the debt matures ; and it is immaterial whether the cred- itor was apprised of the giving of such security at the'time or not." The earliest case in which this equitable right is declared and enforced is that of Maure v. Harrison, decided in 1692/° The whole report is as follows : "A bond creditor shall, in this court, have the benefit of all counter-bonds or collateral security given by the principal to the surety;, and if A owes B money, and he and C are bound for it, and A gives C a mortgage or bond to indemnify him, B shall have the benefit of it to recover his debt." These authorities generally make the creditor's right to the security an absolute one, without reference to the insolvency of either the debtor or the surety, though the later cases in England have disregarded or repudiated the authority of Maure v. Har- *'McMullen v. Neal's Admr., 60 Ala. 552; Toulrain v. Hamilton, 7 Ala. 362; Ohio Life Ins. Co. v. Led- 'yard, 8 Ala. 866; Cullum v. Branch Bank, 23 Ala. 797; Seibert v. True, 8 Kan. S2; Seibert v. Thompson, 8 Kan. 65; Bronston v. Robinson, 4 B. Mon. (Ky.) 142; Moore v.' Moberly, 7 B. Mon. (Ky.) 299; Helm v. Young, 9 B. Mon. (Ky.) 394; Havens v. Fou- ■dry, 4 Mete. (Ky.) 247; Black v. Kaiser, 91 Ky. 422, 16 S. W. 89; Bal- timore & Ohio R. Co.v. Trimble, 51 Md. 99; Kunkel v. Fitzhugh, 22 Md. 567; Owens v. Miller, 29 Md. 144, 161 ; Eastman v. Foster, 8 Met. (Mass.) 19; Rice v. Dewey, 13 Gray (Mass.) 47; Thornton v. National Exchange Bank, 71 Mo. 221; Moses v. Murga- troyd, 1 Johns. Ch. (N. Y.) 119, 7 Am. Dec. 478; Heath v. Hand, 1 Paige (N. Y.) 329; Vail v. Foster, 4 N. Y. 312; Deering v. Russell, 5 N. Dak. 319, 65 N. W. 691; Cornwell's Appeal, 7 W. & S. (Pa. St.) 305; Kramer's Appeal, 37 Pa. St. 71 ; In re Martin, 1 Pearson (Pa. St.) 37; Jack V. Morrison, 48 Pa. St. 113; Rice's Ap- peal, 79 Pa. St. 168; McRady v. Thomas, 16 Lea (Tenn.) 173; Day v. Proffet, 15 Lea (Tenn.) 517; Kinsey V. McDearraon, 5 Coldw. (Tenn.) 392; Saylors v. Saylors, 3 Heisk. (Tenn.) 525; Breedlove v. Stump, 3 Yerg. (Tenn.) 257. " 1 Eq. Cas. Abr. 93, case 5. Mr. Joseph Willard, in a learned article (14 Am. Law Rev. 839, 842), to which I am much indebted, comments upon this case as follows : "This, it will be observed, states the right as an abso- lute one, and suggests no condition of insolvency on the part of either debt- or or surety as a prerequisite to the exercise of the equity ; nor any neces- sity of judgment to be first obtained by the creditor, or that the liability of the surety should be otherwise fixed; nor any limit as to the time when the creditor could enforce his right." 40— CoL. Sec. § 5^4 COLLATERAL SECURITIES. 626 rison, and have made the creditor's right to relief depend upon the bankruptcy of both the debtor and the surety/^ § 524. A creditor may have the benefit of securities even when he did not know about them when he became a creditor. — That a creditor did not rely upon securities given by the debtor to a surety, and did not know of their existence until long after they were given, does not prevent his claiming the benefit of them whenever he may learn of their existence. This point was established in an early and leading case in this country, where a bill was brought by the holder of indorsed paper to have securi- ties given by the debtor to the indorser applied for the creditor's benefit. The indorser set up in defense that he had assigned the securities, and also that he was a general creditor of the debtor, who had become insolvent. Chancellor Kent held that the cred- itor was entitled to the benefit of the indorser's securities, say- ing:** "These collateral securities are, in fact, trusts created for the better protection of the debt ; and it is the duty of this court to see that they fulfil the design. And whether the plaintiffs Were apprised, at the time, of the creation of this security, is not material. The trust was created for their benefit, or for the better security of their debt, and when it came to their knowledge they were entitled to affirm ihe trust and enforce its perform- ance." It is not necessary that the creditor should know that the debtor has secured the surety in order to enable him to claim the benefit of the security as a trust in his behalf, because the trust being for his benefit it is presumed that it has his assent.*' "The authorities place the principle upon the ground that as the secur- ity is a trust created for the better securing of the debt, it at- taches to it, and hence it is that it may be made available by the "Ex parte Waring, 19 Ves. 345. Haggerty v. Pittman, 1 Paige (N. Y.) " Moses V. Murgatroyd, 1 Johns. 298, 19 Am. Dec. 434 ; Ch. (N. Y.) 119, 7 Am. Dec. 478 Curtis V. Tyler, 9 Paige (N. Y.) 432 Pratt V. Adams, 7 Paige (N. Y.) 615 Keyes v. Brush, 2 Paige (N. Y.) 3ll 'McMulIen v. Neal, 60 Ala. 552; Kramer's Appeal, 37 Pa. St. 71 ; Mor- ganstein v. Commercial Nat. Bank of Chatsworth, 125 111. App. 397» 627 RIGHTS OF SURETY. § 525 creditor, although unknown to him at the time of the purchase of the security, for which it may have been given as an indemnity. The effect of such a transaction is the placing of means in the hands of the surety by the principal debtor to meet liability on account of his contract of suretyship. It is consequently a trust for that specific purpose, and equity will control the legal title to it in the hands of the surety, so that it may be applied to the object intended, viz., the payment of the debt to the holder."'" § 525. Rule in some states. — In several states, however, the creditor's equity is merely a right to be subrogated to the se- curities held by the surety, or a right to be substituted in the surety's place for the enforcement of any securities he may have taken from the principal debtor. The creditor's right in respect to securities in the hands of the surety is regarded as resting upon the same ground as the surety's right in respect to securities held by the creditor." "This arises not from any notion of mutual contract between the parties, that in providing for the surety the creditor shall be equally provided for, but from a principle of natural equity independent of contract; namely, that to prevent the surety from being first harassed for the debt or liability, and then turning him round to seek redress from the collateral secur- ity given by the principal, a court of equity will authorize, and even encourage, the creditor to claim through the medium of the surety, all the rights he has thus acquired, to be exercised for his benefit, and in discharge of his obligations. The claim of the creditor, therefore, is as much founded on the well-known doc- trine of substitution, as the claim of the surety to stand in the place of the creditor who has received collateral security from the debtor ; and, in my opinion, it has no other foundation. For when the principal debtor conveys property to his surety, not '" Kramer's Appeal, 37 Pa. St. 71. 253 ; Ohio Life Ins. &c. Co. v. Reeder, " Hopewell v. Cumberland Bank, 10 18 Ohio 35; Osborn v. Noble, 46 Miss. Leigh (Va.) 206; Bank v. Boisseau, 449; Carpenter v. Bowen, 42 Miss. 28; 12 Leigh (Va.) 387; McConnell v. Bibb v. Martin, 14 Sm. & M. (Miss.) Scott, 15 Ohio 401, 45 Am. Dec. 583 ; 87. Kramer v. Farmers' Bank, 15 Ohio § 526 COLLATERAL SECURITIES. 628 specifically bound to the creditor, he has no intention of giving any lien to the creditor, or to pledge the property to him for the debt; and as he has a right to dispose of his property as he pleases, provided he commits no fraud, the court virill not construe the instrument giving the lien beyond the intent ; although it M^ill, to effect the exoneration of innocent sureties, permit their sub- stitution to the creditor's rights, or his substitution to theirs."^^ § 526. Distinction between cases where the security has been given to the surety for pa5mient of the debt and where given as indemnity. — A distinction is to be observed between cases where the security has been given to the surety for the pay- ment of the debt and cases where it has been given solely for his indemnity.^' In the first class of cases the primary purpose of the debtor may fairly be taken to. be to secure the payment of the debt; while in the latter class of cases his purpose seems to be primarily to secure the surety. In the former class of cases the creditor may fairly be regarded as a direct beneficiary in the property placed in the control of the surety; but in the latter class of cases the creditor is secured only indirectly through the surety. There is, however, much difficulty in determining whether a case falls within one class or the other, from the fact that directly opposite views are taken in different jurisdictions of instruments of the same tenor. "Thus,°* where a mortgage is given in terms conditional to save the surety harmless, and to pay the notes, the former clause has been held by some courts to give the controlling character to the instrument as an indem- nity;" while with others the latter clause has been viewed as decisive that it created a direct trust to pay the debt."^® " Hopewell v. Bank of Cumberland, Black v. Kaiser, 91 Ky. 422, 16 S. W. 10 Leigh (Va.) 206, 221. 89. ■^ In New Bedford Inst. Sav. v. " 14 Am. Law Rev. 855. Fairhaven Bank, 9 Allen (Mass.) "As in Thrall v. Spencer, 16 Conn. 175, the security was merely for the 139; Jones v. Quinnipiack Bank, 29 indemnity of the surety; and the dis- Conn. 25; Constant v. Matteson, 22 tinction between an indemnity and a 111. 546; Havens v. Foudry, 4 Mete, direct trust for the payment of the (Ky.) 247; Haven v. Foley, 18 Mo. debt was pressed upon the court, but 136. was rejected as immaterial. See also ""As in Eastman v. Foster, 8 Mete. 629 RIGHTS OF SURETY. § 5^7 § 527. Distinction between creditor's equitable lien and his right of subrogation. — As between the doctrine of the creditor's equitable lien and the doctfine of his right of subroga- tion, the weight of authority seems to be clearly in favor of the former. The former properly applies to tases where the securi- ties have been placed in the surety's hands for the payment of the debt; and the latter to cases where the securities have been placed in his hands purely for his indemnity. In fact, however, there is no such sharp distinction in the application of these doc- trines to these different classes of cases; for, as already noticed, similar instruments have been regarded by different courts as falling under each of these classes. We have noticed, too, the tendency of the courts to regard the security in the surety's hands as a trust for the payment of the debt rather than as a mere indemnity to the surety. To regard it as a tnast seems better to satisfy the natural equities of the transaction. "We think," says Mr. Willard, "that subrogation fails to exhaust and satisfy the equities of the various modes in which securities are deliv- ered for the surety's indemnity, in that, first, it overlooks the real sense of the transfer, which is to reimburse the surety only if he has paid, and if he has not paid, then, to enable him to do so; in a word, t,o pay the debt, but through the surety." Secondly, by adhering so literally to the words of the transfer it confers upon the surety an absolute control over the security, which may, and often does,i utterly defeat the payment of the debt.''^ Thirdly, it is, in practice, a rule of very difficult application, because of the widely differing forms in which this indemnity is given, in some cases directly to the surety, in others in trust for him, where he can assert a control only by himself becoming a suitor in law or equity ; in other cases, again, no instrument defining the (Mass.) 19; Ross v. Wilson, 7 Sm. & 22 Md. 567; Boyd v. Parker, 43 Md. M. (Miss.) 7S3; Saylors v. Saylors, 182. 3 Heisk. (Tenn.) 525; Paris v. Hu- "Lewis v. DeForest, 20 Conn. 427, lett, 26 Vt. 308; Kunkel v. Fitzhugh, 442, 443. "Rankin v. Wilsey, 17 Iowa 463. § 528 COLLATERAL SECURITIES. 63O terms of the transfer, but only a simple delivery of the security, being made to the surety."^' § 528. The creditor's right to control securities. — ^The creditor is entitled at any time after the delivery of the security to control or enjoin any misappropriation of the security, where the creditor's right is regarded as a trust, though until the ma^ turity of the debt, his trust lien does not fully attach to the se- curity. Thus, if the surety has been indemnified by receiving collateral notes from the debtor, he will be regarded as holding such notes as trustee for the benefit of the creditor who may obtain an injunction restraining him from negotiating the notes."" Inasmuch as the creditor's right rests upon the trust in his favor he has an interest in the securities from the time they are given which he may interfere to protect, and he need not wait till the surety's liability has become fixed. A surety who has received in pledge a negotiable note can, of course, before its maturity and while it is not subject to equi- ties, transfer it ; and any one taking it for value and in good faith will not be affected by any trust in favor of the creditor, nor will he be responsible for the manner in which the surety applies the proceeds. °^ § 529. Where the creditor's right is one of substitution only he cannot assert it until the surety's liability has become fixed. — But where the creditor's right is one of substitution merely he cannot assert it until the surety's liability has become fixed, whether by maturity of the debt, or by demand or by judg- ment. Until such time the surety has full control of the secur- ities, and may dispose of them as he pleases. Thus, where rents are pledged to a surety, and before his liability was fixed, he pur- chased the fee of the premises, it was held that they were placed beyond the creditor's reach by the merger."'' The doctrine of the creditor's equitable lien has been criticized because it impliedly ™ 14 Am. Law Rev. 851. " Commercial Bank v. Shuart, 46 °° Clark V. Ely, 2 Sandf. Ch. (N. Barb. (N. Y.) 371. y.) 166. »= Rankin" V. Wilsey, 17 Iowa 463. 631 RIGHTS OF SURETY. § S3O overrides the surety's proper control of his indemnity, while he remains solvent; and on the other hand the doctrine of subroga- tion is criticized because it denies to the creditor the just protec- tion to which he is entitled."' Until the surety's insolvency he would seem to be primarily entitled to control the security, be- cause until that occurs the presumption is that he will pay the debt; but in the meantime the creditor should be entitled to enjoin the surety from wilfully misappropriating the security. Upon the insolvency of both the principal and the surety, the creditor is entitled to the benefit of security held by the surety merely for his indemnity ;°* and he is entitled to it upon the insolvency of the surety alone. It is even said that "While in no view does the insolvency of the principal debtor create the equity, although it may be a material point in defining when the creditor's claim matures, excusing demand or the like; on the other hand, the insolvency of the surety seems an indispensable element to the enforcement of that equity, and to give to it vitality.""' § 530. Surety's discharge does not bar the creditor's right to claim securities. — The discharge of the surety does not bar the creditor's right to claim the securities, which the debtor has placed in the surety's hands for the payment of the debtor for his indemnity where the creditor does not claim by subrogation, or through the surety, but by virtue of a trust which a court of equity will protect and enforce for the creditor's benefit. The trust survives the surety's discharge."" But where the creditor's right is one of subrogation, it is clear that the discharge of the surety before his liability becomes fixed will bar the creditor's right to receive and enforce the sure- ty's securities."^ " 14 Am. Law Rev. 852. (Mass.) 19; Cullum v. Branch Bank, "In re Foye, 16 Nat. Bank. Reg. 23 Ala. 797; Crosby v. Crafts, 5 Hun 572; In re Fickett, 72 Maine 266. (N. Y.) 327; Helm v. Young, 9 B. "U Am. Law Rev. 852; Lewis v. Hon. (Ky.) 394. DeForest, 20 Conn. 427; Jones v. "Osborn v. Noble, 46 Miss. 449; Quinnipiack Bank, 29 Conn. 25. Bibb v. Martin, 14 Sm. & M. (Miss.) ■"Roberts v. Colvin, 3 Gratt. (Va.) 87; Hopewell v. Cumberland Bank, 358, 359; Eastman v. Foster, 8 Mete. 10 Leigh (Va.) 206. § 532 COLLATERAL SECURITIES. 632 § 531. Surety holding collateral may transfer it to the principal creditor. — A surety holding collateral security may transfer it to the principal creditor, who is entitled upon default to proceed to make the money out of such security before suing the principal note. The rule is not changed by the fact that such security is another note and mortgage.^* But a surety holding property in pledge to indemnify him for his liability upon a note, has no right to transfer the property to the holder of the note in satisfaction of it; and if he does, the transfer does not change the status of the property as a pledge, or deprive the pledgor of his right to redeem it."' If a surety exchanges the securities he has received for others, or receives others in payment for the original securities, he will hold the new securities for the benefit of the creditor upon the same trust that he held the original securities." § 532. One may hold a pledge both as creditor and as surety. — The pledge may be given him to secure a debt due to himself, and also to indemnify him against a debt for which he is surety ; and in that case though it has been said that as between himself and the creditor the latter is entitled to be first paid out of the proceeds of the property,^^ because the surety is regarded as a quasi-trustee for the creditor as to such property; yet the better rule would seem to be to apply the security pro rata,'^ or if the surety has himself obtained the security, that he should be entitled to appropriate so much of it as might be necessary for the payment of his own demand in full." A creditor holding in pledge his debtor's goods to a greater value than the debt due him, entered into an arrangement with another creditor of the pledgor whereby he transferred the goods " Wells V. Smith, 2 Utah 39. And " Ten Eyck v. Holmes, 3 Sandf . Ch. see Phillips v. Thompson, 2 Johns. (N. Y.) 428. Ch. (N. Y.) 418, 7 Am. Dec. 535. "Moore v. Moberly, 7 B. Men. «» Morgan v. Dod, 3 Col. 551. (Ky.) 299; Ross v. Wilson, 7 Sm. & "Clark V. Ely, 2 Sandf. Ch. (N. Y.) M. (Miss.) 753. 166. "Brown v. Ray, 18 N. H. 102, 45 Am. Dec. 361. 633 RIGHTS OF SURETY. § 533 to \he other creditor, who thereupon guaranteed the payment of this debt. The debtor, though not a party to this arrangement, afterward assented to it ; and the goods subsequently having been attached as the debtor's property, it was held that although the first pledgee lost, his lien upon the goods by surrendering them to the other creditor and taking his guaranty, the latter by the debtor's assent to the arrangement, acquired as pledgee a valid lien on the goods for the payment of both debts ; a lien for the debt due to him, and a lien to indemnify him against the liability incurred by his guaranty.'* § 533. Dividends received in bankruptcy by one whose claim is in part secured by a pledge given by a surety, should be applied ratably to the whole demand. — A dividend re- ceived in bankruptcy or insolvency by a creditor whose claim is in part secured by a pledge given by a surety should be applied ratably to the whole demand; that is, ratably upon the secured and the unsecured portion of the whole demand. The surety is regarded as having secured a limited part of the entire debt, and not the unpaid balance of a debt with a limitation as to the amount of the liability. If security be given for a separate and distinct part of a debt, then a dividend arising from that part of the debt must be applied to the discharge of that part. The in- tention of the parties to the transaction is to be considered. If a surety pledge bonds to secure an unpaid balance of one hundred thousand dollars upon a much larger debt, and a dividend in bankruptcy of fifty per cent, be paid upon the whole debt, it is im- material to the surety how or by whom the balance be paid, so long as one hundred thousand dollars remain unpaid ; but if the dividend reduce the balance below that amount the surety is en- titled to the benefit of the reduction, because upon payment of the debt he would be subrogated to the creditors' lien upon the bonds.'^ § 533a. Surety not released by substitution of one collat- eral security for another. — A surety is not released by the "Treadwell v. Davis, 34 Cal. 601, "Dumont v. Fry, 14 Fed. 293, 12 94 Am. Dec. 770. Fed. 21, 13 Fed. 423. § 5333- COLLATERAL SECURITIES. 634 substitution, by the creditor, of one collateral security for another, when made in good faith and apparently for the benefit of all con- cerned. Thus, a surety is not released by the exchange, by a creditor bank, of a judgment against an insolvent principal debtor, whose property has been exhausted, for an agreement by its president individually to pay the debt out of the proceeds of the property of the debtor purchased by him at execution sale, after he has realized enough to pay an indebtedness to himself, when no bad faith appears and it is not shown that the substituted security was worth less than the judgment. The Court of Ap- peals of New York, so holding, said : "The sureties were not in- jured in fact, nor were they injured in law, unless the exchange, under any circumstances, of one collateral security for another, is so inconsistent with the legal rights of a surety as to raise a conclusive presumption of injury therefrom. No authority has been cited, and we have been able to find none, holding that a surety may not in good faith endeavor to better his situation by exchanging one kind of collateral for another that, he regards as more valuable. If a bank holds bonds of doubtful value as se- curity for a note made by sureties for the principal debtor, may it not exchange those bonds for others that it regards of greater value without releasing the sureties? If it cannot, the law de- prives it of the right to make the best use of its collateral that it can, and compels it to refrain from tiying to better its condition, lest, although acting honestly and for what it regards as its own interest as well as the interest of the sureties, it may make a mis- take to their detriment. The rule that a surety is discharged pro -tanto through the surrencjer of security by the creditor does not rest on contract, but upon the equitable principal that the property of the debtor, pledged for the payment of the debt, should be ap- plied on the debt. In such a case the surety is discharged to the extent that he is injured. A diversion of security which results in no injury to the surety does not affect his liability, for payment of the debt with the accompanying right of subrogation would be of no value.'"" " State Bank v. Smith, 155 N. Y. 185, 199, 49 N. E. 680, affirming 85 Hun (N. Y.) 200, 32 N. Y. S. 999. 635 RIGHTS OF SURETY. § 534 § 534. Mutual equity between co-sureties. — Securities placed by the principal debtor in the hands of one surety to in- demnify him for his liability, inure to the benefit of all other sure- ties for the debt." Like the other equities already spoken of, this is a natural equity, and does not depend upon any contract;'* though it is said that it may be presumed that the debtor in secur- ing one surety intended that all the sureties should share in the benefit of the security unless there be something to show that such was not his intention; for in securing one surety he may expressly exclude his co-sureties from the benefit of the security given.'" § 535. Creditor is not entitled to the benefit of securities placed by one surety in the hands of another for his indem- nity. — A creditor is not entitled to the benefit of securities placed by one surety in the hands of another for his indemnity. Thus, where co-sureties upon a bond agreed between themselves that each should be liable for the payment of a certain part of the bond, and that each should indemnify the other from all claim by reason of his liability upon the bond in excess of the sum or proportion which each was to be liable for, and each gave to the other security for the performance of his agreement; it was held upon the insolvency of the sureties as well as the prin- cipal debtor, that the securities given by the sureties to each other were not in equity securities for the payment of the principal debt, which would inure by way of subrogation to the benefit of the creditor.'" Mr. Justice Matthews, after stating the equitable rule and the grounds of it, as quoted in' a preceding section,'^ " Hampton v. Phipps, 108 U. S. 260, " Dering v. Winchelsea, 1 Cox Ch. 27 L. ed. 719, 2 Sup. Ct. 622; Aldrich 318; Brown v. Ray, 18 N. H. 102, 45 V. Hapgood, 39 Vt. 617; Fishback v. Am. Dec. 361. Weaver, 34 Ark. S69; Sheehan v. ™ Moore v. Moore, 4 Hawks. (N. Taft, 110 Mass. 331 ; Lane v. Stacy, 8 Car.) 358, 15 Am. Dec. S23n. Allen (Mass.) 41; Hartwell v. Whit- ™ Hampton v. Phipps, 108 U. S. 260, man, 36 Ala. 712; Hoffman House v. 27 L. ed. 719, 2 Sup. Ct. 622. Stokes, 50 App. Div. (N. Y.) 163, 63 =" § 514. N. Y. S. 784; Hoffman House v. Foote, 172 N. Y. 348, 65 N. E. 169. § 536 COLLATERAL SECURITIES. 636 declared that the present case could not be brought within the terms or the reason of the rule; "for, as the property, in respect to which the creditors assert a lien, was not the property of the principal debtor, and has never been expressly pledged to the payment of the debt, so no equitable construction can convert it by implication into a security for the creditor. "It is urged that the logic of the rule would extend it so as to cover the case of all securities held by sureties for purposes of indemnity of whatsoever character and by whomsoever given. But this suggestion is founded on a misconception of the scope of the rule and the rational grounds on which it is established. Of course, if an express trust is created, no matter by whom, nor of what, for the payment of the debt, equity will enforce it, accord- ing to its terms, for the benefit of the creditor, as cestui que trust ; but the question concerns the creation of a trust, by operation of law, in favor of a creditor, in a case where there was no duty ow- ing to him, and no intention of bounty. A stranger might well choose to bestow upon a surety a benefit and a preference, from considerations purely personal in order to make good to him ex- clusively any loss to which he might be subjected in consequence of his suretyship for another. In such case, neither the co-surety nor creditor could, upon any ground of priority in interest, claim to share in the benefit of such a benevolence." § 536. Duty of debtor to repay a surety not changed on ac- count of one surety pledging his own property tc another surety. — That one surety has pledged his own property to another surety for the 'same debt, does not release the principal debtor from his implied contract to repay either surety any sum he may have to pay upon the debt. A private arrangement be- tween co-sureties for the distribution of liability inter sese, does not, unless expressly so stipulated, release the liability of the com- mon principal to either of them. That one of several signers of a note pledges his own property to another, does not necessarily prove that he is really the principal debtor; for one surety may find it for his interest to pledge his property to another surety.'* " Water Power Co. v. Brown, 23 Kan. 676. 637 RIGHTS OF SURETY. § 537 § 537. When a surety's right of subrogation arises. — A surety's right of subrogation does not arise until he has paid the debt. This is true of Iiis right as against tlie creditor, and as against his co-surety as well. Therefore, if two co-sureties agree between themselves to share the responsibility for the debt in cer- tain proportions, and accordingly indemnify each other by mort- gage for such proportions, and both become insolvent without paying any part of the debt, the right of subrogation never arises between them; and for this reason, as well as for the reason that the security was not the property of the principal debtor, the cred- itor cannot enforce the security for his own benefit. "Unless one of them has been compelled to pay, and had in fact paid, an excess beyond his agreed share of the debt, there could have been no breach of the conditions of the mortgage, and. consequently no right to a foreclosure and sale of the mortgaged premises. And the amount which the mortgagor could be required to pay, as a condition to redeeming the mortgaged premises, in case of foreclosure, would be, not the amount which the mortgagee, as between himself and the common creditor, was bound to pay on account of the debt, but the amount which, as between himself and his co-surety, the mortgagor, he had paid beyond the propor- tion which, by the terms of the agreement between them, was the limit of his liability. The mortgages were not created for the security of the principal debt, but as security for a debt possibly to arise from one surety to the other. As to which of them has there been as yet any default? Plainly none as to either. And yet the complainants assert the right to foreclose them both — a claim that is self-contradictory, for, by the very nature of the ar- rangement, it is impossible that there should be a default as to both. The fact that one mortgagor had failed to perform his part of the agreement could only be on the supposition that the other had not fully performed it on his part, but had paid that excess against which his co-surety had agreed to indemnify him. There is, therefore, no right to the subrogation insisted on, be- cause there is nothing to which it can apply."*^ "^ Hampton v. Phipps, 108 U. S. 260, 27 L. ed. 719, 2 Sup. Ct. 622, 626. § 53^ COLLATERAL SECURITIES. 638 § 538. Surety's subrogation. — A surety is subrogated to securities placed in the hands of the creditor by his co-surety only to the amount he has actually paid for such co-surety.^* Ordinarily and in the absence of any express agreement co-sure- ties as between themselves are liable for equal shares of the prin- cipal debt. Thus in case there are two co-sureties, one of them upon paying the whole debt can enforce against the other the pay- ment of only half of it; and in case one such co-surety is in- solvent, the surety who has paid the debt can prove against his estate for only half the amount of the debt paid by him. He can prove for no more, although in his settlement with the creditor he has received an assignment of the debt and of the proof of the debt, which the creditor has already made for the full amount of the debt against the estate of his co-surety. In such case the creditor's proof for the whole amount of the debt against the estate of the co-surety will be expunged, and the surety who has received an assignment of the debt will be allowed to prove for only half of the amount of it. Mr. Justice Devens, delivering the opinion of the Supreme Court of Massachusetts in a case relating to the rights of co-sureties under such circumstances, said f^ "If it be conceded that the surety paying the debt is equitably entitled to the benefit of such security as may have been deposited with the creditor by the other surety, or may have been obtained against him, the question still remains whether he is entitled to such security, only to the extent of enforcing a claim for that which he has paid on behalf of the co-surety, or whether he may enforce the full claim which the creditor had against the co-surety, provided that he does not himself thus ob- tain more than he has actually paid on behalf of the co-surety. The latter is the contention of the plaintiff. Upon the inquiry involved, the authorities are certainly conflicting." After re- viewing the authorities the learned judge continued : "In this "Glasscock v. Hamilton, 62 Tex. Green, 3 Mete. (Mass.) 360. See, 143. however, Apperson v. Wilbourn, 58 '=New Bedford Institution for Sav- Miss. 439; Hess's Estate, 69 Pa. St. ings V. Hathaway, 134 Mass. 69, 45 272. Am. Rep. 289n. See Bowditch v. 639 RIGHTS OF SURETY. § 539 conflict of authority, we are brought to the conclusion that neither in his own name nor in that of the creditor ought the surety- paying the debt to enforce any claim against his co-surety, except for the amount actually paid by him for his co-surety, and if, by reason of the insolvency of such surety, there is a loss, it is one to which the relation in which they stand to each other compels him to submit." § 539. Effect of misapplication of property delivered to a surety. — The fact that one surety has misappropriated prop- erty delivered to him by the debtor as collateral security for his liability, is no defense to an action by the creditor against a co-surety. The creditor having no possession or control of the security in such case, cannot be held responsible for a fraudulent conversion of it by the surety.'" " Prather v. Young, 67 Ind. 480. CHAPTER XIV. PAYMENT AND REDEMPTION. t 540. Payment of the debt discharges the pledge. 541. Renewal of note does not ex- tinguish the debt or release collateral. S41a. Substitution of other collateral for that first pledged. S41b. Payment made by surrender of pledged note and a transfer of collateral to pledgee. 542. Tender of amount due. 543. It is conversion for pledgee to refuse a tender properly made. 544. Creditor has no power over collateral except to hold it after his debt has been paid. 545. A tender to be effective must be absolute. S45a. Tender must be made in good faith. 546. When a tender need not include interest. 547. Discharge of surety upon ten- der made. 548. A pledge covering several dis- tinct debts. 548a. Right of pledgee where a pledge secures two notes, one better secured than the other. 549. Application of general pay- ment. 550. Proceeds of pledged property must be applied to the pay- ment of the debt secured. § 550a. Creditor holding collateral and also accommodation indor- see's note must apply collat- eral first to relieve the accom- modation indorser. 550b. Pledgee of the surplus after satisfying the principal debt. 551. Creditor cannot apply collateral for any other purpose than that for which it is held. S51a. Does the application of the proceeds of collateral secur- ity to the principal debt con- stitute part payment which interrupts the statute of lim- itation ? 551b. Payments made from proceeds of sale of collateral security. 552. In general. 553. The right to redeem attaches to every pledge. 554. An agreement by pledgor that title to pledged property shall vest on default will not be enforced. 555. A pledge may be accepted in satisfaction of the debt if agreed upon after pledge is created. 556. Generally a bill in equity will not lie to redeem property from a pledgee. 557. Where an account is wanted a bill in equity may be main- tained. 640 641 PAYMENT AND REDEMPTION. § 540 § SS8. Rule where shares of stock in a corporation are pledged. 559. A court of equity may compel specific delivery to the pledg- or. 560. Right to redeem may be en- forced by a representative of a deceased pledgor. 560a. Upon redemption a pledgee is entitled to charge payments he has made to keep the pledge alive. 561. Action to redeem is not pledgor's only remedy. 562. Trover may be maintained for the conversion of bank bills specially pledged. 563. Sale by pledgee for non-com- pliance with unjustified de- mand. 564. Pledge obtained by false repre- sentations. 565. Principal liable for misappro- priation of negotiable collat- erals, by his agent. 566. Refusal of a proper tender is conversion. 567. Pledgee's refusal to return property to pledgor after the payment of the debt because sued by third person claim- ing title may be guilty of con- version. 568. Pledgee may show as a reason for not returning pledged property that the title and right of possession is in a third person. 569. Burden of proof where pledgee sets up title in a third per- son. 5/0. A tender is generally necessary to a recovery of the securi- ties. § S71. Unauthorized sale of pledge by pledgee not conversion. 571a. It is conversion for pledgee by unauthorized sale to put a pledge beyond his control. S71b. Not conversion where pledge transferred is not placed be- yond pledgee's control. 572. When tender or demand un- necessary before action by pledgor for conversion. 573. A wrongful conversion by the pledgee may be waived by the debtor. S73a. Pledgee does not forfeit his lien by unauthorized sale of pledged property. 574. Measure of damages. 575. Conversion of negotiable paper. 576. What may be shown in mitiga- tion of damages; 577. Pledgee in an action for con- version may recoup or set off the debt secured. 578. Counterclaim. 579. Right of pledgor to recover pledge from pledgee if pledgee be paying pledgor's debt to first pledgee. 580. Recovery by pledgor in assump- sit when pledgee has sold pledged chattels. 581. Pledgee cannot claim pledge on account of the debt due him being barred by the statute of limitations. 582. Debtor cannot recover back pledged security because his debt is barred by the statute of limitations. 583. Running of the statute of limi- tations. S83a. Collections on collateral re- garded as payments. § 540. Payment of the debt discharges the pledge.— Pay- ment of the debt for which the collateral security was taken dis- 41 — Col. Sec. § 540 COLLATERAL SECURITIES. 642 charges the pledge, and the security will not apply to any new or other indebtedness unless there be an agreement of the parties that it shall so apply. ^ Whether the security be a chatted or a chose in action, the payment of the debt by the pledgor revests in him the beneficial interest, and he becomes again the absolute owner. ^ And payment or tender of payment is the only means whereby the pledgor can by his own act reinvest himself with the right of pos- session of the pledge. ** Under the civil code of California,^ where a pledgor seasonably tenders payment of a debt secured by pledge, interest on the debt ceases from the date of the ten- der," and voluntary payments of expenses by the pledgee after a tender thus made cannot be added. Anything that effects a satisfaction of the debt is payment.* Payment may be made as well by the delivery and acceptance of personal property as by the delivery and acceptance of money. ' Biebinger v. Continental Bank, 99 U. S. 143, 25 L. ed, 271; National Safe &c. Trust Co. v. Gray, 12 App. Cas. (D. C.) 276; Gilpen v. Leksell, 54 Kan. 674, 39 Pac. 176; Callanan v. Smart, 60 Iowa 305, 14 N. W. 328; First Nat. Bank v. Germania &c. Trust Co., 112 Ky. 734, 23 Ky. Law 2123, 66 S. W. 716; Ware v. Barnard &c. Mfgr Co., 94 111. App. 498 ; As- sets Realization Co. v. Howard, 127 N. Y. S. 798, 70 Misc. 651; Wilkin- son V. Misner, 158 Mo. App. 551, 138 S. W. 931 ; Smith v. Shippers Oil Co., 45 So. 533 ; In re Rudd, 180 Fed. 312. 'Lapping v. Duffy, 65 Ind. 229; Compton V. Jones, 65 Ind. 117; Ward V. Ward, 2il Mich. 253; Merrifield v. Baker, 9 Allen (Mass.) 29; Alabama Gold L. Ins. Co. v. G; Woodward v. Echols, 58 Ala. 665 ; Conner v. Banks, 16 Ala. 42, 52 Am. Dec. 209; Selma Bridge Co. v. Harris, 132 Ala. 179, 31 So. 508; Warrior Coal &c. Co. v. Nat. Bank, — Ala. — , SZ So. 997; Collins V. Dawley, 4 Colo. 138, 34 Am. Rep. 72; Partridge v. Williams, 72 Ga. 807; Worcester Nat. Bank v. Chee- ney, 87 111. 602; Citizens' Nat. Bank V. Dayton, 116 111. 257, 4 N. E. 492; Fairbank v. Merchants' Nat. Bank, 132 111. 120, 30 111. App. 28, 22 N. E. 524; Beidler v. Crane, 135 111. 92, 25 N. E. 655, 25 Am. St. 349; Price v. Dime Sav. Bank, 124 111. 317 (Price V. Reed, 15 N. E. 754); First Nat. Bank v. Gunhus, — Iowa — , 110 N. W. 611; Hawkins v. Fourth Nat. Bank, 150 Ind. 117, 49 N. E. 957; Morehead v. Citizens' Deposit Bank, — Ky. — , 113 S. W. SOI; Cotton v. Atlas Nat. Bank, 145 Mass. 43, 12 N. E. 850 ; Taber v. Hamlin, 97 Mass. 489; 93 Am. Dec. 113; Shaw v. Clark, 49 Mich. 384, 13 N. W. 786, 43 Am. Rep. 474; Waldron v. Murphy, 40 Mich. 668; Post v. Springsted, 49 Mich. 90, 13 N. W. 370; Balme v^ Wambaugh, 16 Minn. 116; Moore v. Norman, 43 Minn. 428, 19 Am. St. 247, 45 N. W. 857, 9 L. R. A. 55n; Crawford v. Spencer, 92 Mo. 498, 4 S. W. 713, 1 Am. St. 745n; Comings V. Leedy, 114 Mo. 454, 21 S. W. 804; New Hampshire Sav. Bank v. Gill, 16 N. H. 578 Holland Trust Co. v. Wad- dell, 75 Hun (N. Y.) 104, 26 N. Y. S. 980, affirmed 151 N. Y. 666, 46 N. E. 1148; Merchants' Nat. Bank v. Hall, 83 N. Y. 338, 38 Am. Rep. 434 ; Meek- er V. Waldron, 62 Neb. 689, 87 N. W. 539; Dayton Nat. Bank v. Mer- chants' Nat. Bank, 7,1 Ohio St. 208; Patterson v. Johnston, 7 Ohio 225; Robinson & Co. v. Stiner, 26 Okla. 272, 109 Pac. 238; Shrewsbury Sav. Inst. Appeal, 94 Pa. St. 309; Lytle's Appeal, 36 Pa. St. 131 ; Boyd v. Con- shohocken, 149 Pa. St. 363, 24 Atl. 287; Girard F. &c. Ins. Co. v. Marr, 46 Pa. St. 504 ; Laucks v. Michael, 154 Pa. St. 355, 26 Atl. 314; Pinney v. Kimpton, 46 Vt. 80, 83; Moses v. 645 PAYMENT AND REDEMPTION. § 5413. the original note, and the execution of a new note in renewal of the remainder of the debt not paid, a pledge taken as security for the original note will stand as security for such new note, in the absence of any agreement to the contrary.^' An unexpressed intention of the pledgor that the collateral shall not apply to and secure a renewal of the note secured, which is merely an extension of the time for payment, cannot defeat the right of the pledgee to hold the security until the debt is satis- fied." In Massachusetts, however, the rule is that there is a prima facie presumption that a note taken in renewal of an antecedent note or debt is received in payment of such prior note or debt.'* But this presumption may be rebutted by evidence that it was not the intention of the parties that the renewal should have this effect, and this intention may be inferred from proof that, if thus treated, the party taking the new note will have relinquished valuable security, as where a new note is given for an old one se- cured by a mortgage,^" or a pledge. § 541a. Substitution of other collateral for that first pledged. — A substitution of other securities for those origi- nally pledged does not affect the pledgee's rights except as the new securities are more or less valuable than the old. He holds the new securities in place of those originally taken, and may enforce them and apply the proceeds to the payment of the debt secured. '° Trice, 21 Gratt. (Va.) 556, 8 Am. Mass. 36 ; Stevens v. Wiley, 165 Mass. Rep. 609; Ratcliff v. Vance, 2 Mill 402, 407, 43 N. E. 177. Const. (S. Car.) 239. "Bryant v. Pollard, 10 Allen "Dayton Nat. Bank v. Merchants' (Mass.) 81; O'Conner v. Hurley, 147 Nat. Bank, 37 Ohio St. 208 ; Varnado Mass. 145, 16 N. E. 764. V, Thompson, 129 La. 15, 55 So. 693; '° Sawyer v. Turpin, 91 U. S. 114, Citizens' Bank & Trust Co. v. Thorn- 23 L. ed. 235 ; Clark v. Iselin, 21 ton, 174 Fed. 752, 98 C. C. A. 478. Wall. (U. S.) 360, 22 L. ed. 568; Tif- " Williams v. National Bank, 72 fany v. Boatmen's Inst., 18 Wall. (U. Md. 441, 20 Atl. 191. S.) 375, 21 L. ed. 868; Greenwell v. " O'Conner v. Hurley, 147 Mass. Haydon, 78 Ky. 534 ; Mahaska County 145, 16 N. E. 764; Green v. Russell, State Bank v. Crist, 87 Iowa 415, 54 132 Mass. 536; Ely v. James, 123 N. W. 450 ; Des Moines Nat. Bank, v. § S4ib COLLATERAL SECURITIES. 646 § 541b. Pasnnent made by surrender of pledged note and a transfer of collateral to pledgee. — Payment may be made by a surrender by the pledgee of the note secured and a transfer of the pledge to him by the pledgor, who cannot afterward redeem the pledge unless the surrender of the pledge was obtained by fraud. Thus, where the pledgee of shares of stock surrendered to the pledgor a paper evidencing the pledge, and also surrendered the notes to secure which the pledge was made, marking them "paid," and the pledgor executed and delivered to the pledgee an absolute bill of sale of the shares, the chancellor will not, in the absence of strong evidence of fraud, set aside the contract and permit the pledgor to redeem.^' § 542. Tender of amount due. — A tender of the amount due on a debt for which property is held in pledge, or for which collateral security has been given, no objection being made to the aniount or sufficiency, wholly discharges the lien of the pledge, and revests the title to the thing pledged in the pledgor, so as to entitle him to maintain trover or replevin therefor.^' In this re- Chisholm, 71 Iowa 675, 33 N. .W. 234; Stevens v. Blanchard, 3 Cush. (Mass.) 169 ; Girard Fire &c. Ins. Co. v. Marr, 46 Pa. St. 504; Searight v. Carlisle Dep. Bank, 162 Pa. St. 504, 29 Atl. 783; Smith v. Hiles-Carver Co., 107 Ala. 272, 18 So. Zl. In support of same principle see Dayton Nat. Bank V. Merchants' Nat. Bank, 37 Ohio St. 208. " Cunningham v. Jones' Exrs., 108 Ky. 728, 57 S. W. 488. "RatcliflF V. Davis, Cro. Jac. 244, Yelv. 178, 1 Bulstr. 29; Coggs v. Ber- nard, 2 Ld. Raym. 909, Holt 528 Ryall V. Rowles, 1 Atk. 165, 167 Mitchell V. Roberts, 17 Fed. lift Latta V. Tutton, 122 Cal. 279, 54 Pac 844; Haile v. Smith, 113 Cal. 656, 45 Pac. 872; Loughborough v. McNevin, 74 Cal. 250, 14 Pac. 369, 15 Pac. m, 5 Am. St. 435 ; McCalla v. Clark, 55 Ga. 53; Hancock v. Franklin Ins. Co., 114 Mass. 155; Hathaway v. Fall River Nat. Bank, 131 Mass. 14; Moy- nahan v. Moore, 9 Mich. 9, n Am. Dec. 468n; Stewart v. Brown, 48 Mich. 383, 12 N. W. 499; Norton v. Baxter, 41 Minn. 146, 42 N. W. 865, 16 Am. St. 679, 4 L. R. A. 305 ; Ras- kins V. Kelly, 1 Robt. (N. Y.) 160, 1 Abb. Pr. (N.' S.) 63; Bowman v. Hoffman, 20 N. Y. S. 415; Lawrence V. Maxwell, 53 N. Y. 19; Cass v. Hig- enbotam, 100 N. Y. 248, 3 N. E. 189; Kortright v. Cady, 21 N. Y. 343, 78 Am. Dec. 145n; Lehmeyer v. Provi- dent Loan Society, 31 Misc. (N. Y.) 719, 65 N. Y. S. 313; Moyer v. Leav- itt, 82 Neb. 310, 117 N. W. 698; Wil- kins V. Redding, 70 Neb. 182, 97 N. W. 238; Rodgers v. Grothe, 58 Pa. St. 414; Davis &c. v. Bigler, 62 Pa. St. 242, 1 Am. Rep. 393; Appleton v. Donaldson, 3 Pa. St. 381; RatcHff v. Vance, 2 Mill's Const. (S. Car.) 239; 647 PAYMENT AND REDEMPTION. § 543 spect a tender is equivalent to actual payment. A tender of a part of the amount of the debt will not have the effect to revest the title to any part of the property pledged i^" the debt must be paid as a whole, and the tender to be effectual must be co-exten- sive with the whole debt secured.^" In one respect a tender is not equivalent to payment; for although the lien is discharged by either, the debt is not dis- charged by a tender, but the pledgee may still maintain his action for this. If a pledgor suffers the thing pledged to remain in the pos- sfession of the pledgee after tender of payment, and takes no steps to recover possession, he authorizes others to regard the pledge as still subsisting, and he cannot recover the thing pledged from an innocent purchaser without paying him the amount se- cured by the pledge.^'- A pledgor waives his right to treat a tender as a discharge of the lien by bringing an action against the pledgee for money had and received after the latter has sold the pledged property.^'' § 543. It is conversion for pledgee to refuse a tender prop- erly made. — A creditor by refusing a tender properly made of the amount of the debt secured by a pledge, converts it to his own use. He makes it his own so far as to run the chance of any depreciation that may afterward occur. He cannot sue for and recover the debt without making a proper allowance for the value of the pledge as it was at the time of the tender in re- ducing or satisfying the debt.^^ If in such case there be a surety of the debt, he is released ; for the surety is entitled to have the Ball V. Stanley, 5 Yerg. (Tenn.) 199, " Griswold v. Jackson, 2 Edw. Ch. 26 Am. Dec. 263; Hyams v. Bamber- (N. Y.) 461; affirmed 4 Hill (N. Y.) ger, 10 Utah 3, 36 Pac. 202, 205, quot- 522 ; Hyams v. Bamberger, 10 Utah 3, ing text. 36 Pac. 202, 205, quoting text ; Hath- "Appleton V. Donaldson, 3 Pa. St. away v. Fall River Nat. Bank, 131 381. Mass. 14; Hancock v. Franklin Ins. "Bigelow V. Young, 30 Ga. 121. - Co., 114 Mass. 155; Loughborough v. ''Bradley v. Parks, 83 111. 169. McNevin, 74 Cal. 250, 14 Pac. 369, IS "" Hancock v. Franklin Ins. Co., 114 Pac. 773, 5 Am. St. 435. Mass. 155. § 544 COLLATERAL SECURITIES. 648 security delivered up to him upon his paying the debt ; and when the creditor has by his own act destroyed the security or rendered it valueless, or put it out of his power to give the surety the bene- fit of the substitution, the latter is discharged.^* Upon the pledgee's refusal of a tender of the whole amount of the debt secured, the debtor may maintain trover for the prop- erty, and he is entitled to damages to the full value of the prop- erty, without any abatement for the amount for which the prop- erty was pledged. The creditor must resort to an action to re- cover the debt. 'The refusal of the tender discharges the lien upon the property and places the parties, in relation to the prop- erty, in the same position as if the debt had been paid and no pledge had ever existed. ^^ § 544. Creditor has no power over collateral except to hold it after his debt has been paid. — Upon tender or payment of the specific debt secured by pledge, the creditor has no power over the collateral security except to hold it, and deliver it to the debtor upon demand. The fact that shares of stock have been pledged to secure a promissory note which provided that the holder might sell the collateral on default, "he giving me credit for any balance of the net proceeds of such sale, and paying all sums then due from me to said holder," does not give the holder any right to re- tain the stock as security for any other debt after payment or ten- der of payment of the note.^° The event upon which the holder " Griswold v. Jackson, 2 Edw. Ch. debt or after tender cannot keep pos- (N. Y.) 461. session from the pledgor because of "^ Ball V. Stanley, 5 Yerg. (Tenn.) a notice served on him by an alleged 199, 26 Am. Dec. 263 ; Hyams v. Bamr purchaser to hold the same when the berger, 10 Utah 3, 36 Pac. 202, 205, agreement under which such pur- quoting text ; Loughborough v. Mc- chaser claimed is not shown to be val- Nevin, 74 Cal. 250, 14 Pac. 369, IS id. Houston &c. R. Co. v. Conner, — Pac. 773, 5 Am. St. 435 ; Mitchell v. Tex. — 67 S. W. m. Roberts, 17 Fed. 776 ; Norton v. Bax- =° Hathaway v. Fall River Nat. ter, 41 Minn. 146, 42 N. W. 865, 16 Bank, 131 Mass. 14. Pledgor cannot Am. St. 679 ; Tom Boy Gold Mines redeem from a sale of stock where he Co. V. Green, 11 Colo. App. 447, 53 consented to the sale of one-half of it Pac. 845. Wilkins v. Redding, 70 to apply on his loan and he is unable Neb. 182, 97 N. W. 238. One holding to accept pledgee's offer to buy it collateral after payment of principal back at the prevailing price when he 649 PAYMENT AND REDEMPTION. § 545 was authorized to credit the pledgor with the proceeds of the col- lateral and to pay therewith other debts due from him, does not occur when payment or tender is made before the creditor exer- cises his power of sale. Upon payment or tender the pledgor or any one standing in his place is entitled to receive the stock dis- charged of the lien created by the pledge. The pledgor's assignee in insolvency or his trustee for the benefit of his creditors would be entitled to his rights in such case, so that in an action to redeem the pledged stock, the creditor could not set off other debts due him from the pledgor at the time the note matured.^' Moreover, it would be no defense to a bill by such assignee that the creditor had applied the pledged stock in payment of other debts clue from the pledgor. ^° Cases in which it is held that the damages in trover may be mitigated by proof that the goods converted have been restored to the owner, or their proceeds applied to his use or to payment of his debts, would have no application as against such assignee, because he represents not merely the pledgor but his creditois. § 545. A tender to be effective must be absolute. — A ten- der, to have the effect of discharging the lien of a pledge, must be absolute and unconditional, and must in all other ways conform to the general rules relating to the mode of making a tender. The money need not be actually produced, if the debtor has it ready and offers to pay it, but the creditor dispenses with the pro- duction of it in any manner, as for instance, by expressly saying to the debtor that he need not produce the money, as he would not accept it.^" But a bare refusal to receive the sum offered, discovered the sale, if he should fur- the pledgee cannot refuse to give it nish the required margin. Swann v. to him on the ground that the pledgor Baxter, 36 Misc. (N. Y.) 23.3, 1i N. had parted with his title and agreed Y- S. 336. vvith another that the pledgee might "Hathaway v. Fall River Nat. hold possession subject to the con- Bank, 131 Mass. 14; Stetson v. Ex- tract of sale. Houston &c. R. Co. v. change Bank, 7 Gray (Mass.) 425. Conner, — Tex. — , 67 S. W. 773. "" Hathaway v. Fall River Nat. ^Thomas v. Evans, 10 East 101; Bank, 131 Mass. 14. When the pledg- Kraus v. Arnold, 7 Moore 59; Han- or of stock has paid his debt he is en- cock v. Franklin Ins. Co., 114 Mass. titled to the collateral securing it and 155. § 545 COLLATERAL SECURITIES. 65O and a demand of a larger sum are not enough to excuse an actual tender of the money. Thus, where a debtor met his creditor for the purpose of redeeming stock held in pledge, and the amount due upon it having been agreed upon, the debtor's agent and broker was about to fill up a check for the amount, when the cred- itor requested that the business should be postponed till the next day, and demanded the whole value of the stock, amounting to much more than the sum liquidated, under the pretense that he was responsible as surety for the debtor, on another and separate account, the tender was held to be ineffectual.^" A tender accompanied with a demand for a receipt, or a dis- charge of the lien or a return of securities, is not an uncondi- tional tender. A tender should not be accompanied with a de- mand for anything more than the production and delivery of any negotiable paper representing the debt which is sought to be paid.^^ Moreover, the tender must at all times be kept good ; that is, the debtor must constantly keep on hand the money tendered, separate from his other money, ready to pay over to the creditor whenever he might be ready to take it, and must bring the money into court. '^ If the pledgee at the time of the tender admits its sufficiency, he cannot afterward object to it on the ground that it was accompanied by conditions to which he was not bound to ac- cede ;'' and he cannot afterward object to the tender on the ground that the sum tendered was insufficient. Thus, if the pledgor makes a tender, and the pledgee does not inform him that the sum is insufficient, and then refuses to deliver the collateral securities on the ground that the sum is insufficient to redeem them, the pledgor is entitled to recover the possession of the se- curities, or a judgment for their value.'* "Dunham v. Jackson, 6 Wend. (N. ^^ Barnhart v, Fulkerth, 73 Cal. 526, Y.) 22. ISPac. 89. "'Cass V. Higenbotam, 27 Hun (N. "August v. O'Brien, 30 Misc. (N. Y.) 406; Brooklyn Bank v. De Grauw, Y.) 54, 61 N. Y. S. 720. Where the 23 Wend. (N. Y.) 342, 35 Am. Dec. amount of a debt is in dispute, a ten- 569. der of a sum less than claimed by the '"Cass V. Higenbotam, 27 Hun (N. pledgee, coupled with a demand for Y.) 406, 100 N. Y. 248, 3 N. E. 189. return of collateral, is not sufficient. 651 PAYMENT AND REDEMPTION. § 545a Whether a tender after the maturity of the debt secured must be kept good, or the money paid into court in order to discharge the hen of mortgage of real property is a question upon whicli the authorities are not agreed.'^ In some states the rule on this subject is not the same in respect to mortgages of personal prop- erty as it is in respect to mortgages of real property, because a mortgage of personal property vests the legal title, while in many states the mortgage of real property is merely a lien. In a pledge the title generally remains in the pledgor, and accordingly it is generally held that a tender need not be kept good in order to dis- charge the lien.''* Although a statute provides that an offer in writing to pay a particular sum of money is, if not accepted, equivalent to the actual production and tender of the money, such a tender does not have the effect of an actual tender, unless made in good faith, with the ability to produce the money.^' § S45a. Tender must be made in good faith. — The tender must be made in good faith with the intention to make an actual payment of the debt, and the refusal must be without a just and reasonable cause, to have the effect of discharging the lien. Where notes were pledged under an agreement that they should be surrendered on the payment of a sum named, and the pledgor tendered this amount to tl^e attorneys of the pledgee who held the debt secured for collection, but not the notes pledged, the attor- neys replied that they had not possession of the notes and could not deliver them. A few days after the pledgee Wilkins v. Redding, 70 Neb. 182, 97 cruses him from actually producing the N. W. 238. money at the time of making the ten- °° See Jones on Mortgages, §§ 892, der, but it excuses no other act or re- 893. quirement on his part which would be ""Mitchell V. Roberts, 17 Fed. 776; necessary to make a valid tender, in- Lo'ughborough v. McNevin, 74 Cal. dependently of the statute. To hold 250, 14 Pac. 369, IS Pac. HZ, S Am. otherwise would be to turn the stat- St. 435; Cass v. Higenbotam, 100 N. ute, which was intended as a mere Y. 248, 3 N. E. 189. convenience into an instrument of " Hyams v. Bamberger, 10 Utah 3, fraud to hinder and delay creditors in 36 Pac. 202. "Where a person makes the collecting of their claims." a tender in writing, the statute ex- § 546 COLLATERAL SECURITIES. 652 offered to deliver the notes on the payment of the amount named, which was refused. It was held that there was no unreasonable or absolute refusal by the pledgee to deliver the notes, nor any offer in good faith by the pledgor to pay them, and that the lien was not lost.'^ § 546. When a tender need not include interest. — A tender need not include interest upon the debt if none was contracted for, and none has accrued by way of damages after a demand. Thus, upon a pledge of a watch by way of a sale of it for eighty-two dollars, with an agreement that the seller should have it again in thirty days upon the payment of eighty-seven dollars, a tender of the latter sum was held sufficient, the five dollars bonus being regarded as in lieu of interest.^" § 547. Discharge of surety upon tender made. — Upon the tender of the amount of a debt for which an accommodation note is held as security, the maker of such note, being in effect a surety, is discharged. The creditor by a tender from the principal debtor has in his hands the means of payment, and by his refusal to ac- cept it discharges the surety; and in an action by the creditor upon the collateral note, the maker of that need not plead the tender, or bring the amount into court.*" § 548. A pledge covering several distinct debts. — Where a pledge covers several distinct debts, contracted at divers times, the moneys arising from the pledge should be applied to the dis- charge of the debts, in the order in which they were contracted, provided the circumstances are such that neither the debtor nor creditor has the right to determine the application of the pro- ceeds, and the pledge was made in security of the several debts in such a way that the debtor pledged for each debt what remained of the pledge, after payment of the next previous debt.*^ "* Malone v. Wright, 90 Tex. SO, 36 '" Appleton v. Donaldson, 3 Pa. St. S. W. 420; Hyams v. Bamberger, 10 381. Utah 3, 36 Pac. 202. " Jones v. Benedict, 83 N. Y. 79, "Hines v. Strong, 46 How. Pr. (N. affirming 17 Hun (N. Y.) 128, 11 N. y.) 97; affirmed, 56 N. Y. 670. Y. Weekly Dig. 428. See Pattison v. 653 PAYMENT AND REDEMPTION. § 548a The rule is general that the application should be made upon the oldest unsecured debts, with the exception that if there is a surety upon any debt, the application will first be made upon that debt for the surety's relief/^ Where a debtor executed a mortgage to secure a note and advances to be made, and after advances were made, but before maturity, the mortgagee assigned the note as collateral security and thereafter made an assignment of all his property, including the mortgage, for the benefit of creditors, and the mortgagor delivered to the assignee for creditors' part of the crop covered by the mortgage, which the latter converted into money, the pledgee was entitled to have the money applied on the note in preference to the account for future advances. ^^ "There are, however, well considered cases holding that the creditor may, in the absence of appropriation by the debtor, apply moneys received upon foreclosure of collaterals given by the debtor to secure two or more debts upon the otherwise unse- cured debt, on the ground that he is entitled to the benefit of all his securities."** § 548a. Right of pledgee where a pledge secures two notes, one better secured than the other. — Where a pledge secures Hull, 9 Cow. (N. Y.) 747, and note, 111 Pa. St. 548, 555, S Atl. 36, 56 Am. m. Where it is shown by the holder Rep. 299 ; 2 Daniel on Negotiable In- of collateral security that he receives struments, § 1252. . v it as a blanket security to be applied "Walton &c. Co. v. Davis, 114 N. by him on default of payment of any Car. 104, 19 S. E. 159. of the notes held by him it is not suf- " First Nat. Bank v. Finck, 100 Wis. ficient to show that the collateral se- 446, 453, 16 N. W. 608, citing Small v. curity could be applied pro rata on all Older, 57 Iowa 326, 10 N. W. 734; of such notes. Stoddard v. Courth- Wilson v. Allen, 11 Ore. 154, 2 Pac. right, 130 Mich. 134, 8 Det. Leg. N. 91 ; California Nat. Bank v. Ginty, 108 1180, 89 N.W. 710. Where collateral Cal. 148, 41 Pac. 38; Matthews v. secures three notes the pledgor on Switzler, 46 Mo. 301. See, also, Wood paying two of them is not entitled to v. Callaghan, 61 Mich. 402, 28 N. W. receive back a part of the collateral., 162, 1 Am. St. 597 ; Morrison v. Citi- Ex parte Powell, 74 S. Car. 193, 54 S. zens' Nat. Bank, 65 N. H. 253, 20 Atl. E-^236. 300, 23 Am. St. 39; Northern Nat. " Blackmore v. Granbery, 98 Tenn. Bank v. Lewis, 78 Wis. 475, 47 N W 277, 39 S. W. 229; Pardee v. Markle, 834. § 549 COLLATERAL SECURITIES. 654 two notes of the same date, one of which is better secured than the other, the pledgee has a right in the absence of any modifying agreement to have the collateral applied upon the obligation which is most precarious by reason of being least secured.^' § 549. Application of general payment. — A general pay- ment may be applied by the creditor as he may determine. A creditor holding security for various notes of his debtor, some of which bear the names of sureties, may apply general payments, or sums of money received from the security, to the payment of such of the notes as may be necessary for his own protection; and the sureties upon other notes cannot avail themselves of the security in any way, without paying or tendering the whole amount of the debts for which the security was given." § 550. Proceeds of pledged property must be applied to the payment of the debt secured. — The proceeds of the prop- erty pledged must be applied in the first instance to the payment of the debt secured.*' If a pledgee assign the pledge to secure a debt of his own, he cannot provide that the assignee shall apply the proceeds of the pledge in the first instance to the payment of the pledgee's debt, for the assignment was necessarily subject to the lien of the original debt secured by the pledge, and the pledgee cannot change the appropriation except with the consent of the debtor." The proceeds of collaterals pledged to secure a specific debt can only be applied to the payment of that debt.*' " California Nat. Bank v. Ginty, 108 v. McAllister, 81 Maine 399, 17 Atl. Cal 148, 41 Pac. 38; Murdock v. 315. Clarke, 88 Cal. 384, 26 Pac. 601; " Marziou v. Pioche, 8 Cal. 522; Field V. Holland, 6 Cranch (U. S.) Farnsley v. Anderson Foundry &c. 8, 3 L.'ed. 136; Wood v. Callaghan, Works, 90 Ind. 120. 61 Mich. 402, 28 N. W. 162, 1 Am. '^"^ Ware v. Otis, 8 Maine 387. Where Si. 597; Morrison v. Citizens' Nat. pledgee repledges "the collateral held Bank, 65 N. H. 253, 20 Atl. 300, 23 as security and it is not a sale under Am. St. 39. the pledge contract the first pledgor " Wilcox V. Fairhaven Bank, 7 Al- may redeem and is not affected by the len (Mass.) 270; Richardson v. second pledge. Jennings v. Wyzanski, Washington Bank, 3 Met. (Mass.) 188 Mass. 285, 74 N. E. 347. 536; Fall River Nat. Bank v. Slade, "First National Bank v. Finck, 100 153 Mass. 415, 26 N. E. 843; Titcomb Wis. 446, 76 N. W. 608; Atherton Co. 655 PAYMENT AND REDEMPTION. § 550a A pledge of bonds to a bank as security for loans to an in- dividual, the agreement specifying that they are collateral security for certain demand notes "and of any and every other indebted- ness or liability, due or to become due, which may exist on my part to the bank," cannot be retained as security for indebtedness to the bank of a fimi of which such depositor was a member, or for payment of a note of a third person indorsed by the depos- § 550a. Creditor holding collateral and also accommoda- tion indorsee's note must apply collateral first to relieve the accommodation indorser. — A creditor holding security pledged by his debtor, and also the debtor's note indorsed by an- other for his accommodation with the creditor's knowledge, must apply the proceeds of the securities belonging to the debtor ■to the payment of his debt, before property of the accommoda- tion indorser which had come into the pledgee's hands can be used for that purpose. ^'^ The pledgee must either account for the pledged property by restoring it to the pledgor or showing the application of the proceeds of such property to the debt secured. It is presumed V. Ives, 20 Fed. 894; First Nat. Bank 47 N. E. 912, reversing 92 Hun (N. V Scott, 123 N. Car. 538, 31 S. E. Y.) 397, 36 N. Y. S. 764; Tenant v. 819; Walton &c. v. Davis, 114 N. Car. Dudley, 68 Hun (N. Y.) 225, 22 N. Y. 104, 19 S. E. 159; Stowe v. First Nat. S. 876; Hughes v. Hunner, 91 Wis. Bank, 1 Ohio C. C. 524; Metz v. Com- 116, 64 N. W. 887; Reynes v. Dumont, mercial Bank, 45 S. Car. 216, 23 S. E. 130 U. S. 354, 32 L. ed. 934, 9 Sup. Ct. 13; San Antonio Nat. Bank v. Block- 486; Haldeman v. German Security er, n Tex. 73, 13 S. W. 961 ; James's Bank, 19 Ky. L. 1691, 44 S. W. 383. Appeal, 89 Pa. St. 54; Loew v. Aus- For evidence held sufficient to show tin, 140 Pa. St. 41, 21 Atl. 240 ; Loyd the pledgee to have accounted to V. Lynchburg Nat. Bank, 86 Va. 690, pledgor for proceeds of collateral col- li S. E. 104; Bacon's Adm'r v. Ba- lected, see Des Moines Nat. Bank v. con's Trustees, 94 Va. 686, 27 S. E. Sisson, 143 Iowa 191, 121 N. W. 533. 576; Wyckoff v. Anthony, 90 N. Y. °°FuIlerton v. Chatham National 442; Duncan v. Brennan, 83 N. Y. Bank, 17 Misc. (N. Y.) 529, 40 N. Y. 487; Continental National Bank v. S. 874. Bell, 125 N. Y. 38, 25 N. E. 1070; =' Goodwin v. Massachusetts Loan Armstrong v. McLean, 153 N. Y. 490, &c. Co., 152 Mass. 189, 25 N. E. 100. § 55°^ COLLATERAL SECURITIES. 656 that the thing delivered to the pledgee as security either remains in his possession or has been disposed of for his benefit.^^ § 5S0b. Pledge of the surplus after satisfying the princi- pal debt. — A pledge of the surplus after satisfying the princi- pal debt, in case recourse is had to the collateral security, is conditional upon a sale of such security. A promissory note secured by collaterals provided that "if recourse is had to the collaterals, any excess of collaterals upon this note shall be applic- able to any other note or claim held by said holder against the maker or makers hereof." It was held that "recourse to col- laterals" meant an actual sale thereof, and that where notice of an intention to sell had been given, but by agreement the sale had been postponed, a tender of the amount due on the note before the sale took place superseded the authority to sell, and redeemed the collaterals, leaving no right to have any excess in their value- applied on other claims. The Supreme Court of Wisconsin so deciding, said : "The law regards the right of redemption with favor, and it would seem that it cannot well be doubted but that the pledgor in this case might lawfully redeem the pledge at any time before actual sale ; that by the recourse mentioned in the note was intended an efficient resort to the. collaterals by sale for the purpose of realizing their value, with a view to a proper appli- cation of the same to the debts of the makers ; and it would seem clear that a mere notice of intention to exercise the power of sale could not be considered as an actual or efficient recourse or re- sort to the collaterals for any real or practical purpose. Mere notice of an intention to sell could not of itself be attended by any legal consequences, and the mere declaratiori of an intention to sell, wholly unexecuted, cannot properly be considered as a resort to them for any cause or purpose, particularly when, by mutual consent of the parties, the proposed sale at the time speci- fied was wholly abandoned, and a different time was specified or agreed on. We think it would be harsh and inequitable to hold ■"Detroit Motor Co. v. Third Nat. Bank, 111 Mich. 407, 69 N. W. 726. 657 PAYMENT AND REDEMPTION. § 551 that a notice thus given, and not pursued, but really abandoned, presumably to allow the pledgor time and opportunity to save his property from sacrifice, can with any propriety or justice be char- acterized or considered as an actual practical recourse or resort to the collaterals, and that a tender before the second time desig- nated for the sale of the collaterals would not be held sufficient to defeat or prevent the exercise of the power of sale."^' § 551. Creditor cannot apply collateral for any other pur- pose than that for which it is held. — A creditor has no right to apply collateral security for any purpose other than that for which it was specially given."* Thus an agent having procured a discount of his principal's note secured by another larger note belonging to his principal as collateral, the creditor upon the maturing of the collateral note, before the principal note, applied the proceeds of it to take up a note made by the agent's firm. Although the agent when obtaining the discount told the creditor to collect the collateral note and credit the proceeds to his firm, the creditor, knowing when he discounted the note that the col- lateral note was the property of the principal, or at any rate knowing enough to put him upon inquiry, had no right to apply such note otherwise than for the principal's benefit. The collec- tion, therefore, of the collateral note, operated as payment of the principals' note upon the maturity of that, and made the pledgee the debtor to the principal for the difference between the two notes.^' An agent who has obtained a loan for his principal upon a pledge of goods belonging to the latter, cannot, in the absence of '"Winkler v. Magdeburg, 100 Wis. refuses to deliver the property when 421, Id N. W. 332. the debt for which it was pledged is " Phillips V. Thompson, 2 Johns, .satisfied he is guilty of a conversion. Ch. (N. Y.) 418, 7 Am. Dec. S3S; Memphis City Bank v. Smith, 110 First Nat. Bank v. Germania Safety Tenn. 337, 75 S. W. 106S. &c. Co., 112 Ky. 734, 23 Ky. L. 2123, ■"" Geffcken v. Slingerland, 1 Bosw. 66 S. W. 716. Where a pledgee at- (N. Y.) 449; Peacock v. Phillips, 155 tempts to hold collateral as security 111. App. 514 ; affirmed in 247 111. 467, for which it had not been pledged and 93 N. E. 415. 42— Col. Sec. § 55^^ COLLATERAL SECURITIES. 658 a special agreement, appropriate the proceeds of a sale of the goods to the payment of a debt due to himself by the principal.'^" § 551a. Does the application of the proceeds of collateral security to the principal debt constitute part payment which interrupts the statute of limitations? — Whether the applica- tion by the pledgee of the proceeds of collateral securities to the principal debt constitutes a part payment which interrupts the statute of limitations, is a question upon which the Supreme Court of Minnesota, holding that such application does ng-t in- terrupt the statute of limitations, said : "The principle upon which part payment of a debt will take a case out of the stat- ute is that such payment amounts to an acknowledgment of the existence of the debt, from which the law implies a new promise to pay the balance. To have that effect, the payment must be voluntarily made by the debtor in person who is sought to be charged with the effect of it, or by some one authorized by him to make a new promise on his behalf. It has been held, or at least intimated, in some cases, that a sale of collaterals made within a reasonable time after they are deposited with the creditor, and the application of the proceeds on the debt, will act as a part payment at the date of the receipt of such proceeds, so as to interrupt the operation of the statute. This doctrine rests upon the mistaken idea that the creditor is thereby made the agent of the debtor for the collection or sale of the collaterals, ignoring the fact that the creditor cannot be made the agent of the debtor to such an extent as to make an act done by him operate as a new promise to himself, without which element a payment can never operate to remove the bar of the statute." The pledgee's right to receive the proceeds of the collateral mortgages, and apply them in part payment of the defendant's note, was acquired under and by virtue of the contract made at the time the collaterals were transferred to him. His subsequent exercise of that right was not a voluntary payment made by the defendant from which a promise to pay the residue can be in- " James's Appeal, 89 Pa. St. 54. " Wood Lim. Act, § 101. 659 PAYMENT AND REDEMPTION. § 55lb ferred. The fact that he made no objection when informed by the pledgee that he had applied the proceeds of these collaterals on his note could not take the case out of the statute. He had no reason to object, and, if he had done so, it would have been futile. The pledgee had merely exercised a contract right, which he acquired when the pledge was made. The pledgor's passive acquiescence in the exercise of that right constituted neither a ■ voluntary payment as of that date, nor a new promise in writ- ing to pay the balance of the debt.^* "Some of the cases may be misleading for the reason that they seem to lay some stress on the fact that the debtor never knew of, and consequently never assented to, the application by the creditor of the proceeds of the collaterals. If the debtor had any option in the matter, or any power to object effectively to the application, there would be some force in the suggestion that his assent to it amounted to a voluntary payment by him as of that date. But this cannot be so where the creditor is merely exercising an absolute legal right under the original contract."^" § 551b. Payments made from proceeds of sale of collateral security. — If the sums collected by the pledgee from the col- lateral securities are, by understanding with the pledgor, to be applied in payment of the debt as they are collected, such collec- tions are to be regarded as payments as of the date and at the time they are received, so as to take the debt out of the statute of limitations. In the absence of such an understanding, the money received by a pledge upon collaterals is to be held upon the same terms that the collateral is held. If the debt is pay- able at a definite time, no application of collections from the col- lateral securities can be made until that time arrives ; and if it is payable on demand, a demand of the debtor must be made be- fore applying the proceeds of the debt secured."" If, however, ■"Citing Harper v. Fairley, S3 N. Y. also, Porter v. Blood, 5 Pick. (Mass.) 442; Smith V. Ryan, 66 N. Y. 352, 23 54; Roscoe v. Hale, 7 Gray (Mass.) Am. Rep. 60; Brown v. Latham, 58 274; Brown v. Latham, 58 N. H. 30, N. H. 30, 42 Am. Rep. 568. 42 Am. Rep. 568. " Wolford V. Cook, 71 Minn. 11, 19, " § 665, post. 73 N. W. 706, 70 Am. St. 315. See, § 552 COLLATERAL SECURITIES. 66o it is agreed or understood that the amounts collected from the collaterals are to be applied in payment of the debt as they are received, such application takes the balance of the debt out of statute of limitations. "In order that part payment of a debt shall lead to the inference that it is at that time an acknowledgment of the debt which revives the original promise of payment, it is not necessary that such payment should be made by the debtor personally. It is sufficient that it be made by his direction and authority, and it takes effect from the time when it is thus made. Where a debtor deposits with his creditor notes, accounts, etc., against third persons, not in satisfaction of his debt, but as col- lateral security therefor, to be applied in payment of the debt as the same may be collected, if the creditor acts in good faith and with reasonable expedition when he realizes thereon, his collec- tions are to be regarded as payments by the principal as of the date and at the time when they are received."*' § 552. In general. — When personal property is conveyed as security by way of mortgage, the legal title passes to the cred- itor, and his title becomes absolute at law upon breach of the condition. The debtor has no legal right to redeem, and it is only in equity that he can be relieved from the forfeiture and allowed to redeem. He has no legal right to redeem unless such a right be given by statute."^ But in case of a pledge, as has already been noticed, the pledgor does not part with the gen- eral title, but only with the possession and a special property. Upon default the debtor still retains the general title. The prop- erty is not conveyed upon a condition that the conveyance shall be void upon performance of the condition. There is no convey- ance of the thing pledged, and no condition upon the breach of which the property becomes absolute in the creditor. Therefore the debtor has a legal right to redeem, although he has not paid "Buffinton v. Chase, 152 Mass. 534, cock v. Franklin Ins. Co., 114 Mass. 538, 25 N. E. 977, citing Porter v. 155; Butler v. Price, 115 Mass. 578; Blood, 5 Pick. (Mass.) 54; Brown v. Haven v. Hathaway, 20 Me. 345. Tyler, 8 Gray (Mass.) 135; Whipple "'Jones on Chattel Mortgages, §683. V. Blackington, 97 Mass. 476; Han- 66i PAYMENT AND REDEMPTION. § 553 the debt secured at its maturity, or otherwise performed the con- ditions of his contract. His assignee in bankruptcy or for the benefit of creditors, may likewise redeem.'"' Upon his decease his administrator may redeem."* §553. The right to redeem attaches to every pledge. — A right of redemption attaches to every pledge. This right is a part of the contract, whether it be express or implied; and the parties can make no valid agreement that there shall be no re- demption after default. "Once a mortgage always a mortgage/' is one of the most important maxims in the law of mortgages."" With a change of terms it is equally applicable in the law of pledges. "The right of redemption attaches equally to both, and it is as difficult to transmute the one as the other into a sale, by the operation of the original contract. Though anciently at Rome, the creditor and debtor were permitted, by the lex com- missoria, to make an agreement at the date of the pledge, whereby it would, on a prescribed contingency, become the absolute prop- ery of the pawnee ; such a power was not indulged, even at Rome, ""Durfee v. Harper, 22 Mont. 354, 56 Pac. 582. " Chambers v. Kiinzman, 59 N. J. Ecj. 433, 45 Atl. 599. "Jones on Mortgages, §§7, 340; Clark V. Henry, 2 Cow. (N. Y.) 324; Hughes V. Johnson, 38 Ark. 285; Hart V. Burton, 7 J. J. Marsh. (Ky.) 322; Baldwin v. Bradley, 69 111. 32, 36; Peugh v. Davis, 96 U. S. 332, 24 L. ed. 775. "By the early Roman law, the debtor and creditor might agree that if the debtor did not pay the debt within a time specified, the thing pledged should be forfeited and be- come the absolute property of the creditor. But a law of Constantine prohibited such contracts, on the ground that they were unjust and op- pressive to debtors ; and declared that every contract should be null and void which provided that the thing pledged should pass to the creditor without sale or appraisement, or that the debtor should forfeit his right of re- demption if he failed to pay at the proper time. Cod. lib. 8, tit. 35, 1, 3. This law of Constantine prphibiting such contracts, has been imported in- to the law of France (Poth. Nantisse- ment, 18), and into the mpdern law of Continental Europe. The creditor cannot stipulate that if he is not paid at the time appointed, the thing pledged shall become his own prop- erty, for such an agreement would be contra bonos mores ; for the pledge is given to the creditor only as a secur- ity for the debt, and not to enable him to profit by the indigene^ pf his debtor. Domat, lib. 3, tit. 1, §§3, 11 ;" Folkard's Law of Pawnbrokers, p 11, n. f. § 554 COLLATERAL SECURITIES. 662 since the days of Constantine, who aboHshed the law by which it had been sanctioned. Every agreement for preventing redemp- tion of pawns is prescribed by the common law as emphatically as are similar agreements in mortgages of real estate.''^" There- fore, if in a written or verbal contract of pledge it is stipulated that the prope^rty shall be absolutely the property of the pledgee, if the debt be not paid at a time stipulated', the right to redeem exists, notwithstanding the agreement of the parties. The law recognizes no agreement to prevent a redemption of the pledge. Any contract which is a pledge in the beginning continues a pledge until the debt is paid or the right of redemption is fore- closed. The parties may, by a subsequent agreement for a valid consideration, release the right of redemption; but they cannot in the original contract agree that no right of redemption shall attach to it. Thus, a stipulation made by a mortgagee in the assignment of a mortgage as collateral security, that he shall forfeit all interest in it if he fail to pay his debt at maturity, does not cut off his right to redeem it afterward."^ § 554. An agreement by pledgor that title to pledged prop- ert5J- shall vest on default will not be enforced. — An agree- ment by a pledgor that the property pledged shall become the pledgee's absolutely upon his failure to pay the debt at the time specified, will not be enforced ; but in a suit by the pledgee to re- cover the principal debt he will be held to account for the pro- ceeds of the property pledged, if this has been sold.^^ More- over, the pledgor, upon a tender of the full amount of the debt, "■■Hart V. Burton, 7 J. J. Marsh. Kingsbury v. Phelps, Wright (Ohio), (Ky.) 322, 323, And see Wadsworth 370; Clark v. Henry, 2 Cow. (N. Y.) V. Thompson, 8 111. 423, 427 ; Marshall 324 ; Vickers v. Battershall, 84 Hun V. Williams, 2 Hayw. (N. Car.) 405; (N. Y.) 496, 32 N. Y. S. 314, 65 N. Luckett V. Townsend, 3 Tex. 119, 49 Y. St. 470; Ritchie v. McMullen, 79 Am- Dec. 723n; Hughes v. Johnson, Fed. 522, 25 C. C. A. SO; Sherman v. 38 Ark. 285. Mutual Life Ins. Co., S3 Wash. 523, "Sherman v. Mutual Life Ins. Co., 102 Pac. 419; Swofford Bros. Dry 53 Wash. 523, 102 Pac. 419; Hughes v. Co. v. Randolph, 151 Mo. App. 385, Johnson, 38 Ark. 285. 132 S. W. 255. "'Dorrill v. Eaton, 35 Mich. 302; 663 PAYMENT AND REDEMPTION. ' § 555 may, in replevin, recover the thing pledged, or may recover its value in action of trover; or in exceptional cases may maintain bill in equity to redeem."" A creditor holding notes of third persons as collateral security must account for them or their proceeds, although his debtor has agreed with him, that if the debt be not paid at a specified time, the collateral notes shall become his absolutely. If the creditor in such case brings suit upon the principal debt, recover judg- ment and collect it in full, and, pending the suit or afterward, he sells the collateral notes, and fails to account for their pro- ceeds to the debtor, the latter may recover the same of the cred- itor. "Courts of law as well as of equity very frequently refuse to carry out the express agreements of parties where the result would be gross injustice to one, without any corresponding loss to the other, calling for such injustice. Especially should this be the case where an agreement made between mortgagor and mortgagee, or borrower and lender, is sought to be enforced or interposed as a defense. The law should and does scrutinize closely all such agreements and refuses to enforce them, espe- cially where, as in this case, to do so would be both unjust and unconscionable. ' ' ''" § 555. A pledge may be accepted in satisfaction of the debt if agreed upon after pledge is created. — The parties may at a time subsequent to the pledge agree that the creditor shall take the pledge in satisfaction of the debt, and their contract to this effect, if clearly proved, will be enforced. They may also agree that the creditor may sell the property pledged at a stipulated price, or may himself take the property at that price and credit the pledgor with the amount. But to prevent a redemption there must be clear and satisfactory proof not only of the contract it- self, but of the creditor's election to take the property at the price agreed upon, either by his giving personal notice of such election, or by his crediting the amount upon his books. A mere ■^Stoker v. Cogswell, 25 How. Pr. Sherman v. Mutual Life Ins. Co., 53 = Cheesman v. Exall, 6 Exch. 341. " Biddle v. B.ond, 6 Best & S. 225. The contract in this case, however, This is the view approved in Palmtag was held not to be a pledge, but the v. Doutrick, 59 Cal. 154, 8 Pac. Coast dicta of the learned judges deservedly L. J. 884, 43 Am. Rep. 245. have great weight. " Jarvis v. Rogers, IS Mass. 389. " Shelbury v. Scotsford, Yelv. 23. 677 PAYMENT AND REDEMPTION. § 57O burden of proof that such third person is the rightful owner." Ordinarily he will have the aid of such third person in establish- ing the title of the latter; for the pledgee can only set up such title by the authority of such third person.^* § 570. A tender is generally necessary to a recovery of the securities. — Except in case there has been a wrongful con- version of collateral securities, the owner cannot recover them without first paying or tendering the amount due on the pledge.^" Such a tender is equally necessary whether the securities be in the hands of the original pledgee or have been repledged or sold by him to one who has loaned upon them or purchased them in good faith without notice of the owner's rights. If the owner can enforce any right whatever to them he can only do so after tendering the debt secured. One so taking the securities from the pledgee acquires at least the latter's lien and interest, whatever that may be. A mere offer by the original pledgor to pay the assignee the amount due on the securities, unattended with an actual tender of the original debt secured, is insufficient to extinguish the lien and entitle such pledgor to a return of the securities. Such offer to pay is not equivalent to an actual tender.^" "Cheesman v. Exall, 6 Exch. 341; 869, 56 Am. Rep. 679; Glidden v. Me- Sheridan v. New Quay Co., 4 C. B. chanics' Nat. Bank, 53 Ohio St. 588, (N. S.) 618; Biddle v. Bond, 6 Best 601, 42 N. E. 995, 43 L. R. A. 737. & S. 225. No demand for the return of pledged " Palmtag v. Doutrick, 59 Cal. 154, property is necessary before bringing 168, 8 Pac. Coast L. J. 884, 43 Am. a suit for conversion where the pledge Rep. 245. has been sold by the pledgee pending " Donald v. Suckling, L. R. 1 Q. B. the right to redeem. Clinton Nat. 585 ; Talty v. Freedman's Savings &c. Bank v. McKennon, 26 Okla. 835, Co., 93 U. S. 321, 23 L. ed. 886; Amos 110 Pac. 649. Where goods are V. Sinnott, 4 Scam. (III.) 440; Henry pledged by one not ' their , owner and V. Eddy, 34 111. 508 ; Cooper v. Ray, 47 having no right to pledge them it is 111. 53; Jarvis v. Rogers, 15 Mass. not necessary for the true owner to 389, 13 Mass. 105 ; Hancock v. Frank- make demand for their return before lin Ins. Co., 114 Mass. 155; Hath- bringing suit for their conversion, away v.. Fall River Nat. Bank, 131 People's &c. Trust Co. v. Huttig Mfg. Mass. 14; Cumnock v. Newburyport Co., 1 Ala. App. 394, 55 So. 929. Sav. Inst., 142 Mass. 342, 346, 7 N. E. =° Lewis v. Mott, 36 N. Y. 395, 401. § 571 COLLATERAL SECURITIES. 678 A tender is not excused by the fact that the pledgor's note is in the hands of his pledgee. If the note has matured, the pledgor can safely pay the amount of it to the purchaser or second pledgee taking the security in good faith, because he could suc- cessfully defend a suit upon the note, whether brought by the original pledgee, or by his indorsee taking it after maturity. The pledgor may, also, after making tender, instead of suing at lavjr for the recovery of the securities, file a bill in equity, making his pledgee and the second pledgee or purchaser defendants, and thus settle the rights of all parties in that litigation. ^^ § 57 1. Unauthorized sale of pledge by pledgee not conver- sion. — An unauthorized sale of the pledge by the pledgee is not of itself a conversion, and does not, against the will of the pledgor, create a cause of action in his favor. His cause of action does not arise until he tenders payment and demands a return of the pledge, and the pledgee neglects or refuses to re- turn it.^^ Such a sale is not so far tortious as to render the contract void ab initio. ^^ "Outside of authority, the rule that a sale by the pledgee is not ipso facto a conversion seems to be good sense. The rights of the parties are based upon the con- tract. The sale by the pledgee is wrongful. If that sale in and of itself determines the contract without more, then the pledgee, by his wrongful act, may rescind his contract in spite of the wish of the other party to it. I am not aware of any The securities were canal scrip of the in the pledgee to sell collaterals with- state of Illinois ; overruling Lewis v. out notice, see Drake v. Pueblo Nat. Graham, 4 Abb. Pr. (N. Y.) 106. Bank, 44 Colo. 49, 96 Pac. 999. When ^Talty V. Freedmen's Savings &c., pledgee wrongfully disposes of 93 U. S. 321, 23 L. ed. 886. pledged property or refuses to return ''Halliday v. Holgate, L. R. 3 it on tender of the debt due him the Exch. 299; Hopper v. Smith, 63 How. pledgor may maintain an action for Pr. (N. Y.) 34, 38; Butts v. Burnett, damages or sue to redeeem. Bell v. 6 Abb. Pr. (N. S.) (N. Y.) 302, 304; Bank of California, 1S3 Cal. 234, 94 Jarvis v. Rogers, IS JVTass. 389, 408; Pac. 889. See, also, Potter v. Ketter- Glidden v. Mechanics' Nat. Bank, S3 linus, 221 Pa. 3S, 69 Atl. 1119. Ohio St. 588, 600, 42 N. E. 995, 43 L. '^ First Nat. Bank v. Boyce, 78 Ky. R. A. 737. For sufficient allegations 42, 19 Am. L. Reg. (N. S.) 503, 39 as to description of note secured by Am. Rep. 198. collateral to show lack of authority 679 PAYMENT AND REDEMPTION. § 57I other case in which this can be done, and I can conceive of no reason for permitting it in this case. It may be for the inter- est of the pledgor to keep his contract aUve, and, if it is so, I cannot see why he may not do it. The maxim that no one shall take any advantage by his own wrongful act, may fairly apply to this case, and we may hold that, although the unlawful sale does not per se operate as a conversion, yet the pledgor may, at his option, so consider it, and that he may regard the contract as at an end, tender or offer to pay his debt and demand his pledge, or may sue for damages for the sale. I think the cases sustain that rule, and that it reconciles the cases which otherwise appear to conflict, but do not in fact.^* I do not think that the plaintiff was called upon to notify defendant of his disaffirmance of the sale at the time de- fendant told him of it. * * * There is no pretense of any estoppel. Nothing has occurred to give defendant reason to be- lieve that the contract was waived, and he took no action after- wards on the strength of plaintiff's silence. As long as the con- tract was in force both parties were bound by it. The plaintiff might rely upon it, and the defendant must keep ready to perform it. Neither party by his own act simply could free himself from its obligations."^^ A pledgee of mortgage notes sold them without authority at public auction to himself for a sum sufficient to pay the pledgor's note and to leave a balance in addition. He returned the note and the surplus money to the pledgor, who refused to recognize the sale, but retained the note and the surplus money. The pledgor, without tendering the amount due on his original note, sued the pledgee as for a conversion of the collateral mortgage notes which the pledgee still held. It was held that the sale of the col- lateral notes was a nullity, but that the pledgor not having paid or tendered his debt, he could not maintain the suit. The court said : "While there may be some conflict on the subject, we think the great vsjeight of authority is that such sale being invalid, and the pledgee being the purchaser at the sale, and retaining the pos- '"Stron V. Nat. Mechanics' Bank- "Hopper v. Smith, 63 How. Pr. ing Assn., 45 N. Y. 718; Bryan v. (N. Y.) 34,38. Baldwin, 52 N. Y. 232. § 5713- COLLATERAL SECURITIES. 68o session of such property, and having the power to return it to the pledgor, * * * that this does not amount to a conversion by the pledgee, but that the parties occupy toward each other pre- cisely the same relation as before the invalid sale, unless the pledgee elects to treat it as a valid sale, which he has a right to do, in which event the settlement would be made upon the basis of such sale, so ratified. But if the sale is not so ratified, then the pledgee continues to hold the collateral as security for his debt, and is entitled to do so until the debt is paid, or pay- ment thereof is tendered, so as to entitle the pledgor to its re- turn.''^" § 571a. It is conversion for pledgee by unauthorized sale to put a pledge beyond his control. — If a pledgee by an un- authorized sale puts it out of his power to restore the property upon payment or tender of the debt secured, he is liable for its conversion without a demand and tender of performance by the pledgor.-^ "The observation sometimes met with in the opinions of judges, and in text-books, that the pledgor is at liberty to treat an unauthorized sale of the pledged property as a conversion by the pledgee, must be taken to refer to such a sale as puts the property beyond the control of the pledgee. In cases of that kind the pledgor may charge the pledgee as for a conversion of the property without demand or tender of performance, though he is not bound to do so, but may, by subsequent tender and demand, require the pledgee to account for the market value of the prop- erty at that time. And of course, it is not the right of the pledgee to insist that his wrongful sale constitutes a conversion, for that would enable him, if he were allowed to do so, to take advantage of his own wrong, and by his own violation of the contract determine the time, and thus the measure of his liabil- ity for its breach. As has already been stated, no offer was made by the pledgor, at any time, to pay the debt he owed the bank, nor was any demand made for the return of the iron held ='° Leighton v. Burkham, 7 Ohio 277, 63 S. E. 1115; Meyer Bfos. C. C. 487, 488. Drug Co. v. Matthews, 69 Ark. 483, " Whigham v. Fountain, 132 Ga. 64 S. W. 264. 68 1 PAYMENT AND REDEMPTION. § 57lb in pledge; and, after it was bid off by the president of the bank, on the 5th day of November, 1883, it remained in the control of the bank, as it had been before, without change in any respect, up to the 7th day of February, 1887, when, under the sale that day made, part pf the iron passed into other hand^; so that, un- til that time, the bank's possession was lawful, and it was able to perform its obligation to the pledgor by returning the iron to him, upon payment of his debt. It had, up to that time, exercised no actual dominion or control over the property inconsistent with the pledgor's right to redeem; and the sale of November 5, 1883, being ineffectual to transfer the title, did not, we think, consti- tute a conversion of the property, which, in legal contemplation was still held under the contract of pledge."^^ §571b. Not conversion where pledge transferred is not placed beyond the pledgee's control. — A nominal transfer of a pledge which does not put the property beyond the control of the pledgee does not amount to a conversion of the pledge." Such "■ Glidden v. Mechanics' Nat. Bank, Bank, 14 Utah 305, 47 Pac. 147 ; Luck- '53 Ohio St. 588, 602, 42 N. E. 995, 43 ett v. Townsend, 3 Tex. 119, 49 Am. L. R. A. 10,1; First Nat. Bank v. Dec. 723n; Johnston v. Whittemore, Rush, 85 Fed. 539, 71 Fed. 102; 27 Mich. 463, 469; Grant v. King, 14 Waring v. Gaskill, 95 Ga. 731, 22 Vt. 367; Swift v. Mosely, 10 Vt. 208, S. E. 659; Van Arsdale v. Joiner, 33 Am. Dec. 197. 44 Ga. 173. See, also, Rosenzweig v. ""Jeanes's Appeal, 116 Pa. St. 573, Frazer, 82 Ind. 342; Douglas v. Car- 11 Atl. 862; 2 Am. St. 624; Donnell penter, 17 App. Div. (N. Y.) 329, v. Wyckoff, 49 N. J. L. 48, 7 Atl. 45 N. Y. S. 219 ; Kilpatrick v. Dean, 19 672. For evidence held sufficient to N. Y. St. 837, 3 N. Y. S. 60 ; Stearns v. show that transfers of mortgages by Marsh, 4 Denio (N. Y.) 227, 47 Am. the pledgee were not sales under a Dec. 248 ; Luckey v. Gannon, 37 How. pledge contract, see Jennings v. Pr. (N. Y.) 134; Read v. Lambert, 10 Wyzanski, 188 Mass. 285, 74 N. E. Abb. Pr. (N. S.) (N. Y.) 428; Moore 347. It is not conversion when rail- V. Prentiss Tool &c., 133 N. Y. 144, 30 road bonds payable to bearer are sur- N. E. 736; Felt v. Heye, 23 How. Pr. rendered by the pledgee who causes (N. Y.) 359; Sheridan v. Presas, 18 new bonds to be registered in his Misc. (N. Y.) 180, 186, 41 N. Y. S. name, Richie v. Burke, 109 Fed. 16; 451; Ainsworth v. Bowen, 9 Wis. 320; Davis v. Hardwick, 43 Tex. Civ. App, Work V. Bennett, 70 Pa. St. 484; San- 71, 94 S. W. 359. A mere nominal born V. Colman, 6 N. H. 14, 23 Am. transfer of a pledge which does not Dec. 703; Walley v. Deseret Nat. place the property beyond the control § 572 COLLATERAL SECURITIES. 682 is the case when a pledgee transfers stock which he holds as col- lateral into the hands of another for the purpose of avoiding liability as a stockholder, taking certificates in the name of the transferee with a power of attorney to transfer them at his will.'" Such is the case also where a pledgee transfers mining stock to another for the purpose of relieving himself from supposed dam- age to his credit by reason of holding so much of that stock, the stock remaining within his control ready for delivery to the pledgor on payment of his indebtedness.'^ The fact that a pledgee attempts to assert a larger right in the property than he can maintain does not of itself constitute a con- version of it, it being clear that he is entitled to possession as a pledgee.'^ § 572. When tender or demand unnecessary before action by pledgor for conversion. — No formal demand or tender by the pledgor after an unauthorized sale by the pledgee is necessary, if he has substantially offered to redeem, by paying whatever is due. Thus, a watch having been pledged for the payment of a loan made without a specified time for repayment, the creditor subsequently notified his debtor that he must redeem the watch ^ or it would be sold. The latter thereupon deputed an agent to effect a redemption. The agent called upon the defendant a number of times, with money sufficient for the purpose, and offered to pay even more than the amount which the creditor claimed to be owing him, but, upon one and another pretense, the agent was put off for several months, when the creditor de- clared that he had disposed of the watch in exchange for another and a sum of money. It was held that the debtor could maintain a suit for the conversion of the watch without any formal demand, and without a formal tender of the money due.'' The pledgor may maintain a suit for the conversion of the of the pledgee is not a conversion of '" Radigan v. Johnson, 174 Mass. 68, the pledged property. Hunter v. First 54 N. E. 358; Brown v. Leary, 100 Nat. Bank, 172 Ind. 62, 87 N. E. 734. App. Div. (N. Y.) 421, 91 N. Y. S. =° Heath v. Griswold, 18 Blatchf. 463; Field v. Sibley, 174 N. Y. 514, (U. S.) 555, S Fed. 573. 66 N. E. 1108. " Day V. Holmes, 108 Mass. 563. " Rosenzweig v. Frazer, 82 Ind. 342. 683 PAYMENT AND REDEMPTION. § 573 pledge which the pledgee has sold without giving notice or de- manding payment of the debt without making tender of the amount of it, where the pledge is of greater value than the debt. Thus where the pledgee executes an absolute transfer of a bond and mortgage without giving the pledgor notice or demanding repayment of the loan, and the mortgage is subsequently fore- closed and the property sold, the pledgor is entitled, without tendering to the pledgee the amount of the debt, to maintain an action against the latter to recover the difference, if any, between the face value of the bond and mortgage and the amount of the debt for which they were pledged.^* Where bonds are held as collateral security for the payment of a debt and it is agreed between the creditor and the pledgor that the bonds are to be surrendered to the pledgor in consideration of services to be rendered by him to the pledgee a demand for the return of the bonds after such services are rendered must be made to make the pledgee's retention of them a conversion.^' § 573. A wrongful conversion by the pledgee" may be waived by the debtor. — A tortious conversion by the pledgee through an illegal sale of the pledge may be waived, by the debtor's presenting a statement showing the amount he claimed to be due and offering to receive the same in full satisfaction.^" Where, upon maturity and nonpayment of the loan, the pledgee, with assent of the pledgor, transfers the stock pledged to a third person, for a less. sum than it was pledged to secure, and there is no proof that the stock pledged was worth more than that sum, the pledgee is not liable for a conversion of the stock, the debt still remaining unpaid." § 57 3a. Pledgee does not forfeit his lien by unauthorized sale of pledged property. — An unauthorized sale of the pledged property by the pledgee does not cause him to lose the lien of his pledge and render him liable for the value of the prop- =* Barber v. Hathaway, 47 App. Di^. =° Butts v. Burnett, 6 Abb. Pr. (N. (N. Y.) 165, 62 N. Y. S. 329. S.) (N. Y.) 302. ""Scrinner v. Woodward, 139 Cal. " McClintock v. Central Bank, 120 314, li Pac. 863. Mo. 127, 24 S. W. 1052. § 574 COLLATERAL SECURITIES. 684 erty, if no damage is sustained by the pledgor. In an action by pledgors against pledgees for an unauthorized' sale of the pledge the Supreme Court of Massachusetts, deciding to this effect, say : "The plaintiffs admit in substance that the defendants used good judgment and diligence in selling and that the sales were effected at favorable prices, and it does not appear that the pro- ceeds were more than enough to pay what was due the defend- ants. Under such circumstances we fail to see how the plain- tiffs have sustained any damage. It would be singular if, having a right to foreclose the pledge, the defendants should be held to have lost their lien and to be liable for the value of the bicycles, because, without inflicting any damage thereby on the pledgor, they went the wrong way about the foreclosure, or claimed a greater right than they actually had. We do not think that such is the law!"'« § 574. Measure of damages. — The value of the property at the date of the conversion is the true criterion of damages.^' If at the maturity of the debt for which the pledge was made the debtor tenders payment of- it, and demands the return of the security, and this is not returned, the conversion is made at that time, and the valuation of it in a suit for such conver- =' Whipple V. Dutton, 175, Mass. 365, N. Y. S. 989; Newcomb v. Bassett, 14 56 N. E. 581, 78 Am. St. 501, citing Bush (Ky.) 658, 667; Harrell v. Citi- Dahill V. Booker, 140 Mass. 308, 5 zens' Banking Co., Ill Ga. 846, 36 S. N. E. 496, 54 Am. Rep. 465; Farrar v. E. 460; Fisher v. Geo. S. Jones Co., Paine, 173 Mass. 58, 53 N. E. 146, and 108 Ga. 490, 34 S. E. 172 ; Robinson cases cited; Halliday v. Holgate, L. v. Hurley, 11 Iowa 410, 79 Am. Dec. R. 3 Ex. 299; Johnson v. Stear, 15 497n ; Ainsworth v. Bowen, 9 Wis. 348 ; C. B. (N. S.) 330; Baltunote^-Marine Loomis v. Stave, 72 111. 623; Eisen- Ins. Co. y. P^ympie; 25 Md.269j_ drath v. Knauer, 64 111. 396; Her v. Wheeler v. Pereles, 43 Wis. 332; Bel- Baker, 82 Mich. 226, 46 N. W. 377; den V. Perkins, 78 111. 449 ; Gruman Fifth Nat. Bank v. Providence Ware- V. Smith, 81 N. Y. 25; Smith v. house Co., 17 R. I. 112, 118, 20 Atl. Reeves, 33 How. Pr. (N. Y.) 183; 203 ; 9 L. R. A. 260 ; Jamison's Estate, VanSchaick v. Ramsey, 90 Hun (N. 163 Pa. St. 143, 29 Atl. 1001 ; Hennes- Y.) 550, 552, 35 N. Y. S. 1006. sey v. Stempel, 108 La. 159, 32 So. " First Nat. Bank v. Boyce, 78 Ky. 394 ; Hamburg Bank v. George & 42, 39 Am. Rep. 198; August v. Butler, 92 Ark. 472, 123 S. W. 654; O'Brien, 50 App. Div. (N. Y.) 626, 63 68s PAYMENT AND REDEMPTION. § 575 sion should be made as of the time of such demand and re- fusal." § 575. Conversion of negotiable paper. — A conversion of negotiable paper by one who holds it as collateral security ren- ders him liable to the general owner for its value at the time; and this value is, prima facie, the sum represented upon the face of the paper, with interest according to its terms," but it may be shown, in reduction of damages, that the maker of the note is insolvent ; and so may any other fact impugning the value of the security be shown.*- If the property be negotiable bonds, the measure of damages is the value of the bonds, and of the mature coupons at the time of the conversion, with interest from that time.*' If a creditor holding a mortgage note as collateral security pledge it as his own, he is liable to the owner for the full amount of the note, unless he clearly proves that the note was worth less than its face. The burden is upon him to prove that the note is not worth what it calls for.** "Reynolds v. Witte, 13 S. Car. 5, 36 Am. Rep. 678; Henriessey v. Stempel, 108 La. 159, 32 So. 394. Where the pledgee of collateral se- curity notes collects them, he knows the dates of such collections as well as the amount received by him and if in an action by him on the princi- pal debt he fails to show such dates and amounts he will be charged with face value of such collateral notes as of the date of their maturity. Farm Inv. Co. V. Wyoming College, 10 Wyo. 240, 68 Pac. 561. In an action against pledgee for conversion of mortgage, the mortgagor not being shown to be insolvent, no error is committed by the court in refusing to instruct the jury that the value of the converted security must be deter- piined by the value of the mortgaged property. Barber v. Hathaway, 169 N. Y. 575, 61 N. E. 1127. " Hazzard v. Duke, 64 Ind. 220 ; St. John V. O'Connel, 7 Port. (Ala.) 466; Potter V. Merchants' Bank, 28 N. Y. 641, 86 Am. Dec. 27, 273n; Booth v. Powers, 56 N. Y. 22 ; Thayer v. Man- ley, 73 N. Y. 305 ; Griggs v. Day, 136 N. Y. 152, 32 N. E. 612, 32 Am. St. 704*, 18 L. R. A. 120; Farm Inv. Co. v. Wyoming College, 10 Wyo. 240, 68 Pac. 561 ; Wyoming College v. Farm Inv. Co., 10 Wyo. 240, 68 Pac. 561. "Griggs V. Day, 136 N. Y. 152, 32 N. E. 612, 32 Am. St. 704n, 18 L. R. A. 120, 48 N. Y. St. 853, reversing 46 N. Y. St. 967, 18 N. Y. S. 957; Garlick v. James, 12 Johns. (N. Y.) 146, 7 Am. Dec. 249n ; Vose v. Florida R. Co., SO N. Y. 369. ""Merchants' &c. Nat. Bank v. Masonic Hall, 62 Ga. 271. " Laloire v. Wiltz, 29 La. Ann. 329. § 576 COLLATEILA.L SECURITIES. 686 If a pledgee of a note does not return it to his debtor after the payment of the debt, and he shows no legal reason for not doing it, he is liable in damages to the full amount of the note. It might be a defense in such case that the maker of the not^ is not able' to pay it, or that it is barred by the statute of limita- tions; but it is no ground for reducing the damages, that the pledgee has filed in court an obligation to indemnify the pledgor against any act done or to be done by the pledgee in respect to the note, unless he is able to prove the loss of the note.*' § 576. What may be shown in mitigation of damages. — It may be shown in mitigation of damages in action by the pledgor for the conversion of a pledge, that the pledgee has applied the proceeds thereof to the use of the pledgor in payment of the debt secured or of other debts due from him to the pledgee.** This. is upon the principle that the owner of property, who has received the value of the property wrongfully converted or kept from him, shall not recover that value a second time in an action therefor. § 577. Pledgee in an action for conversion may recoup or set off the debt secured. — In an action against the pledgee for a conversion of the pledge, he may recoup or offset the debt se- cured,*' though this right does not exist in favor of one who is sued for the conversion of a chattel on which he has merely a lien.*« A conversion of negotiable bonds by a pledgee does not pre- vent his recovery of what is due him, but only entitles the "Thomas v. Waterman, 7 Mete. 3 Mich. 281, 288; Belden v. Perkins, (Mass.) 227. 78 III. 449; Rosenzweig v. Frazer,'82 *° Hathaway v. Fall River Nat. Ind. 342 ; Shaw v. Ferguson, 78 Ind. Bank, 131 Mass. 14, 17; Bailey v. 547; Jamison's Est., 163 Pa. St. 143, Godfrey, 54 111. 507, 5 Am. Rep. 1^7; 29 Atl. 1001; Fletcher v. Harmon, 78 Baldwin v. Bradley, 69 III. 32; Bel- Me. 465, 7 Atl. 271; Feige v. Burt, den V. Perkins, 78 111. 449; Loomis v. 118 Mich. 243, 77 N. W. 928, 74 Am. Stave, 72 111. 623. St. 390. "Johnson v. Stear, IS C. B. (N. S.) '^ Mulliner v. Florence, 3 Q. B. D. 330; Jarvis v. Rogers, IS Mass. 389; 484; Barber v. Ellingwood, 137 App. Steams v. Marsh, 4 Denio (N. Y.) Div. (N. Y.) 704, 122 N. Y. S. 369. 227, 47 Am. Dec. 248 ; Ward v. Fellers, 687 PAYMENT AND REDEMPTION. § 578 pledgor to offset the value of the converted security/" And so a conversion by a broker of stock pledged to him does not op- erate to extinguish his entire claim against his customer, but simply to give the customer a cause of action for the damages he has sustained, which would be offset against any sum found due to the brokers.'" Whether in a suit by the pledgee upon the debt secured, the pledgor can take advantage of an irregular or prejudicial sale of the security by recoupment, is a question left undecided by early cases in New York.'^ § 578. Counterclaim. — ^An action by a pledgor for the pledgee's wrongful refusal to deliver the property pledged after payment of the debt is an action for the conversion of the pledgor's property, and is founded upon his own title, and not upon any promise of the pledgee. A counterclaim to such suit for a debt not secured by the pledge cannot be set up by the pledgee.'^ But the pledgee is allowed to recoup the amount of the debt secured; or, in other words, the pledgor is allowed to recover the value of the pledge at the time of the conversion, less the amount of the debt." Where collateral securities exceeding in value the debt they se- cure are converted by the pledgee to his own use the conversion satisfies the debt and gives the pledgor a right to recover the ex- cess in value of such securities, without first tendering the amount of the debt.'* "Levy V. Loeb, 47 N. Y. Super. Rep. S07, 23 Am. Rep. 80; Stearics Ct. 61. * V. Marsh, 4 Denio (N. Y.) 227, 47 '"Gruman v. Smith, 81 N. Y. 25, 9 Am. Dec. 248; Baltimore M av"f. Rep. 748, reversing 44 Super. Ct. 389. Ins... Co, v. Dalrymple, 25 Md._242,_ "Willoughby V. Comstock, 3 Hill 2'69, 307, 89 Am. Dec. 779ii'; Alden (N. Y.) 389; Taggard v. Curtenius, v. Camden Anchor-Rockland Mach. ■ IS Wend. (N. Y.) 155. Co., 107 Me. 508, 78 Atl. 977; Barber "' Smith v. Hall, 67 N. Y. 48. v. Ellingwood, 137 App. Div. (N. Y.) "Jarvis v. Rogers, IS Mass. 389; 704, 122 N. Y. S. 369; Jessup v. With- cited and approved in Johnson v. erbee &c. Imp. Co., 63 Misc. (N. Y.) Stear, 15 C. B. (N. S.) 330; Smith v. 649, 117 N. Y. S. 276. Hall, 67 N. Y. 48; Baker v. Drake, =*Lowe v. Ozmun, 3 Cal. App. 387, 53 N. Y. 211, 66 N. Y. 518, 13 Am. 86 Pac. 729. § S8o COLLATERAL SECURITIES. 688 § 579. Right of pledgor to recover pledge from pledgee of pledgee by paying pledgor's debt to first pledgee. — In case of a re-hypothecation, the original contract of pledge not being de- stroyed, the pledgor can recover from the second pledgee the chat- tel pledged only by paying to him the amount of debt due to the first pledgee. °° In trover, by the owner against a second pledgee, he may recover the value of the property, after allowing the amount due from the owner to his pledgee in reduction of the damages.^' It is essential, however, that the second pledgee should have acted in good faith in taking the property in pledge, and should have taken it for value without knowledge of the prior pledge. If the original pledgee had all the indicia of the right of property in the thing pledged, and his pledgee was with- out knowledge of the plaintiff's rights, and gave a valuable con- sideration, the measure of damages is always the, actual loss the •plaintiff has sustained; and this is the value of the property, less the sum due the plaintiff from the original pledgee." § 580. Recovery by pledgor in assumpsit when pledgee has sold pledged chattels.^If the pledgee has sold the pledged chattels and converted them into money the pledgor may, if he choose, bring assumpsit for the money, in which event he can re- '^ Donald v. Suckling, L. R. 1 Q. B. bring an action for nominal damages, 585, 597; Johnson v. Stear, IS C. B. if he has sustained no substantial (N. S.) 330; Halliday v. Holgate, L. damages; for substantial damages if R. 3 Ex. 299; Evans v. Potter, 2 Gall, the thing pledged is damaged in the 13 ; Talty v. Freedman's Savings &c hands of the third party, or the owner Co., 93 U. S. 321, 23 L. ed. 886; Lewis is prejudiced by delay in not having V. ilott, 36 N. Y. 395, 400. the thing delivered to him on tender- In Donald v. Suckling, L. R. 1 Q. B. ing the amount for which it was 585, 597, Cockburn, C. J., says : "The pledged." question here is, whether the trans- °° First Nat. Bank v. Boyce, 78 Ky. fcr of the pledge is not only a breach 42, 39 Am. Rep. 198; Neiler v. Kelley, of the contract on the part of the 69 Pa. St. 403; Work v. Bennett, 70 pawnee, but operates to put an end to Pa. St. 484; Baltimore Mar. Ins. Co. the contract altogether, so as to entitle v. Dalrymple, 25 Md. 242, 89 Am. Dec. the pawnor to have back the thing 779n. pledged without payment of the debt. "First Nat. Bank v. Boyce, 78 Ky. I am of opinion that the transfer of 42, 28 Am. Law Reg. 503, 39 Am. Rep. the pledge does not put an end to the 198. contract, upon which the owner may 689 PAYMENT AND REDEMPTION. § 581 cover only the amount actually received by the pledgee for the property, less the amount of the debt secured by the pledge.^* § 581. Pledgee cannot claim pledge on account of the debt due him being barred by the statute of limitations. — A pledgee has no right to treat the property pledged as absolutely his own after the note or other obligation given by the pledgor is barred by the statute of limitations. After the maturity of such obligation, the pledgee may, upon giving notice to the pledgor, sell the property and apply the proceeds to the debt. If he does not do this he continues to hold it in trust for the benefit of all parties. The statute effects merely the personal remedy against the pledgor, and does not, on the one hand, defeat the lien of the pledgee upon the property, nor, on the other, enlarge that lien to an absolute title to the property. '*° It is true, how^- ever, that after a long lapse of time w^ithout any claim on the part of the pledgor to redeem, his right might be deemed to be extinguished and the title absolute in the pledgee."" Thus, where ■^Cushman v. Hayes, 46 111. 145; Read V. Lambert, 10 Abb. Pr. (N. S.) (N. Y.) 428; Fletcher v. Harmon, 78 Me. 46S, 7 Atl. 271. When a pledgee converts property pledged, by selling same, taking a note without interest therefor, and afterwards surrenders the note upon part payment only, the pledgor on waiving the tort by suing in assumpsit is entitled to recover the full sale price, not being limited to the amount actually received by the pledgee upon surrender of said pur- chase-money note. Demars v. Hudon, 33 Mont. 170, 82 Pac. 952. ""Kemp V. Westbrook, 1 Ves. 278; Hancock v. Franklin Ins. Co., 114 Mass. 155; Hartrauft's Estate, 153 Pa. St. 530, 26 Atl. 104; Whelan V. Kinsley, 26 Ohio St. 131, 34 Am. St. 717n; Moses v. St. Paul, Q Ala. 168, 172; Cross v. Eureka L. & Y. Canal Co., 73 Cal. 302, 14 Pac. 885, 22 Am. St. 808; Brewster v. Hartley, 37 44— CoL. Sec. Cal. 15, 99 Am. Dec. 237; Dewey v. Bowman, 8 Cal. 145; Chouteau v. Allen, 70 Mo. 290, 341; Roots v. Mason City S. &c. Co., 27 W. Va. 483; Camden v. Alkire, 24 W. Va. 674. This principle has no application to the provision of the United States bankrupt la'w prohibiting suits by or against assigneees after two years from the accruing of the right of action. Moses v. St. Paul, Q Ala. 168. Where a debt is barred by the statute of limitations, a debtor, in order to redeem the pledge must pay the debt and interest from the date the security was given. Clark v. Seagraves, 186 Mass. 430, 71 N. 'E. 813. Notwithstanding the pledgors' debt is barred by the statute of limi- tations, he cannot recover possession of the pledge without paying his debt. Puckhaber v. Henry, 152 Cal. 419, 93 Pac. 114, 125 Am. St. 75. "Story on Bailments, § 298; Mims §5^1 COLLATERAL SECURITIES. 69O certain shares of bank stock were assigned as collateral secu- rity for the payment of a time note, and six years after the ma- turity of the note the stock was not of sufficient value to pay the debt, and the creditor had then and always treated the shares as his own, a court of equity after the lapse of eleven years, when the shares had risen in value, refused to grant relief/^ Where a pledge of stock in a land company was made in 1871 and the pledgee carried the stock till 1881, when it approxi- mated par value, and he sold it for less than the amount ad- vanced upon it, its value during this period fluctuating much, but never exceeding the amount advanced, upon a bill in equity by the pledgor for an account and redemption filed in 1884, and seek- ing to hold the pledgee accountable for the value of the stock at a time subsequent to the sale when it had greatly appreciated in value, it was held that the bill should be dismissed, on account of the staleness of the demand. Mr. Justice Somerville, deliv- ering the judgment of the Supreme Court of Alabama, said : "It is well settled that a much shorter time will be allowed the pledgor within which to exercise the right of redemption where he seeks to make a profit out of the unexpected rise in the value of the pledged stocks, than where he seeks merely to compel the pledgee to account for a surplus received by him from the sale of stocks in ordinary cases." The learned judge, after al- luding to the fact that a pledge of corporate stock partakes of the nature of both a pledge and a mortgage, because the trans- feree holds both the possession and the title of the thing trans- ferred, further said: "In this aspect of the law, to which I am not averse, there can be no room for disputation as to the fact that the case made by the bill was barred in six years from the day of forfeiture, there being no proof of any recognition of the V. Mims, 3 J. J. Marsh. (Ky.) 103, Y. S. 336; Daly v. Skiller, 222 111. 106; Hancock v. Franklin Ins. Co., 421, 78 N. E. 782. 114 Mass. 155; Kase v. Burnham, "Waterman v. Brown, 31 Pa. St. 206 Pa. 330, 55 Atl. 1028; Swann v. 161; Kase v. Burnham, 206 Pa. 330, Baxter, 36 Misc. (N. Y.) 233, 72, N. 55 Atl. 1028. 691 PAYMENT AND REDEMPTION. § 582 claimant's title within this period, and therefore a presumed ad- verse holding by the defendant.""^ In another case the pledgor was not allowed to redeem after the lapse of ten years from the time the debt secured became due."^ The property pledged in this case consisted of shares in a corporation which was paying dividends, and the debtor con- tended that the statute of limitations would not commence run- ning until the debt should be paid out of the dividends; but in the absence of any allegation or proof of an agreement that the pledgee should keep the stock until he should be repaid out of the dividends, the court held that the pledgor was not entitled to be relieved from the statute of limitations.'* In Louisiana it is provided by the code that the creditor cannot acquire the pledge by prescription, whatever may be the time of his possession.""* § 582. Debtor cannot recover back pledged security be- cause his debt is barred by the statute of limitations. — On the other hand a debtor cannot by reason of his debt becoming barred by the statute recover back the security pledged. Nothing short of payment or tender of the debt will discharge the lien and en- title the debtor to its return. The statute of limitations does not extinguish the debt but only the remedy to enforce it.*° § 583. Running of the statute of limitations. — The statute commences to run after a tender by the pledgor and refusal by the pledgee to restore the thing pledged f or after any act on his part which would show his determination to dissolve his trust relation to the pledgor.'^ "= Gilmer v. Morris, 80 Ala. 78, 85, 114 Mass. 155; Grant v. Burr; 54 Cal. 60 Am. Rep. 85. 298; Spect v. Spect, 88 Cal. 437, 26 "Roberts v. Sykes, 30 Barb. (N. Pac. 203, 22 Am. St. 314; Zeller- Y.) 173. bach v. AUenberg, 99 Cal. 57, 69, 33 "Roberts v. Sykes, 30 Barb. (N. Pac. 786; Hudson v. Wilkinson, 61 Y.) 173. Tex 606. "2 Rev. Civ. Code 1900, art. 3175. «' Whelan v. Kinsley, 26 Ohio St. "Jones V. Merchants' Bank, 6 Robt. 131; Brown v. Bronson, 93 App. Div. (N. Y.) 162, 4 Robt. (N. Y.) 221; (N. Y.) 312, 87 N. Y. S. 872. In re Oakley, 2 Edw. Ch. (N. Y.) "'Jones v. Thurmond, 5 Tex. 318. 478; Hancock v. Franklin Ins. Co., § 5^33- COLLATERAL SECURITIES. 692 § 583a. Collections on collateral regarded as payments. — — Collections made by a creditor on notes or other securities pledged by the debtor are regarded as payments made by the debtor as of the date when they are received, such as will take the balance of the debt out of the statute of limitations. °° The statute of limitations begins to run against an action for the bal- ance of the debt from the time when the creditor made the last collection upon the collateral security.''" "Buffinton v. Chase, 152 Mass. 534, '"Hancock v. Franklin Ins. Co., 114 25 N. E. 977, 10 L. R. A. 123. Mass 155. CHAPTER XV. BANKRUPTCY AND INSOLVENCY. § 584. Bankruptcy of pledgor. 585. An assignee for the benefit of creditors holds the property- subject to some equities as existed against assignor. 586. Securities collected by the as- signee must be applied for the benefit of the pledgee. 587. Pledgee must prove his whole claim against the estate of a bankrupt without deducting the value of his securities. 587a. A creditor is only entitled to prove his claim and cannot collect from assignee divi- dends on the amount of his claim plus his collateral. 587b. Rule in different states as to basis of calculating what is due on pledgee's claim against a bankrupt. 587c. Rule in other states. § 588. Creditor holding a pledge may receive dividends on bal- ance of his debt after de- ducting value of his security. 588a. Rule in Massachusetts. 588b. Under bankruptcy and insolv- ent laws property held in pledge may be sold by order of court when creditor re- quires it. 588ci. A creditor holding collateral may waive his right to par- ticipate in general assets of the bankrupt. 588d. Creditor holding notes of his debtor as security for other notes of same debtor can make only a single proof. 588e. When a pledgeholder becomes a bankrupt the pledge does not go to his assignee. § 584. Bankruptcy of pledgor. — Upon the bankruptcy of the pledgor, the pledgee is still entitled to hold possession of the property pledged, except in case the pledge was made in fraud of the bankrupt law, and is consequently void, when of course the assignee in bankruptcy may disregard the contract of pledge, and recover the property for the benefit of the creditors. The only rights of the assignee as regards a valid pledge are either to re- deem the property or under order of court to sell it subject to the lien of the pledge.^ Under the provisions of the bankrupt law ' Yeatman v. Savings Inst., 95 U. S. 764, 24 L. ed. 589; Jerome v. McCarter, 94 U. S. 734, 24 L. ed. 136; Moses v. St. Paul, 67 Ala. 168; Day- ton Nat. Bank v. Merchants' Nat. Bank, 37 Ohio St. 208; Dowler v. Cushwa, 27 Md. 354. 693 § 5^5 COLLATERAL SECURITIES. 694 of 1898^ it is held that a bankrupt, after an involuntary petition is filed against him but before he is adjudicated a bankrupt, may pledge personal property for loans made to him in good faith by one without notice of such bankrupt proceedings and such pledge is valid and cannot be taken from him by the trustee in bankruptcy afterward appointed.' The pledgee may at his option rely wholly upon his security and refuse to prove his claim in the bankruptcy court, and in doing so he only loses the privilege of participating in the distribution of the bankrupt's estate. The pledgee may, notwithstanding the pledgor's bankruptcy, proceed upon default to sell the pledge in the usual way;* but it would sdem that after the assignment, notice of the sale should be given to the assignee in bankruptcy. Upon the failure of the maker of a note, for the payment of which the holder has collateral securities, the latter is not com- pelled to join other creditors in a settlement, and receive his pro rata dividend, but is entitled to look to his securities for the full satisfaction of the note.' A clause in a deed to secure creditors which requires a re- lease of the debtor from personal liability for the balance of the debts not paid out of the trust fund, does not affect the right of the creditor to hold collaterals previously assigned to secure the payment of his debt. Siich release does not extinguish the debt, nor deprive the creditor of any security held for it. A policy on the life of the debtor assigned to and held by the creditor is not affected by such release."' § 585. An assignee for the benefit of creditors holds the property subject to same equities as existed against assignor. — As a general rule an assignee for the benefit of creditors holds the property assigned subject to the same equities as the debtor held it.' ' Bankrupt laws 1898, § 70, Subd. S ' Hanover Nat. Bank v. Brown, (30 Stat. 6541, U. S. Comp. St. 1901, (Tenn. Ch. App.), S3 S. W. 206. p. 3451, and § 67d, p. 3449). "Long v. Meriden Britannia Co., " Kennedy v. Pierce's Loan Co., 100 94 Va. 594, 27 S. E. 499. Mo. App. 269, 73 S. W. 357. 'Mitford v. Mitford, 9 Ves. Jr. 87; ' Jerome v. McCarter, 94 U. S. 734, Mitchell v. Winslow, 2 Story (U. S.) 24 L. ed. 136; 630; Gibson v. Warden, 14 Wall. (U. 695 BANKRUPTCY AND INSOLVENCY. § 585 But this general proposition is subject to exceptions. There are many transactions which are binding on the debtor while not binding on the assignee. Pledges made for the actual pur- pose of defrauding creditors are of this class, and so are pledges made contrary to statute or to the policy of the law. The gen- eral rule is restricted to cases in which the creditor claiming ad- versely to the assignee has a clear legal or equitable title to the property claimed, and does not apply to cases in which the creditor claims a security denied by the law.' An assignee or trustee for creditors may well oppose any security claimed by a creditor, when the law, unaided by a bona fide purchase or judg- ment, would regard the security as void against the general creditors in a direct contest between them and the creditor claim- ing such security or preference; even though the debtor himself on account of some personal disability arising from his own acts or engagements, could not resist the claim." A receiver of a na- tional bank, which cannot be put into bankruptcy, but can only be wound up under the peculiar provisions of the banking act, has the same power in this respect that an assignee has; otherwise the absurd consequence would follow, that the property of a bank disposed of by voluntary conveyances, or pledges not good as to third persons, would be beyond the reach of creditors.^" An assignee for creditors stands in his assignor's shoes, and cannot attack a pledge of the assignor's property because the change of possession was not sufficient. But creditors for whose benefit an assignment has been made may nevertheless prosecute their claims to judgment and levy execution.^^ S.) 244, 20 L. ed. 797; Cook v. Tullis, "Casey v. Cavaroc, 96 U. S. 467, 18 Wall. (U. S.) 332, 21 L. ed. 933; 487, 24 L. ed. 779. Partee v. Corning, 9 La. Ann. 539; "Casey v. Cavaroc, 96 U. S. 467, Casey V. La Societe de Credit Mo- 487, 24 L. ed. 779. See Casey v. La bilier, 2 Woods (U. S.) 11, 84; Dow- Societe de Credit Mobilier, 2 Woods ,Ier V. Cushwa, 27 Md. 354. (U. S.) IT, 84. ' Casey v. Cavaroc, 96 U. S. 467, " George v. Pierce, 123 Cal. 172, 55 487,- 24 L. ed. 779; Bank of Alex- Pac. 775, affirmed 56 Pac. iZ. See aridria v. Herbert, 8 Cranch (U. S.) Goodbar v. Locke, 56 Ark. 314, 19 S. 36, 3 L. ed. 479. W. 924. § 5^6 COLLATERAL SECURITIES. 696 § 586. Securities collected by the assignee must be applied for the benefit of pledgee. — An assignee who collects securi- ties pledged by the bankrupt will be directed to apply the pro- ceeds for the benefit of the pledgee. Thus, a debtor having pledged a promissory note already pledged and delivered as se- curity by him, his assignee received it from the first pledgee, and collected it ; but the second pledgee was allowed upon petition to follow the proceeds into the hands of the assignee. This right does not depend upon any regulation of the Bankrupt Act, but upon the general principle of equity that a party interested in property may follow his interest into any new form into which it may have been changed without his fault or consent.'-^ § 587. Pledgee may prove his whole claim against the es- tate of a bankrupt without deducting the value of his securi- ties. — By the general law in equity the pledgee may prove his whole claim against the pledgor's estate in insolvency with- out deducting the value of his security. This is the rule more generally adopted under the state insolvency laws, under gen- eral assignments in the settlement of insolvent estates of de- ceased persons, and in winding up insolvent corporations.^^ If the dividend so reduces the debt that the collateral security will more than pay it, the security must be redeemed for the benefit of the general creditors.^* This rule gives effect to the equitable ^= In re Wiley, 4 Biss. (U. S.) 171. solvent bank) ; Tod v. Kentucky " Lowell on Bankruptcy, § 403. In Union Land Co., 57 Fed. 47 ; Ex parte Cook Co. Nat. Bank v. United States, Kelty, 1 Low. Dec. 394; Findlay v. 107 U. S. 445, 2 Sup. Ct. 561, 27 L. Hosmer, 2 Conn. 350; Paddock v. ed. 537, it was expressly declared that Bates, 19 111. App. 470 ; In re Bates, the priorities and method of distri- 118 111. 524, 9 N. E. 257, 59 Am. Rep. hution under the bankrupt law had no 383n. This was under an assignment application to the winding up of in- for the benefit of creditors. See § solvent national banks. 588; Furness v. Union Nat. Bank, 147 " Story's Eq. Jur., § 564 ; Lewis v. III. 570, 35 N. E. 624 (insolvent estate United States, 92 U. S. 618, 23 L. ed. of deceased) ; Hight v. Taylor, 97 Ind. 513; Merrill v. Nat. Bank, 173 U. S. 392; Logan v. Anderson, 18 B. Men. 131, 43 L. ed. 640, 19 Sup. Ct. 360 (Ky.) 114; Citizens' Bank v. Patter- Cease, of an insolvent corporation) ; son, 78 Ky. 291. This was a voluntary Chemical Nat. Bank v. Armstrong, 59 assignment. Others were in insolvency. Fed. 372, 28 L. R. A. 231 (case of in- See § 588. Third Nat. Bank v. Haug, 697 BANKRUPTCY AND INSOLVENCY. § 587 principle that a creditor's diligence shall be rewarded by giving him his full legal rights/^ Aside from the accidents of the in- solvency or death of the debtor, a creditor holding a mortgage or a pledge has a double security. "He has a right to proceed against both, and to make the most he can of both; why he should be deprived of this right because the debtor dies insolvent, is not very easy to see."^" Thus, a creditor holding a mortgage was allowed a dividend under his debtor's assignment for the benefit of his creditors upon his whole claim, although he had collected the greater part of tlie claim of. the mortgaged property, the amount collected and the dividend together not being sufficient to satisfy the debt; and was not restricted to a dividend on his claim as reduced by the proceeds of the mortgage. It is true that before the proceed- ings on the mortgage, the account of the assignees had been filed, and an auditor had reported a scheme of distribution, but the divi- dend apportioned to the claim was retained under control of the court until the proceedings on the mortgage were terminated. 82 Mich. 607, 47 N. W. 33, 11 L. R. Pa. St. ii7 ; Skunk's Appeal, 2 Pa. A. 327ii; Southern Mich. Nat. Bank St. 304; Patten's Appeal, 45 Pa. St. V. Byles, 67 Mich. 296, 34 N. W. 702; ISl, 84 Am. Dec. 479; Morris v. Moses V. Ranlet, 2 N. H. 488; Van Ulwine, 22 Pa. St. 441; Brough's Es- Mater v. Ely, 12 N. J. Eq. 271; Van- tate, 71 Pa. St. 460; Graeff's Appeal, derveer v. Conover, 16 N. J. L. 487; 79 Pa. St. 146, Miller's Estate, 82 Pa. Moses V. Thomas, 26 N. J.. L. 124; St. 113, 22 Am. Rep. 754; Allen v. Bell V. Fleming, 12 N. J. Eq. 15, 30, Danielson, IS R. I. 480, 8 Atl. 70S, 495 ; Whittaker v. Amwell Nat. Bank, overruling. Knowles, Petr., 13 R. I. 52 N. J. Eq. 400, 29 Atl. 203 ; Jervis 90 ; Putnam v. Russell, 17 Vt. 54, 42 V. Smith, 1 Sheldon (N. Y.) 189, 7 Am. Dec. 478; West v. Bank of Rut- Abb. Pr. (N. S.) (N. Y.) 217; Midge- land, 19 Vt. 403; Walker v. Baxter, ley V. Slocomb, 32 How. Pr. (N. Y.) 26 Vt. 710. , These cases related to 423, 2 Abb. Pr. (N. S.) (N. Y.) 275; claims against the estates of deceased People V. Remington, 121 N. Y. 328, persons. The rule is otherwise in in- 24 N. E. 19Z, 54 Hun (N. Y.) 505, 8 solvency cases. See § 588. In re N. Y. S. 34, 8 L. R. A. 458n ; Brown v. Meyer, 78 Wis. 615, 48 N. W. 55, 23 Merchants' &c. Nat. Bank, 79 N. Car. Am. St. 435, 11 L. R. A. 841. 244; Lloyd v. Western Nat. Bank, 30 '"Jervis v. Smith, 1 Sheldon (N. Weekly L. Bull. 165; Kellogg v. Y.) 189, 194, 7 Abb. Pr. (N. S.) (N. Miller, 22 Ore. 406, 30 Pac. 229, 29 Am. Y.) 217. St. 618 ; Jamison's Estate, 163 Pa. St. '" Mason v. Bogg, 2 Mylne & C. 443, 143, 29 Atl. 1001 ; Miller's Appeal, 31 448. § 587 COLLATERAL SECURITIES. 698 Then he was permitted to take the dividend on his whole claim as it was before any portion of it had been paid.^'' But under an assignrnent for the benefit of creditors, a creditor holding notes of third persons as collateral security, upon collect- ing these notes before a dividend is made, under the assignment, must credit the amount upon the principal debt, and take a divi- dend under the assignment upon the remainder only of the debt; he cannot collect the collaterals and then claim a dividend upon the principal debt as it was at the time of the assignment. The law applies the collections to the payment of the debt, so that the creditor ceases to be the holder of the collateral notes.^' § 587a. A creditor is only entitled to prove his claim and cannot collect from assignee dividends on the amount of his claim plus his collateral. — A creditor claiming to hold an- other obligation of his debtor as collateral security is entitled to a dividend only on the principal obligation. Thus, a creditor of an insolvent corporation is not entitled to prove in insolvency or against the assets of the corporation in the hands of a receiver, negotiable bonds of the corporation for amounts in addition to the principal indebtedness, when these bonds represent no indebted- ness, but were received and held merely as collateral security.^' So, also, where a creditor of a railroad company who holds its promissory note, and, as collateral security for the same, three other notes of the corporation, with coupons attached, of a kind regularly quoted in the market, is entitled to prove only the amount of the original note against that corporation. Mr. Jus- tice Colt, delivering the opinion of the Supreme Court of Massa- chusetts, said : "A debtor's liability to his creditor, where other creditors are concerned, is not increased by increasing the num- ber of his promises to pay the same debt, in whatever form he may make them. To hold otherwise would be to enable the " Morris v. Olwine, 22 Pa. St. 441. " International Trust Co. v. Union See, also, Miller's Appeal, 35 Pa. St. Cattle Co., 3 Wyo. 803, 31 Pac. 408, 481. 19 L. R. A. 640 " Midgeley v. Slocomb, 32 How. Pr. (N. Y.) 423. 699 BANKRUPTCY AND INSOLVENCY. § 587b debtor to encumber his assets by a new method, greatly to the prejudice of all other creditors."^" § S87b. Rule in different states as to basis of calculating what is due on plegee's claim against a bankrupt. — Whether a creditor holding collateral securities is entitled to participate in dividends for the amount of his debt as it existed at the date of making his proof, or for the amount of it at the date of the as- signment in insolvency or for the benefit of creditors, or for the amount as it exists at the time the dividends are made, is a question upon which the rule differs in different states. Thus, in some states it is held that a creditor acquires no vested interest in the assigned "estate of an insolvent until his assent to the as- signment is signified by proving his claim, and that the amount of his claim on which he is to receive dividends is to be determined as of that date. Payments received on collateral securities before that date are to be deducted from the entire claim, but payments received after proof and before the time of distribution are not to be deducted, because otherwise a readjustment of the claim would be necessary at the time of declaring each dividend, and there would be no fixed sum due each creditor as a basis for the declaration of dividends. ^^ In an Illinois case the court say: "Our conclusion is, that the amount, upon which the secured creditor is'entitled to receive dividends from the assets of the in- solvent estate, is the amount actually due to the creditor when he files his proof of claim, or presents his claim under oath; that the subsequent hearing upon objections or exceptions should be directed to the inquiry as to what was due at that date ; that the amount due at that date is to be ascertained by the deduction from the principal debt of all payments made before that date, whether realized from collaterals, or otherwise, but that amounts realized from collaterals after that date are not to be deducted, "ThirdNationalBankv. Eastern R. ='Levy v. Chicago Nat. Bank, 158 Co., 122 Mass. 240, 242. See, also, III. 88, 42 N. E. 129, 30 L. R. A. 380 ; People V. Remington, 54 Hun (N. Y.) Furness v. Union Nat. Bank, 147 111. 480, 8 N. Y. S. 31, affirmed 121 N. Y. 570, 35 N. E. 624. 675, 24 N. E. 1095. § 5^7'^ COLLATERAL SECURITIES. 700 subject always to the qualification that the dividends received from the general assets, and the amounts realized from the col- lateral security shall not together exceed the amount due the creditor upon his claim."^^ The rule of chancery in England is the same. In a case be- fore the court of chancery appeals Lord Justice Wood said: "There remains the question as to the time with reference to which the amount provable is to be ascertained; and as to this there is a little more difEtulty. I think, however, that the true rule is, that the debt is to be taken a's it stands at the time when the claim is put in. * * * Where the demand of the creditor was large, and the securities held by him considerable, the official liquidator might dispute the claim for the very purpose of obliging the creditor to realize some of his securities before the time for making his affidavit arrived. * * • * It appears to me that it would be leaving a great deal too much open to the caprice or arbitrary discretion of the liquidator if we were to fix upon any time except the time when the claim which is to be adjudi- cated upon was sent in."^^ § S87c. Rule in other states. — A rule adopted in other states requires a readjustment of the claim at the time of each successive dividend, if collections have in the meantime been made upon the collaterals. This rule requires that all sums col- lected from collaterals before the proof of claim shall be de- ducted, and proof made for the remainder of the claim then re- maining unpaid; and afterward, immediately before or at the time of each dividend, all sums derived from the collaterals be- tween the date of proof and the date of such dividend must be deducted from the claim and the creditor will receive dividends according to the balance then due.^* ''Levy V. Chicago Nat. Bank, 158 of Montreal, 10 Ont. 79; Fottrell v. 111. 88, 102, 42 N. E. 129, 30 L. R. A. Kavanagh, 10 Ir. Eq. 256; Ex parte 380. Wildman, 1 Atk. 109. ''Kellock's Case, L. R. 3 Ch. App. ''Third Nat. Bank v. Lanahan, 66 Cas. 769. See, also, In re Barned's Md. 461, 7 Atl. 615; and State v. Banking Co., Forwood's Claim, L. R. Nebraska &c. Bank, 40 Neb. 342, 58 5 Ch. App. Cas. 18; Eastman v. Bank N. W. 91(>. 701 BANKRUPTCY AND INSOLVENCY. § 588 § 588. Creditor holding a pledge may receive dividends on balance of his debt after deducting value of his security. — But the rule in bankruptcy adopted by other courts is, that a creditor holding a pledge is admitted to prove or to receive dividends only for the balance of his debt, after deducting the value of his security, or its proceeds when collected, in proceed- ings under bankrupt or insolvent laws of this country and of England."' "The reason is obvious," said Lord Eldon."^ "Till ^ This was the rule under the recent bankrupt act of the United States, and under the act of July 1, 1898, 30 U. S. Stat, at Large 544,_ § 51. In re Bridg- man, 1 Nat. Bank. Rep. 312; In re Brand, 3 Nat. Bank. Rep. 324; In re .\Tewland, 7 Nat. Bank. Rep. 477, 6 Ben. (U. S.) 342; Ex parte Farns- worth, 1 Low. (U. S.) 497; In re Bab- cock, 3 Story (U. S.) 393, 2 Fed Cas. No. 696; In re Hamilton, 1 Fed. 800; In re Falls City Shirt Manuf. Co., 98 Fed. 592; Gusdorf v. Ikelheimer, 75 Ala. 148 ; Philadelphia Warehouse Co. V. Anniston Pipe Works, 106 Ala. 357, 18 So. 43; In re Waddell-Entz Co., 67 Conn. 324, 35 Atl. 257; Gen. Stat. 1888, § 590, which provides for a valuation of the security; In re Greeley, 70 Conn. 494, 40 Atl. 233; Levy V. Chicago Nat. Bank, 158 111. 88, 42 N. E. 129, 30 L. R. A. 380 ; Fur- ness V. Union Nat. Bank, 147 111. 570, 35 N. E. 624 ; Wurtz v. Hart, 13 Iowa 515; Dickson v. Chorn, 6 Iowa 19, 71 Am. Dec. 382; Farmers' &c. Bank v. Wood Bros. & Co. (Iowa), 118 N. W. 282, Modified by 120 N. W. 625 ; Spratt V. First Nat. Bank, 84 Ky. 85; see, however, § 587, and Tod v. Kentucky Union Land Co., 57 Fed. 47; Third Natl. Bank v. Lanahan, 66 Md. 461, 7 Atl. 615; National Union Bank v. National Mechanics' Bank, 80 Md. 371, 30 Atl. 913, 45 Am. St. 350; Amory v. Francis, 16 Mass.* 308; Far- num V. Boutelle, 13 Mete. (Mass.) 159; Sohier v. Loring, 6 Cush. (Mass.) 537 ; Richardson v. Wyraan, 4 Gray (Mass.) 553; Haverhill Loan &Fund Assn. V. Cronin, 4 Allen (Mass.) 141, 144 ; Middlesex Bank v. Minot, 4 Met. (Mass.) 325; Lanckton v. Wol- cott, 6 Mete. (Mass.) 305; Merchants' Nat. Bank v. Eastern R. Co., 124 Mass. 518; Third Nat. Bank v. East- ern R. Co., 122 Mass. 240; Costelo v. Crowell, 134 Mass. 280 ; Washburn v. Tisdale, 143 Mass. 376, 9 N. E. 741; Miller's River Nat. Bank v. Jeffer- son, 138 Mass. Ill; Franklin Co. Nat. Bank v. First Nat. Bank, 138 Mass. 515 ; Union Cattle Co. v. Inter- national Trust Co., 149 Mass. 492, 21 N. E. 962; White v. White, 169 Mass. 52, 47 N. E. 499 ; Hale v. Leatherbee, 175 Mass. 547, 56 N. E. 562; Swedish- American Nat. Bank v. Davis, 64 Minn. 250, 66 N. W. 986, 69 Minn. 181, 72 N. W. 62; State v. Nebraska Sav. Bank, 40 Neb. 342, 58 N. W. 976; Bell v. Fleming, 12 N. J. Eq. 490; Pattberg v. Pattberg, 55 N. J. Eq. 604, 38 Atl. 205 ; Wheat v. Dingle, 32 S. Car. 473, 11 S. E. 394, 8 L. R. A. 375 ; International Trust Co. v. West Rutland Marble Co., 63 Vt. 326, 22 Atl. 273 ; Rogers v. Heath, 62 Vt. 101, 18 Atl. 1043; In re Frasch, 5 Wash. 344, 31 Pac. 755, 32 Pac. 771. '° Ex parte Smith, 2 Rose 63 ; White V. Simmons, L. R. 6 Ch. App. Cas. § 588 COLLATERAL SECURITIES. 702 his debt has been reduced by the proceeds of that sale, it is im- possible correctly to say what the actual amount of it is; and with this further consideration, that in the event of any doubt attaching upon his right to retaih the security, he is enabled in a contest with the rest of the creditors to sustain his disputed title in a situation of predominant advantage." But it is a disputed point whether this rule is altogether one of statute, or whether it is founded upon principles of equity, and is there- fore applicable to cases not governed by the statute, such as vol- untary assignments by insolvent debtors in trust for the benefit of their creditors. Thus, on the one hand, the statute rule in bank- ruptcy was applied in Massachusetts to the settlement of estates of deceased insolvent debtors, the court saying :^^ "The rule adopted by the court of chancery in England, and enforced by the commissioners of bankruptcy, is certainly just and equitable; requiring that every creditor, having a mortgage or other secur- ity, shall, before he is admitted to prove his debt, surrender his security for the benefit of the other creditors, the proceeds of the sale going into the common fund; or shall suffer the pledge to be sold, taking the proceeds toward his debt, and proving under the commission for the residue. If it were not so, the equality, intended to be produced by the bankrupt laws, would be grossly violated ; and the creditor holding the pledge would, in fact, have a greater security than that pledge was intended to give him. For originally it would have been security, only for a propor- tion of the debt equal to its value: whereas by proving the whole debt, and holding the pledge for the balance, it becomes security for as much more than its value, as is the dividend, which may be received upon the whole debt." In a Maryland case the court of appeals forcibly stated this view of the question, Mr. Justice Boyd, for the court, saying: SSS; ex parte Macredie, L. R. 8 Ch. ers' Assn., 4 Ch. D. 625; In re Knott, App. Cas. 535 ; In re Oriental Com- 7 Ch. D. 549 ; In re London &c. Hotel mercial Bank, L. R. 7 Ch. App. Cas. Co.' [1892], 1 Ch. 639; Glanville v. 99; Greenwood v. Taylor, 1 Russ. & Strachan, 29 Ont. 373; Benning v. M. 185 ; In re Blakely Ordnance Co., Simpson, 20 Sup. Ct. Can. 110. L. R. 8 Eq. 244 ; In re Coal Consum- " Amory v. Francis, 16 Mass. 308. 703 BANKRUPTCY AND INSOLVENCY. §588 "The creditor who holds collateral securities for his claim, has the advantage over other creditors to the extent of their value, or what he may realize upon them, but he should not be permitted to have in addition thereto, what in many cases might be equiva- lent to double dividends or even more. If, for example, the collaterals realized fifty per centum of the creditor's claim, and the debtor's estate would only pay fifty cents on the dollar, the creditor with the security would be paid in full, whilst the others would receive only one-half of their claims. Great incon- venience and cost would oftentimes follow the practice con- tended for in the distribution of insolvent estates, in ad- dition to the undue advantage given the creditor holding the collateral. For if the whole claim be distributed to, and the dividend exceeded the difference between the value of the collaterals and the amount of the claim, the creditor would have to refund or deduct from his dividend the balance, which would require another audit, thus involving the estate in unnecessary cost and delay. The value of the collaterals would have to be ascertained before the dividend was paid to the cred- itor, so as to properly protect the insolvent estate, for if this be not done and the dividend was more than the difference between the value of the collaterals and the amount of the claim, the trustees would have to look to the creditor holding the collaterals for the excess paid him, and possibly the estate would sustain loss by not being able to recover the amount."^^ But it is obvious that this rule can have no proper /application to a case where the collateral security is furnished by a third per- son not primarily responsible for the debt, but as a surety; be- cause, if the security were first applied to the reduction of the debt, it would eo instanti create a new debt of equal amount in favor of the surety whose property is thus expended.^^ And so if a debtor die and his estate be declared insolvent, a creditor who holds property of such debtor in pledge cannot prove " National Union Bank v. National ™ Savage v. Winchester, IS Gray Mechanics' Bank, 80 Md. 371, 382, 30 (Mass.) 453. Atl. 913, 4S Am. St. 3S0, 27 L. R. A. 476n. § 588a COLLATERAL SECURITIES. 704 his claim against the estate until he has first sold the property and deducted the proceeds from his claim, or until the value of the property has been ascertained, by a jury or otherwise, and that value deducted. Proof can only be made for the remainder of the claim after deducting the value of the security as ascer- tained in one mode or the other.'" A creditor after having his collateral security appraised, and proving his debt for the balance, may then proceed to collect or enforce the collaterals ; and- his right to do so is not affected by the fact that these were appraised at a nominal value.'^ § 588a. Rule in Massachusetts.^In Massachusetts it is provided that when a creditor has a mortgage or pledge of real or personal estate of the debtor, or a lien thereon, for securing the payment of a debt claimed by him, the property so held as security shall, if he requires it,- be sold, and the proceeds applied toward the payment of his debt, and he shall be admitted as a creditor for the residue. If the creditor does not require such sale and join in the conveyance, he may release and deliver to the assignee the property held as security, and be admitted as a cred- itor for the whole of his debt. If the property is not so sold, or released and delivered, the creditor shall not prove any part of his debt.'" Under this statute it is now held that a creditor may prove his whole claim in insolvency against the estate of a debtor, although the debtor has assigned to him as security a mortgage made by a third person. In ^uch case the creditor has no mort- gage or pledge of the estate of the debtor against whom he offers proof. ^^ Mr. Justice Barker, for the court, says: "Until the creditor receives full payment of the note, neither the insolvent, •"Middlesex Bank v. Minot, 4 Mete. This statute was first enacted in 1838, (Mass.) 325. ch. 163, § 3. " Streeper v. McKee, 6 W. N. Cas. "" Hale v. Leatherbee, 175 Mass. 547, 169, 86 Pa. St. 188. This case arose 556, 56 N. E. 562, in effect overruling under the United States Bankrupt Lanckton v. Wolcott, 6 Met. (Mass.) Act. 305, and Richardson v. Wyman, 4 "2 Rev. Laws 1902, ch. 163, § 36. Gray (Mass.) 553. 705 BANKRUPTCY AND INSOLVENCY. § 588b the assignee nor the general creditors have an equitable right to prevent the creditor from realizing by means of his security the full payment of his debt. Where the creditor by means of his security and his proof receives his whole debt, his rights in the security and in the estate of the insolvent stop. If at the outset the value of the security and the value of the assets of the insol- vent estate, as compared with the amount of the claims provable against it, are such as to show that the creditor will receive from both his funds more than the amount of his debt, the facts dis- close an equitable right in the security on the part of the insol- vent estate, which may be enforced by a restraint in the proof without doing injustice perhaps to the creditor. But when it is not shown that such a state of facts exists it is not necessary for the preservation of the equitable rights of the insolvent and his assignee and other creditors that the creditor be restrained in his proof. * * * If at any time it appears that equitable relief is necessary to enable the assignee or the general creditors of the insolvent to enjoy their equitable rights of subrogation to the creditor's security, such relief can be afforded after as well as be- fore proof of the debt in full." As against the insolvent estate of a deceased person, a cred- itor holding as security for his debt a mortgage given by the deceased upon his own property is allowed to claim only the dif- erence between his debt and the value of the property mort- gaged.'* § 588b. Under bankruptcy and insolvent laws property held in pledge may be sold by order of court when creditor requires it. — Under bankruptcy and insolvency laws, it is gen- "Amory v. Francis, 16 Mass. 308; Merchants' Nat. Bank v. Eastern R. Hooker V. Olmstead, 6 Pick. (Mass.) Co., 124 Mass. 518, 524; Bristol 481; Towle v. Bannister, 16 Pick. County &c. Bank v. Woodward, 137 (Mass.) 255; Middlesex Bank v. Mass. 412; Franklin County Nat. Minot, 4 Met. (Mass.) 325; Gray v. Bank v. First Nat. Bank, 138 Mass. Coffin, 9 Cu-sh. (Mass.) 192,201,202; 515, 522; Washburn v. Tisdale, 143 Savage v. Winchester, 15 Gray Mass. 376, 9 N. E. 741. And see (Mass.) 453; Haverhill Loan &c. White v. White, 169 Mass. 52, 47 N. Assn. V. Cronin, 4 Allen (Mass.) 141; E. 499. 45— Col. Sec. § 588c COLLATERAL- SECURITIES. 706 erally provided that property held in pledge may be sold by order of court when the creditor requires it.'^ When, however, the creditor's title is only equitable, as where he holds certain bonds of a corporation issued to a trustee for the payment of its indebt- edness, secured by a mortgage of its property, a court of bank- ruptcy or insolvency having no jurisdiction over such trustee, the creditor is obliged to resort to a court of equity to compel the sale by the trustees under the mortgage, and the payment to him of a due proportion of the proceeds. If the mortgage contains a power of sale, the sale should be ordered in accordance with the terms of the power. ^^ § 588c. A creditor holding collateral may waive his right to participate in general assets of the bankrupt. — If a cred- itor holding collateral security inadvertently and by mistake, either of law or fact, proves his whole debt against the insol- vent estate without disclosing his security, and, before he has derived any advantage, or the other creditors have suffered any detriment from his act, takes proper measures to waive his proof and to pursue his rights as a secured creditor according to the statute, he does not waive his security, and the unsecured cred- itors do not acquire an equitable right to it which can be enforced by the assignee of the estate.^' § 588d. Creditor holding notes of his debtor as security for other notes of same debtor can make only a single proof. — A creditor holding notes of his debtor as security for other notes of the same debtor, can make only a single proof against his debtor's estate in bankruptcy or insolvency. '* The holder of ne- ^ As in 2 Rev. Laws 1902, ch. 163, waive his security under an insol- § 36. vency act (Cal. Act 1895, § 48) which -° Merchants' Nat. Bank v. Greene, provides that security holding cred- 150 Mass. 317, 23 N. E. 103. iters where they do not release and " Nichols v. Smith, 143 Mass. 455, deliver up their securities are not per- 9 N. E. 810. Where a secured cred- mitted to prove any part of their iter files his whole claim with the as- claims. Perry v. Parrott, 135 Cal. signee as a claim not secured, and the 238, 67 Pac. 144. claim is not allowed, and he received " Hale v. Leatherbee, 175 Mass. 547, nothing on account of it, he does not 56 N. E. 562; Merchants' Nat. Bank 707 BANKRUPTCY AND INSOLVENCY. § 588(1 gotiable paper upon which two or more parties are liable to him, may- prove his whole claim in bankruptcy or insolvency against the estate of either, without regard to the fact that he has also the liability of the other paries as another fund to which he can re- sort for payment.^" If a debtor pledges his own note or bond to secure his own debt, the creditor cannot collect on all the obligations more than the debt really due. In bankruptcy or insolvency the creditor is not allowed to prove the principal debt without surrendering the debtor's other obligations held as collateral security, .unless these obligations are themselves secured by a lien on property or by obligations of third persons. If the creditor, before the com- mencement of iDroceedings in bankruptcy or insolvency, had col- lected any of the collateral obligations, he may prove the re- mainder of the debt after crediting the amount collected. But if, after such proceedings have been commenced, the creditor sells any of such collateral obligations of his debtor not so secured, the purchaser will be excluded from proving them, and the creditor will be excluded from proving even the remainder of its debt after deducting the proceeds of the debtor's obligation sold.^° A sale of the debtor's collateral obligation does not 'enlarge the creditor's rights.*^ "A debtor's additional promises to pay can- not, from the very nature of the case, be treated as collateral security for his debt, unless such additional promises are them- selves secured by a lien on property or by the obligations of third persons ; under such circumstances they may be treated as collat- V. Eastern R. Co., 124 Mass. 518; chants' Nat. Bank v. Eastern R. Co., Third Nat. Bank v. Eastern R. Co., 124 Mass. 518; Ex parte Farnsworth, 122 Mass. 240. 1 Lowell 497; In re Oriental Commer- "" Dickinson v. Metacomet National cial Bank, L. R. 7 Ch. App. Cas. 99; Bank, 130 Mass. 132, 136; Fuller v. Ex parte Macredie, L. R. 8 Ch. App. Hooper, 3 Gray (Mass.) 334, 342; Cas. 535; Costelo v. Crowell, 134 Sohier v. Loring, 6 Cush. (Mass.) Mass. 280. 537, 548. « In re Waddell-Entz Co., 67 Conn. "Union Cattle Co. v. International 324, 35 Atl. 257; People v. Reming- Trust Co., 149 Mass. 492, 498, 21 N. ton, 54 Hun (N. Y.) 480, 8 N. Y. S. E. 962, citing Third Nat. Bank v. 31, affirmed 121 N. Y. 675, 24 N. E. Eastern R. Co., 122 Mass. 240; Mer- 1095. § 588e COLLATERAL SECURITIES. 708 eral security so far as is necessary to obtain the benefit of the lien or obligation."*^ But aside from the rules of bankruptcy or insolvency, the debtor's collateral obligation may be collected or sold, according to its nature. A Wyoming cattle company issued unsecured ne- gotiable coupon bonds, payable in ten years from date, and short- ly afterward deposited some of the bonds with a trust com- pany here, under an agreement that they should be held as col- lateral security for promissory notes given by the former to the latter for money lent. Subsequently the cattle company was de- clared insolvent, in proceedings in the Wyoming courts, and re- ceivers were there appointed to wind it up. Upon default in the payment of the promissory notes, the trust company gave notice of its intention to sell the bonds held as security for the satis- faction of its claim. Upon a bill in equity brought in Massachu- setts by the cattle company, the receivers and other bondholders to enjoin the sale, it was held that the sale of the bonds would not be enjoined. Mr. Justice Field, delivering the judgment of the court, said : "It is not a reasonable construction of the contract of pledge in this case, that the parties intended that the trust com- pany should be compelled to hold the bonds until they matured or were redeemed, if the notes were not paid at maturity. The fact that the bonds are the obligations of the debtor is one circum- stance to be considered ; but it does not outweigh the fact that, to secure the benefit of the security at or near the time when the notes mature, it would be necessary to sell the bonds, and that the right to sell bonds of this character when held as security is one of the rights which a pledgee ordinarily has. We think that as between the parties the trust company has the right to sell at public auction the bonds held as collateral security, and to apply the proceeds to the payment of the notes."*' § 588e. When a pledgeholder becomes a bankrupt the pledge does not go to his assignee. — Upon the bankruptcy of a trustee or pledgeholder the property does not pass to his assignee " In re Waddell-Entz Co., 67 Conn. " Union Cattle Co. v. International 324, 335, 35 Atl. 257. Trust Co., 149 Mass. 492, 21 N. E. 962. 709 BANKRUPTCY AND INSOLVENCY. § S88e in bankruptcy or to the assignee for the benefit of creditors, but must be surrendered to the pledgee or pledgor according to the right of the parties. Upon the bankruptcy of the pledgee, the subject of the pledge must be returned to the pledgor upon the satisfaction of the debt or claim to secure which the pledge was made. When a special deposit of money was made with a bank as a pledge to secure it from loss in furnishing bail, the title to the deposit, subject to the liability secured, remains in the pledgor, and after the cessation of the liability an action by the pledgor lies to recover the deposit ; and in case of the insolvency of the bank the pledgor is not re- mitted to the rights of a general creditor, but may recover the en- tire sum deposited out of the assets of the bank. The fact that moneys specially deposited in the bank by way of pledge were afterward wrongfully commingled and used as funds of the bank, without the knowledge or consent of the pledgor, cannot be urged by the bank in defense as effecting any change in the contractual relations and rights of the parties. ^'' "Anderson v. Pacific Bank, 112 Cal. S98, 44 Pac. 1063, 53 Am. St. 228. 32 L. R. A. 479. CHAPTER XVI. REMEDIES OF THE PLEDGEE AFTER DEFAULT. 5 S89. In general. § 590. ■Right of action on debt not sus- pended by the holding of col- lateral securities. 591. Taking judgment on principal debt does not affect pledgee's security. 591a. No mere change in the form of the debt secured releases the collateral securing it. 592. Debt may be enforced even though pledge has been dis- charged. 593. Pledgee not required to return pledge at time of payment of secured debt. 594. Set-off or recoupment set up in defense of suit on debt se- cured. 595. Rule in some states permits pledgor to sue for conversion of the pledge as a defense to action on secured debt. 596. Rule in some states requires pledgee to restore collateral in action on the secured debt. 597. Suit for deficiency after col- lateral is applied in payment of secured debt. 598. When pledgee not required to present his claim against ad- t ministrator of pledgor's es- tate. 599. Pledgee waives his lien by at- taching or levying on pledged property. 710 600. One who holds pledged prop- erty in the hands of an agent attaches such property, there- by releasing the pledge. 601. Attachment of same goods on another demand is not waiver of lien. 602. In general. 603. At common law a pledgee upon default may sell the pledge at public sale. 604. Pledgee can sell only the inter- est of the pledgor in the pledged property. 604a. Pledgee of corporate stock is guilty of conversion by sell- ing it in violation of pledge contract. 605. Rights of assignee of pledgee same as his assignor to sell pledged property. 606. Pledgee not obliged to sell the pledge". 607. Notice required to be given to pledgor. 608. Demand of payment necessary. 608a. Default determined by terras of pledge contract. 608b. Waiver of right to insist on default. 608c. Sale of pledged securities be- fore default. 609. Debt due at certain time does not dispense with necessity of notice. 711 REMEDIES AFTER DEFAULT. §610. Sale of pledge can only be made after notice. 611. Waiver of notice. 611a. Pledgee under a contract per- mitting him to sell pledge at public or private sale, may do so without notice. 611b. Waiver of notice may be made by parol. 612. The notice must be given to the general owner of the pledge or to his agent. 613. Formal notice not required where there is actual notice. 614. Defective notice. 615. Extension of time of payment. 616. Statutory rules in several states. 617. Alabama. 617a. Arizona. 618. California, Idaho and South Dakota. 619. Georgia. 620. Iowa. 621. Louisiana. 622. Maine. 623. Massachusetts. 624. Michigan. 625. Montana. 626. New Hampshire. 627. North Dakota. 627a. Ohio. ■628. Rhode Island. 629. South Carolina. 629a. Texas. 630. Wisconsin. 631. Power of sale is an authority coupled with an interest. 631a. A default under the terms of the pledge must be shown. 631b. Private sale or sale at public auction. 632. Authority to sell collateral. 633. Subject matter of a pledge di- visible. § 634. Rule when pledgor mixes the articles pledged with others belonging to himself. 635. Purchase by pledgee at a sale of pledged property. 63Sa. Where pledgee is authorized to purchase at a sale. 636. Partner cannot purchase at a partnership sale of a pledge. dZT. Pledgee not changeable with conversion. 637a. Reason for the rule. 637b. Delay regarded as an affirm- ance of the sale. 638. Election by the pledgor. 639. Pledgee not estopped to show that a sale was made only to fix value of the securities. 639a. Title of purchaser of pledged property. 640. Common-law rule. 641. Equity has jurisdiction when an account must be stated. 642. Foreclosure and sale of shares of a land association. 643. Pleldge of title deeds. • 644. Lien of factor enforced. 645. Contract for summary sale of pledged property will not pre- vent right to resort to judi- cial proceedings. 646. Foreclosure for default in pay- ment of interest. 646a. Receiver of pledgor corpora- tion should be made party in foreclosure of the pledge. 646b. A pledge may be foreclosed in a proceeding in rem. 646c. A creditor holding bonds of an insolvent corporation se- cured by mortgage as collat- eral must enforce his rights in equity. 647. There can be no decree of strict foreclosure of a pledge. § 589 COLLATERAL SECURITIES. 712 § 648. Court may authorize pledgee § 6S0. The pledgor may collect the to bid when pledge is sold. surplus due him by suit at 649. When pledgee's debt is paid law. the pledgor's right to the surplus becomes absolute. § 589. In general. — As with a mortgage so with a pledge, the creditor may upon default pursue any or all of his several remedies. The remedies upon a pledge are also similar to those upon a chattel moitgage. They are, i, by action upon the debt secured ; 2, by sale of the pledge at common law without judicial proceedings; 3, by sale under statutory provisions; 4, by sale under a decree of a court of chancery ; 5, by sale under a special power of sale.^ The remedy by sale, however, does not apply in case of pledges of negotiable paper and other choses in action, which have no recognized market value, unless a special power of sale be given. - § 590. Right of action on debt not suspended by the hold- ing of collateral securities. — The holding of collateral security for a debt does not impair or suspend the right of action upon the debt', unless so agreed upon by the parties, whether the collateral be given at the time the debt was contracted or afterward.' "If I pawn goods to A for such a sum," says Chief Justice Holt, "A may have debt for the money, notwithstanding his having a ' State Nat. Bank v. Syndicate Co., Sprague, 2 Ind. 600 ; Kemmil v. Wil- 178 Fed. 359. son, 4 Wash. C. C. 308; Jones v. - See Chapter XVII. Scott, 10 Kan. 33 ; Bank of Rutland ' South Sea Co. v. Duncomb, 2 Str. v. Woodruff, 34 Vt. 89 ; Robinson v. 919; Ernes v. Widdowson, 4 Car. & Hurley, 11 Iowa 410, 79 Am. Dec. P. 151; Whitwell v. Brigham, 19 Pick. 497n; Lormer v. Bain, 14 Neb. 178, (Mass.) 117; Beckwith v. Sibley, 11 15 N. W. 323; Butterworth v. Ken- Mass. 482; Cornwall v. Gould, 4 nedy, 5 Bosw. (N. Y.) 143; Langdon Pick. (Mass.) 444 ; Whitaker V. Sum- v. Buel, 9 Wend. (N. Y.) 80, 83; ner, 20 Pick. (Mass.) 399; Darst v. Elder v. Rouse, 15 Wend. (N. Y.) Bates, 95 111. 493 ; Wilhelm V. Schmidt, 218; Sonoma Valley Bank v. Hill, 84 111. 183; Cushman v. Hayes, 46 59 Cal. 107; French v. McCarthy, 111. 145; Rozet v. McClellan, 48 111. 125 Cal. 508, 58 Pac. 154; Savings 345, 95 Am. Dec. 551 ; Archibald Bank v. Middlekauff, 113 Cal. 463, 45 V. Argall, 53 111. 307; Dugan v. Pac. 840. 713 REMEDIES AFTER DEFAULT. § 59I pawn."* The pledgee, may also have his remedy against the person of the debtor and arrest and imprison him upon execution for the debt, where that remedy is given, without impairing his right to enforce the pledge. ° He may attach and levy upon other property of the debtor without forfeiting his pledge." In short, in the case of a pledge, just as in the case of a mortgage, the creditor may use any remedy he has against the debtor or his property for the collection of the principal debt, without destroy- ing or impairing his security for the debt until it is actually paid.'^ A creditor is entitled to hold his securities, whatever they may be, until he gets his pay.^ The securities belong to him, and he may enforce the debt without surrendering them. § 591. Taking judgment on principal debt does not affect pledgee's security. — The recovery of a judgment upon the principal debt does not afffect the pledgee's right to hold and en- force a pledge taken to secure that debt. Though the original debt is nlerged in the judgment, and is thenceforth evidenced by a higher security, the debt in fact remains in a new form and the property pledged for. its payment still remains liable therefor." The judgment for the debt need not contain a provision that the property pledged shall be surrendered upon satisfaction of the judgment." Neither does the creditor lose his right to hold the collateral security by suing the principal debt, recovering execution, and 'Anonymous, 12 Mod. 564. 'Jones v. Scott, 10 Kan. 33; Smith ° South Sea Co. v. Duncomb, 2 Str. v. Strout, 63 Maine 205 ; Charles v. 919; Morse v. Woods, 5 N. H. 297. Coker, 2 S. Car. 122; Sonoma Valley 'Taylor v. Cheever, 6 Gray (Mass.) Bank v. Hill, 59 Cal. 107; Barnes v. 146; Cleverly v. Brackett, 8 Mass. 150, Bradley, 56 Ark. 105, 19 S. W. 319; to the contrary, is without support West v. Carolina Life Ins. Co., 31 and is not good law. Ark. 476; Fairbank v. Merchants' 'See Jones on Mortgages, § 1215; Nat. Bank, 132 111. 120, 22 N. E. 524; Jon?s on Chattel Mortgages, § 758; Jenkins v. International Bank, 111 111. Pyk V. Crebs, 112 111. App. 480; Red- 462; Schneider v. Kirkpatrick, 80 Mo. head Bros. v. Wyoming Cattle Inv. App. 145. Co., 126 Iowa 410, 102 N. W. 144. '» French v. McCarthy, 125 Cal. 508, 'Lincoln v. Linde, 27 Abb. N. C 58 Pac. 154; Flynn v. Washburn (N. Y.) 278, 280, 16 N. Y. S. 106, Brewing Co., 110 Wis. 172, 85 N. W. quoting text. 666. § 59^^ COLLATERAL SECURITIES. 714 arresting the debtor thereon. It is of the very nature of collat- eral security that it may be resorted to for a satisfaction of the principal debt, if its payment shall not otherwise be obtained." The pledgee need not first exhaust the subject of the pledge before suing to recover the debt secured.^^ If the security of the pledge is first applied upon the debt, and a part of it then remains unpaid, an action to recover the remainder of the debt may be maintained and other property attached, though it be provided by statute that there shall be no attachment when the debt is secured by a pledge." § 59 la. No mere change in the form of the debt secured re- leases the collateral securing it. — The renewal of the note evidencing the debt leaves the security unimpaired.^* But if the note secured is renewed, and at the same time a new contract of pledge is made of the same security which was pledged in the original transaction, the surrender of the old note and the giving of the new contract of pledge afford prima facie evidence that the old note wa§ paid and the old contract of pledge released in favor of the new note and the new pledge securing it.^^ The pledgor cannot while the debt exists maintain an action for the recovery of the property pledged.^" § 592. Debt may be enforced, even though pledge has been discharged. — The debt may be enforced though the pledge has been discharged by a tender of the debt at its maturity, unless the debt be payable in specific articles of personal property, "Smith V. Strout, 63 Maine 20S; Bank, 132 111. 120, 22 N. E. 524; Morse v. Woods, 5 N. H. 297; Flynn Flower v. Elwood, 66 111. 438; Rogers V. Washburn Brewing Co., 110 Wis. v. School Trustees, 46 111. 428; First 172, 85 N. W. 666. Nat. Bank v. Gunhus, 133 Iowa 409, '"Ehrlich V. Ewald, 66 Cal. 97, 4 110 N. W. 611, 9 L. R. A. (N. S.) Pac. 1062; Savings Bank v. Mid- 471n. dlekauff, 113 Cal. 463, 45 Pac. 840; " Fairbank v. Merchants' Nat. Bank, Sonoma Valley Bank v. Hill, 59 Cal. 132 111. 120, 22 N. E. 524; Tucker v. 107. Conwell, 67 111. 552. "Williams v. Hahn, 113 Cal. 475, "Hendrix v. Harman, 19 S. Car. 45 Pac. 815. 483: " Fairbanks v. Merchants' Nat. 715 REMEDIES AFTER DEFAULT. § 593 when a tender of such articles may discharge the debt, and the articles tendered will become the property of the creditor, and .may afterward be kept at his risk and expense. But ordinarily a tender does not relieve the debtor from his personal liability to pay the debt.^^ § 593. Pledgee not required to return pledge at time of pa5mient of secured debt.— rThe return of the pledge is not a condition to be performed before or concurrently with the pay- ment of the debt secured." If one loans money upon the secur- ity of a gun, the lender may recover the amount of the loan, without first returning the gun.^° Even an agreement that upon a partial payment of the debt a proportipnate part of certain shares pledged to secure it shall be given up, is construed to mean that the shares are to be returned after the money is paid. The creditor may bring suit upon the debt without first returning the shares; though of course if he should not return the shares after payment of the debt or after judgment recovered upon it, trover would lie against him for their value. ^^ Even a covenant on the part of the pledgee not to sue until the securities shall be given up, cannot be set up in bar to a suit by him brought before giving up the securities. The dam- ages to be recovered for a breach of covenant nOt to sue within a limited time, may be much less than the demand ; and it would therefore be unjust to allow the covenant to bar the whole de- mand. Such a covenaiif is distinguished from a perpetual cove- nant not to sue, which is held to be a bar, to avoid circuity of "§ 542; Mitchell v. Roberts, 17 burton v. Trust Co., 182 Fed. 769, Fed.' 776. 105 C. C. A. 201. It is held in New " Scott V. Parker, 1 Q. B. 809 ; York that a refusal to return the Chapman v. Clough, 6 Vt. 123; Morse collateral is a justification for refus- V. Woods; S N. H. 297, 3b0^ Taylbr" ing'to pay the debt secured. 'Sdhles- v. Cheever; 6 Gray (Mass;) 146; First ^iinger v. Wise',: 106 App. Div. (N. Y.) Nat. Bank v. O'Connell, 84 Iowa 377, 587, 94 N. Y. S. 718; 107 App. Div. 51 N. W. 162, 35 Am. St. 313, quot- (N. Y) 615, 94 N. Y. S: 720; 107 App. ing text; Burhans v.' Squires, 75 Iowa Div. (N. Y.) 615, 94 N. Y. S. 721. 59, 39 N. W. 181 ; Donnell v. Wyckoff, "Lawton v. Newlahd, 2 Stark. 64. 49 N. J. L. 48, 49, 7 Atl. 672; War- ^ Scott v. Parker, 1 Q. B. 809. ' ' § 594 COLLATERAL SECURITIES. 716 action, as the damages, if cross actions were brought, would be the same."^ In California under a statute which in effect makes the stock- holders in a corporation, as regards its creditors, principal debtors and not merely sureties, it is held that a pledgee of a corporation may maintain a suit against a stockholder although. he still re- tains in his hands property which he has received from the corpo- ration in pledge.^^ § 594. Set-off or recoupment set up in defense of suit on debt secured. — There are some decisions that the pledgor cannot set up in defense to a suit upon a debt a claim for the value of the pledge by way of set-off or recoupment. There is no Ha- bility on the part of the pledgee'to return the pledge until the debt is paid, and therefore at the time of making this defense there is nothing upon which the defendant could found a cross action ; and a claim by way of set-off or recoupment can only be sus- tained for what the defendant could maintain such an action for. Recoupment can be availed of only when the liability of both par- ties arises out of the same transaction or from mutual and de- pendent covenants or agreements. The giving of a pledge may, perhaps, be a part of the transaction of creating the debt secured. The debt is a contract independent of the giving of the pledge, and complete in itself. ^^ The implied agreement on the part of the pledgee for the safe keeping and return of the pledge, is independent of the debt, and not a condition upon which the debt becomes payable. In the absence of an agreement to resort first to the pledge, it is no defense to an action on the debt secured that the property pledged has greatly depreciated in value between the time of de- fault and the commencement of the suit on the debt.'* § 595. Rule in some states pennits pledgor to sue for con- version of the pledge as a defense to action on secured debt. — " Foster v. Purdy, 5 Mete. Fennell v. McGowan, 58 Miss. 44 Neb. 77, 62 N. W. 318; Haydon 261. V. Nicoletti, 18 Nev. 290, 3 Pac. 473 ; " Vanliew v. Second Nat. Bank, 21 Logan v. Cassell, 88 Pa. St. 288, 32 111. App. 126; Bell v. Bean, 75 Cal. 86, Am. Rep. 453; Jackson v. Chemical 16 Pac. 521; Robbins v. Richardson, Nat. Bank (Tex. Civ. App.), 46 S. 2 Bosw. (N. Y.) 248. 803 REMEDIES OF NEGOTIABLE PAPER. § 673 funds for his debt, the latter has a right to compel the former to resort to the other fund in the first instance for satisfaction of his debt, is applicable to sureties only. And the maker of such ac- commodation paper is in no sense a surety. He is a principal debtor on the note.'^ But the maker of the accommodation paper which is the sub- ject of a pledge is not liable upon it beyond the amount of the debt which it was pledged to secure.^' If a pledgee forecloses an accommodation note and mortgage, after receiving payment of the debt due him from the pledgor, he will be held as the trustee of the surplus for the benefit of the accommodation mortgagor.** When a creditor obtains judgment upon the accommodation note of a third person held as collateral security, the judgment takes the place of the note, and stands as security merely for the principal debt.*^ The payee of a promissory note, given as collateral security for his liability as indorser of another note made by the same person, may maintain an action thereon against the maker, al- though payment of the other note has not been enforced, and it is still outstanding and unpaid.*^ ""Prout V. Lomer, 79 111. 331; County v. Markee, 179 Fed. 764. Cronise v. Kellogg, 20 111. 11; Trust •'Harding v. Hawkins, 141 111. 572, Co. of St. Louis County v. Markee, 31 N. E. 307, 33 Am. St. 347. 179 Fed. 764. ^ Hapgood v. Wellington, 136 Mass. ""Fisher v. Fisher, 98 Mass. 303; 217; Kreling v. McMullen, 158 Gal, Duncan &c. V. Gilbert, 29 N. J. L. 521 ; A33, 111 Pac. 252; Delaware County Allaire v. Hartshorne, 21 N. J. L. &c. Ins. Co. v. Haser, 199 Pa. St. 17, 665, 47 Am. Dec. 175 ; Atlas Bank v. 48 Atl. 694, 85 Am. St. 763. ' Al- Doyle, 9 R. I. 76; Maitland v. Giti- though the principal note secured by zens' Nat. Bank, 40 Md. 540, 17 Am. collateral is collectible, the makers of Rep. 620; Beckhaus v. Commercial collateral notes can not compel the Nat. Bank (Pa.), 12 Atl. 72; Handy pledgee to proceed against the en- V. Sibley, 46 Ohio St. 9, 17 N. E. dorsers on the principal note before 329; Mechanics' &c. Bank v. Livings- suing to collect on the collateral ton, 4 Misc. (N. Y.) 255, 23 N. Y. S. notes. Scandinavian American Bank 814, 53 N. Y. St. 693. v. Appleton, 63 Wash. 203, 115 Pac. "Handy v. Sibley, 46 Ohio St. 9, 109. 17 N. E. 329; Trust Co. of St. Louis § 674 COLLATERAL SECURITIES. 804 § 674. Measure of recovery of pledgee on collateral paper. — The holder of collateral paper may recover the full amount due upon it, although this exceed the debt for which it was pledged, unless it is held subject to equitable defenses which the maker may have against his payee. *^ These defenses may be such as existed when the paper was taken as collateral, as where the paper was overdue when it was so taken ; or they may be such as have arisen from subsequent transactions between the parties; as, for instance, when the pledgor has paid the debt for which the pledge was made, so that the holder of the collateral, in a subsequent suit upon it, must be regarded as acting as a trustee for the payee and as having only his rights.^" §675. Rule where paper held as collateral is subject to equities in favor of the maker. — But if the paper be subject to equities in favor of the maker against the original payee, the holder can recover in a suit upon it no more than the principal debt actually due him.^° 'ITooke V. Newman, 75 111. 21S; Partridge v. Williams, 72 Ga. 807; Crawford v. Spencer, 92 Mo. 498, 4 S. W. 713, 1 Am. St. 745n; Bank of Claflin V. Rowlinson, 2 Kan. App. 82, 43 Pac. 304;. Cook v. Norwood, 106 111. 558; Saylor v. Daniels, 37 111. 331, 87 Am. Dec. 250; Seeley v. Wick- strom, 49 Neb. 730, 68 N. W. 1017; Barmby v. Wolfe, 44 Neb. 11, 62 N. W. 318; Haas v. Bank of Commerce, 41 Neb. 754, 60 N. W. 85; Morton &c. V. New Orleans &c. R. Co., 79 Ala. 590, 621; Bentley v. Standard F. Ins. Co., 40 W. Va. 729, 23 S. E. 584; Camden Nat. Bank v. Fries- Breslin Co., 214 Pa. 395, 63 Atl. 1022; Dudley v. Minor's Exr., 100 Va. 728, 42 S. E. 870; Packard v. Abell, 113 N. Y. S. 1005. "Logan V. Cassell, 88 Pa. St. 288, 32 Am. Rep. 453. " Cromwell v. Sac County, 96 U. S. 51, 24 L. ed. 681; Goodman v. Simonds, 20 How. (U. S.) 343, 15 L. ed. 934; Brown v. Callaway, 41 Ark. 418 ; Bell v. Bean, 75 Cal. 86, 16 Pac. 521 ; Exchange Bank v. Butner &c., 60 Ga. 654; Bank of University v. Tuck, 96 Ga. 456, 23 S. E. 467; Hatcher v. Independence Nat. Bank, 79 Ga. 547, S S. E. Ill; Mayo v. Moore, 28 111. 428; Easter v. Mi- nard, 26 111. 494; Saylor v. Daniels, 37 111. 331, 87 Am. Dec. 250; Steere V. Benson, 2 111. App. 560; Gammon V. Huse, 9 Bradw. (111.) 557; Vanliew V. Second Nat. Bank, 21 111. App. 126; Valette v. Mason, 1 Ind. 288; Far- mers' State Bank v. Blevins, 46 Kan. 536, 26 Pac. 1044; Bank of Claflin v. Rowlinson, 2 Kan. App. 82, 43 Pac. 304 ; Williams v. Norton, 3 Kan. 295 ; Louisiana State Bank v. Gaiennie, 20 La. Ann. 555; Gardner v. Maxwell, 27 La. Ann. 561 ; Maitland v. Citizens' Nat. Bank, 40 Md. 540, 17 Am. Rep. 620; Roche v. Ladd, 1 Allen (Mass.) 8o5 REMEDIES OF NEGOTIABLE PAPER. § 675 In a suit upon collateral paper which is subject to such de- fenses as the maker could set up against the payee, as, for in- stance, when the paper has been taken as collateral after its ma- turity, the holder can, of course, recover only the amount which the payee himself could recover."" If a corporation pledge its own bonds as security for an in- debtedness of its own in a smaller amount than the par value of the bonds, the creditor, in a suit against the company, can have judgment for only the amount of the debt, and not for the full amount of the bonds ; although a purchaser of such bonds from the pledgee might be entitled to judgment upon them for their full amount." And so, if the maker of the collateral paper has any other good defense against the payee who has pledged it, the pledgee can collect no more than the amount of the debt secured,"^ but 436; Williams v. Cheney, 3 Gray (Mass.) 215; Stoddard v. Kimball, 6 Cush. (Mass.) 469, 4 Cush. (Mass.) 604; Fisher v. Fisher, 98 Mass. 303; Bond V. Fitzpatrick, 8 Gray (Mass.) 536, 4 Gray (Mass.) 89; Chicopee Bank V. Chapin, 8 Met. (Mass.) 40; New England Trust Co. v. New York Belting &c. Co., 166 Mass. 42, 43 N. E. 928; Lobdell v. Merchants' Bank, 33 Mich. 408; Garten v. Union City Nat. Bank, 34 Mich. 279; St. Paul Nat. Bank v. Cannon, 46 Minn. 95, 48 N. W. 526, 24 Am.. St. 189; White V. Phelps, 14 Minn. 27, 100 Am. Dec. 190; Grant v. Kidwell, 30 Mo. 455; Yellowstone Nat. Bank v. Gagnon, 19 Mont. 402, 48 Pac. 762, 61 Am. St. 520, 44 L. R. A. 243n; Barmby v. Wolfe, 44 Neb. 11, 62 N. W. 318; Haas V. Bank of Commerce, 41 Neb. 754, 60 N. W. 85 ; Haydon v. Nicol- etti, 18 Nev. 290, 3 Pac. 473 ; Duncan V. Gilbert, 29 N. J. L. 521 ; Allaire v. Hartshorne, 21 N. J. L. 665, 47 Am. Dec. 175; Williams v. Smith, 2 Hill (N. Y.) 301; Farwell v. Importers & T. Nat. Bank, 90 N. Y. 483 ; Kelly V. Ferguson, 46 How. Pr. (N. Y.) 411; Mechanics' &c. Bank v. Livings- ton, 4 Misc. (N. Y.) 255, 53 N. Y. St. 693, 23 N. Y. S. 814, 6 Misc. (N. Y.) 81, 55 N. Y. St. 394, 26 N. Y. S. 25 ; Huff v. Wagner, 63 Barb (N. Y.) 215; Kerr v. Cowen, 2 Dev. Eq. (N. Car.) 356; Security Bank v. Kingsland, S N. Dak. 263, 65 N. W. 697; First Nat. Bank V. Fowler, 36 Ohio St. 524, 38 Am. Rep. 610 ; Second Nat. Bank v. Hem- ingray, 34 Ohio St. 381 ; Sawyer v. Moran, 3 Tenn. Ch. 3S;Tarbell v. Sturtevant, 26 Vt. 513; Union Nat. Bank v. Roberts, 45 Wis. 373 ; Curtis V. Mohr, 18 Wis. 615 ; Bond v. Wiltse, 12. Wis. 612; Strong v. Bowes, 102 Wis 542, 78 N. W. 921. °° Kelly V. Ferguson, 46 How. Pr. (N. Y.) 411. "^Jesup V. City Bank of Racine, 14 Wis. 331. °^ Lacroix v. Derbigny, 18 La. Ann. 27. § 676 COLLATERAL SECURITIES. 806 this is a matter of defense to be set up by such maker,"' and the burden of proof is upon him to estabhsh it.°* § 676, Measure of recovery by a pledgee on accommoda- tion paper. — A pledgee of accommodation paper can recover only the amount of the debt secured to him by such pledge."^ Upon receiving payment in full for the debt secured, the pledgee should surrender the collateral note to the accommodation maker ; though, as a matter of prudence, he should obtain the pledgor's directions for such surrender.°° Thus, if accommodation paper be indorsed as security for a pire-existing debt of a less amount, the indorsee is a holder for value in his own right only to the amount of the debt due him; and unless it appear that he is ac- countable to some third person for the surplus, he can recover no more than the debt for which he is a bona fide holder for value. "^ The maker of the accommodation paper is not, however, ex- onerated from paying interest upon his note and the costs of a suit upon it.°* Upon the bankruptcy of the maker of the accommodation paper, the pledgee may prove for the whole amount of such "' Vanliew v. Second Nat. Bank, 21 Bank v. Fowler, 36 Ohio St. 524, 38 111. App. 126 ; Curtis v. Mohr, 18 Wis. Am. Rep. 610 ; First Nat. Bank v. 615. Werst, 52 Iowa 684, 3 N. W. 711; " Duncan &c. v. Gilbert, 29 N. J. L. Exchange Bank v. Butner, 60 Ga. 654; 521 ; Maitland v. Citizens' Nat. Bank, Mechanics &c. Bank v. Barnett, 27 40 Md. 540, 17 Am. Rep. 620; Gam- La. Ann. 177; Forstall v. Fussell, 50 mon V. Huse, 9 111. App. 557. La. Ann. 249, 23 So. 273 ; Beckhaus °°Ex parte Kelty, 1 Low. Dec. 394, v. Commercial Nat. Bank (Pa.), 12 14, Fed. Cas. 277; Robbins v. Rich- Atl. 72; Atlas Bank v. Doyle, 9 R. I. ardson, 2 Bosw. (N. Y.) 248; Beren- 76, 11 Am. Rep. 219, 98 Am. Dec. broick v. Stephens, 8 N. Y. Weekly, 368. Dig. 163; Mechanics' &c. Bank v. "Teutonia Nat. Bank v. Loeb, 27 Livingston, 4 Misc. (N. Y.) 255, 53 N. La. Ann. 110. Y. St. 693, 23 N. Y. S. 814; Blyden- "Stoddard v. Kimball, 6 Cush. burgh V. Thayer, 1 Abb. App. Dec. (Mass.) 469, 4 Cush. (Mass.) 604; (N. Y.) 156; Allaire v. Hartshorne, Fisher v. Fisher, 98 Mass. 303. 21 N. J. L. 521; Duncan v. Gilbert, "Mechanics &c. Bank v. Barnett, 29 N. J. L. 521 ; Handy v. Sibley, 46 27 La. Ann. 177. Ohio St. 9, 17 N. E. 329; First Nat. 807 REMEDIES OF NEGOTIABLE PAPER. § 677 paper, but he can receive dividends only to the extent of the debt for which the pledge was made.'" In a few cases it- seems that the pledgee is restricted to collect- ing the amount for which the pledge was made only in case he knew that the paper pledged was accommodation paper. '^ § 677. A pledgee of negotiable paper has no better title to the proceeds collected than he had to the paper itself. — The makers of a note payable to their own order indorsed and de- livered it to a firm of note brokers to sell it at a limited dis- count. The brokers, without the knowledge or consent of the makers of the note, delivered it with others belonging to them- selves to a bank as collateral security for a call-loan. Before the maturity of the- note the makers notified the bank of their rights respecting the note ; and afterward paid it at maturity. At that time the bank had not received enough from the other collaterals to pay the loan, but afterward did receive more than enough for that purpose. In an action by the makers of the note against the bank for an accounting, and to determine their respective rights to the proceeds of the note, and to compel payment of any portion not necessary to satisfy the lien of the bank, it was held that the bank, having received the note from the ostensible owners in ignorance of the plaintiff's rights, could hold it as se- curity, yet the right of property did not pass, but remained in the plaintiff, subject to the lien of the pledgee; and that while the latter had the right to collect the note at maturity, as the loan had not been paid, the money collected remained as a substitute for the note, and subject to the equities of the makers, just as if the note had remained uncollected. After the makers of the note had given notice to the bank of their rights,. they stood as mere sureties for the loan to the extent of their note, and could compel the bank to apply the proceeds of the securities belonging to the pledgors to the payment of the loan before resorting to the plaintiffs' note. Moreover the plaintiffs were not bound to ex- " Kelty, Ex parte, 1 Lo-wrell (U. S.) chanics' &c. Bank v. Barnett, 27 La. 394; Jones v. Hibbert, 2 Starkie 304. Ann. 177; 'Cook v. Norwood, 106 111. 'Atlas Bank v. Doyle, 9 R. I. 76, 11 SS8. Am. Rep. 219, 98 Am. Dec. 368; Me- § 678 COLLATERAL SECURITIES. 808 haust their remedy against the brokers who had misapplied the note, before seeking equitable relief by suit against the bank. No action against a wrongdoer is necessary in order to lay the foundation of an action against one to whom he has deliv- ered the property in controversy.^ § 678. Duty of pledgee to credit on debt pasmients re- ceived on collateral. — A creditor should credit upon the prin- cipal debt whatever he may collect upon the collateral security; and if the debtor, in ignorance that anything has been received by his creditor upon the security, pays the whole amount of the prin- cipal debt, he may recover from him the amount so collected, and require the restoration of the collaterals remaining uncollected. But if in such case the creditor returns the collaterals and tenders the amount he has collected thereon, the debtor cannot maintain an action to recover back the money he paid upon the principal debt.' A promise by a creditor holding collateral security to give it up while the principal debt remains unpaid, is not binding upon him, if made without consideration.* / The pledgor of negotiable paper should be made a party to a suit against the maker, when the latter has a defense against the enforcement of the paper, otherwise the pledgor will not be bound by the decision. ° § 679. Marshaling. — A judgment creditor who holds col- lateral security will not be restrained, at the instance of a sub- sequent judgment creditor, from prosecuting his remedy under his judgment, until he has pursued and exhausted his security; especially if he offers to substitute the other judgment creditor in his place, on being paid the amount of his debt." ' Farwell v. Importers' &c. Nat. 19 Mont. 402, 48 Pac. 762, 61 Am. St. Bank, 90 N. Y. 483, 16 N. Y. Weekly 520, 44 L. R. A. 243 ; Farmers' State Dig. 20, 27 Alb. L. J. 713; and see Bank v. Blevins, 46 Kan. 536, 26 Pac. Comstock V. Hier, 73 N. Y. 269, 29 1044. Am. Rep. 142. "Brinkerhoff v. Marvin, 5 Johns. "Youngs V. Stahelin, 34 N. Y. 258. Ch. (N. Y.) 320; Woolcocks v. Hart, 'Smith V. Stout, 63 Me. 205. 1 Paige (N. Y.) 185; and see Evert- ° Yellowstone Nat. Bank v. Gagnon, son v. Booth, 19 Johns. (N. Y.) 486. 809 REMEDIES OF NEGOTIABLE PAPER. § 680 § 680. Counsel fees. — When a creditor is obliged to bring suit upon the collateral security and recovers less than the amount of his claim, it is proper to deduct the expenses, of the suit and a reasonable counsel fee before applying the balance to the pay- ment of the principal debt.'' But as against the maker of the collateral note, when he has an equitable set-off or other defense to it in the hands of the pledgor, the pledgee cannot be allowed his attorney's fees in prosecuting the action, but is Hmited in his recovery to the amount of the debt secured.' A corporation, claiming money under a contract after insti- tuting suit thereon, pledged the contract with a third person as collateral, but continued to prosecute the suit in its own name, with a view of realizing for itself a surplus above the amount of the debt secured by the pledge. After it obtained decree, one who had purchased the contract from the pledgee under his power of sale intervened, and claimed the proceeds of the decree. It was held that the pledgor was not entitled to be repaid out of the fund the expenses incurred in prosecuting the suit.^ § 681. Pledgee may enforce debt by suit without surren- dering collateral securities. — A creditor holding collateral se- curities may enforce the principal debt by suit without surrender- ing the securities. He is entitled to hold them until he obtains payment.^" The taking of a collateral note of a third person, ' Gregory v. Pike, 61 Fed. 837, IS &c., 10 Wyo. 240, 68 Pac. 561. Where C. C. A. 33 ; Gregory v. Van Ee, 164 an insurance policy is pledged as col- U. S. 703, 41 L. ed. 1183, 17 Sup. Ct. lateral to secure notes which provide 994; Griggs v. Howe, 2 Abb. App. for attorneys fees, pledgee may re- Dec. (N. Y.) 291, 3 Keyes (N. Y.) cover such fees in an action on said 166; Starrett v. Barber, 20 Me. notes but he cannot . collect attorney 457; Sheldon v. Raveret, 49 Barb, fees expended in foreclosing the (N. Y.) 203; Furness v. Union Nat. pledge. Commercial & Savings Bank Bank, 147 111. 570, 35 N. E. 624; Han- \. Hornberger, 140 Cal. 16, 1^ Pac. 625. over Nat. Bank v. Brown (Tenn. Ch. ' Second Nat. Bank v. Hemingray, App.), 53 S. W. 206; Bank of Staten 34 Ohio St. 381. Island V. Sil vie, 89 App. Div. (N.Y.) "McDougall v. Hazelton Tripod- 465, 85 N. Y. S. 760; Ruberg v. Boiler Co., 88 Fed. 217, 31 C. C. A. Brown, 71 S. Car. 287, 51 S. E. 96; 487. Farm Inv. Co. v. Wyoming College "§ 130; Scott v. Parker, 1 Q. B. § 68i COLLATERAL SECURITIES. 8lO payable at a future day, does not extend the time of payment of the principal debt, unless there be an agreement to this ef- fect.^^ There may be circumstances under which the taking of collateral security, during the pendency of a suit upon the prin- cipal debt, will be regarded as suspending the action." But or- dinarily the taking of such security does not impair or suspend the creditor's right of action upon the principal debt.^^ Thus, if the purchaser of land assume the payment of an existing mort- gage upon the property already matured, his giving a bond pay- able at a future time as collateral security to the mortgage does not, in the absence of any accessory agreement, suspend the right of the holder of the mortgage to enforce payment of it forth- with.^* Even a promise or covenant of the creditor, upon receiv- ing collateral security not to sue the debtor until the securities 809; Clark v. Young, 1 Cranch (U. S.) 181, 2 L. ed. 74; Bank of Rutland v. Woodrufif, 34 Vt. 89; Dugan v. Spra- bue, 2 Ind. 600; Mendenhall v. Len- well, 5 Blackf. (Ind.) 125, 33 Am. Dec. 458; Mills v. Gould, 14 Ind. 278; Kittera's Estate, 17 Pa. St. 416; Trotter v. Crockett, 2 Port. (Ala.) 401 ; Chapman &c. v. Clough, 6 Vt. 123; Snow v. Thomaston Bank, 19 Me. 269; Comstock v. Smith, 23 Me. 202; Abercrombie v. Mosely, 9 Port. (Ala.) 145. " Cary v. White, 52 N. Y. 138; Van Etten V. Troudden, dJ Barb. (N. Y.) 342 ; Darst v. Bates, 95 111. 493 ; Wil- helm V. Schmidt, 84 111. 183, 187. Where plaintiff receives some col- lateral for money advanced to a de- fendant such fact of itself will not extend the time of payment or abate plaintiff's right of action where such collateral was not; taken in discharge of the debt. Bright v. Carter, 117 Wis. 631, 94 N. W. 645. " Harshaw v. McKesson, 65 N. Car. 688. •'Hawks V. Hinchcliff, 17 Barb. (N. Y.) 492; West v. Carolina Life Ins. Co., 31 Ark. 476;Wilhelm v. Schmidt, 84 111. 183; Allen v. Clark, 65 Bdrb. (N. Y.) 563, 576; Willoughby v. Spear's Admr., 4 Bibb (Ky.) 397; Carson v. Buckstaff, 57 Neb. 262, 11 N. W. 670. " Firemen's Ins. Co. v. Wilkinson, 35 N. J. Eq. 160, 178. Chief Justice Beasley, delivering the opinion of the court said : "The transaction be- tween them was this : The one party gave, and the other party received, a bond conditioned for the payment of these moneys in one year after date, with the understanding that such bond should be collateral to the original bond and mortgage. Now, in terms, it is declared that this obligation is not to be substitutionary, that is, it is not to take the place of the primary obligation, but it is to be collateral to it. From what circumstance, then, is it to be deduced that such primary obli- gation is not to be enforced until the collateral obligation falls due? It is, indeed, argued that we can not sup- pose that the respondent, unless this effect were to ensue, would have taken upon himself this personal covenant; 8ii REMEDIES OF NEGOTIABLE PAPER. 68 1 shall be given up, is not a bar to a suit at law by the creditor, brought before giving up the securities; for it is a well-settled principal of the common law that a covenant not to sue within a limited time cannot be so pleaded, the only remedy being a suit upon such covenant or promise for a breach of it; and the dam- ages for such breach might be more or less than the amount of the debt secured.^^ It is well settled that the mere taking of collateral security on time, without any agreement between the parties for a definite extension of the time of payment of the principal debt, does not, per se, operate to suspend the right of action upon the principal debt until the collateral security shall become due/^ But if a creditor accept his debtor's own note or check payable at a future day, it will operate to extend the right of action upon the debt until the maturity of the note;^^ and such extension will discharge a surety of the original debt, if it be without his con- sent." that he received nothing by it, if the appellant could at once proceed to foreclose the mortgage. But such a line of observation overlooks the fact that although the obligor in the col- lateral bond would obtain, from the nature of the transaction, no binding obligation against the immediate en- forcement of the mortgage, he never- theless put things in such a position as to render it extremely unlikely that such a step would be taken, and it is upon such probabilities that hu- man conduct is very commonly found- ed. * * * The sole question is. How have the parties agreed; and all we know upon that subject is, that it was the understanding that a collat- eral bond would be given. That is the entire agreement. If they saw fit they might have agreed that all pro- ceedings in the original bond and mortgage should be suspended during the running of the new bond. But they did not make any special stipu- lation to this effect, and I have al- ready said that such a stipulation is not to be inferred from the giving of such an instrument. The decisions forbidding such an inference are nu- merous." See, also, Neimcewicz v. Gahn, 3 Paige (N. Y.) 614, 11 Wend. (N. Y.) 312; Jones on Mortgages, § 1190; Calvo v. Davies, IZ N. Y. 211, 29 Am. Rep. 130, is a case where there was an expressed agreement to extend the original debt. "= Foster v. Purdy, 5 Met. (Mass.) 442. '"United States v. Hodge, 6 How. (U. S.) 279, 12 L. ed. 438; Gary v. White, 52 N. Y. 138. A remark to the contrary in Pratt v. Coman, Zl N. Y. 440, is criticized as not neces- sary to the decision, and not support- ed by authority. " Place v. Mcllvain, 38 N. Y. 96, 97 Am. Dec. W. "Myers v. Welles, S Hill (N. Y.) 463; Fellows v. Prentiss, 3 Denio (N. 682 COLLATERAL SECURITIES. 8l2 § 682. Where the pledgee has sold or transferred the col- lateral he cannot recover on the debt without accounting for the collateral. — A creditor who has sold or transferred the collateral paper cannot recover upon the principal debt without accounting either for its face value or its actual value. By such sale or transfer he has made the collateral his own, and extin- guished the principal debt, at least to the extent either of the nominal amount of the collateral or of its value." The indorse- ment of a note passes the property in it to another, and is evi- dence that it was sold for a valuable consideration. If, after such indorsement, an action could be maintained on the original contract, the plaintiff would receive double satisfaction. The fact ^.) 512i 45 Am. Dec. 484; Bangs v. Mosher, 23 Barb. (N. Y.) 478; Brooks V. Wright, 13 Allen (Mass.) 72; Andrews v. Marrett, 58 Me. 539; Appleton V. Parker, 15 Gray (Mass.) 173; Sayre v. King, 17 W. Va. 562, 574. In Sayre v. King the law upon this subject is quite fully and clearly stated by Green, C. J., delivering the opinion of the court. From an exam- ination of the authorities, which, however, can not be fully reconciled, he deduces these propositions : "The taking of a bill or negotiable note for an existing debt is prima facie condi- tional payment thereof; but it may be shown by direct or circumstantial ev- idence, that the bill or negotiable note was taken as an absolute payment or as collateral security merely. * * * If instead of commercial paper an- other chose in action, such as an un- negotiable note, a bond, a deed of trust or mortgage or an obligation to deliver goods be given by the debtor to his creditor, such chose in action is prima facie collateral security for the original debt; but it may be shown by direct or circumstantial evidence, ' that such chose in action was received as an absolute or conditional payment. If any chose in action was received as absolute payment of a preceding debt, it discharges the sureties in the origi- nal debt; and if received as condi- tional payment, and such chose in ac- tion is payable at a future time, it amounts to a suspension of the right of the creditor to sue on his original debt; and if taken without the con- sent of the sureties in the original debt, it discharges them from all lia- bility. If such chose in action was received as collateral security, though it be payable at a future time, unless there was an agreement to postpone the right of suit on the original debt proven by other evidence direct or circumstantial, the taking of such col- lateral security does not suspend the right of action on the original debt, and therefore does not discharge the sureties from their liability therefor." But see Elwood v. Deifendorf, S Barb. (N. Y.) 398. "Cocke V. Chaney, 14 Ala. 65; Spalding v. Bank of Susquehanna County, 9 Pa. St. 28 ; Harris v. John- ston, 3 Cranch (U. S..) 311, 318, 2 L. ed. 450; Hawks v. Hinchcliff, 17 Barb. (N. Y.) 492; Haber v. Brown, 101 Cal. 445, 35 Pac. 1035. 8l3 REMEDIES OF NEGOTIABLE PAPER. § 683 that the collateral note has proved worthless, and the creditor has made himself liable to his assignee for the payment of it, does not avail the creditor unless he has regained possession of it so that he can return it to his debtor upon receiving satisfaction for the principal debt.^° The presumption is that a creditor, in trans- ferring collateral paper, has received the full amount appearing to be due upon its face. But even if it appear that he has re- ceived less than the face of the paper, he would be regarded as having elected to accept satisfaction out of the collaterals, and would be bound by such election, and would not be permitted afterward to resort to the principal debt to recover any deficiency occurring in this way. Having, without the authority of the principal debtor, transferred the securities to a third person, he will be held to have elected to take them at their face, in satis- faction to that extent of the principal debt.^^ Furthermore, as the creditor holds the collateral securities in trust for the benefit of his debtor, after the discharge of the principal debt, if the se- curities upon their face represent a larger amount than the princi- pal debt, the debtor may recover of the creditor, after he has disposed of the collateral paper, the excess of this over the amount of the principal debt. , § 683. No defense to pledgee's suit on secured debt that he has foreclosed mortgage held as collateral, irregularly and become the purchaser. — It is no defense to a creditor's action upon the principal debt that he has irregularly foreclosed mort- gages held as collateral, and himself become the purchaser. Thus, a debtor having assigned to his creditor absolutely several mortgages of real estate to secure a note, the creditor foreclosed the mortgages and purchased the property. In a subsequent suit upon the principal debt the creditor offered to credit the sum obtained from the foreclosure sales ; but the debtor filed an affi- davit of defense, wherein he averred that the creditor had acted as owner of the mortgages, and had sued them and purchased the property without notice to the debtor, and that he had sold '"Cocke V. Chaney, 14 Ala. 65. "Hawks v. Hinchcliff, 17 Barb. (N. Y.) 492. § 684 COLLATERAL SECURITIES. 814 the property for an inadequate sum of money, when by prudent management he might have obtained a much larger sum. It was held, however, that the affidavit of defense was insufficient, and that the plaintiff was entitled to judgment either for the balance of the claim or for the whole original amount of it, since, accord- ing to the defense, the collaterals have not been effectually sold, but have only been changed from mortgages of land to a title to the land itself, which is still held for the debtor's use ; and there- fore the creditor has constituted himself a trustee for the debtor, and so now holdg the land only as he held the mortgages, as collat- eral security for the payment of the principal debt; and in that case the debtor may compel a reconveyance to himself on tender of the whole amount of the debt.^^ § 684. Judgment upon the collateral does not satisfy the principal debt. — A recovery of judgment by the creditor against the maker of the collateral note, and against the prin- cipal debtor as indorser of that note, does not operate as a satis- faction of the original debt, nor constitute a bar to a suit upon that debt f^ neither would the creditor's assignment of such judg- ment to the debtor, upon recovering part payment of the debt, operate as a satisfaction of the original debt beyond the amount so paid on account of it."* Judgment may be recovered both in the suit upon the collateral and upon the principal obligation, and either judgment may be collected ; although, in case the judgment upon the collateral debt exceed the other, and it be collected in full, the surplus is, of course, held for the benefit of the debtor.''* Neither does the recovery of judgment upon the principal debt, and the arresting of the body of the debtor upon execution, im- pair the creditor's right to hold and enforce the collateral secu- rity.'" "" Smith V. Bunting, 86 Pa. St. 116; "' Burnheimer v. Hart, 27 Iowa 19. Nevius V. Moore, 221 Mo. 330, 120 S. " Plant's Mfg. Co. v. Falvey, 20 W. 43. Wis. 200; Forty-Acre Spring Live " Burnheimer v. Hart, 27 Iowa 19, Stock Co. v. West Texas Bank &c. 1 Am. Rep. 209, 99 Am. Dec. 641; (Tex. Civ. App.), Ill S. W. 417. Hawks V. Hinchcliff, 17 Barb. (N. Y.) '° Smith v. Strout, 63 Me. 205. 492. 8l5 REMEDIES OF NEGOTIABLE PAPER. § 685 § 685. Pledgee not required to apply collaterals before en- forcing payment of debt. — A creditor holding collaterals is not bound first to apply them before enforcing his remedy against the debtor.^^ Even the fact that the debtor is the maker of an accommodation note does not change this rule.^^ Btit as an exception to this rule equity may require the cred- itor to apply collateral security before proceeding to enforce col- lection from the estate of a deceased debtor, when such collateral is ample, and .the personal estate in the hands of his administrator is insufficient to pay the claim, and resort to the real estate would be necessary.^^ In an action by a pledgee upon the debt secured by the pledge he is not required to account for nonnegotiable securities pledged to him by defendant, in the absence of any allegation or proof that he has lost or misappropriated them.'" If a holder of collateral securities negligently suffers them to be lost, he is chargeable therefor in a plea of set-off to the princi- pal debt." § 686. Pledgee cannot be forced by a surety on the princi- pal note to proceed to collect on collateral before suing the surety. — A surety upon the principal note cannot require the creditor to proceed upon the collateral security before bringing suit against the surety. The latter may, at any time after the maturity of the debt, discharge it and take the security.'^ "Lewis V. United States, 92 U. S. Bank, 6 Tex. Civ. App. 607, 26 S. W. 618, 23 L. ed. 513; Ambler v. Ames, 215. 1 App. Cas. (D. C.) 191; Western ""Culver v. Wilkinson, 145 U. S. Nat. Bank v. York Silk Mfg. Co., 225 205, 36 L. ed. 576, 12 Sup. Ct. 832; Pa. 442, 74 Atl. 244. Marberry v. Farmers' &c. Nat. Bank, "=Lord V. Ocean Bank, 20 Pa. St. 6 Tex. Civ. App. 607, 26 S. W. 215; .384, 59 Am. Dec. 728. See Comstock Douglass v. Mundine, 57 Tex. 344, V. Smith, 23 Me. 202; Commercial 347; Donnell v. Wyckoff, 49 N. J. L. & Savings Bank v. Hornberger, 140 48, 7 Atl. 672; First Nat. Bank v. Cal 16, 73 Pac. 625. O'Connell, 84 Iowa 377, 51 N. W. - "Alexander v. Alexander, 64 Ind. 162, 35 Am. St. 313. S41. "^ Brick v. Freehold Nat. Banking '"Marberry v. Farmers' &c. Nat. Co., 37 N. J. L. 307. § 687 COLLATERAL SECURITIES. 816 But the circumstances may be such that the creditor will be bound to apply the proceeds of securities pledged by the princi- pal debtor before resorting to other securities furnished by a surety.^' The indorsee of a negotiable note is not bound in the first place to resort to securities furnished by the payee, so as to enable the principal debtor to avail himself of a right of set-off against the payee which did not exist at the time of the transfer of the note.=* § 687. Defense that pledgee has agreed to take collateral 'Security as payment to be effective must be established by positive evidence. — A debtor claiming that his creditor has agreed to accept collaterals held by him in satisfaction of his debt must establish the defense by positive evidence. The mere ac- ceptance, by a creditor, of a negotiable note of a third person makes it but collateral security; and nothing short of an actual agreement to receive it in payment, or some evidence from which a positive inference of discharge can be made, will suffice to pro- duce this effect.^' The difficulty in the application of this rule has generally been found to be in determining what evidence is sufficient to establish the fact of the agreement, or to justify submitting the evidence to the jury as raising a question of fact for their determination.^" When there is a conflict of evidence upon the question whether a note of a third person was received as payment, or merely as collateral, the question is one for the '' Jenkins v. Gunnison, SO Wis. 388, that a creditor taking from his debtor 7 N. W. 256, 423. the obligation of a third person takes ^ Munger v. Albany City Nat. Bank, it in payment and not as security; al-" 85 N. Y. 580. though this presumption may be re- '" Wilhelm v. Schmidt, 84 111. 183 ; butted by evidence to the contrary. Prettyman v. Barnard, 37 111. 105; But this is neither law nor sense. Noel V. Murray, 13 N. Y. 167 ; and see '° Wright v. First Crockery Ware Burlington Gas-Light Co. v. Greene, Co., 1 N. H. 281, 8 Am. Dec. 68; 22 Iowa 508. In Youngs v. Stahelin, Whitney v. Coin,. 20 N. H. 354; Noel 34 N. Y. 258, there is a dictum by v Murray, 13 N. Y. 167. Smith, J., that the presumption is 8l7 REMEDIES OF NEGOTIABLE PAPER. .§ 688 jury." Such an agreement, when alleged to be contemporaneous with the creation of the debt, and is not mentioned in a written assignment of the collaterals, which are less in amount than the debt, will be considered as intrinsically improbable.^* The fact that a pledgee of corporate stock has voted upon it at a stock- holders' meeting does not show that he has agreed to accept it in payment of the debt, nor does it constitute a conversion of the stock.'' After a creditor has obtained judgment upon the collat- eral note, and transferred this to his debtor, and the latter has re- ceived the benefit of it, he is estopped from setting up the defense that the collateral note was taken by the creditor toward pay- ment of the debt." The taking of a note of a third person for an existing debt is deemed a conditional and not an absolute payment of the original debt, unless otherwise agreed between the parties.*^ § 688. Distinction between note taken for antecedent debt and one taken for property sold. — ^There is a distinction, how- ever, between a note of a third person taken for an antecedent debt, and one accepted for property sold ; for while a note taken for an antecedent debt is regarded only as a conditional payment, and in effect operates as collateral security, a note taken for goods "Atlantic F. & M. Ins. Co. v. Boies, Johns. (N. Y.) 310, 6 Am. Dec. 279; 6 Duer (N. Y.) 583. Glenn v. Smith, 2 G. & J. (Md.) 493, =" Brown v. Hiatt, 1 Dill (U. S.) 20 Am. Dec. 452; McConnell v. Stet- 372;Kiser V. Ruddick, 8Blackf.(Ind.) tinius, 2 Gilm. (111.) 707;' Shipman 382; Kelsey v. Rosborough, 2 Rich, v Cook, 16 N. J. Eq. 251; Tobey v. (S. Car.) 241. Barber, 5 Johns. (N. Y.) 68, 4 Am. • "Heath v. Silverthorn Lead &c. Dec. 326; Butler v. Haight, 8 Wend. Smelting Co., 39 Wis. 146. (N. Y.) 535; Vail v. Foster, 4 N. Y. "Holmes v. Lykins, 50 Mo. 399. 312; Partee v. Bedford, 51 Miss. 84; "■ Kephart v. Butcher, 17 Iowa 240 ; Taylor v. Conner, 41 Miss. 722, 97 Muldon V. Whitlock, 1 Cow. (N.Y.) Am. Dec. 419; Guion v. Doherty, 43 290, 306, 13 Am. Dec. 533; Whitbeck Miss. 538; Lear v. Friedlander, 45 V. Van Ness, 11 Johns. (N. Y.) 409, 6 Miss. 559. Am. Dec. 383; Johnson v. Weed, 9 52 — CoL. Sec. § 688. COLLATERAL SECUMTIES. 8l8 sold is a payment/^ In Whitbeck v. V^-n Ness/' where a note of a third person was taken upon the sale of a horse, and the note not being paid at maturity, the vendor brought suit against the purchaser for the price, the court said: "The intrinsic circum- stances of this case plainly show, that the plaintiff considered himself as taking the note as his own risk. It was made payable to the plaintiff himself, and the defendant, by not indorsing it, or guaranteeing the payment, clearly declined pledging his own responsibility. The offer was made by defendant's agent of the note for the horse ; the plaintiff took time to consider whether it was advisable to take the note, and, after deliberation, and we must presume, too, after inquiry, agreed to sell the horse for the note." In like manner, in Breed v. Cook,** it was considered that the purchaser's declaration, that he would not indorse the note, authorized the presumption that the note was taken in ab- solute payment. In accepting such a note without the purchaser's indorsement, the seller is considered as parting with his goods for the note, and as relying exclusively upon the credit and sol- vency of the parties thereto, and as waiving recourse upon the buyer, if it should turn out not to be good. In the cases men- tioned it would seem that it was a matter of agreement, either express or to be implied from circumstances, that the transfer of " Emly V. Lye, IS East 7 ; Clark contract ; but if part be received, it V. Mundal, 1 Salk. 124, 12 Mod, 203 ; shall be only a discharge of the old Ward V. Evans, 2 Ld. Raym. 928; debt for so much. Bayard v. Shunk, Owenson v. Morse, 7 T. R. 64; Whit- 1 W. & S. (Pa.) 92, 37 Am. Dec. beck V. Van Ness, 11 Johns. (N. Y.) 441; Bicknall v. Waterman, 5 R. I. 43. 409, 6 Am. Dec. 383; Breed v. Cook, '= 11 Johns. (N. Y.) 409, 414, 6 Am. IS Johns. (N. Y.) 241 ; Noel v. Mur- Dec. 383. ray, 1 Duer (N. Y.) 38S; Ferdon v. "IS Johns. (N. Y.) 241; and see Jones, 2 E. D. Smith (N. Y.) 106; Bank of England v. Newman, 1 Ld. Rew V. Barber, 3 Cow. (N. Y.)' 272; Raym. 442, 12 Mod. 241. "If a man Wise V. Chase, 44 N. Y. 337. In has a bill payable to him or bearer, Clark V. Mundal, 1 Salk. 124, 12 Mod. and he delivers it over for money 203, Lord Holt said, that if A. sells received, without indorsement of it, goods to B., and B. is to give a bill in this is a plain sale of the bill, and he satisfaction, B. is discharged, though who sells it does not become a new the bill is never paid, for the bill is security." And see Union Bank v. payment; but otherwise a bill should Smiser, 1 Sneed (Tenn.) SOI; Long never discharge a precedent debt or v. Spruill, 7 Jones L. (N. Car.) 96. 8l9 REMEDIES OF NEGOTIABLE PAPER. § 689 the note at the time of the purchase of property should operate as payment absolutely. Of course, it would be competent for the parties to agree that such a transfer should operate only as col- lateral security, and such an agreement might also be inferred from circumstances attending the transaction. § 689. By express agreement parties may make a third party's note payment of a debt. — The parties may, by express agreement, make a third person's note payment of an existing demand. Thus, where a debtor offered to deliver to his creditor such a note, or to pay him the money at an early date, and the creditor chose the note, and thereupon received it and credited it to the debtor, the note was held to have been received in pay- ment.*^ When, upon a sale of goods, the note of a third person is expressly received in payment, the purchaser's indorsement of the note does not change the legal effect of the transfer as pay^ ment. The vendor cannot in such case maintain an action for the price of the goods, although he produces the note and offers to surrender it upon the trial. In such case, the only engagement made by the purchaser is that of a commercial indorser. In strictness, he does not agree to pay for the goods, but agrees that, if the note be not paid upon due demand thereof at maturity, he will, on receiving due notice, pay the same. "The vendor may sell and does sell upon any terms that please him, and his contract of sale is a single contract. If, by that contract he gives his goods for half their value, he is bound. If he gives them for a note of the purchaser, he must abide its tenor. If he sells for the note of a third person, it is a mere exchange of property, and he cannot look to the purchaser. If he requires a guaranty, general or conditional, he must pursue it. If he requires the purchaser to indorse the note for which he makes the sale, he holds such pur- chaser's liability as indorser, and nothing more."*" The circum- stance that the purchaser of goods in transferring to the seller the "St. John V. Purdy, 1 Sandf. (N. "Soffe v. Gallagher, 3 E. D. Smith Y.) 9; and see Mosely v. Floyd, 31 (N. Y.) S07; and see Shipman v. Ga. 564; Union Bank v. Smiser, 1 Cook, 16 N. J. Eq. 251. Sneed (Tenn.) 501. § 690 COLLATERAL SECURITIES. 82O note of a third person, with a view to add his own responsibiHty, indorses thereon an absolute guaranty, is evidence, and perhaps, conclusive evidence, that the note was given and received in pay- ment.*^ § 690. Courts inclined to regcird obligation of third person as collateral. — The inclination of courts to regard the obliga- tion of a third person as collateral security, when there is no ex- press agreement that it shall be taken as payment, is shown in the following case: A farmer desiring to obtain a loan of two thousand dollars to pay off two mortgages upon his farm, one of which was not then due, negotiated for a loan of that sum upon a first mortgage of the farm. The lender applied to his own banker for the money; but the banker, though owing him more than that sum could not well pay this amount at once, and it was therefore arranged that one-half the amount should be paid over to the borrower, out of which one of the mortgages should be satisfied, and that the banker should give his certificate of deposit for the remaining half, payable to the order of the borrower at the time the other mortgage should become due ; and the lender took a mortgage for two thousand dollars upon the farm. The banker failed before the certificate of deposit became payable, and upon the question whether the certificate of deposit was received as payment or as security only, it was held that the fair inference from all the facts was that it was only held as collateral, and that the loss upon the certificate should be bonie by the lender.** § 691. Transfer of third person's note presumed to be pay- ment. — In the absence of any agreement, either express or implied, the transfer of a note of a third person at the time of the purchase of property is presumed to be a payment. *° "Where there is no debt existing between the parties, and the one delivers to the other property, and receives in return the note of a third "Monroe v. Hoff, 5 Denio (N. Y.) '"Partee v. Bedford, 51 Miss. 84; 360. Bayard v. Shunk, 1 W. & S. (Pa.) 92, " Burrows v. Bangs, 34 Mich. 304. 37 Am. Dec. 441. 821 REMEDIES OF NEGOTIABLE PAPER. 692 person in full or part payment, and gives a receipt saying that it is received in full or part payment, the presumption is that it was so received, and the onus is then upon the party receiving such note to show the contrary."^" If a purchaser deliver the note of a third person for goods purchased knowing that the maker is insolvent, but represent- ing him as a man of property, the taking of the note under such fraudulent misrepresentation will not be held to be payment for the goods." But knowledge of the fact that the maker of a note given in exchange for merchandise had asked and obtained from one of his creditors a renewal of one of his notes, without se- curity, alleging as an excuse — a fair one for a small manufac- turer— ^that he had been short of water, is far from being knowl- edge of the insolvency of the maker, or of a fact from which in- solvency should reasonably be inferred." § 692. Pledgee of negotiable paper bound to use reason- able diligence in collecting. — A pledgee of negotiable paper is bound to use reasonable diligence in the collection of it.''' The " Noel V. Murray, 13 N. Y. 167; and see 1 Duer (N. Y.) 385. "Willson V. Foree, 6 Johns. (N. Y.) 110. "'Burgess v. Chapin, S R. I. 225. "'Ex parte Mure, 2 Cox 63; Will- iams V. Price, 1 Sim. & Stu. 581; Lawrence v. McCalmont, 2 How. (U. S.) 426, 11 L. ed. 326; Slevin v. Morrow, 4 Ind. 425 ; Kiser v. Ruddick, 8 Blackf. (Ind.) 382; Reeves v. Plough, 41 Ind. 204 ; Word v. Morgan, 5 Sneed (Tenn.) 79, 81; Roberts v. Thompson, 14 Ohio St. 1, 82 Am. Dec. 465 ; Bridge Co. v. Savings Bank, 46 Ohio St. 224, 20 N. E. 339; Muir- head v. Kirkpatrick, 21 Pa. St. 237; Sellers v. Jones, 22 Pa. St. 423 ; Lyon v. Huntingdon Bank, 12 S. & R.(Pa.) 61, 67; Miller v. Gettysburg Bank, 8 Watts (Pa.) 192, 34 Am. Dec. 449n; Bank) of U. S. v. Peabody, 20 Pa. St. 454; Lishy v. O'Bi'en, ♦ Watts (Pa.) 141 ; Girard Fire &c. Ins. Co. v. Marr, 46 Pa. St. 504; Lamberton v. Win- dom, 12 Minn. 232, 18 Minn. 506, 90 Am. Dec. 301; Colquitt v. Stultz, 65 Ga. 305; Blouin v. Liquidators &c., 30 La. Ann. 714; Hawley Hardware Co. v. Brownstone, 123 Cal. 643, 56 Pac. 468; Noland v. Clark, 10 B. Mon. (Ky.) 239; Union Nat. Bank v. Post, 64 111. App. 404; Mueller v. Nichols, 50 III. App. 663; Warburton v. Trust Co., 169 Fed. 974; Citizens' Bank v. Shaw, 132 Ga. 771, 65 S. E. 81; First Nat. Bank v. Kittle (W. Va.) 71 S. E. 109; Scott V. First Nat. Bank, (Indian Ter. App.) 82 S. W. 751; Hamilton's Ex'r v. Hamilton, 27 Ky. Law 298, 84 S. W. 1156; C. H. Larkin Co. v. Dawson, 37 Tex. Civ. App. 345, 83 S. W. 882; Roberts v. Farmers' Bank, 25 Ky. Law 2296, 80 S. W. 441. Since it is the duty of a pledgee of commercial paper to collect § 692 COLLATERAL SECURITIES. 822 diligence required of him is the same in effect as that required of an agent or attorney employed to collect the demand. °* In the first place, he is bound to exercise this diligence in fixing the lia- bility of the parties to such paper, when necessary, by due demand of payment and notice of nonpayment ;°^ and, in the next place, he is bound to exercise this diligence in the collection of the paper. If he neglects, after the maturity of the paper, to enforce pay- ment, he is liable to the pledgor for any loss upon the paper which might have been prevented by proper diligence in proceedings to collect it.^^ The creditor is not excused from attempting to col- it and pay over the surplus, if any, to the pledgor, a court will not take such collaterals from a pledgee and place them in the hands of pledgor's receiver for collection. Booth v. Atlanta Clearing House Assn., 132 Ga. 100, 63 S. E. 907. " Buckingham v. Payne, 36 Barb. (N. Y.) 81 ; Hazard v. Wells, 2 Abb. N. Cas. (N. Y.) 444; Kephart v. Butcher, 17 Iowa 240; Lawrence v. McCalmont, 2 How. (U. S.) 426, 11 L. ed. 326. For a case of an attor- ney taking collateral for a claim in his hands for collection, and agreeing with the debtor to collect the security, see Bradford v. Arnold, 33 Tex. 412. " Foote V. Brown, 2 McLean (U. S.) 369; Peacock v. Pursell, 14 C. B. (N. S.) 728; M'Lughan v. Bovard, 4 Watts (Pa.) 308; Ormsby v. Fortune, 16 S. & R. (Pa.) 302; Russell v. Hester, 10 Ala. S3S; Charter &c. Ins. Co. v. Smith, 43 Wis. 329; Jennison v. Parker, 7 Mich. 3SS. The failure of the pledgee holding a note as col- lateral security to present it for pay- ment and to give notice of its non-payment will not be held to be payment of the debt secured but is ground for damages for the negli- gence of such pledgee. Coleman v. Lewis, 183 Mass. 485, 67 N. E. 603, 97 Am. St. 450, 66 L. R. A. 482n. "Lawrence v. McCalmont, 2 How. (U. S.) 426, 454, 11 L. ed. 326; Pickens v. Yarborough's Adm'r., 26 Ala. 417, 62 Am. Dec. 728; May v. Sharp, 49 Ala. 140 ; Reeves v. Plough, 41 Ind. 204; Succession of Liles, 24 La. Ann. 550; Cardin v. Jones, 23 Ga. 175 ; Barrow v. Rhinelander, 3 Johns. Ch. (N. Y.) 614; Hawley Hard- ware Co. V. Brownstone, 123 Cal. 643, 56 Pac. 468; Aldrich v. Goodell, 75 III. 452; Hall v. Green, 14 Ohio 499; Charter &c. Ins. Co. v. Smith, 43 Wis. 329; Bonta v. Curry, 3 Bush (Ky.) 678; Noland v. Clark, 10 B. Hon. (Ky.) 239; Word v. Morgan, 5 Sneed (Tenn.) 79; Griggs v. Day, 136 N. Y. 152, 32 N. E. 612, 32 Am. St. 704n, 18 L. R. A. 120; Jennison v. Parker, 7 Mich. 355; Murph^y v. Bartsch, 2 Idaho 603, 23 Pac. 82; Rumsey v. Laidley, 34 W. Va. 721, 12 S. E. 866, 26 Am. St. 935. When a creditor allows collateral notes held by him to become barred by the statute of limitations he must show that his negligence did not injure the debtor. Farm Inv. Co. v. Wyo- ming College &c., 10 Wyo. 240, 68 Pac. 561. Delay in enforcing collat- eral security will not relieve pledgee from liability. Loeb v. German Nat. Bank, 88 Ark. 108, 113 S. W. 1017. Where the creditor has not been 823 REMEDIES OF NEGOTIABLE PAPER. § 693 lect a bill or note taken as collateral security^ on the ground that the maker has declared that he has a defense which he will inter- pose." § 693. Reasonable diligence upon the part of the creditor to preserve liability of indorsers. — Reasonable diligence upon the part of the creditor in making demand and giving notice, so as to preserve the legal liability of indorsers of the collateral note, is preliminary to diligence in enforcing payment of the note at maturity, and the requirements in both cases rest upon the same principle, and are of equal obligation.^* The reason for thus requiring the preservation of the legal validity of the pledge by the pledgee must be for the purpose of preventing its pecuniary value from being impaired, and because the pledgee only can do it. Upon what principle, then, can it be said that the pledgee is not required to use ordinary diligence to preserve the pledge from loss by the insolvency of third parties who are liable thereon ? It is to be observed that it is not the insolvency of the debtor himself that is to be guarded against, but that of a third person ; the great object in both cases is to preserve the pecuniary value of the prop- erty; to do this, active measures involving expense are required in the one case and are necessary in the other; the same degree of diligence is required in each case, and in both the pledgee alone can resort to the means necessary for the preservation of the diligent the injured person may re- present it and to give notice of its cover damages in the net sum he dishonor, if not paid, the bill becomes might have collected by suit season- money in his hands as between him ably begun.' Meyer Bros. v. Calvin, and the person from whom he re- 122 La. 1S3, 47 So. 447. Ordinary ceived it." Wilhams, J.: "I am of diligence is required. Spires v. the same opinion. The laches of the Southern States Phosphate &c. Co., plaintiffs in not duly presenting the 4 Ga. App. 323, 61' S. E. 300. bill constituted this a payment before " Wakeman v. Gowdy, 10 Bosw. action brought." Willes, J. : "I am (N. Y.) 208. of the same opinion. * * * If a cred- " Peacock v. Pursell, 14 C. B. (N. itor, when the bill falls due, is guilty S.) 728. Earle, C. J., said : "The of laches whereby the security be- legal effect of taking a bill as col- comes deteriorated or valueless, it be- lateral security, is, that if, when the comes equivalent to actual payment." bill arrives at maturity, the holder is See also, McLemore v. Hawkins, 46 guilty of laches, and omits duly to Miss. 715. § 693 COLLATERAL SECURITIES. 824 pledge. But further, if the pledgee is not bound to do this, the debtor may be left entirely without remedy. A note given as collateral security may be due long before the principal debt matures. In such case the creditor is not bound to receive the debt until it is due, yet he has entire control of the collateral se- curity, which may be the note of a third person who is on the eve of insolvency, while the creditor refuses to preserve the col- lateral security by its collection ; the hands of the debtor are tied ; he is in no default whatever, yet he must stand by and see his property becoming utterly worthless by the insolvency of the maker of the note ; or if a remedy exists, it is to compel the cred- itor to active measures for the preservation of the debt, which is the very ground of objection to this defense. "But in case of an ordinary pledge of tangible personal prop- erty, the pledgee is bound to ordinary diligence in the preser- vation of the property whether it be perishable or not. What would be ordinary diligence in one case would not be in the other, but the diligence is required whatever may constitute it. The identical property when it can, must be preserved, but if it cannot, then the value must be preserved. Why will not the same rule apply to bills, notes, bonds and other choses in action ? It is not alone the bill, note or bond that is pledged, for those are but the evidence of tha indebtedness, but the indebtedness itself is the substantial matter of the pledge ; it is as capable of protection as the paper or contract which is the evidence of it ; the latter may be lost without impairing the former, but if the former is lost the latter is valueless. The indebtedness then is the substantial pledge, and as men in the exercise of ordinary care generally pre- serve property of their own of this character, they may also by the same care preserve it when it is the subject of a pledge, and as between the parties to a contract of pledge, like the one under consideration, we see no reason why the pledgee is not answerable when the pledge is lost through his neghgence.''^" In the exer- cise of such ordinary care and diligence to preserve the collateral "Lamberton v. Windom, 12 Minn. 232, 247, 90 Am. Dec. 301. 825 REMEDIES OF NEGOTIABLE PAPER. § 694 aote from being lost by reason of the insolvency of the maker, it is requisite that the pledgee shall resort to active efforts to collect the note by action."" The ground of a creditor's liability for a loss to his debtor, occurring through the creditor's negligence in enforcing the collateral security, is said to rest in the privity in contract between the debtor and creditor, established by the debtor's assignment of the collateral, which invests the creditor with the ownership of the collateral, for all purposes of dominion over the debt as- signed. He alone is empowered to receive the money to be paid upon it, and to control it, in order to protect his right under the assignment."^ If the collateral note is made payable at a designated bank and it falls due before the principal debt, it is the duty of the pledgee to see that the note is presented at that bank for payment, or lodged in that bank for collection when due."^ § 694. Delay in presenting draft for payment. — A delay of three days after the maturity of a draft held as collateral before presenting it for payment renders the holder liable for a loss oc- casioned by the insolvency of the drawer occurring immediately after this."' "The fair construction of the contract of the parties is, that the creditor will use proper diligence in the collection of the security, and will account for the same, and he is certainly forbidden such negligence as shall produce loss to the debtor who transfers the paper to him. His duties arise out of the transac- tion. He receives from his debtor a draft or negotiable paper which, by law, is due on a certain day. It is his duty to present the paper for payment on that day, and as he has the indorsement ""Whitin V. Paul, 13 R. I. 40; Bank, 12 S. & R. (Pa.) 61, 68; Beale Wakeman v. Gowdy, 10 Bosw. (N. v. Bank, S Watts (Pa.) 529. y.) 208; Slevin v. Morrow, 4 Ind. "^Bridge Co. v. Savings Bank, 46 425; Lyon v. Huntingdon Bank, 12 S. Ohio St. 224, 20 N. E. 339; Ward v. & R. (Pa.) 61; Hoard v. Garner, 10 Smith, 7 Wall. (U. S.) 447, 19 L. ed. N. Y. 261; Wilhams v. Price, 1 S. & 207; Wallace v. M'Connell, 13 Pet St. 581; Ex parte Mure, 2 Cox 63. (U. S.) 136, 10 L. ed. 95. " Hanna v. Holton, 78 Pa. St. 334, "" Betterton v. Roope, 3 Lea (Tenn.) 21 Am. Rep. 20; Lyon v. Huntingdon 215, 31 Am. Rep. 633; Smith v. Miller, 43 N. Y. 171, 3 Am. Rep. 690. § 695 COLLATERAL SECURITIES. 826 of his debtor on the paper, he ought probably to give him notice of the failure to pay; certainly so, if he seeks to hold' him on the paper or his indorsement. The question of notice to the indors- ing debtor in this case is not, however, material. The question is, whether there was a neglect of duty on the part of the creditor receiving the draft, by reason of which the debtor has been in- jured. That this is true is beyond question. If the creditor had received of his debtor a check and failed to present it, the princi- ple would have been the same precisely. "°* § 695. Pledgor not entitled to strict notice of dishonor of collateral note. — A pledgor is not entitled to strict notice of the dishonor of a collateral note, which he has not indorsed, but has delivered without indorsement, or has caused to be made pay- able directly to his pledgee.'^ Although the pledgor in such case continues liable for his own debt in the event of a failure of the maker of a collateral note to pay it, yet he is not, within the custom of merchants, an indorser of it, so as to be entitled to strict regular notice of nonpayment. He is not subject to the obligations nor entitled to the advantages which belong to a party to negotiable paper. He stands rather in the position of a guar- antor. His original liability remains as it was ; and he can avail himself of the negligence of the pledgee to give him notice of the dishonor of the collateral note only to the extent of the loss he may have suffered thereby. If he has suffered no loss by reason of delay or failure to receive notice of the dishonor of the collat- eral paper, he cannot avail himself of this as a defense to his lia- bility to his creditor. § 696. Collateral security should be in hand in making de- mand. — The collateral security should be in hand in making demand upon the maker of a note in order to charge an indorser ; for it may be essential to have the collaterals deposited as secu- rity for the note in readiness to deliver up at the time, if the maker °* Betterton V. Roope, 3 Lea (Tenn.) "Chitty on Bills, 441, 498; Hunter 215, 31 Am. Rep. 633. v. Moul, 98 Pa. St. 13, 42 Am. Rep. 610. 827 REMEDIES OF NEGOTIABLE PAPER. § 697 demands them. Thus, a demand by a notary upon the maker o^ a note, which contains a statement that certain negotiable bonds had been deposited as collateral security, is insufficient to charge an indorser, if the maker at the time of the demand asks for a return of the collaterals, and states that he is ready and willing to pay the note on the production of the collaterals, and refuses to pay solely on the ground that they are not produced. It is as much the right of the maker to receive the collaterals upon the payment of the note, as it is to receive a surrender of the note itself ; and it would be unreasonable to require him to pay g.uch a note in the absence of the collaterals, and trust to his legal rem- edies against the holder to recover them."" § 697. Neglect of government officer. — The neglect or omission of an officer of government who has received a note as collateral security for a debt due the state, to perform the duties which the law, in ordinary cases, imposes upon a party so receiv- ing a note, cannot be taken advantage of by the debtor. And it would seem that even if the officer expressly assumed the re- sponsibility of prosecuting such note to judgment, the state would not be responsible for his laches."^ I 698. Question of fact for the jury. — The character of the transaction is a question of fact for the jury when the cir- cumstances of the case leave it in doubt whether a note was deposited as collateral security or merely for the convenience of the owner ; as, for instance, where a note was payable in metal, and the owner left it in care of a creditor, and the owner con- tended that the note was deposited as collateral security ; but the creditor claimed that he received it merely for the owner's con- venience, that the metal in which it was payable might be received by him and accounted for by credit on book account."* § 699. Insolvency of the maker of collateral note. — The in- solvency of the maker of the collateral note has been held not to " Ocean Nat. Bank v. Fant SO N. " Seymour v. Van Slyck, 8 Wend. Y. 474. (N. Y.) 403. '^ Sellers v. Jones, 22 Pa. St. 423. § 700 COLLATERAL SECURITIES. 828 dispense with a demand of payment within a reasonable time, for the reason that the maker may pay this particular debt, although he is unable to pay all his debts, or is without visible property.*' § 700. What constitutes negligence is a question of fact. — What constitutes negligence in the collection of such collateral security is a question of fact to be determined according to the circumstances of the case.''" Greater diligence may be required in case the creditor is aware that the maker of the collateral paper is in embarrassed circumstances, than would be required in case the maker were supposed to be wholly responsible.''^ A delay to collect which would amount to negligence in the former case, might not be so in the latter. Diligence which is reasonable under the circumstances of the case, and not extraordinary dili- gence, is what is required.''^ Ordinary care and diligence must be used,'' and the circumstances of the case are to be considered in determining the extent of this responsibility. This responsi- bility is not determined by the strict rules of commercial law ap- plicable to negotiable paper; but rather by the principles of the general law of agency.''* "'Stocking V. Conway, 1 Port. 23 Ga. 175; Day v. Kenton, 22 Ky. (Ala.) 260. Law 1917, 62 S. W. 3. When in an '"Word V. Morgan, 5 Sneed (Tenn.) action on a note the defendant claims 79; Buckingham v. Payne, 36 Barb, that plaintiff was negligent in not col- (N. Y.) 81; Sellers v. Jones, 22 Pa. lecting collateral, the failure of the St. 423; Davis v. Alston, 61 Ga. 225. court to instruct the jury that the But it is sometimes said that the de- diligence required of a pledgee of col- gree of diligence required under the lateral securities does not arise until circumstances of the case is a ques- after the maturity of the collateral tion of law. Wakeman v. Gowdy, 10 was not error. C. H. Larkin Co. v. Bosw. (N. Y.) 208. Dawson, 37 Tex. Civ. App. 345, 83 S. " Slevin v. Morrow, 4 Ind. 425. W. 882. " Slevin v. Morrow, 4 Ind. 425 ; " Roberts v. Thompson, 14 Ohio St. Kiser v. Ruddick, 8 Blackf. (Ind.) 1, 82 Am. Dec. 465 ; Commercial Bank 382; Whitin v. Paul, 13 R. I. 40; v. Martin, 1 La. Ann. 344, 45 Am. Scott V. First Nat. Bank, 5 Indian T. Dec. 87. "The duty of a pledgee can- 292, 82 S. W. 751. not be considered as more onerous " Roberts v. Thompson, 14 Ohio St. and stringent than that of an agent, 1, 82 Am. Dec. 465 ; Whitin v. Paul, and the law is well settled that where, 13 R. I. 40. So by statute in Georgia, in the course and from the nature of Code 1873, § 2145; Cardin v. Jones, the business, it becomes necessary to 829 REMEDIES OF NEGOTIABLE PAPER. § 7OI Negligence of the creditor in collecting collateral security may be taken advantage of by the surety of the principal debt as well as by the principal debtor himself," but a general creditor cannot complain. ''° The creditor's obligation to collect the collateral ceases upon the payment to him of the principal debt. It is his duty then to return the collateral to his debtor. ''' A creditor holding negotiable paper as collateral security is required to use a different kind of diligence from that required of one holding taerchandise or other corporeal property; and yet the diligence in each case is only such as is appropriate to the nature of the property. If the property be precious stones, safe keeping is all that is required. If it be grain, is must be properly stored and protected from all injury. The diligence required of the holder of promissory notes or other securities for the payment of money has reference to the danger that the parties liable on them may become insolvent and unable to pay. A prudent business man will collect such obligations when they are due, or will endeavor to enforce them by suit ; if, therefore, a creditor neglects to enforce the collection of such securities held in pledge, and delays till the parties liable become insolvent, he is as much guilty of neglect as if he had suffered grain held in pledge to be destroyed by dampness or heat for lack of proper storage." Negligence which will discharge the drawer or indorser of a bill of exchange will make one who holds it as collateral security liable for the loss. § 701. Creditor's negligence. — Whether the creditor's neg- ligence conclusively makes him liable, as, for instance, whether his failure to protest a note for nonpayment at maturity so as employ sub-agents by reason of their " Hoffman v. Johnson, 1 Bland particular profession or skill, the (Md.) 103. agent will not, in such cases, be re- '"Dyott's Estate, 2 W. & S. (Pa.) sponsible for the negligence or mis- 463. conduct of the sub-agent, if he has " Overlock v. Hills, 8 Greenl. used reasonable diligence in his (Me.) 383. choice as to skill and ability of the ™ Hazard v. Wells, 2 Abb. N. Cas. sub-agent." (N. Y.) 444. § 702 COLLATERAL SECURITIES. 83O to charge an indorser thereby conclusively makes the paper his own, or whether he may show that his debtor sustained no actual damage by failure to charge the indorser, for the reason that the indorser was insolvent when the paper matured, and has con- tinued so up to the time of trial — is a question upon which the authorities are not agreed. On the one hand, it is claimed that to allow such evidence would introduce an element of uncertainty as to the rights and liabilities of parties to negotiable paper, and give rise to much needless litigation. Moreove'r, the paper may be valuable to the pledgor by way of set-off, although uncollect- ible by the pledgee. Upon this ground, it is held in Michigan that the creditor is in every case chargeable with the amount of the note." If the collection of collateral negotiable paper has been lost by operation of the statute of limitations, and such statutory defense has become perfect, the pledgor in an action upon the principal debt may by counterclaim recover the value of his collateral, even though it be not known that the debtor will, when sued upon the collateral, plead the statute in defense. ''' § 702. Loss to pledgor determines the liability of pledgee for negligence in collecting collaterals. — On the other hand, it is held that actual loss or prejudice to the pledgor is the cri- terion of the pledgee's liability for failure to charge the indorser or for negligence in prosecuting the collection of the collateral.^^ ™Whitten V. Wright, 34 Mich. 92; Smith's Lead. Cas., 8th Eng. ed., 357; Rose V. Lewis, 10 Mich. 483, 48S; Chamberlyn v. Delarive, 2 Wilson Jennison v. Parker, 7 Mich. 3SS; 3S3; Ward v. Evans, 2 Ld. Raym. Campbell, J., dissenting; Phoenix Ins. 928; Van Wart v. WooUey, 3 Barn. & Co. V. Allen, 11 Mich. 501, 83 Am. C. 439; Peacock v. Pursell, 14 C. B. Dec. 756. (N. S) 728; Clark v. Young, 1 Cranch "Hawley Hardware Co. v. Brown- (U. S.) 181, 2 L. ed. 74; Kennedy v. stone, 123 Cal. 643, 56 Pac. 468; First Rosier, 71 Iowa 671, 33 N. W. 226; Nat. Bank v. O'Connell, 84 Iowa 377, Kephart v. Butcher, 17 Iowa 240; 51 N. W. 162, 35 Am. St. 313; Farm Powell Adm'r v. Henry, 27 Ala. 612. Inv. Co. V. Wyoming College &c., iO See dissenting opinion of Campbell, Wyo. 240, 68 Pac. 561. J., in Jennison v. Parker, 7 Mich. 354; ''Story on Notes, § 405; Chitty on Grove v. Roberts, 6 La. Ann. 210; Bills, 441, 498; 2 Parsons on Bills and Hunter v. Moul, 98 Pa. St. 13, 42 Am. Notes, 184; Cumber v. Wane, 1 Rep. 610; Hanna v. Holton, 78 Pa. 831 REMEDIES OF NEGOTIABLE PAPER. § 7O2 Mere neglect on the part of the creditor in collecting the securi- ties, without proof that loss has occurred through such neglect, will not make the securities his own.^^ In Kephart v. Butcher/^ Judge Dillon, after examining the conflicting authorities upon this question, said it was one difficult of determination upon authority, but easy of solution upon reason and principle, and de- clared the opinion of the court to be that the better and true rule and criterion are actual loss or prejudice ; and consequently the creditor who^ has taken the note of a third person for a pre- existing debt is not debarred from resorting to the original con- sideration, although he has not presented the instrument nor given notice of its dishonor, provided he can clearly and satis- factorily show that the debtor has not, in consequence of such omission sustained any injury. It would seem that, in order to hold the creditor liable for neg- ligence or delay in enforcing the collateral note, it should be made to appear that the maker of that note was solvent at the time it matured, and afterward became insolvent. °* "There is a dis- tinction taken between the liability of a creditor to a principal debtor for negligently failing to collect collateral securities pledged by such debtor, and the liability of a creditor to a surety, for neglecting to proceed against a principal. * * * We can, however, conceive of no reason why the rule, which, in the latter case requires that in order that the creditor be held liable, the St. 334, 21 Am. Rep. 20;. Westphal v. because mere delay, if no loss fol- Ludlow, 6 Fed. 348; Plymouth County lowed as a consequence thereof, could Bank v. Oilman, 9 S. Dak. 278, 68 N. not be made the foundation of any W. 735, 62 Am. St. 868; Douglass v. complaint on the one hand, or of re- Mundine, 57 Tex. 344; National Bank sponsibility on the other." See Bux- V. Bruhn, 64 Tex. 571, S3 Am. Rep. ton v. Alton &c. Mercantile Co., 18 771; Carpenter v. Sanborn (Tex. Civ. Okla. 287, 90 Pac. 19, where it is held App.), 25 S. W. 36; Hanover Nat. that the failure of pledgee to have Bank v. Brown (Tenn. Ch. App.), 53 chattel mortgage recorded will not S. W. 206; Farm Inv. Co. v. Wyom- enable the pledgor to recover darn- ing College, 10 Wyo. 240, 68 Pac. 561. ages when he sustained no loss. ''Gilbert v. Marsh, 12 Hun (N. Y.) " 17 Iowa 240. 519; Aldrich v. Goodell, 75 111. 452; "Lamberton v. Windom, 18 Minn. Steger v. Bush, S. & M. Ch. (Miss.) 506, 514, 12 Minn. 232, 90 Am. Dec. 172, 189. "Something more than 301 ; Westphal v. Ludlow, 6 Fed. 348. mere delay is necessary in such cases; § 703 COLLATERAL SECURITIES. 832 principal debtor should be solvent at the time when the surety re- quests the creditor to proceed against him, should not apply, in principle, in the former case. * * * jn ^hg case of Herrick v. Borst,*^ it is said : 'The question to be decided is, whether under our rule for the protection of sureties a jury should be allowed to speculate on the event, and bar the creditor accordingly as they may guess that the suit against the principal would have been suc- cessful or not. I understand the rule to be, not that the jury can appraise the possibility, and relieve the surety in proportion to the value of the chance; but that if the principal was solvent when the notice was given, and the neglect to sue be followed by subsequent insolvency, the whole action is barred.' It seems to us that these reasons for making the solvency of the principal necessary to the creditor's responsibility to the surety apply with equal force in a case like this at bar. There is the same danger and impropriety in the latter, as in the former, in permitting a jury to speculate upon the chances of success in collecting a debt of a person who is not solvent ; a person according to the defini- tion given in the case cited who is not able to pay all his debts from his own means, or whose property is not in such a situation that all his debts may be collected out of it by legal process. To make the liability of a creditor depend upon his ability to collect from a person in this condition would be, it seems to us, to in- graft an element upon commercial law altogether inconsistent with its characteristic and necessary certainty."*" If the debtor has in his hands good security for the payment of the collateral note, he cannot be prejudiced by the failure of the pledgee to protest the note, and in that case the pledgee cannot be held liable for his neglect.*' § 703. Extraordinary diligence not required. — If it appears that upon the maturity of the collateral note it could not have been collected except by the exercise of extraordinary diligence, or if a suit brought upon it as soon as it matured, and prosecuted "4 Hill (N. Y.) 650, 653. "Kephart v. Butcher, 17 Iowa 240. *■ Lamberton v. Windom, 18 Minn. 506, 514, 90 Am. Dec. 301. 833 REMEDIES OF NEGOTIABLE PAPER. § 7O4 with reasonable diligence to judgment and execution, would not have resulted in the collection of the note, in the absence of a de- mand by the debtor that such a suit be brought, the creditor in a suit upon the principal "debt will not be prevented from recovering because he did not attempt to collect the collateral.'^ § 704. Demand by pledgor for prompt collection of col- lateral security. — If the pledgor desires a prompt collection of the collateral, he should demand this ; and unless he do this the pledgee is not bound to act immediately upon the maturity of the principal debt, but only to exercise ordinary diligence and a rea- sonable discretion in the matter.^" § 705. Burden is on pledgor to show that loss was sus- tained because of negligence of pledgee in collecting collat- eral. — The burden is upon the debtor to show that the cred- itor has, by his negligence in collecting the collateral security, occasioned a loss."" When a prima facie case of negligence in the creditor is shown, the burden is then cast upon him to show som.e excuse for his failure to collect the security. Such a prima facie case is made out by proof that the creditor, to whom a loss upon a policy of insurance was payable, neglected for a month after the loss was adjusted and payable, to collect the amount, during which time the insurer was able and willing to pay, but =" Marschuetz v. Wright, SO Wis. 305 ; Baker v. Burkett, 75 Miss. 89, 92, 175, 6 N. W. 511; Westphal v. Lud- 21 So. 970; Rice v. Benedict, 19 Mich, low, 6 Fed. 348. A creditor holding 132; Robinson v. Hurley, 11 Iowa 410, a note as collateral security is not re- 79 Am. Dec. 497n ; Smouse vere taken in this case ; that the long delay which occurred was the result of no oversight on the part of the solicitor employed; in his judg- ment it was inexpedient to proceed under the circumstances, and his course was the true one. The good faith of the solicitor is not impeached. This, how- ever, did not satisfy the covenant; nor did the exercise of his judgment, if that judgment were wrong, and caused unreason- able delay. We have considered the question with more than usual care and deliberation, and we cannot resist the conclusion, that the course pursued by the solicitor was unwise, and in re- spect to the defendant's duty to the plaintiff, was entirely un- warrantable." This judgment was affirmed in the Court of Ap- peals.^'' Although this decision was upon a covenant to use proper means to collect the mortgage, it is conceived that there is a cove- nant just to this effect implied in th6 taking of a mortgage as col- lateral security, and that the decision is applicable to such a case. .§ 713a. What is reasonable diligence is ordinarily a ques- tion for the jury. — What is reasonable diligence in a pledgee in such cases is ordinarily a question for the jury, though the court may rule that it is not incumbent upon him to resort to the extraordinary remedy of a suit in equity. A bank holding as security, notes secured by a chattel mortgage of live stock and "Hoard v. Garner, 3 Sandf. (N. >" Hoard v. Garner, 10 N. Y. 261. Y.) 179, 189. § 714 COLLATERAL SECURITIES. 84O farming implements, is not necessarily negligent in not enforc- ing the notes as they mature, though the mortgaged property is at that time adequate for the purpose, since, under certain con- ditions, such as a failure of crops, a prudent creditor would al- low the mortgagor some indulgence. In such a case the court should not instruct the jui-y that it was the duty of the bank to foreclose the mortgage whenever an instalment of the debt be- came due and was not paid, but the jury should have been left at liberty to determine as a matter of fact, and in view of all the cir- cumstances of the case, whether the bank was guilty of negli- gence in failing to foreclose the mortgage for a period of three years, at the expiration of which the lien of the mortgage under the laws of the state ceased to exist because not renewed within that period, and the security became valueless.^" In case the pledgee is by the terms of the pledge authorized to sell or collect the obligation pledged, at his option, the author- ity to collect the collateral devolves upon him only the ordinary care and diligence of an agent. In a case where the collateral security was a claim in the nature of an account due the pledgor from a private corporation, and before the maturity of the pledgor's note the corporation became disorganized and all its property was transferred to and all its debts assumed by another corporation, so that a suit at law against the corporation which owed the debt was impracticable, it was heW that it was not the duty of the pledgee to resort to the extraordinary remedies of a court of equity to reach and subject to payment of the collateral property which had been conveyed to the second corporation.'' § 714. Pledgee required to use ordinary diligence to collect interest on a mortgage held as collateral. — A pledgee is bound to use reasonable dilige:ice in collecting the interest due on a mortgage assigned as collateral, but he is not responsible for the principal as well as for the interest, when the principal has not fallen due, although the mortgage contains a power of " North Western Nat. Bank v. " Sampson v. Fox, 109 Ala. 662, 19 Thompson &c. Mfg. Co., 71 Fed. 113, So. 896, 55 Am. St. 950. 17 C. C. A.'638, 36 U. S. App. 413. 841 REMEDIES OF NEGOTIABLE PAPER. § 7I4 sale under which the holder is empowered to sell upon any default in the payment of interest, and in case of such sale the principal is then made due and payable on the day of such sale. Under such a mortgage the principal does not fall due so soon as the in- terest is in arrear, but only upon a sale for nonpayment of in- terest. The only neglect of which the pledgee is guilty in such case, is neglect to collect the interest. If the pledgee had col- lected the interest without selling under the power, as cheaply and as speedily as he could have collected it by selling, the pledgor would have no ground of co^nplaint. Moreover, if the pledgee had credited upon the principal debt the interest due upon the collateral mortgage, taking upon himself the hazard of its subse- quent collection, the pledgor would have had no ground of corn- plaint.^* Chief Justice Durfee, delivering the opinion of the court, "further said: "It is true she might, the interest being in arrear, have sold under the mortgages, and so made the principal payable, and, according to the testimony, it would have been greatly to the advantage of both herself and the complainant for her to have done so. But in our opinion it was not her duty to do so for any other purpose than to collect the interest, and therefore she is responsible only for the interest which was lost by her neglect. She had a right to suppose that the complainant was willing to let the principal run to its maturity, so long as the interest was paid or accounted for, the complainant having agreed to such a term of credit, the interest being paid. For a like rea- son, she had a right to suppose that the complainant was satisfied with the sufficiency of the security, as security for the principal, and that, until the maturity of the notes, she was only bound to collect the interest, or to be responsible for it if not collected. It would be exacting too much of a pledgee with power to sell to hold that it is his duty to watch the market, and take advan- tage of the most favorable opportunities for selling, or make good any loss resulting from not doing it." The pledgor's request in such case that the pledgee shall col- lect the interest, though coupled with the statement that it is "Whitin V. Paul, 13 R. I. 40, 43. § 715 COLLATERAL SECURITIES. 842 the duty of the pledgee, if the interest is not paid, to "enforce the terms of the mortgage," does not make it the pledgee's duty to foreclose for any other purpose than the collection of the \p.- terest. If he had wished to have the mortgage foreclosed by sale, to avoid an impending loss by depreciation in the value of the property, he should have said as much. "He could not rea- sonably expect the pledgee to forecast the future for him." He is not bound to exercise extraordinary care and diligence, and collect the principal without request before it is legally due.^" § 715. Return of execution unsatisfied. — The creditor hav- ing brought suit upon the collateral obligation within a reason- able time, and prosecuted this to judgment and obtained execu- tion thereon, upon a return of nulla bona upon the execution, is not ordinarily bound to do more with the claim; unless it be to prove it in proceedings in bankruptcy or insolvency, if such pro- ceedings be instituted.^" § 716. Pledgee has no right to compromise with the maker of collateral note. — The pledgee has no right to compromise with the maker of the collateral note, and take less than the amount due upon it, unless he has the pledgor's consent.^^ This is cei-tainly the case when the debt is well secured by mortgage." It would only be in an extreme and exceptional case that the pledgee would be justified in making such a compromise. Au- thority given to a pledgee to sell the collateral note at public or private sale does not authorize him to surrender such note to the maker after maturity, without any effort to collect the same, for a sum less than the amount due thereon, though this be enough to pay the principal debt. Such a transaction is not a sale of the note but a compromise with the maker, and renders the pledgee liable to the pledgor for the injury the latter has sustained." " Whitin V. Paul, 13 R. I. 40. Union Trust Co. v. Rigdon, 93 111. '"Burnett v. Thompson, 1 Ala. 469. 458; Garlick v. James, 12 Johns. (N. "Union Nat. Bank v. Post, 64 111. Y.) 146, 7 Am. Dec. 294n; Depuy v. App. 404; De Clark v. Waters, 10 Clark, 12 Ind. 427. Wyo. 31, 65 Pac. 855. "^ Union Trust Co. v. Rigdon, 93 111. -"Zimpleman v. Veeder, 98 III. 613; 458; Foltz v. Hardin, 139 111. 405, 28 843 REMEDIES OF NEGOTIABLE PAPER. § 716 One who has taken negotiable paper as collateral security has no right to compromise with the parties liable upon it for a sum less than that called for on the face of the paper ;^* except, per- haps, in a very extreme case;^° or if he does so compromise, he makes himself accountable for the whole amount of the security. Neither has he any right to surrender the security to the maker upon receiving a sum of money equal to the debt for which the pledge was made, and another note for the remainder of the se- curity; and the pledgor is not obliged to receive the new note, or to await the collection of it by the creditor, but may maintain a suit for the full amount of the original pledge, after deducting the sum for which the pledge was made.^" If the pledgee de- livers up the original note received as security, and takes any other security in place of it, he will be assumed to have received payment in full.^^ The holder of collateral paper is under no obligation to re- ceive payment thereof in property other than money; and he is not bound to notify the debtor of a proposition to discharge the collateral note in this way.^' Even if the debtor requests the creditor to accept a compro- mise of the collateral security by taking a conveyance of land, although the compromise proposed be a reasonable one under the circumstances, the creditor does not make himself liable for any loss sustained through his refusal to accept a compromise.^' N. E. 786. But see Zollman v. Jack- due from the maker. De Clark v. son Trust &c. Bank, 238 111. 290, 87 Waters, 10 Wyo. 31, 65 Pac. 855. N. E. 297. ='As intimated in Story's Bail., § "•Garlick v. James, 12 Johns. (N. 214. Y.) 146, 7 Am. Dec. 294n; Union '"Depuy v. Clark, 12 Ind. 427; and Trust Co. V. Rigdon, 93 111. 458, 9 see Union Trust Co. v. Rigdon, 93 Cent. L. J. 486; Grant v. Holden, 1 III. 458. E. D. Smith (N. Y.) 545; Gage v. -"'Gage v. Punchard, 6 Daly (N. Y.) Punchard, 6 Daly (N. Y.) 229. When 229. a creditor holding well secured notes '^ Rives v. M'Losky, 5 Stew. & P. of his debtor as collateral, accepts a (Ala.) 330. less sum than is due thereon in full ■" Rhinelander v. Barrow, 17 Johns, satisfaction without pledgor's consent (N. Y.) 538, reversing Barrow v. the pledgor may recover the balance Rhinelander, 3 Johns. Ch. (N. Y.) 614. § yi'J COLLATERAL SECURITIES. 844 A compromise of the collateral note made with the consent of the principal debtor is, of course, binding upon him/° In exceptional cases a compromise without such consent may- be sustained; as where the maker of the collateral note is insol- vent, and nothing can be collected by process of law, 'and the compromise effected is, on the whole, advantageous to all par- ties." One of two joint debtors gave to their creditor a note and mortgage of a third person for $2,500 as collateral security for the joint debt, which was for $4,200, the other joint debtor hav- ing nothing to do with the pledge. The creditor foreclosed the mortgage securing the collateral note, and his attorneys bid off the premises for $2,419, which the creditor repudiated, as the property was not worth that sum. By agreement, however, with the debtor who gave the pledge, the creditor was to hold the property as security until the time of redemption -expired, and then sell the property on the best terms he could, and be charged only for the proceeds of such sale. -Being unable to sell the prop- erty, the debtor who gave the pledge, and the creditor agreed that the latter should retain the property for $1,256 as the sum realized from the collateral. It was held that the debtor who gave the pledge and put up the collateral, had the right to agree with the creditor that he might take it at a reduced amount, and that the other joint debtor, not occupying the position of a surety, could not complain when sued on the note.'^ § 717. Pledgor has no right to surrender a collateral note to the maker without payment. — A pledgee has no right to surrender a collateral note to the maker without payment. If he cannot collect it, he must return it to the pledgor. If he sur- renders it without receiving payment, or makes use of it in anj- transaction of his own, he is chargeable with its full amount.'* But a pledgee who has surrendered the collateral note to the =" Pence v. Gale, 20 Minn. 257 ; Ran- == Foltz v> Hardin, 139 111. 40S, 28 N. dolph &c. V. Merchants' Nat. Bank, 9 E. 786. Lea (Tenn.) 63. ^ Wood v. Mathews, 73 Mo. 477. "Exeter Bank v. Gordon, 8 N. H. 66. 845 REMEDIES OF NEGOTIABLE PAPER. § 718 maker of it, without exacting payment, may show in defense that the note was made for the accommodation of the pledgor, or was for some other reason invalid against the maker. The presumption of law is, however, that the note was given for a good and valuable consideration; and unless the pledgee shows that there was a legal defense to the note surrendered, he is liable to the pledgor for the amount thereof, less the debt secured.^* In such action against the pledgee for having wrongfully dis- posed of the pledge, he cannot show that the pledgor was in- debted to the maker of the collateral note both at the time of the pledge and afterward, for it is not for the pledgee to claim a set-off in behalf of the maker of the note against the pledgor. Neither can the pledgee show that the maker of the collateral note was in the habit of giving his paper to the pledgor as an accommodation, for evidence to this effect does not prove that this particular note was given as accommodation paper.^^ §718. Pledgee may exchange negotiable collateral secu- rity. — A creditor holding negotiable paper as collateral secu- rity has an undoubted right to exchange the security, without the consent of the debtor, unless restrained by the express terms of the pledge; and it is only in case loss results to the debtor from want of proper care and diligence in the exchange that the cred- itor becomes responsible to the debtor for the loss sustained."" To make the creditor responsible for a loss arising from an ex- change of collaterals, it must be shown that a loss was thereby occasioned to the pledgor. Even a warning given by the latter, that the proposed exchange would result in loss, and that the creditor would make it at his own risk, and would take the ex- changed collateral as cash, does not of itself establish a loss by "Union Trust Co. v. Rigdon, 93 Lea (Tenn.) 63; Tompkins County 111. 4S8. Nat. Bank v. Bunnell & Eno Inv. Co., "Union Trust Co. v. Rigdon, 93 8 App. Div. (N. Y.) 90, 40 N. Y. S. 111.458. 411; Nelson v. First Nat. Bank, 69 '" Girard Fire & Marine Ins. Co. v. Fed. 798, 16 C. C. A. 425, 32 U. S. Marr, 46 Pa. St. 504; Hunter v. Moul, App. SS4; Union Nat. Bank v. Post, 98 Pa. St. 13, 42 Am. Rep. 610 ; Ran- 192 III. 385, 61 N. E. S07. dolph &c. V. Merchants' Nat. Bank, 9 § 71 8 COLLATERAL SECURITIES. 846 reason of the exchange, although the substituted collateral turns out to be worthless. There must be evidence that the securities given up were not also worthless. When the pledge has been made on no other terms than those defined by law, the debtor cannot afterward add to or change the conditions of the pledge, so as to turn the collateral note into cash, by a mere notice to the creditor that if he exchanges it for another note he must take the collateral as cash. The pledgor can give such notices and warnings as may raise proof of negligence on the part of the creditor if he disregards them. But this amounts to noth- ing, unless injury and loss be shown to have resulted from negli- gence or mismanagement on his part. No doubt the pledgee takes upon himself an increased responsibility, by making an exchange of security; but it is only the omission of proper care and diligence on his part that will make him liable to account for collateral security which has proved worthless.^^ But the creditor is liable for any loss occasioned by an ex- change of the collateral obligation without the consent of the debtor, or by the conversion of the collateral into a less security, by discharging any otf the parties originally liable upon the col- lateral.'* If, for instance, he takes in exchange for a note signed by two persons a new note signed by only one of them, he renders himself accountable to the principal debtor for the original col- lateral note.^' If a pledgee holding a promissory note as collateral security takes in place of it another note as collateral security for the same principal debt, and receives full payment of the debt from this latter note, he cannot, subsequently, without the consent of the pledgor, or of his assignee, return the latter collateral note and- take back the original collateral note, so as to reinstate the lia- " Girard Fire & Marine Ins. Co. v. °' Girard Fire & Marine Ins. Co. v. Marr, 46 Pa. St. S04; Griggs v. Day, Marr, 46 Pa. St. 504; Muirhead v. 21 App. Div. (N. y.) 442, 47 N. Y. S. Kirkpatrick, 21 Pa. St. 237. 609; Windham Sav. Bank v. O'Gor- "" Muirhead v. Kirkpatrick, 21 Pa. man, 66 Minn. 361, 69 N. W. 317; St. 237. ZoUman v. Jackson &c. Bank, 238 111. 290, 87 N. E. 297. 847 REMEDIES OF NEGOTIABLE PAPER. § 719 bility of the pledgor, or deprive him or his assignee of the right to the surplus of the collateral note which was paid.*" There is authority, however, to the effect that if a pledgee ex- changes a collateral note for another note, payable to his order, he is bound to account to the pledgor as if the original note had been paid in full, without inquiry whether the exchange had re- sulted in a loss, or whether the original collateral note was value- able or worthless.*^ § 719. By extending the time of payment the creditor hold- ing a collateral note makes it his own. — If the creditor extend the time of payment of the collateral note, he thereby makes it his own.*^ Such is the effect of his receiving payment of part of the collateral note at its maturity, and taking a new note pay- able at a future day for the part not paid.*^ Even where a cred- itor does not make a definite agreement for extension, he may, by so dealing with the collateral obligation as to delay the col- lection of it, make it his own. Thus, if a draft be received by a creditor from his debtor to collect, and to place to the account of the latter when paid, and the creditor presents the draft to the drawee and receives his check for it, but delays for one day to present the check, during which time the drawee fails, the prin- cipal debtor is discharged from all liability; for the creditor in such case undertakes to do all that the law requires to be done to obtain payment of the draft, and having failed in that duty to the prejudice of the debtor, he must suffer the consequences.** As regards the maker of the collateral note, an extension of the time of payment by taking a new note payable at a future day, in place of the original note, may have the effect of mak- ing a new and valuable consideration for the new note, although "Post V. Union Nat. Bank, 159 111. Y.) 122; Gage v. Punchard, 6 Daly 421, 42 N. E. 976. (N. Y.) 229; Depuy v. Clark, 12 Ind. " Haas V. Bank of Commerce, 41 427 ; Haas v. Bank of Commerce, 41 Neb. 7S4, 60 N. W. 85. Neb. 754, 60 N. W. 85 ; Farm Inv. Co. " Freeman v. Benedict, 37 Conn. v. Wyoming College &c., 10 Wyo. 240, 559. 68 Pac. 561. " Nexsen v. Lyell, S Hill (N. Y.) " Smith v. Miller, 43 N. Y. 171, 174, 466; Southwi-ck v. Sax, 9 Wend. (N. 3 Am, Rep. 690. § 7^9 COLLATERAL SECURITIES. 848 the original note was without consideration and subject to de- fense in the hands of the creditor. In such case, the new note being founded on a valuable consideration, independent of that on which the original note was founded, the failure of the con- sideration of the former is not a defense by the maker in a suit against him on the last note.*° *'Muirhead v. Kirkpatrick, 21 Pa. St. 237. CHAPTER XVIII. REMEDIES UPON PLEDGES OF STOCKS. i 720. Remedies of the holder of col- § 734 . lateral. 735. 721. Pledgee of corporate stock may sell them. 722. Remedies of stock broker, who 736. purchases stock for custo- mers. 723. Custom of brokers unreasona- 737. ble and void. 738. 723a. Equities of a broker's custo- mer. 739. 724. Pledgee may sell stock upon de- 740. fault notwithstanding the bankruptcy of pledgor. 725. Notice and public sale neces- sary to apply collateral secur- 740a, ity in satisfaction of the debt. 726. Rules as to demand and notice before sale of pledged chat- 741. tels apply to sales of stocks held as collateral. 727. Bonds and stocks held as col- 742. lateral may be sold like other pledges. 728. Pledgee of stocks or bonds not required to sell them. 743. 729. Pledgee of stock not liable for loss on account of his failure to sell. 730. In general. 744. 731. A power of sale may be im- plied from the terms of the pledge. 732. Waiver of notice. 745. 733. A minor may revoke his waiv- er of notice of sale upon coming of age. 746. 849 54 — Col. Sec. Valid sale without notice. Inadequate price not enough to make pledgee liable to pledg- or. Demand of payment sometimes necessary before sale of the collateral. Sale at broker's board. Sale at broker's board is a pri- vate sale. Separate lots. Creditor cannot purchase bonds or stocks sold by him upon default except when author- ized to do so by agreement. When an agent buys pledged stocks for himself in good faith his title is good. Rights of pledgor when stock held as collateral is sold ille- gally. Pledgee by a wrongful sale or pledge of the pledgor's stock is not precluded from recov- ering his debt. Pledgor may waive his right to question a sale of collateral by failing to sue to impeach the sale. A customer whose stock has been sold irregularly should object without unreasonable delay. The pledgor by accepting sur- plus proceeds of sale waives any irregularity in the sale. Waiver by pledgor. 720 COLLATERAL SECURITIES. 850 i 747. Payment of deficiency of debt by pledgor after wrongful sale by pledgee is evidence of acquiescence in the sale. 748. Pledgor must tender payment of the debt before he can maintain trover to recover the value of stock wrongful- ly sold. 749. Pledgor of stock must pay or tender the debt secured be- fore he is entitled to have the stock re-transferred to him. 749a. Pledgee not liable for loss by depreciation in stock pledged occasioned by his delay in re- turning it when pledgor has not tendered the debt. 750. The measure of damages in actions at law for a wrongful conversion of stock by pledgee is the value of the stock at the time. 751. Demand for return of pledged stock. 752. Suit in equity to redeem pledged stock. § 753. Measure of damages in Eng- land and some American states. 754. Origin of exception. 755. Rule in some courts allows re- covery of an amount equal to the highest market value of converted stock up to time of trial. 756. This rule of damages should only apply in exceptional cases. 756a. Rule established in Wright v. Bank of the Metropolis. 756b. Rule of measure of damages followed by Supreme Court of the United States. 756c. Measure of damages where pledgee converts pledge by mistake but in good faith. 757. Measure of damages caused by a broker's authorized sale. 7S7a. Pledgor sometimes held en- titled to have specific per- formance. § 720. Remedies of the holder of collateral. — A holder of collateral securities, upon the debtor's default, has several reme- dies. He may enforce payment of the principal debt; he may sell the collateral securities under any power of sale the debtor may have given, or, in the absence of such power, he may sell them upon giving reasonable notice to the debtor ; or he may, by bill in equity, have a judicial sale.^ The latter course is rendered necessary where stock has been pledged by delivery of a cer- tificate, without any transfer, or power to make a transfer. A court of equity will look upon a transfer as made which ought to be made, and will decree a sale and application of the proceeds to the payment of the loan.^ There is also jurisdiction in equity 'Robinson v. Hurley, 11 Iowa 410, "Johnson &c. v. Dexter, 2 McAr- 19 Am. Dec. 497n. thur (D. C.) 530. 851 REMEDIES UPON PLEDGES OF STOCKS. § 721 in case an account between the parties must be stated, in order to determine the amount of the debt secured/ or even in case there is such uncertainty as to the time of payment that a de- mand of payment will not certainly make the debt due/ A transfer of corporate stocks by an indorsement in blank confers upon the pledgee the power to sell them upon default without ■ first having them transferred to his name upon the books of the corporation. His sale will at least pass the title subject only to the rights of the corporation itself, except in states in which the legal title to shares of stock is regarded as being in the holder of the registered title, and where the interest of such holder is subject to attachment in a suit against him so long as he is holder upon the books of the corporation.^ § 721. Pledgee of corporate stock may sell them. — The holder of stocks or bonds of a corporation, as collateral, may sell them, because that is the usual method of turning such se- curities into .money ; the sale being made at public auction, after demand of payment and due notice of the sale.'' Such securities are expressly designed to be circulated and sold in the stock market ; and it is to be presumed that, in making a pledge of such securities, the parties contemplate a sale of them in case the debt which they secure is not paid according to agreement.^ '§§640,641. Ch. (N. Y.) 143; Wallace v. Berdell, * Stokes V. Frazier, 72 III. 428. 24 Hun (N. Y.) 379; Canfield v. Min- ^ Ex parte Sargent, L. R. 17 Eq. neapolis Agricultural &c. Assn., 14 273; France v. Clark, 22 Ch. D. 830; Fed. 801. That railroad bonds can- Canfield v. Minneapolis Agri. &c. not be sold, but must be collected, Assn., 4 McCrary (U. S.) 646. see Joiiet Iron & Steel Co. v. Scioto ° Cortelyou v. Lansing, 2 Caines Fire Brick Co., 82 111. 548, a decision Cas. (N. Y.) 200; Brown v. Ward, 3 unsupported in reason or authority, Duer (N. Y.) 660; Washburn v. and in conflict with prior decisions of Pond, 2 Allen (Mass.) 474; Union the same court, to which this decision Cattle Co. V. International Trust Co., makes no reference. Stokes v. Fra- 149 Mass. 492, 501, 21 N. E. 962; zier, 72 III. 428; Brooklyn Bank v. Guinzburg v. Downs Co., 165 Mass. Barnaby, 197 N. Y. 210, 90 N. E. 834, 467, 43 N. E. 195; Travers v. Leopold, 27 L. R. A. (N.. S.) 843n. 124 111. 431, 16 N. E. 902; and s,ee 'Morris Canal &c. Co. v. Lewis, 12 Fletcher V. Dickinson, 7 Allen (Mass.) N. J. Eq. 323. 23; Vaupell v. Woodward, 2 Sandf. § 722 COLLATERAL SECURITIES. 852 Interest accruing upon collateral securities may, in the absence of any agreement to the contrary, be properly collected by the pledgee, and applied to the debt secured. Thus, if a bond with interest coupons be the subject of a pledge, an authority in the pledgee to collect the interest as it becomes payable is necessarily implied." A railroad company having pledged its own bonds as collateral security, and afterward, by its agents, having paid the interest coupons as they matured, is precluded by such payment from claiming that cutting off and collecting the coupons oper- ated as a conversion of the bonds." . § 722. Remedies of stock broker who purchases stock for customers. — The remedies of a broker who has purchased stock for a customer on a deposit of a margin are : ist. By suit for the purchase-money, after tendering the stock and demand- ing payment ; 2d. By suit for a breach of the contract, wherein the broker would charge himself with the stock purchased and the advance made upon it;" 3d. By a public sale of the stock purchased, after proper demand upon the customer, and notice to him of the time and place of sale, followed by suit against the customer for any deficiency there might be. The failure of a purchaser, or pledgor, of stock to put up further margins upon notice from the broker to do so, will not prevent him from being entitled to receive reasonable notice of the time and place of a sale of such stock by the pledgee.^^ § 723. Custom of brokers unreasonable and void. — A cus- tom of brokers to sell at the stock exchange, without the notice required at common law, stocks and bonds deposited as collateral, is declared to be unreasonable and void.^- As has already been ° Androscoggin R. Co. v. Auburn '' § 503 ; Wheeler v. Newbould, 16 Bank, 48 Me. 335. N. Y. 392; Lawrence v. Maxwell, 53 "Androscoggin R. Co. v. Auburn N. Y. 19. A decision thatsuch a custom Bank, 48 Me. 335. is not illegal as between parties fa- '° Merriam v. Kellogg, 58 Barb. ( N. miliar with, and dealing on the basis Y.) 445; Bement v. Smith, 15 Wend, of, such custom, was rendered in the (N. Y.) 493. common pleas court of Philadelphia, " Rothschild v. Allen, 90 App. Div. in the case of Colket v. Ellis, 10 Phila. (N. Y.) 233, 86 N. Y. S. 42. (Pa.) 375, 379. Mr. Justice Mitchell, 853 REMEDIES UPON PLEDGES OF STOCKS. § 723 shown," a purchase of stock by a broker for a customer, upon a margin, creates the relation of pledgor and pledgee between them. Therefore, in a case in New York, where an offer of testimony was made to show a custom of brokers to sell without notice, the testimony was held to be inadmissible." Chief Jus- tice Hunt, in relation to this part of the case, said : "The broker had no right to sell without notice. A practice or custom to do otherwise, would have no more force than a custom to protest notes on the first day of grace, or a custom of brokers not to purchase the shares at all, in a case like the present, but to con- tent themselves with a memorandum or entry in their books, of the contract made with their customer. Such practice in each case would be in hostility to the terms of the contract, an attempt to change its obligation, and would be void. The proof could not, therefore, be legally given." If the broker desires to pos- sess himself of the power to sell the collateral, on failure to re- after referring to several cases upon the general subject of usages, said : "I think their effect may be summed up to be, that where no statute or principle of public policy intervenes, but a rule of law is a mere privilege which may be waived, there is no rea- son why the waiver may not be as well by a custom known to and ac- quiesced in by the parties, as by an express contract. Without intimat- ing what would be the effect if such a usage as the present were set up against an outside party, I am of opinion that as between plaintiffs and defendants, both members of the board of brokers, farhiliar with and dealing on the basis of it, it is a valid and lawful custom and controls the rights of these parties." But, aside from the matter of custom, the learned judge was of opinion that, in this case, there was an assent on the part of the customer to the sale at the time it was made, and, moreover, a ratification of it after it was made. This question was raised, but not de- cided, in Covall v. Loud, 135 Mass. 41, 16 Cent. L. J. 471, 46 Am. Rep. 446. As in the previous case, there was an assent to the sale by the cus- tomer. A sale of stock by the pledgee at an exchange without notice or an- nouncement as to whom pledged, and where the pledgee became the pur- chaser for $5,000.00 of the stock valued at $20,000.00 was set aside at the suit of the pledgor to redeem. Hogan v. Continental Nat. Bank, 182 Mo. 319, 81 S. W. 171. "§§495-500. " Markham v. Jaudon, 41 N. Y. 235 ; Smith V. Savin, 141 N. Y. 315, 36 n! E. 338, 53 N. Y. St. 378, affirming 69 Hun (N. Y.) 311, 23 N. Y. S. 568. § "J^l COLLATERAL SECURITIES. 854 pay advances, without notice of time and place of sale, he must make an agreement that shall permit him to do so.^^ § 723a. Equities of a broker's customer. — A broker's cus- tomer has equities as against bankers to whom the broker has pledged the customer's stock without the latter's consent. Prior to May 8, 1884, a person deposited with a firm of brokers in New York city one hundred shares of corporate stock as secu- rity for and indebtedness to that firm. On that date the brokers, without the knowledge or consent of the customer, pledged said stock, with other shares of stock belonging to said firm, to bank- ers as security for a loan. The loan was made subject to the rules of the New York stock exchange, of which the member of each firm who negotiated it was a member. The bankers were bona fide pledgees, having no knowledge that the brokers were not the owners of all the stock pledged. The customer was not, in fact, at the time of the pledge equitably indebted to the broker in any sum whatever, and did not thereafter becorne so indebted. On May 14, 1884, the brokers failed and made an assignment. The customer on that day learning of that fact, and also then learning for the first time that his stock had been so pledged, notified the bankers of his interest and requested a statement of the amount for which his stock was held. The bankers refused to give any information or to recognize plain- tiff's rights. The bankers on the same day, without notice to customer or the brokers, and in violation of the rules of the exchange, sold all the stock so pledged. The customer's stock sold for about $8,000, and after applying the proceeds of all the stock pledged in payment of the loan, there remained about $3,000 in the hands of the bankers. The customer did not learn of the sale of his stock until June 21, 1884, at which time the price of said stock had reached par and the prices of the other stock sold had so advanced that if they had been held and then sold the proceeds would have paid the loan, leaving the cus- tomer's stock free from any claim. In an action for conversion "Taylor v. Ketchum, S Robt. (N. y.) 507, 513. 85s REMEDIES UPON PLEDGES OF STOCKS. § 724 it was held that the bankers had no right to apply the balance in their hands upon another debt due them from the brokers ; also, that while the bankers, as bona fide pledgees, were entitled to regard the brokers as owners of all the stock pledged until noti- fied of the customer's rights, having been so notified prior to the sale, he then stood, with reference to his stock, as surety, with the right to compel them to apply the proceeds of the other stocks before resorting to his stock ; that as to his stock, he had the right to require a sale in accordance with the rules of the stock ex- change, and could treat the unlawful sale as a conversion, and after the proceeds of the sale of the other stocks had been applied to the payment of the loan, he was entitled to the highest price which his stock reached within a reasonable time after its illegal sale, and to judgment for that sum, deducing therefrom the bal- ance due the bankers after such application ; and that as the cus- tomer did not learn of the sale until after June 21st, that was a reasonable time; but it was held, in regard to the other stock sold, that the customer was not entitled to charge the bankers with the highest price because of the unlawful sale, and so long as it sold at its full market value at the time of sale, he could not complain.^" / § 724. Pledgee may sell stock upon default notwithstand- ing the bankruptcy of pledgor. — The bankruptcy of the pledgor of stock or negotiable bonds of a corporation does not deprive the pledgee of the right to sell and transfer them, upon the pledgor's default. The right is presumable from the nature of the transaction, even in the absence of any express stipula- tion in the contract of pledge that the pledgee may sell on default. The Bankruptcy Act takes away no right secured tO' the pledgee by his contract.^' If, in the proof of a promissory note in bankruptcy, the cred- itor agrees with the assignee in bankruptcy that bonds or stocks '"Smith V. Savin, 141 N. Y. 315, 36 Bank. Reg. 137; Richardson v. Tur- N. E. 338, 53 N. Y. St. 378. ner, 52 La. Ann. 1613, 28 So. 158; af- " Jerome v. McCarter, 94 U. S. 734, firmed in Turner v. Richardson, 180 24 L. ed. 136; In re Grinnell, 9 Nat. U. S. 87, 45 L. ed. 438. § 7^5 COLLATERAL SECURITIES. 856 held as collateral shall, for the purpose of proof, be credited as of a certain value, or even if the agreement be that the collateral shall be sold at a certain price, for the purpose of fixing the amount provable against the bankrupt's estate, such agreement is not conclusive as against another party to the note that the creditor actually received the amount so credited, or that he made any actual sale of the collateral which such other party was entitled to avail himself of. Whether there was any such sale is a question of fact.^^ § 725. Notice and public sale necessary to apply collateral security in satisfaction of the debt. — A creditor cannot apply collateral security in satisfaction of the debt in any way save by notice and public sale, or in pursuance of a contract for private sale." A loan was made in 1855 upon certain shares of telegraph stock. In 1863 the debtor offered to pay the debt, and demanded a return of the stock. The creditor replied that he had not ex- pected the stock would ever be redeemed, and had sold his own stock of the same company at a low price, because he did not wish to have so much of it, retaining that which he had received in pledge. Inasmuch as he would have lost in case the stock had declined, having nothing else to look to for his claim, he thought it only just that he should have the benefit of a rise in the stock, having taken all the risk himself. Biit, of course, the court told him that he could not appropriate the stock to the payment of the debt at his own option, but only in the manner the law pro- vides."" § 726. Rules as to demand and notice before sale of pledged chattels apply to sales of stocks held as collateral. — ^The gen- eral rules in regard to demand and notice in the case of the "Globe Nat. Bank v. Ingalls, 130 91 Am. Dec. 177; and see Davis v. Mass. 8. Funk, 39 Pa. St. 243, 80 Am. Dec. 519; '° Lewis V. Mott, 36 N. Y. 395 ; Mc- Sitgreaves v. Farmers' &c. Bank, 49 Neil V. Tenth Nat. Bank, 55 Barb. Pa. St. 359; Conyngham's Appeal, 57 (N. Y.) 59; Feige v. Burt, 118 Mich. Pa. St. 474; Thornton v. Martin, 116 243, n N. W. 928, 74 Am. St. 390. Ga. 115, 42 S. E. 348. =° Diller V. Brubaker, 52 Pa. St. 498, 857 REMEDIES UPON PLEDGES OF STOCKS. § 72/ sale of an ordinary chattel under a pledge apply to sales of stocks held in pledge.^^ If the obligation secured be not payable at a fixed time, a demand of payment is necessary before proceeding to give notice of the time and place of sale. Such a demand is necessary to create a default. Thus, a broker carrying stocks upon a margin must demand payment either of the balance of the account, or demand that the margin be made good, in case there be a special contract in regard to the amount of the margin to be kept. A notice that unless a specified amount of the loans secured be paid, the stock collatei^al would be "used," does not con- stitute a demand sufficient to authorize a sale.^^ The time and place of sale must be reasonable. But a sale in a state other than that where -the pledge was made is not necessarily invalid, and if the pledgor is duly notified of such sale and makes no objection to it, he cannot aftei-ward object to the sale on account of the place where it was made.^^ A sale at auction is not invalid for the reason that only one bidder was present and the stock was sold for less than its value.^* The creditor in selling stock pledged to him as security is bound to exercise good faith and reasonable skill and diligence so as to get the value of the shares. ^^ § 727. Bonds and stocks held as collateral may be sold like other pledges. — Corporate bonds and stocks held as collateral =' France v. Cl^irk, 22 Ch. D. 830. Mass. 467, 43 N. E. 195, 52 Am. St. "' Genet v. Rowland &c., 45 Barb. 525 ; Clark v. Simmons, 150 Mass. (N. Y.) 560, 30 How. Pr. (N. Y.) 357, 23 N. E. 108; Schaaf v. Fries, 77 360. Mo. App. 346. See White v. Board "-^ Guinzburg v. Downs Co., 165 of Assessors, 16 Fed. 833. When there Mass. 467, 43 N. E. 195, 52 Am. St. is a secret agreement between a 525. pledgee selling stock held as collateral " Guinzburg v. Downs Co., 165 and the purchaser so that the sale Mass. 467, 43 N. E. 195, 52 Am. St. was for an amount larger than the 525 ; and see Learned v. Geer, 139 debt but reported to be much less Mass. 31, 29 N. E. 215; Wing v. Hay- than the debt, the owner may recover ford, 124 Mass. 249. from such pledgee. McKee v. Smith, " Guinzburg v. Downs Co., 165 219 Pa. 490, 68 Atl. 1026. 727 COLLATERAL SECURITIES. 858 security may be sold, like ordinaiy pledges, after the debt se- cured becomes due, without judicial process and decree of fore- closure, upon giving reasonable notice to the debtor to redeem/' "The coupon bonds of corporations for the payment of money, which have a long time to run, and are made payable to bearer that they may be bought and sold in the market, are property of such a nature that, when pledged as security for the payment of promissory notes having a short time to run, the reasonable inference is that the parties intended that they should be sold as pledged property is usually sold if the notes are not paid when they fall due."" The sale must be at public auction, and the notice must specify the' time and place of it.^* Aside from a sale under judicial proc- ess, or one at auction, after' proper notice, the holder of such collaterals can appropriate them to the payment of the debt se- cured only in pursuance of a special contract with the debtor.^^ "" Morris Canal &c. Co. v. Lewis, 12 N. J. Eq. 323; Indiana &c. R. Co. v. McKernan, 24 Ind. 62; Alexandria &c. R. Co. V. Burke, 22 Gratt. (Va.) 254; Water Power Co. v. Brown, 23 Kan. 676, 691; Merchants' Nat. Bank V. Thompson, 133 Mass. 482; Union Cattle Co. V, International Trust Co., 149 Mass. 492, 501, 21 N. E. 962, cit- ing text; Feige v. Burt, 118 Mich. 243, 77 N. W. 928, 74 Am. St. 390; Don- nally v. Hearndon, 41 W. Va. 519, 23 S. E. 646; Alexandria L. &c. Co. v. Burke, 22 Gratt. (Va.) 254. ■' Union Cattle Co. v. International Trust Co., 149 Mass. 492, 501, 21 N. E. 962, citing text. == Diller V. Brubaker, 52 Pa. St. 498, 91 Am. Dec. 177; Conyngham's Ap- peal, 57 Pa. St. 474 ; Gay v. Moss, 34 Cal. 125; Robinson v. Hurley, 11 Iowa 410, 79 Am. Dec. 497n; Brown v. Ward, 3 Duer (N. Y.) 660. Contrary to the better and general rule, it is declared in Worthington v. Tormey, 34 Md. 182, 195, that, in selling stocks, a pledgee is not bound to give notice of the place of sale, Grason, J., say- ing ; "In cases of sales of some kinds of pledges, such as heirlooms, plate, and other articles of like character and description, which possess a pe- culiar value to the owner, or which cannot readily be replaced, it is right and necessary to give notice to the bailor of both the time and place of sale, in order that he may have an opportunity of redeeming his pledge, or attending the sale and protecting his interests. But the same reason does not apply to cases of sales of stocks. One share is exactly similar to, and of the same value as another of the same company, and can be pur- chased easily and readily if desira- ble." It is. however, submitted that the reason given is not sufficient to sustain the exception to that rule. ■" Diller V. Brubaker, 52 Pa. St. 498, 91 Am. Dec. 177. 859 REMEDIES UPON PLEDGES OF STOCKS. § 728 In the absence of a special agreement as to the time, place or manner of sale, such collaterals must be sold at public auction, after reasonable notice to the debtor of the time and place of sale.'" When a creditor has given proper notice of the sale of the col- lateral security, the debtor has no alternati-ve but to redeem the security by paying the debt for which it was pledged, or to allow it to be sold. He cannot resist the creditor's right to have the stock sold, on the ground that the sale could then be made only at a great sacrifice. ^^ The pledgee is under no obligation to wait a better condition of the market or to defer the sale on account of a depressed condition of the money market.^" § 728. Pledgee of stocks, or bonds not required to sell them. — A pledgee of corporate stocks or bonds is under no obligation to sell the security after default in payment of the debt.^^ Thus, one holding bank shai;es as collateral security wrote to his debtor requesting payment, and stating that if pay- ment were not made immediately he should sell the shares. The debt was not paid, and the pledgee did not sell the shares. The bank afterward failed, and the shares became of no value. In '"Little V. Barker, Hoff. Ch. (N. Cutcheon v. Dittman, 164 N. Y. 35S, Y.) 487; Genet v. Rowland, 45 Barb. 58 N. E. 97. (N. Y.) 560, 3OH0W. Pr. (N. Y.)360; "Rasch v. His Creditors, 1 La. Lewis V. Graham, 4 Abb. Pr. (N. Y.) Ann. 3L 106; Ogden v. Lathrop, 3 J. & S. (N. '= Smith v. Lee, 84 Fed. 557; King Y.) 73; Stokes v. Frazier, 72 111. 428; &c. v. Texas Banking & Ins. Co., 58 Sitgreaves v. Farmers' &c. Bank, 49 Tex. 669. Pa. St. 359; Strong v. National Me- == Wood's Sons Co. v. Schaefer, 173 chanics' Bank, 45 N. Y. 718. Astorea- Mass. 443, 53 N. E. 881, 73 Am. St. sonable notice, see Stewart v. Drake, 305 ; Howell v. Dimock, 15 App. Div. 46 N. Y. 449, holding that a notice (N. Y.) 102, 44 N. Y. S. 271 ; O'Neill given on the afternoon of Thursday, v. Whigham, 87 Pa. St. 394, 7 Rep. of a sale to be made at half -past 245; Robinson v. Hurley, 11 Iowa twelve o'clock on Saturday, was a 410, 79 Am. Dec. 497n; Colquitt timely and reasonable notice, the par- &c. v. Stultz, 65 Ga. 305 ; Rozet v. ties living and being in the city of McClellan, 48 111. 345, 95 Am. Dec. New York, where the sale was made 551 : Where a pledgee sells pledged and all the transactions had. See to stock he is bound to exercise reason- same effect as to notice required Mc- able care and is. liable for his neglect § 728 COLLATERAL SECURITIES. 860 an action by the creditor on the debt, it was held that his omis- sion to sell the shares constituted no defense. The pledgee in such case takes upon himself no duty to sell the shares, but simply holds them as security, with perhaps a power to sell. The remedy of the debtor is in paying the debt and redeeming the shares.'^ It does n9t alter the case that the stock has been transferred on the books of the corporation and a new certifi- cate issued to the pledgee. Though the pledgor cannot himself sell the stock in such case, he could, after the maturity of the debt, request the pledgee to sell, and in that way make him liable for a loss occurring through his failure to sell. But with- out such request, and in the absence of any special agreement upon this matter, it is discretionary with the pledgee after ma- turity to sell or not as he may deem best. The law imposes no obligation upon him to do anything more than to safely keep the stock so as to restore it when the debtor might redeem. ^'^ Where a pledgee, giving a statement to the pledgor of the bonds, stocks and other securities held in security, declares that the proceeds arising from the sale of the securities, and recovered from the choses in action, are to be applied to pay off the notes secured, and the remainder is to be paid to the pledgor subject to the repayment of the pledgee's expenses in prosecuting the claims or selling the securities, it was held that there was no contract on the part of the pledgee to prosecute or to sell, but only a mention of a power, to do so. If he did prosecute or sell, the proceeds were to be applied in the way mentioned.'" When a creditor has agreed to dispose of collateral stock held in pledge and apply the proceeds to the payment of the debt, his neglect to do so is not a bar to an action upon the debt, but is a matter of defense or set-off.'' to do so. Jennings v. Moore, 189 205, 30 L. ed. 676, 12 Sup. Ct. 832, af- Mass. 197, 75 N. E. 214. firming Wilkinson v. Culver, 33 Fed. "Granite Bank v. Richardson, 7 708. Met. (Mass.) 407; Lake v. Liule " Taggard v. Curtenius, 15 Wend. Rock Trust Co., 11 Ark. 53, 90 S. W. (N. Y.) 155. The stock in this case 847, 3 L. R. A. (N. S.) 1199n. was of a bridge company, and the ^ Colquitt &c. V. Stultz, 65 Ga. 305. debtor claimed that the creditor neg- '" Culver V. Wilkinson, 145 U. S. lected to dispose of the stock, accord- 86 1 REMEDIES UPON PLEDGES OF STOCKS. § 729 § 729. Pledgee of stock not liable for loss on account of his failure to sell. — A pledgee of stock is not liable for a loss oc- casioned by his neglect to sell the stock — it having depreciated in his hands till it became worthless — when by contract between the parties the right to sell the stock had been conferred upon the pledgee or a third person, and the pledgee has never refused to transfer the stock for the purpose of a sale, and the pledgor has never requested that a sale should be made.''* The pledgor, having the general property in the pledge, may sell it, and com- pel its restoration upon paying the debt secured.^" If he should find a purchaser who should tender the amount of the debt to the pledgee, and the latter should refuse to deliver the stock to him upon the order of the pledgor, the creditor would un- doubtedly be liable for a conversion of the stock. A creditor holding corporate bonds as collateral security is not liable for a depreciation occurring after he has received other collaterals in their place, under an agreement to surrender the bonds, unless the debtor has demanded them. It is the duty of the debtor in such case, if he wants the bonds after he has become entitled to them, to demand their surrender; and, if he allows them to remain in the creditor's hands, they are at his risk, so far as loss may occur from delay in collection or the like cause.*" When the pledgee has the right to sell the stock at his dis- cretion without notice, he is not bound to sell the stock, even at the pledgor's request, immediately upon default. He may in such case exercise his own judgment as to the sale of the ing to agreement, until the bridge was war, but the pledgor neither sought carried iway by a flood, and its value to redeem it nor requested the was thereby greatly lessened. pledgee to sell it; Colquitt &c. v. ''Howard v. Brigham, 98 Mass. Stultz, 65 Ga. 305, 22 Alb. L. J. 436; 133; Newsome v. Davis, 133 Mass. Savannah &c. Trust Co. v. Hartridge, 343 ; Wood's Sons Co. v. Schaef er, 73 Ga. 223 ; Lake v. Little Rock Trust 173 Mass. 443, 53 N. E. 881, 73 Am. Co., 11 Ark. S3, 90 S. W. 847, 3 L. R. St. 305; O'Neill v. Whigham, 87 Pa. A. (N. S.) 1199n. St. 394; Richardson v. Ins. Co., ='Rozet v. McClellan, 48 111. 345, 95 27 Gratt. (Va.) 749, where the stock Am. Dec. 551. pledged was supposed to have become *° Williamson v. McClure, 37 Pa. St. worthless in consequence of the civil 402. § 730 COLLATERAL SECURITIES. 862 Stock, subject only to the general liability of a pledgee for neg- ligence.*^ His refusal to sell upon request may, or may not. be negligence. Such a request may tend to prove negligence and may be essential to establish it.*^ Certainly the creditor is under no obligation to sell the stock immediately upon default. He can hold the stock at his own risk without making sale.*^ Even if the debtor should request the creditor, upon default, to sell the stock, it would seem that such request would be without legal effect; because the debtor, if he desires to sell the stock, should first redeem it, and then he can do with it as he may choose. § 730. In general. — It is, of course, competent for the par- ties to agree, by express terms, that upon the pledgor's default, or upon his failure to keep the security good, the pledgee may sell at public or private sale, at his option, without giving notice of his intention, or of the time or place of sale,** or upon giving a specified notice of such time and place.*^ A debtor, though in fact insolvent, may authorize his cred- itor to sell at private sale stocks held as collateral security. He may even, after his failure, if before the commencement of pro- ceedings in bankruptcy, authorize a sale of collaterals, or ac- "- Franklin Sav. Inst. v. Preetorius, said he was ready to pay, that the 6 Mo. App. 470; National Exchange evidence was not sufficient to show Bank v. Kilpatric, 204 Mo. 119, 102 S. an agreement to postpone the sale W. 499, 120 Am. St. 689. until further notice. Thornton v. *' Goodall V. Richardson, 14 N. H. Martin, 116 Ga. 115, 42 S. E. 348. 567, 572. « Bates v. Wiles, 1 Handy (Ohio) " O'Neill V. Whigham, 87 Pa. St. 532 ; Loomis v. Stave, 72 111. 623. In 394. a few states it is expressly 'provided " Milliken v. Dehon, 27 N. Y. 364 ; by statute that a negotiable instru- Chouteau v. Allen, 70 Mo. 290. While ment may contain a pledge of coUat- the pledgee and pledgor of stocks eral security, with authority to dis- may agree that upon default the pose thereof; as in North Dakota, R. pledgee may sell at public or private Code 1895, § 4858, and South Dakota, sale without notice, it is held, when Annot. Stat. 1899, § 5664. It is held two or three days before the sale the that such a power does not deprive a pledgee told the pledgor that he promissory note of its negotiable wanted to collect the note secured character. Fancourt v. Thome, 9 Q. within a short time and the pledgor B. 312. 863 REMEDIES UPON PLEDGES OF STOCKS. ^731 quiesce in a sale made, although at a sacrifice ; and his assignee in bankruptcy subsequently chosen will be bound by such au- thority or acquiescence.*" A power of sale without notice or demand, upon default of payment of an obligation having a definite time of payment, may be exercised immediately upon such default.*' Under a time-note, giving authority to sell the security on nonperform- ance of the promise, no valid sale of the collateral can be made before the maturity of the principal debt. A sale before maturity is a conversion and not a sale under the power, which is re- stricted by the terms of the contract to the case of nonperform- ance.*" But where a note payable in three months was secured by a pledge of stock which the" lender agreed to hold for three months, it was held that, inasmuch as there were days of grace upon the note but none upon the agreement for the return of the stock, the stock might be sold under a power before the maturity of the note.*' A provision in the contract of pledge that the pledgee may sell the stock taken in pledge before maturity, in case it should depreciate in value, does not warrant a sale before maturity with- out notice, on the ground that the stock was fraudulently issued."* A contract of pledge which provides that stocks given as security shall be sold upon a certain specified time and in a par- ticular manner precludes any implied authority to sell them before the debt becomes due, or at any other place than that provided for." § 731. A power of sale may be implied from the terms of the pledge. — Thus, drafts drawn upon a person with whom the drawer had deposited city bonds upon scrip, directing him "Sparhawk v. Drexel, 12 Nat. "National Bank v. Baker, 128 111. Bank. Reg. 450. 533, 21 N. E. 510, 27 111. App. 356, 4 "Chouteau v. Allen, 70 Mo. 290. L. R. A. S86n; Huiskamp v. West, 47 ''Allen V. Dykers &c., 3 Hill (N. Fed. 236. Y.) 593; Dykers v. Allen, 7 Hill (N. =^ Dykers v. Allen, 7 Hill (N. Y.) Y.) 497, 42 Am. Dec. 87. 497, 42 Am. Dec. 87; Allen v. Dykers "Rankin v. McCuIlough, 12 Barb. &c., 3 Hill (N. Y.) 593. (N. Y.) 103. § 732 COLLATERAL SECURITIES. 864 to pay "fi-om the proceeds of securities in his hands," or to pay, "when in funds, from the proceeds," was held to imply authority in the latter to sell the securities to meet the drafts; and a sale under such authority is good without notice to the debtor of the time and place of sale, and without previous de- mand of payment.^^ Authority to sell at private sale was in- ferred from a pledge of stock, with authority to the pledgee to sell in case it is not redeemed by a day specified, or to give the same "to any broker to sell that day;" and a sale made by a broker after the day specified, at private sale, for the full market price of the stock, was held to be in confonnity with the authority, and valid/' This construction is based upon the consideration that the parties by their contract intended to en- large the power of sale which the law gives to every pledgee, and to enable him to sell at private sale, and without notice. The fact that a sale by a broker was authorized implied a pri- vate sale, and the provision that he might sell on the day he received the stock excluded the requirement of any notice.^* Where collateral securities have been pledged upon special terms, and afterward further securities are deposited by way of margin on the original loans, the latter, in the absence of any special agreement, may be regarded as pledged, according to the terms of the written contracts relating to the original securities, under the rule that the accretion follows the main body, and is subject to the same conditions. If by the terms of the original pledge some of the securities might be sold on one day's notice and some on three days' notice, the additional securities may be sold upon the longest term of notice so stip- ulated for.^' § 732. Waiver of notice. — Under a special authority to sell collaterals upon default of payment without notice, or upon demand of payment without further notice, all notice of the '-■ Hyatt V. Argenti, 3 Cal. 151. " Bryson v. Rayner, 25 Md. 424, 90 °= Bryson v. Rayner, 25 Md. 424, 90 Am. Dec. f9. Am. Dec. 69. ■" Baltimore Marine Ins. Co. v. Dal- rymple, 25 Md. 269, 301. 865 REMEDIES UPON PLEDGES OF STOCKS. § 733 time and place of sale, such as the law requires in the absence of a special agreement, is waived. The only obligation resting upon the creditor in such case is to sell publicly and fairly for the best price he can obtain.'*" But the parties may agree that there may be a private sale without notice, and then the only obligation upon the creditor is to sell fairly for the best price he can reasonably obtain. ^^ Where, by the terras of a contract, a loan is made payable on one day's notice, and the creditor is authorized, upon the debtor's default, to sell the collaterals without further notice, a sale may be made at any time after the expiration of one day from the making of demand of payment.^^ If stock or bonds be pledged as security, with a right of sale if the indebtedness be not paid within a reasonable time, but the power of sale makes no provision as to the time, place or manner of sale, a valid sale cannot be made without giving the debtor reasonable notice of the time and place of sale. A sale made by the creditor upon the same day that he notifies the debtor that he must pay or satisfactorily secure his indebtedness is made upon an unreasonable notice, and renders the creditor liable in damages.'*" § 733. A minor may revoke his waiver of notice of sale upon coming of age. — A minor who has bought stocks, and deposited money with his broker for a margin to carry them, may upon coming of age repudiate the transaction, may retract authority given the broker to sell the stocks without notice or •"Loomis V. Stave, 72 111. 623; 22 Iowa 306; Fitzgerald v. Blocher, Maryland Fire Ins. Co. v. Dalryimle, 32 Ark. 742, 29 Am. Rep. 3 ; Robin- 25 Md. 242, 2647-89 Amr"Dec.~y79n ; son v. Hurley, 11 Iowa 410, 79 Am. Baltimore Marine Ins. Co. v. Dalrym- Dec. 497n. pie, 25 Md. 269; Bryson v. Rayner, '^ See Maryland Fire Ins. Co. v. 25 Md. 424; Rayner v. Bryson, 29 Dalrymple, 25 Md. 242, 89 Am. Dec. Md. 473, 90 Am. Dec. 69. 779n. ''Genet v. Howland &c., 45 Barb. °» Stevens v. Hurlbut Bank, 31 (N. Y.) 560; Milliken v. Dehon, 27 Conn. 146. N. Y. 364; Hamilton v. State Bank, 55 — CoL. Sec. § 734 COLLATERAL SECURITIES. 866 demand of payment, and may recover the amount deposited with the broker to cover margins. "^ § 734. Valid sale without notice. — When the giving of the notice of sale provided for in a contract of pledge has been ren- dered impossible by the act of the pledgor, a valid sale may be made without giving the notice. Thus, a bank having pledged negotiable bonds with power to sell them in case of default on giving the bank thirty days' notice of the intended sale, subse- quently failed and closed its place of business, and had no ofJSce or acting officers. The pledgee three years afterward sold the bonds in good faith at their market value, without giving notice to the bank ; but he was held not to have incurred thereby any lia- bility for a conversion of the bonds.°^ § 735. Inadequate price not enough to make pledgee liable to pledgor. — As regards the price obtained at a sale made un- ' der a power to sell without notice, the mere fact that the price obtained is less than the market price at the time does not alone make the pledgee liable for the difference. It must appear that there was an intent to injure the pledgor, or that there was such recklessness shown, in the mode or time of selling, that such intent might be inferred."" A pledgee authorized to sell stocks and bonds pledged as col- lateral security at any broker's board, or at public or private sale, without notice, may sell after the maturity of the debt se- cured without waiting for a favorable condition of the market."' A pledgee sent the pledged stock to brokers to be sold, with instructions not to sell for less than $7.50 per share, — about the amount due on the note. No bids were made, and it was brought in for the pledgee, who was authorized by the pledgor to pur- chase, at $1 per share. The maker of the note was insolvent, "Heath v. Mahoney (N. Y. Sup. S. 126; Wheelwright v. St. Louis, N. Ct. 1881), 12 N. Y. Weekly Dig. 404. O. & O. Canal Transp. Co., 56 Fed. "City Bank v. Babcock, 1 Holmes 164; Smith v. Lee, 84 Fed. 557. (U. S.) 180. "Franklin Nat. Bank v. Newcombe, '^=Durant v. Einstein, 5 Robt. (N. 1 App. Div. (N. Y.) 294, 72 N. Y. St. Y.) 423, 35 How. Pr. 223; Jenkins v. 596, 37 N. Y. S. 271, affirmed, 157 N. Smith, 21 Misc. (N. Y.) 750, 48 N. Y. Y. 699, 51 N. E. 1090. 867 REMEDIES UPON PLEDGES OF STOCKS. § 736 and the stock had no market value. Though the contract au- thorized a sale without notice to the pledgor, he was notified of the sale. It was held that it did not appear that there was bad faith on the part of the pledgee, whereby the stock sold for less than its market value. °* The owner of five hundred shares of common stock of a cor- poration, of the face value of fifty thousand dollars, but which represented no real value in property, and which would draw dividends only after an annual dividend of six per cent, should be paid upon the preferred stock, which was equal to the full value of the company's assets, pledged such shares, with other stocks of the face value of fifty-one thousand dollars, to secure a loan of thirty thousand dollars. The contract of pledge per- mitted the pledgee, upon a failure to pay the loan when due, to sell the shares without advertisement or notice, at public or private sale. The loan was overdue, and the pledgee had repeatedly, but in vain, demanded payment for more than six weeks, when he sold the five hundred shares of stock at private sale, without no- tice, for the sum of seven thousand dollars. It was held that the sale was valid, being in compliance with the terms of the contract, and that, considering the uncertain value of the stock, it could not be held void on the ground that the consideration was inade- quate.°° § 736. Demand of pasmient sometimes necessary before sale of the collateral. — A demand of payment of the principal debt may be necessary before a sale of the collateral, although the creditor be authorized to sell without notice upon the debtor's default. Thus, if the debt be one payable upon demand, or at an indefinite time, there can be no default until a demand has been made, or an action has been brought to enforce the claim — the bringing of an action being only one way of making demand f^ " Manning v. Shriver, 79 Md. 41, 28 of pledge there is a right of redemp- Atl. 899. tion on the part of the debtor. But "' Carson v. Iowa Gaslight Co., 80 in this case that right was illusory Iowa 638, 45 N. W. 1068. and of no value, if the creditor could ™ Wilson V. Little, 2 N. Y. 443, 51 instantly, without demand of pay- Am. Dec. 307n. "In every contract ment and without notice, sell the § 736 COLLATERAL SECURITIES. 868 but the creditor in such cases may call upon the debtor at any- time to redeem."** A notice to redeem collateral securities, by payment of the amount loaned, would operate as a regular de- mand of payment of the debt ; but under such a notice a reason- able time to redeem should be allowed. A notice without date or signature, left at the pledgor's office, stating that if a specified amount of the loan be not paid, the stock securing it would be "used," does not constitute a demand sufficient to authorize a sale.*""- Stocks carried upon a margin, under an agreement that a cer- tain margin shall be maintained, cannot be sold when the margin has become deficient, without giving notice to the owner that further margin is required, and allowing him reasonable time to make it good.*"" The right to sell arises only upon failure of the owner to ifiake the margin good. There may, however, be an agreement between a broker or banker and customer, by which a right to sell will arise whenever the stocks should fall in price and diminish the margin, without calling upon the customer to make the margin good;°°^ but such an agreement is out of the usual course of dealing, and in order to be supported should be definite and certain in the intent that a sale can be made without giving the customer notice to make good the margin. thing pledged. We are not required to (N. Y.) 186; Ritter v. Cushman, 7 give the transaction so unreasonable a Robt. (N. Y.) 294; Milliken v. Dehon, construction. The borrower agreed 27 N. Y. 364; Markharn v. Jaudon, 41 that the lender might sell without N. Y. 235; Stewart v. Drake, 46 N. notice, but not that he might sell Y. 449. Otherwise in Massachusetts, without demand of payment, which is where the contract in such case is not a different thing." Genet v. Rowland, regarded as creating the relation of 45 Barb. (N. Y.) 560, 565; Porter v. pledgor and pledgee, but as merely Parks, 49 N. Y. 564; Sitgreaves v. executory. Covell v. Loud, 135 Mass. Farmers' &c. Bank, 49 Pa. St. 359; 41, 16 Cent. L. J. 471, 46 Am. Rep. France v. Clark, 22 Ch. D. 830. 446. See § 498. "a Sitgreaves v. Farmers' &c. Bank, "^ Thus, in Wicks v. Hatch, 6 J. & 49 Pa. St. 359. S. (N. Y.) 95, the stock market being ""b Genet v. Rowland, 45 Barb. (N. excited, and the customer residing Y.) 560. out of town, it was expressly agreed, ""0 Stentori v. Jerome, 54 N. Y. 480 ; in writing, that the brokers should Baker v. Drake, 66 N. Y. 518, 23 Am. sell in their discretion, at public or Dec. 80; Hanks v. Drake, 49 Barb, private sale, without any notice what- 869 REMEDIES UPON PLEDGES OF STOCKS. § 737 § 737. Sale at brokers' board. — Whether a sale of corpo- rate stocks, or bonds, or like securities at a brokers' board is such a public sale as the law will sanction, or whether the sale must be made at public auction, is a question upon which there has been some diversity of opinion. In favor of the validity of sales of such collaterals at the brokers' board, it is urged that there is the stock market, to which sellers and buyers of such property resort, and where competition among bidders is most apt to be found; and that such sales are public, and should be supported, unless in particular cases there be some ground for impeaching their fair- ness."' If the contract of the parties contain no restriction as to the mode or place of sale, and none can be implied from any estab- lished custom, and notice of a sale at the brokers' board be duly given to the debtor, his silence in regard to the mode of sale has been held to estop him from afterward taking objection to it.** If a creditor be authorized to sell the collateral security at public or private sale, at his discretion, he may properly sell at the brokers' board; but he is bound to exercise the authority under a trust for the debtor's benefit as well as his own. He has no right to force a sale for barely enough to pay his claim, when he might have obtained a surplus. But he need not, having such a power, sell stocks at auction if there is a fair market for them at the stock exchange or brokers' board.*" ever, whenever the margin should 779n; Baltimore Marine Ins. Co. v. fall below five per cent., the stocks Dalrymple, 25 Md. 269. Question having been purchased on a larger raised, but not decided, in Child v. margin. Under this agreement it was Hugg, 41 Cal. 519. held that the customer waived all °' Willoughby v. Corastock, 3 Hill right to notice of deficiency of mar- (N. Y.) 389. gin, and that the brokers acquired the °° Sparhawk v. Drexel, 12 Nat. right to sell for their own protection, Bank. Reg. 4S0 ; Castello v. City Bank, and were only bound to act in good 1 N. Y. Leg. Obs. 25 ; Wicks v. Hatch, faith and in the exercise of their best 38 N. Y. Super. Ct. 95 ; Union Trust judgment and discretion. Affirmed, Co. v. Hasseltine, 200 Mass. 414, 86 62 N. Y. 535. N. E. 111. "Maryland Fire Ins. Co. v. Dal- rymple, 25 Md. 242, 265, 89 Am. Dec. § 73^ COLLATERAL SECURITIES. 87O § 738. Sale at brokers' board is a private sale. — But, on the other hand, the fact remains, that a sale at the brokers' board is really a private sale. The regulations of the board exclude all but members, and the debtor is not only deprived of the oppor- tunity of seeing that a sale is fairly made, but of the opportunity of arranging to get the best price ; and, therefore, the prevailing and better rule is, that, except in case the creditor has specific authority to sell at private sale without notice, a sale at the brok- ers' board does not answer the requirements of the general law of pledges requiring a sale of the pledge to be at public auction.''^ § 739. Separate lots. — Stock or bonds pledged to a person at different times, to secure several debts, should be sold in sepa- rate lots, whether the sale be under order of court or without such order. Each separate debt, in such case, has a separate security ; and a sale of all the collaterals in gross, and an application of the proceeds to the entire indebtedness, might, in effect, extend the security to debts unsecured, or secured only in part, and might interfere with the rights of other parties.'^ But if a debtor deliver several certificates of stock to secure one debt, the creditor is not bound, in selling under a power of sale, to divide either certificate, though representing a large num- ber of shares into small lots, even if a prudent owner, having re- gard solely to his own interests would have done so.^' The pledgee has no right to sell more of the securities pledged than is necessary to satisfy the debt, if they are susceptible of division ; and if he does so, he is responsible for the damage sustained by the debtor. The measure of damages in such case is the sum necessary to replace the securities in excess of what it was necessary to sell, less the price for which the excess was sold, if that has been paid over to the debtor.^* "Castello V. City Bank, 1 N. Y. (N. Y.) 11, which, however, is not Leg. Obs. 25 ; Brown v. Ward, 3 Duer good law. (N. Y.) 660; Rankin v. McCulIough, "Mahoney v. Caperton, IS Cal. 313. 12 Barb. (N. Y.) 103, 107; Brass v. "Newsome v. Davis, 133 Mass. 343. Worth, 40 Barb. (N. Y.) 648, 652; " Fitzgerald v. Blocher, 32 Ark. 742, Markham v. Jaudon, 41 N. Y. 235, 29 Am. Rep. 3. 244. See Schepeler v. Eisner, 3 Daly 871 REMEDIES UPON PLEDGES OF STOCKS. § 74O § 740. Creditor cannot purchase bonds or stocks sold by him upon default except when authorized to do so by agree- ment. — A creditor cannot himself become the purchaser of collateral bonds or stocks sold by him upon his debtor's default unless he is expressly authorized to do so by the debtor. Such a purchase does not change the creditor's relation to his debtor as regards the collaterals ; but these are still held by the creditor under the original title, as security for the original debt. The debtor, in order to obtain another sale of the collaterals, or to redeem them, is not required to prove that the creditor made a fraudulent sale, or one advantageous to himself, but only that the creditor became the purchaser. The creditor in selling the collaterals, is in the position of a trustee for the debtor, and the law will not allow of the temptation to fraud, or the possibility of it, through the trustee's becoming purchaser at his own sale.'° Objection to the creditor's purchasing does not exist to the same degree when the sale is made upon a decree in equity; for the sale is not then under the control of the creditor, but is made by a disinterested officer designated by the court. Ac- cordingly; authority is very generally given, by statute or by decree, that the creditor may become a purchaser at a judicial sale made for his benefit; or such authority is given by judicial construction.'^' Where a pledgee is authorized by the pledgor to purchase the pledge in his own right in case of a sale, a purchase by the pledgee in his own right is valid as between him and the pledgor.'^ § 740a. When an agent buys pledged stocks for himself in good faith his title is good. — One who is an agent of the "§§ 635-638; Stokes v. Frazier, 72 Palmer, 41 N. Y. Super. Ct. 267; and 111. 428 ; Bank of the Old Dominion see Richardson v. Mann, 30 La. Ann. V. Dubuque &c. R. Co., 8 Iowa 277, 1060; Wright v. Ross, 36 Cal. 414; 74 Am. Dec. 302; Maryland Fire Ins. Union Trust Co. v. Hasseltine, 200 Co. V. Dalrymple, 25 Md. 242, 89 Am. Mass. 414, 86 N. E. 111. Dec. 779n ; B altimore Marine Jps C.n. ™ Jones on Mortgages, § 1636 ; v., Dalrymple, 25 Md. 26 9; Bryson v. Newport &c. Bridge Co. v. Douglass,. Rayner, 25 Man24, 90 Am. Dec. 69; 12 Bush (Ky.) 673, 720. Steelman v. Weitskittel, 88 Md. 519, " Manning v. Shriver, 79 Md. 41, 28 522, 42 Atl. 216; Star Fire Ins. Co. v. Atl. 899. § 741 COLLATERAL SECURITIES. 872 pledgee buying bonds sold upon default of the pledgor, acquires a good title if he purchased for himself in good faith. Thus, one borrowed money and pledged as security for the loan cer- tain bonds, with the right to sell the same at public or private sale upon default without notice. The loan was not paid when due, and the pledgee caused the bonds to be sold by a broker at the stock exchange. They were bought by the pledgee's lawyer, who was not acting for the pledgee in this matter, and bought the bonds for himself. Subsequently the purchaser sold the bonds to the pledgee. When they had appreciated in value the pledg- or's assignee filed a bill alleging that the purchaser had bought the bonds as agent or trustee for his client, the pledgee, and that since a pledgee cannot purchase at his own sale, the bailment con- tinued, and that plaintiff was entitled to redeem the bonds upon payment of the debt. It was held that these allegations were not sustained by the proof, but that the purchaser bought the bonds in good faith for himself and acquired a valid title, which he was entitled to transfer to the pledgee, who then held the bonds discharged from any right of redemption on the part of the pledgor.'^ § 741. Rights of pledgor when stock held as collateral is sold illegally. — The consequences of an illegal sale of stock collaterals is, that the pledgor may, within a reasonable time after- ward, demand their return, and, upon a tender of the debt, may hold the pledgee liable in damages for failure to return them.'' But the pledgor cannot follow the collaterals in the hands of a purchaser in good faith from the pledgee, without notice that the latter held them in pledge. Before the pledgor can redeem them from the purchaser, or. recover them in any way from him, ™ Steelman v. Weiskittel, 88 Md. to deliver the stock to the pledgor 519, 42 Atl. 216. and contests the pledgor's rights to ™ Blood V. Erie Dime Sav. &c. Co., recover it, such transferee waives a 164 Pa. St. 95, 30 Atl. 362. Where tender of the amount he paid for the stock held as collateral is wrongfully transfer. Treadwell v. Clark, 114 transferred and the transferee refuses App. Div. (N. Y.) 493, 100 N. Y. S. 1. 873 REMEDIES • UPON PLEDGES OF STOCKS. § 742 he is required to make the clearest proof of the purchaser's di- rect knowledge of the loan and pledge.^" The consequence is the same if a pledgee himself, or by his agent, purchases collateral stock upon a sale for default. Noth- ing passes by the sale, and the pledgee holds the pledge by his original title as pledgee. Only a bona fide purchaser from him can acquire absolute ownership of the stock.*^ § 742. Pledgee by a wrongful sale ^or pledge of the pledg- or's stock is not precluded from recovering his debt. — A wrongful sale or pledge of a customer's stock by a broker does not prevent his recovering for the purchase-faoney. Such sale or pledge is a failure to perform a subsequent duty, and he will be liable for the injury done by such failure. It is not a breach of a condition precedent which will prevent his charging his cus- tomer for the purchase of the stock.*^ In an action by a stock broker to recover an alleged balance on a stock transaction where the broker has sold stock pur- thased by him on a margin, and held in pledge to secure the advance made by him to make the purchase, he does not, by such sale, as a matter of law, extinguish all claim against the cus- tomer for the advance. The stock broker is liable for the damages sustained by the customer through the wrongful sale of the stock, but whether the damages are equal to, or more or less than the amount of the claim for the purchase of the stocks, de- pends upon the facts to be developed.'^ After such illegal or irregular sale the stock still remains in pledge, and all the dividends and accretions to it belong to the pledgor.* . 84 "Little V. Barker, Hoff. Ch. (N. v. Continental Nat. Bank, 182 Mo. Y.) 487; Felt v. Heye, 23 How. Pr. 319, 81 S. W. 171. (N. Y.) 359; Conyngham's Appeal, "^ Capron v. Thompson, 86 N. Y. 57 Pa. St. 474; Treadwell v. Clark, 418, 13 N. Y. Weekly Dig. 199. 73 App. Div. (N. Y.) 473, 11 N. Y. ^ Gruman v. Smith, 81 N. Y. 25; S. 350. and see Capron v. Thompson, 86 N. =" Canfield v. Minneapolis Agricul- Y. 418, 13 N. Y. Weekly Dig. 199. tural &c. Assn., 14 Fed. 801; Hogan "Conyngham's Appeal, 57 Pa. St. 474. § 743 COLLATERAL SECURITIES. 874 A pledgor having a claim against an insolvent broker for shares of stock pledged to the broker may present his claim to the trustee in bankruptcy without waiving his right to sue to recover such stock or the proceeds of its sale from one to whom the broker had pledged it.*° § 743. Pledgor may waive his right to question ar sale of collateral by failing to sue to impeach the sale. — A debtor will lose his right to question a sale of his collateral by acquies- cence, or by his failure for an unreasonable length of time to in- stitute proceedings to impeach the sale.*" The Eliot National Bank, holding certain shares of the Hecla Mining Company, as collateral security for a loan, with written authority to sell at its discretion, notified the debtor that the stock would be sold, and, accordingly, did sell it for more than its market value, to three directors of the bank, and applied the proceeds to the payment of the loan. A statement of account was given to the debtor after the sale, and he was informed of all the material facts respecting the sale, including the fact that the sale was made to three di- rectors of the bank. Three years and a half after the sale, the stock having, in the meantime, greatly increased in value, the debtor notified the bank of his desire to redeem, and filed a bill in equity to assert a right of redemption. The Supreme Court held, that if he had originally any right to question the sale, he had lost this right by delay in asserting it.*' An account rendered is regarded as allowed by the party receiving it, unless it is ob- jected to within a reasonable time; and what is a reasonable time depends upon the circumstances of the case, and is for the jury to determine.** Merely leaving the pledge in the pledgee's hands without of- fering to redeem is not of itself enough to justify submitting to " Mould V. Importers' &c. Bank, 72 " Hayward v. National Bank, 96 U. App. Div. (N. Y.) 30, 76 N. Y. S. 148. S. 611, 24 L. ed. 855. "Smith V. Lee, 84 Fed. 557; Marsh "Porter v. Patterson, IS Pa. St. V. Whitmore, 1 Hask. (U. S.) 391, 21 229; Bevan v. CuUen, 7 Pa. St. 281; Wall. (U. S.) 178, 22 L. ed. 482; Vio- Wagner v. Peterson, 83 Pa. St. 238. lett V. Horbach, 119 App. Div. (N. Y.) 373, 104 N. Y. S. 249. 875 REMEDIES UPON PLEDGES OF STOCKS. § 744 the jury the question of the pledgor's abandonment of it, when the pledgee has ultimately sold the pledge in such a way as to amount to a conversion.^' § 744. A customer whose stock has been sold irregularly should object without unreasonable delay. — A customer whose stock has been irregularly sold by his broker should make objection to the sale within a reasonable time, else he may by his silence be estopped from disputing the sale."" "What is a reason- ' able time must depend upon the circumstances of each case. Property of most kinds varies in value but little from week to week, but stocks are sensitive to every breath that blows; not infrequently they fluctuate from day to day, and in times of financial panic the steps in their decline are to be counted by hours, if not by minutes." In illustration of this statement of law, and of the reason for it, the following case is instructive: On the seventeenth day of September, 1873, a firm borrowed of brokers sixteen thousand dollars, payable the next day, on the security of five hundred shares of the stock of the Lehigh Coal and Navigation Company. On the day of the loan the stocl^ was selling at about thirty-five dollars per share. The next morning the failure of Jay Cooke & Co. was announced, and on the next following day the brokers sold, at private sale, with the apparent consent of the borrowers, a part of the stock at twenty dollars per share, and the brokers sold, at the brokers' board, the remainder of the stock at the same price. The same day they rendered an account of sales, showing a balance of four thousand dollars due upon the loan. About a fortnight afterward they rendered another account, showing the same balance due them. In the month of December following the brokers commenced a suit for the recovery of this balance of account. Early in Febru- ary following the borrowers tendered the full amount of their debt, and demanded the return of the collateral stock. In the meantime' the stock had greatly risen in price until it had reached =» Reynolds v. Cridge, 131 Pa. St. "Colket v. Ellis, 10 Phila. (Pa.) 189, 18 Atl. 1010. 375; Violett v. Horback, 119 App. Div. (N. Y.) 104 N. Y. S. 249. § 745 COLLATERAL SECURITIES. 8/6 at the time of the tender, the price of forty-three dollars per share. It was held that this delay, for about four months, to object to the sale was unreasonable, and that the pledgors were thereby estopped to dispute the sale. Mr. Justice Mitchell, de- livering the opinion of the court, said upon this point :°^ "Had plaintiffs promptly, objected to the account, and expressed an in- tention to hold defendants liable for the conversion, the latter might, on the 27th of September, have bought back the stock at the same price at which they had sold it, and avoided this present controversy. How much longer the stock remained at or about this price, the evidence does not show, but this is sufficient to demonstrate the importance of time in the question of ratifica- tion. Probably no safer way of speculating at another's risk could be invented than to make default, and induce a sale of col- laterals on a depressed market, lie quietly by till the wave had passed, and prices were up again, and then tender the amount of the debt with legal interest. * * * Under the circumstances of this case, the delay of four months in objecting to the sale was so unreasonable, and the condition of defendants had in that time altered so materially, that it would be contrary to common hon- esty to allow the plaintiffs now to hold the defendants account- able for a loss, which was caused in the first instance by their own inability to perform their contract." § 745. The pledgor, by accepting surplus proceeds of sale, waives any irregularity in the sale. — The debtor, by accept- ing the surplus proceeds of the sale, may waive any irregularity imthe sale, and debar himself of the right afterward to call it in question.®^ Thus, United States bonds having been pledged to a bank to secure overdrafts without any special power of sale, the bank afterward sold the bonds at private sale with the con- sent, as the bank claimed, of the debtor. A surplus of proceeds was placed to the credit of the debtor in his account with the bank, entered upon his pass-book, and drawn out by him. He afterward demanded the return of the bonds, and brought suit "Colket V. Ellis, 10 Phila. (Pa.) "= Wagner v. Peterson, 83 Pa. St. 375. 238. 8/7 REMEDIES UPON PLEDGES OF STOCKS. § 746 therefor, denying that he had consented to the sale. Upon the trial of this issue the jury were rightly instructed in substance, that if they found that the sale was made by the consent of the debtor, or that he knowingly accepted the credit on his bank account, then he could not complain that the sale was not made in accordance with the law of pledges, unless he could show that the sale was not fairly made for the fair market value of the bonds."' But a distinction has been made between an acceptance of the surplus by the debtor under a sale which he knew was claimed to have been made with his consent, and an acceptance of sur- plus arising from a sale made under authority of the act of bailment; the acceptance in the latter case being regarded as no waiver of an irregularity in the sale. The sale being by virtue of the contract, it is said that the acceptance or nonacceptance after the sale is no evidence of the legal effect of the contract. The acceptance of the surplus in such case, it is declared, does not estop the debtor, because neither by this act nor by any other had he induced the creditor to make the sale, or had he misled him to suppose he had a right to make the sale."* § 746. Waiver by pledgor. — A pledgor by bringing an ac- tion for money had and received against his pledgee, after a wrongful sale of the property pledged, waives the tort and ratifies the sale. If the property pledged be a bond of the United States, which the pledgee has collected in gold coin at a time when such coin was at a premium, the pledgee is not liable in such action to account for its value in paper currency; but having applied the gold to the payment of the debt, it is to be treated as any other currency, so far as it was applied as current money to the pay- ment of the debt; but that the surplus was to be accounted for at its value in paper money or in gold.®^ If the pledgor, having ten- dered the amount of the debt before the collection of the bond, "" Hamilton v. State Bank, 22 Iowa " Fitzgerald v. Blocher, 32 Ark. 742, 306; Colton v. Oakland Bank, 137 Cal. 29 Am. Rep. 3. 21 d, 70 Pac. 225. ^ Hancock v. Franklin Ins. Co., 114 Mass. ISS. § 747 COLLATERAL SECURITIES. 878 had brought an action of trover for the conversion of the bond, the damages would have been the value of the bond after deduct- ing the amount of the debt."" In like manner a debtor's approval of an account and prom- ise to make good a deficiency arising from the sale, made with full knowledge of the facts of the case, are a sufficient ratification of the sale."^ § 747. Payment of deficiency of debt by pledgor a^^ wrongful sale by pledgee is evidence of acquiescence in the sale. — A payment of a deficiency arising upon the debt se- cured, after a wrongful sale of stocks held as collateral security, might, under ordinary circumstances, be an acquiescence in the sale ; but it does not have this effect if it be made for the sole purpose of releasing other securities held in pledge by the cred- itor, and he refuses to surrender this without such payment. Such a payment is not a voluntary one. Being procured by a duress of goods, it is no more voluntary in the eye of the law than it would be if procured by duress of the person."* § 748. Pledgor must tender payment of the debt before he can maintain trover to recover the value of stock wrongfully sold. — An action of trover' cannot be maintained by the pledgor to recover the value of stock wrongfully sold by the pledgee without a tender of the debt secured. The wrongful sale of the pledge does not revest the immediate right of posses- sion of the pledge in the pledgor, and therefore the latter cannot maintain the action either for the whole value of the shares or for nominal damages."" "It is true the pledgor has such a prop- erty in the article pledged as he can convey to a third person, °° Hancock v. Franklin Ins. Co., 114 N. Y. 39S; Talty v. Freedmen's Sav. Mass. 155. ' & Trust Co., 93 U. S. 321, 23 L. ed. " Child V. Hugg, 41 Cal. 519. 886 ; Cumnock v. Institution for Sav- "'Stenton v. Jerome, 54 N. Y. 480; ings, 142 Mass. 342, 7 N. E. 869, 56 Sharpe v. National Bank, 87 Ala. 644, Am. Rep. 679; Shaver v. Hardin, 82 7 So. 106. Iowa 378, 48 N. W. 68; Feige v. Burt, ™Halliday v. Holgate, L. R. 3 Ex. 118 Mich. 243, 11 N. W. 928, 74 Am. 299; §*§ 420-570; Donald V. Suckling, St. 390; Reardon v. Patterson, 19 L. R. 1 Q. B. 585; Lewis v. Mott, 36 Mont. 231, 234, 47 Pac. 956. 8/9 REMEDIES UPON PLEDGES OF STOCKS. § 748 but he has no right to goods without paying off the debt, and until the debt is paid off the pledgee has the whole present inter- est. If he deals with it in a manner other than is allowed by law for the payment of his debt, then, in so far as by disposing of the reversionary interest of the pledgor he causes to the pledgor any difficulty in obtaining possession of the pledge on payment of the sum due, and thereby does him any real damage, he commits a jMyi wrong g;gainst the pledgor. But it is a contradiction in lact, and wotild be to call a' thing that which it is not, to say that the pledgee consents by his act to revest in the pledgor the imme- diate interest or right in the pledge, which by the bargain is out of the pledgor and in the pledgee. Therefore, for any such wrong an action of trover or of detinue, each of which assumes an immediate right to possession in the plaintiff, is not maintain- able, for that right clearly is not in the plaintiff."^ But in case the pledgee has put the securities beyond his reach by an illegal sale of them, it is said that the pledgor need not make a formal tender of the amount due, nor a demand for the securities, before bringing an action against the pledgee to re- deem, or an action for the conversion of the securities.^ If the pledgee by a sale has put it out of his power to return the secu- rities, a formal tender of the debt and a demand for the return of the securities would be a useless ceremony, which the law never requires.' If, however, he has only pledged the securities in good faith, and therefore had not wholly put it out of his power 'Halliday v. Holgate, L. R. 3 Ex. C. A. 333, 56 U. S. App. 556; Reardon 299. V. Patterson, 19 Mont. 231, 47 Pac. ° Cortelyou v. Lansing, 2 Caines 956 ; Lacombe v. Forstall, 123 U. S. Cas. (N. Y.) 200, 203, 1 Am. Dec. 562, 31 L. ed. 255, 8 Sup. Ct. 247; 162; Kilpatrick v. Dean, 19 N. Y. St. Fletcher v. Dickinson, 7 Allen 837, 3 N. Y. S. 60; Wilson v. Little, (Mass.) 23; Waring v. GaskiU, 95 2 N. Y. 443, 449, 51 Am. Dec. 307n; Ga. 731, 22 S. E. 659; Work v. Ben- Read V. Lambert, 10 Abb. Pr. (N. S.) nett, 70 Pa. St. 484; Feige v. Burt, (N. Y.) 428; Lewis v. Graham, 4 118 Mich. 243,;. 11 N. W. 928, 74 Am. Abb. Pr. (N. Y.) 106; Sheridan v; St. 390 ; Walley v. Deseret Nat. Bank, Presas, 18 Misc. (N. Y.) 180, 41 N. 14 Utah 305, 47 Pac. 147. Y. S. 451 ; New York &c. R. Co. v. ' Fletcher v. Dickinson, 7 Allen Davies, 38 Hun (N. Y.) 477; First (Mass.) 23; Read v. Lambert, 10 Nat. Bank v. Rush, 85 Fed. 539, 29 C. Abb. Pr. (N. S.) (N. Y.) 428. § 749 COLLATERAL SECURITIES. 88o to restore them, a demand would be necessary before bringing a suit for damages.* § 749. Pledgor of stock must pay or tender the debt se- cured before he is entitled to have the stock re-transferred to him. — That a debtor must pay or tender the amount of the debt before he is entitled to a re-transfer of stock held by the creditor as collateral security, is a proposition that is too clear to need authority for its support. But a transaction may be so uncertain in its character as to require a decision of court to determine whether the debtor is to first pay his debt or the cred- itor is first to tender the stock. Thus, the purchaser of shares of a railroad company gave his note for the purchase-money, and the seller gave him an agreement wherein he agreed to deliver certain certificates of stock, and recited that the stock had been transferred to the purchaser, but that the seller was to hold it for the payment of said note. In an action upon the note, it was held that the transaction was a sale of the stock and a pledge of it for the purchase-money, and not an executbry agreement to sell it; and that therefore the plaintiff was not bound to tender the stock, or to make a formal transfer of it upon the books of the company, until the defendant should -have paid the note, or, at least, have tendered payment thereof to the plaintiff.^ § 749a. Pledgee not liable for loss by depreciation in stock pledged occasioned by his delay in returning it when pledgor has not tendered the debt. — A pledgee is not liable for a loss by depreciation in stock pledged occasioned by his delay in return- ing it, if the pledgor has not tendered payment. Where a pledgee of shares of stock mislaid the securities and the note secured, so that at the maturity of the note neither this nor the securities could be found, and it was fifteen months after the maturity of the note that this and the certificates of stock were found by the pledgee, when the pledgor discharged his debt and received back the stock from the pledgee, it was held that the pledgor had * Read v. Lambert, 10 Abb. Pr. (N. " James v. Hamilton, 2 Hun (N. S.) (N. Y.) 428. Y.) 630, S T. & C. 183, affirmed 63 N. Y. 616. 88 1 REMEDIES UPON PLEDGES OF STOCKS. § J^O no legal cause of action for a loss by reason of the depreciation of the value of the stock, the pledgor not having made any tender of the amount of his debt at the maturity of the note -or at any time prior to the finding of the certificates and their return to the pledgor, although the pledgor alleged that at the time of the ma- turity of the note he had made a contract of sale of the stock, and was then ready and willing to pay the debt for which it was pledged, and that his loss in the depreciation of the stock was caused solely by the pledgee's neglect to keep safely the stock pledged as collateral security. The stock pledged was, on the payment of the debt restored to the pledgor. The latter could have stood upon his rights, and, having paid or tendered payment of the debt at maturity, on the pledgee's neglect or refusal to de- liver the stock, could have brought his action for the value." § 750. The measure of damages in actions at law for a wrongful conversion of stock by pledgee is the value of the stock at the time. — The general rtfle of damages in actions at law for wrongful conversion of stock by a pledgee is the value of the stock at the time of its conversion, with interest.^ This ° Cumnock v. Institution, 142 Mass. more Marine Ins. Co. v. Dalrymple, 342, 7 N. E. 869, 56 Am. Rep. 679. 25 Md. 269; Baltimore &c. R. Co. v. ' Pinkerton v. Manchester &c. R. Sewell, 35 Md. 238, 6 Am. Rep. 402 ; Co., 42 N. H. 424, 457; Rand V.White Fowle v. Ward, 113 Mass. 548, 18 Mountains R. Co., 40 N. H. 79; Am. Rep. 534 ; Gray v. Portland Bank, Frothingham v. Morse, 45 N. H. 545 ; 3 Mass. 364, 3 Am. Dec. 156 ; Ken- Terry V. Birmingham Nat. Bank, 93 nedy v. Whitwell, 4 Pick. (Mass.) Ala. 599, 9 So. 299, 30 Am. St. 87; 466; Greenfield Bank v. Leavitt, 17 Burks V. Hubbard, 69 Ala. 379, 384; Pick. (Mass.) 1, 28 Am. Dec. 268; Linam v. Reeves, 68 Ala. 89 ; Seymour Wyman v. American Powder Co., 8 ^ . Ives, 46 Conn. 109 ; WariAg V. Gas- Cush. (Mass.) 168; Washburn v. kill, 95 Ga. 731, 22 S. E. 659; Brews- Pond, 2 Allen (Mass.) 474; Bicknell ter V. Van Liew, 119 111. 554, 8 N. E. v. Colton, 41 Miss. 368; Reardon v. 842, 59 Am. Rep. 823; Loomis v. Patterson, 19 Mont. 231, 234, 47 Pac. Stave, 72 111. 623 ; Sturges v. Keith, 57 956 ; Boylan v. Huguet, 8 Nev. 345 ; 111. 451, Sedgwick's Lead. Cas. on and see Carlyon v. Lannan, 4 Nev. Damages 606, 11 Am. Rep. 28; Rob- 156; G'Meara v. North American inson v. Hurley, 11 Iowa 410, 79 Am. Mining Co., 2 Nev. 112; Jamison's Dec. 497n, and see Safely v. Gilmore, Estate, 163 Pa. St. 143, 29 Atl. 1001 ; 21 Iowa 588, 89 Am. Dec. 592; Free- Blood v. Erie Sav. &c. Co., 164 Pa! man v. Harwood, 49 Me. 195; Balti- St. 95, 30 Atl. 362; Neiler &c. v. Kel- 56 — CoL. Sec. § 75 1 COLLATERAL SECURITIES. 882 rule follows the general rule, that in an action on a contract to deliver goods, stocks and other personal property, the measure of damages is the value of the property at the time and place of delivery.* "In trover, the general rule, both in England a;nd the United States, undoubtedly is, that the current or market value of property at the time of conversion, with interest from that time until the trial, is the true measure of damages."* In many of the cases above cited the doctrine noticed in a succeeding section as an exception to this general rule of damages, when the subject-mat- ter of the action is a conversion of stock or goods pledged, or a failure to deliver them after the price has been paid, is expressly examined and repudiated. § 751. Demand for return of pledged stock. — In many cases the time of conversion will be fixed by the demand for the return of the stock, and therefore in such cases the value of the stock will be taken at the time of the demand in fixing the meas- ure of damages.^" If the tiftie of conversion was not known to the plaintiff at the time it occurred, it is said that he may at his election take the time of its becoming known to him, instead of the time of the actual conversion, as the time for fixing the market value of the stock." § 752. Suit in equity to redeem pledged stock. — But in a suit in equity to redeem shares pledged as collateral security and ley, 69 Pa. St. 403 ; Hill v. Smith &c., for damages, it was held that he 32 Vt. 433 ; Orange &c. R. Co. v. Ful- might recover the difference between vey, 17 Gratt. (Va.) 366. what he was required to pay to re- ' Sedgwick on Damages, p. 474 et deem them and the amount of money seq. ; Field on Damages, § 245. Where used in the construction of the road, the bonds of a railroad company were Interurban Const. Co. v. Hayes, 191 pledged to secure a construction con- Mo. 248, 89 S. W. 927. tract and by agreement of both ' Suydam v. Jenkins, 3 Sandf. (N. pledgee and pledgor they were Y.) 614, 626; Scrivner v. Woodward, repledged to one agreeing to make 139 Cal. 314, 73 Pac. 863. advances to a subcontractor and this " Baltimore R. Co. v. Sewell, 3S pledgee wrongfully pledged them to Md. 238, 257, 6 Am. Rep. 412 ; Pinker- H bank to secure advances beyond ton v. Manchester & Lawrence R. those required by the original pledge Co., 42 N. H. 424, 457. contract, the contractor, after redeem- " O'Meara v. North American Min- ing them, sued the original pledgee ing Co., 2 Nev. 112. 883 REMEDIES UPON PLEDGES OF STOCKS. § 752 wrongfully sold by the pledgee, the latter may be charged with the value of the shares at the time of filing the bill. "If the sale was unlawful and void as against the plaintiff," say the Supreme Court of Massachusetts,^^ "he is entitled to all the advantages that he could have had from the shares if they had not been sold at all. Among those advantages is the right of judging for himself whether to keep or to sell them, and as to the best time to sell, if he should see fit to sell them. To place him substantially in the same position as if the wrongful act of the defendant had not occurred, would require that he should recover for damages a sum of money which would enable him to purchase seventeen new shares to replace those which have been taken from him, with such additional sum as would indemnify him for the divi- dends which he has lost since the sale, and also an equitable allow- ance for interest. It is in vain for the defendant to insist that when he made the sale he obtained the full market price of that time. The plaintiff was not a party to that sale, and was not bound by it. The defendant had no right to make the sale. All that he could lawfully do was to hold the shares, and have them forthcoming for the true owner on demand. But instead of so doing, he by his own fault has caused the plaintiff to lose them, and the only equitable remedy is to replace them, or to enable the plaintiff to do so for himself. * * * jjj thg common-law action of trover, the rule of damages is undoubtedly the value of the chattel in controversy at the time of the conversion. So also in an action for nonfulfilment of a contract to deliver stock, the measure of damages would ordinarily be the value at the time when it should have been delivered, or if no time of delivery had been named in the contract the time when it was demanded. But in the case before us the plaintiff seeks, and is entitled to have, the specific equitable remedy of being replaced in his orig- inal position. His claim is not damages for breach of a contract or for a wrongful conversion of property, but to compel the re- conveyance of shares which ought to be in the defendant's hands at this moment." '= Fowie V. Ward, 113 Mass. S48, 18 Am. Rep. S34. § 753 COLLATERAL SECURITIES. 884 § 753. Measure of damages in England and some Ameri- can states. — In England, and in some of the American states, an exception to this general rule of damages is made in cases of loans of goods or stock; in cases of contracts to deliver them where the price has been paid; and in cases of failure to return such property when it has been pledged, and the debt secured has been paid." The distinction rests upon the ground that the defendant having got the plaintiff's money, and thereby having deprived him of the means of going into the market and purchasing the same property at the market prices then pre- vailing, the plaintiff should be allowed to elect the value at the time the property should have been delivered, or the value at the time of trial, or, perhaps, the value at any intermediate period. Thus, in Shepherd v. Johnson,^* in an action for breach of an "West V. Pritchard, 19 Conn. 212. The court, after stating the general rule that the damages for a breach of contract to deliver any article is the value of it at the place and time of delivery, say : "But to this general rule an exception has been made in many of the modern cases. And that is, where the price of the goods is paid in advance, and the vendor sub- sequently refuses to deliver them, the purchaser is not confined to their value at the time when they should have been delivered, but if the goods have risen in value, he may recover their value at the time of trial. But this exception does not apply where a contract is made for the purchase of goods which are to be paid for when delivered. There, as nothing is paid by the purchaser upon the contract, he has the money in his possession, and may, immediately after the con- tract is broken by the defendant, pur- chase other goods ; and if he sustains any loss by neglecting to do so, the fault is his own. He cannot avail himself of any subsequent rise of the articles in his action for their non-de- livery. * * * Although the excep- tion to the rule seems not to have been universally adopted, yet, in our opinion, it appears to be founded upon principles of natural justice. The effect is to give indemnity to the injured party, who has been induced to part with his property, relying upon the engagements of another." See, also, in recognition of this exception to the rule. Shepherd v. Hampton, 3 Wheat. (U. S.) 200, 204, 4 L. ed. 369; Clark V. Pinney, 7 Cow. (N. Y.) 681; Arnold v. Suffolk Bank, 27 Barb. (N. Y.) 424; Kent v. Ginter, 23 Ind. 1; Randon v. Barton, 4 Tex. 289; Ste- phenson V. Price, 30 Tex. 715. "2 East 211; followed in M'Ar- thur V. Seaforth, 2 Taunt. 257 ; Green- ing V. Wilkinson, , 1 C. & P. 625 ; Gainsford v. Carroll, 2 B. & C. 624; Downes v. Back, 1 Starkie 254; Har- rison V. Harrison, 1 C. & P. 412; Archer v. Williams, 2 Car. & Kir. 26 ; Owen V. Routh, 14 C. B. 327; West v. Wentworth, 3 Cow. (N. Y.) 82; Clark V. Pinney, 7 Cow. (N. Y.) 681. 885 REMEDIES UPON PLEDGES OF STOCKS. § 754 engagement to replace borrowed stock on a given day, the highest value as it stood at the time of trial was taken as the measure of damages, Grose, J., saying: "The true measure of damages is that which will completely indemnify the plaintiff for the breach of the engagement. If the defendant neglect to replace the stock at the day appointed, and the stock afterward rise in value, the plaintiff can only be indemnified by giving him the price of it at the time of the trial. And it is no answer to say that the defendant may be prejudiced by the plaintiff's delaying to bring his action ; for it is his own fault that he does not perform his engagement at the time ; or he may replace it at any time afterward so as to avail himself of a rising market." § 754. Origin of exception. — This exception had its origiii in England in actions for stock loaned, or purchased and paid for. Stocks are subject to wide fluctuations in price, and in case the market price had advanced between the time of the breach of the contract and the trial, it was assumed that the plaintiff could be completely indemnified only by allowing him the value of the stock at the time of trial, or the highest value up to that time, as damages. But this rule presupposes that the stock was intended for a permanent investment, and that the plaintiff would have kept it until the time of trial. These presumptions may be, and often are, against the fact. The plaintiff, moreover, by being allowed to elect the time at which the stock shall be valued, is able to make the measure of damages depend upon his own strategy rather than upon any fixed or definite rule. "Stocks, that cost the owner little or nothing now and then, advance to par, and above. Suppose the owner of such stocks should pledge them when not worth ten cents on the dollar, and the pledgee convert them. They cost the owner httle or nothing. Circumstances arise, how- ever, which enhance their value. By delaying his suit, or the trial of it, until these circumstances have had their full effect, the plaintiff, by invoking the aid of the presumptions: ist. That he had parted with his money for the stock ; 2d. that he obtained the stock as a permanent investment ; and, 3d. that it is to be pre- sumed that he would have kept it until the time of the trial. § 755 COLLATERAL SECURITIES. 886 can elect to take the market value at the time of trial, when each of these presumptions is as baseless as the fabric of a dream. Such a rule, instead of being general, fixed and certain, is merely speculative, conjectural, and dependent upon accidental circum- stance's."" The condition of one who has pledged stock for less than its value, in an action for its conversion by the pledgee, is analogous to the case of a purchaser of stock who has advanced his pur- chase-money, and has brought suit for failure of the vendor to deliver it; and therefore the same rule of damages is adopted by courts that have adopted the foregoing exception to the general rule. § 755. Rule in some courts allows recovery of an amount equal to the highest market value of converted stock up to time of trial. — The highest market value of the converted stock up to the time of trial has been taken in some courts as the measure of damages for the conversion, provided the suit is brought without unreasonable delay.^° The object sought to be attained by this rule seems to b& to place the plaintiff in the same situation he would have been irj except for the wrongful con- version of his stock. This rule proceeds upon the assumption that the plaintiff would have retained his stock till the day of trial, or till it had reached its highest price prior to that day, and then would have sold it, and hence that its price at that time would be the proper indemnity for him. The courts of J>Tew York at one time adopted this rule in regard to stocks, following " Sturges V. Keith, 57 111. 451, 462, 235 ; Romaine v. Van Allen, 26 N. Y. 11 Am. Rep. 28, Sedgwick's Lead. 309; Kortright v. Commercial Bank, Cas. on Damages, 606. For an able 20 Wend. (N. Y.) 91; Wilson v. Lit- discussion of this exceptional rule of tls, 1 Sandf. (N. Y.) 351; Allen v. damages, and criticisms upon it, see Dykers, 3 Hill (N. Y.) 593,i affirmed 2 Sedgwick on Damages, p. 481, mar- 7 Hill (N. Y.) 497, 42 Am. Dec. 87; ginal note. and see Lobdell v. Stowell, 51 N. Y. " France v. Gaudet, L. R. 6 Q. B. 70, affirming the principle of these 199; Owen v. Routh, 14 C. B. 327; cases. See later decisions, §§ 756, Cud V. Rutter, 1 P. Wtns. 570, 572, 756a, 756b; Bates v. Wiles, 1 Handy note. Markham v. Jaudon, 41 N. Y. (Ohio) 532. 887 REMEDIES UPON PLEDGES OF STOCKS. § 755 the rule of damages adopted in that state in relation to other property. But, on the other hand, the courts of Pennsylvania, while rejecting this rule in regard to other property, adopt it in reference to stocks.^^ "The case of stock," say the Supreme Court of Pennsylvania, "is an exception to the general rule ap- plicable to chattels.^* It is made an exception in obedience to the paramount obligation to indemnify the party for his loss. The rule of convenience gives place to the rule of justice. The moment we proceed, on this ground, to take it out of the general rule, we are obliged to substitute one that will do complete justice to the party injured. 'The question is, what did the plaintiff lose?'^° He is entitled to all the advantages he could have derived from the stock, if it had been delivered at the specified time.^° Those advantages are the highest market value between the breach and the trial, together with the bonus and dividends which have been received in the meantime."^^ In a later case,^^ Judge Sharswood, of the same court, after stating the general rule as to the measure of damages to be that the goods are to be valued at the time of the conversion, that this rule has been modified as to stocks, bonds and securities of a like nature, says : "The rule, how- ever, is not changed but only modified to this extent, that wher- " In regard' to this distinction, Mr. give damages which are purely con- Sedgwick, in his work on Damages, jectural." p. 273, says: "There appears no sol- ^'Bank of Montgomery v. Reese, 26 id reason for making any difference Pa. St. 143; and see Conyngham's between stock and any other vendible Appeal, 57 Pa. St. 474; Musgrave v. commodity. Where stock is loaned, Beckendorfi, 53 Pa. St. 310. But the or the price of the article paid for, in principle of these cases applies only either case the party entitled to the where the plaintiff suffers loss in the delivery parts with his property on advance price of the stock through the faith of the contract, and in either the defendant's refusal to perform his case is prevented from using it, up to contract. Phillip's Appeal, 68 Pa. St. the time of- trial. The question is, 130: whether, in either case, the law should '^ Kimmel v. Stoner, 18 Pa. St. 155, act on the assumption that the plain- 157. tiff would have retained the property ™ Harrison v. Harrison, 1 C. & P. if the contract had been complied 412. with, till the period of highest value, ^ Vaughan v. Wood, 1 Mylne & K. and have realized that price, and thus 403. "" Neiler v. Kelley, 69 Pa. St. 403. § 7S6 COLLATERAL SECURITIES. 888 ever there is a duty or obligation devolved upon a defendant to de- liver such stocks or securities at a particular time, and that duty or obligation has not been fulfilled, then the plaintiff is entitled to recover the highest price in the market between that time and the time of the trial. The grounds of this exception are, that such securities are limited in quantity, are not always to be ob- tained at any price, and are of a very fluctuating value." This rule has since been restricted in Pennsylvania to cases in which a trust relation exists between the parties,^* "a relation which would probably be deemed to exist between a stock broker and his client." § 756. This rule of damages should only apply in excep- tional cases. — The better opinion is that this rule of damages is applicable only in special exceptional cases f*' and it seems clear that it cannot be properly applied to a conversion of stocks not held as an investment but carried upon a margin, with a view to making a profit by their sale. In a case of the latter kind, the proper rule of damages is the price the plaintiff would have been obliged to pay in the market to replace the stocks on a day within a reasonable time after the wrongful sale. In Baker v. Drake, ^^ ^ Huntingdon &c. Coal Co. v. Eng- See, also, Bryan v. Baldwin, 52 N. Y. lish, 86 Pa. St. 247; Wilson v. Whit- 232, 236. aker, 49 Pa. St. 114. '^SS N. Y. 211, 217, 13 Am. Rep. '^^ Suydam v. Jenkins, 3 Sandf. (N. 507; affirmed in same case again be- Y.) 614, who ably reviews the whole fore the court, 66 N. Y. 518, 23 Arti. subject, though the case did not relate Rep. 80; and see Scott v. Rogers, 31 to a conversion of stocks ; Matthews N. Y. 676 ; Matthews v. Coe, 49 N. Y. V. Coe, 49 N. Y. 57, 62. In the latter 57; Whelan v. Lynch, 60 N. Y. 469, case Chief Justice Church said: "An 19 Am. Rep. 202; Brass v. Worth, 40 unqualified rule, giving a plaintiff in Barb. (N. Y.) 648. The rule laid all cases of conversion the benefit of down in Baker v. Drake, 53 N. Y. 211, the highest price to the time of trial, 13 Am. Rep. 507, has since been af- I am persuaded cannot be upheld up- firmed in Gruman v. Smith, 81 N. Y. on any sound principle of reason or 25; Colt v. Owens, 90 N. Y. 368. In justice. Nor does the qualification the last named case thirty days after suggested in some of the opinions, sale and notice of it was regarded as that the action must be commenced a reasonable time. Wright v. Bank, within a reasonable time and prose- 110 N. Y. 237, 18 N. E. 79, 6 Am. St. cuted with reasonable diligence, re- 356n, 1 L. R. A. 289, is stated at lieve it of its objectionable character." length in the next session. 889 REMEDIES UPON PLEDGES OF STOCKS. § 756 this nile was established by the New York Court of Appeals. "If the broker has violated his contract, or disposed of the stock without authority, the customer is entitled to recover such dam- ages as would naturally be sustained in restoring himself to the position of which he has been deprived. He certainly has no right to be placed in a better position than he would be in if the wrong had not been done. But the rule adopted in Markhani v. Jaudon,''*' passing far beyond the scope of a reasonable indemnity to the customer whose stocks have been improperly sold, places him in a position incomparably superior to that of which he was deprived. It leaves him, with his venture out, for an indefinite period, limited only by what may be deemed a reasonable time to bring a suit and conduct it to its end. The more crowded the; calendar and the more new trials granted in the action, the better for him. He is freed from the trouble of keeping his margins good and relieved of all apprehension of being sold put for want of margin. If the stock should fall or become worthless he can incur no loss, but, if at any period during the months or years occupied in the litigation, the market price of the stock happens to shoot up, though it be but for a moment, he can, at the trial, take a retrospect and seize upon that happy instant as the opportunity for profit of which he was deprived by his transgressing broker, and compel him to replace with solid funds this imaginary loss." A similar qualification of the rule allowing the highest inter- mediate value has been made in California. "The time of the commencement of the action or trial," say the court,^' "would not seem to have any natural or logical connection or relation to the question of damages; and the question as to whether a suit was or was not commenced within a reasonable time would rarely, if ever, depend upon any fact which would affect the indemnity to which the plaintiff is entitled. The reasonable time mentioned in the cases cannot mean a reasonable time within which to commence the action independently of the question of damages. It must mean a time within which it would be reason- able to allow the plaintiff to take the highest market price as the "^ See § 755. Am. Rep. 462, Sedgwick's Lead. Cas. " Page V. Fowler, 39 Cal. 412, 2 on Damages, 597. § 7S6a- COLLATERAL SECURITIES. 89O measure of his damages. In other words, the rule reducible from the authorities is, that in cases affecting property of a fluc- tuating value, where exemplary damages are not allowed, the correct measure of damages is the highest market value within a reasonable time after the property was taken, with interest com- puted from the time such value was estimated." § 756a. Rule established in Wright v. Bank of the Metrop- olis. — The rule of damages in such cases was further modi- fied and finally settled in New York in Wright v. Bank of the Metropolis.^* It was then decided that: "Where a pledgee of corporate stock, acting in good faith and under an honest mis- take, converts it by an unauthorized sale thereof and refuses to replace it on demand, it is the duty of the owner himself to re- place it within a reasonable time after notice of sale, and the proper measure of damages for the conversion is the highest market price during such reasonable time. The rule in this respect is the same, whether the pledgee is a broker, who pur- chased and was carrying the stock on a margin .for a customer, or whether the owner had paid in full for the same and was holding it as an investment. As to what is a reasonable time, is, where the facts are undisputed, a question of law for the court." Peckham, J., delivering the opinion of the court, said : "A rule which requires a repurchase of the stock in a reason- able time, does away with all questions as to the highest price before the commencement of the suit, or whether it was com- menced in a reasonable time or prosecuted with reasonable dili- gence, and leaves out of view any question as to the presumption that plaintiff would have kept his stock down to the time when it sold at the highest mark before the day of trial, and would then have sold it, even though he had owned it for an investment. Such a presumption is not only of quite a shadowy and vague nature, but is also, as it would seem, entirely inconsistent with the fact that he was holding the stock as an investment. If kept for an investment, it would have been kept down to the day of ^ 110 N. Y. 237, 18 N. E. 79, 6 Am. St. 3S6n, 1 L. R. A. 289. 891 REMEDIES UPON PLEDGES OF STOCKS. § 756b trial, and the price at that time there might be some degree of propriety in awarding, under certain circumstances, if it were higher than when it was converted. But to presume, in favor of an investor, that he would have held his stock during all of a period of possible depression, and would have realized upon it when it reached the highest figure, is to indulge in a presump- tion which, it is safe to say, would not be based on fact once in a hundred times. To formulate a legal liability based upon such presumption, I think is wholly unjust in such a case as the present. Justice and fair dealing are both more apt to be promoted by ad- hering to the rule which imposes the duty upon the plaintiff to make his loss as light as possible, notwithstanding the unauthor- ized act of the defendant, assuming, of course, in all cases that there was ^ood faith on the part of the defendant."^' § 756b. Rule of measure of damages followed by Suprerne Court of the United States. — The Supreme Court of the ' United States has adopted as the measure of damages in such cases the New York rulfe, that is, the highest market value be- tween the time of conversion and a reasonable time after notice of the conversion within which to replace the securities. Mr.* Justice Bradley, delivering the opinion of the court, after say- ing that more transactions of this kind arise in New York than in ail other parts of the country, concluded with the statement that "on the whole it seems to us that the New York rule, as fin- ally settled by the Court of Appeals, has the most reasons in its favor, and we adopt it as a correct view of the law." In the course of his opinion the learned judge states the reason why the ordinary irule of damages for a conversion that is the value of the property at the time of the conversion does not apply in the case of the wrongful conversion of stocks, saying: "To allow merely their value at the time of conversion would, in most cases, afford a very inadequate remedy, and, in the case of =" The rule established in this case v. Savin, 141 N. Y. 315, 36 N. E. 338, has been affirmed in later cases. 57 N. Y. St. 417, affirming 69 Hun Griggs V. Day, 158 N. Y. 1, 52 N. E. (N. Y.) 311, 23 N. Y. S. 568, S3 N. 692, reversing same case, 21 App. Div. Y. St. 378. (N. Y.) 442, 47 N. Y. S. 60?; Smith § 756c COLLATERAL SECURITIES. 892 a broker, holding the stocks of his principal, it would afford no remedy at all. The effect would be to give to the broker the control of the stock, subject only to nominal damages. The real injury sustained by the principal consists not merely in the as- sumption of control over the stock, but in the sale of it at an un- favorable time, and for an unfavorable price. Other goods wrongfully converted are generally supposed to have a fixed market value at which they can be replaced at any time; and hence, with regard to them, the ordinary measure of damages is their value at the time of conversion, or, in case of sale and pur- chase, at the time fixed for their delivery. But the application of this rule to stocks would, as before said, be very inadequate and unjust."^" This rule has also been adopted, in New Jersey, ^^ and by reason of its justice, and of the authority by which it is established it is likely to be adopted throughout the country. § 756c. Measure of damages where pledgee converts pledge by mistake but in good faith. — In the absence of any evidence of value of corporate stock converted by a pledgee in good faith and under an honest mistake, it is to be inferred that it was of but little or no value. To entitle the pledgor to re- cover he should produce evidence of the value of the stock as of a reasonable time after its conversion and notice of this to the pledgor or owner. If the owner fails to show that the stock had a value during that period, he is not entitled to recover.^^ § 757. Measure of damages caused by a broker's unauthor- ized sale. — The true measure of damages for a broker's un- authorized sale of his customer's stock is the difference between the price for which the stock was sold and its market price within such reasonable time after notice of the wrongful sale as would enable the customer to replace the stock, in case such "» Galigher v. Jones, 129 U. S. 193, '= Griggs v. Day, 158 N. Y. 1, 52 N. 200, 9 Sup. Ct. 335, 32 L. ed. 658. E. 692, reversing 21 App. Div. (N. "Dimock v. United States Nat. Y.) 442, 47 N. Y. S. 609. Bank, 55 N. J. L. 296, 25 Atl. 926, 39 Am. St. 643. 893 REMEDIES UPON PLEDGES OF STOCKS. § 757a market price should exceed the price for which the sale was made. The customer is entitled to the damages sustained, but he can claim no greater benefit than would have accrued to him if the wrongful sale had not been made. If, for instance, the price of the stock does not advance again after the sale, but declines still more, it is clear that the customer, instead of being injured by the sale, is really benefited by it.**^ Accordingly, where it appeared that the customer could have purchased the stock at any time within thirty days after an un- authorized sale by his broker, for a less price than that at which it was sold, it was held that the customer was entitled to recover only nominal damages for such unauthorized sale.^* § 757a. Pledgor sometimes held entitled to have specific performance. — In some cases it has been held that the pledgor of shares of stock is entitled to a specific performance of the contract for return of the stock, upon payment or terider of the amount of the indebtedness to secure which it was pledged, if it appears that the stock has no market or ascertainable value, and that the pledgor purchased it for investment with a view to anticipated increase in value, and that he cannot purchase other shares in the corporation for the reason that no holder will sell them. Where there is no difference in the value of the shares, and the certificate of stock pledged has been conveyed by the pledgee to a bona fide purchaser for value, the court may compel the pledgee to convey stock owned by him in lieu of the certificate received from the pledgor.^^ '' Galigher v. Jones, 129 U. S. 193, " Colt v. Owens, IS J. & S. (N. Y.) 9 Sup. Ct. 335, 32 L. ed. 658; 430, 90. N. Y. 368. Wright V. Bank, 110 N. Y. 237, 18 N. '^ Krouse v. Woodward, 110 Cal. E. 79, 6 Am. St. 356n, 1 L. R. A. 638, 42 Pac. 1084; Atkins v. Gamble, 289; Minor v. Beve ridg e, 141 N . Y. 42 Cal. 86, 10 Am. Rep. 282, as to re- 399, 36"~N~"E~~TOr'3S~IGn7-StrS04; covering the identical shares; White North V. Phillips, 89 Pa. St. 250; v. Schuyler, 1 Abb. Pr. (N. S.) (N. Gruman v. Smith, 81 N. Y. 25; Colt Y.) 300; Buckmaster v. Consumers' V. Owens, IS J. & S. (N. Y.) 430, 13 Ice Co., 5 Daly (N. Y.) 313; Cush- N. Y. Weekly Dig. 40; affirmed by man v. Thayer Jewelry Co., 76 N. Y. courif of appeals, 15 J. & S. (N. Y.) 365, 32 Am. Rep. 315; Adams v. Mes- 439, 90 N. Y. 368; Smith v. Lee, 84 singer, 147 Mass. 185, 17 N. E. 491, 9 Fed. 557. Am. St. 679. INDEX IReferences are to Sections.'] A ACCEPTANCE, 2SS-260. See Bill of Exchange. ACCESSIONS to the pledged property are covered by the lien, 32, 33. ACCOMMODATION PAPER, liability of maker to ledgee, 89n. holder of, in pledge for pre-existing debt, 122. it does not matter that holder has notice of fact, 123. ntay be effectually pledged for pre-existing debt, 124. pledge under negotiable instrument law, 127n. note held as collateral, discharged by tender of principal debt, 547. pledgee may enforce before collecting principal debt, 673. in suit upon, pledgee can recover only to extent of debt secured, 676. ACCOUNT, bill in equity to obtain upon redemption of pledge, SS7. ACCOUNTING, duty of pledgee to account for dividends collected, 396n. demand to account not equivalent to offer to redeem, SS7n. ACTIONS, title of pledgor, 52. effect on collateral through principal obligation not due, 608n. ACTIONS GENERALLY, 589-757. by pledgor against pledgee after illegal sale of pledge, 746. See Remedies. ADMINISTRATOR, 481-492. See i^xECUTOR. ADVERTISEMENT of theft of bonds or stock, 494c. of time and place of sale of pledge, 610. 895 896 INDEX. [References are to Sections.'] AGENT, delivery of pledge, 23. pledgor as agent for pledgee, 42n. pledgor as agent of pledgee to sell, 43n. pledgor may act for pledgee in selling pledged goods, 43. pledge of stock, S3n. for sale only cannot pledge, 65a. for pledge of corporate bonds, 70. holding negotiable paper can effectually pledge it, 96. of debtor, misapplication of negotiable securities by, 97. pledge of stock by owner to agent of creditor, 164n. no power to pledge goods of principal, 327. authority to gledge where authority is limited to sale, 328n. pledging under previous direction, 328a. ratification of unauthorized pledge, 328a. when not a factor within the factors' acts, 344. to be a factor his business must end in a sale, 345. whose authority to sell has been revoked, 347. transferring stock in pledge, 493. buying stocks for undisclosed customer, 494, 494a. misapplication of negotiable collaterals by pledgee's agent, 565. of pledgee buying in good faith, 740a. AGREEMENT, to pledge distinguished from actual pledge, 28. to pledge amounts to nothing as security, 29. ALABAMA, statute requiring receipt for pledge, S. statute regulating transfer of stock, 181. statute relating to negotiability of warehouse receipts, 283a. pledgor's interest subject to garnishment, 375. statute regulating sales of pledged property, 617. APPLICATION of payments, 548-551. APPROPRIATION of payments. See Payment. See Payment. ARBITRATION, pledge to secure award, how foreclosed, 646b. ARIZONA, staute regulating transfers of stock, 181a. warehouse receipt, 283b. attachment of pledge, 375a. remedies of pledgee after default, 617a, n. INDEX. 897 [RefSrences are to Bections.] ARKANSAS, statute regulating transfer of stock, 182. ASSIGNMENT of securities by debtor to creditor presumed a pledge, 17. of contract in pledge, 136, 136a. efifect of provision in contract against, 136a. interest of assignment of chose in action, 136n. effect of assignment of judgment as pledge, 137n. policy of insurance may be shown to be a. pledge, 141n. absolute of stocks may be shown to be a pledge, ISS. by pledgor of his interest, 364-371. is subject to lien of the pledge, 364. given only pledgor's interest, 365. notice to assignee of the pledge, 367. notice by assignee of the assignment, 368. action for prior conversion of the pledge, 369. assignee entitled to redeem, 370. Of pledge by pledgee, 418-428. pledgee's assignee stands in his place, 418. of pledge without the debt, 419. I original contract not destroyed by, 420. no implication of law that pledgee will keep possession, 421. pledgor cannot maintain trover in consequence of, 422. can pass no greater interest than pledgee has, 423. except in case of negotiable paper, 424. ASSUMPSIT by pledgor for money received by pledgee on sale of pledge, 580. ATTACHMENT, whether shares transferred merely by delivery of certificate subject to, 177. of shares with knowledge of prior equitable transfer, 179. in what states transfer of certificate efifectual against, 180,-220. Liability of pledgor's interest to, 372-392. not liable at common law, 372. only in equity or by statute, 372. not subject to trustee or garnishee process, 373. statutes of several states in regard to attaching pledgor's interest, 374-392. superior right of pledgee on attachment, 365n. Of pledged property by pledgee, 599-601. pledgee generally waives by attaching same property, 599. but may attach other property of pledgor, 599. cannot attach pledged goods in hands of his agent, 600. may attach same goods on other demand, 601. 57 — CoL. Sec. 898 INDEX. [References are to Sections.'\ ATTORNEYS, duty of pledgee to employ and protect pledge, 400n. AUCTION, sale of pledge must be at public, 603. BANK-BILLS pledged, trover for conversion, 562. BANKER may have general lien for balance due, 360. but not when pledge is for a specific loan or debt, 360. BANKRUPTCY AND INSOLVENCY, upon bankruptcy of the pledgor, pledgee still holds the pledge, 584. pledge by bankrupt after petition and before adjudication, 584. assignee holds subject to same equities as the debtor, 585. assignee who .collects securities must apply the proceeds to pledgee's ben- efit, 586. pledgee may prove his whole claim, 587. dividends payable only on principal obligation, 587a, 588d. whether dividends should be on debt as proved, 587b. readj ustment of claim after each dividend, 587c. rule that the value of security must be deducted before proof, 588. this is the rule in bankruptcy, 588. . rule requiring sale of securities before proving, 588a, 588b. in case whole debt is proved by mistake, 588c. of trustee or pledgeholder, 588c. of debtor does not deprive pledgee of right to sell, 724. claim of pledgor against insolvent broker, 742. BANK SHARES, liability of pledgee on national bank shares, 437n. BENEFICIARY ASSOCIATION, certificate of memebrship can not be pledged, 146b. BILL IN EQUITY, 640-648. to redeem pledge, 552-581. See Equity; Redemption. does not lie for proceeds of pledge sold by agent, 431. to redeem does not lie when there is remedy at law, 556. but lies when an account is wanted, 557. to restore stock to pledgor when it has been transferred of record, 558. to compel specific delivery of note and mortgage to pledgor, 559. INDEX. 899 [References are to Sections.'] BILL OF EXCHANGE, whether bill of lading secures acceptance or payment of, 255. bill of lading secures acceptance of when on time, 256. when bank may surrender on acceptance, 257. by agreement bill of lading may secure payment, 258. such agreement may be proved by parol, 259. title of pledgee divested by acceptance or payment, 260. BILL OF LADING, loss of 'lien by failure to deliver, 27n. pledge of, 227-279. Is a symbol of property, 227-232. transfer of makes effectual pledge of the goods, 228. delivery of is a symbolical delivery of, the goods, 229. represents the property, 230. indorsement of in pledge passes a special property, 23 L pledge by delivery without indorsement valid, 231a. pre-existing debt sufficient consideration for pledge of, 23,i. How far negotiable, 233-244. ' is gMa.si-negotiable, 233. ' statutory provisions in several states, 234-240. pledge for exchange of warehouse receipts, 235n. qualities of negotiable paper can not be given by statute, 241. rights of pledgee of bill of lading are those of a pledgee of the property, 242. indorsement by shipper assigns his title, 243. pledge by one not the ovvner of the property gives no title, 244. How far binding upon carrier, 245-254. represents goods to be in hands of carrier, 245. not binding upon carrier when signed by agent, if goods not delivered, 246. statutory enactments on this subject, 247. master of vessel can not bind owner, if goods not received, 248. carrier on land has same rights in this respect, 249. custom can not make negotiable, 250. carrier not estopped to deny that he has received the goods, 251. exceptional doctrine in New York, 252. may be operative as a pledge, though not binding upon carrier, 253. spurious bill does not avail against genuine, 254. Whether security for acceptance or payment, 255-260. assignment when drawn to shipper's own order, 255. is security for acceptance of time draft, 256. 900 INDEX. [References- are to SectionsJl BILL OF 'LKOmG— Continued. bank may surrender on acceptance, 257. secures payment when so agreed, 258. agreement to this effect may be proved by parol, 259. title of pledgee divested by acceptance or payment, 260. How pledged, 261-265. drawn to order should be indorsed, 261. but may be delivered without indorsement, 262. ■ not to order may be pledged by delivery, 263.' third person paying draft secured is vested with title, 264. pledgee by delivery may maintain replevin for the goods, 265. Pledgee's rights as against consignor, 266, 267. vendor's right of stoppage in transitu defeated, 266. so far as concerns the pledgee, 267. Pledgee's rights as against the consignee, 268-272. consignee obtains title only upon paying or accepting draft, 268. obtaining goods without accepting draft, 269. pledgee may deliver possession of goods to consignee, 270. making goods deliverable to consignor's order, 271. pledgee not affected by secret agreement between consignor and con- signe.e, 272. Pledgee's rights against carrier, 273-277. for delivering goods to any other person, 273. last carrier bound to deliver goods to holder of, 274. when goods made deliverable to consignee, 275. what is a complete delivery of the goods, 276. lien of pledgee covers freight, 277. Pledgees of different parts of same bill of lading, 278-279. property passes by part first delivered, 278. ' carrier may deliver to consignee on his producing one of the set, 279. BILL OF PARCELS, as security, constitutes a pledge, 15. receipted, constitutes a pledge, 16. BILL OF SALE, as security, constitutes a pledge, 15. with agreement for repurchase, a pledge, 19, 20. BONA FIDES, extension of time of payment, 113n, 129n. INDEX. 901 [References are to Sections.'] BONDS, pledge by one having possession, S5n. pledge of corporate bonds, 70. negotiable, pledgee of, holder for value, 91. pledgee of without notice of trust, 478a. afifected with notice appearing en face of, 491. BOOK ACCOUNTS, pledge, 80. BRIDGE COMPANY, pledge of iron, 3Sn. BROKER, knowing that he is dealing with agent of owner, 494, 494a. Carrying stocks upon margin, 495-501. stands in relation of pledgee to customer, 495. acts in a threefold relation, 496. distinction between carrying stocks and carrying executory contract for grain, 497. ' different view of the contract in Massaehusetts, 498, 499. cannot recover for fictitious purchase, SCO. liable to customer for losses incurred on wagering contracts, SOOa. statute and decisions in Massachusetts as to such contracts, SOOa. Authority to use and hypothecate pledged stock, 501-512. agreement that he may hypothecate stocks, 506. may be inferred from circumstances, 502. usage to pledge customer's stock, 503. agreement that he may hypothecate customer's stock, 506. but bound to return identical stock, 508, 509. but must always have enough on hand to deliver, 510, 511. rehypothecating securities belonging to several persons, 512. Remedies of upon purchases of stock upon margin, 722. custom to sell at stock exchange without notice, 723. equities of customer of, as against pledgee of, 723a. illegal sale does not prevent his recovery of purchase-money, 742. customer should object to sale within reasonable time, 744. BROKERS' BOARD, sale at, is not a public sale, 737, 738. BURDEN OF PROOF, good faith of pledgee, 93a, n. note held as security, 664n. 902 INDEX. [References are to Sections.] C CALIFORNIA, statute regulating transfer of stock, 183. statute relating to negotiability of bills of lading, 234. statute relating to negotiability of warehouse receipts, 284. factors' act, 333a. pledgor's interest subject to garnishment, 376. liability as stockholder of trustee or one holding stock as collateral, 44Sb. statute regulating sales of pledge, 618. CARE of thing pledged, 403-417. ordinary care required, 410. what ordinary care is, 411. See Diligence. CARRIER, cannot pledge goods entrusted to him, 64. How far bill of lading binding upon, 245-254. bill of lading represents goods to be in hands of, 245. not bound by bill of. lading signed by agent not receiving the goods, 246. statutory enactments on this subject, 247. master of vessel not bound by bill of lading when goods not received, 248. ■ railroad company not bound under like circumstances, 249.^ custom cannot make bills of lading negotiable, 250. not estopped to deny that he has received the goods, 251. exceptional doctrine in New York, 252. may not be bound by bill of lading though good between pledgor and pledgee, 253. possession obtained by spurious bill of lading, 254. Pledgee's rights as against, 273-277. liable for delivering goods to any one but holder of bill of lading, 273. last carrier bound to deliver to holder of bill of lading, 274. when justified in delivering to consignee, 275. what a complete delivery under a bill of lading, 276. freight on pledged goods covered by lien of pledgee, 277. may deliver to consignee holding one of set of bills of lading, 279. CERTIFICATE, transfer under Massachusetts statute, 382n. of stock not a negotiable instrument, 461. usage of brokers to treat it as negotiable, 462. some authorities assimilate it to a negotiable instrument, 463. title to, not changed by involuntary transfer, 464. INDEX. gr'i [References are to Sections.'] CERTIFICATE— CoM/inwed. whether negligence to assign in blank, 465. taken in good faith from apparent owner, 466, 467. See Stocks and Transfer of. CHATTEL MORTGAGE, pledge distinguished from, 2, 3, 4. is a title and not a mere lien, 7. of corporate stock valid without transfer of certificate, 153. not valid as against outstanding certificate, 153a. not notice, though recorded, 153a. effect of failure of pledgee to record, 702n. CHOSES IN ACTION, interest of assignor, 136n. pledge of non-negotiable, 134-150. subject in hands of pledgee to existing equities, 134. bona fide purchaser for value, 135. assignment is valid without notice to debtor, 136. Mortgages may be assigned in pledge, 137-144. absolute assignment as security is a pledge, 140. may be shown by parol to be a pledge, 141. may be pledged without formal assignment, 142. note may be pledged without mortgage, 143. Insurance policies may be pledged, 145-147. without written assignment, 145, 157. life policy payable to married woman may be pledged by her, 146. Savings bank books may be pledged, 148. without written assignment, 148. Judgment may be pledged, 149. Claim in suit may be pledged, \A9. Ple.dge of land certificates, 150. other than stocks and bonds should be collected and not sold, 661. CIVIL LAW, doctrine regarding delivery of pledge, 23. exception as to redelivery to pledgor for special purpose, 46. COLLATERALS, distinguished from collateral security, 1. not in possession of either party not subject to pledge, 49. effect of sale to pay secured debt, 522n. pledgor entitled on payment, S44n. refusal to pay debt justified on refusal to return, S93n. 904 INDEX. [References are to Sections.'] COLLATERAL SECURITY, defined, \. when assignment of security to a creditor presumed to be, 17, COLORADO, statute regulating transfer of stock, 184. . statute as to negotiability of warehouse receipts, 284a. how pledgor's interest made subject to execution, 377. pledgee of stock not personally liable as stockholder, 446. right of executor to represent at corporate meetings, 446. COMMON CARRIER, 245-279. See Carrier. COMPROMISE, pledgee can not make upon collateral paper, 716. CONDITIONAL PAYMENT, negotiable paper taken as, 115, 116, 132. CONDITIONAL SALE, a mortgage and not a pledge, 18. purchaser by conditional sale cannot pledge the property, 63. distinguished from pledge, 20, 154. sale of stock with agreement to purchase, 154, 156. CONFUSION of pledged goods with unpledged by pledgor's employe, 35a. CONNECTICUT, statute regulating transfer of stock, 185. statute giving corporation lien upon its stock, 222. statute relating to negotiability of warehouse receipts, 285. -CONSIDERATION, release of one joint debtor, 89n. value under negotiable instrument law, 89n. failure of consideration of pledged note, 99n. illegality of, does not affect pledgee of negotiable paper, 99. future advances sufficient to support pledge, 106. Pre-existing debt, whether sufficient to support a pledge, 107-133. early decisions in this country, 107. for pledge of negotiable paper, 107a. but not for a pledge of chattels, 107a. held sufficient by the United States courts as to negotiable paper, 108, 109. ^ is a valuable consideration, 110, 469. held sufficient in certain states, 111. INDEX. 905 [References are to Sections.} CONSIDERATION— Continued. ground of the doctrine, 112. forbearance on the part of creditor, 113. taking security for pre-existing debt is in usual course of business, 114. distinction between taking note in payment and in security, 115. this distinction is shadowy, 116. doctrine that pre-existing debt is not good consideration, 117. this doctrine rests upon two objections, 118. the old debt a sufficient consideration, 119. policy and prospects of this doctrine, 120. uniformity of rule important, 121. exception as to accommodation paper, 122. does not matter that pledgee has notice that paper is accommodation, 123. accommodation paper pledged for pre-existing debt, 124. equities arising subsequently to indorsement, 125. equities arising from independent transactions, 126. creditor parting with value at time of pledge, 127. effect of a change in legal rights of the parties, 128. agreement for further time, 129, 130. usurious agreement for extension, 131. paper taken as conditional payment, 132. sufficient for pledge of bill of lading, 232. transaction governed by law of place of contract, 133. Debt secured must be founded on, 354. pre-existing debt does not constitute pledgee of chattels a holder for value, 360a. See Debt. CONSIGNEE, 227-279. CONSIGNOR, 227-279. See Bill of Lading. See Bill of Lading. CONSTRUCTION, contract construed as understood by parties, 9n. of pledge when in writing, for the court, 21. CONTRACT, construed as understood by parties, 9n, 13n. may be assigned in pledge, 135a. CONVERSION, by pledgor of property returned to him for special purpose, ,45. of pledge by pledgee's transfer beyond his control, 422. of pledge, pledgee's action for, 429. 906 INDEX. [References are to Sections.l CONVERSION— Continued. pledgee may recover of pledgor for, 430. measure of damages in action by pledgee against pledgor, 432. measure of damages in action against third person, 433. of securities, 4S7n. of pledged stock by pledgee's hyothecating for own debt, 507. trover for conversion is usual remedy for redeeming pledges, 561. trover for bank bills pledged, 562. wrongful sale of pledge by pledgee amounts to, 563. where pledge obtained by false representations, 564. principal liable for conversion by agent, 565. occurs upon creditor's refusal of a proper tender, 566. but not when third party claims the pledge, 567. pledgee may show in defense that property belonged to a third person, 568. the burden of proof is then upon him 569. demand not necessary before suit for conversion of pledge, 570. tender generally necessary before suit, 570. unauthorized sale of pledge not itself a conversion, 571. but is when pledgee has put it out of his power to restore pledge, 571a. no formal tender necessary if there be a substantial offer to redeem, 572. may be waived by debtor, 573. when unauthorized sale does not destroy lien of pledge, 573a. measure of damages for, 574. in case of negotiable paper, 575. mitigation of damages may be shown, 576. pledgee may offset the debt secured, 577. counterclaim for other debt cannot be set up, 578. in case of rehypothecation, 579. if pledgee has converted pledge into money he may be sued for money had and received, 580. pledgee purchasing at public sale not chargeable with, 637. Of stocks by illegal sale, damages for, 750-757. value at time of sale is general rule, 750. time of, may be fixed by demand for the stock, 751. highest market value up to time of trial, 755. this rule applies only in exceptional cases, 756. the true rule of damages, 757. CORPORATE DEBTS, liability of pledgee of bank shares, 437n. CORPORATE MEETINGS, representees by executors or holders of stock, 455. INDEX. 907 [References are to Sections.] CORPORATIONS, pledge of bonds, 70. may pledge any personal property, 70. when may pledge unissued stock, 71, 72. to its own directors, 72. may pledge its mortgage bonds, 73. railroad may pledge its bonds, 74. may take a pledge of any property, 75. prohibited from taking stock of another corporation, 76. national bank may take a pledge of chattels, 77. . cannot lend its credit, 77. may take a pledge of stock of corporations whose property is real estate, 78. cannot take its own stock in pledge, 79, damages for refusing to transfer stocks, 226. attachment of pledged stock, 387b. See Stocks. directors owning stock may vote, 441n. liability on stock held by fiduciaries, 4Sla. whether pledgee charged with knowledge of conditions requiring transfe" of books, 152n. CO-SURETIES, mutual equities of, S34-S89. COUNSEL, fees for collecting collateral, 680. recovery on insurance policy, 680. COUNTER-CLAIM, by pledgee to suit by pledgor for conversion, 578. COUPONS, for interest, pledgee should collect as they fall due, 668. CREDIT, pledgor not entitled because of depreciation, 606n. CRIMINAL OFFENSE, assigning collateral before maturity of debt, 98. CUSTOM, that broker may pledge customer's stock valid, 503. See Usage. 908 INDEX. [References are to Sections.] D DAMAGES, for refusal of corporation to transfer stock, 226. measure of, for pledgee's loss of collaterals, 417. in action by pledgee against pledgor for conversion, 432. in action by pledgee against third person for conversion, 433. in action for gold coin pledged, 435. for pledgor's taking the pledge from pledgee by replevin, 436. injury to pledge, 561. for pledgee's conversion of pledge is its value at that time, 574. of negotiable paper is its face value, 575. mitigation of, when proceeds of pledge have been applied to debt, 576. pledgee may offset amount of debt secured, 577. cannot set up other debt as a counterclaim, 578. in case of rehypothecation, 579. Measure of for illegal sale of stocks, 750-757. general rule is value at time of rule, 750. on return of bonds vifrongfully pledged,- 750n. in suit in equity to redeem shares illegally sold, 752. exception to the rule, 753, 754. highest market value up to time of trial, 755. this rule applicable only in special cases, 756. rule finally settled in New York, 756a. this rule adopted by supreme court of United States, 756b. rule when there is no evidence of value, 7S6c. the true rule, 757. in some cases pledgor entitled to specific performance of contract to re- turn stocks, 757a. DEBT, pre-existing sufficient to support pledge of negotiable paper, 107-133. secured must be founded on good consideration, 354. is determined by contract of the parties, 355. renewal of usually secured, 355a. several debts secured by same pledge, 35Sb. mere existence of another debt from pledgor to pledgee, 356. general lien for balance of account, 357. security for specific loan may be made to cover other loans, 358. for debt of one partner and debt of his firm, 3S8a. a pledge may be a continuing security, 359. banker may have a lien for a general balance, 360. but not when pledge secures a specific debt, 360. pre-existing not a sufficient consideration, 360a. to arise in the future may be secured, 361. INDEX. 909 [References are to Sections.'i DEBT — Continued. future in addition to a specific debt, 361a. agreement for continuing security liberally construed, 361b. whole transaction to be looked at to determine, 362. interest as well as principal secured, 363. Suit upon the debt, S89-S98. no change in form of releases collateral, S91a. demand of payttient may be necessary to create default, 608. payable at future day certain, does not dispense with notice of sale, 609. •Enforcing collateral paper, 651-663. Enforcing principal debt, 681, 686. DEFAULT, when demand of payment necessary to create, 608. what constitutes determined by the contract, 608a. waiver by pledgee of his right to insist upon, 608b. right of pledgee to confine policy on default, 6S7a, n. DEFENSES, excuse for failure to defend, 413n. on note given as security, 671n. DEFICIENCY, s"uit for after applying proceeds of pledges, 597. payment of, is an acquiescence in sale of pledge, 747. DEFINITION, collateral security, 1. DELAWARE, statute regulating transfer of stock, 186. statute relating to negotiability of warehouse receipts, 28Sa. DELIVERY, Essential to a pledge, 23-39. what constitutes, 23. pledge effective at time of delivery and not time of contract, 23. to agent of pledgee, 23. distinguishes a pledge from a mortgage, 24. in case the goods are already in hands of pledgee, 25. in case of a pledge of a part of a quantity of goods, 26. bill of lading, 27n. agreement of parties not equivalent to, 27, 28. cannot be dispensed with by agreement, 29. of future property upon acquiring it, 31. 9IO INDEX. [References are to Bections.'i DELIVERY— Continued. not necessary to remove unfinished goods, 33n. of possession to third person for pledgee, 34. to workman or clerk of pledgor, 35. symbolical, sufficient, 36. of document of title, 37. to carrier effectual, 37. subsequent, prevails between the parties, 38. statute requiring immediate delivery, 38. subsequent prevails if no rights intervene, 39. back to pledgor terminates the pledge, 40. unless for a temporary purpose, 40. as for affecting a sale, 43, 44. in which case pledgee may maintain trover against pledgor, 45. civil law as to redelivery for special purpose, 46. pledgor in possession can give good title, 47. Of negotiable paper in pledge, 80-88. is essential to a valid pledge, 80. statutory provisions concerning, 81. parol evidence that transfer is in pledge, 82. need not always be actual, 83. by putting in package with memorandum of the pledge, 83a. subsequent to the pledge, 84. transfer of paper without delivery, 84n. actual possession by pledgee essential, 85. redelivery to pledgor for collection, 86. destroy pledgee's title as against third persons, 87. for temporary purpose, 88. of paper not requiring indorsement makes pledge effectual, 90, 91. without indorsement makes an equitable pledge, 92, 93. By delivery of bill of lading, 227-232, 261-265. a symbolical delivery of the property represented, 229, 230. By delivery of warehouse receipt, 280, 298. not indorsed and not to bearer, effectual, 299. otherwise in Massachusetts, 300. to bearer may be transferred without indorsement, 301. by order upon a warehouseman accepted, 307. See Possession. DEMAND, not necessary before bringing suit for conversion of pledge, S70n. return of pledged bonds under contract, 572. not necessary where pledged by one not owner, 570n. INDEX. e_)ii [References are to Sections.] HEM. AND— Continued. of payment of pledge, when necessary, 608. when pledgee is to sell on a contingency named, 608c. on pledgor not necessary before bringing suit on collateral, 664. diligence in making to preserve liability of indorser, 693. collateral should be in hand when making, 696. and notice necessary in sale of stocks pledged, 726. of payment before sale of collateral, 736. DEPOSIT, money in escrow to pay debt, S40n. DEPRECIATION, effect of depreciation not value of pledge, 606n. DESCRIPTION, property pledged, 49a. DILIGENCE, In care of thing pledged, 403-417. what is required, 403. pledgee's obligation may be modified by agreement, 406-408. in case of loss by theft, 409. ordinary care only required, 410. what is ordinary care depends upon circumstances, 411. ordinary, a relative term, 412. on part of pledgee, presumed, 413. national bank liable for want of, 414, 41S. measure of damages for want of, 417. In collecting collateral paper, 692-719. ^ pledgee bound to use, 692. in fixing liability of indorsers, 693. delay of three days in presenting, 694. pledgor not entitled to strict notice of dishonor, 695. collateral should be in hand in making demand 696. insolvency of maker does not dispense with demand, 699. ^ what constitutes negligence in collecting, 700. required of pledgee on collateral secured after maturity, 700n. whether creditor's negligence makes him conclusively liable, 701. actual loss to pledgor the criterion of liability, 702. when collection could be made only by extraordinary diligence, 703. < pledgor desiring prompt collection should demand it, 704. burden upon debtor to show negligence, 70S. 1- delay for three months to bring suit, 706. y delay with debtor's consent, 707. 912 INDEX. [References are to Sections.] DILIGENCE — Continued. bad faith or faulty discretion on part of pledgee, 708. negligence in permitting judgment lien to expire, 710. surety has right to demand diligence, 711. negligence in collecting mortgage or other claim, 713. what i J reasonable, a question for jury, 713a. in collecting interest on mortgage, 714. DISCHARGE, surety on consent to release collateral, S16n. DISTRICT OF COLUMBIA, statute regulating transfer of stock, 187. pledgee of stock not liable as stockholder, 446a. DIVIDENDS, duty of pledgee to account for dividends, 396n. upon pledged stock, pledgee may collect, 398. in bankruptcy on claim in part secured by surety, 533. EMBEZZLEMENT, property pledged, S2h, S3n. EQUITABLE LIEN, of surety distinguished from his right of subrogation, 527. EQUITIES, arising between parties to negotiable paper after it is pledged, 125. from independent transactions, 126. mutual, of co-sureties, 534. y in favor of maker of collateral paper, effect of upon pledgee, 673-676. EQUITY, remedy by enforcing pledgor's lien, 617n. Proceedings to foreclose pledge, 640-648. the earliest remedy upon a pledge, 640. jurisdiction in, when an account must be stated, 641. to foreclose pledge of shares of land association, 642. to foreclose pledge of title deed, 643. factor may enforce his lien in, 644. jurisdiction in, not excluded by a power of sale, 645. receiver of corporation to be made party, 646a. when pledge secures an award, 646b. in case of insolvency of corporation, 646c. INDEX. 913 [References are to Sections.] EQUITY — Continued. there can be no decree of strict foreclosure, 647. court may authorize pledgee to bid, 648. sale of collateral paper wider decree in, 6S5. ESCROW, deposit of money as payment, S40n. ESTOPPEL, to question act of pledgee, 134n. of owner of goods as against pledgee, 308. two things must concur to create, 309. arises against warehouseman by his false representation, 310. of warehouseman to deny he has the goods mentioned, 311. not estopped to deny matters not within his knowledge, 312. not estopped to dispute receipt issued by mistake, 313. of factor from taking advantage of his wrongful pledge, 330. EVIDENCE, contemporaneous agreements to deliver notes as collateral, 82n. parol evidence admissible to show judgment is assigned as pledge, 137n, 149n. admissibility to show that transfer was intended as collateral security, iSSn. warehouse receipts signed by other than warehouseman, 324n. EXCHANGE, sale of stock upon, against registered owner, 178. pledgor's interest not subject to, at common law, 372. statutory provisions of several states as to levy upon pledgor's interest, 375-392. of collaterals, a consideration to extent of value of new security, 470. after return of, unsatisfied creditor not bound to do more, 715. or substitution of collaterals, 718. See Attachment. EXECUTOR OR ADMINISTRATOR, may pledge personal property of the estate, 61. holding stock in pledge not liable personally as stockholder, 445-456. right to represent stock in corporate elections, 446. liability of executor under Florida statute, 446b. distinction between pledges by executors and pledges by trustees, 481. title is absolute for purposes of administration, 482. foreign can make valid transfer of stock, 482. one of several may pledge, 483. misapplying securities with knowledge of pledgee, 485, 486, 488. pledging stock issued to him as executor, 487. 58 — CoL. Sec. 914 INDEX. [References are to Sections.] EXECUTOR OR ADMINISTRATOR— Co»;w««d. pledgee not bound to see application of proceeds of his loan, 489. in Georgia, sales by must be public, 492. pledgee need not present his claim to, S96. EXPENSE, of keeping and caring for thing pledged, 395, 400, 400n. of collecting collateral paper, 680. EXTENSION, of time of payment, a consideration for collateral, 129. time of the essence of the contract, 129a. not eilected merely by taking collateral, 130. must be supported by sufficient consideration, 130a, indefinite extension, 130a, n. usurious agreement for, 131. of principal debt discharges surety, S18a. taking security without giving time does not discharge surety, 519. suspends pledgee's right to sell, 615. of payment suspends right of pledgee to sell, 615. pledgee extending collateral paper makes it his own, 719. FACTOR, Pledges by, at common law, 327-332. no power at common law to pledge, 327. power to sell gives no power to pledge, 328. pledge by previous direction or subsequent ratification, 328a. though not known as such, 329, 342. estopped from taking advantage of his wrongful pledge, 330. may pledge property to extent of his lien, 331. pledge by, not distinguished from pledge by pledgee, 332. Factors' acts, their application and effect, 333-353. purpose of, 333. statutes of several states, 334-340. common law prevails except as changed, 341. authority to pledge property for freight advanced, 341n. at common law factor could not pledge, 342. may pledge instruments negotiable by statute, 343. factors' acts apply only where agent has power to sell, 344. apply only to agents whose business ends in a sale, 345. his general employment does not authorize him to pledge, 346. after authority to sell has been revoked, 347. acts apply only where relation of principal and factor exists, 348. relation not created by mere possession of bill of lading, 349. INDEX. 915 [References are to Bections.'i FACTOR — Continued. pledgee having knowledge that he is acting contrary to instructions, 350. bound to follow principal's instructions, 351. may make successive pledges of same property, 352. provision of acts that consignor shall be deemed true owner, 353. may enforce his lien in equity, 644. FIDUCIARY, liability for corporate debts, 448a. liability for corporate debts under Maine statute, 448b. ' ' FLORIDA, statute regulating transfer of stock, 188. warehouse receipts, 285b. liability on executor or trustee on corporate stock, 446b. FORECLOSURE, form of transaction important, 8. as remedy instead of sale, 618n. strict notice of a pledge, 647. See Equity; Remedies and Sales. FRAUD, possession taken by pledgor, 41n. possession of pledgor obtained by fraud, S5n. pledge of property obtained by, when effectual, 56. in overissue of stock, 461a. whether negligence to execute transfer of stock in blank, 465. waiver of amount paid for transfer of pledged stock, 741n. FREIGHT, authority of pledgee to pledge property for freight advanced, 341n. FUTURE ADVANCES, pledge to secure, 106, 361. FUTURE PROPERTY, cannot be pledged, 30. when subsequently acquired, pledgor estopped, 31. increase of property covered by pledge of that, 32. GARNISHMENT, pledgor's interest not generally subject to, 373. but may be so reached in Alabama, 375. California, 376. and Colorado, 377. 9l6 INDEX. [References are to Sections.'] GEORGIA, statute regulating transfers of stock, 188a. statute relating to negotiability of warehouse receipts, 28Sb. pledgor's interest subject to execution, 378. statute regulating sale of pledge, 619. GOOD FAITH, pledgee, 93a, n. GRAIN, in bulk, warehouse receipt for part of whole, 318, 319. GUARANTOR, of title, warehouseman does not become by issuing receipt, 320. GUARDIAN, cannot pledge ward's property, 61. stock certificate indorsed by, 47Sa. H HAWAII, transfer of shares of stock, 188b. HOLDER FOR VALUE, of negotiable paper, 89-138. HUSBAND AND WIFE, valid pledge between cannot be made, 66a. pledges of property for future advances, 67. pledge by husband of wife's stock, lS3b. pledge of wife's securities for husband's margins, 49Sn. IDAHO, statute regulating transfer of stock, 189. statute relating to negotiability of warehouse receipts, 28Sa. pledgee of stock not liable as stockholder, 447. statute regulating sale of pledge, 618. ILLINOIS, doctrine as to transfer of shares of stock, 190. statute relating to negotiability of warehouse receipt, 286. pledgee of stock not liable as stockholder, 447a. INDEX. 917 [References are to Sections.l INCORPOREAL PROPERTY, pledge, 80. INCREASE, of property covered by pledge, 32. INDIANA, suretyship contract of married woman, 66n. transfers of shares of stock, 190a. statute relating to negotiability of warehouse receipts, 287. pledgor's interest made subject to execution, 379. pledgor may vote upon pledged stock, 441. pledgee of stock not personally liable as stockholder, 448. INDORSEMENT IN BLANK, pledge of note without indorsement, 123n. INFANT, 773. See Minor. INJURY, to pledge by stranger, 434. INSOLVENCY, waiver by filing claim not allowed, S88c, n. effect of insolvency or neglect of pledged note, 703n. See Bankruptcy and Insolvency. INSURANCE, FIRE, absolute assignment of policy may be shown to be pledge, 141n. delivery of policy, 14Sn. "owner" of property, 14Sn. policy may be pledged by delivery, 147. without transfer of property insured, 147a. policy on pledged property taken by pledgee at his own expense, 147b. INSURANCE, LIFE, policy, mortgage of, 9. for benefit of married woman, may be pledged by her, 68, 146. may be pledged by delivery without assignment, 145, 147. right of creditor in life policy, 14Sn. right of pledgee to dispose of life policy on default of pledgor, 14Sn. right of pledgee to collect proceeds of policy, 14Sn. attachment of policy, 381. assigned by husband and wife for debt of husband, 146a. assignment by one having all the indicia of ownership, 467a. right of pledgee to collect on death of pledgor, 618n. 9l8 INDEX. \ [References are to Sections.1 INSURANCE, U.¥'&-Continued. right of pledgee to convert policies on default, 6S7a, n. duty to pledgee to realize on collateral before suit to recover full amount of debt, 667. INTEREST. on interest-bearing debt, secured by pledge, 363. pledgee must account for when collected, 397. pledgee may collect interest coupons, 399, 721. after tender of payment by pledgor, S41n. what rate may be charged by pawnbrokers, 616. default in, authorizes foreclosure, 646. pledgee must use diligence in collecting, on collateral, 714. IOWA, statute regulating transfer of stock, 191. statute relating to negotiability of warehouse receipts, 288. statute regulating sale of pledge, 620. JOINT OWNER, can pledge only his interest, 65. JUDGMENT, may be assigned in pledge, 149. parol evidence to show assignment is a pledge, 149n. recovery upon the debt does not affect pledgee's right to the pledge, 591. no change in form of debt releases the collateral, S91a. upon collateral does not satisfy principal debt, 684. negligence in permitting lien of to expire, 710, 713. K KANSAS, statute regulating transfer of stock, 192. statute relating to negotiability of warehouse receipts, 289. KENTUCKY, statute regulating transfer of stock, 192a. statute as to negotiability of warehouse receipts, 290. warehouseman authorized to give receipts for his own goods, 323. liability of persons holding stock as fiduciaries, 448a. INDEX. 919 [Beferenaesi are to Sections.'] L LAND CERTIFICATE , cannot be pledged, ISO. LAW OF PLACE of contract governs, 133. LEASE, assigned as security, 19. LEGAL TITLE, passes by mortgage, not by pledge, 3, 4. not inconsistent with existence of pledge, 153. LIEN, distinguished from a pledge, 1. lost by delivery to pledgor's purchaser, 37n. not lost by fraud of pledgor, 41n. not lost by temporary delivery to pledgor, 44n. of pledgee from one in possession but without title, S2n. not destroyed by failure of consideration of pledged note, 99n. Upon stock in favor of the corporation, 221. corporation may have upon shares of stockholder, 221. must be expressly created, cannot be implied, 221. not waived by taking collateral security, 221. given by statute in Connecticut, 222. cannot be claimed after notice that stock has been pledged, 223. national banks cannot claim, 224. corporation may waive, 225. property not in possession of warehouseman, 310. general, for balance of account, not secured by pledge, 357. a banker may have, 360. LIFE INSURANCE. See Insurance, Life. LIMITATIONS, STATUTE OF, whether interrupted by application of proceeds of collateral, 551a. when such proceeds are applied as collected, 551b. bar of debt does not make pledge the property of the pledgee. 581. when right to redeem is barred. 581. bar of debt does not enable the pledgor to recover the pledge, 582. when statute commences to run, 583. collections on collaterals take balance of debt out of, 583a. LOSS, of thing pledged without fault of pledgee, 405. pledgee may make himself liable by agreement, 408. by theft, rule same as in other cases, 409. of collateral security by principal discharges surety, 516. 920 INDEX. [References are to Sections.'] LOUISIANA, pledge must be by written act, S. title to property pledged, S3. statute regulating transfer of stock, 193. statute relating to negotiability of bills of lading, 234a. statute relating to negotiability of warehouse receipts, 290a. factors' acts, 334. pledgor's interest made subject to attachment and execution, 380. statute regulating sale of pledge, 621. M MAINE, statute regulating transfer of stock, 194. statute relating to transfer of warehouse receipts, 291. pledgor's interest made subject to attachment, 381. pledgor may vote upon pledged stock, 441. statute regulating sale of pledge, 622. liability for corporate debts, 448b. MARGINS, pledge of wife's property, S3n. pledge of security belonging to wife by husband to use for margins, 49Sn. effect of failure of purchaser or pledgee to put up margins, 722. Rights of broker carrying stocks upon, 495, SCO. relation of pledgor and pledgee is created, 495. broker acts in threefold relation, 496. distinction between carrying stocks and carrying executory contract for grain, 497. exceptional view of the contract in Massachusetts, 498, 499. broker cannot recover for fictitious purchase, 500. See Broker and Stocks. MARRIED WOMAN, pledge of property by husband for margins, 53n. may pledge their personal property, 66. valid pledge cannot be made with husband, 66a. execution of notes, 66n. entitled to have pledge of property for her husband redeemed out of his estate, 67. has no implied authority to pledge husband's property, 67. pledge for future advances, 67. may pledge a policy of insurance upon life of husband, 68, 146. MARSHALLING securities held in pledge, 679, 685. INDEX. 921 [References are to Sections.] MARYLAND, statute regulating transfer of stock, 195. statute relating to negotiability of bills of lading, 235. statute making bill of lading conclusive upon carrier, 247. statute relating to negotiability of warehouse receipts, 293. factor's acts, 335. pledgor may vote upon pledged stock, 441. pledgee of stock not personally liable as stockholder, 449. MASSACHUSETTS, statute and decisions as to transfer of stock, 196. statute relating to transfer of warehouse receipts, 292. factor's act, 336. pledgor's interest made subject to attachment, 382. pledgee of stock not personally liable as stockholder, 450. statute regulating sale of pledge, 623. MICHIGAN, statute regulating transfer of stock, 197. pledgor's interest made subject to execution, 383. statute regulating sale of pledge, 624. warehouse receipts, 293a. MINES, transfer of mining stock, 201. MINNESOTA, statute regulating transfer of stock, 198. statute relating to negotiability of bills of lading, 236. statute relating to negotiability of warehouse receipts, 293a. pledgor's interest made subject to execution, 384. rights of fiduciaries to pledge stock, 451a. MINOR may revoke waiver of notice of sale, 733. MISAPPROPRIATION of collateral security in hands of security by debtors, 528. by one surety no defense for co-surety, 539. MISSISSIPPI, statute regulating transfer of stock, 199. MISSOURI, contracts of femes coverts, 66n. statute regulating transfer of stock, 200. statute relating to negotiability of bills of lading, 237. pledgor may vote upon pledged stock, 441. pledgee of stock not personally liable as stockholder, 451. warehouse receipts, 293c. 922 INDEX. [References are to Sections.'] MONTANA, statute regulating transfer of stock, 201. statute relating to negotiability of bills of lading, 234. statute regulating sale of pledge, 625. MORTGAGE, distinguished from a pledge, 2, 3, 4, 5. is a conveyance of the legal title, 3, 4, 9. distinguished by the form of the transaction, 8. mere fact that title is conveyed not enough, 9. of a policy of insurance, 9, 136. effect of the use of the term, 12. effect of taking possession of property under a void, 12. may be made of property not in existence, 12. transaction construed according to circumstances, 13. valid as pledge where defective, 12n. transaction when in doubt construed a pledge, 14. constituted by a bill of sale as security, IS. constituted by a bill of sale conditional in form, 18. absolute transfer may be shown to be a pledge, 137n. pledgor is owner subject to lien, 137n. may be made of a chose in action, 138. Fledge of, 137-144. must be legally transferred or delivered, 139. absolute assignment as security, a pledge, 140. fact of pledge need not appear on face of assignment, 141. of note or bond without written assignment, 142. note without the mortgage may be pledged, 143. debtor may pledge his own note and mortgage, 144. held as collateral cannot be sold but must be collected, 657. mortgage bonds having long time to run may be sold, 6S7a. pledgee of mortgage may sell it, 658. may be foreclosed by pledgee upon default, 659. foreclosure of subject to prior mortgage, 6S9a. how pledgee of may relieve himself of trust, 6S9b. pledgee's interest by foreclosure becomes a mortgagee's interest, 660. diligence in collecting required, 713. also in collecting interest on, 714. N NATIONAL BANK, may take a pledge of chattels, 77. cannot loan its credit, 77. may take in pledge stock of corporations whose property is real estate, 78. cannot loan on pledge of its own stock, 79. INDEX. 923 [References are to Sections.] NATIONAL BANK— Continued. cannot claim lien upon shares of stockholder, 224. liable as ordinary pledgee for care of collaterals, 414. liable for conversion by its own officers, 415. NEBRASKA, statute relating to negotiability of warehouse receipts, 293b. certain warehousemen authorized to give receipts for their own goods, 322. liability on corporate stock held by fiduciaries, 451d. NEGLIGENCE, 403-417, 692-714. gross on part of pledgee in taking negotiable paper in pledge does not defeat his title, 104. in care and custody of the pledge, 406-417. of owner of stock in executing transfer in blank, 465. See Diligence. NEGOTIABLE INSTRUMENT LAW, value as consideration, 89n. enactment by various states, 107. substitution of pledge, 115n. pledge of accommodation note, 127n. Negotiable instruments, how far bills of lading are, 233. statutory provisions respecting bills of lading, 234-240. statute does not give all qualities of bills and notes, 241, 242. indorsement passes only shipper's title, 243, 244. custom cannot make bills of lading negotiable, 2S0. Warehouse receipts are not, 280, 281. except when made so by statute, 282, 283. statutory provisions in several states, 284-295. stand in lieu of the property, 296. whether evidence of ownership or of a pledge, 297. factor may pledge instruments made negotiable by statute, 343. CertHicates of stock are not, 461-468. usage of brokers so to treat them not admissible, 462. some authorities assimilate to negotiable instruments, 463. title not changed by involuntary transfer, 464. confers indicia of property, 466. NEGOTIABLE PAPER, possession of, presumptive evidence of title, 57. delivery and possession essential to a valid pledge of, 80. 924 INDEX. [References are to Sections.l NEGOTIABLE VAVER— Continued. statutory provisions regarding pledges of, 81. parol evidence that transfer of is in pledge, 82. delivery of need not always be actual, 83. subsequent delivery of, 84. actual possession requisite to establish title of holder, 85. redelivery of to pledgor for collection, 86. destroys pledgee's title as against third person, 87. transfer without delivery. 84n. pledge by one not its owner to pledgor with knowledge, 91n. when pledgor estopped to say that pledgee has lost his title, 88. Bona £de holder for value, 89-106. pledgee in good faith is practically the owner, 89. pledge of effectual, though title of pledgor defective, 90. possession sufficient to enable holder to pledge it, 91. note payable to order may be pledged by delivery merely, 92. but then the payee retains the legal ownership, 93. pledgee can give good title, 94. _ transfer of collateral alone is pro tanto payment, 95. agent can effectually pledge for his own debt, 96. misapplication of, by debtor's agent, 97. effect of statute making assignment of collateral a criminal offense, 98. illegal consideration, effect upon pledgee, 99. notice of equities by pledgee of, 100. effect of failure to indorse instalments of interest, 101. note which states that it is given as collateral, 102. recital that note is secured by collateral, 103. gross negligence on part of pledgee does not defeat his title, 104. knowledge of pledgee of pledgor's want of authority, 105. pledged for future advances, 106. Collateral for pre-existing debt, 107-133. conflict of authority on the subject, 107. pledgee of chattels for pre-existing debt not a holder for value, 107a. rule of the United States courts as to negotiable peper, 108, 109, 110. the rule having the better reasons and authority. 111. grounds of the rules, 112. forbearance by creditor also a good consideration, 113. taking for pre-existing debt is in usual course of business, 114. distinction between taking in payment and as security for pre-existing debt, 115. this distinction is shadowy, 116. doctrine that pledgee for pre-existing debt is not holder for value, 117. this rests upon two objections, 118. want of any new consideration, 118. INDEX. 925 [References are to Sections.l NEGOTIABLE TAPER— Continued. not taken in usual course of business, 118, 119. does not prevail in England, 120. uniformity of rule upon this subject important, 121. exception as to accommodation paper, 122. does not matter that pledgee knows paper is accommodation, 123. accommodation paper may be pledged for antecedent debt, 124. equities arising between parties subsequently to indorsement, 125. equities arising from independent transactions, 126. creditor parting with value at time collateral is taken, 127. change in the legal rights of the parties, 128. agreement for further time, 129. time of the essence of the contract for, 129a. right of action upon the debt not suspended, 130. must be supported by sufficient consideration, 130a. usurious agreement for extension, 131. taken as conditional payment of pre-existing debt, 132. place of contract governs the law, 133. measure of damages for conversion of, S7S, 576. Remedies upon pledges of, 651-719. collateral cannot be enforced by sale, 651. except by special power, 651, 652, 653. some authorities hold that such paper may be sold, 654. in California may be sold under decree in equity, 655. in Texas, after death of pledgor, aid of probate court not required, 656. ordinary note and mortgage cannot be ^old, 657. mortgage bonds having long time to run may be sold, 657a. but mortgagee may sell note and mortgage on default, 658. pledgee of mortgage may foreclose it, 659. when the mortgage is subject to a prior mortgage, 659a. how pledgee of mortgage may relieve himeslf of any trust, 659b. creditor may pursue his remedies simultaneously or successively, 663. Suit upon collateral paper, 664-680. no demand upon pledgor necessary before, 664. pledgee may enforce upon maturity, 665. understanding that collateral is not first to be resorted to, 666. * pledgee not bound to collect upon maturity, 667. pledgee may demand payment of coupons as they mature, 668. pledgee may collect collateral note in his own name, when, 669. pledgee when not invested with legal title may sue in name of pledgor, 670. pledgee may recover upon collateral though pledgor has been paid, 671. pledgee may enforce payment of accommodation paper, 673. pledgee may recover full amount though this exceeds the debt secured 674. 926 INDEX. [References are to Bections.'i NEGOTIABLE F AVER— Continued. unless there are equities in favor of the maker, 675. pledgee of accommodation paper can recover only to extent of debt se- cured, 676. pledgee has no better title to proceeds than he had to the paper, 677. pledgee should credit upon debt whatever he collects upon the collateral, 678. pledgee entitled to counsel fees paid in suit upon collateral, 680. Enforcing principal debt, 681-686. pledgee may enforce principal debt without surrendering collaterals, 681. pledgee after selling collaterals can recover only balance of principal, 682, no defense that creditor has irregularly foreclosed a collateral mortgage, 683. judgment upon collateral does not satisfy principal debt, 684. creditor not first bound to apply collateral, 685. even at request of surety, 686. Taken in payment, 687-691. proof of agreement to accept collaterals in payment must be positive, 687. distinction between note for antecedent debt, and one for property sold, ,688. parties may by agreement take collateral in payment, 689. inclination of courts in this matter, 690. transfer of note at time of purchase of property, 691. Diligence in collecting collateral paper, 692-719. reasonable diligence in collecting must be used, 692. and in charging indorsers, 693. delay of three days in presenting for payment, 694. pledgor not entitled to strict notice of dishonor, 695. collateral should be in hand in making demand, 696. neglect or omission of officer of government, 697. whether deposited as collateral a question for jury, 698. insolvency of maker does not dispense with demand of payment, 699. what consitutes negligence in collecting collateral, 700. whether creditor's negligence conclusively makps him liable, 701. actual loss to pledgor criterion of pledgee's liability, 702. when collateral could be collected only by extraordinary diligence, 703. pledgor desiring prompt collection of collateral should demand it, 704. burden of proof on debtor to show creditor's negligence, 705. delay to bring suit upon collateral for three months, 706. delay with debtor's consent, 707. bad faith or faulty discretion on part of pledgee, 708. when note taken as conditional payment, 709. pledgee of judgment liable for negligence, 710. INDEX. 927 [References are to Sections.'} NEGOTIABLE PAPER— Continued. surety of debt has right to exact diligence, 711. creditor entitled to benefit of surety's collateral, 712. neglect in collecting mortgage or other claim, 713. ivhat is reasonable diligence a question for jury, 713a. diligence in collecting interest on mortgage, 714. return of execution unsatisfied, 715. pledgee has no right to compromise collateral, 716. no right to surrender collateral without payment, 717. pledgee may exchange the security, 718. pledgee extending time of payment of collateral, 719. NEVADA, statute regulating transfer of stock, 203. pledgor may vote upon pledged stock, 441. NEW HAMPSHIRE, statute regulating transfer of stock, 202. pledgor's interest made subject to execution, 385. pledgor may vote upon pledged stock, 441. liability of fiduciaries holding corporate stock, 451a. statute regulating sale of pledge, 626. NEW JERSEY, statute regulating transfer of stock, 204. pledgor's interest made subject to execution, 386. statute relating to negotiability of warehouse receipts, 293c. XEW MEXICO, statute regulating transfer of stock, 205. warehouse receipts, 293d. pledgor may vote upon pledged stock, 441. pledgee of stock not personally liable as stockholder, 451a. NEW YORK, decisions respecting transfer of stock, 206. statute relating to negotiability of bills of lading, 238. statute relating to negotiability of warehouse receipts, 294. factor's act, 337. < pledgor's interest made subject to execution, 387. pledgee of stock not personally liable as stockholder, 452. KORTH CAROLINA, statute regulating transfer of stock, 207. warehouse receipts, 294.1. liability of fiduciaries as to corporate stock, 451a. 928 INDEX. [References are to Sections.] NORTH DAKOTA, statute relating to transfers of stock, 207a. statute relating to negotiability of bills of lading, 234. attachment of pledged property, 387a. pledgee of stock not personally liable as stockholder, 452a. statute regulating sale of pledge, 627. NOTICE, pledge of paper by one not owner to pledgor with knowledge, 91n. of equities affecting negotiable paper, 100, 101. of want of authority of pledgor to pledge negotiable paper, 105. none required of assignment of contract in pledge, 136. need not be given to debtor of pledge of chose in action, 136. none from recording mortgage of stocks, 153. holder of warehouse receipts not required to notify warehouseman, 302n. of transfer of warehouse receipt acknowledged by warehouseman, 302. of rights of true owner of stock, effect upon pledgee, 472. from fact that certificate is in name of prior pledgee, 473. pledgee may not withhold pledge on notice from third party, S43n. In case of pledges of stock by persons holding fiduciary relations, 474-494. stock in name of "trustee" cannot be pledged, 474. stock issued to "the estate of" a deceased person, 475. pledgee knowing that pledgor is pledging trust stock for his own use, 478. when trust not indicated by the certificate, 479. exceptional decisions as to pledging stock in name of "trustee," 480. knowledge that executor is misappropriating securities, 485. is perverting stock to his own use, 486. is pledging trust certificate to secure his own debt, 487. same facts that are notice to individual are also to corporation, 488. pledgee not bound to see to application of proceeds of loan, 489. broker knowing that he is dealing with an agent, 494. buying stocks on order of agent of undisclosed principal, 494a. to second pledgee from form of certificate pledged, 494b. by advertisement of theft of bonds or stocks, 494c. Of sale of pledge, 602-615. two kinds of notice that may be required, 607. whtn pledgee is to sell upon a contingency named, 608c. of time and place of sale not dispensed with because debt is payable at a day certain, 609. necessary of time and place of sale, 610. njust be reasonable, 610. when by advertisment suffitient, 610. waiver of may be made by agreement, 611. INDEX. 929 [References are to Sections.] NOTICE — Continued. sale without makes pledgee liable for value, 611. whether necessary when sale may be public or private at discretion, 611a. waiver of by parol agreement, 611b. ' insufficient where mailed night before date of sale, .612n. must be given to general owner or his agent, 612. need not be formal if pledgor has actual, 613. defective if time and place be not specified, 614. necessity where pledge is note, 631b. Of sale of collateral stocks, 720-729. the general rules in regard to demand and notice apply, 726. sold like pledges of ordinary chattels, 727. Waiver of by agreeing upon power of sale, 730-740. agreement for private sale or sale without notice, 730, 732. minor may revoke waiver of notice, 733. when notice provided for has become impossible, 734. O OFFSET by pledgee to suit for conversion, 577, 594, 595. OHIO, statute regulating transfer of stock, 208. factor's act, 337. pledgor of stock not liable as stockholder, 453. remedies of pledgee after default, 627n. OKLAHOMA, statute regulating transfers of stock, 208a. shares of stock not transferable until calls paid, 208a. statute relating to negotiability of bills of lading, 234. statute relating to negotiability of warehouse receipts, 294a. pledgee of stock not personally liable as stockholder, 4S2a. liability on stock held by fiduciaries, 4S3a. OREGON, statute relating to negotiability of warehouse receipts, 294b. attachment of pledged property, 387b. P PAROL EVIDENCE, admissible to show that transfer was in pledge, 82. to show what debts are secured, 102. to show absolute assignment to be a pledge, 141. to show an absolute transfer of stock to be in pledge, 155. not admissible to contradict written contract, 157. 59 — Col. Sec. 930 INDEX. [References are to Sections.'] PARTIES action for trade mark or trade name, SO. to suit to compel transfer of stock after death of owner, 166n. PARTNER, may pledge partnership property for debt of firm, 69. pledge by, may also be made to secure firm debt, 3S8a. . PAWNBROKER, statutes regarding sales of pawn by, 616-630. interest that may be charged by, 616. PAYMENT not presumed from assignment of security to a creditor, 17. whether bill of lading secures payment or acceptance of draft, 2SS. present liability presumed where no time of payment fixed, 35Sc. interest ceases on tender of payment, 540. pledgor entitled to collateral on payment of debt, S44n. refusal justified on refusal to return collateral, S93n. Eifect of, 540-547. discharges the pledge, 540. but whole debt must be paid, 540. renewal of note secured noes not extinguish debt, 541. substitution of other securities is not, S41a. by surrender of the pledge by pledgee, S41b. creditor has no power over collateral after payment, 544. Application of, 548-551. when pledge covers several distinct debts, 548. to unsecured debt, 548. to the least secured debt, 548a. creditor may apply a general payment, 549. proceeds of pledge must be applied to the debt secured, 550. of debtor's own securities before those of an indorser, SSOa. of surplus after satisfying principal debt, SSOb. creditor has no right to apply security to any other purpose, SSI. whether application of collateral interrupts statute of limitations, SSla. by application of proceeds of collateral, SSla. effect of such payment upon statute of limitations, SSlb. not required of debt in order to redeem pledge obtained by false repre- sentation, 564. return of the pledge not a condition of, 593. demand of sometimes necessary to create default, 608. of collateral paper may be enforced on its maturity, 665. unless understanding is otherwise, 666. that collaterals are accepted in, must be proved, 687. INDEX. 931 [References are to Sections.] PAYMENT— Continued. distinction between note of third person taken for antecedent debt and taken for property sold, 688. note of third person taken in payment by agreement, 689. note of third person when presumed to be in payment, 691. PENNSYLVANIA, statute and decisions as to transfer of stock, 209. statute relating to negotiability of warehouse receipts and bills of lading, 239. factor's act, 338. pledgor's interest made subject to execution, 388. PLACE OF CONTRACT governs the law of pledge, 133. PLEDGE, defined, 1. statutory definitions, 1. more than a lien, less than a mortgage, 2, 3. a contract implied in law, 5. though evidence by writing, need not be recorded, 6. a lien, not a legal title, 7. form of the transaction important, 8. constituted by delivery of property as security, 8. in many cases legal title necessarily conveyed, 9. contract implied, Sn. need not be recorded, 6n. assignment of a contract as security 9. by deposit of property with a third person, 10. by agreement to deliver warehouse receipts, 10. by instrument which in terms pledges property, 11. transaction construed according to circumstances, 13. favored by the law when transaction in doubt, 14. bill of parcels, 14. constituted by bill of sale absolute in terms, IS. by bill of sale and agreement to repurchase, 19, 20. by assignment of lease, 19. indicated by inadequacy of price, 20. construction of, when in writing, for the court, 21. there may be a statutory, 22. Delivery essential to create, 23-39. distinguished from a mortgage by this requirement, 24. in case the property is already in hands of pledgee, 25. of part of a quantity of goods, must be set apart, 26. agreement of parties not equivalent to delivery, 27. 932 INDEX. [References are to Sections.'] PLEDGE — Continued. agreement for distinguished from actual, 28. agreement for amounts to nothing as security, 29. cannot be made of future property, 30. of lost property, 30. of future property upon acquiring it, 31. of increase of pledged property, 32. of unfinished goods, 33. delivery to third person for pledgee, 34, 37. subsequent delivery makes good between the parties, 39. Possession essential to continue, 40-48. not affected by wrongful possession of pledgor, 41. possession of pledgor not conclusive of fraud, 42. pledgee may employ pledgor to sell, 43. not invalidated by delivery to pledgor of special purpose, 44-46. conversion of by pledgor, trover for, 45. Subject-matter of, 49-51. may be of personal property of every kind, 49. of property exempt from attachment, 50. statutory prohibition of, 51. Title of tlie pledgor, 52-65. pledgor impliedly warrants title, 52. need not belong to pledgor, 53. possession is not title, 54. Married women may pledge their property, 66-68. By partner of partnership property, 69. By corporations, 70-74. To corporations, 75-79. Of negotiable paper, 80-133. Of non-negotiable choses in action, 134-150. subject in hands of pledgee to equities, 134. bona fide purchaser for value, 135. Of mortgages, 137-144. must be legally transferred or delivered, 139. fact of pledge need not appear on the assignment, 141. of note without the mortgage, 143. Of policies of insurance, 145-147. by delivering without formal assignment, 145, 146, 147. Of savings bank books, 148. Of judgments, 149. INDEX. 933 [References are to Sections.] ^- PLEDGE — Continued. Of land certificates, 150. Of corporate stocks, 151-154. Of bills of lading, 227-279. Of warehouse receipts, 280-326. PLEDGEE, of negotiable paper can give good title to it, 94. of bill of lading, rights against consignor, 266, 267. rights against consignee, 268-272. rights against carrier, 273-277. of one part of bill of lading, 278, 279. of warehouse receipts, in good faith, rights of, 303-313. Rights to use and profits of thing pledged, 393-402. no right to injure it by use, 394. must account for profits arising from use of pledge, 396. liable for interest on money loaned, 397. liable for dividends on pledged stock, 398. may collect interest coupons of bonds pledged, 399. when the thing is an expense to the pledgee, 395. entitled to all reasonable expenses for care of pledge, 400. when may finish unfinished goods, 401. no right to manufacture raw material, 402. Duty to care for thing pledged, 403-417. bound to use ordinary diligence in care of pledge, 403. same care of pledge that he takes of his own property, 404. not liable if property destroyed without his fault, 405. obligation may be modified by express contract, 406, 407. may by contract make himself liable for accidental loss, 408. rule in case of loss by theft same as in other cases, 409. must take ordinary care of collateral, 410. what the ordinary care required is, 411. ordinary diligence is a relative term, 412. negligence on part of pledgee not presumed, 413. national bank liable as pledgee for collaterals, 414. bank liable for fraudulent conversion by its officers, 415. pledgee continues liable after debt is paid, 416. measure of damages for negligence, 417. His right to assign the pledge, 418-428. assignee stands in his place, 418. cannot assign pledge distinct from debt, 419. original pledge not put an end to Ijy repledging,, 420. not required to keep pledge in his exclusive possession, 421. 934 INDEX. [References are to Bections.'i PLEDGEE— Continued. pledgor cannot maintain trover for a conversion because of an assign- ment, 422. can assign no greater right than he has, 423. of negotiable paper can give good title, 424. may transfer with principal debt, 425. may release a portion of goods pledged, 426. upon death his right passes to personal representative, 427. criminal offense to sell or repledge collaterals, 428. His right of action for a coversion of pledge, 429-436. may replevin pledged chattel wrongfully taken from him, 429. may recover pledge, or its value, of pledgor who has wrongfully taken, 430. cannot maintain bill in equity against one intrusted with pledge, 431. measure of damages in trover against pledgor, 432. against third person, 433. action for injury to pledge by stranger, 434. damages in action for conversion of gold coin, 435. damages against pledgor taking pledge by replevin, 436. Of stock, rights and liabilities of, 437-512. liability as stockholder, 437. cannot escape liability by transfer to irresponsible person, 438. when the stock is transferred to third -person in first instance, 439. may sell it in pursuance of a power of sale, 440. the registered stockholder may vote, 441. though he holds in pledge, 442. will not be restrained by injunction from voting, 443. by voting upon stock does not convert it to his own use, 444. statutes exempting pledges from liability as stockholders, 445-456. of corporation's own stock entitled to benefit of such statute, 457-459. holding stock after payment of debt liable ^as stockholder, 460. His rights acquired in good faith from apparent owner, 461-473. certificate of stock not negotiable, 461. usage of brokers to treat it as negotiable, 462. closely assimilated to negotiable instruments, 463.. title not changed by involuntary transfer, 464. whether negligence in owner to execute transfer in blank, 465. taking certificate in good faith apparent owner, 466. owner having conferred upon another the indicia of property is estopped, 467. this rule applied to assignment of life insurance policy, 467a. immaterial whether certificate passes legal or equitable title, 468. a precedent debt a sufficient Consideration, 469. INDEX. 935 [References are to Sections.] PLEDGEE— Continued. of collaterals taken in exchange, 470. ' under usurious contract whether a bona fide holder, 471. having actual notice of rights of owner, 472. of stock certificate standing in name of prior pledgee, 473. His right when dealing with one holding a fiduciary relation, 474-494. trustee has no right to pledge stock, 474. certificate "to estate of" a deceased person, 475. one of two trustees cannot pledge, 476. when corporation liable for permitting transfer by trustee, 477. with knowledge that pledgor held in trust, 478. of certificate which does not indicate any tri^st, 479. exceptional rule in Maryland and California, 480. distinction between pledges by executors and trustees, 481. title of executor absolute, 482. one of several executors may pledge, 483. trustee of insolvent debtor may pledge, 484. knowledge that executor is misappropriating, 485. is perverting assets to his own use, 486, 487. the same facts that are notice to an individual are notice to a corporation, 488. not bound to see proper application of proceeds of loan, 489. the rule as to trustees applies to persons holding other fiduciary relations, 490. rule applied to pledge of bonds by president of railroad company, 491. in Georgia, sales by administrator must be public, 492. of stock taken from one professedly acting as agent, 493. broker buying from one known to be acting as agent, 494. notice of trust from memorandum on note, 494. broker buying stocks on order of agent of undisclosed principal, 494a. repledging in such form that second pledgee is charged with notice, 494b. His rights as broker carrying stocks upon margin, 495-500. relation of pledgor and pledgee created, 495. broker acts in a threefold relation, 496. stocks on margin distinguished from executory contract for grain, 497. in Massachusetts, contract of broken with customer regarded as execu- tory, 498. this decision introduces' a new doctrine, 499. broker cannot recover for fictitious purchase, 500. liable to pledgor for value of securities lost in a wagering contract, 500a. His right to use and hypothecate pledged stock, 501-512. no right except by virtue of a special agreement, 501., authority to pledge may be inferred from circumstances, 502. 936 INDEX. [References are to Sections.] PLEDGEE — Continued. custom that broker may pledge customer's stock, 503. whether stock pledged to bank is subject to banker's lien, 504. his use must be consistent with pledgor's general ownership, 505. understanding that broker may hypothecate stocks, 506. using to secure his own debt may be a conversion, 507. need not return identical stock, 508, 509. must always have on hand enough to satisfy all contracts, 510, 511. when securities belonging to several persons have been rehypothecated, 512. conversion by transferring pledge beyond his control, 571a. not by a nominal transfer, S71b. _ 'iis remedies after default. See Remedies, 589-757. His remedies upon negotiable paher. See Negotiable Paper, 651-719. His remedies upon pledges of stocks. ■ See Stocks, 720-7S7a. PLEDGE-HOLDER, 34. PLEDGOR, in possession can give good title, 47. impliedly warrants title, 52. cannot set up against pledgee an after-acquired title, 52. may pledge property of another with consent, 53. possession alone does not enable him to make a valid pledge, 54. in possession of stolen property cannot pledge it, 55. may effectually pledge property obtained by fraud, 56. without title can confer no title, 56. may confer good title to negotiable instruments, 57. need not be sole and absolute owner, 58. having life interest may pledge that, 59. having a limited interest can only pledge that, 60. administrator may pledge personal property of the estate, 61. vendor in possession may pledge, 62. vendee in possession may pledge, 63. carrier cannot pledge goods intrusted to him, 64. one joint owner in possession may pledge his interest, 65. Rights and liabilities of before default, 364-392. may assign his interest subject to the pledge, 364. his assignee takes only his rights, 365. INDEX. 937 [References are to Sections.'] PLEDGOR— Continued. right reserved to sell the pledge, 366. notice to purchaser of existing pledge, 367. notice by assignee of pledge of the assignment, 368. action for conversion of the pledge before assignment, 369. assignee of pledge entitled to redeem it, 370. genuineness of collateral not affirmed by pledgee's delivery of it to as- signee, 371. Liability of his interest to attachment and execution, 372-392. not liable to attachment or execution at common law, 372. not generally liable to trustee or garnishee process, 373. statute of the several states on this subject, 374-392. action for injury to pledge by stranger, 434. cannot require return of pledge before payment, 593. cannot set up non-return of pledge in defense to suit on debt, 594. but otherwise under codes of several states, 595, 596. POSSESSION, may be held by third person for pledgee, 34. may be held by workman or clerk of pledgor, 35. when pledgor's clerk has mixed with goods not pledged, 35a. by pledgor for temporary purpose, 40n. Must be continued to preserve the pledge, 40-47. redelivery of terminates the pledge, 40. obtained wrongfully by pledgor, 41. wrongfully obtained by pledgor and sold, 41n. pledgor as agent for pledgee, 42n. by pledgor, not conclusive evidence of fraud, 42. pledgor may be employed by pledgee to sell, 43. of pledgor for a special or limited purpose, 44, 45. under the civil law, 46. by pledgor enajjles him to give good title, 47. not after property has been restored to pledgee, 48. is not title though indicative of it, 54, 55. of negotiable paper is presumptive of title, 57. . Of negotiable paper, 80-88. must be actual to establish title of pledgee, 85. pledgee hot required to keep exclusive, 421. See Delivery. to transfer stock executed in blank, 164. though under seal may be in blank, 165. POWER OF ATTORNEY, transfer of corporate stock, 161n. 938 INDEX. [References are to Bections.'] POWER OF SALE, is an authority coupled with an interest, 631. is terminated by satisfaction of debt, 632. where the subject-matter is divisible, 633. where pledgor has mixed pledged goods with his own, 634, 636. pledgee cannot directly or indirectly purchase, 635, 740. pledgee purchasing not chargeable with conversion, 637. pledgor may treat purchase by pledgee as valid, 638. pledgee may show that sdle was for purpose of valuing the property, 639. does not exclude jurisdiction in equity to foreclose, 646. negotiable paper may be sold by virtue of, 651, 653. Sale of collateral stocks under, 730-740. competent for parties to agree upon manner of sale, 730. power of sale may sometimes be implied, 731. waiver of notice of sale, 732, PRE-EXISTING DEBT, Pledge of negotiable paper to secure, 107-133. sufficient consideration for pledge of bill of lading, 232. not sufficient to make pledgee of chattels a holder for value, 360a, 469. See Consideration. PkOBATE proceedings not necessary in Texas to enforce pledge, 656. PROFITS, pledgee entitled to such as accrue on the pledge, 396. pledgee may collect dividends, 398. and interest coupons, 399. POMISSORY NOTE, endorsement carries collateral, 419n. right of maker to compel pledgee to present against endorser, 673n. diligence of pledgee after maturity, 700n. See Negotiable Paper. PROTEST, effect of failure of pledgee to present note for payment, 692n. PURCHASER, in good faith from pledgee in possession acquires a good title, 47. See Assignment. RATIFICATION, action of bailee in pledging property on principal, 330n. INDEX. 939 [References are to Sections.'] RECEIVER right of guarantor's administrator to accept pledge from pledgee's re- ceiver, S13n. of corporation or partnership a party to suit to foreclose pledge, 646a. RECORD, pledge need not be recorded, 6n. effect of failure of pledgee to record chattel mortgage, 702n. RECOUPMENT by pledgee for debt to suit for conversion of pledge, S77. REDELIVERY, to the pledgor terminates the pledge, 40. unless for a temporary purpose, 40. obtained by wrongful act of pledgor, 41. possession of pledgor not conclusive of fraud, 42. pledgor may be employed by pledgee to sell, 43. for a special and limited purpose, 44, 45. of negotiable paper to debtor for collection, 86. when destroys creditor's special property, 87. for temporary purpose estops debtor, 88. REDEMPTION, pledged stock on payment of debt, 153n. pledgor's assignee entitled to, 370. Of pledge in equity, SS2-S60. the right attaches to every pledge, 553. released by subsequent agreement, 553. agreement that upon default property shall be pledgee's, 554. if made subsequently to pledge may be enforced, 555. remedy at law is sufficient, 556. bill in equity will lie under special circumstances, 557. where an account is wanted, 557. to obtain a re-transfer of stock pledged, 558. to compel return of note and mortgage to pledgor, 559. upon death of pledgor his representatives have his right, 560. pledgee entitled to charge expenses and payment, S60a. action to redeem not the usual remedy, 561. but trover for conversion, 562-580. when right of is barred, 581. delay in making after illegal sale is an affirmance of it, 637b. REGISTRY, not required of a pledge, 6, 39. 940 , INDEX. IBeferences are to Bections.'i RELEASE, one joint debtor as consideration, 89n. by pledgee of part of goods pledged, 426. discharges surety if he is injured, SIS. otherwise if he is not injured, SlSa. if surety has paid debt in ignorance of, he may recover of creditor, 517. any change in contract releases surety, S17a. REMEDIES, of pledgee after default, S89-6S0. ^uit upon the debt, S89-598. pledgee may pursue all his remedies, 589, 663, 720. holding of collateral does not suspend his right of action on the debt, 590. recovery of judgment does not affect his right to enforce the pledge, 591. no change in form of debt releases the collateral, 591a. debt may be enforced though pledge is discharged by tender, 592. return of pledge not a condition to be performed concurrently with pay- ment, 593. pledgor cannot offset value of pledge in suit on debt, 594. under some codes may offset conversion of pledge, 595. and pledgee must produce or restore collateral, 596. pledgee may maintain suit for deficiency, 597. pledgee not obliged to present claim to administrator, 598. Attachment of pledged property, 599-601. pledgee waives lien by attaching same property, 599. even when it is in hands of agent, 600. but may attach on another demand, 601. Sale of pledge at common law, 602-615. this is the usual method of enforcing a lien, 602. pledgee upon default may sell pledge at public auction, 603. pledgee can only sell the interest transferred in pledge, 604. order in which securities are to be sold, 604a. assignee of pledgee has same right to sell, 605. pledgee not obliged to sell even when requested, 606, 728, 729. two kinds of notice which pledgee must give, 607. when demand of payment is necessary, 608. notice of sale must be given though debt payable at a fixed day, 609 sale can only be made after reasonable notice, 610. waiver of requirement of notice, 611. notice must be given to owner or his agent, 612. formal notice not necessary if owner has actual notice, 613. time and place of sale must be given, 614. extension of time of payment suspends right to sell, 615. INDEX. 941 [References are to Sections.] REMEDIES— Continued. Statutory provisions regulating sales of pledged property, 616-630. some exclusive, others permissive, 616. statutes of several states, 617-630. Sales under powers of sale, 631-639. power of sale is coupled with an interest, 631. default must first be shown, 631a. may provide for private or public sales, 631b. is terminated by satisfaction of debt, 632. where the subject-matter is divisible, 633. where pledgor has mixed the pledged chattels with his own, 634. pledgee cannot directly or indirectly purchase, 63S, 740. unless power of sale so provides, 635. and even then sale should be advertised, 63Sa. general partner in firm which is pledgee cannot purchase, 636. but pledgee purchasing is not chargeable with conversion, 637. reasons for rules against purchases by pledgee, 637a. delay in redeeming pledge, an affirmance of sale, 637b. pledgor may elect to treat such sale as valid, 638. pledgee may show that sale was for valuation, 639. purchaser acquires entire interest, 639a. Sales under proceedings in equity, 640-648. the earliest form of foreclosing a pledge, 640. jurisdiction in equity when an account must be stated, 641. to foreclose pledge of shares of a land association, 642. in case of a pledge of a title deed, 643. factor may enforce his lien by equitable suit, 644. foreclosure upon default in interest, 646. receiver to be made party to suit, 646a. to foreclose pledge to secure award, 646b. in case of a pledge of bonds of an insolvent corporation, 646c. no decree of strict foreclosure of a pledge, 647. court may authorize pledgee to bid, 648. Surplus proceeds of sale, 649, 650. pledgor's right to surplus absolute, when, 649. pledgor may collect surplus by suit at law, 650. Upon pledges of negotiable paper, 651-719. suit upon collateral paper, 664-680. See Negotiable Paper. Upon pledges of stocks. See Stocks, 720-7S7a. 942 INDEX. [References are to Sections.l RENEWAL, of debt ordinarily secured by pledge, 3SSa. of note secured by pledge does not discharge the pledge, 541, S91a. extending time of payment does not extinguish debt, 541. RENTAL, payment by pledgee, 393n. REPLEDGING, lease or consent of pledgor, 418n. confers no new title to pledgee, 421n. right of pledgor to recover based on conversion, 422n. a criminal offense in some states, 428. broker's right to repledge customer's stocks, 501, 502, 503. broker pledging to bank, knowing the broker is not owner, 504. agreement that broker may hypothecate, 506. original contract of pledge not destroyed by, 579. See Pledgee and Assignment. REPLEVIN, by pledgee against pledgor for wrongfully taking pledge, 429. pledgor must discharge debt before he may replevin property from pledged, 429n. RHODE ISLAND, statute and decisions as to transfers of stock, 210. warehouse receipts, 294c, a. factor's act, 339. statute regulating sale of pledge, 628. See Bill of Sale ; Remedies. S SALE, pledge property by pledgor as agent, 43n. pledged property at highest price, 393n. necessity of advertising where pledge is note, 631b. right to apply excess on other debts, 633. Of pledge at common law, 602-615,. pledgee may sell at public auction, 603. pledgee can sell only interest pledged, 604. order in which securities should be sold, 604a. his assignee has the same right to sell, 60S. not obliged to sell, even when requested, 606. two kinds of notice to be given, 607. notice of time and place not dispensed with but by agreement, 609. can only be made after reasonable notice, 610. waiver of notice by agreement, 611, 631-640. INDEX. 943 [References are to Sections.] SALE — Continued. public or private, at discretion, 611a. without notice, this being waived by parol agreement, 611b. notice of, must be given to general owner or his agent, 612. formal notice of not necessary if there be actual notice, 613. notice of time and place necessary, 614. extension of time of payment, suspends right of, 61S. Statutory provisions regulating sale of pledge, 616-630. some permissive, others exclusive, 616. Under powers of sale, 631-639. affirmed by delay in redeeming, 637b. See Power of Sale. Under proceedings in equity, 640-648. Collateral paper cannot be enforced by, 651. except by agreement of parties, 651, 652. under power of sale, 653. yet some authorities hold that collateral paper may be sold, 654. sale of collateral paper under decree in equity, 655. mortgage and note cannot be sold, 657. mortgagee of note and mortgage may sell, 658. Of corporate stocks at common law, 720-729. effect of sale for inadequate price, 723n. secret agreements, 726n. reasonable care by pledgee in making a sale, 728n. Of stocks under powers of sale, 730-740. Illegal sale of stocks, 741-749. Measure of damages for illegal sales of stocks, 750-757. SAVINGS BANK BOOK, delivered to a third person for a creditor, 37. may be pledged by delivery without writing, 148. cannot be sold, but should be collected, 662. SECRET CONTRACTS, affecting warehouse receipts, 28Sb, n. sale of pledged stock, 726n. SHARES OF STOCK, personal property, 180n, 188b, 190a, 197, 207, 216. 944 INDEX. [References are to Sections.] SOUTH CAROLINA, statute regulating transfer of stock, 211. statute relating to negotiability of warehouse receipts, 294c. liability of persons holding stock as fiduciaries, 453b. SOUTH DAKOTA, statute regulating transfers of stock, 211a. statute relating to negotiability of bills of lading, 234. liability of executor or fiduciary holding stock as collateral security, 453c. statute, regulating sale of pledge, 618. SPECIFIC PERFORMANCE of contract to return stock, 7S7a. STATUTE OF LIMITATIONS. See Limitations. STATUTES, regarding delivery of pledge, 23. regarding title of pledgor, 53. regarding pledges of negotiable paper, 81. regarding assignment of collateral, 98. regulating transfer of stock, 182-220. concerning negotiability of bills of lading, 234-240. making bills of lading conclusive against carrier, 247. regarding attachment of pledgor's interest, 375-^92. in regard to voting upon pledged stock, 441. regulating sales of property under pledge, 616-630. STATUTORY PLEDGE, 22. STOCK EXCHANGE, 737, 738. See Brokers' Board. STOCKHOLDER, Pledgee's liabilities as, 437-460. pledgee has same liability as any stockholder, 437. pledgee cannot escape liability by transfer to irresponsible person, 438. where stock is in first place transferred to a third person, 439. pledgee may transfer it under a power of sale, 440. person in whose name stock is registered may vote, 441, 442. statutes of several states as to voting upon pledged stock, 441. pledgee will not always be enjoined from voting, 443. pledgee does not convert stock by voting upon it, 444. statutes exempting pledgee from personal liability as, 445-456. pledgee of corporation's own stock entitled to statutory exemption, 457-459. pledgee holding stock after payment of debt liable as, 460. INDEX. 945 [References are to Sections.] STOCKS, transfer of when a pledge rather than a mortgage, 9, 18. executory contract to deliver, 28. cancellation of pledged stock, 40n. redelivery of to pledgor to effect sale, 44. pledge by agent, 53n. bona fide holder by extension of time of payment, 113n. sufficiency of indorsement to transfer shares, ISln. transferred without delivery, 168n. pledge to cover debt not described, 169n. pledgee entitled to new certificate, 198. A proper subject of pledge, 151-154. a written transfer necessary, 151, 152. assignment on separate paper, 152a. declaration in writing not delivered, 152a. of wife pledged by husband, 153a. transfer of legal title not inconsistent with a pledge, 153. pledge of, distinguished from condition sale, 154, 156. absolute transfer may be shown to be a pledge, 155. parol evidence to show transfer to be in pledge, 155-157. not admissible to contradict written contract, 157. What constitutes a transfer at common law, 158-162. transfers governed by general principles of common law, 159. statutes of doubtful meaning do not control, 160. convenience of unrestricted transfers, 161. delivery of certificate, a complete transfer, 161. by-laws not authorized by statute do not affect pledgees, 162. Transfers in blank, 163-167. sanctioned by general commercial usage, 163. decisions of English courts to the contrary, 164. power of attorney in blank, 165. authority to fill blank not revoked by death of pledgor, 166. warranty of genuineness of certificate implied, 167. Transfers by delivery of certificate as between the parties, 168-171. title passes as between the parties, 168, 169. by-law requiring transfer upon books does not restrict, 168. some courts hold that entire title, legal and equitable, passes, 170. other courts hold that only equitable title passes, 171. Transfers as between parties and corporation, 172-176a. corporation only bound by recorded transfer, 172, 173. provision for recording transfer is for security of corporation, 174. recorded transfer necessary to confer a legal right, 175. surrender of outstanding certificate essential, 176. 60 — Col. Sec. 946 INDEX. [References are to Sections.] STOCKS — Continued. shares taxable to holder of record title, 176a. Transfers as between parties and their creditors, 177-220. question whether unrecorded transfer passes legal title, 177. sale on execution against registered owner, 178. attachment after knowledge of prior transfer, 179. statutory regulations in the several states, 180-220. not transferable until calls paid, 208a, 218. legislation tends to unrestricted transfers, 219a. summary of the law of the several states, 219a. transfer by certificate alone sufficient, 219a. policy that should govern transfers of, 220. Liens in favor of the corporation, 221-226. must be expressly created, not implied, 221. taking of collateral security no waiver of lien, 221. statutory provision in Connecticut, 222. no lien for debt contracted after knowledge of prior transfer, 223. national banks cannot claim such lien, 224. corporation may waive lien, 225. damages for refusing to make transfer, 226. right of pledgee superior to assignee, 36Sn. liability for debts on registered shares, 437n. right to vote, 444n. right of pledgee to new certificate, 450. fraudulent overissue of, 461a. one taking certificate from apparent owner acquires good title, 466. certificate with forged transfer or power, 466a. transfer of stock having all the indicia of ownership, 467. Trustee holding and pledging for his own debt, 474—491. notice of trust may be from any source, 475. certificate indorsed by guardian, 475a. one of two trustees cannot pledge, 476. corporation permitting transfer of stock with notice by trustee, 477. pledgee with knowledge that pledgor holds in trust, 478. pledgee of negotiable bonds in good faith, 478a. pledgee of stock certificates which do not indicate trust, 479. bona fides holders of share which does not lien, 479n. bill in equity to obtain re-transfer to pledgor, 558. Remedies upon pledges of, 720-757. pledgee has several remedies, 720. may be sold upon default, 721. of broker who is carrying stock upon margin, 722. custom of brokers to sell at stock exchange, 723. INDEX. 947 [References are to Sections.] STOCKS— Continued. bankruptcy of pledgor does not prevent pledgee's selling, 724. pledgee must give notice and make public sale, 725. general rules in regard to demand and notice apply, 726. bonds and stocks sold like ordinary chattels, 727. no obligation to sell on default, 728. pledgee not liable for loss by neglect to sell, 729. Sale under powers of sale, 730-740. competent for parties to agree upon manner of sale, 730. power of sale may sometimes be implied, 731. waiver of notice of sale, 732. minor may revoke waiver of notice, 733. when notice provided for has become impossible, 734. the price obtained at public or private sale, 735. a demand of payment may be necessary, 736. sale at brokers' board, 737. is a private sale, 738. sale in separate lots, 739. creditor cannot himself purchase, 740. purchase by agent of pledgee in good faith, 740a. Illegal sales by pledgee, 741-749. consequence of an illegal sale is that pledgor may redeem, 741. wrongful sale does not prevent creditor's recovering upon the debt, 742. , failure to impeach sale within reasonable time, 743. customer should object to broker's sale within reasonable time, 744. accepting surplus is waiver of illegality in sale, 745. action for proceeds of sale is ratification of it, 746. payment of deficiency after sale is an acquiescence in it, 747. trover after wrongful sale cannot be maintained without tender, 748. debtor must pay or tender debt before he is entitled to a re-transfer of stock, 749. liability for loss by delay in returning pledged stock, 749a. Measure of damages for illegal sale of stock collaterals, 750-757. is value at time of conversion, 750. time of conversion must often be fixed by demand, 751. in suit in equity to redeem shares, 752. exception to rule in some cases, 753. origin of this exception, 754. highest market value up to time of trial, 755. this rule applicable only in special cases, 756. rule further modified and settled in New York, 756a. this rule adopted by supreme court of the United States, 756b. when there is no evidence of value, 756c. the true measure of damages, 757. pledgor sometimes entitled to specific performance, 7S7a. 948 INDEX. [References are to Sections.] STOLEN PROPERTY, cannot be effectually pledged, SS. SUBJECT-MATTER, Of pledges, 49-51. every kind of personal property may be pledged, 49. property exempt from attachment, SO. pledge of a pension certificate prohibited, 51. Negotiable paper, 80-133. Non-negotiable choses in action, 134-150. mortgages, 137-144. policies of insurance, 145-147. savings bank books, 148. judgments, 149. land certificates, ISO. Corporate stocks, 151-154. Bills of lading, 227-279. Warehouse receipts, 280-326. SUBROGATION, 513-539. substitution of securities as affecting surety, S33a. as affecting rights of pledgor and pledgee, 541a. See Surety. SUIT upon debt, 589-598. See Remedies. SURETY, wrongful surety of security as discharge of surety, SlSn. Right of subrogation to creditor's securities, 513-522. on paying the debt is subrogated to collateral, 513. also to a lien on debtor's property, 513. foundation of this equity is that the security is a trust, 514. discharged by creditor's surrender of security, 515. release of collateral does not discharge, 515a. discharged by creditor's loss of security, 516. when may recover of creditor value of released security, 517. one pledging for the debt of another is, 5 17a. any injurious change in contract of principal discharges, 517a. relation of debtor and surety may be shown by parol, 518. equitable right of must yield to assignee without notice, S18a. discharged by extension of time of payment of principal debt, S18b. not discharged by creditor's taking security without extending payment, 519. INDEX. 949 [References are to Sections.] SURETY— Continued. released by false statement made by creditor as to collateral, 520. when collateral also secures other debts, 521. right of subrogation does not arise till payment, 522. Creditor's equitable right to surety's securities, 523-533. security in surety's hands is a trust in favor of creditor, 523. not material that creditor did not know of the security, 524. in some states creditor's equity is merely a right to be subrogated, 525. distinction between security given for payment and security given for in- demnity, 526. weight of authority in favor of creditor's equitable lien, 527. creditor entitled to enjoin misappropriation of security, 528. but not where his right is that of subrogation merely, 529. discharge of surety does not bar creditor's right, 530. surety may transfer security to creditor, 531. one may hold a pledge both as creditor and surety, 532. how dividend in bankruptcy should be applied, 533. not released by substitution of other collateral, 533a. Mutual equities of co-sureties to each other's securities, 534-539. creditor not entitled to benefit of security furnished by another surety, 535. debtor not released from his implied contract to repay surety, 536. surety's right of subrogation to debt, 537. is subrogated only to amount, 538. misappropriation of security by one surety, 539. cannot require pledgee to first proceed upon collateral, 686. may exact diligence of pledgee in collecting collateral, 711. creditor entitled to benefit of collateral given by debtor to surety, 712. SURPLUS, pledge of after satisfying principal debt, S50b. proceeds of sale, pledgor entitled to, 649. may collect by suit at law, 650. acceptance of is waiver of illegality in sale, 745. SURRENDER, by pledgee of pledge, 372n. of securities by principal debtor discharges surety, 515. if surety is injured, otherwise not, S15a. by pledgee of the debt and transfer of the pledge are payment, S41b. of collateral by pledgee, 717. SYMBOLICAL DELIVERY, sufficient, 36. by delivery of document of title, 37. by delivery of bill of lading, 228, 229. 95° INDEX. [References are to Sections.] SYMBOL OF PROPERTY, a bill of lading is a, 227-232. delivery of bill of lading transfers the property, 228. TAXES, on pledged stock, 172n. TENDER, of amount of debt discharges the lien of the pledge, 542. creditor refusing converts pledge to his own use, 543. has no power over collateral afterwards, 544. to discharge the pledge, must be absolute, 545. statute that an offer in writing is equivalent to, 545. must be made in good faith, 545a. need not include interest if none contracted for, 546. sufficient where amount is in dispute, 545n. discharges maker of accommodation note, 547. upon pledgee's refusal of, a conversion occurs, 566. necessary to enable pledgor to recover securities, 570. need not be formal if pledgor substantially offers to redeem, 572. debt may be enforced though pledge discharged by tender, 592. necessary in order to recover value of stocks illegally sold, 748, 749, TENNESSEE, decisions respecting transfer of stock, 212. statute relating to negotiability of warehouse receipts, 294d. pledgor's interest made subject to attachment and execution, 389. TEXAS, statute regulating transfer of stock, 213. , remedy of pledgee after default, 229a. warehouse receipts, 294f. pledgor's interest made subject to execution, 390. THEFT, burden of proof where pledged property is stolen, 413n. TIME, of the essence of contract for extension, 129a. present liability presumed where no time of payment is fixed, 3SSc. TIME OF PAYMENT, extension of, 129, 130. must be supported by sufficient consideration, 130a. usurious agreement for, 131. suspends right of pledgee to sell, 615. of collateral paper by pledgee, 719. INDEX. 951 [References are to Sections.] TITLE, to pledge not transferred, 7n. pledgor sufficient to bring action in own name, S2. of the pledgor, 52-65. pledgee of property obtained by pledgor's fraud, 55n. impliedly warranted by pledgor, 52. possession not conclusive of, 54. pledgor cannot give better tllan he has, 55, 59, 60. possession of negotiable paper presumptive of, 57. pledgor need not have absolute, 58. one having life interest may pledge that, 59. administrator may pledge property of estate, 61. guardian cannot pledge ward's property, 61. vendor in possession may pledge, 62. conditional buyer cannot pledge, 63. common carrier cannot pledge, 64. agent to sell cannot pledge, 6Sa. ' married woman may pledge, 66. one partner may pledge firm's property, 69. TITLE DEED, pledge of, must be foreclosed in equity, 643. TRADE-MARK, pledge, SO. TRANSFER, of shares of stock must be in writing, 152. of stock absolute in form may be shown to be in pledge, 154. what constitutes at common law, 158. governed by general principles of common law, 159, 160. statutes of doubtful meaning relating to will not control, 160. unrestricted, convenience of, 161. unauthorized by-law restricting, 162. in blank warrants genuineness of certificate, 167. By delivery of certificate as between the parties, 168-171. title passes as between the parties, 169, 170. some courts hold that only equitable title passes, 171. By delivery as between the parties and the corporation, 172-176. not entered upon the books does not bind corporation, 172, 173. provision for recording is designed for safety of corporation, 174. record necessary to confer legal title as against corporation, 175. not effectual without surrender of old certificate, 176. By delivery as between parties and their creditors, 177-220. 952 INDEX. [References are to Sections.'] TRANSFER— Continued. whether legal as well as equitable title passes, 177. sale on execution against registered owner, 178. regulated by statute in many states, 180-220. policy that should govern, 220. Of bills of lading, how made in pledge, 261-265. Of warehouse receipts, how made in pledge, 298-302. Of shares of stock, property pledged does not defeat right of pledgee, 364n. when involuntary, does not change title, 464. whether negligence in owner to execute in blank, 465, 473. by owner, confers indicia of ownership, 466, 467. whether it passes legal or equitable title, 468. TROVER, by pledgee against pledgor for property delivered for special purpose, 45. the usual remedy for conversion of pledge, 562-580. by pledgor to recover value of stock illegally sold, 748. See Conversion. TRUSTEE, ■\ pledge may be delivered to trustee, lOn, 10a. holding securities in trust and not in pledge, 10a. holding stock in pledge not liable as stockholder, 445-456. holding stock cannot pledge for his own debt, 474. stock issued to "the estate of" a deceased person, 475. stock certificate indorsed by guardian, 47Sa. one of two trustees cannot pledge trust property, 476. when corporation liable for permitting transfer by, 477. using stock to secure his own debt with knowledge of pledgee, 478. pledging stock certificates which do not indicate any trust, 479. exceptional rule in Maryland and California as to word "trustee,"' 480. distinction between pledge by executor and pledge by trustee, 481. of insolvent debtor, has like power of disposal as executor, 484. other persons holding fiduciary relations pledging stock, 490. case of pledge of bonds by president of a railroad, 491. pledgee a trustee, 561. TRUSTEE PROCESS, pledgor's interest not generally subject to, i7Z. statute in Maine, 381. U UNFINISHED GOODS, not required to be removed from premises, 33n. INDEX. 953 [References are to Sections.'] UNITED STATES, statute exempting fiduciary holders of stock in national banks from per- sonal liability as stockholders, 44Sa. USAGE, cannot make bills of lading negotiable, 250. of brokers to treat certificate of stock as negotiable, 462. of brokers to pledge customer's stock,, 503, 723. of bankers to sell negotiable notes taken as collateral, void, 651. cannot authorize broker to sell- stock without notice, 723. USE, of the thing pledged. See Pledgee, 393-417. USURY, in contract of pledge, 471. no recovery by pledgee where debt is usurious, 471. right of bond broker to collect, 619n. UTAH, statute regulating transfer of stock, 214. warehouse receipts, 294g. V VENDEE, in possession under conditional sale cannot pledge, 63. VENDOR, in possession may pledge, 62. lien of, upon goods pledged by delivery of warehouse receipt, 306. VERMONT, statute regulating transfer of stock, 215. warehouse receipts, 294i. pledgor's interest made subject to attachment and execution, 391. VIRGINIA, statute regulating transfer of stock, 216. statute relating to negotiability of warehouse receipts, 294e. VOTES, directors owning stock may vote at corporate elections, 441n. W WAGERING CONTRACTS, for purchase or sale of stocks, SOOa. broker liable for lossess on such contracts, SOOa. 954 INDEX. [References are to Sections.] WAIVER, claim under insolvency act, 588c, n. right to sell pledge by extension, 61Sn. of notice in sale of collateral stocks, 732. minor may revoke, 733. of illegal sale by accepting surplus, 745. by bringing action against pledgee, 746. WAREHOUSE RECEIPTS, pledge of by contract to deliver, 10. delivery to another creditor, 2Sn. delivery of to pledgor to eflfect sale, 45. pledge of bill of lading not exchanged, 235n. pledge under Minnesota statute, 236. receipts of one not a warehouseman not a warehouse receipt, 280a, n. How far negotiable, 280-297. represent the property mentioned, 280. contract of storage an essential element of, 280a. cannot be issued by persons not storing goods for hire, 280b. not technically negotiable, 281. quasi-negotiability of, distinguished from complete, 282. Arizona statute, 283b. in some states declared negotiable by statute, 283-295. Florida statute, 285b. transfer by delivery without indorsement, 287n. pledge by delivery, 290n. Michigan statute, 293a. Missouri statute, 293c. New Mexico statute, 293d. Texas statute, 294f. Utah statute, 294g. North Carolina statute, 294a. Rhode Island statute, 294c, a. Vermont statute, 294i. How transfer in pledge may be made, 293-302. though negotiable by statute, stand in lieu of property, 296. whether evidence of ownership or pledge, 297. need not be in a particular form, 298. though not to order or bearer may be pledged by delivery, 299. exceptional rule in Massachusetts, 263, 300. to bearer may be transferred without indorsement, 301. acknowledgment of notice of transfer of, 302. holder of collateral not required to notify warehouseman, 302n. lien where property is not in possession of warehouseman, 310n. receipts as evidence where signed by other than warehouseman, 324n. INDEX. 955 [References are to Sections.] Rights of bona Me pledgee of, 303-313. transfer to, passes title as effectually as actual delivery of the goods, 303. when possession of goods obtained by pledgor in fraud, 304. possession obtained by pledgee in good faith, 305. pledgee takes title superior to lien of vendor, 306. order accepted is sufficient delivery of goods, 307. title by estoppel of pledgor, 308, 309, 310. warehouseman estopped to deny he has the goods, 311. when property deliverable on return of receipt, 311a. not estopped as to matters not within his knowledge, 312. nor when he issues a receipt by mistake, 313. Warehouseman must have goods in store, 314-320. statutory provision that receipt shall not be issued till goods are received, 314. for goods not received does not pass title, 315. issued by agent without authority not binding, 316. issued by officer of warehouse company in favor of himself, 316a. for part of goods stored in bulk, 317. rule appHes to such property as grain, 318. when identical goods may be demanded, 318a. when issued for more grain than is in store, 319. warehouseman not guarantor of title, 320. Owner cannot give receipt for his own goods, 321-326. statutory provision in Nebraska and Kentucky, 322, 323. receipt signed by agent no more effect than his own, 324. public warehouseman cannot issue receipt for his own property, 325a. distinction between sales and pledges as regards delivery, 326. WARRANTY, of title by pledgor implied, 52, 330. of genuineness of stock certificate implied by transfer, 167. WASHINGTON, statute regulating transfer of stock, 217. statute relating to negotiability of bills of lading, 234. statute relating to negotiability of warehouse receipts, 294f. pledgor may vote upon pledged stock, 441. pledgee of stock not personally liable as stockholder, 454. WEST VIRGINIA, statute regulating transfer of stock, 216. liability of pledged stock to process, 391a. liability of fiduciaries holding stock as collateral security, 4S4a. 956 ■ INDEX [References are to Sections.'i WISCONSIN, joint execution of note by husband and wife, 66n. statute regulating transfer of stock, 218. statute relating to negotiability of warehouse receipts and bills of lading, 240. statute relating to negotiability of warehouse receipts, 295. factor's act, 340. statute make pledgor's interest subject to execution, 392. pledgee of stock not personally liable as stockholder, 455. statute regulating sale of pledge, 630. WYOMING, statute regulating transfer of stock, 210. pledgor's interest in stocks subject to execution, 392a. pledgor may vote upon pledged stock, 441. pledgee of stock not personally liable as stockholder, 456. Date Due Library Buroai Cat. No. 1137 KF 1060 J77 1912 Author Vol, Jones ; Leonard Augustus 1 Title A treatise on the law of copy collateral secvirities and. . .