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THE DEBT SECURED.
§ 354. Of course 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 can not be enforced. If the consideration of the debt be an illegal or immoral 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 can not 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 secures 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 can not 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 a statute, can not 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.
'Taylor v. Chester, L. R. 4 Q. B. 309. In this case the pledgor brought an action to recover the half of a 501. bank note pledged to secure a debt contracted for wine and suppers supplied to the plaintiff by the defendant
in a brothel kept by the latter, to be there consumed. Beecher v. Ackerman, 1 Abb. Pr. N. S. (N. Y.) 141; Curtis v. Leavitt, 15 N. Y. 9; Roosevelt v. Dreyer, 12 Daly (N. Y.) 370.
'King v. Green, 6 Allen (Mass.) 139.
In Louisiana' the code provides that every lawful obligation may be enforced by the auxiliary obligation of pledge. If the principal obligation be conditional, that of the pledge is confirmed 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 having 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, can not 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 can not withdraw it without his consent.
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.3
§ 355. The debt secured by a pledge is determined 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 pledgor 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
R. Civil Code 1870, p. 373, 2 R. Enochs v. Newton, 65 Miss. 86, 3 So. Civ. Code 1900, arts. 3136-3141. Rep. 141.
2 So by statute in California, Codes and Stats. 1876, § 7994 of Civ. Code, § 2994; and in North Dakota, R. Codes 1895, § 4752, of Civ. Code;
3 German State Bank v. Northwestern Water & Light Co., 104 Iowa 717, 74 N. W. Rep. 685.
from future advances.' On the other hand, a pledge made for a definite loan made at the time, can not be held as security for an antecedent debt, nor for advances which the pledgee may afterwards make to the pledgor, unless it be agreed that the security shall be so applied.'
Thus, where one pledges goods for the repayment of a sum of money borrowed, and afterwards pledges another lot of similar goods to the same person for another loan, if there is nothing to show that either pledge was dependent upon the other, or that when the first pledge was made a future loan was anticipated, or that when the second loan was made the first was alluded to, each pledge is a security for the loan made at the time, and not in any respect for the other loan.'
§ 355a. 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 payment, by the taking of a new note for the old note, does not arise, and the original debt is not discharged.'
§ 355b. When collateral security is equally given for various debts, the pledgee may hold and apply the security to the payment of any of the debts secured. Thus, where one was indebted to a bank for several loans made at different times, and at the times when two of the loans were obtained he pledged
'Baldwin v. Bradley, 69 Ill. 32; Jarvis v. Rogers, 15 Mass. 389; Allen v. Megguire, 15 Mass. 490.
2 Wilcox v. Fairhaven Bank, 7 Allen 270; Hathaway v. Fall River Nat. Bank, 131 Mass. 14; James's Appeal, 89 Pa. St. 54; Robinson v. Frost, 14
Barb. (N. Y.) 536; Ball v. Stanley, 5
3 Baldwin v. Bradley, 69 Ill. 32. Cotton v. Atlas Nat. Bank, 145 Mass. 43, 12 N. E. Rep. 850.
certain notes as collateral security under an agreement declaring, "that for the punctual payment of this or any other sum which I have obtained, or may hereafter obtain, on loan or discount 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 language of the contract could not be construed as giving a preference 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 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 to 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."
§ 356. The mere existence of another debt from the pledgor to the pledgee, does not 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
'Richardson v. Washington Bank, Bank v. Loeb, 27 La. Ann. 110; St. 3 Met. 536. John v. O'Connel, 7 Port. (Ala.) 466; Fall River National Bank v. Slade, Schiffer v. Feagin, 51 Ala. 335; Gilliat 153 Mass. 415, 26 N. E. Rep. 843. v. Lynch, 2 Leigh (Va.) 493; Niles v. 3 Jarvis v. Rogers, 15 Mass. 389; Edwards, 90 Cal. 10, 27 Pac. Rep. 159; Baldwin v. Bradley, 69 Ill. 32; Adams Masonic Savings Bank v. Bangs, 84 v. Sturges, 55 Ill. 468; Teutonia Nat. Ky. 135.
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 circumstances, connects the pledge with a particular debt, another debt, whether prior or subsequent, can be made to share in the security by a like contract, but only upon proof of such a contract.
A creditor can not, upon payment of the debt for which he holds a pledge, retain the pledge as security for a prior or other debt.' He has no lien upon specific articles of personal property 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 which 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. A general lien for a balance of account upon collaterals pledged for a specific loan can not be claimed in the absence of an express agreement or general usage. If there
1 Cowling v. Beachum, 7 Moore 465; De Bernales v. Fuller, 14 East 590, note; Hathaway v. Fall River Nat. Bank, 131 Mass. 14; Jarvis v. Rogers, 15 Mass. 389; Hall v. Marston, 17 Mass. 575; Robinson v. Frost, 14 Barb. (N. Y.) 536; M'Neilly v. Richardson, 4 Cow. (N. Y.) 607; Duncan v. Brennan, 83 N. Y. 487; Wyckoff v. Anthony, 90 N. Y. 442, 9 Daly (N. Y.) 417, 27 Alb. L. J. 94; Baldwin v. Bradley, 69 Ill. 32.
Vanderzee v. Willis, 3 Bro. C. C. 21; Davis v. Bowsher, 5 T. R. 488; In re Medewe's Trust, 26 Beav. 588; This rule applies as well in cases in Jarvis v. Rogers, 15 Mass. 389; Lane