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liability. Such evidence 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 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

or dividends."

in such 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 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 unjusti

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4 Fairbanks v. Merchants' Nat. Bank, 30 Ill. App. 28, quoting text, 132 Ill. 120, 22 N. E. Rep. 524; Merchants' Nat. Bank v. Richards, 6 Mo. App. 454; Gaty v. Holliday, 8 Mo. App. 118; Bell v. Lafferty, 1 Pennypacker (Pa.) 454; Herrman v. Maxwell, 15 J. & S. (N. Y.) 347. The court do not rely upon Hill v. Newichawanick Co., 48 How. Pr. (N. Y.) 427, 8 Hun 459, 71 N. Y. 599, because under the facts in that case the dividends passed to the pledgee, not by opera

tion of law, but by the consent of the pledgor.

5 Guarantee Co. v. East Rome Town Co., 96 Ga. 511, 23 S. E. Rep. 503; Central Nebraska Nat. Bank v. Wilder, 32 Neb. 454, 49 N. W. Rep. 369; Boyd v. Conshohocken Worsted Mills, 149 Pa. St. 363, 24 Atl. Rep. 287; Meredith Village Sav. Bank v. Marshall, 68 N. H. 417, 44 Atl. Rep. 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. Maxwell, 15 J. & S. (N. Y.) 347; Gaty v. Holliday, 8 Mo. App. 118, 120. Bakewell, J., said: "The action for money had and received can not be maintained where no legal ground whatever can be shown for inferring a contract to pay over to the plaintiff the money received. But in the case

fiably refuse 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 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 before the time it is made payable, the pledgor is entitled to the dividend.5

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

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 defendant from the company, it must be regarded 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.' However this may be, it is certain that in many such cases the law implies a promise to pay the money to the real owner."

6 Mo. App. 454; Hunt v. Laconia & Lakeport St. R. Co., 68 N. H. 561, 39 Atl. Rep. 437; Meredith Village Sav. Bank v. Marshall, 68 N. H. 417, 44 Atl. Rep. 526; Bath Sav. Inst. v. Sagadahoc Nat. Bank, 89 Me. 500, 36 Atl. Rep. 996; Boyd v. Conshohocken Worsted Mills, 149 Pa. St. 363, 24 Atl. Rep. 287; American Nat. Bank v. Nashville Warehouse & El. Co. (Tenn.), 36 S. W. Rep. 960.

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Hunsaker v. Sturgis, 29 Cal. 142. 5 Warner v. Watson, 4 Misc. (N. Y.) 1 Merchants' Nat. Bank v. Richards, 12, 23 N. Y. Supp. 922.

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 notice, 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 the pledgee. After it was declared, it was the property of the pledgor, the same as was the stock. The 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 crediting it upon the note.' The pledgee certainly was not required to await the result of litigation between the pledgor and the corporation as to the amount the pledgor was entitled to upon the dividend. All the pledgee was required to do was done.""

§ 399. 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 pledgee collects from the agents of the corporation the coupons that fall due, his act is not a conversion of the bonds. The payment 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 presumed 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 collect and receive the interest as it becomes payable, and he will hold the sums collected on the same terms as he holds the


8 Savings Bank v. Middlekauff, 113 Cal. 463, 45 Pac. Rep. 840.

2 McAulay v. Moody (Colo.), 60 Pac. Rep. 778, 780.

Androscoggin R. Co. v. Auburn Bank, 48 Me. 335.

* Androscoggin R. Co. v. Auburn Bank, 48 Me. 335.

securities themselves.' It is immaterial in this respect whether the collateral security be a promissory note, a corporate bond, or shares in a corporation.

§ 400. 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 incumbrances, 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 premiums 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 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. Where the property pledged comes into the creditor's possession in an unfinished state, such that a court of chancery would order it finished 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 payment of his disbursements upon the property, before any application 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. But a pledgee has no right to manufacture finished goods from new material pledged to him, and charge the

1 Androscoggin R. Co. v. Auburn Bank, 48 Me. 335.

2 Coggs v. Bernard, 2 Ld. Raym. 909, 917; Starrett v. Barber, 20 Me. 457; Hills v. Smith, 28 N. H. 369; Furness


v. Union Nat. Bank, 147 Ill. 570, 35 N. E. Rep. 624.

Raley v. Ross, 59 Ga. 862.
McCalla v. Clark, 55 Ga. 53.

5 Rowan v. State Bank, 45 Vt. 160.

pledgor with the cost of manufacture, except by virtue of an express contract. Thus, one who has made advances to a lumberman, 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 authorized 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.'

II. His Duty to Care for the Thing Pledged.

§ 403. A pledgee is bound to use ordinary diligence in the care and custody of the thing pledged.' What diligence is required in any particular 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 ordinarily 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. That a pledgee takes the same care of the pledge that he does of his own property is not, however, the test of his liability for its loss or destruction. It is true that Sir Edward Coke laid down this rule, saying: "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 required from a


1 Boody v. Goddard, 57 Me. 602.

2 Coggs v. Bernard, 2 Ld. Raym. 909; McLemore v. Louisiana State Bank, 91 U. S. 27; Third Nat. Bank v. Boyd, 44 Md. 47, 22 Am. Rep. 35; Maury v. Coyle, 34 Md. 235; Girard

Fire and Marine Ins. Co. v. Marr, 46 Pa. St. 504; First Nat. Bank of Birmingham v. First Nat. Bank of Newport, 116 Ala. 520, 22 So. Rep. 976; Georgia Code 1895, § 2963.

Southcote's Case, 4 Rep. 83b.

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