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 customer 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 by 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 his pledge of the stock was not fraudulent and that the plaintiff's claim was barred by the discharge in insolvency.'

§ 502. Authority in the pledgee of stock 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 certain 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 jury 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

1 Wilson v. Hawley, 158 Mass. 250, Hun (N. Y.) 317; Chamberlain v. 33 N. E. Rep. 522. Greenleaf, 4 Abb. (N. C.) 178.

'Lawrence v. Maxwell, 58 Barb. (N. Y.) 511, 6 Lans. 469, 53 N. Y. 19, 64 Barb. 102; Hope v. Lawrence, 1

Lawrence v. Maxwell, 58 Barb. (N. Y.) 511.

of such evidence 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. A general custom that a broker may pledge his customer's stock for the purpose of raising money to carry it, is valid, if such custom is known to and acquiesced in by the customer. It is not unreasonable 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 general custom in such transactions, and a knowledge of such custom 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 inconsistent 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 recognizes 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 because such sale would put it out of his

1 Fay v. Gray, 124 Mass. 500.

2 Vanhorn v. Gilbough, 21 Am. Law Reg. N. S. 171. The referee, whose conclusions were adopted by the supreme court, said: "I can perceive no real objection to the validity of a general usage that a broker may use his customer's stock as collateral to carry it for the customer. Such usage contravenes no statute or principle of public policy. The customer can, of course, avoid all trouble in this respect by paying for his stock in full; but where, as here, he only pays a small percentage of its value, while his agent, the broker, must provide for

the balance, it would not seem unreasonable that the broker should for that purpose pledge it as collateral." As to the effect of stock exchange usages in general, see note to above case by Francis A. Lewis, Jr., Esq., pp. 176-181.

3 Lawrence v. Maxwell, 53 N. Y. 19; German Savings Bank v. Renshaw, 78 Md. 475, 28 Atl. Rep. 281; First Nat. Bank v. Taliaferro, 72 Md. 164, 171, 19 Atl. Rep. 364; Rich v. Boyce, 39 Md. 314; Kraft v. Fancher, 44 Md. 204, 215; Fay v. Gray, 124 Mass. 500; Oregon & Transcontinental Co. v. Hilmers, 20 Fed. Rep. 717.

power to return it to the pledgor upon payment of the debt secured.

§ 504. But 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, made with a view to settling the matter without suit, the bank claiming a lien upon the stock for subsequent loans, is not conclusive upon him or his assignee as an admission that the bank had a lien on the stock for the amount so tendered.1

A bank making a loan to a broker on corporate stock as collateral 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 authority, the owner may recover the stock from the bank.2

The more difficult question in such case is what facts are sufficient to charge the bank with knowledge that the person pledging 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 repledged 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 certificates for his own debt, and therefore 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.'

1 Talmadge v. Third Nat. Bank, 91 N. Y. 531, 16 N. Y. Weekly Dig. 487.

Westinghouse v. German Nat. Bank, 188 Pa. St. 630, 41 Atl. Rep. 734, 43 W. N. C. 349.

3 German Savings Bank v. Ren

shaw, 78 Md. 475, 28 Atl. Rep. 281; First Nat. Bank v. Taliaferro, 72 Md. 169, 19 Atl. Rep. 364; Taliaferro v. First Nat. Bank, 71 Md. 209, 17 Atl. Rep. 1036.

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. The use which the pledgee may make of the property pledged must be consistent with the general ownership of the pledgor, and consistent 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 regain the possession and restore the same to the plaintiff. A neglect 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 defendant 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 undisputed facts in this case the evidence offered and rejected was wholly imma1 German Savings Bank v. Ren- 2 Lawrence v. Maxwell, 53 N. Y. shaw, 78 Md. 475, 28 Atl. Rep. 281, 19; German Savings Bank v. Renfollowing Taliaferro v. First National shaw, 78 Md. 475, 488, 28 Atl. Rep. Bank, 71 Md. 209, 17 Atl. Rep. 1036. 281, quoting text.

terial, for at the time of the demand and the refusal 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. If, however, there is an agreement or understanding that a broker may hypothecate stocks which he is carrying for a customer upon a margin, according to the usual course of business, such use of them does not of itself amount to a conversion of them."

§ 507. 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 specific authority; and the fact that the pledgee had a greater number of shares standing 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 cancellation of the certificate pledged

Chamberlain v. Greenleaf, 4 Abb. N. C. (N. Y.) 178; Chouteau v. Allen, 70 Mo. 290. See § 503.

'Lawrence v. Maxwell, 53 N. Y. 19, Rep. 443; Morton v. Preston, 18 Mich. 23, per Allen, J. 60, 100 Am. Dec. 146; Upham v. Barbour, 65 Minn. 364, 68 N. W. Rep. 42; Hubbell v. Blandy, 87 Mich. 209, 49 N. W. Rep. 502. See Langton v. Waite, L. R. 6 Eq. 165, 18 L. T. N. S. 80; France v. Clark, 22 Ch. D. 830. See, however, § 508.

3 Van Voorhis v. Rea, 153 Pa. St. 19, 25 Atl. Rep. 800; Skiff v. Stoddard, 63 Conn. 198, 26 Atl. Rep. 874, 28 Atl. Rep. 104. 5 Allen v. Dubois, 117 Mich. 115, 75 4 Fay v. Gray, 124 Mass. 500; Allen N. W. Rep. 443. v. Dubois, 117 Mich. 115, 75 N. W.