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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 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 evidence 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 consent 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. Moreover it is incumbent upon the pledgee to show that he has always had sufficient 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, although 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


Allen v. Dykers, 3 Hill (N. Y.) Ogden v. Lathrop, 65 N. Y. 158.

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 other obligations which he could have returned to the pledgor at any time upon payment.1

§ 512. When securities belonging to several persons have been rehypothecated together as security for a single loan, the pledgee taking them should proceed pari passu in applying the securities to the satisfaction of the loan, so that each of the several owners of the securities 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 securities 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."

1 See §§ 421, 422.

* Gould v. Central Trust Co., 6 Abb. N. C. (N. Y.) 381; and see Chamberlain v. Greenleaf, 4 Abb. N. C. (N. Y.) 178; Rich v. Boyce, 39 Md. 314; Gould v. Farmers' Loan & Trust Co.,

23 Hun (N. Y.) 322; Skiff v. Stoddard, 63 Conn. 198, 21 L. R. A. 102, 26 Atl. Rep. 874, 28 Atl. Rep. 104; Whitlock v. Seaboard Nat. Bank, 60 N. Y. Supp. 611, 29 Misc. (N. Y.) 84.



I. His right of subrogation to the III. The mutual equities of co-sureties creditor's securities, 513-522. to claim the benefit of each other's securities, 534-539.

II. The creditor's equitable right to

the surety's securities, 523-533a.

I. His Right of Subrogation to the Creditor's Securities.

§ 513. 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 paying it. He is then by substitution entitled to stand in the creditor's place, in respect to the securities held by him for the payment of the debt. The surety is entitled to the benefit

v. Greene, 149 Mo. 48, 50 S. W. Rep. 809; Austin v. Belknap, 54 Vt. 495; First Nat. Bank v. Johnson, 65 Vt. 382, 26 Atl. Rep. 634.


Hodgson v. Shaw, 3 M. & K. 183, per Lord Brougham.

8 Whittaker v. Amwell Nat. Bank, 52 N. J. Eq. 400, 29 Atl. Rep. 203; Morton v. Dillon, 90 Va. 592, 19 S. W. Rep. 654.

'Richardson v. Washington Bank, 3 Metc. (Mass.) 536; Guild v. Butler, 127 Mass. 386; Johnson v. Bartlett, 17 Pick. (Mass.) 99; Murrell v. Scott, 51 Tex. 520; Sublett v. McKinney, 19 Tex. 438; Jordan v. Hudson, 11 Tex. 83; 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

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, 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.2

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 corporation, 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 can not be regarded as surviving for the benefit of the surety. This rule was applied to all obligations which are extinguished by the act of payment, such as a bond or other specialty, or a judgment. A similar rule has been adopted by a few courts in this country. A recent statute in England, however, enacts the rule of equitable subrogation to the debt.

5 Sheldon on Subrogation, § 87; Sublett v. McKinney, 19 Tex. 438; Lumpkin v. Mills, 4 Ga. 343.


Copis v. Middleton, Turn. & R. 224; Hodgson v. Shaw, 3 M. & K. 183, 190.

7 As in Massachusetts, Vermont, Ala'Perrine v. Mobile Ins. Co., 22 Ala. bama and Nevada; Sheldon on Subro

gation, § 138.

'Lake v. Brutton, 8 DeG., M. & G. 440.

2 Mathews v. Aikin, 1 N. Y. 595; Hughes v. Littlefield, 18 Me. 400.

3 Klopp v. Lebanon Bank, 46 Pa. St. 88; Young v. Vough, 23. N. J. Eq. 325.


19 & 20 Vic., c. 97, § 5.

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 afterwards compel the debtor to make such transfer.1

But after being subrogated to the securities held by his principal, the surety is not required to exhaust those securities before obtaining judgment against his principal for the amount of the debt paid by him."

§ 514. The foundation of this equity is that any fund placed by the principal debtor in the hands of the creditor or of any surety is a trust to be administered for the benefit of all the parties to the compact. In a recent case before the suprme 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 multiplicity 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 advantage 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 conformable to the presumed intent of all the parties to the arrangement, that the fund so appropriated shall be administered as a trust for all the purposes which a payment of the debt will accomplish; 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

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1 McCoy v. Wilson, 58 Ind. 447. 3 Hampton v. Phipps, 108 U. S. 260, 'Maffat v. Greene, 149 Mo. 48, 50 S. 2 S. C. Rep. 622, 624. W. Rep. 809.


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